Ludwig von Mises has some things to tell us (Part I)
I read a tremendously relevant quotation from the philosopher and economist Ludwig von Mises (1881-1973) the other day and decided I’d have to learn more about him:
Mises’s greatest contribution [was] his demonstration that socialism cannot function as a rational economic system and that private ownership of the means of production is necessary if value is going to be maximized and waste is going to be minimized in the production process.
…He demonstrated that it was impossible to know whether a particular production process was wise (resource-optimizing) or unwise (resource-wasting) in the absence of prices for the means of production. His socialist critics accepted this, and Oskar Lange suggested that a statue of Mises be given a place of honor by the socialist Central Planning Board…
Mises’s arguments, and the arguments of those who have followed him, do not merely undermine arguments for pure, global socialism. They also undermine arguments for interventionism more generally. Economists take a lot of heat for focusing on market exchange and material prosperity, and it is fashionable in some circles to say that “there is more to life than economic efficiency” as if that decides an argument in favor of intervention. Not so: people respond to incentives, even when you don’t want them to, and the knowledge-destroying and incentive-distorting effects of interventionism all too often bring with them unintended consequences that not only reduce economic efficiency but also harm precisely the intended beneficiaries of the intervention.
Obviously a man to be reckoned with, although even some on the right have felt he was too extreme, and later he become fairly isolated within the profession. He marched to nobody else’s drummer, and had the courage of his convictions and then some. He’d seen the Nazis come to power, and wasn’t about to be cowed by a bunch of his fellow economists.
Somewhere along the line I lost the original quote that prompted me to read about him, but since Mises is eminently quotable I had no difficulty whatsoever finding more of his writings that appealed to me. I don’t agree with everything he wrote, but I found so many quotes to admire and ponder that I’m going to break this post into two parts, in order to give you time to savor how brilliantly stated and apropos they are to today. And remember, most of them are from the 1920s through the 1960s:
How one carries on in the face of unavoidable catastrophe is a matter of temperament. In high school, as was custom, I had chosen a verse by Virgil to be my motto: Tu ne cede malis sed contra audentior ito. Do not give in to evil, but proceed ever more boldly against it. I recalled these words during the darkest hours of the war. Again and again I had met with situations from which rational deliberation found no means of escape; but then the unexpected intervened, and with it came salvation. I would not lose courage even now. I wanted to do everything an economist could do. I would not tire in saying what I knew to be true.
My theories explain, but cannot slow the decline of a great civilization. I set out to be a reformer, but only became the historian of decline.
The social system of private property and limited government is the only system that tends to debarbarize all those who have the innate capacity to acquire personal culture.
Seen from the point of view of the particular group interests of the bureaucrats, every measure that makes the governments payroll swell is progress.
A government enterprise can never be commercialized no matter how many external features of private enterprise are superimposed on it.
The boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration.
History does not provide any example of capital accumulation brought about by a government. As far as governments invested in the construction of roads, railroads, and other useful public works, the capital needed was provided by the savings of individual citizens and borrowed by the government.
A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.
No civilized community has callously allowed the incapacitated to perish. But the substitution of a legally enforceable claim to support or sustenance for charitable relief does not seem to agree with human nature as it is… The discretion of bureaucrats is substituted for the discretion of people whom an inner voice drives to acts of charity.
Since the third century Christianity has always served simultaneously those who supported the social order and those who wished to overthrow it. . . . It is the same today: Christianity fights both for and against Socialism. [That was written in 1922, by the way].
[To be continued…]
Okay. But now, show some of what you don’t agree with. If the man, to a greater degree, seems precise to you, then it behooves you to also chew the fat that you find distasteful. Triangulation would allow a more accurate picture, but the points of agreement and disagreement are necessary.
I am not much into idealism. In most times, more so lately even in America, reality is deemed an idealism and set aside, replaced by already disproven idealism(s). It seems Mises saw this himself. Not much to do, without levers to manipulate, but to point and note.
People respond to incentives. Unintended consequences result from ill-considered or insuffiently considered incentives.
A Great Economic Thinker.
Today we see—en masse—that IF a person can suck more from Gov’t Handouts than he can make from work/honest labor….He will choose the former. Welcome to The Age of Obama, Homies.
Mises demonstrated (mathematically) “that socialism cannot function as a rational economic system”.
Churchill spoke out against socialism with concise acuity.
Western civilization ignored both.
