Ludwig von Mises: Scholar, Creator, Hero

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The purpose
of this essay is to discuss and celebrate the life and work of
one of the great creative minds of our century. Ludwig von Mises
was born on September 29, 1881, in the city of Lemberg (now Lvov),
in Galicia, in the Austro-Hungarian Empire. His father, Arthur
Edler von Mises, a Viennese construction engineer working for
the Austrian railroads, was stationed in Lemberg at the time.
Ludwig’s mother, Adele Landau, also came from a prominent family
in Vienna: her uncle, Dr. Joachim Landau, was a deputy from the
Liberal Party in the Austrian Parliament.

Young Scholar

Though the
pre-eminent theorist of our time, Mises’s interest, as a teenager,
centered in history, particularly economic and administrative history.
But even while still in high school, he reacted against the relativism
and historicism rampant in the German-speaking countries, dominated
by the Historical School. In his early historical work, he was frustrated
to find historical studies virtually consisting of paraphrases from
official government reports. Instead, he yearned to write genuine
economic history. He early disliked the State orientation of historical
studies. Thus, in
his memoirs
, Mises writes:

It was
my intense interest in historical knowledge that enabled me
to perceive readily the inadequacy of German historicism. It
did not deal with scientific problems, but with the glorification
and justification of Prussian policies and Prussian authoritarian
government. The German universities were state institutions
and the instructors were civil servants. The professors were
aware of this civil-service status, that is, they saw themselves
as servants of the Prussian king.[1]

Ludwig von
Mises entered the University of Vienna at the turn of the twentieth
century and his major professor was the economic historian Karl
Grünberg, a member of the German Historical School and a
statist who was interested in labor history, agricultural history,
and Marxism. Grünberg was a follower of the German economic
historian Georg Friedrich Knapp, the author of the major work
claiming that money was in its origin and its essence a pure creature
of the State. At his center for economic history at the University
of Strasbourg, Knapp was having his students work on the liberation
of the peasantry from serfdom in the various German provinces.
Hoping to create a similar center at Vienna, Professor Grünberg
set his students to do research on the elimination of serfdom
in the various parts of Austria. Young Ludwig Mises was assigned
the task of studying the disappearance of serfdom in his native
Galicia. Mises later lamented that his book on this subject, published
in 1902, was, because of the Knapp-Grünberg methodology “more
a history of government measures than economic history.”[2]
The same problems beset his second historical work published three
years later, a study of early child labor laws in Austria, which
proved to be “not much better.”[3]

Despite his
chafing at the statism and Prussianism of the Historical School,
Mises had not yet discovered economic theory, the Austrian School,
and the economic liberalism of the free market. In his early years
at the university, he was a left-liberal and interventionist, although
he quickly rejected Marxism. He joined the university-affiliated
Association for Education in the Social Sciences, and plunged into
applied economic reform. In his third year at the university Mises
did research on housing conditions under Professor Eugen von Philippovich,
and the following semester, for a seminar on Criminal Law, did research
on changes in the law on domestic servants. From his detailed studies,
Mises began to realize that reform laws only succeeded in being
counterproductive, and that all improvements in the condition of
the workers had come about through the operations of capitalism.

Around Christmas
1903 Mises discovered the Austrian school of economics by reading
Carl Menger’s great Principles
of Economics
, and thus began to see that there was a world
of positive economic theory and free-market liberalism that complemented
his empirical discoveries on the weaknesses of interventionist reform.

On the publication
of his two books in economic history and on the receipt of his
doctorate in 1906, Mises ran into a problem that would plague
him the rest of his life: the refusal of academia to grant him
a full-time, paid position. It boggles the mind what this extraordinarily
productive and creative man was able to accomplish in economic
theory and philosophy when down to his mid-50s, his full-time
energies were devoted to applied political-economic work. Until
middle-age, in short, he could only pursue economic theory and
write his extraordinary and influential books and articles, as
an overtime leisure activity. What could he have done, and what
would the world have gained, if he had enjoyed the leisure that
most academics fritter away? As it is, Mises writes that his plans
for extensive research in economic and social history were thwarted
for lack of available time. He states wistfully that “I never
found opportunity to do this work. After completing my university
education, I never again had the time for work in archives and

Mises’s doctorate
was in the Faculty of Laws at the University and so for several
years after 1906 he clerked at a series of civil, commercial, and
criminal courts, and became an associate at a law firm. In addition,
preparing himself for a teaching career, Mises began to teach economics,
constitutional law, and administration to the senior class of the
Vienna Commercial Academy for Women, a position which he held until
the completion of his first great book in 1912.[5]
For the most part, however, he plunged into applied economic work.
One job, beginning in 1909, was as an economist at the Central Association
for Housing Reform. Mises became the Association’s expert on real
estate taxation, discovering that the abysmal housing conditions
in Austria were brought about by high tax rates on corporations
and capital gains. Mises advocated lowering these taxes, particularly
the high taxes on real estate, which, he pointed out, would not
so much reduce rents as it would raise the market value of real
estate and thereby stimulate housing investment. Mises was successful
in pushing through a substantial reduction in housing taxes. He
continued at this post until 1914, when the war brought housing
construction to an end.

Mises’s major
post, from 1909 until he left Austria twenty-five years later,
was a full-time job as economist at the Vienna Chamber of Commerce.[6]
In Austria the Chambers of Commerce were akin to “economic parliaments,”
created by the government, with delegates elected by businessmen
and financed by taxation. The Chambers were formed to give economic
advice to the government, and the center of power was its General
Assembly, consisting of delegates from the various local and provincial
Chambers, and with the committees of that Assembly. The experts
advising the Chambers and the General Assembly were gathered in
the offices of the secretaries to the various Chambers. By the
turn of the twentieth century, economists working in the secretary’s
office of the Vienna Chamber (the preeminent of the various Chambers)
had become important economic advisers to the government. By the
end of World War I, Mises, operating from his quasi-independent
position at the Chamber, became the principal economic adviser
to the government, and, as we shall see below, won a number of
battles on behalf of free markets and sound money.

Theory of Money and Credit

In 1903, the
influential monetary economist Karl Helfferich, in his work on Money,
laid down a challenge to the Austrian School. He pointed out correctly
that the great Austrians, Menger, Böhm-Bawerk, and their followers,
despite their prowess in analyzing the market and the value of goods
and services (what we would now call “micro-economics”), had not
managed to solve the problem of money. Marginal utility theory had
not been extended to the value of money, which had continued, as
under the English classical economists, to be kept in a “macro”
box strictly separate from utility, value, and relative prices.
Even the best monetary analysis, as in Ricardo, the Currency School,
and Irving Fisher in the United States, had been developed in terms
of “price levels,” “velocities,” and other aggregates completely
ungrounded in any micro analysis of the actions of individuals.

In particular,
the extension of Austrian analysis to money faced a seemingly
insuperable obstacle, the “problem of the Austrian circle.” The
problem was this: for directly consumable goods the utility and
therefore the demand for a product can be arrived at clearly.
The consumer sees the product, evaluates it, and ranks it on his
value scale. These utilities to consumers interact to form a market
demand. Market supply is determined by the expected demand, and
the two interact to determine market price. But a particular problem
is posed by the utility of, and the demand for, money. For money
is demanded on the market, and held in one’s cash balance, not
for its own sake but solely for present or future purchases
of other goods. The distinctive nature of money is that it is
not consumed, but only used as a medium of exchange to facilitate
exchanges on the market. Money, therefore, is only demanded on
the market because it has a pre-existing purchasing-power, or
value or price on the market. For all consumer goods and services,
therefore, value and demand logically precede and determine
price. But the value of money, while determined by demand, also
precedes it; in fact, a demand for money presupposes that money
already has a value and price. A causal explanation of the value
of money seems to founder in unavoidable circular reasoning.

In 1906, his
doctorate out of the way, Mises determined to take up the Helfferich
challenge, apply marginal utility theory to money, and solve the
problem of the Austrian circle. He devoted a great deal of effort
to both empirical and theoretical studies of monetary problems.
The first fruits of this study were three scholarly articles, two
in German journals and one in the English Economic Journal
in 1908–09, on foreign exchange controls and the gold standard
in Austria-Hungary. In the course of writing these articles, Mises
became convinced that, contrary to prevailing opinion, monetary
inflation was the cause of balance of payments deficits instead
of the other way round, and that bank credit should not be “elastic”
to fulfill the alleged needs of trade.

Mises’s article
on the gold standard proved highly controversial. He called for
a de jure return in Austria-Hungary to gold redemption
as a logical conclusion of the existing de facto policy
of redeemability. In addition to running up against advocates
of inflation, lower interest rates, and lower exchange rates,
Mises was surprised to face ferocious opposition by the central
bank, the Austro-Hungarian Bank. In fact, the Bank’s Vice-President
hinted at a bribe to soften Mises’s position. A few years later,
Mises was informed by Böhm-Bawerk, then Minister of Finance,
of the reason for the vehemence of the Bank’s opposition to his
proposal for a legal gold standard. Legal redemption in gold would
probably deprive the Bank of the right to invest funds in foreign
currencies. But the Bank had long used proceeds from these investments
to amass a secret and illegal slush fund, from which to pay subventions
to its own officials, as well as to influential journalists and
politicians. The Bank was keen on retaining the slush fund, and
so it was fitting that Mises’s most militant opponent was the
publisher of an economic periodical who was himself a recipient
of Bank subsidies.

Mises came
to a decision, which he pursued for the rest of his career in Austria,
not to reveal such corruption on the part of his enemies, and to
confine himself to rebutting fallacious doctrine without revealing
their sources. But in taking this noble and self-abnegating position,
by acting as if his opponents were all worthy men and objective
scholars, it might be argued that Mises was legitimating them and
granting them far higher stature in the public debate than they
deserved. Perhaps, if the public had been informed of the corruption
that almost always accompanies government intervention, the activities
of the statists and inflationists might have been desanctified,
and Mises’s heroic and lifelong struggle against statism might have
been more successful. In short, perhaps a one-two punch was needed:
refuting the economic fallacies of Mises’s statist enemies, and
also showing the public their self-interested stake in government

His preliminary
research out of the way, Mises embarked, in 1909, on his first monumental
work, published in 1912 as Theorie
des Geldes and der Umlaufsmittel
Theory of Money and Credit
). It was a remarkable achievement,
because for the first time, the micro/macro split that had begun
in English classical economics with Ricardo was now healed. At long
last, economics was whole, an integral science based on a logical,
step-by-step analysis of individual human action. Money was fully
integrated into an analysis of individual action and of the market

By basing
his analysis on individual action, Mises was able to show the
deep fallacies of the orthodox mechanistic Anglo-American quantity
theory and of Irving Fisher’s “equation of exchange.” An increase
in the quantity of money does not mechanically yield a proportional
increase in a non-existent “price level,” without affecting relative
utilities or prices. Instead, an increase lowers the purchasing
power of the money unit, but does so by inevitably changing
relative incomes and prices. Micro and macro are inextricably
commingled. Hence, by focusing on individual action, on choice
and demand for money, Mises not only was able to integrate the
theory of money with the Austrian theory of value and price; he
transformed monetary theory from an unrealistic and distorted
concentration on mechanistic relations between aggregates, to
one consistent with the theory of individual choice.[8]

Mises revived the critical monetary insight of Ricardo and the
British Currency School of the first half of the nineteenth century:
that while money is a commodity subject to the supply-and-demand
determination of value of any other commodity, it differs in one
crucial aspect. Other things being equal, an increase in the supply
of consumer goods confers a social benefit by raising living standards.
But money, in contrast, has only one function: to exchange, now
or at some time in the future, for capital or consumer goods.
Money is not eaten or used as are consumer goods, nor used up
in production as are capital goods. An increase in the quantity
of money only serves to dilute the exchange effectiveness of each
franc or dollar; it confers no social benefit whatever. In fact,
the reason why the government and its controlled banking system
tend to keep inflating the money supply, is precisely because
the increase is not granted to everyone equally. Instead, the
nodal point of initial increase is the government itself and its
central bank; other early receivers of the new money are favored
new borrowers from the banks, contractors to the government, and
government bureaucrats themselves. These early receivers of the
new money, Mises pointed out, benefit at the expense of those
down the line of the chain, or ripple effect, who get the new
money last, or of people on fixed incomes who never receive the
new influx of money. In a profound sense, then, monetary inflation
is a hidden form of taxation or redistribution of wealth, to
the government and its favored groups and from the rest
of the population. Mises’s conclusion, then, is that, once there
is enough of a supply of a commodity to be established on the
market as money, there is no need ever to increase the
supply of money. This means that any supply of money whatever
is “optimal”; and every change in the supply of money stimulated
by government can only be pernicious.[9]

In the course
of refuting the Fisherine notion of money as some sort of “measure
of value,” Mises made an important contribution to utility theory
in general, a contribution that corrected an important flaw in the
Austrian utility analysis of Menger and Böhm-Bawerk. Although
the older Austrians did not stress this flaw as much as Jevons or
Walras, there were indications that they believed utility to be
measurable, and that there is sense in talking of a “total utility”
of the supply of a good that would be an integral of its “marginal

Mises built
on an important insight of the Czech economic Franz Cuhel, a student
at Böhm-Bawerk’s graduate seminar, that since marginal utility
was strictly subjective to each individual, it was purely an ordinal
ranking, and could in no sense be added, subtracted, or measured,
and a fortiori could not be compared between persons.
Mises developed this theme to demonstrate that therefore the very
concept of “total utility” makes no sense at all, particularly
as an integral of marginal utilities. Instead, the utility of
a larger batch of a good is simply another marginal utility of
a larger unit. Thus, if we take the utility to the consumer of
a carton of a dozen eggs, it is impermissible to make this utility
some sort of a “total utility,” in some mathematical relation
to the “marginal utility of one egg.” Instead, we are merely dealing
with marginal utilities of different-sized units. In
one case a dozen-egg package, in the other case of one egg. The
only thing we can say about the two marginal utilities is that
the marginal utility of a dozen eggs is worth more than one egg.
Period. Mises’s correction of his mentors was consistent with
the fundamental Austrian methodology of focusing always on the
real actions of individuals, and allowing no drift into relying
on mechanistic aggregates.[10]

If the Cuhel-Mises
insight had been absorbed into the mainstream of utility theory,
economics would have been spared, on the one hand, the tossing out
of marginal utility altogether in the late 1930s as hopelessly cardinal,
in favor of indifference curves and marginal rates of substitution;
and, on the other, the current absurd micro-textbook discussions
of “utils,” nonexistent entities subject to measurement and mathematical

What of the
famous problem of the Austrian circle? Mises solved that in one
of his most important, and yet most neglected, contributions to
economics: the Regression Theorem. Mises built on Menger’s logical-historical
account of the origin of money out of barter, and demonstrated
logically that money can only originate in that way.
In doing so, he solved the problem of the circular explanation
of the utility of money. Specifically, the problem of the circle
is that, at any given time, say DayN, the
value (purchasing-power) of money on that Day is determined by
two entities: the Supply of MoneyN and the
Demand for MoneyN – which itself depends
on a pre-existing Purchasing Power on DayN-1.
Mises broke out of this circle precisely by understanding and
grasping the time dimension of the problem. For the circle
on any given day is broken by the fact that the Demand for Money
on that day is dependent on a previous day’s purchasing
power, and hence on a previous day’s demand for money. But haven’t
we broken out of the circle only to land ourselves in an infinite
regress backwards in time, with each day’s purchasing power resting
on today’s demand for money, in turn dependent on the previous
day’s purchasing power, in turn determined by the previous day’s
demand, etc.? It is no help to escape circular reasoning only
to land in a regress of causes that can never be closed.

