FREE ESSAY ON LUDVIG VON MISES

LUDVIG VON MISES

Ludwig von Mises: Defender of the Free Market
Ludwig von Misis thoughts on human behavior, socialism, and money and credit have had a
major impact on economic thought. He championed true free markets and is seen as a
defender of liberty. Former President of the United States Ronald Reagan said "Ludwig von
Mises was one of the greatest economic thinkers in the history of Western Civilization.
Through his seminal works, he rekindled the flames of liberty. As a wise and kindly
mentor, he encourages all who sought to understand the meaning of freedom. We owe him an
incalculable debt"(Mises Institute). The remainder of this paper will outline the life of
Ludwig von Mises. This will be accomplished by describing the social, political,
technical, and economic environment that influenced his ideas. A description of his major
ideas in economic thought will be presented. Next, the people and ideas that influenced
his approach to economics will be addressed. Finally, the paper will conclude with an
assessment of Ludwig von Mises contributions to economic thought.
Overview of the Life of Ludwig von Mises
Ludwig von Misis was born on September 29, 1881 in Lemberg, Austria. He attended a
private elementary school, the public Akademishe Gymnasium in Vienna from1892 to 1900. In
1900 Mises entered the University of Vienna. On February 20,1906 he received a Dr. Jur
degree, a Doctor of both Canon and Roman Laws, from the University of Vienna. When Mises
attended the University, it had no separate economics department; the only way to study
economics was through law (Mises Institute). From 1907 to 1914 Mises was employed as an
advisor to the Austrian Chamber of Commerce. His first major thesis, the Theory of Money
and Credit was published in 1912. In 1913 Mises was awarded the position of Privatdozent
(unsalaried lecturer) at the University of Vienna (Mises Institute). Mises' academic
pursuits were interrupted from 1914 to 1918 due to World War I. 
After World War I Mises returned to the University of Vienna and his position at the
Austrian Chamber of Commerce. His next major thesis, Socialism, came in 1922. In 1934
Mises accepted a position as Professor of International Economic Relations at the
Graduate Institute of International Studies, in Geneva, Switzerland. Even though he bad
left Vienna to accept this position in Switzerland, Mises did work for the Austrian
Chamber of Commerce on a part-time basis until Hitler's annexation of Austria in March
1938 (Mises Institute). On July 6, 1938 Ludwig von Mises married Margit Sereny in
Geneva.
Ludwig von Mises immigrated to the United States in 1940 arriving in New York on August
2. In the United States Mises taught as a Visiting Professor at the University of New
York from 1945 to 1969. He also traveled to Central and South America giving lectures
from 1942 to 1959. In 1949 Mises published his crowning achievement Human Action. This
treatise summarized his thoughts on economics. Through out the rest of his life Mises
received several distinguished awards. On October 10, 1973 Ludwig von Mises passed away
at St. Vincent Hospital in New York City.
Factors Influencing Ludwig von Mises Ideas
The major influence on Ludwig von Mises ideas was the Austrian school of economic
thought. The political and economic events that influenced Mises included two world wars
and an extended worldwide depression. In the political turmoil after World War I, the
main theoretician of the now socialist Austrian government was Marxist Otto Bauer. Mises
had befriended Bauer during his school years and the two often discussed economics and
politics. Mises explained economics to him night after night, eventually convincing him
to back away from Bolshevik-style policies (Mises Institute). His actions kept Austria
from following to the hyperinflation that the Germans experienced. The prevailing
political climate during this time was Socialism. Mises strongly opposed Socialism and
its prevalence inspired him to write his next great work Socialism. The Great depression
brought about the rise of Keynesian Economics. Mainstream economics embraced Keynesian
economics and as a result Mises theory of money and credit was pushed into the background
as the cause for business cycles. Political activity in Europe, specifically Hitler's
aggression, drove Mises from his homeland and then Europe just before World War II. Mises
continued to lecture widely in the United States, Europe and Latin America. He served as
economic advisor to the Foundation for Economic Education (FEE) from its founding in 1946
until his death. He was appointed a Visiting Professor at New York University Graduate
School of Business Administration in 1945 and served there until 1969 (FEE). In his life
time Mises witnessed the completion of the industrial revolution in the western world as
well as the pervasion of government intervention into the free market through fiscal
policy, based on Keynesian Economics, and through the institutionalization of central
banking.
