- The Washington Times - Tuesday, October 23, 2001

On July 4, l940, Ludwig von Mises (1881-1973) and his wife, Margit, along with some fellow Jews, set out to escape Nazi Europe from Geneva through mostly occupied France to get to neutral Spain and hopefully on to America. At times their chartered bus had to zigzag or hide from Nazi troops. Yet their fearful trip proved successful. On Aug. 2, the Mises reached New York and a new life.
It was also a new setting for this Austrian economist whose students and close colleagues in Vienna included luminaries like Karl Popper, Gottfried Haberler, Fritz Machlup, Oskar Morgenstern, Eric Voegelin and Friedrich Hayek, who won the Nobel Prize in 1974.
Israel Kirzner, Mises' distinguished biographer, matriculated at South Africa's University of Cape Town and got his Ph.D. under Mises at New York University in 1957. He himself has contributed to a late 20th century revival of Austrian economics. His biography is not hagiographic. It tells the story of Mises and his ideas with candor, detachment, and, here and there, criticism. Mr. Kirzner still sees Mises as a man of extraordinary vision, courage, and integrity, a man whose sharp economic ideas have the highest political import today.
Take the business cycle, which grips America at this recessionary hour. America's Great Depression clearly gave birth to the New Deal and the welfare state. Mises first won wide recognition for his "Theory of Money and Credit," published in German in l912. He saw how individuals subjectively change their demand for cash balances as banks and central banks expand and contract the money supply, first artificially depressing interest rates and causing a euphoric boom with resulting overinvestment or, more precisely, malinvestment. Typically, prices surge, bank reserves run out and alarmed monetary authorities shut off further credit expansion. With no more easy money, the boom becomes a bust.
In a 1920 article, and again in 1922 in another hailed book, "Socialism," Mises saw the new Soviet Union flying blind, doomed for its lack of "economic calculation," i.e. its crucial denial of key price and profit signals, its reliance on bureaucratic management, its supression of private property, of personal drives to work, save and invest, its waste of capital and other precious resources. No wonder Eurocommunism from East Germany to Soviet Russia fell in 1989-1991.
Mises' masterwork remains "Human Action," published by the Yale University Press in l949. Mises viewed human action or praxeology as "purposeful behavior," a view putting profit and unhampered capitalism in a constructive light. He held that when one wins his purpose he can be said to have profited and when he fails to do so to have lost. So, at a minimum, psychic profit explains the drive behind every human action, even in acts of altruism.
Unhampered capitalism? What then of our mixed economy, the "third way," the dismissal of laissez faire, as taught to millions of students for decades in Economics 101, especially in the long years of the "Keynesian Revolution"? Writes Mr. Kirzner: Mises would have none of this. Instead, Mises mounted a heavy attack on interventionism in all its manifestations, including antitrust and regulatory policy, progressive taxation, farm subsidies, tariff protection, income and wealth transfers, and all kinds of price controls such as minimum wages and rent control.
Mises saw interventionism as disruptive, counterproductive, as politicized interference of the market, a slippery slope leading ultimately to socialism, a fix in which consumers and producers are no longer answerable to each other but to faceless bureaucrats in central capitals. The situation means the withering-away of consumer sovereignty, a big Mises point.
Entrepreneurs may think they control production, that they "are at the helm and steer the ship?" but they don't, held Mises, saying the "captain is the consumer." Consumers govern daily, and most democratically. Producers move efficiently, energetically, imaginatively to cater to consumer preferences.
To Mises the free market is consumer democracy in action, writing:
"When we call a capitalist society a consumers' democracy we mean that the power to use the means of production, which belongs to the entrepreneurs and capitalists, can only [note his word, only] be acquired by means of the consumers' ballot, held daily in the marketplace."
Israel Kirzner and the Wilmington, Del.- based Intercollegiate Studies Institute, deserve applause for bringing this insightful, provocative, yet nontechnical book to a wide audience.

William H. Peterson is an adjunct scholar with the Heritage Foundation and a contributing editor to the Foundation for Economic Education's Ideas on Liberty.

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