The Economics of Ludwig von Mises: Toward a Critical Reappraisal

Edited by: Moss, Laurence S.
(1944- )
BIO
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Editor/Trans.
First Pub. Date
1976
Publisher/Edition
Kansas City: Sheed and Ward, Inc.
Pub. Date
1976
Comments
Collected essays, various authors. 1974 conference proceedings. Includes essays by Fritz Machlup, Israel M. Kirzner, Murray N. Rothbard, and more.

Ludwig von Mises and the Justification of
the Liberal Order
William Baumgarth

6.1

Western political philosophy is (with few exceptions) the political philosophy of republicans.Out of this rich liberal tradition comes the vocabulary used in popular discussions about politics. By "popular" I mean not only the particular words that the ordinary citizen uses in political discussion but the ideas as well. The vocabulary of the common man is thoroughly democratic because it refers to the ideals and aspirations of democracy. It must be stressed at the outset, however, that this democratic flavoring of the vocabulary of politics has itself undergone modification over its long history. Thus, contemporary liberal democracy is classical democracy transformed, or, as some scholars might say, contemporary liberal democracy is classical democracy tailored to the necessities of an expanded commercial society.

6.2

Classical democracy, as described by Aristotle and other Greek thinkers, is the unmediated rule of the many, which means in fact the rule of the poor. They described a situation modeled after the ancient Greek city-state and considered the geographical limitations of the historical polis to be ideal for a political community. These small populations of several thousand not only provided the individual citizen with first-hand lessons in political decision making but offered him the opportunity to become intimately acquainted with the character of the other members of the polis. The compactness of the polis promoted the noncognitive dimensions of social life, such as affection and devotion to the public order. Virtues like these are more easily acquired where territorial size and population density closely resemble an extended family relationship than where community life is completely impersonalized as it is throughout the vast territories of the modern nation-state. Whatever the attitude of classical thinkers toward more expanded forms of political life (as would exist outside the Greek city), this much is clear: The conditions of ancient Greek political life simply do not lend themselves to the degree of social cooperation and economic specialization necessary for the establishment of a technology designed to eradicate the material obstacles to human happiness. The liberation of man's material desires from the moral confines of the Greek state involved, first, a liberation of the human mind from the prejudices of prescientific thinking. This transformation was the essence of the eighteenth-century historical phenomenon known as the "Enlightenment," during which rationality replaced the metaphysical speculation and a sense of social progress replaced the cyclical and static thought of classical and medieval philosophers. The notion of progress in the eighteenth century was a materialistic concept, quite different from the ascetic claims of aristocratic virtue and "other-worldly" ideals of classical philosophers.

6.3

Modern-day liberalism is the political embodiment of the Enlightenment; for example, the liberalism of the Founding Fathers explicitly incorporates its philosophical attitudes. Early American political philosophy, as developed in the Federalist Papers, consists of a blend of various Enlightenment themes, clarified and reordered by the practical experiences of American political life. The primary motivations of the passions and of self-interest in social life gave rise to a new science of politics, which concluded that the regime best suited for human progress, material and spiritual, is the commercial democratic republic. Limited government became the explicit political goal of the classical liberals, because the limiting of government simultaneously frees economic transactions in the social sphere. Freeing economic exchange from, say, the shackles imposed by mercantilist forms of monopoly provides society with a social cohesiveness brought about by the mutual interdependence of economic agents in an ever-widening complexion of the division of labor.

6.4

The political thought of Ludwig von Mises provided a forceful restatement and elaboration of liberalism as applied to a modern commercial society. Mises' thought was developed during the first half of this century when liberalism, as a recognizable political force, was on the decline. This decline was precipitated by the theft of liberalism's aims by those who sought to achieve the ends by employing antiliberal methods. It is paradoxical that as liberalism's goal of material prosperity gained world acceptance, its specific program was threatened with complete extinction. Mises explained that the controversies of the modern world are about means and not ends: in general, men the world over expect a social system to provide "peace and abundance."*146 What men expect from social cooperation is the satisfaction of as many of their most urgent wants as possible, and therefore they, for the most part, dispute about the type of social system that will serve this purpose. In Mises' words, "Liberalism is distinguished from socialism, which likewise professes to strive for the good of all, not by the goal at which it aims, but by the means that it chooses to attain that goal."*147

