Ludwig von Mises: A Scholar Who Would Not Compromise
THERE ARE LEARNED PEOPLE, even students of economics, who know little or nothing about Ludwig von Mises. And there are those who have erroneous or distorted knowledge of him, acquired from superficial hearsay or from the teaching of unfriendly critics; there has been no scarcity of critics of this erudite, highly original, and uncompromising opponent of socialism and government intervention in all forms. Finally, there are admirers of Mises, faithful disciples and propagators of his teaching.
Introducing Mises to those who know hardly anything about him and, at the same time, to those who know chiefly that they do not like him, is a difficult task, especially if I also want to satisfy the admirers of Mises who may be interested to read what I have to say about "the master." Trying to meet all these objectives, I may fail in all three. But I shall try.
To Those Who Do Not Know Him
Ludwig von Mises was born in 1881 in Lemberg (Lvov) and died, more than 92 years later, in 1973 in New York. His father, Arthur von Mises, Dr. eng., was a civil servant, working in the construction-engineering department of the Austrian railroad and temporarily stationed in Lemberg, capital of Galicia, a part of the Austro-Hungarian monarchy.1
Ludwig von Mises attended the Academic Gymnasium of Vienna. After graduation, in 1900, he enrolled at the Faculty of Law of the University of Vienna to study both law and economics. Eugen von Böhm-Bawerk and Eugen von Philippovich were his major teachers in economics. His first book, published in 1902, was a monograph in economic history, dealing with the development of manorial-peasant relations in Galicia, 1772-1848. He received his degree of doctor of law (Dr. jur.) in 1906.
The story of Mises's life and career can be conveniently divided into three periods: the Vienna period of more than 50 years, until 1934; the relatively short Geneva period (the "happiest years of his life," according to his widow), 1934-1940; and the New York period, 33 years, until his death in 1973. Each of these periods may be characterized by the academic posts he held, and by the students he inspired. The three academic institutions were the University of Vienna, the Institute for Advanced International Studies in Geneva, and New York University. In Vienna he was "extraordinary" (unsalaried) professor, in Geneva he held the chair for international economic relations, and in New York he was visiting professor at the Graduate School of Business Administration. Of these three long-term academic posts only that in Geneva carried a regular salary; an explanation of this strange fact will be attempted when I present Mises to those who do not like him.
An assiduous worker and prolific writer, Mises published 47 books, of which 19 were first editions and 28 were second editions or translations. (This count does not include books that appeared after his death.) I shall not take the space that would be needed for a listing of all titles, but I should not fail to state which of his writings I regard as the most important. First and foremost is his Theory of Money and Credit (first German edition 1912, 2nd edition 1924; English translation 1934, new English edition 1953). Of this book, Lord Robbins said that he knew "few works which convey a more profound impression of the logical unity and power of modern economic analysis." If this book had been widely read and promptly understood, the world might have been spared the disasters of hyperinflation and their social and political consequences.
Secondly, there is the essay on "Economic Calculation in the Socialist Commonwealth" (first published as an article in German in 1920; English translation in a collective volume, 1935; republished 1963 and 1966). In this essay Mises argued that a centrally planned economy without competitive markets and market prices would be unable to engage in rational economic calculation. This theme he expanded and joined with many other issues of collectivism and socialism in the book Socialism: An Economic and Sociological Analysis (first German edition 1922, second edition 1932; English translation 1936, republished 1951 and 1959).3 Finally, I must cite Human Action: A Treatise on Economics (published 1949 and republished 1966, almost 900 pages, expanding on a book first published in German in 1940), a work of truly awesome scope and intellectual range.
Those familiar with Mises's work will be indignant about my omitting so many other fine books by Mises — for example, Omnipotent Government (1944) or Theory and History: An Interpretation of Social and Economic Evolution (1957, republished 1969, 1973). But for those who do not know Mises and are introduced to him for the first time my short list will do.
What ought to be shown, however, is where Mises stands in the development of economics. As a native Austrian and student at the University of Vienna he took his place as a representative of the Austrian school of economics. School, in this context, does not refer to an academic institution but to a way of thinking, a technique of analysis, a program of research. The Austrian school of economics was founded by Carl Menger, whose major works were published in 1871 and 1883. The "second generation" consisted of Eugen von Böhm-Bawerk, Friedrich von Wieser, Eugen von Philippovich, and several others whose most important works were published before the turn of the century. (Among the "others" of that generation are sometimes named Rudolf Auspitz and Richard Lieben, but some surveyors of the literature exclude them because of their "un-Austrian" predilection for mathematical, chiefly geometric exposition.) Ludwig von Mises was a student of Böhm-Bawerk, in whose seminar one could find several Austrians of the "third generation."
