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This essay first appeared in the journal Literature of Liberty: A Review
of Contemporary Liberal Thought,
vol. V, no. 3, Autumn 1982, published by the Cato Institute (1978-1979) and
the Institute for Humane Studies (1980-1982) under the editorial direction
of Leonard P. Liggio. Although the editorials were unsigned, they were probably
written by the Editor Leonard P. Liggio or the Managing Editor John V. Cody.
It is republished with thanks to the original copyright holders.
In Vienna, prior to, during, and just after World War I, Ludwig von Mises (1881-1973)
was attaining his full intellectual maturity. For a liberal like Mises these
were truly lamentable years. The years from the early 1890s to 1920 constituted
perhaps the most retrogressive watershed in the history of Western civilization.
They were the years during which the grand liberal system of the Nineteenth
Century was overthrown and transformed into Twentieth-Century statism. Saddened,
but undaunted, Mises would spend the rest of his life championing the noble
but forsaken cause of liberty and liberalism.
By the last decade of the Nineteenth Century, signals were clear that the beginning
of the end of the liberal era was at hand. The liberating forces that had been
advancing for more than two centuries were grinding to a halt. The New Imperialism,
preparation for militarism, and protectionism were replacing both the principles
and reality of international peace and free trade. Neomercantilism was being
reconstructed around the globe.
The liberals knew that the unprecedented prosperity yielded during the heyday
of liberalism depended on implementing the free trade plank of the liberal platform.
As Mises never tired of pointing out, necessarily central to the free trade
system is a sound monetary mechanism to facilitate the policy of free trade.
Free trade, sound money, and prosperity are mutually interdependent parts of
a single policy.
To pay for military build-ups and for the burdens of neocolonialization, governments
around the world resorted to inflation. Governments and the bankers were once
again drawn together into a Neo-Mercantile symbiosis. Inflation, as it always
has a way of doing, led to protectionism. Sound money and free trade were left
hanging in the balance. The final and decisive blow against the classical liberal
order in general and against the international trade and monetary mechanism
(the gold standard) in particular was delivered with a vengeance by the Great
In the blink of an eye, it was all but gone. The Rights of Man, Peace, Prosperity
- all these and the rest of the honored liberal agenda - lay prostrate and smoldering
among the ghastly ruins on the battlefields of Europe.
Unfortunately, nearly all of Twentieth-Century history flows directly from
this monumental misfortune. The Versailles treaty, the Bolshevik revolution,
run-away inflation, the rise of fascism, the Great Depression, exchange controls,
autarkic trading blocs, the destruction of international trade and its monetary
mechanism (the gold standard), the Second World War, the Cold War - this entire
brood of evils emanated from World War I. At every turn, statism; and at every
turn Mises was there to debunk and refute each statist measure and more particularly
the collectivist philosophy that lay behind the interminable measure-after-measure
of statist intervention.
Even before the Great War, Mises had achieved a significant measure of international
acclaim with the publication of his Theory of Money and Credit (1912).1
In it, Mises performed the monumental task of, in effect, completing the subjectivist
revolution in economic theory by unifying all economics into a general microeconomic
framework. Mises demonstrated that there is no realm of so-called macroeconomics
separate from micro theory, one which requires a separate policy. The policy
in all areas of economics, as Mises showed, must be laissez faire across
the board and with no exceptions. This means a total separation of public finance
from the banking industry. It means there must be no central bank to service
the desires of the government's treasury department. It means a policy of free
Matters of money and monetary theory were to remain of central concern to Mises
throughout his long and distinguished career. As an economist, Mises knew that
money was the life blood of an advanced, progressive, industrialized economy.
Without a sound monetary system, an advanced industrialized economy could not
for long function. (On this see Mises' critique of central economic planning
under socialism in his seminal 1920 article "Economic Calculation in the Socialist
Mises knew that sound money served as the necessary core of the international
division of labor and international trade mechanism. As an economist and historian,
Mises realized that the gold standard was not the creature of governments, but
rather had developed through centuries of expanding international commerce and
trade. The gold standard was the free market's spontaneous answer, via commercial
and merchant banking practices, to the international market's trade needs.
