The Last Knight of Liberalism

Chapter 13. A System of Political Philosophy

1 Mises, Kritik des Interventionismus (Jena: Gustav Fischer, 1929; reprint Darmstadt: Wissenschaftliche Buchgesellschaft, 1976); A Critique of Interventionism, Hans F. Sennholz, trans. (New York: Arlington House, 1977). Just how important Mises considered this project can be gathered from the fact that during those years he worked on hardly any other research project and even rejected an offer to write a standard textbook on monetary policy. See Mises’s letter to the editor of the prestigious series Grundriss der Wirtschaftspolitik, dated December 12, 1924; Mises Archive 80: 57. Mises said he was very busy and had “a number of projects” that he wanted to complete before accepting any new obligations.

2 It is significant that Mises presented his theory of international trade as a generalization of Ricardo’s model, rather than of John Stuart Mill’s.

3 Mises, “Vom Ziel der Handelspolitik,” Archiv für Sozialwissenschaft und Sozialpolitik 42, no. 2 (1916): 567, 570.

4 Mises, Nation, Staat und Wirtschaft (Vienna & Leipzig: Manz, 1919), pp. 57ff.

5 “But I do not want to forgo your cooperation on the new edition of the Handwoerterbuch der Staatswissenschaften. Would you not be able to pen the entry on price controls?” Wieser to Mises, letter dated April 1, 1922; Mises Archive 74: 32.

6 Mises, “Preistaxen. I. Theorie,” Handiwörterbuch der Staatswissenschaften, 4th ed. (Jena: Gustav Fischer, 1925), vol. 6; reprinted as “Theorie der Preistaxen” in Mises, Kritik des Interventionismus, pp. 123–36; A Critique of lnterventionism, pp. 139–51.

7 Mises, Kritik des Interventionismus, p. 125.

8 Ibid., p. 123. Following Archbishop Whately, Mises called economics the “science of catallactics.” See Richard Whately, Introductory Lectures on Political Economy, 3rd ed. (London: Parker, [1832] 1847), p. 5.

9 Mises, Kritik des Interventionismus, p. 136; A Critique of Interventionism, p. 151.

10 Mises, Kritik des Interventionismus, p. 128; my translation. Mises distinguished these “genuine” price controls from controls that merely sanctioned the state of affairs that the market would have brought about anyway.

11 Ibid., p. 131; my translation.

12 Mises’s account of the dynamics of wartime interventions into the price system came to be reflected in Götz Brief’s entry for the Handwörterbuch der Staatswissenschaften:

The beginning of war-economy prices meant highest price policies in Austria as well. Experiences here were exactly like those in Germany: artificially high prices misallocated goods so that they were not directed to the most desired channels of trade and consumption. After the Italians entered the war and the blockade became a reality in Austria, in particular, the growing scarcity of raw materials and goods left no alternative but the path down which Germany had already turned: official confiscation, centralized rationing and disbursement of goods. (Götz Briefs, “Kriegswirtschaftslehre und Kriegswirtschaftspolitik,” Handwörterbuch der Staatswissenschaften, 4th ed. [1923], vol. 5, p. 1017)

13 Mises, Kritik des Interventionismus, p. 133; A Critique of lnterventionism, p. 31, 56ff.

14 Before Sombart’s appearance, the German universities received Marx’s writings very critically. In the United States, too, the rise of Marxism encountered the same reservations in academic circles until, some forty-five years after Sombart, Joseph Schumpeter popularized Marx as an important thinker in his Capitalism, Socialism, and Democracy (New York: Harper & Row, 1942).

15 Werner Sombart, Der proletarische Sozialismus (“Marxismus”), 10th ed., 2 vols. (Jena: Gustav Fischer, 1924).

16 Here is the most favorable thing Mises had to say about Sombart: “He was highly gifted, but at no time did he endeavor to think and work seriously.... And yet, it was more stimulating to talk to Sombart than to most other professors. At least he was not stupid and obtuse.” Mises, Erinnerungen (Stuttgart: Gustav Fischer Verlag, 1978), p. 68; Notes and Recollections (Spring Mills, Penn.: Libertarian Press, 1978), p. 103.

17 Mises, “Antimarxismus,” Weltwirtschaftliches Archiv 21 (1925) reprinted in Mises, Kritik des Interventionismus, pp. 91–122; translated as “Anti-Marxism,” in A Critique of Interventionism, pp. 107–38.

