review economic policies ludwig von mises

7/30/2019 Review Economic Policies Ludwig Von Mises

1/8

.

REVIEW:

ECONOMIC POLICY

Thoughts For Today And Tomorrow

Ludwig von Mises


2/8

1

Table of Contents

Introduction ............................................... 21

stLecture: Capitalism .............................. 3

2nd

Lecture: Socialism ............................... 3

3rd

Lecture: Interventionism ...................... 4

4th Lecture: Inflation .................................. 5

5th

Lecture: Foreign policies ...................... 6

6th

Lecture: Politics and ideas ................... 7

Conclusion ................................................ 7


3/8

2

Introduction

Government should protect and defend against foreign aggression the lives andthe property of those under its jurisdiction, settle disputes that arise and leave the

people otherwise free to pursue their various goals and ends in life. Ideally the

government should be a caretaker of the conditions which allow individuals to

pursue their goal. If the government does only that and no more, people will be

able to provide for themselves much better than the government could possibly

do. This in essence is the message that Professor Ludwig Von Mises sends to us

through this book.

Professor Mises(1881-1973) was one of the 20th

centurys foremost economist.He was the author of many books ,such as:Human Action, Socialism, Theory

and History and others. He describes and analyses what impact economic

policies have on our well-being. What good decisions and mostly what bad

decisions have been taken ,that affected all of us deeply. Using homespun

examples he illustrates theory, so that everyone can understand.

This book was published after the authors death, in June 1979 by Margit Von

Mises, the wife of the author, who decided to bring together and publish thetranscripts of his lectures .Therefore this book contains 6 Lectures about:

Capitalism, Socialism, Interventionism, Inflation, Foreign Investment andPolitics and Ideas.


4/8

3

1st

Lecture: Capitalism

The first Lecture begins with emphasizing the change in peoples status nowadays, as

opposed to feudal societys. Then people were born with a social status and could not change

it. The outcasts, the poor ones, were doomed to misery. But in their attempt to change

something, they organized themselves and set up small shops and started to produce cheaper

products for the lower classes, for the masses. That was the beginning ofmodern capitalism

.Big business for big masses became characteristic for capitalist countries. Freedom ofcompetition meant that everyone had the right to produce better products and sell them

cheaper. That transformed the world and made possible an unprecedented increase in

population and in the standard of life. In spite of all the benefits, capitalism had been furiously

attacked and criticized by the gentry who were now faced with paying higher wages to

population, so that they would not leave the county side and go to the industrialized cities

where they earned more. With the help of the government, who started subsidizing these

wages, everyone was better off.

Now, in the capitalism system you can change your status. The difference between the poor

ones and the rich are not that big, as everyone has food, clothes to get dresses, a house and a

car. People afford to have more things, because they set their own wages. If everyone buysmore, more is produced, more people have a job and the wages start increasing, so then they

can start saving money .And that is actually from where the name of this system has its

origins, Karl Marx was convinced that if people had extra money they would save and further

invest those money. Extra capital leaded to higher life conditions in capitalist countries, as

well as an increase in the number of population.

Applying capitalist principles made a difference between USA and Third World Countries

and also made possible the miraculous recovery ofGermany after World War II.

2nd

Lecture: Socialism

Market economy is described as a process, the way in which the buyers and sellers ,by

consuming and producing, contribute to the total workings of society. That means that people

living in a market economy society serve fellow citizens and are also being served by them in

return. The real bosses in this system are the consumers. Economic freedom give people the

chance to choose what they want to do and what they want to buy .

But in a system where there is no market and the government directs everything ,freedom isonly illusory. Socialism is such a system. Those in favor of socialism think that consumers


5/8

4

sometimes take foolish decisions ,and that government should be a paternal authority ,who

will decide what is good and what is bad. They completely oppose the theory of harmony of

interests.

The synonymous with socialism is planning. The government makes a plan that is ought to

be respected by anyone .Soviet Russia was the home of socialism. In Russia socialistscontrolled everything: prices,peoples freedom, production of goods and showed reluctance

towards innovation. So in this system is not the seller, but the buyer that has to be grateful for

the things he is able to buy.

3rd

Lecture: Interventionism

In a mixed economy both the state and the individuals have the right to operate enterprises.While an individuals business cannot survive if it has a deficit, the government can run at

deficit because it has the power to tax people. If people are able to pay these taxes ,state

enterprises can run at deficit.

Government ought to protect the individuals within the country against the violent and

fraudulent attack of foreign enemies. But sometimes government wants to do more ,and if it

does interfere in the market prices (prices of commodities, wages, profits, interest rates),we

are facing what is called Interventionism. All the measures of interventionism by the

government are intended to restrict the supremacy of consumers.

Governments usually resort to price control when they have inflated the money supply and

people have begun to complain about the rise in prices. This happened in the era of Emperor

Diocletian and also 1500 years later during the French revolution. In the first case they tried

fixing the problem by debasing the currency, which had no result, and then the Empire started

disintegrate. The French did not need to resort to the debasing the currency , as they had the

printing press, but their method also failed as prices were increasingly higher and people

could not afford them.

If government, in an attempt to help population, establishes a maximum price what it actually

does is limiting the quantity that is provided to population ,because some producers cannot

supply anymore. There appears a shortage and instead of helping the population, thegovernment actually harms them ,because now the goods will be bought only by those who

have more money or are acquaintances of the sellers .As an example we could consider the

rent control and the price of milk presented in detail in the book.

