Human Action: A Treatise on Economics

Ludwig von Mises
Mises, Ludwig von
(1881-1973)
CEE
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Editor/Trans.
First Pub. Date
1949
Publisher/Edition
Irvington-on-Hudson, NY: The Foundation for Economic Education
Pub. Date
1996
Comments
4th revised edition. Foreword by Bettina Bien Greaves.

1. The term praxeology was first used in 1890 by Espinas. Cf. his article "Les Origines de la technologie," Revue Philosophique, XVth year, XXX, 114-115, and his book published in Paris in 1897, with the same title.

2. The term Catallactics or the Science of Exchanges was first used by Whately. Cf. his book Introductory Lectures on Political Economy (London, 1831), p. 6

Part 1, Chapters I-VII.

3. Cf. Locke, An Essay Concerning Human Understanding, ed. Fraser (Oxford, 1894), 1, 331-333; Leibniz, Nouveaux essais sur l'entendement humain, ed. Flammarion, p. 119.

4. Cf. Feuerbach, Sämmtliche Werke, ed. Bolin and Jodl (Stuttgart, 1907), X, 231.

5. Cf. William McDougall, An Introduction to Social Psychology (14th ed. Boston, 1921), p. 11.

6. Cf. Mises, Epistemological Problems of Economics, trans. by G. Reisman (New York, 1960), pp. 52 ff.

7. In such cases a great role is played by the circumstance that the two satisfactions concerned—that expected from yielding to the impulse and that expected from the avoidance of its undesirable consequences—are not simultaneous. Cf. below, pp. 479-490.

8. On the errors involved in the iron law of wages see below, pp. 603 f.; on the misunderstanding of the Malthusian theory see below, pp. 667-672.

9. We shall see later (pp. 49-58) how the empirical social sciences deal with the ultimate given.

10. Cf. Alfred Schütz, Der sinnhafte Aufbau der sozialen Welt (Vienna, 1932), p. 18.

11. Cf. Karel Engliš, Begründung der Teleologie als Form des empirischen Erkennens (Brünn, 1930), pp. 15 ff.

12. "La vie est une cause première qui nous échappe comme toutes les causes premières et dont la science expérimentale n'a pas à se préoccuper." Claude Bernard, La Science expérimentale (Paris, 1878), p. 137.

13. On the philosophy of history, cf. Mises, Theory and History (New Haven, 1957), pp. 159 ff.

14. Economic history, descriptive economics, and economic statistics are, of course, history. The term sociology is used in two different meanings. Descriptive sociology deals with those historical phenomena of human action which are not viewed in descriptive economics; it overlaps to some extent the field claimed by ethnology and anthropology. General sociology, on the other hand, approaches historical experience from a more nearly universal point of view than that of the other branches of history. History proper, for instance, deals with an individual town or with towns in a definite period or with an individual people or with a certain geographical area. Max Weber in his main treatise (Wirtschaft und Gesellschaft [Tübingen, 1922], pp. 513-600) deals with the town in general, i.e., with the whole historical experience concerning towns without any limitation to historical periods, geographical areas, or individual peoples, nations, races, and civilizations.

15. Hardly any philosopher had a more universal familiarity with various branches of contemporary knowledge than Bergson. Yet a casual remark in his last great book clearly proves that Bergson was completely ignorant of the fundamental theorem of the modern theory of value and exchange. Speaking of exchange he remarks "l'on ne peut le pratiquer sans s'être demandé si les deux objets échangés sont bien de même valeur, c'est-à-dire échangeables contre un même troisième." (Les Deux Sources de la morale et de la religion [Paris, 1932], p. 68.)

16. Lévy-Bruhl, How Natives Think, trans. by L. A. Clare (New York, 1932), p. 386.

17. Ibid., p. 377.

18. Lévy-Bruhl, Primitive Mentality, trans. by L. A. Clare (New York, 1923), pp. 27-29.

19. Ibid., p. 27.

20. Ibid., p. 437.

21. Cf. the brilliant statements of Ernst Cassirer, Philosophie der symbolischen Formen (Berlin, 1925), II, 78.

22. Science, says Meyerson, is "l'acte per lequel nous ramenons à l'identique ce qui nous a, tout d'abord, paru n'être pas tel." (De l'Explication dans les sciences [Paris, 1927], p. 154). Cf. also Morris R. Cohen, A Preface to Logic (New York, 1944), pp. 11-14.

23. Henri Poincaré, La Science et l'hypothèse (Paris, 1918), p. 69.

24. Felix Kaufmann, Methodology of the Social Sciences (London, 1944), pp. 46-47.

25. Albert Einstein, Geometrie und Erfahrung (Berlin, 1923), p. 3.

26. Cf. E. P. Cheyney, Law in History and Other Essays (New York, 1927), p. 27.

27. See below, pp. 145-153, the critique of the collectivist theory of society.

28. Henri Bergson, La Pensée et le mouvant (4th ed. Paris, 1934), p. 205.

29. Cf. Ch. V. Langlois and Ch. Seignobos, Introduction to the Study of History, trans. by G. G. Berry (London, 1925), pp. 205-208.

30. See below, pp. 412-414.

31. Cf. below, p. 351.

32. Cf. A. Eddington, The Philosophy of Physical Science (New York, 1939), pp. 28-48.

33. As this is not a dissertation on general epistemology, but the indispensable foundation of a treatise of economics, there is no need to stress the analogies between the understanding of historical relevance and the tasks to be accomplished by a diagnosing physician. The epistemology of biology is outside of the scope of our inquiries.

34. See below, pp. 251-255.

35. See below, pp 232-234 and 239-244.

36. See below, pp. 131-133.

37. Cf. F. H. Knight, The Ethics of Competition and Other Essays (New York, 1935), p. 139.

38. William Godwin, An Enquiry Concerning Political Justice and Its Influence on General Virtue and Happiness (Dublin, 1793), II, 393-403.

39. Charles Fourier, Théorie des quatre mouvements (Oeuvres complètes, 3d ed. Paris, 1846), I, 43.

40. Leon Trotsky, Literature and Revolution, trans. by R. Strunsky (London, 1925), p. 256.

41. Cf., for instance, Louis Rougier, Les Paralogismes du rationalisme (Paris, 1920).

42. Cf. Joseph Dietzgen, Briefe über Logik, speziell demokratisch-proletarische Logik (2d ed. Stuttgart, 1903), p. 112.

43. Cf. Franz Oppenheimer, System der Soziologie (Jena, 1926), II, 559.

44. It must be emphasized that the case for democracy is not based on the assumption that majorities are always right, still less that they are infallible. Cf. below, pp. 149-151.

45. Cf. his speech on the Party Convention in Nuremberg, September 3, 1933 (Frankfurter Zeitung, September 4, 1933, p. 2).

46. Cf. Lancelot Hogben, Science for the Citizen (New York, 1938), pp. 726-728.

47. Ibid., p. 726.

48. Although the term rationalization is new, the thing itself was known long ago. Cf., for instance, the words of Benjamin Franklin: "So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for every thing one has a mind to do." (Autobiography, ed. New York, 1944, p. 41.)

49. "Le moulin à bras vous donnera la société avec le souzerain; le moulin à vapeur, la société avec le capitaliste industriel." Marx, Misère de la philosophie (Paris and Brussels, 1847), p. 100.

50. Marx, Das Kapital (7th ed. Hamburg, 1914), I, 728-729.

51. The Communist Manifesto, I.

52. The meaning that contemporary Marxism attaches to this phrase, viz., that the religious drug has been purposely administered to the people, may have been the meaning of Marx too. But it was not implied in the passage in which—in 1843—Marx coined this phrase. Cf. R. P. Casey, Religion in Russia (New York, 1946), pp. 67-69.

53. Cf. L. G. Tirala, Rasse, Geist and Seele (Munich, 1935), pp. 190 ff.

54. Cf. Morris R. Cohen, Reason and Nature (New York, 1931), pp. 202-205; A Preface to Logic (New York, 1944), pp. 42-44, 54-56, 92, 180-187.

55. Cf. above, pp. 46-47.

56. Cf. above, pp. 57-58.

57. See below, pp. 159-164.

58. In a treatise on economics there is no need to enter into a discussion of the endeavors to construct mechanics as an axiomatic system in which the concept of function is substituted for that of cause and effect. It will be shown later that axiomatic mechanics cannot serve as a model for the treatment of the economic system. Cf. below, pp. 353-357.

