OCTOBER 26, 2011 by SHELDON RICHMAN
Filed Under : Ludwig von Mises, Opportunity Cost, Comparative Advantage, Free Market
At FEE’s Advanced Austrian Economics Seminar last summer, more than one speaker mentioned that Ludwig von Mises considered a different title for the book we know as Human Action. The other title? Social Cooperation.
I’ve heard that story before, but this time it got me thinking: Would the free-market movement have been perceived differently by the outside world if Mises had used the other title? With the question phrased so narrowly, the answer is probably no. So let’s broaden it: Would the free-market movement be perceived differently if its dominant theme was social cooperation rather than (rugged) individualism, self-reliance, independence, and other synonyms we’re so fond of?
There’s no mystery why that other title occurred to Mises. I haven’t tried to make a count, but I would guess that “social cooperation” (or “human cooperation”) is the second most-used phrase in the book. The first is probably “division of labor,” which is another way of saying “social cooperation.” Human Action is about social cooperation or it isn’t about anything at all. The first matter Mises takes up after his opening disquisition on the nature of action itself is . . . cooperation. He begins, “Society is concerted action, cooperation. . . . It substitutes collaboration for the—at least conceivable—isolated life of individuals. Society is division of labor and combination of labor. In his capacity as an acting animal man becomes a social animal.”
It is through cooperation and the division of labor that we all can live better lives. Naturally, Mises laid great stress on the need for peace, since the absence of peace is the breakdown of that vital cooperation. This put Mises squarely in the pacifistic classical-liberal tradition as exemplified by Richard Cobden, John Bright, Frédéric Bastiat, Herbert Spencer, and William Graham Sumner. Mises wrote in Liberalism:
The liberal critique of the argument in favor of war is fundamentally different from that of the humanitarians. It starts from the premise that not war, but peace, is the father of all things. . . . War only destroys; it cannot create. . . . The liberal abhors war, not, like the humanitarian, in spite of the fact that it has beneficial consequences, but because it has only harmful ones.
Given Mises’s orientation it is unsurprising to see him attach so much importance to what he calls the Ricardian Law of Association. This is known as the law of comparative advantage (or cost), which states that two parties can gain from trade even if one is more efficient at making every product they both want.
The key is opportunity cost. A $500-an-hour lawyer who is also the fastest, most accurate typist in the world will likely find it advantageous to hire a typist. Why? Because every hour the lawyer spends typing instead of practicing law costs him $500 minus what he would have paid a typist. The typist faces no such opportunity cost. So lawyer and typist both benefit by cooperating. This is true of groups (countries) too. People will discover the benefits of concentrating on what, comparatively, they make most efficiently (or least inefficiently) and trading with others. As a result more total goods will be produced.
This law is an important part of the argument for free international trade because it answers the objection that a national group that can’t make anything as efficiently (absolutely) as others will be left out of the world economy. But Mises understood that the law of comparative advantage was merely an application of the broader law of association. As he wrote in Human Action:
The law of association makes us comprehend the tendencies which resulted in the progressive intensification of human cooperation. We conceive what incentive induced people not to consider themselves simply as rivals in a struggle for the appropriation of the limited supply of means of subsistence made available by nature. We realize what has impelled them and permanently impels them to consort with one another for the sake of cooperation. Every step forward on the way to a more developed mode of the division of labor serves the interests of all participants. . . . The factor that brought about primitive society and daily works toward its progressive intensification is human action that is animated by the insight into the higher productivity of labor achieved under the division of labor.
This seemingly simple idea leads to counterintuitive conclusions. As a result of expanding cooperation, human beings compete to produce, not to consume. Mises expressed this with my favorite sentence in Human Action: “The fact that my fellow man wants to acquire shoes as I do, does not make it harder for me to get shoes, but easier.” The expansion of cooperation also means dealing with strangers at great distance—a further incentive for peace.
Unfortunately the emphasis on cooperation is not what nonlibertarians are likely to “know” about free-market economics and the normative freedom philosophy. They are more apt to associate these with “rugged individualism” than “social cooperation.” I have no doubt that a major reason for this is that our opponents who know better want the public to have a distorted sense of the genuinely liberal worldview. When President Bill Clinton declared (disingenuously) in his 1996 state of the union address, “The era of big government is over,” he followed up that sentence with this: “But we can’t go back to the era of fending for yourself.” But human beings have always been social/political animals. There was no era when men and women fended for themselves individually. The choice is between free and forced association.
Of course libertarians and free-market advocates do emphasize the importance of the division of labor. Nevertheless we are partly responsible for the public misperception. Our rhetoric too often implies atomism, however inadvertently. (The appropriate individualism is molecular individualism.) I understand the value of the terms “individualism,” “self-reliance,” and “independence,” but we should realize that they can easily lead to undesirable caricatures. Let’s not encourage anyone to think that the libertarian ideal is Ted Kaczynski minus the mail bombs.
We’re all grappling with an uncertain future. Social cooperation unquestionably makes that task easier than if we attempted to go it alone. That’s why individuals formed mutual-aid (fraternal) organizations. Besides camaraderie, these groups provided what the welfare state feebly and coercively supposes to provide today: islands of relative security in a sea of uncertainty.
If people support the welfare state, don’t be puzzled. It’s because they cannot see a better voluntarist alternative. That’s where libertarians come in.
We libertarians might have an easier time persuading others if we emphasized that freedom produces ever-more innovative ways to cooperate for mutual benefit and that when government dominates life, social cooperation is imperiled.