Socialism: An Economic and Sociological Analysis
By Ludwig Mises
Ludwig von Mises (1881-1973) first published
Socialism in German, in 1922. The edition presented here is that published by Liberty Fund in 1981. It follows the text, with correction and enlargement of footnotes, of the Jonathan Cape, Ltd., edition published in London in 1969. The edition was based on the 1951 edition by Yale University Press which slightly enlarged the first English edition published by Jonathan Cape in 1936, translated from the German by J. Kahane. Only a few corrections of obvious typos were made for this website edition. One character substitution has been made: the ordinary character “C” has been substituted for the “checked C” in the name Cuhel.
J. Kahane, trans.
First Pub. Date
Indianapolis, IN: Liberty Fund, Inc.
First published in German. Foreword by Friedrich A. Hayek not available online
The text of this edition is under copyright. Picture of Ludwig von Mises: file photo, Liberty Fund, Inc.
- Part I,Ch.1
- Part I,Ch.2
- Part I,Ch.3
- Part I,Ch.4
- Part II,Ch.5
- Part II,Ch.6
- Part II,Ch.7
- Part II,Ch.8
- Part II,Ch.9
- Part II,Ch.10
- Part II,Ch.11
- Part II,Ch.12
- Part II,Ch.13
- Part II,Ch.14
- Part II,Ch.15
- Part II,Ch.16
- Part III,Ch.17
- Part III,Ch.18
- Part III,Ch.19
- Part III,Ch.20
- Part III,Ch.21
- Part III,Ch.22
- Part III,Ch.23
- Part III,Ch.24
- Part III,Ch.25
- Part III,Ch.26
- Part IV,Ch.27
- Part IV,Ch.28
- Part IV,Ch.29
- Part IV,Ch.30
- Part IV,Ch.31
- Part IV,Ch.32
- Part V,Ch.33
- Part V,Ch.34
- Part V,Ch.35
1 Autarky and Socialism
Foreign Trade Under Socialism
A socialist community, which did not include the whole of mankind, would have no reason to remain isolated from the rest of the world. It is true, that it might be disquieting for the rulers of such a state that foreign ideas would come over the frontiers with foreign products. They might fear for the permanence of their system, if their subjects were able to compare their position with that of foreigners who were not citizens of a socialist community. But these are political considerations, and do not apply if the foreign states are also socialistic. Moreover, a statesman who is convinced of the desirability of Socialism must expect that intercourse with foreigners will make them also socialists: he will not fear lest it undermine the socialism of his own compatriots.
The theory of Free Trade shows how the closing of the frontiers of a socialist community against the import of foreign commodities would injure its inhabitants. Capital and labour would have to be applied under relatively unfavourable conditions yielding a lower product than otherwise would have been obtained. An extreme example will make this clear. At the expense of an enormous outlay of capital and labour a socialist Germany could grow coffee in greenhouses. But it would obviously be more advantageous to procure it from Brazil in exchange for products for whose production conditions in Germany were more favourable.
2 Foreign Trade Under Socialism
Such considerations indicate the principles on which a socialist community would have to base its commercial policy. In so far as it aspired to let its actions be guided
purely by economic considerations it would have to aim at securing just what under complete freedom of trade would be secured by the unrestricted play of economic forces. The socialist community would limit its activities to the production of those commodities it could produce under comparatively more favourable conditions than existed abroad, and it would exploit each single line of production only so far as this relative advantage justified. It would procure all other commodities from abroad by way of exchange.
This fundamental principle holds good whether or not trade with abroad is carried out by recourse to a general medium of exchange—by recourse to money—or not. In foreign trade, just as in internal trade—there is no difference between them—no rational production could proceed without money reckoning and the formation of prices for the means of production. On this point, we have nothing to add to what we have said already. But here we wish to consider a socialist community, existing in a world not otherwise socialistic. This community could estimate and compute in money in exactly the same way as a state railway, or a city waterworks, existing in a society otherwise based upon private ownership of the means of production.
3 Foreign Investment
No one can regard what his neighbour does as a matter of mere indifference. Everyone is interested in raising the productivity of labour by the widest division of labour possible under given circumstances. I too am injured if some people maintain a state of economic self-sufficiency: for, if they were to relax their isolation, the division of labour could be made even more comprehensive. If the means of production are in the hands of relatively inefficient agents, the damage is universal.
Under Capitalism the profit-seeking of individual entrepreneurs harmonizes the interests of the individual with those of the community. On the one hand, the entrepreneur is always seeking for new markets, and under selling with cheaper and better wares the dearer and inferior products of less rationally organized production. On the other, he is always seeking cheaper and more productive sources of raw materials and opening up more favourable sites for production. This is the true nature of that expansive tendency of Capitalism, which neo-Marxian propaganda so completely misrepresents as the “Verwertungsstreben des Kapitals” (“the drive of capital for profit”), and so amazingly involves into an explanation of modern Imperialism.
