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Advancing Austrian Economics, Liberty, and Peace

Advancing the scholarship of liberty in the tradition of the Austrian School

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by Ludwig von Mises




We must acknowledge the fact that hitherto all endeavors to stop the further advance of bureaucratization and socialization have been in vain. In the twenty-seven years that have passed since President Wilson led America into the war to make the world safe for democracy, democracy has lost more and more ground. Despotism triumphs in most of the European countries. Even America has adopted policies which, some decades ago, it disparaged as “Prussian.” Mankind is manifestly moving toward totalitarianism. The rising generation yearns for full government control of every sphere of life.

Learned lawyers have published excellent treatises depicting the progressive substitution of administrative arbitrariness for the rule of law.[1] They have told the story of how the undermining of self-government makes all the rights of the individual citizen disappear and results in a hyperdespotism of the oriental style. But the socialists do not care a whit for freedom and private initiative.

Neither have satirical books been more successful than the ponderous tomes of the lawyers. Some of the most eminent writers of the nineteenth century—Balzac, Dickens, Gogol, de Maupassant, Courteline—have struck devastating blows against bureaucratism. Aldous Huxley was even courageous enough to make socialism’s dreamed paradise the target of his sardonic irony. The public was delighted. But his readers rushed nonetheless to apply for jobs with the government.

Some people like to make fun of especially extravagant features of bureaucracy. It is indeed curious that the government of the world’s most powerful and richest nation runs an office—the Bureau of Home Economics of the United States Department of Agriculture—one of the tasks of which is to design trousers “for the very small child who is just learning to dress himself.” But for many of our contemporaries there is nothing ridiculous in this. They aim at a mode of government under which the production of hose, underwear, and all other useful things should be a task of the authorities.

All learned criticisms and witty satires are of no avail because they do not hit the core of the problem. Bureaucratization is only a particular feature of socialization. The main matter is: Capitalism or Socialism? Which?

The supporters of socialism contend that capitalism is an unfair system of exploitation, that it is extremely detrimental to the welfare of the masses and that it results in misery, degradation, and progressive pauperization of the immense majority. On the other hand, they depict their socialist utopia as a promised land of milk and honey in which everybody will be happy and rich. Are they right or are they wrong? This is the question.


This is entirely an economic problem. It cannot be decided without entering into a full scrutiny of economics. The spurious catchwords and fallacious doctrines of the advocates of government control, socialism, communism, planning, and totalitarianism cannot be unmasked except by economic reasoning. Whether one likes it or not, it is a fact that the main issues of present-day politics are purely economic and cannot be understood without a grasp of economic theory. Only a man conversant with the main problems of economics is in a position to form an independent opinion on the problems involved. All the others are merely repeating what they have picked up by the way. They are an easy prey to demagogic swindlers and idiotic quacks. Their gullibility is the most serious menace to the preservation of democracy and to Western civilization.

The first duty of a citizen of a democratic community is to educate himself and to acquire the knowledge needed for dealing with civic affairs. The franchise is not a privilege but a duty and a moral responsibility. The voter is virtually an officeholder; his office is the supreme one and implies the highest obligation. A citizen fully absorbed by his scientific work in other fields or by his calling as an artist may plead extenuating circumstances when failing in this task of self-instruction. Perhaps such men are right in pretending that they have more important tasks to fulfill. But all the other intelligent men are not only frivolous but mischievous in neglecting to educate and instruct themselves for the best performance of their duties as sovereign voters.

The main propaganda trick of the supporters of the allegedly “progressive” policy of government control is to blame capitalism for all that is unsatisfactory in present-day conditions and to extol the blessings which socialism has in store for mankind. They have never attempted to prove their fallacious dogmas or still less to refute the objections raised by the economists. All they did was to call their adversaries names and to cast suspicion upon their motives. And, unfortunately, the average citizen cannot see through these stratagems.

Consider, for instance, the problem of mass unemployment prolonged year after year. The “progressive” interprets it as an evil inherent in capitalism. The naive public is ready to swallow this explanation. People do not realize that in an unhampered labor market, manipulated neither by labor-union pressure nor by government-fixed minimum wage rates, unemployment affects only small groups for a short time. Under free capitalism unemployment is a comparatively unimportant temporary phenomenon; there prevails a permanent tendency for unemployment to disappear. Economic changes may bring about new unemployment. But at the wage rates established in a free labor market everyone eager to earn wages finally gets a job. Unemployment as a mass phenomenon is the outcome of allegedly “pro-labor” policies of the governments and of labor union pressure and compulsion.

