Sacrificing Liberty through Bureaucracy

Mises, L. (1944). Bureaucracy. New Haven: Yale University Press. 135 pages. 

Those of us who advocate personal and economic freedom should remind ourselves occasionally not to be surprised anymore if most people we know take the expanding power of the government for granted. To expect otherwise is unrealistic simply because the progressive propaganda has been successful and has already conquered mainstream education and media for so long. Inflation, deficit spending, and bigger welfare package are just few examples of the activities of bigger government that people consider normal. I think this is not only confined in the Philippines; it is a global trend. And the most effective tool that has brought this economic disaster is the growth of bureaucracy. 

In Bureaucracy, Ludwig von Mises argues throughout the book that economic and personal freedom has been consistently coerced by the State through the gradual expansion of bureaucratic management. Though citizens feel this coercion through the subtle squeezing of their pockets, it is very rare to find someone who knows the details how it is being done. I think the book will give us such ability to distinguish the voice of freedom from the counterfeit ones.

Content and Outline of the Book

The book has seven chapters. Chapter 1 introduces the concept of profit management. Chapters 2 to 4 deal with bureaucratic management: the second chapter explains bureaucratic management in general; the third, bureaucratic management of publicly owned enterprises, and; the fourth, bureaucratic management of private enterprises. The following two chapters elaborate about implications and consequences of bureaucratization. The fifth chapter focuses on social and political implications, and the sixth, on psychological consequences. The last chapter is about the remedy to reduce the size of the government

The concept of profit management is explained under four sections: the basic operation of the market, economic calculation, its nature, and the nature of managing personnel. Under basic operation of the market, Mises brings to light two important themes: consumer sovereignty and economic democracy. In explaining economic calculation, Mises identified two additional components, price and profit, which can only be found under free market. Again, about the nature of profit management, two important records are emphasized, profit-and-loss account and the balance sheet. These records serve as the basis in evaluating the performance of personnel.

In chapter 2, Mises discussed the general character of bureaucratic management in relation to five sub-topics: bureaucracy under despotic government, bureaucracy within a democracy, its essential features, the crux of bureaucratic management, and its own unique feature of personnel management. Despotic government, unavoidably kills the eagerness of its personnel through strict compliance to regulations. As a result, the quality of service deteriorates. Within democracy, bureaucracy functions in relation to the rule of law and the budget. And due to the growth of bureaucratic management, in time, judicial arbitrariness threatens the rule of law, and public officers utilize public fund for their own ends. The essential features of bureaucratic management include the limitation of the discretion of subordinates, inability to verify the objectives in monetary terms, disconnection between revenue and expenses, and the absence of market price. This last feature is the crux of bureaucratic management, which is to say that the kind of service provided by the government has no market value. And because of this, poor performance is inevitable. Three additional mechanisms that contribute to the deterioration of government personnnel consist of increasing regulation to protect clerks from their superiors, the existence of superficial machinery for application and promotion, and the role of senior bureaucrats. 

Bureaucratic management of publicly owned enterprises is the subject of Chapter 3. It discusses about the impracticability of government all-round control, and public enterprise within a market economy. Other terms for government all-round control are central planning and socialism. Again, the primary reason why such system did not and will never work is due to the absence of market price that makes economic calculation impossible. Public enterprise within a market economy has numerous flaws such as the goal to provide service ignoring the market price, the transfer of the financial burden to the taxpayers, the absence of criterion to assess the usefulness of government services, and the wasteful expenditures of public fund. 

The focus of Chapter 4 is bureaucratic management of private enterprises. Here, we will find how government intervention created bureaucratization of private enterprises in the first place. This is done in two ways: interfering in company profit and in the choice of personnel. The chapter ends identifying the unfortunate results of this type of bureaucratization. 

Chapter 5 enumerates the social and political implication of bureaucratization. They include contempt for human laws, complacency, increase in government spending, bureaucratization of the mind, and the supremacy of the tyrant's will. 

Chapter 6 is all about psychological consequences. These are the misdirection of the youth, the crisis of progress and civilization, the emergence of elite paternal government, perpetual violence leading to endless civil war, and the disappearance of the critical sense.

The last Chapter shows us the way to reduce the size of the government. The way is not easy due to the popularity of government interference and the intimidation by the professionals. However, Ludwig von Mises was calling the average citizens of the nations of the world to seriously take the responsibility to personally educate themselves how the economy works. This is the only way to stop the bureaucratic invasion of liberty. This is "the first duty of a citizen of a democratic community. . ." (p. 111) for without it, "democracy becomes impracticable" (p. 120). Democracy is not "a good that people can enjoy without trouble", but "a treasure that must be daily defended and conquered anew by strenuous effort" (p. 121). 

Reasons for Writing the Book

Why Ludwig von Mises said all of these? Was his description unique only in his time? Is the message of Bureaucracy no longer applicable in the 21st century? Reading Bureaucracy for yourself will help you find out the answers to these questions.

For Mises, the reason he investigated the growth of bureaucracy in US, France, Germany, and Russia is that he thinks that this is the best way to study the conflict betwen socialism and capitalism. Through this study, one can see whether human society is heading towards "freedom, private initiative, and individual responsibility" (p. iii) or towards a coercive and interventionist state or in other words, towards "individualism and democracy" or "authoritarian totalitarianism" (ibid.). Again in page 10, Mises elaborates more about the nature of this conflict:

"The main issue in present-day political struggles 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 . . . ." 

And so for Mises, socialism utilizes bureaucracy to gradually lead society to totalitarianism. Bureaucracy and totalitarianism are interconnected. In our days, though we do not see full-blown government control of everything yet, but the growing expansion of bureaucracy is a sure indication that nations are heading into that direction. In other words, the most and highly bureaucratized society will experience constant suppression of personal and economic liberty. The reason why our time is more dangerous than the previous ones is because majority of the people do not have this realization. They don't see bureaucratization as a threat to liberty. They think that the compromise between socialism and capitalism is the way to go. They do not see that it is actually this "middle way" that is accomplishing this totalitarian goal. Again, see how Mises explains the correlation between bureaucratism and totalitarianism:

"Totalitarianism is much more than mere bureaucracy. It is the subordination of every individual's whole life, work, and leisure, to the orders of those in power and office. . . . It forces the individual to renounce any activity of which the government does not approve. It tolerates no expression of dissent. It is the transformation of society into a strictly disciplined labor army- as the advocates of socialism say-or into a penitentiary- as its opponents say. At any rate it is the radical break from the way of life to which the civilized nations clung in the past. It is not merely the return of mankind to the oriental despotism under which, as Hegel observed, one man alone was free and all the rest slaves, . . . . It is different with modern socialism. It is totalitarian in the strict sense of the term. It holds the individual in tight rein from the womb to the tomb. . . . The State is both his guardian and his employer. The State determines his work, his diet, and his pleasures. The State tells him what to think and what to believe in" (p. 17). 

Reading Chapters 5 and 6 of the book, you will realize that additional reasons exist in the mind of Ludwig von Mises that caused him to write this book. In Chapter 5, he mentioned one alarming social and political implication of bureaucratization, the bureaucratization of the mind. Mises observes that educational institutions no longer provide the necessary training of the mind, to think liberally, that is, the kind of education that protect personal liberty and the market economy. He laments that economic education has already been expelled from mainstream universities and has been replaced with "wirtschaftliche Staatswissenschaften (economic aspects of political science)" (p. 83). Notice how Mises describes the absence of economics in mainstream education and factors that contributed to such condition: 

"The modern trend toward government omnipotence and totalitarianism would have been nipped in the bud if its advocates had not succeeded in indoctrinating youth with their tenets and in preventing them from becoming acquainted with the teachings of economics" (p. 81). 