59. Henri Bergson, Matière et mémoire (7th ed. Paris, 1911), p. 205.

60. Edmund Husserl, "Vorlesungen zur Phänomenologie des inneren Zeitbewusstseins," Jahrbuch für Philosophie und Phänomenologische Forschung, IX (1928), 391 ff.; A. Schütz, loc. cit., pp. 45 ff.

61. "Ce que j'appelle mon présent, c'est mon attitude vis-à-vis de l'avenir immédiat, c'est mon action imminente." Bergson, op. cit., p. 152.

62. In order to avoid any possible misunderstanding it may be expedient to emphasize that this theorem has nothing at all to do with Einstein's theorem concerning the temporal relation of spatially distant events.

63. Cf. Felix Kaufmann, "On the Subject-Matter of Economic Science," Economica, XIII, 390.

64. Cf. P. H. Wicksteed, The Common Sense of Political Economy, ed. Robbins (London, 1933), I, 32 ff.; L. Robbins, An Essay on the Nature and Significance of Economic Science (2d ed. London, 1935), pp. 91 ff.

65. Plans too, of course, may be self-contradictory. Sometimes their contradictions may be the effect of mistaken judgment. But sometimes such contradictions may be intentional and serve a definite purpose. If, for instance, a publicized program of a government or a political party promises high prices to the producers and at the same time low prices to the consumers, the purpose of such an espousal of incompatible goals may be demagogic. Then the program, the publicized plan, is self-contradictory; but the plan of its authors who wanted to attain a definite end through the endorsement of incompatible aims and their public announcement is free of any contradiction.

66. John Stuart Mill, A System of Logic Ratiocinative and Inductive (new impression, London, 1936), p. 353.

67. In life insurance the insured's stake spent in vain consists only in the difference between the amount collected and the amount he could have accumulated by saving.

68. "Patience" or "Solitaire" is not a one-person game, but a pastime, a means of escaping boredom. It certainly does not represent a pattern for what is going on in a communistic society, as John von Neumann and Oscar Morgenstern (Theory of Games and Economic Behavior [Princeton, 1944], p. 86) assert.

69. See below, pp. 273-277.

70. It is important to note that this chapter does not deal with prices or market values, but with subjective use-value. Prices are a derivative of subjective use-value. Cf. below, Chapter XVI.

71. Cf. Carl Menger, Grundsätze der Volkswirtschaftslehre (Vienna, 1871), pp. 88 ff.; Böhm-Bawerk, Kapital und Kapitalzins (3d ed. Innsbruck, 1909), Pt. II, pp. 237 ff.

72. Classes are not in the world. It is our mind that classifies the phenomena in order to organize our knowledge. The question of whether a certain mode of classifying phenomena is conducive to this end or not is different from the question of whether it is logically permissible or not.

73. Cf. Daniel Bernoulli, Versuch einer neuen Theorie zur Bestimmung von Glücksfällen, trans. by Pringsheim (Leipzig, 1896), pp. 27 ff.

74. Cf. Max Weber, Gesammelte Aufsätze zur Wissenschaftslehre (Tübingen, 1922), p. 372; also p. 149. The term "pragmatical" as used by Weber is of course liable to bring about confusion. It is inexpedient to employ it for anything other than the philosophy of Pragmatism. If Weber had known the term "praxeology," he probably would have preferred it.

75. See below, pp. 139-140.

76. Of course, some natural resources are so scarce that they are entirely utilized.

77. Under free mobility of labor it would be wasteful to improve barren soil if the reclaimed area is not so fertile that it compensates for the total cost of the operation.

78. See below, pp. 773-774.

79. Karl Kautsky, Die soziale Revolution (3d ed. Berlin, 1911), II, 16 ff. About Engels see below, p. 591.

80. Rowing seriously practiced as a sport and singing seriously practiced by an amateur are introversive labor. See below, pp. 587-588.

81. Leaders (Führers) are not pioneers. They guide people along the tracks pioneers have laid. The pioneer clears a road through land hitherto inaccessible and may not care whether or not anybody wants to go the new way. The leader directs people toward the goal they want to reach.

82. It seems that there is no English translation of this poem. The book of Douglas Yates (Franz Grillparzer, a Critical Biography, Oxford, 1946), I, 57, gives a short English résumé of its content.

83. For a translation of Nietzsche's poem see M. A. Mügge, Friedrich Nietzsche (New York, 1911), p. 275.

Part 2, Chapters VIII-X.

1. F. H. Giddings, The Principles of Sociology (New York, 1926), p. 17.

2. R. M. MacIver, Society (New York, 1937), pp. 6-7.

3. Many economists, among them Adam Smith and Bastiat, believed in God. Hence they admired in the facts they had discovered the providential care of "the great Director of Nature." Atheist critics blame them for this attitude. However, these critics fail to realize that to sneer at the references to the "invisible hand" does not invalidate the essential teachings of the rationalist and utilitarian social philosophy. One must comprehend that the alternative is this: Either association is a human process because it best serves the aims of the individuals concerned and the individuals themselves have the ability to realize the advantages they derive from their adjustment to life in social cooperation. Or a superior being enjoins upon reluctant men subordination to the law and to the social authorities. It is of minor importance whether one calls this supreme being God, Weltgeist, Destiny, History, Wotan, or Material Productive Forces and what title one assigns to its apostles, the dictators.

4. Cf. Max Stirner (Johann Kaspar Schmidt). The Ego and His Own, trans. by S. T. Byington (New York, 1907).

5. W. James, The Varieties of Religious Experience (35th impression, New York, 1925), p. 31.

6. Ibid., pp. 485-486.

7. See below, pp. 201-209.

8. Such is the terminology used by Leopold von Wiese (Allgemeine Soziologie [Munich, 1924], I, 10 ff.).

9. Georges Sorel, Réflexions sur la violence (3d ed., Paris, 1912), p. 269.

10. Bentham, Anarchical Fallacies; being an Examination of the Declaration of Rights issued during the French Revolution, in Works (ed. by Bowring), II, 501.

11. Bentham, Principles of the Civil Code, in Works, I, 301.

12. Caesarism is today exemplified by the Bolshevik, Fascist, or Nazi type of dictatorship.

13. Cf. below, Chapter XX.

14. Cf. Mises, Omnipotent Government (New Haven, 1944), pp. 221-228, 129-131, 135-140.

15. A gangster may overpower a weaker or unarmed fellow. However, this has nothing to do with life in society. It is an isolated antisocial occurrence.

16. Cf. below, pp. 647-651.

17. We are dealing here with the preservation of European minority rule in non-European countries. About the prospects of an Asiatic aggression on the West cf. below, pp. 669-670.

18. Philarète Chasles, Études sur les hommes et les moers du XIX siècle (Paris, 1849), p. 89.

19. Gustav Cassel, The Theory of Social Economy, trans. by S. L. Banon, (new ed. London, 1932), p. 371.

20. Cf. Adam Ferguson, An Essay on the History of Civil Society (new ed. Basel, 1789), p. 208.

21. Cf. Herbert Spencer, The Principles of Sociology (New York, 1914), III, 575-611.

22. Cf. Werner Sombart, Haendler und Helden (Munich, 1915).

23. Cf. Frederick Engels, The Origin of the Family, Private Property and the State (New York, 1942), p. 144.

Part 3, Chapters XI-XII.

24. The German Historical School expressed this by asserting that private ownership of the means of production, market exchange, and money are "historical categories."

25. Cf. especially Eugen von Böhm-Bawerk, Kapital und Kapitalzins, Pt. II, Bk. III.

26. See below, pp. 236-256.

27. Neglect of the problems of indirect exchange was certainly influenced by political prepossessions. People did not want to give up the thesis according to which economic depressions are an evil inherent in the capitalist mode of production and are in no way caused by attempts to lower the rate of interest by credit expansion. Fashionable teachers of economics deemed it "unscientific" to explain depressions as a phenomenon originating "only" out of events in the sphere of money and credit. There were even surveys of the history of business cycle theory which omitted any discussion of the monetary thesis. Cf., e.g., Eugen von Bergmann, Geschichte der nationalökonomischen Krisentheorien (Stuttgart, 1895).

