This file is a single short polemical essay in political economy. Rothbard uses the 1991 Salomon Brothers Treasury-bond scandal as an occasion to reverse the expected moral narrative: the real scandal, he argues, is less Salomon’s rule-evasion than the privileged structure of the government bond market and the deeper burden of public debt.
Rothbard begins by acknowledging the popular drama of the affair, especially the fall of Wall Street elites and the arrival of Warren Buffett as savior-figure.
Financial scandals are juicy, dramatic, and fun, especially when they bring down such arrogant and aggressive social lions as Salomon Brothers head, John Gutfreund and his crew.
But this theatrical opening is quickly deflated. Rothbard’s first conceptual move is to distinguish fraud from regulatory violation. Salomon’s effort to evade limits on Treasury-auction purchases does not, for him, justify public hysteria; the rules themselves are arbitrary. The act he does condemn is the unauthorized use of customer names.
The only thing clearly beyond the pale done by Salomon Brothers was to sign its customers’ names to bond orders without their knowledge or consent.
Even here, however, Rothbard frames the fraud as secondary to the regulatory system that made it useful. The essay’s structure turns from the “bit of hanky-panky” to what he calls the deeper, unmentioned scandal: state-created privilege in the Treasury market.
This fuss was made possible by a much more deeply-rooted scandal which no one has denounced: the fact that the U.S. Treasury has, for decades, conferred special privilege upon a handful of government bond dealers, whom it has picked out of the pack and designated as “primary dealers.”
The argument thus moves from moral outrage at private misconduct to institutional critique. Rothbard sees the “primary dealers” system as cartel-like: a closed partnership between Treasury and large bond houses that advantages insiders and harms smaller competitors. His target is not market speculation as such, but the fusion of state finance and selective privilege.
The essay then widens again. The primary-dealer cartel matters because the government bond market itself has become enormous, absorbing savings that might otherwise fund private investment. Rothbard’s Austrian-libertarian premises are most explicit here: government borrowing is not neutral financial plumbing but a diversion of capital from productive use to state expenditure.
But a flourishing government bond market means a market starved for private capital and credit; it means that increasingly, private savings are being siphoned away from productive investments and into the rathole of wasteful and counter-productive government expenditures.
From this follows his provocative inversion of conventional policy aims. Whereas Congress and regulators seek a cleaner, smoother bond market, Rothbard doubts that efficiency in financing state debt is desirable. A malfunctioning government bond market may be socially beneficial if it limits the state’s access to savings.
Rothbard then sketches two reforms. The moderate one is a return to British-style perpetual debt, or consols, so that government need not constantly redeem and reissue principal.
One beneficial reform would be to return to the route of Britain in the 19th century, where much government debt was due not in six months, or five years, or twenty years, but was permanent debt, or “consols,” that never came due at all.
The radical alternative is Jeffersonian repudiation: erase the debt and accept the loss to bondholders in exchange for relief to taxpayers and capital markets. Rothbard treats the likely consequence—that lenders would distrust the Treasury—not as a disaster but as a constitutional blessing against statism.
Surely a world where people refuse, for one reason or another, to trust or invest in the operations of government, would be a world happily inoculated against the temptations of statism.
The essay’s relevance lies in its refusal to separate financial scandal from political structure. Rothbard’s core move is to redirect attention from individual malfeasance to the state institutions that create privileged markets, then from privilege to the public debt system itself. The Salomon episode becomes a symptom of a broader political economy in which regulation, cartelization, and state borrowing reinforce one another.
The conclusion is characteristically anti-statist: Congress should not respond with more regulation but by abolishing privilege and shrinking the government’s role in capital markets.
Once again, the best way for government to benefit the economy is to disappear.
This work was divided into 1 sections when it entered the library's research corpus—an apparatus for search and citation, not necessarily the author's own table of contents. Each title opens its summary.
Put a question to this work; the Librarian answers from its 1 sections and cites the passage.
Ask the Librarian