September 29, 2012
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Ludwig Heinrich Edler von Mises (September 29, 1881 – October 10, 1973) was an Austrian economist, historian, philosopher, author, and classical liberal who had a significant influence on the modern free market libertarian movement and the Austrian School.

Ludwig von Mises was born in the city of Lemberg, in Galicia, Austria - Hungary (now Lviv in Ukraine). His father was Arthur Edler von Mises. The family were Jewish and had recently been ennobled. They were involved in building and financing railroads. Similarly, Adele von Mises (née Landau), the niece of Dr. Joachim Landau, was a Liberal Party deputy to the Austrian Parliament. Arthur was stationed there as a construction engineer with Czernowitz railway company. At the age of twelve Ludwig spoke fluent Yiddish, German, Polish, and French, read Latin, and could understand Ukrainian. Mises had two younger brothers: applied physicist Richard von Mises, a member of the famous Vienna Circle, and later Karl von Mises, who died in infancy from scarlet fever. When Ludwig and Richard were children, his family moved back to their ancestral home of Vienna.

In 1900, he attended the University of Vienna, becoming influenced by the works of Carl Menger. Mises' father died in 1903, and in 1906 Mises was awarded his doctorate from the school of law.

In the years from 1904 to 1914, Mises attended lectures given by the prominent Austrian economist Eugen von Böhm - Bawerk. There, he developed friendships not only with Menger and Böhm - Bawerk, but also prominent sociologist Max Weber. Mises taught as a Privatdozent at the Vienna University in the years from 1913 to 1934 while formally serving as secretary at the Vienna Chamber of Commerce from 1909 to 1934. In these roles, he became one of the closest economic advisers of Engelbert Dollfuss, and, later, Otto von Habsburg. Friends and students of Mises in Europe included Wilhelm Röpke and Alfred Müller - Armack (influential advisors to German chancellor Ludwig Erhard), Jacques Rueff (monetary advisor to Charles de Gaulle), Lord Lionel Robbins (of the London School of Economics), and President of Italy, Luigi Einaudi.

Economist and political theorist F.A. Hayek first came to know Mises while working as Mises' subordinate at a government office dealing with Austria's post - World War I debt. Hayek wrote, "there I came to know him mainly as a tremendously efficient executive, the kind of man who, as was said of John Stuart Mill, because he does a normal day's work in two hours, always has a clear desk and time to talk about anything. I came to know him as one of the best educated and informed men I have ever known..." It was Hayek's development of Mises' innovative theoretical work on the business cycle which later earned him the Nobel Prize in economics.

In 1934, Mises left Austria for Geneva, Switzerland, where he was a professor at the Graduate Institute of International Studies until 1940. Fearing the prospect of Germany taking control over Switzerland, in 1940 along with other Jewish refugees Mises left Europe and emigrated to New York City. There he became a visiting professor at New York University. He held this position from 1945 until his retirement in 1969, though he was not salaried by the university. Instead, businessmen such as Lawrence Fertig funded him and his work. For part of this period, Mises worked on currency issues for the Pan - Europa movement led by a fellow NYU faculty member and Austrian exile, Richard Coudenhove - Kalergi. In 1947, Mises became one of the founding members of the Mont Pelerin Society.

In America, Mises' work first influenced that of economists such as Benjamin Anderson, Leonard Read and Henry Hazlitt, but writers such as former radical Max Eastman, legal scholar Sylvester J. Petro, and novelist Ayn Rand were also among his friends and admirers. His American students included Israel Kirzner, Hans Sennholz, Ralph Raico, Leonard Liggio, George Reisman and Murray Rothbard. Mises later received an honorary doctorate from Grove City College.

Despite his growing fame, Mises listed himself plainly in the New York phone directory and welcomed students into his home. He retired from teaching at the age of 87, then the oldest active professor in America. Mises died at the age of 92 at St. Vincent's hospital in New York.

Mises wrote and lectured extensively on behalf of classical liberalism and is seen as one of the leaders of the Austrian School of economics. In his treatise on economics, Human Action, Mises introduced praxeology as a more general conceptual foundation of the social sciences and established that economic laws were only arrived at through the means of methodological individualism firmly rejecting positivism and materialism as a foundation for the social sciences. Many of his works, including Human Action, were on two related economic themes:

