Human Action: A Treatise on Economics

by Ludwig VonMises

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  1. See above, p. 39.

  2. Cf. Strigl, Die ökonomischen Kategorien und die Organisation der Wirtschaft (Jena, 1923), pp. 18 ff.

  3. Cf. Cohen and Nagel, An Introduction to Logic and Scientific Method (New York, 1939), pp. 316–322.

  4. Most social reformers, foremost among them Fourier and Marx, pass over in silence the fact that the nature-given means of removing human uneasiness are scarce. As they see it, the fact that there is not an abundance of all useful things is merely caused by the inadequacy of the capitalist mode of production and will therefore disappear in the “higher phase” of communism. An eminent Menshevik author who could not help referring to the nature-given barriers to human well being, in genuinely Marxian style, calls Nature “the most relentless exploiter.” Cf. Mania Gordon, Workers Before and After Lenin (New York, 1941), pp. 227, 458.

  5. The economic consequences of the interference of external compulsion and coercion with the market phenomena are dealt with in the sixth part of this book,

  6. Cf. Albert L. Meyers, Modern Economics (New York, 1946), p. 672.

  7. This is the general feature of democracy whether political or economic. Democratic elections do not provide the guarantee that the man elected is free from faults, but merely that the majority of the voters prefer him to other candidates.

  8. With regard to changes in the elements determining the purchasing power of money see above, p. 414. With regard to the decumulation and accumulation of capital see above, pp. 513–514.

  9. See above, p. 635.

  10. Late in the eighteenth century European governments began to enact laws aiming at forest conservation. However, it would be a serious blunder to ascribe to these laws any role in the conservation of the forests. Before the middle of the nineteenth century there was no administrative apparatus available for their enforcement. Besides the governments of Austria and Prussia, to say nothing of those of the smaller German states, virtually lacked the power to enforce such laws against the aristocratic lords. No civil servant before 1914 would have been bold enough to rouse the anger of a Bohemian or Silesian magnate or a German mediatized Standesherr. These princes and counts were spontaneously com mitted to forest conservation because they felt perfectly safe in the possession of their property and were eager to preserve unabated the source of their revenues and the market price of their estates.

  11. One could as well say that they considered the advantages to be derived from giving care to soil and forest conservation external economies.

  12. Cf. the brilliant analysis of public spending in Henry Hazlitt’s book Economics in One Lesson (New York, 1946), pp. 19–29.

  13. See above, pp. 138–140.

  14. See above, pp. 360–361.

  XXIV. HARMONY AND CONFLICT OF INTERESTS

  1. The Ultimate Source of Profit and Loss on the Market

  THE changes in the data whose reiterated emergence prevents the economic system from turning into an evenly rotating economy and produces again and again entrepreneurial profit and loss are favorable to some members of society and unfavorable to others. Hence, people concluded, the gain of one man is the damage of another; no man profits but by the loss of others. This dogma was already advanced by certain ancient authors. Among modern writers Montaigne was the first to restate it; we may fairly call it the Montaigne dogma. It was the quintessence of the doctrines of Mercantilism, old and new. It is at the bottom of all modern doctrines teaching that there prevails, within the frame of the market economy, an irreconcilable conflict among the interests of various social classes within a nation and furthermore between the interests of any nation and those of all other nations.1

  Now the Montaigne dogma is true with regard to the effects of cashinduced changes in the purchasing power of money on deferred payments. But it is entirely wrong with regard to any kind of entrepreneurial profit or loss, whether they emerge in a stationary economy in which the total amount of profits equals the total amount of losses or in a progressing or a retrogressing economy in which these two magnitudes are different.

  What produces a man’s profit in the course of affairs within an unhampered market society is not his fellow citizen’s plight and distress, but the fact that he alleviates or entirely removes what causes his fellow citizen’s feeling of uneasiness. What hurts the sick is the plague, not the physician who treats the disease. The doctor’s gain is not an outcome of the epidemics, but of the aid he gives to those affected. The ultimate source of profits is always the foresight of future conditions. Those who succeeded better than others in anticipating future events and in adjusting their activities to the future state of the market, reap profits because they are in a position to satisfy the most urgent needs of the public. The profits of those who have produced goods and services for which the buyers scramble are not the source of the losses of those who have brought to the market commodities in the purchase of which the public is not prepared to pay the full amount of production costs expended. These losses are caused by the lack of insight displayed in anticipating the future demand of the consumers.

  External events affecting demand and supply may sometimes come so suddenly and unexpectedly that people say that no reasonable man could have foreseen them. Then the envious may consider the profits of those who gain from the change as unjustified. Yet such arbitrary value judgments do not alter the real state of interests. It is certainly better for a sick man to be cured by a doctor for a high fee than to lack medical assistance. If it were otherwise, he would not consult the physician.

  There are in the market economy no conflicts between the interests of the buyers and sellers. There are disadvantages caused by inadequate foresight. It would be a universal boon if every man and all the members of the market society would always foresee future conditions correctly and in time and act accordingly. If this were the case, retrospection would establish that no particle of capital and labor was wasted for the satisfaction of wants which now are considered as less urgent than some other unsatisfied wants. However, man is not omniscient.

