Ludwig von Mises

THEORY OF SOCIAL COOPERATION

 

The organization of human society according to the pattern most suitable for the attainment of the ends in view is a quite prosaic and matter-of-fact question, not unlike, say, the construction of a railroad or the production of cloth or furniture. [L-i.3]

The essence of liberalism is just this, that it wants to have conceded to reason in the sphere of social policy the acceptance that is conceded to it without dispute in all other spheres of human action. [L-i.3]

Liberalism is rationalistic. It maintains that it is possible to convince the immense majority that peaceful cooperation within the framework of society better serves their rightly understood interests than mutual battling and social disintegration. It has full confidence in man's reason. It may be that this optimism is unfounded and that the liberals have erred. But then there is no hope left for mankind's future. [HA-VIII.2]

Logical Analysis
    Ideas
    World view and Ideology
    Social Doctrines
    Science
    Method
    Regularity in the Course of Social Events
    Economic Science
    Normative Sciences and History
    Ethics
    Morality
    Justice
    Utilitarianism
    Liberalism
    Systems of Organizing the Cooperation of Individuals
    Industrial Revolution and Liberalism
    Criterion
    Reason, Will and Society
    The Result of Human Action but not of Human Design
    Individual and Society
    Specialization of individual
    Society: Definition
    Cooperation and Division of Labor
    Origin of Division of Labor
    Theory of Division of Labor
    Social Progress
    The Law of Progress
    Social Regress
    On the Causes of the Decline of Ancient Civilization
    On Coexistence of Civilizations
    Great Society
    Ends Men Aim at
    All men want the same things
    Rightly Understood Interests
    Provisional (but Painful) Sacrifices
    Principle of Violence
    War and Peace
    Freedom
    State and Government
    Liberty and Government
    Masses and Liberal Ideology
    Public Opinion
    Capitalism, Socialism, Intellectuals, Masses
    Economic Science and the Destiny of Modern Civilization
    Personal Responsibility
    Logical Analysis: Conclusion

Historical Analysis: Beginning of the XIX Century—First Half of the XX Century

     Ricardo's Assumptions: Beginning of XIX Century—First Half of XX Century

Middle of the XIX Century:
    Ideology: Liberalism
    Liberalism and War
    National Sovereignty
    International Division of Labor
    Free Trade
    Mobility of Capital
    Resource Allocation

First Half of XX Century: History of Decline
    Terminology
    Ideology: Economic nationalism
    Conflicts and Wars of Our Age
    Policy of Autarky
    The Rise of Modern Protectionism
    Interventionism and National Sovereignty
    Interventionism and Protectionism
    Disintegration of the International Capital Market
    Migration
    The Plight of the Underdeveloped Nations
    Resource Allocation
    Free Trade in a World of Immobility of Capital and Labor

Historical Analysis: Conclusion

Abbreviations

Autarky —

Autarky and its Consequences [1943]

DIDL —

The Disintegration of the International Division of Labor [1938]

EcNat —

Economic Nationalism and Peaceful Economic Cooperation [1943]

EPOFEC —

Epistemological Problems of Economics [1933]

HA —

Human Action [1949]

ILW —

Idea of Liberty is Western [1950]

L —

Liberalism [1927]

L&P —

Liberty ad Property [1950]

S —

Socialism [1922]

T&H —

Theory and History [1957]

Underdev —

The Plight of the Underdeveloped Nations [1952]

RDHH —

The Role of Doctrine in Human History [1949/1950]

WRAST —

Why Read Adam Smith Today? [1961]

 

LOGICAL ANALYSIS

Ideas

[Ideas guide] human behavior. Everything that men do is the result of the theories, doctrines, creeds, and mentalities governing their minds. Nothing is real and material in human history but mind. [RDHH-I]

The genuine history of mankind is the history of ideas. It is ideas that distinguish man from all other beings Ideas engender social institutions, political changes, technological methods of production, and all that is called economic conditions. And in searching for their origin we inevitably come to a point at which all that can be asserted is that a man had an idea. Whether the name of this man is known or not is of secondary importance. [T&H-IX.2]

Society is a product of human action. Human action is directed by ideologies. Thus society and any concrete order of social affairs are an outcome of ideologies... <...>

Any existing state of social affairs is the product of ideologies previously thought out. [HA-IX.3]

The nineteenth-century success of free trade ideas was effected by the theories of classical economics. The prestige of these ideas was so great that those whose selfish class interests they hurt could not hinder their endorsements by public opinion and their realization by legislative measures. It is ideas that make history, and not history that makes ideas. [HA-III.3]

Social being itself is ideological in so far as society is a product of human will, and so of human thought. [S-III.20.7-50]

The history of mankind is the history of ideas. For it is ideas, theories and doctrines that guide human action, determine the ultimate ends men aim at, and the choice of the means employed for the attainment of these ends. The sensational events which stir the emotions and catch the interest of superficial observers are merely the consummation of ideological changes. There are no such things as abrupt sweeping transformations of human affairs. What is called, in rather misleading terms, a "turning point in history" is the coming on the scene of forces which were already for a long time at work behind the scene. New ideologies, which had already long since superseded the old ones, throw off their last veil and even the dullest people become aware of the changes which they did not notice before. [PC.6] [S-E.6]

World view and Ideology

Both, world view and ideology, go beyond the limits imposed upon a purely neutral and academic study of things as they are. They are not only scientific theories, but also doctrines about the ought, i.e., about the ultimate ends which man should aim at in his earthly concerns. [HA-IX.2]

A world view is, as a theory, an interpretation of all things, and as a precept for action, an opinion concerning the best means for removing uneasiness as much as possible. A world view is thus, on the one hand, an explanation of all phenomena and, on the other hand, a technology, both these terms being taken in their broadest sense. Religion, metaphysics, and philosophy aim at providing a world view. They interpret the universe and they advise men how to act. [HA-IX.2]

The concept of an ideology is narrower than that of a world view. In speaking of ideology we have in view only human action and social cooperation and disregard the problems of metaphysics, religious dogma, the natural sciences, and the technologies derived from them. Ideology is the totality of our doctrines concerning individual conduct and social relations. Both, world view and ideology, go beyond the limits imposed upon a purely neutral and academic study of things as they are. They are not only scientific theories, but also doctrines about the ought, i.e., about the ultimate ends which man should aim at in his earthly concerns. [HA-IX.2]

Only a world view whose supporters renounce any earthly activity whatever could neglect to pay heed to the rational considerations which show that social cooperation is the great means for the attainment of all human ends. Because man is a social animal that can thrive only within society, all ideologies are forced to acknowledge the preeminent importance of social cooperation. They must aim at the most satisfactory organization of society and must approve of man's concern for an improvement of his material well-being. Thus they all place themselves upon a common ground. They are separated from one another not by world views and transcendent issues not subject to reasonable discussion, but by problems of means and ways. Such ideological antagonisms are open to a thorough scrutiny by the scientific methods of praxeology and economics. [HA-IX.2]

A critical examination of the philosophical systems constructed by mankind's great thinkers has very often revealed fissures and flaws in the impressive structure of those seemingly consistent and coherent bodies of comprehensive thought. Even the genius in drafting a world view sometimes fails to avoid contradictions and fallacious syllogisms.

The ideologies accepted by public opinion are still more infected by the shortcomings of the human mind. They are mostly an eclectic juxtaposition of ideas utterly incompatible with one another. They cannot stand a logical examination of their content. Their inconsistencies are irreparable and defy any attempt to combine their various parts into a system of ideas compatible with one another. [HA-IX.2]

The main objective of praxeology and economics is to substitute consistent correct ideologies for the contradictory tenets of popular eclecticism. There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason. Men must try to think through all the problems involved up to the point beyond which a human mind cannot proceed farther. They must never acquiesce in any solutions conveyed by older generations, they must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expounding truth.

The problems involved are purely intellectual and must be dealt with as such. It is disastrous to shift them to the moral sphere and to dispose of supporters of opposite ideologies by calling them villains. It is vain to insist that what we are aiming at is good and what our adversaries want is bad. The question to be solved is precisely what is to be considered as good and what as bad. The rigid dogmatism peculiar to religious groups and to Marxism results only in irreconcilable conflict. It condemns beforehand all dissenters as evildoers, it calls into question their good faith, it asks them to surrender unconditionally. No social cooperation is possible where such an attitude prevails. [HA-IX.2]

Social Doctrines

The problems the politicians have to deal with are not set by nature and natural conditions, they are set by the state of doctrinal convictions. <…> They may fade one day with the evanescence of the whole structure of ideas which have created them. [RDHH-IV]

We may assume that there are doctrines whose applications favors man in his struggle for life and that other doctrines are detrimental. There are doctrines building up social cooperation and there are destructive ideas resulting in a disintegration of society. [RDHH-II]

Nature does not prevent man from thinking prejudicial ideas and from constructing hurtful doctrines. [RDHH-II]

What we have to realize is that the social problems are the result of the state of social doctrines. What has to be considered is whether a state of social organization can be conceived which could be considered satisfactory from the—rightly conceived—interests of every individual. If the answer to this question has to be in the negative then we have to see in the conflicts of our day the prelude to the unavoidable disintegration of society. If on the other hand the answer will be affirmative we have to investigate what state of mind has led to conflicts in a world where another result is at least conceivable. [RDHH-IV]

The first step to every attempt to investigate social, political, and economic changes has to be the study of the changes of the ideas which guided men to bring about these changes. [RDHH-III]

Science

Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends. [HA-Intro.3]

Science's contribution to life and action does not consist in establishing value judgments, but in clarification of the conditions under which man must act and in elucidation of the effects of various modes of action. It puts at the disposal of acting man all the information he needs in order to make his choices in full awareness of their consequences. It prepares an estimate of cost and yield, as it were. It would fail in this task if it were to omit from this statement one of the items which could influence people's choices and decisions. [HA-VIII.8]

Whether science seeks knowledge for its own sake or in order thereby to obtain information for the sake of action, or whether it aims at both ends at the same time, it is in any case permissible to make practical use of the results of scientific investigation. Man thinks not only for the sake of thinking, but also in order to act. [EPOFEC3.2]

Method

To ask what are the driving forces of historical evolution is to ask what is the nature of society and the origin and causes of the changes in social conditions. What society is, how it originates, how it changes—these alone can be the problems which scientific sociology sets itself. [S-III.18.1]

The metaphysical philosophy of history must be clearly distinguished from the rational. The latter is built up solely on experience, seeking results which are based on logic and empiricism. Wherever rational philosophy has to go beyond this, it tries hypotheses, but it never forgets where experience ceases and hypothetical interpretations begin. Where experience is possible it avoids using conceptual fictions; it never tries to supplant experimental science. Its only aim is to unify our view of social events and of the course of historical evolution. Only thus is it able to establish a law which governs changes in social conditions. By indicating, or attempting to indicate, the force which determines the growth of society, it endeavours to reveal the principle determining social evolution. This principle is assumed to be externally valid, that is, it is active so long as there is any society at all. Were it otherwise, a second principle would have to be placed next to this one, and it would be necessary to show under which conditions the first ruled and under which the second. But this only means that the law governing the interchange of the two principles would be the ultimate Law of Social Life.

To define a principle according to which society grows, and changes in social conditions take place, is a different thing from defining the course which social evolution takes. Such a course is necessarily limited. It has a beginning and an end. The reign of a law is necessarily unlimited, without beginning or end. It is continuity, not an occurrence. The law is imperfect if it defines only a part of social evolution and leaves us in the lurch after a certain point. In this case it would cease to be a law. The end of social evolution can be no other than that of society itself. [S-III.17.2]

The law of social evolution tells us much less than the metaphysics of evolution. It limits its statements a priori in admitting that its sway can be frustrated by the co-existence of forces other than those it describes. On the other hand, it admits no limits to its applicability. It claims eternal validity, it is without beginning and without end. But it does not evoke a dark fate whose "will-less and impotent bearers" we are. It discloses only the inner driving power of our own will, revealing how it conforms to natural laws and why its existence is necessary. This is insight, not into man's destiny, but into man's doings. [S-III.17.2]

If we disregard those theories of evolution that are naively built up on value judgments, we shall find, in the majority of the theories claiming to interpret social evolution, two outstanding defects which render them unsatisfactory. The first is that their evolutionary principle is not connected with society as such. Neither Comte's law of the three stages of the human mind nor Lamprecht's five stages of social-psychical development gives any clue to the inner and necessary connection between evolution of the mind and evolution of society. We are shown how society behaves when it has entered a new stage, but we want to know more, namely by what law society originates and transforms itself. The changes which we see as social changes are treated by such theories as facts acting on society from outside; but we need to understand them as the workings of a constant law. The second defeat is that all these theories are "stage" theories (Stufentheorien). For the stage-theories there is really no such thing as evolution, that is, no continuous change in which we can recognize a definite trend. The statements of these theories do not go beyond establishing a definite sequence of events; they give no proof of the causal connection between the stages constituting the sequence. At best they succeed in establishing parallels between the sequence of events in different nations. But it is one thing to divide human life into childhood, youth, maturity, and old age, it is another to reveal the law which governs the growth and decay of the organism. A certain arbitrariness attaches to every theory of stages. The delimitation of the stages always fluctuates. [S-III.18.5]

In so far as the individual becomes a social being under the influence of blind instinct, before thought and will are fully conscious, the formation of society cannot be the subject of sociological inquiry. But this does not mean that Sociology must shift the task of explaining the origins of society on to another science, accepting the social web of mankind as a given fact. For if we decide—and this is the immediate consequence of equating society and division of labour—that the structure of society was incomplete at the appearance of the thinking and willing human being and that the constructive process is continuous throughout history, then we must seek a principle which makes this evolution intelligible to us. The economic theory of the division of labour gives us this principle. It has been said that the happy accident which made possible the birth of civilization was the fact that divided labour is more productive than labour without division. The division of labour extends by the spread of the realization that the more labour is divided the more productive it is. In this sense the extension of the division of labour is economic progress: it brings production nearer to its goal—the greatest possible satisfaction of wants, and this progress is sociological progress also, for it involves the intensification of the social relation.

It is only in this sense, and if all teleological or ethical valuation is excluded, that it is legitimate to use the expression "progress" sociologically in historical inquiry. We believe that we can observe a certain tendency in the changes of social conditions and we examine each. single change separately, to see whether and how far this assumption is compatible with it. It may be that we make various assumptions of this kind, each of which corresponds in like measure to experience. The problem next arises of the relations between these assumptions, whether they are independent of each other or whether they are connected internally. We should then have to go further, and define the nature of the connection. But all that this amounts to is a study, free from valuation and based on a hypothesis, of the course of successive changes. [S-III.18.5]

Regularity in the Course of Social Events

In the course of social events there prevails a regularity of phenomena to which man must adjust his actions if he wishes to succeed. It is futile to approach social facts with the attitude of a censor who approves or disapproves from the point of view of quite arbitrary standards and subjective judgments of value. One must study the laws of human action and social cooperation as the physicist studies the laws of nature. [HA-Intro.1]

[200 years ago] all were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. [HA-Intro.1]

When men realized that the phenomena of the market conform to laws, they began to develop catallactics and the theory of exchange, which constitutes the heart of economics. After the theory of the division of labor was elaborated, Ricardo's law of association enabled men to grasp its nature and significance, and thereby the nature and significance of the formation of society.

The development of economics and rationalistic sociology from Cantillon and Hume to Bentham and Ricardo did more to transform human thinking than any other scientific theory before or since. Up to that time it had been believed that no bounds other than those drawn by the laws of nature circumscribed the path of acting man. It was not known that there is still something more that sets a limit to political power beyond which it cannot go. Now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature. [EPOFEC-1.1.2]

Man's freedom to choose and to act is restricted in a threefold way. There are first the physical laws to whose unfeeling absoluteness man must adjust his conduct if he wants to live. There are second the individual's innate constitutional characteristics and dispositions and the operation of environmental factors; we know that they influence both the choice of the ends and that of the means, although our cognizance of the mode of their operation is rather vague. There is finally the regularity of phenomena with regard to the interconnectedness of means and ends, viz., the praxeological law as distinct from the physical and from the physiological law. [HA-XXXIX.3]

Economic Science

The elucidation and the categorial and formal examination of this third class of laws of the universe is the subject matter of praxeology and its hitherto best-developed branch, economics. The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race. [HA-XXXIX.3]

The fact that economics, as a science, is neutral with regard to judgments of value and that it can express neither approval nor disapproval does not prevent us from trying to learn from economics how we must arrange our action in order to achieve the ends at which we aim. [EPOFEC-1.3.2]

Normative Sciences and History

The scattered and fragmentary insights of the historical and normative sciences themselves achieved scientific status only with the development of economics in the eighteenth century. [EPOFEC-1.1.2]

[I]t is not only in history and in the other sciences that make use of the conceptual tools of historical investigation that we find universally valid statements about human action. Such knowledge also constitutes the foundation of the normative sciences—ethics, the philosophy of law, and systematic jurisprudence. The primary task of political philosophy, the philosophy of law, and political science is the attainment of universally valid knowledge of social phenomena. [EPOFEC-1.1.1]

Ethics

Everything that serves to preserve the social order is moral; everything that is detrimental to it is immoral. [L-I.6] There is no such thing as an absolute notion of justice not referring to a definite system of social organization. There is neither right nor wrong outside the social nexus. [HA-XXVII.3] The ultimate yardstick of justice is conduciveness to the preservation of social cooperation. [T&H-III.7]

The most troublesome misunderstandings with which the history of philosophical thought has been plagued concern the terms "pleasure" and "pain." These misconceptions have been carried over into the literature of sociology and economics and have caused harm there too.

Before the introduction of this pair of concepts, ethics was a doctrine of what ought to be. It sought to establish the goals that man should adopt. The realization that man seeks satisfaction by acts both of commission and of omission opened the only path that can lead to a science of human action. If Epicurus sees in ... the final goal of action, we can behold in it, if we wish, the state of complete satisfaction and freedom from desire at which human action aims without ever being able to attain it. Crude materialistic thinking seeks to circumscribe it in visions of Paradise and Cockaigne. Whether this construction may, in fact, be placed on Epicurus' words remains, of course, uncertain, in view of the paucity of what has been handed down of his writings. [EPOFEC4.3]

Moralists furthermore level against utilitarianism the charge of (ethical) materialism. Here too they misconstrue the utilitarian doctrine. Its gist is the cognition that action pursues definite chosen ends and that consequently there can be no other standard for appraising conduct but the desirability or undesirability of its effects. The precepts of ethics are designed to preserve, not to destroy, the "world." They may call upon people to put up with undesirable short-run effects in order to avoid producing still more undesirable long-run effects. But they must never recommend actions whose effects they themselves deem undesirable for the sole purpose of not defying an arbitrary rule derived from intuition. The formula fiat justitia, pereat mundus is exploded as sheer nonsense. An ethical doctrine that does not take into full account the effects of action is mere fancy.

Utilitarianism does not teach that people should strive only after sensuous pleasure (though it recognizes that most or at least many people behave in this way. [T&H-III.8]

Morality

In the liberal opinion the aim of the moral law is to impel individuals to adjust their conduct to the requirements of life in society, to abstain from all acts detrimental to the preservation of peaceful social cooperation and to the improvement of interhuman relations. [HA-VIII.2]

Everything that serves to preserve the social order is moral; everything that is detrimental to it is immoral. Accordingly, when we reach the conclusion that an institution is beneficial to society, one can no longer object that it is immoral. There may possibly be a difference of opinion about whether a particular institution is socially beneficial or harmful. But once it has been judged beneficial, one can no longer contend that, for some inexplicable reason, it must be condemned as immoral. [L-I.6]

Justice

All these ethical doctrines have failed to comprehend that there is, outside of social bonds and preceding, temporally or logically, the existence of society, nothing to which the epithet "just" can be given. A hypothetical isolated individual must under the pressure of biological competition look upon all other people as deadly foes. His only concern is to preserve his own life and health; he does not need to heed the consequences which his own survival has for other men; he has no use for justice. His only solicitudes are hygiene and defense. But in social cooperation with other men the individual is forced to abstain from conduct incompatible with life in society. Only then does the distinction between what is just and what is unjust emerge. It invariably refers to interhuman social relations. What is beneficial to the individual without affecting his fellows, such as the observance of certain rules in the use of some drugs, remains hygiene.

The ultimate yardstick of justice is conduciveness to the preservation of social cooperation. Conduct suited to preserve social cooperation is just, conduct detrimental to the preservation of society is unjust. There cannot be any question of organizing society according to the postulates of an arbitrary preconceived idea of justice. The problem is to organize society for the best possible realization of those ends which men want to attain by social cooperation. Social utility is the only standard of justice. It is the sole guide of legislation.

Thus there are no irreconcilable conflicts between selfishness and altruism, between economics and ethics, between the concerns of the individual and those of society.

Utilitarian philosophy and its finest product, economics, reduced these apparent antagonisms to the opposition of short-run and long-run interests. Society could not have come into existence or been preserved without a harmony of the rightly understood interests of all its members. [T&H-III.7]

There is, however, no such thing as a perennial standard of what is just and what is unjust. Nature is alien to the idea of right and wrong. "Thou shalt not kill" is certainly not part of natural law. The characteristic feature of natural conditions is that one animal is intent upon killing other animals and that many species cannot preserve their own life except by killing others. The notion of right and wrong is a human device, a utilitarian precept designed to make social cooperation under the division of labor possible. All moral rules and human laws are means for the realization of definite ends. There is no method available for the appreciation of their goodness or badness other than to scrutinize their usefulness for the attainment of the ends chosen and aimed at. [HA-XXVI.3]

The notion of justice makes sense only when referring to a definite system of norms which in itself is assumed to be uncontested and safe against any criticism. Many peoples have clung to the doctrine that what is right and what is wrong is established from the dawn of the remotest ages and for eternity. The task of legislators and courts was not to make laws, but to find out what is right by virtue of the unchanging idea of justice. This doctrine, which resulted in an adamant conservatism and a petrification of old customs and institutions, was challenged by the doctrine of natural right. To the positive laws of the country the notion of a "higher" law, the law of nature, was opposed. From the arbitrary standard of natural law the valid statutes and institutions were called just or unjust. To the good legislator was assigned the task of making the positive laws agree with the natural law.

The fundamental errors involved in these two doctrines have long since been unmasked. For those not deluded by them it is obvious that the appeal to justice in a debate concerning the drafting of new laws is an instance of circular reasoning. De lege ferenda there is no such a thing as justice. The notion of justice can logically only be resorted to de lege lata. It makes sense only when approving or disapproving concrete conduct from the point of view of the valid laws of the country. In considering changes in the nation's legal system, in rewriting or repealing existing laws and writing new laws, the issue is not justice, but social expediency and social welfare. There is no such thing as an absolute notion of justice not referring to a definite system of social organization. It is not justice that determines the decision in favor of a definite social system. It is, on the contrary, the social system which determines what should be deemed right and what wrong. There is neither right nor wrong outside the social nexus. for the hypothetical isolated and self-sufficient individual the notions of just and unjust are empty. Such an individual can merely distinguish between what is more expedient and what is less expedient for himself. The idea of justice refers always to social cooperation. [HA-XXVII.3]

Utilitarianism

Its [philosophy of utilitarianism] gist is the cognition that action pursues definite chosen ends and that consequently there can be no other standard for appraising conduct but the desirability or undesirability of its effects. [T&H-III.8]

The essential teachings of utilitarian philosophy as applied to the problems of society can be restated as follows:

Human effort exerted under the principle of the division of labor in social cooperation achieves, other things The essential teachings of utilitarian philosophy as applied to the problems of society can be restated as follows:

Human effort exerted under the principle of the division of labor in social cooperation achieves, other things remaining equal, a greater output per unit of input than the isolated efforts of solitary individuals. Man's reason is capable of recognizing this fact and of adapting his conduct accordingly. Thus social cooperation becomes for almost every man the great means for the attainment of all ends. An eminently human common interest, the preservation and intensification of social bonds, is substituted for pitiless biological competition, the significant mark of animal and plant life. Man becomes a social being. He is no longer forced by the inevitable laws of nature to look upon all other specimens of his animal species as deadly foes. Other people become his fellows. For animals the generation of every new member of the species means the appearance of a new rival in the struggle for life. For man, until the optimum size of population is reached, it means rather an improvement than a deterioration in his quest for material well-being.

