The Economics of Ludwig von Mises: Toward a Critical Reappraisal

Edited by: Moss, Laurence S.
(1944- )
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Collected essays, various authors. 1974 conference proceedings. Includes essays by Fritz Machlup, Israel M. Kirzner, Murray N. Rothbard, and more.

1. [1] For bibligrophical information on Mises, see Bettina Bien [Greaves], The Works of Ludwig von Mises (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1969), pp. 3-9; International Encyclopedia of the social Sciences, s.v. "von Mises, Ludwig"; William H. Peterson, "Ludwig von Mises," Intercollegiate Review 9 (winter 1973-74): 37-; and Murray N. Rothbard, The Essential von Mises (Lansing, Mich.: Oakley R. Bramble, 1973). Mises' younger brother Richard von Mises (1883-1953) was the well-known applied mathematician and formulator of the frequency interpretation of probability (International Encyclopedia of the Social Sciences, s.v. "von Mises, Richard"). There was a third brother, younger than Ludwig and Richard, who died while still a boy.

2. [2] On the history of the Austrian school and its early members see R.S. Howey, the Rises of the Marginal Utility: 1870:1889 (Lawrence, Kans.: University of Kansas Press, 1960), pp. 24-27, 139-78. Carl Menger retired from teaching in 1903 to devote himself entirely to his studies. Wiser took over Menger's chair in 1903 and served until 1922. Böhm-Bawerk returned to teach at Vienna in 1905 and served until his death in 1914. Mises was also influenced by Eugen Philippovich, who served on the Vienna faculty from 1893 until his death in 1917 (ibid., p. 1962).

3. [3] Ludwig von Mises, Die Entwicklung des gutsherrlich-bäuerlichen Verhält-nisses in Galizien: 1772-1848 (Leipzig: Franz Deuticke, 1902).

4. [4] At the University, Mises taught a variety of courses over the years. They included history of economic thought, monetary theory, and business cycles. At his office in the Austrian Chamber of Commerce, Mises held a second seminar for his select student and friends where individual reports on recent work were followed by lengthy discussions. Apparently admission to Mises' private seminar was a great honor. Issue ranging from pure economic to the philosophy of science were discussed Oscar Morgenstern, Gottfried Haberler, Gerhard Tintner, Karl Schlesinger, Erich Schiff, Martha Stefanie Braun, Ilse Mintz, Felix Kaufmann, and Alfred Schutz. Mises, together with Hans Mayer, Friedrich Hayek, Fritz Machulp, and Oskar Morgenstern, founded the Austrian Economic Society (Nationalkömomische Gesellschaft), which met one to three times a month. Among the guest spekers were Jacob Viner, Frank Knight, Lionel Robbins, and Frank Graham, to mention only a few of the british visitors to Vienna.

5. [5] See Appendix.

6. [6] See my essay "The Monetary Economics...," note 1.

7. [7] See Murray N. Rothbard, The Essential von Mises, p. 49. Lionel Robbins, at the London School, was already familiar with the teachings of the Austrian school from having traveled to Vienna and lectured before Mises' group during the twenties (see note 4 above).

8. [8] See Carl Menger, Problems of Economics and Sociology, trans. Francis J. Knock (Urbana: University of Illinois Press, 1963). See also Talcott Parsons, "Introduction," in Max Weber's The Theory of social and Economic Organization (Glencoe, Ill.: Free Press, 1964), pp. 8-29.

9. [9] See Appendix B for full citations to these works and the others referred to in the remainder of this section.

10. [10] In Geneva, mises retained his warm and dedicated interest in the intellectual development of his students. Professor Alexander Kafka recalled several pleasant Sunday afternoon drives, on which economic issues were discussed, and afternoon tea at Mises' apartment to which students were invited. Professor Kafka was an undergraduate at the time, having been sent by his professors at the German University in Prague to study economics at Geneva with Mises.

11. [11] The following individuals, each an academic economist, attended Mises' seminars on a regular basis: Israel M. Kirzner, Laurence S. Moss, William H. Peterson, George Reisman, Murray N. Rothbard, Hans Sennholz, Louis Spadaro, and Leland Yeager. See Appendix A for a Listing of Mises' honorary degrees, Festschriften, and related subjects.

12. [12] "Ludwig von Mises, Distinguished Fellow, 1969," American Economic Review 59 (September 1969): frontispiece.

Opening Remarks, Mises, Keynes, and the Question of Influence, by Fritz Machlup

13. [13] John Maynard Keynes, a Treatise on Money (London: Macmillan & Co., 1930) 1: 171n, in the royal Economic Society, The Collected Writings of John Maynard Keynes (Cambridge: Macmillan & Co.; New York: St. Martin's Press, 1971) 5: 154n. The work by Mises to which Keynes referred was translated in its second edition and published under the title The Theory of Money and Credit. [See Appendix B for complete citation.—Ed.]

14. [14] Keynes, A Treatise (1930, p. 199; (1971), p. 178.

15. [15] Hans Neisser's book has not been translated into English. Friedrich A. Hayek's work was translated by Nicholas Kaldor and H. M. Croome under the title Monetary theory and the Trade Cycle (London: Alden Press, 1933).

