Front Page Titles (by Subject) Section II.: The Foreign Relations of a Socialist Community - Socialism: An Economic and Sociological Analysis
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Section II.: The Foreign Relations of a Socialist Community - 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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The Foreign Relations of a Socialist Community
National Socialism and World Socialism
The Spatial Extent of the Socialist Community
Early Socialism is marked by its predilection for a return to the simpler modes of production of primitive times. Its ideal is the self-sufficing village, or, at most, the self-sufficing province—a town around which a number of villages are grouped. Being averse to all trade and commerce, its protagonists regard foreign trade as something entirely evil which must be abolished. Foreign Trade introduces superfluous commodities into the country. Since it was once possible to do without them, it is obvious that they are unnecessary, and that only the extreme ease with which they can be procured is responsible for the unnecessary expenditure upon them. Foreign Trade undermines morality and introduces foreign ideas and customs. In Utopia the stoic ideal of self-mastery was transmuted into the economic ideal of self-sufficiency. Plutarch found it an admirable thing in Lycurgusan Sparta—as romantically conceived in his day—that no merchant ship ever entered her harbours.1
This attachment to the ideal of economic self-sufficiency, and their complete incapacity to understand the nature of trade and commerce, led the Utopians to overlook the problem of the territorial limits of the ideal state. Whether the borders of fairyland are to be wider or narrower in extent does not enter into their considerations. In the tiniest village there is space enough to realize their plans. In this way it was possible to think of realizing Utopia tentatively in small instalments. Owen founded the New Harmony community in Indiana. Cabet founded a small Icaria in Texas. Considerant founded a model phalanstery in the same state. “Duodecimo editions of the New Jerusalem,” jeers the Communist Manifesto.
It was only gradually that socialists came to perceive that the self-sufficiency of a small area could provide no foundation for Socialism. Thompson, a disciple of Owen, remarked that the realization of equality among the members of one community was far from signifying the realization of equality between the members of different communities. Under the influence of this discovery, he turned to centralized Socialism.2 Saint-Simon and his school were thorough centralizers. Pecqueur’s schemes of reform claimed to be national and universal.3
Thus emerges a problem peculiar to Socialism. Can Socialism exist within limited areas of the earth’s surface? Or is it necessary that the entire inhabited world should constitute a unitary socialistic community?
Marxian Treatment of this Problem
For the Marxian, there can be only one solution of this problem—the ecumenical solution.
Marxism, indeed, proceeds from the assumption that by an inner necessity, Capitalism has already set its mark upon the whole world. Even to-day Capitalism is not limited to a single nation or to a small group of nations. Even today it is international and cosmopolitan. “Instead of the old local and national isolation and self-sufficiency, world trade has developed and the interdependence of nations.” The cheapness of their commodities is the “heavy artillery” of the bourgeoisie. With the aid of this it compels all nations, on pain of extinction, to adopt bourgeois methods of production. “It forces them to adopt so-called civilization, i.e. to become bourgeois. In a word, it creates a world after its own image.” And this is true not only of material but also of intellectual production. “The intellectual productions of one nation become the common property of all. National narrowness and exclusiveness become daily more impossible, and out of the many national and local literatures a world literature arises.”4
It follows, therefore, from the logic of the materialist interpretation of history that Socialism too can be no national, but only an international phenomenon. It is a phase not merely in the history of a single nation, but in the history of the whole human race. In the logic of Marxism the question whether this or that nation is “ripe” for Socialism cannot even be asked. Capitalism makes the world ripe for Socialism, not a single nation or a single industry. The expropriators, through whose expropriation the last step towards Socialism must be taken, must not be conceived save as major capitalists whose capital is invested throughout the whole world. For the Marxian, therefore, the socialistic experiments of the “Utopians” are just as senseless as Bismarck’s facetious proposal to introduce Socialism experimentally into one of the Polish districts of the Prussian State.5 Socialism is an historical process. It cannot be tested in a retort or anticipated in miniature. For the Marxian, therefore, the problem of the autarky of a socialist community cannot even arise. The only socialist community he can conceive comprehends the entire human race and the entire surface of the globe. For him the economic administration of the world must be unitary.
Later Marxians have, indeed, recognized that, at any rate for a time, the existence of many independent socialist communities side by side must be anticipated.6 But, once this is conceded one must go further and also take into account the possibility of one or more socialist communities existing within a world which, for the most part, is still capitalistic.
