Socialism Capitalism
Socialism Capitalism
Socialism Capitalism
Socialism
and
Capitalism
Economics, Politics, and Ethics
Hans-Hermann Hoppe
The Ludwig von Mises Institute’s Studies in Austrian Economics
Department of Economics University of Nevada, Las Vegas
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Hoppe, Hans-Hermann. A theory of socialism and capitalism : economics,
politics, and ethics / by Hans-Hermann Hoppe.
p. cm. Includes index.
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A Theory of
Socialism
and
Capitalism
Hans-Hermann Hoppe
Acknowledgements
Three institutions assisted me while I wrote this treatise. As a
Heisenberg Scholar I enjoyed the most generous financial support
from the German Science Foundation (DFG) from 1982 through
1986. The present study is the most recent work I completed dur-
ing this period. Additional support came from the Johns Hopkins
University Bologna Center for Advanced International Studies,
where I spent the academic year 1984-1985 as a Visiting Profes-
sor. The lectures delivered there provided the core of what is pre-
sented here. Finally, during the academic year 1985/86, when my
research took on its present form and which I spent in New York
City, I received the most unbureaucratic and cordial help from the
Center for Libertarian Studies.
My deepest gratitude is to my teacher and friend Murray N.
Rothbard. To his scholarly and personal example I owe more than I
can properly express. He read an earlier draft of the study and pro-
vided me with invaluable comments. Innumerous discussions with
him were a never ending source of inspiration and his enthusiasm
was a constant encouragement.
To these people and institutions I owe a sincere “thank you.”
Contents
Chapter 1: Introduction . . . . . . . . . . . . . . . . . . . . . . . 9
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
A Theory of Socialism and Capitalism
Hans-Hermann Hoppe
Chapter 1
Introduction
T
he following study on the economics, politics and mor-
als of socialism and capitalism is a systematic treatise on
political theory. Interdisciplinary in scope, it will discuss
the central problems of political economy and political
philosophy: how to organize society so as to promote the produc-
tion of wealth and eradicate poverty, and how to arrange it so as to
make it a just social order.
But in doing this I will also constantly touch upon and illumi-
nate social and political problems in the narrower, more common
sense of these terms. In fact, it is one of the major goals of this trea-
tise to develop and explain the conceptual and argumentative tools,
economic and moral, needed to analyze and evaluate any kind of
empirical social or political system, to understand or appraise any
process of social change, and to explain or interpret similarities as
well as differences in the social structure of any two or more differ-
ent societies.
At the end of the treatise it should be clear that only by means
of a theory, economic or moral, which is not itself derived from
experience but rather starts from a logically incontestable state-
ment (which is something very different from an “arbitrarily pos-
tulated axiom”) and proceeds in a purely deductive way (perhaps
using some explicitly introduced empirical and empirically testable
10 A Theory of Socialism and Capitalism
the poorer the country will remain or become. The fact that the
United States is, by and large, richer than Western Europe, and
West Germany much richer than East Germany can be explained
by their lesser degree of socialism, as can the fact that Switzerland
is more prosperous than Austria, or that England, in the nineteenth
century the richest country in the world, has now fallen to what is
aptly called an underdeveloping country.
But the concern here will not be exclusively with the overall
wealth effects, nor with the economic side of the problem alone.
For one thing, in analyzing different types of socialism for which
there exist real, historical examples (examples which, to be sure,
very often are not called socialism, but are given a more appeal-
ing name), it is important to explain why, and in what way, every
To avoid any misunderstanding from the outset: the thesis presented here is that
any given society’s overall wealth will be relatively increased, i.e., will grow more
than it otherwise would, if the overall degree of socialism is decreased and vice versa.
The United States, for instance, would improve their standards of living by adopting
more capitalism (above the level that would be attained otherwise), and so would
Germany, etc. It is a somewhat different task, though, to explain the relative posi-
tion (as regards overall wealth) of different societies at any given time because then,
of course, the “ceteris” are no longer necessarily “paribus,” while, of course, other
things, in addition to an existing degree of socialism, undoubtedly affect a society’s
overall wealth. A given society’s history, for instance, has a tremendous effect on its
present wealth. Every society is rich or poor not only because of present but also
past conditions; because of capital having been accumulated or destroyed in the past
by our fathers and forefathers. So it can easily happen that a society which is pres-
ently more capitalist can still be significantly poorer than a more socialist one. And
the same, only seemingly paradoxical result can emerge because societies can (and
do) differ with respect to other formerly or presently operating factors affecting the
production of wealth. There can and do exist, for instance, differences in the work
ethic and/or in prevalent world-views and habits among societies and these can and
do account for divergencies (or similarities) in the production of wealth of societ-
ies alike or different with respect to their present degree of socialism. Thus, the most
straightforward and best way to illustrate the validity of the thesis that the degree of
socialism is inversely related to a society’s wealth in any comparative social analysis,
would be to compare societies which, except for differences in their degree of social-
ism, are paribus with respect to their history and the present socio- psychological
characteristics of their people, or are at least very similar, like, for instance, West and
East Germany: and here the predicted effect indeed shows in the most dramatic way,
as will be dealt with in the following.
Incidentally, “socialism” in the United States is called “liberalism” and the social-
ist, or social democrat there, who calls himself “liberal” would generally detest being
called “socialist.”
12 A Theory of Socialism and Capitalism
make clear that nothing could be farther from the truth. It will be
demonstrated that the property theory implicit in socialism does
not normally pass even the first decisive test (the necessary if not
sufficient condition) required of rules of human conduct which
claim to be morally justified or justifiable. This test, as formulated
in the so-called golden rule or, similarly, in the Kantian categorical
imperative, requires that in order to be just, a rule must be a gen-
eral one applicable to every single person in the same way. The rule
cannot specify different rights or obligations for different catego-
ries of people (one for the red-headed, and one for others, or one
for women and a different one for men), as such a “particularistic”
rule, naturally, could never, not even in principle, be accepted as a
fair rule by everyone. Particularistic rules, however, of the type “I
can hit you, but you are not allowed to hit me,” are, as will become
clear in the course of this treatise, at the very base of all practiced
forms of socialism. Not only economically but in the field of mor-
als, too, socialism turns out to be an ill-conceived system of social
organization. Again, in spite of its bad public reputation, it is capi-
talism, a social system based squarely on the recognition of private
property and of contractual relations between owners of private
property, that wins outright. It will be demonstrated that the prop-
erty theory implicit in capitalism not only passes the first test of
“universalization” but it turns out to be the logical precondition
(die Bedingung der Moeglichkeit) of any kind of argumentative
justification: Whoever argues in favor of anything, and in particu-
lar in favor of certain norms as being fair, must, implicitly at least,
presuppose the validity of the property norms implicit in capital-
ism. To deny their validity as norms of universal acceptability and
argue in favor of socialism is thus self-contradictory.
The reconstruction of the morals of private property and its
ethical justification then leads to a reevaluation of socialism and, as
it turns out, the institution of the state, depending as it does for its
very existence on taxation and forced membership (citizenship), as
the very incorporation of socialist ideas on property. Without any
solid economic or moral reasons for their existence, socialism and
Hans-Hermann Hoppe 15
Chapter 2
B
efore advancing to the more exciting field of analyzing
diverse policy schemes from the standpoint of economic
theory and political philosophy, it is essential to introduce
and explain the basic concepts used throughout the fol-
lowing study. Indeed, the concepts explained in this chapter—the
concepts of property, contract, aggression, capitalism and social-
ism—are so basic, so fundamental, that one cannot even avoid
making use of them, if at times only implicitly. Unfortunately,
though, the very fact that in analyzing any kind of human action
and/or any kind of interpersonal relationship one must make use
of these concepts does not imply that everyone has a precise under-
standing of them. It seems instead to be the other way around.
Because the concept of property, for instance, is so basic that
everyone seems to have some immediate understanding of it, most
people never think about it carefully and can, as a consequence,
produce at best a very vague definition. But starting from impre-
cisely stated or assumed definitions and building a complex net-
work of thought upon them can lead only to intellectual disaster.
For the original imprecisions and loopholes will then pervade and
distort everything derived from them. To avoid this, the concept of
property must first be clarified.
17
18 A Theory of Socialism and Capitalism
Cf. D. Hume, A Treatise of Human Nature (ed. Selby-Bigge), Oxford, 1968, esp. 3,
2, p.484; and, “Enquiry Concerning the Principles of Morals,” in: Hume, Enquiries
(ed. Selby-Bigge), Oxford, 1970; cf. also: L. Robbins, Political Economy: Past and
Present, London, 1977, esp. pp. 29-33.
Incidentally, the normative character of the concept of property also makes the suf-
ficient precondition for its emergence as a concept clear: Besides scarcity “rationality
of agents” must exist, i.e., the agents must be capable of communicating, discussing,
Hans-Hermann Hoppe 19
Cf.
L. v. Mises, Human Action, Chicago, 1966, esp. part 1; M. N. Rothbard, Man,
Economy and State, Los Angeles, 1970; also: L. Robbins, Nature and Significance of
Economic Science, London, 1935.
On the concept of cost cf. in particular, M. Buchanan, Cost and Choice, Chicago,
1969; L.S.E. Essays on Cost (ed. Buchanan and Thirlby), Indianapolis, 1981.
Hans-Hermann Hoppe 21
Itis worth mentioning here that the validity of all of what follows, of course, in no
way depends on the correctness of the description of the natural position as “natu-
ral.” Even if someone would only be willing to grant the so-called natural position
the status of an arbitrary starting point, our analysis assumes validity. Terms don’t
matter; what counts is what the natural position really is and implies as such. The fol-
lowing analyses are concerned exclusively with this problem.
22 A Theory of Socialism and Capitalism
10 Noteagain that the term “aggression” is used here without evaluative connota-
tions. Only later in this treatise will I demonstrate that aggression as defined above
Hans-Hermann Hoppe 23
is indeed morally indefensible. Names are empty; what alone is important is what it
really is that is called aggression.
11 When I discuss the problem of moral justification in Chapter 7, I will return to the
importance of the distinction just made of aggression as an invasion of the physical
integrity of someone and, on the other hand, an invasion of the integrity of some-
one’s value system, which is not classified as aggression. Here it suffices to notice that
it is some sort of technical necessity for any theory of property (not just the natural
position described here) that the delimitation of the property rights of one person
against those of another be formulated in physical, objective, intersubjectively ascer-
tainable terms. Otherwise it would be impossible for an actor to determine ex ante
if any particular action of his were an aggression or not, and so the social function of
property norms (any property norms), i.e., to make a conflict—free interaction pos-
sible, could not be fulfilled simply for technical reasons.
24 A Theory of Socialism and Capitalism
12 Itis worth mentioning that the ownership right stemming from production finds
its natural limitation only when, as in the case of children, the thing produced is itself
another actor- producer. According to the natural theory of property, a child, once
born, is just as much the owner of his own body as anyone else. Hence, not only can
Hans-Hermann Hoppe 25
a child expect not to be physically aggressed against but as the owner of his body a
child has the right, in particular, to abandon his parents once he is physically able to
run away from them and say “no” to their possible attempts to recapture him. Parents
only have special rights regarding their child—stemming from their unique status as
the child’s producers—insofar as they (and no one else) can rightfully claim to be the
child’s trustee as long as the child is physically unable to run away and say “no.”
13 On the disutility of work and waiting cf. the theory of time-preference as espoused
by L. v. Mises, Human Action, Chicago, 1966, chapters 5, 18, 21 ; the same, Social-
ism, Indianapolis, 1981, chapter 8;
M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, chapters 6, 9; also:
E.v. Boehm-Bawerk, Kapital und Kapitalzins. Positive Theory des Kapitals, Meisen-
heim, 1967; F. Fetter, Capital, Interest and Rent, Kansas City, 1976.
26 A Theory of Socialism and Capitalism
Eden, there is only one way left to do this: by shortening the wait-
ing time, reducing the disutility of waiting, and choosing a course
of action that promises earlier returns. Thus, the introduction of
aggressively founded ownership leads to a tendency to reduce
investment decisions and favors consumption decisions. Put dras-
tically, it leads to a tendency to turn philosophers into drunks. This
tendency is permanent and more pronounced when the threat of
intervention with the natural owner’s rights is permanent, and it
is less so to the degree that the threat is restricted to certain times
or domains. In any case, though, the rate of investment in human
capital is lower than it would be with the right of exclusive control
of natural owners over their bodies being untouched and absolute.
The second effect might be called social. The introduction of
elements of aggressively founded ownership implies a change in
the social structure, a change in the composition of society with
respect to personality or character types. Abandoning the natural
theory of property evidently implies a redistribution of income.
The psychic income of persons in their capacity as users of their
“own” natural body, as persons expressing themselves in this body
and deriving satisfaction from doing so, is reduced at the expense
of an increase in the psychic income of persons in their capacity as
invaders of other peoples’ bodies. It has become relatively more dif-
ficult and costly to derive satisfaction from using one’s body with-
out invading that of others, and relatively less difficult and costly
to gain satisfaction by using other peoples’ bodies for one’s own
purposes. This fact alone does not imply any social change, but
once a single empirical assumption is made, it does: Assuming that
the desire to gain satisfaction at the expense of a loss in satisfac-
tion available to others by instrumentalizing another person’s body
exists as a human desire, that it may not be instilled in everybody
and to the same extent, but that it exists in some people sometimes
to some degree and so conceivably can be suppressed or encour-
aged and favored by some given institutional arrangement, conse-
quences are imminent. And surely, this assumption is true. Then,
the redistribution of chances for income acquisition must result in
more people using aggression to gain personal satisfaction and/or
28 A Theory of Socialism and Capitalism
14 On the theory of original appropriation cf. J. Locke, Two Treatises of Government
(ed. Laslett), Cambridge, 1960, esp. 2,
Hans-Hermann Hoppe 29
this other person himself become the owner of such things. Unlike
bodies, though, which for the same “natural” reason can never be
unowned and also can never be parted with by the natural owner
completely but only be “lent out” as long as the owners’ agreement
lasts, naturally all other scarce resources can be “alienated” and a
property title for them can be relinquished once and for all.15
A social system based on this natural position regarding the
assignment of property rights is, and will from now on be called
pure capitalist. And since its ideas can also be discerned as the
dominating ideas of private law, i.e., of the norms regulating rela-
tions between private persons, it might also be termed a pure
private law system.16 This system is based on the idea that to be
nonaggressive, claims to property must be backed by the “objec-
tive” fact of an act of original appropriation, of previous ownership,
or by a mutually beneficial contractual relationship. This relation-
ship can either be a deliberate cooperation between property own-
ers or the deliberate transfer of property titles from one owner to
another. If this system is altered and instead a policy is instituted
that assigns rights of exclusive control over scarce means, however
partial, to persons or groups of persons that can point neither to
an act of previous usership of the things concerned, nor to a con-
tractual relation with some previous user-owner, then this will be
called (partial) socialism.
It will be the task of the next four chapters to explain how dif-
ferent ways of deviating from a pure capitalist system, different
ways of redistributing property titles away from natural owners of
things (i.e., from people who have put some particular resources
15 On the distinction, flowing naturally from the unique character of a person’s body
as contrasted with all other scarce goods, between “inalienable” and “alienable” prop-
erty titles cf. W. Evers, “Toward a Reformation of a Law of Contracts,” in: Journal of
Libertarian Studies, 1977.
16 The superimposition of public on private law has tainted and compromised the
latter to some extent everywhere. Nonetheless, it is not difficult to disentangle exist-
ing private law systems and find what is here called the natural position as constitut-
ing its central elements—a fact which once again underlines the “naturalness” of this
property theory. Cf. also Chapter 8, n. 13.
30 A Theory of Socialism and Capitalism
to a specific use and so are naturally linked to them, and onto peo-
ple who have not yet done anything with the resources but who
have simply made a verbal, declarative claim regarding them) low-
ers investment and increases consumption, and in addition causes
a change in the composition of the population by favoring nonpro-
ductive over productive people.
Hans-Hermann Hoppe 31
32 A Theory of Socialism and Capitalism
Hans-Hermann Hoppe 33
Chapter 3
W
e have defined socialism as an institutionalized pol-
icy of redistribution of property titles. More pre-
cisely, it is a transfer of property titles from people
who have actually put scarce means to some use or
who have acquired them contractually from persons who have
done so previously onto persons who have neither done anything
with the things in question nor acquired them contractually. For a
highly unrealistic world—the Garden of Eden—I then pointed out
the socio-economic consequences of such a system of assigning
property rights were then pointed out: a reduction of investment in
human capital and increased incentives for the evolution of non-
productive personality types.
I now want to enlarge and concretize this analysis of socialism
and its socio-economic impact by looking at different though equally
typical versions of socialism. In this chapter I will concentrate on the
analysis of what most people have come to view as “socialism par
excellence” (if not the only type of socialism there is), this proba-
bly being the most appropriate starting point for any discussion of
socialism. This “socialism par excellence” is a social system in which
the means of production, that is, the scarce resources used to pro-
duce consumption goods, are “nationalized” or “socialized.”
