Fallacies of the Public Goods Theory and the Production of Security by Hans-Hermann Hoppe

 

In 1849, at a time when classical liberalism was still the dominant ideological force and "economist" and "socialist" were generally-and rightly so-considered antonyms, Gustave de Moliiari, a renowned Belgian economist, wrote, "If there is one well-established truth in political economy, it is this: That in all cases, for all commodities that serve to pmvide for the tangible or intangible need of the consumer, it is in the consumer's best interest that labor and trade remain free, because the freedom of labor and trade have as their necessary and permanent result the maximum reduction of price. And this: That the interests of the consumer of any commodity whatsoever should always prevail over the interests of the pro- ducer. Now, in pursuing these principles, one arrives at this rigorous conclusion: That the production of security should in the interest of consumers of this intangible commodity, remain subject to the law of free competition. Whence it follows: That no government should have the right to prevent another government from going into competition with it, or require consumers of security to wme exclusively to it for this commodity."~And he comments on this whole argument by saying, "Either this is logical and true, or else the principles on which economic science is based are invalid."

There is apparently only one way out of this unpleasant (for all socialists, that is) conclusion: to argue that there are particular goods to which for some special reasons the above economic reasoning does not apply. It is this that the so-called public goods theorists are determined to prove.) However, I will demonstrate that in fact no such special goods or special reasons exist, and that the production of security in particular does not pose a problem any different from that of the production of any other good or service, be it houses, cheese, or insurance. In spite of its many followers, the whole public goods theory is faulty, flashy reasoning, ridden with internal inconsistencies, nonsequiturs, appealmg to and playing on popular prejudices and assumed beliefs, but with no scientific merit whatsoever.'

What, then, does the escape route that socialist economists have found in order to avoid drawing Molinari's conclusion look like? Since Molinari's time it has become more common to answer yes to the question of whether there are goods to which different sorts of economic analyses apply. As a matter of fact, it is almost impossible to find a single contemporary economics textbook that does not make and stress the vital importance of the distinction between private goods, for which the truth of the economic superiority of a capitalist order of production is generally admitted, and public goods, for which it is generally denied.' Certain goods or services-among them, security-are said to have the special characteristic that their enjoyment cannot be restricted to those who have actually fmanced their production. Rather, people who do not participate in their fmancing can also draw benefits from them. Such goods are called public goods or services (as opposed to private goods or services, which exclusively benefit those people who actually paid for them). And it is because of this special feature of public goods, it is then argued, that markets cannot produce them, or at least not in sufficient quantity or quality, and hence compensatory state action is required.

The examples given by different authors of alleged public goods vary widely. Authors often classify the same good or service differently, leaving almost no classification of a particular good undisputed, which clearly foreshadowsthe illusory characterofthewholedistinction.' Nonetheless,someexamplesthatenjoypartic- ularly popular status as public goods are the fire brigade that stops a neighbor's house from catching fire, thereby letting him profit from my fire brigade, even though he did not contribute anything to fmancing it; or the police that, by walking around my property scare away potential burglars from my neighbor's property as well, even if he did not help finance the patrols; or the lighthouse, an example particularly dear to economists,' that helps a ship fmd her way even though the ship's owner did not contribute a penny to its construction or upkeep.

Before continuing with the presentation and critical examination of the theory of public goods, let me investigate how useful the distinction between private and public goods is in helping decide what should be produced privately and what by the state or with state help. Even the most superficial analysis could not fail to point out that using the alleged criterion of inexcludability, rather than presenting a sensible solution, would get one into deep trouble. While at least at first glance it seems that some of the state-provided goods and services might indeed qualify as public goods, it certainly is not obvious how many of the goods and services that are actually produced by states could come under the heading of public goods. Railroads, postal services, telephone, streets, and the like seem to be goods whose usage can be restricted to the persons who actually fmance them, and hence appear to be private goods. And the same seems to be the case regarding many aspects of the multidimensional "good security": everything for which insurance could be taken out would have to qualify as a private good. Yet this does not suffice. Just as a lot of state-provided goods appear to be private goods, so many privately produced goods seem to fit in the category of a public good. Clearly my neighbors would profit from my well-kept rose garden-they could enjoy the sight of it without ever helping me garden. The same is true of all k i d s of improvements that I could make on my property that would enhance the value of neighboring property as well. Even those people who do not throw money in his hat can profit from a street musician's performance. Those fellow passengers on the bus who did not help me buy it profit from my deodorant. And everyone who ever meets me would profit from my efforts, undertaken without their financial support, to turn myself into a most lovable person. Now, do all these goods-rose gardens, property improvements, street music, deodorants, personal improvements-since they clearly seem to possess the characteristics of public goods, then have to be provided by the state or with state assistance?

As these examples of privately produced public goods indicate, there is some- thing seriously wrong with the thesis of public goods theorists that public goods cannot be produced privately, but instead require state intervention. Clearly they can be provided by markets. Furthermore, historical evidence shows us that all of the so-called public goods that states now provide have at some time in the past actually been provided by private entrepreneurs or even today are so provided in one country or another. For example, the postal service was once private almost everywhere; streets were privately fin beloved lighthouses were originally the result of private enterprises. private police forces, detectives, and arbitrators exist; and help for the sick, the poor, the elderly, orphans, and widows has been a traditional concern of private charity organizations. To say, then, that such things cannot be produced by a pure market system is falsified by experience a hundredfold.

Apart from this, other difficultiesarise when the public-private goods distinc- tion is used to decide what and what not to leave to the market. For instance, what if the production of so-called public goods did not have positive but negative consequences for other people, or if the consequences were positive for some and negative for others? What if the neighbor whose house was saved from burn- ing by my fire brigade had wished (perhaps because he was overinsured) that it had burned down; or my neighbors bate roses, or my fellow passengers find the scent of my deodorant disgusting? In addition, changes in the technology can change the character of a given good. For example, with the development of cable TV a good that was formerly (seemingly) public has become private. And changes in the laws of property-of the appropriation of property-can have the very same effect of changing the public-private character of a good. The lighthouse, for instance, is a public good only insofar as the sea is publicly (not privately) owned. But if it were permitted to acquire pieces of the ocean as private property, as it would be in a purely capitalist social order, then as the lighthouse shines over only a limited territory, it would clearly become possible to exclude nonpayers from the enjoyment of its services.

