Richard Ebeling, “Introductions to the Selected Works of Ludwig von Mises (2000-12)” Part 3

[Editor’s Note: this lengthy piece, by Richard Ebeling, primarily based on the “lost papers” of Ludwig von Mises that he and his wife, Anna,  discovered in a formerly secret KGB archive in Moscow, Russia, is well worth reading as it shows Mises’s brilliance for understanding the problems of his time as well as purely abstract economics.]

Introduction to Volume 3

Ludwig von Mises: The Man and His Ideas

All except one of the essays in this volume were written by Austrian economist Ludwig von Mises in the four years immediately after his arrival in the United States in the summer of 1940 as a refugee from war-torn Europe. Half of them were delivered as lectures. The others were prepared as monographs on special topics. Their general theme is the problem of international reconstruction and reform in the era succeeding the Second World War.[1]

In the Europe he had left behind, Ludwig von Mises had been one of the most celebrated—and controversial—economists of his time. Over the preceding thirty years, he had acquired an international reputation as one of the leading contributors to the Austrian School of economics and as possibly the foremost critic of the collectivist trends of the early twentieth century. In the 1920s, when the appeal of socialism in its various forms was at its zenith, Mises boldly challenged the feasibility of a fully centralized planned economy. He also questioned the long-term stability of an interventionist or mixed economy as a sustainable “middle way” between a free market system and a socialist, centrally planned economy. And he forcefully argued that only a system of laissez-faire capitalism—of genuine capitalism—could successfully assure freedom and prosperity.

At the same time, he developed his analysis of alternative systems of social and economic order in the wider context of a philosophical and methodological approach that ran counter to the Marxist, positivist, and historicist prejudices of the time. He insisted that social analysis had to have as its starting point a general theory of individual human action and choice. It could not be successfully constructed on the basis of mythical racial, class, or nationalistic aggregates.

An understanding of Mises’s arguments on these subjects, as well as his [ix] work as an influential economic policy analyst in the Austria between the two world wars, is essential if one is to appreciate his ideas on postwar reconstruction and reform. In 1920, Mises published “Economic Calculation in the Socialist Commonwealth,”[2] which he expanded into a comprehensive treatise on Socialism in 1922.[3]In 1927, he published Liberalism,[4] which was followed two years later by Critique of Interventionism.[5] In these important books, he offered a detailed and consistent defense of free-market capitalism in opposition to the regulated economy and socialism.

For Mises, one of the greatest accomplishments of mankind has been the discovery of the higher productivity arising from a division of labor. The classical economists’ analysis of comparative advantage—under which specialization in production increases the quantities, qualities, and varieties of goods available to all participants in the network of exchange—is more than merely a sophisticated demonstration of the mutual gains from trade. As Mises was to later express it, the law of comparative advantage actually is the law of human association: The mutual benefits resulting from specialization of activities constitute the origins of society and the development of civilization.[6]

The rationality of the market economy lies in its ability to allocate the scarce means of production in society for the most efficient satisfaction of consumer wants in a complex system of division of labor—that is, to see to [xi] it that the means at individuals’ disposal are applied to the most highly valued uses, as expressed in the free choices those individuals make in the marketplace. Of course, this requires some method of discovering the alternative uses for which scarce means might be employed and their relative value in their competing uses. Mises explained that competitively determined market prices, in an institutional setting of private ownership over the means of production, provide the only reliable method for solving this problem. On the market for consumer goods, buyers express their valuations for commodities in the form of the prices they are willing to pay. Similarly, on the market for producer goods, entrepreneurs express their appraisals of the relative future profitability of using factors of production in manufacturing various goods through the prices they are willing to pay.

Market prices, expressed through the common denominator of money, are what make economic calculation possible. The relative costs and expected revenues from alternative productive activities are compared and contrasted with ease and efficiency. The competitive processes of the market tend to assure that none of the scarce factors of production is applied for any productive purpose for which there is a more highly valued use (as expressed in a rival entrepreneur’s bid for their hire). The value of the goods desired by consumers is imputed back to the scarce means of production through the competitive rivalry of entrepreneurs. Thus the means available in society are applied to best serve people’s ends.

Mises’s crucial argument against all forms of socialism and interventionism is that they prevent the effective operation of this market process and thus reduce the rationality of the social system. The triumph of socialism—with its nationalization of the means of production under government control and central planning—meant the irrationalization of the economic order. Without market-based prices to supply information about the actual opportunity costs of using those resources (as estimated by the competing market actors themselves) decision-making by socialist central planners is inevitably arbitrary and “irrational.” The socialist economy is, therefore, fundamentally anti-economic.

Interventionism does not abolish the market economy. Instead, it introduces various forms of onerous controls and regulations that deflect production from the paths that would have been followed if entrepreneurs, in the search for profits through the best satisfaction of consumer demand, had been left free to fully follow their own judgments concerning the use and disposal of the factors of production under their control. Price controls, [xii] in particular, distort competitively determined relationships between selling prices and cost prices, resulting in severe misallocations of resources and misdirected production activities.

One other major contribution by Mises during his years in Europe was his pioneering work on monetary theory and policy. Before the first World War he published The Theory of Money and Credit(1912).[7] In this book, he applied the Austrian theory of marginal utility to the problem of explaining the value of money on the basis of individuals’ demands for holding cash balances. He also developed a dynamic sequence analysis, enabling him to explain the process by which changes in the quantity of money bring about redistributions of wealth, relative price changes that modify the allocation of real resources among various sectors of the market, as well as how monetary changes introduced through the banking system can distort interest rates in such a way as to generate business cycles. One of the conclusions that Mises reached in his analysis of monetary processes is that business cycles are not a phenomenon inherent in the market economy. Rather, they are caused by government mismanagement of the monetary and banking system. He later restated and refined his arguments relating to monetary policy in Monetary Stabilization and Cyclical Policy.[8]

A wider theme of Mises’s writings in the period between the world wars is the philosophical and methodological foundations of economic science. In a series of essays written in the 1920s and early 1930s he argued that economics belongs to a more general science of human action, which he came to call “praxeology.” He stated that economics begins with the concept of intentionality and purposefulness, and that this makes economics—and its methods of analysis—different from the approaches followed for the study of the physical sciences. At the same time, the logic of action and choice, which economists take as their starting point for [xiii] analysis of market phenomena, has universal properties and characteristics concerning the human condition from which the general laws of economics can be derived. As a result, Mises strongly opposed the highly popular positivist and historicist ideas of his time. The essays in which he developed these ideas on the methodology of the human sciences were published as a collection in 1933.[9]

Besides his writings on capitalism, socialism, interventionism, and the monetary order, Mises also attempted to influence the course of events in Austria as a policymaker. Beginning in 1909, he was employed in the department of finance at the Vienna Chamber for Commerce, Trade, and Industry as an economic analyst. In this capacity he evaluated and made recommendations about various legislative proposals in the areas of banking, insurance, monetary and foreign-exchange policy, and public finance. In the years between the two world wars, he was a senior secretary with the Chamber, enabling him to argue with some authority on the economic policy issues confronting the Austrian government.[10]

A review of documents and memoranda he prepared for the Vienna Chamber of Commerce during the 1920s and early 1930s shows his consistent emphasis on the desirability of freeing the Austrian economy of high taxes and tariffs, foreign-exchange controls, industrial regulation and price controls, and the excessive power of special interest groups, especially trade unions to control labor markets. The general consensus of economists and others who knew Mises during this period is that he was extremely influential in moderating collectivist and inflationary policies in Austria. For [xiv] example, he was instrumental in preventing the full nationalization of the Austrian economy by a socialist government immediately after the end of the first World War. He successfully helped to redirect public and political opinion to bring the Great Austrian Inflation to an end in 1922. And in the aftermath of this monetary disaster, he played an important role in the writing of the statutes and by-laws of the National Bank of Austria, which was reconstructed under the auspices of the League of Nations in 1923.

Mises’s early activities at the Chamber were interrupted in 1914 when his reserve unit in the Austro-Hungarian army was called up for active service in the first World War. For part of the next four years, he served as an artillery officer on the Russian front. Three times he was decorated for bravery under fire. Following the signing of the Treaty of Brest-Litovsk between imperial Germany and Lenin’s new Bolshevik government that ended the war on the Eastern front in March of 1918, Mises was appointed the officer in charge of currency control in Austrian-occupied Ukraine. His headquarters were in Odessa. Later in the same year he was transferred to duty in Vienna to serve as an economic expert for the Austrian General Staff. In this role he was responsible for preparing memoranda on inflation, war industry, war finance, and related issues. With the end of the war, Mises returned to civilian life. Besides his duties with the Vienna Chamber of Commerce, he was appointed in late 1918 as director of the League of Nations Reparations Commission for the settlement of prewar debts and war claims. He held this position until 1920.

