Ludwig von Mises: Setting the Record Straight

Ludwig von Mises (1881-1973) is an iconic figure on the right, known as a great economist and a leading theoretician of free markets. (The surname is pronounced "MEE-zes" -- like "Moses" with a long "e" instead of "o." His books are often alphabetized under "v" because of the honorific title "von.") Unfortunately, Mises often is misunderstood. My purpose here is to correct some of these misapprehensions.

After a decades-long career in his native Austria, Mises, a Jew, emigrated to escape Hitler. In the postwar years, Mises mentored four Ph.D.s in economics at New York University: Hans Sennholz, Louis Spadaro, Israel Kirzner, and George Reisman. Several decades later, I earned my Ph.D. under Dr. Sennholz. During that period of study, I read all of Mises' books. Mises, then, is my "intellectual grandfather." Although I never met him, I owe him a great debt. Since he isn't here to correct misrepresentations of his ideas, I will try to pinch-hit for him. 

First, for the sake of readers who aren't familiar with his ideas, let's briefly review Mises' significance. His contributions to the advancement of economics remain unsurpassed. All of his books were powerfully illuminating, but four stand out as economic classics.

In The Theory of Money and Credit (1912), Mises integrated money into the larger body of neoclassical marginalist thought; showed how inflation redistributes, rather than creates wealth; and laid the foundation for his and Hayek's future work on how central bank monetary policy causes the widespread "cluster of errors" that characterizes the boom-bust cycle.

In Socialism: An Economic and Sociological Analysis (1922), Mises made, in my opinion, the single greatest economic breakthrough of the 20th century. He proved, with irrefutable logic, why socialism is inherently unviable, due to the impossibility of meaningful economic calculation in the absence of market-based prices. His socialist critics claimed to have surmounted this difficulty by saying that socialist regimes could copy capitalist prices -- hardly a "triumph" for the alleged superiority of socialism if it is ultimately a parasite dependent on capitalism. Many tens of millions of human beings could have been spared untold grief, blight, poverty, suffering, and premature death in the wretched experiments with socialism that darkened the 20th century, if only Mises's insights and warnings had been heeded. 

Mises's magnum opus is Human Action (1949). This book summarizes all of his vast economic understanding and synthesizes it into a comprehensive theory of (what else?) human action, called "praxeology." At a time when economics was becoming so fragmented and specialized that agricultural economists, for example, might have difficulty understanding international trade economists, Mises accomplished the intellectual equivalent of putting Humpty-Dumpty back together again by developing the economic equivalent of the unified theory in physics. 

Mises's fourth masterpiece is Theory and History (1957), a surprisingly readable examination of methodology that includes discussions of how both economic theory and the study of history demonstrate the superiority of free-market over government-planned economic action. (This book is the most accessible of "the big four" to the non-economist.)

In recent years, I have been surprised by how often Mises has been misunderstood outside the still-small fraternity of Austrian economists. Sad to say, one of the most accurate representations of Mises' ideas was made, improbably enough, by liberal congressman Barney Frank. 

On Feb. 24, 2004, Rep. Frank took to the floor of the House and expressed amazement that many of his Republican colleagues, who had professed to believe in the free-market principles of Ludwig von Mises, were arguing for larger agricultural subsidies. Bravo! Although he himself opposes free markets, Barney Frank knows that Mises never would have advocated subsidies for a special interest. 

Alas, the same cannot be said for David Cay Johnston, reporter for The New York Times.  Johnston wrote the 2007 book Free Lunch, recounting many of the ways in which the well-to-do and powerful receive special favors from government.   He lifted the veil from the sordid, corrupt process of what we economists call "rent-seeking." 

So far, so good.  But Johnston errs by citing Mises as one of the high priests of these unscrupulous plunderers.  Nothing could be further from the truth.  One of Mises's cardinal principles was the central importance of the impartial rule of law and a concomitant rejection of privileges.  (Cf. Liberalism, pp. 27-30, Theory and History, pp. 236-239).

Update:  Johnston contacted me after this article was posted and clarified his position.  He had not meant to imply in any way that Mises' ideas lent support to those who use privatization as an expedient cover for the type of plunder whereby a special interest obtains ownership of a public park via back-room sweetheart deals with the government.  We both agree that because there was no transition language from Johnston's earlier examples of plunder that I reasonably arrived at my interpretation.  I now agree that Johnston did not intend to convey that impression and that Johnston does not believe that Mises and his followers have promoted, condoned, or justified rent-seeking plunder.

Another widespread misunderstanding involves Mises' insistence on a strict adherence to Wertfrei (German for "value-free") economic analysis. Mises didn't believe in conservative or liberal economics any more than one would believe in conservative or liberal arithmetic or laws of physics. Yet in his recent history of supply-side economics, Econoclasts, historian Brian Domitrovic writes that Mises' work has climbed the "normative heights" of an absolutist ethical stance. 

Some Christians, meanwhile, denounce Mises for exactly the opposite reason, charging him with "moral relativism." This false charge is particularly cruel, for Mises steadfastly refused to compromise economic truth, often standing alone against the statist tide. It seems that Mises can't win. In fact, he was neither a moral preacher nor a moral relativist. He was a scientist, conscientiously and consistently illustrating cause/effect relationships that are not malleable to human will.

Finally, the strangest misconception today involves anarchism. One of my colleagues now avoids labeling himself an Austrian economist because his interlocutors then assume that he is an anarchist. Mises, the definitive Austrian economist, rejected anarchism. But today, Austrian economics and anarcho-capitalism are often regarded as two sides of the same coin. 

Here is Mises on anarchism:

Society cannot do without a social apparatus of coercion and compulsion, i.e. without state and government. The Anti-Capitalist Mentality, p. 90.

There are people who call government an evil, although a necessary evil.  However, what is needed in order to attain a definite end must not be called an evil ... Government may even be called the most beneficial of all earthly institutions as without it no peaceful human cooperation, no civilization and no moral life would be possible. Economic Freedom and Interventionism, p. 57.

Anarchism misunderstands the real nature of man. Liberalism, pp. 36-7.

Liberalism [in the European sense-the philosophy of free markets and limited government] differs radically from anarchism.  It has nothing in common with the absurd illusions of the anarchists... Liberalism is not so foolish as to aim at the abolition of the state. Omnipotent Government, p. 48

[Anarchists are] shallow-minded, dull, [and suffer from] illusions and self-deception. The Ultimate Foundation of Economic Science, pp. 98-9.

How, then, did Austrian economics -- and by extension, Ludwig von Mises -- come to be painted with an anarchist brush? Ironically, from the success of the Ludwig von Mises Institute.

Lew Rockwell founded The Mises Institute in 1983. (I attended its inaugural dinner.) As the Institute evolved, it came to be dominated by Murray Rothbard. Rothbard's economic thought was derived from Mises, but his anarcho-capitalist political philosophy was drawn from other sources.

The Mises Institute is doing a lot of excellent work in exposing the counterproductive nature of government intervention into economic matters. Indeed, I wish them continued success in their fight against economic illiberalism. In retrospect, though, it seems that there would be less confusion about Austrian/Misesian economics today if Rockwell had named his think-tank "The Rothbard Institute." 

I think Mises would be disappointed that the institute named after him would be known as a center of anarchist thought, but what's done is done. I am sure that if Mises were here today, his energies would be focused on the fight for economic rationality -- i.e., free markets -- rather than defending his personal reputation.   

Mark Hendrickson teaches in the Economics Department at Grove City College.
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