“Mises [completed] the subjectivist revolution in economic theory by unifying all economics into a general microeconomic framework.”

Leonard Liggio was the Executive Vice President of Academics at the Atlas Economic Research Foundation, a Distinguished Senior Scholar at the Institute for Humane Studies, and a Research Professor at George Mason University’s School of Law.

In Vienna, prior to, during, and just after World War I, Ludwig von Mises (1881–1973) was attaining his full intellectual maturity. For a liberal like Mises these were truly lamentable years. The years from the early 1890s to 1920 constituted perhaps the most retrogressive watershed in the history of Western civilization. They were the years during which the grand liberal system of the Nineteenth Century was overthrown and transformed into Twentieth‐​Century statism. Saddened, but undaunted, Mises would spend the rest of his life championing the noble but forsaken cause of liberty and liberalism.

By the last decade of the Nineteenth Century, signals were clear that the beginning of the end of the liberal era was at hand. The liberating forces that had been advancing for more than two centuries were grinding to a halt. The New Imperialism, preparation for militarism, and protectionism were replacing both the principles and reality of international peace and free trade. Neo‐​mercantilism was being reconstructed around the globe.

The liberals knew that the unprecedented prosperity yielded during the heyday of liberalism depended on implementing the free trade plank of the liberal platform. As Mises never tired of pointing out, necessarily central to the free trade system is a sound monetary mechanism to facilitate the policy of free trade. Free trade, sound money, and prosperity are mutually interdependent parts of a single policy.

To pay for military build‐​ups and for the burdens of neocolonialization, governments around the world resorted to inflation. Governments and the bankers were once again drawn together into a Neo‐​Mercantile symbiosis. Inflation, as it always has a way of doing, led to protectionism. Sound money and free trade were left hanging in the balance. The final and decisive blow against the classical liberal order in general and against the international trade and monetary mechanism (the gold standard) in particular was delivered with a vengeance by the Great War.

In the blink of an eye, it was all but gone. The Rights of Man, Peace, Prosperity—all these and the rest of the honored liberal agenda—lay prostrate and smoldering among the ghastly ruins on the battlefields of Europe.

Unfortunately, nearly all of Twentieth‐​Century history flows directly from this monumental misfortune. The Versailles treaty, the Bolshevik revolution, run‐​away inflation, the rise of fascism, the Great Depression, exchange controls, autarkic trading blocs, the destruction of international trade and its monetary mechanism (the gold standard), the Second World War, the Cold War—this entire brood of evils emanated from World War I. At every turn, statism; and at every turn Mises was there to debunk and refute each statist measure and more particularily the collectivist philosophy that lay behind the interminable measure‐​after‐​measure of statist intervention.

Even before the Great War, Mises had achieved a significant measure of international acclaim with the publication of his Theory of Money and Credit (1912). In it, Mises performed the monumental task of, in effect, completing the subjectivist revolution in economic theory by unifying all economics into a general microeconomic framework. Mises demonstrated that there is no realm of so‐​called macroeconomics separate from micro theory, one which requires a separate policy. The policy in all areas of economics, as Mises showed, must be laissez faire across the board and with no exceptions. This means a total separation of public finance from the banking industry. It means there must be no central bank to service the desires of the government’s treasury department. It means a policy of free banking.

Matters of money and monetary theory were to remain of central concern to Mises throughout his long and distinguished career. As an economist, Mises knew that money was the life blood of an advanced, progressive, industrialized economy. Without a sound monetary system, an advanced industrialized economy could not for long function. (On this see Mises’ critique of central economic planning under socialism in his seminal 1920 article “Economic Calculation in the Socialist Commonwealth.”) Furthermore, Mises knew that sound money served as the necessary core of the international division of labor and international trade mechanism. As an economist and historian, Mises realized that the gold standard was not the creature of governments, but rather had developed through centuries of expanding international commerce and trade. The gold standard was the free market’s spontaneous answer, via commercial and merchant banking practices, to the international market’s trade needs.

As a liberal, Mises saw the gold standard, along with constitutions and bills of rights, as an integral element in the Classical Liberal political program for protecting the people from the avaricious designs of governments. To a very considerable degree, a hard money policy kept at a minimum the relationships between public finance and national banking systems; it forced the governments of the world to refrain from tampering too terribly much with the people’s money through inflation. During the height of the gold standard, if governments wanted to gain more control of the people’s wealth they had to resort to naked taxation for redistribution and not hide behind the monetary veil of inflation. Sound money was every bit as much a protection of civil liberties as was the right of free speech or of assembly. As such, it was an irritating impediment to governments everywhere, and sound money was one of the first building blocks in the liberal edifice to be ruthlessly discarded by all governments during this period.

