Mises Expounded and Defended
Israel Kirzner’s Ludwig von Mises (Wilmington, Del.: ISI Books, 2001) is a welcome addition to the literature on Mises and economics. It is a very useful book, not only for the academic reader unfamiliar with Mises’s work but also for the intelligent layman. What is quite startling is just how much the author manages to accomplish within the compass of a fairly short work (220 pages).
Kirzner announces at the outset that he intends to tell "the story of Mises in his role of economist" (p. ix). His aim is to expound the "subtlety and depth of Misesian economics" while clarifying issues he thinks many readers of Mises have failed to grasp.
The book begins with a thorough summary of Mises’s life (1881-1973) and of his achievements. It covers his education in Vienna in the shadow of the German Historical School and his break with that outlook after becoming acquainted with the opposed views of the Austrian School through reading and talking with Carl Menger (p. 3). Mises attended Böhm-Bawerk’s seminar and began publishing technical papers in economics. His first important work, The Theory of Money and Credit, came out in 1912, breaking new ground and extending the Austrian paradigm.
In the years following World War I, Mises advised the Austrian Chambers of Commerce, helping to avert runaway inflation in Austria; conducted his famous seminar; and published many important books and papers. The Nazi Anschluss drove Mises into exile in Switzerland, but in 1940, he came to the United States and later became a citizen. His masterwork, Human Action, was published in English in 1949, the same year that he began his famous New York seminar. That seminar continued into 1969.
Following the biographical sketch of Mises, Kirzner drops back to set Mises’s work in the broader context of early twentieth-century economic thought. Kirzner gives thumbnail sketches of the competing schools—German Historical, Marshallian, and Walrasian. This setting allows him to zero in on what was new and revolutionary in Mises’s writings. Mises’s first great accomplishment was to integrate money and monetary theory into general Austrian economics, grounded on insights about marginal utility, subjective value, and acting human beings. Kirzner shows how and why Mises did this and how this led to his breakthrough into the Austrian theory of business cycles.
The author continues with a discussion of Misesian economics as a system self-consciously built upon rigorous, if unpopular, epistemological foundations. Kirzner contends that Mises shored up these foundations "because he came to be convinced that the vitally important lessons which economics can teach are likely to be dismissed on methodological grounds by those representing special interests" (p. 69). Mises believed that the rise of economic theory was, in itself, revolutionary in that it undercut earlier moralistic and power-political approaches to the study of human societies.
Economics demonstrated the existence of persistent patterns or regularities in social phenomena, grounded in the nature of human action—that is, "laws" of economics. Governments that disregarded and defied these laws invariably would fail to contribute to the general happiness. For Mises, the political program of classical liberalism followed from economics, which was its firmest grounding.
Another crucial insight developed by Mises was that a "methodological dualism" necessarily set off the methods of the human sciences from those of the natural sciences. It was, therefore, a fallacy of the worst kind to apply to society the statistical, mathematical, holistic, and aggregative techniques of the natural sciences—a fallacy that could only reinforce retrogressive statist policies of all kinds. In many ways, Chapter Three of Kirzner's book is the key to the whole presentation of Mises’s system, for it is here that Kirzner also deals with Mises’s "a priorism"—a source of much misunderstanding that Kirzner seeks to clarify for non-Misesians. Mises’s adoption of the Weberian standard of Wertfreiheit is also treated.
The argument is then taken into the realm of the market process and further underscores the deep contrasts between mainstream neoclassical thought and Austrian theory. Compared with the essentially physics-based static analysis of neoclassical economics, Austrian theory deals systematically with acting man and constant adjustment to changing conditions found in the real economy. The great achievement of Austrian economics is to account for the order found in the process.
Once more, the applications flow from the theory. Mises’s treatment of monopoly is a case in point. Kirzner writes: "For the Misesian market process, ‘competition’ means simply an institutional framework characterized by freedom of entrepreneurial entry, or, entirely equivalently, the absence of privileges granted to incumbents, which serve as artificial barriers to entry" (p. 100). This claim is closely tied to Mises’s notion of "consumer sovereignty," or the responsiveness of producers to people’s wants in free markets.
The author then notes just how innovative Mises’s theory of money actually was. Mises’s demolition of the state-theory of money and of the ideal (or factual claim) that money was, or could be, strictly "neutral" set the stage for Austrian cycle theory as well as for Mises’s demonstration that socialism could not calculate rationally and, therefore, was not an economic system at all. Kirzner’s discussion of time-preference, the origin of interest and interest rates, and the like, round out the chapter.
All of the foregoing have policy implications. In this discussion, we find a thorough treatment of the socialist calculation problem. Of equal importance—and of greater relevance in the new century—is Mises’s rigorous analysis of the inherent instabilities of the mixed economy of interventionism, with its built-in drive toward full socialism. Each intervention causes problems to be "solved" by some further intervention in an ever-upward statist ratchet effect. Kirzner makes the case that Mises was the greatest free-market economist of the twentieth century.
Kirzner proceeds in a straight line to an excellent summation of the Austrian system’s architectonic structure. Apparent detours turn out to be necessary background to Mises’s views and shed more light on them by giving an account of competing ideas and traditions. There is a generous evenhandedness in the way in which Kirzner sorts out differences and agreements between Mises and Hayek. The lucid presentation of difficult concepts make this a useful book even for those who already know a great deal about the subjects covered.