"The outstanding fact of the intellectual history of the last hundred years is the struggle against economics. The advocates of government omnipotence did not enter into a discussion of the problems involved. They called the economists names, they cast suspicion upon their motives, they ridiculed them and called down curses upon them" (p. 82). 

"In most countries of the European continent the universities are owned and operated by the government. They are subject to the control of the Ministry of Education . . . The teachers are civil servants like patrolmen and customs officers. Nineteenth-century liberalism tried to limit the right of the Ministry of Education to interfere with the freedom of university professors to teach what they considered true and correct. But as the government appointed the professors, it appointed only trustworthy and reliable men, that is, men who shared the government's viewpoint and were ready to disparage economics, and to teach the doctrine of government omnipotence" (ibid.). 

And here is the end result of the bureaucratization of the mind:

"All that the students of the social sciences learned from their teachers was that economics is a spurious science and that the so-called economists are, as Marx said, sycophantic apologists of the unfair class interests of bourgeois exploiters, ready to sell the people to big business and finance capital. The graduates left the universities convinced advocates of totalitarianism either of the Nazi variety or of the Marxian brand" (p. 86). 

Due to the success of the bureaucratization of the mind, Mises is right in saying, "The universities paved the way for the dictators" (p. 87). 

And so I think, Mises wrote Bureaucracy to counter the trend towards the bureaucratization of the mind and shift it towards liberty. 

Again in Chapter 6, we find that through this book, Ludwig von Mises offers direction to the misguided and activist youth. He desires to stop the crisis of progress and civilization. He hopes for a peaceful society where bureaucratic violence and endless civil war have no place. And finally, he dreams to see the critical sense among the citizens of democratic society restored. 

As a whole, this book is the attempt of Ludwig von Mises to provide the basic training of the mind to understand the critical issues of our time. This is his way to inform the average citizens of democratic nations by providing them fundamental understanding how bureaucracy affects personal and economic liberty. 

Is Mises Correct?

Is Mises correct in his assertion that the conflict between socialism and capitalism being decided in favor of the former through bureaucratic expansion? Is his message still relevant that the struggle between private ownership and state or collective ownership of factors of production being advanced in favor of totalitarianism through bureaucracy? Is he correct that the bureaucratization of the mind has been successful in producing university graduates who advocate totalitarianism either the German or Russian brand? Is he correct that the growth of bureaucracy the primary cause of social unrest, violence, and civil wars? 

Obviously, the answer to the above questions is affirmative. And only basic economic education is the remaining antidote to stop all this insanity. Many other writers agree with this. 

In September 29, 2012, Art Carden of Forbes wrote "The Greatest Thinker You've Never Read: Ludwig von Mises". For Carden, Mises "was the greatest social thinker of the twentieth century." Carden sees that Mises' greatest contribution was the "demonstration that socialism cannot function as a rational economic system and that private ownership of the means of production is necessary if value is going to be maximized and waste is going to be minimized in the production process." And so Carden agrees that Mises "ended the debate over whether an economic system based on common or social ownership of the means of production could function" with the essay Economic Calculation in the Socialist Commonwealth. Carden ends his article with a solemn warning taken from Human Action:

“The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.”

Carden is not alone. Mises' wife and other reputable authors and leaders in the not so recent past confirmed the greatness of Mises and his ideas. 

Margit von Mises shared her two aspirations. One, that all presidents of the United States on their inauguration should get "a complete set of Lu's books", and; two, "that every university or college where economics and political science are taught would. . . add a course on freedom of the market to their curriculum" (My Years with Ludwig von Mises, 1976, p. 181). Margit thinks that Mises' "books should be marked for special recommended readings concerning government interference, socialism, and inflation" (ibid.). Doing this, Margit believes that the knowledge of Mises' works "would help to preserve freedom in the United States" (ibid.). 

Sylvester Petro, former professor of labor law at New York University describes Mises' writings as a different kind "from anything I had ever read before" (p. 157). He said this in spite of his wide reading "in the classics, in logic, in philosophy, in epistemology, in law, in economics, in social theory, in politics and all the rest" (ibid.). 

Leonard Read, "the founder of the Foundation for Economic Education" said of Mises' ideas as "a fountain source of new students for generations to come" (p.133). 

And finally Lawrence Fertig, "an American advertising executive and a libertarian journalist and economic commentator" compared Mises with mainstream economists: 

"Great honors were showered on economists whose major accomplishments had been to promote a major inflation which, by the end of the 20th Century, was acknowledged to be the source of tremendous social unrest and economic crises. These were the fashionable economists who were sponsored by wealthy Foundations and indeed by most of the intellectuals of Academe. But when economic historians of the future came to evaluate precisely who had made the most significant contributions to economic theory-to those broad and fundamental principles which explain human actions in the practical world people must live in-their puzzlement increased. For they could find only a meager record of academic honors or monetary prizes by leading ivy-league universities accorded to the one economist who had discovered and formulated some of the most brilliant economic theories of that century. His name was Ludwig von Mises" (p.178).

If Mises and his ideas are really great as the above men described, how come his books are not studied in the universities? Isn't this relegation of Mises' books to the shadow the fulfillment of his foresight, that socialism has been advancing for so long though not easily recognized due to bureaucratic means? I wonder why I never encountered Ludwig von Mises' books during my bachelor and master's degree, and not even when I took some units in my doctoral course in educational leadership. It was only in 2009 through the books of Robert Kiyosaki, the least expected person to arouse my interest to examine the Austrian school. 

If you are still not convinced about the relevance of Mises' ideas, try now to read a newspaper or any article on current economic and political issues anywhere in the world and see how problems are explained. You will always find one common theme: the government has to do something due to market failure. It is as if the government always knows how to solve the problem. It never enters in the mind of most people to question how the problem originates in the first place. If you are curious enough to pick up a particular problem such as income inequality and massive unemployment and dig into the source of the problem, you will always find the State through its bureaucratic agents. In short, the State claims to solve the problem that it created in the first place. 

In the Philippines, we have yet to see a public figure, whether a politician, a political and economic commentator or a journalist who advocates personal responsibility, economic liberty, and limited government. So far, the political and economic stance of most public figures we know are statist, socialist, nationalist, interventionist, and progressive. Filipino citizens do not have to wait for the emergence of a libertarian leader. Why not begin studying the books of Ludwig von Mises? Besides short books like Bureaucracy, Anti-Capitalistic Mentality, and Economic Policy: Thoughts for today and Tomorrow, Mises also wrote The Theory of Money and Credit, Socialism: An Economic And Sociological Analysis, Human Action, and Theory and History. Mises.org offers all these books to anyone for free.

Summaries of Chapters of Bureaucracy

Preface

Introduction First Draft

Revised Introduction 1

Revised Introduction 2

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7 and Conclusion

Review of the Entire Book

Economically Informed Citizenry

At last, I am done with my summary of "Bureaucracy", a very short book, but very difficult to read and vital to understand current issues from Misesian point of view. After my separate summaries of the book's six chapters, I came to the conclusion that the social problem Mises discussed 70 years ago is still with us in the 21st century. And he identified this problem as totalitarianism. He believed that "mankind is manifestly moving toward totalitarianism" (p. 109). 

I suspect that many these days will simply dismiss this conclusion as antiquated. Perhaps, the skeptics will argue on the basis of the difference of external manifestations between Mises' time and our time. During Mises' time, both Hitler and Lenin's threat was visible and real. In our time, socialism both in its German and Russian patterns are considered thing of the past; at least, this is what most people think. 

