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CHAPTER 6: Further Implications of the Neglect of Economic Thinking - Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method 
The Ultimate Foundation of Economic Science: An Essay on Method, ed Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006).
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Further Implications of the Neglect of Economic Thinking
The Zoological Approach to Human Problems
Naturalism plans to deal with the problems of human action in the way zoology deals with all other living beings. Behaviorism wants to obliterate what distinguishes human action from the behavior of animals. In these schemes there is no room left for the specific human quality, man’s distinctive feature, viz., the conscious striving after ends chosen. They ignore the human mind. The concept of finality is foreign to them.
Zoologically seen, man is an animal. But there prevails a fundamental difference between the conditions of all other animals and those of man. Every living being is naturally the implacable enemy of every other living being, especially of all other members of his own species. For the means of subsistence are scarce. They do not permit all specimens to survive and to consummate their existence up to the point at which their inborn vitality is fully spent. This irreconcilable conflict of essential interests prevails first of all among the members of the same species because they depend for their survival on the same foodstuffs. Nature is literally “red in tooth and claw.”1
Man too is an animal. But he differs from all other animals as, by dint of his reason, he has discovered the great cosmic law of the higher productivity of cooperation under the principle of the division of labor. Man is, as Aristotle formulated it, the ζῷον τολιτικόν [“political animal”], the social animal, but he is “social” not on account of his animal nature, but on account of his specifically human quality. Specimens of his own zoological species are, for the human individual, not deadly enemies opposed to him in pitiless biological competition, but cooperators or potential cooperators in joint efforts to improve the external condition of his own welfare. An unbridgeable gulf separates man from all those beings that lack the ability to grasp the meaning of social cooperation.
The Approach of the “Social Sciences”
It is customary to hypostatize social cooperation by employing the term “society.” Some mysterious superhuman agency, it is said, created society and peremptorily requires man to sacrifice the concerns of his petty egoism for the benefit of society.
The scientific treatment of the problems involved starts with the radical rejection of this mythological approach. What the individual forgoes in order to cooperate with other individuals is not his personal interests opposed to that of the phantom society. He forsakes an immediate boon in order to reap at a later date a greater boon. His sacrifice is provisional. He chooses between his interests in the short run and his interests in the long run, those which the classical economists used to call his “rightly understood” interests.
The utilitarian philosophy does not look upon the rules of morality as upon arbitrary laws imposed upon man by a tyrannical Deity with which man has to comply without asking any further questions. To behave in compliance with the rules that are required for the preservation of social cooperation is for man the only means to attain safely all those ends that he wants to attain.
The attempts to reject this rationalistic interpretation of morality from the point of view of Christian teachings are futile. According to the fundamental doctrine of Christian theology and philosophy, God has created the human mind in endowing man with his faculty of thinking. As both revelation and human reason are manifestations of the Lord’s might, there cannot be ultimately any disagreement between them. God does not contradict himself. It is the object of philosophy and theology to demonstrate the concord between revelation and reason. Such was the problem the solution of which patristic and scholastic philosophy tried to achieve.2 Most of these thinkers doubted whether the human mind, unaided by revelation, would have been able to become aware of what the dogmas, especially those of the Incarnation and of the Trinity, taught. But they did not express serious doubts concerning the faculty of human reason in all other regards.
The popular attacks upon the social philosophy of the Enlightenment and the utilitarian doctrine as taught by the classical economists did not originate from Christian theology, but from theistic, atheistic, and antitheistic reasoning. They take for granted the existence of some collectives and ask neither how such collectives came into existence nor in what sense they “exist.” They ascribe to the collective of their choice—mankind (humanité), race, nation (in the sense attached to this term in English and in French, which corresponds to the German Staat), nationality (the totality of all people speaking the same language), social class (in the Marxian sense), and some others—all the attributes of acting individuals. They maintain that the reality of these collectives can be perceived directly and that they exist apart from and above the actions of the individuals who belong to them. They assume that the moral law obliges the individual to subordinate his “petty” private desires and interests to those of the collective to which he belongs “by rights” and to which he owes unconditional allegiance. The individual who pursues his own interests or prefers loyalty to a “counterfeit” collective to that of the “true” collective is just a refractory.
