The Global Currency Plot
5. The Driving Force of Civilization: Inequality
Reason is the principle of general equality, the mind is the principle of inequality among men.
– FRIEDRICH WILHELM JOSEPH SCHELLING
The realization that humans act—that they cannot not act—makes us understand why individuals voluntarily cooperate with each other; why they do not constantly argue and fight with each other but seek peaceful coexistence. The logical explanation for this is that people form a community because of the diversity of nature. The diversity of nature means, on the one hand, that the actors are unequal in terms of their individual abilities, values, and goals. On the other hand, it means that they encounter different living and environmental conditions on this earth.
It is the diversity of nature—the fact that each human being is special and different from the others and that his (subjectively perceived) life circumstances are different from those of his fellow human beings—that necessarily influences the actions of each human being. It is also the diversity of nature that forces people into the division of labor. Anyone equipped with a minimum of reason recognizes that the division of labor promises him higher productivity compared to a situation in which he produces all the desired goods himself (“subsistence economy”). In addition, he comes to the conclusion that there are goals that cannot be achieved without working with other people.
For example, Mr. A realizes that he cannot build a bridge over the river without the help of Mr. B and Mr. C. Temporary alliances, however, are limited to a few people cooperating. A permanent division of labor, as can be observed in developed economies, cannot be explained by ad hoc cooperation. It requires a different explanation. The British economist David Ricardo (1772–1823) developed the theory of comparative cost advantages to explain trade relations between countries. Ricardo shows that trade between countries is advantageous when people in each country concentrate on producing the goods that they can produce most cheaply (see chapter 13).
Ludwig von Mises saw Ricardo’s theory as much more than just an explanation for international trade. He saw it as a law of association. By recognizing that they are better off through the division of labor compared to working in isolation, people no longer see themselves as competitors for the appropriation of scarce resources provided by nature. Rather, they come to the conclusion that their situation is improved when they divide their labor with others, not only temporarily, but permanently.
It is the difference between the actors—in terms of their abilities, wishes, and goals—that makes cooperation possible in the first place. If all those involved were the same, there would be no social cooperation. If everyone had the same abilities, wishes, and goals, nobody would be able to make use of his fellow human beings! It would mean that you too want to be where I am at the moment; you can do the same work just as well as I can; you want to tell me exactly what I want to tell you; you already know what I know. It would be dystopia!
The development of civilization can be understood with the logic of human action. Mises put it this way:
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.30
And furthermore:
In order to comprehend why man did not remain solitary, searching like the animals for food and shelter for himself only and at most also for his consort and his helpless infants, we do not need to have recourse to a miraculous interference of the Deity or to the empty hypostasis of an innate urge toward association. Neither are we forced to assume that the isolated individuals or primitive hordes one day pledged themselves by a contract to establish social bonds. The factor that brought about primitive society and daily works toward its progressive intensification is human action that is animated by the insight into the higher productivity of labor achieved under the division of labor.31
The doctrine of human action, laid down by Mises, reveals another important insight: that people, despite all their differences, traditions, cultures, and beliefs, have an economic incentive to enter into peaceful and productive cooperation with one another:
But even if such a thing as a natural and inborn hatred between various races existed, it would not render social cooperation futile and would not invalidate Ricardo’s theory of association. Social cooperation has nothing to do with personal love or with a general commandment to love one another. People do not cooperate under the division of labor because they love or should love one another. They cooperate because this best serves their own interests. Neither love nor charity nor any other sympathetic sentiments but rightly understood selfishness is what originally impelled man to adjust himself to the requirements of society, to respect the rights and freedoms of his fellow men and to substitute peaceful collaboration for enmity and conflict.32
The logical realization that people with different abilities, desires, and goals voluntarily combine to form a community based on the division of labor does not mean that living together in a community does not require any rules and laws. Rather, it means that no ruler, no coercive apparatus, no central force is needed to persuade people to enter and support a community based on the division of labor. We can therefore say at this point that the free market economy—which is characterized by absolute respect for property and for the emergence and preservation of which no central coercive force is necessary—is the natural form of human coexistence.33
The logic of human action also explains the emergence of money, the generally accepted medium of exchange: money spontaneously emerged from the free market, from a commodity. A particularly important insight! It stands in contrast to the prevailing opinion today that the emergence of the use of money can only be explained by the fact that an authority, the state, brought about an agreement for the use of money as a means of human exchange.35 The following chapter clears up this misconception.
