by Ludwig von Mises
Table of Contents)
The eighteenth-century liberals had full confidence in man's perfectibility. All men, they held, are equal and endowed with the faculty of grasping the meaning of complicated inferences. They will therefore grasp the teachings of economics and social philosophy; they will realize that only within a free market economy can the rightly understood (i.e., the long‑run) interests of all individuals and all groups of individuals be in complete harmony. They will carry into effect the liberal utopia. Mankind is on the eve of an age of lasting prosperity and eternal peace, because reason will henceforth be supreme.
This optimism was entirely founded on the assumption that all people of all races, nations, and countries are keen enough to comprehend the problems of social coöperation. It never occurred to the old liberals to doubt this assumption. They were convinced that nothing could stop the progress of enlightenment and the spread of sound thinking. This optimism was behind the confidence of Abraham Lincoln that "You can't fool all of the people all of the time."
The economic theories on which the liberal doctrine is based are irrefutable. For more than a hundred and fifty years all the desperate endeavors to disprove the teachings of what one of the greatest precursors of totalitarianism and Nazism, Carlyle, described as the "dismal science," failed pitifully. All these would‑be economists could not shake the Ricardian theory of foreign trade, or the teachings concerning the effects of government meddling with a market economy. Nobody succeeded in the attempts to reject the demonstration that no economic calculation is possible in a socialist system. The demonstration that within a market economy there is no conflict between rightly understood interests could not be refuted.
But will all men rightly understand their own interests? What if they do not? This is the weak point in the liberal plea for a free world of peaceful coöperation. The realization of the liberal plan is impossible because—at least for our time—people lack the mental ability to absorb the principles of sound economics. Most men are too dull to follow complicated chains of reasoning. Liberalism failed because the intellectual capacities of the immense majority were insufficient for the task of comprehension.
It is hopeless to expect a change in the near future. Men are sometimes not even able to see the simplest and most obvious facts. Nothing ought to be easier to understand than victory or defeat on the battlefield. And yet scores of millions of Germans are firmly convinced that it was not the Allies but Germany that was victorious in the first World War. No German nationalist ever admitted that the German Army was defeated at the Marne both in 1914 and 1918. If such things are possible with the Germans, how can we expect that the Hindus, the worshipers of the cow, should grasp the theories of Ricardo and of Bentham?
Within a democratic world the realization even of the socialist plans would depend upon the acknowledgment of their expediency on the part of the majority. Let us for an instant put aside all qualms concerning the economic feasibility of socialism. Let us, for the sake of argument, assume that the socialists are right in their own appraisal of socialist planning. Marx, imbued with Hegelian Weltgeist mysticism, was convinced that there are some dialectic factors working in the evolution of human affairs that push the proletarians, the immense majority, toward the realization of socialism—of course his own brand of socialism. He tacitly assumed both that socialism best suits the interests of the proletariat and that the proletarians will comprehend it. Said Franz Oppenheimer, once a professor of the Marxian‑dominated University of Frankfort: "The individual errs often in looking after his interests; a class never errs in the long run."*
Recent Marxians have abandoned these metaphysical illusions. They had to face the fact that although socialism is in many countries the political creed of the vast majority, there is no unanimity with regard to the kind of socialism that should be adopted. They have learned that there are many different brands of socialism and many socialist parties fighting one another bitterly. They no longer hope that a single pattern of socialism can meet with the approval of the majority, and that their own ideal will be supported by the whole proletariat. Only an elite, these Marxians are now convinced, has the intellectual power to understand the blessings of genuine socialism. This elite—the self-styled vanguard of the proletariat, not its bulk—has the sacred duty, they conclude, to seize power by violent action, to exterminate all adversaries, and to establish the socialist millennium. In this matter of procedure there is perfect agreement between Lenin and Werner Sombart, between Stalin and Hitler. They differ only in respect to the question of who the elite is.
