I first met Professor, Mises some 51 years ago. I had crossed over the Ringstrasse from my office in the Austrian Kriegsministerium with a letter of introduction from Professor Charles Rist of Paris, determined to use the ample time at my disposal as Assistant Secretary to the American Unofficial Delegation to the Austrian Section of the Reparations Commission to write the doctoral thesis that had been twice interrupted – first by President Wilson’s call to the young to make the world safe for democracy, and then, following discharge from the armed services, by a 14 months tour of duty at the American Embassy in Paris where I prepared daily summaries of the press for an Ambassador who could neither speak nor read the language of the country to which he was accredited, and where, in my spare time, I had worked on a study of Franco- American commercial relations.
Professor Mises was seated behind an uncluttered desk in a room even larger than the one I had left. I told him how far I had gotten along at Harvard with a study of direct taxation in Massachusetts. He suggested that there was need for a similar study of direct taxation in Austria. So I went to work and before I left Vienna in late 1923, I had completed an acceptable thesis on Direct Taxation in Austria which eventually appeared under the same title in the Harvard Economic Series (Volume XXXV, 1931), with a dedication to Professor Mises.
I remember very vividly my then vision of the Good Society, and the stages by which I had come to it. I was, in effect, a Fabian socialist.
Capitalism, I admitted, could build an impressive International House, with tall walls, graceful columns, majestic stairways and marvelous central heating, but it could not put a roof over the structure. And the social and material inequalities within the house made life uncomfortable for most of the inhabitants most of the time, even in the fairest weather. Socialism, on the other hand, could build a livable International House. It would be low and rambling, with a thatched roof, wide-open fireplaces in its many rooms, and friendly people moving freely from room to room.
This pretty picture had taken place very gradually. I had left college a confirmed free trader, convinced that if governments would let goods, services and people move freely into and out of their territories, if they would but specialize in doing what they could do best, the divisive spirit of nationalism would subside and men everywhere would live in peace and harmony with one another.
Like many, perhaps most of my generation, I took it for granted that wars were a thing of the past. Consequently, World War I had come as a great shock. It seemed clear to me that this war, like the Revolutionary War and the War between the States, as the people in the South still insisted on calling our Civil War, was the result of selfish tariff protectionism, and the world’s businessmen, despite their lip-service to private enterprise, were largely responsible. The working man and his spokesmen, the union leaders, and socialists generally were pacifists, internationalists and free traders.
My stay in Paris had strengthened my attachment to the socialist dream. Day-in, day-out I had reported in my press summaries the hymns of hate coming from the journals of the Right and the calls for reconciliation with their late enemies coming from those of the Left. The short sharp economic collapse at the end of the war appeared to confirm the socialist thesis that capitalism was inherently unstable, that a high and continuous level of employment required planning which, wisely conceived, would reduce social and economic inequalities and promote harmony within, as well as between nations. Admittedly, there would he some blunting of incentives, but the socialist performance over reasonable spans of time would be better than that of its rival.
Such was my vision when I started and in a single night finished Mises’ classic dissection of the socialist dream.1 I had gone to bed a Fabian socialist; I rose the next morning a free enterpriser, or at least something like the 19th century liberal of my college days when Woodrow Wilson was my hero. From that day on it was clear to me that the burden of proof was on those advocating coercive interferences with the market’s allocative functions and that interventions frustrating its adjustment mechanism would miss their marks.
Yet I realize, on rereading my reactions to Die Gemeinwirtschaft as they appeared in La Revue d’Economie Politique (Paris: 1923, vol. 37) and in the September 1923 issue of The American Economic Review, that my conversion was not complete. There was (and there still is) a bit of the Fabian socialist in me. I would like to see a somewhat more equal distribution of incomes than can be expected even if we could eliminate all the remediable deficiencies in the capitalistic performance.
In both reviews I recommended Mises’s re-examination of the theory of socialism as “deserving careful reading by friend and foe alike, “ and characterized his defense of capitalism as “a clear, vigorous and convincing restatement of the case for individualism, much in the tone of a Manchester Liberal of the ‘60s. . . . Whoever accepts the Austrian theory of value even in part”, I concluded, “can hardly refuse to follow the reasoning of Professor Mises as to the impossibility of complete socialism. More open to criticism, however, is his conclusion that complete laissez-faire is the solution. “
And then, in a final paragraph, I gently chided Professor Mises. After noting with approval his admission that the socialist ideology could only be destroyed by persuasion, by “right reasoning”, I assured him that “he need not fear the trade unions, or the presence of laborers in the councils of industry. Trade unionism had proved an educational force as well as at times a destructive one. Industrial democracy will prove as great an education in the intricate problems of production as political democracy has proved in that of citizenship.”
