Ludwig von Mises (1881–1973) is known principally, and rightly, as one of the founders and chief theorists of the Austrian School of Economics. Perhaps less well-known are his important contributions to the social sciences, especially sociology and history. Mises’ second book, Nation, State, and Economy, (published in 1919 as Nation, Staat, und Wirtschaft, and kept in print by Liberty Fund) draws on all of these fields, as well as economics. Written immediately after the cataclysm of World War I (and published in the same year as John Mayard Keynes’ much more famous The Economic Consequences of the Peace) Mises’ book offers, in his words, “observations about the crisis in world history that we are living through and contributions to understanding the political conditions of our time.” While some of these observations might seem dated or naïve to our twenty-first-century sensibilities, Mises was trying to make sense of the destruction caused by the war, and the awful powers it had unleashed. He sensed, unfortunately quite correctly, that these powers would pose a tremendous challenge to liberalism in the years ahead, with the result that the peace and prosperity of Europe would be hard to rebuild, if possible at all. In the process, he also explored many themes that would re-emerge with greater clarity in his future books.

Mises acknowledges in his preface that the sections of his book might seem only tenuously related to each other. But I think here his self-criticism is not warranted. The sections of the book, his “observations” regarding the reasons for the war and the situation in the immediate post-war world, are tied together by a profound devotion to the ideas of classical liberalism. According to Mises, the war resulted from the failure of the countries of Europe, especially Germany, to build a robust liberal order, and the only hope for European (again, especially German) recovery is a resurrection and embrace of those same liberal ideas. He is very clear about what these are: free trade and free movement of peoples, constitutional democracy, and individual liberty. Peace and prosperity will inevitably result if countries adhere to these principles. Students of Mises will immediately recognize these arguments as recurring again and again in his subsequent writings.

Importantly, much of the book is taken up with an extensive investigation of the phenomena of national identity and nationalism. While the importance of these concepts to the outbreak of World War I might seem obvious to us now, the scientific study of nations and nationalism was in its infancy in the early twentieth century, and Mises’ work on the subject represents an important contribution to the historiography of what we now call “Nationalism Studies.” Anticipating the later work of his contemporary and fellow Central-European, the great historian of nationalism Hans Kohn (1891–1971), Mises draws a distinction between different kinds of nationalism, specifically what he terms “liberal” and “militant or imperialist” nationalism. As one would guess by their names, “liberal” nationalism is perfectly compatible with liberalism. Indeed, as an ideology extolling the virtues and sovereignty of the Nation or the People against the tyrannical absolutism of kings and princes, it is intimately connected with the kind of constitutional democracy Mises finds central to the liberal project.

Much of the book is taken up with a detailed history of the failure of liberal nationalism in Germany, stemming from the defeat of the German liberal revolutionaries of 1848, and later the establishment of the Prussian-dominated German Empire in 1871. In his account, the embryonic liberal nationalism of the “Forty Eighters” gave way to the “militant or imperialistic nationalism” of the Wilhelmian Kaiserreich. Also interesting is Mises’ embrace of self-determination, a theme he addresses again in his 1927 Liberalism (also published by Liberty Fund). Somewhat surprisingly, perhaps, for a loyal subject of the Habsburg Monarchy and veteran of World War I, Mises acknowledges that people should be free to break away from a country and form their own state. He predicates this, however, on the understanding that the new country would adopt liberal, i.e., non-statist, principles regarding economics and politics. Importantly, he argued that majoritarian democracy, by itself, would not solve the minorities’ problem in the new, polyglot multinational states in East Central Europe: “Limiting state power to a minimum, as liberalism sought, would considerably soften the antagonisms among different nations that live side by side in the same territory. The only true national autonomy is the freedom of the individual against the state and society. The ‘nationalization’ of life and the economy by the state leads with necessity to the struggle of nations.”