But the brilliance
of Mises’s solution is that the logical regress backward in time
is not infinite: it closes precisely at the point in
time when money is a useful non-monetary commodity in a system
of barter. In short, say that Day1 is the
first moment that a commodity is used as a medium of indirect
exchange (to simplify: as a “money”), while the previous Day0
is the last day that commodity, say gold, was used only as a direct
good in a system of barter. In that case, the causal chain of
any day’s value of money, say DayN, goes back
logically in time, to Day1, and then goes
back to Day0. In short, the demand for gold
on Day1 depends on the purchasing power of
gold on Day0. But then the regress backward
stops, since the Demand for Gold on Day0 consists
only of its direct value in consumption, and hence does not include
a historical component, i.e., the existence of prices for gold
on the previous day, Day–1.

In addition
to closing the determinants of the value or purchasing power of
money and thereby solving the Austrian circle, Mises’s demonstration
showed that, unlike other goods, the determinants of the value
of money include an important historical dimension. The Regression
Theorem also shows that money, in any society, can only become
established by a market process emerging from barter. Money cannot
be established by a social contract, by government imposition,
or by artificial schemes proposed by economists. Money can only
emerge, “organically” so to speak, out of the market.[11]

of Mises’s Regression Theorem would spare us numerous impossible
schemes, some proffered by Austrians or quasi-Austrians, to create
new moneys or currency units out of thin air: such as F.A. Hayek’s
proposed “ducat,” or plans to separate units of account from media
of exchange.

In addition
to his feat in integrating the theory of money with general economics
and placing it on the micro-foundations of individual action,
Mises, in Money and Credit, transformed the existing
analysis of banking. Returning to the Ricardian-Currency School
tradition, he demonstrated that they were correct in wishing to
abolish inflationary fractional-reserve credit. Mises distinguished
two separate kinds of functions undertaken by banks: channeling
savings into productive credit (“commodity credit”), and acting
as a money-warehouse in holding cash for safekeeping. Both are
legitimate and non-inflationary functions; the trouble comes when
the money-warehouses issue and lend out phony warehouse receipts
(notes or demand deposits) to cash that does not exist in the
bank’s vaults (“fiduciary credit”). These “uncovered” demand liabilities
issued by the banks expand the money supply and generate the problems
of inflation. Mises therefore favored the Currency School approach
of 100% specie reserves to demand liabilities. He pointed out
that Peel’s Act of 1844, established in England on Currency School
principles, failed and discredited its authors by applying 100%
reserves only to bank notes, and not realizing that demand deposits
were also surrogates for cash and therefore functioned as part
of the money supply. Mises wrote his book at a time when much
of the economics profession was still not sure that demand deposits
constituted part of the money supply.

Not wishing
to trust government to enforce 100% reserves, however, Mises advocated
totally free banking as a means of approaching that ideal. Money
and Credit demonstrated that the major force coordinating and
promoting bank credit inflation was each nation’s central bank,
which centralized reserves, bailed out banks in trouble, and made
sure that all banks inflated together. Eight years before C.A. Phillips’s
famous demonstration, Money and Credit showed that an individual
bank enjoyed very little room to expand credit.

But this
is not all. For Mises began, on the foundations of his theory
of money and banking, to develop what was to become his famous
theory of the business cycle – the only such theory integrated
with general micro-economics and built on the foundations of the
analysis of individual action. These rudiments were further developed
in the second edition of Money and Credit in 1924.

In the first
place, Mises was brilliantly able to identify the process as essentially
the same: (a) one bank’s expanding credit, soon leading to a contraction
and demand for redemption; and (b) all banks in the nation, guided
by a central bank, expanding money and credit together and thereby
gaining more time for a Hume-Ricardo specie-flow price mechanism
to develop. Thus credit and the money supply expand, incomes and
prices rise, gold flows out of the country (i.e., a balance of
payments deficit), and a resulting collapse of credit and the
banks, force a contraction of money and prices, and a reverse
specie flow into the county. Not only did Mises see that these
two processes were basically the same; he was also the first to
see that here was a rudimentary model of a boom-bust cycle, created
and driven by monetary factors, specifically expansion and later
contraction of “created” bank credit.

During the
1920s, Mises formulated his business cycle theory out of three
pre-existing elements: the Currency School boom-bust model of
the business cycle; the Swedish “Austrian” Knut Wicksell’s differentiation
between the “natural” and the bank interest rates; and Böhm-Bawerkian
capital and interest theory. Mises’s remarkable integration of
these previously totally separate analyses showed that inflationary
or created bank credit, by pumping in more money into the economy
and by lowering interest rates on business loans below the free
market, time preference level, inevitably caused an excess of
malinvestments in capital goods industries remote from the consumer.
The longer the boom of inflationary bank credit continues, the
greater the scope of malinvestments in capital goods, and the
greater the need for liquidation of these unsound investments.
When the credit expansion stops, reverses, or even significantly
slows down, the malinvestments are revealed. Mises demonstrated
that the recession, far from being a strange, unexplainable aberration
to be combated, is really a necessary process by which the market
economy liquidates the unsound investments of the boom, and returns
to the right consumption/investment proportions to satisfy consumers
in the most efficient way.

Thus, in
contrast to interventionists and statists who believe that the
government must intervene to combat the recession process caused
by the inner workings of free-market capitalism, Mises demonstrated
precisely the opposite: that the government must keep its hands
off the recession, so that the recession process can quickly eliminate
the distortions imposed by the government-created inflationary

Despite these
dazzling contributions of The Theory of Money and Credit,
Mises felt frustrated. He had carved out a theory of money and
credit, and, for the first time, integrated it into general economic
theory. He saw, also, that the general theory itself needed revising,
and he originally intended to set forth a revised theory of direct
exchange and relative price, along with his new theory of money.
He also wished to present a thorough-going critique of the newly
fashionable mathematical method in economics. But he had to shelve
his grand plan for an integrated positive theory and a critique
of mathematical economics, because he rightly believed that a
world war would soon break out. As Mises wrote, in the midst of
the next tragic world war,

If I could
have worked quietly and taken my time, I would have begun with
a theory of direct exchange in the first volume; and then I could
proceed to the theory of indirect exchange. But I actually began
with indirect exchange, because I believed that I did not have
much time; I knew that we were on the eve of a great war and I
wanted to complete my book before the war’s outbreak.[12]

It was only
in the 1940s, with Nationalökonomie (1940) [PDF],
and its greatly expanded English edition, his masterwork, Human
(1949), that Ludwig von Mises was able to complete
his grand reconstruction and culmination of economic theory.

Reception of Mises and of Money and Credit

The Theory
of Money and Credit did not attain anything like the reception
it deserved. The Schmollerite Historical School–dominated
German economics profession gave the book, as to be expected,
very short shrift. Even the Austrians turned a deaf ear to Mises’s
brilliant innovations. By this time, Mises had been for years
a devoted member of Eugen von Böhm-Bawerk’s famous seminar
at the University of Vienna. After the publication of Money
and Credit, the Böhm-Bawerk seminar spent two full semesters
discussing Mises’s work. The consensus rejected Mises’s contributions
totally. Böhm-Bawerk admitted that Mises’s logic, and his
step-by-step process analysis, was correct. Böhm therefore
did not deny that a change in the money supply would not simply
increase all prices equi-proportionally. On the contrary, money
could never be “neutral” to the price system, and any change of
the supply of money is bound to alter relative prices and incomes.
Böhm conceded these points, but then betrayed the essence
of Austrian methodology by claiming that all this could be blithely
ignored as “friction.” As Mises put it,

to him [Böhm], the old doctrine was correct “in principle”
and maintains its full significance for an analysis aimed at
“purely economic action.” In real life there is resistance and
friction which cause the result to deviate from that arrived
at theoretically. I tried in vain to convince Böhm-Bawerk
of the inadmissability of the use of metaphors borrowed from

With Böhm-Bawerk
and his fellow Austrians uncomprehendingly rejecting Mises’s “praxeological”
as opposed to positivist approach (that is, his realization that
every step of deductive theory has to be true in order to avoid
injecting ineradicable error and falsehood into the theory), and
spurning his integrating of monetary into general theory, disdained
by Schmollerites and positivists alike, Ludwig von Mises set out
uncomplainingly on the lonely path of carving out a new “neo-Austrian”
school of economic thought.

Agree with
him or not, Ludwig von Mises was clearly a major innovative economist,
surely worthy of an academic post at the University of Vienna.
True, that as a result of Money and Credit, Mises was
appointed in 1913 to a post as professor at the University. But
it was only to the unpaid, if prestigious, post of privatdozent.
While Mises gave lectures and a highly successful weekly seminar
at the University for the next two decades, he never achieved
a paid university post, and therefore had to continue full-time
as economist for the Chamber of Commerce, and as the major economic
adviser to the country. He still did not have the leisure to pursue
unimpeded his brilliantly creative work in economic theory.

Mises’s career,
along with many others, was interrupted for the four years of World
War I. After three years at the front as an artillery officer, Mises
spent the last year of the war in the economics division of the
War Department, where he was able to write journal articles on foreign
trade, and in opposition to inflation, and to publish Nation,
Staat und Wirtschaft
State, and Economy
, 1919) on behalf of ethnic and cultural
freedom for all minorities.

The question
of academic posts was then faced fully after the end of the war.
The University of Vienna conferred three paid professorships in
economics: before the war, they were filled by Böhm-Bawerk,
his brother-in-law Friedrich von Wieser, and Eugen von Philippovich.
Böhm died tragically shortly after the outbreak of the war,
Philippovich retired before the war, and Wieser followed soon after
the war was over. The first vacancy went to Mises’s old teacher
Carl Grünberg, but Grünberg went off to a chair at Frankfort
in the early 1920s. This left three vacancies at Vienna, and it
was generally assumed that Mises would get one of them. Certainly
by any academic standards, he richly deserved it.

chair went to another historian, Count Ferdinand Degenfeld-Schönburg,
a “complete nonentity” (Fritz Machlup), whose only qualifications
for the position were his title of nobility and his “disfiguring
war injuries.”[14]
But what of the other two posts, both slated for theorists, succeeding
Wieser and Böhm-Bawerk? Despite his innovations not being
accepted by orthodox Austrians, Mises was clearly the outstanding
bearer of the great Austrian tradition. Known as an excellent
teacher, his seminal journal article in 1920 on the impossibility
of economic calculation under socialism was the most important
theoretical critique ever leveled at socialism. Not only that:
it was so recognized by socialists all over the Continent, who
labored – unsuccessfully – for nearly two decades to
try to refute Mises’s challenging criticism.

But Mises
was never chosen for a paid academic post; indeed he was passed
over four times. Instead, the two theoretical chairs went (a)
to Othmar Spann, a German-trained Austrian organicist sociologist,
barely cognizant of economics, who was to become one of Austria’s
most prominent fascist theoreticians, and (b) to Hans Mayer, Wieser’s
handpicked successor, who, despite his contributions to Austrian
utility theory, was scarcely in the same league as Mises. Mayer,
furthermore, strongly disapproved of Mises’s laissez-faire liberal
conclusions. The University of Vienna professoriate, before the
war the envy of Europe, began to take on the dimensions of a zoo,
as Spann and Mayer intrigued against each other, and against Mises,
who as a privatdozent, was low man on the academic totem
pole. Mayer would openly humiliate Spann to students, and systematically
slam the door in Spann’s face if they were both entering a room.
Spann, for his part, increasingly anti-Semitic in a developing
anti-Semitic milieu, denounced appointments of Jewish academics
in secret faculty meetings, and also castigated Mayer for backing
such appointments. Mayer, on the other hand, managed to adapt
easily to the Nazi assumption of power in Austria in 1938, leading
the faculty in ostentatious devotion to the Nazi cause. Mayer,
in fact, informed the Nazis that Spann was insufficiently pro-Nazi,
and Spann was arrested and tortured by the Nazis in consequence.[15]

In this fetid
atmosphere, it is no wonder that Mises reports that Spann and
Mayer discriminated against his students, who were forced to audit
Mises’s seminar without registering, and “also made it very difficult
for those doctoral candidates in the social sciences who wanted
to write their theses with me; and those who sought to qualify
for a university lectureship had to be careful not to be known
as my students.” Students who registered for Mises’s seminar without
registering for the seminar of one of his rivals, were not allowed
to use the economics department library; but Mises triumphantly
notes that his own library at the Chamber of Commerce was “incomparably
better” than that of the economics department, so this restriction,
at least, caused his students no hardship.[16]

