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3: Personal Liberty - Ludwig von Mises, Socialism: An Economic and Sociological Analysis 
Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
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It is customary to describe the position of the individual under Socialism by saying that he would be unfree, that the socialist community would be a “prison state.” This expression contains a judgment of value which, as such, lies outside the sphere of scientific thought. Science cannot decide whether freedom is a good or an evil or a mere matter of indifference. It can only inquire wherein freedom consists and where freedom resides.
Freedom is a sociological concept. It is meaningless to apply it to conditions outside society: as can be well seen from the confusions prevailing everywhere in the celebrated free-will controversy. The life of man depends upon natural conditions that he has no power to alter. He lives and dies under these conditions and, because they are not subject to his will, he must subordinate himself to them. Everything he does is subject to them. If he throws a stone it follows a course conditioned by nature. If he eats and drinks the processes within his body are similarly determined. We attempt to exhibit this dependence of the process of events upon definite and permanent functional relationship, by the idea of the conformity of all natural occurrences to unerring and unchangeable laws. These laws dominate man’s life; he is completely circumscribed by them. His will and his actions are only conceivable as taking place within their limits. Against nature and within nature there is no freedom.
Social life, too, is a part of nature and, within it, unalterable laws of nature hold their sway. Action, and the results of action, are conditioned by these laws. If, with the origin of action in will, and its working out in societies, we associate an idea of freedom, this is not because we conceive that such action takes place independently of natural laws: the meaning of this concept of freedom is quite different.
It is not here a question of the problem of internal freedom. It is the problem of external freedom with which we are concerned. The former is a problem of the origin of willing, the latter of the working out of action. Every man is dependent upon the attitude of his fellow men. He is affected by their actions in a multitude of ways. If he has to suffer them to treat him as if he had no will of his own, if he cannot prevent them from riding roughshod over his wishes, he must feel a one-sided dependence upon them and will say that he is unfree. If he is weaker, he must accommodate himself to coercion by them.
Under the social relations that arise from co-operation in common work this one-sided dependence becomes reciprocal. In so far as each individual acts as a member of society he is obliged to adapt himself to the will of his fellows. In this way no one depends more upon others than others depend upon him. This is what we understand by external freedom. It is a disposition of individuals within the framework of social necessity involving, on the one side, limitation of the freedom of the individual in relation to others, and, on the other, limitation of the freedom of others in relation to him.
An example should make this clear. Under Capitalism the employer appears to have great power over the employee. Whether he engages a man, how he employs him, what wages he gives him, whether he dismisses him—all depend upon his decision. But this freedom on his part and the corresponding unfreedom of the other are only apparent. The conduct of the employer to the employee is part of a social process. If he does not deal with the employee in a manner appropriate to the social valuation of the employee’s service, then there arise consequences which he himself has to bear. He can, indeed, deal badly with the employee, but he himself must pay the costs of his arbitrary behaviour. To this extent therefore the employee is dependent upon him. But this dependence is not greater than the dependence of each one of us upon our neighbour. For even in a state where the laws are enforced everybody of course who is willing to bear the consequences of his action, is free to break our windows or do us bodily harm.
Strictly speaking, of course, on this view there can be no social action which is entirely arbitrary. Even the oriental despot, who to all appearances is free to do what he likes with the life of the enemy he captures, must consider the results of his action. But there are differences of degree in the way in which the costs of arbitrary action are related to the satisfactions arising therefrom. No laws can afford us protection against the assaults of men whose enmity is such that they are willing to bear all the consequences of their action. But if the laws are sufficiently severe to ensure that, as a general rule, our peace is not disturbed, then we feel ourselves independent of the evil intentions of our fellows, at any rate to a certain extent. The historical relaxation of the penal laws is to be attributed, not to an amelioration of morals, or to decadence on the part of legislators, but simply to the fact that so far as men have learnt to check resentment by considering the consequences of action it has been possible to abate the severity of punishments without weakening their deterrent power. To-day the menace of a short term of imprisonment is more effective protection against crimes against the person than the gallows were at one time.
