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Planning for Freedom: Let the Market System Work. A Collection of Essays and Addresses, edited with a Foreword by Bettina Bien Greaves (Indianapolis: Liberty Fund, 2008).
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Published online with the kind permission of the copyright holders, the Foundation for Economic Education. In particular for the following articles: “Laissez Faire or Dictatorship”, “The Gold Problem”, Benjamin M. Anderson Challenges the Philosophy of the Pseudo-Progressives”, “Lord Keynes and Say’s Law”, “Stones into Bread”, “Economic Teaching at the Universities”, and “Trends can Change”.
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Laissez Faire or Dictatorship*
What the “Encyclopaedia of the Social Sciences” Says about Laissez Faire
For more than a hundred years the maxim laissez faire, laissez passer has been a red rag to harbingers of totalitarian despotism. As these zealots see it, this maxim condenses all the shameful principles of capitalism. To unmask its fallacies is therefore tantamount to exploding the ideological foundations of the system of private ownership of the means of production, and implicitly demonstrating the excellence of its antithesis, viz., communism and socialism.
The Encyclopaedia of the Social Sciences may fairly be considered as representative of the doctrines taught at American and British universities and colleges. Its ninth volume contains an article “Laissez Faire” from the pen of the Oxford professor and author of detective stories, G. D. H. Cole. In the five and a quarter pages of his contribution Professor Cole freely indulges in the use of deprecatory epithets. The maxim “cannot stand examination,” it is only prevalent in “popular economics,” it is “theoretically bankrupt,” an “anachronism,” it survives only as a “prejudice,” but “as a doctrine deserving of theoretical respect it is dead.” Resort to these and many other similar opprobrious appellations fails to disguise the fact that Professor Cole’s arguments entirely miss the point. Professor Cole is not qualified to deal with the problems involved because he simply does not know what the market economy is and how it works. The only correct affirmation of his article is the truism that those rejecting laissez faire are Socialists. He is also right in declaring that the refutation of laissez faire is “as prominent in the national idea of Fascism in Italy as in Russian Communism.”
The volume which contains Mr. Cole’s article was published in January 1933. This explains why he did not include Nazi Germany in the ranks of those nations which have freed themselves from the spell of the sinister maxim. He merely registers with satisfaction that the conception rejecting laissez faire is “at the back of many projects of national planning which, largely under Russian influence, is now being put forward all over the world.”
Laissez Faire Means Free Market Economy
Learned historians have bestowed much pains upon the question to whom the origin of the maxim laissez faire, laissez passer is to be attributed.* At any rate it is certain that in the second part of the eighteenth century the outstanding French champions of economic freedom— foremost among them Gournay, Quesnay, Turgot, and Mirabeau— compressed their program for popular use into this sentence. Their aim was the establishment of the unhampered market economy. In order to attain this end they advocated the abolition of all statutes preventing the more industrious and more efficient people from outdoing the less industrious and less efficient competitors and restricting the mobility of commodities and of men. It was this that the famous maxim was designed to express.
In occasionally using the words laissez faire, laissez passer, the eighteenth century economists did not intend to baptize their social philosophy the laissez-faire doctrine. They concentrated their efforts upon the elaboration of a new system of social and political ideas which would benefit mankind. They were not eager to organize a faction or party and to find a name for it. It was only later, in the second decade of the nineteenth century, that a term came to signify the total complex of the political philosophy of freedom, viz., liberalism. The new word was borrowed from Spain where it designated the friends of constitutional government and religious freedom. Very soon it was used all over Europe as a label for the endeavors of those who stood for representative government, freedom of thought, of speech and of the press, private ownership of the means of production, and free trade.
The liberal program is an indivisible and indissoluble whole, not an arbitrarily assembled patchwork of diverse components. Its various parts condition one another. The idea that political freedom can be preserved in the absence of economic freedom, and vice versa, is an illusion. Political freedom is the corollary of economic freedom. It is no accident that the age of capitalism became also the age of government by the people. If individuals are not free to buy and to sell on the market, they turn into virtual slaves dependent on the good graces of the omnipotent government, whatever the wording of the constitution may be.
The fathers of socialism and modern interventionism were fully aware that their own programs were incompatible with the political postulates of liberalism. The main target of their passionate attacks was liberalism as a whole. They did not make a distinction between the political and the economic aspects of liberalism.
But as the years went on, the Socialists and interventionists of the Anglo-Saxon countries discovered that it was a hopeless venture to attack liberalism and the idea of liberty openly. The prestige of liberal institutions was so overwhelming in the English-speaking world that no party could risk defying them directly. Anti-liberalism’s only chance was to camouflage itself as true and genuine liberalism and to denounce the attitudes of all other parties as a mere counterfeit liberalism.
