Liberal Economics and Property

Liberal Economics and Property
Profile photo of Ludwig von Mises
[This article is excerpted from Liberalism, Chapter 2]
1. The Organization of the Economy

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.

The history of private ownership of the means of production coincides with the history of the development of mankind from an animal-like condition to the highest reaches of modern civilization. The opponents of private property have gone to great pains to demonstrate that in the primeval beginnings of human society the institution of private property still did not exist in a complete form because a part of the land under cultivation was subject to periodic redistribution. From this observation, which shows that private property is only a “historical category,” they have tried to draw the conclusion that it could once again be quite safely dispensed with. The logical fallacy involved in this reasoning is too flagrant to require any further discussion. That there was social cooperation in remote antiquity even in the absence of a completely realized system of private property cannot provide the slightest proof that one could manage without private property just as well at higher stages of civilization. If history could prove anything at all in regard to this question, it could only be that nowhere and at no time has there ever been a people which has raised itself without private property above a condition of the most oppressive penury and savagery scarcely distinguishable from animal existence.

The earlier opponents of the system of private ownership of the means of production did not attack the institution of private property as such, but only the inequality of income distribution. They recommended the abolition of the inequality of income and wealth by means of a system of periodical redistribution of the total quantity of commodities or, at least, of land, which was at that time virtually the only factor of production taken into consideration. In the technologically backward countries, where primitive agricultural production prevails, this idea of an equal distribution of property still holds sway today. People are accustomed to call it agrarian socialism, though the appellation is not at all apposite since this system has nothing to do with socialism. The Bolshevist revolution in Russia, which had begun as socialist, did not establish socialism in agriculture?i.e., communal ownership of the land?but, instead, agrarian socialism. In large areas of the rest of Eastern Europe, the division of big landed estates among the small farmers, under the name of agrarian reform, is the ideal espoused by influential political parties.

It is unnecessary to enter further into a discussion of this system. That it must result in a reduction in the output of human labor will scarcely be disputed. Only where land is still cultivated in the most primitive way can one fail to recognize the decrease in productivity which follows upon its division and distribution. That it is utterly senseless to break up a dairy farm equipped with all the devices of modern technology will be conceded by everyone. As for the transference of this principle of division and distribution to industry or commercial enterprises, it is altogether unthinkable. A railroad, a rolling mill, or a machine factory cannot be divided up. One could undertake to carry out the periodical redistribution of property only if one first completely broke up the economy based on the division of labor and the unhampered market and returned to an economy of self-sufficient farmsteads existing side by side without engaging in exchange.

The idea of syndicalism represents the attempt to adapt the ideal of the equal distribution of property to the circumstances of modern large-scale industry. Syndicalism seeks to invest ownership of the means of production neither in individuals nor in society, but in the workers employed in each industry or branch of production.[1]

Since the proportion in which the material and the personal factors of production are combined is different in the different branches of production, equality in the distribution of property cannot be attained in this way at all. From the very outset the worker will receive a greater portion of property in some branches of industry than in others. One has only to consider the difficulties that must arise from the necessity, continually present in any economy, of shifting capital and labor from one branch of production to another. Will it be possible to withdraw capital from one branch of industry in order thereby more generously to equip another? Will it be possible to remove workers from one branch of production in order to transfer them to another where the quota of capital per worker is smaller? The impossibility of such transfers renders the syndicalist commonwealth utterly absurd and impracticable as a form of social organization. Yet if we assume that over and above the individual groups there exists a central power that is entitled to carry out such transfers, we are no longer dealing with syndicalism, but with socialism. In reality, syndicalism as a social ideal is so absurd that only muddleheads who have not sufficiently thought the problem through have ventured to advocate it on principle.

Socialism or communism is that organization of society in which property-the power of deploying all the means of production-is vested in society, i.e., in the state, as the social apparatus of compulsion and coercion. For a society to be judged as socialist it is of no consequence whether the social dividend is distributed equally or according to some other principle. Neither is it of decisive significance whether socialism is brought about by a formal transfer of the ownership of all the means of production to the state, the social apparatus of compulsion and coercion, or whether the private owners retain their property in name and the socialization consists in the fact that all these “owners” are entitled to employ the means of production left in their hands only according to instructions issued by the state. If the government decides what is to be produced and how, and to whom it is to be sold, and at what “price,” then private property still exists in name only; in reality, all property is already socialized, for the mainspring of economic activity is no longer profit-seeking on the part of entrepreneurs and capitalists, but the necessity of fulfilling an imposed duty and of obeying commands.

Finally, we still have to speak of interventionism. According to a widespread opinion, there is, midway between socialism and capitalism, a third possibility of social organization: the system of private property regulated, controlled, and guided by isolated authoritarian decrees (acts of intervention).

The system of periodical redistribution of property and the system of syndicalism will not be discussed in what follows. These two systems are not generally at issue. No one who is in any way to be taken seriously advocates either one. We have to concern ourselves only with socialism, interventionism, and capitalism.

2. Private Property and Its Critics

Man’s life is not a state of unalloyed happiness. The earth is no paradise. Although this is not the fault of social institutions, people are wont to hold them responsible for it. The foundation of any and every civilization, including our own, is private ownership of the means of production. Whoever wishes to criticize modern civilization, therefore, begins with private property. It is blamed for everything that does not please the critic, especially those evils that have their origin in the fact that private property has been hampered and restrained in various respects so that its full social potentialities cannot be realized.

The usual procedure adopted by the critic is to imagine how wonderful everything would be if only he had his own way. In his dreams he eliminates every will opposed to his own by raising himself, or someone whose will coincides exactly with his, to the position of absolute master of the world. Everyone who preaches the right of the stronger considers himself as the stronger. He who espouses the institution of slavery never stops to reflect that he himself could be a slave. He who demands restrictions on the liberty of conscience demands it in regard to others, and not for himself. He who advocates an oligarchic form of government always includes himself in the oligarchy, and he who goes into ecstasies at the thought of enlightened despotism or dictatorship is immodest enough to allot to himself, in his daydreams, the role of the enlightened despot or dictator, or, at least, to expect that he himself will become the despot over the despot or the dictator over the dictator. Just as no one desires to see himself in the position of the weaker, of the oppressed, of the overpowered, of the negatively privileged, of the subject without rights; so, under socialism, no one desires himself otherwise than in the role of the general director or the mentor of the general director. In the dream and wish fantasies of socialism there is no other life that would be worth living.

Anticapitalist literature has created a fixed pattern for these fantasies of the daydreamer in the customary opposition between profitability and productivity. What takes place in the capitalist social order is contrasted in thought with what?corresponding to the desires of the critic?would be accomplished in the ideal socialist society. Everything that deviates from this ideal image is characterized as unproductive. That the greatest profitability for private individuals and the greatest productivity for the community do not always coincide was long considered the most serious reproach against the capitalist system. Only in recent years has the knowledge gained ground that in the majority of these cases a socialist community could proceed no differently from the way individuals in a capitalist community do. But even where the alleged opposition actually does exist, it cannot simply be assumed that a socialist society would necessarily do what is right and that the capitalist social order is always to be condemned if it does anything else. The concept of productivity is altogether subjective; it can never provide the starting-point for an objective criticism.

It is not worth while, therefore, to concern ourselves with the musings of our daydream-dictator. In his dream vision, everyone is willing and obedient, ready to execute his commands immediately and punctiliously. But it is quite another question how things must appear in a real, and not merely visionary, socialist society. The assumption that the equal distribution of the total annual output of the capitalist economy among all members of society would suffice to assure everyone a sufficient livelihood is, as simple statistical calculations show, altogether false. Thus, a socialist society could scarcely achieve a perceptible increase in the standard of living of the masses in this way. If it holds out the prospect of well-being, and even riches, for all, it can do so only on the assumption that labor in a socialist society will be more productive than it is under capitalism and that a socialist system will be able to dispense with a number of superfluous?and consequently unproductive?expenditures.

In connection with this second point, one thinks, for example, of the abolition of all those expenses originating in the costs of marketing merchandise, of competition, and of advertising. It is clear that there is no room in a socialist community for such expenditures. Yet one must not forget that the socialist apparatus of distribution too will involve not inconsiderable costs, perhaps even greater than those of a capitalist economy. But this is not the decisive element in our judgment of the significance of these expenses. The socialist assumes, without question, as a matter of course, that in a socialist system the productivity of labor will be at least the same as in a capitalist society, and he seeks to prove that it will be even greater. But the first assumption is by no means as self-evident as the advocates of socialism seem to think. The quantity of things produced in a capitalist society is not independent of the manner in which production is carried on. What is of decisive significance is that at every single stage of each branch of production the special interest of the persons engaged in it is bound up most intimately with the productivity of the particular share of labor being performed. Every worker must exert himself to the utmost, since his wages are determined by the output of his labor, and every entrepreneur must strive to produce more cheaply?i.e., with less expenditure of capital and labor?than his competitors.

Only because of these incentives has the capitalist economy been able to produce the wealth that is at its command. To take exception to the alleged excessive costs of the capitalist marketing apparatus is to take a myopic view of things indeed. Whoever reproaches capitalism with squandering resources because there are many competing haberdashers and even more tobacconists to be found on bustling business streets fails to see that this sales organization is only the end result of an apparatus of production that warrants the greatest productivity of labor. All advances in production have been achieved only because it is in the nature of this apparatus continually to make advances. Only because all entrepreneurs are in constant competition and are mercilessly weeded out if they do not produce in the most profitable manner are methods of production perpetually being improved and refined. Were this incentive to disappear, there would be no further progress in production and no effort to economize in the application of the traditional methods. Consequently, it is completely absurd to pose the question how much could be saved if the costs of advertising were abolished. One must rather ask how much could be produced if competition among producers were abolished. The answer to this question cannot be in doubt.

Men can consume only if they labor, and then only as much as their labor has produced. Now it is the characteristic feature of the capitalist system that it provides each member of society with this incentive to carry on his work with the greatest efficiency and thus achieves the highest output. In a socialist society, this direct connection between the labor of the individual and the goods and services he might thereby enjoy would be lacking. The incentive to work would not consist in the possibility of enjoying the fruit of one’s labor, but in the command of the authorities to work and in one’s own feeling of duty. The precise demonstration that this organization of labor is unfeasible will be offered in a later chapter.

What is always criticized in the capitalist system is the fact that the owners of the means of production occupy a preferential position. They can live without working. If one views the social order from an individualistic standpoint, one must see in this a serious shortcoming of capitalism. Why should one man be better off than another? But whoever considers things, not from the standpoint of individual persons, but from that of the whole social order, will find that the owners of property can preserve their agreeable position solely on condition that they perform a service indispensable for society. The capitalist can keep his favored position only by shifting the means of production to the application most important for society. If he does not do this?if he invests his wealth unwisely?he will suffer losses, and if he does not correct his mistake in time, he will soon be ruthlessly ousted from his preferential position. He will cease to be a capitalist, and others who are better qualified for it will take his place. In a capitalist society, the deployment of the means of production is always in the hands of those best fitted for it; and whether they want to or not, they must constantly take care to employ the means of production in such a way that they yield the greatest output.

3. Private Property and the Government

All those in positions of political power, all governments, all kings, and all republican authorities have always looked askance at private property. There is an inherent tendency in all governmental power to recognize no restraints on its operation and to extend the sphere of its dominion as much as possible. To control everything, to leave no room for anything to happen of its own accord without the interference of the authorities?this is the goal for which every ruler secretly strives. If only private property did not stand in the way! 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. It thus becomes the basis of all those activities that are free from violent interference on the part of the state. It is the soil in which the seeds of freedom are nurtured and in which the autonomy of the individual and ultimately all intellectual and material progress are rooted. In this sense, it has even been called the fundamental prerequisite for the development of the individual. But it is only with many reservations that the latter formulation can be considered acceptable, because the customary opposition between individual and collectivity, between individualistic and collective ideas and aims, or even between individualistic and universalistic science, is an empty shibboleth.

Thus, there has never been a political power that voluntarily desisted from impeding the free development and operation of the institution of private ownership of the means of production. Governments tolerate private property when they are compelled to do so, but they do not acknowledge it voluntarily in recognition of its necessity. Even liberal politicians, on gaining power, have usually relegated their liberal principles more or less to the background. The tendency to impose oppressive restraints on private property, to abuse political power, and to refuse to respect or recognize any free sphere outside or beyond the dominion of the state is too deeply ingrained in the mentality of those who control the governmental apparatus of compulsion and coercion for them ever to be able to resist it voluntarily. A liberal government is a contradictio in adjecto. Governments must be forced into adopting liberalism by the power of the unanimous opinion of the people; that they could voluntarily become liberal is not to be expected.

It is easy to understand what would constrain rulers to recognize the property rights of their subjects in a society composed exclusively of farmers all of whom were equally rich. In such a social order, every attempt to abridge the right to property would immediately meet with the resistance of a united front of all subjects against the government and thus bring about the latter’s fall. The situation is essentially different, however, in a society in which there is not only agricultural but also industrial production, and especially where there are big business enterprises involving large-scale investments in industry, mining, and trade. In such a society, it is quite possible for those in control of the government to take action against private property. In fact, politically there is nothing more advantageous for a government than an attack on property rights, for it is always an easy matter to incite the masses against the owners of land and capital. From time immemorial, therefore, it has been the idea of all absolute monarchs, of all despots and tyrants, to ally themselves with the “people” against the propertied classes. The Second Empire of Louis Napoleon was not the only regime to be founded on the principle of Caesarism. The Prussian authoritarian state of the Hohenzollerns also took up the idea, introduced by Lassalle into German politics during the Prussian constitutional struggle, of winning the masses of workers to the battle against the liberal bourgeoisie by means of a policy of etatism and interventionism. This was the basic principle of the “social monarchy” so highly extolled by Schmoller and his school.

In spite of all persecutions, however, the institution of private property has survived. Neither the animosity of all governments, nor the hostile campaign waged against it by writers and moralists and by churches and religions, nor the resentment of the masses?itself deeply rooted in instinctive envy?has availed to abolish it. Every attempt to replace it with some other method of organizing production and distribution has always of itself promptly proved unfeasible to the point of absurdity. People have had to recognize that the institution of private property is indispensable and to revert to it whether they liked it or not.

But for all that, they have still refused to admit that the reason for this return to the institution of free private ownership of the means of production is to be found in the fact that an economic system serving the needs and purposes of man’s life in society is, in principle, impracticable except on this foundation. People have been unable to make up their minds to rid themselves of an ideology to which they have become attached, namely, the belief that private property is an evil that cannot, at least for the time being, be dispensed with as long as men have not yet sufficiently evolved ethically. While governments?contrary to their intentions, of course, and to the inherent tendency of every organized center of power?have reconciled themselves to the existence of private property, they have still continued to adhere firmly?not only outwardly, but also in their own thinking?to an ideology hostile to property rights. Indeed, they consider opposition to private property to be correct in principle and any deviation from it on their part to be due solely to their own weakness or to consideration for the interests of powerful groups.


[1] Syndicalism as an end and as a social idea is not to be confused with syndicalism as a trade-union tactic (the “direct action” of the French syndicalists). Of course, the latter can serve as a means in the struggle for the realization of the syndicalist ideal, but it can also be made to serve other ends incompatible with that ideal. One can strive, for example?and this is precisely what some of the French syndicalists hope to do?to achieve socialism by resorting to syndicalist tactics.

Profile photo of Ludwig von Mises

Ludwig von Mises was one of the most notable economists and social philosophers of the twentieth century. In the course of a long and highly productive life, developed an integrated, deduct­ive science of economics based on the fundamental axiom that in­dividual human beings act purposively to achieve desired goals. Even though his economic analysis itself was "value-free" — in the sense of being irrelevant to values held by economists — Mises concluded that the only viable economic policy for the human race was a policy of unrestricted laissez-faire, of free markets and the unhampered exercise of the right of private property, with government strictly limited to the defense of person and property within its territorial area.

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