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Socialism vs. Market Exchange

August 7, 2002

[This is the last formal talk of Ludwigvon Mises [1881-1973], delivered May 2, 1970 at an economic seminar sponsored by The Society of Praxeology in Seattle, Washington. It was attended by 600 students, teachers, and others. This text was transcribed from audiotape by Bettina Bien Greaves and edited, primarily for syntax and punctuation, by Percy L. Greaves, Jr.. It has been made available to the Mises Institute by Mrs. Greaves, and has never before appeared in print.]

Ladies and Gentlemen:

It is difficult for me to address this group that has already had so many excellent speakers and will probably have still more of them in the future. But I don’t want to spend time on nice words of introduction. I want to enter into the middle of things, in media res, in order to use my limited time in the best possible way.

Human beings are not only a biological class—a class of people connected or related to one another by biological facts. Human beings are not only relatives to one another; they are also collaborators. They are not only biologically very closely related; they are also—to use a term which was unknown only a few decades ago— a "praxeological" class. They are spiritually and intellectually close together and they are close together also in the way in which they are living and working. They are collaborators. Collaborators are not only people who cooperate with one another. They are also people who, before they start cooperating, are thinking in the same way and are bringing about a state of affairs which we could speak of as the unity of a group or a class.

There are several patterns of collaboration. Only one pattern is known to  people who look only at how small groups of people collaborate with one another. These people see only the organized collaboration—the collaboration which is led by individuals who give directions to others to follow their leaders. This organized system of collaboration is extremely popular. It is extremely well known, especially from the political point of view. It is a system into which individuals are integrated in a special way. It is an organized system, a system which we can very easily describe. It is the system known today as "socialism."

Socialism is a cooperation of people, but a special kind of cooperation. There is one individual, or one group or class of individuals, that gives the direction to all other members of the group for their whole way of cooperation. In a socialist system there is one will that determines everything and all the people, all the members of the system, have to comply with the orders and provisions made by a small group or even by only one individual who is leading the whole organization. In the most elaborated socialist system that the world has known up to now, in the theoretically best elaborated socialist system, the leader was called the Führer. Führer means the head, the guide. Under the Führer principle, one man alone determines where and how the whole system has to work. In this system there is only one will that determines everything. There are no controversies. There is only the leader, the Führer, at the head. The others have to obey and to follow.

This system is very well known. It can be very well and very easily described; but it is a system whose consequences and effects are known to very few people, if to any at all. Under the Führer principle, under the kind of collaboration which we call socialism, under an organized or "planned" society, under this system, there is one central will that determines everything and all the other people have to follow. They have to obey. They are followers. There is certainly under such a system no waste of actions and of powers but this alone doesn’t mean anything. It means only that we have to say that all the other people have no will of their own, no possibility, no opportunity, no power, to influence the direction of the whole system, the direction of the cooperation and collaboration of the people.

Socialism is a wonderful system; it is wonderful, very good, excellent, if we accept the ideas of the Führer—if we only accept the ideas of the Führer who leads the whole thing to the end. But it is a very different thing if we look at it from the point of view of reality. In real life, we realize that there are different ideas, different wishes, different plans and different individuals. In real life we realize that these individuals, the immense majority of people, would be extremely unhappy if they had to abandon their own wishes, plans and wills and had only to obey the orders of other people. This system, a system that lacked freedom for all individuals but one, we would call a prison system if we were not committed to a fundamental mistake which is in fact the fundamental reason why so many people accept the ideas of socialism and the general direction of all human affairs.

People accept socialism from the point of view of their own ideas. They are fully convinced that a socialist system will proceed precisely in the way in which they themselves would like to proceed. They are fully convinced that all other people would be forced to adapt themselves to this system, which of course they themselves consider as the best and the only possible system. When we talk about socialism we assume, if we are in favor of it, that the socialist system will work precisely in the way in which the individual socialist wants it to work. We assume that this system, this method, will bring about precisely those effects and those situations which this individual supporter of the socialist idea wants to have attained.

