TheMarketForIdeas

Today, Ludwig von Mises (1881 - 1973) is primarily remembered for his contributions to economic theory. But Mises’ contributions are not confined to scholarly works on economics and epistemology. We may say that there is yet another side to this profound thinker and prodigious author, to which Ebeling (2012) astutely refers to as the "unknown Mises" or Mises, the applied economist.

For Mises, peace was the foremost objective of international relations, as it represented the sine qua non of the liberal order and economic wellbeing.

The scope of this article is to further explore this side of Mises’ writings by looking at his recommendations on what we may call "political integration". More precisely, we are going to bring to the fore his proposal for the creation of a supra-national institutional establishment in Central and Eastern Europe capable of ensuring peace in this relatively underdeveloped region of the Old Continent where both World Wars originated. As will become apparent from the exposition of the reasons and concrete policy recommendations put forward by Mises, the plan demonstrates the profound understanding on its author's part of the particularities of this region and of the geopolitical dynamics of the time. It also shows us how theoretical insights can help us address some of the most troublesome issues that plagued our history.

For Mises, peace was the foremost objective of international relations, as it represented the sine qua non of the liberal order and economic wellbeing. From a utilitarian perspective, the best solution for the whole of humanity was simple: the universal adoption of the international free movement of goods, services, capital, and labor. Under these conditions, no nation on earth would have any incentive to pursue war.

If one were to add to this list the territories with mixed nationalities that in 1933 were under the jurisdiction of the three "dynamic nations", then the Eastern Democratic Union would have included “about seven hundred thousand square miles with about one hundred and twenty million people using seventeen different languages”.

Unfortunately, during the 1930s and early 1940s, the world was far from this liberal utopian order. Mises had to find a compromise solution that could work in the age of interventionism and militarism, while at the same time dealing with the particularly challenging issue posed by the intermingled nationalities that inhabited Central and Eastern Europe. Therefore, this solution had to ensure the non-discrimination of minorities. At the same time, it had to make it possible to organize all the nations in the region, some 120 million people, in a coherent effort of collective security that could safeguard international peace against the threat of the three “dynamic nations” – Nazi Germany, Fascist Italy and the U.S.S.R.

As the war clouds were gathering over Europe, in 1938, the year of the Anschluss, Austria’s annexation by Germany, Mises began drawing up a plan that aimed at deterring the eruption of open aggression in the region. But how could peace be preserved? 

Applying Oneself to Peace 

Economic constraints demand a centralized, supra-national state entity.

In his 1938 proposal, originally written in German and translated into English, Mises (2002, p. 315 - 320) presents the case for a unified state in the Danube region of Central and Eastern Europe. In later monographs and works, Mises developed the idea more fully[1], and extended the region taken into consideration for this project. In his 1941 monograph (Mises, 2000, p. 169 - 201), we are presented with the specific borders of his Eastern Democratic Union (EDU). These “include the territories which in 1933 formed the sovereign states of Albania, Austria, Bulgaria, Czechoslovakia, Danzig, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, and Yugoslavia” (2000, p. 192). If one were to add to this list the territories with mixed nationalities that in 1933 were under the jurisdiction of the three "dynamic nations", then the EDU would have included “about seven hundred thousand square miles with about one hundred and twenty million people using seventeen different languages”.

From the way Mises structured his entire argument, it becomes evident that his proposal was primarily fuelled by political, not economic reasons. In this sense, Mises mentioned that: “All plans for a new order of the political and economic relationships in the Danube region are based on the erroneous notion that neighboring areas “economically” complement each other and that therefore a special incentive exists for them to enter into a closer association. This concept is upside down. Neighboring countries generally have similar climatic and geological conditions, they have similar production possibilities, they make approximately the same products, and they are therefore competitors both in the sale of their own products and in the purchase of various goods that are imported from abroad” (2002, p. 315).

Mises clearly mentions that the historical states that compose the EDU would have to become “nothing more than provinces”; they would have retained “all their honorary forms” while also having to “comply strictly with the laws and administrative provisions of the EDU”.

This is not to say that Mises’s plan did not make ample use of the insights provided by economic theory. Mises understood that the economic issues raised by interventionism and economic nationalism could be tackled only by severely constraining national sovereignty. This was a consequence of the fact that state power could extend its hindrance of the circulation of goods and services and discriminate between national and foreign producers and labor far beyond the national borders. Because of these non-tariff barriers, all administrative matters had to be put under the sovereignty of the union. In other words, economic constraints demand a centralized, supra-national state entity. 