Ludwig von Misis: Money and Credit, Socialism, and Human Action
During his lifetime of teaching and writing Mises wrote 25 books and more than 250
scholarly articles (Mises Institute). Percy Greaves gives a list of Mises more prominent
books in Mises Made Easier, they include:
Human Action (1st edition, Yale, 1949; 2nd revised edition, Yale, 1963; 3rd revised).
edition, Regnery, 1966
Bureaucracy (Yale, 1944; Arlington House, 1969). 
Omnipotent Government (Yale, 1944; Arlington House, 1969). 
Socialism (Yale, 1951; Jonathan Cape, 1969). 
The Theory of Money and Credit (Yale, 1953; Foundation for Economic Education, 1971). 
The Anti-Capitalistic Mentality (Van Nostrand, 1956; Libertarian Press, 1972). 
Theory and History (Yale, 1957; Arlington House, 1969). 
Epistemological Problems of Economics (Van Nostrand, 1960). 
The Free and Prosperous Commonwealth (Van Nostrand, 1962). 
Planning for Freedom (2nd edition, Libertarian Press, 1962). 
The Ultimate Foundation of Economic Science (Van Nostrand, 1962.) 
The Historical Setting of the Austrian School of Economics (Arlington House, 1969). 
According to Allen Dalton, Professor of Economics at Boise State University, Mises major
contributions to economic thought appear in his three books The Theory of Money and
Credit, Socialism, and Human Action. 
In his first major work The Theory of Money, Mises argued that just as the price of any
commodity is determined by supply and demand, so is the purchasing power of money, its
price (Mises Institute). Money, according to Mises, is not a measurement of prices: it is
a medium whose exchange ratio varies in the same way, although as a rule not with the
same speed and to the same extent, in which the mutual exchange ratios of the vendible
commodities and services vary (Koether). Mises showed that prices can increase faster or
slower than the money supply, the amount and speed of price increases depending on
people's desire to hold cash. He also argued that because prices increase only relative
to one another, monetary inflation has the effect of redistributing wealth, from savers
and earners to banks and government and its connected interest groups that receive the
counterfeit money first (Mises Institute). Mises student, Murray Rothbard summarized
Mises ideas concerning the effects of fractional reserve banking and central banking in
his article The Case Against the Fed by stating that counterfeiting (credit expansion) is
inflationary, redistributive, distorts the economic system, and amounts to stealthy and
insidious robbery and expropriation of all legitimate property owners in society
(Rothbard).
The business cycles of booms and busts that monetary inflation causes are even more
damaging to society. When government inflates, it lowers the interest rate below the
proper market level, which is dependent on saving. The artificially low interest rate
misleads businesses into making uneconomic speculative investments and creates an
inflationary boom. When the credit expansion slows or stops, investment errors are
revealed bankruptcies and unemployment result. Central banks like the Federal Reserve
will ultimately create the business cycle. Mises argued that because money originated as
a market commodity, not by government edict or social contract, it should be returned to
the market. Banking should be treated as any other industry in a market economy, and be
subject to competition. The currency should be tied to gold, its originating commodity,
through free convertibility (Rothbard).
Mises book Socialism predicted the downfall of communism and warned against socialist
institutions in government. He states that 
socialism could not function in an industrial economy because there would be no market
for the factors of production and therefore no price system to calculate profit and loss
(Rothbard). Therefore planning in a planned economy is impossible due to the lack of
economic calculation. The result of planned economies is no economy at all but rather a
system of "groping in the dark"(Koether). Just as important, he showed that mixed
economics cannot function efficiently either. Through taxes, regulation, and spending,
government distorts the price system and the allocation of resources to their most highly
valued uses (Rothbard). Evidence of this pitfall is all around us and is manifest in the
downfall of Russia and China's moves toward capitalist economics.
