Review: The Public Choice Theory of Murray N.

Rothbard, a Modern Anarchist

Author(s): H. E. Frech III
Source: Public Choice, Vol. 14 (Spring, 1973), pp. 143-154
Published by: Springer
Stable URL: http://www.jstor.org/stable/30022711
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 THE PUBLIC CHOICETHEORY OF MURRAY N. ROTHBARD,
A MODERN ANARCHIST*

H. E. Frech ///

In recent years, a small but growingradicalintellectualmovement has gained

a degree of prominence. The members of this loosely defined group are very
dissatisfied with the power of the modern State. Consistingof conservativeswho
have become disillusionedwith conservativepolitical figures and new Leftists who
have become disillusioned with governmentpower, the movement uses labels like
radical libertarianism,anarchism,and anarchocapitalism.Although not all of those
in this smallgroup are anarchists,the anarchistsare an importantinfluence.

One of the key intellectual leaders of the movement is MurrayN. Rothbard,

who is one of the few U.S.-trainedanarchisteconomists. For severalyearshe edited
a publication called Left and Right which was designedto pull libertarianelements
of both groups together. Until recently he sharedthe editorshipof the Libertarian
Forum with KarlHess, a New Left anarchistwho once was a speechwriterfor Barry
Goldwater. Rothbard acknowledgesan intellectual debt to the Austrianschool and
to his mentor Ludwig Von Mises, although his analysis differs in many ways from
that of Von Mises.

Rothbard's challenging and unorthodox professional writings span a wide

range of public choice topics including the stateless society, criticisms of public
choice theorists,the theory of the State, democracy,externalitiesand public goods,
monopoly, human and property rights, public and private coercion, and econo-
mists' value judgments. His analyses are not always correct but they are often
originaland invariablystimulating.This paperprovidesa criticalreviewof Professor
Rothbard'slittle known public choice theories.

The Stateless Society

In discussing the necessity of government, Rothbard (1970a, Ch. 1) begins

with an excellent critique of the standard arguments for the necessity of
governmentto settle conflict.

First, a typical statement would hold that the state is necessaryto define and
initially allocate property rights. Rothbard suggests the allocation of initial
propertyrights to those who find and transformnaturalresourcesby their labor.
University of California, Los Angeles and the National Center for Health Services
Research and Development, DHEW. Thanks are due to Paul B. Ginsburg, Michigan State
University, for many helpful comments on earlier drafts. The views expressed here are not
necessarily those of either affiliated institution.

143
144 PUBLIC CHOICE
A single, ultimate arbiter of conflicts (e.g., the U.S. Supreme Court) is
considered non-essential.1 Citizens of different countries maintain successful
relations without a final arbiter over them. In relation to each other, individuals of
one country and individuals of another country exist in anarchy.

The danger of a free-market defense and property right enforcing agency

turning its physical power to criminal uses, perhaps colluding with a free-market
court of law to make fraudulent decisions is considered. He agrees that some such
organizations will become criminal. Rothbard is not a romantic utopian, believing
that men will suddenly become full of goodness in a stateless society. The analysis
is interesting precisely because he does not believe that conflicts of interest will
evaporate when the State is abolished. He argues that in a stateless society:

... there would be no regular, legalized, channel for crime and

agression, no government apparatus the control of which
provides... for invasion of person and property ... a would-be
criminal police or judiciary would find it very difficult to take power,
since there would be no organized State apparatus to seize . . . To
create such an instrumentality de novo is very difficult . . .historically,
it took State rulers centuries to establish a functioning State apparatus
(1970a, p. 5).
The author then argues that the checks and balances resulting from the existence of
freely competitive defense agencies and judiciaries provide stronger protection than
those of the American governmental system, where, after all, the institutions are
agencies of the central government.

