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Advancing Austrian Economics, Liberty, and Peace

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Mises Made Easier
Percy L. Greaves Jr.


Malinvestment. An investment in wrong lines which leads to capital losses. Malinvestment results from the inability of investors to foresee correctly, at the time of investment, either (1) the future pattern of consumer demand, or (2) the future availability of more efficient means for satisfying a correctly foreseen consumer demand. Example of (1): An investment of available savings in a manner that cannot produce as much consumer satisfaction as the same funds could produce if invested differently. Example of (2): An investment which, before the end of its expected useful life, becomes obsolete due to the unforeseen development of more efficient means for satisfying the same consumer demand. Malinvestment is always the result of the inability of human beings to foresee future conditions correctly. However, such human errors and the resulting malinvestments are most frequently compounded by the illusions created by undetected inflation (q.v.) or credit expansion (q.v.). From the viewpoint of attaining maximum potential consumer satisfaction, every political intervention, other than that needed for the preservation of the market society, must lead to malinvestment.

HA. 394,550-65, 576,580-86; M. 314-18, 357-66; also PLG. 187, 198-99, 205, 249-51.

Malthusian law of population. A special case of the law of returns first propounded and revised by Thos. R. Malthus (1766-1834) in six editions (1798-1826) of his An Essay on the Principle of Population. This law holds that, other things being equal, population tends to increase by geometrical progression (1, 2, 4, 8, etc.), while the means of subsistence tend to increase by arithmetical progression (1, 2, 3, 4, 5, etc.) so that unless "moral restraint" or "preventive checks" are exerted, the excess increase in population will inevitably be removed by such "positive checks" as war, vice, poverty, disease, starvation and widespread plagues and famines.

HA. 129-30,667-72.

Mammonist. Prompted by the desire for material wealth or financial gain.

Manchester School, Manchesterism. A group of active British advocates of laissez faire, free trade, limited government principles who maintained that a wider practice of such principles would reduce international frictions and lead to world peace. The name derives from Manchester, England, where the leading merchants and manufacturers reconstituted the Chamber of Commerce in 1820 in order to protest existing protectionist policies. In this milieu, the Anti-Corn Law League (see "Corn Laws") held its first meeting in Manchester in 1838. The Manchester School was influential in shaping many British political policies during the next fifty years. Before the turn of the century, popular support gradually switched to the interventions advocated by the Conservative Party and later those promoted by the Fabian Socialists (see "Fabianism"). The best known and most influential leaders of the Manchester School were Richard Cobden (1804-1865) and John Bright (1811-1889).

FC. 199; HA. 238,823,828,831; PF. 58; S. 541.

Mandarins, (from the Portuguese). Chinese public officials who were entitled to wear a button and maintain a superiority over and toward the general public.

Mandatary. An agent or representative chosen to follow the orders or commands of those who selected him; usually applied to legislators elected to carry out the instructions (mandates) of the voters.

OG. 137.

Mandats territoriaux, (French). Paper notes issued as currency (q.v.) by the French Revolutionary Government in 1796. They were land-warrants supposedly redeemable in the lands confiscated from royalty, the clergy and the church after the outbreak of the Revolution in 1789. In February 1796, 800,000,000 francs of mandats were issued as legal tender to replace the 24,000,000,000 francs of assignats then outstanding. In all about 2,500,000,000 francs of mandats were issued. They were heavily counterfeited and their value depreciated rapidly within six months. In February 1797, they lost their legal tender quality and by May were worth virtually nothing. See "Revolution, French."

Mandrake. An herb of the potato family found in the Mediterranean area. Once the object of many superstitions, its magical powers are now in disrepute. Women once ate its fruit to promote pregnancy and its roots were much esteemed as a love philter, a promoter of personal prosperity and aid to an oracle's powers of prophecy.

Manorial system or organization. See "Feudalism."

Manumission, n. manumit, v. Emancipation; the act of setting slaves free; the formal release from slavery.

Marginal producer. The producer who would be eliminated from competition by a drop in the market price or a rise in his production costs because his production costs are the nearest (at the margin) to the current market price. A marginal producer operates at little or no profit so that any unfavorable change in price or costs would make his further operation unprofitable.

