Ludwig Heinrich von Mises was born in Lemberg (capital of Galicia, then a province of the Habsburg empire, today Lviv, Ukraine) on 29 September 1881 and died in New York 18 October 1973.
His father was a Jewish-Austrian railroad engineer. The family moved to Vienna soon after Ludwig’s birth, where he attended an elite grammar school and the University of Vienna (1900-1906).
Like most other Austrian economists, he enrolled in the Faculty of Law, earning his doctoral degree in 1906 and becoming a member of Eugen von Bohm-Bawerk’s famous seminar. Mises’s professional achievements in academia remained modest in comparison to his scholarly accomplishments. After his habilitation in 1913, he taught as Privatdozent and later as “extraordinary” professor without a salary. Until he left Austria in 1934, he spent most of his professional life as an economist for the Viennese chamber of commerce. In the 1920s and early 1930s, he became influential as an adviser to the centre-right coalition governments of the First Austrian Republic. In the 1920s, he inaugurated a private seminar, attracting brilliant young economists and social theorists such as Gottfried Haberler, Friedrich August von Hayek, Felix Kaufmann, Fritz Machlup, Oskar Morgenstern, Paul Rosenstein-Rodan and Alfred Schutz. As a consequence of the surge of the Nazi movement in Germany and the concomitant menace regarding the political situation in Austria, Mises moved to the Institut Universitaire des Hautes Etudes Internationales in Geneva in 1934, where he was offered a paid professorship.After the defeat of the French army in 1940, Switzerland was no longer a comfortable safe haven for a Jewish emigrant. The border of the German Occupied Zone was alarmingly close to Geneva. Mises, aged 59, emigrated to the US. Mises’s reception by the academic establishment in the US was not entirely reassuring. His eccentric position vis-a-vis the mainstream of economics and the fact that he was approaching retirement age made it difficult to find an academic position, which would match his credits as a theorist.
From 1945 to 1969, he taught at New York University as an externally funded professor. Even though he never achieved a regular professorship, Mises again attracted disciples and again held a private seminar. Compared with the Mises Seminar in Vienna with its remarkably heterogeneous membership composed of original and independent thinkers, many of which were to become eminent scholars, the seminar groups in New York can be considered as the nucleus of a more narrowly defined Mises School characterized by a libertarian-conservative agenda. Mises’s US disciples, such as Murray Rothbard, were staunch adherents of a free-market stance. Yet while Mises himself believed that a minimal state is defensible on the grounds of its role in enforcing private property rights and contractual obligations, some of his US followers endorsed “antistatist” anarcho-capitalistic views. In terms of academic reputation, his most important American student is Israel Kirzner, who developed an arguably Misesian theory of entrepreneurship.While other Austrian economists teaching in the US, such as Schumpeter, Machlup, Morgenstern and Haberler did not put great emphasis on promoting a distinct Austrian School, Mises and his thought becomes the focal point of the emergence of contemporary currents now known as the Austrian School (see Vaughn 1994: 62-99). The development of those currents gained momentum in the 1960s and 1970s.
Mises’s early reputation as an economist was built on his work on money and credit (Theorie des Geldes und der Umlaufsmittel, 1912). He attempts to explain monetary phenomena on the basis of Austrian marginal utility theory. Topics include:
1. The spontaneous, market-based origin of commodity money. Regarding the origin of money, Mises elaborates on Carl Menger’s pertinent line argument: the so called regression theorem implies a rejection of theories explaining money as a collective institution built on contract or convention.
2. The foundational role of precious metals as reserves in the monetary and financial system.
Mises advocates the gold standard, or, more precisely, the privatization of money, which, he is convinced, would lead to the gold standard.3. Problems of non-neutral money, expansionary credit and inflationary banking. In the 1920s he pursues this line of investigation in his monetary theory of the business cycle (cf. 1949 [1963]: ch. 20).
While some of the tenets developed in Mises (1912) had considerable impact on later discussions (for example, on Hayek’s business cycle theory), Mises’s most influential contributions are related to the so-called German language “calculation debate”, including economics of socialism and state interventionism. Mises (1920, 1922) famously stated the impossibility of rational economic calculation in a socialist commonwealth without private property. As he puts it, socialist planners would be “groping in the dark”. He predicts a sharp decline in productivity after a transition period following the socialist revolution. During this transition period, economic planning would still benefit from the allocation mechanism prevalent in the market economy. However, the information once made available by the system of market prices would fade away or become obsolete. The era of darkness, low productivity and mass starvation would begin. This is stated with apodictic certainty. In Mises’s Human Action (1949 [1963]: 680) we read: “The choice is between capitalism and chaos........................................ To stress this point is the task of economics as it is the
task of biology and chemistry to teach that potassium cyanide is not a nutriment but a deadly poison.”
