3. The Harmony of the Rightly Understood Interests
From time immemorial, men have prattled about the blissful conditions their ancestors enjoyed
in the original state of nature. From old myths, fables and poems, the image of this
primitive happiness passed into many popular philosophies of the 17th and 18th centuries.
In their language, the term natural denoted what was good and beneficial in human affairs,
while the term civilization had the connotation of opprobrium.
The fall of man was seen in the deviation from the primitive conditions of ages in which
there was but little difference between man and other animals.
At that time, these Romantic eulogists of the past asserted, there were no conflicts
between men.
Peace was undisturbed in the Garden of Eden.
Yet nature does not generate peace and goodwill.
The characteristic mark of the state of nature is a reconcilable conflict.
Each specimen is the rival of all other specimens.
The means of subsistence are scarce and do not grant survival to all.
The conflicts can never disappear.
If a band of men, united with the object of defeating rival bands, succeeds in annihilating
its foes, new antagonisms arise among the victors over the distribution of the booty.
The source of the conflicts is always the fact that each man's portion curtails the
portions of all other men.
This is a dilemma that does not allow of any peaceful solution.
What makes friendly relations between human beings possible is the higher productivity
of the division of labor. It removes the natural conflict of interests. For where there is
division of labor, there is no longer question of the distribution of a supply not capable
of enlargement. Thanks to the higher productivity of labor performed under the division of tasks,
The supply of goods multiplies. A preeminent common interest, the preservation and further
intensification of social cooperation becomes paramount and obliterates all essential collisions.
Catalactic competition is substituted for biological competition. It makes for harmony
of the interests of all members of society. The very condition from which the irreconcilable
Conflicts of Biological Competition Arise, namely the fact that all people by and large
strive after the same things, is transformed into a factor making for harmony of interests.
Because many people or even all people want bread, clothes, shoes and cars, large-scale
production of these goods becomes feasible and reduces the costs of production to such
Research and Extent that they are accessible at low prices.
The fact that my fellow man wants to acquire shoes as I do does not make it harder for
me to get shoes, but easier.
What enhances the price of shoes is the fact that nature does not provide a more ample
supply of leather and other raw materials required, and that one must submit to the
and the disutility of labor in order to transform these raw materials into shoes.
The catalactic competition of those who, like me, are eager to have shoes, makes shoes cheaper,
not more expensive.
This is the meaning of the theorem of the harmony of the rightly understood interests
of all members of the market society.
For rightly understood interests, we may as well say, interests in the long run.
When the classical economists made this statement, they were trying to stress two points.
First, that everybody is interested in the preservation of the social division of labor,
the system that multiplies the productivity of human efforts.
Second, that in the market society, consumer's demand ultimately directs all production activities.
The fact that not all human wants can be satisfied is not due to inappropriate social institutions
or to deficiencies of the system of the market economy.
It is a natural condition of human life.
The belief that nature bestows upon man inexhaustible riches and that misery is an outgrowth of
man's failure to organize the good society is entirely fallacious.
The state of nature, which the reformers and utopians depict as paradisiac, was in fact
a state of extreme poverty and distress.
Poverty, says Bentham, is not the work of the laws.
It is the primitive condition of the human race.
Even those at the base of the social pyramid are much better off than they would have been
in the absence of social cooperation.
They too are benefited by the operation of the market economy and participate in the
advantages of civilized society.
The 19th century reformers did not drop the cherished fable of the original earthly paradise.
Frederick Engels incorporated it in the Marxian account of mankind's social evolution.
However, they no longer set up the bliss of the Golden Age as a pattern for social and
and Economic Reconstruction.
They contrast the alleged depravity of capitalism with the ideal happiness man will enjoy in
the socialist elysium of the future.
The socialist mode of production will abolish the fetters by means of which capitalism checks
the development of the productive forces, and will increase the productivity of labor
and wealth beyond all measure.
The preservation of free enterprise and the private ownership of the means of production
benefits exclusively the small minority of parasitic exploiters and harms the immense
majority of working men.
Hence there prevails within the frame of the market economy an irreconcilable conflict
between the interests of capital and those of labor.
