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Ludwig von Mises was one of the intellectual leaders of the Austrian School of Economics. The influence that Mises had on the promotion of classical liberal ideas during the 20th century is impressive.
Born into a well-to-do family in a province of the Austro-Hungarian Empire that is now part of Ukraine, Mises demonstrated his intelligence at a very young age: He mastered French, German, and Polish, and was reading Latin by the time he was 12 years old.
Mises believed in socialist ideas when he began his university studies. His views on the world and the economy evolved quickly when he learned of the writings of Carl Menger and Friedrich von Wieser, the founding fathers of the Austrian School of Economics.
In his first book, The Theory of Money and Credit, published in German in 1912, Mises developed his explanation of economic fluctuations. From then on, his reputation continued to grow based on the high quality of his work.
His career was very eventful. After founding his own research institute in Vienna, he had to flee the country in the 1930s with the rise of Nazism. He escaped first to Switzerland, and then to the United States, specifically New York. Five years after his arrival, he began teaching at New York University as a visiting professor and remained there until his retirement in 1969. He died in 1973 at the advanced age of 92.
Among the important contributions Mises made to economic theory, his notion of economic coordination through prices and his theory of economic fluctuations deserve special mention.
Given that resources are limited but our needs are unlimited, we have to find the best ways of producing what we need. How to proceed? To answer this question, consider a concrete example: the construction of railways. It is possible to build railways of gold, at least in theory. Of course, gold has many other uses: jewelry, computer parts, and so on. So how do we know if we should prefer gold to steel in the construction of railways?
According to Mises, only prices can inform us of the relative values of resources and their optimal uses for the good of society. This is why legislators must ensure that price information is not “contaminated” by inappropriate regulations that would cause them to rise or fall for reasons not based on voluntary exchanges between individuals.
Mises did not analyze the economy through the traditional lenses of supply and demand. He postulated that markets are generally stable, but are subject to recessions, and even depressions, when there is an artificial expansion of credit by central banks. According to him, this creates inflationary pressure and encourages individuals and companies to make bad decisions. It is the manipulation of prices by government that disrupts normal economic activities.
The work of Mises influenced that of several others, such as Friedrich von Hayek (Nobel 1974), Robert Lucas (Nobel 1995), and Leonid Hurwicz (Nobel 2007). His influence goes far beyond the Austrian School of Economics.
Since the Nobel Memorial Prize in Economics was only introduced toward the end of his life, Mises never received one. However, the famous MIT economist Paul Samuelson, himself a Nobel laureate, wrote that if the prize had been awarded earlier, Mises would certainly have won it. This is an important recognition, since Samuelson's ideas were diametrically opposed to those of Mises.
Be it through his writings in political philosophy or in economics, the influence that Ludwig von Mises has had on our society is considerable. He succeeded in consolidating the foundations of one of the most important schools of thought in economics, and his work is now more alive and relevant than ever.
Jasmin Guénette is Vice President of Operations at the Montreal Economic Institute. The views reflected in this op-ed are his own.
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