Sunday, September 15, 2013

Ludwig von Mises' Economic Policy

Mises, M. (1979). Economic Policy: Thoughts for Today and Tomorrow. Chicago: Regnery/Gateway, Inc. (122 pages).


Margit von Mises compiled her husband's lectures in Argentina in 1959. The outcome is the book, Economic Policy: Thoughts for Today and Tomorrow. Regnery/Gateway, Inc., Chicago first published this book in 1979. 

Mises argued in the book that the best economic policy is to limit the government to its proper role and to make it sure that the market environment is conducive to its free operation. The focus of the government should be the protection of life, freedom, and private property of citizens both from domestic and foreign aggression. The author expounded this idea into six lectures on capitalism, socialism, interventionism, inflation, foreign investment, and policies and ideas. 




Capitalism

The first lecture centers on misconceptions about capitalism. It is about interconnected economic facts that are not widely known about capitalism. Examples of these facts include its historical setting and distinction from feudalism, its contribution to population growth, savings and higher standard of living, and the origin of animosity against it. 

1. Feudalism, historical setting of capitalism. Most people do not appreciate capitalism for they fail to compare it from feudalism. Under feudalism, the people did not have access to products and services that aristocrats enjoyed. And add to it the fact, that there was no social mobility. 

Capitalism replaced the socio-economic structure of feudalism. Access to products and services that the elites enjoy was opened to the public and any individual can now climb up to the social ladder through innovative ideas and entrepreneurship. 

2. Improved standard of living, population growth, and benefits of savings. During the previous social structure, mortality rate was so high due to poverty, malnutrition, and starvation. The entrance of capitalism increased the standard of living and contributed to the increase of human population. Savings played an important role to the growth of capital that benefit not only the savers, but other players in the market such as the entrepreneurs, unemployed, producers of raw materials and existing wage-earners (p.11).

3. Origin of animosity. Still another unpopular facts is connected to the origin of animosity against capitalism. People are fooled to believe that hatred towards capitalism originated from the masses, the working class, the "proletariat". This is a "succesful" historical distortion. Enmity against capitalism actually originated among the aristocrats (Even the term "capitalism" did not come from the proletariat. It was actually coined by Karl Marx, a bourgeois and capitalism's strongest enemy, p. 10). They didn't like capitalism for it diminished their economic power. Mises narrated: "It is a fact that the hatred of capitalism originated not with the masses, not among the workers themselves, but among the landed aristocracy—the gentry, the nobility, of England and the European continent. . . . They blamed capitalism for something that was not very pleasant for them: at the beginning of the nineteenth century, the higher wages paid by industry to its workers forced the landed gentry to pay equally higher wages to their agricultural workers. The aristocracy attacked the industries by criticising the standard of living of the masses of the workers." (p. 6).

Another historical distortions include the so-called "unspeakable horror of capitalism", which Mises designates as "one of the greatest falsehoods of history". This is related to the exploitation of women and children. Mises corrected this story: "The mothers who worked in the factories had nothing to cook with; they did not leave their homes and their kitchens to go into the factories, they went into factories because they had no kitchens, and if they had a kitchen they had no food to cook in those kitchens. And the children did not come from comfortable nurseries. They were starving and dying." (pp.6-7).

4. Other misconceptions. Still additional misconceptions concerning capitalism are related to wage rate and socio-economic gap between the rich and the poor. As a result of Marxian influence, people think that employers determine wage rate. They fail to see that ultimately consumers determine the wage rate of employees (p.9). Concerning the alleged widening gap between the rich and the poor inherent in capitalism, Marxists argue that as wealth is concentrated only in the hands of the few, mass revolution is inevitable. 

Mises refused to accept such faulty analysis for facts show that nations that embarced capitalism actually improved the condition of the masses. So the argument is completely mistaken. Mises asserts, "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).

And finally, another faulty idea is the belief that labor unions could improve the economic condition of the working class. Mises refuted labor unions' advocacy for higher wage rate, shorter work hours, and public ownership of means of production that they actually make the economic situation of the working class worse. Among numerous Marxist themes, Mises specifically identified "iron law of wages" theory as fallacious for its model was taken from biology. 

