Douglas French on Ludwig von Mises and the Advancement of Free-Market Thinking

An Interview reposted from The Daily Bell, Sunday, April 25, 2010 – with Scott Smith (

Introduction: Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his Masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee.

Daily Bell: Can you give us some background about yourself? Where did you grow up and how did you become interested in Austrian economics?

Douglas French: I grew up in Abilene, Kansas and like Dwight D. Eisenhower, was an average student at Abilene High School. Sports was my primary interest in school. I lettered in three sports, and went on to play football at Washburn University in Topeka, Kansas.

I dropped out of college in my third year out and worked as a bartender and bar manager for ten years. During that time I returned to college to finish my undergraduate degree with a major in economics and finance.

After moving to Las Vegas in 1986, I took an entry-level job at a bank and ultimately worked in the banking business in Nevada for 22 years. In the fall of 1989 I decided to enroll at the University of Nevada at Las Vegas (UNLV) and pursue a masters in economics. In the fall of 1990 I took “History of Economic Thought” with Murray Rothbard and my life was changed forever. I took “U.S. Economic History” with Murray as well and wrote my masters thesis under his direction. While researching and writing my thesis on early speculative bubbles I became interested in Austrian Economics, especially Austrian Business Cycle Theory.

Daily Bell: Tell us what you do at the Mises Institute and how you came to your important free-market role.

Douglas French: I serve as the President of the Institute. Lew Rockwell and the late Burt Blumert asked if I would come to work for the Institute in the fall of 2008. Along with being a student of Murray’s I had been a donor to LvMI and had attended a number of events as well as speaking at a few conferences. So I feel like I’ve been closely involved with LvMI’s mission for a number of years.

Daily Bell: You studied under Murray Rothbard and with Professor Hans-Hermann Hoppe. Can you give us some background and anecdotes about them? What has made them such famous proponents of free-markets and human action?

Douglas French: Murray was the happiest person I’ve ever met. Especially considering that the UNLV economics department did all it could to discourage students from take his classes and classes from Hans. He was generous with his time and his students would wait long periods just to chat with him. Thankfully, someone eventually found a chair and put it outside his door so we didn’t have to keep sitting on the hard tile floor in the hallway.

The first night of class I remember Murray walking through the door and he started talking immediately about the crazy politicians wanting to fix gas prices. Anyone who has taken classes with Murray will tell you he was a walking bibliography. His lectures were filled with endless reading suggestions. And not just book titles but author, publisher, date published. Of course, as a thesis advisor he was the best: references, strategist, and cheerleader.

Of course Murray selected the rest of my thesis committee for me and professor Hoppe was at the top of his list. However, I never had the opportunity to take classes from him.

My thesis defense lasted for more than a couple hours as I remember. Sitting through my oral defense had to seem like the longest two hours of my committee members’ lives. But none of the Keynesian faculty members who dropped by to comment chose to stick around long enough to critique me.

Since I had no background in Austrian economics or Libertarianism, at the time, I had no idea how lucky I was to be studying under the man who is considered the father of the modern libertarian movement and was the dean of the Austrian school until his death, not to mention having one of the most important scholars of our time and the current dean of the Austrian school as a thesis committee member.

Daily Bell: Give us a historical – economic – framework for Ludwig von Mises. How did his thinking evolve?

Douglas French: When Mises went to college he described himself as a statist “through and through” like most of his fellow classmates. However, he was anti-Marxist, writing that the “platitudes of Marxist literature repelled me.” Mises believed that all the Marxist scholars he met were mediocre, except Otto Bauer.

By his fifth semester he began to have doubts about government interventionism. His work on housing conditions in Austria revealed to him that taxation hindered capital investment and limited supply leading to higher rents. But, reductions in these taxes didn’t reduce rents and led the government to impose other taxes to replace the taxes that landlords had been paying: early insight that one government intervention leads to a series of others due to the unintended consequences of this intrusions.

In 1903 Mises read Carl Menger’s Principles of Economics and from that book, he wrote, “I became an economist.” Mises attended Eugene Böhm-Bawerk’s seminar in Vienna until 1913 and witnessed continuous debates between Böhm and Bauer over Marxist theory. Mises applied Menger’s marginal utility theory to money and the business cycle and these were the subjects of the seminar the last two winter semesters that he attended. The finished manuscript for The Theory of Money and Credit was in the hands of the publisher in early 1912.

