The Economics of Ludwig von Mises: Toward a Critical Reappraisal
By Laurence S. Moss
In March 1974 I got in touch with Professor Leland Yeager, who was then president-elect of the southern Economics Association, and told him that I wanted to organize a symposium on the economic thought of Ludwig von Mises for the November 1974 meeting of our association in Atlanta, Georgia. Mises had died in October 1973, and we would be meeting on nearly the first anniversary of his death. Yeager agreed that, although Mises had been named a “Distinguished Fellow” of the American Economics Association in September 1969, many economists were not well acquainted with either the content of his thought or the enormous range of subjects to which he had devoted more than seventy years range of subjects to which he had devoted more than seventy years of active scholarship. At a time when the cherished “idols” of the intellectual marketplace were being regarded with suspicion, and economists were becoming critical of their basic assumptions and methods, it seemed appropriate to devote an entire session to someone whose lifework had been on the foundations of the science. Thus, we had every reason to believe that a panel on Mises would be well attended and set to work deciding whom to invite and what aspects of Mises’ contribution could be most profitably discussed in the short space of two hours…. [From the Preface by Laurence S. Moss]
First Pub. Date
Kansas City: Sheed and Ward, Inc.
Symposium held before the 44th Meeting of the Southern Economics Association, Atlanta, Georgia, 15 November 1974. Collected essays, various authors. 1974 conference proceedings. Includes essays by Fritz Machlup, Israel M. Kirzner, Murray N. Rothbard, and more.
The text of this edition is copyright ©1977, The Institute for Humane Studies.
Ludwig von Mises was born on 29 September 1881 in the city of Lemberg of the Austro-Hungarian Empire (now city of Lvov, USSR). His father, Arthur Edler von Mises, was a construction engineer employed by the Austrian railroads, and his mother was the former Adele Landau.
*1 Ludwig grew up and was educated in Vienna and in 1900 entered the University of Vienna, where he received the degree of doctor of jurisprudence in 1906. At the University he studied with Friedrich von Wieser and Eugen von Böhm-Bawerk, the followers of Carl Menger, the founder of the Austrian school of economics.
In 1902, shortly after the publication of his first book (a historical study of the Galician peasants),
*3 he was called to active duty in the Austro-Hungarian army. This service lasted only one year, and he was not called again to active duty until World War I (1914), when he served as captain of the artillery in the Russian Ukraine. Besides his military duty, Mises’ public service included a position as chief of the finance department of the Austrain chamber of commerce, which appraised legislative proposals in the area of monetary and financial policy. Mises held this post from 1909 until 1934, when he left Austria to take a teaching position in Geneva, well in advance of the German invasion of Austria (March 1938).
In 1913, shortly after the publication of his remarkable and erudite
Theory of Money and Credit (1912), Mises was named “professor extraordinary” at the University of Vienna. Although this professorial position did not carry a salary, it signaled Mises’ emergence as one of the brilliant younger members of the Austrian
school of economics.
*4 During the 1920s Mises won international recognition for his article on “economic calculation,” which challenged the Socialist writers to explain how a meaningful set of relative price relationships could be established once socialism had abolished all markets for capital goods.
In 1926 Mises toured the United states under the sponsorship of the Laura Spelman Rockefeller Memorial. When he returned to Austria in 1926, he established the Austrian Institute for Business cycle Research. At that time Mises reformulated and expanded his monetary theory of the business cycle, first sketched in his 1912 study on money and credit mentioned previously. Many of Mises’ articles and books containing elaborations and applications of his cycle analysis are still untranslated.
*6 One route by which Mises’ basic ideas did, however, reach a wider audience was through the lectures of his student firedrich Hayek at athe London School of Economics during the thirties.
In addition to his work on business-cycle analysis and economic theory in general, Mises published on subjects as seemingly diverse as political liberalism and the philosophy of science. As a champion of economic liberalism he explained how an unhampered market economy acted as the best gurantee of peace and prosperity. On the special problems of the logic and structure of economic explanations, Mises argued the case for “methodological individualism,” thereby furthering the valuable work already done by Carl Menger and Max Weber.
*8 Two of Mises’ important works, dating from this period, are translated under the titles
The Free and Prosperous Commonwealth and Epistemological Problems of Economics*9.
