A Misesian Holiday
Once you start delving into the rich and captivating tradition of libertarian and classical liberal thought, it isn’t long before you stumble upon an early 20th century economist named Ludwig von Mises. To put it plainly, if it wasn’t for the work of von Mises, the modern libertarian movement wouldn’t be what it is today.
Von Mises was an Austrian economist in both senses of the word – he was born in Austria-Hungary in 1881 and was a member of the Austrian school of economics. At the age of 19, Mises attended the University of Vienna where he studied under the founder of the Austrian school, Carl Menger. He also studied under another early contributor to the Austrian school, Eugene von Bohm-Bawerk from 1904 to 1914.
In 1912, Mises published his first major work, The Theory of Money and Credit, which built upon the crucial work of Menger and Bohm-Bawerk. In it, von Mises expounded upon Menger and developed his famous regression theorem. While economists of the day failed to lay out a coherent explanation for the exchange value of money, Mises pointed out the value of money stems from its past purchasing power. That is, people recall that money could be exchanged for goods and services yesterday. And people of yesterday recalled money could be exchanged for goods ands services the day before and so on. This culminates in Menger’s account that the purchasing power of money can be traced back through time until people emerge from a state of mere barter.
In Theory, Mises also revolutionized Austrian economics by incorporating Bohm-Bawerk’s capital theory into an explanation of business cycles. While Bohm-Bawerk showed the interest rate was vital to coordinating savings preferences, Mises showed how central banks artificially lower the interest rate by injecting more money into the economy (inflation), thereby distorting the previously efficient allocation of resources that the price system was accomplishing. When monetary expansion on the part of central banks holds interests rates too low, it causes cyclical “malinvestment,” where entrepreneurs are tricked into investing in lines of production that cannot be sustained. This leads to an inevitable bust where the malinvestments must be liquidated from the economy resulting in temporary (unless the government mucks it up) unemployment of resources. And this was only his first book!
Mises published Nation, State, and Economy seven years later, which was his first major work on political philosophy. Here, von Mises began his ardent attacks on socialism and imperialism and laid out what he believed to be the proper form of government: liberalism. While the book is written in the context of 1919 foreign relations (for example, Mises spends time taking about the Treatise of Versailles), it remains a masterpiece in the classical liberal tradition.
A year later, Mises wrote an article, Economic Calculation in the Socialist Commonwealth. While one if his shortest works, it is perhaps his most influential. In it, von Mises levels a definitive economics critique of socialism. Since socialism requires the abolition of private property, and therefore the price system, it removes any possibility for the rational allocation of resources. That is, the price system acts as a tool of coordination by signaling the relative scarcity of resources. Entrepreneurs are guided by prices that channel their pursuit of self-interest into the common good. Without prices, the direction of resources is left up to arbitrary whims and decrees. For this reason, socialism is doomed to fail. Unfortunately, much of the world didn’t acknowledge or understand Mises’s analysis. As if his article wasn’t enough, 1922 saw Mises’s 600-page decimation, Socialism: An Economic and Sociological Analysis. Mises extended his analysis beyond just economics and critiqued socialism in more ways you thought was possible. Of special significance, this book is what turned F.A. Hayek away from democratic socialism and to a free market ideology. While this book is broadly influential, converting Hayek to classical liberalism is so important because of the work Hayek went on to do in the Austrian school.
Skipping ahead to 1947, Mises helped found the Mont Pelerin Society, an international organization dedicated to freedom of expression, free market economic policies, and the political values of an open society. Mises and the Society worked to combat the spread of socialism and Marxism of their day and revive classical liberalism. The organization has become part of an international think tank movement and continues its work today.
In 1949, Mises published his magnum opus, Human Action. Here, Mises lays out the case for laissez faire capitalism based on the praxeological method, the deductive study of human action that dates back to the Ancient Greeks. Mises rejected positivism in economics in favor of priori economic laws based on methodological individualism.
Ludwig von Mises retired from teaching at 87 and died 5 years later. Decades after his death, he continues to be an influential thinker in the libertarian movement. He spawned an institute named after him and continues to spur rigorous, intellectual debate over his work. While those in power ignored his classical liberal political views and Austrian economic work during his lifetime, it is our job to bring Mises’s work to the center of modern economic and political thought today.
Mises has so many great and intellectually astounding works, I could write a 3,000-word post. But in an attempt to use my scarce resources efficiently, I’m going to stop here, with a quote by his wife,
“His most eminent qualities were his inflexible honesty, his unhesitating sincerity. He never yielded. He always freely enunciated what he considered to be true. If he had been prepared to suppress or only to soften his criticisms of popular, but irresponsible, policies, the most influential positions and offices would have been offered him. But he never compromised.”