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Jul 4, 2000

Planned Chaos: A Biography of Ludwig von Mises

Ludwig von Mises founded the modern Austrian School of economics, and wrote the sweeping, authoritative treatise Human Action.

The unprecedented slaughter of the 20th century was primarily carried out in the name of socialism, the doctrine that government must control everything. Socialism’s most outspoken adversary was the Austrian economist Ludwig von Mises. He wrote 29 books in German and English, and they were translated into Chinese, Czech, Dutch, French, Greek, Italian, Japanese, Korean, Lithuanian, Polish, Portugese, Russian, Spanish and Swedish.

Mises displayed extraordinary foresight. Way back in 1920, just three years after the socialist coup in Russia, he boldly predicted that socialist economies would be a mess—and he was right. He declared that civil liberties were impossible under socialism, and he was right again. In 1927, Mises issued a prophetic warning: “Whoever does not deliberately close his eyes to the facts must recognize everywhere the signs of an approaching catastrophe in world economy…a general collapse of civilization.”

“In exclusively controlling all the factors of production,” he explained, “a socialist regime controls also every individual’s whole life. The government assigns to everybody a definite job. It determines what books and papers ought to be printed and read, who should enjoy the opportunity to embark on writing, who should be entitled to use public assembly halls, to broadcast and to use all other communication facilities. This means those in charge of the supreme conduct of government affairs ultimately determine which ideas, teachings, and doctrines can be propagated and which not. Whatever a written and promulgated constitution may say about the freedom of conscience, thought, speech, and the press and about neutrality in religious matters must in a socialist country remain a dead letter if the government does not provide the material means for the exercise of these rights.”

Mises described a comprehensive vision of economic liberty: “there is private property in the means of production. The working of the market is not hampered by government interference. There are no trade barriers; men can live and work where they want. Frontiers are drawn on the maps but they do not hinder the migration of men and shipping of commodities. Natives do not enjoy rights that are denied to aliens. Governments and their servants restrict their activities to the protection of life, health, and property against fraudulent or violent aggression. They do not discriminate against foreigners. The courts are independent and effectively protect everybody against the encroachments of officialdom…Education is not subject to government interference…Everyone is permitted to say, to write, and to print what he likes.”

Mises persisted in expressing these radical views even though it meant being treated as an outcast. He was a highly respected economist in Austria, but the University of Vienna four times refused to make him a paid professor, and for 14 years he conducted a prestigious Vienna seminar without a salary. For most of the quarter-century that he conducted a seminar in New York, his salary was paid by private individuals.

Future Nobel Laureate F.A. Hayek told Mises: “You have shown a relentless consistency and persistence in your thought even when it led to unpopularity and isolation. You have shown an undaunted courage even when you stood alone.” Economist Murray N. Rothbard: “Never would Mises compromise his principles. As a scholar, as an economist, and as a person, Ludwig von Mises was a joy and an inspiration, an exemplar for us all.”

Mises was about five feet eight inches tall and had sparkling blue eyes. “He held himself straight and erect and walked with a firm step,” recalled Bettina Bien Greaves, the world’s leading Mises scholar. “He wore a suit, usually gray, and even in the hottest weather he insisted on keeping his jacket on. His grey hair and mustache were always neatly brushed. He was serious, no frivolity. Asked if he played tennis, he replied ‘No, because I’m not interested in the fate of the ball.’ But he loved to walk, and during his summers in Austria, Switzerland and the United States, he went hiking through the mountains. As a bachelor until the age of 57, he enjoyed giving tea parties. Later, he and his wife Margit often went to the theater, even when their finances were tight. He was a man of remarkable grace, charm and culture.”

Ludwig Edler von Mises was born on September 29, 1881 in Lemberg, then part of the Austro-Hungarian Empire, about 350 miles east of Vienna. It’s now known as Lviv in the Ukraine. He was the oldest of three boys of Adele Landau who did charity work for a Jewish orphanage. His father was Arthur Edler von Mises, a railroad engineer.