After interviewing
Mises’s friends and former students, Earlene Craver indicates
that Mises was not appointed to a professorial chair because he
had three strikes against him: (1) he was an unreconstructed laissez-faire
liberal in a world of opinion that was rapidly being captured
by socialism of either the Marxian left or of the corporatist-fascist
right; (2) he was Jewish, in a country that was becoming increasingly
(3) he was personally intransigent and unwilling ever to compromise
his principles. Mises’s former students F.A. Hayek and Fritz Machlup
concluded that “Mises’s accomplishments were such that two of
these defects might have been overlooked – but never three.”[18]

But there is,
I believe, another important reason for this shameful treatment
that Craver does not mention and that Mises hints at in his memoir,
although perhaps without seeing the significance. Unlike their successful
enemies, such as Schmoller and Lujo Brentano, and even Wieser, neither
Menger nor Böhm-Bawerk saw the academic arena as a political
battlefield to be conquered. Hence, in contrast to their opponents,
they refused to promote their own disciples or followers, or to
block the appointment of their enemies. In fact, Böhm-Bawerk
leaned even further backward to urge the appointments of sworn enemies
of himself and of the Austrian School. This curious form of self-abnegation
helped to torpedo Mises’s or any similar academic appointment. Menger
and Böhm apparently insisted on the naïve view that truth
will always win out, unaided, not realizing that this is hardly
the way truth ever wins out in the academic or any other arena.
Truth must be promoted, organized, and fought for as against error.
Even if we can hold the faith that truth, unaided by strategy or
tactics, will win out in the long run, it is unfortunately an excruciatingly
long run in which all too many of us – certainly including
Mises – will be dead. Yet, Menger adopted the ruinous strategic
view that “there is only one sure method for the final victory of
a scientific idea, by letting every contrary proposition run a free
and full course.”[19]

While Mises’s
ideas and reputation, if not his academic post, as well as his writings,
enjoyed a growing influence in Austria and the rest of Europe in
the 1920s, his influence in the English-speaking world was greatly
limited by the fact that Money and Credit was not translated
until 1934. The American economist Benjamin M. Anderson, Jr., in
his The
Value of Money
(1917) was the first English-speaking writer
to appreciate Mises’s work, and the remainder of his Anglo-American
influence had to wait for the early 1930s. Money and Credit
could have been far more influential had it not received a belittling
and totally uncomprehending review from the brilliant young economist
John Maynard Keynes, then an editor of the leading British scholarly
economic periodical, the Economic Journal. Keynes wrote
that the book had “considerable merit,” that it was “enlightened
in the highest degree possible” (whatever that may mean), that the
author was “widely read,” but that in the end Keynes was disappointed
because it was not “constructive” or “original.” Now whatever may
be thought about The Theory of Money and Credit, it was
highly constructive and systematic, and almost blazingly original,
and so Keynes’s reaction is puzzling indeed. The puzzle was cleared
up, however, a decade and a half later, when, in his Treatise
on Money
, Keynes wrote that “In German, I can only clearly
understand what I already know – so that new ideas are apt
to be veiled from me by the difficulties of the language.” The breath-taking
arrogance, the sheer gall of reviewing a book in a language in which
he could not grasp new ideas, and then denouncing the book for containing
nothing new was all too characteristic of Keynes.[20]

in the 1920s: Economic Adviser to the Government

As soon as
he returned from war service, Mises resumed his unpaid teaching
duties at the university, adding an economics seminar in 1918.
Mises writes that he only continued working at the Chamber because
a paid university post was closed to him. Despite the fact that
“I [did not] aspire to a position in government service,” his
teaching duties and the leisure hours he devoted to creative scholarship,
Mises performed his numerous tasks as economics official with
great thoroughness, energy and dispatch.[21]
After the war, in addition to his Chamber of Commerce post, Mises
was employed as the head of a temporary postwar government office
dealing with the prewar debt. Young F.A. Hayek, though he had
been in Mises’s class at the university first got to know him
as Mises’s subordinate in the debt office. Hayek writes that “there
I came to know him mainly as a tremendously efficient executive,
the kind of man who, as was said of John Stuart Mill, because
he does a normal day’s work in two hours always has a clear desk
and time to talk about anything. I came to know him as one of
the best educated and informed men I had ever known….”[22]

Many years
later, Mises related to me, with typical charm and gentle wit,
a story of the time when he was appointed by the Austrian government
as its representative for trade talks with the short-lived postwar
Bolshevik Bela Kun government of Hungary. Karl Polanyi, later
to be a well-known leftwing economic historian in the United States
was the Kun government representative. “Polanyi and I both knew
that the Kun government would fall shortly,” Mises told me with
a twinkle, “and so we both made sure to drag out the ‘negotiations’
so that Polanyi could remain comfortably in Vienna. We had many
delightful walks in Vienna until the Kun government met its inevitable

Hungary was
not the only government to go Bolshevik temporarily in the tragic
and chaotic aftermath of World War I. Amidst the turmoil of defeat,
many countries of central and eastern Europe were inspired and
tempted to follow the example of the Bolshevik Revolution in Russia.
Parts of Germany went Bolshevik for a time, and Germany only escaped
this fate because of the turn to the Right of the Social Democratic
Party, previously committed to a Marxist revolution. It was similarly
touch and go in the new, truncated little country of Austria,
still suffering from the Allied food blockade during the tragic
winter of 1918–19. The Marxist Social Democratic party, led
by the brilliant “Austro-Marxist” theoretician Otto Bauer, headed
the Austrian government. In a profound sense, the fate of Austria
rested with Otto Bauer.

Bauer, son
of a wealthy North Bohemian manufacturer, was converted to Marxism
by his high school teacher, and dedicated his life to never flagging
in zeal for the radical Marxist cause. He was determined never
to abandon that cause to any form of revisionism or opportunism
as so many Marxists had done in the past (and would continue to
do in the future). Bauer enlisted in Böhm-Bawerk’s great
seminar determined to use the knowledge he would gain to write
the definitive Marxian refutation of Böhm’s famous demolition
of the Marxian labor theory of value. In the course of the seminar,
Bauer and Mises became close friends. Bauer eventually abandoned
the attempt, virtually admitting to Mises that the labor theory
of value was indeed untenable.

Now, with
Bauer planning to take Austria into the Bolshevik camp, Mises,
as economic adviser to the government, and above all as a citizen
of his county and as a champion of freedom, talked night after
night, and at great length with Bauer and his equally devoted
Marxian wife Helene Gumplowicz. Mises pointed out that with Austria
drastically short of food, a Bolshevik regime in Vienna would
inevitably find its food supply cut off by the Allies, and in
the ensuing starvation such a regime could not last more than
a couple of weeks. Finally, the Bauers were reluctantly persuaded
of this incontrovertible fact, and did what they had sworn never
to do: turn rightward and betray the Bolshevik cause.

Reviled as
traitors by radical Marxists from then on, the Bauers turned in
fury against the man they held responsible for their action: Ludwig
von Mises. Bauer tried to get Mises removed from his university
post, and from then on they never spoke to each other again. Interestingly,
Mises claims credit for preventing the Bolshevik takeover singlehandedly;
he had no help in his dedicated opposition from conservative parties,
the Catholic Church, or from business or managerial groups. Mises
recalls bitterly that:

was so convinced of the inevitability of the coming of Bolshevism
that they were intent merely on securing for themselves a favorable
position in the new order. The Catholic Church and its followers,
the Christian Social Party, were ready to welcome Bolshevism
with the same ardor that archbishops and bishops twenty years
later welcomed Nazism. Bank directors and big industrialists
hoped to earn a good living as “managers” under Bolshevism.[24]

If Mises
succeeded in stopping Bolshevism in Austria, his second great
task as government economic adviser was only partially successful:
combating the post-war bank credit inflation. Armed with his great
insight and expertise into money and banking, Mises was unusually
well-equipped for going against the tide of history and stopping
the modern rage for inflation and cheap money, an urge given full
rein by the abandonment of the gold standard by all the warring
European countries during World War I.

In the thankless
task of opposing cheap money and inflation, and calling for a balanced
budget and a cessation of all increases of bank notes, Mises was
aided by his friend Wilhelm Rosenberg, a former student of Carl
Menger and a noted attorney and financial expert. It was because
of Mises and Rosenberg that Austria did not go the whole way of
the disastrous runaway inflation that would ravage Germany in 1923.
Yet Mises and Rosenberg only succeeded in slowing down and delaying
the effects of inflation rather than eliminating it. Due to their
heroic efforts, the Austrian crown was stabilized in 1922 at the
enormously depreciated – but not yet runaway – rate of
14,400 paper crowns to one gold crown. Yet, Mises writes, their
“victory came too late,” The destructive consequences of inflation
continued, capital was consumed by inflation and welfare state programs,
and the banking collapse finally arrived in 1931, postponed by Mises’s
efforts for ten years.

In order
to pursue their unwavering battle against inflation, Mises and
Rosenberg sought political allies, and managed to secure the reluctant
support of the Christian-Social Party, in particular of its leader
Father Ignaz Seipel. Before Seipel agreed to stabilize the crown
in 1922, Mises and Rosenberg warned him that every stoppage of
inflation results in a “stabilization recession,” and that he
must be prepared to undergo the gripes of the public when the
inevitable recession occurred. Unfortunately, the party put its
financial affairs into the hands of the attorney Gottfried Kunwald,
a corruptionist who secured friendly politicians and businessmen
privileged government contracts. Whereas Kunwald in private saw
that Mises was right, and that a continuation of the inflationary
policies after stabilization was leading to catastrophe, he insisted
that Mises as government economist keep quiet about the realities
of the situation so as not to scare the public or foreign markets
about the situation of the banks. And, in particular, so that
Kunwald would not lose his influence in procuring licenses and
government contracts for his clients. Mises was indeed in the
midst of an oppressive situation. In 1926, Mises had founded the
Austrian Institute for Business Cycle Research. Four years later,
Mises became a member of the prestigious governmental Economic
Commission to inquire into the economic difficulties of Austria.
When Mises had the Institute prepare a report for the Commission,
it became clear that the banks were on the point of collapse and
that Austria was disastrously consuming capital. The banks, of
course, objected to the Commission or the Institute publishing
the report and thereby endangering their own precarious positions.
Mises was torn between his devotion to scientific truth and his
commitment to trying to bolster the existing system as long as
possible; and so, in a compromise, he agreed that neither the
Commission nor Institute would publish, but instead the damaging
report would appear under the personal name of the Institute’s
director, Oskar Morgenstern.

Under these
crippling pressures, it was no wonder that Wilhelm Rosenberg,
despairing of the situation, was driven to death; Mises, however,
fought on bravely and it must have been almost a relief to him
when the Austrian banks met their inevitable doom in l931.[25]

Mises’s words
apply every bit as much to his fight against inflation as they
explicitly do to his long, losing struggle against the eventual
Nazi takeover of Austria:

For sixteen
years I fought a battle in the Chamber in which I won nothing
more than a mere delay of the catastrophe. I made heavy personal
sacrifices although I always foresaw that success would be denied
me. But I do not regret that I attempted the impossible. I could
not act otherwise. I fought because I could do no other.[26]

Mises was
often accused of being intransigent and uncompromising. In a moving
passage in his memoirs, Mises looked back on his career as government
adviser and reproached himself for the opposite error – of
compromising too much:

I was reproached because I made my point too bluntly and intransigently,
and I was told that I could have achieved more if I had shown
more willingness to compromise…. I felt the criticism was
unjustified; I could be effective only if I presented the situation
truthfully as I saw it. As I look back today at my activity
with the Chamber I regret only my willingness to compromise,
not my intransigence. I was always ready to yield in unimportant
matters if I could save other more important issues. Occasionally
I even made intellectual compromises by signing reports which
included statements that did not represent my position. This
was the only possible way to gain acceptance by the General
Assembly of the Chamber or approval by the public of matters
I considered important.[27]

in the 1920s: Scholar and Creator

The Bolshevik
Revolution, as well as the growth of corporatist sentiment during
and after World War I, transformed socialism from a utopian vision
and goal into a spreading reality. Before Mises turned his great
searchlight of a mind on the problem, criticisms of socialism had
been strictly moral or political, stressing its use of massive coercion.
Or, if economic, they had focused on the grave disincentive effects
of communal or collective ownership (often expressed in the gibe,
“Under socialism, who will take out the garbage?”). But Mises, addressing
the problem in a paper delivered to the Nationalökonomisch
Gesellschaft (Economic Society) in 1919, came up with the most
devastating possible demolition: the impossibility of economic calculation
under socialism. Mises’s paper was published the following year
as “Die Wirtschaftsrechnung im sozialistischen Gemeinwesen” (“Economic
Calculation in the Socialist Commonwealth”
), in the Archiv
für Sozialwissenschaft und Sozialpolitik. It was a veritable
shock to thoughtful socialists, for it demonstrated that, since
the socialist planning board would be shorn of a genuine price system
for the means of production, the planners would be unable to rationally
calculate the costs, the profitability, or the productivity of these
resources, and hence would be unable to allocate resources rationally
in a modern complex economy. The stunning impact of Mises’s argument
came from its demolishing socialism on its own terms. A
crucial objective of socialism was for central planners to allocate
resources to fulfill the planners’ goals. But Mises showed that,
even if we set aside the vexed question of whether the planners’
goals coincide with the public good, socialism would not permit
the planners to achieve their own goals rationally, let alone those
of consumers or of the public interest. For rational planning and
allocation of resources require the ability to engage in economic
calculation, and such calculation in turn requires resource prices
to be set in free markets where titles of ownership are exchanged
by owners of private property. But since the very hallmark of socialism
is government or collective ownership (or, at the very least, control)
of all nonhuman means of production – land and capital –
this means that socialism will not be able to calculate or rationally
plan a modern economic system.

Mises’s profound
article had a blockbuster impact on European socialists, particularly
in German-speaking countries, over the next two decades, as one
socialist after another tried to solve the Mises problem. By the
late 1930s, the socialists were confident that they had solved it
by using mathematical economics, wildly unrealistic neoclassical
perfect competition and general equilibrium assumptions, and –
particularly in the schemes of Oskar Lange and Abba P. Lerner –
by the central planning board’s ordering the various managers of
socialist forms to “play at” markets and market prices. Mises expanded
his arguments in journal articles and in his comprehensive critique,
Die Gemeinwirtschaft
(Socialism) in 1922. His seminal article was finally translated
into English in 1935, and his Socialism
a year later, and F.A. Hayek also weighed in with elaboration and
development. Finally, Mises gave the final rebuttal to the socialists
in his monumental Human Action in 1949.