However, my difficulty in accepting the credibility of the above objection is that the existing social symptoms deny it. Blaming free market for massive unemployment is still popular. Government interference in almost all aspects of the citizens' life is considered acceptable. Growth of government spending is uncritically accepted as necessary to boost the economy. In short, bureaucratic management is still growing despite the fact that many books have been published criticizing the inefficiency of the system. In this concluding article, I want to share the solution to the crisis of our time as Mises saw it, and the two great obstacles that citizens of democratic society must overcome. The material in this article is taken from Chapter 7 and from the Conclusion of the book. 

The Solution: Economic Education

One certain sign that Mises' analysis still describes our time is the absence of economically informed citizenry. For him, that was the need of his time, and I personally believe still remains the need of our time. This is the solution to contemporary crisis. Unless ordinary citizens are economically educated, there is no way for us to stop the onslaught of bureaucratization. The only remedy to stop mankind's direction toward totalitarianism is for the public to have a basic understanding how the economy works. 

Mises lamented that past attempts to stop bureaucratization and socialization failed in spite of illustrious names that attacked the system. Both legal and satirical books failed. Yes, people were amused, but bureaucratization continued. For Mises, the reason why they failed was because the core of the problem was not touched. To him, "Bureaucratization is only a particular feature of socialization. The main matter is: Capitalism or Socialism? Which?" (p. 110).

Mises asked whether the interpretation of the supporters of socialism of capitalism was really correct or not. Is it really true "that capitalism is an unfair system of exploitation, that it is extremely detrimental to the welfare of the masses and that it results in misery, degradation, and progressive pauperization of the immense majority?" (ibid.). Are socialists correct or not? For Mises, this is the most important question. 

The above question can only be answered through economic reasoning, and that's why Mises was calling for a citizenry that is economically informed. He does not trust the experts to do this task in behalf of the people. To allow such to happen is equivalent to the giving up of the right of "self-determination" (p. 120), which is the essence of democracy. See how Mises describes the significance of economic education in answering the central question between capitalism and socialism:

"This is entirely an economic problem. It cannot be decided without entering into a full scrutiny of economics. The spurious catchwords and fallacious doctrines of the advocates of government control, socialism, communism, planning, and totalitarianism cannot be unmasked except by economic reasoning. Whether one likes it or not, it is a fact that the main issues of present-day politics are purely economic and cannot be understood without a grasp of economic theory. Only a man conversant with the main problems of economics is in a position to form an independent opinion on the problems involved" (pp. 110-111). 

For Mises, to obtain this economic education is "the first duty of a citizen of a democratic community. . ." (p. 111). Without this education "democracy becomes impracticable" (p. 120). Furthermore, Mises describes democracy not as "a good that people can enjoy without trouble", but as "a treasure that must be daily defended and conquered anew by strenuous effort" (p. 121). 

Once a citizen fulfills this duty, he will be able to see the mistake in blaming the capitalists for mass unemployment; he will realize that unemployment under free market is only temporary, and; he will finally understand that "unemployment as a mass phenomenon is the outcome of allegedly 'pro-labor' policies of the governments and of labor-union pressure and compulsion" (p. 112). Moreover, an informed citizen will no longer "believe that government spending can create jobs for the unemployed"; he will grasp that "there is but one way toward an increase of real wage rates for all those eager to earn wages: the progressive accumulation of new capital and the improvement of technical methods of production which the new capital brings about", and; he will recognize that "the true interests of labor coincide with those of business" (ibid.). 

The Two Biggest Obstacles

However, fulfilling the above duty is not easy. There are many obstacles to overcome, and two of them are intimidation by professionals who strongly advocate bureaucratization and socialization, and the settlement to compromise between capitalism and socialism, the third way. Let us deal first with the first obstacle.

Intimidation by professionals. In this battle of ideas, an ordinary citizen has no match when confronted with objections coming from professionals. Mises identified that these professionals are almost everywhere:

"There are, first of all, the hosts of employees of the governments' and the various parties' propaganda offices. There are furthermore the teachers of various educational institutions which curiously enough consider the avowal of bureaucratic, socialist, or Marxian radicalism the mark of scientific perfection. There are the editors and contributors of 'progressive' newspapers and magazines, labor-union leaders and organizers, and finally leisured ambitious men anxious to get into the headlines by the expression of radical views" (p. 116). 

When these professionals raised objections, an ordinary citizen is immediately silenced, and does not how to identify the error in their reasoning. Mises gave at least two objections that a layman must anticipate. This is the first objection:

"The fallacy of the gentleman's reasoning has long since been unmasked by the famous German professors, Mayer, Muller, and Schmid. Only an idiot can still cling to such antiquated and done-for ideas" (ibid.).

And the second objection:

"This gentleman is so ignorant as not to know that the scheme proposed succeeded very well in socialist Sweden and in red Vienna" (p. 117). 

The reason why a citizen cannot respond to the first objection is because "He has never heard the names of these eminent German professors" (p. 116). But Mises claims that the books of those professors "are simple humbug, full of nonsense, and that they did not touch the problems which" (ibid.) the layman raised. And concerning the second objection, again, it is true that it is difficult to respond since an ordinary citizen has no opportunity to get accurate "information from the original sources" (p. 117). However, Mises assures us "that almost all English-language books on Sweden and Vienna are propaganda products badly distorting the facts" (ibid.). 

The goal in attaining economic education is "not to make every man an economist" (p. 115). Instead, "The idea is to equip the citizen for his civic functions in community life" (ibid.) and "to make the civic leaders fit for such encounters with professional preachers of bureaucratization and socialization" (p. 117). This type of education is important for "The conflict between capitalism and totalitarianism, on the outcome of which the fate of civilization depends, will not be decided by civil wars and revolutions. It is a war of ideas. Public opinion will determine victory and defeat" (p. 115). 

Settling for the third way, government interventionism. Now, in the mind of Mises, this second obstacle, settling for the third way is the most destructive result of the average citizen's disgust to seriously look into economic problems. Mises gave us a more elaborated explanation of the nature of this compromise:

The citizen "looks upon the conflict between capitalism and socialism as if it were a quarrel between two groups, labor and capital each of which claims for itself the whole of the matter at issue. As he himself is not prepared to appraise the merits of the arguments advanced by each of the parties, he thinks it would be a fair solution to end the dispute by an amicable arrangement: each claimant should have a part of his claim. Thus the program of government interference with business acquired its prestige. There should be neither full capitalism nor full socialism, but something in between, a middle way. This third system, assert its supporters, should be capitalism regulated and regimented by government interference with business. But this government intervention should not amount to full government control of all economic activities; it should be limited to the elimination of some especially objectionable excrescences of capitalism without suppressing the activities of the entrepreneur altogether. Thus a social order will result which is allegedly as far from full capitalism as it is from pure socialism, and while retaining the advantages inherent in each of these two systems will avoid their disadvantages. Almost all those who do not unconditionally advocate full socialism support this system of interventionism today and all governments which are not outright and frankly pro-socialist have espoused a policy of economic interventionism. There are nowadays very few who oppose any kind of government interference with prices, wage rates, interest rates, and profits and are not afraid to contend that they consider capitalism and free enterprise the only workable system, beneficial to the whole of society and to all its members" (pp. 117-118). 