Rothbard's model of free-market defense and conflict settlement is interest-

ing. If Smith believes that he has been injured by Jones, he files suit or presses
charges within his own voluntary defense agency. Smith's defense agency holds a
trial. If Jones disputes the verdict, there will be another trial either in a competitive
Appeals Court or in the defendant's (Jones') defense agency's court. The Appeals
Court decision or that of Jones' defense agency, if it agrees with Smith's agency,
may "then be taken by the society (italics added) as binding." For as Rothbard
notes:

Every legal system needs some sort of a social-agreed upon cutoff point,
a point at which judicial procedure stops and punishment against the
convicted criminal begins. (1970a, p. 5)

Further, in a footnote he asserts that:

1However, as we shall see, Rothbard's own model of a voluntary society contains such a
final arbiter.
 REVIEW ARTICLE 145
The Law Code of the purely free society would simply enshrine the
libertarian axiom: prohibition of any violence against the person or
property of another (except in defense of someone's person or
property) ... and the implications of this axiom. The Code would then
be applied to specific cases by the free-market judges, who would all
pledge themselves to follow it. (1970a, p. 197)

Thus, Professor Rothbard seems to accept the point made by Hayek, that a free
society must be one under the rule of law so that the use of force is predictable
(1944, 1970).

However, the agent which applies this law when there is a dispute is
"society," which acts when two courts agree, and accredits legitimate courts, or
decides how to initially allocate property on the basis of Rothbard's principle of
first use.2

But the principle of first use is not a clear rule. What constitutes first use of
land? Setting foot on a continent? Hunting? Growing crops? What proportion of
the land one claims must be physically used? There is no immediately obvious rule.

The tasks of settling conflicts at this highest level of decision (the "society"
level) are going to be formidable, even with many decisions being made at lower
levels in the competitive court system. But we are told that "there is no such thing
as 'society' apart from its constituent individuals" (1970a, p. 214, fn. 15). What
then is this mysterious "society" which performs the function of ultimate arbiter?
There can be only one answer. Rothbard's society is simply an unorganized group
of individuals who threaten to use force against anyone who violates a widely held
principle or interpretation. Further, this group has a monopoly in the sanctioning
or use of force. Although this group is unorganized and may vary in composition
according to the issue at hand, it meets the definition of a government. Professor
Rothbard has provided us with a highly imaginative model of a civilization which
has no monopoly in the supply of defense services but it is not a model of a
stateless society.

Another problem arises within this model of free market defense supply.
Clearly certain kinds of defense are at least partially public goods wherein exclusion
is difficult. For example, if one private defense agency sets up a defense against
nuclear missiles, it cannot exclude non-subscribers from the benefits provided.
Thus, the classic free-rider problem will arise for some kinds of defense, leading to
(perhaps catastrophic) underproduction of some defense services. Rothbard's

2Accrediting may be difficult since courts would have an incentive to favor members of
their own defense organization.
146 PUBLICCHOICE
consistent misunderstandingof the importanceand consequencesof the free-rider
problem leads to his neglect of this collective good aspect of defense and other
goods as well.

Criticismof PublicChoice Theorists

Public choice theorists Anthony Downs, James Buchanan and Gordon

Tullock, who have broughteconomic analysisto bearon the actions of government
and democracy, come in for specific criticism. Rothbard asserts that these
economists are very wrongin:

... regardinggovernmentas simply anotherinstrumentof social action,

very much akin to action on the free market... My view is virtually
the reverse,for I regardgovernmentaction and voluntarymarketaction
as diametric opposites, the former necessarily involving violence,
aggressionand exploitation, and the latter being necessarilyharmoni-
ous, peaceful and mutuallybeneficialfor all. (1970a, p. viii)

Aside from the recurringdifficulty that Rothbard'smodel containsno externalities

and no monopolies, this passage betrays a thorough misunderstandingof an
importantmessagein the recent public choice literature.

The scholar memtioned by Rothbard do argue that government action

should be treated like behavior in the market- but not in the sense that it is
mutually beneficial to all participants. Indeed the literatureis clear on the point
that governmentaction usually involveslosers as well as gainers.Typically the losers
are quite well identified in the model as the bulk of society, often in a consuming
role, while the gainers are members of a small interest group - commonly the
producersof a specific product (Buchananand Tullock, 1962, ch. 19, Olson, 1971,
pp. 165-168 and Downs, 1957, pp. 252-257).

