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Review: The Public Choice Theory of Murray N. Rothbard, a Modern AnarchistAuthor(s): H. E. Frech IIISource: Public Choice, Vol. 14 (Spring, 1973), pp. 143-154Published by: SpringerStable URL: http://www.jstor.org/stable/30022711
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THE PUBLICCHOICETHEORY OF MURRAY N. ROTHBARD,
A MODERN ANARCHIST*
H.E.
Frech ///
In recent years, a smallbut growingradical ntellectual movement hasgaineda degree of prominence. The members of this loosely defined group are verydissatisfied with the power of the modern State. Consistingof conservativeswho
have become disillusionedwith conservativepolitical figuresand new Leftists who
have become disillusioned with governmentpower, the movement uses labels like
radicallibertarianism, narchism,and anarchocapitalism.Although not all of those
in this smallgroupareanarchists, he anarchistsare an important nfluence.
One of the key intellectual leadersof the movementis MurrayN. Rothbard,who is one of the few U.S.-trainedanarchisteconomists. For severalyearshe edited
a publicationcalledLeft and Right which wasdesignedto pull libertarian lements
of both groupstogether. Until recently he sharedthe editorshipof the Libertarian
Forum with KarlHess,a New Left anarchistwho once wasa speechwriter or BarryGoldwater.Rothbardacknowledgesan intellectual debt to the Austrianschool and
to his mentor LudwigVon Mises,althoughhis analysisdiffers in many ways from
that of Von Mises.
Rothbard's challengingand unorthodox professional writings span a wide
range of public choice topics including the stateless society, criticismsof publicchoice theorists,the theory of the State,democracy,externalitiesand publicgoods,monopoly, human and property rights, public and private coercion, and econo-
mists' value judgments. His analyses are not always correct but they are often
originalandinvariably timulating.Thispaperprovidesa criticalreviewof Professor
Rothbard's ittle knownpublicchoice theories.
The Stateless Society
In discussingthe necessity of government,Rothbard (1970a, Ch. 1) beginswith an excellent critique of the standard arguments for the necessity of
government o settle conflict.
First, a typical statementwould hold that the state is necessary o define and
initially allocate property rights. Rothbard suggests the allocation of initial
propertyrightsto those who find andtransformnaturalresourcesby their labor.University of California, Los Angeles and the National Center for Health Services
Research and Development, DHEW. Thanks are due to Paul B. Ginsburg, Michigan State
University, for many helpful comments on earlier drafts. The views expressed here are not
necessarily those of either affiliated institution.
143
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144 PUBLIC CHOICE
A single, ultimate arbiter of conflicts (e.g., the U.S. Supreme Court) is
considered non-essential.1 Citizens of different countries maintain successful
relations without a final arbiter over them. In relation to each other, individuals of
one country and individuals of another country exist in anarchy.
The danger of a free-market defense and property right enforcing agency
turning its physical power to criminal uses, perhaps colluding with a free-market
court of law to make fraudulent decisions is considered. He agrees that some such
organizations will become criminal. Rothbard is not a romantic utopian, believingthat men will suddenly become full of goodness in a stateless society. The analysisis interesting precisely because he does not believe that conflicts of interest will
evaporate when the State is abolished. He argues that in a stateless society:
... there would be no regular, legalized, channel for crime and
agression, no government apparatus the control of which
provides... for invasion of person and property ... a would-be
criminal police or judiciary would find it very difficult to take power,since there would be no organized State apparatus to seize . . . To
create such an instrumentality de novo is very difficult . . .historically,it took State rulers centuries to establish a functioning State apparatus
(1970a, p. 5).
The author then argues that the checks and balances resulting from the existence of
freely competitive defense agencies and judiciaries provide stronger protection than
those of the American governmental system, where, after all, the institutions are
agencies of the central government.
