John Stuart Mill wrote in his Principles of Political Economy that “what has so often excited wonder” in observers is “the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.”

Mill explained the conditions necessary for this rapid recovery: 1) free mobility of capital and labor, and 2) the survival of some portion of the population and stock of human capital. If these conditions are met, then economic and social recovery do indeed take place very quickly.

Militarization versus Decentralization

This is perhaps a jarring statement in the wake of the tragic human suffering we are witnessing in Japan (or saw last year in Haiti). Of course in the immediate aftermath of a natural disaster, rescue efforts and humanitarian assistance at the basic level require extensive direction. But we must not ignore decentralized coordinating processes. In the aftermath of 9/11 and Hurricane Katrina, for example, various decentralized efforts to provide assistance were vital to the survival of thousands. Though we focus, especially in the 9/11 case, on the government first-responders, in both instances nongovernment people often responded on the spot at critical moments. There is no doubt that police and firemen in New York City and the Coast Guard in New Orleans played significant roles during the first moments after the disastrous events. But after that initial period, government activism more often than not was counterproductive.

Shortly after Hurricane Katrina I initiated a research project at the Mercatus Center to analyze the effectiveness of the voluntary response to the crisis through the market and civil society. Families and communities were strengthened and rebuilt through the cultivation of commerce. To the extent that commerce was impeded, families were weakened and communities remained in ruins. This conclusion runs counter to common intuitions that demand a command-and-control approach in the wake of a crisis.

The language of disaster and recovery efforts is one of centralization—a military effort is presumed to be required to tackle the urgent problem. But the militarization of compassion is not very effective in achieving improvement. As my colleague Chris Coyne (author of After War and a forthcoming book on humanitarian aid) suggests in his paper “Delusions of Grandeur,” imagine you asked the firemen responding to a raging fire at a corporate building to also coordinate the provision of medical supplies and treatment, oversee the reconstruction of the building, and then rebuild the company’s supply chain after the fire was extinguished and the building rebuilt. This is precisely what happens through the creeping militarization of humanitarian efforts.

The militarization of compassion does not help strengthen families, rebuild communities, or cultivate commerce. Instead, it centralizes efforts and ignores the local knowledge that resides in individuals and that is embedded in communities. Our intuition pushes toward command and control, but the science of economics pushes back against this intuition and favors the decentralized, on-the-ground information possessed by individuals—who are capable of embracing the challenges of the “cares of thinking and all the troubles of living” (as Tocqueville argued was required of a society of free and responsible individuals). The militarization of compassion may help those far away to feel they are doing their best to address the crisis, but once we get beyond the initial search-and-rescue phase and on to the second, rebuilding phase, the result is usually planned chaos.

Government Roadblocks

What emerged from our studies of the rebuilding after Hurricane Katrina was the vital role that both civil society and commercial life, as opposed to government direction, played in successful efforts to bounce back from the disaster. Whenever government attempted to guide individuals in their decisions rather than allow them to base those decisions on their local knowledge and to follow their private motivations, roadblocks to recovery arose. Mill’s observation about the amazing rapidity of recovery was confirmed in those areas where the free movement of labor and capital was permitted, and frustration was produced by restrictions on the freedom to choose.

What we have learned from the study of disasters and recovery is that efforts to provide immediate humanitarian aid will always have elements of chaos. The chaos is alleviated not through the militarization of compassion, but rather through the market mechanism that takes over the allocation of resources and signals the required adjustments through relative prices and the feedback of profit and loss.

In Healing America (1983) Cornuelle argued that what was required was a radical reconsideration of the scope of government responsibility.  Public policy had come to a dead end.  We had come to believe that we cannot make society habitable without making government bigger, and yet we cannot pay the cost of the bigger government without creating more problems that add to the cost of government.  A vicious cycle ensued following the Great Depression — “Government is growing as it fails, and, to a chilling degree, it is growing because it is failing.”

No Grand Designs

By the late 1960s and 1970s the failure of government programs was recognized even by those who were entrusted with their management.  By the 1980s the extent of the failures of the bureaucratic attempt to address the social ills of poverty had intensified.  We don’t have much of a choice, Cornuelle tells us, when our policy options are humanity or solvency.  To solve the crisis we didn’t need to starve the State of resources (this is not ultimately a tax and spend issue), we needed to starve the State of responsibility (it is a question of scope and fundamentally about political theory).  In other words if we can theoretically and empirically demonstrate that the voluntary sector can outperform the State sector in the delivery of basic social services, then we can avoid the crisis of the fiscal state (and the inhumanity of bureaucratic “solutions”) and unleash the power of people and the communities that live within … to tackle the social ills of poverty, unemployment, health, and education.  The American Dream is of a society that is at once free, prosperous, and caring.  The “good society,” Cornuelle argued, did not result from grand designs, but from “millions upon millions of caring acts, repeated day after day, until direct mutual action becomes second nature.”

