The economics of Ludwig von Mises

Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, author and classical liberal who had a significant influence on the modern free-market libertarian movement and the Austrian School.

Economist and political theorist F. A. Hayek first came to know Mises while working as Mises' subordinate at a government office dealing with Austria's post-World War I debt.

Hayek wrote:

there I came to know him mainly as a tremendously efficient executive, the kind of man who, as was said of John Stuart Mill, because he does a normal day's work in two hours, always has a clear desk and time to talk about anything. I came to know him as one of the best educated and informed men I have ever known...


It was Hayek's development of Mises' innovative theoretical work on the business cycle which later earned him the Nobel Prize in economics.

In 1934, Mises left Austria for Geneva, Switzerland, where he was a professor at the Graduate Institute of International Studies until 1940. Fearing the prospect of Germany taking control over Switzerland, in 1940 Mises with other Jewish refugees left Europe and emigrated to New York City. There he became a visiting professor at New York University, from 1945 until his retirement in 1969, though he was not salaried by the university.

Mises wrote and lectured extensively on behalf of classical liberalism and is seen as one of the leaders of the Austrian School of economics. Many of his works, including Human Action, were on two related economic themes:

1. monetary economics and inflation;
2. the differences between government controlled economies and free trade.

Mises argued that money is demanded for its usefulness in purchasing other goods, rather than for its own sake and that any unsound credit expansion causes business cycles.

His other notable contribution was his argument that socialism must fail economically because of the economic calculation problem – the impossibility of a socialist government being able to make the economic calculations required to organize a complex economy.

Mises projected that without a market economy there would be no functional price system, which he held essential for achieving rational and efficient allocation of capital goods to their most productive uses.

Socialism would fail as demand cannot be known without prices, according to Mises. Mises' criticism of socialist paths of economic development is well-known, such as in his 1922 work Socialism: An Economic and Sociological Analysis:

The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree is: that the standard of living of the Russian masses is much lower than that of the masses in the country which is universally considered as the paragon of capitalism, the United States of America. If we were to regard the Soviet regime as an experiment, we would have to say that the experiment has clearly demonstrated the superiority of capitalism and the inferiority of socialism.

In Interventionism, An Economic Analysis (1940), Ludwig von Mises wrote:

The usual terminology of political language is stupid. What is 'left' and what is 'right'? Why should Hitler be 'right' and Stalin, his temporary friend, be 'left'? Who is 'reactionary' and who is 'progressive'? Reaction against an unwise policy is not to be condemned. . .  Who is anti-labor, those who want to lower labor to the Russian level, or those who want for labor the capitalistic standard of the United States? Who is 'nationalist,' those who want to bring their nation under the heel of the Nazis, or those who want to preserve its independence?

Robert Heilbroner opined after the fall of the Soviet Union, that "It turns out, of course, that Mises was right" about the impossibility of socialism. "Capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that's hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments."


Mises developed the theory of the 'sovereignty of the consumer' in a free-market economy; in his view, the consumer ultimately dictates everything that happens. This argument is set out in a memorable passage in 'Human Action':

The captain is the consumer…the consumers determine precisely what should be produced, in what quality, and in what quantities…They are merciless egoistic bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction…In their capacity as buyers and consumers they are hard-hearted and callous, without consideration for other people…

Capitalists…can only preserve and increase their wealth by filling best the orders of the consumers… In the conduct of their business affairs they must be unfeeling and stony-hearted because the consumers, their bosses, are themselves unfeeling and stony-hearted.



The context does not suggest that Mises is trying here to denigrate the consumer society. On the contrary, he is describing the free-market economy as he believes that it naturally is and should be.

In a 1957 review of his book, The Anti-Capitalistic Mentality, The Economist said of von Mises: "Professor von Mises has a splendid analytical mind and an admirable passion for liberty; but as a student of human nature he is worse than null and as a debater he is of Hyde Park standard."

Mises seems to be more of a big thinker type of economics or macro-economist. He is being embraced by conservatives because he was not impressed with socialism. 

But Mises was a liberal economist, not a conservative. Why are some conservatives flocking to Mises? Because the Supply Side economics of Arthur Laffer has been a failure. Supply Side economic did not work during the Reagan or Bush presidencies. 


To conservatives, The economics of Ludwig von Mises may be preferable to the economics of British economist John Maynard Keynes which both FDR and the Obama administration embrace.

Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.


The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in 1936. 

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source: Wikipedia

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