Authored by Jörg Guido Hülsmann via The Mises Institute,

The abject practical failure of the Marxist revolutionaries in the post-WWI period had done much harm to their image as the vanguard of social progress.

The explanation for this failure in the writings of Mises, Max Weber, and Boris Brutzkus had led many economists to revise their views about the suitable scope of government within society. But others remained unrepentant advocates of the total state. They merely rejected the specifically egalitarian agenda of the socialists.

The uncontested leader of this group was Werner Sombart, the greatest star among the interwar economists in Germany. Sombart had started his career popularizing Marxism in academic circles with his 1896 book Sozialismus und soziale Bewegung im 19. Jahrhundert (Socialism and Social Action in the Nineteenth Century). Later editions testified to Sombart’s increasing estrangement with his initial Marxist ideals. The tenth edition, which appeared under a new title in 1924, featured an outright demolition of Marxist socialism. Sombart had turned back to the mainstream Schmollerite socialism, which advocated the total state without an egalitarian agenda.

Sombart’s intellectual qualities had gained him a place of preeminence. Where most Marxist intellectuals held dogmatically to the tenets of Marx and Engels, Sombart sought to analyze and develop their doctrines with a critical mind in quest of objectivity. This made his work the perfect target for a thorough criticism of the intellectual current of anti-Marxist socialism, and Mises provided such a criticism in an article with the title “Antimarxismus” (Anti-Marxism).

Already in his article on price controls, Mises had pointed out that the shortcomings of interventionism did not result from the egalitarian agenda that some governments pursued, but from the very nature of government intervention itself, namely, the infringement of private property rights. Socialism and interventionism were destructive economic systems whether explicitly egalitarian or not. They would be unsuitable forms of social organization even if they pursued some other ideal of distribution—even meritocracy. There might be certain superficial similarities between a free society and a non-egalitarian one controlled by a total state, but these two would still be essentially different:

On the surface the social ideal of etatism does not differ from the social order of capitalism. Etatism does not seek to overthrow the traditional legal order and formally convert all private property in production to public property... But in substance all enterprises are to become government operations. Under this practice, the owners will keep their names and trademarks on the property and the right to an “appropriate” income or one “befitting their ranks.” Every business becomes an office and every occupation a civil service. ... Prices are set by government, and government determines what is to be produced, how it is to be produced, and in what quantities. There is no speculation, no “extraordinary” profits, no losses. There is no innovation, except for that ordered by government. Government guides and supervises everything.

Mises showed that the error in the idea of the omnipotent state has nothing to do with the state’s particular agenda. The government is not omnipotent if its goal is to improve “collective life” (as opposed to that of mere aggregates of individuals). But neither is it omnipotent if it seeks to enhance the welfare of the totality of individual citizens. In both cases, government intervention is counterproductive. It follows that the time-honored and seemingly significant distinction between individualism and collectivism is of only secondary importance. The primary distinction is between policies that work and policies that do not work, which leads in turn to the distinction between a social order based on private property (which works) and those social orders that depend on infringements of private property rights (and do not work). It is therefore beside the point whether individuals or collectives run the economy—provided only that the property rights of all individual members of the collectives are preserved. It also follows that the size of the firm is of no importance. As long as private property is respected, the buying decisions of the consumers reward only those companies that offer the best products. If these companies are larger than others, so be it.

Mises emphasized this fact against the doctrines of Dietzel, Karl Pribram, and Spann, which had a great influence on interwar political thought in Germany and, after World War II, in the wider western world. Dietzel and Pribram sided with individualism, whereas Spann championed collectivism, but they all agreed that these were the ultimate categories and that all political points of view derived from them. Mises disagreed.

He argued that there was a point of view that was derived from neither individualism nor collectivism, namely, the utilitarian method of social analysis. He had already proved how successful this method was in analyzing the static and dynamic problems of social “wholes” such as language communities, and he emphasized that the analysis of such wholes is the very point of theoretical social science. It was fallacious to believe that individual action could be understood out of its wider social context, just as it was false that the proper understanding of social wholes required that the social analysis itself be holistic.

The utilitarian method alone was a truly scientific one because it traced all social phenomena back to facts of experience:

The utilitarian social doctrine does not engage in metaphysics, but takes as its point of departure the established fact that all living beings affirm their will to live and grow. The higher productivity of labor performed in division of labor, when compared with isolated action, is ever more uniting individuals to association. Society is division and association of labor.