Dick’s most well-known work was Reclaiming the American Dream (1965, reprinted in 1993).  The subtitle for that book is: ”The Role of Private Individuals and Voluntary Associations.” His argument builds on Tocqueville, and as stated above, Dick saw the American Dream as a society of free and responsible individuals who prosper in a vibrant commercial life, and live and participate in caring communities.

But Dick preferred the subtitle for his book to have been: “A Handbook for an Unfinished Revolution.” He took this task of continually pursuing the unfinished revolution very seriously. Dick was personally a life-long learner and a compassionate activist, and he was always looking out for those who were pushing out the intellectual envelope, and he sought to learn from everyone he crossed paths with who was actively solving problems and helping others live better lives in small or big ways.

This intellectual curiosity and compassionate social action was true from his early work with the Volker Fund and FEE to later work with United Student Aid, Center for Independent Action, Critical Review Foundation, and the Fund for the Study of Spontaneous Order.  There is no denying his intellectual roots in the Austrian school of economics and classical liberalism.  In the acknowledgments to Healing America, Dick was explicit about his theoretical framework: Mises, his teacher was indispensible; Hayek provides the intellectual foundation; Röpke provides the humane vision; and Nisbet; saw the central role of community in social order.

Freedom and Community

Cornuelle’s quest for a society that successfully combines freedom and community is an inspiring vision and does build from these acknowledged intellectual roots — but was never content to stay there.  He sought to combine commitment to principle with a humane concern, and to always stress that what ultimately mattered was what worked to raise the welfare for the least advantaged.  To realize the unfinished revolution we need to mix theory and praxis; to be inspired by a vision of a just society yet focus on solving problems that real people face in their daily lives; to critically examine the failures that modern industrial society must confront yet to bear witness to the amazing energy of a free people and communities to effectively address these problems.

Please read Dick’s books and articles and join the unfinished revolution.  The world is a little less intellectually curious and compassionate today than it was these past 84 years.  But Dick left us with such an inspiring vision of a society of a free, prosperous, and caring people that if we pick up the challenge and complete the revolution, a humane society will be within our grasp.

Dick was my mentor, an intellectual role model, a close friend, and a father-figure in my life.  I loved this man.  He was a Prince among men.  May he rest in peace, and may his vision of a principled and compassionate libertarian society capture the imaginations of generations of students and inspire their activism now and forever.

(Re-posted from Coordination Problem.)

Mill explained that the conditions under which this observation is realized is 1) free mobility of capital and labor, and 2) that the disaster didn’t wipe out the entire population and stock of human capital.

If these conditions are met, then economic and social recovery does indeed take place with great rapidity.

Militarization versus Decentralization

This is perhaps a jarring statement in the wake of the tragic human suffering we are witnessing in Japan (or last year in Haiti).  Of course in the immediate aftermath of a natural disaster, rescue efforts and humanitarian assistance at the basic level require extensive direction.  But we must not ignore decentralized coordinating processes.  In the aftermath of 9/11 and Hurricane Katrina, for example, various decentralized efforts to provide assistance were vital to the survival of thousands.  Though we focus, especially in the 9/11 case, on the government first-responders, in both instances nongovernment people often responded on the spot at critical moments.  There is no doubt that police and fireman in New York City and the Coast Guard in New Orleans played significant roles during the first moments after the disastrous events.  But after that initial period, government activism more often than not was counterproductive.

Shortly after Hurricane Katrina I initiated a research project at the Mercatus Center to analyze the effectiveness of the voluntary response to the crisis through the market and civil society.  Families and communities were strengthened and rebuilt through the cultivation of commerce.  To the extent that commerce was impeded, families were weakened and communities remained in ruins.  This conclusion runs counter to common intuitions that demand a command-and-control approach in the wake of a crisis.