OG. 246-49.

Marginal productivity [of factors of production (q.v.)]. The market value imputed or attributed to the use of one more, or one less, unit, i.e., the marginal unit, of labor or a material factor of production. In a free market economy (see "Market economy, the free and unhampered"), wage rates and prices paid for the material factors of production constantly tend to coincide with the productivity of the marginal unit used or employed because entrepreneurs seek to (1) expand their production whenever more units are available for less than the value their use can add to production, and (2) reduce their production whenever a marginal unit costs more than consumers are expected to pay for the value added to production by that unit.

AC. 86-89.

Marginal theory of value. The theory that the value assigned to any good is the importance attached to its use in removing some felt uneasiness and that the value of any unit of a supply of identical goods is the value assigned to the least important (or marginal) use for which the contemplated number of available units are expected to be used. This is so because a judgment of value always refers solely to the supply with which concrete choice is concerned, for it is only the use of this specific (marginal) supply that one must decide to acquire or forego. Since each additional unit of an identical good will be allocated to a lesser valued use than was previously possible, the value attached to each additional (marginal) unit will be lower than that assigned to previously held units. Conversely, with each decrease in the number of units held, there will be an increase in the value of the least important (marginal) use to which the decreased available supply can be applied. The marginal theory of value is the subjective theory of value which is basic to all the theories of the Austrian School of Economics (q.v.). See also "Subjective-value theory."

HA. 119-27,204-05,636-37; also PLG. Ch. II (27-54), 70-91, 164-65.

Marginal utility. The least important use to which a unit of a contemplated supply of identical goods can be put. It is this least important or marginal use which is weighed or considered when one chooses to increase or decrease his supply by one unit, since this is the use (or value) which is to be, obtained or renounced.

HA. 119-27,636-37; also PLG. Ch. II (27-54), 70-91, 158-59, 164-65.

Margin monopoly. A monopoly for which there is an upper limit (marginal point) beyond which the monopolist cannot raise his monopoly price (q.v.) without inviting competition. A marginal monopoly is possible only when the ability to charge monopoly prices is dependent upon an exclusive advantage which is limited for either natural or institutional reasons, as in such cases where the monopolist enjoys greater fertility, richer ores, greater productivity, location or transportation advantages, tariff protection, governmental subsidies or price controls, etc.

Mark, (German). The German monetary unit from 1873 until its breakdown in 1923. Convertible into gold ($0.2382) up to July 31, 1914 (World War 1), the Mark remained the only legal tender in Germany until October 11, 1924.

On July 31, 1914, Germany had 4 billion gold Marks, of which 2.75 billions were in circulation and the balance were held as reserves against Reichsbank deposit liabilities and about 2 billion outstanding paper Marks, all redeemable in gold. By the end of 1918 the gold reserve was 2.5 billion Marks and the unredeemable notes outstanding 32.65 billions. By November 15, 1923, the irredeemable Reichsbank notes outstanding had reached 92,844,721,000 billion Marks. By the end of December 1923, they reached 496,507,425,000 billion Marks against which official gold reserves were the equivalent of only $111,200,000.

A decree of October 15, 1923 established the Rentenbank and provided for a transitional Rentenmark to be issued after November 15, 1923 with a value proclaimed to be the equivalent of 1,000 billion paper Marks. The volume of Reichsbank notes continued to increase for several months after the introduction of the Rentenmark, reaching 1,520,511,000,000 billion Marks by the end of September 1924. As a result of the Dawes Plan loan of 800,000,000 gold Marks, the Reichstag passed the Act of August 30, 1924 which provided for a gold Reichsmark (RM) on October 11, 1924, with one RM equal to 1,000 billion paper Marks.

Market economy, the free or unhampered. A pure or unhampered (i.e., free) market economy is an imaginary construction which assumes: (1) The private ownership (control) of the means of production; (2) The division of labor and the consequent voluntary market exchanges of goods and services; (3) No institutional interferences with the operation of the market processes which generate prices, wage rates and interest rates which reflect the actual conditions of supply and demand for all goods and services; (4) A government, the social apparatus of coercion and compulsion, which is intent on preserving market processes while protecting peaceful market participants from the encroachments of those who would resort to the threat or use of force or fraud.

