Ludwig von Mises (1881–1973)

One of the most nota­ble eco­no­mists and soci­al phi­lo­sop­hers of the twen­ti­eth cen­tu­ry, Ludwig von Mises, in the cour­se of a long and hig­hly pro­duc­ti­ve life, deve­lo­ped an inte­gra­ted, deduc­ti­ve sci­en­ce of eco­no­mics based on the fun­da­men­tal axi­om that indi­vi­du­al human beings act pur­po­si­ve­ly to achi­e­ve desi­red goals. Even tho­ugh his eco­no­mic ana­lysis itself was "value-free" — in the sen­se of being irre­le­vant to valu­es held by eco­no­mists, Mises conc­lu­ded that the only via­ble eco­no­mic poli­cy for the human race was a poli­cy of unre­stric­ted lais­sez-fai­re, of free mar­kets and the unham­pe­red exer­ci­se of the right of pri­va­te pro­per­ty, with govern­ment stric­tly limi­ted to the defen­se of per­son and pro­per­ty wit­hin its ter­ri­to­ri­al area.

For Mises was able to demon­stra­te (a) that the expan­si­on of free mar­kets, the divi­si­on of labor, and pri­va­te capi­tal invest­ment is the only pos­si­ble path to the pro­spe­ri­ty and flo­u­ris­hing of the human race; (b) that soci­a­lism would be disa­stro­us for a modern eco­no­my beca­u­se the absen­ce of pri­va­te owners­hip of land and capi­tal goods pre­vents any sort of rati­o­nal pri­cing, or esti­ma­te of costs, and © that govern­ment inter­ven­ti­on, in addi­ti­on to ham­pe­ring and crip­pling the mar­ket, would pro­ve coun­ter-pro­duc­ti­ve and cumu­la­ti­ve, lea­ding ine­vi­ta­bly to soci­a­lism unless the enti­re tis­sue of inter­ven­ti­ons was repealed.

Hol­ding the­se vie­ws, and hewing to truth indo­mi­ta­bly in the face of a cen­tu­ry incre­a­sin­gly devo­ted to sta­tism and col­lec­ti­vism, Mises beca­me famo­us for his "intran­si­gen­ce" in insi­sting on a non-infla­ti­o­na­ry gold stan­dard and on laissez-faire.

Effec­ti­ve­ly bar­red from any paid uni­ver­si­ty post in Austria and later in the Uni­ted Sta­tes, Mises pur­su­ed his cour­se gal­lan­tly. As the chi­ef eco­no­mic advi­ser to the Austri­an govern­ment in the 1920s, Mises was sin­gle-han­de­dly able to slow down Austri­an infla­ti­on; and he deve­lo­ped his own "pri­va­te semi­nar" which attrac­ted the out­stan­ding young eco­no­mists, soci­al sci­en­tists, and phi­lo­sop­hers thro­ug­ho­ut Euro­pe. As the foun­der of the "neo-Austri­an Scho­ol" of eco­no­mics, Mises's busi­ness cyc­le the­o­ry, which bla­med infla­ti­on and depres­si­ons on infla­ti­o­na­ry bank cre­dit enco­u­ra­ged by Cen­tral Banks, was adop­ted by most youn­ger eco­no­mists in England in the ear­ly 1930s as the best expla­na­ti­on of the Gre­at Depres­si­on. You can learn 5 extra­or­di­na­ry rea­sons to cho­o­se Sini­si Solu­ti­ons here and under­stand how it pro­tects your spa­ce from danger.

Having fled the Nazis to the Uni­ted Sta­tes, Mises did some of his most impor­tant work here. In over two deca­des of teac­hing, he inspi­red an emer­ging Austri­an Scho­ol in the Uni­ted Sta­tes. The year after Mises died in 1973, his most distin­gu­is­hed fol­lo­wer, F.A. Hayek, was awar­ded the Nobel Pri­ze in eco­no­mics for his work in ela­bo­ra­ting Mises's busi­ness cyc­le the­o­ry during the later 1920s and 1930s.