33
34 A Theory of Socialism and Capitalism
Indeed, while Karl Marx, and like him most of our contempo-
rary intellectuals of the left, was almost exclusively concerned with
the analysis of the economic and social defects of capitalism, and in
all of his writings made only a few general and vague remarks about
the constructive problem of the organization of the process of pro-
duction under socialism, capitalism’s allegedly superior alternative,
there can be no doubt that this is what he considered the corner-
stone of a socialist policy and the key to a better and more prosper-
ous future.17 Accordingly, socialization of the means of production
has been advocated by all socialists of orthodox Marxist persuasion
ever since. It is not only what the communist parties of the West offi-
cially have in store for us, though they become increasingly reluc-
tant to say so in order to seize power. In all of the Western socialist
and social-democratic parties a more or less numerous, outspoken,
and eloquent minority of some influence also exists, which ardu-
ously supports such a scheme and proposes socialization, if not of
all means of production, then at least of those of big industry and
big business. Most importantly, smaller or bigger sectors of nation-
alized industries have become part of social reality even in the so-
called “most capitalist” countries; and of course an almost complete
socialization of the means of production has been tried out in the
Soviet Union and later in all of the Soviet-dominated countries of
Eastern Europe, as well as in a number of other countries all over
the world. The following analysis should thus enable us to under-
stand the economic and social problems of societies, insofar as
they are characterized by nationalized means of production. And
in particular, it should help us to understand the central problems
that plague Russia and its satellites, as these countries have carried
a policy of socialization so far that it can justly be said to be their
dominant structural feature. It is because of this fact that the type of
socialism under investigation is called “Russian” style.18
17 On Marxism and its development cf. L. Kolakowski, Main Currents of Marxism,
3 vols., Oxford, 1978; W. Leonhard, Sovietideologie. Die politischen Lehren, Frank-
furt/M., 1963.
18 When one speaks of socialism Russian style it is evident that one abstracts from
the multitude of concrete data which characterize any social system and with respect
Hans-Hermann Hoppe 35
to which societies may differ. Russian style socialism is what has been termed by M.
Weber an “ideal type.” It “is arrived at through the one-sided intensification of one or
several aspects and through integration into an immanently consistent conceptual
representation of a multiplicity of scattered and discrete individual phenomena” (M.
Weber, Gesammelte Aufsaetze zur Wissenschaftslehre, Tuebingen, 1922, p.191). But
to stress the abstract character of the concept by no means implies any deficiency
in it. On the contrary, it is the very purpose of constructing ideal types to bring out
those features which the acting individuals themselves regard as constituting rel-
evant resemblances or differences in meaning, and to disregard those which they
themselves consider to be of little or no importance in understanding either one’s
own or another person’s actions. More specifically, describing Russian style socialism
on the level of abstraction chosen here and developing a typology of various forms of
socialism later on should be understood as the attempt to reconstruct those concep-
tual distinctions which people use to attach themselves ideologically to various polit-
ical parties or social movements, hence enabling an understanding of the ideological
forces that in fact shape present-day societies. On ideal types as prerequisites for his-
torico-sociologic al research cf. L. v. Mises, Epistemological Problems of Economics,
New York, 1981, esp. pp.75ff; the same, Human Action, Chicago, 1966, esp. pp.59ff.
On the methodology of “meaning reconstruction” of empirical social research cf. H.
H. Hoppe, Kritik der kausalwis- senschaftlichen Sozialforschung, Opladen, 1983,
chapter 3, esp. pp.33ff.
36 A Theory of Socialism and Capitalism
19 For the following cf. in particular L. v. Mises, Socialism, Indianapolis, 1981.
20 Of course, this complete outlawing of private investment, as stated under (2) only
applies strictly to a fully socialized economy. If next to a socialized part of the econ-
omy a private part also exists, then private investment would only become curtailed
and hampered to the degree to which the economy is socialized.
Hans-Hermann Hoppe 37
21 Therelated, crucial difference between capitalism and socialism is that under the
former, the voluntary actions of consumers ultimately determine the structure and
process of production, whereas it is the producer-caretakers who do so under social-
ism. Cf. in particular Chapter 9 below.
38 A Theory of Socialism and Capitalism
22 WritesMises, “The essential mark of socialism is that one will alone acts. It is
immaterial whose will it is. The director may be anointed king or a dictator, ruling
by virtue of his charisma, he may be a Fuehrer or a board of Fuehrers appointed
by the vote of the people. The main thing is that the employment of all factors of
production is directed by one agency only’ (L. v. Mises, Human Action, Chicago,
1966, p.695).
Hans-Hermann Hoppe 39
in which, at the very best, every person remains the caretaker of the
things he previously owned. But even in this case each previous user
and each contractor would be hurt, as he could no longer sell the
means of production and keep the receipt from the sale privately,
nor could he privately appropriate the profit from using them the
way they are used, and hence the value of the means of production
for him would fall. Mutatis mutandis, every nonuser and noncon-
tractor of these means of production would be favored by being pro-
moted to the rank of caretaker of them, with at least partial say over
resources which he had previously neither used nor contracted to
use, and his income would rise.
In addition to this redistributive scheme there is another one,
implied by the prohibition of newly created private capital or by the
degree of hampering (dependent as it is on the size of the social-
ized part of the economy) under which this process must now take
place: a redistribution away from people who have forgone possible
consumption and instead saved up funds in order to employ them
productively, i.e., for the purpose of producing future consumption
goods, and who now can no longer do so or who now have fewer
options available, toward nonsavers, who in adopting the redistri-
bution scheme, gain a say, however partial, over the saver’s funds.
The socio-economic consequences of a policy of socialization
are essentially implied in these formulations. But before taking a
more detailed look at them, it might be worthwhile to review and
clarify the central features of the real world in which this socializa-
tion scheme would purportedly take place. It should be recalled
that one is dealing with a changing world; that man, in addition,
can learn with respect to this world and so does not necessarily
know today what he will know at a later point in time; that there
is a scarcity of a multitude of goods and that accordingly man is
pressed by a multitude of needs, not all of which he can satisfy at
the same time and/or without sacrificing the satisfaction of other
needs; because of this, man must choose and order his needs in a
scale of preferences according to the rank of urgency that they have
for him; also, more specifically, that neither the process of original
40 A Theory of Socialism and Capitalism
23 Cf. L. v. Mises, Socialism, Indianapolis, 1981, esp. part 2; also Human Action, Chi-
cago, 1966, esp. Chapters 25, 26.
Hans-Hermann Hoppe 41
24 On the following cf. also F. A. Hayek (ed.), Collectivist Economic Planning,
London, 1935; Journal of Libertarian Studies 5, 1, 1981 (An Economic Critique of
Socialism).
42 A Theory of Socialism and Capitalism
25 On the free market as the necessary prerequisite for economic calculation and
rational resource allocation cf. also Chapters 9, 10 below.
44 A Theory of Socialism and Capitalism
26 Incidentally, this proves that a socialized economy will be even less productive
than a slave economy. In a slave economy, which of course also suffers from a rela-
tively lower incentive to work on the part of the slaves, the slaveholder, who can sell
the slave and capture his market value privately, would not have a comparable inter-
est in extracting from his slave an amount of work which reduces the slave’s value
below the value of his marginal product. For a caretaker of labor no such disincen-
tive exists. Cf. also G. Reisman, Government Against the Economy, New York, 1979.
46 A Theory of Socialism and Capitalism
rise to the top now, so that one finds increasing numbers of poli-
ticians everywhere in the hierarchical order of caretakers. All the
way to the very top there will be people incompetent to do the job
they are supposed to do. It is no hindrance in a caretaker’s career
for him to be dumb, indolent, inefficient, and uncaring, as long as
he commands superior political skills, and accordingly people like
this will be taking care of the means of production everywhere.27
A look at Russia and other East-bloc countries in which a pol-
icy of socialization of means of production has been carried out to
a considerable degree can help illustrate the truth of the above con-
clusions. Even a superficial acquaintance with these countries suf-
fices to see the validity of the first and main conclusion. The general
standard of living in the East-bloc countries, though admittedly dif-
ferent from country to country (a difference that itself would have
to be explained by the degree of strictness with which the social-
ization scheme was and presently is carried through in practice),
is clearly much lower than that in the so-called capitalist countries
of the West. (This is true even though the degree to which Western
countries are socialized, though differing from country to country,
is itself quite considerable and normally very much underestimated
as will become clear in later chapters.) Though the theory does not
and cannot make a precise prediction of how drastic the impover-
ishment effect of a socialization policy will be, except that it will be
a noticeable one, it is certainly worth mentioning that when almost
complete socialization was first put into effect in immediate post-
World War I Russia, this experience cost literally millions of lives,
and it required a marked change in policy, the New Economic Pol-
icy (NEP), merely a few years later in 1921, reintroducing elements
of private ownership, to moderate these disastrous effects to lev-
els that would prove tolerable.28 Indeed, repeated changes in policy
27 Cf. H. H. Hoppe, Eigentum, Anarchie und Staat, Opladen, 1987, esp. Chapter 5, 3.2.
28 To be sure, Russia was a poor country to begin with, with little accumulated capi-
tal to be drawn on and consumed in an “emergency.” On the socio-economic history
of Soviet Russia cf. B. Brutzkus, Economic Planning in Soviet Russia, London, 1935;
also, e.g., A. Nove, Economic History of the USSR, Harmondsworth, 1969; also S.
Wellisz, The Economies of the Soviet Bloc, New York, 1964.
48 A Theory of Socialism and Capitalism
29 On the economic system of the Soviet-dominated East bloc cf. T. Rakowska-
Harmstone (ed)., Communism in Eastern Europe, Bloomington, 1984; H. H.
Hohmann, M. Kaser, and K. Thalheim (eds.), The New Economic Systems of East-
ern Europe, London, 1975; C.M. Cipolla (ed.), Economic History of Europe. Con-
temporary Economies, vol 2, Glasgow, 1976.
30 On everyday life in Russia cf., e.g., H. Smith, The Russians, New York, 1983; D.K.
Willis, Klass. How Russians Really Live, New York, 1985; S. Pejovich, Life in the
Soviet Union, Dallas, 1979; M. Miller, Rise of the Russian Consumer, London, 1965.
31 Cf. L. Erhard, the initiator and major political exponent of post-war economic
policy, Prosperity through Competition, New York, 1958; and The Economics of
Hans-Hermann Hoppe 49
33 On
life in East Germany cf. E. Windmoeller and T. Hoepker, Leben in der DDR,
Hamburg, 1976.
Hans-Hermann Hoppe 51
Chapter 4
I
n the last chapter I analyzed the orthodox Marxist version
of socialism—socialism Russian-style, as it was called—and
explained its effects on the process of production and the social
moral structure. I went on to point out that the theoretically
foreseen consequences of relative impoverishment proved to be so
powerful that in fact a policy of socializing the means of produc-
tion could never actually be carried through to its logical end the
socialization of all production factors, without causing an immedi-
ate economic disaster. Indeed, sooner or later all actual realizations
of Marxist socialism have had to reintroduce elements of private
ownership in the means of production in order to overcome or
prevent manifest bankruptcy. Even moderate “market” socialism,
however, cannot prevent a relative impoverishment of the popula-
tion, if the idea of socialized production is not abandoned entirely,
once and for all.
Much more so than any theoretical argument, it has been
the disappointing experience with Russian-type socialism which
has led to a constant decline in the popularity of orthodox Marx-
ist socialism and has spurred the emergence and development of
modern social-democratic socialism, which will be the concern
of this chapter. Both types of socialism, to be sure, derive from
55
56 A Theory of Socialism and Capitalism
34 Cf. L. Kolakowski, Main Currents of Marxism, 3 vols., Oxford, 1978; also W. Leon-
hard, Sovietideologie heute. Die politischen Lehren, Frankfurt/M., 1963.
35 Cf. note 49 below on the assessment of the somewhat different practice.
Hans-Hermann Hoppe 57
36 Cf.
E. Bernstein, Die Voraussetzungen des Sozialismus und die Aufgaben der
Sozialdemokratie, Bonn, 1975, as a major expositor of the reformist-revisionist
course; K. Kautsky, Bernstein und das sozialdemokratische Programm, Bonn, 1976,
as exponent of the Marxist orthodoxy.
58 A Theory of Socialism and Capitalism
37 On the idea of a “market-socialism” cf. one of its leading representatives, O. Lange,
“On the Economic Theory of Socialism,” in M. I. Goldman (ed.), Comparative Eco-
nomic Systems, New York, 1971.
Hans-Hermann Hoppe 59
38 On the ideology of the German Social Democrats cf. T. Meyer (ed.),
Demokratischer Sozialismus, Muenchen, 1980; G. Schwan (ed.), Demokratischer
Sozialismus fuer Industriegesellschaften, Frankfurt/M., 1979.
60 A Theory of Socialism and Capitalism
39 Indicators for the social-democratization of the socialist movement are the rise of
the socialist party and the corresponding decline of the orthodox communist party
in France; the emergence of a social-democratic party as a rival to the more orthodox
labour party in Great Britain; the moderation of the communists in Italy as the only
remaining powerful communist party in Western Europe toward an increasingly
social-democratic policy; and the growth of the socialist-social-democratic parties
in Spain and Portugal under Gonzales and Soares, both with close ties to the Ger-
man SPD. Furthermore, the socialist parties of Scandinavia, which traditionally had
closely followed the German path and which later provided safe haven to a number
of prominent socialists during the Nazi persecution (most notably W. Brandt and B.
Kreisky), have long given credence to the revisionist beliefs.
40 On the social-democratic position regarding the North-South conflict cf. North-
South: A Programme for Survival, Independent Commission on International
Development Issues (Chair: W. Brandt), 1980.
Hans-Hermann Hoppe 61
41 Note again that this characterization of social-democratic socialism has the status
of an “ideal type” (cf. Chapter 3, n. 2). It is not to be taken as a description of the pol-
icy or ideology of any actual party. Rather, it should be understood as the attempt to
reconstruct what has become the essence of modern social-democratic style social-
ism, underlying a much more diverse reality of programs and policies of various par-
ties or movements of different names as the ideologically unifying core.
62 A Theory of Socialism and Capitalism
42 On the following cf. L. v. Mises, Socialism, Indianapolis, 1981, esp. part V; Human
Action, Chicago, 1966, esp. part 6.
64 A Theory of Socialism and Capitalism
these people the marginal utility of money and hence their inclina-
tion to work for monetary return would be reduced. But this is by
no means all that need be said, as this might still leave the impres-
sion that taxation simply does not affect the output of exchange-
able goods at all—since it will reduce the marginal utility of money
income for some and increase it for others, with both effects cancel-
ling each other out. But this impression would be wrong. As a mat-
ter of fact, this would be a denial of what has been assumed at the
outset: that a tax hike, i.e., a higher monetary contribution forced
upon disapproving income producers, has actually taken place
and has been perceived as such—and would hence involve a logi-
cal contradiction. Intuitively, the flaw in the belief that taxation is
“neutral” as regards output becomes apparent as soon as the argu-
ment is carried to its ultimate extreme. It would then amount to the
statement that even complete expropriation of all of the producers’
monetary income and the transfer of it to a group of nonproduc-
ers would not make any difference, since the increased laziness of
the nonproducers resulting from this redistribution would be fully
compensated by an increased workaholism on the part of the pro-
ducers (which is certainly absurd). What is overlooked in this sort
of reasoning is that the introduction of taxation or the rise in any
given level of taxation does not only imply favoring nonproduc-
ers at the expense of producers, it also simultaneously changes, for
producers and nonproducers of monetary income alike, the cost
attached to different methods of achieving an (increasing) mon-
etary income. For it is now relatively less costly to attain additional
monetary in come through nonproductive means, i.e., not through
actually producing more goods but by participating in the process
of noncontractual acquisitions of goods already produced. Even if
producers are indeed more intent upon attaining additional money
as a consequence of a higher tax, they will increasingly do so not
by intensifying their productive efforts but rather through exploit-
ative methods. This explains why taxation is not, and never can be,
neutral. With (increased) taxation a different legal incentive struc-
ture is institutionalized: one that changes the relative costs of pro-
duction for monetary income versus nonproduction, including
Hans-Hermann Hoppe 67
44 Inaddition, it should not be overlooked that even if it led to increased work by
those taxed, a higher degree of taxation would in any case reduce the amount of lei-
sure available to them and thereby reduce their standard of living. Cf. M.N. Roth-
bard, Power and Market, Kansas City, 1977, pp. 95f.
68 A Theory of Socialism and Capitalism
46 On the phenomenon of politicalization cf. also K. S. Templeton (ed.), The Politi-
calization of Society, Indianapolis, 1977.
72 A Theory of Socialism and Capitalism
47 On the concern of orthodox and social-democratic socialism for equality cf. S.
Lukes, “Socialism and Equality,” in: L. Kolakowski and S. Hampshire (eds.), The
Socialist Idea, New York, 1974; also B. Williams, “The Idea of Equality,” in P. Laslett
and W. G. Runciman (eds.), Philosophy, Politics, and Society, 2nd series, Oxford,
1962. For a critique of the socialist concept of equality cf. M. N. Rothbard, “Freedom,
Inequality, Primitivism and the Division of Labor,” in K. S. Templeton (ed.), The
Politicalization of Society, Indianapolis, 1977; and Egalitarianism as a Revolt Against
Nature, (title essay), Washington, 1974; H. Schoeck, Envy, New York, 1966; and 1st
Leistung unanstaendig? Osnabrueck, 1971; A. Flew, The Politics of Procrustes, Lon-
don, 1980; and Sociology, Equality and Education, New York, 1976.
