Chapter 24: Harmony And Conflict Of Interests

CHAPTER XXIV

HARMONY AND CONFLICT OF INTERESTS

Chapter Summary

1. THE ULTIMATE SOURCE OF PROFIT AND LOSS ON THE MARKET

It is not true that one man’s profit is another man’s loss. In a market economy, those who earn entrepreneurial profits do so by better adjusting production so as to satisfy the desires of the consumers. It is not the existence of disease that generates earnings for doctors, but rather the doctors’ (perceived) ability to relieve sickness.

There is no conflict between buyer and seller. Even he who sells at a loss gains from the transaction at that moment. His loss is due to his earlier, faulty forecast; he is grateful that there is now a buyer even at such a “losing” price.

2. THE LIMITATION OF OFFSPRING

Natural scarcity implies pitiless competition. However, with man, the superior productivity of labor reverses this biological tendency; so long as the optimum population has not been reached, additional hands raise the average level of output, making everyone richer. People who understand economics do not view newcomers as strains on scarce resources, but rather as opportunities for intensified division of labor.

The Malthusian law of population is correct as far as it goes, but Malthus and his disciples drew erroneous conclusions from it. Humans do not expand their populations with every increase in sustenance to the point of bare survival. Capitalism leads to declining mortality and birth rates as people purposely limit offspring in order to maintain higher standards of living. The limitation of offspring would be necessary under a socialist commonwealth as well, but here the authorities would make the decisions.

3. THE HARMONY OF THE “RIGHTLY UNDERSTOOD” INTERESTS

There is a harmony of interests, “rightly understood” or “in the long run,” among all peoples. A market economy substitutes catallactic competition (which is really cooperation) for biological competition. The fact that most people desire food and shelter does not create conflict over these items, but rather lowers their prices as mass production enjoys economies of scale.

Romantics decry the rise of bourgeois civilization and the loss of a blissful “state of nature.” But the overwhelming majority would prefer the comforts of modern capitalism to the back-breaking toil of preindustrial times. Recognizing the tremendous material advantages of the division of labor, man realizes the importance of strengthening social bonds through respecting private property. The workers and capitalists are allies, not enemies.

4. PRIVATE PROPERTY

The institution of private property, where individuals own the means of production, is the essence of the market economy. Catallactics refers to the actual control of physical property, and not to legal formalisms. Modern governments have been more or less successful in reducing “private property” to a formal term, with government control growing ever larger.

It is true that all modern property titles can be traced back to acts of appropriation (from unowned nature) or expropriation in the distant past. This is irrelevant, for every day the consumers in a market economy promote and demote owners based on their fulfillment of the consumers’ desires.

5. THE CONFLICTS OF OUR AGE

People often describe modern war as the result of “economic causes,” especially conflicts between “haves” and “have-nots.” There is much truth in these claims, but it is always government interference with the market economy that fuels such conflicts. The liberal’s solution to war is the respect for private property by governments around the world. If, on the contrary, a government enacts restrictions that hamper the exploitation of its natural or other resources, this imposes genuine hardship on the citizens of other nations. It is vain to hope that international bodies or treaties can prevent armed conflict in such situations.

Why It Matters

In this chapter, Mises emphasizes the peaceful nature of a market economy. It is indeed the basis of civilization, as people learn to view each other as collaborators, not as threats. Ironically, it is the antiliberal policies regarding business that fuel domestic and even international conflicts. People necessarily view each other with suspicion when they believe that one man’s gain is another’s loss.

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Technical Notes

1. In a free society, people could have as many children as they desired, so long as they paid for their upbringing and other related expenses. The “optimal” number of offspring would be determined in the same way as the “optimal” number of television sets; there would not be a “technical” answer to the problem, but one ultimately stemming from subjective value judgments, informed by market prices. However, the fixed quantities of certain natural resources (including actual land) and the division of labor, interact in such a way that increases in the quantity of workers tends to initially increase average productivity and wages, but after a point leads to reductions in the average standard of living, for a specified level of technological knowledge and stock of capital goods. This is what Mises has in mind when discussing the “optimal” population size (p. 663).
2. In criticizing socialism, Mises contrasts the productivity argument with the calculation argument (pp. 675–76). This proves that Mises believes there is something qualitatively lost without market prices; it is not simply that output is reduced from what it would have been under private ownership of the means of production.

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Study Questions

1. THE ULTIMATE SOURCE OF PROFIT AND LOSS ON THE MARKET
   • What is the Montaigne dogma?
   • What is the ultimate source of profits? What is the source of losses?

   Comment: “There are in the market economy no conflicts between the interests of the buyers and sellers.”

2. THE LIMITATION OF OFFSPRING
   • What does it mean to “live humanly,” according to Mises?

   Comment: “Neither the Slavonic Bolsheviks and nationalists nor their sympathizers in the Indies, in China, and in Japan realize that what their peoples need most is not Western technology, but the social order which in addition to other achievements has generated this technological knowledge. They lack first of all economic freedom and private initiative, entrepreneurs and capitalism. But they look only for engineers and machines.”

   Comment: “No foreign aggressor can destroy capitalist civilization if it does not destroy itself.”

3. THE HARMONY OF THE RIGHTLY UNDERSTOOD INTERESTS
   • How does Mises view the state of nature?
   • What is the source of conflict among humans?
   • What is the official social philosophy of Roman Catholicism and of Anglo-Catholicism with regard to the critique of capitalism, at least when Mises was writing?
   • What are the two main errors on which all socialist and interventionist authors base their analysis?
4. PRIVATE PROPERTY
   • What does private ownership imply?
   • How are the owners determined in a market economy?
   • Does the institution of private property have the same significance in an autarkic setting as compared to a social one?
5. THE CONFLICTS OF OUR AGE
   • Why wouldn’t civil wars and international wars emerge in an unhampered market economy, according to Mises?

   Comment: “It is not sovereignty as such that makes for war, but sovereignty of governments not entirely committed to the principles of the market economy.”

   • Why is economic nationalism incompatible with durable peace?

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