Yesterday would have been Ludwig Von Mises’s birthday. There are tributes:
Economist Robert Murphy:
September 29 marks the 134th anniversary of the birth of Ludwig von Mises , the tallest giant of the “Austrian School” of economics. Although Mises is not a household name, Nobel laureate Friedrich Hayek once referred to him as “the master of us all.” To this day, professional economists and laypeople alike learn from the writings of a man I consider to be the most important economist of the twentieth century.
One of Mises’s earliest achievements was to bridge the two fields we now call microeconomics and macroeconomics.Originally, the classical economists of the eighteenth and nineteenth centuries had embraced variants of a labour theory of value in their teachings. Then, during the so-called Marginal Revolution of the1870s, economists replaced the labour theory with the modern subjective theory of value [meaning “an individual’s chosen values are personal and therefore subjective and unknowable to the economist”], which sees all market prices as being determined ultimately by the underlying preferences of individual consumers. It doesn’t matter how many labour-hours it takes to manufacture a product, according to subjective value theory; if nobody really wants it, it will fetch a low price.
Economists gradually recognized the superiority of the new “subjective marginal utility” approach, but by the dawn of the twentieth century they still thought this worked only for “micro” explanations. The theory could explain, for example, how many bananas traded for how many apples, but economists still thought they needed an entirely different, “macro” framework to explain the money prices of goods.
Enter Ludwig von Mises. In his 1912 book, translated with the title The Theory of Money and Credit, he showed how to apply the theory of marginal utility to explain all market values -- even the value of money itself. In so doing, Mises put individual money prices, and the purchasing power of money, under the umbrella of a unified theory of value.
In the same book, Mises also unveiled what is nowadays called Austrian business cycle theory. Contrary even to some other free-market thinkers, he did not think that the typical boom-bust pattern in market economies was an intrinsic feature of capitalism. Instead, Mises argued that they originated in unsound banking practices, often instigated by a nation’s central bank. When banks expand credit in order to provide “cheap” loans, this artificially lowers interest rates to below their natural level, sending businesses and entrepreneurs a false signal that encourages unsustainable activity throughout the economy.
In particular, investment projects that are not justified by market fundamentals now appear profitable at the lower interest rates. The illusion created by the increased investment and spending can generate a period of apparent prosperity, but the economic boom rests on quicksand and eventually leads to a bust. According to Mises, rather than trying to restore the economy by engaging in deficit spending and monetary “stimulus,” the government should prevent the business cycle from getting started in the first place, by abstaining from central bank policies that make credit unnaturally cheap and induce the unsustainable boom….
But Mises’s most celebrated achievement by far was his critique of central economic planning. First in a 1920 academic paper and later in his 1922 treatise, Socialism: An Economic and Sociological Analysis, Mises explained that the central planners in a socialist commonwealth faced an insurmountable hurdle, one even more fundamental than the problem of poor incentives. . . .
Read the whole piece: Ludwig von Mises: Scholar of Free Markets and Prophet of Liberty.
Mises’s personal assistant, Bettina Bien Greaves:
An advocate of free markets and a critic of government interference, he stood for peaceful and voluntary cooperation. Whenever possible, he spoke out for individual freedom. Yet he grew up in Europe when socialism was on the rise and people wanted government to regulate “profiteering” capitalists who “exploited” workers. How did Mises, schooled in such an environment, acquire free market ideas?
Mises was born in pre-World War I Austria-Hungary and raised in Vienna. As a young man Ludwig surely had a healthy interest in fun and games, but he was also a conscientious student. At seven, he was already reading newspapers and collecting extra newspaper editions. His early interest was in history. But when he read Carl Menger’s Principles of Economics (1871) and encountered the subjective, marginal utility theory of value, he realized that economics was not history but a science of reason and logic. As Mises wrote later, reading Menger made him an economist.
While still at the Gymnasium, the equivalent of high school, young Ludwig adopted a motto from Virgil, “Do not give in to evil, but proceed against it ever more strongly.” Menger’s explanation that subjective values guide the actions of individuals enabled Mises to recognize that the “good,” for which he would strive “ever more strongly,” was whatever promoted freedom from individuals to seek their subjective values. And anything that prevented individuals from pursing their personal subjectively-chosen goals was the “bad” to which he would refuse to yield. Thus an understanding of subjective value theory made Mises an advocate of individual freedom…
I once asked Mises what original idea he had contributed. His reply: “Everything I have written and said I learned from someone else.” True, no doubt. But the genius of Mises, like that of an inventor or entrepreneur, rests on creating something new and original by further developing something already known. By adding something to earlier theories, he made at least three major contributions. First, he developed economics as a logical science and integrated it with all other knowledge. Second, he pointed out that a socialist society, without private property owners competing with one another, would not be able to discover where, when, and how best to use property in production. And third, by reasoning from Knut Wicksell’s theory that a “natural interest rate” prevails on the market among would-be borrowers and lenders, Mises explained the trade cycle as due to interest rates forced down artificially, distorting the “natural interest rate,” disturbing the loan market and causing widespread business ups and downs.