16. [16] Keynes, A Treatise(1930), p. 199n; (1971), p. 178n.

17. [17] John Maynard Keynes, "Review of Theorie des Geldes und der Umlaufsmittel be Ludwig von Mises and of Geld und Kapital by Friedrich Bendixen," Economic Journal, 24 (September 1914): 417.

The Monetary Economics of Ludwig von Mises, by Laurence S. Moss

18. [18] The first edition of Ludwig von Mises' Theory of Money and Credit appeared in German in 1912 under the title Theorie des Geldes und der Umlaufsmittel. The second German edition appeared in 1924 and included two previously published articles, one on the classification of monetary theories and the other on the policy of postwar (World War I) deflation. In 1934 the second German edition was translated into English by H. E. Batson and published under the title The Theory of Money and Credit,with an introduction by Lionel Robbins (London: Jonathan Cape, 1934). In 1953 a new English edition included an essay "Monetary Reconstruction" (New Haven: Yale University Press, 1953). Mises' writings on Monetary theory, inflation, and the trade cycle appeared in a number of other places as well; see Bettina Bien [Greaves], The Works of Ludwig von Mises (Irvington-on-Hudson, N. Y.: Foundation for Economic Education, 1969), esp. p. 57. Three important monographs by Mises on monetary questions written between 1923 and 1931 are in the process of being translated. The first monograph, entitled Geldwertstabilisierung und Konjunkturpolitik (Jena: Gustav Fischer, 1928), is of special interest because here Mises elaborated on the process by which bank credit expansion distorts relative prices and brings about the conditions of economic crisis. This mechanism is only touched on in his Theory of Money and Credit (see my discussion, section 3). The second monograph, Die Ursachen der Wirtschaftskrise: Ein Vortag (Tübingen: J. C. B. Mohr, 1931), criticized the antidepression policies at the time of the Great Depression. The third monograph, Die Geldtheoretische Seite des Stabilisierungsproblems (Leipzig: Duncker & Humblot, 1923), applied the theory of monetary inflation to the events leading up to the collapse of the German mark. With these exceptions and another regarding his theory of interest (see note 57 below), Mises did not alter his position or significantly change his formulation of any of the main topics discussed in this paper, so that his entire monetary economics was essentially intact in the 1912 volume. All references in this paper are to the 1953 English edition.

Irving Fisher's Purchasing Power of Money first appeared in New York in 1911, and this is the edition to which Mises referred. I shall cite the revised edition of Fisher's book; it appeared in 1913 and was reprinted (New York: Augustus Kelley, 1963). Alfred Marshall's Money, Credit and Commerce appeared in London in 1923 and was reprinted (New York: Augustus Kelley, 1965).

19. [19] Knut Wicksell, Geldzins und Guterpreise (Jena: Gustav Fischer, 1898) trans. R. F. Kahn, with an introduction by Bertil Ohlin, under the title Interest and Prices: A Study of the Causes Regulating the Value of Money (London: Royal Economic Society, 1936). The 1936 translation also contains a reprint of Wicksell's 1907 lecture"The Enigma of Business Cycles," translated by Carl Uhr. All references in this paper are to the reprint of the 1936 edition of Interest and Prices (new York: Augustus Kelley, 1962).

20. [20] From 1934 until 1940, when he immigrated to the United States, Mises served as professor of international economic relations at the Institut Universitaire de Hautes Études Internationales in Geneva, Switzerland. In 1945 Mises was named visiting professor at the Graduate School of Business Administration of New York University; he remained there until his retirement in 1969. For additional biographical information, see my introduction.

21. [21] Cf. Carl Menger, Principles of Economics, trans. James Dingwell and Bert F. Hoselitz, with introduction by Frank H. Knight (Glencoe, III.: Free Press, 1950), pp. 226-85; and Mises, Theory of Money, pp. 30-37.

22. [22] The Austrians themselves were not always clear about the distinction between "purchasing power" and "marketability"; see, for example, Menger, Principles, pp. 241-42. the importance of this distinction was argued by R. W. Clower in "A Reconsideration of the Microfoundations of Monetary Theory," Western Economic Journal 10 (December 1967): 1-8.

23. [23] Menger, Principles, pp. 357-71. Cf. Friedrich A. Hayek, The Counter-Revolution of Science: Studies on the Abuse of Reason (Glencoe, Ill.: Free Press, 1955), pp. 82-83.

24. [24] Mises, Theory of Money, pp. 111-14. Cf. Wicksell's contribution discussed in section 2.

25. [25] See, for example, Menger, Principles, pp. 145-48, 157-61; see also Mises, "Remarks on the Fundamental Problem of the Subjective Theory of Value," Epistemological Problems of Economics (Princeton: D. Van Nostrand, 1960), pp. 167-82.

26. [26] Mises distinguished between the juristic and the economic points of view and insisted that demand deposits and bank notes are money because they perform the economic function of money regardless of whether or not they have commodity backing (Theory of Money, pp. 275-77). On the evolution of banking practices and the substitution of "fiat" for commodity money, see Theory of Money, pp. 297-338. Cf. Wicksell, Interest and Prices, pp. 62-80.

