- 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
The Political Economy of Nostalgia
Travaillons donc a bien penser: voila le principe de la morale.
Regret is often voiced for the loss to Western civilization of a world-view, prevalent in the Middle Ages, according to which, in the words of R.H. Tawney, human society was “a spiritual organism, not an economic machine”.1/ The steed of self-interest, or of covetousness, or of avarice, all terms that you might apply to it, was held in check, as this sentiment would have it, by the use of moral bridles and ethical fetters. And if it was not quite held in check, as in fact it often was not, an effort was made in that direction “that had in it something of the heroic”.2/ Later the steed was let loose and the results are there for all to see.
Sometimes this sense of loss is coupled with the notion that the West could recapture the world-view in question, if it so wished, and thereby achieve a “moral rebirth”3/ and further that this “re-insertion of the economic world in the moral order”4/ affords the only hope for our civilization to overcome its current predicament. This idea enhances the feelings of regret and then they assume the distinct nostalgic tinge to which the title of this essay refers.
Among those who share this nostalgia, some speak of a system that will transcend capitalism,5/ but few attack private property, including private ownership of the means of production,6/ and their writings contain numerous condemnations of socialism.7/ The “moralizing of economic life” which they propose would imply only slight institutional change;8/ after all, they implicitly argue, there was little production in public hands in the course of the Middle Ages, and certainly no central planning.
We intend to show, against such arguments, that central planning and socialism is precisely where an attempt to restore the mediaeval rule of moral law over economic activity would lead, under contemporary conditions. It will also become manifest, in the course of our demonstration, that some of the principal reasons invoked in favour of the proposal break down completely when extracted from the atmosphere of a closed, stagnant economy with which the system was originally associated.
Before that, however, we should try to determine as far as possible what the doctrine in question is and what it implies.
In the first place, it is a theory about what society is; it concerns human activity as it appears when looked at from the outside, as seen by students of society, by social scientists, as we should say to-day. It therefore contains a system of political economy. When held by our contemporaries, it is proper to call it the Political Economy of Nostalgia.
What are its characteristic elements? Let us be reminded that, from the vantage-point in which Nostalgic economists place themselves, society is seen as “a spiritual organism, not an economic machine”. If one stands before a machine, the question naturally comes up - how does it work? On the other hand, if one is instead confronted with a spiritual being, a more pertinent question seems to be - how ought it to behave? These political economists consequently tell us, not what people do while they go about their economic affairs but what they ought to do when so employed; they are concerned, not with the sein, but with the sollen of human action.
To illustrate the difference between the Orthodox and the Nostalgic schools of economic thought, let us take the theory of value as an example. The members of the former school examine exchange transactions under given conditions, say under “free market” conditions. By analysing the behaviour of economic units, i. e. of households (sellers of factor services and buyers of consumer goods) and producers or entrepreneurs (buyers of factor services from households, sellers of consumer goods to households, buyers and sellers of intermediate goods among themselves) in terms of their respective goals and the means whereby these can be achieved, the economists of orthodox inclinations can explain how decisions are reached separately by the vast multiplicity of units about the purchase and sale of factor services and goods in such a way that each market tends to reach equilibrium (i.e., to be cleared) at a certain price level. Since this approach comprises the totality of markets, the analysis shows, apart from the laws of competitive pricing, how the economy (i. e. the whole of the consuming and producing units, acting independently, each in the pursuit of its own interests) decides, as Paul Samuelson puts it, what goods to produce and how and for whom to produce them. In other words, this single theoretical block simultaneously accounts for (a) the determination of an equilibrium quantity in each market for goods, which in its turn implies a solution to the problem of what to produce; (b) an equilibrium quantity in each market for factor services, and its break-down at the level of the purchasers, which implies the determination of the factor mix and hence the solution of the problem of how to produce each good and, finally, (c) an equilibrium price in each market for goods and for factor services, all of which, in addition to the quantities resulting from (a) and (b), implies the determination of profits, wages and other factor incomes, i.e. the distribution of national income, or the answer to the question concerning to whom production goes.
