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Advancing Austrian Economics, Liberty, and Peace

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Bureaucracy

by Ludwig von Mises

INTRODUCTION


1. THE OPPROBRIOUS CONNOTATION OF THE TERM BUREAUCRACY

The terms bureaucrat, bureaucratic, and bureaucracy are clearly invectives. Nobody calls himself a bureaucrat or his own methods of management bureaucratic. These words are always applied with an opprobrious connotation. They always imply a disparaging criticism of persons, institutions, or procedures. Nobody doubts that bureaucracy is thoroughly bad and that it should not exist in a perfect world.

The abusive implication of the terms in question is not limited to America and other democratic countries. It is a universal phenomenon. Even in Prussia, the paragon of authoritarian government, nobody wanted to be called a bureaucrat. The Prussian king’s wirklicher geheimer Ober-Regierungsrat was proud of his dignity and of the power that it bestowed. His conceit delighted in the reverence of his subordinates and of the populace. He was imbued with the idea of his own importance and infallibility. But he would have deemed it an impudent insult if somebody had the effrontery to call him a bureaucrat. He was, in his own opinion, not a bureaucrat but a civil servant, his Majesty’s mandatory, a functionary of the State unswervingly attending day and night to the welfare of the nation.

It is noteworthy that the “progressives” whom the critics of bureaucracy make responsible for its spread do not venture to defend the bureaucratic system. On the contrary, they join those whom they in other respects scorn as “reactionaries” in condemning it. For, they maintain, these bureaucratic methods are not at all essential for the utopia at which they themselves are aiming. Bureaucracy, they say, is rather the unsatisfactory way in which the capitalist system tries to come to an arrangement with the inexorable trend toward its own disappearance. The inevitable final triumph of socialism will abolish not only capitalism but bureaucratism also. In the happy world of tomorrow, in the blessed paradise of all‑round planning, there will no longer be any bureaucrats. The common man will be paramount; the people themselves will take care of all their affairs. Only narrow-minded bourgeois can fall prey to the error that bureaucracy gives a foretaste of what socialism has in store for mankind.

Thus everyone seems to agree that bureaucracy is an evil. But it is no less true that nobody has ever tried to determine in unambiguous language what bureaucracy really means. The word is generally used loosely. Most people would be embarrassed if somebody were to ask them for a precise definition and explanation. How can they condemn bureaucracy and bureaucrats if they do not even know what the terms mean?

2. THE AMERICAN CITIZEN’S INDICTMENT OF BUREAUCRATISM

An American, asked to specify his complaints about the evils of progressing bureaucratization, might say something like this:

“Our traditional American system of government was based on the separation of the legislative, the executive, and the judicial powers and on a fair division of jurisdiction between the Union and the States. The legislators, the most important executives, and many of the judges were chosen by election. Thus the people, the voters, were supreme. Moreover, none of the three arms of the government had the right to interfere with the private affairs of the citizens. The law‑abiding citizen was a free man.

“But now, for many years and especially since the appearance of the New Deal, powerful forces are on the point of substituting for this old and well‑tried democratic system the tyrannical rule of an irresponsible and arbitrary bureaucracy. The bureaucrat does not come into office by election of the voters but by appointment of another bureaucrat. He has arrogated a good deal of the legislative power. Government commissions and bureaus issue decrees and regulations undertaking the management and direction of every aspect of the citizens’ lives. Not only do they regulate matters which hitherto have been left to the discretion of the individual; they do not shrink from decreeing what is virtually a repeal of duly enacted laws. By means of this quasi-legislation the bureaus usurp the power to decide many important matters according to their own judgment of the merits of each case, that is, quite arbitrarily. The rulings and judgments of the bureaus are enforced by federal officials. The purported judicial review is in fact illusory. Every day the bureaucrats assume more power; pretty soon they will run the whole country.

