Mises’ Great Achievement Was to Apply the Austrian Method to the Broad “Macro” Areas

Ludwig von Mises was a “third-generation” Austrian, a brilliant student in Böhm-Bawerk's famous graduate seminar at the University of Vienna in the first decade of the twentieth century. Mises’ great achievement in The Theory of Money and Credit (published in 1912) was to take the Austrian method and apply it to the one glaring and vital lacuna in Austrian theory: the broad “macro” area of money and general prices.

For monetary theory was still languishing in the Ricardian mold. Whereas general “micro” theory was founded in analysis of individual action, and constructed market phenomena from these building blocks of individual choice, monetary theory was still “holistic,” dealing in aggregates far removed from real choice. Hence, the total separation of the micro and macro spheres. While all other economic phenomena were explained as emerging from individual action, the supply of money was taken as a given external to the market, and supply was thought to impinge mechanistically on an abstraction called “the price level.” Gone was the analysis of individual choice that illuminated the “micro” area. The two spheres were analyzed totally separately, and on very different foundations. This book performed the mighty feat of integrating monetary with micro theory, of building monetary theory upon the individualistic foundations of general economic analysis.

—Murray N. Rothbard, foreword to The Theory of Money and Credit, by Ludwig von Mises (Indianapolis: Liberty Fund, 1981), 14.