6.5

According to Mises, the primary problem faced by the West is that of rediscovering the meaning of its basic political philosophy. The meaning of liberalism as a political program is obscured because its language has been usurped by parties and movements that wish to substitute an entirely different program for that of limited government and unregulated commercial exchange. It is difficult to understand what "liberalism is and what it aims at" because.

one cannot simply turn to history for the information and inquire what the liberal politicians stood for and what they accomplished. For liberalism nowhere succeeded in carrying out its program as it intended. Nor can the programs and actions of those parties that today call themselves liberal provide us with any enlightenment concerning the nature of true liberalism. It has already been mentioned that even in England what is understood as liberalism bears a greater resemblance to Toryism and Socialism than to the old program of the freetraders.*148

6.6

Despite the formidable obstacles that stand in the way, the liberal program must gain universal acceptance if the political goal of promoting individual welfare is to be realized. The reason, as Mises demonstrated by way of his economic writings, is that the Socialist path toward this goal is completely unworkable.

6.7

Clarifying the liberal program is difficult because the teachings of the eighteenth- and nineteenth-century founders of liberal thought are not adequate to meet the challenges of the modern world. As Mises wrote:

Liberalism is not a completed doctrine or a fixed dogma. On the contrary: it is the application of the teachings of science to the social life of man. And just as economics, sociology, and philosophy have not stood still since the days of David Hume, Adam Smith, David Ricardo, Jeremy Bentham, and Wilhelm Humboldt, so the doctrine of liberalism is different today from what it was in their day, even though its fundamental principles have remained unchanged.*149

6.8

The early liberal theorists incorrectly anticipated how their doctrines were going to be received by the masses. Classical liberals, as exemplified by Condorcet, believed that mankind was already on the road toward human perfection and that liberal doctrine would triumph. They thought that the laws of social progress, which they had discovered by means of reason, would be immediately comprehended by the ordinary citizen, and that social cooperation based on these laws would inevitably lead to ever-widening interdependence among the members of the human species. Their most serious mistake, according to Mises, was in believing that the masses possess the ability and/or the patience to reason.*150 They also forgot that—as Rousseau clearly understood—the particular will, directed toward momentary self-advantage, can eclipse the drive toward the long-run general advantage. According to Mises, any attempt to foster popular understanding by vulgarizing social theory is a futile task. One can well appreciate the difficulties modern economists face when trying to, say, inform the public about wage and price controls, given the level of abstract reasoning involved. The short attention span of the public and the dry formulas of the economist combine to discredit reasoned programs and encourage the success of "short-run advantage" schemes promulgated by special-interest groups. Mises described this problem in the following passage:

The political ideology of liberalism was derived from a fundamental system of ideas that had first been developed as a scientific theory without any thought of its political significance. In contradistinction to this, the special rights and privileges sought by the antiliberal parties were, from the very outset, already realized in existing social institutions, and it was in justification of the latter that one undertook subsequently to elaborate an ideology, a task that was generally treated as a matter of little moment that could easily be disposed of with a few brief words. Farm groups think it sufficient to point out the indispensability of agriculture. The trade unions appeal to the indispensability of labor. The parties of the middle class cite the importance of the existence of a social stratum that represents the golden mean. It seems to trouble them little that such appeals contribute nothing to proving the necessity or even the advantageousness to the general public of the special privileges they are striving for. The groups that they desire to win over will follow them in any case, and as for the others, every attempt at recruiting supporters from their ranks would be futile.*151

6.9

Thus, when liberalism is presented to a world that has been bred on special interest politics, it appears to be the product of still another interest group, but to "point out the advantages which everybody derived from the working of capitalism is not tantamount to defending the vested interests of the capitalists."*152 Liberalism is rooted in the idea of social harmony:

[It] has demonstrated that the antagonism of interests, which, according to a widely prevalent opinion, is supposed to exist among different persons, groups, and strata within a society based on private ownership of the means of production, does not, in fact, occur. Any increase in total capital raises the income of capitalists and landowners absolutely and that of workers both absolutely and relatively. As regards their income, any shifts in the various interests of the different groups and strata of society—the entrepreneurs, capitalists, landowners, and workers—occur together and move in the same direction as they pass through different phases in their fluctuations; what varies is only the ratio of their shares of the social product. The interests of the landowners oppose those of the members of the other groups only in the one case of a genuine monopoly of a certain mineral. The interests of the entrepreneurs can never diverge from those of the consumers. The entrepreneurs prospers the better, the better he is able to anticipate the desires of the consumers.*153