These theorists have argued that government action should be treated

similarly to market action only in the sense that standard models of rational
individualchoice should be applied to individualsin their relationsto government.
One should not treat the same men as self-interestedin the market and perfect
altruists pursuing the "public interest" when functioning as politicians or voters
(Buchanan and Tullock, 1962, ch. 4, Downs, 1957, pp. 282-283). Tullock (1971)
informativelyuses the same assumptionin examiningrevolutions.

Rothbard's own theory assumes that individuals as voters and politicans

pursue their own interest at the expense of others. In this regard,he is applying
standardmodels of rational choice to governmentas well as to marketaction. And
 REVIEW ARTICLE 147

only in this assumption can one accuse the public choice theorists of treating
government as being "very much akin to market action."

ExploitationTheoryof the State

The essence of Rothbard's theory of the State is given in this statement: "(In)
all instances of intervention ... one set of men gains at the expense of other men"
(1970a, p. 13). His is an exploitation theory, but it is very different from Marx's.
For Marx held that there were classes created by the market, one of which used the
machinery of the State to further its interests. Rothbard, however, believes that the
relevant classes are created by government action - the exploiters being those
within and without the government who gain from the activity while the exploited
are those who lost by it. In this conception, these groups are constantly shifting as
different individuals switch positions on different issues.

The unequivocal statement that coercion can never improve everyone's

welfare is based on Rothbard's strange theories about the absence of free market
monopoly and the unimportance of externalities, which are discussed below.
However, we can reformulate his theory to say that the possible benefits of
coercion are always outweighed by the costs of government operation, especially
the opening up of areas where purely exploitative government action can be
expected to occur. In terms of the Buchanan and Tullock (1962) analysis of
collective decision making, the external costs incurred by individuals in allowing
less than a unanimity rule for decision-making are so high that the optimal rule is
always unanimity (a perfectly voluntary system). Further, Rothbard hints at an
analysis close to Tullock's (1967, 1970) when he discusses the "scramble to be a
net gainer rather than a net loser" (1970a, p. 12). As Tullock points out, the
scramble involves considerable resource costs.

Leaving the issue of whether or not State action can ever be beneficial to all
citizens we can turn to the theory of the actual operation of the State. Rothbard's
analysis of the actual operation of the State is in the spirit of the analysis of the
actual operation of the State is in the spirit of the analysis of public choice
theorists, with the one important exception of constitutional choice, to which we
will return. He insists on analyzing State action in terms of the private gains and
l6sses of the citizens, rather than in terms of the idealized government model so
thoroughly demolished by such theorists as Downs (1957, ch. 15) and Buchanan
and Tullock (1962, chs. 3, 4). Thus Rothbard sees most government action as a
grant of special privilege to some group.
He considers safety and quality standards, child labor laws, minimum wage
laws, unemployment payments, conservation laws, patents, traffis, public utility
148 PUBLICCHOICE
regulationand antitrustlaws to be governmentgrantsof monopolisticprivilege.The
author's view of economic regulationas a method of using the power of the State
to exclude competitiorsanticipatesStigler'stheory of regulation(1971).

The State typically intervenesin behalf of a few (say the producersof a good)
against the many because the minority which will be affected a great deal expends
considerable time becoming informed and influencing policy while the majority
which is affected but little per person does nothing (Rothbard, 1970a, pp. 16,17,
153, 154). As Downs (1957, ch. 13, 14) has shown, this is rational behaviorfor
citizens of a democracywhen informationis costly.

Omission of constitutional choice is a serious weakness in Rothbard'swork.

For, as Buchanan and Tullock (1962) have shown, the considerations in an
individual's choice calculus are quite different for constitutional as opposed to
government operating decisions. Clearly, at the operating level, individualswill
support governmentaction on the basis of the privatebenefits accruingto them, as
in Rothbard's dicussion of State behavior.But, when consideringthe rules under
which the governmentis to operate, each individual,not knowinghow the rules are
going to work out in terms of his private benefit, will choose rules in line with the
general interests of society. Although Rothbardis correct that for each operating
decision of a government,some gain and some lose, at the constitutional level, all
may support the governmentbecause all correctly expect to gain in the net effect
of the multitude of issues which will be acted upon.