After reading the above misconceptions about capitalism, I dream to see increasing number of people listening to the message of the strongest defender of capitalism, Ludwig von Mises himself. 

Socialism

The second lecture is about socialism. The first few pages contained a discussion about economic freedom. It was followed by an explanation of consumer sovereignty. Then the next few pages were devoted to the exposition of the use of state laws and the meaning of irreconcilable conflict of interest. The bulk of the last pages was spent in elaborating about central planning and the fundamental problem of the impossibility of calculation and planning under socialism.

1. Economic freedom. Mises described economic freedom as a system and a process. As a system, "it is the market economy, it is the system in which the cooperation of individuals in the social division of labor is achieved by the market" (p. 17). As a process, "it is the way in which, by selling and buying, by producing and consuming, the individuals contribute to the total workings of society" (ibid.). 

Mises made some necessary qualifications in his understanding of economic freedom. I find three: First, in relation to nature, he acknowledged that man is not free but has to follow the regularity of its laws. Second, he also denied perfect freedom from a metaphysical standard. Third, he confined his discussion of economic freedom in the context of society. Within this context, the various types of freedom are interconnected. Economic freedom therefore is vital and cannot be separated from other forms of freedom. He considered it illusory to think that people are really free without economic freedom.

2. Consumer sovereignty. Consumer sovereignty is a corollary theme of economic freedom. In the free market, a capitalist cannot lord over without the support of the people simply because the real sovereign under the free market is the consumer. "The fact is", said Mises, "under the capitalistic system, the ultimate bosses are the consumers. The sovereign is not the state, it is the people" (p. 21). And the proof of such sovereignty is the right to commit mistakes. Slaves do not have such right. 

3. Use of legislation. It is exactly this right to commit mistakes that occasioned the use of legislation to "protect" the people from economic mistakes. But the primary trouble with this kind of idea is that once it is accepted, the question of limitation is difficult to decide. The government could possibly restrict its citizens from reading "revolutionary" books, watching unwholesome movies, and listening to bad music. In fact, this kind of use of legislation is coercing individuals and the opening of the path to slavery. 

4. Irreconcilable conflict of interest. One favorite themes in socialism is the emphasis on irreconcilable conflict of interest between the proletariat and the bourgeois. Mises argued that Marx was mistaken in applying this idea to capitalism for the examples used by the latter were all taken from the pre-capitalistic era. Mises described this pre-capitalistic era as a status society. Marx failed to see the distinction between these two societies. In the status society, the aristocrats could retain their status for hundreds of years regardless of their moral quality. In the capitalist society, social mobility is constant.

Marx took the concept of irreconcilable conflict of interest from status society and misapplied it to a capitalist society. To see the significance of this point, it is best to read two paragraphs from Mises: "In a status society a man was not, for example, born a Frenchman; he was born as a member of the French aristocracy or of the French bourgeoisie or of the French peasantry. In the greater part of the Middle Ages, he was simply a serf. And serfdom, in France, did not disappear completely until after the American Revolution. In other parts of Europe it disappeared even later" (p.24).

And another paragraph: "But the worst form in which serfdom existed—and continued to exist even after the abolition of slavery—was in the British colonies abroad. The individual inherited his status from his parents, and he retained it throughout his life. He transferred it to his children. Every group had privileges and disadvantages. The highest groups had only privileges, the lowest groups only disadvantages. And there was no way a man could rid himself of the legal disadvantages placed upon him by his status other than by fighting a political struggle against the other classes. Under such conditions, you could say that there was an 'irreconcilable conflict of interests between the slave owners and the slaves,' because what the slaves wanted was to be rid of their slavery, of their quality of being slaves. This meant a loss, however, for the owners. Therefore, there is no question that there had to be this irreconcilable conflict of interests between the members of the various classes" (ibid.).

5. Central planning. Central planning is another popular form of socialism. In discussing this subject, Mises mentioned a popular book in his time written by a certain British lady who happened to be a member of the Upper House. The title of her book is "Plan or No Plan". In that book, Mises discerned that the author was advocating the kind of plan originally proposed by Lenin and Stalin. This type of plan covers the entire life of a nation and excludes the personal plans of the people. For Mises, the title of the book was misleading for the contrast actually was not between the existence and absence of national plan, but between two kinds of plan - central plan or personal plans. 

