Forty years ago, Ludwig von Mises passed away. I believe he would be happy with what you have helped the Mises Institute accomplish.
Looking back on his career, we find so much that deserves comment. His work in Austria that helped avert hyperinflation. His flight from Europe just ahead of the Nazis, who confiscated his papers in Vienna. His struggles within a statist academia. His total reconstruction of economics. His brilliant defense of liberty. And so much more.
This year is also the 100th anniversary of the Federal Reserve’s founding in 1913. But one year earlier, when only 31 years old, Mises was already developing what would become the Austrian theory of the business cycle, which explains how government intervention and central banks like the Federal Reserve cause the boom-bust cycle.
Mises’s theory earned a respectful hearing in European circles before the Keynesian revolution of the 1930s swept the academic boards, but was all but forgotten in the Depression-fueled stampede to blame the free market for economic convulsions.
Even some of his own students surrendered to the Keynesian onslaught. From that moment on, someone like Mises would be forever an outsider.
The status of Keynesianism itself affords an interesting comparison between 1973, the year of Mises’s death, and today. After the boom of the 1960s, Washington’s central planners claimed to have used the Fed and spending to create permanent prosperity, and to have abolished the business cycle. That seemed plausible to some people in 1970.
It didn’t seem plausible in 1973. Recession had hit the United States. The Keynesian intellectuals had rather a difficult time accounting for the stagflation of the 1970s. High inflation and high unemployment were not supposed to occur simultaneously.
The Keynesians held that high price inflation called for cutting government spending and the money supply. High unemployment, by contrast, called for the opposite: more government spending and more money-printing.
But what was the Keynesian policymaker to do when faced with high price inflation and high unemployment? It was obviously impossible to do both at the same time. Keynesianism had suffered a terrible blow. The decline in Keynesian influence became evident in the economics textbooks that appeared over the next several decades.
Fast forward to the Panic of 2008, and Keynesianism was suddenly back.