In 1927, the Austrian economist Ludwig von Mises published a short book titled Liberalism: The Classical Tradition. It was a time when free market capitalism was under attack from all sides. Socialism had been implemented in the Soviet Union. The Bolshevik leaders Lenin, Trotsky, and Stalin were finding admirers even among Western intellectuals.
The Marxist variant of socialism was not the only threat. Liberalism was challenged in Europe by Mussolini’s PNF and Hitler’s NSDAP, whose identity politics replaced antagonism based on “class” with “nation” and “race”. Very soon, a crisis would push even the United States to shift from free enterprise to economic interventionism under Hoover and FDR.
At this time, when Adam Smith’s principles were being discarded as unfashionable in both politics and academia, Mises set out to answer a simple question: What allows people to live in peace and pursue prosperity? His answer was “liberalism” in its classical sense - a philosophy centered on private ownership, equal rights, limited government, and free trade.
Mises argued that these ideas are not a collection of unrelated personal preferences. Starting with the fundamental human right to justly acquired property, they form a system that brings both harmony and opulence. Private ownership of the means of production is the foundation of the liberal order because it allows individuals to make independent economic decisions.
If I have secure property rights in myself, my labor, my home, my land, my money, and my business, I am free to choose what, how, and for whom to produce. I can make autonomous decisions about how to dispose of the things that belong to me – consume, sell, rent, save, invest, donate to a cause I support, or bequeath to my spouse and children.
The liberal economic order, a.k.a. capitalism, relies on such voluntary choices to create a decentralized system of cooperation. Billions of people coordinate their activities through market price signals without knowing anything about each other. The baker doesn’t need to like the farmer. They cooperate because each producer has something to offer the other.
Only capitalism can channel our self-interest to generate a rational division of labor on a scale larger than a small village. Our unprecedented prosperity comes from the ability to produce millions of products for people that we’ll never meet. Capitalism is a system in which people compete for the right to cooperate through exchange in the service of their customers.