Democracy and Voting Schemes

In his analysis of democracy and voting schemes, Rothbard discusses the
technical issues of direct versus indirect democracy, and the ephemeralnature of
the "will" of the people. He states that the most powerfulargumentfor democracy
is that democratic process provides for peaceful change of government.However,
Rothbardstates that:

... this argument.., .completely overlooks the possibility of the

nonviolent overthrow of the government by the majority by civil
disobedience, i.e., peaceful refusal to obey governmentorders. (1970a,
pp. 144, 145)

But the reason this possibility is not given serious considerationby many political
scientists or economists is that such a peaceful revolution would face a great
free-rider problem. The revolutionists would face serious danger (in truly
authoritariansocieties, probably death), while those agreeingwith the revolution
could share in its benefits without personal risk. Political action in a
democracy
 REVIEW ARTICLE 149
faces a similarfree-riderproblem, but the consequencesof political opposition to
the rulingparty arefar less serious.

Indeed, as Tullock's recent paperhas shown, revolutionswill not normallybe

able to enlist very much of their support from the generalpopulace. Because any
individualwould benefit from a revolution whether or not he took part, he has the
incentive to participate only if he gets some private gain from it (e.g., a job or
position of power) (Tullock, 1971).

In fact, Rothbard's model for nonviolent revolution is inconsistant with his

analysiselsewhere of the nature of governmentaction. The bulk of his most recent
book is devoted to demonstratinghow most governmentactions were promoted by
and benefit a small group at the expense of a largergroup which is unable to
organizeto oppose the measures.His revolutionarymodel requiresthe opposite.

Pursuingthe argument that democracy's most important virtue is peaceful

change, Rothbard, apparently tongue in cheek, proposes a novel model of
democracy which is designed to completely eliminate the need for revolution by
assuringthat the faction which would win a revolutionwill alwayswin at the polls
(1970a, pp. 145-147). The voting system would not allow votes to women or the
old or infirm but would allow pluralvoting for those militarily trained and voting
would be made more difficult. Interestingly,if we look at voting systems in early
democracies,we see that women did not vote, that voting was more difficult and
that only property owners could vote. It seems quite likely that property owning
males were more likely to be willing and able to fight and to hire others to assist.
Perhapsgovernmentswhich are subject to revolution will tend to institute a voting
system which is reasonablyclose to Rothbard's"bullet-substitute"system.

Theory of Externalities and Public Goods

According to Professor Rothbard, "interdependenciesare all around us and

there is no rational way to isolate a few servicesand call them collective" (1956, p.
258). He then gives the example of the economies of mass production which
become possible for each consumer only because of all the purchases of other
consumers.The errorhere is simple. Externalitiesare relevantat the marginonly.

Further, his analysis of the general public good problem shows a lack of
understandingof the key free-riderproblem: ". . . where some consumersare not
satisfied with the market production of some (public) benefit, they are at perfect
liberty to subsidizethe investors themselves" (1970b, p. 890). He makes a similar
assertion concerning a cartel pricing (1970b, p. 570) where he argues that
consumerscould bribe producersto produce the efficient quantity.
150 PUBLIC CHOICE
The crucial point which Dr. Rothbard seems so intent on missing is that the
costs of transactions in the market are not zero. In the case of a public good with
imperfect exclusion, fantastic bargaining costs would have to be incurred. Thus,
individuals may all be made better off by agreeing to be coerced.

The related argument that since coercion causes someone to alter his activities
and thus is against his interest is based on a simple fallacy. As Baumol points out
(1965, pp. 181, 182), the choice is not between restriction and non-restriction of
one person's activity, but between restriction and non-restriction of many person's
activities simultaneously. If the activity in question is very harmful (e.g. pollution
of a common air basin), each individual could be made better off by a general
restriction.

Rothbard's attempted rebuttal repeats his error:

If the decision were truly voluntary, no tax coercion would be

necessary-people would voluntarily and publically agree to pay their
share of contributions to the common project. (1956, p. 256)

Theoryof Monopoly
Rothbard's treatment of monopoly is a novel one. He argues that "the theory
of monopoly price is illusory when applied to the free market" (1970a, p. 29), but
that it does apply to government grants of monopoly power. This theory of the
impossibility of monopoly price in the free market results from his belief that the
competitive price is not conceptually identifiable, while the free market price is.

