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• En Torno a La Funcion Del Capital, Joaquín Reig
• Reflections On the Keynesian Episode, W. H. Hutt
• Ludwig Von Mises and the Market Process, L. M. Lachmann
• Values, Prices and Statistics, Bettina Bien
• The Tax System and a Free Society, Oswald Brownlee
• How “should” Common-access Facilities Be Financed?, James M. Buchanan
• Pitfalls In Planning: Veterans' Housing After World War Ii, Marshall R. Colberg
• Presents For the Poor, R. L. Cunningham
• Restrictions On International Trade: Why Do They Persist? W. Marshall Curtiss
• “human Action”, E. W. Dykes
• The Genius of Mises' Insights, Lawrence Fertig
• On Behalf of Profits, Percy L. Greaves, Jr.
• Tax Reform: Two Ways to Progress, C. Lowell Harriss
• The Future of Capitalism, Henry Hazlitt
• Prices and Property Rights In the Command Economy, Arthur Kemp
• The Inevitable Bankruptcy of the Socialist State, Howard E. Kershner
• Entrepreneurship and the Market Approach to Development, Israel M. Kirzner
• The New Science of Freedom, George Koether
• Financing, Correcting, and Adjustment: Three Ways to Deal With an Imbalance of Payments, Fritz Machlup
• On Protecting One's Self From One's Friends, Don Paarlberg
• Recollections Re a Kindred Spirit, William A. Paton
• Ludwig Von Mises, William H. Peterson
• The Economic-power Syndrome, Sylvester Petro
• Ownership As a Social Function, Paul L. Poirot
• To Abdicate Or Not, Leonard E. Read
• The Book In the Market Place, Henry Regnery
• Lange, Mises and Praxeology: the Retreat From Marxism, Murray N. Rothbard
• The Production and Exchange of Used Body Parts, Simon Rottenberg
• The Education of Lord Acton, Robert L. Schuettinger
• Chicago Monetary Tradition In the Light of Austrian Theory, Hans F. Sennholz
• Hubris and Environmental Variance, Joseph J. Spengler
• An Application of Economics In Biology, Gordon Tullock
• What Mises Did For Me, John V. Van Sickle
• Economics In a Changing World, G. C. Wiegand
• Can a Liberal Be an Equalitarian? Leland B. Yeager
• The Political Economy of Nostalgia, Ramon Diaz

On Protecting One's Self from One's Friends
Don Paarlberg

There is an old proverb that expresses a truth known to Professor von Mises and all others who participate in the intellectual forum: “Heaven protect me from my friends; I know how to deal with my enemies.”

It is an open question as to whether the brand of economics espoused by Professor von Mises has suffered more from its many avowed opponents or from certain of its professed friends.

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First, let us be sure we know the essential nature of the particular kind of economics Professor von Mises is talking about. It is variously known, with differing degrees of accuracy (and inaccuracy!) as “the market system,” “the price system,” “the profit system,” “the open system,” “the free system,” “capitalism,” “free enterprise,” “the enterprise system,” “the competitive economy,” “entrepreneural economics,” and “laissez-faire.” In this short essay we shall refer to it as the enterprise system.

In this system, the profit motive is the engine and price the steering wheel. The function of government is: to formulate the rules of the game; to keep the system open; and to protect the public and the private interest from each other's excesses.

Professor von Mises' brand of economics is intent on capturing, to the maximum possible extent, such benefits, public and private, as can be made to flow from individual endeavor. He sees the enterprise system as the economic counterpart for political democracy.

Cornerstones of von Mises' economics are: private ownership of the means of protection; freedom to choose one's vocation; and freedom to enter (or not to enter) the market. While not absolute, these institutions are generally favored.

By this system, the immense problems of supply are left largely to individuals, who follow the signals given by price. Whether a manufacturer produces black-and-white or color television depends on price. Whether a young man chooses to be a farmer, a coal miner, or an electrical worker is strongly influenced by relative returns. By differential rewards, resources are shifted as between the production of food, television, and space technology.

Prices guide not only production but distribution as well. Whether milk should be consumed in its fluid state, churned into butter, pressed into cheese, evaporated, condensed, or dried, depends on relative prices. Whether steel is imported or exported depends on price. Whether laboring people move into Mississippi or California depends on wages, a form of price. The consumer chooses goods largely on the basis of price: turkey or ham, Chevrolet or Cadillac, metal or wood.

