The Emergence of A Tradition: Essays in Honor of Jesús Huerta de Soto

Edited by
David Howden · Philipp Bagus
The Emergence of a
Tradition: Essays in
Honor of Jesús
Huerta de Soto,
Volume II
Philosophy and Political
Economy
The Emergence of a Tradition: Essays in Honor
of Jesús Huerta de Soto, Volume II
David Howden • Philipp Bagus
Editors
The Emergence of a
Tradition: Essays in
Honor of Jesús
Huerta de Soto,
Volume II
Philosophy and Political Economy
Editors
David Howden Philipp Bagus
Department of Business Department of Applied Economics I,
Saint Louis University – History and Economic Institutions
Madrid Campus (and Moral Philosophy)
Madrid, Spain Universidad Rey Juan Carlos
Madrid, Spain
ISBN 978-3-031-17417-9 ISBN 978-3-031-17418-6 (eBook)

https://doi.org/10.1007/978-3-031-17418-6
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer
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Contents

Jesús Huerta de Soto: An Appreciation 1
David Howden and Philipp Bagus

Society as a Creativity Process 17
Javier Aranzadi

Nation, Secession, and Freedom 27
Miguel Anxo Bastos Boubeta
William of Ockham: An Unknown Libertarian Philosopher 37

Lorenzo Bernaldo de Quirós
Defending Absolutist Libertarianism 45

Walter Block

The Political-Economic Views of Mont Pelerin Society
Members and Other Promoters of a Free Economy in 1980 53
Alejandro Chafuen

Liberal Values Versus Envy 73
Jordi Franch Parella
v
vi Contents
Chronicle of Liberal Thought in Spain: From Salamanca to

A
Vienna Through Madrid 85
León M. Gómez Rivas

The State: Its Origin and Nature 95
David Gordon

Dynamic Efficiency and a Judgment-Based Approach to
Entrepreneurship: An Integrated Thesis for Development
Economics103
William Hongsong Wang

The Ultra-Reactionary as a Radical Libertarian: Carl Ludwig
von Haller (1768–1854) on the Private Law Society111
Hans-Hermann Hoppe
Catholic View of Order, Creativity, and Justice131

A
Constanza Huerta de Soto and Ignacio Almará González

The Intellectual Error of Socialism in International Arbitration145
Sonsoles Huerta de Soto

Ortega y Gasset and the Austrian Economists: A Missed
Encounter157
Lorenzo Infantino

The Devil by the Horns167
Axel Kaiser

The Entrepreneur of Ideas: A Review of Some Literature175
Martin Krause

The Case Against Moderate Socialism193
Daniel Lacalle
Contents vii

Austrian Economists in Madrid201
Cristóbal Matarán

Capitalism, Socialism, and the Neoclassical Trap209
Javier Gerardo Milei
Republican Defense of Anarchism223

A
Juan Ramón Rallo

Socialism, Economic Calculation and Entrepreneurship237
Adrián Ravier

The Ideal of a Just Society: The Transformation of
“Distributive” Justice into “Distributional” Justice255
Martin Rhonheimer

Intergenerational Solidarity, Welfare, and Human Ecology in
Catholic Social Doctrine271
Cardinal Antonio María Rouco Varela

Ethics and Dynamic Efficiency: A Thomistic Approach289
David Sanz-Bas
Index303
List of Contributors
Javier Aranzadi Universidad Autónoma de Madrid, Madrid, Spain

Philipp Bagus Universidad Rey Juan Carlos, Madrid, Spain
Miguel Anxo Bastos Boubeta Universidade de Santiago de Compostela,
Santiago de Compostela, Spain
Walter Block Loyola University New Orleans, New Orleans, LA, USA
Alejandro Chafuen Acton Institute, Grand Rapids, MI, USA
Lorenzo Bernaldo de Quirós Freemarket CI, Madrid, Spain
Jordi Franch Parella Universitat de Vic-Universitat Central de Catalunya,
Barcelona, Spain
León M. Gómez Rivas Universidad Europea de Madrid, Madrid, Spain
Ignacio Almará González, Madrid, Spain
David Gordon Ludwig von Mises Institute, Auburn, AL, USA
Universidad Europea de Madrid,
Madrid, Spain
Hans-Hermann Hoppe University of Nevada, Las Vegas, Las Vegas,
NV, USA
David Howden Saint Louis University—Madrid Campus, Madrid, Spain
Constanza Huerta de Soto, Madrid, Spain
ix
x LIST OF CONTRIBUTORS
Sonsoles Huerta de Soto Madrid, Spain

Lorenzo Infantino LUISS Guido Carli, Rome, Italy
Axel Kaiser Universidad Adolfo Ibáñez, Santiago, Chile
Martin Krause Universidad de Buenos Aires, and UCEMA, Buenos
Aires, Argentina; Universidad Francisco Marroquín, Guatemala City,
Guatemala
Daniel Lacalle IE Business School, Madrid Campus, Madrid, Spain
Cristóbal Matarán Universidad Europea de Madrid, Madrid, Spain
Javier Gerardo Milei National Deputy of Republic of Argentina, Buenos
Aires, Argentina
Juan Ramón Rallo Universidad de las Hespérides, Las Palmas de Gran
Canaria, Spain
Adrián Ravier ESEADE, Buenos Aires, Argentina
Martin Rhonheimer Austrian Institute of Economics and Social
Philosophy, Vienna, Austria
Cardinal Antonio María Rouco Varela Archbishop Emeritus of Madrid,
Madrid, Spain
David Sanz-Bas Catholic University of Avila, Avila, Spain
Jesús Huerta de Soto: An Appreciation
David Howden and Philipp Bagus
Most readers know Jesús Huerta de Soto Ballester either as an economist

or as a political philosopher. A few will know that he presides over a large
insurance company started by his grandfather and that he only works as a
professor by night. Fewer yet will know Huerta de Soto as a family man,
D. Howden (*)
Saint Louis University—Madrid Campus, Madrid, Spain
e-mail: david.howden@slu.edu
P. Bagus
Universidad Rey Juan Carlos, Madrid, Spain
e-mail: philipp.bagus@urjc.es
© The Author(s), under exclusive license to Springer Nature 1

Switzerland AG 2023
D. Howden, P. Bagus (eds.), The Emergence of a Tradition: Essays in
Honor of Jesús Huerta de Soto, Volume II,
https://doi.org/10.1007/978-3-031-17418-6_1
2 D. HOWDEN AND P. BAGUS
with deep faith and conviction for justice.1 These aspects of his life are
outlined in more detail in some of the chapters of these volumes. Personal
anecdotes included in the chapters also give the reader an impression of his
character and paint a vivid picture of Huerta de Soto’s professional, aca-
demic, and personal lives.
This Introduction is not about us, the editors of these volumes, but
some brief, personal comments will help the reader to understand the
wide-reaching effect that Jesús Huerta de Soto Ballester—both the man
and the idea—has on those he encounters.
The two editors of this book came to Madrid to study under the tute-
lage of Jesús. Philipp Bagus was one of the first foreign students to come
to study Austrian economics with Jesús, arriving in 2003 on an Erasmus
study ticket. He was also his first foreign doctoral student finishing in
2007. David Howden came in 2007 and was Jesús’s fifth foreign student.
1
Only a small minority of people, in our experience, know what Jesús’s full name is. Due
to some idiosyncrasies of Spanish naming conventions, this group is dominated by Spaniards.
To aid the non-Spanish speaker, a brief explanation of his name is necessary. All Spanish
surnames are composed of two parts. The first part is the father’s first surname, and the sec-
ond is the mother’s first surname. The general form for all Spanish names becomes [first
name] [paternal first surname] [maternal first surname]. Thus, all children have a different
surname than their mothers and fathers, though this surname will include elements of both
through their respective paternal branches. The children of Juan Garcia Fernandez and Sofia
Gonzalez Martin, for example, would all have the surname Garcia Gonzalez.
Jesús Huerta de Soto Ballester was born to Jesús Huerta Ballester and Concepción de
Soto Acuña. His birth name was Jesús Huerta de Soto, and (after marrying Sonsoles Huarte)
his children would have the surname Huerta Huarte. With six children, this linguistically
challenging surname would have not been an isolated difficulty.
After marriage, Jesús made the decision to legally change the order of his surnames. (This
bureaucratic process is not straightforward, nor is it common.) As a result of this change, his
first surname, Huerta de Soto, now includes elements of both his father’s and his mother’s
names. His second surname, Ballester, is from his father. While the name remains essentially
the same (Jesús Huerta de Soto at birth versus Jesús Huerta de Soto Ballester today), the
change in ordering meant that the family name passed down to his children would be
“Huerta de Soto” instead of “Huerta.” This also applies to their descendants.
In all but the most formal situations in Spain, use of only the first surname is sufficient.
Hence, Jesús Huerta de Soto Ballester is commonly referred to only as “Huerta de Soto.”
Since this is somewhat lengthy, it is often shortened further to “Huerta.” The reader will
note that over the course of the fifty-two chapters of these two volumes, the authors refer to
him with varying degrees of formality as “Jesús,” “Huerta,” or “Huerta de Soto.” On only
rare and especially formal occasions is his full surname of Huerta de Soto Ballester invoked.
JESÚS HUERTA DE SOTO: AN APPRECIATION 3
He was Jesús’s first English-speaking student. In addition to Bagus, two

Italians, Antonio Zanella and Massimiliano Neri, predated him as did an
Argentine, Adrián Ravier.
Our trajectories are important to understand what is, no doubt, a com-
mon result of interactions with Jesús. We focus on our non-Spanish ori-
gins as an early signal of the international appeal that Jesús has garnered
for several decades.
Generally speaking, we both came as anarchocapitalists, “Rothbardians”
in the broad sense of the term. We were familiar with the core tenets of
Austrian economics before starting our studies. We both studied previ-
ously in rigorous mainstream programs (in Germany and Canada).
Questions that went unanswered during our studies prompted us to look
for alternative economic theory. We both read Money, Bank Credit, and
Economic Cycles and believed that Jesús was one of the few men who could
not just understand real economic problems but also impart that wisdom.
Finally, and most importantly for this introduction, we both believed
firmly that free markets were the necessary and sufficient condition for a
harmonious and prosperous civilization.
Economics was, to us upon arrival, a rather closed system. Its corpus of
theory was able to explain how society worked, both for better and for
worse. If one wished to make his positive imprint on the world, he only
needed to be proficient in this science and apply its conclusions faithfully.
The focus on the workings of a market economy, we believe, applies to the
majority of young anarchocapitalists, at least outside of Spain. This com-
mon position can be best summarized as a belief that economic science is
a closed system, and that free markets are a sufficient and necessary condi-
tion for a prosperous civilization. If gold is not a barbarous relic to many
young Austrian economists, the concepts of religion, family, and morality
very often are. Even though we had a basic understanding of the impor-
tance of ethics, we had not come to a full appreciation of the significance
of many spontaneously evolved institutions such as religion, the family, or
morality. We did not fully grasp the importance of these institutions,
believing that free markets would largely be enough for a free society to
function smoothly.
Today, and through the influence of Jesús, we both count ourselves
among the converted. We use this term not narrowly in the religious sense
(although that too is true) but in the general sense that we realize that free
markets are a necessary but not sufficient condition of a prosperous soci-
ety. A moral code imparted by something greater than man must guide his
actions. Certain institutions, some religious, others secular, are necessary
to transmit this morality over generations. Economics has little to say
about such topics, though the economist must use these concepts in con-
junction with his theories to gain a full understanding of the world that is,
and that which could be.
We submit that our own conversion along these lines was not acciden-
tal. It was the direct result of Jesús. Other students of his will no doubt
nod in agreement when they consider their own intellectual trajectories.
This affect was not the result of any purposeful proselytizing on the part
of Jesús. It was the result of the consistent and continual application of his
belief structure to every aspect of his classes and seminars. The change in
our approach to economic problems resulted from Jesús’s rigorous and
logical approach to economic theory that underscored the need for eco-
nomics to not be treated as a closed system. Jesús defends a multidisci-
plinary approach not only in his writings, but he also persistently
emphasizes the role of the ancillary sciences in understanding economic
phenomenon in his classes and seminars. Finally, he does so, not just in the
classroom but also in his life. This consistency and devotion to an ideal,
not just a way to learn but to live, is what most students will remember
him for.
With this background on the effect of his influence, let’s move on to
the causes. What is it about the belief structure and approach to economic
analysis that has earned Huerta de Soto the respect of his peers?
Huerta de Soto is best known for three books. The first, Socialism,
Economic Calculation, and Entrepreneurship, was first published in Spanish
in 1992 and translated into English in 2010. In this work, Huerta de Soto
builds off Kirzner’s theory of entrepreneurship and synthesizes it with
Mises’s and Hayek’s critiques of socialism. While one goal is to synthesize
various strands of work surrounding the impossibility of calculation under
socialism, Huerta de Soto expands our understanding of entrepreneurship
by focusing on the knowledge creation process.
The Theory of Dynamic Efficiency was published in English in 2009 but
built off his introductory journal article of the same name in the inaugural
issue of Procesos de Mercado in 2004. In this collection of essays, Huerta de
Soto made available for the first time his broad scholarship on a variety of
subjects to the English-speaking world in one collection. He also expanded
on the themes of entrepreneurship and institutions to emphasize why the
economy cannot be judged, even theoretically, in static terms.
Huerta de Soto’s greatest fame, at least in the English-speaking world,
came a few years earlier following the 2006 translation of his tome Money,
Bank Credit, and Economic Cycles. Originally published in Spanish in
1998, this book manifesting the multidisciplinary approach of its author
takes the reader through a history, both theoretical and applied, of bank-
ing law. By showing the fractional-reserve demand deposit to be a legal
aberration, Huerta de Soto is then able to move on to the business cycle
to flush out the full implications of a banking system allowed to create
money substitutes ex nihilo. Many consider this book to be the most fully
developed and comprehensive look at the Austrian theory of the business
cycle. For the student of Huerta de Soto, the book is the natural progres-
sion stemming from his general theory of government intervention and its
effect on entrepreneurship as outlined in Socialism, Economic Calculation,
and Entrepreneurship. Here the specific intervention is in the legal regime
narrowly governing bank deposits. The effects, however, are more gen-
eral: skewed entrepreneurial actions permeating the economy which lead
to a business cycle.
Augmenting these three core works are dozens of articles and other
books, as well as hundreds of notes. In all of these works, several central
ideas are shared. Ethics joins economic theory and history as a complete
whole. As to methodology, Huerta de Soto follows Mises and Rothbard in
the tradition of praxeology. An emphasis on an evolutionary approach,
inherited from Menger and Hayek, underscores each contribution. Finally,
a synthesis of ideas not commonly united is always undertaken. Many
times, this synthesis involves joining together the utilitarian approach
championed by Mises, the Hayekian, and Mengerian evolutionary focus,
and the natural law approach of Rothbard. The synthesis between evolu-
tion and natural law is especially novel. Jesús argues that human nature,
and by extension natural law, manifests itself evolutionarily, that is, natural
law is discovered as an ongoing process. Differences are set aside, and the
reader is able to see the strands and ideas common to the three approaches:
theory, evolutionary history, and ethics. As Jesús likes to point out, if all
three approaches point you in one direction, you can be rather sure that
your conclusions are correct.
An undercurrent of legal analysis unites most of his work. This is most

apparent in Money, Bank Credit, and Economic Cycles, since in this work a
conflation of legal norms and obligations sets in motion the business cycle.
This legal foundation was spurred on within Huerta de Soto as early as his
undergraduate studies at the Complutense University of Madrid and later
with his first doctoral degree (in law). This initial spark was ignited further
by Rothbard’s contributions that centered on the ethical foundations of
libertarianism. In many ways, Rothbard’s ethical foundations are
grounded in law.
The influence of Bruno Leoni is never far from Huerta de Soto’s reader.
Reading Freedom and the Law brought, for a young Huerta de Soto, the
role of law into full perspective. The natural progression and evolution of
legal systems, from Roman to Scholastic, brings the reader to understand
how law cannot be analyzed in a vacuum. It must be considered in light of
the needs and forces that shaped it in the past. Similarly, the effect of the
legal system on economic outcomes can also not be taken for granted. Nor
can an analysis of the economic system be separated from that of the legal
system without difficulty. The economic and legal systems act as two sides
of the same coin, with one side setting the rules of the game, and the other
determining the outcome.
If readers of Huerta de Soto see the profound importance he places on
the legal system in his works, they also notice that he is a system builder.
Fitting different pieces of the puzzle together to make a comprehensive
whole is a defining characteristic of all of Huerta de Soto’s major works.
This is apparent in the ill effects of socialism on the informational role of
entrepreneurship in Socialism, Economic Calculation, and Entrepreneurship.
It is also the major contribution of the legal analysis underscoring the
business cycle in Money, Bank Credit, and Economic Cycles.
Huerta de Soto’s analyses often start from a position that the reader has
difficulty understanding the importance of. (What could Roman law pos-
sibly have to do with the business cycle?) By the end of his works, the
reader is left with a feeling that it could not otherwise have been the case.
The clear connection that he makes between seemingly disparate and
unrelated topics is a hallmark of his analysis. This applies equally well to his
work in economics, political theory, and ethics.
If the reader of his works understands Huerta de Soto as a collector of
odd ideas, his students have an even more direct experience. His graduate
seminar would often include tangents on topics or readings that seemed to
have no bearing on the subject matter. It was only through careful study
that the class was able to put the pieces of the puzzle together and see the
whole of the argument.
Despite the ancillary ideas that he uses to form his principal arguments,
there is an obvious core that anchors Huerta de Soto’s work. It is obvious,
both in speaking with him and in studying his works, who the greatest
economist of all time is and who serves as his principal source of inspira-
tion: Ludwig von Mises. Without Mises none of Huerta de Soto’s other,
more direct, forebears would have been possible. These include Murray
Rothbard, and also Friedrich Hayek and Israel Kirzner.
We asked Huerta de Soto once what he considers to be his greatest
contribution. Not surprisingly, he pointed to his work as a synthesizer of
ideas. His works are united as a grand attempt to bring theories together
and to make a whole that is greater than its parts. Surprisingly, however,
he modestly offered that he has difficulty pinpointing which ideas are his
and which are already embedded in Mises, Rothbard, and Hayek. Huerta
de Soto does not consider his work to be overly original in the sense that
no one previously alluded to the ideas. But then, he also believes that one
should not be too original. Better to build gradually on the shoulders of
giants than to throw caution to the wind and make a tragic mistake.
As one progresses through their career a reflection on any mistakes
gains importance. Notwithstanding Friedman’s view on Mises as a radical,
the Austrian’s own reflection of his past failings was that he was not radical
enough. Huerta de Soto believes this to be the greatest mistake his fellow
travelers have made, though not one that he personally committed.
Reflecting on his past, maybe he committed the sin of being too proud
early in his career. But arrogance is not necessarily an error, it’s just part of
being young. As one matures, he sees himself within the context of his
forebears, an extension of their intellectual contributions.
Enough of Huerta de Soto, the economist. What of Huerta de Soto,
the man?
The first impression one gets when meeting him is that he is in the pres-
ence of a true Spaniard. For in many ways, Huerta de Soto is the epitome
of the Spanish man. A man who lunches late (3 p.m.) and dines later (no
earlier than 10 p.m.). One who never misses his siesta. His loosely knotted
Lester tie always carries a pattern seen on many a man inside the country,
but one that few foreigners embrace. His overly aspirated “d” when he
speaks Spanish and a throaty “h” in English are the hallmarks of a Spanish
man of a certain standing. Huerta de Soto, like all true Spaniards, under-
stands the elegance of simplicity in cuisine. (Eggs and potatoes might not
sound like much to the uninitiated, but in the Spanish tortilla they tanta-
lize the taste buds.) If our esteemed professor prefers a German car (don’t
let the gold fool you) for himself and a British education for his children,
the reader should not be fooled. So too are these the qualities of the dis-
cerning Spaniard.
After questioning him what he thinks his own great contribution is, it
is only natural to question Huerta de Soto on what he feels is Spain’s great
contribution to the world. Without hesitation the answer comes: Don
Quijote.
The Knight of La Mancha is ostensibly about an aging knight who, on
his noble nag and with his farmer cum squire Sancho Panza, tilts at wind-
mills. Whether the enemies of his scorn are real or imagined matters not.
For Don Quijote the important part is to wake up each morning, dust
himself off, and get back on his steed to fight again.
Channeling Don Quijote, Huerta de Soto is fond of saying that “No
importa que sean gigantes o molinos si el penacho de nuestra fimera se
mueve a los vientos de la tenacidad y de la fe.” In English this loosely
translates to “It doesn’t matter whether they are giants or windmills so
long as the feather in our helmet moves towards the winds of tenacity
and faith.”
What Jesús expresses here is that what really matters is to get up in the
morning and fight for truth and liberty independent of the result. The
result may come, but it is secondary to the fight. Ideas matter because they
change the world we have. But ideas also matter because they drive us to
create a better world. It is this idealism that fuels Jesús’s powerful and
infectious enthusiasm.
To do everything with enthusiasm is the first of his famous ten rules for
success in life. His principles of economics course traditionally culminates
with this lecture given on the last class of the academic year. It is one of the
many highlights in his course.2 As with his other lectures, which are
Throwing fistfuls, literal fistfuls, of euro notes in the air to illustrate the non-neutral
2
effects of monetary policy is a leading contender for the most memorable moment. Watching
students scramble to see at whose feet the thousands of euros will end up makes clear the
winners and losers of central bank actions. We can only speculate that Jesús learned this
“trick” from his father’s theatre antics subversive to the Franco dictatorship, as detailed in
our biography of the professor in this book’s companion volume.
available in several languages, this closing lecture is wildly popular on the