Leaving this somewhat sketchy level of discussion and looking into the distinc- tion between private and puhlic goods more thoroughly, we discover that the distinction turns out to be completely illusory. A clear-cut dichotomy between private and public goods does not exist, and this is essentially why there can be so many disagreements on how to classify a given good. All goods are more or less private or public and can-and constantly do-change with respect to their degree of privateness/publicnessas people's values and evaluations change, and as changes occur in the composition of the population. In order to recognize that they never fall, once and for all, into either one or the other category, one must only recall what makes something a good. For something to be a good it must be recognized and treated as scarce by someone. Something is not a good as such, that is to say; goods are goods only in the eyes of the beholder. Nothing is a good unless at least one person subjectively evaluates it as such. But then, when goods are never goods-as-such-when no physicochemical analysis can identify something as an economic good-there is clearly no fixed, objective criterion for classifying goods as either private or public. They can never be private or public goods as such. Their private or public character depends on how few or how many people consider them to be goods, with the degree to which they are private or public changing as these evaluations change and ranging from one to infinity. Even seemingly completely private things like the interior of my apart- ment or the color of my underwear can thus become public goods as soon as somebody else starts caring about them.1° And seemingly public goods, like the exterior of my house or the color of my overalls, can become extremely private goods as soon as other people stop caring about them. Moreover, every good can change its characteristics again and again; it can even turn from a public or private good to a public or private had or evil and vice versa, depending solely on the changes in this caring or uncaring. If this is so, then no decision what soever can be based on the classification of goods as private or public." Infact, to do so it would become necessary to ask virtually every individual person with respect to every single good whether or not he happened to care about it-positively or negatively and perhaps to what extent-in order to determine who might profit from what and who should therefore participate in the good's financing. (And how could one know if they were telling the truth?) It would also become necessary to monitor all changes in such evaluations continuously, with the result that no definite decision could ever be made regarding the production of anything, and as a consequence of a nonsensical theory all of us would be long dead.

But even if one were to ignore all these difficulties, and were willing to admit for the sake of argumentthat the private-publicgood distinction does hold water, even then the argument would not prove what it is supposed to. It neither pro- vides wnclusive reasons why puhlic goods-assuming that they exist as a separate category of goods-should be produced at all nor why the state rather than private enterprises should produce them. This is what the theory of public goods essentially says, having introduced the aforementioned conceptual distinction: The positive effects of public goods for people who do not contribute anything to their production or financing proves that these goods are desirable. But evidently they would not be produced, or at least not in sufficient quantity and quality, in a free, competitive market, since not all of those who would profit from their production would also contribute financially to make the production possible. So in order to produce these goods (which are evidently desirable, but would not be produced otherwise), the state must jump in and assist in their production. This sort of reasoning, which can be found in almost every textbook on economics (Nobel laureates not excluded'~is)completely fallacious and fallacious on two counts.

For one thing, to come to the conclusion that the state has to provide public goods that otherwise would not be produced, one must smuggle a norm into one's chain of reasoning. Otherwise, from the statement that because of some special characteristics they have. certain goods would not be produced. one could never reach the conclusion that these goods should be produced. But with a norm required to justify their conclusion, the public goods theorists clearly have left the bounds of economics as a positive, wertfrei science. Instead they have moved into the realm of morals or ethics, and hence one would expect to be offered a theory of ethics as a cognitive discipline in order for them to do legitimately what they are doing and to justifiably derive their conclusion. But it can hardly be stressed enough that nowhere in the public goods theory literature can there be found anything that even faintly resembles such a cognitive theory of ethics." Thus it must be stated at the outset, that the public goods theorists are misusing whatever prestige they might have as positive economists for pronouncements on matters on which, as their own writings indicate, they have no authority whatsoever. Perhaps, though, they have stumbled on something correct by accident, without having supported it with an elaborate moral theory?
It becomes apparent that nothing could be further from the truth as soon as one explicitly formulates the norm that would be needed to arrive at the conclusion that the state has to assist in the provision of public goods. The norm required to reach the above conclu- sion is this: Whenever one can somehow prove that the production of a particular good or service has a positive effect on someone else but would not be produced at all or would not be produced in a definite quantity or quality unless certain people participated in its financing, then the use of aggressive violence against these persons is allowed, either directly or indirectly with the help of the state, and these persons may be forced to share in the necessary fiancial burden. It does not need much comment to show that chaos would result from implementing this rule, as it amounts to saying that anyone can attack anyone else whenever he feels like it. Moreover, as I have demonstrated in detail elsewhere" this norm could never be justified as a fair norm. To argue so, in fact to argue at all, in favor of or against anything, be it a moral, nonmoral, empirical, or logico- analytical position, it must be presupposed that contrary to what the norm actually says, each individual's integrity as a physically independent decision-making unit is assured. For only if everyone is free from physical aggression by everyone else could anything first be said and then agreement or disagreement on anything possibly reached. The principle of nonaggression is thus the necessary precondi- tion for argumentation and possible agreement and hence can be argumentatively defended as a just norm by means of a priori reasoning.

But the public goods theory breaks down not only because of the faulty moral reasoning implied in it. Even the utilitarian, economic reasoning contained in the above argument is blatantly wrong. As the public goods theory states, it might well be that it would be better to have the public goods than not to have them, though it should not he forgotten that no a priori reason exists that this must be so of necessity (which would then end the public goods theorists' reasoning right here). For it is clearly possible, and indeed known to be a fact, that anarchists exist who so greatly abhor state action that they would prefer not having the so- called public goods at all to having them provided by the state.  In any case, even if the argument is conceded so far, to leap from the statement that the public goods are desirable to the statement that they should therefore be provided by the state is anything but conclusive, as this is by no means the choice with which one is confronted. Since money or other resources must be withdrawn from possible alternative uses to fmance the supposedly desirable public goods, the only relevant and appropriate question is whether or not these alternative uses to which the money could be put (that is, the private goods which could have been acquired but now cannot be bought because the money is being spent on public goods instead) are more valuable-more urgent-than the public goods. And the answer to this question is perfectly clear. In terms of consumer evalua- tions, however high its absolute level might be, the value of the public goods is relatively lower than that of the competing private goods because if one had left the choice to the consumers (and had not forced one alternative upon them), they evidently would have preferred spending their money differently (otherwise no force would have been necessary). This proves beyond any doubt that the resources used for the provision of public goods are wasted because they provide consumers with goods or services that at best are only of secondary importance. In short, even if one assumed that public goods that can be distinguished clearly from private goods existed, and even if it were granted that a given public good might be useful, public goods would still compete with private goods. And there is only one method for finding out whether or not they are more urgently desired and to what extent, or mutatis mutandis, if, and to what extent, their production would take place at the expense of the nonproduction or reduced production of more urgently needed private goods: by having everything provided by freely competing private enterprises. Hence, contrary to the conclusion arrived at by the public goods theorists, logic forces one to accept the result that only a pure market system can safeguard the rationality, from the point of view of the consumers, of a decision to produce a public good. And only under a pure capitalist order could it be ensured that the decision about how much of a public good to produce (provided it should be produced at all) would be rational as No less than a semantic revolution of truly Onvellian dimensions would be required to come up with a different result. Only if one were willing to interpret someone's "no" as really meaning "yes," the "non-buying of something" as meaning that it is really "preferred over that which the nonbuying person does instead of non- buying," of "force" really meaning "freedom," of "noncontracting" really meaning "making a contract" and so on, could the public goods theorists' point be"proven." But then, how could we be sure that they really mean what they seem to mean when they say what they say, and do not rather mean the exact opposite, or don't mean anything with a definite content at all, but are simply babbling? We could not! M. N. Rothbard is thus completely right when he comments on the endeavors of the public goods ideologues to prove the existence of so-called market failures due to the nonproduction or a quantitatively or qualitatively "deficient" production of public goods. He writes, "such a view completely misconceives the way in which economic science asserts that free- market action is ever optimal. It is optimal, not from the standpint of the per- sonal ethical views of an economist, but from the standpoint of free, voluntary actions of all participants and in satisfying the freely expressed needs of the con- sumers. Government interference, therefore, will necessarily and always move away from such an optimum.