This system has built-in incentives for efficient production. The man who puts resources together efficiently and who correctly anticipates the needs of the market is handsomely rewarded. If a man wrongly judges the needs of society or is wasteful in his use of resources, he suffers a loss.

The philosophical and ethical concepts which incline a man to favor von Mises' brand of economics may be described as follows:

Respect for the individual, with all his uniqueness, as the fundamental unit of human society.

Admission of everyone to the market, rather than discrimination based on race, creed, sex, or economic power.

Belief in the ability of the average man to make generally intelligent decisions if he has the facts.

Acceptance of a considerable degree of diversity in human desires and rewards.

Acceptance of the consequences of one's actions.

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This is what von Mises' economic system in fact is. We should be sure we know what it is not.

Obviously it is not socialism, which centralizes decision-making and advocates public ownership of the means of production.

Nor is it the welfare state, which resists differential rewards and greatly modifies the relationship between one's actions and the consequences thereof.

The socialists and the advocates of the welfare state are clearly enemies of von Mises' system. He knows how to deal with them; he opposes them.

Whom can von Mises count on as friends? Those who are philosophically at one with him, in terms previously outlined. These friends are true, lasting and loyal. They are like the “remnant” from whom, according to the Old Testament, the Lord repeatedly revived His People Israel.

These are the true friends. But there are other “friends,” professed rather than real, who, through ignorance or design, claim to be supporters and defenders of the enterprise system. Chief among these are people whom we might call “neo-mercantilists,” modern counterparts of the eighteenth century elitists and protectionists whom the enterprise system originally overthrew. These people have a philosophy quite different from that embraced by the enterprise economists. The main difference is that they would restrict access to the market, in their own self-interest, and would use the power of government to accomplish this purpose. Another group, much less numerous and more recently arrived on the scene, consists of the new apostles of uninhibited, irresponsible freedom, who want to “do their own thing” and wrongly see in enterprise economics a rationale for license. These people depart philosophically from the enterprise economists in that they do not see the linkage between freedom and responsibility.

Here we introduce a digression, intended to show why it is that enterprise economists resist the labels, such as “reactionary” and “conservative,” that are sometimes thrust upon them. Political labels are usually attached to persons or organizations on the basis of issues. Certain positions are known as “liberal” and others as “conservative.” The difficulty with this form of labeling is that with the passage of time the meanings change. For example, “liberals” once favored liberty; more recently they favor restrictions.

The fundamental and continuing attribute which underlies political issues is the attitude toward change. Some people welcome it and others oppose.

The model with respect to attitude toward change may be presented in the form of a circle. At one point on the circle is the reactionary, who wishes to reinstate what formerly was. Moving toward the left (and the choice of direction is deliberate!) we next encounter the conservative, who looks somewhat askance at change but in certain cases may be persuaded to accept it. Then there is the moderate, a lukewarm individual, to whom change is neither of itself good or bad. Moving still in a leftward direction we encounter the activist, whose presumption is in favor of change and who will embrace it despite considerable risk. Yet further to the left is the revolutionary, for whom abrupt and violent change has merit in itself.

If we consider the moderate as the beginning point in this model, we range toward the right until at the extreme we find the reactionary; we range toward the left until at the extreme we find the revolutionary. The fascinating thing is that the reactionary and the revolutionary are positioned side by side. The reactionary right and the revolutionary left both have deep quarrels with the status quo and advocate precipitate action in order to change it. They are sisters under the skin, in mood if not in specific objective.

Where is the enterprise economist in this model? He is not really in the model at all. He is neither basically pro-change nor anti-change. “Conservative” and “activist” are labels to which the enterprise economist has little direct orientation. His reference point is the fixed idea of individual worth. He may, on a number of current issues, find himself at once conservative, moderate, liberal and revolutionary.

So here is the enterprise economist whose case has been put so well by Professor von Mises, surrounded by his true and professed friends. To the casual observer they all look alike. All are asking for change. All profess to believe in the worth of the individual. All laud enterprise. All see a limited role for government.

The special cross the enterprise economist must bear is the support given him, often vociferously, by his professed friends whose self-serving motives are readily noted by the public, if not by themselves. To be specific:

Industrial people who laud “free enterprise” while lobbying for barriers to keep out competition.