For Mises, to see the differences between socialism and capitalism as simply "a struggle between two parties for a greater share in the social dividend" is equivalent "to a full acceptance of the tenets of the Marxians and the other socialists" (p. 118). This perspective is based on a fallacious economic reasoning. Mises concluded that this act of compromise would end in disaster: 

"Economic interventionism is a self-defeating policy. The individual measures that it applies do not achieve the results sought. They bring about a state of affairs, which-from the viewpoint of its advocates themselves-is much more undesirable than the previous state they intended to alter. Unemployment of a great part of those ready to earn wages, prolonged year after year, monopoly, economic crisis, general restriction of the productivity of economic effort, economic nationalism, and war are the inescapable consequences of government interference with business as recommended by the supporters of the third solution. All those evils for which the socialists blame capitalism are precisely the product of this unfortunate, allegedly 'progressive' policy. The catastrophic events which are grist for the mills of the radical socialists are the outcome of the ideas of those who say: "I am not against capitalism, but ..." Such people are virtually nothing but pacemakers of socialization and thorough bureaucratization. Their ignorance begets disaster" (p. 119). 

I think there is no proper way to end this article than to quote a paragraph from the last page of the book. Ludwig von Mises describes the many inconsistencies of those who are proud to call themselves as champions of socialism: 

"The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau, what an alluring utopia! What a noble cause to fight for!" (p. 125). 

Source: Mises, L. (1944). Bureaucracy. New Haven: Yale University Press.

Chapter 6 - The Psychological Consequences of Bureaucratization

After sharing the social and political implications of bureaucratization, we now approach its psychological consequences. Ludwig von Mises discussed this in Chapter 6. He identified at least five results: misdirected youth, crisis of progress and civilization, elite paternal government, increasing violence leading to endless civil war, and disappearance of the critical sense. Let us consider the first result. 

Misdirected Youth

The first consequence that Mises mentioned was related to the youth. In order to grasp the strength of this argument, we need to identify the situation prior to the growing influence of bureaucratization. And this is best summarized in "Horatio Alger's philosophy" (p. 93) about a capitalist society. For Mises, this philosophy emphasized the most distinguishable feature of a capitalist society:

"Capitalism is a system under which everybody has the chance of acquiring wealth; it gives everybody unlimited opportunity. Not everybody, of course, is favored by good luck. Very few become millionaires. But everybody knows that strenuous effort and nothing less than strenuous effort pays. All roads are open to the smart youngster. He is optimistic in the awareness of his own strength. He has self-confidence and is full of hope. And as he grows older and realizes that many of his plans have been frustrated, he has no cause for despair. His children will start the race again and he does not see any reason why they should not succeed where he himself failed. Life is worth living because it is full of promise." (ibid.). 

The truthfulness of this philosophy was illustrated in the successful experiences of Thomas Alva Edison and Henry Ford in America. Many young men and women of the same generation as Edison and Ford confirmed this through their less known stories. These people were characterized with vision, energy, and personal responsibility. Mises described them as follows:

". . . the rising generation are driven by spirit of pioneer. They are born into a progressing society, and they realize that it is their task to contribute something to the improvement of human affairs. They will change the world, shape it according to their own ideas. They have no time to waste, tomorrow is theirs and they must prepare for the great things that are waiting for them. They do not talk about their being young and about the rights of youth; they act as young people must act. They do not boast about their own 'dynamism'; they are dynamic and there is no need for them to emphasize this quality. They do not challenge the older generation with arrogant talk. They want to beat it by their deeds" (p. 94). 

However, such mindset and attitude changed with the increasing influence of bureaucratization. Young men and women lost their vision and initiative. Their only dream was to secure a job in government bureaus. Referring to a typical young man that time, notice how Mises described this shift:

"The routine of a bureaucratic technique will cripple his mind and tie his hands. He will enjoy security. But this security will be rather of the kind that the convict enjoys within the prison walls. He will never be free to make decisions and to shape his own fate. He will forever be a man taken care of by other people. He will never be a real man relying on his own strength. He shudders at the sight of the huge office buildings in which he will bury himself" (ibid.).

This trend was especially true in the most bureaucratized country, Germany. Prior to World War 1, a "youth movement" emerged who was hostile to anything connected to the past. They were proud of their "revolutionary radicalism". However, they never criticized government bureaucracy. Mises gave us a clear picture of the ugly features of this movement: 

"Turbulent gangs of untidy boys and girls roamed the country, making much noise and shirking their school lessons. In bombastic words they announced the gospel of a golden age. All preceding generations, they emphasized, were simply idiotic; their incapacity has converted the earth into a hell. . . the brilliant youths will rule. They will destroy everything that is old and useless, they will reject all that was dear to their parents, they will substitute new real and substantial values and ideologies for the antiquated and false ones of capitalist and bourgeois civilization, and they will build a new society of giants and supermen" (pp. 94-95).

For Mises, the young people of this movement did not actually possess any concrete plans. Their boldness "was only a poor disguise for their lack of any ideas and of any definite program" (p. 95). "In fact they espoused entirely the program of their parents. They did not oppose the trend toward government omnipotence and bureaucratization. Their revolutionary radicalism was nothing but the impudence of the years between boyhood and manhood; it was a phenomenon of a protracted puberty. It was void of any ideological content" (ibid.). 

As to the leaders of this movement, Mises portrayed them as "mentally unbalanced neurotics," "profligate or homosexual," and "none of them excelled in any field of activity or contributed anything to human progress" (ibid.). About the followers, many of them, their only aim was to be a bureaucrat. Similar goal could be seen among new converts as the movement spread outside Germany. 

From its birth, the movement was bound to fail because it was not able to detach itself from the dominance of government control. Instead, whatever its dissatisfaction was with the system could only be appeased if the members of the movement could secure a government job. That's why Mises called this movement a "counterfeit rebellion" (p. 96), and considered dead during his time among countries, which were highly bureaucratized for the followers of the movement were already "integrated into the all-embracing apparatus of state control" (ibid.). 

Crisis of Progress and Civilization

As we have seen so far, the youth was the most affected sector of society due to bureaucratization. They felt uneasy, dissatisfied with what was going on, wanted change, but they did not know how. The reason for this was due to the success of the bureaucratization of the mind by means of education. The youth either due to absence or distorted understanding of the economy, all their cries for reform were actually vain efforts to beat the air. The youth movement failed for they did not possess the quality of mind to see the evil of socialization brought about by bureaucratization. 

Ludwig von Mises saw bureaucratization as a revival of caste system that characterized the age of feudalism. Under that age, the youth "are deprived of any opportunity to shape their own fate" (p. 97). He further described the similarity of adverse condition of the youth both under the caste system and the bureaucratic system. For the youth, "there is no chance left. They are in fact 'lost generations' for they lack the most precious right of every rising generation, the right to contribute something new to the old inventory of civilization" (ibid.). This is the reason why Mises stated that the kind of crisis brought about by bureaucratization was not only confined among the youth. He claimed, "This is more than a crisis of the youth. It is a crisis of progress and civilization" (pp. 100-101). 

Socialism is the ideology that caused this crisis by way of Marxism. The bondage broken by classical liberalism was subtly restored through Marxism's contrary interpretation of the achievements of classical liberalism. In Marxism, "the irreconcilable conflict of economic classes" (p. 98) is regarded as the central dogma. For Marxists, in capitalism, an offspring of classical liberalism, the interests of the two economic classes were hostile to each other. To remove this hostility, the goal is to establish the socialist classless society. And achieving this goal is exactly where bureaucratization serves as the most useful tool.

Elite Paternal Government

Elite parental government is the third psychological outcome of bureaucratization. In antiquity, Plato conceptualized this idea of paternal government as managed by the elite without ulterior motives. See how Mises described this class of leaders: 

"Plato's ideal and perfect state is to be ruled by unselfish philosophers. They are unbribable judges and impartial administrators, strictly abiding by the eternal immutable laws of justice" (p. 101). 