While the official
textbook line by the 1940s – when socialism had triumphed among
intellectuals – decreed that Lange and Lerner had solved the
crucial question posed by Mises, Mises and the free market have
had the last laugh. It is now generally acknowledged, especially
in Communist countries, that Mises and Hayek were right, and that
the enormous defects of socialist planning in practice have confirmed
their views. In virtually every Communist country there is a rapid
movement toward free markets, and even of the reconstitution of
a stock market, a market in titles to private ownership. In the
meantime, socialist intellectuals in the West, more removed from
harsh socialist reality, slough off the problem by repudiating the
very goal of rational allocation and calculation altogether, and
by speaking of instinct and irrationality being the nub and glory
of socialism.

The nub and
the essence of the later Misesian arguments are all foreshadowed
and encapsulated in his original 1920 journal article. It is fashionable
in some modern Austrian circles to pinpoint the crucial difference
between Mises and the socialists as entrepreneurial uncertainty
vs. perfect knowledge and general equilibrium on the part of the
socialists. But this is not Mises’s account. Mises writes that
he was led to consider the socialist calculation problem by his
work on the Theory of Money and Credit. Here Mises realized
for the first time with keen clarity that the money economy does
not and cannot calculate or measure values directly: that it only
calculates with money prices, the resultants of such individual
valuations. Hence, Mises realized that only a market with money
prices based on the evaluations and exchanges of private owners
can rationally allocate resources, since there is no way by which
a government could calculate values directly. Hence, for Mises
his article and book on Socialism was part and parcel of the development
of his expanded integration of micro and macro, of direct and
monetary exchange, that he had begun but not completed in Theory
of Money and Credit. Thus, the later Hayekian stress on decentralized
knowledge and innovations were important glosses and elaborations
on the main Misesian point, but they were not the central issue.
The central Misesian point is that, even given resources,
values and technology, even abstracting from their changes, even
then, socialism, deprived of private ownership and free
markets, could not calculate or rationally allocate resources.
Of course, a fortiori, it could surely not do so in the
real world of change. Thus, compare Mises’s following dismissal
of the socialists with the contemporary Austrian exclusive focus
on uncertainty:

They [the
socialists] failed to see the very first challenge: How can
economic action that always consists of preferring and setting
aside, that is, of making unequal valuations, be transformed
into equal valuations, by the use of equations? Thus the advocates
of socialism came up with the absurd recommendation of substituting
equations of mathematical catallactics, depicting an image from
which human action is eliminated, for the monetary calculation
in the market economy.[28][29]

Mises’s book
Socialism had an enormous influence during the 1920s
and 1930s, not only in raising profound questions of socialists,
but also in converting countless young socialist intellectuals
to the cause of freedom and free markets. Brilliant young socialists
Friedrich A. Hayek, Wilhelm Röpke in Germany, and Lionel
Robbins in England, were among the many converted by Socialism,
and who became for many years followers and disciples of Mises
as well.[30]

During the
1920s, Mises also continued to develop the business cycle theory
that had emerged out of his integration of money into general microeconomics
in Money and Credit. In journal articles and books, Mises
expanded his theory, warned against the inflationary credit policy
of that era, and engaged in a scintillating critique of the proto-monetarist
stabilization views of that favorite economist of the New Era of
the 1920s, Irving Fisher. Fisher and his disciples insisted that
all was well during the 1920s because, for example, the price level
in the United States remained constant. To Mises the important point
was masked by level prices caused by increases in productivity:
that the inflationary credit was creating unsound booms in capital
investment and in the markets for titles to capital – stock
markets and real estate. Mises’s warnings of financial collapse
and depression were remembered after 1929, although they were generally
scorned at the time.[31]

Mises’s earliest
researches had taught him that government intervention almost invariably
proved to be counterproductive; and his explorations into money
and business cycles amply conformed and reinforced this insight.
In a series of articles in the 1920s, Mises investigated various
forms of government intervention, and showed them all to be ineffective
and counterproductive. (The essays were published in book form as
des Interventionismus
in 1929.) In fact, Mises arrived
at a general law that, whenever the government intervened in the
economy to solve a problem, it invariably ended, not only in not
solving the original problem, but also creating one or two others,
each of which then seemed to cry out for further government intervention.
In this way, he showed government interventionism, or a “mixed economy,”
to be unstable. Each intervention only creates new problems, which
then face the government with a choice: either repeal the original
intervention, or go on to new ones. In this way, government intervention
is an unstable system, leading logically either back to laissez-faire
or on to full socialism.

But Mises knew
from his study into socialism that a socialist system was “impossible”
for the modern world: that is, it was lacking the price system necessary
to economic calculation, and therefore for running a modern industrial
economy. But if interventionism is unstable, and socialism is impossible,
then the only logical economic policy for a modern industrial system
was laissez-faire liberalism. Mises therefore took the rather vague
commitment to the market economy of his Austrian predecessors and
hammered it into a logical, consistent, and uncompromising adherence
to laissez-faire. In keeping with this insight, Mises published
his comprehensive work, Liberalismus,
on “classical,” or laissez-faire, liberalism, in 1927.

Thus, while
Mises had not yet completed his comprehensive treatise on economics,
he had, by the end of the 1920s, hammered out the complete, thoroughgoing
political-economy part of his developing grand system. Laissez-faire,
interventionism, and socialism were now compared and contrasted
in detail, and a passionate commitment made by Mises to laissez-faire.
Strengthening that commitment was an insight he had already set
forth in Socialism: that the division of labor, and its
concomitants, private property and freedom of exchange, were absolutely
basic to civilization and to society itself. What Mises was consistently
advocating, and what his opponents of other schools of political
economy were undermining, were the very conditions necessary to
the maintenance of civilization and of an economy that sustains
modern high levels of population.

In his eloquent
discussion of society and the division of labor, and in his Spencerian
contrast of the industrial versus the militarist principle, Mises
also builds on the crucial Austrian insight that both parties,
the buyer and the seller, the employer and the worker, necessarily
benefit from every act of exchange. Mises concludes that the adoption
and the development of the division of labor rests on man’s reason
and will, on his recognition of the mutual benefits of exchange.
This emphasis on human reason and will, in the noblest traditions
of rationalism, contrast sharply to the Hayekian or Scottish Enlightenment
emphasis on society or the market as the product of some sort
of tropism or instinct, e.g., Hayek’s emphasis on the tropistic,
unwilled emergence of “spontaneous order,” or Adam Smith’s conjuring
up of a spurious instinct, or “propensity to truck and barter,”
as an explanation of exchange.[32]

Indeed, seizing
the occasion of writing a foreword to a reprint of Socialism
published years after Mises’s death, F.A. Hayek significantly altered
the unalloyed praise of the book that he had lavished at a tribute
dinner to Mises over twenty years earlier. Now he severely criticized
Mises’s reference in Socialism to “social cooperation (in
particular, the market-economy) as an emanation of rationally recognized
utility,” as an example of “extreme rationalism” and as factually
incorrect. He went on to the insulting “explanation” that Mises
had not been able to “escape from” such rationalism “as a child
of his time” – a curious statement since Mises’s “time” was
one of pervasive irrationalism. Hayek, in contrast, strongly asserts
that “it certainly was not rational insight into its general benefits
that led to the spreading of the market economy.” If not that, one
wonders then how the market economy got established in the first
place. For each individual exchange, no person would engage in it
unless he knew consciously and “rationally” that he would benefit.
And as for the market economy as a whole, Hayek who in his earlier
writings had declared formally that ideas make history, fails to
explain how the free market did come about. Moreover, Hayek
thereby ignores over two centuries of a classical liberal movement
in Western Europe and the United States dedicated to freedom and
free markets. In neglecting the fundamental point that all human
actions are determined by the individuals’ values and ideas, a “praxeological”
insight at the heart of Misesian thought, Hayek can only believe,
without explicitly declaring it, that human beings are not conscious
actors and choosers but only tropistic stimulus-and-response mechanisms.[33]

we have by no means exhausted the extent of Ludwig von Mises’s
profound contributions to scholarship and to economics during
the 1920s. From his earliest days, Mises had confronted, and challenged
the Historical School of economics dominant in Germany. The Historical
School was marked by its insistence that there can be no economic
laws transcending mere description of the circumstances of individual
time and place, and that the only legitimate economics therefore
is not theory but a mere examination of history. Politically,
this meant that there were no inconvenient economic laws for government
to violate, and to cause counterproductive consequences of governmental
measures. It is no wonder that the head of the Historical School,
Gustav Schmoller of the University of Berlin, declared that the
function of German academics was to form “the intellectual bodyguard
of the House of Hohenzollern.” During the 1920s, Institutionalism,
an outgrowth of the Historical School but devoid of the latter’s
scholarship or intellectual base, became dominant in the United
States. Mises was certainly correct in referring to these groups,
in his seminars, as “anti-economists.” But, in addition, Mises
saw the economic methodology that had been habitually employed
by Austrians and by many classical economists such as Say and
Senior, attacked on different grounds by a new group, logical
positivists, spawned in his native Vienna. Indeed, Ludwig’s own
younger brother, by two years, Richard von Mises, a mathematician
and aeronautical engineer, became a leading member of this “Vienna
Circle.” In addition, one of the devoted students in Mises’s seminar,
Felix Kaufmann, was later to write a positivist work on the methodology
of the social sciences. This Vienna Circle, or “Schlick Circle”
after their leader, was small in number but increasingly dominant
in Viennese philosophical circles, and later gained virtually
total dominance over the philosophical scene in the United States
for decades after World War II, after emigrating to top academic
posts in the United States.[34]

A story Mises
related to me about the logical positivists and their impact was
characteristic of his wit and charm. He was walking around Vienna
with his good friend, the German philosopher Max Scheler.

“What is
there about the climate of this city,” Scheler waved around him,
“that breeds so many blankety-blank logical positivists?”

“Well, Max,”
Mises replied, in Vienna there are two million people, and there
are only twelve logical positivists. So it couldn’t be the climate.”

The logical
positivists presented their own grave challenge to economic theory,
charging that economic law could only be established tentatively
and hesitantly, and then only by “testing” the consequences of
such laws by empirical (in practice, statistical) fact. Based
on their own interpretation of the methods of the physical sciences,
the positivists tried to hack away at methodologies they saw as

The onslaughts
of the institutionalists and especially the positivists on economic
theory forced Mises to think deeply about the methodology of economics,
and also on the basic epistemology of the sciences of human action.
Thinking deeply about the subject, he arrived at the first philosophically
self-conscious defense of the economic method used by the earlier
Austrians and some of the classicists. Furthermore, he was able
to demonstrate the truly “scientific” nature of this correct method,
and to show that the developing positivist methodology of much
neo-classical economics was itself profoundly mistaken and unscientific.
In brief, Mises demonstrated that all knowledge of human action
rests on methodological dualism, on a profound difference between
the study of human beings on the one hand, and of stones, molecules,
or atoms, on the other. The difference is that individual human
beings are conscious, that they adopt values, and make choices
– act – on the basis of trying to attain those
values and goals. He pointed out that this axiom of action is
self-evident, that is (a) evident to the self once pointed
out, and (b) cannot be refuted without self-contradiction, that
is without using the axiom in any attempt to refute it. Since
the axiom of action is self-evidently true, any logical deductions
or implications from that action must be absolutely, uncompromisingly,
“apodictically,” true as well. Not only is this body of economic
theory absolutely true, but therefore any talk of “testing” its
truth is absurd and meaningless, since the axioms are self-evident
and no “testing” could occur without employing the axiom. Moreover,
no “testing” can take place since historical events are not, as
are natural events in the laboratory, homogeneous, replicable,
and controllable. Instead, all historical events are heterogeneous,
not replicable, and the resultant of complex causes. The role
of economic history, past and contemporary, then, is not to “test”
theory but to illustrate theory in action and to use it to explain
historical events.

Mises also
saw that economic theory was the formal logic of the inescapable
fact of human action, and that such theory was therefore not concerned
with the content of such action, or with psychological explanations
of values and motives. Economic theory was the implication of
the formal fact of action. Hence, Mises, in later years, would
name it “praxeology,” the logic of action.

In his critique
of logical positivism, Mises saw that a philosophy that treated
people as if they were stones and atoms, whose behavior could
be predicted and determined according to quantitative laws, was
particularly likely to lead to the viewpoint of social engineers,
who deal with people as if they were inanimate physical objects.
Indeed, positivist Otto Neurath was one of the leading socialist
theorists in Central Europe. Mises wrote that this allegedly “scientific”
approach would study the behavior of human beings according to
methods Newtonian physics resorts to in the study of mass and
motion. On the basis of this allegedly “positive” approach to
the problems of mankind, they plan to develop “social engineering,”
a new technique that would enable the “economic tsar” of the planned
society of the future to deal with living men in the way technology
enables the engineer to deal with inanimate materials.[35]

Mises began
publishing his series of epistemological articles in 1928, and then
collected and published them in his seminal philosophical and methodological
work, Grundprobleme der Nationalökonomie (Epistemological
Problems of Economics
) in 1933.

in the 1920s: Teacher and Mentor

Since Mises
was under severe restrictions in his teaching post at the University
of Vienna, as noted above, his influence at university teaching
was severely limited. While such outstanding Misesians of the 1920s
as F.A. Hayek, Gottfried von Haberler, and Oskar Morgenstern studied
under Mises at the university, Fritz Machlup was his only doctoral
student. And Machlup was prevented from acquiring his habilitation
degree, which would have permitted him to teach as a privatdozent,
by anti-Semitism among the economics professors.[36]

Mises’s enormous
influence, as teacher and mentor, arose instead from the private
seminar that he founded in his office at the Chamber of Commerce.
From 1920 until he left for Geneva in 1934, Mises held the seminar
every other Friday from seven to approximately ten o’clock (accounts
of participants differ slightly), after which they repaired to
the Italian restaurant Anchora Verde for supper, and then, around
midnight, the seminar stalwarts, invariably including Mises, went
on to the Cafe Künstler, the Favorite Vienna coffeehouse
for economists, until one in the morning or after. The Mises seminar
gave no grades, and had no official function of any kind, either
at the University or at the Chamber of Commerce. And yet such
were Mises’s remarkable qualities as scholar and teacher that,
very quickly, his Privatseminar became the outstanding
seminar and forum in all of Europe for discussion and research
in economics and the social sciences. An invitation to attend
and participate was considered a great honor, and the seminar
soon became an informal but crucially important center for post-doctoral
studies. The list of later-to-be eminent names of Miseskreis
participants, from England and the United States as well as from
Austria, is truly staggering.

