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Omnipotent Government
by Ludwig von Mises


PART II NATIONALISM

III. ETATISM

I. The New Mentality

The most important event in the history of the last hundred years is the displacement of liberalism by etatism.

Etatism appears in two forms: socialism and interven­tionism. Both have in common the goal of subordinating the individual unconditionally to the state, the social apparatus of compulsion and coercion.

Etatism too, like liberalism in earlier days, originated in Western Europe and only later came into Germany. It has been asserted that autochthonous German roots of etatism could be found in Fichte's socialist utopia and in the sociological teachings of Schelling and Hegel. However, the dissertations of these philosophers were so foreign to the problems and tasks of social and economic policies that they could not directly influence political matters. What use could practical politics derive from Hegel's assertion: "The state is the actuality of the ethical idea. It is ethical mind qua the sub­stantial will manifest and revealed to itself, knowing and thinking itself, accomplishing what it knows and in so far as it knows it." Or from his dictum: "The state is absolutely rational inasmuch as it is the actuality of the substantial will which it possesses in the par­ticular self‑consciousness once that consciousness has been raised to consciousness of its universality."[1]

Etatism assigns to the state the task of guiding the citizens and of holding them in tutelage. It aims at restricting the individual's freedom to act. It seeks to mold his destiny and to vest all initiative in the government alone. It came into Germany from the West.[2]Saint Simon, Owen, Fourier, Pecqueur, Sismondi, Auguste Comte laid its foundations. Lorenz von Stein was the first author to bring the Germans comprehensive information concerning these new doctrines. The appearance in 1842 of the first edition of his book, Socialism and Communism in Present‑Day France, was the most important event in pre‑Marxian German socialism. The elements of government interference with business, labor legislation, and trade-unionism[3]also reached Germany from the West. In America Frederick List became familiar with the protectionist theories of Alexander Hamilton.

Liberalism had taught the German intellectuals to absorb West­ern political ideas with reverential awe. Now, they thought, lib­eralism was already outstripped; government interference with business had replaced old-fashioned liberal orthodoxy and would inexorably result in socialism. He who did not want to appear back­ward had to become "social," i.e., either interventionist or socialist. New ideas succeed only after some lapse of time; years have to pass before they reach the broader strata of intellectuals. List's National System of Political Economy was published in 1841, a few months before Stein's book. In 1847 Marx and Engels produced the Com­munist Manifesto. In the middle 1860s the prestige of liberalism began to melt away. Very soon the economic, philosophical, his­torical, and juridical university lectures were representing liber­lism in caricature. The social scientists outdid each other in emotional criticism of British free trade and laissez faire; the phi­losophers disparaged the "stockjobber" ethics of utilitarianism, the superficiality of enlightenment, and the negativity of the notion of liberty; the lawyers demonstrated the paradox of democratic and parliamentary institutions; and the historians dealt with the moral and political decay of France and of Great Britain. On the other hand, the students were taught to admire the "social kingdom of the Hohenzollerns" from Frederick William I, the "noble socialist," to William I, the great Kaiser of social security and labor legislation. The Social Democrats despised Western "plutodemocracy" and "pseudo-liberty" and ridiculed the teachings of "bourgeois economics."

The boring pedantry of the professors and the boastful oratory of the Social Democrats failed to impress critical people. The élite were conquered for etatism by other men. From England pene­trated the ideas of Carlyle, Ruskin, and the Fabians, from France Solidarism. The churches of all creeds joined the choir. Novels and lays propagated the new doctrine of the state. Shaw and Wells, Spielhagen and Gerhart Hauptmann, and hosts of other writers, less gifted, contributed to the popularity of etatism.

2. The State

The state is essentially an apparatus of compulsion and coercion. The characteristic feature of its activities is to compel people through the application or the threat of force to behave otherwise than they would like to behave.

But not every apparatus of compulsion and coercion is called a state. Only one which is powerful enough to maintain its existence, for some time at least, by its own force is commonly called a state. A gang of robbers, which because of the comparative weakness of its forces has no prospect of successfully resisting for any length of time the forces of another organization, is not entitled to be called a state. The state will either smash or tolerate a gang. In the first case the gang is not a state because its independence lasts for a short time only; in the second case it is not a state because it does not stand on its own might. The pogrom gangs in imperial Russia were not a state because they could kill and plunder only thanks to the connivance of the government.

This restriction of the notion of the state leads directly to the concepts of state territory and sovereignty. Standing on its own power implies that there is a space on the earth's surface where the operation of the apparatus is not restricted by the intervention of another organization; this space is the state's territory. Sovereignty (suprema potestas, supreme power) signifies that the organization stands on its own legs. A state without territory is an empty con­cept. A state without sovereignty is a contradiction in terms.

