The archive.

Monopoly, in this account, is less a market form than an institutional problem: every arrangement by which alternatives are restricted — business combinations and buyer power, union control of labor markets, and above all government policies that shelter favored groups from competition. Machlup credits antitrust with making cartel agreements less secure, yet judges the law of monopolization, the prohibition of trusts and mergers, a dismal failure. His sharpest reversal is that monopoly is often a product of public permission, manufactured through licensing, tariffs, patents, and marketing orders. He carries the same logic into labor, rejecting the purchasing-power theory of wage increases and denying that union monopoly offsets business monopoly — their effects, he argues, are additive rather than compensatory. First published in 1952, it remains his most sustained brief for open entry.

The economic policies of government are far-flung and many-sided. On many fronts, therefore, could government fight for competition and against monopoly if it so desired. It has not seen fit to do so.

The Rio Agreement on Special Drawing Rights succeeded, on Machlup's reading, precisely because it refused to call a spade a spade: by avoiding contested words — credit, loan, reserve, repayment — it let France read SDRs as a repayable credit facility while Britain and America read them as new reserve assets. Reconstructing the negotiations among the IMF and the Group of Ten, he explains SDRs as a closed giro system among monetary authorities, money created by allocation rather than lending, whose acceptability rests on mutual willingness rather than collateral. He endorses the design while insisting on its limits: added liquidity works only indirectly, easing the pressure that pushes governments toward import restrictions and deflation, and it leaves the dollar overhang, gold speculation, and rigid exchange rates unresolved.

Money needs takers, not backers; the takers accept it, not because of any backing, but only because they count on others accepting it from them.

A word that means one thing in Vienna and nearly its opposite in Washington cannot anchor a coherent politics — and liberalism, Machlup argues, has drifted until an American liberal would count as an anti-liberal in Europe. Originating as a Hayek lecture, the essay traces that drift from Lockean individualism through the reinterpretation of freedom as effective power, and dissects two governing confusions: being free to act versus being free from want, and what one may do versus what one can do. Against the slogan that freedom is indivisible he sets a catalogue of some two dozen distinct liberties — economic, political, intellectual, moral — that routinely collide. The genuine liberal, he concludes, ranks freedoms and restricts one only to secure another, and refuses to let welfare be relabeled as liberty.

Food is not liberty, and liberty is not food. Medical care is not liberty, and liberty is not medical care.

Education and income rise together, but which drives which? Machlup's compact study, expanded from a 1969 lecture, insists the causation runs both ways and on different clocks: schooling may raise productivity only after long lags, while prosperity quickly raises the demand for education — and, crucially, its cost. He is skeptical of residual-growth accounting that credits education with large unexplained gains, warns that in poor agrarian societies schooling can breed aversion to manual work and urban frustration, and separates the long payoff of formal schooling from the faster returns of on-the-job training. His most durable point is structural: because teaching is labor-intensive and resists productivity gains, education grows dearer as wages climb in the sectors that do, the logic later christened Baumol's cost disease.

Educational efforts may be regarded as consumption, investment, waste, or drag.

Presented frankly as a mystery story, this essay treats the explosive growth of Euro-dollar deposits as a conceptual puzzle before an empirical one. Machlup's verdict is a disciplined agnosticism: Euro-banks may have created dollar money, but the statistics cannot say how much, because the debate keeps confusing deposits with loans, credit with money, and flows with stocks. He polices those categories relentlessly — distinguishing legal form from economic function, primary from derivative deposits, genuine money creation from the interbank redepositing that inflates gross totals through London-Zurich-Milan chains. His preferred analogy is the American nonmember bank, holding claims on member banks as reserves and building liabilities atop them. Offshore dollars, he concludes, are real, regulation-sensitive, and largely invisible to any national money-stock measure — stateless money.

Words guide the attention of the audience; the use of the word "market" may divert attention from the important nonmarket aspects of the Euro-dollar system.

When Washington stopped buying and selling gold in August 1971, the official thirty-five dollars an ounce ceased to be a price and became a mere bookkeeping entry — and most of the ensuing debate, Machlup contends, mistook that accounting figure for an operative economic force. Devaluing the dollar in gold would change nothing real: trade, employment, and competitiveness turn on exchange rates set in the market, not on how governments label their gold stocks. He dismisses the talk of burden sharing as claptrap, separates genuine transfer burdens from the mercantilist pseudo-burden of forgone reserves, and warns that raising gold's book value would keep alive the illusion of restored gold convertibility. What matters instead is purchasing power: no asset serves as a reserve unless its holder knows what he can get for it.

Where there are no sales, no purchases, and no exchanges of gold against dollars, there can be neither a price nor an exchange value of gold in dollars.

