Book Review: Nation, State, and Economy

Monday, April 23, 2012

Nation, State, and Economy (Nation, Staat, and Wirtshaft) was written by Ludwig von Mises in 1919--at the same time as Keynes wrote The Economic Consequences of Peace.  Translated by Leland B. Yeager, the book was published by New York University Press in 1983.  If you’re addicted to reading Von Mises’ books (like I am), there’s no reason not to read it; but I would not recommend the book for beginners.  This is one of Von Mises’ earlier works, and his theories had not yet matured.

To start the book, Mises urged everyone to go on with life instead of living in eternal remorse over World War 1.  People should, however, learn from the disaster and never repeat their errors: “Every person must take his life and every nation must take its history as it comes; nothing is more useless than complaining over errors that can be no longer rectified, nothing more vain than regret.”  “Nations,” he says, “like individuals, become wise only through experience, and only through experience of their own.”  

Mises believes that nations are not based on geographic or political boundaries, but rather on language because language affects the thought process.  “Community of language binds and difference of language separates persons and peoples,” he says.  

Democracy doesn’t work well, he observed, in a state with a nationally mixed population (I.e. with strong ethnic groups which have not been assimilated).  “In polyglot territories, the application of the majority principle leads not to the freedom of all, but to the rule of the majority over the minority.”  The struggle of nationalities for control will only “lose sharpness to the extent that the functions of the state are restricted and freedom is extended.”

Von Mises goes on to international affairs.  War, Mises observes, was always caused by one thing, greed for power.  Philanthropic pacifism wants to abolish war without getting at the causes of war.  The League of Nations and any extensive efforts at arbitration will fail, Mises predicted.  Methods such as a socialist world community would not eliminate problems; they are utopian.  “Whoever wants peace among nations,” he declares, “must seek to limit the state and its influence most strictly.”  Mises rejects war not on philanthropic grounds but from the standpoint of utility: war lowers the standard of living.  An increase in wealth never results from destruction.  Free people who are busy with their own business do not want war, but the “‘statification’ of life and of the economy necessarily leads to the struggle of nations.”  Von Mises explores the pre-war conditions in Germany and Austria and the reasons an authoritarian government was able to take power.  He then notes that the development of the spatial division of labor and progress toward a world economy works “more effectively for peace than all the efforts of the pacifists.”

“Inflation,” von Mises wrote, is an indispensable intellectual means of militarism.  Without it, the repercussions of war on welfare would become obvious much more quickly and penetratingly; war-weariness would set in much earlier.”  During World War I, inflation messed up balance sheets because the depreciation of money was not accounted for. “The inflation drew a veil over capital consumption.  The individual believed that he had become richer or had at least not lost, while in truth his wealth was dwindling.  The state taxed these losses of individual economic units as ‘war profits’ and spent the amounts collected for unproductive purposes.”  Everyone fell into ecstasy, thinking they had made a lot of money off the war, while their standard of living dropped.

Von Mises goes on to contrast socialism and liberalism (the old liberalism, nearly the opposite of modern day liberalism, was a belief in liberty).  Both Socialism and liberalism strive for the same goal (general welfare); they both seek for “the greatest happiness of the greatest number.”  The only difference is in the methods they choose to reach the goal.  Liberalism calls for free trade internationally, not for the sake of foreigners, but for the sake of one’s own people.  It calls for free trade at home, “not out of regard for particular classes, but for the welfare of all.”  Mises says, “An economic order resting on private ownership of the means of production and according the greatest possible scope to the activity and free initiative of the individual assures…the attainment of the goal…The socialist…seeks to attain it by socialization of the means of production…In the socialist society, the distinction between rich and poor would fall away; no one would possess more than another, but every individual would be poorer than even the poorest today, since the communist system would work to impede production and progress.”  Waste, he explains, is rampant in public services and enterprises, while private enterprise is highly efficient.  Socialism cannot be defended rationally, Mises claims, it is more like a doctrine of salvation.  “Yet, the Kingdom of Christ is not of this world; socialism, on the contrary, wants to establish the kingdom of salvation on earth.  Therein lies its strength, therein, however, its weakness too, from which it will collapse some day just as quickly as it has triumphed.  Even if the socialist method of production really could raise productivity and provide greater welfare for all than the liberal method, it would be bound bitterly to disappoint its adherents, who also expect the highest exaltation of the inner feeling of happiness from it.  It will not be able to remove the inadequacy of everything earthly…it will have to recognize that a religion not referring to the life to come is an absurdity.”

On the other hand, von Mises explains some of the essential points of liberalism, “If they deny to the state the mission of furthering the realization of the values of life, they do so not out of want of esteem for true values, but rather in the recognition that these values, as the most characteristic expression of inner life, are inaccessible to every influence by external forces.  Not out of religiosity do they demand religious freedom, but out of deepest intimacy of religious feeling, which wants to make inner experience free from every raw influence of outward power.  They demand freedom of thought because they rank thought much too high to hand it over to the domination of magistrates and councils.  They demand freedom of speech and of the press because they expect the triumph of truth only from the struggle of opposing opinions.”

Mises then writes of the great influence oppression can have in the “modern” world (of 1919).  He speaks of how it is so easy to kill and control so many, of how one pressing one button could kill “thousands.”  [Just think of the extent of destruction a war or oppression could create today with nuclear weapons and so much more technology.]  Von Mises said that, “Only one external limit is posed to this rage for destruction.  In destroying the free cooperation of men, imperialism undercuts the material basis of its power.  Economic civilization has forged the weapons for it.  In using the weapons to blow up the forge and kill the smith, it makes itself defenseless in the future.  The apparatus of the economy based on division of labor cannot be reproduced, let alone extended, if freedom and property have disappeared.  It will die out and the economy will sink back into primitive forms.   Only then will mankind be able to breathe more freely.  If the spirit of reflective ness does not return sooner, imperialism and Bolshevism will be overcome at the latest when the means of power that they have wrested from liberalism will have been used up.”  

Mises then concludes by affirming the rights of self-defense.  A war in self-defense is a “just war” and “the most virtuous person cannot live in peace if that does not please his evil neighbor.”  Then he goes on to tell us that everyone, even the most evil leader, has claimed to exercise power for the “general good.”  But basically, as Lord Acton said, “Power tends to corrupt and absolute power corrupts absolutely.”

I’m glad I read Nation, State, and Economy.  It definitely contains plenty interesting ideas and food for thought.


  1. It would seem that von Mises's ideas regarding nations based on language and his observations regarding democracy's difficulties functioning in a mixed population offer at least a partial explanation of America's current problems. You covered several other very interesting points. Great review!

  2. Thanks. It seems von Mises was referring to the large number of Slavic citizens of Austria before World War I. At first, Germans ruled, while the majority in Austria were Slavic peasants. The Germans resisted democracy because that would basically mean rule of the Slavs over the Germans. Our country, though very ethnically diverse, has assimilated many of the cultures, so the problem hasn't reached anything near the dimensions it took in Austria (Few people vote for so-and-so because he is Scottish or against so-and-so because he is French).

  3. Interesting. Just wondering if you think we've really assimilated or just tolerated? There seems to be a lot of underlying resentment toward those with Spanish as their native language. Of course, I'm still more concerned with what our own government might do to its citizens than I am with a minority demographic.

  4. Well, yes, many Mexican immigrants have not been assimilated yet; and I do see some underlying resentment (which is very unfortunate) toward some of them. You're right on the point that we have a lot more to fear from our government.