Ludwig von Mises on 'Rationality and Irrationality'
The following are my comments on Ludwig von Mises’ notion of rationality as expressed in a few pages of his well known book Human Action: A Treatise on Economics. (1949, Fourth revised edit., 1996).
The pages expressing his notion of rationality are set out in No 4. Rationality and Irrationality, p.18-21.
There is a biography of Ludwig von Mises at the end of my review.
In the following remarks I set out some thoughts on the most important
the rationality of man. It is the action of conscience, judging the
objective good of what man is seeking in his actions, and judging the
goodness of the actions themselves. With these thoughts I consider
the section in Ludwig von Mises' book Human Action
entitled "Rationality and Irrationality", p.18-21.
To begin with, I refer to so-called ‘rationalism’ in economics. The lay person (in economics) gets the impression is that this expression (i.e., being ‘rational’ in economics) refers to an approach which sets wealth creation and economic profit as the supreme economic goal. This so-called ‘rational’ course of action in an economic sense aims at tangible and material results because they satisfy the more basic and material needs of society (such as the production of food and the creation of clear-cut material wealth). This, it is assumed, is the ‘rational’ thing to do. I suppose the reason for the assumption is that material goods are accepted by all as true goods. All other goods embodying higher values are left to one side simply because, I imagine, their value is contested. Having this as its aim, ‘rationalism’ in economics goes on to design impersonal scientific strategies (which are modelled on mathematics and science) strictly structured to attain those material targets. Thus it is deemed to be a true science.
One result of this so-called ‘rationalist’ approach is that certain values suggested by philosophical reflection on human nature and its need for higher goods (such as the spiritual welfare of the family supported by an adequate wage earned by the one breadwinner) are set aside. They are deemed to be irrelevant to the economically ‘rational’ approach (of, say, ‘rationalising’ labour and so achieving higher production at less cost). In such a line of thought and discourse it is difficult to intervene with philosophical questions, especially questions of moral values which are the supreme questions about any human action. But, for instance, the Church’s social teaching (including her comments on economics) does discourse on the subject philosophically and theologically. To give one example: Pope John Paul II’s encyclicals Laborem Exercens and Centesimus Annus.
And so the immediate question that arises in the mind of the outsider or amateur is: how rational is this ‘economic rationalism’ and strict ‘economics’ generally? Its model of rationality would appear often to be very narrow indeed. Common sense would suggest that man does need those higher goods such as ‘fidelity to his religious, philosophical, and political convictions or the freedom and flowering of his nation’ (von Mises, p.19). Of course, there is nothing irrational about the creation of material wealth as such, nor about a mathematical and scientific approach to economic planning. But it may not be as fully rational, or, let us say, as fully reasonable as one would expect of a human being or human society with his constant need for higher goods. A human being with his multi-faceted nature needs other - let us say “higher” - goods as well as purely material ones. So the question arises, is ‘rationality’ in the discipline of economics as rational as it should be? Can what is usually regarded by the discipline as economically irrational be in fact an exercise of true rationality? Conversely, can what is usually regarded as economically rational be, in a deeper sense, somewhat irrational, or unreasonable, falling short of what the dignity of man requires?
Which brings me to Lugwig von Mises, for in the few pages cited at the beginning of this review (4. Rationality and Irrationality, p.18-21) he appears to be reacting in healthy fashion against a narrow notion of rationality in economics. He himself was a great economist of the Austrian school. My impression is that he has promoted a reaction against narrow materialistic ends in economics, and against dependence on mathematical and scientific methods of calculation. My understanding is that von Mises has stressed that a truly human economics is not about impersonal figures and forces and their manipulation with a view to the acquisition of material goods, but rather about human action.
In these two pages of section 4 on rationality and irrationality in human action, von Mises divides action into two kinds. There is human action (p.18), and there is the action of the person brought about by unwilled stimuli (p.20). He chooses to call the first, ‘action’, and the second, ‘reactive response’ (p.20). The more classic terminology would be ‘actus humanus’ (human action) for the first, and ‘actus hominis’ (the action of man, or what man happens to do) for the second. As von Mises points out, in certain circumstances man can ‘respond both by reactive response and by action’ (p.20). That is to say, some things a man finds himself doing involve both volition and mere reactive response. For example (p.20), a man will undergo a physical reaction (without volition) to having taken poison, and will himself act (with volition) to counteract the effect of the poison. Von Mises puts the matter a little clumsily, but it is basically the standard division between actus humanus and actus hominis. Both activities come from the human subject. One is what he properly does, the other is what he is found to be doing somewhat despite himself.
Hence the very title of his famous work, Human Action. He stresses, I think, that the key to the successful development and harvesting of the goods of the world lies in an understanding of the action of the human subject: that is to say, the dynamics of human choice, the importance of character, and above all of the habit of enterprise (i.e., enterprising action). He seems to be placing weight on the point that the choices (embodied in his action) made by an enterprising person of real character will reap economic results. Thus economics is given a human face, which it does not have when the standard ‘economists’ start talking or planning, with their narrow material goals and all their mathematical models and scientific data. With von Mises, economics becomes above all the result of human action. I am sure that von Mises would not call into question the tremendous gains that have been achieved by applying mathematics and the scientific method to economics, nor by the attempt to focus on material ends. But by stressing that economics depends on human action as the outcome of a choice involving judgments of value (p.19), the emphasis rests on human beings as such. In stressing that it is human beings who choose, who need character and enterprise, he has made the discipline more real and accessible to philosophical evaluation.
Von Mises’ stress on human action is a great gain. In this section 4 (Rationality and Irrationality) of Human Action, he begins by asserting that ‘Human action is necessarily always rational.’ He is reacting against the fact that ‘It is usual to call an action irrational if it aims, at the expense of “material” and tangible advantages, at the attainment of “ideal” or “higher” satisfactions.’ (P.19). Von Mises rightly points out that ‘It is arbitrary to consider only the satisfaction of the body’s physiological needs as “natural” and therefore “rational” and everything else as “artificial” and therefore “irrational”....Man has specifically human desires and needs which we may call “higher” than those which he has in common with the other mammals.’ That is to say, Von Mises extricates ‘rationality’ in economics from the claws of material satisfactions alone. He is saying that human action is just as rational and natural when in pursuit of higher goods as when seeking the material and tangible.
