Editors Note: This week, we are celebrating Lew Rockwell’s 80th Birthday and the debut of our trailer for Playing With Fire: Money, Banking, and the Federal Reserve. Click here to learn more.
This was the keynote address at the Ludwig von Mises Institute’s new building dedication and conference on the great Austrian economists, June 5-6, 1998, in Auburn, Alabama.
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We come together at a crucial time in the history of the Mises Institute and the history of liberty. This weekend, we dedicate a new home, which we see as a new headquarters of the Austrian School of economics and the scholarship of liberty. We are deeply grateful to all who have made it possible. You show your commitment to the ideas that underlie the free and prosperous commonwealth of Mises’s vision.
The conference surrounding the dedication will examine some heroic defenders of economic science and economic freedom. They have been so in an age that will forever be known as the time when rational thinking about society was abandoned in favor of the cult of the state, resulting in a bloody period of socialist totalitarianism. The men who refused to go along deserve our study, respect, and honor.
The book on which this conference is based will appear later this summer. Edited by Randall G. Holcombe, it traces Austrian thought from the 16th century to the present. We are very excited about this work, which will be a staple for students and professors and all interested readers.
That volume includes an essay about Mises by Murray N. Rothbard, who was so crucial to the Austrian School and the Mises Institute, and who will forever serve as an intellectual and moral beacon for us. Rather than attempt to present that essay in this talk, I’d like to address, in a way I hope Murray would approve, a topic related to Mises that’s been on my mind recently.
Friedman’s Tale
The autobiography of Milton and Rose Friedman tells a story about Ludwig von Mises that was retold in the Sunday New York Times book review. In 1947, some free-market economists, including Friedman and Mises, came together to form the Mont Pelerin Society. But Mises was clearly agitated at the ideological tenor of the discussion. Finally, he stood up and shouted, “you are all a bunch of socialists,” and stamped out. In the story, the Mont Pelerin Society went on to glory as the fountainhead of the classical-liberal revolution.
The point of the anecdote is to make Mises appear to be a fanatical ideologue, and Friedman a man of reason. It assumes that for Mises, sticking to principle was some sort of fetish that prevented him from thinking strategically or cooperating with like-minded scholars. It conveys the message that adherence to strict standards of truth is the enemy of practicality.
Mises’s adherence assured that his audience would be limited to a small set of followers, and that his way of thinking would be ignored by intellectual leaders and statesman who could actually make a difference in the world. Now, I’ve heard this kind of talk for years, and some of the same accusations are leveled at the Mises Institute. So, I would like to take up the task of defending firm adherence to principle, and of speaking honestly and forthrightly, and respond to the charge that Mises and the Misesians marginalize themselves by being inflexible. I would like to show, instead, that truth is our greatest weapon, and that ideological pragmatism works against the cause of liberty in the long run.
First, let’s clear up some matters of fact. It turns out there is much more to Friedman’s story, and the details illustrate why Mises, in his life and in his work, continues to be an inspiration.
The Trouble With Chicago
The event happened, not at the opening meeting of the Mont Pelerin Society in 1947, but in the mid-1950s, as the Chicago School was gaining dominance over the free-market movement, and the Mont Pelerin Society was falling under their sway.
Mises knew then what has become obvious today, namely that it’s a long, long way from Chicago to Vienna. The Chicago School has long embraced a positivist methodology, which claims that all questions of theory and policy must be submitted to empirical testing. We cannot know in advance whether a tight price ceiling will lead to shortages; we can only try it, and observe the results. This application of positivism to economic theory and policy has been a bad development for liberty.
As James Glassman pointed out at the Austrian Scholars Conference, this accounts for why so much policy debate boils down to a pointless numbers game. When someone suggests raising the minimum wage, interest groups inundate Congress with supposedly scientific empirical tests designed to show that such a raise would have no effect, or even lead to more employment.
Opponents of the wage increase then attempt to debunk the assumptions of these studies and trot out their own, showing the opposite effect for this specific raise. The battle rages back and forth, but the real truth of the matter eludes most everyone.
The trouble is that human affairs cannot be treated as a laboratory experiment. In abstract models, we can hold things the same, but in human affairs, there are no controllable constants. There are only established laws of cause and effect, precisely what empirical testing cannot discover on its own.
Empirical tests can illustrate principles, but in human affairs, unlike the physical sciences, they don’t yield the principles themselves. To discover the effects of price and wage controls requires us to use economic logic of the kind the Austrian School has pursued.
And this is where seemingly arcane differences in methodology can have profound effects. While generally arriving at free-market conclusions, the Chicago School has made exceptions in a host of important areas. This is because, as a matter of principle, they have no fixed principles. To be true to their doctrine, all Chicago policy recommendations must bow to the latest empirical analyses, with the most elegant among them winning.