As a liberal, Mises saw the gold standard, along with constitutions and bills
of rights, as an integral element in the Classical Liberal political program
for protecting the people from the avaricious designs of governments. To a very
considerable degree, a hard money policy, kept at a minimum the relationships
between public finance and national banking systems; it forced the governments
of the world to refrain from tampering too terribly much with the people's money
through inflation. During the height of the gold standard, if governments wanted
to gain more control of the people's wealth they had to resort to naked taxation
for redistribution and not hide behind the monetary veil of inflation. Sound
money was every bit as much a protection of civil liberties as was the right
of free speech or of assembly. As such, it was an irritating impediment to governments
everywhere, and sound money was one of the first building blocks in the liberal
edifice to be ruthlessly discarded by all governments during this period.
Mises' first detailed written reflections as a liberal social and political
analyst (as distinct from an economist narrowly defined) were published in 1919
in an extraordinarily prescient and just recently translated work, Nation,
State and Economy. According to many, it ranks with J. M. Keynes' The
Economic Consequences of the Peace as the most prophetic and sound liberal
analysis of the causes and consequences of the war.3
Nation, State and Economy is replete with social, political, and economic
insights, many that would occupy Mises' attention during the following half
century: the causal interrelationships between private property, the division
of labor, free trade, and peace; the absurdities and inadequacies of socialism
as a mode of social and economic organization; and, most importantly for our
purposes, Mises extended his lifelong investigations into the distorting effects
that inflation has on the real structure of production. In this work he is particularly
interested in exposing the distorting effects of inflationary-financed military
From immediately after the World War to the end of his life Mises never stopped
calling for monetary reconstruction and reform. In the long run, for Mises,
the most deleterious effect of the war was destruction of the international
monetary order. Without sound money there could be no serious hope of disciplining
governments to keep them within the bounds of their budgets. In short, Mises
foresaw that, without sound money, the Twentieth Century would become an Age
Throughout the 1920s Mises, among many other things, continued his investigations
into the relationships between changes in the money supply and the capital structure.
This work culminated in 1928 with the publication of Mises' full fledged theory
of the Trade Cycle in Monetary Stabilization and Cyclical Policy.4
His theory was a brilliant combination of his own work in monetary theory with
key contributions found in the works of Wicksell and Boehm-Bawerk. This theory
was then taken over by Mises' most famous student, F. A. Hayek, and expanded
and developed into what is now known as the Austrian theory of the trade cycle.
With the publication of Nation, State and Economy in 1919, Socialism
in 1922, Liberalism in 1927, and Critique of Interventionism in
1929, Mises established himself not only as a great economist but also as a
political philosopher and social analyst of the first order.5
But perhaps more than anything, by the late Twenties Mises was well established
as the voice of uncompromising liberalism in Europe.
But, as fate would have it, the Thirties were not good times for liberals or
liberalism. The Great Depression served as a magnet to draw statist bromides,
policies, and exponents from out of the woodwork. Keynesianism swept the English
speaking world just as Fascism swept the Continent. The intransigent and prolific
Mises never ceased in his warnings or in championing his liberal cause, but
few were willing to listen. By the mid-Thirties, Mises had to flee his beloved
Vienna for Geneva, where he set to work on what was to become his major theoretical
work in economic science, Nationaloekonomie (1940), later to be reworked
into the major English treatise, Human Action (1949).6
As the second European conflagration began, Mises and his wife Margit left Geneva
for America, where they would spend the rest of their lives.
Although Mises' reputation, along with liberalism in general, waned considerably
during the Thirties and Forties, his influence can nevertheless be seen in postwar
Europe. Italy's most successful President, Luigi Einaudi, was strongly influenced
by Mises as were Wilhelm Roepke and Ludwig Erhard (the masterminds behind the
economic Miracle in West Germany), and Jacques Rueff, who presided over the
1959 currency reform in France.
It is perhaps true that Mises' long-run intellectual leverage is greater now
than at any time in his own lifetime. Hundreds of young economists and neo-liberals
are now hearing about Mises and reading his numerous works. The Mises resurgence
is a part of a wider resurgence of interest in both Austrian economics and liberal
political economy that began a decade ago and shows no signs of receding.
As has been pointed out in this editorial, central to Mises' economic and liberal
thought was his abiding interest in monetary reform in general and free banking
in particular. We are pleased to help facilitate this dialogue by publishing
the first of what we hope will be several essays on money and monetary reform.
Finally, in honor of last year's Mises centenary [Editor: 1981], we should
like to remind the reader of some of Mises' most important and lasting contributions
to economic science and liberal thought:
(1) On Monetary Theory: The Theory of Money and Credit; On the Manipulation
of Money and Credit.
(2) On Liberal Thought: Nation, State and Economy; Liberalism.
(3) On Social Theory: Socialism; Bureaucracy.
