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September
29, 1981, is the one-hundredth anniversary of the birth of Ludwig von
Mises, economist and social philosopher, who passed away in 1973. Von
Mises was my teacher and mentor and the source or inspiration for most of
what I know and consider to be important and worthwhile in these fields—of
what enables me to understand the events shaping the world in which we
live. I want to take this opportunity to pay tribute to him, because I
believe that he deserves to occupy a major place in the intellectual
history of the twentieth century.
Von Mises is important because his teachings are necessary to the
preservation of material civilization. As he showed, the base of material
civilization is the division of labor. Without the higher productivity of
labor made possible by the division of labor, the great majority of
mankind would simply die of starvation. The existence and successful
functioning of the division of labor, however, vitally depends on the
institutions of a capitalist society—that is, on limited
government and economic freedom, private ownership of land and all other
property, exchange and money, saving and investment, economic inequality
and economic competition, and the profit motive—institutions everywhere
under attack for several generations.
When von Mises appeared on the scene, Marxism and the other
socialist sects enjoyed a virtual intellectual monopoly. Major flaws and
inconsistencies in the writings of Smith and Ricardo and their followers
enabled the socialists to claim classical economics as their actual ally.
The writings of Jevons and the earlier “Austrian” economists—Menger
and Böhm-Bawerk—were insufficiently comprehensive to provide an
effective counter to the socialists. Bastiat had tried to provide one, but
died too soon, and probably lacked the necessary theoretical depth in any
case.
Thus, when von Mises appeared, there was virtually no
systematic intellectual opposition to socialism or defense of capitalism.
Quite literally, the intellectual ramparts of civilization were
undefended. What von Mises undertook, and which summarizes the essence of
his greatness, was to build an intellectual defense of capitalism
and thus of civilization.
The leading argument of the socialists was that the institutions of
capitalism served the interests merely of a handful of rugged
“exploiters” and “monopolists” and operated against the interests
of the great majority of mankind, which socialism would serve. While the
only answer others could give was to devise plans to take away somewhat
less of the capitalists' wealth than the socialists were demanding, or to
urge that property rights nevertheless be respected despite their
incompatibility with most people's well-being, von Mises challenged
everyone's basic assumption. He showed that capitalism operates to the
material self-interests of all, including the
non-capitalists—the so-called proletarians. In a capitalist society, von
Mises showed, privately owned means of production serve the market. The
physical beneficiaries of the factories and mills are all who buy their
products. And, together with the incentive of profit and loss and the
freedom of competition that it implies, the existence of private ownership
ensures an ever-growing supply of products for all.
Thus, von Mises showed to be absolute nonsense such clichés as
“poverty causes communism.” Not poverty, but poverty plus the mistaken
belief that communism is the cure for poverty, causes communism. If the
misguided revolutionaries of the backward countries and of impoverished
slums understood economics, any desire they might have to fight poverty
would make them advocates of capitalism.
Socialism, von Mises showed, in his greatest original contribution
to economic thought, not only abolishes the incentive of profit and loss
and the freedom of competition along with private ownership of the means
of production, but makes economic calculation, economic coordination, and
economic planning impossible, and therefore results in chaos. For
socialism means the abolition of the price system and the intellectual
division of labor; it means the concentration and centralization of all
decision-making in the hands of one agency: the Central Planning Board or
the Supreme Dictator.
Yet the planning of an economic system is beyond the power of any
one consciousness: the number, variety and locations of the different
factors of production, the various technological possibilities that are
open to them, and the different possible permutations and combinations of
what might be produced from them, are far beyond the power even of the
greatest genius to keep in mind. Economic planning, von Mises showed,
requires the cooperation of all who participate in the economic system. It
can exist only under capitalism, where, every day, businessmen plan on the
basis of calculations of profit and loss; workers, on the basis of wages;
and consumers, on the basis of the prices of consumers' goods.