B. 36-39; HA. 237-39; 0G. 48-51, 61, 64, 182, 246-47, 284-86.

Market economy, the hampered. A market economy in which the government interferes with the marketing processes by orders and prohibitions which divert the production of wealth from those channels which reflect the first choices of market participants. In short, the government does not limit its activities to the preservation of the private ownership (control) of the means of production and the protection of market participants from the encroachments of those who resort to the threat or use of force or fraud. See "Interventionism."

HA. 716-861; OG. 247-49, 284-86.

Market process. The voluntary and peaceful complex interaction of men deliberately striving toward the best possible removal of human dissatisfaction. The leadership in the process is assumed by promoters, speculators and entrepreneurs competing for the profits awarded to those who prove themselves superior in providing the most valued means for satisfying human desires. Every step in the market process depends on human decisions so that there is nothing automatic or mechanical in the process. By an inseparably interrelated series of human actions the market process determines the price structure of the market, the allocation of the factors of production and the share of each participating individual in the combined result.

HA. 333-38; also PLG. 65-91.

Marxism. The socialist theories of Karl Marx (1818-1883) and his collaborator and financial backer, Friedrich Engels (1820-1895). See Das Kapital. For an elaboration and comparison with other brands of socialism, see Mises' Socialism: An Economic and Sociological Analysis. [Liberty Fund e-text.

AC. 67; B. 57-58, 87, 98-100, 108; HA. 5,9,74-79,244-50235,265,267,582,616616, 674-75,693-95,865-66,877; OG. 59, 70, 112, 150-55; PF. 95-101, 159; TH. 102-58; also PLG. 31-39, 49, 109, 116-17, 175, 288.

Materialism. This term is used in two different senses: (1) The mentality of those who prefer material wealth, bodily comforts and sensuous pleasures over the "higher" intellectual and "nobler" spiritual aspirations of men; (2) The doctrine that all changes are brought about by material entities, processes and events, and that all human ideas, choices and value judgments can be reduced to material causes which one day will be explained by the natural sciences.

HA. 17,154,193,216; TH. 75,94,152; UF. 28-33.

Material productive force. A Marxian concept, or perhaps catchword, that Marx never adequately defined. Marx regarded the stage or conditions of production not only as a fact entirely independent from human thought but also as the determinant of human thought and social conduct. See "Le moulin. . . " (above).

AC. 36-37; HA. 79-80,141-42; S. 302-03, 352-54; TH. 106-12; UF. 30-33.

Mathematical economics, or Mathematical methods of economics. The attempts to express or develop economic truths by means of mathematical formulas, equations or expressions which reflect a mechanical constancy in human actions and reactions that is contrary to the known nature of man. Often such attempts merely depict imaginary states of equilibrium, or nonaction, rather than the unmeasurable processes whereby individuals select, pursue and alter their actions, goals and value judgments, each in his own way as he is differently motivated at different moments. The processes of the market (see "Market process"), which are directed by the processes of the human mind, are grading, preferring, choosing, exchanging and setting aside, amidst ever-changing conditions of human understanding and physical availabilities. Since these processes are mental, qualitative and unmeasurable rather than automatic, mechanical or measurable, they are not subject to mathematical presentations which are always quantitatively precise, but unable to portray qualitative differences.

While mathematical presentations may possibly help in depicting certain market tendencies, as in the use of supply and demand curves, it must be realized that all mathematical representations which do not stand for historical data are merely imaginary assumptions about which there can be no certainty as to whether or not they represent present or future reality. Mathematical methods are based on unscientific assumptions, give false impressions of precise reality and too often divert attention from the logical solution of economic problems. Each such problem can only be solved by the selection of the successive steps that must be taken over a period of time in order to attain a realizable desired goal in a world in which the uncertainties of the future cannot be known or presented mathematically in advance. See "Econometrics," a branch of mathematical economics, and "Quantitative economics."