The old colonial policy of Europe was mercantilistic, militaristic, and imperialistic. With the defeat of mercantilism by liberal ideas, the character of colonial policy completely changed. Of the old colonial powers, Spain, Portugal and France had lost the greater part of their former possessions. England, who had become the greatest of the colonial powers, managed her possessions according to the principles of free trade theory. It was not cant for English free traders to speak of England’s vocation to evaluate backward people to a state of civilization. England has shown by acts that she has regarded her position in India, in the Crown Colonies, and in the Protectorates, as a general mandatory of European civilization. It is not hypocrisy when English liberals speak of England’s rule in the colonies as being not less useful for the inhabitants and for the rest of the world than it is for England. The mere fact that England preserved Free Trade in India shows that she conceived her colonial policy in a spirit quite different from that of the states who entered, or re-entered the sphere of colonial policy in the last decades of the nineteenth century—France, Germany, the United States, Japan, Belgium and Italy. The wars waged by England during the era of Liberalism to extend her colonial empire and to open up territories which refused to admit foreign trade, laid the foundations of the modern world economy.
*11 To measure the true significance of these wars one has only to imagine what would have happened if India and China and their hinterland had remained closed to world commerce. Not only each Chinese and each Hindu, but also each European and each American, would be considerably worse off. Were England to lose India today, and were that great land, so richly endowed by nature, to sink into anarchy, so that it no longer offered a market for international trade—or no longer offered so large a market—it would be an economic catastrophe of the first order.
Liberalism aims to open all doors closed to trade. But it no way desires to compel people to buy or to sell. Its antagonism is confined to those governments which, by imposing prohibition and other limitations on trade, exclude their subjects from the advantages of taking part in world commerce, and thereby impair the standard of life of all mankind. The Liberal policy has nothing in common with Imperialism. On the contrary, it is designed to overthrow Imperialism and expel it from the sphere of international trade.
A socialist community would have to do the same. It, too, would not be able to allow areas lavishly endowed by nature to be permanently shut off from international trade, nor whole nations to refrain from exchange. But here Socialism would encounter a problem which can only be solved under Capitalism—the problem of ownership of capital abroad.
Under Capitalism, as Free Traders would have it, frontiers would be without significance. Trade would flow over them unhindered. They would prohibit neither the movement of the most suitable producers towards immobile means of production, nor the investment of mobile means of production in the most suitable places. Ownership of the means of production would be independent of citizenship. Foreign investment would be as easy as investment at home.
Under Socialism the situation would be different. It would be impossible for a socialist community to possess means of production lying outside its own borders. It could not invest capital abroad even if it would yield a higher product there. A socialist Europe must remain helpless, while a socialist India exploits its resources inefficiently, and thereby brings fewer goods to the world market than it would otherwise have done. New supplies of capital must be utilized under less favourable conditions in Europe, while in India, for want of new capital, more favourable conditions of production are not fully exploited. Thus independent socialist communities existing side by side and exchanging commodities only, would achieve a nonsensical position. Quite apart from other considerations the very fact of their independence would lead to a state of affairs under which productivity would necessarily diminish.
These difficulties could not be overcome so long as independent socialist communities existed side by side. They could only be surmounted by the amalgamation of the separate communities into a unitary socialist state comprehending the whole world.
Geschichte der sozialen Frage und des Sozialismus in der antiken Welt, Vol. I, pp. 110 ff.; 123 ff.
Der moderne Sozialismus in seiner geschichtlichen Entwicklung (Dresden, 1908), p. 136.
Théorie nouvelle d’Économie sociale et politique, p. 699.
Das Kommunistische Manifest, p. 26. Publisher’s Note: p. 325 of the Eastman anthology edition.
Fürst Bismarcks Reden, edited by Stein, Vol. VII, p. 34).
Die Nationalitätenfrage und die Sozialdemokratie (Vienna, 2907), p. 519.
Nation, Staat und Wirtschaft (Vienna, 1919), pp. 45 ff., and
Liberalismus (Jena, 1927), pp. 93 ff. Publisher’s Note:
Nation, Staat und Wirtschaft is not in English.
Liberalismus is in English as
The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism. Translated by Ralph Raico. Edited by Arthur Goddard (Princeton, N.J.: D. Van Nostrand, 1962). This book was republished in 1978 under the title
Liberalism: A Socio-Economic Exposition. Foreword to the Second Edition by Louis M. Spadaro. (Kansas City: Sheed Andrews and McMeel, Inc., 1978). The pages in the German work referred to here (93 ff.) are pp. 105 ff. in both English editions.
Liberalismus, p. 107 ff. Publisher’s Note: pp. 121 ff. in both the 1962 and 1978 English editions of this work.
litterateurs of the “Tat” circle (Fried,
Das Ende des Kapitalismus, Jena 1931). Autarky would probably depress the standard of life of the German people incomparably more than could the Reparations burden multiplied a hundred-fold.
Die Akkumulation des Kapitals (Berlin, 1913), pp. 363 ff. reproaches the English and French that it was no heroic act to defeat with European weapons the Chinese, who were provided only with out of date arms. Ought the French and English also to have taken the field only with ancient guns and spears?
Herrn Eugen Dührings Umwälzung der Wissenschaft, p. 299. Publisher’s Note: p. 385 in the English edition.
