Ludwig von Mises, socialism's greatest enemy
His life and times
The unprecedented slaughter of the 20th century was primarily carried out in the name of socialism, the doctrine that government must control everything. Socialism's most outspoken adversary was the Austrian economist Ludwig von Mises. He wrote 29 books in German and English, and they have been translated into Chinese, Czech, Dutch, French, Greek, Italian, Japanese, Korean, Lithuanian, Polish, Portugese, Russian, Spanish and Swedish.
Mises displayed extraordinary foresight. He scoffed at Marxian claims that socialism was inevitable -- and he was right. Way back in 1920, just three years after the socialist coup in Russia, he boldly predicted that socialism would never deliver decent living standards -- and he was right again. He declared that civil liberties were impossible under socialism, and he was right yet again.
"In exclusively controlling all the factors of production," he wrote, "the socialist regime controls also every individual's whole life. The government assigns to everybody a definite job. It determines what books and papers ought to be printed and read, who should enjoy the opportunity to embark on writing, who should be entitled to use public assembly halls, to broadcast and to use all other communication facilities. This means those in charge of the supreme conduct of government affairs ultimately determine which ideas, teachings, and doctrines can be propagated and which not. Whatever a written and promulgated constitution may say about the freedom of conscience, thought, speech, and the press and about neutrality in religious matters must in a socialist country remain a dead letter if the government does not provide the material means for the exercise of these rights."
Socialist intellectuals around the world claimed that wonderful things were happening in the Soviet Union, but Mises identified the regime as a moral scourge: "Whoever does not unconditionally acknowledge all their teachings as the only correct ones and stand by them through thick and thin has, in their opinion, incurred the penalty of death; and they do not hesitate to exterminate him and his whole family, infants included, whenever and wherever it is physically possible."
Socialists were at pains to distinguish themselves from fascists and Nazis, but Mises made clear they were all totalitarians. He denounced fascism's "complete faith in the decisive power of violence. In order to assure success, one must be imbued with the will to victory and always proceed violently. This is its highest principle...its foreign policy, based as it is on the avowed principle of force in international relations, cannot fail to give rise to an endless series of wars..." Mises warned that Hitler's National Socialism meant tyranny, and a year after Hitler seized power, he left Austria for Switzerland and later came to America.
As the English and French guarded their global empires, and the Germans, Italians, Japanese and Russians contemplated new conquests, Mises spoke out for peace: "No chapter of history is steeped further in blood than the history of colonialism. Blood was shed uselessly and senselessly. Flourishing lands were laid waste; whole peoples destroyed and exterminated. All this can in no way be extenuated or justified. The dominion of Europeans in Africa and in important parts of Asia is absolute. It stands in the sharpest contrast to all the principles of liberalism and democracy, and there can be no doubt that we must strive for its abolition...The most simple and radical solution would be for the European governments to withdraw their officials, soldiers, and police from these areas and to leave the inhabitants to themselves."
In 1927, Mises issued a prophetic warning: "The program of antiliberalism unleashed the forces that gave rise to the great World War and, by virtue of import and export quotas, tariffs, migration barriers, and similar measures, has brought the nations of the world to the point of mutual isolation. Within each nation it has led to socialist experiments whose result has been a reduction in the productivity of labor and a concomitant increase in want and misery. Whoever does not deliberately close his eyes to the facts must recognize everywhere the signs of an approaching catastrophe in world economy. Antiliberalism is heading toward a general collapse of civilization."
For decades, Mises identified key issues more clearly than anybody else. Politically-connected intellectuals clamored for central economic planning, but Mises retorted, "The alternative is not plan or no plan. The question is: whose planning? Should each member of society plan for himself or should the paternal government alone plan for all? The issue is...spontaneous action of each individual versus the exclusive action of the government. It is freedom versus government omnipotence."
Mises explained how only capitalism enabled human beings to arise from barbarism: "In the precapitalistic ages the rich were the owners of large landed estates. They or their ancestors had acquired their property as gifts -- feuds or fiefs -- from the sovereign who -- with their aid -- had conquered the country and subjugated its inhabitants. These aristocratic landowners were real lords as they did not depend on the patronage of buyers. But the rich of a capitalistic industrial society are subject to the supremacy of the market. They acquire their wealth by serving the consumers better than other people do and they forfeit their wealth when other people satisfy the wishes of the consumers better or cheaper than they do."
Mises showed how, at a faster and faster pace, capitalism transformed luxuries for an elite into pleasures for millions. "Centuries passed before the fork turned from an implement of effeminate weaklings into a utensil of all people. The evolution of the motor car from a plaything of wealthy idlers into a universally used means of transportation required more than twenty years. But nylon stockings became, in this country, an article of every woman's wear within hardly more than two or three years. There was practically no period in which the enjoyment of such innovations as television or the products of the frozen food industry was restricted to a small minority."
Nobody was more lyrical than Mises in celebrating the 18th and 19th century eras of "freedom, the rights of man, and self-determination. This individualism resulted in the fall of autocratic government, the establishment of democracy, the evolution of capitalism, technical improvements, and an unprecedented rise in standards of living. It substituted enlightenment for old superstitions, scientific methods of research for inveterate prejudices. It was an epoch of great artistic and literary achievements, the age of immortal musicians, painters, writers, and philosophers.
"The age of capitalism," he continued, "has abolished all vestiges of slavery and serfdom. It has put an end to cruel punishments and has reduced the penalty for crimes to the minimum indispensable for discouraging offenders. It has done away with torture and other objectionable methods of dealing with suspects and lawbreakers. It has repealed all privileges and promulgated equality of all men under the law. It has transformed the subjects of tyranny into free citizens."
Mises did a more complete job than anyone else describing a vision of liberty: "there is private property in the means of production. The working of the market is not hampered by government interference. There are no trade barriers; men can live and work where they want. Frontiers are drawn on the maps but they do not hinder the migration of men and shipping of commodities. Natives do not enjoy rights that are denied to aliens. Governments and their servants restrict their activities to the protection of life, health, and property against fraudulent or violent aggression. They do not discriminate against foreigners. The courts are independent and effectively protect everybody against the encroachments of officialdom. Everyone is permitted to say, to write, and to print what he likes. Education is not subject to government interference. Governments are like night-watchmen whom the citizens have entrusted with the task of handling the police power. The men in office are regarded as mortal men, not as superhuman beings or as paternal authorities who have the right and duty to hold the people in tutelage. Governments do not have the power to dictate to the citizens what language they must use in their daily speech or in what language they must bring up and educate their children."
Mises persisted in expressing these radical views even though it meant being treated as an outcast. He was a highly respected economist in Austria, but the University of Vienna four times refused to make him a paid professor, and for 14 years he conducted a prestigious Vienna seminar without a salary. For most of the quarter-century that he conducted a seminar in New York, his salary was paid by private individuals. "Never would Mises compromise his principles," observed economist Murray N. Rothbard, "never would he bow the knew to a quest for respectability or social or political favor. As a scholar, as an economist, and as a person, Ludwig von Mises was a joy and an inspiration, an exemplar for us all."
Future Nobel Laureate F.A. Hayek told Mises: "You have shown an undaunted courage even when you stood alone. You have shown a relentless consistency and persistence in your thought even when it led to unpopularity and isolation. You have for long not found the recognition from the official organization of science which was your due. You have seen your pupils reap some of the rewards which were due to you but which envy and prejudice have long withheld. But you have even more fortunate than most other sponsors of unpopular causes. You knew before today that the ideas for which you had so long fought alone or with little support would be victorious."
Mises was about five feet eight inches tall and had sparkling blue eyes. "He held himself straight and erect and walked with a firm step," recalled Bettina Bien Greaves, the world's leading Mises scholar. "He wore a suit, usually gray, and even in the hottest weather he insisted on keeping his jacket on. His grey hair and moustache were always neatly brushed. He was serious, no frivolity. Asked if he played tennis, he replied 'No, because I'm not interested in the fate of the ball.' But he loved to walk, and during his summers in Austria, Switzerland and the United States, he went hiking through the mountains. As a bachelor until the age of 57, he enjoyed giving tea parties. Later, he and his wife Margit often went to the theater, even when their finances were tight. He was a man of remarkable grace, charm and culture."
