What Mises wants to reestablish is a liberal program which was never fully realized during the “liberal era” of the 1800s. As long as politics basically went in the classical liberal direction human productivity increased substantially, people got a higher material standard of living, and child mortality was reduced – all this proves the effectiveness of liberalism, according to Mises. But the socialist experiment, which had influenced liberalism for a few decades, had only led to misery.
For Mises the economist liberalism “is a doctrine directed entirely towards the conduct of men in this world. In the last analysis, it has nothing else in view than the advancement of their outward, material welfare and does not concern itself directly with their inner, spiritual and metaphysical needs.” Liberalism “does not promise men happiness and contentment, but only the most abundant possible satisfaction of all those desires that can be satisfied by the things of the outer world”. Those who believe they have a doctrine that can better satisfy people’s material needs are welcome to prove this by pointing to relevant facts.
Moreover, Mises – like the early liberals – thinks that the tasks of government should include nothing but the protection of property, liberty, and security. Everything beyond this is “evil”. One example of the difference between Mises’s and Hobhouse’s liberalism is economic support to the unemployed. Such benefit schemes only raises unemployment, according to Mises: “If what is involved is a case of unemployment springing from dynamic changes in the economy, then the unemployment benefits only result in postponing the adjustment of the workers to new conditions. The jobless worker who is on relief does not consider it necessary to look about for a new occupation if he no longer finds a position in his old one; at least, he allows more time to elapse before he decides to shift to a new occupation or to a new locality or before he reduces the wage rate he demands to that at which he could find work. If unemployment benefits are not set too low, one can say that as long as they are offered, unemployment cannot disappear.”
In short, the liberalism of Ludwig von Mises is founded on considerations regarding which kind of system will be most effective when it comes to increasing material wealth. In his voluminous work Human Action, from 1949, he sharpens his critique against the “interventionist” systems between socialism and (classical) liberalism. Especially important for him is that the price mechanism works without obstacles, i.e., that prices of goods, wages, interest rates etc., are set without institutional obstacles, so that the right relation of supply and demand is revealed. The longer one – through government planning – drifts away from the price formation process of the free market, the worse the economic outcome will be when it comes to material well-being. (Mises explicitly focuses on material needs, because he perceives that that is what most people want to maximize. He is, in other words, attempting a value-free means-end discussion about the best policy, given people’s preferences.)
Another economist who wanted to take back the term liberalism from the social liberal camp was Friedrich August Hayek. He was the driving force behind the formation of the Mont Pelerin Society, established in 1947 with the intention to reshape liberalism. The contention was that this concept had been connected with “arbitrary power” and had lost its connection to private property and market competition. There is also a critique against the assumed loss of belief in “absolute moral standards” and Rule of Law. To Hayek, Western civilization was a result of liberal ideas. Therefore he did not like that liberalism – especially during the first half of the 20th century – hade been mixed with socialist ideas. This is something which will lead to totalitarianism, he claimed, and, like Mises, he sets up a liberal (in his classic sense) regime as a counterpart to socialism, and claims that one must avoid middle stages. The most “populist” expression of Hayek’s thinking is The Road to Serfdom, from 1944, in which he claims that government planning is a route that may lead to naziism and fascism.
Anyway, the founding of Mont Pelerin Society was an important part of the creation of a new liberalism – neoliberalism – with the message that all forms of collectivism, even milder, rationalistic, liberal reforms, will lead to dictatorship and economic disaster.
In this essay, I have avoided criticizing any of the discussed systems of thought directly. My main purpose was to showcase the tendency to polarization that seems to exist within all ideologies, as well as between different ideologies. During the 20th century it is obvious that the kind of radicalism espoused by both communists and neoliberals has not been popular among democratic voters to any large degree. And it his hardly an original observation on my part that politics in Western democracies has revolved around solutions that lie slightly to the right or slightly to the left of the center (regardless of temporary longer forays in either direction). In light of this, it is easy to question whether the strong either-or thinking regarding socialism and liberalism of, for example, Mises and Hayek can ever be accepted by the large mass of people whose political thinking includes both equality and liberty, both private capitalism and social engineering, both personal responsibility and tax-based solidarity.