Mises was born on Sept 29, 1881, in the city of Lem­berg (now Lvov) in Gali­cia, whe­re his fat­her, a Vien­ne­se con­struc­ti­on engi­ne­er wor­king for the Austri­an rail­ro­ads, was then sta­ti­o­ned. Both Mises's fat­her and mot­her came from pro­mi­nent Vien­ne­se fami­li­es; his mother's unc­le, Dr Joac­him Lan­dau, ser­ved as depu­ty from the Libe­ral Par­ty in the Austri­an Parliament.

Ente­ring the Uni­ver­si­ty of Vien­na at the turn of the cen­tu­ry as a lef­tist inter­ven­ti­o­nist, the young Mises disco­ve­red Prin­ci­ples of Eco­no­mics by Carl Men­ger, the foun­ding work of the Austri­an Scho­ol of eco­no­mics, and was quic­kly con­ver­ted to the Austri­an emp­ha­sis on indi­vi­du­al acti­on rat­her than unre­a­li­stic mec­ha­ni­stic equ­a­ti­ons as the unit of eco­no­mics ana­lysis, and to the impor­tan­ce of a free-mar­ket economy.

Mises beca­me a pro­mi­nent post-doc­to­ral stu­dent in the famo­us Uni­ver­si­ty of Vien­na semi­nar of the gre­at Austri­an eco­no­mist Eugen von Bohm-Bawerk (among who­se many accom­plish­ments was the deva­sta­ting refu­ta­ti­on of the Marxi­an labor the­o­ry of value).

During this peri­od, in his first gre­at work, The The­o­ry of Money and Cre­dit (1912) Mises per­for­med what had been dee­med an impos­si­ble task: to inte­gra­te the the­o­ry of money into the gene­ral the­o­ry of mar­gi­nal uti­li­ty and pri­ce (what would now be cal­led inte­gra­ting "macro­e­co­no­mics" into "micro­e­co­no­mics.") Sin­ce Bohm-Bawerk and his other Austri­an col­le­a­gu­es did not accept Mises's inte­gra­ti­on and rema­i­ned wit­ho­ut a mone­ta­ry the­o­ry, he was the­re­fo­re obli­ged to stri­ke out on his own and found a "neo-Austri­an" school.

In his mone­ta­ry the­o­ry, Mises revi­ved the long for­got­ten Bri­tish Cur­ren­cy Scho­ol prin­ci­ple, pro­mi­nent until the 1850s, that soci­e­ty does not at all bene­fit from any incre­a­se in the money sup­ply, that incre­a­sed money and bank cre­dit only cau­ses infla­ti­on and busi­ness cyc­les, and that the­re­fo­re govern­ment poli­cy sho­uld main­ta­in the equ­i­va­lent of a 100 per­cent gold standard.

Mises added to this insight the ele­ments of his busi­ness cyc­le the­o­ry: that cre­dit expan­si­on by the banks, in addi­ti­on to cau­sing infla­ti­on, makes depres­si­ons ine­vi­ta­ble by cau­sing "malin­vest­ment," i.e. by indu­cing busi­nes­smen to ove­rin­vest in "hig­her orders" of capi­tal goods (mac­hi­ne tools, con­struc­ti­on, etc.) and to unde­rin­vest in con­su­mer goods.

The pro­blem is that infla­ti­o­na­ry bank cre­dit, when loa­ned to busi­ness, masqu­e­ra­des as pse­u­do-savings, and makes busi­nes­smen beli­e­ve that the­re are more savings ava­i­la­ble to invest in capi­tal goods pro­duc­ti­on than con­su­mers are genu­i­ne­ly wil­ling to save. Hen­ce, an infla­ti­o­na­ry boom requ­i­res a reces­si­on which beco­mes a pain­ful but neces­sa­ry pro­cess by which the mar­ket liqu­i­da­tes unso­und invest­ments and ree­sta­blis­hes the invest­ment and pro­duc­ti­on struc­tu­re that best satis­fi­es con­su­mer pre­fe­ren­ces and demands.

