Summary: Ten Great Economic Myths

This file is a single-author polemical essay from Murray N. Rothbard’s Making Economic Sense. Its scope is a compact public intervention: ten refutations of claims about deficits, inflation, interest rates, forecasting, unemployment, deflation, taxation, and trade. The central thesis is that popular macroeconomic language disguises coercive transfers, monetary inflation, and protection for inefficient interests as scientific necessity.

Our country is beset by a large number of economic myths that distort public thinking on important problems and lead us to accept unsound and dangerous government policies.

Rothbard’s first move is to split the deficit question into its financing mechanisms. A deficit funded by the public through Treasury bonds transfers existing money and crowds out saving; a deficit funded through the banking system creates new deposits and becomes inflationary. This lets him reject both partisan simplifications: deficits are not automatically inflation, but neither are they harmless.

Thus, deficits are inflationary to the extent that they are financed by the banking system; they are not inflationary to the extent they are underwritten by the public.

The second and third myths complete the fiscal argument. Even when deficits are not monetized, they divert savings away from productive private investment toward state spending. Rothbard treats this as causal logic, not a hypothesis refuted by a recession-year fall in interest rates; observed rates also reflect business demand, inflation expectations, and monetary policy.

This argument once again shows the fallacy of trying to refute logic with statistics.

Tax increases are no remedy, because they enlarge the state’s command over producers and give politicians more revenue to spend. The cure is austerely simple: expenditure must fall.

No, the only sound cure for deficits is a simple but virtually unmentioned one: cut the federal budget.

The essay’s middle section attacks the prestige of macroeconomic management. On interest rates, Rothbard distinguishes the short-run credit effect of monetary expansion from the later inflation-premium effect. Fed easing may first lower rates by expanding credit, yet raise them once lenders demand compensation for expected depreciation.

There are two, opposite causal chains at work.

This leads to a broader rejection of forecasting by charts and computer models. Economic quantities are outcomes of changing individual valuations, expectations, and knowledge. The point is methodological as much as political: no planner or consultant can reliably predict future choices.

People are contrary cusses whose behavior, thank goodness, cannot be forecast precisely in advance.

Against Keynesian stabilization theory, Rothbard presents the Phillips curve as an ideological fallback after failed promises of full employment without inflation. The tradeoff between inflation and unemployment collapses under stagflation and under his wage theory: inflation may temporarily reduce real wages, but wages eventually catch up.

There has been anything but an inflation-unemployment tradeoff.

The deflation chapter reverses another modern presumption. Falling prices are not inherently depressive when caused by productivity growth and falling costs; they can raise real wages and widen mass markets. Rothbard uses the nineteenth century and the computer industry to argue that benign deflation is normal in dynamic capitalism.

Deflation, far from bringing catastrophe, is the hallmark of sound and dynamic economic growth.

The final myths turn to taxation and international trade. Rothbard rejects the flat-tax case insofar as it treats deductions as illicit privileges, arguing that this assumes state ownership of income before taxpayers retain any of it. He similarly criticizes the Laffer curve for shifting attention from liberty to maximizing state receipts.

Why should it be the objective of every one of us to maximize government revenue?

The last section applies the same resource-allocation logic to cheap foreign labor. Low wages abroad reflect lower capital intensity and productivity, while high American wages result from greater productivity. Tariffs and quotas therefore injure consumers and efficient industries by preserving misallocated capital and labor.

Wage rates in every country are determined by the productivity of the workers in that country.

The work’s continuing relevance lies in its compressed statement of Rothbard’s Austrian-libertarian political economy. Its conceptual moves recur across topics: separate money creation from saving, real resources from accounting totals, market prices from bureaucratic claims, and causal theory from statistical coincidence. The essay is not a neutral survey but a demystifying brief against inflationary finance, Keynesian fine-tuning, revenue-maximizing taxation, and protectionism.