The main characteristic of collectivism is that it does not take notice of the individual’s will and moral self-determination. In the light of its philosophy the individual is born into a collective and it is “natural” and proper for him to behave as members of this collective are expected to behave. Expected by whom? Of course, by those individuals to whom, by the mysterious decrees of some mysterious agency, the task of determining the collective will and directing the actions of the collective has been entrusted.
In the ancien régime [“the old political and social order,” commonly used to refer to the pre–French Revolution system] authoritarianism was based upon a kind of theocratic doctrine. The anointed king ruled by the grace of God; his mandate was from God. He was the personification of the realm. “France” was the name both of the king and of the country; the king’s children were enfants de France [“children of France”]. Subjects who defied the royal orders were rebels.
The social philosophy of the Enlightenment rejected this presumption. It called all Frenchmen enfants de la patrie [“children of the homeland, or fatherland”], children of the fatherland. No longer was compulsory unanimity in all essential and political matters to be enforced. The institution of representative government—government by the people—acknowledges the fact that people may disagree with regard to political issues and that those sharing the same opinions consort with one another in parties. The party in office rules as long as it is supported by the majority.
The neoauthoritarianism of collectivism stigmatizes this “relativism” as contrary to human nature. The collective is seen as an entity above the concerns of the individuals. It is immaterial whether or not the individuals spontaneously agree with the concerns of the whole. At any rate it is their duty to agree. There are no parties; there is only the collective.3 All the people are morally bound to comply with the collective’s orders. If they disobey, they are forced to yield. This is what the Russian Marshal Zhukov called the “idealistic system” as opposed to the “materialistic system” of Western individualism that the commanding general of the American forces found “a little difficult” to defend.4
The “social sciences” are committed to the propagation of the collectivistic doctrine. They do not waste any words on the hopeless task of denying the existence of individuals or proving their villainy. In defining as the objective of the social sciences concern with “the activities of the individual as a member of a group”5 and implying that the social sciences so defined cover everything that does not belong to the natural sciences, they simply ignore the existence of the individual. In their view, the existence of groups or collectives is an ultimate given. They do not attempt to search for the factors that make individuals cooperate with one another and thus create what is called groups or collectives. For them the collective, like life or mind, is a primary phenomenon the origin of which science cannot trace back to the operation of some other phenomenon. Consequently, the social sciences are at a loss to explain how it can happen that there exists a multitude of collectives and that the same individuals are at the same time members of different collectives.
The Approach of Economics
Economics or catallactics, the only branch of the theoretical sciences of human action that has up to now been elaborated, views the collectives as creations of the cooperation of individuals. Guided by the idea that definite ends sought can be attained either better or only by cooperation, men associate with one another in cooperation and thus bring forth what is called groups or collectives or simply human society.
The paragon of collectivization or socialization is the market economy, and the fundamental principle of collective action is the mutual exchange of services, the do ut des [“I give so that you give”]. The individual gives and serves in order to be rewarded by his fellow men’s gifts and services. He gives away what he values less in order to receive something that at the moment of the transaction he considers as more desirable. He exchanges—buys or sells—because he thinks that this is the most advantageous thing he can do at the time.
The intellectual comprehension of what individuals do in exchanging commodities and services has been obscured by the way in which the social sciences have distorted the meaning of all the terms concerned. In their jargon “society” does not mean the result brought about by the substitution of mutual cooperation among individuals for the isolated efforts of individuals to improve their conditions; it signifies a mythical collective entity in whose name a group of governors is expected to take care of all their fellow men. They employ the adjective “social” and the noun “socialization” accordingly.
Social cooperation among individuals—society—can be based either upon spontaneous coordination or upon command and subordination; in the terminology of Henry Sumner Maine, either upon contract or upon status. Into the structure of the contract society the individual integrates himself spontaneously; in the structure of the status society his place and functions—his duties—are assigned to him by those in command of the social apparatus of compulsion and oppression. While in the contract society this apparatus—the government or the state—interferes only in order to quell violent or fraudulent machinations to subvert the system of mutual exchange of services, in the status society it keeps the whole system going by orders and prohibitions.
The market economy was not devised by a master mind; it was not first planned as an utopian scheme and then put to work. Spontaneous actions of individuals, aiming at nothing else than at the improvement of their own state of satisfaction, undermined the prestige of the coercive status system step by step. Then only, when the superior efficiency of economic freedom could no longer be questioned, social philosophy entered the scene and demolished the ideology of the status system. The political supremacy of the supporters of the precapitalistic order was annulled by civil wars. The market economy itself was not a product of violent action—of revolutions—but of a series of gradual peaceful changes. The implications of the term “industrial revolution” are utterly misleading.