Rothbard argues that marginal cost considerations vary for different time
periods, thus "there is no simple, determinant 'marginal cost' " (1970b, p. 612).
The marginal cost of standard monopoly analysis is the long run marginal cost,
which is analytically quite determinant. Choice-relevant cost may not be observable
in general (Buchanan, 1969), but monopoly clearly results in lower output and
higher prices.

It is interesting that Von Mises, whom Rothbard claims as his mentor,

suffered from no such blindness to free market monopoly. Von Mises argues that
"monopoly prices are an important market phenomenon" (1966, p. 278) and that
while "as a rule. .. monopoly... is brought about by government action" (p.
361), "some world cartels would exist even in the absence of any government
interference" (p. 366). Most importantly, Von Mises is full aware of the harm done
to the consumer by voluntary monopoly:
 REVIEW ARTICLE 151

(The consumer) is not so well served under monopoly prices as under

competitive prices ... Capital and labor which are withdrawn from the
production (with) ... monopolistic restriction . . . are employed for the
production of other things... But the consumers value these other
things less. (p. 385)

Rothbard's view that free-market monopoly is not even identifiable, much

less harmful to consumers, plays an important part in his exploitation theory of the
state.

HumanRightsas PropertyRights

At his best in this discussion, Rothbard masterfully demonstrates that "there

are no rights but property rights" (1970a, p. 176). The fact that all human rights
such as free speech or freedom of assembly can be boiled down to property rights
has been obscured by government ownership of such facilities as streets. Conflicting
interests concerning the use of the streets for assembly or automobile travel can
only be solved arbitrarily. If ownership were private, it would be clear that no right
of assembly existed - only the right to rent or buy space for a meeting would exist.

Professor Rothbard's analysis of the classic case for the limitation of

individual rights by public policy is splendid. Consider Justice Holmes' famous
statement that no man can have the right to cry "Fire!" in a crowded theater.
Crying "Fire!," whether by a patron or by the theater owner, is a violation of
property rights. If the owner, or his agent cries "Fire!," he is depriving the patrons
of their rights, resulting from the owner's promise, to see a show of some sort. If
another patron shouts "Fire!" he is denying the right of the owner to put on his
show. Thus:

The person who maliciously cries "Fire!" in a crowded theater . . . is a

criminal, not because his... "right of free speech" must be prag-
matically restricted on behalf of the . . . "public good", but because he
has clearly and obviously violated the property rights of another human
being. (1970a, p. 177)

EconomicPower: CoercionPublicand Private

In clarifying the nature of the State, Rothbard excellently sharpens the

language, which is so often used as a blunt weapon by economists and political
philosophers. Private coercion is based on a change in the terms of, or refusal to
make, an exchange. But government coercion is ultimately based on violence or the
threat of violence. This passage points out the distinction:
152 PUBLICCHOICE
A refuses to make an exchangewith B (perhapsby laying him off from
his job) ... B brandishesa gun and ordersA to make his exchange ...
either B is committingviolence and should be stopped at once, or ... B
is perfectly justified in taking this step because he is simply "counter-
acting the subtle coercion" of economic power wielded by A. (1970a,
pp. 169-170)

Thus, economic power is the power held in varyingdegreesby everyone, to make or

not to make voluntary exchange. This power is very differentfrom the threatened
or actual use of physicalforce which forms the basis of the State.

Economics,Economists,Valuesand PublicPolicy
Rothbard has an interesting theory of the usefulness of economics which
provides, by extension, an explanation for a bias toward State intervention. The.
economist in a free market can explain the workings of the market,but little else.
Rothbard's comments on the ability of economists to forecast are not compli-
mentary:

...(the economist) is of little aid to the businessman.He cannot forecast

future consumerdemandsand future costs as well as the businessman;
if he could, then he would be the businessman.The entrepreneuris
where he is precisely because of his superiorforecastingability on the
market. (1970a, p. 189)

But government actions require more difficult and longer chains of theoretical
reasoningto enable the decision-makerto evaluatetheir consequences.Further,the
economist is "indispensableto any citizen who framesethicaljudgmentsin politics
because ethics is dependent on the actual effects of actions." The political
economist is very valuable. Thus, by extension of Rothbard's analysis, the
economics profession has vested interests in government intervention.This holds
true even if economists were neverto be employed or subsidizedby the State itself.
Perhapsthis explains the common observationthat economists are so often found
defending the status quo. Closely related is the author's provocativediscussion of
economics and implicit moralizing.