(Not every Austrian member of Böhm-Bawerk's seminar is accepted as a member of the Austrian school; for example, Joseph Schumpeter is sometimes excluded — unjustly, I think — because of his admiration for the mathematical school of Lausanne, founded by Leon Walras, and Otto Bauer is excluded because he embraced Marxian socialism.)
The Austrian economists of the third generation began to publish their works during the first two decades of this century. The fourth generation consists chiefly of members of the Mises seminar in Vienna, of whom Gottfried von Haberler, Friedrich von Hayek, Fritz Machlup, Oskar Morgenstern, and Paul Rostenstein-Rodan are mentioned most often, though at least another dozen productive and successful economists could be named.
There are thus two aspects of Mises's role in the development of Austrian economics: his books and his students. After the death of Böhm-Bawerk in 1914 and of Wieser in 1923, Mises was manifestly the leader of the school. A few years after he moved to the United States another Mises seminar started in New York. Its members became adherents of Austrian economics without being Austrian by origin or residence; should we perhaps call them non-Austrian Austrian economists — in contrast to those un-Austrian Austrians who embrace the "heresies" propagated by other schools of thought? Several highly productive writers and effective teachers are among these American disciples of Mises and his students. They are too numerous to list here, but I want to single out Israel Kirzner as one who has made especially fine contributions to Austrian economics.
What are the essential distinguishing characteristics of Austrian economics? This question is not easy to answer, chiefly because scholars are rarely, if ever, unanimous in their opinions and some members of a school may disavow one or more tenets which the majority regard as fundamental; secondly, because some of the tenets that once were typically Austrian economics have become worldwide mainstream economics. Hayek once said, very much to the point, that the greatest success of a school is that it stops existing because its fundamental teachings have become parts of the general body of commonly accepted thought.
Still, let me try to state the most typical requirements for a true adherent of the Austrian school.
(1) Methodological Individualism: In the explanation of economic phenomena we have to go back to the actions (or inaction) of individuals; groups or "collectives" cannot act except through the actions of individual members.
(2) Methodological Subjectivism: In the explanation of economic phenomena we have to go back to judgments and choices made by individuals on the basis of whatever knowledge they have or believe to have and whatever expectations they entertain regarding external developments and especially the consequences of their own intended actions.
(3) Tastes and Preferences: Subjective valuations of goods and services determine the demand for them so that their prices are influenced by (actual and potential) consumers.
(4) Opportunity Costs: The costs with which producers and other economic actors calculate reflect the alternative opportunities that must be foregone; as productive services are employed for one purpose, all alternative uses have to be sacrificed.
(5) Marginalism: In all economic designs, the values, costs, revenues, productivity, etc., are determined by the significance of the last unit added to or subtracted from the total.
(6) Time Structure of Production and Consumption: Decisions to save reflect "time preferences" regarding consumption in the immediate, distant, or indefinite future, and investments are made in view of larger outputs expected to be obtained if more time-taking production processes are undertaken.
These cryptic statements are, I am afraid, meaningful only to those who have a considerable background in economic theory. Surely, this is not the place to expatiate upon economic analysis, but I should add that the sixth tenet — regarding "Austrian theory of capital" — was rejected by some of the most prominent Austrians, including Carl Menger, the founder of the school.
Two important tenets held by the Mises branch of Austrian economics should be added to the list:
(7) Consumer Sovereignty: The influence consumers have on the effective demand for goods and services and, through the prices which result in free competitive markets, on the production plans of producers and investors, is not merely a hard fact but also an important objective, attainable only by complete avoidance of governmental interference with the markets and of restrictions on the freedom of sellers and buyers to follow their own judgment regarding quantities, qualities, and prices of products and services.
(8) Political Individualism: Only when individuals are given full economic freedom will it be possible to secure political and moral freedom. Restrictions on economic freedom lead, sooner or later, to an extension of the coercive activities of the state into the political domain, undermining and eventually destroying the essential individual liberties which the capitalistic societies were able to attain in the nineteenth century.