The language of disaster and recovery efforts is one of centralization — a military effort is required to tackle the urgent problem.  But the militarization of compassion is not very effective in achieving improvement.  As my colleague Chris Coyne (author of After War and a forthcoming book on humanitarian aid) suggests in his paper “Delusions of Grandeur,” imagine you asked the firemen responding to a raging fire at a corporate building to also coordinate the provision of medical supplies and treatment, oversee the reconstruction of the building, and then rebuild the company’s supply chain after the fire was extinguished and the building rebuilt.  This is precisely what happens through the creeping militarization of humanitarian efforts.

The militarization of compassion does not help strengthen families, rebuild communities, or cultivate commerce.  Instead, it centralizes efforts and ignores the local knowledge that resides in individuals and that is embedded in communities.  Our intuition pushes toward command and control, but the science of economics pushes against this intuition and favors the decentralized, on-the-ground information possessed by individuals — who are capable of embracing the challenges of the “cares of thinking and all the troubles of living” (as Tocqueville argued was required of a society of free and responsible individuals).  The militarization of compassion may help those far away to feel they are doing their best to address the crisis, but once we get beyond the initial search-and-rescue phase and on to the second, rebuilding phase, the result is usually planned chaos.

Government Roadblocks

What emerged from our studies of the rebuilding after Hurricane Katrina was the vital role that both civil society and commercial life played, as opposed to government direction, in successful efforts to bounce back from the disaster.  Whenever government attempted to guide individuals in their decisions rather than allow them to base those decisions on their local knowledge and to follow their private motivations, roadblocks to recovery arose.  Mill’s observation about the amazing rapidity of recovery was confirmed in those areas where the free movement of labor and capital was permitted, and frustration was produced by restrictions on the freedom to choose.

What we’ve just witnessed in Japan is a disaster of historic proportions.  The earthquake is the strongest in the recorded history of that country.  The magnitude is far greater than the earthquake in Haiti, though the relative wealth of Japanese society means the death toll from the earthquake is far smaller.  Unfortunately, the tsunami inflicted staggering damage, and the consequences of the nuclear fallout from damaged power plants are yet to be determined.

What we have learned from the study of disasters and recovery is that efforts to provide immediate humanitarian aid will always have elements of chaos, but then the chaos is alleviated not through the militarization of compassion, but rather through the market mechanism that takes over the allocation of resources and signals the required adjustments through relative prices and the feedback of profit and loss.

In this essay, we trace the path of the recession from its origins in the housing market bubble to the policies offered to cure the aftermath.

Her colleagues at Indiana University describe Ostrom as “humble and hardworking,” and another Nobel Prize winner, Vernon Smith, calls her a “remarkable scholar” with a passionate drive to understand human societies in all their variety. A former president of the Public Choice Society and the American Association of Political Science, Ostrom is also one of the most beloved teachers in academia. The Workshop in Political Theory and Policy Analysis at Indiana University that she co-directed with her husband, Vincent, is perhaps the ideal model for a research and graduate education center.

But what do we learn from her studies? I would argue that we learn at least three major points of style and substance. First, much of the last century of political and economic discourse has been dominated by a debate between advocates of perfect markets and perfect central planners. The latter strove to demonstrate market failure, then would insist that government would provide the necessary corrective. Ostrom was one of the core thinkers in the social sciences to say, “Hold on. Markets may fail, but government solutions also might not work.” One must always remember that Elinor and Vincent Ostrom are foundational contributors to the theory of Public Choice. But the Ostroms went further than simply demonstrating the possibility of government failure.

Rules In Use

This leads to the second point. In the history of political and economic thought the source of social order has been attributed either to the invisible hand of market coordination (Adam Smith) or the heavy hand of state control (Hobbes). Perhaps one of the best ways to understand Elinor Ostrom’s work is to see it as working out a Hobbesian problem by way of a Smithian solution. That is perhaps a bit of a stretch but not by much. Her work on local public economies and common-pool resources focuses on actual “rules in use” (as opposed to the “rules in form”) that decentralized individuals and groups rely on to make decisions and to coordinate their behavior in order to overcome social dilemmas. It yields an optimistic message about the power of self-governance to succeed even in difficult situations. As my colleague Alex Tabarrok put it, Ostrom sees how, through various voluntary associations, groups transform the common-pool resource situation from a “tragedy of the commons” to an “opportunity of the commons.”

Traditional economic theory argues that public goods cannot be provided through the market. Traditional Public Choice theory argues that government often fails to provide solutions. Ostrom shows that decentralized groups can develop various rule systems that enable social cooperation to emerge through voluntary association.