In 1913, Mises had been granted the right to teach at the University of Vienna as a Privatdozent, or unsalaried lecturer; in 1918, he was promoted to the title of Professor Extraordinary. Except during the war, he taught a course at the university almost every semester until 1934, thus influencing a new generation of young Viennese and foreign scholars. He also cofounded and served as vice president of the Austrian Economic Society. In 1920, Mises began a Privatseminar, or private seminar, that normally met twice a month from October to June at his Chamber office. This seminar brought together a group of Viennese scholars in economics, political science, philosophy, sociology, and law, many of whom went on to become world-renowned scholars in their respective fields.[11] Almost [xv] to a man, the participants recalled that the seminar was one of the most rigorous and rewarding experiences of their lives.[12]

One other singularly important activity of Mises during this period was his founding of the Austrian Institute for Business Cycle Research in 1926. With the future Nobel laureate, twenty-seven-year-old Friedrich A. Hayek, as the first director, the Institute was soon internationally recognized as a leading center for economic forecasting and policy analysis in Central Europe.[13] Shortly after it was founded the Institute began to be commissioned by the League of Nations to prepare reports and studies on the economic situation in Central and Eastern Europe. When, in 1931, Hayek accepted an appointment at the London School of Economics, another young Austrian economist, Oskar Morgenstern, assumed the position of Institute director. Morgenstern remained the director until 1938, when Nazi Germany annexed Austria. Mises served as the Institute’s vice president until 1934.

In March of 1934, William E. Rappard, cofounder and director of the Graduate Institute of International Studies in Geneva, Switzerland, wrote to Mises in Vienna inquiring if he would be willing to accept a visiting professorship in international economic relations.[14] Mises accepted the appointment and assumed his responsibilities at the Graduate Institute in October of 1934. Shortly after arriving in Geneva, he began a project he had in mind for many years, namely the writing of a comprehensive treatise on economics. Apart from his light teaching responsibilities (one course and one seminar a semester), most of his time during the next six years was devoted to this project. In May of 1940, as Europe was falling under the dark cloud of Nazi occupation, this monumental work,Nationalökonomie, was published in Switzerland.[15] It served as the basis for his later English-language treatise, Human Action, published in 1949.


In June of 1940, Mises resigned from his position at the Graduate Institute. On July 4, he left Geneva for the United States. After a harrowing journey across France and Spain to Lisbon, Portugal, he embarked on an ocean liner on July 24, and he arrived in New Jersey on August 2, 1940.

Mises’s first years in the United States—the period when the essays in this volume were written—were not easy ones. He experienced great difficulty in finding a permanent teaching position, partly because of his age (he was fifty-nine years old when he arrived) and partly because of the intellectual climate that then prevailed. His was a voice for an older classical liberalism and free-market capitalism that was out of step with the popular trends of socialism, interventionism, and Keynesian economics embraced by a large majority of American academics and policymakers.

However, Mises was supported through research grants generously supplied by the Rockefeller Foundation as well as an affiliation with the National Bureau of Economic Research. He completed two works that were both published in 1944: Omnipotent Government: The Rise of the Total State and Total War[16] and Bureaucracy.[17] A third book, written shortly after his arrival in the United States,Government and Business, remained unpublished until just recently, when it appeared under the titleInterventionism: An Economic Analysis.[18]

Not until 1945 was Mises appointed to an academic post as a visiting professor in the Graduate School of Business at New York University, a position he retained until his retirement in 1969 at the age of eighty-eight. During almost a quarter of a century of teaching in the United States, he was able to train a new American generation of “Austrian” economists.[19] He also published a number of significant books, including [xvii] Planning for Freedom,[20] The Anti-Capitalistic Mentality,[21] Theory and History: An Interpretation of Social and Economic Evolution,[22] The Ultimate Foundation of Economic Science,[23] and The Historical Setting of the Austrian School of Economics.[24]

When Ludwig von Mises died on October 10, 1973, at the age of ninety-two, there is no doubt that he left a profound and lasting legacy as an economic theorist and a champion of liberty.

Economic Nationalism in the Period Between the Two World Wars

The catastrophe of the Second World War was, in Mises’s view, the logical culmination of the political and economic policies of the 1920s and 1930s. Having after 1914 abandoned the principles and practice of economic liberalism and free trade, Europe (and the world in general) had created a political environment in which social conflict within countries and war between nations was almost inevitable.

In a social setting of free-market capitalism, in which governments basically confined themselves to the equal protection of each person to his liberty and property before the law, sectional and national conflicts were practically nonexistent. Directed by the incentives of market opportunities, every individual found his place in the social system of division of labor. Labor, capital, and commodities migrated to those places offering the most attractive returns. Production and employment were localized where market profitability suggested the greatest productive advantage.

Moreover, in such a free-market setting, rivalries between competitors [xviii] were private affairs in which their only weapons were cheaper and better products to capture more consumer business. With governments limited to the protection of life and property, national boundaries were merely administrative lines on maps with no economic significance. Men, money, and goods moved freely and unhindered by politically imposed barriers.

In the generally free-market order before 1914, most of the world’s monetary system was based on a market-based commodity: gold. Though governments through national central banks relegated to themselves control over the money supply, they managed the monetary system by the “rules” of the gold standard. The quantity of money was determined by the profitability of gold mining based on the demand for gold for monetary as well as commercial uses. The purchasing power of money was set by the market forces of supply and demand, and only to a relatively limited extent by the manipulations of governments pursuing various and sundry political goals.

It is always easy to look back at earlier times and to picture them nostalgically as “golden ages” from which the present represents a tragic fall. In fact, however, the period before the first World War possessed many of the characteristics summarized in Mises’s conception of a world of free trade and free markets.[25] It is true that even before the first World War destroyed this epoch of classical liberalism, the world had been returning to policies of governmental intervention and trade restrictions, with imperial Germany in the lead.[26] Nonetheless, the era before 1914 was a world characterized by what Gustav Stolper called the epoch of the “three freedoms”: freedom of movement for men, for goods, and for money.[27] In addition, the world enjoyed an unprecedented level of peace. Conflicts and even wars did occur, but, under the classical liberal ideal of individual freedom, private property, and limited government, wars—especially in Europe—were [xix] few in number, short in duration, and restrained in their damage to life and property.[28]

The First World War ushered in an era of economic planning, price and production controls, foreign-exchange regulations, restrictions on international trade, capital movements, and migration, and a flood of paper-money inflations to cover the costs of war. When the war ended on November 11, 1918, the world had to reconstruct the political and economic landscape. The political map of Europe was radically redrawn, with the German, Austro-Hungarian, and Russian empires carved up to make a tapestry of new and differently shaped nation-states in Central and Eastern Europe. But with the emergence of political nationalism came the rise of economic nationalism.[29] Each of the new successor states imposed tariff barriers and artificially stimulated the creation of greater agricultural or industrial sectors in their economies. These policies were enacted through subsidies, monopoly rights of production and sale, import and export regulations and quotas, tax incentives, foreign exchange controls, and restrictions on the free movement of capital and labor.[30]

Each of these nations of Europe considered that political independence required a corollary: economic independence. The ideal of “autarky” —economic self-sufficiency—increasingly became the basis upon which the governments of these countries judged the appropriateness of any economic policy.[31]Domestic and foreign economic policies by one country became the cause for suspicion and planned counter-policy by its [xx] neighbors. Nor did the countries of Western Europe fully return to the freer policies that prevailed before 1914; they, too, retained various forms of the controls that had been implemented during the war. Consequently, a climate of antagonism, fear, and economic warfare came to dominate the arena of international politics.

Furthermore, whereas the gold standard had formed the basis of the monetary system of virtually all major countries before the first World War, in the postwar era monetary nationalism joined economic nationalism as the new currency order of the world.[32] Under the prewar gold standard, a unit of each nation’s currency was fixed as a certain quantity of gold, exchangeable on demand at that ratio at any representative bank. Through this common gold connection, the national currencies of the world were bound into a unitary and international monetary order.[33]

After the monetary chaos of the immediate postwar period, during which some currencies, like Germany’s, were literally destroyed by hyperinflation, there was an attempt to return to monetary stability and a weaker form of the gold standard.[34] Most governments, however, were unwilling or unable to follow the “rules of the game” required under the gold standard. Money was no longer a market-based medium of exchange through which were facilitated the domestic and global transactions of private trade and investment. Instead, money was increasingly viewed as a tool of national economic policy. Money’s domestic purchasing power and external foreign-exchange value were things to be manipulated by governments to further “national purposes.” With the advent of the Great Depression in 1929, these tendencies merely continued and intensified.[35]

There were half-hearted attempts to restore international trade and [xxi] monetary order in the 1920s and 1930s, but they all failed.[36] The forces of political and economic nationalism, the emerging idea of economic planning, the pragmatic politics of interventionist policies to foster the special interests of domestic groups, and the formal abandonment of the gold standard in favor of purely fiat monies exacerbated the disintegration of the international economic order.[37] In the 1930s, governments increased their subsidies and protectionist supports to industry and agriculture, their interference in the management and control of private enterprise, their monetary and fiscal manipulations to influence domestic output and employment, their taxing policies to modify the distribution of wealth, and their regulation of foreign trade and foreign-exchange rates.[38] The benefits of a free international economic order were forgotten.[39]

With the growth of political and economic nationalism came political [xxii] and economic tyranny. Dictators emerged all across the face of Central and Eastern Europe. Freedom was under attack as never before in modern times.[40] Political and economic nationalism in Europe finally culminated in the barbarism and destruction of World War II.