Indeed, the arguments supposedly proving market failures are nothing short of patently absurd. Stripped of their disguise of technical jargon all they prove is this: A market is not perfect, as it is characterized by the nonaggression principle imposed on conditions marked by scarcity, and so certain goods or services that could only be produced and provided if aggression were allowed will not be produced. True enough. But no market theorist would ever dare deny this. Yet, and this is decisive, this "imperfection" of the market can be defended, morally as well as economically, whereas the supposed "perfections" ofmarkets propagated by the public goods theorists cannot.  It is true enough, too, that a termination of the state's current practice of providing public goods would imply some change in the existing social structure and the distribution of wealth. And such a reshuffling would certainly imply hardship for some people. As a matter of fact, this is precisely why there is widespread public resistance to a policy of privatizing state functions, even though in the long run overall social wealth would be enhanced by this very policy. Surely, however, this fact cannot be accepted as a valid argument demonstrating the failure of markets. If a man has been allowed to hit other people on the bead and is now not permitted to continue with this practice, he is certainly hurt. But one would hardly accept that as a valid excuse for upholding the old (hitting) rules. He is harmed, but harming him means substituting a social order in which every consumer has an equal right o determine what and how much of anything is produced, for a system in which some consumers have the right to determine in what respect other consumers are not allowed to buy voluntarily what they want with the means justly acquired by them and at their disposal. And certainly, such a substitution would be preferable from the point of view of all consumers as voluntary consumers.

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The Role of Myths - Omnipotent Government by Ludwig von Mises

The Role of Myths

The term "myths" has long been used to signify purely fictitious narratives and doctrines. In this sense Christians call the teachings and stories of paganism myths. In this sense those who do not share the Christian faith call the biblical tales mythical. For the Christian they are not myths but truth.

This obvious fact has been distorted by writers who maintain that doctrines which cannot stand the criticism of reason can nonetheless be justified by ascribing to them a mythical character. They have tried to build up a rationalistic theory for the salvation of error and its protection against sound reasoning.

If a statement can be disproved, you cannot justify it by giving it the status of a myth and thus making it proof against reasonable objections. It is true that many fictions and doctrines, today gen­erally or in the main refuted and therefore called myths, have played a great role in history. But they played this role not as myths but as doctrines considered true. In the eyes of their supporters they were entirely authentic; they were their honest convictions. They turned to myths in the eyes of those who considered them fictitious and contrary to fact, and who therefore did not let their actions be in­fluenced by them.

For Georges Sorel a myth is the imaginary construction of a fu­ture successful action.[iii]But, we must add, to estimate the value of a method of procedure one point only has to be taken into account, namely, whether or not it is a suitable means to attain the end sought. If reasonable examination demonstrates that it is not, it must be rejected. It is impossible to render an unsuitable method of procedure more expedient by ascribing to it the quality of a myth. Sorel says: "If you place yourself on this ground of myths, you are proof against any kind of critical refutation."[iv]But the problem is not to succeed in polemic by taking recourse to subtleties and tricks. The only question is whether or not action guided by the doctrine concerned will attain the ends sought. Even if one sees, as Sorel does, the task of myths to be that of equipping men to fight for the de­struction of what exists[v], one cannot escape the question: Do these myths represent an adequate means to achieve this task? It needs to be pointed out, incidentally, that destruction of existing condi­tions alone cannot be considered as a goal; it is necessary to build up something new in the place of what is destroyed.

If it is proved by reasonable demonstration that socialism as a social system cannot realize what people wish or expect to realize through it, or that the general strike is not the appropriate means for the attainment of socialism, you cannot change these facts by declaring—as Sorel did—that socialism and the general strike are myths. People who cling to socialism and the general strike wish to attain certain aims through them. They are convinced that they will succeed by these methods. It is not as myths but as doctrines considered to be correct and well founded that socialism and the general strike are supported by millions of men.

Some free thinkers say: Christianity is an absurd creed, a myth; yet it is useful that the masses should adhere to the Christian dog­mas. But the advantage that these free thinkers expect depends upon the masses actually taking the Gospels as truth. It could not be at­tained if they were to regard the Commandments as myths.

Whoever rejects a political doctrine as wrong agrees with the gen­erally accepted terminology in calling it a myth.[vi]But if he wants to profit from a popular superstition in order to attain his own ends, he must be careful not to disparage it by calling it a myth openly. For he can make use of this doctrine only so long as others consider it to be truth. We do not know what those princes of the sixteenth century believed who joined the religious Reformation. If not sin­cere conviction but the desire for enrichment guided them, then they abused the faith of other people for the sake of their own selfish appetites. They would have prejudiced their own interests, how­ever, if they had called the new creed mythical. Lenin was cynical enough to say that revolutions must be achieved with the catch­words of the day. And he achieved his own revolution by affirming publicly—against his better conviction—the catchwords that had taken hold of public opinion. Some party leaders may be capable of being convinced of the falsehood of their party's doctrine. But doc­trines can have real influence only so far as people consider them right.

Socialism and interventionism, etatism and nationalism, are not myths, in the eyes of their advocates, but doctrines indicating the proper way to the attainment of their aims. The power of these teachings is based on the firm belief of the masses that they will ef­fectively improve their lot by applying them. Yet they are fallacious; they start from false assumptions and their reasoning is full of paralogisms. Those who see through these errors are right in calling them myths. But as long as they do not succeed in convincing their fellow citizens that these doctrines are untenable, the doctrines will dominate public opinion and politicians and statesmen will be guided by them. Men are always liable to error. They have erred in the past; they will err in the future. But they do not err purposely. They want to succeed, and they know very well that the choice of inappropriate means will frustrate their actions. Men do not ask for myths but for working doctrines that point the right means for the ends sought.

Nationalism in general and Nazism in particular are neither in­tentional myths nor founded or supported by intentional myths. They are political doctrines and policies (though faulty) and are even "scientific" in intent.

If somebody were prepared to call myths the variations on themes like "We are the salt of the earth," or "We are the chosen people," in which all nations and castes have indulged in one way or another, we should have to refer to what has been said about chauvinism. This is music for the enchantment and gratification of the commu­nity, mere pastime for the hours not devoted to political business. Politics is activity and striving toward aims. It should not be con­fused with mere indulgence in self-praise and self-adulation.

Misapprehended Darwinism - Omnipotent Government by Ludwig von Mises

Nothing could be more mistaken than the now fashionable at­tempt to apply the methods and concepts of the natural sciences to the solution of social problems. In the realm of nature we cannot know anything about final causes, by reference to which events can be explained. But in the field of human actions there is the finality of acting men. Men make choices. They aim at certain ends and they apply means in order to attain the ends sought.