Mises put off many people, occasionally even friends, because he refused to compromise. During the early 1950s, journalist Henry Hazlitt wrote, Mises and novelist/philosopher Ayn Rand were at his house for dinner. Rand snapped at one of Mises' comments, saying "You seem to regard me as just a little Jewish girl who doesn't know anything."
"Lu didn't mean it that way," Hazlitt said.
"I did mean it that way!" Mises replied.
Mises came to admire Rand, calling her "the most courageous man in America." Hazlitt told Rand about the remark, and she was delighted. Reflecting on Mises, Ayn Rand biographer Barbara Branden noted that "Along with a vast and searching intellect, he had a gentleness, a warmth, and communicated a respect for whomever he talked with, that made him beloved by his friends and his students."
Ludwig Edler von Mises was born on September 29, 1881 in Lemberg, then part of the Austro-Hungarian Empire, about 350 miles east of Vienna. It's now known as Lviv in the Ukraine. He was the oldest of three boys of Adele Landau who was devoted to her family and to charity work for a Jewish orphanage. His father was Arthur Edler von Mises, a construction engineer for the Austrian Railroad Ministry. His brother Karl died from scarlet fever when he was 11; his other brother Richard became a well-known mathematician and logical positivist philosopher.
From 1892 to 1900, Mises studied at the Akademische Gymnasium (high school) on Lothringer Strasse, Vienna. He went on to the University of Vienna. "When I entered the university," Mises reflected, "I, too, was a thorough statist. But in contrast to my fellow students I was consciously anti-Marxian." He added: "I think in the second year of my university studies, there came the very famous...socialist Adolf Wagner, professor in Berlin, who had been professor in Vienna before. He lectured on the tariff for cereals. A wonderful speech, an excellent speaker. Germany not self-sufficient. Tariff to feed Germany. A student two years ahead of me came and said that the tariff doesn't do away with this. If Germany can't feed itself now, it won't be able to with a tariff. Wagner answered: 'I didn't say this was a remedy. The remedy is a war, a great war, to annex other countries. We need customs only in preparation for the war in order to have enough for the beginning of the war. Tariffs are necessary from the national, military point of view."
Then Mises had a revelation: "Around Christmas, 1903, I read Menger's Grundsatze der Volkswirtschaftslehre [Principles of Economics] for the first time. It was the reading of this book that made an 'economist' of me."
Menger cut quite a figure. F.A. Hayek wrote that Menger's "massive, well-modelled head, with the colossal forehead and the strong but clear lines there delineated are not easily forgotten. Tall, with a wealth of hair and full beard, in his prime Menger must have been a man of extraordinarily impressive appearance."
Menger was born on February 28, 1840 in Neu-Sandec, Galicia, now part of Poland. His father was a lawyer. His mother's father had earned a fortune as a merchant in Bohemia, and Menger grew up on his estate. He attended the University of Vienna (1859-1860) and the University of Prague (1860-1863) before earning his doctorate degree at the University of Cracow.
He became a journalist, covering economic issues. He got a job in the press office of the Austrian government and wrote about markets. Somewhere along the line, he concluded that nobody had developed a good explanation of what drives market prices. Certainly John Stuart Mill, the best-known English classical economist, hadn't done it.
Menger's great book, published in 1871, presented a case that prices reflected the subjective values of customers in free markets. This was a radical departure from the English classical economists who, since Adam Smith, had insisted the value of things was rooted in the cost of labor required to produce them -- the labor theory of value that Karl Marx made his battle cry. Menger was attacked by Gustav Schmoller, influential leader of the German Historical School, who belittled theory and promoted socialism.
Menger further resolved the question of value by what came to be known as marginal utility analysis. For example, why do people pay more per unit for diamonds than for water, even though water is essential for life, and diamonds are a luxury? The answer, Menger suggested, doesn't come from somehow estimating the total satisfaction people get from water vs. diamonds. Rather, one should inquire about how people value more water vs. more diamonds, considering how much of each they already have. Far more water is generally available than is needed for human survival, so people are willing to pay less for it than for diamonds which are comparatively scarce.
"In the years after his retirement," Hayek recalled, "it became a tradition that young economists entering upon an academic career undertook the pilgrimage to his home. They would be genially received by Menger among his books and drawn into conversation about the life which he had known so well, and from which he had withdrawn after it had given him all he had wanted."
Mises: "Personally, I met Carl Menger only many years later. He was then already more than seventy years old, hard of hearing, and plagued by an eye disorder. But his mind was young and vigorous." Menger died in 1921 at age 81.
None of Menger's writings had been translated into English, and his major work was long out of print. As intellectual historian George J. Stigler remarked in 1941, "the barriers of inaccessibility and language have served effectively to hide all but the barest outlines of his work from the bulk of English-speaking students of economics." The first English edition of his Principles of Economics didn't appear until 1976.
Meanwhile, on February 20, 1906, Mises earned a degree as Doctor of Laws and Social Sciences. The following year, Mises began working for the Vienna Chamber of Commerce. It was run by representatives elected from trade and industry. Its main function was to advise on laws affecting business. Mises was the expert on finance.
The person who most directly influenced Mises was the economist Eugen von Bohm-Bawerk. Born in Brunn, Austria, February 12, 1851, he studied law at the University of Vienna. Political science, at Heidelberg, Leipzig and Jena. He was named professor of economics at the University of Innsbruck, 1881.
During the eight years he taught there, Bohm-Bawerk became the greatest champion of Menger's ideas, and he wrote his masterwork, Kapital und Kapitalzins [Capital and Interest] which was published in 1884. Economist Joseph A. Schumpeter called Bohm-Bawerk "one of the great architects of economic science." Bohm-Bawerk had more influence outside Austria than Menger because his major works were translated much more quickly -- the English edition of Kalipital und Kapitalzins began appearing in 1890.
Bohm-Bawerk accepted a post in the Austrian Finance Department, and he served as vice-chairman of a commission which recommended that Austria go on the gold standard (it was done). As Minister of Finance in 1895, 1897 and 1900 to 1904, he achieved balanced budgets and stable money. After 1904, he returned to teaching economics at the University of Vienna.
"When Bohm-Bawerk opened his seminar," Mises wrote, "it was a great day in the history of the University and the development of economics. As the subject matter of the first seminar, Bohm-Bawerk chose the fundamentals of the theory of value...I attended Bohm-Bawerk's seminar regularly until I qualified for lecturing in 1913...Bohm-Bawerk was a brilliant seminar leader. He did not think of himself as a teacher, but as a chairman who occasionally also participated in the discussion."
Schumpeter added that by the 1920s, "it was an almost general opinion that Bohm-Bawerk's theory was just a curious error -- and not to be discussed seriously any more. And yet his ideas keep on turning up and teaching people, critics included, their business. This, in fact, his ideas had done from the first: though Bohm-Bawerk got few compliments, and acquired few disciples, he was and still is one of the profession's greatest teachers."
Mises began writing about money. "Karl Helfferich," he explained, "in his book, Das Geld, published in 1903, asserted that the marginal utility theory of the Austrians had failed to solve the problem of money value. Therefore, I intended to investigate the validity of this charge and beginning in 1906 devoted a great deal of fervent effort to the problems of money and banking. I studied the great theoretical works as well as the history of currencies of the European countries, the United States, British India, and, in general, sought to find my way through the wealth of literature."
Other thinkers, including Menger and Bohm-Bawerk, considered money to be apart of economic theory, came to believe that subjective value and marginal utility analysis could help explain monetary phenomena, too. So Mises started his first book, Theorie des Geldes und der Umlaufsmittel [The Theory of Money and Credit]. The first edition came out in 1912, and he revised it in 1924.
He attacked the popular view that government officials could dictate the value of money, promoted by Georg Friedrich Knapp in Staatliche Theorie des Geldes [State Theory of Money, 1905]. He maintained that, on the contrary, markets determined the value of money. For this, he was denounced by Rudolf Hilferding, later Finance Minister during Germany's 1923 runaway inflation: "the book's complete futility is most effective proof of the utter fruitlessness of the marginal utility theory." The English economist John Maynard Keynes panned The Theory of Money and Credit, although in 1930 he confessed his German was "so poor" and "in German I can only clearly understand what I know already!"
Mises insisted that inflating the money supply is futile, because people will bid up prices. The beneficiaries are those who, starting with government itself, spend new issues of currency before prices go up. The losers are the last ones to get the new money, after prices have prices have risen and the money has depreciated in the marketplace.”