Mises’ first detailed written reflections as a liberal social and political analyst (as distinct from an economist narrowly defined) were published in 1919 in an extraordinarily prescient and just recently translated work, Nation, State and Economy. According to many, it ranks with J.M. Keynes’ The Economic Consequences of the Peace as the most prophetic and sound liberal analysis of the causes and consequences of the war. Nation, State and Economy is replete with social, political, and economic insights, many that would occupy Mises’ attention during the following half century: the causal interrelationships between private property, the division of labor, free trade, and peace; the absurdities and inadequacies of socialism as a mode of social and economic organization; and, most importantly for our purposes, Mises extended his lifelong investigations into the distorting effects that inflation has on the real structure of production. In this work he is particularly interested in exposing the distorting effects of inflationary‐​financed military expenditures.

From immediately after the World War to the end of his life Mises never stopped calling for monetary reconstruction and reform. In the long run, for Mises, the most deleterious effect of the war was destruction of the international monetary order. Without sound money there could be no serious hope of disciplining governments to keep them within the bounds of their budgets. In short, Mises foresaw that, without sound money, the Twentieth Century would become an Age of Inflation.

Throughout the 1920s Mises, among many other things, continued his investigations into the relationships between changes in the money supply and the capital structure. This work culminated in 1928 with the publication of Mises’ full fledged theory of the Trade Cycle in Monetary Stabilization and Cyclical Policy. His theory was a brilliant combination of his own work in monetary theory with key contributions found in the works of Wicksell and Böhm‐​Bawerk. This theory was then taken over by Mises’ most famous student, F.A. Hayek, and expanded and developed into what is now known as the Austrian theory of the trade cycle.

With the publication of Nation, State and Economy in 1919, Socialism in 1922, Liberalism in 1927, andCritique of Interventionism in 1929, Mises established himself not only as a great economist but also as a political philosopher and social analyst of the first order. But perhaps more than anything, by the late Twenties Mises was well established as the voice of uncompromising liberalism in Europe.

But, as fate would have it, the Thirties were not good times for liberals or liberalism. The Great Depression served as a magnet to draw statist bromides, policies, and exponents from out of the woodwork. Keynesianism swept the English speaking world just as Fascism swept the Continent. The intransigent and prolific Mises never ceased in his warnings or in championing his liberal cause, but few were willing to listen. By the mid‐​Thirties, Mises had to flee his beloved Vienna for Geneva, where he set to work on what was to become his major theoretical work in economic science,Nationaloekonomie (1940), later to be reworked into the major English treatise, Human Action (1949). As the second European conflagration began, Mises and his wife Margit left Geneva for America, where they would spend the rest of their lives.

Although Mises’ reputation, along with liberalism in general, waned considerably during the Thirties and Forties, his influence can nevertheless be seen in postwar Europe. Italy’s most successful President, Luigi Einaudi, was strongly influenced by Mises as were Wilhelm Roepke and Ludwig Erhard (the masterminds behind the economic Miracle in West Germany), and Jacques Rueff, who presided over the 1959 currency reform in France.

It is perhaps true that Mises’ long‐​run intellectual leverage is greater now than at any time in his own lifetime. Hundreds of young economists and neo‐​liberals are now hearing about Mises and reading his numerous works. The Mises resurgence is a part of a wider resurgence of interest in both Austrian economics and liberal political economy that began a decade ago and shows no signs of receding.

As has been pointed out in this editorial, central to Mises’ economic and liberal thought was his abiding interest in monetary reform in general and free banking in particular. We are pleased to help facilitate this dialogue by publishing the first of what we hope will be several essays on money and monetary reform.

Finally, in honor of last year’s Mises centenary, we should like to remind the reader of some of Mises’ most important and lasting contributions to economic science and liberal thought:

  • (1) On Monetary Theory: The Theory of Money and Credit; On the Manipulation of Money and Credit.
  • (2) On Liberal Thought: Nation, State and Economy; Liberalism.
  • (3) On Social Theory: Socialism; Bureaucracy.
  • (4) On Political Economy: Critique of Interventionism; Planning for Freedom; Omnipotent Government.
  • (5) On Economic Method: Epistemological Problems of Economics; The Ultimate Foundation of Economic Science; Theory and History.
  • (6) On General Economic Theory: Human Action.