It was at the University of Vienna, around Christmas 1903, that Mises read a book which inspired him to become and economist and steered him toward free markets. The book was Grundsatze der Volkswirtschaftslehre [Principles of Economics] by Carl Menger (1840-1921). An economics professor at the University of Vienna for three decades, he explained how prices reflect what customers are willing to pay in free markets. Menger’s subjective value theory was a break with the prevailing labor theory of value, that labor costs determine prices. The greatest champion of his ideas was Eugen von Bohm-Bawerk. His masterwork, Kapital und Kapitalzins [Capital and Interest], was published in 1884. Mises attended Bohm-Bawerk’s University of Vienna seminar until he began teaching in 1913. Meanwhile, on February 20, 1906, Mises earned a degree as Doctor of Laws and Social Sciences. Then he began working for the Vienna Chamber of Commerce which advised government officials about laws affecting business.

Mises started his first book, Theorie des Geldes und der Umlaufsmittel [The Theory of Money and Credit]. Published in 1912, it attacked the popular view that government officials could dictate the value of money. Mises showed that, on the contrary, the value of money was determined by the users and suppliers of money in free markets. Mises insisted that inflating the money supply is futile, because people will simply bid up prices. The beneficiaries will be those who, starting with government itself, spend new currency before prices go up. The losers will be the last ones to get new currency after prices have risen and it has depreciated in the marketplace.

After World War I, England and France demanded war reparations which put pressure on Germany and Austria to inflate their currencies. Socialist welfare state spending made things worse. The German inflation climaxed in 1923 as average prices soared over 300% a month and wiped out millions. The Austrian inflation wasn’t this bad, but it was bad enough—average prices up almost 50% a month. Mises seems to have persuaded Austrian Chancellor Ignaz Seipel and Austrian National Bank President Richard Reisch that the money-printing must be stopped.

Socialism, too, had become a dangerous problem. Socialism was put into practice on a large scale for the first time as World War I governments dramatically expanded their bureaucracies, enacted confiscatory taxes, seized private businesses, fixed prices, suppressed markets, dictated production, conscripted labor and suppressed dissent. Many intellectuals claimed that peacetime socialism could achieve paradise on earth.

Mises bristled with defiance. Far from achieving a rational order, he explained in Nation, Staat und Wirtschaft [Nation, State, and Economy, 1919], socialism caused chaos. He cited “the stupidities of the economic policy of the Central Powers during the war. At one time, for example, the word was given to reduce the livestock by increased slaughtering because of a shortage of fodder; then prohibitions of slaughtering were issued and measures taken to promote the raising of livestock…Measures and countermeasures crossed each other until the whole structure of economic activity was in ruins.”

In 1920, Mises determined why chaos is inevitable under socialism. He explained his epic insight in a paper, “Wirtschaftsrechnung im sozialistischen Gemeinwesen” [“Economic Calculation in the Socialist Commonwealth”], before the Economic Society. Since, under socialism, there weren’t to be any markets where people reveal their preferences by bidding for things, central planners wouldn’t know specifically what consumers wanted, even if they cared. And without market prices for the myriad factors of production, it would be impossible to calculate the cost of alternatives and organize production efficiently. “There is only groping in the dark,” Mises wrote.

Mises decided to write a book exposing all the errors of socialism. He declared, “If history could prove and teach us anything, it would be that private ownership of the means of production is a necessary requisite of civilization and material well-being. All civilizations have up to now been based on private property. Only nations committed to the principle of private property have risen above penury and produced science, art and literature.”

F.A. Hayek remembered, “When Socialism first appeared in 1922, its impact was profound. It gradually but fundamentally altered the outlook of many of the young idealists returning to their university studies after World War I. I know, for I was one of them…We were determined to build a better world, and it was this desire to reconstruct society that led many of us to the study of economics. Socialism promised to fulfill our hopes for a more rational, more just world. And then came this book. Our hopes were dashed. Socialism told us that we had been looking for improvement in the wrong direction.”

Mises sparked a debate that raged for years. The Polish socialist Oskar Lange and others claimed that “market socialism” could somehow have market-like prices without actually having markets. Socialist intellectuals claimed Lange had won the debate, although Lange’s theoretical model was never tried anywhere.

