Mises on Liberalism, Capitalism, and Utilitarianism

Ludwig von Mises was born in 1881 in the city of Lemberg, Austria-Hungary (present-day Lviv, Ukraine). He became one of the most influential free-market economists of the twentieth century, shaping scores of right-wing figures, including Friedrich Hayek, Murray Rothbard, and (often begrudgingly) Ayn Rand.

Mises grew up in an affluent and talented Jewish family and studied at the University of Austria under the anti-Marxist economist Eugen von Böhm-Bawerk. After World War I, Mises held several prestigious appointments in the new Republic of Austria, including economic advisor under the Austrofascist Engelbert Dollfuss. Around the same time, Mises began publishing the series of books that would make him famous well beyond economic circles. The massive Socialism hit stands in 1922, and his polemical Liberalism: The Classical Tradition came five years later.

Following the Nazi invasion of Austria, Mises and his family fled the continent and settled in the United States. He ended up teaching at New York University, became active in the United States’ small-but-growing libertarian circle, and in 1949 published his magnum opus, Human Action: A Treatise on Economics. He died in 1973 in New York City.

Mises is perhaps best known for his writings on the “calculation problem,” which he claimed would bedevil any socialist society. Under capitalism, Mises explains, the price mechanism allows profit-seeking firms to determine what products consumers want and in what quantity. It is “an illusion,” he argues, that a large-scale socialist community could engage in such calculations without money or a similar medium of exchange. At best, a socialist society would make decisions about what things to produce and how to distribute them based on “vague valuations” that could only prioritize those commodities “needed most urgently.” The capitalist market, Mises argues, always beats the socialist planner.

The calculation problem was later fine-tuned by Hayek, and it is indeed a serious challenge for planning-inclined socialists. Some socialists have responded that technological advances solve the calculation problem, since computers today can handle far higher levels of data. Just look, they say, at actually existing capitalist firms like Walmart that plan on a vast scale. Others (including me) think that market socialism plus workplace democracy is the way to go.

But rather than rehash debates over the “calculation problem,” I’d like to focus on the profound flaws of Mises’s moral and political arguments for private property and capitalism. Mises often ahistorically lumps these together under the label “liberalism,” as in his book Liberalism.

The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production . . . All the other demands of liberalism result from this fundamental demand. Side by side with the word “property” in the program of liberalism one may quite appropriately place the words “freedom” and “peace.”

Mises acknowledges that his definition isn’t shared by many other self-identified liberals, but he rushes full-bore ahead. He chastises well-known liberals like John Stuart Mill for arguing that liberalism can be separated from reverence for property. He inveighs against “natural rights” and “social contract” liberals, including stalwart defenders of life, liberty, and property like John Locke.

Instead, Mises defends capitalism and private property on purely utilitarian lines — both psychologically and morally. He regards the best society as one that efficiently satisfies human needs, and insists that the “science” of economics has shown decisively that only capitalism can do so efficiently by incentivizing people to work and grow the economy. What makes the market uniquely powerful for Mises is his belief that through each person’s pursuit of their individual self-interest, they contribute to overall well-being through mutually beneficial exchanges that in turn incentivize further economic growth. At times he compares the market to something approximating a worldwide democracy, where each consumer is allowed to vote with their dollars on what should be produced.

While Mises acknowledges that some people have more dollars with which to “vote,” he is untroubled by this imbalance. He thinks we should disregard moralistic demands for equality (motivated, he says, by mere “resentment”), and instead realize that a rising tide raises all ships. Eventually, he suggests, liberalism and capitalism will bring about a high standing of living and worldwide peace for all.

Moral Equality and Happiness for All

It becomes clear very quickly when analyzing Mises’s arguments about liberalism, utilitarianism, and property that there is a lot of fudging going on. At least part of his exasperation with more egalitarian figures who shared his utilitarian outlook, like Jeremy Bentham and John Stuart Mill, can be chalked up to either not understanding or not applying the doctrine consistently. For instance, Mises often vehemently rejects the fundamental liberal idea of human moral equality, often ridiculing it as a sentimental fantasy.