Von Mises's contributions to the debate between capitalism and
socialism—the leading issue of modern times—are overwhelming. Before
he wrote, people did not realize that capitalism has economic
planning. They uncritically accepted the Marxian dogma that capitalism is
an anarchy of production and that socialism represents rational economic
planning. People were (and most still are) in the position of Moliere's M.
Jourdan, who never realized that what he was speaking all his life was
prose. For, living in a capitalist society, people are literally
surrounded by economic planning, and yet do not realize that it exists.
Every day, there are countless businessmen who are planning to
expand or contract their firms, who are planning to introduce new
products or discontinue old ones, planning to open new branches or
close down existing ones, planning to change their methods of
production or continue with their present methods, planning to hire
additional workers or let some of their present ones go. And every day,
there are countless workers planning to improve their skills,
change their occupations or places of work, or to continue with things as
they are; and consumers, planning to buy homes, cars, stereos,
steak or hamburger, and how to use the goods they already have—for
example, to drive to work or to take the train, instead.
Yet people deny the name planning to all this activity and reserve
it for the feeble efforts of a handful of government officials, who,
having prohibited the planning of everyone else, presume to substitute
their knowledge and intelligence for the knowledge and intelligence of
tens of millions. Von Mises identified the existence of planning under
capitalism, the fact that it is based on prices (“economic
calculations”), and the fact that the prices serve to coordinate and
harmonize the activities of all the millions of separate, independent
planners.
He showed that each individual, in being concerned with earning a
revenue or income and with limiting his expenses, is led to adjust his
particular plans to the plans of all others. For example, the worker who
decides to become an accountant rather than an artist, because he values
the higher income to be made as an accountant, changes his career plan in
response to the plans of others to purchase accounting services rather
than paintings. The individual who decides that a house in a particular
neighborhood is too expensive and who therefore gives up his plan to live
in that neighborhood, is similarly engaged in a process of adjusting his
plans to the plans of others; because what makes the house too expensive
is the plans of others to buy it who are able and willing to pay more.
And, above all, von Mises showed, every business, in seeking to make
profits and avoid losses, is led to plan its activities in a way that not
only serves the plans of its own customers, but takes into account the
plans of all other users of the same factors of production throughout the
economic system.
Thus, von Mises demonstrated that capitalism is an economic system
rationally planned by the combined, self-interested efforts of all who
participate in it. The failure of socialism, he showed, results from the
fact that it represents not economic planning, but the destruction
of economic planning, which exists only under capitalism and the price
system.
Von Mises was not primarily anti-socialist. He was pro-capitalist.
His opposition to socialism, and to all forms of government intervention,
stemmed from his support for capitalism and from his underlying love of
individual freedom and conviction that the self-interests of free men are
harmonious—indeed, that one man's gain under capitalism is not only not
another's loss, but is actually others' gain. Von Mises was a
consistent champion of the self-made man, of the intellectual and business
pioneer, whose activities are the source of progress for all mankind and
who, he showed, can flourish only under capitalism.
Von Mises demonstrated that competition under capitalism is of an
entirely different character than competition in the animal kingdom. It is
not a competition for scarce, nature-given means of subsistence, but a
competition in the positive creation of new and additional wealth, from
which all gain. For example, the effect of the competition between farmers
using horses and those using tractors was not that the former group died
of starvation, but that everyone had more food and the income available to
purchase additional quantities of other goods as well. This was true even
of the farmers who “lost” the competition, as soon as they relocated
in other areas of the economic system, which were enabled to expand
precisely by virtue of the improvements in agriculture. Similarly, the
effect of the automobile's supplanting the horse and buggy was to benefit
even the former horse breeders and blacksmiths, once they made the
necessary relocations.