Darwinism is one of the great achievements of the nineteenth century. But what is commonly called Social Darwinism is a garbled distortion of the ideas advanced by Charles Darwin.

It is an ineluctable law of nature, say these pseudo-Darwinists, that each living being devours the smaller and weaker ones and that, when its turn comes, it is swallowed by a still bigger and stronger one. In nature there are no such things as peace or mutual friendship. In nature there is always struggle and merciless anni­hilation of those who do not succeed in defending themselves. Liberalism's plans for eternal peace are the outcome of an illusory rationalism. The laws of nature cannot be abolished by men. In spite of the liberal's protest we are witnessing a recurrence of war. There have always been wars, there will always be wars. Thus modern nationalism is a return from fallacious ideas to the reality of nature and life.

Let us first incidentally remark that the struggles to which this doctrine refers are struggles between animals of different species. Higher animals devour lower animals; for the most part they do not feed in a cannibalistic way on their own species. But this fact is of minor importance.

The only equipment which the beasts have to use in their struggles is their physical strength, their bodily features, and their instincts. Man is better armed. Although bodily much weaker than many beasts of prey, and almost defenseless against the more dan­gerous microbes, man has conquered the earth through his most valuable gift, reason. Reason is the main resource of man in his struggle for survival. It is foolish to view human reason as some­thing unnatural or even contrary to nature. Reason fulfills a funda­mental biological function in human life. It is the specific feature of man. When man fights he nearly always makes use of it as his most efficient weapon. Reason guides his steps in his endeavors to improve the external conditions of his life and well‑being. Man is the reasonable animal, homo sapiens.

Now the greatest accomplishment of reason is the discovery of the advantages of social coöperation, and its corollary, the division of labor. Thanks to this achievement man has been able to centuple his progeny and still provide for each individual a much better life than nature offered to his nonhuman ancestors some hundred thousand years ago. In this sense—that there are many more people living today and that each of them enjoys a much richer life than his fathers did—we may apply the term progress. It is, of course, a judg­ment of value, and as such arbitrary. But it is made from a point of view which practically all men accept, even if they—like Count Tolstoi or Mahatma Gandhi—seem unconditionally to disparage all our civilization. Human civilization is not something achieved against nature; it is rather the outcome of the working of the innate qualities of man.

Social coöperation and war are in the long run incompatible. Self-sufficient individuals may fight each other without destroying the foundations of their existence. But within the social system of coöperation and division of labor war means disintegration. The progressive evolution of society requires the progressive elimina­tion of war. Under present conditions of international division of labor there is no room left for wars. The great society of world-embracing mutual exchange of commodities and services demands a peaceful coexistence of states and nations. Several hundred years ago it was necessary to eliminate the wars between the noblemen ruling various countries and districts, in order to pave the way for a peaceful development of domestic production. Today it is in­dispensable to achieve the same for the world community. To abolish international war is not more unnatural than it was five hundred years ago to prevent the barons from fighting each other, or two thousand years ago to prevent a man from robbing and kill­ing his neighbor. If men do not now succeed in abolishing war, civilization and mankind are doomed.

From a correct Darwinist viewpoint it would be right to say: Social coöperation and division of labor are man's foremost tools in his struggle for survival. The intensification of this mutuality in the direction of a world-embracing system of exchange has considerably improved the conditions of mankind. The maintenance of this system requires lasting peace. The abolition of war is therefore an important item in man's struggle for survival.

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The Aristocratic Doctrine - Omnipotent Government by Ludwig von Mises

The Aristocratic Doctrine

Among the infinity of fallacious statements and factual errors that go to form the structure of Marxian philosophy there are two that are especially objectionable. Marx asserts that capitalism causes increasing pauperization of the masses, and blithely contends that the proletarians are intellectually and morally superior to the narrow-minded, corrupt, and selfish bourgeoisie. It is not worth while to waste time in a refutation of these fables.

The champions of a return to oligarchic government see things from a quite different angle. It is a fact, they say, that capitalism has poured a horn of plenty for the masses, who do not know why they become more prosperous from day to day. The proletarians have done everything they could to hinder or slow down the pace of technical innovations—they have even destroyed newly invented machines. Their unions today still oppose every improvement in methods of production. The entrepreneurs and capitalists have had to push the reluctant and unwilling masses toward a system of pro­duction which renders their lives more comfortable.

Within an unhampered market society, these advocates of aris­tocracy go on to say, there prevails a tendency toward a diminution of the inequality of incomes. While the average citizen becomes wealthier, the successful entrepreneurs seldom attain wealth which raises them far above the average level. There is but a small group of high incomes, and the total consumption of this group is too insignificant to play any role in the market. The members of the upper middle class enjoy a higher standard of living than the masses but their demands also are unimportant in the market. They live more comfortably than the majority of their fellow citizens but they are not rich enough to afford a style of life substantially different. Their dress is more expensive than that of the lower strata but it is of the same pattern and is adjusted to the same fashions. Their bath­rooms and their cars are more elegant but the service they render is substantially the same. The old discrepancies in standards have shrunk to differences that are mostly but a matter of ornament. The private life of a modern entrepreneur or executive differs much less from that of his employees than, centuries ago, the life of a feudal landlord differed from that of his serfs.

It is, in the eyes of these pro-aristocratic critics, a deplorable con­sequence of this trend toward equalization and a rise in mass stand­ards that the masses take a more active part in the nation's mental and political activities. They not only set artistic and literary stand­ards; they are supreme in politics also. They now have comfort and leisure enough to play a decisive role in communal matters. But they are too narrow-minded to grasp the sense in sound policies. They judge all economic problems from the point of view of their own position in the process of production. For them the entre­preneurs and capitalists, indeed most of the executives, are simply idle people whose services could easily be rendered by "anyone able to read and write."[i]The masses are full of envy and resentment; they want to expropriate the capitalists and entrepreneurs whose fault is to have served them too well. They are absolutely unfit to conceive the remoter consequences of the measures they are advo­cating. Thus they are bent on destroying the sources from which their prosperity stems. The policy of democracies is suicidal. Tur­bulent mobs demand acts which are contrary to society's and their own best interests. They return to Parliament corrupt demagogues, adventurers, and quacks who praise patent medicines and idiotic remedies. Democracy has resulted in an upheaval of the domestic barbarians against reason, sound policies, and civilization. The masses have firmly established the dictators in many European countries. They may succeed very soon in America too. The great experiment of liberalism and democracy has proved to be self-liquidating. It has brought about the worst of all tyrannies.

Not for the sake of the elite but for the salvation of civilization and for the benefit of the masses a radical reform is needed. The incomes of the proletarians, say the advocates of an aristocratic revolution, have to be cut down; their work must be made harder and more tedious. The laborer should be so tired after his daily task is fulfilled that he cannot find leisure for dangerous thoughts and activities. He must be deprived of the franchise. All political power must be vested in the upper classes. Then the populace will be rendered harmless. They will be serfs, but as such happy, grateful, and subservient. What the masses need is to be held under tight control. If they are left free they will fall an easy prey to the dicta­torial aspirations of scoundrels. Save them by establishing in time the oligarchic paternal rule of the best, of the elite, of the aristoc­racy.