6. Impossibility of calculation and planning. The central weakness inherent in socialism is its inability for economic calculation and planning due to the absence of price system, which can only be provided by the free market. And since socialism is basically an economic system that abolished the free market, it is actually running blind without the price system. 

Interventionism

Those who are not familiar with free market literature would consider interventionism as a strange subject. I hope that by coming to this third lecture such unfamiliarity will be removed and we will begin to realize the crucial played by this economic policy in modern economics and politics.

Interventionism is the most influential economic policy in our time. An interventionist government is characterized by product regulation, price and salary control, business interference, welfare, import and export control. These activities indicate that the government is moving beyond its proper scope and this is not good for the economy. 

So interventionism is all about the government inclination to go beyond its appropriate function into the affairs of the free market. In short, interventionism is all "about government interference with the market" (p.40). Specifically, this means government interference "with prices, with wage rates, interest rates, and profits" (ibid.). Both the immediate and the long-term results of such interference will be the transfer of economic power from the consumers to the state and the bureaucrats.

In Mises' lecture on interventionism, we will see its real nature under three sections: the proper role of the government, mixed economy, and the distinction between mixed economy and interventionism. 

1. Proper role of the government. There are three views about the role of the government in relation to the free market - interventionism, anarchy, and limited government. Unlike Rothbard, Mises advocates limited government. So again limited government means that the primary task of the government is to protect its citizens' life, freedom, and private property. Going beyond this is harmful to the economy. 

2. Mixed economy. Mises did not believe in the existence of third economic system. However, interventionism should not be confused with the existence of the so-called "mixed economy" where both private and public ownership of corporations are allowed. 

3. Distinction between mixed economy and interventionism. In order to clarify the distinction between mixed economy and interventionism, Mises gave three examples - price control, rent control and cartels. 

Under price control, we see two historical examples of failure of price control, an analysis of reasons for such failure, its extension to other products, and its end result. Examples of price control in the past tell us about the response of the government once prices started to increase as a result of inflating the money supply. Mises gave two examples: the Roman Emperor Diocletian and French Revolution.

The Roman emperor debased the silver coins in the second hald of the 3rd century. The government mixed increasing amount of copper into the silver coins. This is currency debasement that resulted into price increase followed by price control. Those who violated the price control law were severely punished. The final outcome "was the disintegration of the Roman Empire and the system of the division of labor" (p.41).

Similar mistake was repeated during the French Revolution. Since printing press had already been invented, the French used a different mode of currency debasement. They increased the money supply by printing huge quanitity of paper currency. The immediate result was price increase and again followed by price control. Even the method in punishing the violators was also changed. This time, it was through guillotine. 

In analyzing the failure of price control, Mises takes milk as an example. It all starts with people's dissatisfaction with the increasing price of milk. As a response, the government decides to fix the maximum price for milk, which is lower than the market price. Two immediate results will follow: the demand for milk will increase and the producers of milk will suffer loss as a result of lower price.

In order to continue and protect the business from the impact of government imposed price, it is natural that producers will do the following action: restrict milk production, reduce the number of cows by selling them and focus instead on other products made out of milk. The long-term results then of price control will be less supply of milk, greater demand, price increase, smaller number of people can avail the product, and rationing. 

Then the government will inquire the reason for less supply of milk. The producers will respond that the cost of production is higher than the government imposed price. And as the government traces other items necessary for production, these items will be subjected also to price control. The same result that happened in the milk supply will also occur to related items. And if the government does the same thing with other basic necessities, similar result will take place. 

The final result of government interference in the market is socialism. This happened both in Germany and Great Britain in World War 1. Both countries inflated their money supply, which resulted to price increase and imposition of price controls. The government of Germany controlled the entire national economy through the "Hindenburg Plan" that resulted to the collapse of bureaucratic apparatus and bloody end. England would also about to suffer the same fate, if not for the entrance of the US into war that provided the necessary supply. 

