sign in sign up
<<
Home , Austrian Circle, Hans Sennholz, Leonard Liggio, Ludwig von Mises, Ralph Raico, Richard Ebeling

Ludwig von Mises: Protector of the

Ryan Minnich Senior Division Historical Paper Paper Length: 2,461 Words

The of economic thought has always challenged the status quo. Though many and philosophers associate themselves with the Austrian School, one man,

Ludwig von Mises, is unmatched in contributions and mastery. Mises was a defender of and always championed pure free markets. His ideas regarding human behavior, economic systems, and moral philosophy were always outside of the mainstream. However, this never kept him from challenging the common views and staying true to his radical, eye-opening beliefs.

Even after forty-three years since Mises’s death, his work and legacy continue to inspire and change the minds of countless . The Austrian School of questions the benefits of intervention in the economy and monetary market. Ludwig von Mises, one of the most notable Austrian economists, took a stand for his original ideas that still influence the modern Austrian School and, most importantly, the entirety of humanity.

Ludwig Heinrich Edler von Mises was born on September 29, 1881 in Lemberg, known today as in the , to a Jewish family (Hülsmann 2007, 3). They moved to Vienna when Ludwig and his brother Richard were children (9). A third von Mises, Karl, died very young of scarlet fever (ibid.). They attended the Akademisches Gymnasium, where they acquired a vast humanistic culture (33). After high school, Ludwig continued his studies at the , in the department, under the guidance of Carl Grünberg (60). As an assignment,

Mises studied the situation of serfs in his native region of Galicia (67). During Christmas of 1903, Mises read Principles of Economics by , founder ​ ​ of the Austrian School, which changed his life (ibid., 87). Mises discovered that there are regularities in social processes that make government action not omnipotent. Consumer preferences not only determine the of consumer goods, but that of the factors of production, so that the entire production process is oriented elegantly, due to the market, to the satisfaction of people’s needs.

Mises graduated with a law degree in 1906, but stayed and continued to attend

Böhm-Bawerk’s seminars. Böhm-Bawerk’s lectures were known as “masterpieces” because of his consistent clarity and professional presentation (Engel-Jánosi 1974, 37). Some of the most brilliant intellectuals ever assembled in a university event also attended: in addition to Mises,

Joseph Schumpeter, Richard von Strigl, Felix Somary, Emil Lederer and numerous leading

Marxists such as Ladislaus von Bortkiewicz, , Rudolf Hilferding, Nikolai Bucharin and, above all, Otto Bauer. Böhm-Bawerk, with his elaboration of the theory of and interest and his critical history of the problem, was the author of one of the most effective critiques of Marxist economics (Schulak and Unterköfler 2011, 47-48).

Mises practiced law and taught economics at a academy for young ladies before joining an institution that would be foundational in his life: the Vienna Chamber of Commerce and Industry. writes: “The general consensus among economists and others who knew Mises during this period is that he was extremely influential in moderating collectivist and inflationary policies in " (Mises 2000, xiii).

Like many others, Mises interrupted his career to participate in . He was decorated three times for his courage on the battlefield under enemy fire, almost losing his life.

Already in the rearguard, he was an economic adviser to the War Department, and at the end of the war he was director of the Austrian Reparations Commission of the League of Nations.

By this time, Mises was combining his professional work with research. In his early days as an , he decided to elaborate on a treatise about that would correspond to Karl

Helfferich, who, in his book Das Geld, or Money, critiqued the Austrian School. Helfferich said ​ ​ ​ ​ that the value of money could not be derived from the theory of the value of , like other goods. The demand for money depends on its exchange value, and that value depends, in turn, on the prices of what can be obtained with money in the market. But what can be bought with it, its purchasing power, is its exchange value. Trying to explain the value of money in the terms offered by the Austrians led to circular reasoning (Rothbard 2002, 8).

Ludwig von Mises broke this circularity with a regressive theorem of money, put forth in his Theorie des geldes und der Umlaufsmittel, translated as Theory of Money and Credit. He ​ ​ ​ ​ illustrated how money originated in the market and how its value is determined by its usefulness as a commodity for exchange. Mises had closed the Austrian “circle” and integrated, for the first time in history, the theory of money into the theory of value. In addition, the solution had a very important implication: once the value of money had been shown to depend on the market, the state, meaning a government or central bank, could not release money and determine its value at will. Today, as all over the world inflate their money supply, this idea seems strange. The Austrian Theory (ABCT), developed from combining Mises’s work on the value of money and Menger and Bohm-Bawerk’s capital theory, stands in direct opposition to the notion of and its associated benefits (Ebeling 2002).