These are the ideas that many of our contemporaries have de­rived from the writings of Burke, Dostoievsky, Nietzsche, Pareto, and Michels, and from the historical experience of the last decades. You have the choice, they say, between the tyranny of men from the scum and the benevolent rule of wise kings and aristocracies. There has never been in history a lasting democratic system. The ancient and medieval republics were not genuine democracies; the masses—slaves and metics—never took part in government. Any­way, these republics too ended in demagogy and decay. If the rule of a Grand Inquisitor is inevitable, let him rather be a Roman cardi­nal, a Bourbon prince, or a British lord than a sadistic adventurer of low breeding.

The main shortcoming of this reasoning is that it greatly exag­gerates the role played by the lower strata of society in the evolution toward the detrimental present-day policies. It is paradoxical to assume that the masses whom the friends of oligarchy describe as riffraff should have been able to overpower the upper classes, the elite of entrepreneurs, capitalists, and intellectuals, and to impose on them their own mentality.

Who is responsible for the deplorable events of the last decades? Did perhaps the lower classes, the proletarians, evolve the new doctrines? Not at all. No proletarian contributed anything to the construction of antiliberal teachings. At the root of the genealog­ical tree of modern socialism we meet the name of the depraved scion of one of the most eminent aristocratic families of royal France. Almost all the fathers of socialism were members of the upper middle class or of the professions. The Belgian Henri de Man, once a radical Left-wing socialist, today a no less radical pro-Nazi socialist, was quite right in asserting: "If one accepted the mis­leading Marxist expression which attaches every social ideology to a definite class, one would have to say that socialism as a doctrine, even Marxism, is of bourgeois origin."[ii]Neither did intervention­ism and nationalism come from the "scum." They also are products of the well-to-do.

The overwhelming success of these doctrines which have proved so detrimental to peaceful social coöperation and now shake the foundations of our civilization is not an outcome of lower‑class activities. The proletarians, the workers, and the farmers are certainly not guilty. Members of the upper classes were the authors of these destructive ideas. The intellectuals converted the masses to this ideology; they did not get it from them. If the supremacy of these modern doctrines is a proof of intellectual decay, it does not demonstrate that the lower strata have conquered the upper ones. It demonstrates rather the decay of the intellectuals and of the bourgeoisie. The masses, precisely because they are dull and mentally inert, have never created new ideologies. This has always been the prerogative of the elite.

The truth is that we face a degeneration of a whole society and not an evil limited to some parts of it.

When liberals recommend democratic government as the only means of safeguarding permanent peace both at home and in inter­national relations, they do not advocate the rule of the mean, of the lowbred, of the stupid, and of the domestic barbarians, as some critics of democracy believe. They are liberals and democrats precisely because they desire government by the men best fitted for the task. They maintain that those best qualified to rule must prove their abilities by convincing their fellow citizens, so that they will voluntarily entrust them with office. They do not cling to the militarist doctrine, common to all revolutionaries, that the proof of qualification is the seizure of office by acts of violence or fraud. No ruler who lacks the gift of persuasion can stay in office long; it is the indispensable condition of government. It would be an idle illusion to assume that any government, no matter how good, could lastingly do without public consent. If our community does not beget men who have the power to make sound social principles generally ac­ceptable, civilization is lost, whatever the system of government may be.

It is not true that the dangers to the maintenance of peace, democracy, freedom, and capitalism are a result of a "revolt of the masses." They are an achievement of scholars and intellectuals, of sons of the well-to-do, of writers and artists pampered by the best society. In every country of the world dynasties and aristocrats have worked with the socialists and interventionists against freedom. Virtually all the Christian churches and sects have espoused the principles of socialism and interventionism. In almost every country the clergy favor nationalism. In spite of the fact that Catholicism is world embracing, even the Roman Church offers no exception. The nationalism of the Irish, the Poles, and the Slovaks is to a great extent an achievement of the clergy. French national­ism found most effective support in the Church.

It would be vain to attempt to cure this evil by a return to the rule of autocrats and noblemen. The autocracy of the czars in Russia or that of the Bourbons in France, Spain, and Naples was not an assurance of sound administration. The Hohenzollerns and the Prussian Junkers in Germany and the British ruling groups have clearly proved their unfitness to run a country.

If worthless and ignoble men control the governments of many countries, it is because eminent intellectuals have recommended their rule; the principles according to which they exercise their powers have been framed by upper-class doctrinaires and meet with the approval of intellectuals. What the world needs is not con­stitutional reform but sound ideologies. It is obvious that every constitutional system can be made to work satisfactorily when the rulers are equal to their task. The problem is to find the men fit for office. Neither a priori reasoning nor historical experience has dis­proved the basic idea of liberalism and democracy that the consent of those ruled is the main requisite of government. Neither benevo­lent kings nor enlightened aristocracies nor unselfish priests or philosophers can succeed when lacking this consent. Whoever wants lastingly to establish good government must start by trying to persuade his fellow citizens and offering them sound ideologies. He is only demonstrating his own incapacity when he resorts to violence, coercion, and compulsion instead of persuasion. In the long run force and threat cannot be successfully applied against majorities. There is no hope left for a civilization when the masses favor harmful policies. The elite should be supreme by virtue of persuasion, not by the assistance of firing squads.

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The Shortcomings of Current Explanations -Omnipotent Government by Ludwig von Mises

The current explanations of modern nationalism are far from recognizing that nationalism within our world of international division of labor is the inevitable outcome of etatism. We have already exposed the fallacies of the most popular of these explanations, namely, of the Marxian theory of imperialism. We have now to pass in review some other doctrines.

The faultiness of the Marxian theory is due to its bad economics. Most of the theories with which we shall deal now do not take eco­nomic factors into account at all. For them nationalism is a phe­nomenon in a sphere not subject to the influence of factors com­monly called economic. Some of these theories even go so far as to assert that nationalistic motivations arise from an intentional neg­lect of economic matters for the other matters.

A thorough scrutiny of all these dissenting opinions would re­quire an examination of all the fundamental problems of social life and social philosophy. We cannot achieve this in a study devoted to nationalism and the conflicts it has aroused, but must limit our­selves to the problems under investigation.

With regard to prevalent mistakes it may be necessary to empha­size again that we are considering policies and political actions and the doctrines influencing them, not mere views and opinions with­out practical effect. Our purpose is not to answer such questions as: In what respect do people of various nations, states, linguistic, and other social groups differ from one another? Or: Do they love or hate one another? We wish to know why they prefer a policy of economic nationalism and war to one of peaceful coöperation. Even nations bitterly hating one another would cling to peace and free trade if they were convinced that such a policy best promoted their own interests.

