The Walter Lippmann Colloquium

Seven weeks after his wedding, Ludwig attended a historic meeting of the champions of both “old” Manchester-style liberalism and of neo-liberalism. His new bride probably forgave him and may even have joined him on the trip: the conference took place in Paris.

Plans for after the War

Parallel to the work on his treatise of economics—or praxeology, as he now called it—Mises spent much time writing and teaching about concrete contemporary political problems.108He applied the general theory of praxeology to explain the rise of Nazism, and he probably also presented his plans for the time after Hitler. He also wrote down these thoughts in a book manuscript and in several lengthy memoranda.

Escape from Europe

The summer of 1939 was exceptionally beautiful. Ludwig and Margit spent a vacation in Aix-les-Bains, which had a magnificently Alpine setting, almost as Bad Gastein, their regular vacation spot in Austria.121 Richard von Mises paid them a visit on his way to the United States. In June he had come to the conclusion that Turkey was no longer safe and decided to accept a visiting position at Harvard University.122 He would soon learn how good his timing was.

NATIONALÖKONOMIE CAME OFF THE press in May 1940, just in time to survive the collapse of its publisher, only to be buried under the avalanche of the war. Many of the copies Mises sent to friends and colleagues never reached their destinations. Mises took it with some humor: “I suppose the Nazis used them as fuel.”1

The System in an Overview

In the introduction (virtually identical in Human Action), Mises set the agenda for the book. The treatise would present the system of economic science in the light of two central problems that had been neglected in all previous works in the field: epistemology and value theory.5

He then offered his system in 751 pages, organized into six parts. Now all his previous discoveries could appear in their correct context, along with the new elements that he had developed during his Geneva years.

Anti-Psychologism

Mises’s exposition of economic science differed decisively from all modern authors in that it drew a sharp line between praxeology and psychology. This has remained a defining feature of the works of his disciples.

Capitalism and Liberalism are Rational

In Socialism and Liberalism, Mises had argued that human society was founded on the basis of the higher physical productivity of human cooperation, as compared to individuals acting on their own. This was the crux of the classical-liberal social philosophy and the cornerstone of the political program of laissez-faire Manchesterism. In Nationalökonomie, Mises set out to contrast this social philosophy with competing worldviews.

Equilibrium, Profit and Loss, and Entrepreneurship

It was through the writings of Carl Menger and Eugen von Böhm-Bawerk that Mises had come to understand the market economy as a rational social order in which all factors of production are geared toward the satisfaction of consumer wants. Not only the allocation of the production factors, but also the incomes of the owners of these factors ultimately depended exclusively on their relative contribution to the satisfaction of human wants.

Consumer Sovereignty and Interest

In Nationalökonomie, Mises finally delved into interest theory, the primary research area of his revered teacher, Böhm-Bawerk. In his classes at the University of Vienna in the 1920s, Mises had frequently dealt with contemporary interest theories. In those years, he had also planned to write a paper on the subject, but there had always been other projects that seemed more important.27 In Geneva, he was finally at leisure to fill this gap.28

Business Cycle Theory Restated

In light of his theory of interest, Mises now clarified the relationship between interest and changes in the quantity of money. The Austrian (Misesian) theory of the business cycle asserts that intertemporal misallocations result from inflation-induced reductions of the interest rate. But what was the precise meaning of “reduction”? Mises did not mean to assert that simple changes of the interest rate would induce a business cycle.