By writing Theory of Money and Credit, Mises began a long career as an author. In 1919, ​ ​

Mises published another important work, Nation, State and Economics, in which he criticized ​ ​

German imperialism and described the problems from resorting to state power to solve the problems of communities within different cultures.

In January of 1920, Mises presented his essential critique of at a meeting of the

Austrian Association of Economics (Nationalökonomische Gesellschaft), which included leading economists such as , Max Adler, or Emil Lederer. The meeting was a triumph for him; Mises had dealt a blow to the heart of socialism. The socialists described in detail the processes that would inevitably lead to the replacement of by the system they proposed, but did not bother to explain how allocation of resources would work (Mises 1920). Mises starts from the realization that the resources available can be used in untold ways, but humans have to discover which of them are the most useful. To do this, a price system is needed in order to show the relationship between . The market provides this information because it encodes the set of valuations and costs in prices that serve as signals.

These signals give information, such as the quantity to supply various goods, to the producers, sellers, and buyers.

The argument of Mises against socialism, the economic calculation problem, is that genuine prices, that arise in the free market, are nonexistent. Without them, rational decisions can not be made regarding the use of various factors of production. Socialist leaders, lacking information on the relative value that resources can have for themselves, are unable to plan rationally according to their own criteria.

Mises's thinking impacted Heinrich Herkner, a member of the Verein für Socialpolitik, who criticized the admiration of socialism among his colleagues, whom he invited to read

Mises's work, later stating: “A growing number of professors began to renounce their earlier socialist ideals" and came to produce what was called "the crisis of social policy" (Hülsmann

2007, 399). In the German-speaking world, a timid liberal , truncated by the arrival of

Hitler to power, began in 1933 (ibid., 565). Mises persisted in expressing these radical views even though it meant being treated as an outcast. He was a highly respected economist in Austria, but the University of Vienna refused to make him a paid professor four different times, and for fourteen years he conducted a prestigious

Vienna seminar without a salary. For most of the quarter-century that he conducted a seminar in

New York, his salary was paid by private individuals. The sessions began at seven in the evening in his office of the Chamber of Commerce and usually concluded in a café at one in the morning.

Murray Rothbard, another disciple of Mises, stated that it would become "the outstanding seminar and forum in all of Europe for discussion and research in economics and the social sciences" (Rothbard 1999, 159).

Future Nobel Laureate F.A. Hayek told Mises: “You have shown an undaunted courage, even when you stood alone. You have shown a relentless consistency and persistence in your thought, even when it led to unpopularity and isolation” (Hayek 1956). Economist Murray N.

Rothbard states: “Never would Mises compromise his principles, never would he bow the knee to a quest for respectability or social or political favor. As a scholar, as an economist, and as a person, Ludwig von Mises was a joy and an inspiration, an exemplar for us all” (Rothbard 2002,

52). These quotes show that respected economists viewed Mises as a challenger to the status quo who passionately influenced the Austrian School and economic science as a whole. Mises, who feared the extent of Hitler's success, took advantage of an offer to leave the country and teach at the Institute of International Studies in Geneva. He stayed in for six years, from 1934 to 1940. At that time, when he could finally focus on his purely academic work, the pace of production slowed. There was a clear reason for this; he was writing his

Nationalökonomie, which would not be completed until 1940. This book, however, would ​ eventually become , Mises’s economic treatise and greatest literary ​ ​ accomplishment.

But Nationalökonomie came too late; economic science had changed greatly since he first ​ ​ became an economist in 1903. Mises appeared as the last representative of a tradition that contributed all of the good ideas that it possessed to the mainstream and had mostly disappeared.

His close defense of and the did not help him, in which he was practically alone. , a respected economist in opposition to Mises who promoted government spending to cure recessions, had metaphorically thrown Mises’s work into the trashcan of history. In June 1940, after fell to , Mises, now surrounded by national socialism, left the continent to seek refuge in the (Hülsmann 2007, 757).

The first years in would be the hardest of his life. Eventually, the Rockefeller

Foundation approved a $2,500 grant to the National Bureau of Economic Research in order to place Mises on its payroll for one year (ibid., 799). His income was barely enough to live on, and his wife, Margit, started training as a secretary to ease their financial situation (800). Henry

Hazlitt, who knew his work, managed to publish several of Mises’s articles in the New York ​

Times (803). These articles managed to catch the attention of the National Association of ​

Manufacturers (NAM), which would henceforth grant him another annual allowance (925). In

1945, created the Foundation for Economic Education, focused on the education of future generations in the liberal principles, and Mises was a part of it from the beginning. One year later, he became a U.S. citizen (832).