During the 2nd World War, the same process was repeated. Price control was already present before Hitler came to power. During Hitler's time, the free enterprise was still allowed to operate but no longer under the control of entrepreneurs. Instead, they were called shop keepers. The entire operation of the free market is but a show. Everything is regulated from the kind and quantity of products, source and price of raw materials, buyers and price of goods to the designated works for people and amount of salary. This is the free market under German socialism. 

Great Britain followed the same pattern. It became socialist during the time of Sir Winston Churchill. Nationalization was the game of the day. For Mises, the difference between the two countries is unimportant for in both cases, it was the government's order, which had to be obeyed in all areas. 

The same process in controlling the price of milk is applicable in housing. Housing shortage is an outcome of similar mechanism, but this time, it is rent control. 

Mises identifies a series of results from rent control: people will not choose to transfer to smaller apartments when their conditions changed, many cities in the US suffered financial difficulty, shortage in housing, and then the government spent billions for building of new houses. 

Another economic consequence of interventionism in the form of "protectionism" is the formation of cartels. Mises describes the formation of cartels as a result of government's attempt "to isolate the domestic market from the world market" (pp. 51-52). Then the government "introduces tariffs which raise the domestic price of a commodity above the world market price, making it possible for domestic producers to form cartels" (p.52). Once cartels are formed, the government will call for anti-cartel legislation. Observing the process, you will see the absurdity of the government's call for legislation while in fact, cartels are formed due to its intervention. So if the government really wants to stop cartels, it must stop intervening in the affairs of the market. 

Interventionism is not a new development. It is a revival of an old idea that a king was the "messenger of God" with supernatural powers. It came back to the modern times through the influence of a German professor, Werner Sombart. This professor believes that Hitler's orders directly came from God Himself, "the Fuhrer of the Universe". For Mises, the return of this belief is inexcusable in modern times and in a country recognized "as the nation of philosophers and poets" (p.54). The only remedy to interventionism is the power of the citizens.

Inflation

The fourth lecture is about inflation. In addition to interventionism, inflation is the other tool of socialism. Under this lecture, I see five interconnected topics: solution to government's financial problem, most affected sector by inflation, duration of inflation, labor unions, and full employment.

1. Solution to the financial problems of the government. There are two ways to solve the government's financial problems. The legitimate way to do it is by taxing the citizens. But since taxing the people is considered not good for political career, another way of addressing the government's financial difficulties was made. This time it is by printing paper money.

In directly taxing the people, at least the people are aware about the deduction in their salary and they can adjust their expenses to a new financial situation brought about by new taxes. And another advantage of direct tax compared to printing paper money is that the price of goods and services is not affected. The only negative repercussion of such an act is the increase in buying power for the government and less on the part of private citizens. 

This is not the case when government decides to print paper money to solve its financial trouble. It is also a tax, but people do not see it for it is done indirectly. And it also does not affect anyone's political career. 

What's detrimental in this form of indirect tax is that since people do not see any reduction in their income, they think that they can still buy the same amount of goods that they previously buy when the quantity of money is not yet increased. They do not realize that the purchasing power of their money has been reduced since the certain consequence of printing more money is price increase. And since prices of goods and services have already increased as a result of additional money, those who receive the same amount of salary when the new money was not yet introduced will suffer. And since most people do not know how their money lost its value, they simply consider it as something natural.

2. Most affected sector by inflation. The fact is, price increase and the lost of purchasing power are not natural. It is an inescapable outcome of government's act of printing money to address its financial problems. So the financial burden is transferred from the government to the citizens without them knowing it. 

The problem here is the way the government obtains money. Due to the preference of the government to use printed money rather than direct tax, some people will have greater advantage than others. Those who receive the new money earlier are in a better position than those who receive it late. This reminds me of Ron Paul's words about “speculators, bureaucrats, and the special interests favored by the government” (Pillars of Prosperity, 2008, p.110) as early beneficiaries. The sufferers are the laborers and savers. Among them are the teachers and ministers (p.61).

3. Duration of inflation. The Roman Empire, Han Dynasty, and Germany are used as typical examples to demonstrate the catasthropic end of continually increasing the supply of money. Mises thinks that inflation will stay "as long as people are convinced that the government, sooner or later,...will stop printing money..." (pp.63-64). When people do not believe this anymore, then they will realize that prices will continue to increase. As a response, they will start "buying at any price, causing prices to go up to such heights that the monetary system breaks down" (ibid. p. 64). 