International Reconstruction and Reform after the Second World War

Even before the worst carnage of the war had occurred, economists, political scientists, historians, sociologists, and men of practical politics had begun to ask themselves how the world had reached such a state of disorganization and chaos and how the era to come after the war could be made better. At first, when the outcome of the war was still uncertain, the analysis often focused on what the alternative international orders might look like were the postwar world to be primarily totalitarian or democratic, or if there were to be a division of the globe between the two rival political systems.[41] As the war progressed, it became clear that the Western democracies would triumph, with fascist and Nazi totalitarianism unconditionally defeated. Accordingly, the world was faced with the serious need to reconstruct the international political and economic order. A general consensus existed, especially among economists, that the world required a reversal of the economic nationalism and protectionism that had plagued the interwar period. There was plenty of evidence that such policies only [xxiii] led to economic disaster and political tension. The postwar world would desperately need the benefits of free trade and the advantages of an international division of labor.

There were some who forcefully called for a revival of classical liberal ideals for domestic and international economic reconstruction and reform.[42] But such voices for a return to pre–World War I classical liberalism were in a small minority. The general view among proponents of a new international economic order was that an unregulated and unplanned market economy was a thing of the past—and would be undesirable even if it were feasible. Under the influence of Keynesian economics and the apparent “advantages” of wartime planning, the majority of economists expected that, in peacetime, governments would still extensively intervene in and regulate the market economy. They asserted with confidence, in the words of Howard Ellis, that “governments have definitely accepted welfare economics as a basic policy; and it is altogether unlikely that any nation will again leave to the vagaries of unregulated international competition the crucial matter of total effective demand for its products and its manpower.”[43] As Charles E. Merriman, a supporter of this new consensus, said: “Planning is coming. Of this there can be no doubt. The only question is whether it will be democratic planning of a free society, or totalitarian in character.”[44]

The ideal was the so-called “middle way” between laissez-faire and a totally planned economy.[45] But a middle way necessarily involved a [xxiv] pre-eminent position for governments in regulating prices and production, and in managing domestic aggregate employment and output and the price level through various monetary and fiscal methods. If a world economic order were to be reconstructed, governments would have to be the overseers and coordinators, meshing their internal plans with any intergovernmental policies for international trade, investment, and exchange-rate stability.[46]

International organizations, therefore, became the vehicle for intergovernmental planning and coordination: the International Monetary Fund, the International Trade Organization, the International Bank for Reconstruction and Development, the World Bank, and numerous agencies surrounding the United Nations.[47] The creation of these organizations involved a radically different ordering of international economic relationships. Before 1914, international trade and investment were mostly private matters of business and commerce, with the leading governments securing the political and legal framework within which private enterprises went about their market-oriented affairs.[48]After the Second World War, the new [xxv] international order was to be based on planned, regulated, and intergovernmentally managed trade.[49]

It is true that, for the first two decades after the end of the Second World War, the Western world experienced a degree of economic prosperity and stability unknown in the period between the world wars.[50] Freer trade was the hallmark of postwar international commerce in comparison to the aggressive economic nationalism of the interwar era. But it was governments, through the international organizations established after the war, that determined the degree and form that trade and investment patterns assumed.[51] Additionally, the apparent stability of foreign-exchange rates and the international monetary order were punctuated with periods of crisis and disorder because of national inflationary policies.

The period following the Second World War was also deeply affected by the protracted tensions and conflicts of the Cold War. Communism and central planning became the new ideals of the emerging Third World countries. Consequently, some feared that freedom and democracy would perish in the ideological contest with Marxism around the globe.[52] Even Western economists looked at the trends of growth in Gross National Product in the United States and the Soviet Union in the 1950s and 1960s and concluded, by extrapolation, that before the end of the century the revolutionary center of communism might very well outstrip the world’s bastion of capitalism in production and standards of living.[53]

The world has turned out differently from what many had either anticipated or feared in the 1960s and 1970s. Notwithstanding the regime in China, communism officially died in 1991 with the collapse of the Soviet Union. The former Soviet-bloc countries are implementing some market-style reforms through privatization. Western and Central Europe [xxvi] are moving toward economic integration. Third World countries have begun turning away from central planning and have entered the epoch of market-oriented industrialization and computerization. But bureaucrats and politicians still manipulate the global marketplace. The welfare state still remains entrenched in the Western world. Through central banks, monetary central planners still control and manipulate the currencies of every country. Economic crises due to governmental mismanagement of monetary, fiscal, and foreign-exchange institutions still erupt. Much of the world still subscribes to the policies of the interventionist state and the mentality of the social engineer.

Mises’s Proposals for International Economic Reconstruction and Reform

In the first five essays in this collection—delivered as lectures at Yale University, New York University, and Columbia University—Ludwig von Mises explored the causes of Europe’s decline into war and destruction in the years between the two world wars, and the general ideological and policy changes that were needed for a return to peace and prosperity in the postwar period. He argued that the reconstruction of the international economic order could be fully successful only if the nations of the world abandoned the ideology of economic nationalism. There could be neither domestic nor international peace as long as governmental policy had as its objective the bestowing of privileges and favors on some at the expense of others. Mises explained that economic nationalism is the foreign policy corollary of internal interventionism for the purpose of bestowing such privileges and favors.

Generally speaking, less efficient producers who are unable to devise ways of meeting the competition of their more efficient rivals in the domestic market turn to the government for protection and financial assistance to maintain their market position and to limit or prohibit the ability of their rivals within the country to compete against them. In the arena of international trade, less efficient producers turn to their respective governments to limit or prohibit foreign rivals from competing in their domestic market. The purpose of economic nationalism is to impose “harm” on foreign producers who otherwise would have profited from better [xxvii] satisfying the wants of consumers than some domestic manufacturers and suppliers.

By politicizing the market rivalries of private producers, international trade becomes one of “affairs of state.” Foreign producers and investors came to be viewed as “enemies” to defeat or take advantage of through political means. The tools of “economic warfare” between countries guided by economic nationalism are tariffs and import quotas, export subsidies, foreign-exchange controls and manipulations, and taxes and regulations on foreign investors. The results, insisted Mises, are international tensions and hostilities that narrow or even destroy the international division of labor. finally, he warned that actual war can grow out of economic nationalism if one of the “combatants” in these trade conflicts believes he is strong enough to defeat an opponent and capture his resources, raw materials, and markets. Mises pointed out that the distinctive feature of economic nationalism in Germany under the Nazis was the German political leadership’s confidence it could use military force to conquer Lebensraum (“living-space”) for the German people—living space in terms of resources, land, markets, and military security in a world in which other nations were also attempting to close off their markets for the exclusive advantage of their own citizens.[54]

Mises was not surprised that in the 1930s collective security had failed to frustrate the territorial ambitions and conquests of Europe’s tyrants. Considering that the various nations of Europe viewed each other as rivals and even “enemies” in the arena of economic warfare, it was unlikely that they could successfully unify their political and military efforts to prevent Nazi, fascist, and Soviet aggrandizement.

Furthermore, as Mises explained, political and economic problems in Central and Eastern Europe contained a distinctive quality not present to the same extent in Western Europe. Almost all the countries in the eastern half of Europe were made up of “mixed” populations of diverse linguistic, religious, and ethnic backgrounds. Interventionist policies in these countries were frequently used as tools for discrimination against minorities. Taxing, regulatory, licensing, and trade policies were often applied as devices to impose economic disadvantages upon some of these national [xxviii] minorities for the economic benefit of more politically influential groups. Social peace within the borders of these nations was impossible as long as economic nationalism was the prevailing ideology.

Antagonisms in Central and Eastern Europe were reinforced by the politics of national self-determination, according to which countries coveted territories belonging to their neighbors on the basis of the idea that all peoples speaking the same language should be unified within the same nation-state. But precisely because linguistic and ethnic groups in this part of Europe were so intermingled within geographic areas, no redrawing of boundaries could successfully separate peoples in such a way that nationalistic tensions could be eliminated or even significantly minimized. The only answer, Mises declared, was a return to the political philosophy of classical liberalism and a consistent free-market capitalism, under which social and economic relationships would be depoliticized.

