III. The Conditions and Limits of the Market

The market economy is no exception to the rule. Indeed, its advo cates, in so far as they are at all intellectually fastidious, have al ways recognized that the sphere of the market, of competition, of the system where supply and demand move prices and thereby gov90 THE CONDITIONS AND LIMITS OF THE MARKET ern production, may be regarded and defended only as part of a wider general order encompassing ethics, law, the natural condi tions of life and happiness, the state, politics, and power. Society as a whole cannot be ruled by the laws of supply and demand, and the state is more than a sort of business company, as has been the conviction of the best conservative opinion since the time of Burke. Individuals who compete on the mlarket and there pursue their own advantage stand all the more in need of the social and moral bonds of community, without which competition degenerates most griev ously. As we have said before, the market economy is not every thing. It must find its place in a higher order of things which is not ruled by supply and demand, free prices, and competition. It must be firmly contained within an all-embracing order of society in which the imperfections and harshness of economic freedom are cor rected by law and in which man is not denied conditions of life ap propriate to his nature. Man can wholly fulfill his nature only by freely becoming part of a community and having a sense of solidar ity with it. Otherwise he leads a miserable existence and he knows it.

Social Rationalism The truth is that a society may have a market economy and, at one and the same time, perilously unsound foundations and condi tions, for which the market economy is not responsible but which its advocates have every reason to improve or wish to see improved so that the market economy will remain politically and socially feasible in the long run. There is no other way of fulfilling our wish to possess both a market economy and a sound society and a na tion where people are, for the most part, happy. Economists have their typical deformation professionelle, their own occupational disease of the mind. Each of us speaks from per sonal experience when he admits that he does not find it easy to look beyond the circumscribed field. of his own discipline and to acknowledge humbly that the sphere of the market, which it is his 91 A HUMANE ECONOMY protession to explore, neither exhausts nor determines society as a whole. The market is only one section of society. It i~ a very im portant section, it is true, but still one whose existence is justifiable and possible only because it is part of a larger whole which con cerns not economics but philosophy, history, and theology. We may be forgiven for misquoting Lichtenberg and saying: To know eco nomics only is to know not even that. Man, in the words of the Gos pel, does not live by bread alone. Let us beware of that· caricature of an economist who, watching people cheerfully disporting them selves in their suburban allotments, thinks he has said everything there is to say when he observes that this is not a rational way of producing vegetables-forgetting that it may be an eminently ra tional way of producing happiness, which alone matters in the last resort. Adam Smith, whose fame rests not only on his Wealth of Nations but also on his Theory of Moral Sentiments, would have known better.

All of this has always been clear to us, and this is why we have never felt quite comfortable in the company of "liberals," even when styled "neo-liberals." But for everything there is season. We have been through years of untold misery and disorders which so many Western countries, including, in particular, Germany, brought upon themselves by their disregard of the most elementary princi ples of economic order. During these years there was a compelling need to put the accent on the "bread" of which the Gospel speaks and on the re-establishment of an economic order based on the market economy. To do this was imperative. Today, when the mar ket economy has been revived up to a point and when even its par tial re-establishment more than fulfills our expectations, it is equally imperative to think of the other and higher things here under dis cussion. That the hour is ripe for this is appreciated by all who are wise enough to sense the danger of stopping short at "bread." It is a sign of the times that those who experience and voice these mis givings have become surprisingly numerous everywhere. They in clude a growing number of economists in several countries who, 92 THE CONDITIONS AND L][MITS OF THE MARKET independently of each other, are stepping out of the ivory tower of their science to explore the open country "beyond supply and de..

mand."! As far as this author is concerned, he is doing no more than returning to scientific work of a kind which he has considered paramount ever since he wrote his book on The Social Crisis of Our Time. To the economist, the market economy, as seen from the restrict .. ing viewpoint of his own discipline, appears to be no more than one particular type of economic order, a kind of "economic technique" opposed to the socialist one. It is significant of this approach that the very name of the structural principle of this economic order has been borrowed from the language of technology: we speak of the "price mechanism." We move in a world of· prices, markets, competition, wage rates, rates of interest, exchange rates, and other economic magnitudes. All of this is perfectly legitimate and fruitful as long as we keep in mind that we have narrowed our angle of vision and do not forget that the :market economy is the economic order proper to a definite social structure and to a definite spiritual and moral setting. If we were to neglect the market economy's char ..

acteristic of being merely a part of a spiritual and social total or· der, we would become guilty of an aberration which may be de.. scribed as social rationalism. Social rationalism misleads us into imagining that the market economy is no more than an "economic technique" that is appli .. cable in any kind of society and in any kind of spiritual and social climate. Thus the undeniable success of the revival of the market economy in many countries gave quite a few socialists the idea that the price mechanism was a device which an otherwise socialist econ omy could well use to its own benefit. In this concept of a "socialist market economy," which Tito seems to want to translate into prac tice, the market economy is thought of as part of a social system that is best described as an enormous apparatus of administration. In this sense, even the Communist economic system of Soviet Rus sia has always had a "market sector," although it is undoubtedly no A HUMANE ECONOMY more than a technical device and contrivance and not a living or ganism. How could a genuine market, an area of freedom, spon taneity, and unregimented order, thrive in a social system which is the exact opposite in all respects?

The same social rationalism is evident in the attitude of certain contemporary economists who, while not open partisans of social ism and sometimes speaking in the name of the market economy, work out the most elaborate projects for regulating the movements of the circular flow of the economy. They seem to be prepared to transform the economy into an enormous pumping engine with all sorts of ducts and valves and thermostats, and they not only seem confident that it will function according to the instructions for use but they also seem to be unaware of the question of whether such a machine is compatible with the atmosphere of the market, to which freedom is essential. All of these protagonists of social rationalism-socialists and circular-How technicians alike-have a common tendency to become so bemused by aggregate money and income flows that they over look the fundamental significance of ownership. The market econ omy rests not on one pillar but on two. It presupposes not only the principle of free prices and competition but also the institution of private ownership, in the true sense of legally safeguarded free dom to dispose of one's own property, including freedom of testation.

To grasp the full significance of ownership to a free society, we must understand that ownership has a dual function. Ownership means, as in civil law, the delimitation of the individual sphere of decision and responsibility against that of other individuals. But ownership also means protection of the individual sphere from po litical power. It traces limits on the horizontal plane, and also ver tically, and only this dual function can fully explain the significance of ownership as an indispensable condition of liberty. All earlier generations of social philosophers agreed on this point. But ownership is not only a condition of the market economy, it 94 THE CONDITIONS AND LIMITS OF THE MARKET is of the essence. This becomes evident from the following consid erations. We start out from competition. We all realize its central importance for a free economy, but the concept is obscured by a confusing ambiguity. Communist governments, too, claim that they are using competition extensively and successfully. We have no rea son to doubt that in the factories of Soviet Russia, the managers, and even the workers and employees, have ample opportunity for competitive performance. And in Yugoslavia, Tito made a whole system of the "decentralization" of public enterprises whereby the latter were divided up into independent and mutually competing units; he seems to regard this system, with some pride, as a sort of "socialist market economy." There can he no doubt that such an introduction of competition into a collectivist economic system may raise productivity. Is this not the same virtue which we have in mind when we ascribe the rapid recovery of the German economy chiefly to the re-establishment of competition?

There is obviously some confusion here, which calls for clarifica tion. The confusion is due to neglect of the dual nature of competi tion and to the lumping together of things which should be kept strictly separate. Competition may have two meanings: it may he an institution for stimulating effort, or it may be a device for regulat ing and ordering the economic process. In the market economy, competition is both, and it constitutes, therefore, an unrivaled solu tion of the two cardinal problems of any economic system: the problem of continual inducement to maximum performance and the problem of a continual harmonious ordering and guidance of the economic process. The role of competition in the market econ omy is to be mainspring and regulator at one and the same time, and it is this dual function which is the· secret of the competitive market economy and its inimitable performance.

If we now return to the question of whether a collectivist eco nomic order can take advantage of competition and thus appro priate the secret of the market eeonomy's success without impair ing the collectivist nature of the economic order, we know that the 95 A HUMANE ECONOMY answer depends upon which aspect of competition is meant. Com petition as a stimulant is simply a psychological technique that is as applicable in a collectivist economy as in a market economy or, indeed, in any group, be it a school or a regiment or any other. We may even note that as far as the effects of competition on human destinies are concerned, it may, in collectivist systems, be hardened ina way that is unknown and impossible in the market economy. But the other function of competition, which is at least equally im portant for its economic effectiveness, the function of selection in the area of material means of production, meets with the greatest obstacles in collectivist systems. In relation to people, the carrot and the stick are ruthlessly applied, but it is quite anoth.e.rquestion whether in collectivist systems competition can accomplish so un compromising, undeviating, and continual a selection of products and firms as takes place in the market economy.

Even on the unwarrantedly charitable assumption that collec tivist public authorities resist the temptation to hush up investment errors and have the honest intention to carry out such a continual selection in accordance with the dictates of competition, they would lack the indispensable criterion. This brings us to the other function of competition: to serve as an instrument of the economic order as a whole and as a regulator of the economic process. Unlike the market economy, the collectivist economy is necessarily debarred from such use of competition because no collectivist system can create the necessary precondition without losing its own identity. This precondition is genuine economic independence of firms. Only on this condition is the formation of genuine scarcity prices for capital and consumer goods conceivable, but there can be no inde pendence of firms without private ownership and related freedom of action.

Thus everything is interlocked: competition as a regulator of the economy presupposes free market prices; free market prices are impossible without genuine independence of economic units, and 96 THE CONDITIONS AND LIMITS OF THE MARKET their independence stands and falls by private ownership and free .. dom of decision, unimpaired and undisturbed by government plan .. ning. No collectivist economy can possibly satisfy the last of these conditions without ceasing to be collectivist, and therefore it cannot enjoy the advantages of the regulatory and guiding functions of competition. To try to arrange such competition artificially would he as absurd for a collectivist system as it would be for me to want to play bridge with myself. It follows that "socialist competition" can, at best, stimulate (economically not necessarily rational) per formance but cannot rule and guide the economic process. It is only half of what competition is in the market economy, and we may well ask whether this bisection does not reduce the effectiveness of even that half of competition which alone is accessible to collectiv ism, namely, the stimulating effect. Be that as it may, it remains a serious weakness in any collectivist economy that competition can, at best, fulfill only one of its functions, and even that less than optimally. And it is the incomparable strength of the market econ omy that it alone can take advantage of the dual nature of com petition, which is genuine and fully effective only when it is whole.

Just as unavoidable limitation to one aspect of competition gravely handicaps collectivism, so does the combination of both aspects of competition give the market economy a start which cannot be over taken. This is the prerogative of the market economy, but this pre.. rogative stands and falls by priva.te ownership of the means of pro duction. The economic function of private ownership tends to be ob· stinately underestimated, and even nlore so is its moral and socio logical significance for a free society. The reason is, no doubt, that the ethical universe in which ownership has its place is hard for social rationalism even to understand, let alone to find congenial. And since social rationalism is in ascendancy everywhere, it is not surprising that the institution of ownership has been badly shaken. Even discussions on questions concerning the management of firms 97 A HUMANE ECONOMY are often conducted in terms which suggest that the owner has fol lowed the consumer and the taxpayer into the limbo of "forgotten men." The true role of ownership can be appreciated only if we look upon it as representative of something far beyond what is visi ble and measurable. Ownership illustrates the fact that the market economy is a form of economic order belonging to a particular philosophy of life and to a particular social and moral universe.

This we now have to define, and in so doing the word "bourgeois"* imposes itself, however much mass public opinion (especially of the intellectual masses) may, after a century of deformation by Marxist propaganda, dislike this designation or find it ridiculous. In all honesty, we have to admit that the market economy has a bourgeois foundation. This needs to be stressed all the more because the romantic and socialist reaction against everything bourgeois has, for generations past, been astonishingly successful in turning this concept into a parody of itself from which it is very difficult to get away. The market economy, and with it social and political freedom, can thrive only as a part and under the protection of a bourgeois system. This implies the existence of a society in which certain fundamentals are respected and color the whole network of social relationships: individual effort and responsibility, absolute norms and values, independence based on ownership, prudence and daring, calculating and saving, responsibility for planning one's own life, proper coherence with the community, family feeling, a sense of tradition and the succession of generations combined with an open-minded view of the present and the future, proper tension between individual and community, firm moral discipline, respect for the value of money, the courage to grapple on one's own with life and its uncertainties, a sense of the natural order of things, and a firm scale of values. Whoever turns up his nose at these things * The word "bourgeois" is here used to correspond to the German word biirgerlich, in a completely non-pejorative and non-political sense. As will be seen from the context, the word is used to designate a particular way of life and set of valnes.

