Money, Method, and the Market Process Ch 20

Money, Method, and the Market Process

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Ludwig von Mises

Earlier historians dealt almost exclusively with the deeds and exploits of kings and warriors. They paid little or no attention to the slowly working changes in social and economic conditions. They did not bother about the modifications of doctrines, creeds, and mentalities. Even such an unparalleled event as the expansion of Christianism was hardly mentioned by the historians of the first two centuries.

About a hundred and score years ago a new approach to history was entered upon. Cultural history studies the development of social, political, and economic institutions, the changes in technique and in methods of production, the alterations in the way of life and the transformation of customs and habits. These studies must needs lead to the discovery of the dominant role played by the ideas guiding human behavior. Everything that men do is the result of the theories, doctrines, creeds, and mentalities governing their minds. Nothing is real and material in human history but mind. The essential problems of historical research are the modifications of the systems of thought which occupy man's spirit. Habits and institutions are the product of mind.

As an animal, man has to adjust himself to the natural conditions of the earth or the part of the earth where he lives. But this adjustment is a work of the brain. The geographical interpretation of history failed to recognize this deciding point. The environment works only through the medium of human mind. On the same soil where the white settlers have developed modern American civilization the Indian aborigines did not succeed even in inventing wheels and carriages. The natural conditions which render skiing a very useful means for travelling were present both in Scandinavia and in the Alps. But the Scandinavians invented the skis, whereas the inhabitants of the Alps did not. For hundreds, nay thousands of years these peasants were closeted during the long winter months in their mountain homes and looked longingly upon the inaccessible villages down in the valleys and upon the unapproachable homesteads of their fellow farmers. But this desire did not activate their inventive spirit. When some forty or fifty years ago townsfolk imported skiing as an outdoor sport into the mountains, the natives sneered at what seemed to them to be a funny toy. Only very late they learned how useful these "toys" could be for them.

Not more conducive than this theory of the natural environment is the theory of the general environment as developed by various nineteenth century sociologists. Every man is influenced by the social and cultural conditions of the milieu in which he has to live and to work. But these institutions and conditions are themselves already the product of the doctrines dominating the conduct of preceding generations. They themselves have to be explained, the appeal to them is not a substitute for an explanation. Taine was right when in dealing with the history of art he referred to the milieu in which artists and poets achieved their works. But general history has to go further; it has not to acquiesce in considering the conditions of environment as data which cannot be traced further back.

We do not intend to deny that human mind is influenced by the conditions under which man lives. In saying that we have to consider human thoughts as the ultimate source of human conduct we do not wish to contend that mind is something indivisible or something final beyond which nothing else exists or anything not subject to the limitations of the material universe. We do not have to deal with metaphysical problems. We simply have to take account of the fact that the present state of knowledge does not enable us to realize how the inner man reacts upon external things. Different men and the same men at different times respond in a different way to the same stimuli. Why did some people bend their knees before the idols whereas other preferred to die rather than to commit an act of idolatry? Why did Henry IV change his faith in order to obtain the rule of France whereas his scion Henry of Chambord refused to abandon the white flag with the fleur-de-lis for the tricolor, although he knew that he lost thereby the crown of France? There is no other answer possible to such questions than the reference to the ideas controlling human conduct.

The different readings of the very popular Marxian materialistic interpretation of history are fundamentally wrong. Both the state of technology and the productive forces are a product rather of the working of mind than a factor determining the state of mind. One merely moves in a circle when one tries to explain thought by something which itself is a result of human ideas. The obvious truth that man has to adjust himself to the natural conditions of the world in which he lives, does not at all justify the naive and crude materialist metaphysics of Marx. This adjustment is effected by thought. Why did not the Negroes of Africa discover means to fight the germs which menace their lives and health and why did European scholars discover efficient methods to fight these diseases? No materialism can answer such questions satisfactorily.

Science cannot provide us with a full explanation of everything. Every branch of knowledge has to stop at some given facts which it has?at least for the present time, maybe forever?to consider as ultimate and beyond which it cannot go. These ultimate facts are simply given to our experience, they cannot be traced back to other facts or forces, they are inexplicable. We call them by names like electricity or life, but we have to confess that we do not know what electricity or life are, whereas we know what water or thunder are.

