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The central mystery of economic life is how to achieve social cooperation under the division of labor, and the analytical apparatus of economic theory was developed to explain the fundamental law of association. Because Mises explained this more clearly --- that is the precise mechanism which enables this complex coordination of economic activities that constitute the division of labor -- he rises in my opinion to the top of the list in terms of economic thinkers. And in particular his analysis of the role of monetary calculation -- both in the positive case of what it enables within a free market economy, and what its absence means in terms of condemning socialism as an economic system.

Nice article Sheldon.

BTW, perhaps Richard Ebeling can chime in here because he among all modern Austrians understood the sociological roots of Mises's system in my opinion. A key question raised by the German sociologists Georg Simmel was "How was Society Possible?" --- Mises, the sociologist/praxeologist, provided the answer. It is also the anti-Durkheim answer.

Mises's student Alfred Schutz also explained how cooperation in anonymity was possible.

Richard's work was fundamental in bringing a lot of these ideas to the attention of my generation of Austrian economists and he still is alerting us (as can be seen through his comments here and at the Northwood blog) to so many important insights and interesting intellectual connections.

A grand contribution by Sheldon to bring Mises' ideas to our attention.

Pete, as always, is very kind and generous with his complements.

Mises' emphasis on the central concept of "social cooperation" is at the heart of his monumental treatise, "Human Action." His discussion of "Human Society" (Chapter VIII) and his focus, there, on cooperation and division of labor (as the basis of the Ricardian "law of association") precedes and sets the stage for the remainder of Part II of "Human Action," which develops the nature, role and significance of economic calculation for coordination of all that goes on in the social system of division of labor.

These foundations of any functioning social order then allows Mises to develop his theory of the market process in all its facets in Part III, the unfolding of the theory of catallactics.

But Mises gave this emphasis to social cooperation and the law of association (division of labor and comparative advantage) decades earlier in his equally great work on "Socialism."

The profound contribution of the Classical Economists, in Mises view, was precisely their "discovery" of origins of division of labor and its place in explaining the possibility for a "science of society," through the cooperative interconnectedness between markets and prices.

This, Mises declares, is "one of the great achievements of the human mind." Now was opened the discovery of “the inevitable laws of the market and exchange” that is “one of the great achievements of the human mind.”

Out of the Classical Economists’ theory of division of labor there developed the eighteenth-century Classical Liberal “philosophy of peace and social cooperation,” Mises said, that became the basis “for the astonishing development of the economic civilization of that age.”

With the development of “the Liberal Social Philosophy the human mind becomes aware of the overcoming of the principle of violence by the principle of peace,” Mises said.

No longer is man groping in the dark, sometimes sensing and moving in the direction of the gains from collaborative trade and association, and at other times regressing into antagonistic antisocial relations of conquest, plunder, and violence.

The theory of a division of labor and peaceful trade now becomes a conscious framework for understanding, evaluating, and proposing policies in the social order.

Man can now purposefully take steps to move the social order in the direction of liberal association. “In Liberalism humanity becomes conscious of the powers which guide its development,” Mises argued. “The darkness which lay over the paths of history recedes. Man begins to understand social life and allows it to development consciously.”

For Mises, the triumph of free enterprise within nations and free trade between nations in the nineteenth century demonstrated the efficacy of the new conscious awareness of the principles of social cooperation. Indeed, it was the triumph of Classical Liberal planning.

“[T]he British government in the liberal age certainly had a definite plan,” Mises stated. “Its plan was private ownership of the means of production, free initiative and market economy. Great Britain was very prosperous indeed under this plan.”

Please notice the words that Mises chooses. "Man begins to understand social life and allows it to development consciously." That is, man now understands the limits and absurdities of regulation and control (Mercantilism, protectionism, interventionism), and by restricting and restraining the role and functions of the State in society, allows that society to develop and follow its own course (spontaneous coordination and societal order and relationships among men).

The classical liberal "plan," Mises argued, was precisely to recognize, respect and protect private property, free initiative (individual freedom), and free market interactions among the members of society. The liberal "plan" was to leave the market alone, so men might peacefully cooperate through the processes of voluntary social cooperation.

(I wish to add that there has been a great misunderstanding by some who have suggested that Mises' formulation of human action and market processes failed to recognize or did not give sufficient appreciation to the idea of "spontaneous order" in its Mengerian and later Hayekian uses.

(It is very easy to give numerous "chapter and verse" references to Mises' writings from the early 1920s through to the 1960s where he strongly emphasized and considered crucial an understanding and use of the Mengerian framework.)

A fairly detailed discussion of Mises' theory of social cooperation, spontaneous order, and the market process may be found in my recent book, "Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition" (Routledge, 2010), especially chapter 6, 'Planning for Freedom: Ludwig von Mises as Political Economist and Policy Analyst,' pp. 141-202.

Richard Ebeling

I implore everyone who hasn't to read Hazlitt's "The Foundations of Morality," as it does a great job clarifying and building on Mises' ideas about social cooperation.

Pete writes, "The central mystery of economic life is how to achieve social cooperation under the division of labor...."

That's not how I understand it. It seems to me that the mystery was not HOW TO ACHIEVE social cooperation, but rather to explain what was already achieved: Paris gets fed (without central direction). The problem had already solved itself. The task for economics was to say how and why social cooperation happens (and what could sabotage it).

"Mikekikon" is absolutely right that Henry Hazlitt's "The Foundations of Morality" is a clear, lucid, and insightful exposition by one of Ludwig von Mises' closest and dearest American friends to explain and defend the wider social philosophic foundations for liberty and peaceful social cooperation. And Hazlitt clearly wrote this, besides whatever other reasons, precisely to fill in the gap that he believed Mises had not, himself, sufficiently provided in.

I think that both Pete and Sheldon are correct. One the one hand, as Sheldon says, above, the task is to explain that which has been occurring, but which has not been understood conceptually and theoretically. This is similar to the linguists who do not tell us the rules or logic of how to start having a language, but rather formalize the understanding of what languages already do, but which we may not comprehend.

As Philip Wicksteed used as his motto at the beginning of "The Common Sense of Political Economy": "We all do it, but few of us understand what we are doing."

On the other hand, in the socialist or heavily interventionist state, under which many social and economic "spontaneous" relations and associations have been repressed or distorted from operating, explaining to many who cannot imagine how letting things alone can "work" in ways possible and superior to a controlled or commanded economy, is, in fact, a matter of arguing and explaining, "If you want prosperity, liberty, and potentials for wide and high levels of coordination and cooperation without the State, then, the following institutional changes and forms are vital."

Perhaps Pete expressed this way because of the research and work he did at the time of the fall of communism in the Soviet Union and Eastern Europe. I, too, experienced a certain mindset in that part of the world when I was doing consulting work on privatization and market reform with what was emerging as a democratic government in still-Soviet Lithuania, and with the Moscow city government.

There was a wide misunderstanding and lack of understanding by many -- including Soviet economists -- on the most rudimentary and fundamental concepts and ideas of what would happen if you privatized and "let go."

Many had to be taught that there could a spontaneous order of cooperation and coordination through markets, how it would work, and what institutional changes were required, if it were to work effectively.

So, as I said, both Pete and Sheldon are right, I would suggest.

Richard Ebeling

For Mises and classical liberals in general, peace and free enterprise were strongly linked. War is the alternative to peaceful association, and war destroys peaceful association. I posted on this at TM: http://thinkmarkets.wordpress.com/

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