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Socialism and War

The socialists insist that war is but one of the many mischiefs of capitalism. In the coming paradise of socialism, they hold, there will no longer be any wars. Of course, between us and this peaceful utopia there are still some bloody civil wars to be fought. But with the inevitable triumph of communism all conflicts will disappear.

It is obvious enough that with the conquest of the whole surface of the earth by a single ruler all struggles between states and nations would disappear. If a socialist dictator should succeed in conquer­ing every country there would no longer be external wars, pro­vided that the O.G.P.U. were strong enough to hinder the disinte­gration of this World State. But the same holds true for any other conqueror. If the Mongol Great Khans had accomplished their ends, they too would have made the world safe for eternal peace. It is too bad that Christian Europe was so obstinate as not to surrender voluntarily to their claims of world supremacy.[ix]

However, we are not considering projects for world pacification through universal conquest and enslavement, but how to achieve a world where there are no longer any causes of conflict. Such a pos­sibility was implied in liberalism's project for the smooth coöperation of democratic nations under capitalism. It failed because the world abandoned both liberalism and capitalism.

There are two possibilities for world-embracing socialism: the coexistence of independent socialist states on the one hand, or the establishment of a unitary world-embracing socialist government on the other.

The first system would stabilize existing inequalities. There would be richer nations and poorer ones, countries both under­populated and overpopulated. If mankind had introduced this system a hundred years ago, it would have been impossible to ex­ploit the oil fields of Mexico or Venezuela, to establish the rubber plantations in Malaya, or to develop the banana production of Central America. The nations concerned lacked both the capital and trained men to utilize their own natural resources. A socialist scheme is not compatible with foreign investment, international loans, payments of dividends and interest, and all such capitalist institutions.

Let us consider what some of the conditions would be in such a world of coördinate socialist nations. There are some overcrowded countries peopled by white workers. They labor to improve their standard of living, but their endeavors are handicapped by inade­quate natural resources. They badly need raw materials and food­stuffs that could be produced in other, better endowed countries. But these countries which nature has favored are thinly populated and lack the capital required to develop their resources. Their in­habitants are neither industrious nor skillful enough to profit from the riches which nature has lavished upon them. They are without initiative; they cling to old-fashioned methods of production; they are not interested in improvement. They are not eager to produce more rubber, tin, copra, and jute and to exchange these products for goods manufactured abroad. By this attitude they affect the standard of living of those peoples whose chief asset is their skill and diligence. Will these peoples of countries neglected by nature be prepared to endure such a state of things? Will they be willing to work harder and to produce less because the favored children of nature stubbornly abstain from exploiting their treasures in a more efficient way?

Inevitably war and conquest result. The workers of the compara­tively overpopulated areas invade the comparatively underpopu­lated areas, conquer these countries, and annex them. And then follow wars between the conquerors for the distribution of the booty. Every nation is prepared to believe that it has not obtained its fair share, that other nations have got too much and should be forced to abandon a part of their plunder. Socialism in independ­ent nations would result in endless wars.

These considerations prepare for a disclosure of the nonsensical Marxian theories of imperialism. All these theories, however much they conflict with each other, have one feature in common: they all maintain that the capitalists are eager for foreign investment be­cause production at home tends, with the progress of capitalism, to a reduction in the rate of profit, and because the home market un­der capitalism is too narrow to absorb the whole volume of produc­tion. This desire of capitalists for exports and for foreign in­vestment, it is held, is detrimental to the class interests of the proletarians. Besides, it leads to international conflict and war.

Yet the capitalists did not invest abroad in order to withhold goods from home consumption. On the contrary, they did so in order to supply the home market with raw materials and foodstuffs which could otherwise not be obtained at all, or only in insufficient quantities or at higher costs. Without export trade and foreign in­vestment European and American consumers would never have enjoyed the high standard of living that capitalism gave them. It was the wants of the domestic consumers that pushed the capitalists and entrepreneurs toward foreign markets and foreign investment. 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 raw materials than for imported food and raw materials, it would have been more profitable to expand home pro­duction further than to invest abroad.

The Marxian doctrinaires shut their eyes purposely to the in­equality of natural resources in different parts of the world. And yet these inequalities are the essential problem of international relations.[x]*But for them the Teutonic tribes and later the Mongols would not have invaded Europe. They would have turned toward the vast empty areas of the Tundra or of northern Scandinavia. If we do not take into account these inequalities of natural resources and climates we can discover no motive for war but some devilish spell, for example—as the Marxians say—the sinister machinations of capitalists, or—as the Nazis say—the intrigues of world Jewry.

These inequalities are natural and can never disappear. They would present an insoluble problem for a unitary world socialism also. A socialist world-embracing management could, of course, consider a policy under which all human beings are treated alike; it could try to ship workers and capital from one area to another, without considering the vested interests of the labor groups of dif­ferent countries or of different linguistic groups. But nothing can justify the illusion that these labor groups, whose per capita income and standard of living would be reduced by such a policy, would be prepared to tolerate it. No socialist of the Western nations con­siders socialism to be a scheme which (even if we were to grant the fallacious expectations that socialist production would increase the productivity of labor) must result in lowering living standards in those nations. The workers of the West are not striving for equaliza­tion of their earnings with those of the more than l,000 million ex­tremely poor peasants and workers of Asia and Africa. For the same reason that they oppose immigration under capitalism, these work­ers would oppose such a policy of labor transfer on the part of a socialist world management. They would rather fight than agree to abolition of the existing discriminations between the lucky in­habitants of comparatively underpopulated areas and the unfortu­nate inhabitants of the overpopulated areas. Whether we call such struggles civil wars or foreign wars is immaterial.

The workers of the West favor socialism because they hope to improve their condition by the abolition of what they describe as unearned incomes. We are not concerned with the fallacies of these expectations. We have only to emphasize that these Western social­ists do not want to share their incomes with the underprivileged masses of the East. They are not prepared to renounce the most valuable privilege which they enjoy under etatism and economic nationalism—the exclusion of foreign labor. The American work­ers are for the maintenance of what they call "the American way of life," not for a world socialist way of life, which would lie somewhere between the present American and the coolie level, probably much nearer to the latter than to the former. This is stark reality that no socialist rhetoric can conjure away.

The same selfish group interests which through migration bar­riers have frustrated the liberal plans for world-wide peaceful coöperation of nations, states, and individuals would destroy the in­ternal peace within a socialist world state. The peace argument is just as baseless and erroneous as all the other arguments brought forward to demonstrate the practicability and expediency of socialism.

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Socialism by Ludwig von Mises

Socialism

Socialism aims at a social system based on public ownership of the means of production. In a socialist community all material re­sources are owned and operated by the government. This implies that the government is the only employer, and that no one can consume more than the government allots to him. The term "state socialism" is pleonastic; socialism is necessarily always state so­cialism. Planning is nowadays a popular synonym for socialism. Until 1917 communism and socialism were usually used as syno­nyms. The fundamental document of Marxian socialism, which all socialist parties united in the different International Working Men's Associations considered and still consider the eternal and un­alterable gospel of socialism is entitled the Communist Manifesto. Since the ascendancy of Russian Bolshevism most people differen­tiate between communism and socialism. But this differentiation refers only to political tactics. Present‑day communists and social­ists disagree only in respect to the methods to be applied for the achievement of ends which are common to both.

