Jan 3, 2020

The 12 Economists of Christmas: Ludwig von Mises

The star on top of the Austrian tree
Shannon Dailey Staff writer

The season around Hanukkah, Christmas, and New Year’s Day is often seen as a time to put aside the hardships of everyday life and indulge in fun and good cheer. But how and why people celebrate these holidays is often different from person to person. Indeed, one reason people look forward to the holidays is that they can celebrate them in their own way.

Today’s economist of Christmas, Ludwig von Mises, is one of the founders of the Austrian school of economics. Mises’s writings on economics helped to shine a light on the dynamics of human action that underlie the political economy. He drew from his training and unique personal history to show how false economic assumptions about human behavior can have disastrous results for society.

Mises was born in 1881 in what is today part of Ukraine but which was at the time in the Austro-Hungarian Empire. When his country entered World War I in 1914, Mises (who was already a published economist) was deployed to serve as an officer at the front. While he was decorated for his service, life in the army sharpened his disdain for central planning.

These and other experiences would help lead to Mises’s most important contribution to economics: his study of human action, which he outlined in his appropriately titled magnum opus, Human Action. The methodology of human action, which he called “praxeology,” was founded upon the observation that humans engage in purposive behavior aimed at rational ends. As he wrote, “All rational action is economic. All economic activity is rational action. All rational action is in the first place individual action. Only the individual thinks. Only the individual reasons. Only the individual acts.”

This lens of methodological individualism led Mises to conclude that centrally planned economies could never measure up with the market activity of private actors. These individuals could more effectively allocate resources to satisfy subjective consumer desires than planned economies. Mises was a trailblazer in economics, a kind of star on top of the Austrian tree, if you will, as his work guided economists who followed after him in the development of individualist economics.

Mises’s work is especially applicable during Christmastime. Can you imagine what the season would be like if it were managed by a Committee of Christmas? There would be misjudgments and miscalculations galore, and the results would probably not be as merry as intended. Rather than a surplus of subpar shoes, as was a common problem in the centrally planned Soviet Union, perhaps we would have a glut of stale fruitcakes or some other subpar holiday fare. Without inputs from individuals in the form of real prices (prices in centrally planned economies tend to be artificially set), a Christmas Committee could easily make the season a much more dreary affair.

It is in part because Mises and his contemporaries called attention to the importance of understanding human motivations and behaviors that we know such a suggestion would be preposterous today. Mises’s contributions help us understand and defend that idea that we should celebrate the holidays as we think best.

Support Mercatus

Your support allows us to continue bridging the gap between academic ideas and real-world policy solutions.Donate