27. [27] Hicks introduced this phrase in order to ridicule the Misesian concept of money because it tried to offer a historical explanation for the value of the money commodity (see discussion below); for our purposes, however, Hicks's phrase may be used to dramatize how advanced Mises' notion of money actually was for its time (J. R. Hicks, "A Suggestion for Simplifying the Theory of Money," Economica 2nd. Ser., 2 February 1935: 1-19; reprinted in Friedrich a. Lutz and Lloyd W. Mints Reading in Monetary Theory [Homewood, Ill.:1951] pp. 14., Cf. Mises' criticism of Wicksell's cumulative process, section 3 below.

28. [28] See, for example, Mises, Theory of Money, pp. 109, 119.

29. [29] By using 'yesterday's" prices to explain the current demand for money and thereby "today's" prices, Mises is open to the charge of explaining prices by means of prices and hence arguing in a circle. Mises, aware of this objection, developed what he termed the "regression theorem" to explain how past values could be consistently introduced into a theory of the value of money without arguing in a circle. Mises explained that when we regress and explain "today's" prices by "yesterday's" and "yesterday's" by the "day-before-yesterday's," and so on, we ultimately come to a point in the past when the earliest form of the money commodity emerged. At this time, money took the form of a marketable commodity valued entirely for its nonmonetary uses. Here its market (objective) value was the outcome of the interaction between its supply and the hierarchy of human wants. At this point the historical regression stopped because in principle past price behavior is not needed to determine the market value of this commodity since it has not emerged as "money." Thus Mises' regression theorem states that any object presently used as money is ultimately linked to some commodity that was originally directly serviceable to men's wants, and furthermore, if this link did not exist, society (the collection of valuing minds) would have no epistemological basis for estimating the exchange value of money. The obvious implication of this theorem is that government, no matter how powerful, cannot introduce an object as money unless it first defines that object in terms either of a money already existing or of a commodity whose market value is already established. Once defined in this way, the value of the money commodity eventually (over time) comes to be governed by the behavior of historical prices, and its nonmonetary uses take on a subordinate and sometimes insignificant role (Mises, Theory of Money, pp. 120-23). On the circulatrity problem, see Patinkin, Money, Interest, pp. 114-16, 573-75. Cf. Mises' discussion of pre-World War I literature in Theory of Money, pp. 114-22.

30. [30] Mises, Theory of Money, p. 97.

31. [31] Ibid.

32. [32] Ibid, p. 135. Cf. Menger's discussion of commodities as assets (Principles, pp. 241-56).

33. [33] Mises, Theory of Money, p. 120.

34. [34] Patinkin, Money, Interest, pp. 3-43.

35. [35] Ibid, p. 17.

36. [36] Mises, Theory of Money, pp. 134-35. Cf. Wicksell, Interest and Prices, pp. 39-40; and Patinkin's remark on the significance of this passage in Money, Interest, pp. 581-82.

37. [37] Mises explained how, with the development of deposit banking, the larger part of these transaction balances is held in the form of checking accounts (Theory of Money, pp. 132, 302-5). On the historical increase in transactions demand for money, Mises wrote, "The characteristic feature of the development of the demand for money is its intensification; the growth of division of labour and consequently of exchange transactions, which have constantly become more and more indirect and dependent on the use of money..." (ibid. p. 151). Mises criticized those who maintain that the transactions demand for money is proportional to the volume of transactions, anticipating Baumol's inventory model by many years.

38. [38] "Every economic agent is obliged to hold a stock of the common medium of exchange sufficient to cover his probable business and personal requirements" (Mises, Theory of Money, p. 132). Later Mises wrote, "The uncertainty of the future makes it seem advisable to hold a larger or smaller part of one's possessions in a form that will facilitate a change from one way of using wealth to another, or transition from the ownership of one good to that of another, in order to preserve the opportunity of being able without difficulty to satisfy urgent demands that may possibly arise in the future for goods that will have to be obtained by way of exchange. So long as the market has not reached a stage of development in which all, or at least certain, economic goods can be sold (i.e. turned into money) at any time under conditions that are not too unfavourable, this aim can be achieved only by holding a stock of money of suitable size" (ibid., pp. 147-48).

39. [39] Ibid., p. 353. In an accompanying note Mises identified Law, Cieszhowski, Proudhon, and Macleod as subscribing to this view. According to Hicks, the liquidity preference theory is original with Keynes (A Treatise on Money, 2 vols. [London: Macmillan & Co., 1930]) and is the essence of Hicks own suggestion for simplifying the theory of the demand for money (A Suggestion, p. 16). Hicks overlooked Menger's contribution to the subject; see my discussion in section 1.