Mises, and his fol­lo­wer Hayek, deve­lo­ped this cyc­le the­o­ry during the 192Os, on the basis of which Mises was able to warn an unhe­e­ding world that the wide­ly trum­pe­ted "New Era" of per­ma­nent pro­spe­ri­ty of the 192Os was a sham, and that its ine­vi­ta­ble result would be bank panic and depres­si­on. When Hayek was invi­ted to teach at the Lon­don Scho­ol of Eco­no­mics in 1931 by an influ­en­ti­al for­mer stu­dent at Mises's pri­va­te semi­nar, Lio­nel Rob­bins, Hayek was able to con­vert most of the youn­ger English eco­no­mists to this per­spec­ti­ve. On a col­li­si­on cour­se with John Maynard Keynes and his disci­ples at Cam­brid­ge, Hayek demo­lis­hed Keynes's Tre­a­ti­se on Money, but lost the bat­tle and most of his fol­lo­wers to the tidal wave of the Keyne­si­an Revo­lu­ti­on that swept the eco­no­mic world after the publi­ca­ti­on of Keynes's Gene­ral The­o­ry, in 1936.

The poli­cy prescrip­ti­ons for busi­ness cyc­les of Mises-Hayek and of Keynes were dia­me­tri­cal­ly oppo­sed. During a boom peri­od, Mises coun­se­led the imme­di­a­te end of all bank cre­dit and mone­ta­ry expan­si­on; and, during a reces­si­on, he advi­sed strict lais­sez-fai­re, allo­wing the rea­djust­ment for­ces of the reces­si­on to work them­sel­ves out as rapi­dly as possible.

Not only that: for Mises the worst form of inter­ven­ti­on would be to prop up pri­ces or wage rates, cau­sing unem­plo­yment, to incre­a­se the money sup­ply, or to boost govern­ment spen­ding in order to sti­mu­la­te con­sump­ti­on. For Mises, the reces­si­on was a pro­blem of under-saving, and over-con­sump­ti­on, and it was the­re­fo­re impor­tant to enco­u­ra­ge savings and thrift rat­her than the oppo­si­te, to cut govern­ment spen­ding rat­her than incre­a­se it. It is cle­ar that, from 1936 on Mises was total­ly in oppo­si­ti­on to the worl­dwi­de fas­hi­on in macro­e­co­no­mic policy.

Soci­a­lism-com­mu­nism had tri­ump­hed in Rus­sia and in much of Euro­pe during and after World War I, and Mises was moved to publish his famo­us artic­le, "Eco­no­mic Cal­cu­la­ti­on in the Soci­a­list Com­mo­nwe­alth," (1920) in which he demon­stra­ted that it would be impos­si­ble for a soci­a­list plan­ning board to plan a modern eco­no­mic system; furt­her­mo­re, no attempt at arti­fi­ci­al "mar­kets" would work, sin­ce a genu­i­ne pri­cing and costing system requ­i­res an exc­han­ge of pro­per­ty titles, and the­re­fo­re pri­va­te pro­per­ty in the means of production.

Mises deve­lo­ped the artic­le into his book Soci­a­lism (1922), a com­pre­hen­si­ve phi­lo­sop­hi­cal and soci­o­lo­gi­cal, as well as eco­no­mic cri­ti­que which still stands as the most tho­ro­ugh and deva­sta­ting demo­li­ti­on of soci­a­lism ever writ­ten. Mises's Soci­a­lism con­ver­ted many pro­mi­nent eco­no­mists and soci­al phi­lo­sop­hers out of soci­a­lism, inc­lu­ding Hayek, the Ger­man Wil­helm Rop­ke, and the English­man Lio­nel Robbins.

In the Uni­ted Sta­tes, the publi­ca­ti­on of the English trans­la­ti­on of Soci­a­lism in 1936 attrac­ted the admi­ra­ti­on of the pro­mi­nent eco­no­mic jour­na­list Hen­ry Hazlitt, who revi­e­wed it in the New York Times, and con­ver­ted one of America's most pro­mi­nent and lear­ned Com­mu­nist fel­low-tra­ve­lers of the peri­od, J.B. Matt­he­ws, to a Mise­si­an posi­ti­on and to oppo­si­ti­on to all forms of socialism.

