Salute to Von Mises; H. Hazlitt

744 19 writers, and Toward Liberty, a two-volume work published in 1971 on the occasion of his 90th birthday, with contributions from 66 writers. But such honors, even taken as a whole, seem scarcely proportion ate to his achievements. If ever a man deserved the Nobel Prize in economics, it is Mises. But in the few years of its existence, that award has gone to a handful of so called "mathematical economists" - in large part, one suspects, be cause only a parade· of unintel ligible mathematical equations im presses the laymen responsible for finding laureates as being truly "scientific," and perhaps because granting it· to economists primar ily for their mathematical ability relieves the donors from seeming to take sides in the central polit ical and economic issues of our time - the free market vs. govern ment controls and "planning," cap italism versus socialism, human liberty versus dictatorship.

Ludwig von Mises was born on September 29, 1881,. in Lemburg, then part of the Austro-Hungar1973 SALUTE TO VON MISES 745 ian Empire. He entered the Uni versity of Vienna in 1900, studied under the great Eugen von Bohm Bawerk, and a.cquired his doctor ate in law and economics in 1906. In 1909, he became economic ad viser to the Austrian Chamber of Commerce, a post he held till 1934. In 1913, following the publica tion of his Theory of Money and Credit the preceding year, he was appointed professor of economics at the University of Vienna, a prestigious but unpaid post that he also held for 20 years. His fa mous seminar in Vienna attracted and inspired, among others, such brilliant students as F. A. Hayek, Gottfried Haberler and Fritz Machlup. In 1934, foreseeing the likeU hood that Hitler would seize Aus tria, Mises left, advising his stu dents to do the same. He first be came professor of international economic relations at the Gradu 3,te Institute of International Studies in Geneva. In 1940, he came to the United States.

Mises was already the author of more than half a dozen books, in cluding three masterpieces, but only one of these, Soc'ialism: An Ec'Onomic and Sociological Analy s'is, had been translated into Eng lish. So Mises was practically un known here, and, as the fashion able economic ideology then was Keynesianism and its New Deal offspring, he was shrugged off as a rea.ctionary. Gaining an academic appoint ment proved difficult. Turning to books, he wrote Omnipotent Gov ernment, a history and analysis of the collapse of German liberalism and the rise of nationalism and Nazism. It was not unti11945 that he became a Visiting Professor at the Graduate School of Business Administration of New York Uni versity, a post he held until 1969. His body of work is large and impressive. But we can confine ourselves here to considering two of his three masterpieces - The Theory of Money and Credit, which first appeared in German in 1912; Socialism, originally in German in 1922; and Human Ac'tion., which grew out of a first German version appearing in 1940.

Mises' contributions tomone tary theory have been too numer ous to list completely. For one thing, he succeeded in integrating the theory of money with the great body of general economic theory. Before him general economic the ory and the theory of money were kept in separate containers, almost as if they were unrelated. Mises also saw the fallacies in the proposals of the so-called mon etarists, that "the price level" could or should be stabilized by government managers who in creased the quantity of money by 746 THE FREEMAN December a certain percentage every year. He saw that inflation cannot be automatically controlled - that be cause of its changing effects on expectations, an increase in the quantity of money, in its early stages, tends to increase prices less than proportionally; in its later stages, more than propor tionally. Mises also rej ected the simplis tic concept of "the price level." He pointed out that increases in the quantity of money do not raise all . prices proportionately; the new money goes to specific persons or industries, raising their prices and incomes first. The effect of infla tion is always to redistribute wealth and income in ways that distort incentives and production, create obvious injustices, and en kindle social discontent.

Moreover, Mises presented in this book, for the first time, at least the rudiments of a satisfac tory explanation of the business cycle. He showed that boom and bust were by no means inherent in capitalism, as the Marxists in sisted, but that they did tend to be inherent in the monetary and credit practices prevailing up to that tilme (and largely since). The fractional bank-reserve system, and the support furnished by cen tral banks, tend to promote the overexpansion of money and cred it. This raises prices and artificially lowers interest rates, thus giving rise to unsound investment. Finally, for an assortment of rea sons, the inverted pyramid of credit shrinks or collapses and brings on panic or depression. Mises' Soc:ialism is an economic classic written in our time. It is the most devastating analysis of socialism ever penned. It exam ines that philosophy from almost every possible aspect-its doctrine of violence, as well as that of the collective ownership of the means of production; its ideal of equal ity; its proposed solution to the problem of production and distri bution; its probable operation un der both static and dynamic con ditions; its national and interna tional consequences.

This is by far the ablest and most damaging refutation of so cialism since Eugen von Bohm Bawerk published his memorable Karl Marx and the Close of His System in 1898. It is more. Bohm Bawerk confined himself mainly to an examination of Marx's technical economics. Mises scrutinized so cialism in all its ugly aspects. His outstanding contribution was to point out that socialism must fail because it is incapable by its very nature of solving "the problem of economic calculation." A socialist government does not know how to distribute its labor, capital, land and other factors of 1973 SALUTE TO VON MISES 747 production to the best advantage. Since it does not know which com modities are being produced at a social profit and which at a social loss, it does not know how much of each commodity or service to plan for. In short, the greatest difficulty to the realization of socialism, in Mises' view, is intellectual. It is not a mere matter of goodwill, or of willingness to cooperate ener getically without personal reward.

"Even angels, if they were en dowed only with human reason, could not form a socialistic com munity." Capitalism solves this problem of economic calculation through money prices and money costs of both consumers' and pro ducers' goods, which are fixed by competition in the open market. On the basis of this single achievement, the late Oscar Lange, a Marxist economist who later be came a member of the Polish Po litburo, once proposed that future socialists erect a statue to Ludwig von Mises. Said Lange: "It was his powerful challenge that forced the socialists to recognize the im portance of an adequate system of economic accounting to guide the allocation of resources in a social ist economy." Lange was at least brought to recognize the existence of the problem and thought he had solved it. In fact, the only way that socialists can solve it is by adopting the principles of capitalism.

Because it illustrates not only the cogency of his logic, but also the depth of his feeling, the power of his intellectual leadership, and the uncanny foresight with which he judged the course of events more than 40 years ago, I cannot forbear from quoting a passage from the last page of Mises' S0 cialism: "Everyone carries a part of so ciety on his shoulders; .no one· is relieved of his share of responsi bility by others. And no one can find a safe way out for himself if society is sweeping towards de struction. Therefore everyone, in his own interests, must thrust himself vigorously into the intel lectual battle. None can stand aside with unconcern; the inter ests of everyone hang on the re sult. Whether he chooses or not, every man is drawn into the great historic struggle, the decisive bat tle into which our epoch has plunged us." As the eminent French econo mist Jacques Rueff once put it: "Those who have heard him have often been astonished at being led by his cogency of reasoning to places whither they, in their all too-human timorousness, had nev er dared to go." , Dr. Mises died October 10, 1973.