Liberalism and the Problem of the Frontiers
When Marx and, with him, the majority of recent writers on Socialism consider Socialism only as realized in a unitary world state, they overlook powerful forces that work against economic unification.
The levity with which they dispose of all these problems may not unreasonably be attributed to what, as we shall see, was an entirely unjustifiable acceptance of an attitude with regard to the future political organization of the world, which was prevalent at the time when Marxism was taking form.
At that time, liberals held that all regional and national divisions could be regarded as political atavisms. The liberal doctrine of free trade and protection had been propounded—irrefutable for all time. It had been shown that all limitations on trade were to the disadvantage of all concerned: and, arguing from this, it had been attempted with success to limit the functions of the state to the production of security. For Liberalism the problem of the frontiers of the state does not arise. If the functions of the state are limited to the protection of life and property against murder and theft, it is no longer of any account to whom this or that land belongs. Whether the state extended over a wider or a narrower territory, seemed a matter of indifference to an age which was shattering tariff barriers and assimilating the legal and administrative systems of single states to a common form. In the middle of the nineteenth century, optimistic liberals could regard the idea of a League of Nations, a true world-state, as practicable in the not too far distant future.
The liberals did not sufficiently consider that greatest of hindrances to the development of universal free trade—the problem of races and nationalities. But the socialists overlooked completely that this constituted an infinitely greater hindrance to the development of a socialistic society. Their incapacity to go beyond Ricardo in all matters of economics, and their complete failure to understand all questions of nationalism, made it impossible for them even to conceive this problem.
The Problem of Migration Under Socialism
Migration and Differences in National Conditions
If trade were completely free, production would only take place under the most suitable conditions. Raw materials would be produced in those parts which, taking everything into account, would yield the highest product. Manufacture would be localized where the transport charges, including those necessary to place the commodities in the hands of the ultimate consumer, were at a minimum. As labour settles around the centres of production, the geographical distribution of population would necessarily adapt itself to the natural conditions of production.
Natural conditions, however, are unchanging only in a stationary economic system. The forces of change are continually transforming them. In a changing economy men migrate continually from the places where conditions are less favourable to places where they are more favourable for production. Under Capitalism the stress of competition tends to direct labour and capital to the most suitable places. In a closed socialist community the same result would have to be achieved by administrative decree. In both cases the principle would be the same: men would have to go where the conditions of life were most favourable.7
These migrations have the closest bearing upon the condition of the different nations. They cause citizens of one nation, the natural conditions of which are less favourable, to move into the territory of other nations more favourably endowed. If the conditions under which migration takes place are such that the immigrants are assimilated to their new surroundings then the nation from which they came is, to that extent, weakened in numbers. If they are such that the immigrants preserve their nationality in their new home—still more if they assimilate the original inhabitants—then the nation receiving them will find immigration a menace to its national position.
To be a member of a national minority involves multitudinous political disadvantages.8 The wider the functions of the political authority the more burdensome are these disadvantages. They are smallest in the state which is founded upon purely liberal principles. They are greatest in the state which is founded upon Socialism. The more they are felt, the greater become the efforts of each nation to protect its members from the fate of belonging to a national minority. To wax in numbers, to be a majority in rich and extensive territories these become highly desirable political aims. But this is nothing but Imperialism.9 In the last decades of the nineteenth century, and the first decades of the twentieth, the favourite weapons of Imperialism were commercial weapons—protective tariffs, prohibitions of imports, premiums on exports, freight discriminations, and the like. Less attention was paid to the use of another powerful imperialistic weapon—limitations on emigration and immigration. This is becoming more significant now. The ultima ratio of imperialism is, however, war. Beside war, all other weapons that it may use appear merely insufficient auxiliaries.
Nothing justifies us in assuming that under Socialism the disadvantages of belonging to a national minority would be diminished. On the contrary. The more the individual depended on the State—the more importance political decisions had for the life of the individual—the more would the national minority feel the political impotence to which it was condemned.
But when we are considering migration under Socialism we need not give special attention to the friction which would arise thereform between nations. For under Socialism there must arise, even between members of one and the same nation, points of difference which make the division of the surface of the earth—which is a matter of indifference to Liberalism—a problem of cardinal importance.
The Tendency Towards Decentralization Under Socialism
Under Capitalism, capital and labour move until marginal utilities are everywhere equal. Equilibrium is attained when the marginal productivity of all capital and labour is the same.