The problem with Plato's concept of ideal state was any departure from the ideal was perceived as deterioration. No change was allowed in order to protect the perfect society from degradation. This Platonic idea served as the pattern for all utopians who formulated their master plans. 

Mises further explained this error in Plato's philosophy: 

"It does not pay any attention to the evolution of social and economic conditions and to changes in human ideas concerning ends and means. . . The notion of progress in knowledge, in technological procedures, in business methods, and in social organization is foreign to Plato's mind" (ibid.). 

The Roman Catholic Church applied Plato's idea "under the Tridentine organization as it emerged from the Counter-Reformation" (p. 101). It was described as a model of "perfect bureaucracy" (ibid.) for it did not limit access to high offices of the church just to members of noble families, but provided equal opportunity even to those who came from peasant families. Potential candidates for these offices equally compete with each other withour regard for ancenstral origins. Out of this system, the best church officers were selected, which Mises considered as "worthy rivals of the most brilliant scholars, philosophers, scientists, and statesmen" (p. 102). Through this form of ecclesiastical bureaucracy, the Catholic Church has provided an example in choosing the best men for the most important church offices, which Mises thought was "the most delicate problem of every nondemocratic government" (p. 101). 

For all modern socialist intellectuals, the above ecclesiastical bureaucracy provided them a successful model for future utopias. Mises mentioned Count Henri de Saint-Simon and Auguste Comte as among those who pioneered this idea in their writings. Other socialist thinkers shared similar anticipation though they failed to mention the Catholic example. However, for Mises, besides this Catholic model, no other precedent can be found for a successful bureaucracy.

Mises argued that the appeal to the Catholic example is erroneous due to the failure to distinguish the difference between the nature of Catholicism and the nature of human society and civil government. Catholicism was successful in establishing such perfect bureaucracy for the creed where it was based was believed to be immutable (I do not know for sure if this creedal immutability still remains the official position of the Catholic Church as described by Ludwig von Mises). Such creed generated stable "set of rules and regulations" that made the selection process very efficient.

Turning to the realm of civil government and human society in general, such idea of immutable body of doctrine that generates stable regulations has not yet been reached. Instead, what mankind has found so far was constant innovation that explains the ongoing progress of human civilization. For Mises, "the forces that brought about our present civilization are not dead" (pp. 102-103), and in fact if not bound by bureaucratic system, will still produce continuous growth. The case of Catholic bureaucracy cannot serve as a model in managing society for in that system, the most important quality that a candidate for high office must posses is fidelity to unchangeable dogmas. Innovators and pioneers of new ideas have no place in a rigid system. This is the inherent nature of bureaucratic management that makes it inappropriate for social and economic affairs.

Bureaucratic management, due to its rigidity and strict compliance to regulations, unavoidably results into dehumanization and strangulation of life. So in order to achieve the socialist paradise, it is a prerequisite that human nature must be changed. In fact, Mises claimed, "In an all-round bureaucratic system neither the bureaucrats nor their subjects would any longer be real human beings" (p. 103). 

Increasing Violence Leading to Endless Civil War

In the most matured state of bureaucratization, increasing violence leading to endless civil war is its fourth psychological result. Mises explained how this came about. For those who advocate political salvation through an elite class of men, there is no doubt in their mind that a society must be governed in authoritarian fashion. However, the problem with dictatorship is that many are potential competitors. "If the decision between various candidates is not left to majority vote, mo principle of selection remains other than civil war" (pp. 103-104). Mises backed up this assertion with a historical example.

The German "Fuhrer principle" is as old as the Roman Empire. The Emperor embodied "the most able and eminent man" (p. 104). However, the Empire started to collapse through "continuous civil war, anarchy, and rapid decay" (ibid.) when no one was qualified to replace the most perfect among men. "The rule of the worst was substituted for the rule of the best" (ibid.). "Treachery, rebellion, and murder became the selective principle" (ibid.). For Mises, "a system that can be wrecked by the fault of only one man is a bad system. . ." (ibid.). It is in this way that "a Fuhrer system must necessarily result in permanent civil war. . ." (ibid.). Here Mises seems to equate the Fuhrer system with the bureaucratic system in which violence is the ultimate basis. 

Disappearance of the Critical Sense

This outcome was surprising in an age that boasted about revolutionary ideas. Mises described this result as the absence of "common sense and self-criticism" (p. 105). Before enumerating examples of such lack of critical sense, Mises introduced first the socialists' interpretation of capitalism and their proposed alternative. For socialists, capitalism degrades human dignity, "weakens man's intellectual abilities," "spoils his moral integrity," discourages "benevolence and companionship," and promotes "hatred and a ruthless striving for personal success at the expense of other people" (ibid.). And so the replacement of capitalism with socialism is the only way to "restore the virtues of human nature" such as "amicableness, fraternity, and comradeship. . ." (ibid.). To accomplish this, competition, the mother of all evils must be eliminated. 

Competition. The idea that competition can be completely eliminated is the first concrete example of the absence of critical sense. For Mises, "competition can never be eliminated" (ibid.). Under socialism, capitalist competition is just being replaced with another kind of competition. Mises distinguished between the two: 

"The capitalist variety of competition is to outdo other people on the market through offering better and cheaper goods. The bureaucratic variety consists in intrigues at the 'courts' of those in power" (ibid.). 

Other historical examples for the disappearance of critical sense include the adulation of the masses, the glorification of Stalin and the Soviet system, and the assumed superiority of bureaucratic management over the free market. 

Adulation of the masses. Compared to the previous age, despite the fear of dictators, there were still few who raised their voices of disagreement. But Mises described a different time, which I think remains true up to the present. Everyone competes in praising the new sovereign, the common man, and no one dares to advocate ideas contrary to public opinion. By doing so, it becomes a convenient way to be the champion of the masses. This is the essence of good politics in our time. 

Glorification of Stalin and the Soviet system. Mises expounded the glorification of Stalin and the Soviet system by a quote from certain Avdyenko and the manner of public reception to Soviet's accomplishment in terms of railroad construction and musical achievement. Here's how Avdyenko praised Stalin: 

"Centuries shall elapse and the communist generations of the future will deem us the happiest of all mortals that have inhabited this planet throughout the ages, because we have seen Stalin the leader genius, Stalin the Sage, the smiling, the kindly, the supremely simple. When I met Stalin, even at a distance, I throbbed with his forcefulness, his magnetism, and his greatness. I wanted to sing, to shriek, to howl from happiness and exaltation." 

Public reception to Soviet's accomplishments was compared to the credit given to an Emperor about railroad construction and to the skepticism that an absolutist government under Marie Therese and her grandson Francis could produce immortal music that came from a Mozart and Beethoven. In the case of these two examples, the people did not receive them favorably. But the Soviet accomplishments were different. The people accepted them as proofs of the superiority of the Russian system. 

Superiority of bureaucratic management. Bureaucratic system was considered superior over the free market. The growth of bureaucracy and government operation of industries in Europe, the emphasis on the importance of identification papers, the popularity of government services, and the concept that personal freedom can be preserved under full-grown bureaucracy were used as proofs for this statement. 

1. Growth of bureaucracy and government operation of industries in Europe. Here Mises used the tobacco industry both in France and Greece as an example. He said that either public's dislike or smokers' delight of cigarrete as goals is not a valid argument for government monopoly of the industry. In Germany, the example used by Mises was the public's uncritical acceptance "that universities, railroads, telegraphs, and telephones be operated by the government" (p. 107). 

