Who was he: A leading free-market Austrian economist, Ludwig von Mises was a pre-eminent developer of free-market analysis. In his most influential work, Human Action, Ludwig von Mises explored the meaning and workings of freedom. From his pondering on business cycles, marginal utility, free-market competition and enlightened self-interest, Mises concluded that a society functions best when government does little.
Ludwig von Mises stands at the head of a remarkable group of thinkers who followed the Austrian concept of marginal utility to its unavoidable conclusion – that market-generated prices support an efficient use of resources by giving accurate signals of scarcity or abundance about every good to every member of society. Government influence on prices through taxation, subsidy, licensing, rationing or edict is always wasteful because it distorts those signals.
Background: Ludwig von Mises was born in Galicia, Austria-Hungary, to Arthur Edler von Mises, a prominent construction engineer, in 1881. Mises was a bright lad and is said to have spoken German, Polish and French and read Latin by the age of twelve. Mises's first exposure to the Austrian free-market school came from economist Eugen von Böhm-Bawerk, whose lectures he attended from 1904 to 1914. Mises later became a proponent of classical liberalism and a leader in the Austrian school of economics.
Ludwig von Mises, and later his students F.A. Hayek and Murray Rothbard, expanded upon the Austrian concept of the business cycle. They explained that:
* The central bank prints money and injects it into the economy as redundant credit available at artificially low interest rates.
* The increase in money and low-cost credit stimulates a "boom" in the production of long-lived assets and luxury goods.
* As the economy overheats, those goods become a glut, which leads to the boom's collapse.
* The glut may be accompanied by rising prices for consumer staples, whose production is starved by the resources being absorbed by the production of long-lived goods and luxuries.
By this analysis, we come to understand that business cycles are milder when central banks refrain from artificially creating money (allowing the size of the money stock to be controlled by the supply of gold and silver), and recessions are self-correcting. Business cycles would be milder because central bank money creation is inherently destabilizing. And recessions would be self-correcting because production of gold and silver, and hence increases in the money stock, would be stimulated by the decline in the costs of labor and other mining inputs that occurs automatically during a recession.