A theory of form 

Mises prescribed a policy of free trade between the EDU and the largest possible number of third-party countries.

In his later proposal, Mises clearly mentions that the historical states that compose the EDU would have to become “nothing more than provinces”; they would have retained “all their honorary forms” while also having to “comply strictly with the laws and administrative provisions of the EDU” (2000, p. 193). The states also lost the power to tax, as all their financing would be allotted to them by the central authorities in proportion to the size of their population, while their power to engage in discretionary spending was also curtailed. Going into debt or increasing the money supply were also under the total control of the central government, thus effectively cutting off any remnant of independence on the part of the states.

When it comes to designing the governing institutions of this new supra-national entity, Mises envisioned a democratic entity that would be governed by a central government, a legislative, and a supra-national judiciary (Mises, 2000, p. 193). The unicameral parliament would have 600 members, elected by universal suffrage, and the cabinet will be answerable to the representatives of people. This political structure, together with "commissaries", acting as representatives of the EDU at the state level, would ensure supranational supervision against acts of discrimination. These central institutions would be situated in a city to which special status was awarded, like Washington D.C. Most probably, the seat of government would be in Vienna. Also, to "spare national sensitivities", some of the positions in government will have to be filled in by expats, Englishmen and Frenchmen (Mises, 2002, p. 318).

Mises’ proposal has nothing in common with the neo-functionalist argument that is so popular today in matters concerning the European Union.

Mises realized that language and education were particularly difficult and sensitive areas when it came to discrimination and forced assimilation of minorities. Therefore, if 20% of the population in a region used a language, all the local authorities would have to use it on an equal basis with the language used by the majority. All central institutions would have to publish the laws and decrees that they enacted in all 17 languages that were in use over the entire territory of the EDU, and in a newly adopted “official” language, English or French. In matters concerning education, schools would be private and would be endowed with a subsidy per pupil, only if they conformed to certain standards. No funds, except those allocated by the central government, would reach these institutions. If local authorities did take over the administration of some schools, the budget for these learning institutions would be kept separate from the state’s allotted budget.

In matters concerning the circulation of goods, services, labour and capital, Mises is for the liberalization of all four. The newly centralized administration was going to eliminate all non-tariff barriers, while also sweeping away all the intra-union import taxes, thus opening up a vast market right in the heart of Europe. This measure alone made Mises’ proposal far closer to the liberal ideal that other plans that were in vogue at the time. But Mises went even beyond this by prescribing a policy of free trade between the EDU and the largest possible number of third-party countries. All this in an age that was preceded by the virtual closing up of international flows during the depression ravaged 1930s and during the years of the Second World War. Free trade was also a means toward international peace. If a large area of the size of Central and Eastern Europe was to become completely permeable to trade, allowing the export of natural resources, foreign powers should no longer deem territorial conquest as a necessary measure, dictated by economic imperatives.

Mises saw that both varieties of central planning, the German war socialism, and the Russian post office type socialism, were inferior in equipping modern armies when compared to the production capacity of capitalist nations.

It is obvious that Mises took great care to eradicate, through careful institutional design, any opportunity for discrimination along national lines. But internal peace, besides being a boon in itself, was also an essential condition for the survival of the region. The importance of this idea should be coupled with the most wide-ranging objective that Mises tries to achieve through this proposed union: European, and even global peace. In this sense, the EDU was to become instrumental in the defensive struggle for survival of the small and relatively underdeveloped countries of the region. Only erroneous thinking on the part of decision-makers could make them imagine that there was a different alternative under the given geopolitical circumstances; the menace of the dynamic nations could be fended off only through the power of weapons.

Taking all this into account, we can say that Mises assigned to the EDU an important role in the grand scheme of things. This new political entity would make possible the peaceful cooperation between the nationalities that reside inside its territory, would help ensure the region’s collective security, and at the same time serving to restore the balance of power between Western democracies and the “dynamic nations”. 

More than an EDU(cated) guess 

Now, more than 70 years after Mises penned the last version of his proposal for post-war Central and Eastern Europe, what can one say about his plan?

