Free Market Defense

.. redit expansion) is inflationary, redistributive, distorts the economic system, and amounts to stealthy and insidious robbery and expropriation of all legitimate property owners in society (Rothbard). The business cycles of booms and busts that monetary inflation causes are even more damaging to society. When government inflates, it lowers the interest rate below the proper market level, which is dependent on saving. The artificially low interest rate misleads businesses into making uneconomic speculative investments and creates an inflationary boom. When the credit expansion slows or stops, investment errors are revealed bankruptcies and unemployment result.

Central banks like the Federal Reserve will ultimately create the business cycle. Mises argued that because money originated as a market commodity, not by government edict or social contract, it should be returned to the market. Banking should be treated as any other industry in a market economy, and be subject to competition. The currency should be tied to gold, its originating commodity, through free convertibility (Rothbard). Mises book Socialism predicted the downfall of communism and warned against socialist institutions in government. He states that socialism could not function in an industrial economy because there would be no market for the factors of production and therefore no price system to calculate profit and loss (Rothbard). Therefore planning in a planned economy is impossible due to the lack of economic calculation. The result of planned economies is no economy at all but rather a system of “groping in the dark”(Koether).

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Just as important, he showed that mixed economics cannot function efficiently either. Through taxes, regulation, and spending, government distorts the price system and the allocation of resources to their most highly valued uses (Rothbard). Evidence of this pitfall is all around us and is manifest in the downfall of Russia and Chinas moves toward capitalist economics. Human Action is Ludwig von Mises masterwork. Murray Rothbard summarized the importance of Human Action in his essay The Essential Ludwig von Mises with the following statements; “Human Action is IT; it is economics whole, developed from sound praxeological axioms, based squarely on analysis of acting man, the purposive individual as he acts in the real world. It is economics developed as a deductive discipline, spinning out of logical implications of the existence of human action.

To the present writer, who had the privilege of reading the book on publication, it was an achievement that changed the course of his life and ideas. For here was a system of economic thought that some of us had dreamed of and never thought could be attained: an economic science, whole and rational, an economics that should have been but never was. An economics provided by Human Action” (Rothbard). The 900 page treatise on economics covers topics such as accounting, advertising, banking, business cycles, bureaucracy, capital, capitalism, charity, competition, debt, devaluation, economics, education, entreprenuership, equality, exchange rates, gold standard, government, history, human action, ideology, individualism, inflation, interest, intervention in markets by government, foreign and domestic investment, labor unions, laissez faire, land reform, markets, mathematics, money, monopoly, morality, mortality, praxeology, prices, profits and loss, public opinion, reason, religion, science, sex, socialism, society, speculation, statistics, tariffs, taxes, theory, time, underdeveloped nations, unemployment, value, wages and war (Koether). The most important ideas derived from Human Action change the very method used to evaluate economics.

Mises argues that economics can not be viewed in specialized terms but rather must be viewed as a whole system. This method is referred to as praxeology. Mises also argued against the rising use of mathematics in economics. He states that “the fundamental deficiency implied in every quantitative approach to economic problems consists in the neglect of the fact that there are no constant relations between what are called economic dimensions. There is neither constancy nor continuity in the valuations and in the formation of exchange ratios between various commodities” (Koether).

In fact Mises referred to mathematics in economics as “worthless mental gymnastics” because they can not and do not apply to real economic problems. It does not help to think of prices of production as the intersect of two curves, but it does help to realize that price is derived through human action (Koether). Many other ideas are put forth in Human Action but these two are the most prevalent of those that have not already been discussed. The People and Ideas that Influenced Ludwig von Mises. The basis for all of Mises writings came from the founder of the Austrian School of economics, Carl Menger. Mengers complete theory of marginal utility and its subjective reasoning that relied on theory.

Mises stated that Mengers views “made an economist” out of him because of its methodology, which stated that economics is the science of individual choice (Mises Institute). Eugen von Boehm-Bawerk, a student of Menger, taught a young Mises from 1904 to 1914 at the University of Vienna. His views on intervention of the government and how it reacted to economic law greatly influenced Mises thesis on socialism. Boehm-Bawerks theory on interest and capital and its time preference basis formed the logic needed to argue the viability of socialism (Spiegel). Mises thoughts on the business cycle were derived from Ricardian models, Boehm-Bawerks theory on capital and the factors of production, and Knut Wicksells ideas regarding production and the effects the difference between real and nominal interest rates has on it. Max Weber influenced Mises concerning economics as a social science, but Menger was probably the major influence here as well. Assessment of Ludwig von Mises Contributions to Economics The completeness of Human Action is the most impressive contribution that Ludwig von Mises gave to economics. The marriage of micro and macroeconomics was accomplished through Mises theory on money and credit.

This was the first time that this had been accomplished. His argument presented in Socialism has been historically vindicated and supported by empirical facts. Mises undying views on laissez faire has been his sticking point with mainstream economics (Spiegel). The failure of the gold standard and the prevailing existence of central banks are testaments to this. The biggest triumph of Mises is the methodology used to study economics.

He solidified Mengers theoretical approach to economic problems. Bibliography Foundation for Economic Education “Ludwig von Mises” [On-Line] Available Internet www.fee.org/about/misesbio.html Greaves, Percy L. “Mises Made Easier,” 1974, Free Market Press Koether, George “The Wisdom of Ludwig von Mises” 1981, The Freeman Ludwig von Mises Institute “Who is Ludwig von Mises” [On-Line] Available Internet www.mises.org/mises.asp Ludwig von Mises Institute “What is Austrian Economics” [On-Line] Available Internet www.mises.org/austian.asp Ludwig von Mises Institute “Why Austrian Economics Matters” [On-Line] Available Internet www.mises.org/why ae.asp Ludwig von Mises Institute “An American Classical Liberalism” [On-Line] Available Internet www.mises.org/classical.asp.