40. [40] Mises, Theory of Money, p. 346; see also pp. 148, 350. In these passages Mises referred to the "natural rate" of interest or the real rate of return on capital. At another point in his discussion he admitted that, as bond prices rise, individuals may increase their demand for cash balances, which is equivalent to saying that there is an inverse relationship between the money rate of interest and desired cash balances (ibid., p. 143). What Mises apparently wished to say is that while a temporary change in the demand for cash balances could lead to a change in the money rate of interest, an interest-elastic demand for money could not exist in the long run because there are automatic market forces that will bring the money rate into line with the natural rate (see section 3). There could, however, be an indirect relationship between money and interest through the creation (or destruction) of capital (see section 2).

41. [41] Mises nowhere stated this exactly; but the notion that an individual continually reassesses his need for real cash balances in light of day-to-day-changes in market conditions seems alien to Mises' discussion. He did at one point, however, hint that the demand for real balances may be partly dependent on the individual's wealth position, which does suggest a modern view of the subject. Mises wrote, "Every separate economic agent maintains a stock of money that corresponds to the extent and intensity with which he is able to express his demand for it in the market" (Theory of Money, p. 207). See also discussion, ibid., p. 150.

42. [42] For this interpretation of Menger, I am indebted to Erich W. Streissler, "Menger's Theories of Money and Uncertainty—A Modern Interpretation," in Carl Menger and the Austrian School of Economics, ed. J. R. Hicks and W. Weber (Oxford: Clarendon Press, 1973), pp. 164-89. Streissler's discussion of Menger's view on the speculative demand for money was based on an article entitled "Geld," which Menger contributed to Handwörterbuch der Staatswissenschaften; it was reprinted in The Collected Works of Carl Menger, ed. Friedrich A. Hayek (London: London School of Economics and Political Science, 1936) 4: 1-124. The article went through several editions between 1891 and 1909, the time when Mises was attending the University of Vienna, yet, apparently, Mises did not notice the argument.

43. [43] Mises wrote that "hoarding cash as a form of investment no great part in our present stage of economic development, its place having been taken by the purchase of interest-bearing property" (Theory of Money, p. 35).

44. [44] Menger denied the relevance of an "equilibrium market price" completely; see Streissler, "Menger's Theories of Money," p. 169. I think it more in keeping with later Austrian thought to deny its relevance to "capital goods" type transactions: see ibid., pp. 171-89. Cf. Donald A. Nichols, "Market Clearing for Heterogeneous Capital Goods," Micreocomomic Foundations of Employment and Interest Theory, ed. Edmund S. Phelps et al. (New York: W. W. Norton & Co., 1970), pp, 394-410.

45. [45] Patinkin, Money, Interest, pp. 78-116; and esp. pp. 574-75.

46. [46] see discussion in Mises, Theory of Money, pp. 79-90.

47. [47] Mises wrote somewhat mysteriously, "The laws which govern the value of money are different from those which govern the value of consumption goods. All that these have in common is their general underlying principle, the fundamental Economic Law of Value" (ibid., p. 86).

48. [48] Our analysis has conveniently ignored "distribution effects," which Mises claimed accompany all monetary disturbances of any magnitude: see section 2. Cf. Milton Friedman, The Optimum Quantity of Money and Other Essays (Chicago: Aldine Publishing Co., 1969), pp. 14-15.

49. [49] See note 10 above.

50. [50] See note 5 above for reference to Clower's work.

51. [51] Mises, Theory of Money, p. 227.

52. [52] Mises believed that "a money which continually fell in value would have no commercial utility," that is, the money would cease to be money (ibid). This position is false on both empirical and theoretical grounds. Consider a constant decrease in the value of money of, say, 10 percent a year. The individual would not reduce his real cash balances continually but only until the marginal benefit from a unit of real balances was equal to the (now expanded) cost of holding money. See Friedman, The Optimum, pp. 8-14.

53. [53] See Mises' discussion of 'panic prices' in Theory of Money, pp. 228-29.

54. [54] Ibid., pp. 162-65.

55. [55] Philip Cagen, "The Monetary Dynamics of Hyperinflation," in Studies in the Quantity theory of Money, ed. M. Freidman (Chicago, 1958), pp. 25-117.

56. [56] It is usual to credit Irving Fisher and not Mises with the "price anticipation effect"; see, for example, John T. Boorman and Thomas M. Havrilesky, Money Supply, Money Demand, and Macroeconomic Models (Boston: Allyn & Bacon, 1972), pp. 208-9. Certainly Fisher's Purchasing Power of Money and his Rate of Interest (New York: Macmillan Co., 1907) predated Mises' Theory of Money. It seems to me that Mises' discussion of price expectations and how they affect the decision to hold cash balances is sufficiently different from Fisher's discussion to warrant some academic recognition. Edmund Phelps credited Mises, rather than Fisher, in "Money Wage Dynamics and Labour Market Equilibrium," in Microeconomic Foundations, p. 129.

