by Richard M. Ebeling November 26, 2018
Ludwig von Mises was one of the most important Austrian economists of the 20th century, having left his mark on economic theory and policy by demonstrating that socialist central planning was inherently unworkable because of the abolition of a market-based pricing system for purposes of economic calculation, and by developing a theory of the business cycle that argued that inflationary booms and recessionary busts had their origin in the monetary mismanagements by central banks.
In the immediate aftermath of the First World War, in 1919, Mises published a lesser-known work, Nation, State, and Economy, that contains many of the essential ideas that he very soon developed in his critique of comprehensive government planning. But he also offered an analysis of the relationship between national identities, oppression of linguistic and ethnic minorities, democratic government, and political self-determination.
Though formulated 100 years ago at a time when political and economic nationalist sentiments were strongly manifesting themselves in Central and Eastern Europe in the wake of the disintegration of the German, Austrian, and Russian Empires, Mises’ analysis and policy conclusions still have relevance today with the apparent resurgence of anti-globalist nationalism in various parts of the world, including in the same areas of Europe as in 1919.
Classical Liberalism, Socialism, and Nationalism
It is not as if that post–World War I wave of nationalism emerged out of thin air. In the middle decades of the 19th century, classical liberalism represented the rising set of ideas in the West. The ideals and policy prescriptions, especially in Great Britain and the United States, emphasized individual liberty, private property, freedom of enterprise, free trade, rule of law, and constitutionally limited government.
They showed themselves in the movements to abolish human slavery; to extend the franchise; to extend civil liberties to minority groups; to repeal the mercantilist trade restrictions that hampered freedom of commerce, investment, and migration; and to devise ways to reduce the likelihood and cruelty of wars among nations. This is not to say that any of these goals were fully or consistently achieved. Nonetheless, they were the goals of those who were drawn to the ideas of individual rights and freedom of association in more and more areas of everyday life. (See my article “The Beautiful Philosophy of Liberalism.”)
But in the midst of the era of classical liberal reform, there emerged two counter-revolutions, both of which claimed that they were the “true” revolutionary movements to fulfill higher and more meaningful senses of freedom and social justice. These were socialism and nationalism. Both of them had part of their modern origins in the French Revolution, during which the nation now claimed the allegiance of the people in place of loyalty to the king, who had been overthrown and beheaded, and in the wars to save the revolution from foreign monarchs attempting to crush it, which required every French citizen to place the war-planning needs of the national collective over those of individual interest.
When in January 1793 a messenger was sent to inform the revolutionary French forces in the east of the country, who were facing the invading armies of anti-revolutionary foreign monarchs, that the French king had been executed, one of the French officers asked, “For whom shall we fight from now on,” if not the king? The reply was, “For the nation, for the Republic.” Matching this was the economic conscription of men, women, and children throughout France to defend the revolution. Said the French revolutionary Barère in 1793: “Some owe [France] her industry, others their fortune; some their advise, others their arms; all owe her their blood.” (See my article “Inflation, Price Controls, and Collectivism During the French Revolution.”)
These counter-revolutionary forces against the political and economic liberalism of the pre-1914 era all came to a head in the First World War. Individual civil liberties were restricted, conscription was introduced in all the belligerent nations, freedom of trade and free movement of people were ended, domestic industry and agriculture were placed under government control, and planning for both the war effort and the domestic needs of the population was instituted. In addition, all the warring nations resorted to deficit spending, paper money, and inflation to finance a great portion of their military expenditures. (See my article “The Lasting Legacies of World War I: Big Government, Paper Money, and Inflation.”)
Nationalism Rising After the First World War
This was the world to which Ludwig von Mises returned following his own service in the Austrian Army during the First World War. He had seen action on the Eastern Front (three times being decorated for bravery under fire as an artillery officer), and had served as an economic analyst for the Austrian General Staff in Vienna in the closing months of the war. After his military separation, he took up his duties as a senior economic policy analyst at the Vienna Chamber of Commerce, Crafts and Industry, where he had been employed before 1914, plus postwar-related duties. (See my article “The ‘Other’ Ludwig von Mises: Economic Policy Advocate in an Interventionist World.”)