I recently heard a talk by Gary Becker, a Nobel laureate, true gentleman, and brilliant economist of the Chicago School. He was asked about the effects of gun control on crime. He hesitated, and then made it clear that he could give no a priori answer. He had no principle about whether people ought to be allowed to own guns. But, he said, in light of the empirical and econometric work of economist John R. Lott, and his nicely titled book More Guns, Less Crime, he would tend to say that we should not rush to think gun control is the answer to crime problems.
Becker came up with the right answer, thanks to the new book by Lott, who, incidentally, is influenced by the Austrian School, but when you hear this kind of answer, you can only be unsettled. If Lott’s book had not been written, or had not received a huge amount of publicity, Becker would have had to rely on last year’s empirical studies, many of which were designed to reach the opposite conclusion. Moreover, we can’t know with any certainty whether another book might appear next year, one even more technically sophisticated than Lott’s, that would seemingly demonstrate the opposite. Someone once said that empirical studies in the social sciences are like government laws and sausages: you do not really want to see them being made.
The net result of this policy agnosticism on a base of empiricism is a tendency to embrace halfway schemes to inject market signaling into essentially statist institutions, with inferior results. The school voucher movement, whereby taxpayers fund not only the public schools but also the private ones, and do so in the name of competitive markets, is a scheme that originated with Chicago.
The negative income tax, the principles of which ended up in the hugely expensive earned-income tax credit, is another Chicago notion. So is the withholding tax, which disguises the true burden. And Chicago’s refusal to provide a theory of justice to back its defense of property rights has led judges to toy with the institution of ownership the way they toy with the law itself.
Methodology Matters
Mises knew from his earliest years that economists who claim to do science on the model of physics were overlooking the distinctiveness of economics as a social science. Mises saw the task of economics as deducing from first principles of human action the entire workings of the market economy, and in this, he was only formalizing the de facto method of his predecessors in the history of thought.
He also saw that economists who abandoned the deductive method lacked a sure theoretical footing to oppose invasions by the state, since one can never know in advance of testing what the effect of a policy will be. And even after the supposed tests are run, you can never be sure about the data set chosen, the methods of analysis, or the subtle ways in which the bias of the author is built into the model.
Let me provide one final illustration of the problem of doing economics strictly by the numbers. In 1963, Friedman and Anna Schwartz published a history of the money supply in the U.S., in which they argued that if the money supply rises at the same rate as output, and velocity is relatively stable, prices will also be stable.
The policy conclusion was embodied in Friedman’s proposed constitutional amendment that would have had the Federal Reserve increase the money supply at 3 percent per year, an idea that somehow eluded men like James Madison.
Had Friedman really discovered an empirical law with variables so simple that government officials could control them at will? In the first place, as the Austrians have long argued, there is a hidden assumption in the Chicago model that the money supply enters the economy evenly, as if dropped from a helicopter. But as we know, in real life, new money enters the economy from the banking system through the credit markets.
New credit infusions send false signals to borrowers who are led to make bad judgements about real economic conditions. The result is the business cycle, for which Friedman was never able to provide a causal explanation.
But the reason Chicagoite monetarism became unworkable as a theory goes to the heart of the empirical case. After financial deregulation and the internationalization of currency markets, their old reliable system for measuring the velocity of circulation and how much money was in the economy became unviable. The monetarists themselves couldn’t agree on whether the money supply was going up or down, much less to what degree. This is akin to the builders of a new house not agreeing on how many inches there are in a foot. But in economics, if you live by the numbers, you eventually die by them.
Meanwhile, the Austrian money and banking theory has been used, in the pages of our journals and newsletters and books, and those of many others, to explain a host of recent money and banking problems arising in the U.S., Mexico, and Asia.
At the Mont Pelerin Society meeting where the famed blowup occurred, several economists were debating how to structure the tax system so the government could collect the most revenue while not distorting the operation of the free market.
To Mises, this discussion presumed several wrongheaded notions. First, that the government is entitled to collect as much revenue as it can get away with collecting. Second, that the taxes of the 1950s were not fundamentally injurious to the market economy. Third, that economists should be in the business of giving advice with an eye to what is best for the state. Fourth, that there is a branch of economics dealing with tax theory that can be considered as separate and distinct from the whole of economics. Fifth, that economists should try to design measures of government interference to achieve optimal results.
The Betrayal of Economics
To Mises, economists had a role in the political life of the nation. But it was not in making life easier for the state and the political class. It was not in becoming specialists in providing rationales for the expansion of state power. To Mises, this was a betrayal of economics.