This explanation is by no means peculiar to those economists whom the “progressives” call “reactionaries.” Karl Marx himself was fully convinced that labor unions cannot succeed in raising wage rates for all workers. The Marxian doctrinaires for many years firmly opposed all endeavors to fix minimum wage rates. They deemed such measures contrary to the interests of the great majority of wage earners.

It is an illusion to believe that government spending can create jobs for the unemployed, that is, for those who cannot get jobs on account of the labor unions’ or the government’s policies. If the government’s spending is financed by noninflationary methods, that is, either by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If it is financed by inflation, that is, either by an increase of money and bank notes in circulation or by borrowing from the commercial banks, it reduces unemployment only if money wages lag behind the rise of commodity prices, that is, if and so far as real wage rates drop. There is but one way toward an increase of real wage rates for all those eager to earn wages: the progressive accumulation of new capital and the improvement of technical methods of production which the new capital brings about. The true interests of labor coincide with those of business.

The approach to a grasp of economic problems does not consist in an indiscriminate assimilation of more or less disconnected facts and figures. It consists rather in a careful analysis and examination of conditions by reasonable reflection. What is needed above all is common sense and logical clarity. Go right to the bottom of things is the main rule. Do not acquiesce in superficial explanations and solutions. Use your power of thinking and your critical abilities.

It would be a serious blunder to believe that this recommendation of economic studies aims at a substitution of another brand of propaganda for the propaganda of the various governments and parties. Propaganda is one of the worst evils of bureaucracy and socialism. Propaganda is always the propaganda of lies, fallacies, and superstitions. Truth does not need any propaganda; it holds its own. The characteristic mark of truth is that it is the correct representation of reality, i.e., of a state of affairs that is and works whether or not anybody recognizes it. The recognition and pronouncement of truth is as such a condemnation of everything that is untrue. It carries on by the mere fact of being true.

Therefore let the false prophets go on. Do not try to imitate their policies. Do not try as they do to silence and to outlaw dissenters. The liars must be afraid of truth and are therefore driven to suppress its pronouncement. But the advocates of truth put their hopes upon their own rightness. Veracity does not fear the liars. It can stand their competition. The propagandists may continue to spread their fables and to indoctrinate youth. They will fail lamentably.

Lenin and Hitler knew very well why they abolished freedom of thought, speech, and the press, and why they closed the frontiers of their countries to any import of ideas from abroad. Their systems could not survive without concentration camps, censors, and hangmen. Their main instruments are the G.P.U. and the Gestapo.

The British champions of socialization and bureaucratization are no less fully aware than the Bolsheviks and the Nazis of the fact that under freedom of speech and thought they will never achieve their ends. Professor Harold Laski is frank enough to declare that a restriction of Parliament’s powers is necessary to safeguard the transition to socialism.[2] Sir Stafford Cripps, the favorite candidate of the self-styled liberals for Prime Minister, has advised a “Planning and Enabling Act” which, once passed by Parliament, could not be discussed, still less repealed again. By virtue of this act, which should be very general and leave all “details” to the Cabinet, the Government would be endowed with irrevocable powers. Its orders and decrees should never be considered by Parliament; neither should there be a recourse to the Courts of Justice. All offices should be manned by “staunch party members,” by “persons of known Socialist views.”[3] The British “Council of Clergy and Ministers for Common Ownership” declares in a pamphlet to which the Bishop of Bradford wrote the foreword that the establishment of real and permanent socialism requires “that all the fundamental opposition must be liquidated, i.e., rendered politically inactive by disfranchisement, and, if necessary, by imprisonment.”[4] Professor Joan Robinson of Cambridge University, second only to Lord Keynes himself in the leadership of the Keynesian school, is no less intolerant in her zeal to realize socialism. In her opinion “the notion of freedom is a slippery one.” It is “only when there is no serious enemy, without or within, that full freedom of speech can be safely allowed.” Mrs. Robinson is not only afraid of independent churches, universities, learned societies, and publishing houses, but no less of independent theaters and philharmonic societies. All such institutions, she contends, should be allowed to exist only “provided the regime is sufficiently secure to risk criticism.”[5] And another distinguished advocate of British collectivism, J. G. Crowther, does not shrink from praising the blessings of inquisition.[6] What a pity the Stuarts did not live to witness the triumph of their principles!

Thus the most eminent advocates of socialism implicitly admit that their tenets and plans cannot stand the criticism of economic science and are doomed under a regime of freedom.

But as happily there are still some free countries left there is still some hope for a resurrection of truth.


The aim of the popularization of economic studies is not to make every man an economist. The idea is to equip the citizen for his civic functions in community life.

The conflict between capitalism and totalitarianism, on the outcome of which the fate of civilization depends, will not be decided by civil wars and revolutions. It is a war of ideas. Public opinion will determine victory and defeat.

