Human Action: A Treatise on Economics

Let us begin with the problems of a nation’s political organization. There are supporters of a democratic system of government, of hereditary monarchy, of the rule of a self-styled elite and of Caesarist dictatorship.
*12 It is true that these programs are often recommended by reference to divine institutions, to the eternal laws of the universe, to the natural order, to the inevitable trend of historical evolution, and to other objects of transcendent knowledge. But such statements are merely incidental adornment. In appealing to the electorate, the parties advance other arguments. They are eager to show that the system they support will succeed better than those advocated by other parties in realizing those ends which the citizens aim at. They specify the beneficial results achieved in the past or in other countries; they disparage the other parties’ programs by relating their failures. They resort both to pure reasoning and to an interpretation of historical experience in order to demonstrate the superiority of their own proposals and the futility of those of their adversaries. Their main argument is always: the political system we support will render you more prosperous and more content.

In the field of society’s economic organization there are the liberals advocating private ownership of the means of production, the socialists advocating public ownership of the means of production, and the interventionists advocating a third system which, they contend, is as far from socialism as it is from capitalism. In the clash of these parties there is again much talk about basic philosophical issues. People speak of true liberty, equality, social justice, the rights of the individual, community, solidarity, and humanitarianism. But each party is intent upon proving by ratiocination and by referring to historical experience that only the system it recommends will make the citizens prosperous and satisfied. They tell the people that realization of their program will raise the standard of living to a higher level than realization of any other party’s program. They insist upon the expediency of their plans and upon their utility. It is obvious that they do not differ from one another with regard to ends but only as to means. They all pretend to aim at the highest material welfare for the majority of citizens.

The nationalists stress the point that there is an irreconcilable conflict among the interests of various nations, but that, on the other hand, the rightly understood interests of all the citizens within the nation are harmonious. A nation can prosper only at the expense of other nations; the individual citizen can fare well only if his nation flourishes. The liberals have a different opinion. They believe that the interests of various nations harmonize no less than those of the various groups, classes, and strata of individuals within a nation. They believe that peaceful international cooperation is a more appropriate means than conflict for the attainment of the end which they and the nationalists are both aiming at: their own nation’s welfare. They do not, as the nationalists charge, advocate peace and free trade in order to betray their own nation’s interests to those of foreigners. On the contrary, they consider peace and free trade the best means to make their own nation wealthy. What separates the free traders from the nationalists are not ends, but the means recommended for attainment of the ends common to both.

Dissension with regard to religious creeds cannot be settled by rational methods. Religious conflicts are essentially implacable and irreconcilable. Yet as soon as a religious community enters the field of political action and tries to deal with problems of social organization, it is bound to take into account earthly concerns, however this may conflict with its dogmas and articles of faith. No religion in its exoteric activities ever ventured to tell people frankly: The realization of our plans for social organization will make you poor and impair your earthly well-being. Those consistently committed to a life of poverty withdrew from the political scene and fled into anchoritic seclusion. But churches and religious communities which have aimed at making converts and at influencing political and social activities of their followers have espoused the principles of secular conduct. In dealing with questions of man’s earthly pilgrimage they hardly differ from any other political party. In canvassing, they emphasize, more than bliss in the beyond, the material advantages which they have in store for their brothers in faith.

Only a world view whose supporters renounce any earthly activity whatever could neglect to pay heed to the rational considerations which show that social cooperation is the great means for the attainment of all human ends. Because man is a social animal that can thrive only within society, all ideologies are forced to acknowledge the preeminent importance of social cooperation. They must aim at the most satisfactory organization of society and must approve of man’s concern for an improvement of his material well-being. Thus they all place themselves upon a common ground. They are separated from one another not by world views and transcendent issues not subject to reasonable discussion, but by problems of means and ways. Such ideological antagonisms are open to a thorough scrutiny by the scientific methods of praxeology and economics.

The Fight Against Error

A critical examination of the philosophical systems constructed by mankind’s great thinkers has very often revealed fissures and flaws in the impressive structure of those seemingly consistent and coherent bodies of comprehensive thought. Even the genius in drafting a world view sometimes fails to avoid contradictions and fallacious syllogisms.

The ideologies accepted by public opinion are still more infected by the shortcomings of the human mind. They are mostly an eclectic juxtaposition of ideas utterly incompatible with one another. They cannot stand a logical examination of their content. Their inconsistencies are irreparable and defy any attempt to combine their various parts into a system of ideas compatible with one another.

