Von Mises On Heroic Businessmen, King Consumer, & The Wage-Rate We Deserve

von mises

As I’ve written about in other posts (here and here), von Mises, in his awe-inspiring grand achievement, Human Action, makes a good case that Reasoning is Mankind’s quintessential feature, and that this amazing faculty has led him to devise countless methods for consciously improving his existence, and at the top of this list of conscious, logic-driven achievements is the cooperation-web of interpersonal connections we call Society.

Today I want to talk about the assertion of von Mises that, of all the different ways the human race could organize Society, the best way is laissez-faire Capitalism.

Von Mises gives several reasons why Capitalism is the best system for organizing cooperation. But the overarching reason is that Capitalism offers individuals better CHOICES than any other system thus far devised by the mind of man.

Stepping away from von Mises for just a paragraph, allow me to quickly describe Capitalism in its ideal manifestation, which is how von Mises certainly views the system… Capitalism is based upon the voluntary and mutually beneficial exchange of goods and services by all classes of people with all classes of people. It is based upon the free Market. The “Market” is the broad term for any meeting place (including a virtual one like the internet) in which goods are bought and sold (or bartered or swapped or purchased via in-kind payments). The Market is called “free” because each exchange is uncoerced, at least directly. Every participant in the Market walks away from each transaction feeling better-off than he felt before the transaction occurred. A participant in the exchange may later change his mind; he may in the next instant discover that his purchased item is leaking mustard all over his new jacket– but the point is that, rightly or wrongly, at the time of the transaction, both buyer and seller feel that they are made better-off by the exchange; we set aside considerations of: buyer’s remorse, mistakes, fraud, and ultimately incorrect evaluations of the goods or services bought or sold.

KING CONSUMER

But why should we assume that, when we go to Market, there will be present the things we wish to purchase, and that there will be sellers present who wish to take our money or bartering-goods?

Von Mises tells us that PRICES are what call forth the proper goods to market: “Market prices tell the producers what to produce, how to produce, and in what quantity.”

Perhaps most of us would not strongly object to the statement that: our modern economy is run by businessmen [or, due to the gender quirks of our language, perhaps the more appropriate term is “businesspeople”]. And if some of us did object to this, it would probably be because we felt that Government, not the businessman, actually controls the economy. But von Mises contends that it is the CONSUMER who holds the economic reins.

“Consumers,” states von Mises, “allot control of the means of production to those who know how to use them best.” They do this via the free Market, which “directs the individual’s activities into those channels in which he best serves the wants of his fellow men.” Von Mises believes that “in an unhampered market society, consumers daily decide anew who should own, and how much he should own.” Accordingly, the businessman in this view is a great benefactor of humanity, a hero, someone who, instead of being cursed for growing rich, should be praised for selling his great genius as dearly as he can. “In his capacity as a businessman,” writes von Mises, “a man is a servant of the consumers, bound to comply with their wishes.”

THE HEROIC GENIUS BUSINESSMAN

The idealized version of the businessman as a “servant” of the people is central to the economic worldview of von Mises.

After reading von Mises, one easily sees his patrimony concerning the thought of Ayn Rand, one of America’s greatest philosophers. Writes von Mises: “Capitalism is the system under which the keenest and most agile minds are driven to promote to the best of their abilities the welfare of the laggard many.” A sentiment Rand could have hardly put better herself. Here we see how both von Mises and Rand share a common disdain for those who are NOT successful businessmen. Though von Mises is not nearly so ugly in his comments against the common man as Rand, he nevertheless obviously considers that commoners benefit more from the creative and brilliant businessmen “serving” them than the businessmen benefit from them. Businessmen are the great benefactors of humankind; the rest are merely “the laggard many.”

Von Mises, in fact, seems to consider that– by definition– the “common man” is someone incapable of original thought. He writes that the “common man does not speculate about the great problems. With regard to them he relies upon other people’s authority,” and he goes on to assert that the very thing which “characterizes a man as a common man” is his “intellectual inertia.” The commoner “does not himself create his ideas and standards of value; he borrows them from others. His ideology is what his environment enjoins upon him.”

On the other hand, von Mises’s Heroic Genius Businessmen make up the cadre of the elite and enlightened, those “very few men” who “have the gift of thinking of new and original ideas and of changing the traditional body of creeds and doctrines.”

Von Mises contends that the success of the Capitalist economy is mostly due to these Heroic Genius Businessmen, those who bring to the table the formulas, the recipes, and the ideologies. These are “the primary thing” generating an affluent society.

