Ludwig Von Mises
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Economic Insights FEDERAL RESERVE BANK OF DALLAS VOLUME 6, NUMBER 4 Ludwig von Mises This Economic Insights features one of Ludwig Elder von Mises’ life was Fritz Machlup, Oskar Morgenstern and testament to the saying that one man Lionel Robbins. the free economy’s most famous intellectual with courage makes a majority. Between his departure from Vienna warriors, Ludwig von Mises. Working from Mises was born in 1881 in in 1934 and his decision to go to America Lemberg, Austria-Hungary. He enrolled after the Germans breached the Maginot within the Austrian paradigm, in 1912 Mises in the University of Vienna in 1900 and Line in June 1940, Mises taught in became the first to apply marginal utility theory received his doctorate in law and eco- Geneva at the Graduate Institute of Inter- nomics in 1906. A student of Eugen von national Studies. He flourished in the to money itself, in The Theory of Money and Böhm-Bawerk—himself an admirer of Swiss city and was very reluctant to Credit, his first major work. He triggered one of Carl Menger, father of the Austrian school leave, especially as his English was much of economics—Mises became one of weaker than his French. But the fall of economics’ most contentious and enlightening the university’s most prominent figures. France, the antipathy of the Nazi gov- debates a few years later with his claim that cen- After graduating, Mises worked for the ernment—which blacklisted him—and Vienna Chamber of Commerce as an his wife Margit’s pleadings made his tral planning, regardless of its undesirability on economist and economic advisor to the departure a near certainty. Since the other grounds, was impossible to implement suc- Austrian government. early 1930s, Mises had warned those In 1926 he founded the first entity close to him of impending political dis- cessfully. Holding to this claim and being an dedicated solely to the study of macro- aster in Austria and urged them to emi- uncompromising proponent of classical liberal- economic fluctuations, the Austrian Insti- grate. American economist Benjamin tute for Trade Cycle Research.1 While Anderson, then with Chase Manhattan ism impaired Mises’ academic reputation for the pursuing this interest, he taught an eco- Bank, supported the couple’s bid for remainder of his life. Yet he never stopped work- nomic theory course at the University nonquota visas, which allowed them of Vienna without pay and ran a semi- immediate entry into the United States, ing, and he produced some of the century’s most monthly seminar at the chamber offices provided they could get there. It controversial and brilliant books, among them that drew some of the most notable proved to be a difficult, harrowing jour- names in economics and the social sci- ney, but when it ended, Mises at last Theory and History, Socialism, Omnipotent ences, including F. A. Hayek, Gottfried stood on American soil.2 Government, Bureaucracy, Planning for Free- Haberler, Wilhelm Röpke, Alfred Shutz, The early years in his new country Erich Voegelin, Paul Rosenstein-Rodan, were not easy ones for Mises. He had dom, Liberalism, Epistemological Problems of Economics, Planned Chaos and his greatest The Problem of Socialist Economic Calculation achievement, Human Action. The problem of economic calculation is the fundamental problem of Socialism. That for decades We often hear the resigned cry that one people could write and talk about Socialism without touching this problem only shows how devastat- person can’t change the world. But many indi- ing were the effects of the Marxian prohibition on scientific scrutiny of the nature and working of a socialist economy. viduals have done so, and Ludwig von Mises’ life To prove that economic calculation would be impossible in the socialist community is to prove also that Socialism is impracticable. Everything brought forward in favour of Socialism during the last stands as one more example of what a deter- hundred years, in thousands of writings and speeches, all the blood which has been spilt by the sup- mined, committed individual can do to change porters of Socialism, cannot make Socialism workable. The masses may long for it ever so ardently, innumerable revolutions and wars may be fought for it, still it will never be realized. Every attempt to history’s course. carry it out will lead to syndicalism or, by some other route, to chaos, which will quickly dissolve the society, based upon the division of labour, into tiny autarkous groups. — Bob McTeer The discovery of this fact is clearly most inconvenient for the socialist parties, and socialists of President all kinds have poured out attempts to refute my arguments and to invent a system of economic cal- Federal Reserve Bank of Dallas culation for Socialism. They have not been