EP. 116-18, 165; HA. 250, 256,333,350-57,377-79,399,701-03,710-15; PF. 148-49; UF. 4; also PLG. 42, 46-47, 61.

Mediate. Indirect; means to; cause of; intermediate step to; intervention leading to.

Mediatized families. Families of the princes and counts of the Holy Roman Empire who since the thirteenth century had step-by-step acquired a quasi-sovereign position in their territories and then were deprived of this quasi-sovereign position early in the nineteenth century. However, they retained their titles and certain minor privileges until the end of World War I. See "Standesherr."

Medieval scholasticism. The intellectual speculations and doctrines of the leading philosophers of the Middle Ages, roughly 800-1400 A.D. Their main discussions revolved around such controversies as the reality of universals (nominalism [q.v.] vs. realism), man's free will (determinism vs. indeterminism) and the compatibility of logic with Christian theology (reason vs. revelation). The most noted medieval scholastic, or schoolman, was St. Thomas Aquinas (1225-1274), a moderate realist.

Medium (media, pl.) of exchange. Any good, such as money (q.v.), which people seek for use in exchange rather than for consumption or use in production. A highly marketable good for which one first exchanges his less marketable wares or services so as to be able to offer a more acceptable good to the sellers of goods and services one seeks to buy. Any good which, because of popular acceptance, serves to facilitate indirect exchange (q.v.).

HA. 208-09,398,401-02,462-66,780; M. 29-34; also PLG. 141-44, 153-54, 163.

Meliorism. The belief that both the morals and the reasoning powers of the masses are essentially sound so that with the innovation of democratic government their good judgment will inevitably make the world an ever better place for mankind in that all future changes will be progressive steps toward social perfection.

HA. 191-93,693-95; TH. 171-73.

Menshevik, (Russian). Literally "a member of the minority." A member of the Russian Social Democratic party who, for the realization of socialism, advocated less violent and more democratic methods than those advocated by the Bolsheviks (q.v.) from whom they split in 1903. After the November 1917 Russian Revolution, the one-party Communist dictatorship established by the Bolsheviks suppressed all opposition movements, including that of the Mensheviks.

S. 547.

Mercantilism. The theories of some sixteenth and seventeenth century writers based on the belief that the gain of one man or one nation must represent the loss of another and that the precious metals were always the most desirable form of wealth. In an attempt to increase a nation's wealth, they advocated the national regulation of foreign trade in a manner they thought would increase merchandise exports and hamper merchandise imports, thus creating an inflow of the precious metals. This is still called a "favorable balance of trade." The nineteenth and twentieth century advocates of such policies are called neo-mercantilists. See "Balance of payments."

HA. 53,451-52,456,664; TH. 30, 297.

Mercenaries. Professional soldiers and soldiers of fortune who serve the country offering them the highest pay. Also, soldiers who serve a country other than their own for money.

Metalogical. Beyond the scope or province of logic.

Metamorphosis. Transformation, with the implication that the change is so abrupt and extreme that it is made as if by magic.

Metaphysics, (from the Greek). Beyond or after physics. The area of human thoughts and convictions that lie beyond the realm of scientific human knowledge and experience and therefore in the realm of beliefs, creeds, intuition, theology or supernatural revelation. Such thoughts or convictions are incapable of scientific proof and frequently, although not always, of disproof.

EP. 49; HA. 25-26,32,146-53.

Methodenstreit, (German). A dispute, argument or controversy over methods; specifically, the controversy over the method and epistemological character of economics carried on in the late 80's and early 90s of the nineteenth century between the supporters of the Austrian School of Economics (q.v.), led by Carl Menger (1840-1921), and the proponents of the (German) Historical School (q.v.), led by Gustav von Schmoller (1838-1917). The Historical School contended that economists could develop new and better social laws from the collection and study of statistics and historical materials. Their thought dominated German universities in the last half of the nineteenth century. This led to the ridicule of "liberal" (q.v.) economics in the universities. It thus assisted the growth of state or socialist planning which in turn paved the way for Nazi (q.v.) ideas.

AS. 27-34; EP. 72, 107, 123-24, 139-40.