Despite Mises’s
reputation as an intransigent fighter for his beliefs, all participants
testify that he conducted his private seminar as a discussion
forum, with great respect for everyone’s views, and without trying
to bludgeon the members into his own position. Thus, Dr. Paul
N. Rosenstein-Rodan, a student of Hans Mayer and later to be an
economist at the United Nations, wrote in reminiscence of Mises’s

…I was
an enthusiastic admirer of Mises’ theory of money and very skeptical
of his extreme [laissez-faire] liberalism. It was a proof of
how elastic and tolerant (in spite of a contrary general opinion)
Mises was that we maintained a very good relation in spite of
my being “pink” or rather having a very Fabian outlook on life,
which I did not change.[37]

Mises himself
wrote movingly of the seminar and the way he conducted it:

My main
teaching effort was focused on my Privatseminar…
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
[post-Böhm-Bawerk] 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….

We formed
neither school, congregation, nor sect. We helped each other
more through contradiction than agreement. But we agreed and
were united on one endeavor: to further the sciences of human
action. Each one went his own way, guided by his own law….
We never thought to publish a journal or a collection of essays.
Each one worked by himself, as befits a thinker. And yet each
one of us labored for the circle, seeking no compensation other
than simple recognition, not the applause of his friends. There
was greatness in this unpretentious exchange of ideas; in it
we all found happiness and satisfaction.[38]

The result
of Mises’s method was that many of the seminar members became
full Misesians, while the others were stamped, one way or the
other, with at least a touch of Mises’s greatness. Even those
Mises followers who later shifted to Keynesian and other anti-Misesian
doctrines still retained a visible thread of Misesianism. Hence,
for example, the Keynesianism of Machlup or Haberler was never
quite as unrestrained as in other, more unalloyed disciples. Gerhard
Tintner, a Mises seminar member, went on to become an eminent
econometrician at Iowa State, but the first chapter of Tintner’s
Econometrics took Mises-type reservations about econometrics
far more seriously than did his colleagues in the econometric
profession. Mises made a mark on all of his students that proved
to be indelible. A partial list of Mises private seminar members,
followed by their later affiliations and accomplishments, will
serve to illustrate both the enormous distinction achieved by
his students, and the Misesian stamp placed upon all of them:

A. Hayek
Fritz Machlup
Gottfried von Haberler
Oskar Morgenstern
Paul N. Rosenstein-Rodan
Felix Kaufmann (author of The
Methodology of the Social Sciences
Alfred Schütz (sociologist, New School for Social Research)
Karl Bode (methodologist, Stanford University)
Alfred Stonier (methodologist, University College, London)
Erich Voegelin (political scientist, historian, Louisiana State
Karl Schlesinger
Richard von Strigl
Karl Menger (mathematician, son of founder of Austrian School,
Carl Menger, University of Chicago)
Walter Fröhlich (Marquette University)
Gerhard Tintner (Iowa State University)
Ewald Schams
Erich Schiff
Herbert von Fürth
Rudolf Klein

Members and
participants from England and the United States included:

John V.
Van Sickle (Rockefeller Foundation, later Wabash College)
Howard S. Ellis (Berkeley, author of German
Monetary Theory
Lionel Robbins (London School of Economics)
Hugh Gaitskell (British Labour Party)

Other participants
who, it must be conceded, showed little influence of Mises in
later life were the Swedish Keynesian Ragnar Nurkse (Columbia
University) and Albert Gailord Hart (Columbia University).[39]

The number
of devoted women members of the Mises seminar was remarkable for
that era in Europe. Helene Lieser, later for many years Secretary
of the International Economic Association in Paris, was the first
woman to attain a doctorate in the social sciences in Austria.
Ilse Mintz was the daughter of economist Richard Schüller,
a student of Menger’s and permanent Undersecretary of Trade (later
at the New School for Social Research.) Ilse Mintz later emigrated
to America and worked at the National Bureau of Economic Research,
and taught at Columbia University. Other leading women members
were Marianne von Herzfeld and Martha Stephanie Braun (Browne),
who later taught at Brooklyn College and New York University.
Martha Browne, in reminiscing about Mises’s seminars, states that
“Professor von Mises never restrained any participant in the choice
of a topic he or she wanted to discuss.” She concluded that “I
have lived in many cities and belonged to many organizations.
I am sure there does not exist a second circle where the intensity,
the interest and the intellectual standard of the discussions
is as high as it was in the Mises Seminar.”[40][41]

Not content
with his own seminar, Mises single-handedly revived the Economic
Society, a professional society of economists that he had helped
found, along with Karl Pribram, in 1908, and which had fallen into
disuse during the war. The Miseskreis formed the core of
the group, which was much larger than the Mises seminar. Mises and
his colleagues maneuvered to get rid of Othmar Spann, and, in order
to insure Hans Mayer’s participation, Mayer was made President of
the Society, while Mises, the driving force of the group, agreed
to become Vice-President. The Society was dominated by Misesians,
with Hayek becoming Secretary, Machlup Treasurer, with Morgenstern
becoming Machlup’s successor as Treasurer. Richard Schüller
was a distinguished member of the group, and Mises seminar member
Karl Schlesinger, president of the National Bankers Association,
secured the large conference room of the Bankers Association for
the Society’s meetings. Many of the Society’s papers were published
in Hans Mayer’s scholarly journal, the Zeitschrift fur Nationalökonomie.

By the mid-1920s,
Mises made a considerable effort to find a job for F.A. Hayek.
He tried to convince the Chamber of Commerce to create a research
position in Mises’s office, which Hayek would have filled, but
his attempt failed. After Hayek spent a year in the United States
and returned singing the praises of empirical business cycle research,
Mises founded the Institute for Business Cycle Research in January
1927, and installed Hayek as director in an office at the Chamber
of Commerce. In 1930, the poorly funded Institute received a large
infusion of funds from the Rockefeller Foundation, at the behest
of former Mises seminar member John Van Sickle, who had become
assistant director of the Foundation’s office in Paris. The increased
funding enabled the Institute to hire Morgenstern and Haberler
to assist Hayek, and, when Hayek left Austria for England in 1931,
Morgenstern succeeded him as Director.[42]

While most
Viennese, including Mises’s friends and students, basked in the
Pollyanna view that Nazism could never happen in Austria, Mises,
in the early 1930s, foresaw disaster and urged his friends to emigrate
as soon as possible. Machlup credits Mises’s advice for saving his
life. With characteristic wit and insight, Mises pictured a likely
scenario for his friends and himself in the New World: they would
all, he prophesied, open a cafe and nightclub somewhere in Latin
America. Mises would be the doorman, the formal and aloof Hayek
the head waiter, the songster Felix Kaufmann would be the crooner,
and the suave Machlup the club gigolo.[43]

The first Misesian
to emigrate was F.A. Hayek. Lionel Robbins had been converted to
laissez-faire and to Austrian economics by reading Socialism
and then participating in Mises’s Privatseminar. Ensconced
as head of the economics department at the London School of Economics,
Robbins soon became an influential adviser to the head of the school,
Sir William Beveridge. Robbins got Hayek an invitation to give a
series of lectures at the LSE in 1931, and the lectures took the
school by storm. Quickly, Hayek was offered a full professorship
at the LSE. Hayek and Robbins swept all before them at London in
the first half of the 1930s, spreading the influence especially
of Austrian capital and business cycle theory. Hayek converted the
top young economists at LSE to the hard-money and laissez-faire
views of Austrian economics; enthusiastic Austrian converts included
such later Keynesian leaders as John R. Hicks, Abba P. Lerner, Nicholas
Kaldor, Kenneth E. Boulding, and G.L.S. Shackle. Economica,
the journal of the LSE, was filled with Austrian articles. Only
Cambridge, the stronghold of Keynes, remained hostile, and even
here, there were similarities to Austrianism in D. H. Robertson’s
monetary approach. Robbins was a student of Edwin Cannan at the
London School of Economics, himself an advocate of hard money and
laissez-faire. Frederic Benham, a student of Cannan, adopted the
Austrian view of the Depression, and Robbins wrote a scintillating
Misesian study of The
Great Depression
in 1934. Under Robbins’s influence, Beveridge,
in his 1931 edition of Unemployment,
a Problem of Industry
, attributed the large-scale British
unemployment of the post-war world to excessively high wage rates.

Robbins, furthermore,
published some challenging Austrian articles on microeconomics and
on population theory in the early 1930s. In 1932, moreover, he published
a watered-down version of Misesian praxeology, On
the Nature and Significance of Economic Science
, which
became the bible of methodology for economists until Milton Friedman’s
unfortunate positivist manifesto was published in the early 1950s.[44]
In addition to these prodigious efforts, Robbins arranged for the
translation and publication of Hayek’s two books on business cycle
theory (Monetary
Theory and the Trade Cycle
, and Prices
and Production
), and finally arranged for the translation
of Mises’s Theory of Money and Credit and Socialism.

But, then,
just as it seemed that Austrian economics would conquer England
(particularly as having predicted and offered an explanation of
the Great Depression), Keynes’s General
swept all before it, and by the late 1930s all of
Hayek’s converts had shifted suddenly to Keynesianism, even though
they were by then mature enough to know better. All the stalwarts,
including Robbins, Hicks, Beveridge, and the rest, had shifted over,
and by the end of the 1930s only Hayek was left untouched by the
Keynesian storm.[45]
But it must have been a particularly bitter blow to Ludwig von Mises
that such favorite students of his as Machlup and Haberler had become
Keynesians, albeit relatively moderate ones.

In addition
to his enormous influence upon thought in Austria, Mises also
exerted considerable influence over economists in Germany. Georg
Halm joined Mises in attacking the possibility of economic calculation
under socialism. L. Albert Haln, a German banker and economist,
had been a proto-Keynesian inflationist in the 1920s, but turned
around to be a severe critic of Keynes in the 1930s. Other German
economists strongly affected by Mises were Wilhelm Röpke,
Alfred Müller-Armack, Goetz A. Briefs, an expert on labor
unions, Walter Sulzbach, a critic of the Marxian concept of class,
Alexander Rüstow, economic historian, Mortiz J. Bonn, and
Ludwig Pohle. Luigi Einaudi of Italy, and monetary specialist
Jacques Rueff in France were also friends of, and influenced by,
von Mises.

and the New World

More alert
than any of his colleagues to the ever-encroaching Nazi threat
in Austria, Mises accepted a chair in 1934 as professor of International
Economic Relations at the Graduate Institute of International
Studies at the University of Geneva. Since the initial contract
at Geneva was only for one year, Mises retained a part-time post
at the Chamber of Commerce, on one-third salary. Mises’s contract
was to be renewed until he left Geneva in 1940. While it saddened
him to leave his beloved Vienna, Mises was happy during his six
years in Geneva. Established at his first (and last!) paid academic
post, he was surrounded by such friends and likeminded colleagues
as jurist and economist William E. Rappard, president of the Institute;
Institute co-director Paul Mantoux, the eminent French economic
historian; Mises’s boyhood friend, the distinguished jurist Hans
Kelsen; Wilhelm Röpke, who had left Germany because of the
Nazis; and French scholars Louis Rougier and Louis Baudin.

Mises’s lectures
were in French, but he was fluent in French, and spoke it with
no trace of an accent. Teaching only one weekly seminar on Saturday
mornings, and divested of his political and administrative duties
at the Chamber, Mises finally enjoyed the leisure to embark upon,
and finish, his great masterpiece integrating micro- and macro-economics,
the analysis of the market and of interventions into that market,
all constructed on the praxeological method that he had set forth
in the 1920s and early 1930s. This treatise was published as Nationalökonomie
(Economics) in Geneva, in 1940.

Despite these
favorable conditions, it took great courage for Mises to continue
his work in the face of the tidal wave of Keynesian economics
after 1937, and of the growth of socialist doctrines of left and
right, as well as the onrush of Nazism and the imminence of a
second horrible world war. In 1938, Mises was horrified to see
the Nazi conquest of Austria, accompanied by the Nazi destruction
of his personal library and papers, but he was cheered by being
able to marry his fiancée, Margit Sereny, when she was
able to flee to Geneva.[46]

The onset of
World War II put an enormous amount of pressure on the Miseses.
In addition to depriving the Institute of its non-Swiss students,
the war meant that refugees, such as Mises, were increasingly made
to feel unwelcome in Switzerland. Finally, when the Germans conquered
France in the spring of 1940, Ludwig, prodded by his wife, decided
to leave a country now surrounded by the Axis powers and flee to
the Mecca for the victims of tyranny, the United States.

to the United States was a particularly harrowing experience for
Mises. Here he was, a man of nearly sixty, in contrast to his fluency
in French only book-learned in English, fleeing from a lifetime
in Europe, impoverished, with no prospect of a job in the United
States, forced to dodge German troops as he and Margit made their
way across France to Spain and finally Lisbon, where they embarked
for the United States. His entire world, his hopes and dreams, were
shattered, and he was forced to make a new life in a new country
with an unfamiliar language. And to top it all, as he saw a world
succumbing to war and statism, his great masterpiece, Nationalökonomie,
published during wartime conditions, had sunk without a trace. World
War II was no time to interest anyone in high theory. Moreover,
the book was not allowed to reach the German-speaking countries
which constituted its natural market, and its Swiss publishing firm
failed during the war.