Notwithstanding all his social achievements man remains in biological structure a mammal. His most urgent needs are nourishment, warmth, and shelter. Only when these wants are satisfied can he concern himself with other needs, peculiar to the human species and therefore called specifically human or higher needs. Also the satisfaction of these depends as a rule, at least to some extent, on the availability of various material tangible things.

As social cooperation is for acting man a means and not an end, no unanimity with regard to value judgments is required to make it work. It is a fact that almost all men agree in aiming at certain ends, at those pleasures which ivory-tower moralists disdain as base and shabby. But it is no less a fact that even the most sublime ends cannot be sought by people who have not first satisfied the wants of their animal body. The loftiest exploits of philosophy, art, and literature would never have been performed by men living outside of society. [T&H-III-8]

But the teachings of utilitarian philosophy and classical economics have nothing at all to do with the doctrine of natural right. With them the only point that matters is social utility. They recommend popular government, private property, tolerance, and freedom not because they are natural and just, but because they are beneficial. The core of Ricardo's philosophy is the demonstration that social cooperation and division of labor between men who are in every regard superior and more efficient and men who are in every regard inferior and less efficient is beneficial to both groups. the radical, shouted: "Natural rights is simple nonsense: natural and imprescriptible rights, rhetorical nonsense." <…> With [Bentham] "the sole object of government ought to be the greatest happiness of the greatest possible number of the community." Accordingly, in investigating what ought to be right he does not care about preconceived ideas concerning God's or nature's plans and intentions, forever hidden to mortal men; he is intent upon discovering what best serves the promotion of human welfare and happiness. [HA-VIII.8]

Liberalism

In Liberalism humanity becomes conscious of the powers which guide its development. The darkness which lay over the paths of history recedes. Man begins to understand social life and allows it to develop consciously. [S-I.1.3]

All the older civilizations were born and grew up without being fully conscious of the basic laws of cultural evolution and the significance of division of labour and co-operation. In the course of their development they had often to combat tendencies and movements inimical to civilization. Often they triumphed over these, but sooner or later they fell. They succumbed to the spirit of disintegration. Through the social philosophy of Liberalism men became conscious of the laws of social evolution for the first time, and for the first time clearly recognized the basis of civilization and cultural progress. [S-III.18.7]

The human mind ripens slowly to the recognition of social interdependence. At first, society is so mysterious and incomprehensible a formation to man that, to grasp its origin and nature, he continues to assume a divine will guiding human destinies from outside long after he has renounced this concept in the natural sciences. Kant's Nature, which leads humanity towards a special aim, Hegel's World Spirit, and the Darwinian Natural Selection are the last great expressions of this method. It remained for the liberal social philosophy to explain society through the actions of mankind without having to draw on metaphysics. [S-C.1]

All anti-liberal social theories must necessarily remain fragments or arrive at the most absurd conclusions. When they accuse Liberalism of considering only what is earthly, of neglecting, for the petty struggles of daily life, to care for higher things, they are merely picking the lock of an open door. For Liberalism has never pretended to be more than a philosophy of earthly life. What it teaches is concerned only with earthly action and desistance from action. It has never claimed to exhaust the Last or Greatest Secret of Man. The anti-liberal teachings promise everything. They promise happiness and spiritual peace, as if man could be thus blessed from without. Only one thing is certain, that under their ideal social system the supply of commodities would diminish very considerably. As to the value of what is offered in compensation opinions are at least divided. [S-I.1.3]

Systems of Organizing the Cooperation of Individuals

In the field of society's economic organization there are the liberals advocating private ownership of the means of production, the socialists advocating public ownership of the means of production, and the interventionists advocating a third system which, they contend, is as far from socialism as it is from capitalism. [HA-IX.2]

It is possible to distinguish five different conceivable systems of organizing the cooperation of individuals in a society based on the division of labor:

- the system of private ownership of the means of production, which, in its developed form, we call capitalism;

- the system of private ownership of the means of production with periodic confiscation of all wealth and its subsequent redistribution;

- the system of syndicalism; the system of public ownership of the means of production, which is known as socialism or communism; and,

- finally, the system of interventionism. [L-2.1]

In the clash of these parties there is again much talk about basic philosophical issues. People speak of true liberty, equality, social justice, the rights of the individual, community, solidarity, and humanitarianism. But each party is intent upon proving by ratiocination and by referring to historical experience that only the system it recommends will make the citizens prosperous and satisfied. They tell the people that realization of their program will raise the standard of living to a higher level than realization of any other party's program. They insist upon the expediency of their plans and upon their utility. It is obvious that they do not differ from one another with regard to ends but only as to means. They all pretend to aim at the highest material welfare for the majority of citizens. [HA-IX.2]

Social cooperation, however, can be based only on the foundation of private ownership of the means of production. Socialism —the public ownership of the means of production—would make impossible any economic calculation and is therefore impracticable. The absurdity of syndicalism is undisputed. As for interventionist encroachments, they prove—when judged from the point of view of those who advocate them—senseless and contrary to purpose, because they not only do not bring about the results desired by their supporters, but involve consequences that they themselves must deprecate.

Therefore, when one reaches the conclusion, strictly by adherence to the canons of scientific procedure, that private ownership of the means of production is the only practicable form of social organization, this is neither an apology for capitalism nor an improper attempt to lend the authority of science to the support of liberalism. To the man who adopts the scientific method in reflecting upon the problems of human action, liberalism must appear as the only policy that can lead to lasting well-being for himself, his friends, and his loved ones, and, indeed, for all others as well. Only one who does not want to achieve such ends as life, health, and prosperity for himself, his friends, and those he loves, only one who prefers sickness, misery, and suffering may reject the reasoning of liberalism on the ground that it is not neutral with regard to value judgments. [EPOFEC3.2]

The liberals maintain that the only workable system of human cooperation in a society based on the division of labor is private ownership of the means of production. They contend that socialism as a completely comprehensive system encompassing all the means of production is unworkable and that the application of the socialist principle to a part of the means of production, though not, of course, impossible, leads to a reduction in the productivity of labor, so that, far from creating greater wealth, it must, on the contrary, have the effect of diminishing wealth.

The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production (for in regard to commodities ready for consumption, private ownership is a matter of course and is not disputed even by the socialists and communists). All the other demands of liberalism result from this fundamental demand. [L-I.1]

If no other objections could be raised to the socialist plans than that socialism will lower the standard of living of all or at least of the immense majority, it would be impossible for praxeology to pronounce a final judgment. Men would have to decide the issue between capitalism and socialism on the ground of judgments of value and of judgments of relevance. They would have to choose between the two systems as they choose between many other things. No objective standard could be discovered which would make it possible to settle the dispute in a manner which allows no contradiction and must be accepted by every sane individual. The freedom of each man's choice and discretion would not be annihilated by inexorable necessity. However, the true state of affairs is entirely different. Man is not in a position to choose between these two systems. Human cooperation under the system of the social division of labor is possible only in the market economy. Socialism is not a realizable system of society's economic organization because it lacks any method of economic calculation...

The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics as it is the task of biology and chemistry to teach that potassium cyanide is not a nutriment but deadly poison. [HA-XXIV.3]

Industrial Revolution and Liberalism

The nineteenth-century success of free trade ideas was effected by the theories of classical economics. [HA-III.3] British political economy and French Physiocracy were the pacemakers of modern capitalism. It is they that made possible the progress of the applied natural sciences that has heaped benefits upon the masses. [HA-Intro.3]

What is wrong with our age is precisely the widespread ignorance of the role which these policies of economic freedom played in the technological evolution of the last two hundred years. People fell prey to the fallacy that the improvement of the methods of production was contemporaneous with the policy of laissez faire only by accident. [HA-Intro.3]

Ferguson showed that the development of technique depends on social conditions, and that each age gets as far in technique as is permitted by the stages it has reached in the social division of labour. [S-III.18.5]

The philosophers, sociologists, and economists of the eighteenth and the early part of the nineteenth century formulated a political program that served as a guide to social policy first in England and the United States, then on the European continent, and finally in the other parts of the inhabited world as well. Nowhere was this program ever completely carried out. Even in England, which has been called the homeland of liberalism and the model liberal country, the proponents of liberal policies never succeeded in winning all their demands. In the rest of the world only parts of the liberal program were adopted, while others, no less important, were either rejected from the very first or discarded after a short time. Only with some exaggeration can one say that the world once lived through a liberal era. Liberalism was never permitted to come to full fruition.

Nevertheless, brief and all too limited as the supremacy of liberal ideas was, it sufficed to change the face of the earth. A magnificent economic development took place. The release of man's productive powers multiplied the means of subsistence many times over. On the eve of the World War (which was itself the result of a long and bitter struggle against the liberal spirit and which ushered in a period of still more bitter attacks on liberal principles), the world was incomparably more densely populated than it had ever been, and each inhabitant could live incomparably better than had been possible in earlier centuries. The prosperity that liberalism had created reduced considerably infant mortality, which had been the pitiless scourge of earlier ages, and, as a result of the improvement in living conditions, lengthened the average span of life. [L-i.1]

Tremendous progress of technological methods of production and the resulting increase in wealth and welfare were feasible only through the pursuit of those liberal policies which were the practical application of the teachings of economics. It was the ideas of the classical economists that removed the checks imposed by age-old laws, customs, and prejudices upon technological improvement and freed the genius of reformers and innovators from the straitjackets of the guilds, government tutelage, and social pressure of various kinds. It was they that reduced the prestige of conquerors and expropriators and demonstrated the social benefits derived from business activity. None of the great modern inventions would have been put to use if the mentality of the precapitalistic era had not been thoroughly demolished by the economists. What is commonly called the "industrial revolution" was an offspring of the ideological revolution brought about by the doctrines of the economists. [HA-Intro.3]

Smith did not inaugurate a new chapter in social philosophy and did not sow on land hitherto left uncultivated. His books were rather the consummation, summarization, and perfection of lines of thought developed by eminent authors—mostly British—over a period of more than a hundred years. Smith's books did not lay the foundation stone, but the keystone, of a marvelous system of ideas. Their eminence is to be seen precisely in the fact that they integrated the main body of these ideas into a systematic whole. They presented the essence of the ideology of freedom, individualism, and prosperity, with admirable logical clarity and in an impeccable literary form.

It was this ideology that blew up the institutional barriers to the display of the individual citizen's initiative and thereby to economic improvement. It paved the way for the unprecedented achievements of laissez-faire capitalism. The practical application of liberal principles multiplied population figures and, in the countries committed to the policies of economic freedom, secured even to less capable and less industrious people a standard of living higher than that of the well-to-do of the "good old" days. The average American wage-earner would not like to dwell in the dirty, badly lighted, and poorly heated palatial houses, in which the members of the privileged English and French aristocracy lived 200 years ago, or to do without those products of capitalist big business that render his life comfortable. [WRAST]

The British historian Henry Thomas Buckle (1821-1862), declared "that this solitary Scotchman has, by the publication of one single work, contributed more toward the happiness of man than has been effected by the united abilities of all the statesmen and legislators of whom history has presented an authentic record." The English economist Walter Bagehot (1826-1877) said about the Wealth of Nations: "The life of almost everyone in England—perhaps of everyone—is different and better in consequence of it." [WRAST]

That the factories could thrive in spite of all these hindrances was due to tow reasons. First there were the teachings of the new social philosophy expounded by the economists. They demolished the prestige of Mercantilism, paternalism, and restrictionism. They exploded the superstitious belief that labor-saving devices and processes cause unemployment and reduce all people to poverty and decay. The laissez-faire economists were the pioneers of the unprecedented technological achievements of the last two hundred years. <…>

The laissez-faire ideology and its offshoot, the "Industrial Revolution," blasted the ideological and institutional barriers to progress and welfare. They demolished the social order in which a constantly increasing number of people were doomed to abject need and destitution. The processing trades of earlier ages had almost exclusively catered to the wants of the well-to-do. Their expansion was limited by the amount of luxuries the wealthier strata of the population could afford. Those not engaged in the production of primary commodities could earn a living only as far as the upper classes were disposed to utilize their skill and services. But now a different principle came into operation. The factory system inaugurated a new mode of marketing as well as of production. Its characteristic feature was that the manufactures were not designed for the consumption of a few well-to-do only, but for the consumption of those who had hitherto played but a negligible role as consumers. Cheap things for the many, was the objective of the factory system. <…>

The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses. The wage earners are no longer people toiling merely for other people's well-being. They themselves are the main consumers of the products the factories turn out. Big business depends upon mass consumption. [HA-XXI.7]

Criterion

Thanks to the higher productivity of social cooperation the human species has multiplied far beyond the margin of subsistence offered by the conditions prevailing in ages with a rudimentary degree of the division of labor. Each man enjoys a standard of living much higher than that of his savage ancestors. The natural condition of man is extreme poverty and insecurity. [HA-VIII.6]

Infant mortality dropped, the average length of life was prolonged, the population multiplied, and the average common man enjoyed amenities of which even the well-to-do of earlier ages did not dream. [L&P-II]

The case for capitalism and private property rests, apart from other considerations, also upon the incomparable efficiency of its productive effort. It is this efficiency that makes it possible for capitalistic business to support a rapidly increasing population at a continually improving standard of living. The resulting progressive prosperity of the masses creates a social environment in which the exceptionally gifted individuals are free to give to their fellow-citizens all they are able to give. The social system of private property and limited government is the only system that tends to debarbarize all those who have the innate capacity to acquire personal culture. [L&P-VII]

The idea that anybody would have fared better under an asocial state of mankind and is wronged by the very existence of society is absurd. Thanks to the higher productivity of social cooperation the human species has multiplied far beyond the margin of subsistence offered by the conditions prevailing in ages with a rudimentary degree of the division of labor. Each man enjoys a standard of living much higher than that of his savage ancestors. The natural condition of man is extreme poverty and insecurity. [HA-VIII.6]

Nevertheless, brief and all too limited as the supremacy of liberal ideas was, it sufficed to change the face of the earth. A magnificent economic development took place. The release of man's productive powers multiplied the means of subsistence many times over. On the eve of the World War (which was itself the result of a long and bitter struggle against the liberal spirit and which ushered in a period of still more bitter attacks on liberal principles), the world was incomparably more densely populated than it had ever been, and each inhabitant could live incomparably better than had been possible in earlier centuries. The prosperity that liberalism had created reduced considerably infant mortality, which had been the pitiless scourge of earlier ages, and, as a result of the improvement in living conditions, lengthened the average span of life. [L-i.1]

The material improvements were the fruit of these reforms and innovations in the conduct of government affairs. As all privileges disappeared and everybody was granted the right to challenge the vested interests of all other people, a free hand was given to those who had the ingenuity to develop all the new industries which today render the material conditions of people more satisfactory. Population figures multiplied and yet the increased population could enjoy a better life than their ancestors. [ILW-I]

But nobody can deny that they have succeeded in improving the external conditions of human life. That there are living today on the earth's surface many more people than some hundreds or thousands of years ago and that every citizen of a civilized country enjoys much more comfort than the preceding generations did, is a proof of the usefulness of science. Every successful surgical operation contradicts the skepticism of sophisticated grumblers. [RDHH-IV]

But scientific research and its application in the struggle for human life can be effected only in society, i.e., in a world, where men cooperate by division of labor. [RDHH-IV]

Biology does not provide any standard for the appraisal of changes occurring within living beings other than whether or not these changes succeeded in adjusting the individuals to the conditions of their environment and thereby in improving their chances in the struggle for survival. It is a fact that civilization, when judged from this point of view, is to be considered a benefit and not an evil. It has enabled man to hold his own in the struggle against all other living beings, both the big beasts of prey and the even more pernicious microbes; it has multiplied man's means of sustenance; it has made the average man taller, more agile, and more versatile and it has stretched his average length of life; it has given man the uncontested mastery of the earth; it has multiplied population figures and raised the standard of living to a level never dreamed of by the crude cave dwellers of prehistoric ages. It is true that this evolution stunted the development of certain knacks and gifts which were once useful in the struggle for survival and have lost their usefulness under changed conditions. On the other hand it developed other talents and skills which are indispensable for life within the frame of society. However, a biological and evolutionary view must not cavil at such changes. For primitive man hard fists and pugnacity were as useful as the ability to be clever at arithmetic and to spell correctly are for modern man. It is quite arbitrary and certainly contrary to any biological standard to call only those characteristics which were useful to primitive man natural and adequate to human nature and to condemn the talents and skills badly needed by civilized man as marks of degeneration and biological deterioration. To advise man to return to the physical and intellectual features of his prehistoric ancestors is no more reasonable than to ask him to renounce his upright gait and to grow a tail again. [HA-VIII.8]

Reason, Will and Society

Human society is an issue of the mind. [S-V.35.3]

Society is a product of will and action. Only human beings are able to will and act. [S-C.1]

Even where creatures such as ants and bees come together in "animal communities," all movements and changes take place instinctively and unconsciously. Instinct may very well have operated at the beginning and in the earliest stages of social formation also. Man is already a member of a social body when he appears as a thinking, willing creature, for the thinking man is inconceivable as a solitary individual. "Only amongst men does man become a man" (Fichte). The development of human reason and the development of human society are one and the same process. All further growth of social relations is entirely a matter of will. Society is the product of thought and will. It does not exist outside thought and will. Its being lies within man, not in the outer world. It is projected from within outwards. [S-III.18.1-6]

Human society is an issue of the mind. Social co-operation must first be conceived, then willed, then realized in action. It is ideas that make history, not the "material productive forces," those nebulous and mystical schemata of the materialist conception of history. [S-V.35.3-20]

Man alone by dint of his reason substituted social cooperation for biological competition. What made social cooperation possible is, of course, a natural phenomenon, the higher productivity of labor accomplished under the principle of the division of labor and specialization of tasks. But it was necessary to discover this principle, to comprehend its bearing upon human affairs, and to employ it consciously as a means in the struggle for existence. [T&H-III.2]

The Result of Human Action but not of Human Design

Men who create peace and standards of conduct are only concerned to provide for the needs of the coming hours, days, years; that they are, at the same time, working to build a great structure like human society, escapes their notice. Therefore the individual institutions, which collectively support the social organism, are created with no other view in mind than the utility of the moment. They seem individually necessary and useful to their creators; their social function remains unknown to them. [S-C.2]

Society is the outcome of conscious and purposeful behavior.

This does not mean that individuals have concluded contracts by virtue of which they have founded human society. The actions which have brought about social cooperation and daily bring it about anew do not aim at anything else than cooperation and coadjuvancy with others for the attainment of definite singular ends. [HA-VIII.1]

Any given social order was thought out and designed before it could be realized. This temporal and logical precedence of the ideological factor does not imply the proposition that people draft a complete plan of a social system as the utopians do. What is and must be thought out in advance is not the concerting of individual actions into an integrated system of social organization, but the actions of individuals with regard to their fellow men and of already formed groups of individuals with regard to other groups. Before a man aids his fellow in cutting a tree, such cooperation must be thought out. Before an act of barter takes place, the idea of mutual exchange of goods and services must be conceived. It is not necessary that the individuals concerned become aware of the fact that such mutuality results in the establishment of social bonds and in the emergence of a social system. The individual does not plan and execute actions intended to construct society. His conduct and the corresponding conduct of others generate social bodies. [HA-IX.3]

All the older civilizations were born and grew up without being fully conscious of the basic laws of cultural evolution and the significance of division of labour and co-operation. In the course of their development they had often to combat tendencies and movements inimical to civilization. Often they triumphed over these, but sooner or later they fell. They succumbed to the spirit of disintegration. Through the social philosophy of Liberalism men became conscious of the laws of social evolution for the first time, and for the first time clearly recognized the basis of civilization and cultural progress. [S-III.18.7]

The war ends when the actual relation is recognized as one worthy to be maintained. Out of violence emerges law.

The doctrine of natural law has erred in regarding this great change, which lifts man from the state of brutes into human society, as a conscious process; as an action, that is, in which man is completely aware of his motives, of his aims and how to pursue them. Thus was supposed to have been concluded the social contract by which the State and the community, the legal order, came into existence. Rationalism could find no other possible explanation after it had disposed of the old belief which traced social institutions back to divine sources or at least to the enlightenment which came to man through divine inspiration. Because it led to present conditions, people regarded the development of social life as absolutely purposeful and rational; how then could this development have come about, except through conscious choice in recognition of the fact that it was purposeful and rational? Today we have other theories with which to explain the matter. We talk of natural selection in the struggle for existence and of the inheritance of acquired characteristics, though all this, indeed, brings us no nearer to an understanding of ultimate riddles than can the theologian or the rationalist. We can 'explain' the birth and development of social institutions by saying that they were helpful in the struggle for existence, by saying that those who accepted and best developed them were better equipped against the dangers of life than those who were backward in this respect. To point out how unsatisfactory is such an explanation nowadays would be to bring owls to Athens. The time when it satisfied us and when we proposed it as a final solution of all problems of being and becoming is long since past. It takes us no further than theology or rationalism. This is the point at which the individual sciences merge, at which the great problems of philosophy begin—at which all our wisdom ends. [S-I.1.2]

The basis and starting point of social co-operation lie in peace-making, which consists in the mutual recognition of the "state of property." Out of a de facto having, maintained by force, arises the legal concept of ownership, and simultaneously, the legal order and the coercive apparatus to maintain it. All this is the result of conscious willing and awareness of the aims willed. But this willing sees and wills only the most immediate and direct result: of the remoter consequences it knows nothing and can know nothing. Men who create peace and standards of conduct are only concerned to provide for the needs of the coming hours, days, years; that they are, at the same time, working to build a great structure like human society, escapes their notice. Therefore the individual institutions, which collectively support the social organism, are created with no other view in mind than the utility of the moment. They seem individually necessary and useful to their creators; their social function remains unknown to them. [S-C.2]

Individual and Society

Society and the individual postulate each other. [S-C.2] Man is inconceivable as an isolated being. [S-III.18.1]

If praxeology speaks of the solitary individual, acting on his own behalf only and independent of fellow men, it does so for the sake of a better comprehension of the problems of social cooperation. We do not assert that such isolated autarkic human beings have ever lived and that the social stage of man's nonhuman ancestors and the emergence of the primitive social bonds were effected in the same process. Man appeared on the scene of earthly events as a social being. The isolated asocial man is a fictitious construction. [HA-VIII.6]

Modern man is a social being, not only as one whose material needs could not be supplied in isolation, but also as one who has achieved a development of reason and of the perceptive faculty that would have been impossible except within society. Man is inconceivable as an isolated being, for humanity exists only as a social phenomenon and mankind transcended the stage of animality only in so far as co-operation evolved the social relationships between the individuals. Evolution from the human animal to the human being was made possible by and achieved by means of social cooperation and by that alone. And therein lies the interpretation of Aristotle's dictum that man is the Greek pslitichon(the living body politic). [S-III.18.1]

Society and the individual postulate each other; those collective bodies, which collectivism assumes to have existed logically and historically before individuals, may have been herds and hordes, but they were in no way societies--that is, associations created and existing by means of the collaboration of thinking creatures. Human beings construct society by making their actions a mutually conditioned co-operation. [S-C.2]

One of the privileges which society affords to the individual is the privilege of living in spite of sickness or physical disability. Sick animals are doomed. Their weakness handicaps them in their attempts to find food and to repel aggression on the part of other animals. Deaf, nearsighted, or crippled savages must perish. But such defects do not deprive a man of the opportunity to adjust himself to life in society. The majority of our contemporaries are afflicted with some bodily deficiencies which biology considers pathological. Our civilization is to a great extent the achievement of such men. The eliminative forces of natural selection are greatly reduced under social conditions. Hence some people say that civilization tends to deteriorate the hereditary qualities of the members of society.