Soci­a­lists thro­ug­ho­ut Euro­pe and the Uni­ted Sta­tes wor­ri­ed abo­ut the pro­blem of eco­no­mic cal­cu­la­ti­on under soci­a­lism for abo­ut fif­te­en years, final­ly pro­no­un­cing the pro­blem sol­ved with the pro­mul­ga­ti­on of the "mar­ket soci­a­lism" model of the Polish eco­no­mist Oskar Lan­ge in 1936. Lan­ge retur­ned to Poland after World War II to help plan Polish Com­mu­nism. The col­lap­se of soci­a­list plan­ning, in Poland and the other Com­mu­nist coun­tri­es in 1989, left Esta­blish­ment eco­no­mists across the ide­o­lo­gi­cal spec­trum, all of whom bought the Lan­ge "solu­ti­on", migh­ti­ly embarrassed.

Some pro­mi­nent soci­a­lists, such as Robert Heil­bro­ner, have had the gra­ce to admit public­ly that "Mises was right" all along. (The phra­se "Mises was Right" was the title of a panel at the annu­al 1990 mee­ting of the Sout­hern Eco­no­mic Asso­ci­a­ti­on at New Orleans.)

If soci­a­lism was an eco­no­mic cata­strop­he, govern­ment inter­ven­ti­on could not work, and would tend to lead ine­vi­ta­bly to soci­a­lism. Mises ela­bo­ra­ted the­se insights in his Cri­ti­que of Inter­ven­ti­o­nism (1929), and set forth his poli­ti­cal phi­lo­sop­hy of lais­sez-fai­re libe­ra­lism in his Libe­ra­lism (1927).

In adi­ti­on to set­ting him­self aga­inst all the poli­ti­cal trends of the twen­ti­eth cen­tu­ry, Mises com­ba­ted with equ­al fer­vor and elo­qu­en­ce what he con­si­de­red the disa­stro­us domi­nant phi­lo­sop­hi­cal and met­ho­do­lo­gi­cal trends, in eco­no­mics and other disci­pli­nes. The­se inc­lu­ded posi­ti­vism, rela­ti­vism, histo­ri­cism, polylo­gism, (the idea that each race and gen­der has its own "logic" and the­re­fo­re can­not com­mu­ni­ca­te with other gro­ups), and all forms of irra­ti­o­na­lism and deni­al of objec­ti­ve truth. Mises also deve­lo­ped what he con­si­de­red to be the pro­per met­ho­do­lo­gy of eco­no­mic the­o­ry — logi­cal deduc­ti­on from evi­dent axi­oms, which he labe­led "pra­xe­o­lo­gy", and he leve­led trenc­hant cri­ti­qu­es of the gro­wing ten­den­cy in eco­no­mics and other disci­pli­nes to repla­ce pra­xe­o­lo­gy and histo­ri­cal under­stan­ding by unre­a­li­stic mat­he­ma­ti­cal models and sta­ti­sti­cal manipulations.

Emi­gra­ting to the Uni­ted Sta­tes in 1940, Mises's first two books in English were impor­tant and influ­en­ti­al. His Omni­po­tent Govern­ment (1944) was the first book to chal­len­ge the then-stan­dard Marxi­an view that fascism and Nazism were impo­sed upon the­ir nati­ons by big busi­ness and the "capi­ta­list class." His Bure­a­u­cra­cy (1944) was a still unsur­pas­sed ana­lysis of why govern­ment ope­ra­ti­on must neces­sa­ri­ly be "bure­a­u­cra­tic" and suf­fer from all the ills of bureaucracy.