6.10

In contrast to liberalism, the ideology of special-interest politics is predicated on the notion that an irreconcilable conflict of interests exists and can be ended only by the victory of one social class over another in class warfare. But the theory of class warfare suffers from an internal contradiction: the admission that there is a harmony of interests within a class raises the possibility that such a harmony may exist among mankind. Mises wrote:

All the arguments that could be employed to prove the existence of a solidarity of interests among the members of any of these groups prove much more besides, viz., the universal solidarity of interests within ecumenical society. How these apparent conflicts of interest that seem at first sight to be irreconcilable are in fact resolved can be shown only by means of a line of reasoning that treats all mankind as an essentially harmonious community and allows no room for the demonstration of any irreconcilable antagonisms among nations, classes, races, and the like.*154

6.11

Mises does not seem to believe that a clear enumeration of the logical errors of special-interest politics can ever be sufficient to convert the masses and intellectuals to the liberal doctrine of a long-run harmony of interests. The reason is that the opposition to liberalism has a psychological rather than a rational foundation. The nature of the opposition to liberalism is treated at great length in Mises' Anti-Capitalistic Mentality.*155 As it turns out, resentment and envious malice are not the primary threats to the liberal program. If they were, it would not be "too difficult to make clear to a person who is filled with this sort of resentment that the important thing for him cannot be to worsen the position of his better situated fellow men, but to improve his own."*156 Such an improvement depends upon increasing his own productivity, and the means of doing so are described in a systematic fashion by the science of economics. But the antiliberal mentality is, according to Mises, impervious to this (i.e., the economic) argument because such a mentality is rooted in neurosis. Rather than admit that his own life has been a failure, the enemy of capitalism adopts a "saving lie," that is, success would be his if only the capitalist order were to be abolished. Mises described the function of the "saving lie" as follows:

In the life of the neurotic the "saving lie" has a double function. It not only consoles him for past failure, but holds out the prospect of future success. In the case of social failure, which alone concerns us here, the consolation consists in the belief that one's inability to attain the lofty goals to which one has aspired is not to be ascribed to one's inadequacy, but to the defectiveness of the social order. The malcontent expects from the overthrow of the latter the success that the existing system has withheld from him. Consequently, it is entirely futile to try to make clear to him that the utopia he dreams of is not feasible and that the only foundation possible for a society organized on the principle of the division of labor is private ownership of the means of production. The neurotic clings to his "saving lie," and when he must make the choice of renouncing either it or logic, he prefers to sacrifice logic.*157

6.12

It turns out, then, that the main difficulty confronting liberalism in gaining acceptance of its program is not the irrationality of the masses but, rather, the neurosis of a few influential people. These people are the "intellectuals" who furnish the masses with their ideas and ideology. The masses always seek a short cut for thought, and the real danger to the liberal order comes from the originators of such ideological short cuts. Even the intelligent layman, who ponders these questions carefully, cannot expect to make an impact on the intellectual establishment because

in all these discussions the professionals have an advantage over the laymen. The odds are always in favor of those who devote all their effort exclusively to one thing only.... Now, almost all these professionals are zealous advocates of bureaucratism and socialism. There are, first of all, the hosts of employees of the governments' and the various parties' propaganda offices. There are furthermore the teachers of various educational institutions which curiously enough consider the avowal of bureaucratic, socialist, or Marxian radicalism the mark of scientific perfection. There are the editors and contributors of "progressive" newspapers and magazines, labor-union leaders and organizers, and finally leisured ambitious men anxious to get into the headlines by the expression of radical views. The ordinary businessman, lawyer, or wage earner is no match for them.

6.13

The layman may brilliantly succeed in proving his argument. It is of no use. For his adversary, clothed with the full dignity of his office or his professorship, shouts back: "The fallacy of the gentleman's reasoning has long since been unmasked by the famous German professors, Mayer, Müller, and Schmid. Only an idiot can still cling to such antiquated and done-for ideas." The layman is discredited in the eyes of the audience, fully trusting in professional infallibility. He does not know how to answer.*158

6.14

Thus, it is the intellectuals who make the thoughtlessness of the masses a danger. Modern advocates of aristocracy (such as José Ortega y Gasset) blame the degeneracy of the times on the boorishness of the lower classes whose emancipation, via democracy, is really the triumph of the new type of dictatorship—the dictatorship of the majority. But the real danger is not the masses but the intellectual elite that persuades them to adopt antiliberal causes. Mises explained:

