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Part Four: Catallactics or Economics of the... > Chapter XV. The Market

3. Capitalism

All civilizations have up to now been based on private ownership of the means of production. In the past civilization and private property have been linked together. Those who maintain that economics is an experimental science and nevertheless recommend public control of the means of production, lamentably contradict themselves. If historical experience could teach us anything, it would be that private property is inextricably linked with civilization. There is no experience to the effect that socialism could provide a standard of living as high as that provided by capitalism7.

The system of market economy has never been fully and purely tried. But there prevailed in the orbit of Western civilization since the Middle Ages by and large a general tendency toward the abolition of institutions hindering the operation of the market economy. With the successive progress of this tendency, population figures multiplied [p. 265] and the masses' standard of living was raised to an unprecedented and hitherto undreamed of level. The average American worker enjoys amenities for which Croesus, Crassus, the Medici, and Louis XIV would have envied him.

The problems raised by the socialist and interventionist critique of the market economy are purely economic and can be dealt with only in the way in which this book tries to deal with them: by a thorough analysis of human action and all thinkable systems of social cooperation. The psychological problem of why people scorn and disparage capitalism and call everything they dislike "capitalistic" and everything they praise "socialistic" concerns history and must be left to the historians. But there are several other issues which we must stress at this point.

The advocates of totalitarianism consider "capitalism" a ghastly evil, an awful illness that came upon mankind. In the eyes of Marx it was an inevitable stage of mankind's evolution, but for all that the worst of evils; fortunately salvation is imminent and will free man forever from this disaster. In the opinion of other people it would have been possible to avoid capitalism if only men had been more moral or more skillful in the choice of economic policies. All such lucubrations have one feature in common. They look upon capitalism as if it were an accidental phenomenon which could be eliminated without altering conditions that are essential in civilized man's acting and thinking. As they neglect to bother about the problem of economic calculation, they are not aware of the consequences which the abolition of the monetary calculus is bound to bring about. They do not realize that socialist men for whom arithmetic will be of no use in planning action, will differ entirely in their mentality and in their mode of thinking from our contemporaries. In dealing with socialism, we must not overlook this mental transformation, even if we were ready to pass over in silence the disastrous consequences which would result for man's material well-being.

The market economy is a man-made mode of acting under the division of labor. But this does not imply that it is something accidental or artificial and could be replaced by another mode. The market economy is the product of a long evolutionary process. It is the outcome of man's endeavors to adjust his action in the best possible way to the given conditions of his environment that he cannot alter. It is the strategy, as it were, by the application of which man has triumphantly progressed from savagery to civilization.

Some authors argue: Capitalism was the economic system which brought about the marvelous achievements of the last two hundred years; therefore it is done for because what was beneficial in the past [p. 266] cannot be so for our time and for the future. Such reasoning is in open contradiction to the principles of experimental cognition. There is no need at this point to raise again the question of whether or not the science of human action can adopt the methods of the experimental natural sciences. Even if it were permissible to answer this question in the affirmative, it would be absurd to argue as these a rebours experimentalists do. Experimental science argues that because a was valid in the past, it will be valid in the future too. It must never argue the other way round and assert that because a was valid in the past, it is not valid in the future.

It is customary to blame the economists for an alleged disregard of history. The economists, it is contended, consider the market economy as the ideal and eternal pattern of social cooperation. They concentrate their studies upon investigating the conditions of the market economy and neglect everything else. They do not bother about the fact that capitalism emerged only in the last two hundred years and that even today it is restricted to a comparatively small area of the earth's surface and to a minority of peoples. There were and are, say these critics, other civilizations with a different mentality and different modes of conducting economic affairs. Capitalism is, when seen sub specie aeternitatis, a passing phenomenon, an ephemeral stage of historical evolution, just the transition from precapitalistic ages to a postcapitalistic future.