I observe in passing that in regard to this last point, it appears that both Von Mises and the ‘rationalist’ school he is criticising accept that right action is what is ‘natural’ and ‘rational’. I say this because at the foot of p.19 von Mises states that ‘It is arbitrary to consider only the satisfaction of the body’s physiological needs as “natural” and therefore “rational” and everything else as “artificial” and therefore “irrational.” Implicit in such a statement is the assumption that to act rationally and according to human nature is to act morally. This would be the common-sense view of the matter, even though some moral philosophers will of course be found to disagree.
But the problem is that Von Mises’ own explanation of natural and rational action is scarcely satisfactory. What do I mean by this?
It is true that ‘Human action is necessarily always rational.’ (P.18). But there are degrees of rationality. An action that is fully deliberate in the sense I shall be outlining (including the action of conscience) will be truly a human act and will be fully human. That is to say, human action should be rational, and if truly rational it will be truly ‘human’. A fully (i.e., truly) human act will be such if it is characterised by those qualities which characterise the human being as such. Those qualities are: knowledge of what is being done and full consent to it (i.e., the exercise of intellect and free will, or deliberation and choice, something non-rational animals do not have). It is then that the person will be responsible for his ‘human action.’ In this sense it is indeed redundant to say that a human action is necessarily rational. But many things people happen to do are not done with full knowledge and full consent. We might call such actions ‘the actions of human beings’ (‘actus hominis’) rather than ‘human actions’ (‘actus humanus’: an act that is distinctively human). Any human act as here described is one which is chosen knowingly, and hence it is an act for which one is morally responsible.
Now the very notion of being morally responsible for one’s actions implies that those very actions are subject to external judgment as to their objective value, moral or otherwise. This introduces a further content into the notion of human action. It is true that any action involving true deliberation and choice is an action characteristic of the human being as such (for he alone truly chooses) and so is human action. However it remains a further question whether the action he has chosen to do is worthy of him. Is it an action which he as a human being should do? Does it satisfy the demands of his nature for the higher goods such as human society, friendship, God, moral goodness, and so forth? A person may choose to murder and in choosing this he is the source of a human action, and will therefore be held responsible for it. It is a rational act because it is ‘the outcome of a choice, of a judgment of value’ (p.19), however depraved and illusory the value is. But is the action worthy of a human being? So there is a sense in which the rationality at work in a human action should include a further element: and that element is the action of conscience. Conscience is the mind (the rational faculty) judging what goods should be chosen, what desires should be satisfied, for the act to be worthy of the one acting. Conscience judges as to the true good of the acting man. But more of that soon.
Von Mises identifies ‘action’ with ‘human action’. It is true that, as he says, ‘the ultimate end of action is always the satisfaction of some desires of the acting man.’(p.18). In this sense the end of man is the good, understood as the object of man’s desire. But one must distinguish at this point between an apparent good and a real good for man’s human nature taken as a whole. The question then is, what goods does man with his nature (surely higher than the irrational animals) need? A person may desire something because it seems to answer his needs, and so he makes a judgment as to the value of that object of his desire. His judgment that it is the answer to his needs may be very mistaken, for it may not be the answer to what he really needs.
And so for an understanding of human action (involving rationality), account must also be taken of the place of judgments of the objective value of objects of choice. A human action should aim to do what is objectively of value. And so it is not sufficient simply to say that a rational action has as its ultimate end the satisfaction of some desires of the acting man (p.18). Judgment must be passed on the object of his choices. Von Mises is extravagant when he states (in opposition to a ‘rationalist’ approach, p.19) that ‘No man is qualified to declare what would make another happier or less discontented’ (p.19). For instance, a person is qualified to pass judgment on the desire of an adolescent to take extremely harmful drugs. The drugs are not of an objective good for his nature considered as a whole. And so von Mises’ setting aside the issue of the objective value of the ends of human action is unsatisfactory. While reacting against a reduction of rationality to material goals, von Mises’ account of rationality would appear to allow an economic libertarianism, a rampant laissez-faire regime prosecuted by the strongest. For a human action to be rational and natural in the sense of sanctioning human actions, more is required than that it satisfy some desire.
So then, let us consider more deeply the notion of human action being ‘rational’ and ‘natural’. To say that one should act according to one’s ‘nature’ is correct, but it can be very misleading for the action referred to may accord with any part (or inclination) of one’s nature. For could not ‘acting according to one’s nature’ mean an action springing from that part of one’s nature which just happened to incline one? In which case an action which is ‘natural’ and ‘rational’ would mean acting simply as one pleases. It would mean acting in whatever way one feels like acting. In other words, when applied to the ultimate ends of action, a ‘rational’ or ‘natural’ action would be one which satisfies any desire of the acting person. And this indeed is often (i.e. colloquially) what is meant by acting naturally, or according to one’s nature. In fact, we notice that this is exactly what von Mises himself seems to be saying (p.18) when insisting on the legitimacy of “higher” non-material ends of human action. For he says without qualifying himself that the ‘ultimate end of action is always the satisfaction of some desires of the acting man.’ (p.18). If he is to be taken literally, it would seem that any action deliberately chosen to bring satisfaction is worthy of being called human action. It is ‘rational’ and ‘natural’.
But if this what is meant by designating a human action as rational and according to nature it cannot be the principle for calling an action worthy of a human nature (i.e., a moral action), because acting according to any desire springing from one’s nature (i.e., acting as one pleases), is just what irrational animals do. It cannot be the hallmark of distinctively ‘human action’. Some other principle is needed to understand human action, a principle “higher” than simply the satisfaction of human desires, whatever they may be.
Well then, what is it to act rationally, to act not only with deliberation but in a way and with ends that are worthy of human nature? We must determine what element in rationality makes the action not only one that is deliberative but truly worthy of the acting man. It is this kind of rationality which will sanctions that action.