Some authors try to justify the contradictions of generally accepted ideologies by pointing out the alleged advantages of a compromise, however unsatisfactory from the logical point of view, for the smooth functioning of interhuman relations. They refer to the popular fallacy that life and reality are “not logical”; they contend that a contradictory system may prove its expediency or even its truth by working satisfactorily while a logically consistent system would result in disaster. There is no need to refute anew such popular errors. Logical thinking and real life are not two separate orbits. Logic is for man the only means to master the problems of reality. What is contradictory in theory, is no less contradictory in reality. No ideological inconsistency can provide a satisfactory, i.e., working, solution for the problems offered by the facts of the world. The only effect of contradictory ideologies is to conceal the real problems and thus to prevent people from finding in time an appropriate policy for solving them. Inconsistent ideologies may sometimes postpone the emergence of a manifest conflict. But they certainly aggravate the evils which they mask and render a final solution more difficult. They multiply the agonies, they intensify the hatreds, and make peaceful settlement impossible. It is a serious blunder to consider ideological contradictions harmless or even beneficial.

The main objective of praxeology and economics is to substitute consistent correct ideologies for the contradictory tenets of popular eclecticism. There is no other means of preventing social disintegration and of safeguarding the steady improvement of human conditions than those provided by reason. Men must try to think through all the problems involved up to the point beyond which a human mind cannot proceed farther. They must never acquiesce in any solutions conveyed by older generations, they must always question anew every theory and every theorem, they must never relax in their endeavors to brush away fallacies and to find the best possible cognition. They must fight error by unmasking spurious doctrines and by expounding truth.

The problems involved are purely intellectual and must be dealt with as such. It is disastrous to shift them to the moral sphere and to dispose of supporters of opposite ideologies by calling them villains. It is vain to insist that what we are aiming at is good and what our adversaries want is bad. The question to be solved is precisely what is to be considered as good and what as bad. The rigid dogmatism peculiar to religious groups and to Marxism results only in irreconcilable conflict. It condemns beforehand all dissenters as evildoers, it calls into question their good faith, it asks them to surrender unconditionally. No social cooperation is possible where such an attitude prevails.

No better is the propensity, very popular nowadays, to brand supporters of other ideologies as lunatics. Psychiatrists are vague in drawing a line between sanity and insanity. It would be preposterous for laymen to interfere with this fundamental issue of psychiatry. However, it is clear that if the mere fact that a man shares erroneous views and acts according to his errors qualifies him as mentally disabled, it would be very hard to discover an individual to which the epithet sane or normal could be attributed. Then we are bound to call the past generations lunatic because their ideas about the problems of the natural sciences and concomitantly their techniques differed from ours. Coming generations will call us lunatics for the same reason. Man is liable to error. If to err were the characteristic feature of mental disability, then everybody should be called mentally disabled.

Neither can the fact that a man is at variance with the opinions held by the majority of his contemporaries qualify him as a lunatic. Were Copernicus, Galileo and Lavoisier insane? It is the regular course of history that a man conceives new ideas, contrary to those of other people. Some of these ideas are later embodied in the system of knowledge accepted by public opinion as true. Is it permissible to apply the epithet “sane” only to boors who never had ideas of their own and to deny it to all innovators?

The procedure of some contemporary psychiatrists is really outrageous. They are utterly ignorant of the theories of praxeology and economics. Their familiarity with present-day ideologies is superficial and uncritical. Yet they blithely call the supporters of some ideologies paranoid persons.

There are men who are commonly stigmatized as
monetary cranks. The monetary crank suggests a method for making everybody prosperous by monetary measures. His plans are illusory. However, they are the consistent application of a monetary ideology entirely approved by contemporary public opinion and espoused by the policies of almost all governments. The objections raised against these ideological errors by the economists are not taken into account by the governments, political parties, and the press.

It is generally believed by those unfamiliar with economic theory that credit expansion and an increase in the quantity of money in circulation are efficacious means for lowering the rate of interest permanently below the height it would attain on a nonmanipulated capital and loan market. This theory is utterly illusory.
*13 But it guides the monetary and credit policy of almost every contemporary government. Now, on the basis of this vicious ideology, no valid objection can be raised against the plans advanced by Pierre Joseph Proudhon, Ernest Solvay, Clifford Hugh Douglas and a host of other would-be reformers. They are only more consistent than other people are. They want to reduce the rate of interest to zero and thus to abolish altogether the scarcity of “capital.” He who wants to refute them must attack the theories underlying the monetary and credit policies of the great nations.