“There cannot be any doubt that this bureaucratic system is essentially anti-liberal, undemocratic, and un‑American, that it is contrary to the spirit and to the letter of the Constitution, and that it is a replica of the totalitarian methods of Stalin and Hitler. It is imbued with a fanatical hostility to free enterprise and private property. It paralyzes the conduct of business and lowers the productivity of labor. By heedless spending it squanders the nation’s wealth. It is inefficient and wasteful. Although it styles what it does planning, it has no definite plans and aims. It lacks unity and uniformity; the various bureaus and agencies work at cross‑purposes. The outcome is a disintegration of the whole social apparatus of production and distribution. Poverty and distress are bound to follow.”

This vehement indictment of bureaucracy is, by and large, an adequate although emotional description of present-day trends in American government. But it misses the point as it makes bureaucracy and the bureaucrats responsible for an evolution the causes of which must be sought for elsewhere. Bureaucracy is but a consequence and a symptom of things and changes much more deeply rooted.

The characteristic feature of present-day policies is the trend toward a substitution of government control for free enterprise. Powerful political parties and pressure groups are fervently asking for public control of all economic activities, for thorough government planning, and for the nationalization of business. They aim at full government control of education and at the socialization of the medical profession. There is no sphere of human activity that they would not be prepared to subordinate to regimentation by the authorities. In their eyes, state control is the panacea for all ills.

These enthusiastic advocates of government omnipotence are very modest in the appraisal of the role they themselves play in the evolution toward totalitarianism. The trend toward socialism, they contend, is inevitable. It is the necessary and unavoidable tendency of historical evolution. With Karl Marx they maintain that socialism is bound to come “with the inexorability of a law of nature.” Private ownership of the means of production, free enterprise, capitalism, the profit system are doomed. The “wave of the future” carries men toward the earthly paradise of full government control. The champions of totalitarianism call themselves “progressives” precisely because they pretend to have comprehended the meaning of the portents. And they ridicule and disparage as “reactionaries” all those who try to resist the working of forces which—as they say—no human effort is strong enough to stop.

Because of these “progressive” policies new offices and government agencies thrive like mushrooms. The bureaucrats multiply and are anxious to restrict, step by step, the individual citizen’s freedom to act. Many citizens, i.e., those whom the “progressives” scorn as “reactionaries,” resent this encroachment upon their affairs, and blame the incompetence and wastefulness of the bureaucrats. But these opponents have hitherto been only a minority. The proof is that, in the past elections, they were not in a position to poll a majority of the votes. The “progressives,” the adamant foes of free enterprise and private initiative and fanatical champions of totalitarian government control of business, defeated them.

It is a fact that the policy of the New Deal has been supported by the voters. Nor is there any doubt that this policy will be entirely abandoned if the voters withdraw their favor from it. The United States is still a democracy. The Constitution is still intact. Elections are still free. The voters do not cast their ballot under duress. It is therefore not correct to say that the bureaucratic system carried its victory by unconstitutional and undemocratic methods. The lawyers may be right in questioning the legality of some minor points. But as a whole the New Deal was backed by Congress. Congress made the laws and appropriated the money.

   Of course, America is faced with a phenomenon that the framers of the Constitution did not foresee and could not foresee: the voluntary abandonment of congressional rights. Congress has in many instances surrendered the function of legislation to government agencies and commissions, and it has relaxed its budgetary control through the allocation of large appropriations for expenditures, which the Administration has to determine in detail. The right of Congress to delegate some of its powers temporarily is not uncontested. In the case of the National Recovery Administration the Supreme Court declared it unconstitutional. But delegations of power formulated in a more cautious way are an almost regular practice. At any rate, Congress, in acting this way, has hitherto not been at variance with the declared will of the majority of the sovereign people.

   On the other hand, we must realize that delegation of power is the main instrument of modern dictatorship. It is by virtue of delegation of power that Hitler and his Cabinet rule Germany. It is by delegation of power that the British Left wants to establish its dictatorship and to transform Great Britain into a socialist commonwealth. It is obvious that delegation of power can be used as a quasi-constitutional disguise for a dictatorship. But this is certainly not the case at present in this country. Congress has undoubtedly still the legal right and the actual might to take back all the power it has delegated. The voters still have the right and the power to return senators and representatives who are radically opposed to any abandonment of congressional powers. In the United States bureaucracy is based on constitutional grounds.