57. [57] An important thesis of this paper is that Mises (like Wicksell) was an admirer of the quantity theory but critical of Fisher's mechanical version of that theory, which tends to ignore the role individual cash balances play in linking the commodity and money markets. On Mises as an adherent of the quantity theory, see Theory of Money, pp. 130, 146-54. On Wicksell as a supporter of the quantity theory, see Patinkin, Money, Interest, p. 587, for references to Wicksell's writings. I wish to emphasize that I am concerned here with Mises' monetary economics and their relationship to Wicksell's early monetary theories. Thus, I make no attempt to trace the evolution of Wicksell's own ideas or to discuss his debate with Mises, which occurred after the publication of the Theory of Money and Credit. Wicksell's later views on money are in his Lectures on Political Economy 2 (London: Routledge & Kegan Paul, 1935); see also Carl G. Uhr, Economic doctrines of Knut Wicksell (Berkeley: University of California Press, 1960), pp. 198-327.

58. [58] Wicksell, Interest and Prices, pp. 18-28.

59. [59] Ibid. Mises dated the "proportionality theorem" to Hume and Mill (Theory of Money, pp. 139-40). The doctrine, however, can be located in the sixteenth-century writings of Jean Bodin and the Spanish Scholastics. What disturbed Mises was that while the general theory of price had advanced beyond the naive notion that price is proportional to the ratio between demand and supply, monetary theory had not (cf. Mises, Theory of Money, pp. 128-30).

60. [60] Ibid., pp. 141-42.

61. [61] See Patinkin's distinction between an "individual demand curve for money" and a "market equilibrium" curve in Money, Interest, pp. 24-31.

62. [62] Ibid., pp. 50-59.

63. [63] Fisher, Purchasing Power, pp. 29-30.

64. [64] Mises, Theory of Money, pp. 143-45.

65. [65] Compare this treatment of the consequences of an increase in the quantity of money with the gold-discovery example offered by Mises in Theory of Money, pp. 137-45.

66. [66] Cf. Mises' criticism of "price averages" in Theory of Money, pp. 188-94.

67. [67] When prices start on an upward course, the first recipients of the new money may find that their real balances have fallen and that they must now resell some of the nonmonetary commodities that they originally purchased with the new money. If transactions costs are large enough, they may find that their final wealth position is lower than before they received the new money. Thus the rule that the first recipients of the new money are gainers need not necessarily be true. The reason governments gain by issuing new money is that they generally find themselves in a "debtor" position and the inflation reduces the real value of their liabilities (ibid., p. 139).

68. [68] See Mises' discussion of "forced savings" in Theory of Money, pp. 346-52.

69. [69] Mises credited Karl G. A. Knies Geld und Kredit (Berlin: Weidmann, 1876) and Fisher's Rate of Interest (New York: Macmillan Co., 1907) for explanations of the impact of price expectations on interest rates (Theory of Money, pp. 200, 454). In more recent literature the rise in interest rates during prolonged inflation is sometimes termed the "Gibson paradox." This phenomenon was correctly understood by Mises.

70. [70] Patinkin wrote that "a doubling of the quantity of money can in general be expected to affect both equilibrium relative prices and the rate of interest. Specifically, the relative prices of those commodities favored by debtors will rise, while those favored by creditors will fall. Similarly, the (real) interest rate will rise or fall, depending on which of two countervailing forces is stronger: the decrease in the demand for bonds, caused by the worsened real position of creditors; or the decrease in the supply of bonds, caused by the improved real position of debtors" (Money, Interest, p. 74).

71. [71] See, for example, Friedman, The Optimum, pp. 16-21.

72. [72] See Don Patinkin, "Wicksell's Cumulative Process, "Economic Journal 62 (1952): 835-47; reprinted in Patinkin, Money, Interest, pp. 588-97.

73. [73] Mises, Theory of Money, pp. 355-57.

74. [74] In the preface to the second German edition of the Theory of Money (see note 1 above), Mises explained that he was adopting Böhm-Bawerk's terminology because it was best known to his readers, but he stated that his own views on the determination of the (natural) rate of interest were now (i.e., 1924) different. His criticisms of Böhm-Bawerk finally appeared in. Nationalökonomie (Geneva, Switzerland: Editions Union, 1940), pp. 439-44. An English translation of these passages was completed by Bettina Bien Greaves and Percy L. Greaves, Jr., in Mises Made Easier: A Glossary for Ludwig von Mises' Human Action (New York: Free Market Books, 1974), pp.150-57. See also Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Henry Regnery, 1966), p. 488n. For Mises' own "time preference" theory of interest, see ibid., pp. 479—90. It so happens, however, that Mises' particular explanation of why Wicksell's cumulative process must end was not affected by his subsequent position on the nature and determination of interest.

75. [75] We have seen that Mises did not consider the possibility of a continuous and fully anticipated price inflation of, say, 10 percent accompanied by an equivalent increase in the quantity of money with all distribution effects eliminated by appropriate "index clauses" in all contracts. Mises believed that in such circumstances individuals would continually reduce their desired cash balances propelling the economic system toward hyperinflation (see note 35 above). However, the argument used here with regard to bank credit expansion is a bit more subtle. Apparently, the initial lowering of the money rate below the natural rate alters relative prices making the prices of higher-order goods (i.e., capital goods) rise relative to lower-order goods (i.e., consumer goods). As consumer goods prices rise (because of the introduction of new money into the economy), capital goods prices must rise faster to maintain the ratio dictated by the lower interest rate. But consumer prices in the next period will rise still faster, and the system is propelled toward hyperinflation, which is intensified by the reduction of (real) cash balances mentioned above. Mises developed the mechanisms sketched here in more detail in his 1928 monograph Geldwertstabilisierung und Konjunkturpolitik.