Mises was denied a teaching position for which he was obviously qualified, in part because European universities were government-owned, and only those who belonged to one of the favored political parties could become a professor. Hayek added, “for a Jew to get a professorship he had to have the support of his Jewish fellows…But the Jews who were teaching were all socialists, and Mises was an anti-socialist, so he could not get the support of his own fellows…the Vienna of the 1920s and 1930s is not intelligible without the Jewish problem.”

Mises became a Privatdozent, granted permission to teach and be called a professor without pay. Beginning in 1920, October through June, he explained, “a number of young people gathered around me once every two weeks. My office in the Chamber of Commerce was spacious enough to accommodate twenty to twenty-five persons. We usually met at seven in the evening and adjourned at ten-thirty. In these meetings we informally discussed all important problems of economics, social philosophy, sociology, logic, and the epistemology of the sciences of human action…All who belonged to this circle came voluntarily, guided only by their thirst for knowledge.” Hayek described the seminar as “the most important center of economic discussion in Vienna…”

In 1927, Mises wrote one of his most accessible and appealing works, Liberalismus [Liberalism], presenting his case for liberty and peace. He explained how free markets dramatically raise living standards and promote social harmony. He made clear why government interference tends to impoverish people and provoke conflict. Rejecting nationalism, he wrote, “The liberal abhors war, not, like the humanitarian, in spite of the fact that it has beneficial consequences, but because it has only harmful ones.”

Everywhere the Great Depression was blamed on free markets, but Mises countered with Die Ursachen der Wirtschaftskrise: Ein Vortrag [The Causes of the Economic Crisis, 1931]. He maintained that recession and depression were the results of prior inflation caused by government’s expansion of money and credit. When inflation slows, or the volume of money and credit contract, many businesses stimulated by inflation are likely to collapse. Mises believed unemployment wouldn’t fall until sellers accepted lower prices and workers accepted lower wages reflecting the reality of what buyers and employers can pay. He warned that chronic unemployment would be the consequence of policies which artificially propped up wages in a depression, and he was right: over 11 million Americans were unemployed in 1940, almost as many as when the New Deal began in 1933. English economist John Maynard Keynes, however, was acclaimed because he told politicians to interfere with the economy and spend other people’s money, which was what they wanted to do anyway.

Mises was invited by William E. Rappard to join the Graduate Institute of International Studies, University of Geneva. He departed for Geneva on October 3, 1934, but he left a lot of personal possessions, including thousands of books he didn’t need for his current work, in the Vienna apartment where he had lived with his mother since 1911. He remained in Geneva six years, conducting a seminar in French on Saturday mornings.

About a year after his mother died, Mises surprised all his friends by getting married on July 6, 1938. The Swiss civil ceremony required five lawyers to execute 19 documents. Mises’ wife was Margit Herzfeld, an actress who had performed in plays by Johann Wolfgang von Goethe, Henrik Ibsen, Friedrich Schiller, William Shakespeare and Leo Tolstoy, among others. They had known each other for 13 years, and she had two children, Guido and Gitta, with her late husband. Born July 6, 1890, she was, according to Bettina Bien Greaves, “a glamorous woman about five feet six inches tall. She was a bit vain and something of a snob, but she was always a gracious host. Mises cautioned her, ‘I write about money, but I’m never going to have much.’”

Mises focused on writing a big book which became the 756-page Nationaloekonomie, Theorie des Handelns und Wirtschaftens [Economics: Theory of Action and Exchange], published in 1940. Reasoning from fundamental axioms about human action, he developed a comprehensive case for free markets and attacked every type of government interference with the economy. It was an act of courage to go public with such a book while totalitarian regimes were gaining power. The Geneva publisher, Editions Union, did a small press run.

