The Mises We Haven't Known
[Mises: The Last Knight of Liberalism. By Jörg Guido Hülsmann. Ludwig von Mises Institute, 2007. Xvi + 1,143 pages.]
Guido Hülsmann shows us in this monumental biography that a common view of Mises is mistaken. As even Macaulay's schoolboy knows, the American economics profession, dominated by Keynesianism, shunted Mises aside when he came to America. He was viewed as a relic, preaching an extremist view of free enterprise; and, as the mainstream had it, his famous calculation argument that showed the impossibility of socialism had been refuted both in theory, by Lange, Taylor et hoc genus omne, and in practice by the immense achievements of Soviet Russia. Private funds paid Mises's salary at the business school of New York University: no major university economics department could find space for this world-renowned scholar.
The situation had been better for Mises in his native Vienna. His famous seminar attracted visitors from all over the world. He was recognized not only as a famous teacher but also as a theorist of striking originality. But even here, the common picture has it, Mises remained a figure on the margins. He never held the rank of full professor at the University of Vienna.
Hülsmann overturns this picture. Despite his situation at the University of Vienna, Mises was, during the late 1920s and early '30s, a major presence in European economic thought. Even members of the German Historical School, his chief adversaries, were forced to make concessions to him.
But the real knockout for academic socialism in Germany came at the hands of its own vicar. Heinrich Herkner had succeeded Schmoller in his position at the University of Berlin and as the president of the Verein für Socialpolitik. For practical purposes, this meant he had become Schmoller's heir as head of the Historical School … Herkner singled out Mises's Socialism as the single most important work of this liberal resurgence, endorsing virtually all criticisms that Mises had leveled against socialism. (pp. 398–99)
Herkner was not a lone voice.
The year 1928 marked the highpoint of his [Mises's] influence on German monetary thought. The majority of the contributions to the meeting of the Verein für Socialpolitik in Zurich elaborated on his writings…. A few months later, [in 1929] Mises was one of six new members elected to the board of the Verein … it symbolized better than anything else his professional standing in those days. Starting as an eccentric in 1912, Mises had become a respected academic leader. (pp. 585, 588–89)
This happy development was rudely interrupted and frustrated by the advent of National Socialism in Germany in 1933.
If Mises for a time won wide acclaim, it did not follow that his views were always correctly understood. Often, Hülsmann suggests, Mises's views were wrongly conflated with those of Wieser. The two Austrian economists differed on a fundamental point. For Mises, economic calculation can only take place by using money. There is no way in which one can bypass money and calculate directly in terms of value. Mises held this point clearly in mind in his first great book, The Theory of Money and Credit:
Mises refuted the idea that money prices are a measure of value. Here he relied on the work of the Czech economist Franz Cuhel…. It follows that there is no such thing as value calculation or even value measurement. Even money does not have a constant value, and is therefore unable to provide the basis for a value calculus…. Contrary to what Walras's system of equations suggests, there are no constant relationships between money prices of different times and places. (pp. 218–220)
Wieser took a diametrically opposed position.
[He] insisted that while money does enable the "transfer" of commodities from one owner to another, it more importantly measures the value of the commodities it helps to transfer. In short, money is essentially a standard of value, a measuring rod or numéraire, and it is used in market exchanges to measure the value of the commodities against which it is exchanged. (pp. 227–28)
Unfortunately for clarity of thought, Mises's leading spokesman during the 1930s in the English-speaking world, Friedrich Hayek, had been trained by Wieser and inclined to his views. "Hayek was and would remain throughout his life a disciple of Wiesers's" (p. 639). Like his mentor, Hayek emphasized the importance of general equilibrium. From this perspective, money prices on the market express economic values. By contrast, Mises's pathbreaking contention was that there is no measurement of economic value at all. Calculation, to repeat, is entirely a monetary affair. (In his presentation of the differences between Hayek and Wieser, Hülsmann has been influenced by the pioneering research of Joseph Salerno.)
The issue, Hülsmann contends, led to a difference in the way Mises and Hayek understood the calculation argument against socialism. Hayek thought that it was in practice impossible for economic planners to express correct valuations without market prices: they could not, absent the market, gather the requisite information to do so. For Mises, the problem with socialism was deeper:
For Mises, the "pricing process" was not just the solution to an economic puzzle — it did not merely "express" the knowable reality of value in terms of some other knowable reality of money prices. Rather, the pricing process created a reality that could not possibly be known otherwise. Hayek would contend — following Wieser — that if the fundamental knowledge problems could be solved, one could calculate the correct prices for factors of production. Mises denied this even as a theoretical possibility. Socialist calculation was for him a conceptual impossibility. (p. 704)
Hayek's great influence at the London School of Economics thus had both good and bad consequences for those interested in a Misesian brand of theory. On the one hand, Hayek, together with his close friend and ally Lionel Robbins, acquainted the rising generation of English theorists with Mises's work. On the other hand, his unstable combination of Wieser with Mises elided Mises's break with standard equilibrium views.