Let us approach the question in this way, perhaps having at the back of our minds by way of a parallel the needs of a civil society for a supreme governing principle.
The nature of anything will consist of various elements and inclinations. But these inclinations are related together as a system or constitution making up the single whole. Otherwise they remain unrelated inclinations - in effect different things. The health of the system depends on this interrelatedness of the elements and inclinations of the nature. In fact the system or constitution which integrates the various elements of the being’s nature enables it to act in a certain way. This constitution or system is the result of the laws governing the relationship between the elements of the nature. So an action that is 'natural' to the thing is an action which accords with its constitution and not just with the purpose of one particular element or inclination. While one meaning of the word ‘natural’ in reference to an action is that the action satisfies some desire, another and truer meaning is that it satisfies the demands of the system of the nature, taken as a whole. A natural action in this latter sense is an action which is in accord with the whole nature. But for this to happen the nature, taken as a whole, must have a directing principle.
As suggested above, a parallel might be the system or constitution of a country. A country will not be understood simply by thinking of its various competing elements. The constitution of a country requires an inner directing principle. A civil constitution cannot be understood, nor can it function as it should, unless there is taken into account its supreme directing principle and the relationship of its various members to this authority. So too the idea of human nature requires a grasp of the relationship of its various elements, inclinations, desires and components, to the inner supreme authority which gives practical union to the whole. Now when von Mises says that ‘The ultimate end of action is always the satisfaction of some desires of the acting man’ (p.18), he fails to take into account the need of all actions to be in accord with a supreme principle within the human nature of the acting man.
That is to say, the ‘desires of the acting man’ (p.18), considered merely as several distinct elements or inclinations of our inward nature do not provide the idea of human nature as a constitution or system. The notion of ‘human desires’ which are to be satisfied does not give us the notion of an integrated human system or nature. They may be natural in the sense that they spring from human nature, but considered separately they are not of themselves a nature. They make up a nature when in relationship with one another. Hence to satisfy these desires of itself does not give us the notion of acting according to human nature and acting for goods which satisfy that nature. For the satisfaction of the desires may not be in accordance with the supreme governing principle of the constitution of human nature, nor in accord with the good of the human nature taken as a whole.
Now what is the supreme governing principle of human nature? It is the conscience, and the function of the conscience is to apprehend what is the true good of the acting man. From a purely phenomenological point of view, when we consider the office or function of the various elements of man’s inner nature, it becomes evident that the principle of conscience is naturally endowed with supreme authority over the others. The natural action of conscience - which is itself a function of man’s mind or ‘rationality’ - is to review, and judge actions, approving what is good and disapproving what is bad. We know from experience that we have the capacity to reflect upon our actions and our character, making them an object to our thought; and on doing this, we naturally and unavoidably approve some actions, under the aspect of their being virtuous and of deserving good; and disapprove others, as being evil and deserving of ill. We also recognise this activity of conscience in others. Conscience distinguishes between the desires of a person's heart and his actions, and it passes judgment on himself and them; pronounces in a quasi definitive fashion some actions to be in themselves just, right, good; others to be in themselves evil, wrong, unjust. Conscience proceeds to approve or condemn the doer of these actions accordingly.
Hence it is unsatisfactory to say that the satisfaction of any desires is natural, and therefore rational. They must accord with the supreme governing element in human nature - which is the conscience properly informed and functioning - which governs the actions of man and directs which desires and inclinations are to be satisfied, and which not. It directs and governs in accord with its awareness and judgment as to what is the true good of man’s nature.
The action of conscience is an action of approval and disapproval in which both mind and heart are at work. Conscience exerts a moral discernment of the desires of human nature and the actions taken to satisfy those desires. Implied in this moral discernment is a 'rule of action' carrying authority and the right to direct. Its judgments are experienced as law, and its law is known to be supreme as to desires and actions. Connected with this sense that the judgments of conscience are law is the sense that the actions over which it adjudicates carry a sense of good and bad desert. They deserve reward or punishment. Everyone speaks of certain actions as deserving of punishment. Deserving of punishment always presumes guilt. And so a man cannot transgress the obligation to respect the dictate of conscience (in regard to his desires and actions) without being self-condemned, and unless he has corrupted his nature, without real self-dislike. This is so, even if a future life were uncertain.
The upshot of these considerations is that human action, or acting according to human nature, action which is natural, must respect the supreme directing principle of human nature considered as a constitution or system. This principle is the conscience. Human action, to be truly human, and not just an action which a man happens to be inclined to do, must be in conformity with his conscience. Inasmuch as conscience is the supreme directing principle of the mind of man, with the office of governing even the action of his mind (for he ought think according to his conscience too), a human action is not only natural but properly rational when it is according to the dictates of conscience. And so it is that action which is in accordance with conscience is properly natural and rational. Considering human action in this light, an action which is not in accordance with conscience is not natural and is not properly rational. To act according to nature and according to reason is to act according to conscience.
So then, von Mises’ notion that any human action is necessarily rational and rational no matter what its ultimate ends might be cannot be accepted. ‘Rationality’ in human action does involve choice, but the choice must be according to the dictates of conscience: one must apprehend what should be done and choose to do it. One will be responsible for both the choice and the deed. It is not sufficient to say that human action is ‘the outcome of a choice, of a judgment of value’ (p.19) for this does not offer a principle for the determination of the objective (i.e., true) and moral value of the choice. It is this which is determined by the supreme directing principle of human nature, which is the conscience. Both the choice and the judgment of value must be in accord with conscience, the supreme directing principle of all human action and of choice.
The problem with von Mises’ formulation of his rejection of the identification of a ‘rational’ choice with material and tangible advantages (p.19) is that he simply says that the all-important thing is that a person choose. He puts the emphasis on choice without negotiating the general question of the true value of what is chosen. It is not enough to choose. He must choose worthily. His choice must be worthy of a human being, in accord with the truth of his human nature. In this sense it will be natural and rational.
