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The economist Ludwig Edler von Mises was born in Lemberg, Austria-Hungary (now L’viv, Ukraine). He entered the University of Vienna in 1900 and received a doctoral degree in law and economics in 1906. Appalled by the rise of more legislation governing capitalist economics, and of socialism and Marxism, Mises dedicated his life to a defense of freedom by integrating his version of Austrian economic theory into an imposing system of social philosophy that elucidates classical liberalism, socialism, and interventionism (a policy steering between liberalism and socialism).
From 1934 to 1940 in the storm haven of Geneva, Mises consolidated and added to the ideas in his earlier publications, producing his treatise Nationalökonomie (Political Economy) (1940). That year he fled Europe to New York City, where he revised the treatise, creating in English his magnum opus, Human Action (1949), and elaborated upon his system in books and essays until his death in New York in 1973.
Mises sought to ground his system in an epistemology based upon a physical-mental dualism, individualism, teleology, libertarianism, and subjectivism, and in rationality that flows perfectly into human action supporting a method able to yield apodictic truth. His method involves deduction from professedly a priori terms and propositions; methodological individualism to explain all social phenomena as unplanned outcomes of autonomous individuals’ choices; abstraction from causal forces to create “imaginary constructions” used to explain “a contrario” the effects of that which has been abstracted; avoidance of mechanical analogies; and rejection of mathematical techniques. Empirical data, he contended, can neither confirm nor disconfirm his theory. His arguments that the empirical method and mathematical techniques are inappropriate in the field of social science conflicted with the trend of beliefs within the economics profession.
Liberalism, socialism, and interventionism agree on freedom, material prosperity, and peace as ends, differing only over the means to achieving them, Mises believed. He began with classical liberalism, reconstructing its foundations in sociology (which he renamed praxeology) and in economics (renamed catallactics). Starting with one isolated, egoistic individual, Mises’s sociology explains that individuals choose to enter society: it is more profitable due to the greater productivity of division of labor and exchange, workable only, Mises insisted, given private ownership of the means of production. Social order arises because individuals choose to obey moral rules derived from human nature and the requirements of preserving social cooperation; named praxeological laws by Mises, they require private ownership, private contract without fraud, and pursuit of one’s rational, “rightly-understood,” long-run self-interest. Because not all people obey such laws, a state is necessary. Practicing laissez-faire by enacting only juristic laws to enforce the praxeological laws constitutes the pure, “unhampered,” case of capitalism (renamed the free market economy).
Upon this sociology, Mises explicitly based his economic theory—which is more than a partial social science, he held—and his task was to work out the consequences of the praxeological laws. To construct his theory he at first abstracted from the influences of barter; exchange using money; entrepreneurs and the “market process;” savings, investment and capital accumulation; money credit, interest, and banking; and international trade in order to explain the economy of one isolated individual. He then built up his theory by restoring seriatim the influences he had abstracted from at first. His theory allowed him to reach several conclusions. Transitory monopoly may rarely arise, but generally no economic power exists; “financial pressure” occurs in markets, but not coercion (defined as deliberate human compulsion), hence freedom in the negative sense of absence of coercion is maximized, constrained only by juristic laws that enforce the praxeological laws. Harmony of interests exists because all interests are subordinated to “consumer sovereignty,” effectuated by entrepreneurs (the consumers’ “virtual mandataries”) and by catallactic (not anticompetitive) competition. Efficiency and material prosperity are maximized. Under the gold standard and free banking, only small self-correcting trade cycles disturb stability. Eternal peace prevails.
Socialism establishes social ownership of the means of production, and from 1920 onward Mises defended his thesis that without private ownership of the means of production and without competition, market prices cannot come about, rendering rational economic calculation impossible. Socialist planning entails commands overriding consumer sovereignty, curtailing freedom and resulting in a loss of efficiency and material prosperity. Socialism does not promise peace.
Interventionism signifies a state that formally upholds private ownership, but intervenes in markets with the aim of curing short-run economic problems. All such policies, Mises demonstrated, are counterproductive. For example, interest rate policies to alleviate unemployment generate malinvestment and serious trade cycles. Persistent interventionism over the long run leads to a burgeoning state that broadens and deepens its controls, inexorably leading to socialism.
Thus, the only long-run policy alternatives, Mises concluded, are either laissez-faire liberalism or socialism. He argued that since the consequences of the former best satisfy ends sought by all, liberalism and its demands for private ownership and freedom are justified on utilitarian grounds.
Mises’s work has stirred controversy over economic and philosophical issues. How, in precise philosophical terms, should his epistemology be classified? Can his method yield empirical truth? Can his praxeological laws be considered natural laws? Is his economic theory valuefree? Mises’s work remains an imposing system, a defense of freedom, and a riposte to socialism, Marxism, and interventionism.
- Gonce, Richard 2003. Review of Ludwig von Mises: The Man and His Economics, by Israel M. Kirzner. American Journal of Economics and Sociology 62 (3): 633–636.
- Hutchison, T. W. ‘Positive’ Economics and Policy Objectives. London: Allen and Unwin.
- Meek, Ronald 1977. Smith, Marx, and After: Ten Essays in the Development of Economic Thought. London: Chapman and Hall.
- Mises, Ludwig von. 1966. Human Action: A Treatise on Economics. 3rd rev. ed. Chicago: Regnery.
- Myrdal, Gunnar  1953. The Political Element in the Development of Economic Theory. Trans. by Paul Streeten. London: Routledge.
- Rothbard, Murray 1988. Ludwig von Mises: Scholar, Creator, Hero. Auburn, AL: Ludwig von Mises Institute.
- Smith, Barry. Aristotle, Menger, Mises: An Essay in the Metaphysics of Economics. In Carl Menger and His Legacy in Economics, ed. Bruce J. Caldwell. Durham, NC: Duke University Press.
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