The Miseses
arrived in New York City in August 1940. Lacking any prospect
of employment, the couple lived off meager savings, moving repeatedly
in and out of hotel rooms and furnished apartments. It was the
lowest point of Mises’s life, and shortly after he landed he began
writing a despairing, searing intellectual memoir which he finished
in December, and which was translated and published after his
death as Notes and Recollections (1978).[47]
A major theme in this poignant work is the pessimism and despair
that so many classical liberals, friends and mentors of Mises,
had suffered from the accelerating statism and destructive wars
of the twentieth century. Menger, Böhm-Bawerk, Max Weber,
Archduke Rudolf of Austria-Hungary, Mises’s friend and colleague
Wilhelm Rosenberg – had all been broken in spirit or driven
to death by the intensifying gloom of the politics of their time.
Mises, throughout his life, resolved to meet these grave setbacks
by fighting on, even though the battle might seem hopeless. In
discussing how fellow classical liberals had succumbed to the
despair of World War I, Mises then recounts his own response:

I thus
had arrived at this hopeless pessimism that for a long time
had burdened the best minds of Europe…. This pessimism had
broken the strength of Carl Menger, and it overshadowed the
life of Max Weber….

It is a
matter of temperament how we shape our lives in the knowledge
of an inescapable catastrophe. In high school I had chosen the
verse by Virgil as my motto: Tu ne cede malis sed contra
audentior ito (“Do not yield to the bad, but always oppose
it with courage”). In the darkest hours of the war, I recalled
this dictum. Again and again I faced situations from which rational
deliberations could find no escape. But then something unexpected
occurred that brought deliverance. I could not lose courage
even now. I would do everything an economist could do. I would
not tire in professing what I knew to be right.[48]

It was at
that point, Mises went on, that he decided to write the book on
socialism which he had contemplated before the outbreak of World
War I.

Every other
terrible situation faced by Mises in his life was met by the same
magnificent courage: in the battle against inflation, the struggle
against the Nazis, the flight during World War II. In every case,
no matter how desperate the circumstance, Ludwig von Mises carried
the fight forward, and deepened and expanded his great contributions
to economics and to all the disciplines of human action.

Life began
to improve for Mises when his old connection with John Van Sickle
and the Rockefeller Foundation led to a small annual grant via the
National Bureau of Economic Research, a grant which began in January
1941 and was renewed though 1944. From these grants emerged two
important works, the first books of Mises written in English, both
published by the Yale University Press in 1944. One was Omnipotent
Government: The Rise of the Total State and Total War
The dominant interpretation of Nazism in that era was the Marxist
view of Columbia University Professor and German refugee Franz Neumann:
that Nazism was the last desperate gasp of German big business,
anxious to crush the rising power of the proletariat. That view,
now thoroughly discredited, was first challenged by Omnipotent
Government, which pointed out the statism and totalitarianism
that underlay all forms of left-wing and right-wing collectivism.
The other Mises book, Bureaucracy, was a marvelous little
classic, which delineated, as never before, the necessary differences
between profit-seeking enterprise, the bureaucratic operation of
nonprofit organizations, and the far worse bureaucracy of government.

Yale University
Press published Mises’s first English works in the teeth of an
overwhelming dedication to socialism and statism by the major
book publishers of that era. The press was secured for publishing
Mises by his first new friend in the United States, the prominent
economic journalist, Henry Hazlitt, then the lucid editorial writer
and economist for the New York Times. Hazlitt had admired
Mises since he had glowingly reviewed the English edition of Socialism
in the Times in 1938. Hazlitt met Mises shortly after
his arrival in the United States, and he soon became a close friend
and disciple, writing prolifically and creatively on Austrian
economics and tirelessly advancing the cause of Mises the person
as well as the scholar.[50]

In early
1943, after Mises had completed the manuscript of Omnipotent
Government, Hazlitt steered it to the libertarian-minded
editor at Yale University Press, Eugene Davidson, who was enthusiastic
about the book. From then on through the 1950s, the prestigious
Yale Press served as the publisher of all of Mises’s work, both
new and reprint. In fact, it was Davidson who suggested, in early
1944, that Mises write a short book on bureaucracy, and Mises
completed the manuscript by June of that year.

Through Hazlitt’s
good offices, Mises published nine articles
for the New York Times, on world economic problems, during
1942 and 1943. This spread Mises’s ideas in the United States,
and in January 1943, led Noel Sargent, secretary of the National
Association of Manufacturers – an organization then devoted
to laissez-faire – to invite Mises to join the Economic Principles
Commission of the NAM. Mises served on the NAM Commission from
1943 to 1954, and was hence able to meet many of the leading industrialists
devoted to a free market economy.[51]

But it remains
an ineradicable blot on the record of American academia that Mises
was never able to find a paid, full-time post in any American university.
It is truly shameful that at a time when every third-rate Marxoid
refugee was able to find a prestigious berth in academia, that one
of the great minds of the twentieth century could not find an academic
post. Mises’s widow Margit, in her
moving memoir
about life with Lu, records their happiness and
her gratitude that the New York University Graduate School of Business
Administration, in 1945, appointed Mises as Visiting Professor teaching
one course a term. Mises was delighted to be back at university
teaching; but the present writer cannot be nearly as enthusiastic
about a part-time post paying the pittance of $2,000 a year. Mises’s
course was, at first, on “Statism and the Profit Motive,” and it
later changed to one on “Socialism.” This part-time teaching post
was renewed until 1949.

Harold Luhnow,
of the William Volker Fund, took up the crusade of finding Mises
a suitable full-time academic post. Since obtaining a paid position
seemed out of the question, the Volker Fund was prepared to pay
Mises’s entire salary. Even under these subsidized conditions,
however, the task was difficult, and finally New York University
Graduate School of Business agreed to accept Mises as a permanent
“Visiting Professor,” teaching, once again, his beloved graduate
seminar on economic theory.[52][53]
Mises began teaching his seminar every Thursday night in 1949,
and continued to teach the seminar until he retired, still spry
and active twenty years later, at the age of 87, the oldest active
professor in America.

Even under
these favorable financial conditions, NYU’s support for Mises
was grudging, and only came about because advertising executive
and NYU alumnus Lawrence Fertig, an economic journalist and close
friend of Mises and Hazlitt, exerted considerable influence at
the university. Fertig, in fact, became a member of the NYU Board
of Trustees in 1952. Even so, and even though Mises was allowed
to supervise doctoral dissertations, he still carried the stigma
of “Visiting Professor.” More important, after Dean G. Rowland
Collins, an admirer of Mises, retired, succeeding Deans did their
best to undercut student registration in Mises’s courses, claiming
that he was a reactionary and Neanderthal, and that his economics
was merely a “religion.”

It must have
been galling to Mises that, in contrast to his shabby treatment
at the hands of American academia, favorite former students who
had abandoned Misesian doctrines for Keynesianism, but whose only
real contributions to economics had come as Misesians, received
high and prestigious academic posts. Thus Gottfried Haberler was
ensconced as full professor at Harvard, and Fritz Machlup went to
John Hopkins and later to Princeton. Oskar Morgenstern, too, landed
at Princeton. All of these high academic positions were, of course,
paid for by the university.[54]

Mises never
expressed any bitterness at his fate or at the apostasy of his former
followers, nor indeed did he communicate sourness of any kind to
his inspired and admiring seminar students. Only once did the present
writer, his seminar student for ten years and friend for the rest
of his life, hear him express any sadness or bitterness at his treatment
by American academia. The occasion was the Columbia University Bicentennial
of 1954, an event that led Columbia to invite prominent scholars
from all over the world to speak and participate. Mises saw his
old students, Hayek, Machlup, Haberler, and Morgenstern, invited
to speak, but Mises, who lived less than a mile from Columbia, was
totally ignored. And this, even though four of Mises’s former students
– Mintz, Nurkse, Hart, and the qualitative school banking theorist
Benjamin H. Beckhart – were teaching at Columbia University.
Margit von Mises writes that only once did he express to her any
longing for an academic post – after visiting his old friend,
the monetary economist Winfield W. Riefler, at the Institute for
Advanced Study in Princeton. She writes that “I remember Lu once
told me that Riefler’s job at Princeton was the only position that
really would have made him happy. It was very unusual for Lu to
express a longing for something out of his reach.”[55]
If there were any justice in the academic world, the Institute heads
should have beaten down Mises’s doors, clamoring for him to join

For the present
writer, who was privileged to join the Mises seminar in its first
session in 1949, the experience at the seminar was inspiring and
exhilarating. The same was true of fellow students who were not
registered at NYU, but audited the seminar regularly for years,
and consisted of libertarian and free-market scholars and businessmen
in the New York area. Due to the special arrangements of the seminar,
the university agreed to allow Misesians to audit the course.
But even though Mises had a small number of excellent graduate
students who did their doctorates under him – notably Israel
M. Kirzner, still teaching at NYU – the bulk of the regular
students were uncomprehending business students, who took the
course for an easy A.[56]
The proportion of libertarians and budding Austrians to the class
total ranged, I would estimate, from about one-third to one-half.

Mises did
his best to replicate the conditions of his great Vienna Privatseminar
including repairing after the end of the formal session at 9:30
PM to Childs’ Restaurant to continue informal and animated discussions.
Mises was infinitely patient and kind with even the most dimwitted
of us, constantly tossing out research projects to inspire us,
and always encouraging the shiest and most awestruck to speak.
With a characteristic twinkle in his eye, Mises would assure them:
“Don’t be afraid to speak up. Remember, whatever you say about
the subject and however wrong it might be, the same thing has
already been said by some eminent economist.”

However wonderful
the seminar experience for knowledgeable students, I found it
heartbreaking that Mises should be reduced to these frowzy circumstances.
Poor Mises: there was scarcely a Hayek or a Machlup or a Schütz
among these accounting and finance majors, and Childs’ Restaurant
was no Viennese cafe. But one incident corrected some of this
view. One day, Mises was invited to speak before the graduate
economic students and faculty at Columbia University, a department
then rated among the top three economics departments in the country.
Typical of the questions after his talk was this: “Professor Mises,
you say you are in favor of repealing measures of government intervention.
But doesn’t such repeal itself constitute an act of intervention?”
To this inane question, Mises gave a perceptive and telling reply:
“Well, in the same way, you could say that a physician who rushes
to the side of a man hit by a truck, is ‘intervening’ with the
man in the same way as the truck.” Afterwards, I asked Professor
Mises how he liked the experience. “Eh,” he replied, “I like my
students [at NYU] better.” After that, I realized that perhaps
Mises’s teaching at NYU was truly worthwhile, even from his point
of view.[57]

As early as
1942, Mises, dismayed but undaunted by the sad fate of Nationalökonomie,
began work on an English-language version of the book. The new book
was not simply an English translation of Nationalökonomie.
It was revised, better written and greatly expanded, so much so
as to be virtually a new book.[58]
It was the great work of Mises’s life. Under the care and aegis
of Eugene Davidson, the Yale University Press published the new
treatise in 1949 as Human Action: a Treatise on Economics.[59]

the opening of Mises’s seminar coincided with the publication
of Human Action, which came out on September 14, 1949.
Human Action is it: Mises’s greatest achievement
and one of the finest products of the human mind in our century.
It is economics made whole, based on the methodology of praxeology
that Mises himself had developed, and grounded in the ineluctable
and fundamental axiom that human beings exist, and that they act
in the world, using means to try to achieve their most valued
goals. Mises constructs the entire edifice of correct economic
theory as the logical implications of the primordial fact of individual
human action. It was a remarkable achievement, and provided a
way out for the discipline of economics, which had fragmented
into uncoordinated and clashing sub-specialties. It is remarkable
that Human Action was the first integrated treatise on
economics since Taussig and Fetter had written theirs before World
War I. In addition to providing this comprehensive and integrated
economic theory, Human Action defended sound, Austrian
economics against all its methodological opponents, against historicists,
positivists, and neo-classical practitioners of mathematical economics
and econometrics. He also updated his critique of socialism and

In addition,
Mises provided important theoretical corrections of his predecessors.
Thus, he incorporated the American Austrian Frank Fetter’s pure
time preference theory of interest into economics, at long last
rectifying Böhm-Bawerk’s muddying of the waters by bringing
back the fallacious productivity theory of interest after he had
disposed of it in the first volume of his Capital
and Interest

It is another
blot on American academia that I had gone through all the doctoral
courses at Columbia University without once discovering that there
was such a thing as an Austrian school, let alone that Ludwig
von Mises was its foremost living champion. I was scarcely familiar
with Mises’s name, outside of the usual distorted story of the
socialist calculation debate, and was therefore surprised to learn
in the spring of 1949 that Mises was going to begin a regular
seminar at NYU. I was also told that Mises was going to publish
a magnum opus in the fall. “Oh,” I asked, “what’s the
book about?” “About everything,” they replied.

Action was indeed about everything. The book was a revelation
to those of us drenched in modern economics; it solved all problems
and inconsistencies that I had sensed in economic theory, and
it provided an entirely new and superb structure of correct economic
methodology and theory. Furthermore, it provided eager libertarians
with a policy of uncompromising laissez-faire; in contrast
to all other free-market economists of that day or later, there
were no escape hatches, no giving the case away with “of course,
the government must break up monopolies,” or “of course, the government
must provide and regulate the money supply.” In all matters, from
theoretical to political, Mises was the soul of rigor and consistency.
Never would Mises compromise his principles, never would he bow
the knee 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.

Action was and continues to be a remarkable publishing phenomenon.
The book to this day is a best seller for the press, so much so
that the publisher refuses to put it into paperback. This is truly
noteworthy for a massive and intellectually difficult work such
as Human Action. Astonishingly, the book was made an
alternate selection of the Book-of-the-Month Club, and it has
been published in Spanish, French, Italian, Chinese, and Japanese
Thus, through Human Action Mises was able to forge an
Austrian and laissez-faire movement of national and even international

too, the Misesian movement forged by Human Action was
multi-class: it ranged from scholars to students to businessmen,
ministers, journalists, and housewives. Mises himself always placed
great importance on outreach to businessmen and the general public.
At one time, there were plans afoot for a graduate school, entitled
the American School of Economics, to be financed by J. Howard
Pew with Mises as president. Some of us younger Misesian scholars
were on the Board of Trustees. Mises emphasized that, as was common
in Europe, the faculty of the school should give periodic lectures
to the general public, so that sound economic education would
not be confined to professional scholars. Unfortunately, plans
for the school eventually fell through.

