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Drumbeat Against Capitalism

Mises Daily: Monday, August 02, 1999 by

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[Investor’s Business Daily, August 2, 1999]

Vice President--then senator--Al Gore criticized a Monsanto bovine hormone development (Posilac) to boost milk production as "a kind of thinking aimed at profits, not progress." Not progress?

The Gore remark reflects a long history of anti-profit literature. Look. Everybody knows that profits are rip- offs: ill-gotten, selfish, mean, exploitative, grasping, grudging, self- serving, uncharitable, greedy and anti-social in general.

America's culture encourages such slanted thinking. History texts often call the Andrew Carnegies and John D. Rockefellers ''robber barons.'' A politician orates that profits place property rights over human rights, that one man's profit means another man's loss, that capitalism is gross, a zero- sum game. A 19th-century proverb says: "Need makes greed." And Gordon Gekko, Oliver Stone's central character in the movie "Wall Street," proclaims: "Greed is good."

It gets worse. The Internal Revenue Code lists capital gains, corporate dividends and the like as "unearned income." Unearned?

It takes a Ludwig von Mises (1881-1973) to sort out the truth. He defined human action or, as he called it, praxeology, as "purposeful behavior." So when a person attains his purpose, he can be said to have gained; when he fails to do so, he has lost. Economics is part of the larger sphere of praxeology.

Praxeology involves the universal, essentially psychic, motivation of substituting a perceived better state of affairs for a lesser state, running the gamut of every human action, good and bad.

Yet in a market society, it generally advances social cooperation, connectedness, harmony. Too, this substitution involves a sort of cost-benefit calculus--a subjective weighing of cost against benefit, action by action.

In 1920, Mises keyed profit and loss to business accounting, as basic to ''economic calculation,'' without which socialist planners could not allocate scarce capital effectively. Misallocation doomed communism.

Economist Oscar Lange of the powerful Polish Politburo argued that economic calculation could still be adapted to central planning, that his fellow communists ought to show their gratitude and erect a statue in honor of Mises.

Mises held that such adaptation was impossible, and history proved him right. By 1991, the whole of Eurocommunism from East Germany to the Soviet Union slid into oblivion.

The Mises legacy goes beyond explaining why socialism fails. It tells why Western civilization and capitalism win, and it points to self-interest as a socially constructive force if held under a moral code and the rule of law.

Mises rejected the notion of Economic Man. He said man is hardly a pure materialist. Man can choose his means, master his impulses. He can, for example, control his will to live, is capable of dying for a cause. So his valuations do not boil down to dollars and cents but are subjectively arrayed in a dynamic hierarchy of priorities, as captured in Jefferson's Declaration of Independence phrase "the pursuit of happiness."

Mises saw that in a market economy it is the consumer, not the producer, who is in charge. The consumer has self-interest in the power of the purse, a power over every producer to press him to put his competitive foot forward.

Surely Thomas Edison and Alexander Graham Bell were aware of the market for the electric light and the telephone. Talk about progress!

Interest is then the force behind every human action for the honest and dishonest, the striver and laggard, and so on. Hence that need of virtue in a market society.

Mises once introduced a paperback version of Adam Smith's "Wealth of Nations," hailing it as "a great book." There Smith uncorked his secret of the market order: "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest."

Interest is it. Mises said it drives capitalism, provides incentives and, via the price system, coordinates a free economy into a positive- sum game. "The market economy...can apply to itself the words of architect Sir Christopher Wren's epitaph in St. Paul's Cathedral: Si monumentum requiris, circumspice (if you seek his monument, look around)," Mises wrote in Human Action.

Postscript: Posilac, blessed by the Food and Drug Administration, American Medical Association, World Health Organization and regulatory agencies in 39 countries, holds down or cuts the price of milk across much of the world, benefiting mankind--but, alas, reaping profits for Monsanto.

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William Peterson, adjunct scholar at the Heritage Foundation and the Ludwig von Mises Institute, is Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University in North Carolina.

c) Copyright 1999, Investors Business Daily