Skip to main content
Select Source:

Von Mises, Ludwig

Von Mises, Ludwig



Ludwig von Mises, economist and social philosopher, was born in Lemberg, in the Austro-Hungarian empire, in 1881. More than any other economist of the twentieth century, von Mises has expounded and developed the theories of the Austrian school of economics.

Von Mises was born into a professional family—? his father was a construction engineer for the Austrian railroads. After attending a Gymnasium he entered the University of Vienna at the turn of the century, a time of unusual intellectual ferment. At the university he studied economics under Eugen von Bohm-Bawerk, the chief figure in the Austrian school, and under his colleague, Eugen von Philippovich. Among von Mises’ friends and fellow students were the economist Joseph Schum-peter and the legal philosopher Hans Kelsen. His younger brother, Richard von Mises, became a prominent mathematician, aeronautical engineer, and leading member of the Vienna circle, the founders of the logical positivist movement in philosophy.

Monetary theory. Von Mises’ first interest was economic history, but he became increasingly aware of the failure of the Austrian school to integrate the theory of money into its marginal utility analysis. In The Theory of Money and Credit (1912), which established his reputation as an economist, von Mises accomplished this integration. In addition, by means of his regression theorem, he solved the marginal utility-price problem known as the “Austrian circle” his theorem logically reduced the existence of money to its origin as a useful commodity in a world of barter, its value there being determined by its marginal utility in use. As a corollary, he demonstrated that a society’s money can have its origin only in such a commodity. His book contains much else. He fully developed cash-balance analysis long before the Cambridge school of economists did so. Building on the insight of the Czech economist Cuhel, he showed that utility can be ranked only ordinally and cannot be measured, and his work on this subject considerably anticipated that of J. R. Hicks and R. G. D. Allen. Long before Gustav Cassel, von Mises set forth the purchasing-power-parity theory of exchange rates. He penetratingly criticized the concept of index numbers, the mechanical quantity theory of money and Fisher’s equation of exchange, and the notion that stabilization of the price level is desirable. And finally, he defended the virtually forgotten merits of hard money, free banking, 100 per cent gold banking, and parallel gold and silver standards.

Business cycle theory. In the monetary doctrines of the English classical economists and the currency school—more particularly, in their analysis of specie-flow, which they had relegated to the theory of international trade—von Mises found a cogent, although primitive, monetary theory of the business cycle. Building on this foundation, as well as on Wickselfs basic distinction between the “natural” rate and money rate of interest, von Mises presented the rudiments, in The Theory of Money and Credit, of his important monetary malinvest-ment theory of the business cycle. His was virtually the only business cycle theory to deduce an explanation of the cycle from a general analysis of the economy and the price system. He explained the boom as resulting from fiduciary bank credit expansion, which inflates the money supply, artificially lowers the rate of interest, and causes overinvestment in the higher stages of production. The depression inevitably follows upon the cessation of such credit expansion and constitutes the method by which the market returns the economy to the structure of production most desired by the consumers.

In the 1920s, von Mises fully developed his cycle theory, elaborating it in his Geldwertstabilisierung und Konjunkiurpolitik (1928) and applying it, in Die Ursachen der Wirtschaftskrise (1931), to the great depression which began at this time and which he had anticipated. His theory aroused widespread interest on the Continent and in England as an explanation of the unexpectedly severe depression. The policy conclusions he drew from the theory were especially thought-provoking: strict laissez-faire and reduction of government expenditure; hard money and abstention from any inflation; and freedom for market forces to complete their adjustments as quickly as possible, without artificial propping up of wage rates, stimulation of consumption, or preservation of unsound investments and firms.

Von Mises had considerable influence between the time of the publication of The Theory of Money and Credit and the mid-1930s. He exercised this influence as a professor at the University of Vienna, as an advisor to the Austrian Chamber of Commerce, and as a founder, in 1926, of the Austrian Institute for Business Cycle Research. Among the German and Austrian students and followers of von Mises were Fritz Machlup, Gottfried von Ha-berler, Wilhelm Ropke, Oskar Morgenstern, Richard Strigl, Siegfried Budge, and Georg Halm. Another of his followers, Friedrich von Hayek, took a post at the London School of Economics and thus contributed to the diffusion of von Mises’ cycle theory in England; von Hayek extended the theory by integrating it further with the Bohm-Bawerkian analysis of production. In England, von Mises’ ideas strongly influenced Lionel Robbins, Ludwig M. Lachmann, Frederic Benham, W. H. Hutt, and even such later disparate thinkers as Abba P. Lerner and Hicks. In the United States, C. A. Phillips applied the cycle theory to explain the depression of the 1930s. After the mid-1930s the theory was unfortunately buried in the avalanche of enthusiasm for Keynesian economics.

