When is someone considered a genius? The German philosopher Schopenhauer described a genius as a marksman who hits a target others cannot even see. In other words, a genius will often be acknowledged only in a distant future that extends beyond his own life, when others finally see the target the genius aimed at. Vincent van Gogh, for example, was never really considered a genius during his lifetime. Neither was Ludwig von Mises. But both were far ahead of their time. Mises is the Vincent van Gogh of economic science.
Nowadays, Van Gogh receives unanimous praise. The contributions of Mises are, on the other hand, still heavily underappreciated. The crown on the work of this Austrian virtuoso came nevertheless one year after his passing away. His loyal disciple, Friedrich Hayek, won the Nobel Prize in Economics for his elaboration of the theory of the business cycle. A theory that was first formulated by Ludwig von Mises. It was one of the many targets that Mises metaphorically hit, right into the bulls-eye, but that still remains out of sight of many other economists. Hayek wrote later that: “There is no single man to whom I owe more intellectually.”
You can judge the genius of Mises yourself. By reading his magnum opus, Human Action, you will undoubtedly view the world from a new perspective. Human Action is a rare masterpiece. I urge you to study this intellectual treasure carefully. My own conclusion is that Mises was indeed a genius, someone far ahead of his time. Just as Vincent van Gogh. I challenge you to reach your own conclusion.
At age 35, Van Gogh was suffering from hunger and was living in deplorable poverty. Two years later he would even commit suicide. He painted 2,000 works; he would sell only two of them during his life. They yielded a shabby $109 dollars. Exactly one century later, one of his paintings, the portrait of Dr. Gachet, would be sold for an astonishing $82.5 million dollars. Today the experts all agree: Van Gogh was a genius of his time, a pioneer. Sometimes it takes a little while before a true genius is recognized and appreciated.
How similar was Ludwig von Mises! This Austrian economist felt at times just as lonely as the now world-famous Dutch painter. He was never offered a paid position as a professor. He was an intellectual einzelgänger [German: maverick]. In Austria he was surrounded by scholars with sympathy for the socialist tradition who often only acquired their position due to political reasons. Mises gave, besides his work at the Austrian Chamber of Commerce, unpaid classes at the University of Vienna. When Nobel Prize winner Friedrich Hayek came as a recent graduate to Mises with a letter of recommendation by Von Wieser, he remarked stoic: “Promising economist? I’ve never seen you at my lectures.” It was then that Hayek found out about the informal seminars that Mises held, in which many prominent scientists took part. These meetings were the scarce rays of light in the life of the Austrian economist.
The life of Mises was a constant upward battle. A fight between David and Goliath. A journey marked by storm and thunder. While socialist views dominated Europe and Austria, he was one of the few critics that publicly opposed the popular socialist ideology. When he showed that socialism would be impossible due to the calculation problem, i.e., without market prices there is no rational way to know what, how, when, and how much to produce, he paid dearly with an ongoing exclusion from the academic world.
Later he would take off to Switzerland and provide guest lectures at the University of Geneva. After a renewed period of giving classes for no pay, Mises and his wife were forced to flee from Europe. A friend warned him through a telegram that made clear that he was put on a blacklist by the Nazis and that he needed to fear for his life. Many valuable pieces of work by Mises were destroyed. As the Germans marched further inland and held Europe in despair, Mises was on the boat to the promised land: the United States.
In the U.S., he was again completely ignored. As Keynesianism and interventionism were flourishing, not a single university would dare to hire Mises. Eventually he was given the opportunity to become a visiting professor at the University of New York. His salary, however, had to be paid out of the pockets of two business owners who did recognize the genius of Mises and shouldered the burden out of charity.
The continuous lack of acknowledgment and appreciation left, as it did with Van Gogh, severe marks on Mises. One day he whispered to his wife that if it was not for her, “he would have no reason to continue to live.” He became depressed and embittered. He would eventually pass away with little notice after a ceaseless struggle of 92 years. Ludwig von Mises died as a poor man. Just as Van Gogh, he didn’t leave an inheritance in dollars, but he did leave a legacy through his many masterpieces that would continue to be revered far after his dead.
His book Human Action includes almost all intellectual contributions made by Ludwig von Mises. When one of his disciples was told that Mises was writing a book, he asked: “What is the book about?” The answer was revealing: “Everything.” Everything? Yes, everything.
My beloved professor in Madrid, dr. Jesús Huerta de Soto, once casually mentioned that every paragraph of this book contains enough original and groundbreaking ideas that you could write at least two doctoral theses about its contents. This book can justifiably be called the crown on Mises’ life.
The valuable ideas presented in this book are countless. You can find out why socialism and every form of central planning are doomed to fail. You can learn how the banking system leads to systematic recessions. You can learn how inflation benefits certain persons at the expense of others. You can discover why the methods of the natural sciences are unsuitable for the social science of economics. You can see why protectionism and protectionist policies are futile. You can find out how many interventionist policies lead to unintended consequences and are, as a result, ineffective. You will read how the arguments of Marx are entirely refuted point by point. You will learn why bailouts to insolvent companies and banks are a dead-end.
You can read a book about people and how they act. Not about a homo economicus. Not about soulless, mechanic creatures that always act and react in exactly the same manner. Not about assumptions that have nothing in common with reality. Nor about omniscient and omnipotent beings. Mises was the first to recognize that human beings are not flawless, perfect, or infallible. Mises’ Human Action is about the being and all of his whims and fancies.