This class struggle can disappear only when a fair system of social organization, either
socialism or interventionism, is substituted for the manifestly unfair capitalist mode
of production.
Such is the almost universally accepted social philosophy of our age.
It was not created by Marx, although it owes its popularity mainly to the writings of Marx
and the Marxians.
It is today endorsed not only by the Marxians, but no less by most of those parties who emphatically
declare their anti-Marxism and pay lip service to free enterprise.
It is the official social philosophy of Roman Catholicism as well as of Anglo-Catholicism.
It is supported by many eminent champions of the various Protestant denominations and
of the Orthodox Oriental Church.
It is an essential part of the teachings of Italian fascism and of German Nazism and of
all varieties of interventionist doctrines.
It was the ideology of the socialpolitik of the Hohenzollerns in Germany and the French
royalists aiming at the restoration of the house of Bourbon-Orléans, of the New Deal
of President Roosevelt and of the nationalists of Asia and Latin America.
The antagonisms between these parties and factions refer to accidental issues, such
as religious dogma, constitutional institutions, foreign policy, and, first of all, to the
characteristic features of the social system that is to be substituted for capitalism.
But they all agree in the fundamental thesis that the very existence of the capitalist
system harms the vital interests of the immense majority of workers, artisans and small farmers,
and they all ask in the name of social justice for the abolition of capitalism.
All socialist and interventionist authors and politicians base their analysis and critique
of the market economy on two fundamental errors.
First, they fail to recognize the speculative character inherent in all endeavors to provide
for future want satisfaction, that is, in all human action.
They naively assume that there cannot exist any doubt about the measures to be applied
for the best possible provisioning of the consumers.
In a socialist commonwealth, there will be no need for the production czar, or the central
The Federal Board of Production Management to speculate.
He will simply have to resort to those measures which are beneficial to his wards.
The advocates of a planned economy have never conceived that the task is to provide for
future wants, which may differ from today's wants, and to employ the various available
factors of production in the most expedient way for the best possible satisfaction of
The Theory of Money and Credit The Theory of Money and Credit
The problem must not be confused with the technological problem.
Technological knowledge can merely tell us what could be achieved under the present state of our scientific insight.
It does not answer the questions as to what should be produced and in what quantities,
and which of the multitude of technological processes available should be chosen.
Deluded by their failure to grasp this essential matter,
The advocates of a planned society believe that the production czar will never air in
his decisions.
In the market economy, the entrepreneurs and capitalists cannot avoid committing serious
blunders because they know neither what the consumers want nor what their competitors
are doing.
The general manager of a socialist state will be infallible because he alone will have the
The Power to Determine What Should be Produced and How, and Because No Action of Other People
Will Cross His Plans.
The second fundamental error involved in the socialist's critique of the market economy
stems from their faulty theory of wages.
They have failed to realize that wages are the price paid for the wage earner's achievement,
That is, for the contribution of his efforts to the processing of the good concerned, or,
as people say, for the value which his services add to the value of the materials.
No matter whether there are time wages or piecework wages, the employer always buys
the worker's performance and services, not his time.
It is therefore not true that in the unhampered market economy the worker has no personal
The Socialists are badly mistaken in asserting that those paid a certain rate per hour, per
day, per week, per month or per year are not impelled by their own selfish interests when
they work efficiently.
It is not lofty ideals and the sense of duty that deter a worker paid according to the
The length of time worked, from carelessness and loafing around the shop, but very substantial
arguments.
He who works more and better gets higher pay, and he who wants to earn more must increase
the quantity and improve the quality of his performance.
The hard-boiled employers are not so gullible as to let themselves be cheated by slothful
employees.
They are not so negligent as those governments who pay salaries to hosts of loafing bureaucrats.
Neither are the wage earners so stupid as to not know that laziness and inefficiency
are heavily penalized on the labor market.
On the shaky ground of their misconception of the catallactic nature of wages, the socialist
authors have advanced fantastic fables about the increase in the productivity of labor
to be expected from the realization of their plans.
Under capitalism, they say, the worker's zeal is seriously impaired, because he is aware
of the fact that he himself does not reap the fruits of his labor, and that his toil
and trouble enrich merely his employer, this parasitic and idle exploiter.