If we assume that this system will also have the power to determine everything that an individual does with regard to what are commonly called religious problems, we must also assume that such a system of socialism would adopt one specific religious system. It would make all other religious systems systems of persecuted minorities.

In considering socialist conditions we never think that this socialist system could force people to do things which they consider the worst of all possible things. We have, therefore, a state of affairs which we can only qualify as simply a state of bad thinking. People believe, people say, "I am in favor of socialism." They may use some other terms which are synonyms for the word "socialism," but they assume that this system of socialism will be precisely the system which they themselves consider in every regard as the only good system, the only system that ought to exist. They assume that all other systems, all other methods whatever of doing things, the good things, the great things, the noble things, and the common everyday things, are methods they don’t want to tolerate.

The idea of socialism may be considered by some people as a very wonderful and great idea. People may assume that it would be a wonderful thing if the whole world would be dedicated, fully dedicated, to only one definite method of working, thinking and living and would reject all other methods as, let us say, bad. But the question is always, and this question is not always considered sufficiently, the question is, will this system be precisely a system which I can support, will support, may support?

The ideal of socialism was always connected with the firm conviction that there is only one good plan possible and that only one plan ought to be put into practice, and that all the other plans for deciding affairs should be forbidden and considered as illegal, as unreal, as immoral, and so on. The great popularity that socialism enjoys in broad spheres of the world is due to the fact that people always believe that socialism will, of course, support only the right things and not the bad things and that the bad things would be prohibited. What is good and what is bad, what is right and what is wrong, would, of course, be decided by my wishes, by my feelings, by what I have in mind.

The great popularity of socialism consists precisely in the fact that people always consider themselves as members of the ruling majority, of the ruling power of a socialist system, and never as members of a group whose thinking, feelings and teachings are not permitted, not tolerated, not accepted by the majority. Therefore, when we are talking about socialism we are always forgetting that it could happen under socialism that I will not belong to the members of the majority or to the group which, although a minority, has various technical methods with which to rule the whole world and the power to persecute all dissenters. People are fully convinced that this system will be wonderful for me, just for me. They don’t care whether it will also be wonderful for other people. So the great popularity of all such systems consists precisely in the fact that people are convinced that their own ideas, their own plans, and their own methods are the right ones and will be the only ones permitted.

Let us compare this system of rigid monocracy with the system of the market economy, the system of liberalism, the system in which everyone or every group is chosen by other people. When we compare these two systems, we see there is certainly under the market system an imperfect state of affairs. People then ask, why should so many good people not accept socialism? What these people do not see is that, seen from the point of view of human cooperation, of human coexistence, we have only one way to bring about full unanimity in every regard, of thinking and acting and this is by prohibiting any deviation and by persecuting the people who are deviating from what is accepted by those who have the power to force the dissenters into subjection. We have, therefore, to realize that human conditions would have developed in a very different way if there had always been people who used force to make their own ideas, their own methods of acting and living supreme in the whole world and to prohibit everything else.

We had, it is true, a way out. We must say that it could be that in one part of the world, among one group of people, there could be one system and among other people another system. That means a state of affairs in a world in which there would be many independent states, and in each of these independent states a different system of strict socialism, of strict determination by the ruling group of everything that would prevail. This would have brought about a world of many groups, probably fighting one another; fighting one another because if you consider certain things as absolutely necessary, you will not tolerate the development of other ideas by other groups beyond the borders of your own country. That we have human civilization, that we have realized certain improvements in the course of the centuries is due to the fact that such a general system that rules the whole world has never been realized and never been accepted, although there have been many groups in the course of history who have tried to bring this about.

There were groups who thought that it was their right, their duty, to use their power to force all other people to submit. There were wars of this type, religious wars, for instance, in which people tried to force a group of people of different religions to submit to and accept their own religion. There were hundreds and hundreds of years of struggles concerning such problems. Finally, out of these fights and wars there emerged the idea that people are different and that it is not absolutely necessary to have a state of affairs in which all other people are forced to behave precisely in the way in which a certain dictator wants them to behave. There developed the system of cooperation in a state of affairs in which people can cooperate because they are committed to the same ideas. It is not necessary that people act in precisely the same way, behave in the same way and think in the same way in which other people do.