It is strange that the lessons taught by Ludwig von Mises and his predecessors, such as Carl Menger and the, unfortunately forgotten, Dutch economist Nicolaas Pierson, are widely ignored today. Even while Mises’ track record is absolutely flawless, the “Austrian school” appears to be the thirteenth floor of an American skyscraper.
During the ’30s of the past century, he argued that socialism was impossible. When Mises gave a lecture at Harvard, nobody even wanted to listen to his arguments. The rather firm socialist Robert Heilbroner, author of the second best sold economics book ever, was one of the listeners. Fifty years later he would admit that he was wrong. About the impossibility of socialism he said: “It turns out, of course, that Mises was right.”
After the collapse of the Soviet Union, many scholars finally considered Mises’ arguments to be valid. Before he was given his due credits, however, he had to witness the sad and unnecessary deaths of over twenty million people. The remark that Joseph Stalin made later was rather peculiar: “The death of one person is a tragedy, the death of a million is a statistic.” Also Friedrich Hayek later declared that the arguments against socialism of Mises were paramount in his conversion from socialism to liberalism. He told that: “Ludwig von Mises had the decisive influence on us [Hayek and his co-students] to cure us from socialism.” The impossibility of socialism was another target that Mises hit flawlessly in the bulls-eye.
During the ’30 at time of the Great Depression, John Maynard Keynes, diametrically opposed to Mises, lost an enormous sum of money on the stock market. He advised investors on October 1929, when share prices were declining, to buy even more shares. In 1932 the stock market reached a bottom, 89% lower than the peak in 1929. Another world-famous economist, Irving Fisher, also saw a large part of his wealth evaporate during the stock market crash of ’29. A mere three days before the collapse he declared: “Stock prices have reached what looks like a permanently high plateau.”
What a contrast with Ludwig von Mises. A year before the depression he was offered a prestigious position at the Austrian Kreditanstalt Bank. He declined. He foresaw a financial disaster en did not want to have his name connected in any possible way with the upcoming downturn. This was another case in which Mises was the marksman that unnoticed shot a target right in the bulls-eye, whereas other economists had no clue about the luring danger.
The valuable lessons of Mises are still very relevant today. The events that preceded the current euro crisis might be seen as a vindication of the intellectual ideas that Mises championed during his lifetime. Since the gold standard was entirely discarded in 1971 with Richard Nixon closing the gold window, refusing to pay any foreign redemptions of dollars into gold, the stage was set for uncontrolled spending by bureaucrats.
Politicians were always bound to the limits set by a relatively fixed amount of gold. Public spending was to be financed by direct taxation or by borrowing on the capital market. Any excesses were clearly visible to the people. But now central bankers are no longer confined by gold’s rigid discipline, and capital markets have witnessed the entrance of an investor with an unlimited wallet: the central bank. At best, they heavily distort prices and their ability to direct production according to the wishes of the consumer, lower the purchasing power of money, and create repeated cycles of boom and bust. At worst, they cause the complete destruction of a currency through hyperinflation: an event that Mises called a Katastrophenhausse, or crack-up boom. The public tries to get rid of their money holdings as quickly as possible, while clinging onto anything that retains its value, especially physical assets.
It is no surprise that Ludwig von Mises favored a pure gold standard without any lender of last resort.
Recently, the European Central Bank has committed itself to the unlimited purchasing of European sovereign debt. Such a policy is the exact opposite of what Mises would have proposed were he still alive.
The Austrian economist always emphasized the importance of monetary calculation, i.e., the calculations that individual entrepreneurs use as a guideline for what and how to produce. In such calculations, entrepreneurs use market prices. They estimate and later evaluate prices, income, and profits. Prices signal to entrepreneurs, especially through anticipated or incurred losses, that they have to alter course. Monetary calculation for entrepreneurs in a market economy is akin to the pole star of sailors at sea.
However, an increasing supply of money severely distorts the ability of entrepreneurs to calculate rationally. Discrepancies arise between what consumers truly demand and what prices are signaling to entrepreneurs. Money loses its function as unit of account due to its instability in periods of quickly rising prices. In the maestro’s own words: “Cash-induced changes in purchasing power of the extent to which they occurred in the last two centuries with metallic money, especially with gold money, cannot influence the result of the businessmen’s economic calculations so considerably as to render such calculations useless. (…) But money with which rapid and big changes occur loses its suitability to serve as a medium of exchange altogether.” Inflation destroys the ability of entrepreneurs to calculate rationally, and inflation is the current policy of European bureaucrats to solve the euro crisis.
The whole-hearted acceptance of the ideas and contributions by Mises is still awaited. The dissemination of his theories is similar to the growth of a bamboo tree. After planting a bamboo tree, you will have to water it for a straight five years, waiting for any signs of life. Then, after five years, the plant will finally start to emerge. Within six weeks it will grow an astonishing 30 meters into the sky. It takes 260 weeks for the bamboo to extend its roots and firmly establish itself below the surface, yet only 6 weeks to reach its full height.
For the time being, the seeds of Mises’ contributions are still under the ground trying to establish a firm footing. The climax will occur when the public finally realizes that you cannot stimulate an economy or create wealth by means of monetary measures, i.e., the manipulation of the supply of money. The climax will occur when people at last realize that savings are the foundation of economic growth, not consumption. The climax will occur when the general public finally embraces the ideas of Ludwig von Mises. When the roots of the tree are deeply grounded, its fruits will grow rather quickly.
I have no doubt that Ludwig von Mises will have his “Vincent van Gogh”-moment in the future. I am certain that one day a majority of “experts” will lavishly praise his contributions. But, meanwhile, we ignore the Austrian economist at our own peril today.
Leave a Reply