Chapter 8 bears the title of Mises’s second book, Nation, State, and Economy, and is devoted to a careful exposition and comprehensive theoretical analysis of the key factors that led to the disastrous World War I.Keeping the context of the general state of intellectual atmosphere of the time in mind, the book must certainly have caused some controversy. We learn that as a positive analysis of factors and events leading to WWI, it went not entirely unnoticed after its publication and had an important influence on many people.
As other attempts to understand WWI, Mises too concentrated his efforts on explaining the phenomenon of imperialism. It was a widely accepted fact that the war was a culmination of ever intensifying clashes of aggressive imperialistic ambitions. Everybody agreed with this basic fact but they differed in the explanation of the phenomenon. The chief difficulty was to reconcile the dramatic rise of imperialism, which eventually became the dominating economic and political principle of all major European nation-states, with the fundamental political philosophy of classical liberalism that most of these states embraced and practiced to a considerable degree.
Marxist writers such as Bukharin and Lenin explained imperialism and the war as logical and final consequences of inherent contradictions in the capitalistic mode of production. It was the rapid accumulation of capital, they claimed, that resulted in overproduction and a fall of the rate of profit which, in turn, exerted powerful and irresistible incentives to expand the markets beyond the borders of industrialized nations.
In Nation, State, and Economy Mises provides an explanation of the rise of German imperialism along entirely different lines. He identifies two factors, both closely related to the nationalities question. The incompatibility of the idea of popular democracy with particular demographic and political structure with politically and economically dominant German minority that prevailed in German and Austria-Hungarian provinces was the first factor that precipitated a move away from the principles of classical liberalism. In those territories to practice the ideals of democratic politics meant to break the political status-quo and transfer the power to non-German majority. However, the political elites were not prepared to allow such sweeping reforms in the structure of political power. The alternative proposals were not lacking, some of them were even tried, but none worked because, as Mises argues, all of them were primarily concerned with how to distribute the control of state apparatus.
In addition to that, the German state was also confronted with the problem of economically induced emigration of its population into Anglo-Saxon countries. To prevent the outflow of its citizens the German government introduced protective tariffs to protect domestic industries and raise the real wages of domestic workers. The policy did not work, and, as a consequence, Germany turner to other means to increase its influence. It did so by aggressively challenging Britain’s hegemony in its colonies which eventually “prompted the British entry into the World War I.â€
Mises also showed that among possible solutions to the nationalities problem, every single statist measure to forcibly install peace and brotherhood among nations created more, not less, tensions and new quagmires which, in turn, prompted further interventions and restrictions in ever more areas of economic and political spheres. The consequences were the war, then the lost war, and continuation of tyranny and hardships long after the war was lost.
For Mises the only feasible solution was to cut back the size of the state to its barrest minimum and allow a peaceful competition between different “language communities.â€