Such judgments are reasonable if one looks at mankind with the eyes of a breeder intent upon raising a race of men equipped with certain qualities. But society is not a stud-farm operated for the production of a definite type of men. There is no "natural" standard to establish what is desirable and what is undesirable in the biological evolution of man. Any standard chosen is arbitrary, purely subjective, in short a judgment of value. The terms racial improvement and racial degeneration are meaningless when not based on definite plans for the future of mankind.

It is true, civilized man is adjusted to life in society and not to that of a hunter in virgin forests. [HA-VIII.6]

Specialization of individual

The most important effect of the division of labour is that it turns the independent individual into a dependent social being. He becomes one-sided. It is for the individual himself to set about becoming a complete human being. The remedy lies in reforming consumption, not in "reforming" labour. [S-III.18.6]

The division of labor is the outcome of man's conscious reaction to the multiplicity of natural conditions. On the other hand it is itself a factor bringing about differentiation. It assigns to the various geographic areas specific functions in the complex of the processes of production. It makes some areas urban, others rural; it locates the various branches of manufacturing, mining, and agriculture in different places. Still more important, however, is the fact that it intensifies the innate inequality of men. Exercise and practice of specific tasks adjust individuals better to the requirements of their performance; men develop some of their inborn faculties and stunt the development of others. Vocational types emerge, people become specialists. [HA-VIII.5]

The most important effect of the division of labour is that it turns the independent individual into a dependent social being. ... He becomes one-sided.

If, nevertheless, man has given himself up more and more to the division of labour, it is because he has recognized that the higher productivity of labour thus specialized more than repays him for the loss of pleasure. The extent of the division of labour cannot be curtailed without reducing the productivity of labour. This is true of all kinds of labour. It is an illusion to believe that one can maintain productivity and reduce the division of labour.

It is for the individual himself to set about becoming a complete human being. The remedy lies in reforming consumption, not in "reforming" labour. Play and sport, the pleasure of art, reading are the obvious way of escape. [S-III.18.6]

Civilization is a product of leisure and the peace of mind that only the division of labour can make possible. <…>

Primitive man lacks all individuality in our sense. Two South Sea Islanders resemble each other far more closely than two twentieth-century Londoners. Personality was not bestowed upon man at the outset. It has been acquired in the course of evolution of society. [S-III.18.6]

Society: Definition

[S]cience is not at all concerned with determining what society is, but with the effect of labor performed under conditions of social cooperation. And its first statement is that the productivity of social cooperation surpasses in every respect the sum total of the production of isolated individuals. [EPOFEC-1.3.3] [Science traces] the origin of everything concerned with society in the development of the division of labour. [S-III.18.5]

Society is co-operation; it is community in action.

To say that Society is an organism, means that society is division of labour. To do justice to this idea we must take into account all the aims which men set themselves and the means by which these are to be attained. It includes every inter-relation of thinking and willing man. [S-III.18.1]

The word "society," with its corresponding adjective "social," has three separate meanings. It implies, first, the abstract idea of social interrelationships, and secondly, the concrete conception of a union of the individuals themselves. Between these two sharply different meanings, a third has been interposed in ordinary speech: the abstract society is conceived as personified in such expressions as "human society," "civil society." [S-II.6.1]

The collectivists contend that "individualism" sees in society only the sum total of individuals, whereas society is really something specific.[3] However, science is not at all concerned with determining what society is, but with the effect of labor performed under conditions of social cooperation. And its first statement is that the productivity of social cooperation surpasses in every respect the sum total of the production of isolated individuals.

For the purposes of science we must start from the action of the individual because this is the only thing of which we can have direct cognition. [EPOFEC-1.3.3]

Human society is an association of persons for cooperative action. As against the isolated action of individuals, cooperative action on the basis of the principle of the division of labor has the advantage of greater productivity. [L-I.1]

Society is concerted action, cooperation. <…> The total complex of the mutual relations created by such concerted actions is called society. It substitutes collaboration for the--at least conceivable--isolated life of individuals. Society is division of labor and combination of labor. In his capacity as an acting animal man becomes a social animal. [HA-VIII.1]

Men cooperate with one another. The totality of interhuman relations engendered by such cooperation is called society. Society is not an entity in itself. It is an aspect of human action. It does not exist or live outside of the conduct of people. It is an orientation of human action. Society neither thinks nor acts. Individuals in thinking and acting constitute a complex of relations and facts that are called social relations and facts. [T&H-XI.2]

Cooperation and Division of Labor

The fundamental facts that brought about cooperation, society, and civilization and transformed the animal man into a human being are the facts that work performed under the division of labor is more productive than isolated work and that man's reason is capable of recognizing this truth. [HA-VIII.1]

The division of labour is what first makes social ties: it is the social element pure and simple. [S-III.18.7]

If a number of men work in cooperation in accordance with the principle of the division of labor, they will produce (other things being equal) not only as much as the sum of what they would have produced by working as self-sufficient individuals, but considerably more. All human civilization is founded on this fact. It is by virtue of the division of labor that man is distinguished from the animals. [L-I.1]

for these facts men would have forever remained deadly foes of one another, irreconcilable rivals in their endeavors to secure a portion of the scarce supply of means of sustenance provided by nature. Each man would have been forced to view all other men as his enemies; his craving for the satisfaction of his own appetites would have brought him into an implacable conflict with all his neighbors. No sympathy could possibly develop under such a state of affairs. [HA-VIII.1]

Society is joint action and cooperation in which each participant sees the other partner's success as a means for the attainment of his own. [HA-VIII.7]

Society exists only where willing becomes a co-willing and action co-action. To strive jointly towards aims which alone individuals could not reach at all, or not with equal effectiveness—that is society.

Therefore, Society is not an end but a means, the means by which each individual member seeks to attain his own ends. That society is possible at all is due to the fact that the will of one person and the will of another find themselves linked in a joint endeavour. Community of work springs from community of will. Because I can get what I want only if my fellow citizen gets what he wants, his will and action become the means by which I can attain my own end. Because my willing necessarily includes his willing, my intention cannot be to frustrate his will. On this fundamental fact all social life is built up.

The principle of the division of labour revealed the nature of the growth of society. Once the significance of the division of labour had been grasped, social knowledge developed at an extraordinary pace, as we see from a comparison between Kant and those who came after him. [S-III.18.4]

Within society everyone depends on what other people are prepared to contribute to his well-being in return for his own contribution to their well-being. Society is essentially the mutual exchange of services. [L&P-V]

The history of mankind is the record of a progressive intensification of the division of labor. Animals live in perfect autarky of each individual or of each quasi family. What made cooperation between men possible is the fact that work performed under the division of tasks is more productive than the isolated efforts of autarkic individuals and that man's reason is capable of conceiving this truth. But for these two facts men would have remained forever solitary food-seekers, forced by an inevitable law of nature to fight one another without pity and pardon. No social bonds, no feelings of sympathy, benevolence, and friendship, no civilization would have developed in a world in which everybody had to see in all other men rivals in the biological competition for a strictly limited supply of food. [T&H-X.7]

Origin of Division of Labor

[D]ivision of labour originates in two facts of nature: the inequality of human abilities and the variety of the external conditions of human life on the earth. [S-III.18.2]

These two facts are really one: the diversity of Nature, which does not repeat itself but creates the universe in infinite, inexhaustible variety. The special nature of our inquiry, however, which is directed towards sociological knowledge, justifies us in treating these two aspects separately.

It is obvious that as soon as human action becomes conscious and logical it must be influenced by these two conditions. They are indeed such as almost to force the division of labour on mankind. [S-III.18.2-10]

The fundamental social phenomenon is the division of labor and its counterpart human cooperation.

Experience teaches man that cooperative action is more efficient and productive than isolated action of self-sufficient individuals. The natural conditions determining man's life and effort are such that the division of labor increases output per unit of labor expended. These natural facts are:

First: the innate inequality of men with regard to their ability to perform various kinds of labor. Second: the unequal distribution of the nature-given, nonhuman opportunities of production on the surface of the earth. [HA-VIII.3]

The division of labor is the outcome of man's conscious reaction to the multiplicity of natural conditions. [HA-VIII.5]

Had the strength and abilities of all individuals and the external conditions of production been everywhere equal the idea of division of labour could never have arisen. Man would never of himself have hit upon the idea of making the struggle for existence easier by co-operation in the division of labour. No social life could have arisen among men of equal natural capacity in a world which was geographically uniform. [S-III.18.2]

Every individual desires life, health, and well-being for himself and for his friends and close relations. At the same time, the life, health, and well-being of others may be indifferent to him. Filled with the atavistic instincts of a beast of prey, he may even believe that others stand in his way, that they are depriving him of foraging grounds, and that the satisfaction of his wants must involve the killing and robbing of his fellow men. But the technology based on the cognition's of the science of human action shows him that this is not so. Work performed under the division of labor is more productive than the isolated labor of the individual. Even when superior men combine with those less favored in every respect and inferior to them in capacity for work and intellectual and physical abilities, both sides gain, as is demonstrated by Ricardo's law of association (usually called the law of comparative costs). Consequently, every individual is better able to attain his ends by the social cooperation of labor than by isolated work. [EPOFEC-1.3.2]

Theory of Division of Labor

[I]t is obvious that every expansion of the personal division of labour brings advantages to all who take part in it. He who collaborates with the less talented, less able, and less industrious individuals gains an advantage equally as the man who associated with the more talented, more able, and more industrious. [S-III.18.2]

The history of sociology as a science began with the realization of the importance for the formation of society of the increase in productivity achieved under the division of labor. However, sociology in general, and economics in particular, have viewed the law of the division of labor not as a constituent part of their own structure of thought, but as a datum, though one which is almost always—or, for all practical purposes, always—present. [EPOFEC-2.7]

The theory of the international division of labour is one of the most important contributions of Classical Political Economy. It shows that as long as—for any reasons—movements of capital and labour between countries are prevented, it is the comparative, not the absolute, costs of production which govern the geographical division of labour. When the same principle is applied to the personal division of labour it is found that the individual enjoys an advantage in co-operating not only with people superior to himself in this or that capacity but also with those who are inferior to himself in every relevant way. … Therefore it is obvious that every expansion of the personal division of labour brings advantages to all who take part in it. He who collaborates with the less talented, less able, and less industrious individuals gains an advantage equally as the man who associated with the more talented, more able, and more industrious. The advantage of the division of labour is mutual; it is not limited to the case where work is done which the solitary individual could never have carried out. [S-III.18.2]

One of the most famous of the theorems developed by the Classical economists, Ricardo's theory of comparative costs, is safe against all criticism, if we may judge by the fact that hundreds of passionate adversaries over a period of a hundred and forty years have failed to advance any tenable argument against it. It is much more than merely a theory dealing with the effects of free trade and protection. It is a proposition about the fundamental principles of human cooperation under the division of labor and specialization and the integration of vocational groups, about the origin and further intensification of social bonds between men, and should as such be called the law of association. It is indispensable for understanding the origin of civilization and the course of history. Contrary to popular conceptions, it does not say that free trade is good and protection bad. It merely demonstrates that protection is not a means to increase the supply of goods produced. Thus it says nothing about protection's suitability or unsuitability to attain other ends, for instance to improve a nation's chance of defending its independence in war. [T&H-II.2]

Ricardo expounded the law of association in order to demonstrate what the consequences of the division of labor are when an individual or a group, more efficient in every regard, cooperates with an individual or a group less efficient in every regard. He investigated the effects of trade between two areas, unequally endowed by nature, under the assumption that the products, but not the workers and the accumulated factors of future production (capital goods), can freely move from each area into the other. The division of labor between two such areas will, as Ricardo's law shows, increase the productivity of labor and is therefore advantageous to all concerned, even if the physical conditions of production for any commodity are more favorable in one of these two areas than in the other. It is advantageous for the better endowed area to concentrate its efforts upon the production of those commodities for which its superiority is greater, and to leave to the less endowed area the production of other goods in which its own superiority is less. The paradox that it is more advantageous to leave more favorable domestic conditions of production unused and to procure the commodities they could produce from areas in which conditions for their production are less favorable, is the outcome of the immobility of labor and capital, to which the more favorable places of production are inaccessible.

Ricardo was fully aware of the fact that his law of comparative cost, which he expounded mainly in order to deal with a special problem of international trade, is a particular instance of the more universal law of association. [HA-VIII.4]

In a world in which there is free mobility not only for products, but no less for capital goods and for labor, a country so little suited for production would cease to be used as the seat of any human industry. If people fare better without exploiting the --comparatively unsatisfactory--physical conditions of production offered by this country, they will not settle here and will leave it as uninhabited as the polar regions, the tundras and the deserts. But Ricardo deals with a world whose conditions are determined by settlement in earlier days, a world in which capital goods and labor are bound to the soil by definite institutions. In such a milieu free trade, i.e., the free mobility of commodities only, cannot bring about a state of affairs in which capital and labor are distributed on the surface of the earth according to the better or poorer physical opportunities afforded to the productivity of labor. Here the law of comparative cost comes into operation. Each country turns toward those branches of production for which its conditions offer comparatively, although not absolutely, the most favorable opportunities. For the inhabitants of a country it is more advantageous to abstain from the exploitation of some opportunities which--absolutely and technologically--are more propitious and to import commodities produced abroad under conditions which--absolutely and technologically--are less favorable than the unused domestic resources. The case is analogous to that of a surgeon who finds it convenient to employ for the cleaning of the operating-room and the instruments a man whom he excels in this performance also and to devote himself exclusively to surgery, in which his superiority is higher. [HA-VIII.4]

If one assumes that capital, labor, and products are movable, then there exists a difference between regional and interregional trade only as far as the cost of transportation comes into play. Then it is superfluous to develop a theory of international trade as distinguished from national trade. Capital and labor are distributed on the earth's surface according to the better or poorer conditions which the various regions offer to production. There are areas more densely populated and better equipped with capital, there are others less densely populated and poorer in capital supply. There prevails on the whole earth a tendency toward an equalization of wage rates for the same kind of labor.

Ricardo,. however, starts from the assumption that there is mobility of capital and labor only within each country, and not between the various countries. He raises the question what the consequences of the free mobility of products must be under such conditions. (If there is no mobility of products either, then every country is economically isolated and autarkic, and there is no international trade at all.) [HA-VIII.4]

Thus, what the classical theory of free trade says to the statesman is: There are countries with relatively favorable and others with relatively unfavorable natural conditions of production. In the absence of interference on the part of governments, the international division of labor will, of itself, result in every country's finding its place in the world economy, no matter how its conditions of production compare with those of other countries. Of course, the countries with comparatively favorable conditions of production will be richer than the others, but this is a fact that cannot be altered by political measures in any case. It is simply the consequence of a difference in the natural factors of production. [III.7]

Social Progress

[T]he extension of the division of labour is economic progress: it brings production nearer to its goal—the greatest possible satisfaction of wants, and this progress is sociological progress also, for it involves the intensification of the social relation. [S-III.18.5]

The simplest way to depict the evolution of society is to show the distinction between two evolutionary tendencies which are related to each other in the same way as intension and extension. Society develops subjectively and objectively; subjectively by enlarging its membership, objectively by enlarging the aims of its activities. Originally confined to the narrowest circles of people, to immediate neighbours, the division of labour gradually becomes more general until eventually it includes all mankind. This process, still far from complete and never at any point in history completed, is finite. When all men on earth form a unitary system of division of labour, it will have reached its goal. Side by side with this extension of the social bond goes a process of intensification. Social action embraces more and more aims; the area in which the individual provides for his own consumption becomes constantly narrower. We need not pause at this stage to ask whether this process will eventually result in the specialization of all productive activity. [S-III.19.1]

The division of labour extends by the spread of the realization that the more labour is divided the more productive it is. In this sense the extension of the division of labour is economic progress: it brings production nearer to its goal—the greatest possible satisfaction of wants, and this progress is sociological progress also, for it involves the intensification of the social relation.

It is only in this sense, and if all teleological or ethical valuation is excluded, that it is legitimate to use the expression "progress" sociologically in historical inquiry. We believe that we can observe a certain tendency in the changes of social conditions and we examine each. single change separately, to see whether and how far this assumption is compatible with it. It may be that we make various assumptions of this kind, each of which corresponds in like measure to experience. The problem next arises of the relations between these assumptions, whether they are independent of each other or whether they are connected internally. We should then have to go further, and define the nature of the connection. But all that this amounts to is a study, free from valuation and based on a hypothesis, of the course of successive changes. [S-III.18.5]

The Law of Progress

This law makes only one statement about the objective result that can be attained through the division of labor. It does not say that the tendency toward further intensification of the division of labor is always operative. [EPOFEC-2.7]

Work performed under the division of labor is more productive than isolated work. The same expenditure of labor and of goods of higher order produces a greater quantity of output and enables feats to be accomplished that an isolated worker would never be in a position to achieve. Whether or not this proposition of empirical technology and the physiology of labor is valid without exception—as far as we are at all warranted in speaking of absolute validity in the case of an empirical law—is of no importance for us, since, in any case, it is certain that only one or two instances, if any, can be cited, and then only with difficulty, for which it would not be valid. The increase in productivity brought about by the division of labor is what gives impetus to the formation of society and to the progressive intensification of social cooperation. We owe the origin and development of human society and, consequently, of culture and civilization, to the fact that work performed under the division of labor is more productive than when performed in isolation. The history of sociology as a science began with the realization of the importance for the formation of society of the increase in productivity achieved under the division of labor. [EPOFEC-2.7]

This law makes only one statement about the objective result that can be attained through the division of labor. It does not say that the tendency toward further intensification of the division of labor is always operative. Whenever and wherever an economic subject is confronted with the choice between a procedure employing a more intensive and one employing a less intensive division of labor, he will adopt the former, provided that he has also recognized the objectively greater output that he can thereby attain and provided also that he values this difference in output more highly than the other consequences which, perhaps, are bound up with the transition to a more intensive division of labor. However, the law as such can make no statement about whether or to what extent this recognition does in fact take place. It can teach us to comprehend and explain causally a change that has already taken place, whether it be in the direction of a more intensive or of a less intensive development of the division of labor, but the law cannot show us why or even that the division of labor must always be more intensively cultivated. We are able to arrive at this conclusion only on the basis of an historical judgment—that is, one formed with the conceptual means at the disposal of history—of what peoples, groups, and individuals want under the influence of the factors determining their existence: their inborn qualities (racial inheritance) and their natural, social, and intellectual environment.

However, we do not know how these external factors are transformed within the human mind to produce thoughts and volitions directed and operating upon the outer world. We are able to ascertain this only post factum, but in no way can we deduce it in advance from a known regularity formulated as a law. Hence, we cannot infer from the law of the division of labor that the division of labor must always make further progress. The division of labor may again be set back temporarily or even permanently. A government may be dominated by an ideology that sees its social ideal in the reversion to autarky. One may consider this quite improbable, but one cannot make a clear and definite prediction about it, for the reasons which have already been given. In any case, one must not overlook the fact that today an ideology hostile to the international division of labor is beginning to exercise a great influence upon the foreign economic policy of many nations.

The law of the division of labor does not belong to the universally valid system of a priori laws of human action. It is a datum, not an economic law. For that reason it appears impossible to formulate on its basis an exact law of progress, i.e., a law free of ideal-typical constructions. [EPOFEC-2.7]

Social Regress

There is no evidence that social evolution must move steadily upwards in a straight line. Social standstill and social retrogression are historical facts which we cannot ignore. World history is the graveyard of dead civilizations, and in India and Eastern Asia we see large-scale examples of civilization at a standstill. [S-III.18.7]

The death of nations is the retrogression of the social relation, the retrogression of the division of labour. Whatever may have been the cause in individual cases, it has always been the cessation of the disposition to social co-operation which actually effected the decline. This may once have seemed an incomprehensible riddle to us, but now that we watch with terror the process at work in our own experience we come nearer to understanding it, though we still fail to recognize the deepest, most ultimate causes of the change.

It is the social spirit, the spirit of social co-operation, which forms, develops, and upholds societies. Once it is lost, the society falls apart again. The death of a nation is social retrogression, the decline from the division of labour to self-sufficiency. The social organism disintegrates into the cells from which it began. Man remains, but society dies. [S-III.18.7]

The facts which are present in practically all the examples brought forward of the aging of a culture are: a decline in population, a diminution of welfare, and the decay of the towns. The historical significance of all these phenomena becomes clear as soon as we conceive of the aging of nations as the retrogression of the social division of labour and of society. The decline of the ancient world for instance, was a social retrogression. The decline of the Roman Empire was only a result of the disintegration of ancient society which after reaching a high level of division of labour sank back into an almost moneyless economy. Thus towns were depopulated and thus, also, did the population of the countryside diminish and want and misery set in simply because an economic order working on a lower level in respect of the social division of labour is less productive. Technical skill was gradually lost, artistic talent decayed, scientific thought was slowly extinguished. The word which most aptly describes this process is disintegration. The Classical culture died because Classical society retrogressed. [S-III.18.7]

On the Causes of the Decline of Ancient Civilization

The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. [HA-XXX.2]

The Roman Empire in the second century, the age of the Antonines, the "good" emperors, had reached a high stage of the social division of labor and of interregional commerce. Several metropolitan centers, a considerable number of middle-sized towns, and many small towns were the seats of a refined civilization. The inhabitants of these urban agglomerations were supplied with food and raw materials not only from the neighboring rural districts, but also from distant provinces. A part of these provisions flowed into the cities as revenue of their wealthy residents who owned landed property. But a considerable part was bought in exchange for the rural population's purchases of the products of the city-dwellers' processing activities. There was an extensive trade between the various regions of the vast empire. Not only in the processing industries, but also in agriculture there was a tendency toward further specialization. The various parts of the empire were no longer economically self-sufficient. They were interdependent.

What brought about the decline of the empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions. The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered to them. From a military point of view the tribes which invaded the empire in the fourth and fifth centuries were not more formidable than the armies which the legions had easily defeated in earlier times. But the empire had changed. Its economic and social structure was already medieval.

