For various reasons, his analysis of interventions in the free market was truncated in the originally published version of this treatise, which appeared in 1962. He made up for this in 1970 by publishing a separate book Power and Market: Government and the Economy. Together, these two works present a comprehensive account of economics. The chapters on the unhampered market necessarily assume, and to a large extent explicitly describe, a free society.
Volume 1 is a thorough analysis of economic principles from praxeological definitions through a Robinson Crusoe economy, barter, and the hypothetical evenly rotating economy. The asides and footnotes are more interesting than the almost tedious and belaboring development of the apparently important economic principles. Rothbard's points often seem self-evident, yet he shows in footnotes and in the text that whole schools of economic thought have grown out of obviously false assumptions. I think this volume could have been trimmed by about 50 pages if it were not for the fact that one economic fallacy after another had to be refuted because economists, in general, are not or have not been, able to handle a few simple concepts. The book has too many graphs and tables, apparently inserted for the benefit of economic students who are used to such approaches in other economic texts. In most cases the graphs add nothing to the explanation. One particularly annoying thing about the graphs is that sometimes neither axis is labeled. He assumes the reader will memorize the meaning of each axis after seeing it once.
Volume 2 is more concise and meaty than Volume I. It is terrific. It completes the analysis begun in Volume I of the free market. It succinctly deals with intervention in the economy. Whereas Volume I is plodding, Volume II is elegant.
Rothbard's main task in Man, Economy, and State (MES) is to analyze the economics of voluntary exchanges, which means exchanges that take place in freedom from government intervention and private crime. He does this in chapters 1 through 11. Then, having done that and discovered the principles of the free market, he uses these principles in the final chapter (chapter 12) of MES and, more thoroughly in Power and Market, to analyze the economics of governmental and criminal intervention.
Chapter 1 of MES deals with the economics of Robinson Crusoe alone on an island. The economics of interpersonal exchange begins in chapter 2, where Crusoe meets another man. Chapter 2 analyzes the economics of direct exchange--barter. Subsequent chapters treat the economics of indirect--or monetary--exchanges.
Chapter 3 introduces money and explains its effects on market exchanges. Chapter 4 explains the economics of consumption and how prices for consumer goods arise. Chapters 5 through 9 analyze production. Chapter 10 deals with monopoly. Chapter 11 summarizes the theory of money on the free market.
Chapter 1 of Power and Market completes Rothbard's description of a free society by dropping the assumption that there are no criminals in society, keeping the assumption that the market is unhampered by government intervention, and explaining how private protection agencies would enforce the rights of person and property against violent aggression.
The rest of Power and Market supplements and expands chapter 12 of MES by analyzing the effects of government intervention.
"From this point on, we shall develop an analysis of the workings of a society based purely on voluntary action, entirely unhampered by violence or the threat of violence." (71)Next, Rothbard explains how "the possibilities of exchange open up for producers the avenue of producing for a 'market' rather them for themselves." (75)
"The major form of voluntary interaction is voluntary interpersonal exchange. A gives up a good to B in exchange for a good that B gives up to A. The essence of the exchange is that both people make it because they expect that it will benefit them; otherwise they would not have agreed to the exchange. A necessary condition for an exchange to take place is that the two goods have reverse valuations on the respective value scales of the two parties to the exchange." (72)
"Thus, the conditions for an exchange to take place are that the goods are valued in reverse order by the two parties and that each of the parties knows of the existence of the other and the goods that he possesses. Without knowledge of the other person's assets, no exchange of these assets could take place.
It is clear that the things that must be exchanged are goods, which will be useful to the receiving party. The goods may be present or future goods (or claims to future goods, which may be considered as equivalent to future goods), they may be capital or consumers' goods, labor or nature-given factors. At any rate, the objects of an exchange must be scarce means to human ends, since, if they were available in abundance for all, they would be general conditions of human welfare and not objects of human action. If something were a general condition of human welfare, there would be no need to give something up to acquire it, and it would not become the object of exchange." (72-73)
Later on he describes the unhampered market from the producer's point of view:
"The free market in the world of production may be termed 'free competition' or 'free entry,' meaning that in a free society anyone is free to compete and produce in any field he chooses. 'Free competition' is the application of liberty to the sphere of production: the freedom to buy, sell, and transform one's property without violent interference by an external power." (581)In the contractual society:
The agreements by individuals to make exchanges are contracts. The network of voluntary interpersonal exchanges constitutes a contractual society. The pattern of interrelations in this society is the free market. (77)
"Each individual is an actor free to make his own decisions at every step of the way. ...there is equality in the sense that each person has equal power to make his own exchange decisions." (77)A free society maximizes everyone's opportunity to make moral decisions.
