The Law of Association

After his analysis of the workings of socialist societies, Mises turned to the doctrine of the inevitability of socialism. Karl Marx and his followers had claimed that social evolution led with the necessity of natural law toward the establishment of socialism. The driving forces in this process were (a) the dialectics of class struggle and (b) the tendency inherent in capitalism for the emergence of monopolies, which centralize economic decision-making and thus prepare the advent of the centrally planned economy of socialism. One might think that addressing this Marxist claim was a waste of Mises's time since he had already shown that socialism was inferior to capitalism. But Mises did not think so. Even though socialism was demonstrably inferior to capitalism, there might still be a tendency for society to evolve toward socialism. The question therefore required a separate treatment.

One of the centerpieces of Marxist sociology was the theory of class struggle, according to which social evolution results from the necessarily conflicting interests of different social classes. History was one long drama featuring the interactions of antagonistic groups. The groups themselves varied over time—kings against nobility, nobility against bourgeoisie, bourgeoisie against proletarians—but the constant theme was the principle of class struggle itself.

In Socialism, Mises delivered an in-depth critique of the concept of class struggle, which had been adopted in a modified form by many thinkers outside the Marxist camp, including the champions of Aryan supremacy. Mises did not contest the fact that violent conflict had played a large role in the process of social evolution. Rather, he took issue with the notion that violence had played a constructive role. Mises argued that, by its very nature, violence could not have played the role that the advocates of the concept of class struggle ascribe to it. Class struggle could not explain the emergence and growth of human society. At best, it could explain how the members of a given association behaved vis-à-vis other given associations. The dynamics of social evolution would remain a mystery without a sound theory of cooperative association.

So why do people cooperate at all? Generalizing a discovery that David Ricardo had famously made in the special case of foreign trade, Mises gave a simple answer: human beings associate with one another because the division of labor is more physically productive than the atomistic production of isolated individuals.

The theory of the international division of labour is one of the most important contributions of Classical Political Economy. It shows that as long as—for any reasons—movements of capital and labour between countries are prevented, it is the comparative, not the absolute, costs of production which govern the geographical division of labour. When the same principle is applied to the personal division of labour it is found that the individual enjoys an advantage in co-operating not only with people superior to himself in this or that capacity but also with those who are inferior to himself in every relevant way.³⁰

Ricardo had barely mentioned what was later called “the theory of comparative cost advantages,” relegating the crucial passage to a mere footnote in chapter 7 of his Principles. Later economists realized that this principle applied not only to the particular case of foreign trade, but also to the general case of exchange between individuals. Thus is covered all form of division of labor.³¹ It explained why human association was worthwhile not only for the inferior worker who found a superior associate, but also for that superior worker. The advantages are mutual, even if not necessarily symmetrical. This explained why children, handicapped, and very old persons could be welcome in the division of labor, even though they might be inferior in all practical respects to their associates. It explained why the members of industrial nations such as the United States or Japan could benefit from the cooperation of the residents of other countries, in which capital was much more scarce and unit-costs therefore higher. In short, the principle that the division of labor between two persons A and B is beneficial even in the “hard case” that A is superior to B in all respects, is a true “law of association.”³²

Mises had independently discovered a general law of human action. More than any other economist, he highighted its far-reaching implications. The law applies under virtually all circumstances, because it presupposes only that the susceptible associates be different in talents or location, which is almost always the case.³³ This led to a surprising conclusion. The very differences in which the theory of class struggle could see only the causes of violent conflict now appeared in a far more benign light. For these differences between individuals and groups also harbored great potentials for mutually advantageous cooperation. The law of association therefore had the power to turn difference from a principle of strife into one of friendship. In the words of Mises:

The greater productivity of work under the division of labour is a unifying influence. It leads men to regard each other as comrades in a joint struggle for welfare, rather than as competitors in a struggle for existence. It makes friends out of enemies, peace out of war, society out of individuals.³⁴

The fact that social differences harbor great potentials for mutual gains through cooperation had of course momentous policy implications. In the light of this fact, it was clear that government should regulate the economy as little as possible, in order not to prevent mutually beneficial associations. This runs directly counter to the notion that government should “level the playing field” on the market, both domestically and in international trade. The Law of Association sustained the case for unilateralism. Many years later, Mises stated in private correspondence:

Each country, whether small or big, rich or poor, can have a free economy, irrespective of what the others might be doing. It is a widespread error to believe that the Ricardian Law of Comparative Costs presupposes that the other countries too engage in free trade. Also: If one country has the gold standard, it will enjoy all the benefits of stable money, even if others print notes like crazy. Of course, in the age of international division of labor, socialism in one country or several countries is detrimental to all other people because it diminishes productivity. For example, socialism in Russia and Yugoslavia entails a reduced production of wheat and thus price increases on the world market. But no country can sidestep such repercussions by socializing at home and thus by reducing its own productivity.³⁵

After presenting the Law of Association, Mises returned to answering his initial question about social dynamics. Does social evolution necessarily lead to an ever-greater expansion of the division of labor? He examined whether the Darwinian principle of natural selection would answer this question, and found that societies based on a more extensive and intensive division of labor “have more prospect of preserving their members from misery and poverty. They are also better equipped to defend themselves from the enemy.”³⁶ This fact by itself does not provide a satisfying answer. It merely pushes back the question. Why do some societies cultivate a higher division of labor? Quoting the French sociologist Izoulet, Mises answers that the reason is a purely intellectual one:

It is the social spirit, the spirit of social co-operation, which forms, develops, and upholds societies. Once it is lost, the society falls apart again. The death of a nation is social retrogression, the decline from the division of labour to self-sufficiency. The social organism disintegrates into the cells from which it began. Man remains, but society dies.³⁷

Mises argued that the social spirit received a decisive boost from classical liberalism, which developed a sophisticated theory of the division of labor and highlighted the social function of private property. In later works, most notably in Theory and History (1957), Mises elaborates on the role of ideas in social evolution, presenting them as the ultimate cause of social dynamics. But he had laid the foundation for these subsequent discussions in Socialism.