By Joseph R. Stromberg
Ludwig von Mises Institue
April 17, 2002


"To retaliate for wrong suffered, to take revenge and to
punish, does satisfy lower instincts, but in politics the
avenger harms himself no less than the enemy," Mises wrote
addressing Germany in Nation, State, and Economy (1919). "What
would he gain from quenching his thirst for revenge at the
cost of his own welfare?"

It was the achievement of Ludwig von Mises (1881-1973) to
recreate in his time the radical program of early liberalism,
i.e., the realizing of individual freedom, peace, and
prosperity through limitations on state power, individual
rights, and an economy based on private property. He
systematically confronted the prevailing intellectual errors
of the post-liberal era of statism in which he lived, and
attacked with intelligence, scholarship, and courageous
passion the all-powerful state and its intellectual apologists
(for this, he has often been seen as "intransigent"). He
sought to learn how and why liberalism itself had succumbed to
the new fashions of collectivism, welfarism, militarism, etc.
This task involved a thoroughgoing historical critique of
liberalism from within, to find out exactly which errors of
thought had played into the hands of anti-liberals, and how
and when these errors had arisen.

At the beginning of the 20th century, when Mises took up his
systematic studies of law, society, and economics, new,
fashionable new thinkers were proclaiming the end of
laissez-faire and the need for state intervention on a grand
scale to overcome the inherent "evils" of the market economy
and to recreate "organic" social solidarity. For their part,
conservatives contributed to the overall problem, by adopting
and adapting the new doctrines of state intervention and
grafting them onto older, feudalistic doctrines that
older-style conservatives had never disowned.

As for socialism, it was—as Murray N. Rothbard would later
write[1]—in its very origins, a fusion of themes and ideas
taken from both liberalism and feudal/statist reaction. This
"fusion" came about in several waves. Socialists meant to
retain the liberal goals of peace and prosperity, by using
intervention to "correct" supposed self-destructive tendencies
in liberal society. Positivism, with its a new managerial
elite; Hegelianism, the "scientific socialism" of Marx; and
sociology all moved in this direction.

The new statism had competing Left and Right tendencies:

Marxism and corporatism. Mises lived and worked in a world
where would-be social engineers dominated public life,
quarrelling over which form of collectivism was the best path,
but agreeing on ever-greater state control of people’s lives
and property. The "catastrophe of 1914-1918" (Schumpeter’s
term for World War I) intensified such late 19th-century
trends as "social imperialism" and various forms of "national socialism."

Mises’s university education left him well prepared for his
attempt to criticize and rebuild liberalism. His studies
began in the law faculty, giving him a much broader
intellectual foundation than one might expect in a
contemporary economist. His "intense interest in historical
knowledge" led him to reject the teachings of the German
historical school.

Mises’s Reconstruction of Liberalism

In World War I Mises served as an artillery officer. He
witnessed communist revolutions in Germany and Hungary and was
well aware of the revolution in Russia. These events raised
the problem of socialism from one of theory to one of practice.

But the breakdown of the pre-1914 European order raised even
broader questions of political economy. Thus, Mises
necessarily had to address the causes and consequences of wars
from the standpoint of rationalist liberalism. He brought to
bear on this problem the tools of praxeology, subjective value
theory, his theories of money, socialism (an outgrowth of the
last), business cycles, etc. Applying all this, Mises
necessarily wrote works containing much historical material.

In 1919, Mises published Nation, Staat, und Wirtschaft
(English: Nation, State, and Economy, 1983), which looked into
problems of ethnic minorities in relation to state power,
democracy, minority rights, freedom, self-determination,
secession, etc. Here, Mises assessed the causes and
consequences of the European disaster. The disaster included
the Versailles settlement.

For Mises, the "nation" consists of those who communicate and
think in the same language. He rebuts some common
counterarguments, while observing that it is not necessary for
all members of a nation to be included in the same state.

