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Money, Method, and the Market Process
Ludwig von Mises

19.
Some Observations on Current Economic Methods and Policies

I

If no radical changes in the prevailing political trends and tendencies occur very soon, the system of full government control of human activities will within a few years triumph in all countries this side of the Iron Curtain.

The doctrine today accepted by all those statesmen and politicians who do not openly embrace all the teachings of communism and totalitarianism maintains that it is the duty of the government to interfere with the operation of the market whenever the outcome of this operation appears to the government as "socially" undesirable. This means: the individuals in their production activities and in their buying and selling on the market are free as far as they precisely do what the government wants them to do; but they are not permitted to deviate from the course approved by the authorities. This doctrine of government omnipotence is, of course, today not yet completely enforced. The governments have not yet attained the formal power to control prices and wage rates. But the resistance offered to the enactment of such powers is weakening more and more. The government of the United States, in its endeavors to go on in its reckless inflationary policy, continually threatens the nation with the specter of all-round control of prices and wages. And only a few voices of protest are raised.

People who declare that they are in favor of the preservation of the market economy are called "extremists" and their arguments are not deemed worthy of a refutation. Even members of minority groups join in this enthusiasm for government omnipotence, although this system would deprive them of the only opportunity they have for overcoming the animosity of the majority by excelling in the service of the public, the consumers. Almost all educational institutions, for the most part carefully avoiding the ticklish terms communism and socialism, are propagandizing for?all-round?planning and for "production for use."

Gone are the days when people, and first of all the youth, held liberty in esteem. Our contemporaries long for the "plan," the strict regimentation of everybody's life, work, and leisure by decrees of the paternal dictator.

II

The only goal of production is to provide for the satisfaction of wants, that is consumption. The eminence of the market economy is to be seen in the fact that all production activities are ultimately directed by the consumers. Man is sovereign in his capacity as a consumer. In his capacity as a producer he is bound to comply with the wishes of the consumers.

By their buying and by their abstention from buying the consumers determine all that happens in the sphere of what is commonly called economic affairs. Their behavior ultimately determines everybody's place and function in the social apparatus of production. They allot ownership of the material factors of production to those who have succeeded in directing them into employments in which they best satisfy the most urgent of the needs of the consumers. Property in material factors of production, wealth, can be acquired and preserved in the capitalistic or market economy only by serving the consumers better or more cheaply than others do. Such property is a public mandate, as it were, entrusted to the proprietor under the condition that he use it in the best possible way for the benefit of the consumers. The capitalist must never relax in endeavors to serve the public better and more cheaply. If he feels that he cannot achieve this without help from other people, he must choose adequate partners or lend his funds to such men. Thus there is built into the system of the market economy a mechanism, as it were, that inexorably forces the owners of all material factors of production to invest them in those lines in which they best serve the consumers.

In a similar way the consumers determine the height of the earnings of those working for salaries and wages. The employer is under the necessity of paying to each helper the full price the consumers are prepared to refund to him for what this worker has contributed to the qualities of the product. He cannot pay more, for then the employment of the worker would involve a loss; neither can he pay less, for then his competitors would lure away the job seekers from his plant. It is not the valuation of the employer, but that of the consumers that is instrumental in granting high wages to popular actors and athletes and low wages to street sweepers and charwomen.

That this system benefits all nations and all individuals within every nation has been spectacularly demonstrated by the unprecedented increase in population figures it has brought about. Wherever governments and pressure groups resorting to violent action have not fully succeeded in their endeavors to sabotage the operation of the market, industry has provided the masses with amenities of which the wealthiest princes and nabobs of the past did not even dream.

If one compares economic conditions in the most prosperous parts of the earth with those in the so-called underdeveloped countries, one cannot help realizing the correctness of the fundamental principle of nineteenth-century economic liberalism. Against the vagaries and revolutionary delusions of the socialist and communist agitators, the economists opposed the thesis: there is but one method available to improve the conditions of the whole population, viz., to accelerate the accumulation of capital as against the increase in population. The only method of rendering all people more prosperous is to raise the productivity of human labor, i.e., productivity per man hour, and this can be done only by placing into the hands of the worker more and better tools and machines. What is lacking in the countries usually described as underdeveloped is saving and capital accumulation. There is no substitute for the investment of capital. If any further proof of this fundamental principle were needed, it is to be seen in the eagerness of all backward nations to get foreign capital for their industries.

