All Commentary
Saturday, June 1, 1974

Mises and Fisher on Theory and History

Dr. Peterson holds the John David Campbell Chair in American Business at the American Graduate School of International Management in Glendale, Arizona.

Santayana said those who don’t know history will be condemned to repeat it. History, then, must be one of the subjects least known or understood by man, as must be economics. For the drip-drip-drip repetition of government’s economic errors over millennia and centuries and even over recent years and months boggles the mind.

Perplexed, one asks, Why? Why does bad history repeat itself while history is there for all to read? For insights we can turn to Ludwig von Mises and Antony Fisher.

Before so turning, consider some evidence on current history gone wrong over the past year or so. First, some errors. Arm-twisting of commercial bankers to notch down their prime rate. Devaluation of the dollar, the second in fourteen months. Meat controls. Export embargoes on soybeans, fertilizers, steel scrap. General price freeze. Oil allocation. Gas rationing in a dozen states. Pressure for a crude oil price rollback. And all this and more is layered over economic policy errors of much longer standing.

Meanwhile, repercussions of these errors abound. Inflation rages. Unemployment rises. Public spending swells. Taxes become increasingly onerous. Partisan recriminations reach a crescendo in an election year. The nation’s leading labor organization considers a resolution calling for nationalization of the oil industry.

Again, one asks, Why? Why price-fixing in this day and age, while history records, for example, the mammoth failure of Diocletian’s wage-price-fixing Edict of 301 A.D.? Why must the evils of printing press inflation go on today, while Andrew Dickson White’s brilliant Fiat Money Inflation in France is in print — again, there for all to read? Or why should Britain turn yet another time to a socialist government when the inevitable failure of socialism was abundantly spelled out by John Jewkes’ Ordeal by Planning and earlier by Ludwig von Mises’ Socialism?*

According to What Theory?

The answer is that there is history and there is history — or, more accurately, there are historians and there are historians. Historians may strive to be objective or factual in recording history. Yet probably, recording history is not their biggest problem — although selecting and arranging, necessarily arbitrarily, the historical facts of man’s and nature’s myriad acts and happenings is itself quite a problem. The biggest problem, more likely, is in interpreting history, in seeking to give the Why of historical events (which brings to mind Acton‘s famous “advice to persons about to write history — don’t”).

The French Revolution of 1789 is a fact, by way of illustration. No denying the fact. But why is it a fact? What factors caused the Revolution? And how much weight does the historian ascribe to Factor A, Factor B, Factor C and so on? Here’s where interpretation sets in. Here’s where the historians’ theories and values inevitably color and shape history books. The Marxist historian, for example, is almost certain to be influenced by the opening idea of the Communist Manifesto, namely: “The history of all hitherto existing society is the history of class struggles.”

The vital, indeed inescapable, connection between theory and history was a major contribution to economic and historical thought by Ludwig von Mises in his Theory and History (Yale University Press, 1957). Theory, this late and deeply missed giant of the Austrian School noted, was critical in unlocking the elusive Why of history. Historical effects are relatively easy to observe; historical causes are much harder to come by, or at least the true causes are.

Many historians and quite a few economists, by way of example, simply write off the Great Depression as the failure of capitalism and completely neglect the impact of monetary expansion and contraction and of massive government intervention by Presidents Hoover and Roosevelt. But these two Presidents were, in turn, counseled by advisers who had presumably studied history. The advisers may well have known the facts of history. But, as Mises pointed out, “Behind every fact lies a theory.” Did, then, the Presidential advisers know theory or, more particularly, did they know the right theory? Judging from the course of the Great Depression and subsequent events, I am inclined to think they did not.

Who Is Antony Fisher?

Antony Fisher probably feels the same way, as he asks prophetically in the title of his new pro-round and provocative book, Must History Repeat Itself? (Churchill Press Limited, 1974).

Mr. Fisher has seen as well as studied history, even made history, ever seeking out historical cause and effect. He was born in London n 1915, educated in Eton and Cambridge, served as a fighter pilot in the Royal Air Force, and saw action in the Battle of Britain. He soon put his cause-and-effect mind to work. He learned of the broiler industry while on a lecture tour in the early 1950′s in the U.S.A., and in 1954 established the pioneering mass production Buxted Chicken Company, which dramatically reduced he price of chicken to the British consumer while making record)profits. Mr. Fisher became a leading critic of the theory and practice of the British Government’s Egg Marketing Board from 1956 until it was at last repealed in 1969.

In 1955 he founded the highly successful Institute of Economic Affairs in London as an independent research and educational organization, which has by now published scores of scholarly studies on the operation or abuse of the free market. Today he is chairman of the Institute’s board of trustees.

So, as doer and thinker, Antony Fisher has been something of a one-man Manchester School, long warning the English people in his time as Richard Cobden and John Bright did in the early 19th century. Cobden and Bright warned of the dangers of protectionism and interventionism — of the dangers of false theory. With the Irish potato famine in 1845, Parliament suddenly saw the light and switched to a policy of free trade.

So Mr. Fisher insists history does not have to repeat itself. He points, for example, to the failure of the rice crop in Bengal in 1770 and the worse economic policy failure of the authorities in immediately establishing price controls to prevent “profiteering.” Prices were thereby precluded from rising; food disappeared and fully a third of the population died.

In 1866 the rice crop failed again but, lo and behold, the Bengal government somehow remembered the lesson of 1770. Far from trying to check speculation, the government facilitated it by avoiding price controls and publishing far and wide information on rising rice and other food prices in the province. Rice and other food soon flowed into stricken Bengal and a national disaster was averted. Right theory and right policy saved the day. History did not repeat itself.

An Orderly Universe

Mises and Fisher thus are one in seeing a cause-and-effect, reason-and-action world. They would agree with Einstein, who once wrote: “I cannot believe that God plays dice with the world.”

They would agree that the necessity to correlate correct theory with historical interpretation is a problem that not only impinges on historians but on virtually every walk of life. The doctor with the wrong theory can lose a patient. The investor with the wrong theory can lose his investments.

The general with the wrong theory can lose a battle if not a war. What, then, is right economic theory and policy? Antony Fisher reflects the free market thinking of Ludwig von Mises. Addressing himself to Britain, but very likely comprehending a larger canvas, Antony Fisher calls for ending all government monopoly and control.

Accordingly, over a period of years he would “demobilize” the British civil service, denationalize the post office, cut all tariffs and subsidies, terminate all exchange controls, end all forms of direct controls over prices and incomes, roll back the welfare rolls, make unions subject to the law of contract, adopt Milton Friedman’s voucher system to reintroduce choice and competition in schooling, and reprivatize all nationalized industries.

Can Mr. Fisher, with his self-proclaimed “radical approach,” win this new Battle of Britain? It all depends on whose theory prevails — i.e. which theory, right or wrong. In any event, thought is decisive. Choice is critical. And, inexorably, history will tell.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.