But under socialism, every worker will know that he works for the benefit of society,
of which he himself is a part.
This knowledge will provide him with the most powerful incentive to do his best.
An enormous increase in the productivity of labor, and thereby in wealth, will result.
However, the identification of the interests of each worker and those of the socialist
commonwealth is a purely legalistic and formalistic fiction which has nothing to do with the real
state of affairs.
While the sacrifices an individual worker makes in intensifying his own exertion burden him
alone, only an infinitesimal fraction of the produce of his additional exertion benefits
himself and improves his own well-being.
While the individual worker enjoys completely the pleasures he may reap by yielding to the
temptation to carelessness and laziness, the resulting impairment of the social dividend
curtails his own share only infinitesimally.
Under such a socialist mode of production, all personal incentives which selfishness
provides under capitalism are removed, and a premium is put upon laziness and negligence.
Whereas in a capitalist society, selfishness incites everyone to the utmost diligence,
in a socialist society it makes for inertia and laxity.
The socialists may still babble about the miraculous change in human nature that the
advent of socialism will effect, and about the substitution of lofty altruism for mean
egotism, but they must no longer indulge in fables about the marvelous effects the selfishness
of each individual will bring about under socialism.
No judicious man can fail to conclude from the evidence of these considerations that
in the market economy, the productivity of labor is incomparably higher than it would
be under socialism.
However, this cognition does not settle the question between the advocates of capitalism
and those of socialism from a praxeological, that is, scientific, point of view.
A bona fide advocate of socialism who is free from bigotry, pre-possession and malice could
still contend.
It may be true that P, the total net income turned out in a market society, is larger
than P, the total net income turned out in a socialist society.
But, if the socialist system assigns to each of its members an equal share of P, namely,
P divided by Z equals D, all those whose income in the market society is smaller than D are
are favored by the substitution of socialism for capitalism.
It may happen that this group of people includes the majority of men.
At any rate, it becomes evident that the doctrine of the harmony between the rightly understood
interests of all members of the market society is untenable.
There is a class of men whose interests are hurt by the very existence of the market economy,
and Who Would Be Better Off under Socialism.
The Liberals contest the conclusiveness of this reasoning.
They believe that P will lag so much behind P that D will be smaller than the income which
even those earning the lowest wages get in the market society.
There can be no doubt that the objection raised by the Liberals is well founded.
However, their refutation of the socialist claims is not based on praxeological considerations,
and therefore lacks the apodictic and incontestable argumentative power inherent in a praxeological
demonstration.
It is based on a judgment of relevance, the quantitative appraisal of the difference between
the two magnitudes P and P. In the field of human action, such quantitative cognition
is obtained by understanding, with regard to which full agreement between men cannot be
reached.
Praxeology, economics, and catallactics are of no use for the settlement of such dissensions
concerning quantitative issues.
The advocates of socialism could go even farther and say, granted that each individual will
be worse off under socialism than even the poorest under capitalism.
Yet, we spurn the market economy in spite of the fact that it supplies everybody with
more goods than socialism.
We disapprove of capitalism on ethical grounds, as an unfair and amoral system.
We prefer socialism on grounds commonly called non-economic, and put up with the fact that
it impairs everybody's material well-being.
This mode of reasoning was mainly resorted to by many eminent champions of Christian
socialism. The Marxians used to recommend socialism on the ground that it would multiply
productivity and bring unprecedented material wealth to everybody. Only lately have they
changed their tactics. They declare that the Russian worker is happier than the American
worker in spite of the fact that his standard of living is much lower. The knowledge that
that he lives under a fair social system compensates by far for all his material hardships.
It cannot be denied that this haughty indifference with regard to material well-being is a privilege
reserved to ivory tower intellectuals secluded from reality and to ascetic anchorites.
What made socialism popular with the immense majority of its supporters was, on the contrary,
The illusion that it would supply them with more amenities than capitalism.
But however this may be, it is obvious that this type of pro-socialist argumentation cannot
be touched by the liberal reasoning concerning the productivity of labor.
If no other objections could be raised to the socialist plans than that socialism will
lower the standard of living of all, or at least of the immense majority, it would be
be impossible for praxeology to pronounce a final judgment.