Though he is certainly an elitist as opposed to egalitarian, von Mises goes out of his way to cast his vote against using eugenics or ethnic cleansing to create more great men– at least, he is against such measures as we would have the wisdom practice them now, largely because we are ignorant as to what sort of Man is actually best suited for the unknown and unpredictable future. He considers the very concept of “racial improvement” to be “meaningless when not based on definite plans for the future of mankind.”

Von Mises admits that the weak and the sick are supported by current Society more now than they have ever been, but he is skeptical that this tends, as some assert, “to deteriorate the hereditary qualities of the members of Society.” He allows that “such judgments are reasonable if one looks at mankind with the eyes of a breeder,” but the situation with Man is different from, say, horses– for breeders know what they are trying to achieve by the mixing (or elimination) of certain bloodlines.  But when it comes to Man, “there is no natural standard to establish what is desirable and what is undesirable.” People who would divert humankind unto a particular evolutionary path could only utilize a standard “arbitrary” and “purely subjective.”

Von Mises does not think Society can do much to force the birth of more Creative Geniuses: “Men cannot improve the natural and social conditions which bring about the creator and his creation. It is impossible to rear geniuses by eugenics, to train them by schooling, or to organize their activities.”

Personally, I feel that von Mises is dead wrong here, and that the world has lost many an Einstein and Michelangelo by not better facilitating the development of humanity to its highest potential. Von Mises, however, does at least understand that an intrusive, police-state version of Society could certainly crush creativity. He writes that a nation could easily “organize society in such a way that no room is left for pioneers and their path-breaking.”

Von Mises considers his Heroic Genius Businessman to be on par with history’s great artists, for they are all manifestations of “the creative innovator.”   Von Mises, quite romantically, sees such Artists as driven by some inner demon, continuing in their intense and godlike labors even at high personal cost– and in spite of the fact that “many a Genius could have used his gifts to render his life agreeable and joyful.” Instead of using his powers to further his own material well-being, however, the Heroic Genius chooses “to accomplish what he considers his mission even if he knows that he moves toward his own disaster.” Von Mises sees the Creative Innovator as a tortured soul, pained by his own creative process like a mother giving birth… “Creating is for him agony and torment, a ceaseless excruciating struggle against internal and external obstacles; it consumes and crushes him.” Never is von Mises so poetic as when he allows himself to get carried away by his romantic ideal of the Heroic Genius Businessman.

But all is not romantic veneer. Von Mises actually has a very practical purpose in trying to convince us that the Heroic Genius Businessman does not enjoy his work– for it is the contention of von Mises that “if a special kind of labor gives pleasure and not pain, immediate gratification and not disutility of labor, no wages are allowed for its performance.” [He obviously was writing before the day of extremely overpaid athletes, actors, and other entertainers (yes, I’m an economist and I just said that; though I do not at the moment wish to get into the near- or real monopolies and bottlenecks which create this situation)].

WE GET THE WAGE-RATE WE DESERVE

Von Mises does not wish to encourage in any way the notion that anyone should expect to get paid for doing something they like doing. The very idea is mere utopian hogwash. Work is hard and distasteful and unpleasant. That is why they call it work, and not play. And that is also why we demand to be paid for it.

This idea that we will do even unpleasant tasks if we are paid enough for them is foundational to von Mises’s self-adjusting economic structure… if the consumer (the indisputable king of the economy in von Mises’s interpretation of Capitalism) wants something badly enough– even something that requires horrid working conditions– it will be provided for him as long he is willing to pay wages high enough to lure workers into performing the required unpleasant labor.

People are more than willing to join the labor pool of Society, even when this requires doing jobs they loathe, because they know that others are, in a sense, doing the same for them. In Society, says von Mises, “Man serves in order to be served.” And in a Society centered upon a Market economy, we each use each other. As von Mises says: “Everybody is both a means and an end in himself.” One man uses other people’s labor and skills to get what he wants, and they use his labor and skills to get what they want. Mutually exploitation in the best possible sense.

[By the way, von Mises is focused on a Market economy, but I can’t think of any large Society, based on whatever system, in which most everybody is not both a means and an end. Even in feudal times, most kings served other kings. And even kings-of-kings– or even the ancient Pharaohs– could be argued to serve some societal purpose greater than themselves].

