Murray N. Rothbard, “The Myth of Efficiency” — Summary

This file is a short, single-author theoretical essay, originally a comment on Mario Rizzo’s critique of efficiency in law-and-economics. Rothbard accepts Rizzo’s attack on efficiency but radicalizes it: the problem is not merely that efficiency needs specified ends, but that ends are plural, changing, conflicting, and unknowable in the form required by economic policy science. His thesis is that “efficiency” cannot serve as a neutral criterion for law, public policy, or social institutions; only explicit ethical principles, especially justice, can do that work.

Rothbard begins by denying that even an individual’s conduct can be called efficient in any strict sense. Efficiency would require perfect knowledge of means, consequences, other persons’ reactions, and future events. Human action, however, occurs under uncertainty and through learning; goals themselves shift as persons learn or change their minds.

We live in a world of uncertainty. Efficiency is therefore a chimera.

This move transforms efficiency from a technical ideal into an impossible epistemic standard. If action is a process of discovery, then no actor can be assumed to have selected the “best” means to fixed ends. Rothbard then extends the critique from the individual to society. Social efficiency presumes addable, comparable ends, but social life is marked by rivalry among purposes. The question hidden by utilitarian language is therefore political and ethical, not technical.

The central question of politics then becomes: whose ends shall rule?

Rothbard’s attack on utilitarian economics turns on this concealment. Economists, he argues, often imagine a shared social end—higher output, a higher standard of living, maximized product—and then present policy advice as value-free technique. But if one person’s desired “product” is another person’s oppression, uniformity, enslavement, or death, then efficiency relative to one end is injury relative to another. The concept cannot adjudicate between opposed purposes.

Efficiency, therefore, can never serve as a utilitarian touchstone for law or for public policy.

The essay then deepens the critique through the Austrian theory of cost. “Social cost” is not merely hard to measure; for Rothbard it is conceptually incoherent. Costs are subjective, individual, ex ante, and disappear once choice is made. They cannot be observed by a court or economist, added across persons, or used as an objective basis for policy calculation.

But if costs, like utilities, are subjective, nonadditive, and noncomparable, then of course any concept of social costs, including transaction costs, becomes meaningless.

This position also underlies Rothbard’s criticism of general-equilibrium reasoning and objective probability. Rizzo had argued that objective social costs make sense only within general equilibrium; Rothbard adds that such equilibrium has never existed and could not coherently exist in a money economy marked by uncertainty. Likewise, probability calculus cannot convert historically unique human events into scientific certainties.

Calling two events by the same name does not make them homogeneous.

The legal section applies these arguments to torts, omissions, and liability. In the Good Samaritan case, Rothbard rejects the economist’s claim that a rescuer’s “minimal cost” can be objectively known, since psychic costs are private and actor-relative. He further distinguishes praxeological “action” from legally relevant aggression: failure to help may be action in an abstract sense, but it does not initiate an invasive causal chain.

A nonaction may be an “action” in a praxeological sense, but it sets no positive chain of consequences into motion, and therefore cannot be an act of aggression.

From this follows Rothbard’s approval of the common-law distinction between misfeasance and nonfeasance, and his sympathy for strict liability grounded in causation, fault, and rights rather than negligence balancing or pseudo-efficiency. Law, on this view, should ask who invaded whose person or property, not which arrangement minimizes unmeasurable social costs.

The conclusion is deliberately anti-imperial: economics must relinquish its claim to govern all normative questions through efficiency analysis. Cost-benefit reasoning cannot determine rights, liability, or public policy because its key aggregates are subjective fictions. Rothbard’s final conceptual reversal is that efficiency is not the foundation of ethics; ethics is the condition under which any concern with efficiency can matter.

Ethics is the primary.

The essay’s relevance lies in its concentrated Austrian-libertarian critique of welfare economics and economic analysis of law. It challenges the aspiration to make legal reasoning “scientific” by replacing justice with efficiency, arguing instead that every policy recommendation already smuggles in moral premises.