Under inflationary monetary system, becoming a debtor is considered wise. Anyone who understands the system could take advantage of it and could utilize it to attain easy wealth. Another feature of inflationary policy is the perception about the government's power. It is looked upon by the people as all-powerful. People ask the government to take care of them for with an unlimited supply of money, the government can do anything. 

In order to correct the wasteful spending of the government, Mises believed in returning to the gold standard. He argued that the gold standard is a form of protection from extravagant government. One great advantage of it is that "the quantity of money under the gold standard is independent of the policies of governments and political parties" (p.65). 

4. Labor Unions. Next to the government, labor unions possess the power to influence wage rates. The problem with the wage rate demanded by unions is that it is above the level of wage in free market. As a result laborers are only employed by industries prepared to suffer loss. When businesses could no longer afford losses, they shut down resulting to more unemployment.

5. Full Employment. John Maynard Keynes was a strong advocate of inflationary policy. For him, this is the only way to solve unemployment. For Mises, there is no need to resort to Keynes' strategy of "cheating the workers" (p.70). Instead, the market should be allowed to operate freely without the interference coming from both the governments and the labor unions. This is the only way to achieve full employment (pp.70-71). 

Mises concluded this lecture by emphasizing that inflation is a monetary policy and it can be changed. And the only way to change it is for the intellectuals to do their role in shaping public opinion. Once the public are informed about the disastrous results of inflation, Mises was confident that politicians will abandon this monetary policy.

Foreign Investment

The fifth lecture is about foreign investment. It tells us that increasing the capital is the only key for developing nations to attain prosperity. This is Ludwig von Mises' central argument in this lecture. Mises explained this topic under five headings - reason for lower income, three important events, numerous enemies of capital growth, situation in many countries, and the key to the prosperity of developing countries. 

1. Lower income. In developing countries, the standard of living is lower simply because the average income is also lower compared to similar type of work in developed countries. And the reason for this is not inferiority of workers or business ignorance. Instead, it is dependent on economic situation and availability of capital in the country, both foreign and domestic. 

2. Three important events. Mises identified three important events in the economic history of the world. These are the introduction of foreign investment in the 19th century, the story of American subsidies in between and after two world wars, and the development of anti-capitalist mentality after World War 1. Without the aid of British capital in the 19th century, the development of US economic system is unintelligible. In addition to British capital, US economic policy during those times was friendly to foreign investment. This explains the unprecendeted growth of American economy. But after World War 1, economic climate changed with the development of anti-capitalist mentality. Countries were no longer friendly to foreign investment. The previous condition that encouraged foreign investment was removed. Expropriation of investments became the norm. Mises described this backwardness: "Starting with the First World War, there began a period of worldwide open warfare against foreign investments. Since there is no remedy to prevent a government from expropriating invested capital, there is practically no legal protection for foreign investments in the world today. The capitalists did not foresee this. If the capitalists of the capital exporting countries had realized it, all foreign investments would have come to an end forty or fifty years ago. But the capitalists did not believe that any country would be so unethical as to renege on a debt, to expropriate and confiscate foreign capital. With these acts, a new chapter began in the economic history of the world" (p.82).

3. Enemies of capital growth. Aside from direct expropriation, "innovative" way of expropriating capital also exists. And this problem is rampant in developing countries. Mises mentioned two ways of doing this - foreign exchange control and tax discrimination. And then referring to tax system, he described the existing policy in the US as insane, and should not be followed by other countries. He called it double taxation and progressive (p.84).

Two additional forces that prevent capital growth are protectionism and labor unionism. Protectionism prevents "the importation of capital and industrialization into the country" (p.87). Labor unions on the other hand "use violence against entrepreneurs and against people they call strikebreakers" (ibid.). They "cannot industrialize the country, they cannot raise the standard of living of the workers", and they bring nothing but "permanent, lasting unemployment" (ibid.).