The total complex of the rules according to which those at the helm employ compulsion and coercion is called law. Yet the char­acteristic feature of the state is not these rules, as such, but the application or threat of violence. A state whose chiefs recognize but one rule, to do whatever seems at the moment to be expedient in their eyes, is a state without law. It does not make any difference whether or not these tyrants are "benevolent."

The term law is used in a second meaning too. We call interna-tional law the complex of agreements which sovereign states have concluded expressly or tacitly in regard to their mutual relations. It is not, however, essential to the statehood of an organization that other states should recognize its existence through the conclusion of such agreements. It is the fact of sovereignty within a territory that is essential, not the formalities.

The people handling the state machinery may take over other functions, duties, and activities. The government may own and operate schools, railroads, hospitals, and orphan asylums. Such activities are only incidental to the conception of a state. Whatever other functions it may assume, the state is always characterized by the compulsion and coercion exercised.

With human nature as it is, the state is a necessary and indis­pensable institution. The state is, if properly administered, the foundation of society, of human coöperation and civilization. It is the most beneficial and most useful instrument in the endeavors of man to promote human happiness and welfare. But it is a tool and a means only, not the ultimate goal. It is not God. It is simply com­pulsion and coercion; it is the police power.

It has been necessary to dwell upon these truisms because the mythologies and metaphysics of etatism have succeeded in wrap­ping them in mystery. The state is a human institution, not a superhuman being. He who says "state" means coercion and com­pulsion. He who says: There should be a law concerning this mat­ter, means: The armed men of the government should force people to do what they do not want to do, or not to do what they like. He who says: This law should be better enforced, means: The police should force people to obey this law. He who says: The state is God, deifies arms and prisons. The worship of the state is the worship of force. There is no more dangerous menace to civilization than a government of incompetent, corrupt, or vile men. The worst evils which mankind ever had to endure were inflicted by bad govern­ments. The state can be and has often been in the course of history the main source of mischief and disaster.

The apparatus of compulsion and coercion is always operated by mortal men. It has happened time and again that rulers have ex­celled their contemporaries and fellow citizens both in competence and in fairness. But there is ample historical evidence to the con­trary too. The thesis of etatism that the members of the government and its assistants are more intelligent than the people, and that they know better what is good for the individual than he him­self knows, is pure nonsense. The Führers and the Duces are neither God nor God's vicars.

The essential characteristic features of state and government do not depend on their particular structure and constitution. They are present both in despotic and in democratic governments. De­mocracy too is not divine. We shall later deal with the benefits that society derives from democratic government. But great as these advantages are, it should never be forgotten that majorities are no less exposed to error and frustration than kings and dictators. That a fact is deemed true by the majority does not prove its truth. That a policy is deemed expedient by the majority does not prove its expediency. The individuals who form the majority are not gods, and their joint conclusions are not necessarily godlike.

3. The Political and Social Doctrines of Liberalism

There is a school of thought which teaches that social coöperation of men could be achieved without compulsion or coercion. Anarchism believes that a social order could be established in which all men would recognize the advantages to be derived from coöperation and be prepared to do voluntarily everything which the maintenance of society requires and to renounce voluntarily all actions detrimental to society. But the anarchists overlook two facts. There are people whose mental abilities are so limited that they cannot grasp the full benefits that society brings to them. And there are people whose flesh is so weak that they cannot resist the temptation of striving for selfish advantage through actions detri­mental to society. An anarchistic society would be exposed to the mercy of every individual. We may grant that every sane adult is endowed with the faculty of realizing the good of social coöperation and of acting accordingly. However, it is beyond doubt that there are infants, the aged, and the insane. We may agree that he who acts antisocially should be considered mentally sick and in need of cure. But as long as not all are cured, and as long as there are infants and the senile, some provision must be taken lest they destroy society.

Liberalism differs radically from anarchism. It has nothing in common with the absurd illusions of the anarchists. We must em­phasize this point because etatists sometimes try to discover a simi­larity. Liberalism is not so foolish as to aim at the abolition of the state. Liberals fully recognize that no social coöperation and no civilization could exist without some amount of compulsion and coercion. It is the task of government to protect the social system against the attacks of those who plan actions detrimental to its maintenance and operation.

The essential teaching of liberalism is that social coöperation and the division of labor can be achieved only in a system of private ownership of the means of production, i.e., within a market society, or capitalism. All the other principles of liberalism—democracy, personal freedom of the individual, freedom of speech and of the press, religious tolerance, peace among the nations—are conse­quences of this basic postulate. They can be realized only within a society based on private property.