A point that sometimes trips up readers is that Ostrom often focuses on situations where the technology of parceling property into private plots does not exist. In these situations she studies collective, but non-State decision-making over common-pool resources. While private-property solutions are not employed in such cases, the “rules in use” that do operate accomplish what private property would have accomplished. We find rules that limit access and that make individuals in the group accountable for their misuse of the resource. We also find enforcement of those rules. In short, the analyst must be willing to look at both the form and function of rules in a variety of social situations.

Local Solutions for Local Problems

Diverse institutions at work in different societies promote voluntary cooperation. As social scientists, we have to be able to understand them. There are rules that are in use, rules that are stated but not in use, rules that go by one name but that in practice do something else, and rules that tightly fit use, form, and function. Ostrom has insisted that social scientists must understand the rules that govern human behavior—both the way we interact with one another and the way we interact with nature. Some rules systems promote human betterment through the promotion of peaceful social cooperation and wealth creation; others thwart human progress by ensuring violence and poverty. It is actually that simple, and that profound.

The foundation of the social order of a free people is self-governance, not governmental authority and centralized power. Decentralized decision making that drills deep into the local social dilemmas real people face, that mobilizes incentives within a local rule structure, and that utilizes local knowledge is how the process of institutional development assures that self-governance is effective governance, enabling fallible human beings to reasonably manage scarce resources and the relationships among themselves.

The final point I want to stress concerning Ostrom’s research comes as a methodological message. Her work is humanistic and scientific. She is trying to understand human societies in all their variety. To do so she had to get up close and personal: from local government in California to irrigation systems in Nepal—and everything in between. Her field work in economics and political economy is guided by the logic of human choice. She describes her research program as “a behavioral approach to the rational choice theory of collective action.” If you take away the academic language, it translates into a research program that begins with human beings and their purposes and plans, and ends with their stumbling and groping to find voluntary solutions to difficult social dilemmas through norms, conventions, and rules.

A Message of Hope

Let me conclude by bringing this back to my title: Why should people who care about liberty rejoice in this choice for the prize? There is an ideological importance to the work of Elinor Ostrom. She has not stressed it in her work, but Vincent has ventured into the field of social philosophy. My favorite book of his is The Meaning of Democracy and the Vulnerabilities of Democracies (1997). In that work Vincent inquires into the preconditions for a self-governing citizenry. A self-governing society, he says, must be composed of citizens fully capable of embracing the “cares of thinking and the troubles of living.” Unfortunately, the machinations of democratic politics—with interest-group manipulation, logrolling, rent-seeking, and the vote motive—tend to undermine the capacity for self-governance among a people.

Nothing in this should be interpreted as deterministically pessimistic. The message is that hope is to be found not in the State but in the people. A society of free and responsible individuals who are able to form voluntary associations will solve the social dilemmas they confront through various means of self-governance.

A Diverse World of Associations

Nobody has done more than Elinor Ostrom, both in her research and in her teaching/mentor capacity at the Workshop in Political Philosophy and Policy Analysis, to help us understand the self-governing rules and institutions that work to elicit cooperation in a wide variety of societies. And nobody has done more to alert us to the damage governments can do when they attempt to impose alien rules on local peoples from afar—especially when their own systems are already addressing social dilemmas in their own way. Elinor demands that we understand and respect institutional diversity in our world, to see the ingenuity and wisdom in local solutions and in the entrepreneurial creativity and resourcefulness of individuals throughout the developed and less-developed world. Transcending the older debates in social science and public policy, Elinor Ostrom’s work emphasizes the richness of the institutional environment and the creative solutions that arise when individuals are free to form associations and work within a network of informal rules that promote individual responsibility and collective accountability.

Supporters of FEE and readers of The Freeman are attracted to the vision of a society of free and responsible individuals. Elinor Ostrom’s research gives us a window into the diverse world of associations that do not fit neatly into the categories of “market” or “State” but nevertheless are essential to peaceful and prosperous social cooperation.

Her colleagues at Indiana University describe her as “humble and hardworking,” and another Nobel Prize winner, Vernon Smith, calls her a “remarkable scholar” with a passionate drive to understand human societies in all their variety. A former president of the Public Choice Society and the American Association of Political Science, Ostrom is also one of the most beloved teachers in academia. The Workshop in Political Theory and Policy Analysis at Indiana University that she co-directed with her husband, Vincent, is perhaps the ideal model for a research and graduate education center.