Nor is it correct to deem as unconstitutional the progressing concentration of jurisdictional powers in the central government and the resulting diminution of the importance of the States. Washington has not openly usurped any constitutional powers of the States. The equilibrium in the distribution of powers between the Federal Government and the States as established by the Constitution has been seriously disturbed because the new powers that the authorities acquired for the most part accrued to the Union and not to the States. This is not the effect of sinister machinations on the part of mysterious Washington cliques, eager to curb the States and to establish centralization. It is the consequence of the fact that the United States is an economic unit with a uniform monetary and credit system and with free mobility of commodities, capital, and men among the States. In such a country government control of business must be centralized. It would be out of the question to leave it to the individual States. If each State were free to control business according to its own plans, the unity of the domestic market would disintegrate. State control of business would be practicable only if every State were in a position to separate its territory from the rest of the nation by trade and migration barriers and an autonomous monetary and credit policy. As nobody seriously suggests breaking up the economic unity of the nation, it has been necessary to entrust the control of business to the Union. It is in the nature of a system of government control of business to aim at the utmost centralization. The autonomy of the States as guaranteed by the Constitution is realizable only under a system of free enterprise. In voting for government control of business the voters implicitly, although unwittingly, are voting for more centralization.

Those who criticize bureaucracy make the mistake of directing their attacks against a symptom only and not against the seat of the evil. It makes no difference whether the innumerable decrees regimenting every aspect of the citizen’s economic activities are issued directly by a law, duly passed by Congress, or by a commission or government agency to which power has been given by a law and by the allocation of money. What people are really complaining about is the fact that the government has embarked upon such totalitarian policies, not the technical procedures applied in their establishment. It would make little difference if Congress had not endowed these agencies with quasi-legislative functions and had reserved to itself the right to issue all decrees required for the conduct of their functions.

Once price control is declared a task of government, an indefinite number of price ceilings must be fixed and many of them must, with changing conditions, be altered again and again. This power is vested in the Office of Price Administration. But the sway of its bureaucrats would not be impaired substantially if they were under the necessity of approaching Congress for legislating such ceilings. Congress would be flooded by a multitude of bills the content of which would extend beyond the range of its competence. The members of Congress would lack both the time and the information to examine seriously the proposals elaborated by the various subdivisions of the OPA. No choice would be left to them other than trusting the chief of the office and its employees and voting en bloc for the bills or repealing the law giving the Administration the power to control prices. It would be out of the question for the members of Congress to look into the matter with the same conscientiousness and scrupulousness they ordinarily apply in deliberating about policies and laws.

Parliamentary procedures are an adequate method for dealing with the framing of laws needed by a community based on private ownership of the means of production, free enterprise, and consumers’ sovereignty. They are essentially inappropriate for the conduct of affairs under government omnipotence. The makers of the Constitution never dreamed of a system of government under which the authorities would have to determine the prices of pepper and of oranges, of photographic cameras and of razor blades, of neckties and of paper napkins. But if such a contingency had occurred to them, they surely would have considered as insignificant the question whether such regulations should be issued by Congress or by a bureaucratic agency. They would have easily understood that government control of business is ultimately incompatible with any form of constitutional and democratic government.

It is not an accident that socialist countries are ruled in a dictatorial way. Totalitarianism and government by the people are irreconcilable. Things in Germany and Russia would not be different if Hitler and Stalin were to submit all their decrees to the decision of their “parliaments” Under government control of business parliaments cannot be anything else than assemblies of ‘yes’ men.

Neither is it justifiable to find fault with the fact that the offices of the bureaucratic administrators are not elective. Election of executives is reasonable only in the case of top executives. Here the voters have to choose among candidates whose political character and convictions they know. It would be absurd to use the same method for the appointment of a host of unknown people. It makes sense if the citizens vote for President, for Governor, or for Mayor. It would be nonsensical to let them vote for the hundreds and thousands of minor clerks. In such elections the voters would have no choice but to endorse the list proposed by their party. It makes no material difference whether the duly elected President or Governor nominates all his aides or whether the voters vote for a list containing the names of all those men whom their preferred candidate has chosen as aides.

