His belief in the right of property owners to establish libertarian communities that engage in racial discrimination, and his assertion that communities could establish exclusive criteria for admission and acceptance, have proven particularly divisive.

In Democracy Hoppe describes a fully libertarian society of "covenant communities" made up of residents who have signed an agreement defining the nature of that community. He writes that "There would be little or no 'tolerance' and 'openmindedness' so dear to left-libertarians. Instead, one would be on the right path toward restoring the freedom of association and exclusion implied in the institution of private property". He argues that towns and villages could have warning signs saying "no beggars, bums, or homeless, but also no homosexuals, drug users, Jews, Muslims, Germans, or Zulus".

Hoppe also makes plain that he believes that practicing certain forms of discrimination, including the physical removal of people whose lifestyle is deemed incompatible with the purpose of establishing certain communities, is completely compatible with his system.

Hoppe writes: "In a covenant concluded among proprietor and community tenants for the purpose of protecting their private property, no such thing as a right to free (unlimited) speech exists, . . . naturally no one is permitted to advocate ideas contrary to the very purpose of the covenant of preserving and protecting private property, such as democracy and communism. There can be no tolerance toward democrats and communists in a libertarian social order. They will have to be physically separated and expelled from society. Likewise, in a covenant founded for the purpose of protecting family and kin, there can be no tolerance toward those habitually promoting lifestyles incompatible with this goal. They – the advocates of alternative, non-family and kin-centered lifestyles such as, for instance, individual hedonism, parasitism, nature-environment worship, homosexuality, or communism – will have to be physically removed from society, too, if one is to maintain a libertarian order."

Commenting on this passage, Martin Snyder of the American Association of University Professors said Hoppe's words will disturb "[t]hose with a better memory than Hoppe for segregation, apartheid, internment facilities and concentration camps, for yellow stars and pink triangles".

Rothbard opposed egalitarianism and the civil rights movement, and blamed women's voting and activism for the growth of the welfare state. Later in his career, Rothbard advocated a libertarian alliance with paleoconservatism (which he called paleolibertarianism), favoring right-wing populism and defending David Duke. In the 2010s, he received renewed attention as an influence on the alt-right…

Michael O'Malley, associate professor of history at George Mason University, describes Rothbard's tone toward the civil rights movement and the women's suffrage movement as "contemptuous and hostile". Rothbard criticized women's rights activists, attributing the growth of the welfare state to politically active spinsters "whose busybody inclinations were not fettered by the responsibilities of health and heart". Rothbard argued that the progressive movement, which he regarded as a noxious influence on the United States, was spearheaded by a coalition of Yankee Protestants (people from the six New England states and upstate New York who were Protestants of English descent), Jewish women and "lesbian spinsters".

Rothbard called for the elimination of "the entire 'civil rights' structure", which he said "tramples on the property rights of every American". He consistently favored repeal of the 1964 Civil Rights Act, including Title VII regarding employment discrimination, and called for overturning the Brown v. Board of Education decision on the grounds that state-mandated integration of schools violated libertarian principles. In an essay called "Right-wing Populism", Rothbard proposed a set of measures to "reach out" to the "middle and working classes", which included urging the police to crack down on "street criminals", writing that "cops must be unleashed" and "allowed to administer instant punishment, subject of course to liability when they are in error". He also advocated that the police "clear the streets of bums and vagrants."

Rothbard held strong opinions about many leaders of the civil rights movement. He considered black separatist Malcolm X to be a "great black leader" and integrationist Martin Luther King Jr. to be favored by whites because he "was the major restraining force on the developing Negro revolution." Jacob Jensen writes that Rothbard's commentary from the 1960s, approving of both "black power" and "white power" in separated communities, amounted to support for racial segregation. In 1993, Rothbard rejected the vision of a "separate black nation", asking "does anyone really believe that ... New Africa would be content to strike out on its own, with no massive "foreign aid" from the U.S.A.?". Rothbard also suggested that opposition to Martin Luther King Jr., whom he demeaned as a "coercive integrationist", should be a litmus test for members of his "paleolibertarian" political movement.

Rothbard is described by the historian John P. Jackson Jr. as espousing antisemitism despite Rothbard's own background as a secular Jew. One former student described Rothbard as privately using the anti-Jewish slur "k---s" repeatedly. Rothbard also befriended the Holocaust deniers Willis Carto and Harry Elmer Barnes.