New Light on the Prehistory of the Austrian School — Summary

Rothbard’s essay is a historiographical reconstruction of Austrian economics before Menger. Its central claim is that the older Smith-centered story of economic thought collapsed under twentieth-century scholarship: rather than founding economics, Smith and Ricardo diverted it from a much older subjectivist line.

In fact, the new view saw Smith and Ricardo, not as founding the sciences of economics, but as shunting economics onto a tragically wrong track, which it took the Austrians and other marginalists to make right.

Rothbard presents Schumpeter as the figure who opened this revision, but he gives greater weight to scholars such as Marjorie Grice-Hutchinson, Raymond de Roover, John Baldwin, David Herlihy, and Emil Kauder. Their work lets him trace themes later associated with Austrian economics—subjective value, marginal utility, scarcity, mutually beneficial exchange, market price as social estimation, and causal analysis from wants—back through Aristotle, the medieval Scholastics, Salamanca, and Continental writers.

The first major recovery is the School of Salamanca. Against the view that Scholastic just-price doctrine rested on labor or production cost, Rothbard emphasizes that Spanish theologians increasingly identified just price with the market price formed by common estimation. Luis Saravía de la Calle is crucial because he explicitly denies that costs determine value.

The just price is found not by counting the cost but by the common estimation.

Rothbard treats this as part of a larger subjectivist tradition rather than an isolated anticipation. Covarrubias, García, Azpilcueta, de Soto, Mercado, Bañez, and Molina are presented as developing scarcity analysis, supply and demand reasoning, and monetary theory. Their discussions of inflation and exchange rates are important because they extend value theory to money itself: money, like other goods, varies in value according to demand and relative abundance.

De Roover’s medieval research deepens the argument. Rothbard highlights Buridan, Aquinas, San Bernardino, Sant’ Antonino, and Olivi as thinkers who analyzed exchange as mutually advantageous and price as emerging from buyers’ valuations. He also notes limits: Scholastic acceptance of market price did not always imply laissez-faire policy, and some writers still accepted price regulation. Even so, the conceptual line matters more than the policy inconsistencies: utility, scarcity, and desirability explain value more fundamentally than embodied labor.

The essay then follows the transmission and partial obscuring of this tradition. Grotius and Pufendorf absorbed Scholastic ideas while detaching them from their Catholic sources. In Britain, Carmichael, Hutcheson, Smith, and Ricardo helped shift political economy toward labor and cost theories. On the Continent, however, especially in Catholic and French-Italian contexts, subjectivist analysis survived in Galiani, Condillac, Turgot, the physiocrats, and Say. Condillac’s reversal of cost theory captures Rothbard’s point:

A thing does not have value because it costs, as people suppose; instead it costs because it has a value.

Kauder’s contribution is to connect this prehistory with the Austrian school itself. Rothbard stresses Kauder’s claim that Austrian marginalism differed from Jevons-Walras marginalism because it retained an Aristotelian causal-realistic method. Menger’s economics was therefore not merely marginal utility without equations; it was a theory beginning with human wants, choices, and causal explanation.

For Wieser, Menger, and especially for Böhm-Bawerk the wants of the consumer are the beginning and the end of the causal nexus.

The essay’s importance lies in this altered genealogy. Austrian economics appears not as a late correction inside British classical political economy, but as a revival of an older Aristotelian-Scholastic-Continental tradition displaced by Smithian and Ricardian doctrines. Rothbard’s “prehistory” is therefore polemical as well as historical: it restores forgotten predecessors in order to show that subjectivism, market price theory, and monetary value analysis had deep roots long before 1871.