Socialism and Decivilization

Mises Daily:
Thursday, August 23, 2012
by Jesus Huerta de Soto

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.

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.

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)

Mises concludes,

A social order is doomed if the actions which its normal functioning
requires are rejected by the standards of morality, are declared illegal
by the laws of the country, and are prosecuted as criminal by the
courts and the police. The Roman Empire crumbled to dust because it
lacked the spirit of liberalism and free enterprise. The policy of
interventionism and its political corollary, the Fuhrer principle,
decomposed the mighty empire as they will by necessity always
disintegrate and destroy any social entity. (op. cit., p. 769, italics added)

Mises's analysis has invariably been confirmed, not only in many
specific historical instances (processes of decline and decivilizing
involution, e.g., in the north and other parts of Africa; the crisis in
Portugal following the "Carnation Revolution";
the chronic social illness that affects Argentina, which became one of
the richest countries in the world before World War II, but which today,
instead of receiving immigrants, loses population continually; similar
processes that are ravaging Venezuela and other populist regimes in
Latin America, etc.), but also, and above all, by the experiment of real
socialism, which until the fall of the Berlin Wall steeped hundreds of
millions of people in suffering and despair.

Also, today, in a fully globalized world market, the decivilizing
forces of the welfare state, of syndicalism, of central banks' financial
and monetary manipulation, of economic interventionism, of the
increasing tax burden and regulations, and of the lack of control in the
public accounts threaten even those economies that until now had been
considered the most prosperous (the United States and Europe). Now at a
historic crossroads, these economies are struggling to rid themselves of
the decivilizing forces of political demagogy and union power, as they
attempt to return to the path of monetary rigor, budget control, tax
reduction, and the dismantling of the tangled web of subsidies,
intervention, and regulations that choke the entrepreneurial spirit and
infantilize and demoralize the masses. Their success or failure in this
endeavor will determine their future destiny, and specifically, whether
or not they will continue to lead the advance of civilization as they
have until now, or whether, in the case of failure, they will leave the
leadership of civilization to other societies that, like the Sino-Asian
society, fervently and unapologetically seek to become the key players
in the new globalized world market.

It is obvious that Roman civilization did not fall as a result of the
barbarian invasions: rather, the barbarians easily capitalized on a
social process that was already, for purely endogenous reasons, in
marked decline and breaking down.

Mises expresses it this way:

The alien aggressors merely took advantage of an opportunity which
the internal weakness of the empire offered to them. From a military
point of view the tribes which invaded the empire in the fourth and
fifth centuries were not more formidable than the armies which the
legions had easily defeated in earlier times. But the empire had
changed. Its economic and social structure was already medieval. (op. cit., pp. 767–768)

Furthermore, the empire's degree of regulation, statism, and tax
pressure became so great that Roman citizens themselves often submitted
to the barbarian invaders as a lesser evil, when they did not actually
receive these invaders with open arms. Lactantius, in his treatise, On the Deaths of the Persecutors, written in the year 314-315 AD, states,

There began to be fewer men who paid taxes than there were who
received wages; so that the means of the husbandmen being exhausted by
enormous impositions, the farms were abandoned, cultivated grounds
became woodland … And many presidents and a multitude of inferior
officers lay heavy on each territory, and almost on each city. There
were also many stewards of different degrees, and deputies of
presidents. Very few civil causes came before them: but there were
condemnations daily, and forfeitures frequently inflicted; taxes on
numberless commodities, and those not only often repeated, but
perpetual, and, in exacting them, intolerable wrongs. (cited by Antonio
Aparicio Pérez, La Fiscalidad en la Historia de España: Época Antigua, años 753 a.C. a 476 d.C., Madrid: Instituto de Estudios Fiscales, 2008, p. 313)

Clearly, this situation closely parallels the current one in many
ways, and a legion of writers have already shown that the present level
of subsidies and regulations places a demoralizing, intolerable burden
on the increasingly harassed productive sector of society. In fact, a
few authors, like Alberto Recarte, have had the courage to call for a
reduction in "the number of public employees, particularly those whose
job it is to regulate, oversee, and inspect all economic activity by
imposing costly and extremely interventionist legal requirements" (El Desmoronamiento de España,
Madrid: La Esfera de los Libros, 2010, p. 126). We must remember that
we all depend on the output of private economic activity.