"Thus, the distinguishing features of the contractual society, of the unhampered market, are self-responsibility, freedom from violence, full power to make one's own decisions (except the decision to institute violence against another), and benefits for all participating individuals." (77-78)
"There is no sense to any concept of morality, regardless of the particular moral action one favors, if a man is not free to do the immoral as well as the moral thing. If a man is not free to choose, if he is compelled by force to do the moral thing, then, on the contrary, he is being deprived of the opportunity of being moral." Since MES is a treatise on economics, and since economics is a value-free science, Rothbard does not include moral arguments about private property or peaceful exchange. In describing the workings of the unhampered market, he is describing the workings of an economy where violence is ruled out by hypothesis. In other words, he is describing an economy that conforms to libertarian moral principles, without passing judgment on whether such an economy and such moral principles are good or bad.
Thus we see that the general economic description of the unhampered market closely corresponds to the libertarian description of a free and just society. Furthermore, Rothbard goes on to explain why the contractual society is a co-operative society in which each serves his fellow men in order to serve himself in exchange. (84)
"Exchange cannot be adequately analyzed until property rights are fully defined..." (xii)He makes the point again at the beginning of Power and Market:
"... there has been a general neglect of the fact that free exchange means exchange of titles of ownership to property, and that, therefore, the economist is obliged to inquire into the conditions and the nature of the property ownership that would obtain in the free society. If a free society means a world in which no one aggresses against the person or property of others, then this implies a society in which every man has the absolute right of property in his own self and in previously unowned natural resources which he finds, transforms by his own labor, and then gives to or exchanges with others." In an unhampered market, in which violence is ruled out by hypothesis, economic goods come into existence by being produced by individuals, and since they are initially possessed by their producers, the only way they can come into the possession of somebody else in this kind of economy is through gift or exchange. So in the unhampered market, initial property ownership is established de facto by production of economic goods, that is by an individual mixing his labor with previously unowned natural resources. In other words, in an unhampered economy, property rights are established in accordance with the homestead principle. Here again we see a case where the economic description of the unhampered economy conforms with libertarian moral theory.
For a compatible moral theory see my article A Theory of Property Rights for a Free Nation.
"The problem of self-ownership is complicated by the question of children. Children cannot be considered self-owners, because they are not yet in possession of the powers of reason necessary to direct their actions. The fact that children are under the hegemonic authority of their parents until they are old enough to become self-owning beings is therefore not contrary to our assumption of a purely free market. Since children are not capable of self-ownership, authority over them will rest in some individuals; on an unhampered market, it would rest in their producers, the parents. On the other hand, the property of the parents in this unique case is not exclusive; the parents may not injure the children at will. Children, not long after birth, begin to acquire the powers of reasoning human beings and embody the potential development of full self-owners. Therefore the child will, on the free market, be defended from violent actions in the same way as an adult." (439)
He explains that the alternatives to private ownership originating in the homestead principle could not work in an unhampered economy, because the alternatives require a coercive government to administer the claims of Society. In particular, he shows that Henry George's view that Society (in the alleged person of the State) owns the land (148-151) and J. K. Ingalls' view that a person can own land only while he is actually using it (151-152) are not consistent with the unhampered market.
"Under a purely free-enterprise system, there would be no such thing as a governmentally owned public domain. Land would simply remain unowned until it first came into use, after which it would be owned by the first user and his heirs or assigns." In a free society, immigrants would be free to enter the country and live on any previously unowned land. Any attempt to forcibly deny them this opportunity would be an act of invasion. So as long as there is unowned land, there would be open immigration. [60-61]
"American homestead legislation, while attempting to establish a 'first-user, first-owner' principle, erred in believing that a certain type of agriculture was the only legitimate use for land. Actually, any productive activity, including grazing or laying railroad tracks, qualifies as use." 
"The 'mixing' of labor with nature may take the form of draining, filling, clearing, paving, or otherwise preparing the site for use. Tilling the soil is only one possible type of use. The use-claim to the land could be certified by courts if any dispute over its ownership arose." 
