Mises has written three technical books on economic theory and methodology. It was his 1933 book cognitive problems of economics that introduced the idea that economics is not an experimental science like physics, but a deductive system much like mathematics, in which every theory can be deduced from the simple axiom that individuals act teleologically. From this basis, the ideas of preferences, costs, time, benefit and many other things come naturally. Observation alone is what can tell us exactly what people choose; but this method of deduction tells us how they choose – and this is what economics actually deals with.
The book the final foundations of Economics, published in 1962, showed anew why the empirical methods pursued in the natural sciences are not suitable for Economics. We act, according to Mises, because we value certain things, and from this obvious point we can derive the ideas of ends, means, success, failure, profit, loss. The method of observation and experiment is inappropriate in economics because there are no measurable constants and there is no way to predict the actions of individuals whose values and goals we cannot know. The belief that human society is predictable is precisely what produces the perception of state advocates that society is also controllable.
The 1957 book Theory and history applied this criticism to other branches. It is a critique of Marxist theory and method in part, and a defense of liberalism in the other part. He argues that the unpredictability of human choices makes the idea that socialism, or any other historical development, is "inevitable" nonsense. But he also points out the important point that all economic data deals with events that have already happened. As we struggle to improve the theories that tell us how the world works, we need to remember that the data we build on are all historical. Our thoughts may socialize with information, but they cannot tell us for sure what will happen tomorrow, because by tomorrow the world will be different.
His profitability is with the producers. A shortage of goods is inevitable, therefore, so governments intervene again to make things right – and so on until partial intervention turns into full-fledged socialism before a long time. Being always a tireless polemicist, Mises addressed the same topic in other books, such as planning freedom and economic policy.
In the treatise on the readable bureaucracy of 1944, Mises showed the impossibility of turning civil servants into entrepreneurs. Business, according to him, faces one simple test – profitability; but government bodies face the impossible problem of reconciling numerous competing political demands. Also in 1944, his book Total Power Government reaffirmed that intervention reduces productivity and leads to demands for more profitable areas, fueling nationalism and imperialism that lead to wars.
The book Liberalism, published in 1927, is an elegant statement of the only alternative. He argues that economic prosperity depends on specialization and trade. But these two exist only when the means of production are privately owned and people are free to exchange. That requires peace and freedom, which experience tells us require equal civil and political rights. Liberals limit the role of the state in enforcing these rights and maintaining peace; it is very easy for governments to undermine private property if they have the ability to do so. However, liberalism is a force for peace, as Mises says: when people depend on trade with others, they are unlikely to go to war with them.
Economists would like their specialty to be scientific. And, like naturalists, they want to highlight the connections between objects, make forecasts of how they will behave in the future. Mises believed that economics is really scientific, but in a completely different form from the physical sciences. He is able to make important forecasts, however, they are completely different from others in their type and accuracy.
The importance of values
The difference is that all economic phenomena are based on the values, choices and actions of the people involved. General economists believe that any economic variable – for example, the price level – has a direct impact on another variable-for example, aggregate demand. But in fact, there is no such thing as a "level" of prices, because there are millions of prices that fluctuate against each other. Different prices affect the decisions of different individuals in different ways, given their own personal needs and expectations, as well as their appreciation of the options on the table at that particular time and place.
It's not a mechanical thing, so economics can't be about predictable statistical connections between things. Economic concepts, such as prices and costs, depend entirely on the actions and goals of human beings.
The legacy of Mises today
Mises was pessimistic about his contribution on economic and political theory. He hoped that his writings would have a more immediate impact; however, during his lifetime, socialism and interventionist politics remained popular.
But since his death, he has clearly revealed the shortcomings of socialist societies in the real world. At the same time, trade liberalization has raised living standards in the poorest countries of the world and made yesterday's warring imperialist nations allies. The idea that business cycles are caused by inappropriate monetary and credit policy is now widely accepted. The transition from mass production to a more specialized service economy has emphasized the crucial importance of individuals as opposed to impersonal forces.
In total, the works of Ludwig von Mises today have a much greater spreading power than he once feared.