Let us leave the movement of capital on one side and consider first the movement of labour. The migrating workers depress the marginal productivity of labour wherever they betake themselves. The fact that wages, their income, sink, directly damages the workers who were employed in centres of migration before the incursion of new workers took place. They regard the “immigrants” as the enemy of high wages. The particular interest would be served by a prohibition of “immigration.” It becomes a cardinal point of the particularist policy of all such particular groups of workers to keep newcomers out.
It has been the task of Liberalism to show who bear the costs of such a policy. The first to be injured are the workers in the less favourably situated centres of production, who, on account of the lower marginal productivity of their labour in those centres, have to content themselves with lower wages. At the same time, the owners of the more favourably situated means of production suffer through not being able to obtain the product which they might obtain could they employ a larger number of workers. But this is not the end of the matter. A system that protects the immediate interests of particular groups limits productivity in general and, in the end, injures everybody—even those whom it began by favouring. How protection finally affects the individual, whether he gains or loses, compared with what he would have got under complete freedom of trade, depends on the degrees of protection to him and to others. Although, under protection, the total produce is lower than it would have been under free trade, so that the average income is necessarily lower, it is still quite possible that certain individuals may do better than they would under free trade. The greater the protection afforded to particular interests, the greater the damage to the community as a whole, and to that extent the smaller the probability that single individuals gain thereby more than they lose.
As soon as it is possible to forward private interests in this way and to obtain special privileges, a struggle for pre-eminence breaks out among those interested. Each tries to get the better of the other. Each tries to get more privileges so as to reap the greater private gain. The idea of perfectly equal protection for all is the fantasy of an ill-thought out theory. For, if all particular interests were equally protected, nobody would reap any advantage: the only result would be that all would feel the disadvantage of the curtailment of productivity equally. Only the hope of obtaining for himself a degree of protection, which will benefit him as compared with the less protected, makes protection attractive to the individual. It is always demanded by those who have the power to acquire and preserve especial privileges for themselves.
In exposing the effects of protection, Liberalism broke the aggressive power of particular interests. It now became obvious that, at best, only a few could gain absolutely by protection and privileges and that the great majority must inevitably lose. This demonstration deprived such systems of the support of the masses. Privilege fell because it lost popularity.
In order to rehabilitate protection, it was necessary to destroy Liberalism. This was attempted by a double attack: an attack from the point of view of nationalism, and an attack from the point of view of those special interests of the middle and working classes which were menaced by Capitalism. The one served to mature the movement towards territorial exclusiveness, the other the growth of special privileges for such employers and workmen as are not equal to the stress of competition. Once Liberalism has been completely vanquished, however, and no longer menaces the protective system, there remains nothing to oppose the extension of particular privilege. It was long thought that territorial protection was limited to national areas, that the re-imposition of internal tariffs, limitation of internal migration, and so on, was no longer conceivable. And this is certainly true so long as any regard at all is preserved for Liberalism. But, during the war, even this was abandoned in Germany and Austria, and there sprang up overnight all kinds of regional barriers. In order to secure a lower cost of living for their own population, the districts producing a surplus of agricultural produce cut themselves off from the districts that could support their population only by importing foodstuffs. The cities and industrial areas limited immigration in order to counteract the rise in the price of foodstuffs and rents. Regional particularism broke up that unity of economic area on which national neo-mercantilism had based all its plans.
Even granting that Socialism is at all practicable, the development of a unitary world socialism would encounter grave difficulties. It is quite possible that the workers in particular districts, or particular concerns, or particular factories, would take the view that the instruments of production which happened to lie within their area were their own property, and that no outsider was entitled to profit by them. In such a case World Socialism would split up into numerous self-independent socialist communities—if, indeed, it did not become completely syndicalized. For Syndicalism is nothing less than the principle of decentralization consistently applied.
Foreign Trade Under Socialism
Autarky and Socialism
A socialist community, which did not include the whole of mankind, would have no reason to remain isolated from the rest of the world. It is true, that it might be disquieting for the rulers of such a state that foreign ideas would come over the frontiers with foreign products. They might fear for the permanence of their system, if their subjects were able to compare their position with that of foreigners who were not citizens of a socialist community. But these are political considerations, and do not apply if the foreign states are also socialistic. Moreover, a statesman who is convinced of the desirability of Socialism must expect that intercourse with foreigners will make them also socialists: he will not fear lest it undermine the socialism of his own compatriots.
