• Tag Archives Mises
  • War Is the Enemy of Liberty

    War Is the Enemy of Liberty

    Democracy is the corollary of the market economy in domestic affairs; peace is its corollary in foreign policy. The market economy means peaceful cooperation and peaceful exchange of goods and services. It cannot persist when wholesale killing is the order of the day.

    The incompatibility of war with the market economy and civilization has not been fully recognized because the progressing development of the market economy has altered the original character of war itself. It has gradually turned the total war of ancient times into the soldiers’ war of modern times.

    Total war is a horde on the move to fight and to loot. The whole tribe, the whole people moves; no one—not even a woman or a child—remains at home unless he has to fulfill duties there essential for the war. The mobilization is total and the people are always ready to go to war. Everyone is a warrior or serves the warriors. Army and nation, army and state, are identical. No difference is made between combatants and noncombatants. The war aim is to annihilate the entire enemy nation. Total war is not terminated by a peace treaty but by a total victory and a total defeat. The defeated—men, women, children—are exterminated; it means clemency if they are merely reduced to slavery. Only the victorious nation survives.

    In the soldiers’ war, on the other hand, the army does the fighting while the citizens who are not in the armed services pursue their normal lives. The citizens pay the costs of warfare; they pay for the maintenance and equipment of the army, but otherwise they remain outside of the war events themselves. It may happen that the war actions raze their houses, devastate their land, and destroy their other property; but this, too, is part of the war costs which they have to bear. It may also happen that they are looted and incidentally killed by the warriors—even by those of their “own” army. But these are events which are not inherent in warfare as such; they hinder rather than help the operations of the army leaders and are not tolerated if those in command have full control over their troops.

    The warring state which has formed, equipped, and maintained the army considers looting by the soldiers an offense; they were hired to fight, not to loot on their own. The state wants to keep civil life as usual because it wants to preserve the tax-paying ability of its citizens; conquered territories are regarded as its own domain. The system of the market economy is to be maintained during the war to serve the requirements of warfare.

    The evolution which led from the total war to the soldiers’ war should have completely eliminated wars. It was an evolution whose final aim could only be eternal peace between the civilized nations. The liberals of the nineteenth century were fully aware of this fact. They considered war a remnant of a dark age which was doomed, just as were institutions of days gone by—slavery, tyranny, intolerance, superstition. They firmly believed that the future would be blessed by eternal peace.

    Things have taken a different course. The development which was to bring the pacification of the world has gone into reverse. This complete reversal cannot be understood as an isolated fact. We witness today the rise of an ideology which consciously negates everything that has come to be considered as culture. The “bourgeois” values are to be revalued. The institutions of the “bourgeoisie” are to be replaced by those of the proletariat. And, in like vein, the “bourgeois” ideal of eternal peace is to be displaced by the glorification of force. The French political thinker Georges Sorel, apostle of trade unions and violence, was the godfather of both Bolshevism and Fascism.

    It makes little difference that the nationalists want war between nations and that the Marxists want war between classes, i.e., civil war. What is decisive is the fact that both preach the war of annihilation, total war. It is also important if the various anti-democratic groups work in cooperation, as at present, or if they happen to be fighting each other. In either event, they are virtually always allied when it comes to attacking Western civilization.

    This is an excerpt from Interventionism: An Economic Analysis (1940)

    Ludwig von Mises

    Ludwig von Mises (1881-1973) taught in Vienna and New York and served as a close adviser to the Foundation for Economic Education. He is considered the leading theorist of the Austrian School of the 20th century.

    This article was originally published on FEE.org. Read the original article.

  • A Century Later, Mises Is Still Being Validated

    A Century Later, Mises Is Still Being Validated

    It has been said that “the definition of insanity is doing the same thing over and over again and expecting different results.” No one quite knows who first uttered this remark; it has been attributed to Albert Einstein, Mark Twain, Benjamin Franklin, and has even been said to be an Ancient Chinese Proverb. What is known is that this cliché has been repeated over and over again so often that its mere mention substantiates its own definition.

    Several of the ladies and gentlemen above wanted to let us know that they’re merely eccentric, and if they want to do things all over again and again and again, we should let them…

    Nonetheless, we repeat it again because it’s particularly fitting to today’s deliberations. Here we begin with a look back to the past in search of edification. For the miscalculations of the past continue to dictate the insanity of the present.

    Many years ago, a bright minded and well intentioned Italian pursued a devious undertaking. His efforts aimed to conceive a pure theory of a socialist economy. His objective was to take the sordid teachings of Marx and pencil out the mechanics of how a centrally planned economy could bring a life of security and abundance for all. What follows is an approximation of how the dirty deed went down.