Das Erfurter Programm, 12th ed. (Stuttgart, 1914), p. 129.
Herrn Eugen Dührings Umwälzung der Wissenschaft, pp. 298 ff. Publisher’s Note: p. 385n in the English edition.
Das Erfurter Programm, p. 129.
Das Erfurter Programm, p. 130
Vorläufiger Bericht vom 15 Februar 1919 2nd ed. (Berlin, 1920), pp. 32 ff.
Vorläufiger Bericht vom 15 Februar 1919, 2nd ed. (Berlin, 1920), p. 37. 216 245
Ideen zu einer vollständigen landwirtschaftlichen Buchhaltung, 1805, p. vi (quoted by Waltz,
Vom Reinertrag in der Landwirtschaft, p. 20).
Ideen zu einer vollständigen landwirtschaftlichen Buchhaltung, 1805, p. 2 (quoted in Waltz,
op. cit., p. 21). See also Lenz,
Agrarlehre und Agrarpolitik der deutschen Romantik, Berlin, 1912, p. 84. See similar remarks of Prince Alois Liechtenstein, a leader of the Austrian Christian Socialists, quoted in Nitti,
Le Socialisme Catholique (Paris, 1894), pp. 370 ff.
Die Soziale Revolution, II, p. 33.
Die sozialistischen Systeme, pp. 62 ff.
Les Origines du Socialisme d’Etat en Allemagne, 2nd ed. (Paris, 1911), p. 2, specially stresses this character of state Socialism.
Geschichte der sozialen Frage und des Sozialismus in der antiken welt, Vol.I, pp. 44 ff.
(Jahrbücher für Nationalökonomie und Statistik, Vol. XXVIII, 1904, p. 445).
De bello Gallico, iv, 1.
Die Prinzipien der Soziologie, trans. Vetter, Vol. II (Stuttgart, 1899), pp. 720 ff. Publisher’s Note: In English,
The Principles of Sociology (New York: Appleton, 1897), Vol. II, Part V, pp. 610 ff.
Nation, Staat und Wirtschaft, pp. 115 ff.; 143 ff.
Essai sur les Institutions Politiques, Religieuses, Économiques et Sociales de l’Empire des Incas (Paris, 1874), pp. 64, 90 ff. attributes Pizarro’s easy conquest of Peru to the fact that communism had unnerved the people.
(Jahrbücher für Nationalökonomie und Statistik, Vol. XXVIII, 1904), p. 445.
Die Aufhebung des Befähigungsnachweises in Österreich (Leipzig, 1894), especially pp. 124 ff.
Nation, Staat und Wirtschaft, pp. 140 ff.
Chaos and Order in Industry (London, 1920), p. 58 ff.
Self-Government in Industry, 5th ed. (London, 1920), pp. 235 ff.; also Schuster, “Zum englischen Gildensozialismus”
(Jahrbücher für Nationalökonomie und Statistik, Vol. CXV), pp. 487 ff.
Self-Government in Industry, p. 255.
The Meaning of Industrial Freedom (London, 1918), p. 30.
The Acquisitive Society (London, 1921), p. 122, considers that the advantage of the Guild System for the worker is that it puts an end to “the odious and degrading system under which he is thrown aside like unused material whenever his services do not happen to be required.” But just this reveals the gravest defect of the system recommended. If one needs no more building because relatively sufficient buildings exist, yet must build so as to occupy the workers in the building trades who are unwilling to change over to other branches of production that suffer from a comparative scarcity of labour, the position is uneconomic and wasteful. The very fact that Capitalism forces men to change their occupations is its advantage from the standpoint of the General Best, even though it may directly disadvantage the special interests of small groups.
Lehrbuch der Nationalökonomie, Vol. I, 2nd ed. (Freiburg, 1914), pp. 392-438. In France there is a conflict between catholic and freethinking solidarists—about the relation of the Church to the State and to society, rather than about the real principles of social theory and policy—which makes Church circles suspicious of the term “solidarism.” See Haussonville, “Assistance publique et bienfaisance privée” (
Revue des Deux Mondes, Vol. CLXII, 1900, pp. 773-808); Bouglé,
Le Solidarisme (Paris, 2907), pp. 8 ff.
Solidarité, 6th ed. (Paris, 1907), pp. 115 ff.; Waha,
Die Nationalökonomie in Frankreich (Stuttgart, 1910), pp. 432 ff.
op. cit., Vol. I, p. 420.
Arbeiterfreund, 5 Year, 1867, pp. 129-154). A survey of the German literature on profit sharing is given in the memorandum of the German “Statistisches Reichsamt”:
Untersuchungen and Vorschläge zur Beteiligung der Arbeiter an dem Erträge wirtschaftlicher Unternehmungen, published as a supplement to the
Reichs-Arbeitsblatt of March 3, 1920.
Schriften des Vereins für Sozialpolitik, Vol. CLIX, pp. 132 ff.).
Nation, Staat und Wirtschaft, p. 164.
Kritik des Interventionismus, pp. 1 ff. Publisher’s Note: In English,
A Critique of Interventionism, trans. Hans F. Sennholz (New York: Arlington House, 1977), pp. 15 ff.