Let us next watch their colleagues of the Nostalgic persuasion at work. Their method also comprises the analysis of methods with a view to the attainment of certain goals; but there, in the common use of what has been called “teleological reason”,9/ the similarity ends. With the former political economists, the objectives in question are those of individuals or minute social aggregates, the atom-like economic units, and such as, to the best of the economists' beliefs, the units in fact do hold. With the latter, the goals belong to the community taken as a whole, they make up what one might designate the moral purpose of society, and are not part of what the political economist finds given but rather the first question for which he must supply an answer. Whether or not the moral purpose of society is something real and whether or not it can be known, and, if so, how it can be known, involve problems far too vast to be dealt with here. For the sake of argument, we shall assume that reality contains such a thing and that the Nostalgic economists can attain knowledge of it. The next question with which they are confronted is—how ought the economic units to behave so that the common purpose of society is achieved?
Rather than try to show how this question could be answered in the abstract, let us see how the method worked in the historical period when it was at the zenith of its prestige. The words of Henry of Langenstein, a mediaeval writer, contain the doctrine in a nutshell—prices may be such as will enable each man “to have the necessaries of life suitable for his station”.10/ This is the most typical formulation of the doctrine of the just price, and from it is transparent that, like the modern theory of fair profits, it aims at preserving a certain social status quo. The unchallenged sway this doctrine has held for something like four centuries shows what exceptional degree of self-contentment with its social arrangements the culture of the West generated at the time, and the fact that the intellectuals of the period—the clerics—enjoyed a position of exceptional social eminence does make one reflect about man's tendency to rationalize his own interests as a form of the common good. It should give the Nostalgic economists food for thought, but, of their difficulties, the present one lies somewhat beside our line of argument. We shall therefore grant that the obvious ideological features of the just price doctrine are accidental to the whole approach and that this could eventually lead to a system capable of realising the true moral purpose of society. What we now have to be concerned with relates to the different contents and implications of the Orthodox and the Nostalgic schools in the realm of value.
The latter's theory is far less comprehensive than the former's—this is the contrast we should like to bring out. The Nostalgic economists perhaps can turn out a set of rules for the pricing of goods and factors relative to each conception of the common end of society that they may happen to embrace, but their theory of value will certainly fail to tell us more than one thing—that the resulting prices will be just in the sense that they are adequate for the chosen end. Seeing that society's moral purpose could never be anything so prosaic as keeping markets cleared, their pricing rules will not even guarantee that. In fact, their theory of value entirely fails to account for flows of goods and services and therefore to throw any light on the subjects of what ought to be produced and how. In the Middle Ages these problems seem to have been solved implicitly by tradition. This could hardly be expected to happen under present conditions and, in fact, Nostalgic writers do deal with such matters quite often. Their way of handling them, however, is unsatisfactory, mainly because they seem to be unable to cope with the pertinent quantitative aspects. As long as they limit themselves to the critique of liberal capitalism, this shortcoming is not very noticeable; as, for instance, when they express their moral reprobation at self-interest providing the sole dictation at which entrepreneurs choose to produce guns or butter, marihuana or milk. But they seem to be seriously handicapped when called upon to pass judgment on how much of each good should be turned out. One can understand that it may be considered immoral to produce guns and marihuana, but hardly that it would be unethical to go beyond a certain annual output of either good. Qualitative questions involving an either-or alternative seem to be all they can answer. The real problem that every economy faces, on the other hand, concerns the mix of goods to be produced, a problem containing a myriad of unknowns. What it all boils down to is that the Nostalgic writers can only provide answers to a few of them—those for which the solution is nought.
But more about this later. Our purpose now was merely to illustrate the differences between the two schools of thought, and let us trust that it has been achieved. We must inquire next about the main implications of the system of Nostalgic economics.