The German Marxian socialists called their party the Social Democrats. It was believed that socialism was compatible with democratic government—indeed that the program of democracy could be fully realized only within a socialist community. In West­ern Europe and in America this opinion is still current. In spite of all the experience which events since 1917 have provided, many cling stubbornly to the belief that true democracy and true so­cialism are identical. Russia, the classical country of dictatorial oppression, is considered democratic because it is socialist.

However, the Marxians' love of democratic institutions was a stratagem only, a pious fraud for the deception of the masses.[4]Within a socialist community there is no room left for freedom. There can be no freedom of the press where the government owns every printing office. There can be no free choice of profession or trade where the government is the only employer and assigns every­one the task he must fulfill. There can be no freedom to settle where one chooses when the government has the power to fix one's place of work. There can be no real freedom of scientific research where the government owns all the libraries, archives, and laboratories and has the right to send anyone to a place where he cannot con­tinue his investigations. There can be no freedom in art and litera­ture where the government determines who shall create them. There can be neither freedom of conscience nor of speech where the government has the power to remove any opponent to a climate which is detrimental to his health, or to assign him duties which surpass his strength and ruin him both physically and intellec­tually. In a socialist community the individual citizen can have no more freedom than a soldier in the army or an inmate in an or­phanage.

But, object the socialists, the socialist commonwealth differs in this essential respect from such organizations: the inhabitants have the right to choose the government. They forget, however, that the right to vote becomes a sham in a socialist state. The citizens have no sources of information but those provided by the government. The press, the radio, and the meeting halls are in the hands of the administration. No party of opposition can be organized or can propagate its ideas. We have only to look to Russia or Germany to discover the true meaning of elections and plebiscites under so­cialism.

The conduct of economic affairs by a socialist government can­not be checked by the vote of parliamentary bodies or by the con­trol of the citizens. Economic enterprises and investments are de­signed for long periods. They require many years for preparation and realization; their fruits ripen late. If a penal law has been promulgated in May, it can be repealed without harm or loss in October. If a minister of foreign affairs has been appointed, he can be discharged a few months later. But if industrial investments have been once started, it is necessary to cling to the undertaking until it is achieved and to exploit the plant erected as long as it seems profitable. To change the original plan would be wasteful. This necessarily implies that the personnel of the government can­not be easily disposed of. Those who made the plan must execute it. They must later operate the plants erected, because others can­not take over the responsibility for their proper management. Peo­ple who once agree to the famous four—and five—year plans virtually abandon their right to change the system and the personnel of government not only for the duration of four or five years but for the following years too, in which the planned investments have to be utilized. Consequently a socialist government must stay in office for an indefinite period. It is no longer the executor of the nation's will; it cannot be discharged without sensible detriment if its actions no longer suit the people. It has irrevocable powers. It be­comes an authority above the people; it thinks and acts for the community in its own right and does not tolerate interference with "its own business" by outsiders.[5]

The entrepreneur in a capitalist society depends upon the market and upon the consumers. He has to obey the orders which the con­sumers transmit to him by their buying or failure to buy, and the mandate with which they have charged him can be revoked at any hour. Every entrepreneur and every owner of means of production must daily justify his social function through subservience to the wants of the consumers.

The management of a socialist economy is not under the neces­sity of adjusting itself to the operation of a market. It has an abso­lute monopoly. It does not depend on the wants of the consumers. It itself decides what must be done. It does not serve the consumers as the businessman does.  It provides for them as the father provides for his children or the headmaster of a school for the students. It is the authority bestowing favors, not a businessman eager to attract customers. The salesman thanks the customer for patroniz­ing his shop and asks him to come again. But the socialists say: Be grateful to Hitler, render thanks to Stalin; be nice and submissive, then the great man will be kind to you later too.

The prime means of democratic control of the administration is the budget. Not a clerk may be appointed, not a pencil bought, if Parliament has not made an allotment. The government must ac­count for every penny spent. It is unlawful to exceed the allotment or to spend it for other purposes than those fixed by Parliament. Such restrictions are impracticable for the management of plants, mines, farms, and transportation systems. Their expenditure must be adjusted to the changing conditions of the moment. You cannot fix in advance how much is to be spent to clear fields of weeds or to remove snow from railroad tracks. This must be decided on the spot according to circumstances. Budget control by the people's representatives, the most effective weapon of democratic govern­ment, disappears in a socialist state.

Thus socialism must lead to the dissolution of democracy. The sovereignty of the consumers and the democracy of the market are the characteristic features of the capitalist system. Their corollary in the realm of politics is the people's sovereignty and democratic control of government. Pareto, Georges Sorel, Lenin, Hitler, and Mussolini were right in denouncing democracy as a capitalist method. Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship.

The advocates of socialism who are keen enough to realize this tell us that liberty and democracy are worthless for the masses. People, they say, want food and shelter; they are ready to renounce freedom and self‑determination to obtain more and better bread by submitting to a competent paternal authority. To this the old liberals used to reply that socialism will not improve but on the contrary will impair the standard of living of the masses. For so­cialism is a less efficient system of production than capitalism. But this rejoinder also failed to silence the champions of socialism. Granted, many of them replied, that socialism may not result in riches for all but rather in a smaller production of wealth; never­theless the masses will be happier under socialism, because they will share their worries with all their fellow citizens, and there will not be wealthier classes to be envied by poorer ones. The starving and ragged workers of Soviet Russia, they tell us, are a thousand times more joyful than the workers of the West who live under conditions which are luxurious compared to Russian standards; equality in poverty is a more satisfactory state than well‑being where there are people who can flaunt more luxuries than the average man.

Such debates are vain because they miss the central point. It is useless to discuss the alleged advantages of socialist management. Complete socialism is simply impracticable; it is not at all a system of production; it results in chaos and frustration.

The fundamental problem of socialism is the problem of eco­nomic calculation. Production within a system of division of labor and thereby social coöperation, requires methods for the computa­tion of expenditures asked for by different thinkable and possible ways of achieving ends. In capitalist society market prices are the units of this calculation. But within a system where all factors of production are owned by the state there is no market, and con­sequently there are no prices for these factors. Thus it becomes im­possible for the managers of a socialist community to calculate. They cannot know whether what they are planning and achieving is reasonable or not. They have no means of finding out which of the various methods of production under consideration is the most advantageous. They cannot find a genuine basis of comparison be­tween quantities of different material factors of production and of different services; so they cannot compare the outlays necessary with the anticipated outputs. Such comparisons need a common unit; and there is no such unit available but that provided by the price system of the market. The socialist managers cannot know whether the construction of a new railroad line is more advan­tageous than the construction of a new motor road. And if they have once decided on the construction of a railroad, they cannot know which of many possible routes it should cover. Under a sys­tem of private ownership money calculations are used to solve such problems. But no such calculation is possible by comparing various classes of expenditures and incomes in kind. It is out of the ques­tion to reduce to a common unit the quantities of various kinds of skilled and unskilled labor, iron, coal, building materials of dif­ferent types, machinery, and everything else that the building, the upkeep, and the operation of railroads necessitates. But without such a common unit it is impossible to make these plans the subject of economic calculations. Planning requires that all the commodi­ties and services which we have to take into account can be reduced to money. The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation.