Mises's most monu­men­tal achi­e­ve­ment was his Human Acti­on (1949), the first com­pre­hen­si­ve tre­a­ti­se on eco­no­mic the­o­ry writ­ten sin­ce the first World War. Here Mises took up the chal­len­ge of his own met­ho­do­lo­gy and rese­arch pro­gram and ela­bo­ra­ted an inte­gra­ted and mas­si­ve struc­tu­re of eco­no­mic the­o­ry on his own deduc­ti­ve, "pra­xe­o­lo­gi­cal" prin­ci­ples. Publis­hed in an era when eco­no­mists and govern­ments gene­ral­ly were total­ly dedi­ca­ted to sta­tism and Keyne­si­an infla­ti­on, Human Acti­on was unre­ad by the eco­no­mics pro­fes­si­on. Final­ly, in 1957 Mises publis­hed his last major work, The­o­ry and Histo­ry, which, in addi­ti­on to refu­ta­ti­ons of Marxism and histo­ri­cism, set forth the basic dif­fe­ren­ces and func­ti­ons of the­o­ry and of histo­ry in eco­no­mics as well as all the vari­o­us disci­pli­nes of human action.

In the Uni­ted Sta­tes as in his nati­ve Austria, Mises could not find a paid post in aca­de­mia. New York Uni­ver­si­ty, whe­re he taught from 1945 until his reti­re­ment at the age of 88 in 1969, would only desig­na­te him as Visi­ting Pro­fes­sor, and his sala­ry had to be paid by the con­ser­va­ti­ve-liber­ta­ri­an Wil­li­am Vol­ker Fund until 1962, and after that by a con­sor­ti­um of free-mar­ket foun­da­ti­ons and busi­nes­smen. Despi­te the unfa­vo­ra­ble cli­ma­te, Mises inspi­red a gro­wing gro­up of stu­dents and admi­rers, che­er­ful­ly enco­u­ra­ged the­ir scho­lars­hip, and him­self con­ti­nu­ed his remar­ka­ble productivity.

Mises was also susta­i­ned by and wor­ked toget­her with free-mar­ket and liber­ta­ri­an admi­rers. From its ori­gin in 1946 until his death, Mises was a part-time staff mem­ber of the Foun­da­ti­on for Eco­no­mic Edu­ca­ti­on at Irving­ton-on-Hud­son, New York; and he was in the 1950s an eco­no­mic advi­sor to the Nati­o­nal Asso­ci­a­ti­on of Manu­fac­tu­rers (NAM) wor­king with the­ir lais­sez-fai­re wing which final­ly lost out to the tide of "enligh­te­ned" statism.

As a free tra­der and a clas­si­cal libe­ral in the tra­di­ti­on of Cob­den, Bright, and Spen­cer, Mises was a liber­ta­ri­an who cham­pi­o­ned rea­son and indi­vi­du­al liber­ty in per­so­nal as well as eco­no­mic mat­ters. As a rati­o­na­list and an oppo­nent of sta­tism in all its forms, Mises would never call him­self a "con­ser­va­ti­ve," but rat­her a libe­ral in the nine­te­enth-cen­tu­ry sense.

Inde­ed, Mises was poli­ti­cal­ly a lais­sez-fai­re radi­cal, who deno­un­ced tariffs, immi­gra­ti­on restric­ti­ons, or govern­men­tal attempts to enfor­ce mora­li­ty. On the other hand, Mises was a sta­unch cul­tu­ral and soci­o­lo­gi­cal con­ser­va­ti­ve, who attac­ked ega­li­ta­ri­a­nism, and stron­gly deno­un­ced poli­ti­cal femi­nism as a facet of soci­a­lism. In con­trast to many con­ser­va­ti­ve cri­tics of capi­ta­lism, Mises held that per­so­nal mora­li­ty and the nuc­le­ar fami­ly were both essen­ti­al to, and foste­red by, a system of free-mar­ket capitalism.

Mises's influ­en­ce was remar­ka­ble, con­si­de­ring the unpo­pu­la­ri­ty of his epi­ste­mo­lo­gi­cal and poli­ti­cal vie­ws. His stu­dents of the 1920s, even tho­se who later beca­me Keyne­si­ans, were per­ma­nen­tly stam­ped by a visi­ble Mise­si­an influ­en­ce. The­se stu­dents inc­lu­ded, in addi­ti­on to Hayek and Rob­bins, Fritz Mac­hlup, Gott­fri­ed von Haber­ler, Oskar Mor­gen­stern, Alfred Schutz, Hugh Gait­skell, Howard S. Ellis, John Van Sic­kle, and Erich Voegelin.