The good economist is supposed to deliver uncomfortable truths that would likely make him unpopular to the political class. He was to explain to them how their high tax rates seriously damage the ability of entrepreneurs to make sound judgements about the future, how taxes prevent consumers from saving and investing for themselves, and how taxes hinder businessmen in serving consumers through innovative products and marketing. Moreover, a state receiving the maximum possible revenue would be an expansionist state that would never cease its interventions in the market.
Yes, Mises thought that economists who attempted to make this possible, while failing to recognize that the post-war tax state and the market economy were at odds, were acting very much like the socialists of old. It was the socialists, after all, in the form of the German Historical School of institutionalists and empiricists, who first conceived of economics as a science in service to the state.
Mises had been through these struggles as a young man, had devoted a lifetime of teaching and writing to combating them, and had laid out a clear path for the future of economic science in his treatise Human Action. He wasn’t about to be party to a repeat of the same errors, especially not when he saw the administrative state engulfing the West.
What was his vision for the economist? When the economist isn’t making politicians angry at him, he should be raising up new generations of students and intellectual leaders, and educating the public in every way possible about the workings of the market economy.
He should be conducting research that would apply market principles in new areas of history. He should be perfecting the theory and presentation of economic science consistent with the principles of logic and with an eye toward defending freedom above all else. He should be combating with all his might the legions of bureaucrats whose goal it is to maximize state revenue.
In quoting the passage from the Friedmans’ memoirs, book reviewer David Brookes, an advocate of what is called “national greatness conservatism,” was trying to make Mises look bad. But in our experience, the mention of Mises in this setting has the opposite effect.
Readers come across an anecdote like that, however inaccurate and incomplete it may be, and say: who is this uncompromising advocate of free markets, and why do the New York Times and its friends dislike him so much? My own view is that the New York Times can attack Mises as much as it likes. It’s good for attendance at our teaching programs, and only increases the circulation of our journals and other publications.
This is hardly the first time Mises has been criticized for not toning down his criticisms of government. He never followed the advice of the people who said: You’re a great economist, but you would be taken much more seriously if you were not so unyielding.
If Mises had listened to this advice, he would indeed have been much better off. He might have been appointed to a chair at the University of Vienna. Instead, he conducted his seminar from his offices at the Vienna Chamber of Commerce. He might not have been driven out of his country. Instead, the invading National Socialists regarded him as perhaps the most dangerous intellectual opponent of their ideology. Once arriving in the U.S., he might have been awarded a prestigious post at an Ivy League university. Instead, his salary came from outside sources, and he was never more than an unpaid visiting professor at New York University, relegated by the statist dean to a dank basement classroom.
Did Mises Have Regrets?
So why did he do it? Why did Mises stick to principle above all else, even when he knew it was not in his self-interest? Murray Rothbard addressed this question in a powerful 1993 essay called “Mises and the Role of the Economist in Public Policy.” He pointed out that Mises was often criticized for his engagement with political questions, but that engagement was not the cause of the criticism. After all, Keynes was steeped in political battles himself, and so was Irving Fisher, the godfather of the Chicago School.
The problem for Mises was that he bucked the fashionable opinions of the time, rejected the planning mentality, and persistently and consistently insisted on holding the purest free-market position, even when everyone around him was caving in. He stood as an exemplar of the scholar who speaks truth to power, an all-too-rare figure in our century.
Mises’s perseverance in the cause of freedom cost him dearly. He writes in his autobiography that he was often reproached by his friends in Vienna “because I made my point too bluntly and intransigently, and I was told that I could have achieved more if I had shown more willingness to compromise.”
But, Mises said, “I could be effective only if I presented the situation truthfully as I saw it.” He concludes, “as I look back today..., I regret only my willingness to compromise, not my intransigence.”
He wrote these words in 1940, at a time when he had good reason to regret his refusal to compromise. He had been driven out of Vienna and his home had been ransacked. He had left Geneva due to the growing pressure on Switzerland to harbor fewer refugees, especially prominent opponents of National Socialism.
His masterwork, Nationaleokonomie, the predecessor to Human Action, had appeared in Geneva in the midst of the war. But his book was only sparsely reviewed, and made no impact on the German-speaking world. In 1940, he had no fixed place to live, and no means of support. He would not be made an American citizen for another six years. He had a new bride and no real future. All the evidence around him suggested that his teachings about the market economy had been soundly rejected from one side of the world to the other.
Almost anyone else, particularly an intellectual today, would have concluded that he had been wrong. He had been tilting at windmills, and as a consequence, had destroyed his career, his relationship with his colleagues, and his reputation in history. Anyone else would have had regrets at this time, but they would have been about how he should have changed matters so as to avoid the tragic fate in which he had found himself.