From this point of view liberalism assigns to the state the task of protecting the lives, health, freedom, and property of its subjects against violent or fraudulent aggression.

That liberalism aims at private ownership of the means of pro­duction implies that it rejects public ownership of the means of production, i.e., socialism. Liberalism therefore objects to the socialization of the means of production. It is illogical to say, as many etatists do, that liberalism is hostile to or hates the state, because it is opposed to the transfer of the ownership of railroads or cotton mills to the state. If a man says that sulphuric acid does not make a good hand lotion, he is not expressing hostility to sulphuric acid as such; he is simply giving his opinion concerning the limita­tions of its use.

It is not the task of this study to determine whether the program of liberalism or that of socialism is more adequate for the realiza­tion of those aims which are common to all political and social en­deavors, i.e., the achievement of human happiness and welfare. We are only tracing the role played by liberalism and by antiliberalism—whether socialist or interventionist—in the evolution which re­sulted in the establishment of totalitarianism. We can therefore content ourselves with briefly sketching the outlines of the social and political program of liberalism and its working.

In an economic order based on private ownership of the means of production the market is the focal point of the system. The working of the market mechanism forces capitalists and entre­preneurs to produce so as to satisfy the consumers' needs as well and cheaply as the quantity and quality of material resources and of man power available and the state of technological knowledge allow. If they are not equal to this task, if they produce poor goods, or at too great cost, or not the commodities that the consumers de­mand most urgently, they suffer losses. Unless they change their methods to satisfy the consumers' needs better, they will finally be thrown out of their positions as capitalists and entrepreneurs. Other people who know better how to serve the consumer will replace them. Within the market society the working of the price mechanism makes the consumers supreme. They determine through the prices they pay and through the amount of their pur­chases both the quantity and quality of production. They deter­mine directly the prices of consumers' goods, and thereby indirectly the prices of all material factors of production and the wages of all hands employed.

Within the market society each serves all his fellow citizens and each is served by them. It is a system of mutual exchange of services and commodities, a mutual giving and receiving. In that endless rotating mechanism the entrepreneurs and capitalists are the serv­ants of the consumers. The consumers are the masters, to whose whims the entrepreneurs and the capitalists must adjust their investments and methods of production. The market chooses the entrepreneurs and the capitalists, and removes them as soon as they prove failures. The market is a democracy in which every penny gives a right to vote and where voting is repeated every day.

Outside of the market stands the social apparatus of compulsion and coercion, and its steersmen, the government. To state and government the duty is assigned of maintaining peace both at home and abroad. For only in peace can the economic system achieve its ends, the fullest satisfaction of human needs and wants.

But who should command the apparatus of compulsion and coercion? In other words, who should rule? It is one of the funda­mental insights of liberal thought that government is based on opinion, and that therefore in the long run it cannot subsist if the men who form it and the methods they apply are not accepted by the majority of those ruled. If the conduct of political affairs does not suit them, the citizens will finally succeed in overthrowing the government by violent action and in replacing the rulers by men deemed more competent. The rulers are always a minority. They cannot stay in office if the majority is determined to turn them out. Revolution and civil war are the ultimate remedy for unpopu­lar rule. For the sake of domestic peace, liberalism aims at demo­cratic government. Democracy is therefore not a revolutionary in­stitution. On the contrary, it is the very means of preventing revolutions. Democracy is a system providing for the peaceful ad­justment of government to the will of the majority. When the men in office and their methods no longer please the majority of the na­tion, they will—in the next election—be eliminated, and replaced by other men and another system. Democracy aims at safeguarding peace within the country and among the citizens.

The goal of liberalism is the peaceful coöperation of all men. It aims at peace among nations too. When there is private ownership of the means of production everywhere and when the laws, the tribunals, and the administration treat foreigners and citizens on equal terms, it is of little importance where a country's frontiers are drawn. Nobody can derive any profit from conquest, but many can suffer losses from fighting. War no longer pays; there is no mo­tive for aggression. The population of every territory is free to determine to which state it wishes to belong, or whether it prefers to establish a state of its own. All nations can coexist peacefully, be­cause no nation is concerned about the size of its state.

This is, of course, a very cool and dispassionate plea for peace and democracy. It is the outcome of a utilitarian philosophy. It is as far from the mystical mythology of the divine right of kings as it is from the metaphysics of natural law or the natural and impre­scriptible rights of man. It is founded upon considerations of common utility. Freedom, democracy, peace, and private property are deemed good because they are the best means for promoting human happiness and welfare. Liberalism wants to secure to man a life free from fear and want. That is all.