The continental Socialists had fanatically smeared and disparaged liberalism and progressivism, and contemptuously derogated democracy as “pluto-democracy.” Their Anglo-Saxon imitators, who at first had adopted the same procedure, after a while reversed their semantics and arrogated to themselves the appellations liberal, progressive and democratic. They began flatly to deny that political freedom is the corollary of economic freedom. They boldly asserted that democratic institutions can work satisfactorily only where the government has full control of all production activities and the individual citizen is bound to obey unconditionally all orders issued by the central planning board. In their eyes all-round regimentation is the only means to make people free, and freedom of the press is best guaranteed by a government monopoly of printing and publishing. They were not plagued by any scruples when they stole the good old name of liberalism and began to call their own tenets and policies liberal. In this country the term “liberalism” is nowadays more often than not used as a synonym for communism.
The semantic innovation which the Socialists and interventionists thus inaugurated left the advocates of freedom without any name. There was no term available to call those who believe that private ownership of the material factors of production is the best, in fact, the only means to make the nation and all its individual citizens as prosperous as possible and to make representative government work. The Socialists and interventionists believe that such people do not deserve any name, but are to be referred to only by such insulting epithets as “economic royalists,” “Wall Street sycophants,” “reactionaries,” and so on.
This state of affairs explains why the phrase laissez faire was more and more used to signify the ideas of those who advocate the free market economy as against government planning and regimentation.
The Cairnes Argument against Laissez Faire
Today it is no longer difficult for intelligent men to realize that the alternative is market economy or communism. Production can either be directed by buying and abstention from buying on the part of all people, or it can be directed by the orders of the supreme chief of state. Men must choose between these two systems of society’s economic organization. There is no third solution, no middle way.
It is a sad fact that not only politicians and demagogues have failed to see this essential truth, but that even some economists have erred in dealing with the problems involved.
There is no need to dwell upon the unfortunate influence which originated from John Stuart Mill’s confused treatment of government interference with business. It becomes evident from Mill’s Autobiography that his change of mind resulting in what he calls “a greater approximation . . . to a qualified socialism”* was motivated by purely personal feelings and affections and not by emotionally undisturbed reasoning. It is certainly one of the tasks of economics to refute the errors which deform the disquisitions of so eminent a thinker as Mill. But it is unnecessary to argue against the prepossessions of Mrs. Mill.
A few years after Mill, another outstanding economist, J. E. Cairnes, dealt with the same problem.† As a philosopher and essayist Mill by far supersedes Cairnes. But as an economist Cairnes was not second to Mill, and his contributions to the epistemology of the social sciences are of incomparably greater value and importance than those of Mill. Yet, Cairnes’s analysis of laissez faire does not display that brilliant precision of reasoning which is the distinguishing mark of his other writings.
As Cairnes sees it, the assertion implied in the doctrine of laissez faire is that “the promptings of self-interest will lead individuals, in all that range of their conduct which has to do with their material well-being, spontaneously to follow that course which is most for their own good and for the good of all.” This assertion, he says, “involves the two following assumptions: first, that the interests of human beings are fundamentally the same—that what is most for my interest is also most for the interest of other people; and, secondly, that individuals know their interests in the sense in which they are coincident with the interests of others, and that, in the absence of coercion, they will in this sense follow them. If these two propositions be made out, the policy of laissez faire . . . follows with scientific rigour.”
Cairnes is disposed to accept the first—the major—premise of the syllogism, that the interests of human beings are fundamentally the same. But he rejects the second—the minor—premise.* “Human beings know and follow their interests according to their lights and dispositions; but not necessarily, nor in practice always, in the sense in which the interest of the individual is coincident with that of others and of the whole.”†
Let us for the sake of argument accept the way in which Cairnes presents the problem and in which he argues. Human beings are fallible and therefore sometimes fail to learn what their true interests would require them to do. Furthermore, there are “such things in the world as passion, prejudice, custom, esprit de corps, class interest, to draw people aside from the pursuit of their interests in the largest and highest sense.”‡ It is very unfortunate that reality is such. But, we must ask, is there any means available to prevent mankind from being hurt by people’s bad judgment and malice? Is it not a non sequitur to assume that one could avoid the disastrous consequences of these human weaknesses by substituting the government’s discretion for that of the individual citizens? Are governments endowed with intellectual and moral perfection? Are the rulers not human too, not themselves subject to human frailties and deficiencies?
The theocratic doctrine is consistent in attributing to the head of the government superhuman powers. The French royalists contend that the solemn consecration at Rheims conveys to the king of France, anointed with the sacred oil which a dove from Heaven brought down for the consecration of Clovis, divine dispensation. The legitimate king cannot err and cannot do wrong, and his royal touch miraculously cures scrofula. No less consistent was the late German professor Werner Sombart in declaring that Führertum is a permanent revelation and that the Führer gets his orders directly from God, the supreme Führer of the Universe.* Once you admit these premises, you can no longer raise any objections against planning and socialism. Why tolerate the incompetence of clumsy and ill-intentioned bunglers if you can be made happy and prosperous by the God-sent authority?