Farm groups who slap one another on the back for their independence but ask Congress for quotas based on historic production, to restrict the entry of new producers.

Doctors who oppose socialized medicine but so restrict their numbers as to command very high incomes.

Professors who espouse the open society but erect barriers of degrees, rank, and tenure to limit eligibility for the preferred posts.

Elitist groups who favor the principles of freedom but would restrict these principles to a certain race, creed, or social class.

Dogmatists who would hold the enterprise economy in the precise mold from which it emerged nearly 200 years ago, who would deny recourse to every constructive innovation since Adam Smith.

Politicians who profess to believe in a free competitive economy but pass innumerable restrictive laws, laying on the free economy burdens greater than it is able to bear.

With friends like these, who needs enemies?

To the average citizen, the motives of these “friends” of the enterprise economy are as transparent as window glass. The low esteem in which enterprise economics is now held may result not so much from effective arguments made against it by its enemies as from hypocritical arguments made in its behalf by its professed friends.

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What to do? Those who both understand and support enterprise economics are relatively few in number, enough to keep the idea intellectually alive but not enough to bring about political change. How deeply should one inquire into the credentials of those who offer to help? Should one insist on purity of thought, word and act as a qualification? If so, the numbers will indeed be few.

The problem is typical for a minority group. It involves a delicate balancing act. It is necessary:

• 1. To keep the intellectual core of thought true and honest.
• 2. To incorporate new and improved ideas and practices that are in harmony with the essential nature of the concept.
• 3. To accept allies in the accomplishment of some political objective even though these allies may be opportunists.
• 4. To avoid being captured by these allies.

How well have the enterprise economists done on these various counts?

On point number one, intellectual integrity on the part of the leaders, we have done very well indeed. Professor von Mises' contribution has been primarily in this area. He has been intellectually honest and faithful to the central idea of enterprise economics. Using the tools of economic analysis, he has cut through the error and superficialities that might otherwise have misled us.

On point number two, innovation, the record is somewhat uneven. Some, overcautious by nature, have limited themselves to the concepts and forms of earlier times. Others, like Professor von Mises, have been innovative enough to build up the body of economic principle. Professor von Mises has been an educator as well as an innovator, and has avoided the oversimplification and dramatization that so often mislead. He has recruited many.

But not enough to bring about significant institutional change. That calls for use of the political process. Numbers are needed. So those who participate politically have sought to bring in the increased numbers. How well have we done on point number three, bringing in allies? Not so well. Enough have been recruited to pass a piece of legislation now and then, bearing the enterprise label. But these allies have often been the “friends” referred to earlier, who have supposed their natural desire for a protected market to be the stirring of the spirit of enterprise. Or, worse, clever lobbyists who have confused us with misleading slogans. Or, worse still, political charlatans whom we have knowingly embraced in order to get a majority.

These compromises have led to a dismal record in accomplishing the last of the four purposes, to keep from being captured by our allies. For, in large measure, we have been captured, not by an enemy, but by our professed friends. The result is that enterprise economics has an erroneous image.

In the minds of many citizens, an enterprise economist is one who believes in some form of economic Darwinism, who carves out a protected market for himself, who shackles his opposition, and who provides a rationale for the exploitation of his fellows. It is not difficult to see how an observer, noting what is done rather than what is said, would come to that conclusion.

The temptation, in view of all these things, is to confine enterprise economics to the classroom and the textbook, where it can be kept true, and to forego all efforts to bring about political change until such time as, by education, an absolute majority has been brought into being, whereupon, without need for allies, we would march to the polls and bring about the needed reform. Needless to say, this would take forever. Enterprise economics would become irrelevant. There is no real alternative to participation in the world of affairs, making alliances, accepting compromise, bringing about incremental change, experiencing the humiliation of defeat, and returning at intervals to the body of principle, happily kept alive and vigorous for us by Professor von Mises and his associates.

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Is enterprise economics viable in our modern industrial world? A chorus of voices responds in the negative. Von Mises' brand of economics, it is said, appeared in England during the early stages of industrialization, when life was simple, when individual entrepreneurs were numerous, when wide disparities of wealth were tolerated. The ethic of the day came from the Protestant Reformation, not from Sigmund Freud or Karl Marx. Now all this is changed, it is said, and the economics of enterprise is outmoded.