98 THE CONDITIONS AND LIJM:ITS OF THE MARKET or suspects them of being "reactionary" may in all seriousness he asked what scale of values and what ideals he intends to defend against Communism without having to borrow from it. To say that the market economy belongs to a basically bourgeois total order implies that it presupposes a society which is the op posite of proletarianized society, :in the wide and pregnant sense which it is my continual endeavor to explain, and also the opposite of mass society as discussed in the preceding chapter. Independence, ownership, individual reserves, saving, the sense of responsibility, rational planning of one's own life-all that is alien, if not re pulsive, to proletarianized mass society. Yet precisely that is the condition of a society which cherishes its liberty. We have arrived at a point where we are simply forced to recognize that here is the true watershed between social philosophies and that everyone of us must choose for himself, knowing that the choice is between irreconcilable alternatives and that the destiny of our society is at stake.

Once we have recognized this necessity of a fundamental choice, we must apply it in practice and draw the conclusions in all fields. It may come as a shock to many of us to realize how much we have already submitted to the habits of thought of an essentially un.. bourgeois world. This is true, not least, of economists, who like to think in terms of money flows and income flows and who are so fascinated by the mathematical elegance of fashionable macro economic models, by the problems of moving aggregates, by the seductions of grandiose projects for balanced growth, by the dyna mizing effects of advertising or consumer credit, by the merits of "functional" public finance, or by the glamor of progress surround ing giant concerns-who are so fascinated by all this, I repeat that they forget to consider the hnplications for the values and in stitutions of the· bourgeois world, for or against which we have to decide. It is no accident that Keynes-and nobody is more responsi ble for this tendency among economists than he-has reaped fame and admiration for his equally banal and cynical observation that 99 A HUMANE ECONOMY "in the long run, we are all dead." And yet it should have been obvious that this remark is of the same decidedly unbourgeois spirit as the motto of the ancien regime: Apres nous Ie deluge. It reveals an utterly unhourgeois unconcern for the future, which'has become the mark of a certain style of modern economic policy and inveigles us into regarding it as a virtue to contract debts and as foolishness to save.

A most instructive example is the modern attitude toward an institution whose extraordinary development has caused it to be come a much-discussed problem. I have in mind installment buying, or consumer credit. In its present form as a mass habit and in its extreme extent, it is certainly a conspicuous expression of an "un bourgeois" way of life. It is significant, however, that this view and the misgivings deriving from it are hardly listened to nowadays, let alone accepted. It is not, as we are often told, mere "bourgeois" prejudice but the lesson of millennia} experience and consonant with man's nature and dignity and with the conditions of a sound society to regard it as an essential part of a reasonable and responsi ble way of life not to live from hand to mouth, to restrain impa tience, self-indulgence, and improvidence alike, to think of the morrow, not to live beyond one's means, to provide for the vicis situdes of life, to try to balance income and expenditure, and to live one's life as a consistent and coherent whole extending beyond death to one's descendants rather than as a series of brief moments of enjoyment followed by the headaches of the morning after. To depart conspicuously from these precepts has always and every where been censured by sound societies as shiftless, spendthrift, and disreputable and has carried the odium of living as a parasite, of being incompetent and irresponsible. Even so happy-go-lucky a man as Horace was of one mind on this subject with Dickens' Mr.

Micawber: "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery." 100 THE CONDITIONS AND LI:MITS OF THE MARKET Installment buying as a mass habit practiced with increasing carelessness is contrary to the standards of the bourgeois world in which the market economy must be rooted, and jeopardizes it. It is, at the same time, an indicator of how much of the humus of the bourgeois existence and way of life has already been washed away by social erosion, as well as an infallible measure of proletarianiza tion, not in the sense of the material standard of living but of a style of life and moral attitude. The representatives of this style of life and moral attitude have lost their roots and steadfastness; they no longer rest secure within themselves; they have, as it were, been removed from the social fabric of family and the succession of gen erations. They suffer, unconsciously, from inner non-fulfillment, their life as a whole is stunted, they lack the genuine and essen tially non-material conditions of simple human happiness. Their existence is empty, and they try to fill this emptiness somehow. One way to escape this tantalizing emptiness is, as we have seen, intoxi cation with political and social ideologies, passions, and myths, and this is where Communism still finds its greatest opportunity. An other way is to chase after material gratifications, and the place of ideologies is then taken by motor scooters, television sets, by quick ly acquired but unpaid-for dresses-in other words, by the flight into unabashed, immediate, and unrestrained enjoyment. To the extent that such enjoyment is balanced not only by corresponding work but also by a reasonable plan of life, saving and provision for the future, and by the non-material values of habits and attitudes transcending the moment's enjoyment, to that extent the emptiness, and with it the "unbourgeois" distress, is, in fact, overcome. But unless this is the case, enjoyment remains a deceptive method. of filling the void and is no cure. 2 The incomprehension, and even hostility, with which such reflec tions are usually met nowadays is one more proof of the predomi nance of social rationalism, with all iti5 variants and offshoots, and of the implied threat to the foundations of the market economy.

One of these offshoots is the ideal of earning a maximum amount 101 A HUMANE ECONOMY of money in a minimum of working time and then finding an outlet in maximum consumption, facilitated by installment buying, of the standardized merchandise of modern mass production. Homo sapiens consumens loses sight of everything that goes to make up human happiness apart from money income and its transformation into goods. Two of the important factors that count in this context are how people work and how they spend their life outside work. Do people regard the whole of the working part of their life as a liabil ity, or can they extract some satisfaction from it? And how do they live outside work, what do they do, what do they think, what part have they in natural, human existence? It is a false anthropology, one that lacks wisdom, misunderstands man, and distorts the con cept of man, if it blinds us to the danger that material prosperity may cause the level of simple happiness not to rise but to fall be cause the two above-mentioned vital factors are in an unsatisfactory condition. Such anthropology also prevents us from recognizing the true nature of proletarianism and the true task of· social policy.

It is, for instance, a superficial and purely materialist view of proletarian ism to believe complacently that in the industrialized countries of the West the proletarians are becoming extinct like the dodo simply because of a shorter working week and higher wages, wider consumption, more effective legal protection of labor and more generous social services, and because of other achieve ments of current social policy. It is true that the proletariat, as un.. derstood by this kind of social rationalism, is receding. But there remains the question of whether, concurrently with this satisfactory development and perhaps because of it, ever wider classes are not engulfed in proletarianism as understood in a much more subtle sense, in the sense, that is, of a social humanism using other criteria which are really decisive for the happiness of man and the health of society. The criteria I have· in mind are those which we know well already, the criteria beyond the market, beyond money incomes and their consumption. Only in the light of those criteria can we assess the tasks of genuine social policy, which I advocated fifteen years 102 THE CONDITIONS AND LIMITS OF THE MARKET ago in my book on The Social Crisis of Our Time and for which Alexander Riistow has recently coined the felicitous term of "vital policy."

The circle of our argument closes. It is, again, private ownership which principally distinguishes a non-proletarian form of life from a proletarian one. Once this is recognized, the social rationalism of our time has really been left behind. We shall see in a later chapter how direct and short a road leads from here to the great problem of our era's constant inflationary pressure, which has developed into a danger to the market economy plain for all to see.s The Spiritual and Moral Setting One of the oversimplifications by which social rationalism dis torts the truth is that Communism is a weed particular to the marshes of poverty and capable of being eradicated by an improve ment in the standard of living. This is a fatal misconception. Surely everyone must realize by now that the world war against Com munism cannot be won with radio sets, refrigerators, and wide screen films. It is not a contest for a better supply of goods-unfor tunately for the free world, whose record in this field cannot he beaten. The truth is that it is a profound, all-encompassing conflict of two ethical systems in the widest sense, a struggle for the very conditions of man's spiritual and :moral existence. Not for one mo ment may the free world waver in its conviction that the real danger of Communism, more terrible than the hydrogen bomb, is its threat to wipe these conditions from the face of the earth. Anyone who rej ects this ultimate, apocalyptic perspective must be very careful, lest, sooner or later, and perhaps for no worse reason than weakness or ignorance, he betray the greatest and highest values which man kind has ever had to defend. In comparison with this, everything else counts as nothing.

If we want to be steadfast in this struggle, it is high time to he think ourselves of the ethical foundations of our own economic 103 A HUMANE ECONOMY system. To this end, we need a combination of supreme moral sensi tivity and economic knowledge. Economically ignorant moralism is as objectionable as morally callous economism. Ethics and eco nomics are two equally difficult subjects, and while the former needs discerning and expert reason, the latter cannot do without humane values.4 Let us begin with a few questions which we, as economists, may well put to ourselves. Are we always certain of our calling? Are we never beset by the sneaking doubt that although the sphere of hu man thought and action with which we deal is one of primary necessity, it may, for that very reason, be of a somewhat inferior nature? Primum vivere, deinde philosophari-certainly. But does this dictum not reflect an order of precedence? And when the Gos pel says than man does not live by bread alone, does this not imply an admonition that once his prayer for his daily bread is fulfilled, man should direct his thoughts to higher things? Should we be free of such scruples and doubts-and this is not a matter for pride-others will assuredly bring them to our attention.

I myself had a characteristic experience in this respect. Some years before his death, I had the privilege of a discussion with Benedetto Croce, one of the greatest minds of our age. I had put forward the proposition that any society, in all its aspects, is always a unit in which the separate parts are interdependent and make up a whole which cannot be put together by arbitrary choice. I had maintained that this proposition, which is now widely known and hardly challenged, applied also to the economic order, which must be understood as part of the total order of society and must cor respond to the political and spiritual order. We are not free, I ar gued, to combine just any kind of economic order, say, a collec tivist one, with any kind of political and spiritual order, in this case the liberal. Since liberty was indivisible, we could not have po litical and spiritual liberty without also choosing liberty in the economic field and rej ecting the necessarily unfree collectivist eco nomic order; conversely, we had to be clear in our minds that a 104 THE CONDITIONS AND LIMITS OF THE MARKET collectivist economic order meant the destruction of political and spiritual liberty. Therefore, the econOU1Y was the front line of the defense of liberty and of all its consequences for the moral and humane pattern of our civilization. My conclusion was that to economists, above all, fell the task, both arduous and honorable, of fighting for freedom, personality, the rule of law, and the ethics of liberty at the most vulnerable part of the front. Economists, I said, had to direct their best efforts to the thorny problem of how, in the aggravating circumstances of modern industrial society, an essen tially free economic order can nevertheless survive and how it can constantly be protected against the incursions or infiltrations of collectivism.

This was my part of the argument on that occasion, during the last war. Croce's astonishing reply was that there was no necessary connection between political and spiritual freedom on the one hand and economic freedom on the other. Only the first mattered; eco nomic freedom belonged to a lower and independent sphere where we could decide at will. In the economic sphere, the only question was one of expediency in the manner of organizing our economic life, and this question was not to be related with the decisive and incomparably higher question of political and spiritual freedom. The economic question was of no concern to the philosopher, who could be liberal in the spiritual and political field and yet collec tivist in the economic. The important movement for the defense of spiritual and political freedom was liberalismo, as Croce called it, to distinguish it from liberismo, by which slightening term he desig nated the defense of economic freedom. 5 Croce's view hardly needs to be refuted today, and even his fol lowers will not be inclined to defend it. But Croce's error has had a fatal influence on the development of Italian intellectuals and has smoothed the way to Communism for many of them. The mere fact that so eminent a thinker could be so utterly wrong about the place of economic matters in society proves how necessary it is to thresh this question out over and over again.