28. For a critical analysis and refutation of Fisher's argument, cf. Mises, The Theory of Money and Credit, trans. by H. E. Batson (London, 1934), pp. 42-44; for the same with regard to Wieser's argument, Mises, Nationalökonomie (Geneva, 1940), pp. 192-194.

29. Cf. Friedrich von Wieser, Der natürliche Wert (Vienna, 1889), p. 60, n. 3.

30. Cf. A. Eddington, The Philosophy of Physical Science, pp. 70-79, 168-169.

31. Cf. Samuel Bailey, A Critical Dissertation on the Nature, Measures and Causes of Values. London, 1825. No. 7 in Series of Reprints of Scarce Tracts in Economics and Political Science, London School of Economics (London, 1931).

32. For the propensity of the mind to view rigidity and unchangeability as the essential thing and change and motion as the accidental, cf. Bergson, La Pensée et le mouvant, pp. 85 ff.

33. Cf. Irving Fisher, The Money Illusion (New York, 1928), pp. 19-20.

34. See below, pp. 411-413.

35. See below, pp. 247-250.

36. No practical calculation can ever be precise. The formula underlying the process of calculation may be exact; the calculation itself depends on the approximate establishment of quantities and is therefore necessarily inaccurate. Economics is, as has been shown above (p. 39), an exact science of real things. But as soon as price data are introduced into the chain of thought, exactitude is abandoned and economic history is substituted for economic theory.

37. Loans, in this context, mean funds borrowed from those who have money available for lending. We do not refer here to credit expansion of which the main vehicle in present-day America is borrowing from the commercial banks.

38. The most popular of these doctrines is crystallized in the phrase: A public debt is no burden because we owe it to ourselves. If this were true, then the wholesale obliteration of the public debt would be an innocuous operation, a mere act of bookkeeping and accountancy. The fact is that the public debt embodies claims of people who have in the past entrusted funds to the government against all those who are daily producing new wealth. It burdens the producing strata for the benefit of another part of the people. It is possible to free the producers of new wealth from this burden by collecting the taxes required for the payments exclusively from the bondholders. But this means undisguised repudiation.

39. In partnerships and corporations it is always individuals who act, although not only one individual.

40. Cf. Goethe, Wilhelm Meister's Apprenticeship, Bk. I, chap. x

Part 4, Chapters XIV-XVII.

1. Cf. Engels, Herrn Eugen Dührings Umwälzung der Wissenschaft (7th ed. Stuttgart, 1910), p. 306.

2. Cf. Karl Marx, Zur Kritik des sozialdemokratischen Parteiprogramms von Gotha, ed. Kreibich (Reichenberg, 1920), p. 17.

3. Cf. ibid.

4. The doctrine of the predetermined harmony in the operation of an unhampered market system must not be confused with the theorem of the harmony of the rightly understood interests within a market system, although there is something akin between them. Cf. below, pp. 673-682.

5. A painter is a businessman if he is intent upon making paintings which could be sold at the highest price. A painter who does not compromise with the taste of the buying public and, disdaining all unpleasant consequences, lets himself be guided solely by his own ideals is an artist, a creative genius. Cf. above, pp. 139-140.

6. Such overlapping of the boundaries between business outlays and consumptive spending is often encouraged by institutional conditions. An expenditure debited to the account of trading expenses reduces net profits and thereby the amount of taxes due. If taxes absorb 50 per cent of profits, the charitable businessman spends only 50 per cent of the gift out of his own pocket. The rest burdens the Department of Internal Revenue.

7. To be sure, a consideration from the point of view of the physiology of nutrition will not regard such things as negligible.

8. We are dealing here with problems of theory, not of history. We can therefore abstain from refuting the objections raised against the concept of an isolated actor by referring to the historical role of the self-sufficient household economy.

9. For the sake of simplicity we disregard the price fluctuations in the course of the business day.

10. See below, pp. 250-251.

11. Cf. below, pp. 416-419.

12. For a further critical examination of mathematical economics see below, pp. 350-357.

13. Cf. below, p. 481.

14. In what sense labor is to be seen as a nonspecific factor of production see above, pp. 133-135.

15. Let us emphasize again that everybody, laymen included, in dealing with the problems of income determination always takes recourse to this imaginary construction. The economists did not invent it; they only purged it of the deficiencies peculiar to the popular notion. For an epistemological treatment of functional distribution cf. John Bates Clark, The Distribution of Wealth (New York, 1908), p. 5, and Eugen von Böhm-Bawerk, Gesammelte Schriften, ed. F. X. Weiss (Vienna, 1924), p. 299. The term "distribution" must not deceive anybody; its employment in this context is to be explained by the role played in the history of economic thought by the imaginary construction of a socialist state (cf. above, p. 240). There is in the operation of a market economy nothing which could properly be called distribution. Goods are not first produced and then distributed, as would be the case in a socialist state. The word "distribution" as applied in the term "functional distribution" complies with the meaning attached to "distribution" 150 years ago. In present-day English usage "distribution" signifies dispersal of goods among consumers as effected by commerce.

16. Cf. below, p. 398

17. Capital goods have been defined also as produced factors of production and as such have been opposed to the nature given or original factors of production, i.e., natural resources (land) and human labor. This terminology must be used with great caution as it can be easily misinterpreted and lead to the erroneous concept of real capital criticized below.

18. But, of course, no harm can result if, following the customary terminology, one occasionally adopts for the sake of simplicity the terms "capital accumulation" (or "supply of capital," "capital shortage," etc.) for the terms "accumulation of capital goods," "supply of capital goods," etc.

19. For this man these goods are not goods of the first order, but goods of a higher order, factors of further production.

20. Cf. e.g., R. v. Strigl, Kapital und Produktion (Vienna, 1934), p. 3.

21. Cf. Frank A. Fetter in Encyclopaedia of the Social Sciences. III. 190.

22. Cf. below, pp. 526-534.

23. For an examination of the Russian "experiment" see Mises, Planned Chaos (Irvington-on-Hudson, NY, 1947), pp. 80-87 (reprinted in the new edition of Mises, Socialism [New Haven, 1951] pp. 527-592).

24. The most amazing product of this widespread mode of thought is the book of a Prussian professor, Bernhard Laum (Die geschlossene Wirtschaft [Tübingen, 1933]). Laurn assembles a vast collection of quotations from ethnographical writings showing that many primitive tribes considered economic autarky as natural, necessary, and morally good. He concludes from this that autarky is the natural and most expedient state of economic management and that the return to autarky which he advocates is "a biologically necessary process." (p. 491).

25. Guy de Maupassant analyzed Flaubert's alleged hatred of the bourgeois in Etude sur Gustave Flaubert (reprinted in Oeuvres complètes de Gustave Flaubert [Paris, 1885], Vol. VII). Flaubert, says Maupassant, "aimait le monde" (p. 67); that is, he liked to move in the circle of Paris society composed of aristocrats, wealthy bourgeois, and the élite of artists, writers, philosophers, scientists, statesmen, and entrepreneurs (promoters). He used the term bourgeois as synonymous with imbecility and defined it this way: "I call a bourgeois whoever has mean thoughts (pense bassement)." Hence it is obvious that in employing the term bourgeois Flaubert did not have in mind the bourgeoisie as a social class, but a kind of imbecility he most frequently found in this class. He was full of contempt for the common man ("le bon peuple") as well. However, as he had more frequent contacts with the "gens du monde" than with workers, the stupidity of the former annoyed him more than that of the latter (p. 59). These observations of Maupassant held good not only for Flaubert, but for the "anti-bourgeois" sentiments of all artists. Incidentally, it must be emphasized that from a Marxian point of view Flaubert is a "bourgeois" writer and his novels are an "ideological superstructure" of the "capitalist or bourgeois mode of production."

26. The Nazis used "Jewish" as a synonym of both "capitalist" and "bourgeois."

27. Cf. above, pp. 80-84.

28. Cf. Frank A. Fetter, The Principles of Economics (3d ed. New York, 1913), pp. 394, 410.

29. Beatrice Webb, Lady Passfield, herself the daughter of a wealthy businessman, may be quoted as an outstanding example of this mentality. Cf. My Apprenticeship (New York, 1926), p. 42.