There is no place for the arbitrary, where exact money reckoning enables us completely to calculate action. If we allow ourselves to be carried away by the current laments over the stony-heartedness of an age which reckons everything in terms of shillings and pence, we overlook that it is precisely this linking up of action with considerations of money profit which is society’s most effective means of limiting arbitrary action. It is precisely arrangements of this kind which make the consumer, on the one hand, the employer, the capitalist, the landowner and the worker on the other—in short, all concerned in producing for demands other than their own—dependent upon social cooperation. Only complete failure to understand this reciprocity of relationship can lead anyone to ask whether the debtor is dependent on the creditor, or the creditor on the debtor. In fact, each is dependent on the other, and the relationship between buyer and seller, employer and employee, is of the same nature. It is customary to complain that, nowadays, personal considerations are banished from business life and that money. rules everything. But what really is here complained of is simply that, in that department of activity which we call purely economic, whims and favours are banished and only those considerations are valid which social co-operation demands.
This, then, is freedom in the external life of man—that he is independent of the arbitrary power of his fellows. Such freedom is no natural right. It did not exist under primitive conditions. It arose in the process of social development and its final completion is the work of mature Capitalism. The man of pre-capitalistic days was subject to a “gracious lord” whose favour he had to acquire. Capitalism recognizes no such relation. It no longer divides society into despotic rulers and rightless serfs. All relations are material and impersonal, calculable and capable of substitution. With capitalistic money calculations freedom descends from the sphere of dreams to reality.
When men have gained freedom in purely economic relationships they begin to desire it elsewhere. Hand in hand with the development of Capitalism, therefore, go attempts to expel from the State all arbitrariness and all personal dependence. To obtain legal recognition of the subjective rights of citizens, to limit the arbitrary action of officials to the narrowest possible field—this is the aim and object of the liberal movement. It demands not grace but rights. And it recognizes from the outset that there is no other way of realizing this demand than by the most rigid suppressing of the powers of the State over the individual. Freedom, in its view, is freedom from the State.
For the State—the coercive apparatus worked by the persons forming the government—is scathless to freedom only when its actions have to conform to certain clear, unequivocal, universal norms, or when they obey the principles governing all work for profit. The former is the case when it functions judicially; for the judge is bound by laws allowing small play for personal opinion. The latter is the case when under Capitalism the State functions as an entrepreneur working under the same conditions and subject to the same principles as other entrepreneurs working for a profit. What it does beyond this can neither be determined by law or in any other way limited sufficiently to guard against arbitrary action. The individual then has no defence against the decision of officials. He cannot calculate what consequences his actions will have because he cannot tell how they will be regarded by those on whom he depends. This is the negation of freedom.
It is customary to regard the problem of external freedom as a problem of the greater or less dependence of the individual upon society.82 But political freedom is not the whole of freedom. In order that a man may be free it is not sufficient that he may do anything unharmful to others without hindrance from the government or from the repressive power of custom. He must also be in the position to act without fearing unforeseen social consequences. Only Capitalism guarantees this freedom by explicitly referring all reciprocal relations to the cold impersonal principle of exchange du ut des (I give as you give, or colloquially, give and take).
Socialists usually attempt to refute the argument for freedom by contending that under Capitalism only the possessor is free. The proletarian is unfree because he must work for his livelihood. It is impossible to imagine a cruder conception of freedom. That man must work, because his desire to consume is greater than that of the beasts of the field, is part of the nature of things. That the possessor is able to live without conforming to this rule is a gain derived from the existence of society which injures no one—not even the possessionless. And the possessionless themselves benefit from the existence of society, in that co-operation makes labour more productive. Socialism could only lessen the dependence of the individual upon natural conditions by increasing this productivity. If it cannot do that, if on the contrary it diminishes productivity, then it will diminish freedom.
Socialism Under Dynamic Conditions
[82. ]Similarly formulated by J. S. Mill, On Liberty, p. 7.