internet, having received hundreds of thousands of views. Jesús explains
that enthusiasm comes from the Greek word enthousiasmos meaning
inspired by God.3 And this he truly is. He lives this enthusiasm at all
moments and breathes it into those in his presence: the infectious nature
of his enthusiasm transmits his energy to his students. His lectures not
only educate about economics and the social sciences, but also uplift and
recharge the audience.4
Jesús’s unique enthusiasm and his generosity have also helped him to
achieve something that not many academics can claim: he has built a
school.5 But if there is a class of economists that consider themselves
“Huertians,” it was not by any conscious effort on his part. By expound-
ing sound principles, and living an honest life, Huerta de Soto has infused
the ideas of his own masters with his particular flavor in the minds of his
disciples. This school is truly the result of human action but not of
human design.
This distinct school, an approach to economics, is Jesús’s greatest
achievement and will be his legacy. Huerta de Soto has sowed the seeds of
a Spanish school of Austrian economics and libertarianism for many years.
With patience and constancy, another recommendation from his ten rules
for a successful life, he has sown these ideas in many areas over the past
decades. The seeds are bearing fruits. And they will bear fruits for years
to come.
3
Even the negligent reader of Huerta de Soto’s works will notice his affinity for etymology
as a starting point to understand the inherent nature of certain concepts.
4
Briefly, the other nine rules of life are (1) be constant and patient, (2) always be the best
you, (3) don’t worry, (4) learn another language (English if it is not your native tongue), (5)
be aware of the world around you, (6) find balance in your professional, spiritual, and famil-
iar obligations, (7) be entrepreneurial, (8) be critical, and (9) behave well in all areas of your
life, and improve on yourself by learning from your mistakes. The underlying focus of these
ten rules is to lead a successful life pursuing ethically beneficial goals. Of course, in all self-
help literature the definition of “success” is contentious, and advice more often than not begs
the question of how best to define one’s success. Huerta de Soto defines the term in the most
straightforward manner: “to be successful in life is to be happy.”
5
Everyone who knows Jesús will testify to his modesty and generosity. Not in vain, many
contributors to these volumes wanted to tell several anecdotes at length about his personal
warmth and support for them. Due to space constraints, the editors found themselves in the
unenviable position as gatekeepers balancing the book’s physical constraints against the ear-
nest wishes of its contributors.
There are many paths through which Jesús promotes Austrian econom-
ics and libertarianism. First and most obvious, there are his classes, his
lectures, his articles, and his books that have provided input and inspira-
tion to thousands of students and followers. Second, his publishing activi-
ties with Unión Editorial have made available Austrian and libertarian
classics in the Spanish language and have brought new publications to the
market. Third, Jesús has even ventured into the media sector by financing
movies and documentaries, spreading the truth about economics and poli-
tics. Fourth, by organizing the annual Madrid conference on Austrian
Economics since 2017, and by publishing the journal Procesos de Mercado:
Revista Europea de Economía Política since 2004 he has been essential for
promoting Austrian Economics within the academic circles of Europe and
beyond. Fifth, thanks to his initiative and leadership, Madrid hosts the first
official, that is, government and European Union approved, Master’s
degree in Austrian Economics worldwide connected to a thriving PhD
program. Finally, we should not forget his support in many ways to liber-
tarian political parties and think tanks.
By getting up every morning just as Quijote to fight idealistically for
truth, he has attracted students from around the world to Madrid and he
has inspired generations. The fruits of his labor are ripe. This Festschrift is
a testament to these efforts as many of these contributors have collabo-
rated with Jesús in these initiatives just mentioned.
As a result of all his endeavors, it is no exaggeration to claim that there
is a Madrid school of Austrian Economics and that the Spanish capital is
one of the most thriving center of Austrian economics worldwide. And
this school, built as it is on a foundation of Jesús’s works, is going to thrive
in the future. His pupils occupy positions in the traditional media, write in
newspapers, speak on the radio and television, and command a heavy pres-
ence on social media. They go on to form new generations of Austrian
economists as university professors. They occupy leading positions in
political parties and in numerous think tanks. The enthusiasm and perse-
verance of one man set in motion a movement that took the world by
storm. As for any doubts about the movement’s ability to maintain its
momentum, we need to look no farther than Jesús’s call to model our-
selves after Don Quijote: awaken each morning to fight with enthusiasm
and idealism for the truth.
For Huerta de Soto, the fight has oftentimes been against those not
radical enough. Friedman felt Mises and Hayek were too radical. If Mises
famously stormed out of a Mont Pèlerin Society meeting while calling the
members “a bunch of socialists,” Huerta de Soto has shown restraint
when faced with similar resistance. Along with Friedman, Chicago School
economists like George Stigler cautiously backed away from taking the
ideals of capitalism to their full conclusion. While presenting his thesis on
100% reserves to the Society at its 1993 meeting in Rio de Janeiro, Huerta
de Soto was cut off by the discussant and told to return to his seat. If the
experience was humiliating, it only served to motivate him further. After
all, what would have become of Don Quijote if he did not defend his nag
against the goat herders? Falling is our natural state. What makes us men
is getting back up and trying again.
If Huerta de Soto is Spanish, the most endearing quality is his fervent
Catholicism. What else to expect from a man who lists the greatest knowl-
edge man ever learned was that “God exists.” After all, what a terrifying
existence we would be fated to without such a realization. But if he serves
in the ranks of the faithful Catholics, his role is as a frontline private, not a
general. For Huerta de Soto’s role on the front lines, the strategy is to live
by example. And to show those with weaker convictions that faith and
reason are just two sides of the same coin. What else could the lesson be
from Pope Benedict XVI’s encyclical Deus caritas est? Any application of
reason must accept the reasonableness of faith. And the corollary to this is
no less important. An application of faith must accept the reasonableness
of God. One needs faculties, faith, and reason, to understand the world
and his place within it. His deep faith does not conflict with his libertarian
beliefs. Indeed, it reinforces his academic endeavors and compels him to
unearth new truths: In his speech “God and Anarchocapitalism” he con-
vincingly argues that God is a libertarian.
G. L. S. Shackle famously noted:
To be a complete economist, a man need only be a mathematician, a phi-

losopher, a psychologist, an anthropologist, a historian, a geographer, and a
student of politics; a master of prose exposition; a man of the world with the
experience of practical business and finance, an understanding of the prob-
lems of administration, and a good knowledge of four or five languages. All
this in addition, of course, to familiarity with the economics literature itself.
Similarly, Ludwig von Mises ended Human Action with a call to arms
for the economist:
The body of economic knowledge is an essential element in the structure of

human civilization; it is the foundation upon which modern industrialism
and all the moral, intellectual, technological, and therapeutical achievements
of the last centuries have been built. It rests with men whether they will
make the proper use of the rich treasure with which this knowledge provides
them or whether they will leave it unused. But if they fail to take the best
advantage of it and disregard its teachings and warnings, they will not annul
economics; they will stamp out society and the human race.
Jesús Huerta de Soto is an economist in the full sense demanded by

Shackle.6 In fact, he is a true polymath in the Renaissance tradition. His
use of economic theory as the central core of his life’s work, augmented by
legal theory, political philosophy, and moral underpinnings, makes the
fruits of his labor well-positioned to create a better society. His work
points the way to the flourishing of civilization that is meant to be.
Jesús Huerta de Soto has profoundly shaped our lives. No doubt, he
has had a similar effect on many readers of these volumes. These two vol-
umes are a testament to his academic rigor and his erudition in research.
But most of all, these chapters are a testament to his infectious joy in her-
alding the strength of the market, and its importance in creating a harmo-
nious society.
6
In his review of Money, Bank Credit, and Economic Cycles, Larry Sechrest complains that
Jesús’s knowledge and use of foreign language sources, including English, Latin, Spanish,
Italian, and French, although erudite and creditworthy, make some arguments difficult to
confirm.
With his father, Jesús Huerta Ballester, in 1973. The elder Jesús imprinted on the
younger the power of civil disobedience, and of staying firm to one’s convictions.
A late-night meeting with his father’s friend from the Spanish Marine Corps, José
Ramón Canosa, introduced the pair to the liberal circle organized by the Reig
brothers, Joaquin and Luis. Still a teenager, Jesús would be the youngest member
of the circle. His father was a consistent figure at the meetings, serving also as
chauffer to the young Jesús
With his mother, Concepción de Soto Acuña, circa 1985. Remembered as a posi-
tive, upbeat attitude, she was no doubt the origin of Jesús’s own unbridled enthu-
siasm. The family library overflowed by her hands, imprinting on a young Jesús the
importance of reading. His noted erudition on many topics is the result of her
tutelage. Never one to shy from a challenge and at the request of his maternal
grandfather, Jesús changed the ordering of his surname after marriage to include
mother’s first surname, de Soto, as part of his own first surname. The bureaucratic
nightmare of such a procedure in Spain is not to be underestimated
With Sonsoles, what some might call his own “indispensable framework,” around
1981. Young Jesús turned down offers from Berkeley and Wharton to follow his
future wife to Stanford, to study at the Graduate School of Business for two years.
While in the United States, Jesús met and befriended Hayek and Rothbard. The
appearance of a funny young Spaniard, able to cite passages from their collected
works, impressed deeply on both economists. Rothbard gifted Jesús an early man-
uscript of his upcoming book, The Ethics of Liberty
“By their fruits you shall know them. Do men gather grapes of thorns, or figs of
thistles? Even so every good tree bringeth forth good fruit” (Matthew 7: 16).
Jesús with the fruits of Sonsoles’s and his labor in 2000. Some familiar names
abound: from the left, Juan, Silvia, Constanza, Jesús (the elder), Jesús (the
younger), Sonsoles (the younger), and Santiago
Society as a Creativity Process
Javier Aranzadi
In the explanation of the economic phenomenon as action, the concept of

entrepreneurship is not limited to a certain group of persons. It acquires
the character of the function that every person makes, when acting. The
field of application of pure entrepreneurship is the totality of reality that
surrounds human being. Anything that arouses the attention of the person
can be converted into a suggestive possibility and become an attractive
project. This human capacity is the element that makes it possible to con-
centrate on a fundamental social aspect: the social interrelations that fash-
ion society. Thus, if we concentrate on the action we can define society,
following Jesús Huerta de Soto as:
A process (that is to say, a dynamic structure) of a spontaneous sort, that is

to say, not consciously designed by anybody; it is very complex as it is made
up of thousands of millions of people, of objectives, likes, valuations and
practical knowledge; of human interactions, (which are basically relations of
exchange and which on many occasions take the form of monetary prices)
and are always brought about, in accordance with some norms, habits, or
J. Aranzadi (*)
Universidad Autónoma de Madrid, Madrid, Spain
e-mail: Javier.aranzadi@uam.es

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_2
18 J. ARANZADI
patterns of conduct, all of these being moved by the force of the entrepreneur-
ial function, which constantly creates, discovers, and transmits information,
adapting and coordinating competitively the contradictory plans of the indi-
viduals. (Huerta de Soto, 1992: 84)
Seizing on such a rich definition we can tease out the following points:
1. If we concentrate on society as a process, we confront the problem of

the transmission of information. We will pose the problem of knowl-
edge that every society must resolve for its correct functioning. If we
start from individual action, we find that each member has at his dis-
position exclusive and scattered information, which refers us to the
role played by culture in the triad society-culture-individual action.
This widespread information, which is transmitted culturally, allows us
to understand culture as the enormous precipitate of possibilities of
action that past generations pass on to the future generations. We will
deal this problem in a later section, “Private and Dispersed Knowledge”.
2. As the definition indicates, the social interrelations are affected in
accordance with some norms or patterns of behaviour. That is to say,
the coordination of the expectations of thousands of people is only
possible within a standardized institutional framework, that is, the
relation that exists between an individual’s action and each person’s
value judgements. We can establish this relation on two levels: on a
general level, we can propose the study of ethics as part of a system
of philosophical anthropology (Aranzadi, 2011). However, this pro-
posal goes beyond the limits of this study, in which we concentrate
on a more concrete relation: this is the importance of moral norms
for the functioning of the market. It concentrates on the fundamen-
tal problem that every social-cultural framework has to resolve: how
to permit the development of the persons who live in it. In the sec-
tion entitled “Tacit Knowledge” we will deal with the broader prob-
lem of society: coordination among people.
Information
The characteristics of information
Information that is managed in the project has its own series of particu-
lar characteristics: the information is practical, private, tacit and
transmissible:1
1
The scheme, which I use for analysing, is based on Huerta de Soto (1992, Chap. 2).
SOCIETY AS A CREATIVITY PROCESS 19
Subjective Knowledge of a Practical, Non-scientific Type

This is the type of information that the person acquires through practice.
In Hayek’s words: “there exists a body of very important but unorganized
knowledge which cannot possibly be called scientific in the sense of knowl-
edge of general rules: the knowledge of the particular circumstances of
time and place” (Hayek, 1937: 80). The important knowledge for the
human agent is not, therefore, the objective and atemporal knowledge
that is formulated in physical laws. This body of knowledge, that we call
scientific, can provide us with very little when it comes to our desires and
our volitions. To act we will have to base ourselves on the particular per-
ceptions concerned with concrete human valuations, both as regards the
ends that the person wants to attain, and her knowledge about the ends
that she believes the other people want to attain.
Private and Dispersed Knowledge

Every person who acts does so in a personal way, as she tries to obtain
some ends in accordance with a view and a knowledge of the world that
only she knows in all its wealth and with its variety of nuances. Therefore,
the knowledge to which we are referring is not something that is given,
that can be found at the disposition of everybody on an equal basis. This
knowledge is a precipitate that the person has in her memory. All past
events are kept in her memory as recollections. Mises makes a brief refer-
ence to memory in Human Action. He considers that memory is “a phe-
nomenon of consciousness and as such conditioned by a priori logic”
(Mises, 1996: 35). This reference directs us to the true importance of
memory in the theory of action.
Memory is a dynamic system. It constitutes the personal and untrans-
ferable access to reality. All the information is managed from the memory.
All knowledge of access to reality depends on the meaning that the mem-
ory gives to reality. Each person builds her structure of means and ends
from the information that she manages from her memory. Neither the
memory nor the world is static. Human being is a being-in-the-world. She
lives in reality made conscious. What is perceived at the moment is inte-
grated with what is remembered. These are the limits of consciousness:
the perceived and the remembered. Knowledge does not constitute a
storeroom where pieces of knowledge are piled up. Memory is active; it
offers the ways of approaching reality. In short, to remember is to carry
20 J. ARANZADI
out the act that places a piece of information in a conscious state.