But what do we learn from her studies? I would argue that we learn at least three major points of style and substance. First, much of the last century of political and economic discourse has been dominated by a debate between advocates of perfect markets and perfect central planners. For one side, the demonstration of market failure was accompanied by an insistence that government would provide the necessary corrective. Ostrom was one of the core thinkers in the social sciences to say, “Hold on. Markets may fail, but government solutions also might not work.” One must always remember that Elinor and Vincent Ostrom are foundational contributors to the theory of Public Choice. But the Ostroms went further than simply demonstrating the possibility of government failure.

Smith versus Hobbes

This leads to the second point. In the history of political and economic thought the source of social order has been attributed either to the invisible hand of market coordination (Smith) or the heavy hand of state control (Hobbes). Perhaps one of the best ways to understand Elinor Ostrom’s work is to see it as working out a Hobbesian problem by way of a Smithian solution. That is perhaps a bit of a stretch but not by much. Her work on local public economies and common-pool resources focuses on actual “rules in use” (as opposed to the “rules in form”) that decentralized individuals and groups rely on to make decisions and to coordinate their behavior in order to overcome social dilemmas. Hers is an optimistic message about the power of self-governance to succeed even in difficult situations. As my colleague Alex Tabarrok put it, she sees how, through various voluntary associations, groups transform the common-pool resource situation from a “tragedy of the commons” to an “opportunity of the commons.”

Traditional economic theory argues that public goods cannot be provided through the market. Traditional Public Choice theory argues that government often fails to provide solutions. Ostrom shows that decentralized groups can develop various rule systems that enable social cooperation to emerge through voluntary association. A point that sometimes trips up readers is that Ostrom often focuses on situations where the technology of parceling property into private plots does not exist. In these situations she studies collective, but non-State decision-making over common-pool resources. While private-property solutions are not employed in such cases, the “rules in use” that do operate accomplish what private property would have accomplished. We find rules that limit access and that make individuals in the group accountable for their misuse of the resource. We also find enforcement of those rules. In short, the analyst must be willing to look at both the form and function of rules in a variety of social situations. There is a diversity of institutions at work in different societies that promote voluntary cooperation. As social scientists, we have to be able to understand them. There are rules that are in use, rules that are stated but not in use, rules that go by one name but that in practice do something else, and rules that tightly fit use, form, and function. Ostrom has insisted that social scientists must understand the rules that govern human behavior–both the way we interact with one another and the way we interact with nature. Some rules systems promote human betterment through the promotion of peaceful social cooperation and wealth creation; others thwart human progress by ensuring violence and poverty. It is actually that simple, and that profound.

The foundation of the social order of a free people is self-governance, not governmental authority and centralized power. Decentralized decision making that drills deep into the local social dilemmas real people face, that mobilizes incentives within a local rule structure, and that utilizes local knowledge is how the process of institutional development assures that self-governance is effective governance, enabling fallible human beings to reasonably manage scarce resources and the relationships among themselves.

Understanding Diverse Societies

The final point I want to stress concerning Ostrom’s research comes as a methodological message. Elinor’s work is humanistic and scientific. She is trying to understand human societies in all their variety. To do so she had to get up close and personal: from local government in California to irrigation systems in Nepal–and everything in between. Her field work in economics and political economy is guided by the logic of human choice. She describes her research program as “a behavioral approach to the rational choice theory of collective action.” If you take away the academic language, it translates into a research program that begins with human beings and their purposes and plans, and ends with their stumbling and groping to find voluntary solutions to difficult social dilemmas through norms, conventions, and rules.

Let me conclude by bringing this back to my title: Why should people who care about liberty rejoice in this choice for the prize? There is an ideological importance to the work of Elinor Ostrom. She has not stressed it in her work, but Vincent has ventured into the field of social philosophy. My favorite book of his is The Meaning of Democracy and the Vulnerabilities of Democracies (1997). In that work Vincent asks what are the preconditions for a self-governing citizenry. He answers that a self-governing society must be composed of citizens fully capable of embracing the “cares of thinking and the troubles of living.” Unfortunately, the machinations of democratic politics—with interest-group manipulation, logrolling, rent-seeking, and the vote motive—tend to undermine the capacity for self-governance among a people.

Nothing in this should be interpreted as deterministically pessimistic. The message is that hope is to be found not in the State but in the people. A society of free and responsible individuals who are able to form voluntary associations will solve the social dilemmas they confront through various means of self-governance.

