I want to introduce you to a great mind (not mine). This month we’ll take a break from my favorite topic (money creation) to share an interview with George Reisman, Ph.D., which originally appeared in The Objective Standard on February 5, 2021.1 Many great economists have praised Reisman’s magnum opus, Capitalism, A Treatise On Economics, as a brilliant, comprehensive defense of the free market and its morality. These include the late Nobel Laureates F.A. Hayek and James Buchanan and other famous thinkers like the late Henry Hazlitt, Hans Sennholz, and Walter Williams. It is no exaggeration to say I have learned more about the science of economics from George Reisman than from all other economists combined. Enjoy the conversation, and be sure to read to the end to see how our understanding of economics can change the course of history, for better or worse. – Jim Brown
George Reisman, Ph.D., the author of Capitalism: A Treatise on Economics, and professor emeritus of economics at Pepperdine University, is one of the greatest living defenders of capitalism. I caught up with him recently for a wide-ranging discussion on his early intellectual growth, how he was influenced by Ludwig von Mises and Ayn Rand, his books and lectures, and some economic theory.
Jim Brown: Professor George Reisman, welcome. Thank you for agreeing to this interview.
George Reisman: Thank you for inviting me.
Brown: I’d like to start with your early intellectual development. After reading your biography in the preface of your book Capitalism, one might think you were born a capitalist. As a young person, how did you decide that you wanted to be a defender of free markets and individual rights?
Reisman: When I was about five, in the middle of World War II, I asked my father why the United States deserved to win. He said it’s because the U.S.A. is the best country, and that’s because we have our Constitution. I must have grasped that something about a constitution determines whether a government is good or bad. I also understood that the government could not properly tell you what to do. I remember that when I was about six, I got into an argument with some other kids because I was sticking to my constitutional right to free speech to say that the president stinks. That was Franklin Roosevelt, and I didn’t know anything about him, but I knew that I had the right to say it.
By the time I was eleven, I had become a Republican, I guess mainly because I valued property rights. I would sometimes take a basketball or football down to the schoolyard. And there were these tough kids who would grab my ball and wouldn’t let me in the game. I was outraged, and I identified that that was exactly what the tenants and city government of New York were doing to the landlords. So, I was immediately against rent control.
Brown: So you didn’t come from the delivery room as a defender of rights, but apparently, you came from the playground that way?
Reisman: You could say that. And pretty soon, I recognized there was near universal opposition to individual rights, not just in New York City. I went off to summer camp in Maine. All of the counselors were anti-individual rights and pro-socialism in one way or another. I soon recognized that this is a nationwide problem. I started doing a little research. When I turned thirteen, I bought a copy of The Wealth of Nations with some of my bar mitzvah money. I read the opening chapters, but Adam Smith was very disappointing to me.
Brown: You were reading The Wealth of Nations at age thirteen? Many of today’s eighteen-year-olds can’t even read its chapter titles!
Reisman: Well, I can’t say that I understood it all. But even then, I recognized that Smith was espousing the idea that profits are unearned, and income properly should go to the wage earners. That disappointed me. The next book I got was a history of economic thought, which gave me an overview of various politico-economic thinkers and their ideas. Then, in the fall of 1950, I read some chapters in David Ricardo’s Principles of Political Economy and Taxation. Like Smith, he too espoused the labor theory of value, which became a core doctrine of Marxism.
But the next year, when I was fourteen, I came across books by William Stanley Jevons, a good economist and a persuasive critic of the labor theory of value.
Brown: What about your classmates and teachers? What did they think of your pro-freedom point of view?
Reisman: I’m glad you reminded me of that. I became an avid reader of a couple of conservative newspapers and concluded that since the defeat of the Nazis in WWII, the only problem in the world was the communists. At first, I thought the communists were just crackpots until one day I realized that a disproportionate number of these crackpots were teaching in my junior high school. That’s when the arguments got thick and fast. I still knew relatively little about economics. I thought all of the issues were constitutional, and I wanted to become a constitutional lawyer. But I observed that many people didn’t appreciate the Constitution because they were confused about economics. I realized that I needed to study economics because understanding economics is key to defending capitalism.
Brown: That seems to have become a lifelong conviction, because your book Capitalism fully integrates economics with philosophy, politics, and ethics.
Reisman: I didn’t arrive at that integrated understanding until much, much later. Most of the authors I had read wrote in a context where the division of labor was much less developed than it is today. I was looking for writers who could defend liberty in the context of a modern, industrialized society.
Brown: So, eventually, you did find one of the greatest modern free-market thinkers, Ludwig von Mises. How did you learn about him?
Reisman: I heard a radio broadcast that mentioned a publication called The Freeman. So I picked up a copy, and there was an article by Mises. I didn’t understand it all, but I knew that he was writing with great authority, so I became interested in his work. I tried to read Socialism when I was fourteen, but it was beyond me. I read it again a year later and got it. And that affected me for life. Mises was very individualistic in his outlook, so he was my inspiration. Once I got into Mises, I soon learned about other members of the Austrian school, such as Carl Menger and Eugen von Böhm-Bawerk.