If by this argument one means that the form of enterprise economics in the Twentieth Century must differ from its form during the late Eighteenth Century, then the contention is valid. Any effort to restrict enterprise economics to its original form is certain to fail. But the essence of enterprise economics is that while the central concepts are persistent, the form is fluid. Here again we are in danger of a multitude of ancient errors, each stoutly defended by our professed friends: the mistaking of form for substance, the disciple holier than the Pope, an undue reverence for things past. We must break out of these errors if enterprise economics is to be relevant.

There is one special danger to be avoided. This is to use the rate of growth in the Gross National Product as the criterion for judging various economic systems. Many sincere friends of the enterprise system propose this criterion, confident that, thus judged, their system will prove superior. And indeed it might. But on the other hand, it might not. If rate of growth has been chosen as the criterion and a centrally-directed economy should show the higher rate of growth, logic would lead to adopting the centrally-directed system. Sacrificed would be the true merit for the enterprise system, its concern for the individual and its emphasis on freedom.

The free or entrepreneurial economic system relies for its functioning on some of the most persistent of human attributes:

The desire of the individual to improve his lot.

The wish to participate in decision-making.

The desire for self-reliance, self-fulfillment, self respect.

These attributes are rooted in human nature. They are found in Twentieth Century man, as they were in Eighteenth Century man. They will be present in the Twenty-first Century. The task is to develop institutional arrangements, suited to the modern day, that will permit their flowering. This calls for some changing concepts. For example, one of the precepts of enterprise economics has been a limited role for government. We must rid ourselves of the erroneous idea, propagated by certain of our “friends,” that any act of government is an invasion of individual freedom and is therefore to be resisted. On the contrary, government can be used to restrain those who would abuse individual rights. Government can be used to create free institutions, as it was in the early days of the United States. Government can be used to improve the functioning of the enterprise system, to place a floor over the pit of disaster, to help the individual prepare himself better for his task as a decision-maker, and to see that the market functions as an enlightened institution. In brief, the proper objective for government participation in economic life is to strengthen the process of individual decision-making, not to substitute public for private action.

Many earnest believers in enterprise economics allow themselves to be backed into a corner and forced to defend a system which is not at all what they propose. They unintentionally take on the defense of, not a free market, but a caricature thereof. They are maneuvered into advocating the free market not as it is or as it could be but as it once was or as its adversaries contend it would be. Or, more tragic still, they get maneuvered into defending the free market as some of its professed friends conceive it.

What is needed is a concept of enterprise economics, of the free market, that is free in a modern rather than in an archaic sense. This means a market free from manipulation, free from misrepresentation, free from gross ignorance, and free from senseless gyrations as well as free from government domination. It means the kind of market that intelligent people are capable of creating in the modern day.

This argument against the competitive system often runs like this: “If we were to accept a competitive market and dismantle the protective devices that have been built up during the past third of a century, we would experience dislocation of such magnitude as to bring about disaster.” This is true. The argument is unassailable. It would be quite an accomplishment for the competitive market if it were to cope adequately with the current run of economic problems; our present mixed system leaves much to be desired in this respect. It would be asking far too much to expect the competitive market to handle not only the current run of problems, but the accumulated dislocations of 35 years of government interference as well. One does not indict the free market if he hesitates to put it, abruptly, to such a test. The substitution of market forces for centralized decision-making must be a gradual process, though some “friends” would impose it overnight.

Advocacy of enterprise economics should not be a doctrinaire position that renounces all the enlightened institutions that have developed since the turn of the century, though certain “friends” take this position. Those who believe in enterprise economics should claim as part of their system all developments that lift the capacity for wise individual decision-making.

Must an enterprise economist hold true to the central core of principle unique to his persuasion, despite the entreaties of his professed friends? He must if he is intent on refining the body of economic thought consistent with his values. If one is an educator and wishes to propagate his free enterprise ideas he must reach out to others and help them to reformulate their views. If one is a politician and wishes to move the country in the direction of freedom, he must make alliances and expose himself to the danger of being captured by his allies. Whatever his role, he must know the difference between his true and professed friends. In this day of contrived images, it gets harder all the time.

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