Daily Bell: Mises is one of the greatest men who ever lived for his insights into what he called “human action.” How did the concept of human action evolve in his mind and why is it one of the most profound statements about the human condition ever uttered?

Douglas French: It was actually Carl Menger who developed a complete theory of social institutions arising from interactions among humans, each with his own subjective knowledge and experiences. It is the spontaneous evolution of these human actions that create institutions whereby individuals discover certain patterns of behavior that aid each person in attaining his goals more efficiently. Menger, and then Mises, applied this insight to the development of money which in turn makes the division of labor possible and satisfaction of wants attainable. This reasoning is the bedrock for understanding how societies and human progress advance. Conversely, this same understanding reveals how government intervention causes society to devolve.

Daily Bell: Can you summarize his great work, Human Action for our readers? Can you recommend some other books by von Mises?

Douglas French: I remember Murray talking about Human Action in class. He said that after he had read it, someone asked him what the book was about, he replied, “Everything!” So, can I summarize a book about everything? Not adequately. To quote from the Introduction to the Scholar’s Edition, Human Action is “a comprehensive treatise on economic science that would lay the foundation for a massive shift in intellectual opinion that is still working itself out fifty years after publication.”

Mises explained why he wrote Human Action:

Economics does not allow any breaking up into special branches. It invariably deals with the interconnectedness of all phenomena of acting and economizing. All economic facts mutually condition one another. Each of the various economic problems must be dealt with in the frame of a comprehensive system assigning its due place and weight to every aspect of human wants and desires. All monographs remain fragmentary if not integrated into a systematic treatment of the whole body of social and economic relations.

To provide such a comprehensive analysis is the task of my book Human Action , a Treatise on Economics. It is the consummation of lifelong studies and investigations, the precipitate of half a century of experience. I saw the forces operating which could not but annihilate the high civilization and prosperity of Europe. In writing my book, I was hoping to contribute to the endeavors of our most eminent contemporaries to prevent this count
ry from following the path which leads to the abyss.

Bob Murphy, writing in the preface to his, Human Action Study Guide, “Suffice it to say, one cannot really claim to be an Austrian economist – certainly not a Misesian! – without reading Human Action.

In an essay written about Mises, Murray wrote that Human Action is “one of the finest products of the human mind in our century.”

One can’t go wrong reading any books by Mises. For those interested in booms and busts, I leaned extensively on a book that is now titled The Causes of the Economic Crisis when writing my thesis. For those who wonder why intellectuals and opinion makers hate capitalism, The Anti-Capitalist Mentality is very revealing. Want to understand big government? Read Bureaucracy. Theory and History was Mises’s favorite next to Human Action.

Of course the big three are Human Action, Socialism, and The Theory of Money and Credit.

Daily Bell: Tell us how Mises and FA Hayek expanded and finalized the concept of the business cycle.

Douglas French: As I mentioned, Mises applied marginal utility analysis to the money and the problem of the business cycle which became Austrian Business Cycle Theory (ABCT). As Murray Rothbard wrote in an essay about Mises, “At long last, economics was whole, an integral science based on a logical, step-by-step analysis of individual action. Money was fully integrated into an analysis of individual action and the market economy.”

Mises exposed the fallacies of the quantity theory of money and Irving Fisher’s “equation of exchange.” Mises put individual choice into monetary theory and dispensed with the “distorted concentration on mechanistic relations between aggregates.” Mises’s Regression Theorem showed that money can only be established by the market, beginning with barter, not by government construct. This of course has been proved right as every fiat currency in history has ultimately been made worthless.

Mises formulated his ABCT during the 1920s out of three elements; the boom-bust model from the Currency School, Swedish “Austrian” Knut Wicksell’s delineation between bank interest rates and the “natural” rate, and Böhm-Bawerk’s capital and interest theory.

“Mises’s remarkable integration of these previously totally separate analyses showed that any inflationary or created bank credit,” wrote Rothbard, “by pumping more money into the economy and by lowering interest rates on business loans below the free market, time-preference level, inevitably caused an excess of malinvestment in capital goods industries remote from the consumer.”

Hayek’s ABCT work continued from Mises’s explaining the origin of the business cycle in terms of bank-credit expansion.

Daily Bell: Did John Maynard Keynes know Mises? Keynes knew Hayek, but we wonder if he avoided Mises somehow or was in some way reluctant to engage him.