Who is responsible for the deplorable events of the last decades? Did perhaps the lower classes, the proletarians, evolve the new doctrines? Not at all. No proletarian contributed anything to the construction of antiliberal teachings.... The overwhelming success of these doctrines which have proved so detrimental to peaceful social cooperation and now shake the foundations of our civilization is not an outcome of lower-class activities. The proletarians, the workers, and the farmers are certainly not guilty. Members of the upper classes were the authors of these destructive ideas. The intellectuals converted the masses to this ideology; they did not get it from them. If the supremacy of those modern doctrines is a proof of intellectual decay, it does not demonstrate that the lower strata have conquered the upper ones. It demonstrates rather the decay of the intellectuals and of the bourgeoisie. The masses, precisely because they are dull and mentally inert, have never created new ideologies. This has always been the prerogative of the elite. The truth is that we face the degeneration of a whole society and not an evil limited to some parts of it.*159

6.15

According to Mises, not only were the classical liberals strategically naive about the ability of the masses to grasp the rationality of their arguments, but they were mistaken in considering institutions like "freedom" and "peace" and "private property" to be separate ideals. They failed to understand that "freedom" and "peace" are not ethical abstractions but the consequence of property institutions. The early liberal theorists reasoned that man was "free" because either God or Nature, abhorring slavery, had given each individual personal autonomy. Such arguments, Mises claimed, are completely superfluous to the conclusions of modern scientific liberalism. The question of natural and divine providence is metaphysical and not one that science can even attempt to answer. Mises made this comment on the separate tasks of metaphysics and science:

[I]t is no part of the task of science to examine ultimate questions or to prescribe values and determine their order of rank. Nevertheless, one may call the fulfillment of these tasks higher, nobler, and more important than that of the simpler task of science, which is to develop a theoretical system of cause-and-effect relationships enabling us to arrange our action in such a way that we can attain the goals we aim at.... Metaphysics and science perform different functions. They cannot, therefore, adopt the same procedures, nor are they alike in their goals. They can work side by side without enmity because they need not dispute each other's domain as long as they do not misconstrue their own character.*160

6.16

The only time a conflict develops between metaphysics and science "is when one or the other attempts to overstep the boundary between them."*161 This happens when metaphysics (in the form of a "philosophy of history") decides to alter the character of some positive science like economics, or when science (in the form of "positivism") decides to abolish metaphysics and therefore becomes metaphysical itself. Without being "metaphysical" or even becoming embroiled in moral argument, modern liberalism seems to be able to make a value-free case for freedom. For example, modern liberalism's attack on slavery consists in demonstrating that the slave is necessarily less productive than the free worker; hence, slavery is undesirable because it is inefficient. In Mises words:

When those who recommended the abolition of involuntary servitude on general humanitarian grounds were told that the retention of the system was also in the interest of the enslaved, they knew of nothing to say in rejoinder. For against this objection in favor of slavery there is only one argument that can and did refute all others—namely, that free labor is incomparably more productive than slave labor. The slave has no interest in exerting himself fully. He works only as much and as zealously as is necessary to escape the punishment attaching to failure to perform the minimum. The free worker, on the other hand, knows that the more his labor accomplishes, the more he will be paid.... We liberals do not assert that God or Nature meant all men to be free, because we are not instructed in the designs of God and of Nature, and we avoid, on principle, drawing God and Nature into a dispute over mundane questions. What we maintain is only that a system based on freedom for all workers warrants the greatest productivity of human labor and is therefore in the interests of all the inhabitants of the earth. We attack involuntary servitude, not in spite of the fact that it is advantageous to the "masters," but because we are convinced that, in the last analysis, it hurts the interests of all members of human society, including the "masters."*162

6.17

According to Mises, individual freedom is inextricably linked with the market economy. Only the conditions of a commercial economy offer the individual the greatest freedom possible. Mises explained this point as follows:

Liberty and freedom are the conditions of man within a contractual society.... The member of a contractual society is free because he serves others only in serving himself. What restrains him is only the inevitable natural phenomenon of scarcity. For the rest he is free in the range of the market. There is no kind of freedom and liberty other than the kind which the market economy brings about.*163