48 Traditionally, this approach has been favored, at least in theory, by orthodox
Marxist socialism—in line with Marx’ famous dictum in his “Critique of the Gotha
Programme,” (K. Marx, Selected Works, vol. 2, London, 1942, p.566), ‘from each
according to his ability, to each according to his needs.” Economic reality, however,
has forced the Russian-style countries to make considerable concessions in prac-
tice. Generally speaking, an effort has indeed been made to equalize the (assumedly
highly visible) monetary income for various occupations, but in order to keep the
economy going, considerable difference in (assumedly less visible) nonmonetary
rewards (such as special privileges regarding travel, education, housing, shopping,
etc.) have had to be introduced.
Surveying the literature, P. Gregory and R. Stuart (Comparative Economic Sys-
tems, Boston, 1985), state: “… earnings are more equally distributed in Eastern
Europe, Yugoslavia and the Soviet Union than in the United States. For the USSR,
this appears to be a relatively new phenomenon, for as late as 1957, Soviet earnings
were more unequal than the United States.” However, in Soviet-style countries “a rela-
tively larger volume of resources … is provided on an extra market bases …” (p.502).
In conclusion: “Income is distributed more unequally in the capitalist countries in
which the state plays a relatively minor redistributive role … (United States, Italy,
Canada). Yet even where the state plays a major redistributive role (United King-
dom, Sweden), the distribution of incomes appears to be slightly more unequal than
in the planned socialist countries (Hungary, Czechoslovakia, Bulgaria). The Soviet
Union in 1966 appears to have a less egalitarian distribution of income than its East
European counterparts” (p.504). Cf. also, F. Parkin, Class Inequality and Political
Order, New York, 1971, esp. Chapter 6.
Hans-Hermann Hoppe 73
and B might have the same income and might both be equally rich,
but A might be black, or a woman, or have bad eyesight, or be a
resident of Texas, or may have ten children, or no husband, or be
over 65, whereas B might be none of these but something else, and
hence A might argue that his opportunities to attain everything
possible in life are different, or rather worse, than B’s, and that he
should somehow be compensated for this, thus making their mon-
etary incomes, which were the same before, now different. And B,
of course, could argue in exactly the same way by simply revers-
ing the implied evaluation of opportunities. As a consequence, an
unheard of degree of politicalization will ensue. Everything seems
fair now, and producers and nonproducers alike, the former for
defensive and the latter for aggressive purposes, will be driven
into spending more and more time in the role of raising, destroy-
ing, and countering distributional demands. And to be sure, this
activity, like the engagement in leisurely activities, is not only non-
productive but in clear contrast to the role of enjoying leisure,
implies spending time for the very purpose of actually disrupting
the undisturbed enjoyment of wealth produced, as well as its new
production.
But not only is increased politicalization stimulated (above
and beyond the level implied by socialism generally) by promoting
the idea of equalizing opportunity. There is once more, and this is
perhaps one of the most interesting features of new social-demo-
cratic-socialism as compared with its traditional Marxist form, a
new and different character to the kind of politicalization implied
by it. Under any policy of distribution, there must be people who
support and promote it. And normally, though not exclusively
so, this is done by those who profit most from it. Thus, under a
system of income and wealth-equalization and also under that of
a minimum income policy, it is mainly the “have-nots” who are
the supporters of the politicalization of social life. Given the fact
that on the average they happen to be those with relatively lower
intellectual, in particular verbal capabilities, this makes for poli-
tics which appears to lack much intellectual sophistication, to
say the least. Put more bluntly, politics tends to be outright dull,
76 A Theory of Socialism and Capitalism
51 Onthe following cf. also R. Merklein, Griff in die eigene Tasche, Hamburg, 1980;
and Die Deutschen werden aermer, Hamburg, 1982.
Hans-Hermann Hoppe 79
Chapter 5
I
n the two preceding chapters the forms of socialism most
commonly known and identified as such, and that are indeed
derived from basically the same ideological sources were dis-
cussed: socialism Russian-style, as most conspicuously rep-
resented by the communist countries of the East bloc; and
social-democratic socialism, with its most typical representatives in
the socialist and social-democratic parties of Western Europe, and
to a lesser extent in the “liberals” of the United States. The property
rules underlying their policy schemes were analyzed, and the idea
presented that one can apply the property principles of Russian or
social-democratic socialism in varying degrees: one can socialize all
means of production or just a few, and one can tax away and redis-
tribute almost all income, and almost all types of income, or one
can do this with just a small portion of only a few types of income.
But, as was demonstrated by theoretical means and, less stringently,
through some illustrative empirical evidence, as long as one adheres
to these principles at all and does not once and for all abandon the
notion of ownership rights belonging to nonproducers (nonusers)
and noncontractors, relative impoverishment must be the result.
This chapter will show that the same is true of conservatism,
because it, too, is a form of socialism. Conservatism also produces
impoverishment, and all the more so, the more resolutely it is
applied. But before going into a systematic and detailed economic
83
84 A Theory of Socialism and Capitalism
54 On the following cf. in particular M. N. Rothbard’s brilliant essay ‘Left and Right:
The Prospects for Liberty’ in the same, Egalitarianism as a Revolt Against Nature,
Washington, 1974.
55 On the social structure of feudalism cf. M. Bloch, Feudal Society, Chicago, 1961; P.
Anderson, Passages from Antiquity to Feudalism, London, 1974; R. Hilton (ed.), The
Transition from Feudalism to Capitalism, London, 1978.
Hans-Hermann Hoppe 85
was not the peasant population who suffered most from the exist-
ing order, but the merchants and traders who became the leading
opponents of the feudal system. Buying at a lower price in one place
and traveling and selling at a higher price in a different place, as
they did, made their subordination to any one feudal lord relatively
weak. They were essentially a class of “international” men, crossing
the borders of various feudal territories constantly. As such, in order
to do business they required a stable, internationally valid legal sys-
tem: a system of rules, valid regardless of time and place, defining
property and contract, which would facilitate the evolution of the
institutions of credit, banking and insurance essential to any large-
scale trading business. Naturally, this caused friction between the
merchants and the feudal lords as representatives of various arbi-
trary, regional, legal systems. The merchants became feudalism’s
outcasts, permanently threatened and harassed by the noble mili-
tary caste attempting to bring them under their control.56
In order to escape this threat the merchants were forced
to organize themselves and help establish small fortified trad-
ing places at the very fringes of the centers of feudal power. As
places of partial exterritoriality and at least partial freedom, they
soon attracted growing numbers of the peasantry running away
from feudal exploitation and economic misery, and they grew into
small towns, fostering the development of crafts and productive
enterprises which could not have emerged in the surroundings of
exploitation and legal instability characteristic of the feudal order
itself. This process was more pronounced where the feudal pow-
ers were relatively weak and where power was dispersed among a
great number of often very minor, rival feudal lords. It was in the
cities of northern Italy, the cities of the Hanseatic league, and those
of Flanders that the spirit of capitalism first blossomed, and com-
merce and production reached their highest levels.57
56 Cf. H. Pirenne, Medieval Cities. Their Origins and the Revival of Trade, Princ-
eton, 1974, Chapter 5, esp. pp. 126ff; also cf. M.
57 It is worth stressing that contrary to what various nationalist historians have
taught, the revival of trade and industry was caused by the weakness of central states,
by the essentially anarchistic character of the feudal system. This insight has been
86 A Theory of Socialism and Capitalism
emphasized by J. Baechler in The Origins of Capitalism, New York, 1976, esp. Chap-
ter 7. He writes: “The constant expansion of the market, both in extensiveness and in
intensity, was the result of an absence of a political order extending over the whole
of Western Europe.” (p.73) “The expansion of capitalism owes its origin and raison
d’eetre to political anarchy … . Collectivism and State management have only suc-
ceeded in school text-books (look, for example, at the constantly favourable judge-
ment they give to Colbertism).” (p.77) “All power tends toward the absolute. If it is
not absolute, this is because some kind of limitations have come into play … those
in positions of power at the centre ceaselessly tried to erode these limitations. They
never succeeded, and for a reason that also seems to me to be tied to the interna-
tional system: a limitation of power to act externally and the constant threat of for-
eign assault (the two characteristics of a multi-polar system) imply that power is also
limited internally and must rely on autonomous centres of decision making and so
may use them only sparingly.” (p.78)
On the role of ecological and reproductive pressures for the emergence of capital-
ism cf. M. Harris, Cannibals and Kings, New York, 1978, Chapter 14.
58 Cf. on this the rather enthusiastic account given by H. Pirenne, Medieval Cities,
Princeton, 1974, pp.208ff.
Hans-Hermann Hoppe 87
59 On this coalition cf. H. Pirenne, Medieval Cities, Princeton, 1974. “The clear inter-
est of the monarchy was to support the adversaries of high feudalism. Naturally, help
was given whenever it was possible to do so without becoming obligated to these
middle classes who in arising against their lords fought, to all intents and purposes,
in the interests of royal prerogatives. To accept the king as arbitrator of their quarrel
was, for the parties in conflict, to recognize his sovereignty … It was impossible that
royalty should not take count of this and seize every chance to show its goodwill to
the communes which, without intending to do so, labored so usefully in its behalf ”
(p.179-80; cf. also pp.227f).
60 Cf. P. Anderson, Lineages of Absolutism, London, 1974.
88 A Theory of Socialism and Capitalism
61 Cf. L. Tigar and M. Levy, Law and the Rise of Capitalism, New York, 1977.
62 Cf.L. v. Mises, Liberalismus, Jena, 1929; also E. K. Bramsted and K. J. Melhuish
(eds.), Western Liberalism, London, 1978.
Hans-Hermann Hoppe 89
63 Cf. F. A. Hayek (ed.), Capitalism and the Historians, Chicago, 1963.
64 On the social dynamics of capitalism as well as the resentment caused by it cf. D. Mc.
C. Wright, Democracy and Progress, New York, 1948; and Capitalism, New York, 1951.
90 A Theory of Socialism and Capitalism
65 Inspite of their generally progressive attitude, the socialist left is not entirely free
of such conservative glorifications of the feudal past, either. In their contempt for the
“alienation” of the producer from his product, which of course is the normal conse-
quence of any market system based on division of labor, they have frequently pre-
Hans-Hermann Hoppe 91
70 Imight again mention that the characterization of conservatism, too, has the sta-
tus of an ideal-type (cf. Chapter 3, n. 2; Chapter 4, n. 8). It is the attempt to recon-
struct those ideas which people either consciously or unconsciously accept or reject
in attaching or detaching themselves to or from certain social policies or move-
ments. The idea of a conservative policy as described here and in the following can
also be said to be a fair reconstruction of the underlying, unifying ideological force
of what is indeed labeled “conservative” in Europe. However, the term “conservative”
is used differently in the United States. Here, quite frequently, everyone who is not a
left-liberal-(social)-democrat is labeled a conservative. As compared with this termi-
nology, our usage of the term conservative is much narrower, but also much more in
line with ideological reality. Labeling everything that is not “liberal” (in the Ameri-
can sense) “conservative” glosses over the fundamental ideological differences that—
despite some partial agreement regarding their opposition to “liberalism”—exist in
the United States between libertarians, as advocates of a pure capitalist order based
on the natural theory of property, and conservatives proper, who, from W. Buckley
to I. Kristol, nominally hail the institution of private property, only to disregard pri-
vate owners’ rights whenever it is deemed necessary in order to protect established
economic and political powers from eroding in the process of peaceful competi-
tion. And in the field of foreign affairs they exhibit the same disrespect for private
property rights through their advocacy of a policy of aggressive interventionism. On
the polar difference between libertarianism and conservatism cf. G. W. Carey (ed.),
Freedom and Virtue. The Conservative/Libertarian Debate, Lanham, 1984.
Hans-Hermann Hoppe 95
values will fall below their given level. According to this theory,
however, no one owns the value of his property and hence no one,
at any time, has the right to preserve and restore his property val-
ues. As compared with this, conservatism aims precisely at such a
preservation or restoration of values and their relative distribution.
But this is only possible, of course, if a redistribution in the assign-
ment of property titles takes place. Since no one’s property values
depend exclusively on one’s own actions performed with one’s own
property, but also, and inescapably so, on other peoples’ actions
performed with scarce means under their own control (and beyond
that of another’s), in order to preserve given property values some-
one—some single person or some group of persons—would have
to rightfully own all scarce means (far beyond those that are actu-
ally controlled or used by this person or group of persons). Further-
more, this group must literally own all persons’ bodies, since the
use that a person makes of his body can also influence (increase or
decrease) existing property values. Thus, in order to realize the goal
of conservatism, a redistribution of property titles must occur away
from people as user-owners of scarce resources onto people who,
whatever their merits as past producers, did not presently use or
contractually acquire those things whose utilization had led to the
change in the given distribution of values.
With this understood, the first conclusion regarding the gen-
eral economic effect of conservatism lies at hand: with the natural
owners of things fully or partially expropriated to the advantage of
nonusers, nonproducers and noncontractors, conservatism elimi-
nates or reduces the former’s incentive to do something about the
value of existing property and to adapt to changes in demand. The
incentives to be aware of and to anticipate changes in demand, to
quickly adjust existing property and to use it in a manner consistent
with such changed circumstances, to increase productive efforts,
and to save and invest are reduced, as the possible gains from such
behavior can no longer be privately appropriated but will be social-
ized. Mutatis mutandis, the incentive is increased to do nothing in
order to avoid the permanent risk of one’s property values falling
below their present level, as the possible losses from such behavior
96 A Theory of Socialism and Capitalism
71 D. Mc. C. Wright (Capitalism, New York, 1951, p.198) correctly describes that
both—left-liberalism, or rather social democracy, and conservatism—imply a par-
tial expropriation of producers/contractors. He then misinterprets the difference,
though, when he sees it as a disagreement over the question of how far this expro-
priation should go. In fact, there is disagreement about this among social-democrats
and conservatives. Both groups have their “radicals” and “moderates.” What makes
them social-democrats or conservatives is a different idea about which groups are to
be favored at the expense of others.
98 A Theory of Socialism and Capitalism
72 Note the interesting relationship between our sociological typology of social-
ist policies and the logical typology of market interventions as developed by M. N.
Rothbard. Rothbard (Power and Market, Kansas City, 1977, pp. 10ff) distinguishes
between “autistic intervention” where ‘the intervener may command an individual
subject to do or not to do certain things when these actions directly involve the indi-
vidual’s person or property a/one … (i.e.) when exchange is not involved”; “binary
intervention” where ‘the intervener may enforce a coerced exchange between the
individual subject and himself ’; and ‘triangular intervention” where ‘the intervener
may either compel or prohibit an exchange between a pair of subjects” (p. 10). In
terms of this distinction, the characteristic mark of conservatism then is its prefer-
ence for “triangular intervention”—and as will be seen later in this Chapter, “autistic
intervention” insofar as autistic actions also have natural repercussions on the pat-
Hans-Hermann Hoppe 99
capital and of consumer goods alike, are frozen at some given level,
and the production process is thus completely separated from
demand—instead of disconnecting production and demand at
only a few points or sectors as under partial price control—does
it seem possible to preserve an existing distributional order in full.
Not surprisingly, though, the price that has to be paid for such full-
blown conservatism is even higher than that of only partial price
controls.76 With all-around price control, private ownership of
means of production is in fact abolished. There can still be private
owners in name, but the right to determine the use of their prop-
erty and to engage in any contractual exchange that is deemed ben-
eficial is lost completely. The immediate consequence of this silent
expropriation of producers then will be a reduction in saving and
investing and, mutatis mutandis, an increase in consumption. As
one can no longer charge for the fruits of one’s labor what the mar-
ket will bear, there is simply less of a reason to work. And in addi-
tion, as prices are fixed—independent of the value that consumers
attach to the products in question—there is also less of a reason to
be concerned about the quality of the particular type of work or
product that one still happens to perform or produce, and hence
the quality of each and every product will fall.
But even more important than this is the impoverishment that
results from the allocational chaos created by universal price con-
trols. While all product prices, including those of all cost factors
and, in particular, of labor are frozen, the demand for the various
products still changes constantly. Without price controls, prices
would follow the direction of this change and thereby create an
incentive to constantly move out of less valued lines of production
into more valued ones. Under universal price controls this mecha-
nism is completely destroyed. Should the demand for a product
77 G. Reisman, Government Against the Economy, New York, 1979, p.141.
Hans-Hermann Hoppe 105
78 On the politics and economics of regulation cf. G. Stigler, The Citizen and the
State. Essays on Regulation, Chicago, 1975; M. N. Rothbard, Power and Market,
Kansas City, 1977, Chapter 3.3; on licenses cf. also M. Friedman, Capitalism and
Freedom, Chicago, 1962, Chapter 9.
