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Wednesday, April 17, 2024

The UFC, Mises, and the Six Lessons of Austrian Economics

There's a reason this 20th-century economist is getting so much attention.

Image Credit: Vladimír Krupa 81 - Wikimedia | Public Domain

UFC fighter Renato “Money” Moicano generated a lot of buzz for Austrian economics this week. Yes, you read that right. After Moicano’s last win, he took some time on the mic to shout out the First Amendment, the Constitution, private property, gun ownership, and Ludwig von Mises and his Six Lessons of the Austrian Economics School.

What caught my attention wasn’t the very odd mashup of Mises and competitive fighting. Instead, I was a bit surprised to hear about a work by Mises called Six Lessons of the Austrian Economics School. This didn’t sound like the title of any Mises work I was familiar with. However, as new FEE president Diogo Costa pointed out, this is the Brazilian title for Mises’s book which is known in English as Economic Policy: Thoughts for Today and Tomorrow.

The shoutout was a big success. The book is sold out on the Mises Institute website, but it appears that Liberty Fund still has some copies for those who prefer physical books. If you’re okay with e-reading, both organizations offer the book for free.

The Brazilian title has an interesting flair because it highlights that the book is essentially broken into six different lessons. The book is based on lectures given by Mises at the University of Buenos Aires and covers:

  1. Capitalism
  2. Socialism
  3. Interventionism
  4. Inflation
  5. Foreign Investment
  6. Policies and Ideas

I follow Moicano in recommending it as a great intro on Mises and economics, and, while we can’t cover the whole book in one article, it would be valuable to talk about his first lesson on capitalism.

Mises’s First Lesson: Capitalism—Compared to What?

The book begins with Mises giving an introduction to capitalism—what it is and its history. Mises’s historical approach is extremely valuable because it helps us have a good standard to compare capitalism to. The economist Thomas Sowell famously argues, “There are 3 questions that would destroy most of the arguments of the Left. The first is: Compared to what? The second is: At what cost? And the third is: What hard evidence do you have?”

Sowell’s first question is important because when we are talking about social systems, it’s necessary to evaluate whether our benchmarks for the systems are appropriate. For example, if we compare capitalism to an ideal world where resources rain down from heaven exactly at the moment we need them, then capitalism is going to look pretty bad. If, instead, we compare capitalism to more realistic scenarios, it tends to come out looking very good.

As Mises points out, before capitalism emerged in the West, things were bleak on many margins. Social and economic status were bound together and almost totally ossified. If you were born poor, you would die poor. If you were born rich, you would die rich. There were no “American dream”-style stories where an unprivileged underdog rose to the top by offering good products and services. Similarly, there were few, if any, stories about people losing their riches or social status due to mistakes.

However, as the rural population expanded and natural resource stocks began to fall, entrepreneurial outcasts began to cater to the growing population by effectively using resources to produce maximum value for the most people. This entrepreneurial boom was the beginning of capitalism and the results were clear. As Mises writes:

The development of capitalism consists in everyone’s having the right to serve the customer better and/or more cheaply. And this method, this principle, has, within a comparatively short time, transformed the whole world. It has made possible an unprecedented increase in world population. In eighteenth-century England, the land could support only six million people at a very low standard of living. Today more than fifty million people enjoy a much higher standard of living than even the rich enjoyed during the eighteenth century. And today’s standard of living in England would probably be still higher, had not a great deal of the energy of the British been wasted in what were, from various points of view, avoidable political and military “adventures.”

Capitalism and Its Critics

Mises’s first lesson then moves to some of the critical comments about capitalism. First, he addresses the argument that capitalism took women and children out of houses and nurseries and forced them onto dangerous factory floors. Critics will often argue that with the advent of capitalism, many who did not previously work were forced into hard labor.

However, Mises, in line with Sowell’s question, analyzes this change with respect to the question “Compared to what?”:

The famous old story, repeated hundreds of times, that the factories employed women and children and that these women and children, before they were working in factories, had lived under satisfactory conditions, is one of the greatest falsehoods of history. The mothers who worked in the factories had nothing to cook with; they did not leave their homes and their kitchens to go into the factories, they went into factories because they had no kitchens, and if they had a kitchen they had no food to cook in those kitchens. And the children did not come from comfortable nurseries. They were starving and dying.

The point is obvious. If the situation for women and children in England was better before large scale production in factories, they simply would have chosen to stay home. There were no secret capitalism police rounding up people and chaining them to factory machines. Capitalism offered a way out of starvation and poverty. Work was bad, but starving was worse.

Mises then moves on to capitalism’s fiercest critic—Marx. Mises highlights Marx’s argument that capitalists hold wealth for themselves while worker wages stagnate. Mises says:

[Marxist Socialists] followed a false theory, the famous “iron law of wages”—the law which stated that a worker’s wages, under capitalism, would not exceed the amount he needed to sustain his life for service to the enterprise. The Marxians formulated their theory in this way: if the workers’ wage rates go up, raising wages above the subsistence level, they will have more children; and these children, when they enter the labor force, will increase the number of workers to the point where the wage rates will drop, bringing the workers once more down to the subsistence level.

But this isn’t what happened. Capitalist saving led to entrepreneurial projects which drove demand for workers and rising wages. This is why average wages are higher today than any point in history that we have data for. Similarly, people have to work far fewer hours today to access the same goods, and there are many new goods which only developed due to capitalist saving.

Marx’s prediction about stagnating wages failed. In line with the thinking of economist Julian Simon, Mises’s lesson points out how population drove entrepreneurship which, under the right institutional rules (namely capitalism), made everyone richer—from workers to capitalists.

In summary, this book by Mises is a masterpiece. I tried to summarize the first lesson the best I could, but inevitably some arguments and details were left out. You should check out that information, as well as the other five lessons, yourself. To paraphrase Moicano, if you care about your country, you would do well to read Ludwig von Mises.

Additional Reading:

Capitalism Encapsulated: Mises in Four Easy Pieces by Dan Sanchez

Economic Policy: Thoughts for Today and Tomorrow by Ludwig von Mises

  • Peter Jacobsen is a Writing Fellow at the Foundation for Economic Education.