But while von Mises is on one hand talking-up the natural “disutility” or unpleasantness of labor, on the other hand he is criticizing Marxists for disseminating propaganda encouraging laborers to resent their work and their bosses. He feels that the average worker would be content in his work if only those darn Socialists were not whispering his ear how miserable he is, and how taken-advantage-of. After all, it’s a free Market. No one is forcing the laborer at gunpoint to work. He shows up to earn a wage (however low) at a workplace (however unhappy, unsafe, or insanitary) of his own free will.

If workers could only “be joyful in the performance” of their tasks, then they would radiate a healthy cheerfulness that “strengthens their energies and vital forces.” On the other hand, falling for Socialist propaganda only causes the worker to “feel tedium” and to become “morose and neurotic.” This is bad for the Society as a whole, for, says von Mises, a commonwealth in which the tedium of labor prevails is an assemblage of rancorous, quarrelsome, and wrathful malcontents.”

Relatedly, Von Mises is very disapproving of the idea of a minimum wage, especially one arrived at by dent of strong, Labor Union negotiating power. What is claimed to be a “minimum wage” today is no such thing, says von Mises; it is merely some amount of income workers THINK is minimum because they have become “imbued with the idea that wages must be at least high enough to enable them to maintain a standard of living adequate to their station in the hierarchical gradation of society.” You want to see REAL minimum wage? Imagine our ancient forebears… “Primitive man,” contends von Mises, “adjusted to more animal-like than human existence, could keep himself alive under conditions which are literally unbearable to his DAINTY SCIONS pampered by Capitalism.”

Besides, anger at one’s boss or factory-owner is misplaced. Remember, it is the consumer who is ultimately in control of the economy, including wage rates. And since every worker is also a consumer, if you are unhappy with your wage rate, well then, you only have yourself to blame.

Says von Mises: “Wage rates are ultimately determined by the value which the wage earner’s fellow citizens attach to his services and achievements. Labor is appraised like a commodity not because the entrepreneurs and capitalists are hardhearted and callous, but because they are unconditionally subject to the supremacy of the pitiless consumers.” And in case you missed it, that’s you and me, pal… “The employer is forced never to pay workers more than corresponds to the consumers’ appraisal of their achievements.”

It is worth noting that– since not every set of tasks is valued enough by the consumer-controlled Market to provide a living wage– many occupations which workers might prefer to engage in are simply non-existent– at least, they are not offered with enough pay to support a life. In this way, says von Mises, consumers, via Market mechanisms, “indirectly limit the individual’s freedom to choose his occupation.”

Von Mises has little sympathy for those who complain about their materialistic well-being under Capitalism. For one thing, as the reader may recall, von Mises considers the majority of workers (the “laggard many”) lucky to be riding the coat-tails of the Heroic Genius Businessmen to greater and greater prosperity. Additionally, von Mises is quick to point out that, no matter how bad the world is now, it was even worse a hundred and fifty years ago…

Speaking of the Nineteenth Century, von Mises calls it “a century of unprecedented improvement in technical methods of production and in the material well-being of the masses.” The near-laissez-faire Capitalism which emerged at that time, “did much more than extend the average length of human life. Its scientific and artistic accomplishments are imperishable.” He goes on to say the 1800s, the birth-century of modern Capitalism, was “an age of immortal musicians, writers, poets, painters, and sculptors; it revolutionized philosophy, economics, mathematics, physics, chemistry, and biology. And, for the first time in history, it made the great works and the great thoughts accessible to the common man.”

And I have to add that my own readings in history and literature corroborate the view that the general feeling of the time was that humankind was every day getting better and better. That is why the great murderous, destructive disaster of World War One so disillusioned the world, giving rise to “The Lost Generation.”

YOU THINK CAPITALISM’S BAD NOW? YOU SHOULD HAVE SEEN IT BEFORE!

At the same time, conditions in the countryside during the 1800s were so bad that even the admittedly horrible conditions in the factories were considered an IMPROVEMENT. We know this because, otherwise, workers would not have flocked by the millions to work in them.

It is a strange argument to make: that Capitalism today is not so bad when one considers how horrendous both Capitalist and non-Capitalist life were before. “It is deplorable that such conditions existed,” writes von Mises, but in his view, the factory owners, “did all they could to eradicate the evils.” Granted, they were “driven by selfishness, of course, and not by altruism,” but that is certainly beside the point [Rand will take up the virtue of selfishness in her own writings]. Life under Capitalism, though far from perfect, is simply better than the alternatives.

