Ludwig von Mises—Markets Over Mandates | Economic Game Changers | PragerU

In the mid-19th century, radicals like Karl Marx believed that free market capitalism would fall apart. The end is nigh. The end is nigh for capitalism. But it didn't. By the dawn of the 20th century, the free trade camp seemed to be winning. Technologies like the telephone, the radio, and the lightbulb created new ways of working and living. There seemed to be no stopping the progress. Then came the war to end all wars, or so it was called. World War I turned an entire continent into a battlefield, with once idyllic landscapes now lined with trenches and barbed wire. When the war ended in 1919, over 15 million people had died. Devastation was everywhere. The great cities of Europe now faced famine, high inflation, and a population struggling to rebuild. In the midst of the rebuilding, a new experiment swept across Europe, one toward centrally controlled economies, and Russia provided the example. During the war, a radical faction, the Bolsheviks, seized control of Russia and declared state ownership of the entire economy, controlling prices, profits, and private property. Socialism, soon to be communism, was no longer just a theory. At last, communism has arrived! Enter Ludwig von Mises, a lecturer at the University of Vienna, who served in World War I and witnessed the fall of the Austro-Hungarian Empire in which he was raised. He also witnessed his government finance the war through heavy borrowing and money printing. No, no, no! Bad idea! Putting excessive cash in circulation won't repair the economy. Instead, it will devalue the currency and cause hyperinflation. Which is exactly what happened after the war. Prices took off, and paper money became meaningless. Life savings were wiped out. The cash needed to buy a loaf of bread had to be rolled in on a wheelbarrow. With the economy collapsing, Mises lobbied the government to stop printing money, and in 1922, they did. This isn't helping! Stop the madness! Thank you. Amid the post-war suffering, Mises recognized that the socialist critiques of capitalism was powerful and tempting, but he strongly disagreed that socialism or centrally-run economies were the solution, even in a time of crisis. If you want prosperity, you need private property, voluntary exchange, and limited government. Not this! Let's start with private property. Across Europe, intellectuals favored public ownership of resources. In a 1920 essay called Economic Calculation in the Socialist Commonwealth, Mises explained that without private ownership of the means of production, efficient market exchange is impossible. The information needed to navigate trade-offs and use resources effectively comes only from prices, which are created through market transactions based on private property. Without said information, resources cannot be properly valued or allocated. Only functioning markets can do that, when they are allowed to function. Along with private property, Mises championed voluntary exchange, the ability to buy whatever you want for whatever reason you want. Believe it or not, the freedom to buy or sell was not in fashion. I would like to buy a chicken. Here you go. No chicken for you. Only mystery meat. Instead of taking people's choices and incentives into account, socialism focused on collective outcomes. Mises thought differently. For him, economics started subjectively, with the individual. Don't you see that humans act purposefully? With every choice, they hope to improve their situation. Economies are but millions upon millions of choices. This idea, which he further developed, was called Praxeology, arguing that economics was not a laboratory science, but rather the logic of human action. This meant that one cannot treat society as a single mind, as collectivists in Russia and Germany believed. And because each person has their own wants and needs, no economic resource has a single true value. Value depends on what people want, need, or prefer. For example, meat is a staple of many diets, but not every diet. For every carnivore, there is another person who doesn't eat meat for one reason or another. In other words, you cannot determine what goods people value without considering their choices. Finally, like Bastet before him, Mises believed that limited government was a necessity. Instead of trying to run the economy, governments should enforce basic laws, while allowing markets to operate on the basis of people's choices. So I can buy chicken? Yes, ma'am. You may have chicken, all the chickens you want, and no government should stop you. Mises became a leading figure of the Austrian school, championing free markets and limited government. Many economists opposed his ideas, including his focus on human choice. They desired to keep economics as a study of measurement and predictive testing. He was bold, combative, and uncompromising in the face of opposition. Prosperity is about spontaneous coordination. Coordination across millions of individuals, making decisions based on deeply personal knowledge. This requires price signals and incentives, which you cannot have with socialism. Ludwig von Mises later faced threats from the Nazis. He eventually fled to the United States. Here he continued to speak and write against socialism, remaining an institutional outsider. He eventually published Human Action in 1949, which became the capstone to the Misesian approach to economics, and turned his observations on people's choices into an official course of study. Time, disaster would strike again, but it wouldn't be on the battlefield, but in the stock market. And it would send the world into an economic depression that would reverberate for a decade. In the turmoil and suffering, a British gentleman made the case for government involvement. Free market? That won't do. It's government time. Thanks for watching this episode of Economic Game Changers. 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