The Libertarians

IBD honors Mises

In its leaders section, the Investor’s Business Daily profiles Ludwig von Mises and his contributions to economic theory and individual liberty. It isn’t often a major newspaper makes room for the greatest economist of the twentieth century so our hat is duly tipped.

Because Mises developed a consistent set of principles based on a logical analysis of human action, he went to the root of political and economic problems, exposing unpleasant truths along the way. His wife Margit says:

‘Lu’s writings were hated by socialists of every type: Nazis, communists, fascists and, as I later found, American socialists as well,’ his wife, Margit, wrote in “My Years With Ludwig von Mises.”

I doubt there is better proof of Mises’ unparalleled insight than the fact all three variations of socialist hated him. Anyone proposing the expansion of state power is a socialist. That linked Nazis with communists with fascists. All three ideologies distrusted individual thought, action and initiative. All three felt “expert” leaders using the latest science were better placed to direct society -personal liberty be damned. Americans ought to keep this in mind when listening to Hillary, McCain or Obama.

As grateful as I am for the IBD’s article, I must quibble with the following line:

Despite being out of step with the spirit of his times, von Mises triumphed.

In what way did Mises triumph? He used logic to develop his theories and lost out to the math-centered approach that has come to dominate economics departments around the world. This was part of why he could never find an academic post in the United States.

As the article explains, Mises “correctly predicted the stock market crash of 1929,” and yet Wall Street and the Federal Reserve and mainstream economists ignore his ideas on credit expansion and the business cycle. As Frank Shostak writes, most people in the 1920s were:

Looking at the price level and growth rates as indicators of economic health. Mises’s theoretical insights led him to look more deeply, and to elucidate the impact of credit expansion on the entire structure of the capitalistic production process.

Hmmm…where have I been hearing about the dangers and damage credit expansion and easy monetary policy can inflict on an economy? Just as he did in 1929, Mises would have predicted the current home lending mess. And still no one listens. Well, almost no one. Fortunately, one former Fed-man has been paying attention. Robert Formaini, once a member of the Federal Reserve Bank of Dallas, explains that:

Mises’ 1912 book, “The Theory of Money and Credit,” is still valuable. He says that his old Fed colleagues aren’t much for reading anything but data, but that the book would be helpful to them.

“They should read it. I don’t know if Bernanke has read it, but he should,” Formaini said of Ben Bernanke, the Federal Reserve chief.

Yes, yes he should. But he won’t.

Mises didn’t only foresee the problems printing money out of thin air would cause. He also knew that, operating without a price system to allocate resources, the Soviet Union was doomed to collapse on itself. While other economists were fooled by the data coming out of the communist block, Mises knew no single governing unit could organize production to satisfy the wants and needs of millions of individuals. Again, he was right.

To end, a quote from the great man. Describing pro-state politicians of every stripe, Mises said:

They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office.

So the next time McCain talks about national greatness driving the U.S. to save the world, or Hillary details the wonders of government health care, remember they couldn’t even deliver letters on time.