“Political ideas that have dominated the public mind for decades cannot be refuted through rational arguments. They must run their course in life and cannot collapse otherwise than in great catastrophe…” Ludwig von Mises
“Virtually every Western Democratic Government is insolvent.”
“Spiraling to Bankruptcy”
Not surprisingly, Monty Pelerin, the author of the above two articles is a great admirer of Ludwig von Mises. Pelerin makes economic matters understandable for the layman.
In a perfect society government has one role and one role only in the economy, persecuting fraud in the market place. Our government is a corrupting influence in the economy because politicians are easily corrupted by those who seek to use government to tilt the playing field. This is a result of human nature as those who gravitate to positions of power are often those who are willing to succumb to the influence of corruption.
The only weapon to combat the human tendancy to embrace corruption is to severely limit the power of government. Wishful thinking in these days.
@ Parker
Von Mises’ and Hayek’s economic and politic theories are so valuable precisely because they recognize that there is no such thing as a “perfect society”. Life is dynamic, everything is in flux. While preventing fraud is certainly an important role of government in the economy, there is much good the government can do in the market place, e.g., protect private property, enforce the rule of law, etc.
Mises’ “The Ultimate Foundation of Economic Science” is a very good short introduction to his thought. I very much enjoyed the first two parts of the “Human Action” as well, but never got to finish it. I found it interesting how all of the Mises’ economic reasoning stems from a general abstraction of human action, and in those observations one sees some of the best anti-socialist argumentation that was written. I read “Socialism” too, but I found it overall less interesting. There is also a small work, a transcribed series of lectures, in which he refutes much of Marxian thought – I actually *understood* some of the Marxist claims in the first place after reading them de-jargonized and stated clearly by Mises.
Overall, I found that reading Mises (and then later Hayek) was quite instrumental in getting me to really think through some contemporary issues. I found him very accessible, beautiful clear writing, not daunting for somebody who is not a professional in the field.
Irene,
Of course there is no such thing! The closest we can achieve is a society that exists with limited government; a society where government officials – elected, appointed, or hired – are held accountable with the penalty of death for corruption. Put a few irs employees or a single member of congress or a cabinet member before a firing squad with live footage from the msm and suddenly all the politicos and bureaucrats realize they might someday twist in the wind.
Once a generation there must be blood. The tricky part is to avoid a blood bath.
And, I am willing and able to protect my property. I don’t need no stinking Eric Holder. 😉
parker: “And, I am willing and able to protect my property. I don’t need no stinking Eric Holder. 😉 ”
The right to own private property protected by laws and courts is fundamental to free enterprise and liberty.
In Zimbabwe, the government can give your farm to anyone they chose. And send the army to enforce the change of owners. Yeah, I know this isn’t Zimbabwe yet, but Zimbabwe is a real-time classic example of how important a system of private property ownership backed by courts is.
Once known as the breadbasket of Africa, Zimbabwe cannot grow enough food to feed its population. Primarily due to the Communist policies of its long-time President, Robert Mugabe.
The Von Mises quote – “A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.” – explains what the people in Zimbabwe, Cuba, North Korea, Venezuela, and many other “People’s Republics” are subject to.
Mises and the Socialist Calculation Debate-27Dec14-Orson recommends to neo neocon
http://neoneocon.com/2014/12/27/ludwig-von-mises-has-some-things-to-tell-us-part-i/
How wonderful to make this discovery, neo!
Ludwig Von Mises and the debate over “economic calculation under socialism” (ie, state ownership of the means of production), is the central debate in grasping the course of the 20th century, defined by the rise and fall of communism and the ending of the Cold War.
I remember attending a cocktail party in 1995 hosted by the libertarian publishers Liberty Press/Liberty Fund (largely funded by the B. F Goodrich Foundation) at a history conference. I told them that nether the Republican Revolution of 1994 nor the Fall of Communism were secure unless and until the truth about the socialist calculation debate made it into the history textbooks for the young, innocent to understand, or else doomed will believe lies.
It didn’t happened – the young go to school and graduate High School – and enough go to college and do not have any idea why communism failed. Thus, they proved essential to electing the first Marxist President – twice (cf, Paul Kengor’s “The Communist,” his biography of Obama’s mentor and CPUSA member Frank Marshall Davis).
This truth is simple: without prices, markets cannot coordinated exchange between producers and consumers. The problem of socialism lies in abolishing (or crippling) private property rights. Mises “market test” is also simple and direct: if ownership of company shares can be traded on a public exchange, then the economy is still fundamentally capitalist. If it can’t, it is socialist.