Mises explained that inflating the money supply artificially stimulates economic expansion that wouldn't otherwise have occurred. Stopping inflation must trigger the collapse of businesses and investments dependent on it, and people are thrown out of work. The solution, Mises insisted, is to bring wages in line with market conditions. "If a man cannot sell his labour at the price he would like to get for it," Mises wrote, "he must lower the price he is asking for it or else he remains unemployed. If the government or labour unions fix wage rates at a higher point than the potential rate of the unhampered labour market and if they enforce their minimum price degree by compulsion and coercion, a part of those who want to find jobs remain unemployed...There is only one efficacious way towards a rise in real wage rates and an improvement of the standard of living of the wage earners: to increase the per-head quota of capital invested."
Mises presented a strong defense of a gold standard: "The excellence of the gold standard is to be seen in the fact that it renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties. Furthermore, it prevents rulers from eluding the financial and budgetary prerogatives of the representative assemblies. Parliamentary control of finances works only if the government is not in a position to provide for unauthorized expenditures by increasing the circulating amount of fiat money. Viewed in this light, the gold standard appears as an indispensable implement of the body of constitutional guarantees that make the system of representative government function."
During World War I, Mises served for three years in the army, rose to the rank of artillery captain, spent time on the Russian front and got shot in the hip. He figured that at least he had benefited from the physical exercise. He was subsequently transferred to the Ministry of War where he worked as an economic analyst.
In 1919, England and France wanted to avenge war losses which they blamed on their adversaries, especially Germany. They became more adamant when the United States demanded that they pay their war debts. Germany lost an eighth of its territory, 10% of its industry and 15.5% of its farm land. Before the war, Austria-Hungary controlled over 250,000 square miles of territory and had a population of 51 million. Afterwards, the Allied Powers broke up the empire, created new nations and left Austria with 32,000 square miles. Austria had about 6.5 million people, almost a third living in Vienna. . War cost Austria-Hungary some $20 billion and 1.1 million lives. Moreover, Germany and Austria had to pay the Allied Powers for "war damages." As further compensation, both losers had to give the Allied Powers substantial amounts of building materials, railroad equipment, cattle and coal.
All this put pressure on Germany and Austria to inflate their currencies. Pressure intensified when the governments caved in to socialist demands for welfare and subsidized housing. Germany plunged into a horrifying runaway inflation -- average prices up over 300% a month -- which climaxed in 1923 when one U.S. dollar could be exchanged for 4.2 million marks. During this runaway inflation, the 24-year-old agitator Adolph Hitler appealed for political support to "starving billionaires" whose savings were wiped out by the inflation.
The Austrian inflation was severe -- average prices up almost 50% a month. Mises' future wife Margit recalled: "I carried a suitcase with me, containing money for one day. Every evening my [first] husband had to cable fresh money, for the value of the krone decreased daily." Amidst the inflation, he died from cancer, and she reported that "Inflation had consumed the value of all savings. I remember how I found, some months after Feri's death, a wallet of his containing large sums of Austrian kronen...The value of the money was totally lost..." Another who suffered from the inflation was 41-year-old Joseph A. Schumpeter, President of the Biedermann Bank which became insolvent in 1924, leaving him out of work with a pile of debts.
While walking home with some friends, Mises recalled hearing "in the Herrengasse [a main street in Vienna] the heavy drone of the Austrian Bank's printing presses which were running incessantly day and night to produce new banknotes. Throughout the land, a large part of the industrial enterprises were idle. Others were working part-time. Only the printing presses stamping out notes were operating at full speed."
Mises did much to help avoid a catastrophe like Germany's. At the Chamber of Commerce, he was Secretary of the Banking and Finance Department, and he gained influence as an articulate champion of laissez faire and sound money. He was also apparently quite an organizer, helping to start the Committee of Bankers and Industrialists, the Fiscal Policy Committee and the Office of Accounts (where Mises hired 22-year-old Hayek to help resolve pre-war debts). All this brought Mises in contact with a lot of people.
Mises' influence went all the way to the top. "In 1922," reported intellectual historian Bettina Bien Greaves, "Ignaz Seipel became Chancellor of Austria. Dr. Seipel, a Roman Catholic priest, honest and conscientious but naive about finance, was not the usual politician. Mises helped convince Seipel that inflation had to be stopped. Mises made clear that many companies which had speculated on inflationary gains could go out of business, but overall improvement would come. Seipel emphasized that if stopping inflation was the moral thing to do, he would do it regardless of the short-term effects. He did it and was re-elected in 1923."
According to Dr. Alfred Schutz, a sociologist who knew Mises in Vienna, "Mises played a very important role in drafting the statutes and by-laws" of the Austrian National Bank. Mises scholar and economics professor Richard M. Ebeling at Hillsdale College, Michigan, added: "Another of Mises' friends was Richard Reisch who became President of the Austrian National Bank. I studied the charter which restructured the Austrian National Bank, limiting its ability to inflate the currency again. I believe the suggestive evidence is strong that Mises worked behind the scenes to draft that charter. He couldn't publicly take credit for it because of his position at the Chamber which included many opponents of laissez faire and because he was Jewish in a city with a lot of anti-Semitism. Linking Mises' name to monetary reform would have given many people reason to oppose it." In 1923, the Austrian National Bank introduced a new currency, the schilling, equal to 10,000 of the depreciated kronen. Officially, the League of Nations supervised Austria's monetary reform, but as Hayek explained, Mises "had a considerable hand in the League of Nations commission...He was the only person in Vienna capable to do that."
Mises represented Austria in negotiations with the Allied Powers about war reparations. He negotiated with other countries in an effort to liberalize trade restrictions which limited Austria's postwar recovery. "This does not mean that my recommendations were followed or that my warnings were heeded," he acknowledged. "Supported only by a few friends I waged a hopeless fight. All I achieved was to delay the catastrophe."
Until World War I, socialism was little more than a utopian dream. Karl Marx never spelled out how he thought government ownership of the means of production would work. Socialism came into its own for the first time as wartime governments in England, France, the United States, Austria and especially Germany gained total power over their economies. Governments dramatically expanded their bureaucracies, enacted confiscatory taxes, seized private businesses, conscripted labor, dictated what people would produce and suppressed dissent.
Socialists urged that governments control everything all the time. For example, the English Fabian socialists Sidney and Beatrice Webb proposed in their Constitution for the Socialist Commonwealth of Great Britain (1920): "In the first place, the Socialist Commonwealth will put in force the principle of Freedom of Socialized Enterprise...It will 'expropriate' without remorse individual owners from their lands, their house property, their factories and their enterprises, whenever this course seems to promote the general well-being…it may be necessary to prohibit the publication of newspapers with the object of private profit, or under individual ownership, as positively dangerous to the community."
Although the socialist vision didn't come to pass right away, except in the Soviet Union, it captured the imagination of intellectuals everywhere. Socialism seemed to be the wave of the future, and to oppose it was to defy history itself.
Yet Mises bristled with defiance. In 1919, he wrote Nation, Staat und Wirtschaft [Nation, State, and Economy] which, among other things, made clear that war socialism was chaotic rather than well-planned as its promoters claimed. He cited "the stupidities of the economic policy of the Central Powers during the war. At one time, for example, the word was given to reduce the livestock by increased slaughtering because of a shortage of fodder; then prohibitions of slaughtering were issued and measures taken to promote the raising of livestock. Similar planlessness reigned in all sectors. Measures and countermeasures crossed each other until the whole structure of economic activity was in ruins.”
Mises gained an epic insight and delivered a paper about it, "Wirtschaftsrechnung im sozialistischen Gemeinwesen" ["Economic Calculation in the Socialist Commonwealth"], before the Economic Society. The paper was subsequently published in Archiv fur Sozialwisenschaft und Sozialpolitik (1920). "Picture the building of a new railroad," Mises explained. "Should it be built at all, and if so, which out of number of conceivable roads should be built? In a competitive and monetary economy, this question would be answered by monetary calculation. The new road will render less expensive the transport of some goods, and it may be possible to calculate whether this reduction of expense transcends that involved in the building and upkeep of the next line. That can only be calculated in money. It is not possible to attain the desired end merely by counterbalancing the various physical expenses and physical savings. Where one cannot express hours of labour, iron, coal, all kinds of building material, machines and other things necessary for the construction and upkeep of the railroad in a common unit is not possible to make calculations at all. The drawing up of bills on an economic basis is only possible where all the goods concerned can be referred back to money."
