This file is a single-author polemical economics essay. Its scope is narrow and topical: Rothbard interprets the gasoline price increases following Iraq’s invasion of Kuwait in August 1990 and the Bush administration’s embargo-and-war response. The essay’s thesis is that rising oil and gasoline prices were not evidence of “gouging” or sudden corporate greed, but a rational market adjustment to anticipated supply disruption. Its broader relevance lies in its attack on price-control politics: Rothbard reads the Kuwait crisis through the memory of the 1970s, warning that moral denunciations of prices tend to produce shortages rather than relief.
Sometimes it seems that our entire apparatus of economic education: countless courses, students, professors, textbooks, backed up—in the case of oil pricing—by a decade of experience in the 1970s, is a gigantic waste of time.
The essay opens with exasperation at what Rothbard sees as mass economic illiteracy. He first catalogs the political and media reaction: pundits, consumer activists, politicians, and even parts of the oil industry treated quick price rises as a “ripoff,” “price gouging,” and “unconscionable greed.” Rothbard’s first conceptual move is to depersonalize price formation. Prices, he insists, are not set by the moral mood of sellers but emerge from the interaction of demand, supply, expectations, and entrepreneurial judgment.
In fact, pricing on the market is not an act of will by sellers.
That sentence carries the central argumentative pivot. Rothbard shifts the controversy away from accusations against “Big Oil” and toward basic price theory. The “greed” explanation fails, in his view, because it cannot explain why greed would suddenly intensify on August 2. What changed was not oilmen’s moral character but market participants’ expectations about future supply.
The entire apparatus of economic theory, built up over centuries, is devoted to demonstrating a great truth: that prices are set only by the demand of purchasers (how much of a good or service purchasers will buy at any given price), and by the supply or stock of the good.
From there, Rothbard presents the oil market as anticipatory rather than mechanical. Traders and firms respond not only to present barrels but to expected future scarcity. Speculation, therefore, is not parasitic distortion but an intertemporal coordinating device: by bidding prices upward before a cutoff fully materializes, speculators encourage conservation, stockholding, and reallocation before the crisis becomes acute.
Far from being disruptive or “unconscionable,” this sort of speculative demand performs an important economic function.
The essay’s middle section attacks the “cost-plus” theory of just pricing: the popular idea that a firm may charge costs plus a “reasonable” markup, while anything higher is morally suspect. Rothbard counters that costs do not determine market prices in any direct sense; rather, prices reveal whether past costs were justified. His example of valuable “manna from heaven” falling on land in New Jersey illustrates that a good can command a high price even if its acquisition cost was low.
But cost of production has no direct influence on price; prices are only determined by supply and demand.
This is also where Rothbard introduces entrepreneurship as forecasting under uncertainty. Profit is not a guaranteed markup but the reward for correctly anticipating consumer valuations and future conditions; loss is the penalty for error. The oil-price episode thus becomes, for him, a lesson in the profit-and-loss system itself.
The closing movement turns from theory to policy warning. Rothbard’s historical analogy is the 1970s, when oil price controls produced gasoline lines and shortages. He treats controls as a confusion of symptom and cause: suppressing prices does not create oil, reduce demand, or improve allocation.
Imposing controls to stop a price increase is like trying to cure a fever by pushing down the mercury on a thermometer.
The final warning is sharply political. If gas lines return, Rothbard argues, they will not be caused by oil companies but by officials who prevent prices from clearing markets.
If the politicians and pundits have their way, there may well be gas lines by Christmas; but the cause will be they themselves, and not small or Big Oil.
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