Critique of socialism and interventionism. Another important contribution of von Mises was his demonstration—first in an article in 1920, “Economic Calculation in the Socialist Commonwealth,” then in his general critique of socialism, Socialism: An Economic and Sociological Analysis (1922)— that a system of socialist planning cannot calculate economically, lacking as it does a true price system based on private ownership of producers’ goods. It follows that socialism cannot successfully plan and operate a modern industrial economy. For two decades this issue was vigorously discussed, and most socialists conceded that von Mises had pointed out a crucial problem which they had overlooked. Oskar Lange and others insisted that they could demonstrate the possibility of a functioning price system under socialism; von Mises, however, had not only anticipated these “solutions” in his 1920 article but, later, in Human Action (1949), explicitly refuted them.

Von Mises’ insights and theories gradually converged into a consistent view of political economy. Thus, he believed that nothing is to be gained from various types of government intervention in the economy; monetary intervention leads to runaway inflation and the trade cycle; minimum wage rates above the marginal product of the laborer bring about mass unemployment; and price control creates incurable shortages. He summarized his views on the futility of intervention in a collection of essays entitled Kritik des Interventionismus (1923-1926). Having shown that socialism and interventionism are both unworkable, von Mises emerged as the most notable champion in the twentieth century of consistent, uncompromising laissez-faire. In The Free and Prosperous Commonwealth (1927), he declared that laissez-faire liberalism appears to be the only viable economic system.

Scientific methodology. During the 1920s, von Mises became very much interested in episte-mology. In opposition to the increasingly fashionable methodology of positivism, he set forth a methodology of purely logical deduction from self-evident and a priori axioms, based on the approach of Nassau Senior and of other classical and Austrian economists. He developed his methodological approach—which he was later to call “praxeology” —in a series of essays, Epistemological Problems of Economics (1933). Praxeology, with its stress on individual human action, on the individual’s purposive choice of means to arrive at preferred ends, heavily influenced Robbins’ methodological work, which English-speaking economists came to regard as outstanding.

Von Mises also made a sharp distinction between economic theory and history, demonstrating that history, the complex resultant of many causal factors, cannot be used to test theory; history can do no more than provide data to be explained by theory. Here von Mises was building on the philosophy of history developed by such scholars of the southwest German school of philosophy as Heinrich Rickert, Wilhelm Windelband, and von Mises’ friend Max Weber.

Although most of economic thought, after the mid-1930s, was moving in a different direction, von Mises proceeded to develop the general system of economic theory that he had laid out in his 1933 book. The result was his Nationalokonomie: Theorie des Handelns und Wirtschaftens (1940), the first general treatise on economics since World War i; later it was expanded into the English-language work, Human Action (1949). In addition, the book resurrected Fetter’s pure time-preference theory of interest and contained an incisive critique of the increasingly popular mathematical approach to economics, thus continuing the Austrian tradition of verbal and logical deduction.

When the political situation in Austria became increasingly turbulent, von Mises left; he taught at the Graduate Institute of International Studies at Geneva from 1934 to 1940 and then emigrated to the United States, where he has made his home ever since. On grants from the Rockefeller Foundation and the National Bureau of Economic Research, he wrote Bureaucracy (1944a) and Omnipotent Government (1944b). In the latter work he challenged the Marxist view that Nazism was a creature of capitalism, asserting instead that Na-zism and fascism were simply variant forms of socialism.

Since World War u, von Mises has taught at New York University, and his ideas have again become influential. He was one of the founding members of the Mont Pelerin Society, an international association of free-market economists and social philosophers; some of his colleagues—Ropke in Germany, Jacques Rueff in France, and Luigi Einaudi in Italy—contributed to the shift in emphasis in their countries from central planning to the free market. At about the same time, von Hayek’s Road to Serfdom helped inaugurate an economic liberal revival in the United States. Von Mises himself has continued his prodigious output, elaborating his distinction between history and theory (1957) and his critique of positivism (1962).