Individuality is such an ultimate given for history. Every historical investigation reaches earlier or later a point where it cannot explain facts otherwise than by pointing to individuality.

We are fully aware of the fact that every individual is at any given moment the product of his past. At birth he brings into the world as innate qualities the precipitate of the history of all his ancestors, their fate and their vicissitudes of life. We call it his biological inheritance or his racial characteristics. In his lifetime the individual is steadily influenced by his environment, both by the natural surrounding and by the social milieu. But we cannot explain how all these factors act on his thought. There is always something left which we cannot analyze further. We cannot explain why Descartes became a great philosopher and Al Capone a gangster. Our last word is: individuality. Individum est ineffabile.

In dealing with doctrines, their origin, their development, their logical implications, and their working in society we do not wish to contend that they are ultimate facts. Doctrines have not a life of their own, they are products of human thought. They are a part only of the universe and we may assume that nothing in their history justifies to consider them as exempt from the laws of causality. But we have to realize that we know nothing, simply nothing about the way in which man creates or produces ideas and mentalities. In this sense only are we entitled to call doctrines ultimate facts.

We may assume that there are doctrines whose applications favors man in his struggle for life and that other doctrines are detrimental. There are doctrines building up social cooperation and there are destructive ideas resulting in a disintegration of society. But nothing gives us the right to believe that destructive doctrines must needs lose their prestige because their consequences are pernicious. Reason has a biological function to fulfill; it is man's foremost tool in his adjustment to the natural conditions of life. But it would be a mistake to believe that a living being must always succeed in the struggle for life. There were species of plants and of animals which vanished because they failed in their endeavors to adjust themselves. There were races and nations which died out, there were societies and civilizations which disintegrated. Nature does not prevent man from thinking prejudicial ideas and from constructing hurtful doctrines. The fact that a doctrine has been worked out and that it succeeded in obtaining many supporters is not a proof that it is not destructive. A doctrine may be modern, fashionable, generally accepted and nevertheless detrimental to human society, civilization and survival.

We have to study the history of doctrines because they alone give us the clue to the understanding of social, economic, and political changes.

In the field of the natural sciences, especially in physics we have the opportunity of applying the experimental method. The scientist isolates in the laboratory the various conditions of change and observes their action. Every statement can be verified or refuted by the result of experiments.

In the field of the sciences of human conduct we cannot recurr to the experimental method and cannot make experiments. Every experience is the experience of a complexity of phenomena. We never enjoy the advantage of observing the working of one factor only, other things being equal. Experience therefore can never verify or refute our statements and theories concerning social problems.

It is an undeniable fact that no nation has reached a somewhat higher stage of civilization without private ownership of the means of production. But nobody is prepared to maintain the statement that experience has proved that private property is a necessary and indispensable requisite of civilization. Social and economic experience does not teach us anything. The facts have to be commented by our theories, they are open to different explanations and conclusions. Every discussion concerning the meaning of historical facts falls back very soon to an examination of a priori theories and scrutinizes them without any reference to experience. These theories have logical precedence, they are anterior to historical experience and we grasp the meaning of this experience only with the aid of them.

These theories and doctrines, whether sound or unsound, whether suitable or detrimental for survival, do not only guide human conduct, they are at the same time the mental tool through the aid of which we perceive their working in history. We cannot observe social facts but in the light in which our theories and doctrines show them. The same complex of events offers different aspects according to the point of view from which the observer sees it.

Some very fashionable opinions have badly misjudged these objectives. Positivism, empiricism, and historicism believed that social facts could be established in the same way in which physics establishes physical facts. (We do not have to scrutinize the bearing of the latest discoveries which let us foresee that also the physicists will have to acknowledge that the result of an observation differs according to the different ways in which the observer approaches it. It seems to be too early to draw conclusions from the contributions of Werner Broglie, Louis Heisenberg, and other contemporary scientists.) They consider facts as something independent from the ideas of the observer and social experience as something logically and temporarily antecedent to theories. They do not realize that the act by which we set off out of the stream of events some happenings and consider them as definite facts is necessarily guided by our theoretical insight or, as some people may prefer to say, by our doctrinal prejudices. Why do we consider the balance of payments of the United States as a fact and why do we not pay any attention to the balance of payments of the state of Maryland or of the city of Boston or of the borough of Manhattan? Why do we, in dealing with the problems of Germany's currency, consider the state of Germany's balance of payments? Because the investigation of the economist who proceeds in this way is guided by a very definite (and, as I have to remark, erroneous) theory of money.