These two additional tenets are shared and upheld by most of Mises's students. In the United States, the label "Austrian economics" has come to imply a commitment to the libertarian program. This was not so in the case of the earlier generations of Austrian economists, some of whom were advocates of governmental interventions and interferences that would be ruled out by Mises and his disciples. If Mises is introduced here as a long-term leader of Austrian economics, it is important to stress that his mission was above all the attainment and maintenance of individual freedom.
Having introduced Ludwig von Mises as a renowned economist, eminent teacher, and recognized leader of the Austrian school of economics, I have to add a few sentences to guard against a possible mix-up. Mises had very strong views on philosophy of science; in particular, he was an outspoken opponent of logical positivism. But there was another Mises, who was a great defender of the neopositivistic teachings of the "Vienna Circle": Richard von Mises (1883-1953), professor of applied mathematics and aerodynamics, proponent of the frequency theory of probability; he was the younger brother of Ludwig von Mises. The brothers held diametrically opposite views on epistemology; Richard, the Positivist, and Ludwig, the Anti-Positivist.
To Those Who Do Not Like Him
Ludwig von Mises was not a popular economist in any sense of the word. His writing was not in a popular style and his views were unpopular with the majority of the people considered as the intelligentsia. Mises fought interventionism, while almost everybody was in favor of some government actions against the "evil" consequences of laissez-faire, or at least in favor of public measures supporting this or that "deserving" cause.
Mises fought inflationism, while a large majority of people were convinced that only a courageous expansion of money, credit, and governmental budgets could secure prosperity, full employment, and economic growth. Mises fought socialism in all its forms, while most intellectuals had written off capitalism as a decaying system to be replaced, either peacefully or by revolution, by socialism or communism. Mises fought coercive egalitarianism, while every "high-minded" citizen thought that social justice required redistribution of wealth and/or income.
Mises fought violent and government-supported trade-unionism, while progressive professors of political science represented increasing power of labor unions as an essential ingredient of democracy. No wonder, then, that interventionists, monetary expansionists, socialists, egalitarians, and laborites disliked Mises, or even detested him.
This is only a part of the story. There are libertarians—classical liberals—who share the views of Ludwig von Mises on all issues enumerated, and yet dislike him, or dislike his way of expressing the shared views. A few "neo-liberals" in Europe consider the Mises style as abrasive and his formulations as evidence of a "paleo-liberalism," a petrified position not appropriate for the twentieth century.
Others condemn his intransigence and supposed lack of compassion. They believe that a greater willingness to compromise and a greater show of compassion with unfortunate victims of free-market forces would make libertarianism more acceptable to the majority. They resent that Mises makes libertarianism more unpopular than it needs be.
Mathematical economists and econometricians make up another group of antagonists of Mises. This antagonism was a natural response to Mises's most explicit rejection of mathematical techniques of analysis and exposition in economics. His strictures against mathematical economics were too harsh not to arouse reciprocal animosity on the part of those attacked.
There are, moreover, other academic opponents who dislike Mises for his epistemological teachings. Fanatic adherents of certain philosophic positions have little tolerance for deviants. Some neo-positivists cannot forgive Mises for his anti-positivism, and some empiricists cannot be patient with Mises's apriorism. I shall later return to this point but had to mention it in my discussion of the reasons why Mises is disliked by a good many people, including many good people.
Friedrich von Hayek, undoubtedly the most forceful exponent and defender of the economic and political views of Ludwig von Mises, has recently provided us with a thoughtful explanation of the unfriendly reaction of the academic world to Mises and his position. The fact that a man whom Hayek calls "one of the most original thinkers in the domains of economic science and social philosophy," who had received his doctor's degree in 1906 and his lectureship at the University of Vienna in 1913, was not offered any full professorship during the next twenty years does indeed call for an explanation — though Sigmund Freud, the originator of psychoanalysis, was treated in exactly the same way.
Among the hypotheses which Hayek considers as possible explanations in the case of Mises are the following: (1) Mises's inability to conceal his contempt for the mediocrity and gross ignorance on the part of his professional colleagues. (2) Mises's spirited defense of capitalism at a time when virtually the entire academic establishment endorsed interventionist, if not socialist, positions. (3) Mises's intransigence and unwillingness to compromise on academic — scholarly, scientific — questions. (4)Mises's position as a (non-religious) Jew. Any two or three of these black marks could be forgiven, but the combination of all four was too much.
These black marks against Mises may explain why he never obtained a full professorship in Vienna or in any German university; but would they also explain why none of the prestigious American universities offered him this rank? Mises came to the United States in the autumn of 1940; at that time the academic climate in the largest institutions was not favorable to a man of Mises's "disqualifications." The intellectual and moral climate changed dramatically during the war years, especially with regard to the acceptance of Jewish scholars in academe.