76. [76] This process of readjustment is, of course, a business depression. Mises claimed as much (Theory of Money, pp. 365-66).

77. [77] See esp. Friedrich A. Hayek's early writings, such as Prices and Production (London: George Routledge & Sons, 1935), pp. 148-52; and Hayek, "Capital and Industrial Fluctuations," Econometrica 2 (April 1934): 152-67.

78. [78] Mises, Theory of Money, pp. 435-57.

79. [79] Ibid., pp. 138, 416-17; see also Mises, Human Action, pp. 471-76.

80. [80] Though Wicksell did not include demand deposits in his definition of "money," he realized that an increase in deposits acts like money in raising prices. The purpose of his "cumulative process" discussion was to augment the quantity theory by describing the mechanism by which increases in bank reserves increase prices; cf. Patinkin, Money, Interest, p. 588. Mises was more "modern" than Wicksell because he defined "money" in a broader sense so as to include bank deposits (Theory of Money, pp. 278-96). See also translator's remarks, ibid., pp. 482-83.

81. [81] Such an arrangement would not, according to Mises, encourage bank credit expansion but would actually retard it. Competition among the note-issuing banks would raise the reserve-deposit ratio. Any single group of banks found unable to meet their payments obligations would be declared "bankrupt" and their owners held libel under the usual arrangements of business law. Cf. Mises, Human Action, pp. 444-48.

Ludwig von Mises and The Theory of Capital and Interest, by Israel M. Kirzner

82. [82] Ludwig von Mises, Nationalökonomie: Theorie des Handelns und Wirtschaftens (Geneva: Editions Union, 1940).

83. [83] Frank H. Knight, "Professor Mises and the Theory of Capital," Economica 8 (November 1941): 410.

84. [84] Friedrich A. Hayek, "Time-Preference and Productivity: A Reconsideration," Economica 12 (February 1945): 22.

85. [85] Friedrich A. Hayek, Pure Theory of Capital (London: Routledge & Kegan Paul, 1941), p. 45.

86. [86] Ludwig von Mises, "Das festangelegte Kapital," in Economische Opstelen: Aangeboden aan Prof. Dr. C. A. Verrijn Stuart (Haarlem: De Erven F. Bohn N. V., 1931), pp. 214-28; also in Epistemological Problems of Economics, trans. George Reisman (Princeton: D. Van Nostrand, 1960), pp. 217-310. For bibliographical information on Mises' works I am indebted to Bettina Bien [Greaves], The Works of Ludwig von Mises (Irvington-on-Hudson, N. Y.: Foundation for Economic Education, 1969).

87. [87] Ludwig von Mises, Socialism: An Economic and Sociological Analysis (New Haven: Yale University Press, 1959), pp. 142-43.

88. [88] Ludwig von Mises. The Theory of Money and Credit (New Haven: Yale University Press, 1959), p. 339, and esp. p. 24.

89. [89] Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Henry Regnery, 1966), p. 524.

90. [90] Ibid., p. 526.

91. [91] Ibid., p. 493.

92. [92] Knight, "Professor Mises," p. 409.

93. [93] See Joseph A. Schumpeter, History of Economic Analysis (New York: Oxford University Press, 1954), p. 847. See also Erich Streissler and W.Weber, "The Menger Tradition," in Carl Menger and the Austrian School of Economics, ed. J. R. Hicks (Oxford: Clarendon Press, 1973), p. 231.

94. [94] Heyek, Pure Theory of Capital, p. 46n. For Hayek's criticisms of Böhm-Bawerk's work, see ibid., pp. 414-23. A critique of Böhm-Bawerk by an "Austrian" theorist may be found in Ludwig M. Lachmann, Capital and Its Structure (London: London School of Economics and Political Science, 1956).

95. [95] Knight, "Professor Mises," pp. 422.

96. [96] Friedrich A. Hayek, The Counter-Revolution of Science: Studies on the Abuse of Reason (Glencoe, III.: Free Press, 1955) p. 31.

97. [97] Ibid., p. 210, note 24.

98. [98] Mises, Human Action, p. 488. See also Ludwig von Mises, Epistemological Problems of Economics, trans. George Reisman (Princeton: D. Van Nostrand, 1960), p. 31.

99. [99] Mises, Human Action, pp. 488-89.

100. [100] See Israel M. Kirzner, An Essay on Capital (New York: Augustus Kelly, 1966), pp. 79, 99.

101. [101] Frank A. Fetter, "the 'Roundabout Process' in the Interest Theory," Quarterly Journal of Economics 17 (November 1902): 177.

102. [102] Schumpeter, History of Economic Analysis, pp. 931-32.

103. [103] Eugen von Böhm-Bawerk, History and Critique of Interest Theories, vol. 1, Capital and Interest, trans. George D. Huncke and Hans F. Sennholz (South Holland, III.: Libertarian Press, 1959), p. 482, note 112.