The statisticians are mistaken when believing that what they study are pure facts only. The statistician tries to discover the correlations existing between different series of figures, when his theoretical reasoning makes him assume that there exists a causal relation between them. In the absence of such theoretical assumptions he does not pay any attention at all to obvious correlations, whereas he is quick in proving that a correlation exists, when his preconceived theory postulates such a correlation. Jevons believed that he had succeeded in demonstrating a correlation between the economic crises and the sun spots. On the other hand no statistician ever paid any attention to the discovery of a correlation between the number of storks and the changes of natality.

In life and reality all things are linked with all other things. History is a continuous flow of events which are entangled into a uniform structure. The delimitation of our mental forces prevents us from grasping them as a whole by one act of perception. We have to analyze them step by step, starting from the isolation of small things and slowly proceeding to the study of more complicated problems. The act by which we separate some changes out of the whole context of the flux of life and consider them as facts is not a function of reality. It is the result of the working of our mind. In the field of the social sciences there are no such things as pure facts. What we conceive as a fact is always the result of the way we look into the world. A superhumanly perfect intellect would see the same things in a different way. We of the twentieth century look at the same things in another way than Plato, Saint Thomas, or Descartes did. Our facts are different from their facts, and the facts of men who will live a hundred years after us will be different again.

A social fact is a piece of reality perceived by human intellect. What constitutes a fact is not only reality but no less the observer's mind.

An isolated figure or an isolated series of figures do not mean anything. Nor does any other isolated fact?such as: Brutus killed Caesar?mean anything. Assembling statements about isolated facts does not deepen our insight and is no substitute for theories and philosophies. But every attempt to combine different facts?whether by establishing correlations or by other methods?is the outcome of our theories and doctrines. In the context of different doctrines identical events get a different meaning. The same experience, the same facts are viewed in a quite different way by people who do not agree about the theories. The experience of Russian Bolshevism is not the same for Liberals (in the old sense of the term) and for Socialists, for free thinkers and for Catholics, for Nazis and for Slav Nationalists, for economists and for the patrons of the screen. The same is true for the American New Deal, for the breakdown of France, for the Treaty of Versailles, and for all other historical facts. Of course, every party is firmly convinced that its own interpretation only is sound and adequate to the facts and that all other opinions are radically wrong and biased by false theories. But the conflict of doctrines cannot be solved by silencing all those who have different ideas. A party which succeeds in making its own opinion the only legal one and achieves to outlaw all other opinions does not alter the characteristic feature of its creed. A doctrine remains a doctrine even when generally accepted and undisputed. It may be erroneous even when no contemporary challenges it.

In order to broaden our knowledge in the field of human conduct we have to study on the one hand the problems of praxeological and economic theory and on the other hand history. But the study of history has to center around the study of the development of ideas and doctrines. The first step to every attempt to investigate social, political, and economic changes has to be the study of the changes of the ideas which guided men to bring about these changes.

The problems the politicians have to deal with are not set by nature and natural conditions, they are set by the state of doctrinal convictions.

For the sixteenth and seventeenth century there existed a religious problem for which no satisfactory solution seemed to be possible. In those days people could not grasp the idea that men of different denomination could peacefully live together in the same country. Torrents of blood were shed, flowering countries were devastated, civilizations were destroyed by wars for the establishment of religious uniformity. Today we do not see any problem at all in this issue. In Great Britain, in the United States, and in many other countries Catholics and Protestants of various dominations cooperate and collaborate without any qualms. The problem has been solved, it disappeared with the change of the doctrines concerning the task of civil government.