Mises warned that the end of the Second World War would find Europe economically destroyed. Capital would have been consumed and ill maintained as a result of the war. The infrastructure of the society—roads, bridges, railways, housing—would be ruined or in a state of disrepair. The quantity and quality of the work force would be weakened due to the conflict, lowering the productivity of labor. Agriculture would be less productive. Postwar Europe would be much poorer than before the conflict. In such a setting, Europe would no longer be able to afford the politics of redistribution and the economics of intervention and nationalism.

Work, savings, investment, and capital formation would be essential. A reconstitution and reintegration of Europe within the global division of labor would be imperative. For this to happen, Mises wrote, three changes needed to occur in the European mentality. The first required change concerned the attitude that economic policy was only about achieving short-run goals. Practical politics in the earlier decades of the twentieth century had been geared to providing immediate benefits to various groups that could be satisfied only by undermining the long-run prospects and prosperity of society. In the new postwar era, Mises argued, taxes could no longer be confiscatory. International debts could no longer be repudiated or diluted through currency controls or foreign-exchange rate manipulations. Foreign investors could no longer be viewed as victims to be violated or plundered through regulation or nationalization.

The countries of Europe would have to think about and design their economic policies from a long-term point of view. To avoid reliance solely [xxix] on internal savings, Europe would desperately need infusions of foreign capital. But attracting private foreign investors—which in the postwar period primarily meant private American investors—would require a secure system of property rights, strict enforcement of market contracts for both domestic and foreign businessmen, low and stable taxes, reduced and limited government expenditures and balanced budgets, and a stable, noninflationary 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 and achieve economic recovery. Consistent with a leading theme expressed in many of his writings, Mises emphasized that the prime movers in the social system of division of labor were the entrepreneurs—the creators and coordinators of the market process—whose central role needed to be appreciated and given unrestricted freedom of action. The ideology of anti-capitalism, therefore, had to be rejected in its entirety.

The second change required of European thinking, Mises wrote, concerned the attitude that politics should be geared toward special interest groups. Earlier in the twentieth century, governments had increasingly used their regulatory and fiscal powers to prevent the market forces of supply and demand (and the market forces of profit and loss) from determining success and failure in the economy. Instead, government interventions had maintained less efficient producers by placing barriers in the way of new and innovative entrepreneurs, by fixing prices at nonmarket-determined levels, and by imposing tariff and other trade walls against foreign competitors. Economic reconstruction required the acceptance that such short-sighted “producer policies” are counter to the economic wellbeing of the society. The essential function of market competition is to continuously discover each participant’s comparative advantage and, therefore, most economically appropriate place in the system of division of labor. Market prices are the mechanism through which the opportunity costs of using resources (including labor) and the relative profitabilities of alternative lines of production are discovered for purposes of assuring the greatest satisfaction of consumer demands.

Mises warned that postwar Europe would be too poor to afford the waste and misuse of its scarce factors of production. The purpose of production is consumption. The use and value of the means has to reflect the importance and value of the ends for which they are applied. This requires a “consumer-oriented” policy in which production would be constantly [xxx] adjusted to actual and changing demand and supply conditions in the market. The only rational policy for reconstruction and rising standards of living, therefore, is unhampered free-market competition.

The third of Mises’s recommendations for a change in European thinking concerned the ethics of the redistributive state. Mises emphasized several times in these first essays that Europe’s problem at the end of the Second World War would be moral and spiritual. The “dependency state” had become the ideal and demand of large segments of the European population. Governments had been expected to be the guarantor of employment and profits, and the provider of income and security. The redistribution of wealth, rather than its creation, had become the hallmark of “progressive economic policy.” But, in truth, he wrote, governments can supply none of these in the long run. Employment and profits arise out of savings, investment, work, and intelligent direction of production to serve consumer demands by market-selected entrepreneurs. Governments can provide and secure income for some only by taxing and redistributing the income and wealth of others. Such redistributive policies weaken incentives, retard the formation of capital, and consume the private wealth accumulated in the past. The inevitable results from such policies are stifled growth and a diminished standard of living.

Europe’s moral and spiritual decay, in the early twentieth century, was due to a declining sense of individual responsibility, a loss of the understanding that the truly “social” requires relationships of peaceful and voluntary cooperation through the market, and a growing illusion that society can long endure in a setting of plunder, confiscation, group conflict, and war. Consequently, Mises wrote, the revival of prosperity and a sustainable future of material and cultural improvement could not be imported from or subsidized by foreign sources. In other words, the economics, politics, and ethics of the free and prosperous society could only come from within each nation—from a change in the minds and ideas of each nation’s citizens.

Government-to-government aid and loans or government-subsidized and government-guaranteed investments to private enterprise would merely perpetuate the interventionist myths of the past that had brought so much misery, poverty, crises, and war. International organizations for intergovernmental cooperation in matters of money, finance, and trade, Mises concluded, are unworkable in the long run if the member governments continue to function on the basis of interventionism and economic nationalism. His reasoning was that each nation would try to use [xxxi] governmentally directed organizations to further its own “interests” at the expense of other countries. If, on the other hand, each nation were to adopt and follow the precepts of classical liberalism and economic liberty in domestic and foreign trade policies, such international organizations would be unnecessary. If the major nations of the world were to practice free trade in both their domestic and foreign affairs, international order would emerge out of the peaceful and mutually beneficial relationships of private transactors in the marketplace. Intergovernmental agreements and international bureaucracies, Mises concluded, are not a substitute for sound policies of economic freedom at home.

The various proposals for intergovernmental monetary coordination during the war years, eventually instituted through the Bretton Woods Agreement and the establishment of the International Monetary Fund and related organizations, were viewed by Mises, therefore, as misplaced solutions to the fundamental problem of international monetary order. His reasons for this view and his alternative proposal are presented in “A Noninflationary Proposal for Postwar Monetary Reconstruction” and “The Main Issues of Present-Day Monetary Controversies.”

The interwar period had seen the demise of an international monetary system. The gold standard that prevailed prior to the first World War had been destroyed by governments wishing to use the printing press to finance their wartime expenditures. The half-hearted attempts to reconstruct the gold standard in the 1920s had been a failure because governments were no longer willing to allow the supply and value of money to remain outside of their direct and discretionary control. Whether to finance current expenditures to satisfy special interest groups or to inflate the general level of prices to influence employment and production in the domestic economy, monetary manipulation was a vital tool in the quest for the attainment of short-run policy goals.

If the world after the Second World War was to once again have a sound monetary system, each country would have to begin the process “at home.” The determinates behind the quantity and value of money would have to be put beyond the immediate reach of governments. Historically, the only monetary regime that had succeeded to any great extent in doing this was the gold standard. Therefore, Mises proposed a return to a gold standard.

The first step toward a sound monetary system for any country, Mises argued, would be to balance the government’s budget, so that the pressure to increase the money supply to cover current expenditures would [xxxii] be relieved. The second step would be the adoption of a 100 percent gold reserve system. The existing money supply would be frozen, and any additions to the supply of money in the form of currency or bank demand deposits would occur only through a new deposit of a sum of gold. The ratio of currency or bank deposit money to be issued on the basis of a new gold deposit would be temporarily set by the market price between dollars and gold plus a margin of 10 percent. The third step, instituted at the same time as the second, would be the abolition of all restrictions on a free market for gold and foreign-exchange dealings. The fourth and final step would occur after a period of time during which foreign-exchange markets would have established a fairly stable rate of exchange between, for example, dollars and gold. At that point, a new gold parity for the dollar would be legally fixed between gold and the total quantity of currency and bank deposit money in the U. S. economy. After that, dollars would be fully redeemable on demand in gold. Currency and deposit money would be fully backed, dollar for dollar, with a sum of gold held as a 100 percent reserve at currency-issuing and deposit-issuing institutions.

Mises was not unique or alone in proposing a 100 percent reserve banking system. In the 1930s, a number of economists proposed such an institutional change.[55] However, these proponents advocated a 100 percent fiat money system managed and controlled by the government. The government would have the task of consciously changing the total quantity of money in circulation to maintain a particular policy target—usually price-level stabilization. Mises’s proposal, in contrast, had the precise goal of removing government from the monetary process except for the initial role in establishing the monetary “rules of the game”: a 100 percent gold reserve requirement on all banking institutions, redemption of all currency and deposits by those institutions on demand at the specified gold parity, and a free foreign-exchange market on the basis of the gold [xxxiii] standard. The quantity of money and its value (or purchasing power) over goods would be determined by the market forces of supply and demand, not by government.[56] Mises’s reasoning was that government simply could not be trusted with control over a monopoly printing press. Furthermore, as these two essays demonstrate, he did not believe that it was in government’s power or ability to successfully manage the monetary system or stabilize any “targets” such as the general price level. Mises’s ultimate ideal for a monetary order most consistent with a free society was for a system of free banking based on a market-selected commodity like gold. But he considered the establishment of this ideal system to be possible only far off in the future, when there would have been a complete renunciation of socialist and interventionist ideas.[57]

Mises knew that a sound monetary system did not require international agreements or intergovernmental monetary organizations. Any country could adopt such a gold-based monetary order independent of what other nations might do. If international agreements attempted to restrain member countries from following inflationary paths in an ideological environment in which national governments had the desire to continue abusing their monetary powers, the result would be tensions, conflicts, crises, and a final collapse of the intergovernmental monetary system. The disintegration in 1971 of the Bretton Woods system of fixed exchange rates under a system of national currencies open to governmental manipulation strongly suggests that Mises was correct in his judgments.