"The patent is incompatible with the free market precisely to the extent that it goes beyond the copyright." (655)
"... patents actually invade the property rights of those independent discoverers of an idea or invention who made the discovery after the patentee." (656)
"The common law has often been a good guide to the law consonant with the free market. Hence it is not surprising that common-law copyright prevails for unpublished literary manuscripts, while there is no such thing as a common-law patent." (655)
"There would, however, be copyright for any inventor or creator who made use of it, and this copyright would be perpetual, not limited to a certain number of years. Obviously, to be fully the property of an individual, a good has to be permanently and perpetually the property of the man and his heirs and assigns. If the State decrees that a man's property ceases at a certain date, this means that the State is the real owner and that it simply grants the man use of the property for a certain period of time." (656)
In addition to commodities and personal services, Rothbard describes (143-146)
other types of exchangeable items:
Another example is that a man cannot permanently transfer his will power:
"Because a man's self-ownership over his will is inalienable, he cannot, on the unhampered market, be compelled to continue an arrangement whereby he submits his will to the orders of another, even though he might have agreed to this arrangement previously." (142)In other words, slavery, even so-called "voluntary slavery," cannot exist in the unhampered market, because its enforcement entails the initiation of violence, which is ruled out by hypothesis. Here again, the purely economic description of the unhampered market leads to the same conclusion as libertarian moral theory.
"If he has taken the property of another by means of such an agreement, he will, on the free market, have to return ... the proportionate amount of property if he terminates the arrangement and ceases to work." (441)
"Labor services, therefore, can only be bought for 'hire,' on a 'pay-as-you-go' basis." (172)
"This also applies to marriage contracts. Since human self-ownership cannot be alienated, a man or a woman, on a free market, could not be compelled to continue in marriage if he or she no longer desired to do so. This is regardless of any previous agreement. Thus a marriage contract, like an individual labor contract, is, on an unhampered market, terminable at the will of either one of the parties." (441-442)
While a person is alive and not in a comatose state, and barring a science-fiction scenario involving some as yet unknown technology, his deliberate acts are controlled (owned) by his will, and it is physically impossible for his actions to be controlled or owned by anyone else. Therefore, voluntary slavery contracts are inherently fraudulent, and they would not be enforced in the free market.
"What type of contracts are to be enforced to maintain the conditions of an unhampered market?" (152)The basic rule is: To have an unhampered market, (a) all non-invasive actions must be permitted without threats of retaliation, and (b) invasive actions need to be curbed.
"Invasive action may be defined as any action┘violence, theft, or fraud--taking away another's personal freedom or property without his consent." (152)Instead of listing the millions of non-invasive acts that the reader could easily classify correctly, Rothbard brings to our attention many non-invasive acts that readers might not have thought of as being non-invasive. He argues that the following types of actions are consistent with the unhampered market:
"The right of inheritance rests not so much on the right of later generations to receive as on the right of earlier generations to bestow." 
"The free-market method of dealing, say with the collapse of a building killing several persons, is to send the owner of the building to jail for manslaughter." 
Autistic interventions include: homicide , assault , vandalism (156), polluting the air to the extent that it damages other people or their property (156), making noise so loud that it bothers others (443), compulsory enforcement or prohibition of a salute, speech, or religious observance (767) , compulsory safety codes . immigration restrictions [39, 60-61], and compulsory birth control 
"In the political lexicon of modern America, 'left-wingers' often advocate freedom in the sense of opposition to autistic intervention, but look benignly on triangular intervention. 'Right wingers,' on the other hand, severely oppose triangular intervention, but tend to favor, or remain indifferent to, autistic intervention. Both groups are ambivalent toward binary intervention." 
Prices Will Move Toward Equilibrium
Rothbard shows (91-99) how unhampered exchanges automatically lead toward a unique market price or equilibrium price at which the amount of a good offered for sale at that price (called the supply) equals the amount demanded at that price (called the demand). At this price the market is cleared and, when this price is known to all, there is no incentive for buyers to bid prices up further or for sellers to bid prices down, until conditions change.
He goes on to explain (102) why, once the equilibrium price is established, it rules over the entire market, because people looking for opportunities to earn arbitrage gains by taking advantage of sellers who are ignorant of the market price will enter the market to buy at a lower price from the ignorant seller and then resell the same good at the higher equilibrium price.
