Socialism and Decivilization

Jesus Huerta de Soto / Ludwig von Mises Institute

On pages 33–35 of my book Socialism, Economic Calculation, and Entrepreneurship, I examine the process by which the division of practical entrepreneurial knowledge deepens “vertically” and expands “horizontally,” a process that permits (and at the same time requires) an increase in population, fosters prosperity and general well-being, and brings about the advancement of civilization. As I indicate there, this process is based on

1. the specialization of entrepreneurial creativity in increasingly narrow and more specific fields, and in increasing detail and depth;

2. the recognition of the private-property rights of the creative entrepreneur to the fruits of his creative activity in each of these areas;

3. the free, voluntary exchange of the fruits of each human being’s specialization, an exchange that is always mutually beneficial for all who participate in the market process; and

4. constant growth in the human population, which makes it possible to entrepreneurially “occupy” and cultivate a rising number of new fields of creative entrepreneurial knowledge, which enriches everyone.

According to this analysis, anything that guarantees the private ownership of what each person creates and contributes to the production process, that defends the peaceful possession of what each person conceives or discovers, and that facilitates (or does not impede) voluntary exchanges (which are always mutually satisfactory in the sense that they mean an improvement for each party) generates prosperity, increases the population, and furthers the quantitative and qualitative advancement of civilization. Likewise, any attack on the peaceful possession of goods and on the property rights that pertain to them, any coercive manipulation of the free process of voluntary exchange, in short, any state intervention in a free market economy always brings about undesired effects, stifles individual initiative, corrupts moral and responsible behavior habits, makes the masses childish and irresponsible, hastens the decline of the social fabric, consumes accumulated wealth, and blocks the expansion of human population and the advancement of civilization, while everywhere increasing poverty.

As an illustration, let us consider the process of decline and disappearance of classical Roman civilization. Though its basic landmarks are easily extrapolated to many circumstances of our contemporary world, unfortunately most people have now forgotten or are completely unaware of that important history lesson; and as a result they fail to see the grave risks now facing our civilization. In fact, as I explain in detail in my classes (and summarize in a video of one of them, on the fall of the Roman Empire [La Caída del Imperio Romano], which to my surprise has already been viewed on the Internet by almost 400,000 people in a little over a year), and according to prior studies by authors like Rostovtzeff (The Social and Economic History of the Roman Empire) and Mises (Human Action), “what brought about the decline of the [Roman] empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions” (op. cit., p. 767).

To be precise, Rome was the victim of an involution in the specialization and division of the trading process, as authorities systematically hindered or prevented voluntary exchanges at free-market prices, in the midst of rampant growth in subsidies, in public spending on consumption (“panem et circenses”), and in state control of prices. It is easy to grasp the logic behind these events. Chiefly beginning in the 3rd century, the buying of votes and popularity spread food subsidies (“panem”) financed by the public treasury via the “annona,” as well as the continual organization of the most lavish public games (“circenses”). As a result, not only were Italian farm owners eventually ruined, but the population of Rome did not cease to grow until it stood at nearly 1 million inhabitants. (Why take on the toil of working one’s land when its products cannot be sold at profitable prices, since the state distributes them almost for free in Rome?)

The obvious course of action was to leave the Italian countryside and move to the city, to live off the Roman welfare state, the cost of which could not be borne by the public treasury, and could only be covered by reducing the precious-metal content in the currency (that is, inflation). The outcome was inescapable: an uncontrolled drop in the purchasing power of money, i.e., an upward revolution in prices, to which the authorities responded by decreeing that prices were to remain fixed at their prior levels and imposing extremely harsh sentences on offenders. The establishment of these price ceilings led to widespread shortages (since at the low prices set, it was no longer profitable to produce and seek creative solutions to the problem of scarcity, while at the same time consumption and waste were still being artificially encouraged). Cities gradually began to run out of provisions, and the population began to leave and return to the countryside, to live in much poorer conditions in an autarchy, at mere subsistence level, a regime that laid the foundation for what would later be feudalism.

This decivilization process, which arose from the demagogic socialist ideology typical of the welfare state and of government interventionism in the economy, can be illustrated in a simplified, graphic manner by the reverse of the graphic explanation on page 34 of my aforementioned book, Socialism, Economic Calculation, and Entrepreneurship, in which I describe the process by which the division of labor (or rather, the specialization of knowledge) deepens and civilization advances.

Let us begin at the stage represented by the top line in the chart (T1), which reflects the advanced level of development spontaneously achieved by the Roman market process as early as the 1st century, and which, as Peter Temin has shown (“The Economy of the Early Roman Empire,” Journal of Economic Perspectives, vol. 20, no. 1, winter 2006, pp. 133–151), was characterized by a remarkable degree of institutional legal respect for private property (Roman law), and by the specialization and spread of exchanges in all sectors and factor markets (particularly the labor market, since, as Temin has demonstrated, the effect of slavery was much more modest that has been believed up to now). As a result, the Roman economy of the period reached a level of prosperity, economic development, urbanization, and culture that would not be seen again in the world until well into the 18th century.

Figure 1

 

The capital letters under each person in figure 1 indicate the ends each actor specializes in and devotes himself to. He then exchanges the fruits of his entrepreneurial effort and creativity (represented by the bulb that “lights up”) for those of other actors, and all benefit from each exchange. However, when state intervention in the economy increases (e.g., via price control), exchanges are hindered and decrease, and people find themselves in the stage depicted by the middle line in the chart. They are obliged to reduce the sphere of their specialization by abandoning, for example, ends G and H and concentrating on ends AB, CD, and EF, all with less division of labor, fewer exchanges, and hence a smaller degree of specialization, which requires greater replication and an excess of effort. The obvious result is a drop in the final production of the entire social process, and thus a rise in poverty.

The maximum point of economic decline and recession occurs in the stage shown by the bottom line in the chart (T3), where, when faced with mounting interventionist pressure from the state, continual tax increases, and stifling regulations, people are forced, in order to survive (even if at a level of poverty previously inconceivable), to almost completely abandon the prior division of labor and the exchange process that constitutes the market, to leave the city and return to the countryside to tend livestock and grow their own food, to tan their own leather and build their own shacks, and each person needlessly duplicates the minimum ends and activities required for survival (which we have marked ABCD in the chart). As is logical, productivity falls sharply, and all sorts of shortages occur that reduce the population due to a lack of resources: thus the process of deurbanization and decivilization reaches completion.

As Mises indicates,

With the system of maximum prices the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society’s economic organization.… To avoid starving, people deserted the cities, settled on the countryside, and tried to grow grain, oil, wine, and other necessities for themselves.… The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.… [The emperors'] counteraction was futile as it did not affect the root of the evil. The compulsion and coercion to which they resorted could not reverse the trend toward social disintegration which, on the contrary, was caused precisely by too much compulsion and coercion [on the part of the state]. No Roman was aware of the fact that the process was induced by the government’s interference with prices and by currency debasement. (op. cit., pp. 768–769)

continue at Ludwig von Mises Institute:

http://www.mises.org/daily/6141/Socialism-and-Decivilization

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