Rothbard's model of free-market defense and conflict settlement is interest-
ing. If Smith believes that he has been injured by Jones, he files suit or presses
charges within his own voluntary defense agency. Smith's defense agency holds a
trial. If Jones disputes the verdict, there will be another trial either in a competitive
Appeals Court or in the defendant's (Jones') defense agency's court. The AppealsCourt decision or that of Jones' defense agency, if it agrees with Smith's agency,
may "then be taken by the society (italics added) as binding." For as Rothbard
notes:
Every legal system needs some sort of a social-agreed upon cutoff point,a point at which judicial procedure stops and punishment against the
convicted criminal begins. (1970a, p. 5)
Further, in a footnote he asserts that:
1However, as we shall see, Rothbard's own model of a voluntary society contains such a
final arbiter.
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REVIEW ARTICLE 145
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) ... and the implications of this axiom. The Code would thenbe applied to specific cases by the free-market judges, who would all
pledge themselves to follow it. (1970a, p. 197)
Thus, Professor Rothbard seems to accept the point made by Hayek, that a free
society must be one under the rule of law so that the use of force is predictable
(1944, 1970).
However, the agent which applies this law when there is a dispute is
"society," which acts when two courts agree, and accredits legitimate courts, ordecides how to initially allocate property on the basis of Rothbard's principle of
first use.2
But the principle of first use is not a clear rule. What constitutes first use of
land? Setting foot on a continent? Hunting? Growing crops? What proportion of
the land one claims must be physically used? There is no immediately obvious rule.
The tasks of settling conflicts at this highest level of decision (the "society"
level) are going to be formidable, even with many decisions being made at lowerlevels in the competitive court system. But we are told that "there is no such thingas 'society' apart from its constituent individuals" (1970a, p. 214, fn. 15). What
then is this mysterious "society" which performs the function of ultimate arbiter?
There can be only one answer. Rothbard's society is simply an unorganized groupof individuals who threaten to use force against anyone who violates a widely held
principle or interpretation. Further, this group has a monopoly in the sanctioningor use of force. Although this group is unorganized and may vary in composition
according to the issue at hand, it meets the definition of a government. Professor
Rothbard has provided us with a highly imaginative model of a civilization whichhas no monopoly in the supply of defense services but it is not a model of a
stateless society.
Another problem arises within this model of free market defense supply.
Clearly certain kinds of defense are at least partially public goods wherein exclusion
is difficult. For example, if one private defense agency sets up a defense againstnuclear missiles, it cannot exclude non-subscribers from the benefits provided.
Thus, the classic free-rider problem will arise for some kinds of defense, leading to
(perhaps catastrophic) underproduction of some defense services. Rothbard's
2Accrediting may be difficult since courts would have an incentive to favor members oftheir own defense organization.
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146 PUBLICCHOICE
consistent misunderstanding f the importanceand consequencesof the free-rider
problem leads to his neglect of this collective good aspect of defense and other
goods as well.
Criticism f Public ChoiceTheorists
Public choice theorists Anthony Downs, James Buchanan and Gordon
Tullock, who have broughteconomicanalysisto bear on the actions of governmentand democracy, come in for specific criticism. Rothbard asserts that theseeconomists areverywrong n:
...regardinggovernment
assimply
another nstrumentof socialaction,
very much akin to action on the free market... My view is virtuallythe reverse, or I regardgovernmentaction andvoluntarymarketactionas diametric opposites, the former necessarily involving violence,
aggressionand exploitation, and the latter being necessarilyharmoni-
ous, peacefulandmutuallybeneficialfor all. (1970a, p. viii)
Aside from the recurringdifficulty that Rothbard'smodel containsno externalitiesand no monopolies, this passage betrays a thorough misunderstandingof an
importantmessagen the recent
publicchoice literature.
The scholar memtioned by Rothbard do argue that government actionshould be treated like behavior in the market- but not in the sense that it is
mutually beneficial to all participants.Indeed the literature s clear on the pointthat governmentactionusuallyinvolves osers as well as gainers.Typicallythe losersare quite well identified in the model as the bulk of society, often in a consumingrole, while the gainers are members of a small interest group- commonly the
producersof a specific product (BuchananandTullock, 1962, ch. 19, Olson, 1971,
pp.165-168 andDowns, 1957,
pp. 252-257).