2. Identification papers and the need to report any change of address. Fighting criminal elements of society is the typical reason used by the government to justify these requirements. For Mises, this does not provide enough reason to restrict the freedom of most law-abiding citizens. 

3. Popularity of government services. Unlike the private sectors, which voluntarily gain customers through good service, government bureaus coercively acquire their "clients." A public office "approached by many people is not proof of its satisfying an urgent need of the people" (p. 108). Instead, "It only shows that it interferes with matters that are important to the life of everyone" (ibid.). 

4. Freedom under bureaucracy. Finally, the lack of critical sense is fully displayed in the belief that freedom is possible in full-grown bureaucracy. Mises described how people think. They "imagine a regime in which all means are owned by the state and the government is the sole employer as a realm of freedom. They never take into account the possibility that the almighty government of their utopia could aim at ends of which they themselves entirely disapprove" (ibid.). It never entered their mind that a conflict of interest exist between them and the ruling power. 

In concluding the 6th chapter, Mises identified that the intellectuals were the most vulnerable sector of society that unreservedly embraced the bureaucratic propaganda:

"The most enthusiastic supporters of Marxism, Nazism, and Fascism were the intellectuals, not the boors. The intellectuals were never keen enough to see the manifest contradictions of their creeds. It did not in the least impair the popularity of Fascism that Mussolini in the same speech praised the Italians as the representatives of the oldest Western civilization and as the youngest among the civilized nations. No German nationalist minded it when dark-haired Hitler, corpulent Goering, and lame Goebbels were praised as the shining representatives of the tall, slim, fair-haired, heroic Aryan master race. Is it not amazing that many millions of non-Russians are firmly convinced that the Soviet regime is democratic, even more democratic than America?" (ibid.).

Source: Mises, L. (1944). Bureaucracy. New Haven: Yale University Press.

Chapter 5 - The Social and Political Implications of Bureaucratization

Now we reach the 5th chapter of "Bureaucracy". In this chapter, we are going to learn the five social and political implications of bureaucratization:

Bureaucrats' contempt for human laws. This implication is puzzling for we have stated in previous article that bureaucratic management is characterized by strict compliance to regulations. And besides the office of a civil servant is established through a legislative act (p. 76). And so it is unthinkable for bureaucrats to entertain this kind of attitude as if they are operating on a different level of legislation. The only justification I observe in doing this is the bureaucrat's loyalty to the interests of the State. 

For the advocates of state interference, a bureaucrat plays a very unique role. Mises elaborated this in his concept of "the essence of the philosophy of bureaucratism" (p. 75). In this concept, a bureaucrat is perceived as the faithful servant of the State who wishes nothing but to implement the will of his master, and whoever dares to challenge that will is considered a social menace. This is the exact opposite of an individualist who is motivated by personal interests. 

A bureaucrat is idealized. He is considered sincere and thinks of nothing else but his solemn task, to demolish the selfishness of the people. Moreover, a bureaucrat is "the champion of the eternal divine law. He does not feel himself morally bound by the human laws. . ." (ibid.). So with this kind of intellectual atmosphere, a bureaucrat appears to be exempted from legal penalties provided that the purposes he serves are those of the State. It is, as if, a bureaucrat operates on a higher plane beyond human laws. This kind of mindset was common prior to the rise of totalitarian states in the past. 

With such an intellectual defense in favor of bureaucracy, how would a private citizen respond? Mises provided an appropriate response:

"You may be excellent and lofty men, much better than we other citizens are. We do not question your competence and your intelligence. But you are not the vicars of a god called 'the State.' You are servants of the law, the duly passed laws of our nation. It is not your business to criticize the law, still less to violate it. In violating the law you are perhaps worse than a good many of the racketeers, no matter how good your intentions may be. For you are appointed, sworn, and paid to enforce the law, not to break it." (p. 76). 

Since the above bureaucratic attitude is closely connected to the conflict between statist and individualist philosophies, I think it is appropriate at this point to mention the earlier section of the present chapter. There Mises introduced a very important distinction to help us clarify contemporary issues made blurred by statist ideas:

"The political conflicts are no longer seen as struggles between groups of men. They are considered a war between two principles, the good and the bad. The good is embodied in the great god State, the materialization of the eternal idea of morality, and the bad in the 'rugged individualism' of selfish men. In this antagonism the State is always right and the individual always wrong. The State is the representative of the commonweal, of justice, civilization, and superior wisdom. The individual is a poor wretch, a vicious fool." (p. 74).

Bureaucratic complacency. To see the significance of this second implication, we need to understand that though bureaucrats are paid to implement the law, the body of laws is not always perfect. It is a fact that unwise laws exist. And since the primary duty of a bureaucrat is to implement the laws of the land, it is not his fault if there are laws detrimental to public good.

The same can be said with the merits of his actions. Though the services of civil servants are necessary to maintain order in society, this also holds true in the case of other menial jobs such as scavengers and dishwashers. This is because under the division of labor everyone depends on the services offered by others. This social arrangement is important for those who specialize in their chosen fields. Considering this, bureaucrats therefore do not possess special claims "to the epithet pillar of society" (p. 77).

At this point, Ludwig von Mises recognized the proper place of altruism in the development of civilization. However, contrary to ideas propagated by German statist philosophers, he argued that people search careers in public service not because of altruistic goals, but because of higher monetary incentive, ease of work and job security. For Mises, to maintain altruistic goals is nonsense. He further explained the real motivation why people seek career in civil service:

"In all countries most people joined the staff of the government offices because the salary and the pension offered were higher than what they could expect to earn in other occupations. They did not renounce anything in serving the government. Civil service was for them the most profitable job they could find" (p. 79).

Furthermore, Mises described that these personal motivations under bureaucratic system finally resulted to complacency as far as the civil service in Europe was concerned: 

"The incentive offered . . . consisted not only in the level of the salary and the pension; many applicants, and not the best ones, were attracted by the ease of the work and by the security. As a rule government jobs were less exigent than those in business. Besides, the appointments were for life. An employee could be dismissed only when a kind of judicial trial had found him guilty of heinous neglect of his duties. In Germany, Russia, and France, every year many thousands of boys whose life plan was completely fixed entered the lowest grade of the system of secondary education. They would take their degrees, they would get a job in one of the many departments, they would serve thirty or forty years, and then retire with a pension. Life had no surprises and no sensations for them, everything was plain and known beforehand" (ibid.).

Growth in government spending. This increase in government spending is due to the fact of dual membership of a bureaucrat. He is both an employee and an employer. By employee, we simply understand "a government employee". By employer, we see that "under a democratic constitution," he is "a voter and as such a part of the sovereign, his employer" (p. 80). Due to this double membership, a conflict of interest emerged, and it is always the bureaucrat's interest as an employee that prevails over his interest as an employer. Practically, this means that "he gets much more from the public funds than he contributes to them" (ibid.). Mises explained further the relationship between this dual membership and concern for a higher salary: 

"This double relationship becomes more important as the people on the government's pay roll increase. The bureaucrat as voter is more eager to get a raise than to keep the budget balanced. His main concern is to swell the pay roll" (ibid.). 

Mises narrates that it is this unfortunate deterioration that actually contributed to the downfall of democratic institutions both in Germany and France. He explains that for considerable number of the electorate looks to the state as the source of income (ibid.). This was true in the case of "hosts of public employees," those employed in nationalized corporations, "the receivers of the unemployment dole and of social security benefits, as well as the farmers and some other groups which the government directly or indirectly subsidized. Their main concern was to get more out of the public funds" (ibid.).

Mises compared this lamentable decline to the situation in the 19th century. During that period, government expenditures were restricted as much as possible. Mises' description remains true wherein today thrift is regarded as detestable, and "boundless spending was considered a wise policy" (p. 81). 