Hans-Hermann Hoppe 107
into black markets. But of all the forms of socialism, it is only con-
servatism which as part of its program interferes directly with con-
sumption and noncommercial exchanges. (All other forms, to be
sure, have their effect on consumption, too, insofar as they lead to
a reduction in the standard of living; but unlike conservatism, they
leave the consumer pretty much alone with whatever is left for him
to consume.) Conservatism not only cripples the development of
one’s productive talents; under the name “paternalism” it also wants
to freeze the behavior of people in their roles as isolated consum-
ers or as exchange partners in noncommercial forms of exchanges,
thereby stifling or suppressing one’s talent to develop a consumer
lifestyle that best satisfies one’s recreational needs, too.
Any change in the pattern of consumer behavior has its eco-
nomic side effects. (If I let my hair grow longer this affects the bar-
bers and the scissors industry; if more people divorce this affects
lawyers and the housing market; if I start smoking marijuana this
has consequences not only for the use of agricultural land but also
for the ice cream industry, etc.; and above all, all such behavior dis-
equilibrates the existing value system of whoever happens to feel
affected by it.) Any change could thus appear to be a disruptive ele-
ment vis à visa conservative production structure, conservatism, in
principle, would have to consider all actions—the whole lifestyle
of people in their roles as individual consumers or noncommercial
exchangers as proper objects of behavioral controls. Full-blown
conservatism would amount to the establishment of a social sys-
tem in which everything except the traditional way of behaving
(which is explicitly allowed) is outlawed. In practice, conservatism
could never go quite this far, as there are costs connected with con-
trols and as it would normally have to reckon with rising resistance
in the public opinion. “Normal” conservatism, then, is character-
ized instead by smaller or greater numbers of specific laws and
prohibitions which outlaw and punish various forms of nonaggres-
sive behavior of isolated consumers, or of people engaging in non-
commercial exchanges—of actions, that is to say, which if indeed
performed, would neither change the physical integrity of anyone
else’s property, nor violate anyone’s right to refuse any exchange
Hans-Hermann Hoppe 109
that does not seem advantageous, but which would rather (only)
disrupt the established “paternal” order of social values.
Once again the effect of such a policy of behavioral controls
is, in any case, relative impoverishment. Through the imposition of
such controls not only is one group of people hurt by the fact that
they are no longer allowed to perform certain nonaggressive forms
of behavior but another group benefits from these controls in that
they no longer have to tolerate such disliked forms of behavior.
More specifically, the losers in this redistribution of property rights
are the user-producers of the things whose consumption is now
hampered, and those who gain are nonusers/nonproducers of the
consumer goods in question. Thus, a new and different incentive
structure regarding production or nonproduction is established
and applied to a given population. The production of consumer
goods has been made more costly since their value has fallen as a
consequence of the imposition of controls regarding their use, and,
mutatis mutandis, the acquisition of consumer satisfaction through
nonproductive, noncontractual means has been made relatively
less costly. As a consequence, there will be less production, less
saving and investing, and a greater tendency instead to gain sat-
isfaction at the expense of others through political, i.e., aggressive,
methods. And, in particular, insofar as the restrictions imposed by
behavioral controls concern the use that a person can make of his
own body, the consequence will be a lowered value attached to it
and, accordingly, a reduced investment in human capital.
With this we have reached the end of the theoretical analysis
of conservatism as a special form of socialism. Once again, in order
to round out the discussion a few remarks which might help illus-
trate the validity of the above conclusions shall be made. As in the
discussion of social-democratic socialism, these illustrative obser-
vations should be read with some precautions: first, the validity of
the conclusions reached in this chapter has been, can, and must be
established independent of experience. And second, as far as expe-
rience and empirical evidence are concerned, there are unfortu-
nately no examples of societies that could be studied for the effects
110 A Theory of Socialism and Capitalism
79 Cf.
also B. Badie and P. Birnbaum, The Sociology of the State, Chicago, 1983, esp.
pp.107f.
Hans-Hermann Hoppe 111
80 Cf.
on this R. Radosh and M. N. Rothbard (eds.), A New History of Leviathan,
New York, 1972.
112 A Theory of Socialism and Capitalism
81 Cf. Badie and Birnbaum, The Sociology of the State, Chicago, 1983.
82 Cf.
L. v. Mises, Omnipotent Government, New Haven, 1944; F. A. Hayek, The
Road to Serfdom, Chicago, 1956; W. Hock, Deutscher Antikapitalismus, Frankfurt/
M, 1960.
Hans-Hermann Hoppe 113
83 Cf.
one of the foremost representatives of the German “Historical School,” the
“Kathedersozialisr’ and naziapologist: W. Sombart, Deutscher Sozialimus, Berlin,
1934.
114 A Theory of Socialism and Capitalism
plans (almost like in Russia, where the plans spanned the period
of five years) and established economic planning and supervis-
ing boards which had to approve all significant changes in the
production structure. An “owner” could no longer decide what
to produce or how to produce it, from whom to buy or to whom
to sell, what prices to pay or to charge, or how to implement any
changes. All this, to be sure, created a feeling of security. Everyone
was assigned a fixed position, and wage-earners as well as owners
of capital received a guaranteed, and in nominal terms, stable or
even growing income. In addition, giant forced labor programs,
the reintroduction of conscription, and finally the implementation
of a war economy strengthened the illusion of economic expan-
sion and prosperity.84 But as would have to be expected from an
economic system that destroys a producer’s incentive to adjust to
demand and avoid not adjusting to it, and that thereby separates
demand from production, this feeling of prosperity proved to be
nothing but an illusion. In reality, in terms of the goods that peo-
ple could buy for their money the standard of living fell, not only
in relative but even in absolute terms.85 And in any case, even dis-
regarding here all of the destruction that was caused by the war,
Germany and to a lesser extent Italy were severely impoverished
after the defeat of the Nazis and fascists.
Chapter 6
The Socialism of
Social Engineering and
The Foundations of
Economic Analysis
I
n light of the theoretical arguments presented in the preced-
ing chapters it appears that there is no economic justification
for socialism. Socialism promised to bring more economic
prosperity to the people than capitalism, and much of its
popularity is based on this promise. The arguments brought for-
ward, though, have proved that the opposite is true. It has been
shown that Russian-type socialism, characterized by nationalized
or socialized means of production, necessarily involves economic
waste since no prices for factors of production would exist (because
means of production would not be allowed to be bought or sold),
and hence no cost-accounting (which is the means for directing
scarce resources with alternative uses into the most value-produc-
tive lines of production) could be accomplished. And as regards
social-democratic and conservative socialism, it has been demon-
strated that in any event, both imply a rise in the costs of produc-
tion and, mutatis mutandis, a decline in the costs of its alternative,
i.e., non-production or black-market production, and so would
lead to a relative reduction in the production of wealth, since both
117
118 A Theory of Socialism and Capitalism
86 Of. on the classical positivist position A.J. Ayer, Language, Truth and Logic, New
York, 1950; on critical rationalism K. R. Popper, Logic of Scientific Discovery, Lon-
don, 1959; Conjectures and Refutations, London, 1969; and Objective Knowledge,
Oxford, 1973; on representative statements of empiricism-positivism as the appro-
priate methodology of economics cf. e.g. M. Blaug, The Methodology of Econom-
ics, Cambridge, 1980; T. W. Hutchinson, The Significance and Basic Postulates of
Economic Theory, London, 1938; and Positive Economics and Policy Objectives,
London, 1964; and Politics and Philosophy of Economics, New York, 1981; also M.
Friedman, “The Methodology of Positive Economics,” in: M. Friedman, Essays in
Positive Economics, Chicago, 1953; H. Albert, Marktsoziologie und Entscheidung-
slogik , Neuwied, 1967.
87 On piecemeal social engineering cf. K. R. Popper, The Poverty of Historicism,
London, 1957.
88 Cf. G. Luehrs (ed.), Kritischer Rationalismus und Sozialdemokratie, 2 vols., Bonn,
1975-76.
120 A Theory of Socialism and Capitalism
89 On the following cf. M. Hollis and E. Nell, Rational Economic Man, Cambridge,
1975, pp.3ff.
Hans-Hermann Hoppe 121
disappear and indeed turn into its very opposite, revealing the true
relationship between socialism and an increased production of
social wealth, as soon as these circumstances had been controlled.
Even the striking differences in the standard of living between East
and West Germany—the example that I stressed so heavily because
it most closely resembles that of a controlled social experiment—
could thus be explained away: in arguing, for instance, that the
higher living standards in the West must be explained not by its
more capitalist mode of production, but by the fact that Marshall
aid had streamed into West Germany while East Germany had to
pay reparations to the Soviet Union; or by the fact that from the
very beginning, East Germany encompassed Germany’s less devel-
oped, rural, agricultural provinces and so had never had the same
starting point; or that in the eastern provinces the tradition of serf-
dom had been discarded much later than in the western ones and
so the mentality of the people was indeed different in both East
and West Germany, etc.
In fact, whatever empirical evidence one brings forward
against socialism, as soon as one adopts the empiricist-positiv-
ist philosophy, i.e., as soon as the idea of formulating a principled
case either in favor of or against socialism is dropped as in vain
and ill-conceived, and it is instead only admitted that one can, of
course, err with respect to the details of some socialist policy plan
but would then be flexible enough to amend certain points in one’s
policy whenever the outcome was not satisfactory, socialism is
made immune to any decisive criticism, because any failure can
always be ascribed to some as yet uncontrolled intervening vari-
able. Not even the most perfectly conducted, controlled experi-
ment, it should be noted, could change this situation a bit. It would
never be possible to control all variables that might conceivably
have some influence on the variable to be explained—for the prac-
tical reason that this would involve controlling literally all of the
universe, and for the theoretical reason that no one at any point in
time could possibly know what all the variables are which make up
this universe. This is a question whose answer must permanently
remain open to newly discovered and discerned experiences.
124 A Theory of Socialism and Capitalism
90 Cf. D. Hume, A Treatise of Human Nature and Enquiry Concerning Human
Understanding, in Selby-Bigge (ed.), Hume’s Enquiries, Oxford, 1970; also H. H.
Hoppe, Handeln und Erkennen, Bern, 1976
91 Cf. I. Lakatos, “Falsification and the Methodology of Scientific Research Pro-
grammes,” in: Lakatos and Musgrave (eds.), Criticism and the Growth of Knowl-
edge, Cambridge, 1970.
Hans-Hermann Hoppe 125
92 Allof this has been brought home to Popperianism, mainly by T. S. Kuhn, The
Structure of Scientific Revolutions, Chicago, 1964; and it was then P. Feyerabend
who drew the most radical conclusion: to throw out science’s claim to rationality
altogether, and to embrace nihilism under the banner “everything goes” (P. Feyera-
bend, Against Method, London, 1978; and Science in a Free Society, London, 1978).
For a critique of this unfounded conclusion cf. note 105 below.
126 A Theory of Socialism and Capitalism
93 Cf. on this and the following A. Pap, Semantics and Necessary Truth, New Haven,
1958; M. Hollis and E. Nell, Rational Economic Man, Cambridge, 1975; B. Blan-
shard, Reason and Analysis, La Salle, 1964.
Hans-Hermann Hoppe 127
affair, that is, in which the usage of a term is practiced and learned
with real instances of the concept designated by the term, and by
which a term is thus tied to reality.94 However, not just any arbitrary
interpretation would do: “falsifiable,” for instance, does not mean
what one means by “red” or “green.” In order to say what empiri-
cism-positivism evidently wants to say when formulating its basic
tenets, the terms must be given the meaning that they actually have
for the empiricist as well as for those whom he wants to convince of
the appropriateness of his methodology. But if the statement indeed
means what we thought it did all along, then it evidently contains
information about reality. As a matter of fact it informs us about
the fundamental structure of reality: that there is nothing in it that
can be known to be true in advance of future confirming or falsi-
fying experiences. And if this proposition now is taken to be ana-
lytical, i.e., as a statement that does not allow falsification but whose
truth can be established by an analysis of the meanings of the terms
used alone, as has been assumed for the moment, then one has no
less than a glaring contradiction at hand and empiricism once again
proves to be self-defeating.95
Hence, it seems that empiricism-positivism would have to
choose the other available option and declare its central creed itself
to be an empirical statement. But then, clearly, the empiricist posi-
tion would no longer carry any weight whatsoever: after all, the
fundamental proposition of empiricism serving as the basis from
which all sorts of rules of correct scientific inquiry are derived
could be wrong, and no one could ever be sure if it was or was not
so. One could equally well claim the exact opposite and within
the confines of empiricism there would be no way of deciding
94 Cf. on this W. Kamlah and P. Lorenzen, Logische Propaedeutik, Mannheim, 1967.
95 Cf.L. v. Mises, The Ultimate Foundation of Economic Science, Kansas City,
1978, p.5: “The essence of logical positivism is to deny the cognitive value of a priori
knowledge by pointing out that all a priori propositions are merely analytic. They do
not provide new information, but are merely verbal or tautological … Only experi-
ence can lead to synthetic propositions. There is an obvious objection against this
doctrine, viz., that this proposition is in itself a—as the present writer thinks, false—
synthetic a priori proposition, for it can manifestly not be established by experience.”
128 A Theory of Socialism and Capitalism
which position was right or wrong. Indeed, if its central tenet were
declared an empirical proposition, empiricism would cease to be
a methodo-logy—a logic of science—altogether, and would be no
more than a completely arbitrary verbal convention for calling
certain (arbitrary) ways of dealing with certain statements certain
(arbitrary) names. It would be a position void of any justification of
why it, rather than any other one, should be adopted.96
However, this is not all that can be mustered against empiri-
cism, even if the second available alternative is chosen. Upon closer
inspection this escape route leads to another trap of self-defeat.
Even if this route were chosen, it can be shown that the empiricist-
positivist position must tacitly presuppose the existence of nonem-
pirical knowledge as “real” knowledge. In order to realize this, let it
be assumed that a causal explanation relating two or more events
has been found to fit one particular instance of experiences regard-
ing such events, and is then applied to a second instance, presum-
ably to undergo some further empirical testing. Now, one should
ask oneself what is the presupposition which must be made in order
to relate the second instance of experience to the first as either con-
firming or falsifying it? At first it might seem almost self-evident
that if in the second in stance of experience the observations of the
first were repeated, this would be a confirmation, and if not, a fal-
sification—and clearly, the empiricist methodology assumes this
to be evident, too, and does not require further explanation. But
this is not true.97 Experience, it should be noted, only reveals that
two or more observations regarding the temporal sequence of two
or more types of events can be “neutrally” classified as “repetition”
or “nonrepetition.” A neutral repetition only becomes a “positive”
96 M. Hollis and E. Nell remark: “Since every significant statement is, for a positivist,
analytic or synthetic and none is both, we can ask for a classification … . We know of
no positivist who has tried to produce empirical evidence for statements of (the sort
in question). Nor can we see how to do so, unless by arguing that this is a matter of
fact how people use terms … which would prompt us to ask simply ‘So what’?” (M.
Hollis and E. Nell, Rational Economic Man, Cambridge, 1975, p. 110).
97 Cf. on this H. H. Hoppe, Kritik der kausalwissenschaftlichen Sozial-forschung,
Opladen, 1983; and “Is Research Based on Causal Scientific Principles Possible in the
Social Sciences,” in Ratio, XXV, 1, 1983.
Hans-Hermann Hoppe 129
98 Cf.I. Kant, Kritik der reinen Vernunft, in Kant, Werke (ed. Weischedel), Wies-
baden, 1956, vol. II, p.45.
99 This, of course, is a Kantian idea, expressed in Kant’s dictum that “reason can
only understand what it has itself produced according to its own design” (Kritik der
reinen Vernunft, in: Kant, Werke (ed. Weischedel), Wiesbaden, 1956, vol. II, p.23).
132 A Theory of Socialism and Capitalism
100 Cf.on this P. Lorenzen, “Wie ist Objektivitaet in der Physik moeglich”; “Das
Begruendungsproblem der Geometrie als Wissenschaft der raeumlichen Ordnung,”
in: Methodisches Denken, Frankfurt/M., 1968; and Normative Logic and Ethics,
Mannheim, 1969; F. Kambartel, Erfahrung und Struktur, Frankfurt/M., 1968, Kap.
3; also H. Dingier, Die Ergreifung des Wirklichen, Muenchen, 1955; P. Janich, Proto-
physik der Zeit, Mannheim, 1969.
Hans-Hermann Hoppe 133
101 On the problem of real vs. conventional or stipulated definitions cf. M. Hollis and
E. Nell, Rational Economic Man, Cambridge, 1975, pp.177ff. “Honest definitions are,
from an empiricist point of view, of two sorts, lexical and stipulative.” (p.177) But
“when it comes to justifying (this) view, we are presumably being offered a definition
of ‘definition’. Whichever category of definition the definition … falls in, we need
not accept it as of any epistemological worth. Indeed, it would not be even a possible
epistemological thesis, unless it were neither lexical nor stipulative. The view is both
inconvenient and self-refuting. A contrary opinion with a long pedigree is that there
134 A Theory of Socialism and Capitalism
are ‘real’ definitions, which capture the essence of the thing defined” (p.178); cf. also
B. Blanshard, Reason and Analysis, La Salle, 1964, pp.268f.
102 Cf. A. v. Melsen, Philosophy of Nature, Pittsburgh, 1953, esp. Chapters 1,4.
Hans-Hermann Hoppe 135
correct. Above all, it must be assumed by anyone undertaking research into causes.