To date, Professor Mises’ glimpses into the future have proved far more accurate than those inspired by my wishful thinking. Nonetheless, though with far less confidence than 50 years ago, I continue to believe2 that the State, through taxing and spending (not through the manipulation of prices or the building up of the power of occupational groups) can provide a guaranteed income for all, as suggested by Professor Hayek toward the close of World War II,3 or by Professor Friedman in Capitalism and Freedom,4 originally presented in a lecture series at Wabash College in 1956; and could do it in a way that might actually improve the capitalistic performance and thus increase the prospects that the “right reasoning” that has flowed from Professor Mises’ tireless pen in the years since the appearance of Die Gemeinwirtschaft will yet bear out his faith that “once the thinkers of the Socialist movement cease to believe in their doctrine, the movement itself is doomed to extinction. “
At this writing it looks as though something approximating Friedman’s negative income tax may be enacted. I must confess, however, that the political supporters of such a daring innovation show no realization of the need, as Friedman insisted, to repeal “the rag bag of measures” that now fetter the free enterprise system and discredit it in the eyes of those who stand to benefit most from the full deployment of its incredible productive powers. If these measures remain on the statute books, we may well discover that “we have jumped from the frying pan into the fire, ....supporting in demoralizing idleness even more people than at present, and most of them would belong to the ethnic groups that now bear the brunt of the majority’s misplaced benevolence.”5
Thus, if I survive to the ripe age of Professor Mises, I may well be forced to admit that his predictions of the consequences of political interventions with the market’s allocative functions have again proved far more accurate than my wishful thinking.
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From Toward Liberty (Menlo Park, CA: Institute for Humane Studies, 1971) pp. 392-397
- 1Ludwig Mises, Die Gemeinwirtschaft: Untersuchungen uber den Sozialismus (Jena: Gustav Fischer, 1922).
- 2Thus in lectures and later in Van Sickle and Rogge, Introduction to Economics (New York: Van Nostrand, 1954), I argued that “if our colleagues, the political scientists and the psychologists” could convince us “that such a program would not be abused, it would be quite easy to imagine a broad security program of admirable simplicity. The federal government might, for example, issue weekly or monthly checks to all families in the United States based on the requirements for a really Spartan existence. The only condition for eligibility would be the submission each year of a detailed family income declaration. The government would then levy a progressive income tax which, in the case of each family, would begin with the amount received over and above the government annuity. Thus each family would be assured of a tax-free income which would vary with the size of the family. The income tax admittedly would be heavy, but while we are allowing free play to our imaginations, we can also imagine some substantial savings: no more public works undertaken just for the sake of providing employment; no more minimum wage laws; no more restrictive union agreements; no more agricultural price supports and acreage restriction programs; no more special programs for the needy aged, for dependent children, for the blind and physically handicapped; no more tariffs to protect high-cost enterprises. In brief, one can imagine a highly competitive enterprise economy superimposed on a thin cushion of guaranteed income. (pp. 522-23)Fifteen years later, in Freedom in Jeopardy: The Tyranny of Idealism (New York: World Publishing Company, 1969-), I suggested safeguards that would, in my judgment, warrant experimenting with a universal minimum. For the suggested safeguards, see pp. 176-180.
- 3F. A. Hayek, The Road to Serfdom (Chicago: The University of Chicago Press, 1944). Here Hayek stated as self-evident that the British economy, despite the damages suffered and still being suffered by the poundings of the German Luftwaffe, could easily provide a guaranteed income to all, if all the existing restrictions were swept away. “Let a uniform minimum be secured to everybody by all means, but let us admit at the same time that with the assurance of a basic minimum all claims for a privileged security for particular classes must lapse, that all excuses will disappear for allowing groups to exclude newcomers from sharing their relative prosperity in order to maintain a special standard of their own. “ (p. 210)
- 4Chicago: The University of Chicago Press, 1962. In his advocacy of a negative income tax, Friedman attached conditions similar to Hayek’s. “If enacted as a substitute for the present rag bag of measures directed to the same end (i. e. , the alleviation of poverty), the total administrative burden would surely be reduced”, (p. 193) and while “reducing the incentives of those helped to help themselves, . . . it does not eliminate the incentive entirely, as a system of supplementing incomes up to some fixed minimum would”. (p. 192)
- 5Quoted from Freedom in Jeopardy, op. cit., p. 173.