It is quite correct, as the opponents of the trend toward totalitarianism say, that the bureaucrats are free to decide according to their own discretion questions of vital importance for the individual citizen’s life. It is true that the officeholders are no longer the servants of the citizenry but irresponsible and arbitrary masters and tyrants. But this is not the fault of bureaucracy. It is the outcome of the new system of government which restricts the individual’s freedom to manage his own affairs and assigns more and more tasks to the government. The culprit is not the bureaucrat but the political system. And the sovereign people is still free to discard this system.

It is further true that bureaucracy is imbued with an implacable hatred of private business and free enterprise. But the supporters of the system consider precisely this the most laudable feature of their attitude. Far from being ashamed of their anti-business policies, they are proud of them. They aim at full control of business by the government and see in every businessman who wants to evade this control a public enemy.

Finally it is true that the new policy, although not unconstitutional from a merely formalistic viewpoint, is contrary to the spirit of the Constitution, that it is tantamount to an overthrow of all that was precious to the older generations of Americans, that it must result in an abandonment of what people used to call democracy, and that it is in this sense un-American. But this reproach too does not discredit the “progressive” tendencies in the eyes of their supporters. They look at the past with other eyes than their critics’. For them the history of all hitherto existing society is a record of human degradation, misery, and ruthless exploitation of the masses by ruling classes. What is called “individualism” in the American language is, they say, “a

high-sounding term for money greed transfigured and parading as a virtue.” The idea was “to give a free hand to money-getters, sharp-witted tricksters, stock manipulators and other bandits who lived by raids on the national income.”[1] The American system is scorned as a spurious “bill-of-rights democracy,” and the Russian system of Stalin is extravagantly praised as the only truly democratic one.

The main issue in present-day political struggles is whether society should be organized on the basis of private ownership of the means of production (capitalism, the market system) or on the basis of public control of the means of production (socialism, communism, planned economy). Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems. Contrary to a popular fallacy there is no middle way, no third system possible as a pattern of a permanent social order.[2] The citizens must choose between capitalism and socialism or, as many Americans say, between the American and the Russian way of life.

Whoever in this antagonism sides with capitalism must do it frankly and directly. He must give positive support to private property and free enterprise. It is vain to content oneself with attacks on some measures designed to pave the way for socialism. It is useless to fight mere attendant phenomena and not the tendency toward totalitarianism as such. It is idle to dwell on a criticism of bureaucratism only.

3. THE “PROGRESSIVES’” VIEW OF BUREAUCRATISM

The “progressive” critics of bureaucratism direct their attacks primarily against the bureaucratization of corporate big business. Their reasoning runs this way:

“In the past business firms were comparatively small. The entrepreneur was in a position to survey all parts of his enterprise and to make all important decisions personally. He was the owner of all the capital invested or at least of the greater part of it. He was himself vitally interested in the success of his enterprise. He was therefore to the best of his abilities intent on making his outfit as efficient as possible and on avoiding waste.

“But with the inexorable trend toward economic concentration, conditions changed radically. Today the scene is dominated by corporate big business. It is absentee ownership; the legal owners, the stockholders, have no actual voice in the management. This task is left to professional administrators. The enterprises are so large that functions and activities must be distributed among departments and administrative subdivisions. The conduct of affairs necessarily becomes bureaucratic.

“The present-day champions of free enterprise are romantics like the eulogists of the medieval arts and crafts. They are entirely mistaken in attributing to mammoth corporations the qualities which once were the excellence of small or medium-size business. There cannot be any question of breaking up the big aggregates into smaller units. On the contrary, the tendency toward a further concentration of economic power will prevail. Monopolized big business will congeal into rigid bureaucratism. Its managers, responsible to nobody, will become a hereditary aristocracy; the governments will become mere puppets of an omnipotent business clique.

  “It is indispensable to curb the power of this managerial oligarchy by government action. The complaints about government regimentation are unfounded. As things are, there is only the choice between the rule of an irresponsible managerial bureaucracy and that of the nation’s government.”

