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Ludwig von Mises in 1945 on income inequality, consumer sovereignty, free enterprise and why socialism is wrong – Publications – AEI

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AEI Ludwig von Mises in 1945 on income inequality, consumer sovereignty, free enterprise and why socialism is wrong Some great economic observations and insights from Ludwig von Mises’s lecture for the American Academy of Political and Social Science in Philadelphia on March 30, 1945: The inequality of income and fortunes is essential in capitalism. The progressives consider profits as objectionable. The very existence of profits is in their eyes a proof that wage rates could be raised without harm to anybody else than idle parasites. They speak of profit without dealing with its corollary, loss. Profit and loss are the instruments by means of which the consumers keep a tight rein on all entrepreneurial activities. A profitable enterprise tends to expand, an unprofitable one tends to

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Ludwig von Mises in 1945 on income inequality, consumer sovereignty, free enterprise and why socialism is wrong

Ludwig von Mises in 1945 on income inequality, consumer sovereignty, free enterprise and why socialism is wrong - Publications – AEI

Some great economic observations and insights from Ludwig von Mises’s lecture for the American Academy of Political and Social Science in Philadelphia on March 30, 1945:

The inequality of income and fortunes is essential in capitalism. The progressives consider profits as objectionable. The very existence of profits is in their eyes a proof that wage rates could be raised without harm to anybody else than idle parasites. They speak of profit without dealing with its corollary, loss. Profit and loss are the instruments by means of which the consumers keep a tight rein on all entrepreneurial activities. A profitable enterprise tends to expand, an unprofitable one tends to shrink. The elimination of profit renders production rigid and abolishes the consumers’ sovereignty. This will happen not because the enterprisers are mean and greedy, and lack these monkish virtues of self-sacrifice which the planners ascribe to all other people. In the absence of profits the entrepreneurs would not learn what the wants of the consumers are, and if they were to guess, they would not have the means to adjust and to expand their plants accordingly. Profits and loss draw the material factors of production from the hands of the inefficient and convey them into the hands of the more efficient. It is their social function to make a man the more influential in the conduct of business the better he succeeds in producing commodities for which people scramble.

The market system makes all men in their capacity as producers responsible to the consumers. This dependence is direct with entrepreneurs, capitalists, farmers, and professional men, and indirect with people working for salaries and wages. The economic system of the division of labor, in which everybody provides for his own needs by serving other people, cannot operate if there is no factor adjusting the producers’ efforts to the wishes of those for whom they produce. If the market is not allowed to steer the whole economic apparatus, the government must do it.

The socialist plans are absolutely wrong and unrealizable. This is another subject. But the socialist writers are at least clear-sighted enough to see that simply to paralyze the market system results in nothing but chaos. When they favor such acts of sabotage and destruction, they do so because they believe that the chaos brought about will pave the way for socialism. But those who pretend that they want to present freedom, while they are eager to fix prices, wage rates, and interest rates at a level different from that of the market, delude themselves. There is no other alternative to totalitarian slavery than liberty. There is no other planning for freedom and general welfare than to let the market system work. There is no other means to attain full employment, rising real wage rates and a high standard of living for the common man than private initiative and free enterprise.

Ludwig von Mises in 1945 on income inequality, consumer sovereignty, free enterprise and why socialism is wrong
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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