Murray N. Rothbard

[For the historical context of von Mises’ work, seeEconomicThought, article on TheAustrian School; and the biographies ofBohm-bawerk; Senior; Wickseill. Also related are the articlesInterest; Money; Utility.]


(1912) 1953 The Theory of Money and Credit. New ed., enl. New Haven: Yale Univ. Press. → First published as Theorie des Geldes und der Umlaufsmittel.

1919 Nation, Staat und Wirtschaft: Beitrdge zur Politik und Geschichte der Zeit. Vienna: Manzsche Verlag.

(1920) 1966 Economic Calculation in the Socialist Commonwealth. Pages 87-103 in Friedrich A. von Hayek (editor), Collective Economic Planning: Critical Studies on the Possibilities of Socialism. New York: Kelley. → First published in Volume 47 of the Archiv fur Sozialwissenschaften.

(1922) 1959 Socialism: An Economic and Sociological Analysis. New ed., enl. New Haven: Yale Univ. Press. → First published as Die Gemeinwirtschaft.

(1923-1926) 1929 Kritik des Interventionismus: Unter-suchungen zur Wirtschaftspolitik und Wirtschaftside-ologie der Gegenwart. Jena: Fischer. → A collection of five articles.

(1927) 1962 The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism. Edited by Arthur Goddard. Princeton, N.J.: Van Nos-trand. → First published as Liberalismus.

1928 Geldwertstabilisierung und Konjunkturpolitik. Jena: Fischer.

1931 Die Ursachen der Wirtschaftskrise: Ein Vortrag. Tubingen: Mohr.

(1933) 1960 Epistemological Problems of Economics. Princeton, N.J.: Van Nostrand. → First published as Grundprobleme der Nationalokonomie.

1940 Nationalokonomie: Theorie des Handelns und Wirtschaftens. Geneva: Editions Union.

1944a Bureaucracy. New Haven: Yale Univ. Press. A paperback edition was published in 1962.

1944b Omnipotent Government: The Rise of the Total State and Total War. New Haven: Yale Univ. Press.

(1949) 1966 Human Action: A Treatise on Economics. 3d rev. ed. Chicago: Regnery.

1957 Theory and History: An Interpretation of Social and Economic Evolution. New Haven: Yale Univ. Press.

1962 The Ultimate Foundation of Economic Science: An Essay on Method. Princeton, N.J.: Van Nostrand.


Anderson, Benjamin M. Jr. (1917) 1936 The Value of Money. New York: Smith. → Includes a sympathetic treatment of von Mises’ theory of money.

Chambers, Raymond J. 1966 Accounting, Evaluation, and Economic Behavior. Englewood Cliffs, N.J.: Prentice-Hall.

Ellis, Howard S. 1934 German Monetary Theory, 1905-1933. Cambridge, Mass.: Harvard Univ. Press. → Includes an extensive treatment of von Mises’ theories of money and business cycles.

Kauder, Emil 1965 The History of Marginal Utility Theory. Princeton Univ. Press.

Kirzner, Israel M. 1960 The Economic Point of View: An Essay in the History of Economic Thought. Princeton, N.J.: Van Nostrand. → The history of the change in the view of the nature and the scope of economics from the classicists to von Mises.

Rothbard, Murray N. 1962 Man, Economy, and State: A Treatise on Economic Principles. 2 vols. Princeton, N.J.: Van Nostrand. → A general treatise on economics and political economy, building on von Mises’ Human Action (1949).

Seligman, Ben B. 1962 Main Currents in Modern Economics: Economic Thought Since 1870. New York: Free Press. → Contains a chapter on von Mises from the point of view of institutional economics.

Sennholz, Mary H. (editor) 1956 On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises. Princeton, N.J.: Van Nostrand. → Contains essays about von Mises and his work.

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Von Mises, Ludwig." International Encyclopedia of the Social Sciences. . 16 Aug. 2017 <>.

"Von Mises, Ludwig." International Encyclopedia of the Social Sciences. . (August 16, 2017).