The Austro-Hungarian Empire had ended in the closing days of the war, with the Hungarians and the Czechoslovaks declaring their independence from the former Habsburg monarchy. The Serbs were leading the formation of a new Yugoslavia made up of Slovenians, Croats, Bosnians, and Macedonians, along with themselves. The Romanians were annexing portions of what had been Hungarian-controlled Transylvania, and the Poles were incorporating within their new national state the Austrian crown land of Galicia, where Mises had been born.
Almost immediately, all of these “successor states” of the Habsburg Empire imposed not just political boundary lines with passport controls, but trade barriers by imposing import taxes on what goods might be brought into their countries and which goods could be exported to their new surrounding nationalist neighbors. Each of these new governments (including the government of the new, smaller Austrian Republic) resorted to the monetary printing press to fund much of their new domestic expenditures. In addition, wars and civil wars threatened and plagued the region.
In this setting, Mises attempted to analyze how this situation had come about, and what conclusions might be reached as a guide for wiser political and economic policies looking to some more reasonable and rational reordering of this chaotic postwar world. At first, as Mises points out in his introductory remarks, the themes in the book may initially seem unrelated: the nature and meaning of nation and nationality, democracy and national identity, and government intervention and national self-determination. Yet, he insists that they all must be interconnected for any understanding of the Europe of that time (and, I would add, perhaps ours).
Nation, Nationality, and Language
In Mises’ view, the fundamental element that distinguishes and defines a group of people as belonging to the same nation is the common language that the members speak. He does not downplay or disregard culture, religion, common history, or geography. But he suggests that, more than anything else, language is what binds a person to others. After all, infants are born into a family and a community, and through the language they learn they develop the ability to think, communicate, and give interpretive meaning to themselves, others, and the surrounding world.
But the social and political significance of this commonality of language (and other shared characteristics) as the basis of conscious nationality and nationalism is of relatively modern times, beginning in the 18th century with the rise of the democratic idea — that is, that a people should be able to express their common will for ruling themselves through elected representation.
Monarchy Ends and National Identity Grows
In the feudal and monarchical period of European history, kings and princes conquered or traded lands and the peoples on those lands over whom they ruled and whose labor they lived off. Their subjects spoke differing dialects and languages, and might have had varying customs and religions. The language of the rulers also might have had little to do with the everyday language of the commoners under their command.
All subject groups possessed their own customs and traditions, their own idioms and modes of expression, as they lived relatively isolated existences from each other in the static conditions of caste and class. But this changed, Mises argued, with the emerging impact of classical liberal ideas and policies that began to weaken and then remove the restraints of hierarchical society. Greater individual freedom of action and movement and increased occupational mobility within the social system of division of labor began to break down the barriers to personal betterment and end people’s isolation from those with whom they increasingly were more interdependent through growing industry and trade.
The friends of freedom, in this environment, needed means of defining the groups for whom liberty was to be fought and shared. From this came the idea that what identified a “people” was its common language and historical experiences. In this setting, modern nationalism began to take form, especially during the French Revolution. The French people should rule themselves in place of a king that had ruled over several distinct peoples. Monarchical rule was to be replaced by national self-determination.
This soon spread to the idea that every national group should rule itself. At this point, Mises explained (as have a number of other historians of nationalism), there was at first a “liberal” or “pacifistic” nationalism, one in which most national groups striving for freedom from monarchical and princely rulers viewed each other with good will and would “stretch their hands in unity” for fighting the common foes that denied each group their chance for “national independence.”