And yet, at the lowest point of his life, Mises had only one regret: that he had not been even tougher and less compromising.
This is a remarkable impulse, not only because it involves putting aside personal interest for the sake of a fundamental commitment to higher ideals. It is remarkable for the virtue of hope that it displays.
Trends Can Change
Mises understood that no matter how bleak the present circumstances, the future could be very different. Even as the world collapsed around him, he believed that freedom could triumph, provided the right ideas emerged at the forefront of the intellectual battle.
He was convinced that freedom did have a chance for victory, and—this is the crucial part—that he bore some measure of personal responsibility for bringing that victory about.
Keep in mind, too, that Mises would not have had to become a full-scale socialist to have kept some or even most of his troubles at bay. The state and the post-war establishment made good use of free-market economists who were willing to be flexible.
In the U.S., there were several students of Mises who had good positions—at Harvard, Princeton, the University of Chicago—and who were not on the margins of academia. They proved more career-minded than he, and their marketability in the world of ideas was increased by their willingness to abandon some part of Austrian theory. They all made important contributions to economics, but at the same time, they were all useful, in small ways and large, to the partisans of power.
Alone among them, Mises was not swayed by the Keynesian revolution or the rise of welfarist ideology. Instead, he attacked both as species of the same interventionist mind-set, one attempting economic sorcery, the other bringing about sheer robbery.
Mises didn’t live to be rewarded for his intransigence. He died in 1973, at the height of the Keynesian-planning mentality, when the mainstream of the economics establishment was still promoting the Soviet economy as potentially the most productive in the world.
Even a few years later, with the basis of Keynesian fiscal planning in tatters, there would have been reason for hope. But Mises had no basis for thinking the truth would eventually triumph, other than this: he believed that the power of ideas was ultimately stronger than all the governments and armies and planning bureaucrats and even economics professors put together.
How ironic, then, to look back and notice that it is Mises who now stands as the worldwide standard bearer of the market economy. New editions of his books are selling in every major language and year-by-year, his reputation grows. Students return to him because they respect his case for the pure free market, and his unwillingness to compromise. Today, more than ever, the advocates of intervention know that it is Mises with whom they have to deal, in order to make their case.
A Remarkable Body of Work
What a remarkable body of work he left us. His book on monetary theory, written in 1912, still stands as the foundational work. His 1919 book Nation, State, and Economy, forecast the troubles that would rack Europe in the post-monarchical age, and held up secessionism as the only viable route out of the nationalities problems that still plague phony nations like Yugoslavia.
It was this book that also warned of the dangers that war posed to economic freedom, rightly identifying the militarized economy as a species of socialism. We are very pleased to have Leland Yeager, the translator of that brilliant volume, here with us at Auburn. Last year, he conducted a seminar on this book for us.
In 1922, Mises published Socialism, which among all the attacks on the totalitarianism of the century, remains the most comprehensive, deeply insightful, and devastating, from an economic, sociological, and political point of view. The answer to socialism was Liberalism, the title of his 1927 work that remains the most solid and compact statement of the classical-liberal view of society and economy.
As Ralph Raico has argued, it was this work that firmly entrenched the idea of private property at the very center of the classical-liberal agenda. In doing so, Mises was the first to clearly distinguish the old liberalism from the new, even as the new liberals were working to blur the lines for purposes of their own ideological advancement.
The trilogy was completed in 1942 with a book entitled Interventionism: An Economic Analysis. In it, he sees a world economy that is marooned between capitalism and socialism, and thereby buffeted mercilessly by the internal contradictions of the interventionist state.
He forecast monetary crisis in essentially capitalist countries due to the deviation of central banking. He predicted the entrenchment of poverty due to welfare benefits. He forecast the artificial suppression of savings due to state pensions. He anticipated the burdens that would be placed on countries with governments that refused to rein in their imperialist international ambitions. Sadly, this book was not brought to print until this year.
In 1944, Mises wrote a brilliant essay on monopoly, in which he explained that the problem of monopoly was a problem of government, and that attempts by government to break up or curb the ability of businessmen to price and market their products in the manner most pleasing to consumers would only backfire to the detriment of prosperity. This essay also never saw the light of day, but fortunately, the summer issue of our Quarterly Journal of Austrian Economics will publish this important piece for the first time.
Human Action
Lacking publishing venues, a full-time position, and even students to teach, Mises forged ahead to present his magnum opus to the English-speaking world. The result was Human Action, which made its appearance in 1949. It was the culmination of the classical-liberal vision of economics that dated back centuries, tightly integrated with the scientific rigor of the Austrian School formally founded by Carl Menger.
