Liberalism versus the State

• A Liberty Classic Book Review of Liberalism: The Classical Tradition, by Ludwig von Mises. Liberty Fund. 1962. Tr. by Ralph Raico.1

For Mises, liberalism was indeed this: a philosophy for the common man, the only political philosophy that took the common man seriously, regardless of his obvious imperfection and his blatant lack of refinement. As it struck down the insignia of the aristocratic order, modernity placed the individual at the center of the stage. If “in the precapitalistic society” politics was only a way to conceal how the strong could “beat their weaker fellows into submission,” “the much decried ‘mechanism’ of the free market leaves only one way open to the acquisition of wealth, viz., to succeed in serving the consumers in the best possible and cheapest way.”

The translator was 26-year-old Ralph Raico. Raico was then pursuing his Ph.D. studies at the University of Chicago, in the Committee on Social Thought. His acquaintance with Mises had begun at age 16 when, together with George Reisman, he was allowed to attend the old economist’s private seminar in New York “on the condition that they did not make noise.” Mises had migrated to the United States in 1940 and he had had trouble finding a suitable academic position, which in fact he never got. Yet, mainly through his association with the Foundation for Economic Education, then led by its founder, the volcanic Leonard Read, Mises became a cult figure in the then burgeoning libertarian movement.

The English translation of Liberalismus somehow rescued a work that would have otherwise been lost, mired in the German cultural environment. As Mises himself points out,

• On October 28, 1951, Professor J. P. Hamilius of Luxembourg ordered a copy of Liberalismus from the publishing firm of Gustav Fischer in Jena (Russian Zone of Germany). The publishing firm answered, on November 14, 1951, that no copies of the book were available and added:… (By order of the authorities all the copies of this book had to be destroyed.) The letter did not say whether the “authorities” referred to were those of Nazi Germany or those of the “democratic” republic of East Germany.

Such an atrocious determination to get rid of all the traces of a book is somewhat understandable, considering the contents of the book itself. Mises’s Liberalism is a genuinely eccentric work, considering when it was written. In the 1920s, indeed “Antiliberalism” was “heading toward a general collapse of civilization.” The Zeitgeist was dominated by sentiments deeply inimical to the political legacy of the 19th century, dismissed as the epitome of petty bourgeois and kitsch. In his essay “The Political and Social Doctrine of Fascism,” Benito Mussolini asserted that “For if the nineteenth century was a century of individualism (Classical liberalism always signifying individualism) it may be expected that this will be a century of collectivism, and hence the century of the State.” Indeed, if “Liberalism denied the State in the interests of the particular individual; Fascism reaffirms the State as the true reality of the individual.” The common man’s pre-eminence did not last long, as he was quickly subordinated again, this time not to feudal seigneurs, but to the State with a capital “S.” But while feudal seigneurs extracted value out of their subjects, the State had higher ambitions for them: making humanity anew, and better. If this was its goal, why should government be “limited” in any meaningful way? For the sake of such ambitions, no power was to be left unused.

In 1927, Mises’s book read like a forgotten manuscript of the 19th century, or a premonition of the future. Its key insights—explained in a crystal clear, dry prose—continue to sound novel, particularly to those unacquainted with the liberal tradition. Human cooperation is founded upon the division of labor, which “has the advantage of greater productivity. If a number of men work in cooperation in accordance with the principle of the division of labor, they will produce (other things being equal) not only as much as the sum of what they would have produced by working as self-sufficient individuals, but considerably more.” Classical liberalism is a set of ideas that allows for such a division of labour to take place on a larger scale, thereby increasing the number of goods and services available to all customers.

“The program of liberalism,” Mises writes, “if condensed into a single word, would have to read: property,” and precisely for this reason. Were property in the means of production socialized, completely or partially, the result would be “a reduction in the productivity of labor, so that, far from creating greater wealth, it must, on the contrary, have the effect of diminishing wealth.” Socialists play, emotionally, on the intuition that holding capital goods, and factories, and machineries in common may be fairer and would lead to using them genuinely to the benefit of society at large. But if so, Mises would reply, why is it that considering property as a common lot jeopardises the likelihood we may extract the most out of resources. For prosperity, the market system is essential precisely because it allows a perpetual auction in which resources are allocated for the best use available in the circumstances of time and space.

Such a view in Mises stems from his own devastating critique of socialism, which brought him to predict, three years after 1917 and Lenin’s gaining power in Russia, its unworkability.