Conflicting Nationalities in Central and Eastern Europe
But this great ideal and political agenda ran into difficulties in Central and Eastern Europe that were not to be found (or at least not to any similar extent or importance) in Western European countries like England or France. France, in its traditional boundaries from the Atlantic to the Rhine and the Alps, is a fairly homogeneous society in terms of language, history, and cultural heritage. The people who live in “France” mostly speak the same language and view each other as “French.”
This did not always apply to wide areas of Central and Eastern Europe. Here there existed territories of mixed or overlapping groups — that is, groups speaking different languages and differently shared senses of national identity, all in the same regions. If all the Polish or Hungarian or German or Romanian or Czech peoples were to be allowed to electively determine their own political future as linguistic groups, any resulting demarcation of national boundary lines designating the Polish, or Romanian, or Hungarian, or German, or Czech nation-state would inevitably result in various national minorities being left under the jurisdiction of a national government democratically appointed by the majority national group in whose midst they now found themselves living.
If not choosing to move and abandon their birthplaces, their properties, their senses of shared geographical belonging and identity, such minorities would now find themselves as political and cultural strangers in another’s land. Mises’ point was that any such minorities find themselves speaking a language different from that of the majority; unless they learn that majority group’s language and give up partly or totally their own linguistic heritage and accompanying culture, they have no way to fully participate in, benefit from, and influence the wider national society in which they find themselves.
National Minorities and the Interventionist State
Politically, they are always a minority, with no or very little chance of effectively determining the governmental course of the nation-state in which they live. The linguistic majority can always outvote them. This is exacerbated by the extent to which the government of that nation-state follows a path of interventionist economic policy. Government regulations, licensing requirements, taxing differentials, and legal laxness in fully guarding the national minority’s civil rights can all result in discrimination, abuse, and economic disadvantage being experienced by that minority group.
As Mises once pointed out:
If, for instance, members of the minority are alone engaged in a specific branch of business, the government can ruin them by means of customs provisions. In other words, they can raise the price of essential raw materials and machinery. In these countries, every measure of government interference — taxes, tariffs, freight rates, labor policy, monopoly and price control, foreign exchange regulations — was used against minorities. If you wish to build a house and you use the services of an architect from the minority group, then you find yourself beset by difficulties raised by the departments of building, of health and fire. You will wait longer to receive your telephone, gas, electric, and water connections from the municipal authorities. The department of sanitation will discover some irregularities in your building. If members of your minority group are injured or even killed for political reasons, the police are slow in finding the culprit. (Selected Writings of Ludwig von Mises, Vol. 3, [Liberty Fund, 2000] p. 13)
In Mises’ historical interpretation, this was a fundamental reason why, for instance, many Germans, German-Austrians, and Hungarians turned away from a general advocacy of universal suffrage and the democratic ideal within the boundaries of their monarchical nation-states before the First World War. There were “islands” of German- and Hungarian-speaking minorities among Polish, Czech, and Romanian majorities in various parts of the German and Austro-Hungarian Empires.
Resisting Freedom to Retain Privileges
Over the centuries, for example, German-Austrian settlers had made homes in eastern areas of the Habsburg Empire. They had brought with them the German language, culture, literature, commercial knowledge, and know-how. And they often viewed themselves as a civilizing force among the less advanced nationalities among whom they lived. But over time, these other linguistic and ethnic groups lost their sense of inferiority or desire for Germanic assimilation. The 19th-century liberal and nationalist ideas had awakened their own desires for ruling themselves, and speaking and advancing their own cultures in their own languages.
The Germans in these parts of the Habsburg Empire found themselves as smaller and smaller minorities surrounded by Czechs, Poles, Romanians, and other groups whose birth rates were higher than their own, and who were the majorities in those regions. Following the democratic ideal meant for these German minorities to give up their power and privileges long held by them under monarchical and semi-feudal political arrangements. Thus, these German-speaking peoples for the most part came to oppose national self-determination for these other groups under Habsburg rule so as to maintain their own status and privileges. As Mises suggested, these Germans had turned away from liberalism and democracy to authoritarianism and imperialism within their own country to retain for as long as possible their politically privileged positions within these areas of the empire.
