Capitalism as It Is and as It Is Seen by the ‘Common Man’
The emergence of economics as a new branch of knowledge was one of the most portentous events in the history of mankind. In paving the way for private capitalistic enterprise it transformed within a few generations all human affairs more radically than the preceding ten thousand years had done. From the day of their birth to the day of their demise, the denizens of a capitalistic country are every minute benefited by the marvelous achievements of the capitalistic ways of thinking and acting.
The most amazing thing concerning the unprecedented change in earthly conditions brought about by capitalism is the fact that it was accomplished by a small number of authors and a hardly greater number of statesmen who had assimilated their teachings. Not only the sluggish masses but also most of the businessmen who, by their trading, made the laissez-faire principles effective failed to comprehend the essential features of their operation. Even in the heyday of liberalism, only a few people had a full grasp of the functioning of the market economy. Western civilization adopted capitalism upon the recommendation on the part of a small élite.
There were, in the first decades of the nineteenth century, many people who viewed their own unfamiliarity with the problems concerned as a serious shortcoming and were anxious to redress it. In the years between Waterloo and Sebastopol, no other books were more eagerly absorbed in Great Britain than treatises on economics. But the vogue soon subsided. The subject was unpalatable to the general reader.
Economics is so different from the natural sciences and technology on the one hand, and history and jurisprudence on the other hand, that it seems strange and repulsive to the beginner. Its heuristic singularity is viewed with suspicion by those whose research work is performed in laboratories or in archives and libraries. Its epistemological singularity appears nonsensical to the narrow-minded fanatics of positivism. People would like to find in an economics book knowledge that perfectly fits into their preconceived image of what economics ought to be, viz., a discipline shaped according to the logical structure of physics or of biology. They are bewildered and desist from seriously grappling with problems the analysis of which requires an unwonted mental exertion.
The result of this ignorance is that people ascribe all improvements in economic conditions to the progress of the natural sciences and technology. As they see it, there prevails in the course of human history a self-acting tendency toward progressing advancement of the experimental natural sciences and their application to the solution of technological problems. This tendency is irresistible, it is inherent in the destiny of mankind, and its operation takes effect whatever the political and economic organization of society may be. As they see it, the unprecedented technological improvements of the last two hundred years were not caused or furthered by the economic policies of the age. They were not an achievement of classical liberalism, free trade, laissez-faire, and capitalism. They will therefore go on under any other system of society’s economic organization.
The doctrines of Marx received approval simply because they adopted this popular interpretation of events and clothed it with a pseudophilosophical veil that made it gratifying both to Hegelian spiritualism and to crude materialism. In the scheme of Marx the “material productive forces” are a superhuman entity independent of the will and the actions of men. They go their own way that is prescribed by the inscrutable and inevitable laws of a higher power. They change mysteriously and force mankind to adjust its social organization to these changes; for the material productive forces shun one thing: to be enchained by mankind’s social organization. The essential content of history is the struggle of the material productive forces to be freed from the social bonds by which they are fettered.
Once upon a time, teaches Marx, the material productive forces were embodied in the shape of the hand mill, and then they arranged human affairs according to the pattern of feudalism. When, later, the unfathomable laws that determine the evolution of the material productive forces substituted the steam mill for the hand mill, feudalism had to give way to capitalism. Since then the material productive forces have developed further, and their present shape imperatively requires the substitution of socialism for capitalism. Those who try to check the socialist revolution are committed to a hopeless task. It is impossible to stem the tide of historical progress.
The ideas of the so-called leftist parties differ from one another in many ways. But they agree on one point. They all look upon progressing material improvement as upon a self-acting process. The American union member takes his standard of living for granted. Fate has determined that he should enjoy amenities which were denied even to the most prosperous people of earlier generations and are still denied to non-Americans. It does not occur to him that the “rugged individualism” of big business may have played some role in the emergence of what he calls the “American way of life.” In his eyes “management” represents the unfair claims of the “exploiters” who are intent upon depriving him of his birthright. There is, he thinks, in the course of historical evolution an irrepressible tendency toward a continuous increase in the “productivity” of his labor. It is obvious that the fruits of this betterment by rights belong exclusively to him. It is his merit that—in the age of capitalism—the quotient of the value of the products turned out by the processing industries divided by the number of hands employed tended toward an increase.
The truth is that the increase in what is called the productivity of labor is due to the employment of better tools and machines. A hundred workers in a modern factory produce per unit of time a multiple of what a hundred workers used to produce in the workshops of precapitalistic craftsmen. This improvement is not conditioned by higher skill, competence, or application on the part of the individual worker. (It is a fact that the proficiency needed by medieval artisans towered far above that of many categories of present-day factory hands.) It is due to the employment of more efficient tools and machines which, in turn, is the effect of the accumulation and investment of more capital.