Thus in 1919, Mises writes as a German advising other Germans,
including the German-Austrians, how best to address their
crisis. While he uses the term "right" with respect to various
freedoms and self-determination, he keeps this term on a
secondary level. His arguments are utilitarian
(consequentialist), so that if one wants to live in a free and
prosperous commonwealth, he should do x, y, and z— i.e.,
follow the program of laissez-faire liberalism as
reconstructed by Mises.

Given the premises, the argument is compelling. Given the
liabilities, political and financial, imposed on the German
peoples by their victorious, imperialist neighbors, there were
two—and only two—ways out. The first was imperialism, a
resumption of the war as soon as possible. This was widely
popular, but criminally mistaken. The second option was to
adopt the full program of liberalism.

Mises was aware of the side of war that many found uplifting and creative:

Warlike activity assures a man of that deep satisfaction
aroused by the highest straining of all forces in resistance
to external dangers. That is no mere atavistic reawakening
of impulses and instincts that have become pointless in
changed circumstances. The inner feeling of happiness
aroused not by victory and revenge but rather by struggle
and danger originates in the vivid perception that exigency
compels the person to the highest deployment of forces of
which he is capable and that it makes everything that lies
within him become effective…. Bravery is an emanation of
health and strength and is the rearing up of human nature
against external adversity. Attack is the most primary
initiative. In his feelings man is always an imperialist.[2]

Nevertheless, it would be utterly irrational to "beat the
world to ruins to let a romantic longing exhaust itself…."
Those who wished to do exactly that, however, denied the
patriotism and national feeling of liberals:

The rational policy that is commonly called the ideas of
1789 has been reproached for being unpatriotic—in Germany,
un-German. It takes no regard of the special interests of
the fatherland; beyond mankind and the individual, it
forgets the nation. This reproach is understandable only if
one accepts the view that there is an unbridgeable cleavage
between the interest of the people as a whole on the one
side and that of individuals and of all mankind on the other
side. If one starts with the harmony of rightly understood
interests, then one cannot comprehend this objection at all.

The utilitarian policy has further been reproached for
aiming only at the satisfaction of material interests and
neglecting the higher goals of human striving. The
utilitarian supposedly thinks of coffee and cotton and on
that account forgets the true values of life…. Nothing is
more absurd than this criticism. It is true that
utilitarianism and liberalism postulate the attainment of
the greatest possible productivity of labor as the first and
most important goal of policy. But they in no way do this
out of misunderstanding of the fact that human existence
does not exhaust itself in material pleasures…. If they deny
to the state the mission of furthering the realization of
the values of life, they do so not out of want of esteem for
true values but rather in the recognition that these values…
are inaccessible to every influence by external forces….
They demand freedom of thought because they rank thought
much too high to hand it over to the domination of
magistrates and councils. They demand freedom of speech and
of the press because they expect the triumph of truth only
from the struggle of opposing opinions. They reject every
authority because they believe in man.

The person who has a low opinion of the mind is not the one
who wants to make it free from all external regulation but
rather the one who wants to control it by penal laws and
machine guns. The reproach of a materialistic way of
thinking applies not to individualistic utilitarianism but
to collectivistic imperialism.[3]

Gustave de Molinari and Some Others on These Questions
At this point, I would like to introduce some writers who have
addressed much the same issues. In 1854, Gustave de Molinari
published an essay on ""Progress Realized in the Usages of
War."[4] Economic progress, Molinari wrote, has resulted from
the separation of the personnel and materials of war from
those of peace, symbolized by the contrast of open cities and
fortified towns. With the growth of peaceful occupations came
respect for the productive and commercial sectors and a desire
to disrupt their activities as little as possible in war. The
utility of this policy had been shown by practice; such
practices were then codified in the law of nations.

"Unfortunately," writes Molinari, "the new practices which the
properly understood interest of the belligerents introduced
into war in accord with the general interest of civilization
did not prevail always during the great struggle of the
Revolution and the Empire" (1789-1815). He praise Wellington,
the Iron Duke, for adhering strictly to the rules of civilized
warfare and treating civilians well. Wellington’s forces took
nothing from the people for which they did not pay. By
contrast, Russian forces in Wallachia and Moldavia paid for
their acquisitions in "depreciated paper money"![5]

So far, rules protecting commerce and private property only
applied on land. At sea, seizure and destruction of property
were normal, even menacing neutral shipping. Molinari mentions
a 1780 draft treaty between Sweden, Denmark, the U.S.,
Prussia, Austria, Portugal, and the Two Sicilies intended to
rectify matters.