Remembering a piece of information settled in the memory brings its
sense up to date. In the action, the past sense of the information is ques-
tioned: it is interrogated to see if it really has sense in the here and now of
the activity. Memory is creative, not only because it is a dynamic system
but because it is handled within a project and manages the possibility.
Tacit Knowledge
Saying that information is tacit is stressing its dynamic character.
Information appears in the memory in integrated blocks, which assimilate
reality. The assimilation is produced by selection from among an enor-
mous amount of information. Here we are facing a ticklish problem, why
do we consider a thing attractive? How can we perceive of something that
does not exist yet? Tacit knowledge functions like a gigantic anticipatory
system. Even the most highly formalized scientific knowledge is always the
result of an intuition or an act of creation, which is none other than mani-
festations of tacit knowledge. The basis of all scientific research is surprise.
Surprise as defined by J. A. Marina, “is the feeling produced by the inad-
equacy of what is perceived with what is expected” (Marina, 1993: 144).
J. A. Marina cites the work of A. C. S. Peirce, a researcher intrigued by the
singular instinct for guessing that human being possesses. The number of
hypotheses that can be managed in a scientific study is infinite. It is unheard
of how absolutely correct hypotheses are chosen. This author is forced to
admit the existence of a type of instinct, which puts a limit on the number
of admissible hypotheses, and this instinct is manifested as a feeling.2
Each person’s tacit and private information depends on her experience.
However perfect our theoretical knowledge is, the perfection necessary to
learn to do a job successfully occupies a lot of our time. Not only is this
theoretical training necessary for us but also what is of incalculable value is
the knowledge that we obtain about the other people’s way of life, the
particularities of each region and of all those circumstances that Hayek
calls “knowledge of space and time”.
2
On this particular subject Professor Huerta de Soto adds: “this same idea was expounded
quite a few years ago, by Gregorio Marañón: he told of a private conversation he had with
Bergson, a short time before his death, when the French thinker confessed the following: ‘I
am sure that the great discoveries of Cajal were no more than objective verifications of the
facts that he had foreseen in his brain, as true realities’” (Huerta de Soto, 1992: note
26, p. 59).
Transmissible Knowledge
Although it is tacit, information is also communicable. It is communicated
by means of social interrelations (cf. Huerta de Soto, 1992: 60). I will fol-
low Aranzadi (2006, Chap. 4) solution to “knowledge problems” posed
by I. Kirzner (1992: 179; 2000: 264–265) to extend the scope of applica-
tion of entrepreneurship to all reality. We are going to take another brief
look at the solution I proposed because it is intimately connected with the
form of transmitting the practical, private and tacit information, which
constitutes the temporal structure of the project. “Knowledge problem A”
proposed the stability of the social institutions and the “B” proposed the
way of guaranteeing the results of entrepreneurship for each person. These
problems are proposed in the following manner: every action starts from
a socio-cultural framework (problem A). But in its turn, every socio-
cultural framework is transformed by individual actions (problem B). The
solution I offered was based on demonstrating the very close connection
that exists between both problems: an institutional framework is necessary
(to solve problem “A”) so that entrepreneurship can be exercised (to solve
problem “B”). But the reverse is also true: that entrepreneurship can be
exercised (to solve problem “B”) and it institutionalizes the people’s
expectations (to solve problem “A”). We concluded by stating in Chap. 4
(Aranzadi, 2006) that in Kirzner’s terminology, the solution to knowledge
problem “A” demanded the previous solution to the problem “B”.
We are going to pose both problems again, focusing on the informa-
tion: if we start from problem “A” that is to say, from the stabilization of
the social institutions, we recognize that through culture each person
receives the tradition of her society. What are received are the possibilities
of life that have served in the past and that the preceding generations hand
down to their descendants. These ways of life are a precipitate of responses
that society offers to the new generations. We recognize that this accumu-
lation of knowledge, which constitutes “knowledge problem A”, is practi-
cal, private and tacit information that is passed on. Through this process
of social interrelations, the person receives information about norms, hab-
its and behaviour, which are summaries of the responses used in the past
for resolving daily problems. All this knowledge, which the person receives
in the course of her mutual relations, settles in her memory.
However, we have already seen that remembering is updating the sense
that the received information possesses. Each person wonders if this infor-
mation is useful to her, here and now for undertaking her projects. This
22 J. ARANZADI
situation poses the problem of “knowledge B” for us. We face the problem
of guaranteeing the results of entrepreneurship for each person, since the
acceptance of the information transmitted depends on the receiver. This
information has to make its sense relevant to the present time and to really
be a possibility of present action. If the person with this information can
alter her initial situation and attain her ends, she will do so; if not, she will
modify it or reject it. Therefore, the institutions and norms are maintained
while they guarantee the creative capacity of the members of society.
We observe that the informative structure of the project has an opera-
tive structure in two dimensions: in the first dimension, the information
possesses a had sense. That is, in a past time it made an action possible. It
corresponds to “knowledge problem A”, constituted by the precipitate of
norms, habits and behaviour that each person receives through tradition.
In the second dimension, all information has to have a projective sense, that
is to say, it really has to make an action possible. This knowledge is the
material which develops entrepreneurship, and which constitutes “knowl-
edge problem B”.
The two dimensions are no more than the reformulation of “knowl-
edge problems A” and “B”, from the point of view of the dynamic struc-
ture of the information. In reality, there only exists one problem: the social
coordination of individuals who act with practical, private, tacit and com-
municable information. Taking this view, the problem “A”, which formu-
lates the stability of the institutions, is posed in terms of the past sense that
these same institutions represent and the problem “B”, which formulates
personal creativity, posed in terms of the projective sense that all practical
and private information has to have in the present moment of the action.
Society
In this section we are going to concentrate on a subject that concerns the
activity of the entrepreneurial function: an institutional and cultural
framework will be more efficient, the more individual possibilities of action
are generated. That is to say, Hayek’s problem of knowledge allows us to
venture a criterion of social coordination in accordance with the possibili-
ties of action (cf. Huerta de Soto, 2004). Let us introduce the definition
of coordination provided by Professor I. Kirzner: “we use the word coor-
dination to refer to the process in the course of which a state of discoordi-
natedness gradually comes to be replaced by successive states of greater
and greater degrees of coordinatedness” (Kirzner, 2000: 141).
The first aspect of this criterion is that it is dynamic. The coordination

lies in the process of social interaction that progressively eliminates ineffi-
cient situations. So, a social and cultural situation will be more efficient, if
it increases the possibilities of individual actions. That is, a situation will
more efficient when a person’s expectations of action increase. And vice
versa, a social and cultural situation will be more inefficient if the possibili-
ties of action that are permitted to the individual are more limited. If we
are referring to knowledge problem “A”, we can say that we have at our
disposal a criterion for the evaluation of social institutions and different
cultures. However, we can turn this criterion around and state that indi-
vidual action will be more efficient, the greater the degree of social coor-
dination that is generated. So, if we only state the first part and we remain
with the increment in the personal possibilities, then we could understand
that a society is more coordinated, the greater the freedom of action that
we have. Thus, we could reach the paradoxical situation of stating that a
society is more coordinated, the greater the number of murderers, drunks,
thieves and so on there are. Something that nobody accepts. This first
formulation of the criterion proposes an element that is necessary but is
not sufficient. This first aspect sends us back to knowledge problem “A”
and proposes the valuation of the institutional order. But throughout this
chapter we have demonstrated that this first problem demands the solu-
tion to knowledge problem “B”. That is, the institutional order is main-
tained by individual actions, which pose the second problem. Therefore, it
is necessary to complete the criterion of coordination from the viewpoint
of the individual and social institutions and culture: individual action will
be more efficient, the greater the degree of social coordination it generates. So,
we can state that all the types of behaviour that we normally consider anti-
social or prejudicial like robbery, murder, fraud or drug addiction are inef-
ficient because it is impossible for a society to function with them. As with
such behaviour, it is impossible to resolve knowledge problem “B” and as
a result there is no institutional order, that is, it does not resolve the prob-
lem “A” either.
A first conclusion to this section is that this criterion of coordination is
systemic. Given that we have developed the relations between individual
action, institutions and culture, the criterion admits three formulations.
Each one of them refers to the contribution of each element to the system.
So, as Csikszentmihalyi (1996) points out, when speaking of creativity,
one should adopt a systemic vision. Instead of asking ourselves about iso-
lated individual creativity, one should ask about the way to stimulate
24 J. ARANZADI
creativity in individual action, in culture and in social institutions. We can

formulate the criterion by referring to each one of these elements. (1)
Respecting the social institutions, the criterion is: the social institutions will
be more efficient, the more possibilities of action they permit the individual to
have. (2) Respecting culture: the mechanisms of cultural transmission will
be more efficient, the more possibilities of action they foment. (3) Regarding
individual action: the action will be more efficient, the greater its contribu-
tion to the institutions and culture. If we bear in mind, that each separation
is analytical and that the only existing reality is human being in action, we
can summarize the three criteria in one: the coordination improves if the
process of the creation of individual possibilities of action, that is carried out
in the social institutions and culturally transmitted, is extended.
Secondly, this systemic criterion enables us to deal with a frequent criti-
cism. Normally, the criticism is that the results of an institution and a
culture are only admissible from within these institutional and cultural
prerequisites (Kirzner, 2000: 138–139). So, for example, the functioning
of the market is accepted, provided that we accept as valid private property
as an institutional prerequisite. If we reject private property on moral
grounds, the market result is unacceptable and it is necessary to consider
that its supposed efficiency is false, and above all, unjust. Is this objection
valid? From the point of view of the dynamic and systemic criteria that we
have expounded, it is objectionable, since the institutional prerequisites
are an essential part of the individual action. The institutions and the cul-
ture are not facts external to the action and therefore they are susceptible
to valuation. Clearly some institutions and cultures are superior to others.
The only irreducible fact that is axiomatic is the action as a primary reality
(cf. Hoppe, 1993). This primary reality is human action that consists of
the intentional pursuit of certain beneficial ends with scarce resources. In
this way, it is understood that all of Mises’ criticism of socialism does not
only lie in its impossibility because without prices a cost-benefit calculation
is impossible and the only thing that is generated is productive chaos. This
criticism is extended with the criterion of coordination, which we have
expounded, and one can state that socialism is inefficient because it limits
people’s possibilities of action. And further, in this system, as people can-
not freely exercise their creativity, owing to the state legislation, they can-
not generate more open institutions.3
3
By open institution, we understand that institution that is a fundamental part of the open
society as defined by Popper (1950).
Therefore, the criterion of efficiency based on human action is perfectly

valid for institutional evaluation (Koslowski, 1982). Obviously, when we
are dealing with human action, value judgements are involved.4 But this
criterion of coordination based on the primary reality of human action is
independent of moral judgements (Kirzner, 2000: 136). To put it in other
words, it is prior to a moral judgement. This judgement will come as a
result of a historical evaluation of a given society and culture. Although
this historical evaluation allows us to make value judgements about the
suitability of social institutions for human development. This criterion
allows us, as Professor Kirzner says: “a possible norm of coordination in
the sense of the ability to detect and to move towards correcting situations
in which activities have until now been discoordinated” (Kirzner, 2000:
190). If this is true, we have the analytical elements at our disposal for
making an evaluation of social institutions.
Conclusion
These considerations make it possible to differentiate three aspects of
social reality. Professor J. Huerta de Soto (1994) has made a scheme inte-
grating the three levels of study of social reality: 1st level: interpretation of
the results of the evolution; 2nd level: formal theory of the social process;
3rd level: formal ethical theory. Within the Austrian School, there are
often misunderstandings because a person does not specify on what level
he is developing the analysis: historical studies are mixed with theories
about action with ethical theories. The three levels are related because
reality, the object of study, is the union of the three: the person acts in a
determined historical context, which provides herself with an ethical
model of evaluation.
In the perspective of human praxis, it is not possible to separate ends
and means. An end can only acquire form and becomes effective on the
horizon of a particular means, so any political morality must take a view on
specifically political questions relating to the institutional, legal and eco-
nomic requirements that are necessary in each particular historical situa-
tion. We need to achieve a balance between formal theory of the social
process of the individual action (level 2) and an ethics of institutions that
4
For Mises praxeology deals with human action in a value-free manner. He defended a
formal theory of human action. But this position is only possible from his utilitarian position.
For a critique of Mises´ utilitarian position see Aranzadi (2006, Chap. 5).
26 J. ARANZADI
also deals with the means leading to the institutional realization of those
ends (level 3: formal ethical level) (Aranzadi, 2018).
True political ethics cannot be only an ethics of individuals (knowledge
problem “B”), it must also be an ethics of institutions (knowledge prob-
lem “A”). For despite all the reservations that one may have, this is the
essence of modern political philosophy from Hobbes to Rawls, via Kant.
We need to achieve a balance between an ethics of individuals and an eth-
ics of institutions that supersedes moralizing fundamentalism confined to
individual ends (knowledge problem “B”), and that also deals with the
means leading to the institutional realization of those ends: the common
good (knowledge problem “A”).
References
Aranzadi, J. (2006). Liberalism Against Liberalism. Routledge.
Aranzadi, J. (2011). The Possibilities of the Acting Person Within an Institutional
Framework: Goods, Norms and Virtues. Journal of Business Ethics,
99(1), 87–100.
Aranzadi, J. (2018). Human Action, Economics and Ethics. Springer.
Csikszentmihalyi, M. (1996). Creativity, Flow and the Psychology of Discovery and
Invention. Harper Collins Publishers.
Hayek, F. A. (1937). Economics and Knowledge. Economica: New Series, 4, 33–54;
reprinted in Individualism and Economic Order (1976a), London: Routledge
and Kegan Paul.
Hoppe, H. H. (1993). The Economics and Ethics of Private Property. Kluwer
Academic Publishers.
Huerta de Soto, J. (1992). Socialismo, Cálculo Económico y Función Empresarial.
Unión Editorial.
Huerta de Soto, J. (1994). Estudios de Economía Política. Unión Editorial.
Huerta de Soto, J. (2004). La teoría de la eficiencia dinámica. Procesos de Mercado,
1(1), 11–73.
Kirzner, I. (1992). The Meaning of Market Process. Routledge.
Kirzner, I. (2000). The Driving Force of the market. Routledge.
Koslowski, P. (1982). Ethik des Kapitalismus. J. C. B. Mohr (Paul Siebeck) Verlag.
Marina, J. A. (1993). Teoría de la Inteligencia Creadora. Editorial Anagrama.
Mises, L. v. (1996). In B. B. Greaves (Ed.), Human Action: A Treatise on Economics
(4th revised ed.). Foundation for Economic Education.
Popper, K. R. (1950). The Open Society and Its Enemies, 2 vols. Princeton
University Press.
Nation, Secession, and Freedom
Miguel Anxo Bastos Boubeta
The debate on the nation question is a constant of many theorists of the

Austrian School in the twentieth century. Mises, for example, devoted a
monograph to this topic (Mises, 1983) and dealt with it in detail in two
other works (Mises, 2005, 2011); Rothbard (1994) and Hoppe (1996),
for their part, also wrote on this subject and it is rare to find a contempo-
rary Austrian who has not written an essay on this topic, including the
author honored in this book (Huerta de Soto, 1994). However, almost no
I would like to pay tribute to Professor Huerta de Soto. I still remember the day
I met him at the University of Vigo where he was invited to lecture on money
and the Austrian School. While speaking he was interrupted by the sound of a
mechanical hammer. Quickly, the professor approached the worker who was
making the noise, opened his wallet, and offered him a sum of money to
interrupt the work for the duration of his lecture. I don’t know how much he
offered, but he achieved his goal. I would like to thank Bernardo Ferrero for his
assistance with the translation of this chapter.
M. A. Bastos Boubeta (*)

Universidade de Santiago de Compostela, Santiago de Compostela, Spain
e-mail: miguelanxo.bastos@usc.es

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_3
28 M. A. BASTOS BOUBETA
academic history of the Austrian School makes reference to this topic, and
it is rarely taken into account when describing the principles that define
this school of thought. In our environment, in fact, the Austrians are seen
as ultraliberals in economic matters, who yet uncritically embrace the con-
ventional views of the right, in our case, the Spanish right. Spanish unity,
anti-secessionism, Europeanism, and membership of international military
organizations such as NATO have become part of the imaginary of the
good Hispanic Austrian. That is why I believe it is necessary to clarify,
from an Austrian perspective, some aspects related to nationhood and
secession, precisely because this is not a marginal aspect but a central one
to the school itself and highlight the service that both can render to the
cause of a free society.
First of all, as is well known, Austrians, although they defend method-
ological individualism and therefore deny the ontological existence of states
and nations, do not exclude that individuals act within a given cultural and
geographical framework. The individual always acts within a given ethno-
cultural, religious, or linguistic framework, that is, he does not operate in
an existential vacuum but always operates in some kind of national frame-
work from which he cannot abstract himself. Authors such as Hayek have
been aware of this and although nations were not among his spheres of
interest, he modulated his methodological individualism in such a way as to
reject an atomistic view of the individual, incorporating assumptions of
belonging and social integration of the human actor (Burczak, 2006).
There is no such thing as an individual in the abstract and we are all, in one
way or another, first of all embedded in some language of family transmis-
sion, in a community of ethical and aesthetic values, in a certain form of
sociability or even in a set of gastronomic or recreational references. You
don’t eat the same food everywhere, nor are the games and amusements
exactly the same wherever one goes. Even those who call themselves cos-
mopolitans and deny nationalism and the nationality principle all together
are embedded in their own way of life and customs, namely the way of life
of those who share this internationalist lifestyle and perspective. They too
have their rites, customs, languages, and forms of sociability that are as
much their own as those of any national member of a conventional terri-
tory, with the only difference that they call themselves something else.
Secondly, nationalism, like religion, can be a very functional factor of
social integration when it comes to allowing a society to operate without
a state or with a very small one, as both favor the creation of a framework
of shared values that softens the coexistence between people (Malesevic,
NATION, SECESSION, AND FREEDOM 29
2020). In the absence of a state, the community of nations can also serve
to create the mental framework on which to design the production of
goods and services, for example, infrastructures or services to meet the
needs of the weakest. Presumably, for instance, trade or transport flows
would be designed by taking into account that human interactions are
much more fluid and constant between people who share the same lan-
guage, culture, or religion than between complete strangers and this
would likely be reflected in the location and sizing of roads, shopping
centers, places of worship or pilgrimage, or means of communication, to
give just a few examples. Not only that, the sharing of common or deep-
rooted cultural values, moreover, is a crucial factor when it comes to estab-
lishing principles of mutual trust between people and facilitating exchanges.
One of the main problems that a foreigner encounters in any place he
travels to is that the people he or she deals with tend to distrust him or her
more than their fellow nationals. Lacking basic common references, credit,
or trust when it comes to renting or contracting is much greater, as there
is a lack of basic, or as Hayek would say, tacit information, about their pos-
sible future behavior. For many people, a person with whom they share a
nationality, however you want to define it, can give them greater confi-
dence by assuming that they have common roots or at least realizing that
a breach of a contract will be more costly than for a foreigner. Nationality
gives us some information, albeit very imperfect if you like and very unfair,
but it does give us some, as the Nobel Prize winner Herbert Simon
(Simon, 1997) has rightly pointed out with regard to this type of preju-
dice. Substitutes for this kind of tacit information are probably much more
costly and invasive of individual freedom than nationalist prejudice, as they
would force states and organizations to collect a huge amount of data and,
above all, display it every time an interaction and exchange takes place.
The third reason why the nation is functional for a free economic and
political order is that, strange as it may seem, it can, firstly in the field of
international politics, prevent the emergence of a world government and
curb as far as possible the imperialist aspirations of the great powers
(Hazony, 2018) as well as limit the power of a particular government in
the domestic sphere. This requires some explanation as it is true that great
wars have been fought in the name of the nation, especially in Europe,
with tens of millions of deaths in the twentieth century alone. The nation,
like religion, can be both a check and a spur to political power. They rein-
force political power when they ally themselves with it and legitimize it,
and limit it at the same time by establishing barriers over which the state
cannot act without losing that legitimization. A nationalist state cannot

attack its own nation or its deepest symbols, beliefs, and values without
delegitimizing itself, and hence its aggression tends to focus on other
nations or on colonized territories but not on its own. But imperialism
and war are not the heritage of nationalism, as has been known since
ancient times. It is true that nationalism is associated with the First World
War and its terrible slaughter, but it is no less associated with the way war
is conceived, massified, and mechanized, than with the very idea of nation-
hood. The proof is that national conflicts are often resolved in bloodless
battles in football stadiums or Eurovision music contests rather than on
the battlefield (Billig, 1995). So it is not nationalism per se that must be
blamed (for this sentiment is still very much present in many places) but
the way in which conflict between nations is expressed, which may or may
not exist. Let us also remember that wars as cruel or even more cruel than
the First World War have been fought in the name of the struggle for the
triumph of one economic system or another, or to establish a particular
racial order that goes beyond the very concept of nationhood. And many
of these wars and massacres were against the people themselves, as hap-
pened in national-socialist Germany, the People’s Republic of China or
the Soviet Union, by establishing internal enemies within the state itself
and trying to eliminate them. In the heyday of nationalism in the late
nineteenth and early twentieth centuries none of this could have happened
in the West precisely because of the limits set by the very idea of nation-
hood prevalent in the West. I say in the West because theorists such as
Hans Kohn (Kohn, 1944), writing in the 1940s, have drawn a dividing
line between the more civic Western European types of nationalisms and
the more ethnic or exclusionary Eastern European nationalisms. It is in
this context that we can explain ethnic massacres such as that of the
Armenians or the Greeks by the Turks, who carried them out within the
framework of the caliphate in a context that was still pre-national, since the
apogee of Turkish nationalism came with the rise to power of Kemal
Ataturk. But here we encounter the second type of resistance that nation-
alism offers to state power, which occurs when one or more national reali-
ties other than the official ones coexist in the same state. In this case, the
government of the dominant nation, which may or may not be the major-
ity nation, faces a serious problem of legibility and lack of legitimacy
among the members of the dominated nation or nations (Scott, 1998).
The self-consciousness that these may have on the one hand makes the
state’s task of domination more difficult, as it cannot easily access the
information necessary to exercise control, this being totally or partially

opaque, and secondly, because national sentiment can serve as a kind of
cement that cohesively binds resistance to the exercise of power. Hence,
many dominant states seek to weaken this national sentiment through a
variety of strategies including the use of compulsory education, by chang-
ing demographic dynamics or through the self-serving use of the official,
mainstream media. In the most extreme cases it may use forceful measures
to reduce national sentiment, for instance through repression or even mass
deportations. But these mechanisms only reinforce the idea that states fear
the role of nationalism as a source of resistance to power and seek to stamp
it out, either by assimilating them into official national sentiment or by
repressing them. In these cases, there is also room for strategies of civil
resistance on the part of the nation that sees its rights undermined, which
in turn reinforces the strategy of resistance to state power, as was the case
of the Irish nationalists in their struggle against British rule, who used a
wide repertoire of actions from religious worship, to dance, to the cultiva-
tion of their own literature and art. All these actions helped to reinforce
national identity and cohesion and further strengthened resistance. The
most far-reaching of the whole catalog of actions is undoubtedly the initia-
tion of a process of secession from the state in which the dissatisfied
nationality is part of. Secession is also a subject dear to many authors of the
Austrian or related schools (Jacobs, 1980) who, as we have already pointed
out, have discussed it in depth. In this text we argue that this strategy is
also functional in establishing a political order with the least possible
degree of domination (Pavcovik, 2004).
The Function of Secession in a Free Society