The freedom that Rome granted to commerce and trade had always been restricted. With regard to the marketing of cereals and other vital necessities it was even more restricted than with regard to other commodities. It was deemed unfair and immoral to ask for grain, oil, and wine, the staples of these ages, more than the customary prices, and the municipal authorities were quick to check what they considered profiteering. Thus the evolution of an efficient wholesale trade in these commodities was prevented. The policy of the annona, which was tantamount to a nationalization or municipalization of the grain trade, aimed at filling the gaps. But its effects were rather unsatisfactory. Grain was scarce in the urban agglomerations, and the agriculturists complained about the unremunerativeness of grain growing. The interference of the authorities upset the adjustment of supply to the rising demand.

The showdown came when in the political troubles of the third and fourth centuries the emperors resorted to currency debasement. With the system of maximum prices the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society's economic organization. The more eagerness the authorities displayed in enforcing the maximum prices, the more desperate became the conditions of the urban masses dependent on the purchase of food. Commerce in grain and other necessities vanished altogether. To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves. On the other hand, the owners of the big estates restricted their excess production of cereals and began to produce in their farmhouses--the villae--the products of handicraft which they needed. For their big-scale farming, which was already seriously jeopardized because of the inefficiency of slave labor, lost its rationality completely when the opportunity to sell at remunerative prices disappeared. As the owner of the estate could no longer sell in the cities, he could no longer patronize the urban artisans either. He was forced to look for a substitute to meet his needs by employing handicraftsmen on his own account in his villa. He discontinued big-scale farming and became a landlord receiving rents from tenants or sharecroppers. These coloni were either freed slaves or urban proletarians who settled in the villages and turned to tilling the soil. A tendency toward the establishment of autarky of each landlord's estate emerged. The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.

The emperors were alarmed with that outcome which undermined the financial and military power of their government. But their counteraction was futile as it did not affect the root of the evil. The compulsion and coercion to which they resorted could not reverse the trend toward social disintegration which, on the contrary, was caused precisely by too much compulsion and coercion. No Roman was aware of the fact that the process was induced by the government's interference with prices and by currency debasement. It was vain for the emperors to promulgate laws against the city-dweller who "relicta civitate rus habitare maluerit." The system of the leiturgia, the public services to be rendered by the wealthy citizens, only accelerated the retrogression of the division of labor. The laws concerning the special obligations of the shipowners, the navicularii, were no more successful in checking the decline of navigation than the laws concerning grain dealing in checking the shrinkage in the cities' supply of agricultural products.

The marvelous civilization of antiquity perished because it did not adjust its moral code and its legal system to the requirements of the market economy. A social order is doomed if the actions which its normal functioning requires are rejected by the standards of morality, are declared illegal by the laws of the country, and are prosecuted as criminal by the courts and the police. The Roman Empire crumbled to dust because it lacked the spirit of liberalism and free enterprise. The policy of interventionism and its political corollary, the Fuhrer principle, decomposed the mighty empire as they will by necessity always disintegrate and destroy any social entity. [HA-XXX.2]

On Coexistence of Civilizations

The superiority of the more highly developed societies lies not only in their material welfare but also quantitatively in the number of their members and qualitatively in the greater solidity of their internal structure. [S-III.18.7]

The superiority of the more highly developed societies lies not only in their material welfare but also quantitatively in the number of their members and qualitatively in the greater solidity of their internal structure. For this, precisely, is the key to higher social development: the widening of the social range, the inclusion in the division of labour of more human beings and its stronger grip on each individual. The more highly developed society differs from the less developed in the closer union of its members; this precludes the violent solution of internal conflict and forms externally a closed defensive front against any enemy. In less developed societies, where the social bond is still weak, and between the separate parts of which there exists a confederation for the purposes of war rather than true solidarity based on joint work and economic co-operation—disagreement breaks out more easily and more quickly than in highly developed societies. For the military confederation has no firm and lasting hold upon its members. By its very nature it is merely a temporary bond which is upheld by the prospect of momentary advantage, but dissolves as soon as the enemy has been defeated and the scramble for the booty sets in. In fighting against the less developed societies the more developed ones have always found that their greatest advantage lay in the lack of unity in the enemy's ranks. Only temporarily do the nations in a lower state of organization manage to co-operate for great military enterprises. Internal disunity has always dispersed their armies quickly. Take for example the Mongol raids on the Central European civilization of the thirteenth century or the efforts of the Turks to penetrate into the West. The superiority of the industrial over the military type of society, to use Herbert Spencer's expression, consists largely in the fact that associations which are merely military always fall to pieces through internal disunity. [S-III.18.7]

But there is another circumstance which advances further social development. It has been shown that it is to the interest of all members of society that the social range should be extended. For a highly developed social organism it is by no means a matter of indifference whether or not nations outside its range continue to lead a self-sufficient existence on a lower plane of social evolution. It is to the interest of the more advanced organism to draw the less advanced into the area of its economic and social community, even though its persistence in remaining on a lower plane makes it politically and militarily innocuous, and even though no immediate advantages are likely to accrue from the occupation of its territory, in which, presumably, the natural conditions of production are unfavourable. We have seen that it is always an advantage to widen the range of workers in a society that divides labour, so that even a more efficient people may have an interest in co-operating with a less efficient. This is what so often drives nations of a high social development to expand their field of economic activity by absorbing hitherto inaccessible territories. The opening up of the backward regions of the Near and Far East, of Africa and America, cleared the way for a world-wide economic community, so that shortly before the World War we were in sight of realizing the dream of an ?cumenical society. Has the war merely interrupted this development for a brief period or has it utterly destroyed it? Is it conceivable that this development can cease, that society can even retrogress? [S-III.18.7; 40]

It might so happen that some nations would remain socialistic while others returned to Capitalism. Then the socialist countries alone would proceed towards social decline. The capitalist countries would progress to a higher development of the division of labour until at last, driven by the fundamental social law to draw the greatest number of human beings into the personal division of labour, and the whole earth's surface into the geographical division of labour, they would impose culture upon the backward nations or destroy them if they resisted. This has always been the historical fate of nations who have eschewed the road of capitalist development or who have halted prematurely upon it. [S-C.1; 4]

Great Society

The operation of the principle of division of labor and its corollary, cooperation, tends ultimately toward a world-embracing system of production. [T&H-X.7]

The operation of the principle of division of labor and its corollary, cooperation, tends ultimately toward a world-embracing system of production. Insofar as the geographical distribution of natural resources does not limit the tendencies toward specialization and integration in the processing trades, the unhampered market aims at the evolution of plants operating in a comparatively narrow field of specialized production but serving the whole population of the earth. From the point of view of people who prefer more and better merchandise to a smaller and poorer supply the ideal system would consist in the highest possible concentration of the production of each specialty. The same principle that brought about the emergence of such specialists as blacksmiths, carpenters, tailors, bakers and also physicians, teachers, artists and writers would finally result in the emergence of one factory supplying the whole oecumene with some particular article. Although the geographical factor mentioned above counteracts the full operation of this tendency, international division of labor came into existence and will move forward until it reaches the limits drawn by geography, geology, and climate. [T&H-X.7]

Ends Men Aim at

Seen from the point of view of the individual, society is the great means for the attainment of all his ends. [HA-VII.6]

The preservation of society is an essential condition of any plans an individual may want to realize by any action whatever. Even the refractory delinquent who fails to adjust his conduct to the requirements of life within the societal system of cooperation does not want to miss any of the advantages derived from the division of labor. He does not consciously aim at the destruction of society. He wants to lay his hands on a greater portion of the jointly produced wealth than the social order assigns to him. He would feel miserable if antisocial behavior were to become universal and its inevitable outcome, the return to primitive indigence, resulted. [HA-VIII.6]

Society and state are <…> the primary means for all people to attain the ends they aim at of their own accord. They are created by human effort and their maintenance and most suitable organization are tasks not essentially different from all other concerns of human action. [HA-VIII.2]

Every world view and every ideology which is not entirely and unconditionally committed to the practice of asceticism and to a life in anchoritic reclusion must pay heed to the fact that society is the great means for the attainment of earthly ends. But then a common ground is won to clear the way for an agreement concerning minor social problems and the details of society's organization. However various ideologies may conflict with one another, they harmonize in one point, in the acknowledgment of life in society. [HA-IX.2]

With the exception of the small, almost negligible number of consistent anchorites, all people agree in considering some kind of social cooperation between men the foremost means to attain any ends they may aim at. This undeniable fact provides a common ground on which political discussions between men become possible. The spiritual and intellectual unity of all specimens of homo sapiens manifests itself in the fact that the immense majority of men consider the same thing-social cooperation-the best means of satisfying the biological urge, present in every living being, to preserve the life and health of the individual and to propagate the species.

It is permissible to call this almost universal acceptance of social cooperation a natural phenomenon. [T&H-III.2]

It is obvious that social cooperation would not have evolved and could not be preserved if the immense majority were not to consider it as the means for the attainment of all their ends. Striving after the preservation of his own life and health and after the best possible removal of felt uneasiness, the individual looks upon society as a means, not as an end. [T&H-III.7]

There prevails among the members of society disagreement with regard to the best method for its organization. But this is a dissent concerning means, not ultimate ends. The problems involved can be discussed without any reference to judgments of value. [T&H-III.7]

All men want the same things

All men, notwithstanding the party lines which divide them, want the same things in this world. They want to protect their own life and the lives of their kin against damage and they want to increase their material well-being. [RDHH-IV]

men aim, for biological reasons, at the same basic ends. Regardless of world view, religion, nationality, race, class, position, education, personal abilities, age, health, or sex, they aspire above all to be able to pass their lives under the most favorable physiological conditions possible. They want to eat and drink; they seek clothing, shelter, and various other things in addition. Moreover, they are of the opinion that more food, clothing, and the like, is better than less. [EPOFEC-3.2]

[Liberalism] presupposes that people prefer life to death, health to sickness, nourishment to starvation, abundance to poverty. It teaches man how to act in accordance with these valuations.

The liberals do not assert that men ought to strive after the goals mentioned above. What they maintain is that the immense majority prefer a life of health and abundance to misery, starvation, and death. The correctness of this statement cannot be challenged. It is proved by the fact that all antiliberal doctrines--the theocratic tenets of the various religious, statist, nationalist, and socialist parties--adopt the same attitude with regard to these issues. They all promise their followers a life of plenty. They have never ventured to tell people that the realization of their program will impair their material well-being. [HA-VIII.2]

Every world view and every ideology which is not entirely and unconditionally committed to the practice of asceticism and to a life in anchoritic reclusion must pay heed to the fact that society is the great means for the attainment of earthly ends. But then a common ground is won to clear the way for an agreement concerning minor social problems and the details of society's organization. However various ideologies may conflict with one another, they harmonize in one point, in the acknowledgment of life in society. [HA-IX.2]

All men, notwithstanding the party lines which divide them, want the same things in this world. They want to protect their own life and the lives of their kin against damage and they want to increase their material well-being. They fight each other not because they wish to attain different aims, but on the contrary, because—striving for the same ends—they assume that the satisfaction which the other fellow may get hinders their own improvement. <...> When people disagree about social doctrines they do not disagree about Weltanschauung, they disagree about the methods to get more wealth and more joy. All political parties acting on the stage of history promise to their followers a better life on earth. [RDHH-IV]

Our contemporaries are driven by a fanatical zeal to get more amenities and by an unrestrained appetite to enjoy life. [HA-XV.12]

All present-day political parties strive after the earthly well-being and prosperity of their supporters. [HA-IX.2]

Rightly Understood Interests

[T]here are no irreconcilable conflicts between selfishness and altruism, between economics and ethics, between the concerns of the individual and those of society. Utilitarian philosophy and its finest product, economics, reduced these apparent antagonisms to the opposition of short-run and long-run interests. Society could not have come into existence or been preserved without a harmony of the rightly understood interests of all its members. [T&H-III.7]

[N]ature does not generate peace and good will. The characteristic mark of the "state of nature" is irreconcilable conflict. Each specimen is the rival of all other specimens. The means of subsistence are scarce and do not grant survival to all. The conflicts can never disappear. If a band of men, united with the object of defeating rival bands, succeeds in annihilating its foes, new antagonisms arise among the victors over the distribution of the booty. The source of the conflicts is always the fact that each man's portion curtails the portions of all other men.

What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer question of the distribution of a supply not capable of enlargement. Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A pre-eminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions. Catallactic competition is substituted for biological competition. It makes for harmony of the interests of all members of society. The very condition from which the irreconcilable conflicts of biological competition arise--viz., the fact that all people by and large strive after the same things--is transformed into a factor making for harmony of interests. Because many people or even all people want bread, clothes, shoes, and cars, large-scale production of these goods becomes feasible and reduces the costs of production to such an extent that they are accessible at low prices. The fact that my fellow man wants to acquire shoes as I do, does not make it harder for me to get shoes, but easier. What enhances the price of shoes is the fact that nature does not provide a more ample supply of leather and other raw material required, and that one must submit to the disutility of labor in order to transform these raw materials into shoes. The catallactic competition of those who, like me, are eager to have shoes makes shoes cheaper, not more expensive.

This is the meaning of the theorem of the harmony of the rightly understood interests of all members of the market society. When the classical economists made this statement, they were trying to stress two points: First, that everybody is interested in the preservation of the social division of labor, the system that multiplies the productivity of human efforts. Second, that in the market society consumers' demand ultimately directs all production activities. The fact that not all human wants can be satisfied is not due to inappropriate social institutions or to deficiencies of the system of the market economy. It is a natural condition of human life. The belief that nature bestows upon man inexhaustible riches and that misery is an outgrowth of man's failure to organize the good society is entirely fallacious. The "state of nature" which the reformers and utopians depicted as paradisiac was in fact a state of extreme poverty and distress. "Poverty," says Bentham, "is not the work of the laws, it is the primitive condition of the human race." Even those at the base of the social pyramid are much better off than they would have been in the absence of social cooperation. They too are benefitted by the operation of the market economy and participate in the advantages of civilized society. [HA-XXIV.3]

People do not cooperate under the division of labor because they love or should love one another. They cooperate because this best serves their own interests. [HA-VIII.6]

[T]he idea of the common weal in the sense of a harmony of the interests of all members of society is a modern idea and that it owes its origin precisely to the teachings of the Classical economists. Older generations believed that there is an irreconcilable conflict of interests among men and among groups of men. [T&H-II.2]

Those whom we may call the harmonists base their argument on Ricardo's law of association and on Malthus' principle of population. They do not, as some of their critics believe, assume that all men are biologically equal. They take fully into account the fact that there are innate biological differences among various groups of men as well as among individuals belonging to the same group. Ricardo's law has shown that cooperation under the principle of the division of labor is favorable to all participants. It is an advantage for every man to cooperate with other men, even if these others are in every respect-mental and bodily capacities and skills, diligence and moral worth-inferior. From Malthus' principle one can deduce that there is, in any given state of the supply of capital goods and knowledge of how to make the best use of natural resources, an optimum size of population. So long as population has not increased beyond this size, the addition of newcomers improves rather than impairs the conditions of those already cooperating. [T&H-III.2]

Every step on the road toward intensification of the division of labor hurts in the short run the personal interests of some people. The expansion of the more efficient plant hurts the interests of less efficient competitors whom it forces to go out of business. Technological innovation hurts the interests of workers who can no longer make a living by clinging to the discarded inferior methods. The vested short-run interests of small business and of inefficient workers are adversely affected by any improvement. This is not a new phenomenon. Neither is it a new phenomenon that those prejudiced by economic improvement ask for privileges that will protect them against the competition of the more efficient. The history of mankind is a long record of obstacles placed in the way of the more efficient for the benefit of the less efficient.

It is customary to explain the obstinate efforts to stop economic improvement by referring to the "interests." The explanation is very unsatisfactory. Leaving aside the fact that an innovation hurts merely the short-run interests of some people, we must emphasize that it hurts only the interests of a small minority while favoring those of the immense majority. The bread factory certainly hurts the small bakers. But it hurts them solely because it improves the conditions of all people consuming bread. The importation of foreign sugar and watches hurts the interests of a small minority of Americans. But it is a boon for all those who want to eat sugar and to buy watches. The problem is precisely this: Why is an innovation unpopular although it favors the interests of the great majority of the people? [T&H-X.7]

It is not the interests that motivate the struggle against the further intensification of the division of labor, but spurious ideas about alleged interests. [T&H-X.7]

Provisional (but Painful) Sacrifices

In requiring of the individual that he should take society into consideration in all his actions, that he should forgo an action that, while advantageous to him, would be detrimental to social life, society does not demand that he sacrifice himself to the interests of others. For the sacrifice that it imposes is only a provisional one: the renunciation of an immediate and relatively minor advantage in exchange for a much greater ultimate benefit. [L-I.6]

Within a world organized on the basis of the division of labor, every change must in one way or another affect the short-run interests of many groups. [HA-III.3]

Reasonable action is distinguished from unreasonable action by the fact that it involves provisional sacrifices. The latter are only apparent sacrifices, since they are outweighed by the favorable consequences that later ensue. [L-i.4]

Every step by which an individual substitutes concerted action for isolated action results in an immediate and recognizable improvement in his conditions. The advantages derived from peaceful cooperation and division of labor are universal. They immediately benefit every generation, and not only later descendants. For what the individual must sacrifice for the sake of society he is amply compensated by greater advantages. His sacrifice is only apparent and temporary; he foregoes a smaller gain in order to reap a greater one later. No reasonable being can fail to see this obvious fact. When social cooperation is intensified by enlarging the field in which there is division of labor or when legal protection and the safeguarding of peace are strengthened, the incentive is the desire of all those concerned to improve their own conditions. In striving after his own--rightly understood--interests the individual works toward an intensification of social cooperation and peaceful intercourse. Society is a product of human action, i.e., the human urge to remove uneasiness as far as possible. [HA-VIII.2]

The continued existence of society as the association of persons working in cooperation and sharing a common way of life is in the interest of every individual. Whoever gives up a momentary advantage in order to avoid imperiling the continued existence of society is sacrificing a lesser gain for a greater one. [L-I.6]

[T]he adjustment of the individual to the requirements of social cooperation demands sacrifices. These are, it is true, only temporary and apparent sacrifices as they are more than compensated for by the incomparably greater advantages which living within society provides. However, at the instant, in the very act of renouncing an expected enjoyment, they are painful, and it is not for everybody to realize their later benefits and to behave accordingly. [HA-VIII.2]

Rational conduct means that man, in face of the fact that he cannot satisfy all his impulses, desires, and appetites, foregoes the satisfaction of those which he considers less urgent. In order not to endanger the working of social cooperation man is forced to abstain from satisfying those desires whose satisfaction would hinder the establishment of societal institutions. There is no doubt that such a renunciation is painful. However, man has made his choice. He has renounced the satisfaction of some desires incompatible with social life and has given priority to the satisfaction of those desires which can be realized only or in a more plentiful way under a system of the division of labor. He has entered upon the way toward civilization, social cooperation, and wealth.

This decision is not irrevocable and final. The choice of the fathers does not impair the sons' freedom to choose. They can reverse the resolution. Every day they can proceed to the transvaluation of values and prefer barbarism to civilization, or, as some authors say, the soul to the intellect, myths to reason, and violence to peace. But they must choose. It is impossible to have things incompatible with one another. [HA-VIII.8]

Principle of Violence

The spirit which put its trust in might alone, which sought the fundamentals of welfare, not in agreement, but in ceaseless conflict, permeated the whole of life. All human relations were settled according to the "Law of the Stronger," which is really the negation of Law. There was no peace; at best there was a truce. [S-I.3.1]

Society grows out of the smallest associations. The circle of those who combined to keep the peace among themselves was at first very limited. The circle widened step by step through millennia, until the community of international law and the union of peace extended over the greatest part of humanity, excluding the half savage peoples who lived on the lowest plane of culture. Within this community the principle of contract was not everywhere equally powerful. It was most completely recognized in all that was concerned with property. It remained weakest in fields where it touched the question of political domination. Into the sphere of foreign policy it has so far penetrated no further than to limit the principle of violence by setting up rules of combat. Apart from the process of arbitration, which is a recent development, disputes between states are still, in essentials, derided by arms, the most usual of ancient judicial processes; but the deriding combat, like the judicial duels of the most ancient laws, must conform to certain rules. All the same, it would be false to maintain that in the intercourse of states, fear of foreign violence is the one factor that keeps the sword in its sheath.

Forces which have been active in the foreign policy of states through millennia have set the value of peace above the profit of victorious war. In our time even the mightiest war lord cannot isolate himself completely from the influence of the legal maxim that wars must have valid reasons. Those who wage war invariably endeavour to prove that theirs is the just cause and that they fight in defence or at least in preventive-defence; this is a solemn recognition of the principle of Law and Peace. Every policy which has openly confessed to the principle of violence has brought upon itself a world-coalition, to which it has finally succumbed. [S-I.3.2]

War and Peace

Economic action demands stable conditions. The extensive and lengthy process of production is the more successful the greater the periods of time to which it is adapted. It demands continuity, and this continuity cannot be disturbed without the most serious disadvantages. This means that economic action requires peace, the exclusion of violence. [S-I.1.2]

The struggles in which primitive hordes and tribes fought one another for watering places, hunting and fishing grounds, pastures and booty were pitiless wars of annihilation. They were total wars. So in the nineteenth century were the first encounters of Europeans with the aborigines of territories newly made accessible. But already in the primeval age, long before the time of which historical records convey information, another mode of procedure began to develop. People preserved even in warfare some rudiments of social relations previously established; in fighting against peoples with whom they never before had had any contact, they began to take into account the idea that between human beings, notwithstanding their immediate enmity, a later arrangement and cooperation is possible. Wars were waged to hurt the foe; but the hostile acts were no longer merciless and pitiless in the full sense of these terms. The beligerents began to respect certain limits which in a struggle against men--as differentiated from that against beasts--should not be transcended. Above the implacable hatred and the frenzy of destruction and annihilation a societal element began to prevail. The idea emerged that every human adversary should be considered as a potential partner in a future cooperation, and that this fact should not be neglected in the conduct of military operations. War was no longer considered the normal state of interhuman relations. People recognized that peaceful cooperation is the best means to carry on the struggle for biological survival. We may even say that as soon as people realized that it is more advantageous to enslave the defeated than to kill them, the warriors, while still fighting, gave thought to the aftermath, the peace. Enslavement was by and large a preliminary step toward cooperation.

The ascendancy of the idea that even in war not every act is to be considered permissible, that there are legitimate and illicit acts of warfare, that there are laws, i.e., societal relationships which are above all nations, even above those momentarily fighting one another, has finally established the Great Society embracing all men and all nations. The various regional societies were merged into one ecumenical society.

Belligerents who do not wage war savagely in the manner of beasts, but according to "human" and social rules of warfare, renounce the use of some methods of destruction in order to attain the same concessions on the part of their foes. As far as such rules are complied with, social relations exist between the fighting parties. [HA-VIII.7]

Of the ancient Germans Tacitus relates: “It seems feckless, nay more, even slothful, to acquire something by toil and sweat which you could grab by the shedding of blood”.