Each person seeks to enhance his welfare, and cooperative labor is more productive than isolated labor. Therefore, insofar as the growth of a person’s welfare presupposes greater quantities of material goods, the person can best attain his ends by engaging in a division of labor. This is how society comes into being.

All elements in this economic explanation of society are ascertainable facts. In contrast, the doctrines of individualism and collectivism do not lend themselves to any such causal explanation of the origin of society because they are based on postulates rather than on analysis of fact. And Mises proceeded to show that the same criticism also applied to the Marxist theory of proletarian class struggle. He did not deny that human history featured many group conflicts and that they often had great importance for the course of events. Rather, he argued that the fashionable struggle theories—of which the Marxist theory of class struggle was but one particular instance—purported to be much more than they really were. Group conflicts were not, and could not possibly be, the basic elements of human life. The real question was how any group could come into existence in the first place. One first had to explain the formation of groups before one could explain the struggle between them. But all struggle theorists, Marx included, failed on this front.

The reason for this negligence is not difficult to detect. It is impossible to demonstrate a principle of association that exists within a collective group only, and that is inoperative beyond it. If war and strife are the driving forces of all social development, why should this be true for classes, races, and nations only, and not for war among all individuals? If we take this warfare sociology to its logical conclusion we arrive at no social doctrine at all, but at “a theory of unsociability.”

Mises pointed out that Marx’s theory of class struggle even failed to give an empirical account of its most basic concept. What is a “class” in the Marxist sense? Marx had never defined it. “And it is significant that the posthumous manuscript of the third volume of Das Kapital halts abruptly at the very place that was to deal with classes.” Mises went on:

Since his death more than forty years have passed, and the class struggle has become the cornerstone of modern German sociology. And yet we continue to await its scientific definition and delineation. No less vague are the concepts of class interests, class condition, and class war, and the ideas on the relationship between conditions, class interests, and class ideology.

Werner Sombart, along with the great majority of German sociologists of whom he was the undisputed leader, had adopted the Marxist view that proletarian class struggle was the ultimate driving force in modern societies. He was now an opponent of Marxist ideology, but his analyses still remained Marxian. He merely refrained from drawing all the practical conclusions, which Marx and the Marxists had consistently deduced, from the theory of class struggle. He did not and could not provide an alternative to the Marxist scenario of social evolution. His only objection came in the form of a postulate: things should not happen as they would happen according to the theory of class struggle, therefore government should resist such developments. Yet with this admission, Sombart and the bulk of the German sociologists had again left the realm of science and entered that of religion and ethics. Sombart in fact championed a return to medieval forms of social organization—the guilds—just as Keynes in England proposed “a return, it may be said, towards medieval conceptions of separate autonomies.” Similarly, the few theorists who had thoroughly criticized Marx’s concept of class struggle, like Othmar Spann, marveled at the alleged blessings of national socialism in the middle ages.

Mises concluded:

for every scientific thinker the objectionable point of Marxism is its theory, which seems to cause no offence to the Anti-Marxist... The Anti-Marxist merely objects to the political symptoms of the Marxian system, not to its scientific content. He regrets the harm done by Marxian policies to the German people, but is blind to the harm done to German intellectual life by the platitudes and deficiencies of Marxian problems and solutions. Above all, he fails to perceive that political and economic troubles are consequences of this intellectual calamity. He does not appreciate the importance of science for everyday living, and, under the influence of Marxism, believes that “real” power instead of ideas is shaping history.

“Anti-Marxism” caused outrage among the Marxists. What was Mises’s sin? First, he had dared criticize the great master with a penetrating analysis of the incurable shortcomings of Marx’s theory of class struggle. Second, he had again contended that from an economic point of view Marxist socialism was not essentially different from the various new brands of national socialism that had begun to spring up in the 1920s, mostly in reaction against Marxist movements. Thus a fraction of Italian socialists, who rejected the teachings of Marx and called themselves “Fascists,” rose to power under the leadership of Benito Mussolini. There was also a movement of non-Marxist “National Socialists” in Germany. The father of this movement was Friedrich Naumann who, by a strange coincidence, later came to be regarded as the godfather of twentieth-century German liberalism. The leader of the National Socialists from the 1920s until their bitter end was, of course, Adolf Hitler.

Marxist socialists vociferously object to being classified under the same heading that includes Fascist Socialists and National Socialists. But as Mises showed, all distinctions between these groups are on the surface. Economically, they are united.

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Excerpted with minor revision from Mises: Last Knight of Liberalism