Note: This speech was delivered at the Austrian Scholars Conference, Auburn, Alabama, April 16-17, 1999.
Mises on War and Peace in Human Action
The essence of Mises's chapter in Human Action entitled "The Economics of War" is in these words: "What has transformed the limited war between royal armies into total war, the clash between peoples, is not technicalities of military art, but the substitution of the welfare state for the laissez faire state." (p. 820)
That Mises put a chapter on war in his treatise on economics is one its most salient features vis-à-vis treatises by authors from other traditions. Not only is there no war chapter to be found in Paul Samuelson's, Foundations of Economic Analysis published two years before Human Action appeared, the topic seems entirely incongruent with his approach. What type of mathematical function would Samuelson offer us as an explanation of war or even to distinguish war from commerce?
Because he respects the nature of human action, Mises was able to make common-sense and fundamental distinctions: violent aggression is the antithesis of trade and war the destruction of society.
"War, civil wars, and revolutions are detrimental to man's success in the struggle for existence," wrote Mises, "because they disintegrate the apparatus of social cooperation." (p. 175) Moreover, since social cooperation, i.e., the division of labor and voluntary exchange, produces the wealth upon which civilization arises and flourishes, civilization itself is a casualty of war. "Civilization," wrote Mises, "is an achievement of the ‘bourgeois' spirit, not the spirit of conquest. Those barbarian peoples who did not substitute working for plundering disappeared from the historical scene. If there is still any trace left of their existence, it is in the achievements they accomplished under the influence of the civilization of the subdued peoples." (p. 645) War then reduces the civilized life made possible by a market economy to barbarism.
Failure to grasp the role of the market in creating, sustaining, and improving social life was the reason, according to Mises, that Western nations were so readily drawn into war in this century. The policy of total war in the modern age, which for Mises began with the French revolution, is a return the relations between primitive tribes which had nothing to lose from wars of extermination since they had no inter-tribal division of labor and trade.
Mises put it this way: "The struggles in which primitive hordes and tribes fought one another...were...pitiless wars of annihilation. They were total wars." (p. 168) Only when the victors came to perceive the possibility of future cooperation between themselves and the conquered did war become limited. Then, according to Mises, "Above the implacable hatred and the frenzy of destruction and annihilation a societal element began to prevail....War was no longer considered the normal state of interhuman relations...We may even say that as soon as people realized that it is more advantageous to enslave the defeated than to kill them, the warriors, while still fighting, gave thought to the aftermath, the peace. Enslavement was by and large a preliminary step toward cooperation." (pp. 168-169)
The next step, Mises wrote was, "The ascendancy of the idea that even in war not every act is to be considered permissible, that there are legitimate and illicit acts of warfare, that there are laws, i.e., societal relationships which are above all nations, even above those momentarily fighting one another," and the spread of this idea, "has finally established the Great Society embracing all men and all nations." (p. 169)
The authentic Great Society was achieved most fully, after a long struggle, in Western Europe in the three hundred years before the French revolution. The philosophy of conquest that animated the Roman empire also lived in the rulers of medieval Europe. But, under feudalism, their means of warfare were strictly limited. The aggressiveness of kings was checked by their vassals, which led to the normalcy of peaceful relations among sovereign states. When feudalism fell apart, kings organized their own armies of mercenaries; a system in which financial considerations limited war. The threat of coalitions among nations against an aggressor also constrained conquest. With peace the normal condition of life, laws of the Great Society began to be codified culminating in the works of Grotius in the seventeenth century.
In this era, most people were not part of the war effort. War was fought among small armies of professional soldiers that afforded non-combatants the status of neutrals; their lives and property were sacrosanct. Limited war did not affect the daily activity of ordinary people save for the burdens of taxation, inflation, and debt which they loathed.
Intellectuals, unfortunately, drew erroneous conclusions from the conduct of limited war. Since war was fought among aristocrats who gained from victory and lost in defeat while the people objected to war, they thought democracy would end war. A revolution supplanting the ruling class with the people will be the war to end all wars.