"Thus in the socialist commonwealth," Mises continued, "every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism is the abolition of rational economy...Where there is no free market, there is no pricing mechanism; without a pricing mechanism, there is no economic calculation."
Mises decided to write a book on socialism. F.A. Hayek -- whom one associate described as "a tall, powerful, reserved figure" -- got a job at the Chamber of Commerce in 1921 and had this to say: "As a boss, Mises was absolutely ideal, considerate and always ready to talk about economics except the work he was doing himself at the moment. Of that we heard only when it was finished. All the time I was working for him, he was writing Gemeinwirtschaft (Socialism). Yet I first heard about it when the printed book was on his desk."
The book was an overwhelming attack on socialism. "If history could prove and teach us anything," Mises wrote, "it would be that private ownership of the means of production is a necessary requisite of civilization and material well-being. All civilizations have up to now been based on private property. Only nations committed to the principle of private property have risen above penury and produced science, art and literature. There is no experience to show that any other social system could provide mankind with any of the achievements of civilization."
"Everyone carries a part of society on his shoulders," he declared, "no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping toward destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us."
Hayek remembered, "When Socialism first appeared in 1922, its impact was profound. It gradually but fundamentally altered the outlook of many of the young idealists returning to their university studies after World War I. I know, for I was one of them.
"We felt that the civilization in which we had grown up had collapsed. We were determined to build a better world, and it was this desire to reconstruct society that led many of us to the study of economics. Socialism promised to fulfill our hopes for a more rational, more just world. And then came this book. Our hopes were dashed. Socialism told us that we had been looking for improvement in the wrong direction." Converting Hayek into a champion of liberty was among Mises' most momentous achievements.
When the English language edition of Socialism came out in 1936, socialists expressed their outrage. G.D.H. Cole fumed in New Statesman and Nation: "His book was perhaps worth translating as a supreme example of academic absurdity." H.G. Hayes in American Economic Review: "diatribes against socialism do not help." Harold J. Laski called Socialism an "extravagant and often ignorant diatribe." An unsigned reviewer for the New Leader wrote that Socialism "contains more nonsense in 500 pages than any other I have recently read." Jay Douglas, writing in The Spectator, derided Socialism as "hilarious unreality." The Economist, whose editors had drifted from the magazine's original commitment to laissez faire, thought Mises had gone too far, disparaging its "extreme and uncompromising character seldom encountered in English controversy."
But there was some acknowledgement that Mises had scored important points against socialism. In Economica, J.C. Stamp wrote that Mises had "lifted the ban, so skillfully laid by Marx, upon the examination of his scheme by the tests of scientific economic analysis."
Mises' challenge to socialism sparked a debate that raged for years. In 1935, Hayek edited Collectivist Economic Planning, five forceful essays including Mises' original paper about the impossibility of rational decision-making without free market prices. The American professor Fred M. Taylor gave a lecture on "The Guidance of Production in Socialist State" which helped inspire the Polish socialist Oskar Lange. . Taylor's lecture was reprinted in the book On the Economic Theory of Socialism (1938) which became gospel. In 1936, Lange proposed a theoretical model for "market socialism" which purported to overcome Mises' objections. Ironically, Lange's theoretical model was never tried anywhere. Intellectual historian David Ramsay Steele noted that "Lange's was widely viewed as the standard work on the economics of socialism...something that socialists could point to as a theoretical demonstration that socialism was in principle economically feasible, and then ignore. Lange is widely thought to have made a decisive contribution to the debate, yet it is difficult to find anyone who will specify what that contribution is...Lange's scheme is not a model of 'socialism' in Soviet Russia or other purportedly socialist countries. Amid all the increasingly urgent calls, from 1953 until 1990, for reform of Soviet-bloc economies, no one -- including Lange -- seems to have thought that Lange was of any relevance."
Yet even Mises' fellow Austrian, Joseph A. Schumpeter, caved to the socialists. In his book Capitalism, Socialism and Democracy (1942), Schumpeter wrote: "Can socialism work? Of course, it can...the answer...is clearly Yes...The answer is in the affirmative. There is nothing wrong with the pure logic of socialism."
In Europe, all the universities were government-owned, and only those who belonged to one of the favored political parties could become a professor. Mises was passed over for more politically-connected candidates. Mises was bitter about being denied a professorship. "These three reasons contributed," Hayek explained, "he was a Jew, he was known to be aggressive, and he was an anti-socialist...On two or three occasions he was willing to go to small universities where he had friends...a violent campaign developed against him." Hayek continued: "for a Jew to get a professorship he had to have the support of his Jewish fellows...But the Jews who were teaching were all socialists, and Mises was an anti-socialist, so he could not get the support of his own fellows...the Vienna of the 1920s and 1930s is not intelligible without the Jewish problem." In retrospect, the world is surely better because Mises was denied. "I am afraid," reflected Hayek, "that if he had been a full professor in the University of Vienna he would probably not have left Vienna in time, and it is difficult to say what would have happened."
There was, however, still the possibility of becoming a Privatdozent. This meant an individual had permission to teach and be called a professor, but the university with which he was affiliated wouldn't pay a salary. Sigmund Freud was a Privatdozent. In 1913, after The Theory of Money and Credit was published, Mises was appointed a Privatdozent at the University of Vienna.
"Beginning in 1920, during the months of October to June,” he explained, “a number of young people gathered around me once every two weeks. My office in the Chamber of Commerce was spacious enough to accommodate twenty to twenty-five persons. We usually met at seven in the evening and adjourned at ten-thirty. In these meetings we informally discussed all important problems of economics, social philosophy, sociology, logic, and the epistemology of the sciences of human action. In this circle the younger Austrian School of Economics lived on; in this circle the Viennese culture produced one of its last blossoms. Here I was neither teacher nor director of seminar. I was merely primus inter pares (first among peers) who himself benefited more than he gave. All who belonged to this circle came voluntarily, guided only by their thirst for knowledge. They came as pupils, but over the years became my friends."
After each session, participants adjourned for dinner at the Ankara Verde Italian restaurant and later to a coffee house, usually Kunstsler Kaffee. Best-known participants: economists Hayek, Gottfried Haberler, Fritz Machlup and John Van Sickle, philosopher Felix Kaufmann, game theorist Oskar Morgenstern and political scientist Eric Voegelin. There were women, too, including Helene Lieser, Ilse Mintz and Martha Stephanie Braun. Nobody received academic credit. Hayek described the seminar as "purely a discussion club...the most important center of economic discussion in Vienna..."
Recalled Fritz Machlup: "To this Privatseminar, you could be admitted only after you had received your doctor's degree. So I had to earn my degree first and then, at the end of 1923, I was admitted to this very illustrious circle...there were between fifteen and twenty regular members, and for special subjects Mises invited some who were not permanent members. For one full year, for example, we discussed topics in philosophy of science. There were several among us who later made their reputation in that branch of philosophy. But whether philosophers or economists, it is remarkable how many of these large handfuls of scholars have made their careers in academic life. Their works...are well known all over the world..."
Mises tried to persuade the Chamber of Commerce to hire Hayek as his researcher, but after that effort failed, Mises established the Austrian Institute for Business Cycle Research in January 1927. Hayek served as the first director until he went to London five years later, and the Institute sponsored lectures and published a series of books. In 1930, the Institute received generous funding from the Laura Spellman Rockefeller Foundation where Mises' seminar participant John Van Sickle had found a job. Laura Spellman Rockefeller was the wife of John D. Rockefeller Jr., and her aim was to help improve American social science teaching by tapping European talent.
"Mises had a foresight of the general decline of Europe in the 1930s, of the economic decline, and of the imminent crises and ultimately of war," Hayek remembered. "He was very long-sighted, and what he forecast ultimately came true although he was more pessimistic than was justified. He was extraordinarily well informed politically and always insisted that one need have no special source of information. Every time when I was surprised at his knowledge, he showed me that he knew it all from the newspapers...His knowledge of recent Austrian history, he told us, came from the obituaries...The first thing every day in the office was to study the newspapers of the day and the second time after his nap in the afternoon he visited the coffee house and again studied the newspapers...He never kept files of newspaper clippings."
