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Economic policy: Thoughts for today and tomorrow

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I had read several works by Mises before I read this book. I found this book to be a nice refresher for some of the basic concepts of Misesian economics. This book would be a very good read for someone not familure to Mises' other works, as Mises is very eloquent, concise, and clear in these pages. I highly recommend this for the new student!

Ludwig Von Mises in this book passionately refutes the foundations of socialism, fascism, feudalism and provides capitalism, free market policy as the solution for all world economies. Definitely recommend this book if you haven't read any of his other work. This book was assembled from his speeches in Argentina during a time of change in that country when they were seeking economic reform. This book really gives way to the beliefs of Mises and the degree of passion he had for what he believed in. If your interested in learning more about mises you might also visit Mises.org a very informative institution on economics and government policy.

This book was originally delivered as a series of lectures in Argentina, in 1958, at the University of Buenos Aires. The second chapter, where Mises refutes socialism, is quite illuminating considering the length of the chapter. He also deals, in a rather shallow way, with topics such as inflation, interventionism and foreign investment. If you're interested in a more thorough and detailed analysis of socialism, SOCIALISM (Lib Works Ludwig Von Mises PB) is a highly recommended book to read.

Over all, if you're already familiar with such topics, this book will be somewhat repetitive and you probably won't learn too much from it. However, if just starting to learn about economics and you're looking for a good book to start with, this book will suit you just fine.

Because Ludwig von Mises's booklet is titled "Economic Policy: Thoughts for Today and Tomorrow", I will allow myself to do something that is a little unfair: I will ask whether Ludwig von Mises's ideas, as expressed in it, are relevant for our times.

I have previously read Mises' ANTI-CAPITALISTIC MENTALITY, THE (Lib Works Ludwig Von Mises PB), an ad hominem attack on the Critics of Capitalism. I found it a strange and weak book; the least one can say about "Economic Policy" is that it is better than "The Anti Capitalistic Mentality". It fails to match that book's most absurd notions - the worst was that the detective story became popular as a result of Anti-Capitalistic feelings. The closest this book comes in that regard is when Mises blames government Interventionism for the fall of the Roman Empire (pp. 102-104), despite the fact that Eastern Empire has survived for centuries after the interventions have been committed, and disregarding such trivial factors as the Huns and the Persians (see Peter Heather's The Fall of the Roman Empire: A New History of Rome and the Barbarians and Empires and Barbarians: Migration, Development and the Birth of Europe if you really want to know why the Roman Empire fell).

But let me start with whatever praise I can summon for this book. Mises says some agreeable things, or at least things which are agreeable if taken with a grain of salt. I don't like Communism any more than he did, and his criticism of it is basically sound. Similarly, price controls are usually a bad idea, and Mises is right to criticize them (pp. 43-45), although he tends to go overboard and imagine that every price control would lead to complete government overlordship of the economy. The chapter on inflation is not bad, although it is badly out of date - it lacks such newish concepts as the Non-Inflation Accelerating Rate of Unemployment, the Philips Curve, and better data on the stickiness of wages (See Milton Friedman's Money Mischief: Episodes in Monetary History and Paul Krugman's Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations for better, and more up to date discussions.

Mises seems unable to think that there could be "some" intervention in the markets. It is strange because he knows that there we have a kind of a mixed system. But he claims that government intervention in an economy doesn't make it non-Capitalist. "That some... enterprises are operated by the government is certainly true. But this fact alone does not change the character of our economic system" (p. 38).

I admit that I find this statement difficult to reconcile with his later statement that:

The idea that there is a third system--between socialism and capitalism, as its supporters say--a system as far away from socialism as it is from capitalism but that retains the advantages and avoids the disadvantages of each--is pure nonsense.
(p. 52)

Does it mean that we can have some government intervention in the economy? No. Mises argues that governments should not be given the power to regulate what one eats or drinks or smokes, because if we give them this power, they would want to regulate speech. But in practice, the entire Western world has some regulation of foods and drugs, and very little censorship of books and writing. In practice, we obviously can distinguish between regulation of consumables and of ideas - and thinkers from Oliver Wendell Holmes to John Ely would be very surprised if you told them that you couldn't do it in theory.