Brown: How did you meet Mises?
Reisman: Oh, that is a good story. I had a high-school friend named Ralph Raico who was also interested in defending capitalism. So we hatched a plan to meet Mises. We got his address from The Freeman, and we thought we’d just go ring his doorbell and tell him we’re selling subscriptions to it. We rang the doorbell, and he opened the door and was dressed to go out to some formal affair. He was wearing a tuxedo shirt and suspenders, and we gave him our sales pitch. He said in a very thick Austrian accent, “I haf Ze Freeman,” and closed the door. We felt like we were two inches tall.
Later, we visited the Foundation for Economic Education, which published The Freeman, and some people there arranged for us to meet with Mises. We went to his apartment and had a several-hour discussion. He invited us to his graduate seminar at NYU, which we started attending a couple of months later. And we met other people there, the most prominent being Murray Rothbard, who later became known as a leading advocate for so-called “anarcho-capitalism.”
Brown: You were still in high school at this point, right?
Reisman: Yes, Ralph and I were the only high-school students in the seminar. This was late in the spring term of 1953. Anyway, I started at Columbia College that fall, and I attended Mises’s seminar for many years until earning my Ph.D. in 1963. At those early lectures, I remember having a very clear sense that I was in the presence of a truly great mind. Often after the seminar, I would go out with Raico and Rothbard and a few other people, and we’d have long discussions. It was a wonderful experience.
Brown: Was this about the time you met Ayn Rand?
Reisman: Yes. After we’d been in the seminar for about a year, Rothbard mentioned his acquaintance with Ayn Rand, and we all wanted to meet her, so he arranged it. I attended two meetings at her home in July of 1954. These started at about eight o’clock, and we didn’t leave till five in the morning.
Brown: So that would have been you, Ralph Raico, and Murray Rothbard?
Reisman: And I think Robert Hessen, too. Rand’s husband, Frank O’Connor, was there, and I’m sure there must have been some other people. Our discussions were wide-ranging and philosophical. I tried to defend Mises’s position that values are subjective, and I was astounded that I couldn’t persuade her, because she kept coming back with arguments that I couldn’t satisfactorily answer. On that and some other issues, I disagreed with her.
Brown: Were you on friendly terms with Rand?
Reisman: For a while it was somewhat uncomfortable, though it was not unfriendly. Rothbard and I didn’t come back to visit her until after Atlas Shrugged was published in 1957, which was a very important event for me. I read Atlas in four days, I think, doing nothing else but eating and sleeping. Raico, Rothbard, and I were talking every day on the phone as we were reading. After Atlas, we arranged to come back to meet with Miss Rand, and we all began seriously studying Objectivism.
Brown: What impact did reading Atlas have on you?
Reisman: I thought I was out of a job because I thought anyone who read Atlas Shrugged would either be converted to what she had to say or hospitalized with a mental breakdown. I thought it would take about six weeks to change the country and that’s it—there was nothing left for me to do.
Brown: At this point, you were still at Columbia College, correct?
Reisman: I had just graduated, in June of 1957. Then I enrolled in the New York University graduate school of business, first working on an MBA, and then later a Ph.D. under von Mises.
Brown: Were you still friends with Rothbard at this point?
Reisman: Our relationship was fine until the summer of 1958. But then there was a rift between Rothbard and Rand. He had written an essay for publication at a university symposium. I thought he made a few points for which he should have given her credit, and she certainly thought so, but Rothbard disagreed. I believe he thought that she was too controversial and didn’t want to be publicly affiliated with her. And so he split with Rand. I met with Rothbard in his apartment in July of ’58. I told him that I considered us friends, but I still thought he should have given her credit. He was outraged and told me to get out, and that was the end of our connection.
Brown: That must have been disappointing. How was your relationship with Rand at this point?
Reisman: I had another disagreement with her in August of ’58. Rothbard had persuaded me of “anarcho-capitalism,” which includes the idea that there should be competing governments. I prepared a paper on it, which I delivered in Rand’s living room for her and Barbara Branden. I thought I would convince them, but, of course, I didn’t. After a short time, I changed my view on that topic.
Brown: Was Rand responsible for changing your mind?
Reisman: Yes, I would say so. After that, I attended almost weekly discussions at her home with other Objectivists. You may have heard of a group called “The Collective.” That was Miss Rand’s ironic name for a group of us who met almost every Saturday until her breakup with Nathaniel Branden. After that, until she died in 1982, I had a number of opportunities to speak with her about her ideas and writings. And, of course, I referenced her throughout my book Capitalism.
Brown: So, during this period from 1958 to 1963, you were in graduate school and launching a teaching career?
Reisman: Yes. I got an MBA first. I decided that it would be a good idea to have a master’s degree along the way. So I wrote an MBA thesis. In preparation for that, I read or reread all the classical economists and most of the Austrians. I knew I had learned a lot by reading the classical economists’ various views on the same subject matter. And I described my condition to myself as “intellectually pregnant” with some new theories and formulations. This was when I first began developing my theory of profit.
Brown: Before we get into that, let’s flesh out your teaching and writing career.