104. [104] Ibid., p. 476, note 14.

105. [105] Ibid., pp. 14, 32.

106. [106] Carl Menger, "Zur Theorie des Kapitals," (Conrad's) Jahrbucher fur Nationalökonomie und Statistik (Jena: Gustav Fischer Verlag, 1888), 17:

107. [107] Friedrich A. Hayek, "Carl Menger," in Grundsätze der Volkswirtschaftslehre, Scarce Tracts in Economic and Political Science (London: London School of Economics and Political Science, 1934), p. xxvi.

108. [108] Mises, Socialism, pp. 123, 142.

109. [109] Hayek, "Carl Menger," p. xxvi.

110. [110] Hayek, Pure Theory of Capital, p. 89.

111. [111] Mises, Human Action, p. 263.

112. [112] More precisely Lachmann suggested that Menger was objecting to the nation of the homogenization of capital (Ludwig M. Lachmann, "Sir John Hicks as a Neo-Austrian," South African Journal of Economics 41 [September 1973]: 205).

113. [113]Mises, Human Action, p. 515.

114. [114] Ibid., p. 262.

115. [115] Ludwig von Mises, Human Action: A Treatise on Economics, 2d ed. rev. (New Haven: Yale University Press, 1963), p. 515. [In the 1966 edition the second line on this quotation is omitted.—Ed.]

116. [116] For a listing of writers who have ascribed "mysticism" or "mythology" to the Clark-Knight concept of capital, see Kirzner, An Essay on Capital, p. 59.

117. [117] Mises, Human Action, p. 515.

118. [118] As Knight did in his well-known "Crusonia Plant" example (Frank H. Knight, "Diminishing Returns from Investment," Journal of Political Economy 52 [March 1944]: 29).

119. [119] Mises, Human Action, p. 844.

120. [120] See John R. Hicks, "Capital Controversies: Ancient and Modern,"American Economic Review 64 (May 1974): 308-10. According to Hicks, "fundists" are those who refuse to see capital as something apart from the physical goods of which it happens to consist at a particular time. The "materialists" are those who refuse to see capital in any sense other than the physical goods that make it up. Hicks' terminology here is quite unfortunate and may lead to a misunderstanding of his own thesis. From what has been said in the text, it would seem that Clark and knight are what Hicks meant when he spoke of "fundists." It turns out, however, that Hicks classified them as "materialists"! The Austrian school (which is vehemently opposed to the Clark-Knight notion of capital as a self-perpetuating fund) turns out, in Hick's classification, to be "fundist" because it viewed the stock of capital goods in terms of the multiperiod future plans in which they enter. The Clark-Knight notion of capital as a fund is therefore quite different from the Austrian notion of a fund. Clearly, in the Clerk-Knight view, capital goods are not the representatives of plans for future production processes but rather permanent sources of automatic income flow.

121. [121] See note 37 above.

122. [122] Mises, Human Action, p. 263.

123. [123] Ibid., p. 260.

124. [124] Ibid., p. 94.

125. [125] Ibid.

126. [126] Ibid., p. 263-64.

127. [127] Ibid., p. 525.

128. [128] Frank H. Knight, "Introduction," in Carl Menger, Principles of Economics, trans. James Dingwall and Bert F. Hoselitz (Glencoe, III.: Free Press, 1950), p. 25.

129. [129] Mises. Human Action, p. 253.

130. [130] Ibid., p. 536.

Ludwig von Mises and Economic Calculation Under Socialism, by Murray N. Rothbard

131. [131] See Enrico Barone, "The Ministry of Production in the Collectivist State," in Collectivist Economic Planning, ed. Friedrich A. Hayek (London: George Routledge & Sons, 1935), p. 286. See also Trygve J. B. Hoff, Economic Calculation in the Socialist Society (London: William Hodge & Co., 1949), pp. 140-43.

132. [132] Ludwig von Mises, Human Action (Chicago: Henry Regnery, 1966), pp. 353-56.

133. [133] Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper & Bros., 1942), p. 175.

134. [134] Friedrich A. Hayek, Individualism and Economic Order (Chicago: University of Chicago Press, 1948), pp. 90-91.

135. [135] Miles, Human Action, pp. 707-9. See also Dominic T. Armentano,"Resource Allocation Problems under Socialism,"in Theory of Economic Systems, ed. W. P. Snavely (Columbus, Ohio: Charles E. Merrill Co., 1969), pp. 127-39. On the importance of the stock market in he free-market economy, see Ludwig M. Lachmann, Capital and Its Structure (London: London School of Economics and Political Science, 1956), pp. 67-71.

136. [136] On Socialist countries operating within a world market environment, see Mises, Human Acton, pp. 698-99. On the rapid breakdown of War Communism, see Boris Brutzkus, Economic Planning in Soviet Russia Alienation and the Soviet Economy (Albuquerque, N.M.: University of New Mexico Press, 1971), pp. 20-47.

137. [137] P. J. D. Wiles,"Changing Economic Thought in Poland,"Oxford Economic Papers 9 (June 1957): 202-3.