4. Situation in many countries. Many countries are in serious trouble due to these anti-investment policies. The end result of this is harmful to national economy. It destroys confidence that cause the retreat of foreign investment. For Mises, his proposed solution was to establish an international law that remove foreign investments from national jurisdiction. Mises explained the seriousness of this problem: "But in many other countries the problem is very critical. There is no—or not sufficient—domestic saving, and capital investment from abroad is seriously reduced by the fact that these countries are openly hostile to foreign investment. How can they talk about industrialization, about the necessity to develop new plants, to improve conditions, to raise the standard of living, to have higher wage rates, better means of transportation, if they are doing things that will have precisely the opposite effect? What their policies actually accomplish is to prevent or to slow down the accumulation of domestic capital and to put obstacles in the way of foreign capital" (p.85).

5. The key to prosperity. Mises emphasized that the only thing missing among developing countries for them to improve their standard of living is capital accumulation operating not under the control of the government, but under the discipline of the free market. And to achieve the desired result, capital requires a stable monetary unit. This would mean total absence of any kind of monetary inflation. 

So at the end of the day, the key to the prosperity for developing countries is all about economic policy and for Mises this is the decisive point: "One must realize that all the policies of a country that wants to improve its standard of living must be directed toward an increase in the capital invested per capita" (pp.87-88). "As I said before, there is only one way a nation can achieve prosperity: if you increase capital, you increase the marginal productivity of labor, and the effect will be that real wages will rise" (p.88).

Two questions come to mind while reading this lecture. What is the economic situation in the country? And what prevents the availability of both domestic and foreign capital? Dr. John V. C. Nye of George Mason University described the existing economic policy in the country as "Badly distorted micro-economic price situation", "poor and unreliable property rights and contracting", "legalistic bureaucracy" and "policies and institutional constraints that are anti-investment and anti-competitive". 

Policies and Ideas

In this final lecture, Ludwig von Mises answered these two questions: What caused the collapse of the Roman Empire during the 3rd century that is also threatening our civilization now? Is the collapse of Western civilization really inevitable as various thinkers and critics argue? We divide our answer to these questions under four sections: internal corruption, shift to interventionism, similarities and differences, and the need for better ideas. 

1. Internal corruption. Ludwig von Mises strongly acknowledged that the internal forces that corrupted the Roman Empire are also present within Western civilization. He identified them as economic interventionism and monetary inflation. However, he strongly contradicted the opinions of influential scholars such as the German teacher Oswald Spengler and the British historian Arnold Toynbee who predicted the inevitability of the collapse of Western civilization. For him, the metaphorical comparison between the death of "civilization to a plant is completely arbitrary" (p.101). Though he admitted that there are similarities between the Roman Empire and Western civilization, he also argued about the existence of differences. And in these differences, better ideas play a critical role to change the direction of present civilization. 

What follows next is a narration how this process of internal corruption started. In order to trace the economic root of existing political troubles, we need to see the significance of the frustration of the hopes of 18th century Enlightenment. Thinkers during that time was characterized by strong optimism as to the dawn of the new age of freedom, prosperity, and progress. Such optimism was indeed followed by unprecedented economic improvement for the following two centuries. However, in the 20th century, a "warlike spirit" started to return alongside with humanity's disappointment with the constitutional system developed at the end of the 18th century. Most people did not see the connection between the change in economic policy and the growing political problems. 

Mises argued that you cannot separate the two. In fact, political turmoils that time were just natural consequences of replacing the previous economic policy with a new one. And it was exactly at this point, that interventionism started to appear. Mises stated that the so-called, "...decay of freedom, of constitutional government and representative institutions, is the consequence of the radical change in economic and political ideas. The political events are the inevitable consequence of the change in economic policies" (p.94). 

2. The shift to interventionism. With the shift to interventionism, everything changed. A new entity has emerged out of interventionist climate. The classical meaning of political parties has been lost and replaced by special interest groups or "pressure groups" (p.96). Mises understands this new entity as "a group of people who want to attain for themselves a special privilege at the expense of the rest of the nation" (ibid). Under interventionism, it is considered "the duty of the government to support, to subsidize, and to give privileges" (ibid.) to these groups. Special privileges may include "tariff on competing imports", "subsidy", or making of laws to prevent other groups "from competing with the members of the pressure group" (ibid.). 