• Capitalist economic calculation, which alone makes rational production possible, is based on monetary calculation. Only because the prices of all goods and services in the market can be expressed in terms of money is it possible for them, in spite of their heterogeneity, to enter into a calculation involving homogeneous units of measurement. In a socialist society, where all the means of production are owned by the community, and where, consequently, there is no market and no exchange of productive goods and services, there can also be no money prices for goods and services of higher order. Such a social system would thus, of necessity, be lacking in the means for the rational management of business enterprises, viz., economic calculation. For economic calculation cannot take place in the absence of a common denominator to which all the heterogeneous goods and services can be reduced.

A society where the means of production are privately owned and productive goods are freely exchanged is one where the consumer is the ultimate decision-maker. The anti-capitalist assumes that the system of free enterprise created the proletariat and enslaved it to miserable conditions of living. Mises’s views are informed by a distinctively different reading of the so-called Industrial Revolution. Great industrial developments, he argues, “have resulted, above all, in a better satisfaction of the needs of the masses.”2

Mass production is a standard foe for the enemies of the capitalist system. It is supposed to debase tastes, to commodify nobler purposes, to vilify quality for the benefit of quantity. Indeed, “Mass production provides not only for food, shelter, and clothing, but also for other requirements of the multitude. The press serves the masses quite as much as the motion picture industry, and even the theatre and similar strongholds of the arts are daily becoming more and more places of mass entertainment.” This is, however, seen not as a merit, but rather as a fault. Intellectuals routinely assume that production for the masses can be legitimately compared to the provision of niche markets, t-shirts to silk shirts, pop music to Hayden quartets, cheap chocolate biscuits to your grandmother’s cake. Surely, compared with these carefully selected terms of comparison, mass production may well pale.

But the alternative to mass products is not elite consumption. Mises passionately defended the right of the masses to have their own tastes, different and perhaps radically so from those of the refined few. Moreover, what capitalism achieved was “to leave the entrepreneurs and the capitalists only one way to wealth, viz., by better providing their fellow men with what they themselves think they need.” This is true of the entire economic system: “All big industries that produce consumers’ goods work directly for their benefit; all industries that produce machines and half-finished products work for them indirectly.” “The entrepreneur can prosper only if he provides what the consumers demand.”

All of these sound like very practical points. Mises is among the very few thinkers who thought of the common man not as the passive object of their concern, but as the protagonist of modern history. The whole system of production—indeed, the entire economy—is at the service of the needs and preferences of the single individuals. Capital goods are needed to produce consumer goods; the better capital is allocated the more goods and services will be produced, and more cheaply. This is why private property is indeed eminently “social.” All individuals can be understood to be attempting to better their own conditions, thereby enjoying higher and higher standards of living. This is why we shall defend modern capitalism: it raised the common people’s way of life.

This emphasis on material betterment may suggest we should read Mises as a materialist—and that would be a great mistake. Liberalism is a great short book on the importance of political ideas. For its author, the ultimate result of any political struggle “will not be decided by arms, but by ideas. It is ideas that group men into fighting factions, that press the weapons into their hands, and that determine against whom and for whom the weapons shall be used. It is they alone, and not arms, that, in the last analysis, turn the scales.” It is perhaps for this reason that Mises commends Schiller and Goethe alongside Adam Smith and Carl Menger: poetry together with economics.

In this battle of ideas, particularly in the 1920s Misesian liberalism was hardly winning. Why? Mises’s answer is shrewd. In part, it is because anti liberals succeeded in debasing the successes of liberalism: namely, to make all the more widespread a disingenuous reading of the Industrial Revolution, by which it created the proletariat rather than elevated the poor. In part, it is because liberalism has been portrayed “as the party of the special interests of the capitalists.” Consider an almost coeval text: John Maynard Keynes’s “The End of Laissez-Faire.” Keynes asked himself why Mises-like liberalism gained traction in the 18th and 19th century, and he answered that indeed “material progress between 1750 and 1850 came from individual initiative, and owed almost nothing to the directive influence of organised society as a whole. Thus practical experience reinforced a priori reasonings.” But then he immediately points out that the idea that “unfettered private enterprise would promote the greatest good of the whole” had the chief merit of suiting “the business man.” Deirdre McCloskey calls it “the bourgeois deal.” At some point in history, merchants and economic actors told the rest of us “you let me innovate, and don’t steal from me after it succeeds, and in the long run I’ll make you rich.” The anti liberals refuse to consider the bourgeois deal, because they dislike the messengers. The bourgeois deal is suspicious because it is bourgeois.