III

In dealing with the pros and cons of socialist management, one unfortunately neglects to pay sufficient attention to those effects which are commonly considered as non-economic. One fails to pay attention to the human aspect of the problem.

The distinctive feature of man consists in his initiative. An animal's life takes precisely the course peculiar to all members of the species it belongs to. A deviation from this line can be brought about only be external force, the interference of a human will. But man is in a position to choose between various ways of conduct open to him. His fate depends to some extent on the mode in which he reacts to the conditions of his environment and integrates himself into the social system of peaceful cooperation. He is, within definite limits drawn by nature, the founder of his fortune. Not to be restricted in the pursuit of his own plans by anything else than the same freedom accorded to his fellow men, is what is commonly called freedom. Freedom does not mean unbridled license to indulge in any acts of ferocity and it does not conflict with the operation of a "state," i.e., a social apparatus for the violent repression of the recourse to brute force on the part of unruly individuals or gangs. On the contrary, it can work only where the peaceful cooperation of individuals is protected in such a way against oppression and usurpation.

Constitutional government by elected officeholders?representative government?is an institution to give the citizens in the administration of public affairs a supremacy as far as possible analogous to the sovereignty they enjoy in their capacity as consumers in the market economy. Supplanting the rule of the aristocratic lords of the feudal ages and all systems of slavery and serfdom, it developed in the countries of Western civilization simultaneously with the gradual disintegration of the economic self-sufficiency of families, villages, counties, and nations and the evolution of the world-embracing system of the international division of labor. It is the political corollary of the economic democracy of the market economy, and it gives way to a dictatorial regime whenever and wherever the voluntary cooperation of men under the system of free markets is abolished by the establishment of any kind of socialist management.

For the planned economy is the most rigid system of enslavement history has ever known. Its advocates implicitly admit it in calling it a method of social engineering, that is: a system that deals with human beings?with all of them but the supreme dictator?in the way in which the engineers deal with the dead material out of which they build houses, bridges, and machines. To the individual no other choice is left but between unconditional surrender or hopeless rebellion. Nobody is free to deviate from the role the plan assigns to him. From the cradle to the coffin all actions of a man as well as his behavior in the time styled leisure hours are exactly prescribed by the authorities.

Such are conditions in the regime after which the immense majority of our intellectuals and the masses of common men are passionately hankering. The children and grandchildren of the generations that were full of enthusiasm for liberty are enraptured by the image of a utopia in which they themselves will be nothing but pawns in the hands of other people. To those familiar with the long history of the struggles for freedom it gives a peculiar impression to see today the old and the young, the professors and the ignorant, the artists and the boors longing for the unlimited rule of "big brother."

This infatuation of the intelligentsia as well as of the illiterate masses is so firm that no adverse experience can weaken it. The more information about the real state of affairs in the communist countries reaches the Western nations, the more fanatical become the daily swelling ranks of those longing for the "dictatorship of the proletariat."

IV

The radical change that has buried in oblivion the ideal of liberty and extols to the skies unconditional submission to the "plan" is reflected in the alteration of the meaning of almost all terms designating political parties and ideologies.

In the nineteenth century the term liberal (derived from liberty) denoted those aiming at representative government, at government by laws and not by men, and at restricting the power of the government to the preservation of peaceful interhuman relations against any possible attacks on the part of domestic gangsters or of external foes. Today in the United States to be liberal means: to advocate full government control of all human activities in domestic policy and, in foreign policy, to sympathize with all revolutions aiming at the establishment of a communist dictatorship. No term is left to signify those who favor the preservation of the market economy and of private property in the material factors of production. Such "reactionaries" are not considered worthy of having a party name.

