Mises writes:
All civilizations have up to now been based on private ownership of the means of production. In the past civilization and private ownership have been linked together. If history could teach us anything, it would be that private property is inextricably linked with civilization.
Every living thing—whether it’d be a single cell, or a collection of them like a human, or a collection of humans like a community or a company—is in a constant cycle of production and consumption-use. Production and consumption, and all action, is just a transformation or relocation of “matter into more advantageous shapes,” guided by information. Eugen von Böhm-Bawerk said,
To “produce”: what does this mean? It has been so often said by economists that the creation of goods is not the bringing into existence of materials that hitherto have not existed—is not “creation” in the true sense of the word, but only a fashioning of imperishable matter into more advantageous shapes…
These cycles of production and consumption use information that leads to profitability. In other words, more production of wealth than consumption allows life to continue to continue and grow.
The information that coordinates the modern global socioeconomic order, or what the great founder of the Austrian School of economics, Carl Menger, and British philosopher Herbert Spencer, both referred to as the “The Social Organism,” emerges and spreads via “economic competition,” which itself emerges from the tradition of private property.
Free people are motivated to discover the best information with which to increase the rate at which they reorder the matter they exclusively control (their private property) to produce wealth to then trade with others. If we are employees, we act-reorder our bodies as we produce our labor and trade it for money with employers. Employers combine it with the labor of others, to produce goods which are then traded for money with the public. The money we obtain by trading what we produce we then trade for other goods we want. These general cycles of production and trade for money, and trade of money for consumption goods, repeat until our biological order breaks down in a manner where it can’t continue to maintain our order and we die.
In our role as producers—via private sector companies—we are motivated to innovate, thus creating new, superior information. In our role as consumers—thanks to our “freedom to trade”—we can exchange our goods and services with companies with the best products. Companies have to learn and copy innovations from each other (competitors), and thus inadvertently cooperate to innovate and spread superior information. This also contributes to the spread of greater social order.
Some automakers invented power windows, competition spread the idea to other automakers, helping them make better cars and spread the innovation. As cost-cutting ideas emerge and inevitably spread via competition, leading relative prices to continuously fall, new profitable ideas easily arise and spread via competition in an endless cycle. Computers were once very expensive, but as their prices came down. People realized that every home could have them, which birthed our computerized world. The more wealth is produced, the more wealth must be offered in exchange for labor as companies compete against each other for the labor they need which helps explain why the economic pie grows for everyone.
As in the Olympics, we can discover the best athletes in the world due to global competition, so having the freedom to trade our private property with others, anywhere in the world, motivates all competitors to copy innovations. This moves toward the best possible global order, inadvertently turning mankind into a supercomputer.
Morals are ways of acting. Morals too are knowledge-information which, to considerable degrees, also spreads via economic competition. It is hard-working, tolerant, courteous people who—thanks to competition—inevitably motivate everyone else to be likewise, and thus “civilized.” As Hayek writes:
Competition is, after all, always a process in which a small number makes it necessary for larger numbers to do what they do not like, be it to work harder, to change habits, or to devote a degree of attention, continuous application, or regularity to their work which without competition would not be needed.
The information-creating-and-spreading benefits of economic competition only exist with private property. Governmental or “public sector” bureaucracies—being coercive monopolies which get their revenue through compulsion via taxes—have no incentive or pressure to innovate or copy innovations from competitors, like private sector companies. Therefore, they are intellectually stagnant and regressive. Government central plans can’t work if people are free to ignore them, so they inevitably require coercing and making potential criminals out of everyone, not because they have actually harmed someone or their property, but simply for not wanting to fund or go along with the coercive, competition-immune central plans.
Private property is also indispensable for discovering the information that coordinates the social order’s cycles of production and consumption in a profitable and thus wealth-increasing manner.
Consider the following example. Jose owns a Cuban restaurant located in Miami that sells Cuban dishes for $10/meal. Perhaps $2, might be profit, and $8 will be spent in costs. In other words, in the necessary consumption needed to produce the meal, things like equipment, electricity, supplies, and everything employees and their families will consume at home (food, energy) thanks to their paychecks that came from the $8/meal. Jose discovered vital information: 1) that there are enough customers nearby willing to patronize the restaurant at the $10/meal price he has set; and, 2) how to acquire $8 worth of stuff (labor, supplies, etc.) at the particular time and place reorder it, thus profitably producing the meal.
If he sets prices too high, customers will freely trade their money with other superior competitors. If he sets prices below costs, he’d be consuming more than what he earns in revenue, thus he will eventually go out of business. Socialism-communism or “central economic planning” can’t work because only free businessmen, dispersed throughout society, with a focus on customers and resources that are highly time-and-place specific, are at the right time and place to discover people’s desires.
Given the above, how do we discover how much wealth had to be consumed to produce a gallon of gasoline sold in Seattle? Or a pound of beef sold in London? Or a flight from Miami to London? Easy, we look at their prices which must include the costs. The price of any good in the world lets us know that there is a social order, at that particular time and place, that is coordinated by entrepreneurs discovering information that can, on average, produce the good while consuming less than the advertised price.
This is what allows what Mises would refer to as rational economic calculation. This allows factors of production to be acquired and combined so that the combination can easily have a price set that properly accounts for the costs-consumption by just adding the prices of the parts used to produce it. The costs-consumption to create and grow a banana in Colombia may be 2 cents, but 30 cents as part of a transported, cooked, and served Cuban-dish in Miami. Like interlocking conveyor belts, each company reorders matter, using highly time-and-place specific information to best estimate the profitability of growth and expansion of wealth.
Thus, from private property emerges: 1) the economic competition that discovers and spreads superior information and order; 2) the freedom to live and order our lives as we wish since no one else can coerce-reorder our property without our consent; and, 3) the “rational economic calculation” that allows us to best ensure that our plans are profitable and thus wealth-maximizing and life-increasing. Mises said, “The continued existence of society depends upon private property.”