    Seeing the Light

    In 1908, Italian economist Enrico Barone suffered an abstraction. One late night he skipped a bite of his meatballs and marinara, and gazed into the outer frontiers of deep space. Looking around, he couldn’t believe his eyes. For in this far corner of absolute darkness, he saw something truly amazing. Out in the distant reaches of nothingness, peering into a black hole, he saw not the dark. Rather, he thought he saw the light.

    Barone’s light was a socialist utopia achieved through “scientific management” of the economy, lorded over by the Ministry of Production. Through this endeavor, he imagined, an economy could attain something called “maximum collective welfare.”

    Enrico Barone in the only photo of him we could find. Both Vilfredo Pareto (in 1897) and Barone (in 1908, in the monograph “The Ministry of Production” discussed above) used a system of simultaneous equations based on Walrasian general equilibrium theory in order to investigate whether there was some sort of theoretical/ mathematical solution available to central planners facing the problem of what to produce, how much of it to produce, how, when, and where to produce it, etc., what resources in what quantities to allocate to capital goods production, how much consumption to permit, etc., etc. – all the stuff socialist planners ultimately turned out to be really bad at. Anyway, we have to defend Barone and Pareto a bit, as neither of them seemed to really believe that the approach was actually viable in the real world.

    After presenting all his nifty equations, Barone pointed out that the planners would ultimately still need all the things they thought they could abolish (prices, rent, profits, interest, savings, etc., which he averred would “probably return under different names”). He also noted that because no a priori determination of the “economically most viable technical coefficients” for the production system was conceivable (always assuming the goal of the planners was to maximize welfare), they would have to “experiment on a grand scale” – which would be far more wasteful than the so-called “anarchy of production” they wanted to replace.

    In the final pages of his monograph Barone proceeded to lambast “collectivist writers…[who] simply show that they have no clear idea of what production really is”, and inter alia remarked that “to promise increased welfare and to propose to “organize” production and to preach about free love in the new regime is simply ridiculous nonsense.”

    Pareto meanwhile noted along similar lines that it would simply be impossible to perform all the calculations needed for running a complex economy in time and recommended to “rather observe the practical solution given by the market”. The problem was that the Marxists were simply too dense to understand what they were trying to tell them – instead it ended up giving them ideas (further elaboration regarding the issue is in the caption under the Mises picture, below). [PT]

    Swiss Cheese Rationale

    The proposal was simple enough. If a bounty of academics were put to the task of determining the best prices for all goods and services, supply and demand could be optimized to produce an economy without poverty, without unemployment… and without possibility.


    Of course, with all these number crunchers hammering out technical memorandums and white papers, projecting data into the future with the intention of fixing the optimal price of toothpaste and pizza, how could they account for a change beyond their control or imagination? What if a springtime heat wave resulted in a meager wheat harvest?

    How would this affect their pre-determined price for a 16 inch pizza? Would government mandated thin crust be the solution? More than likely, before the data fabricators could re-optimize the price to the change in conditions, the pizzerias would be out of pizza dough because the price wasn’t allowed to naturally adjust upward by free market interactions. Government-induced shortages and artificial scarcity would result.

    With just a little common sense, Barone’s ideas are quickly exposed as absurd.

    From an academic standpoint, in his 1920 monograph, Economic Calculation in the Socialist Commonwealth, Austrian economist Ludwig von Mises, poked so many holes through the rationale it was transformed to Swiss cheese.

    Swiss cheese does indeed have holes – this reminds us of the other day, when we bought a piece of Swiss cheese at a local supermarket, only to find out at home that the wrapping paper was empty. Upon confronting the author of this transgression (the dweller behind the cheese counter) with his misdeed, he explained that it had been a Swiss cheese with particularly large holes, and the piece he had sold us simply was one of said holes.

    We realized that if we were to time our future Swiss cheese purchases judiciously, we would be spared a lot of unnecessary calorie intake. In socialist Utopias one can afford sloppier timing… there they sell only the holes most of the time (a popular snack in Caracas these days is reportedly “Hole of Swiss Cheese with Rat”). [PT]

    With exacting repudiation, Mises argued that in a socialist economy rational economic calculation is impossible; in the absence of private ownership of the means of production, attempts to allocate resources efficiently must fail.

    Without market-determined prices for goods and services via free exchange it is impossible to establish prices that reflect actual conditions. Without prices that are grounded in reality, the production and consumption relationship becomes distorted. In the absence of the natural corrective mechanism of market-determined prices, oversupply and scarcity conditions extend out to absurdity.