With this kind of trend, Mises claims that representative democracy will not last long. Its destruction depends on the extent of the number of bureaucrats depending on government pay roll. Once this parasitic trend spreads all over the system that leads to the destruction of the productive sector of the economy, we know that the collapse is at hand. Mises saw this as "the antinomies inherent in present-day constitutional issues" and has led many to despair about the future of democracy (ibid.). 

The bureaucratization of the mind. Among the social and political implications of bureaucratization, I think this is next to the worst simply because man's freedom to think has been suppressed in educational institutions. This was made possible through the expulsion of economic education from the universities. As a result, statist ideas became widespread. 

Mises' analysis is surprising and appears unfounded for universities throughout the world still teach economics. However, in the mind of Mises, the kind of economics being taught in the academe from his time onward is not real economics, but "wirtschaftliche Staatswissenschaften (economic aspects of political science)" (p. 83). Notice how Mises described the absence of economics in mainstream education and factors that contributed to such condition: 

"The modern trend toward government omnipotence and totalitarianism would have been nipped in the bud if its advocates had not succeeded in indoctrinating youth with their tenets and in preventing them from becoming acquainted with the teachings of economics" (p. 81).

"The outstanding fact of the intellectual history of the last hundred years is the struggle against economics. The advocates of government omnipotence did not enter into a discussion of the problems involved. They called the economists names, they cast suspicion upon their motives, they ridiculed them and called down curses upon them" (p. 82).

"In most countries of the European continent the universities are owned and operated by the government. They are subject to the control of the Ministry of Education . . . The teachers are civil servants like patrolmen and customs officers. Nineteenth-century liberalism tried to limit the right of the Ministry of Education to interfere with the freedom of university professors to teach what they considered true and correct. But as the government appointed the professors, it appointed only trustworthy and reliable men, that is, men who shared the government's viewpoint and were ready to disparage economics. and to teach the doctrine of government omnipotence" (ibid.). 

Mises made one interesting observation in relation to the statement delivered by Emil du Bois-Reymond in 1870. The latter said: "We, the University of Berlin, quartered opposite the King's palace, are, by the deed of our foundation, the intellectual bodyguard of the House of Hohenzoller" (ibid.). For Mises, this statement "characterizes the spirit of German universities" in 19th century. This statement is important for Bois-Reymond said this "in his double capacity as Rector of the University of Berlin and as President of the Prussian Academy of Science" (ibid.). 

The reason why economics was outlawed from European universities was due to the hostility of statist advocates against the concept of economic laws. They considered such concept as "a kind of rebellion" and "heresy" (p. 83). For if the economists were correct that economic laws exist, "then governments cannot be regarded as omnipotent. . ." (ibid.). 

And so in order for the bureaucratization of the mind to be successful, economics professors were screened and books that teach economics perspective contrary to the view of the state could no longer "be found in the libraries of the university seminars" (p. 86). The only qualities required for professors of "social sciences were disparagement of the operation of the market system and enthusiastic support of government control" (ibid.). Mises described the end result of the bureaucratization of the mind:

"All that the students of the social sciences learned from their teachers was that economics is a spurious science and that the so-called economists are, as Marx said, sycophantic apologists of the unfair class interests of bourgeois exploiters, ready to sell the people to big business and finance capital. The graduates left the universities convinced advocates of totalitarianism either of the Nazi variety or of the Marxian brand" (p. 86). 

And so Emil du Bois-Reymond was right. Universities are the intellectual bodyguards of the State and they were successful in fulfilling their duties. This explains the widespread influence of European totalitarianism. "The universities paved the way for the dictators" (p. 87). 

The supremacy of the tyrant's will. This is the final and the worst social and political implication of bureaucratization. The other way to describe this implication is the gradual erosion of liberty. Again, to clearly see the seriousness of this implication, better contrast the society under market and the society under government omnipotence. 

Under a market society, the public is regarded as supreme. It is the will of the masses that determine the activities of the specialists. The consumers are the decision-makers whether an enterprise will succeed or not. Again, Mises briefly explains how this supremacy operates: 

"He who is eager to earn, to acquire, and to hold wealth is under the necessity of serving the consumers. The profit motive is the means of making the public supreme. The better a man succeeds in supplying the consumers, the greater become his earning" (p. 88).

"Profit is the reward for the best fulfillment of some voluntarily assumed duties. It is the instrument that makes the masses supreme. The common man is the customer for whom the captains of industry and all their aides are working" (ibid.).

However, due to government interference in private enterprises through bureaucratic operation, the sovereign will of the people is subtly suppressed in the name of protecting their interest. Such interference as has already been elaborated elsewhere will naturally lead to low quality products and higher prices. In its final stage, the logical result of such intervention is the submission of the people's will to the tyrant's will. And so in contradistinction to market society, under government omnipotence the tyrant's will is supreme. For Mises, the critical question to ask is: "Who should be the master? Should man be free to choose his own road toward what he thinks will make him happy? Or should a dictator use his fellowmen as pawns in his endeavors to make himself, the dictator, happier?" (p. 91). Again Mises asked: "Who, should run the country? The voters or the bureaucrats?" (ibid. ). 

But of course the will of the tyrant is done through the help of an expert who assumes to know better what's good for the people. This expert is fully aware that he cannot implement his plan within a competitive system, and so he is hostile to it, and that's why he seeks bureaucratic protection. Mises saw this kind of attempt as nothing but socialism and central planning, which at the bottom of it is the "consciousness of one's own inferiority and inefficiency" (p. 92). Mises ends the chapter: "He who is unfit to serve his fellow citizens wants to rule them" (ibid.). 

Source: Mises, L. (1944). Bureaucracy. New Haven: Yale University Press.

Related Article:

Bureaucracy and the Right Direction

Chapter 4 - Bureaucratic Management of Private Enterprises

In chapter 3 of Bureaucracy, Ludwig von Mises discussed about bureaucratic management of publicly-owned enterprises. In chapter 4, he turned to bureaucratic management of private enterprises. In this article, my goal is to share the general process how government intervention caused bureaucratization in private enterprises, the two specific means government does it, and its unfortunate results. 

General consideration. No private corporations will fall to bureaucratization if left alone. What drives private corporations to bureaucratization was due to the influence of government shaped by prevailing anti-capitalistic ideas. In the past, Nazi Germany was the most successful in doing this. In other parts of the worlld, though free market still exists, government interventionism was the growing tendency. 

First means: interfering in company profit. Government intervenes in the affairs of private enterprises by putting a ceiling on profit and by presurring corporations in the choice of personnels. 

Ludwig von Mises identified four "most frequent methods" (pp. 65-66) in controlling company profits:

• Profits are limited, and surplus goes to either of the three: the civil authority, the employees' bonus, or lower prices of products

• Price control to prevent excessive profits 

• Price control based on actual production cost plus certain percentage as determined by the authority, and

• Maximum profit is allowed but "greater part of it above certain amount" goes to taxation. 

The above measures discourage entrepreneurs to increase their profits. The incentive to lower costs and do business efficiently are lost. Without the benefits of increased profit, the burdens of the entrepreneurs increase through prohibitions and risks: prohibitions that hamper improvements and attempts to lower cost, and risks related to the cost of new tools and workers' salary demands. 

The sad thing is that once the performance of businesses deteriorate, entrepreneurs are blamed for lack of concern for public welfare. They are expected to give their best service even deprived of their profit incentives. Civil servants are praised as models of unselfishness. This is ridiculous. 