The first thing to mention is that the Mises’ proposal has nothing in common with the neo-functionalist argument that is so popular today in matters concerning the European Union. For Mises, the benefits of economic integration do not spill over into more political integration. The Mises plan takes its cue from the political imperatives of the age. Mises does not promote his plan because of its alleged economic benefits, although, as we have argued, he does employ economic reasoning for building some liberal ideals right in the constitutional structure of the EDU. For Mises, the free market order is the best economic policy a government can pursue, but political imperatives demanded a compromise solution. In the age of interventionism, this could come only in the form of a centralized entity.

Second, this plan adduces evidence of Mises's profound historical understanding. At the time when Mises was writing his proposal for the EDU, the United States of America had not yet entered the war, France lay defeated, Britain was isolated and had just finished resisting the Blitz bombing campaign, while Hitler was steamrolling through Russia. Therefore, this second version of Mises’ plan was drawn up at a time when the outcome of the war seemed bleak and therefore should be considered as proof of Mises' acumen. As early as 1941, he understood who was going to win the war.

The reasoning behind the EDU plan could mark the starting point of a potentially interesting revisionist investigation into the post-war settlement and the subsequent Sovietization of much of the continent.

The fact that he maintained the same plan as late as 1944, when the Red Army was already fully engaged in the process of “liberating” all European countries in its march toward Berlin, infringes in no way upon our evaluation of Mises’ acumen. One must understand that Mises’ anticipation of Nazi Germany’s defeat and his underplaying of the role of the USSR were theoretically informed judgments on his part. Mises saw that both varieties of central planning, the German war socialism, and the Russian post office type socialism, were inferior in equipping modern armies when compared to the production capacity of capitalist nations. The only difference was that the German system was more efficient than the Soviet one, but still, both systems were plagued by the indissoluble problem posed by the impossibility of economic calculation. Therefore, it is precisely because Mises understood the inherent inefficiency of the Soviet economy, and consequently the poor performance of its military, that made him think that the Western powers were going to be the ones that dictated the post-war order. Economic science had something to say about political decisions and, because of this, Mises thought that a supra-national institution could be erected in Central and Eastern Europe with the help of the victorious Western democracies. Therefore, instead of considering it a blunder on Mises’ part, the reasoning behind the EDU plan could mark the starting point of a potentially interesting revisionist investigation into the post-war settlement and the subsequent Sovietization of much of the continent.

The third and final thing that must be pointed out is that Mises’ plan can be interpreted as a subtle attempt on his part to limit the political options of the central authorities by carefully circumscribing the reach of their economic policies. As already mentioned, the default trade policy of the EDU was internal and external free trade. Therefore, we can read between the lines that Mises was pragmatically trying to bring about a post-war order that came nearer to his liberal benchmark. Mises knew that in order to maximize the chances of his proposal, the teachings of rhetoric could not be ignored. He could not merely say "adopt laissez-faire for the entire region". Instead, he opted to emphasize the easier to grasp consequence that stemmed from the status quo – the inevitable political outcome of mutual destruction and external conquest – and then propose an alternative that would promote, in the long run, a return to classical liberalism and world peace. 

Bibliography: 

Ebeling, M. Richard. 2012. “The ‘Other’ Ludwig von Mises: Economic-Policy Advocate in an Interventionist World.” New Perspectives on Political Economy: A Bilingual Interdisciplinary Journal 8 (1): 1–18.

Mises, Ludwig. 1985. Omnipotent Government: The Rise of the Total State and Total War. Grove City: Libertarian Press.

Mises, Ludwig. 2000. Selected Writings of Ludwig von Mises. Vol. 3. The Political Economy of International Reform and Reconstruction, edited by Richard M. Ebeling. Indianapolis: Liberty Fund.

Mises, Ludwig. 2002. Selected Writings of Ludwig von Mises. Vol. 2. Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression, edited by Richard M. Ebeling. Indianapolis: Liberty Fund.

[1] He also presented this project in Omnipotent Government (Mises, [1944] 1985, p. 271 - 278) and also mentions it in some lectures and memoranda he delivered, up to 1943, on the problem of post-war reconstruction. Two examples of such works that make a passing reference to the EDU are Postwar Reconstruction (Mises, 2000, p. 1-19) and A Draft of Guidelines for the Reconstruction of Austria (Mises, 2000, p. 133 - 168).