But Cairnes is not prepared to accept “the principle of State control, the doctrine of paternal government.”† His disquisitions peter out in vague and contradictory talk that leaves the relevant question unanswered. He does not comprehend that it is indispensable to choose between the supremacy of individuals and that of the government. Some agency must determine how the factors of production should be employed and what should be produced. If it is not the consumer, by means of buying and abstention from buying on the market, it must be the government by compulsion.
If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reasons also reject every kind of government action. Cairnes’s mode of arguing, provided it is not integrated into a theocratic philosophy in the manner of the French royalists or the German Nazis, leads to complete anarchism and nihilism.
One of the distortions to which the self-styled “progressives” resort in smearing laissez faire is the statement that consistent application of laissez faire must result in anarchy. There is no need to dwell upon this fallacy. It is more important to stress the fact that Cairnes’s argument against laissez faire, when consistently carried through to its inevitable logical consequences, is essentially anarchistic.
“Conscious Planning” versus “Automatic Forces”
As the self-styled “progressives” see things, the alternative is: “automatic forces” or “conscious planning.”* It is obvious, they go on saying, that to rely upon automatic processes is sheer stupidity. No reasonable man can seriously recommend doing nothing and letting things go without any interference through purposive action. A plan, by the very fact that it is a display of conscious action, is incomparably superior to the absence of any planning. Laissez faire means: let evils last and do not try to improve the lot of mankind by reasonable action.
This is utterly fallacious and deceptive talk. The argument advanced for planning is derived entirely from an inadmissable interpretation of a metaphor. It has no foundation other than the connotations implied in the term “automatic,” which is customarily applied in a metaphorical sense to describe the market process. Automatic, says the Concise Oxford Dictionary, means “unconscious, unintelligent, merely mechanical.” Automatic, says Webster’s Collegiate Dictionary, means “not subject to the control of the will . . . performed without active thought and without conscious intention or direction.” What a triumph for the champion of planning to play this trump-card!
The truth is that the choice is not between a dead mechanism and a rigid automatism on the one hand and conscious planning on the other hand. The alternative is not plan or no plan. The question is: whose planning? Should each member of society plan for himself or should the paternal government alone plan for all? The issue is not automatism versus conscious action; it is spontaneous action of each individual versus the exclusive action of the government. It is freedom versus government omnipotence.
Laissez faire does not mean: let soulless mechanical forces operate. It means: let individuals choose how they want to cooperate in the social division of labor and let them determine what the entrepreneurs should produce. Planning means: let the government alone choose and enforce its rulings by the apparatus of coercion and compulsion.
The Satisfaction of Man’s “True” Needs
Under laissez faire, says the planner, the goods produced are not those which people “really” need, but those goods from the sale of which the highest returns are expected. It is the objective of planning to direct production toward the satisfaction of “true” needs. But who should decide what “true” needs are?
Thus, for instance, Professor Harold Laski, the former chairman of the British Labor Party, determined the objective of planned direction of investment as “the use of the investor’s savings will be in housing rather than in cinemas.”* It does not matter whether or not one agrees with the professor’s personal view that better houses are more important than moving pictures. The fact is that consumers, by spending part of their money for admission to the movies, have made another choice. If the masses of Great Britain, the same people whose votes swept the Labor Party into power, were to stop patronizing the moving pictures and to spend more for comfortable homes and apartments, profit-seeking business would be forced to invest more in building homes and apartment houses, and less in the production of swanky pictures. What Professor Laski aimed at is to defy the wishes of the consumers and to substitute his own will for theirs. He wanted to do away with the democracy of the market and to establish the absolute rule of a production czar. He might pretend that he is right from a “higher” point of view, and that as a superman he is called upon to impose his own set of valuestatic/s on the masses of inferior men. But then he should have been frank enough to say so plainly.
All this passionate praise of the super-eminence of government action is merely a poor disguise for the individual interventionist’s self-deification. The Great God State is great only because it is expected to do exclusively what the individual advocate of interventionism wants to be achieved. The only true plan is the one of which the individual planner fully approves. All other plans are simply counterfeit. What the author of a book on the benefits of planning has in mind is, of course, always his own plan alone. No planner was ever shrewd enough to consider the possibility that the plan which the government will put into practice could differ from his own plan.
The various planners agree only with regard to their rejection of laissez faire, i.e., the individual’s discretion to choose and to act. They disagree entirely on the choice of the unique plan to be adopted. To every exposure of the manifest and incontestable defects of interventionist policies the champions of interventionism always react in the same way. These faults, they say, were the sins of spurious interventionism; what we are advocating is good interventionism. And, of course, good interventionism is the professor’s own brand only.