In a major elaboration of Ricardo's Law of Comparative Advantage,
von Mises showed that there is room for all in the competition of
capitalism, even those of the most modest abilities. Such people need only
concentrate on the areas in which their relative productive inferiority is
least. For example, an individual capable of being no more than a janitor
does not have to fear the competition of the rest of society, almost all
of whose members could be better janitors than he, if that is what they
chose to be. Because however much better janitors other people might make,
their advantage in other lines is even greater. And so long as the person
of limited ability is willing to work for less as a janitor than other
people can earn in other lines, he has nothing to worry about from their
competition. He, in fact, outcompetes them for the job of janitor by being
willing to accept a lower income than they. Von Mises showed that a
harmony of interests prevails in this case, too. For the existence of the
janitor enables more talented people to devote their time to more
demanding tasks, while their existence enables him to obtain goods and
services that would otherwise be altogether impossible for him to obtain.
On the basis of such facts, von Mises argued against the
possibility of inherent conflicts of interest among races and nations, as
well as among individuals. For even if some races or nations were superior
(or inferior) to others in every aspect of productive ability, mutual
cooperation in the division of labor would still be advantageous to all.
Thus, he showed that all doctrines alleging inherent conflicts rest on an
ignorance of economics.
He argued with unanswerable logic that the economic causes of war
are the result of government interference, in the form of trade and
migration barriers, and that such interference restricting foreign
economic relations is the product of other government interference,
restricting domestic economic activity. For example, tariffs become
necessary as a means of preventing unemployment only because of the
existence of minimum wage laws and pro-union legislation, which prevent
the domestic labor force from meeting foreign competition by means of the
acceptance of lower wages when necessary. He showed that the foundation of
world peace is a policy of laissez-faire both domestically and
internationally.
In answer to the vicious and widely believed accusation of the
Marxists that Nazism was an expression of capitalism, he showed, in
addition to all the above, that Nazism was actually a form of socialism.
Any system characterized by price and wage controls, and thus by shortages
and government controls over production and distribution, as was Nazism,
is a system in which the government is the de facto owner of the
means of production. Because, in such circumstances, the government
decides not only the prices and wages charged and paid, but also what is
to be produced, in what quantities, by what methods, and where it is to be
sent. These are all the fundamental prerogatives of ownership. This
identification of “socialism on the German pattern,” as he called it,
is of immense value in understanding the nature of present demands for
price controls.
Von Mises showed that all of the accusations made against
capitalism were either altogether unfounded or should be directed against
government intervention, which destroys the workings of capitalism. He was
among the first to point out that the poverty of the early years of the
Industrial Revolution was the heritage of all previous history—that it
existed because the productivity of labor was still pitifully low; because
scientists, inventors, businessmen, savers and investors could only step
by step create the advances and accumulate the capital necessary to raise
it. He showed that all the policies of so-called labor and social
legislation were actually contrary to the interests of the masses of
workers they were designed to help—that their effect was to cause
unemployment, retard capital accumulation, and thus hold down the
productivity of labor and the standard of living of all. In a major
original contribution to economic thought, he showed that depressions
were the result of government-sponsored policies of credit expansion
designed to lower the market rate of interest. Such policies, he showed,
created large-scale malinvestments, which deprived the economic system of
liquid capital and brought on credit contractions and thus depressions.
Von Mises was a leading supporter of the gold standard and of laissez-faire
in banking, which, he believed, would virtually achieve a 100% reserve
gold standard and thus make impossible both inflation and deflation.
What I have written of von Mises provides only the barest
indication of the intellectual content that is to be found in his
writings. He authored over a dozen volumes. And I venture to say that I
cannot recall reading a single paragraph in any of them that did not
contain one or more profound thoughts or observations. Even on the
occasions when I found it necessary to disagree with him (for example, on
his view that monopoly can exist under capitalism, his advocacy of the
military draft, and certain aspects of his views on epistemology, the
nature of value judgments, and the proper starting point for economics), I
always found what he had to say to be extremely valuable and a powerful
stimulus to my own thinking. I do not believe that anyone can claim to be
really educated who has not absorbed a substantial measure of the immense
wisdom present in his works.