[T]he notion of the struggle for existence as Darwin borrowed it from Malthus and applied it in his theory, is to be understood in a metaphorical sense. Its meaning is that a living being actively resists the forces detrimental to its own life. This resistance, if it is to succeed, must be appropriate to the environmental conditions in which the being concerned has to hold its own. It need not always be a war of extermination such as in the relations between men and morbific microbes. Reason has demonstrated that, for man, the most adequate means of improving his condition is social cooperation and division of labor. They are man's foremost tool in his struggle for survival. But they can work only where there is peace. Wars, civil wars, and revolutions are detrimental to man's success in the struggle for existence because they disintegrate the apparatus of social cooperation. [HA-VIII.8]

History is a struggle between two principles, the peaceful principle, which advances the development of trade, and the militarist-imperialist principle, which interprets human society not as a friendly division of labour but as the forcible repression of some of its members by others. The imperialistic principle continually regains the upper hand. The liberal principle cannot maintain itself against it until the inclination for peaceful labour inherent in the masses shall have struggled through to full recognition of its own importance as a principle of social evolution. Wherever the imperialistic principle is in force peace can only be local and temporary: it never lasts longer than the facts which created it. The mental atmosphere with which Imperialism surrounds itself is little suited to the promotion of the growth of the division of labour within state frontiers; it practically prohibits the extension of the division of labour beyond the political-military barriers which separate the states. The division of labour needs liberty and peace. Only when the modern liberal thought of the eighteenth century had supplied a philosophy of peace and social collaboration was the basis laid for the astonishing development of the economic civilization of that age—an age branded by the latest imperialistic and socialistic doctrines as the age of crass materialism, egotism and capitalism. [S-III.18.5]

In the Liberal Social Philosophy the human mind becomes aware of the overcoming of the principle of violence by the principle of peace. In this philosophy for the first time humanity gives itself an account of its actions. It tears away the romantic nimbus with which the exercise of power had been surrounded. War, it teaches, is harmful, not only to the conquered but to the conqueror. Society has arisen out of the works of peace; the essence of society is peacemaking. Peace and not war is the father of all things. Only economic action has created the wealth around us; labour, not the profession of arms, brings happiness. Peace builds, war destroys. Nations are fundamentally peaceful because they recognize the predominant utility of peace. They accept war only in self-defence; wars of aggression they do not desire. It is the princes who want war, because thus they hope to get money, goods, and power. It is the business of the nations to prevent them from achieving their desire by denying them the means necessary for making war. [S-I.3.1]

The liberal critique of the argument in favor of war is fundamentally different from that of the humanitarians. It starts from the premise that not war, but peace, is the father of all things. What alone enables mankind to advance and distinguishes man from the animals is social cooperation. It is labor alone that is productive: it creates wealth and therewith lays the outward foundations for the inward flowering of man. War only destroys; it cannot create. War, carnage, destruction, and devastation we have in common with the predatory beasts of the jungle; constructive labor is our distinctively human characteristic. The liberal abhors war, not, like the humanitarian, in spite of the fact that it has beneficial consequences, but because it has only harmful ones. [L-I.3]

Victorious war is an evil even for the victor, that peace is always better than war. He demands no sacrifice from the stronger, but only that he should come to realize where his true interests lie and should learn to understand that peace is for him, the stronger, just as advantageous as it is for the weaker. [L-I.3]

Peace, says the rationalist, is the goal and purpose of all legal institutions; but we assert that peace is their result, their function. Law, says the rationalist, has arisen from contracts; we say that Law is a settlement, and end to strife, an avoidance of strife. Violence and Law, War and Peace, are the two poles of social life; but its content is economic action. [S-I.1.2]

The love of peace of the liberal does not spring from philanthropic considerations… It is the social theory of Liberalism. Whoever maintains the solidarity of the economic interests of all nations, and remains indifferent to the extent of national territories and national frontiers, whoever has so far overcome collectivist notions that such an expression as "Honour of the State" sounds incomprehensible to him, that man will nowhere find a valid cause for wars of aggression. Liberal pacificism is the offspring of the Liberal Social Philosophy. That Liberalism aims at the protection of property and that it rejects war are two expressions of one and the same principle. [S-I.3.1]

Lapouge has pointed out that only in the case of primitive peoples does war lead to the selection of the stronger and more gifted, and that among civilized peoples it leads to a deterioration of the race by unfavourable selection. The fit are more likely to be killed than the unfit, who are kept longer, if not altogether, away from the front. Those who survive the war find their power to produce healthy children impaired by the various injuries they have received in the fight. [S-III.19.5; 34]

The war ends when the actual relation is recognized as one worthy to be maintained. Out of violence emerges law.

The doctrine of natural law has erred in regarding this great change, which lifts man from the state of brutes into human society, as a conscious process; as an action, that is, in which man is completely aware of his motives, of his aims and how to pursue them. [S-I.1.2]

The progressive intensification of the division of labor is possible only in a society in which there is an assurance of lasting peace. [L-I.3]

The development of a complex network of international economic relations is a product of nineteenth-century liberalism and capitalism. They alone made possible the extensive specialization of modern production with its concomitant improvement in technology. <…> This development was possible and conceivable only because, with the triumph of liberal principles, people no longer took seriously the idea that a great war could ever again break out. In the golden age of liberalism, war among members of the white race was generally considered a thing of the past. [L-I.3]

The greater productivity of work under the division of labour is a unifying influence. It leads men to regard each other as comrades in a joint struggle for welfare, rather than as competitors in a struggle for existence. It makes friends out of enemies, peace out of war, society out of individuals. [S-III.18.2]

Freedom

[A] system based on freedom for all workers warrants the greatest productivity of human labor and is therefore in the interest of all the inhabitants of the earth. [L-I.2]

We liberals do not assert that God or Nature meant all men to be free, because we are not instructed in the designs of God and of Nature, and we avoid, on principle, drawing God and Nature into a dispute over mundane questions. What we maintain is only that a system based on freedom for all workers warrants the greatest productivity of human labor and is therefore in the interest of all the inhabitants of the earth. We attack involuntary servitude, not in spite of the fact that it is advantageous to the "masters," but because we are convinced that, in the last analysis, it hurts the interests of all members of human society, including the "masters." If mankind had adhered to the practice of keeping the whole or even a part of the labor force in bondage, the magnificent economic developments of the last hundred and fifty years would not have been possible. [L-I.2]

…against this objection in favor of slavery there is only one argument that can and did refute all others-namely, that free labor is incomparably more productive than slave labor. The slave has no interest in exerting himself fully. He works only as much and as zealously as is necessary to escape the punishment attaching to failure to perform the minimum. The free worker, on the other hand, knows that the more his labor accomplishes, the more he will be paid. He exerts himself to the full in order to raise his income. One has only to compare the demands placed on the worker by the tending of a modern tractor with the relatively small expenditure of intelligence, strength, and industry that just two generations ago was deemed sufficient for the enthralled ploughmen of Russia. Only free labor can accomplish what must be demanded of the modern industrial worker. [L-I.2]

State and Government

Social cooperation under the division of labor is the ultimate and sole source of man's success in his struggle for survival and his endeavors to improve as much as possible the material conditions of his well-being. But as human nature is, society cannot exist if there is no provision for preventing unruly people from actions incompatible with community life. In order to preserve peaceful cooperation, one must be ready to resort to violent suppression of those disturbing the peace. Society cannot do without a social apparatus of coercion and compulsion, i.e., without state and government. [ILW-I]

It is not at all shameful for a man to allow himself to be ruled by others. Government and administration, the enforcement of police regulations and similar ordinances, also require specialists: professional civil servants and professional politicians. The principle of the division of labor does not stop short even of the functions of government. [L-I.7]

Government is essentially the negation of liberty. It is the recourse to violence or threat of violence in order to make all people obey the orders of the government, whether they like it or not. As far as the government's jurisdiction extends, there is coercion, not freedom. Government is a necessary institution, the means to make the social system of cooperation work smoothly without being disturbed by violent acts on the part of gangsters whether of domestic or of foreign origin. Government is not, as some people like to say, a necessary evil; it is not an evil, but a means, the only means available to make peaceful human coexistence possible. But it is the opposite of liberty. It is beating, imprisoning, hanging. Whatever a government does it is ultimately supported by the actions of armed constables. If the government operates a school or a hospital, the funds required are collected by taxes, i.e., by payments exacted from the citizens. [L&P-V]

If we take into account the fact that, as human nature is, there can neither be civilization nor peace without the functioning of the government apparatus of violent action, we may call government the most beneficial human institution. But the fact remains that government is repression not freedom. Freedom is to be found only in the sphere in which government does not interfere. Liberty is always freedom from the government. [L&P-V]

The ultimate end that men aim at by establishing government is to make possible the operation of a definite system of social cooperation under the principle of the division of labor. [L&P-V]

The liberal understands quite clearly that without resort to compulsion, the existence of society would be endangered and that behind the rules of conduct whose observance is necessary to assure peaceful human cooperation must stand the threat of force if the whole edifice of society is not to be continually at the mercy of any one of its members. One must be in a position to compel the person who will not respect the lives, health, personal freedom, or private property of others to acquiesce in the rules of life in society. This is the function that the liberal doctrine assigns to the state: the protection of property, liberty, and peace. [L-I.7]

For the liberal, the state is an absolute necessity, since the most important tasks are incumbent upon it: the protection not only of private property, but also of peace, for in the absence of the latter the full benefits of private property cannot be reaped. [L-I.8]

These considerations alone suffice to determine the conditions that a state must fulfill in order to correspond to the liberal ideal. It must not only be able to protect private property; it must also be so constituted that the smooth and peaceful course of its development is never interrupted by civil wars, revolutions, or insurrections. [L-I.8]

The stand that liberalism takes in regard to the problem of the function of the state is the necessary consequence of its advocacy of private ownership of the means of production. If one is in favor of the latter, one cannot, of course, also be in favor of communal ownership of the means of production, i.e., of placing them at the disposition of the government rather than of individual owners. Thus, the advocacy of private ownership of the means of production already implies a very severe circumscription of the functions assigned to the state. [L-I.7]

As the liberal sees it, the task of the state consists solely and exclusively in guaranteeing the protection of life, health, liberty, and private property against violent attacks. Everything that goes beyond this is an evil. [L-I.11]

The reason why liberalism opposes a further extension of the sphere of governmental activity is precisely that this would, in effect, abolish private ownership of the means of production. And in private property the liberal sees the principle most suitable for the organization of man's life in society. [L-I.7]

The state must be so constituted that the scope of its laws permits the individual a certain amount of latitude within which he can move freely. The citizen must not be so narrowly circumscribed in his activities that, if he thinks differently from those in power, his only choice is either to perish or to destroy the machinery of state. [I.13]

We see that as soon as we surrender the principle that the state should not interfere in any questions touching on the individual's mode of life, we end by regulating and restricting the latter down to the smallest detail. The personal freedom of the individual is abrogated. He becomes a slave of the community, bound to obey the dictates of the majority. [L-I.11]

One must take exception to the often-repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God. [HA-XXII.2]

State and government are not ends, but means. Inflicting evil upon other people is a source of direct pleasure only to sadists. Established authorities resort to coercion and compulsion in order to safeguard the smooth operation of a definite system of social organization. The sphere in which coercion and compulsion is applied and the content of the laws which are to be enforced by the police apparatus are conditioned by the social order adopted. As state and government are designed to make this social system operate safely, the delimitation of governmental functions must be adjusted to its requirements. The only standard for the appreciation of the laws and the methods for their enforcement is whether or not they are efficient in safeguarding the social order which it is desired to preserve. [HA-XXII.3]

Liberty and Government

Society cannot do without a social apparatus of coercion and compulsion, i.e., without state and government. Then a further problem emerges: to restrain the men who are in charge of the governmental functions lest they abuse their power and convert all other people into virtual slaves. The aim of all struggles for liberty is to keep in bounds the armed defenders of peace, the governors and their constables. Freedom always means: freedom from arbitrary action on the part of the police power. [ILW-I]

State and government are the social apparatus of violent coercion and repression. Such an apparatus, the police power, is indispensable in order to prevent anti-social individuals and bands from destroying social co-operation. Violent prevention and suppression of anti-social activities benefit the whole of society and each of its members. But violence and oppression are none the less evils and corrupt those in charge of their application. It is necessary to restrict the power of those in office lest they become absolute despots. Society cannot exist without an apparatus of violent coercion. But neither can it exist if the office holders are irresponsible tyrants free to inflict harm upon those they dislike.

It is the social function of the laws to curb the arbitrariness of the police. The rule of law restricts the arbitrariness of the Officers as much as possible. It strictly limits their discretion, and thus assigns to the citizens a sphere in which they are free to act without being frustrated by government interference.

Freedom and liberty always mean freedom from police interference. In nature there are no such things as liberty and freedom. There is only the adamant rigidity of the laws of nature to which man must unconditionally submit if he wants to attain any ends at all. Neither was there liberty in the imaginary paradisaical conditions which, according to the fantastic prattle of many writers, preceded the establishment of societal bonds. Where there is no government, everybody is at the mercy of his stronger neighbour. Liberty can be realized only within an established state ready to prevent a gangster from killing and robbing his weaker fellows. But it is the rule of law alone which hinders the rulers from turning themselves into the worst gangsters.

The laws establish norms of legitimate action. They fix the procedures required for the repeal or alteration of existing laws and for the enactment of new laws. They likewise fix the procedures required for the application of the laws in definite cases, the due process of law. They establish courts and tribunals. Thus they are intent upon avoiding a situation in which the individuals are at the mercy of the rulers.

Mortal men are liable to error, and legislators and judges are mortal men. It may happen again and again that the valid laws or their interpretation by the courts prevent the executive organs from resorting to some measures which could be beneficial. No great harm, however, can result. If the legislators recognize the deficiency of the valid laws, they can alter them. It is certainly a bad thing that a criminal may sometimes evade punishment because there is a loophole left in the law, or because the prosecutor has neglected some formalities. But it is the minor evil when compared with the consequences of unlimited discretionary power on the part of the "benevolent" despot. [PCh-6]

The evil that a man inflicts on his fellow man injures both—not only the one to whom it is done, but also the one who does it. Nothing corrupts a man so much as being an arm of the law and making men suffer. [L-I.13]

Liberalism seeks to take the sting out of the relationship of the government official to the citizen. [L-I.13]

The liberal believes that the purpose of punishment is solely to rule out, as far as possible, behavior dangerous to society. Punishment should not be vindictive or retaliatory. The criminal has incurred the penalties of the law, but not the hate and sadism of the judge, the policeman, and the ever lynch-thirsty mob. [L-I.13]

Private property creates for the individual a sphere in which he is free of the state. It sets limits to the operation of the authoritarian will. It allows other forces to arise side by side with and in opposition to political power. [L-II.3]

…the idea of liberty was created in the cities of ancient Greece. The writings of Greek philosophers and historians transmitted it to the Romans and later to modern Europe and America. It became the essential concern of all Western plans for the establishment of the good society. It begot the laissez-faire philosophy to which mankind owes all the unprecedented achievements of the age of capitalism. [ILW-I]

The meaning of all modern political and judicial institutions is to safeguard the individuals' freedom against encroachments on the part of the government. Representative government and the rule of law, the independence of courts and tribunals from interference on the part of administrative agencies, habeas corpus, judicial examination and redress of acts of the administration, freedom of speech and the press, separation of state and church, and many other institutions aimed at one end only: to restrain the discretion of the officeholders and to render the individuals free from their arbitrariness. [ILW-I]

The critics of the legal and constitutional concept of liberty and the institutions devised for its practical realization are right in their assertion that freedom from arbitrary action on the part of the officeholders is in itself not yet sufficient to make an individual free. But in emphasizing this indisputable truth they are running against open doors. For no advocate of liberty ever contended that to restrain the arbitrariness of officialdom is all that is needed to make the citizens free. What gives to the individuals as much freedom as is compatible with life in society is the operation of the market system. The constitutions and bills of rights do not create freedom. They merely protect the freedom that the competitive economic system grants to the individuals against encroachments on the part of the police power. [ILW-IV]

Masses and Liberal Ideology

Most people do not have even the intellectual endowments required to think through the—after all very complicated—problems of social cooperation, and they certainly do not have the will power necessary to make those provisional sacrifices that all social action demands. [L-IV.1]

The liberals were of the opinion that all men have the intellectual capacity to reason correctly about the difficult problems of social cooperation and to act accordingly. They were so impressed with the clarity and self-evidence of the reasoning by which they had arrived at their political ideas that they were quite unable to understand how anyone could fail to comprehend it. They never grasped two facts: first, that the masses lack the capacity to think logically and secondly, that in the eyes of most people, even when they are able to recognize the truth, a momentary, special advantage that may be enjoyed immediately appears more important than a lasting greater gain that must be deferred. Most people do not have even the intellectual endowments required to think through the—after all very complicated—problems of social cooperation, and they certainly do not have the will power necessary to make those provisional sacrifices that all social action demands. The slogans of interventionism and of socialism, especially proposals for the partial expropriation of private property, always find ready and enthusiastic approval with the masses, who expect to profit directly and immediately from them. [L-IV.1]

The liberal conception of social life has created the economic system based on the division of labour. The most obvious expression of the exchange economy is the urban settlement, which is only possible in such an economy. In the towns the liberal doctrine has been developed into a dosed system and it is here that it has found most supporters. But the more and the quicker wealth grew and the more numerous therefore were the immigrants from the country into the towns, the stronger became the attacks which Liberalism suffered from the principle of violence. Immigrants soon find their place in urban life, they soon adopt, externally, town manners and opinions, but for a long time they remain foreign to civic thought. One cannot make a social philosophy one's own as easily as a new costume. It must be earned—earned with the effort of thought. Thus we find, again and again in history, that epochs of strongly progressive growth of the liberal world of thought, when wealth increases with the development of the division of labour, alternate with epochs in which the principle of violence tries to gain supremacy—in which wealth decreases because the division of labour decays. The growth of the towns and of the town life was too rapid. It was more extensive than intensive. The new inhabitants of the towns had become citizens superficially, but not in ways of thought. And so with their ascendancy civic sentiment declined. On this rock all cultural epochs filled with the bourgeois spirit of Liberalism have gone to ruin; on this rock also our own bourgeois culture, the most wonderful in history, appears to be going to ruin. More menacing than barbarians storming the walls from without are the seeming citizens within—those who are citizens in gesture, but not in thought. [S-I.1.3]

Public Opinion

But social changes have to be brought about by measures which need the support of the majority. [RDHH-IV]

But social changes have to be brought about by measures which need the support of the majority. A free-trader cannot realize free-trade by the support of a few friends, peace cannot be established by an isolated small group of peace loving people. To make social doctrines work the support of public opinion is needed. Those scores of millions who ride on the railroads and listen to the broadcast without any idea of how railways have to be constructed and operated and how the radio works, have to grasp the incomparably more difficult problems of social cooperation, if society has to operate satisfactorily. Thus the great bulk of the low-browed, the masses who do not like to think and to reflect, the inert people who are slow in grasping new complicated ideas have to decide. Their doctrinal convictions, how crude and naive they may be, fix the course of events. The state of society is not the outcome of those theories which have the support of the small group of advanced spirits, but the result of the doctrines which the masses of laymen consider as sound ones. [RDHH-IV]

The masses, the hosts of common men, do not conceive any ideas, sound or unsound. They only choose between the ideologies developed by the intellectual leaders of mankind. But their choice is final and determines the course of events. If they prefer bad doctrines, nothing can prevent disaster. [HA-XXXVII.3]

The supremacy of public opinion determines not only the singular role that economics occupies in the complex of thought and knowledge. It determines the whole process of human history. [HA-XXXVII.2]

If the majority of the nation is committed to unsound principles and prefers unworthy office-seekers, there is no remedy other than to try to change their mind by expounding more reasonable principles and recommending better men. A minority will never win lasting success by other means. [HA-VIII.2]

Capitalism, Socialism, Intellectuals, Masses

Neither the people nor the masses were the first socialists. Even today they are agrarian socialist and syndicalist rather than socialist. The first socialists were the intellectuals; they and not the masses are the backbone of Socialism. [S-V.35.3]

Only ideas can overcome ideas and it is only the ideas of Capitalism and of Liberalism that can overcome Socialism. Only by a battle of ideas can a decision be reached.

Liberalism and Capitalism address themselves to the cool, well-balanced mind. They proceed by strict logic, eliminating any appeal to the emotions. Socialism, on the contrary, works on the emotions, tries to violate logical considerations by rousing a sense of personal interest and to stifle the voice of reason by awakening primitive instincts.

Even with those of intellectually higher standing, with the few capable of independent reflection, this seems to give Socialism an advantage. With the others, the great masses who are unable to think, the Socialist position is considered unshakable. A speaker who inflames the passions of the masses is supposed to have a better chance of success than one who appeals to their reason. Thus the prospects of Liberalism in the fight with Socialism are accounted very poor.

This pessimistic point of view is completely mistaken in its estimate of the influence which rational and quiet reflection can exercise on the masses. It also exaggerates enormously the importance of the part played by the masses, and consequently mass-psychological elements, in creating and forming the predominant ideas of an epoch.

It is true that the masses do not think. But just for this reason they follow those who do think. The intellectual guidance of humanity belongs to the very few who think for themselves. At first they influence the circle of those capable of grasping and understanding what others have thought; through these intermediaries their ideas reach the masses and there condense themselves into the public opinion of the time. Socialism has not become the ruling idea of our period because the masses first thought out the idea of the socialization of the means of production and then transmitted it to the intellectually higher classes. Even the materialistic conception of history, haunted as it is by "the psyche of the people" as conceived by Romanticism and the historical school of jurisprudence does not risk such an assertion. Of itself the mass psyche has never produced anything but mass crime, devastation, and destruction. Admittedly the idea of Socialism is also in its effects nothing more than destruction, but it is nevertheless an idea. It had to be thought out, and this could only be the work of individual thinkers. Like every other great thought, it has penetrated to the masses only through the intellectual middle class. Neither the people nor the masses were the first socialists. Even today they are agrarian socialist and syndicalist rather than socialist. The first socialists were the intellectuals; they and not the masses are the backbone of Socialism. The power of Socialism too, is like any other power ultimately spiritual; and it finds its support in ideas proceeding from the intellectual leaders, who give them to the people. If the intelligentsia abandoned Socialism its power would end. In the long run the masses cannot withstand the ideas of the leaders. True, individual demagogues may be ready, for the sake of a career and against their better knowledge, to instill into the people ideas which flatter their baser instincts and which are therefore sure to be well received. But in the end, prophets who in their heart know themselves to be false cannot prevail against those filled with the power of sincere conviction. Nothing can corrupt ideas. Neither by money nor by other rewards can one hire men for the fight against ideas.

Human society is an issue of the mind. Social co-operation must first be conceived, then willed, then realized in action. It is ideas that make history, not the "material productive forces," those nebulous and mystical schemata of the materialist conception of history. If we could overcome the idea of Socialism, if humanity could be brought to recognize the social necessity of private ownership in the means of production, then Socialism would have to leave the stage. That is the only thing that counts.

