The introductory unit of George Reisman’s study program includes about 60 pages of reading from the appendices to the 4th edition of Ludwig von Mises’s Planning for Freedom. Roughly the first 40 pages of this material is Murray Rothbard’s 1973 essay “The Essential Von Mises.”
The essay is an intellectual biography in miniature, focusing on the main ideas of Mises’s major treatises and their impact on the field of economics. Rothbard includes enough context so readers will know which problems and controversies Mises was addressing. He begins with an outline of the achievements of Karl Menger and Eugen von Böhm-Bawerk, whose work on marginal utility, capital, and interest solved many problems that had bedeviled economists for generations.
Mises’s first great work, The Theory of Money and Credit (1912), extended the insights of the Austrian school to money, which had to that point been left out of the analysis. He demonstrated that the principle of marginal utility applies to money as it does to all other economic goods, with great implications for the study of inflation and other monetary phenomena. He also provided a logical proof, the so-called “regression theorem,” to explain the origin of money and how it must have once been a commodity people valued for reasons other than as its utility as a medium of exchange. These theoretical accomplishments also provided the groundwork for Mises’s later formulation of Austrian Business Cycle Theory, in which expansion of credit by the banking system leads to unsustainable booms that must end in busts.
Following World War I, Mises turned his attention to the theoretical framework of socialism, which seemed about to sweep across Europe in the wake of communist uprisings in Russia and other countries in eastern Europe. In the essay “Economic Calculation in the Socialist Commonwealth,” later expanded into Socialism (1922), Mises demonstrated the impossibility of rational allocation of resources in the absence of the price system provided by the market economy. This intellectual stake through socialism’s heart set off a decades-long debate among European economists. Socialists fancied that Oskar Lange, a Polish economist, effectively answered Mises in the 1940s, but in fact Lange had merely expressed a confident hope that socialist governments would be able to get around the problem that Mises had uncovered. (The collapse of the Soviet Union 18 years after Rothbard wrote this essay was the most eloquent confirmation of Mises’s theory.)
Mises was forced to flee Austria when the fascist influence there grew in the 1930s. In Switzerland he worked on and published in 1940 his greatest masterpiece, issued in English with the title Human Action in 1949. Rothbard writes, “Human Action is IT: economics whole.” Mises devoted many pages to the epistemological and methodological problems of economics that many in the mainstream had overlooked. He critiqued the way in which mathematics had come to dominate the profession. He developed the idea of “praxeology” as the science of human choices. He also further refined the theory of time preference, building on the work of Böhm-Bawerk and Frank Fetter.
Rothbard laments that Mises’s works were not translated into English until the Keynesian paradigm was already ascendant. His works were generally ignored rather than refuted. After 1940, when Mises was forced to flee Switzerland for the United States, he secured an unpaid professorship at New York University and began to gather a talented circle of students. It was from this group that the major voices of the Austrian school in the second half of the 20th century arose. The essay ends with a prediction that the crisis of Keynesianism in the 1970s would lead to a reevaluation of Mises’s ideas.
I’ll make another post to cover the short pieces taking up the rest of the reading from Planning for Freedom.