Freeman

ARTICLE

Mises: The Impact of Ideas

JANUARY 01, 1991 by WILLIAM H. PETERSON

Dr. Peterson, an adjunct scholar at the Heritage Foundation, holds the Burrows T. and Mabel L. Lundy Chair of Business Philosophy at Campbell University, Buies Creek, North Carolina.

Ideas direct thinking, govern lives, and forge history. The impact of ideas is a theme that echoes and re-echoes in the works of Ludwig von Mises (1881-1973). Mises held that man is a thinking and acting being, that his values are highly subjective, that he can be swayed by political parties and spurious doctrines, that choosing determines every one of his decisions, that he should never relax in his quest for truth, that in the end his only weapon in the war on error is reason.

Mises held further that correct ideas are crucial to the human race, that the very essence of the human condition is the inescapable and insurmountable dualism of that condition: the dualism of man’s two separate, distinct, unbridgeable, and not always perceptible or completely understandable realms.

One realm is physical, the outer world of corporeal, material, external reality—the reality that impinges on the senses, the things we can see, hear, taste, touch, and feel, the reality that reflects such mysterious earth forces as energy, gravity, electricity, and rotation. This, too, is the world of not-always-hospitable nature, of what Darwin viewed as the struggle for existence and survival of the fittest for all the earth’s species.

It is also the external world of chemistry, physics, biology, physiology, geology, meteorology, and other hard “natural” sciences that help unlock some of the mysteries of the universe, of the world of flora and fauna, of tooth and fang, of earthquakes and hurricanes, of droughts and floods, and of—insofar as economics is concerned—stark scarcity.

The other realm is mental, abstract, intangible, almost ethereal, the inner world of the individual and his unique individuality, of his different and changing ideas, thoughts, ends, feelings, values, aims, missions, emotions, goals, intentions, purposes, ideologies, and traditions, the internal world of reason and reasoning, including false reasoning, the broad and largely uncharted universe of the human mind.

This is, in addition, the internal world where man ineluctably has to align and realign, continuously, his chosen ends with chosen means, to cope, again continuously, with endless scarcity, with the ceaseless change long ago spotted by Heraclitus, with social relations, religious questions, political problems, family matters, and all other praxiological concerns.

It is this inner realm—impacted by ideas—that generates thinking, that stirs emotions, that impels human action, that facilitates change for better or worse, that alterably shapes and shakes the future and, to a degree, the outer realm, that makes or breaks social cooperation, especially via politics, that sows peace or wages war—that hence determines man’s fate—in the past, present, and future.

So, to repeat the observation of Mises, ideas direct thinking, govern lives, and forge history. Which is why Economic Freedom and Interventionism: An Anthology of Articles and Essays by Ludwig von Mises as selected and edited by Bettina Bien Greaves (Foundation for Economic Education, Irvington-on-Hudson, New York 10533, 250 pages, $29.95 cloth, $14.95 paper) is so vital and timely.

This fistful of ideas, this welcome and most readable book (with sideheads to ease the reading further) constitutes another chance for the West to re-examine the remarkable thought of a giant of our age. It marks another intellectual tie to the Mises legacy of understanding man’s critical spheres of economics and politics, of telling us what we can do about them before it is too late. It is hence a book on human survival as well as human understanding.

Mrs. Greaves, a close friend of Mises and a faithful student in his famous graduate seminar at New York University, notes that she collected some of these articles from Mises himself and others from such sources as the Institute for Humane Studies, Liberty Fund, Regnery Gateway, National Review, The Freeman, and The Commercial and Financial Chronicle. She thoughtfully collates the 47 pieces, most of them out-of-print or not easily available, into four sections: Economic Freedom, Interventionism, Mises As Critic, and Economics and Ideas. Ideas of course permeate the entire anthology—much-needed ideas of a most constructive sort.

