Somewhat unfairly, one of the most well-known Austrian economists, Ludwig von Mises, has had one part of his work largely ignored by scholars who both favor and oppose markets and exchange. Readers have long glossed over his arguments that markets enhance morality and cooperation. Instead, Mises tends to receive a lot of credit for his writing on the failings of socialism and the problems that government credit intervention creates in markets.
But interestingly, Mises also makes a robust case for the morally and socially beneficial aspects of markets. To illustrate this point I’d like to discuss a selection from Mises’s classic book Human Action, in which he discusses the non-economic, positive externalities that blossom from the market order.
Chapter fifteen, The Market, begins with Mises describing what the market is as an institution and how that institution differs from the government, particularly in a socialist system. He discusses the importance of prices for communicating information to producers from consumers, allowing for the proper allocation of resources. He clearly explains how government intervention in markets distorts those signals and makes that communication impossible. He lays bare the insurmountable problem that planners face in trying to both calculate prices and then determine the “best” allocation of resources and products without the information that only markets can provide.
Additionally, Mises spends a fair amount of time in this chapter discussing and defining capital, which is particularly interesting in light of Thomas Piketty’s book on the importance of capital in economics. Unlike Piketty, Mises recognizes that capital is neither a tool used by the wealthy to maintain their positions at the expense of the poor, nor the mechanical force that blindly generates wealth and maintains social hierarchy. Instead, capital is both a critical part of the accountancy system of capitalism, and it is also a means to action, not the empty instrumental force that Piketty, Karl Marx, and others would have us believe. All of this is material that anyone familiar with Mises is accustomed to seeing in his writing, and it is done with the precision and care that he applies to all his work.
He then makes a move that veers away from “traditional” economics by discussing how the capitalist system is part of the evolutionary process of humanity. Compared with the alternatives of totalitarianism and socialism, Mises notes that with capitalism “the masses’ standard of living was raised to an unprecedented and hitherto undreamed of level. The average American worker enjoys amenities for which Croesus, Crassus, the Medici, and Louis XIV would have envied him.” He also notes that various intellectual interpretations of capitalism in the nineteenth century, not just Marxism, mistakenly viewed capitalism as an exploitative system.
However, at this point in the chapter, he makes an interesting move. He notes that many people recognize that there are bad business people, which makes calls for government intervention understandable. But he reminds his reader that playing the game of competing interests in a democratic system makes society vulnerable to the exploitation of businesses that can align their interests with the majority and shield themselves from competition in the market. This cracks the door a bit as he moves toward a different argument for markets––one based on morality.
He begins the claim that capitalism should be privileged based on moral grounds by initially focusing on the individual sovereignty and choice of consumers, employers, employees, and entrepreneurs. On the surface the claim is made counter-intuitively because he outlines that lack of discretion that producers have in the market. He says that basically producers and entrepreneurs “have their hands tied; they are bound to comply in their operations with the orders of the buying public. Every deviation from the lines prescribed by the demand of the consumers debits their account” and will eventually “restrict their profits and or make them disappear.” The reason for this is simple: consumers are the bosses in markets. They are voting with their money for bread, cakes, shoes––things that they want. Failure to provide for those goods leads to the destruction of businesses.
However, businesspeople and politicians can try to align themselves to protect the interests of businesses against consumers by granting monopoly privileges and regulatory safeguards that limit market competition, and here is where morality enters into it. Mises writes that “(t)he majority of businessmen are prevented from resorting to bribery either by their moral convictions or by fear” while it is demagogues who exploit the system unjustly.
It is competition that leads to the order of social harmony. Mises writes, “Social cooperation under the division of labor removes such antagonisms. It substitutes partnership and mutuality for hostility. The members of society are united in a common venture.” However, this is not competition as sport; rather this is competition to “safeguard the best satisfaction of the consumer attainable under the given state of the economic data,” which is a pretty just and noble end.
Freedom, another fairly non-instrumental thing, plays an important role in this argument as well. Mises correctly points out that freedom really exists only in a social setting with rules and norms, since it is relational and requires rules and limits to truly thrive, unlike the mythical freedom that writers such as Rousseau describe in his state of nature. Government, according to Mises, is necessary to keep the peace, but government rules have to allow for the freedom of individuals to achieve their own ends and maintain their own autonomy.
It is the combination of those two factors, the social cooperation of the market and the contractual nature of free governments, that allow individuals to live after their own accord and to be free to exchange goods and services to satisfy their own desires and wishes. Markets celebrate and enhance the individual. Mises writes that in “the market economy the individual alone is the supreme arbiter in matters of his satisfaction.” Conversely in places that are not free, most notably Russia for Mises, we see that what is right is dictated by the government through the use of force––the destruction of any moral order.