These theorists have argued that government action should be treated
similarly to market action only in the sense that standardmodels of rationalindividualchoice should be appliedto individuals n theirrelationsto government.One should not treat the same men as self-interested n the market and perfectaltruistspursuingthe "public interest" when functioning as politicians or voters
(Buchananand Tullock, 1962, ch. 4, Downs, 1957, pp. 282-283). Tullock (1971)informativelyuses the sameassumption n examiningrevolutions.
Rothbard's own theory assumes that individualsas voters and politicanspursue their own interest at the expense of others. In this regard,he is applyingstandardmodels of rationalchoice to governmentaswell as to marketaction. And
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REVIEW ARTICLE 147
only in this assumption can one accuse the public choice theorists of treating
government as being "very much akin to market action."
ExploitationTheoryof theState
The essence of Rothbard's theory of the State is given in this statement: "(In)
all instances of intervention ... one set of men gains at the expense of other men"
(1970a, p. 13). His is an exploitation theory, but it is very different from Marx's.
For Marx held that there were classes created by the market, one of which used the
machinery of the State to further its interests. Rothbard, however, believes that the
relevant classes are created by government action - the exploiters being those
within and without the government who gain from the activity while the exploitedare those who lost by it. In this conception, these groups are constantly shifting as
different individuals switch positions on different issues.
The unequivocal statement that coercion can never improve everyone's
welfare is based on Rothbard's strange theories about the absence of free market
monopoly and the unimportance of externalities, which are discussed below.
However, we can reformulate his theory to say that the possible benefits of
coercion are always outweighed by the costs of government operation, especially
the opening up of areas where purely exploitative government action can be
expected to occur. In terms of the Buchanan and Tullock (1962) analysis of
collective decision making, the external costs incurred by individuals in allowingless than a unanimity rule for decision-making are so high that the optimal rule is
always unanimity (a perfectly voluntary system). Further, Rothbard hints at an
analysis close to Tullock's (1967, 1970) when he discusses the "scramble to be a
net gainer rather than a net loser" (1970a, p. 12). As Tullock points out, the
scramble involves considerable resource costs.
Leavingthe issue of whether or not State action can ever be beneficial to all
citizens we can turn to the theory of the actual operation of the State. Rothbard's
analysis of the actual operation of the State is in the spirit of the analysis of the
actual operation of the State is in the spirit of the analysis of public choice
theorists, with the one important exception of constitutional choice, to which we
will return. He insists on analyzing State action in terms of the private gains and
l6sses of the citizens, rather than in terms of the idealized government model so
thoroughly demolished by such theorists as Downs (1957, ch. 15) and Buchanan
and Tullock (1962, chs. 3, 4). Thus Rothbard sees most government action as a
grantof
special privilegeto some
group.He considers safety and quality standards, child labor laws, minimum wage
laws, unemployment payments, conservation laws, patents, traffis, public utility
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148 PUBLICCHOICE
regulationandantitrust aws to be governmentgrantsof monopolisticprivilege.Theauthor'sview of economic regulationas a method of usingthe power of the Stateto exclude competitiorsanticipatesStigler's heory of regulation(1971).
The State typicallyintervenes n behalfof a few (saythe producersof a good)againstthe many becausethe minority which will be affected a greatdeal expendsconsiderable time becoming informed and influencingpolicy while the majoritywhich is affected but little per person does nothing (Rothbard,1970a, pp. 16,17,
153, 154). As Downs (1957, ch. 13, 14) has shown, this is rationalbehavior forcitizensof a democracywhen information s costly.
Omission of constitutionalchoice is a serious weaknessin Rothbard'swork.
For, as Buchanan and Tullock (1962) have shown, the considerations in anindividual'schoice calculus are quite different for constitutional as opposed to
government operating decisions. Clearly, at the operating level, individualswill
supportgovernmentaction on the basisof the privatebenefitsaccruing o them, asin Rothbard'sdicussion of State behavior.But, when considering he rules underwhich the government s to operate,eachindividual,not knowinghow the rules are
going to work out in terms of his privatebenefit, will choose rules in line with the
general interests of society. Although Rothbardis correct that for each operatingdecision of a government,some gain and some lose, at the constitutionallevel, all
may supportthe governmentbecause all correctly expect to gain in the net effectof the multitude of issueswhichwill be acted upon.