It was the most complete statement of good economics ever to appear, and it should have become the mainstay of the profession. But by then Keynesianism had taken root, and Mises was again denounced for his intransigence. One of his critics was J.K. Galbraith, whose review showed every sign that he never got beyond the book jacket.
Mises did not expect to see his treatise sweep the profession. Indeed, the publisher feared that the book might not cover the costs of production. But the sales were surprisingly good, for there was already a growing Misesian movement, helped along by his friends in New York like businessman Lawrence Fertig and journalist Henry Hazlitt, who used his position at the New York Times to promote Mises and his ideas. (Both of them were later to become great benefactors of the Mises Institute.)
Yet Mises—then in his 80s—experienced personal tragedy over the book. Due to some larger than expected last-minute changes, the 2nd edition was mangled by the publisher, and rendered all but useless.
The Mises Institute
To commemorate the 50th anniversary of Human Action, the Mises Institute is reissuing the pristine first edition. This Scholar’s Edition will feature not only paper, printing, and binding for the ages, but also a new introduction by our senior scholars, three of whom are with us this weekend, Hans-Hermann Hoppe, Joseph Salerno, and Jeffrey Herbener.
In all, Mises wrote 25 books and hundreds of essays. In the future, we hope to publish a Collected Works. In the meantime, we are proud to have assisted in the republication of such great works as Theory and History and essay collections like Money, Method, and the Market Process, and to bring into print such classic works as “Liberty and Property” and “Economic Calculation in the Socialist Commonwealth.” And we are proud to have produced a film biography, sponsored many conferences centering on some aspect of his thought, and to have sponsored the world’s leading teaching programs, scholars conferences, and journals on Misesian economics.
As we meet, our Mises biographer, Jörg Guido Hülsmann, is in Moscow immersed in Mises’s papers, and those of Mises’s colleagues from Vienna, stolen first by the national socialists and then by the international socialists. Guido has just returned from a trip to Mises’s secondary school in Austria, where the carefully preserved records show the content of every class he took, and his grades. He was a straight-A student in everything from ancient Greek to higher mathematics. We expect Guido’s two-volume biography, the first of Mises, to have a tremendous effect in advancing our knowledge and admiration of the man and his ideas.
But, in the 1970s, as the Austrian movement experienced renewed interest, the two books that had carried the School during the post-war period, Mises’s Human Action and Rothbard’s Man, Economy, and State, began to be pushed to the sidelines.
The Mises Institute was founded in 1982, in part, as an attempt to correct that. But as soon as I started to talk about such an organization, I heard the same old song and dance. Mises was too extreme. He was better left to the historians of thought. He could never be made palatable to the economics profession. He should be forgotten as an embarrassing figure. He had unnecessarily linked the Austrian School to radical politics.
Yet today, the power of Mises’s ideas has mowed down his many detractors, and he is the undisputed godfather of the Austrian School. His name is cited by a broad array of scholars across disciplines and countries. His ideas are at last leading an international revival of classical-liberal scholarship and, simultaneously, driving forward a global movement against political control of society and economy.
No Compromise
But would Mises’s influence be even stronger if he hadn’t been so uncompromising? It might have been, but then that influence wouldn’t have been all to the good. Let me explain.
Let’s imagine how history would have been different if Mises had been a different sort of man. Let’s say that somewhere in his writings, just for the sake of expediency, he had conceded the need for a welfare state, or anti-discrimination law, or protectionism, or labor regulation, or old-age pensions, or some other socialist-inspired measure.
How useful these concessions would have been to the enemies of capitalism. These days, they would be inflicting on us the idea, for instance, that a social safety net is necessary. After all, even Mises conceded that this was the case. Such, of course, was never the case.
From time to time you see references in popular journals claiming that even Mises favored subsidies to the Vienna State Opera. This canard has been around for decades and has no basis in fact. The idea itself probably originated from a twisted interpretation of a passage in Human Action condemning such subsidies.
Why are so many so anxious to discover that Mises had actually compromised his position? Because for the power elite and the left, free-market economists can add credibility to statist policies. If free marketeers can be caught in a contradiction or a compromise, surely it cannot be bad for the left to favor the same thing, or so they say.
This is partly why so many have an interest in protecting the exalted status of Adam Smith as the primary theoretician of free enterprise. It’s true that he made a devastating case against mercantilism and explained the working of the market economy better than most of his contemporaries. But as Murray Rothbard has shown, and as the left has long trumpeted, he also made a huge number of compromises. Protectionists enjoy quoting Smith’s periodic defense of tariffs and trade controls, for example. Smith can also be found defending controls on consumption, interest-rate ceilings, and government monopolies of all sorts.