Take the Marxist idea of class conflict, for example, and the Mises idea in response. In an article reprinted here from Christian Economics of October 3,1961, Mises takes Marx to task. Mises notes how the emerging market or contractual society of some two or three centuries ago soon obliterated the class lines drawn by serfdom and slavery.

Yet, maintains Mises, class or status survives today only by government fiat in such dubious taxonomy and forms as subsidies (which views farmers, for example, as a class), discriminatory taxation (which converts, among others, smokers, drinkers, and the rich into classes), affirmative action (which converts race and gender into classes), and union privileges (which transform employees into a class). So classes today become legal fictions and, by law, social frictions. In this sense, Marx’s class struggle does persist, an undeserved triumph for the Left.

Indeed, in the posthumously published third volume of Das Kapital, observes Mises, Marx was at his wit’s end on how to sustain the validity of his dogma of the class struggle. He failed to solve the puzzle and so abruptly ended his manuscript with but a one-page chapter (the 52rid) on “The Classes,” with his editor Friedrich Engels succinctly noting: “Here the manuscript breaks off.” But Marx died many years after he ceased work on his major opus; and Mises sees that Marx had painted himself into a comer, simply unable to put forth a credible definition of classes in a capitalistic age.

Or consider the Keynesian idea of the business cycle. In an article here reprinted from The Freeman of September 24,1951, Mises attacks that idea in commenting on Keynesian Alvin Hansen’s book, Business Cycles and National Income (Norton, 1951). In it Harvard Professor Hansen upholds the concept of counter-cyclical macro-demand management by the government, dwells on such supposed causal factors as general overinvestment and overproduction (thereby ignoring the insight of classical economist Jean Baptiste Say and his Law of Markets), and castigates those who see credit expansion and inflation as the underlying causes of the cycle.

Rebuts Mises with a better idea: “People must learn that the only means to avoid the recurrence of economic catastrophes is to let the market—and not the government—determine interest rates. There is but one pattern of positive counter-cyclical policies, viz., not to increase the quantity of money in circulation and bank deposits subject to check. Deficit spending by borrowing from the commercial banks is the surest way toward economic disaster.”

Or look at the idea of government intervention-ism and the alleged need for supernational governments such as the European Community (which comes into full force in 1992). In a 1955 article commenting on How Can Europe Survive? by Hans Sennholz (Van Nostrand, 1955), Mises hails the Sennholz idea that the economic disintegration of then un-united Western Europe is hardly the outcome of the unhampered operation of the capitalistic market order.

It is rather, holds Sennholz, seconded by Mises, the result of the various West European governments (some ruled by outright socialist parties) erecting welfare states, interfering with domestic industries, even nationalizing some of them, restricting foreign trade and investment, and engendering economic retaliation in return. The further result is—no surprise!—widespread economic isolationism and consequent European dis integration, even though this disintegration did eventually lead to the concept and implementation of a European Common Market, now known as the European Community (EC).

What makes the Mises-Sennholz discussion so relevant if not poignant today is the political and economic context of this big and growing EC, which may one day conceivably take in part or all of the once-Eurocommunist Bloc. For while Marxism has gone down in ignominious defeat in Eastern Europe, is it not relevant to inquire: How are the Misesian ideas of the unhampered market society now faring in the EC halls in Brussels and Strasbourg, and in the respective capitals of the EC member countries? Answer: Not well.

For is the talk there not still, paradoxically, Marxian, i.e., about the “need” for farmer protectionism, welfare measures, and other “social democracy” impediments to the free trade idea? Which raises in turn this question: How does the EC propose to treat in the years ahead the foreign trade and investment of non-EC member coun tries such as the United States and Japan seeking to do business inside the Community? Or, to put this question more bluntly: Will the EC, perhaps under the pressure of a global recession, revert to Western Europe’s economic isolationism of the 1950s, perhaps even with an economic Festung Europa hiding behind high tariff and import quota walls?