Douglas French: I can’t find any evidence that Keynes knew Mises personally. But Keynes did review the German version of The Theory of Money and Credit for the Economic Journal and dismissed it as being unoriginal. But as Donald Boudreaux pointed out in a letter to the Wall Street Journal, “in his 1930 book Treatise on Money, [Keynes] confessed that ‘in German, I can only clearly understand what I already know – so that new ideas are apt to be veiled from me by the difficulties of the language.'”

Daily Bell: Were there differences between Hayek and Mises intellectually and otherwise. Was Hayek Mises’ favorite pupil?

Douglas French: Hayek attended Mises’s Privateseminar, be he didn’t necessarily consider himself a student of Mises. He wrote in the introduction to Mises’s Memoirs that he was closely associated with Mises. But he came to Mises, “not as a student, but as a fresh Doctor of Law and a civil servant, subordinate to him, at one of those special institutions that had been created to execute the provisions of the peace treaty of St. Germain,” Hayek wrote. “The letter of recommendation by my university teacher Friedrich von Wieser, who described me as a highly promising young economist, was met by Mises with a smile and the remark that he had never seen me in his lectures.”

Murray writes in Keynes, The Man that Hayek was charmed by Lord Keynes but he didn’t succumb to Keynes’s ideas. However, Hayek never wrote a critique of The General Theory. And Mark Skousen speculates that Hayek backed off of Keynes in the 1940’s not wanting to interfere with Britain’s financing of the war effort.

So while Hayek may have been politically pragmatic, Mises never was. Mises’s widow Margit described her husband’s character, quoting the words Mises wrote about Benjamin Anderson. “He never yielded. He always freely enunciated what he considered to be true. If he had been prepared to suppress or only soften his criticism of popular, but obnoxious policies, the most influential positions and offices would have been offered to him. But he never compromises.”

“Of all the Misesians of the early 1930’s, the only economist completely uninfected by the Keynesian doctrine and personality was Mises himself,” Rothbard wrote. “And Mises, in Geneva and then for years in New York without a teaching position, was removed from the influential academic scene.”

Hayek was able to secure teaching positions at the London School of Economics and the University of Chicago, and in 1974 was awarded the Nobel Prize. Mises would never secure such positions, was driven from his own country and had to fight for students and a chance to teach at all. While Henry Hazlitt wrote in Barron’s, “If ever a man deserved the Nobel Prize in economics, it is Mises,” he of course was never awarded the prize.

Daily Bell: Mises was a proponent of a gold standard was he not?

Douglas French: He was, and wrote: “The superiority of the gold standard consists in the fact that the value of gold develops independent of political actions.”

Daily Bell: We have an interest in free-banking here at the Daily Bell (see Selgin interview). We think any kind of financial system is allowable in a free-market and that competition will sort them all out so long as government is not involved – and we do think in a free-market that a gold and silver private market standard would evolve as it has historically. Do you think this is an intellectually defensible position?

Douglas French: Certainly freely competitive banking is far better than the state regulated, fractional-reserve, fiat currency, central bank cartelized banking system we have now. However, in practice, in a free market, I don’t believe that the market would accept fractional reserves. It would be regarded as embezzlement at best and fraud at worst. Fractional reserve systems have fallen apart since the ancient goldsmiths issued more gold receipts than they had gold for. I can appreciate the theorizing, but when the rubber meets the road, the sternest task master – the market – would just not allow it.

Fractional reserve banking depends upon hope and prayer: Hope that not everyone shows up for their money all at once and pray that the borrowers pay their loans back. That’s not a sound basis for a banking system and requires the force of government to keep propped up.

Daily Bell: Do you think Mises position might have evolved toward free-banking if he was alive currently? Was Rothbard’s position evolving toward free-banking before his untimely death?

Douglas French: Murray wrote in an article that now is the Appendix to his book The Mystery of Banking “Ludwig von Mises was one of those believing that free banking in practice would a
pproximate a 100 percent gold or silver money.” Mises believed “that demand deposits, like bank notes beyond 100 percent reserves, are illicit, fraudulent, and inflationary as well as being generators of the business cycle.” I believe this was also Murray’s view when he passed away.


Daily Bell: Is there anything wrong with fractional reserve/fiat-money in a free-market environment?