A Remark about Legal Terminology
In the political sphere the violent overthrow of the precapitalistic methods of government resulted in the complete abandonment of the feudal concepts of public law and the development of a new constitutional doctrine with legal concepts and terms unknown before. (Only in England, where the transformation of the system of royal supremacy first into that of the supremacy of a caste of privileged landowners and then into that of representative government with adult franchise was effected by a succession of peaceful changes,6 was the terminology of the ancien régime for the most part preserved while its original meaning had long since become devoid of any practical applicability.) In the sphere of civil law the transition from precapitalistic to capitalistic conditions was brought about by a long series of small changes through the actions of people who lacked the power to alter formally the traditional legal institutions and concepts. The new methods of doing business generated new branches of law that were developed out of older business customs and practices. But however radically these new methods transformed the essence and the meaning of the traditional legal institutions, it was assumed that those terms and concepts of the old law that remained in use continued to signify the same social and economic conditions they had signified in ages gone by. The retention of the traditional terms prevents superficial observers from noticing the full significance of the fundamental changes effected. The outstanding example is provided by the use of the concept of property.
Where there by and large prevails economic self-sufficiency of every household, and consequently there is for the much greater part of all products no regular exchange, the meaning of property in producers’ goods does not differ from the meaning of property in consumers’ goods. In each case property serves the owner exclusively. To own something, whether a producers’ good or a consumers’ good, means to have it for oneself alone and to deal with it for one’s own satisfaction.
But it is quite a different thing in the frame of a market economy. The owner of producers’ goods is forced to employ them for the best possible satisfaction of the wants of the consumers. He forfeits his property if other people eclipse him by better serving the consumers. In the market economy property is acquired and preserved by serving the public and is lost when the public becomes dissatisfied with the way in which it is served. Private property in the factors of production is a public mandate, as it were, which is withdrawn as soon as the consumers think that other people would employ it more efficiently. By the instrumentality of the profit-and-loss system, the owners are forced to deal with “their” property as if it were other people’s property entrusted to them under the obligation to utilize it for the best possible satisfaction of the virtual beneficiaries, the consumers. All factors of production, including also the human factor, viz., labor, serve the totality of the members of the market economy. Such is the real meaning and character of private property in the material factors of production under capitalism. It could be ignored and misinterpreted only because people—economists and lawyers as well as laymen—had been led astray by the fact that the legal concept of property as developed by the juridical practices and doctrines of precapitalistic ages has been retained unchanged or only slightly altered after its effective meaning had been radically altered.7
It is necessary to deal with this issue in an analysis of the epistemological problems of the sciences of human action because it shows how radically the approach of modern praxeology differs from that of the traditional older ways of studying social conditions. Blinded by the uncritical acceptance of the legalistic doctrines of precapitalistic ages, generations of authors entirely failed to see the characteristic features of the market economy and of private ownership of the means of production within the market economy. In their view, the capitalists and entrepreneurs appear as irresponsible autocrats administering economic affairs for their own benefit without any regard for the concerns of the rest of the people. They depict profit as unfair lucre derived from the “exploitation” of the employees and the consumers. Their passionate denunciation of profit prevented them from realizing that it is precisely the necessity to make profits and to avoid losses that forces the “exploiters” to satisfy the consumers to the best of their abilities by supplying them with those commodities and services they are most urgently asking for. The consumers are sovereign because they ultimately determine what has to be produced, in what quantity, and of what quality.
The Sovereignty of the Consumers
One of the characteristics of the market economy is the specific way in which it deals with the problems offered by the biological, moral, and intellectual inequality of men.
In the precapitalistic ages the superior, i.e., the smarter and more efficient individuals, subdued and enthralled the masses of their less efficient fellows. In the status society there are castes; there are lords and there are servants. All affairs are managed for the sole benefit of the former, while the latter have to drudge for their masters.
In the market economy the better people are forced by the instrumentality of the profit-and-loss system to serve the concerns of everybody, including the hosts of inferior people. In its frame the most desirable situations can be attained only by actions that benefit all the people. The masses, in their capacity as consumers, ultimately determine everybody’s revenues and wealth. They entrust control of the capital goods to those who know how to employ them for their own, i.e., the masses’, best satisfaction.
