Human Action: A Treatise on Economics
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.
Part 1, Chapters I-VII.
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.
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.
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.)
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.
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.
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.)
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.
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.
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.
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.
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.
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.
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.
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.
Part 2, Chapters VIII-X.
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.
Part 3, Chapters XI-XII.
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.
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).
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.
Part 4, Chapters XIV-XVII.
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.
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.
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.
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.
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."
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Part 4, Chapters XVIII-XXIV.
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.
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.
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.
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.
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 , 22-25.) But the idea criticized in the text is still widely held by economists.
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."
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.
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.
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.
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.
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."
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Part 5, Chapters XXV-XXVII.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
Part 7, Chapters XXXVII-XXXIX.
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.