Despite his detailed sociological-historical examination of nationalism and its role in the outbreak of the war, most of the book is taken up with chapters on the economics of the war, socialism’s relationship to the war, and the threat it poses for post-war recovery. Particularly noteworthy is Mises’ treatment of the so-called “War Socialism” (Kriegsozialismus) developed in Germany during the course of World War I (versions of which were eventually adopted by all the belligerent countries). Ostensibly introduced to bring more efficiency to the demands of the wartime economy, Mises notes that the laws of economics do not cease to function during wartime, and that the free market remains the “superior form of economic activity.” Mises also uses his discussion of War Socialism to point to the essentially violent and statist foundations of Socialism in general, a theme he develops at much greater length in his 1922 Socialism (another Liberty Fund title). This was a crucially important argument at the time, given the widespread belief that socialism offered a peaceful alternative to the destruction and violence allegedly unleashed by the liberal, free-market world system in 1914.

Another important part of his treatment of the economics of the War is his discussion of inflation. In this section of the book, we find many of the same warnings about the dangers of inflation that one finds in his subsequent writings. In this case, he notes that “inflation is an indispensable intellectual means of militarism.” That is, inflation is not only a mechanism for financing war, but it is also a way of hiding the true costs of war from the public.

Mises concludes his book with a short section reflecting on the future of post-war Europe. He notes the tremendous challenges facing Europe and the World, focusing on Central Europe, and Germany in particular. He prophetically warns against a spirit of vengefulness taking over the German mentality, and instead argues that only by pursuing a liberal policy stressing peace, free markets, and constitutional democracy does Germany have any chance at all of overcoming the destruction of the war and the harsh conditions of the Versailles Peace Treaty.

Mises published Nation, State, and Economy a little over one hundred years ago. The book is very much of a time (the immediate post-World War I period) and a place (Central Europe) and so we are, I think, allowed to ask what, if anything, we can still get out of it.

The book is, first and foremost, a collection of observations about current events. As noted above, this is how Mises himself characterizes the work. But these observations are not simply random impressions, but are tied together by two important impulses, namely, the desire to understand how the war broke out and, secondly, how to make sure such a war never happens again. In the first case, Mises makes the argument that the war was made possible because of the rise of what he calls “militant or imperialistic nationalism” that replaced the older, peaceful, “liberal nationalism.” The latter was characterized by peaceful foreign policies and constitutional democracy, but was also closely related to liberal economic policies such as free trade, free migration, sound money, and private property. In Mises’ account, the war resulted from the weakening of this liberal order and its replacement by violent, “imperialistic nationalism,” and the war itself completed the destruction of this old liberal socio-economic order, replacing it with violent nationalism and statist socio-economic and political policies. In other words, the end of an international liberal order was simultaneously the cause and result of the Great War. With an explanatory framework such as this, the means of avoiding another comparable (or worse) war in the future are obvious: resurrecting some version of the old liberal order. Mises seemed to think that this would be possible, if extremely difficult.

To what extent did his predictions and warnings come true? He turned out to be correct that the failure to return to the pre-war era of “liberal nationalism,” liberal socio-political and (especially) economic policies, and constitutional democracy in most of the world in the interwar period, along with the desire of the Germans to avenge the humiliating Treaty of Versailles did indeed lead to another, even more horrible and destructive, war twenty years after the publication of his book. He also turned out to be correct that socialism, epitomized by the Russian Revolution and the subsequent Union of Soviet Socialist Republics (established officially in 1922, after the publication of the book), would become a murderous, imperialistic system. While there have been some efforts since the end of World War II to return to the pre-World War I era of liberal economic policies (especially the free movement of capital, goods, services, and people), and while the sort of “militant nationalism” that characterized so much of the early twentieth century has dissipated somewhat, we now seem to be entering another era in which the kind of classical liberal order that Mises saw as the only foundation for a peaceful and prosperous world is potentially under threat once again. The warnings in Nation, State, and Economy are still useful.