The apologetic character of such reasoning is obvious. To the general criticism of the spread of governmental bureaucratism the “progressives” and New Dealers reply that bureaucracy is not at all limited to government. It is a universal phenomenon present both in business and in government. Its broadest cause is “the tremendous size of the organization.”[3] It is therefore an inescapable evil.

This book will try to demonstrate that no profit-seeking enterprise, no matter how large, is liable to become bureaucratic provided the hands of its management are not tied by government interference. The trend toward bureaucratic rigidity is not inherent in the evolution of business. It is an outcome of government meddling with business. It is a result of the policies designed to eliminate the profit motive from its role in the framework of society’s economic organization.

In these introductory remarks we want to dwell only upon one point of the popular complaints about the growing bureaucratization of business. Bureaucratization, people say, is caused by “the lack of competent, effective, leadership.”[4] What is wanting is “creative leadership.”

To complain of lack of leadership is, in the field of political affairs, the characteristic attitude of all harbingers of dictatorship. In their eyes the main deficiency of democratic government is that it is unable to produce great Fuhrers and Duces.

In the field of business creative leadership manifests itself in the adjustment of production and distribution to the changing conditions of demand and supply and in the adaptation of technical improvements to practical uses. The great businessman is he who produces more, better, and cheaper goods, who, as a pioneer of progress, presents his fellow men with commodities and services hitherto unknown to them or beyond their means. We may call him a leader because his initiative and activity force his competitors either to emulate his achievements or to go out of business. It is his indefatigable inventiveness and fondness for innovations that prevents all business units from degenerating into idle bureaucratic routine. He embodies in his person the restless dynamism and progressivism inherent in capitalism and free enterprise.

It would certainly be an exaggeration to say that such creative leaders are lacking in present-day America. Many of the old heroes of American business are still alive and active in the conduct of their affairs. It would be a delicate matter to express an opinion about the creativeness of younger men. Some temporal distance is needed for a correct appreciation of their achievements. A true genius is very rarely acknowledged as such by his contemporaries.

Society cannot contribute anything to the breeding and growing of ingenious men. A creative genius cannot be trained. There are no schools for creativeness. A genius is precisely a man who defies all schools and rules, who deviates from the traditional roads of routine and opens up new paths through land inaccessible before. A genius is always a teacher, never a pupil; he is always self-made. He does not owe anything to the favor of those in power. But, on the other hand, the government can bring about conditions which paralyze the efforts of a creative spirit and prevent him from rendering useful services to the community.

This is the case today in the field of business. Let us look at one instance only, the income tax. In the past an ingenious newcomer started a new project. It was a modest start; he was poor, his funds were small and most of them borrowed. When initial success came, he did not increase his consumption, but reinvested the much greater part of the profits. Thus his business grew quickly. He became a leader in his line. His threatening competition forced the old rich firms and the big corporations to adjust their management to the conditions brought about by his intervention. They could not disregard him and indulge in bureaucratic negligence. They were under the necessity of being on their guard day and night against such dangerous innovators. If they could not find a man able to rival the newcomer for the management of their own affairs, they had to merge their own business with his and yield to his leadership.

But today the income tax absorbs 80 or more per cent of such a newcomer’s initial profits. He cannot accumulate capital; he cannot expand his business; his enterprise will never become big business. He is no match for the old vested interests. The old firms and corporations already own a considerable capital. Income and corporation taxes prevent them from accumulating more capital, while they prevent the newcomer from accumulating any capital. He is doomed to remain a small business forever. The already existing enterprises are sheltered against the dangers from ingenious newcomers. They are not menaced by their competition. They enjoy a virtual privilege as far as they content themselves with keeping their business in the traditional lines and in the traditional size.[5] Their further development, of course, is curtailed. The continuous drain on their profits by taxes makes it impossible for them to expand their business out of their own funds. Thus a tendency toward rigidity originates.

In all countries all tax laws are today written as if the main purpose of taxes were to hinder the accumulation of new capital and the improvements which it could achieve. The same tendency manifests itself in many other branches of public policy. The “progressives” are badly off the mark when they complain about the lack of creative business leadership. Not the men are lacking but the institutions which would permit them to utilize their gifts. Modern policies result in tying the hands of innovators no less than did the guild system of the Middle Ages.

