Mr. Heiner is a third year undergraduate in economics at the University of Washington.
From time immemorial, thinkers and philosophers have attributed to that which has been called the "character" or "spirit" of the people all of those noteworthy accomplishments achieved by various civilizations. Rome was the product of a great spirit of discipline and a genius of organizational ability; the European Renaissance was the product of a rebirth of energy and creativity; and the American rise to world eminence was due to the unheralded rugged competitive spirit of its people. The preeminence of this view is seen by its implicit reflection in most ethnic jokes (i.e., the implication being in certain jokes that the Polish are stupid, the Italians are lazy, the Germans are militaristic, and so on). Concomitant with this view is the belief that if order and civilization are on the decline, if "times are bad," what is needed is a recommitment, a rededication, a renewed spirit of sacrifice on the part of the citizens and then all will be well again.
In the last two centuries, however, a select group of thinkers has fundamentally challenged the correctness of these views concerning civilization and social life. Beginning most recognizably with the writings of Adam Smith, The Wealth of Nations, there emerged an essentially new discipline later to be called economics, and with it sprang a different view of human civilization which was to revolutionize subsequent thought. Two paragraphs from the opening pages of Ludwig von Mises’ Human Action serve as a striking introduction to this view and its significance:
"Other philosophers… looked at human things from the viewpoint of government. They were intent on establishing rules of political action, a technique, as it were, of government and statesmanship. Speculative minds drew ambitious plans for a thorough reform and reconstruction of society. The more modest were satisfied with a collection and systematization of the data of historical experience. But all were fully convinced that there was in the course of social events no such regularity and invariance of phenomena as had already been found in the operation of human reasoning and in the sequence of natural phenomena. They did not search for the laws of social cooperation because they thought that man could organize society as he pleased. If social conditions did not fulfill the wishes of the reformers, if their utopias proved unrealizable, the fault was seen in the moral failure of man. Social problems were considered ethical problems. What was needed in order to construct the ideal society, they thought, were good princes and virtuous citizens. With righteous men any utopia might be realized.
"The discovery of the inescapable interdependence of market phenomena overthrew this opinion.
Bewildered, people had to face a new view of society. They learned with stupefaction that there is another aspect from which human action might be viewed than that of good and bad, of fair and unfair, of just and unjust. In the course of social events there prevails a regularity of phenomena to which man must adjust his actions if he wishes to succeed. It is futile to approach social facts with the attitude of a censor who approves or disapproves from the point of view of quite arbitrary standards and subjective judgments of value. One must study the laws of human action and social cooperation as the physicist studies the laws of nature. Human action and social cooperation seen as the object of a science of given relations, no longer as a normative discipline of things that ought to be — this was a revolution of tremendous consequences for knowledge and philosophy as well as for social action.""
In other words, the belief in the sole primacy of ethics in social matters was fundamentally challenged: society could not be organized according to any set of ethical norms; and further, there prevailed certain inescapable effects of various social structures which could not be nullified regardless of the sincerity and diligence of those individuals attempting to reform the social system in terms of various desired ethical qualities (such as equality in all aspects of social life). Indeed, the view now developed that many of these qualities (viz., character, spirit, dedication, and so forth of the people) could more correctly be regarded as effects or results of certain patterns of social collaboration, rather than the cause of the specific social structure and the achievements of the people therein.
Ethics Plus Organization
Thus, one of the significant revelations derived through the development of economics is that the necessary conditions for the progression and "flowering" of a civilization include not only a system of workable ethical values but also the appropriate system of social organization, and that neither is sufficient without the other. Moreover, if there prevails a set of ethical norms, the practice of which precludes the development of an appropriate system of social organization (for example, beliefs which consider merchants and lenders of money who demand interest as people engaged in activities of low moral character), there can be no general advancement for that civilization; or, if the application of a set of political and economic doctrines also precludes the establishment and continuance of an appropriate system of social organization, then appeals and efforts to revitalize the dedication and moral spirits of the populace cannot succeed in bringing about advancement (or preventing downfall) for that civilization.
It could be argued, therefore, that the oft-cited American "competitive spirit" and "rugged individualism" are consequences of that system of social collaboration characterized by the unhampered market economy, and that this competitive drive could not have developed without this system of social collaboration.
Very much related to the above discussion is a remarkable and significant series of events in recent months most dramatically represented by the current "wage-price freeze." In one of the statements made by President Nixon shortly after the initiation of the "freeze," it was emphasized that, in the long run, what is needed to revitalize America (in addition to wage-price controls) is a rededication by Americans to that spirit of competitivism which made America great.
In light of the preceding development, however, this plea for a recommitment of the American "rugged individualist spirit" is seen to be completely illusory. In fact, what has been done is to implement the most drastic form of restriction (general scale price controls) on that system of social organization (viz., the unhampered market economy) which is the cause or necessary co-condition which permitted the emergence of the very spirit of competitive individualism which the President deems as necessary for America’s continued greatness.
This means that the President has embarked on a policy which, if continued and enlarged, will eliminate what is left of this competitive spirit and render its reemergence impossible.
Compounding Error
All of this testifies to the words of Ludwig von Mises in the closing pages of Human Action²: "the study of economics is almost outlawed today. The public discussion of economic problems ignores almost entirely all that has been said by economists in the last two hundred years. Prices, wage rates, interest rates, and profits are dealt with as if their determination were not subject to any law. Governments try to decree and to enforce maximum commodity prices.
In order to attain any end, appropriate means must be used in order to effect the true causes of that which is sought. The ironic aspect of the solely ethical interpretation of economic affairs is that it fundamentally misconceives the operation of the social system in such a manner as to suppress and obscure the real workings and true causes of the problems it seeks to remedy. In so doing, the measures which are thus implemented themselves become causes of systematic distortions in the economic system; which are then interpreted as proof of the necessity for even more drastic extensions of those original policies — thus compounding and multiplying the distortions in a self-justifying cycle.
All of these considerations would be academic but for the reality that these measures and their extensions adversely affect millions of lives in an essentially irreparable fashion, the ill effects possibly enduring for centuries.
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State intervention to assure to the community the necessary quantity of money by regulating its international movements is supererogatory. An undesired efflux of money can never be anything but a result of State intervention endowing Money of different values with the same legal tender. All that the State need do, and can do, in order to preserve the monetary system undisturbed, is to refrain from such intervention. That is the essence of the monetary theory of the classical economists and their immediate successors, the Currency School. It is possible to refine and amplify this doctrine with the aid of modern subjectivist theory; but it is impossible to overthrow it, and impossible to put anything else in its Place. Those who are able to forget it only show that they are unable to think as economists.
LUDWIG VON MISES Money and Credit, p. 249