A Bureaucracy Cannot Create a New Ideology
The political and economic turmoil in Greece has perhaps elicited more commentary than any other economic event over the past years. Among numerous discussions on the fragility of the banking system, the Eurozone, and the black hole of government spending, there’s one issue that stands out: the failure of international organizations and supranational states. These aspects are relatively rare in daily economic conversations, and as any students of international economics can vouch, the legitimacy and necessity of organizations such as the IMF or the EU is never contested in mainstream though. The world economy, we’re told, can’t live without them. While some might sometimes accept that nation states are fallible, international organizations rarely fall under the same critical light. The troubles of the EU have neverthless brought some attention to the vulnerable spots of political and economic centralization, as well as monetary cooperation. The can of worms is now open, and nationalism and moral hazard are spilling over the edge.
But even in the face of these failures, the ongoing conversation revolves around ways to push for more political projects, and tighter centralization to fix the system—and in this particular case, to help Greece and the Eurozone from collapsing. All this is in vain, because the problem lies much deeper than the superficial eye of commentators goes.
Mises had diagnosed these problems long before they became apparent. In a series of essays written between the two World Wars which focused on European postwar reconstruction—but also in Omnipotent Government published in 1944—, Mises showed that in a world where governments interfere in their domestic markets, and with the monetary system, and where (economic) nationalism prevails, it is pointless to hope for any political and economic resolution from supranational organizations. The best these institutions can do is prolong the disastrous effects of government policies, and postpone—though loans and bailouts—their inevitable collapse.
Credits granted to foreign governments for the continuation of inappropriate economic policies harm both the creditor and the debtor. It would be very unfortunate indeed if… credits were accorded to governments which will waste them in the pursuit of illusory policies. Credits… are useless if employed for the continuation of deficit spending (Mises 2000 , 42)
Mises’s analysis was not only informed by his knowledge of economic laws, but also by his own professional experience. During his early career at the Chamber of Commerce in Vienna or at the Geneva Institute of International Studies, Mises had in fact endorsed the League of Nations (now UN) and had hoped for peace in Europe and throughout the world as a result of their efforts. But the League became by 1941 “a terrible failure and a painful disillusionment” (Mises 2000 , 2).
Furthermore, when the idea of a present-day EU was only germinating, Mises wrote:
The citizens of the various European nations cannot derive any profit from the establishment of a European bureaucratic apparatus and of a special European covenant. Such institutions will not be more beneficial than the activities of the League of Nations and of the Permanent Court of International Justice, and not more successful than the Briand-Kellogg Pact. […] What the founders of the League intended was to provide for the lack of a peace ideology by the establishment of a bureau and a bureaucracy. In the midst of conditions on all sides predisposed to war, they hoped to ensure peace by the construction of an expensive palace in Geneva and by the appointment of a staff of lawyers, economists, and statisticians.
A bureaucracy cannot create a new ideology (Mises 2000 , 46-7, 14).
Mises thus pointed out that the only long-lasting solution for the prosperity we now pursue with illusory policies is a sweeping change in the way in which people understand the government and the market, and thus in their attitudes toward free enterprise. This is the solution everyone dismisses today, busy with patching a system that is falling apart at the seams. Mises’s words are fitting for the current situation, and do not need any further commentary:
… reconstruction cannot be undertaken from without, it must come from within. It is not simply a matter of economic technique, still less of engineering; it is a matter of social morale and of social ideologies (Mises 2000 , 28).
What ranks above all else for economic and political reconstruction is a radical change of ideologies. Economic prosperity is not so much a material problem; it is, first of all, an intellectual, spiritual, and moral problem (Mises 2000 , 42).