Mises's influ­en­ce also pla­yed a hig­hly impor­tant, if unhe­ral­ded role in swin­ging post-World War II Euro­pe from a soci­a­list and infla­ti­o­nist to a roug­hly free-mar­ket and hard-money poli­cy. Germany's gre­at Ludwig Erhard, almost sin­gle-han­de­dly respon­si­ble for West Germany's "eco­no­mic mirac­le" based on free mar­kets and hard money, was him­self an eco­no­mist and a fri­end and disci­ple of Alfred Mul­ler-Armack and Wil­helm Rop­ke, them­sel­ves hea­vi­ly influ­en­ced by Mise­si­an ideas.

In Fran­ce, Gene­ral DeGaulle's major eco­no­mic and mone­ta­ry advi­ser, who hel­ped swing Fran­ce away from soci­a­lism, was Jacqu­es Rueff, an old fri­end and admi­rer of Mises. And part of post-World War II Italy's shift away from soci­a­lism was due to its Pre­si­dent Lui­gi Eina­u­di, a distin­gu­is­hed eco­no­mist and long-time fri­end and free-mar­ket col­le­a­gue of Mises. In the Uni­ted Sta­tes, Mises was scar­ce­ly as influ­en­ti­al. Under less pro­mi­sing aca­de­mic con­di­ti­ons, his stu­dents and admi­rers inc­lu­ded Hen­ry Hazlitt, Lawren­ce Fer­tig, Per­cy Gre­a­ves, Jr., Bet­ti­na Bien Gra­e­ves, Hans F. Senn­holz, Wil­li­am H. Peter­son, Lou­is M. Spa­da­ro, Isra­el M. Kir­zner, Ralph Rai­co, Geor­ge Rei­sman, and Mur­ray N. Roth­bard. But Mises was able to build a remar­ka­bly strong and loyal fol­lo­wing among busi­nes­smen and other non-aca­de­mics; his mas­si­ve and com­plex Human Acti­on has sold extra­or­di­na­ri­ly well ever sin­ce the year of its ori­gi­nal publication.

Sin­ce Mises's death in New York City on Octo­ber 10, 1973 at the age of 92, Mise­si­an doc­tri­ne and influ­en­ce has expe­ri­en­ced a rena­is­san­ce. The fol­lo­wing year saw not only Hayek's Nobel Pri­ze for Mise­si­an cyc­le the­o­ry, but also the first of many Austri­an Scho­ol con­fe­ren­ces in the Uni­ted Sta­tes. Books by Mises have been reprin­ted and col­lec­ti­ons of his artic­les trans­la­ted and publis­hed. Cour­ses and pro­grams in Austri­an Eco­no­mics have been taught and esta­blis­hed thro­ug­ho­ut the country.

Taking the lead in this revi­val of Mises and in the stu­dy and expan­si­on of Mise­si­an doc­tri­ne has been the Ludwig von Mises Insti­tu­te, foun­ded by Lle­wel­lyn Roc­kwell, Jr. in 1982 and hea­dqu­ar­te­red in Auburn, Ala­ba­ma. The Mises Insti­tu­te publis­hes scho­lar­ly jour­nals and books, and offers cour­ses in ele­men­ta­ry, inter­me­di­a­te and advan­ced Austri­an eco­no­mics, which attract incre­a­sing num­bers of stu­dents and pro­fes­sors. Undo­ub­te­dly, the col­lap­se of soci­a­lism and the incre­a­sed attrac­ti­ve­ness of the free mar­ket have gre­a­tly con­tri­bu­ted to this upsur­ge of popularity.

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Mur­ray N. Roth­bard (1926–1995) was dean of the Austri­an Scho­ol after Mises's death. This pie­ce was writ­ten cir­ca 1990 and has never befo­re appe­a­red in print or onli­ne. The artic­le is taken from the web-site www.mises.org

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