Men would have to decide the issue between capitalism and socialism on the ground of
judgments of value and of judgments of relevance.
They would have to choose between the two systems as they choose between many other
things.
No objective standard could be discovered which would make it possible to settle the
of Dispute in a manner which allows no contradiction and must be accepted by every sane individual.
The freedom of each man's choice and discretion would not be annihilated by inexorable necessity.
However, the true state of affairs is entirely different.
Man is not in a position to choose between these two systems.
Having cooperation under the system of the social division of labor is possible only
in the market economy.
Socialism is not a realizable system of society's economic organization because it lacks any
method of economic calculation.
To deal with this fundamental problem is the task of the fifth part of this book.
The establishment of this truth does not amount to a depreciation of the conclusiveness and
and the convincing power of the anti-socialist argument derived from the impairment of productivity
to be expected from socialism.
The weight of this objection raised to the socialist plans is so overwhelming that no
judicious man could hesitate to choose capitalism.
Yet this would still be a choice between alternative systems of society's economic organization,
Socialism cannot be realized because it is beyond human power to establish it as a social system.
The choice is between capitalism and chaos.
A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide
does not choose between two beverages.
He chooses between life and death.
A society that chooses between capitalism and socialism does not choose between two
social systems.
It chooses between social cooperation and the disintegration of society.
Socialism is not an alternative to capitalism.
It is an alternative to any system under which men can live as human beings.
To stress this point is the task of economics, as it is the task of biology and chemistry
to teach that potassium cyanide is not a nutriment but a deadly poison.
The convincing power of the productivity argument is in fact so irresistible that the advocates
of socialism were forced to abandon their old tactics and to resort to new methods.
They are eager to divert attention from the productivity issue by throwing into relief
the monopoly problem.
All contemporary socialist manifestos expatiate on monopoly power.
Statesmen and professors try to outdo one another in depicting the evils of monopoly.
Our age is called the age of monopoly capitalism.
The foremost argument advanced today in favor of socialism is the reference to monopoly.
Now it is true that the emergence of monopoly prices, not of monopoly as such without monopoly
prices, creates a discrepancy between the interests of the monopolist and those of the
consumers.
The monopolist does not employ the monopolized good according to the wishes of the consumers.
As far as there are monopoly prices, the interests of the monopolist take precedence over those
of the public, and the democracy of the market is restricted.
With regard to monopoly prices, there is not harmony, but conflict of interests.
It is possible to contest these statements with regard to the monopoly prices received
in the sale of articles under patents and copyrights.
One may argue that in the absence of patent and copyright legislation, these books, compositions
and technological innovations would never have come into existence.
The public pays monopoly prices for things they would not have enjoyed at all under competitive
prices.
However, we may fairly disregard this issue.
It has little to do with the great monopoly controversy of our day.
When people deal with the evils of monopoly, they imply that there prevails within the
unhampered market economy a general and inevitable tendency toward the substitution of monopoly
prices for competitive prices.
This is, they say, a characteristic mark of mature, or late, capitalism.
Whatever conditions may have been in the earlier stages of capitalist evolution, and whatever
However one may think about the validity of the classical economist's statements concerning
the harmony of the rightly understood interests, today there is no longer any question of such
a harmony.
As has been pointed out already, there is no such tendency toward monopolization.
It is a fact that with many commodities in many countries monopoly prices prevail, and
And moreover, many articles are sold at monopoly prices on the world market.
However, almost all of these instances of monopoly prices are the outgrowth of government
interference with business.
They were not created by the interplay of the factors operating on a free market.
They are not products of capitalism, but precisely of the endeavors to counteract the forces
determining the height of the market prices.
It is a distortion of fact to speak of monopoly capitalism.
It would be more appropriate to speak of monopoly interventionism or of monopoly statism.
Those instances of monopoly prices which would appear also on a market not hampered and sabotaged
by the interference of the various national governments and by conspiracies between groups
of governments are of minor importance.
They concern some raw materials, the deposits of which are few and geographically concentrated,
and local limited space monopolies.
However, it is a fact that in these cases monopoly prices can be realized even in the
absence of government policies aiming directly or indirectly at their establishment.