The theory of Free Trade shows how the closing of the frontiers of a socialist community against the import of foreign commodities would injure its inhabitants. Capital and labour would have to be applied under relatively unfavourable conditions yielding a lower product than otherwise would have been obtained. An extreme example will make this clear. At the expense of an enormous outlay of capital and labour a socialist Germany could grow coffee in greenhouses. But it would obviously be more advantageous to procure it from Brazil in exchange for products for whose production conditions in Germany were more favourable.10
Foreign Trade Under Socialism
Such considerations indicate the principles on which a socialist community would have to base its commercial policy. In so far as it aspired to let its actions be guided purely by economic considerations it would have to aim at securing just what under complete freedom of trade would be secured by the unrestricted play of economic forces. The socialist community would limit its activities to the production of those commodities it could produce under comparatively more favourable conditions than existed abroad, and it would exploit each single line of production only so far as this relative advantage justified. It would procure all other commodities from abroad by way of exchange.
This fundamental principle holds good whether or not trade with abroad is carried out by recourse to a general medium of exchange—by recourse to money—or not. In foreign trade, just as in internal trade—there is no difference between them—no rational production could proceed without money reckoning and the formation of prices for the means of production. On this point, we have nothing to add to what we have said already. But here we wish to consider a socialist community, existing in a world not otherwise socialistic. This community could estimate and compute in money in exactly the same way as a state railway, or a city waterworks, existing in a society otherwise based upon private ownership of the means of production.
No one can regard what his neighbour does as a matter of mere indifference. Everyone is interested in raising the productivity of labour by the widest division of labour possible under given circumstances. I too am injured if some people maintain a state of economic self-sufficiency: for, if they were to relax their isolation, the division of labour could be made even more comprehensive. If the means of production are in the hands of relatively inefficient agents, the damage is universal.
Under Capitalism the profit-seeking of individual entrepreneurs harmonizes the interests of the individual with those of the community. On the one hand, the entrepreneur is always seeking for new markets, and under selling with cheaper and better wares the dearer and inferior products of less rationally organized production. On the other, he is always seeking cheaper and more productive sources of raw materials and opening up more favourable sites for production. This is the true nature of that expansive tendency of Capitalism, which neo-Marxian propaganda so completely misrepresents as the “Verwertungsstreben des Kapitals” (“the drive of capital for profit”), and so amazingly involves into an explanation of modern Imperialism.
The old colonial policy of Europe was mercantilistic, militaristic, and imperialistic. With the defeat of mercantilism by liberal ideas, the character of colonial policy completely changed. Of the old colonial powers, Spain, Portugal and France had lost the greater part of their former possessions. England, who had become the greatest of the colonial powers, managed her possessions according to the principles of free trade theory. It was not cant for English free traders to speak of England’s vocation to evaluate backward people to a state of civilization. England has shown by acts that she has regarded her position in India, in the Crown Colonies, and in the Protectorates, as a general mandatory of European civilization. It is not hypocrisy when English liberals speak of England’s rule in the colonies as being not less useful for the inhabitants and for the rest of the world than it is for England. The mere fact that England preserved Free Trade in India shows that she conceived her colonial policy in a spirit quite different from that of the states who entered, or re-entered the sphere of colonial policy in the last decades of the nineteenth century—France, Germany, the United States, Japan, Belgium and Italy. The wars waged by England during the era of Liberalism to extend her colonial empire and to open up territories which refused to admit foreign trade, laid the foundations of the modern world economy.11 To measure the true significance of these wars one has only to imagine what would have happened if India and China and their hinterland had remained closed to world commerce. Not only each Chinese and each Hindu, but also each European and each American, would be considerably worse off. Were England to lose India today, and were that great land, so richly endowed by nature, to sink into anarchy, so that it no longer offered a market for international trade—or no longer offered so large a market—it would be an economic catastrophe of the first order.
Liberalism aims to open all doors closed to trade. But it no way desires to compel people to buy or to sell. Its antagonism is confined to those governments which, by imposing prohibition and other limitations on trade, exclude their subjects from the advantages of taking part in world commerce, and thereby impair the standard of life of all mankind. The Liberal policy has nothing in common with Imperialism. On the contrary, it is designed to overthrow Imperialism and expel it from the sphere of international trade.
