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

Sunday, April 25, 2010 with Scott Smith

Douglas French The Daily Bell is pleased to present an exclusive interview with Douglas French (left).













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



In 1903 Mises read Carl Menger’s Principles of Economics and from that book, he wrote, “I became an economist.” Mises attended Eugene BÃ¶hm-Bawerk’s seminar in Vienna until 1913 and witnessed continuous debates between BÃ¶hm 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 Creditwas in the hands of the publisher in early 1912.





Mises explained why he wrote Human Action:


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.







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 BÃ¶hm-Bawerk’s capital and interest theory.












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 approximate 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 Ludwig von Mises Institute – Homepage.

Daily Bell: Thank you for your time and the great work you do.

We are extremely fortunate to be able to bring this wonderful interview with Douglas French, the head of the world-renown Mises Institute. We can remember vividly the early 1990s when the Mises Institute was not well known. If the Internet has given Austrian economics a kind of rock-star-band appeal, especially for younger people, then von Mises is surely the lead axe-man.
We have been fortunate enough to interview several individuals close to the Mises Institute including its founder Lew Rockwell who, along with Murray Rothbard, could be said to have sparked the most influential intellectual movement of the late 20th and 21st century. Sure, free-market Austrian economics had been around for several hundreds years and was in fact the most influential economic discipline in the sense that the powers-that-be were constantly reacting to it and trying to restrict its influence.

Mises was hardly mentioned for much of the 20th century and when he came to America after World War II, he had trouble finding a job. Academic texts were dismissive of both Mises and the Austrian school so named by German economists who believed in statist bromides and could not, like many others of statist stripe, stomach the truth-telling of free-market economics.

The power elite, which the Bell regularly comments on, couldn’t abide either Mises or the larger thrust of Austrian economics. At the heart of Austrian economics are some of the most profound insights ever voiced about the current human condition. The idea of marginal utility that only the market itself could determine fluctuations in price makes every law and every regulation a kind of price fix.

What appears to be the most sublime and significant insight into the human condition belongs to the modest and beleaguered professor from Austria, Ludwig von Mises. His insight into economics (building on the great Menger’s initial insight) that it was basically an explanation of the humanity’s vital spark and should acknowledge people’s capacity for human action at all times is perhaps the most profound statement about humanity since the Sermon on the Mount.
Not only is the concept of human action extraordinarily significant, it is also in its magnificent simplicity a rebuttal to every falsification and fabrication put forward by would-be dictators to justify their petty schemes and tawdry rapine. Statists will always maintain that a small elite is necessary to guide society toward a better future.

In fact, human action shows us that no matter what leadership is provided by a governing elite, it will never come to fruition as planned. That’s because individuals seeing outcomes of which they either approve or disapprove will take human action long before the results of the statist scheme are realized. Humans are pro-active. People, in aggregate, take care of themselves and their families and do so far in advance of any of the dangers that an elite might predict, and often arrive at personal solutions far in advance of solutions offered by the state.


Thanks to the Internet and to the hard work of committed free-market thinkers such as Doug French and the legendary Lew Rockwell, Austrian free-market concepts are now well known to millions around the world. The proverbial cat is “out of the bag” and this is one reason why the Daily Bell has been so confident about predicting that the elite and its plans for global dominance, as currently configured, will become less effective over time, at least for the foreseeable future. This happened before, when the Gutenberg press launched a communication revolution some 500 years ago that resulted in the Renaissance and the Reformation. We think this is, generally, good news for anyone who believes in freedom and free markets.

Finally, this afterthought would not be complete without a word about the gold standard and free banking, which Doug French commented on his interview above. We think interview itself contains a very good description of Doug French’s Misesian position and we have already addressed this issue, previously, in an interview with free-banking proponent George Selgin. Click Here to read the Selgin interview. Between the clear pronouncements of Doug French, and the equally clear approach of George Selgin, we think we have done readers a service in illuminating these issues in a way not often accomplished in the general press. Granted, the Bell is not “mainstream” but these issues are compelling and actually of great import, even though they might not seem to be in the current environment. We are confident they will be, just as we were confident that Misesian thought would eventually sweep the world. Thanks to Doug French, Lew Rockwell and others dedicated to free-market thinking. More changes are coming.