It is necessary to realize that consumers' sovereignty is not perfect, and that there
There are limits to the operation of the democratic process of the market.
There is, it is true, in some exceptional and rare cases of minor importance, even on
a market not hampered and sabotaged by government interference, an antagonism between the interests
of the owners of factors of production and those of the rest of the people.
However, the existence of such antagonisms by no means impairs the concord of the interests
of all people with regard to the preservation of the market economy.
The market economy is the only system of society's economic organization that can function and
really has been functioning.
Socialism is unrealizable because of its inability to develop a method for economic calculation.
Interventionism must result in a state of affairs which, from the point of view of its advocates, is less desirable than the conditions of the unhampered market economy which it aims to alter.
In addition, it liquidates itself as soon as it is pushed beyond a narrow field of application.
Such being the case, the only social order that can preserve and further intensify the
social division of labor is the market economy.
All those who do not wish to disintegrate social cooperation and to return to the conditions
of primitive barbarism are interested in the perpetuation of the market economy.
The classical economist's teachings concerning the harmony of the rightly understood interests
were defective, in so far as they failed to recognize the fact that the democratic process
of the market is not perfect, because in some instances of minor importance, even in the
unhampered market economy, monopoly prices may appear.
But much more conspicuous was their failure to recognize that, and why, no socialist system
can be considered as a system of society's economic organization.
They base the doctrine of the harmony of interests upon the erroneous assumption that there are
no exceptions to the rule that the owners of the means of production are forced by the
market process to employ their property according to the wishes of the consumers.
Today, this theorem must be based on the knowledge that no economic calculation is feasible under Socialism.
4. Private Property
Private ownership of the means of production is the fundamental institution of the market economy.
It is the institution the presence of which characterizes the market economy as such.
Where it is absent, there is no question of a market economy.
Ownership means full control of the services that can be derived from a good.
This catallactic notion of ownership and property rights is not to be confused with the legal definition of ownership and property rights,
as stated in the laws of various countries.
It was the idea of legislators and courts to define the legal concept of property in such a way as to give to the proprietor full protection by the governmental apparatus of coercion and compulsion, and to prevent anybody from encroaching upon his rights.
As far as this purpose was adequately realized, the legal concept of property rights corresponded to the catallactic concept.
Act.
However, nowadays there are tendencies to abolish the institution of private property
by a change in the laws determining the scope of the actions which the proprietor is entitled
to undertake with regard to the things which are his property.
While retaining the term private property, these reforms aim at the substitution of public
ownership for private ownership.
This tendency is the characteristic mark of the plans of various schools of Christian
Socialism and of Nationalist Socialism.
But few of the champions of these schools have been so keen as the Nazi philosopher
Otmar Spahn, who explicitly declared that the realization of his plans would bring about
a state of affairs in which the institution of private property will be preserved only
only in a formal sense, while in fact there will be only public ownership.
There is need to mention these things in order to avoid popular fallacies and confusion.
In dealing with private property, catallactics deals with control, not with legal terms,
concepts and definitions.
Private ownership means that the proprietors determine the employment of the factors of
Production, while public ownership means that the government controls their employment.
Private property is a human device.
It is not sacred.
It came into existence in early ages of history when people with their own power and by their
own authority appropriated to themselves what had previously not been anybody's property.
One and again proprietors were robbed of their property by expropriation.
The history of private property can be traced back to a point at which it originated out
of acts which were certainly not legal.
Virtually every owner is the direct or indirect legal successor of people who acquired ownership
either by arbitrary appropriation of ownerless things or by violent spoliation of their predecessor.
However, the fact that legal formalism can trace back every title either to arbitrary appropriation or to violent expropriation has no significance whatever for the conditions of a market society.
Ownership in the market economy is no longer linked up with the remote origin of private property.
Those events in a far distant past, hidden in the darkness of primitive mankind's history, are no longer of any concern for our day.
For in an unhampered market society, the consumers daily decide anew who should own and how much he should own.
The consumers allot control of the means of production to those who know how to use them best for the satisfaction of the most urgent wants of the consumers.
Only in a legal and formalistic sense can the owners be considered the successors of appropriators and expropriators.