The liberals cannot accept this solution. They do not believe that a minority, even if it were the true elite of mankind, can lastingly silence the majority. They do not believe that humanity can be saved by coercion and oppression. They foresee that dictatorships must result in endless conflicts, wars, and revolutions. Stable government requires the free consent of those ruled. Tyranny, even the tyranny of benevolent despots, cannot bring lasting peace and prosperity.
There is no remedy available if men are not able to realize what best suits their own welfare. Liberalism is impracticable because most people are still too unenlightened to grasp its meaning. There was a psychological error in the reasoning of the old liberals. They overrated both the intellectual capacity of the average man and the ability of the elite to convert their less judicious fellow citizens to sound ideas.
The essential issues of present‑day international problems can be condensed as follows:
1. Durable peace is only possible under perfect capitalism, hitherto never and nowhere completely tried or achieved. In such a Jeffersonian world of unhampered market economy the scope of government activities is limited to the protection of the lives, health, and property of individuals against violent or fraudulent aggression. The laws, the administration, and the courts treat natives and foreigners alike. No international conflicts can arise: there are no economic causes of war.
2. The free mobility of labor tends toward an equalization of the productivity of labor and thereby of wage rates all over the world. If the workers of the comparatively underpopulated countries seek to preserve their higher standard of living by immigration barriers, they cannot avoid hurting the interests of the workers of the comparatively overpopulated areas. (In the long run, moreover, they hurt their own interests also.)
3. Government interference with business and trade-union policies combine to raise domestic costs of production and thus lower the competitive power of domestic industries. They therefore would fail to attain their ends even in the short run if they were not complemented by migration barriers, protection for domestic production, and—in the case of export industries—by monopoly. As any dependence on foreign trade must restrict a government's power to control domestic business, interventionism necessarily aims at autarky.
4. Socialism, when not operated on a world scale, is imperfect if the socialist country depends on imports from abroad and therefore must still produce commodities for sale on the market. It does not matter whether the foreign countries to which it must sell and from which it must buy are socialist or not. Socialism too must aim at autarky.
5. Protectionism and autarky mean discrimination against foreign labor and capital. They not only lower the productivity of human effort and thereby the standard of living for all nations, but they create international conflicts.
6. There are nations which, for lack of adequate natural resources, cannot feed and clothe their population out of domestic resources. These nations can seek autarky only by embarking upon a policy of conquest. With them bellicosity and lust of aggression are the outcome of their adherence to the principles of etatism.
7. If a national government hinders the most productive use of its country's resources, it hurts the interests of all other nations. The economic backwardness of a country with rich natural resources injures all those whose conditions could be improved by a more efficient exploitation of this natural wealth.
8. Etatism aims at equality of income within the country. But, on the other hand, it results in a perpetuation of the historically developed inequalities between poorer nations and richer nations. The same considerations which push the masses within a country toward a policy of income equality drive the peoples of the comparatively overpopulated countries into an aggressive policy toward the comparatively underpopulated countries. They are not prepared to bear their relative poverty for all time to come simply because their ancestors were not keen enough to appropriate areas better endowed by nature. What the "progressives" assert with regard to domestic affairs—that traditional ideas of liberty are only a fraud as far as the poor are concerned, and that true liberty means equality of income—the spokesmen of the "have‑not" nations declare with regard to international relations. In the eyes of the German nationalists there is only one freedom that counts: Nahrungsfreiheit (freedom from importing food), i.e., a state of affairs in which their nation could produce within its own borders all the food and raw materials it needs in order to enjoy the same standard of living as the most favored of the other nations. That is their notion of liberty and equality. They style themselves revolutionaries fighting for their imprescriptible rights against the vested interests of a host of reactionary nations.
9. A socialist world government could also abolish the historically developed inequalities between the citizens of comparatively overpopulated areas and those of underpopulated areas. However, the same forces which frustrated the attempts of the old liberals to sweep away all barriers hindering the free mobility of labor, commodities, and capital will violently oppose that kind of socialist world management. Labor in the comparatively underpopulated countries is unlikely to relinquish its inherited privileges. The workers are unlikely to accept policies which for a long period of transition would lower their own standard of living and improve only the material conditions of the underprivileged nations. The workers of the West expect from socialism an immediate rise in their own well‑being. They would vigorously reject any plan to establish a democratic system of world government in which their votes would be outnumbered by those of the immense majority of underprivileged peoples.