  1. monetary economics and inflation;
  2. the differences between government controlled economies and free markets.
Mises argued that money is demanded for its usefulness in purchasing other goods, rather than for its own sake and that any unsound credit expansion causes business cycles. His other notable contribution was his argument that socialism must fail economically because of the economic calculation problem – the impossibility of a socialist government being able to make the economic calculations required to organize a complex economy. Mises projected that without a market economy there would be no functional price system, which he held essential for achieving rational and efficient allocation of capital goods to their most productive uses. If capital goods are the subject of neither rent nor exchange, as per private ownership of those means of production, then no barter terms or money prices can arise for them. Without the common nominal index of money pricing that allows comparison of costs of production to likely revenues, there can be no rational allocation of diverse capital goods in the production of diverse consumer goods whose production requires some use of scarce capital. In a socialist society, capital is not distributed according to the more efficient -- thus profitable -- capital structures, but rather to any use a theoretical socialist planner sees fit without the aid of monetary price signals to compare the profitability in a given use of capital. According to Mises, socialism must fail, as demand cannot be known without prices. Therefore, socialist waste of capital goods is as chronic as the incentives for production and retention of capital are low, while capital goods are coercively monopolised by a dysfunctional State operating with only the data pertaining to interpersonal comparisons of utility, as per democratic production. These data are not sufficient for economic calculation, and therefore are not sufficient for efficient use and allocation of capital. Capital's place in a free market is ordained by the prices set by private owners of the means of production, who keep capital where its production is remunerated best by consumers, and who liquidate it and pass it to other uses if production is bankrupt. In socialism, such means for liquidation of capital goods, and the passage or maintenance of the means of production across extremely diverse applications throughout the divisions of labour according to the expense or cheapness of bidding capital away from vital production, is simply not present. Mises' criticism of socialist paths of economic development is well known, such as in his 1922 work Socialism: An Economic and Sociological Analysis:

The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree is: that the standard of living of the Russian masses is much lower than that of the masses in the country which is universally considered as the paragon of capitalism, the United States of America. If we were to regard the Soviet regime as an experiment, we would have to say that the experiment has clearly demonstrated the superiority of capitalism and the inferiority of socialism.

These arguments were elaborated on by subsequent Austrian economists such as Nobel laureate Friedrich Hayek and students such as Hans Sennholz.

In Interventionism, An Economic Analysis (1940), Ludwig von Mises wrote:

The usual terminology of political language is stupid. What is 'left' and what is 'right'? Why should Hitler be 'right' and Stalin, his temporary friend, be 'left'? Who is 'reactionary' and who is 'progressive'? Reaction against an unwise policy is not to be condemned. And progress towards chaos is not to be commended. Nothing should find acceptance just because it is new, radical, and fashionable. 'Orthodoxy' is not an evil if the doctrine on which the 'orthodox' stand is sound. Who is anti-labor, those who want to lower labor to the Russian level, or those who want for labor the capitalistic standard of the United States? Who is 'nationalist,' those who want to bring their nation under the heel of the Nazis, or those who want to preserve its independence?

After the fall of the Soviet Union Robert Heilbroner, a lifelong advocate of socialism, said that "It turns out, of course, that Mises was right" about the impossibility of socialism. "Capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that's hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments."

Mises developed the theory of the 'sovereignty of the consumer' in a free market economy; in his view, the consumer ultimately dictates everything that happens. This argument was set out in Human Action:

'The captain is the consumer… the consumers determine precisely what should be produced, in what quality, and in what quantities… They are merciless egoistic bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction… In their capacity as buyers and consumers they are hard hearted and callous, without consideration for other people… Capitalists… can only preserve and increase their wealth by filling best the orders of the consumers… In the conduct of their business affairs they must be unfeeling and stony hearted because the consumers, their bosses, are themselves unfeeling and stony hearted.’

The context does not suggest that Mises is trying here to denigrate the consumer society. On the contrary, he is describing the free market economy as he believes that it naturally is and should be.

Milton Friedman considered Mises intolerant in his personal behavior:

The story I remember best happened at the initial Mont Pelerin meeting when he got up and said, "You're all a bunch of socialists." We were discussing the distribution of income, and whether you should have progressive income taxes. Some of the people there were expressing the view that there could be a justification for it.

Another occasion which is equally telling: Fritz Machlup was a student of Mises's, one of his most faithful disciples. At one of the Mont Pelerin meetings, Fritz gave a talk in which I think he questioned the idea of a gold standard; he came out in favor of floating exchange rates. Mises was so mad he wouldn't speak to him for three years. Some people had to come around and bring them together again. It's hard to understand; you can get some understanding of it by taking into account how people like Mises were persecuted in their lives.

In a 1957 review of his book, The Anti-Capitalistic Mentality, The Economist said of von Mises: "Professor von Mises has a splendid analytical mind and an admirable passion for liberty; but as a student of human nature he is worse than null and as a debater he is of Hyde Park standard."

In a 1978 interview Friedrich Hayek said about his book Socialism: "At first we all felt he was frightfully exaggerating and even offensive in tone. You see, he hurt all our deepest feelings, but gradually he won us around, although for a long time I had to -- I just learned he was usually right in his conclusions, but I was not completely satisfied with his argument."