Indeed, his utilitarianism sometimes slips into good old-fashioned meritocratic elitism. In passages of The Anti-Capitalistic Mentality, he praises capitalist society for permitting natural inequalities to express themselves more vividly, clearing the way for the best to rise to the top. In market society, the

inequality of men with regard to intellectual abilities, will power and application becomes visible. The gulf between what a man is and achieves and what he thinks of his own abilities and achievements is pitilessly revealed. Daydreams of a “fair” world which would treat him according to his “real worth” are the refuge of all those plagued by a lack of self-knowledge.

From this perspective, the wonder of capitalism is that unlike in aristocratic orders — where hierarchies are set and altered by accidents of birth — the dynamic competition of market society elevates the superior and pushes the inferior down to their proper station. Oftentimes, Mises’s rather unscientific outlook is glossed up by his romanticization of entrepreneurs and denigration of workers — as in Socialism, when he compares the worker who thinks he understands a complex enterprise to the “average man” who believes the sun rotates around the earth.

The problem is that the doctrine of the moral equality of individuals isn’t just foundational to natural law and contractarian forms of liberalism, but to utilitarianism — to which Mises ostensibly subscribes — as well. In the nineteenth century, the utilitarians Bentham and Mill were both considered radicals for their views on political democracy and economic equality. This flowed quite logically from the core tenets of utilitarianism: to secure the “greatest happiness for the greatest number” and, as Mill put it, that “everybody [must] count for one, nobody for more than one.” If the aim is achieving the highest level of overall happiness for a society in which each person’s happiness counts equally, then a relatively or even highly egalitarian distribution of goods — subject to variation based on each individual’s particular needs — would seem like the only sensible distribution.

Indeed, this posed a fundamental problem for more sophisticated utilitarian defenders of the market like English philosopher Henry Sidgwick. In his famous 1874 Methods of Ethics, Sidgwick highlighted how utilitarian psychology insisted we are all “rational hedonists” as market society suggested, but its morality demanded we adopt a position of “rational benevolence” that denied even our own desires should have special weighting when determining the rightness or wrongness of our actions. After all, if securing the greatest happiness for the greatest number meant the rich giving up excess wealth to the poor (who gained more marginal utility from it), the right thing to do seemed to be clear.

Later, free-market economists like Mises recast utilitarianism along far cruder lines, purely in defense of capitalism: market societies not only offered consumers a wide array of goods to satisfy their needs and tastes, but also generated fantastic economic growth, promoting greater happiness for all in the long run. Yet this made the argument for unbridled capitalism extremely vulnerable to empirical falsification, since proponents must continuously prove that the high levels of inequality that flow from their preferred system are absolutely necessary to promoting greater happiness in the long run, and that any interference will foster needless suffering.

After all, one can’t be a consistent utilitarian and fling around the kind of elitist bombast that Mises does — per utilitarian logic, each counts as one, the same as everyone else. This is true even on issues like taste and high culture, which Mises was eager to associate with unequal wealth. In the end, as Bentham puts it, a pure utilitarian must hold that a “pushpin” is as good as John Milton if the former gives more people pleasure. More importantly, in a world where the Nordic social democracies enjoy the world’s highest standards of living, and where public services like the UK’s National Health Service are among the most popular in their respective countries, a sober utilitarian would have to conclude that a society with a strong welfare state is preferrable to free-market capitalism.

One could even go further and point out that a truly global focus on utility would reveal vast disparities between different regions of the world, with the rich shelling out enormous sums on goods of low marginal utility while the poor lack access to food, shelter, and water. Any stringent utilitarianism would recognize there can be no argument for spending $275 million on a luxury yacht when you could inoculate thousands of children against malaria for ten dollars a pop.

Liberalism, Imperialism, and Xenophobia

One of the most striking things about Mises is his fairy tale understanding of liberalism’s complex history, which he often couples with a dose of chauvinism and prejudice. For Mises, liberalism and liberal capitalism were fundamentally anti-imperialist and pro-peace. Liberalism was less an ideology adopted by concrete political actors than a monolithic doctrine existing outside of material reality. Thinking of liberalism in rarefied, purely ideational terms allows Mises to move the goalposts and engage in some truly remarkable gymnastics when confronted with liberal capitalism’s, shall we say, checkered past.