But the weakest aspects of Mises book are his description of the Economy. Mises describes a Capitalistic world without externalities, without Cronyism, without collective action problems. His description of the economy is unsensitive to critical aspects of it even as it was in his time, and is blind to the major features of the present economic system.

It starts with the very first page. When discussing "modern Captains of Industry and leaders of big business", he rejects the use of the term "King" as applied to them (i.e. "Chocolate King" or "Steel King") because the industrial "king" "depends on... the customers he serves... he loses his kingdom as soon as he is no longer in a position to give to his customers better service and provide it at lower cost than those with whom he must compete".

But the head of a major corporation to today is an executive, not an owner. He (still overwhelmingly a he) is managing other people's money. His compensation is huge compared to executive payments a few decades ago, and in the US far above anything in Europe. Yet current US firms are not doing any better than their 1960s or European equivalents, nor is there any evidence that their management is, on the whole, superior. His compensation is unrelated to his performance, and unsupervised by anyone (see Pay without Performance: The Unfulfilled Promise of Executive Compensation). If his company loses money, he leaves with a "Golden Parachute". The large co-operations are effectively too large to fail. If they crash, they would crash the entire economy with them (the phrase "systematic risk" appears nowhere in Mises book). So if they face bankruptcy, they would be bailed out.

Free markets are all about competition. As an example to competition, Mises bring the case of the Railroads. Each railroad had a local monopoly, but eventually, the railroads were defeated by new forms of transportation - by cars, trucks, and airplanes. This is correct - but it happened decades after the heydays of Rail. Most lineages fall and are replaced by other dynasties at some point - but for the average 19th century farmer who only had one line of rail to ship his products with, the fact that in fifty years the rail company would go bust would've been a cold comfort at best. As Maynard Keynes reminds us "In the Long run, we're all dead".

Who benefit from Capitalism? "The scornful depiction of capitalism by some people as a system designed to make the rich become richer and the poor become poorer is wrong from beginning to end (p.12)". But inequality in the US has risen dramatically since the early 1970s. Almost all of the Wealth accumulated in America in the past 4 decades was amassed in the top 10% of the population, and much of that in the top 1%.

Mises argues that, more than the factory owner is the boss of the workers, he is the servant of the Market and the customers, and he has to please them in order to remain in business (p.21). This ignores the realities of power. The factory owner has to offer customers something they like; the worker has to obey the factory owner's commands. This is a very different relationship, both in terms of the freedom of action one has, and in terms of self respect. If you have to please a wide range of people, you don't have to submit yourself to any single one. And offering an attractive deal to the public feels very different from having to jump to every one of your employer's whims. For sure, almost everyone has to be extremely attentive to someone - many businesses have a few large customers whom they cannot afford to lose, or government regulators whom they must please, or vital suppliers, or the chairman of the board of directors - but few of these relationships are as dependent and as potentially humiliating as the power disparity between an employee and his boss.

Mises argues that in a capitalistic society, we have social mobility - "the Circulation of the Elites" - there is always some rich and powerful, but they are always changing. Well, not exactly - Patrick Joseph Kennedy has made his fortune in the 1890s; His son, Joseph Kennedy, was a leading Democrat politician and an ambassador. His grandson John was the President of the United States, and his great-grand son is the congressman from Rhodes Island, Patrick Joseph Kennedy II. And they are hardly the only non-circulating elite. There are exceptional stories, but generally inequalities of wealth persist for generations.

None of this should be taken as a condemnation of Capitalism. Many of these problems are inherent in Human nature, and won't go away. Others can be solved with careful policies within the context of a free Capitalistic system with some government intervention. None would be any better under Socialist or Communist rule.

But Mises contributes little to the analysis. His thoughts might have been useful for yesterday - but they are unhelpful for today or tomorrow.