Or rather, let us first ask what the system does not imply. It does not imply, contrary to what might appear, the contention that a high level of moral life would follow from its adoption. It is not affirmed by Nostalgic economists, or even hinted, that people at large became moral cynics when, in the sixteenth century, the system they propound was put in abeyance. Nor do they hold that observance of the rules of the system was satisfactory throughout the Middle Ages and everywhere in the mediaeval Western world. What is more, the kindred literature of that period was often cast in a mood that has been described as “the jealous and cynical suspicion of economic egotism”.11/ It is not, therefore, the facts of economic life from the Renaissance onwards that the Nostalgic economists particularly find fault with; it is the tone that the discussion began to assume—that matter-of-fact, utilitarian approach—that they abhor. It was tantamount to treating society as an economic machine, instead of the spiritual organism that they know it to be. It implies raising the lamentable workings of avarice to the rank of an object of science, coming to terms with sin. This attitude, which condemns the pursuit of knowledge in a given field as morally tainted, is indeed a strange one. It implies that, after having discerned a level of coherence in human action, man should deliberately stay away from it, that some peaks should remain for ever unconquered, some lands untrodden, certain challenges unanswered. It can be seen that the Nostalgic school holds claims in this field that are quite unrealistic and smack of intolerance.
So much about their attitude towards economic studies; let us return to their views on economic life. These certainly do not include any illusions about the moral conduct of men in the course of their business. On the contrary, as pointed out above, authors of this persuasion have always shown signs of being obsessed by human weakness before the temptations of covetousness. They have never entertained the hope that knowledge of the rules of the good conduct would in itself guarantee their observance; on the contrary, they have always preferred to rely on the authority of government to enforce those rules. Nevertheless, the possibility of spontaneous, uncoerced compliance is certainly implicit in the system. Moreover, among the reasons that commend it most, according to its supporters, stands precisely the possibilities it opens for man's self-realisation through his free observance of the moral law. To state that, ceteris paribus, if demand goes up, prices will go up too is like saying “if you propel that shaft, this wheel will be put in motion”. But human beings can transcend the realm of natural laws and be free. And to be free is to act in accordance with the rules of ethics for the sake of justice and truth. Finally, to achieve freedom (man is not born free, according to Maritain, but can become free) is to attain full human status, to realise oneself as a man.12/ Between a system that opens this sort of avenue for man's improvement and another that treats human beings as though they were inanimate things, how can anyone hesitate?
This is the sort of argument one comes across. It is not our intention to discuss it here; merely to point to one thing it implies—that the rules that should govern each man's economic life are intelligible for him. This was clearly the case with the doctrine of the just price. Schoolmen often advised that prices should be fixed by public authority, but this was only because they did not trust men to act ethically. In absence of official pricing each individual must fix prices for himself in conformity with the rules of the system.13/ As a matter of historical fact, most of the mediaeval literature on economic subjects developed as the Schoolmen attempted to provide guidelines for confessors, who in turn were assailed by penitents troubled about what their behaviour ought to be.14/ Sometimes the penitents were rulers, sometimes they were subjects. The system undoubtedly contained rules addressed to one and the other rank. This was so under the economic circumstances prevalent in the Middle Ages. Let us now inquire how the change into contemporary Western conditions would affect the issue.
It has been stated above that, in the Middle Ages, the what, the how and the for whom of production was solved implicitly by tradition. The same can be said about all stationary economies, in which, as Octave Gélinier has pointed out, the role of producers consists of supplying a constant volume of production of an unchanging set of goods according to an invariable technique.15/ The entrepreneur has no place in such an economy; neither have profits.
The situation is radically different in a contemporary Western society. The flow of production varies all the time. Not only does the rate at which each product is turned out constantly change but, what is even more characteristic, new goods are permanently being poured into the stream. Methods of production are hardly more stable. Techniques are in a state of flux and so is the factor mix. The main determinants of change can be grouped under two headings—alteration of consumer preferences and technical development; but, however determined, change always occurs by the decision of an entrepreneur—that character, once superfluous, not long ago unknown, so often still mistaken for somebody else; that character whom profit moves and, even more significantly, guides; whose business it is precisely to supply the flow of decisions that keep a modern economy on the move.
