Capitalism and Liberalism are Rational

In Socialism and Liberalism, Mises had argued that human society was founded on the basis of the higher physical productivity of human cooperation, as compared to individuals acting on their own. This was the crux of the classical-liberal social philosophy and the cornerstone of the political program of laissez-faire Manchesterism. In Nationalökonomie, Mises set out to contrast this social philosophy with competing worldviews. He stressed that economic analysis had given a purely fact-based account of the origin of human society:

The scientific theory as developed by the social philosophy of eighteenth-century rationalism and liberalism and by modern economics does not resort to any miraculous interference of superhuman powers. Every step by which an individual substitutes concerted action for isolated action results in an immediate and recognizable improvement in his conditions. The advantages derived from peaceful cooperation and division of labor are universal. They immediately benefit every generation, and not only later descendants. For what the individual must sacrifice for the sake of society he is amply compensated by greater advantages. His sacrifice is only apparent and temporary; he foregoes a smaller gain in order to reap a greater one later. No reasonable being can fail to see this obvious fact. When social cooperation is intensified by enlarging the field in which there is division of labor or when legal protection and the safeguarding of peace are strengthened, the incentive is the desire of all those concerned to improve their own conditions. In striving after his own—rightly understood—interests the individual works toward an intensification of social cooperation and peaceful intercourse. Society is a product of human action, i.e., the human urge to remove uneasiness as far as possible.¹⁹

He then went on to point out the larger cultural and philosophical significance of this discovery:

The historical role of the theory of the division of labor as elaborated by British political economy from Hume to Ricardo consisted in the complete demolition of all metaphysical doctrines concerning the origin and the operation of social cooperation. It consummated the spiritual, moral and intellectual emancipation of mankind inaugurated by the philosophy of Epicureanism. It substituted an autonomous rational morality for the heteronomous and intuitionist ethics of older days. Law and legality, the moral code and social institutions are no longer revered as unfathomable decrees of Heaven. They are of human origin, and the only yardstick that must be applied to them is that of expediency with regard to human welfare.²⁰

Thus the economists had explained society as a human creation, designed and implemented by cooperating individuals to satisfy individual needs. In contrast, alternative approaches such as universalism and collectivism stipulated that society could be defined independently of individual action. To the collectivists,

society is an entity living its own life, independent of and separate from the lives of the various individuals, acting on its own behalf and aiming at its own ends which are different from the ends sought by the individuals.

Mises went on to point out that this conception of society has a natural conclusion:

Then, of course, an antagonism between the aims of society and those of its members can emerge. In order to safeguard the flowering and further development of society it becomes necessary to master the selfishness of the individuals and to compel them to sacrifice their egoistic designs to the benefit of society²¹

What is needed, therefore, is a definition of the proper interests of “society” thus conceived. Mises observed that science was at a loss to provide such a definition. As a consequence,

all these holistic doctrines are bound to abandon the secular methods of human science and logical reasoning and to shift to theological or metaphysical professions of faith.²²

Mises emphasized the epistemological dimension of this problem:

The essential problem of all varieties of universalistic, collectivistic, and holistic social philosophy is: By what mark do I recognize the true law, the authentic apostle of God's word, and the legitimate authority. For many claim that Providence has sent them, and each of these prophets preaches another gospel.²³