(4) On Political Economy: Critique of Interventionism; Planning for
Freedom; Omnipotent Government.
(5) On Economic Method: Epistemological Problems of Economics; The
Ultimate Foundation of Economic Science; Theory and History.
(6) On General Economic Theory: Human Action.
 The Theory of Money and
Credit (1912), trans. H.E. Batson (Indianapolis: Liberty Fund, 1981).
 "Economic Calculation
in the Socialist Commonwealth" (1920), in Collectivist Economic Planning:
Critical Studies on the Possibilities of Socialism, ed. Friedrich A. Hayek
(1933) (Clifton: Augustus M. Kelley, 1975), pp. 87-130.
 Nation, State, and Economy:
Contributions to the Politics and History of Our Time (1919), trans. Leland
B. Yeager (New York University Press, 1983). John Maynard Keynes, The Economic
Consequences of the Peace (1920), ed. Robert Lekachman (New York: Harper
 "Monetary Stabilization
and Cyclical Policy," (1928) in On the Manipulation of Money and Credit
(Dobbs Ferry, N.Y.: Free Market Books, 1978), ed. Percy L. Greaves.
 Nation, State, and Economy:
Contributions to the Politics and History of Our Time (1919), trans. Leland
B. Yeager (New York University Press, 1983). Socialism: An Economic and Sociological
Analysis (1922), trans. J. Kahane (Indianapolis: Liberty Fund, 1981). Liberalism: A Socio-Economic Exposition (1927), trans. Ralph Raico (Kansas
City: Sheed Andrews and McMeel, 1978). A Critique of Interventionism: Inquiries
into the Economic Policy and Economic Ideology of the Present (1929), trans.
Hans F. Sennholz (New Rochelle: Arlington House, 1977).
Theorie des Handelns und Wirtschaftens (1940) (Muenchen: Philosophia
Verlag, 1980) which later became Human Action: A Treatise on Economics (Yale
University Press, 1949).
John Maynard Keynes, The Economic Consequences of the Peace (1920),
ed. Robert Lekachman (New York: Harper Torchbooks, 1971).
Ludwig von Mises (1881-1973)
- The Theory of Money and Credit (1912), trans. H.E. Batson (Indianapolis:
Liberty Fund, 1981).
- Nation, State, and Economy: Contributions to the Politics and History
of Our Time (1919), trans. Leland B. Yeager (New York University Press,
- "Economic Calculation in the Socialist Commonwealth" (1920), in
Collectivist Economic Planning: Critical Studies on the Possibilities of
Socialism, ed. Friedrich A. Hayek (1933) (Clifton: Augustus M. Kelley,
1975), pp. 87-130.
- Socialism: An Economic and Sociological Analysis (1922), trans.
J. Kahane (Indianapolis: Liberty Fund, 1981).
- Liberalism: A Socio-Economic Exposition (1927), trans. Ralph Raico
(Kansas City: Sheed Andrews and McMeel, 1978).
- "Monetary Stabilization and Cyclical Policy," (1928) in On
the Manipulation of Money and Credit (Dobbs Ferry, N.Y.: Free Market Books,
1978), ed. Percy L. Greaves.
- A Critique of Interventionism: Inquiries into the Economic Policy and
Economic Ideology of the Present (1929), trans. Hans F. Sennholz (New
Rochelle: Arlington House, 1977).
- Epistemological Problems of Economics (1933), trans. George Reisman
(New York University Press, 1976).
- Nationaloekonomie: Theorie des Handelns und Wirtschaftens (1940)
(Muenchen: Philosophia Verlag, 1980) which later became Human Action:
A Treatise on Economics (Yale University Press, 1949).
- Bureaucracy (1944) (New Rochelle, N.Y.: Arlington House, 1969).
- Omnipotent Government: The Rise of the Total State and Total War
(1944) (New Rochelle, N.Y.: Arlington House, 1969).
- Planning for Freedom and Twelve Other Essays and Addresses (1952)
(South Holland, IL.: Libertarian Press, 1974).
- Theory and History: An Interpretation of Social and Economic Evolution
(1957) (New Rochelle, N.Y.: Arlington House, 1969).
- The Ultimate Foundation of Economic Science: An Essay on Method (1962),
ed. Israel M. Kirzner (Kansas City: Sheed Andrews and McMeel, 1978).
- The Selected Writings of Ludwig von Mises, ed. Richard M. Eberling
(Indianapolis: Liberty Fund, 2000) 3 vols.