Wherever and whenever men meet for discussing any affairs of their municipality, state, or nation, public opinion is in the process of evolving and changing, however trifling the immediate topic concerned may be. Public opinion is influenced by anything that is spoken or done in transactions between buyers and sellers, between employers and employees, between creditors and debtors. Public opinion is shaped in the debates of countless representative bodies, committees and commissions, associations and clubs, by editorials and letters to the editor, by the pleading of lawyers and by the opinions of judges.

In all these discussions the professionals have an advantage over the laymen. The odds are always in favor of those who devote all their effort exclusively to one thing only. Although not necessarily experts and often certainly not more clever than the amateurs, they enjoy the benefit of being specialists. Their eristic technique as well as their training are superior. They come to the encounter with rested mind and body, not tired after a long day’s work like the amateurs.

Now, almost all these professionals are zealous advocates of bureaucratism and socialism. There are, first of all, the hosts of employees of the governments’ and the various parties’ propaganda offices. There are furthermore the teachers of various educational institutions which curiously enough consider the avowal of bureaucratic, socialist, or Marxian radicalism the mark of scientific perfection. There are the editors and contributors of “progressive” newspapers and magazines, labor-union leaders and organizers, and finally leisured ambitious men anxious to get into the headlines by the expression of radical views. The ordinary businessman, lawyer, or wage earner is no match for them.

The layman may brilliantly succeed in proving his argument. It is of no use. For his adversary, clothed with the full dignity of his office or his professorship, shouts back: “The fallacy of the gentleman’s reasoning has long since been unmasked by the famous German professors, Mayer, Muller, and Schmid. Only an idiot can still cling to such antiquated and done-for ideas.” The layman is discredited in the eyes of the audience, fully trusting in professional infallibility. He does not know how to answer. He has never heard the names of these eminent German professors. Thus he does not know that their books are simple humbug, full of nonsense, and that they did not touch the problems which he raised. He may learn it later. But that cannot alter the fact that he has been defeated on the spot.

Or the layman may cleverly demonstrate the impracticability of some project suggested. Then the professional retorts: “This gentleman is so ignorant as not to know that the scheme proposed succeeded very well in socialist Sweden and in red Vienna.” Again our layman is silenced. How can he know that almost all English-language books on Sweden and Vienna are propaganda products badly distorting the facts? He has not had the opportunity of getting correct information from the original sources.

The climax of the professional’s oratory is, of course, always the reference to Russia, the paradise of the workers and peasants. For almost thirty years only fanatical communists and fellow travelers were permitted to enter Russia. Their reports are uncritical glorifications of the Soviets, some of them utterly dishonest, the rest childish in their naive credulity. It is one of the most comforting facts that some of these travelers abandoned in Russia their pro-Soviet leanings and, back home, published unvarnished accounts. But the professionals easily dispose of these books by calling their authors “Fascists.”

What is needed is to make the civic leaders fit for such encounters with professional preachers of bureaucratization and socialization. It is hopeless to stop the trend toward bureaucratization by the mere expression of indignation and by a nostalgic glorification of the good old times. These old days were not so good as they appear to some of our contemporaries. What was great in them was their reliance on the tendency toward improvement inherent in the system of unhampered market economy. They did not believe in the government’s godlikeness. This was their glory.

The most detrimental outcome of the average citizen’s repugnance to a serious concern with economic problems is his readiness to back a program of compromise. He looks upon the conflict between capitalism and socialism as if it were a quarrel between two groups—labor and capital—each of which claims foritself the whole of the matter at issue. As he himself is not prepared to appraise the merits of the arguments advanced by each of the parties, he thinks it would be a fair solution to end the dispute by an amicable arrangement: each claimant should have a part of his claim. Thus the program of government interference with business acquired its prestige. There should be neither full capitalism nor full socialism, but something in between, a middle way. This third system, assert its supporters, should be capitalism regulated and regimented by government interference with business. But this government intervention should not amount to full government control of all economic activities; it should be limited to the elimination of some especially objectionable excrescences of capitalism without suppressing the activities of the entrepreneur altogether. Thus a social order will result which is allegedly as far from full capitalism as it is from pure socialism, and while retaining the advantages inherent in each of these two systems will avoid their disadvantages. Almost all those who do not unconditionally advocate full socialism support this system of interventionism today and all governments which are not outright and frankly pro-socialist have espoused a policy of economic interventionism. There are nowadays very few who oppose any kind of government interference with prices, wage rates, interest rates, and profits and are not afraid to contend that they consider capitalism and free enterprise the only workable system, beneficial to the whole of society and to all its members.