To this extent, proposition (1) is valid a priori.) (2) If it is possible to learn, one can-
not know at any given time what one will know at any later time and how one will
act on the basis of this knowledge. (If one did know at any given time what one will
come to know at some later time, it would be impossible ever to learn anything—but
see proposition (1) on this point.) (3) The assertion that it is possible to predict the
future state of one’s own and/or another’s knowledge and the corresponding actions
manifesting that knowledge (i.e. find the variables which can be interpreted as the
causes) involves a contradiction. If the subject of a given state of knowledge or of
an intentional act can learn, then there are no causes for this; however, if there are
causes, then the subject cannot learn—but see again proposition (1).”
Hans-Hermann Hoppe 137
On the other hand, in the field of human action, where, as has been demonstrated
above, no causal scientific research is possible, where predictive knowledge can never
attain the status of empirically testable scientific hypotheses but rather only that of
informed, not-systematically teachable foresight, and where in principle the crite-
rion of instrumental success is thus inapplicable, the spectre of nihilism would seem
indeed to be real, if one were to take the empiricist methodological prescriptions
seriously. However, not only are these prescriptions inapplicable to the social sci-
ences as empirical sciences (cf. on this H. H. Hoppe, Kritik der kausalwissenschaftli-
chen Sozialforschung, Opladen, 1983, esp. Chapter 2); as I show here, contrary to
the empiricist doctrine according to which everything must be tried out before its
outcome can be known, a priori knowledge regarding action exists, and apodicti-
cally true predictions regarding the social world can be made based on this a priori
knowledge. It is this, then, that proves all nihilistic temptations unfounded.
106 Cf. also, H. H. Hoppe, Handeln und Erkennen, Bern, 1976, pp.62f.
140 A Theory of Socialism and Capitalism
107 Cf.
also L. v. Mises, Human Action, Chicago, 1966; Epistemological Problems of
Economics, New York, 1981; and The Ultimate Foundation of Economic Science,
Kansas City, 1978.
Hans-Hermann Hoppe 141
108 The aprioristic character of the concept of action—i.e., the impossibility of dis-
proving the proposition that man acts and acting involves the categories explained
above, because even the attempt to disprove it would itself be an action—has its com-
plement in the field of epistemology, in the law of contradiction and the unthinkabil-
ity of its denial. Regarding this law B. Blanshard writes: “To deny the law means to
say that it is false rather than true, that its being false excludes its being true. But this
is the very thing that is supposedly denied. One cannot deny the law of contradiction
without presupposing its validity in the act of denying it” (B. Blanshard, Reason and
Analysis, La Salle, 1964, p.276).
In fact, as L v. Mises indicates, the law of contradiction is implied in the epistemo-
logically more fundamental “axioms of action.” (L v. Mises, The Ultimate Foundation
of Economic Science, Kansas City, 1978, p.35). On the relation between praxeology
and epistemology cf. also Chapter 7, n. 5.
Hans-Hermann Hoppe 143
109 On the effects of minimum wages cf. also Y. Brozen and M. Friedman, The Mini-
mum Wage: Who Pays?, Washington, 1966.
146 A Theory of Socialism and Capitalism
110 On the effects of rent control cf. also C. Baird, Rent Control: The Perennial Folly, San
Francisco, 1980; F. A. Hayek et al., Rent Control: A Popular Paradox, Vancouver, 1975.
Hans-Hermann Hoppe 147
which tells him that there is no way of knowing results unless things
are actually tried out, this experience will probably only set the stage
for the next intervention. Perhaps the results were not exactly as
expected because one had forgotten to control some other impor-
tant variable, and one should now go ahead and find out. But as this
chapter has demonstrated, there is a way of knowing in advance that
neither the first nor any subsequent acts of intervention will ever
reach their goal, as they all imply an interference with the rights of
the natural owners of things by nonusers and noncontractors.111
In order to understand this, it is only necessary to return to
sound economic reasoning; to realize the unique epistemologi-
cal nature of economics as an aprioristic science of human action
that rests on foundations whose very denial must presuppose their
validity; and to recognize, in turn, that a science of action grounded
in an empiricist-positivist methodology is as ill-founded as the
statement that “one can have his cake and eat it, too.”
Chapter 7
T
he last four chapters have provided systematic reasons and
empirical evidence for the thesis that socialism as a social
system that is not thoroughly based on the “natural theory
of property” (the first-use-first-own rule) which character-
izes capitalism must necessarily be, and in fact is, an inferior system
with respect to the production of wealth and the average standard
of living. This may satisfy the person who believes that economic
wealth and living standards are the most important criteria in
judging a society—and there can be no doubt that for many, one’s
standard of living is a matter of utmost importance—and because
of this it is certainly necessary to keep all of the above economic
reasoning in mind. Yet there are people who do not attach much
importance to economic wealth and who rank other values even
higher—happily, one might say, for socialism, because it can thus
quietly forget its original claim of being able to bring more pros-
perity to mankind, and instead resort to the altogether different
but even more inspiring claim that whereas socialism might not be
the key to prosperity, it would mean justice, fairness, and morality
(all terms used synonymously here). And it can argue that a trade-
off between efficiency and justice, an exchange of “less wealth” for
151
152 A Theory of Socialism and Capitalism
112 For such a position cf. A. J. Ayer, Language, Truth and Logic, New York, 1950.
113 On the emotivist position cf. C. L. Stevenson, Facts and Values, New Haven,
1963; and Ethics and Language, London, 1945; cf. also the instructive discussion by
G. Harman, The Nature of Morality, New York, 1977; the classical exposition of the
idea that “reason is and can be no more than the slave of the passions” is to be found
in D. Hume, Treatise on Human Nature, (ed. Selby-Bigge), Oxford, 1970.
114 Cf. also Chapter 6 above.
Hans-Hermann Hoppe 153
115 Forvarious “cognitivist” approaches toward ethics cf. K. Baier, The Moral Point
of View, Ithaca, 1958;M. Singer, Generalization in Ethics, London, 1863; P. Lorenzen,
Normative Logic and Ethics, Mannheim, 1969; S. Toulmin, The Place of Reason in
Ethics, Cambridge, 1970; F. Kambartel (ed.), Praktische Philosophie und konstruk-
tive Wissenschaftstheorie, Frankfurt/M., 1974; A. Gewirth, Reason and Morality,
Chicago, 1978.
Another cognitivist tradition is represented by various “natural rights” theorists.
Cf. J. Wild, Plato’s Modern Enemies and the Theory of Natural Law, Chicago, 1953;
H. Veatch, Rational Man. A Modern Interpretation of Aristotelian Ethics, Bloom-
ington, 1962; and For An Ontology of Morals. A Critique of Contemporary Ethical
Theory, Evanston, 1968; and Human Rights. Fact or Fancy?, Baton Rouge, 1985; L.
Strauss, Natural Right and History, Chicago, 1970.
Hans-Hermann Hoppe 155
true), this has been aptly called “the a priori of communication and
argumentation.”116
Now, arguing never just consists of free-floating propositions
claiming to be true. Rather, argumentation is always an activity, too.
But given that truth claims are raised and decided upon in argu-
mentation and that argumentation, aside from whatever is said in
its course, is a practical affair, it follows that intersubjectively mean-
ingful norms must exist—precisely those which make some action
an argumentation—which have special cognitive status in that they
are the practical preconditions of objectivity and truth.
Hence, one reaches the conclusion that norms must indeed
be assumed to be justifiable as valid. It is simply impossible to
argue otherwise, because the ability to argue so would in fact pre-
suppose the validity of those norms which underlie any argumen-
tation whatsoever.117 The answer, then, to the question of which
1978, p.42-47)—a method of a priori reasoning modeled after the Kantian idea of
transcendental deductions. Unfortunately, though, in his important study Gewirth
chooses the wrong starting point for his analyses. He attempts to derive an ethical
system not from the concept of argumentation, but from that of action. However,
this surely cannot work, because from the correctly stated fact that in action an agent
must, by necessity, presuppose the existence of certain values or goods, it does not
follow that such goods then are universalizable and should thus be respected by oth-
ers as the agent’s goods by right. (On the requirement of normative statements to be
universalizable cf. the following discussion in the text.) Rather, the idea of truth, or
regarding morals, of universalizable rights or goods only emerges with argumenta-
tion as a special subclass of actions but not with action as such, as is clearly revealed
by the fact that Gewirth, too, is not engaged simply in action, but more specifically
in argumentation when he tries to convince us of the necessary truth of his ethical
system. However, with argumentation recognized as the one and only appropriate
starting point for the dialectically necessary method, a capitalist (i.e., non-Gewir-
thian) ethic follows, as will be seen. On the faultiness of Gewirth’s attempt to derive
universalizable rights from the notion of action cf. also the perceptive remarks by M.
MacIntyre, After Virtue, Notre Dame, 1981, pp.6465; J. Habermas, Moralbewusst-
sein und kommunikatives Handeln, Frankfurt/M., 1983, pp.110-111; and H. Veatch,
Human Rights, Baton Rouge, 1985, pp. 159-160.
118 The relationship between our approach and a “natural rights” approach can now
be described in some detail, too. The natural law or natural rights tradition of philo-
sophic thought holds that universally valid norms can be discerned by means of rea-
son as grounded in the very nature of man. It has been a common quarrel with this
position, even on the part of sympathetic readers, that the concept of human nature
is far “too diffuse and varied to provide a determinate set of contents of natural law”
(A. Gewirth, “Law, Action, and Morality” in: Georgetown Symposium on Ethics.
Essays in Honor of H. Veatch (ed. R. Porreco), New York, 1984, p.73). Furthermore,
its description of rationality is equally ambiguous in that it does not seem to distin-
guish between the role of reason in establishing empirical laws of nature on the one
hand, and normative laws of human conduct on the other. (Cf., for instance, the dis-
cussion in H. Veatch, Human Rights, Baton Rouge, 1985, p.62-67.)
Hans-Hermann Hoppe 157
120 It
might be noted here that only because scarcity exists is there even a prob-
lem of formulating moral laws; insofar as goods are superabundant (“free” goods)
no conflict over the use of goods is possible and no action-coordination is needed.
Hence, it follows that any ethic, correctly conceived, must be formulated as a theory
of property, i.e., a theory of the assignment of rights of exclusive control over scarce
means. Because only then does it become possible to avoid otherwise inescapable
Hans-Hermann Hoppe 159
121 Cf. J. Locke, Two Treatises on Government (ed. P. Laslett), Cambridge, 1970,
esp. 2, 5.
Hans-Hermann Hoppe 161
122 On the nonaggression principle and the principle of original appropriation cf.
also M. N. Rothbard, For A New Liberty, New York, 1978, Chapter 2; and The Ethics
of Liberty, Atlantic Highlands, 1982, Chapters 6-8.
123 This, for instance, is the position taken by J. J. Rousseau, when he asks us to resist
attempts to privately appropriate nature given resources by, for example, fencing
them in. In his famous dictum, he says, “Beware of listening to this impostor; you are
undone if you once forget that the fruits of the earth belong to us all, and the earth
itself to nobody” (“Discourse upon the Origin and Foundation of Inequality among
Mankind” in: J. J. Rousseau, The Social Contract and Discourses (ed. G. Cole),
New York, 1950, p.235). However, it is only possible to argue so if it is assumed that
162 A Theory of Socialism and Capitalism
property claims can be justified by decree. Because how else could “all” (i.e., even
those who never did anything with the resources in question) or “nobody” (i.e., not
even those who actually made use of it) own something—unless property claims
were founded by mere decree?!
Hans-Hermann Hoppe 163
124 On the problem of the deriveability of “ought” from “is” statements cf. W. D.
Hudson (ed.), The Is-Ought Question, London, 1969; for the view that the fact-
value dichotomy is an ill-conceived idea cf. the natural rights literature cited in note
115 above.
164 A Theory of Socialism and Capitalism
125 Writes M. N. Rothbard in The Ethics of Liberty, Atlantic Highlands, 1982, p.32:
“Now, any person participating in any sort of discussion, including one on values, is,
by virtue of so participating, alive and affirming life. For if he were really opposed to
life he would have no business in such a discussion, indeed he would have no busi-
ness continuing to be alive. Hence, the supposed opponent of life is really affirming
it in the very process of discussion, and hence the preservation and furtherance of
one’s life takes on the stature of an incontestable axiom.” Cf. also D. Osterfeld, “the
Natural Rights Debate” in: Journal of Libertarian Studies, VII, I, 1983, pp.106f.
Hans-Hermann Hoppe 165
that these were fair rules.126 Since most kinds of socialism, as prac-
ticed or preached, have to rely on the enforcement of rules such as
“some people have the obligation to pay taxes, and others have the
right to consume them” or “some people know what is good for
you and are allowed to help you get these alleged blessings even
if you do not want them, but you are not allowed to know what is
good for them and help them accordingly’ or “some people have
the right to determine who has too much of something and who
too little, and others have the obligation to comply” or even more
plainly, “the computer industry must pay to subsidize the farm-
ers,” “the employed for the unemployed,” “the ones without kids for
those with kids,” etc., or vice versa, they all can be discarded easily
as serious contenders to the claim of being part of a valid theory of
norms qua property norms, because they all indicate by their very
formulation that they are not universalizable.
But what is wrong with the socialist property theories if this is
taken care of and there is indeed a theory formulated that contains
exclusively universalizable norms of the type “nobody is allowed
to” or “everybody can”? Even then—and this, more ambitiously, is
what has been demonstrated indirectly above and shall be argued
directly-socialism could never hope to prove its validity, no lon-
ger because of formal reasons, but because of its material specifi-
cations. Indeed, while those forms of socialism that can easily be
refuted regarding their claim to moral validity on simple formal
grounds can at least be practiced, the application of those more
sophisticated versions that would pass the universalization test
prove, for material reasons, to be fatal: even if we tried, they simply
could never be put into effect.
There are two related specifications in the norms of the natu-
ral theory of property with at least one of which a socialist prop-
erty theory comes into conflict. The first such specification is
that according to the capitalistic ethic, aggression is defined as an
126 Cf. also M. N. Rothbard, The Ethics of Liberty, Atlantic Highlands, 1982, p.45.
166 A Theory of Socialism and Capitalism
kind (ibid., pp. 83-86), unless he thought that the right existed to have the integrity
of one’s property values (rather than its physical integrity) preserved?! For a devastat-
ing critique of Nozick’s theory in particular cf. M. N. Rothbard, The Ethics of Liberty,
Atlantic Highlands, 1982, Chapter 29; on the fallacious use of the indifference curve
analysis, employed both by Rawls and Nozick, cf. the same, “Toward a Reconstruc-
tion of Utility and Welfare Economics,” Center for Libertarian Studies, Occasional
Paper No. 3, New York, 1977.
129 Cf. also M. N. Rothbard, The Ethics of Liberty, Atlantic Highlands, 1982, p.46.
168 A Theory of Socialism and Capitalism
too must assume that one can, insofar as it exists as an argued intel-
lectual position—then this is only possible because the existence of
objective borders of property i.e., borders which every person can
recognize as such on his own, without having to agree first with
anyone else with respect to one’s system of values and evaluations.
Socialism, too, then, in spite of what it says, must in fact presuppose
the existence of objective property borders, rather than of borders
determined by subjective evaluations, if only in order to have any
surviving socialist who can make his moral proposals.
The socialist idea of protecting value instead of physical integ-
rity also fails for a second, related reason. Evidently, the value of a
person, for example, on the labor or marriage market, can be and
indeed is affected by other people’s physical integrity or degree of
physical integrity. Thus, if one wanted property values to be pro-
tected, one would have to allow physical aggression against people.
However, it is only because of the very fact that a person’s borders—
that is, the borders of a person’s property in his body as his domain
of exclusive control with which another person is not allowed to
interfere unless he wishes to become an aggressor—are physical
borders (intersubjectively ascertainable, and not just subjectively
fancied borders) that everyone can agree on anything indepen-
dently (and, of course, agreement means agreement of indepen-
dent decision-making units!). Only because the protected borders
of property are objective then, i.e., fixed and recognizable as fixed
prior to any conventional agreement, can there at all be argumen-
tation, and possibly agreement, between independent decision-
making units. There simply could not be anyone arguing anything
unless his existence as an independent physical unit was first rec-
ognized. No one could argue in favor of a property system defin-
ing borders of property in subjective, evaluative terms—as does
socialism—because simply to be able to say so presupposes that,
contrary to what the theory says, one must in fact be a physically
independent unit saying it.
The situation is no less dire for socialism when one turns to the
second essential specification of the rulings of the natural theory
Hans-Hermann Hoppe 169
130 For
an awkward philosophical attempt to justify a late-comer ethic cf. J. Rawls,
A Theory of Justice, Cambridge, 1971, pp.284ff; J. Sterba, The Demands of Justice,
Notre Dame, 1980, esp. pp.58ff, pp.137ff; On the absurdity of such an ethic cf. M. N.
