An Unfashionable Mind

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Israel Kirzner is well-qualified to write about Ludwig von Mises. He studied under him at New York University, earned his Ph.D. under him in 1957, and then joined the NYU faculty where he taught economics until his recent retirement. Kirzner has written eleven books which apply and expand on the economics he learned from Mises, treating such topics as competition, entrepreneurship, the market process, and justice. In this book, Kirzner summarizes Mises’ major contributions – in areas of economics like competition and monopoly, price theory, monetary theory, the trade cycle, and the economics of socialism – as well as the epistemological and methodological basis for economics and all of the social sciences.

He also shows how Mises’ teachings were eclipsed by the rise of Keynesian and “neoclassical” economic concepts such as “economic equilibrium” and “perfect competition,” how they were increasingly sidetracked and ignored as irrelevant, old- fashioned, and out-of-step with modern developments. And he reports that Mises’ ideas have undergone a stunning resurgence since his death in 1973. Kirzner’s final judgment is that Mises’ teachings will endure.

Who was Ludwig von Mises? If asked this question, most people would probably answer “Ludwig who?” After all, Mises is not in the news; he is not a mainstream figure; he was not in politics or entertainment, and he died almost 30 years ago. So, who cares?
Ludwig von Mises might be considered by some to be an unimportant “has-been.” He was born in 1881 in Austria-Hungary – a country that no longer exists. His first book was published a century ago, in 1902. He was a soldier in World War I – and fought on the losing side. After the war ended, he returned home to Vienna, taught there at the university, and became an economic adviser to the Austrian government. When Hitler came to power in Germany and it became apparent that Austria would not be able to remain independent, Mises went to Switzerland to teach. All chances of going back to Vienna were foreclosed when the Germans annexed Austria in 1938, and the Nazis stripped him of his Austrian citizenship. World War II overwhelmed Switzerland with war refugees and Mises began to feel he was no longer welcome there. In 1940, he finished the spring term at the Graduate Institute of International Studies and left for the United States, arriving in New York on Aug. 2, 1940.

Stranger in a Strange Land

Ludwig von Mises had earned considerable renown and respect in Europe during the 1920s and 1930s as a serious scholar and author of several important books. But when he arrived in this country in 1940, he was a rather

Kirzner portrays Mises as a man dedicated uncompromisingly to scientific inquiry, who refused to compromise or to be deterred by the unpopularity of his ideas.

 

obscure 59-year-old scholar. Only two of his books had been translated into English and their distribution had been limited. “For all his renown in the German-speaking (and German- reading) segment of the economics profession,” Kirzner notes, “Mises’ books and papers were virtually unknown to the vast majority of the international profession, for whom the only language of relevance was English” (p. 53). He was a stranger in a strange land. Moreover, the rise of Keynesianism and “[t]he dominant changes in economic theorizing and economic methods (characterized by the explosive growth of mathematical economics and econometrics) since 1930,” not to speak of changes in economic ideology, “made Mises appear, to U.S. economists, thoroughly old- fashioned and out of step, both doctrinally and methodologically” (23). Kirzner believes Mises probably didn’t even realize himself the extent to which his views on economics differed from the mainstream ideas that were emerging. However, as Kirzner points out, Mises’ ideas were to undergo a stunning resurgence after his death.

Mises’ approach to economics represented a startling departure from that in vogue when he was writing. In his first important book – The Theory of Money and Credit (German, 1912; English translation, 1934) – he traced monetary theory back to basics. He pointed out clearly that money was a market phenomenon arising out of the actions, decisions, and choices of men on the basis of their subjective values; it was not, a government creation. In contradiction to the orthodoxy of his day, he maintained further that (1) subjective value marginal utility’ theory applied to money, (2) money was not “neutral,” and (3) government has no special role with respect to money other than it did generally in commercial matters.

His second really important work was Socialism (German, 1922; English translation, 1936). Here Mises attributed the economic failures of a socialist society to the absence of private property and a market economy. In a socialist society without private ownership and exchanges there would be no owners and traders competing with one another to generate prices for property, goods, and services. Without private ownership and exchanges, without

produce, where to produce it, or how to produce it.