In some parliamentary chambers of nineteenth-century Europe the members of the party advocating government by the people and full civil liberties were seated to the left of the chairman. Hence the designation left came into use to signify them and the designation right to signify their opponents, the advocates of despotic government. In present-day American usage the meaning of these terms has been inverted. The champions of the "dictatorship of the proletariat," of the Russian and Chinese methods of unlimited tyranny of those in power, are nowadays called leftists and the advocates of constitutional government and civil liberties rightists. In this terminology not only Lenin, who on January 6, 1918, dispersed the Constituent Assembly by military force, is to be called a leftist, but no less his predecessors in the impolite treatment of parliaments: Oliver Cromwell and the two Napoleons. But Karl Marx, who vehemently rejected this Bonapartist method of suppressing the opposition in one of his best known pamphlets, [1] would have a fair claim to be qualified as a member of the "extreme right."

The truth is that any kind of socialist or communist regime is incompatible with the preservation of civil liberties and representative or constitutional government. Representative government and civil liberties are the constitutional or political corollary of capitalism as unlimited despotism is the corollary of socialism. No semantic prattle can alter this fact. The socialist movement is not a continuation of the liberal movement of the nineteenth century, but the most radical reaction against it. The total state of the Lenin and Hitler pattern is the embodiment of the ideals of all the great tyrants of all ages.

V

Unintentionally the words a man chooses in his speaking and writing reveal something about his ideas that he would not be prepared to express directly.

The noun revolution originally signified a revolving motion and then a transformation. But since the American and the French Revolutions it means first of all violence, civil war, war against the powers that be. When Arnold Toynbee used for his rather biased account of the evolution of modern industrialism in England (first published in 1884) the title Industrial Revolution he unintentionally disclosed his interpretation of history as a succession of violent conflicts, of killing and destroying.

The same disposition explains the use of the expression "the conquest of a market" to describe the fact that Ruritanian merchants succeeded in selling their wares in Laputania.

Many more examples could be quoted. But it is sufficient to mention one: the United States' "war against poverty." The only method of reducing poverty and of supplying people more amply with consumers' goods is to produce more, better, and cheaper. This is what profit-seeking business aims at and achieves, provided sufficient capital has been accumulated by saving. All that a government can do in this process is to protect the operation of the market economy against violent or fraudulent aggression. What lessens poverty is not taking something away from Paul and giving it to Peter, but making commodities more easily accessible by producing more, better and cheaper. There is nothing in this sequence of events for the appellation of which the term "war" would seem to be adequate. A governmental system that spends every year billions of dollars of the taxpayers' money to make essential foodstuffs, cotton and many other articles more expensive should certainly have the decency not to boast of an alleged war against poverty.

VI

What distinguishes the mentality of our contemporaries most radically from that of their grandparents is the way they look upon their relation to the government. To the nineteenth-century liberals state and government appeared as institutions to give to the people the opportunity to live and to work in peace. Everything else, the development of material welfare as well as the cultivation of man's moral, intellectual, and artistic faculties, was the concern of the individuals.

The citizens had to comply with the laws of the country and they had to pay taxes to defray the costs incurred by the government apparatus. In their household accounts the state was an item of expenditure. Today the individual sees in the state the great provider. Together with his fellows organized as a pressure group, he expects material assistance from the authorities. He is convinced that the state's funds are inexhaustible as it can fleece the rich endlessly.

The state which the citizens supported in paying taxes could be democratic. The state from which the citizens are getting subsidies cannot remain democratic. People competing with one another for bounties submit humbly to the candidate for dictatorship bidding the most.

What the masses in their thirst for lucre do not see is that they themselves will have to pay the costs of the "presents" the government gives them. Inflation, the main source of the Santa Claus state's funds, makes their savings wither away. While investors in real estate and common stock profit from the progressive weakening of the monetary unit's purchasing power during an inflation, the investments of the less wealthy strata, predominately consisting in savings deposits, bonds, and insurance policies, melt away. The popularity inflationary measures enjoy among the masses of wage earners, who are victimized by them more than the rest of the nation, shows clearly their inability to see what their genuine interests really are.

[This Article was written in 1951 and is previously unpublished?Ed.]

[1] The Eighteenth Brunmaire of Louis Bonaparte [1852], Daniel de Leon, trans., 3rd ed. (Chicago: H. Kerr, 1913).

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