Nobody has done more than Elinor Ostrom, both in her research and in her teaching/mentor capacity at the Workshop in Political Philosophy and Policy Analysis, to help us understand the self-governing rules and institutions that work to elicit cooperation in a wide variety of societies. And nobody has done more to alert us to the damage governments can do when they attempt to impose alien rules on local peoples from afar—especially when their own systems are already addressing social dilemmas in their own way. Elinor demands that we understand and respect institutional diversity in our world, to see the ingenuity and wisdom in local solutions and in the entrepreneurial creativity and resourcefulness of individuals throughout the developed and less-developed world. Transcending the older debates in social science and public policy, Elinor Ostrom’s work emphasizes the richness of the institutional environment and the creative solutions that arise when individuals are free to form associations and work within a network of informal rules that promote individual responsibility and collective accountability.

Supporters of FEE and readers of The Freeman are attracted to the vision of a society of free and responsible individuals. Elinor Ostrom’s research gives us a window into the diverse world of associations that do not fit neatly into the categories of “market” or “State” but nevertheless are essential to peaceful and prosperous social cooperation.

Because I was a serious student of free-market economics, Sennholz invited me to join his “graduate seminar,” which met on Wednesday nights and read the classics. That year we read Carl Menger’s Principles and Investigations and Eugen von Böhm-Bawerk’s Capital and Interest. So on Sennholz’s orders I picked up my copy of Human Action and went to the library every night until I had read the book cover to cover. Thanks to my undergraduate mind and the speed with which I tried to absorb the material, I missed much more than I comprehended.

But what I did comprehend changed my life.

It was that experience more than any other that made me realize I wanted to be an economist–not just an advocate for the free market. A year later I applied, and was accepted, to law school, but decided to defer that and attend graduate school in economics instead. Studying economics in the way Mises described the discipline in Human Action seemed the appropriate path.

Over the next year I worked to clear up my misunderstandings of Mises by reading Murray Rothbard’s Man, Economy, and State and Percy Greaves’s Mises Made Easier. Then in the second semester of my senior year I reread Human Action for a senior project for Sennholz on the methodenstreit (the Austrians’ battle with the German Historical school over the legitimacy of economic theory) and the relationship between Mises and Max Weber.

A year later, when I started graduate school at George Mason University, Professor Don Lavoie impressed me when, in an undergraduate course, he held up Human Action and said to the students, “This is the greatest book ever written in economics. I love this book.” I understand what Lavoie meant. For the past 20 years I have had the good fortune to be able to use Human Action in at least one Ph.D. course every year.

No Substitute

To the American student of economics, Rothbard’s presentation in Man, Economy and State might be more straightforward than Human Action, and Israel Kirzner’s discussion in Competition and Entrepreneurship picks up more naturally than Human Action from where intermediate price theory leaves off. But to the serious student of Austrian economics, there is no substitute for a thorough reading of Human Action. Even Hayek’s Individualism and Economic Order is best read as a complement to Mises’s great work, certainly not as a substitute if you hope to understand not only Hayek’s thought and argument, but also how markets actually work and why government cannot effectively regulate, let alone plan, a modern economy.

Since it was first published, Mises’s great work has been misunderstood. It is not primarily a work in methodology; it simply lays out the methodological foundations at the beginning. It is not primarily a work about the failures of government and the superiority of the market economy, though that is a logical conclusion to draw from the work’s analysis of interventionism and socialism. It is not primarily a work in market theory and the price system, though it does place a priority on entrepreneurship and the quest for profit and the discipline of loss. It is not primarily a work dealing with money, capital, and interest, but it does devote considerable time to the coordination of economic activities through time and devotes considerable space to the nature of money and capital and the role played by interest. Finally, Human Action is not focused on the wages of workers or the pattern of international trade, but it does lay out the economic theory of factor pricing, the principle of comparative advantage in the allocation of labor, and the international division of labor and the gains from specialization and exchange.

Human Action is not exclusively any one of these things precisely because it is all of these and more. Mises wrote economics not as a series of specialized topics, but as an integrated whole grounded in the consistent and persistent study of the logic of purposive human action.

