(Mises)—Ludwig von Mises and F.A. Hayek, two of the best-known Austrian school economists in the twentieth century, may have followed the same school of thought, but they greatly differed in their work. In consideration of human action, the two men differed in their methodology: Mises advocated for a pure use of reason through praxeology, and Hayek, alternatively, defended the compositive method.
In regard to the market process and entrepreneurship, Mises’s and Hayek’s views are not just different, but opposed. Hayek, in his articles “Economics and Knowledge“ and “The Use of Knowledge in Society,” highlighted the role of knowledge in the social process and how the price system is an institution that spreads information over the markets. Mises, on the other hand, asserted what matters is not past realized prices but future prices that will orient decisions, plans of action, and the allocation of resources.
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Evidently, the discrepancies in Mises’s and Hayek’s views on the market guided their different positions on socialism. Hayek stressed the problem with knowledge, pointing out that there is a kind of knowledge related to particular circumstances that cannot be centralized. In contrast, Mises, as Joseph T. Salerno presented in his articles “Ludwig von Mises as a Social Rationalist” and “Reply to Leland B. Yeager on ‘Mises and Hayek on Calculation and Knowledge,’” conceived that even if all knowledge could be centralized, a problem would persist in economic calculation as human action is future-oriented and the social world is built through individual sovereign and subjective actions looking to the future.
While Hayek considered price changes and gaps to be the guiding force behind economic changes and behavior, Mises spotlighted the role of entrepreneurial calculation. With Hayek, individuals are not actors but reactors to the information dictated by prices. Mises, however, wrote that entrepreneurs are the driving force of the economy. Without property rights and entrepreneurship, it is impossible to allocate resources efficiently. In a centrally planned economy, all decisions are arbitrary and do not follow economic criteria.
Differences exist further when looking at how Mises and Hayek examined institutions. For Hayek, institutions (or spontaneous orders) are developed in a long barely understandable process as a result of human action but not of human design; people accept and follow institutions in an automatic, nonreflexive way. Mises, however, believed that institutions come from human understanding, reflection, and deliberation. Institutions do not emerge magically and without human comprehension. Individuals are a part of institutional development, and each action will be a part of institutional change.
As Salerno pointed out, when Mises explained the emergence of the modern family, he asserted a perspective of action. Individuals see other families, their benefits, and decide to form their own families with their partners. They do not passively assert families as a given institution that emerged over time and thus must be followed. To Mises, individuals are active actors; to Hayek, individuals are passive reactors.
For Mises, ideology plays a huge role in any social aspect. Individuals do not just react to price changes as arbitrators but, with their values, create the future. Beliefs, values, biases, and understandings guide human decisions and actions. For Mises, the wrong social perspectives can lead to malicious effects, hindering liberty, property, and economic development. And that is precisely the relevance of the spread of good ideas which guide ethical actions, respect for other people’s property and liberty, and, subsequently, the evolution of society and a nation’s economy.
Emerging without deliberation, institutions are not spontaneous orders. Institutions are organic orders, being bottom-up constructions over time depending upon human decisions, upon human reflection about the social process, upon thymological comprehension of other people’s behavior. An erroneous set of beliefs would not just hinder economic and social development but may, indeed, also destroy social coordination.
That’s the situation Western society faces now. Postmodernism, relativism, and progressivism are erroneous beliefs (as explained in my past articles) that are disturbing the social process and coordination. They are a set of beliefs that distort the interpretation of social phenomena, assuming a constructivist approach to reality. Individuals with such beliefs are not individuals but weapons for a pretend revolution through the clash of genders, races, classes, and the like.
In this scenario, Mises’s position must be highlighted. These contemporary ideologies which hinder ethical actions have been destroying institutions for decades. People are making erroneous choices, and we must not stay seated, waiting for a long-term correction of plans. People are reflecting on the facts and purposefully choosing the wrong directions as they follow their framework of analysis.
Civilization should not trust in a long-term Hayekian process of selection in which plans and actions are magically and passively corrected. It won’t happen and all the while progress will be hampered as entrepreneurship and the market process are under attack.
To save Western civilization from a tragic fate, individuals should defend ideas that support individual freedom, individual property rights, and individual entrepreneurship. Individuals must be involved in the social process, reporting and fighting the malicious effects of contemporary ideologies.
Individuals must leave their safe spaces in which they keep to only their private lives and become a part of a process in which collectivism, interventionism, and socialism are fought. Mises’s motto, from Virgil’s Aeneid, perfectly expresses this, Tu ne cede malis, sed contra audentior ito, meaning “Do not give into evil but proceed ever more boldly against it.”
About the Author
Artur Marion Ceolin is a Ph.D. candidate in economics at Universidad Rey Juan Carlos and a Summer Fellow at the Mises Institute in 2022.