4. BUREAUCRATISM AND TOTALITARIANISM

It will be shown in this book that bureaucracy and bureaucratic methods are very old and that they must be present in the administrative apparatus of every government the sovereignty of which stretches over a large area. The Pharaohs of ancient Egypt and the emperors of China built a huge bureaucratic machine and so did all the other rulers. Medieval feudalism was an attempt to organize the government of large territories without bureaucrats and bureaucratic methods. It failed utterly in these endeavors. It resulted in a complete disintegration of political unity and in anarchy. The feudal lords, originally officeholders only and as such subject to the authority of the central government, became virtually independent princes, fighting one another almost continually and defying the king, the courts, and the laws. From the fifteenth century on curbing the arrogance of the vassals was the main task of the various European kings. The modern state is built upon the ruins of feudalism. It substituted bureaucratic management of public affairs for the supremacy of a multitude of petty princes and counts.

Far ahead in this evolution were the kings of France. Alexis de Tocqueville has shown how the Bourbon kings unswervingly aimed at the abolition of the autonomy of powerful vassals and of oligarchic groups of aristocrats. In this regard the French Revolution only achieved what the absolute kings themselves had begun. It eliminated the arbitrariness of the kings, it made the law supreme in the field of administration and restricted the scope of affairs subject to the discretionary judgment of the officeholders. It did not brush away bureaucratic management; it only put it on a legal and constitutional basis. France’s nineteenth-century administrative system was an attempt to tame the arbitrariness of the bureaucrats as much as possible by law. It served as a model for all other liberal nations which—outside of the realm of Anglo-Saxon Common Law—were anxious to make law and legality paramount in the conduct of civil administration.

It is not sufficiently known that the Prussian administrative system, so much admired by all advocates of government omnipotence, in its early beginnings was but an imitation of French institutions. Frederick II, the “Great” King, imported from royal France not only the methods but even the personnel for their execution. He handed over the administration of the excise duties and the customs to an imported staff of several hundred French bureaucrats. He appointed a Frenchman Postmaster General and another Frenchman President of the Academy. The eighteenth-century Prussians had even better grounds for calling bureaucratism un-Prussian than the present-day Americans for calling it un-American.

The legal technique of administrative activity in the countries of Anglo-Saxon Common Law was very different from that of the continental countries of Europe. Both the British and the Americans were fully convinced that their system gave them a most effective protection against the encroachment of administrative arbitrariness. However, the experience of the last decades has clearly evidenced that no legal precautions are strong enough to resist a trend supported by a powerful ideology. The popular ideas of government interference with business and of socialism have undermined the dams erected by twenty generations of Anglo-Saxons against the flood of arbitrary rule. Many intellectuals and numerous voters organized in the pressure groups of farming and of labor disparage the traditional American system of government as “plutocratic” and yearn for the adoption of the Russian methods which do not accord the individual any protection at all against the discretionary power of the authorities.

Totalitarianism is much more than mere bureaucracy. It is the subordination of every individual’s whole life, work, and leisure, to the orders of those in power and office. It is the reduction of man to a cog in an all-embracing machine of compulsion and coercion. It forces the individual to renounce any activity of which the government does not approve. It tolerates no expression of dissent. It is the transformation of society into a strictly disciplined labor-army—as the advocates of socialism say—or into a penitentiary—as its opponents say. At any rate it is the radical break from the way of life to which the civilized nations clung in the past. It is not merely the return of mankind to the oriental despotism under which, as Hegel observed, one man alone was free and all the rest slaves, for those Asiatic kings did not interfere with the daily routine of their subjects. To the individual farmers, cattle breeders, and artisans a field of activities was left in the performance of which they were not troubled by the king and his satellites. They enjoyed some amount of autonomy within their own households and families. It is different with modern socialism. It is totalitarian in the strict sense of the term. It holds the individual in tight rein from the womb to the tomb. At every instant of his life the “comrade” is bound to obey implicitly the orders issued by the supreme authority. The State is both his guardian and his employer. The State determines his work, his diet, and his pleasures. The State tells him what to think and what to believe in.