So, yes, Mises could have been more famous in our time. In the short run, he could be cited more often and have his name invoked as frequently as others who were less tenacious and less unyielding. But, with the exception of the bogus opera anecdote, we can have assurance that most anytime the name Mises is invoked, whether in scholarly or popular culture, it is for his greatest virtue, whether or not it is being attacked.
What a joy to have as our hero a man whose ideas we can embrace so completely, without fear that his deviations or contradictions will be thrown back in our faces. He is a model and ideal, and his ideals are the standard which all principled proponents of liberty can be confident in celebrating.
In our own time, the problem of compromising free marketeers makes a very interesting study. Let’s set the context. For a century, the left has been defined by its advocacy to two possible positions. The first is that government should plan the economy using fiscal controls, monetary controls, and regulatory controls. It is hard to remember, but there used to be an elaborate philosophical apparatus to justify this.
The economy was supposed to work like a machine. Pull this lever, and a certain result comes about. Pull that lever, and a different result comes about. But this model has been discredited. Even more discredited is the second option, the pure socialist model, still favored by a huge part of the academic elite.
The cultural, economic, and political left has been largely discredited in the eyes of the public. Where does the state go for vindication? Ideally, it finds intellectuals with credibility on the right who are willing to make compromises with state power. They are very useful in shoring up the propaganda edifice in service of state power.
Sell-Outs
I noticed the other day, when Bill Clinton was arguing for Congress to shell out more money for the United Nations and the International Monetary Fund, that he chose quotations from Ronald Reagan in which Reagan lavishly praised the UN and the IMF. This kind of tactic can be extremely useful.
Free marketeers beware. If you utter a word in support of the state and its interests, the left and the elite will do all they can to make sure that word is all you’re remembered for.
These days, for example, when you pick up a scholarly treatise in defense of the transfer society, you can bet there will be an entry for F.A. Hayek. It will not cite his crushing attack on egalitarianism, his case against managed economies, his defense of the common law and the gold standard, or his demonstration that the mixed economy is contrary to freedom.
It will note his defense of freedom, but also cite his periodic concessions to the welfare state. As much as I regret Hayek’s concessions, he would surely be displeased to see his writings used in this manner. But free marketeers who make exceptions can earn a high return.
Of course, the use of market economists in the service of statism doesn’t always take place without their consent. I know a talented economist who was also a leading critic of the national sales tax. He debunked the claims that the present tax code could be entirely replaced, dollar for dollar, with a bearable fee on all goods and services sold at the retail level.
Rather than refute his arguments, the proponents of the sales tax hired him. He then proceeded to write the opposite. (The Mises Institute has stayed out of this flat-tax/sales-tax cat fight, and instead promoted our own plan, which we call the lower tax.)
A free-market voice on the wrong side can really skew the debate. We learned this during the battle over Nafta, which we fought because it was a regulatory trade bloc, not the international free market.
In promoting Nafta, the Clinton administration made effective use of free-market intellectuals willing to back the treaty. Assembled in a well-funded “Nafta Network,” they swayed the final debate. As a consequence, cross-border trade is now hampered with endless inspections, lines, labor and environmental restrictions, and regulations nobody seems to understand.
Let me give you another example. Robert Bork, for years a tough-edged critic of antitrust enforcement, recently signed up as a consultant with Netscape, the corporation that stands to benefit the most from an antitrust breakup of Microsoft.
He’s doing very well. He could probably rack up a hundred billable hours, at $400 each, just on the responses he’s written to Mises Institute editorials in the last month. No doubt his total take will be somewhat higher than if he had been just another pro-antitrust economist. But it illustrates a point: the personal advantages of compromise far outweigh those that come from sticking to principle. If your conscience can bear it, it’s a good career move.
Like all our scholars, Dominick Armentano, the Rothbardian antitrust economist with us this weekend, would be very valuable to the Justice Department if he were willing to make the switch.
The Defense of Freedom
The defense of freedom has got to be made of tougher stuff than Bork. In a line from Virgil, which Mises, as a young boy, chose as his lifetime motto, we are told: “Do not give in to evil, but proceed ever more boldly against it.” For Mises, this was not just an abstract tenet of personal morality. He thought this stance was essential to the preservation of civilization itself.
To understand why, we must know something about Mises’s own view of what constitutes society. He saw all human action as choices by which we seek to bring about what we perceive as improvement. Since society itself is nothing more than the coming together of millions upon millions of individual choices, we can say, from Mises’s perspective, that the kind of society we live in is a product of human choice.
Notice how different this is from the theory of society that sociology professors are always trying to drill into college students, and which we hear on radio and tv on a daily basis. In that view, our actions do not form society and our choices do not determine its shape; society somehow acts to form us and determine our choices for us. Thus no one can be held responsible for his actions—not criminals, not union workers, not failing entrepreneurs, not international bankers investing in foreign bubble-economies, and certainly not Bill Clinton.
