A commentator on my last post has alerted me to this fascinating article on the Mises.org blog:
Richard M. Ebeling, “The ‘Other’ Ludwig von Mises: Economic-Policy Advocate in an Interventionist World,” Mises Daily, March 26, 2010
This provides a discussion by Ebeling of Mises’ policy advice to the old Austro-Hungarian empire and then the Austrian republic which replaced it, on the basis of “lost papers” of Mises recovered in 1996 and the 3 volume Selected Writings of Ludwig von Mises.
One of the more interesting points that emerges is Mises’ policy advice for Mexico:
“in a lengthy monograph that he wrote during the Second World War devoted to economic reform in an underdeveloped country like Mexico, he took as ‘given’ that the politics of Mexican society was not ready to fully privatize, say, the national railway system or the oil industry. So as a ‘second best,’ Mises proposed transforming the railway system into a government-owned but privately managed corporation with strict rules and procedures to assure it was run in a relatively ‘business-like’ manner with the least likelihood of political interference. He even supported limited and temporary subsidies to assist poor Mexican farmers to establish themselves as more-successful private enterprisers.
And on tariffs, he did not propose immediate abolition of trade barriers in Mexico. He accepted that there were many industries that had grown up behind the tariff walls, and that they would resist immediate repeal of trade protectionism. So, instead, he advocated ‘incrementalism,’ i.e., a gradual reduction of the tariff barriers over several years.”
Now, in contrast to many other Austrian views on economics, Mises’ plans here appear relatively reasonable. You might even say that reality penetrated his ideological mind and overcame his praxeological theory.
But one will have to wonder how a man who proclaimed that all government intervention in the economy leads to socialism or chaos could advocate “temporary subsidies to assist poor Mexican farmers” without devastating self-contradiction. How could Mises possibly believe that his “temporary subsidies” would be abolished after some limited period of time, without sending Mexico on the path to socialism or chaos?
In an attempt to defend Mises from Schuller (1950), Rothbard characterised Mises’ position as follows:
“When Mises presents us with the choice between the free market and socialism, he is saying that in-between systems of a hampered market are not coherent, consistent systems. He demonstrates that any measure of government intervention in the market creates problems and consequences which present the people with a further choice: repeal this measure, or effect another measure of governmental intervention …. interventionist measures logically lead to one or the other [sc. free market or socialism]. Since a socialist system cannot exist, the only intelligent choice is the purely free market. … Mises demonstrates that every form of government intervention in the market creates consequences that lead to an economy worse than that of the free market, …. For Mises, all government intervention in the market is irrational and therefore contrary to economic law” (Rothbard 1951: 184).
Perhaps Rothbard exaggerated Mises’ position somewhat, but a reading of Human Action mostly confirms his view:
“The maintenance of a government apparatus of courts, police officers, prisons, and of armed forces requires considerable expenditure. To levy taxes for these purposes is fully compatible with the freedom the individual enjoys in a free market economy. To assert this does not, of course, amount to a justification of the confiscatory and discriminatory taxation methods practiced today by the self-styled progressive governments. There is need to stress this fact, because in our age of interventionism and the steady “progress” toward totalitarianism the governments employ the power to tax for the destruction of the market economy. Every step a government takes beyond the fulfillment of its essential functions of protecting the smooth operation of the market economy against aggression, whether on the part of domestic or foreign disturbers, is a step forward on a road that directly leads into the totalitarian system where there is no freedom at all” (Mises 1996: 282–283).
Commenting on his support of the gold standard and attacking opponents of it, Mises makes a bold claim:
“However, the futility of interventionist policies has nothing at all to do with monetary matters. It will be shown later why all isolated measures of government interference with market phenomena must fail to attain the ends sought. If the interventionist government wants to remedy the shortcomings of its first interferences by going further and further, it finally converts its country’s economic system into socialism of the German pattern. Then it abolishes the domestic market altogether, and with it money and all monetary problems, even though it may retain some of the terms and labels of the market economy” (Mises 1996: 474).
One sentence in this passage deserves emphasis:
“all isolated measures of government interference with market phenomena must fail to attain the ends sought”.
If Mises really believed this, then his support for “temporary subsidies to assist poor Mexican farmers” stands as a bizarre, illogical position for him. According to him, even isolated instances of government intervention with the market must fail.
So how, then, could Mises’ market-distorting subsidies possibly achieve the goal he wanted for them? A miracle? Libertarian magic dust?