Persistent payments imbalance, when it will not soon correct itself, is best met by realigning the exchange rate rather than by controls, reserve losses, borrowing, inflation, or deflation — so run these two Horowitz Lectures. Machlup distrusts the notion of a single equilibrium rate, since money, wages, productivity, and capital flows shift too continually, and prefers to speak of alignment and disalignment. The first lecture reduces the choice to its essentials: adjust supply and demand to the rate, or adjust the rate to supply and demand, counting deflation's unemployment and inflation's distortions as the real costs. The second is political economy, explaining why governments delay until a small early move becomes a wrenching late one, and defending crawling pegs, wider bands, and temporary floating.

Currency speculation is a function of disaligned exchange rates that are expected to undergo adjustment by large jumps.

Two classic claims for socialism — that it produces more efficiently and distributes more justly — organize this pointed commentary, in which Machlup largely concedes Bergson's empirical comparison of Soviet and Western performance in order to train his fire on Tinbergen's case for income equalization. Egalitarian welfare economics, he argues, cannot smuggle equality in as a technical result: it rests on ethical postulates that can be assented to but never proved, on an implausible welfare thermometer of interpersonal utility, and on a neglect of incentives, envy doing much of the work solidarity is supposed to do. Push Tinbergen's logic to the globe, Machlup adds, and it demands a redistribution between rich and poor nations no wealthy electorate would ratify. His closing witness is Stalin, quoted condemning wage-leveling.

In a worldwide referendum I would expect a majority to vote for radical redistribution, so that the poor can share the wealth with the rich—with the result that all would be equally poor.

Economic Man — homo oeconomicus — stood accused of materialism, greed, and a degraded picture of humanity, and Machlup treats that hostility as the real subject of inquiry. Sampling the denunciations of Barton, the Historical School, Carey, and Ruskin, he grants that economists often described the construct badly, equating wealth with material goods and maximization with selfishness. But poor descriptions of a model do not refute the need for one. Reconstructing the methodological quarrel among Mill, Senior, Bagehot, Cairnes, and Wicksteed, he argues that maximization is not egoism and that Economic Man is no portrait of the whole person but a premise within a hypothetico-deductive system — a homunculus, not a man, built to explain how agents react when prices, incomes, and costs change.

The ‘bogey’ to whom this essay will be devoted is Economic Man.

Behind the fashionable slogan of “international liquidity,” Machlup finds a cluster of distinct problems the phrase conveniently blurs: reserve adequacy, exchange-rate adjustment, the status of gold, and the institutional meaning of Special Drawing Rights. Replying to Teschner in a tightly timed conference intervention, he refuses any single-cause story of the Bretton Woods collapse — rapid reserve growth let countries postpone adjustment, but shrinking American gold cover mattered too. He defends the original SDR as an unbacked reserve asset distributed gratis, warns against schemes that would smuggle back the notion of “coverage,” and turns his “Mrs. Machlup’s wardrobe” parable against simplistic reserve-demand estimates. The lecture’s force lies in dismantling the pseudo-precision of monetary reform and asking what its concepts actually measure.

Die Währungsbehörden sind in der Regel optimistisch und glauben immer, daß der gegenwärtige Kurs auch der richtige ist.

English translation: “The monetary authorities are as a rule optimistic and always believe that the prevailing rate is also the correct one.”

Drafted in August 1973 for the German Council of Economic Experts and printed unchanged as a Kiel lecture, this expert memorandum asks whether the dollar was truly undervalued against the floating currencies, above all the D-Mark. Machlup turns a policy question into a methodological one: once rates are set by markets, expectations, capital flows, and official intervention, terms like “undervaluation” and “equilibrium exchange rate” lose any firm meaning, and calling a free-market rate wrong is merely a forecast of future correction. He rejects purchasing-power parity for small index movements, denies any clean statistical split between short- and long-term capital, and names capital flows the strongest of all forces on the exchange market. No durable, correct external value of the dollar, he concludes, can be computed at all.

Die Behauptung, der Dollar sei über- oder unterbewertet, drückt immer ein Mißtrauensvotum aus.

English translation: “The assertion that the dollar is over- or undervalued always expresses a vote of no confidence.”

Ludwig von Mises tested a young university student in 1921 by demanding he read English, assigning the major economics books, and admitting him to the seminar only when he returned having read most of them. From that scene Machlup builds a commemorative portrait of Mises as teacher, political seer, and exemplar of liberal conviction. He distinguishes the selective private Privatseminar at the Vienna Chamber of Commerce from the university course, recalls Mises’s foresight about the Kreditanstalt collapse, and frames the emigrations of Hayek, Haberler, and himself as heeding the master’s warning. Defending Mises’s apriorism as theory that still requires judgment in application, he reports socialist economists privately conceding the calculation argument: without genuine markets, prices become administrative fictions rather than guides to allocation.

IT WAS in 1921 that I met my master.