The right of secession implies the peaceful possibility of seceding a portion
of the territory of an existing state and creating a new one or joining an
existing one (Pavkovic & Radan, 2007). This right would be exercised at
the request of a party and would obviously involve reparation of costs to
the other party and payment of debts that have been jointly incurred. It
differs from the right of self-determination in that the latter, except in the
case of self-determination involving secession, must be negotiated with
the legitimate representatives of the original state, as the latter may not
wish to alter its form of state to satisfy the claims of the collective making
such a demand. In other words, it does not have to accept a federal or
confederal state or even a recentralization if the initiator of the process so
wishes. In this case, the only option would be to secede or to remain in the
current state.
The initiation of a process of secession does not necessarily have to be
due to some sort of claim of national grievances or an unjustified aggres-
sion against the freedoms of a people. It can be claimed simply for oppor-
tunistic reasons derived, for example, from the exploitation of some natural
resource or simple fiscal convenience. In any case the collective claim itself
necessarily implies the existence of a self-conscious collective in the sense
that it is shared for many persons. That is, an ethnically or symbolically
strong nation is not necessary for the project to be legitimate; the claim of
some self-conscious collective would suffice. Nations are a concrete form
of self-consciousness based usually, but not always, on some kind of objec-
tive feature such as language or religion, but they can be based on many
other features, including economic interest, which of course must be asso-
ciated with some group.
The right of secession is one of the most contested between liberals and
libertarians (Beran, 1984). Critics tend to start from a sort of Occam’s
razor applied to politics, which would insist on the non-proliferation of
state entities, preferring supra-state unification or even a sort of world
government, thus eliminating barriers to the market and potential con-
flicts. Advocates of law, on the other hand, stress the salutary effects of
competition between states, in analogy to economic competition, which
would lead to a greater degree of freedom in both economic and political
relations. The example, recounted by Eric Jones (2003) or more recently
by Walter Scheidel (2019), of the European political fragmentation that
resulted from the decomposition of the Roman Empire and which subse-
quently became one of the main causes of European development and
economic prosperity, could be a very good and pertinent case study illus-
trating the benefits of political secession and fragmentation. Not only did
the latter facilitate competition within Europe but, as Eric Jones has
pointed out, cultural or economic innovation did not and could not be
stifled throughout the European continent by a single ruler, as occurred
for instance in centralized China.
Using an analogy drawn from Austrian monopoly theory, we might
assert along these lines that just as the very possibility, even if not exer-
cised, of competition limits the scope of monopoly, the very threat of
secession can be enormously functional in limiting the power of states, as
dominant nations are likely to moderate their behavior in the face of the
possibility that the dissatisfied nation might decide to leave the union.
Moreover, without even raising it, the recognition of this right operates in
the same direction. Theorists of anarchism or the minimal state have elab-
orated numerous constitutional schemes and political programs that could
facilitate its implementation. Normally they use positive designs, that is,
they seek to establish some prior scheme of how such a society should be
ordered. I understand that perhaps it might be more pertinent to use a
negative principle when trying to establish what the evolution toward a
stateless society might be. That is, it would derive from recurring seces-
sions (Bartkus, 2004) until they stop, that is, because they are satisfied
with the resulting political unity. A stateless or at least a limited state soci-
ety could simply result from the recognition of the right of secession, as
either the political community would fragment to the extent that the
resulting units are either voluntary or consensual (Rothbard, 1994) or are
so limited in scope that they dissuade the constituent groups or nations
from wanting to further secede.
Conclusion
In this brief chapter, we wanted to make three main points in relation to
some issues which are dear to the Austrian School, namely nationalism and
secession. The first is that nationalism has nothing in its essence that is
incompatible with a free social order (Archard, 1995). Although in the
past nationalism was seen as an idea sympathetic to classical liberal ideals
(Lichtenberg, 1999; Yack, 1995; Lind, 1994; Tamir, 1993) nowadays the
opinions of authors such as Minogue (1967), Popper (1971), or Álvarez
Junco (2016) seem to weigh more heavily in this world, seeing and depict-
ing nationalism as a kind of return to tribal values or as an exacerbation of
identity. For this reason, both nationalism and secession tend not to be
approved by many modern liberals (Maiz, 2000). Nevertheless, national-
ism can prove to be a useful contributor both to modernization (Gellner,
1983; Llobera, 1996; Smith, 2010) and to the economic development of
countries, as Professor Liah Greenfeld has rightly pointed out (Greenfeld,
1992, 2001), insofar as it favors social cohesion (Miller, 1995) and pro-
vides the latter with a very effective mobilizing factor (Gat & Yakobson,
2013). Moreover, it also strengthens the limitation of political power, by
establishing moral and political limits to the exercise of power itself.
Something similar can be said with regard to the right of secession,
much demonized even among so-called liberals. This, despite the fact that
it can easily constitute firstly a brake on the despotic power of the state and
secondly a path not explored at present, yet explored in the past in very
similar forms such as nullification (Woods, 2010), toward a freer society.
Freedom needs allies and these two figures may well help it to flourish.
Nationalism is an old idea that may well be valid for today (Armstrong,
1982; Roshwald, 2006).
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William of Ockham: An Unknown
Libertarian Philosopher
Lorenzo Bernaldo de Quirós
Among the intellectual forerunners of liberalism, special attention has

always been paid to the current represented by Aristotelian philosophy,
which, reconciled with Christian doctrine by Saint Thomas Aquinas, dom-
inated Western thought throughout most of the Middle Ages, subse-
quently witnessing a significant reformulation in the fifteenth and sixteenth
centuries, with Spain serving as the main focal point. This Aristotelian and
Aristotelian-Scholastic tradition has had considerable influence on the
ethical and political theory of numerous thinkers of the Austrian School,
ranging from Carl Menger to Murray N. Rothbard, as well as on move-
ments such as Randian objectivism. However, the work of William of
Ockham, which constitutes an uncompromising defense of the individual
and his freedom as the foundations of the social order, is little known or,
rather, has been somewhat overlooked. This is somewhat surprising, since
the English philosopher can be considered the founding father of method-
ological individualism, among other things.
L. Bernaldo de Quirós (*)

Freemarket Corporative Intelligence, Madrid, Spain
e-mail: lorenzo@freemarket-ci.es

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_4
38 L. BERNALDO DE QUIRÓS
The fourteenth century was a turbulent period in Europe. It witnessed

the ongoing battles between the Papacy and the Empire for political
supremacy in the Christian world. It also featured the Hundred Years’
War, the Great Famine (1315–1322), and the Black Death (1340–1350),
all of which devastated the Old Continent. It was during these periods,
presided over by hostilities between the kingdom of God and the kingdom
of Caesar and by a series of catastrophes, that the passionate life of William
of Ockham—a theologian, philosopher, and political polemicist belonging
to the Franciscan Order—was played out. His life story is almost that of a
hero in an adventure fiction, set in the chiaroscuro times of the Middle
Ages. In fact, his literary appeal made him the source of inspiration for the
Franciscan friar, William of Baskerville, Umberto Eco’s unforgettable
character in the novel, The Name of the Rose.
Ockham was born in the county of Surrey, although the exact date is
unknown (1280? 1285?). He was ordained as a Franciscan monk in 1306
and studied at the University of Oxford, although he never graduated. In
1323 he was called to the Papal Court of Avignon in order to account for
his writings, which, four years later, led him to face 56 charges of heresy.
This triggered the reasonable fear that he might be subjected to the ulti-
mate punishment for his philosophical opinions, which prompted him to
escape from the French city and seek the protection of Emperor Louis IV
of Bavaria, who was opposed to Pope John XXII. He was excommuni-
cated and spent the rest of his days attacking Rome’s absolutist preten-
sions. It is believed that he died in 1347 or 1349, a victim of the plague.
Ockham’s work constituted a key turning point regarding the develop-
ment of Western thought. In his writings he laid the theoretical founda-
tions of the philosophical tradition on which modern open societies rest.
It is somewhat surprising that it was a clergyman who initiated the secular
spirit in his doctrine, enshrining as it did the ideals of the dignity of all
men, their creative force, and the need to free men from the chains of
power, which prevented them from deploying their potential and pursuing
their vital goals. Although Ockham’s philosophy covers practically all
realms of knowledge, this is not the place to tackle a task of such magni-
tude. We shall only outline his philosophy in an abbreviated manner in
order to illustrate its implications for the moral and political spheres, which
effectively shape a social order defined by individualism, pluralism, and
freedom.
His position in favor of the separation of political and religious power
derives from his theory of knowledge, since the philosophical tradition
WILLIAM OF OCKHAM: AN UNKNOWN LIBERTARIAN PHILOSOPHER 39
prior to his work defended the Papacy’s hegemony over temporal power.
In contrast, the value that Ockham grants to the individual within the
Church and civil society leads to the birth of subjective right and the mod-
ern notion of individual freedom. These are the consequences of the dis-
tinction made by the Prince of Nominalism between reason and faith,
between the spiritual and human order, his affirmation of the primacy of
the individual over all ideas of a universal character, and his belief in the
insurmountable limitations of human intelligence.
Although scholars have sought to find forerunners to Ockham’s ideas,
his originality is undeniable, and his work is largely revolutionary. First of
all, he insisted on the need to separate theology from philosophy and to
purge both of all the monistic traces of Greek philosophy, in particular of
its theory of essences which states that the ultimate reality is composed
entirely of a single substance. Second, he was aware of the fragile harmony
between reason and faith, which led him to consider Saint Thomas
Aquinas’ attempts to reconcile the two to be useless and sterile. Ockham,
the Franciscan thinker, believed that the plane of rational knowledge—
clarity and logical evidence—and that of theology—the certainty of faith-
oriented toward morality—were asymmetrical. With these two criteria of
demarcation, he questioned the bulk of Christian philosophical-theological
thought, ranging from the Patristics to Saint Thomas Aquinas. In order to
understand this point, we need to undertake a brief philosophical
excursion.
The Greeks had regarded moral law as the law of physics, the law of
nature itself. This is imposed, at the same time, on God and men, since it
does not have any divine origin. The notion of a Supreme Being who
hands down commandments was something quite alien to the central core
of Greek philosophy, whose concept of providence did not refer to every
man, not even in the case of the Stoics. This stance clashed head-on with
the biblical and Christian concept of a God who is the legislator of moral-
ity and whose message addresses the individual in particular. That is why
Ockham questioned such an approach, since he believed that the Greek
notion embedded in Christian doctrine was alien to and incompatible with
the preaching of Jesus Christ.
Ockham’s stance constituted a real challenge to the prevailing status
quo. Plato advocated the existence of certain eternal forms or ideas, dis-
tinct from God, which were models according to which He created the
world in its intelligible form. This theory had played a key role in the
philosophy of Saint Augustine and in that of almost all Christian authors,
both before and after the Bishop of Hippo, who used and adapted this
approach in their explanation of God’s creation of the world. Refined by
Saint Thomas Aquinas, this was the dominant thesis during the Middle
Ages, up until the thirteenth century. Thinkers would resort to this theory
in order to justify creationism against a contemplation of the world as the
result of a spontaneous gestation process, something similar to what would
later be defined as the Big Bang.
Within this analytical framework, moral law was not conceived as some-
thing arbitrary. The idea of Man existed in the divine mind and his cre-
ation corresponded to the universal idea that God had of him, which is to
say, of his nature. From this emanated moral law, one that even God can-
not alter. By simple logical consistency, this approach presupposes an
acceptance of some kind of realism to confirm it; that is to say, some kind
of objective point of reference that supports it. The means chosen by
Aquinas to counter the postulates of radical realism was that, although
individuals do not have the same individual nature, this does not mean
that they do not have their own human essence, this being a finite imita-
tion of the divine idea of the nature of Man.
Ockham criticized this approach with considerable audacity, developing
a voluntarist philosophy that declared the non-existence of pre-established
forms or essences that constrained God’s capacity to act. God is omnipo-
tent and the world is a contingent work of his creative freedom. Therefore,
the only link between Him and the multiplicity of finite individuals is the
one born of a pure act of His will. This leads us to view the world as a
series of individual elements, with no other link to one another apart from
their personal relationship with God. Therefore, they cannot be classified
or reduced to abstract terms, what are called nature or essence. Ockham
stated that “there is no universal nature in an individual which is distinct
from the individual.” Reality is essentially individual:
There is no universal outside the mind really existing in individual sub-

stances or in the essences of things. … The reason is that everything that is
not many things is necessarily one thing in number and consequently a sin-
gular thing. (Ockham, 1967–1988, pp. 11–12)
From this perspective, universals are terms relating to individual things

formulated or represented in verbal propositions. To affirm their existence
outside the human mind is entelechy. There is nothing real that corre-
sponds to this concept, which is a mere reaction of the intellect to similar
things or similar beings. This means that there is no such thing as a hypo-
thetical human nature and, consequently, any pretension to establish
immutable moral rules and, with them, the existence of a hierarchical and
deterministic structure of the world, must be excluded. This implies the
transformation of natural and eternal law into a theory of the rights of
individuals, linked to their moral equality and their equal freedom, in their
capacity as creatures made by God in His image and likeness. This, there-
fore, entails a complete rejection of what later came to be called method-
ological collectivism.
According to these premises, all knowledge is probabilistic and indi-
vidual. It is based on a presumption of veracity, one that is subject to the
corroboration of repeated experience. What happened in the past has a
high degree of possibility of repeating itself in the future, but this conjec-
ture can be refuted if the facts contradict it, which can only be known a
posteriori. We only know the qualities of things that experience reveals to
us, and this is, by definition, personal. Therefore, the concept of substance
represents something unknown, which is arbitrarily stated as being known.
However, there is nothing to support this alleged entity.
Furthermore, for Ockham, the articles of faith are not demonstrable,
and neither can any conclusion be drawn from them. In his Lectura
Sententiarum he writes:
They are not even probable inasmuch as they are false for everyone, for
many and, above all, for the wise, understanding by such those who entrust
themselves to reason, since wisdom is only understood in this manner in
science and philosophy. (Reale & Antiseri, 1988, p. 534)
So, the realm of revealed truths is alien to rational knowledge. Theology

is a set of propositions linked by the cohesive force of faith. Its truths are
a free gift from God and, therefore, it is not honest to clothe them with a
presumption of rationality, because they transcend the human sphere and
reveal unthinkable and unattainable perspectives for Man.
In this respect, the individual does not have the capacity to discern a
perennial moral law or to know without revelation whether the acts con-
sidered by him just and virtuous are those ordained by God. If reason
cannot conclusively prove the existence of Him, obviously neither can it
reliably prove that He has commanded one thing or another. Faced with
this situation, right reason, the rule according to which an individual is
obliged to do what he believes in good faith to be correct according to the
dictates of his conscience is the basic norm of morality and its exercise cor-
responds to men freely and personally. This sphere of autonomy must be
defended against those interpretations of right reason that endanger free-
dom, because without freedom the very notion of moral conduct becomes
incoherent. Forced morality is a contradiction in terms. The individual is,
thus, responsible for his actions, and his freedom to choose gives him the
ability to act against his strongest desires and instincts. Determinism is,
therefore, a fallacy; Man is free and responsible.
Ockham’s nominalism leads him to undertake an energetic defense of
individual rights and, specifically, of one fundamental right: that of private
ownership. This is not a conventional relationship created by a social
arrangement, but a natural one born of free human action. It is, therefore,
a natural right, willed by God, and, thus, inviolable. No one can be
stripped of their property by a temporal or religious power, because it is
fundamental; it is an essential institution for the human condition follow-
ing the Fall, one intended to ensure Man’s survival, so private ownership
can only be renounced voluntarily.
Similarly, Man’s ignorance, his limited and fallible knowledge, leads
Ockham to embark on a defense of freedom of thought and expression
that is extraordinarily modern, one formulated long before Milton’s
Aeropagitica, which is considered to be the earliest defense of freedom of
expression in Western thought. In Ockham’s view, this entailed openly
contesting Aquinas’ stance that “heretics” should be sentenced to death if
they did not rectify their pronouncements, and that, in the case of conflict
between the postulates of theology and those of philosophy, the former
should be imposed. In effect, at the beginning of his Summa Theologiae,
Aquinas maintains that when a philosophical proposition obtained by
means of reasoning contradicts an assertion of the faith, the error always
corresponds to philosophy.
…purely philosophical assertions which do not pertain to theology should

not be solemnly condemned or forbidden by anyone, because in connection
with such assertions anyone at all ought to be free to say freely what pleases
him. (Ockham, 1959, pp. I.2.22)
In this context, Ockham describes the emergence of political authority

in a manner that anticipates Hobbes, and he does so with a unique con-
ception of the state of nature and of the transition from nature to a politi-
cal order. This can be summarized in the following terms. God granted
the earth to human beings so that they could use and enjoy it by mutual
agreement and for the common good. As long as they were willing to
share earthly goods, property was not necessary. Individuals cooperated
with one another in a peaceful and voluntary manner without requiring
any supra-individual authority. This vision of a stateless social order has a
metaphorical reference: that of the Garden of Eden before man was
expelled from it. The Fall ended that happy and harmonious community
life characteristic of ideal anarchy. The irruption of sin unleashed greed
and selfishness in men, and some or many of them were willing to use
force in order to impose their will on others and violate other men’s rights.
This is the origin of law, which is designed to prevent a battle of all against
all, which also requires an institution capable of enforcing it. When men
ceased to be “angels,” government became inevitable.
When applied to the configuration of the political order, Ockham’s
nominalism leads us to consider that political units do not exist as some-
thing with real substance, with their own and independent personality
situated above the individuals that comprise them. Therefore, their func-
tion is to serve individuals. There is no such thing as a unanimous general
will, one that can satisfy individual preferences and ends, which, by defini-
tion, are not equal, but multiple and diverse. In addition, temporal power
must be limited, since it derives from God and must be bound by the rules
that guarantee civil peace and make the cooperation of individuals with
different views of life (and all pursuing their own interests) possible. This
implies that people have the right to choose and grant authority to whom-
ever they deem appropriate, and nobody is able to take that power away
from them. Thus, men grouped together in a community can, of their
own free will, establish and adopt the type of government that they con-
sider most advisable or appropriate (Ockham prefers the monarchy).
Nevertheless, if the party in power betrays their trust and abuses his
authority, they can assert their freedom and depose him. This stance con-
trasts significantly with the bulk of Medieval thought, which was charac-
terized by an organic conception of the social order and the common
good, existing as something distinct from the perception that each indi-
vidual has regarding the one and the other.
The theoretical apparatus erected by Ockham drastically weakened the
intellectual foundations that sought to legitimize attempts to use Christian
philosophy and theology to impose an authoritarian pattern of moral and
political conduct and, to a large extent, anticipated many of the treatises
published by later thinkers in this respect. In one way or another, either
consciously or unconsciously, these subsequent thinkers are all heirs to