Reisman: After my Ph.D., I taught economics at St. John’s University in New York City. I was also busy doing public lectures and writing articles. In 1979, I published my first book, The Government Against the Economy. (Later, I included the content of that book in Capitalism.) In that same year, after having moved to California, I started teaching at Pepperdine University, where I taught until 2005.
Brown: Then there was the Jefferson School, which so many of us enjoyed back in the 1980s.
Reisman: My wife, Edith Packer, and I founded the Jefferson School of Philosophy, Economics, and Psychology in 1982. We held summer conferences or fall seminars every year until 1994. During that period, I did a lot of the basic work on my book Capitalism, which was published in 1996. Year by year, the Jefferson School lectures turned into chapters. All told, I spent about fifteen years working on that book, including research, writing, and editing.
Brown: OK, let’s get into one of the important subjects you address in Capitalism. Your theory of profit is complex, but I’d like to ask about one aspect of it today. Would you describe how your reading of Adam Smith helped you understand the concept of profit?
Reisman: That’s an important point. Anyone interested should read the first eight paragraphs in book 1, chapter 8 of Smith’s The Wealth of Nations. He begins by imagining an “original state of things.” In that state, before there were landlords who owned the land, or capitalists who bought tools and materials or advanced wages ahead of the sale of products, workers produced commodities in order to sell them. And these workers were entitled to everything they produced. Smith called their product, and the money they received in exchange for it, the “wages of labor.” But then landlords and capitalists came along, and the wage earners who didn’t own real estate or have capital had to pay rent to a landlord, or “profits” to a capitalist. Smith regarded profits as a deduction from the “wages of labor” that originally and rightfully belonged to the workers.
Brown: This sounds like the beginnings of the Marxist exploitation theory.
Reisman: Yes. Smith was the father of Marx in that respect. But Smith was wrong. Let’s start with Smith’s “original state,” where there are no landlords or capitalists. The workers are producing and selling products and commodities. What would you call the money they receive in exchange for their products? If a worker grows some corn, and I pay him money in exchange for the corn, am I paying him a wage? Or am I paying him sales revenue?
Brown: That sounds like sales revenue.
Reisman: It’s sales revenue. Now, profit is sales revenue minus cost. The worker has no money cost here, because in the “original state of things” that Smith assumes, the worker has made no outlays of money to produce the product he sells. If he had made such outlays, the case would be one of capitalist activity, not the “original state of things.” Because he has not made any such outlays, he has no money costs, costs being the reflection of such outlays. So his sales revenue is pure profit, not a wage. Smith got it backward. Even in his own framework, profit, not wages, is the original form of income. Now, because the entire sales revenue is profit, the rate of profit on sales is 100 percent. There are no wages until the capitalist arrives on the scene. The capitalist advances wages ahead of production and buys machinery and materials before anything is produced or sold. So, the capitalist introduces costs; and in doing so, he not only increases overall production, which is in everyone’s interest, but he reduces the overall rate of profit. Unfortunately, Smith could not see this. Years later, Marx came along and condemned profits as a tool of exploiting workers, based on Smith’s false framework.
Brown: You wrote in Capitalism that if Smith had understood this point, the history of the world might have been very different. It’s an example of what you recognized in childhood: that sound economic theory is key to the defense of capitalism and freedom.
Reisman: Yes, without Marx’s exploitation theory, which was based on Smith’s confusions, we might have avoided the class war doctrine, communist revolutions, and hatred of capitalists by workers. And we’d likely have far less guilt on the part of capitalists because capitalists believe this stuff, too. You know, people seem very shocked today that billionaires are supporting socialists. But that’s gone on since Marx. Friedrich Engels was a very wealthy cotton mill owner. And he supported Marx. Marx taught that if you are a capitalist, you’re controlled by your so-called “class interest,” but, of course, there is no such thing. People make decisions based on the ideas they accept as true. There are many wealthy businessmen today who accept Marxist doctrines, and they feel massively guilty about the money they’ve made. They’re supporting communist causes—I imagine as a means of atoning for their guilt. That illustrates the power of ideas.
Brown: I’ve heard it said that capitalists will never save capitalism, and you’re giving a good explanation for why that’s true. And it’s worthy of further discussion, but we are out of time. I hope we can get together again and discuss other economic topics.
Reisman: Thanks, I am open to that.
Brown: Where can TOS readers find your books and lectures?
Reisman: My website is capitalism.net, and it will guide you not only to my books and lectures but to an entire course of self-study in economics. My books and pamphlets are available at http://amazon.com/author/george-reisman.2
Also, I blog at https://georgereismansblog.blogspot.com. Dozens of my essays and videotaped lectures on a variety of topics are available on Mises.org. And I just released a series of lectures I gave at Pepperdine University back in 2004 and 2005. These are in original, largely unedited form and are available on Google Drive at no charge.3
Brown: Dr. Reisman, thank you for sharing your memories and insights today.
Reisman: It was my pleasure.
1 The original interview is reprinted here under an agreement with The Objective Standard’s editors.
Cap Mag Editor’s Note: You can now also listen to Reisman’s lectures on Spotify or on Google podcasts as The Capitalist Professor.