13. A System of Political Philosophy

SINCE ITS EMERGENCE IN eighteenth century France, economic science has focused on the practical problems of policymaking. Government's impact on the economy was central to economic books and pamphlets; all other problems tended to be dealt with only as much as was necessary to achieve a better understanding of the policy issue under consideration.

The marginalist revolution of the 1870s then focused the attention of theorists on the analysis of the market economy—somewhat one-sidedly. Academic energies were now dedicated to the solution of the new theoretical problems. The discipline lost much of its focus on policy questions.

Did the new marginal-value theory change any of the political implications traditionally derived from economic science?

Virtually all of Mises's publications from the 1920s in one way or another dealt with this question. He could rely on some of the work done by his predecessors—in particular, Böhm-Bawerk's essay “Power and Economic Law,” which analyzed government intervention in the labor market from a Mengerian perspective. But in Mises's view, the question of the political implications of economic science required a more comprehensive approach. His great contribution was to show how the utilitarian method, which he had outlined in his Nation, State, and Economy, could be used to promote such an approach.

During the 1920s, Mises developed an all-encompassing utilitarian theory of social organization. The kind of theory he had in mind would deal with the suitability, not only of all economic systems that had ever existed in the past, but of all conceivable ones. His theory of socialism was an important step toward the realization of such a conception because he had come to the conclusion that the idea of assessing “all conceivable economic systems” was far less ambitious than it sounds.

There are, he maintained, only three categories of which all conceivable systems are particular instances: capitalism, socialism, and interventionism.

Capitalism is a system of division of labor based on private ownership of the means of production. It is characterized by the cooperation of many individuals or groups, none of whom control all capital goods. Their cooperation is based on respect for existing property rights and is regulated through contract, gift, and exchange.

In contrast, socialism is a system with only one individual or group controlling all means of production. There can be no exchange-based cooperation in this system, because exchange presupposes that the items traded have different owners.

Thus, by 1922, the bulk of the work had been done. Mises could now turn to the third system, interventionism, which had been the traditional subject of economics. His great task was to reconstruct the traditional analysis of government interventionism by applying the utilitarian method of the classical economists from a Mengerian point of view. Mises published his research in a series of articles written primarily between 1922 and 1926 and later republished as chapters of the book A Critique of Interventionism.¹