Bureaucracy is instrumental in the execution of these plans. But people are unfair in indicting the individual bureaucrat for the vices of the system. The fault is not with the men and women who fill the offices and bureaus. They are no less the victims of the new way of life than anybody else. The system is bad, not its subordinate handy men. A government cannot do without bureaus and bureaucratic methods. And as social cooperation cannot work without a civil government, some amount of bureaucracy is indispensable. What people resent is not bureaucratism as such, but the intrusion of bureaucracy into all spheres of human life and activity. The struggle against the encroachments of bureaucracy is essentially a revolt against totalitarian dictatorship. It is a misnomer to label the fight for freedom and democracy a fight against bureaucracy.

Nonetheless there is some substance in the general complaint against bureaucratic methods and procedures. For their faults are indicative of the essential defects of any socialist or totalitarian scheme. In thoroughly investigating the problem of bureaucracy we must finally discover why the socialist utopias are entirely impracticable and must, when put into practice, result not only in impoverishment for all but in the disintegration of social cooperation—in chaos. Thus the study of bureaucracy is a good approach to a study of both systems of social organization, capitalism and socialism.

5. THE ALTERNATIVE: PROFIT MANAGEMENT OR BUREAUCRATIC MANAGEMENT

If we want to find out what bureaucracy really means we must start with an analysis of the operation of the profit motive within the framework of a capitalist society. The essential features of capitalism are no less unknown than those of bureaucracy. Spurious legends, popularized by demagogic propaganda, have entirely misrepresented the capitalist system. Capitalism has succeeded in raising the material well-being of the masses in an unprecedented way. In the capitalist countries population figures are now several times higher than they were at the eve of the “industrial revolution,” and every citizen of these nations enjoys a standard of living much higher than that of the well-to-do of earlier ages. Nevertheless a great part of public opinion disparages free enterprise and private ownership of the means of production as dismal institutions that are detrimental to the immense majority of the nation and further only the selfish class interests of a small group of exploiters. Politicians whose main achievement consisted in restricting agricultural output and in attempts to put obstacles in the way of technical improvement of methods of manufacturing discredit capitalism as an “economy of scarcity” and talk about the abundance that socialism will bring about. The heads of labor unions, whose members drive their own motor cars, are enthusiastic in exalting the conditions of the ragged and barefooted Russian proletarians and in praising the freedom that the workers enjoy in Russia where labor unions have been suppressed and strikes are a criminal offense.

There is no need to enter into a detailed scrutiny of these fables. Our intention is neither to praise nor to condemn. We want to know what the two systems in question are, how they work, and how they serve the needs of the people.

In spite of all the vagueness in the use of the term bureaucracy there seems to be unanimity with regard to the distinction between two contrary methods of doing things: the private citizens’ way and the way in which the offices of the government and the municipalities are operated. Nobody denies that the principles according to which a police department is operated differ essentially and radically from the principles applied in the conduct of a profit-seeking enterprise. It will therefore be appropriate to begin with an investigation of the methods in use in these two classes of institutions and to compare them with each other.

Bureaucracy, its merits and its demerits, its working and its operation, can be understood only by contrasting it with the operation of the profit motive as it functions in the capitalistic market society.



[1]W. E. Woodward, A New American History (New York, 1938), p. 808. On the jacket of this book we read: “Any right-thinking parent today, conversant with all the facts, would probably find Benedict Arnold in general far more satisfactory than Lincoln as a pattern for his son.” It is obvious that those who hold such views will not find any fault with the un-Americanism of bureaucracy.

[2]See below pp. 117‑119.

[3]Cf. Marshall E. Dimock and Howard K. Hyde, Bureaucracy and Trusteeship in Large Corporations, TNEC Monograph No. 11, p. 36.

[4]Cf. Dimock and Hyde, loc. cit., p. 44, and the articles quoted by them.

[5]This is not an essay on the social and economic consequences of taxation. Thus there is no need to deal with the effects of the inheritance taxes, the impact of which has already been perceptible in this country for many years, while the above-described effects of the income tax are a recent phenomenon.


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