6.18

Let us attempt to interpret Mises' reasoning. Freedom is the condition of the relative independence of my will from the will of others, or, stated another way, the relative independence of my plans from the plans of others. The freedom enjoyed by the individual cannot be judged by his experiences in a given society, where, in fact, he may feel quite frustrated. Rather that freedom must be judged by comparing his present state with the autonomy he would enjoy under some alternative social arrangement. On the basis of this intersocietal comparison the situation of the actor in a market-oriented society turns out to be superior on every count to that of the actor in a command or socialistic society. The decentralized planning of the market offers a greater probability of success than "societal" planning on a centralized or command basis. In a market situation, the individual's plans are not subject to the plans of any one person or even a few persons: the individual conforms to the plans of others because he thereby advances his own. The market not only provides the individual with the autonomy needed to carry out his plans but also offers information about the plans of others by way of the pricing mechanism. Such knowledge is hard to procure in a society where the outcome of action is uncertain because it is subject to the whims and arbitrary decisions of a centralized Planning Board.

6.19

Mises' claim that positive science can be separated from metaphysics and that the former can independently provide arguments in favor of liberty is not completely convincing. Certainly, the conclusion that a harmony of social interests exists in the market requires that a master science arrange a hierarchical ordering of subordinate sciences to insure that the findings of different disciplines do not conflict. For Mises, epistemology functions as this master science. Yet epistemology is metaphysical in some respects. We may wonder if Mises' abandonment of a "moral" approach to justifying freedom is not based on utilitarian grounds, that is, the case for freedom is best argued when one shows its ultimate usefulness. But the arguments in support of totalitarian ideologies do employ nonutilitarian augumentation, and this may explain their triumph over liberalism. Thus the pragmatic approach to liberty, which Mises advocated, may not be so effective (or utilitarian) as Mises himself supposed. On the other hand, there is some merit in Mises' position. There is no need for justice and expediency to be conflicting goals. If Mises' analysis of the usefulness of the market is correct, the reason may be that the market is compatible with an important human attribute; for surely human nature is the ultimate source of all moral reasoning. The same humanness that gives rise to the positive science of economics must provide clues as to how men ought to act, and that "ought" may well bolster the claims of liberal economists. Certainly, Mises should not rule out the importance of ethical analyses when arguing the case for the market.

6.20

Finally, we come to the concept of "equality," which, according to Mises, was wrongly understood by the early liberal thinkers. The classical liberal theorists believed that

God created all men equal, endowing them with fundamentally the same capabilities and talents, breathing into all of them the breath of His spirit. All distinctions between men are only artificial, the product of social, human—that is to say, transitory—institutions. What is imperishable in man—the spirit—is undoubtedly the same in rich and poor, noble and commoner, white and colored."*164

6.21

In reality, however, men are "altogether unequal" with regard to their physical and other attributes, and therefore any argument for equal treatment under the law will not be convincing if it is based on the incorrect premise that individuals are equally talented or possess an alleged philosophically discoverable common humanity. With equal treatment under the law in a market economy, individual differences are so utilized as to promote each individual's private interests. Mises wrote:

There are two distinct reasons why all men should receive equal treatment under the law. One was already mentioned when we analyzed the objections to involuntary servitude.... The second consideration in favor of the equality of all men under the law is the maintenance of social peace. It has already been pointed out that every disturbance of the peaceful development of the division of labour must be avoided. But it is well-nigh impossible to preserve lasting peace in a society in which the rights and duties of the respective classes are different. Whoever denies rights to a part of the population must always be prepared for a united attack by the disenfranchised on the privileged. Class privileges must disappear so that the conflict over them may cease.*165

6.22

Liberalism is revolutionary insofar as it challenges the legal privileges of the few in nonmarket forms of society such as feudalism and socialism. Mises' defense of the particular notion of "equality under the law" is the basis of his support of democracy. Democracy, for Mises, is the political arrangement consistent with a society based on unregulated commercial exchange. The election and dismissal of public officials by majority vote is the only political arrangement that makes revolution itself unnecessary. Mises explained:

Civil War and revolution are the means by which the discontented majorities overthrow rulers and methods of government which do not suit them. For the sake of domestic peace liberalism aims at democratic government. Democracy is therefore not a revolutionary institution. On the contrary, it is the very means of preventing revolutions and civil wars. It provides a method for the peaceful adjustment of government to the will of the majority. When the men in office and their policies no longer please the majority, they will—in the next election—be eliminated and replaced by other men espousing different policies.