successful.I —Socialism, 135. abandoned his research notes and Praxeology Versus library, as well as a well-paid position The Origins of Positivistic Method in in Geneva, for uncertain circumstances Socialist Ideology Social Science in the New York of 1940. Although Mises had a temporary appointment as lecturer The truth is that the concept of socialism …Behaviorism and positivism want to apply and research associate professor at the did not originate from the “proletarian mind.” the methods of the empirical natural sciences University of California–Berkeley, he re- No proletarian or son of a proletarian con- tributed any substantial idea to the socialist to the reality of human action. They interpret it mained in New York because he thought as a response to stimuli. But these stimuli ideology. The intellectual fathers of socialism it the country’s cultural center. As Mises themselves are not open to description by the were members of the intelligentsia, scions of methods of the natural sciences. Every never did hold a full-time teaching posi- the “bourgeoisie.” Marx himself was the son attempt to describe them must refer to the tion at any American university, this de- of a well-to-do lawyer. He attended a German meaning which acting men attach to them. We cision had large consequences for his Gymnasium, the school all Marxians and other may call the offering of a commodity for sale a career and, therefore, for his prestige in socialists denounce as the main offshoot of “stimulus.” But what is essential in such an U.S. academic circles. It also meant years the bourgeois system of education, and his offer and distinguishes it from other offers of frugality and dissaving for him and family supported him through all the years of cannot be described without entering into the his wife. his studies; he did not work his way through meaning which the acting parties attribute to The Rockefeller Foundation, through the university. He married the daughter of a the situation. No dialectical artifice can spirit the National Bureau of Economic Re- member of the German nobility; his brother-in- law was Prussian minister of the interior and away the fact that man is driven by the aim to search, provided some support in the attain certain ends. It is this purposeful behav- as such head of the Prussian police…. form of a once-renewed, two-year re- ior—viz., action—that is the subject matter Friedrich Engels was the son of a wealthy of our science. We cannot approach our sub- search grant that ended in early 1945, manufacturer…. ject if we disregard the meaning which acting just as Mises began his long association The workers were never enthusiastic man attaches to the situation, i.e., the given with the Graduate School of Admini- about socialism. They supported the union state of affairs, and to his own behavior with stration at New York University. He was movement whose striving after higher wages regard to this situation. hired to teach a one-semester course Marx despised as useless. They asked for all It is not appropriate for the physicist to but remained as a visiting professor those measures of government interference search for final causes because there is no until his retirement in 1969. In 1948 he with business which Marx branded petty- indication that events which are the subject began his famous Thursday evening bourgeois nonsense. They opposed techno- matter of physics are to be interpreted as the seminar. He also formed a relationship logical improvement, in earlier days by destroying new machines, later by union pres- outcome of actions of a being, aiming at ends with the Foundation for Economic Edu- in a human way. Nor is it appropriate for the sure and compulsion in favor of feather-bed- cation, writing for its publication The praxeologist to disregard the operation of the ding. Syndicalism—appropriation of the acting being’s volition and intention; they are Freeman and conducting seminars. enterprises by the workers employed in undoubtedly given facts. If he were to disre- Another fortuitous relationship for them—is a program that the workers devel- 3 gard it, he would cease to study human action. Mises was the friendship of Henry Hazlitt. oped spontaneously. But socialism was Very often— but not always—the events con- Hazlitt saw to it that Mises’ works were brought to the masses by intellectuals of bour- cerned can be investigated both from the point reviewed in major national media and geois background. Dining and wining together of view of praxeology and from the natural sci- promoted him among those in a posi- in the luxurious London homes and country ences. But he who deals with the discharging tion to help support Mises’ research and seats of late Victorian “society,” ladies and of a firearm from the physical and chemical writing over the next three decades.