Mises even observed that the retention of the two-party system in the US is just "a camouflage of the real situation" (ibid.). Both parties have their own pressure groups representing various economic interests such as silver, wheat, meat, oil, and many more. In this kind of political atmosphere, the interest of the nation as a whole is sacrificed. In fact, pressure groups are so powerful that it influences even the nation's foreign policy. 

Other consequences of interventionism include the weakening of nations' power and of representatives to resist tyranny, constant increase in public consumption, incapability of governments to stop inflation, and the decline of Western civilization. It was at this point that Mises mentioned the names of Spengler and Toynbee who wrote about the inevitability of the collapse of Western civilization. 

3. Similarities and differences. Mises acknowledged the similarities between the Roman Empire and the Western civilization. He described how interventionism and inflation destroyed the Roman Empire from within: "The result, of course, was that the supply of foodstuffs in the cities declined. The people in the cities were forced to go back to the country and to return to agricultural life. The Romans never realized what was happening. They did not understand it. They had not developed the mental tools to interpret the problems of the division of labor and the consequences of inflation upon market prices. That this currency inflation, currency debasement, was bad, this they knew of course very well. . . . Consequently, the emperors made laws against this movement. There were laws preventing the city dweller from moving to the country, but such laws were ineffective. As the people did not have anything to eat in the city, as they were starving, no law could keep them from leaving the city and going back into agriculture. The city dweller could no longer work in the processing industries of the cities as an artisan. And, with the loss of the markets in the cities, no one could buy anything there anymore" (p. 103). 

So what Mises was saying was that as a result of interventionism and inflation, the supply of food declined, people abandoned the cities and returned to countryside and to agriculture, and markets disappeared from the cities. The emperor's decree to stop the migration was powerless when people had nothing to eat. In fact, during the last stage of the empire's decline, emperors were assassinated "on the average of every three years" (ibid.).

An interesting part in Mises' description was the absence of people's awareness about what was happening to them. They lacked the necessary "mental tools" to interpret their struggle. I think it is in this part where we can see the differences between the Roman Empire and Western civilization. For Mises, we are in a more advantageous situation than the people during the 3rd century simply because more and more people are becoming aware about the real problem of present civilization. Unlike, in those days, nobody dared to contradict the Roman government. But today, centers promoting free market ideas are increasing in number all over the world.

4. The need for better ideas. For Mises, the real struggle lies in providing better ideas. And in this struggle, the role of intellectuals is vital. In the first place, the crisis in current civilization is an offshoot of the labors of the intellectuals under Marxist's spell. It is them who shaped the mind of the policy makers. 

Marxism must be replaced with free market ideas. It is not true that this ideology works for the good of the masses simply because none of its formulators came from the masses. All the intellectuals that developed anti-free market ideas including Marx himself came not from the proletariat, but from the bourgeois. For Mises, the free enterprise provides better ideas. See how he described such need: "Everything that happens in the social world in our time is the result of ideas. Good things and bad things. What is needed is to fight bad ideas...We must substitute better ideas for wrong ideas. We must refute the doctrines that promote union violence. We must oppose the confiscation of property, the control of prices, inflation, and all those evils from which we suffer. . . .These ideas must be brought to the public in such a way that they persuade people. We must convince them that these ideas are the right ideas and not the wrong ones. The great age of the nineteenth century, the great achievements of capitalism, were the result of the ideas of the classical economists, of Adam Smith and David Ricardo, of Bastiat and others. . . . What we need is nothing else than to substitute better ideas for bad ideas. This, I hope and am confident, will be done by the rising generation. Our civilization is not doomed, as Spengler and Toynbee tell us. Our civilization will not be conquered by the spirit of Moscow. Our civilization will and must survive. And it will survive through better ideas than those which now govern most of the world today, and these better ideas will be developed by the rising generation" (p. 105).

Mises concluded this final lecture with a positive attitude: "I hope that in a few years the number of those who are supporting ideas for freedom in this country, and in other countries, will increase considerably. I myself have full confidence in the future of freedom, both political and economic" (p. 105).