Murray N. Rothbard, Austrian Economics: historical and philosophical background (1987)

Rothbard’s book review assesses the 1986 volume edited by Wolfgang Grassl and Barry Smith as a contribution to understanding the philosophical foundations of Austrian economics. His judgment is sharply differentiated: the essays connecting Carl Menger with nineteenth-century Austrian philosophy substantially advance the history of economic thought, while much of the remaining material is less persuasive. The review moves from historiography through an appraisal of individual contributions to a methodological argument about the limits of economics.

The title of this volume should in reality be reversed; for this is basically a book on nineteenth century Austrian philosophy and its guiding influence on the development of the Austrian School of economics.

This reversal identifies the book’s real achievement. Rothbard disputes a historiography in which economic theories develop exclusively through internal analytical problems and techniques. Such an account treats religious, ideological, or philosophical influence as compromising economics’ scientific standing. Against it, he invokes Schumpeter’s demonstration of late scholastic philosophy’s importance for subjective utility theory and an understanding of market processes. Schumpeter’s historical practice, Rothbard suggests, exceeded his official commitment to an internally driven history of analysis.

Emil Kauder supplies the more penetrating precedent. Rothbard follows Kauder in connecting the Aristotelian-Thomist traditions of Catholic continental Europe with subjective utility and free-market thought, and Scottish Calvinism with theories emphasizing production costs and quantities of labour. These connections make theories of value intelligible within broader judgments about labour, consumption, and human flourishing. Kauder’s contrast between Aristotelian Austria and Hegelian Germany also helps explain why Menger’s marginalism should not be assimilated to that of Jevons or Walras. Shared analytical terminology can conceal fundamental differences in epistemology and method.

The volume’s central contribution is to specify the philosophical mediation behind this Austrian distinctiveness. Barry Smith’s work on Franz Brentano and realist phenomenology persuades Rothbard that Menger’s intellectual setting was not adequately described by reference to Aristotle alone.

This volume has convinced me that it was not simply Aristotle per se, but the Aristotelian Franz Brentano, a Catholic priest, born in southern Germany, who formed the dominating milieu of Austrian philosophy and provided Carl Menger with his basic philosophic framework.

Rothbard particularly values Smith’s comparison of Menger’s and Brentano’s epistemologies, together with Reinhard Fabian and Peter Simons’s substantial study of their theories of value and the relationships between their followers. These first two chapters occupy nearly half the book and, in his assessment, establish its scholarly importance. Their significance lies in reconstructing philosophical affinities and intellectual relationships rather than treating Austrian economics as an isolated sequence of technical discoveries.

His assessment of the other contributions is markedly harsher. J. C. Nyiri’s discussion of Menger’s political philosophy fails to interest him, especially where Austrian liberal thinkers are presented as contemporary guides: Rothbard judges their outlook reactionary and anti-libertarian. Roderick M. Chisholm’s treatment of Brentano’s value theory seems too slight and insufficiently relevant to economics. Rudolf Haller’s recovery of Emanuel Hermann, meanwhile, appears to reveal opposition rather than continuity between Hermann’s and Menger’s principles. These judgments show Rothbard evaluating the collection through both historical discrimination and his own libertarian commitments.

The two Hayek essays illustrate what Rothbard regards as the volume’s weaker handling of twentieth-century thought. Jeremy Shearmur’s clarification of Hayek’s social philosophy remains hampered by reliance on Menger’s ambiguous remarks. Ludwig M. Lachmann’s account of the Hayek–Sraffa controversy receives credit for exposing Sraffa’s strategy, but Rothbard objects that it confuses Paretian general equilibrium with the Austrian position and introduces an essentially Keynesian account of interest and saving. He also faults its omission of Hayek’s critique of Keynes’s Treatise on Money. These are polemical assessments, but their organizing concern is precise: Austrian arguments must retain their conceptual specificity rather than be reconstructed through rival theoretical frameworks.

Wolfgang Grassl’s attempt to derive ethics from Austrian economics is, for Rothbard, the most substantial contribution after the opening chapters. Yet its proposed “moral market” exposes a boundary that marginal analysis cannot cross. Balancing virtues in differing proportions does not establish that every morally relevant action admits permissible incremental trade-offs.

The fact that we can combine virtues in various proportions does not imply that we can permissibly mix into our actions marginal or moderate doses of theft, rape or murder.

The distinction between balancing positive qualities and respecting absolute prohibitions leads to the review’s concluding criticism of “economic imperialism.” Rothbard groups Grassl’s ethical project with attempts by McKenzie and Tullock, and by Posner in legal theory, to remake other disciplines in economics’ image.

The truth is precisely the reverse; in human affairs, it must be ethics and political philosophy that are overriding, that establish the matrix of property rights and of permissible action within which individuals can choose, trade, or co-operate.

The review thus joins two claims: philosophy helps explain the historical formation of economic theory, and ethics supplies boundaries within which economic choice operates. Its relevance lies both in its endorsement of a philosophically grounded history of Austrian economics and in its refusal to make economic reasoning the foundation of every domain of human action.