105 A HUMANE ECONOMY Naturally nobody would dream of denying that the aspect of society with which the economist deals belongs to the world of means, as opposed to ends, and that its motives and purposes there fore belong to a level which is bound to be low, if only because it is basic and at the foundation of the whole structure. This much we must grant a man like Croce. To take a drastic example, what interests economics is not the noble beauty of a medieval cathedral and the religious idea it embodies, but the worldly and matter-of fact question of what place these monuments of religion and beauty occupied in the overall economy of their age. It is the complex of questions which, for instance, Pierre du Colombier has discussed in his charming book Les chantiers des cathedrales. We are fully aware that what concerns us as economists is, as it were, the pro saic and bare reverse side of the decor. When the materialistic inter pretation of history regards the spiritual and political life of nations as a mere ideological superstructure on the material conditions of production, we are, as economists, very sensitive to .the damning revelations of a philosophy of history that reduces higher to lower-a feeling which proves our unerring sense of the genuine scale of values.

All of this is so obvious that we need not waste another word on it. But equally obvious is the argument with which we must safe guard a proper place in the spiritual and moral world for the economy, which is our sphere of knowledge. What overweening arrogance there is in the disparagement of things economic, what ignorant neglect of the sum of work, sacrifice, devotion, pioneering spirit, common decency, and conscientiou~ness upon which depends the bare life of the world's enormous and ever growing population! The sum of all these humble things supports the whole edifice of our civilization, and without them there could be neither freedom nor justice, the masses would not have a life fit for human beings, and no helping hand would be extended to anyone. We are tempted to say what Hans Sachs angrily calls out to Walter von Stolzing in the last act of Die Meistersinger: "Do not despise the masters!"

106 THE CONDITIONS AND LIMITS OF THE MARKET We are all the more entitled to do so if, steering the proper mid dle course, we guard against exaggeration in the opposite direc tion. Romanticizing and moralistic contempt of the economy, in cluding contempt of the impulses which move the market economy and the institutions which support it, must be as far from our minds as economism, materialism, and utilitarianism. When we say economism, we mean one of the forms of social ra tionalism, which we have already :met. We mean the incorrigible mania of making the means the end, of thinking only of bread and never of those other things of which the Gospel speaks. It is econo mism to succumb to those aberrations of social rationalism of which we have spoken and to all the implied distortions of perspective. It is economism to dismiss, as Schumpeter does, the problem of giant industrial concerns and monopoly with the highly questionable argument that mass production, the promotion of research, and the investment of monopoly profits raise the supply of goods, and to neglect to include in the calculation of these potential gains in the supply of material goods the possible losses of a non-material kind, in the form of impairment of the higher purposes of life and so ciety. It is economism to allow material gain to obscure the danger that we may forfeit liberty, variety, and justice and that the con centration of power may grow,. and it is also economism to forget that people do not live by cheaper vacuum cleaners alone but by other and higher things which may wither in the shadow of giant industries and monopolies. To take one example among many, nowhere are the economies of scale larger than in the newspaper industry, and if only a few press lords survive, they can certainly sell a maximum of printed paper at a mi.nimum of pennies or cents; but surely the question arises of what there is to read in these pa pers and what such an accumulation of power signifies for freedom and culture. It is economism, we continue, to oppose local govern ment, federalism, or decentralization of broadcasting with the argu ment that concentration is cheaper. It is economism, again, to measure the peasant's life exclusively by his money income without 107 A HUMANE ECONOMY asking what else determines his existence beyond supply and de mand, beyond the prices of hogs and the length of his working day; and the worst economism is the peasant's own. It is, finally, that selfsame economism which misleads us into regarding the problem of economic stability merely as one of full employment, to be safe guarded by credit and fiscal policy, forgetting that besides equilib rium of national aggregates, equal importance should be attached to the greatest possible stability of the individual's existence-just as the springs of a car are as important for smooth driving as the condition of the road. 6 When we say materialism, we mean an attitude which misleads us into directing the full weight of our thought, endeavor, and action towards the satisfaction of sensual wants. Almost indissolubly linked therewith is utilitarianism, which, ever since the heyday of that philosophy, has been vitiating our standards in a fatal manner and still regrettably distorts the true scale of values. One of the more likable of the high priests of that cult, Macaulay, wrote in his famous essay on Francis Bacon, the ancestor of utilitarianism and pragmatism, that the production of shoes was more useful than a philosophical treatise by Seneca; but once more we must ask the familiar question of whether shoes-not to mention the latest prod ucts of progress-are likely to be of much help to a man who, in the midst of a world devoted to that cult, has lost the moral bear ings of his existence and who therefore, though he may not know why, is unhappy and frustrated. It is indeed our misfortune that mankind has, but for a small remnant, dissipated and scattered the combined spiritual patrimony of Christendom and antiquity, to

which Seneca contributed a more than negligible portion. This is what our reaction should be today to a passage in another and no less famous of Macaulay's essays, bursting with derision and indig nation about Southey, who, at the dawn of British industry, had had the temerity to say that a cottage with rosebushes beside the door was more beautiful than the bleak workers' houses which were sprouting all over the place-"naked, and in a row."" 108 THE CONDITIONS AND LIMITS OF THE MARKET Economism, materialism, and utilitarianism have in our time merged into a cult of productivity, material expansion, and the standard of living. This cult proves once again the evil nature of the absolute, the unlimited, and the excessive. Not too long ago, Andre Siegfried recalled Pascal's dictum that man's dignity resided in thought, and Siegfried added that although this had been true for three thousand years and was still valid for a small European elite, the real opinion of our age was quite different. It is that man's dignity resides in the standard of living. No astute observer can fail to note that this opinion has developed into a cult, though not many people would, perhaps, now speak as frankly as C. W. Eliot, for many years President of Harvard University, who, in a com memoration address i~ 1909, enounced the astonishing sentence: "The Religion of the Future should concern itself with the needs of the present, with public baths, play grounds, wider and cleaner streets and better dwellings."

This cult of the standard of living scarcely needs further defini tion after what we have already said. It is a disorder of spiritual perception of almost pathological nature, a misjudgment of the true scale of vital values, a degradation of man not tolerable for long. It is, at the same time, very dangerous. It will, eventually, in crease rather than diminish what Freud calls the discontents of civilization. The devotee of this cult is forced into a physically and psychologically ruinous and unending race with the other fellow's standard of life-keeping up with the Joneses, as they say in America-and with the income necessary for this purpose. If we stake everything on this one card and forget what really matters, freedom above all, we sacrifice more to the idol than is right, so that, if once the material standard of living should recede by an inch or fail to rise at the rate the cult demands, we remain po litically and morally disarmed and baffled. We are deprived of firmness, resistance, and valor in today's world struggle, where more than the standard of life (though it, too) is at stake; we be come hesitant and cowardly, until it may be too late to realize that 109 A HUMANE ECONOMY exclusive concentration on the standard of living can lose us both that standard and freedom as well. This road to happiness is bound to lead to a dead end sooner or later. As we approach the limits of reasonable consumption, the cult· of the standard of life must end up in disillusionment and eventual repugnance. Even now we are told by Riesman and other American sociologists that the mass of consumers is becoming so blase that the most spectacular advertis ing effort can hardly break through. Color television, the second car in the family, the television screen in the private swimming pool-all right, but what then? Fortunately, the moment seems near when people begin to rediscover the charms of books and music, of gardening and the upbringing of their children.

One thing that makes the standard-of-life cult so dangerous is that it obscures the issue in the struggle between the free world and Communism. Again and again experience has shown how grave an error it is to believe that the counterforce to Communism which must form the moral core of the defense behind the West's military and political battle lines resides in faith in the power of the stand ard of living. It would be foolish, of course, to belittle or deny the importance of the standard of living in this contest. But one has not understood much about the phenomenon of modern totalitarian ism if one still regards as an evil fruit of poverty this infernal mix ture of unbridled power and deception of the masses-with spells concocted by morally unsettled and mentally confused intellectuals. No, the source of the poison of Communist totalitarianism is our era's social crisis as a whole, which has now spread also to the col ored peoples; it is the disintegration of the social structure and its spiritual and moral foundations. Communism thrives wherever the humus of a well-founded social order and true community has been removed by proletarianization, social· erosion, and the disappear ance of the bourgeois and peasant classes; it thrives where men, and intellectuals above all, have lost their roots and solidity and have been pried loose from the social fabric of the family, the suc cession of generations, neighborliness, and other true communi110 THE CONDITIONS AND LIMITS OF THE MARKET ties. Communism finds the most fertile soil of all wherever these processes of social disintegration are associated with religious de cline, as first in China and now in the Moslem world and in Japan.

Totalitarianism gains ground exactly to the extent that the human victims of this process of disintegration suffer from frustration and non-fulfillment of their life as a whole because they have lost the true, pre-eminently non-material conditions of human happiness. For this reason it is certain that the decisive battle between Com munism and the free world will have to be fought, not so much on the field of material living conditions, where the victory of the West would be beyond doubt, but on the field of spiritual and moral values. Communism prospers more on empty souls than on empty stomachs. The free world will prevail only if it succeeds in filling the emptiness of the soul in its own manner and with its own values, but not with electric razors. What the free world has to set against Communism is not the cult of the standard of living and produc tivity or some contrary hysteria, ideology, or myth. This would merely be borrowing Communism's own weapons. What we need is to bethink ourselves quietly and soberly of truth, freedom, jus tice, human dignity, and respect of human life and the ultimate values. For these we must set our course unerringly; we must cher ish and strengthen the spiritual and :moral foundations of these values and vital goods and try to create and preserve for mankind such forms of life as are appropriate to human nature and support and protect its conditions. 8 The material prosperity of the rnasses is not an absolute stand ard, and a warning against regarding it as the West's principal weapon in the cold war is nowhere :more justified than in the under developed countries. For one thing:, their case makes it particularly clear that the belief that people can be preserved from Communism by higher standards of living is dangerously superficial because it grossly exaggerates a factor which in itself is not unimportant and because it forgets the decisive spiritual and moral problems. In the underdeveloped countries, another factor assumes importance. The III A HUMANE ECONOMY road to higher living standards is sought in industrialization, ur banization, and general emulation of the advanced Western na tions' society and civilization; but, even more than in the Western world, this usually leads at once to a revolutionary upheaval in all the traditional forms of life and thought. What happens then is ominously manifest, for instance, in Japan, where the dissolu tion of the old forms, powerfully promoted after the last war by an obtuse victor, has prepared the ground for the Communist seed in a manner which poverty and material destruction could never have achieved. For the same reason, it is regrettable that India seems to follow Nehru's materialist socialism rather than Gandhi's humane wisdom. Finally, as regards the present advance of Communism in the Arab countries, it is unfortunately clear that it owes much less to the poverty of the masses than to the incompetence of the ruling classes, hysterical hatred of the West, and to immature intellectuals bewildered by the decline of Islam. 9 So there is a grave danger that in the especially vulnerable field of underdeveloped countries the free world may lose, by prole tarianization, urbanization, intellectualization, disintegration of family and religion, and disruption of the ancient forms of life, everything it may hope to wring from Communism by moderniza tion, mechanization, and industrialization. There is a possibility that the non-material consequences of "economic development"

may cause more losses than its material consequences cause gains, and this possibility is enhanced by the West's arrogant tendency to underestimate these nations' loyalty to their traditions. Thus we play into the hands of Communism the trump card of unnecessarily hurt national, religious, and cultural susceptibilities that are already exacerbated by a pathological feeling of inferiority vis-a.-vis the Western countries. What we should do instead is to use the entirely admirable loyalty of a people to its own traditions as a bulwark against Communism; we should encourage and respect this loyalty and set its forces of preservation against the dissolving and eroding effects of material Westernization. 10 112 THE CONDITIONS AND LIMITS OF THE MARKET Let us return to our main theme. Whatever may be the proper place of the economy in the universal order, what is the ethical place of the specific economic order proper to the free world? This economic order is the market economy, and it is with its relation ships that economics as a science is largely concerned. What, then, are the ethical foundations of the market economy?

"Supply and demand," "profit," 4;'cornpetition,""interest," "free play of forces," or whatever other words we may choose to charac .. terize the free economic system prevailing, even if in imperfect form, outside the Communist world.-do they not, to say the least, belong to an ethically questionable or even reprehensible sphere? Or to put it more bluntly, are we not living in an economic world or, as R. H. Tawney says, in an "~acquisitive society" which un leashes naked greed, fosters Machiavellian business methods and, indeed, allows them to become the Jrule~, drowns all higher motives in the "icy water of egotistical calculation" (to borrow from the Communist Manifesto), and lets people gain the world but lose their souls? Is there any more certain way of desiccating the soul of man than the habit of constantly thinking about money and what it can buy? Is there a more potent poison than our economic sys tem's all-pervasive commercialism?' Or can we still subscribe to that astonishing eighteenth ..century optimism which made Samuel Johnson say: "There are few ways in which man can be more in nocently employed than in getting lTIOney"?

