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Wednesday, July 1, 1970

Ludwig von Mises: Dean of Rational Economics

Dr. Sennholz, a former student of Ludwig von Mises, is chairman of the Economics Depart­ment at Grove City College, Pennsylvania. The author of How Can Europe Survive, Dr. Senn­holz has also written some 250 magazine arti­cles. This article is reprinted from the April 11, 1970, issue of Human Events.

When, in future centuries, his­torians search for the reasons for the phenomenal decline of West­ern civilization, few contemporary sources will be of any use. True, they offer colorful descriptions of the symptoms of this decline, but their explanations are usually in­fested with the very bacillus that is destroying our magnificent order. Future historians will be bewildered about our blindness and madness, our moral lethargy and decay.

“But were there no 20th Cen­tury philosophers” they will ask, “who recognized the ominous trend toward economic destruc­tion, social disintegration, and po­litical tyranny? Was there no prophet of the impending doom?” We hope for their sake that they will discover the works of Ludwig von Mises who, since the beginning of this century, has been warning his contemporaries. Again and again he forewarned them about the growing popular­ity of ideologies of conflict and war, the rise of collectivism, and the sway of tyranny in the West­ern world. In fact, his writings, which will be so invaluable to fu­ture historians, are last-minute warnings to us, the living genera­tion.

This is why the Foundation for Economic Education in Irvington-­on-Hudson, New York, in conjunc­tion with Arlington House in New Rochelle, N.Y., and Jonathan Cape Publishers in London, have again prepared new editions of some im­portant Mises works.

Socialism, An Economic and So­ciological Analysis (Jonathan Cape, 30 Bedford Square, London) was first published in 1922. Fried­rich Hayek, one of Dr. Mises’ most eminent students and disciples, re­calls how Socialism overwhelmed him as a young student, awakened him in the midst of the socialistic fashion of the day. Henry Hazlitt in his review, which appeared in the New York Times of Jan. 9, 1938, wrote:

“This is by far the ablest and most damaging answer to the So­cialist philosophy since BöhmBawerk, another Austrian econo­mist, also from the University of Vienna, published his memorable Karl Marx and the Close of His System in 1898.

“It is more than that. Böhm-Bawerk confined himself mainly to an examination of Marx’s tech­nical economics. Mises, apparently on the assumption that Böhm-Bawerk disposed so thoroughly of Marx’s strictly economic analysis of capitalism that the work does not have to be done again, does not go over this ground, except by incidental reference. But he rec­ognizes that socialism does not stand or fall with Marx’s economic analysis; and therefore he devotes himself to the much wider task of examining all the arguments against capitalism or in favor of socialism from whatever source.”

Mises’ Socialism was revolution­ary in its critique of the socialist order. For the first time in the history of Marxism a scholar revealed its fundamental economic deficiency: its incapability of solv­ing the problem of economic cal­culation.

Without the common denomina­tor for economic calculation, which is the market price, a socialist so­ciety cannot rationally allocate its labor, capital, land, and other re­sources, and fairly distribute the yields of production. It would be unable to determine whether its production yields a social profit or social loss. It could not determine the contribution made and the re­ward earned by each worker.

In short, it could not rationally and economically compare the mul­tiplicity of costs with the returns of production.

Professor von Mises is not opti­mistic about our future. “Capital­ism,” he writes, “has raised the standard of life among the masses to a level which our ancestors could not have imagined. Interven­tionism and efforts to introduce socialism have been working now for some decades to shatter the foundations of the world economic system. We stand on the brink of a precipice which threatens to en­gulf our civilization. Opposition in principle to socialism there is none….”

Mises’ Omnipotent Government, The Rise of the Total State and Total War (Arlington House, New Rochelle, N. Y.), was first pub­lished in 1944 when 57 nations were locked in a total war that slew more than 15 million fighting men and countless women and children. It offers an ideological explanation of the international conflicts that caused both World Wars and continue to breed wars the world over.

Professor Mises illustrates his case with a review of the fall of Germany, from the collapse of classical liberalism to the rise of nationalism and socialism. But Germany merely constitutes an early example of the things to come — all of Western civilization is at stake.

Durable peace, Mises concludes, is only possible under perfect capi­talism and laissez-faire govern­ment, a world of unhampered mar­kets, free mobility of capital and labor, and equal treatment of everyone under one law. Govern­ment interference with business necessarily aims at autarky. But protectionism and autarky mean discrimination against foreign labor and capital and thus create international conflict.

The very ideas that breed bitter domestic conflict between classes and races also generate interna­tional conflict and war. “Progres­sives” at home and abroad aim at equality of income. But their own policies result in a perpetuation of the inequalities between classes and nations.

In Professor Mises’ own words: “The same considerations which push the masses within a country toward a policy of income equality drive the peoples of the compara­tively overpopulated countries into an aggressive policy toward the comparatively underpopulated countries. They are not prepared to bear their relative poverty for all time to come simply because their ancestors were not keen enough to appropriate areas better endowed by nature.

“What the ‘progressives’ assert with regard to domestic affairs —that traditional ideas of liberty are only a fraud as far as the poor are concerned, and that true lib­erty means equality of income —the spokesmen of the ‘have not’ nations declare with regard to in­ternational relations.”