The psychiatrist may object that what characterizes a man as a lunatic is precisely the fact that he lacks moderation and goes to extremes. While normal man is judicious enough to restrain himself, the paranoid person goes beyond all bounds. This is quite an unsatisfactory rejoinder. All the arguments advanced in favor of the thesis that the rate of interest can be reduced by credit expansion from 5 or 4 per cent to 3 or 2 per cent are equally valid for a reduction to zero. The “monetary cranks” are certainly right from the point of view of the monetary fallacies approved by popular opinion.

There are psychiatrists who call the Germans who espoused the principles of Nazism lunatics and want to cure them by therapeutic procedures. Here again we are faced with the same problem. The doctrines of Nazism are vicious, but they do not essentially disagree with the ideologies of socialism and nationalism as approved by other peoples’ public opinion. What characterized the Nazis was only the consistent application of these ideologies to the special conditions of Germany. Like all other contemporary nations the Nazis desired government control of business and economic self-sufficiency, i.e., autarky, for their own nation. The distinctive mark of their policy was that they refused to acquiesce in the disadvantages which the acceptance of the same system by other nations would impose upon them. They were not prepared to be forever “imprisoned,” as they said, within a comparatively overpopulated area in which physical conditions render the productivity of human effort lower than in other countries. They believed that their nation’s great population figures, the strategically propitious geographic situation of their country, and the inborn vigor and gallantry of their armed forces provided them with a good chance to remedy by aggression the evils they deplored.

Now, whoever accepts the ideology of nationalism and socialism as true and as the standard of his own nation’s policy, is not in a position to refute the conclusions drawn from them by the Nazis. The only way for a refutation of Nazism left for foreign nations which have espoused these two principles was to defeat the Nazis in war. And as long as the ideology of socialism and nationalism is supreme in the world’s public opinion, the Germans or other peoples will try again to succeed by aggression and conquest, should the opportunity ever be offered to them. There is no hope of eradicating the aggression mentality if one does not explode entirely the ideological fallacies from which it stems. This is not a task for psychiatrists, but for economists.
*14

Man has only one tool to fight error: reason.

3. Might

Society is a product of human action. Human action is directed by ideologies. Thus society and any concrete order of social affairs are an outcome of ideologies; ideologies are not, as Marxism asserts, a product of a certain state of social affairs. To be sure, human thoughts and ideas are not the achievement of isolated individuals. Thinking too succeeds only through the cooperation of the thinkers. No individual would make headway in his reasoning if he were under the necessity of starting from the beginning. A man can advance in thinking only because his efforts are aided by those of older generations who have formed the tools of thinking, the concepts and terminologies, and have raised the problems.

Any given social order was thought out and designed before it could be realized. This temporal and logical precedence of the ideological factor does not imply the proposition that people draft a complete plan of a social system as the utopians do. What is and must be thought out in advance is not the concerting of individual actions into an integrated system of social organization, but the actions of individuals with regard to their fellow men and of already formed groups of individuals with regard to other groups. Before a man aids his fellow in cutting a tree, such cooperation must be thought out. Before an act of barter takes place, the idea of mutual exchange of goods and services must be conceived. It is not necessary that the individuals concerned become aware of the fact that such mutuality results in the establishment of social bonds and in the emergence of a social system. The individual does not plan and execute actions intended to construct society. His conduct and the corresponding conduct of others generate social bodies.

Any existing state of social affairs is the product of ideologies previously thought out. Within society new ideologies may emerge and may supersede older ideologies and thus transform the social system. However, society is always the creation of ideologies temporally and logically anterior. Action is always directed by ideas; it realizes what previous thinking has designed.

If we hypostatize or anthropomorphize the notion of ideology, we may say that ideologies have might over men. Might is the faculty or power of directing actions. As a rule one says only of a man or of groups of men that they are mighty. Then the definition of might is: might is the power to direct other people’s actions. He who is mighty, owes his might to an ideology. Only ideologies can convey to a man the power to influence other people’s choices and conduct. One can become a leader only if one is supported by an ideology which makes other people tractable and accommodating. Might is thus not a physical and tangible thing, but a moral and spiritual phenomenon. A king’s might rests upon the recognition of the monarchical ideology on the part of his subjects.

He who uses his might to run the state, i.e., the social apparatus of coercion and compulsion, rules. Rule is the exercise of might in the political body. Rule is always based upon might, i.e., the power to direct other people’s actions.