Democracy and VotingSchemes
In his analysis of democracy and voting schemes, Rothbarddiscusses thetechnical issues of direct versus indirect democracy,and the ephemeralnature ofthe "will" of the people. He statesthat the most powerfulargument or democracyis that democraticprocess providesfor peaceful changeof government.However,
Rothbardstates that:
... this argument.., .completely overlooks the possibility of thenonviolent overthrow of the government by the majority by civil
disobedience,i.e., peaceful refusalto obey governmentorders.(1970a,pp. 144, 145)
But the reasonthis possibility is not given seriousconsiderationby manypoliticalscientists or economists is that such a peaceful revolution would face a greatfree-rider problem. The revolutionists would face serious danger (in trulyauthoritariansocieties, probably death), while those agreeingwith the revolutioncould share in its benefits without personalrisk. Political action in a democracy
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REVIEW ARTICLE 149
faces a similar ree-riderproblem,but the consequencesof political opposition to
the rulingpartyarefarless serious.
Indeed, as Tullock'srecentpaperhas shown,revolutionswill not normallybeable to enlist very much of their supportfrom the general populace. Becauseanyindividualwould benefit from a revolution whether or not he took part,he has the
incentive to participateonly if he gets some private gain from it (e.g., a job or
position of power) (Tullock, 1971).
In fact, Rothbard's model for nonviolent revolution is inconsistant with his
analysiselsewhereof the nature of governmentaction. The bulk of his most recent
book is devoted to demonstratinghow most governmentactions were promotedby
and benefit a small group at the expense of a larger group which is unable to
organize o oppose the measures.His revolutionarymodelrequires he opposite.
Pursuingthe argumentthat democracy'smost important virtue is peaceful
change, Rothbard, apparently tongue in cheek, proposes a novel model of
democracy which is designedto completely eliminatethe need for revolutionby
assuring hat the faction which would win a revolutionwill alwayswin at the polls
(1970a, pp. 145-147). The voting system would not allow votes to women or the
old or infirmbut would allow plural voting for those militarilytrainedandvotingwould be made more difficult. Interestingly, f we look at voting systems in earlydemocracies,we see that women did not vote, that voting was more difficult and
that only propertyowners could vote. It seems quite likely that propertyowningmales were more likely to be willing and able to fight and to hire others to assist.
Perhapsgovernmentswhich are subjectto revolution will tend to institutea voting
systemwhich is reasonablyclose to Rothbard's"bullet-substitute"system.
Theoryof Externalities and Public Goods
According to ProfessorRothbard, "interdependencies re all around us andthere is no rationalway to isolate a few servicesandcall them collective"(1956, p.
258). He then gives the example of the economies of mass production which
become possible for each consumer only because of all the purchasesof other
consumers.The errorhereis simple.Externalitiesare relevantat the marginonly.
Further, his analysis of the generalpublic good problem shows a lack of
understandingof the key free-riderproblem: ". . . where some consumersare not
satisfied with the marketproduction of some (public)benefit, they are at perfect
liberty to subsidizethe investorsthemselves"(1970b, p. 890). He makes a similar
assertion concerning a cartel pricing (1970b, p. 570) where he argues that
consumerscould bribeproducers o producethe efficient quantity.
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150 PUBLIC CHOICE
The crucial point which Dr. Rothbard seems so intent on missing is that the
costs of transactions in the market are not zero. In the case of a public good with
imperfect exclusion, fantastic bargaining costs would have to be incurred. Thus,
individuals may all be made better off by agreeing to be coerced.
The related argument that since coercion causes someone to alter his activities
and thus is against his interest is based on a simple fallacy. As Baumol points out
(1965, pp. 181, 182), the choice is not between restriction and non-restriction of
one person's activity, but between restriction and non-restriction of many person'sactivities simultaneously. If the activity in question is very harmful (e.g. pollutionof a common air basin), each individual could be made better off by a generalrestriction.