Murray Rothbard’s discussion of U.S. diplomacy under the
Confederation provides interesting support for Molinari’s
account. Rothbard notes that in April 1783, Benjamin Franklin
had negotiated a treaty with Sweden "based on the Libertarian
American Plan of 1776," that is,

freedom of trade and the safeguarding of neutrals’ rights:
in particular, restricting contraband that might be seized
by belligerent powers; the freedom of neutral shipping
between belligerent ports; and [the principle that] free
ships make free goods. The Swedish treaty made the further
liberal addition of agreeing to convoy each other’s ships in
time of war.[6]

Congress appointed a new treaty commission, headed by Thomas
Jefferson, in 1784. The commission was to work toward treaties
grounded on the logic already adopted. Congress sought
agreements "prohibiting privateering between the parties in
case of war between them; and restricting the scope of
blockades." Further, a new rule should be introduced that "now
contraband was to be purchased rather than seized. (John
Adams, indeed, wished to abolish the contraband category
altogether, and thus preserve neutral rights totally.)"[7]

A treaty negotiated with Prussia in 1785 "provided for neutral
convoys, but also for purchase of contraband and abolition of
all privateering between the two countries, even if they were
at war. Jefferson explained, on behalf of the American
commissioners, that these provisions were "for the interest of
humanity in general, that the occasions of war, and the
inducements to it, should be diminished." The ultimate goal
was to be "the total emancipation of commerce and the bringing
together of all nations for a free intercommunications of
happiness."[8]

These attempts to protect commerce, even during war, did not
prevail. Instead, as Molinari noted, the powers had gone
beyond the "active" pursuit of plunder at sea to the "passive"
policy of injuring an enemy’s productive enterprises through
general blockades. Of the two, the latter might well be more
damaging and counterproductive, having the opposite of the
desired effect.[9]

Thus the allied coalition (from 1793) sought to impose a
starvation blockade on France. This strengthened the
Revolution, delayed peace, and "exasperated national
animosities." It was no accident, Molinari wrote, that the
coastal regions of France showed the greatest hatred for
England. One might well compare the World War I blockade of
the Central Powers by the Allies.[10]

Molinari now turned to the Eastern (Crimean) War, which had
begun in March 185). Here, too, was found counterproductive
economic warfare. He remarks rather dryly that something was
wrong when the Czar, hoping to punish his enemies, prohibited
the export of Russian cereals and metals, while England sought
to punish Russia by preventing the movement of the same
exports![11]

Other misbegotten policies accompanied the Eastern War.
English attacks on Finnish private property had driven the
normally anti-Russian Finns into the arms of Russia. Such
destruction of property underlay most national hatreds. This
made lasting peace more difficult—and, implicitly, set the
stage for new wars.[12]

Molinari recommended a distinction between strategic and
commercial blockades. It made sense to blockade an enemy port
that was primarily a naval base.[13] General commercial
blockades were an attack on prosperity and civilization. The
problems arising from blockades in the War of 1812, the War
for Southern Independence, 1861-1865, and World War I,
1914-1919, bear out Molinari’s reasoning.

Molinari notes that the real interest of all in respecting
commerce and property is ""no less real for not being
immediately obvious to the eyes."[14]

The counterproductivity of war—even from the standpoint of the
"winners"—is underscored by William Graham Sumner’s essay,
"The Conquest of American by Spain" and, recently, by military
historian Caleb Carr’s little book, The Lessons of Terror
(2002).[15] Sumner held that in defeating the ramshackle
Spanish empire, the United States adopted the arbitrary,
imperial values of Spain. Carr’s central theme is that attacks
on civilian populations are always counterproductive.
The General Conclusions Reached by Mises in 1919
Mises saw World War I as an unprecedented crisis of
civilization. He wrote: "There were great wars before;
flourishing states were annihilated, whole peoples
exterminated. All that can in no way be compared with what is
now occurring before our eyes. In the world crisis whose
beginning we are experiencing… [n]one can stand aside" because
"progress in the techniques of war and transportation and
communication makes it impossible today for the defeated to
evade the execution of the victor's sentence of
annihilation."[16]