6.23

The principle of majority rule or government by the people as recommended by liberalism does not aim at the supremacy of the mean, of the lowbred, of the domestic barbarians. The liberals too believe that a nation should be ruled by those best fitted for this task. But they believe that a man's ability to rule proves itself better by convincing his fellow-citizens than by using force upon them.*166

6.24

According to Mises, liberalism is necessarily opposed to anarchism: "[T]he liberal understands quite clearly that without resort to compulsion, the existence of society would be endangered and that behind the rules of conduct whose observance is necessary to assure peaceful human cooperation must stand the threat of force, if the whole edifice of society is not to be continually at the mercy of one of its members."*167 But the logical extension of Mises' defense of liberalism may, in fact, point the way to anarchism. Why cannot any minority suddenly claim to be the majority by a geographical redefinition of the electorate? Anarchism need not endorse a belief in man's natural goodness or even a belief in utopian pacifism, as Mises apparently supposed. Anarchism may be a corollary of Mises' own belief in self-determination—something that he himself considered more important than majority rule:

The right of self-determination in regard to the question of membership in a state thus means: whenever the inhabitants of a particular territory, whether it be a single village, a whole district, or a series of adjacent districts, make it known, by a freely conducted plebiscite, that they no longer wish to remain united to the state to which they belong at the time, but wish either to form an independent state or to attach themselves to some other state, their wishes are to be respected and complied with. This is the only feasible and effective way of preventing revolutions and civil and international wars.*168

6.25

Mises explained that he was not referring to national self-determination but jurisdictional self-determination, or, in his words, "the right of self-determination of the inhabitants of every territory large enough to form an independent administrative unit."*169 This implies that individual self-determination, or anarchism, is ruled out only on technical grounds, because if it were feasible, anarchism would be preferable to democracy:

If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done. This is impractical only because of compelling technical considerations, which make it necessary that a region be governed as a single administrative unit and that the right to self-determination be restricted to the will of the majority of the inhabitants of areas large enough to count as territorial units in the administration of the country.*170

6.26

Mises, then, opened himself up to the claims of the individualist anarchists, who believe such a radical self-determination not only feasible but, on Mises' own grounds, the ultimate source of social peace. It is interesting that the ground for this whole discussion has shifted from considerations of utility to considerations of rights. At this point Mises' position is weakened by the old problem of consent versus wisdom. If, say, a Nazi majority wishes to secede from a liberal state and exterminate the unfortunate members of the inferior race within its borders, Mises would probably oppose this act of secession. But to do so would sacrifice the criterion of geographical expediency to that of universal rights.

6.27

Mises' notion of "equality," then, is not connected with equality of condition but with equality of opportunity. Mises was concerned with means rather than ends. His political philosophy is a species of the ethics of constraint rather than of "end realization." To treat men equally under the law, as Hayek has demonstrated,*171 is to permit unequal results insofar as each human actor starts from a position of inequality with regard to talent and opportunity. To bring about an equality of status among men necessarily requires that they be treated unequally before the law. Both notions of equality cannot be pursued simultaneously, and each pursuit is characteristic of opposite political regimes. Mises summed up the modern liberal case for equality in terms of the notion of equal treatment before the law and characteristically insisted that the liberal case must be argued on utilitarian grounds:

It is therefore quite unjustifiable to find fault with the manner in which liberalism put into effect its postulate of equality, on the ground that what it created was only equality before the law, and not real equality. Men are and will always remain unequal. It is sober considerations of utility such as those we have here presented that constitute the argument in favor of the equality of all men under the law.*172

6.28

This comparison of Mises' version of liberalism with the liberalism of his eighteenth- and nineteenth-century forebears reveals that Mises contributed to a radical and new understanding of what liberalism means in terms of political philosophy. As a political creed, liberalism seeks the common good:

The question whether a certain institutional arrangement is or is not to be regarded as a privilege granted to a certain group, class, or person is not to be decided by whether or not it is advantageous to that group, class, or person, but according to how beneficial to the general public it is considered to be.... It is not on behalf of property owners that liberalism favors the preservation of the institution of private property. It is not because the abolition of that institution would violate property rights that the liberals want to preserve it. If they considered the abolition of the institution of private property to be in the general interest, they would advocate that it be abolished, no matter how prejudicial such a policy might be to the interests of property owners.*173

6.29

The defense of private property now has a utilitarian foundation, and a commitment to liberty, equality, and peace follows as a byproduct of private property. The logical foundation for these assertions is contained in Mises' magnum opus, Human Action: a Treatise on Economics. Mises described how his understanding of economics was much broader than that of the older nineteenth-century writers because it was based on the notion of man as a "choosing" rather than a "selfish" agent:

Until the late nineteenth century political economy remained a science of the "economic" aspects of human action, a theory of wealth and selfishness. It dealt with human action only to the extent that it is actuated by what was—very unsatisfactorily—described as the profit motive, and it asserted that there is in addition other human action whose treatment is the task of other disciplines. The transformation of thought which the classical economists had initiated was brought to its consummation only by modern subjectivist economics, which converted the theory of market prices into a general theory of human choice.*174

6.30

To be a human being, Mises argued, is to have a will, and having a will implies the ability to chose between alternative courses of action. If there is a science dedicated to the science of choice, that science is the master science of which economics is but one part. Mises named "praxeology" the "science of choice" and declared the science of economics to be but one part of "praxeology." Men's choices involve the application of scarce means to alternative ends. Economics is concerned with the way reason applies (scarce) means to alternative ends but does-not address itself to the reasonableness of the ends themselves. According to Mises, action is always rational from the standpoint of the actors involved, and the scientist studying the forms of human action is entitled to take no other position:

Action is, by definition, always rational. One is unwarranted in calling goals of action irrational simply because they are not worth striving for from the point of view of one's own valuations. Such a mode of expression leads to gross misunderstandings. Instead of saying that irrationality plays a role in action, one should accustom oneself to saying merely: There are people who aim at different ends from those that I aim at, and people who employ different means from those I would employ in their situation.*175

6.31

According to Mises, economics as an a priori science provides men with a set of cognitive categories for viewing the actions of others. By viewing economics as the science of human action carried out under conditions of scarcity, Mises declared that there is no sphere of human activity not subject to economic analysis: Economics is "the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option."*176 Thus it necessarily follows that politics is one area where economic analysis can be applied:

Even the state and the legal system, the government and its administration are not too lofty, too good, too grand, for us to bring them within the range of rational deliberation. Problems of social policy are problems of social technology, and their solution must be sought in the same ways and by the same means that are at our disposal in the solution of other technical problems: by rational reflection and by examination of given conditions.*177

6.32

Thus with the discovery of subjectivist economics even the political realm of social phenomena is open to praxeological investigation. But such a scientific inquiry into politics is also a political project; the investigation of the public good by an economist cannot but serve as a critique of existing political practices. And, of course, this critique is but the other side of Mises' positive defense of liberalism as being the best possible polity. According to Mises, the relationship between the new science of action and liberalism is a direct one: "One cannot understand liberalism without a knowledge of economics. For liberalism is applied economics; it is social and political policy based on a scientific foundation."*178

6.33

The political program of liberalism is, therefore, the structuring or maintaining of a social order based on private ownership of the means of production. This entails, at the very least, the curbing of the power of the government, because private property is incompatible with governmental arbitrariness. The utility of private property lies precisely in the fact of decentralization and therefore the more efficient use of knowledge than is possible when resources are directed by centralized state planning. The liberal regime, according to Mises, is one in which political power is kept to a minimum:

As the liberal sees it, the task of the state consists solely and exclusively in guaranteeing the protection of life, health, liberty, and private property against violent attacks. Everything that goes beyond this is an evil. A government that, instead of fulfilling its task, sought to go so far as actually to infringe on personal security of life and health, freedom, and property would, of course, be altogether bad.*179

6.34

The policies of the liberal regime are similar in their domestic and foreign application: the pursuit of freedom and peace through the protection of the domestic market and through the policy of international free trade. The enemies of liberalism are the various forms of statism, in particular, socialism and the half-way house of the bureaucratic welfare state. The welfare state tries to combine two incompatible approaches to solve economic problems. But the attempt to reconcile "command" and the market system eventually collapses into socialism proper. Mises stated that:

Every examination of the different conceivable possibilities of organizing society on the basis of the division of labor must always come to the same result: there is only the choice between communal ownership and private ownership of the means of production. All intermediate forms of social organization are unavailing and, in practice, must prove self-defeating. If one further realizes that socialism too is unworkable, then one cannot avoid acknowledging that capitalism is the only feasible system of social organization based on the division of labor.... A return to the Middle Ages is out of the question if one is not prepared to reduce the population to a tenth or a twentieth part of its present number and, even further, to oblige every individual to be satisfied with a modicum so small as to be beyond the imagination of modern man.*180