Yet, the reasoning of the advocates of this middle solution is entirely fallacious. The conflict between socialism and capitalism is not a struggle between two parties for a greater share in the social dividend. To see the matter this way is tantamount to a full acceptance of the tenets of the Marxians and the other socialists. The adversaries of socialism deny that any class or group would fare better under socialism than under outright capitalism. They contest the thesis that the workers would be better off in a socialist commonwealth and are, consequently, wronged by the very existence of the capitalist system. They do not recommend capitalism for the sake of selfish interests of the entrepreneurs and capitalists but for the sake of all members of society. The great historical conflict concerning the problem of society’s economic organization cannot be dealt with like a quarrel between two businessmen concerning an amount of money; it cannot be solved by splitting the difference.

Economic interventionism is a self-defeating policy. The individual measures that it applies do not achieve the results sought. They bring about a state of affairs, which—from the viewpoint of its advocates themselves—is much more undesirable than the previous state they intended to alter. Unemployment of a great part of those ready to earn wages, prolonged year after year, monopoly, economic crisis, general restriction of the productivity of economic effort, economic nationalism, and war are the inescapable consequences of government interference with business as recommended by the supporters of the third solution. All those evils for which the socialists blame capitalism are precisely the product of this unfortunate, allegedly “progressive” policy. The catastrophic events which are grist for the mills of the radical socialists are the outcome of the ideas of those who say: “I am not against capitalism, but . . .” Such people are virtually nothing but pacemakers of socialization and thorough bureaucratization. Their ignorance begets disaster.

Division of labor and specialization are essential features of civilization. But for them both material prosperity and intellectual progress would be impossible. The existence of an integrated group of scientists, scholars, and research workers is an outcome of the division of labor just as is the existence of any other class of specialists. The man who specializes in economics is a specialist like all other specialists. The further advancement of economic science will in the future also be an achievement of men devoting all their endeavors to this task.

But it would be a fateful error for the citizens to leave concern with economic studies to the professionals as their exclusive domain. As the main issues of present-day politics are essentially economic, such a resignation would amount to a complete abdication of the citizens for the benefit of the professionals. If the voters or the members of a parliament are faced with the problems raised by a bill concerning the prevention of cattle diseases or the construction of an office building, they may leave the discussion of the details to the experts. Such veterinarian and engineering problems do not interfere with the fundamentals of social and political life. They are important but not primary and vital. But if not only the masses but even the greater part of their elected representatives declare: “These monetary problems can only be comprehended by specialists; we do not have the inclination to study them; in this matter we must trust the experts,” they are virtually renouncing their sovereignty to the professionals. It does not matter whether or not they formally delegate their powers to legislate or not. At any rate the specialists outstrip them. The bureaucrats carry on.

The plain citizens are mistaken in complaining that the bureaucrats have arrogated powers; they themselves and their mandatories have abandoned their sovereignty. Their ignorance of fundamental problems of economics has made the professional specialists supreme. All technical and juridical details of legislation can and must be left to the experts. But democracy becomes impracticable if the eminent citizens, the intellectual leaders of the community, are not in a position to form their own opinion on the basic social, economic, and political principles of policies. If the citizens are under the intellectual hegemony of the bureaucratic professionals, society breaks up into two castes: the ruling professionals, the Brahmins, and the gullible citizenry. Then despotism emerges, whatever the wording of constitutions and laws may be.

Democracy means self-determination. How can people determine their own affairs if they are too indifferent to gain through their own thinking an independent judgment on fundamental political and economic problems? Democracy is not a good that people can enjoy without trouble. It is, on the contrary, a treasure that must be daily defended and conquered anew by strenuous effort.

[1]It may suffice to quote two of the most brilliant books of this class: The New Despotism by Lord Hewart of Bury, Lord Chief Justice of England (New York, 1929), and Our Wonderland of Bureaucracy by James M. Beck, former Solicitor General of the United States (New York, 1932). It is noteworthy that the latter book was published before the inauguration of the New Deal.

[2]Laski, Democracy in Crisis (London, 1933) p. 87. For a masterful refutation of Laski’s antidemocratic ideas cf. Rappard, The Crisis of Democracy (Chicago, 1938), pp. 213-216.

[3]Cf. the brilliant article of James Truslow Adams, “Planners See Where Planning Leads” in Barron’s National Business and Financial Weekly of January 31, 1944) p. 3.


[5]Joan Robinson, Private Enterprise or Public Control (Handbooks for Discussion Groups, published for the Association for Education in Citizenship by the English Universities Press Ltd.), pp. 13-14. It is strange that in the Preface to this booklet the Association declares “we advocate democracy” and points out that its objective is to train the citizens “in respect for the equal rights and freedoms of others.”

[6]J. G. Crowther, Social Relations of Science (Macmillan, 1941), pp. 331, 333.

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