Of course, it is possible to establish a government upon the violent oppression of reluctant people. It is the characteristic mark of state and government that they apply violent coercion or the threat of it against those not prepared to yield voluntarily. Yet such violent oppression is no less founded upon ideological might. He who wants to apply violence needs the voluntary cooperation of some people. An individual entirely dependent on himself can never rule by means of physical violence only.
*15 He needs the ideological support of a group in order to subdue other groups. The tyrant must have a retinue of partisans who obey his orders of their own accord. Their spontaneous obedience provides him with the apparatus he needs for the conquest of other people. Whether or not he succeeds in making his sway last depends on the numerical relation of the two groups, those who support him voluntarily and those whom he beats into submission. Though a tyrant may temporarily rule through a minority if this minority is armed and the majority is not, in the long run a minority cannot keep the majority in subservience. The oppressed will rise in rebellion and cast off the yoke of tyranny.

A durable system of government must rest upon an ideology acknowledged by the majority. The “real” factor, the “real forces” that are the foundation of government and convey to the rulers the power to use violence against renitent minority groups are essentially ideological, moral, and spiritual. Rulers who failed to recognize this first principle of government and, relying upon the alleged irresistibility of their armed troops, disdained the spirit and ideas have finally been overthrown by the assault of their adversaries. The interpretation of might as a “real” factor not dependent upon ideologies, quite common to many political and historical books, is erroneous. The term
Realpolitik makes sense only if used to signify a policy taking account of generally accepted ideologies as contrasted with a policy based upon ideologies not sufficiently acknowledged and therefore unfit to support a durable system of government.

He who interprets might as physical or “real” power to carry on and considers violent action as the very foundation of government, sees conditions from the narrow point of view of subordinate officers in charge of sections of an army or police force. To these subordinates a definite task within the framework of the ruling ideology is assigned. Their chiefs commit to their care troops which are not only equipped, armed, and organized for combat, but no less imbued with the spirit which makes them obey the orders issued. The commanders of such subdivisions consider this moral factor a matter of course because they themselves are animated by the same spirit and cannot even imagine a different ideology. The power of an ideology consists precisely in the fact that people submit to it without any wavering and scruples.

However, things are different for the head of the government. He must aim at preservation of the morale of the armed forces and of the loyalty of the rest of the population. For these moral factors are the only “real” elements upon which continuance of his mastery rests. His power dwindles if the ideology that supports it loses force.

Minorities too can sometimes conquer by means of superior military skill and can thus establish minority rule. But such an order of things cannot endure. If the victorious conquerors do not succeed in subsequently converting the system of rule by violence into a system of rule by ideological consent on the part of those ruled, they will succumb in new struggles. All victorious minorities who have established a lasting system of government have made their sway durable by means of a belated ideological ascendancy. They have legitimized their own supremacy either by submitting to the ideologies of the defeated or by transforming them. Where neither of these two things took place, the oppressed many dispossessed the oppressing few either by open rebellion or through the silent but steadfast operation of ideological forces.
*16

Many of the great historical conquests were able to endure because the invaders entered into alliance with those classes of the defeated nation which were supported by the ruling ideology and were thus considered legitimate rulers. This was the system adopted by the Tartars in Russia, by the Turks in the Danube principalities and by and large in Hungary and Transylvania, and by the British and the Dutch in the Indies. A comparatively insignificant number of Britons could rule many hundred millions of Indians because the Indian princes and aristocratic landowners looked upon British rule as a means for the preservation of their privileges and supplied it with the support which the generally acknowledged ideology of India gave to their own supremacy. England’s Indian empire was firm as long as public opinion approved of the traditional social order. The Pax Britannica safeguarded the princes’ and the landlords’ privileges and protected the masses against the agonies of wars between the principalities and of succession wars within them. In our day the infiltration of subversive ideas from abroad has ended British rule and threatens the preservation of the country’s age-old social order.

Victorious minorities sometimes owe their success to their technological superiority. This does not alter the case. In the long run it is impossible to withhold the better arms from the members of the majority. Not the equipment of their armed forces, but ideological factors safeguarded the British in India.
*17

A country’s public opinion may be ideologically divided in such a way that no group is strong enough to establish a durable government. Then anarchy emerges. Revolutions and civil strife become permanent.