Yale University
Press was so impressed with the popularity as well as the quality
of Mises’s book that it served for the next decade as the publisher
of his work. The press published a new, expanded edition of Socialism
in 1951, and a similarly expanded edition of The Theory of Money
and Credit in 1953. Remarkably, too, Mises did not rest on
his laurels after the publication of Human Action. His
essay on “Profit
and Loss”
is perhaps the best discussion ever written of the
function of the entrepreneur and of the profit-and-loss system of
the market.[61]
In 1957, the press published Mises’s last great work, the profound
and History
, his philosophical masterpiece that explains
the true relation between praxeology, or economic theory, and human
history, and engages in a critique of Marxism, historicism, and
various forms of scientism. Theory and History was, understandably,
Mises’s favorite next to Human Action.[62]
However, after the departure in 1959 of Eugene Davidson to be founding
editor of the conservative quarterly Modern Age, Yale University
Press no longer served as a friendly home for Mises’s works.[63]
In its final years the publishing program of the William Volker
Fund took up the slack, and provided the world with an English edition
of Liberalismus (as The Free and Prosperous Commonwealth),
and of Grundprobleme der Nationalökonomie (as Epistemological
Problems of Economics), both published in 1962. Also, in the
same last year of Volker Fund existence, the Fund published Mises’s
final book, The
Ultimate Foundation of Economic Science: An Essay on Method
a critique of logical positivism in economics.[64]

During his
post-World War II American years, Mises experienced ups and downs
from observing the actions and influence of his former students,
friends, and followers. On the one hand, he was happy to be one
of the founding members in 1947 of the Mont Pelerin Society, an
international society of free market economists and scholars. He
was also delighted to see such friends as Luigi Einaudi, as President
of Italy, Jacques Rueff, as monetary adviser to general Charles
De Gaulle, and Röpke and Alfred Müller-Armack as influential
advisers of Ludwig Erhard, play a major role in shifting their respective
nations, during the 1950s, in the direction of free markets and
hard money. Mises played a leading part in the Mont Pelerin Society
in early years, but after a while became disillusioned with its
accelerating statism and mushy views on economic policy. And even
though Mises and Hayek maintained cordial relations until the end,
and Mises never spoke a bad word about his long-time friend and
protégé, Mises was clearly unhappy about the developing
shift in Hayek after World War II away from Misesian praxeology
and methodological dualism, and toward the logical empiricism and
neo-positivism of Hayek’s old Viennese friend Karl Popper. Mises
pronounced himself “astonished” when Hayek, in a lecture in New
York on “Nomos and Taxis” in the 1960s, clearly if implicitly repudiated
the praxeological methodology of his own Counter-Revolution
of Science
. And Mises, while generally admiring Hayek’s
1960 work on political philosophy and political economy, The
Constitution of Liberty
, took Hayek gently but firmly to
task for holding that the Welfare State is “compatible with liberty.”[65]

After failing
for the last two years of his life, the great and noble Ludwig
von Mises, one of the giants of our century, died on October 10,
1973, at the age of 92. It is ironic that the following year,
Friedrich A. Hayek received the Nobel Prize in Economics, not
for his later philosophical meanderings and lucubrations, but
precisely and explicitly for the work he did, in the 1920s and
1930s, as an ardent Misesian, in elaborating Mises’s theory of
business cycles. Ironic because if anyone deserved the Nobel Prize
more than Hayek, it was clearly his mentor, Ludwig von Mises.
Those of us given to cynical speculation might judge that the
Nobel Prize Committee of Sweden deliberately held off the award
until Mises’s death, for otherwise they would have had to give
the award to someone they considered impossibly dogmatic and reactionary.

The Nobel
Prize to Hayek, combined with the growing Misesian movement of
the preceding fifteen years, sparked a veritable “takeoff” stage
for a revival of Austrian economics. For one thing, the general
run of economists, virtually obsessed with the Nobel Prize, and
never having heard of Hayek, felt obliged to investigate what
this person may have done. Hayek’s was also the first Nobel to
break the logjam of giving the award only to mathematicians and
Keynesians; since then, numerous free-market economists have obtained
the award.

Since 1974,
the revival of Austrian economics and of interest in Mises and
his ideas has accelerated greatly. Scorned for the last four decades
of Mises’s life, Austrian economics in general, and Mises in particular,
are now generally considered, at the very least, a worthy ingredient
amidst the current potpourri and confusion of economic thought
and opinion. The academic climate is surely very different now,
and infinitely better, than it was in the dark days that Mises
could not find a suitable academic post.

For a few years
after 1974, a revival of Austrian economics flourished, and there
were notable conferences and published volumes each year. But then
the tide seemed to turn, and by the late 1970s centers and institutes
previously devoted to the resurgence of Misesian economics began
to lose interest. The conferences and books slowed down, in quantity
and in quality, and we began to hear once again the old canards:
that Mises was too “extreme” and too “dogmatic,” and that it would
be impossible to continue as a Misesian and gain “respectability”
in the world, to achieve political influence, or, in the case of
young academics, to acquire their tenure. Former Misesians began
to pursue strange gods, to find great merit in such creeds that
Mises detested as the German Historical School, institutionalism,
nihilism, and even to prate about a “synthesis” with Marxism. Worse
yet, some of these younger Austrians were actually trying to imply
that Mises himself, a man who dedicated his entire life to the truth,
would actually have blessed such abhorrent maneuverings.

just as it seemed that the Misesian path would be lost once again,
the Ludwig von Mises Institute was formed in 1982. Its lusty development
since then has, virtually singlehandedly, revived Misesian economics
and placed it in the dominant position in the growing Austrian
movement. Through an annual scholarly journal, The
Review of Austrian Economics
, a quarterly Austrian
Economics Newsletter
, a monthly periodical The
Free Market
, a growing publication
program of books
, occasional papers, and working
, annual instructional seminars, policy conferences,
numerous non-residential graduate fellowships, and resident fellowships
at Auburn University and other universities across the country,
the Mises Institute has finally established Austrianism not only
as a viable new paradigm for economics but as truly Austrian.
In short, in the spirit and the content of the marvelous body
of thought that we have inherited from the great Mises. Also in
the spirit of Mises, the Institute has forged a multi-level program,
from the highest reaches of scholarship, to speaking out boldly
on the important concrete policy issues of our time. Hence, after
some fits and starts, and thanks to the Mises Institute, we have
at last forged an Austrian revival that Mises would be truly proud
of. We can only regret that he did not live to see it.

Mises the Man

Who was Mises
the Man? Since his death, some of his most beloved students of
the 1920s, particularly F.A. Hayek, have disseminated the view
that Mises was “difficult,” “stern,” “severe,” not personally
close to his students, and even “personally obnoxious.” These
strictures were either given to interviewers, or inserted as barbs
in the midst of an effusion of praise for Mises.[66]
But is this the sort of teacher who all of his life had gathered
around him enthusiastic admirers and followers? Certainly, I can
testify that all his American followers were steeped, not only
in admiration for the greatness and rigor of his intellect and
creative powers, and for his indomitable courage, but also in
love with the sweetness of his soul. And if it is to be thought
that somehow his personality had been harsher in the 1920s, what
kind of an aloof or impersonal mentor would induce a man like
Felix Kaufmann to compose songs
in honor of Mises’s seminar

Not only were
we American students deeply stirred by Mises the man, but we all
realized that in Mises we were seeing the last trailing clouds of
glory of the culture of pre-World War I Old Vienna, a far finer
civilization than we will know again. William E. Rappard, a man
of Mises’s own age, caught this spirit very well in his tribute
to Mises in the Festschrift prepared in 1956. Rappard wrote
of Mises that, in the Geneva years,

I very
often, and I am afraid, very indiscreetly, enjoyed his company.
All those who have ever had a like privilege realize that he
is not only one of the keenest analytical minds among contemporary
economists, but that he also has at his disposal a store of
historical culture, the treasures of which are animated and
illuminated by a form of humanity and Austrian wit rarely to
be found today on the surface of this globe. In fact, I sometimes
wonder, not without fear, whether our generation is not the
last to be blessed with what seems to have been a monopoly of
pre-war Vienna.[68]

But the finest
words of appreciation of Mises the man were delivered in the course
of a perceptive and elegantly
written tribute
to Mises’s ideas by his long-time admirer
Professor Ralph Raico:

For over
sixty years he was at war with the spirit of the age, and with
every one of the advancing, victorious, or merely modish political
schools, left and right.

after decade he fought militarism, protectionism, inflationism,
every variety of socialism, and every policy of the interventionist
state, and through most of that time he stood alone, or close
to it. The totality and enduring intensity of Mises’s battle
could only be fueled from a profound inner sense of the truth
and supreme value of the ideas for which he was struggling.
This – as well as his temperament, one supposes –
helped produce a definite “arrogance” in his tone (or “apodictic”
quality, as some of us in the Mises seminar fondly called it,
using one of his own favorite words), which was the last thing
academic left-liberals and social democrats could accept in
a defender of a view they considered only marginally worthy
of toleration to begin with….

But the
lack of recognition seems to have influenced or deflected Mises
not in the least.[69]

And Professor
Raico concludes with this marvelous and discerning passage:

No appreciation
of Mises would be complete without saying something, however inadequate,
about the man and the individual. Mises’s immense scholarship, bringing
to mind other German-speaking scholars, like Max Weber and Joseph
Schumpeter, who seemed to work on the principle that someday all
encyclopedias might very well vanish from the shelves; the Cartesian
clarity of his presentations in class (it takes a master to present
a complex subject simply); his respect for the life of reason, evident
in every gesture and glance; his courtesy and kindliness and understanding,
even to beginners; his real wit, of the sort proverbially bred in
the great cities, akin to that of Berliners, or Parisians and New
Yorkers, only Viennese and softer – let me just say that to
have, at an early point, come to know the great Mises tends to create
in one’s mind life-long standards of what an ideal intellectual
should be. These are standards to which other scholars whom one
encounters will never be equal, and judged by which the ordinary
run of university professor – at Chicago, Princeton, or Harvard
– is simply a joke (but it would be unfair to judge them by
such a measure; here we are talking about two entirely different
sorts of human beings).

When Mises
died, and I was preparing an obituary, Professor Raico kindly
sent me a deeply moving passage from Adonais, Shelley’s
great eulogy to Keats, that, as usual for Raico, struck just the
right note in a final assessment of Mises:

For such
as he can lend – they borrow not
from those who made the world their prey:
he is gathered to the kings of thought
waged contention with their time’s decay,
of the past are all that cannot pass away.[70]


Ludwig von Mises, Notes
and Recollections
(South Holland, IL: Libertarian Press,
1978), p. 7.

Mises, Notes, p. 6. Nonetheless, about forty years
ago, Edith Murr Link, then at work on a doctoral dissertation
on a closely related subject, told me that Mises’s work was
still considered definitive. On Grünberg, also see Earlene
Craver, “The Emigration of Austrian Economists,” History
of Political Economy 18 (Spring 1987), p. 2.

The book was entitled, A Contribution to Austrian Factory
Legislation. Mises, Notes, p. 6.

Mises, Notes, pp. 6–7.

Margit von Mises, My
Years with Ludwig von Mises
(2nd Enlarged Ed., Cedar
Falls, IA: Center for Futures Education, 1984), p. 200.

The name of the organization, upon Mises’s joining it in 1909,
was the Lower Austrian Chamber of Commerce and Industry. In
1920, it changed its name to the Vienna Chamber of Commerce,
Handicrafts, and Industry.

On Mises’s articles on gold and foreign exchange, on Böhm-Bawerk’s
revelations, and on Mises’s decision, see Mises, Notes,
pp. 43–53.

Mises’s stress on the utility of, and demand for, cash balances
anticipated a seemingly similar emphasis by Alfred Marshall
and his Cambridge School disciples, Pigou and Robertson. The
difference, however, is that the Marshallian k, the
demand for cash balances, was as aggregative and mechanistic
as the Fisherine V, or “velocity of circulation,” so
that the Cambridge k could easily be trivialized as
the mathematical inverse of the Fisherine V. Mises’s
demand for cash balance, grounded as it is in each individual’s
demand, cannot be mathematically reduced in this way.

When gold or some other useful commodity is money, an increase
in the stock of gold does confer a social benefit in
its non-monetary uses; for now there is more gold available
for jewelry, for industrial and dental uses, etc. Only in its
monetary uses is any supply of gold optimal. When fiat
paper is the monetary standard, in contrast, there are no non-monetary
uses to render palatable an increase in its supply.

For a discussion of this point, see Murray N. Rothbard, Toward
a Reconstruction of Utility and Welfare Economics
New York: Center for Libertarian Studies, 1977), pp. 9–15.
Franz Cuhel’s contribution is in his Zur Lehre von den Bedürfnissen
(Innsbruck, 1906), pp. 186ff. Böhm-Bawerk’s attempt to refute
Cuhel can be found in Eugen von Böhm-Bawerk, Capital
and Interest (South Holland, IL: Libertarian Press, 1959)
III, 124–136.

The presentation of the Regression Theorem is in Ludwig von Mises,
The Theory of Money and Credit (3rd ed., New Haven: Yale
University Press, 1953), pp. 108–123. Mises later answered
critics of the theorem in his Human Action (New Haven:
Yale University Press, 1949), pp. 405–413. For a reply to
more recent critics, Gilbert and Patinkin, see Rothbard, Toward
a Reconstruction, p. 13, and Rothbard, Man,
Economy, and State
(Princeton: Van Nostrand, 1962), I,
231–237, and esp. 448. Also see Rothbard, “The Austrian Theory
of Money” in E. Dolan, ed., The
Foundations of Modern Austrian Economics
(Kansas City:
Sheed and Ward, 1976), p. 170. For the most recent discussion
of the Regression Theorem, including a reply to Moss’s critique
of Mises, see James Rolph Edwards, The
Economist of the
Ludwig von Mises in the History of Monetary Thought
York: Carlton Press, 1985), pp. 49–67.

Mises, Notes, p. 56.

Mises, Notes, p. 59.

Craver, “Emigration,” p. 2.

After World War II, Mayer was to continue his career of unprincipled
opportunism. When the Russians occupied Vienna, they were understandably
out to get Mayer, but he pulled out his Communist Party card
and assured the Russians that he had long agitated on their
behalf. When the Allies replaced the Russians, Mayer was ready
with his Social Democrat party card and again escaped unscathed.

Mises, Notes, p. 95.