The Law of the Market

It became evident with the publication of Mises’ Epistemological Problems of Economics (German, 1933; English translation, 1962), that his views on epistemology and’, methodo}ogy were, in Kirzner’s words, “intellectually revolutionary” (71). For Mises, the science of economics was neither a historical nor a mathematical discipline; it was the study of purposive, conscious, intentional actions, choices, and decisions of men based on their preferences and subjective values. As a result of countless individual human choices, actions, and decisions there develops a tendency toward regularity in the market. “These systematic tendencies make up the so-called ‘laws’ of economics” (80). As Mises put it, just as there are laws of nature in the natural world, so there are economic “laws” in the social realm, “which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success” (72).

To illustrate, economic laws’decree that – other things remaining equal – if the price of a good rises, the demand for it on the market will fall and, at the same time, producers will strive to expand its production. Mises saw the trade cycle and the failures of socialism as consequences of the workings of economic law: Government manipulation of market-determined interest rates lead to the boom-and-bust cycle; government interventions prohibiting private property and preventing voluntary transactions, and cooperation among market participants are responsible for the failures of socialism.

? Mises realized economic laws were “not easily discernible to the eye of the historian or statistician. . . . Only abstract economic theorizing, recognizing the nature and operation of human purposefulness, and recognizing the nature and thrust of human entrepreneurial resourcefulness, is able to identify the systematic tendencies which shape the entrepreneurial – competitive market process” (80) A correct understanding and interpretation of these laws is of concern to everyone, however, for they can guide public policy so as to violate, or to protect, private property ownership and voluntary interpersonal transactions, so as to foster, or to avoid, inflation, government controls and regulations and other interventions that misdirect and distort economic arrangements. Thus, “[a]wareness of these ‘laws’ on the part of governments can help avoid disastrous policies that might unwittingly run afoul of these systematic tendencies” (80).

When Mises arrived in the United States, he was pretty much ignored by academia. However, a number of businessmen, lawyers, and persons in the medical profession were among those who were at first attracted to him and his ideas. It seemed to outsiders at that

Mises probably didn’t even realize himself the extent to which his views on economics differed from the mainstream ideas that were emerging.

 

time that Mises’ teachings were aimed primarily at promoting the special interests of conservatives and business- people. Then, in 1945, Mises began teaching a class at New York University and in the fall of 1948 the NYU Seminar started attracting a few students who would”make a not insignificant impact on late-twentieth-century perceptions of Austrian Economics.” He encouraged “his small number of close students, pointing them toward academic careers and nurturing their efforts at continuing the purely intellectual tradition of Austrian Economics…. [I]t was from this seminar that Mises’ influence toward the late-twentieth-century resurgence of Austrian Economics was

to radiate outwards” (24, 26).
Kirzner portrays Mises as a man

dedicated uncompromisingly to scientific inquiry, a man who was determined to improve his understanding of economic principles, who refused to compromise or to be deterred from his pursuit of economic understanding by the unpopularity of his ideas. “In his 1940 treatise,* and especially in its 1949 English-language, substantially revised version (Human Action), Mises presented the orthodox Austrian ideas in a manner which constituted an almost dramatically fresh statement of that orthodoxy” (59). Its “sheer size and comprehensiveness . . . did not permit it to be entirely ignored, even by a profession which considered Mises an old- fashioned relic of premodern economics. . . . Human Action articulated an entirely fresh restatement of the foundations of Austrian economics in a manner that most definitively and with commanding clarity set that economics apart from the economic thought which had, by mid-century, swept the mainstream stage. . . . When Mises published his Human Action in 1949 the profession considered it as perhaps the last gasp of a moribund tradition; it certainly failed to recognize it as a seminal, original work that for perhaps the first time spelled out with clarity and vigor the distinctive aspects of the Austrian tradition” (62-63).

Human Action was published when Mises was 69 years old. Yet he did not rest on his laurels but continued writing books and articles that have made significant contributions – “Profit and Loss” (1951), Omnipotent Government and Bureaucracy (1944), Planning for Freedom (1952), The Anti-Capitalistic Economy (1956), Theory and History (1957), The Historical Setting of the Austrian School of Economics and The Ultimate Foundation of Economic Science (1962).