6.35

In conclusion, we may say that the political thought of Ludwig von Mises represents an attempt to escape from the difficulties of the classical liberal position but that it is not without difficulties of its own. While Mises' insights into problems of applied economics are of great significance in instructing modern governments about how the material gains already won by capitalism are not to be lost, his prescriptions regarding notions of "equality" and "liberty" are defective in several respects. On the moral problems of a commercial economy Hayek's examination of the concept of the "rule of law" seems a more adequate confrontation with the phenomena than does Mises' complete disavowal of interest in "metaphysical issues."*181 The solution to the problem of justifying private property must reduce itself to questions of justice, as Murray N. Rothbard has pointed out."*182 It is precisely Hayek's concern with justice that marks him as a more suitable candidate than Mises for the title of the modern political philosopher of liberalism. Yet Hayek's definitions also suffer from the same formalistic difficulties that are found in Mises: neither offers us a substantive theory of liberty based upon a consideration of terms like "freedom" and "justice." The ultimate question presented by Mises and still left unanswered is whether we can ever arrive at a theory of society that is value free. Mises' attempt to offer such a theory was a bold one and went as far in the direction of utilitarianism as perhaps it is possible to go. But, as Aristotle noted in the fifth book of his Politics, it is not only the masses who ferment revolution but the elite as well. The masses are spurred on by a sense of outrage based upon oppression and a desire for equality. The better sort of men have higher motives—they revolt because of loftier issues like "justice" and "honor." Liberalism will succeed, according to Hayek, if it has ideals, but ideals are linked to a philosophical form of reasoning that Mises wished to avoid. The theory of the liberal state cannot be complete unless or until the moral side of liberalism is reexamined. Liberal theory simply will not succeed in redirecting civilization toward the old liberal program unless questions of an ethical sort are viewed as more fundamental than questions of economics. The battle against statism must not be fought in terms of "efficiency" alone if the entire war is to be won!


Notes for this chapter


Mises wrote, "The political antagonisms of today are not controversies over ultimate questions of philosophy, but opposing answers to the question how a goal that all acknowledge as legitimate can be achieved most quickly and with the least sacrifice. This goal, at which all men aim, is the best possible satisfaction of human wants; it is prosperity and abundance. Of course, this is not all men aspire to, but it is all they can expect to attain by resort to external means and by way of social cooperation. The inner blessings—happiness, peace of mind, exaltation—must be sought by each man within himself alone" (The Free and Prosperous Commonwealth [Princeton: D. Van Nostrand, 1962], p. 192).
Ibid., pp. 7-8; cf. Friedrich A. Hayek, The Constitution of Liberty (Chicago: Henry Regnery, 1972), p. 52.
Mises, Free and Prosperous Commonwealth, p. 3.
Ibid., p. 3.
Ibid., p.157-58.
Ibid., p. 161.
Ludwig von Mises, Omnipotent Government (New Haven: Yale University Press, 1944), p. iii.
Mises, Free and Prosperous Commonwealth, pp. 164-65.
Ibid., p. 166.
Ludwig von Mises, The Anti-Capitalistic Mentality (Princeton: D. Van Nostrand, 1956).
Mises, Free and Prosperous Commonwealth, p. 14.
Ibid., p. 16.
Ludwig von Mises, Bureaucracy (New Haven: Yale University Press, 1962), p. 116.
Mises, Omnipotent Government, pp. 118-19.
Ludwig von Mises, Epistemological Problems of Economics (New York: D. Van Nostrand, 1960), p. 49.
Ibid.
Mises, Free and Prosperous Commonwealth, pp. 21-22.
Ludwig von Mises, Human Action: A treatise on Economics (Chicago: Henry Regnery, 1966), pp. 282-83.
Mises, Free and Prosperous Commonwealth, pp. 27-28.
Ibid., p. 28.
Mises, Human Action, p. 150.
Mises, Free and Prosperous Commonwealth, p. 37.
Ibid., p. 109.
Ibid.
Ibid., pp. 109-10.
Hayek, Constitution of Liberty, pp. 85-102.
Mises, Free and Prosperous Commonwealth, pp. 28-29.
Ibid., pp. 29-30.
Mises, Human Action, p. 3.
Mises, Epistemological Problems of Economics, p. 35.
Mises, Human Action, p. 3.
Mises, Free and Prosperous Commonwealth, p. 71.
Ibid., p. 195.
Ibid., p. 52.
Ibid., pp. 85-86.
Hayek, Constitution of Liberty, pp. 162-75.
Murray N. Rothbard, Power and Market: Government and the Economy (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 151-88.

Closing Remarks, by Fritz Machlup

End of Notes


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