Only the liberals of the nineteenth century grasped the truth that, as Mises put it, "what can safeguard durable peace is not simply government by the people, but government by the people under unlimited laissez faire. In their eyes free trade, both in domestic affairs and in international relations, was the necessary prerequisite of the preservation of peace." (p. 819)
Historians, by ignoring this fact, erroneously concluded that the cause of modern total war was aggressive nationalism. Mises supplied the corrective: "aggressive nationalism is the necessary derivative of the policies of interventionism and national planning. While laissez faire eliminates the causes of international conflict, government interference with business and socialism create conflicts for which no peaceful solution can be found." (pp. 819-820)
In a world of laissez faire, the movement of goods, capital, and people would bring about an equalization of prices, interest rates, and wage rates around the world. In such a world, "No individual is interested in the expansion of the size of his nation's territory," reasoned Mises, "as he cannot derive any gain from such an aggrandizement. Conquest does not pay and war becomes obsolete." (p. 681).
But if foreign states prevent capitalists from investing abroad to gain access to cheaper raw materials and labor or consumers buying cheaper foreign products, then these benefits can only be obtained through conquest. "It is illusory to assume that the advanced nations will acquiesce in such a state of affairs," wrote Mises, "They will resort to the only method which gives them access to badly needed raw materials; they will resort to conquest. War is the alternative to freedom of foreign investment as realized by the international capital markets." (p. 499)
But, investing and lending in foreign markets cannot be realized unless foreign governments are committed to laissez faire. Private property must be respected and plans to expropriate the capitalist must be surrendered. "It was such expropriations," Mises claimed, "that destroyed the international capital markets" and thereby paved the way for war. (p. 499)
Nor can intergovernmental loans "substitute for the functioning of the international capital markets." Since "they are granted as virtual subsidies without any regard for payment of principal and interest," Mises wrote, "they impose restrictions upon the debtor nation's sovereignty. In fact such ‘loans' are for the most part the price paid for military assistance in the coming wars." (p. 499)
While economic conflicts are often the proximate cause of war, these conflicts "do not spring from the operation of the unhampered market society." They arise instead from "the anti-capitalist policies designed to check the functioning of capitalism." (pp. 680-681)
The attempt by nations to live in the halfway house between laissez faire and self-sufficient has had two monumental consequences. First it has made war inevitable in a world of nationalism. The international division of labor has developed far enough that imported goods have become articles of mass consumption. "The most advanced European nations could do without these imports only at the price of a very considerable lowering of their standard of living," Mises wrote, and consequently "their vital interests are hurt by the protectionist trade policies of the countries producing these primary products." (p. 681) And, as mentioned already, protectionist policies also harm national interests by preventing the exploitation of international differences in prices, interest rates, and wage rates.
With a partially developed division of labor, there is a real conflict of the have-nots against the haves. Modern war, Mises wrote, "is a war to abolish those institutions which prevent the emergence of a tendency toward an equalization of wages all over the world" by conquering territory instead of peacefully extending the division of labor. (p. 499)
War cannot be avoided by having policy focus on domestic interventionism. Government control of domestic businesses cannot achieve its ends unless the state resorts to protectionism. If the government permits labor unions to use violence to exclude competing workers for the purpose of raising its member's wages, for example, the domestic prices of automobiles will rise and consumers will shift demand to cheaper imports. Only tariffs and quotas can prevent the consequent falling back of union wages. But the injury protectionism does to foreigners is engenders conflict. "It is an illusion," Mises wrote, "to assume that those injured will tolerate other nations' protectionism if they believe that they are strong enough to brush it away by the use of arms. The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrine; they are, on the contrary, the inescapable result of a consistent application of these doctrines." (p. 683)
Although the Great Society, and thus durable peace, requires international acceptance of laws defending private property and contract, it does not imply supra-national government. "It is not sovereignty of governments as such that makes for war," wrote Mises, "but sovereignty of governments not entirely committed to the principles of the market economy."
"Liberalism," he continued, "did not and does not build its hopes upon abolition of the sovereignty of the various national governments." Such "a venture... would result in endless wars....What is needed to make peace durable is neither international treaties and covenants nor international tribunals and organizations like the defunct League of Nations or its successor, the United Nations. If the principle of the market economy is universally accepted, such makeshifts are unnecessary; if it is not accepted, they are futile. Durable peace can only be the outgrowth of a change in ideologies." (p. 682).