    Ludwig von Mises naturally refrained from wasting time by wrestling with general equilibrium equations. He realized right away what the core problem was, but was misunderstood and/ or misinterpreted by contemporary and later socialist economists, of whom frighteningly large numbers were uselessly occupying otherwise perfectly fine standing room in his heyday – there must have been a nest somewhere, considering how they suddenly proliferated (their large number did nothing to improve the quality of their ideas and arguments.

    There were also a few interesting chameleons like the historicist Werner Sombart, a trust fund baby who started out as a radical Marxist, then joined the “socialists of the chair” who supported the Prussian dynasty of the Hohenzollern, and later on discovered his inner nationalist and became chummy with the Nazis without so much as batting an eyelid – just as long as he was in bed with vile statists he seemed to be happy!).

    Anyway, after the publication of Mises’ monograph on the literal impossibility of a rational economy under socialism, Mises, Hayek and occasionally Lionel Robbins (a fellow fighter of the good fight on Hayek’s side before he defected for unfathomable reasons), proceeded to debate the leading socialist economists on the socialist calculation problem for decades (Menger and Boehm-Bawerk had debated the previous generation, except for those who invoked polylogism so as not to have to defend their ideas against “economists employing bourgeois logic”.Today’s identity-politics SJWs who have whole lists of topics white males are supposedly not allowed to speak or think about are a bit reminiscent of that).

    Socialist economist Fred Taylor was apparently inspired by Barone’s remark that there would be no equations for the planners to sensibly solve if they didn’t do “experiments on a grand scale”. While Barone seemed to indicate that this rendered the entire exercise useless and they might as well stick with the market economy, Taylor shrugged and said “Why not? Let’s do that!” Consequently, he proposed the “trial and error” method of central planning, once again missing the essence of the problem.

    Taylor then joined Oscar Lange with whom he wrote “On the Economic Theory of Socialism”. Two or three years later Henry Dickinson’s “Economics of Socialism” was published. This trio was in the process of conceding step by step that without prices for capital goods, rational resource allocation was indeed not possible, just as Mises had always pointed out.

    Over the decades the debate had moved from “calculation in natura” propagated by Otto Bauer in the late 19th/early 20th century (a bizarre idea, we would have liked seeing him draw up a balance sheet), to the planners simply using the Pareto/ Barone equilibrium equations to “calculate” production, to the addition of the “trial and error” method as a refinement, until finally, they renamed their method “market socialism”, adding some additional ideas to Taylor’s trial and error shtick by which they hoped to successfully replicate the price system.

    There would still be socialism, but the central planners and their subordinated factory managers would actually “play at market” – they would run a kind of make-believe market, a bit like little kids playing Monopoly. Given that they went as far as wanting to try that, one wonders why they didn’t just decide to simply stick with a market economy!

    To this final pathetic attempt to save their tattered socialist economic theory Mises inter alia remarked later:

    […] the cardinal fallacy implied in [market socialist] proposals is that they look at the economic problem from the perspective of the subaltern clerk whose intellectual horizon does not extend beyond subordinate tasks. They consider the structure of industrial production and the allocation of capital to the various branches and production aggregates as rigid, and do not take into account the necessity of altering this structure in order to adjust it to changes in conditions. What they have in mind is a world in which no further changes occur and economic history has reached its final stage. They fail to realize that the operations of corporate officers consist merely in the loyal execution of the tasks entrusted to them by their bosses, the shareholders. The operations of managers, their buying and selling, are only a small segment of the totality of market operations. The market of the capitalist society also performs those operations which allocate capital goods to the various branches of industry. The entrepreneurs and capitalists establish corporations and other firms, enlarge or reduce their size, dissolve them or merge them with other enterprises; they buy and sell the shares and bonds of already existing and of new corporations; they grant, withdraw, and recover credits; in short they perform all those acts the totality of which is called the capital and money market. It is these financial transactions of promoters and speculators that direct production into those channels in which it satisfies the most urgent wants of the consumers in the best possible way. These transactions constitute the market as such. If one eliminates them, one does not preserve any part of the market. What remains is a fragment that cannot exist.”

    Oh well… making favorable mention of speculators, promoters and entrepreneurs when explaining to the Reds what they are wrong about is probably a good way of getting them riled up…:) Mises’ remark above indirectly encompasses questions about the nature of knowledge and its distribution Hayek had begun to discuss in the early 40’s. The point being that what all these individual entrepreneurs, speculators, promoters etc. discover and know, their individual talents and the part of their knowledge that is tacit, which they cannot even verbalize themselves – all of these things a central planning agency can never learn and will therefore never know. Even if its bureaucrats were mind readers and did know about them, why would they ever care? In the socialist commonwealth going the extra mile has no rewards.