30. Cf. Trotsky (1937) as quoted by Hayek, The Road to Serfdom (London, 1944), p. 89.

31. For a refutation of the fashionable doctrines of imperfect and of monopolistic competition cf. F. A. Hayek, Individualism and Economic Order (Chicago, 1948), pp. 92-118.

32. See below, p. 685.

33. See below, pp. 598-600.

34. In the political sphere resistance to oppression on the part of the established government is the ultima ratio of those oppressed. However illegal and unbearable the oppression, however lofty and noble the motives of the rebels, and however beneficial the consequences of their violent resistance, a revolution is always an illegal act, disintegrating the established order of state and government. It is an essential mark of civil government that it is in its territory the only agency which is in a position to resort to measures of violence or to declare legitimate whatever violence is practiced by other agencies. A revolution is an act of warfare between the citizens, it abolishes the very foundations of legality and is at best restrained by the questionable international customs concerning belligerency. If victorious, it can afterwards establish a new legal order and a new government. But it can never enact a legal "right to resist oppression." Such an impunity granted to people venturing armed resistance to the armed forces of the government is tantamount to anarchy and incompatible with any mode of government. The Constituent Assembly of the first French Revolution was foolish enough to decree such a right; but it was not so foolish as to take its own decree seriously.

35. If an action neither improves nor impairs the state of satisfaction, it still involves a psychic loss because of the uselessness of the expended psychic effort. The individual concerned would have been better off if he had inertly enjoyed life.

36. Cf. Mangoldt, Die Lehre vom Unternehmergewinn (Leipzig, 1855), p. 82. The fact that out of 100 liters of plain wine one cannot produce 100 liters of champagne, but a smaller quantity, has the same significance as the fact that 100 kilograms of sugar beet do not yield 100 kilograms of sugar but a smaller quantity.

37. Cf. Knight, Risk, Uncertainty and Profit (Boston, 1921), pp. 211-213.

38. If we were to apply the faulty concept of a "national income" as used in popular speech, we would have to say that no part of national income goes into profits.

39. The problem of the convertibility of capital goods is dealt with below, pp. 503-505.

40. Cf. below, pp. 769-779.

41. Cf. below, pp. 812-820.

42. For a detailed treatment of the problems involved, cf. Mises, Bureaucracy (New Haven, 1944).

43. Cf. Chamberlin, The Theory of Monopolistic Competition (Cambridge, Mass., 1935), pp. 123 ff.

44. Sometimes the difference in price as established by price statistics is apparent only. The price quotations may refer to various qualities of the article concerned. Or they may, complying with the local usages of commerce, mean different things. They may, for instance, include or not include packing charges; they may refer to cash payment or to payment at a later date; and so on.

45. It is different with regard to the mutual exchange ratios between money and the vendible commodities and services. Cf. below, pp. 410-411.

46. The problem of the nonconvertible capital goods is dealt with below, pp. 503-509.

47. Reasonable means in this connection that the anticipated returns on the convertible capital used for the continuation of production are at least not lower than the anticipated returns on its use for other projects.

48. Cf. above, p. 130.

49. For a thoroughgoing treatment of the conservatism enjoined upon men by the limited convertibility of many capital goods, the historically determined element in production, see below, pp. 503-514.

50. Cf. above, pp. 31, 55-56.

51. Cf. Paul H. Douglas in Econometrica, VII, 105.

52. Cf. Henry Schultz, The Theory and Measurement of Demand (University of Chicago Press, 1938), pp. 405-427.

53. Cf. below, p. 399.

54. Cf. Joseph A. Schumpeter, Capitalism, Socialism and Democracy (New York, 1942), p. 175. For a critique of this statement, cf. Hayek, "The Use of Knowledge in Society," Individualism and the Social Order (Chicago, 1948), pp. 89 ff.

55. Price discrimination is dealt with below, pp. 388-391.

56. Cf. the refutation of the misleading extension of the concept of monopoly by Richard T. Ely, Monopolies and Trusts (New York, 1906), pp. 1-36.

57. It is obvious that an incomplete monopoly scheme is bound to collapse if the outsiders come into a position to expand their sales.

58. Cf. below, pp. 379-383, on good will.

59. The use of this term "margin monopoly" is, like that of any other, optional. It would be vain to object that every other monopoly which results in monopoly prices could also be called a margin monopoly.

60. A collection of these agreements was published in 1943 by the International Labor Office under the title Intergovernmental Commodity Control Agreements.

61. The terms license and licensee are not employed here in the technical sense of patent legislation.

62. About the significance of this fact see below, pp. 680-682.

63. See below, pp. 855-857.

64. Expenditure for additional advertising also means additional input of capital.

65. Cash holding, even if it exceeds the customary amount and is called "hoarding," is a variety of employing funds available. Under the prevailing state of the market the actor considers cash holding the most appropriate employment of a part of his assets.

66. See below, pp. 680-681.

67. See above, p. 366.

68. Cf. A Marshall, Principles of Economics (8th ed. London, 1930), pp. 124-127.

69. Cf. above, pp. 133-135.

70. In order not to confuse the reader by the introduction of too many new terms, we shall keep to the widespread usage of calling such fiats prices, interest rates, wage rates decreed and enforced by governments or other agencies of compulsion (e.g., labor unions). But one must never lose sight of the fundamental difference between the market phenomena of prices, wages, and interest rates on the one hand, and the legal phenomena of maximum or minimum prices, wages, and interest rates, designed to nullify these market phenomena, on the other hand.

71. The theory of monetary calculation does not belong to the theory of indirect exchange. It is a part of the general theory of praxeology.

72. Cf. above, p. 202. Important contributions to the history and terminology of this doctrine are provided by Hayek, Prices and Production (rev. ed. London, 1935), pp. 1 ff., 129 ff.

73. Cf. Mises, The Theory of Money and Credit, trans. by H. E. Batson (London and New York, 1934), pp. 34-37.

74. Money can be in the process of transportation, it can travel in trains, ships, or planes from one place to another. But it is in this case, too, always subject to somebody's control, is somebody's property.

75. Cf. Carl Menger's books Grundsätze der Volkswirtschaftslehre (Vienna, 1871), pp. 250 ff.; ibid. (2d ed. Vienna, 1923), pp. 241 ff.; Untersuchungen über die Methode der Sozialwissenschaften (Leipzig, 1883), p. 171 ff.

76. Cf. Menger, Untersuchungen, l.c., p. 178.

77. The problems of money exclusively dedicated to the service of a medium of exchange and not fit to render any other services on account of which it would be demanded are dealt with below in section 9.

78. The present writer first developed this regression theorem of purchasing power in the first edition of his book Theory of Money and Credit, published in 1912 (pp. 97-123 of the English-language translation). His theorem has been criticized from various points of view. Some of the objections raised, especially those by B. M. Anderson in his thoughtful book The Value of Money, first published in 1917 (cf. pp. 100 ff. of the 1936 edition), deserve a very careful examination. The importance of the problems involved makes it necessary to weigh also the objections of H. Ellis (German Monetary Theory 1905-1933 [Cambridge, 1934], pp. 77 ff.). In the text above, all objections raised are particularized and critically examined.

79. Cf. Mises, Theory of Money and Credit, pp. 140-142.

80. Cf. above, p. 249.

81. Cf. below, Chapter XX.

82. Such an attempt was made by Greidanus, The Value of Money (London, 1932), pp. 197 ff.

83. About the relations of the market rate of interest and changes in purchasing power, cf. below, Chapter XX.

84. Cf. below, pp. 564-565.

85. Cf. below, pp. 548-565.

86. It is furthermore immaterial whether or not the laws assign to the money-substitutes legal tender quality. If these things are really dealt with by people as money-substitutes and are therefore money-substitutes and equal in purchasing power to the respective amount of money, the only effect of the legal tender quality is to prevent malicious people from resorting to chicanery for the mere sake of annoying their fellow men. If, however, the things concerned are not money-substitutes and are traded at a discount below their face value, the assignment of legal tender quality is tantamount to an authoritarian price ceiling, the fixing of a maximum price for gold and foreign exchange and of a minimum price for the things which are no longer money-substitutes but either credit money or fiat money. Then the effects appear which Gresham's Law describes.

87. The notion of "normal" credit expansion is absurd. Issuance of additional fiduciary media, no matter what its quantity may be, always sets in motion those changes in the price structure the description of which is the task of the theory of the trade cycle. Of course, if the additional amount issued is not large, neither are the inevitable effects of the expansion.