Comments Mises (again the year is 1955): “As long as there is domestic interventionism, the present unsatisfactory state will last. The funds spent by the U.S. taxpayer for the economic unification of Europe were wasted.”

Or consider the idea of land reform now so pertinent in an era when private property rights throughout the West are still unclear, when further decisions on just how to reallocate—hopefully, to privatize—the huge, literally millions of square miles of formerly state-held lands of Eastern Europe, including the Soviet Union, have to be made. Too, land reform is still a major issue in much of Latin America where landlords continue to operate large coffee, sugar, banana, and other plantations.

In a contribution (beautifully entitled “On Some Atavistic Economic Ideas”) to a 1966 Festschrift for Jacques Rueff, previously available only in French translation, Mises again supplies superior ideas on land reform that illuminate the background behind today’s headlines.

Mises says the program of land reform, including confiscation and redistribution—usually in small equal parcels to the “peasants” or “citizens”—no longer makes sense in a capitalistic market economy. He observes how in a market society the consumers dally vote anew on just who should own or not own the factors of production, including land. All on a voluntary basis.

Thus by their buying or abstention from buying, the consumers decide who should be allowed to be entrepreneurs and who should supply the other productive factors of land, labor, and capital. In other words, the consumers determine just who should operate the factors in the best and cheapest way for the satisfaction of their own wishes and needs.

Entrepreneurs and other land and non-land factor owner/operators who do not measure up to these consumer wishes and needs are in effect assigned losses and soon turn to other pursuits. Factor owners who do measure up are rewarded with profits or other returns and so tend to expand their operations. It follows that economic re sources flow toward their social optimum and that the consumer is not only sovereign, but a dictator as well: ruthlessly direct, sparing no one, least of all the landowners however large.

Now, what of the idea of official favoritism for debtors (the “poor”) over creditors (the “rich”)? Governments historically and contemporaneously have long followed such an idea, from Solon in Ancient Greece and the Gracchi brothers in Ancient Rome on to our present Congress and to parliaments the world over. Here also, argues Mises in his reprinted contribution to the Rueff Festschrift, the idea is to see that the capitalistic system already has radically altered the scheme of things. He writes:

Under the modern credit organization the more opulent strata are more often debtors than creditors. They own mortgaged real estate, business firms that are indebted to the banks and insurance companies, [and] common stock of corporations that have issued corporate bonds. On the other hand the common man is a creditor insofar as he has taken out insurance policies, has savings deposits with commercial banks and savings banks, owns bonds whether government issued or corporate, and is entitled to receive retirement and old age pensions.

Thus the irony of modern-day deficit spending and easy money ideas is that they are at once popular—buttressed by conventional wisdom in high academic and political places—and yet run directly counter to the interests of the broad populace. These ideas breed inflation and recessions. Since the end of World War II they have spelled the destruction of literally trillions of dollars in the total value of savings in bank deposits, insurance policies, and pension funds, public and private, including the savings of hundreds of millions of low-income and middle-income people. Currently the inflationary cancer induced by these ideas is and has long been global; and governments and central banks, trapped by false ideas, seem helpless to stop it—even though they could, given the right ideas.

Ideas. Ideas. As John Maynard Keynes himself, the champion of deficit spending and demand management, the supposed colossus of economic thought in the 20th century—when that colossus is properly Mises—noted in a flash of discernment at the tail-end of his otherwise misguided major opus, The General Theory of Employment, Interest and Money (1936): “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist . . . . It is ideas, not vested interests, which are dangerous for good or evil.”

Or as Bettina Bien Greaves puts this matter in the foreword of this remarkable book: “One reCurring theme throughout Mises’ writings is that men act on the basis of ideas. Today is the product of past ideas. And the ideas of today will produce tomorrow. The idea that government has the power to cure almost any social ill permitted big government to triumph throughout the world. To reverse this trend, to create a world of free markets, to change governments, to repeal government programs, the ideas men hold must be changed.”

Amen.

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January 1991

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