Friar William. That is why it is important to recall his contributions to the
cause of the open society, contributions that have not always enjoyed the
esteem and consideration they deserve, even though there exists an excel-
lent vindication of Ockham by Siedentop (2015). This remembrance is
also significant in the sense that we are dealing with a religious figure
whose stature looms large within a context in which the Church cannot be
characterized as always having been a champion of tolerance, ethical plu-
ralism, and individual freedom. The fact is that Ockham was a pioneer of
liberal ideas, and it is high time we remembered and vindicated him.
References
Ockham, W. (1967–1988). In G. Gál et al. (Eds.), Opera philosophica et theologica.
The Franciscanus Institute.
Ockham, W. (1959). In M. Goldast (Ed.), Dialogous. Bottegga d´Erasmo.
Reale, G., & Antiseri, D. (1988). Historia del Pensamiento Filosófico y
Científico. Herder.
Siedentop, L. (2015). Inventing the Individual. The Origins of Western Liberalism.
Penguin Books.
Defending Absolutist Libertarianism
Walter Block
My friend Jesús Huerta de Soto has made contributions to numerous

fields in political economy, Austrian economics, banking, finance, liber-
tarianism, history, philosophy, to name just a few. I want to honor my
friend’s festschrift by contributing a chapter on one of these: libertar-
ian theory.
This is not the time or the place for a full-blown examination of this
topic. I want to confine myself to a small part of that edifice: defending it
against critics. Sometimes, the most powerful criticisms of a philosophy
come from within, not without. One example of this is Michael Huemer a
I had the honor and privilege of meeting Jesús Huerta de Soto at the conference
on Austrian economics which took place in Salamanca, Spain, October 21–24,
2009. I had of course before that read many of his splendid contributions to
Austro-libertarian theory, so meeting him in person was an added delight. A
powerful speaker, a kindly gentleman, a quick thinker, his persona fully lived up
to his magnificent written publications.
W. Block (*)
Loyola University New Orleans, New Orleans, LA, USA
e-mail: wblock@loyno.edu

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_5
46 W. BLOCK
widely respected libertarian, and properly so. He has made many and
important contributions to this philosophy of ours, but I fear I must part
company with him in his denigration of the non-aggression principle
(NAP) and what he characterizes as Absolutist Libertarianism.
I focus on his “NAPs Are for Babies” (Huemer, 2019). He begins this
chapter as follows:
Baby humans need frequent naps. Also, baby libertarians need NAPs (Non-
Aggression Principles). In libertarian lore, the Non-Aggression Principle
says something like this:
NAP: It is always wrong to initiate force against other people.
It might well be true, that this is the view of the NAP in “libertarian
lore.” But no serious attack on the NAP would content itself with a cita-
tion to “libertarian lore.” A flaw in this critique of the NAP is that he fails
to cite any real libertarian who actually supports the NAP. However, he
does somewhat rectify this serious omission in a different essay of his along
the same lines (Huemer, 2020) in which he writes:
Rights Absolutism: The view that rights (at least some rights?) are absolutely
inviolable and can never be outweighed by any costs or benefits. If you have
to choose between violating a right and letting the entire world be destroyed,
you should let the world be destroyed.
*Aside: some people may regard absolutism as built into the concept of
‘rights.’ Libertarians are especially likely to be absolutists (especially baby
libertarians). Now, since I know that someone is going to try to pretend
that there aren’t really any such crazy libertarians, I’ll give you a pair of
quotes from Ayn Rand:
Since Man has inalienable individual rights, this means that the same rights
are held, individually, by every man, by all men, at all times.
When we say that we hold individual rights to be inalienable, we must mean
just that. Inalienable means that which we may not take away, suspend,
infringe, restrict or violate—not ever, not at any time, not for any purpose
whatsoever.
Huemer cites Rand (1962, p. 93) in this regard. There are problems
here. The difficulty is that Rand was not herself a libertarian. Indeed, she
DEFENDING ABSOLUTIST LIBERTARIANISM 47
was a bitter opponent of this philosophy. She dismissed holders of this

view as “hippies of the right.” Instead of linking the non-libertarian Rand
to Huemer’s “libertarian lore” definition of the NAP (“It is always wrong
to initiate force against other people”), this author should have quoted a
real libertarian. If Huemer had done so, he would have found something
very different. For libertarianism does not at all concern itself with what is
“right” or with what is “wrong.” Rather, it is solely concerned with what
the law should be. The absolutist position he attacks is that it should
always be illegal “to initiate force against other people” not that it should
always be wrong to do so, and never should be done, no matter what, even
if the “heavens were to fall” as a result. And what happens to people who
violate libertarian law? They should be punished.1
Let us now consider Huemer’s several examples, which he uses to try
to embarrass holders of the NAP as a core libertarian principle. He suc-
ceeds quite well, it must be readily admitted, with his “libertarian lore”
definition of the NAP but fails utterly with a more accurate definition
thereof.
He offers us several versions of NAP. I will cite them and then give what
I regard as the correct libertarian analysis thereof.
NAP0 (a.k.a. “pacifism”): It is always wrong to use force against others.
That’s obviously false, and almost no one (including libertarians) believes it,
because there are cases of justified self-defense and defense of innocent third
parties involving use of force.
True, it is the rare libertarian who is a pacifist. But again Huemer mis-
states the NAP. It has nothing to do with something being “wrong” or
not. Rather, libertarianism is a theory about proper law. Its only interest,
1
In the view of Rothbard (1998, p. 88, fn. 6): “It should be evident that our theory of
proportional punishment—that people may be punished by losing their rights to the extent
that they have invaded the rights of others—is frankly a retributive theory of punishment, a
‘tooth (or two teeth) for a tooth’ theory. Retribution is in bad repute among philosophers,
who generally dismiss the concept quickly as ‘primitive’ or ‘barbaric’ and then race on to a
discussion of the two other major theories of punishment: deterrence and rehabilitation. But
simply to dismiss a concept as ‘barbaric’ can hardly suffice; after all, it is possible that in this
case, the ‘barbarians’ hit on a concept that was superior to the more modern creeds.” For
more on this see Block (2009a, b), Kinsella (1996, 1997), Olson (1979), Rothbard (1977,
1998), Whitehead and Block (2003).
48 W. BLOCK
its sole interest, is in whether or not a given action should be legal or not.
And, if illegal, then what should be the proper punishment for such an act.
“NAP1: It is wrong to use force against others, unless doing so is neces-
sary to stop someone else from using force against others.
“But in fact, almost no one, not even libertarians, believes NAP1 either.
It too is obviously false. There are many examples showing this.
“Example 1: I promise to mow Ayn Rand’s lawn in exchange for her
grading some of my papers. Rand grades the papers, with copious helpful
comments (pointing out where students are evading reality, hating the
good for being the good, etc.), but then I don’t mow the lawn. I also
refuse to do anything to make amends for my failure. Haha.
Almost everyone, including libertarians, thinks that the state can force me to
mow the lawn or otherwise make amends (e.g., pay the money value of a
mowed lawn).
Again with the “wrongness.”2

But there are other errors here. Strictly speaking, if all Huemer did was
promise lawn mowing, it would not be proper for anyone, the state or
private police, to compel him to make good on his promise.
In the entirely accurate view of Gordon (1999): “Rothbard draws the
drastic, though strictly logical, consequence that no promise as such can
be enforced. Every legally binding contract must involve a transfer of titles
between the parties at the time the contract is made.”
But, Huemer says that he offered the “promise to mow Ayn Rand’s
lawn in exchange for her grading some of my papers.” Does not this
involve a contract, not a mere promise? And, given that the latter indeed
constitutes theft when abrogated, is Huemer not correct in saying that he
can be forced “to mow the lawn or otherwise make amends”?
No. For this might be a mutual potlatch, where each party promises to
give something to the other, and one or both of them renege. This is not
a contract. If Huemer meant contract, he should have written precisely
that. He is an eminent philosopher, studiously careful with his language.
We are entitled to respond to what he actually wrote, not to what he
might have meant, nor give it an unusually sympathetic interpretation.
This man is attempting to tear down the NAP, one of the very basic
2
This applies to all examples offered by Huemer, so I will not mention it anymore.
foundations of absolutist libertarianism,3 and we are entitled to criticize

any and all of his mis-steps even if they are oversights on his part.
“Example 2: I start deliberately spreading false rumors that Walter
Block is a Nazi. This causes him to be ostracized, lose his job, and be
blacklisted by the SJW culture that is academia.”
Almost everyone, including most libertarians, agrees that Walter should be

able to sue me for defamation in court, and collect damages, coercively
enforced, of course.
Again, Huemer exhibits a lack of understanding of libertarianism.4

Libel and slander would not be illegal in such a system. Yes, they tear down
reputations. But, paradoxically, while people work hard for, and profit
from repute, they cannot own their reputations. Rather, these consist of
the thoughts of other people, and they cannot own them (Block 1976,
chap. 7; Rothbard, 1998, chap. 16).5
“Example 3: Hans-Hermann Hoppe owns a large plot of land around
his house. One day, when he emerges from his house to collect his copy of
Reason, he sees me sleeping peacefully in a corner of his lawn. Though I
haven’t hurt anyone and (being very thin and meek) pose no physical
threat to anyone, Hans is nevertheless irritated, and demands that I get off
his lawn. I just plug my ears and go back to sleep.”
Almost everyone (especially Hans) thinks that Hans can use force to expel
me from his lawn.
Yes, trespass is a violation of private property rights, which along with

the NAP are the foundations of libertarianism. The property owner is
entirely justified under proper law in removing the invader from his prem-
ises. But how this example undermines the NAP, the intention of this
author, is more than just slightly obscure.
In one sense, while Huemer is not here a threat to Hoppe, that is only
because he has already engaged in an act, trespass, that previously he could
have criminally threatened to do. But in another sense Mike is indeed a
3
The other is private property rights based on initial homesteading and subsequent volun-
tary acts such as trade, gifts, gambling.
4
Well, let me content myself by saying that his understanding of this philosophy is incom-
patible with mine.
5
For an exception see Block (2014).
50 W. BLOCK
threat to Hans. The former has demonstrated by his planting of himself on

another’s property, and, even worse, by his refusal to move along when
asked to do so, that he is a menace a dire threat. Since Huemer violates
civilized mandates in these two senses, he reveals himself as capable of
much more, and much worse. As for Hans not being “hurt,” not so fast.
Hoppe may be hurt to the core of his being since his property rights to his
land, from which he greatly benefits, has been improperly abrogated.
“Example 4: I have become seriously injured by a hit-and-run driver,
and I need to be taken to the hospital immediately. The only available car
is Murray Rothbard’s car, but Murray is not around to give permission. (I
am also not sure he would authorize saving me.)”
Almost everyone thinks it is permissible for me to break into Murray’s car

(thus initiating force against his property?) to get to the hospital.
Huemer is accurate. Indeed, “almost everyone” would agree with this

contention. Even most libertarians would, including me (Block, 2002,
2004, 2006, 2010, 2011). Where, then, do I diverge from this author on
this matter? My disagreement involves the word “permissible.” I think it
is nice, beneficial, virtuous, to override the NAP in emergency situations
such as this one. But it is not “legal.” It is still a rights violation. If Murray
Rothbard demands compensation from Michael Huemer he would have
every right to be compensated. Whereas if this bout of car theft were “per-
missible” then Murray would have no cause at law against Michael.6 In
saying this we are assuming that Rothbard has no immediate, important
use of his car. If he did, say, his wife needed to be driven to the hospital,
and there would be room for only one patient in the automobile, then
Huemer’s car theft would not even be “permissible,” let alone legal.
“Example 5: Powerful space aliens are going to bomb the Earth, killing
three billion people, unless you deliver to them one recently-plucked hair
from the head of Harry Binswanger. Harry, unfortunately, cannot be per-
suaded to part with the hair for any amount of money. (He really wants to
live up to his name, you see.)”
Almost everyone thinks it is permissible to forcibly steal the hair.
6
It is “permissible” for me to scratch my nose; no one can properly sue me for doing so.
This is the same example as the previous one; it is also an emergency,

albeit with graver consequences: the entire world will be pulverized and all
on it will die, rather than merely one man. But the same identical analysis
holds. Yes, by all means, it would be very nice if someone, a hero since he
would be violating the NAP and becoming a criminal, in order to save all
human life, did just that. But he would still be guilty of committing a
crime, and according to absolutist libertarian NAPism, would open him-
self up to punishment.7
Huemer then considers this contrary to fact conditional, in an attempt
to further undermine Rothbardian-type libertarianism: violating the NAP
is acceptable if
(vi) it is necessary to stop the poor from going without health care.
Libertarians will disagree with qualification (vi), but they don’t have a
good reason to resist it, if their libertarianism just rests on a NAP.
But this seems problematic. The NAPster has a reply in his kit bag: Yes,
it is “permissible” for someone to tax the rich in order to deliver socialized
medicine to the poor but it is still a crime to do so, and it would be justi-
fied on libertarian NAP grounds to punish anyone for engaging in such a
rights violation.
Conclusion
We libertarians of an absolutist NAP variety should be grateful to Huemer
for his criticism of our position. One important way to improve and
strengthen Rothbardianism is by contemplating such powerful well-
written critiques, and being able to respond to them. The fact that he is an
extraordinarily gifted writer when it comes to sarcasm, humor, wit, makes
this process even the more enjoyable. The people he chose to exemplify
his examples, and their reasoning, had me rolling on the floor with
laughter.
7
In Block (2009b) I offer the following similar case. The “libertarian concentration camp
guard” saves lives of inmates. He is a hero, since he saved the lives of innocent people. But
he is nevertheless a murderer.
52 W. BLOCK
References
Block, W. E. (1976). Defending the Undefendable. The Mises Institute.
Block, W. E. (2002). Radical Privatization and Other Libertarian Conundrums.
The International Journal of Politics and Ethics, 2(2), 165–175.
Block, W. E. (2004, Fall). Radical Libertarianism: Applying Libertarian Principles
to Dealing with the Unjust Government, Part I. Reason Papers, 27, 117–133.
Block, W. E. (2006, Spring). Radical Libertarianism: Applying Libertarian
Principles to Dealing with the Unjust Government, Part II. Reason Papers,
28, 85–109.
Block, W. E. (2009a). Toward a Libertarian Theory of Guilt and Punishment for
the Crime of Statism. In J. G. Hülsmann & S. Kinsella (Eds.), Property, Freedom
and Society: Essays in Honor of Hans-Hermann Hoppe (pp. 137–148). Ludwig
von Mises Institute.
Block, W. E. (2009b). Libertarian Punishment Theory: Working for, and Donating
to, the State. Libertarian Papers, 1, 17.
Block, W. E. (2010). Response to Jakobsson on Human Body Shields. Libertarian
Papers, 2, 1.
Block, W. E. (2011). The Human Body Shield. Journal of Libertarian Studies,
22, 625–630.
Block, W. E. (2014, September 5). May I Sue the New York Times? A Libertarian
Analysis of Suing for Libel.
Gordon, D. (1999, Spring). Private Property’s Philosopher. Mises Review, 5(1).
Huemer, M. (2019, September 21). NAPs Are for Babies. Retrieved from https://
fakenous.net/?p=805
Huemer, M. (2020, May 2). Risk Refutes Absolutism: Some Extreme Views in
Ethics. Retrieved from https://fakenous.net/?p=1529
Kinsella, S. (1996, Spring). Punishment and Proportionality: The Estoppel
Approach. The Journal of Libertarian Studies, 12(1), 51–74.
Kinsella, S. (1997). A Libertarian Theory of Punishment and Rights. 30 Loy.
L.A. L. Rev., 607–645.
Olson, C. B. (1979, November–December). Law in Anarchy. Libertarian Forum,
XII(6), 4.
Rand, A. (1962). The Virtue of Selfishness. New American Library, Signet Books.
Rothbard, M. N. (1977). Punishment and Proportionality. In R. E. Barnett &
J. Hagel III (Eds.), Assessing the Criminal: Restitution, Retribution, and the
Legal Process (pp. 259–270). Ballinger Publishing Co.
Rothbard, M. N. (1998). The Ethics of Liberty. New York University Press.
Whitehead, R., & Block, W. E. (2003, Fall). Taking the Assets of the Criminal to
Compensate Victims of Violence: A Legal and Philosophical Approach. Wayne
State University Law School Journal of Law in Society, 5(1), 229–254.
The Political-Economic Views of Mont
Pelerin Society Members and Other
Promoters of a Free Economy in 1980
Alejandro Chafuen
For this piece in Jesús’s honor, I chose to offer a candid overview of the free-
market camp as I saw reflected in 1980 when I attended my first Mont Pelerin
Society meeting. It was then that I started learning about Jesús Huerta de Soto;
both of us are now longtime MPS members. At that time we were both still in
our twenties; he became a member in 1982 after the Berlin MPS meeting and I
became a member in 1980. I never saw Jesús hesitate to say what he believed,
even in front of hostile audiences. I saw many eyes roll when he presented a
paper (Huerta de Soto, 2012) at the 2012 MPS meeting in Prague. He argued
that if it had not been for the euro, monetary policy in many EU member
countries would have been even more expansionary. Although not as good as the
gold standard, the euro deserved to survive. At the time, many MPS members
had significant doubts about the future of the euro. It will soon be ten years
since that paper by Huerta de Soto, the euro is still with us, and I have not read
any convincing article refuting his analysis.
A. Chafuen (*)
Acton Institute, Grand Rapids, MI, USA
e-mail: achafuen@acton.org

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_6
54 A. CHAFUEN
I attended my first meeting of the Mont Pelerin Society (MPS) at the