The one essay in this collection written by Mises before his arrival in the United States is “A Draft of Guidelines for the Reconstruction of Austria.” It was prepared in May of 1940 for Otto von Habsburg, former archduke of Austria, shortly before Mises’s departure from Geneva. It diagnoses the reasons for Austria’s political and economic problems in the 1920s and 1930s and presents the reforms and policy changes that would have to be implemented for Austria’s rebirth and revival as a prosperous and [xxxiv] independent nation in the postwar period. Because Austria is a small country with various economic disadvantages in comparison with other, larger nations better endowed with resources and fertile land, Mises recommended that the country adapt to the international trade environment. Austria should find its place in the global system of division of labor and acquire through imports the food, raw materials, and capital it needed from other countries by exporting those industrial goods for which it had a comparative advantage.

But, Mises asked, given the inevitable state of postwar poverty under which Austrians would be living, how would the incentives be created to begin the process of economic recovery? The answer is that domestic regulations would have to be abolished, labor markets would have to be freed from trade-union domination and control, government expenditures and redistributionist policies would have to be drastically cut back, nationalized industries would have to be privatized, Austrian businessmen driven from their homeland by anti-Semitism and Nazi policies would have to be invited back and made welcome in their own country, the multiple levels of bureaucratic administration throughout the country would have to be reduced and streamlined, the monetary system would have to be based on gold, and international economic relations would have to be guided by the idea of free trade. The only permissible trade restrictions would be retaliatory tariffs against specific countries that might discriminate against or prohibit Austrian goods from being sold in their markets.

Crucial to Austrian recovery and reconstruction, Mises wrote, would be fiscal policy. The fostering of savings, investment, and capital formation would be imperative. He proposed the end of all direct income taxation. Instead, the primary sources of all government revenues would be, first, general consumption taxes, including: (a) excise taxes on alcoholic beverages and tobacco products, (b) sales taxes, but only on final goods sold to the consuming public, and (c) a playing-card stamp tax. Second, there should be wealth taxes on consumption, including: (a) a progressive tax on higher consumption levels, based on housing expenditures (excluding those in the lower-income housing categories), (b) a tax on ownership of higher-priced automobiles for private use, and (c) a tax on lottery winnings. Third, there should be business and employment taxes, including: (a) a moderate tax on net profits paid out to shareholders of corporations and partners in limited partnerships, when the annual disbursements exceed six percent of capital assets, (b) administrative fees for patent rights, registration of brand names, and other official stamps, and (c) a wage tax [xxxv] paid by employers to cover social insurance programs, but which would not be deducted from wages. Mises stressed that, except for the wage tax and the net profits tax, all earnings would be exempt from direct taxation. This would create the fewest disincentives to income and wealth creation.

Such, he concluded, is the path to economic recovery for a small country like Austria. But Mises pointed out there were problems unique to Central and Eastern Europe because of their mixed populations of numerous linguistic, ethnic, and religious groups. The essay “An Eastern European Democratic Union: A Proposal for the Establishment of a Durable Peace in Eastern Europe” is Mises’s suggestion for solving these problems in a world still in the grip of political and economic nationalism.

In two of his earlier works, Nation, State, and Economy[58] and Liberalism,[59] Mises dealt extensively with the problem of nationality and national self-determination. He emphasized that among the principles of classical liberalism is the right of self-determination and freedom of association. In classical liberal thought, this means the self-determination of the individual. Each individual has, in principle, the right to decide of which political entity he will be a member. But, because of administrative constraints, the practical meaning of this principle is that the citizens within districts and regions, and even towns and villages, should have the right of plebiscite to express their preference to remain part of the nation-state to which they presently belong, to join some other nation-state, or to form a new state of their own.

Unfortunately, during the nineteenth and twentieth centuries this idea had been distorted to mean “national self-determination,” that is, that all peoples belonging to the same linguistic or ethnic group should belong to the same nation-state, regardless of the actual wishes of the individual residents within a geographical area. This idea of national self-determination has been the cause of many of the tensions, antagonisms, and conflicts within and between nations in Europe. And it served as the rationale for Hitler’s insistence on the annexation of parts of countries adjoining Nazi Germany that contained German-speaking peoples.[60]


Mises noted that the problem of nationalist antagonisms is exacerbated in an ideological setting of interventionism. Governments become the tools for linguistic and ethnic groups seeking to use the power of the state for their own benefit through discriminatory laws and policies against others. The only way to protect against such a political environment is to create a vast political and economic union. Mises proposed such a union for all the countries of Eastern Europe from the Baltic Sea to the Aegean Sea, including Estonia, Latvia, Lithuania, Poland, Czechoslovakia, Austria, Hungary, Romania, Yugoslavia, Bulgaria, Albania, Greece, and the part of Germany east of the Oder-Neisse Rivers. Only such a union, Mises reasoned, would have the combined strength to repel military aggression against these countries by either Germany or Russia. More important, such a union would diminish the ability of the member governments to use their domestic power to discriminate against national minorities and threaten war on their neighbors in the name of political or economic nationalism.

Mises proposed that political authority and legislative power would be reserved to a single parliamentary chamber that would have the only power to tax and upon which the member states would be dependent for disbursement of funds for administrative expenditures. The member states would retain their flags, symbols, anthems, and even embossed coins and stamps, but they would no longer have the power to pass legislation or impose laws that could infringe on a regime of private property and free trade within their jurisdictions and between the member states. Discriminatory laws against linguistic, ethnic, or religious groups would be forbidden. There would be for all citizens the freedom to move, live, and work within the boundaries of the union, and the same rights would apply to foreigners who chose to live, work, and invest in any part of this Eastern European Union.

In Mises’s view, under such a regime of free markets and free trade, no individual would or could be abused by national political power. All persons would be free to pursue the trade, profession, and occupation of their choice without political restraint and to speak and educate their children in the language and customs of their own choice. Schools would be primarily private and eligible for receiving lump-sum per-pupil tax revenues [xxxvii] as long as they were in compliance with certain basic rules and standards specified by the central government of the union.

Mises was not so naive as to expect to see the immediate acceptance and establishment of a broad political and economic union along the lines he recommended. But he believed that movement toward this goal was the only way to introduce restrictions on the interventionist power of national governments. And, indeed, the only rationale for such a union was to bring about the implementation of the ideals of the free market and free trade. Unless a union were constituted for this purpose, its existence would be impossible to justify.

Under the sponsorship of the School of Economics at the National University of Mexico, Mises spent January and February of 1942 lecturing in Mexico City and other Mexican cities. In June of 1943 he prepared for an association of Mexican businessmen a detailed report, “Mexico’s Economic Problems,” in which he recommended policies that would most likely assist in fostering Mexican economic development and industrialization.[61]

In this report, Mises maintained that the war-related trading opportunities that Mexico was enjoying with the United States were likely to end with the cessation of the conflict. Mexico, therefore, must look forward to an agenda of postwar market-oriented reforms for further economic improvement. Free trade is essential to the country’s future, he wrote, and in this context he emphasized that the benefit from trade comes from the imports obtainable at prices less costly than those incurred by alternative domestic production. Exports are the means for acquiring those imports and not an end or a good in themselves.

Anticipating one of the major schemes proposed by postwar development planners, Mises strongly criticized what he labeled the “closed door method of industrialization,” which became more widely known and popular in Third World countries after 1945 as the “import-substitution method” for development. According to this method, industrialization is to be forced through trade restrictions and high tariff barriers behind which domestic industries will be stimulated at artificially high prices far above those in the general global market. He pointed out that countries implementing this method inevitably make their own people poorer and less productive.


To the extent that imports are reduced so, too, Mises wrote, are exports. Potential foreign buyers of Mexican goods would lose the means of earning the Mexican revenue that would have provided them with the financial wherewithal to purchase Mexican exports. This would bring about a misdirection of Mexican production inconsistent with a most efficient use of the country’s resources. Mexico would be locked out from maximizing the income it could earn from exporting those goods for which it had the greatest comparative advantage in the international market. And consumers would have to pay the cost of such a method of “hothouse” industrialization through a lower standard of living due to the higher prices and lower quality of the domestic substitutes they would be forced to purchase on the Mexican market. Import-substitution methods of economic development merely represent a modern version of the eighteenth-century mercantilist fallacies.