Douglas French: You couldn’t have fractional reserves and fiat money in a free-market. It would not last one day. Fractional reserves require a central bank to cartelize the banking system. In a free market demands on deposits would instantly shut down banks who engaged in fractionalized banking, by lending our their customers deposits.

No one would except paper money with no backing but for the power of government to require people accept it through legal tender laws.

Daily Bell: Regardless of the money standard argument, what was it about von Mises that made him utter such profound truths?

Douglas French: Mises was the rare combination of a dazzling brain, indefatigable work ethic and uncompromising courage.

Daily Bell: What can come after a genius like von Mises? Has everything been said that needs to be said?

Douglas French: There is always intellectual work to do. But all Austrians stand on the shoulders of Mises. Mises himself believed there was little room for economic theorists. “In every field there are very few who can make actual contributions to its intellectual treasury,” Mises wrote. “If academic positions were contingent upon independent contributions to economics, barely a dozen professors could be found throughout the world.”

Daily Bell: What are your preoccupations going forward from an intellectual standpoint? What are you exploring, researching and writing?

Douglas French: I’m still very interested in speculative bubbles, banking, the effects of inflation and applying Austrian Business Cycle Theory to current economic events (and there is plenty of that to do).

Daily Bell: You are receiving a million visits a month or more at the Institute, online. What has made the Institute such a success under your leadership? What have you been doing to make it grow so fast?

Douglas French: As Lew Rockwell has said, the Institute has been talking for 28 years and now people are finally listening. So, it’s not really anything I’ve done. I just happened to become part of the staff just after the financial crash. Because the Austrian explanation for the financial meltdown is the credible one people are paying attention and interested in the Austrian view. What we do day-to-day is try to make use of every communication avenue we can to spread the message and expose more students (young and old) to the teachings of Mises, Rothbard, Hayek and the other great Austrians. As technology opens more of these avenues, we reach more people and grow quickly. Technology is the greatest weapon that the freedom movement has ever had. Now, time and space cannot limit ideas, and ideas change the world.

Daily Bell: Did you ever dream of the impact that you and Lew Rockwell would be having? You’ve truly started an international free-market movement.

Douglas French: I didn’t start anything. The man I studied under – Murray Rothbard – his friend Lew Rockwell and many others started this modern free-market movement . I’m just honored to be a small part of it.

Daily Bell: Is the Austrian economic movement now starting to catch on at colleges and universities? Will it ever exceed Keynesianism?

Douglas French: Austrian economics is only starting to gain a toehold at a handful of colleges. But the future of education is changing. How long will state governments and parents be able to afford paying for four, five or six years of partying, football games, and sorority dances, with a few classes from out-of-touch tenured professors sprinkled in? The university system sells pieces of paper-diplomas-that have value to employers who use these pieces of paper to making hiring decisions. Eventually, technology will allow employers to test an applicants skills and knowledge and not depend on these expensive pieces of paper. The value of diplomas are depreciating like the value of fiat currency. Because there is nothing (no real education) backing it.

Anyone who wants to learn Austrian economics can do so online, for free, at There are hundreds of books, thousands of articles and hours of audio and video material made available due to the generosity of our donors. What we learn best is knowledge that we seek for ourselves, that we are passionate about. We have a generation that is teaching themselves economic truth, no matter what they hear from the talking heads on TV or the tenured Keynesians babbling nonsense about aggregate demand in the classrooms.

Daily Bell: What is planned for outreach? And what’s next for you? Can you recommend some articles or books you have written for our viewers?

Douglas French: As I mentioned before, we try to take advantage of every communication portal there is. I believe that based upon the initial response to the first class in the Mises Academy (over 200 enrolled), this program will expand. Our intent is to make all of our books and publications available in ePub formats. Our Mises Circle events held around the country are very popular and we will continue and expand the number of events we hold. Homeschool programs at the Institute have also proved to be very popular and I hope that these one-day programs can eventually be held in other cities. Mises University, the Austrian Scholars Conference and the Summer fellows programs will also continue and to expand. And we will continue to publish books through our publications department and reprint classic works through on-demand avenues, as well as the Quarterly Journal of Austrian Economics. We also host Libertarian Papers, a scholarly journal being managed so well by Stephan Kinsella, on and many of the great libertarian publications from the past.

Much of what I’ve written is on Just type in my name and click on the link to my archives. The thesis I wrote under Murray’s direction is online, and for sale at

This entry was posted in Blog Posts. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *