Friday, September 20, 2013

Chapter 1 - Profit Management

In the Introduction of Bureaucracy, Mises presents two ways to conduct the politico-economic affairs - profit and bureaucratic managements. For him, the choice between bureaucratic and profit managements is inseparable from the choice between socialism and capitalism. In the first chapter of the book, we will explore Mises' understanding of profit management under four sections - basic operation of the free market, economic calculation, the nature of profit management, and the nature of managing personnel under the profit system. 

1. Basic operation of the free market. Mises provides the meaning and goal of the free market. He understands free market as a "system of social cooperation and division of labor that is based on private ownership of the means of production" (p. 20). Profit is the goal in this system. 

One important feature of market economy is the sovereignty of consumers. They are the real bosses. They don't care about the track record of the company or of the entrepreneur. Their only concern is the present quality and lowest price of the product they are buying. And that is why business efficiency is measured by profit and loss, which is dependent on the decision of the consumers. Mises describes this mechanism as "economic democracy in which every penny gives a right to vote" (p. 21).

2. Economic calculation. In order to appreciate the importance of economic calculation, one must first grasp the significance of market prices and the origin and nature of profit. Market prices exist together with private ownership and profit motivation. However, bureaucratic management opposed these two basic foundation of the free market. Socialists think that maintaining them is detrimental to national interest. For Mises, this kind of mindset is prevalent among totalitarian governments: "It has been frequently objected that this orientation of economic activity according to the profit motive . . . . leaves out of consideration the interests of the nation as a whole and takes account only of the selfish interests of individuals, different from and often even contrary to the national interests. This idea lies at the bottom of all totalitarian planning. Government control of business, it is claimed by the advocates of authoritarian management, looks after the nation's well-being, while free enterprise, driven by the sole aim of making profits, jeopardizes national interests" (p. 23). 

This is one major difference between socialism and capitalism and at the same time between bureacratic management and profit management. No economic calculation exists under socialism and bureacratic management due to the absence of market prices, which serves as the common denominator among various factors in the economy. Without the market prices, there is no way to account the diverse skills of the large number of manpower, physical properties of material factors of production and the consideration of different places where these material factors are available. So without the market prices, the planners are blind. 

Concerning profit, it originates in an economic situation that is constantly changing. Without this change, the idea of profit is alien and also in such a world, there is no need for an entrepreneur. This is so simply because an entrepreneur is always seeking for an opportunity to make a profit. As soon as the entrepreneur realizes that the anticipated price of a certain commodity will be higher than the production cost, he takes advantage of it. If the entrepreneur is correct in his assessment, he gains a profit; but if he is wrong he suffers losses. This is the real world of the free market. 

However, profit for a certain commodity does not stay for so long. It starts to disappear when "the prices of the factors of production . . . go up and, . . . those of the products begin to drop" (p. 28). So profit occurs due to "change in market conditions and in methods of production" (ibid.). 

Moreover, in the ideal world where the economic situation is permanent, both entrepreneurship and profit have no place. And without entrepreneurship and profit motivation, market prices do not exist. This makes economic calculation impossible. Therefore, to remove private ownership, entrepreneurship, and profit motivation and to replace them with bureacratic aims in the name of national interest is heading towards economic disaster for central planners are groping in the dark without economic calculation due to the absence of market prices. 

3. The nature of profit management. Under profit management, records such as the profit-and-loss account and the balance sheet are so important to determine the present status and future of an enterprise. Mises called them the "conscience of business" and the "compass of an entrepreneur" (p. 32). By studying them, the business owner can see the total picture of the business without digging into the details. These records are also beneficial to the general manager for he could easily detect which department of the enterprise is contributing to the growth of the company. And after knowing the situation, he could recommend expansion for the growing department and reform or shutting down a poor-performing department in order to arrest the continuous loss. 

4. The nature of managing personnel under the profit system. The records also help in assessing the performance of personnel. In the case of a department manager, his only concern is to see his department contributing profit to the company. If not, as mentioned above, the department will either closed down or the manager himself will be replaced with a more efficient one. So as the department manager does his best, it is not only for the benefit of the company, but also for the sake of his career or for possible financial incentives. 

Compare this under bureaucratic management where there is no record to show about profit and loss. In such an environment where there is no basis for performance, it is easy to retain incompetent workers due to personal considerations or sentimental reasons. Such practices are unsustainable under profit management for the consumers care for nothing but the quality and low price of products and services.

Sunday, September 15, 2013

Ludwig von Mises' Economic Policy

Mises, M. (1979). Economic Policy: Thoughts for Today and Tomorrow. Chicago: Regnery/Gateway, Inc. (122 pages).

Margit von Mises compiled her husband's lectures in Argentina in 1959. The outcome is the book, Economic Policy: Thoughts for Today and Tomorrow. Regnery/Gateway, Inc., Chicago first published this book in 1979. 

Mises argued in the book that the best economic policy is to limit the government to its proper role and to make it sure that the market environment is conducive to its free operation. The focus of the government should be the protection of life, freedom, and private property of citizens both from domestic and foreign aggression. The author expounded this idea into six lectures on capitalism, socialism, interventionism, inflation, foreign investment, and policies and ideas. 


The first lecture centers on misconceptions about capitalism. It is about interconnected economic facts that are not widely known about capitalism. Examples of these facts include its historical setting and distinction from feudalism, its contribution to population growth, savings and higher standard of living, and the origin of animosity against it. 

1. Feudalism, historical setting of capitalism. Most people do not appreciate capitalism for they fail to compare it from feudalism. Under feudalism, the people did not have access to products and services that aristocrats enjoyed. And add to it the fact, that there was no social mobility. 

Capitalism replaced the socio-economic structure of feudalism. Access to products and services that the elites enjoy was opened to the public and any individual can now climb up to the social ladder through innovative ideas and entrepreneurship. 

2. Improved standard of living, population growth, and benefits of savings. During the previous social structure, mortality rate was so high due to poverty, malnutrition, and starvation. The entrance of capitalism increased the standard of living and contributed to the increase of human population. Savings played an important role to the growth of capital that benefit not only the savers, but other players in the market such as the entrepreneurs, unemployed, producers of raw materials and existing wage-earners (p.11).

3. Origin of animosity. Still another unpopular facts is connected to the origin of animosity against capitalism. People are fooled to believe that hatred towards capitalism originated from the masses, the working class, the "proletariat". This is a "succesful" historical distortion. Enmity against capitalism actually originated among the aristocrats (Even the term "capitalism" did not come from the proletariat. It was actually coined by Karl Marx, a bourgeois and capitalism's strongest enemy, p. 10). They didn't like capitalism for it diminished their economic power. Mises narrated: "It is a fact that the hatred of capitalism originated not with the masses, not among the workers themselves, but among the landed aristocracy—the gentry, the nobility, of England and the European continent. . . . They blamed capitalism for something that was not very pleasant for them: at the beginning of the nineteenth century, the higher wages paid by industry to its workers forced the landed gentry to pay equally higher wages to their agricultural workers. The aristocracy attacked the industries by criticising the standard of living of the masses of the workers." (p. 6).

Another historical distortions include the so-called "unspeakable horror of capitalism", which Mises designates as "one of the greatest falsehoods of history". This is related to the exploitation of women and children. Mises corrected this story: "The mothers who worked in the factories had nothing to cook with; they did not leave their homes and their kitchens to go into the factories, they went into factories because they had no kitchens, and if they had a kitchen they had no food to cook in those kitchens. And the children did not come from comfortable nurseries. They were starving and dying." (pp.6-7).

4. Other misconceptions. Still additional misconceptions concerning capitalism are related to wage rate and socio-economic gap between the rich and the poor. As a result of Marxian influence, people think that employers determine wage rate. They fail to see that ultimately consumers determine the wage rate of employees (p.9). Concerning the alleged widening gap between the rich and the poor inherent in capitalism, Marxists argue that as wealth is concentrated only in the hands of the few, mass revolution is inevitable. 

Mises refused to accept such faulty analysis for facts show that nations that embarced capitalism actually improved the condition of the masses. So the argument is completely mistaken. Mises asserts, "The scornful depiction of capitalism by some people as a system designed to make the rich become richer and the poor become poorer is wrong from beginning to end." (p.12).

And finally, another faulty idea is the belief that labor unions could improve the economic condition of the working class. Mises refuted labor unions' advocacy for higher wage rate, shorter work hours, and public ownership of means of production that they actually make the economic situation of the working class worse. Among numerous Marxist themes, Mises specifically identified "iron law of wages" theory as fallacious for its model was taken from biology. 

After reading the above misconceptions about capitalism, I dream to see increasing number of people listening to the message of the strongest defender of capitalism, Ludwig von Mises himself. 


The second lecture is about socialism. The first few pages contained a discussion about economic freedom. It was followed by an explanation of consumer sovereignty. Then the next few pages were devoted to the exposition of the use of state laws and the meaning of irreconcilable conflict of interest. The bulk of the last pages was spent in elaborating about central planning and the fundamental problem of the impossibility of calculation and planning under socialism.

1. Economic freedom. Mises described economic freedom as a system and a process. As a system, "it is the market economy, it is the system in which the cooperation of individuals in the social division of labor is achieved by the market" (p. 17). As a process, "it is the way in which, by selling and buying, by producing and consuming, the individuals contribute to the total workings of society" (ibid.). 

Mises made some necessary qualifications in his understanding of economic freedom. I find three: First, in relation to nature, he acknowledged that man is not free but has to follow the regularity of its laws. Second, he also denied perfect freedom from a metaphysical standard. Third, he confined his discussion of economic freedom in the context of society. Within this context, the various types of freedom are interconnected. Economic freedom therefore is vital and cannot be separated from other forms of freedom. He considered it illusory to think that people are really free without economic freedom.

2. Consumer sovereignty. Consumer sovereignty is a corollary theme of economic freedom. In the free market, a capitalist cannot lord over without the support of the people simply because the real sovereign under the free market is the consumer. "The fact is", said Mises, "under the capitalistic system, the ultimate bosses are the consumers. The sovereign is not the state, it is the people" (p. 21). And the proof of such sovereignty is the right to commit mistakes. Slaves do not have such right. 

3. Use of legislation. It is exactly this right to commit mistakes that occasioned the use of legislation to "protect" the people from economic mistakes. But the primary trouble with this kind of idea is that once it is accepted, the question of limitation is difficult to decide. The government could possibly restrict its citizens from reading "revolutionary" books, watching unwholesome movies, and listening to bad music. In fact, this kind of use of legislation is coercing individuals and the opening of the path to slavery. 

4. Irreconcilable conflict of interest. One favorite themes in socialism is the emphasis on irreconcilable conflict of interest between the proletariat and the bourgeois. Mises argued that Marx was mistaken in applying this idea to capitalism for the examples used by the latter were all taken from the pre-capitalistic era. Mises described this pre-capitalistic era as a status society. Marx failed to see the distinction between these two societies. In the status society, the aristocrats could retain their status for hundreds of years regardless of their moral quality. In the capitalist society, social mobility is constant.

Marx took the concept of irreconcilable conflict of interest from status society and misapplied it to a capitalist society. To see the significance of this point, it is best to read two paragraphs from Mises: "In a status society a man was not, for example, born a Frenchman; he was born as a member of the French aristocracy or of the French bourgeoisie or of the French peasantry. In the greater part of the Middle Ages, he was simply a serf. And serfdom, in France, did not disappear completely until after the American Revolution. In other parts of Europe it disappeared even later" (p.24).

And another paragraph: "But the worst form in which serfdom existed—and continued to exist even after the abolition of slavery—was in the British colonies abroad. The individual inherited his status from his parents, and he retained it throughout his life. He transferred it to his children. Every group had privileges and disadvantages. The highest groups had only privileges, the lowest groups only disadvantages. And there was no way a man could rid himself of the legal disadvantages placed upon him by his status other than by fighting a political struggle against the other classes. Under such conditions, you could say that there was an 'irreconcilable conflict of interests between the slave owners and the slaves,' because what the slaves wanted was to be rid of their slavery, of their quality of being slaves. This meant a loss, however, for the owners. Therefore, there is no question that there had to be this irreconcilable conflict of interests between the members of the various classes" (ibid.).

5. Central planning. Central planning is another popular form of socialism. In discussing this subject, Mises mentioned a popular book in his time written by a certain British lady who happened to be a member of the Upper House. The title of her book is "Plan or No Plan". In that book, Mises discerned that the author was advocating the kind of plan originally proposed by Lenin and Stalin. This type of plan covers the entire life of a nation and excludes the personal plans of the people. For Mises, the title of the book was misleading for the contrast actually was not between the existence and absence of national plan, but between two kinds of plan - central plan or personal plans. 

6. Impossibility of calculation and planning. The central weakness inherent in socialism is its inability for economic calculation and planning due to the absence of price system, which can only be provided by the free market. And since socialism is basically an economic system that abolished the free market, it is actually running blind without the price system. 


Those who are not familiar with free market literature would consider interventionism as a strange subject. I hope that by coming to this third lecture such unfamiliarity will be removed and we will begin to realize the crucial played by this economic policy in modern economics and politics.

Interventionism is the most influential economic policy in our time. An interventionist government is characterized by product regulation, price and salary control, business interference, welfare, import and export control. These activities indicate that the government is moving beyond its proper scope and this is not good for the economy. 

So interventionism is all about the government inclination to go beyond its appropriate function into the affairs of the free market. In short, interventionism is all "about government interference with the market" (p.40). Specifically, this means government interference "with prices, with wage rates, interest rates, and profits" (ibid.). Both the immediate and the long-term results of such interference will be the transfer of economic power from the consumers to the state and the bureaucrats.

In Mises' lecture on interventionism, we will see its real nature under three sections: the proper role of the government, mixed economy, and the distinction between mixed economy and interventionism. 

1. Proper role of the government. There are three views about the role of the government in relation to the free market - interventionism, anarchy, and limited government. Unlike Rothbard, Mises advocates limited government. So again limited government means that the primary task of the government is to protect its citizens' life, freedom, and private property. Going beyond this is harmful to the economy. 

2. Mixed economy. Mises did not believe in the existence of third economic system. However, interventionism should not be confused with the existence of the so-called "mixed economy" where both private and public ownership of corporations are allowed. 

3. Distinction between mixed economy and interventionism. In order to clarify the distinction between mixed economy and interventionism, Mises gave three examples - price control, rent control and cartels. 

Under price control, we see two historical examples of failure of price control, an analysis of reasons for such failure, its extension to other products, and its end result. Examples of price control in the past tell us about the response of the government once prices started to increase as a result of inflating the money supply. Mises gave two examples: the Roman Emperor Diocletian and French Revolution.

The Roman emperor debased the silver coins in the second hald of the 3rd century. The government mixed increasing amount of copper into the silver coins. This is currency debasement that resulted into price increase followed by price control. Those who violated the price control law were severely punished. The final outcome "was the disintegration of the Roman Empire and the system of the division of labor" (p.41).

Similar mistake was repeated during the French Revolution. Since printing press had already been invented, the French used a different mode of currency debasement. They increased the money supply by printing huge quanitity of paper currency. The immediate result was price increase and again followed by price control. Even the method in punishing the violators was also changed. This time, it was through guillotine. 

In analyzing the failure of price control, Mises takes milk as an example. It all starts with people's dissatisfaction with the increasing price of milk. As a response, the government decides to fix the maximum price for milk, which is lower than the market price. Two immediate results will follow: the demand for milk will increase and the producers of milk will suffer loss as a result of lower price.

In order to continue and protect the business from the impact of government imposed price, it is natural that producers will do the following action: restrict milk production, reduce the number of cows by selling them and focus instead on other products made out of milk. The long-term results then of price control will be less supply of milk, greater demand, price increase, smaller number of people can avail the product, and rationing. 

Then the government will inquire the reason for less supply of milk. The producers will respond that the cost of production is higher than the government imposed price. And as the government traces other items necessary for production, these items will be subjected also to price control. The same result that happened in the milk supply will also occur to related items. And if the government does the same thing with other basic necessities, similar result will take place. 

The final result of government interference in the market is socialism. This happened both in Germany and Great Britain in World War 1. Both countries inflated their money supply, which resulted to price increase and imposition of price controls. The government of Germany controlled the entire national economy through the "Hindenburg Plan" that resulted to the collapse of bureaucratic apparatus and bloody end. England would also about to suffer the same fate, if not for the entrance of the US into war that provided the necessary supply. 

During the 2nd World War, the same process was repeated. Price control was already present before Hitler came to power. During Hitler's time, the free enterprise was still allowed to operate but no longer under the control of entrepreneurs. Instead, they were called shop keepers. The entire operation of the free market is but a show. Everything is regulated from the kind and quantity of products, source and price of raw materials, buyers and price of goods to the designated works for people and amount of salary. This is the free market under German socialism. 

Great Britain followed the same pattern. It became socialist during the time of Sir Winston Churchill. Nationalization was the game of the day. For Mises, the difference between the two countries is unimportant for in both cases, it was the government's order, which had to be obeyed in all areas. 

The same process in controlling the price of milk is applicable in housing. Housing shortage is an outcome of similar mechanism, but this time, it is rent control. 

Mises identifies a series of results from rent control: people will not choose to transfer to smaller apartments when their conditions changed, many cities in the US suffered financial difficulty, shortage in housing, and then the government spent billions for building of new houses. 

Another economic consequence of interventionism in the form of "protectionism" is the formation of cartels. Mises describes the formation of cartels as a result of government's attempt "to isolate the domestic market from the world market" (pp. 51-52). Then the government "introduces tariffs which raise the domestic price of a commodity above the world market price, making it possible for domestic producers to form cartels" (p.52). Once cartels are formed, the government will call for anti-cartel legislation. Observing the process, you will see the absurdity of the government's call for legislation while in fact, cartels are formed due to its intervention. So if the government really wants to stop cartels, it must stop intervening in the affairs of the market. 

Interventionism is not a new development. It is a revival of an old idea that a king was the "messenger of God" with supernatural powers. It came back to the modern times through the influence of a German professor, Werner Sombart. This professor believes that Hitler's orders directly came from God Himself, "the Fuhrer of the Universe". For Mises, the return of this belief is inexcusable in modern times and in a country recognized "as the nation of philosophers and poets" (p.54). The only remedy to interventionism is the power of the citizens.


The fourth lecture is about inflation. In addition to interventionism, inflation is the other tool of socialism. Under this lecture, I see five interconnected topics: solution to government's financial problem, most affected sector by inflation, duration of inflation, labor unions, and full employment.

1. Solution to the financial problems of the government. There are two ways to solve the government's financial problems. The legitimate way to do it is by taxing the citizens. But since taxing the people is considered not good for political career, another way of addressing the government's financial difficulties was made. This time it is by printing paper money.

In directly taxing the people, at least the people are aware about the deduction in their salary and they can adjust their expenses to a new financial situation brought about by new taxes. And another advantage of direct tax compared to printing paper money is that the price of goods and services is not affected. The only negative repercussion of such an act is the increase in buying power for the government and less on the part of private citizens. 

This is not the case when government decides to print paper money to solve its financial trouble. It is also a tax, but people do not see it for it is done indirectly. And it also does not affect anyone's political career. 

What's detrimental in this form of indirect tax is that since people do not see any reduction in their income, they think that they can still buy the same amount of goods that they previously buy when the quantity of money is not yet increased. They do not realize that the purchasing power of their money has been reduced since the certain consequence of printing more money is price increase. And since prices of goods and services have already increased as a result of additional money, those who receive the same amount of salary when the new money was not yet introduced will suffer. And since most people do not know how their money lost its value, they simply consider it as something natural.

2. Most affected sector by inflation. The fact is, price increase and the lost of purchasing power are not natural. It is an inescapable outcome of government's act of printing money to address its financial problems. So the financial burden is transferred from the government to the citizens without them knowing it. 

The problem here is the way the government obtains money. Due to the preference of the government to use printed money rather than direct tax, some people will have greater advantage than others. Those who receive the new money earlier are in a better position than those who receive it late. This reminds me of Ron Paul's words about “speculators, bureaucrats, and the special interests favored by the government” (Pillars of Prosperity, 2008, p.110) as early beneficiaries. The sufferers are the laborers and savers. Among them are the teachers and ministers (p.61).

3. Duration of inflation. The Roman Empire, Han Dynasty, and Germany are used as typical examples to demonstrate the catasthropic end of continually increasing the supply of money. Mises thinks that inflation will stay "as long as people are convinced that the government, sooner or later,...will stop printing money..." (pp.63-64). When people do not believe this anymore, then they will realize that prices will continue to increase. As a response, they will start "buying at any price, causing prices to go up to such heights that the monetary system breaks down" (ibid. p. 64). 

Under inflationary monetary system, becoming a debtor is considered wise. Anyone who understands the system could take advantage of it and could utilize it to attain easy wealth. Another feature of inflationary policy is the perception about the government's power. It is looked upon by the people as all-powerful. People ask the government to take care of them for with an unlimited supply of money, the government can do anything. 

In order to correct the wasteful spending of the government, Mises believed in returning to the gold standard. He argued that the gold standard is a form of protection from extravagant government. One great advantage of it is that "the quantity of money under the gold standard is independent of the policies of governments and political parties" (p.65). 

4. Labor Unions. Next to the government, labor unions possess the power to influence wage rates. The problem with the wage rate demanded by unions is that it is above the level of wage in free market. As a result laborers are only employed by industries prepared to suffer loss. When businesses could no longer afford losses, they shut down resulting to more unemployment.

5. Full Employment. John Maynard Keynes was a strong advocate of inflationary policy. For him, this is the only way to solve unemployment. For Mises, there is no need to resort to Keynes' strategy of "cheating the workers" (p.70). Instead, the market should be allowed to operate freely without the interference coming from both the governments and the labor unions. This is the only way to achieve full employment (pp.70-71). 

Mises concluded this lecture by emphasizing that inflation is a monetary policy and it can be changed. And the only way to change it is for the intellectuals to do their role in shaping public opinion. Once the public are informed about the disastrous results of inflation, Mises was confident that politicians will abandon this monetary policy.

Foreign Investment

The fifth lecture is about foreign investment. It tells us that increasing the capital is the only key for developing nations to attain prosperity. This is Ludwig von Mises' central argument in this lecture. Mises explained this topic under five headings - reason for lower income, three important events, numerous enemies of capital growth, situation in many countries, and the key to the prosperity of developing countries. 

1. Lower income. In developing countries, the standard of living is lower simply because the average income is also lower compared to similar type of work in developed countries. And the reason for this is not inferiority of workers or business ignorance. Instead, it is dependent on economic situation and availability of capital in the country, both foreign and domestic. 

2. Three important events. Mises identified three important events in the economic history of the world. These are the introduction of foreign investment in the 19th century, the story of American subsidies in between and after two world wars, and the development of anti-capitalist mentality after World War 1. Without the aid of British capital in the 19th century, the development of US economic system is unintelligible. In addition to British capital, US economic policy during those times was friendly to foreign investment. This explains the unprecendeted growth of American economy. But after World War 1, economic climate changed with the development of anti-capitalist mentality. Countries were no longer friendly to foreign investment. The previous condition that encouraged foreign investment was removed. Expropriation of investments became the norm. Mises described this backwardness: "Starting with the First World War, there began a period of worldwide open warfare against foreign investments. Since there is no remedy to prevent a government from expropriating invested capital, there is practically no legal protection for foreign investments in the world today. The capitalists did not foresee this. If the capitalists of the capital exporting countries had realized it, all foreign investments would have come to an end forty or fifty years ago. But the capitalists did not believe that any country would be so unethical as to renege on a debt, to expropriate and confiscate foreign capital. With these acts, a new chapter began in the economic history of the world" (p.82).

3. Enemies of capital growth. Aside from direct expropriation, "innovative" way of expropriating capital also exists. And this problem is rampant in developing countries. Mises mentioned two ways of doing this - foreign exchange control and tax discrimination. And then referring to tax system, he described the existing policy in the US as insane, and should not be followed by other countries. He called it double taxation and progressive (p.84).

Two additional forces that prevent capital growth are protectionism and labor unionism. Protectionism prevents "the importation of capital and industrialization into the country" (p.87). Labor unions on the other hand "use violence against entrepreneurs and against people they call strikebreakers" (ibid.). They "cannot industrialize the country, they cannot raise the standard of living of the workers", and they bring nothing but "permanent, lasting unemployment" (ibid.).

4. Situation in many countries. Many countries are in serious trouble due to these anti-investment policies. The end result of this is harmful to national economy. It destroys confidence that cause the retreat of foreign investment. For Mises, his proposed solution was to establish an international law that remove foreign investments from national jurisdiction. Mises explained the seriousness of this problem: "But in many other countries the problem is very critical. There is no—or not sufficient—domestic saving, and capital investment from abroad is seriously reduced by the fact that these countries are openly hostile to foreign investment. How can they talk about industrialization, about the necessity to develop new plants, to improve conditions, to raise the standard of living, to have higher wage rates, better means of transportation, if they are doing things that will have precisely the opposite effect? What their policies actually accomplish is to prevent or to slow down the accumulation of domestic capital and to put obstacles in the way of foreign capital" (p.85).

5. The key to prosperity. Mises emphasized that the only thing missing among developing countries for them to improve their standard of living is capital accumulation operating not under the control of the government, but under the discipline of the free market. And to achieve the desired result, capital requires a stable monetary unit. This would mean total absence of any kind of monetary inflation. 

So at the end of the day, the key to the prosperity for developing countries is all about economic policy and for Mises this is the decisive point: "One must realize that all the policies of a country that wants to improve its standard of living must be directed toward an increase in the capital invested per capita" (pp.87-88). "As I said before, there is only one way a nation can achieve prosperity: if you increase capital, you increase the marginal productivity of labor, and the effect will be that real wages will rise" (p.88).

Two questions come to mind while reading this lecture. What is the economic situation in the country? And what prevents the availability of both domestic and foreign capital? Dr. John V. C. Nye of George Mason University described the existing economic policy in the country as "Badly distorted micro-economic price situation", "poor and unreliable property rights and contracting", "legalistic bureaucracy" and "policies and institutional constraints that are anti-investment and anti-competitive". 

Policies and Ideas

In this final lecture, Ludwig von Mises answered these two questions: What caused the collapse of the Roman Empire during the 3rd century that is also threatening our civilization now? Is the collapse of Western civilization really inevitable as various thinkers and critics argue? We divide our answer to these questions under four sections: internal corruption, shift to interventionism, similarities and differences, and the need for better ideas. 

1. Internal corruption. Ludwig von Mises strongly acknowledged that the internal forces that corrupted the Roman Empire are also present within Western civilization. He identified them as economic interventionism and monetary inflation. However, he strongly contradicted the opinions of influential scholars such as the German teacher Oswald Spengler and the British historian Arnold Toynbee who predicted the inevitability of the collapse of Western civilization. For him, the metaphorical comparison between the death of "civilization to a plant is completely arbitrary" (p.101). Though he admitted that there are similarities between the Roman Empire and Western civilization, he also argued about the existence of differences. And in these differences, better ideas play a critical role to change the direction of present civilization. 

What follows next is a narration how this process of internal corruption started. In order to trace the economic root of existing political troubles, we need to see the significance of the frustration of the hopes of 18th century Enlightenment. Thinkers during that time was characterized by strong optimism as to the dawn of the new age of freedom, prosperity, and progress. Such optimism was indeed followed by unprecedented economic improvement for the following two centuries. However, in the 20th century, a "warlike spirit" started to return alongside with humanity's disappointment with the constitutional system developed at the end of the 18th century. Most people did not see the connection between the change in economic policy and the growing political problems. 

Mises argued that you cannot separate the two. In fact, political turmoils that time were just natural consequences of replacing the previous economic policy with a new one. And it was exactly at this point, that interventionism started to appear. Mises stated that the so-called, "...decay of freedom, of constitutional government and representative institutions, is the consequence of the radical change in economic and political ideas. The political events are the inevitable consequence of the change in economic policies" (p.94). 

2. The shift to interventionism. With the shift to interventionism, everything changed. A new entity has emerged out of interventionist climate. The classical meaning of political parties has been lost and replaced by special interest groups or "pressure groups" (p.96). Mises understands this new entity as "a group of people who want to attain for themselves a special privilege at the expense of the rest of the nation" (ibid). Under interventionism, it is considered "the duty of the government to support, to subsidize, and to give privileges" (ibid.) to these groups. Special privileges may include "tariff on competing imports", "subsidy", or making of laws to prevent other groups "from competing with the members of the pressure group" (ibid.). 

Mises even observed that the retention of the two-party system in the US is just "a camouflage of the real situation" (ibid.). Both parties have their own pressure groups representing various economic interests such as silver, wheat, meat, oil, and many more. In this kind of political atmosphere, the interest of the nation as a whole is sacrificed. In fact, pressure groups are so powerful that it influences even the nation's foreign policy. 

Other consequences of interventionism include the weakening of nations' power and of representatives to resist tyranny, constant increase in public consumption, incapability of governments to stop inflation, and the decline of Western civilization. It was at this point that Mises mentioned the names of Spengler and Toynbee who wrote about the inevitability of the collapse of Western civilization. 

3. Similarities and differences. Mises acknowledged the similarities between the Roman Empire and the Western civilization. He described how interventionism and inflation destroyed the Roman Empire from within: "The result, of course, was that the supply of foodstuffs in the cities declined. The people in the cities were forced to go back to the country and to return to agricultural life. The Romans never realized what was happening. They did not understand it. They had not developed the mental tools to interpret the problems of the division of labor and the consequences of inflation upon market prices. That this currency inflation, currency debasement, was bad, this they knew of course very well. . . . Consequently, the emperors made laws against this movement. There were laws preventing the city dweller from moving to the country, but such laws were ineffective. As the people did not have anything to eat in the city, as they were starving, no law could keep them from leaving the city and going back into agriculture. The city dweller could no longer work in the processing industries of the cities as an artisan. And, with the loss of the markets in the cities, no one could buy anything there anymore" (p. 103). 

So what Mises was saying was that as a result of interventionism and inflation, the supply of food declined, people abandoned the cities and returned to countryside and to agriculture, and markets disappeared from the cities. The emperor's decree to stop the migration was powerless when people had nothing to eat. In fact, during the last stage of the empire's decline, emperors were assassinated "on the average of every three years" (ibid.).

An interesting part in Mises' description was the absence of people's awareness about what was happening to them. They lacked the necessary "mental tools" to interpret their struggle. I think it is in this part where we can see the differences between the Roman Empire and Western civilization. For Mises, we are in a more advantageous situation than the people during the 3rd century simply because more and more people are becoming aware about the real problem of present civilization. Unlike, in those days, nobody dared to contradict the Roman government. But today, centers promoting free market ideas are increasing in number all over the world.

4. The need for better ideas. For Mises, the real struggle lies in providing better ideas. And in this struggle, the role of intellectuals is vital. In the first place, the crisis in current civilization is an offshoot of the labors of the intellectuals under Marxist's spell. It is them who shaped the mind of the policy makers. 

Marxism must be replaced with free market ideas. It is not true that this ideology works for the good of the masses simply because none of its formulators came from the masses. All the intellectuals that developed anti-free market ideas including Marx himself came not from the proletariat, but from the bourgeois. For Mises, the free enterprise provides better ideas. See how he described such need: "Everything that happens in the social world in our time is the result of ideas. Good things and bad things. What is needed is to fight bad ideas...We must substitute better ideas for wrong ideas. We must refute the doctrines that promote union violence. We must oppose the confiscation of property, the control of prices, inflation, and all those evils from which we suffer. . . .These ideas must be brought to the public in such a way that they persuade people. We must convince them that these ideas are the right ideas and not the wrong ones. The great age of the nineteenth century, the great achievements of capitalism, were the result of the ideas of the classical economists, of Adam Smith and David Ricardo, of Bastiat and others. . . . What we need is nothing else than to substitute better ideas for bad ideas. This, I hope and am confident, will be done by the rising generation. Our civilization is not doomed, as Spengler and Toynbee tell us. Our civilization will not be conquered by the spirit of Moscow. Our civilization will and must survive. And it will survive through better ideas than those which now govern most of the world today, and these better ideas will be developed by the rising generation" (p. 105).

Mises concluded this final lecture with a positive attitude: "I hope that in a few years the number of those who are supporting ideas for freedom in this country, and in other countries, will increase considerably. I myself have full confidence in the future of freedom, both political and economic" (p. 105).

Saturday, September 14, 2013

Ludwig von Mises' Planned Chaos

Mises, L. (1951). Planned Chaos: An Excerpt from Socialism: An Economic and Sociological Analysis. (43 pages).

The booklet Planned Chaos is an excerpt from Ludwig von Mises' Socialism: An Economic and Sociological Analysis (1951). Its main thesis is about the influence of socialism using government interventionism to suppress personal liberty and the free enterprise. Mises elaborated this thesis under ten sections. I intentionally left out the two and focus on eight of them - the need to expose and challenge interventionism, the identification of interventionism as German pattern of socialism, the three invisible qualities of interventionism, similarities and differences between socialism and communism, liberation of demonic forces, fascism, Nazism, and the assumed inevitability of socialism as the future destiny of humanity. 

The Need to Expose and Challenge Interventionism

Exposing and challenging interventionism is a difficult task for it claims to dislike tyranny and monopoly. It also asserts fighting for poor's welfare, social justice and fairer distribution of income. However, one distinguishing mark of interventionism is hostility against the free market expressed through economic policies. And then interventionists blame the free market for the outcome of its previous interference and use it to justify further intervention. And not only that, any advantages resulting from free market activity are claimed by interventionism as a proof of its success. This is the reason why Mises emphasized the need to expose and challenge interventionism. 

Moreover, another difficulty is related to the mindset of the majority. According to Mises, most people are "entangled in the superstitions of statism and government omnipotence" and they "expect everything from authoritarian action and very little from the initiative of enterprising citizens." People seem to be blind about the fact that "the only means to increase well-being is to increase the quantity of products", which only the free enterprise is capable of doing. 

So there is a necessity first to identify the spirit behind interventionism that raised the dictators in the past. Notice Mises' description of this spirit: "But the spirit which raised these knaves to autocratic power survives. It permeates textbooks and periodicals, it speaks through the mouths of teachers and politicians, it manifests itself in party programmes and in play and novels. As long as this spirit prevails there cannot be any hope of durable peace, of democracy, of the preservation of freedom or of a steady improvement in the nation's economic well-being."

This spirit is the dominant spirit that controls the existing academic and political institutions, which is no other than but socialism! This is the spirit that prepares the way for dictators. This is the spirit that needs to be exposed and challenged if we want to maintain both our personal and economic freedom. 

Interventionism as German Pattern of Socialism

Reading Planned Chaos, the two dominant patterns of socialism will be obvious to you - the Russian or Marxian pattern and the German pattern. Understanding these two patterns, one will see that interventionism is in reality the German pattern of socialism. 

The first pattern of socialism suffered collapse in 1989. The Russian pattern lost credibility for the world witnessed that it doesn't work in the real world. Putting all private initiatives under the control of the government is the certain path to slavery and poverty. 

However, the second pattern of socialism is subtle. It utilizes government policies to accomplish its goal. The policies appear to be acceptable to the people, but the logical conclusions of these policies are the exact opposite of what they claim to achieve. The existence of these policies explains why today the free enterprise is falsely charged with all kinds of social evils. Blaming capitalism for these social evils confirms its bad reputation in our time and an indication of the present success of socialism through interventionism.

The German pattern is more effective in implementing socialism's agenda. The widespread influence of economic policies such as minimum wage rate, credit expansion, and the idea that the government can create jobs through increased government spending are now popular especially among democratic countries. In Mises' word, "This is socialism with the outward appearance of capitalism."

Mises was confident that similar to the fate of Russian socialism in 1989, the German pattern will allso collapse. We cannot escape the logical economic consequences of interventionism. In 1951, Mises foresaw this interventionist crisis: "No economist ever dared to assert that interventionism could result in anything else than in disaster and chaos. . . . The failure of interventionism does not demonstrate the necessity of adopting socialism. It merely exposes the futility of interventionism. . . . Our age has to face great economic troubles. But this is not a crisis of capitalism. It is the crisis of interventionism, of policies designed to improve capitalism and to substitute a better system for it."

The Three Invisible Qualities of Interventionism

Interventionism is dictatorial, anti-democratic, and socialistic. This is its real color but most people could not see it. They are either confused or unaware about the basic nature of interventionism. This is understandable for the message of interventionism is subtle and it utilizes popular ideas.

Interventionism claims to oppose tyranny, monopoly and socialism. It also shows concern for the welfare of the poor, social justice and fairer distribution of income. And above all, it claims to preserve capitalism and democracy. Mises states: "Many advocates of interventionism are bewildered when one tells them that in recommending interventionism they themselves are fostering anti-democratic and dictatorial tendencies and the establishment of totalitarian socialism. They protest that they are sincere believers and opposed to tyranny and socialism. What they aim at is only the improvement of the conditions of the poor. They say that they are driven by considerations of social justice, and favor a fairer distribution of income precisely because they are intent upon preserving capitalism and its political corollary or superstructure, viz., democratic government."

Similarities and Differences Between Socialism and Communism

In addition to my realization that socialism has actually two faces (Russian Marxism and German Interventionism), it is also something new for me to understand the relationship between socialism and communism. Mises discussed the historical connection between communism and socialism. 

The year 1917 is significant in understanding the similarity and distinction between communism and socialism. Prior to 1917, no Marxist dared to make a distinction between communism and socialism. The two terms are identical. 1917 was the year Lenin organized a Bolshevist version of Marxism in Europe. He named it as the Communist Party. Its mission is to annihilate members of socialist parties in Europe whom they considered as “social traitors”. They also aimed to liquidate the bourgeois and to seize government power. Lenin believed that the Communist Party was “the only genuine Marxians”. This action resulted to the distinction between communists and socialists. 

Communists and socialists have two things in common. Both have common origin in Marxism and believe in the idea that production and distribution of economic goods must be under public control through central planning. On the other hand, they differ in approach and in the detail of distribution of goods. Socialists rejected the use of violent action, believe in democratic process, and does not uphold the equal distribution of goods.

As to the question which is better between the two political and economic systems, for the European Marxians, socialism is "the third stage" in economic evolution, which to my understanding is considered better than both capitalism and communism. But for both Stalin and Marx, socialism is the lower form of communism. 

Liberation of Demonic Forces

The liberation of demonic forces was closely associated with the legitimate use of violence to advance communism in relation to Lenin's rise into power in 1917. It was introduced first by campaigning against those who advocate for the rule of law. They were accused as "individualistic" and "selfish". Individual interest must give way to national concern. In time, the rule of law was replaced by the legitimate use of violence in the service of national interest. 

Liberty is at the center of this conflict and since with it, the rule of law, capitalism, democracy, and economic development are difficult to confront directly, socialists resort to a different strategy. In their private meetings, they still talk about the coming dictatorship of the proletariat, but before the public, they preach liberty and democracy. However, Russian communism exposed the real face of socialism. The message of salvation through the legitimate use of violence could now be preached openly. For Mises, this was the essence of the liberation of demonic forces and the real significance of Lenin revolution. 


Due to the unpopularity of Fascism, both capitalism and socialism disown her as their offspring. However, the prevailing idea is that Fascism is a product of capitalism. This is in agreement with Mises’ statement that such accusation is a result of semantic innovation on the part of communist intellectuals. In fact, together with Nazism, Fascism was described as “the highest and last and most depraved stage of capitalism” (Mises, Planned Chaos, 1951, p. 29). However, examining the seventh section in “Planned Chaos” we find the actual thoughts of Mises on Fascism.

For Mises, Fascism “began with a split in the ranks of Marxist socialism” (p. 32). Such split happened in 1914 in Italy. Benito Mussolini was considered the most “outstanding man in Italian socialism” (p. 30) Mussolini is a great champion of Marxian socialism. Notice how Mises described Mussolini’s Marxian zeal: “Nobody could surpass Mussolini in Marxian zeal. He was the intransigent champion of the pure creed, the unyielding defender of the rights of the exploited proletarians, the eloquent prophet of the socialist bliss to come. He was an adamant adversary of patriotism, nationalism, imperialism, monarchical rule and all religious creeds” (ibid.). 

However, Mussolini faced a problem. The Italian intellectuals were nationalists. Mussolini changed his mind and joined the nationalists and so the Fascists party was organized. As a result of such defection, anti-Fascists attacked Mussolini. But after the communists’ failed in 1920, the masses joined Mussolini’s party. For Mises, Mussolini’s claim “that he had saved Italy from the danger of communism” (p. 31) is not true. Fascism “was not the cause, but the consequence of the communist fiasco” (ibid.). 

The way Mises described the characteristics of Fascism demonstrated its origin not in capitalism, but in socialism. He called it “vehemently anti-capitalistic” (p.31) though “it did not suppress the industrial and financial corporations” (p.32). Other features of Fascism include fanatical nationalism, Nazi interventionism, Russian dictatorship, and German non-Marxian socialistic economic program. It is a hybrid of German and Russian brands of socialism with additional features taken from other non-socialistic ideas. Moreover, it also gave lip-service to liberty of thought and the press and the right of assembly. Though Fascism was buried in history, Mises claimed that the forces behind it is still active and gave his readers a solemn warning about the great possibility of the revival of fascism under a new name.


Regarding Nazism, four factors are important to understand it. These are the intellectual influence that shaped Nazism, its anti - capitalistic character, the influence of Soviet version of socialism and eugenics (I did not include in this article Mises' explanation about the relationship between Nazism and eugenics). 

The intellectual influence of Nazism was laid down by learned Marxist professors. Werner Sombart was one of them who helped shaped Hitler's mind. In fact, prior to Hitler's rise into power, the German universities had already been prepared to hate capitalism. "For more than seventy years the German professors of political science, history , law , geography and philosophy eagerly imbued Their disciples with a hysterical hatred of capitalism , and preached the war of 'liberation' against the capitalistic West . . . At the turn of the century the immense majority of the Germans were already supporters of radical socialism and aggressive nationalism. They were then already firmly committed to the principles" that would later be known as Nazism .

The essential ideas of Nazism are not of German origin. Their sources came from Latin, French and Jewish intellectuals. The only German ingredient in Nazism "was its striving after the conquests of lebensraum."

Basically, Nazism was egalitarian. It's aim was to attain "income equality" and "fairer distribution of the earth's natural resources." They "consider themselves as revolutionaries fighting for their inalienable natural rights against the vested interests of a host of reactionary nations." So Nazism, contrary to popular belief, "is the purest and most consistent manifestation of the anticapitalistic and socialistic spirit of our age." Their slogan "condensed their economic philosophy, viz., Gemeinnutz geht vor Eigennutz (i.e., the commonweal ranks above private profit)." The Nazi believes "that profit - seeking business harms the vital interests of the immense majority, and that it is the sacred duty of popular government to prevent the emergence of profits by public control of production and distribution." So Nazism "therefore was more comprehensive and more pernicious than that of the Marxians. It aimed at abolishing laissez - faire not only in the production of material goods, but no less in the production of men."

Furthermore, Nazism found an intellectual justification for mass killing through the example of Soviet version of socialism. The Nazis learned to use violence and "mass extermination of all dissenters" as their methodology to advance Nazism. In fact, Mises described the Nazis as the most submissive disciples of Lenin, Trotsky and Stalin : "They imported from Russia : the one - party system and the pre-eminence of this party in political life; the paramount position assigned to the secret police; the concentration camps; the administrative execution or imprisonment of all opponents; the extermination of the families of suspects and of exiles; the methods of propaganda; the organization of affiliated parties abroad and their employment for fighting governments and their domestic espionage and sabotage; the use of the diplomatic and consular service for fomenting revolution; and many other things besides. There were nowhere more docile disciples of Lenin, Trotsky and Stalin than the Nazis were. "

The Inevitability of Socialism

Mises did not believe in the inevitability of socialism. Socialism to him will result to nothing but waste, chaos, and poverty. Compared to capitalism, it is less efficient and leads to the destruction of economic activity. This is due to the absence of market prices that make economic calculation impossible. 

However, bacause of economic ignorance, socialists believe that no human force could stop mankind's socialistic destiny. For Mises, the only explanation for the growth of socialism was due to the absence of “decided opposition” and “civilian courage”.

Socialism in the eyes of Mises is a formidable enemy and cannot be defeated apart from "painstaking study". It is useless to attack its minor features such as its divorce stand, birth control and other anti-Christian tenets. The role therefore of the intellectuals in this conflict is vital. Mises described this role: “The Socialist propaganda never encountered any decided opposition. The devastating critique by which the economists exploded the futility and impracticability of the socialist schemes and doctrines did not reach the moulders of public opinion. The universities were mostly dominated by socialist or interventionist...The politicians and the statesmen, anxious not to lose popularity, were lukewarm in their defense of freedom...It was this defeatism that made the rising generation believe that the victory of socialism is inevitable” (p. 39).

Mises also opposed the idea that the people aspire for socialism. He explains: “It is not true that the masses are vehemently asking for socialism and that there is no means to resist them. The masses favor socialism because they trust the socialist propaganda of the intellectuals. The intellectuals, not the populace, are molding public opinion. It is a lame excuse of the intellectuals that they must yield to the masses. They themselves have generated the socialist ideas and indoctrinated the masses with them. No proletarian has contributed to the elaboration of the interventionist and socialist programmes. Their authors were all bourgeois background. The esoteric writings of dialectical materialism of Hegel, the father both of Marxism and of German aggressive nationalism, the books of Georges Sorel, of Gentile and of Spengler were not read by the average man; they did not move the masses directly. It was the intellectuals who popularized them “ (pp.39-40).

So for Mises, the intellectuals were responsible for the spread of socialism and genocide that marked the 20th century. The same role remains in our days. It is also the intellectuals who are capable to change the trend and prepare the way for the revival of freedom. 

Friday, September 13, 2013

A Prayer for a Filipino Statesman based on Daniel 6: 1-10

Creator of heaven and earth! Almighty God! Give us Christian statesmen who have exceptional qualities whom no one can find corruption. Give us statesmen who are loyal to your law. Protect them from the subtlety and deceit of politics, hiding socially destructive forces behind pious and noble words. Let them not be the "champions" and "saviors" of the poor, but instead, grant them strength to stand on the basis of principles. Refrain them from making unjust laws, but instead, grant them wisdom to create laws that serve life, freedom and private property. Help them fulfill their task in pursuit of justice, peace and prosperity. Always remind them that it is you whom they serve, the One who entrusted them with such authority in whom one day they will give an account. 

Thursday, September 12, 2013

An Overview of Ludwig von Mises' "Bureaucracy"

In giving the overview of the content of Bureaucracy, Mises divided the Introduction into five sections. I want to reduce them into four for I think the second and the fourth sections (the critique of bureaucratism and the connection between bureaucratism and totalitarianism) are interconnected. These sections are the negative reputation of the term "bureaucracy", critique of bureaucracy, " progressives' " view of bureaucratism, and the choice between bureaucratic management and profit management. 

Bureaucracy - An Ugly Term 

The term "bureaucracy" has an ugly reputation. Nobody wants to be called a "bureaucrat". Even "progressives" deny its need in their dream of an earthly paradise. They will never accept that bureaucracy is the foretaste of their "Promised Land". To their mind, bureaucracy is a necessary evil inherent in capitalism that will finally be abolished with the ultimate victory of socialism in the future.

Critique of Bureaucratism

The critique of bureaucratism focuses on five areas. I decided to remove the fifth point, which is the choice between free market and statism and placed it instead in connection to the last section of the introduction. The four areas are the increasing power of a bureaucrat, its totalitarian nature and enmity against the free market, its statist source manifesting in the increasing power of the government, and its role in the achievement of the assumed inevitability of statist socialism as the future destiny of humanity.

1. Increasing power of the bureaucrat. Mises described this increasing power of the bureaucrat: "The bureaucrat does not come into office by election of the voters but by appointment of another bureaucrat. He has arrogated a good deal of the legislative power. Government commissions and bureaus issue decrees and regulations undertaking the management and direction of every aspect of the citizens' lives. . .By means of this quasi-legislation the bureaus usurp the power to decide many important matters according to their own judgment of the merits of each case, that is, quite arbitrarily. . . Every day the bureaucrats assume more power; pretty soon they will run the whole country." (p. 3). 

2. Totalitarian nature of bureaucracy and enmity towards the free market. And concerning the totalitarian nature of bureaucracy and its hatred towards the free market, Mises saw that the expected paradise would actually result into deeper suffering: "There cannot be any doubt that this bureaucratic system is essentially antiliberal, undemocratic, . . . and that it is a replica of the totalitarian methods of Stalin and Hitler. It is imbued with a fanatical hostility to free enterprise and private property. It paralyzes the conduct of business and lowers the productivity of labor. By heedless spending it squanders the nation's wealth. It is inefficient and wasteful. . . Poverty and distress are bound to follow." (ibid.). He added, " . . . bureaucracy is imbued with an implacable hatred of private business and free enterprise. But the supporters of the system consider precisely this the most laudable feature of their attitude. Far from being ashamed of their anti-business policies, they are proud of them. They aim at full control of business by the government and see in every businessman who wants to evade this control a public enemy." (p. 9).

3. Statist source of bureaucracy. Bureaucratic management is just a manifestation of statism, which basically is most evident through the increasing power of the government. Mises described the process how statism is achieved: "The characteristic feature of present-day policies is the trend toward a substitution of government control for free enterprise. Powerful political parties and pressure groups are fervently asking for public control of all economic activities, for thorough government planning, . . . There is no sphere of human activity that they would not be prepared to subordinate to regimentation by the authorities. In their eyes, state control is the panacea for all ills." (p. 4). And in order to attain statism, growing number of government agencies needs to be established and they actually "thrive like mushrooms" (p. 4) gradually restricting the citizens' freedom to act. (ibid.).

However, Mises distinguished between the legitimate and the totalitarian use of bureaucracy. He recognized the limited use of bureaucracy for social cooperation for without it, it is impossible for a civil government to function. What both Mises and the people oppose is not the appropriate use of bureaucracy, but its interference into almost all aspects of the citizens' life. He narrated that this kind of bureacratism is very old and a tool in the hands of a totalitarian state, which is evident once again in modern socialism where the goal is to control "the individual in tight rein from the womb to the tomb." (pp. 17-18).

Moreover, though Mises recognized that in this kind of political atmosphere, "the officeholders are no longer the servants of the citizenry but irresponsible and arbitrary masters and tyrants", he did not want to place the blame on bureaucracy itself, but on the kind of political system dominated by an idea that "assigns more and more tasks to the government. " (p. 9).

4. The role of bureaucracy to achieve the socialist paradise. Another point of critique against bureaucracy is about its critical role as a tool to attain the statist goal. Socialists believe that socialism is the future of humanity. It is inevitable and no force on earth can stop it. Free market capitalism is destined to die. Mises explained such optimism: "The trend toward socialism, . . . is inevitable. It is the necessary and unavoidable tendency of historical evolution. With Karl Marx they maintain that socialism is bound to come 'with the inexorability of a law of nature.' Private ownership of the means of production, free enterprise, capitalism, the profit system are doomed. The 'wave of the future' carries men toward the earthly paradise of full government control." (p. 4). 

"Progressives" View of Bureaucratism

Under this section, we see the response of the "progressives" against the critique of government bureaucratism. Instead of accepting the backward outcome of government bureaucratism, "progressives" justify its existence by pointing out that the real danger lies in the bureaucratism of the business enterprise rather than the state's. They argued that if the growing power of corporations is not stopped, the government would just serve as their "mere puppets" (p. 11) and that would be harmful to the people. And this is the rreason why it is the duty of the government to block companies from expanding their power or what is more popularly known as the monopoly of business. 

In response to the misleading analysis of "progressives", Mises argued that corporate bureaucratism does not occur under free market, but actually a result of government interference in the first place. He actually proved this in his book. He stated: "This book will try to demonstrate that no profit-seeking enterprise, no matter how large, is liable to become bureaucratic provided the hands of its management are not tied by government interference. The trend toward bureaucratic rigidity is not inherent in the evolution of business. It is an outcome of government meddling with business. It is a result of the policies designed to eliminate the profit motive from its role in the framework of society's economic organization." (p. 12).

The Choice Between Profit Management and Bureaucratic Management

In closing the Introduction, Mises presented the two options in conducting the politico-economic affairs. He claimed that there was a need to analyze these two systems with their advantages and disadvantages in order to appreciate the free market system. This is not an easy task particularly these days where anti-capitalism is dominant. However, he elaborated the significance of this task: "If we want to find out what bureaucracy really means we must start with an analysis of the operation of the profit motive within the framework of a capitalist society. The essential features of capitalism are no less unknown than those of bureaucracy. Spurious legends, popularized by demagogic propaganda, have entirely misrepresented the capitalist system. Capitalism has succeeded in raising the material well-being of the masses in an unprecedented way." (p. 18). And concerning the contrast between two, he saw it as obvious: ". . . the private citizens' way and the way in which the offices of the government and the municipalities are operated. Nobody denies that the principles according to which a police department is operated differ essentially and radically from the principles applied in the conduct of a profit-seeking enterprise." (p. 19).

The choice between bureaucratic management and profit management is inseparable from the choice between socialism and capitalism. In the earlier pages of the introduction, Mises issued a call to choose between socialism and capitalism for according to him the primary issue in political struggles during his time (which I personally believe remains true to our time) "is whether society should be organized on the basis of private ownership of the means of production (capitalism, the market system) or on the basis of public control of the means of production (socialism, communism, planned economy). Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual's life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems. Contrary to a popular fallacy there is no middle way, no third system possible as a pattern of a permanent social order. The citizens must choose between capitalism and socialism . . ." (p. 10). 

Reference: Mises, Ludwig von. (1944). Bureaucracy. New Haven: Yale University Press. 

The Price of Rejecting the Free Market

In an era afflicted by both economic and political turmoils, it is now popular to blame the profit motivation inherent in capitalism as the primary root for our suffering. Most people think that the proper way to do it is to get away with profit motivation and replace it with an idealism for common good where individual interest has no place. And so the alternative is sacrificial service for public good. However, this is inconsistent to human nature and facts show that such mindset not only fails to achieve its goal, but produces far greater sufferings. 

The best examples of such dream are the public servants, the politicians especially the "champions" of the poor. See the inconsistency between what they say and what they do. They make us believe that the reason they decided to enter public service is for common good. And we are so naive to believe their words. But in practice, you see that their real motivation is self-interest. The sad thing is, there's no way we can directly punish them. Unlike in the free market where profit is the goal, a customer can easily punish an entrepreneur if the latter renders a poor service. 

In bureaucratic system, which characterizes our existing politics, if someone is charged of corruption, all we can see are complex procedures and pointing of fingers and it is fortunate if we can see the real culprit punished for his crime. This is the price of rejecting the free market system and blindly accepting the bureaucratic system, which is a subtle way to curtail our freedom due to powerful influence of socialistic ideas. 


In 1944, Ludwig von Mises wrote Bureaucracy arguing for a perspective to see the conflict between capitalism and socialism. He claimed that analyzing bureaucratism would provide the needed insight to indepthly study about this tension. To him, this was so important during his time. Amazingly, his message remains relevant especially in our days when we are now witnessing the realization of his foresight almost seven decades ago.

In the Preface of his book, he identified that that the major issue in today's social and political tensions is between freedom and statism (socialism) he saw that the role of the US is critical to determine the future of the world: "Our age has witnessed a triumphal advance of the socialist cause. . . America alone is still free to choose. And the decision of the American people will determine the outcome for the whole of mankind" (iii).

Monday, September 9, 2013

Count Your Blessings

I find reading Leonard Read's books both intellectually stimulating and spiritually refreshing. Though he is not a theologian and the way he sees the Bible is different from mine, I admire the way he applies both the Old and the New Testament to the realm of politico-economic problems. Chapter 6 of "Accent on the Right" is another example of such application. Its title is "Count Your Blessings". And due to the beauty of the ideas presented in the chapter, I could not help myself sharing them. Below is an excerpt from that wonderful chapter: 

To COUNT one's blessings is to accent what's right. But this might rarely be recognized as an item in the infinite realm of righteousness were we unaware of "Thou shalt not covet" as a wrong...

While many people deplore covetousness, few will compare it to murder, theft, adultery as an evil. Nor will they think of it as having any bearing on our current politico-economic problems. This wrong assessment may be due to the fact that "Thou shalt not covet" brings up the rear of the Mosaic thou-shalt-nots.

I suspect that the ordering of the Commandments had nothing to do with a sin-grading scheme. Only one of the ten had obvious priority and it became the First Commandment...And covetousness, more subtle and an afterthought, concludes the list. But on reflection, covetousness is as deadly as any of the other sins indeed, it tends to induce the others.

Covetousness or envy generates a destructive radiation with ill effect on all it touches.

Psychosomatic illnesses can be traced as much to envy as to hate, anger, worry, despondency.

But consider the social implications, the effects of envy on others. At first blush, the rich man appears not to be harmed because another covets his wealth. Envy, however, is not a benign, dormant element of the psyche; it has the same intensive force as rage, and a great deal of wisdom is required to put it down. Where understanding and self-control are wholly lacking, the weakling will resort to thievery, embezzlement, piracy, even murder, to gratify his envy and "get his share."

However, if the evil act can be screened, if the sense of personal guilt and responsibility can be sufficiently submerged, that is, if self-delusion can be effected, gratification of covetousness will be pursued by the "best people."

The way is an open secret: achieve anonymity in a mob, committee, organization, society, or hide behind legality or majority vote.

Our "best people," including the highly "educated," gratify their envy with no qualms whatsoever. But their salved conscience in no way lessens the evil of covetousness; quite the contrary, it emphasizes to us how powerfully this evil operates at the politico-economic level. This subtle evil is indeed the genesis of more obvious sins.

We should also note the extent to which this "guiltless" taking of property by coercion is rationalized. Accomplices, bearing such titles as philosophers and economists, rise to the occasion; they explain how the popular depredations are good for everyone, even for those looted. Thus, we find that covetousness, unchecked in the individual, lies at the root of the decline and fall of nations and civilizations.

Envy is a lust of the flesh as opposed to an elevation of the spirit. The Hindus saw it clearly for what it really is: "Sin is not the violation of a law or a convention but ... ignorance ... which seeks its own private gain at the expense of others...." William Penn grasped the point: "Covetousness is the greatest of om monsters, as well as the root of all Evil."

As a person cannot be in two places at the same time, so is it impossible for the eye to be cast covetously at the material possessions of others and cast aspiringly at one's own creativity...It's either hatch or rot, as with an egg; envy leaves the soul, the spirit, the intellect, the psyche to rot, and there can be no greater evil than this. 
When it is clear that covetousness thwarts Creation's surely behooves each of us to find a way to rid himself of this evil.

I believe the way is simple to proclaim: Count your blessings!

Awareness of blessings is a state of consciousness and is not necessarily related to abundance and affluence. He who is rich in worldly goods but unaware of his blessings is poor, and probably covetous; he who is poor in worldly goods but aware of his blessings is rich, and assuredly without envy.

Exactly how unaware we are of our blessings can be seen by committing them to paper - actually counting. While they are in infinite supply, observe how few are recognized. Now, throw the list away; for these must be alive each and every day in the consciousness, not stored on paper, not mechanically canned.

As progress is made in an awareness of our blessings, we are struck by how greatly they outnumber our woes and troubles. In a state of unawareness, the woes loom enormous, and we tend to covetousness; in awareness the woes are but trifles, and the covetousness fades away.

What a remarkable cure for covetousness! While the cure rids us of our woes, it also puts us on the road to social felicity; and a further dividend is wisdom.

Source: Leonard E. Read, "Accent on the Right", 1968, pages 52-57

Published May 1968

Copyright 1968 by Leonard E. Read.

Permission to reprint granted without special request.