Karl Popper remembers of Vienna in the 1920s that “It became
impossible for anyone of Jewish origin to become a University
teacher.” Fritz Machlup, a distinguished student and disciple
of Mises, who was Jewish, was prevented from receiving his habilitation
degree, the equivalent of the second half of a doctorate, which
was needed to permit one to teach at the University of Vienna
as a privatdozent. This contrasted to the receipt of
their habilitations by the three other leading students of Mises,
who were not Jewish, Hayek, Haberler and Morgenstern.

recalls that the backing of one of the three full professors
was needed to bring one’s habilitation to a vote. Mayer opposed
him because of his all-consuming jealousy of Mises and of Mises’s
proteges. Spann and Degenfeld-Schönburg refused to vote
for Machlup out of anti-Semitic principle. Craver, “Emigration,”
pp. 23–24.

Craver, “Emigration,” p. 5.

Mises, Notes, p. 38.

Keynes’s review is in Economic Journal, Vol. XXIV,
pp. 417–419. His damaging admission is in his A Treatise
on Money (London, 1930), I, 199, n. 2. Hayek’s
account of this study characteristically misses the arrogance
and gall, and treats the episode as merely a learning defect,
concluding that “the world might have been saved much suffering
if Lord Keynes’s German had been a little better.” The trouble
with Keynes was hardly confined to his defective knowledge of
German! Hayek, “Tribute to Ludwig von Mises,” in Mises, My
Years, p. 219.

Mises, Notes, p. 73.

Hayek, in Mises, My Years, pp. 219–220.

For three years before the outbreak of war, Mises, in his work
for the Chamber, had investigated trade relations with Hungary,
and so was highly qualified for the post. Mises, Notes,
pp. 75–76.

Mises notes that the man reputed to be the best industrial manager
in Austria, and an industrial consultant to a leading bank, the
Bodenkreditanstalt, assured Otto Bauer in Mises’s presence
that he really preferred serving “the people” to serving stockholders.
Mises, Notes, p. 18. Also see ibid, pp. 16–19,
77. The collapse of the Bodenkreditanstalt in 1931 was
to precipitate the European banking crisis and Great Depression.

Mises, Notes, pp. 77–83. Mises writes that, given
his reputation in money and banking, several big banks offered
him a position on their boards. He adds that “until 1921 I always
declined for the reason that they refused to give assurance
that my advice would be followed: after 1921 I declined because
I considered all banks insolvent and irretrievably lost. Events
bore me out.” Ibid., p. 73.

Mises, Notes, pp. 91–92.

Mises, Notes, p. 74.

Mises, Notes, p. 112. In contrast to Lavoie, who sees
the entrepreneurial uncertainty aspect of the argument as central
from the time of Mises’s first article, Kirzner correctly sees
a shift of focus with the more “static” equilibrium argument
dominant at first. Unfortunately, Kirzner regards the later
emphasis on uncertainty and change not so much as an elaboration
of the original argument (which it was) but as an improvement,
because of the shift from equilibrium to more dynamic considerations.
Thereby Kirzner misses the absolute centrality of the original
“static” focus, which makes Mises’s impossibility of economic
calculation (under given as well as under uncertain
conditions) a far stronger argument against socialism than the
later Hayekian or Kirznerian versions.

Mises’s first
article is in F.A. Hayek, ed., Collectivist
Economic Planning
(London: Routledge & Kegan Paul,
1935), and his latest views are in Human Action (New
Haven: Yale University Press, 1949), pp. 694–711. Lavoie’s
views are in his Rivalry
and Central Planning
(Cambridge: Cambridge University
Press, 1985). Kirzner’s are in Israel M. Kirzner, “The Economic
Calculation Debate: Lessons for Austrians,” Review of Austrian
Economics, 2 (1987), pp. 1–18. The best and most comprehensive
work on the socialist calculation debate is still Trygve J.B.
Hoff Economic
in the Socialist Society
(London William Hodge &
Co., 1949).

These conclusions are reinforced by Professor Joseph Salerno,
who concludes from his studies that Hayek’s contributions, though
seemingly more dynamic then Mises’s, are actually far more static
in almost totally ignoring entrepreneurship. Hayek’s economic
actors tend to be passive recipients of information instead
of entrepreneurial appraisers and forecasters. Conversations
with Professor Salerno.

On the enormous impact of Mises’s Socialism on himself
and his generation, see Hayek, in Mises, My Life, pp.

Mises’s most important business cycle writings of the 1920s and
early 1930s are translated and published in Ludwig von Mises,
of Money and Credit
(Dobbs Fern; NY: Free Market Books,

See in particular, Ludwig von Mises, Socialism: an Economic
and Sociological Analysis (New Haven: Yale University Press,
1951), pp. 289–313. I am indebted to Professor Joseph Salerno
for calling my attention to these passages.

F.A. Hayek, “Foreword,” Ludwig von Mises, Socialism
(Indianapolis: Liberty Press/Liberty Classics, 1981), pp. xxiii–xxiv.
I am indebted to Professor Hans-Hermann Hoppe for calling my
attention to this passage. Hayek’s tribute to Mises in 1956
is in Mises, My Years, pp. 217–223, and his discussion
of Socialism in ibid., pp. 220–221. It
is curious that Hayek does not even mention, much less try to
rebut, Mises’s full presentation of the rationalist case in
Socialism (1951), Part III, Chapter II, “Society,”
pp. 289–313 (seen. 32 supra).

The Vienna Circle included, in addition to Kaufmann and Richard
von Mises, their leader Moritz J. Schlick, and Otto Neurath,
Rudoff Carnap, Carl C. Hempel, Herbert Feigl, and Gustav Bergmann.
Fellow travelers and also logical positivists with their own
circles were Ludwig Wittgenstein and Karl Popper. (Fanatical
Popperians assert enormous differences between the positivists
and Popper, but from the present author’s perspective these
are largely distinctions without a difference.)

The two
Mises brothers seem to have been estranged from an early age.
They formally reconciled after Ludwig’s marriage in 1938, but
were never close. One time, when Richard’s book Positivism
was published, I asked Ludwig von Mises what he thought of his
brother’s book. Mises drew himself up into an uncharacteristically
stern pose, eyes flashing: “I disagreed with that book,” he
stated in no uncertain terms, “from the first sentence until
the last.” It was not a tone that invited further inquiry.

Ludwig von Mises, Epistemological Problems of Economics
(1960, New York: New York University Press, 1978), p. xiii.

See note 17, supra.

Mises, My Years, p. 208.

Mises, Notes, pp. 97–98.

On cafés and private seminars in the intellectual life
of Vienna in the period, see the perceptive account in Craver,
“Emigration,” pp.13–14.

Mises, My Years, p. 207.

On Mises’s private seminar, see Mises, My Years, pp.
201–211; Mises, Notes, pp. 97–100; Craver,
“Emigration,” pp. 13–18.

Morgenstern soon took the Institute onto decidedly non-Misesian
paths, sponsoring econometric studies under the influence of
his friend Karl Menger, including work by Menger students Gerhard
Tintner and Abraham Wald. Craver, “Emigration,” pp. 19–20.

Part of this story is told in Mises, My Years, p. 205.

Unfortunately, the better known edition of Robbins’s book was
the second, in 1935, which was already substantially less Misesian
and more neo-classical than the first edition.

The apostasy was so fervent that at least two of these men took
the unusual step of openly repudiating their own Mises-influenced
work. Lionel Robbins repeatedly denounced his own Great
Depression and Hicks repudiated his Austrian-oriented Theory
of Wages. The only anti-Keynesian remaining besides Hayek,
was former Cannan student W.H. Hutt, whose brilliant quasi-Austrian
refutations of Keynes passed unnoticed, since Hutt taught and
published in South Africa, not exactly the center of economic
thought and argument.

On the Geneva years, see Mises, My Years, pp. 31–49,
and Mises, Notes, pp. 136–138.

A decade or so later, after Mises had launched his graduate seminar
at New York University, some of us, during a post-seminar snack
at Childs’ Restaurant, reacted to some of the marvelous anecdotes
Mises told us about the old days in Vienna by suggesting that
he write his autobiography. Mises drew himself up, in a rare moment
of severity, and declared; “Please! I am not yet old enough to
write my autobiography.” It was a tone that brooked no further
discussion. But since Mises was then in his seventies – a
very advanced age to the rest of us – and since this is a
country where twerps of twenty are publishing their “autobiographies,”
we naturally though silently, disagreed with the master.

Mises, Notes, pp. 69–70.

An earlier version of Omnipotent Government, dealing
only with Germany and Austria, had been written in German in
Geneva just before the outbreak of World War II; after arrival
in the United States, Mises added an appendix. This earlier
and smaller work was published after Mises’s death in Stuttgart,
in 1978, under the title, Im Namen des Staates oder Die
Gefahren des Kollektivismus (In the Name of the State,
or the Dangers of Collectivism.)

Hazlitt relates the story of his first personal contact with
Mises: “One night at home, I received a telephone call, and
the voice on the other end of the wire said, ‘This is Mises
speaking.’ As I later told some of my friends, it was almost
as if somebody had said, ‘This is John Stuart Mill speaking.'”
Mises, My Years, p. 58.

These included J. Howard Pew of Sun Oil Company, the major financial
contributor to laissez-faire causes; B.E. Hutchinson, vice-chairman
of Chrysler; and Robert Welch, of Welch Candy Corp., who went
on in the late 1950s to found the John Birch Society.

Harold W. Luhnow was head of the William Volker Company a furniture
distributing house in Kansas City, and of the William Volker
Fund, which played a vitally important but still unsung role
in supporting libertarian and conservative scholarship from
the late 1940s until the early 1960s.

For a while, Mises continued to teach his Socialism course as
well as conduct his seminar. After a few years, the seminar
was his only course at NYU.

American academia treated F.A. Hayek, who was still a Misesian
intellectually and politically, only slightly less shabbily than
Mises. The Volker Fund tried to place Hayek at an American university,
and was finally able to find a wholly subsidized post for Hayek
at the University of Chicago. The Chicago economics department,
however, rejected Hayek, but he was accepted at the scholarly
but offbeat graduate Committee on Social Thought, where he had
only a few, even though first-rate, graduate students. It was
because the University of Chicago refused to pay Hayek any pension
that he was forced to return to German and Austrian universities
after reaching retirement age.

Mises, My Years, p. 59.

As a European professor, Mises never fully adapted to the grading
system in the U.S. At first, he gave every student an A. When
told he could not do that, he alternatively gave students As
and Bs depending on their alphabetical placement. When told
he could not do that, he settled on a policy of giving
an A to any student who wrote a paper for the course, regardless
of its quality and a B to everyone else.

When the Volker Fund collapsed in 1962, Lawrence Fertig, with
a consortium of other businessmen and foundations, kept the
seminar going until Mises retired in 1969.

I have been so informed by my German-American colleague, Professor
Hans-Hermann Hoppe of the economics department of the University
of Nevada, Las Vegas, a knowledgeable and creative praxeologist
and Misesian.

A particularly valuable assessment of the importance of publishing
an English version of Nationalökonomie was sent
to Davidson in January 1945 by Dr. Benjamin M. Anderson, monetary
economist, economic historian, and friend of Mises, and formerly
economist for the Chase National Bank. “Nationalokonamie
is von Mises’s book on general economic principles. It is the
central trunk, so to speak, of which the subject discussed in
his book on money and his book on socialism are merely the branches.
It is the fundamental theory of which the conclusions in the
books on socialism and money are the corollaries.” Mises, My
Years, p. 103.

Thus, Human Action was able to surmount a vicious review
in the New York Sunday Times Book Review by Harvard’s
John Kenneth Galbraith, who chastized the Yale University Press
for having the temerity to publish the book.

“Profit and Loss” was written as a paper for the meeting of the
Mont Pelerin Society held in Beauvallon, France, in September
1951. The essay was published as a booklet the same year by Libertarian
Press, and is now available as a chapter in the selected essays
of Mises, in Ludwig von Mises, Planning
for Freedom
(4th ed., South Holland, IL: Libertarian
Press, 1980), pp. 108–150.

Mises, My Years, p. 106. Unfortunately, Theory
and History has been grievously neglected by much of the
post-1974 Austrian School revival. See Murray N. Rothbard, “Preface,”
Ludwig von Mises, Theory and History: An Interpretation
of Social and Economic Evolution (2nd ed., Auburn
University, AL: Ludwig von Mises Institute, 1985).

The grisly story of the botched – seemingly deliberately
– second edition of Human Action in 1963 can be
found in Mises, My Years, pp. 106–111. The Yale
University Press settled Mises’s lawsuit on this horrendous
printing job out of court, giving in to virtually all his demands.
The rights to publish were transferred to Henry Regnery &
Co., which published the third edition of Human Action
in 1966, but the Yale University Press continues to take its
cut to this day. The worst aspect of the affair was the torment
inflicted on this 82-year old intellectual giant, distressed
at the mangling of his life’s masterwork.

All three works were published by D. Van Nostrand, whose chairman
was a Mises sympathizer, and who had a publishing arrangement
with the Volker Fund. Grundprobleme was translated
by George Reisman, and Liberalismus by Ralph Raico,
both of whom started attending Mises’s seminar while still in
high school in 1953. On Raico and Reisman, see Mises, My
Years, pp. 136–137.

Mises, Planning for Freedom, p. 219.

See, for example, Craver, “Emigration,” p. 5; and Mises, My
Years, p. 222.

Mises, My Years, p. 211.

William E. Rappard, “On Reading von Mises,” in M. Sennholz, ed.,
Freedom and Free Enterprise: Essays in Honor of Ludwig von

(Princeton: D. Van Nostrand, 1956), p. 17.

Ralph Raico, “The Legacy of Ludwig von Mises,” The Libertarian
Review (September 1981), p. 19. The article was included
in a Mises Centennial Celebration issue of the magazine. An
earlier version was published in The Alternative, February
1975. The text is available here.

Raico, “Legacy,” p. 22.


N. Rothbard
(1926–1995) was dean of the Austrian
School, founder of modern libertarianism, and chief academic
officer of the Mises Institute.
He was also editor — with Lew Rockwell — of The
Rothbard-Rockwell Report
, and appointed Lew as his
literary executor. See
his books.

Best of Murray Rothbard

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