Mises Wire

Bureaucracy: Applying Mises’s Insights to Our Present Day

Human prosperity, contrary to the beliefs of those fanatically obsessed with viewing the government as a savior of humanity, is not guaranteed. For the vast majority of its existence, mankind was impoverished, only recently experiencing unprecedented levels of prosperity and flourishing. This recent state of affairs is not guaranteed to go on forever; its growth could be halted or it could regress the world back to widespread impoverishment if given the right circumstances.

Such conflict manifests itself most clearly in the choice between a capitalist or a socialist society. Should society be organized around a system of voluntary transactions guided by the tool of economic calculation? Or, perhaps, should it be rigidly dictated by the arbitrary rulings of a small group of designated elites, oblivious to where resources would be best allocated? The world most evidently felt the latter during the covid-19 lockdowns that lasted for nearly three years, with an onslaught of dictates and rulings strangling economic freedom, all created under the excuse of protecting public health and safety. Ludwig von Mises’s 1944 book, Bureaucracy, phenomenally analyzes this stark contrast between efficient management under the free market’s system of profit and loss and the government’s system of inherent bureaucracy and inefficiency caused by a lack of price signals.

Given that man does not live in the Garden of Eden, the question of where resources ought to be allocated must be answered. Under capitalism this question is answered through the system of profit and loss. If the producers wish to make a profit, they must obey the demands of the consumers by producing goods individuals are interested in purchasing. Any deviation from the consumer’s wishes—by producing goods that cost more than they are worth—incurs a financial loss. Any prolonged disobedience means financial ruin. As Mises succinctly put it,

The producers do not produce for their own consumption but for the market. They are intent on selling their products. If the consumers do not buy the goods offered to them, the businessman cannot recover the outlays made. He loses his money. If he fails to adjust his procedure to the wishes of the consumers, he will soon be removed from his eminent position at the helm. (2007, 17)

Thus, capitalism, by making it so that the only way producers earn a profit is by satisfying the wants of people, automatically creates a system in which resources are allocated to where they are most needed.

Under a socialist system, however, the tool of profit and loss does not exist because there is no possible way to know if what is being produced is worth more than the resources used to produce it. Economic calculation—that is, accounting to see if resources are being allocated to where they are most wanted—is impossible when what is being produced is not able to be bought or sold. The requirement under a capitalist system that the producers produce what the consumers want does not exist anymore, thus requiring the socialist system to resort to other tools of determining where resources ought to be allocated. Mises put it best when he pointed out how “in public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive” (2007, 38–39).

This lack of a system of economic calculation and thus a need for another tool to substitute it manifests itself in the need for government management to be bureaucratic, to create a system with vast rules and regulations, ensuring that resources are allocated in the way the government deems most fit. There is no possibility of instructing, say, a courthouse or a police station to operate under the goal of making a profit when the funds either service receives are not voluntarily given from consumers valuing those services but are instead received through forceful extortion of the population. Even if the people within a certain area all agree on wanting a police station, there is no system in place for them to go out of business if they do a poor job or for individuals within that area to instead spend their money on another police force that provides them more value. The population being stuck with those services is an inherent part of bureaucracy.

The covid-19 lockdowns, administered entirely in a top-down, bureaucratic fashion due to the mandates being decreed and enforced by the government, are a perfect representation of the socialist system on full display. Business owners were not given the option to choose which procedures that they deemed the most profitable to put in place, and consumers were not given the choice to give money to those businesses who had the procedures or lack of ones they preferred. Rather, businesses were forced to comply with the rules and regulations arbitrarily imposed on them by the government to “help minimize” the spread of covid-19. It didn’t matter if business owners had their own ideas on what to do or if consumers preferred something else and were willing to spend money to prove it; all business owners were told that they had to follow the guidelines or else their businesses would be shut down and their owners fined.

With economic calculation no longer allowed to be used to determine if consumers wanted these mandates in place, the result was the government taking control and shutting down businesses it deemed “unessential.” Mises brilliantly described countries with similar states of affairs like this—places in which bureaucracy had snuffed out most if not all of free enterprise:

Under this system the government has unlimited power to ruin every enterprise or to lavish favors upon it. The success or failure of every business depends entirely upon the free discretion of those in office. . . . They can take away all his property and imprison him. On the other hand, they can make him rich. (2007, 59)

If you and your family want to attend your grandmother’s funeral, that is a choice you are not allowed to make because the state deems it unsafe.

And what then of the situation in which the bureaucrats make the wrong decision? In a capitalist system, producers lose money if they waste resources, which discourages them from making rash decisions that go against what the consumers want. Mises explains,

The consumers are the sovereign people. The capitalists, the entrepreneurs, and the farmers are the people’s mandatories. If they do not obey, if they fail to produce, at the lowest possible cost, what the consumers are asking for, they lose their office. Their task is service to the consumer. Profit and loss are the instruments by means of which the consumers keep a tight rein on all business activities. (2007, 18)

By wasting resources and thus hurting human prosperity, producers are promptly punished, keeping any wasteful habits they have in check.

Does the same system of punishing those who make irrational decisions occur under a bureaucracy? Because there is no system of profit and loss under a socialist system—similar to how no profits can be allocated to those who use resources efficiently—no losses can be allocated to those who use resources wastefully. Under socialism there is no system in place to punish those whose actions result in the wasteful allocation of resources.

The bureaucrats who enforced the covid-19 lockdowns in spite of their futility, who caused millions of jobs and businesses to be lost, who took great pride in squishing anything that even barely resembled human flourishing—did they suffer any consequences for their resource allocation? No, because bureaucrats are not in any way similar to entrepreneurs. They do not suffer losses when they continuously make brash decisions, and they are rarely if at all held accountable for their actions. It has been almost a year since the covid-19 “public health emergency” ended on May 11, 2023, and the only thing these perpetrators of such gross injustice on the lives of everybody have received are calls for forgiveness by their meek defenders, begging people to get over the fact that three years of their lives were taken away from them. The lives of the youth were profoundly impacted through their formative years, and not to mention the spike in their suicide rates. But because these bureaucrats get to control the entire country rather than the businesses they own, we are told that all we need to do is turn the other cheek, accept what they did, and forgive them even though they will inevitably try to do it again.

And so the question remains: What must be done to prevent these intrusions on the capitalist system from ever occurring again? In the final paragraph of Bureaucracy, Mises says, “Against all this frenzy of agitation there is but one weapon available: reason. Just common sense is needed to prevent man from falling prey to illusory fantasies and empty catchwords” (2007, 101). The only way another lockdown can be prevented, along with the possibility that those who perpetrated the first one are finally held accountable for what they did, is through persuading people to realize that they were being used as pawns. Only through reason will the capitalist system prevail and human prosperity continue.


Mises, Ludwig von. 2007. Bureaucracy. New Haven, CT: Yale University Press. Carmel, IN: Liberty Fund. https://mises.org/library/book/bureaucracy.

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