Applying Von Mises In An Imperfect World

Just over a decade ago, I wrote an article about the famous Austrian economist Ludwig von Mises (1881-1973) and the numerous think tanks and academic efforts he inspired. Ludwig von Mises’s clarity of thought and rigorous logical method made him a powerful voice for economic truth and individual liberty. His ability to trace complex economic phenomena back to fundamental principles won him enduring respect among champions of the free society, who saw in his work a robust defense of markets and human freedom. Books such as Human Action, The Theory of Money and Credit, and Socialism have cemented his reputation as one of the top economists of all time.

Leading think tanks continue to use von Mises’s teachings as a reference point for sound economics. For instance, Tyler Cowen, an economist and chairman of the board at the Mercatus Center, wrote an article with the optimistic title “Ludwig von Mises is Latin America’s Leading Economist.” On the other hand, though, the Cato Institute published a piece earlier this year titled “The American Right is Abandoning Mises.” Several decades ago, the Heritage Foundation published a paper written by Richard Ebeling, one of the leading experts on von Mises, which explains the economist’s work as a policy analyst. This perspective deserves greater attention, especially for those who have a responsibility to implement policies founded on sound economics.

In addition to his major theoretical works, von Mises also wrote several papers recommending solutions during moments of crisis and transition. These writings are less well-known than his books, but they offer valuable insights that can be of great benefit for policy leaders. As an example we can cite Argentinian President Javier Milei, who is exceptionally well-versed in Austrian economics and frequently mentions Von Mises, his predecessor Carl Menger (1840-1921), and his successors, notably F.A. Hayek (1899-1992) and Murray N. Rothbard (1928-1995).

In 1926, at age 45, von Mises founded the Austrian Institute for Business Cycle Research. F.A. Hayek, then only 27 years old, was its first director. According to Richard Ebeling, the institute was soon internationally recognized as a leading center for economic forecasting and policy analysis in Central Europe. In 1931, Hayek moved to the London School of Economics and was replaced as director by another young economist, Oskar Morgenstern (1902-1977). Hayek would go on to win the Nobel Prize in 1974. Morgenstern also achieved fame for his collaboration with Hungarian-American mathematician John von Neumann (1903-1957) and for his part in the development of game theory.

In addition to being a professor of economics at the University of Vienna, von Mises worked as an economist for the Austrian Chamber of Commerce and served as vice president of the Austrian Institute for Business Cycle Research until 1934, when he moved to the Graduate Institute of International Studies in Geneva. We have access to Mises’s policy analyses from before his move to Geneva thanks to Richard Ebeling and his wife Anna, who discovered von Mises’s “lost papers” in the KGB archives. Liberty Fund, a leading publisher of works that advocate for a free economy, published several books of these writings, which contain lessons valuable for policy reform.

There is no doubt that von Mises was a strong advocate of a completely free economy. However, he distinguished between theory and practice. He analyzed the economy in an unhampered market, without government intervention. He also wrote about trade policy in situations of crises, wars, and other unfortunate circumstances. In a monograph he prepared at the request of Otto von Habsburg (1912-2011), dated May 1940, about how to reconstruct Austria, Von Mises wrote: “Free trade does not imply the elimination of all tariffs. What it does imply is that no attempt will be made to raise domestic prices by imposing import duties, to give domestic producers a chance to sell their wares more advantageously than their foreign competitors.” He went further and specified: “Only two kinds of import duties are therefore compatible with free trade: 1) Duties levied on articles for which consumption taxes are imposed (alcoholic beverages, tobacco and tobacco products); these duties must be set at exactly the same level as domestic taxes for these products, and 2) Retaliatory tariffs, which apply to imports of all or certain commodities from countries that adopt a hostile policy toward Austrian exports. Retaliatory tariffs must be imposed at any given time only against a limited number of countries, to maintain Austria’s supply of each of these individual articles at world market prices.”

Mises always favored economic freedom but realized that Austria could not continue to rely on agriculture; it needed to industrialize and develop an export industry. In 1943, when von Mises prepared a monograph on the Mexican economy, he also recommended export-oriented industrialization: “For an increase of exports has to be the goal of economic policy, not industrialization for the purpose of restricting imports.” He was also open to gradualism: “Although the open-door policy best fits the interests of Mexico—as those of any other country—we have to realize that a sudden change would do more harm than good. It would be inexpedient to institute the necessary reforms by the use of measures that, although beneficial in the long run, would for the immediate future bring more hardship than benefits.” Commenting on von Mises’s policy recommendations, Ebeling writes: “It should be mentioned that Mises’ apparent concession to the welfare state in his listing among his fiscal suggestions of an employer’s tax for social insurance expenditures did not mean his belief in their desirability or necessity. This was clearly an admission that, given the political currents, not everything could be reformed at once.”

Those who want to delve further into Ludwig von Mises and achieve a better understanding of economics grounded in the Austrian tradition now have a new resource in addition to his policy papers. Grove City College—which has stressed Austrian School economics in its undergraduate programs—has completed a major project of digitizing a 20,000-page archive of letters, manuscripts, and notes by the great economist. Previously accessible only in person, the newly launched Mises Digital Archive now allows scholars worldwide to study these documents online.

Leading Think Tanks Inspired by Von Mises

Most of the think tanks inspired by von Mises focus on theory rather than empirical research. The largest by far is the Mises Institute in the United States, whose mission is to “promote teaching and research in the Austrian School of Economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard.” The institute, founded in 1982, tends to reject pragmatism and states officially that it “promote[s] a private-property order that rejects taxation.”

The other think tank named after von Mises, which has much more extensive programs, is the São Paulo-based Instituto Mises Brasil (IMB). One of this institute’s guiding principles is that of restoring “the crucial role of theory, both in economics and social sciences, as opposed to empiricism.”

These think tanks usually publish books that focus on the principles of a free society, but sometimes delve into policy analysis by publishing the works of associate fellows such as Daniel Lacalle, who collaborates mostly with the Mises Institute in Spain but also with the US-based Mises Institute.

There are think tanks named after von Mises in more than a dozen countries, but most are very small, with few programs or publications. Mises Portugal, for example, publishes on its website online versions of Mises’s books in Portuguese. Another example, one of the most promising and dynamic Mises think tanks was in Belarus. Headed by the charismatic and talented Jaroslav Romanchuk, the institute struggled to navigate the complex waters of this Russian puppet state. Romanchuk moved to Ukraine, where he founded the International Liberty Institute, from which he promotes the work of von Mises and other Austrian economists.

Those who promote the free enterprise system would like to see more leaders who, like Javier Milei, try to put von Mises’s ideas into practice. It would be good for them to keep in mind Ebeling’s words: “Mises’ long recognized advocacy of ‘laissez-faire’ did not mean a hands-off indifference to the path taken by the market economy.” We might never see a completely free economy, as von Mises would have liked. To move towards that goal, however, leaders will have to find creative paths to consider the concrete obstacles that impede faster and deeper reforms.

Marcus Louvier, [email protected] conducted research for this piece