Of course, in his emphasis on choice von Mises is on to something of absolute importance in economics. If there is to be true economic development people must get to it and choose. They must exercise initiative, they must be enterprising. Human action embodying choices is fundamental in the dynamics of economics. An economy should be based on the vigorous exercise of human freedom, - on, we might say, human capital, the capital that is the human being considered as an entrepreneur.
But if choice is not understood in terms of objective truth in choice, or choosing that which objectively should be chosen, then the choice will become mere license to do anything. Choices should be made in terms of the true good of man, what he truly and enduringly needs, and on what he most needs. The emphasis on choice or freedom alone without reference to the judgments as to the true good of man is surely the foundation of laissez-faire systems, with all their violations of the rights of individuals, families and even countries. It is notorious that multi-nationals at times have greater power than governments and are often governed by ‘rationalist’ economics. If any economic course is ‘rational’ provided it embodies the ‘satisfaction of some desires of the acting man’ (p.18) and is simply ‘the outcome of a choice, of a judgment of value’ (p.19), then anything goes.
In this scenario, economic advancement after the model of profits and production figures becomes the guide for the economy. The greatest human issue is missing: ethics. Where exercising entrepreneurial initiative alone is seen as the key, without an even greater consideration of what ‘should’ be the object of choice, society becomes less human.
So my main criticism of von Mises is that, however laudable his emphasis on choice and the concomitant judgment of value in human and rational action, it fails to negotiate the question of true values. He has omitted reference to highest element in rationality which is the conscience. Conscience is that by which the acting man judges what he should do, not just what he would like to do or chooses to do. It is the guiding principle of all human action, the guiding principle as to what desires are to be satisfied. It is the guide to what should be desired anyway. The conscience is the pivotal element in human action, in rationality, and in doing what is ‘natural’ to human nature considered as a whole, or as a system.
In fact, von Mises eschews this consideration. The only use he makes of the term ‘rational’ is in relation to ‘the means chosen for the attainment of ends’ (p.20), whatever those ends might be. This lack of consideration of true values in reference to rational action is a most serious lack, and it is the lack of our age. ‘Truth’ is reduced to being relative to the person choosing. Whatever a man chooses - so it is commonly assumed - provided it involves a genuine choice it will be as ‘natural’ as any other.
The acting person has an objective nature and the most important task of rational consideration is to discover the real good of this nature, and to take appropriate and adequate means (i.e., right actions) to bring about this good. It is only in this deeper, truer, and more objective sense that it is true to say that ‘the ultimate end of human action is the satisfaction of some desires of the acting man.’(p.18). A principal task of rationality is to apprehend what is the law of human nature if it is to attain its true good. Having apprehended this law (such as that he must do good) rationality then deduces what this will entail in the concrete. Rationality apprehending what should be done for man’s true good (i.e., determining which of his desires he should satisfy) is the conscience and this is the supreme directing principle of man’s nature.
So von Mises has failed to include in his account of rationality the action of conscience, which guides human choice and approves or disapproves of various values. It is the conscience which is called to make judgments of value and to guide choice (p.19), and this all-important element in section 4 is missing. Integral to the proper functioning of conscience is a judgment as to the objective truth of things, irrespective of what one may ‘desire’. That is to say, conscience is that guiding principle of man’s rationality which judges man’s true good what concrete course of action this requires.
Von Mises goes on to assert that the social sciences must set aside the consideration of the ends of human action and consider only the adequacy of the means to attain those ends. So objective practical ethics seems to be beside the point. I have to say that this is out of step with modern interests, because at this point a principal study in vogue is precisely practical and professional ethics. That is to say, it is widely accepted that a science of human action which looks merely at the rationality (i.e. the suitability) of the means chosen to achieve given ends is little short of worthless. For instance, what is the worth of analysing the best way for the Mafia to act in Sicily or Australia or the United States? The real issue in respect to their actions is what they are aiming to do - their ends. Or again, what is the value of trying to determine the most effective means of blowing up a plane in mid-flight when that is the end desired by the terrorists? Such a science would be absurd and repugnant to human nature. It would be in the truest sense irrational. A true science of human action, one that has real value, must concern itself not only with the effectiveness of means to attain the end, but with the true value of those actions as conducive of the true good of the human nature of the one acting. Does this action truly benefit a person, considering the needs of his human nature as a whole? Do these actions truly benefit human society, considering its needs taken as a whole?
And so rationality in human action is not limited to mathematical or scientific reasoning as to the usefulness or effectiveness of the means chosen, which would appear to be von Mises’ view of the matter. The choices human action expresses involve judgments as to the (moral) value of both the means and the end of the action.
Rational action is true human action when it involves not only choice of those goods which happen to satisfy certain desires of the acting man. It must embody the judgment of the conscience approving certain desires (and actions springing from them) and disapproving others. It exercises this function in the light of its (rational) apprehension of the true good of man’s human nature. It is then that an action is truly rational and natural. Action is human when deliberated, willed, and also when worthy of the acting man. That is to say, it should be worthy of his human nature considered as a whole. The (rational) judgment as to this is exercised by the conscience.
Note: Biography of Ludwig Edler von Mises (1881-1973)
"Economics deals with society's fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen."
One of the most notable economists and social philosophers of the twentieth century, Ludwig von Mises, in the course of a long and highly productive life, developed an integrated, deductive science of economics based on the fundamental axiom that individual human beings act purposively to achieve desired goals. Even though his economic analysis itself was “value-free” -- in the sense of being irrelevant to values held by economists, Mises concluded that the only viable economic policy for the human race was a policy of unrestricted laissez-faire, of free markets and the unhampered exercise of the right of private property, with government strictly limited to the defense of person and property within its territorial area.
For Mises was able to demonstrate (a) that the expansion of free markets, the division of labor, and private capital investment is the only possible path to the prosperity and flourishing of the human race; (b) that socialism would be disastrous for a modern economy because the absence of private ownership of land and capital goods prevents any sort of rational pricing, or estimate of costs, and (c) that government intervention, in addition to hampering and crippling the market, would prove counter-productive and cumulative, leading inevitably to socialism unless the entire tissue of interventions was repealed.