In my view there have been two great defining characteristics of economics since its birth as a discipline in the eighteenth century: the market economy’s self-regulating capacity (the invisible hand) and self-interest (rational choice). Self-regulation was the great discovery of the Schoolmen of Salamanca, the French Physiocrats, and the Scottish Enlightenment philosophers. The Austrian school of economics represents the modern refinement of this classical theory of spontaneous order. Mises inherited it from Smith, Say, Menger, and Böhm-Bawerk and developed the argument further. The unhampered market economy corrects itself through price adjustments; losses, which weed out imprudent decision makers; and profits for prudent decision makers. In the process the market directs scarce resources into wealth-creating activities and general prosperity. Through relative prices and profit-and-loss accounting, individuals’ exchanges and innovations align technology and resource availability with consumer preferences.

Coordination of Consumption and Production

One sign of Mises’s genius is that his demonstration of this harmonization was more thorough than any before him. He showed how purposive action within the institution of private property coordinates consumption desires and production plans according to the least-cost methods of production. The private-property market economy mobilizes individual initiative and enables people to rationally calculate the alternative uses of scarce resources. Consumers, buying and abstaining from buying, create profits and losses that guide business decisions and coordinate economic plans through time.

Mises’s work on rational economic calculation provided the decisive argument against socialism, but it also explains the foundation of the market order. The free market enables calculation, socialism makes it impossible, and interventionism distorts it. Without private property, freedom of contract, monetary stability, and fiscal responsibility, the process of rational economic calculation is thwarted.

Adam Smith articulated the idea of the invisible hand, but it was Mises who explained how the market economy actually works. Human Action is Mises’s fullest and finest statement of that explanation.

To put it bluntly, Human Action is the greatest work in economics in the twentieth century. It is the treatise in economics.

The practical man, in fact, often scorns theory. But, as Mises pointed out, this disdain is mainly caused by the mistaken belief that the facts of experience speak for themselves, that facts by themselves can explode erroneous interpretations. Facts must be interpreted through the lens of theory. The intellectual conflicts of any age are theoretical conflicts, not factual ones.

Theories give meaning to facts. Hence, Mises wrote, it is obvious that the attempts to free the people, especially the intellectual youth, from the fetters of ‘unorthodox’ indoctrination must begin on the philosophical and epistemological level.

This was, in Mises’ view, the purpose of FEE. To educate thoughtful people, especially the intellectual youth, on the political, philosophical, and economic issues of the age was the main task of a foundation for economic education. A disinclination to deal with theory would mean submission to Marxism and Progressivism. According to Mises, the doctrine of the age promoted ten major economic fallacies which must be debunked.

1. Modern technological developments, it is contended, have delivered humanity into a post- scarcity situation. Thus, remaining economic problems are a result of inherent contradictions with capitalism, not due to the problem of limited resources and unlimited wants.

2. Following from the post-scarcity situation, monetary expansion can solve problems. Poverty can be eradicated simply by printing new money.

3. Business cycles, it is said, are not a result of government mismanagement, but instead a natural consequence of the contradictions of capitalism.

4. Mass unemployment is endemic to capitalism and the free enterprise system cannot provide enough jobs. Technological improvements in production are beneficial to some, but a scourge to the masses.

5. Improvements in the working class are due to actions of government, and especially, pro- labor union legislation.

6. Despite the best intentions of government and labor unions, the masses of workers remain in a desperate state of affairs.

7. Bargaining power within the economy rests disproportionately with businessmen, and against labor. Without the aid of collective bargaining, wages would be pushed to subsistence levels by businessmen, who see this as the way they will increase their profits.

8. Competitive capitalism might have accurately described a previous era, but in the world of today the market is dominated by monopolies.

9. In a world dominated by monopolies, the idea of consumer sovereignty is a myth. Business firms do not attempt to supply the wants of consumers, but instead attempt to manipulate those wants in order to increase profits.

10. Since we live in a post-scarcity world, and income distribution is so top-heavy, redistribution of income from rich to poor will not have any effect on economic productivity.

These fallacious economic propositions, one should recognize, were later embodied in such influential writings as John Kenneth Galbraith’s The Affluent Society. But at the time Mises was writing to Leonard Read, the intention was to give a purpose and direction to FEE’s educational mission. This required first and foremost the continued refinement of economic theory, significant historical work guided by correct theory, and the ability to communicate the results of these theoretical and historical investigations to as wide an audience as possible. According to Mises, success or failure of endeavors to substitute sound ideas for unsound will depend ultimately on the abilities and the personalities of the men who seek to achieve this task.