Rothbard, Man, Economy and State, Los Angeles, 1972, p.427.
170 A Theory of Socialism and Capitalism
131 It
should be noted here, too, that only if property rights are conceptualized as
private property rights originating in time, does it then become possible to make
contracts. Clearly enough, contracts are agreements between enumerable physically
independent units which are based on the mutual recognition of each contractor’s
private ownership claims to things acquired prior to the agreement, and which then
concern the transfer of property titles to definite things from a specific prior to a
specific later owner. No such thing as contracts could conceivably exist in the frame-
work of a late-comer ethic!
Hans-Hermann Hoppe 171
Chapter 8
The Socio-psychological
Foundations of Socialism or
The Theory of The State
I
n the preceding chapters it has been demonstrated that social-
ism as a social system implying a redistribution of property
titles away from user-owners and contractors to nonuser-own-
ers and noncontractors necessarily involves a reduction in the
production of wealth, since the use and contracting of resources
are costly activities whose performance is made even more costly
as compared with alternatives available to actors. Secondly, such
a system cannot be defended as a fair or just social order from a
moral point of view because to argue so, in fact to argue at all, in
favor or against anything, be it a moral, nonmoral, empirical, or
logico-analytical position, necessarily presupposes the validity of
the first-use-first-own rule of the natural theory of property and
capitalism, as otherwise no one could survive and then say, or pos-
sibly agree on, anything as an independent physical unit.
If neither an economic nor a moral case for socialism can
be made, then socialism is reduced to an affair of merely social-
psychological significance. What, then, are the socio-psychologi-
cal foundations on which socialism rests? Or, since socialism has
been defined as an institutionalized policy of redistribution of
173
174 A Theory of Socialism and Capitalism
that you have the right to secede from its jurisdiction, to “cancel
your membership” so to speak, and from then on deal with it on
equal footing, from one privileged institution to another. Again,
assumedly without having aggressed against anyone through your
secession, this institution would come and invade you and your
property, and it would not hesitate to end your independence. As
a matter of fact, if it did not do so, it would stop being what it is. It
would abdicate and become a regular private property owner or a
contractual association of such owners. Only because it does not so
abdicate is there socialism at all. Indeed, and this is why the title of
this chapter suggested that the question regarding the socio-psy-
chological foundations of socialism is identical to that of the foun-
dations of a state, if there were no institution enforcing socialistic
ideas of property, there would be no room for a state, as a state is
nothing else than an institution built on taxation and unsolicited,
noncontractual interference with the use that private people can
make of their natural property. There can be no socialism without
a state, and as long as there is a state there is socialism. The state,
then, is the very institution that puts socialism into action; and as
socialism rests on aggressive violence directed against innocent
victims, aggressive violence is the nature of any state.133
But socialism, or the state as the incorporation of socialist
ideas, does not rest exclusively on aggression. The representatives
of the state do not engage solely in aggressive acts in order to stabi-
lize their incomes, though without it there would not be any state!
As long as the relationship between the state and private property
133 On the theory of the state cf. M. N. Rothbard, “The Anatomy of the State,” in:
the same, Egalitarianism As A Revolt Against Nature, Washington, 1974; For A New
Liberty, New York, 1978; and The Ethics of Liberty, Atlantic Highlands, 1982; H. H.
Hoppe, Eigentum, Anarchie und Staat, Opladen, 1987; cf. also A. Herbert, The Right
and Wrong of Compulsion by the State (ed. E. Mack), Indianapolis, 1978; H. Spen-
cer, Social Statics, London, 1851; F. Oppenheimer, The State, New York, 1926; A. J.
Nock, Our Enemy, the State, Delevan, 1983; cf. also J. Schumpeter’s remark directed
against then as now prevalent views, notably among economists, that “the theory
which construes taxes on the analogy of club dues or the purchase of a service of,
say, a doctor only proves how far removed this part of the social sciences is from sci-
entific habits of minds” (J. Schumpeter, Capitalism, Socialism and Democracy, New
York, 1942, p. 198).
178 A Theory of Socialism and Capitalism
134 In addition, the use of at least some weaponry, such as atomic bombs, against
one’s subjects would be prohibitive, since the rulers could hardly prevent that they
themselves would be hurt or killed by it, too.
135 D. Hume, Essays, Moral, Political and Literary, Oxford, 1971, p.19; cf. also E. de
La Boetie, The Politics of Obedience: The Discourse of Voluntary Servitude, New
York, 1975.
180 A Theory of Socialism and Capitalism
136 The classical exposition of the idea that in the “state of nature” no distinction
between “just” and “unjust” can be made and that only the state creates justice is to
be found in T. Hobbes, Leviathan, Oxford, 1946. That this “positivistic” theory of
law is untenable has been implicitly demonstrated in Chapter 7 above. In addition,
it should be noted that such a theory does not even succeed in doing what it is sup-
posed to do: in justifying the state. Because the transition from the state of nature to
a statist system can of course only be called justified (as opposed to arbitrary) if natu-
ral (pre- statist) norms exist that are the justificatory basis for this very transition.
For modern positivists cf. G. Jellinek, Allgemeine Staatslehre, Bad Homburg,
1966; H. Kelsen, Reine Rechtslehre, Wien, 1976; for a critique of legal positivism cf.
F. A. Hayek, Law, Legislation and Liberty, 3 vols., Chicago, 1973-79.
Hans-Hermann Hoppe 181
137 For
the classical exposition of this view of politics cf. N. Machiavelli, The Prince,
Harmondsworth, 1961; cf. also Q. Skinner, The Foundations of Modern Political
Thought, Cambridge, 1978.
Hans-Hermann Hoppe 183
138 Cf.
on this and the following, M. N. Rothbard, Power and Market, Kansas City,
1977, pp. 182f.
139 On the role of the intellectuals and teachers as advocates of socialism and stat-
ism cf. B. de Jouvenel, “The Treatment of Capitalism by Continental Intellectuals,”
in: F.A. Hayek, Capitalism and the Historians, Chicago, 1954; L. v. Mises, The Anti-
Capitalist Mentality, South Holland, 1972.
184 A Theory of Socialism and Capitalism
140 On a free market monetary system and the effects of government interven-
tion on this system cf. R. Paul and L. Lehrman, The Case For Gold, San Francisco,
1983, Chapters 2, 3; M. N. Rothbard, What Has Government Done to Our Money?,
Novato, 1973.
Hans-Hermann Hoppe 185
141 On the problem of a free market production of law and order cf. Chapter 10
below.
142 Cf. on this also Chapter 5, n. 4.
186 A Theory of Socialism and Capitalism
144 F.Oppenheimer, System der Soziologie, VoL II, Der Staat, Stuttgart, 1964.
Oppenheimer sums up the peculiar, discriminatory character of state-provided
goods, in particular of its production of law and order, in this way (pp.322-323): ‘the
basic norm of the state is power. That is, seen from the side of its origin: violence
transformed into might. Violence is one of the most powerful forces shaping soci-
ety, but is not itself a form of social interaction. It must become law in the positive
sense of this term, that is, sociologically speaking, it must permit the development
of a system of ‘subjective reciprocity’: and this is only possible through a system of
self- imposed restrictions on the use of violence and the assumption of certain obli-
gations in exchange for its arrogated rights. In this way violence is turned into might,
and a relationship of domination emerges which is accepted not only by the rul-
ers, but under not too severely oppressive circumstances by their subjects as well, as
expressing a ‘just reciprocity.’ Out of this basic norm secondary and tertiary norms
now emerge as implied in it: norms of private law, of inheritance, criminal, obliga-
tional, and constitutional law, which all bear the mark of the basic norm of power
188 A Theory of Socialism and Capitalism
and domination, and which are all designed to influence the structure of the state
in such a way as to increase economic exploitation to the maximum level which is
compatible with the continuation of legally regulated domination.” The insight is
fundamental that “law grows out of two essentially different roots ( … ): on the one
hand, out of the law of the association of equals, which can be called a ‘natural’ right,
even if it is no ‘natural right,’ and on the other hand, out of the law of violence trans-
formed into regulated might, the law of unequals.”
Hans-Hermann Hoppe 189
145 Only the fact that democracy has become a sacred cow in modern politics can
explain why the extent to which the idea of majority rule is ridden with inner con-
tradictions is almost generally overlooked: first, and this is already decisive, if one
accepts democracy as justified, then one would also have to accept a democratic
abolishment of democracy and a substitution of either an autocracy or a libertar-
ian capitalism for democracy—and this would demonstrate that democracy as such
cannot be regarded as a moral value. In the same way it would have to be accepted as
justified if majorities decided to eliminate minorities until the point at which there
were only two people, the last majority, left, for which majority rule could no longer
be applied, for logico-arithmetic reasons. This would prove once again that democ-
racy cannot in itself be regarded as justifiable. Or, if one did not want to accept these
consequences and instead adopted the idea of a constitutionally limited, liberal
190 A Theory of Socialism and Capitalism
democracy, one would at the same time have to admit that the principles from
which these limitations are derived must then be logically more fundamental than
the majority rule—and this again would point to the fact that there can be noth-
ing of particular moral value in democracy. Second, by accepting majority rule it is
not automatically clear what the population is to which it should be applied. (The
majority of which population is to decide?) Here there are exactly three possibili-
ties. Either one applies the democratic principle once again with regard to this ques-
tion, and decides to opt for the idea that greater majorities should always prevail
over smaller ones—but then, of course, there would be no way of saving the idea of
national or regional democracy, as one would have to choose the total, global popu-
lation as one’s group of reference. Or, one decides that determining the population
is an arbitrary matter—but in this case, one would have to accept the possibility
of increasingly smaller minorities seceding from larger ones, with every individ-
ual being his own self-determining majority, as the logical end point of such a pro-
cess of secession—and once again the unjustifiability of democracy as such would
have been demonstrated. Third, one could adopt the idea that selecting the popula-
tion to which the majority principle is applied is neither done democratically nor
arbitrarily, but somehow differently—but then again, one would have to admit that
whatever this different principle that would justify such a decision might be, it must
be more fundamental than the majority rule itself, and majority rule in itself must
be classified as completely arbitrary. Cf. on this M. N. Rothbard Power and Market,
Kansas City, 1977, pp. 189ff., H. H. Hoppe, Eigentum, Anarchie und Staat, Opladen,
1987, Chapter 5.
Hans-Hermann Hoppe 191
146 B.
de Jouvenel, On Power, New York, 1949, pp. 9-10; on the social psychology of
democracy cf. also the same, On Sovereignty, Cambridge, 1957; G. Mosca, The Rul-
ing Class, New York, 1939; H. A. Mencken, Notes on Democracy, New York, 1926;
on the tendency of democratic rule to “degenerate” to oligarchic rule cf. R. Michels,
Zur Soziologie des Parteiwesens in der modernen Demokratie, Stuttgart, 1957.
Hans-Hermann Hoppe 193
The situation over the last two centuries vividly illustrates the
validity of this thesis. During this time we have experienced an
almost universal substitution of relatively democratic regimes for
relatively autocratic-monarchical systems.147 (Even Soviet Russia
is notably more democratic than czarist Russia ever was.) Hand in
hand with this change has gone a process never experienced before
regarding its speed and extent: a permanent and seemingly uncon-
trollable growth of the state. In the competition of different states
for exploitable populations, and in these states’ attempts to come
to grips with internal resistance, the democratic state has tended
to win outright over the autocratic one as the superior power-vari-
ant. Ceteris paribus, it is the democratic state—and the democratic
socialism incorporated in it—which commands the higher income
and so proves to be superior in wars with other states. And ceteris
paribus, it is this state, too, that succeeds better in the management
of internal resistance: it is, and historically this has been shown
repeatedly, easier to save the power of a state by democratizing it
than by doing the opposite and autocratizing its decision-making
structure.
Here, then, we have the socio-psychological foundations of
the state as the very institution enacting socialism. Any state rests
on the monopolization or the monopolistic control of strategically
important goods and services which it discriminately provides to
favored groups of people, thereby breaking down resistance to a
policy of aggression against natural owners. Furthermore, it rests
on a policy of reducing the frustrated lust for power by creating
outlets for public participation in future changes in a policy of
exploration. Naturally, every historical description of a state and its
specific socialist policy and policy changes will have to give a more
detailed account of what made it possible for socialism to become
established and to grow. But if any such description is supposedly
complete and is not to fall prey to ideological deception, then all
measures taken by the state must be described as embedded in this
148 On the fundamental difference between private business organizations and the
state cf. L. v. Mises, Bureaucracy, New Haven, 1944.
149 L. Spooner describes the supporters of the state as falling into two categories:
“1. Knaves, a numerous and active class, who see in the government an instrument
which they can use for their own aggrandizement or wealth. 2. Dupes—a large class,
no doubt—each of whom, because he is allowed one voice out of millions in deciding
what he may do with his own person and his own property, and because he is per-
mitted to have the same voice in robbing, enslaving, and murdering others, that oth-
ers have in robbing, enslaving and murdering himself, is stupid enough to imagine
that he is a ‘free man,’ a ‘sovereign,’ that this is a ‘free government,’ ‘the best govern-
ment on earth,’ and such like absurdities” (L Spooner, No Treason. The Constitution
of No Authority, Colorado Springs, 1973, p. 18).
196 A Theory of Socialism and Capitalism
Chapter 9
T
he previous chapters have demonstrated that neither an
economic nor a moral case for socialism can be made.
Socialism is economically and morally inferior to capital-
ism. The last chapter examined why socialism is nonethe-
less a viable social system, and analyzed the socio-psychological
characteristics of the state—the institution embodying socialism.
Its existence, stability, and growth rest on aggression and on public
support of this aggression which the state manages to effect. This it
does, for one thing, through a policy of popular discrimination; a
policy, that is, of bribing some people into tolerating and support-
ing the continual exploitation of others by granting them favors;
and secondly, through a policy of popular participation in the
making of policy, i.e., by corrupting the public and persuading it
to play the game of aggression by giving prospective power wield-
ers the consoling opportunity to enact their particular exploitative
schemes at one of the subsequent policy changes.
We shall now return to economics, and analyze the workings
of a capitalist system of production—a market economy—as the
alternative to socialism, thereby constructively bringing my argu-
ment against socialism full circle. While the final chapter will be
devoted to the question of how capitalism solves the problem of
199
200 A Theory of Socialism and Capitalism
153 On the function of profit and loss cf. L. v. Mises, Human Action, Chicago, 1966,
Chapter 15; and “Profit and Loss,” in: the same, Planning for Freedom, South Hol-
land, 1974; M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, Chapter 8.
202 A Theory of Socialism and Capitalism
154 Onthe economics of government cf., esp. M. N. Rothbard, Power and Market,
Kansas City, 1977, Chapter 5.
Hans-Hermann Hoppe 203
157 This is a very generous assumption, to be sure, as it is fairly certain that the so-
called public sector of production attracts a different type of person from the very out-
set and boasts an unusually high number of inefficient, lazy, and incompetent people.
158 Cf. L. v. Mises, Bureaucracy, New Haven, 1944; Rothbard, Power and Mar-
ket, Kansas City, 1977, pp. 172ff; and For A New Liberty New York, 1978, Chapter
206 A Theory of Socialism and Capitalism
10; also M. and R. Friedman, The Tyranny of the Status Quo, New York, 1984, pp.
35-51.
159 On the following cf. L. v. Mises, Human Action, Chicago, 1966, Chapter 23.6;
M.N. Rothbard, Man Economy and State, Los Angeles, 1970, Chapter 7, esp. 7.4-6;
Hans-Hermann Hoppe 207
begin to utilize its capital stock more intensively since prices on the
present market would still be relatively higher. And to be sure, both
of these reactions are exactly what is desirable from the point of
view of the consumers.
If the way in which a capitalist production system works is
compared with the situation that becomes institutionalized when-
ever the state takes care of the means of production, striking dif-
ferences emerge. This is true especially when the state is a modern
parliamentary democracy. In this case, the managers of an enter-
prise may have the right to receive the returns from sales (after sub-
tracting operation costs), but, and this is decisive, they do not have
the right to appropriate privately the receipts from a possible sale
of the production factors. Under this constellation, the incentive
to use a given stock of capital economically over time is drastically
reduced. Why? Because if one has the right to privately appropriate
the income return from product sales but does not have the right
to appropriate the gains or losses in capital value that result from
a given degree of usage of this capital, then there is an incentive
structure institutionalized not of maximizing total income—i.e.,
total social wealth in terms of consumer evaluations—but rather
of maximizing income returns from sales at the expense of losses
in capital value. Why, for instance, should a government official
reduce the degree of exploitation of a given stock of capital and
resort to a policy of conservation when prices for the goods pro-
duced are expected to rise in the future? Evidently, the advantage
of such a conservationist policy (the higher capital value result-
ing from it) could not be reaped privately. On the other hand, by
resorting to such a policy one’s income returns from sales would
be reduced, whereas they would not be reduced if one forgot about
conserving. In short, to conserve would mean to have none of the
advantages and all of the disadvantages. Hence, if the state man-
agers are not super-humans but ordinary people concerned with
their own advantages, one must conclude that it is an absolutely
necessary consequence of any state production that a given stock
of capital will be overutilized and the living standards of consum-
ers impaired in comparison to the situation under capitalism.