In Rothbard's view, economists cannot absolve themselves of the respon-

sibility for makingvalue judgments when pronouncingon public policy by simply
adopting the values which they attribute to the community. He claims that,
"... uncriticallyadheringto all the prevailingethicaljudgmentsis simply to engage
in apologeticsfor the status quo" (1970a, p. 191). In this conception the economist
who advises on the best way to achieve a certain goal is thereby
 REVIEW ARTICLE 153

committing himself to that goal. Economists cannot escape by assuming that

everyone's ends are ultimately the same. Clearly, some ends, such as the desirefor
power over men, cannot be simultaneouslyachievedby many individuals.

But Rothbard overstateshis case. Advisingon the least-costway to achievea

goal may only signify that the advisoris againstwaste. This is especiallytrue if the
advisorbelieves that the choice of a goal is insensitive to his impact on the cost of
achievingthe goal.

Summary and Conclusions

The case against the State presented by Rothbard is very disquieting. His
frustrating misunderstanding of the problems of monopoly and externalities
weakensthe argument,but one can easily reformulateit in a more elegantway: The
costs of State action are so great that they outweigh any possible improvementof
efficiency from reducingmonopoly or internalizingexternalities.

Clearlythe mass murdersand warsand enslavementswhich have been carried

out throughout history by States exceed by a wide marginthe ill effects of private
enterprise crime. And if we look at government activities within a relatively
civilized democracy like the U.S., we see that most governmentaction benefits a
small group at the expense of a larger group (e.g. tariffs, subsidies, occupational
licensure). The assertion that the net benefits of many governmentactivities are
negative is not an easy one to reject, however radical it may sound. However,
Rothbardhas not demonstratedthe possibility of a statelesssociety.

REFERENCES

1. Baumol, William J., Welfare Economics and the Theory of the State, 2nd
edition, Harvard University Press, Cambridge, Massachusetts, (1965).

2. Buchanan, James M., Cost and Choice: An Inquiry in Economic Theory,

Markham,Chicago,(1969).

3. Buchanan,James M. and Gordon Tullock, The Calculusof Consent: Logical

Foundations of Constitutional Democracy, University of Michigan
Press, Ann Arbor, (1962).

4. Downs, Anthony, An Economic Theory of Democracy, Harper & Row, New

York, (1957).

5. Hayek, Friedrich A., The Road to Serfdom, University of Chicago Press,

(1944).
154 PUBLIC CHOICE
6. , The Constitution of Liberty, University of Chicago Press,
(1960).

7. Olson, Jr., Mancur, The Logic of Collective Action: Public Goods and the
Theory of Groups, Revised edition, Schocken, New York, (1971).

8. Rothbard, Murray N., "Toward a Reconstruction of Utility and Welfare

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9. , "The Mantle of Science," in Scientism and Values, Helmut

Schoeck and James W. Wiggins, editors, D. Van Nostrand, Princeton,
New Jersey, (1960), pp. 159-180.

10. Power and Market: Government and the Economy, Institute

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for Humane Studies, Palo Alto, California, (1970a).

11. Man, Economy, and State: A Treatise on Economic Principles,

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2nd edition, Nash, Los Angeles, (1970b).

12. Stigler, George T., "The Theory of Economic Regulation," Bell Journal of
Economics and Management Science, Vol. II, No. 1, Spring 1971, pp.
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13. Tullock, Gordon, "The Welfare Costs of Tariffs, Monopolies and Theft,"
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14. ,"The Cost of Transfers," Kyklos, XXIV (fasc. 4,

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15. "The Paradox of Revolution," Public Choice, Volume XI,
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16. von Mises, Ludwig, Human Action, 3rd edition,

Henry Regnery, Chicago,
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