A socialist community would have to do the same. It, too, would not be able to allow areas lavishly endowed by nature to be permanently shut off from international trade, nor whole nations to refrain from exchange. But here Socialism would encounter a problem which can only be solved under Capitalism—the problem of ownership of capital abroad.
Under Capitalism, as Free Traders would have it, frontiers would be without significance. Trade would flow over them unhindered. They would prohibit neither the movement of the most suitable producers towards immobile means of production, nor the investment of mobile means of production in the most suitable places. Ownership of the means of production would be independent of citizenship. Foreign investment would be as easy as investment at home.
Under Socialism the situation would be different. It would be impossible for a socialist community to possess means of production lying outside its own borders. It could not invest capital abroad even if it would yield a higher product there. A socialist Europe must remain helpless, while a socialist India exploits its resources inefficiently, and thereby brings fewer goods to the world market than it would otherwise have done. New supplies of capital must be utilized under less favourable conditions in Europe, while in India, for want of new capital, more favourable conditions of production are not fully exploited. Thus independent socialist communities existing side by side and exchanging commodities only, would achieve a nonsensical position. Quite apart from other considerations the very fact of their independence would lead to a state of affairs under which productivity would necessarily diminish.
These difficulties could not be overcome so long as independent socialist communities existed side by side. They could only be surmounted by the amalgamation of the separate communities into a unitary socialist state comprehending the whole world.
[1. ]Poehlmann, Geschichte der sozialen Frage und des Sozialismus in der antiken Welt, Vol. I, pp. 110 ff.; 123 ff.
[2. ]Tugan-Baranowsky, Der moderne Sozialismus in seiner geschichtlichen Entwicklung (Dresden, 1908), p. 136.
[3. ]Pecqueur, Théorie nouvelle d’Économie sociale et politique, p. 699.
[4. ]Marx-Engels, Das Kommunistische Manifest, p. 26. Publisher’s Note: p. 325 of the Eastman anthology edition.
[5. ]Bismarck’s speech in the German Reichstag, on February 19, 2878 (Fürst Bismarcks Reden, edited by Stein, Vol. VII, p. 34).
[6. ]Bauer, Die Nationalitätenfrage und die Sozialdemokratie (Vienna, 2907), p. 519.
[7. ]See my Nation, Staat und Wirtschaft (Vienna, 1919), pp. 45 ff., and Liberalismus (Jena, 1927), pp. 93 ff. Publisher’s Note: Nation, Staat und Wirtschaft is not in English. Liberalismus is in English as The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism. Translated by Ralph Raico. Edited by Arthur Goddard (Princeton, N.J.: D. Van Nostrand, 1962). This book was republished in 1978 under the title Liberalism: A Socio-Economic Exposition. Foreword to the Second Edition by Louis M. Spadaro. (Kansas City: Sheed Andrews and McMeel, Inc., 1978). The pages in the German work referred to here (93 ff.) are pp. 105 ff. in both English editions.
[8. ]Nation, Staat und Wirtschaft, pp. 37 ff.
[9. ]Ibid., pp. 63 ff.; Liberalismus, p. 107 ff. Publisher’s Note: pp. 121 ff. in both the 1962 and 1978 English editions of this work.
[10. ]It is superfluous to dispute with the autarky plans, which have been most zealously argued by the naive litterateurs of the “Tat” circle (Fried, Das Ende des Kapitalismus, Jena 1931). Autarky would probably depress the standard of life of the German people incomparably more than could the Reparations burden multiplied a hundred-fold.
[11. ]In judging the English policy for opening up China, people constantly put in the foreground the fact that it was the opium trade which gave the direct, immediate occasion for the outbreak of war complications. But in the wars which the English and French waged against China between 1839 and 1860 the stake was the general freedom of trade and not only the freedom of the opium trade. That from the Free Trade point of view no barriers ought to be put in the way even of the trade in poisons, and that everyone should abstain by his own impulse from enjoyments harmful to his organism, is not so base and mean as socialist and anglophobe writers tend to represent. Rosa Luxemburg, Die Akkumulation des Kapitals (Berlin, 1913), pp. 363 ff. reproaches the English and French that it was no heroic act to defeat with European weapons the Chinese, who were provided only with out of date arms. Ought the French and English also to have taken the field only with ancient guns and spears?