The Institute of Economic Affairs has just published my Ludwig von Mises – A Primer. Mises (1881-1973) was one of the most innovative social thinkers of the last century, and undisputed head of the Austrian School of Economics.
The key Austrian School idea is that you can understand economics only by tracing it back to the motives and actions of individuals. Textbook concepts like ‘aggregate demand’ or ‘the price level’ are mere statistics – there is no mechanical link between any of them. What drives economics is the values and choices of individuals. And that, explained Mises, is a science of its own.
From these ‘subjectivist’ insights, Mises also gave us fresh ideas on the nature and behaviour of that all-important economic phenomenon, money. It is no lifeless medium of exchange, he explained. It is something people value for its usefulness in making exchanges. The more they demand, the higher its price – what we call its purchasing power.
Governments interfere with this at their peril. Booms and busts arise precisely because banks and governments create too much money and credit, he explained. Cheap credit and plentiful cash encourages entrepreneurs to make investments that prove over-optimistic when the stimulus fades. Then there is a painful downturn as these malinvestments are written off, factories closed, plant scrapped, and workers fired.
Mises also exposed the socialist calculation problem. Under socialism, the means of production are collectively owned, so are never bought and sold, and never acquire prices. So we cannot know which of the millions of possible production processes is the cheapest, and resources are inevitably wasted. The market economy, by contrast, places producers under daily pressure to deliver the highest-valued outputs for the cheapest feasible mix of inputs.
Mises influenced an entire generation of free-market economists and liberal social thinkers. I hope my Primer will make his ideas accessible, in simple language, to many more people.
Find out more here.