On the other hand we have a new problem to deal with, the problem of the coexistence of various linguistic groups in the same territory. It was not a problem a hundred years ago and it is not a menacing problem in America. But it is a terrible menace in Central and Eastern Europe. Americans still find it difficult to recognize that it is a problem at all, because they are not familiar with the doctrines which made it a problem.

It would be inadequate to say that these great political issues which cause conflicts, wars, and revolutions are apparent problems only and make light of them. They are not less real and genuine than any other problem of human conduct. They are the outcome of the whole structure of ideas and reasonings which guide present day politics. They actually exist in the social environment which is determined by these doctrines. They cannot be solved by a simple recipe. They may fade one day with the evanescence of the whole structure of ideas which have created them.

We have to separate the technological problems from the political ones. The adjustment of man to natural conditions of life is the outcome of his study of nature. The natural sciences may be styled by theologians and metaphysicians as an inadequate means to solve the riddles of the world and to answer the fundamental questions of being. But nobody can deny that they have succeeded in improving the external conditions of human life. That there are living today on the earth's surface many more people than some hundreds or thousands of years ago and that every citizen of a civilized country enjoys much more comfort than the preceding generations did, is a proof of the usefulness of science. Every successful surgical operation contradicts the skepticism of sophisticated grumblers.

But scientific research and its application in the struggle for human life can be effected only in society, i.e., in a world, where men cooperate by division of labor. Social cooperation is a product of reason and mind. It can be considered as a gift of God or as natural phenomenon only as far as we have to realize that the power to think is a natural equipment of man. Man has by making proper use of his faculties created both technology and society. The progress of the natural sciences and of the social sciences, the development of technical skill and of social cooperation are inextricably linked together. Both are an outcome of mind.

We have not to dwell upon the matter that there are problems which the natural sciences cannot solve. As far as the experimental method of the laboratory can work, the natural sciences can attain statements which may be regarded as undisputed facts. Natural science marches forward by trial and error. That the experiments arranged in the laboratory effect the expected results and that the machines run in the way we want them to run provides us with a verification of the body of our physical insight which is beyond any doubt.

But in the field of the social sciences we do not enjoy the advantage of the experimental method. We have to repeat this fact again and again, because its enormous bearing can hardly be overrated and because it is totally neglected by present day epistemology and economics. The theories which build up or disintegrate social cooperation can only be proved or refuted by pure reasoning. They cannot be exposed to the simple examination of the experiment.

This explains fully why the conflict of social doctrines seems to be in such a hopeless state. When Lavoisier replaced the theory of the phlogiston by a more satisfactory theory he met first with a stubborn opposition by the supporters of the older view. But his resistance disappeared very soon and forever the experiments in the laboratory and the application of the new theory in technological practice put an end to it. No similar test could be brought forward in favor of the great economic achievements of Hume, Ricardo, and Menger. They have to undergo the scrutiny of abstract reasoning.

Then there is a second important difference. Within the framework of a capitalist society where there is private property of the means of production a new idea can be put into practice in a limited field with small resources. Thus men like Fulton and Bell could succeed in realizing plans to which the majority of their contemporaries laughed. But social changes have to be brought about by measures which need the support of the majority. A free-trader cannot realize free-trade by the support of a few friends, peace cannot be established by an isolated small group of peace loving people. To make social doctrines work the support of public opinion is needed. Those scores of millions who ride on the railroads and listen to the broadcast without any idea of how railways have to be constructed and operated and how the radio works, have to grasp the incomparably more difficult problems of social cooperation, if society has to operate satisfactorily. Thus the great bulk of the low-browed, the masses who do not like to think and to reflect, the inert people who are slow in grasping new complicated ideas have to decide. Their doctrinal convictions, how crude and naive they may be, fix the course of events. The state of society is not the outcome of those theories which have the support of the small group of advanced spirits, but the result of the doctrines which the masses of laymen consider as sound ones.

It is generally believed that the conflict of social doctrines is due to the clash of group interests. If this theory were right, the cause of human cooperation would be hopeless. If unanimity cannot be reached because the rightly conceived interests of individuals are running counter to each other or because the interests of society are in antagonism to the interests of individuals then no lasting peace and no friendly cooperation between men can ever be attained. Then the present state of civilization which postulates peace cannot be maintained and mankind is doomed. Then the Nazis were right who considered war as the only normal, natural, and desirable shape of human intercourse. Then the Bolsheviks were right who did not argue with their adversaries but exterminated them. Then Western civilization was nothing but a shameless lie and its achievements, as Werner Sombart asserted, the work of the devil.

