Why Rothbard Is Not Representative of the Austrian School

Modern libertarians and anarcho-capitalists like to play revisionist history with the Austrian School of economics and pretend that Murray Rothbard was a pure Austrian. If you ask modern libertarians, Rothbard is the guiding light of the Austrian School. However, the reality is that laissez-faire fundamentalism is not an essential characteristic of the Austrian School of economics. The Austrian School laid the foundation for "classical neoliberalism," ordoliberalism, and the German social market model. The hallmarks of classical neoliberalism were the rejection of the doctrine of laissez-faire, the insistence on the need for government to create the rules and framework within which a market can function optimally, and the insistence on the need for a welfare state based on social insurance. And F.A. Hayek, the best known of the Austrian economists, was among the founders of classical neoliberalism.

Carl Menger, the founder of the Austrian School, was a supporter of progressive taxation. Friedrich von Wieser advocated government regulation of the economy and a progressive income tax. Carl Menger's brother was the chair of the Habsburg government's tax commission in the 1890s. The commission was overseen by Eugen von Böhm-Bawerk, Friedrich von Wieser, and Emil Sax, all of whom supported and wrote in defense of the idea of a progressive income tax. So, the founders of the Austrian School actually gave the Habsburg Empire its first-ever progressive income tax.

F.A. Hayek was a second-generation Austrian School economist. He followed in the footsteps of the preceding generation with regard to seeing a significant role for government. He advocated "isonomy" and the "rule of law," by which he means that government should create rules and regulations that apply equally to all and create a framework that allows for individuals to plan effectively — i.e. government ought not to arbitrarily intervene in the economy but rather should make known beforehand under what conditions it will intervene. This is one of Hayek's unique contributions and this insight heavily influenced both neoliberal and ordoliberal thought. Hayek also advocated a free-market welfare state based on social insurance. He supported some sort of single-payer healthcare system and some sort of minimum income guarantee. Hayek held that we ought to create a comprehensive system of social insurance to prevent anyone from falling into poverty. Hayek did, however, depart from his predecessors in opposing the idea of a progressive income tax. His argument against it was based on his ideal of "isonomy" and his conviction that laws ought to apply equally to all.
Another Austrian economist, Joseph Schumpeter, had argued that capitalism was doomed to fail as a result of its own creative destruction and failure to maintain full employment in the long term. The destructive side of capitalism is the flipside of its success and Schumpeter predicted that this would lead to its inevitable collapse. Samuel Hammond has suggested that a free-market welfare state such as that envisioned by Hayek is the only way to save capitalism from itself.

It was Ludwig von Mises who ended up straying away from the neoliberalish tendency within the Austrian School and, consequently, leading subsequent Austrians in the direction of laissez-faire fundamentalism. Like Hayek, Mises was not in favor of a progressive income tax. However, unlike Hayek, Mises rejected the idea of social insurance and welfare in general. But, even Mises recognized a major role for government. Mises rejected anarchism and held that the State as a "social apparatus of coercion and compulsion" was necessary to maintain civilization. He even went so far as to reject the idea that the State is a "necessary evil," arguing instead that government is "the most beneficial of all earthly institutions."

It was Mises' student Murray Rothbard who first introduced "libertarianism" and "anarchism" into the Austrian School. Rothbard had actually borrowed the term "libertarian" from the Tuckerite individualist anarchists of the 19th Century, a group of libertarian socialists that had advocated laissez-faire. Following in the footsteps of Benjamin Tucker, Rothbard advocated the abolition of the state and its replacement with private police and private courts. However, unlike Tucker who rejected fee-simple and allodial property in regards to land, Rothbard upheld allodial property rights. Like Tucker, Rothbard held that the private sector could take over all the necessary functions of the public sector. One of Rothbard's unique contributions was his rejection of the idea of natural monopolies. In Rothbard's mind, there are no market failures. Hayek and Mises both rejected Murray Rothbard's idea of "anarcho-capitalism," holding that strong government is necessary in order for a market system to exist and function. As an early theorist in the neoliberal tradition, Hayek had explicitly rejected the doctrine of laissez-faire and so cannot be considered "libertarian" in the Rothbardian sense. While Mises supported laissez-faire, he rejected the anarchistic ideas of Rothbard. The Austrian School had been founded in 1871 and had existed for an entire century before Rothbard came along and introduced his laissez-faire fundamentalists anarchist ideas. However interesting Rothbard's ideas may have been, they should not be taken as representative of the Austrian School. The Ludwig von Mises Institute (LvMI) has essentially been doing revisionist history when it comes to the history of Austrian School economics itself.

The classical Austrian School thinkers — Menger, Böhm-Bawerk, Wieser, Hayek, et al. — were essentially Burkean conservatives. They didn't distrust the State, nor did they oppose taxation and "welfare" in general. They merely argued that there is often wisdom in historical institutions and that the market system exemplified one such institution. And, through F.A. Hayek, the Austrian School had a profound influence on ordoliberalism and the German social market economy philosophy. It would be much more accurate to paint Wilhelm Röpke, Walter Eucken, and Alexander Rüstow, as heirs to the Austrian tradition than to view Rothbard as a true heir to Menger. Samuel Hammond and the Niskanen Center are more aligned with the views of Hayek than anyone at the LvMI ever was.

The Austrian School of economics did have some unique defining characteristics that set it apart, but it's hard to find any pure Austrians anymore because the core insights of the Austrian School have been integrated into economics in general. The Austrian School gave us the subjective theory of value, marginalism, the calculation problem, the knowledge problem, methodological individualism, and the idea that economics is a branch of sociology/praxeology. No credible economist believes in the labor theory of value or the viability of central planning and this just demonstrates that the Austrian School has gone mainstream. There is no pure Austrianism anymore but the LvMI is certainly much further from pure Austrian than the Niskanen Center or Cato Institute are, but even the folks at the Cato Institute would see the ideas of Menger and Wieser on progressive taxation as altogether anathema. The LvMI is anti-policy and sees no role for the government, whereas the OG Austrian economists were policy wonks.