Von Mises's two most important books are Human Action and Socialism,
which best represents the breadth and depth of his thought. These are not
for beginners, however. They should be preceded by some of von Mises's
popular writings, such as Bureaucracy and
Planning For Freedom.
The Theory of Money and Credit, Theory
and History, Epistemological
Problems of Economics, and The Ultimate Foundations of
Economic Science are more specialized works that should probably be
read only after Human Action. Von Mises's other popular writings in
English include Omnipotent Government, The Anti-Capitalistic Mentality,
Liberalism, Critique of Interventionism, Economic Policy, and The
Historical Setting of the Austrian School of Economics. For anyone
seriously interested in economics, social philosophy, or modern history,
the entire list should be considered required reading. [All titles of von
Mises currently in print can be ordered on this web site.]
Von Mises must be judged not only as a remarkably brilliant thinker
but also as a remarkably courageous human being. He held the truth of his
convictions above all else and was prepared to stand alone in their
defense. He cared nothing for personal fame, position, or financial gain,
if it meant having to purchase them at he sacrifice of principle. In his
lifetime, he was shunned and ignored by the intellectual establishment,
because the truth of his views and the sincerity and power with which he
advanced them shattered the tissues of fallacies and lies on which most
intellectuals then built, and even now continue to build, their
professional careers.
It was my great privilege to have known von Mises personally over a
period of twenty years. I met him for the first time when I was sixteen
years old. Because he recognized the seriousness of my interest in
economics, he invited me to attend his graduate seminar at New York
University, which I did almost every week thereafter for the next seven
years, stopping only when the start of my own teaching career made it no
longer possible for me to continue in regular attendance.
His seminar, like his writings, was characterized by the highest
level of scholarship and erudition, and always by the most profound
respect for ideas. Von Mises was never concerned with the personal
motivation or character of an author, but only with the question of
whether the man's ideas were true or false. In the same way, his personal
manner was at all times highly respectful, reserved, and a source of
friendly encouragement. He constantly strove to bring out the best in his
students. This, combined with his stress on the importance of knowing
foreign languages, led in my own case to using some of my time in college
to learn German and then to undertaking the translation of his Epistemological
Problems of Economics—something that has always been one of my
proudest accomplishments.
Today, von Mises's ideas at long last appear to be gaining in
influence. His teachings about the nature of socialism have been confirmed
in the first-hand observations of honest news reporters with extensive
experience in Soviet Russia, such as Robert Kaiser, Hedrick Smith, John
Dornberg, and Henry Kamm. They are being confirmed at this very moment by
the actions of millions of angry workers in Poland.
Some of von Mises's ideas are being propounded by the Nobel
prizewinners F.A. Hayek (himself a former student of von Mises) and Milton
Friedman. They exert a major influence on the writings of Henry Hazlitt
and the staff of the Foundation for Economic Education, as well as such
prominent former students as Hans Sennholz. Von Mises's monetary theories
permeate the pages of recent best-selling books on personal investments,
such as those by Harry Browne and Jerome Smith. And last, but certainly
not least, they appear to be exerting an important influence on the
present President of the United States, who has acknowledged reading Human
Action and has expressed his admiration for it.
Von Mises's books deserve to be required reading in every college
and university curriculum—not just in departments of economics, but also
in departments of philosophy, history, government, sociology, law,
business, journalism, education, and the humanities. He himself should be
awarded an immediate posthumous Nobel Prize—indeed, more than one. He
deserves to receive every token of recognition and memorial that our
society can bestow. For as much as anyone in history, he labored to
preserve it. If he is widely enough read, his labors may actually succeed
in helping to save it.
*Copyright
© 1981, 2021 by George Reisman. All rights reserved.
**George
Reisman, Ph.D., is professor of Economics at Pepperdine University’s
Graziadio School of Business and Management and is the author of
Capitalism: A Treatise on Economics
(Ottawa, Illinois: Jameson Books,
1996).
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