In fact, they are mandataries of the consumers, bound by the operation of the market to serve the consumers best.
Capitalism is the consummation of the self-determination of the consumers.
The meaning of private property and the market society is radically different from what it is under a system of each household's autarky.
Where each household is economically self-sufficient, the privately owned means of production exclusively serve the proprietor.
He alone reaps all the benefits derived from their employment.
In the market society, the proprietors of capital and land can enjoy their property
only by employing it for the satisfaction of other people's wants.
They must serve the consumers in order to have any advantage from what is their own.
The very fact that they own means of production forces them to submit to the wishes of the
public.
Partnership is an asset only for those who know how to employ it in the best possible
way for the benefit of the consumers. It is a social function.
5. The Conflicts of Our Age Popular opinion sees the source of the conflicts
which bring about the civil wars and international wars of our age in the collision of economic
Civil War is the rebellion of the exploited masses against the exploiting classes.
Foreign War is the revolt of the have-not nations against those nations who have appropriated
to themselves an unfair share of the earth's natural resources, and with insatiable greed
want to snatch even more of this wealth destined for the use of all.
He who in face of these facts speaks of the harmony of the rightly understood interests
is either a moron or an infamous apologist of a manifestly unjust social order.
No intelligent and honest man could fail to realize that there prevail today irreconcilable
conflicts of material interests which can be settled only by recourse to arms.
It is certainly true that our age is full of conflicts which generate war.
However, these conflicts do not spring from the operation of the unhampered market society.
It may be permissible to call them economic conflicts because they concern that sphere
of human life, which is, in common speech, known as the sphere of economic activities.
But it is a serious blunder to infer from this appellation that the source of these conflicts
are conditions which develop within the frame of a market society.
It is not capitalism that produces them, but precisely the anti-capitalistic policies designed
to check the functioning of capitalism.
They are an outgrowth of the various governments' interference with business, of trade and migration
and Barriers and Discrimination Against Foreign Labor, Foreign Products and Foreign Capital.
None of these conflicts could have emerged in an unhampered market economy.
Imagine a world in which everybody were free to live and work as entrepreneur or as employee
where he wanted and how he chose, and ask which of these conflicts could still exist.
Imagine a world in which the principle of private ownership of the means of production
is fully realized, in which there are no institutions hindering the mobility of capital, labor,
and commodities, in which the laws, the courts, and the administrative officers do not discriminate
against any individual or group of individuals, whether native or alien.
Imagine a state of affairs in which governments are devoted exclusively to the task of protecting
In such a world, the frontiers are drawn on the maps, but they do not hinder anybody from the pursuit of what he thinks will make him more prosperous.
No individual is interested in the expansion of the size of his nation's territory, as
he cannot derive any gain from such an aggrandizement. Conquest does not pay, and war becomes obsolete.
In the ages preceding the rise of liberalism and the evolution of modern capitalism, people
for the most part consumed only what could be produced out of raw materials available
in their own neighborhood.
The development of the International Division of Labor has radically altered this state
of affairs.
Food and raw materials imported from distant countries are articles of mass consumption.
The most advanced European nations could do without these imports only at the price of
a very considerable lowering of their standard of living.
They must pay for the badly needed purchase of minerals, lumber, oil, cereals, fat, coffee,
tea, cocoa, fruit, wool and cotton by exporting manufacturers, most of them processed out
of imported raw materials. Their vital interests are hurt by the protectionist trade policies
of the countries producing these primary products.
Two hundred years ago, it was of little concern to the Swedes or the Swiss whether or not
a non-European country was efficient in utilizing its natural resources.
But today, economic backwardness in a foreign country endowed by rich natural resources
hurts the interests of all those whose standard of living could be raised if a more appropriate
mode of utilizing this natural wealth were adopted.
The principle of each nation's unrestricted sovereignty is, in a world of government interference
with business, a challenge to all other nations.
The conflict between the have-nots and the haves is a real conflict, but it is present
only in a world in which any sovereign government is free to hurt the interests of all peoples,
its own included, by depriving the consumers of the advantages a better exploitation of
this country's resources would give them.
It is not sovereignty as such that makes for war, but sovereignty of governments not entirely
committed to the principles of the market economy.