In De Gubernatione Dei (IV, VI, 30), Salvian of Marseilles writes,

Meanwhile the poor are being robbed, widows groan, orphans are
trodden down, so that many, even persons of good birth, who have enjoyed
a liberal education, seek refuge with the enemy to escape death under
the trials of the general persecution. They seek among the barbarians
the Roman mercy, since they cannot endure the barbarous mercilessness
they find among the Romans. Although these men differ in customs and
language from those with whom they have taken refuge, and are
unaccustomed too, if I may say so, to the nauseous odor of the bodies
and clothing of the barbarians, yet they prefer the strange life they
find there to the injustice rife among the Romans. So you find men
passing over everywhere, now to the Goths, now to the Bagaudae, or
whatever other barbarians have established their power anywhere, and
they do not repent of their expatriation, for they would rather live as
free men, though in seeming captivity, than as captives in seeming
liberty. (cited in ibid., pp. 314–315)

Finally, in his Seven Books against the Pagans (Madrid: Gredos, VII, 41-7), the historian Orosius concludes,

The barbarians came to detest their swords, betook themselves to the
plough, and are affectionately treating the rest of the Romans as
comrades and friends, so that now among them there may be found some
Romans who, living with the barbarians, prefer freedom with poverty to tribute-paying with anxiety among their own people. (italics added)

We do not know whether in the future Western civilization, which
until now has thrived, will be replaced by that of another people whom
even today we might consider "barbarians." However, we must be certain
of two things: first, in the midst of the severest recession to ravage
the Western world since the Great Depression of 1929, if we fail to
apply the essential measures, i.e., deregulation, especially in the
labor market, a reduction in taxes and economic interventionism, and
control of public spending and the elimination of subsidies, we risk
much more than, for instance, the mere preservation of the euro (or for
Americans, of the dollar as an international currency);[1]
and second, if we lose the battle of competitiveness in the globalized
world market once and for all, and we fall into marked and chronic
decline, it will, without a doubt, not be due to exogenous factors, but
to our own errors, faults, and moral deficiencies.

Despite the above, I would like to end on an optimistic note.
Recessions are painful, and they are often used as a pretext for
criticizing the free-market system and increasing regulation and
interventionism, thus making matters even worse. Nevertheless,
recessions are also the phase in which society gets back on a sound
footing, the errors committed are revealed, and everyone is put in his
proper place. Recessions are the stage in which the foundation is laid
for recovery and an unavoidable return is made to the essential
principles that permit society to advance.

It is true that we face many challenges, and that we could very
easily become disheartened, and that freedom's foes lurk everywhere. But
it is no less true that, in contrast with the culture of subsidies,
irresponsibility, the lack of morals, and dependence on the state for
everything, there is, surging from the ashes among many young people
(and also among some of us who are no longer so young) the culture of
entrepreneurial freedom, of creativity and risk taking, of behavior
based on moral principles, and, in short, of maturity and responsibility
(as opposed to the infantilism our authorities and politicians would
restrict us to in order to make us increasingly servile and dependent).
To me it is clear who has the best intellectual and moral weapons, and
hence, who holds the future. That is why I am an optimist.

Jesús Huerta de Soto, professor of economics at King Juan Carlos
University, is Spain's leading Austrian economist.
As an author, translator, publisher, and teacher, he also ranks among
the world's most active ambassadors for classical liberalism. He is the
author of Money, Bank Credit, and Economic Cycles as well as Socialism, Economic Calculation and Entrepreneurship (Edward Elgar 2010), The Austrian School (Edward Elgar 2008) and The Theory of Dynamic Efficiency (Routledge 2009).
Send him mail. See Jesus Huerta de Soto's article archives.

Copyright © 2012 by the Ludwig von Mises Institute. Permission to
reprint in whole or in part is hereby granted, provided full credit is
given.

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