138. [138] Friedrich A. Hayek,"The Present State of the Debate,"in Collectivist Economic Planning, pp. 226-27.

139. [139] Hayek, Individualism and Economic Order, p. 198.

140. [140] Roberts, Alienation and the Soviet Economy, p. 97.

141. [141] G. F. Thirlby,"The Ruler"in L.S.E. Essays on Cost, ed. J. M. Buchanan and G. F. Thirlby (London: London School of Economics and Political Science, 1973), pp. 163-200.

142. [142] James M. Buchanan,"Introduction: L.S.E. Cost Theory in Retrospect,"in L.S.E. Essays on Cost, pp. 4-5, 14-15.

143. [143] Ronald H. Coase,"The Nature of the Firm,"Economica 4 (November 1937): 384-405; reprinted in American Economic Association, Readings in Price Theory (Homewood, III.: Richard D. Irwin, 1952), p. 335n.

144. [144] Ibid.

145. [145] See Murrray N. Rothbard, Man, Economy, and State (Los Angeles Nash Publishing Co., 1970), 2: 547-50, 585.

Ludwig von Mises and the Justification of the Liberal Order, by William Baumgarth

146. [146] Mises wrote, "The political antagonisms of today are not controversies over ultimate questions of philosophy, but opposing answers to the question how a goal that all acknowledge as legitimate can be achieved most quickly and with the least sacrifice. This goal, at which all men aim, is the best possible satisfaction of human wants; it is prosperity and abundance. Of course, this is not all men aspire to, but it is all they can expect to attain by resort to external means and by way of social cooperation. The inner blessings—happiness, peace of mind, exaltation—must be sought by each man within himself alone" (The Free and Prosperous Commonwealth [Princeton: D. Van Nostrand, 1962], p. 192).

147. [147] Ibid., pp. 7-8; cf. Friedrich A. Hayek, The Constitution of Liberty (Chicago: Henry Regnery, 1972), p. 52.

148. [148] Mises, Free and Prosperous Commonwealth, p. 3.

149. [149] Ibid., p. 3.

150. [150] Ibid., p.157-58.

151. [151] Ibid., p. 161.

152. [152] Ludwig von Mises, Omnipotent Government (New Haven: Yale University Press, 1944), p. iii.

153. [153] Mises, Free and Prosperous Commonwealth, pp. 164-65.

154. [154] Ibid., p. 166.

155. [155] Ludwig von Mises, The Anti-Capitalistic Mentality (Princeton: D. Van Nostrand, 1956).

156. [156] Mises, Free and Prosperous Commonwealth, p. 14.

157. [157] Ibid., p. 16.

158. [158] Ludwig von Mises, Bureaucracy (New Haven: Yale University Press, 1962), p. 116.

159. [159] Mises, Omnipotent Government, pp. 118-19.

160. [160] Ludwig von Mises, Epistemological Problems of Economics (New York: D. Van Nostrand, 1960), p. 49.

161. [161] Ibid.

162. [162] Mises, Free and Prosperous Commonwealth, pp. 21-22.

163. [163] Ludwig von Mises, Human Action: A treatise on Economics (Chicago: Henry Regnery, 1966), pp. 282-83.

164. [164] Mises, Free and Prosperous Commonwealth, pp. 27-28.

165. [165] Ibid., p. 28.

166. [166] Mises, Human Action, p. 150.

167. [167] Mises, Free and Prosperous Commonwealth, p. 37.

168. [168] Ibid., p. 109.

169. [169] Ibid.

170. [170] Ibid., pp. 109-10.

171. [171] Hayek, Constitution of Liberty, pp. 85-102.

172. [172] Mises, Free and Prosperous Commonwealth, pp. 28-29.

173. [173] Ibid., pp. 29-30.

174. [174] Mises, Human Action, p. 3.

175. [175] Mises, Epistemological Problems of Economics, p. 35.

176. [176] Mises, Human Action, p. 3.

177. [177] Mises, Free and Prosperous Commonwealth, p. 71.

178. [178] Ibid., p. 195.

179. [179] Ibid., p. 52.

180. [180] Ibid., pp. 85-86.

181. [181] Hayek, Constitution of Liberty, pp. 162-75.

182. [182] Murray N. Rothbard, Power and Market: Government and the Economy (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 151-88.

Closing Remarks, by Fritz Machlup

183. [183] Fritz Machlup, Führer durch die Krisenpolitik (Vienna: Julius Springer, 1934), pp. 209-14; in a French edition, Guide à les panacées economiques (Paris: Librairie de Médicis, 1938), pp. 309-16; in a most recent version, "integrationshemmende Integrationspolitik," Bernhard-Harms-Vorlesungen, ed. Herbert Giersch (Kiel: institute für Weltwirtschaft, Universitat Kiel, 1974), pp. 42-45, 52-54.

184. [184] Fritz Machlup, "Liberalism and the Choice of Freedoms," in Roads to Freedom, ed. Erich Streissler (London: Routledge & Kegan Paul, 1969), pp. 117-46.

End of Notes

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