Mises knew that and thought that anti liberals linked liberalism and special privileges of the rich out of a bad conscience. It was the antiliberal parties that had their business in seeking special rights and privileges. For them, forging an ideology was necessary to justify themselves in the face of the general public. Their ideologies act as justification for a particular constellation of interests, claiming that a particular distribution of resources, according to some pattern, is the correct and “just” one. Whatever ideas anti liberal parties are advocating, they prize the benefits of a few before the needs of society to allocate resources, at any given moment, taking full advantage of the available knowledge: this is why anti liberal forces always end up consuming capital.

On the other hand, liberals preach “a set of binding rules and regulations” that, by binding the hands of administrative officials, “would guarantee certain rights to every citizen.” The liberal has no interest in a particular pattern of distribution of resources to be followed, nor does he care for actor A or B winning the economic game. Liberalism cares about the process, not the outcome. In other words, liberalism is all about procedures and not results.

Furthermore, for Mises liberalism differs radically from its intellectual adversaries because, as a system of ideas, it “had first been developed as a scientific theory without any thought of its political significance.” By suggesting the reader may profit from going back to the great works of David Hume and Smith (but also of Jeremy Bentham and David Ricardo), Mises remarks that “liberalism is applied economics.” So, the scientific theory arrived first: that is, a way of understanding the economic world not as a contrivance of some all powerful lord, but as the result of a multifaceted division of labour.

The liberal program could be best summarised in the words “private property” because that is the institution that makes a free society possible. Yet Mises analyzed two other words too: freedom, of course, and peace.

In advocating freedom, he thought groups ought to be set free to determine which political bodies they should belong to, and ideally individuals should be as well: “If it were in any way possible to grant this right of self-determination to every individual person, it would have to be done.”

In claiming peace as a basic tenet of liberalism, Mises stressed the need for an international order, which was a condition “to maintain and further raise our present level of economic development.” Yet he knew that people “cannot live together in peace if the basic tenet of the ideology by which they are governed is the belief that one’s own nation can secure its place in the community of nations by force alone.” In a sense, international peace necessitates a liberal ideology, for others have always wanted to control people at gunpoint.

Nowhere perhaps is Mises’s liberalism more telling and humane, even to today’s readers, than in his passionate defence of freedom of movement. “When liberalism arose in the eighteenth and nineteenth centuries, it had to struggle for freedom of emigration. Today, the struggle is over freedom of immigration.” Mises’s arguments are economic (in this case, liberalism is indeed applied economics): “the effects of restricting this freedom are just the same as those of a protective tariff. In one part of the world comparatively favorable opportunities for production are not utilized, while in another part of the world less favorable opportunities for production are being exploited. Looked at from the standpoint of humanity, the result is a lowering of the productivity of human labor, a reduction in the supply of goods at the disposal of mankind”. Attempts to justify on economic grounds the policy of restricting immigration are therefore doomed from the outset.

Restricting freedom of movement for any factor of production is bound to reduce the productivity of the economic system. The burden of proof is up to the enemy of the system of free enterprise.

When it was first translated into English, this Misesian pamphlet was entitled The Free and Prosperous Commonwealth. Its author thought it better to avoid confusion, as by the 1960s the word liberalism in English meant something rather different than the principles he held dear. But in the Appendix “On the term Liberalism,” Mises warned that

• The school of thought that advocates private ownership of the means of production must in any case also be granted a claim to some name or other. And it is best to adhere to the traditional name. It would only create confusion if one followed the new usage that allows even protectionists, socialists, and warmongers to call themselves “liberal” when it suits them to do so.

Ever pugnacious, Mises was not afraid to join the battle of ideas, nor, eventually, even the battle of words, as he thought that that was the ultimate battleground. The capitalist society multiplied bread and fishes, yet it was rejected purely because of intellectual biases. The liberal’s hard quest is thus finding the right words to rescue reality from a pernicious misrepresentation.

Footnotes

[1] Ludwig von Mises, Liberalism. Liberty Fund, 2005. Online edition at Liberalism: The Classical Tradition, by Ludwig von Mises. Tr. by Ralph Raico. Liberty Fund. 1962.

[2] Among the few contemporaries of Mises that, in the 1920s, likewise professed that the Industrial Revolution raised living standards for the masses, there was British publisher and activist Ernest Benn, who Mises mentions favourably in his Appendix.