The industrial techniques developed by the modern capitalist
economy had made war

more fearful and destructive than ever before because it is
now waged with all the means of the highly developed
technique that the free economy has created. Bourgeois
civilization has built railroads and electric power plants,
has invented explosives and airplanes, in order to create
wealth. Imperialism has placed the tools of peace in the
service of destruction. With modern means it would be easy
to wipe out humanity at one blow.

Thus, capitalism had unintentionally put means of which older
kings and tryants could scarcely have dreamed at the disposal
of modern states, so that

[b]y pressing a button one can expose thousands to
destruction. It was the fate of civilization that it was
unable to keep the external means that it had created out of
the hands of those who had remained estranged from its
spirit…. He who rules the means of exchange of ideas and of
goods in the economy based on the division of labor has his
rule more firmly grounded than ever an imperator before….
How much more efficient than the guillotine of Robespierre
are the machine guns of Trotsky! Never was the individual
more tyrannized, than since the outbreak of the World War
and especially of the world revolution. One cannot escape
the police and administrative technique of the present day.[17]

But there was an

external limit … to this rage for destruction. In destroying
the free cooperation of men, imperialism undercuts the
material basis of its power…. In using the weapons to blow
up the forge and kill the smith, it makes itself defenseless
in the future. The apparatus of the economy based on
division of labor cannot be reproduced, let alone extended,
if freedom and property have disappeared.[18]

Primitivism would ensue.

Mises next addressed the Versailles settlement:

The unfortunate outcome of the war brings hundreds of
thousands, even millions, of Germans under foreign rule and
imposes tribute payments of unheard-of size on the rest of
Germany…. Need and misery for the German people will emerge
from this peace. The population will decline; and the German
people, which before the war counted among the most numerous
peoples of the earth, will in the future have to be
numerically less significant than they once were.[19]

The German nation would have to direct serious, disciplined
thought toward getting out this artificial fix. One popular
solution, the path of renewed war and German imperialism could
only end in disaster:

The nations that today have robbed and enslaved Germany are
very many. The amount of power that they have exercised is
so great that they will watch anxiously to prevent any
strengthening of Germany again. A new war that Germany might
wage could easily become a Third Punic War and end with the
complete annihilation of the German people…. [S]uccess would
not be worth the stakes….[20]

Mises therefore recommended another path—that of production
and competition. The Germans must create a genuinely liberal
free-market society at home, so as to pull themselves up
through hard work and efficiency. They would outcompete those
who temporarily held the whip-hand over them:

To set nothing against the efforts of imperialistic neighbor
states to oppress and de-Germanize us other than productive
labor, which makes one wealthy and thereby free, is a way
that leads more quickly and surely to the goal than the
policy of struggle and war.[21]

Forcible expansion had failed. It could not be known what
roadblocks the victorious powers might set against German
economic liberalism. If the powers sought to suppress peaceful
rivalry, "all modern civilization faces downfall."

The outlook would be poor, in such a case, even if the
relatively innocent side should prevail. Those who had wanted
peace would resort to all the means of imperialism:

victorious, they would "not lay down their weapons again; they
themselves remain imperialists."[22]

This was exactly Sumner’s argument in "The Conquest of America
by Spain." Further, the victorious powers—"Englishmen,
Frenchmen, and Americans"—were not without imperialist faults,
despite their adoption of relative economic liberalism:
Now they stand as victors and are not willing to content
themselves with what they indicated before their victory as
their war aim. They have long since forgotten the fine
programs with which they went to war. Now they have power
and are not willing to let it get away. Perhaps they think
that they will exercise power for the general good, but that
is what all those with power have believed. Power is evil in
itself, regardless of who exercises it.[23]

