Mises’s New York University Seminar

Professor Mises was of average height. He held himself straight and erect and walked with a firm step. He always dressed very properly in suit, vest, and tie. His grey hair and moustache were always neatly brushed. He was serious, no nonsense or frivolity in his attitude toward his subject, but his eyes sparkled. A sense of humor was apparent in the anecdotes he told and the illustrations he cited in informal remarks and ad lib answers to questions.

In 1934, anticipating political unrest and turmoil in Austria, Professor Mises made plans to leave Vienna and he took a position with the world-renowned Graduate Institute of International Studies in Geneva, Switzerland. In August 1940, with his wife, Margit, he arrived in the United States. No job awaited this refugee scholar from war-torn Europe. For several years he free-lanced, writing articles and lecturing. A foundation grant enabled him to write Bureaucracy and Omnipotent Government, both published by Yale University Press in 1944. Then, with the encouragement of Henry Hazlitt, he began writing what became his magnum opus, Human Action, published by Yale in 1949.

Mises’s first graduate level teaching position in this country began with the spring term of 1945 when he was invited by New York University, Graduate School of Business Administration (NYU, GBA) to become a visiting professor and to present a lecture course on Monday evenings. Then 63 years of age, he was embarking on a new teaching career which was to extend for more than 24 years. In the fall of 1948 he began the graduate seminar at NYU on Thursday evenings. The Monday evening courses — one semester devoted to socialism and the market, the other to government controls — ended in the spring of 1964. However, Mises continued to conduct the Thursday seminar through the spring term of 1969, when he was in his 89th year.

With NYU’s permission, Mises frequently invited friends visiting New York City to drop in on his Thursday evening seminar, and several from the area attended regularly over the years. Thus, the participants in Mises’s seminar fell into three categories — registered NYU students, occasional guests of the professor, and former NYU students especially interested in learning all they could from Mises, who continued to attend on a regular basis.

The typical registered graduate student was apt to feel somewhat at sea at the beginning of his first semester. Mises’s accent was difficult to understand at first. His vocabulary and subject matter were often foreign to what American university students usually heard in graduate economics courses. Instead of speaking in terms of econometrics, macroeconomics, economic growth, price level, economic stability, or aggregate statistics, Mises was likely to be talking about such concepts as apriorism, epistemology, teleology, purposive action, or value judgments. He assumed the participants in a graduate seminar would be well read in history and philosophy as well as economics (including his own books) and prepared for intellectual discussion. Thus, he tended to stretch the minds of those who were interested and sought to understand. One graduate student once commented that Mises’s seminar was one of the few university classes he had attended in which the students were treated like mature scholars.

Mises spoke from a tremendously broad background. He was a lawyer as well as an economist, his doctorate from the University of Vienna having been in “Both Laws — Canon and Roman.” He was a prodigious reader all his life and had a comprehensive knowledge of history. He read and spoke a number of languages. He was thoroughly familiar with the classics. He kept abreast of new books being published and he read several newspapers regularly. He was an ardent opera and theatergoer. He also went frequently to the movies. Thus, his lectures were sprinkled with allusions to persons and events of ancient and European history as well as recent happenings and people in the daily news.

Mises selected a broad general theme for each college year or semester of the seminar. Among the topics covered in the 18 years I attended were capitalism, epistemology, praxeology, bureaucracy, interventionism, socialism, Marxism, capital theory, monetary theory, interest theory, prices and competition, monopoly and monopoly prices, institutional economics, the profit and loss system, as well as various theories of the trade cycle. A half dozen words, no more, neatly and precisely written in Mises’s old-fashioned European script, on a small piece of paper, usually about 2” x 3”, were sufficient to remind him of the important points he wanted to cover in an evening’s discussion.

Mises encouraged participants in his seminar to ask questions. They should not accept his every statement as absolute truth or, he said, he might as well be a dictator. They should ask questions about anything they doubted, couldn’t accept or understand. Thus, many topics were raised over the years — cartels, copyrights, agrarian reform, election returns, multinational corporations, new government regulations, Federal Reserve policies, recently published books, and even issues suggested by the latest presidential press conference. Every question offered Mises an opportunity to talk about various aspects and applications of economic theory.

Questions on “economic growth,” for instance, led Mises to discuss the nature and methodology of economics. Implied in the term “economic growth,” he explained, was the idea that it was possible somehow to measure the improvement, or deterioration, in economic conditions from one time to another. However, this is not possible. Measurement is possible, he pointed out, only when you have an unchanging “yardstick,” and there is no yardstick for measuring improvement or deterioration in conditions. Measurements may not always be perfect in physics, because of the fallibility of the persons doing the measuring and interpreting the data, but they are theoretically possible. In economic theory, however, we are dealing with ideas and values. “Economics is not potatoes,” he told us once. “Economics is human action. Potatoes are only something that people have used for consumption during a certain period of time.”

We should never forget that the realities of economics are the actions of men who are motivated by ideas, values, and plans, and who aim at ends. The economic unit from which all action stems is value. Value, like love, is subjective and always changing. We may count and weigh the potatoes and automobiles, for instance, that are produced and sold in one year. We may precisely determine how much or how many more or less potatoes and automobiles are produced and sold in a different year. But if the production and sales of potatoes and automobiles go up, while the production and sales of meat, airplanes, and shoes, for instance, go down, will conditions be better or worse? And from whose point of view? What will be the basis for comparison? If there is no unchanging unit of measurement, no yardstick, with which the economic conditions at the two different points in time may be measured, how can we know whether or not there has been “economic growth”?