Hoover Institution at Stanford University from September 7 to September
12, 1980. I spent my 26th birthday during those days. I still clearly
remember much of what happened at the event. Providentially, the last
MPS meeting I attended in person was also at the Hoover Institution in
early 2020. During these past four decades the MPS has seen many
changes, but it has not changed as much as society at large.
Researchers hostile to the MPS’s goals have described the group as one
of the “masters of the universe” (Stedman Jones, 2012). Several academics
have studied the MPS’s influence in promoting liberal economic policy,
but this short chapter has a different goal. Rather than trying to show the
importance of the MPS as a whole or of its members, I will try to show the
discussions that were had at the time of my first meeting, so readers can
find differences and similarities compared to the issues we encounter today.
To analyze these changes, I will use the framework that I usually use to
try to understand what is going on in the political-economic environment:
I will pay attention to ideas, incentives at play, leadership, and providence
or luck.
Those who work with ideas have a natural bias and incentive to argue
that ideas rule the world. In his introduction to one of the editions of
J.B. Bury’s Idea of Progress (Bury, 1932), Charles Beard, the noted
University of Columbia historian, wrote that “the world is largely ruled by
theories, true and false.” Liberal economists are no different: even those
who despise the legacy of John M. Keynes frequently quote his statement
that what happens today is the result of the ideas of “defunct economists.”
As I learned from David R. Henderson’s paper for MPS 2020 (Henderson,
2020), which also aimed to analyze the 1980 scene, George Stigler
(1911–1991) was an exception. I did not attend the 1978 meeting, but
Henderson, who did, narrates that the central part of Stigler’s 1978 presi-
dential address to the Mont Pelerin Society in Hong Kong argued that
“Mont Pelerin members who thought their ideas could change the world
were mistaken because, he asserted, policymakers were already making
judgments rationally and in their own self-interest. So, for example, there
was no point in explaining to politicians that their tariffs on steel hurt
consumers more than they helped the domestic steel industry. The policy-
makers already knew that and wanted to help producers at the expense of
consumers. Therefore, there was nothing important that a believer in free-
dom could tell a politician” (Henderson, 2020, p. 9).
THE POLITICAL-ECONOMIC VIEWS OF MONT PELERIN SOCIETY MEMBERS… 55
Henderson later followed up with Stigler, asking him why he gave the
speech at all if ideas are not essential and minds cannot be changed. Stigler
did not answer.
Like Henderson, I pay considerable attention to what is taking place in
the realm of ideas. It is my field of work, and I am not immune to bias.
Human action is purposeful action, action guided by ideas. However,
ideas without action are just ideas and need someone to implement them.
That is where leadership comes in: leaders in different walks of life,
churches, clubs, businesses, politics, and the academy.
But I also pay attention to incentives. Economists sometimes describe
the main conclusion of their discipline in just two words: “incentives mat-
ter.” For me, the two central institutions that provide incentives favorable
to a free society are the family and private property. In the long run, only
cultures that respect both have flourished.
Finally, there is providence and luck. As I do not have a crystal ball, I
incorporate luck only after the fact. But apart from praying and preparing
for dangers and opportunities, there is little we can do to push luck.
With this framework in mind, I decided to once more study and reflect
on the papers presented during the first Mont Pelerin Society meeting I
attended.
The theme of that meeting was “Constraints on Government.” It had
sessions on monetary policy, spending, taxation, regulation, and denation-
alization. We also had panels on escaping governments, such as interna-
tional migration and the informal economy. On constitutional constraints,
the scheduled speakers were Milton Friedman and F.A. Hayek. The ses-
sion was planned as a discussion of chapters from their recent books.
Thomas Sowell was one of the commentators. F.A. Hayek, unfortunately,
was not able to attend, and Milton Friedman decided to speak on another
topic. But more on that later.
Although Hayek had to cancel his participation, he was going to speak
on “The Miscarriage of the Democratic Ideal: A Recapitulation,” a topic
he covered in his book Law, Legislation and Liberty (Hayek, 1973). In this
chapter, he stressed the perverse incentives that exist in many democratic
systems:
[A] Parliament or government which becomes a charitable institution

thereby becomes exposed to irresistible blackmail. And it soon ceases to be
the ‘deserts’ but becomes exclusively the ‘political necessity’ which deter-
mines which groups are to be favoured at general expense. This legalized
56 A. CHAFUEN
corruption is not the fault of the politicians, they cannot avoid it if they are
to gain positions in which they can do any good. … But if democratic gov-
ernment were really bound to what the masses agree upon there would be
little to object to. The cause of complaints is not that the government serve
an agreed opinion of the majority, but that they are bound to serve the sev-
eral interests of a conglomerate of numerous groups.
That first Mont Pelerin Society meeting started so badly for me that I
soon thought it would be my only one. The first presentation I heard was
by Yoshio Suzuki, adviser at the Bank of Japan’s Special Economic Studies
Department. The title of his paper was “Why Is the Performance of the
Japanese Economy So Much Better?” 1980
His conclusions to prevent inflationary expectations from spread-
ing were:
First, speculator inventory investments, which raise prices and induce expec-
tation of further increases to come, should be avoided by controlling the
money supply appropriately and letting the short-term interest rates rise
freely in accordance with market conditions. Second, price rises caused by
demand-pull, that is, the swelling of gross profit per unit of output, should
be avoided by pursuing appropriate monetary and fiscal policies to control
aggregate demand. Third, price rises caused by the supply restrictions based
on the coordinated actions of firms, that is, the swelling of gross profit per
unit of output, should be avoided by strict implementation of the
Anti-trust Act.
I studied economics under Dr. Hans F. Sennholz (1922–2007), a dis-

ciple of Ludwig von Mises, at Grove City College. Dr. Sennholz was also
a Mont Pelerin Society member but did not attend many meetings. As you
can imagine, government efforts to control aggregate demand, or stricter
enforcement of anti-trust laws, were not my cup of tea. They sounded
more like the failed theories I learned at my other alma mater, the Pontifical
Catholic University of Argentina, which had a preponderance of Keynesians
in its faculty.
As I knew some of the older members in attendance, I told them my
concern about the Keynesian slant of the presentation and asked a few of
them if they liked Suzuki’s paper. They said no! I then went to Milton
Friedman and, without revealing my views, asked the same question.
Milton told me that he liked Suzuki’s paper very much. I went back to the
older members and asked them if they would complain or raise questions.
They answered in the negative, with the implication that “it is for you, the
young people, to complain.” I was young, so I did. I was very active in the
Q & A. Now that I am 67, the age of those older MPS members, I seldom
ask questions in public meetings. I let the young and other independent
voices question, or complain and pretend they are asking a question.
Former Treasury Secretary William E. Simon (1927–2000) wrote a
lengthy paper (72-pages long) for that same session. The paper started by
describing the economic situation at the time: “chronic double-digit infla-
tion, rising unemployment, rapidly deteriorating output approaching
disastrous levels in several key sectors of the economy, continued massive
trade deficits, and a dollar propped up by historically high interest rates.”
I have a copy of the paper, but I do not recall if Simon presented it to
the meeting or, like Hayek, could not attend. Simon’s concerns about
corporate culture are similar to the concerns many of us have about today’s
large businesses:
Throughout the last century, the commitment of business and labor leaders
to the free enterprise system that has provided them with so many benefits
has weakened dramatically as they have discovered that they could demand—
and receive—short-range advantages from the government. Much of the
coercive regulation we now have in place has actually been invited by the
private sector to avoid the risks and penalties that exist in competitive mar-
kets … their negative role should be carefully identified and publicized
rather than simply blaming the government officials who respond to them.
(Simon, 1980, p. 71)
The Underground or Informal Economy

Continuing with another topic that was discussed at that MPS meeting,
analysis of the underground economy has seen substantial advances since
1980. One of the papers The Underground Economy was by Max Thurn
(1910–1991), the then-secretary of the MPS. In a history of the MPS,
Thurn was aptly described as “tall, aristocratic, calm, and urbane” (A
History of the Mont Pelerin Society, 1995, Hartwell, p. 159). Thurn, with
whom I had a chance to spend quality time at meetings, was married to an
Argentine from a family well known to mine. His awareness of how busi-
ness is conducted in countries with a weak rule of law conduct expanded
his practical knowledge of the impact of over-regulated economies.
58 A. CHAFUEN
This paragraph is a good example:

In Punta del Este, a resort place in Uruguay with a boom in construc-
tion such as Latin America has not seen before, two Argentine business-
men, guests at a dinner party condemned underground transactions.
“Now let us be frank,” said another guest, also a businessman from
Argentina. “We all built our houses here with black money, did we not?”
Nobody said a word.
A similar conversation could be taking place today in the same city.
Little has changed. Thurn provided detailed examples of how quasi-
corruption (my term) took place whenever there were significant differ-
ences between the official price of foreign exchange and the black-market
or free price. Some libertarians might quibble with my use of the word
corruption: Why is it corrupt to take advantage of current legislation? If
there were under-the-table payments to a regulator by those who made
the transaction, those actions would fit the definition of corruption. But if
all importers had access to artificially low-priced foreign currency, then we
could speak of “corporate welfare.” If this cheap currency only went to
friends, with no pre-established quid pro quo, then we would be speaking
of cronyism.
These distinctions between corruption, quasi-corruption, and cronyism
did not appear in the discussions of the MPS. Efforts to measure corrup-
tion were undertaken much later by Transparency International (TI),
founded in 1993 in Germany. TI released the first version of its Corruption
Perceptions Index in 1995. Ludwig von Mises had written in his Human
Action that an “analysis of interventionism would be incomplete if it were
not to refer to the phenomenon of corruption” (Mises, [1949] 1966,
p. 734). However, few members of the MPS focused on analyzing corrup-
tion. Perhaps a few were also avoiding the topic following Mises’s argu-
ment that “corruption is a regular effect of interventionism. It may be left
to the historians and to the lawyers to deal with the problems involved”
(Mises, 1966, p. 736). I still do not understand why it is a topic for histo-
rians and lawyers and not economists and moralists. I regard most econo-
metric studies as exercises in recent history. Therefore, as soon as I had
some measurements on corruption and interventionism, I started to do
correlations and publish papers and articles about them. My first co-
authored paper was published by the Centro de Estúdios Públicos in Chile
(Chafuen & Antonio-Guzmán, 1997). A shorter version, reaching similar
conclusions about how economic interventionism creates incentives for
corruption, was published as a chapter in the Heritage Foundation-Wall

Street Journal Index of Economic Freedom (Chafuen, 2000).
Thurn wrote his presentation before Hernando de Soto began to pub-
lish his detailed studies about the Peruvian informal economy. Thurn dis-
cussed several terms to describe the underground economy: black-market,
parallel, and informal. In subsequent decades Hernando de Soto began to
use the term “extra-legal.”
Although Thurn’s paper is primarily a defense of this economic sector,
he lists ten disadvantages. In his words, the disadvantages were allocation
of resources more in accordance with opportunity than with productivity;
distortion of the economy through misdirection of effort; less specializa-
tion; limited choice of partners; no internal controls; only very general
tracking of business success; no accident or old-age insurance; corrupting
influence (gradual loss of respect for the law); and false statistics.
This paper is not the place to analyze each of these negative aspects. We
should note, however, that missing from Thurn’s list is the disadvantage
highlighted in Hernando de Soto’s second best-seller, The Mystery of
Capital (2000), where he shows, with ample evidence, how being extra-
legal prevents those in this sector of the economy from leveraging their
assets and being able to grow. Their lack of clear property titles to their
assets, including potential intellectual property rights, puts them at a sig-
nificant disadvantage.
For Thurn, transactions in the extra-legal economy “can only be justi-
fied under special conditions, namely marginal rates of taxation of income
and other government regulations that penalize work in the surface
economy.”
Thanks to the first book by de Soto, El otro sendero (The Other Path,
1987), the World Bank expanded its focus on regulations. Its Doing
Business Index grew out of De Soto’s path-breaking work. Unfortunately,
during recent years it has become apparent that politicized manipulation
was present in the compiling of the Doing Business Index. The World
Bank recently announced that they were discontinuing it.
Monetary Debates
Concern about inflation was very high during the 1980 meeting. There
were, however, significant differences in monetary views. The debates
were mainly between Friedmanite types and “Austrians,” champions of
gold or the denationalization of money. Hayek had proposed competing
60 A. CHAFUEN
currencies a few years earlier in The Denationalization of Money

(Hayek, 1976).
The monetary authorities of several countries represented at the meet-
ing were already reducing the money supply’s rate of growth. One of the
papers noted that Japan’s rate went from 15% during 1971–1972 to 8% in
1979. During the seventies, the yearly rate of increase of its money supply
in Switzerland went from 7.5% to 1%, although it climbed back to 7% in
1979. Germany reduced its rate of money supply growth from 16% to 8%
in 1979 and the UK from 28% to 12%.
Although few advocates of the gold standard spoke at that MPS meet-
ing, many were very active during the question-and-answer sessions.
Several blamed the economy’s ills on paper money. Milton Friedman
started the final session by stating that he was not going to speak on the
panel’s topic, which focused on the importance of constitutions to con-
strain the government. He correctly noted that many countries had good
constitutions, as was the case in Argentina, but if people do not believe in
the constitution, it will be useless. But that he wanted to take on the “gold
bugs.” He went on to chastise these “gold bugs” that, despite favoring
free prices, they were willing to “fix the value of gold.” Despite favoring
economic efficiency, they kept a valuable metal stored in government
vaults instead of using it productively. He made other critical points which
I, as a disciple of “gold bug” Hans Sennholz, was quick to try to counter
from the floor.
I started by questioning the term “gold bug” as used in an academic
setting such as the MPS: “If you use the term ‘gold bugs,’ they could use
the term ‘paper worm’ to describe those who favor paper money.” I went
on, “defining the dollar in terms of gold weight is like defining a meter or
a yard as a rod of a certain length.” Nothing totalitarian. I like to think I
also refuted Friedman’s other points; I received good applause from the
audience in what I thought were my departing words from MPS.
A less expansionary monetary policy in the United States, started by
Paul Volcker (1927–2019) during the second half of 1979 and then con-
tinued by Alan Greenspan (1926–), changed the political-economic scene
during the next two decades. Now, toward the end of 2021, after almost
two decades of monetary expansion, several countries are experiencing a
scenario similar to that of the pre-Reagan period.
The Power of the Bureaucracy

Something that has not changed much during the last four decades is the
enormous power of the entrenched bureaucracy. Today many of us use the
term “deep state” to refer to it.
In his paper, Limits of Taxation: A Case Study with Reference to
Switzerland, 1980, Martin Janssen (1948–) of the University of Zürich
stated, “For good reasons, the image of a ‘big’ government is closely asso-
ciated with bureaucracy. Nevertheless, a ‘big’ government is big not
merely for the number of clerks employed in its bureaus, but mainly
because of the personnel employed in the elementary and high schools,
public universities, public clinics, hospitals, public agencies to assist the
individual needy and destitute, public community centers, and so on.
Personnel, including the officers in charge, consists of trained doctors,
teachers, psychologists and social workers.” Then, as today, these workers
“commonly believe that they know and understand better than their tem-
porary superiors not only the means employed but also the ends pursued
by their respective organizations.”
Pascal Salin (1939–) of France, who later served a term as president of
MPS, concurred. In his paper Do Conservative Governments Make a
Difference: Social and Economic Policies? he wrote that “the problem is not
only of ideology, but of privilege and vested interests. To diminish the role
of the state, one has to meet opposed and strongly organized civil ser-
vants, who are always ready to fight against the ‘destruction of the civil
service.’”
Michael Walker (1945–), the Canadian economist who grew the Fraser
Institute into one of the most respected think tanks in the world, also
addressed the power of the bureaucracy on a paper titled Do Conservative
Governments Make a Difference? Or Will Success Spoil the Neo-Eclectic
Mugwump Movement—A Canadian Perspective. He wrote that “the pol-
icy continuity provided by the senior civil servants was noted as a signifi-
cant challenge to the designs of the new government, as were the special
interest groups created by existing legislation.”
Malcolm R. Fisher, on Do Conservative Governments Make a
Difference—Social and Economic Policies: The Australian Experience,
wrote something similar. “The power of the bureaucrats is exceptionally
strong—political change need not disturb the quiet efficient ones—and
their mastery of detail could hold at bay all but the more active Ministers.”
One of Fisher’s central conclusions was that “Conservative Governments
62 A. CHAFUEN
at best seem to go easy on some of the restrictions that legislation permits

for the control of markets but rarely move to eliminate them. Thus, the
battery of control weapons is always there or added to by rival administra-
tions, never removed from the statute book.” It is all too easy for those
who advocate more government controls “to take up again where it left
off and even make up for lost time.”
Nationalization Has Waned, but Regulation

Lives On
Sir Keith Joseph (1918–1994), one of the co-founders of the Centre for
Policy Studies (a party-affiliated think tank) and Secretary of State in the
Margaret Thatcher government, presented a paper on nationalization, or
more accurately on denationalization. But he devoted the first part of his
remarks to stressing the importance of deregulation. Many countries fol-
lowed the example of the Thatcher government and began to privatize
state-owned enterprises, so the scene today is very different from 40 years
ago. One of the countries which, for a while, took the lead in privatiza-
tions was Argentina, where I lived my first three decades. At the turn of
the century, with a return of more statist governments, the process began
to be reversed.
Today, Mainland China leads the world by far in the number of state-
owned companies. Perhaps surprisingly, if we exclude North Korea and
perhaps Cuba, Norway’s percentage of GDP derived from state-owned
companies is the highest in the world. This high percentage is due to the
efficient and honest management of its state-owned oil company—a stark
contrast to what we see in countries like Venezuela. Venezuela is another
country where the government has nationalized major companies in
recent decades.
During his speech, Joseph emphasized that the Thatcher government
was looking to improve the efficiency and financial condition of the enter-
prises targeted for privatization because no one would want to buy them
in the state that they were in. It was then that Gordon Tullock (1922–2014)
made a formal offer to buy all the companies for one dollar. He made a
good point and generated numerous chuckles from the audience.
Immigration
As proof of how specific issues remain high in policy debates decade after
decade, immigration was also on the agenda. Brinley Thomas of the
University of California, Berkeley, presented a paper on “The Upsurge in
Immigration to the United States.” Thomas aimed to forecast the evolu-
tion and impact of immigration for the decade that followed. The conclu-
sions, however, were on target for the four succeeding decades.
Due to market forces, Thomas expected a massive upsurge (he used the
word “flood”) in immigration. He forecast that a significant percentage of
newcomers would be illegal immigrants. The inflow would mainly be from
Mexico and Latin America, and the Hispanic population, estimated then
at 18 million, would become more prominent than the black population.
This surge would create difficulties of assimilation and other cultural prob-
lems. He was concerned about this surge’s impact on blacks’ economic
and social status.
In addition to the impact of immigration on blacks, the author and
government analyst complained of the lack of good data on legal and ille-
gal immigration. He quoted the 1978 Select Committee on Population of
the House of Representatives report, which stated, “faulty data and inflamed
passions cloud immigration issues.” How about today? Today we have
better data, but the debate rages on, even among MPS scholars.
A Time of Optimism for Libertarians

This last section will address some of the political-economic discussions
and the environment during the years just before and after that MPS
meeting.
Except for a period where Ron Paul (1935–) captured all the attention
of libertarians, I have never witnessed so much optimism among them as
during the years leading up to the November 1980 US election. Murray
Rothbard (1926–1995) began a presentation at the Philadelphia Society
in 1979 by stating, “Libertarianism is the fastest-growing political creed in
America today.” Ed Clark, the Libertarian Party candidate for president in
1980, wrote in his campaign book that the party “is a unique political
phenomenon which has shown an impressive rate of steady growth since
its inception in 1972” (A New Beginning, 1980, p. 3).
Libertarians, those champions of freedom who seem closer to anarcho-
capitalism than to classical liberalism, were also at the 1980 MPS meeting.
64 A. CHAFUEN
I sided with their positions on most topics, so I spent considerable time

with them. Few, however, were speakers in the program, so they organized
side events. I went to one that had David Friedman as one of the stars. He
had long, curly hair at his temples and had donned a huge medallion over
his colorful shirt. Also in that group was David Henderson, whose views
were similar to Friedman’s but with a slightly more conservative bent. I
asked Henderson, with some bewilderment, why with so many prob-
lems—Carter in the White House, huge inflation, record-high interest
rates, and high unemployment—libertarians chose to focus on what I saw
as fringe, divisive topics. Why not first join forces with classical liberals to
confront the graver issues? I do not recall the answer well, but I think it
was “these topics are attractive to the young and independents.” But I also
saw that their libertarian positions were held with a similar conviction and
confidence as a religious creed. As I became a believer, I do not criti-
cize that.
During the last MPS I attended, also at Hoover, in 2020, just before
the COVID-19 pandemic closings and lockdowns, the organizers asked
David Henderson to present a paper reflecting on the 1980 meeting. He
also stressed the enthusiasm that existed in the libertarian camp. Many
authors were refining their case for a free economy. Eight years before this
MPS, David Friedman published his libertarian manifesto The Machinery
of Freedom (1972). Except in regard to national defense, I think I agreed
with all his analyses at the time.
In addition to Henderson and Friedman, other libertarians present
were Murray Rothbard and Leonard P. Liggio, who became my colleague
and close friend more than a decade later. Murray usually stood next to
Leonard and only attended the afternoon sessions. I learned later that
Murray, unlike Leonard, preferred to work at night and sleep in the morn-
ing, what in the United States is called a “night owl.” After seeing me ask
question after question, both called me aside, shared kind and supportive
comments, and told me to keep on.
It was at the libertarian side event that I bought the campaign book, A
New Beginning, 1980, by Ed Clark (1930–), the 1980 Libertarian presi-
dential candidate. His running mate was David Koch (1940–2019), whose
wealth allowed them to self-finance most of the campaign. In the book,
Clark thanks several intellectuals who collaborated with his campaign and
belonged to the Mont Pelerin Society, among them David Boaz, Ralph
Raico (1936–2016), Tom Palmer, and Ed Crane. He also credited Roy
Childs Jr. (1949–1992), and Chris Hocker, of the Libertarian Review,