The mediaeval producer was no entrepreneur. The latter is surrounded by problems; the former was immersed in tradition; and tradition had answers for all the questions that could ever arise in his life. Not that many did. Occasionally, the mediaeval farmer or craftsman was confronted with doubt. The disease of a cow, the command of an excentric patron, a friend's offer to lend or request to borrow, a poor harvest or a shortage of certain materials made him ponder. But he would normally find a way out of his perplexity by seeking advice from someone older or wiser. The answer was somewhere out there, to be looked for among the rules of which the fabric of tradition was largely made up.
Some of these rules were seen as possessing ethical nature; others, as the standards of an art or husbandry. When proving elusive, some posed technical difficulties; others, cases of conscience. All, however, were interwoven in the same texture, formed part of the same system.
When the Nostalgic political economists believe they contemplate the mediaeval economic system they suffer from a sort of historical mirage. What they actually see is part of a system, a part that would not be, by itself, viable. When they wish to revive the system they love, they are in fact trying to resuscitate an incomplete body, a fraction that would be quite incapable of independent life.
Or could it be that the Nostalgic school are proposing to do away with all material progress and bring back the economies of the West to a stagnant condition, when traditional technique could again govern the what and the how of production, and ethics could see to the for whom of it? The idea must be dismissed forthwith. Nostalgic economists as a rule entertain nothing but gentle, humane feelings, whereas such a project would involve the curtailment of the population growth by the sheer starvation of millions, before a stationary equilibrium, in the midst of destitution and despair, again became possible.16/
Nor can one hope that a market economy might afford the Nostalgic system the second leg it needs to stand on. Under the conditions they wish to impose upon it, the mechanism simply would not work. We are sorry if the members of the Nostalgic school dislike the metaphor; it is nevertheless a pertinent one. Spiritual beings one can expect to be amenable to argument; machines certainly are not. Try to substitute water for gasoline and your engine, whatever your eloquence, will refuse to start. Social phenomena often exhibit that very kind of intractability. Take, for instance, the notion that profits are deserved, and therefore legitimate, only if the result of the firm's efficiency, the high productivity of its resources or some similar reason. This is undoubtedly among the mildest propositions on record to interfere with market forces. And yet, if adhered to strictly, it would be lethal to a free economy. “Deserved” profits are of no avail when you want to re-direct resources. You need “undeserved” profits for that—i. e. firms ought to make them in the fields of production to which demand requires that resources should be channeled. As Enoch Powell so aptly puts it, “Profit will only serve the consumer and the common good if high profits can be made from time to time with less effort, less efficiency, less of all the deserving virtues than lower profits. Profits are the index of what people want.”17/
Offer the possibility of “deserved” profits only and entrepreneurs will do the necessary to make them. If it is low costs that will bring them, they will see that productivity is high. But their decisions will have lost one of the essential virtues they would have possessed in a free market—the ability to direct resources to where they are most needed. Tamper further with market forces and entrepreneurs will perform their task with ever decreasing efficiency. They will continue to set the course of their action guided by profits but these will no longer be a true guide. The index of what people want will have been lost. Their decisions will no longer tend to clear the markets. Consumers will start forming queues in some of them while in others unsold stocks begin to pile up. Frustration will accompany all policy measures. New wage rates, new prices for grain, all fixed with the best of intentions, so sincerely aimed at doing justice—at long last!—to the worker and farmer, will fail to enthuse their beneficiaries. Unemployment and bursting silos will have spoilt their appreciation of social justice. The authorities will begin to fear that, before long, all those they are trying to help will address them in the spirit in which young Andrés spoke to Don Quixote: “By the love of God”, the poor boy begged of his protector, “should you run across me again, though I am being hacked to bits, do not come to my rescue: leave me to mine evil fate ...”18/
There is nothing moral or immoral about the production of so many tons of pig iron or so many barrels of oil more or less, the mix of thermic, nuclear and hydraulic generation of power seems quite indifferent to ethics and the blend of wool and synthetics in a fabric is likely to leave most moralists quite undisturbed, while hardly one of them will turn a hair if the issue relates to the launching of the latest model of a desk computer. The Nostalgic school would gladly leave such trivial matters to be determined by market forces while they would have government concentrate on the really important ones concerning the pricing of goods and factors, from which distributive justice depends. But, as we have just pointed out, things will not work out that way. To a number of the unknowns that the market economy used to solve they now wish to give certain values, aimed at realising certain moral ends; and they expect the rest to be solved by the old procedure. But the new inputs render the machine (the inescapable metaphor!) erratically wrong. Its answers no longer make sense. The use of new methods becomes imperative. The market economy must be scrapped.
