Capitalism and von Mises

If you do not know Ludwig von Mises it is probably because you did not receive a good education, or, you were subject to the standard curriculum which ensures that whatever education you receive is none too good.  Beyond a basic introduction to core vocabulary, like “supply and demand,” most students receive no training in economics.   I certainly did not.

How then should the average citizen grapple with the major political and economic issues of the day?  How can we critically evaluate a world in which the defining conflict of the past 70 years was essentially a duel of economic philosophies, collectivism on the one hand, capitalism on the other?

The debates linger today.  To improve our national economy should we pump more government stimulus, or unshackle corporate interests?  Does free trade, like NAFTA, make sense, or should we consider more protectionist policies?  What about inequities in earnings, or control of the means of production, or innovation, or copyrights, competition, and on and on.

Western civilization in the twenty-first century is ascendant.  Across the political spectrum a core set of values has taken root and is shared by the developed nations.  Nominally, all occupants of this world accept basic ideas like freedom of speech, personal pursuit of religion, an abhorrence of violence as a means of control, and base components of judicial due process.  It is on questions of economics that debate spirals, yet so few have read the Wealth of Nations, or even Das Kapital. 

Writing in the 1950’s von Mises saw the coming conflict clearly.  One of the founders of the Austrian School of Economics that influenced classical liberals (like Reagan or Thatcher) and libertarians (like Ayn Rand), Mises was an early mentor of Freidrich Hayek and a forerunner of Milton Friedman.  Von Mises fled Europe to escape the Nazi scourge.   From his perch at NYU his influence grew.

Without the understanding of economics that von Mises spearheaded we are left with broad platitudes, usually uttered by politicians and commentators, about the value of one system over another.  Objectively, this should be fine.  People value the concepts of liberty and protection from meddlesome bureaucrats.  The problem with political rhetoric is that it is too easily corrupted.  Words become twisted, alternate (sometimes hidden) meanings are adopted.  The clever man can obfuscate the common man.  Many clever men intend to.

In capitalism von Mises saw something that would repel many of the typical societal elites.  He wrote that “capitalism deproletarianizes the “common man” and elevates him to the rank of “bourgeois.”” The mechanism is quite simple.  “Those underlings who in all the preceding ages of history had formed the herds of slaves and serfs, of paupers and beggers, became [through capitalism] the buying public, for whose favor the businessmen canvass.  They are the customers who are “always right,” the patrons who have the power to make poor suppliers rich and rich suppliers poor.”

This rise of the working class into a vast middle class necessarily undercut the influence bestowed on a societies aristocrats, be they in political power, among the entertainment elite, or the intelligentsia.  Today political elites rail against Wal-Mart, comedians heap scorn on “fly over country” and NASCAR, the academy denigrates religious institutions, and Hollywood promotes fads and causes anathema to the average family.  Yet the average man and woman thrive, because capitalism has given them – though they lack the bullhorn –  power.

The men of power and prestige, who in another place and time would be heralded as social betters, often develop a sense of resentment at being denied their self-imagined rightful place, says Mises.

“the American scientists are prone to consider the wealthy businessman as a barbarian, as a man exclusively intent upon making money.  The professor despises the alumni who are more interested in the university’s football team than in its scholastic achievements.  He feels insulted if he learns that the coach gets a higher salary than an eminent professor of philosophy.”

Capitalism is above all else an equalizer.  The moral and philosophical case for capitalism rests on the opportunities it provides to elevate ones financial situation.  It diffuses power from an elite cadre across the broad masses, and allows each man to be his own sovereign.

The economic case for capitalism is even more compelling.  Capitalism is superior because it works.  Von Mises demonstrated that without a capitalist economy the true price of an item or service can never be known.  Thus collectivist attempts to set prices, including the price of labor, can never be honest.  Artificial prices lead inevitably to waste, corruption, and inefficiency.  A system of price setting that is not as fluid and organic as capitalism, said Mises, is doomed to eventual failure.

Economist, and long-time advocate for Scandinavian-style socialism Robert Heilbroner, was forced by the collapse of the Soviet Union to concede that “capitalism has been as unmistakable a success as socialism has been a failure. Here is the part that’s hard to swallow. It has been the Friedmans, Hayeks, and von Miseses who have maintained that capitalism would flourish and that socialism would develop incurable ailments.”  They were right all long.  They continue to be right.

Understanding why they were right needs to be part of every persons education, and will provide a meaningful understanding of the events shaping our world.

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3 thoughts on “Capitalism and von Mises

  1. Unfortunately you paint an overly rosy picture. For example, you ignore the fact that recessions are a common feature of capitalism. If capitalism is the only way to know the true price of an item then where did the recent housing and stock market bubble come from?

    Saying the poor rule the market because there are more of them is like saying the poor rule democracy because there are more poor voters. It isn’t that simple.

  2. Government intervention severely manipulated the price of housing. The bubble was completely artificial, making its implosion inevitable. The collapse of the housing market is a perfect example of good intentions interfering with a free market resulting in pain for the very people who were supposed to benefit the most.

    The poor do not rule in a capitalist system, but they, like everyone else, have a seat at the table. Only in capitalism are the poor even considered, and in capitalism they have the best opportunity to rise out of poverty. Look at it this way, in our capitalist society, the average poor household, as defined by HHS, has a home, at least one car, air conditioning, cable television and a mobile phone. By and large, the capitalist poor are head and shoulders above the “middle class” in socialist economies in terms of standard of living.

  3. Government intervention *and* fraud by the financial institutions themselves. In my opinion, approximately 20% the former, 80% the latter, but neither of us is really qualified to prove our beliefs on that. Good essay, and nice to read one from you again on a purely intellectual theme without gratuitous political sniping. Reflecting on your main point, I don’t think I was required to read Smith, Marx or Mises in my freshman economics courses, though in upper-class-level intellectual history courses we did read Weber on the protestant work ethic as well as other consequent discussions on religion and the rise of capitalism by scholars both Christian-socialist and neutral in orientation. On the whole I think those were balanced readings and not themselves items of dogma. I’d say that my advanced courses in the politics department were relatively less sympathetic to the capitalist story than those I took in the history department. That’s interesting in and of itself, now that I reflect on it.

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