von Mises (1881-1973) is not widely regarded as a major figure of
twentieth-century economic theory. The main reason for this assessment
is the fact that those within the economics profession who make
such career-enhancing imputations regarding other economists have
adopted economic theories that he had refuted before most of them
were born, or in some cases, before their fathers were born. His
contemporaries adopted a time-honored technique of dealing with
him: the memory hole. “Mises? Who’s Mises?” Their successors remained
in the dark.
fully understood the game. When his wife once told him that his
ideas would be more widely received some day, he replied that an
academic man’s influence can be estimated by references to him the
footnotes of his contemporaries. His name and work were missing.
vast majority of professionals in any field, including academic
disciplines, never make a major intellectual contribution. Few of
them make even a minor contribution. Few of them are remembered
after they retire, if they were known before they retired. They
are practitioners of what Thomas Kuhn has called “normal science,”
and most of them are normal practitioners. Mises was in this sense
made three major contributions to economic theory. The first was
his monetary theory of the trade cycle, which he presented in 1912
in his book, The
Theory of Money and Credit. In that book, as a kind of aside,
he presented his regression theory of the value of money: whatever
constitutes money in a market must originally have derived its value
from a non-monetary use. Few economists ever make a breakthrough
even this momentous.
theory of the trade cycle was the foundation of F. A. Hayek’s work
on monetary theory in the 1930’s, for which he won the Nobel Prize
in 1974, the year after Mises’s death. Yet, even today, the typical
Ph.D. graduate in economics would reply, “Mises? Who’s Mises?” The
less sharp ones would pronounce it “MYEseez.” The brighter ones
might reply, “Mises. Oh, yes. He was the economist refuted by Oskar
Lange, or so everyone thought before 1991.”
brings me to his second major contribution: his theory of the impossibility
of rational economic calculation in a socialist economy. He first
presented this theory in a 1920 essay, “Economic Calculation in
a Socialist Commonwealth.” He fleshed out his theory, and added
much more, in his 1922 book, Socialism.
Without free pricing, private ownership, and capital markets, he
argued, socialist central planners cannot allocate scarce resources
rationally. They cannot know what anything costs. They cannot match
supply with demand.
insight was generally ignored by economists for seventy years. In
fact, an attempted refutation in 1936 by a Communist economist,
Oskar Lange, received far wider attention in textbooks on the history
of economic thought. A decade later, Lange left the United States
to become the chief economist for Communist Poland, where he ignored
his own theory of how a socialist economic planning board can overcome
Mises’s assertions. Of course, the textbooks never refer to Lange’s
Communist affiliation and his subsequent neglect in practice of
his supposed practical solution to Mises’s objections: trial-and-error
pricing by the planning board. We can hardly blame him. In Communist
countries, errors too often led to trials.
third contribution was his a priori epistemology. He based
his entire economic theory on a small set of axioms, postulates,
and corollaries. In a century in which a posteriori positivism
was dominant in most academic fields, especially the economics profession,
his insights on epistemology received little recognition and no
praise from mainstream economists. The only Mises to receive any
recognition for work in epistemology was Richard, his mathematician-positivist
brother. (This fact did not sit well with Ludwig.)
all three areas, Mises never gave an inch, nor did he give quarter.
He was intransigent. He was also tenacious. He would not change
his mind, and he would not go away quietly. There are not many men
in any generation who possess both qualities. Those who do rarely
possess great intelligence, nor do they live to age 92.
finished his Ph.D. dissertation in 1906, at the age of 25. The
Theory of Money and Credit appeared six years later. Mises was
off to a flying start. Unfortunately, as an opinionated Jew in Austria,
he was allowed to fly only in circles. He was employed by the Austrian
Chamber of Commerce. He never attained a salaried position in any
state-funded Austrian institution of higher learning.
left Austria in the mid-1930’s because he feared that the Nazis
(members of the National Socialist Democratic Workers Party, lest
we forget, as textbook writers would prefer we forget) would take
over in Austria. He warned several Jewish economists to leave, and
some of them did, probably saving their lives. Fritz Machlup was
one of them-a far more famous economist than Mises after 1940. Mises
went to the Graduate Institute of Geneva, where his former student,
Wilhelm Roepke, had secured a position for him. This was the only
university-funded academic position that he ever held.
1941, he and his wife fled Switzerland by risking a bus ride across
Nazi-occupied France. He arrived in the United States without any
academic position or prospects. He was then hired by New York University
as a visiting professor. NYU condescended to allow donors to put
up his salary. Lawrence Fertig did so for decades.
sharper members of the NYU economics faculty had no use for Mises
or his theories; the rest of them despised his ideas. His famous
weekly graduate seminar eventually attained a following, but the
attendees were increasingly people from off campus. Murray Rothbard
was the premier example. Bettina Bien and Percy Greaves (who decades
later got married) attended weekly for almost two decades.
was at NYU. He was not of NYU. He got even with his detractors in
the department by remaining on the job from 1941 to 1966. He outlived
about his career. He fled Switzerland at the age of 60. He had no
job prospects when he landed in the United States. He had been employed
in academia for only a few years as an expatriate. The Keynesian
era had just begun, and it was to dominate academic economics for
the next five decades. He died knowing that the only visible academic
challengers to the Keynesians were the fiat-money positivists of
the Chicago School.
never gave up. Yale University press published his little masterpiece,
in 1944. Human
Action was published by Yale in 1949. Slowly, Mises gained
a new audience through the efforts of Henry Hazlitt, a widely read
economics columnist, and from the Foundation for Economic Education
and its publication, The Freeman. Hayek’s unexpected prominence
in 1974 subsequently helped create a posthumous awareness of Mises.
The Mises Institute is an institutional
witness to his significance.
never stopped saying in print that the dominant economic ideas of
his era were all tainted to one degree or other with the irrationalism
of socialism. He never stopped saying that all civil governments
are at bottom inflationary because politicians seek to extract wealth
from those under their jurisdiction, and at some point, the victims
resist. Governments turn to fiat money in order to extract wealth
by one, the socialist paradises have collapsed. One by one, the
central banks have inflated. By 1945, the twin processes of socialist
economic inefficiency and central bank price inflation had been
manifested during two world wars. In between the wars, the boom-bust
cycle that Mises’s monetary theory of the trade cycle had predicted
had decimated the world’s economy. But the dominant thinkers of
Mises’s era did not acknowledge any of this. They called for more
government intervention and more central bank stimulation of the
economy. The collapse of the Soviet economy in 1989, sixteen years
after his death, came as a surprise to the economics textbook writers,
Paul Samuelson included. Even today, the Federal Reserve-created
banking cartel remains a sacred cow in every college-level economics
is much that remains to be done.
never gave up. He never shut up. He never pulled a punch. But he
never hit below the belt, unlike his academic detractors, most of
whom spent their careers ignoring his writings, preferring at most
to mention him in the context of Lange, insisting that Lange had
refuted him. Most of them had not read Lange, either.
generation of academic economists can probably now get away with
saying, “Lange? Who’s Lange?” I suppose that this is an improvement.
For academic economists, little improvements count for a great deal.
Most of them never achieve even one.
achieved more than one. He should be a model to us all, in every
field. Not many of us will ever contribute three major revolutionary
insights, or even one, but we can keep the faith. We can refuse
either to sit down or shut up.
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