Equally disastrous for Mexican development would be any attempt to raise Mexican wages to comparable United States levels through either government legislation or trade-union pressure. Mexico in the 1940s, Mises added, was a capital-poor country with a relatively large supply of labor. This necessarily meant that labor productivity was far lower than that of American workers. The only way that Mexican labor could compete with American labor and other competitors in the global market would be to take advantage of those opportunities in which it could be a lower-cost producer in labor-intensive lines of production. The standard of living in Mexico could permanently rise only through the normal processes of market-directed capital formation over time and through migration of a part of the labor force to other countries where wages and the marginal productivity of labor were higher. Since the latter method was generally closed off, due to immigration barriers in the United States and other countries, only the former method was available to Mexico under prevailing international conditions, Mises reasoned. Raising wages above market-determined levels could only condemn a part of the Mexican labor force to permanent unemployment or more primitive lines of employment.

Since Mexico had long practiced protectionist, interventionist, and socialist policies, the country would have to make a transition to a regime of free markets and free trade. Those familiar with Mises’s apparently “intransigent” and “dogmatic” advocacy of laissez-faire economics may be surprised that he proposed a series of “gradualist” policies for Mexico. For example, because a number of industries had been long protected behind high tariff walls, Mises suggested a transition to free trade over a period of [xxxix] years during which tariff levels would be reduced by 10 percent a year. (In this, Mises merely followed in the tradition of many of the earlier classical economists who also called for a gradual shift to free trade so as to minimize the severity of the economic adjustment.)[62]

While generally critical of government-sponsored and supported cooperative movements,[63] Mises argued that full land privatization in Mexico should be supported for the poor peasantry through government assistance in forming farm-producer cooperatives and even limited but temporary state subsidies to help them get started. In the area of privatization, Mises argued that the most desirable course of action was full denationalization. But, given the ideological climate in Mexico, Mises proposed that the national railway system, for instance, be transformed into a government-owned but independent corporation; management of the rail system would operate on a for-profit basis.

Crucial and central to any economic reform project in a country such as Mexico, Mises again emphasized, would be the establishment and the strict enforcement of property rights and contract, for both Mexican and foreign investors alike. Inflationary monetary policies would have to be renounced, and a policy of free trade would have to be practiced.


Ludwig von Mises’s purpose in preparing the lectures and writing the monographs included in this volume was to restate fundamental truths at a time when many of the most important premises of sound economic thinking seemed to have been forgotten or rejected. He realized that in a world dominated by socialist and interventionist ideas this was often a thankless task. But he believed that no real change for the better was possible unless the truth was spoken.

Mises was determined to explain why, after the Second World War, economic liberty was both desirable and essential if the world was to avoid the mistakes of the past. Yet he was aware that ways had to be found to [xl] encourage a rebirth of the ideal and practice of market freedom. The first task was to explain how the world had arrived in its present state and why previous ideologies and policies had led to disaster. Next, the logic and benefits of the free-market order had to be articulated once again. finally, specific policies had to be formulated to begin the process of international reconstruction and reform.

Today the world is searching for a new international economic order, just as it was searching for one in the mid–1940s. The former communist bloc countries, including the former Soviet Union, are groping with varying degrees of success toward the establishment of a market order and democratic political regimes. The countries of Asia, Africa, and Latin America are trying to escape from socialist and neo-mercantilist experiments of previous decades. The Western industrial democracies are looking for ways to overcome the burdens of the welfare state and the regulated economy.

The world at the third millennium abounds with proposals for economic and monetary unions, international trading agreements and intergovernmental rules for investment and capital movements. But what is lacking in many, if not most, of these proposals is a clear statement of first principles and a clear conception of where any particular policies implemented should be leading in terms of a long-run vision of the free and prosperous society. Many in the public arena praise and endorse the idea of a global free-market order. But beneath the rhetoric of some alleged free-market proponents are variations on the old interventionist theme. These proponents are merely proposing islands of market activity in an ocean of regulations, controls, and political redistributions of wealth.

This is not the meaning of the free market as it was understood by Ludwig von Mises.[64] He chose to call things by their real names and explain them in terms of their real meanings. Anything less, he believed, would be a betrayal of truth and understanding. It is perhaps appropriate, therefore, to conclude by recurring to Mises’s own thoughts on this point, which ended his lecture on “The Fundamental Principle of Pan-European Union”:

It is a thankless job indeed to express such radical and “subversive” [free-market] opinions and to incur the hatred of all supporters of the old [interventionist] system that has amply proven its inexpediency. But it is not the duty of an economist to be fashionable and popular; he has to be right. Those timid souls who fear challenging spurious doctrines and superstitions because they have the support of influential circles will never improve conditions. Let them call us “orthodox”; it is better to be an intransigent orthodox than an opportunist time-server.

Endnotes to Volume 3

[1.] Two other previously unpublished papers from 1943 by Mises on the related topics of “Autarky and Its Consequences” and “Economic Nationalism and Peaceful Economic Cooperation” were included in an earlier collection; see Richard M. Ebeling, ed., Money, Method, and the Market Process: Essays by Ludwig von Mises (Norwell, Mass.: Kluwer Academic Press, 1990), pp. 137–65.

[2.] Ludwig von Mises, “Economic Calculation in the Socialist Commonwealth,” [1920] in F. A. Hayek, ed., Collectivist Economic Planning (London: Routledge & Sons, 1935), pp. 87–130.

[3.] Ludwig von Mises, Socialism (Indianapolis: Liberty Fund, [1951] 1981); on Mises’s critique of socialism and its relation to earlier criticisms of central planning, see Richard M. Ebeling, “Economic Calculation under Socialism: Ludwig von Mises and His Predecessors,” in Jeffrey M. Herbener, ed., The Meaning of Ludwig von Mises (Norwell, Mass.: Kluwer Academic Press, 1993), pp. 56–101.

[4.] Ludwig von Mises, Liberalism in the Classical Tradition (Irvington-on-Hudson, N.Y., and San Francisco, Calif.: Foundation for Economic Education and the Cobden Press, [1927] 1985).

[5.] Ludwig von Mises, Critique of Interventionism (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, [1929] 1996).

[6.] Ludwig von Mises, Socialism, pp. 258–61; Human Action, A Treatise on Economics (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 4th rev. ed., 1996), pp. 157–66.

[7.] Ludwig von Mises, The Theory of Money and Credit (Indianapolis: Liberty Fund, 3rd revised ed., [1924; 1953] 1980).

[8.] Ludwig von Mises, “Monetary Stabilization and Cyclical Policy,” [1928] in Percy L. Greaves, ed., On the Manipulation of Money and Credit (Dobbs Ferry, N.Y.: Free Market Books, 1978); see Richard M. Ebeling, “Ludwig von Mises and the Gold Standard,” in Llewellyn H. Rockwell, Jr., ed., The Gold Standard: An Austrian Perspective (Lexington, Mass.: Lexington Books, 1983), pp. 35–59; and Richard M. Ebeling, “Variations on the Demand for Money Theme: Ludwig von Mises and Some Twentieth Century Views,” in John W. Robbins and Mark Spangler, eds., A Man of Principle: Essays in Honor of Hans F. Sennholz (Grove City, Pa.: Grove City College Press, 1992), pp. 127–38.

[9.] Ludwig von Mises, Epistemological Problems of Economics (New York: New York University Press, [1933] 1976); for an exposition and analysis of Mises’s ideas on the logic of human action and his comparative study of capitalism, socialism, and interventionism, see Richard M. Ebeling, “A Rational Economist in an Irrational Age: Ludwig von Mises,” in Richard M. Ebeling, ed., The Age of Economists: From Adam Smith to Milton Friedman, Champions of Freedom Series, Vol. 26 (Hillsdale, Mich.: Hillsdale College Press, 1999), pp. 69–120; Mises’s theory of human action was influenced by the phenomenological method of Edmund Husserl and the sociological approach of Max Weber; see Richard M. Ebeling, “Austrian Subjectivism and Phenomenological Foundations,” in Peter J. Boettke and Mario J. Rizzo, eds., Advances in Austrian Economics, Vol. 2A (Greenwich, Conn.: JAI Press, 1995), pp. 39–53; and Richard M. Ebeling, “Expectations and Expectations Formation in Mises’ Theory of the Market Process,” in Peter J. Boettke and David L. Prychitko, eds., The Market Process: Essays in Contemporary Austrian Economics (Brookfield, Vt.: Edward Elgar, 1994), pp. 83–95.