We trust we shall not be misunderstood. We do not hold that a market economy is a delicate flower, likely to wither away at the slightest tampering. There is ample evidence to the contrary. The pertinent question, however, is not whether a minute dose of the medicine prescribed by the Nostalgic economists would prove lethal to a market economy, but whether this would survive the whole treatment that this school propounds.
We have therefore to assume that the economic authority has decided to model society after some ethical blueprint, leaving the morally indifferent trimmings of the good society to market forces, and ask ourselves whether this is a viable proposition. And to this question it is we suggest the answer should be negative.
We further submit that such an attempt would inevitably lead to central planning. One can see it happen in a gradual way, every failure of the ethically-oriented policy being taken as proof of the shortcomings of a market economy, calling for further state intervention in the economy, now even in morally neutral fields. Experience will show that the unco-ordinated operation of firms and households does not lead to market equilibrium (under the conditions created by the new policies this conclusion would become increasingly evident); more and more of the choices the entrepreneur used to face will have to be made on his behalf by a central authority; while rationing will be instituted to cope with the disorderly behaviour that scarcity would have brought out among consumers.
Finally, when no choices are left for the economic units to be made for themselves, the process will have been completed. The result will be undistinguishable from socialism; even if private property were maintained as a legal institution, its economic substance would have dried up; even if some people continued to be referred to as entrepreneurs, they would be so only in name.
The process would have been accompanied by growing inefficiency in the use of productive resources. Its consumation into a centrally planned regime, far from offering any hope of recovery, would simply crystalize inefficiency into a permanent feature of society. Von Mises's thesis to that effect stands unrefuted.19/ Thanks to him there is, in this connection, a large “lasciate ogni speranza” sign inscribed in large characters at the entrance of every system involving central planning. The Nostalgic economists would be quite wrong to ignore it.
They could, on the other hand, understandably disregard the advice. They could hold that people would derive spiritual satisfaction from living in a good society and this would outweigh any material loss coming from the lower degree of efficiency. But if the choice in itself is not debatable, the alternatives should be clearly defined. To this end, we trust we have shown that the Nostalgic school adorn theirs with a number of features that are illusory, beginning with the notion that their system is compatible with private property and the institutional arrangements of a substantially free economy. But more of prime importance is implicit in this; it brings us back to the starting point of our essay.
“Society is a spiritual being”, the Nostalgic economist argues, “not an economic machine. Man can only attain freedom and full human status by recognising himself as part of that spiritual being and accordingly accepting the common good, not self-interest, as his goal in life”. But this theory was evolved in the context of a stationary, extremely simple economy. In the infinitely complex, highly dynamic conditions of the contemporary West, no set of rules capable of realising some ethical ideal would be intelligible to the ordinary economic units, to the firm or the household. Only a centrally placed unit, possessing an intelligence of the entire system, could possibly discern such rules. Only to the central authority in control of the flow of goods and of the factor combinations throughout the economy could prices be meaningful in terms of relative factor incomes, of relative costs and profits. The behaviour of that authority could be seen as ethically significant, but no-one else's. It is transparent that the system aims at the freedom and the selfrealization ... of the central planners. To the common run of men and women would be reserved the sole freedom of obeying their self-realised masters and the single spiritual satisfaction of being told that they had been ushered into an incorruptible brave new world.