However, multiform pricing (discrimination) could exist. For example, a seller may be willing to offer lower prices to worthy poor people or to other groups or individuals because he gets psychic pleasure from doing so. (647-652)
There Will Be Full Employment
Given the relative scarcity of labor compared to land, unemployment of labor will not be a problem in an unhampered economy. There will be jobs for anyone who is willing to work. (523)
"The 'full employment' provided by the free market is employment to the extent that workers wish to be employed. If they refuse to be employed except at places, in occupations, or at wage rates they would like to receive, then they are likely to be choosing unemployment for substantial periods." (526)Furthermore,
"Even in a relatively prosperous society there may be individual workers so infirm or lacking in skill that their particular talents could not command an above-subsistence wage. In that case, they could survive only through the gifts of those who are making above-subsistence wages." (524-525)
There Will Be No Monopoly Prices
There would not be any possibility of monopoly prices or a one-firm economy or even a one-firm vertically integrated product. Monopoly in an unhampered economy is nothing to worry about. (578-579)
"... the reason why a socialist economy cannot calculate is not specifically because it is socialist! Socialism is that system in which the State forcibly seizes control of all the means of production in the economy. The reason for the impossibility of calculation under socialism is that one agent owns or directs the use of all the resources in the economy. It should be clear that it does not make any difference whether that one agent is the State or one private individual or private cartel. Whichever occurs, there is no possibility of calculation anywhere in the production structure, since production processes would be only internal and without markets. There could be no calculation, and therefore complete economic irrationality and chaos would prevail, whether the single owner is the State or private persons." (548-549)
Incomes Will Not Be Equal
Inequality exists in nature and will continue to exist in the natural, unhampered market.
"... men are not 'equal' in their tastes, interests, abilities, or locations. Resources are not distributed 'equally' over the earth. This inequality or diversity in abilities and distribution of resources insures inequality of income on the free market." (583)In a free society, no group has more basic rights than any other group. There are no castes.
"On the free market every man obtains money income insofar as he can sell his goods and services for money. Everyone's income will vary in accordance with freely chosen market valuations of his productivity in fulfilling consumer desires." 
"... only a free society is casteless, and therefore only freedom will permit mobility of income according to productivity." 
Labor Unions Might Exist
Labor unions could exist in the free market, although if people understood the consequences of unions, most people would not support them. (625-629)
There Will Be No International Trade Problems
In a pure free market, there are no international borders and no barriers to trade. Nations might exist as ethnic, cultural, or language groups, but not as economically meaningful units.
"Thus, the pure interest rate will tend toward uniformity throughout the world, prices for the same good will tend to be uniform throughout, and, therefore, so will wages for the same type of labor." (550)
There Will Be No Inflation
Money will be a stable commodity. Overall prices will not rise. As technology improves, the natural tendency in the free market is for prices to decline.
There Will Be No Business Cycles
Business cycles are caused by fractional-reserve banking. Fractional-reserve banking is fraudulent, so it would not exist in the unhampered market. Consequently, there will be no boom-bust cycles.
Past Injustices Will Be Mitigated
If, before the establishment of the unhampered market, the distribution of goods was based largely on theft, the effects of unjust incomes will become less and less significant as time goes by:
"For in order to keep and increase their ill-gotten gains, the former robbers, now that a free economy is established, have to invest and recoup their funds so as to serve consumers correctly. If they are not fit for this task, and their exploits in predation have certainly not trained them for it, then entrepreneurial losses will diminish their assets and shift them to more able producers." (556)
Resources Will Be Used Efficiently
Market prices make it possible for producers to determine how efficiently they are allocating their resources. The profit and loss system will cause capital to move to those who do the best forecasting (468-469). Efficiency will be rewarded.
"... to the extent that producers wish to make money, they drive toward ever more efficient servicing of the desires of the consumers┘allocating resources to the most value-productive areas and away from the least value-productive." (557)
Living Standards Will Improve Progressively
"... a free society will in the long run lead to general abundance and is the necessary condition for that abundance." (582)
"Under a regime of freedom, where no violence is permitted, every man has the power either to make or not to make exchanges as and with whom he sees fit. Then, when exchanges are made, both parties benefit. We have seen that if an exchange is coerced, at least one party loses. It is doubtful whether even a robber gains in the long run, for a society in which violence and tyranny are practiced on a large scale will so lower productivity and become so much infested with fear and hate that even the robbers may be unhappy when they compare their lot with what might be if they engaged in production and exchange in the free market." 