In 1945, he became a visiting professor at the University of New York, though the visit lasted 24 years. There he would resume his famous seminar, albeit with new students. Mises sought in that city, which he considered the cultural center of the United States, a new Hayek.

Among his new disciples were Murray N. Rothbard, , , Ralph

Raico, and (ibid., 846-848).

Almost 70 years since its publication, Human Action remains the seminal work of the ​ ​

Austrian School, written by Mises himself. It describes how humans act in a changing and partially uncertain world. However, with an ability to anticipate the future, that is, their entrepreneurial capacity, they are able to collaborate through the market. Among the contributions of Human Action are the first praxeological exposition of the law of diminishing ​ ​ marginal utility, the theory of interest as a result of the time preference for the present, a general theory of economic calculation and the problems without prices face, the theory of money demand based on real balances, and the praxeological explanation of the law of diminishing returns.

Mises received several honors throughout his lifetime such as honorary from

Grove City College, , and the University of Freiburg. His accomplishments were formally recognized by his alma mater, the University of Vienna, in 1956 when his was memorialized on its 50th anniversary and "renewed," a common European tradition. In 1962, the Austrian government did the same and publicly renewed his doctorate. In

1969, the American Economic Association recognized him as Distinguished Fellow (Mises

1985, vii). His legacy can be seen in two treatises of economics based on his ideas: Man, ​

Economy and State, by Murray N. Rothbard, and Capitalism, by George Reisman. ​ ​ ​

On November 9, 1989, the Soviet bloc collapsed, imploding due to its economic ruin. As the outspoken socialist and notable economist acknowledged, “it turns out, of course, that Mises was right” (1990, 92). Mises’s research was not guesswork; his theories on money, prices, and purposeful behavior continue to inspire modern economists and students.

When virtually every respected economist supported socialism, Mises stood firm and foresaw the collapse. Not only did he take a stand, Mises dedicated his life to educating the masses, and the intellectuals, about the woes of government intervention in the economy and banking industry. The remedy to him was simple: free markets. Already, the effects of decades of Keynesian monetary policy are beginning to show themselves, and the remedy will be of more stimulus and credit expansion. If Mises was right, and free markets are the cure for so many global issues such as poverty, pollution, and economic instability, then it is the responsibility of every person to take a stand and advocate for personal and economic immediately.

Ludwig von Mises left a legacy for all economists to follow. He committed his entire life to studying human action in a way no one else ever had. His monumental literary feats such as

Human Action and Theory of Money and Credit revolutionized economic science and introduced ​ ​ ​ , or the science of purposeful behavior, to economic theory. Mises spent his entire life defending his ideas from economists of numerous schools of thought and reshaped the Austrian

School of Economics for the better. Influencing notable economists such as Friedrich von Hayek,

Murray Rothbard, and Walter E. Block, Mises left the world a gift of knowledge still being opened, discovered, and explored. Everyone impacted by Mises teaches his lesson to others, taking a stand for what he no longer can. Even in death, Ludwig Heinrich Edler von Mises is defended by his countless followers as they continue the passionate research that he lovingly toiled at until his last breath.

Resources

Ebeling, Richard M. 2002. “Ludwig von Mises as Policy Analyst: , Fiscal Policy, and Foreign Exchange Controls.” Heritage.org. . August ​ ​ 5.

This website offers a comprehensive overview of Mises’s contributions in the areas of fiscal policy and economic science as a whole. It included many details regarding his Theory of Money and Credit as well as his role in the League of Nations. It was written ​ by the former Chairman of Economics at , who also edited and published a large collection of essays written by Mises.

Engel-Jánosi, Friedrich. ... aber ein stolzer Bettler. Erinnerungen aus einer verlorenen ​ Generation. Graz, Vienna and : Styria, 1974. ​ This memoir was published by Engel-Jánosi. Engel-Jánosi attended Böhm-Bawerk’s lectures and gave his personal opinion of Böhm-Bawerk as a teacher. This description gave a description of how attendees felt about Böhm-Bawerk and his seminars.

Hayek, F. A. "A Tribute to Ludwig von Mises." Speech, New York University, , NY, 07, 1956. https://mises.org/library/tribute-ludwig-von-mises.