Liberalism did not and does not build its hopes upon abolition of the sovereignty of
of the Various National Governments, a venture which would result in endless wars.
It aims at a general recognition of the idea of economic freedom.
If all peoples become liberal and conceive that economic freedom best serves their own
interests, national sovereignty will no longer engender conflict and war.
What is needed to make peace durable is neither international treaties and covenants, nor
or international tribunals and organizations like the defunct League of Nations or its
successor the United Nations.
If the principle of the market economy is universally accepted, such makeshifts are
unnecessary.
If it is not accepted, they are futile.
Durable peace can only be the outgrowth of a change in ideologies.
As long as the peoples cling to the Montaigne dogma and think that they cannot prosper
Economically, except at the expense of other nations, peace will never be anything other
than a period of preparation for the next war.
Economic nationalism is incompatible with durable peace.
Yet economic nationalism is unavoidable, where there is government interference with business.
Protectionism is indispensable, where there is no domestic free trade.
Where there is government interference with business, free trade even in the short run
would frustrate the aims sought by the various interventionist measures.
It is an illusion to believe that a nation would lastingly tolerate other nations' policies
which harm the vital interest of its own citizens.
Let us assume that the United Nations had been established in the year 1600, and that
The Indian tribes of North America had been admitted as members of this organization.
Then the sovereignty of these Indians would have been recognized as inviolable.
They would have been given the right to exclude all aliens from entering their territory and
from exploiting its rich natural resources, which they themselves did not know how to
utilize.
Does anybody really believe that any international covenant or charter could have prevented the
Are the Europeans from invading these countries?
Many of the richest deposits of various mineral substances are located in areas whose inhabitants
are too ignorant, too inert or too dull to take advantage of the riches nature has bestowed
upon them.
If the governments of these countries prevent aliens from exploiting these deposits, or
However if their conduct of public affairs is so arbitrary that no foreign investments
are safe, serious harm is inflicted upon all those foreign peoples whose material well-being
could be improved by a more adequate utilization of the deposits concerned.
It does not matter whether the policies of these governments are the outcome of a general
cultural backwardness or of the adoption of the now fashionable ideas of interventionism
and Economic Nationalism.
The result is the same in both cases.
There is no use in conjuring away these conflicts by wishful thinking.
What is needed to make peace durable is a change in ideologies.
What generates war is the economic philosophy almost universally espoused today by governments
and political parties.
As this philosophy sees it, there prevail within the unhampered market economy irreconcilable
conflicts between the interests of various nations.
Free trade harms a nation.
It brings about impoverishment.
It is the duty of government to prevent the evils of free trade by trade barriers.
We may, for the sake of argument, disregard the fact that protectionism also hurts the
and the interests of the nations which resort to it.
But there can be no doubt that protectionism aims at damaging the interests of foreign
peoples and really does damage them.
It is an illusion to assume that those injured will tolerate other nations' protectionism
if they believe that they are strong enough to brush it away by the use of arms.
The philosophy of protectionism is a philosophy of war.
The wars of our age are not at variance with popular economic doctrines.
They are, on the contrary, the inescapable result of a consistent application of these doctrines.
The League of Nations did not fail because its organization was deficient.
It failed because it lacked the spirit of genuine liberalism.
It was a convention of governments imbued with the spirit of economic nationalism and
and entirely committed to the principles of economic warfare.
While the delegates indulged in mere academic talk about goodwill among the nations, the
governments whom they represented inflicted a good deal of evil upon all other nations.
The two decades of the League's functioning were marked by each nation's adamant economic
warfare against all other nations.
The tariff protectionism of the years before 1914 was mild indeed when compared with what
developed in the twenties and thirties, namely embargoes, quantitative trade control, foreign
exchange control, monetary devaluation and so on.
The prospects for the United Nations are not better, but rather worse.
Every nation looks upon imports, especially upon imports of manufactured goods, as upon
a disaster.
It is the avowed goal of almost all countries to bar foreign manufacturers as much as possible
from access to their domestic markets.
Almost all nations are fighting against the specter of an unfavorable balance of trade.
They do not want to cooperate.
They want to protect themselves against the alleged dangers of cooperation.