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.