Chapter 24 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.
it. We may fairly call it the Montane 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.
Now the Montaigne dogma is true with regard to the effects of cash-induced 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
and 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.
But 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
and some other unsatisfied ones. 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
and 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
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 aired 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 insofar 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.
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.
It is a task of historical investigation to disclose the sources of the popularity of this and other similar delusions and errors.
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
and its biological competition.
But with man, these irreconcilable conflicts of interests disappear when, and as far as,
the division of labor is substituted for economic autarchy 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 never have 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 being 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.
Non-human beings are entirely subject to the operation of the biological law described
by Malthus.
The Malthusian law is, of course, a biological and not a praxeological law.
However, its cognizance is indispensable for praxeology in order to conceive by contrast the essential characteristic of human action.
As the natural sciences failed to discover it, the economists had to fill the gap.
The history of the law of population, too, explodes the popular myth about the backwardness of the sciences of human action and their need to borrow from the natural sciences.
For non-human beings, 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 non-human 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.
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 learn 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,
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, that is, 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
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 burgers, eager to preserve
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
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.
People not the indigenies 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
and 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 general 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 well-being makes
It is 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 non-capitalist 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
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
Human 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
The Reformers of the Oriental Peoples want to secure for the future of the world the
are their fellow citizens the material well-being that the Western nations enjoy.
Deluded by Marxian, nationalist and militarist ideas, they think that all that is needed for the attainment of this end
is the introduction of European and American technology.
Neither the Slavonic Bolsheviks and nationalists nor their sympathizers in the Indies, in China and in Japan
They realize that what their peoples need most is not Western technology, but the social order, which, in addition to other achievements, has generated this technological knowledge.
They lack, first of all, economic freedom and private initiative, entrepreneurs and capitalism, but they look only for engineers and machines.
What separates East and West is the social and economic system.
The East is foreign to the Western spirit that has created capitalism.
It is of no use to import the paraphernalia of capitalism without admitting capitalism
as such.
No achievement of capitalist civilization would have been accomplished in a non-capitalistic
environment or can be preserved in a world without a market economy.
If the Asiatics really enter into the orbit of Western civilization, they will have to
adopt the market economy without reservations.
Then their masses will rise above their present proletarian wretchedness and practice birth
control as it is practiced in every capitalistic country.
No excessive growth of population will longer hinder the improvement in the standards of
living.
But if the Oriental peoples in the future can find themselves to mechanical reception
of the tangible achievements of the West, without embracing its basic philosophy and
social ideologies, they will forever remain in their present state of inferiority and destitution.
Their populations may increase considerably, but they will not raise themselves above distress.
These miserable masses of paupers will certainly not be a serious menace to the independence
of the Western nations.
As long as there is a need for weapons, the entrepreneurs of the market society will never
stop producing more efficient weapons, and thus securing to their countrymen a superiority
of Equipment over the merely imitative non-capitalistic orientals.
The military events of both world wars have proved anew that the capitalistic countries
are paramount also in armaments production.
No foreign aggressor can destroy capitalist civilization if it does not destroy itself.
Where capitalistic entrepreneurship is allowed to function freely, the fighting forces will
will always be so well equipped that the biggest armies of the backward peoples will be no
match for them.
There has even been great exaggeration of the danger of making the formulas for manufacturing
secret weapons universally known.
If war comes again, the searching mind of the capitalistic world will always have a
head start on the peoples who merely copy and imitate clumsily.
The peoples who have developed the system of market economy and cling to it are in every
respect superior to all other peoples.
The fact that they are eager to preserve peace is not a mark of their weakness and inability
to wage war.
They love peace because they know that armed conflicts are pernicious and disintegrate
the social division of labor.
But if war becomes unavoidable, they show their superior efficiency in military affairs
too.
They repel the barbarian aggressors, whatever their numbers may be.
The purposive adjustment of the birth rate to the supply of the material potentialities
of well-being is an indispensable condition of human life and action, of civilization,
and of any improvement in wealth and welfare.
Whether the only beneficial method of birth control is abstention from coitus is a question
which must be decided from the point of view of bodily and mental hygiene. It is absurd
to confuse the issue by referring to ethical precepts developed in ages which were faced
with different conditions. However, praxeology is not interested in the theological aspects
of the Problem. It has merely to establish the fact that where there is no limitation
of offspring, there cannot be any question of civilization and improvement in the standard
of living. A socialist commonwealth would be under the necessity of regulating the fertility
rate by authoritarian control. It would have to regiment the sexual life of its wards no
no less than all other spheres of their conduct. In the market economy, every individual is
spontaneously intent upon not begetting children whom he could not rear without considerably
lowering his family standard of life. Thus the growth of population beyond the optimum
size as determined by the supply of capital available and the state of technological knowledge
is checked. The interests of each individual coincide with those of all other individuals.
Those fighting birth control want to eliminate a device indispensable for the preservation
of peaceful human cooperation and the social division of labor. Where the average standard
of living is impaired by the excessive increase in population figures, irreconcilable conflicts
Each individual is again a rival of all other individuals in the struggle for survival.
The annihilation of rivals is the only means of increasing one's own well-being.
The philosophers and theologians who assert that birth control is contrary to the laws
of God and nature refuse to see things as they really are.
Nature straightens the material means required for the improvement of human well-being and
survival.
As natural conditions are, man has only the choice between the pitiless war of each against
each, or social cooperation.
But social cooperation is impossible if people give rein to the natural impulse of proliferation.
In restricting procreation man adjusts himself to the natural conditions of his existence.
The rationalization of the sexual passions is an indispensable condition of civilization
and societal bonds.
Its abandonment would in the long run not increase but decrease the numbers of those
surviving and would render life for everyone as poor and miserable as it was many thousands
as of years ago for our ancestors.