88. See above, pp. 439-440.

89. Cf. Cernuschi, Contre le billet de banque (Paris, 1866), p. 55.

90. Very often the legal tender quality had been given to those banknotes at a time when they still were money-substitutes and as such equal to money in their exchange value. At that time the decree had no catallactic importance. Now it becomes important because the market no longer considers them money-substitutes.

91. For a more elaborate analysis, see below, pp. 539-548.

92. See below, pp. 786-789.

93. For instance, demand deposits not subject to check.

94. All this refers to European conditions. American conditions differ only technically, but not economically.

95. Cf. the critical study of Marianne von Herzfeld, "Die Geschichte als Funktion der Geldbewegung," Archiv fuer Sozialwissenschaft, LVI, 654-686, and the writings quoted in this study.

96. Cf. below, pp. 541-545.

97. Quoted from: International Clearing Union, Text of a Paper Containing Proposals by British Experts for an International Clearing Union, April 8, 1943 (published by British Information Services, an Agency of the British Government), p. 12.

98. Lord Keynes in the speech delivered before the House of Lords, May 23, 1944.

99. T. E. Gregory, The Gold Standard and Its Future (1d ed. London, 1934), pp. 22 ff.

100. Cf. below, Chapters XXVII-XXXI.

101. Cf. above, pp. 441-442, and below, pp. 550-586.

Part 4, Chapters XVIII-XXIV.

1. Why man proceeds in this way, will be shown on the following pages.

2. If the lengthening of durability were not at least proportionate to the increment in expenditure needed, it would be more advantageous to increase the quantity of units of a shorter durability.

3. Böhm-Bawerk, Kleinere Abhandlungen über Kapital und Zins, vol. II in Gesammelte Schriften, ed. F. X. Weiss (Vienna, 1926), p. 169.

4. Time preference is not specifically human. It is an inherent feature of the behavior of all living things. The distinction of man consists in the very fact that with him time preference is not inexorable and the lengthening of the period of provision not merely instinctive as with certain animals that store food, but the result of a process of valuation.

5. For a detailed critical analysis of this part of Böhm-Bawerk's reasoning the reader is referred to Mises, Nationalökonomie, pp. 439-443.

6. Cf. F. A. Fetter, Economic Principles (New York, 1923), I, 239.

7. These considerations explode the objections raised against the time-preference theory by Frank H. Knight in his article, "Capital, Time and the Interest Rate," Economica, n.s., I, 257-286.

8. Cf. F. A. Hayek, The Pure Theory of Capital (London, 1941), p. 48. It is awkward indeed to attach to certain lines of thought national labels. As Hayek remarks pertinently (p. 47, n. 1), the classical English economists since Ricardo, and particularly J. S. Mill (the latter probably partly under the influence of J. Rae) were in some regards more "Austrian" than their recent Anglo-Saxon successors.

9. Cf. W. S. Jevons, The Theory of Political Economy (4th ed. London, 1924), pp. 224-229.

10. This implies also equality in the quantity of nature-given factors available.

11. Cf. John Bates Clark, Essentials of Economic Theory (New York, 1907), pp. 133 ff.

12. About the Marxian attack against genetics, cf. T. D. Lysenko, Heredity and Variability (New York, 1945). A critical appraisal of the controversy is provided by J. R. Baker, Science and the Planned State (New York, 1945), pp. 71-76.

13. Cf. Mises, Omnipotent Government (New Haven, 1944), p. 99 and the books quoted there.

14. Cf. above, pp. 385-386, and below, pp. 680-681.

15. Cf. Hayek, "The Mythology of Capital," The Quarterly Journal of Economics, L (1936), 223 ff.

16. The state and the municipalities, in the market economy, are also merely actors representing concerted action on the part of definite groups of individuals.

17. The popular doctrine that the stock exchange "absorbs" capital and money is critically analyzed and entirely refuted by F. Machlup, The Stock Market, Credit and Capital Formation, trans. by V. Smith (London, 1940), pp. 6-153.

18. Indirectly capital accumulation is affected by the changes in wealth and incomes which every instance of cash-induced change in the purchasing power of money brings about.

19. This is the popular definition of interest as, for instance, given by Ely, Adams, Lorenz, and Young, Outlines of Economics (3d ed. New York, 1920), p. 493.

20. Cf. Hayek, "The Mythology of Capital," The Quarterly Journal of Economics, L (1936), 223 ff. However Professor Hayek has since partly changed his point of view. (Cf. his article "Time-Preference and Productivity, a Reconsideration," Economica, XII [1945], 22-25.) But the idea criticized in the text is still widely held by economists.

21. Cf. J. Schumpeter, The Theory of Economic Development, trans. by R. Opie (Cambridge, 1934), pp. 34-46, 54.

22. Cf. Robbins, "On a Certain Ambiguity in the Conception of Stationary Equilibrium," The Economic Journal, XL (1930), 211 ff.

23. Cf. R. Whately, Elements of Logic (9th ed. London, 1848), pp. 354 ff.; E. Cannan, A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848 (3d ed. London, 1924), pp. 189 ff.

24. But, of course, the present-day intentional confusion of all economic concepts is conducive to obscuring this distinction. Thus, in the United States, in dealing with the dividends paid by corporations people speak of "profits."

25. There are, of course, also deviations from this usage.

26. Cf. above, pp. 226-228.

27. The difference between this case (case b) and the case of the expected end of all earthly things dealt with on p. 527 (case a) is this: in case a originary interest increases beyond all measure because future goods become entirely worthless; in case b originary interest does not change while the entrepreneurial component increases beyond all measure.

28. Cf. Irving Fisher, The Rate of Interest (New York, 1907), pp. 77 ff.

29. We are dealing here with conditions on an unhampered labor market. About the argument advanced by Lord Keynes, see below, pp. 777 and 792-793.

30. About the "long-wave" fluctuations, see below, p. 575.

31. Cf. G. v. Haberler, Prosperity and Depression (new ed. League of Nations' Report, Geneva, 1939), p. 7.

32. Cf. M. N. Rothbard, America's Great Depression (Princeton, 1963).

33. One should not fall prey to the illusion that these changes in the credit policies of the banks were caused by the bankers' and the monetary authorities' insight into the unavoidable consequences of a continued credit expansion. What induced the turn in the banks' conduct was certain institutional conditions to be dealt with further below, on pp. 796-797. Among the champions of economics some private bankers were prominent; in particular, the elaboration of the early form of the theory of business fluctuations, the Currency Theory, was for the most part an achievement of British bankers. But the management of central banks and the conduct of the various governments' monetary policies was as a rule entrusted to men who did not find any fault with boundless credit expansion and took offense at every criticism of their expansionist ventures.

34. Cf. below, pp. 793-795.

35. See below, p. 784.

36. See above, p. 470.

37. Beardsley Ruml, "Taxes for Revenue Are Obsolete," American Affairs, VIII (1946), 35-36.

38. Machlup (The Stock Market, Credit and Capital Formation, p. 248) calls this conduct of the banks "passive inflationism."

39. Cf. above, p. 475.

40. In the evenly rotating economy also there may be unused capacity of inconvertible equipment. Its nonutilization does not disturb the equilibrium any more than the fallowness of submarginal soil.

41. Hayek (Prices and Production [2d ed. London, 1935], pp. 96 ff.) reaches the same conclusion by way of a somewhat different chain of reasoning.

42. About the fundamental fault of the Marxian and all other underconsumption theories, cf. above, p. 301.

43. About these currency and credit manipulations, cf. below, pp. 780-803.

44. It is noteworthy that the same term is employed to signify the premeditation and the ensuing actions of the promoters and entrepreneurs and the purely academic reasoning of theorists that does not directly result in any action.

45. Cognition does not aim at a goal beyond the act of knowing. What satisfies the thinker is thinking as such, not obtaining perfect knowledge, a goal inaccessible to man.

46. It is hardly necessary to remark that comparing the craving for knowledge and the conduct of a pious life with sport and play does not imply any disparagement of either.