The Risks of Life Will Be Minimized
The free market relieves risks as much as can possibly be done: (1) by allowing people to save and invest for the future, (2) by allowing entrepreneurship (voluntary risk taking) and futures markets (where hedging allows buyers and sellers of commodities to shift the risk of future price changes onto a body of specialized traders, (3) by insurance policies (which are a way to pool and abate risks) [160-161], (4) by voluntary charity, which allows those who feel secure to donate some of their resources to those who are less secure, and (5) by providing security against aggression.
The Unhampered Market Will Defend Itself
In Power and Market, Rothbard explains how the market would protect property rights and thereby protect itself if the government did not prevent it.
"Defense agencies, police and judicial, would compete with one another in the same uncoerced manner as the producers of any other service on the market. The prices would be lower, the service more efficient. And, for the first and only time, the defense system would then be neutral in relation to the market. It would be neutral because it would be a part of the market itself! Defense service would at last be made fully marketable. No longer would anyone be able to point to one particular building or set of buildings, one uniform or set of uniforms, as representing 'our government.'Although it is impossible to know in advance the exact structure of a future industry, Rothbard predicts that defense and judicial services would probably be sold "on an advance-subscription basis, with premiums paid regularly and services to be supplied on call."  Insurance companies would be likely to supply these services, because it would be to their advantage to reduce crime. Many competing primary court systems, and a few Appeals Court systems, would arise because:
While 'the government' would cease to exist, the same cannot be said for a constitution or a rule of law, which, in fact, would take on in the free society a far more important function than at present. For the freely competing judicial agencies would have to be guided by a body of absolute law to enable them to distinguish objectively between defense and invasion. This law, embodying elaborations upon the basic injunction to defend person and property from acts of invasion, would be codified in the basic legal code. Failure to establish such a code of law would tend to break down the free market, for then defense against invasion could not be adequately achieved. On the other hand, those neo-Tolstoyan nonresistors who refuse to employ violence even for defense would not themselves be forced into any relationship with the defense agencies." 
"The Law Code of the purely free society would simply enshrine the libertarian axiom: prohibition of any violence against the person or property of another (except in defense of someone's person or property), property to be defined as self-ownership plus the ownership of resources that one has found, transformed, or bought or received after such transformation. The task of the Code would be to spell out the implications of this axiom (e.g., the libertarian sections of the law merchant or common law would be co-opted, while the statist accretions would be discarded). The Code would then be applied to specific cases by free-market judges, who would all pledge themselves to follow it." 
"Every legal system needs some sort of socially-agreed cutoff point, a point at which judicial procedure stops and punishment against the convicted criminal begins." He predicts that a free society would adopt the convention of accepting the decision of an Appeals Court as binding on both the plaintiff and the defendant. 
Once competing police and judicial service firms are established, they check and balance each other, which would make it difficult to establish a State.  If this takes place in a country with a government based on voluntary funding, Rothbard predicts the government will lose the competition and "wither away," because it has been demonstrated historically that co-operatives cannot compete successfully against stock-owned companies when both are equal before the law. So he predicts that joint-stock (i.e. corporate) defense agencies will become the prevailing market form. 
Social Utility Will Be Maximized
"In sum, the free market always benefits every participant, and it maximizes social utility ex ante; it also tends to do so ex post, since it works for the rapid conversion of anticipations into realizations." 
The Economy Will Exhibit Spontaneous Order
"... we have seen how the free, voluntary actions of individuals combine in an orderly determination of such seemingly mysterious processes as the formation of prices, income, money, economic calculation, profits and losses, and production.
The fact that each man, in pursuing his own self-interest, furthers the interest of everyone else, is a conclusion of economic analysis, not as assumption on which the analysis is grounded." (766)
"Indirectly, as our investigations have shown, the network of these free exchanges in society┘known as the 'free market'┘creates a delicate and even awe-inspiring mechanism of harmony, adjustment, and precision in allocating productive resources, deciding upon prices, and gently but swiftly guiding the economic system toward the greatest possible satisfaction of the desires of all the consumers. In short, not only does the free market directly benefit all parties and leave them free and uncoerced; it also creates a mighty and efficient social order." (880)
Year Read: 1974
Libertarian Essays by Roy Halliday
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