When government realizes that their plan does not work ,obliges the suppliers of second order

goods to decrease the prices, and so on. When they come to the point where all prices are

controlled we are talking about Socialism .This has happened to Germany (Hindenburg Plan)

in the First World War. For Hitler there was no such thing as private initiative or private

enterprise.The hole economic system was regulated in every detail by the government.

England was about to take the same path ,but then USA entered the war and started supplying

them with goods.


6/8

5

The idea of interventionism as a solution to economic problems leads, in every country ,to

conditions which, at the last, are very unsatisfactory and often quite chaotic. If government

does not stop on time ,it will bring on Socialism.

4th Lecture: Inflation

Inflation is this process of devaluation of currency as a result of the increase in the quantity of

money on the market. Purchasing power of a monetary unit begins to drop and the prices

begin to rise.

If the government is in need of money ,they should input new taxes, but because taxes are so

unpopular, they sometimes just print money. Even if the purpose of that money is well

intended( like as hospital) of not, the result is the same. Even if the government decides to

increase the quantity of money ,some people will be beneficial from inflation .The quantity of

money being greater the prices tend to go up, but the first ones who get to have more money

are in advantage, as the rest are in disadvantage ,coping with the rise in prices. The technical

methods employed to achieve inflation are so complicated that average citizens do not realize

when inflation has begun. The most important fact about inflation is that ,sooner or later ,it

must come to an end.

In long run ,inflation comes to an end with the breakdown of the currency ,resulting a

catastrophic situation, like it had happened in Germany in 1923.On August the 1st

,1914 the

value of a dollar was four marks and twenty pfennigs .Nine years and three months later, in

November the 20th

1923,the dollar was pegged at 4.2 trillion marks. That meant the mark was

almost valueless. At some point the mark had been loosing its purchase power by 50% a day,

so people hurried to buy at any price. The system finally collapsed and a new currency was

established.

That would not have happened if the gold standard would have been implied, because the

gold standard is independent of the political parties and government policies. But when Great

Britain had returned to the gold standard before war, it actually out-priced itself on the world

market .Wages grew up too much and business man could no longer keep up, so the only

solution was to devaluate the currency .This measure was later adopted by Netherlands,

Czechoslovakia, France and Belgium.

Full employments existence is also linked to the existence of inflation. People tend to settle

for lower salaries so that they do not remain unemployed . A question remains: it is better tohave unemployment without inflation, or full employment with inflation? The people who

resort to inflation , do this because they consider it less evil than unemployment. But we

should be aware that this is not a long run strategy ,and that inflation does not cure

unemployment.


7/8

6

5th

Lecture: Foreign policies

Today people find the differences of standard of living between countries unsatisfactory. The

standard of living is lower in some countries, the so-called developing countries, because the

average earnings for the same type of job is lower than in USA, Western Europe ,Japan or

Canada. The reasons for this is not the inferiority of the workers, nor the inferiority of the

employees, but the difference in the quantity of capital goods available. As the wages are

determined by the marginal productivity of labor, more efficient tools and increased

technologies, make some people earn more.

Foreign investment is what brought most countries at the level they are now. Great Britain

was the first to redirect its capital towards foreign investments. They helped building most ofthe European railroads. Also British gas companies brought light to the homes and streets of

Europeans .Even USA had received British aid to develop, but as soon as they were on their

feet they started buying back the capital stocks they had sold to foreigners .

After the Second World War Americans were to ones redirecting their capital, they started

subsidizing Europe: by loans, Marshal Plan, investments, foreign aid.

So we have to highlight the fact that foreign capital investment played a considerable part in

the development of modern industries.

Foreign investment is made in the expectation that it will not be expropriated, as happened to

French in Russia: after they have paid for the building of railroads ,communists came anddeclare they will not pay anything. And the same happened in the case of India, both direct

and indirect expropriation has been attempted by Indians .Such hostility towards foreign

investments seriously reduces capital investments and the chances to improve the

industrialization of a country, and therefore the nations standard of life.


8/8

7

6th

Lecture: Politics and ideas

Radical change in economic and political ideas are responsible for the decay of freedom, of

constitutional government and representatives. Political events are the inevitable consequence

of change in economic policies. First goal of political parties, formed of people who shared

similar ideas, was the welfare of their nation, but also the welfare of other nations.

Unfortunately ,real political parties were replaced by pressure groups .A pressure group is

formed of people who want to attain for themselves a privilege at the expense of the whole

nation. That means they are privileged to have rights that other groups do not. Each pressure

group forms a minority ,and success only comes as result of coalitions with other minorities,

with the main goal of forming a majority .Such pressure groups have a great power, they caneven influence foreign policies of a nation. Political changes of this kind are said to weaken a

nations power to resist to aspirations of dictators and operations of tyrants.

These pressure groups may want privileges for their representatives, but they do not want to

burden them with a too heavy tax load. Pressure groups show us why government cannot stop

inflation , as inflation is a consequence of high expenditure of government within a certain

district ,according topressure groups interests.

However, dictatorship is certainly not a solution for economic problems nor the problems of

freedom.

People say that finally every civilization must fall into ruin and disintegrate. That is notactually precise as civilizations are not independent, but interdependent, they constantly

influence each other. However, inflation and interventionism have the power to destroy a

nation, this happened to the Roman Empire and might also happen to us.

Conclusion

In conclusion, I feel like I have learned a lot from reading this book. The nice structure of the

book as well as the multitude of examples made it very easy and pleasantly to read. I now

understand why government should not print too much money, why they should not try to

control the level of prices and also why they should welcome any foreign investment with

open arms. But most important, I learned that : ultimately, no matter if we like it or not , our

future rests on the good judgment and the on good intents of those who lead us.

review economic policies ludwig von mises

Documents