what is wrong with Von Mises (Ludwig, not Richard)

 

I ain’t satisfied at all, at all  with Jonathan Rée’s London Review essay on Hayek. An essay in the form of a review, the classic LRB format.

Ree starts out wrongfooting from the moment the runner is off his mark: in the first graf:

“We s​ocialists like to hark back to better days, when ideals shone bright and principles stood tall: equality, fairness, democracy, internationalism, mutuality, jobs, education, food, housing, medicine, pensions, peace, friendship and love. But there is one strand of the tradition we prefer not to think about: the idea of putting an end to the wasteful chaos of capitalism by implementing a comprehensive economic plan.”

“We socialists” here puts Ree on a definite side, from which he can pretty much cut away at socialism. This is the timehonored neoliberal stance of all the socialist parties that tossed themselves in the garbage in the post-Wall period – the French socialists, the Italian Olive tree, the English Labour party. In fact, of course, globalization has been largely the effect of trade treaties by political entities implementing comprehensive economic plans in order to get going with that Ricardo-ist de-industrialization of the heartland. They’ve been piecemeal and are heavily tilted towards capital and away from labor. As for those plans that put away the wasteful chaos of capitalism, may I remind you, ladies and germs of the jury, of the past three years of responses to the pandemic? In a piece that avoids history – you know, of business cycles and wars – and confines its biographical details to marriages and books, this is what you get.

Von Mises – and not the good one, Richard, but the bad one, Ludwig – gets a pretty sweet treatment. Take for instance this graf:

“Socialists as Mises imagined them were no more than reactionary fantasists, trying to stuff the genie of capitalism back into a medieval bottle and imagining they could hang on to modern prosperity while banishing the free markets that make it possible. He made the case with flair, and one of his jibes – about socialists who talk about ‘paths to socialism’ without saying anything about ‘socialism itself’ – still hurts. He chose, however, to confront the socialist ideal directly. There wasn’t much to go on: Engels’s Socialism: Utopian and Scientific had put a damper on speculation about socialism-as-such. But Mises found a convenient example close at hand, in the work of Otto Neurath, who was, like him, an Austrian economist-philosopher, but otherwise his complete opposite. In 1918, Neurath had run the Office of Central Planning in the shortlived Bavarian Soviet Republic, and he would go on to work in social housing and adult education for the socialist administration of ‘Red Vienna’.”

That mention of Neurath’s planning for the “shortlived Bavarian Soviet Republic” could be paired, and should be paired, with Ludwig von Mises own position as an advisor for the Austrian governments that led Austrian into the crash. But first: about Neurath’s economic activity, incidentally, one might ponder one of his great contributions to economics: making economics legible to the masses.  Let me boost this bit from  Robert J. Leonard’s essay, Ethics and the Excluded Middle: Karl Menger and social science in Interwar Vienna:

“ In 1924 Neurath set up the Social and Economic Museum of Vienna (SEMV), with funding from the Viennese municipal government, some trade unions, and social insurance funds. Using the "Vienna method" of pictorial statistics, this center exhibited statistical information on social and economic change to the workers of Vienna. Pictorial symbols were used to overcome literacy barriers and stimulate the interest of the uneducated, who would probably never have set foot inside a museum otherwise. By demonstrating clearly to the Viennese working class that infant mortality rates were falling in the poor ghettos, but not as quickly as in the wealthy enclaves, or that the Social Democratic municipal government had made great strides in the provision of housing and education, the museum's pictorial statistics were both a constituent element of Neurath's empirical sociology and an endorsement of a particular politics. The most important of the SEMV's informative graphic art came from the chisel of Gerd Arntz, Neurath's chief designer from 1928…  Amtz used simple forms-in his case black-and-white woodcuts and linocuts-to protest against socioeconomic conditions, and this simplicity appealed to the sensibilities of Menger and many socially progressive moderns.”

Neurath, now there was a genius, who has inspired one of the best philosophical minds in the business right now, Nancy Cartwright.

But I digress.