“What do people mean,” Mises asked, “when they speak of measuring ‘economic growth’? People would think it foolish to try to ‘measure’ love. But when they try to measure economic conditions they are in effect trying to measure ‘love,’ the ‘love’ or preference people have for certain conditions and certain changes. The idea of economic measurement denies the distinction between human action and what takes place in the physical world outside of man.”

The reality economists deal with is the reality of ideas and actions as they are applied to external things. The realities of economics are actions. Every action is an exchange of something a person has for something he values more. But that value can no more be expressed in cardinal numbers or measured in arithmetical terms than can love. Values can only be arranged or graded in accordance with the actor’s ordinal preferences.

Value is the importance men attach to ultimate ends. Out of the subjective values of many persons acting on the market, out of their preferences for goods and services on the one hand and for money on the other, prices evolve. You are willing to pay a certain price for a good or service because you have definite ideas about the relative value of the good or service and of the purchasing power of money. The prices that result are not measurements of value, however, but exchange ratios of the two values expressed in money terms.

Mises was often asked also about the use of economic statistics in forecasting. First of all, he always pointed out that statistics are necessarily always history and as such they cannot tell us about the future. However, he realized that knowledge of the past is necessary to know what has gone on before and to be able to improve anticipations. In order to plan intelligently, businessmen need to know as much as possible about past production and past prices. The businessman, therefore, analyzes the statistician’s tables. But to them he adds most important ingredients — his own interpretation, understanding, and anticipations of future changes. What the businessman learns from the statistical reports, which always refer to the past, is one thing. What he will do in the future, on the basis of his knowledge and anticipations, is something else. The businessman must always interpret the statistics on the basis of theory, knowledge, and understanding. Historical statistics, without theory, are of no help in making economic anticipations.

If students accepted his every word as truth and failed to ask questions, Mises said, then he might as well be a dictator.

Theory and an understanding of economic principles make economic forecasting possible. They permit us to predict the consequences of certain actions. For instance, we can say on the basis of economic theory that if in 1999 the government enacts controls on milk, in the attempt to hold its price below the price that would have prevailed in a free or unhampered market, there will inevitably be certain undesired consequences — an increased demand for milk accompanied by reduced supplies. Economists cannot predict that that will happen in 1999. They cannot know if the government will enact price controls on milk in the future, for that will depend on the joint actions of people and government. Their actions will depend on their ideas. But we do know that if men come to understand the inevitable undesired consequences of enacting price controls, they will be able to avoid them, if they want to, by changing their actions.

To illustrate the effects of anticipation on the basis of more than historical economic statistics, Mises described the situation in Europe between 1910 and 1914. At that time, there was considerable discussion about what seemed to be unreasonably high prices for the stocks of certain corporations. These were corporations which manufactured things governments were likely to buy in time of war — tin goods or preserves, as well as armaments. Although the statistical reports then available contained no reference to future military conflict, enough people anticipated that the world was on the brink of war to act in a manner that bid these prices up several years before the start of World War I.

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Mises’s extemporaneous remarks were often vivid, colorful, and succinct. Here are a few gems selected from my years of seminar notes:

You say the secret is in selling something above cost. But the situation is really very different. The problem is to produce something for which consumers are willing to pay above cost.

Education can only hand down what was present in the old generation. The innovator cannot be educated. There is no school for the inventor.

Prices are like the snows of last winter. They come, but at the moment we catch them, they are already something of the past.

Concerning statistical averages which conceal the truly significant factors: If a man has one leg on an iceberg and the other in a fire, the average is then all right.

The French government buys and stores wine, just as this government buys and stores wheat and butter. But wines improve with age, while the same cannot be said of wheat and butter.

Ideas are called “imported and alien” when one doesn’t like them. It is exactly the opposite with wine.

Beginning with Omar Khayyam, wine has been advertised by the poets. Were the poets in the pay of the “Whiskey Trust”? Why not say that the desire for cleanliness is the result of the “Soap Trust” and its advertising?

Concerning the idea of nationality: St. Francis of Assisi and Casanova were both Italians. But what did they have in common? Only the fact that they both used the same language, though for very different purposes!

Why should the members of Congress be so nasty as to fix a minimum wage lower than their own?

What “runs away” is not the inflation, but the good sense of the government.

Saints don’t usually serve in the offices of foreign exchange controls.

The real “jewels” are morals.

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Mises understood very well that the fate of the world depends on the ideas men hold. He found little in the daily papers to give him hope that the inflation would soon be halted. Thus, he was inclined to be pessimistic. Yet he told us on occasion that he was becoming more optimistic about the future, for he had confidence in “the genius of the people.” That, he said, is why he wrote his books. His hopes were also buoyed by the few brave voices in this country cautioning against continued monetary expansion and warning against the inevitable consequences to be expected from increasing government intervention. And he was encouraged by the members in his seminar who had “moral caliber and the ability” to realize “that economics books were written not only for libraries but also for some practical use. . . . Nothing is more important than the ideas, commonly called economic ideas, developed by persons we do not even know today. These ideas are the real material out of which the future will be built. . . . I have full confidence in the members of my seminar.”

Bettina Bien Greaves is on the staff of the Foundation for Economic Education.