The victory of the socialist idea over the Liberal idea has only come about through the displacement of the social attitude, which has regard to the social function of the single institution and the total effect of the whole social apparatus, by an anti-social attitude, which considers the individual parts of the social mechanism as detached units. Socialism sees the individuals--the hungry, the unemployed, and the rich—and finds fault on that account; Liberalism never forgets the whole and the interdependence of every phenomenon. It knows well enough that private ownership in the means of production is not able to transform the world into a paradise; it has never tried to establish anything beyond the simple fact that the socialist order of society is unrealizable, and therefore less able than Capitalism to promote the well-being of all. [S-V.35.3]

Economic Science and the Destiny of Modern Civilization

All present-day political issues concern problems commonly called economic. Economics must not be relegated to classrooms and statistical offices and must not be left to esoteric circles. It is the philosophy of human life and action and concerns everybody and everything. It is the pith of civilization and of man's human existence. [HA-XXXVIII.6]

Everybody thinks of economics whether he is aware of it or not. In joining a political party and in casting his ballot, the citizen implicitly takes a stand upon essential economic theories. [HA-XXXVIII.6]

It must be emphasized that the destiny of modern civilization as developed by the white peoples in the last two hundred years is inseparably linked with the fate of economic science. This civilization was able to spring into existence because the peoples were dominated by ideas which were the application of the teachings of economics to the problems of economic policy. It will and must perish if the nations continue to pursue the course which they entered upon under the spell of doctrines rejecting economic thinking. [HA-Intro.3]

[Today] [t]e public discussion of economic problems ignores almost entirely all that has been said by economists in the last two hundred years. Prices, wage rates, interest rates, and profits are dealt with as if their determination were not subject to any law. Governments try to decree and to enforce maximum commodity prices and minimum wage rates. Statesmen exhort businessmen to cut down profits, to lower prices, and to raise wage rates as if these matters were dependent on the laudable intentions [p. 880] of individuals. In the treatment of international economic relations people blithely resort to the most naive fallacies of Mercantilism. [HA-XXXVIII.7]

The blame for the unsatisfactory state of economic affairs can certainly not be placed upon a science which both rulers and masses despise and ignore. [HA-Intro.3]

[T]he practical utilization of the teachings of economics presupposes their endorsement by public opinion. [HA-XXXVII.2]

Personal Responsibility

Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty. [HA-XXXVIII.6]

[It is] important in what manner human society will struggle through the vexed problems of organization. A rise to a closer interdependence of individuals and hence to a higher well-being, on the one hand; a decay of co-operation and hence of wealth, on the other: these are the choices before us. There is no third alternative.

The great social discussion cannot proceed otherwise than by means of the thought, will, and action of individuals. Society lives and acts only in individuals; it is nothing more than a certain attitude on their part. Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us. [S-C.2]

There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon "experts" and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people's domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake. [HA-XXXVIII.6]

Logical Analysis: Conclusion

The good cause will not triumph merely on account of its reasonableness and expediency. Only if men are such that they will finally espouse policies reasonable and likely to attain the ultimate ends aimed at, will civilization improve and society and state render men more satisfied, although not happy in a metaphysical sense. Whether or not this condition is given, only the unknown future can reveal. [HA-IX.4]

There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason. [HA-IX.2]

The only way open to anyone who wishes to lead the world back to liberalism is to convince his fellow citizens of the necessity of adopting the liberal program. This work of enlightenment is the sole task that the liberal can and must perform in order to avert as much as lies within his power the destruction toward which society is rapidly heading today. There is no place here for concessions to any of the favorite or customary prejudices and errors. In regard to questions that will decide whether or not society is to continue to exist at all, whether millions of people are to prosper or perish, there is no room for compromise either from weakness or from misplaced deference for the sensibilities of others. [L-IV.1]

Yet man's almost universal acknowledgment of the principle of social cooperation did not result in agreement regarding all interhuman relations. While almost all men agree in looking upon social cooperation as the foremost means for realizing all human ends, whatever they may be, they disagree as to the extent to which peaceful social cooperation is a suitable means for attaining their ends and how far it should be resorted to. [T&H-III.3]

Thus even the fact that the immense majority of men look upon social cooperation as the foremost means to attain all desired ends does not provide a basis for a wide-reaching agreement concerning either ends or means. [T&H-III.3]

HISTORICAL ANALYSIS:
Beginning of the XIX Century—First Half of the XX Century

Ricardo's Assumptions

It has been asserted that Ricardo's law was valid only for his age and is of no avail for our time which offers other conditions. [T]he teachings of the classical theory of interregional trade are above any change in institutional conditions. They enable us to study the problems involved under any imaginable assumptions. [HA-VII.4]

Writing in 1817, Ricardo could still assert that most men of property are "satisfied with a low rate of profits in their own country, rather that seek a more advantageous employment for their wealth in foreign nations." [Underdev-I]

It has been asserted again and again that conditions have changed since the days of Ricardo and that his conclusions are no longer valid under present conditions. This, however, is a fallacy too.

Ricardo assumes that there is no mobility of capital and labor, but that on the other hand there is some mobility for commodities. (If there is no mobility at all for commodities either, then every nation lives in perfect autarky and there is no question of any foreign trade.) The conditions assumed by Ricardo changed in the course of the nineteenth century. Millions of workers emigrated from the comparatively overpopulated countries and immigrated into the comparatively underpopulated countries offering more favorable conditions for labor and consequently higher wage rates. Today things have changed and the state of affairs is by and large the same as in the time of Ricardo. Migration is almost impossible. The international capital market is disintegrated. The capitalists shun foreign investment because discriminatory taxation, expropriation and confiscation, foreign exchange control and repudiation of debts make them too risky. The governments of those countries whose capitalists could consider foreign investment are ready to put an embargo upon capital export because they view it as contrary to the interests of the most influential domestic pressure groups, labor, and farming. [Autarky-III]

Middle of the XIX Century:
Ideology: Liberalism

[Liberalism means that] the laws, the administration and the courts do not discriminate between citizens and foreigners, if everybody is free to live and to work unmolested where he wants, if the transfer of labor, capital and commodities from country to country is not subject to any regimentation or taxation, then of course it is without any concern for the individual citizen whether his country is bigger or smaller and where the political frontiers are drawn. No citizen can expect any profit from the incorporation into his own country of a piece of land previously owned by another nation. Wars no longer pay, they are useless. [EcNat]

The philosophers, sociologists, and economists of the eighteenth and the early part of the nineteenth century formulated a political program that served as a guide to social policy first in England and the United States, then on the European continent, and finally in the other parts of the inhabited world as well. Nowhere was this program ever completely carried out. Even in England, which has been called the homeland of liberalism and the model liberal country, the proponents of liberal policies never succeeded in winning all their demands. In the rest of the world only parts of the liberal program were adopted, while others, no less important, were either rejected from the very first or discarded after a short time. Only with some exaggeration can one say that the world once lived through a liberal era. Liberalism was never permitted to come to full fruition. [L-i.1]

[Liberalism means that] the laws, the administration and the courts do not discriminate between citizens and foreigners, if everybody is free to live and to work unmolested where he wants, if the transfer of labor, capital and commodities from country to country is not subject to any regimentation or taxation, then of course it is without any concern for the individual citizen whether his country is bigger or smaller and where the political frontiers are drawn. No citizen can expect any profit from the incorporation into his own country of a piece of land previously owned by another nation. Wars no longer pay, they are useless. [EcNat]

A society in which liberal principles are put into effect is usually called a capitalist society, and the condition of that society, capitalism. Since the economic policy of liberalism has everywhere been only more or less closely approximated in practice, conditions as they are in the world today provide us with but an imperfect idea of the meaning and possible accomplishments of capitalism in full flower. Nevertheless, one is altogether justified in calling our age the age of capitalism, because all that has created the wealth of our time can be traced back to capitalist institutions. It is thanks to those liberal ideas that still remain alive in our society, to what yet survives in it of the capitalist system, that the great mass of our contemporaries can enjoy a standard of living far above that which just a few generations ago was possible only to the rich and especially privileged. [L-i.5]

Liberalism and War

The free traders want to make peace durable by the elimination of the root causes of conflict. If everybody is free to live and to work where he wants; if there are no barriers for the mobility of labor, capital, and commodities; and if the administration, the laws, and the courts do not discriminate between citizens and foreigners, the individual citizens are not interested in the question where the political frontiers are drawn and whether their own country is bigger or smaller. They cannot derive any profit from the conquest of a province. In such an ideal—Jeffersonian—world of democracy and free trade war does not pay. [Autarky-I]

About eighty years ago public opinion all over the world was almost unanimous in the belief that mankind is on the threshold of an age of undisturbed peaceful cooperation of all nations. There was no organized pacifist movement in those days. People did not base their conviction that wars will disappear on the working of pacifist societies but on the fact that liberalism was on the point of abolishing the root causes of war. Within a world of popular government and perfect free trade there are, they said, no conflicts among the various nations. War will become obsolete because it will be useless to fight and to conquer.

Princes and kings, they argued, are eager for conquest because they can increase their power and their personal income by the annexation of a province. But a democratic nation cannot derive any profit from the enlargement of its territory. All that is needed to make for eternal peace is to remove the tyrants who oppose democratic government. Some wars and revolutions are still unavoidable in order to accomplish this task. But once the world is safe for democracy, it will be safe for peace too.

Such were the tenets of President Wilson. To make the world safe for democracy and to make it safe for peace was in the eyes of this great humanitarian one thing. Eliminate the Kaiser and his Junkers[3] and you have established everlasting peace. The war against the Hohenzollern, not against the German people, is the war for the abolition of all wars, is the last war.

But unfortunately President Wilson and his noble-minded collaborators did not realize that their main thesis is only correct if there prevails perfect free trade. If the laws, the administration and the courts do not discriminate between citizens and foreigners, if everybody is free to live and to work unmolested where he wants, if the transfer of labor, capital and commodities from country to country is not subject to any regimentation or taxation, then of course it is without any concern for the individual citizen whether his country is bigger or smaller and where the political frontiers are drawn. No citizen can expect any profit from the incorporation into his own country of a piece of land previously owned by another nation. Wars no longer pay, they are useless. [EcNat ( MMMP11]

National Sovereignty

The principle of national sovereignty does not stand in the way of international division of labor and of peaceful collaboration of all nations within the framework of the world-embracing Great Society, provided that every nation unswervingly clings to the policies of democracy and capitalism. The acknowledgment of the indispensableness of private ownership of the means of production and of unhampered market exchange restricts the exercise of sovereignty. [Autarky-IX]

The principle of national sovereignty does not stand in the way of international division of labor and of peaceful collaboration of all nations within the framework of the world-embracing Great Society, provided that every nation unswervingly clings to the policies of democracy and capitalism. In the socio-economic setting of market society (laissez faire, laissez passer) the state is not an omnipotent God, but—as Lassalle used to say disparagingly—just a "night-watchman." The state is not an end, much less the only and supreme end, but simply a means for the promotion of the citizens' welfare. The acknowledgment of the indispensableness of private ownership of the means of production and of unhampered market exchange restricts the exercise of sovereignty. Although formally free in the exercise of their powers, the individual governments are subject to the supremacy of a principle which prevents the rise of international conflicts. [Autarky-IX]

International Division of Labor

The international division of labor was an achievement of the spirit of Liberalism. [DIDL-Intro]

The international division of labor was an achievement of the spirit of Liberalism. International trade has to some extent existed from the oldest times. There was a regular commerce in some commodities the production of which was limited to special geographical conditions. There was occasional trade when some extraordinary event offered unusual opportunities. But however important the civilizatory consequences of this international traffic were and however important its amount was when compared with the technical difficulties that transport had to overcome, the role played by it in supplying the wants of the markets was negligible. A very small part only of the common man's daily consumption was dependent on foreign produce. The commodities imported might for the most part be regarded as luxury goods, as people could do without them without suffering too great privation. [DIDL-Intro]

At the beginning of the nineteenth century by far the greater part of the inhabited world was still divided into a number of economic regions that were, by and large, self-sufficient. Even in the more highly developed areas of Europe, the needs of a region were met, for the most part, by the production of the region itself. Trade that went beyond the narrow confines of the immediate vicinity was relatively insignificant and comprised, by and large, only such commodities as could not be produced in the area itself because of climatic conditions. In by far the greater part of the world, however, the production of the village itself supplied almost all the needs of its inhabitants. For these villagers, a disturbance in trade relations caused by war did not generally mean any impairment of their economic well-being. But even the inhabitants of the more advanced countries of Europe did not suffer very severely in time of war. If the Continental System, which Napoleon I imposed on Europe in order to exclude from the continent English goods and those coming from across the ocean only by way of England, had been enforced even more rigorously than it was, it would have still inflicted on the inhabitants of the continent hardly any appreciable privations. They would, of course, have had to do without coffee and sugar, cotton and cotton goods, spices, and many rare kinds of wood; but all these things then played only a subordinate role in the households of the great masses.

The development of a complex network of international economic relations is a product of nineteenth-century liberalism and capitalism. They alone made possible the extensive specialization of modern production with its concomitant improvement in technology. In order to provide the family of an English worker with all it consumes and desires, every nation of the five continents cooperates. Tea for the breakfast table is provided by Japan or Ceylon, coffee by Brazil or Java, sugar by the West Indies, meat by Australia or Argentina, cotton from America or Egypt, hides for leather from India or Russia, and so on. And in exchange for these things, English goods go to all parts of the world, to the most remote and out-of-the-way villages and farmsteads. This development was possible and conceivable only because, with the triumph of liberal principles, people no longer took seriously the idea that a great war could ever again break out. In the golden age of liberalism, war among members of the white race was generally considered a thing of the past. [L-I.3]

Free Trade

The desperate attempts of the advocates of protection to refute the statements of the classical economists concerning the consequences of free trade and protection failed lamentably.

All they could demonstrate was that under special conditions the interests of some groups of the population can derive temporary benefits from protection. But the economists have never denied this. What they asserted was:

1. If protection is granted to one branch of production or to a few branches only, those privileged are benefited at the expense of the rest of the nation.

2. If protection is granted to the same extent to all branches of domestic production ("lckenloser Schutz der nationalen Arbeit," as the Germans call it), nobody can possibly derive any net profit. What a man profits on the one hand qua producer, he loses on the other hand qua consumer. Moreover, everybody is hurt by the fact that production is diverted from those lines in which its physical productivity is highest; all nations and every individual are injured by the fact that less favorable conditions of production are exploited, while some more favorable remain unused.

3. It is vain to try to "improve" the balance of trade by import restrictions. But for capital transactions (foreign investments and foreign loans and the payments resulting therefrom), gifts and tributes, the total value of the commodities sold and the services rendered to foreigners exactly equals the value of the goods and services received.

4. The advantage derived from foreign trade lies entirely in importing. The exports are only the payment for the imports. If it were possible to import without exporting at all, the importing country would not suffer, but enjoy prosperity.

Capital Mobility

Under the conditions of the later nineteenth century it did not matter whether or not a nation was prepared and equipped with the required capital in order to utilize adequately the natural resources of its territory. There was practically free access for everybody to every area's natural wealth. In searching for the most advantageous opportunities for investment capitalists and promoters were not stopped by national borderlines. As far as investment for the best possible utilization of the known natural resources was concerned, the greater part of the earth's surface could be considered as integrated into a uniform world-embracing market system. [HA-XVIII.4]

Foreign investment was an achievement of laissez-faire capitalism. It developed step by step only in the nineteenth century. Writing in 1817, Ricardo could still assert that most men of property are "satisfied with a low rate of profits in their own country, rather that seek a more advantageous employment for their wealth in foreign nations." [Underdev-I]

What impelled entrepreneurs and capitalists toward foreign investment was, of course not "altruism," but the eagerness to earn profits by supplying the domestic consumers in the best possible and cheapest way with those commodities they demanded most urgently. They went into foreign countries in order to supply the home market directly or indirectly (i.e., by triangular trade) with raw materials and foodstuffs which could otherwise not have been obtained at all or only at higher costs. If the consumers had been more eager for the acquisition of a greater quantity of goods that could be produced at home without the aid of foreign resources than for imported food and raw materials, it would have been more profitable to expand domestic production further than to invest abroad. [Underdev-I]

[Internalization of capital markets:] Under the conditions of the later nineteenth century it did not matter whether or not a nation was prepared and equipped with the required capital in order to utilize adequately the natural resources of its territory. There was practically free access for everybody to every area's natural wealth. In searching for the most advantageous opportunities for investment capitalists and promoters were not stopped by national borderlines. As far as investment for the best possible utilization of the known natural resources was concerned, the greater part of the earth's surface could be considered as integrated into a uniform world-embracing market system. It is true that this result was attained in some areas, like the British and the Dutch East Indies and Malaya, only by colonial regimes and that autochthonous governments of these territories would probably not have created the institutional setting indispensable for the importation of capital. But Eastern and Southern Europe and the Western Hemisphere had of their own accord joined the community of the international capital market. [HA-XVIII.4]

Resource Allocation

In a world of perfect mobility of capital, labor, and products there prevails a tendency toward an equalization of the material conditions of all countries. Those parts of the earth's surface which offer more favorable natural conditions of production attract more capital and men than those offering less propitious ones. There are areas more densely populated and areas less densely populated. Freedom of migration and capital transfer tend to make the difference of comparative overpopulation and comparative underpopulation disappear. They tend toward an equalization of wage rates and rates of interest and concomitantly of standards of living. [AutarkyIII]

There are countries with relatively favorable and others with relatively unfavorable natural conditions of production. In the absence of interference on the part of governments, the international division of labor will, of itself, result in every country's finding its place in the world economy, no matter how its conditions of production compare with those of other countries. Of course, the countries with comparatively favorable conditions of production will be richer than the others, but this is a fact that cannot be altered by political measures in any case. It is simply the consequence of a difference in the natural factors of production. [L-III.7]

First Half of XX Century: History of Decline

Terminology

Chauvinism. Patriotism. Free trader. Nationalism. Aggressive or militaristic nationalism. Economic nationalism. Pacifism. Autarky.

There is considerable ambiguity concerning the terminology to be used in dealing with the problems of international economic relations. It seems therefore expedient to start with a clear definition of some terms.

Chauvinism is the overvaluation of one's own nation's achievements and qualities and the disparagement of the other nations. As such it does not result in any political action.

Patriotism is the zeal for one's own nation's welfare, flowering, and freedom. But the patriots disagree with regard to the means to be applied for the attainment of this end.

The free traders (liberals in the old sense attached to the term liberalism, today mostly disparaged by the self-styled "progressives" as orthodox, reactionaries or economic royalists, as Manchestermen or as supporters of laissez faire) want to make their own nation prosperous by free trade and by its peaceful incorporation into the world-embracing commonwealth of the international division of labor. They recommend free trade not for the sake of other nations, but from the viewpoint of the rightly understood or long-term interests of their own nation. They are convinced that even if all other nations cling to protection, a nation best serves its own welfare by free trade.

The nationalists, on the contrary, believe that a nation cannot further its own well-being but by inflicting harm upon other nations. Aggressive or militaristic nationalism aims at conquest and at the subjugation of other nations by arms. Economic nationalism aims at furthering the well-being of one's own nation or of some of its groups through inflicting harm upon foreigners by economic measures, for instance: trade and migration barriers, expropriation of foreign investments, repudiation of foreign debts, currency devaluation, and foreign exchange control.

The nationalists … assert that peace itself is an evil and that war is, as the English writer John Ruskin said, "the foundation of the arts and of all the high virtues and faculties of man." Consequently the Nazis considered it as the most desirable state for a nation "to be always at war," and Mussolini exalted "the dangerous life." The Japanese clung to the same tenets.

Pacifism is the belief that all that is required for the abolition of war is the building up of an international organization and the establishment of an international world court whose rulings should be enforced by a world police force.

The noble-minded founders of the League of Nations were guided by this type of pacifism. They were right in their idea that autocratic governments are warlike, while democratic nations cannot derive any profit from conquest and therefore cling to peace. But what President Wilson and his collaborators did not see was that this is valid only within a system of private ownership of the means of production, free enterprise, and unhampered market economy. Where there is no economic freedom things are entirely different. In our age of statism and socialism, in which every nation is eager to insulate itself and to strive toward autarky it is quite wrong to assert that no man can derive any gain from conquest. Every citizen has a material interest in the nullification of measures by which foreign governments injure his economic interests.

Autarky or economic self-sufficiency is a state of affairs where there is no foreign trade at all; every nation consumes only goods produced within its own borders. [AutarkyI]

Ideology: Economic nationalism

All governments are eager to promote the well-being of their citizens or of some groups of their citizens by inflicting harm upon foreigners. Foreign goods are excluded from the domestic market or only permitted after the payment of an import duty. Foreign labor is barred from competition on the domestic labor market. Foreign capital is liable to confiscation. [EcNat]

Many people confuse chauvinism with nationalism and consider chauvinism as the main cause of the clash of nations. Chauvinism consists in a conceited overestimation of one's own nation's qualities and achievements and in a prejudicial disparagement of all other peoples. It is a disposition of mind not more conspicuous among narrow-minded philistines than personal conceit and arrogance. It is surely not a virtue. But it does not result in action and political ventures. The Germans do not embark upon conquest because, as the Frenchman Count Arthur Gobineau and the Englishman Houston Stewart Chamberlain told them, they are the only really human race, while all other peoples are simply trash and underdogs. They are aggressive because they believe that aggressive nationalism is the best, is the only way to promote their own material well-being. [EcNat]

Nationalism cannot be explained or excused by chauvinist intoxication. It is a policy of cool-minded Machiavellian politicians, it is the outcome of reasoning, of course of misguided reasoning. Scholarly books, full of thoughts, of course of erroneous thoughts, have carefully elaborated the doctrines, whose application has lead to the clash of nations, to bloody wars and destruction. [EcNat ( MMMP11]

[W]e cannot hope that economic nationalism will disappear in a not too distant future as all nations are firmly resolved not to return to what they call domestic laissez faire. [EcNat ( MMMP11]

The reality in which we have to live and to settle our political issues is very different from this liberal utopia as depicted and aimed at by Frederick Bastiat and Richard Cobden. Ours is not an age of laissez fare, laissez passer, but an age of economic nationalism. All governments are eager to promote the well-being of their citizens or of some groups of their citizens by inflicting harm upon foreigners. Foreign goods are excluded from the domestic market or only permitted after the payment of an import duty. Foreign labor is barred from competition on the domestic labor market. Foreign capital is liable to confiscation. This economic nationalism must needs result in war, whenever those injured believe that they are strong enough to brush away, by armed violent action, the measures detrimental to their own welfare. [EcNat]

Conflicts and Wars of Our Age

In our age of statism and socialism, in which every nation is eager to insulate itself and to strive toward autarky it is quite wrong to assert that no man can derive any gain from conquest. Every citizen has a material interest in the nullification of measures by which foreign governments injure his economic interests.
Economic nationalism results in war if some nations believe that they are powerful enough to brush away, by military action, the measures of foreign countries which they consider as detrimental to their own interests. [Autarky-I]

From the day when Italy, in 1911, fell upon Turkey, fighting was continual. There was almost always shooting somewhere in the world. The peace treaties concluded were virtually merely armistice agreements. Moreover they had to do only with armies of the great powers. Some of the smaller nations were always at war. In addition there were no less pernicious civil wars and revolutions. [HA-XXXIV.4]

It is certainly true that our age is full of conflicts which generate war. However, these conflicts do not spring from the operation of the unhampered market society. It may be permissible to call them economic conflicts because they concern that sphere of human life which is, in common speech, known as the sphere of economic activities. But it is a serious blunder to infer from this appellation that the source of these conflicts are conditions which develop within the frame of a market society. It is not capitalism that produces them, but precisely the anticapitalistic policies designed to check the functioning of capitalism. They are an outgrowth of the various governments' interference with business, of trade and migration barriers and discrimination against foreign labor, foreign products, and foreign capital. [HA-XXIV.5]

In such a world of economic nationalism every citizen has a material interest in the nullification of measures by which foreign governments injure his interests. Every citizen is therefore eager to see his own country mighty and powerful, because he expects personal advantage of its military might. Small nations cannot help being victimized by other nations' economic nationalism. But big nations place confidence in the valor or their armed forces. Present-day bellicosity is not the outcome of the greediness of princes and of Junker oligarchies; it is a pressure group policy whose distinctive mark lies in the methods applied but not in the incentives and motives.