What we have to realize is that the social problems are the result of the state of social doctrines. What has to be considered is whether a state of social organization can be conceived which could be considered satisfactory from the?rightly conceived?interests of every individual. If the answer to this question has to be in the negative then we have to see in the conflicts of our day the prelude to the unavoidable disintegration of society. If on the other hand the answer will be affirmative we have to investigate what state of mind has led to conflicts in a world where another result is at least conceivable.

In any case the conflicts are a result of the doctrines. Even those who believe that the conflicts are the unavoidable outcome of a real and necessary antagonism of interests do not deny that these real antagonisms have to be perceived by reason in order to guide the actions of men. Man can only act for his own interest if he knows what his interests are and what has to be done in order to promote them. Both the Marxians and the Nationalists agree that a state of mind could prevail and prevailed, where classes, nations, and individuals are mistaken about their true interests and stick to doctrines which are detrimental to their own welfare. Notwithstanding their repeated assertions that being by some mystical process creates the proper ideas they praise their great men for having discovered them, they acknowledge that some people conceive ideas unsuitable to their being and they believe that propaganda is necessary to imbue people with the doctrines adequate to their being. Thus they, too, admit that the doctrines and not the bare state of things engender the conflicts.

There is another widely spread fallacy according to which men are by innate features or by environment disposed for a particular Weltanschauung or philosophy. Men of different philosophies disagree about everything; their opinions can never harmonize, no conformity can ever be reached. This too, if it were true, would render society and social cooperation impossible. But it is not true. All men, notwithstanding the party lines which divide them, want the same things in this world. They want to protect their own life and the lives of their kin against damage and they want to increase their material well-being. They fight each other not because they wish to attain different aims, but on the contrary, because?striving for the same ends?they assume that the satisfaction which the other fellow may get hinders their own improvement. There were once ascetics who honestly and fully renounced every worldly ambition and were content to live the life of the fish in the water. We have not to dwell upon their case, because these rare saints certainly are not responsible for the struggles for more food and more luxuries. When people disagree about social doctrines they do not disagree about Weltanschauung, they disagree about the methods to get more wealth and more joy. All political parties acting on the stage of history promise to their followers a better life on earth. They justify the sacrifices they exact from their partisans as necessary means for the acquisition of more wealth. They declare these sacrifices as temporary only, as investments which will bear multiple profit. The conflict of doctrines is a discussion about means, not about ultimate ends.

Political conflicts are the result of doctrines which maintain that the only way to happiness is to inflict harm on other people or to menace them with violence. Peace, on the other hand, can be achieved only by the conviction that peaceful cooperation gives better satisfaction than fighting each other. The Nazis embarked upon the way of conquest because their doctrines taught them that a victorious war is indispensable for their happiness. The people of the fifty American states live peacefully together because their doctrine teaches them that a peaceful cooperation suits better their objectives than warring does. When once, some hundred years ago, a different doctrine got hold upon the minds of Americans bloody civil war resulted.

Thus the main subject of historical research has to be the study of social, economic, and political doctrines. What people do when making laws and constitutions, when organizing political parties and armies, when signing or breaking treaties, when living peacefully or kindling wars or revolutions, is the application of these doctrines. We are born into a world shaped by doctrines and we are living in an environment which continually changes by the operation of changing doctrines. Every man's fate is determined by the working of these doctrines. We sow, but the result of our toil and trouble depends not only on the acts of God; not less important for our harvesting is the conduct of other people and this conduct is guided by doctrines.

It is not the task of a scientific inquiry to judge the various doctrines from the point of view of pre-conceived convictions or of personal preferences. We have not the right to measure other people's ideas by the standard of our morals. We have to eliminate from our reasoning the consideration of ultimate ends and values. It is not the duty of science to tell people what they should try to attain as their chief good.

