Like virtually all of the work of Ludwig von Mises, these two essays, his 1958 Liberty and Property and his 1950 Middle-of-the-Road Policy Leads to Socialism are timeless. They are as important now as they have ever been and will increase in relevance as the growth of government continues almost unabated.
The growth of government constitutes an assault on private property and individual freedom by politicians, bureaucrats, and interest groups who seek to keep for themselves more and more of the fruits of other peoples’ labor and to use the coercive powers of the state to tell others how to live their lives. The perpetual campaigns at all levels of government for more taxes and regulation threaten to rob us of our personal freedoms while exacerbating social and economic problems. The more government spends on welfare programs, for example, the worse poverty becomes. The more it spends on government schools, the less students learn. The more it spends on government housing projects, the more intense the housing “crisis” becomes. Examples of government failure seem endless.
In “Liberty and Property” Mises explains how and why private property is essential to protecting our freedoms and minimizing our exposure to counterproductive social engineering schemes. The main contribution of the industrial revolution, Mises explains, was the great decentralization of wealth which gave rise to “consumer sovereignty.” The industrial revolution’s main achievement “was the transfer of economic supremacy from the owners of land to the totality of the population.” Under capitalism, private property of the factors of production serves a “social function,” for these factors must be put to use serving the masses of consumers. Under capitalism “there is one way to wealth: to serve the consumers better and cheaper than others do.” “Big business” is only possible if large numbers of consumers can be served.
Private property also made (and makes) rebellion possible, for without private property, freedom of speech can be sharply limited. “What would Marx have done,” Mises asked, “without his patron, the manufacturer Friedrich Engels?”
Government regulation was extensive enough in 1958, when Mises wrote “Liberty and Property,” but the virtual explosion of regulation since that time underscores another reason why private property is important to free speech. Namely, the more regulated individuals and businesses become, the less likely that they will criticize the government for fear of regulatory retribution. Private property and free markets are prerequisites for genuinely free speech.
“Liberty and Property” also offers clear insights on reasons for the many excesses of Congress, such as its complete lack of fiscal responsibility, its disregard for the costs of government regulation, and even the propensity of some congressmen to engage in personal check kiting at the “House Bank.” The advocates of socialism, Mises pointed out, are generally people “who never had to earn a living selling hot dogs.” If they had, they wouldn’t be so supportive of the regulatory state.
This point brings to mind the experience of former Senator George McGovern who, after retiring from the U.S. Senate, purchased a hotel in New England. Strangled by regulation and red tape, McGovern’s business went bankrupt, causing the former legislator to admit that if he had understood the effects of regulation as well then as he does now, he would not have been so supportive of it while a member of Congress.
Because members of Congress have manipulated the system to effectively grant themselves lifetime tenure, very few of them will ever have to spend much time living and working under the same laws and regulations they impose on the rest of society. Mises also exposes the symbiotic relationship between political and economic freedom. There can be no political sovereignty, he wrote, without economic sovereignty. The abolition or attenuation of private property deprives consumers of their independence and forces them to become pawns of “some social engineer.”
This idea is nowhere more prevalent than in today’s environmental regulatory environment whereby environmental activists in and outside of government use an alleged concern for environmental protection to seize control of more and more private property through nationalization and regulation of land use. Back-door central planning is the environmentalist’s ultimate objective. Why else would they have proposed a “natural materials policy,” whereby no material could be used in industrial processes unless it was deemed sufficiently “green” by the Environmental Protection Agency? The so-called environmental movement is much more anticapitalist than pro-environmental protection.
Back-door central planning through the slow eating away of private property rights is also taking place by the expansion of labor market regulation and ever-increasing tax burdens. Government-mandated “benefits,” for example, take more and more decision-making power away from the owners, managers, and employees of private businesses and put it in the hands of government bureaucrats, including hundreds of unelected judges.
It is ironic and tragic that just as the world has witnessed the utter failure of socialism in the ex-communist countries, the Western Democracies, led by the United States, are rushing headlong in the direction of a “planned economy” in the name of “environmental protection,” “mandated benefits,” and other guises. It is this dangerous trend that makes “Liberty and Property” as important as ever as a warning of the dangers of insufficient protection of private property rights.