[10.] Ludwig von Mises, Notes and Recollections (South Holland, Ill.: Libertarian Press, 1978), pp. 71–92.

[11.] Mises, Notes and Recollections, pp. 93–100.

[12.] For recollections of Mises’s Privatseminar by former members, see the appendix in Margit von Mises, My Years with Ludwig von Mises (Cedar Falls, Iowa: Center for Futures Education, 2nd ed., 1984), pp. 199–211; see also Earlene Craver, “The Emigration of the Austrian Economists,” History of Political Economy, Vol. 18, No. 1 (1986), pp. 1–32.

[13.] See Richard M. Ebeling, “Friedrich A. Hayek: A Centenary Appreciation,” The Freeman (May 1999), pp. 28–33.

[14.] See Richard M. Ebeling, “William E. Rappard: An International Man in an Age of Nationalism,”The Freeman (January 2000), pp. 39–46.

[15.] Ludwig von Mises, Nationalökonomie: Theorie des Handelns und Wirtschaftens (Munich: Philosophia Verlag, [1940] 1980).

[16.] Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War (Spring Mills, Pa.: Libertarian Press, [1944] 1985).

[17.] Ludwig von Mises, Bureaucracy (Spring Mills, Pa.: Libertarian Press, [1944] 1983).

[18.] Ludwig von Mises, Interventionism: An Economic Analysis (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1998).

[19.] On the history and ideas of the Austrian School of economics, see Ludwig M. Lachmann, “The Significance of the Austrian School of Economics in the History of Ideas,” [1966] in Richard M. Ebeling, ed., Austrian Economics: A Reader, Champions of Freedom Series, Vol. 18 (Hillsdale, Mich.: Hillsdale College Press, 1991), pp. 17–39; and Richard M. Ebeling, “The Significance of Austrian Economics in Twentieth-Century Economic Thought,” in Richard M. Ebeling, ed., Austrian Economics: Perspectives on the Past and Prospects for the Future, Champions of Freedom Series, Vol. 17 (Hillsdale, Mich.: Hillsdale College Press, 1991), pp. 1–40.

[20.] Ludwig von Mises, Planning for Freedom (South Holland, Ill.: Libertarian Press, 4th ed., 1980).

[21.] Ludwig von Mises, The Anti-Capitalistic Mentality (Spring Mills, Pa.: Libertarian Press, [1956] 1990).

[22.] Ludwig von Mises, Theory and History: An Interpretation of Social and Economic Evolution(Auburn, Ala.: Ludwig von Mises Institute, [1957] 1985).

[23.] Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method (Kansas City, Kans.: Sheed Andrews and McMeel, [1962] 1978).

[24.] Ludwig von Mises, “The Historical Setting of the Austrian School of Economics,” [1969] in Bettina Bien Greaves, ed., Austrian Economics: An Anthology (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1996), pp. 53–76.

[25.] See Mises, Omnipotent Government, pp. 95–96; also John Maynard Keynes, The Economic Consequences of the Peace, in D. E. Moggridge, ed., The Collected Works of John Maynard Keynes(New York: Macmillan Co., [1919] 1971), pp. 5–7

[26.] See Hermann Levy, Economic Liberalism (London: Macmillan Ltd., 1913), p. 1; Wilhelm Röpke,German Commercial Policy (London: Longman, Green and Co., 1934); and Gustav Stolper, German Economy, 1870–1940 (New York: Reynal and Hitchcock, 1940), pp. 60–92.

[27.] Gustav Stolper, This Age of Fable: The Political and Economic World We Live In (New York: Reynal & Hitchcock, 1942), pp. 7–8.

[28.] See Richard M. Ebeling, “World Peace, International Order and Classical Liberalism,”International Journal of World Peace (December 1995), pp. 47–68.

[29.] See T. E. Gregory, “Economic Nationalism,” International Affairs (May 1931), pp. 289–306; Lionel Robbins, “The Economic Consequences of Economic Nationalism,” Lloyds Bank Limited Monthly Review (May 1936), pp. 226–39; William E. Rappard, “Economic Nationalism,” in Authority and the Individual, Harvard Tercentenary Conference of Arts and Sciences (Cambridge, Mass.: Harvard University Press, 1937), pp. 74–112; Michael A. Heilperin, Studies in Economic Nationalism(Geneva: Libraire E. Droz, 1962).

[30.] See Leo Pasvolsky, Economic Nationalism of the Danubian States (New York: Macmillan Co., 1928); Antonin Basch, The Danubian Basin and the German Economic Sphere (New York: Columbia University Press, 1943); Frederick Hertz, The Economic Problems of the Danubian States: A Study in Economic Nationalism (London: Victor Gollancz, 1947).

[31.] See A. G. B. Fisher, Economic Self-Sufficiency (Oxford: Clarendon Press, 1939); and Leo Grebler, “Self-Sufficiency and Imperialism,” Annals of the American Academy of Political and Social Science(July 1938), pp. 1–8.

[32.] See F. A. Hayek, “Monetary Nationalism and International Stability” [1937] in Stephen Kresge, ed., The Collected Works of F. A. Hayek, Vol. VI: Good Money, Part II (Chicago: University of Chicago Press, 1999), pp. 27–100; and Lionel Robbins, Economic Planning and International Order (London: Macmillan Ltd., 1937), pp. 280–301.

[33.] See Wilhelm Röpke, International Order and Economic Integration (Dordrecht, Holland: D. Reidel Publishing Co., 1959), pp. 75–77; also T. E. Gregory, The Gold Standard and Its Future (New York: E. P. Dutton, 1935), pp. 1–21; and Moritz J. Bonn, “The Gold Standard in International Relations,” in William E. Rappard, ed., Problems of Peace, 8th Series (Freeport, N.Y.: Books for Libraries, [1934] 1968), pp. 163–79.

[34.] See Leland B. Yeager, Experiences with Stopping Inflation (Washington, D.C.: American Enterprise Institute, 1981), pp. 45–98.

[35.] See Frederic Benham, “The Muddle of the Thirties,” Economica (February 1945), pp. 1–9.

[36.] See William E. Rappard, Post-War Efforts for Freer Trade (Geneva: Geneva Research Centre, 1938) and “The Common Menace of Economic and Military Armaments,” [1936] in Varia Politica,Republication of Essays by William Rappard on the Occasion of His Seventieth Birthday (Zurich: Editions Polygraphics, 1953), pp. 76–100; Jacob Viner, “International Economic Relations and the World Order,” in Walter H. C. Laves, ed., The Foundations of a More Stable World Order (Chicago: University of Chicago Press, 1940), pp. 42–45; Commercial Policy in the Interwar Period: International Proposals and National Policies (Geneva: League of Nations, 1942); and Ragnar Nurkse,International Currency Experience: Lessons of the Inter-war Period (Princeton, N.J.: Princeton University Press, 1944).

[37.] See Ludwig von Mises, “The Disintegration of the International Division of Labor,” [1938] in Richard M. Ebeling, ed., Money, Method, and the Market Process, pp. 113–36; and Wilhelm Röpke,International Economic Disintegration (Philadelphia, Pa.: Porcupine Press, [1942] 1978).

[38.] See Moritz J. Bonn, “Introductory Address,” in The State and Economic Life, A Record of a First International Study Conference (Paris: International Institute of Intellectual Cooperation, 1932), pp. 7–15; J. B. Condliffe, “Vanishing World Trade,” Foreign Affairs (July 1933), pp. 645–56; Lionel Robbins, The Great Depression (London: Macmillan Ltd., 1934); Gustav Stolper, “Politics versus Economics,” Foreign Affairs (April 1934), pp. 357–76; P. W. Martin, “The Present Status of Economic Planning: I. An International Survey of Governmental Economic Intervention,” International Labour Review (May 1936), pp. 619– 45; Henry J. Tosca, World Trade Systems (Paris: International Institute of Intellectual Cooperation, 1939); Margaret S. Gordon, Barriers to World Trade: A Study of Recent Commercial Policy (New York: Macmillan Co., 1941); and Richard M. Ebeling, “Liberalism and Collectivism in the 20th Century,” in Alexsandras Shtromas, ed., The End of “Isms”? Reflections on the Fate of Ideological Politics After Communism’s Collapse (Cambridge, Mass.: Blackwell Publishers, 1994), pp. 69–84.

[39.] See J. B. Condliffe, “The Value of International Trade,” Economica (May 1938), pp. 123–37.

[40.] William E. Rappard, “Nationalism and the League of Nations Today,” in Problems of Peace, 8th Series (New York: Books for Libraries Press, [1934] 1968), pp. 17–19; also by Rappard, The Crisis of Democracy (Chicago: University of Chicago Press, 1938); and William Henry Chamberlin,Collectivism: A False Utopia (New York: Macmillan Co., 1938).