The Austrian Revival

Since Mises’ death in 1973, there has occurred what Kirzner describes as a “remarkable resurgence of Austrian Economics.” The “vitality and cogency of Mises’ ideas” have been rediscovered. (193)

As Mises put it, just as there are laws of nature, so there are economic laws, “which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success.”

 

Many younger economists, having become” disenchanted with the aridity and artificiality of the model-building approach,” have” found intellectual stimulation and satisfaction in Mises’ relatively simple, but powerful and fundamental, insights” (194). The result is that after decades, when public policy favored much government intervention in the market economy, “Misesian views concerning the economic incoherence of socialism – and the case for complete, or virtually complete, laissez-faire – have somehow become part and parcel of respectable public policy discourse” (194).

Books and articles are being written on various aspects of Austrian economics, and debates and discussions are taking place. Many of the new Austrian economists question some parts of the Misesian system. “But there can be no doubt that the prime moving element responsible for the resurgence of the Austrian tradition was the impact of the work of Mises himself…. Out of the debates on these issues . . . a broad group of scholars has emerged who are all working within the Austrian tradition, and who recognize the work of Mises as being the most powerful and radical expression of that tradition in the twentieth century” (195).

For Mises, the pursuit of economic science called for 1/ strict adherence to the canons of scientific investigation generally…. [A] genuinely practiced policy of wertfreiheit [freedom from value judgments] was absolutely essential for economists, if their views were to have salutary influence and to command the respect ordinarily accorded to scientific pronouncements” (89-90). However, Mises believed that an economist could keep his scholarly endeavors separate from his personal value judgments, and that science could furnish grounds for making value judgments. Just as value-free medical research can yield sound medical advice, “[v]alue free economic science should be able to generate sound economic policy advice.” (165) Thus, although Mises insisted throughout his career “on the objective, nonpolitical, impartial character of his science” he also “passionate believed in and advocated (as a nonscientific, value-laden ideal) the political program of classical liberalism” (181-182). Liberalism* was the ideology derived from the positive economic theory that free markets enable individuals to achieve their goals through mutual cooperation and exchange. Liberalism applied that theory to develop a political program. Thus, in Mises’ view, in advocating liberalism, free markets, and limited government, Mises the scientist was 1/ simply articulating the straightforward implications of his own strictly scientific contributions to

the positive, objective discipline of pure economics” (190). For Mises, the teachings of economics seem inevitably to lead (on utilitarian grounds) to free markets and limited government.

Mises’ reputation as an economist is solid; it rests on his scholarly and logical analysis of the workings of the market. Reasoning from the basic a priority that men act in the hope of attaining their various ends, he developed economic theories and explained economic phenomena as no one had before. “Only abstract economic theorizing, recognizing the nature and operation of human purposefulness, and recognizing the nature and thrust of human entrepreneurial resourcefulness is able to identify the systematic tendencies which shape the entrepreneurial-competitive market process” (80). And only such theorizing can explain such phenomena as prices, money, profits, losses, competition, monopoly, interest, and the complexities of the trade cycle.

“Mises’ entire career as an economist – from his Vienna days as a brilliant young scholar and as one deeply involved in the hectic world of post- World War I public policy, to his years in Geneva as a renowned senior scholar, to his three decades of lonely unfashionable teaching and writing in the U.S. during his old age – represented Mises’ extraordinary, courageous, sustained fulfillment of this ideal,” Kirzner observes. “He never faltered in his belief that the ‘body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built.’ Mises persisted ‘in the search for truth’ in the face of the disdainful dismissal of his work by the professional economics establishment of his time because he saw his work as essential for the preservation of human civilization” (191).

Ludwig von Mises: The Man and His Economics is a remarkable tribute to a remarkable man. In it, Kirzner provides a concise and masterful presentation of the major economic theories Ludwig von Mises developed. Mises is more than a sincere and dedicated economic scientist and outspoken advocate of free markets. Kirzner shows how Mises’ methodological approach and his”focus on human action, on the purposefulness of action, on the entrepreneurial element in the market process, on the subjectivism with which economic understanding must be pursued” (196) has expanded the field of economics and opened up new areas for investigation.

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