“Positive” Policies versus “Negative” Policies
In dealing with the ascent of modern statism, socialism and interventionism, one must not neglect the preponderant role played by the pressure groups and lobbies of civil servants and those university graduates who longed for government jobs. Two associations were paramount in Europe’s progress toward “social reform”: the Fabian Society in England and the Verein für Sozialpolitik in Germany. The Fabian Society had in its earlier days a “wholly disproportionate representation of civil servants.”* With regard to the Verein für Sozialpolitik, one of its founders and most eminent leaders, Professor Lujo Brentano, admitted that at the beginning it called for no other response than from the civil servants.†
It is not surprising that the civil service mentality was reflected in the semantic practices of the new factions. Seen from the point of view of the particular group interests of the bureaucrats, every measure that makes the government’s payroll swell is progress. Politicians who favor such a measure make a positive contribution to welfare, while those who object are negative. Very soon this linguistic innovation became general. The interventionists, in claiming for themselves the appellation “liberal,” explained that they, of course, were liberals with a positive program as distinguished from the merely negative program of the “orthodox” laissez-faire people.
Thus he who advocates tariffs, censorship, foreign exchange control, price control supports a positive program that will provide jobs for customs officers, censors, and employees of the offices for price control and foreign exchange control. But free traders and advocates of the freedom of the press are bad citizens; they are negative. Laissez faire is the embodiment of negativism, while socialism, in converting all people into government employees, is 100 percent positive. The more a former liberal completes his defection from liberalism and approaches socialism, the more “positive” does he become.
It is hardly necessary to stress that this is all nonsense. Whether an idea is enunciated in an affirmative or in a negative proposition depends entirely on the form which the author chooses to give it. The “negative” proposition, I am against censorship, is identical with the “positive” proposition, I am in favor of everybody’s right to publicize his opinions. Laissez faire is not even formally a negative formula; rather it is the contrary of laissez faire that would sound negative. Essentially, the maxim asks for private ownership of the means of production. This implies, of course, that it rejects socialism. The supporters of laissez faire object to government interference with business not because they “hate” the “state” or because they are committed to a “negative” program. They object to it because it is incompatible with their own positive program, the free market economy.*
Laissez faire means: let the individual citizen, the much talked-about common man, choose and act and do not force him to yield to a dictator.
[* ] Originally published in Plain Talk, January 1949. Reprinted with permission from the Foundation for Economic Education.
[* ] Cf. especially A. Oncken, Die Maxime laissez faire et laissez passer, ihr Ursprung, ihr Werden, Bern 1886; G. Schelle, Vincent de Gournay, Paris 1897, pp. 214–26.
[* ] Cf. John Stuart Mill, Autobiography, London 1873, p. 191.
[† ] Cf. J. E. Cairnes, “Political Economy and Laissez Faire,” an introductory lecture delivered in University College, London, November, 1870; reprinted in Essays in Political Economy, London 1873, pp. 232–64.
[* ] Cf. Cairnes, l.c., pp. 244–45.
[† ] Cf. Cairnes, l.c., p. 250.
[‡ ] Cf. Cairnes, l.c., p. 246.
[* ] Cf. W. Sombart, Deutscher Sozialismus, Charlottenburg 1934, p. 213 (American edition: A New Social Philosophy, translated by K. F. Geiser, Princeton 1937, p. 194).
[† ] Cf. Cairnes, l.c., p. 251.
[* ] Cf. A. H. Hansen, “Social Planning for Tomorrow,” in The United States after the War, Cornell University Lectures, Ithaca 1945, pp. 32–33.
[* ] Cf. Laski’s broadcast, Revolution by Consent, reprinted in Talks, Vol. X, Number 10, p. 7 (October 1945).
[* ] Cf. A. Gray, The Socialist Tradition Moses to Lenin, London 1946, p. 385.
[† ] Cf. L. Brentano, Ist das “System Brentano” zusammengebrochen?, Berlin 1918, p. 19.
[* ] The present writer refuted this distinction between “positive” and “constructive” socialism and interventionism on the one hand, and “negative” liberalism of the laissez-faire type on the other in his article “Sozialliberalismus,” first published in 1926 in Zeitschrift für die Gesamte Staatswissenschaft, and reprinted in 1929 in his book Kritik des Interventionismus, pp. 55–90. [Editor’s note: This article was translated as “Social Liberalism” and published in A Critique of Interventionism (New Rochelle, N. Y.: Arlington House, 1977), pp. 71–106; 2d revised ed., Critique of Interventionism (Irvington-on-Hudson, N. Y.: Foundation for Economic Education, 1996), pp. 43–70.]