Ludwig von Mises
Ludwig von Mises was one of the intellectual giants of the twentieth century. His contributions to economics, political theory and the social sciences were profound.
Born in Lemberg in the Austro-Hungarian Empire in 1881, Mises graduated from the University of Vienna with a Doctor of Laws in 1906. From 1909, he worked in economic public policy for the Austrian Chamber of Commerce, combining this with research, writing scholarly works and lecturing at the university. In the 1920s, he ran a fortnightly Privatseminar for a select group of young Viennese intellectuals many of whom later became famous in their own right. They included economists Gottfried von Haberler, Friedrich Hayek, Fritz Machlup, Oskar Morgenstern, Richard von Strigl, and Paul Rosenstein-Rodan, as well as philosopher Felix Kaufmann, sociologist Alfred Shutz and philosopher of history Erich Voegelin.
During this period he wrote his path-breaking work on monetary theory, The Theory of Money and Credit (1912), Nation, State and Economy (1919), Socialism (1922), Liberalism (1927), Monetary Stabilization and Cyclical Policy (1928), A Critique of Interventionism (1929), and Epistemological Problems of Economics (1933).
In 1934, after forty years in Vienna and concerned about the inevitability of Nazi takeover, Mises accepted a position at the Graduate Institute of International Studies in Geneva. Here he was able to devote himself completely to his study of economics, which resulted in Nationalokonomie, the basis for his magnum opus, Human Action. In 1940, blacklisted by the Nazis and feeling unsafe, he and his wife Margit escaped to America.
He arrived in New York, aged nearly 60, with no job, a stranger in a foreign land. The first few years were not easy. A grant from the Rockefeller Foundation to the National Bureau of Economic Research provided a modest livelihood. With support from Henry Hazlitt, he undertook a number of assignments for the National Association of Manufacturers. He gave guest lectures at Columbia, Harvard, and Princeton. Two books, Omnipotent Government and Bureaucracy were published by Yale University Press in 1944. By 1946, he held a visiting professorship at New York University’s Graduate School of Business Administration and a staff position at Leonard Reed’s Foundation for Economic Education.
In 1949, he published Human Action, a comprehensive treatise on economics. Although built on his Nationalokonomie, it is not a translation. All parts were rewritten and additions made. This is where Mises integrates the elements of economic theory that had been his life’s work.
He sets economics within a more universal science of praxeology – the pure logic of choice. People have purposes; they try to achieve goals. They act because they want to change things for the better, to eliminate some felt dissatisfaction. Action is the use of means to achieve ends and people choose their most highly valued preference. All action is rational in that it is attempting to use a means to achieve an end. (That does not preclude people making mistakes!) He believed that our knowledge of praxeology was a priori; “the only way to a cognition of these theorems is logical analysis or our inherent knowledge of the category of action”.
From this base, Mises developed universal laws of economics. He differed from his contemporaries such as Schmoller of the German Historical School who thought that economic laws were true only for particular historical periods and conditions, and that each age had its own way of thinking. Mises pointed out that attempts to define economics by what has happened historically fail because they are subject to individual, different interpretation (or understanding) of what happened. He explained that economic society is so complex that analysis needs to be based wherever possible on reason, as there are always multiple interpretations of real-life events. As he pointed out, the champions of logically incompatible theories claim the same events as proof that their point of view has been tested by experience. Hence, history cannot teach us any general rule, principal or law.
So Mises’ theories apply to all peoples and all times. His contributions are vast. Some of the more significant are: that prices are determined by subjective values; economic calculation requires the price mechanism to determine the most economic use of resources; socialism cannot allocate resources efficiently because it lacks this price mechanism; social cooperation through the free market makes possible the division of labour; trade and specialisation are keys to continued prosperity; the role of the entrepreneur is crucial – not only to correct disequilibria in the market place but to discover opportunities; government manipulation of the money supply and interest rates causes recessions; and that humans gain more from peaceful exchange than from destructive struggles.
Mises had many years’ experience advising government. He said:
Economic history is a long record of government policies that failed because they were designed with a bold disregard for the laws of economics. Economics … is a challenge to the conceit of those in power. An economist can never be a favourite of autocrats and demagogues. With them he is a mischief maker, and the more they are inwardly convinced that his objections are well founded, the more they hate him.
In retrospect, it seems that Mises spent his whole life at odds with the prevailing views of the economics profession. He began by disagreeing with the German Historical School that dominated European economics and provided the economic ideas for socialism. He disagreed with Keynes and the interventionism of the New Deal. He was never a fan of the movement to mathematical economics and econometrics. Nonetheless, he continued to write prolifically and to lecture – he was still presenting seminars at the age of 90! His wife Margit later claimed that the post-war period was his most productive. Now, years after his death, there is a resurgence of Austrian Economics. His contributions are being recognised and his ideas understood.
The Ludwig von Mises Institute, founded in 1982, is a thriving research and educational centre for classical liberalism, libertarian political theory, and the Austrian school of economics. It provides scholarships, educational materials, conferences, media and literature. There is a Mises Academy providing on-line courses.
Here was a genius whose persistence in challenging the intellectual and political consensus of his day has left us with one of the greatest books on economics ever. Human Action is a masterpiece.