Editors note: One of the most important analysis of Ludwig von Mises’s social theory and his views on the origins of human society has been Dr. Joseph Salerno’s Ludwig von Mises as a Social Rationalist. This essay sparked an important debate among scholars within the Austrian school of the ideological differences between Ludwig von Mises and F.A. Hayek, enriching our understanding of the work of both great scholars.
For the benefit of readers, we will publish during this week in six separate parts. The complete essay can be found here.
Ludwig von Mises as Social Rationalist
Review of Austrian Economics 4 (1990): 26–54
For the most part Ludwig von Mises’s writings on society and social evolution have been ignored by the participants in the current revivals of both Austrian economics and classical liberal political philosophy. When his social theory has been addressed, Mises appears to his critics (Barry 1987, p. 59) as “a child of the Enlightenment wrongly deposited in the twentieth century.” But this assessment is inaccurate for two reasons. First, Mises severely criticizes the social meliorism of the Enlightenment liberals and demonstrates that their position is inconsistent with one that assigns the central position to human reason in social evolution. Second, in developing his own uniquely rationalist position, Mises has much to say about matters of central importance to modern Austrians, libertarians, and classical liberals who are either critics or adherents of the “spontaneous order” and/or social evolutionist positions staked out by Hayek.
I limit myself here to a systematic exposition of Mises’s thinking about society and social evolution. I make no attempt to critically analyze Mises’s thought or to explicitly compare it to that of other social thinkers. However, I do employ certain well-known positions of Hayek’s work as a foil to facilitate the elaboration of Mises’s arguments and to demonstrate their contemporary relevance.
In the following section I present Mises’s view that all social interactions and relationships are thought out in advance and that, therefore, society originates and evolves as a product of reason and teleological striving, as a “man-made mode of acting’’ and a consciously devised “strategy.” Section three sets forth Mises’s argument that law, normative rules of conduct, and social institutions are at one and the same time the product of a long evolutionary process and the outcome of attempts by individual human beings to rationally and purposively adjust their behavior to the requirements of social cooperation under division of labor.
Section four highlights the importance which Mises attaches to economic calculation using market prices as the logical precondition of the existence of society. Far from being a “spontaneous” order, society is, for Mises, “rational” order, because the very possibility of purposive action within the framework of social division of labor depends on the faculty of the human intellect to conceive cardinal numbers and manipulate them in arithmetic operations. Thus as we shall see in section five, from Mises’s viewpoint the social function of the price system is not to facilitate “the use of knowledge in society” but to render possible “the use of calculation in society.” And it is speculative future market prices as appraised by entrepreneurs and not the realized prices of history which serve this function. Mises argues further that the past prices experienced by entrepreneurs praxeologically, can never embody the knowledge relevant to their necessarily future-oriented production plans in the real world of changing economic data. Indeed, I argue that this is the long neglected negative implication of Mises’s regression theorem of the origin of money.
Section six addresses the question whether and to what extent Mises’s position in the socialist calculation debate actually referred to problems of knowledge rather than of calculation. In fact, as we shall see, the answer to this question is quite clear. Particularly in his later discussions of the issue, Mises explicitly assumed, time and again, that the socialist planners had full knowledge, not only of the latest technology, but of what Hayek calls “the particular circumstances of time and place” relating to consumer value scales and resource availabilities. Even under these conditions of “perfect information,” Mises emphatically contended that the problem of calculation, “the crucial and only problem of socialism,” remains insoluble.
The Misesian approach to social evolution as the outcome of conscious ideological struggle is outlined in the concluding section. Here I present Mises’s speculative hypothesis that continuing ignorance of the remoter consequences of catallactic activity by the masses leads to spreading social maladjustment and spontaneous social disintegration.
Part I
For Mises reason is man’s “characteristic feature” (1966, p. 177). Human reason and human action are inseparably linked, because “Every action is always based on a definite idea about causal relations” (Mises 1966, p. 177). In addition reason and action are congeneric, a twin product of man’s efforts to sustain himself and flourish in a universe of scarcity. Thus, beings inhabiting a “universe of unlimited opportunities ... would never have developed reasoning and thinking. If ever such a world were to be given to the descendants of the human race, these blessed beings would see their power to think wither away and would cease to be human. For the primary task of reason is to cope consciously with the limitations imposed upon man by nature, is to fight scarcity. Acting and thinking man is a product of a universe of scarcity” (Mises 1966, pp. 235–36).
As the fruit of conscious thought and the instrument of action, Mises characterizes knowledge as having an “activistic basis.” “[K]nowledge is a tool of action. Its function is to advise man how to proceed in his endeavors to remove uneasiness” (Mises 1987b, p. 35).
Mises (1966, p. 143) defines society as “concerted action” or “cooperation” among human beings that is “the outcome of conscious and purposeful behavior.” As such, society is a consciously-devised “strategy,” “a man-made mode of acting’’ in the war against scarcity (Mises 1966, p. 26).1 Society is therefore a product of human reason and volition: “Reason has demonstrated that, for man, the most adequate means for improving his condition is social cooperation and division of labor. They are man’s foremost tool in his struggle for survival” (Mises 1966, p. 176).