Rothbard's attempted rebuttal repeats his error:
If the decision were truly voluntary, no tax coercion would be
necessary-people would voluntarily and publically agree to pay their
share of contributions to the common project. (1956, p. 256)
Theoryof Monopoly
Rothbard's treatment of monopoly is a novel one. He argues that "the theoryof monopoly price is illusory when applied to the free market" (1970a, p. 29), but
that it does apply to government grants of monopoly power. This theory of the
impossibility of monopoly price in the free market results from his belief that the
competitive price is not conceptually identifiable, while the free market price is.
Rothbard argues that marginal cost considerations vary for different time
periods, thus "there is no simple, determinant 'marginal cost' " (1970b, p. 612).The marginal cost of standard monopoly analysis is the long run marginal cost,
which is analytically quite determinant. Choice-relevant cost may not be observablein general (Buchanan, 1969), but monopoly clearly results in lower output and
higher prices.
It is interesting that Von Mises, whom Rothbard claims as his mentor,suffered from no such blindness to free market monopoly. Von Mises argues that
"monopoly prices are an important market phenomenon" (1966, p. 278) and that
while "as a rule. .. monopoly... is brought about by government action" (p.
361), "some world cartels would exist even in the absence of any government
interference" (p. 366). Most importantly, Von Mises is full aware of the harm doneto the consumer by voluntary monopoly:
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(The consumer) is not so well served under monopoly prices as under
competitive prices ... Capital and labor which are withdrawn from the
production (with) ... monopolistic restriction . . . are employed for the
production of other things... But the consumers value these other
things less. (p. 385)
Rothbard's view that free-market monopoly is not even identifiable, much
less harmful to consumers, plays an important part in his exploitation theory of the
state.
HumanRightsas PropertyRights
At his best in this discussion, Rothbard masterfully demonstrates that "thereare no rights but property rights" (1970a, p. 176). The fact that all human rightssuch as free speech or freedom of assembly can be boiled down to property rightshas been obscured by government ownership of such facilities as streets. Conflictinginterests concerning the use of the streets for assembly or automobile travel can
only be solved arbitrarily. If ownership were private, it would be clear that no rightof assembly existed - only the right to rent or buy space for a meeting would exist.
Professor Rothbard's analysis of the classic case for the limitation of
individual rights by public policy is splendid. Consider Justice Holmes' famousstatement that no man can have the right to cry "Fire!" in a crowded theater.
Crying "Fire!," whether by a patron or by the theater owner, is a violation of
property rights. If the owner, or his agent cries "Fire!," he is depriving the patrons
of their rights, resulting from the owner's promise, to see a show of some sort. If
another patron shouts "Fire!" he is denying the right of the owner to put on his
show. Thus:
The person who maliciously cries "Fire!" in a crowded theater . . . is a
criminal, not because his... "right of free speech" must be prag-
matically restricted on behalf of the . . . "public good", but because he
has clearly and obviously violated the property rights of another human
being. (1970a, p. 177)
EconomicPower:CoercionPublicand Private
In clarifying the nature of the State, Rothbard excellently sharpens the
language, which is so often used as a blunt weapon by economists and political
philosophers. Private coercion is based on a change in the terms of, or refusal to
make, an exchange. But government coercion is ultimately based on violence or the
threat of violence. This passage points out the distinction:
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152 PUBLICCHOICE
A refuses to make an exchangewith B (perhapsby layinghim off from
his job) ... B brandishesa gun and ordersA to make his exchange ..
either B is committingviolence andshouldbe stoppedat once, or ... B
is perfectlyjustified in taking this step becausehe is simply "counter-acting the subtle coercion" of economic power wielded by A. (1970a,
pp. 169-170)
Thus,economic poweris the powerheld in varyingdegreesby everyone,to makeor
not to make voluntary exchange.This power is very differentfrom the threatened
or actual use of physicalforce which forms the basis of the State.
Economics,Economists,Values ndPublicPolicy
Rothbard has an interesting theory of the usefulness of economics which
provides, by extension, an explanation for a bias toward State intervention.The.
economist in a free market can explain the workingsof the market,but little else.