Holding these views, and hewing to truth indomitably in the face of a century increasingly devoted to statism and collectivism, Mises became famous for his “intransigence” in insisting on a non-inflationary gold standard and on laissez-faire.
Effectively barred from any paid university post in Austria and later in the United States, Mises pursued his course gallantly. As the chief economic adviser to the Austrian government in the 1920s, Mises was single-handedly able to slow down Austrian inflation; and he developed his own “private seminar” which attracted the outstanding young economists, social scientists, and philosophers throughout Europe. As the founder of the "neo-Austrian School" of economics, Mises’s business cycle theory, which blamed inflation and depressions on inflationary bank credit encouraged by Central Banks, was adopted by most younger economists in England in the early 1930s as the best explanation of the Great Depression.
Having fled the Nazis to the United States, Mises did some of his most important work here. In over two decades of teaching, he inspired an emerging Austrian School in the United States. The year after Mises died in 1973, his most distinguished follower, F.A. Hayek, was awarded the Nobel Prize in economics for his work in elaborating Mises’s business cycle theory during the later 1920s and 1930s.
Mises was born on Sept 29, 1881, in the city of Lemberg (now Lvov) in Galicia, where his father, a Viennese construction engineer working for the Austrian railroads, was then stationed. Both Mises’s father and mother came from prominent Viennese families; his mother’s uncle, Dr Joachim Landau, served as deputy from the Liberal Party in the Austrian Parliament.
Entering the University of Vienna at the turn of the century as leftist interventionist, the young Mises discovered Principlesof Economics by Carl Menger, the founding work of the Austrian School of economics, and was quickly converted to the Austrian emphasis on individual action rather than unrealistic mechanistic equations as the unit of economics analysis, and to the importance of a free-market economy.
Mises became prominent post-doctoral student in the famous University of Vienna seminar of the great Austrian economist Eugen von Bohm-Bawerk (among whose many accomplishments was the devastating refutation of the Marxian labor theory of value).
During this period, in his first great work, The Theory of Money and Credit (1912) Mises performed what had been deemed an impossible task: to integrate the theory of money into the general theory of marginal utility and price (what would now be called integrating “macroeconomics” into “microeconomics.”) Since Bohm-Bawerk and his other Austrian colleagues did not accept Mises’s integration and remained without a monetary theory, he was therefore obliged to strike out on his own and found a “neo-Austrian” school.
In his monetary theory, Mises revived the long forgotten British Currency School principle, prominent until the 1850s, that society does not at all benefit from any increase in the money supply, that increased money and bank credit only causes inflation and business cycles, and that therefore government policy should maintain the equivalent of a 100 percent gold standard.
Mises added to this insight the elements of his business cycle theory: that credit expansion by the banks, in addition to causing inflation, makes depressions inevitable by causing “malinvestment,” i.e. by inducing businessmen to overinvest in “higher orders” of capital goods (machine tools, construction, etc.) and to underinvest in consumer goods.
The problem is that inflationary bank credit, when loaned to business, masquerades as pseudo-savings, and makes businessmen believe that there are more savings available to invest in capital goods production than consumers are genuinely willing to save. Hence, an inflationary boom requires a recession which becomes a painful but necessary process by which the market liquidates unsound investments and reestablishes the investment and production structure that best satisfies consumer preferences and demands.
Mises, and his follower Hayek, developed this cycle theory during the 192Os, on the basis of which Mises was able to warn an unheeding world that the widely trumpeted “New Era” of permanent prosperity of the 192Os was a sham, and that its inevitable result would be bank panic and depression. When Hayek was invited to teach at the London School of Economics in 1931 by an influential former student at Mises’s private seminar, Lionel Robbins, Hayek was able to convert most of the younger English economists to this perspective. On a collision course with John Maynard Keynes and his disciples at Cambridge, Hayek demolished Keynes’s Treatise on Money, but lost the battle and most of his followers to the tidal wave of the Keynesian Revolution that swept the economic world after the publication of Keynes’s General Theory in 1936.
The policy prescriptions for business cycles of Mises-Hayek and of Keynes were diametrically opposed. During a boom period, Mises counseled the immediate end of all bank credit and monetary expansion; and, during a recession, he advised strict laissez-faire, allowing the readjustment forces of the recession to work themselves out as rapidly as possible.
Not only that: for Mises the worst form of intervention would be to prop up prices or wage rates, causing unemployment, to increase the money supply, or to boost government spending in order to stimulate consumption. For Mises, the recession was a problem of under-saving, and over-consumption, and it was therefore important to encourage savings and thrift rather than the opposite, to cut government spending rather than increase it. It is clear that, from 1936 on Mises was totally in opposition to the worldwide fashion in macroeconomic policy.
Socialism-communism had triumphed in Russia and in much of Europe during and after World War I, and Mises was moved to publish his famous article, “Economic Calculation in the Socialist Commonwealth,” (1920) in which he demonstrated that it would be impossible for a socialist planning board to plan a modern economic system; furthermore, no attempt at artificial “markets” would work, since a genuine pricing and costing system requires an exchange of property titles, and therefore private property in the means of production.
Mises developed the article into his book Socialism(1922), a comprehensive philosophical and sociological, as well as economic critique which still stands as the most thorough and devastating demolition of socialism ever written. Mises’s Socialism converted many prominent economists and social philosophers out of socialism, including Hayek, the German Wilhelm Ropke, and the Englishman Lionel Robbins.
In the United States, the publication of the English translation of Socialism in 1936 attracted the admiration of the prominent economic journalist Henry Hazlitt, who reviewed it in the New York Times, and converted one of America’s most prominent and learned Communist fellow-travelers of the period, J.B. Matthews, to a Misesian position and to opposition to all forms of socialism.