10. Federal government can work only under a free market economy. Etatism requires a strictly centralized government if there are no trade barriers insulating the member states from one another. The present plans for a world federation, or even only for a federation of the Western democracies, are therefore illusory. If people refuse to abandon etatism, they cannot escape the curse of economic nationalism except by vesting all power in a unified supernational government of the world or of a union of democratic nations. But unfortunately the vested interests of powerful pressure groups are opposed to such a renunciation of national sovereignty.
It is useless to indulge in reveries. Government control of business engenders conflicts for which no peaceful solution can be found. It was easy to prevent unarmed men and commodities from crossing the borders; it is much more difficult to prevent armies from trying it. The socialists and other etatists were able to disregard or to silence the warning voices of the economists. They could not disregard or silence the roar of cannon and the detonation of bombs.
All the oratory of the advocates of government omnipotence cannot annul the fact that there is but one system that makes for durable peace: a free market economy. Government control leads to economic nationalism and thus results in conflict.
Many people console themselves by saying: "There have always been wars. There will be wars and revolutions in the future too. The dreams of liberalism are illusory. But there is no cause for alarm. Mankind got along very well in the past in spite of almost continuous fighting. Civilization will not perish if conflicts continue in the future. It can flourish fairly well under conditions less perfect than those depicted by the liberal utopians. Many were happy under the rule of Nero or of Robespierre, in the days of the barbarian invasions, or of the Thirty Years' War. Life will go on; people will marry and beget children, work and celebrate festivals. Great thinkers and poets spent their lives in deplorable circumstances, but that did not prevent them from doing their work. Neither will present or future political troubles hinder coming generations from performing great things."
There is, however, a fallacy in such thinking. Mankind is not free to return from a higher stage of division of labor and economic prosperity to a lower stage. As a result of the age of capitalism the population of the earth is now vastly greater than on the eve of the capitalist era and standards of living are much higher. Our civilization is based on the international division of labor. It cannot survive under autarky. The United States and Canada would suffer less than other countries but even with them economic insulation would result in a tremendous drop in prosperity. Europe, whether itself united or divided, would be doomed in a world where each country was economically self‑sufficient.
We have to consider, further, the burden of continuous war preparedness which such an economic system requires. For instance in order to be in a position to repel onslaughts from Asia, Australia and New Zealand would have to be transformed into military camps. Their entire population—less than ten millions—could hardly be a force strong enough for the defense of their coasts until help arrived from other Anglo‑Saxon countries. They would have to adopt a system modeled upon that of the old Austrian Militärgrenze or of the old American frontier but adapted to the much more complex conditions of modern industrialism. But those gallant Croats and Serbs who defended the Habsburg Empire and thereby Europe against the Turks were peasants living in economic self‑sufficiency on their family homesteads. So were the American frontiersmen. It was a minor calamity for them when they had to watch the borders rather than till the soil; their wives and children in their absence took care of the farms. An industrial community cannot be operated on such terms.
Conditions will be somewhat better in other areas. But for all nations the necessity of being ready for defense will mean a heavy burden. Not only economic but moral and political conditions will be affected. Militarism will supplant democracy; civil liberties will vanish wherever military discipline must be supreme.
The prosperity of the last centuries was conditioned by the steady and rapid progress of capital accumulation. Many countries of Europe are already on the way back to capital consumption and capital erosion. Other countries will follow. Disintegration and pauperization will result.
Since the decline of the Roman Empire the West has not experienced the consequences of a regression in the division of labor or of a reduction of capital available. All our imagination is unequal to the task of picturing things to come.
This catastrophe affects Europe primarily. If the international division of labor is to disintegrate, Europe can only feed a fraction of its present‑day population, and those only at a much lower standard. Daily experience, rightly understood, will teach the Europeans what the consequences of their policies are. But will they learn the lesson?