What is needed is what has brought about and what has really started human civilization as we know it. What is needed is the system of cooperation in those fields in which cooperation is accepted by the greater and smaller groups. As a result, we have, over the course of the centuries, had the development of systems that are based on what is called the exchange. The exchange derives from the Latin words so often used to describe in the most simple way the characteristic conditions, do ut des—I give in order that you should give—meaning I give in order to exchange with you. In the course of the centuries, this brought about all those conditions which we now consider as conditions of modern civilized life.

We may say, of course, that under some other conditions it might have been better than under the system of market economy. Under the system of the exchange of goods, there still prevail many undesirable things which would have disappeared if, if! a super human being, not limited in any way, had had the power to organize and to order all human affairs. We have the exchange system. This exchange system has, in the thousands of years of human history, developed into a system in which people who are prepared to cooperate with one another are cooperating—a system in which people even enter into a restricted kind of cooperation with other groups in whose minds other ideas prevail. We have a system in which I can do something in order to satisfy another man from whom I expect to get something in return. We have a system of the exchange of actions and the exchange of the products of these actions, and we have this system based on the exchange of services. One man renders a service in the expectation of receiving another service from those people to whom he has rendered his service.

We have elaborated this system of exchange with the technical help of media of exchange. It is not necessary that one man should find another man who is precisely able to give him what he seeks for what he gives to this other man. It is enough if we can elaborate such a system by the use of so-called media of exchange. What has been done, as everybody knows, is the elaboration of the system of exchange with the use of media of exchange. This human system, as it exists in the world today, consists in the fact that people are doing something in order to receive something for what they have done as a premium for their own services.

This system has been elaborated by the use of media of exchange. This means that people are not always giving away or exchanging exactly what they have produced against the thing which they themselves want to consume or to have. It is possible to use some medium of exchange that enters into the indirect exchanges of the group. We have in this way elaborated a complete system of civilization and human action that works satisfactorily.

We have the system of the money economy. People are saying how dirty, how bad, it is to do something for somebody else only because you are expecting something from him. But it is not so bad, you know. It is the condition in which human life can exist. It is necessary in this situation to have some media of exchange because a man who wants to give to receive something, does not always have what the other man, from whom he wants to receive it, would accept as a compensation. We have, therefore, developed a system of the media of exchange, a system of money, which makes it possible for the individual to offer something in exchange for an action made by somebody else who is very different from him in every regard.

Over several thousand years, we have developed a practical system in which people can use their different qualities, their different knowledge, their different abilities and the various things which they find in their geographical environment, in order to receive from other people other things which they want to have or obtain. We have developed in this way a system of markets.

The market, people say, is something very common, you know. People ask: Why give something to another only when you are expecting to get something from him? This may or may not be a stupid objection, but the fact is that it brought about the development of human civilization of which we are so proud today. Because of this we have made enormous progress against the conditions as they existed in the past ages. We may say how common it is to give to another man something to drink only because you want to receive something from him. I don’t want to say whether this is very noble or whether it is common or not. It is the basis of our civilization—the exchange of commodities and services. It was this exchange of commodities and services which brought about our civilization as we know it. This system has only one alternative. This alternative is the Führer principle. The Fuhrurtum, a system with a central dictator who brings about everything by punishing some and by rewarding others. This is the only alternative to our common marketing system—a system in which people are always trying to get something better by giving away something and receiving payment for it. In our common system, you should be free to render services as far as you can render them and receive a premium for them. This market system which we have may not be so noble from the point of view of a theoretical nobility, but it is the system that brought about all those things which we know and have today. It has succeeded in doing away with many diseases and with providing for the sick people and for those who, for some other reasons, are prevented from doing something. It is a system in which they too can live and enjoy life. All this is due to the fact that we have created this wonderful marketing system.