Socialists throughout Europe and the United States worried about the problem of economic calculation under socialism for about fifteen years, finally pronouncing the problem solved with the promulgation of the “market socialism” model of the Polish economist Oskar Lange in 1936. Lange returned to Poland after World War II to help plan Polish Communism. The collapse of socialist planning, in Poland and the other Communist countries in 1989, left Establishment economists across the ideological spectrum, all of whom bought the Lange “solution”, mightily embarrassed.
Some prominent socialists, such as Robert Heilbroner, have had the grace to admit publicly that “Mises was right” all along. (The phrase “Mises was Right” was the title of a panel at the annuel 1990 meeting of the Southern Economic Association at New Orleans.)
If socialism was an economic catastrophe, government intervention could not work, and would tend to lead inevitably to socialism. Mises elaborated these insights in his Critique of Interventionism (1929), and set forth his political philosophy of laissez-faire liberalism in his Liberalism (1927).
In adition to setting himself against all the political trends of the twentieth century, Mises combated with equal fervor and eloquence what he considered the disastrous dominant philosophical and methodological trends, in economics and other disciplines. These included positivism, relativism, historicism, polylogism” the idea that each race and gender has its own “logic” and therefore cannot communicate with other groups), and all forms of irrationalism and denial of objective truth. Mises also developed what he considered to be the proper methodology of economic theory--logical deduction from evident axioms, which he labeled “praxeology”, and he leveled trenchant critiques of the growing tendency in economics and other disciplines to replace praxeology and historical understanding by unrealistic mathematical models and statistical manipulations.
Emigrating to the United States in 1940, Mises’s first two books in English were important and influential. His Omnipotent Government (1944) was the first book to challenge the then-standard Marxian view that fascism and Nazism were imposed upon their nations by big business and the “capitalist class.” His Bureaucracy (1944) was a still unsurpassed analysis of why government operation must necessarily be “bureaucratic” and suffer from all the ills of bureaucracy.
|A Special Report on the Mises Institute (.pdf file)|
|Freedom Calendar (.pdf file)|
|Who is Ludwig von Mises?|
|Who is Murray N. Rothbard?|
|What is "Austrian Economics"?|
|Why Austrian Economics Matters|
|What is "Classical Liberalism"?|
|Natural Elites, Intellectuals, and the State|
|Great Austrian Economists|
|Eugen von Böhm-Bawerk|
|Gottfried von Haberler|
|William Harold Hutt|
|Juan De Mariana|
|Margit von Mises|
|Luis de Molina|
|Richard von Strigl|
|Friedrich von Wieser|
Mises’s most monumental achievement was his Human Action (1949), the first comprehensive treatise on economic theory written since the first World War. Here Mises took up the challenge of his own methodology and research program and elaborated an integrated and massive structure of economic theory on his own deductive, “praxeological” principles. Published in an era when economists and governments generally were totally dedicated to statism and Keynesian inflation, Human Action was unread by the economics profession. Finally, in 1957 Mises published his last major work, Theory and History, which, in addition to refutations of Marxism and historicism, set forth the basic differences and functions of theory and of history in economics as well as all the various disciplines of human action.
In the United States as in his native Austria, Mises could not find a paid post in academia. New York University, where he taught from until 1945 until his retirement at the age of 88 in 1969, would only designate him as Visiting Professor, and his salary had to be paid by the conservative-libertarian William Volker Fund until 1962, and after that by a consortium of free-market foundations and businessmen. Despite the unfavorable climate, Mises inspired a growing group of students and admirers, cheerfully encouraged their scholarship, and himself continued his remarkable productivity.
Mises was also sustained by and worked together with free-market and libertarian admirers. From its origin in 1946 until his death, Mises was a part-time staff member of the Foundation for Economic Education at Irvington-on-Hudson, New York; and he was in the 1950s an economic advisor to the National Association of Manufacturers (NAM) working with their laissez-faire wing which finally lost out to the tide of “enlightened” statism.
As a free trader and a classical liberal in the tradition of Cobden, Bright, and Spencer, Mises was a libertarian who championed reason and individual liberty in personal as well as economic matters. As a rationalist and an opponent of statism in all its forms, Mises would never call himself a “conservative,” but rather a liberal in the nineteenth-century sense.
Indeed, Mises was politically a laissez-faire radical, who denounced tariffs, immigration restrictions, or governmental attempts to enforce morality. On the other hand, Mises was a staunch cultural and sociological conservative, who attacked egalitarianism, strongly denounced political feminism as a facet of socialism. In contrast to many conservative critics of capitalism, Mises held that personal morality and the nuclear family were both essential to, and fostered by, a system of free-market capitalism.
Mises’s influence was remarkable, considering the unpopularity of his epistemological and political views. His students of the 1920s, even those who later became Keynesians, were permanently stamped by a visible Misesian influence. These students included, in addition to Hayek and Robbins, Fritz Machlup, Gottfried von Haberler, Oskar Morgenstern, Alfred Schutz, Hugh Gaitskell, Howard S. Ellis, John Van Sickle, and Erich Voegelin.
Mises’s influence also played a highly important, if unheralded role in swinging post-World War II Europe from a socialist and inflationist to a roughly free-market and hard-money policy. Germany’s great Ludwig Erhard, almost single-handedly responsible for West Germany’s “economic miracle” based on free markets and hard money, was himself an economist and a friend and disciple of Alfred Muller-Armack and Wilhelm Ropke, themselves heavily influenced by Misesian ideas.
In France, General DeGaulle’s major economic and monetary adviser, who helped swing France away from socialism, was Jacques Rueff, an old-friend and admirer of Mises. And part of post-World War II Italy’s shift away from socialism was due to its President Luigi Einaudi, a distinguished economist and long-time friend and free-market colleague of Mises. In the United States, Mises was scarcely as influential. Under less promising academic conditions, his students and admirers included Henry Hazlitt, Lawrence Fertig, Percy Greaves, Jr., Bettina Bien Graeves, Hans F. Sennholz, William H. Peterson, Louis M. Spadaro, Israel M. Kirzner, Ralph Raico, George Reisman, and Murray N. Rothbard. But Mises was able to build a remarkably strong and loyal following among businessmen and other non-academics; his massive and complex Human Action has sold extraordinarily well ever since the year of its original publication.
