Foreign Investments and the Spirit of Capitalism

Ludwig von Mises’s Foreign Investments and the Spirit of Capitalism presents foreign investment as a decisive episode in the uneven global diffusion of capitalism. Its central claim is that Western industrial superiority did not rest mainly on secret inventions, natural resources, or technical schooling, but on institutions and expectations that encouraged saving, accumulation, and entrepreneurial risk.

What was lacking in the "backward" countries was the mentality that had produced capitalism in the West and the institutions brought about by that mentality.

Mises begins from a historical contrast: around 1700, economic conditions across the world were far more similar than they later became. By the nineteenth century, Western Europe and its offshoots had opened a vast productive gap over much of Asia, Africa, and Latin America. He argues that this gap could not be explained by ignorance of industrial technique, since machines, engineers, manuals, and training were available. The deeper obstacle was the absence of secure property, contract, and investment conditions under which people would commit resources to long-term production.

The lecture therefore distinguishes capitalist foreign investment from older colonial extraction. Mises does not deny that empires often sought raw materials on exploitative terms. But he treats nineteenth-century capital export as a different mechanism: accumulated Western savings financed railways, mines, ports, plantations, and utilities in regions without sufficient domestic capital. In this sense, foreign investment accelerated development by transferring the results of prior saving to places where productive opportunities existed but local capital was scarce.

Foreign investment meant that the capitalists in the West provided the capital required for the transformation of a part of the economic system of the "backward" countries into a modern society.

Mises also rejects the idea that capital exports impoverish the investing country. Investment abroad, in his account, reflects consumer demand for goods that can be produced abroad more cheaply or obtained only there. What may appear as an unfavorable trade balance for the borrowing country is simply the accounting counterpart of imported capital; later returns appear as interest, dividends, amortization, or profit remittances. Britain’s later difficulties serve as a warning about the loss or consumption of foreign assets that had once supported imports and living standards.

The essay’s key anxiety is the collapse of confidence in private foreign investment. Mises concedes that foreign property rights were sometimes protected through imperial power, but his emphasis falls on the vulnerability of investors before sovereign governments able to repudiate debts, nationalize assets, discriminate through taxation, or obstruct transfers. Exchange control becomes especially important because it can empty ownership of value without formally abolishing title: profits that cannot be remitted are, for the foreign investor, effectively confiscated.

Capitalism is not things; it is a mentality.

This formulation condenses the lecture’s broader theory. Capitalism is not reducible to factories, dams, mines, or technical equipment; those are consequences of a legal and moral order in which capital can be accumulated and deployed. Where confiscation is expected, savers rationally prefer portable wealth, foreign balances, or concealment to local productive investment. The “spirit” of capitalism is therefore not romantic individualism but the practical expectation that property and contracts will survive political pressure.

Mises is correspondingly skeptical of postwar substitutes for private investment: foreign aid, public guarantees, Point Four schemes, and government-to-government loans. He argues that these programs politicize development, transfer risk to taxpayers, and often strengthen state ownership rather than market production. Technical assistance may help, but it cannot replace capital accumulation under secure legal conditions. For Mises, the main barrier to development is not a lack of knowledge but a lack of institutions that make productive saving worthwhile.

The lecture’s final argument links investment to peace. Modern industry depends on unevenly distributed raw materials, and foreign investment once allowed access to those resources through contract rather than conquest. If states confiscate, exclude, or politicize such investment, Mises warns, competition for resources may again take territorial and military forms.

It was precisely foreign investment—the possibility of making use of all natural resources without political interference—that made war unnecessary.