At the same time, with the rise of a more consciously collectivist nationalism, the nationalist ideal increasingly became the call for all peoples speaking the same language and culture in the same land to be part of the same nation-state. Because of the checkerboard mixing and overlapping of areas with more than one linguistic group within it, this now meant the imposition of a majority’s wishes within a region on a linguistic minority unable to belong to their preferred national homeland.
In the old Austro-Hungarian Empire, Mises explained, “everything became a bone of contention — road construction, and tax reforms, bank charters and public purveyances, customs tariffs and expositions, factories and hospitals” because anything that the government did in the areas of taxing, spending, and regulation was seen to have positive or negative impacts on one national group relative to another within the domains of the Habsburgs. Thus, it was a nationalist rivalry concerning who could succeed in using the state through interventionist measures for their own national group’s gains at another group’s expense.
Thus, in many parts of Central and Eastern Europe, classical liberalism and “liberal” nationalism lost out to collectivist nationalism, in which the dominant ideal became the imposed national unification of all peoples sharing the same language, ethnicity, culture, and historical heritage — by force if necessary, and whether or not a national minority in the majority’s territorial limits desired to live under that political regime. (See my article “Nationalism: Its Nature and Consequences.”)
Individual Choice in Markets and in Nations
In his analysis of 1919 in Nation, State, and Economy, Ludwig von Mises clearly understood the coming trends facing Europe, given the nationalist and interventionist ideas prevailing at the time. The 1920s and the 1930s saw political and economic nationalism run wild with trade barriers and migration restrictions crisscrossing the European continent, bringing with it nothing but material and cultural poverty to many sections of the populations of those countries, from the Atlantic to the Soviet border. These nationalist tensions and conflicts were also setting the stage for another world war.
The only answer to political and economic tensions and antagonisms among national groups within countries and between countries was a rebirth of the classical liberal ideas of free markets and strictly limited government, in the context of what Mises came to call and emphasize as the right of individual self-determination compared to the collectivist demand for group-based national self-determination.
In Mises’ view, it would never be possible to completely prevent a linguistic and ethnic minority living in a country with a majority of another group from feeling a degree of isolation and “apartness” from the wider society in which they live. Anyone who has emigrated to another country knows this type of feeling: not being able at first to speak (or not speak well) the dominant language in their new country; straying from the customs, traditions, and unwritten cultural rules and modes of conduct and interaction that rarely are written down but are just implicitly “known” and generally followed by all those born into that society. These feelings keep the newcomer always a bit of a stranger in their new land, even if those in the dominant national group are open and tolerant and hospitable to their new neighbor from another country.
But the real heart of the dilemma behind tensions between majority and minority national groups within the same country, as Mises explained in the quote above, was the interventionist state. Government regulations, controls, restrictions, prohibitions, protections, and subsidies by their very nature benefit some rather than others in a society. The interventionist machinery of government, therefore, can be directed to improve and protect one linguistic or ethnic group within a country at the expense of another group (or groups). Resentments, envies, angers, fears, and ignorance surrounding such group identities make the targeting of the “in-group” for the benefits and the “out-group” for the burdens that much more defining.
Therefore, Mises concluded that the only way, if not to end, at least to minimize the harmful impact of government actions on minority groups was to minimize the presence and policies of the government in domestic and foreign economic affairs other than those needed and expected in society to secure everyone’s equal and unbiased individual rights before the law. Mises declared:
The idea of liberalism starts with the freedom of the individual; it rejects all rule of some persons over others; it knows no master peoples, just as within the nation itself it distinguishes between no masters and no serfs . . .
The way to eternal peace does not lead through strengthening state and central power, as socialism strives to do. The greater the scope the state claims in the life of the individual and the more important politics becomes for him, the more areas of friction are thereby created in territories with mixed population. Limiting state power to a minimum, as liberalism sought, would considerably soften the antagonisms between different nations that live side by side in the same territory. The only true national autonomy is the freedom of the individual against state and society. The ‘stratification’ of life and of the economy leads with necessity to the struggle of nations.