Joan Kennedy Taylor (1926–2005), and Sheldon Richman.
Clark, who competed for the California governorship in 1978, was
highly critical of Reagan, expressing little hope that a Reagan victory
would change anything important. He reminded his readers that in his
eight years as governor of California, Reagan doubled state spending and
instituted a withholding tax. He also cautioned that Reagan was in favor
of increased spending for the military, the arts, job programs, and bailing
out Chrysler: “Middle-class and poor Americans end up subsidizing
Chrysler, Lockheed, and high-paid government bureaucrats and consul-
tants” (A New Beginning, 1980, p. 23).
A decade later, I had a chance to meet Clark. He came to the tiny office
that the Atlas Economic Research Foundation had at the premises of the
Institute for Humane Studies in Virginia. He started the conversation by
saying, “I have to confess that I have one ‘leak’ as a libertarian: I do not
think we can have free immigration as long as we have our current welfare
state laws.” He was more like Milton Friedman, who had that same posi-
tion on this issue.
Today, few people remember how dominant the Democratic Party was
during the half-century that preceded MPS 1980. From 1933 to 1980,
the Democrats had control of both the Congress and the Senate for all but
four years. They had been in control of the legislature uninterrupted since
1955—pretty much a one-party rule. Margaret Thatcher had been in
power for just over a year, and John Paul II had been Pope for less than
two years, but he had yet to make any significant statement on economic
matters. So not many were optimistic.
In the classical liberal world, one of the most optimistic authors was
Henri Lepage, who in January 1978, when he was 36 years old, published
Demain le capitalisme (“Tomorrow Capitalism”). The book was a consid-
erable editorial success in France, where during the next two years it sold
25,000 copies; in that time it also appeared in six languages. He followed
up with Demain le libéralisme (“Tomorrow Liberalism”) in April of 1980.
The books were superb manuals of contemporary economic thought pay-
ing particular attention to authors of different market-oriented schools.
In contrast, another book by a freedom champion was Does Freedom
Work? Liberty and Justice in America (1978) written by Donald J. Devine,
then at the University of Maryland. Devine is one of the leading figures of
“fusionism,” which some describe as a combination of conservative foun-
dations and goals with libertarian means. Devine joined the Reagan
66 A. CHAFUEN
administration and played a key role in helping Reagan win his first big
battle against labor unions. As the title of his book implies, freedom was
on the defensive. As with the Mont Pelerin sessions, witness the question
marks: do conservative governments make a difference? Can democracy
work? The answer was: not with the current conditions, but “yes, if ….”
In one of his concluding remarks, Devine wrote: “Although the preserva-
tion of regimes based upon the values of liberty, justice, and morals always
has been a precarious task, the prospect seems especially dim today”
(Devine, 1978, p. 155).
During the 1980s, after Reagan’s victory and the consolidation with his
reelection, many became more optimistic. While Jimmy Carter told citi-
zens that they had to adjust to a less prosperous future, Ronald Reagan
said a promising future was ahead. In his first words as Pope, John Paul II
told the faithful, “Be not afraid.” Margaret Thatcher started to reverse
decades of English decay. Change favorable to the goals of the Mont
Pelerin Society seemed possible.
Although many libertarians saw Reagan as another candidate “of the
system,” voters and conservatives had different expectations. Reagan had
coined the campaign slogan “Make America Great Again” and rode the
wave of discontent against the establishment. Richard Viguerie, who is still
working hard for the conservative, free-market movement, is credited for
having helped Reagan’s victory by bypassing traditional media through his
pioneering direct mail efforts. Viguerie helped position Reagan against the
elites, at least in the minds of many voters. Viguerie wrote the book The
Establishment Vs. the People (1984), where he summarized his views on
topics that are still hotly debated today.
During the early years of the Reagan presidency, several works helped
change the freedom movement’s intellectual mood. Some of the most
pertinent were: The Spirit of Democratic Capitalism (1982) by Michael
E. Novak; Wealth and Poverty (1981) by George Gilder; Losing Ground
(1984) by Charles Murray; and The State Against Blacks (1982) by Walter
E. Williams. Murray and Gilder are still active and involved with think
tanks that promote a free economy; Novak and Williams worked for their
visions of economic freedom until their deaths. Novak, as far as I know,
was the only one of these intellectuals who never joined the MPS.
Other books and academic papers analyzed the proper way to encour-
age development. The pioneer in this field was Peter Bauer, later Lord
Bauer, who had been warning that government aid was not the develop-
ment solution since the late fifties. In 1972 he wrote Dissent on Development
and in 1981 Equality, the Third World, and Economic Delusion. Following
in Bauer’s path were the studies conducted by Hernando de Soto and his
team in Perú, which, as I mentioned before, led to the publication of The
Other Path; Deepak Lal’s The Poverty of Development Economics (1983)
and Melvin Krauss’s Development Without Aid (1983). The Manhattan
Institute, founded by Antony Fisher in 1977, was behind Gilder, Murray,
Williams, and Krauss’s books.
But the path to greater economic freedom was not easy to travel. Early
in the Reagan administration, Milton Friedman presented at the
Philadelphia Society “The Reagan Administration: A Report Card.” It was
November 12, 1982, in San Francisco, and Ed Feulner introduced him. If
in September 1980, many at the MPS had doubts that Reagan would win,
judging by Friedman’s speech, it was clear that he had concerns that
Reagan would succeed. At that dinner, during the middle of Reagan’s first
term, Friedman remarked, “Many of us had great hopes that 1980 marked
the real turning point. Those hopes may still be fulfilled. It is not too late.
But at the moment they do not look as bright as they did a couple of years
ago” (Witcher et al., 2020, p. 301).
In the long term, Friedman paid attention to ideas, but in the shorter
term, he gave great importance to leadership, “accidents,” and “adventi-
tious circumstances” (Witcher et al., 2020, p. 287). He gave the example
of the assassination of John F. Kennedy, which, according to Friedman,
would have made any Republican lose, not just Barry Goldwater. This
handicap was particularly so because the contest was against “someone
like Lyndon Johnson, who was willing to play the game the way he was
willing to play it.” And Reagan’s victory was in great part, thanks to the
“adventitious circumstance” that the opponent was Jimmy Carter, a very
weak candidate.
In the long run, however, the battle of ideas is essential. For Friedman,
the efforts of the Fabian socialists, which formally started in 1884, led to
the changes in beliefs that promoted socialism across the globe during a
great part of the twentieth century. On the freedom side, the efforts of
those involved in the MPS, the Philadelphia Society, the Foundation for
Economic Education, the Hoover Institution, and the Manhattan Institute
were helping change the ideological landscape. Milton Friedman said: “I
think the change in philosophical ideas is clear. That the episode of Fabian
socialism is over. The episode of the real welfare state is over. What is very
unclear is where we are going to go from here. And I do not believe that
68 A. CHAFUEN
you can give a single answer to that. I think that is still in the laps of the
gods” (Witcher et al. 2020, p. 299).
Friedman’s forecast proved correct. He said that the United States
would likely move in one of two directions, a limping welfare state or a
Latin American type of totalitarianism, “the kind of thing that seems to be
in process in Central and South America” (Witcher et al. 2020, p. 300).
So here we are with a limping welfare state and a significant effort by the
current US administration to expand it. Friedman lamented that “unfor-
tunately, we are not going to be able to do what we should do, which is to
abolish Social Security and replace it by a more sensible voluntary sys-
tem—get rid of all of these government measures.” Friedman thought
that we could reduce government spending to levels close to 35% of GDP
at most. This level existed in 2001 when George W. Bush started his presi-
dency. The United States reached it again in 2019, during the third year
of the presidency of Donald Trump, just before the pandemic. And now it
is back to over 40%. And although few policy leaders today push for the
most radical part of the Fabian socialist plan, such as nationalizations and
full-fledged central planning, some proposals of socialism have been gain-
ing new followers, especially among youth.
Dealing with big government will always be an issue for economists and
those who value freedom. Dealing with big business and focusing on the
negative impact that large corporations colluding with the government
might have in the market was only addressed in passing during the MPS
1980 discussions and the books I quoted here. Today the role of major
corporations is of great concern not only for their economic impact but
also for their cultural influence. The issue of wokeism described so well in
Woke, Inc: Inside Corporate America’s Social Justice Scam by Vivek
Ramaswamy (2021), a former insider, is of particular concern to the Acton
Institute. Acton has several MPS members on its team. One of them, Dr.
Samuel Gregg, frequently writes about the woke corporate culture. He
sees it as corporate rent-seeking through association with politically cor-
rect causes. For his views on this topic, I recommend his review of
Ramaswamy’s book (Gregg, 2021).
After several decades of less expansionary monetary policies, it seemed
that policymakers had learned some lessons, at least on the issue of money.
With US price inflation rates now higher than they have been in 40 years,
the optimism might seem unfounded. I expect we will continue to see a
few countries with very loose monetary policies, especially in Africa and
Latin America. I do not expect, however, to see a future of continued
acceleration of inflation in countries with good rule of law, for example, in

those that score on the top 20% in the World Justice Project’s Rule of Law
index. Academic and political discussion of economic freedom has
improved, thanks to economic freedom indices. Both measurements of
economic freedom, one managed by The Fraser Institute of Canada, and
the other by the Heritage Foundation, were developed and enhanced by
members of the Mont Pelerin Society. The papers and books I mentioned
did not address many issues that divide the freedom movement today.
Immigration was the exception.
In addition to continued work on ideas, forming and influencing lead-
ers is essential. Henderson concluded his paper with a quote from Arnold
Harberger: “In every case about which I have close knowledge, the [good]
policy would in all probability have failed (or never got started) but for the
efforts of a key group of individuals, and within that group, one or two
outstanding leaders” (Harberger, 1993). And Henderson ends, “In short,
ideas matter and the individuals who hold them matter” (Henderson, 2020).
During most of 2021, prompted by some significant policy reversals in
countries, such as Chile, that seemed secure on their road to economic
progress, I have been stressing that we need to complement our work in
the field of economic and philosophical ideas forming leaders. We need to
tackle several challenges to the free society where we have seen slight
improvement. Suppose there is some kernel of truth in George Stigler’s
position about the futility or limits of our educational and ideological
work. In that case, freedom lovers will have to do much more in the strat-
egy and policy processes needed to advance economic freedom and the
principles of liberty. Joe Overton (1960–2003), at the Mackinac Center, a
think tank founded by Larry Reed, an MPS member, conceptualized the
process that leads to policy change. His model the “Overton Window”
pays attention to the many factors, not just ideological, that can increase
or decrease the number of ideas politicians can support without unduly
risking their electoral support. Some of the efforts where friends of free-
dom should be more active are, for example: taking control of organiza-
tions and institutions, modifying processes so outcomes can be more
favorable to freedom, and pushing for middle-of-the-road solutions which
might create a culture more respectful of freedom. This focus on methods
and strategy needs to be done in the academic, think tank, corporate, phil-
anthropic, and government worlds. I do not have room here to analyze
and provide better arguments to defend my call for going beyond ideas,
but I state my conclusions just the same with the hope of developing sub-
stantial ideas in the future.
70 A. CHAFUEN
There are no shortcuts for those who cherish freedom. We must con-
tinue to grow in understanding and share what we learn with others, as
Jesús Huerta de Soto has done for most of his life. Edwin Feulner, Jr.
frequently reminds his friends and allies that “in politics there are no per-
manent victories or permanent losses.” Economic education follows the
same pattern. Each generation needs to help discover and disseminate eco-
nomic truths.
References
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Bauer, P. T. (1981). Equality, the Third World, and Economic Delusion. Harvard
University Press.
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Growth. Macmillan.
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Estudios Públicos, Santiago, Chile. Also appearing in, Eugenio Guzmán, ed.
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American Institute for Economic Research, Great Barrington, MA.
Liberal Values Versus Envy
Jordi Franch Parella
Between 1000 BC and 1750 AD, global GDP grew at an average annual

rate of 0.1%. At this rate, it’s utterly impossible to improve the quality and
conditions of human life. And humanity grieves under the yoke of gruel-
ing pains. Instead, between 1750 and 2000, global GDP grew at an aver-
age annual rate of 1.5%. At this rate it takes less than fifty years for global
Professor Jesús Huerta de Soto embodies the rarest union of the highest
intellectual and moral capacities in the same person. After having studied
Business Administration and Economics in the University of Barcelona (UB)
under most prevalent approach of Keynes interventionism and without a single
reference neither to the Austrian School of Economics nor the Public Choice, a
humble self tried to further study praxeology there. But the attempt was
unsuccessful. Later I discovered the work of Huerta de Soto. That was really an
amazing discovery. After enthusiastically reading his magnificent opus, I
contacted him without much hope of reply. But the reality exceeded the best
expectations. And, in fact, it continues to be so a decade later. Because the
luminosity that emanates from truth and goodness is eternal.
J. Franch Parella (*)
Universitat de Vic-Universitat Central de Catalunya, Barcelona, Spain
e-mail: JFranch@umanresa.cat

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_7
74 J. FRANCH PARELLA
GDP per person to double. While in the Classical Rome income per capita
was less than doubled throughout more than 1200 years, in the Western
countries it has multiplied by thirty in the last 250 years. The percentage
of the world’s population living on less than a dollar per day adjusted to
purchasing power parity fell from 27% in 1970 to 5% in 2006 (Maddison,
2010). The Neolithic Revolution did not mean a permanent increase in
income per capita. It has been estimated that on average some 30% of all
males in primitive, hunter-gatherer societies died from violent causes.
Every attack was characterized by utmost brutality, carried out without
mercy and always with deadly results (Hoppe, 2015, p. 28). In the words
of Ludwig von Mises, “men became deadly foes of one another, irreconcil-
able rivals in their endeavors to secure a portion of the scarce supply of
means of sustenance provided by nature” (Mises, 2007, p. 144).
However, during the last two centuries the real income per capita has
multiplied by thirty in countries such as Hong Kong, South Korea, Finland
or Botswana. In America, the average poor woman is richer today than
was President George Washington. She has antibiotics, air conditioning
and lots of TV channels. George Washington didn’t. In Schumpeter’s
words, “the achievement of the capitalist lies usually not in providing
more silk stockings to queens but in making them available to factory girls
in exchange for a decreasing amount of effort” (Schumpeter, 1942, p. 68).
The free market progressively increased the standard of living of the
masses. Average Americans now enjoy washing machines, antidepressants,
cheap flights, a bedroom for each child and higher education. It’s even
better if we consider the improvement in the quality of goods. And this
wealth cannot come from redistribution, regulation or other obligations,
but from a dynamic economy of people free enough to undertake their
own initiatives.
The changing attitudes to commerce, market and innovation have led
to this great enrichment. Also the reinforcement of natural rights, the rise
of science and the expansion of freedom and more inclusive political and
economic institutions. The object of liberalism is to bring about individual
liberty in all its interrelated aspects. Taxes have to be drastically reduced,
controls and regulations eliminated, and human energy, enterprise and
markets set free to create and produce in exchanges that would benefit
everyone. Entrepreneurs have to be free to compete, develop and create.
Government planners and regulators have neither the wisdom nor the
knowledge to direct the complex activities of humanity. An institutional
setting of individual liberty without privileges, with private property and
LIBERAL VALUES VERSUS ENVY 75
voluntary exchange, generates more wealth and coordinated activity than

any governmental rule could ever provide. But liberal values are the exqui-
site fruits of a very rare and fragile tree. It needs many years to grow and
the enemies are plentiful. Liberalism puts an end to the privileges by birth
of the Ancien Régime. For instance, in 1381 the priest John Ball was killed
for asking: “When Adam dug and Eve wove, who was the knight then?”
And in 1685 Richard Rumbold was condemned to the gallows during the
reign of James II when declaring: “None comes into the world with a
saddle on his back, neither any booted and spurred to ride him”. Therefore,
in 1685 that liberal egalitarian notion was prohibited. And it could cost
you your life. But about a century later, the idea that no man was born
with a mark that made him superior to another was beginning to become
commonplace, first in Britain and later in Western civilization. In the
1790s, Joseph Haydn abandons decades of servile subordination in the
aristocratic house of the Estherházy and makes two lengthy visits to
London where he sold his music to the booming bourgeoisie and became
rich. They liked the music and paid him. The son of a carter and a cook
moved audiences and progressed socially, something impossible just a few
years earlier.
The key functions of the liberal system can be summed up in four
words: aggression no, exchange yes. According to Boaz (2015, p. 1): “In
a sense, there have always been two political philosophies: freedom and
power”. Ideas of freedom and human dignity made inventions and invest-
ments profitable for entrepreneurs. As economic historian Joel Mokyr
says: “In all periods economic change depends on what people believe”
(Mokyr, 2010, p. 1). It was liberal ideas that led to the great enrichment
of the West. And illiberal values and ideas are the enemies to beat. Flaubert
wrote: “I call anyone who thinks vilely bourgeois” (Flaubert, 1993,
p. 318). “Bourgeois” has become the most pejorative term of all and
growing interventionism leads to an increase of the tax burden together
with growing legal uncertainty. We know that little more is necessary to
bring a society to opulence from the lowest barbarism than peace, low
taxes and a tolerable administration of justice. Institutions are important,
of course, despite they are not the cause of prosperity but the consequence
of it. Neo-institutional fundamentalism, the prevailing orthodoxy at the
World Bank at the moment, fails as miserably as the earlier orthodoxy
“capital fundamentalism” (Easterly, 2001). The formula of adding new
legal institutions and mixing does not work any better than adding new
railroads and mixing. Trying to copy the institutions of an advanced
country that acts as a model, such as the United States, to implant them in
another developing country is not just a practical impossibility. It is a mis-
take that has negative unwanted effects. Similarly, replicating the costly
investments of a rich country in a poor one will not lead to development.
Many capital-intensive projects that have been implemented in poor coun-
tries frequently end in complete failure.
The great artistic eras, such as the Greece of the fifth century or the
Italy of the fifteenth century, were built on trade and freedom of exchange,
innovation, thinking and production. Until the Dutch around 1600 or the
English around 1700 changed their way of thinking, honor was only
achieved in two ways, by being a soldier or a priest, in the castle or in the
church (McCloskey, 2015). People who just bought and sold goods for
earning a living, or innovating, were simply despised. Where liberalism
and bourgeois dignity took root, the average person today earns and con-
sumes more than $100 per day, compared to $3 (in purchasing power
parity) earned before the advent of free markets. Furthermore, current
quality has improved a lot. All the other advances as more democracy,
greater life expectancy, greater education or spiritual growth depend on
the previous massive enrichment. However, something went wrong in the
late nineteenth century. Herbert Spencer pointed out as early as 1853 that
“in any newspaper you will find an article that denounces the corruption,
negligence or mismanagement of any organ of the State. But in the next
column it is not unlikely to find proposals to expand state supervision”
(Spencer, 1981, pp. 267–268). In 1913, total spending at all levels of the
US government was 7.5% of GDP. But by 2020, the percentage of total
government spending has risen to 35% and the government regulates
more and more (Higgs, 2008). The result in France, for example, is that
the government share of national spending is 55%. Jean Tirole, winner of
the 2016 Nobel Prize in Economics, pointed out that the French are very
distrustful of the market and competition, and they trust l’État dearly
(Tirole, 2017, pp. 155–156). In overall, the growth in government expen-
diture—from 10% of GDP around 1870 to 30% in 1960—occurred dur-
ing the two World Wars. But expenditure growth after 1960 to 50% now
equaled the expenditure growth in the previous 90 years even though
there were no global wars. This most rapid expansion relies on changes on
attitudes and values toward the role of the state and in the institutions
which constrain government intervention. The state booms in the heyday
of Keynesianism, when governments are perceived to be efficient in allo-
cating, redistributing resources and stabilizing the economy.
But who controls the government? As James Madison wrote in The