There is only one standard which we have to apply when dealing with doctrines. We have to ask whether their practical application will succeed in attaining those ends which people wish to attain. We have to examine the fitness of doctrines from the point of view of those who apply them in order to reach some certain goals. We have to inquire whether they are suitable for the purpose which they have to serve.

We do not believe that there are men who take the old principle fiat justitia pereat mundus in its literal meaning. What they really want to say is: fiat justita ne pereat mundus. They do not wish to destroy society by justice, but on the contrary they want to protect it against destruction. But if there were people who consider it as the ultimate end of their endeavors to destroy civilization in order to reduce mankind to the status of Neanderthal man, then we could not help applying to their doctrines the standard of their ultimate end. We could add: we and the large majority of our fellowmen do not share this madness, we do not long for destruction but for advancement of civilization and we are prepared to defend civilization against the assaults of its adversaries.

There is still a second point of view from which to judge a doctrine. We can ask whether it is logically coherent or self-contradictory. But this estimate is secondary only and has to be subordinated to the above mentioned standard of expediency. A contradictory doctrine is wrong only because its application will not achieve the ends sought.

It would be a mistake to call this method of judging doctrines pragmatist. We are not concerned with the question of truth. We have to consider doctrines, i.e., recipes for action and for these no other standard can be applied than that of whether these recipes work or do not work.

It would not be more correct to style our point of view an utilitarian one. Utilitarianism has rejected all standards of a heteronomous moral law, which has to be accepted and obeyed regardless of the consequences arising therefrom. For the utilitarian point of view a deed is a crime because its results are detrimental to society and not because some people believe that they hear in their soul a mystical voice which calls it a crime. We do not talk about problems of ethics.

The only point which we have to emphasize is that people who do not apply the appropriate means will not attain the ends they wish to attain.

Any attempts to study human conduct and historical changes has to make ample allowance for the fact of intellectual inequality of men. Between the philosophers and scholars who contrive new ideas and build up elaborate systems of thought and the narrow-minded dullards whose poor intellect cannot grasp but the simplest things there are many gradual transitions. We do not know what causes these differences in intellectual abilities; we have simply to acknowledge their existence. It is not permitted to dispose of them by explaining them as brought about by differences in environment, personal experience, and education. There can be no doubt that at the root of them lies innate heterogeneity of individuals.

Only a small elite has the ability to absorb more refined chains of thought. Most people are simply helpless when faced with the more subtle problems of implication or valid inference. They cannot grasp but the primary propositions of reckoning; the avenue to mathematics is blocked to them. It is useless to try to make them familiar with thorny problems and with the theories thought out for their solution. They simplify and mend in a clumsy way what they hear or read. They garble and misrepresent propositions and conclusions. They transform every theory and doctrine in order to adapt it to their level of intelligence.

Catholicism had a different meaning for Cardinal Newman and for the hosts of the credulous. The Darwinian theory of evolution is something else than its popular version that man is a scion of apes. Freudian psychoanalysis is not identical with pansexualism, its version for the millions. The same dualism can be stated with all social, economic, and political doctrines. All doctrines are taught and accepted at least in two different, nay, conflicting varieties. An unbridgeable gulf separates the esoteric teaching from the exoteric one.

As the study of doctrines is not a goal for itself, it has to pay no less attention to the popular doctrines than to the doctrines of the philosophical authors and their books. Of course, the popular doctrines are derived from the logically elaborated and refined theories of the scholars and scientists. They are secondary, not primary. But as the application of social doctrines necessitates their endorsement by public opinion and as public opinion mostly turns towards the popular version of a doctrine, the study of the latter is no less important than that of the perfect conception. For history a popular slogan may sometimes vouchsafe more information than the ideas formulated by scholars. There are popular and generally accepted beliefs which are so contradictory and manifestly indefensible that no serious thinker ever dared to represent them systematically. But if such a belief provokes action it is for historical research no less important than any other doctrine applied in practice. History has not to limit its endeavors either to sound doctrines or to doctrines neatly expounded in scholarly writings; it has to study all doctrines which determine human action.

[This Article was probably written in either 1949 or 1950 and is previsouly unpublished until this volume?Ed.]