18 Mises, Kritik des Interventionismus, pp. 124f.; A Critique of Interventionism, pp. 140f.

19 Keynes was convinced that, in attacking and criticizing individualism, he had destroyed the case for laissez-faire. See John Maynard Keynes, The End of Laissez-Faire (London: Hogarth Press, 1926), pp. 39f. The postulate of a dichotomy between individualism and collectivism led Keynes to anticipate the now-famous Coasean view on the problem of optimal social organization. Thus Keynes surmised that the “ideal size for the unit of control and organization lies somewhere between the individual and the modern State” (ibid., p. 41). The Coasean theory is best expressed in Ronald Coase, The Firm, the Market, and the Law (Chicago: University of Chicago Press, 1988).

20 Heinrich Dietzel, “Individualismus,” Handwörterbuch der Staaswissenschaften, 4th ed. (1923), vol. 5; Alfred Pribram, Die Entstehung der individ-ualistischen Sozialphilosophie (Leipzig: Hirschfeld, 1912); Othmar Spann, Der Wahre Staat (Leipzig: Quelle & Meyer, 1921).

21 Mises, Kritik des Interventionismus, pp. 95f., 111. He stated:

In the final analysis, there is no conflict of interest between society and the individual, as everyone can pursue his interests more efficiently in society than in isolation. The sacrifices the individual makes to society are merely temporary, surrendering a small advantage in order to attain a greater one. This is the essence of the often cited doctrine of the harmony of interests. (A Critique of Interventionism, pp. 112f.)

22 “What society is, how it originates, how it changes—these alone can be the problems which scientific sociology sets itself.” Mises, Socialism: An Economic and Sociological Analysis (Indianapolis: Liberty Fund, 1981).

To be perfectly clear, Mises believed that the positive analysis of the emergence and transformation of social wholes had to rely on methodological individualism. Based on this analysis, one could apply the utilitarian method, that is, raise the question whether any given policy was suitable to attain its goals. Othmar Spann rejected not only individualism as a political orientation, but also as a methodological device.

23 Mises, Kritik des Interventionismus, p. 96; A Critique of Interventionism, p. 112.

24 Mises, Kritik des Interventionismus, p. 100; A Critique of lnterventionism, p. 116. Mises quotes here Paul Barth, Die Philosophie der Geschichte als Soziologie, 3rd ed. (Leipzig: Reisland, 1922), p. 260.

25 Mises, Kritik des Interventionismus, pp. 101f.; A Critique of Interventionism, pp. 117f.

26 Keynes, The End of Laissez-Faire, pp. 42f.

27 Mises, Kritik des Interventionismus, p. 121; A Critique of Interventionism, p. 137.

28 See Ralph Raico, Die Partei der Freiheit (Stuttgart: Lucius & Lucius, 1999), chap. 6.

29 Mises, “Sozialliberalismus,” Zeitschrift für die gesamte Staatswissenschaft 81 (1926); reprinted in Mises, Kritik des Interventionismus, pp. 55–90; translated as “Social Liberalism,” in A Critique of Interventionism, pp. 71–106.

30 As Raico, Die Partei der Freiheit, chap. 6 explains, Naumann inspired several postwar movements with often contradictory agendas.

31 Hobhouse (1864–1929), a professor of sociology at LSE, became famous with his Liberalism (London: Williams and Norgate, 1911). Among the writings of John Dewey (1859–1952), see in particular Liberalism and Social Action (New York: Putnam, 1935).

32 An extreme case of this confusion was Keynes, who not only held that politics was about the ends to be pursued, but about emotional attitudes to these ends. Thus he held that the “essential characteristic of Capitalism [was] the dependence upon an intense appeal to the money-making and money-loving interests of individuals as the main force of the economic machine” (Keynes, The End of Laissez-Faire, p. 50).

33 Mises, Kritik des Interventionismus, pp. 67f.; A Critique of Interventionism, p. 84. Similarly, he observed:

In fact, unearned income flows from control over the means of production. He who opposes unearned income must oppose private property in the means of production. Therefore, a liberal cannot sympathize with such efforts. If he does so nevertheless, he is no longer a liberal. (Kritik des Interventionismus, p. 65; A Critique of Interventionism, p. 81)

34 Mises, Kritik des Interventionismus, p. 68; A Critique of Interventionism, p. 84.

35 See Ayn Rand, Capitalism: The Unknown Ideal (New York: Penguin, 1967).

36 Mises, Kritik des Interventionismus, p. 70; A Critique of Interventionism, p. 86.

37 Mises himself had, in an early article, explained that labor unions could possibly raise wage rates for all workers in the short run; see Mises, “Die all-gemeine Teuerung im Lichte der theoretischen nationalökonomie,” Archiv für Soziahwissenschaften und Sozialpolitik 37 (1912): 570f. His studies on interventionism in the 1920s convinced him that this short-run rise was invariably bought at the price of capital consumption.