A bureaucrat can never be a model of an enterpreneur for productivity. It is not in the nature of bureaucracy to innovate. The bureaucrat's primary virtue is to follow the rules. 

Innovation and progress are contrary to bureaucratism. Under the free market, an entrepreneur has the liberty to test his plan even though the majority does not see its advantages. It is enough for him to convince few investors to launch his ideas. Under bureaucratic management, such liberty is absent. The first task of a bureaucrat is to convince those in authority, those who are used "to do things in prescribed ways, and no longer open to new ideas" (p. 67). Progress is impossible under such system. 

Therefore to say to an enterpreneur deprived of increased profit to follow the behavior of a bureaucrat is tantamount to saying to stop business progress. A person can never be both an entrepreneur and a bureaucrat. Progress is necessarily outside the sphere of bureaucratic management. 

Under profit management, the situation is different. Profit incentive motivates entrepreneurs to search for new methods of production, to improve the product or to reduce the price. However, such search involves capital risks. It is absurd therefore to demand from entrepreneurs to improve their performance without profit incentive. 

Second means: interfering in the choice of personnel. In 19th century, corporations submitted to the wishes of European governments in selecting men to compose the board of directors and in hiring salaried personnel. Most of these men were previous government workers and their relatives. They did not possess the necessary qualifications for their positions. All they did was to collect fees and share in profits. 

Due to increasing government intervention, it developed later that the required qualifications for those who would be appointed to top positions in the companies must possess the abilities to relate well with the government, political parties, and labor unions. Ordinarily, those who were considered most suitable to these key positions were former bureaucrats. 

This new breed of executives had not concerned about the company's productivity. Being familiar to bureaucratic system, they reshaped the company's operation. "For them government contracts, more effective tariff protection, and other government favors were the main concern. And they paid for such privileges by contributions to party funds and government propaganda funds and by appointing people sympathetic to the authorities" (p. 71).

Therefore, bureaucratization is not a result of natural evolution of private enterprises but of the increasing intervention of the government in business affairs. 

Unfortunate results. In such a rotten corporate environment detailed above, inefficiency and corruption are the natural consequences. Because the government has become so powerful that it could either ruin or grant favor, corporations found the way to please their real boss. To stay in business, entrepreneurs resort to "diplomacy and bribery" (p. 72) to avoid the wrath of both the ruling and the opposing political parties. 

The bureaucratization of private enterprises is alien to free market. This is the natural outcome of interventionism. Corporations can no longer function apart from the favor coming from government bureaus. This is the end of innovation and creativity that will eventually reduce the quality of goods and services and increase prices. This is a great waste of resources and will finally lead to economic crisis. 

Source: Mises, L. (1944). Bureaucracy. New Haven: Yale University Press.

Chapter 3 - Bureaucratic Management of Publicly Owned Enterprises

The third chapter is about "Bureaucratic Management of Publicly Owned Enterprises," where Ludwig von Mises explained the subject under two sections:

• The Impracticability of Government All-Round Control, and

• Public Enterprise within a Market Economy 

The Impracticability of Government All-Round Control

The gist of this section is that state central planning ends in economic chaos. Here Mises defines what socialism is and describes state central planning as its basic feature. Here is Mises' definition of socialism: "full government control of all economic activities" (p. 57). 

The reason why state cental planning will not work is due to the absence of price structure derived from the market, which makes economic calculation impossible. He further describes state central planning as "self-contradictory" (ibid.) for without economic calculation, central planners are helpless and groping in the dark not knowing whether their performance is advantageous or disastrous. This will inevitably result into economic chaos. 

However, the Marxist brand of socialism designated as "scientific socialism" denied this chaotic end. For the followers of this brand of socialism, studies of the economic problems of socialism are signs of "illusory 'utopianism' " (ibid.), useless, and therefore they deserved to be outlawed. This exclusion explains the success of socialist propaganda that scientific socialism is the inevitable future of humanity, and therefore beyond question. 

It was unfortunate that intellectuals followed this denial from nineteenth to early twentieth centuries. "The few economists who dared to defy it were disregarded and soon fell into oblivion" (pp. 57-58). It was good news that this Marxist spell was broken "only about twenty-five years ago" (Mises here was referring to a period around 1919 since the book was published in 1944) after "the impossibility of economic calculation under socialism was demonstrated in an irrefutable way" (p. 58). 

Moreover, some followers of Marx refused to accept this inherent flaw in their system. They tried in vain to look for a solution, but all they came up with are false schemes of economic calculation, which economists could easily detect the errors. "The socialists failed completely in their desperate attempts to reject the demonstration that no economic calculation is feasible in any system of socialism" (ibid.). 

Under socialism, the goal of state central planners is unrealizable. They cannot provide the urgent products "under the existing conditions of the supply of factors of production and of technological knowledge" (ibid.) due to the absence of the identified intellectual tool. The reason why Russia and Germany could still function economically despite of economic blindness was due to the fact that they could borrow the prices from countries under market economy, and utilize them in their economic calculation. If the entire world will be converted to socialism as Marx and Lenin prophesied, then the market price will disappear that will make economic calculation impossible, which will ultimately result into chaos. 

Public Enterprise within a Market Economy

Under this section, we will consider some of the inherent problems in public enterprises within a market economy. Like the experience of Russia and Germany, these state enterprises also have no difficulty in economic calculation due to the existence of market price within their respective countries.

One of the distinguishing marks of state enterprise is deviation from profit motivation. They consider other goals such as giving subsidy to some people more important and are willing to take loss to accomplish these goals. The problem with this approach is that it transfers the burden to the taxpayers. 

Since a public enterprise does not operate on the basis of profit motivation, the sources of principles to guide its operation are the precise regulations from the government, which determine the usefulness of their services. Unlike in the case of private enterprises, the criterion for usefulness is determined by the decision of the consumers validated through the price the latter are willing to pay. If there is any indication of profit loss, entrepreneurs must adjust in their operation for this is a symptom of public disapproval of certain products and services. 

The situation is different with government corporations. Deficit is not an indication of failure. It is in the very nature of public services for the aim is to provide services at low price even at the expense of subsidizing such services with taxpayers' money. 

Public behavior cannot serve as a criterion to assess the usefulness of government services. This is another inherent problem in public services. Mises asked:

"Where may a criterion be found of the usefulness of the services rendered? How can we find out whether the deficit is not too big with regard to these services? And how discover whether the deficit could not be reduced without impairing the value of the services?" (p. 61). 

There is still another side to the problems in government services. This time it is related to the power of the manager of public enterprise to get more from public fund in order to improve their services. This is the reason why precise regulations are necessary for without them, managers are inclined to increase their expenditure. And since a manager of state owned corporation is "not restrained by any considerations of financial success, the costs involved would place a heavy burden on the public funds" (p. 62). There is always a tendency for him to become wasteful spenders of the taxpayers' money. 

And so these are the problems in government owned and controlled enterprises simply because of the inherent character of bureaucratic management. In closing, let's see how Mises describes further the character of managers of state owned enterprises: 

"At any rate the manager is not a business executive but a bureaucrat, that is, an officer bound to abide by various instructions. The criterion of good management is not the approval of the customers resulting in an excess of revenue over costs but the strict obedience to a set of bureaucratic rules" (pp. 62-63).

"The management is under the necessity of abiding by a code of instructions; this alone matters. The manager is not answerable if his actions are correct from the point of view of this code. His main task cannot be efficiency as such, but efficiency within the limits of subservience to the regulations. His position is not that of an executive in a profit-seeking enterprise but that of a civil servant . . ." (p. 63).

Source: Mises, L. (1944). Bureaucracy. New Haven: Yale University Press.