47. Engels, Herrn Eügen Diihrings Umwälzung der Wissenschaft (7th ed. Stuttgart, 1910), p. 317. See above, p. 137.

48. Cf. above, pp. 133-135.

49. Cf. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Basle, 1791), vol. I, Bk. I, chap. viii, p. 100. Adam Smith himself seems to have unconsciously given up the idea. Cf. W. H. Hutt, The Theory of Collective Bargaining (London, 1930), pp. 24-25.

50. All these and many other points are carefully analyzed by Hutt, op. cit., pp. 35-72.

51. In the last years of the eighteenth century, amidst the distress produced by the protracted war with France and the inflationary methods of financing it, England resorted to this makeshift (the Speenhamland system). The real aim was to prevent agricultural workers from leaving their jobs and going into the factories where they could earn more. The Speenhamland system was thus a disguised subsidy for the landed gentry saving them the expense of higher wages.

52. Cf. Marx, Das Kapital (7th ed. Hamburg, 1914), I, 133. In the Communist Manifesto (Section II) Marx and Engels formulate their doctrine in this way: "The average price of wage labor is the minimum wage, i.e., that quantum of means of subsistence which is absolutely required to keep the laborer in bare existence as laborer." It "merely suffices to prolong and reproduce a bare existence."

53. Cf. Marx. Das Kapital, p. 134. Italics are mine. The term used by Marx which in the text is translated as "necessaries of life" is "Lebensmittel." The Muret-Sanders Dictionary (16th ed.) translates this term "articles of food, provisions, victuals, grub."

54. See above, pp. 296-297.

55. See above, pp. 408-410.

56. Other fluctuations in the quantity and quality of the performance per unit of time, e.g., the lower efficiency in the period immediately following the resumption of work interrupted by recreation, are hardly of any importance for the supply of labor on the market.

57. See above, pp. 294-300.

58. The attribution of the phrase "the Industrial Revolution" to the reigns of the two last Hanoverian Georges was the outcome of deliberate attempts to melodramatize economic history in order to fit it into the Procrustean Marxian schemes. The transition from medieval methods of production to those of the free enterprise system was a long process that started centuries before 1760 and, even in England, was not finished in 1830. Yet, it is true that England's industrial development was considerably accelerated in the second half of the eighteenth century. It is therefore permissible to use the term "Industrial Revolution" in the examination of the emotional connotations with which Fabianism, Marxism, the Historical School, and Institutionalism have loaded it.

59. J. L. Hammond and Barbara Hammond, The Skilled Labourer 1760-1832 (2d ed. London, 1920), p. 4.

60. In the Seven Years' War 1,512 British seamen were killed in battle while 133,708 died of disease or were missing. Cf. W. L. Dorn, Competition for Empire 1740-1763 (New York, 1940), p. 114.

61. J. L. Hammond and Barbara Hammond, loc. cit.

62. F. C. Dietz, An Economic History of England (New York, 1942), pp. 279 and 392.

63. Margaret Mitchell, who in her popular novel Gone With the Wind (New York, 1936) eulogizes the South's slavery system, is cautious enough not to enter into particulars concerning the plantation hands, and prefers to dwell upon the conditions of domestic servants, who even in her account appear as an élite of their caste.

64. Cf. about the American proslavery doctrine Charles and Mary Beard. The Rise of American Civilization (1944), I, 703-710; and C. E. Merriam, A History of American Political Theories (New York, 1924), pp. 227-251.

65. Cf. Ciccotti, Le Déclin de l'esclavage antique (Paris, 1910), pp. 292 ff.; Salvioli, Le Capitalisme dans le monde antique (Paris, 1906), pp. 141 ff.; Cairnes, The Slave Power (London, 1862), p. 234

66. It was, says Fetter (Encyclopaedia of the Social Sciences, XIII, 291), "a garbled marginality theory."

67. Cf. Amonn, Ricardo als Begründer der theoretischen Nationalökonomie (Jena, 1924), pp. 54 ff.

68. Cf., for example, Haney, History of Economic Thought (rev. ed. New York, 1927), p. 275.

69. Legal provisions concerning the separation of the right of hunting, fishing, and extracting mineral deposits from the other rights of the owner of a piece of land are of no interest for catallactics. The term land as used in catallactics includes also expanses of water.

70. Thus also the problem of entropy stands outside the sphere of praxeological mediation.

71. Ricardo, Principles of Political Economy and Taxation, p. 34.

72. There are areas in which practically every corner is cultivated or otherwise utilized. But this is the outcome of institutional conditions barring the inhabitants of these regions from access to more fertile unused soil.

73. The appraisal of a piece of soil must not be confused with the appraisal of the improvements, i.e., the irremovable and inconvertible results of the investment of capital and labor that facilitate its utilization and raise future outputs per unit of current and future inputs.

74. These observations, of course, refer only to conditions in which there are no institutional barriers to the mobility of capital and labor.

75. There is need to remember again that the imaginary construction of the evenly rotating economy cannot be carried consistently to its ultimate logical consequences (see above, p. 248). With regard to the problems of land one must stress two points: First, that in the frame of this imaginary construction, characterized by the absence of changes in the conduct of affairs, there is no room for the buying and selling of land. Second, that in order to integrate into this construction mining and oil drilling we must ascribe to the mines and oil wells a permanent character and must disregard the possibility that any of the operated mines and wells could be exhausted or even undergo a change in the quantity of output or of current input required.

76. See above, p. 39.

77. Cf. Strigl, Die ökonomischen Kategorien und die Organisation der Wirtschaft (Jena, 1923), pp. 18 ff.

78. Cf. Cohen and Nagel, An Introduction to Logic and Scientific Method (New York, 1939), pp. 316-322.

79. Most social reformers, foremost among them Fourier and Marx, pass over in silence the fact that the nature-given means of removing human uneasiness are scarce. As they see it, the fact that there is not an abundance of all useful things is merely caused by the inadequacy of the capitalist mode of production and will therefore disappear in the "higher phase" of communism. An eminent Menshevik author who could not help referring to the nature-given barriers to human well-being, in genuinely Marxian style, calls Nature "the most relentless exploiter." Cf. Manya Gordon, Workers Before and After Lenin (New York, 1941), pp. 227, 458.

80. The economic consequences of the interference of external compulsion and coercion with the market phenomena are dealt with in the sixth part of this book.

81. Cf. Albert L. Meyers, Modern Economics (New York, 1946), p. 672.

82. This is the general feature of democracy whether political or economic. Democratic elections do not provide the guarantee that the man elected is free from faults, but merely that the majority of the voters prefer him to other candidates.

83. With regard to changes in the elements determining the purchasing power of money see above, p. 419. With regard to the decumulation and accumulation of capital see above, pp. 515-516.

84. See above, p. 639.

85. Late in the eighteenth century European governments began to enact laws aiming at forest conservation. However, it would be a serious blunder to ascribe to these laws any role in the conservation of the forests. Before the middle of the nineteenth century there was no administrative apparatus available for their enforcement. Besides the governments of Austria and Prussia, to say nothing of those of the smaller German states, virtually lacked the power to enforce such laws against the aristocratic lords. No civil servant before 1914 would have been bold enough to rouse the anger of a Bohemian or Silesian magnate or a German mediatized Standesherr. These princes and counts were spontaneously committed to forest conservation because they felt perfectly safe in the possession of their property and were eager to preserve unabated the source of their revenues and the market price of their estates.

86. One could as well say that they considered the advantages to be derived from giving care to soil and forest conservation external economies.

87. Cf. the brilliant analysis of public spending in Henry Hazlitt's book Economics in One Lesson (new ed. New York, 1962), pp. 21 ff.

88. See above, pp. 139-140.

89. See above, pp. 364-365.

90. Cf. Montaigne, Essais, ed. F. Strowski, Bk. I, chap. 22 (Bordeaux, 1906), I, 135-136; A. Oncken, Geschichte der Nationalökonomie (Leipzig, 1902), pp. 152-153; E. F. Heckscher, Mercantilism, transl. by M. Shapiro (London, 1935), II, 26-27.

91. Cf. Louis Napoleon Bonaparte, Extinction du pauperisme (éd. populaire, Paris, 1848), p. 6.

92. With these words H. G. Wells (The World of William Clissold, Bk. IV, sec. 10) characterizes the opinion of a typical representative of the British peerage.