And it’s not hard to see why. The classical liberal heyday of the nineteenth century is often called the “Age of Imperialism.” Liberal capitalist states like Great Britain and the United States invaded and annexed vast parts of the globe, all while mouthing liberal niceties. The seizure of Native American land was often justified on the Lockean line that indigenous people weren’t using the land “productively”; the colonization of India was legitimated in part as an effort to bring civilization and markets to an allegedly backward part of the world.

Mises’s response to these heinous crimes is to simply define them away. He (admirably) condemns the colonialism of the European absolutist states, but defends British imperialism on the basis that it was

directed not so much toward the incorporation of new territories as toward the creation of an area of uniform commercial policy out of the various possessions subject to the King of England. This was the result of the peculiar situation in which England found itself as the mother country of the most extensive colonial settlements in the world.

“Peculiar” is indeed a peculiar word for a process that dispatched British arms and emissaries to every corner of the earth, unleashing rivers of blood and piling up mountains of corpses in its wake. Aligned to this geopolitical project was an economic one, wherein colonial regions were transformed into vast centers of resource extraction for the sake of the mother country. One example, raised by Marxist historian Eric Hobsbawm in The Age of Capital , was the transformation of much of South America and the Caribbean into immense sugar, cacao, and coffee plantations. These regions were rendered perpetually underindustrialized, with many trapped to this day in the ups and downs of a resource-dependent economy.

The colonial project was a spectacular example of the actual historical practices of liberalism violently contradicting its theoretical commitments to freedom and inequality. Unless, that is, you possess the dogmatic mind of Ludwig von Mises.

In The Anti-Capitalistic Mentality, first published in 1956 as many around the world still struggled under the yoke of colonialism, Mises blamed the colonized countries themselves for this legacy, at points chalking it up to their cultural and civilizational inferiority. As he puts it, “what makes hundreds of millions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employment of better tools and up-to-date technological designs could bestow upon them. . . . It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves.”

These are rich words considering “the capitalistic nations of the West” were, for many years, the very masters of the so-called “backwards peoples.” But Mises seems willing to brush past blame for their suffering as quickly as the capitalists armed with liberal doctrines once raced to exploit them.

The Unempirical von Mises

Despite its frequent pretenses to scientific status, much of Mises’s work is closer to armchair a priori reasoning than rigorous analysis. He starts from a set of rigid premises about human nature and utilitarian justifications for capitalism, and then uncompromisingly fits historical data and facts to vindicate those suppositions.

It isn’t even particularly good a priori reasoning. When forced to deal with issues like the egalitarian starting point of utilitarian reasoning, Mises simply absconds and then reaches for elitism to get the conclusion he wants. Where the real world of actual history calls into question his view, he simply defines it away — even if that means characterizing the most expansive imperial project in history as little more than a customs union with a surfeit of Union Jacks.

I don’t like to psychologize those whom I criticize, but I will make a rare exception here. Mises frequently draws on the language of resentment to pillory socialism and the Left, characterizing any efforts to redistribute wealth as motivated by the envy of the masses toward their superiors. Yet his broadsides miss the key distinction between envy and resentment. Envy is wanting what someone else has. Resentment, as Friedrich Nietzsche knew, is either wanting to deny someone what they have if you cannot have it, or wanting to deny someone what you have since you can’t enjoy it if others also have it.

The former can be a weakness of left-wing movements, but the latter is common on the Right — for instance, when conservatives insist that this is “our” country and we will not share it with migrants and refugees. Seen from this perspective, Mises’s writings are the picture of right-wing resentment of the powerful toward the weak, fiercely indignant at workers’ movements for daring to think they and their representatives could manage things as well as capitalists and, consequently, gain the privileges previously reserved for business titans. And the only way he can justify denying them that democratic power in the workplace is by insisting on their inferiority.

Thanks, but no thanks.