The second effect of the partial development of the international division of labor is the disparate impact specialized production has on a nation's ability to conduct war. "It was in the [American] Civil War that, for the first time, problems of the inter regional division of labor played the decisive role," wrote Mises, "the South was predominantly agricultural...[it] depended on the supply of manufactures from Europe. As the naval forces of the Union were strong enough to blockade their coast, they soon began to lack needed equipment." (p. 825) The Germans suffered the same problem in both World Wars. They were unable to run the British blockade for needed imports of food. "In both wars," Mises wrote, "the outcome was decided by the battles of the Atlantic." (p. 825)
Critics of the market economy draw the wrong conclusions from these experiences with the partially developed international division of labor. They reason that until the happy day when the Great Society is fully established we must tolerate government control of business in preparation for the next war and when it comes, we must adopt war socialism as the price of victory and when it is over, we must maintain statism in preparation for the next war.
To this cold-war mentality, Mises responded with an analysis of the American experience of the Second World War. "What America needed in order to win the war was a radical conversion of all its production activities" Mises wrote, "If the government had raised all the funds needed for the conduct of war by taxing the citizens and by borrowing from them, everybody would have been forced to cut down his consumption drastically....The government, now by virtue of the inflow of taxes and borrowed money the biggest buyer on the market, would have been in a position to obtain all it wanted." (pp. 822-823) To complete the transition, it is absolutely necessary not to interfere with the consequent changes in prices and profitability so as to give full reign to market incentives necessary to bring about the alterations in production.
Instead, the Roosevelt administration resorted to price controls, quotas, and rationing to prevent the very shifts in demand and changes in prices and profits needed to attain the pattern of production that would meet war aims in the most efficient manner. But "the most important thing in war," Mises wrote, "is not to avoid the emergence of high profits, but to give the best equipment to one's own country's soldiers and sailors." (p. 823)
Unlike economists from other traditions who assert that war is the health of the economy, Mises recognized that war supplants the satisfaction of consumer preferences, even if the government refrains from wartime controls. Reduced standards of living are suffered by the war generation whether government finances the war with taxes, debt, or inflation. "The popular justification of war loans is nonsensical," Mises wrote, "all of the materials needed for the conduct of a war must be provided by restriction of civilian consumption, by using up a part of the capital available and by working harder. The whole burden of warring falls upon the living generation." (p. 228)
While Mises recognized that debt could be justified as a way to shift the burden of the necessary restrictions from one group to another, he deplored permanent government debt. "Long-term public and semipublic credit is a foreign and disturbing element in the structure of the market economy," he wrote, "it is obvious that sooner or later all these debts will be liquidated in some way or other, but certainly not by payment of interest and principle according to the terms of the contract." (p. 228)
If a belligerent government chooses war socialism over financing the war effort, then the economy itself is not redirected but impaired, at best, and ruined at worst. Moreover, war socialism makes the post-war transition to normalcy problematic. If government financing has been used, then when peace comes the government simply reduces taxes, thereby restoring consumer incomes which allows entrepreneurs full scope to reconstruct the division of labor to satisfy consumer preferences once again. Wartime controls, however, supplant entrepreneurial management of business based on profit and loss with bureaucratic management based on rules and regulations. Dismantling such a structure so that normalcy can return is more difficult.
"Capitalism is essentially a scheme for peaceful nations," Mises wrote, "But this does not mean that a nation which is forced to repel foreign aggressors must substitute government control for private enterprise. If it were to do this, it would deprive itself of the most efficient means of defense. There is no record of a socialist nation which defeated a capitalist nation. In spite of their much glorified war socialism, the Germans were defeated in both World Wars." (p. 684)
Presumably the maxim of financing the war through the market, i.e., using the market to provide resources for war, applies to labor as well as materials. Efficiency would require that men and women be allocated into war production by entrepreneurial demand for their services according to profitability; thereby, permitting entrepreneurs to reconstruct the division of labor to satisfy war aims. Soldiers then, as well, could be most efficiently acquired by financing and not by conscription.
Let me conclude with the words Mises used to close his chapter on war: "How far we are today from the rules of international law developed in the age of limited warfare! Modern war is merciless, it does not spare pregnant women or infants; it is indiscriminate killing and destroying. It does not respect the rights of neutrals. Millions are killed, enslaved, or expelled from the dwelling places in which their ancestors lived for centuries. Nobody can foretell what will happen in the next chapter of this endless struggle.... Modern civilization is a product of the philosophy of laissez faire. It cannot be preserved under the ideology of government omnipotence. Statolatry owes much to the doctrines of Hegel. However, one may pass over many of Hegel's inexcusable faults, for Hegel also coined the phrase ‘the futility of victory.' To defeat the aggressors is not enough to make peace durable. The main thing is to discard the ideology that generates war." (p. 828)
