The Ultimate Foundation of Economic Science

Economics or catallactics, the only branch of the theoretical sciences of human action that has up to now been elaborated, views the collectives as creations of the cooperation of individuals. Guided by the idea that definite ends sought can be attained either better or only by cooperation, men associate with one another in cooperation and thus bring forth what is called groups or collectives or simply human society.

The paragon of collectivization or socialization is the market economy, and the fundamental principle of collective action is the mutual exchange of services, the do ut des. The individual gives and serves in order to be rewarded by his fellow men’s gifts and services. He gives away what he values less in order to receive something that at the moment of the transaction he considers as more desirable. He exchanges—buys or sells—because he thinks that this is the most advantageous thing he can do at the time.

The intellectual comprehension of what individuals do in exchanging commodities and services has been obscured by the way in which the social sciences have distorted the meaning of all the terms concerned. In their jargon “society” does not mean the result brought about by the substitution of mutual cooperation among individuals for the isolated efforts of individuals to improve their conditions; it signifies a mythical collective entity in whose name a group of governors is expected to take care of all their fellow men. They employ the adjective “social” and the noun “socialization” accordingly.

Social cooperation among individuals—society—can be based either upon spontaneous coordination or upon command and subordination; in the terminology of Henry Sumner Maine, either upon contract or upon status. Into the structure of the contract society the individual integrates himself spontaneously; in the structure of the status society his place and functions—his duties—are assigned to him by those in command of the social apparatus of compulsion and oppression. While in the contract society this apparatus—the government or the state—interferes only in order to quell violent or fraudulent machinations to subvert the system of mutual exchange of services, in the status society it keeps the whole system going by orders and prohibitions.

The market economy was not devised by a master mind; it was not first planned as an utopian scheme and then put to work. Spontaneous actions of individuals, aiming at nothing else than at the improvement of their own state of satisfaction, undermined the prestige of the coercive status system step by step. Then only, when the superior efficiency of economic freedom could no longer be questioned, social philosophy entered the scene and demolished the ideology of the status system. The political supremacy of the supporters of the precapitalistic order was annulled by civil wars. The market economy itself was not a product of violent action—of revolutions—but of a series of gradual peaceful changes. The implications of the term “industrial revolution” are utterly misleading.