    As a final remark to this highly condensed caption version of the socialist calculation debate: although Oscar Lange became a high-ranking communist official in Poland after WW2, the system of “market socialism” was never even tried there. They opted for old-fashioned Stalinist oppression instead (and the guy had sounded so reasonable while he was still in the US!). We know Lange had still not conceded a basic error in his in old age, as he made a gleeful remark in 1967 about computers soon being able to calculate all those equilibrium equations proposed by Barone rapidly enough that a perfect 5 year plan could finally be produced for the comrades. Good grief! [PT]

    Polish-American socialist economist Oscar Lange

    Ludwig von Mises’ Century of Validation

    The planners are never able to get things quite right. In time, these absurdities become ubiquitous. For example, in a socialist economy you’ll find supermarkets with long lines of people and empty shelves. Another definitive gift of socialist economies is toilets without toilet seats. How is this even possible?

    Still, the socialist visionaries loved Barone’s gibberish because it endorsed their conceit. Here was a marvelous way for the enlightened illuminati to play god, muck with people’s lives at large, and remake the world in their image. Conversely, the mainstream economists of the day greeted Mises’s truths like a five-year-old first greets word that Santa Clause isn’t real. They derided his efforts and attempted to marginalize his work. This still continues today.

    The ideas of Barone, which were an attempt at defining a practical application of Marx, swept across Eastern Europe during the early 20th century like a medieval plague. Later, a somewhat altered derivative of these ideas resurfaced in France, the United Kingdom, the United States, and Japan, among other places, within the intersection of Keynesian fiscal policies and Chicago school monetary policies.

    Rather than having to directly fix the price of individual goods and services via a Central Planning Board, it was established that a Central Bank can crunch fabricated aggregate demand data and control the prices of an entire economy just by monkeying around with the price of credit. What’s more, governments could run perpetual deficits to remold things nearer to their heart’s desire.

    Mises’ efforts to refute socialist economic proposals nearly a century ago were explicitly validated with the decline and fall of Soviet socialism. Presently, they are being openly validated again, with the utter chaos being heaped upon the people of Venezuela.

    The somewhat diminished modern-day shopping experience in Venezuela – meet the latest attempt to make socialist economics “work” by finally “doing it right”.

    Et Infinitum

    Indeed, the results of government intervention are always the same. Stagnation, inflation, declining living standards, and widespread social disorder. No doubt, they’ll be repeated to insanity.

    In closing, and although many refuse to recognize it, Mises’ truths are currently borne out in the United States, and other social and corporate welfare economies, where money, which is a form of private property, is covertly confiscated by the insidious effects of a centrally planned system that’s based on ever increasing issuance of debt.

    Lengthy article-in-article captions by PT.

    Reprinted from Acting-Man.

    MN Gordon

    MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

    This article was originally published on FEE.org. Read the original article.

  • The Economic Philosopher’s Outcast: Mises

    With cities like Detroit ($18.5 billion in debt), Philadelphia ($8 billion in debt), and Sacramento ($1.9 billion in debt) why are Mises disciple’s voices silenced at major economic councils in Washington and throughout the country? Robert Reich, former Clinton Administration Secretary of Labor, singles out the huge economic and political discrepancies between the Tea Party and the Occupier movements sparked by the Wall St. government bailouts. In a recent series of articles in the Huffington Post, Reich cites the high correlation “between inequality and political divisiveness.” He correctly points out that America was never so divided regarding income, wealth and power since the 1920s. What Reich fails to address are the conditions that fed the growth of extremist movements, such as the Nazis and Communists, which later imploded as a result of the economic policies of debt and printing money.

    Mises, the modern day creator of the Classical Liberal movement (today also called libertarianism) destroyed the intellectual arguments of socialism by proving that it was impossible to allocate scarce resources effectively without private property and free-market prices. He showed that the more the state limited economic incentives to individuals, the greater the harm to low-income people and the general population. Centralized planning, something that was characteristic of all three types of socialism: the Nazis, the Fascists and the Communists, led to the ruin of an economy, and resulted in more and more tyranny and the rise of the totalitarian state. What economists failed to understand was that massive government spending and a authoritative centralized government would bring economic ruin to Germany, Russia, and many other countries.

    Sooner or later government debt has to be repaid out of tax receipts. Our current revenue base is not strong enough to sustain a viable repayment program to service the debt. Today we create money — billions a month — to meet the debt repayments. As new money floods the market its value declines. The country experiences inflation destroying the savings, and pensions of its citizens. Similar conditions led to the downfall of the Weimar Republic. The rampant inflation of the 1920s in Germany was a contributing factor to the rise of Hitler, Himmler and the centralized planning of the ultimate socialist organization the National Socialist Workers Party (Nazis).

    via The Economic Philosopher’s Outcast: Mises