Mises’s arguments in the German language debate on economic calculation were to a large extent directed against Otto von Neurath’s concept of planning in-kind (that is, planning without prices and money), which had been inspired by experiences of the war economy. Hence money is an issue for Mises also in his contributions on economic planning. In the 1920s, it became clear that not many socialists did advocate this type of comprehensive planning in-kind.
They, rather, endorsed a price-guided planning process or some kind of a mixed economy. Both of those hybrid types of economic system would entail important interventions by the state at one or the other level. Consequently, Mises (1929) concentrates his efforts on the rejection of interventionism. He argues that it would not be possible to limit interventions to some particular kind of problems or to some specific level of decisions, as it may appear desirable in the view of some moderate reformists who wish to cure the ills of capitalism without abolishing markets. This idea is fundamentally flawed, Mises argues. One single well-meant intervention rather would trigger a whole epidemic of interventions, eventually leading to the total destruction of the price system and to a centrally planned economy. Hence one better steer clear of the slippery slope unavoidably following any intervention.In the 1930s, Mises wrote his foundational magnum opus Nationalokonomie: Theorie des Handelns und des Wirtschaftens (Mises 1940 [1980]). In a modified version, this is published in English as Human Action: A Treatise on Economics (Mises 1949 [1963]). In Human Action, the traditional Austrian tenets of methodological individualism, subjectivism and causal-genetic explanation are supplemented by an aprior- istic epistemology. Mises’s so-called praxeology is represented as the encompassing science of human action, comprising catallactics (the theory of market exchange) and economics (price theory). Mises emphasizes the non-psychological character of the basic ingredients of economics. While positing instrumental rationality as the aprioristic pivot of the human condition, Mises at the same time rejects the axiomatic choice-theoretic foundations of microeconomics, which can be considered as the basis for economics as a mathematical, quantitative science. On the basis of his praxeology, Mises attempts to establish a kind of free market-doctrine in which the stability of private property rights is of pivotal importance.
If private property rights are guaranteed, lack of competition is not a major problem. In the context of an adequate market process theory of the economy (instead of mistaken Walrasian equilibrium analysis), monopolies are temporary phenomena. Notice, though, that Mises employs equilibrium constructs (the state of rest and the evenly rotating economy) to establish static reference scenarios, against which process-related aspects such as entrepreneurship can be better understood. This invites a comparison with Schumpeter.Coordination failures brought about by malfunctioning of markets are not really a theme for Mises. In his view, major disturbances occurring in contemporary economies are always either owing to misplaced government intervention or the failure of government to close gaps in the existing system of private property rights. The main thrust of this view is to be found already in Mises’s writings of the interwar period. In Mises’s later writings, the political element becomes ever more prominent. While some of his books (for example, on bureaucracy or on economic evolution; Mises 1944b, 1957) broaden the topical scope of Mises’s economics, writings such as The Anti-Capitalistic Mentality (Mises 1956) are worth noting because of their fervent polemic against left-leaning intellectuals rather than for their contribution to economic analysis or to social theory. The fact that some intellectuals endorse socialism, even though they should know better, and even though they have every reason to be grateful to capitalism (no other system created sufficient wealth to feed so many of them), apparently becomes a major problem for Mises. In similar mood, he develops a kind of contempt for the masses who are ignorant of the enormous advantages that the capitalist system confers upon them, as they benefit from the wealth created by the highly productive capitalist elite. An extreme version of this view is promoted in the novel Atlas Shrugged by Ayn Rand, which is avowedly endorsed by Mises (see Mises 1958). Rand recommends Mises’s economics to her libertarian followers, even though she endorses an objectivist philosophy while Mises’s economics is renowned for its uncompromising subjectivism.
Richard Sturn
See also:
Eugen von Bohm-Bawerk (I); German and Austrian schools (II); Friedrich August von Hayek (I); Non-Marxist socialist ideas in Germany and Austria (II); Friedrich von Wieser (I).