The Ultimate Foundation of Economic Science

A characteristic feature of present-day popular ideas concerning social cooperation is what Freud has called the belief in the omnipotence of human thought (die Allmacht des Gedankens).8  This belief is, of course, (apart from psychopaths and neurotics) not maintained with regard to the sphere that is investigated by the natural sciences. But in the field of social events it is firmly established. It developed out of the doctrine that ascribes infallibility to majorities.

The essential point in the political doctrines of the Enlightenment was the substitution of representative government for royal despotism. In the constitutional conflict in Spain in which champions of parliamentary government were fighting against the absolutist aspirations of the Bourbon Ferdinand VII, the supporters of a constitutional regime were called Liberals and those of the King Serviles. Very soon the name Liberalism was adopted all over Europe.

Representative or parliamentary government (also called government by the people or democratic government) is government by officeholders designated by the majority of the people. Demagogues tried to justify it by ecstatic babble about the supernatural inspiration of majorities. However, it is a serious mistake to assume that the nineteenth-century liberals of Europe and America advocated it because they believed in the infallible wisdom, moral perfection, inherent justice, and other virtues of the common man and therefore of majorities. The liberals wanted to safeguard the smooth evolution of all peoples’ prosperity and material as well as spiritual well-being. They wanted to do away with poverty and destitution. As a means to attain these ends they advocated institutions that would make for peaceful cooperation of all citizens within the various nations as well as for international peace. They looked upon wars, whether civil wars (revolutions) or foreign wars, as a disturbance of the steady progress of mankind to more satisfactory conditions. They realized very well that the market economy, the very basis of modern civilization, involves peaceful cooperation and bursts asunder when people, instead of exchanging commodities and services, are fighting one another.

On the other hand, the liberals understood very well the fact that the might of the rulers ultimately rests, not upon material force, but upon ideas. As David Hume has pointed out in his famous essay On the First Principles of Government, the rulers are always a minority of people. Their authority and power to command obedience on the part of the immense majority of those subject to them are derived from the opinion of the latter that they best serve their own interests by loyalty to their chiefs and compliance with their orders. If this opinion dwindles, the majority will sooner or later rise in rebellion. Revolution—civil war—will remove the unpopular system of government and the unpopular rulers and replace them by a system and by officeholders whom the majority consider as more favorable to the promotion of their own concerns. To avoid such violent disturbances of the peace and their pernicious consequences, to safeguard the peaceful operation of the economic system, the liberals advocate government by the representatives of the majority. This scheme makes peaceful change in the arrangement of public affairs possible. It makes recourse to arms and bloodshed unnecessary not only in domestic but no less in international relations. When every territory can by majority vote determine whether it should form an independent state or a part of a larger state, there will no longer be wars to conquer more provinces.9

In advocating rule by the majority of the people, the nineteenth-century liberals did not nurture any illusions about the intellectual and moral perfection of the many, of the majorities. They knew that all men are liable to error and that it could happen that the majority, deluded by faulty doctrines propagated by irresponsible demagogues, could embark upon policies that would result in disaster, even in the entire destruction of civilization. But they were no less aware of the fact that no thinkable method of government could prevent such a catastrophe. If the small minority of enlightened citizens who are able to conceive sound principles of political management do not succeed in winning the support of their fellow citizens and converting them to the endorsement of policies that bring and preserve prosperity, the cause of mankind and civilization is hopeless. There is no other means to safeguard a propitious development of human affairs than to make the masses of inferior people adopt the ideas of the elite. This has to be achieved by convincing them. It cannot be accomplished by a despotic regime that instead of enlightening the masses beats them into submission. In the long run the ideas of the majority, however detrimental they may be, will carry on. The future of mankind depends on the ability of the elite to influence public opinion in the right direction.

These liberals did not believe in the infallibility of any human being nor in the infallibility of majorities. Their optimism concerning the future was based upon the expectation that the intellectual elite will persuade the majority to approve of beneficial policies.

The history of the last hundred years has not fulfilled these hopes. Perhaps the transition from the despotism of kings and aristocracies came too suddenly. At any rate, it is a fact that the doctrine that ascribes intellectual and moral excellence to the common man and consequently infallibility to the majority became the fundamental dogma of “progressive” political propaganda. In its farther logical development it generated the belief that in the field of society’s political and economic organization any scheme devised by the majority can work satisfactorily. People no longer ask whether interventionism or socialism can bring about the effects that their advocates are expecting from them. The mere fact that the majority of the voters ask for them is considered as an irrefutable proof that they can work and will inevitably result in the benefits expected. No politician is any longer interested in the question whether a measure is fit to produce the ends aimed at. What alone counts for him is whether the majority of the voters favor or reject it.10  Only very few people pay attention to what “mere theory” says about socialism and to the experience of the socialist “experiments” in Russia and in other countries. Almost all our contemporaries firmly believe that socialism will transform the earth into a paradise. One may call it wishful thinking or the belief in the omnipotence of thought.

Yet the criterion of truth is that it works even if nobody is prepared to acknowledge it.

• 8Freud, Totem und Tabu (Vienna, 1913), pp. 79 ff.
• 9The first condition for the establishment of perpetual peace is, of course, the general adoption of the principles of laissez-faire capitalism. About this problem, see Mises, Human Action, pp. 680 ff., and Mises, Omnipotent Government (New Haven: Yale University Press, 1944), pp. 89 ff.
• 10Symptomatic of this mentality is the weight ascribed by politicians to the findings of public opinion polls.