Hans-Hermann Hoppe 209
160 On this and the following cf. L. v. Mises, Socialism, Indianapolis, 1981, part 3.2.
210 A Theory of Socialism and Capitalism
161 Thus states J. W. McGuire, Business and Society, New York, 1963, pp. 38-39:
“From 1865 to 1897, declining prices year after year made it difficult for businessmen
to plan for the future. In many areas new railroad links had resulted in a nationaliza-
tion of the market east of the Mississippi, and even small concerns in small towns
were forced to compete with other, often larger firms located at a distance. At the
same time there were remarkable advances in technology and productivity. In short
it was a wonderful era for the consumer and a frightful age for the producers espe-
cially as competition became more and more severe.”
162 Cf. on this G. Kolko, The Triumph of Conservatism, Chicago, 1967; and Rail-
roads and Regulation, Princeton, 1965; J. Weinstein, The Corporate Ideal in the Lib-
eral State, Boston, 1968; M. N. Rothbard and R. Radosh (eds.), A New History of
Leviathan, New York, 1972.
163 G. Kolko, The Triumph of Conservatism, Chicago, 1967, pp.4-5; cf. also the
investigations of M. Olson, The Logic of Collective Action, Cambridge, 1965, to the
Hans-Hermann Hoppe 211
effect that mass organizations (in particular labor unions), too, are not market phe-
nomena but owe their existence to legislative action.
164 On the following cf. L. v. Mises, Socialism, Indianapolis, 1981, part 3.2; and
Human Action, Chicago, 1966, Chapters 25-26; M. N. Rothbard, Man, Economy
and State, Los Angeles, 1970, pp.544ff; pp.585ff; and “Ludwig von Mises and Eco-
nomic Calculation under Socialism,” in: L. Moss (ed.), The Economics of Ludwig
von Mises, Kansas City, 1976, pp. 75-76.
212 A Theory of Socialism and Capitalism
165 Cf. F. A. Hayek, Individualism and Economic Order, Chicago, 1948, esp. Chapter
9; I. Kirzner, Competition and Entrepreneurship, Chicago, 1973.
166 Regarding large-scale ownership, in particular of land, Mises observes that it
is normally only brought about and upheld by nonmarket forces: by coercive vio-
lence and a state-enforced legal system outlawing or hampering the selling of land.
“Nowhere and at no time has the large scale ownership of land come into being
through the working of economic forces in the market. Founded by violence, it has
been upheld by violence and that alone. As soon as the latifundia are drawn into
the sphere of market transactions they begin to crumble, until at last they disappear
completely … . That in a market economy it is difficult even now to uphold the lati-
fundia, is shown by the endeavors to create legislation institutions like the ‘Fidei-
kommiss’ and related legal institutions such as the English ‘entail’ … . Never was the
ownership of the means of production more closely concentrated than at the time of
Pliny, when half the province of Africa was owned by six people, or in the day of the
Merovingian, when the church possessed the greater part of all French soil. And in
no part of the world is there less large-scale land ownership than in capitalist North
America,” Socialism, Indianapolis, 1981, pp.325–326.
Hans-Hermann Hoppe 213
167 Cf. on the following in M. N. Rothbard, Man, Economy and State, Los Angeles,
1970, Chapter 10, esp. pp.586ff; also W. Block, “Austrian Monopoly Theory. A Cri-
tique,” in: Journal of Libertarian Studies, 1977.
Hans-Hermann Hoppe 215
168 L.v.
Mises, Human Action, Chicago, 1966, p.359; cf. also any current textbook,
such as P. Samuelson, Economics, New York, 1976, p.500.
216 A Theory of Socialism and Capitalism
169 Cf.M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, Chapter 10,
esp. pp.604-614.
Hans-Hermann Hoppe 217
170 M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, p.607.
Hans-Hermann Hoppe 219
171 L.v. Mises, “Profit and Loss,” in: Planning for Freedom, South Holland, 1974,
p.116.
172 In fact, historically, governmental anti-trust policy has almost exclusively been a
practice of providing less successful competitors with the legal tools needed to ham-
per the operation of their more successful rivals. For an impressive assembly of case
studies to this effect cf. D. Armentano, Antitrust and Monopoly, New York, 1982;
also Y. Brozen, Is Government the Source of Monopoly? And Other Essays, San
Francisco, 1980.
220 A Theory of Socialism and Capitalism
Chapter 10
W
e have tried to demolish socialism on the economic
as well as moral fronts. Having reduced it to a phe-
nomenon of exclusively socio-psychological signifi-
cance, i.e., a phenomenon for whose existence neither
good economic nor good moral reasons can be found, its roots
were explained in terms of aggression and the corruptive influence
that a policy of divide et impera exercises on public opinion. The
last chapter returned to economics in order to give the final blows
to socialism by engaging in the constructive task of explaining the
workings of a capitalist social order as socialism’s economically
superior rival, ready for adoption at any time. In terms of consumer
evaluations, capitalism was indicated as being superior with respect
to the allocation of production factors, the quality of the output of
goods produced, and the preservation of values embodied in capi-
tal over time. The so-called monopoly problem allegedly associ-
ated with a pure market system was in fact demonstrated not to
constitute any special problem at all. Rather, everything said about
the normally more efficient functioning of capitalism is true also
with respect to monopolistic producers, as long as they are indeed
subject to the control of voluntary purchases or voluntary absten-
tions from purchases by consumers.
223
224 A Theory of Socialism and Capitalism
177 Cf. for instance, W. Baumol and A. Blinder, Economics, Principles and Policy,
New York, 1979, Chapter 31.
178 Another frequently used criterion for public goods is that of “non-rivalrous con-
sumption.” Generally, both criteria seem to coincide: when free riders cannot be
excluded, nonrivalrous consumption is possible; and when they can be excluded,
consumption becomes rivalrous, or so it seems. However, as public goods theorists
argue, this coincidence is not perfect. It is, they say, conceivable that while the exclu-
sion of free riders might be possible, their inclusion might not be connected with
any additional cost (the marginal cost of admitting free riders is zero, that is), and
that the consumption of the good in question by the additionally admitted free rider
will not necessarily lead to a subtraction in the consumption of the good available to
others. Such a good would be a public good, too. And since exclusion would be prac-
ticed on the free market and the good would not become available for nonrivalrous
consumption to everyone it otherwise could—even though this would require no
additional costs—this, according to statist- socialist logic, would prove a market fail-
ure, i.e., a suboptimal level of consumption. Hence, the state would have to take over
the provision of such goods. (A movie theater, for instance, might only be half-full,
so it might be “costless” to admit additional viewers free of charge, and their watch-
ing the movie also might not affect the paying viewers; hence the movie would qual-
ify as a public good. Since, however, the owner of the theater would be engaging in
exclusion, instead of letting free riders enjoy a “costless” performance, movie theaters
would be ripe for nationalization.) On the numerous fallacies involved in defining
public goods in terms of nonrivalrous consumption cf. notes 12 and 16 below.
Hans-Hermann Hoppe 227
179 Cf. on this W. Block, “Public Goods and Externalities,” in: Journal of Libertarian
Studies, 1983.
180 Cf. for instance, J. Buchanan, The Public Finances, Homewood, 1970, p.23; P.
Samuelson, Economics, New York, 1976, p.160.
228 A Theory of Socialism and Capitalism
181 Cf.R. Coase, “The Lighthouse in Economics,” in: Journal of Law and Econom-
ics, 1974.
Hans-Hermann Hoppe 229
public goods did not have positive but negative consequences for
other people, or if the consequences were positive for some and
negative for others? What if the neighbor whose house was saved
from burning by my fire brigade had wished (perhaps because he
was overinsured) that it had burned down, or my neighbors hate
roses, or my fellow travellers find the scent of my deodorant dis-
gusting? In addition, changes in the technology can change the
character of a given good. For example, with the development of
cable TV, a good that was formerly (seemingly) public has become
private. And changes in the laws of property—of the appropriation
of property—can have the very same effect of changing the public-
private character of a good. The lighthouse, for instance, is a public
good only insofar as the sea is publicly (not privately) owned. But if
it were permitted to acquire pieces of the ocean as private property,
as it would be in a purely capitalist social order, then as the light-
house only shines over a limited territory, it would clearly become
possible to exclude nonpayers from the enjoyment of its services.
Leaving this somewhat sketchy level of discussion and looking
into the distinction between private and public goods more thor-
oughly, it turns out to be a completely illusory distinction. A clear-
cut dichotomy between private and public goods does not exist,
and this is essentially why there can be so many disagreements on
how to classify given goods. All goods are more or less private or
public and can—and constantly do—change with respect to their
degree of privateness/publicness with people’s changing values and
evaluations, and with changes in the composition of the popula-
tion. They never fall, once and for all, into either one or the other
category. In order to recognize this, one must only recall what
makes something a good. For something to be a good it must be
realized and treated as scarce by someone. Something is not a
good-as-such, that is to say, but goods are goods only in the eyes
of the beholder. Nothing is a good without at least one person
subjectively evaluating it as such. But then, since goods are never
goods—as-such—since no physico-chemical analysis can identify
something as an economic good—there is clearly no fixed, objec-
tive criterion for classifying goods as either private or public. They
230 A Theory of Socialism and Capitalism
182 Cf. for instance, the ironic case that W. Block makes for socks being public goods
in “Public Goods and Externalities,” in: Journal of Libertarian Studies, 1983.
183 To avoid any misunderstanding here, every single producer and every associa-
tion of producers making joint decisions can, at any time, decide whether or not to
produce a good based on an evaluation of the privateness or publicness of the good.
In fact, decisions on whether or not to produce public goods privately are constantly
made within the framework of a market economy. What is impossible is to decide
whether or not to ignore the outcome of the operation of a free market based on the
assessment of the degree of privateness or publicness of a good.
184 In fact, then, the introduction of the distinction between private and public goods
is a relapse into the presubjectivist era of economics. From the point of view of sub-
jectivist economics no good exists that can be categorized objectively as private or
public. This, essentially, is why the second proposed criterion for public goods, i.e.,
Hans-Hermann Hoppe 231
But even if one were to ignore all these difficulties, and were
willing to admit for the sake of argument that the private-public
good distinction did hold water, even then the argument would
not prove what it is supposed to. It neither provides conclusive
reasons why public goods—assuming that they exist as a separate
category of goods—should be produced at all, nor why the state
rather than private enterprises should produce them. This is what
the theory of public goods essentially says, having introduced the
above-mentioned conceptual distinction: The positive effects of
public goods for people who do not contribute anything to their
production or financing proves that these goods are desirable. But
evidently, they would not be produced, or at least not in sufficient
quantity and quality, in a free, competitive market, since not all
of those who would profit from their production would also con-
tribute financially to make the production possible. So in order to
produce these goods (which are evidently desirable, but would not
be produced otherwise), the state must jump in and assist in their
production. This sort of reasoning, which can be found in almost
every textbook on economics (Nobel laureates not excluded185) is
completely fallacious, and fallacious on two counts.
permitting nonrivalrous consumption (cf. note 6 above), breaks down, too. For how
could any outside observer determine whether or not the admittance of an addi-
tional free rider at no charge would not indeed lead to a reduction in the enjoyment
of a good by others?! Clearly, there is no way that he could objectively do so. In fact,
it might well be that one’s enjoyment of a movie or driving on a road would be con-
siderably reduced if more people were allowed in the theater or on the road. Again,
to find out whether or not this is the case one would have to ask every individual—
and not everyone might agree. (What then?) Furthermore, since even a good that
allows nonrivalrous consumption is not a free good, as a consequence of admitting
additional free riders “crowding” would eventually occur, and hence everyone would
have to be asked about the appropriate “margin.” In addition, my consumption may
or may not be affected, depending on who it is that is admitted free of charge, so I
would have to be asked about this, too. And finally, everyone might change his opin-
ion on all of these questions over time. It is thus in the same way impossible to decide
whether or not a good is a candidate for state (rather than private) production based
on the criterion of nonrivalrous consumption as on that of nonexcludability. (Cf.
also note 16 below).
185 Cf. P. Samuelson, “The Pure Theory of Public Expenditure,” in: Review of Eco-
nomics and Statistics, 1954; and Economics, New York, 1976, Chapter 8; M.
Friedman, Capitalism and Freedom, Chicago, 1962, Chapter 2; F. A. Hayek, Law,
Legislation and Liberty, vol. 3, Chicago, 1979, Chapter 14.
232 A Theory of Socialism and Capitalism
For one thing, to come to the conclusion that the state has to
provide public goods that otherwise would not be produced, one
must smuggle a norm into one’s chain of reasoning. Otherwise,
from the statement that because of some special characteristics of
theirs certain goods would not be produced, one could never reach
the conclusion that these goods should be produced. But with a
norm required to justify their conclusion, the public goods theorists
clearly have left the bounds of economics as a positive, wertfrei sci-
ence. Instead they have transgressed into the field of morals or eth-
ics, and hence one would expect to be offered a theory of ethics as
a cognitive discipline in order for them to legitimately do what they
are doing and to justifiably derive the conclusion that they actu-
ally derive. But it can hardly be stressed enough that nowhere in
the public goods theory literature can there be found anything that
even faintly resembles such a cognitive theory of ethics.186 Thus it
must be stated at the outset, that the public goods theorists are mis-
using whatever prestige they might have as positive economists for
pronouncements on matters on which, as their own writings indi-
cate, they have no authority whatsoever. Perhaps, though, they have
stumbled on something correct by accident, without supporting it
with an elaborate moral theory? It becomes apparent that nothing
could be further from the truth as soon as one explicitly formulates
the norm that would be needed to arrive at the above-mentioned
conclusion about the state’s having to assist in the provision of pub-
lic goods. The norm required to reach the above conclusion is this:
whenever it can somehow be proven that the production of a par-
ticular good or service has a positive effect on someone but would
not be produced at all, or would not be produced in a definite quan-
tity or quality unless others participated in its financing, then the
use of aggressive violence against these persons is allowed, either
directly or indirectly with the help of the state, and these persons
may be forced to share in the necessary financial burden. It does
not need much comment to show that chaos would result from
implementing this rule, as it amounts to saying that everyone can
aggress against everyone else whenever he feels like it. Moreover, it
should be sufficiently clear from the discussion of the problem of
the justification of normative statements (Chapter 7) that this norm
could never be justified as a fair norm. For to argue in that way and
to seek agreement for this argument must presuppose, contrary to
agreement on any proposal of change—and that sounds far less attractive because it
implies that any given, present state of affairs regarding the allocation of property
rights must be legitimate either as a point of departure or as a to-be-continued state.
However, the public choice theorists offer no justification in terms of a normative
theory of property rights for this daring claim as would be required. Hence, the una-
nimity principle is ultimately without ethical foundation. In fact, because it would
legitimize any conceivable status quo, the Buchananites most favored principle is no
less than outrightly absurd as a moral criterion (cf. on this also M. N. Rothbard, The
Ethics of Liberty, Atlantic Highlands, 1982, Chapter 26; and “The Myth of Neutral
Taxation,” in: Cato Journal, 1981, pp.549f).
Whatever might still be left for the unanimity principle, Buchanan and Tullock,
following the lead of Wicksell again, then give away by reducing it in effect to one of
“relative” or “quasi” unanimity.
234 A Theory of Socialism and Capitalism
187 Cf.on this argument M. N. Rothbard, “The Myth of Neutral Taxation,” in: Cato
Journal, 1981, p.533. Incidentally, the existence of one single anarchist also inval-
idates all references to Paretooptimality as a criterion for economically legitimate
state action.
