| Mises Institute

First Outline of a Theory of Interventionism

Economists had traditionally asked whether government interventions into the otherwise unhampered market could benefit the national economy. Their characteristic answer was that this was not possible. For the rest of the eighteenth, and much of the nineteenth century, this verdict continued to be one of the defining features of what it meant to be an economist. Each succeeding generation refined the explanation of why government intervention was unsuitable.

Critique of the “Anti-Marxists”

Having restated, in his piece on price controls, the classical-liberal case against government meddling with market prices, Mises further developed his system of political philosophy through a systematic critique of the two major variants of prointerventionist theory that dominated the German scene in the mid-1920s: non-Marxist socialism and social liberalism.

Critique of the New Liberals

After dealing with Sombart and others who had remained unrepentant champions of powerful central government, Mises turned to a critique of the more moderate branch of the kathedersocialist movement.29 In the wake of the “crisis of social policy” these intellectuals had lost their faith in the blessings of an omnipotent government. They thought of themselves as “social liberals”—meaning that they recognized certain fundamental defects of free markets, and advocated government interventions to fix them.

The Transformation of Economic Science

By early 1926, Mises had worked out four elements of a general theory of interventionism: two case studies, in the fields of international trade and price controls, a critique of the spurious anti-Marxist socialism prevalent in Germany, and a critique of the social liberals. Now he had to pull these elements together into one unified theory of interventionism. The occasion came when he delivered two lectures in Rotterdam and Utrecht in October 1926.

Liberalismus

With the analysis of interventionist dynamics, Mises had gained a complete picture of all possible forms of the economic organization for human society. The time was ripe for publishing his first book-length synthesis of the results. He sought to make the case for a free society, a case that was not based on aesthetic or ethical considerations, but on the rock-solid foundation of economic science.

14. Booms

1926 Journeys

The 1926 congress of the International Chamber of Commerce took place in the United States, and Mises made his way across the Atlantic for the first time. He left by way of London, where he met Cannan and Robbins at a critical juncture in the history of LSE’s economics department. Lionel Robbins had returned to LSE from Oxford the previous fall and his continued interest in Austrian economics and in Mises’s work in particular would become highly important in the coming years.

Institute for Business Cycle Research

One thing that impressed Mises on his 1926 trip to America was the empirical research on business cycles conducted at Harvard University. More precisely, he was impressed by the commercial success of the monthly reports. The price of an annual subscription was on the order of $100, a small fortune at the time.22 Many years later, a member of the sales team that marketed these reports, Frederick Nymeyer, would become a devoted Misesian and set up the Libertarian Press, a publishing house to disseminate Mises’s writings.

Austrian Politics at the Onset of the Gold-Exchange Standard

The establishment of the Institut and the beginning of Mises’s liaison with the Rockefeller Foundation coincided with a fundamental change of the business environment in Austria. The Geneva Protocols of October 1922 and the simultaneous currency reform had eliminated the government’s financial disasters, but came at the price of Austria’s sovereignty. Inflation continued but at a much lower pace, while unemployment soared from 49,000 in 1922 to 150,000 in 1925.

Free Trade, Monetary Stabilization, and Cyclical Policy

Mises was reluctant to become involved in any organized political campaign. In a November 1924 letter, he declined an honorary executive position in an Austrian free-trade association, stating, “As a matter of principle, I do not belong to any political or economic-political organizations.”35 This attitude changed over the next couple of years, as he enjoyed the early successes of the European free-trade movement.

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