Nation, State, and Economy. Людвиг фон Мизес
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Dr. L. Mises
Ludwig von Mises wrote Nation, Staat, und Wirtschaft in the same year, 1919, as John Maynard Keynes wrote The Economic Consequences of the Peace, a better known diagnosis of and prescription for the postwar economic situation. Mises, writing a few months earlier, presumably had less detailed knowledge of the Versailles Treaty and so was less concerned with its specific provisions. Keynes went into more detail than Mises in estimating such things as the wealth of the belligerents, the amount of destruction suffered, and the capacity of the Germans to pay reparations. His focus was narrower than that of Mises, who regarded his own analysis as one particular instance of applying lessons derived from both history and economic theory.
The two books have much in common. Both compare prewar and postwar economic conditions. Both authors recognize that each country’s prosperity supports rather than undercuts that of others. Both appreciate how much the standard of living of Europe and particularly of Germany had depended on world trade and regret its interruption. Both, rightly or wrongly, perceived something of an overpopulation problem in Europe and in Germany in particular and made some not too optimistic remarks about the possibilities of emigration as a remedy. Mises even waxed wistful over loss of opportunities that Germany might have had in the nineteenth century peacefully to acquire overseas territories suitable for settlement.
Both authors more or less took it for granted that the German ruling class and segments of public opinion had been largely responsible for the war. Mises deployed history, politics, sociology, psychology, and other disciplines in exploring the intellectual and ideological background of German militarism. Keynes also engaged in psychology. His dissection of the character and personality of Woodrow Wilson is justly renowned, and he made biting comments on the immorality of Lloyd George’s “Hang the Kaiser” election campaign of December 1918.
Both Mises and Keynes emphasized how currency deterioration causes social as well as economic disorder. Keynes endorsed Lenin’s supposed observation about the best way to destroy the capitalist system. “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Keynes warned against misdirecting blame onto “profiteers,” and Mises, too, understood the constructive function of profit, even in wartime. Mises explained how inflation undercuts the vital functions performed by accounting. Keynes and Mises were exhibiting prescience, writing four years before the hyperinflationary collapse of the German mark would dramatize the points they were already making.
Keynes’s book included no signs of anticapitalism or of support for comprehensive government economic intervention. Mises was emphatic on these issues. He exposed some of the inefficiencies of socialism, although he had not yet formulated his later demonstration of the impossibility of accurate economic calculation under socialism.
Both Keynes and Mises come across in their respective books as analytical in their diagnoses and humanitarian in their recommendations. Both were pessimistic about economic conditions on the European continent, at least in the short run. Both opposed a vindictive peace; Keynes’s warnings about reparations are well known. It is too bad that Keynes’s fame did not carry over more effectively into actual influence and that Mises’s book was not more accessible to the English-speaking world at the time. If only the two men could have joined forces!
Mises’s book illustrates the differences between the political and economic philosophies of conservatism and of liberalism (liberalism in the European and etymologically correct sense of the word). Mises was emphatically not a conservative. His book rails repeatedly against political and economic privilege. He championed political democracy as well as a free-market economy. He admired democratic revolutions against hereditary and authoritarian regimes; he sympathized with movements for national liberation and unity. As he explained, liberal nationalism—in sharp contrast with militaristic and imperialistic nationalism—can be an admirable attitude and a bulwark of peace. Different peoples should be able to respect and—to interpret a bit—even share in each one’s pride in their own culture and history. (I think I can understand what Mises had in mind by recalling my feelings while traveling in Italy in 1961 at the time of celebrations and exhibitions commemorating the one hundredth anniversary of the founding of the Kingdom of Italy. As my traveling companion remarked, he almost felt like an Italian patriot.)
Mises’s devotion to political democracy was tinged with a touching naiveté. Passages in his book suggest that he could hardly conceive of how the people, given the opportunity to rule through freely elected representatives, would fail to choose those politicians and policies that would serve their genuine common interest. This optimism is not to his discredit. It underlines the genuineness of his liberalism. It reminds us that he was writing more than sixty years ago, before the subsequent accumulation of sobering experience with democratic government. He was writing before the development of public-choice theory, that is, the application of economic analysis and methodological individualism to understanding government and government failure, analogous to the better publicized market failure (fragmented and inaccurate cost/benefit comparisons, externalities, and all that). But Mises certainly was not naive in relation to the experience and political analysis available in 1919. On the contrary, some of the most insightful parts of his book analyze the obstacles to the development of democracy in Germany and Austria. Mises saw the significance of the nationality and language situations in those two polyglot empires. He did not single-handedly develop an economic and psychological analysis of government, but he made an impressive beginning on that task in this and later books.
Mises could expect his German-speaking readers of over sixty years ago to recall the salient facts of German and Austrian history. Such an expectation may not hold for English-speaking readers of the 1980s. For this reason, a sketch follows of the historical background that Mises took for granted. In particular, it identifies events and persons that Mises alludes to.
German-speaking territories were ruled for centuries by dozens and even hundreds of hereditary or ecclesiastical monarchs—kings, dukes, counts, princes, archbishops, and the like. Mises speaks of “the pitiable multiplicity of several dozen patrimonial principalities, with their enclaves, their hereditary affiliations, and their family laws” and of “the farcical rule of the miniature thrones of the Reuss and Schwarzburg princes.” Even after formation of the German Empire in 1871, its component states numbered four kingdoms, four grand duchies, fourteen lesser duchies and principalities, and three Hanseatic cities, as well as the conquered territory of Alsace-Lorraine.
Until beyond the middle of the nineteenth century, Germany was understood to include the German-speaking sections of Austria, which was usually the dominant German state. In the words of the Deutschlandlied, or national anthem (written in 1841 by the exiled liberal August Heinrich Hoffmann von Fallersleben), Germany ranged from the Maas River in the West to the Memel River in the East and from the Etsch (Adige) River in the South to the Belt (Baltic Sea passages) in the North.
The domain of German rulers was not limited, however, to German-speaking territories. Poles and other Slavic peoples lived in the eastern sections of Prussia, especially after the conquests by Frederick the Great to which Mises refers. Brandenburg, where Potsdam and Berlin are located, was the nucleus of what became the Kingdom of Prussia in 1701. The Hohenzollern family held the title of Margrave of Brandenburg from 1415 on and continued as the Prussian royal family until 1918. Frederick William, the “Great Elector” (the meaning of “elector” is explained below), ruled from 1640 to 1688. He presided over the rebuilding and expansion of his state after the Thirty Years’ War and obtained full sovereignty over Prussia. His son, Frederick I, who ruled from 1688 to 1713, was crowned the first King of (technically, “in”) Prussia. Frederick William I, king from 1713 to 1740, was largely the founder of the Prussian army. His son Frederick II became known to history as Frederick the Great. He wrested Silesia from Austria in 1745 and joined with Russia and Austria in the first partition of Poland in 1772. His successor, Frederick William II, joined in the second and third partitions of 1793 and 1795, which wiped