In Chapter 5 we once again witness the sheer amount of time and research effort that went into gathering all the details spanning Mises’s first years following graduation. After a quite dense theoretical chapter four, the present chapter â€“ though containing several important theoretical discussions, on which more below â€“ is a relatively relaxing and pleasant read. The chapter is broken up into several parts, beginning with an insightful picture of the kind of man Mises was — a man of principles, integrity and unbending will.We learn about the first real test that came after graduation when Mises had to decide which professional path he is to follow. In general, for young men with education of comparable outstanding value and familiar background, the decision where to go and what to do, provided one’s ambitions didn’t go beyond a quiet job with good salary to enjoy the many material and cultural amenities of Vienna, was not particularly difficult. Not so Mises. He was clearly of a quite different stamp: he chose to follow the far more troublesome and insecure path of a scholar.
Now to embark on the path of knowledge and ideas was on several grounds really a bold bet. First, to become a professor and being able to devote full attention and energy to the scholarly work, a book displaying exemplary mastery of and containing a significant contribution to a scientific discipline had to be written. That book was Mises’s first book long monograph on economic theory and contained one of his most significant contributions to the discipline â€“ The Theory of Money and Credit. Second, working on the book was possible only in the spare time because the bulk of one’s waking hours had to be spent in earning a livelihood. Mises changed two employments before he landed a job in the Kammer (Chamber of Commerce and Industry) where he would stay for the next twenty-five years.
The chapter has one interesting discussion that I want to spend some time on. At one of general meetings of a German “Verein für Socialpolitik” the concept of national productivity came up and caused heated debate. The issue is of a general theoretical interest and since it reaches beyond the confines of the particular historical context, and is still relevant today, and will come to play a rather important role in Mises’s later works, here is my take on it.
The particular context was the question to what extent and under which circumstances the profitability (in money terms) of individual business firms can be taken as a measure of the optimal use of “society’sâ€ scarce resources. Beyond its technical aspects, the issue harbored some powerful ideological consequences. Specifically, can we say that the use of “society’s” scarce resources is optimized just by observing business firms earning handsome profits and doing financially very well? If not, what is then the alternative method that would capture the extent of “aggregate social gainâ€ in terms of whatever? Again, noteworthy is Wieser’s approach to the problem. The intricacies of the issue in question brought him back to the fundamental problem of “the measurement of the value of money and of the changes of its value, with special consideration to the problem of productivityâ€. He wanted to do it via the subjective theory of value applied broadly to account for the differences in individual subjective valuations of goods. I haven’t read Wieser’s paper but the concept of opportunity cost must most certainly have played an important role, which, incidentally, I regard as a totally useless concept. The evidence is supplied in Dr. Hülsmann’s description of the paper on p. 201:
The natural value of a good was rather its general economic significance within a social context. The difference in value between two goods indicated that the more highly valued good was generally more important than the less valued goodâ€” not just for the individual but for all subjects of the commonwealth. In short, the differences between the various values reflected a hierarchy of values. What was better or worse “from an economic point of viewâ€ could therefore be determined by reference to differences in value. And despite all problems relating to technical procedure, the value of all things could be ascertained by the inquiring mind.
Later in the book, we will learn in greater detail about Mises’s argument that there is no other indicator of “national productivityâ€ than the profitability of individual business firms. To be sure, government intervention, particularly in money and banking, severely distorts profitability as the tool of economic calculation, with consequences in wasted resources (unemployment and malinvestment) and lost output.