At home and abroad they style themselves revolutionaries fight­ing for equal shares and proclaim­ing the right to take them by force if necessary. This is why our age is marked by perpetual conflict.

According to Professor Mises, “Government control of business engenders conflicts for which no peaceful solution can be found. It was easy to prevent unarmed men and commodities from crossing the borders; it is much more difficult to prevent armies from trying it. The socialists and other etatists were able to disregard or to silence the warning voices of the econ­omists. They could not disregard or silence the roar of cannon and the detonation of bombs.

“All the oratory of the advo­cates of government omnipotence cannot annul the fact that there is but one system that makes for durable peace: a free market econ­omy. Government control leads to economic nationalism and thus re­sults in conflict.”

The essay, Bureaucracy (Arling­ton House, New Rochelle, N. Y.), was written and first published in 1944. Its main objective is an in­vestigation of the contrast be­tween bureaucratic management and business management. As such it is an invaluable contribu­tion to the great historical debate between individualism and collec­tivism.

Professor Mises does not con­demn or blame bureaucracy. He merely explains its meaning and discusses its proper spheres of ap­plication. In fact, in certain fields it may be the only possible method for the conduct of affairs. A police department, for instance, or the Marine Corps cannot be operated by profit management, as it can­not sell its services on the market. No matter how valuable and indis­pensable its achievements may be, they have no price on the market and therefore cannot be calculated in a profit-and-loss statement.

But whenever government en­deavors to apply bureaucratic management to private business, the consequences are often disap­pointing. Social and political ob­jectives usually supersede rational calculation of cost and yield, which fosters economic inefficiency and bureaucratic complacency. When economic production is completely bureaucratized, the individual is lost in a maze of regimentation and regulation. Youth especially is condemned to a listless life of sub­ordination and obedience.

In the words of Mises: “Govern­ment jobs offer no opportunity for the display of personal talents and gifts. Regimentation spells the doom of initiative. The young man has no illusions about his future. He knows what is in store for him. He will get a job with one of the innumerable bureaus, he will be but a cog in a huge machine, the working of which is more or less mechanical. The routine of a bureaucratic technique will cripple his mind and tie his hands. He will never be free to make decisions and to shape his own fate. He will never be a real man relying on his own strength. He shudders at the sight of the huge office buildings in which he will bury himself.”

In 1957 Professor Mises added Theory and History: An Interpre­tation of Social and Economic Evolution (now Arlington House, New Rochelle, N. Y.) to his im­pressive list of scholarly publica­tions. It is Mises’ philosophical treatise that sums up his views on what man can know in his world. As man has always gone amiss in his attempts to bridge the gulf between mind and matter, he must adopt a dualistic approach — or methodological dualism.

According to Mises, this dual­ism “merely takes into account the fact that we do not know how ex­ternal events — physical, chemical, and physiological — affect human thoughts, ideas, and judgments of value. This ignorance splits the realm of knowledge into two sepa­rate fields, the realm of external events, commonly called nature, and the realm of human thought and action.”

Ever conscious of this dualism and aware of the limitations of human knowledge, Professor Mises defends the sciences of hu­man action against those philoso­phies and doctrines that would deny their very existence. In par­ticular, he refutes the positivistic and panphysicalistic distortions of determinism, the doctrines of ma­terialism, positivism and behavior­ism, historicism and relativism.

Present-day ideologies, according to Professor Mises, are char­acterized by their summary rejec­tion of individual freedom and private property in economic pro­duction. “Millions today enthu­siastically support policies that aim at the substitution of plan­ning by an authority for autono­mous planning by each individual. They are longing for slavery.

“Of course, the champions of totalitarianism protest that what they want to abolish is ‘only eco­nomic freedom’ and that all ‘other freedoms’ will remain untouched. But freedom is indivisible. The distinction between an economic sphere of human life and activity and a noneconomic sphere is the worst of their fallacies.

“If an omnipotent authority has the power to assign to every indi­vidual the tasks he has to perform, nothing that can be called freedom and autonomy is left to him. He has only the choice between strict obedience and death by starva­tion.”

Even the most cursory review of Professor Mises’ great writings would be incomplete without men­tion of his magnum opus, Human Action, A Treatise on Economics (Henry Regnery Co., Chicago). When it first appeared, his friend Henry Hazlitt wrote in Newsweek magazine (Sept. 19, 1949):

“I know of no other work, in fact, which conveys to the reader so clear an insight into the inti­mate interconnectedness of all economic phenomena. It makes us recognize why it is impossible to study or understand ‘collective bargaining’ or ‘labor problems’ in isolation; or to understand wages apart from prices or from interest rates or from profits and losses, or to understand any of these apart from all the rest, or the price of any one thing apart from the prices of other things….

“Human Action is, in short, at once the most uncompromising and the most rigorously reasonedstatement of the case for capital­ism that has yet appeared….”

Professor Mises’ most recent essay, The Historical Setting of the Austrian School of Economics (Arlington House, 1969), finally, offers a brief review of the his­torical setting from which sprang not only rational economics but also statism and socialism that are sapping the foundations of Western civilization and well­being. This booklet and all other Mises books are required reading for everyone who cares about the future of man. 

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.