About the middle of the nineteenth century liberals were convinced that they were on the eve of the realization of their plans. It was an illusion.

4. Socialism

Socialism aims at a social system based on public ownership of the means of production. In a socialist community all material re­sources are owned and operated by the government. This implies that the government is the only employer, and that no one can consume more than the government allots to him. The term "state socialism" is pleonastic; socialism is necessarily always state so­cialism. Planning is nowadays a popular synonym for socialism. Until 1917 communism and socialism were usually used as syno­nyms. The fundamental document of Marxian socialism, which all socialist parties united in the different International Working Men's Associations considered and still consider the eternal and un­alterable gospel of socialism is entitled the Communist Manifesto. Since the ascendancy of Russian Bolshevism most people differen­tiate between communism and socialism. But this differentiation refers only to political tactics. Present‑day communists and social­ists disagree only in respect to the methods to be applied for the achievement of ends which are common to both.

The German Marxian socialists called their party the Social Democrats. It was believed that socialism was compatible with democratic government—indeed that the program of democracy could be fully realized only within a socialist community. In West­ern Europe and in America this opinion is still current. In spite of all the experience which events since 1917 have provided, many cling stubbornly to the belief that true democracy and true so­cialism are identical. Russia, the classical country of dictatorial oppression, is considered democratic because it is socialist.

However, the Marxians' love of democratic institutions was a stratagem only, a pious fraud for the deception of the masses.[4]Within a socialist community there is no room left for freedom. There can be no freedom of the press where the government owns every printing office. There can be no free choice of profession or trade where the government is the only employer and assigns every­one the task he must fulfill. There can be no freedom to settle where one chooses when the government has the power to fix one's place of work. There can be no real freedom of scientific research where the government owns all the libraries, archives, and laboratories and has the right to send anyone to a place where he cannot con­tinue his investigations. There can be no freedom in art and litera­ture where the government determines who shall create them. There can be neither freedom of conscience nor of speech where the government has the power to remove any opponent to a climate which is detrimental to his health, or to assign him duties which surpass his strength and ruin him both physically and intellec­tually. In a socialist community the individual citizen can have no more freedom than a soldier in the army or an inmate in an or­phanage.

But, object the socialists, the socialist commonwealth differs in this essential respect from such organizations: the inhabitants have the right to choose the government. They forget, however, that the right to vote becomes a sham in a socialist state. The citizens have no sources of information but those provided by the government. The press, the radio, and the meeting halls are in the hands of the administration. No party of opposition can be organized or can propagate its ideas. We have only to look to Russia or Germany to discover the true meaning of elections and plebiscites under so­cialism.

The conduct of economic affairs by a socialist government can­not be checked by the vote of parliamentary bodies or by the con­trol of the citizens. Economic enterprises and investments are de­signed for long periods. They require many years for preparation and realization; their fruits ripen late. If a penal law has been promulgated in May, it can be repealed without harm or loss in October. If a minister of foreign affairs has been appointed, he can be discharged a few months later. But if industrial investments have been once started, it is necessary to cling to the undertaking until it is achieved and to exploit the plant erected as long as it seems profitable. To change the original plan would be wasteful. This necessarily implies that the personnel of the government can­not be easily disposed of. Those who made the plan must execute it. They must later operate the plants erected, because others can­not take over the responsibility for their proper management. Peo­ple who once agree to the famous four—and five—year plans virtually abandon their right to change the system and the personnel of government not only for the duration of four or five years but for the following years too, in which the planned investments have to be utilized. Consequently a socialist government must stay in office for an indefinite period. It is no longer the executor of the nation's will; it cannot be discharged without sensible detriment if its actions no longer suit the people. It has irrevocable powers. It be­comes an authority above the people; it thinks and acts for the community in its own right and does not tolerate interference with "its own business" by outsiders.[5]

The entrepreneur in a capitalist society depends upon the market and upon the consumers. He has to obey the orders which the con­sumers transmit to him by their buying or failure to buy, and the mandate with which they have charged him can be revoked at any hour. Every entrepreneur and every owner of means of production must daily justify his social function through subservience to the wants of the consumers.

The management of a socialist economy is not under the neces­sity of adjusting itself to the operation of a market. It has an abso­lute monopoly. It does not depend on the wants of the consumers. It itself decides what must be done. It does not serve the consumers as the businessman does.  It provides for them as the father provides for his children or the headmaster of a school for the students. It is the authority bestowing favors, not a businessman eager to attract customers. The salesman thanks the customer for patroniz­ing his shop and asks him to come again. But the socialists say: Be grateful to Hitler, render thanks to Stalin; be nice and submissive, then the great man will be kind to you later too.

