Ludwig 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.
He 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.
The 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 highly abnormal.
Three Major Contributions
Mises 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.
Mises’s 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.”
This 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.
This 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.
Mises’s 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.)
In 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.
A Long Career
Mises’ 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.
He 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.
In 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.
The 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.
Mises 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 them.
Think 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.
He never gave up. Yale University press published his little masterpiece, Bureacracy, 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.
Mises 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 stealth.
One 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 textbook.
There is much that remains to be done.
Conclusion
Mises 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.
Today’s 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.
Mises 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.
August 20, 2001
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