38 Mises, Kritik des Interventionismus, p. 80; A Critique of lnterventionism, p. 96.

39 Mises, Kritik des Interventionismus, p. 90; A Critique of Interventionism, p. 106.

40 See his letter to Brodnitz, editor of the Zeitschrift für die gesamte Staatswissenschaft, dated February 26, 1926; Mises Archive 80:20.

41 Mises, “Interventionismus,” Archiv für Sozialwissenschaften und Sozialpolitik 56 (1926); reprinted in Kritik des Interventionismus; translated as “Interventionism,” in A Critique of Interventionism, pp. 15–55.

42 Mises, Kritik des Interventionismus, p. 6; A Critique of Interventionism, p. 20.

43 See Mises’s university lecture of November 16, 1927; Mises Archive 24: 6.

44 Mises used the term “anarchism” to refer to the Proudhonian idea of a society without the defense of private property rights, and “anarchy” to designate the chaos he believed to be inevitable for such a society. He did not have in mind the anarchism of his later student Murray Rothbard, who used these same words to advocate a free market society without a modern state—a system in which even the defense of property rights would be provided privately. See Murray N. Rothbard, For a New Liberty, 2nd ed. (San Francisco: Fox & Wilkes, 1978); idem, The Ethics of Liberty, 2nd ed. (New York: New York University Press, 1998).

45 Mises, Kritik des Interventionismus, p. 4; A Critique of Interventionism, p. 18.

46 See on this change of views of the economics profession Thomas DiLorenzo and Jack High, “Antitrust and Competition, Historically Considered,” Economic Inquiry (July 1988). The authors show that, during the 1920s, the rising neoclassical movement more and more abandoned the project of modeling reality, in favor of squeezing reality into the Procrustean bed of their models. See also Frank Machovec, Perfect Competition and the Transformation of Economics (London: Routledge, 1995).

47 Mises, Kritik des Interventionismus, p. 20; A Critique of Interventionism, p. 34.

48 Mises, Kritik des Interventionismus, p. 17; A Critique of Interventionism, p. 31.

49 Mises, Kritik des Interventionismus, p. 39; A Critique of lnterventionism, p. 53.

50 See Friedrich von Wieser, “Karl Menger,” Anton Bettelheim, ed., Neue österreichische Biographie: 1815–1918 (Vienna, 1923), vol. 1, pp. 84–92, reprinted in idem, Gesammelte Abhandlungen, F.A. Hayek, ed. (Tübingen: Mohr, 1929).

51 The personal values of the economist do not come into play here at all. Mises illustrated this point with the following example:

When I say that price controls are illogical, I mean to assert that they do not achieve the objective they are usually meant to achieve. Now, a Communist could reply: “I favor price controls just because they prevent the smooth functioning of the market mechanism, because they turn human society into a ‘senseless chaos’ and all the sooner lead to my ideal of communism.” Then, the theory of price controls cannot answer him, as physiology cannot answer the man who wants to kill with hydrocyanic acid. (Kritik des Interventionismus, p. 27; A Critique of Interventionism, p. 41)

52 Economic analysis shows that all government interventions are unsuitable to attain the ends they are professed to attain (statement of matter of fact). In the light of this result, classical liberalism advocated that there shall be no intervention (judgment of value):

government shall be limited to the protection of private property and the elimination of all obstacles to free market access for individuals or groups of individuals. This is nothing but another wording of the principle: laissez faire, laissez passer. (Mises, Kritik des Interventionismus, pp. 37f.; A Critique of Interventionism, pp. 51f.)

53 Mises, Kritik des Interventionismus, p. 28; A Critique of Interventionism, p. 41.

54 See Robert Liefmann, Allgeineine Volkswirtschaftslehre (Leipzig: Teubner, 1924); Franz Oppenheimer, Theorie der reinen und politischen Ökonomie, 2nd ed. (Berlin: Reimer, 1911); Friedrich von Gottl-Ottlilienfeld, Wirtschaft und Technik, 2nd ed. (Tübingen: Mohr, 1923).