In 1927, Mises wrote one of his most accessible and appealing works, Liberalismus, presenting his utilitarian case for liberty. For example: "We attack involuntary servitude, not in spite of the fact that it is advantageous to the 'masters,' but because we are convinced that, in the last analysis, it hurts the interests of all members of human society, including the 'masters.' If mankind had adhered to the practice of keeping the whole or even a part of the labor force in bondage, the magnificent economic developments of the last hundred and fifty years would not have been possible...The European worker today lives under more favorable and more agreeable outward circumstances than the pharaoh of Egypt once did, in spite of the fact that the pharaoh commanded thousands of slaves, while the worker has nothing to depend on but the strength and skill of his hands."
Similarly, Mises made a case for peace: "What alone enables mankind to advance and distinguishes man from the animals is social cooperation. It is labor alone that is productive: it creates wealth and therewith lays the outward foundations for the inward flowering of man. War only destroys; it cannot create. War, carnage, destruction, and devastation we have in common with the predatory beasts of the jungle; constructive labor is our distinctively human characteristic. The liberal abhors war, not, like the humanitarian, in spite of the fact that it has beneficial consequences, but because it has only harmful ones."
Mises continued, "The German socialist, Ferdinand Lassalle, tried to make the conception of a government limited exclusively to this sphere [protecting liberty, property and peace] appear ridiculous by calling the state constituted on this basis of liberal principles the 'night-watchman state.' But it is difficult to see why the night-watchman state should be any more ridiculous or worse than the state that concerns itself with the preparation of sauerkraut, with the manufacture of trouser buttons, or with the publication of newspapers."
Everywhere the Great Depression was blamed on capitalism, but Mises countered with Die Ursachen der Wirtschaftskrise: Ein Vortrag [The Causes of the Economic Crisis, 1931]. He made a case that central bank policies were responsible for the Great Depression. Namely, artificially stimulating the economy by holding interest rates below market levels and inflating the money supply. When this process slows down, businesses which had become dependent on it face a financial squeeze, and they begin laying people off. Monetary contraction would bring on a severe crisis. It could end quickly if people were permitted to negotiate wages which reflected monetary contraction, but during the 1930s compulsory unionism prevented this in many industries. Hence, chronic high unemployment. Mises' recommendation: "Forego every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the free market indicates."
The German free market economist Wilhelm Ropke hailed Mises' book: "With refreshing clarity and convincing arguments, Mises shows that the very popular charges levied against capitalism today are directed at the wrong target -- we are not suffering a capitalistic crisis but an interventionist crisis."
Nonetheless, this Austrian interpretation of the Great Depression was the last thing anyone wanted to hear. Everybody was looking for a quick fix. In 1936, John Maynard Keynes' General Theory of Employment, Interest and Money (1936) seemed to promise it. Keynes told ambitious politicians and desperate people that government should stimulate demand by inflating the money supply. Keynesian ideas swept the world and dominated economic thinking for the next 30 years. Mises was viewed as a has-been, and even some of those who had attended his Vienna seminar, like the influential London School of Economics professor Lionel Robbins, threw their lot with Keynes. The intellectual tide was overwhelming.
Yet already some evidence suggested Mises was right. Back in 1920, the United States had suffered a severe postwar depression; President Warren Harding cut the federal budget about 40%, refrained from interfering in the economy, and that depression was over in about a year. By contrast, in 1932, the year Franklin Delano Roosevelt was elected President, 11.5 million were unemployed, but after all his New Deal interventionist policies and the dramatic expansion of compulsory unionism, there were still 11.3 million unemployed in 1939; in 1932, households with 16.6 million people were on relief, but there were households with 16.9 million people on relief in 1939. The New Deal failed to get America out of the Great Depression.
Mises was invited by William E. Rappard to join the Graduate Institute of International Studies, University of Geneva. Mises departed for Geneva on October 3, 1934, but he left a lot of personal possessions, including thousands of books he didn't need for his current work, in the Vienna apartment where he had lived with his mother since 1911. He remained in Geneva for six years, conducting a seminar in French on Saturday mornings. Mises, Rappard remembered, "is not only one of the keenest analytical minds among contemporary economists, but...he also has at his disposal a store of historical culture, the treasures of which are animated and illuminated by...humanity and Austrian wit rarely to be found today..."
Mises scholar Bettina Bien Greaves noted that "One by one, his students also left Austria as Hitler's armies started rolling across Europe. Friedrich A. Hayek migrated to England; Fritz Machlup, Gottfried Haberler, Oskar Morgenstern, Felix Kaufmann, Alfred Schutz, Erich Vogelin, and others, came to the United States." While Mises was at the Graduate Institute, Hayek came there to deliver five lectures which were published as Monetary Nationalism and International Stability (1937).
About a year after his mother died, Mises surprised all his friends by getting married on July 6, 1938. His wife was the former Margit Herzfeld, an actress who had performed in plays by Johann Wolfgang von Goethe, Henrik Ibsen, Friedrich Schiller, William Shakespeare and Leo Tolstoy, among others. Born July 6, 1890, she was, according to Bettina Bien Greaves, "a glamorous woman about five feet six inches tall. She always dressed well. She was a bit vain and something of a snob, but she was always a gracious host. She was Mises' biggest booster, even though he cautioned her that 'I write about money, but I'm never going to have much.' Many people reported that she made him more relaxed and gave him peace of mind."
Margit met Mises at a dinner party back in the fall of 1925 when he was 44 and she was a 35-year-old widow with a three-year-old son Guido and eight-year-old daughter Gitta. "What impressed me about him," she wrote in her memoir, "were his beautiful, clear blue eyes, always concentrated on the person to whom he talked, never shifting away. His dark hair, already a little grayish at the sides, was parted, not one hair out of place. I liked his hands, his long slim fingers, which showed that he did not use them for manual work. He was dressed with quiet elegance. A dark custom-made suit, a fitting silk necktie. His posture indicated the former army officer...The next day, when my hosts told me that he was considered to be the greatest living mind in Austria, it gave me quite a shock. He seemed so unpretentious and simple, so easy to talk to."
As Mrs. Mises reflected on their romance, "he kept it a secret. And I didn't talk very much. A few friends of mine knew about it. You know if something moves you inside very, very much, you don't talk about your feelings. Lu didn't talk about his personal affairs. No one knew about me. I remember that a friend of my husband's told me many years later that she had seen my husband once at the theater in those years with a young lady who was exquisitely dressed. She was astonished, because she was not used to seeing him with anyone in the theater. Later on she discovered I was the lady who was with him that evening."
Even in Switzerland, government interfered so much in private life that the Mises' needed five lawyers and 19 documents for the marriage which was a civil ceremony. On the appointed day, Mises noted in his diary only that he was going to have lunch with the two best men, jurist Hans Kelson and economist Gottfried Haberler. Since Mises was in frail health, Mrs. Mises prayed that they might have 10 years together.
Mises conducted only one seminar a week in Geneva and no longer spent his time on Austrian Chamber of Commerce business, so he could focus on a big book. The result was the 756-page Nationaloekonomie, Theorie des Handelns und Wirtschaftens [Economics: Theory of Action and Exchange], published in 1940. Reasoning from fundamental axioms about human action, he developed a comprehensive case for free markets and attacked every type of government intervention. It was an act of courage to offer such a book while collectivism dominated intellectual trends everywhere, and nations plunged into another world war. The Geneva publisher, Editions Union, issued a small press run.
By this time, Hayek had come to disagree with Mises' a priori analytical method. Hayek attempted "to persuade Mises himself that when he asserted that the market theory was a priori, he was wrong; that what was a priori was only the logic of individual action, but the moment you passed from this to the interaction of many people, you entered into the empirical field. Curiously enough, while Mises was very resentful of any criticism by his pupils and temporarily broke with Machlup and Haberler because they had criticized him, he took my critique silently..." In The Economic Journal, Hayek graciously wrote that "Mises' lone voice seems...considerably nearer the truth than the commonly accepted views."
