The Online Library of Liberty

A project of Liberty Fund, Inc.

• Editor’s Foreword
• Preface to the First Edition
• Preface to the 1962 Edition
• Bureaucracy
• Introduction
• 1.: The Opprobrious Connotation of the Term Bureaucracy
• 2.: The American Citizen’s Indictment of Bureaucratism
• 3.: The “progressives’” View of Bureaucratism
• 4.: Bureaucratism and Totalitarianism
• 5.: The Alternative: Profit Management Or Bureaucratic Management
• I: Profit Management
• 1.: The Operation of the Market Mechanism
• 2.: Economic Calculation
• 3.: Management Under the Profit System
• 4.: Personnel Management Under an Unhampered Labor Market
• II: Bureaucratic Management
• 1.: Bureaucracy Under Despotic Government
• 2.: Bureaucracy Within a Democracy
• 3.: The Essential Features of Bureaucratic Management
• 4.: The Crux of Bureaucratic Management
• 5.: Bureaucratic Personnel Management
• III: Bureaucratic Management of Publicly Owned Enterprises
• 1.: The Impracticability of Government All-round Control
• 2.: Public Enterprise Within a Market Economy
• IV: Bureaucratic Management of Private Enterprises
• 1.: How Government Interference and the Impairment of the Profit Motive Drive Business Toward Bureaucratization
• 2.: Interference With the Height of Profit
• 3.: Interference With the Choice of Personnel
• 4.: Unlimited Dependence On the Discretion of Government Bureaus
• V: The Social and Political Implications of Bureaucratization
• 1.: The Philosophy of Bureaucratism
• 2.: Bureaucratic Complacency
• 3.: The Bureaucrat As a Voter
• 4.: The Bureaucratization of the Mind
• 5.: Who Should Be the Master?
• VI: The Psychological Consequences of Bureaucratization
• 1.: The German Youth Movement
• 2.: The Fate of the Rising Generation Within a Bureaucratic Environment
• 3.: Authoritarian Guardianship and Progress
• 4.: The Selection of the Dictator
• 5.: The Vanishing of the Critical Sense
• VII: Is There Any Remedy Available?
• 1.: Past Failures
• 2.: Economics Versus Planning and Totalitarianism
• 3.: The Plain Citizen Versus the Professional Propagandist of Bureaucratization
• Conclusion

4.

Personnel Management under an Unhampered Labor Market

The staff of a modern large-scale enterprise sometimes includes many hundreds of thousands of clerks and workers. They form a highly differentiated body from the general manager or president down to the scrubwomen, messenger boys, and apprentices. The handling of such a huge body raises many problems. However, they can be solved.

No matter how big a concern may be, the central management deals only with sections, departments, branches, and subsidiaries, the role of which can be precisely determined from the evidence provided by the accounts and statistics. Of course, the accounts do not always demonstrate what may be wrong with a section. They show only that something is wrong, that it does not pay and must be either reformed or discontinued. The sentences they pass are unappealable. They reveal each department’s cash value. And it is cash value alone that matters on the market. The consumers are merciless. They never buy in order to benefit a less efficient producer and to protect him against the consequences of his failure to manage better. They want to be served as well as possible. And the working of the capitalist system forces the entrepreneur to obey the orders issued by the consumers. He does not have the power to distribute bounties at the expense of the consumers. He would waste his funds if he were to use his own money for such a purpose. He simply cannot pay anybody more than he can realize in selling the product.

The same relation that exists between the general manager and his immediate subordinates, the heads of the various sections, pervades the whole business hierarchy. Every section head values his immediate subordinates according to the same principle by which the chief manager values him, and the foreman applies similar methods in appraising his subordinates. The only difference is that under the simpler conditions of the lower units no elaborate accountancy schemes are required for the establishment of each man’s cash value. It does not matter whether piece wages or hourly wages are paid. In the long run the worker can never get more than the consumer allows.

No man is infallible. It often happens that a superior errs in judging a subordinate. One of the qualifications required for any higher position is precisely the ability to judge people correctly. He who fails in this regard jeopardizes his chances of success. He hurts his own interests no less than those of the men whose efficiency he has underrated. Things being so, there is no need to look for special protection for the employees against arbitrariness on the part of their employers or their employers’ mandatories. Arbitrariness in dealing with personnel is, under the unhampered profit system, an offense that strikes home to its author.

Under an unhampered market economy the appraisal of each individual’s effort is detached from any personal considerations and can therefore be free both from bias and dislike. The market passes judgment on the products, not on the producers. The appraisal of the producer results automatically from the appraisal of his product. Each co-operator is valued according to the value of his contribution to the process of production of goods and services. Salaries and wages do not depend on arbitrary decisions. On the labor market every quantity and quality of work is prized to the amount the consumers are ready to pay for the products. It is not a favor on the part of the employer to pay wages and salaries, it is a business transaction, the purchase of a factor of production. The price of labor is a market phenomenon determined by the consumers’ demands for goods and services. Virtually every employer is always in search of cheaper labor and every employee in search of a job with higher remuneration.

The very fact that labor is, under capitalism, a commodity and is bought and sold as a commodity makes the wage earner free from any personal dependence. Like the capitalists, the entrepreneurs, and the farmers, the wage earner depends on the arbitrariness of the consumers. But the consumers’ choices do not concern the persons engaged in production; they concern things and not men. The employer is not in a position to indulge in favoritism or in prejudice with regard to personnel. As far as he does, the deed itself brings about its own penalty.

It is this fact, and not only constitutions and bills of rights, that makes the receivers of salaries and wages within an unhampered capitalist system free men . They are sovereign in their capacity as consumers, and as producers they are, like all other citizens, unconditionally subject to the law of the market. In selling a factor of production, namely, their toil and trouble, on the market at the market price to everybody who is ready to buy it, they do not jeopardize their own standing. They do not owe their employer thanks and subservience, they owe him a definite quantity of labor of a definite quality. The employer, on the other hand, is not in search of sympathetic men whom he likes but efficient workers who are worth the money he pays them.

This cool rationality and objectivity of capitalist relations is, of course, not realized to the same degree in the whole field of business. The nearer a man’s function brings him to the consumers, the more personal factors interfere. In the service trades some role is played by sympathies and antipathies; relations are more “human.” Stubborn doctrinaires and adamant baiters of capitalism are prepared to call this an advantage. In fact it curtails the businessman’s and his employees’ personal freedom. A small shopkeeper, a barber, an innkeeper, and an actor are not so free in expressing their political or religious convictions as the owner of a cotton mill or a worker in a steel plant.

But these facts do not invalidate the general characteristics of the market system. It is a system which automatically values every man according to the services he renders to the body of sovereign consumers, i.e., to his fellowmen.

II

Bureaucratic Management