If the Allies proved unreasonable, "so much the worse for
them…" This was no argument against economic liberalism for
the German nation. Germans could still benefit: "It was the
greatest error of German imperialists that they accused those
who had advised a policy of moderation of having unpatriotic
sympathy for foreigners; the course of history has shown how
much they thereby deluded themselves."[24]

Revenge through state action should not form the basis of
German policy:

It would be the most terrible misfortune for Germany and for
all humanity if the idea of revenge should dominate the
German policy of the future. To become free of the fetters
that have been forced upon German development by the peace
of Versailles… that alone should be the goal of the new
German policy. To retaliate for wrong suffered, to take
revenge and to punish, does satisfy lower instincts, but in
politics the avenger harms himself no less than the enemy….
What would he gain from quenching his thirst for revenge at
the cost of his own welfare?[xxv]

The warlike "ideas of 1914" were embodied in the unjust peace
settlement and the League of Nations. Whole nations were
"being ‘punished’" and "the forfeiture theory comes to life
again." This threatened private investment overseas and
undercut the international division of labor that went hand in
hand with liberalism. It was shortsighted indeed that
"Englishmen, North Americans, French, and Belgians, those
chief exporters of capital, thereby help gain recognition for
the principle that owning capital abroad represents a form of
rule and that its expropriation is the natural consequence of
political changes…." Such a principle and precedent was in no
one’s long-run interest.[25]

As for the much-advertised socialist alternative, "[i]f we
wanted to throw ourselves into the arms of Bolshevism merely
for the purpose of annoying our enemies, the robbers of our
freedom and our property, or to set their house on fire too,
that would not help us in the least." Germans could not pull
themselves up "by warlike actions nor by revenge and the
policy of despair." The only workable policy was that of
across-the-board liberalism.[26]

Joseph Stromberg is historian-in-residence at the Ludwig von
Mises Institute in Auburn, Alabama. Send him MAIL and see his
Mises.org Articles Archive. His full version of this paper can
be read at the Proceedings Volume for the Austrian Scholars Conference 8.

[1] "Left and Right: The Prospects for Liberty," Left and
Right, I, 1 (Spring 1965), reprinted in Egalitarianism as a
Revolt Against Nature and Other Essays (Auburn, AL: Ludwig von
Mises Institute, 2000), pp. 21-53.
[2] Ludwig von Mises, Nation, State, and Economy, translated
by Leland Yeager (New York: New York University Press, 1983),
pp. 213-214.
[3] Mises, Nation, State, and Economy, pp, 214-215.
[4] Gustave de Molinari, "Progrès Réalisé dans les Usages de
la Guerre," in Questions d’ Économie Politique et de Droit
Publique, vol. II (Paris, Brussels: Guillaumin, 18610, pp.
277-325.
[5] Ibid., p. 285.
[6] Murray N. Rothbard, Conceived in Liberty, Vol. V
[unpublished fragment on Confederation Period], p. 74 (and
overleaf), Rothbard Papers.
[7] Ibid., pp. 74-75.
[8] Ibid., p. 75.
[9] Molinari, pp. 319-320.
[10] Molinari, pp. 296-298. Cf. Ralph Raico, "The Politics of
Hunger: A Review," Review of Austrian Economics, 3 (1989), pp.
253-259.
[11] Ibid., p. 309, 323-324; for the whole discussion see pp.
304-310.
[12] Ibid., pp. 313-317.
[13] Ibid., p. 320.
[14] Ibid., p. 325.
[15] William Graham Sumner, War and Other Essays (New Haven,
CT: Yale University Press, 1914); Caleb Carr, The Lessons of
Terror (New York: Random House, 2002).
[16] Mises, Nation, State, and Economy, p. 215-216.
[17] Ibid., p. 216.
[18] Ibid., p. 217.
[19] Ibid.
[20] Ibid., pp. 217-218.
[21] Ibid., p. 218.
[22] Ibid., p. 219.
[23] Ibid.; my italics.
[24] Ibid., pp. 219-220.
[25] Ibid., p. 220; my italics.
[26] Ibid.; my italics.
[27] Ibid., p. 221.