Traditionalism as an Ideology

Traditionalism is an ideology which considers loyalty to valuations, customs, and methods of procedure handed down or allegedly handed down from ancestors both right and expedient. It is not an essential mark of traditionalism that these forefathers were the ancestors in the biological meaning of the term or can be fairly considered such; they were sometimes only the previous inhabitants of the country concerned or supporters of the same religious creed or only precursors in the exercise of some special task. Who is to be considered an ancestor and what is the content of the body of tradition handed down are determined by the concrete teachings of each variety of traditionalism. The ideology brings into prominence some of the ancestors and relegates others to oblivion; it sometimes calls ancestors people who had nothing to do with the alleged posterity. It often constructs a “traditional” doctrine which is of recent origin and is at variance with the ideologies really held by the ancestors.

Traditionalism tries to justify its tenets by citing the success they secured in the past. Whether this assertion conforms with the facts, is another question. Research could sometimes unmask errors in the historical statements of a traditional belief. However, this did not always explode the traditional doctrine. For the core of traditionalism is not real historical facts, but an opinion about them, however mistaken, and a will to believe things to which the authority of ancient origin is attributed.

4. Meliorism and the Idea of Progress

The notions of progress and retrogression make sense only within a teleological system of thought. In such a framework it is sensible to call approach toward the goal aimed at progress and a movement in the opposite direction retrogression. Without reference to some agent’s action and to a definite goal both these notions are empty and void of any meaning.

It was one of the shortcomings of nineteenth-century philosophies to have misinterpreted the meaning of cosmic change and to have smuggled into the theory of biological transformation the idea of progress. Looking backward from any given state of things to the states of the past one can fairly use the terms development and evolution in a neutral sense. Then evolution signifies the process which led from past conditions to the present. But one must guard against the fatal error of confusing change with improvement and evolution with evolution toward higher forms of life. Neither is it permissible to substitute a pseudoscientific anthropocentrism for the anthropocentrism of religion and the older metaphysical doctrines.

However, there is no need for praxeology to enter into a critique of this philosophy. Its task is to explode the errors implied in current ideologies.

Eighteenth-century social philosophy was convinced that mankind has now finally entered the age of reason. While in the past theological and metaphysical errors were dominant, henceforth reason will be supreme. People will free themselves more and more from the chains of tradition and superstition and will dedicate all their efforts to the continuous improvement of social institutions. Every new generation will contribute its part to this glorious task. With the progress of time society will more and more become the society of free men, aiming at the greatest happiness of the greatest number. Temporary setbacks are, of course, not impossible. But finally the good cause will triumph because it is the cause of reason. People called themselves happy in that they were citizens of an age of enlightenment which through the discovery of the laws of rational conduct paved the way toward a steady amelioration of human affairs. What they lamented was only the fact that they themselves were too old to witness all the beneficial effects of the new philosophy. “I would wish,” said Bentham to Philarète Chasles, “to be granted the privilege to live the years which I have still to live, at the end of each of the centuries following my death; thus I could witness the effects of my writing.”
*18

All these hopes were founded on the firm conviction, proper to the age, that the masses are both morally good and reasonable. The upper strata, the privileged aristocrats living on the fat of the land, were thought depraved. The common people, especially the peasants and the workers, were glorified in a romantic mood as noble and unerring in their judgment. Thus the philosophers were confident that democracy, government by the people, would bring about social perfection.

This prejudice was the fateful error of the humanitarians, the philosophers, and the liberals. Men are not infallible; they err very often. It is not true that the masses are always right and know the means for attaining the ends aimed at. “Belief in the common man” is no better founded than was belief in the supernatural gifts of kings, priests, and noblemen. Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disaster. Majorities too may err and destroy our civilization. The good cause will not triumph merely on account of its reasonableness and expediency. Only if men are such that they will finally espouse policies reasonable and likely to attain the ultimate ends aimed at, will civilization improve and society and state render men more satisfied, although not happy in a metaphysical sense. Whether or not this condition is given, only the unknown future can reveal.

There is no room within a system of praxeology for meliorism and optimistic fatalism. Man is free in the sense that he must daily choose anew between policies that lead to success and those that lead to disaster, social disintegration, and barbarism.

The term progress is nonsensical when applied to cosmic events or to a comprehensive world view. We have no information about the plans of the prime mover. But it is different with its use in the frame of an ideological doctrine. The immense majority strives after a greater and better supply of food, clothes, homes, and other material amenities. In calling a rise in the masses’ standard of living progress and improvement, economists do not espouse a mean materialism. They simply establish the fact that people are motivated by the urge to improve the material conditions of their existence. They judge policies from the point of view of the aims men want to attain. He who disdains the fall in infant mortality and the gradual disappearance of famines and plagues may cast the first stone upon the materialism of the economists.

There is but one yardstick for the appraisal of human action: whether or not it is fit to attain the ends aimed at by acting men.