Middle Ages. The period roughly from the fifth to the fifteenth centuries A.D., that is, from the fall of Rome in 476 A.D. to the fall of the Byzantine Empire in 1453, the invention of the printing press by Johann Gutenberg (1400?-?1468) and the discovery of America in 1492 by Christopher Columbus (1451-1506). During most of this period the leaders of the Roman Church considered the taking of interest (usury) unjust. This period, particularly the earlier part of it, is also known as the Dark Ages because of its intellectual and economic stagnation.

Mir, (Russian). A rural peasant village or community. In Russia before the modern reforms, the serfs of the Crown and those of some nobles lived in Mirs, where they elected their village assembly or council responsible for the collection of rent and taxes. When serfdom was ended in 1861, the government reimbursed the land-owning nobles and assigned title to some of the land to the Mirs which were required to make long term payments to the government. The land was thus owned in common by the peasants of the Mir, each of whom was assigned a plot of land to farm. The village assembly elected an elder who administered tax collections and from time to time allocated the commonly owned land among those entitled to farm it. The system failed to sustain the growing population and was abolished in 1906.

Modern theory of value. In Mises' terminology, the value theory generally known as the "Marginal theory of value" (q.v.) or "Subjective theory of value" (q.v.).

Molar. In mechanics: Pertaining to a mass or body as a whole, as opposed to molecular; acting as an aggregate unit and not as a group of separate parts.

Moloch. In the Old Testament of the Bible, the supreme deity of Semitic heathenism whom the men of Judah once appeased by the sacrifice of their dearest possession, their own children. Hence, any evil and vicious doctrine which requires the sacrifice of human lives.

Monetary theory of the trade cycle. The Mises explanation of the trade cycle (q.v.) showing how credit expansion (q.v.) creates a "boom" which makes an ensuing readjustment period inevitable. This readjustment period is popularly known as a "depression" (q.v.). See Human Action, Chapter XX, pp. 538-86, particularly Sections 8 and 9, pp. 571-86. For a more detailed analysis, see Mises' The Theory of Money and Credit, Murray N. Rothbard's America's Great Depression (Princeton, N.J.: Van Nostrand, 1963; Los Angeles: Nash Publishing, 1972) and PLG. 175-293.

Money. The most commonly used medium or media of exchange (q.v.) in a market society. A community's most marketable economic good, which people seek primarily for the purpose of later exchanging units of it for the goods or services they prefer. The circulating media most readily accepted in payment for goods, services and outstanding debts. Money is an indispensable factor in the development of the division of labor and the resulting indirect exchanges on which modem civilization is based. For the different types of money, see "Money in the broader sense," "Money in the narrower sense" and "Money-substitutes."

Ch. XVII (pp. 398-478)">; M. 29-34, 50-67, 79-90; also PLG. Ch. V (pp. 141-74), 183-84.

Money-certificate. In essence, a negotiable warehouse receipt for deposited money. A claim to a specific quantity of commodity money (q.v.) for which the issuer or his agents maintain a 100% reserve of commodity money which is payable on demand and surrender of the certificate. Money-certificates are money-substitutes (q.v.) and money in the broader sense (q.v.). However, the certificates and the reserves held against them are considered one and the same quantity of money and should not be counted twice in arriving at the total quantity of money.

HA. 432-33,435; M. 133-34, 483.

Money in the broader sense. Everything commonly used as money or readily convertible to money at face value. Money in the narrower sense and all money-substitutes (q.v.), including token money and fiduciary media. NOTE: While the term "money in the broader sense" includes both money in the narrower sense and all forms of money-substitutes, the quantity of money in the broader sense excludes any duplication of claims to money in the narrower sense and such money in the narrower sense that is held as a reserve against such claims. Money in the broader sense is the basic economic definition of money, as distinguished from legal definitions. It is the sense in which the term "money" is used in discussions of the problems of catallactics (q.v.) and the money relation (q.v.).

HA. 428-44,448-50; M. 50-67, 482-83.