Economists and businessmen who have a distaste for such ques tions or who would, at any rate, prefer to hand them over, with a touch of irony, to theologians and philosophers are ill advised. We cannot take these questions too seriously, nor must we close our eyes to the fact that it is not necessarily the most stupid or the worst who are driven into the camp of collectivist radicalism for lack of a satisfactory answer to these questions. Among these men are many who have a right to call themselves convinced Christians. There is another and no less important reason why we should examine the ethical content of everyday economic life. This reason 113 A HUMANE ECONOMY is that the question concerns us most intimately because it reaches down to the levels from which our roots draw their life-giving sap. Navigare necesse est, vivere non est necesse, says an inscription on an old sailor's house in Bremen; we may generalize this into say ing: Life is not worth living if we exercise our profession only for the sake of material success and do not find in our calling an inner necessity and a meaning which transcends the mere earning of money, a meaning which gives our life dignity and strength. What ever we do and whatever our work, we must know what place we occupy in the great edifice of society and what meaning our activity has beyond the immediate purpose of promoting material existence.

We must answer to ourselves for the social functions for which so ciety rewards us with our income. It is a petty and miserable existence that does not know this, that regards the hours devoted to work as a mere means of earning money, as a liability to be bal anced only by the satisfactions which the money counterpart of work procures. 1 I This feeling for the meaning and dignity of one's profession and for the place of work in society, whatever work it he, is today lost to a shockingly large number of people. To revive this feeling is one of the most pressing tasks of our times, but it is a task whose solu tion requires an apt combination of economic analysis and philo sophical subtlety. This is, perhaps, truer of commerce than of other callings because the merchant's functions are more difficult to place in society than others. An activity which, at first sight, seems to consist of an endless series of purchases and sales does not display its social significance and professional dignity as readily as do the peasant's or the sailor's pursuits. The merchant himself is not easily aware of them, nor are others, who all too often treat him as a mere parasite of society, an ultimately redundant intermediary whose "trading margins" are resented as an irksome levy and whom one would like to eliminate wherever possible. How infinitely more dif ficult must it be, then, to explain to a layman the functions of stock-exchange speculation and to defeat the almost ineradicable 114 THE CONDITIONS AND LI:MITS OF THE MARKET prejudices which fasten onto this favorite subject for anti-capitalist critics?

This is the place, too, to note that the hard-boiled business world, which ignores such questions or leaves them, with contempt, to the "unbusinesslike" intellectuals, and these same intellectuals' distrust of the business world match and Jmutually exacerbate each other. If the business world loses its contact with culture and the intel lectuals resentfully keep their distance from economic matters, then the two spheres become irretrievably alienated from each other . We can observe this in America in the anti-intellectualism of wide cir cles of businessmen and the anti-capitalism of equally wide circles of intellectuals. It is true that intellectuals have infinitely less social prestige in America than in Europe and that they are much less integrated in the network of society and occupy a much more pe ripheral place than their brothers in Europe. They retaliate for this seating plan at the nation's table with their anti-capitalism, and the businessmen and entrepreneurs repay the intellectuals' hostility hy despising them as "eggheads."

In so dynamic a competitive economy, the American intellectuals have to admit that the gulf between education and wealth, which is derided in Europe in the person of the nouveau riche, is the rule rather than the exception, as it should be ; on the other hand, American businessmen easily fall into the habit of treating the in tellectual as a pompous and would-be-clever know-all who lacks both common sense and a sound scale of values. Since in both cases the caricature is often not very far from the truth, the result is a vicious circle of mutually intensifying resentment which threatens to end up in catastrophe. One has to break out of this vicious circle by making the world of the mind as respectable to the business world as, conversely, the business world to the world of the mind. Naturally, there is no question of taking sides with American intellectuals when they rebel against a predominantly commercial society with which they have little in common. But it must be con ceded that it will not be easy to hold d.own this rebellion as long as lIS A HUMANE ECONOMY the tension between business and culture is not considerably dimin ished. This tension is particularly obvious in the United States and in all the overseas territories of European expansion. It would be unfair to expect the diminution to come from only one side, and the task would become harder if we were simply to blame the American anti-capitalist intellectuals and not try also to understand their point of view. The chain reaction between the business world's distrust of intellectuals and the intellectuals' retaliating resentment should be broken by both sides: the intellectuals should abandon untenable ideologies and theories, and the "capitalists" should adopt a philosophy which, while rendering unto the market the things that belong to the market, also renders unto the spirit what belongs to it. Both movements together should merge into a new humanism in which the market and the spirit are reconciled in common service to the highest values. It need hardly be mentioned that we Europeans have no reason to strike any holier-than -thou attitudes about these problems. If things are, on the whole, still a little better in Europe, this is due to no merit of ours hut to an his torical heritage which beneficially slows down a development we share with "Europe overseas."12 What, then, is our answer to the great question we asked at the beginning? At what ethical level, in general, must we situate the economic life of a society which puts its trust in the market economy?

It is rather like the ethical level of average man, of whom Pascal says: "L'homme n'est ni ange ni bete, et Ie malheur veut que qui veut faire l'ange fait la bete." To put it briefly, we move on an inter mediate plane. It is not the summit of heroes and saints, of simon pure altruism, selfless dedication, and contemplative calm, but neither is it the lowlands of open or concealed struggle in which force and cunning determine the victor and the vanquished. The language of our science constantly borrows from these two contiguous spheres to describe modern economic processes, and it is characteristic of our uncertainty that we usually reach either 116 THE CONDITIONS AND LI:MITS OF THE MARKET too high or too low. When we speak of "service" to the consumer, we obviously have in mind not St. Elizabeth but the assistant who wipes the windshield of our car at the filling station, and the "con ..

quest" of a market brings to mind the traveling salesman, tempting prospectuses, and rattling cranes rather than thundering tanks or booming naval guns. IS It is true that in our middle plateau of everyday economic life there is, :Eortunately, as much room for elevations into the higher sphere of true devotion as there is for depressions of violence and fraud; nevertheless, it will generally be granted that the world in which we do business, bargain, calcu.. late, speculate, compare bids, and explore markets ethically cor.. responds by and large to that middle level at which the whole of everyday life goes on. Reliance on one's own efforts, initiative un.. del' the impulse of the profit motive, the best possible satisfaction of consumer demand in order to avoid losses, safeguarding one's own interests in constant balance with the interests of others, col.. laboration in the guise of rivalry, solidarity, constant assessment of the weight of one's own perforrrlance on the incorruptible scales of the market, constant struggle to irnprove one's own real per ..

formance in order to win the prize of a better position in society these and many other formulations are used to characterize the ethical climate of our economic world. They are imperfect, grop" ing, and provisional, perhaps also euphemistic, but they do express what needs to be said at this point in our reflections. This ethical climate, we must add at once, is lukewarm, without passions, without enthusiasm, but also, in the language of one of Heine's poems, without "prodigious sins" and without "crimes of blood"; it is a climate which, while not particularly nourishing for the soul, at least does not necessarily poison it. On the other hand, it is a favorable climate for a certain atmosphere of minimal con.. sideration and for the elementary justice of a certain correspond .. ence of give and take and most favorable, whatever one may say, for the development of productive energy. That this energy is ap..

plied not to the construction of pyramids and sumptuous palaces 11~( A HUMANE ECONOMY but to the continual improvement of the well-being of the masses and that this happens because of the effect of all-powerful forces proper to the structure and ethical character of our free economic order is perhaps the greatest of the assets in its overall balance sheet. This view of the ethical climate of the market has distinguished ancestors. In 1748, Montesquieu wrote in his book L'Esprit des Lois of the spirit of our market economy (which he calls esprit de commerce): "It creates in man a certain sense of justice, as op posed, on the one hand, to sheer robbery, but on the other also to those moral virtues which cause us not always to defend our ad vantage to the last and to subordinate our interest to those of others" (Book XX, Chapter 2). We may add that our era's market economy society may claim to be less subject to compulsion and power than any other society in history, though it is perhaps for that very reason all the more prone to deception as a means of persuasion. We shall have more to say about this later.

The poem by Heine to which we alluded is "Anno 1829," and the lines we referred to are these: Prodigious sins I'd rather see And crimes of blood, enormous, grand, Than virtue, self-content and fat, Morality with cash in hand. Who does not know such moments of despair in the face of Phil istine self-satisfaction and ungenerousness? But this should not cause us to forget the real issue here, namely, the eternal romantic's contempt of the economy, a contempt shared often enough by reac tionaries and revolutionaries, as well as by aloof aesthetes. Never theless, there remains the question of whether we really prefer to do away with "virtue" and go hungry, to give up "morality" and go bankrupt. As a matter of fact, a certain opprobrium was attached for many centuries to that middle level· of ethics which is proper to any es118 THE CONDITIONS AND LIMITS OF THE MARKET sentially free economy. It is the merit of eighteenth-century social and moral philosophy, which is the source of our own discipline of political economy, to have liberated the crafts and commercial ac tivities-the banausic (the Greek {3avavuor; means "the man at the stove") as they were contemptuously called in the slave economy of Athens-from the stigma of the feudal era and to have obtained for them the ethical position to which they are entitled and which we now take for granted.

It was a "bourgeois" philosophy in the true sense of the word, and one might also legitimately call it "liberal." It taught us that there is nothing shameful in the self-reliance and self-assertion of the individual taking care of himself and his family, and it led us to assign their due place to the corresponding virtues of diligence, alertness, thrift, sense of duty, reliability, punctuality, and reason ableness. We have learned to regard the individual, with his family, relying on his own efforts and making his own way, as a source of vital impulses, as a life-giving creative force without which our modern world and our whole civilization are unthinkable. In order to appreciate just how important this "bourgeois" spirit is for our world, let us consider the difficulty of implanting modern economic forms in the underdeveloped countries, which often lack the spiritual and moral conditions here under discussion. We in the West take them for granted and are therefore hardly aware of them, but the spokesmen of the underdeveloped countries frequently see only the outward economic success of Western nations and not the spiritual and moral foundations upon which it rests. A sort of hu man humus must be there, or at least be expected to form, if West ern industry is to be successfully transplanted. Its ultimate condi tions remain accuracy, reliability, a sense of time and duty, application, and that general sense of good workmanship which is obviously at home in only a few countries. With some slight exag geration, one might put it this way: modern economic activity can thrive only where whoever says "tomorrow" means tomorrow and not some undefined time in the future. 14 119 A HUMANE ECONOMY In the Western world, "interested" activity has, without doubt, a positive value as the mainspring of society, civilization, and culture.

Some may still protest in the name of Christian teaching, but in so doing, they merely reveal that they have, for their part, not yet overcome the eschatological communism of the Acts of the Apos tles.15 After all, "the doctrine of self-reliance and self-denial, which is the foundation of political economy, was written as legibly in the New Testament as in the Wealth of Nations," and Lord Acton, the distinguished English historian to whom we owe this bold state ment, rightly adds that this was not realized until our age.16 The history of literature is very revealing: for Moliere, the bourgeois was still a comic figure, and when for once Shakespeare introduces a merchant as such, it is Shylock. It is a long way to Goethe's Wilhelm Meister, where we move in the bourgeois trading world and where even double-entry bookkeeping is transfigured by phi losophy and poetry. To make this even clearer, let us turn the tables and see what happens when we give free rein to those who condemn the market, competition, profit, and self-interest in the name of a "higher"

morality and who deplore the absence of the odor of sanctity in individual self-assertion. They clearly do violence to one side of human nature, a side which is essential to life and which balances the other, nobler side of selfless dedication. This kind of moralism asks too much of ordinary people and expects them constantly to deny their own interests. The first result is that the powerful mo tive forces of self-interest are lost to society. Secondly, the purposes of this "higher" economic morality can be made to prevail only by doing something eminently immoral, namely, by compelling peo ple-by force or cunning and deception-to act against their own nature. In all countries in which a collectivist system has been set up, in the name of many high-sounding purposes and not least of an allegedly "higher" morality, police and penalties enforce com pliance with economic commands, or else people are kept in a state of permanent intoxication by emotional ideologies and rousing propaganda-as far and as long as it may be possible.