If socialism, according to Mises, was impossible, this was not a circumstance that we should regret. The alternative to socialism, the free market, enables social cooperation and economic production to develop to the highest possible level. David Ricardo long ago showed the benefits of free trade; but Hülsmann insightfully points out that Mises extended Ricardo's law of comparative costs into a general law of human association:
So why do people cooperate at all? Generalizing a discovery that David Ricardo had famously made in the special case of foreign trade, Mises gave a simple answer: human beings associate with each other because the division of labor is more physically productive than the atomistic production of isolated individuals…. This law applies under virtually all circumstances, because it presupposes only that the susceptible associates be different in talents or location…. This led to a surprising conclusion. The very differences in which the theory of class struggle could see only the causes of violent conflict now appeared in a far more benign light. For these differences between individuals and groups also harbored great potentials for mutually advantageous cooperation … it was clear that government should regulate the economy as little as possible, in order not to prevent mutually beneficial associations. (pp. 427–29)
With his characteristic erudition, Hülsmann points out that St. Thomas Aquinas was well aware of the economic benefits of the division of labor.
The state, by interfering in the economy, can only make matters worse. One particular sort of intervention especially troubled Mises. In his great volume of 1919, Nation, State, and Economy, Mises showed how aggressive economic nationalism leads to imperialism and war. (Mises at first planned to call the book Imperialism.) During the late nineteenth century, many Germans sought for a better life through emigration. In an effort to keep them at home, the German government resorted to a policy of high tariffs.
Many Germans had moved to colonies that were predominantly populated by English settlers. Surrounded by an English majority, the German émigrés quickly assimilated and thus were lost to the German nation. In a desperate attempt to counter this development, the German government established a system of protective tariffs, to reduce the incentives of German workers to emigrate…. When the failure of this policy became apparent, the government changed its strategy and decided instead to conquer British colonies. It began to build a mighty fleet to combat the Royal Navy…. This in turn prompted the British entry into World War I. (p. 302)
In like fashion, Mises argued in Omnipotent Government that economic nationalism, brought on by fears of overpopulation, lay behind the Nazi drive to expand eastwards. Intervention in the economy not only has counterproductive economic consequences, but can lead to the most deleterious political consequences as well.
Mises was particularly sensitive to the interplay of economic interventionism and conflict among national groups because he was born and raised in that checkerboard of nationalities, the Austro-Hungarian Empire. One of the great strengths of Hülsmann's biography is that it thoroughly describes the national conflicts in the empire. In particular, Hülsmann gives a full account of the Jewish community of Lemberg, where Mises was born, and of Vienna, where Mises attended school and attained fame as an economist.
Interventionism, then, cannot solve the conflicts of ethnic and national groups: it only makes these conflicts worse. What, then, is to be done? Mises forcefully maintained that no group of people should be compelled to remain as an ethnic minority within a state. Not only groups but even individuals should be free to make whatever political arrangements they wished:
Mises advocated a complete liberalization of society. There should be no political limits to this process … Mises welcomed the unhampered competition among national territories, which in a free "inter-national" society would be a peaceful competition between language-based cultures, in which each individual, through his assimilation choices, would determine the fate of the various language communities … Mises argued not only that political rule is unnecessary to improve the condition of a nation, but that it is incapable of doing so. In a free society people constantly migrate to those locations offering the most favorable conditions for production. (p. 323)
Mises's radical views meant that he could never be a conventional conservative, though he was quite capable of alliance with rightwing governments to advance the cause of economic liberty. (He was an economic adviser to the conservative chancellor Monsignor Seipel and, under the Dollfuss regime, joined the Patriotic Front.) He retained his early radicalism throughout his long life. In a letter of 1960 to Hayek, he remarked:
I [Mises] completely agree with your rejection of conservatism. In his book Up from Liberalism, [William F.] Buckley … has clearly defined his standpoint: "Conservatism is the tacit acknowledgment that all that is finally important in human experience is behind us…. Whatever is to come cannot outweigh the importance to man of what has gone before." … It is a sad truth that this program is more attractive than everything that has been said about liberty and about the idealistic and materialistic benefits of the free economy. (pp. 994–95)
I have been able to discuss only a few topics in this book; so vast is its scope that it would have been easy to write several different reviews, each covering entirely different themes. Hülsmann combines to an extraordinary degree the skills of a penetrating analytical economist with those of an assiduous researcher. He is in this regard a worthy successor to Murray Rothbard. Mises: The Last Knight of Liberalism is an outstanding scholarly achievement and, by the way, a beautifully produced book. Everyone interested in Austrian economics must read it.
This review originally appeared in The Mises Review, Winter 2007.
 The common communitarian complaint that classical liberalism is an "atomistic" philosophy is thus the precise reverse of the truth.
 As Hülsmann points out, Mises's great-grandfather was a leader of the secular, progressive wing of Lemberg Jewry. Conflict in Lemberg between the traditionalists and progressives in Lemberg was bitter. In one famous case, a liberal rabbi was poisoned. See on this incident, Michael Stanislawski, A Murder in Lemberg (Princeton University Press, 2007).