In 1934 Mises accepted the offer of a professorship at the Graduate Institute of International Studies in Geneva, Switzerland.
*10 In 1938, at the age of 57, he married Margit Sereny-Herzfeld.
In 1940 Mises immigrated to the United States. From 1940 to 1944 he was a guest of the National Bureau of Economic Research in New York and financed his writings by way of this and other research grants. With the exception of a visiting professorship for one year at the National University in Mexico, Mises did not
return to teaching until 1945, when he was appointed visiting professor of the Graduate School of Business Administration at New York University. His publications during this period ranged from a systematic analysis of the deficiencies of bureaucracy to a final version of his masterwork on economics,
Human Action (1949). The latter work synthesized his entire contribution to economics and placed the discipline of economics within the framework of an all-encompassing science of human action, which he termed “praxeology”.
During the 1950s and 1960s Mises was honored on numerous occasions both in Europe and in the United States. His New York seminar was attended by prominent people from all walks of life, many of whom went on to become academic economists themselves.
*11 Throughout this period Mises continued to contribute to the areas of philosophy of science, political philosophy, sociology, history, and economics. By 1969, when he retired from teaching, he had established himself as one of the most prolific scholars of the twentieth century. In 1969, shortly before his university retirement, Mises was named a “Distinguished Fellow” of the American Economics Association. The citation accompanying the award reads as follows:
A library possessing all the books by Ludwig von Mises would have nineteen volumes if it confined itself to first editions, forty-six volumes if it included all revised editions and foreign translations, and still more if it possessed the
Festschriften and other volumes containing contributions by him. The stream of publications began in 1902. Mises will be 88 years old this September. He taught at the University of Vienna until 1934 and at the Institute Universitaire in Geneva until 1940. he still teaches at New York University. The stream of students that has come out of his seminars is no less remarkable than his literary output.1.9
His published work ranges from economic history and history of thought to methodology and political philosophy, with special emphasis on monetary theory, international finance, business fluctuations, price and wage theory, industrial organization, and economic systems. It would not be possible to enumerate the ideas which Mises has originated and disseminated over the years, but some of the most fruitful may be mentioned: in monetary theory, the application of marginal utility theory to
the explanation of the demand for money; in business cycle theory, certain amendments to the Wicksellian theory of the cumulative process and a demonstration that a monetary policy stabilizing certain price indices would not at the same time stabilize business activity; in the theory of socialist economic planning, the discovery that the type of economic calculation required for an efficient allocation of resources cannot be carried out without a system of competitive market prices. The recent movements toward decentralized planning in several Soviet-type economies add the endorsement of history to the insights at which Mises arrived almost fifty years ago.
Mises’ last public address was given in New York City on 2 May 1970, on the topic to which he devoted more than fifty years of thought, “Socialism versus the Free Market.” He died on 10 October 1973 at the age 92. he was survived by his wife, Margit, his two stepchildren, Gitta Sereny Honeyman and Guido sereny, his close personal friends and confidants Henry Hazlitt and Lawrence Fertig, and a host of students and admirers the world over. His personal library of 6,000 volumes is housed at Hillsdale College in Michigan.
How do we measure the extent of Mises’ influence? By the test of avowed discipleship, there are few professional economists who call themselves “pure Misesians”; yet Mises had, as we have seen, a profound influence on many contemporary economists. Part of Mises’ influence had to do with his seminar teaching: there was something unique and unforgettable about his manner and approach. As one who was fortunated enough to attend Mises’ seminars in New York city (1963-65), I would like to recount some aspects of that experience.
Certainly, as a teacher of economics is expected to do, Mises communicated ideas, distinct policy proposals, and characteristic attitudes to his students. But above all he offered his students a reasonably consistent world outlook at a time when the economics profession was becoming increasingly fragmented and overly specialized. He presented a cogent and carefully thought out
defense of the market and economic freedom that was as exciting as it was insightful. Mises’ criticisms of other economic schools of thought and of toehr intellectual traditions subtly combined wisdom and polemic in proportions that carried the listener to the pitch of feverish excitement.