The terms capitalism, capital, and capitalists were employed by Marx and are today employed by most people—also by the official propaganda agencies of the United States government—with an opprobrious connotation. Yet these words pertinently point toward the main factor whose operation produced all the marvelous achievements of the last two hundred years: the unprecedented improvement of the average standard of living for a continually increasing population. What distinguishes modern industrial conditions in the capitalistic countries from those of the precapitalistic ages as well as from those prevailing today in the so-called underdeveloped countries is the amount of the supply of capital. No technological improvement can be put to work if the capital required has not previously been accumulated by saving.
Saving, capital accumulation, is the agency that has transformed step-by-step the awkward search for food on the part of savage cave dwellers into the modern ways of industry. The pacemakers of this evolution were the ideas that created the institutional framework within which capital accumulation was rendered safe by the principle of private ownership of the means of production. Every step forward on the way toward prosperity is the effect of saving. The most ingenious technological inventions would be practically useless if the capital goods required for their utilization had not been accumulated by saving.
The entrepreneurs employ the capital goods made available by the savers for the most economical satisfaction of the most urgent among the not-yet-satisfied wants of the consumers. Together with the technologists, intent upon perfecting the methods of processing, they play, next to the savers themselves, an active part in the course of events that is called economic progress. The rest of mankind profits from the activities of these three classes of pioneers. But whatever their own doings may be, they are only beneficiaries of changes to the emergence of which they did not contribute anything.
The characteristic feature of the market economy is the fact that it allots the greater part of the improvements brought about by the endeavors of the three progressive classes—those saving, those investing the capital goods and those elaborating new methods for the employment of capital goods—to the nonprogressive majority of people. Capital accumulation exceeding the increase in population raises, on the one hand, the marginal productivity of labor and, on the other hand, cheapens the products. The market process provides the common man with the opportunity to enjoy the fruits of other peoples’ achievements. It forces the three progressive classes to serve the nonprogressive majority in the best possible way.
Everybody is free to join the ranks of the three progressive classes of a capitalist society. These classes are not closed castes. Membership in them is not a privilege conferred on the individual by a higher authority or inherited from one’s ancestors. These classes are not clubs, and the ins have no power to keep out any newcomer. What is needed to become a capitalist, an entrepreneur or a deviser of new technological methods is brains and will power. The heir of a wealthy man enjoys a certain advantage as he starts under more favorable conditions than others. But his task in the rivalry of the market is not easier, but sometimes even more wearisome and less remunerative than that of a newcomer. He has to reorganize his inheritance in order to adjust it to the changes in market conditions. Thus, for instance, the problems that the heir of a railroad “empire” had to face were, in the last decades, certainly more knotty than those encountered by the man who started from scratch in trucking or in air transportation.
The popular philosophy of the common man misrepresents all these facts in the most lamentable way. As John Doe sees it, all those new industries that are supplying him with amenities unknown to his father came into being by some mythical agency called progress. Capital accumulation, entrepreneurship and technological ingenuity did not contribute anything to the spontaneous generation of prosperity. If any man has to be credited with what John Doe considers as the rise in the productivity of labor, then it is the man on the assembly line. Unfortunately, in this sinful world there is exploitation of man by man. Business skims the cream and leaves, as the Communist Manifesto points out, to the creator of all good things, to the manual worker, not more than “he requires for his maintenance and for the propagation of his race.” Consequently, “the modern worker, instead of rising with the progress of industry, sinks deeper and deeper. . . . He becomes a pauper, and pauperism develops more rapidly than population and wealth.” The authors of this description of capitalistic industry are praised at universities as the greatest philosophers and benefactors of mankind and their teachings are accepted with reverential awe by the millions whose homes, besides other gadgets, are equipped with radio and television sets.
The worst exploitation, say professors, “labor” leaders and politicians, is effected by big business. They fail to realize that the characteristic mark of big business is mass production for the satisfaction of the needs of the masses. Under capitalism the workers themselves, directly or indirectly, are the main consumers of all those things that the factories are turning out.
In the early days of capitalism there was still a considerable time lag between the emergence of an innovation and its becoming accessible to the masses. About sixty years ago Gabriel Tarde was right in pointing out that an industrial innovation is the fancy of a minority before it becomes the need of everybody; what was considered first as an extravagance turns later into a customary requisite of all and sundry. This statement was still correct with regard to the popularization of the automobile. But big-scale production by big business has shortened and almost eliminated this time lag. Modern innovations can only be produced profitably according to the methods of mass production and hence become accessible to the many at the very moment of their practical inauguration. There was, for instance, in the United States no sensible period in which the enjoyment of such innovations as television, nylon stockings or canned baby food was reserved to a minority of the well-to-do. Big business tends, in fact, toward a standardization of the peoples’ ways of consumption and enjoyment.
Nobody is needy in the market economy because of the fact that some people are rich. The riches of the rich are not the cause of the poverty of anybody. The process that makes some people rich is, on the contrary, the corollary of the process that improves many peoples’ want satisfaction. The entrepreneurs, the capitalists and the technologists prosper as far as they succeed in best supplying the consumers.
The Anti-capitalistic Front
From the very beginnings of the socialist movement and the endeavors to revive the interventionist policies of the precapitalistic ages, both socialism and interventionism were utterly discredited in the eyes of those conversant with economic theory. But the ideas of the revolutionaries and reformers found approval with the immense majority of ignorant people exclusively driven by the most powerful human passions of envy and hatred.