Money in the narrower sense. Money proper as distinguished from commonly used money-substitutes (q.v.). It includes the following: commodity money (gold coin), credit money (claims to money not readily redeemable) and fiat money (money solely by reason of law) when commonly used as media of exchange. It does not include the following: token money (minor coins), money-certificates (redeemable claims to money) and such fiduciary media (q.v.) as bank notes and deposits against which the monetary reserves are less than one hundred percent. Money in the narrower sense is more a legal than an economic category.

HA. 428-34; M. 50-62, 482-83.

Money proper. See "Money in the narrower sense."

Money relation. The relation between the demand for money (cash holdings in the broader sense) and the quantity of money (in the broader sense). Every change in either the demand for money or the quantity of money alters this relation and sets in motion forces which step by step change individual prices and the complex of production, while making some individuals richer and some poorer. Each such change also affects market interest rates. When the force has spent itself and is not able to affect any further changes, the final result of every change in the money relation is an altered interrelationship of individual prices (price structure).

HA. 411-32,458-62,548-50; M. 123-65.

Money-substitutes. Claims to money convertible at face value on demand. Anything generally known to be freely and readily exchangeable into money proper, i.e., money in the narrower sense, whether or not a legal requirement to do so exists. Money-substitutes include token money (minor coins), money-certificates (issuer maintains 100% reserves in money proper) and fiduciary media (issuer maintains less than 100% reserves in money proper). Fiduciary media in turn include both banknotes and bank deposits subject to check or immediate withdrawal. Money-substitutes serve all the purposes of money proper. They are part of money in the broader sense and a factor in the consideration of all catallactic problems as well as those affecting the money relation (q.v.).

HA. 427427, 432-44,448-50,464,472; M. 50-59, 482-83.

Mongol, Mongolian. Originally a native of Mongolia, Asia. In the twelfth and thirteenth centuries the Mongols conquered most of Asia and Eastern Europe. (See "Tartars." ) Mongols are one of the five species of mankind. (See "Caucasian." )

S. 555.

Monism. The doctrine that both mind and matter can be reduced to one substance or ultimate reality.

HA. 17,25,716; UF. 115-24.

Monometallism. A monetary system which uses only one metal as the standard money and in which the monetary unit is defined as a specified weight and fineness of that metal. An example is the gold standard (q.v.).

Monopoly, monopolist. These terms have two distinctly different meanings: (1) A state of affairs in which an individual or group of individuals has the exclusive control of one of the vital conditions of human survival. In this situation, the monopolist is the master and the rest are slaves. It is the pattern of the socialist state (see "Socialism") and has no reference to a market economy. (2) A state of affairs in which an individual or a group of individuals has the exclusive control of the supply of a definite commodity or factor of production. In this sense, every market participant is a monopolist if the commodity or service he offers cannot be exactly duplicated by a competitor. Such a monopoly is of no importance unless market conditions permit the monopolist to charge monopoly prices (q.v.), which they rarely do without government interventionism (q.v.).

HA. 277-78,358-79,383-87,680-81; OG. 70-78, 248, 284; also PLG. 94-95, 98-99, 173.

Monopoly gain. The income or increase in net worth earned by a monopolist in a position to charge monopoly prices.

HA. 360-61,363-65,368-69,371-76,378,383.

Monopoly price. The price which emerges when a monopolist (q.v.) gains more from selling a smaller quantity of his monopolized good than he would from selling a larger quantity at a lower price. In the absence of a monopoly, competitors prevent the emergence of a monopoly price by offering larger quantities for sale at lower prices. However, the existence of a monopoly does not always permit the emergence of monopoly prices since the higher price often reduces net proceeds, as well as sales. Monopoly prices yield monopoly gains?not profits. See "Entrepreneurial profit and loss." Monopoly prices are usually, but not necessarily always, the result of interventionism (q.v.).

HA. 278,357-79,383-87,680-81,766-67; OG. 70-78, 248; also PLG. 94-95.

Montaigne dogma. The dogma of the French essayist, Michel Eyquem de Montaigne (1533-1592) that the gain of one man is the loss of another and that no man makes a profit except at the expense of another. He also held that the same principle applied to trade between nations.

Morbific. Causing or producing disease.

Mutatis mutandis, (Latin). The necessary changes being made; with due alteration of details.

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