However, from 1941 to 1945 the universities were not functioning at capacity, they were glad to grant their professors leaves of absence for service in the armed forces or in governmental agencies; some universities used their teaching staff for courses that were part of basic training for the Army and Navy. Only by 1946 did the demand for academic teachers become strong, and old prejudices had been overcome in most departments. Yet, by that time, Mises was 65 years old — no longer eligible for a "normal" appointment. No wonder, then, that a poorly paid visiting professorship was all that was available to this great teacher.
To Those Who Admire Him Uncritically
As a life-long student of Mises, as his teaching assistant for ten years, and as one who has enjoyed his friendship for 52 years (disregarding a temporary estrangement to be explained later on), I count myself as one of his sincere admirers. Yet, because I have not been an uncritical admirer, I have sometimes been charged with being "unfaithful" to the master. So strong was his hold on the minds of many of his students that they regarded me as a heretic, or even traitor, if I disavowed any of the master's revealed truths.
I remember a discussion I once had with one of Mises's Latin American disciples about Human Action. I tried to explain why the methodological position which Mises considered fundamental for his "praxeology a priori" was difficult to defend in light of present-day epistemological discourse. My critique was promptly reported to the master, who showed some indignation about my dissent. I remember discussions of the controversial issue whether the political postulate of economic liberalism (libertarianism) could be logically derived from an a priori system of human action. My insistence that the libertarian position was firmly based on value judgments was strongly resented by the faithful, even after I assured them that I fully accepted the underlying values.
A good many frowns from the uncritical admirers were induced by my reluctance to accept without qualifications Mises's theory of consumer sovereignty. Although I defended the postulates of nonintervention on various grounds, the "fundamentalists" wanted to insist on the infallibility of the theory of consumer sovereignty on a priori grounds.
The most serious conflict between orthodox believers of the teachings of Mises and my disavowal of some of his convictions related to the desirability and feasibility of a restoration of the gold standard. It was on this issue that the temporary estrangement between the master and myself arose. Margit von Mises, in her book My Years with Ludwig von Mises, reported on this estrangement, and many of her readers have asked me to tell them about its cause. Although I have no written evidence, and although Mises himself never discussed with me why for a number of years he refused to speak to me, I have good reasons for seeing the gold question as the reason for the temporary break in our friendly relations.
It was at a meeting of the Mont Pelerin Society, held in Stresa, Italy, in September 1965. I chaired an all-day session on "The International Monetary System," with Albert Hahn, Gottfried Haberler, Egon Sohmen, Maurice Allais, Milton Friedman, and Michael Heilperin as speakers. In the afternoon discussion Philip Cortney made his customary plea for an immediate return to the gold standard with a substantial increase in the official price of gold. After listening to the reasons he gave for raising the price of gold, I used the chairman's prerogative to make a comment on the subject. I compared the plea of the gold-price boosters to the pleas of trade-union leaders who want wage rates to be raised after a period of falling prices, so that the wage-earners' effective demand would elevate the price level, and want wage rates to be raised also after a period of rising prices, so that the purchasing power of wages would not be reduced.
Similarly, the gold lobby wants the price of gold to be raised after a period of falling commodity prices, so that the resulting monetary expansion would stop the price deflation, and wants the price of gold to be raised also after a period of increasing commodity prices, so that the real value of gold would not suffer.
When the session was over, I tried to talk to Professor Mises, but he abruptly turned around and marched away. The break in friendly relations lasted for several years. It was only thanks to the pleading of Margit von Mises that the stern master consented to receive me again. Needless to say, I strictly avoided ever discussing again any questions of monetary policy with him or in his presence.
Perhaps I should explain that Mises's position and mine on the practical possibility of returning to the gold standard were not really different. He had most forcefully written, in a new Part Four of the 1953 edition of his Theory of Money and Credit, that a restoration of the gold standard would presuppose a fundamental change in ideology, "a radical change in economic philosophies" (p. 456). This is exactly what I held and still hold. As long as governments, politicians, and voters believe that monetary policy should be used to secure more employment or faster growth, it is not feasible to maintain fixed exchange rates or a fixed price of gold. The orthodox followers of Mises have evidently overlooked the important presupposition which Mises himself had formulated with great clarity.
I had, as Mrs. Mises wrote in her book (p. 146), become an "intellectual apostate" — though, as I see it, only by adhering strictly to Mises's intellectual position.