In an absolutely brilliant manner Mises would open the newspaper, choose a so-called modern-day economic problem, and then spend the hour explaining slowly and carefully why it was only a pseudoproblem in disguise. Mises would explain that the alleged problem either consisted of somebody’s disapproval of the voluntary choices made by others (and hence was a noneconomic problem) or was the consequence of some fundamental imbalance introduced in the market by prior acts of state intervention. Modern economists sometimes distinguish between ultimate solutions to problems and solutions that, while not permanent, are at the moment politically feasible. Thus, for example, given the fact that modern governments refuse to use monetary deflation as a means of adjusting domestic price levels, economists discuss what second-best alternatives are available. For Mises there was no time to play patch-up games with a failing economy; Mises was interested in the ultimate source of the problem and its ultimate solution. Mises provided his students with a deep understanding of economic policy that often crossed the border into the realm of political philosophy itself.
Above all, Mises presented his students with a “Paradigm” that has come to be associated with the work of the Austrian school of economics and in particular the pioneering thought of Carl Menger. According to Mises, and the Austrian school in general, the economic system is a delicate arrangement that coordinates and sometimes synchronizes individual plans without the need for centralized direction and often in spite of cumbersome governmental interventions. The so-called competitive model where individuals are reduced to profit-maximizing calculators not only distorts real world relations but pushes economics into a mold that partially obscures the subjective character of “costs” and “values” and ignores the uncertainties that individual actors experience when for-
mulating their plans. For Mises, economic theory is more than a set of convenient assumptions that permit the systematic arrangement of historical statistics: economics offers insight into the nature of the human condition itself.
My first meeting with Mises occurred when I was nineteen years of age. At the prompting of a best-friend, we boarded the IND subway train in queens to make the nearly hour-long trek to Manhattan’s financial district. There at New York University’s School of Business, Mises was holding his economic theory seminar in the early evening hours. The subject of the seminars varied form year to year and ranged from a discussion of socialism to the international monetary mechanism. Toward the end of 1964 I invited Mises to give a talk at my school, Queens college of the city University of New York, on the subject of “some Epistemological Problems of Economics.” Mises agreed to come, and the school newspaper asked me to write a précis of his life and writings so as to publicize his arrival on campus. In my article I recalled my first seminar meeting with Mises and how he “broke the ice” and encouraged all those present not to be in awe of him but to participate in the discussion. Let me conclude this introduction by quoting from my article in queens college’s
Phoenix (5 January 1965), because it conveys something of Mises “the teacher” that I have neither forgotten nor tired of recalling:
A silence smothered the plushly carpeted room as our professor reached for a copy of the
New York Times. He began to read from page one. I missed the opening paragraphs—it took a while to adjust to his Austrian-French accent—it was a story about an upcoming meeting of the International Monetary Fund. In essence, they were gathering to discuss the perennial balance of payments problem between their nations. His articulation was slow, deliberate. I knew what he thought of the IMF, and yet his tone showed not one bit of contempt for it. He put down the paper and restated the problem in a manner more comprehensible than the
Mises’ questioning begged an answer. All heads were bowed in thought, and Mises asked if someone would be kind enough to suggest an answer. No one volunteered. Who would dare posit their knowledge against his? In the event a fallacious doctrine might be espoused, would he become as caustic as he was in the past toward his intellectual opponents?
It was obvious that Mises understood that his stature blocked the flow of conversation. For the first time that evening he frowned. Suddenly he spoke, “Please do not be afraid to make a mistake, the greatest mistakes in economics have been made already.” He welcomed the laughter followed by wholesome discussion.1.17
I returned many times in the weeks that followed to hear and take part in his economic theory seminar. I read his books and questioned those aspects of his thought with which I disagreed. Oddly enough the more I argued against some of his tenets the more he seemed to appreciate my presence. I slowly began to understand what Mises’ philosophy is essentially about. It is more than a theory of economics, and more than a program for political activity. It is a philosophy built around the individual considering his opinions and decisions to be important. Mises’ “laisez-faire” is more than a plea for economic samity—it is a plea for human toleration.
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.
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).
Die Entwicklung des gutsherrlich-bäuerlichen Verhält-nisses in Galizien: 1772-1848 (Leipzig: Franz Deuticke, 1902).
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).
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.
Festschriften, and related subjects.
American Economic Review 59 (September 1969): frontispiece.
Opening Remarks, Mises, Keynes, and the Question of Influence, by Fritz Machlup