We are faced with yet another instance of Mises’ intellectual hypocrisy and logical contradictions.
A more serious accusation against Mises is his ridiculous view that social democracy leads to fascism. Let’s take an example from history which is highly relevant to Mises’ theory.
Engelbert Dollfuss became Chancellor of Austria in 1932. In March 1933, Dollfuss effectively abolished democracy, and established an authoritarian regime, but was assassinated in July 25, 1934 and replaced by Kurt Schuschnigg, who was Chancellor from July 1934 to the Anschluss in March 1938.
It is claimed that before 1934 Mises had become an economic adviser to Dollfuss, even a close adviser (see Hans-Hermann Hoppe, “The Meaning of the Mises Papers,” Mises.org, April 1997).
And what exactly happened in Austria in this period when Mises may have had some influence on economic policy? Let’s look at a few quotes from the specialist literature on the history of Austria in the 1930s:
“In tackling the economic crisis the Dollfuss-Schuschnigg dictatorship pursued harsh deflationary policies designed to balance the budget and stabilize the currency. The government’s program featured severe spending cuts, high interest rates, and frozen wages. From an orthodox economic point of view there was considerable success: by 1937, both industrial and agricultural production had surpassed the levels of 1929; trade was more favourably balanced; the National Bank had liquidated most of its foreign debt and even accumulated reserves of gold and foreign exchange. In a sense the Christian Corporative regime demonstrated the viability of the Austrian state, but it did so at the cost of alienating a majority of the Austrian people. On the eve of Anschluss a third of the population was still out of work, while those fortunate enough to have jobs were bringing home paychecks considerably smaller than before the Great War” (Bukey 2000: 17).
“Beginning in in 1931, [Austrian] unemployment grew rapidly, reaching a peak in 1933–6, with between 24 and 26 per cent of the labour force out of work …. When, in 1937 and 1938, there was a modest recovery, unemployment never dropped below the 20 per cent value. This had a devastating effect on the legitimacy of the Austrian system …. As the Austrian government sustained its reluctance to apply Keynesian policies, the economic recovery never entered a serious tale-off phase in the second half of the 1930s. Linked to an exhausted determination of the Austrian government to resist the pressures from Germany, the economic crisis of the 1930s should be seen as an additional reason why the Austrian society was receptive to the annexation by Germany in March 1938” (Gerlich and Campbell 2000: 55).
Austrians are fond of pointing to the US recession of 1920-1921 as (alleged) proof that austerity brings prosperity, but you will not find them using 1930s Austria as proof of that, even though their hero Mises may well have had a hand in the contractionary policies pursued by the Austro-fascists.
In reality, it was the vicious austerity and deflationary economics imposed on Austria that led to some measure of public support for the Nazi takeover (Utgaard 2003: 72).
Let apologists for Mises explain whether he supported or even designed those policies.
A note of thanks to Iain of “An Anarchist FAQ,” whose insightful comment on the previous post inspired me to think more seriously about economic policy under Dollfuss and Mises’ connection to it.
Bukey, E. B. 2000. Hitler’s Austria: Popular Sentiment in the Nazi Era, 1938–1945, University of North Carolina Press, Chapel Hill, North Carolina.
Ebeling, R. M. 2010. “The ‘Other’ Ludwig von Mises: Economic-Policy Advocate in an Interventionist World,” Mises Daily, March 26.
Gerlich, P. and D. Campbell, 2000. “Austria: From Compromise to Authoritarianism,” in D. Berg-Schlosser and J. Mitchell (eds). The Conditions of Democracy in Europe, 1919–39: Systematic Case Studies, Macmillan, Basingstoke. 40–58.
Hans-Hermann Hoppe, “The Meaning of the Mises Papers,” Mises.org, April 1997.
Mises, L. 1996. Human Action: A Treatise on Economics (4th rev. edn), Fox and Wilkes, San Francisco.
Rothbard. M. N. 1951. “Mises’ ‘Human Action’: Comment,” American Economic Review 41.1: 181–185.
Schuller, G. J. 1950. Review of Human Action: A Treatise on Economics by Ludwig von Mises, American Economic Review 40.3: 418–422.
Schuller, G. J. 1951. “Mises’ ‘Human Action’: Rejoinder,” American Economic Review 41.1: 185–190.
Utgaard, P. 2003. Remembering and Forgetting Nazism: Education, National Identity, and the Victim Myth in Postwar Austria, Berghahn Books, New York and Oxford.