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Mises on Economic Reform

September 22, 2000

Selected Writings of Ludwig von Mises: The Political Economy of
International Reform and Reconstruction
Edited and with an introduction by Richard M. Ebeling
(Indianapolis: Liberty Fund, 2000) 271 pp. $19 (hardcover), $12 (paper)


In the summer of 1940, Austrian Economist, Ludwig von Mises, arrived in the
United States as a refugee from war ravaged Europe. One of the most well
known--and controversial--economists of the period between the two World
Wars, Mises had defended the principles of the market economy against both
socialists and interventionists. He had shown why socialist central planning
was doomed to failure due to socialism's abolition of private property,
market competition and a system of market-generated money prices to
facilitate the process of economic calculation. And he had demonstrated that
government interventions in the market economy disturbed the allocation of
resources and the direction of production in ways inconsistent with consumer
demand. Such interventions also produced imbalances and distortions that
could often serve as rationales for extending the orbit of regulations and
controls until finally overall government control over the market might be
finally reached.

During his first years in the United States, Mises devoted a
significant portion of his time to analyzing the nature and causes of the
political and ideological trends that had brought the Europe of the 1920s
and 1930s to the abyss of war and destruction. He also attempted to outline
a set of policies through which a post-war Europe could recover from the
consequences of conflict and collectivism. Many of the essays and monographs
that Mises wrote between 1940 and 1944 on these themes have remained
unpublished until now. Ten of these essays and monographs have now been
brought together and edited by me under the title Selected Writings of
Ludwig von Mises: The Political Economy of International Reform and
Reconstruction
and published by the Liberty Fund of
Indianapolis.

While most directly concerned with the problems that Europe could
expect to face after Nazism had been defeated, running through all these essays is a discussion and defense of general political and economic principles and
policies that transcend the particular circumstances of the 1940s. Now at
the end of the 20th century, when the world is once again in a monumental
transition process in which former Soviet-bloc states are attempting to
successfully introduce market-based economic systems and third world nations
are trying to recover from their decades-long experiments with socialist
planning, Mises' arguments still ring as true and relevant as when he first
penned them more than half-a-century ago.

Underlying any successful change to freedom and prosperity, Mises
explains, must be a transformation in attitudes and ideologies. In three
essays on postwar European reconstruction, he emphasizes that the countries
of Europe must focus their attention on the long-run institutional
foundations for economic growth and social well-being. Special interest
group politics, economic nationalism and welfare statism must be seen as the
breeding grounds of social conflict, material decay and spiritual
corruption. In their place, public policy must be directed toward securing
private property and the enforcement of market contracts for both domestic
and foreign businessmen, maintaining low and stable taxes, reducing
government spending to the minimum level that would still be sufficient for
guarding individual rights, and establishing a stable and non-inflationary
monetary system. Only then would governments have done everything in their
power to create the political and economic environment most conducive for
participants in the market to begin the process for economic recovery.

The institutional change would require people to understand the
dead-end of short-run politics in which various producer interest groups vie
with each other for privileges and favors from the government, resulting in
a misdirection and squandering of society's scarce resources and capital.
Market entrepreneurs had to be seen as the human engines for innovation and
improvement, whose actions through the processes of market competition
brought about both more and better goods and services and assured a tendency
for a smooth coordination of the multitudes of supplies with the multitudes
of demands. No longer could people look to the state as a paternalistic
redistributor guaranteeing their market shares, relative incomes or profit
margins from the peaceful forces of open and free domestic and foreign
competition. The ideology of anticapitalism, that had brought Europe to
ruin, had to be rejected and replaced with a new spirit of individual
freedom and responsibility in a system of social cooperation based on the
principle of voluntary exchange.

In an essay on American foreign trade policy, Mises argues that the
most effective assistance that the United States could give to Europe in the
post-war period would be to establish a sound, free market at home to serve
as an example for Europeans. Out of America's own prosperity would come the
potential private-sector investment capital to assist in Europe's economic
recovery. Europe, however, could not be saved through
government-to-government loans, government subsidized and guaranteed
investment projects or special trading favors. Such policies would merely
reinforce the interventionist tendencies among Europeans and delay the
reforms needed in these countries for long-term improvement.

In a series of monographs, Mises then details an array of specific
policies that the various post-war countries would need for reconstruction
and reform. He outlines the advantages and methods for reestablishing a
functioning gold standard, free from government control and manipulation. In
a set of guidelines for the reconstruction of Austria after the war, Mises
explains the importance of free trade for a small country and suggests the
fiscal policies that would be most conducive to capital formation and
growth.

In another contribution, Mises presents the idea of an Eastern
European democratic union that would connect the countries from the Baltic
Sea to the Mediterranean, that would assure a vast free trade zone for
economic development and reduce the potentials for nationalistic and ethnic
conflict by respecting rights and property of the tens of millions of
individual participants in these various nations. And in a brief lecture,
Mises also explains that any successful pan-European union can only be
successful if established on the principle of freedom of movement.

Finally,
in a study prepared for a Mexican business association in 1943, Mises
analyzes the economic policies needed for an underdeveloped country such as
Mexico to take advantage of its comparative production potentials in the
global division of labor and foster, at the same time, market-driven
industrial development.

In 250 pages, Mises presents and articulates the political economic
agenda for a post-collectivist world, a world of individual freedom,
international peace and global prosperity. Though written in the 1940s,
Ludwig von Mises' essays offer the true agenda for the society of tomorrow,
the free society of the 21st century.


Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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