Since Mises’s death in New York City on October 10, 1973 at the age of 92, Misesian doctrine and influence has experienced a renaissance. The following year saw not only Hayek’s Nobel Prize for Misesian cycle theory, but also the first of many Austrian School conferences in the United States. Books by Mises have been reprinted and collections of his articles translated and published. Courses and programs in Austrian Economics have been taught and established throughout the country.
Taking the lead in this revival of Mises and in the study and expansion of Misesian doctrine has been the Ludwig von Mises Institute, founded by Llewellyn Rockwell, Jr. in 1982 and headquartered in Auburn, Alabama. The Mises Institute publishes scholarly journals and books, and offers courses in elementary, intermediate and advanced Austrian economics, which attract increasing numbers of students and professors. Undoubtedly, the collapse of socialism and the increased attractiveness of the free market have greatly contributed to this upsurge of popularity.
Murray N. Rothbard (1926-1995) was dean of the Austrian School after Mises's death.
Read Murray N. Rothbard's The Essential von Mises
(Based on Bettina B. Greaves's Annotated Bibliography of Ludwig von Mises)
1881. Born September 29 to Arthur Edler and Adele (Landau) von Mises, at Lemberg, in the Austro-Hungarian Empire. After World War 1, Lemberg became "Lwow," a part of Poland; after World War II, "Lvov," a part of Ukraine in the U.S.S.R.; then in December 1991, "Lviv," in the newly independent republic of Ukraine. Ludwig's father, educated at Zürich Polytechnic, was a construction engineer employed in the Austrian Railroad Ministry. Ludwig was the oldest of three boys; one died as a child; Richard became well known as a mathematician.
Attended a private elementary school, then the public Akademishe Gymnasium in Vienna (1892-1900).
1900. First visit to Switzerland.
1900-1902. Attended Universität Wien (University of Vienna).
1902 . "Die Entwicklung des gutsherrlich-bäuerlichen Verhältnisses in Galizien (1772-1848) [The Development of the Relationship between Peasant and the Lord of the Manor in Galicia, 1772-1848]. A monograph about the decline of serfdom in Mises' native Galicia.
1903. Mises's father died.
1906. February 20: Awarded Dr. Jur. degree, Doctor of both Canon and Roman Laws, from the Universität Wien [University of Vienna). When Mises attended the University, it had no separate economics department; the only path to studying economics in those days was through law.
1904(?) -1914. Attended seminar of Eugen von Böhm-Bawerk at the Universität Wien.
1910. Completed compulsory military service, consisting of three 4-week periods of duty, one each year for three years.
1906-1912. Taught economics to seniors of the Wiener Handelsakademie für Mädchen [Viennese Commercial Academy for Girls].
1907-1908. Began working at the Kammer für Handel, Gewerbe und Industrie [Austrian Chamber of Commerce], "Handelskammer" for short, an official advisory agency of the Austrian government.
1912.Theorie des Geldes und der Umlaufsmittel [Theory of Money and Credit], Mises' first important theoretical work.
1913. Appointed Privatdozent (unsalaried lecturer) at the University of Vienna.
1914-1918. Called back to active duty when World War I started. He left Vienna in the summer of 1914 to go to war, on the same day and on the same train on which he had planned to leave to teach a seminar in Silesia. He served as a captain with the artillery in the Austro-Hungarian cavalry, primarily on the Eastern front in the Carpathian Mountains, Russian Ukraine, and Crimea. During the latter part of the war, he worked on economic problems with the Army's General Staff in Vienna.
1918-1919.Taught a class of officers seeking to return to civilian life at the Wiener Exportakademie [Viennese Export Academy], later the Hochschule für Welthandel [Institute for World Trade].
1918-1920. Director, League of Nation's Austrian Abrechnungs Amt [Reparations Commission].
1919-1934. Returned to the University of Vienna as a Privatdozent (unsalaried lecturer); invested May 18, 1918, with the title of "Professor Extraordinary."
After World War 1, Mises helped to revive the Nationalökonomische Gesellschaft [Economic Society], publisher of the quarterly, Zeitschriftfur Nationalökonomie.
1918-1938. Resumed position with the Handelskammer, the Austrian Chamber of Commerce.
1919. Nation, Staat und Wirtschaft: Beiträge zur Politik and Geschichte der Zeit [Nation, State, and Economy: Contributions to the Politics and History of Our Time].
1920. Die Wirtschaftsrechnung im sozialistischen Gemeinwesen" [Economic Calculation in the Socialist Commonwealth]. Paper presented to the Nationalökonomische Gesellschaft, later published in the Archiv für Sozialwissenschaft und Sozialpolitik (1920).
1919-1933. Active member, Verein fiir Sozialpolitik [Association for Social Policy].
1920-1934. Conducted a private seminar [Privatseminar] in his office on alternate Friday evenings. Participants: University Ph.Ds and guests, by invitation only.
1922. Die Gemeinwirtshaft: Untersitchungen über den Sozialismus [Socialism: An Economic and Sociological Analysis].
1923. Die geldtheoretische Seite des Stabilisierungsproblems [Stabilization of the Monetary Unit, from the Viewpoint of Theory].
1924. The Theory of Money and Credit, 2nd German edition.
1926. Lecture tour of U.S. universities, under sponsorship of Laura Spelman (Rockefeller) Foundation.
1927-1938. January 1, 1927: The Oesterreichisches Institut für Konjunkturforschung [Austrian Institute for Business Cycle Research, established by Mises, began operations. Mises became its Acting (Executive) Vice President; F. A. Hayek served as manager until 1931; when Hayek migrated to London, Oskar Morgenstern took over.
1927. Liberalismus [Liberalism]. First English translation published 1962 as The Free and Prosperous Commonwealth.
1928. Geldwertstabilisierung and Konjunkturpolitik [Monetary Stabilization and Cyclical Policy]. 1929. Kritik des Interventionismus: Untersuchungen zur Wirtschaftspolitik und Wirtschaftsideologie der Gegenwart [Critique of Interventionism: Inquiries into Present Day Economic Policy and Ideology].