It is therefore of no use to tell the aggressors, as the pacifists do: Do not fight; even a victorious war does not pay; you cannot derive any profit from conquest. These aggressors are convinced that victory pays. The Japanese argue: If we conquer Australia and make it consequently possible for 20 million Japanese to settle down in Australia, we will raise wage rates and standards of living for all Japanese, both for the emigrants and for those staying at home. There is only one counter-argument which they accept as valid: the victory of those assaulted. In our age of economic nationalism the only method to prevent war is armaments. Watch your borders day and night! [EcNat]

Peaceful coexistence of sovereign nations is possible if every individual nation is convinced that it would be contrary to its own selfish interests to hinder the mobility of capital, labor, and products. Such a policy of free trade presupposes domestic free trade, today generally disparaged as laissez faire. Government control of business results in conflicts of national interests for which up to now no peaceful solution has been discovered.

It is an illusion to believe that such conflicts could be settled by arbitration on the part of impartial courts. A court can administer justice only according to the articles of a code. But it is exactly these prescriptions and rules which are contested. Let us abstract from the problem of migration barriers and restrict our discussion to the problem of trade barriers only. The peoples of the comparatively overpopulated areas of Europe and Asia, the immense majority of the earth's popular, consider trade barriers of the comparatively underpopulated areas as the main obstacle for their material improvement. They say that they have not free access to the raw materials and the trade of the world. [EcNat]

Mankind is not free to return from a higher state of division of labor to a lower state. Autarky of every nation would impair very sensibly the standard of living of all peoples. There are today no such things as domestic affairs of an individual nation which do not affect the well-being of the rest of the world. Every nation has a material interest in the other nations' economic well-being because maladministration of one country hurts all other nations too.

If a national government hinders the most productive use of its country's resources, it hurts the interests of all other nations. Economic backwardness of a country with rich natural resources challenges all those whose conditions could be improved by a more efficient exploitation of this natural wealth. [Autarky-IX]

A country's economic insulation impairs not only the material well-being of its own citizens. It is no less detrimental to the economic interests of foreigners. This is why, in the middle of the past century, Great Britain and France induced China to open its harbors and why the United States applied a similar policy with regard to Japan. [Autarky-IX]

Most historians entirely fail to recognize the factors which replaced the "limited" war of the ancien regime by the "unlimited" war of our age. As they see it, the change came with the shift from the dynastic to the national from of state and was a consequence of the French Revolution. They look only upon attending phenomena and confuse causes and effects. They speak of the composition of the armies, of strategical and tactical principles, of weapons and transportation facilities, and of many other matters of military art and administrative technicalities. However, all these things do not explain why modern nations prefer aggression to peace.

There is perfect agreement with regard to the fact that total war is an offshoot of aggressive nationalism. But this is merely circular reasoning. We call aggressive nationalism that ideology which makes for modern total war. Aggressive nationalism is the necessary derivative of the policies of interventionism and national planning. While laissez faire eliminates the causes of international conflict, government interference with business and socialism creates conflicts for which no peaceful solution can be found. While under free trade and freedom of migration no individual is concerned about the territorial size of his country, under the protective measures of economic nationalism nearly every citizen has a substantial interest in these territorial issues. The enlargement of the territory subject to the sovereignty of his own government means material improvement for him or at least relief from restrictions which a foreign government has imposed upon his well-being. What has transformed the limited war between royal armies into total war, the clash between peoples, is not technicalities of military art, but the substitution of the welfare state for the laissez-faire state.

If Napoleon I had reached his goal, the French Empire would have stretched far beyond the limits of 1815. Spain and Naples would have been ruled by kings of the house of Bonaparte-Murat instead of kings of another French family, the Bourbons. The palace of Kassel would have been occupied by a French playboy instead of one of the egregious Electors of the Hesse family. All these things would not have make the citizens of France more prosperous. Neither did the citizens of Prussia win anything from the fact that their king in 1866 evicted his cousins of Hanover, Hesse-Kassel and Nassau from their luxurious residences. But if Hitler had realized his plans, the Germans expected to enjoy a higher standard of living. They were confident that the annihilation of the French, the Poles, and the Czechs would make every member of their own race richer. The struggle for more Lebensraum was their own war.

Under laissez faire peaceful coexistence of a multitude of sovereign nations is possible. Under government control of business it is impossible. The tragic error of President Wilson was that he ignored this essential point. Modern total war has nothing in common with the limited war of the old dynasties. It is a war against trade and migration barriers, a war of the comparatively overpopulated countries against the comparatively underpopulated. It is a war to abolish those institutions which prevent the emergence of a tendency toward an equalization of wage rates all over the world. It is a war of the farmers tilling poor soil against those governments which bar them from access to much more fertile soil lying fallow. It is, in short, a war of wage earners and farmers who describe themselves as underprivileged "have-nots" against the wage earners and farmers of other nations whom they consider privileged "haves."

The acknowledgment of this fact does not suggest that victorious wars would really do away with those evils about which the aggressors complain. These conflicts of vital interests can be eliminated only by a general and unconditional substitution of a philosophy of mutual cooperation for the prevailing ideas of allegedly irreconcilable antagonisms between the various social, political, religious, linguistic, and racial subdivisions of mankind.

It is futile to place confidence in treaties, conferences, and such bureaucratic outfits as the League of Nations and the United Nations. Plenipotentiaries, office clerks and experts make a poor show in fighting ideologies. The spirit of conquest cannot be smothered by red tape. What is needed is a radical change in ideologies and economic policies. [HA-XXXIV.1]

Policy of Autarky

[W]e can characterize the economic policies of the last decade preceding the present war as autarkic. [Autarky-I]

No contemporary nation is ready to admit openly that it strives toward autarky. But as every nation is anxious to restrict imports and as exports must needs fall concomitantly, we can characterize the economic policies of the last decade preceding the present war as autarkic. [Autarky-I]

The Rise of Modern Protectionism

The ultimate foundation of modern protectionism and of the striving for economic autarky of each country is to be found in this mistaken belief that they are the best means to make every citizen, or at least the immense majority of them, richer. The term riches means in this connection an increase in the individual's real income and an improvement in his standard of living. [I]t would never have been possible to sell the idea of protection to the voters if one had not been able to convince them that protection not only does not impair their standard of living but raises it considerably. [HA-XV.12]

In the 'sixties of the nineteenth century, public opinion was almost unanimous in the assumption that the world was on the eve of an age of everlasting free trade and peace. True, there was only one big nation which had unconditionally espoused the principle of free trade: Great Britain. But there seemed to prevail a general tendency all over Europe toward a step-by-step abolition of trade barriers. Every new commercial treaty between civilized and politically advanced nations brought a reduction in tariffs and included the most favored nation clause. The teachings of Ricardo and John Stuart Mill, of Cobden and Bastiat, met with general approval. People were optimistic enough to expect that trade barriers and war were doomed to disappear with other remnants of the dark ages like despotism, intolerance, slavery and serfdom, superstition, and torture.

However, the greater part of the world still had tariffs. There were two groups of protectionist countries.

There were, on the one hand, the countries of the European continent which had long since embarked upon a Mercantilist[2] policy of protection. People were convinced that these nations would soon learn that protectionism does not further but seriously checks their own material well-being and would turn to free trade.

There were, on the other hand, the former colonies, the countries peopled by the descendants of European settlers. These countries had in earlier days considered import duties as the most expedient means for taxing their citizens. Their tariffs had originally only fiscal purposes. With the progressive evolution of economic civilization and the increase of population figures these tariffs changed their character and provided ample protection to the growing domestic industries. In the middle of the nineteenth century they were, especially in the United States, already more effective in this regard than those of the then most protectionist European powers, Austria and Russia. However, the optimists hoped that at least the United States would outgrow what they qualified as the remnants of its colonial past.

The optimists were entirely wrong. The protectionist nations did not abandon protection, but raised their tariffs; furthermore, the free trade countries themselves turned toward protection. Great Britain and Switzerland, once the champions of free trade, are today fanatically devoted to the most radical methods of economic nationalism. [Autarky-II]

[I]n the predominantly industrial countries of Europe the protectionists were first eager to declare that the tariff on agricultural products hurts exclusively the interests of the farmers of the predominantly agricultural countries and of the grain dealers. It is certain that these exporting interests are damaged too. But it is no less certain that the consumers of the country that adopts the tariff policy are losing with them. They must pay higher prices for their food. Of course, the protectionist retorts, that this is not a burden. For, he argues, the additional amount that the domestic consumer pays increases the farmers' income and their purchasing power; they will spend the whole surplus in buying more of the products manufactured by the nonagricultural strata of the population. This paralogism can easily be exploded by referring to the well-known anecdote of the man who asks an innkeeper for a gift of ten dollars; it will not cost him anything because the beggar promises to spend the whole amount in his inn. But for all that, the protectionist fallacy got hold of public opinion, and this alone explains the popularity of the measures inspired by it. Many people simply do not realize that the only effect of protection is to divert production from those places in which it could produce more per unit of capital and labor expended to places in which it produces less. It makes people poorer, not more prosperous. [HA-XV.12]

nowadays we find protective tariffs—indeed, often even outright prohibitions on imports—all over the world. Even in England, the mother country of free trade, protectionism is in the ascendancy today, The principle of national autarky wins new supporters with every day that passes. Even countries with only a few million inhabitants, like Hungary and Czechoslovakia, are attempting, by means of a high-tariff policy and prohibitions on imports, to make themselves independent of the rest of the world. The basic idea of the foreign trade policy of the United States is to impose on all goods produced abroad at lower costs import duties to the full amount of this difference. What renders the whole situation grotesque is the fact that all countries want to decrease their imports, but at the same time to increase their exports. The effect of these policies is to interfere with the international division of labor and thereby generally to lower the productivity of labor. The only reason this result has not become more noticeable is that the advances of the capitalist system have always been so far sufficient to outweigh it. However, there can be no doubt that everyone today would be richer if the protective tariff did not artificially drive production from more favorable to less favorable localities. [L(III.7]

In the ages preceding the rise of liberalism and the evolution of modern capitalism, people for the most part consumed only what could be produced out of raw materials available in their own neighborhood. The development of the international division of labor has radically altered this state of affairs. Food and raw materials imported from distant countries are articles of mass consumption. the most advanced European nations could do without these imports only at the price of a very considerable lowering of their standard of living. They must pay for the badly needed purchase of minerals, lumber, oil, cereals, fat, coffee, tea, cocoa, fruit, wool, and cotton by exporting manufactures, most of them processed out of imported raw materials. Their vital interests are hurt by the protectionist trade policies of the countries producing these primary products. [HA-XXIV.5]

We may, for the sake of argument, disregard the fact that protectionism also hurts the interests of the nations which resort to it. But there can be no doubt that protectionism aims at damaging the interests of foreign peoples and really does damage them. It is an illusion to assume that those injured will tolerate other nations' protectionism if they believe that they are strong enough to brush it away by the use of arms. The philosophy of protectionism is a philosophy of war. The wars of our age are not at variance with popular economic doctrines; they are, on the contrary, the inescapable result of a consistent application of these doctrines. [HA-XXIV.5]

The tariff protectionism of the years before 1914 was mild indeed when compared with what developed in the 'twenties and 'thirties--viz., embargoes, quantitative trade control, foreign exchange control, monetary devaluation, and so on. [HA-XXIV.5]

Interventionism and National Sovereignty

If the state administered in accordance with the ideas of economic interventionism, statism, and socialism, sovereignty becomes unlimited and absolute. The totalitarian state pretends to be omnipotent, supreme and above any principle, law, rule or consideration for anybody and for anything. Nothing counts but its "sacred egoism." Right is what the state declares to be such. [Autarky-IX -- MMMP11]

A national government's might is limited to the territory subject to its sovereignty. It does not have the power to interfere directly with conditions abroad. Where there is external free trade, foreign competition would even in the short run frustrate the aims sought by the various measures of government intervention with domestic business. When the domestic market is not to some extent insulated from the foreign markets, there can be no question of government control. The further a nation goes on the way toward public regulation and regimentation, the more it is pushed toward economic isolation. International division of labor becomes suspect because it hinders the full use of national sovereignty. The trend toward autarky is essentially a trend of domestic economic policies; it is the outcome of the endeavors to make the state paramount in economic matters. [EcNat]

Two hundred years ago it was of little concern to the Swedes or the Swiss whether or not a non-European country was efficient in utilizing its natural resources. But today economic backwardness in a foreign country, endowed by rich natural resources, hurts the interests of all those whose standard of living could be raised if a more appropriate mode of utilizing this natural wealth were adopted. The principle of each nation's unrestricted sovereignty is in a world of government interference with business a challenge to all other nations. The conflict between the have-nots and the haves is a real conflict. But it is present only in a world in which any sovereign government is free to hurt the interests of all peoples--its own included--by depriving the consumers of the advantages a better exploitation of this country's resources would give them. It is not sovereignty as such that makes for war, but sovereignty of governments not entirely committed to the principles of the market economy.

Liberalism did not and does not build its hopes upon abolition of the sovereignty of the various national governments, a venture which would result in endless wars. It aims at a general recognition of the idea of economic freedom. If all peoples become liberal and conceive that economic freedom best serves their own interests, national sovereignty will no longer engender conflict and war. What is needed to make peace durable is neither international treaties and covenants nor international tribunals and organizations like the defunct League of Nations or its successor, the United Nations. If the principle of the market economy is universally accepted, such makeshifts are unnecessary; if it is not accepted, they are futile. Durable peace can only be the outgrowth of a change in ideologies. As long as the peoples cling to the Montaigne dogma and think that they cannot prosper economically except at the expense of other nations, peace will never be anything other than a period of preparation for the next war. [HA-XXIV.5]

This excessive notion of national sovereignty [see …] is incompatible with the present state of economic evolution. It cannot coexist with international division of labor. It wrongs all other nations and must result in strife. [Autarky-IX]

Interventionism and Protectionism

The main function of tariffs and other protectionist devices today is to disguise the real effects of interventionist policies designed to raise the standard of living of the masses. Economic nationalism is the necessary complement of these popular policies which pretend to improve the wage earners' material well-being while they are in fact impairing it. [HA-XXIX.3]

A nation's policy forms an integral whole. Foreign policy and domestic policy are closely linked together, they condition each other. Economic nationalism is the corollary of the present-day domestic policies of government interference with business and of national planning as free trade was the complement of domestic economic freedom. There can be protectionism in a country with domestic free trade, but where there is no domestic free trade, protectionism is indispensable. [EcNat]

The nations went in for protection because they believed that in trade the national interests were in conflict with the interests of other nations and that it was therefore necessary to protect the home market against foreign commodities. But even if these erroneous considerations of national interests as contrasted with the international point of view had not worked, considerations of home policy only would have brought about the same effect.

In many countries of the world today it is commonly assumed that it is the duty of the State to protect the less efficient producer against the competition of the more efficient. In this way the government prevents the more efficient producer from using his full superiority. It restricts the sphere of action of big stores for the benefit of the shopkeepers. It forces upon a whole industry a proportional reduction of output instead of letting the market eliminate the marginal producers. It makes it more difficult for the motor-car to compete with the railway. It tries to create by interference a better marketing for commodities which are produced in greater quantities than public demand.

The strong governments of the authoritarian States, who emphasize their mission to lead and not to be led and to force their subjects to obey their orders act under the rule of the theories of government interference and interventionism not differently than the democratic governments whom they reproach with their weakness. Every government, whether parliamentary or dictatorial, is today ready to interfere for the particular interests of groups on whom they wish to rely. Even small groups are sometimes considered as very important for the political concept of the ruler, whether he is democratic or dictatorial. The case of silver in the United States is an excellent example of how a special strategic position may even to a small group give the possibility of influencing a big country's policy. In a similar way, in every country small groups of entrepreneurs and trade union members back particular measures of protection and restriction.

It seems to our contemporaries justified that our fellow citizens who find it difficult to stand foreign competition should be protected. It is the belief that a government which did not try to help a less efficient producer would neglect its first duty.

But it would be too simple an explanation to say that at the bottom of protection is the selfishness of particular interests as contrasted with the general interest. These particular interests are always the interests of minority groups. The producers—both entrepreneurs and workers—of every single commodity are always a minority if compared with the bulk of the consumers. They succeed in getting their particular interests protected against the greater interest of the majority only because they are supported by public opinion, which considers such protection as beneficial for the nation. A hundred years ago the coachmen and the postilions did not find protection against the overwhelming competition of the steam-engine and the railway, because in those days the Liberal spirit was opposed to privilege which benefited a small group to the disadvantage of the public. Today, the claim of the railways for safeguard against the motor-car seems justified to the legislator. Today every particular interest is sure to find support in public opinion. It is this attitude of public opinion which is responsible for the privileges and not the desire of those who wish to enjoy a privilege. Seen from the point of view of home policy, protection is but a category of measures in the system of government interference. [DIDL-VII]

Disintegration of the International Capital Market

Foreign investment of private enterprises and citizens already came to an almost complete standstill years ago. The private investor has learned from experience that investing abroad is virtually tantamount to throwing away one's own wealth. [Underdev-II] War is the alternative to freedom of foreign investment as realized by the international capital market. [HA-XVIII.4]

The drawbacks of the immigration barriers are further increased by the obstacles raised against the transfer of capital. It is difficult to decide whether it was more the policy of the debtor countries or the policy of the creditor countries which was responsible for the abolition of the movability of capital. The countries which had imported capital destroyed the internationality of capital transactions by open repudiations and by foreign exchange regulations. But the capital exporting countries too had their share in limiting the outflow of capital. The result is that the populations, which by the immigration restrictions are forced to work in areas where the natural conditions for production are less favorable and where in consequence wages have to be low, find their existence made even worse by a shortage of capital, which lowers the marginal productivity of labor and thereby wages still more. [DIDL-VIII ( MMMP9]

Under the present state of international law every sovereign nation is free to deal as it pleases with all property situated within its boundaries. A foreign government may diplomatically protest and support claims of its citizens for an indemnification. But if the government of the nationalizing nation is not prepared to yield to such diplomatic overtures, that settles the matter. It is enough to refer to such precedents as the case of Russia in 1917 or the case of the Mexican expropriation of the oil industry.

The foreign government may submit the case to the International Court of Justice. But the decisions of this Court are practically unenforceable.

If the foreign government resorts to the ultima ratio regum, to military intervention, this would under the charter of the United Nations represent a clear case of aggression. [Underdev-I]

The immediate consequences of the Iranian oil expropriation are very sad indeed. It seriously affects the military plans of the Western powers and revolutionizes conditions on the world oil market.

Still more important are the remoter consequences of the affair. Foreign investment of private enterprises and citizens already came to an almost complete standstill years ago. The private investor has learned from experience that investing abroad is virtually tantamount to throwing away one's own wealth. It is true, not all receiving countries resorted to undisguised expropriation of property and repudiation of loans. But many of the "good" countries too have effectively robbed the foreign investors and creditors by foreign exchange control and discriminatory taxation. It is of little use for an American or a Swiss to own a blocked balance with a Ruritanian bank, especially if he notices that the purchasing power and the equivalent in hard currency of the Ruritanian monetary unit is dropping more and more. [Underdev-II]

In order to appreciate the political consequences of the disintegration of the international capital market it is necessary to remember what effects were brought about by the internationalization of the capital market. Under the conditions of the later nineteenth century it did not matter whether or not a nation was prepared and equipped with the required capital in order to utilize adequately the natural resources of its territory. There was practically free access for everybody to every area's natural wealth. In searching for the most advantageous opportunities for investment capitalists and promoters were not stopped by national borderlines. As far as investment for the best possible utilization of the known natural resources was concerned, the greater part of the earth's surface could be considered as integrated into a uniform world-embracing market system.

The disappearance of the international capital market alters conditions entirely. It abolishes the freedom of access to natural resources. If one of the socialist governments of the economically backward nations lacks the capital needed for the utilization of its natural resources, there will be no means to remedy this situation. If this system had been adopted a hundred years ago, it would have been impossible to exploit the oil fields of Mexico, Venezuela, and Iran, to establish the rubber plantations in Malaya or to develop the banana production of Central America. It is illusory to assume that the advanced nations will acquiesce forever in such a state of affairs. They will resort to the only method which gives them access to badly needed raw materials; they will resort to conquest. War is the alternative to freedom of foreign investment as realized by the international capital market.

  The inflow of foreign capital did not harm the receiving nations. It was European capital that accelerated considerably the marvelous economic evolution of the United States and the British Dominions. Thanks to foreign capital the countries of Latin America and Asia are today equipped with facilities for production and transportation which they would have had to forego for a very long time if they had not received this aid. Real wage rates and farm yields are higher today in those areas than they would have been in the absence of foreign capital. The mere fact that almost all nations are vehemently asking today for "foreign aid" explodes the fables of the Marxians and the nationalists.

   However, the mere lust for imported capital goods does not resuscitate the international capital market. Investment and lending abroad are only possible if the receiving nations are unconditionally and sincerely committed to the principle of private property and do not plan to expropriate the foreign capitalists at a later date. It was such expropriations that destroyed the international capital market. [HA-XVIII.4]

Migration

[T]he poverty of the great mass of the proletarians in Europe and Asia… is due to the fact that they have to dwell, live, and work in areas where the natural conditions of production are less favorable because the proletarians of better blessed areas refuse them the right to enter their countries. [DIDL-VIII]

I have not at all exaggerated the detrimental consequences of economic nationalism. On the contrary. I was anxious not to allude to the delicate problem of migration barriers. I am optimistic enough to believe that migration barriers alone would not necessarily frustrate endeavors for international cooperation. But protectionism does. And protectionism is indispensable if there is government interference with business. [EcNat]

In our world of migration barriers there are very grave conflicts of economic interests between nations. In restricting immigration figures some nations succeed in making wages for their citizens higher, but only at the expense of the citizens of other nations. The international clash of economic interests is due to this fact. There are no serious conflicts about raw materials or colonies in a world of peace and peaceful trade, where everybody has the right to buy on the same terms as everybody else. But there is a conflict when the citizens of some countries of Europe and Asia are prevented from moving to the countries where they may earn more than in their own country. The high standard of living in the United States and in the British Dominions has its corollary in the low standard of living in Eastern, Central and Southern Europe, in India, China, and Japan.