There can be no market economy without private property, and without a market economy, there can be no freedom and prosperity.
In “Middle-of-the-Road Policy Leads to Socialism” Mises pinpoints the essential problem with all forms of interventionism. Whether it is called communism, socialism, planning, state capitalism, or industrial policy, interventionism always signifies the same thing: “No longer should the consumers ... determine what should be produced, in what quantity and of what quality. Henceforth a central authority alone should direct all production activities.” Government control ofthe economy, in other words, replaces consumer sovereignty with the “sovereignty” of a small number of politicians, bureaucrats, and other social engineers.
Mises’s prediction that middle-of-the-road policy leads to socialism has been borne out in many instances and is in the process of being proven in many others. A current example is the political campaign for socialized health care in America.
During the past two decades government health insurance has driven up the price of health care by creating a severe “moral hazard problem.” Other forms of government regulation have increased the costs of health care even further. Now that government’s own actions have driven the price of health care beyond the reach of many Americans, there are those within the government who are blaming rising health care costs on “private enterprise” and advocating socialized medicine. They conveniently ignore the fact that socialism or socialistic policies are the problem, not the solution. Middle-of-the-road policies lead to socialism.
The failure to understand this essential point has led many Americans to take seriously a preposterous chain of “logic” which I call “Friedman’s syllogism” because Milton Friedman has popularized it. The major premise of the syllogism is that socialism and socialistic policies have been disasters everywhere they have been tried. The minor premise is that capitalism, on the other hand, has been a great success whenever it has been allowed to exist. The conclusion, therefore, is that the obvious “solution” to our economic and social problems is more socialism!
Examples of this type of thinking abound: The “solution” to the failure of government schools is to throw more taxpayers’ money at them. The “solution” to a health care “crisis” caused by government intervention is more government intervention. The “solution” to the savings and loan debacle, which was caused by government regulation, government deposit insurance, and, indeed, by the governmental creation of the savings and loan industry in the first place, is more regulation. The “solution” to welfare dependency is to create even more dependency by increasing welfare benefits. The list is endless. “Middle-of-the-Road Policy Leads to Socialism” provides insights that are necessary to counteract such illogical thinking and dangerous policy prescriptions.
Mises exposes what is perhaps the most cynical of all arguments in favor of interventionism – the argument that the purpose of many government interventions is to save capitalism from itself. Because of some supposedly inherent “evils” of capitalism, the argument goes, it must be tamed through government regulation and regimentation. Antitrust regulation, for example, was originally defended on the grounds that if government did not control the alleged excesses of large-scale production, the public would demand something more severe, such as the nationalization of industry.
As Mises pointed out, however, precisely the opposite is true. Far from “saving” capitalism from itself, government regulation only weakens it and leads it down the road to socialism. Once an industry is weakened by regulation, political demagogues typically take advantage of the situation by arguing that it is capitalism, not regulation, that is the problem.
They then advocate even more regulation, which weakens the industry even further, making complete governmental control ever more likely. Unable to achieve socialism through the outright nationalization of industry, today’s socialists try to achieve their objectives in piecemeal fashion through regulatory strangulation. “From day to day,” Mises wrote, “the field in which private enterprise is free to operate is narrowed down.” The government contrived health care and banking crises are clear examples of this phenomenon.
But socialism in the form of government control, if not outright ownership of the means of production is not inevitable, Mises wrote. What is needed is a change in ideology, which can only come from “an open positive endorsement of that system to which we owe all·the wealth that distinguishes our age from the ... conditions of ages gone by.”
The public must come to a fuller understanding that without private property there is no liberty; that there is no safe middle of the road; and that we citizens are engaged in a constant struggle with government over how much of our own property, and of the fruits of our own labor, we will be able to keep and benefit from. As Mises recognized, “government is essentially the negation of liberty.” Our -hope is that the reprinting of these essays will contribute to a further understanding of these principles and to a greater respect for and enhancement of liberty, property, and the freedom to pursue happiness.
Originally printed in Two Essays by Ludwig von Mises.