Those who do not know the mistakes of their past are condemned to repeat them – indeed.
I have searched arduously to find the best and most up-to-date account of the history of this debate and Mises insights. Here are the best, I think:
Before the socialist economist Robert Heilbroner died, he wrote this short reference entry on socialism, acknowledging that ‘Mises was right’ (a line that originally appeared in “The New Yorker” in 1990). SEE “Socialism” here http://www.econlib.org/library/Enc/Socialism.html This econlib piece also appears in “The Fortune Encyclopedia of Economics,” 1993.)
But for a pretty penny per page, the very best account is found in an early chapter from “The Clash of Economic Ideas: The Great Policy Debates and Experiments of The Last Hundred Years,” by monetary and economic historian, Lawrence H. White, (2012, CUP). over 30-some pages, White skillfully weaves political history into economic debates through over three decades, beginning with “The Bolshevik Revolution and The Socialist Calculation Debate.”
The single most important documentary for all students to see on this subject, whether in High School or College, is based on Daniel Yergin’s too turgid tome, “The Commanding Heights” (a title ripped off from line by Lenin), of 1998. It became a three part PBS series, the first of which covers the most essential intellectual groundwork originally problematized by Mises: “The Commanding Heights: The Battle for Ideas, Part 1” 2002.
https://www.youtube.com/watch?v=w9ms2WOZi74
The companion PBS website
http://www.pbs.org/wgbh/commandingheights/shared/minitext/tr_show01.html
The only deficit in this documentary is its serious neglect Mises in the debate over socialist calculation. But Yergkin’s turgid excess is remedied and refocused in a spritely book I believe to be inspired by it, “Keynes/Hayek: The Conflict That Defined Modern Economics,” by Nicholas Wapshot.
Ludwig Von Mises, brief biography
http://www.econlib.org/library/Enc/bios/Mises.html
(This web sight is run by Liberty Fund)
Mises “Socialism:And Economic and Sociaological Analysis,” a lengthy albeit lucid book,
is available free, online here
http://www.econlib.org/library/Mises/msS.html
“…Mises’s greatest contribution [was] his demonstration that socialism cannot function as a rational economic system ”
That is enough for me.
Which is why socialism functions as a religion.
His short book Bureaucracy is a real treasure, too. It explains a lot.
Not that it matters much, but the quote of Mises regarding the Boom and Bust refers to a big disagreement Mises had with Milton Friedman. Friedman used to talk about how he would go to Mises economic events and be accused of being a socialist.
The disagreement has to do with the somewhat obscure topic of fractional reserve banking (taking in a deposit and then loaning a portion of it back out at a different time scale than the deposit). Mises thought fractional reserve banking needed to be abolished. Friedman thought it could work with an active central bank that produced new currency when needed – now called “Quantitative Easing”.
Mises thought such a system would lead to catastrophe. His thoughts on this topic are most aggressively now promoted on a financial site called “Zero Hedge”. I’m with Friedman on this topic – but as Mises himself pointed out, its pretty much baked into the cake, so we will find out what happens eventually.
the website that has his stuff on it used to be good… then at some point, like so many things, it was co-opted… then interest in it died the way interest in sciam died, and everything they co-opt…
Economics is fascinating to me. You can understand the world so much better when you have an understanding of how markets work.
You might also like to access some classical liberals on the subject. There is of course Milton Friedman and his “Free to Choose” is excellent. Of course you can go to youtube and search for him there. No one frames an argument in quite the manner as does Friedman.
Also Donald Boudreaux has a web site called Cafe Hayek. Loads of insights on a daily basis are there. Some consider him a modern day Frederic Bastiat who framed the basic arguments against socialism in the mid 1800’s. Google Bastiat’s “The Law”. You will be all the smarter for it.
This recent book on Mises is very good putting him in an historical context and showing how his thinking evolved over his career. Very readable.
http://www.amazon.com/Mises-Last-Knight-Liberalism-LvMI-ebook/dp/B0034KYSP6/ref=sr_1_1?s=books&ie=UTF8&qid=1419826634&sr=1-1
This insightful video was posted on Maggie’s Farm:
https://www.youtube.com/watch?v=35Rini9Yu0M
Socialism ultimately relies on compulsion whereas capitalism harnesses the impulse for material improvement for the good of all, in a way that socialism cannot.
I think the Western world would do better to prioritize individual independence and self defense, rather than political power or this concept of “freedom” people go on about.
Freedom also means the ability to allow evil to be free. And that’s not a good thing in a war.