T.C.

YILDIZ TECHNICAL UNIVERSITY

FACULTY OF ADMINISTRATIVE

AND ECONOMIC SCIENCE

BUSINESS DEPARTMENT

The role of Bureaucracy in economic systems

Prepared by:
Rahiel ALLAHBAKHSH
21613084
 Istanbul, 2022

Table of Contents
1. Introduction.......................................................................................................................3

2. Evaluating and analysis.....................................................................................................3

3. Discussion and Conclusion...............................................................................................5

4. References.........................................................................................................................7
 Von Mises, Ludwig. Bureaucracy. 135 pages.
New Haven, Yale University Press, 1944. $18.99

1. Introduction

The first duty of a citizen of a democratic community is to educate himself and to acquire
the knowledge needed for dealing with civic affairs.

(Ludwig Von Mises, advocate of free-market capitalism1, 1944)

Reading a book that was written almost a century ago and supports an idea that was rejected
by the vast majority of society at the time and living in a time when the vast majority of society
is supporting the same idea, must be interesting. On the other hand, seeing that the same
questions in the book are still valid questions and that the ideas which were defended in the
book, after applying by societies, could not solve societies problems’, in the way that it was
supposed to solve, makes the reader feel sad.
Von Mises’s book “Bureaucracy” is a political economy book published for people who are
interested in social science and society’s welfare. Although Mises has written this book with the
objective of explaining the bureaucratic management and the way it differs from profit
management, the majority of the book deals with condemning socialism and advocating free
market capitalism. The book consists of seven chapters and the author’s main arguments are
located in the first two chapters, where he explains bureaucracy and profit management.
The goal of this work is to make a critical work of the book in the framework of
management. We will start our work with evaluation and analysis of the book. In this part, some
general information about the author’s era and conditions is given. Then, the book’s main
arguments have been presented and evaluated. Finally, with discussion and conclusion section,
we will close this short book review.

1
There are many kind of capitalism that free-market capitalism is one of them.
 2. Evaluating and analysis
The book is published in 1944, during World War II. The popular trend in the political
economy of the author’s time was socialism 2 and despite some general economic problems, by
1943 the American economy – where the author was living since 1940 - was more productive
than it had ever been. In the United States a ‘‘spirit of capitalism’’ encouraged innovation and
competition, something that was not found in the Germany. 3 And this ‘‘spirit’’ could have had an
effect on the author’s ideas and thoughts.
By writing several books on critiquing socialism, which the current book is among them,
Ludwig Von Mises had become one of the most influential Austrian School4 economists of the
20th century. He believed that economic life isn’t mechanic, it’s human, and human actions can’t
be predicted. He is known as an advocate of free-market capitalism and an opponent of socialism
and interventionism.5
Although the book evaluates the function of bureaucracy management in a society, there is
no mention of Max Weber and his theory of bureaucracy management in the book. Weber
believed that bureaucracy is the most efficient way for organizing all human activities in a
society. However, his bureaucratic model was hypothetical rather than factual. 6 Mises accepts
that certain bureaucratic structures are necessary for the smooth operation of the state, yet he
disagrees with the extent to which it has come to control the life of people. In this regard, he
disagrees with Weber in that bureaucracy management is the best model for all activities. He
illustrates in the book that bureaucracy in private sectors can paralyze the economy by
preventing people from innovation and creativity. He also declares that profit motivation for
free-market traders is needed for a society’s growth and strongly objects any kind of state
intervention in the economy.
The author makes his main argument on bureaucracy at the beginning of the book. He
argues that bureaucracy is not as evil as it sounds but it is just a symptom of a greater problem,

