In 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
- the specialization of entrepreneurial creativity in increasingly narrow and more specific fields, and in increasing detail and depth;
- the recognition of the private-property rights of the creative entrepreneur to the fruits of his creative activity in each of these areas;
- 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
- 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” (Human Action, 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” – bread and circuses), 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.
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)
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)
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 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.