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[Study Guide to Human Action (2008)]
1. Total War
The market economy involves
peaceful cooperation. The division of labor cannot function effectively
amidst a war. Warfare among primitive tribes did not suffer this drawback
because the warring parties had not been engaged in trade before the
hostilities. Thus they engaged in total war.
Things were different in Europe
(before the French Revolution) when military, financial, and political
circumstances produced limited warfare. Wars were generally waged by small
armies of professional soldiers, who generally did not involve noncombatants
or their property. In this context, philosophers concluded that, because the
citizens only suffered from warfare, the way to eliminate war was to dethrone
the despots. The spread of democracy, many thought, would coincide with
everlasting peace.
What these thinkers overlooked was
that it is only democratic liberalism that ensures peace. In modern
times, states wage total war against each other because interventionism and
central planning lead to genuine conflict between citizens of rival states.
Under classical liberalism, political boundaries are irrelevant; free trade
and free mobility of labor mean that one's standard of living is unaffected
by territorial expansion. Yet under national socialism (and the
interventionism of their neighbors), the citizens of Nazi Germany really
stood to materially gain from conquest.
Ultimately, treaties and
international organizations cannot ensure world peace. Only a widespread
adoption of liberal policies will end war.
2. War and the Market Economy
It is a widespread myth that the
market economy may be tolerated in peacetime, but in emergency situations
— such as a war — the government must seize control of
production. During war, resources that normally go into consumer goods must
be diverted into products for the military; private consumption must fall.
Entrepreneurs can most efficiently effect this switch if they are allowed to earn profits and
cater to the new demand, emanating from the government as it spends funds on
military items. Whether the government raises its revenues from higher taxes,
increased borrowing, or even inflation, in the end the citizens will have
less purchasing power, and their reduced consumption frees up the real
resources to produce items for the war effort.
In the United States during the
Second World War, this process was short-circuited because the government
clung to the union doctrine that the workers' real take-home pay must not be
allowed to fall, even during wartime. Consequently, the government was reluctant
to levy higher taxes, and it imposed price controls to prevent "war
profiteering." Given these realities, the only solution was to further
intervene in the market, by imposing rationing schemes and other controls,
designed to ensure an adequate flow of resources into the war industries.
Modern wars are won with matériel. Capitalist countries defeat their
socialist rivals because private entrepreneurs are more efficient in churning
out products, whether consumer goods during peacetime or weapons for their governments.
Even so, ultimately war and the market economy are incompatible, as the
market relies on peaceful cooperation.
3. War and Autarky
If a tailor and baker go to war
with each other, it is significant that the baker can wait longer for a new
suit than the tailor can go without bread. In analogous fashion, Germany lost
both world wars because it could not blockade Great Britain, nor could it
maintain its own maritime supply lines.
The German militarists were aware
of their vulnerability and so stressed the need for centrally planned
autarky. They placed their hopes in Ersatz, the substitute, a
replacement that was either of inferior quality, higher cost, or both,
compared to what the unfettered market would have imported from abroad. Yet
the inferiority of ersatz items is not a relic of the capitalist mind. Poorly
equipped soldiers will fare worse against armies using the most advantageous
materials, and higher costs of production mean that fewer finished goods can
be produced from given resources.
4. The Futility of War
Interventionism generates economic
nationalism, which in turn generates bellicosity. This tendency is internally
consistent; only laissez-faire policies are consistent with durable peace.
Why It Matters
In this short chapter, Mises deploys his skill not only as an economist but also
as a military historian. Contrary to popular belief, government controls do
not enhance a country's military prowess. Entrepreneurs are more efficient
than central planners in the production of tanks as well as the production of
television sets.
In the long run, however, the
market economy relies on the division of labor, which requires peaceful
cooperation. The rise of total war in the modern age is due to the rise of
"statolatry" and interventionism.
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