As Hitler expanded his conquests throughout Europe, Mises stayed in Geneva. He wanted to hold onto the only professorship he had ever had. He had a good salary and a solid reputation in the German-speaking world. He approached his 60th birthday and didn't relish the prospect of starting over in a new country and a second language. "Of course he knew English already," Mrs. Mises explained. "He lectured once in a while in English, and he had written some English articles. But he never knew English as well as he did French. French he really did know very well. And he spoke it well! He didn't have the bad accent which he had in English."
Then came the fall of France. "The Germans had erected their flag high on top of the Eiffel Tower," recalled Mrs. Mises. "It was only then Lu himself decided to go." On July 4, 1940, the Mises boarded a bus at the American Express office and left Geneva. They headed for Cerberes, France, a Mediterranean town near the Spanish border, often changing routes to avoid the Nazis. Three times they were turned back as they tried to cross into Spain. They took a train to Barcelona, then an airplane to Lisbon. All ships to America were booked solid, and for 13 days Mrs. Mises called on steamship line offices before they could book a passage on the Export Line ship Exochorda. Ludwig and Margit von Mises arrived in the United States on August 2, 1940.
After living in a succession of hotel rooms and apartments, they settled in the 3-1/2-room apartment E at 777 West End Avenue, the southwest corner of 98th Street, which they would occupy for the rest of their lives. Mises didn't have any prospects for a steady job. In September 1940, he got $25 for giving a lecture at New York University and $50 for writing a 5,000-word article about European economic and social conditions.
Apparently, Mises had some funds in England, but he couldn't transfer them to the United States because of exchange controls. Hayek helped by purchasing rare books and sending them to Mises, which was legal. For 28 guineas plus shipping cost, Mises seems to have acquired a set of Jeremy Bentham's works. Hayek spent almost L60 to get Mises a first edition of Adam Smith's Wealth of Nations.
Mises was deeply depressed. Reflecting on his life, he wrote: "Occasionally I entertained the hope that my writings would bear practical fruit and show the way for policy. Constantly I have been looking for evidence of a change in ideology. But I have never allowed myself to be deceived. I have come to realize that my theories explain the degeneration of a great civilization; they do not prevent it. I set out to be a reformer, but only became the historian of decline."
Within a month after he arrived in America, Mises gave New York Times financial editor Henry Hazlitt a call. Hazlitt had first encountered Mises' name when he was reading The Value of Money (1917) by Benjamin Anderson. Here's the passage that caught Hazlitt's eye: "In von Mises, there seems to me to be very noteworthy clarity and power. His Theorie des Geldes und der Umlaufsmittel [The Theory of Money and Credit] is an exceptionally excellent book. Von Mises has a very wide knowledge of the literature of the theory of money. He has a keen insight into the difficulties involved."
Hazlitt had reviewed the new English edition of Socialism in the January 9, 1938 New York Times: "No open-minded reader can fail to be impressed by the closeness of the author's reasoning, the rigor of his logic, the power and unity of his thought…this book must rank as the most devastating analysis of socialism yet penned...Mises analyses his problem from so many sides that it is difficult even to outline his argument in a brief review. The contention most closely associated with his name is that socialism is certain to fail because it is incapable by its very nature of solving the problem of economic calculation. Unable to solve this, a Socialist society would not know how to distribute its labor, capital, land and other factors of production to the best advantage."
Hazlitt remarked that he thought of Mises as a distant historic figure and was as amazed to get the call from Mises as he would have been to hear from John Stuart Mill (who died in 1873). Mises didn't talk about his financial difficulties, but his wife Margit mentioned that he needed a job. Hazlitt asked his friend Benjamin Anderson, who had been an economist with Chase National Bank for almost two decades, and Anderson arranged some kind of meeting at Harvard University, but it didn't go well. Hazlitt made inquiries at Manhattan's New School for Social Research which was hiring refugee scholars from Europe, but nothing came of that, either.
Hazlitt encouraged Mises to write nine articles about the European situation, and they were published in the New York Times. The articles brought Mises some important recognition and led to a connection with the National Association of Manufacturers, a leading opponent of government intervention in the private sector. "Lu was invited to work with the Economic Principles Commission, which was authorized by NAM's president and board of directors and which labored over many years," Mrs. Mises reported. "Lu was a contributing member of the special group that created a two-volume study called The Nature and Evolution of the Free Enterprise System. Lu's relations with the NAM lasted from 1943 to 1954, giving him a forum where he met all the important industrialists of the country, the most respected economists, and the best known businessmen."
Meanwhile, on December 24, 1940 -- the day before Christmas -- Mises was notified that the Rockefeller Foundation made a grant to the National Bureau of Economic Research so that he would have some income. That Foundation had previously funded visits to the United States by Mises (1926) and fellow Austrians Gottfried Haberler, Fritz Machlup and Oskar Morgenstern. Mises' grant was renewed through 1944. It enabled Mises to write Omnipotent Goverment and Bureaucracy -- Mises' first books in English.
Hazlitt proved he was a loyal friend when he helped get Margit von Mises' daughter Gitta Sereny, then about 20, out of Nazi-occupied Paris. "When you first told me about Gitta's problems," he reminisced with Mrs. Mises, "I got in touch with Anne O'Hare McCormick, my colleague on the TIMES, who as you know was the chief writer on foreign affairs for the TIMES then, and she suggested that I get in touch with Breckinridge Long, then Assistant Secretary of State, and in charge of the refugee problem. I went to Washington and called on him. He promised to take personal interest in the matter, and kept his word, finally notifying me that an immigration visa had been issued to Gitta Sereny on January 21, 1941...As you may remember, there was also a great deal of correspondence for months after that about how to get Gitta out of Portugal, which we finally did."
Hazlitt did more. "After I had fruitlessly written to some half-dozen publishers trying to get OMNIPOTENT GOVERNMENT published," he told Mrs. Mises, "I spoke to my colleague on the TIMES, Charles Merz, and found that he was a trustee of the Yale University Press. He offered to write to them about the book, and must have done so on April 12, 1943; for I have a copy of Eugene Davidson's reply, dated April 13, 1943, referring to the letter, saying 'We'll be very glad to see von Mises' book, or whatever parts of it are completed.' You will remember that they agreed to publish it only if I would edit it, which I agreed to do." Yale published Bureaucracy and Omnipotent Government in 1944.
Bureaucracy mounted a new attack against socialism. Mises explained that private entrepreneurs can delegate considerable responsibility to their managers, because performance is easily measured by profit and loss. But bureaucratic management, which socialists want to run the world, can't be measured by profit and loss. Consequently, rulers limit the discretion of administrators with regulations, and obeying the regulations becomes the supreme standard of conduct. "They are no longer eager to deal with each case to the best of their abilities," Mises continued, "they are no longer anxious to find the most appropriate solution for every problem. Their main concern is to comply with the rules and regulations, no matter whether they are reasonable or contrary to what was intended. The first virtue of an administrator is to abide by the codes and decrees. He becomes a bureaucrat."
Socialist stagnation is inevitable, Mises warned: "In a properly arranged civil service system the promotion to higher ranks depends primarily on seniority. The heads of the bureaux are for the most part old men who know that after a few years they will be retired. Having spent the greater part of their lives in subordinate positions, they have lost their vigour and initiative. They shun innovations and improvements. They look on every project for reform as a disturbance of their quiet."
In Omnipotent Government, Mises traced the origins of the Nazi catastrophe. Many writers believed it was rooted in the German character, but Mises reminded readers that a century ago Germans embraced ideas of liberty. "German classical literature is imbued with them," he noted, "and the great German composers set to music verses singing the praises of liberty. The poems, plays, and other writings of Frederick Schiller are from beginning to end a hymn to liberty. Every word written by Schiller was a blow to the old political system of Germany..."
Like F.A. Hayek whose book The Road to Serfdom explored similar issues and was published the same year as Omnipotent Government, Mises attributed Nazism to socialist ideas which influenced people not only in Germany but throughout the West. "From England," he wrote, "penetrated the ideas of Carlyle, Ruskin, and the Fabians, from France Solidarism. The churches of all creeds joined the choir. Novels and plays propagated the new doctrine of the state. Shaw and Wells, Spielhagen and Gerhart Hauptmann, and hosts of other writers, less gifted, contributed to the popularity of etatism."