It is, of course, true that in the market economy not those fare best who, from the point of view of an enlightened judgment, ought to be considered as the most eminent individuals of the human species. The uncouth hordes of common men are not fit to recognize duly the merits of those who eclipse their own wretchedness. They judge everybody from the point of view of the satisfaction of their desires. Thus, boxing champions and authors of detective stories enjoy a higher prestige and earn more money than philosophers and poets. Those who bemoan this fact are certainly right. But no social system could be devised that would fairly reward the contributions of the innovator whose genius leads mankind to ideas unknown before and therefore first rejected by all those who lack the same inspiration.
What the so-called democracy of the market brings about is a state of affairs in which production activities are operated by those of whose conduct of affairs the masses approve by buying their products. By rendering their enterprises profitable, the consumers shift control of the factors of production into the hands of those businessmen who serve them best. By rendering the enterprises of the bungling entrepreneurs unprofitable, they withdraw control from those entrepreneurs with whose services they disagree. It is antisocial in the strict meaning of the term if governments thwart these decisions of the people by taxing profits. From a genuinely social point of view, it would be more “social” to tax losses than to tax profits.
The inferiority of the multitude manifests itself most convincingly in the fact that they loathe the capitalistic system and stigmatize as unfair the profits that their own behavior creates. The demand to expropriate all private property and to redistribute it equally among all members of society made sense in a thoroughly agricultural society. There the fact that some people owned large estates was the corollary of the fact that others owned nothing or not enough to support them and their families. But it is different in a society in which the standard of living depends on the supply of capital goods. Capital is accumulated by thrift and saving and is maintained by abstention from decumulating and dissipating it. The wealth of the well-to-do of an industrial society is both the cause and the effect of the masses’ well-being. Also those who do not own it are enriched, not impoverished, by it.
The spectacle offered by the policies of contemporary governments is paradoxical indeed. The much defamed acquisitiveness of promoters and speculators succeeds daily in providing the masses with commodities and services unknown before. A horn of plenty is poured upon people for whom the methods by means of which all these marvelous gadgets are produced are incomprehensible. These dull beneficiaries of the capitalistic system indulge in the delusion that it is their own performance of routine jobs that creates all these marvels. They cast their votes for rulers who are committed to a policy of sabotage and destruction. They look upon “big business,” necessarily committed to catering to mass consumption, as upon the foremost public enemy and approve of every measure that, as they think, improves their own conditions by “punishing” those whom they envy.
To analyze the problems involved is, of course, not the task of epistemology.
[1. ]Tennyson, In Memoriam, LVI, iv.
[2. ]L. Rougier, La scolastique et le Thomisme (Paris, 1925), pp. 36 ff., 84 ff., 102 ff.
[3. ]Etymologically, the term “party” is derived from the term “part” as contrasted with the term “whole.” A brotherless party does not differ from the whole and is therefore not a party. The slogan “one-party system” was invented by the Russian Communists (and aped by their adepts, the Italian Fascists and the German Nazis) to conceal the abolition of the individual’s freedom and right to dissent.
[4. ]About this incident, see W. F. Buckley, Up from Liberalism (New York, 1959), pp. 164–168.
[5. ]E. R. A. Seligman, “What Are the Social Sciences?” Encyclopedia of the Social Sciences, I, 3.
[6. ]It was not the revolutions of the seventeenth century that transformed the British system of government. The effects of the first revolution were annulled by the Restoration, and in the Glorious Revolution of 1688 the royal office was merely transferred from the “legitimate” king to other members of his family. The struggle between dynastic absolutism and the parliamentary regime of the landed aristocracy continued during the greater part of the eighteenth century. It came to an end only when the attempts of the third Hanoverian king to revive the personal regime of the Tudors and the Stuarts were frustrated. The substitution of popular rule for that of the aristocracy was—in the nineteenth century—brought about by a succession of franchise reforms.
[7. ]See Mises, Die Gemeinwirtschaft (2nd ed.; Jena, 1932), pp. 15 ff. (English-language translation Socialism [Yale University Press, 1951 (reprint, Indianapolis, Ind.: Liberty Fund, 1981)], pp. 40 ff.)