93. The Malthusian law is, of course, a biological and not a praxeological law. However, its cognizance is indispensable for praxeology in order to conceive by contrast the essential characteristic of human action. As the natural sciences failed to discover it, the economists had to fill the gap. The history of the law of population too explodes the popular myth about the backwardness of the sciences of human action and their need to borrow from the natural sciences.

94. Malthus too employed this term without any valuation or ethical implication. Cf. Bonar, Malthus and His Work (London, 1885), p. 53. One could as well substitute the term praxeological restraint for moral restraint.

95. For "rightly understood" interests we may as well say interests "in the long run."

96. Cf. Bentham, Principles of the Civil Code, in "Works," I, 309.

97. The official doctrine of the Roman Church is outlined in the encyclical Quadragesimo anno of Pope Pius XI (1931). The Anglo-Catholic doctrine is presented by the late William Temple, Archbishop of Canterbury, in the book Christianity and the Social Order (Penguin Special, 1942). Representative of the ideas of European continental Protestantism is the book of Emil Brunner, Justice and the Social Order, trans[j?,.] by M. Hottinger (New York, 1945). A highly significant document is the section on "The Church and Disorder of Society" of the draft report which the World Council of Churches in September, 1948, recommended for appropriate action to the one hundred and fifty odd denominations whose delegates are members of the Council. For the ideas of Nicolas Berdyaew, the most eminent apologist of Russian Orthodoxy, cf. his book The Origin of Russian Communism (London, 1937), especially pp. 217-218 and 225. It is often asserted that an essential difference between the Marxians and the other socialist and interventionist parties is to be found in the fact that the Marxians stand for class struggle, while the latter parties look at the class struggle as upon a deplorable outgrowth of the irreconcilable conflict of class interests inherent in capitalism and want to overcome it by the realization of the reforms they recommend. However, the Marxians do not praise and kindle the class struggle for its own sake. In their eyes the class struggle is good only because it is the device by means of which the "productive forces," those mysterious forces directing the course of human evolution, are bound to bring about the "classless" society in which there will be neither classes nor class conflicts.

98. The thorough exposure of this delusion is provided by the proof of the impossibility of economic calculation under socialism. See below the fifth part of this book.

99. Cf. above, pp. 600-602.

100. The doctrine refuted in the text found its most brilliant expositor in John Stuart Mill (Principles of Political Economy [People's ed. London, 1867], pp. 126 ff.). However, Mill resorted to this doctrine merely in order to refute an objection raised against socialism, viz., that, by eliminating the incentive provided by selfishness, it would impair the productivity of labor. He was not so blind as to assert that the productivity of labor would multiply under socialism. For an analysis and refutation of Mill's reasoning, cf. Mises, Socialism, pp. 173-181.

101. This mode of reasoning was mainly resorted to by some eminent champions of Christian socialism. The Marxians used to recommend socialism on the ground that it would multiply productivity and bring unprecedented material wealth to everybody. Only lately have they changed their tactics. They declare that the Russian worker is happier than the American worker in spite of the fact that his standard of living is much lower; the knowledge that he lives under a fair social system compensates by far for all his material hardships.

102. Cf. above, p. 366.

103. Cf. the sixth part of this book.

104. Cf. Spann, Der wahre Staat (Leipzig, 1921), p. 249.

105. Cf. above, pp. 366-368, and below, pp. 823-825.

106. For an appraisal of the abortive attempts of the League to do away with economic warfare, cf. Rappard, Le Nationalisme économique et la Société des Nations (Paris, 1938).

Part 5, Chapters XXV-XXVII.

1. Cf. below, pp. 717-718.

2. There are, however, even today in the United States people who want to knock to pieces large-scale production and to do away with corporate business.

3. Cf. Marx, Das Kapital (7th ed. Hamburg, 1914), I, 728.

4. Ibid.

5. Cf. above, pp. 246-250.

6. It would hardly be worth while even to mention this suggestion if it were not the solution that emanated from the very busy and obtrusive circle of the "logical positivists" who flagrantly advertise their program of the "unified science." Cf. the writings of the late chief organizer of this group, Otto Neurath, who in 1919 acted as the head of the socialization bureau of the short-lived Soviet republic of Munich, especially his Durch die Kriegswirtschaft zur Naturalwirtschaft (Munich, 1919), pp. 216 ff. Cf. also C. Landauer, Planwirtschaft und Verkehrswirtschaft (Munich and Leipzig, 1931), p. 122.

7. "Better" means, of course, more satisfactory from the point of view of the consumers buying on the market.

8. This refers, of course, only to those socialists or communists who, like professors H. D. Dickinson and Oskar Lange, are conversant with economic thought. The dull hosts of the "intellectuals" will not abandon their superstitious belief in the superiority of socialism. Superstitions die hard.

9. Cf. above, pp. 305-308.

10. Cf. Mises, Socialism, pp. 137-142; Hayek, Individualism and Economic Order (Chicago, 1948), pp. 119-208; T. J. B. Hoff, Economic Calculation in the Socialist Society (London, 1949), pp. 129 ff.

11. Cf. H. D. Dickinson, Economics of Socialism (Oxford, 1939), p. 191.

12. For an analysis of the scheme of a corporative state see below, pp. 816-820.

13. Supply means a total inventory in which the whole supply available is specified in classes and quantities. Each class comprehends only such items as have in any regard (for instance, also in regard to their location) precisely the same importance for want-satisfaction.

14. Of course, we may assume that T1 is equal to Tn if we are prepared to imply that technological knowledge has reached its final stage.

15. With regard to this algebraic problem, cf. Pareto, Manuel d'économie politique (2d ed. Paris, 1927), pp. 233 f.; and Hayek, Collectivist Economic Planning (London, 1935), pp. 207-214.—Therefore the construction of electronic computers does not affect our problem.

Part 6, Chapters XXVIII-XXXVI.

16. See above, pp. 258-259.

17. See below, pp. 758-767.

18. Cf. A. H. Hansen, "Social Planning for Tomorrow," in The United States after the War (Cornell University Lectures, Ithaca, 1945), pp. 32-33.

19. See above, pp. 315-316.

20. (3d ed. Oxford, 1934), p. 74.

21. (5th ed. Springfield, 1946), p. 73.

22. Cf. Laski's broadcast, "Revolution by Consent," reprinted in Talks, X, no. 10 (October, 1945), 7.

23. It is usual today to plead the cause of communist revolutions by denouncing the attacked noncommunist government as corrupt. Thus one tried to justify the support that a part of the American press and some of the representatives of the American Administration gave first to the Chinese communists and then to those of Cuba by calling the regime of Chiang Kai-shek and later that of Batista corrupt. But from this point of view, every communist revolution against a government that is not fully committed to laissez faire appears as justified.

24. Cf. Harley Lutz, Guideposts to a Free Economy (New York, 1945). p. 76.

25. This is the customary method of dealing with problems of public finance. Cf., e.g., Ely, Adams, Lorenz, and Young, Outlines of Economics (3d ed. New York, 1920), p. 702.

26. Ibid.

27. Entrepreneurial profits and losses are not affected by prolabor legislation as they entirely depend on the more or less successful adjustment of production to the changing conditions of the market. With regard to these, labor legislation counts only as a factor producing change.

28. Cf. above, pp. 614-617.

29. This consistency was displayed by some Nazi philosophers. Cf. Sombart, A New Social Philosophy, pp. 242-245.

30. See above, pp. 479-488.

31. For a detailed analysis, cf. above, p. 627.

32. See above, pp. 448-452.

33. See also what has been said about the function of cartels on pp. 365-369.

34. As for the objections raised against this thesis from the point of view of the Ricardo effect, see below, pp. 773-776

35. For the sake of simplicity we deal in the further disquisitions of this section only with maximum prices for commodities and in the next section only with minimum wage rates. However, our statements are, mutatis mutandis, equally valid for minimum prices for commodities and maximum wage rates.

36. Cf. above, pp. 395-397.

37. Cf. Rostovtzeff, The Social and Economic History of the Roman Empire (Oxford, 1926), p. 187.

38. Corpus Juris Civilis, 1. un. C. X. 37.

39. Cf. W. H. Beveridge, Full Employment in a Free Society (London, 1944), pp. 92 f.

40. Cf. Hutt, The Theory of Collective Bargaining, pp. 10-21.

41. Cf. Marx, Value, Price and Profit, ed. E. Marx Aveling (Chicago, Charles H. Kerr & Company), p. 125.

42. Cf. A. Lozovsky, Marx and the Trade Unions (New York, 1935), p. 17.

43. Cf. Marx, op. cit., pp. 126-127.

44. Cf. below, pp. 804-820.

45. Cf. above, pp. 301-303.

46. Cf. Ricardo, Principles of Political Economy and Taxation, chap. i, sec. v. The term, "Ricardo effect" is used by Hayek, Profits, Interest and Investment (London, 1939), p. 8.