"Von Mises, Ludwig." International Encyclopedia of the Social Sciences. . Retrieved August 16, 2017 from

Ludwig von Mises

Ludwig von Mises

Ludwig von Mises (1881-1973) an Austrian economist and social philosopher, was the leading exponent, in the 20th century, of the Austrian school and an extreme conservative in matters of economic and social policy.

Ludwig von Mises was born September 29, 1881, in the city of Lemberg which was located in the former Austria-Hungary. He was born the son of a highly successful and respected engineer. By the time von Mises was 19 he had already entered the prestigious University of Vienna, studying under Eugen von Böhm-Bahwerk and Eugene von Philippovich. Ludwig von Mises earned his doctorate degree in Both (Canon and Roman) Laws by the time he was 27 years of age.

After receiving his advanced degree, von Mises wrote the first of what would be a long list of phenomenal works, The Theory of Money and Credit (1912). Von Mises was revolutionary in his thinking. He would successfully argue that money had a price, not unlike any other commodity. The theory was based on the economic notion that all things were priced according to supply and demand. Von Mises theorized that money would have the same effect, therefore, its "price" would rise and fall as well.

Von Mises was privatdozent of economics at Vienna (1913-1934) and professor of international relations at the Graduate Institute of International Studies in Geneva, Switzerland (1934-1940). In 1945 he became visiting professor of economics at the Graduate School of Business Administration of New York University; he retired in 1969. Between the years of 1909 and 1934 he held various economic advisor positions with the Austrian Chamber of Commerce.

Von Mises was known throughout his career as an uncompromising champion of laissez-faire, arguing in Socialism: An Economic and Sociological Analysis (1922) and Human Action: A Treatise on Economics (1949) that a socialist system cannot function because it lacks a true price system. It has been written that Socialism was a prediction of the fall of communism. Von Mises argued that socialism could not sustain an economy, due to the fact that under socialism there is no market for goods or services. Von Mises projected that without an industrial economy, there would be no price system. It is the price system which determines profit and loss. In the same book, von Mises also theorized that mixed economies would fare no better, because of the distortion involved. He also held that lesser types of intervention, such as minimum-wage laws, are equally futile. In his writings on the epistemology of economics, he maintained that the only approach to economics is a deductive system based on self-evident axioms stressing the individual's purposive choice of means to arrive at preferred ends.

A theory of the business cycle grew out of Von Mises's theory of money and was developed by him in detail by 1928. This theory emphasized the role of the banking system in the expansion of the money supply, the consequent artificial lowering of the interest rate, and the resulting overinvestment. When the money supply reaches the limits of its ability to expand, a depression inevitably follows. The theory aroused considerable interest among economists in the early 1930s but was lost sight of with the advent of the "Keynesian revolution," which began in 1936. Later in the century, economists reconsidered the role of overinvestment as a factor in business fluctuations.

Von Mises's publications include almost 20 books as well as numerous articles and other, shorter pieces ranging from economic theory and the history of economic thought to methodology and social and political philosophy. In 1969 he was named distinguished fellow of the American Economic Association in recognition of his valuable contributions to economics.

Due to von Mises's critical views on socialism he remained in exile from the National Socialists in Geneva until his death in 1973. Von Mises's most highly regarded work was his 900-page Human Action which was not published until 1949. The book had been written in early 1940; however, amidst the effects of the war, it was placed on hold.

Further Reading

Mary H. Sennholz, ed., On Freedom and Free Enterprise: Essays in Honor of Ludwig von Mises (1956), contains considerable information on von Mises and his work. A chapter on him is in the excellent study by Ben B. Seligman, Main Currents in Modern Economics: Economic Thought since 1870 (1962). Additional material on Von Mises is in Howard S. Ellis, German Monetary Theory, 1905-1933 (1934), and lsrael M. Kirzner, The Economic Point of View: An Essay in the History of Economic Thought (1960). Information regarding Ludwig von Mises is also accessible at □

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Ludwig von Mises." Encyclopedia of World Biography. . 16 Aug. 2017 <>.

"Ludwig von Mises." Encyclopedia of World Biography. . (August 16, 2017).

"Ludwig von Mises." Encyclopedia of World Biography. . Retrieved August 16, 2017 from