All these criticisms are spurious. Economics is, of course, not a branch of history or of any other historical science. It is the theory of all human action, the general science of the immutable categories of action and of their operation under all thinkable special conditions under which man acts. It provides as such the indispensable mental tool for dealing with historical and ethnographic problems. A historian or an ethnographer who neglects in his work to take full advantage of the results of economics is doing a poor job. In fact he does not approach the subject matter of his research unaffected by what he disregards as theory. He is at every step of his gathering of allegedly unadulterated facts, in arranging these facts, and in his conclusions derived from them, guided by confused and garbled remnants of perfunctory economic doctrines constructed by botchers in the centuries preceding the elaboration of an economic science and long since entirely exploded.

The analysis of the problems of the market society, the only pattern of human action in which calculation can be applied in planning action, opens access to the analysis of all thinkable modes of action and of all economic problems with which historians and ethnographers are confronted. All noncapitalistic methods of economic [p. 267] management can be studied only under the hypothetical assumption that in them too cardinal numbers can be used in recording past action and planning future action. This is why economists place the study of the pure market economy in the center of their investigations.

It is not the economists who lack the "historical sense" and ignore the factor of evolution, but their critics. The economists have always been fully aware of the fact that the market economy is the product of a long historical process which began when the human race emerged from the ranks of the other primates. The champions of what is mistakenly called "historicism" are intent upon undoing the effects of evolutionary changes. In their eyes everything the existence of which they cannot trace back to a remote past or cannot discover in the customs of some primitive Polynesian tribes is artificial, even decadent. They consider the fact that an institution was unknown to savages as a proof of its uselessness and rottenness. Marx and Engels and the Prussian professors of the Historical School exulted when they learned that private property is "only" a historical phenomenon. For them this was the proof that their socialist plans were realizable8.

The creative genius is at variance with his fellow citizens. As the pioneer of things new and unheard of he is in conflict with their uncritical acceptance of traditional standards and values. In his eyes the routine of the regular citizen, the average or common man, is simply stupidity. For him "bourgeois" is a synonym of imbecility [p. 268] 9. The frustrated artists who take delight in aping the genius's mannerism in order to forget and to conceal their own impotence adopt this terminology. These Bohemians call everything they dislike "bourgeois." Since Marx has made the term "capitalist" equivalent to "bourgeois," they use both words synonymously. In the vocabularies of all languages the words "capitalistic" and "bourgeois" signify today all that is shameful, degrading, and infamous10. Contrariwise, people call all that they deem good and praiseworthy "socialist." The regular scheme of arguing is this; A man arbitrarily calls anything he dislikes "capitalistic," and then deduces from this appellation that the thing is bad.

This semantic confusion goes still further. Sismondi, the romantic eulogists of the Middle Ages, all socialist authors, the Prussian Historical School, and the American Institutionalists taught that capitalism is an unfair system of exploitation sacrificing the vital interests of the majority of people for the sole benefit of a small group of profiteers. No decent man can advocate this "mad" system. The economists who contend that capitalism is beneficial not only to a small group but to everyone are "sycophants of the bourgeoisie." They are either too dull to recognize the truth or bribed apologists of the selfish class interests of the exploiters.

Capitalism, in the terminology of these foes of liberty, democracy, and the market economy, means the economic policy advocated by big business and millionaires. Confronted with the fact that some--but certainly not all-wealthy entrepreneurs and capitalists nowadays favor measures restricting free trade and competition and resulting in monopoly, they say: Contemporary capitalism stands for protectionism, cartels, and the abolition of competition. It is true, they add, that at a definite period of the past British capitalism favored free trade both on the domestic market and in international relations. This was because at that time the class interests of the British bourgeoisie were best served by such a policy. Conditions, however, changed and today capitalism, i.e., the doctrine advocated by the exploiters, aims at another policy.