After the Fall of France, the Mises’ decided it was time to leave Europe. On July 4, 1940, they boarded a bus for Cerberes, France, near the Spanish border, often changing routes to avoid the Nazis. Three times they were turned back as they tried to enter Spain. Finally, they made it to Lisbon, and, after almost two weeks of constant effort, Mrs. Mises got steamship tickets to New York. They arrived August 2, 1940 and settled in the 3-1/2-room apartment E at 777 West End Avenue, southwest corner of 98th Street, which they would occupy for the rest of their lives.

Mises was deeply depressed that all his effort to fight socialism and achieve some economic security had come to naught. He didn’t have any prospects for a steady job. Mises had some funds in England, but he couldn’t transfer them to the United States because of exchange controls. Hayek helped by using Mises’ funds to purchase rare books (like a first edition Wealth of Nations) and send them to him, which was legal.

Within a month after he arrived in America, Mises gave New York Times financial editor Henry Hazlitt a call. Hazlitt had first encountered Mises’ name when he was reading The Value of Money (1917) by Benjamin Anderson. Hazlitt had reviewed the English edition of Socialism in the January 9, 1938 New York Times, calling it “the most devastating analysis of socialism yet penned.” Hazlitt helped get Margit von Mises’ 13-year-old daughter Gitta out of Nazi-occupied Paris by using his New York Times connection with a State Department official.

He encouraged Mises to write nine articles about the European situation, and they were published in the New York Times. The articles led to a connection with the National Association of Manufacturers which at the time was a leading opponent of government interference with the economy. He contributed to a two-volume NAM-sponsored study, The Nature and Evolution of the Free Enterprise System, and he met many of America’s leading industrialists. Meanwhile, on December 24, 1940, Mises was notified that the Rockefeller Foundation made a grant to the National Bureau of Economic Research, enabling him to write Omnipotent Government and Bureaucracy—his first books in English. Hazlitt brought these books to the attention of Yale University Press editor Eugene Davidson, and he agreed to publish them.

Bureaucracy explained that private businesses are far more dynamic than government bureaucracies because managers can use their imagination and try new things, their performance easily monitored by profit and loss. But the performance of bureaucrats cannot be easily monitored. Giving them a lot of discretion results in corruption and arbitrary power. Hence, the need for rigid regulations, the effect of which is to prevent a socialist economy from adapting in a changing world.

In Omnipotent Government, Mises linked Nazism (national socialism) and communism which fashionable intellectuals claimed were two utterly different phenomena. “The Nazis,” he wrote, “have not only imitated the Bolshevist tactics of seizing power. They have copied much more. They have imported from Russia the one-party system and the privileged role of this party and its members in public life; the paramount position of the secret police…execution and imprisonment of political adversaries; concentration camps…”

Hazlitt encouraged Eugene Davidson to consider publishing Mises’ Nationaloekonomie, translated and adapted for American readers. Mises wrote Davidson that his aim “was to provide a comprehensive theory of economic behavior which would include not only the economics of a market economy (free-enterprise system) but no less the economics of any other thinkable system of social cooperation, viz., socialism, interventionism, corporativism and so on. Furthermore I deemed it necessary to deal with all those objections which from various points of view—for instance: of ethics, psychology, history, anthropology, ethnography, biology—have been raised against the soundness of economic reasoning and the validity of the methods hitherto applied by the economists of all schools and lines of thought.”

Human Action was published September 14, 1949. It was respectfully reviewed in many publications, including the New York Herald Tribune, New York Journal American, New York World-Telegram, Wall Street Journal, Commentary, Saturday Review of Literature and American Economic Review. In the New York Times, socialist John Kenneth Galbraith credited Mises as “a learned man and a famous teacher.” Friends of liberty were ecstatic. Henry Hazlitt, who had left the New York Times and begun writing the weekly “Business Tides” column for Newsweek, said in the September 19, 1949 issue: “Human Action is…at once the most uncompromising and the most rigorously reasoned statement of the case for capitalism that has yet appeared.” Discovery of Freedom author Rose Wilder Lane called Human Action “the most powerful product of the human mind in our time.” Austrian economist Murray N. Rothbard hailed it as “the economic Bible for the civilized man.”