Mises, the philosopher and economic theorist, was complemented in his effort by Henry Hazlitt, the economic journalist. Leonard Read—the entrepreneur of ideas—was able to coordinate the activities of Mises, Hazlitt, and other scholars and writers to translate theory into the modern idiom, thus challenging the prevailing progressivism of postwar America.

If we compare the current state of economic knowledge with the economic outlook of the late 1940s, as presented by Mises’ analysis, then classical liberals have reason both to rejoice and to despair.

On a fundamental level, the work of Mises, Hazlitt, and others—and such organizations as FEE—has done much to unmask error. But too many economic myths persist. A new generation must pick up where Mises and Hazlitt left off, advance the theoretical and historical understanding of economic life, and learn to communicate these ideas to the intellectual youth more effectively.

Much has been made of the failure of universities and colleges in recent years. Self-indulgent professors, who pursue their esoteric research at the expense of the education of their students, have come under increased scrutiny as tuition continues to rise. Teaching, not research, should be the primary function of faculty, though it must be understood that research is vital for improved instruction—in particular, careful academic study and writing that meet the scholarly demand of peer review. But with the legitimate critique of the existing situation, there also tends to be a disdain of theories and philosophies that Mises warned would lead to the spread of economic fallacies.

As classical liberals work to fulfill their mission in the coming years, they must take inspiration from the accomplishments of Mises, Hazlitt, and Read. If they too readily reject basic research and theory in favor of practical knowledge and superficial instruction, then Mises’ challenge will remain unmet.

The most important work published since FEE’s founding in 1946, in my opinion, is Ludwig von Mises’ Human Action: A Treatise on Economics, published in 1949. Human Action is the English rewrite (not just translation) of Mises’ 1940 German work Nationalokonomie: Theorie des Handelns und Wirtschaftens. This is Mises’ magnum opus—combining the great contributions to economic science he made in The Theory of Money and Credit (1912), Socialism (1922), and Epistemological Problems (1933) into an integrated treatise on economics and social theory. F.A. Hayek described Nationalokonomie as having such “width of view and intellectual spaciousness” that it reminds one of the great works of the eighteenth-century philosophers rather than those of the modern specialists.

The publication of Human Action led to several important intellectual movements in the second half of this century—all of which possess an important claim to our attention. First, Mises’ book brought Austrian economics to America more than any other work. The book directly influenced the research path of Murray Rothbard and Israel Kirzner—the leading scholars of modern Austrian economics—but it also brought the public policy wisdom of the Austrian version of neoclassical economics to American audiences as represented in the essays of Henry Hazlitt, Hans Sennholz, Percy Greaves, and others. Mises’ great intellectual system more than any other became the inspiring vision behind the work of free-market intellectuals and scholars.

Second, Mises’ book rallied the anti-Communist conservative intellectual and political movement in the United States around a book that represented a direct challenge to Marx’s works on a technical, philosophical, and polemical level. If the left had Marx, the right had—and has—Mises.

Third, Mises was one of the main intellectual inspirations behind the rebirth of classical political economy, and the unification of related disciplines through a common means of analysis— methodological individualism. This movement—seen in the work of James Buchanan and Gordon Tullock in political science, as well as James Coleman in sociology—is still developing better insights not only into the operation of economies, but to the social world in general. Mises’ Human Action was the first systematic treatise to push the economic approach beyond market exchange into all realms of human action.

Future historians of the resurgence of classical liberalism in the later half of the twentieth century will have to accord Mises’ great book its rightful place as the visionary treatise around which a movement rallied and grew and boldly faced off against Communism at a time when it was assumed that Communism had not only grabbed the higher moral ground but also the economic ground as well. Mises exposed the fallacies of Communism and socialism, as well as the contradictions of statism in general.

Mises’ great work still inspires legions of young minds, and its finer points of analysis provide fodder for more mature minds to wrestle with and mull over again and again. It is a rare work. Many great books have been written by scholars and intellectuals since 1946, but none approaches the breadth, depth, and boldness of Mises’ Human Action.

It is a fateful error on the part of our most valuable contemporaries to believe that economics can be left to specialists in the same way in which various fields of technology can be safely left to those who have chosen to make any one of them their vocation. The issues of society’s economic organization are every citizen’s business. To master them to the best of one’s ability is the duty of everyone.

Thus, we can agree that Lucas has greatly influenced modern economics, yet—despite substantial agreement in the policy arena—still express concern that economics has been pushed to become increasingly precise about less and less, thus losing its relevance for the everyday life of business and politics.

—Peter J. Boettke
Guest Editor