55 Of course Liefmann did not intend to discredit economic science. Mises’s point was that the effect was the unintentional result of Liefmann’s rhetoric. Things were completely different in the case of Keynes, who consciously sought to discredit economic science in his crusade to vindicate government interventionism. Keynes claimed that the case for laissez-faire had no scientific basis, but was entirely founded on postulates of political philosophy (private property as a natural right) and theology (harmony of interests). See Keynes, The End of Laissez-Faire, pp. 11, 26. Without quoting Keynes, Mises showed that these claims missed the point. Private property does not require natural law for justification, but can be vindicated on the basis of suitability analysis alone. Further, the theological garment of the harmony-of-interest doctrine was just that. Already in his “Anti-Marxism,” Mises had proven that the “attacks on the thought of ‘preestablished harmony’ do not touch the substance, merely the wording, of the utilitarian social theory.” Kritik des Interventionismus, p. 98; A Critique of Interventionism, p. 114.

56 Mises, Kritik des Interventionismus, pp. 29f.; A Critique of Interventionism, pp. 43f.

57 Mises, Kritik des Interventionismus, p. 41; A Critique of Interventionism, p. 55.

58 The relationship between these models and the real world that they supposedly portray is still as problematic as it has been from the outset.

59 John R. Hicks, Capital and Time: A Neo-Austrian Theory (Oxford: Clarendon Press, 1973), p. 12.

60 See in particular Israel Kirzner, “The Austrian School of Economics,” New Palgrave Dictionary of Economics (New York: Macmillan, 1986); idem, “The Socialist Calculation Debate: Lessons for Austrians,” Review of Austrian Economics 2 (1987).

61 Mises later wrote that political economy, “as developed by several generations of English thinkers, brilliantly expounded by Hume and Adam Smith and perfected by Ricardo, was the most exquisite outcome of the philosophy of the Enlightenment.” And regarding the classical theory of free trade and protectionism, he observed that the “critics did not embark upon the (hopeless) task of discovering some false syllogisms in the chain of Ricardo’s reasoning.” Mises, The Historical Setting of the Austrian School of Economics (Auburn, Ala.: Ludwig von Mises Institute, [1969] 1984), pp. 20, 23.

62 Mises, Liberalismus (Jena: Gustav Fischer, 1927; reprint Sankt Augustin: Academia Verlag, 1993).

63 Emphasis on the centrality of this point had a venerable tradition in western thought ever since Saint Thomas Aquinas wrote on the nature of government in the thirteenth century. See Thomas Aquinas, “Über die Herrschaft der Fürsten,” F. Schreyvogel, ed., Staatslehre des Thomas von Aquino (Jena: Gustav Fischer, 1923), part 1, chap. 1, pp. 11f. It is more than likely that Mises was acquainted with this edition of Saint Thomas’s classic work, because it was published in a series under the direction of Othmar Spann.

64 An analysis of Marx’s views on interventionism is in Mises, “Marxism and the Labor Movement,” Omnipotent Government (New Haven, Conn.: Yale University Press, 1944), chap. 7, sect. 2.

65 Here again Mises championed essentially the same view as Saint Thomas, who stressed that the maintenance of peace was the supreme goal of government, precisely because the fruits of the division of labor could not be obtained otherwise. See Thomas Aquinas, “Über die Herrschaft der Fürsten,” part 1, chap. 2, p. 19.

66 Mises to Erkelenz, undated letter; Mises Archive 56: 6ff. He made the same point in a 1942 lecture on the “principle of equality and social order,” in which he distinguished two currents of thought in eighteenth-century liberalism: the natural-law doctrine stressing the inborn equality of men, and the “more realistic” utilitarian point of view: “Men are different, but the laws should not discriminate.” See the two versions of his lecture notes contained in Grove City Archive: Mexico 1942 file 3.

67 Presciently, he stated:

The victory of Fascism in a number of countries is only an episode in the long series of struggles over the problem of property. The next episode will be the victory of Communism. The ultimate outcome of the struggle, however, will not be decided by arms, but by ideas. It is ideas that group men into fighting factions, that press the weapons into their hands, and that determine against whom and for whom the weapons shall be used. (Mises, Liberalism: In the Classical Tradition, Ralph Raico, trans. [Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1985], p. 51)

68 This sentence is preceded by the following statement that is often quoted out of context to “demonstrate” the absurd contention that Mises endorsed fascism:

It cannot be denied that fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not the kind which could promise continued success. (ibid., p. 51)

69 Ibid., p. 60.

70 Mises to Faustino Ballvé, letter dated October 29, 1949; Grove City Archive: Ballvé files.

71 Gustav Fischer to Pierre Hamilius, letters dated December 8, 1950 and November 14, 1951; Grove City Archive: Hamilius files. Hamilius sent these letters to Mises following a meeting they had in New York in early September 1959.