120 THE CONDITIONS AND LIMITS OF THE MARKET This, as we all know, regularly happens whenever the market is replaced by a collectivist economy. The market economy has the ability to use the motive power of individual self-interest for turn ing the turbines of production; but if the collectivist economy is to function, it needs heroes or saints, and since there are none, it leads straight to the police state. Any attempt to base an economic order on a morality considerably higher than the common man's must end up in compulsion and the organized intoxication of the masses through propaganda. To cite Pascal again, "... et qui veut faire l'ange fait fa bete." This is one of the principal reasons for the fact, with which we are already familiar, that a free state and so ciety presuppose a free economy~ Collectivist economy, on the other hand, leads to impoverishment and tyranny, and this conse quence is obviously the very opposite of "moral." Nothing could more strikingly demonstrate the positive value of self-interested action than that its denial destroys civilization and enslaves men.

In "capitalism" we have a freedom of moral choice, and no one is forced to be a scoundrel. But this is precisely what we are forced to be in a collectivist social and economic system. It is tragically paradoxical that this should he so, but it is, because the satanic rationale of the system presses us into the service of the state ma chine and forces us to act against our consciences. However, to reduce the motives of eeonomic action solely to the desire to obtain material advantage and avoid material loss would result in too dark a picture of the ethical basis of our free economic system. The ordinary man is not such a homo ceconomicus, just as he is neither hero nor saint. The motives which drive people toward economic success are as varied as the human soul itself. Profit and power do move people, but so do the satisfactions of professional accomplishment, the wish for recognition, the urge to improve one's performance, the dream of excavating Troy (as in the famous ex ample of Schliemann), the impulse to help and to give, the passion of the art or book collector, and rn.any other things. 17 But even if we discover nothing better than the motive of bare material advan tage, we should never forget that the man who decently provides 121 A HUMANE ECONOMY for himself and his family by his own effort and on his own respon sibility is doing no small or mean thing. It should be stated em phatically that he is more deserving of respect than those who, in the name of a supposedly higher social morality, would leave such provision to others. This applies also to that further category of people who pride themselves on their generosity at others' expense and shed tears of emotion about themselves when their advocacy of a well-oiled welfare state earns them a place in the hearts of the unsuspecting public-and, at the same time, on some political party's list of candidates.

Anyone who knows anything about economics will realize at once that these considerations suggest a familiar answer to an obvi ous question. What will happen when these individualist motives induce people to do things which are manifestly harmful to others? Again we turn to the social philosophy of the eighteenth century and its lessons. An economy resting on division of labor, exchange, and competition is an institution which, in spite of its occasionally highly provocative imperfections, does tend, more than any other economic system, to adjust the activities governed by individual interests to the interests of the whole community. We know the mechanism of this adjustment. The individual is forced by com petition to seek his own success in serving the market, that is, the consumer. Obedience to the market ruled by free prices is rewarded by profit, just as disobedience is punished by loss and eventual bankruptcy. The profits and losses of economic activity, calculated as precisely and correctly as possible by the methods of business economics, are thus at the same time the indispensable guide to a rational economy as a whole. Collectivist economies, of whatever degree of collectivism, try in vain to replace this guidance by planning.

These simplified formulations are, of course, highly inadequate, although the truth they contain is undeniable. We need not waste many words over this or over the large and perhaps increasing number of cases where even the market and competition fail to dis122 THE CONDITIONS AND LIMITS OF THE MARKET charge the enormous task of adjusting individual economic action to the common interest. It hardly needs to be stressed, either, how difficult it is to keep competition as such free and satisfactory. Any more or less well-informed person knows that these unsolved tasks and difficulties constitute the thorny problems of an active economic and social policy and that they cannot be taken too seriously. However, this is not the place to discuss them. There is some thing else, though, which does need stressing in this context. Have we said all there is to say when we have underlined the importance of competition, and of the price mechanism moved by competition, in regulating an economic systelm whose principle it is to leave individual forces free? Is it enough to appeal to people's "enlight ened self-interest" to make them realize that they serve their own best advantage by submitting to the discipline of the market and of competition?

The answer is decidedly in the negative. And at this point we emphatically draw a dividing line between ourselves and the nine teenth-century liberal utilitarianis:m and immanentism, whose traces are still with us. Indeed, there is a school which we can hardly call by any other name but liberal anarchism, if we reflect that its adherents seem to think that market, competition, and economic rationality provide a sufficient answer to the question of the ethical foundations of our economic system. What is the truth? The truth is that what we have said about the forces tending to establish a middle level of ethics in our economic system applies only on the tacit assumption of a modicum of pri mary ethical behavior. We have :made it abundantly clear that we will have no truck with a sort of economically ignorant moralism which, like Mephistopheles in reverse, always wills the good and works the bad. But we must add that we equally repudiate morally callous economism, which is insensitive to the conditions and limits that must qualify our trust in the intrinsic morality of the market economy. Once again, we must state that the market economy is not enough.

123 A HUMANE ECONOMY In other words, economic life naturally does not go on in a moral vacuum. It is constantly in danger of straying from the ethical middle level unless it is buttressed by strong moral supports. These must simply be there and, what is more, must constantly be im· pregnated against rot. Otherwise our free economic system and, with it, any free state and society must ultimately collapse. This also applies in the narrower sense of competition alone. Competition is essential in restraining and channeling self-interest, but it must constantly be protected against anything tending to vitiate it, restrict it, and cause its degeneration. This cannot be done unless everybody not only accepts the concept of free and fair com· petition but in practice lives up to his faith. All individuals and groups, not excluding trade-unions (as must be stressed in view of a widespread social priggishness), who take part in economic life must make a constant moral effort of self-discipline, leaving as lit tle as possible to an otherwise indispensable government-imposed compulsory discipline. It is by no means enough to invoke the laws of the market in appealing to people's enlightened self-interest and their economic reason, for within certain limits, cartels, lahor unions, pressure groups, and trade associations serve their mem bers' interests very well indeed when they exercise monopoly power or pressure on the government's economic policy in an attempt to get more than genuine and fair competition would give them. There must be higher ethical values which we can invoke successfully: justice, public spirit, kindness, and good will.IS So we see that even the prosaic world of business draws on ethical reserves by which it stands and falls and which are more important than economic laws and principles. Extra-economic, moral, and social integration is always a prerequisite of economic integration, on the national as on the international plane. As regards the latter, it should be especially emphasized that the true and ultimate foun· dation of international trade, a foundation of which our textbooks have little to say, is that unwritten code of normal ethical behavior which is epitomized in the words pactasunt servanda.I 9 124 THE CONDITIONS AND L][MITS OF THE MARKET The market, competition, and the play of supply and demand do not create these ethical reserves; they presuppose them and con sume them. These reserves have to come from outside the market, and no textbook on economics can replace them. J. B. Say was mistaken in his youthful work Olbie ou Essai sur les moyens de reformer les moeurs d'une nation, a liberal utopian fantasy pub lished in 1800, when he naively proposed to hand the citizens of his paradise "un bon traite d'economie politique" as a "premier livre de morale." That valiant utilitarian Cobden also seems to have thought in all seriousness that free-trade theory was the best· way to peace.

Self-discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms-all of these are things which people must possess before they go to market and compete with each other. These are the in dispensable supports which preserve both market and competition from degeneration. Family, church, genuine communities, and tradition are their sources. It is also necessary that people should grow up in conditions which favor such moral convictions, condi tions of a natural order, conditions promoting co-operation, re specting tradition, and giving moral support to the individual. Own ership and reserves, and a feeling for both, are essential parts of such an order. We have, a little ea.rlier, characterized such an order as "bourgeois" in the broadest sense, and it is the foundation upon which the ethics of the market economy must rest. It is an order which fosters individual independence and responsibility as much as the public spirit which connects the individual with the com munity and limits his greed.

The market economy is a constantly renewed texture of more or less short-lived contractual relations. It can, therefore, have no permanence unless the confidence which any contract presupposes rests on a broad and solid ethical base in all market parties. It de pends upon a satisfactory average degree of personal integrity and, at the margin, upon a system of law which counteracts the natural 125 A HUMANE ECONOMY tendency to slip back into less-than-average integrity. Within that legal framework, the market's own sanctions undeniably foster the habit of observing certain minimum rules of behavior and thereby also integrity. Whoever always lies and deceives and breaks con tracts will sooner or later be taught that honesty is the best policy. For all its resting on utilitarian calculation, this pattern of behavior is valuable and reliable, as we can see in the extreme example of Soviet Russia, which, in its relations with the outside world of the market, has tried systematically and successfully to acquire the reputation for prompt payment while adhering, in other respects, to the ethical code of gangsters. Even if we conscientiously credit the market with certain educational influences, we are, therefore, led back to our main contention that the ultimate moral support of the market economy lies outside the market. Market and competi tion are far from generating their moral prerequisites autono mously. This is the error of liberal immanentism. These prerequi sites must be furnished from outside, and it is, on the contrary, the market and competition which constantly strain them, draw upon them, and consume them.

We would, of course, again err on the side of unrealistic and unhistorical moralism if we were to apply to modern economic behavior moral standards which would have been enough to con demn mankind at any time because men can never live up to them. Such moralism is least tolerable when it self-righteously pretends that the moralist is a better man for the mere reason that his stand ards are so strict. This should always be remembered whenever the talk turns to the questionable aspects of competition. Ruthless rivalry has never and in no circumstances been banned from human society. The young Torrigiani, spurred by jealousy and profes sional rivalry, smashed Michelangelo's nasal bone and thereby dis figured him for life; in our days, a leading German trade-union intellectual, no doubt a valiant detractor of the "capitalist jungle," tried to get rid of a rival by means of forged letters-it is always the same thing and always equally unedifying. But we get nowhere 126 THE CONDITIONS AND L1MITS OF THE MARKET by raising our eyebrows because the market economy does not always display the sporting spirit of a tennis tournament; we would do better to reflect that no small advantage of the market economy is that it channels men's natural rivalry into forms which, by and large, are preferable to broken noses and forged letters-and also to mass executions, as in Communist countries.

But we cannot, in good conscience, let the matter rest there. It cannot be denied that the market places the constant competitive struggle for self-assertion and self.·advancement in the center of the stage. Nor can it be denied that such all-pervasive competition has a disturbing tendency to lead to consequences to which we cannot remain indifferent, especially frorn the moral point of view. Those who are in the rough-and-tumble of the competition of modern economic life, with its nerve-racking claims on time, effort, and susceptibility, and who are worn down by this endless struggle are more sensitive than most to the questions raised thereby, and it would be both unjust and uncivil therefore to treat them as monopoly-mongers. We all acknowledge the validity and justice of such questions when we accept as a model of a higher form of rivalry the way in which certain professions, above all the medical, submit to strict rules of competition to the point of including them among the standards of professional behavior. 'Unfortunately, this example of the medical profession's deontology cannot be applied to industry and trade. But it shows what a blessing for all it would be if a definite code of competitive behavior, resting on professional stand ards, binding for all and violable only at the price of outlawry, were to dampen competition everywhere and withdraw it from the laws of "marginal ethics,"20 without appeal to the state but in full appreciation of the positive potentialities of professional solidarity.

In acknowledging these potentialities, we express the idea that we should aim at compensating the socially disintegrating effects of competition by the integrating forces outside the market and outside competition. There is, however, the danger of abuse. On no account 127 A HUMANE ECONOMY must competition be corrupted by its economically most question able and morally most reprehensible perversion, namely, monopoly in any shape or form. Monopoly is precisely the worst form of that commercialism which we want to combat by trying to mitigate competition by integrating counterforces. The truth is that competition, which we need as a regulator in a free economy, comes up on all sides against limits which we would not wish it to transgress. It remains morally and socially dangerous and can be defended only up to a point and with qualifications and modifications of all kinds. A spirit of ever alert and suspicious rivalry, not too particular in the choice of its means, must not be allowed to predominate and to sway society in all its spheres, or it will poison men's souls, destroy civilization, and ultimately disin tegrate the economy.

