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Mises on Economic Reform

Mises Daily: Friday, September 22, 2000 by

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Selected Writings of Ludwig von Mises: The Political Economy of International Reform and Reconstruction
Edited and with an introduction by Richard M. Ebeling
(Indianapolis: Liberty Fund, 2000) 271 pp. $19 (hardcover), $12 (paper)

In the summer of 1940, Austrian Economist, Ludwig von Mises, arrived in the United States as a refugee from war ravaged Europe. One of the most well known--and controversial--economists of the period between the two World Wars, Mises had defended the principles of the market economy against both socialists and interventionists. He had shown why socialist central planning was doomed to failure due to socialism's abolition of private property, market competition and a system of market-generated money prices to facilitate the process of economic calculation. And he had demonstrated that government interventions in the market economy disturbed the allocation of resources and the direction of production in ways inconsistent with consumer demand. Such interventions also produced imbalances and distortions that could often serve as rationales for extending the orbit of regulations and controls until finally overall government control over the market might be finally reached.

During his first years in the United States, Mises devoted a significant portion of his time to analyzing the nature and causes of the political and ideological trends that had brought the Europe of the 1920s and 1930s to the abyss of war and destruction. He also attempted to outline a set of policies through which a post-war Europe could recover from the consequences of conflict and collectivism. Many of the essays and monographs that Mises wrote between 1940 and 1944 on these themes have remained unpublished until now. Ten of these essays and monographs have now been brought together and edited by me under the title Selected Writings of Ludwig von Mises: The Political Economy of International Reform and Reconstruction and published by the Liberty Fund of Indianapolis.

While most directly concerned with the problems that Europe could expect to face after Nazism had been defeated, running through all these essays is a discussion and defense of general political and economic principles and policies that transcend the particular circumstances of the 1940s. Now at the end of the 20th century, when the world is once again in a monumental transition process in which former Soviet-bloc states are attempting to successfully introduce market-based economic systems and third world nations are trying to recover from their decades-long experiments with socialist planning, Mises' arguments still ring as true and relevant as when he first penned them more than half-a-century ago.

Underlying any successful change to freedom and prosperity, Mises explains, must be a transformation in attitudes and ideologies. In three essays on postwar European reconstruction, he emphasizes that the countries of Europe must focus their attention on the long-run institutional foundations for economic growth and social well-being. Special interest group politics, economic nationalism and welfare statism must be seen as the breeding grounds of social conflict, material decay and spiritual corruption. In their place, public policy must be directed toward securing private property and the enforcement of market contracts for both domestic and foreign businessmen, maintaining low and stable taxes, reducing government spending to the minimum level that would still be sufficient for guarding individual rights, and establishing a stable and non-inflationary monetary system. Only then would governments have done everything in their power to create the political and economic environment most conducive for participants in the market to begin the process for economic recovery.

The institutional change would require people to understand the dead-end of short-run politics in which various producer interest groups vie with each other for privileges and favors from the government, resulting in a misdirection and squandering of society's scarce resources and capital. Market entrepreneurs had to be seen as the human engines for innovation and improvement, whose actions through the processes of market competition brought about both more and better goods and services and assured a tendency for a smooth coordination of the multitudes of supplies with the multitudes of demands. No longer could people look to the state as a paternalistic redistributor guaranteeing their market shares, relative incomes or profit margins from the peaceful forces of open and free domestic and foreign competition. The ideology of anticapitalism, that had brought Europe to ruin, had to be rejected and replaced with a new spirit of individual freedom and responsibility in a system of social cooperation based on the principle of voluntary exchange.

In an essay on American foreign trade policy, Mises argues that the most effective assistance that the United States could give to Europe in the post-war period would be to establish a sound, free market at home to serve as an example for Europeans. Out of America's own prosperity would come the potential private-sector investment capital to assist in Europe's economic recovery. Europe, however, could not be saved through government-to-government loans, government subsidized and guaranteed investment projects or special trading favors. Such policies would merely reinforce the interventionist tendencies among Europeans and delay the reforms needed in these countries for long-term improvement.

In a series of monographs, Mises then details an array of specific policies that the various post-war countries would need for reconstruction and reform. He outlines the advantages and methods for reestablishing a functioning gold standard, free from government control and manipulation. In a set of guidelines for the reconstruction of Austria after the war, Mises explains the importance of free trade for a small country and suggests the fiscal policies that would be most conducive to capital formation and growth.

In another contribution, Mises presents the idea of an Eastern European democratic union that would connect the countries from the Baltic Sea to the Mediterranean, that would assure a vast free trade zone for economic development and reduce the potentials for nationalistic and ethnic conflict by respecting rights and property of the tens of millions of individual participants in these various nations. And in a brief lecture, Mises also explains that any successful pan-European union can only be successful if established on the principle of freedom of movement.

Finally, in a study prepared for a Mexican business association in 1943, Mises analyzes the economic policies needed for an underdeveloped country such as Mexico to take advantage of its comparative production potentials in the global division of labor and foster, at the same time, market-driven industrial development.

In 250 pages, Mises presents and articulates the political economic agenda for a post-collectivist world, a world of individual freedom, international peace and global prosperity. Though written in the 1940s, Ludwig von Mises' essays offer the true agenda for the society of tomorrow, the free society of the 21st century.