The social philosophy of the Enlightenment that paved the way for the realization of the liberal program—economic freedom, consummated in the market economy (capitalism), and its constitutional corollary, representative government—did not suggest the annihilation of the three old powers: the monarchy, the aristocracy and the churches. The European liberals aimed at the substitution of the parliamentary monarchy for royal absolutism, not at the establishment of republican government. They wanted to abolish the privileges of the aristocrats, but not to deprive them of their titles, their escutcheons and their estates. They were eager to grant to everybody freedom of conscience and to put an end to the persecution of dissenters and heretics, but they were anxious to give to all churches and denominations perfect freedom in the pursuit of their spiritual objectives. Thus the three great powers of the ancien régime were preserved. One might have expected that princes, aristocrats and clergymen who indefatigably professed their conservatism would be prepared to oppose the socialist attack upon the essentials of Western civilization. After all, the harbingers of socialism did not shrink from disclosing that under socialist totalitarianism no room would be left for what they called the remnants of tyranny, privilege and superstition.
However, even with these privileged groups resentment and envy were more intense than cool reasoning. They virtually joined hands with the socialists disregarding the fact that socialism aimed also at the confiscation of their holdings and that there cannot be any religious freedom under a totalitarian system. The Hohenzollern in Germany inaugurated a policy that an American observer called monarchical socialism. [Cf. Elmer Roberts, Monarchical Socialism in Germany, New York, 1913.] The autocratic Romanoffs of Russia toyed with labor unionism as a weapon to fight the “bourgeois” endeavors to establish representative government. [Cf. Mania Gordon, Workers Before and After Lenin, New York, 1941, pp. 30 II.] In every European country the aristocrats were virtually cooperating with the enemies of capitalism. Everywhere eminent theologians tried to discredit the free enterprise system and thus, by implication, to support either socialism or radical interventionism. Some of the outstanding leaders of present-day Protestantism—Barth and Brunner in Switzerland, Niebuhr and Tillich in the United States, and the late Archbishop of Canterbury, William Temple—openly condemn capitalism and even charge the alleged failures of capitalism with the responsibility for all the excesses of Russian Bolshevism.
One may wonder whether Sir William Harcourt was right when, more than sixty years ago, he proclaimed: We are all socialists now. But today governments, political parties, teachers and writers, militant antitheists as well as Christian theologians are almost unanimous in passionately rejecting the market economy and praising the alleged benefits of state omnipotence. The rising generation is brought up in an environment that is engrossed in socialist ideas.
The influence of the prosocialist ideology comes to light in the way in which public opinion, almost without any exception, explains the reasons that induce people to join the Socialist or Communist parties. In dealing with domestic politics, one assumes that, “naturally and necessarily,” those who are not rich favor the radical programs—planning, socialism, communism—while only the rich have reason to vote  for the preservation of the market economy. This assumption takes for granted the fundamental socialist idea that the economic interests of the masses are hurt by the operation of capitalism for the sole benefit of the “exploiters” and that socialism will improve the common man’s standard of living.
However, people do not ask for socialism because they know that socialism will improve their conditions, and they do not reject capitalism because they know that it is a system prejudicial to their interests. They are socialists because they believe that socialism will improve their conditions, and they hate capitalism because they believe that it harms them. They are socialists because they are blinded by envy and ignorance. They stubbornly refuse to study economics and spurn the economists’ devastating critique of the socialist plans because, in their eyes, economics, being an abstract theory, is simply nonsense. They pretend to trust only in experience. But they no less stubbornly refuse to take cognizance of the undeniable facts of experience, viz., that the common man’s standard of living is incomparably higher in capitalistic America than in the socialist paradise of the Soviets.
In dealing with conditions in the economically backward countries people display the same faulty reasoning. They think that these peoples must “naturally” sympathize with communism because they are poverty-stricken. Now it is obvious that the poor nations want to get rid of their penury. Aiming at an improvement of their unsatisfactory conditions, they ought therefore to adopt that system of society’s economic organization which best warrants the attainment of this end; they ought to decide in favor of capitalism. But, deluded by spurious anti-capitalistic ideas, they are favorably disposed to communism. It is paradoxical indeed that the leaders of these Oriental peoples, while casting longing glances at the prosperity of the Western nations, reject the methods that made the West prosperous and are enraptured by Russian communism that is instrumental in keeping the Russians and their satellites poor. It is still more paradoxical that Americans, enjoying the products of capitalistic big business, exalt the Soviet system and consider it quite “natural” that the poor nations of Asia and Africa should prefer communism to capitalism.
People may disagree on the question of whether everybody ought to study economics seriously. But one thing is certain. A man who publicly talks or writes about the opposition between capitalism and socialism without having fully familiarized himself with all that economics has to say about these issues is an irresponsible babbler.
Excerpted from Ludwig Von Mises The Anti-Capitalist Mentality. First published in 1956.