Full freedom of movement of persons and goods, the most comprehensive protection of the property and freedom of each individual, removal of all state compulsion in the school system . . . are the prerequisites for peaceful conditions.
Individual Self-Determination and the Nation to Live In
But there still remained the political issue of self-determination. Mises in Nation, State, and Economy touched upon the solution to this problem, but the actual working out of the principle in practice was developed more in his 1927 book Liberalism. The classical liberal focus on and attention to the freedom of each and every individual human being required shifting the issue of self-determination away from the generally accepted and presumed right of national self-determination — that is, the right of those belonging to a distinct linguistic or ethnic group to vote and have their own politically demarcated nation-state.
Mises did not deny or overlook that those speaking the same language or possessing the same ethnicity might choose to vote in a plebiscite to form their own separate nation-state. But the classical liberal emphasis was on the right of individuals living within a particular area to vote on whether they wished to remain a member of the nation-state to which they already belonged, or wanted to change the administrative jurisdiction of their area or region to that of another existing nation-state, or wanted to form their own separate nation-state.
In the limit, based on this individualist political focus of attention, no individual should ever have to live within a governmental jurisdiction not of their own choosing. But administrative limits made it impossible to follow this, Mises said, to its full logical conclusion. Or as Mises expressed it:
The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars….
The right of self-determination of which we speak is not the right of self-determination of nations, but rather the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit. It if were in any way possible to grant this right of self-determination to every individual person, it would have to be done. This is impracticable only because of compelling technical considerations, which make it necessary that a region be governed as a single administrative unit and that the right of self-determination be restricted to the will of the majority of the inhabitants of areas large enough to count as territorial units in the administration of the country. (Mises, Liberalism, pp. 79-80; also see my article “Social Conflict, Self-Determination and the Boundaries of the State.”)
The Crimea Under Mises’ Policy of Self-Determination
What relevancy does Ludwig von Mises’ analysis have for our own times? In 2014, an international crisis was created when Russia took control of and then annexed the Crimea on the Black Sea. When the Soviet Union broke up at the end of 1991, Crimea was an administrative unit of the now-independent Ukraine. But for a variety of historical reasons, the majority of the population on the Crimean peninsula is Russian-speaking, with a sizeable minority of Ukrainian-speaking residents, and then a yet-smaller minority of Tatars.
The election held in Crimea under the control of the Russian military occupiers raised global eyebrows concerning how open and fair was the voting that concluded that the Russian majority wished to be politically incorporated into the Russian Federation. But even assuming that the voting was honest, impartial, and true in its outcome, the fact remained that a large number of the Ukrainian and Tatar minorities were frustrated with the outcome and the soon-following formal annexation of the Crimea as a part of Russia.
If Mises’ model of individual self-determination had been followed instead, each village, town, and city on the Crimean peninsula would have had a vote taken with three possible outcomes: remain a part of the Ukrainian state, join the Russian state, or become an independent state separate from Ukraine and Russia. In my view, for what it is worth, I think that in a free and fair election those areas with Russian majorities would have voted for incorporation into the Russian Federation; those districts with Ukrainian majorities would have voted to remain a part of the Ukraine; and the Tatar-majority areas, towns, and districts would most likely have voted to remain part of Ukraine or to become their own nation-state.
If the results were as I hypothesize, and if their implied reforms were followed, Crimea would then look like a three-colored checkerboard, with some areas the same color on a political map as Russia, other parts of the peninsula the color of Ukraine, and some smaller areas of Crimea a different color than either, designating those parts of the peninsula that now had formed into a separate Tatar nation-state.