Read the whole piece: Ludwig von Mises, Genius?
Ayn Rand herself thought extremely highly of Mises's work on economics, elements of which underpin her own work.
As late as the fifties, [says B Branden] Von Mises was relatively unknown in the United States - his books not published here before 1944 - until, beginning in the late fifties and continuing for more than ten years, [after being introduced to his work by George Reisman] Ayn began a concerted campaign to have his work read and appreciated: she published reviews, she cited him in articles and in public speeches, she attended some of his seminars at New York University, she recommended him to admirers of her philosophy. A number of economists have said that it was largely as a result of Ayn's efforts that the work of Von Mises began to reach its potential audience.
Hayek was a student of Mises, whose writing he credited with converting him from the socialist tendencies of his youth, and on whose business-cycle theory he based the work that later earned him his Nobel Prize in economics.
Ayn Rand herself placed Von Mises among her own personal pantheon of heroes: “Aristotle in philosophy, von Mises in economics, Montessori in education, Hugo in literature.”And when one of her circle proposed taking Mises to task publicly for such things as she criticised privately in her “marginalia,” she reportedly advised, "Oh, leave him alone. He's done enough." And so he had. And so she admired.
And the admiration was reciprocated. Henry Hazlitt relates that he was walking with Rand one day, and told her that Mises had told him, "Ayn Rand is one of the greatest men in history." "Did he say men?" asked Rand. "Yes," Hazlitt responded. At which point Rand clapped her hands in glee.
Rand attended Mises’s seminars in New York, at which she really began her ‘formal’ education in economics. 'She acknowledged him,’ says Roy Childs, ‘as one of the greatest minds of our time, even while disagreeing with his philosophic base, and as having made a tremendous contribution to liberty.'
That he made such a contribution despite being ignored for his virtues and reviled for his acumen – he was one of the few economists for example to see the Great Depression coming, yet those who helped make it possible refused him admission to their universities when fleeing Nazi Germany – says even more about the man and his chosen motto. Against both evil and errors of thought, he proceeded across the course of his life ever more strongly.
UPDATE: The tributes keep coming …
Every year in Silicon Valley, a truly lovely celebration takes place. It is centred on the birthday of Ludwig von Mises, who was born in 1881 and died in 1971. Despite the dark times for human liberty that defined his life, he fought with indefatigable valour.
For many of the technology giants who gather at this event, Mises remains an inspiration. And so they gather to pay homage to his ideas and his enormous contribution to the intellectual life of his times and ours.
This year, the seventh year in which it has been organized, I was honoured to be the chosen speaker. We gathered at the offices of Cypress Semiconductor. T.J. Rogers, CEO of the company and a huge fan of Mises, graciously agreed to be the host (and provide all of the awesome wine made in his own vineyards!).
Most of the people who attended — and there was record attendance — had read something by Mises, and many were truly experts in his work. They were academics, students, technology executives, code slingers, writers, and just general fans of freedom.
My task was to illustrate Mises’s relevance in the digital age. I chose three ideas that were unique to Mises in his time that translate beautifully to the digital age.
The value of ideas
A key claim shared by the socialist and fascist central planners one hundred years ago was a materialist conception of history. To the Marxists, the course of history was determined by large impersonal forces that push history through stages of evolution, independent of the ideas that people hold. The central planners imagined that the sum total of life quality could be captured in tangibles that were arranged according to a central plan.
Mises took another direction in pointing to ideas as the “ultimate data of history.” To him, all human action is a manifestation of the mind. That is true of economic value and action but also of political trends. . . .
In his first book on politics, Nation, State, and Economy (1919), Mises wrote: “The idea of liberalism starts with the freedom of the individual; it rejects all rule of some persons over others; it knows no master peoples and no subject peoples, just as within the nation itself it distinguishes between no masters and no serfs.” … Only the individual thinks. Only the individual acts. Only the individual creates value. And only the individual can bring about sustainable social and economic progress. . . .
If there was one feature of the prevailing economic models of Mises’s time to which he objected most strenuously it was their failure to grapple with entrepreneurship as the driving force of economic progress.
Entrepreneurs begin with ideas. They face an uncertain future. They apply real resources in risky environments in order to realize a dream. Their ideas are tested by the market, and success results in profits. Those profits are an indication of the presence of social progress: finding the best possible use of scarce resources to serve humanity in the best possible way.
How can you capture entrepreneurship in a model? How can you account for it in an empirical prediction? How can you make it part of a central plan imposed upon society?
None of this is possible. . . .
Read the whole piece: Mises in the Digital Age: Happy 134th birthday to Ludwig von Mises!