What was Mises doing during the “interwar period”? The Journal of the History of Ideas has a special issue, edited by Quinn Slobodian and Niklas Olsen, on von Mises (Spring, 2022), which is propelled by a fact that Ree doesn’t mention: Mises has become the figurehead for a paleo-conservative movement with its center at the Mises Institute in Auburn, Alabama – a movement that combines racism, suspicion of international institutions, rabid support for the gold standards, and a generally contemptuous attitude towards democracy.

Does this mirror Mises own positions?  He was employed by the Vienna Chamber of Commerce, and it was a position that exactly fit his talents.  lent his support to an austerity regime and continuing the gold standard. Von Mises became famous outside of his little circle by writing an article, in 1920, that attempted to show that socialist economies would be de facto inefficient: by denying themselves markets, they would deny themselves the tool that made for price searches. Prices made capitalist economies what they were: machines tending towards the greatest level of efficiency.

You can read a lot of commentary about this essay, translated as: Economic Calculation in the Socialist Commons. Most of that commentary, however, misses how ballsy it was to make these claims for capitalism in 1920. 1920! In 1919, annual consumer prices in Austria rocketed up 149 percent. By 1922, the inflation rate had reached 2,087 percent. Mises calmly explaining the efficiency of the market made price system in the midst of these numbers is rather like Doctor Pangloss explaining all is for the best in the best of all possible worlds in the Lisbon earthquake.  The market was entirely unable on its own to stop the inflation – although undoubted, after mass starvation had crashed demand, the prices might have gone down.

Ah, but these are mere figures and human lives – it is not the fictitious free market! Austria came out of the inflation by the usual international measures, overseen by that non-market entity, the League of Nations, which devolved the currency making power to a monopoly bank – basically, making Austria institute a central bank – and implementing export-oriented policies while cutting the budget. This, of course, is not called central planning, because central planning is supposedly done by radical lefties instead of Capital. But of course, this is how Capital speaks – and it does not give a fuck about the free market, save as a rhetorical figleaf.  The loans made to the government found a ready market among the bond dealers, and Austria’s crown stabilized with relation to the dollar without the “free market” having much to say about it.

In the arguments around the socialist price question, much forgetting is necessary to get started. The Soviet Union, with its image of planning – which we know from extensive research created an ad hoc bureaucracy of rent-seeking – is considered the true empirical refutation of the planners. But the planners don’t need a perfect central planning authority – they just need to show that planning of one type or another, by private enterprises, sets prices, and that consumer choice is not the determining factor. In actuality, in the branches in which prices can most effortlessly be compared by consumers, the movement towards monopoly is actually advanced, as smaller enterprises can’t compete until you have a small number of price makers. On top of this, of course, there is the planning level of the official state – which produces money and borrows money. We can see central planning everywhere we look in actual capitalist conditions. This is, incidentally, why the Mises-ites hate the central banks – because the central banks represent the reality of Capital. Central Banks are the waking up – free markets are the wet dream.

Well, this started out as a bitch against Jonathan Rée, and lets leave it by dissing, again, his notion that the fall of the Soviet Union and all that jazz showed that central planning is dead.  Which is why he thinks that Von Mises has made a brilliant argument here:

“Planners in a socialist state could probably sustain the manufacture and distribution of standard consumer goods, he said, at least for a while (as in certain wartime economies), but they would be flummoxed when faced with choices about long-term investment. If they wanted to build a new factory, for example, they would need to evaluate thousands of options ranging over labour, plant, materials, location, transport and likely demand, many of them untested and all interacting far into the future; but without the guidance provided by prices in a free market they would be groping in the dark, and stumbling towards miseries unknown since the middle ages. Some socialists might relish the prospect, persuading themselves that wealth corrupts and poverty breeds virtue; but if they meant what they said about constructing a ‘rational economic system’ they would have to swallow their pride and recognise that economic rationality is impossible without free markets.”

The guidance provided by prices in the free market? This might be the silliest picture of the actually existing practice of firms in the capitalist economy one could draw. The reason factories were not being built in Austria in the 1920s was precisely because there was no guidance whatsoever from prices in the “free market”. This is true in good times and bad. A price is a compromise between different institutional forces – not the pearl in the fictitious oyster of a market that can’t exist on any but the smallest scale.