The provenance of social cooperation, in Mises’s view, is to be found in two fundamental facts. The first is the “natural phenomenon” that human effort expended under the division of labor is more productive than the same quantum of effort devoted to isolated production (1985, pp. 38–39). The second fact is that, through a deliberate exercise of reason, individuals are able to grasp this first fact and consciously use it as a means to improve their welfare (1966, pp. 144–45). As Mises writes: “Human society is an intellectual and spiritual phenomenon. It is the outcome of a purposeful utilization [my emphasis] of a universal law determining cosmic becoming, viz., the higher productivity of the division of labor. As with every instance of action, the recognition of the laws of nature are put into the service of man’s efforts to improve his conditions” (1966, p. 14).
In identifying the division of labor as “the essence of society” and “the fundamental social phenomenon,” Mises establishes social evolution as an ontological process amenable to rational investigation (1969, p. 299; 1966, p. 157). Social evolution thus becomes “the development of the division of labor” and this permits us to “ ... trace the origin of everything concerned with society in the development of the division of labor” (Mises 1969, pp. 301, 303).
As “the great principle of cosmic becoming and evolution,” and “the fundamental principle of all forms of life” (Mises 1985, p. 38; Mises 1969, p. 291),2 the principle of the division of labor has application in both the social and biological worlds. This insight leads Mises in his earlier writings to compare human society to a biological organism, identifying the division of labor as the tertium comparationis of the metaphor (1969, pp. 289–92).3
What distinguishes cooperation among individuals within the “social organism,” however, from the cellular interactions of animal and vegetable organisms is that, in the former only, reason and will are the originating and sustaining forces of the organic coalescence. Human society is thus spiritual and teleological. Writes Mises: “Society is the product of thought and will. It does not exist outside thought and will. Its being lies within man, not in the outer world. It is projected from within outwards” (1969, p. 291).
Eagerness for improved living standards in conjunction with the recognition of the higher productivity of social cooperation provides the specific motivation that induces an individual to renounce autarkic economic activity and willingly integrate himself into the social division of labor. Accordingly,
Every step by which an individual substitutes concerted action for isolated action results in an immediate and recognizable improvement in his conditions. The advantages derived from peaceful cooperation and division of labor are universal. They immediately benefit every generation. ... When social cooperation is intensified by enlarging the field in which there is division of labor ... the incentive is the desire of all those concerned to improve their own conditions. In striving after his own — rightly understood — interests the individual works toward an intensification of social cooperation and peaceful intercourse. Society is a product of human action, i.e., the human urge to remove uneasiness as far as possible [Mises 1966, p. 146].
The Torrens-Ricardo law of comparative cost, which identifies the causes of trade and specialization among nations, thus becomes for Mises a formal inference from the more general “law of association,” which explains the universality and permanence of social cooperation on the individual level. In elucidating the incentives that induce individual human beings of varying productive capacities and without explicit agreement to willingly undertake those actions that engender the social division of labor and tend toward its progressive intensification, the law of association provides the key to understanding social evolution.
According to Mises:
The law of association makes us comprehend the tendencies which resulted in the progressive intensification of human cooperation. ... The task with which science is faced in respect of the origins of society can only consist in the demonstration of those factors which can and must result in association and its progressive intensification. ... If and as far as labor under the division of labor is more productive than isolated labor, and if and as far as man is able to realize this fact, human action itself tends toward cooperation and association; man becomes a social being not in sacrificing his own concerns for the sake of a mythical Moloch, society, but in aiming at an improvement in his own welfare. Experience teaches that this condition — higher productivity achieved under the division of labor — is present because its cause — the inborn inequality of men and the inequality in the geographical distribution of the natural factors of production — is real. Thus we are in a position to comprehend the course of social evolution [1966, pp. 160–61].
The operation of the law of association gives rise to two related tendencies which are detectable in the historical development of society. The first is the progressive extension of the division of labor to encompass greater numbers of individuals and groups. The second is the progressive intensification of the division of labor, as the attainment of an ever increasing variety of individual goals is sought within the social nexus. These evolutionary tendencies are described by Mises in the following terms:
Society develops subjectively and objectively; subjectively by enlarging its membership, objectively by enlarging the aims of its activities. Originally confined to the narrowest circles of people, to immediate neighbours, the division of labour gradually becomes more general until it eventually includes all mankind. This process, still far from complete and never at any point in history completed, is finite. When all men on earth form a unitary system of division of labor, it will have reached its goal. Side by side with this extension of the social bond goes a process of intensification. Social action embraces more and more aims; the area in which the individual provides for his own consumption becomes constantly narrower [1969, p. 324].
The latter tendency for division of labor to intensify effects “the highest possible concentration of the production of each specialty” consistent with geographical factors; such as the distribution of natural resources and climatic conditions. In the absence of such geographical impediments, social evolution “would finally result in the emergence of one factory supplying the whole oecumene with some particular article” (Mises 1985, p. 23).
As the final and full fruition of social evolution driven by the cosmic ontological principle of division of labor, the “oecumene” embraces all of humanity cooperating in hyperspecialized production processes. At any point in history, the evolving oecumene is the “rational and intended” outcome of an intersubjective process, whose purpose is the amelioration of scarcity. It exists not as a thing unto itself but as a complex of social relations which emerges from a common orientation of individual human actions, i.e., to use the social division of labor as the means to attain individual goals. Because such relations thus emanate from the will, they must be daily affirmed and recreated in human thought and conduct.