To assert oneself all the time by ubiquitous advertising, day and night, in town and country, on the air and on every free square foot of wall space, in prose and in verse, in word and picture, hy open assault or by the subtler means of "public relations," until every gesture of courtesy, kindness, and neighborliness is degraded into a move behind which we suspect ulterior motives; to fashion all imaginable relations and performances on the principle of sup ply and demand and so to commercialize them, not excluding art and science and religion; forever to compare one's own position with that of others; always to tryout something new, to shift from one profession and from one place to the next; to look with con stant jealousy and envy upon others-such extreme commercializa tion, restlessness, and rivalry are an infallible way of destroying the free economy by morally blind exaggeration of its principle.

This is bound to end up in an unhealthy state of which the worst must be feared. The curse of commercialization is that it results in the standards of the market spreading into regions which should remain beyond supply and demand. This vitiates the true purposes, dignity, and savor of life and thereby makes it unbearably ugly, undignified, 128 THE CONDITIONS AND LIMITS OF THE MARKET and dull. We have had occasion earlier to note this. Think of Mother's Day, a day set aside to hono!" mothers and motherhood; the most tender and sacred human relationship is turned into a means of sales promotion by advertising experts and made to turn the wheels of business. Father's Day soon followed, and if we did not fortunately know better, the latest forms of Christmas might make us suspect that this whip which makes the top of business spin is also a creation of modern advertising techniques. Not long ago it happened that an automobile race, which, to the horror of the spectators, led to a fatal accident, was nevertheless continued be cause of its commercial and technical purposes, so that even death had to defer to business and technology.

All of this cannot be castigated too severely-with the intention, not of condemning the market economy, hut of stressing the need to circumscribe and moderate it and of showing once more its dependence upon moral reserves. This circumscription and modera tion can take many forms. One of them is that we do not allow competition to become the dominating principle and that we keep an eye on all the circumstances which tend to mitigate it. Let me illustrate my point. Has any sociologist ever bothered to discover why there is usually fierce rivalry among actors and singers, while circus folk tend to live in an atmosphere of kindly good ..fellowship? Would it not be a rewarding task to examine the whole texture of modern society for such differences in competition and their pre sumable causes? 21 Nobilitas Naturalis It cannot be said often enough that in the last resort competition has to be circumscribed and mitigated by moral forces within the market parties. These constitute the true "countervailing power"

of which the American economist J. K. Galbraith speaks in his book of the same title, and not the mechanics of organized buying power, to which he mistakenly looks for the containment of competition 129 A HUMANE ECONOMY and its monopolistic perversions. Without a fund of effective con victions regarding the moral limits of competition, the problem cannot find a genuine solution. In a sound society, leadership, responsibility, and exemplary de fense of the society's guiding norms and values must be the exalted duty and unchallengeable right of a minority that forms and is willingly and respectfully recognized as the apex of a social pyra mid hierarchically structured by performance. Mass society, such as we have described it earlier, must be counteracted by individual leadership-not on the part of original geniuses or eccentrics or will-o'-the-wisp intellectuals, but, on the contrary, on the part of people with courage to reject eccentric novelty for the sake of the "old truths" which Goethe admonishes us to hold on to and for the sake of historically proved, indestructible, and simple human values. In other words, we need the leadership of genuine clercs or of men such as those whom the distinguished psychiatrist Joachim Bodamer recently described as "ascetics of civilization," secu larized saints as it were, who in our age occupy a place which must not for long remain vacant at any time and in any society. That is what those have in mind who say that the "revolt of the masses"

must be countered by another revolt, the "revolt of the elite." The conviction is rightly gaining ground that the important thing is that every society should have a small but influential group of leaders who feel themselves to be the whole community's guardi ans of inviolable norms and values and who strictly live up to this guardianship. What we need is true nobilitas naturalis. No era can do without it, least of all ours, when so much is shaking and crum bling away. We need a natural nobility whose authority is, for tunately, readily accepted by all men, an elite deriving its title solely from supreme performance and peerless moral example and invested with the moral dignity of such a life. Only a few from every stratum of society can ascend into this thin layer of natural nobility. The way to it is an exemplary and slowly maturing life of dedicated endeavor on behalf of all, unimpeachable integrity, con130 THE CONDITIONS AND LIMITS OF THE MARKET stant restraint of our common greed, proved soundness of j udg ment, a spotless private life, indornitable courage in standing up for truth and law, and generally the highest example. This is how the few, carried upward by the trust of the people, gradually attain to a position above the classes, interests, passions, wickedness, and foolishness of men and finally become the nation's conscience. To belong to this group of moral aristocrats should be the highest and most desirable aim, next to which aU the other triumphs of life are pale and insipid.

No free society, least of all ours, which threatens to degenerate into mass society, can subsist without such a class of censors. The continued existence of our free world will ultimately depend on whether our age can produce a sufficient number of such aristo crats of public spirit, aristocrats of a kind which was by no means rare in the feudal age. We need businessmen, farmers, and bankers who view the great questions of economic policy unprejudiced by their own immediate and short-run economic interests; trade-union leaders who realize that they share with the president of the na tional bank the responsibility for the country's currency; journal ists who resist the temptation to flatter nlass tastes or to succumb to political passions and court cheap success and instead guide public opinion with moderation, sound judgment, and a high sense of responsibility. In turn, it will be of crucial importance for the ultimate fate of the market economy whether this aristocracy in cludes' above all, people who, by position and conviction, have close ties with the market economy and who feel responsible for it in the moral sphere here under discussion. 22 Evidently, many and sometimes difficult conditions must be ful filled if such a natural aristocracy is to develop and endure and if it is to discharge its tasks. It must grow and mature, and the slow ness of its ripening is lnatched by the swiftness of its possible destruction. Wealth gained and lost overnight is a stony ground on which it cannot prosper but on which thrive plutocracy and newly rich parvenus-the very opposite of what is desirable. Yet without 131 A HUMANE ECONOMY wealth and its inheritance, whereby a spiritual and moral tradition is handed down together with its material foundation, a natural aristocracy is equally impossible, and it would be shortsighted egalitarian radicalism to overlook this. 23 One generation is often, indeed usually, not sufficient to produce the flower and fruit of aristocratic public spirit and leadership, and this is why the almost confiscatory limitation of the testator's rights, which today is the rule in some maj or Western countries, is one of the most harmful measures imaginable and contrary to the spirit of sound policy.

But richesse oblige. Any privilege, be it a privilege of birth, . mind, honor and respect, or of wealth, confers rights only in exactly the same measure in. which it is accepted as an obligation. It will not do to hide one's talent in the earth; each must remain con scious of the responsibilities which his privileged position entails. If ever the much-abused words "social justice" are appropriate, it is here. One of the obligations of wealth, which need not be enumerated, is to contribute to the filling of the gaps left by the market because they are in the realm of goods outside the play of supply and de mand, but which gaps must not be left for. the state to fill if we want to preserve a free society. I have in mind the patronage of art in the widest sense, generous grants for theatre, opera, music, the visual arts, and science-briefly, for everything whose existence and development would be jeopardized if it had to "pay." We would be hard put to name a single supreme work of art in any period of history which did not owe its origin to patronage, and it is even more difficult to think of a theatre, opera house, or orchestra which bowed to the laws of supply and demand without damage to its quality or which, therefore, could have maintained its quality without patronage. The tragedies of Aeschylus, Sophocles, and Euripides are as unthinkable without the public donations of the rich Athenians as are the plays of Shakespeare without his patrons.

Conversely, in so far as in our age the laws of supply and demand determine the level of artistic performance-in extreme form, in 132 THE CONDITIONS AND LI:M:ITS OF THE MARKET the film industry-the devastating effects are plain for all to see. This function is to be fulfilled by the rich in the same spirit in which in the old days the Hanseatic burghers of Bremen used to pay property taxes: in honest self-assessment of one's ability to pay and in voluntary fulfillment of an honorary duty.24 Here it is ap propriate to emphasize that this spirit is smothered by the modern welfare state and its fiscal socialisna. It may also be pointed out that the rich cannot exercise their function of patronage of the arts unless they are at home in the realml of the spirit and of beauty as much as in the world of business-which brings us back to what we said earlier in this chapter. The task of leadership falls to the natural aristocracy by virtue of an unwritten but therefore no less valid right which is indis tinguishable from duty. Washington's successor, the great Ameri can statesman John Adams, had sonle very pertinent things to say about this. According to him, a member of the "natural aristocracy of virtues and talents" was anyone who disposed not only of his own vote but, at the same time, of the votes of those whose opinions he influenced by his example, acknowledged authority, and per suasion. But since this is unfortunately true not only of the "natural aristocracy of virtues and talents" but of everybody who, by foul means or fair, influences the formation of political opinion, we must add the qualification that the unwritten plural franchise which actually exists in any democracy is the Inore justified the more we can rely on the existence and effectiveness of a genuine natural aristocracy. The latter therefore appears all the more indispensable.

Finally, we have to speak of science, whose leadership functions and responsibility are obvious. There can be no doubt that here, too, rights and duties are inextricably linked. Here, too, authority and it is authority of the highest rank-has to be gained and held by achievement and character. But what, precisely, is the deontol ogy of science, especially, in this context, of the social sciences? Boswell has recorded an apposite remark by Samuel Johnson, that great eighteenth-century Englishnlan. Certain professions, 133 A HUMANE ECONOMY Johnson said, principally the sailor's and the soldier's, had the dig. nity of danger. "Mankind reverence those who have got over fear, which is so general a weakness." Conversely, the honor of those pro· fessions whose dignity is danger cannot be more deeply wounded than by casting doubt on their courage. The esteem in which science is held certainly does not rest on such a dignity of danger. We do not expect of a Sanskrit scholar the bravery of a soldier or sailor who, professionally, has to face physical danger of losing his life, but we do expect men of science to be courageous and intrepid in another sense, which we recognize when we have grasped that the "dignity of science" is truth. This sounds a little pompous, but it is meant to express something very simple. It does not mean that science is respected because it has to offer "truth" like ripe plums. What we mean is this: just as much as fear, another universal human failing is a tendency to allow the prospect of advantages or the threat of disadvantages to deflect one from the pursuit of the "true" facts. and, even more, from the free announcement of facts recognized as "true." The dignity of science is that its genuine apostles constantly have to overcome this human weakness of interested squinting at truth. Only those who fulfill this requirement can partake in the dignity of science. Only they discharge the obligation put upon them by the privilege of being the servants of science, and only they can hope to attain to natural nobility and to render to the community those services which it has a right to expect from them.

Since men of science, too, are generally neither saints nor heroes, it is no doubt hard for them to live up to this standard without faltering and occasional aberrations. It is hardest for those who, unlike the Sanskrit scholar, have chosen a field of knowledge which gives them occasion and indeed obliges them to defend the "dignity of truth" in the rough-and-tumble of interests and passions. Eco· nomic policy, of which we are treating here, is such a battlefield, and the scholars involved are the jurists and economists. 25 Econo mists also have this in common with jurists: their scientific author134 THE CONDITIONS AND LIMITS OF THE MARKET ity, whose moral foundation is the "dignity of truth," is appealed to in controversial questions. Such activities by scholars are as old as the history of science and the universities; we have but to re member that in the fourteenth century Louis of Bavaria called on the famed scholars of the Universities of Bologna and Paris for opinions in his struggle with Pope John XXII. Curiously enough, this is not usually held against jurists, although the delicate nature of such a task is obvious. It always presents the man of science with a question of conscience which he must decide in the light of the" dignity of truth."

The answer should not be in doubt. Such a commission can be accepted-and indeed has point for the questioner-only if it is discharged in such a manner that the scholar's answer does not deviate in the slightest respect from. that which he would have pro nounced without the commission and without the ensuing advan tages (which may include such t}lings as enhanced prestige or pub lic honors). The answer must be strictly in line with his scientific convictions, and if there is the slightest doubt about this, the scholar should withdraw. The economist, in particular, should make it a rule to put his scientific work at the service of any precise commis sion, originating from the goverlllment or from international or non -governmental organizations, only on condition that this work can serve his own convictions also and on the further condition that he may hope thereby to promote a good cause threatened by over whelming forces. In the absence of these conditions, the economist has every reason to ask himself whether the counsel expected of him in the struggle of economic interests and social passions is not a mortgage on his conscience, considering the social function of his science.