This view of society also means that there is not much anyone can do to change the present structure of government.
But to Mises, this was a lie. Instead, he said, society is a product of conscious choices that we make, influenced by ideas we hold, and shaped by trends established and driven forward by human actions. This is how Mises understood the market. But it is also how he understood the crucial question of government.
Along with David Hume and Etienne de la Boetie, Mises saw that the state always rules with the tacit consent of the governed. That doesn’t mean that at every step, everyone in society must approve of what the state does. Instead, it means that a sizeable majority have invested the state with a sufficient degree of institutional legitimacy to keep the political system running. Otherwise, the state and its programs would fall.
As Mises wrote in Liberalism, government is by its nature always rule by “a handful of people” compared to the general size of the population. This small group cannot impose its will by force alone. No regime in human history has been able to accomplish its goals through force alone.
All regimes depend on the consent of the governed, what Mises called the general “acceptance of the existing administration.” The people “may see it only as the lesser evil, or as an unavoidable evil, yet they must be of the opinion that a change in the existing situation” would make them worse off.
In Mises’s view, then, government is always in a vulnerable position. Its rule can be challenged and even overthrown in a heartbeat, if consent is withdrawn. We can think of the colonial government in America, British rule in India, and the Shah of Iran. There is the example of Indonesia. Before that, we can think of Poland, East Germany, Romania, and even Russia.
The history of politics is an endless struggle between the forces of liberty and the forces of power. States that announce themselves to be invulnerable and eternal—the Roman Empire, the Third Reich—in retrospect appear to be on the verge of collapse. It puts the Clinton administration’s announcement that it runs the “indispensable nation” in a new light.
What makes it possible for the largest government in human history—I’m speaking of the U.S. government—to continue to rule in our own country? The answer is complex. But it involves an enormous apparatus of propaganda and legitimization by the media, the academic elite, bureaucrats on the payroll, and special interests anxious to provide a cover for their graft.
It also involves buying off potential critics and radical dissenters from the regime. And it involves the misuse of religion, whereby we are taught to treat national symbols as sacred, worship the presidency, and regard the political and bureaucratic class as some sort of exalted ecclesiocracy.
Numbered Days
Mises proceeds to ask the profoundly important question of what happens when this system, designed to shore up confidence in the ruling regime, begins to weaken. His answer: “once the majority of the governed becomes convinced that it is necessary and possible to change the form of government and to replace the old regime and the old personnel with a new regime and a new personnel, the days of the former are numbered. The majority will have the power to carry out its wishes...even against the will of the old regime.”
Now we gain insight into Mises’s determination to stick to principle no matter what the personal cost. He understood that the preservation of civilization depends on establishing and protecting cultural, social, and economic freedom. And he knew that the enemies of freedom exercise power only with trepidation.
Their rule could be overthrown in an instant. And the instrument of that overthrow is the body of ideas that convinces people they would be better off under a radically different system, one where the government did not lord it over them. But to understand that, people must be shown the failure of the present system.
If Mises was optimistic about the eventual prospects for freedom, how much easier it is for us. The public is far less convinced of the merits of the present system than it was twenty-five years ago. Not a day goes by when I don’t see some commentator, left or right, bemoan the dramatic decline in the public’s confidence in the system of government that has waged war on economic and social liberty for much of this century.
They say we are losing our civic culture, when we are only regaining our private lives. They say we are losing our patriotism, when we are only recalling our love of liberty. They say we are losing hope in our nation’s future, when we are only recapturing our hope in freedom’s future. They say we are losing our faith in politics, when we are only restoring our faith in our families, our neighborhoods, our companies, ourselves, and our Creator.
I urge you to see through to the real agenda of the people who would restore a ’30s-style loyalty in the central state. What they want is not just our allegiance, but our property and businesses to control, our children to indoctrinate, our culture to distort, our towns and cities to break down, and our futures to steal—for their own benefit.
To them we must say: No, you may not have our first loyalties. Our first loyalties are to things we love. And no, Mr. Clinton, despite your injunctions, we do not love the government.
Our Good Fortune
We are extremely fortunate to live at a time when the restoration of the classical-liberal society does not require a wholesale change of direction. In many ways, we are headed in the right direction now. Consider with me some old statist institutions, notions, and rules that have fallen into disrepute, are widely thwarted and ignored, or are in the process of crumbling before our eyes.
California passed a smoking ban that invaded the property of every business in the state. Now, the statewide pastime is to violate this ban in public displays of the right to smoke.
In Alabama, students at nearly every high-school commencement in the state defied the unconstitutional fiat of an occupying federal judge, by praying.