2
A political and economic theory of social organization which advocates that the means of production,
distribution, and exchange should be owned or regulated by the community as a whole.
3
The evolution of management thought
4
The Austrian School is a heterodox[1][2][3] school of economic thought that advocates strict adherence to
methodological individualism, the concept that social phenomena result exclusively from the motivations and
actions of individuals.
5
Interventionism refers to the practice of "governmental interference in economic affairs at home or in political
affairs of another country.
6
The evolution of management thought by
that is, the governments starting totalitarian7 policies. In the coming chapters of the book author
analysis the two political economic systems with a tendency on proving that socialism is not a
working system for societies. For his argument, he brings up two key concepts and sticks to them
to maintain his argument valid: Profit motivation and Economic calculation.
He believes that there is a difference between production for profit and production for use.
In production for profit, enterprises motivated by profit have one goal and that is making a profit
by producing commodities that customers ask for. In a free market then, there is customer
sovereignty8. The sovereignty of the consumers and profit motives joined together results in a
tendency toward improvement in society. Von Mises believes that there is no criterion of
efficiency for public services and other bureaucratic structures that can be easily evaluable, like
the profit criterion. Profit calculations make capitalism the only system with a method of
computation in planning new projects and appraising the usefulness of the operation of those
plants that are already working. Sometimes he goes overboard in his encomiums of capitalism,
and says that unemployment is a relatively unimportant phenomenon in the system.
While he believes that bureaucracy management (Weber’s theory) cannot be used in private
enterprises, he points out that scientific management (Taylor’s theory) that works well in private
enterprises, cannot be applied in the public area. The concept of minimizing production time
cannot be applied in a public service entity like a police department. Since such an organization's
performance cannot be assessed in monetary terms, the safest way to prevent the abuse of power
is to ensure everyone sticks to the government's rules.
The book is a theoretical book that is written in a semi-academic language. There are words
that are inappropriate for an academic writing and could be avoided by the author. Although the
book’s name and almost all chapters have the word “Bureaucracy” in their titles the book deals a
great part with socialism rather than bureaucracy. Mises claims that there is no middle way, no
third system possible as a pattern of a permanent social order and citizens must choose between
capitalism and socialism. Such claiming in an academic book seems unprofessional. As we see
today, ‘‘There is’’ a third way.9

7
Relating to a system of government that is centralized and dictatorial and requires complete subservience to the
state.
8
Consumer sovereignty is the economic concept that the consumer has some controlling power over goods that
are produced, and the idea that the consumer is the best judge of their own welfare.
9
Bad Samaritans book
 3. Discussion and Conclusion

It seems from half of the book onwards the author loses track of relating the bureaucracy
concept with two economic systems explained in the book; making the feeling of repetition in
readers. Although Mises was a great pioneer in telling to economists of his time that economic
systems are based on individuals and their motivations and not just based on some mechanical
rules but he somehow misguides people with the way he perceives and presents individuals in his
works. People don’t have just monetary motivations. New concepts in organizational behavior
and management like ''Counter-Productive Work Behaviour'' and ''Positive Management'' shows
us that individuals have more motivations than mere profit.

The Author, has used the "Consumer Sovereignty" term several times in this book as one of
the good results of capitalism's free-market policy. but today, we see in free-market capitalist
countries that consumerism, has become a new way of people's exploitation.
In all sense, this book is a good source for finding flaws in the socialist system of
management and is a nice effort for lightening up people on Free Market Capitalism’s positive
aspects. Because of Von Mises and other scholars who have examined capitalism and socialism
in the following decades a trend toward capitalism started in 1980 up until now and many
countries adopted capitalism and have seen its positive and negative effects on societies. This
book is well-suited for a student looking to understand economic systems on the condition to
read other arguments as well. In another word, reading books that unlike this book, critique
Capitalism so that they can get the power to think and evaluate both systems. We might end this
review with a quote from Ha Joon Chang, a critic of Free-Market capitalism that interestingly
repeats what Ludwig Von Mises said years ago (the quote mentioned in the beginning ):

In a democracy, you'll never get a decent policy in any area unless the voting public is
interested and knowledgeable enough about it. 10

(Ha Joon Chang, critic of free-market capitalism, 2016)

10
https://www.ecnmy.org/engage/ha-joon-chang-learn-economics/
 4. References

Chang, H. J. (2010). 23 Things They Don’t Tell You about Capitalism.

Gillespie, A. (2018). The Long Road to Sustainability: The Past, Present, and Future of
International Environmental Law and Policy. Retrieved from
https://oxford.universitypressscholarship.com/view/10.1093/oso/9780198819516.001.000
1/oso-9780198819516-chapter-4#:~:text=The%20First%20Half%20of%20the
%20Twentieth%20Century,-Chapter%3A%20(p.&text=The%20years%20between
%201900%20and,began%20to%20make%20themselves%20felt.
Johnston, M. (2022). Economic Conditions That Helped Cause World War II. Retrieved from
https://www.investopedia.com/articles/markets/022516/economic-conditions-helped-
cause-world-war-ii.asp
Large, C. (2018). Rethinking consumerism for the sake of young people’s mental health (and the
planet). Retrieved from https://www.greenfunders.org/2018/05/24/rethinking-
consumerism-for-the-sake-of-young-peoples-mental-health-and-the-planet/
#:~:text=Buying%20stuff%20to%20meet%20our,anxiety%2C%20racism%20and
%20antisocial%20behaviour.
Negative effects of consumerism. (2022). Retrieved from
https://www.theworldcounts.com/challenges/planet-earth/state-of-the-planet/number-of-
consumers/story