Socialism as a universal mode of production is impracticable because it is impossible to make economic calculations within a socialist system. The choice for mankind is not between two eco­nomic systems. It is between capitalism and chaos.

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The Political and Social Doctrines of Liberalism by Ludwig von Mises

 The Political and Social Doctrines of Liberalism

There is a school of thought which teaches that social coöperation of men could be achieved without compulsion or coercion. Anarchism believes that a social order could be established in which all men would recognize the advantages to be derived from coöperation and be prepared to do voluntarily everything which the maintenance of society requires and to renounce voluntarily all actions detrimental to society. But the anarchists overlook two facts. There are people whose mental abilities are so limited that they cannot grasp the full benefits that society brings to them. And there are people whose flesh is so weak that they cannot resist the temptation of striving for selfish advantage through actions detri­mental to society. An anarchistic society would be exposed to the mercy of every individual. We may grant that every sane adult is endowed with the faculty of realizing the good of social coöperation and of acting accordingly. However, it is beyond doubt that there are infants, the aged, and the insane. We may agree that he who acts antisocially should be considered mentally sick and in need of cure. But as long as not all are cured, and as long as there are infants and the senile, some provision must be taken lest they destroy society.

Liberalism differs radically from anarchism. It has nothing in common with the absurd illusions of the anarchists. We must em­phasize this point because etatists sometimes try to discover a simi­larity. Liberalism is not so foolish as to aim at the abolition of the state. Liberals fully recognize that no social coöperation and no civilization could exist without some amount of compulsion and coercion. It is the task of government to protect the social system against the attacks of those who plan actions detrimental to its maintenance and operation.

The essential teaching of liberalism is that social coöperation and the division of labor can be achieved only in a system of private ownership of the means of production, i.e., within a market society, or capitalism. All the other principles of liberalism—democracy, personal freedom of the individual, freedom of speech and of the press, religious tolerance, peace among the nations—are conse­quences of this basic postulate. They can be realized only within a society based on private property.

From this point of view liberalism assigns to the state the task of protecting the lives, health, freedom, and property of its subjects against violent or fraudulent aggression.

That liberalism aims at private ownership of the means of pro­duction implies that it rejects public ownership of the means of production, i.e., socialism. Liberalism therefore objects to the socialization of the means of production. It is illogical to say, as many etatists do, that liberalism is hostile to or hates the state, because it is opposed to the transfer of the ownership of railroads or cotton mills to the state. If a man says that sulphuric acid does not make a good hand lotion, he is not expressing hostility to sulphuric acid as such; he is simply giving his opinion concerning the limita­tions of its use.

It is not the task of this study to determine whether the program of liberalism or that of socialism is more adequate for the realiza­tion of those aims which are common to all political and social en­deavors, i.e., the achievement of human happiness and welfare. We are only tracing the role played by liberalism and by antiliberalism—whether socialist or interventionist—in the evolution which re­sulted in the establishment of totalitarianism. We can therefore content ourselves with briefly sketching the outlines of the social and political program of liberalism and its working.

In an economic order based on private ownership of the means of production the market is the focal point of the system. The working of the market mechanism forces capitalists and entre­preneurs to produce so as to satisfy the consumers' needs as well and cheaply as the quantity and quality of material resources and of man power available and the state of technological knowledge allow. If they are not equal to this task, if they produce poor goods, or at too great cost, or not the commodities that the consumers de­mand most urgently, they suffer losses. Unless they change their methods to satisfy the consumers' needs better, they will finally be thrown out of their positions as capitalists and entrepreneurs. Other people who know better how to serve the consumer will replace them. Within the market society the working of the price mechanism makes the consumers supreme. They determine through the prices they pay and through the amount of their pur­chases both the quantity and quality of production. They deter­mine directly the prices of consumers' goods, and thereby indirectly the prices of all material factors of production and the wages of all hands employed.

Within the market society each serves all his fellow citizens and each is served by them. It is a system of mutual exchange of services and commodities, a mutual giving and receiving. In that endless rotating mechanism the entrepreneurs and capitalists are the serv­ants of the consumers. The consumers are the masters, to whose whims the entrepreneurs and the capitalists must adjust their investments and methods of production. The market chooses the entrepreneurs and the capitalists, and removes them as soon as they prove failures. The market is a democracy in which every penny gives a right to vote and where voting is repeated every day.

Outside of the market stands the social apparatus of compulsion and coercion, and its steersmen, the government. To state and government the duty is assigned of maintaining peace both at home and abroad. For only in peace can the economic system achieve its ends, the fullest satisfaction of human needs and wants.

But who should command the apparatus of compulsion and coercion? In other words, who should rule? It is one of the funda­mental insights of liberal thought that government is based on opinion, and that therefore in the long run it cannot subsist if the men who form it and the methods they apply are not accepted by the majority of those ruled. If the conduct of political affairs does not suit them, the citizens will finally succeed in overthrowing the government by violent action and in replacing the rulers by men deemed more competent. The rulers are always a minority. They cannot stay in office if the majority is determined to turn them out. Revolution and civil war are the ultimate remedy for unpopu­lar rule. For the sake of domestic peace, liberalism aims at demo­cratic government. Democracy is therefore not a revolutionary in­stitution. On the contrary, it is the very means of preventing revolutions. Democracy is a system providing for the peaceful ad­justment of government to the will of the majority. When the men in office and their methods no longer please the majority of the na­tion, they will—in the next election—be eliminated, and replaced by other men and another system. Democracy aims at safeguarding peace within the country and among the citizens.

The goal of liberalism is the peaceful coöperation of all men. It aims at peace among nations too. When there is private ownership of the means of production everywhere and when the laws, the tribunals, and the administration treat foreigners and citizens on equal terms, it is of little importance where a country's frontiers are drawn. Nobody can derive any profit from conquest, but many can suffer losses from fighting. War no longer pays; there is no mo­tive for aggression. The population of every territory is free to determine to which state it wishes to belong, or whether it prefers to establish a state of its own. All nations can coexist peacefully, be­cause no nation is concerned about the size of its state.

This is, of course, a very cool and dispassionate plea for peace and democracy. It is the outcome of a utilitarian philosophy. It is as far from the mystical mythology of the divine right of kings as it is from the metaphysics of natural law or the natural and impre­scriptible rights of man. It is founded upon considerations of common utility. Freedom, democracy, peace, and private property are deemed good because they are the best means for promoting human happiness and welfare. Liberalism wants to secure to man a life free from fear and want. That is all.

About the middle of the nineteenth century liberals were convinced that they were on the eve of the realization of their plans. It was an illusion.

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