And of course, von Mises (as Rand will after him) blames most of the evils of the current economic regime not on Capitalism– but on Government interference WITH Capitalism. Wherever Government steps-in to supposedly alleviate harsh conditions for workers, they inevitably lower productivity. And when productivity is lowered, says von Mises, Society is faced with a choice between two unpleasant options: 1) we must either toil more for the same amount of goods and services, or 2) begin forsaking cherished amenities of modern life.

When Government stepped-in to ameliorate the worst aspects of Capitalism in the 19th and 20th centuries, von Mises contends (as will Randians after him) that its intrusive laws accomplished one of two things: 1) they accomplished what would have been accomplished anyway by the Market, or 2) they resulted in workers being ultimately worse off.

“The nineteenth century’s labor legislation by and large achieved nothing more than to provide a legal ratification for changes which the interplay of market factors had brought about previously,” contends von Mises. And “the allegedly pro-labor laws” which went beyond or ahead the natural Market corrections “hurt the material interests of the worker”— mostly by forcing lay-offs so that employers could provide remaining workers with higher wages and better working conditions.

Try as it might, Government can never provide its citizens with perfect security, perfect jobs, and perfect living conditions. “There is in this world no such things as stability and security,” says von Mises, “and no human endeavors are powerful enough to bring them about.” We all crave more and more freedom, but rebelling against Society is counterproductive. “Man was not created free,” von Mises asserts. “What freedom he may possess has been given to him by Society.”   Without the benefits provided by cooperation and division of labor, our lives would still today be consumed by the mere act of surviving– and to give another great philosopher a nod, we humans would continue to be condemned to lives nasty, brutish, and short.

Society requires labor because life requires labor. “That man cannot avoid submitting to the disutility of labor is not an outgrowth of any social institution,” states von Mises. “It is an inescapable natural condition of human life and conduct.”

And as for this nonsense that we must provide each person with an “equal opportunity” in life, von Mises responds thusly: Equality of opportunity is a factor neither in prize fights and beauty contests nor in any other field of competition.” In other words, Life ain’t fair. Get over it.

He does not have a problem with the fact the few are born into what one may still today call “the propertied class” and the many are not– though, perhaps surprisingly, von Mises is not one of those who believe in the “sacredness” of private property. He readily admits that “the history of private property can be traced back to a point at which it originated out of acts which were certainly not legal,” and that “virtually every owner is the direct or indirect legal successor of people who acquired ownership either by arbitrary appropriation of ownerless things or by violent spoliation of their predecessor.”

Nevertheless, states von Mises, this “has no significance whatever for the conditions of a Market Society. Ownership in the Market economy is no longer linked up with the remote origin of private property. Those events in a far-distant past, hidden in the darkness of primitive mankind’s history, are no longer of any concern for our day.” Again, equal opportunity just doesn’t figure into it– “it” being not only the Capitalist way of life, but life in general.

Another argument against economic equality used by von Mises is that under a system of equal — or even partially equalized– returns for work, a person will not be as likely to invest his savings because he knows that any great returns on his investment would be spread out among his fellow citizens, making the income that the would-be investor forgoes today appear hardly worth the risk and present sacrifice. We must realize, says von Mises, that it is SELFISHNESS which “impels a man to save and always to invest his savings in such a way as to fill best the most urgent needs of the consumers.”  In an equalized society, his selfish motivations simply would not be gratified by the act of returning to the system any relatively excess funds he acquires.

Even pro-Capitalists often complain that today’s small business-owners don’t stand a chance against the advantages held by the great corporations. Von Mises answers that, yes, such is likely the case.  But it is only true because the failing small-timer is obviously unable to offer what King Consumer demands: better things cheaper. What the little guy needs is not a leg-up from the Government, but “brains and ideas” enough to truly compete. Otherwise, of course, he’ll be driven out of Market– just as we consumers demand that he be.

Von Mises also decries Government-mandated contributions to Social Security, declaiming that required membership in the Government’s pension plan for Society-members as a whole “curtails the worker’s freedom to arrange his household according to his own decisions” by restricting how he can spend his income. If the excuse given for such a forced curtailment of freedom is that “wage-earners lack the insight and moral strength to provide spontaneously for their own future” then the nation’s in trouble anyhow… For it is these same weak and uninsightful workers who form the country’s electorate… “Is it not paradoxical,” asks von Mises, “to entrust the nation’s welfare to the decisions of voters whom the law, itself, considers incapable of managing their own affairs?”