It has already been pointed out that this doctrine badly distorts both economic theory and historical facts11. There were and there will always be people whose selfish ambitions demand protection for vested interests and who hope to derive advantage from measures restricting competition. Entrepreneurs grown old and tired and the decadent heirs of people who succeeded in the past dislike the agile [p. 269] parvenus who challenge their wealth and their eminent social position. Whether or not their desire to make economic conditions rigid and to hinder improvements can be realized, depends on the climate of public opinion. The ideological structure of the nineteenth century, as fashioned by the prestige of the teachings of the liberal economists, rendered such wishes vain. When the technological improvements of the age of liberalism revolutionized the traditional methods of production, transportation, and marketing, those whose vested interests were hurt did not ask for protection because it would have been a hopeless venture. But today it is deemed a legitimate task of government to prevent an efficient man from competing with the less efficient. Public opinion sympathizes with the demands of powerful pressure groups to stop progress. The butter producers are with considerable success fighting against margarine and the musicians against recorded music. The labor unions are deadly foes of every new machine. It is not amazing that in such an environment less efficient businessmen aim at protection against more efficient competitors.

It would be correct to describe this state of affairs in this way: Today many or some groups of business are no longer liberal; they do not advocate a pure market economy and free enterprise, but, on the contrary, are asking for various measures of government interference with business. But it is entirely misleading to say that the meaning of the concept of capitalism has changed and that "mature capitalism"--as the American Institutionalists call it--or "late capitalism"--as the Marxians call it--is characterized by restrictive policies to protect the vested interests of wage earners, farmers, shopkeepers, artisans, and sometimes also of capitalists and entrepreneurs. The concept of capitalism is as an economic concept immutable; if it means anything, it means the market economy. One deprives oneself of the semantic tools to deal adequately with the problems of contemporary history and economic policies if one acquiesces in a different terminology. This faulty nomenclature becomes understandable only if we realize that the pseudo-economists and the politicians who apply it want to prevent people from knowing what the market economy really is. They want to make people believe that all the repulsive manifestations of restrictive government policies are produced by "capitalism."

  • 7. For an examination of the Russian "experiment" see Mises, Planned Chaos (Irvington-on-Hudson, 1947), pp. 80-87 (reprinted in the new edition of Mises, Socialism [New Haven, 1951] pp. 527-592).
  • 8. The most amazing product of this widespread mode of thought is the book of a Prussian professor, Bernhard Laum (Die geschlossene Wirtschaft [Tubingen, 1933]). Laum assembles a vast collection of quotations from ethnographical writings showing that many primitive tribes considered economic autarky as natural, necessary, and morally good. He concludes from this that autarky is the natural and most expedient state of economic management and that the return to autarky which he advocates is "a biologically necessary process." (p. 491).
  • 9. Guy de Maupassant analyzed Flaubert's alleged hatred of the bourgeois in Etude sur Gustave Flaubert (reprinted in Oeuvres completes de Gustave Flaubert [Paris, 1885], Vol, VII). Flaubert, says Maupassant, "aimait le monde" (p. 67); that is, he liked to move inthe circle of Paris society composed of aristocrats, wealthy bourgeois, and the elite of artists, writers, philosophers, scientists, statesmen, and entrepreneurs (promoters). He used the term bourgeois as synonymous with imbecility and defined it this way: "I call bourgeois whoever has mean thoughts (pense bassement)." Hence it is obvious that in employing the term bourgeois Flaubert did not have in mind the bougeoise as a social class, but a kind of imbecility he most frequently found in this class. He was full of contempt for the common man ("le bon peuple") as well. However, as ha had more frequent contacts with the "gens du monde" than with workers, the stupidity of the former annoyed him more than that of the latter (p. 59). These observations of Maupassant held good not only for flaubert, but for the "anti-bourgeois" sentiments of all artists. Incidentally, it must be emphasized that from a Marxian point of view Flaubert is a "bourgeois" writer and his novels are an "ideological superstructure" of the "capitalist or bourgeois mode of production."
  • 10. The Nazi's used "Jewish" as a synonym of both "capitalist" and "bourgeois."
  • 11. Cf. above, pp. 80-84.