Ludwig von Mises, “Undeveloped Countries” (April 1959)

Ludwig von Mises’s published discussion contribution addresses economic development through a defense of private saving, investment, and entrepreneurial initiative. Delivered as remarks to a chairman and fellow participants, it moves from the political vocabulary of planning to the history of foreign investment, then to inflation and foreign aid. Its central contention is that capital scarcity cannot be remedied sustainably by government expenditure when recipient governments obstruct the private processes that generate capital. Development, in this account, requires institutional conditions favorable to individual action rather than more ambitious public plans.

Mises begins by challenging the classification of liberal opposition to government intervention as merely “negative.” His example is censorship: proposing a state institution counts as constructive, while defending freedom against it counts as obstruction. This linguistic asymmetry prejudges the development debate by identifying purposeful action with government action:

The plans of the individuals do not count; they are just no planning.

The sentence condenses his opening conceptual move. The alternative to official planning is not an absence of plans, but planning by individuals whose activities prevailing terminology excludes from view. His criticism of the title Plan or no Plan therefore concerns more than vocabulary: defining government intervention as the only positive response makes private economic coordination seem incapable of addressing poverty before its capacities have been considered.

Against this presumption, Mises identifies a different response to capital shortage:

It never occurs to the governments and to the various agencies of the United Nations that the best way to solve the problem of capital shortage in the underdeveloped countries is private saving, private capital accumulation and private investment.

He supports this prescription with a compressed history of nineteenth-century foreign investment. Contrasting Ricardo’s assumptions in 1817 with the subsequent international movement of capital, he presents foreign-financed railways and utilities as transformative forces across Asia, Africa, and the Americas. French financing of Russian railways and British provision of urban gas lighting illustrate how development could draw on savings accumulated elsewhere. His invocation of Herbert Spencer’s reply to Matthew Arnold also turns entrepreneurial achievement into an answer to cultural disparagement: commercial initiative, he argues, produced tangible improvements beyond national borders.

The argument then distinguishes economic achievement from political security. Mises maintains that foreign investment improved living standards but often ended in confiscation or expropriation. He contrasts the United States’ repurchase of foreign-owned securities with governments that seized investments directly or impaired them through discriminatory taxation and exchange controls. On this reasoning, the apparent inability of private foreign investment to supply development capital is not evidence of an intrinsic economic failure. It reflects policies that make investment unsafe. His description of the Egyptian expropriation of the Suez Canal as virtually ending the history of private foreign investment is the contribution’s strongest polemical formulation of this claim, rather than a demonstrated survey of all continuing investment.

Domestic saving supplies the next stage of the explanation. Drawing on an earlier intervention by Professor Ferrero, Mises argues that persistent Latin American inflation prevents the development of bond markets and savings institutions. The problem falls especially heavily on people without businesses of their own, whose deposits, bonds, and insurance policies cannot preserve their savings’ value. Inflation thus restricts ordinary citizens’ participation in capital formation while depriving industry of finance. His comparison with American corporate borrowing emphasizes the importance of financial institutions that connect household savings to productive enterprise.

The first condition for an improvement of economic affairs in the so-called underdeveloped countries is a sound monetary policy, the radical abandonment of inflationary measures.

Monetary stability is therefore a developmental condition, not a separate technical concern. Mises extends this reasoning to American foreign aid: recipient governments undermine domestic saving, while the United States attempts to fill the resulting gap through aid financed, in his account, by inflationary measures. Such assistance threatens savers in the donor country while sustaining policies hostile to capital accumulation abroad. The criticism concerns both the use of aid and the monetary means by which it is supplied.

The conclusion returns to the opening dispute over constructive action. Against advisers who claim the authority of experience while dismissing economic theory, Mises invokes the prosperity of countries where public plans did not obstruct enterprise and saving. His final prescription reunites the contribution’s historical, monetary, and linguistic arguments:

What these poor nations lack, is not more government interference with business and not government planning, but spontaneous action and initiative on the part of individual citizens.

The work’s relevance lies in its insistence that development policy must explain how capital is accumulated and protected, rather than treating expenditure itself as development. Its evidence is selective and its judgments sweeping, but its organizing distinction is clear: scarcity of capital is inseparable from the political and monetary conditions governing those who might save and invest.