Three months ago, the Clinton administration wanted to go to war against Iraq, and sent its minions out to explain why to the rubes in the hinterlands. The rubes fought back, and told those minions a thing or two. So alarmed was the secretary of state by this public defiance that she hastily arranged a peace.
Microsoft was hit with an outrageous investigation and then lawsuit by the misnamed Justice Department, and decided not just to sit back and take it, but to fight back. This type of behavior would have been unthinkable decades ago—when IBM was similarly assaulted—but now it is cheered on by a generation of computer mavens who know a heck of a lot more about software than Reno and Bork.
Only two months ago, the tobacco industry was in the process of being semi-nationalized, and it seemed to be cooperating. Suddenly, the industry decided it wouldn’t take it anymore, and got up from the negotiating table and walked away. This threw Congress and the regulators and the trial lawyers into fits, but close watchers are now predicting there may not be a deal.
A year ago, Clinton demanded that Congress give him dictatorial fast-track powers to strut around the world pretending to negotiate on behalf of an entire hemisphere. Faced with a barrage of criticism, the Congress refused to grant it, making this the most devastating blow the presidency has suffered in the postwar period.
It is now widely accepted that many of Clinton’s policy proposals are made only for dramatic effect at important state events. But neither he nor anyone in Congress has the stomach to carry them through, because public resistance to new socialist schemes is too strong.
The U.S. military, now stationed in 100 countries around the world, reports a stunning exodus of pilots and skilled technicians, who are discovering that they don’t want to risk fighting pointless wars in weird foreign lands, and are instead choosing to serve society through the private sector.
Public participation in polls is the lowest in recorded history. The pollsters don’t want you to know this, but two-thirds of the people they call refuse to answer any questions whatsoever about their view of politics or politicians or even social issues discussed in the media. The pollsters are then left with a biased sample, one obviously favoring the regime in charge.
Public participation in elections has been declining precipitously for decades, but in 1996 it reached a crisis point. There now exists the real possibility that in November, the party controlling Congress will have received votes from only one in eight Americans. Folks, the days of the mandate are over.
The monopoly of the media has crumbled. Even the highest rated shows on the networks would not have been in the top 25 two decades ago. Network news is vanishing from the radar screen. In the new world of the web, Matt Drudge has more influence than Dan Rather. And the Mises Institute has as much influence over students all over the world as their own professors.
It’s astounding for us to receive messages and questions and requests from all over Europe, Latin America, and even China. The web has allowed us to break through the old information barriers we used to confront.
As for academia, the professorial ranks are still filled with socialists of every stripe. But students know better than to take them seriously. Meanwhile, we have had remarkable success in making inroads into the faculties themselves. For many years, our Mises University and other programs have trained economists, philosophers, legal scholars, and historians for faculty positions.
At the founding of the Institute, I was told that to send young free-market scholars out into the world was cruel. I was told they would be chewed up and spit out by the academic mainstream. That was never entirely true, but things were very tough in the early days.
Today, however, there is a huge network of young professors, and even some department heads and deans, who actively seek people who have graduated from our programs. In particular, PhD economists with a Misesian bent are suddenly in high demand.
As an illustration of the current struggle, NYU Press just published a deluxe 100th anniversary edition of the Communist Manifesto, and it is the toast of the elite set. But we know that another book published this year by the same press will ultimately have a more profound impact on history: Murray N. Rothbard’s The Ethics of Liberty.
There are many others signs of the crumbling of power and the bankruptcy of politics in our time. Formerly sacrosanct institutions of left-liberal academia—like multiculturalism, bilingual education, the devaluing of talent, the social security system, the attack on the family, the planned economy, the year-by-year socialization of our bank accounts, the love of the executive state—increasingly appear as anachronisms. In the future, they will be history.
Let me state for the record that I am not among those pining for a return of the days when every child aspired to be president.
Let our children aim to think great ideas, found great companies, create ingenious software, make great investments, build great fortunes, run excellent schools and charities, have large families, raise great children, become great religious and moral leaders. But may we not fritter away another generation in the bankrupt field of politics and public administration. A mind is a terrible thing to waste.
So, when people say, Clinton is disgracing the office of the presidency, let’s remember the upside. The desanctification of the executive is an important step in the depoliticization of society.
Mises never tired of telling his students and readers that trends can change. What makes them change are the choices we make, the values we hold, the ideas we advance, the institutions we support.
Unlike Mises, we do not face obstacles that appear hopelessly high. We owe it to his memory to throw ourselves completely into the intellectual struggle to make liberty not just a hope, but a reality in our times. As we do, let us all adopt as our motto the words Mises returned to again and again in his life. “Do not give in to evil, but proceed ever more boldly against it.”