1931. Visited the United States for the Congress of the International Chamber of Commerce.
Die Ursachen der Wirtschaftskrise: Ein Vortrag[The Causes of the Economic Crisis: A Lecture.
1932. Socialism, 2nd German edition.
1933. Grundprobleme der Nationalökonomie [Epistemological Problems of Economics].
1934. English translation of Theorie des Geldes und der Umlaufsmittel [The Theory of Money and Credit].
1934-1940. Professor of International Economic Relations, Institut Universitaire des Hautes Études Internationales (Graduate Institute of International Studies], Geneva, Switzerland. Though he bad left Vienna to accept this position in Switzerland, Mises retained his association with the Austrian Chamber of Commerce on a part-time basis until the Anschluss, Hitler's annexation of Austria in March 1938.
1936</b>English translation of Die Gemeinwirtschaft [Socialism].
1937. Mises's mother died in Vienna.
1938. July 6: Married Margit (née Herzfeld) Sereny in Geneva.
1940. Nationalökonomie: Theorie des Handelns und Wirtschaftens [Economics: Theory of Action and Exchange].
Interventionism: An Economic Analysis (not published until 1998).
Migrated to the United States, arriving in New York on August 2.
1940-1944. Wrote reminiscences of his life in Vienna, translated and published posthumously as Notes and Recollections (1978).
Rockefeller Foundation and National Bureau of Economic Research grants enabled Mises to write two books, Omnipotent Government: The Rise of the Total State and Total War and Bureaucracy, both published in 1944.
1942. January and February: 2-month appointment in Mexico as Visiting Professor at the Universidad Nacional Autónoma de Mexico, Escuela Nacional de Economia [National University of Mexico, School of Economics].
1945-1969. Visiting Professor, New York University, Graduate School of Business Administration. Gave two courses, Monday evening lecture (February 1945-Spring 1964), Thursday evening seminar (Fall 1948-Spring 1969).
1946. Member, Economic Principles Commission, National Association of Manufacturers. As such, consulted in the preparation of The American Individual Enterprise System, 2 vols. (McGraw Hill, 1946), the product of "the consensus of judgment among the Comission members."
Acquired U. S. citizenship.
July 26 to September 4: Visiting Professor in Mexico, lecturing for the Escuela de Economía [School of Economics of the Associación Mexicana de Cultura [Mexican Cultural Association].
1946-1973. Adviser, Foundation for Economic Education, Inc. (Irvington-on-Hudson, N.Y.).
1947 Planned Chaos.
Instrumental in the founding, with F. A. Hayek, of the Mont Pè1erin Society, an international society of businessmen, economists, and other intellectuals.
1949. July 30 to August 28: lectured in Mexico for the Escuela de Economia [School of Economics] of the Associacion Mexicana de Cultura [Mexican Cultural Association].
Human Action: A Treatise On Economic
1950. March 31 to April 16: Lecture tour of Peru, at the invitation of the Banco Central de Reserve (Central Reserve Bank), Pedro Beltrán, Chairman.
1951. Socialism, New U. S. edition of English translation, enlarged with Planned Chaos (1947) as its epilogue.
1952. Planning for Freedom: And 0ther Essays and Addresses. Later enlarged editions published 1962, 1974, and 1980.
1953</b><i>The Theory of Money and Credit. New U. S. edition of English translation, enlarged with a new essay on "Monetary Reconstruction."
Richard von Mises, Ludwig's brother, the mathematician, dies.
1954-1955. January 1954 to April 1955: Adviser to National Association of Manufacturers.
1956. February 20: Mises's Doctorate renewed and commemorated by the Universität Wien [University of Vienna] on the 50th anniversary of the date on which it was awarded.
Festschrift published on the occasion of the Fiftieth Anniversary of Mises's Doctorate, February 20, 1956, On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises(Mary Sennholz, editor).
The Anti-Capitalistic Mentality
1957. Distinguished Service Award of the Fellowship of Former Overseas Rotarians.
June 8: Granted Honorary Degree, Doctor of laws, Grove City College, Grove City, Pennsylvania.
Theory and History
1958. September 19 to September 28: Visited Mexico under sponsorship of the Instituto de Investigaciones Sociales y Económicas [Institute for Social and Economic Investigations] to participate in a seminar with several other members of the Mont Pelerin Society.
1959. June 2 to June 15: Invited to Buenos Aires, Argentina, by the Centro de Difusión de la Economia Libre [Center for the Promotion of the Free Economy], later the Centro de Estudios sobre la Libertad [Center for the Study of Freedom]. Delivered six lectures, published posthumously as Economic Policy: Thoughts for Today and Tomorrow(1979).
1960. English translation of Grundprobleme der Nationalökonomie [Epistemological Problems of Economics].
1962. The Ultimate Foundation of Economic Science.
English translation of Liberalismus</i>Liberalism] under the title of The Free and Prosperous Commonwealth.
October 20: Awarded Österreichisches Ehrenzeichen für Wissenschaft und Kunst [Austrian medal of honor for science and the arts] in recognition of his "distinguished activities as a scholar and teacher and for his internationally recognized work in the fields of political science and economics."
1963. June 5: Awarded Honorary Degree, Doctorate of Laws, by New York University, "for his exposition of the philosophy of the free market, and his advocacy of a free society."
Human Action, 2nd ed., revised.
1964. July 28: Granted Honorary Degree, Doctor Rerum Politicarum [Doctor of Political Science] by the University of Freiburg, Breisgau, Germany.
1966 Human Action, 3rd edition.
1965-1971. Visiting Professor, Plano University, Plano, Texas.
1969. September: Cited by the American Economic Association as "Distinguished Fellow" of the year.
1971. September 29: Festschrift published in honor of Mises's 90th birthday: Toward Liberty: Essays in Honor of Ludwig von Mises on the Occasion of his 90th Birthday (2 volumes).
1973. October 10: Mises dies at St. Vincent's Hospital in New York City.