Some respective Russian, Ukrainian, and Tatar areas might not be immediately adjacent to the others. But if at the same time, a fairly clear and consistent economic policy of free trade were to be followed on the peninsula as a whole, moving from one jurisdiction to another through the territory of another national group would be as irrelevant for the personal, social, and economic affairs of everyday life as traveling today through the various states of the United States.
A general regime of free trade and free enterprise in the various political jurisdictions of such a post-plebiscite Crimea would ensure that many of the peninsula’s residents could live in the nation-state of their own choosing, reflecting their linguistic or ethnic sense of identity. Or if this were unimportant to some individuals, any member of these three linguistic and ethnic groups could live or work in one of the other political entities of their own choosing under the type of laissez-faire liberal regime that Mises was also advocating.
There would have been none of the tensions, hostilities, or animosities that followed the Russian-administered election and the peninsula’s annexation to Russia. Discrimination would be minimized and depoliticized, and nationality conflicts would be reduced to the minimum possible, given the imperfections of people in their private attitudes and actions. But the government would not be acting as the agent to benefit one national group to the disadvantage of any other. (See my article “Individual Self-Determination vs. Ukrainian or Russian Nationalism,” part 1 and part 2.)
The UK, the EU, Brexit, and Self-Determination
Or we can consider Brexit, the vote in the United Kingdom to withdraw from the European Union, which was taken in June 2016. About 52 percent of the UK-wide population voted to withdraw from the EU. There have been hysteria, anxiety, and disbelief by many who voted to remain in the European Union. Furthermore, the vote tally was different in different parts of the United Kingdom.
For instance, in England and Wales, respectively, the vote count was 52 percent and 53 percent to leave the EU. But in Scotland, the vote was 62 percent to stay in the European Union, and in Northern Ireland it was 53 percent to remain in the EU. The city of London and surrounding areas voted 60 percent to stay in the EU.
If Mises’ method were followed, based on the vote Scotland would have the option to secede from the United Kingdom and as an independent state petition to remain in the European Union as a new member. But suppose that some districts in Scotland had voted to remain in the UK. Then the logic of the self-determination principle as formulated and proposed by Mises would require that those areas would have the right to secede from Scotland and remain a part of England. On the other hand, if the residents of London wished to become an independent city-state to stay within the EU they would be free to do so, as well.
If Northern Ireland wished to leave the UK and remain a member of the EU, it would have the freedom to do so, under Mises’ proposal for district and regional plebiscites. But in the spirit of such self-determination, if there were heavily Catholic border areas in Northern Ireland that voted to secede from the UK or an independent Northern Ireland jurisdiction and join the Republic of Ireland, those border areas would change their color on the political map of Europe from the UK color to that of the Irish Republic. (See my article “Self-Determination and Individual Choice in a Post-Brexit World.”)
Each individual’s choices would have carried with it greater weight, in Mises’ framework, in deciding on the nation-state to which they belonged involving the issue of a continuing participation in an extra-national political entity, the European Union. If an independent Scotland generally maintained the same rules that now apply in its association with England and Wales in the United Kingdom, citizens of the respective Scottish and English nation-states would still have freedom of movement and trade between their now vote-created separate political jurisdictions.
Neither in Nation, State, and Economy nor in Liberalism did Mises promise a human utopia by following open-market, open-border, and free-enterprise and free trade domestic and foreign policies. But what such policies would provide would be an institutional order of economic, social, and political liberalism that would, among other things, radically reduce, if not eliminate, many of the conflicts and controversies that have enveloped not just Europe but many other parts of the world concerning nationality and self-determination. It would, if not remove, at least greatly reduce one of the most deadly and dangerous forces still at work in too many places in the world today.
That is what makes it worth highlighting the 100th anniversary of Ludwig von Mises’ Nation, State, and Economy and restoring to it the place it deserves for understanding the century that has passed as well as our own times and some answers to our dilemmas.
(This article is based on a paper delivered during a session at the annual Southern Economic Association meeting in Washington, DC, November 19, 2018.)