[41.] See J. B. Condliffe, The Reconstruction of World Trade: A Survey of International Economic Relations (New York: W. W. Norton & Co., 1940); Michael A. Heilperin, “Totalitarian Trade,” World Affairs Interpreter (January 1941), pp. 1–8; Lewis L. Lorwin, Economic Consequences of the Second World War (New York: Random House, 1941); Douglas Miller, You Can’t Do Business with Hitler(Boston: Little, Brown and Co., 1941); Thomas Reveille, The Spoil of Europe: The Nazi Technique in Political and Economic Conquest (New York: W. W. Norton, 1941); Howard Ellis, “The Problems of Exchange Systems in the Postwar World,” American Economic Review (May 1942), pp. 195–205; Frank Munk, The Legacy of Nazism: The Economic and Social Consequences of Totalitarianism (New York: Macmillan Co., 1943); and Jacob Viner, Trade Relations Between Free Market and Controlled Economies (Geneva: League of Nations, 1943).

[42.] See Henry Simons, “Trade and the Peace,” in Seymour E. Harris, ed., Postwar Economic Problems (New York: McGraw-Hill Book Co., 1943), pp. 141–55; also Benjamin M. Anderson, “The Road Back to Full Employment,” in Paul T. Homan and Fritz Machlup, eds., Financing American Prosperity: A Symposium of Economists (New York: Twentieth Century Fund, 1945), pp. 9–70.

[43.] Howard Ellis, “Removal of Restrictions on Trade and Capital,” in Seymour Harris, ed., Postwar Economic Problems, p. 345; see also Richard M. Ebeling, “The Global Economy and Classical Liberalism: Past, Present, and Future,” in Richard M. Ebeling, ed., The Future of American Business, Champions of Freedom Series, Vol. 24 (Hillsdale, Mich.: Hills-dale College Press, 1996), pp. 9–60, especially pp. 18–23, on the relationship between domestic intervention and “demand management,” and regulation of international trade.

[44.] Charles E. Merriam, “The Place of Planning,” in Seymour E. Harris, ed., Saving American Capitalism: A Liberal Economic Program (New York: Alfred A. Knopf, 1948), p. 161

[45.] See Eugene Staley, World Economy in Transition: Technology vs. Politics, Laissez Faire vs. Planning, Power vs. Welfare (Port Washington, N.Y.: Kennikat Press, [1939] 1971), pp. 127–200 and 225–326, and “The Economic Side of Stable Peace,” Annals of the American Academy of Political and Social Science (July 1945), pp. 27–36; and J. B. Condliffe, Agenda for a Postwar World (New York: W. W. Norton, 1942).

[46.] See Jacob Viner, “The International Economic Organization of the Future,” in Ernest H. Wilkins, ed., Toward International Organization (New York: Harper & Brothers, 1942) and “International Economic Cooperation,” in William B. Willcox and Robert B. Hall, eds., The United States in the Postwar World (Ann Arbor, Mich.: University of Michigan Press, 1947), pp. 15–36; also J. B. Condliffe and A. Stevenson, The Common Interest in International Economic Organization (Montreal: International Labor Organization, 1944).

[47.] See H. W. Arndt, The Economic Lessons of the Nineteen-Thirties (London: Oxford University Press, 1944), pp. 295–302; Murray Shields, ed., International Financial Stabilization: A Symposium(New York: Irving Trust Co., 1944); Michael A. Heilperin, International Monetary Organization: The Bretton Woods Agreements (Washington, D.C.: American Enterprise Association, 1945); Nathaniel Weyl and Max J. Wasserman, “The International Bank, An Instrument of World Economic Reconstruction,” American Economic Review (March 1947), pp. 93–107; Raymond F. Mikesell, “Quantitative and Exchange Restrictions under the ITO Charter,” American Economic Review (June 1947), pp. 351–68; Philip Cortney, The Economic Munich: The I.T.O. Charter, Inflation or Liberty, The 1929 Lesson (New York: Philosophical Library, 1949); Henry Hazlitt, From Bretton Woods to World Inflation: A Study of Causes and Consequences (Chicago: Regnery Gateway, 1984)

[48.] However, on the extent to which governments did attempt to influence for political or economic reasons the private patterns of foreign loans and investments in the nineteenth and early twentieth centuries, see Jacob Viner, “Political Aspects of International finance,” Journal of Business (April and July 1928), pp. 141–73 and 324–63.

[49.] Henry Hazlitt, “The Coming Economic World Pattern,” [1944–45] in From Bretton Woods to World Inflation: A Study of Causes and Consequences, pp. 127–42.

[50.] See Gottfried Haberler, “The Liberal International Economic Order in Historical Perspective,” [1979] in Anthony Y. C. Koo, ed., The Liberal Economic Order, Vol. I (Brookfield, Vt.: Edward Elgar, 1993), pp. 354–55; and Jagdish Bhagwati, Protectionism (Cambridge, Mass.: MIT Press, 1988), pp. 1–15.

[51.] See Jan Tumlir, Protectionism: Trade Policy in Democratic Societies (Washington, D.C.: American Enterprise Institute, 1985)

[52.] Jean-François Revel, Why Democracies Perish (Garden City, N.Y.: Doubleday, 1984)

[53.] Paul Samuelson, Economics (New York: McGraw-Hill, 7th ed., 1967), pp. 790–92; and Campbell R. McConnell, Economics: Principles, Problems, and Policies (New York: McGraw-Hill, 10th ed., 1987), p. 904.

[54.] The term and concept of Lebensraum apparently was first coined and argued for by the German author Moeller van den Bruck (1876–1925), after the first World War; see Frank Munk, The Economics of Force (New York: George W. Stewart, 1940), pp. 23–24.

[55.] See Henry Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948), pp. 62–65 and 160–83; Irving fisher, 100% Money (New Haven: City Printing Co., 1945); James W. Angell, “The 100 Per Cent Reserve Plan,” Quarterly Journal of Economics (November 1935), pp. 1–35; and Frank D. Graham, “Partial Reserve Money and the 100 Per Cent Proposal,” American Economic Review (September 1936), pp. 428– 40; also Milton Friedman, “A Monetary and Fiscal Framework for Economic Stability,” [1948] in Essays in Positive Economics (Chicago: University of Chicago Press, 1953), pp. 135–36, and A Program for Monetary Stability (Bronx, N.Y.: Fordham University Press, 1960), pp. 65–76; and Lloyd W. Mints, Monetary Policy for a Competitive Society(New York: McGraw-Hill, 1950).

[56.] For a defense of a 100 percent gold reserve system by a student of Mises’s, see Murray N. Rothbard, “The Case for a 100 Percent Gold Dollar,” in Leland B. Yeager, ed., In Search of a Monetary Constitution (Cambridge, Mass.: Harvard University Press, 1962), pp. 94–136.

[57.] Mises, The Theory of Money and Credit, pp. 434–38; “Monetary Stabilization and Cyclical Policy,” pp. 138–40, 145–46, 156; and Human Action, pp. 443–48; also Lawrence
H. White, “Mises on Free Banking and Fractional Reserves,” in John W. Robbins and Mark Spangler, eds., A Man of Principle, 517–33.

[58.] Ludwig von Mises, Nation, State, and Economy: Contributions to the Politics and History of Our Time (New York: New York University Press, [1919] 1983), pp. 9–56.

[59.] Mises, Liberalism, pp. 105–24.

[60.] See Richard M. Ebeling, “World Peace, International Order, and Classical Liberalism,” pp. 59–62, and “Nationalism and Classical Liberalism,” “Nationalism: Its Nature and Consequences,” “National Conflicts, Market Liberalism, and Social Peace,” and “Social Conflict, Self-Determination, and the Boundaries of the State,” in Richard M. Ebeling and Jacob G. Hornberger, eds., The Failure of America’s Foreign Wars (Fairfax, Va.: Future of Freedom Foundation, 1996), pp. 327–48.

[61.] This report has been translated into Spanish and published in Mexico for the first time as a monograph fifty-five years after it was originally written under the title Problemas Economicos de Mexico: Ayer y Hoy (Mexico City: Instituto Cultural Ludwig von Mises, 1998).

[62.] For example, see Adam Smith, The Wealth of Nations (New York: Modern Library, [1776] 1937), Book IV, Ch. II, p. 438; Jean-Baptiste Say, A Treatise on Political Economy (New York: Augustus M. Kelley, [1821] 1971), p. 170.

[63.] See Ludwig von Mises, “Observations on the Cooperative Movement,” [1947] in Richard M. Ebeling, ed., Money, Method, and the Market Process, pp. 238–79.

[64.] See Richard M. Ebeling, “The Free Market and the Interventionist State,” in Richard M. Ebeling, ed., Between Power and Liberty: Economics and the Law, Champions of Freedom Series, Vol. 25(Hillsdale, Mich.: Hillsdale College Press, 1998), pp. 9–46.