Rothbard's comments on the ability of economists to forecast are not compli-
mentary:
...(the economist) is of little aidto the businessman.He cannot forecast
future consumer demandsand future costs as well as the businessman;
if he could, then he would be the businessman.The entrepreneur swhere he is preciselybecause of his superiorforecastingability on the
market.(1970a, p. 189)
But government actions require more difficult and longer chains of theoretical
reasoningto enable the decision-makero evaluatetheirconsequences.Further,the
economist is "indispensableo any citizen who framesethical udgments n politicsbecause ethics is dependent on the actual effects of actions." The politicaleconomist is very valuable. Thus, by extension of Rothbard's analysis, the
economics profession has vested interests in governmentintervention.This holdstrue even if economists wereneverto be employedor subsidizedby the State itself.
Perhaps his explainsthe common observationthat economistsare so often found
defending the status quo. Closely related is the author'sprovocativediscussionof
economicsandimplicit moralizing.
In Rothbard's view, economists cannot absolve themselves of the respon-
sibility for makingvaluejudgmentswhen pronouncingon public policy by simply
adopting the values which they attribute to the community. He claims that,
"... uncriticallyadhering o all the prevailing thicaljudgments s simplyto engagein apologeticsfor the statusquo" (1970a, p. 191). In this conceptionthe economist
who advises on the best way to achieve a certain goal is thereby
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REVIEWARTICLE 153
committing himself to that goal. Economists cannot escape by assuming that
everyone'sends are ultimately the same.Clearly,some ends, such as the desirefor
power overmen, cannot be simultaneouslyachievedby manyindividuals.
But Rothbard overstateshis case. Advisingon the least-costway to achieve a
goal may only signify that the advisor s againstwaste.This is especiallytrueif the
advisorbelieves that the choice of a goal is insensitive to his impacton the cost of
achieving he goal.
Summaryand Conclusions
The case against the State presented by Rothbardis very disquieting.His
frustrating misunderstandingof the problems of monopoly and externalitiesweakens the argument,but one can easilyreformulate t in a moreelegantway: The
costs of State action are so great that they outweigh any possible improvementof
efficiency fromreducingmonopoly or internalizing xternalities.
Clearlythe mass murdersandwars and enslavementswhich havebeen carried
out throughout history by States exceed by a wide margin he ill effects of private
enterprise crime. And if we look at government activities within a relativelycivilized democracy like the U.S., we see that most governmentaction benefits a
small group at the expense of a largergroup (e.g. tariffs, subsidies,occupational
licensure).The assertionthat the net benefits of many governmentactivitiesare
negative is not an easy one to reject, however radical it may sound. However,
Rothbardhas not demonstrated he possibilityof a statelesssociety.
REFERENCES
1. Baumol, William J., Welfare Economics and the Theory of the State, 2nd
edition, HarvardUniversity Press, Cambridge, Massachusetts, (1965).
2. Buchanan, James M., Cost and Choice: An Inquiry in Economic Theory,
Markham,Chicago,(1969).
3. Buchanan,James M. and Gordon Tullock, The Calculusof Consent:LogicalFoundations of Constitutional Democracy, University of Michigan
Press, Ann Arbor, (1962).
4. Downs, Anthony, An Economic Theory of Democracy, Harper & Row, New
York, (1957).
5. Hayek, Friedrich A., The Road to Serfdom, University of Chicago Press,
(1944).
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154 PUBLIC CHOICE
6. , The Constitution of Liberty, University of Chicago Press,
(1960).
7. Olson, Jr., Mancur, The Logic of Collective Action: Public Goods and the
Theory of Groups, Revised edition, Schocken, New York, (1971).
8. Rothbard, Murray N., "Toward a Reconstruction of Utility and Welfare
Economics," in On Freedom and Free Enterprise, Mary Sennholtz,
editor, D. Van Nostrand, Princeton, New Jersey, (1956), pp. 224-262.
9. , "The Mantle of Science," in Scientism and Values, HelmutSchoeck and James W. Wiggins, editors, D. Van Nostrand, Princeton,
New Jersey, (1960), pp. 159-180.
10.,
Power and Market: Government and the Economy, Institutefor Humane Studies, Palo Alto, California, (1970a).
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