We have created this world market that makes it possible that somebody who gets some disease in Europe can find the cure, the only available known cure against it. This cure is available even though it may be necessary to travel thousands and thousands of miles and establish many establishments for which their building and construction may have required years or even decades. We have established this wonderful system in which, of course, only the people who are healthy and have the power to work can actively participate. But we have this system connected with another system which makes it also possible to give and provide for those who are not in a position to provide for themselves.

We have therefore a system in which we have to say the center of our activities is the do ut des, I give in order to receive something. In this system, we have established the medium of exchange for technical reasons because it makes these exchanges possible. This system with its use of a medium of exchange, money, requires certain special rules in order that we do not lose the goals which we seek to attain. We can therefore say that thousands and thousands of years ago mankind started with very low standards of living, with very simple things, with absolute ignorance of all those things which we consider the highest things of life, In these thousands and thousands of years mankind has developed this system in which there are so many things which can be considered as fully satisfactory. However, even within sight of these many fully satisfactory things, there prevail today many things which are still very unsatisfactory. But we have seen that this system developed step by step from the fact that individuals tried to bring about some method of doing away with unsatisfactory conditions and even, in many cases, making very unsatisfactory conditions much less unsatisfactory, if not fully satisfactory.

This system is based on the market. It is based on the exchange on the market against media of exchange. Such media of exchange are needed in order to bring about a system in which people can do those things which we today consider, after thousands of years of development, as absolutely necessary and absolutely satisfactory. People are, therefore, not justified in looking down upon these conditions of market exchange, of money, of selling things at the highest possible price that can be received, as though all these absolutely necessary conditions belong to the lower things of life just because some conditions in the world are unsatisfactory. To make conditions more satisfactory requires in many cases such things as being selfish—requires acting in a way in which one tries to get the best that can be received in exchange ratios, and so on.

We have certainly not reached an ideal state of affairs. We cannot reach such an ideal state of affairs because conditions in the world are such that men must work in order to feed themselves. This may be, let us say, less pleasant than just enjoying life without any necessity to work. In the system we have brought about, the medium of exchange, money, plays an important role. It plays a role that cannot, as far as we can see, be substituted for by anything else. Therefore, we cannot say the conditions in the world are not very satisfactory because you must try to bargain, you must try to exchange, what you have against other things which you want to acquire, and so on. Some people say this is not very pleasant, that this belongs to the baser strata of human life and human activities. This is not true.

All the great things which men have brought about, the arts, all the noble things which men have done, the help given to people who need help, the help given to people who are in bad conditions, all these things would be impossible if we had not developed over the course of centuries a market system in which we are improving more and more the methods of preserving human life, making it purer and making it more satisfactory from both the ethical and artistic points of view. Therefore, if we are contrasting the bad conditions of the world with the ideals which we have in our minds about a finer and higher world, we must say such comparisons have no value at all.

What has made people better, what has given people better conditions and what has created all those things which we today consider as the pride of human accomplishment, was not due to some declamations, some talks, some dreams about a better world, or some attempts to realize a better world by the power of arms. What brought about all these things was the daily fine works of people, the attempts of people to improve their own conditions by working hard and by doing things which were unknown to previous ages, and even to themselves in their previous times. Therefore, we must say the market system—the system of producing something for the sake of giving it away, but only for giving it away to people who themselves are giving something away to us for our improvement, this market system may be considered a very common, but yet a very necessary system. This system may not compare with certain manifestations of human life in art, in religion, in philosophy, and so on, but it is the system that has improved everything. It is the system that has converted people, whose ancestors were living on a scale of life which we now consider extremely unsatisfactory, into descendants who are continually committed to the idea of improving conditions by working more and more, by studying the conditions of nature more and more and by finding out better and better methods to fight all those things which we consider unsatisfactory. This is the right way for men to live. Therefore, if some people say everything on this earth is bad and the only satisfactory things from the point of view of a higher philosophy is to retire from active duty and live as anchorites used to live, our answer to them is "No!"

Look around and where you see even the smallest improvement of conditions, you may say this is the effect of the intentions and of the works of our ancestors. We have only one method of improving conditions. This is to do the same as they did, to try to attain more and more, improve our conditions more and more.

Thank you!


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