The people of the United States and the British Dominions defend their higher standard by closing their doors to newcomers. The result is that within their boundaries many millions of acres lie barren, whereas much poorer soil in other countries has to be cultivated. Any account of the world's present economic and political situation which does not stress this fact is inadequate. [DIDL-VIII ( MMMP9]

[T]he poverty of the great mass of the proletarians in Europe and Asia… is due to the fact that they have to dwell, live, and work in areas where the natural conditions of production are less favorable because the proletarians of better blessed areas refuse them the right to enter their countries. [DIDL-VIII]

It may seem striking that public opinion is more concerned today with the apparent problem of raw materials and does not deal with the most serious problem of contemporary international relations: with the problem of the movability of labor. [DIDL-VIII]

When liberalism arose in the eighteenth and nineteenth centuries, it had to struggle for freedom of emigration. Today, the struggle is over freedom of immigration. At that time, it had to oppose laws which hindered the inhabitants of a country from moving to the city and which held out the prospect of severe punishment for anyone who wanted to leave his native land in order to better himself in a foreign land. Immigration, however, was at that time generally free and unhampered.

Today, as is well known, things are quite different. The trend began some decades ago with laws against the immigration of Chinese coolies. Today in every country in the world that could appear inviting to immigration, there are more or less stringent laws either prohibiting it entirely or at least restricting it severely.

This policy must be considered from two points of view: first, as a policy of the trade unions, and then as a policy of national protectionism.

Aside from such coercive measures as the closed shop, compulsory strikes, and violent interference with those willing to work, the only way the trade unions can have any influence on the labor market is by restricting the supply of labor. But since it is not within the power of the trade unions to reduce the number of workers living in the world, the only other possibility remaining open to them is to block access to employment, and thus diminish the number of workers, in one branch of industry or in one country at the expense of the workers employed in other industries or living in other countries. For reasons of practical politics, it is possible only to a limited extent for those engaged in a particular branch of industry to bar from it the rest of the workers in the country. On the other hand, no special political difficulty is involved in imposing such restrictions on the entrance of foreign labor.

The natural conditions of production and, concomitantly, the productivity of labor are more favorable, and, as a consequence, wage rates are higher, in the United States than in vast areas of Europe. In the absence of immigration barriers, European workers would emigrate to the United States in great numbers to look for jobs. The American immigration laws make this exceptionally difficult. Thus, the wages of labor in the United States are kept above the height that they would reach if there were full freedom of migration, whereas in Europe they are depressed below this height. On the one hand, the American worker gains; on the other hand, the European worker loses.

However, it would be a mistake to consider the consequences of immigration barriers exclusively from the point of view of their immediate effect on wages. They go further. As a result of the relative oversupply of labor in areas with comparatively unfavorable conditions of production, and the relative shortage of labor in areas in which the conditions of production are comparatively favorable, production is further expanded in the former and more restricted in the latter than would be the case if there were full freedom of migration. Thus, the effects of restricting this freedom are just the same as those of a protective tariff. In one part of the world comparatively favorable opportunities for production are not utilized, while in another part of the world less favorable opportunities for production are being exploited. Looked at from the standpoint of humanity, the result is a lowering of the productivity of human labor, a reduction in the supply of goods at the disposal of mankind.

Attempts to justify on economic grounds the policy of restricting immigration are therefore doomed from the outset. There cannot be the slightest doubt that migration barriers diminish the productivity of human labor. When the trade unions of the United States or Australia hinder immigration, they are fighting not only against the interests of the workers of the rest of the countries of the world, but also against the interests of everyone else in order to secure a special privilege for themselves. For all that, it still remains quite uncertain whether the increase in the general productivity of human labor which could be brought about by the establishment of complete freedom of migration would not be so great as to compensate entirely the members of the American and Australian trade unions for the losses that they could suffer from the immigration of foreign workers.

The workers of the United States and Australia could not succeed in having restrictions imposed on immigration if they did not have still another argument to fall back upon in support of their policy. After all, even today the power of certain liberal principles and ideas is so great that one cannot combat them if one does not place allegedly higher and more important considerations above the interest in the attainment of maximum productivity. We have already seen how "national interests" are cited in justification of protective tariffs. The same considerations are also invoked in favor of restrictions on immigration.

In the absence of any migration barriers whatsoever, vast hordes of immigrants from the comparatively overpopulated areas of Europe would, it is maintained, inundate Australia and America. They would come in such great numbers that it would no longer be possible to count on their assimilation. If in the past immigrants to America soon adopted the English language and American ways and customs, this was in part due to the fact that they did not come over all at once in such great numbers. The small groups of immigrants who distributed themselves over a wide land quickly integrated themselves into the great body of the American people. The individual immigrant was already half assimilated when the next immigrants landed on American soil. One of the most important reasons for this rapid national assimilation was the fact that the immigrants from foreign countries did not come in too great numbers. This, it is believed, would now change, and there is real danger that the ascendancy—or more correctly, the exclusive dominion—of the Anglo-Saxons in the United States would be destroyed. This is especially to be feared in the case of heavy immigration on the part of the Mongolian peoples of Asia.

These fears may perhaps be exaggerated in regard to the United States. As regards Australia, they certainly are not. Australia has approximately the same number of inhabitants as Austria; its area, however, is a hundred times greater than Austria's, and its natural resources are certainly incomparably richer. If Australia were thrown open to immigration, it can be assumed with great probability that its population would in a few years consist mostly of Japanese, Chinese, and Malayans.

The aversion that most people feel today towards the members of foreign nationalities and especially towards those of other races is evidently too great to admit of any peaceful settlement of such antagonisms. It is scarcely to be expected that the Australians will voluntarily permit the immigration of Europeans not of English nationality, and it is completely out of the question that they should permit Asiatics too to seek work and a permanent home in their continent. The Australians of English descent insist that the fact that it was the English who first opened up this land for settlement has given the English people a special right to the exclusive possession of the entire continent for all time to come. The members of the world's other nationalities, however, do not in the least desire to contest the right of the Australians to occupy any of the land that they already are making use of in Australia. They think only that it is unfair that the Australians do not permit the utilization of more favorable conditions of production that today lie fallow and force them to carry on production under the less favorable conditions prevailing in their own countries.

This issue is of the most momentous significance for the future of the world. Indeed, the fate of civilization depends on its satisfactory resolution. On the one side stand scores, indeed, hundreds of millions of Europeans and Asiatics who are compelled to work under less favorable conditions of production than they could find in the territories from which they are barred. They demand that the gates of the forbidden paradise be opened to them so that they may increase the productivity of their labor and thereby receive for themselves a higher standard of living. On the other side stand those already fortunate enough to call their own the land with the more favorable conditions of production. They desire—as far as they are workers, and not owners of the means of production—not to give up the higher wages that this position guarantees them. The entire nation, however, is unanimous in fearing inundation by foreigners. The present inhabitants of these favored lands fear that some day they could be reduced to a minority in their own country and that they would then have to suffer all the horrors of national persecution to which, for instance, the Germans are today exposed in Czechoslovakia, Italy, and Poland.

It cannot be denied that these fears are justified. Because of the enormous power that today stands at the command of the state, a national minority must expect the worst from a majority of a different nationality. As long as the state is granted the vast powers which it has today and which public opinion considers to be its right, the thought of having to live in a state whose government is in the hands of members of a foreign nationality is positively terrifying. It is frightful to live in a state in which at every turn one is exposed to persecution—masquerading under the guise of justice—by a ruling majority. It is dreadful to be handicapped even as a child in school on account of one's nationality and to be in the wrong before every judicial and administrative authority because one belongs to a national minority.

If one considers the conflict from this point of view, it seems as if it allows of no other solution than war. In that case, it is to be expected that the nation inferior in numbers will be defeated, that, for example, the nations of Asia, counting hundreds of millions, will succeed in driving the progeny of the white race from Australia. But we do not wish to indulge in such conjectures. For it is certain that such wars—and we must assume that a world problem of such great dimensions cannot be solved once and for all in just one war—would lead to the most frightful catastrophe for civilization.

It is clear that no solution of the problem of immigration is possible if one adheres to the ideal of the interventionist state, which meddles in every field of human activity, or to that of the socialist state. Only the adoption of the liberal program could make the problem of immigration, which today seems insoluble, completely disappear. In an Australia governed according to liberal principles, what difficulties could arise from the fact that in some parts of the continent Japanese and in other parts Englishmen were in the majority? [L(III.8]

The Plight of the Underdeveloped Nations

The problem of rendering the underdeveloped nations more prosperous cannot be solved by material aid. It is a spiritual and intellectual problem. Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom and private enterprise and initiative that makes for the accumulation and maintenance of capital as well as for the employment of the available capital for the best possible and cheapest satisfaction of the most urgent wants of the consumers. [Underdev-IV]

[F]oreign investment benefited the receiving nations no less than the investing nations. These receiving nations were backward and underdeveloped insofar as they had been slow in developing those ideological and institutional conditions which are the indispensable prerequisite of large scale capital accumulation. While amply endowed by nature, they lacked the capital needed for the exploitation of their dormant resources. On account of the paucity of capital available, the marginal productivity of labor and thereby wage rates were low when compared with the state of affairs in the capitalistic countries. The inflow of foreign capital raised wage rates and improved the masses' average standard of living.

It is this disintegration of the international capital market that creates the plight of the underdeveloped countries.

These countries were in the last decades benefited by the modern methods of fighting epidemics and other diseases which the capitalistic West has developed. Mortality rates dropped and the average length of life was prolonged. Population increased considerably. But the economic policies of these nations are preventing an expansion of the insufficient amount of domestic saving and capital accumulation; sometimes they even directly induce capital de-accumulation. As there is no longer any importation of foreign capital worth mentioning, the per head quota of capital invested decreases. The outcome is a drop in the marginal productivity of labor. But at the same time the governments and the labor unions try to enforce wage rates which exceed the marginal productivity of labor. The result is spreading unemployment.

Unaware of the causes of unemployment the governments try to remove it by various measures which, although entirely futile, are so costly that they by far exceed the public revenue and are financed by the issuance of additional fiat money. Inflation still more discourages domestic saving and capital formation.

The governments of all these underdeveloped countries indefatigably talk of the necessity to "industrialize" and to modernize the outdated methods of agricultural production. But their own policies are the main obstacle to any improvement and economic progress. There cannot be any question of imitating the technological procedures of the capitalistic countries if there is no capital available. Whence should this capital come if domestic capital formation as well as the inflow of foreign capital are sabotaged?

About two hundred years ago conditions in England were hardly better, perhaps even worse than they are today in India and China. The then prevailing system of production was lamentably inadequate. In its frame there was no room left for an ever increasing part of the population. Masses of destitute paupers were barely living on the verge of starvation. The ruling landed aristocracy did not know of any means to cope with these wretched people other than the poorhouse, the workhouse, and the prison. But then came the "Industrial Revolution." Laissez-faire capitalism converted the starving beggars into self-supporting breadwinners. It improved conditions step by step until, at the end of the Victorian age, the average standard of living of the common man was the highest in Europe, much higher than that of people whom earlier ages had considered as sufficiently well-to-do.

What the underdeveloped nations must do if they sincerely want to eradicate penury and to improve the economic conditions of their destitute masses is to adopt those policies of "rugged individualism" which have created the welfare of Western Europe and the United States. They must resort to laissez faire; they must remove all obstacles fettering the spirit of enterprise and stunting domestic capital accumulation and the inflow of capital from abroad.

But what the governments of these countries are really doing today is just the contrary. Instead of emulating the polices that created the comparative wealth and welfare of the capitalistic nations, they are choosing those contemporary policies of the West which slow down the further accumulation of capital and lay stress on what they consider to be a fairer distribution of wealth and income. Leaving aside the problem whether or not these policies are beneficial to the economically advanced nations, it must be emphasized that they are patently nonsensical when resorted to in the economically backward countries. Where there is very little to be distributed, a policy of an allegedly "fairer" redistribution is of no use at all. [Underdev-III]

The inherent weakness of such a society is that the increase in population must result in progressive poverty. If the estate of a deceased farmer is divided among his children, the holdings finally become so small that they can no longer provide sufficient sustenance for a family. Everybody is a landowner, but everybody is extremely poor. Conditions as they prevailed in large areas of China provide a sad illustration of the misery of the tillers of small parcels. The alternative to this outcome is the emergence of a huge mass of landless proletarians. Then a wide gap separates the disinherited paupers from the fortunate farmers. They are a class of pariahs whose very existence presents society with an insoluble problem. They search in vain for a livelihood. Society has no use for them. They are destitute.

When in the ages preceding the rise of modern capitalism statesmen, philosophers, and lawyers referred to the poor and to the problems of poverty, they meant these supernumerary wretches. Laissez faire and its off-shoot, industrialism, converted the employable poor into wage earners. In the unhampered market society there are people with higher and people with lower incomes. There are no longer men, who, although able and ready to work, cannot find regular jobs because there is no room left for them in the social system of production. But liberalism and capitalism were even in their heyday limited to comparatively small areas of Western and Central Europe, North America, and Australia. In the rest of the world hundreds of millions still vegetate on the verge of starvation. They are poor or paupers in the old sense of the term, supernumerary and superfluous, a burden to themselves and a latent threat to the minority of their more lucky fellow citizens.

The penury of these miserable masses of--in the main colored--people is not caused by capitalism, but by the absence of capitalism. But for the triumph of laissez faire, the lot of the peoples of Western Europe would have been even worse than that of the coolies. What is wrong with Asia is that the per capita quota of capital invested is extremely low when compared with the capital equipment of the West. The prevailing ideology and the social system which is its off-shoot check the evolution of profit-seeking entrepreneurship. There is very little domestic capital accumulation, and manifest hostility to foreign investors. In many of these countries the increase in population figures even outruns the increase in capital available.

As far as there is unhampered capitalism, there is no longer any question of poverty in the sense in which this term is applied to the conditions of a noncapitalistic society. The increase in population figures does not create supernumerary mouths, but additional hands whose employment produces additional wealth. There are no ablebodied paupers. Seen from the point of view of the economically backward nations, the conflicts between "capital" and "labor" in the capitalist countries appear as conflicts within a privileged upper class. In the eyes of the Asiatics, the American automobile worker is an "aristocrat." he is a man who belongs to the 2 per cent of the earth's population whose income is highest. Not only the colored races, but also the Slavs, the Arabs, and some other peoples look upon the average income of the citizens of the capitalistic countries--about 12 or 15 per cent of the total of mankind--as a curtailment of their own material well-being. They fail to realize that the prosperity of these allegedly privileged groups is, apart from the effects of migration barriers, not paid for by their own poverty, and that the main obstacle to the improvement of their own conditions is their abhorrence of capitalism.

Within the frame of capitalism the notion of poverty refers only to those people who are unable to take care of themselves. [HA-XXXV.2]

[T]he superiority of the Western nations consists … in their having started earlier in endeavors to save and to accumulate capital goods.

[T]he temporal head start gained by the Western nations was conditioned by ideological factors which cannot be reduced simply to the operation of environment. What is called human civilization has up to now been a progress from cooperation by virtue of hegemonic bonds to cooperation by virtue of contractual bonds. But while many races and peoples were arrested at an early stage of this movement, others kept on advancing. The eminence of the Western nations consisted in the fact that they succeeded better in checking the spirit of predatory militarism than the rest of mankind and that they thus brought forth the social institutions required for saving and investment on a broader scale. Even Marx did not contest the fact that private initiative and private ownership of the means of production were indispensable stages in the progress from primitive man's penury to the more satisfactory conditions of nineteenth-century Western Europe and North America. What the East Indies, China, Japan, and the Mohammedan countries lacked were institutions for safeguarding the individual's rights. The arbitrary administration of pashas, kadis, rajahs, mandarins, and daimios was not conducive to large-scale accumulation of capital. The legal guarantees effectively protecting the individual against expropriation and confiscation were the foundations upon which the unprecedented economic progress of the West came into flower. These laws were not an outgrowth of chance, historical accidents, and geographical environment. They were the product of reason.

We do not know what course the history of Asia and Africa would have taken if these peoples had been left alone. What happened was that some of these peoples were subject to European rule and others--like China and Japan--were forced by the display of naval power to open their frontiers. The achievements of Western industrialism came to them from abroad. They were ready to take advantage of the foreign capital lent to them and invested in their territories. But they were rather slow in the reception of the ideologies from which modern industrialism had sprung. Their assimilation to Western ways of life is superficial.

   We are in the midst of a revolutionary process which will very soon do away with all varieties of colonialism. This revolution is not limited to those countries which were subject to the rule of the British, the French and the Dutch. Even nations which without any infringement of their political sovereignty had profited from foreign capital are intent upon throwing off what they call the yoke of foreign capitalists. They are expropriating the foreigners by various devices--discriminatory taxation, repudiation of debts, undisguised confiscation, foreign exchange restrictions. We are on the eve of the complete disintegration of the international capital market. The economic consequences of this event are obvious; its political repercussions are unpredictable. [HA-XVIII.5]

Resource Allocation

Protectionism and autarky result in a state of affairs in which a country's resources are not used to the extent that they would be under free trade. For instance, the fact that the tariffs of those nations whose soil offers the most favorable physical opportunities for the production of wheat—the United States, Canada, and Argentina—hinder the import of manufactures would, even in the absence of European tariffs on wheat, compel Europeans to grow wheat on a soil which is less fertile than millions of acres of untilled soil in those countries better endowed by nature. [Autarky-IX - MMMP11]

Free Trade in a World of Immobility of Capital and Labor

In a world in which there is free trade for commodities, while the migration of workers and foreign investment are restricted, there prevails a tendency toward an establishment of a definite relation between the wages paid for the same kind and quality of labor in various countries. There cannot prevail a tendency toward an equalization of wage rates. But the final price to be paid for labor in various countries is in a certain numerical relation. [HA-XXIX.3]

In a world of immobility of men some countries are comparatively overpopulated, others comparatively underpopulated. There are conspicuous differences in wage rates and in standards of living. The restrictions imposed upon the mobility of capital intensify this outcome.

Ricardo has demonstrated what the consequences of free trade in such a world are. His law of comparative cost has never been disproved. Even if all other countries cling to protection, every nation best serves its own interests by free trade. [Autarky-III]

Many people look upon tariff protection as if it were a privilege accorded to their nation's wage earners, procuring them, for the full duration of its existence, a higher standard of living than they would enjoy under free trade. This argument is advanced not only in the United States, but in every country in the world in which average real wage rates are higher than in some other country.

Now, it is true that under perfect mobility of capital and labor there would prevail all over the world a tendency toward an equalization of the price paid for labor of the same kind and quality. Yet, even if there were free trade for products, this tendency is absent in our real world of migration barriers and institutions hindering foreign investment of capital. The marginal productivity of labor is higher in the United States than it is in India because capital invested per head of the working population is greater, and because Indian workers are prevented from moving to America and competing on the American labor market. There is no need, in dealing with the explanation of this difference, to investigate whether natural resources are or are not more abundant in America than in India and whether or not the Indian worker is racially inferior to the American worker. However this may be, these facts, namely, the institutional checks upon the mobility of capital and labor, suffice to account for the absence of the equalization tendency. As the abolition of the American tariff could not affect these two facts, it could not impair the standard of living of the American wage earner in an adverse sense.

On the contrary. Given a state of affairs in which the mobility of capital and labor is restricted, the transition to free trade for products must necessarily raise the American standard of life. Those industries in which American costs are higher (American productivity is lower) would shrink and those in which costs are lower (productivity is higher) would expand.

Under free trade the Swiss watchmakers would expand their sales on the American market and the sales of their American competitors would shrink. But this is only a part of the consequences of free trade. Selling and producing more, the Swiss would earn and buy more. It does not matter whether they themselves buy more of the products of other American industries or whether they increase their domestic purchases and those in other countries, for instance, in France. Whatever happens, the equivalent of the additional dollars they earned must finally go to the United States and increase the sales of some American industries. If the Swiss do not give away their products as a gift, they must spend these dollars in buying. [HA-XXIX.3]

What the tariff really brings about in the field of wage rates and the wage earners' standard of living is something quite different.

In a world in which there is free trade for commodities, while the migration of workers and foreign investment are restricted, there prevails a tendency toward an establishment of a definite relation between the wages paid for the same kind and quality of labor in various countries. There cannot prevail a tendency toward an equalization of wage rates. But the final price to be paid for labor in various countries is in a certain numerical relation. This final price is characterized by the fact that all those eager to earn wages get a job and all those eager to employ workers are able to hire as many hands as they want. There is "full employment." [HA-XXIX.3]

Historical Analysis: Conclusion

Modern civilization is a product of the philosophy of laissez faire. It cannot be preserved under the ideology of government omnipotence. [HA-XXXIV.4]

Liberalism is a philosophy of peace and international cooperation. It is the basic point of its social and economic theory that, rightly conceived, the interests of all individuals and of all nations are harmonious in a society of private ownership and free trade. For the Liberal democracy and peace are the outcome of his ideas on life, work, and human cooperation.

But Liberalism is for the time being the privilege of a small and uninfluential minority. The world is ruled by other ideas. These ideas lead to armaments and to protectionism, to barriers against the movability of commodities, labor and capital, to militarism and to dictatorship.

It is a mistake to assume that as long as such conceptions prevail any endeavors to lower the obstacles to international trade could be successful. If the theories in favor of protection and self-sufficiency are considered as right, then there is no reason to bring down trade barriers; only the conviction that these theories are wrong and that free trade is the best policy can shake them. It is inconsistent to support a policy of low trade barriers. Either trade barriers are useful, then they cannot be high enough; or they are harmful, then they have to disappear completely. The pre-war policy of moderate protectionism was the result of a labile equilibrium between two conflicting theories; now when the theory of protectionism has driven the theory of free trade off the field of public opinion there is no more limit to trade barriers.

It is hopeless to expect a change by an international agreement. If a country thinks that more free trade is to its own advantage, then it may always open its frontiers. But if it views free trade as a disadvantage to its own interests it will not be more willing to grant it in an international treaty. Every nation is today anxious to expand the volume of exports, but no nation is prepared to sacrifice the particular interests of an existing industry or even of an industry which has still to be created. It is this tendency that is continually reducing the volume of international trade.

The poor results obtained by the League of Nations and the failure of the World Economic Conferences and of the more special conferences and negotiations between smaller groups of nations are due to the fact that the world lacks today the mentality of peaceful cooperation. Under the rule of militarist ideas the efforts at international collaboration are doomed.

What the world needs is not more conferences and conventions but a radical change of mentality. [DIDL-Concl]

[O]ur contemporaries are possessed by the idea that to bar access to foreign products and to immigrants serves best their own nation's interest. A return to free trade, to laissez faire, laissez passer is for them out of the question.

Thus we must first try to change this mentality. A small group of economists are intent on demonstrating that economic nationalism is detrimental to the rightly understood selfish interests of all men and all nations and that everybody should aim at free trade, not for the sake of foreigners, but for the sake of his own people. Even if all other nations cling to protectionism, every nation serves best its own well-being by free trade. I do hope that these endeavors will succeed. But a radical change of ideologies takes a long time. Years must elapse, generations must pass away, new ages must rise, before such a change can be expected even in the most favorable case. We must not abandon the idea of a commonwealth of nations, but we have to provide for the transitional period. We must not neglect the task of our time, merely because a more distant future will bring a perfect solution. We have today to face an urgent problem. We have to prevent a third world-war. On the eve of victory we have to plan for a system which will make it hopeless for militarist nations to embark upon a new aggression. [EcNat]