Hans-Hermann Hoppe 235
used for the provision of public goods are wasted, as they provide
consumers with goods or services which at best are only of second-
ary importance. In short, even if one assumed that public goods
which can be distinguished clearly from private goods existed, and
even if it were granted that a given public good might be useful,
public goods would still compete with private goods. And there
is only one method for finding out whether or not they are more
urgently desired and to what extent, or, mutatis mutandis, if, and
to what extent, their production would take place at the expense of
the nonproduction or reduced production of more urgently needed
private goods: by having everything provided by freely competing
private enterprises. Hence, contrary to the conclusion arrived at by
the public goods theorists, logic forces one to accept the result that
only a pure market system can safeguard the rationality, from the
point of view of the consumers, of a decision to produce a public
good. And only under a pure capitalist order could it be ensured
that the decision about how much of a public good to produce
(provided it should be produced at all) is rational as well.188 No less
188 Essentially the same reasoning that leads one to reject the socialist-statist theory
built on the allegedly unique character of public goods as defined by the criterion of
nonexcludability, also applies when instead, such goods are defined by means of the
criterion of nonrivalrous consumption (cf. notes 6 and 12 above). For one thing, in
order to derive the normative statement that they should be so offered from the state-
ment of fact that goods which allow nonrivalrous consumption would not be offered
on the free market to as many consumers as could be, this theory would face exactly
the same problem of requiring a justifiable ethics. Moreover, the utilitarian reasoning
is blatantly wrong, too. To reason, as the public goods theorists do, that the free-mar-
ket practice of excluding free riders from the enjoyment of goods which would per-
mit nonrivalrous consumption at zero marginal costs would indicate a suboptimal
level of social welfare and hence would require compensatory state action is faulty
on two related counts. First, cost is a subjective category and can never be objectively
measured by any outside observer. Hence, to say that additional free riders could be
admitted at no cost is totally inadmissible. In fact, if the subjective costs of admit-
ting more consumers at no charge were indeed zero, the private owner-producer of
the good in question would do so. If he does not do so, this reveals that to the con-
trary, the costs for him are not zero. The reason for this may be his belief that to do
so would reduce the satisfaction available to the other consumers and so would tend
to depress the price for his product; or it may simply be his dislike for uninvited free
riders as, for instance, when I object to the proposal that I turn over my less-than-
capacity-filled living room to various self- inviting guests for nonrivalrous consump-
tion. In any case, since for whatever reason the cost cannot be assumed to be zero,
it is then fallacious to speak of a market failure when certain goods are not handed
236 A Theory of Socialism and Capitalism
out free of charge. On the other hand, welfare losses would indeed become unavoid-
able if one accepted the public goods theorists’ recommendation of letting goods
that allegedly allow for nonrivalrous consumption to be provided free of charge by
the state. Besides the insurmountable task of determining what fulfills this criterion,
the state, independent of voluntary consumer purchases as it is, would first face the
equally insoluble problem of rationally determining how much of the public good to
provide. Clearly, since even public goods are not free goods but are subject to “crowd-
ing” at some level of use, there is no stopping point for the state, because at any level
of supply there would still be users who would have to be excluded and who, with a
larger supply, could enjoy a free ride. But even if this problem could be solved mirac-
ulously, in any case the (necessarily inflated) cost of production and operation of the
public goods distributed free of charge for nonrivalrous consumption would have
to be paid for by taxes. And this then, i.e., the fact that consumers would have been
coerced into enjoying their free rides, again proves beyond any doubt that from the
consumers’ point of view these public goods, too, are inferior in value to the compet-
ing private goods that they now no longer can acquire.
189 The most prominent modern champions of Orwellian double talk are J.
Buchanan and G. Tullock (cf. their works cited in note 3 above). They claim that
government is founded by a “constitutional contract” in which everyone “conceptu-
ally agrees” to submit to the coercive powers of government with the understanding
that everyone else is subject to it, too. Hence, government is only seemingly coercive
but really voluntary. There are several evident objections to this curious argument.
First, there is no empirical evidence whatsoever for the contention that any consti-
tution has ever been voluntarily accepted by everyone concerned. Worse, the very
idea of all people voluntarily coercing themselves is simply inconceivable, much in
the same way that it is inconceivable to deny the law of contradiction. For if the vol-
untarily accepted coercion is voluntary, then it would have to be possible to revoke
one’s subjection to the constitution and the state would be no more than a volun-
tarily joined club. If, however, one does not have the “right to ignore the state”—
and that one does not have this right is, of course, the characteristic mark of a state
as compared to a club—then it would be logically inadmissible to claim that one’s
acceptance of state coercion is voluntary. Furthermore, even if all this were possible,
the constitutional contract could still not claim to bind anyone except the original
signers of the constitution.
How can Buchanan and Tullock come up with such absurd ideas? By a seman-
tic trick. What was “inconceivable” and “no agreement” in pre- Orwellian talk is for
them “conceptually possible” and a “conceptual agreement.” For a most instructive
Hans-Hermann Hoppe 237
they really mean what they seem to mean when they say what they
say, and do not rather mean the exact opposite, or don’t mean any-
thing with a definite content at all, but are simply babbling? We
could not! M. Rothbard is thus completely right when he com-
ments on the endeavors of the public goods ideologues to prove
the existence of so-called market failures due to the nonproduction
or a quantitatively or qualitatively “deficient” production of public
goods. He writes, “… such a view completely misconceives the way
in which economic science asserts that free-market action is ever
optimal. It is optimal, not from the standpoint of the personal ethi-
cal views of an economist, but from the standpoint of free, volun-
tary actions of all participants and in satisfying the freely expressed
needs of the consumers. Government interference, therefore, will
necessarily and always move away from such an optimum.”190
Indeed, the arguments supposedly proving market failures
are nothing short of being patently absurd. Stripped of their dis-
guise of technical jargon all they prove is this: a market is not per-
fect, as it is characterized by the nonaggression principle imposed
on conditions marked by scarcity, and so certain goods or services
which could only be produced and provided if aggression were
allowed will not be produced. True enough. But no market theorist
would ever dare deny this. Yet, and this is decisive, this “imperfec-
tion” of the market can be defended, morally as well as economi-
cally, whereas the supposed “perfections” of markets propagated by
the public goods theorists cannot.191 It is true enough, too, that a
short exercise in this sort of reasoning in leaps and bounds cf. J. Buchanan, “A Con-
tractarian Perspective on Anarchy,” in: Freedom in Constitutional Contract, College
Station, 1977. Here we learn (p. 17) that even the acceptance of the 55 m.p.h, speed
limit is possibly voluntary (Buchanan is not quite sure), since it ultimately rests on
all of us conceptually agreeing on the constitution, and that Buchanan is not really a
statist, but in truth an anarchist (p. 11).
190 M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, p.887.
191 This, first of all, should be kept in mind whenever one has to assess the validity
of statist-interventionist arguments such as the following, by J. M. Keynes (“The End
of Laissez Faire,” in: J. M. Keynes, Collected Writings, London 1972, vol. 9, p.291):
“The most important Agenda of the state relate not to those activities which private
individuals are already fulfilling but to those functions which fall outside the sphere
of the individual, to those decisions which are made by no one if the state does not
238 A Theory of Socialism and Capitalism
make them. The important thing for government is not to do things which individu-
als are doing already and to do them a little better or a little worse: but to do those
things which are not done at all.” This reasoning not only appears phony, it truly is.
192 Some libertarian minarchists object that the existence of a market presupposes
the recognition and enforcement of a common body of law, and hence a govern-
ment as a monopolistic judge and enforcement agency.(Cf., for instance, J. Hospers,
Libertarianism, Los Angeles, 1971; T. Machan, Human Rights and Human Liber-
ties, Chicago, 1975.) Now, it is certainly correct that a market presupposes the rec-
ognition and enforcement of those rules that underlie its operation. But from this it
does not follow that this task must be entrusted to a monopolistic agency. In fact, a
common language or sign-system is also presupposed by the market; but one would
hardly think it convincing to conclude that hence the government must ensure the
observance of the rules of language. Just as the system of language then, the rules of
market behavior emerge spontaneously and can be enforced by the “invisible hand”
of self-interest. Without the observance of common rules of speech people could not
reap the advantages that communication offers, and without the observance of com-
mon rules of conduct, people could not enjoy the benefits of the higher productivity
Hans-Hermann Hoppe 239
of its respective services, but instead has the right to unilaterally determine its own
income, i.e., the taxes to be imposed on consumers in order to do its job in the area
of security production. Now, however plausible this might sound, it should be clear
that it is inconsistent. Either the principles of the natural property theory are valid,
in which case the state as a privileged monopolist is immoral, or business built on
and around aggression—the use of force and of noncontractual means of acquiring
resources—is valid, in which case one must toss out the first theory. It is impossible
to sustain both contentions and not be inconsistent unless, of course, one could pro-
vide a principle that is more fundamental than both the natural theory of property
and the state’s right to aggressive violence and from which both, with the respective
limitations regarding the domains in which they are valid, can be logically derived.
However, liberalism never provided any such principle, nor will it ever be able to
do so, since, as I demonstrated in Chapter 7, to argue in favor of anything presup-
poses one’s right to be free of aggression. Given the fact then that the principles of
the natural theory of property cannot be argumentatively contested as morally valid
principles without implicitly acknowledging their validity, by force of logic one is
committed to abandoning liberalism and accepting instead its more radical child:
libertarianism, the philosophy of pure capitalism, which demands that the produc-
tion of security be undertaken by private business, too.
Hans-Hermann Hoppe 241
194 Cf. on the problem of competitive security production G. de Molinari, “The Pro-
duction of Security” Center for Libertarian Studies, Occasional Paper No. 2, New
York, 1977; M. N. Rothbard, Power and Market, Kansas City, 1977, Chapter 1; and
For A New Liberty, New York, 1978, Chapter 12; also: W.C. Wooldridge, Uncle Sam
the Monopoly Man, New Rochelle, 1970, Chapters 5-6; M. and L. Tannehill, The
Market for Liberty, New York, 1984, part 2.
195 Cf. M. Murck, Soziologie der oeffentlichen Sicherheit, Frankfurt/M., 1980.
242 A Theory of Socialism and Capitalism
196 On
the deficiencies of democratically controlled allocation decisions cf. above,
Chapter 9, n. 4.
Hans-Hermann Hoppe 243
But that is far from all. Besides diversification, the content and
quality of the products would improve, too. Not only would the
treatment of consumers by the employees of security enterprises
improve immediately, the “I could care less” attitude, the arbitrari-
ness and even brutality, the negligence and tardiness of the present
police and judicial systems would ultimately disappear. Since they
then would be dependent on voluntary consumer support, any
maltreatment, impoliteness, or ineptitude could cost them their
jobs. Further, the above-mentioned peculiarity—that the settle-
ment of disputes between a client and his service provider is invari-
ably entrusted to the latter’s judgment—would almost certainly
disappear from the books, and conflict arbitration by independent
parties would become the standard deal offered by producers of
security. Most importantly though, in order to attract and retain
customers the producers of such services would have to offer con-
tracts which would allow the consumer to know what he was buy-
ing and enable him to raise a valid, intersubjectively ascertainable
complaint if the actual performance of the security producer did
not live up to its obligations. And more specifically, insofar as they
are not individualized service contracts where payment is made by
the customers for covering their own risks exclusively, but rather
insurance contracts proper which involve pooling one’s own risks
with those of other people, contrary to the present statist practice,
these contracts most certainly would no longer contain any delib-
erately built-in redistributive scheme favoring one group of people
at the expense of another. Otherwise, if anyone had the feeling that
the contract offered to him involved his paying for other people’s
peculiar needs and risks—factors of possible insecurity, that is, that
he did not perceive as applicable to his own case—he would simply
reject signing it or discontinue his payments.
Yet when all this is said, the question will inevitably surface,
“Wouldn’t a competitive system of security production still nec-
essarily result in permanent social conflict, in chaos and anar-
chy?” There are several points to be made regarding this alleged
criticism. First, it should be noted that such an impression would
by no means be in accordance with historical, empirical evidence.
246 A Theory of Socialism and Capitalism
198 Cf. the literature cited in note 21 above; also: B. Leoni, Freedom and the Law,
Princeton, 1961; J. Peden, “Property Rights in Celtic Irish Law,” in: Journal of Liber-
tarian Studies, 1977.
199 Cf. T. Anderson and P. J. Hill, “The American Experiment in Anarcho-Capital-
ism: The Not So Wild, Wild West,” in: Journal of Libertarian Studies, 1980.
Hans-Hermann Hoppe 247
200 Cf. on the following H. H. Hoppe, Eigentum, Anarchie und Staat, Opladen, 1987,
Chapter 5.
201 Contrast this with the state’s policy of engaging in battles without having everyone’s
deliberate support because it has the right to tax people; and ask yourself if the risk of
war would be lower or higher if one had the right to stop paying taxes as soon as one
had the feeling that the state’s handling of foreign affairs was not to one’s liking!
248 A Theory of Socialism and Capitalism
202 And it may be noted here again that norms that incorporate the highest possible
degree of consensus are, of course, those that are presupposed by argumentation and
whose acceptance makes consensus on anything at all possible, as shown in Chapter 7.
203 Again, contrast this with state-employed judges who, because they are paid from
taxes and so are relatively independent of consumer satisfaction, can pass judgments
which are clearly not acceptable as fair by everyone; and ask yourself if the risk of not
finding the truth in a given case would be lower or higher if one had the possibility
of exerting economic pressure whenever one had the feeling that a judge who one
day might have to adjudicate in one’s own case had not been sufficiently careful in
assembling and judging the facts of a case, or simply was an outright crook.
Hans-Hermann Hoppe 249
204 Cf. on the following in particular, M. N. Rothbard, For A New Liberty, New York,
1978, pp.233ff.
250 A Theory of Socialism and Capitalism
reactions of the public to this changed situation. Thus, the first reply
to those challenging the idea of a private market for security would
have to be: what about you? What would your reaction be? Does
your fear of outlaw companies mean that you would then go out and
engage in trade with a security producer that aggressed against other
people and their property, and would you continue supporting it if it
did? Certainly the critic would be much muted by this counterattack.
But more important than this is the systematic challenge implied
in this personal counterattack. Evidently, the described change in
the situation would imply a change in the cost-benefit structure that
everyone would face once he had to make his decisions. Before the
introduction of a competitive system of security production it had
been legal to participate in and support (state) aggression. Now such
an activity would be an illegal activity. Hence, given one’s conscience,
which makes each of one’s own decisions appear more or less costly,
i.e., more or less in harmony with one’s own principles of correct
behavior, support for a firm engaging in the exploitation of people
unwilling to deliberately support its actions would be more costly
now than before. Given this fact, it must be assumed that the num-
ber of people—among them even those who otherwise would have
readily lent their support to the state—who would now spend their
money to support a firm committed to honest business would rise,
and would rise everywhere this social experiment was tried. In con-
trast, the number of people still committed to a policy of exploita-
tion, of gaining at the expense of others, would fall. How drastic this
effect would be would, of course, depend on the state of public opin-
ion. In the example at hand—the United States, where the natural
theory of property is extremely widespread and accepted as a private
ethic, the libertarian philosophy being essentially the ideology on
which the country was founded and that let it develop to the height it
reached205—the above-mentioned effect would naturally be particu-
larly pronounced. Accordingly, security-producing firms committed
to the philosophy of protecting and enforcing libertarian law would
205 Cf.B. Bailyn, The Ideological Origins of the American Revolution, Cambridge,
1967; J. T. Main, The Anti-Federalists: Critics of the Constitution, Chapel Hill, 1961;
M. N. Rothbard, Conceived in Liberty, 4 vols., New Rochelle, 1975-1979.
Hans-Hermann Hoppe 251
against all odds the honest security producers should lose their fight
to retain a free market in the production of security and an outlaw
monopoly reemerged, one would simply have a state again.207
In any case, implementing a pure capitalist social system with
private producers of security—a system permitting freedom of
choice—would necessarily be better than what one has now. Even
if such an order should then collapse because too many people
were still committed to a policy of aggression against and exploita-
tion of others, mankind would at least have experienced a glorious
interlude. And should this order survive, which would seem to be
the more likely outcome, it would be the beginning of a system of
justice and unheard-of economic prosperity.
be liable for any damages caused” (M. and L. Tannehill, The Market for Liberty, New
York, 1984, pp.110-111).
207 The process of an outlaw company emerging as a state would be even further
complicated, since it would have to reacquire the “ideological legitimacy’ that marks
the existence of the presently existing states and which took them centuries of relent-
less propaganda to develop. Once this legitimacy is lost through the experience
with a pure free market system, it is difficult to imagine how it could ever be easily
regained.
Hans-Hermann Hoppe 253
254 A Theory of Socialism and Capitalism
Hans-Hermann Hoppe 255
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256 A Theory of Socialism and Capitalism
Index of Names
Albert, H., 255 Brutzkus, B., 256
Alchian, A., 232, 255 Buchanan, J. M., 225, 227, 232, 233, 236,
Anderson, P., 255 237, 256
Anderson, T., 246, 255 Carey, G. W., 256
Apel, K. O., 255 Cipolla, C. M., 256
Ayer, A. J., 255 Coase, R., 228, 232, 255, 256
Badie, B., 255 Demsetz, H., 232, 255, 256
Baechler, J., 255 Dicey, A. V., 256
Bailyn, B., 250, 255 Dingier, H., 256
Baird, C., 255 Dworkin, R., 232, 256
Baler, K., 255 Erhard, L., 256
Baumol, W., 225, 226, 255 Eucken, W., 256
Becker, G., 255 Evers, W., 256
Bendix, R., 255 Fahrenbach, H., 257
Bernstein, E., 255 Fetter, F., 256
Birnbaum. P., 255 Feyerabend, P., 256
Blanshard, B., 255 Fischer, W., 256
Blaug, M., 255 Flew, A., 257
Blinder, A., 226, 255 Friedman, M., 231, 256, 257
Bloch, M., 255 Friedman, R., 257
Block, W., 225, 227, 230, 232, 255 Galbraith, J. K., 257
Boehm-Bawerk, E. v., 255 Gewirth, A., 257
Boetie, E. de La, 256 Goldman, M. I., 256, 258
Bottomore, T., 259 Greenleaf, W. H., 257
Brady, R. A., 256 Gregory, P. R., 257
Bramsted, E. K., 256 Habermas, J., 257
Brandt, W., 256 Hamel, H. v., 257
Brozen, Y., 256 Hampshire, S., 259
263
264 A Theory of Socialism and Capitalism