  It is wrong to look at these problems from the point of view of resentment and envy. It is no less faulty to restrict one’s observation to the momentary position of various individuals. These are social problems and must be judged with regard to the operation of the whole market system. What secures the best possible satisfaction of the demands of each member of society is precisely the fact that those who succeeded better than other people in anticipating future conditions are earning profits. If profits were to be curtailed for the benefit of those whom a change in the data has injured, the adjustment of supply to demand would not be improved but impaired. If one were to prevent doctors from occasionally earning high fees, one would not increase but rather decrease the number of those choosing the medical profession.

  The deal is always advantageous both for the buyer and the seller. Even a man who sells at a loss is still better off than he would be if he could not sell at all, or only at a still lower price. He loses on account of his lack of foresight; the sale limits his loss even if the price received is low. If both the buyer and the seller were not to consider the transaction as the most advantageous action they could choose under the prevailing conditions, they would not enter into the deal.

  The statement that one man’s boon is the other man’s damage is valid with regard to robbery, war, and booty. The robber’s plunder is the damage of the despoiled victim. But war and commerce are two different things. Voltaire erred when—in 1764—he wrote in the article “Patrie” of his Dictionnaire philosophique: “To be a good patriot is to wish that one’s own community should enrich itself by trade and acquire power by arms; it is obvious that a country cannot profit but at the expense of another and that it cannot conquer without inflicting harm on other people.” Voltaire, like so many other authors who preceded and followed him, deemed it superfluous to familiarize himself with economic thought. If he had read the essays of his contemporary David Hume
, he would have learned how false it is to identify war and foreign trade. Voltaire, the great debunker of age-old superstitions and popular fallacies, fell prey unawares to the most disastrous fallacy.

  When the baker provides the dentist with bread and the dentist relieves the baker’s toothache, neither the baker nor the dentist is harmed. It is wrong to consider such an exchange of services and the pillage of the baker’s shop by armed gangsters as two manifestations of the same thing. Foreign trade differs from domestic trade only in so far as goods and services are exchanged beyond the borderlines separating the territories of two sovereign nations. It is monstrous that Prince Louis Napoleon Bonaparte, the later Emperor Napoleon III, should have written many decades after Hume, Adam Smith, and Ricardo: “The quantity of merchandise which a country exports is always in direct proportion to the number of shells it can discharge upon its enemies whenever its honor and its dignity may require it.” 2 All the teachings of economics concerning the effects of the international division of labor and of international trade have up to now failed to destroy the popularity of the Mercantilist fallacy, “that the object of foreign trade is to pauperize foreigners.”3 It is a task of historical investigation to disclose the sources of the popularity of this and other similar delusions and errors. For economics the matter is long since settled.

  2. The Limitation of Offspring

  The natural scarcity of the means of sustenance forces every living being to look upon all other living beings as deadly foes in the struggle for survival, and generates pitiless biological competition. But with man these irreconcilable conflicts of interests disappear when, and as far as, the division of labor is substituted for economic autarky of individuals, families, tribes, and nations. Within the system of society there is no conflict of interests as long as the optimum size of population has not been reached. As long as the employment of additional hands results in a more than proportionate increase in the returns, harmony of interests is substituted for conflict. People are no longer rivals in the struggle for the allocation of portions out of a strictly limited supply. They become cooperators in striving after ends common to all of them. An increase in population figures does not curtail, but rather augments, the average shares of the individuals.

  If men were to strive only after nourishment and sexual satisfaction, population would tend to increase beyond the optimum size to the limits drawn by the sustenance available. However, men want more than merely to live and to copulate; they want to live humanly. An improvement in conditions usually results, it is true, in an increase in population figures; but this increase lags behind the increase in bare sustenance. If it were otherwise, men would have never succeeded in the establishment of social bonds and in the development of civilization. As with rats, mice, and microbes, every increase in sustenance would have made population figures rise to the limits of bare sustenance; nothing would have been left for the seeking of other ends. The fundamental error implied in the iron law of wages was precisely the fact that it looked upon men—or at least upon the wage earners—as beings exclusively driven by animal impulses. Its champions failed to realize that man differs from the beasts as far as he aims also at specifically human ends, which one may call higher or more sublime ends.

  The Malthusian law of population is one of the great achievements of thought. Together with the principle of the division of labor it provided the foundations for modern biology and for the theory of evolution; the importance of these two fundamental theorems for the sciences of human action is second only to the discovery of the regularity in the intertwinement and sequence of market phenomena and their inevitable determination by the market data. The objections raised against the Malthusian law as well as against the law of returns are vain and trivial. Both laws are indisputable. But the role to be assigned to them within the body of the sciences of human action is different from that which Malthus attributed to them.

