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Bernanke Should Read Mises, says IBD


Tags BiographiesHistory of the Austrian School of Economics

This is a wonderful article in the Investors Business Daily: He Made Free Markets Invaluable. The author is Paul Whitfield, and, unusually in the world of journalism, he put a ton of work into this. He maps out a min-biography of Mises and explains his significance in the world today:

When the Nazis stormed the apartment in Vienna, he was gone.
The man they were looking for was Ludwig von Mises, an economist whose writings enraged them.
Fortunately for von Mises, he was out of Austria in March 1938. The Nazis had to settle for grabbing 38 cases of his books and papers.
Von Mises had plenty of enemies. His work dismissed Nazi ideas as nonsense, described socialism as incapable of rational calculation and faulted the dominant German historical school as fostering little more than clerks of the state.
"Lu's writings were hated by socialists of every type: Nazis, communists, fascists and, as I later found, American socialists as well," his wife, Margit, wrote in "My Years With Ludwig von Mises."
Early in his career, scholars dismissed his work because they favored socialism. Later, economics departments turned to a math-based methodology in lieu of his logic-based approach.
Despite being out of step with the spirit of his times, von Mises triumphed.
His views today are considered the purest expression of free-market economics. And his judgments on his times are seen as prescient.
He correctly predicted the stock market crash of 1929, the dangers of Adolf Hitler's rise in the 1930s, the inevitability of an American victory over Nazism and the economic collapse of the Soviet Union.
Today his thought is influential on Wall Street and among a growing number of students worldwide.
"There's been a tremendous increase in interest among young people and investment banks," Lew Rockwell, president of the Ludwig von Mises Institute in Auburn, Ala., told IBD.
Von Mises' work has held up well.
Robert Formaini, a former member of the Federal Reserve Bank of Dallas, says von Mises' 1912 book, "The Theory of Money and Credit," is still valuable. He says that his old Fed colleagues aren't much for reading anything but data, but that the book would be helpful to them.
"They should read it. I don't know if Bernanke has read it, but he should," Formaini said of Ben Bernanke, the Federal Reserve chief.

Click through and read the whole thing, or continue reading excerpts:

Von Mises, born in 1881 in what is now Lvov, Ukraine, was the son of a railroad construction engineer.
A younger brother died of scarlet fever when von Mises was 12. It cast a sadness over him for years.
Enrolling at the University of Vienna, he saw that advocates of government intervention dominated the classrooms. This did not seem out of sorts to von Mises. "When I entered the university, I, too, was a thorough statist," he wrote in his book "Notes and Recollections."
He changed after reading the words of free marketers Carl Menger and Eugen Boehm-Bawerk.
Von Mises' embrace of Austrian economics, as it came to be called, harmed his career. The university jobs went to socialists and statists.
While many free-market advocates became depressed about the trend toward socialism, von Mises wouldn't give in to pessimism.
He adopted a motto from Virgil: "Do not yield to the bad, but always oppose it with courage."
He refreshed his spirit with mountain climbing, a favorite avocation.
After serving with an artillery unit in World War I, he returned to Vienna. No university would hire a free-market economist, so he accepted a position on a council that advised the Austrian parliament.
He discovered that the politicians "were completely ignorant in economic matters. Most of them had no conception of the consequences of the measures they took," von Mises wrote in "Notes and Recollections."
He advised the legislators to eliminate budget deficits and resist inflationary policies.
Meantime, he continued his work as a scholar without a university. Of socialists, he wrote, "They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office."
Amid communism's rise in the Soviet Union, von Mises remained skeptical. He "was one of the few people that predicted that the Soviet Union would fail," Formaini said.
Others considered that view absurd -- until the communist state collapsed in 1991. "Score one for Mises," said Formaini.
One day von Mises was offered a position at Creditanstalt, a bank in Vienna. He said no.
"When I asked him the reason for his refusal, he told me a great crash would be coming," Margit wrote.
In October 1929, the stock market crashed. A year and a half later, Creditanstalt went bankrupt. Von Mises had been right.
A decade later, Von Mises, a Jew, escaped from Hitler's Austrian terror, but he and Margit did not forget their friends. Their living room in Geneva looked like a Red Cross office. They sent food and other necessities to those left behind.
When the Germans marched into Norway, Denmark and Holland, Margit begged von Mises to leave Europe for America. He had to be persuaded because his English was shaky and he felt he was too old to start over. His wife won the argument. They arrived in America in 1940. Von Mises had no job, limited English and no income.
They lived off savings.
One person who stepped forward to help was Henry Hazlitt, financial editor of the New York Times. He had read von Mises' books.
Von Mises began to write essays for the Times and received guest lecture roles at universities.
When the U.S. entered the war against Hitler in 1941, von Mises told a student the Nazis were doomed. He was right again. America was triumphant by 1945.
The next year, von Mises became a U.S. citizen. It was an emotional moment. "Deep inside he knew he belonged now," Margit wrote in her book. "He was at home again, for the first time in many years."
He died in 1973.
Today Steve Hanke, a professor of applied economics at Johns Hopkins University and a senior fellow at the Cato Institute, uses the works of the Austrian school of economics in his classes.
Hanke, a former president of Toronto Trust Argentina, which was the No. 1 performing emerging market fund in 1995, told IBD that von Mises and his followers are relevant to Wall Street.
"Their work is vital to understanding money and banking in general and commodities," he said.
Formaini said von Mises' Austrian business cycle theory remains "the best single explanatory theory I have encountered for the modern business cycle."

Jeffrey Tucker is Editorial Director of the American Institute for Economic Research. He is author of It's a Jetsons World: Private Miracles and Public Crimes and Bourbon for Breakfast: Living Outside the Statist Quo. Send him mail.

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