One of von Mises’s least convincing arguments is his argument against profit-sharing. It is easy to see that von Mises associates the very concept of profit-sharing with the encroachment of Socialism, and one can feel a bit of knee-jerk in his response…

Von Mises imagines a scenario in which some welders work for a successful profit-sharing company and others work for a less successful one. He declares that there is no reason why one welder should make more money because his employer earns high profits.” [No reason, Mr. von Mises, except that such is precisely the way your vaulted version of Capitalism works, sir. The market rewards those people who provide the better service. Losers be damned].

Von Mises contends that “the workers themselves would rebel against such a method of remuneration.” [No, actually, what would occur is that the welders working for the lower-paying company would migrate to the company paying more. The worse-performing company may even go out of business. C’est le Capitalism].

WHERE’S THE COUNTER-OUTRAGE?

Once one has read von Mises, his fingerprints are easy to spot all over the work of Ayn Rand and her followers. One of the many instances of this is von Mises’s (and later Rand’s) contention that Socialism propaganda only made headway into the hearts and minds of the people because Capitalists had not considered, with all the evident and bountiful rewards of Capitalism, that it was a system in need of defense. They felt, in the words of von Mises, that “the market economy needs no apologists and propagandists.”  Von Mises uses a great quotation here, one that compares the benefits of Capitalism to the grand edifices designed by Christopher Wren; on Wren’s tombstone is written the epitaph, “si monumentum requiris, circumspice” — if you require a monument, look around.

The assumption by Capitalists was that “the benefits which the masses derived from the Capitalist system were so obvious” that there was not need “to harangue the workers with pro-Capitalist propaganda.” Obviously, “the buyers of the products are by and large the same people who as wage earners cooperate in their manufacturing.”  Therefore, the employer “did not bother about the feelings of his employees as workers. He was exclusively intent upon serving them as consumers”… or at least, that’s von Mises’s take on it.

Von Mises then takes a turn that I find downright delusional. He blames– not the worst parts of Capitalism– but anti-Capitalist propaganda for why workers grew unhappy with Capitalism. He believes that in the absence of Socialist agitation, the worker REJOICES in his place in society and active cooperation in its productive effort.” Sadly, the feeling of workplace jubilation is replaced, after being subjected to Socialist propaganda, “by another which represents the wage earner as the distressed victim of ruthless exploiters.” In this way, it is Marxist sabotage–not the assembly-line work, itself– which “turns the joy of labor into a feeling of disgust and tedium.” Soon, “the worker begins to hate his work” because he “becomes convinced that what makes him submit to the disutility of labor is not his own higher valuation of the stipulated compensation, but merely an unfair social system.” Thus, “deluded by the slogans of the Socialist propagandists, he fails to realize that the disutility of labor is an inexorable fact of human conditions.” The worker, falling prey to Marxism, cannot afford to work less, but he grows to hate his work more. “What is altered is the worker’s emotional attitude.” […] “He pities himself as the defenseless victim of an absurd and unjust system. He becomes an ill-humored grumbler, an unbalanced personality, an easy prey to all sorts of quacks and cranks.” Bad Socialism!

Regardless, the Capitalists who thought that their system needed no defenders turned out to be way wrong, and Socialism had rolled over half the globe by its high tide– through a combination of promises, propaganda, covert agitation, and violence. The intellectual arguments of Socialism, writes von Mises, were “able to triumph because they did not encounter effective rational criticism.” [… ] “The arguments advanced by average politicians and writers against Socialism are either silly or irrelevant.” Moreover, declares von Mises, “the critics of Socialism were often in the wrong”

Rand would respond to von Mises’s criticism that Capitalism lacked its own propagandists as if it were a call to arms.

As for the other side, Socialism as an economic regime, von Mises does not predict its immediate demise. A bad economic system can go on indefinitely, he writes. Even as its very operation results in social disintegration, chaos, and misery for the peoples.” A populace is slow to overthrow the only economic system they’ve come to know– even if it provides them with a steadily lowering standard of living. The system may one day give way, says von Mises, but only “if the people themselves are intelligent enough to comprehend the advantages such a change might bring them.” He then adds (in what I found to be a comically offhand and yet menacing remark)… “or it may be destroyed foreign invaders provided with better military equipment by the greater efficiency of their own economic system.”

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Other HAMMERING SHIELD Posts On Von Mises:

Von Mises On Values, Selfishness, and Government Intrusion

Von Mises:  Business Cycles Caused By Government-Induced Credit Expansions

Von Mises: Society Is NOT A SuperOrganism

Von Mises On Why Reasoning Humankind Is Destined To Cooperate

Von Mises On The Question Of…  WHY BOTHER?

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