If a task so undertaken also happens to involve some private in terests, the economist can congratulate himself. Aims of economic policy which lack such a solid anchor have little prospect of being taken seriously in our world of overwhelming material interests and stormy passions. To take an important example, liberal trade policy 135 A HUMANE ECONOMY would be in a bad way indeed if there did not, fortunately, exist groups which have a material interest in it and thereby form a natural counterweight to the fatal combination of protectionist in terests and political passions such as nationalism and socialism. To help such groups may be regarded as a legitimate duty by the econo mist who weighs the opposing forces against each other. The economist has all the less right to evade the duty of bringing his authority to bear on the controversies of economic policy since this duty has an important characteristic in common with every genuine duty. This is that it tends to be beset by vexations, and to withstand these vexations requires that same courage which is in dispensable for defending the "dignity of truth." By putting his view onto one of the scales, he lessens the relative weight of the other, and the interest and passions involved on the other side will feel provoked. They have a perfect right to resist by trying to prove that the reasons, assumptions, and conclusions of the inconvenient scientific verdict are wrong and that the scientific judgment against them is a misjudgment. The scholar would be foolish if he thought himself in possession of objective truth, and it is no dishonor for him to be disproved. But he has aright to expect that his search for truth, his intellectual integrity, is not suspected. Like the judge, he has an absolute claim, which should be effectively protected, to the assurance that factual criticism of his sentence will not be replaced by an attempt to smear his reputation with accusations of bribery, cowardice, or political prej udice.

Bad experiences of this kind do not seem to have been spared even Adam Smith, the father of economics and contemporary of Samuel Johnson. In a famous passage of his Wealth of Nations (Book IV, Chapter 2), he says that anyone who opposes uncon querable private interests or has authority enough to be able to thwart them must expect that "neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger." 136 THE CONDITIONS AND LIM:ITS OF THE MARKET The Asymmetry of the Market Economy The role of natural nobility in ~~eneral, and of science in par.. ticular, is seen with special clarity if we consider a very important circumstance which often does not receive sufficient attention. I have in mind what we might call the asymmetry of the market. We know well enough that it would be foolish to regard the market, competition, and the play of supply and demand as institu tions of which we can always expect the hest in all circumstances ..

Nobody has better reasons to bear this in mind than the friend of the market economy. This general recognition leads us to a more particular one. The market frequently weights the scales in vital questions because it favors activities which are the source of gain and does not give sufficient scope to reasons which oppose these activities and should, in the general interest, have the greatest weight. The market thereby loses its authority in the ultimately most important decisions. It would be shortsighted of us to invoke the market or rely on it in such cases~1 and it becomes inevitable that we should seek decisions outside the market, beyond supply and demand. It is precisely for this purpose that the weight of authoritative opinions is needed. The highest interests of the com.. munity and the indispensable things of life have no exchange value and are neglected if supply and demand are allowed to dominate the field. We shall illustrate this point with a few particularly im portant examples.

The first example is advertising, a matter which repeatedly de mands attention because it separates our era from all earlier ones as little else does, so much so that 'we might well call our century the age of advertising. A vast industry with enormous turnover figures lives on advertising, and it has generated such a colossus of influence and vested interests that it is hard to raise one's voice against it except in a hook, all other instruments of public opinion having moved so close to the colossus that, to say the least, they can no longer be regarded as free a.gents. 137 A HUMANE ECONOMY We do not have to be told that advertising fulfills indispensable functions. Far be it from us to inveigh against it.26 But only the blind could fail to notice that commercialism, that is, the luxuriance of the market and its principles, causes the beauty of the landscape and the harmony of cities to be sacrificed to advertising. The reason that the danger is so great is that although money can be made from advertising, it cannot be made from resistance to advertising's excesses and perversions. Thousands get hard cash out of adver tising, but the unsalable beauty and harmony of a country give to all a sense of well-being which cannot be measured by the market.

Yet the non-marketable value, while incomparably higher than the marketable one, is bound to lose unless we come to its assistance and put on its scale enough moral weight to make up for the de ficiency of mercantile weight. The market's asymmetry opens a gap which has to be closed from without, from beyond the market, and it would be sheer suicide on the part of the market economy's friends to leave to others the cheap triumph of this discovery. In one of the loveliest parts of Germany there lives an old man who has dedicated his life to fighting against the excesses of advertis ing; it is a downright desperate fight against ignorance, greed, and obtuseness, and he carries on this struggle out of love for beauty and harmony and out of devotion. This old man is a living em bodiment of our proposition that the market economy is not enough and, at the same time, proof that it needs such wise and public spirited men as much as competition and the free play of supply and demand.

Another closely related example is installment buying, of which we have already spoken in another context. Again, there is no sym metry in the market economy between the forces favoring this ex traordinarily widespread modern form of sales promotion and the forces which impede it. Yet the warmest supporter of installment buying will not deny that it is in danger of excess and degeneration. As in the first case, the asymmetry is due to the fact that the im pulses originating in the market work to the benefit of consumer 138 THE CONDITIONS AND LIM[ITS OF THE MARKET credit because the interests of those who want to sell their wares are joined by the special interests of the finance institutes making money out of installment-plan sales. But no money is to be made by organizing cash purchases because they need no organization. Nevertheless, not to make debts is the sound practice and the one which should primarily be encouraged. So the cause of reasonable conduct, which is threatened from all sides, needs our support and encouragement, and we should do well to reinforce the brakes, which are none too strong. We can count ourselves fortunate that this almost abandoned cause still finds some active supporters in a few economic groups, such as the savings banks and isolated in dustrial and trading companies, whose own interests seem to lie there. Even so, cash trade will remain in a bad enough way, thanks to the above-mentioned asymmetry of the market. 27 One last example: the free world's trade with the Communist countries, euphemistically called East-West trade. 28 Here we meet a familiar state of affairs. This trade is highly dangerous and ob jectionable and is apt to strengthen the power which the free world, if it is not to delude itself, must recognize as its own worst enemy and which, indeed, never misses an opportunity of stating this with brutal frankness or of making it clear by its attitude. But money can be made only by expanding East-West trade, not by restricting it. We have a paradoxical situation: on the one side, Moscow is anxious to make good the deficiencies of the Communist economic system by getting supplies of the most wanted goods from the mar ket economies of the free world while, at the same time, plotting these economies' destruction; on the other side, Moscow has no stauncher allies in these designs than the Western blllsinessmen, precisely the people who represent an economic system that is the diametric opposite of Communism and who would be the first to be eliminated if Communism were to win.

The cultural and political ideal for which the West fights and the defense of which is the meaning of its struggle against Com munism is the ideal of freedom in the precise sense that politics 139 A HUMANE ECONOMY must not encroach upon the whole of life and society but must leave a large part of them independent. In other words, the West op poses its own pluralistic system to Communism's monolithic one. This is the pride and the strength of the West and one of the essen tial conditions of the world of freedom in which alone we can breathe. The freedom of society resides in its pluralism and is de fined by it; and one of the areas which must remain independent is, of course, the economy. By contrast, it is of the essence of the Communist empire that its economy and also its economic rela tions, as well as its cultural and all other relations with the Western world, are subordinated to the paramount purposes of politics.

We are faced with a totalitarian world empire which draws all matters, and above all the economy, into politics. It follows that each and every economic transaction with the Communist empire is an act of international politics, for the simple reason that the other party regards it as such. For this reason, any appeal to sepa rate East-West trade discussions from politics reveals either un usual ignorance or an intention to further Communist aims, for it admirably suits Moscow's game to represent the matter as harm less. It is a weakness of the West that the decisively political charac ter of East-West trade is easy to obscure by invoking the principle of pluralistic liberty. For monolithic Communism, trade with the West is primarily a political act: for the pluralistic West, it is pri marily an opportunity for business and profit. It is precisely the habit of respecting business interests which leads Western poli ticians to lend their ears to businessmen who profit from East-West trade and want to transpose into this political mine field the func tions of business which are legitimate and proved in our own eco nomic and social order. There are but few who stop to think whether in this Case their business interests are not in conflict with overall political interests and with political interests, at that, which are a matter of life and death for all of us and most of all for Western "capitalists."

The fact that the wind of private business interests fills the sails 140 THE CONDITIONS AND LIMITS OF THE MARKET of the Western business world's eagerness to expand East-West trade is no proof that it has political reason on its side-and po" litical reason must, here, have the last word. On the contrary, just because these private interests are strong, any attempts at justifying East-West trade need to be scrutinh~ed with the greatest suspicion. Market and profit are not competent in the decision; the decision lies with higher political interests and business must submit to them. Businessmen should really regard it as an insult to their intelligence when Moscow tries to catch them with the bait of profit. They should remember Lenin's statement that when it was time to hang the world's capitalists, they would trip over each other in their eagerness to sell the Communists the necessary ropes. Un..

less they are completely blinded by their short-term .interests, Western businessmen should not find it so very difficult to see through Moscow's dishonest game. 'They should realize that this is another case of asymmetry in the nlarket, one to be stressed espe cially by the market's friends. Seeing that we are, here, up against one of the limits of the mar ket economy, it is, perhaps, hardly to be expected that businessmen themselves will exercise self-restraint for the sake of higher po litical interests, especially since competition works against such self-restraint; but we certainly have a right to expect that any restrictions imposed by the government in the exercise of its proper functions will be recognized as necessary, reasonable, and binding. The supporters of the market economy do it the worst service by not observing its limits and conditions, as clear in this case as in the others, and by not drawing the necessary conclusions.

The Political Framework of the Market Economy What happens if governments, in this as in other instances, fail to take independent decisions based on objective assessment of all relevant facts and designed to serve the common interest? What if governments give way to pressures for another decision? 141 A HUMANE ECONOMY These questions touch upon a very sore spot. It is one to which we cannot pay too much attention in this field beyond supply and demand. To put it briefly, the problem is whether, in a mass de mocracy, with its many kinds of perversions, it is at all possible for policy to serve the common interest. In effect, policy has to withstand not only the pressure of powerful interest groups but also mass opinions, mass emotions, and mass passions that are guided, inflamed, and exploited by pressure groups, demagogy, and party machines alike. All these influences are more dangerous than ever when the decisions in question, to be reasonable, require unusual factual knowledge and the just assessment of all circum stances and interests involved. This applies above all to the wide field of economic policy.29 Of these influences, we shall first single out interest groups. We shall have to be careful not to throw out the baby with the bath water. Such groups had no place in the original concept of the modern democratic state. The idea was that there was no room for legitimate separate interests beside what was called the common interest. The state was supposed to represent an indivisible com mon interest through co-operation between the executive, organized in the civil service, and parliamentary parties, which, in their turn, were to be divided by ideas rather than by material interests. 3o It is well known that actual developments were less and less in line with this concept. Governments and political parties everywhere progressively became subject to the influence of groups and asso ciations either pressing their particular claims upon both the legis lative body and the administration or at least obstructing what did not suit them. One result is that political parties are swayed more by interests than by ideas; another, that the internal authority of the state and its claim to represent the common interest are im paired.

Thus the monistic state of democratic doctrine has developed into the pluralistic state of democratic practice. Although the written constitution proclaims the theory, it is complemented by the un142 THE CONDITIONS AND LIMITS OF THE MARKET written paraconstitutional influence of particular groups embodied in vast mass organizations and interest groupings, in powerful con cerns and cartels, in farmers' unions and labor unions. The Capitol is besieged by pressure groups, lobbyists, and veto groups, to use the American political j argon. The structure of the modern state is the result of this interplay of constitutional institutions and para constitutional economic and social power. It is obvious that the discrepancy between democratic idea and constitutional law on the one hand and the hard facts of reality on the other puts a heavy strain on the modern democratic state. The idea itself appears com promised, and any responsible government must examine carefully all the possible means of resisting this pluralistic disintegration of the state. This process has accompanied the development of the modern state since its origins; more than a hundred years ago, Benjamin Constant, the great theoretician of constitutional govern ment, warned against its dangers.~ll But it was only in the last quarter of the nineteenth century that it gained conspicuously in extent and pace, and in our day it has reached a degree critical for democracy and for rational economic policy. No legislative act, no import duty, no important administrative measure escapes the at tention of the pressure groups and their frequently successful at tempts to deflect the government's action to their own advantage.