Admiration for a great man and his important work does not presuppose uncritical acceptance of all his views. The fact that I could take exception to some of Mises's teaching does not make me an apostate. It should prove, instead, that the great teacher had produced students with open and critical minds. Their admiration for the teacher and his teaching should count more than orthodox conformity with revealed articles of faith ever could.
Fritz Machlup (1902-1983) was an economist and friend of Mises's. See his Study Guide entries. This essay appeared in Homage to Mises (Hillsdale, MI: Hillsdale College, 1981), pp. 19-27.
The first German edition of this book was reviewed by John Maynard Keynes in the Economic Journal, Vol. 24 (September 1914), p. 417. Here are some quotations from this review: "Dr. von Mises' treatise is the work of an acute and cultivated mind. But it is critical rather than constructive, dialectical and not original. . . . Dr. Mises strikes an outside reader as being the very highly educated pupil of a school, once of great eminence, but now losing its vitality. . . . One closes the book. . . with a feeling of disappointment that an author so intelligent, so candid, and so widely read should, after all, help one so little to a clear and constructive understanding of the fundamentals of his subject. . . . When this much has been said, the book is not to be denied considerable merits. Its lucid common sense has the quality, to be found so much more often in Austrian than in German authors, of the best French writing. The treatment throughout is primarily theoretical, and quite without striving after actualité. The book is 'enlightened' in the highest degree possible."
By 1930, when Keynes published his Treatise on Money, he had evidently forgotten that he had tried to read Mises's book and had reviewed it in 1914. For he made the following statement: "The notion of the distinction which I have made between Savings and Investment has been gradually creeping into economic literature in quite recent years. The first author to introduce it was, according to the German authorities [and Keynes cited Albert Hahn and Joseph Schumpeter], Ludwig Mises in his Theorie des Geldes undder Umlaufsmittel.. . published in 1912." [Treatise on Money (London: Macmillan, 1930), Vol 1, p. 171 n.]
Later on in the same volume, Keynes wrote this: "More recently a school of thought has been developing in Germany and Austria under the influence of these ideas, which one might call the neo-Wicksell school, whose theory of bank-rate in relation to the equilibrium of Savings and Investment, and the importance of the latter to the Credit Cycle, is fairly close to the theory in this Treatise. I would mention particularly Ludwig Mises's Geldwertstabilisierung und Konjunkturpolitik (1928)." [Ibid., p. 199.]
Keynes cited also Hans Neisser and Friedrich Hayek among the authors who had anticipated his ideas. In a footnote he added this: "I should have made more references to the work of these writers if their books, which have only come into my hands as these pages are being passed through the press, had appeared when my own thought was at an earlier stage of development, and if my knowledge of the German language was not so poor (in German I can only clearly understand what I know already! — so that new ideas are apt to be veiled from me by difficulties of language)." [Ibid., p. 199 n.] No wonder Keynes failed to recognize the originality of Mises's work, as he could not read the language in which it was expressed.
- 1. Readers not familiar with European geography and history may be warned against confusing this Galicia with the former kingdom and present province of the same name in the Northwest corner of Spain. Incidentally, the Galicia that was a crown land of the Austrian Habsburgs, disappeared from the map in 1918, when it, with Lemberg (Lvov), became part of newly independent Poland. In 1945, Russia, or rather the Union of Soviet Socialist Republics, annexed the Eastern half of Poland, including Lvov. The former residents were driven out: the Poles to the West, the Ruthemans to the East; the Jews had been previously disposed of by the Nazis.
- 3. Mises's challenge incited the heated (and still ongoing) debate about economic calculation under socialism. For raising the question and for "having caused the socialists to approach this problem systematically" Mises received a socialist's accolade: Oskar Lange, proposing a system of market socialism, suggested that "as an expression of recognition for the great service rendered by him and as a memento of the prime importance of sound economic accounting, a statue of Professor Mises ought to occupy an honorable place in the great hall of the Ministry of Socialization or the Central Planning Board of the socialist state." [Oskar Lange, "On the Economic Theory of Socialism," Review of Economic Studies, Vol. 4 (October 1936), p. 53.] Mises had little respect for Lange's simulation of the competitive market process. In his lectures on Economic Policy (published posthumously, South Bend, Indiana: Regnery/Gateway, 1979, p. 33) Mises compared the plan for market socialism to a game of "playing market" — like children "playing school" without learning anything.