47. As we are dealing here with the conditions of the unhampered market economy, we may disregard the capital-consuming effects of government borrowing.

48. See above, pp. 522-523.

49. The example is merely hypothetical. Such a powerful union would probably prohibit the employment of mechanical devices in the loading and unloading of ships in order to "create more jobs."

50. Cf. Keynes, The General Theory of Employment, Interest and Money (London, 1936), p. 264. For a critical examination of this idea see Albert Hahn, Deficit Spending and Private Enterprise, Postwar Readjustments Bulletin No. 8, U.S. Chamber of Commerce, pp. 28-29; Henry Hazlitt, The Failure of the "New Economics" (Princeton, 1959), pp. 263-295. About the success of the Keynesian stratagem in the 'thirties, cf. below, pp. 792-793.

51. Cf. Sylvester Petro, The Labor Policy of the Free Society (New York, 1957); Roscoe Pound, Legal Immunities of Labor Unions (Washington, D.C., American Enterprise Association, 1957).

52. See above, pp. 411-413.

53. See above, p. 461.

54. See below, section 6 of this chapter.

55. Cf. P. A. Samuelson, "Lord Keynes and the General Theory," Econometrica, 14 (1946), 187; reprinted in The New Economics, ed. S. E. Harris (New York, 1947), p. 145.

56. If a bank does not expand circulation credit by issuing additional fiduciary media (either in the form of banknotes or in the form of deposit currency), it cannot generate a boom even if it lowers the amount of interest charged below the rate of the unhampered market. It merely makes a gift to the debtors. The inference to be drawn from the monetary cycle theory by those who want to prevent the recurrence of booms and of the subsequent depressions is not that the banks should not lower the rate of interest, but that they should abstain from credit expansion. Of course, credit expansion necessarily entails a temporary downward movement of market interest rates. Professor Haberler (Prosperity and Depression, pp. 65-66) has completely failed to grasp this primary point, and thus his critical remarks are vain.

57. Cf. Machlup, The Stock Market, Credit and Capital Formation, pp. 256-261.

58. Cf. League of Nations, Economic Stability in the Post-War World, Report of the Delegation on Economic Depressions, Pt. II (Geneva, 1945), p. 173.

59. In dealing with the contracyclical policies the interventionists always refer to the alleged success of these policies in Sweden. It is true that public capital expenditure in Sweden was actually doubled between 1932 and 1939. But this was not the cause, but an effect, of Sweden's prosperity in the 'thirties. This prosperity was entirely due to the rearmament of Germany. This Nazi policy increased the German demand for Swedish products on the one hand and restricted, on the other hand, German competition on the world market for those products which Sweden could supply. Thus Swedish exports increased from 1932 to 1938 (in thousands of tons): iron ore from 2,219 to 12,485; pig iron from 31,047 to 92,980; ferro-alloys from 15,453 to 28,605; other kinds of iron and steel from 134,237 to 256,146; machinery from 46,230 to 70,605. The number of unemployed applying for relief was 114,00 in 1932 and 165,000 in 1933. It dropped, as soon as German rearmament came into full swing, to 115,000 in 1934, to 62,000 in 1935, and was 16,000 in 1938. The author of this "miracle" was not Keynes, but Hitler.

60. There is no need to emphasize again that the use of the terminology of political rule is entirely inadequate in the treatment of economic problems. See above, pp. 272-273.

61. Cf. A. B. Lerner, The Economics of Control, Principles of Welfare Economics (New York, 1944), pp. 307-308.

62. Cf. above, pp. 539-540.

63. Cf. above, pp. 521-523.

64. In using the term "capital goods available," due consideration should be given to the problem of convertibility

65. Cf. F. R. Fairchild, Profits and the Ability to Pay Wages (Irvington-on-Hudson, NY, 1946), p. 47.

66. The most elaborate description of guild socialism is provided by Sidney and Beatrice Webb, A Constitution for the Socialist Commonwealth of Great Britain (London, 1920); the best book on corporativism is Ugo Papi, Lezioni di Economia Generale e Corporativa, Vol. III (Padova, 1934).

67. Mussolini declared on January 13, 1934, in the Senate: "Solo in un secondo tempo, quando le categorie non abbiano trovato la via dell' accordo e dell' equilibrio, lo Stato potrà intervenire." (Quoted by Papi, op. cit., p. 225).

68. Sidney and Beatrice Webb, op, cit., pp. 227 ff

69. The best presentation of the traditional interpretation is provided by the book, Makers of Modern Strategy, Military Thought from Machiavelli to Hitler, ed. E. M. Earle (Princeton University Press, 1944); cf. especially the contribution of R. R. Palmer, pp. 49-53.

70. In this sense wheat produced, under the protection of an import duty, within the Reich's territory is Ersatz too: it is produced at higher costs than foreign wheat. The notion of Ersatz is a catallactic notion, and must not be defined with regard to technological and physical properties of the articles.

71. Cf. Hegel Vorlesungen über die Philosophie der Weltgeschichte, ed Lasson (Leipzig, 1920), IV, 930-931.

72. Cf. Sulzbach, German Experience with Social Insurance (New York, 1947), pp. 22-32.

73. Cf. above, pp. 288-289 and pp. 806-808.

74. Cf. above, p. 312.

75. Cf. above, pp. 804-809.

76. To establish this fact is, to be sure, not an endorsement of the theories which tried to describe interest as the "reward" of abstinence. There is in the world of reality no mythical agency that rewards or punishes. What originary interest really is has been shown above in Chapter XIX. But as against the would-be ironies of Lassalle (Herr Bastiat-Schulze von Delitzsch in Gesammelte Reden und Schriften, ed. Bernstein, V, 167), reiterated by innumerable textbooks, it is good to emphasize that saving is privation (Entbehrung) in so far as it deprives the saver of an instantaneous enjoyment.

77. It makes no difference whether Paul himself pays these hundred dollars or whether the law obliges his employer to pay it. Cf. above, p. 602.

78. This refers especially to the writings of Professor A. C. Pigou, the various editions of his book The Economics of Welfare and miscellaneous articles. For a critique of Professor Pigou's ideas, cf. Hayek, Profits, Interest and Investment (London, 1939), pp. 83-134.

79. Cf. F. H. Knight, "Professor Mises and the Theory of Capital," Economica, VIII (1941), 409-427.

80. Cf. Aristotle, Politics, Bk. II, chap. iii in The Basic Works of Aristotle, ed. R. McKeon (New York, 1945), pp. 1148 f.

81. The attempts to answer this question by statistics are futile in this age of inflation and credit expansion.

82. Cf. above, pp. 225-227.

83. If you seek his monument, look around.

84. In the United States the surtax rate under the 1942 Act was 52 per cent on the taxable income bracket $22,000-26,000. If the surtax had stopped at this level, the loss of revenue on 1942 income would have been about $249 million or 2.8 per cent of the total individual income tax for that year. In the same year the total net incomes in the income classes of $10,000 and above was $8,912 million. Complete confiscation of these incomes would not have produced as much revenue as was obtained in this year from all taxable incomes, namely, $9,046 million. Cf. A Tax Program for a Solvent America, Committee on Post-war Tax Policy (New York, 1945), pp. 116-117, 120.

85. Cf. above, pp. 305-308.

Part 7, Chapters XXXVII-XXXIX.

86. Cf. above, pp. 31-32.

87. Cf., about the essential epistemological problems involved, pp. 31-41, about the problem of "quantitative" economics, pp. 55-57 and 350-352, and about the antagonistic interpretation of labor conditions under capitalism, pp. 617-623.

88. G. Santayana, in speaking of a professor of philosophy of the—then Royal Prussian—University of Berlin, observed that it seemed to this man "that a professor's business was to trudge along the governmental towpath with a legal cargo." (Persons and Places [New York, 1945], II, 7.

End of Notes

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