A transcript of the speech is available at the website in the citation. Hayek, a respected economist and winner of a Nobel Prize in Economics, favorably spoke about his mentor and friend Ludwig von Mises. Specifically, Hayek mentioned Mises’s passion and how he stands up for his own beliefs and lets his work speak for itself.

Heilbroner, Robert. “After .” The New Yorker September 10, 1990: 91–92. ​ ​ This is an article written by a prestigious economist about the Soviet economy and the effects of its failure. Heilbroner himself was an outspoken socialist all his life until about 1989 when he published an article claiming “capitalism had won.” In this article, Heilbroner said that “Mises was right,” which, coming from a socialist, shows how much influence Mises had.

Hülsmann, Jörg Guido. Mises: The Last Knight of Liberalism. Auburn, AL: Ludwig von Mises ​ ​ Institute, 2007.

Without this extensive overview of Mises’s life, I would never have been able to independently find all of the information about his childhood, education, and work. I picked only the most relevant information, though much more could have been included thanks to this comprehensive biography.

Mises, Ludwig von. Economic Calculation in the Socialist Commonwealth. Translated by S. ​ ​ Adler. Auburn, AL: Ludwig von , 1990.

One of Mises’s greatest contributions to economic science is the work and research behind non-market economies. This essay addresses the issue of resource allocation without prices, predicting that the socialist economy of the would end in disarray and chaos. Because prices convey the value of goods, and prices only rise in a , the government has no idea what or how much to produce of any good. Mises was alone in challenging the socialists and their pricing system when it was first published in 1920. But, as history shows, his hypothesis was indeed correct.

—. Liberalism In the Classical Tradition. Translated by . 3rd ed. New York: ​ ​ Foundation for Economic Education, 1985.

One of Mises’s lesser known books, Liberalism In the Classical Tradition provides an ​ ​ ​ ​ in-depth review of and its history. In the preface, Bettina Bien Greaves of the Foundation for Economic Education reviews a few of Mises’s accomplishments later in life. This is the section I cited in my paper, though the ideas of classic liberalism are embedded in much of Mises’s life and work and, thus, my essay.

—. Selected Writings Of Ludwig von Mises: The of International Reform and ​ Reconstruction. Edited by Richard M. Ebeling. Indianapolis: , 2000. ​ I used this collection of essays mainly for its introduction by the editor. I felt the words of Ebeling best described the influence Mises had on public policy. He was respected, though often criticized, and moderated key debates while working in Austria.

—. Theorie des geldes und der Umlaufsmittel. Munich, Germany and Leipzig: Duncker & ​ ​ Humblot, 1912.

This book is one of the most important works of Ludwig von Mises. It forever changed monetary economics. Since these are original ideas from Mises, I considered it a primary source. This is the original publication in German, but I’ve read many other summaries (English) that go over the content in this version, but they were too numerous to mention.

Rothbard, Murray. “Ludwig von Mises: The Dean of the Austrian School.” Chap. 10 in 15 Great ​ Austrian Economists, by Randall G Holcombe, edited by Randall G Holcombe. Auburn, ​ AL: Ludwig von Mises Institute, 1999.

Murray Rothbard is a direct disciple of Ludwig von Mises. This article provides Rothbard’s opinion about Mises’s lectures and how they fostered economic thinking better than all other seminars in Europe. Though it covers more than just his lectures, I was looking for an opinion from an attendee, which is found in this source.

—. Ludwig von Mises: Scholar, Creator, Hero. Auburn, AL: Ludwig von Mises Institute, 2002. ​ ​ PDF.

Rothbard’s documentation on Mises’s work and its influence is detailed and clear. In this book, Rothbard not only explains the impact of numerous publications from Mises, but continues to give his personal view of Mises. I used a quote from Rothbard describing Mises’s ability to stay true to his beliefs and avoid compromise to his work. I also used Rothbard’s historical context of Karl Helfferich’s argument against the Austrian School.

Schulak, Eugen-Maria, and Herbert Unterköfler. "Eugen von Böhm-Bawerk: Economist, Minister, Aristocrat." In The Austrian School of Economics: A History of Its Ideas, ​ Ambassadors, and Institutions. Auburn, AL: Ludwig von Mises Institute, 2011. ​ This book provided me insight about the teachings of Eugen von Böhm-Bawerk. I learned about his influence towards the Austrian School by critiquing Marxist economics and lecturing at the University of Vienna. I also researched into his life for context, but I did not include this in the paper due to irrelevancy.