Capitalism in the ring: Read Ludwig von Mises and the six lessons of the Austrian school

Just after his victory in the ring at UFC 300, Brazilian-born fighter Renato Moicano exclaimed, “I love America, I love the Constitution…I want to carry…guns. I love private property. Let me tell you something. If you care about your…country, read Ludwig von Mises and the six lessons of the Austrian economic school.”

This was a big moment, not only for Moicano’s fighting career but also for lovers of the Constitution and free market economics. It’s not every day you hear someone give economist Ludwig von Mises a nod for an audience of a few million people.

Mises was the intellectual leader of the Austrian school of economics. He developed a theory of economics based on the fundamental axiom that individual human beings act purposively to achieve desired values. He concluded that laissez-faire, or free markets, based on the unhampered exercise of the right of private property, with government limited to defense of person and property, was the only viable economic system for the human race.

In 1959, Mises delivered a series of six lectures in Buenos Aires, Argentina. Those six lectures form the six lessons of the Austrian school referenced by fighter Moicano.

Those six lessons are: (1) capitalism, (2) socialism, (3) interventionism, (4) inflation, (5) foreign investment, (6) politics and ideas.

1. It’s about capital accumulation. The accumulation of capital creates wealth and increases the standard of living for everyone from top to bottom. Just look at history. In humanity’s rise from serfdom to the modern citizen, capitalism has been the driving force. And despite inequalities, the vast majority of humanity is wealthier and better off because of capitalism. Moreover, capitalism is the only system that can create wealth, because it is driven by human needs and wants—human actions—that dictate the laws of supply and demand that set prices and generate profits. The price and profit signals generated by human wants and needs determine the supply and demand that set the optimal prices that will generate profits to accumulate capital and then send the price and profit signals back into the economy to continue the economic cycle of capital accumulation.
2. It doesn’t work. Central planners simply cannot comprehend the amount of knowledge necessary to process all human actions (wants and needs) in the marketplace to artificially set the prices that generate profits. Because central planners cannot acquire the knowledge of all human wants and needs, they also cannot centrally plan supply and demand. This discovery is known as the socialist calculation problem.
3. Government interventions into the economy also don’t work. Consider an example. Milk prices are too high for some people to afford milk. The government steps in to artificially reduce the price of milk. But milk prices had been set by the market—human actions drove the supply and demand levels that set prices where people would buy and profit. Now the artificial reduction in price undermines profits, so milk producers cannot produce as much milk. Less milk for everyone. The intervention made the problem worse—less profits, and less milk. Now the government steps in and asks why. The artificially low price of milk makes the cost of milk production greater than the profits. So, government intervenes to lower the cost of production, creating the same problem for the value of production that it created for milk prices. One intervention creates a problem that another intervention must solve until intervention after intervention ends in socialism or at least the continual road thereto. Thus, the socialist calculation problem also applies to interventions.
4. The fundamental principle: If you increase the quantity of money, you bring about the lowering of the purchasing power of the monetary unit. Inflation is caused by a specific type of intervention—printing money. If government needs to purchase things, it can raise money through taxation. But taxation is unpopular, so governments print money. When government buys something, that purchase pumps money into the system at a premium for the people that first receive the money, but by the time the newly minted money makes it into the system, the value of each dollar is less and prices go up. Inflationary policy is a bad intervention that devalues everything for everybody.
5. Foreign Investment. The accumulation of capital in one state or nation, say Great Britain, is then invested in foreign nations, leading to exponentially greater progress and wealth accumulation globally. Capitalism—fueling domestic capital accumulation—thereby also fuels global capital accumulation, making the world exponentially better. Economic equality is driven by industrialization, which requires increased capital investment/accumulation, which foreign investment increases. Protectionism hampers this process. Removing protectionism, interventions, and labor unions to free up the migration of capital will raise the standard of living across countries and create a better world.
6. Politics and Ideas. The political system and economic system are intertwined. During the Enlightenment, free enterprise was on the rise in conjunction with the system of classical liberal representative republican government. Republican government is dedicated to the good of the whole. Accordingly, free enterprise capitalism is the concurrent economic system, because it is the only economic system that benefits the nation as a whole. Political parties formed out of differing interests over the policy that will lead to the good of the whole and as means of organization and persuasion. Today, representative government has been captured by special-interest pressure groups that use government intervention to benefit their special interest, rather than the good of the whole.

Mises understood that for freedom to win in the ring of ideas, men and women must fight for it. “What is needed” he said, “is to fight bad ideas.” To fight against price controls, inflation, and socialist policies and to fight for private property, economic freedom, and capitalism. To fight for the future of freedom.

At PLF, we fight for freedom in the court of law. But we also fight for the ideas of freedom in the court of public opinion.

At its core, free market capitalism is a system free from regulation and government intervention, which protects individual rights and human flourishing. Pacific Legal Foundation defends free market capitalism by challenging unconstitutional government interference, and we take up Mises’ call to action—we knock out the opponents of freedom one case and one bad idea at a time.