Human Action is Ludwig von Mises masterwork. Murray Rothbard summarized the importance of
Human Action in his essay The Essential Ludwig von Mises with the following statements;
"Human Action is IT; it is economics whole, developed from sound praxeological axioms,
based squarely on analysis of acting man, the purposive individual as he acts in the real
world. It is economics developed as a deductive discipline, spinning out of logical
implications of the existence of human action. To the present writer, who had the
privilege of reading the book on publication, it was an achievement that changed the
course of his life and ideas. For here was a system of economic thought that some of us
had dreamed of and never thought could be attained: an economic science, whole and
rational, an economics that should have been but never was. An economics provided by
Human Action" (Rothbard). The 900 page treatise on economics covers topics such as
accounting, advertising, banking, business cycles, bureaucracy, capital, capitalism,
charity, competition, debt, devaluation, economics, education, entreprenuership,
equality, exchange rates, gold standard, government, history, human action, ideology,
individualism, inflation, interest, intervention in markets by government, foreign and
domestic investment, labor unions, laissez faire, land reform, markets, mathematics,
money, monopoly, morality, mortality, praxeology, prices, profits and loss, public
opinion, reason, religion, science, sex, socialism, society, speculation, statistics,
tariffs, taxes, theory, time, underdeveloped nations, unemployment, value, wages and war
(Koether). The most important ideas derived from Human Action change the very method used
to evaluate economics. Mises argues that economics can not be viewed in specialized terms
but rather must be viewed as a whole system. This method is referred to as praxeology.
Mises also argued against the rising use of mathematics in economics. He states that "the
fundamental deficiency implied in every quantitative approach to economic problems
consists in the neglect of the fact that there are no constant relations between what are
called economic dimensions. There is neither constancy nor continuity in the valuations
and in the formation of exchange ratios between various commodities" (Koether). In fact
Mises referred to mathematics in economics as "worthless mental gymnastics" because they
can not and do not apply to real economic problems. It does not help to think of prices
of production as the intersect of two curves, but it does help to realize that price is
derived through human action (Koether). Many other ideas are put forth in Human Action
but these two are the most prevalent of those that have not already been discussed.
The People and Ideas that Influenced Ludwig von Mises.
The basis for all of Mises writings came from the founder of the Austrian School of
economics, Carl Menger. Menger's complete theory of marginal utility and its subjective
reasoning that relied on theory. Mises stated that Menger's views "made an economist" out
of him because of its methodology, which stated that economics is the science of
individual choice (Mises Institute). Eugen von Boehm-Bawerk, a student of Menger, taught
a young Mises from 1904 to 1914 at the University of Vienna. His views on intervention of
the government and how it reacted to economic law greatly influenced Mises thesis on
socialism. Boehm-Bawerk's theory on interest and capital and its time preference basis
formed the logic needed to argue the viability of socialism (Spiegel). Mises thoughts on
the business cycle were derived from Ricardian models, Boehm-Bawerk's theory on capital
and the factors of production, and Knut Wicksell's ideas regarding production and the
effects the difference between real and nominal interest rates has on it. Max Weber
influenced Mises concerning economics as a social science, but Menger was probably the
major influence here as well.
Assessment of Ludwig von Mises Contributions to Economics
The completeness of Human Action is the most impressive contribution that Ludwig von
Mises gave to economics. The marriage of micro and macroeconomics was accomplished
through Mises theory on money and credit. This was the first time that this had been
accomplished. His argument presented in Socialism has been historically vindicated and
supported by empirical facts. Mises undying views on laissez faire has been his sticking
point with mainstream economics (Spiegel). The failure of the gold standard and the
prevailing existence of central banks are testaments to this. The biggest triumph of
Mises is the methodology used to study economics. He solidified Menger's theoretical
approach to economic problems.
Bibliography
Works Cited
Foundation for Economic Education "Ludwig von Mises" [On-Line] Available Internet
www.fee.org/about/misesbio.html
Greaves, Percy L. "Mises Made Easier," 1974, Free Market Press
Koether, George "The Wisdom of Ludwig von Mises" 1981, The Freeman
Ludwig von Mises Institute "Who is Ludwig von Mises" [On-Line] Available Internet
www.mises.org/mises.asp
Ludwig von Mises Institute "What is Austrian Economics" [On-Line] Available Internet
www.mises.org/austian.asp
Ludwig von Mises Institute "Why Austrian Economics Matters" [On-Line] Available 
Internet
www.mises.org/why_ae.asp
Ludwig von Mises Institute "An American Classical Liberalism" [On-Line] Available 
Internet
www.mises.org/classical.asp