Mises attacked nationalism which, combined with socialism, proved to be lethal: "It is the aim of nationalism to promote the well-being of the whole nation or of some groups of its citizens by inflicting harm on foreigners. The outstanding method of modern nationalism is discrimination against foreigners in the economic sphere. Foreign goods are excluded form the domestic market or admitted only after the payment of an import duty. Foreign labor is barred from competition in the domestic labor market. Foreign capital is liable to confiscation. This economic nationalism must result in war whenever those injured believe they are strong enough to brush away by armed violent action the measures detrimental to their own welfare."
During World War II, the Soviets were supposedly our friends, and President Franklin Delano Roosevelt referred to Stalin as "Uncle Joe," but Mises dared to brand both Nazis and Soviets as totalitarian monsters. "The Nazis," he wrote, "have not only imitated the Bolshevist tactics of seizing power. They have copied much more. They have imported from Russia the one-party system and the privileged role of this party and its members in public life; the paramount position of the secret police; the organization of affiliated parties abroad which are employed in fighting their domestic governments and in sabotage and espionage, assisted by public funds and the protection of the diplomatic and consular service; the administrative execution and imprisonment of political adversaries; concentration camps; the punishment inflicted on the families of exiles; the methods of propaganda. They have borrowed from the Marxians even such absurdities as the mode of address, party comrade (Parteigenosse), derived from the Marxian comrade (Genosse), and the use of a military terminology for all items of civil and economic life."
Omnipotent Government garnered about three dozen reviews, but it never achieved the impact of The Road to Serfdom which made Hayek a celebrity. While Mises focused on explaining the past -- the Nazi catastrophe -- Hayek offered a dramatic warning about the future of the English-speaking world. Hayek was a younger man who had spent more than a dozen years living in London, so it isn't surprising that he wrote with more of a contemporary English style than Mises.
Hazlitt told Mrs. Mises: "I had suggested that they [Yale University Press] publish an English translation of Lu's NATIONALOEKONOMIE, and Davidson asked for a letter from me on the book to submit to the Yale Press Publications Committee. I wrote him in a letter dated Jan. 18..." Hazlitt encouraged Davidson to contact "Fritz Machlup of the University of Buffalo; Professor Gottfried von Haberler, now at Harvard University; Dr. B.H. Beckhart of Columbia (once a student of Mises); Professor John V. Van Sickle of Vanderbilt University (who, I believe, was also once a pupil of Mises); Professor B.M. Anderson of the University of California at Los Angeles, who is familiar with Mises' work, especially on monetary theory; Garet Garrett, National Industrial Conference Board, and if you think there is time to reach them, Professor Lionel Robbins and F.A. von Hayek of the London School of Economics."
In his study at 777 West End Avenue apartment E, Mises worked to overhaul and expand Nationaloekonomie. Mrs. Mises began serving him breakfast in bed, so he could concentrate on his writing. He wrote Davidson that his aim "was to provide a comprehensive theory of economic behavior which would include not only the economics of a market economy (free-enterprise system) but no less the economics of any other thinkable system of social cooperation, viz., socialism, interventionism, corporativism and so on. Furthermore I deemed it necessary to deal with all those objections which from various points of view -- for instance: of ethics, psychology, history, anthropology, ethnography, biology -- have been raised against the soundness of economic reasoning and the validity of the methods hitherto applied by the economists of all schools and lines of thought...The English-language edition will not simply be a translation of the book published in Geneva in 1940 in German language. Besides the revision of the whole text which will involve entirely rewriting some chapters, other important changes seem to be necessary in order to adapt the book better to the intellectual climate of America."
Human Action was published September 14, 1949. Despite its libertarian views, it was respectfully reviewed in many publications, including the New York Herald Tribune, New York Journal American, New York World-Telegram, Wall Street Journal, Commentary, Saturday Review of Literature and American Economic Review. In the New York Times, socialist John Kenneth Galbraith credited Mises as "a learned man and a famous teacher," then expressed disbelief that Mises "opposes regulation of banks...not even the prohibition of the drug traffic is permissible." Galbraith resented Mises' "comprehensive slur on present-day economics" -- meaning socialist doctrines taught at universities.
By this time, Henry Hazlitt had left the New York Times and begun writing the weekly "Business Tides" column for Newsweek. In the September 19, 1949 issue, he wrote: "Human Action is...at once the most uncompromising and the most rigorously reasoned statement of the case for capitalism that has yet appeared. If any single book can turn the ideological tide that has been running in recent years so heavily toward statism, socialism, and totalitarianism, Human Action is that book. It should become the leading text of everyone who believes in freedom, in individualism, and in the ability of a free-market economy not only to outdistance any government-planned system in the production of goods and services for the masses, but to promote and safeguard, as no collectivist tyranny can ever do, those intellectual, cultural, and moral values upon which all civilization ultimately rests."
Discovery of Freedom author Rose Wilder Lane declared: "I think that Human Action is unquestionably the most powerful product of the human mind in our time, and I believe it will change human life for the better during the coming centuries as profoundly as Marxism has changed all our lives for the worse in this century." Murray N. Rothbard called it "the economic Bible for the civilized man."
In Human Action, Mises wrote that "The consumers patronize those shops in which they can buy what they want at the cheapest price. Their buying and their abstention from buying decides who should own and run the plants and the farms. They make poor people rich and rich people poor. They determine precisely what should be produced, in what quality, and in what quantities. They are merciless bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction...
"The consumers, not the entrepreneurs, pay ultimately the wages earned by every worker, the glamorous movie star as well as the charwoman. With every penny spent the consumers determine the direction of all production processes and the details of the organization of all business activities. This state of affairs has been described by calling the market a democracy in which every penny gives a right to cast a ballot...In the political democracy only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence policies. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes. The publishers cater not only to the majority by publishing detective stories, but also to the minority reading lyrical poetry and philosophical tracts. The bakeries bake bread not only for healthy people, but also for the sick on special diets. The decision of a consumer is carried into effect with the full momentum he gives it through his readiness to spend a definite amount of money.
"It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of consumers. A wealthy man can preserve his wealth only by continuing to serve the consumers in the most efficient way...
"The position which entrepreneurs and capitalists occupy in the market economy is of a different character. A 'chocolate king' has no power over the consumers, his patrons. He provides them with chocolate of the best possible quality and at the cheapest price. He does not rule the consumers, he serves them. The consumers are not tied to him. They are free to stop patronizing his shops. He loses his 'kingdom' if the consumers prefer to spend their pennies elsewhere. Nor does he 'rule' his workers. He hires their services by paying them precisely that amount which the consumers are ready to restore to him in buying the product."
Human Action sold better than Omnipotent Government and Bureaucracy, and it was offered as an alternate selection of Book-of-the-Month Club. Human Action was eventually translated into French, Italian, Japanese and Spanish.
Yale went on to publish a new edition of Socialism (1951), then a new edition of The Theory of Money and Credit (1953) and Theory and History, An Interpretation of Social and Economic Evolution (1957).
Management changed at Yale University Press, and in 1963 it brought out a second edition of Human Action. Although Press officials acknowledged that they lost money on 90% of what they published, and Human Acton was profitable enough to go through six printings, the second edition was among the most incompetent publishing jobs in anyone's memory. As Henry Hazlitt explained, "On page 322 four lines are omitted. Page 468 is missing altogether. Page 469 is reprinted twice. On page 563 two paragraphs are transposed. On page 615 eight lines are wrong. The running heads that appeared at the top of each page of the 1949 edition are all gone...On page after page one finds some paragraphs printed in a comparatively light type, and others in a blacker, thicker type that can only be described as at least quasi-boldface. The reader will inevitably assume that this marked contrast is intentional, and that the author meant to give special emphasis to the passages printed in Accidental Bold...I started to note merely the pages on which the contrast in type between various paragraphs was particularly glaring, and got a list of seventy...I have said nothing about the uncountable instances in which whole pages of quasi-boldface are found opposite whole pages of lighter type."
Sun Oil President J. Howard Pew reportedly subsidized the Harvard-educated, Chicago-based publisher Henry Regnery, the leading source of conservative books, to issue a new edition of Human Action. He brought out a handsome third edition in 1966. Mises "only recovered his composure," Margit von Mises recalled, "after he signed a new contract with Regnery...And when I noticed that Lu's sleep was sound and regular as in former years, I knew he had regained his philosophical inner balance."