It would be preaching to the converted to inveigh against the dangers of this development, but a few dispassionate remarks may be all the more useful. The first circumstance which should give us cause for reflection is that the expression "pluralism," which is here used in a deroga tory sense, has a positive meaning in the Anglo-Saxon countries and has been used by ourselves more than once in that meaning. In this positive sense it implies something which is a source of pride and satisfaction: the salutary existence of counterweights to the overweening power of the democratic doctrine's monistic state, the republique une et indivisible. Has not Montesquieu, too, spoken of the corps intermediaires, whose necessary function it is to loosen 143 A HUMANE ECONOMY the giant unity of the state by geographical or professionalsepa ratism? Is it not our own conviction that the centralist monistic state is to be rejected? Is it not one of the distinguishing marks of a sound state to allow as much social, political, and intellectual in dependence as possible and to leave room for local government and autonomy, institutions and corporations, private groups with par ticular interests and particular rights? Is this not desirable in order to contain the state's own striving for power, especially the demo cratic state's, which is all the more dangerous for posing as the representative of the "will of the people"? Are we, then, not en tangling ourselves in a grave contradiction when we criticize "pluralism" ?

The contradiction is resolved if we distinguish two kinds of pluralism, one justified and one unjustified, one sound and one unhealthy. By sound pluralism we mean the case of particular groups de fending themselves and their rights against the power of the state and the claims of other groups represented therein. This is a salu tary limitation. A clear case in point is the landlords' effort to pre vent themselves, a politically weak minority, from being expro priated by the votes of the politically strong majority of tenants. Unhealthy pluralism, on the other hand, is not defensive but offen sive. It does not limit the power of the state but tries to use it for its own purposes and make it subservient to these purposes. The state is opposed only when it crosses the interests of this kind of pluralism, which, for the rest, merely tries to exploit its power. The immense danger of this unhealthy pluralism is that pressure groups covetously beset the state-the modern suitors of Penelope.

The wider the limits of the state's competence and the greater its power, the more interesting it becomes as an object of desire. The fewer the groups sharing the booty, the better it is for the partici pants in the marauding expedition. The ideal of such pluralism would be to maximize the power of the state in the economy and to 144 THE CONDITIONS AND LIMITS OF THE MARKET minimize the number of those competing for the conquest and ex ploitation of that power. This ideal is achieved in the collectivist state, with the important difference, however, that it is usual in this case for an entirely new power group to triumph, which cheats all others of the booty. These characteristics of unhealthy (offensive) pluralism explain why, during the last thirty or forty years, it has gained ground in exactly the same measure in which liberal economic policy has been displaced by centralist socialist poHcies. In the same measure, too, the opposite, defensive and sound pluralism, which we welcome, has lost influence and weight. State power on the one hand and economic and social power on the other have grown continuously and have progressively merged. The counterweights against this accumulation and alliance of power are federalism, local govern ment, family, market economy, ownership, private enterprise, well earned rights, corps intermediaire.s-but they have become ever lighter during that period and by virtue of the same development.

If we want to understand fully the nefarious effects of offensive interest groups, we must consider what I have called "pluralism of the second degree" (The Social Crisis of Our Time, p. 131). By this I mean that the mass organizations of interested parties dan gerously increase the already alarmling power of separate interests, to the detriment of the common interest. Moreover, the representa tion of these interests tends to stray into dubious paths because the officials of these organizations make a living from the representa tion of interests and therefore have a particular concern to justify their profession as ostentatiously as possible. They therefore not only tend to be more ruthless than those whose interests it is their business to defend, but they are constantly tempted to do so in a manner which demonstrates the useful and indispensable nature of their office as clearly as possible. It is obvious that this professional vested interest of the representatives of particular interests tends to interpret the latter in the light of the former and that the two 145; A HUMANE ECONOMY need not necessarily coincide. There is a refraction of the interests represented as they pass through the prism of the officials' own particular interest.

The matter can be illustrated by an example which is of para mount importance today, namely, trade-unions. The prime interest of trade-union leaders is a continuous rise in money wages because this is a tangible and patent result of their efforts; they generally have only a secondary interest in raising real wages through price reductions or in other purposes which, for the well-being and hap piness of workers and employees, may well be more important than wage increases. It is quite possible for price reductions to further the true interests of trade-union members better than wage in creases, but from the point of view of the trade-union leaders them selves, price reductions have the disadvantage of obscuring their own merits. We shall see presently that this is undoubtedly one of the chief sources of the permanent inflation which characterizes the Western world today and also the reason why a "labour standard,"

as Hicks says, has come to replace the old gold standard-though not at all to our benefit.32 So much for the power of pressure groups. If we now add the power of mass opinions, mass emotions, and mass passions, the combined effect of these forces and influences on economic policy will hardly seem surprising. A first result is that economic policy will tend to be irrational, that is, determined by what is "politically feasible" rather than by what is economically rational and just. The most spectacular example is that rent control, an irrational, ill considered, and at the same time unsocial and inequitable inter vention if ever there was one, can carry the day against unexcep tionable arguments and against the better judgment of honest and intelligent politicians. Rent control is really nothing but the pro tection of one privileged special kind of tenants, those with old leases, at the expense of the landlords and later tenants alike. Yet it persists, and the explanation is no doubt that, on the one hand, it does need a little reflection and intelligence to see its full implica146 THE CONDITIONS AND LIl\1[1TS OF THE MARKET tions and that, on the other· hand, politicians are afraid to renounce this object of cheap demagogy.33 A second res~lt is that the. power of pressure groups and the power of mass opinions, emotions, and passions mutually support each other and that group interests can be furthered by exploiting and mobilizing the ignorance, thoughtlessness, and vague feelings of the masses. This leads to the third result: that economic policy suffers from contradictions and degenerates into a sum of discon nected measures lacking a consistent principle. A telling example of the ensuing makeshift opportunisDl is that of a French finance "minister who recently attacked, not the causes of inflation, but only 'its statistics, namely, the cost-of-living index, which determines the wage level in France. Where there are no principles or where princi ples cannot be effectively implemented, economic policy is at the mercy of the day's political whims and so becomes a dangerous source of uncertainty, which merely aggravates nervousness and vacillation. All of this together is bound to impart to economic policy one overriding quality: it \\rill follow political expediency, the line of least social resistance, the motto apres nous le deluge (or, to quote Keynes again: "In the long run, we are all dead.") This means that contemporary economic policy tends to prefer what Walter Lippmann calls "soft':' solutions, solutions which ap pear cheapest and most convenient at the moment, even if at the expense of the future. One of these is protectionism; to bar incon venient foreign competition is often the solution which comes to mind first, among other reasons because it is, politically, the easiest.

A second type of "soft" solution is reliance on the public treasury, powerfully supported by the "fiscalism" of our times. This reliance, incidentally, is, like the demand for protective tariffs and other import restrictions, nourished by the people's obstinate inclination to believe in a sort of "fourth dimension" of economic and social 'policy and to forget that someone has to foot the bill, in one case the consumer, in the other the taxpayer. The consumer and the taxpayer become the "forgotten men" of our age-together with 147 A HUMANE ECONOMY the saver and the other victims of the erosion of the value of money. The third "soft" solution, as everybody knows, is inflation-and the "softer" for starting more mildly. This is the real key to the Western countries' chronic inflation, which therefore, for reasons still to be discussed, deserves the name of "democratic-social in flation." This diagnosis must be pronounced with ruthless honesty because recognition of the danger is the first condition of overcoming it and also because this is the best service that can be rendered to a democracy threatened by its own excesses. The danger can be countered only by a long-term and comprehensive program.

A solution must be found to the problem of how the executive can gain in strength and independence so that it can become the safeguard of continuity and common interest without curtailing the essentials of democracy, namely, the dependence of government upon the consent of those governed, which alone makes govern ment legitimate, and without giving rise to bureaucratic arbitrari ness and omnipotence. It is urgently necessary to strengthen the feeling for the imponderable nature of community surpassing all separate interests and immediate claims and commanding the in dividual's loyalty, even unto death; it is equally necessary to strengthen the feeling for the unchallengeable authority and power of government legitimately entrusted with managing the affairs of the community. At the same time, however, people must be liber ated from the fear-only too justified in our days-of being at the mercy of a Leviathan. It is an enormously difficult problem. There can be no solution unless the state's overgrown functions are dras tically pruned and its economic, financial, and social policies are once more made subject to firm, simple, and universally understood rules inspired by the common interest and by a free economic order, without which there can be no protection against arbitrary power.

The most important aspect is, again, the spiritual and moral one. Individualism and utilitarianism, which give the individual's inter148 THE CONDITIONS ANDLIl\1f1TS OF THE MARKET ests and material profit so damaging a predominance, and legal positivism, which sees no further than the written law, must be counterbalanced by all the imponderables which ultimately are the basis of the nation as a permanent entity and without which disin tegration is inevitable: the immutable standards of natural law, continuity, tradition, historical awareness, love of country, all the things which anchor a community in the hearts of men. The younger the state is and the more provisional it appears, the more pressingly must all efforts be directed toward this aim. To this end, it is invaluable to have independent institutions be yond the arena of conflicts of interests--institutions possessing the authority of guardians of universal and lasting values which can not be bought. I have in mind the judiciary, the central bank, the churches, universities, and foundations, a few newspapers and pe riodicals of unimpeachable integrity, an educational system which, by cultivating the universal and the e1assical, sets up a barrier to the teachings of utilitarianism and the specialization of knowledge, and, finally, that natural nobility of which we have already spoken.

In conclusion, I want to say a little more about the tasks and responsibilities falling to the acadelnic representatives of economics in an age in which the conditions of rational economic policy serv ing the interests of the community and of a free society are more than ever threatened by the forces of mass democracy. Some people seem to think that the principal function of economics is to prepare the domination of society by "specialists" in economics, statistics, and planning, that is, a situation which I propose to describe as economocracy-a horrible word for a horrible thing. We have al ready gone quite. far along this path, although it is no less danger ous to deliver state and society into the hands of such economists than into the hands of generals. 34 The true task of economics appears to me to be quite different, especially in a modern mass democracy. Its unglamorous but all the more useful mission is to make the logic of things heard in the midst of the passions and interests of public life, to bring to light 149 A HUMANE ECONOMY inconvenient fact$ and relationships, to weigh everything and as sign it its due place, to prick bubbles and expose illusions and con fusions, and to counter political enthusiasm and its possible aber rations with economic reason and demagogy with truth. Economics should be an anti-ideological, anti-utopian, disillusioning science.

It could then render society the invaluable service of lowering the temperature of political passions, counteracting mass myths, and making life difficult for demagogues, financial wizards, and eco nomic magicians. But economics must not itself hecome the. willing servant of passions, of whose stultifying effects Dante says in Canto 13 of his Paradiso: "E poi l'afJetto lo intelletto lega." The mission of economics is understood even better if we con sider a problem which is peculiar to modern democracy and keeps recurring in economic policy. I have in mind the delay between some economic or social claim and its demagogic exploitation, on the one hand, and the moment, on the other, when the price of its fulfillment can no longer be concealed. If the economist repeatedly succeeds in reducing this delay by timely and effective explanation, he renders society a service which cannot be valued too highly, for in economic policy, as elsewhere, Chateaubriand's words are true: "Le crime n'est pas toujours puni dans ce monde; les fautes Ie sont toujours."

This does not by any means imply that we economists may retire into the ivory tower of scientific neutrality. Least of all can social scientists be spared a decision at the cross-roads of our civilization ; we must not only be able to read the signs, but we must know which way to point and lead: the road to freedom, humanity, and un swerving truth or the road to serfdom, violation of human nature, and falsehood. To evade this decision would he just as much trahison des clercs as to sacrifice the dignity of our science, which is truth, to the political and social passions of our time. 150 CHAPTER IV Welfare State and Chronic Inflation Communism is no immediate danger to the countries of the free Western world, nor does the specter of totalitarianism rear its ugly head among us, however great may he the threat of slow internal corruption and unscrupulous attack from outside. Neither a fully planned economy and general soeialization nor the totalitarian state which necessarily goes with both are purposes for which the broad masses of the electorate can be successfully roused. What threatens the structure of our economy and society from within is something else: chronic diseases, spreading secretly and thereby all the more malignant. Their causes are hard to discover and their true nature is concealed from the superficial or thoughtless ob server; they tempt individuals and groups with immediate advan tages, while their fatal consequences take a long time to manifest themselves and are widely dispersed. This is precisely why these diseases are so greatly to be feared.