All Commentary
Sunday, January 1, 1961

On Private Property and Economic Power

Dr. Sennholz is Professor of Economics at Grove City College, Pennsylvania.

In their denunciation of our social order the socialists usually follow two patterns of attack. While some depict in glowing col­ors the desirability of socialism, others describe the alleged horrors of the individual enterprise sys­tem. In his Moral Man and Im­moral Society Reinhold Niebuhr mainly adheres to the latter while pleading the case for socialism. This book virtually “made” Nie­buhr when it appeared in 1934. It provides the lenses through which many people, even today, view social problems.

We agree with Niebuhr that power is evil and ought to be dis­trusted. But “only the Marxian proletarian,” says Niebuhr, “has seen this problem with perfect clarity. If he makes mistakes in choosing the means of accomplish­ing his ends, he has made no mis­take either in stating the rational goal toward which society must move, the goal of equal justice, or in understanding the economic foundations of justice.” (pp. 164­165) Only the Marxian proletarian has recognized this.

When Niebuhr speaks of the “ruling classes”—by which he means the defenders of capitalism—he uses harsh terms such as “prejudice,” “hypocrisy,” and “dis­honesty.” Their reasoning, reli­gion, and culture, according to Niebuhr, “are themselves the product of, or at least colored by, the partial experience of the class.” (pp. 140-141) In other words, anyone defending individ­ual freedom, private property, and enterprise, is unmasked as an ad­vocate of the special privileges and interests of the bourgeois class.

According to Niebuhrian philos­ophy the population is divided in­to economic classes whose interests differ radically from each other. But only the Marxian proletarian strives at rational goals towardwhich a just society must move. The individual enterprise order is corrupt and unjust because it is built on the special interests and economic powers of the bourgeois class.

All three suppositions are falla­cious. There are no classes, no class privileges in the society con­templated by the classic philoso­phers and economists. Before the law everyone is to be treated equally. The ancient privileges of rank, estate, or class were abol­ished by repeal legislation during the eighteenth and nineteenth cen­turies.

Private Wealth Consists of Capital

Private property is no special privilege enjoyed by the bourgeois class. It is a natural institution that facilitates orderly production and division of labor. Private own­ership of the means of production is in the interest of everyone, for it assures the most economic em­ployment of scarce resources. The efficient entrepreneur, who pro­duces what the people want in the most efficient manner, acquires control over productive capital. His wealth mainly consists of cap­ital employed in the production of goods for the people.

The critics of capitalism who deplore the great differences be­tween the wealthy industrialist and workingmen overlook this characteristic of the industrial­ist’s wealth. His wealth does not consist of idle luxuries, but of fac­tories, machines, and equipment that produce for the people, give employment, and yield high wages. It is true the successful entrepre­neur usually enjoys a higher standard of living than his em­ployee. The car he drives may be a later model. The suit he wears may be custom-made and his house may have wall-to-wall car­peting. But his living conditions do not differ essentially from those of his workers.

Economic Power Is Derivative

The businessman’s power is de­rived from the sovereign power of consumers. His ability to manage wisely the factors of production earns him the consumer’s support. This is not anchored in legal privi­lege, custom, or tradition, but in his ability to serve the only sover­eign boss of the capitalist econ­omy: the consumer. The business­man, no matter how great his powers may appear, must cater to the whims and wishes of the buy­ers. To neglect them spells disas­ter to him.

A well-known example may il­lustrate the case. Henry Ford rose to fame, wealth, and power when he produced millions of cars that people liked and desired. But dur­ing the late 1920′s their tastes and preferences began to change. They wanted a greater variety of bigger and better cars which Ford re­fused to manufacture. Conse­quently, while other companies such as General Motors and Chrysler grew by leaps and bounds, the Ford enterprise suf­fered staggering losses. Thus the power and reputation of Henry Ford declined, for a time, as rap­idly as it had grown during the earlier decades.

It is true, a businessman prob­ably can afford to disregard or disappoint a single buyer. But he must pay the price in the form of lower sales and earnings. If he continuously disappoints his buy­ers, he will soon be eliminated from the rank of entrepreneurs.

It is also true that a business­man may be rude and unfair to­ward an employee. But he must pay a high price for his arbitrari­ness. His men tend to leave him and seek employment with com­petitors. In order to attract the needed labor, the businessman in ill repute will have to pay a pre­mium above the wages paid by more considerate competitors. But higher costs lead to his elimina­tion. If he pays lower wages, he loses his efficient help to his com­petitors, which, too, entails his elimination.

A successful businessman is de­pendable, reliable, and fair. He endeavors to earn the trust and goodwill of his customers as well as of his workers. In fact, the businessman’s striving for good­will may shape a colorless person­ality. In order to avoid contro­versy and hostility, he mostly withholds or even refrains from forming an opinion on political or economic issues. Many business­men aim to be neutral with regard to all controversial problems and issues.

Capitalism a Haven for Workingman

A capitalist society is a haven for workingmen who are the greatest beneficiaries of its order. One merely needs to compare the working and living conditions of the American worker with those of his colleagues in noncapitalistic countries, such as India or China. He is the prince among the world’s laborers; his work week is the shortest, his physical exertion the least, and his wages are by far the highest.

The millionaire is less enviable in capitalism than in noncapitalist societies. His wealth mainly con­sists of capital investments which he must defend continuously in keen competition with other busi­nessmen. His consumptive wealth, which is a minor fraction of his total wealth, probably is rather modest. But the Indian million­aire, most likely a rajah, is not concerned with production and competition. He resides in a huge mansion, surrounded by his harem and catered to by dozens of eager servants. He certainly does not envy the American industrialist, however great the latter’s wealth may be.

Socialism, whether of Marxian, Fabian, Nazi, or Fascist brand, does not promote equality, but in­stead creates tremendous inequali­ties. It gives rise to a new class of political and economic administra­tors whose powers of economic management are unlimited and absolute. It eliminates the sover­eign power of consumers and the agency powers of businessmen. It substitutes omniscient rulers and an omnipotent state for the peo­ple’s freedom of choice and discre­tion.

It may be true that the Marxian worker actually strives for the realization of such a society; but contrary to Niebuhr’s beliefs, his endeavors certainly benefit neither society nor himself. Blinded and misguided by socialist syllogisms, he promotes a social order that will enslave and impoverish him. Thus he destroys the very order that has freed him from serfdom and starvation.

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.