The prime means of democratic control of the administration is the budget. Not a clerk may be appointed, not a pencil bought, if Parliament has not made an allotment. The government must ac­count for every penny spent. It is unlawful to exceed the allotment or to spend it for other purposes than those fixed by Parliament. Such restrictions are impracticable for the management of plants, mines, farms, and transportation systems. Their expenditure must be adjusted to the changing conditions of the moment. You cannot fix in advance how much is to be spent to clear fields of weeds or to remove snow from railroad tracks. This must be decided on the spot according to circumstances. Budget control by the people's representatives, the most effective weapon of democratic govern­ment, disappears in a socialist state.

Thus socialism must lead to the dissolution of democracy. The sovereignty of the consumers and the democracy of the market are the characteristic features of the capitalist system. Their corollary in the realm of politics is the people's sovereignty and democratic control of government. Pareto, Georges Sorel, Lenin, Hitler, and Mussolini were right in denouncing democracy as a capitalist method. Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship.

The advocates of socialism who are keen enough to realize this tell us that liberty and democracy are worthless for the masses. People, they say, want food and shelter; they are ready to renounce freedom and self‑determination to obtain more and better bread by submitting to a competent paternal authority. To this the old liberals used to reply that socialism will not improve but on the contrary will impair the standard of living of the masses. For so­cialism is a less efficient system of production than capitalism. But this rejoinder also failed to silence the champions of socialism. Granted, many of them replied, that socialism may not result in riches for all but rather in a smaller production of wealth; never­theless the masses will be happier under socialism, because they will share their worries with all their fellow citizens, and there will not be wealthier classes to be envied by poorer ones. The starving and ragged workers of Soviet Russia, they tell us, are a thousand times more joyful than the workers of the West who live under conditions which are luxurious compared to Russian standards; equality in poverty is a more satisfactory state than well‑being where there are people who can flaunt more luxuries than the average man.

Such debates are vain because they miss the central point. It is useless to discuss the alleged advantages of socialist management. Complete socialism is simply impracticable; it is not at all a system of production; it results in chaos and frustration.

The fundamental problem of socialism is the problem of eco­nomic calculation. Production within a system of division of labor and thereby social coöperation, requires methods for the computa­tion of expenditures asked for by different thinkable and possible ways of achieving ends. In capitalist society market prices are the units of this calculation. But within a system where all factors of production are owned by the state there is no market, and con­sequently there are no prices for these factors. Thus it becomes im­possible for the managers of a socialist community to calculate. They cannot know whether what they are planning and achieving is reasonable or not. They have no means of finding out which of the various methods of production under consideration is the most advantageous. They cannot find a genuine basis of comparison be­tween quantities of different material factors of production and of different services; so they cannot compare the outlays necessary with the anticipated outputs. Such comparisons need a common unit; and there is no such unit available but that provided by the price system of the market. The socialist managers cannot know whether the construction of a new railroad line is more advan­tageous than the construction of a new motor road. And if they have once decided on the construction of a railroad, they cannot know which of many possible routes it should cover. Under a sys­tem of private ownership money calculations are used to solve such problems. But no such calculation is possible by comparing various classes of expenditures and incomes in kind. It is out of the ques­tion to reduce to a common unit the quantities of various kinds of skilled and unskilled labor, iron, coal, building materials of dif­ferent types, machinery, and everything else that the building, the upkeep, and the operation of railroads necessitates. But without such a common unit it is impossible to make these plans the subject of economic calculations. Planning requires that all the commodi­ties and services which we have to take into account can be reduced to money. The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation.

Socialism as a universal mode of production is impracticable because it is impossible to make economic calculations within a socialist system. The choice for mankind is not between two eco­nomic systems. It is between capitalism and chaos.



[1]Hegel, Philosophy of Right, translated by T. M. Knox (Oxford, 1942), pp. 155-156.

[2]Hayek, "The Counter-Revolution of Science," Economica, VIII, 9–36, 119–150, 281–320.

[3]Adolf Weber (Der Kampf zwischen Kapital und Arbeit, 3d and 4th eds. Tübingen, 1921, p. 68) says quite correctly in dealing with German trade-unionism: "Form and spirit . . . came from abroad."

[4]Bukharin, Program of the Communists (Bolshevist), p. 29.

[5]Hayek, Freedom and the Economic System (Chicago, 1939), pp. 10 ff.


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