  Nonhuman beings are entirely subject to the operation of the biological law described by Malthus.4 For them the statement that their numbers tend to encroach upon the means of subsistence and that the supernumerary specimens are weeded out by want of sustenance is valid without any exception. With reference to the nonhuman animals the notion of minimum sustenance has an unequivocal, uniquely determined sense. But the case is different with man. Man integrates the satisfaction of the purely zoological impulses, common to all animals, into a scale of values, in which a place is also assigned to specifically human ends. Acting man also rationalizes the satisfaction of his sexual appetites. Their satisfaction is the outcome of a weighing of pros and cons. Man does not blindly submit to a sexual stimulation like a bull; he refrains from copulation if he deems the costs—the anticipated disadvantages—too high. In this sense we may, without any valuation or ethical connotation, apply the term moral restraint employed by Malthus.5

  Rationalization of sexual intercourse already involves the rationalization of proliferation. Then later further methods of rationalizing the increase of progeny were adopted which were independent of abstention from copulation. People resorted to the egregious and repulsive practices of exposing or killing infants and of abortion. Finally they learned to perform the sexual act in such a way that no pregnancy results. In the last hundred years the technique of contraceptive devices has been perfected and the frequency of their employment increased considerably. Yet the procedures had long been known and practiced.

  The wealth that modern capitalism bestows upon the broad masses of the capitalist countries and the improvement in hygienic conditions and therapeutical and prophylactic methods brought about by capitalism have considerably reduced mortality, especially infant mortality, and prolonged the average duration of life. Today in these countries the restriction in generating offspring can succeed only if it is more drastic than in earlier ages. The transition to capitalism—i.e., the removal of the obstacles which in former days had fettered the functioning of private initiative and enterprise—has consequently deeply influenced sexual customs. It is not the practice of birth control that is new, but merely the fact that it is more frequently resorted to. Especially new is the fact that the practice is no longer limited to the upper strata of the population, but is common to the whole population. For it is one of the most important social effects of capitalism that it deproletarianizes all strata of society. It raises the standard of living of the masses of the manual workers to such a height that they too turn into “bourgeois” and think and act like well-to-do burghers. Eager to preserve their standard of living for themselves and for their children, they embark upon birth control. With the spread and progress of capitalism, birth control becomes a universal practice. The transition to capitalism is thus accompanied by two phenomena: a decline both in fertility rates and in mortality rates. The average duration of life is prolonged.

  In the days of Malthus it was not yet possible to observe these demographical characteristics of capitalism. Today it is no longer permissible to question them. But, blinded by romantic prepossessions, many describe them as phenomena of decline and degeneration peculiar only to the white-skinned peoples of Western civilization, grown old and decrepit. These romantics are seriously alarmed by the fact that the Asiatics do not practice birth control to the same extent to which it is practiced in Western Europe, North America, and Australia. As modern methods of fighting and preventing disease have brought about a drop in mortality rates with these oriental peoples too, their population figures grow more rapidly than those of the Western nations. Will not the indigenes of India, Malaya, China, and Japan, who themselves did not contribute to the technological and therapeutical achievements of the West, but received them as an unexpected present, in the end by the sheer superiority of their numbers squeeze out the peoples of European descent?

  These fears are groundless. Historical experience shows that all Caucasian peoples reacted to the drop in mortality figures brought about by capitalism with a drop in the birth rate. Of course, from such historical experience no gen
eral law may be deduced. But praxeological reflection demonstrates that there exists between these two phenomena a necessary concatenation. An improvement in the external conditions of wellbeing makes possible a corresponding increase in population figures. However, if the additional quantity of the means of sustenance is completely absorbed by rearing an additional number of people, nothing is left for a further improvement in the standard of living. The march of civilization is arrested; mankind reaches a state of stagnation.

  The case becomes still more obvious if we assume that a prophylactic invention is made by a lucky chance and that its practical application requires neither a considerable investment of capital nor considerable current expenditure. Of course, modern medical research and still more its utilization absorb huge amounts of capital and labor. They are products of capitalism. They would never have come into existence in a noncapitalist environment. But there were, in earlier days, instances of a different character. The practice of smallpox inoculation did not originate from expensive laboratory research and, in its original crude form, could be applied at trifling costs. Now, what would the results of smallpox inoculation have been if its practice had become general in a precapitalist country not committed to birth control? It would have increased population figures without increasing sustenance, it would have impaired the average standard of living. It would not have been a blessing, but a curse.

  Conditions in Asia and Africa are, by and large, the same. These backward peoples receive the devices for fighting and preventing disease ready-made from the West. Often they are not even charged for the drugs, the hospital equipment, and the services of the doctors. The Whites defray the costs, sometimes out of humanitarian considerations, sometimes impelled by their own interests. It is true that in some of these countries imported foreign capital and the adoption of foreign technological methods by the comparatively small domestic capital synchronously tend to increase the per capita output of labor and thus to bring about a tendency toward an improvement in the average standard of living. However, this does not sufficiently counterbalance the opposite tendency resulting from the drop in mortality rates not accompanied by an adequate fall in fertility rates. The contact with the West has not yet benefited these peoples because it has not yet affected their minds; it has not freed them from age-old superstitions, prejudices, and misapprehensions; it has merely altered their technological and therapeutical knowledge.