In 1956, Mises wrote The Anti-Capitalistic Mentality, a little book to defend economic liberty from the slurs of intellectuals. "Changes in human conditions are brought about by the pioneering of the most clever and most energetic men," he observed. "They take the lead and the rest of mankind follows them little by little. The innovation is at first a luxury of only a few people, until by degrees it comes into the reach of the many. It is not a sensible objection to the use of shoes or forks that they spread only slowly and that even today millions do without them. The dainty ladies and gentlemen who first began to use soap were the harbingers of the big-scale production of soap for the common man."
"The critics shed tears on the alleged decay of the industrial arts," Mises explained. "They contrast, e.g., old furniture as preserved in the castles of European aristocratic families and in the collections of the museums with the cheap things turned out by big-scale production. They fail to see that these collectors' items were made exclusively for the well-to-do. The carved chests and the intarsia tables could not be found in the miserable huts of the poorer strata. Those caviling about the inexpensive furniture of the American wage earner should cross the Rio Grande del Norte and inspect the abodes of the Mexican peons which are devoid of any furniture. When modern industry began to provide the masses with the parephrenalia of a better life, their main concern was to produce as cheaply as possible without any regard to aesthetic values. Later, when the progress of capitalism had raised the masses' standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty.'
The Anti-Capitalistic Mentality showed that at 75, Mises continued to stir passions. In the New York Times Book Review, socialist Robert L. Heilbroner attacked Mises' alleged lack of objectivity. Harper's dismissed him as a conspiracy theorist. The Economist fumed about Mises' "dogmatism" and "vituperative style." But Henry Hazlitt strongly recommended the book in his Newsweek column. Murray N. Rothbard, writing for National Review, called the book a "profoundly stimulating work." In the New York World Telegram and Sun, Lawrence Fertig called Mises "a passionate advocate of freedom and human progress."
Meanwhile, Mises did what could to influence people through lectures. Around 1944, the National Association of Manufacturers sent Mises to California where he delivered some lectures. He was invited to a barbecue at the home of tall, trim Leonard E. Read, General Manager of the Los Angeles Chamber of Commerce. Two years later, Read established the Foundation for Economic Education (FEE), a think tank for liberty, and Henry Hazlitt persuaded him to retain Mises as an advisor, author and lecturer. "So without telling Mises why," Read explained, "I invited him to visit FEE -- this was in the summer of 1946. I asked him to join the staff, at $6,000 a year, with the understanding that he was to continue his own work."
The Great Depression and World War II led to widespread speculation that capitalism was dead. Joseph A. Schumpeter had expressed this conclusion in his 1942 book, Capitalism, Socialism and Democracy. Karl Polyani's The Great Transformation (1944) insisted that capitalism had collapsed because of its evil consequences. Indeed, World War II was followed by nationalizations in England, France, Italy and other Western countries. The Soviet Union was admired for having withstood Hitler's terrible onslaught, and dozens of countries adopted Stalinist five-year plans. More than ever, socialism looked like the wave of the future.
Mises was among the three dozen scholars and journalists invited by F.A. Hayek to form the Mont Pelerin Society. The first meeting took place in Switzerland, April 1, 1947. The group subsequently gathered about every two years in various parts of the world. Mises was an active participant for more than a decade.
Mises had been asked in 1945 to serve as a Visiting Professor and give a Monday evening lecture course at the New York University Graduate School of Business Administration, 100 Trinity Place. During the fall semester, he would talk about "Socialism and the profit system," and in the spring "Government control and the profit system." He would be paid $1,000 per semester. In 1948, Mises began a seminar on government controls, Thursday evenings from 7:25 PM till 9:25 PM.
By 1948, New York University affirmed that it still wouldn’t pay Mises a salary for his seminars. Fortunately, Harold Luhnow, who headed the William Volker Fund, arranged to pay Mises $8,500 a year. By 1964, the Volker Fund had dissolved, and a committee consisting of advertising man and newspaper columnist Lawrence Fertig, Foundation for Economic Education President Leonard E. Read, and Henry Hazlitt raised money for Mises' salary. Initially, they provided $11,700 a year.
The Monday evening course continued until 1964. The Thursday evening course, until 1969. Between 1960 and 1964, the Thursday seminar was held at Room 32, Gallatin House, 6 Washington Square North, a building with two white lions at the entrance. The course continued until 1969. After each session, Mises and many of the students gathered at a nearby Childs' restaurant for refreshments and further discussion.
Mises made many observations during his lectures. For example: "You say the secret is selling something above cost. But the situation is really very different. The problem is to produce something for which consumers are willing to pay above cost...Prices are like the snows of last winter. They come, but at the moment we catch them, they are already something of the past...Education can only hand down what was present in the old generation. The innovator cannot be educated. There is no school for the inventor...Saints don't usually serve in the offices of foreign exchange controls."
Among those who attended year after year: Murray N. Rothbard, author of Man, Economy and State (1962), For a New Liberty (1973), Economic Thought Before Adam Smith (1995) and other books; Israel Kirzner, author of The Economic Point of View (1960), Competition and Entrepreneurship (1973) and other books; Bettina Bien Greaves, author of Free Market Economics: A Syllabus (1975) and Mises: An Annotated Bibliography (1993, 1995); Percy L. Greaves Jr., author of Understanding the Dollar Crisis (1973); Ralph Raico, who translated Mises’ Liberalismus into English (1962); and George Reisman, author of Capitalism (1996).
Mises remained little-known to the American public, in part, because his major works were slow to be translated. The Theory of Money and Credit (1912) didn't appear until 1934. Nation, State and Economy (1919), in 1983. Socialism (1922), 1936. Liberalism (1927), in 1962. A Critique of Interventionism (1929), in 1977. Human Action (1940), in 1949.
But Mises was revered among friends of liberty. On March 7, 1956, there was a dinner for him at Manhattan's University Club, marking the 50th anniversary of his doctorate. Mary Sennholz presented him with copy of the book, On Freedom and Free Enterprise, which included essays by F.A Hayek, Henry Hazlitt, Murray Rothbard, Fritz Machlup, William E. Rappard, French thinkers Jacques Rueff, Faustino Ballve and Bertrand de Jouvenal, and economist Wilhelm Ropke who had influenced the postwar German "economic miracle." Hayek, the featured speaker, avowed: "There has not been, and I do not expect that there ever will be, in my life, another occasion when I have felt so honoured and pleased to be allowed to stand up and to express on behalf of all those here assembled, and of hundreds of others, the profound admiration and gratitude we feel for a great scholar and a great man."
Ayn Rand biographer Barbara Branden reported that "beginning in the late fifties and continuing for more than ten years, Ayn began a concerted campaign to have his [Mises'] work read and appreciated: she published reviews, she cited him in articles and in public speeches, she attended some of his seminars at New York University, she recommended him to admirers of her philosophy."
Ludwig and Margit von Mises enjoyed their last years among friends such as George Koether, Henry and Frances Hazlitt, Lawrence and Berthe Fertig, Bettina and Percy Greaves as well as younger associates like Israel Kirzner and George Reisman. The Mises went to the opera. They spent each summer in New Hampshire's White Mountains.
After Mises' 90th birthday, he suffered from painful bowel obstructions. On September 7, 1973, he went to St. Vincent's Hospital at 11th Street and 7th Avenue. He died there on October 10th around 8:30 in the morning. He was 92. The funeral service three days later was attended by 29 friends at Ferncliff Cemetery, Hartsdale, New York, outside of New York City. There was a memorial service at Universal Chapel, 1976 Madison Avenue, New York, on October 16th.
Hayek hailed Mises for being "extraordinarily fertile." Hayek noted "the rare lucidity of his exposition, his astounding historical erudition, and his deep pessimism about the future of our civilization -- a pessimism which led him often to predictions that did not come true as soon as he had expected but that were usually confirmed in the end. I believe the world would be a better place if Ludwig von Mises had more often been listened to."
Mises was dramatically vindicated by the collapse of the Soviet socialist empire. "In the nineteen-thirties, when I was studying economics," socialist Robert Heilbroner confessed in the glossy pages of The New Yorker, "a few economists had already expressed doubts about the feasibility of centrally planned socialism. One of them was Ludwig von Mises...who had written of the 'impossibility' of socialism, arguing that no Central Planning Board could ever gather the enormous amount of information needed to create a workable economic system...It turns out, of course, that Mises was right."
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