In Human Action, Mises described free markets as “a democracy in which every penny gives a right to cast a ballot…In the political democracy only the votes cast for the majority candidate or the majority plan are effective in shaping the course of affairs. The votes polled by the minority do not directly influence policies. But on the market no vote is cast in vain. Every penny spent has the power to work upon the production processes. The publishers cater not only to the majority by publishing detective stories, but also to the minority reading lyrical poetry and philosophical tracts. The bakeries bake bread not only for healthy people, but also for the sick on special diets…It is true, in the market the various consumers have not the same voting right. The rich cast more votes than the poorer citizens. But this inequality is itself the outcome of a previous voting process. To be rich, in a pure market economy, is the outcome of success in filling best the demands of consumers…”

Human Action was offered as an alternate selection of Book-of-the-Month Club (America’s biggest bookseller), and it was translated into French, Italian, Japanese and Spanish. Yale published a new edition of Socialism (1951), a new edition of The Theory of Money and Credit (1953) and Theory and History, An Interpretation of Social and Economic Evolution (1957). Van Nostrand published Mises’ The Anti-Capitalistic Mentality (1957) which told how free markets enrich culture. Yale’s 1963 second edition of Human Action, however, was one of the worst publishing fiascos ever seen, with pages missing, pages printed in boldface, pages printed in light type, you name it. Chicago-based Henry Regnery Co. soon brought out a cleaned-up third edition. The San Francisco publisher Fox & Wilkes introduced a paperback.

Meanwhile, Mises spoke out for free markets wherever he could, and along the way, met Leonard E. Read, General Manager of the Los Angeles Chamber of Commerce. Two years later, Read established the Foundation for Economic Education (FEE), and he retained Mises as an author and lecturer for $6,000 a year. Mises was among those invited by F.A. Hayek to form the Mont Pelerin Society, an international group of libertarian scholars formed in 1947.

Mises had agreed in 1945 to give a Monday evening lecture course on socialism at the New York University Graduate School of Business, 100 Trinity Place. He would be paid $1,000 per semester. In 1948, Mises began a Thursday evening seminar on government controls. When New York University announced it wouldn’t pay him anymore, Harold Luhnow of the Kansas City-based William Volker Charities Fund came through with $8,500 a year. After it dissolved in 1962, Leonard E. Read, Henry Hazlitt and advertising man Lawrence Fertig raised money for Mises’ salary, initially $11,700. The Monday seminar continued until 1964. The Thursday seminar, until 1969. Between 1960 and 1964, the Thursday seminar was held at Room 32, Gallatin House, 6 Washington Square North.

According to Barbara Branden, biographer of bestselling novelist and philosopher Ayn Rand, “beginning in the late fifties and continuing for more than ten years, Ayn began a concerted campaign to have his [Mises’] work read and appreciated: she published reviews, she cited him in articles and in public speeches, she attended some of his seminars at New York University, she recommended him to admirers of her philosophy.”

After Mises’ 90th birthday, he suffered from painful bowel obstructions. He died on October 10th around 8:30 in the morning. He was 92.

Mises was dramatically vindicated by the 1991 collapse of the Soviet empire. In The New Yorker, influential socialist Robert L. Heilbroner recalled how Mises had long maintained “that no Central Planning Board could ever gather the enormous amount of information needed to create a workable economic system.” Heilbroner confessed: “Mises was right.”

In the fall of 1996, Hillsdale College professor Richard M. Ebeling and his Russian-born wife Anna tracked down about 10,000 documents Mises left in his Vienna apartment. These had been confiscated by the Gestapo, and after the war, they were seized by the Soviets, taken to Moscow and declassified following the Soviet collapse. Ebeling reported, “Ludwig von Mises is shown to be more influential and important than even his strongest admirers had imagined.” Ebeling is writing one biography, and German scholar Guido Hulsmann is completing another.

Long after Karl Marx and John Maynard Keynes are forgotten, hopefully Ludwig von Mises will be known as a man who told the truth about government power which blighted the 20th century. He showed with blazing clarity how free markets relieve misery, liberate the human spirit and make it possible for people everywhere to breathe free.

Reprinted from The Triumph of Liberty by Jim Powell.