Federalist, “first the government must be trained to rule over the gov-
erned and then forced to regulate itself” (Madison, 1788). Most of the
world’s population suffer from corrupt and incompetent governments.
And very often, corruption and incompetence reach very high levels. Italy
regularly elects governments that spend their taxes carelessly and steal
public money blatantly. It is strange to ask government regulators to pro-
tect us from the same monopolies that they have created. According to
Paine, “the government, even in the best state, is nothing more than a
necessary evil; at its worst, it is intolerable” (Paine, 1922, p. 1). A hyper-
complex modern economy far exceeds the ability of a group of human
intellects to control it in detail. As we know since Adam Smith, on the
great board of human society, each piece has its own principle of motion.
People are motivated, in varying proportions, by prudence, temperance,
courage, justice, faith, hope and love, in addition to the corresponding
vices. Through these principles of movement, we pursue our own infi-
nitely diverse projects. Oskar Lange, a communist economist, declared
that “a statue of Professor Mises should occupy an honorable place in the
main hall of the Central Planning Council of the Socialist State” (Lange &
Taylor, 1938, pp. 57–58) for the prominent role he had played. In a 1994
British television program, Michael Ignatieff asked to the lifelong Marxist
historian Eric Hobsbawm if “the murder of more than 20 million people
in the Soviet Union under Stalin was justified” considering his contribu-
tion to the founding of a communist society. And Hobsbawm, without
hesitation, answered yes. The communist (1917), fascist (1922) and
national socialist (1933) regimes, all of them versions of collectivist social-
ism inspired by the search of rational planning, left more than 100 million
of deaths. Currently, the great expansion of interventionism, boosted by
the financial crises and the viral COVID-19 pandemic, once again turns
the individual into a subject of the state incapable of acting on their own.
Envy, the Anti-Liberal Value

According to Ludwig von Mises, the inherent elements of the anti-
capitalist attitude are ignorance, envy and hatred. Envy and resentment
cut off the most outstanding heads and leave us more equal, but more
equal in misery. A fable about how envy works tells us that Jesús and his
apostle Peter travel in disguise, asking families for food and shelter. After
many rejections, at last a peasant couple welcomes them. The next
morning the travelers reveal their identities, and Jesus says: “To reward
you for your charity, you will receive whatever you want”. The husband
and wife consult in whispers for a moment and the husband turns to Jesus
saying: “Our neighbour has a goat that gives milk to his family”. Jesus
interrupts him: “I see it. Do you want also a goat for you?” But the answer
is unexpectedly different: “No. We want you to kill the neighbour’s goat!”
Envy is a sin that corrupts the community and souls. And it is an economic
disaster that leaves us all without goats and in full misery. Whereas market
is a win-win mechanism, envy promotes lose-lose situations. Slow growth
produces envy and envy produces populism, which in turn produces slow
growth. It is an ideological trap. Sovereignty in liberalism lies in the con-
sumer and is distributed among the many. Instead, the attempts to redis-
tribute and regulate concentrate power in the few. And we know the
strong relation existing between power and corruption since quite a long
before Lord Acton.
The history of civilization and most of the conquests that distinguish
modern men, with their evolved cultures and differentiated societies, from
men of the most primitive stages, is the result of innumerable defeats of
envy and the envious lot. The more it is possible to act without resent-
ment, the greater will be the economic growth and the number of innova-
tions within a society. The most favorable social climate and the
development of the creative capacities will be achieved, where the official
normative system, customs, religion, popular wisdom and public opinion
have sufficient courage to act as if there was no need to take the envious
into consideration. Envy is a mortal sin and it’s usually concealed to a third
party. Instead of saying: “Don’t do it, I’m envious!”, it is preferred to
vindicate justice in the abstract. Cannibalism could be an extreme form of
existential envy. Cannibals devour their enemies not out of hunger, but
out of hatred and envy. The illiberal and egalitarian impulse comes from
envy and hatred. As Mises (1956, p. 43) states: “from the very beginnings
of the socialist movement and the endeavors to revive the interventionist
policies of the precapitalistic ages, both socialism and interventionism
were utterly discredited in the eyes of those conversant with economic
theory. But the ideas of the revolutionaries and reformers found approval
with the immense majority of ignorant people exclusively driven by the
most powerful human passions of envy and hatred.” But even if the envi-
ous lot were given so much that they could be placed on the same level,
this artificially created equality would not bring them even a bit of happi-
ness: firstly, because they would still envy the character of the giver; and
secondly, because even in the equality, the mere presence of the benefactor
would keep alive the memory of his former superiority.
In Luther’s translation of the Bible it is written (Gen 26:14): “As Isaac
had flocks of sheep, the Philistines were envious of him and blocked all the
wells that his father’s servants had dug”. At the beginning, Cain killed
Abel out of envy. Nothing has changed since Paleotestamental times: envy
of the alien herds and attacks on the neighbor’s water reserves constitute
a daily threat in many primitive agricultural cultures. What best character-
izes true envy is the desire to deprive the envied from their success or
material wealth. Although sometimes resentment is expressed openly as a
sign of admiration, it is normally hidden because it is despicable. Showing
it in public is always embarrassing. Resentment is very destructive, because
it is directed toward those who excel at something. It takes many forms
and the manifestations of envy are subtle and difficult to detect. Sometimes
envy disguises in attitudes that are apparently very well-intentioned. What
most arouses envy is everything related to social recognition, prestige or
material possessions. Proximity can also be an enhancing factor. It has
been said, not without reason, that the envy of the friend can be worse
than the hatred of the enemy. Resentment usually goes hand in hand with
slander, insults or lies. People are willing to sacrifice their own earnings in
order to reduce those of their rivals. It is pure destructionism. It is a lose-
lose situation, contrary to the win-win of the free market. The envious,
even when they lose, are happy and joyful if the envied loses even more.
Or when they win they are envious if the envied also wins. Individual sat-
isfaction is significantly and negatively correlated to absolute income
inequalities (Celse, 2017). The defeat of the rival can produce more plea-
sure than the own success. A non-negligible number of studies support
the impact of income comparisons on individual well-being. Ferrer
Carbonell (2005) revealed that an agent’s satisfaction with life decreased
with the income of the agent’s reference group. Results from laboratory
experiments also lead to the same conclusion. Miles and Rossi (2007)
through a quasi-experiment found that satisfaction levels decline as one
compares others’ higher wages. Through both survey data and a labora-
tory experiment, Brown et al. (2008) found that employees’ satisfaction
mainly depend on how their wage lies in the wage hierarchy. Empirical
evidence tend to demonstrate that social comparisons are crucial in evalu-
ating individual well-being and convey that individual well-being is nega-
tively affected by income inequalities. The envious one not only detests
the assets of the envied, be it talents, appearance, possessions, work or
popularity but also rejoices with the adversities that he suffers.
Saint Augustine said of envy that it is the main diabolical sin. Saint
Gregory the Great affirmed that joy when the others fail and sadness when
the others improve are all signs of envy. It is not enough for the envious to
wait until the fate strikes against his neighbor to rejoice on it. Indeed he
tries to anticipate this result. Envy has hardly been born, and it is already
the executioner and the gallows. The envious man does not laugh until
the ship with all its passengers is wrecked. Resentment takes the bad path
and accumulates corpses on it. The envied goods are, in most cases, very
similar to those that the envious has. Very often they are exactly the same
and only in the imagination of the envious do they appear as newer, more
beautiful or better. The talented man who hides his qualities to resemble
to the vulgarity of the group is trying to escape envy. He wants to avoid
retaliation from the group that, out of resentment, will attack his individu-
ality and special qualities. The more widespread is in society the fear of
being envied by others, more easily this society will be induced by politi-
cians to seek refuge in an egalitarian welfare state. Helmut Schoeck ana-
lyzes the envious origin of egalitarianism, socialism and democracy. In
Schoeck’s words (1987, p. 122): “the utopian desire of an egalitarian soci-
ety cannot have any other origin than the incapacity of its members to deal
with their own envy and with the envy of the less fortunate members of
that society”. Schoeck (1987, pp. 46–62) states that societies that are not
able to restrain envy will remain backward, also arguing (1987,
pp. 286–303) that Christianity has successfully managed to limit envy fos-
tering economic growth.
Gonzalo Fernández de la Mora (1987, p. 55) assures that “envy is a feel-
ing whose homeland is the world, but whose favorite residence is among
Hispanics (…) Of all the great European nations, Spain is the one that has
fallen the most in the contemporary age because envious egalitarianism has
acted more energetically than in other nations”. Distinguished scholars
have highlighted that the most typical deadly sin of the Spanish is envy.
Miguel de Unamuno defended that “envy is the intimate gangrene of the
Spanish soul”. The Hispano-Muslim Ibn Hazm (994–1064) argued that
“in Spain the wise man is envied with twice as much animosity as in any
other country of the world” (1840, p. 169) and Miguel de Cervantes, by
the mouth of Sancho, calls it “the root of infinite evils and the woodworm
of virtues”. Similarly, John Stuart Mill (1806–1873) considers in chapter 3
of Considerations on representative government (first published in 1861)
that “the Spaniards pursued all their great men with it, embittered their
lives, and generally succeeded in putting an early stop to their successes”.
The envious man is corroded by the fact that the colleague he greets
daily is smarter, more hardworking or more fortunate. He will do what-
ever is in his hand to harm him, including slandering. Liberal values gener-
ate overflowing wealth and promote win-win situations where everyone
wins, even the most disadvantaged. Instead, envy is destructive and is
based on the all-consuming desire to harm the others, enjoying in the
misfortune of others, even without obtaining the slightest personal advan-
tage from it. Envy is the triumph of hate and the generalization of lose-
lose situations. The envious is a real hindrance to peace, a potential
saboteur, a riot creator, someone unreliable whom the others can never
satisfy. As there cannot be an absolutely egalitarian society, in whatever
initiative a community undertakes, envy is the denial of the very founda-
tion of every society. The envious lot may for a time inspire and lead
movements of total subversion, but they can never build a stable society.
Envy paralyzes the progress and growth of the society. Nobody dares to
show anything from which it could be deduced that he enjoys a better
situation than the others. Innovations are not likely to be introduced, nor
will there be savings and investment processes. There are also no incen-
tives for training. Everything runs into the wall of envy.
It is interesting to note that there is a greater willingness to speak com-
passionately of your misfortunes to the others than to congratulate your-
self on the successes. So, in general, bad news is shared much more than
good news. Around one’s prosperity stands a wall of mystery, but a loud-
speaker spreads misfortunes. Private property, one of the fundamental
rights defended by liberalism, is not the cause of envy but a necessary
protective wall. Without material goods, envious and destructive hatred
would be directed against the person. Private property, therefore, acts as
an armor or protective shell. Primitive religions have the figure of an idol
that mocks the man who fails in his endeavors and initiatives. According to
Herodotus, Croesus fell victim to the Nemesis because he considered
himself the luckiest man. The warnings are that the divinities take pleasure
in bringing down the fortunate. With such a concept, if the blows of des-
tiny unload on the great ones, it is better to belong to those who do noth-
ing. Some unacknowledged contribution of Christianity is that God never
mocks the happiness and success of the believers. When we fail, He com-
forts us. And when we succeed, He rejoices in our progress. Unlike primi-
tive myths, liberalism is compatible with Christianity. It is the historical
merit of Christianity to stimulate and protect the human creative force in
the West through the repression of envy, one of the seven mortal sins
(Schoeck, 1987, pp. 286–303). It is false to maintain that before God we

are all equal. Beginning with the twelve apostles, Judas Iscariot is not
equal to Peter, for instance. On earth we are unequal; in heaven we are
unequal. Perhaps only in hell we are equal. Every man should treat his fel-
low men with altruism and without envy. Pretending that a socialist or
communist society will eradicate envy is another great mistake. The envi-
ous will not stop envying when the envied object disappears. Envy is the
most asocial and destructive attitude of mind that exists. When elevated to
the category of value and institutionalized, it blocks innovation and prog-
ress. Envy has eroded liberal values promoting the expansion of the
boundaries of the state. Envy attacks individual diversity and weakens the
argument for liberty, leading to a world of horror fiction, a world of face-
less and identical creatures, devoid of all individuality, variety or special
creativity. The goals of envy are profoundly antihuman and this ideology
and its inspired policies have to be considered as profoundly evil as well. If
we want to avoid the destruction of humanity and even of the human race
itself, it should be our most pressing duty to restrain envy by all means.
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Miles, D., & Rossi, M. (2007). Learning about One’s Relative Position and
Subjective Well-Being. Applied Economics, 39(13), 1711–1718.
Mill, J. S. (2010, first published in 1861). Considerations on Representative
Government. Cambridge University Press.
Mises, L. V. (1956). The Anti-capitalistic Mentality. D. van Nostrand.
Mises, L. V. (2007). Human Action. Liberty Fund.
Mokyr, J. (2010). The Enlightened Economy: An Economic History of Britain
1700–1850. Yale University Press.
Paine, T. (1922). Common Sense. Peter Eckler.
Schoeck, H. (1987). Envy: A Theory of Social Behavior. Liberty Fund.
Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy. Harper & Row.
Spencer, H. (1981). The Man Versus the State. Liberty Fund.
Tirole, J. (2017). Economics for the Common Good. Princeton University Press.
A Chronicle of Liberal Thought in Spain:
From Salamanca to Vienna Through Madrid
León M. Gómez Rivas
We historians are very fond of celebrating anniversaries. I like to say that,

just like people, nations or cultures also remember their important dates.
In this case, in front of a beautiful celebration of a lifetime’s work, I
thought of writing some memories of the last 30 years in which my aca-
demic career, my contact with Jesús Huerta de Soto and the important
events of liberal thought in our country all come together.
The story goes back to the 1991–1992 academic year, when, after read-
ing a thesis in modern history, I decided to further those studies by spe-
cializing in economics. At the time I was already teaching economic
history at the CEES (at present Universidad Europea de Madrid) and I
addressed the Department of History and Economic Institutions of the
Universidad Complutense of Madrid, which depended on Professor
Victoriano Martín, who had been at the origins of CEES, wasn’t in Madrid
that academic year as he was enjoying a sabbatical year at the London School
of Economics. Anyway, I got registered in the Department’s doctorate
L. M. Gómez Rivas (*)
Universidad Europea de Madrid, Madrid, Spain
e-mail: leon.gomez@universidadeuropea.es

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86 L. M. GÓMEZ RIVAS
courses, starting first in the Ortega y Gasset Centre, taking some subjects
of methodological content. The next few pages gather a little chronicle
that links the investigation about Spanish Scholastics, the Austrian School,
Professor Huerta de Soto and the spreading of the liberal thought in
those years.
Academic year 1992–1993 was decisive to orientate my doctorate proj-
ect. I had the chance, at last, to meet Professor Martín, who would be
directing my thesis about “The School of Salamanca, Hugo Grotius and
the origins of Economic liberalism in Great Britain”. By then, I must
admit, I didn’t know much about what I’ve been studying since. However,
and due to my university education as a historian, I was aware of the
immense cultural deposit that developed in Spain over the sixteenth and
seventeenth centuries. It seemed obvious I could, within that time frame,
find a topic significant enough to make a good doctoral thesis. Thus, after
some very orientated conversations with Victoriano, we centered the
object of my study in the figure of Hugo Grotius, as the voice of the
Spanish Scholastic thought into Europe and the Anglo-Saxon world.
Simultaneously, I got signed up for various doctorate subjects, this time
with professors Rodríguez Braun, Perdices de Blas, Santos Redondo or
Méndez Ibisate. With all of them and for some years, I was able to enjoy
a fascinating Karl Popper Seminar at the Somosaguas Building, in the
presence of excellent hosts, such as Pedro Schwartz, Manuel Jesús
González or Francisco Cabrillo. Also, to that time dates back my friend-
ship and collaboration with professors María Blanco, Elena Gallego,
Estrella Trincado, Luis Pires, José Luis Ramos, Rogelio Fernández or
Nieves San Emeterio, who have been fellow academic and investigation
sufferers.
The School of Salamanca

You could say it was after 1993 that I started to discover and enjoy the
concept of the School of Salamanca in the history of economic doctrines.
For different reasons I kept bumping into its ideas and at the same time
becoming impressed by the enormous intellectual wealth of this Spanish
line of thought. Just in the spring of 1993 I got to meet the unforgettable
Marjorie Grice-Hutchison, during the course of an enjoyable Seminar
about present and past monetary controversies, organized by Victoriano
Martín in Ávila with some Spanish and British LSE experts, and that ended
with the designation of Grice-Hutchinson as Complutense’s Doctor
A CHRONICLE OF LIBERAL THOUGHT IN SPAIN: FROM SALAMANCA… 87
Honoris Causa in the incomparable setting of the Convento de

Santo Tomás.
I also remember that in 1992 I spoke to Rafael Termes about all these
matters (he had just read his Academy of Moral and Politic Sciences admis-
sion speech, titled: “Anthropology of Capitalism”), and it was Termes
who advised me to visit Dr. Lucas Beltrán, of the Complutense University.
There, on a seminar about Hayek, I had the chance to meet Professor
Huerta de Soto. In the last few years, due to another celebration (Juan de
Mariana’s Institute anniversary) we have been able to read and listen to
the testimony of some young university students who attended, more
regularly than I did, I must confess, to those meetings which in the course
of time would be the origin of the Institute promoted by Gabriel Calzada
in Madrid. The meetings were presided by the well-known bust of Mises,
which years after remained in University Rey Juan Carlos.
Of that first conversation I remember I came back home with Murray
Rothbard’s article: New Light on the Prehistory of the Austrian School
(1976), the bibliography references written by Jesús’s peculiar blue ink. I
continued talking to him on many occasions after that and I’d like to point
out the kindness with which professor Huerta de Soto offered his extraor-
dinary library, his contacts and his sound knowledge about the Scholastic
doctors; not forgetting the great number of books he keeps giving to
anyone getting near his office.
In the Winter of 1993, I attended an amazing Ludwig von Mises
Seminar organized by Esperanza Aguirre, then cultural councilor of
Madrid City Council. It was coordinated by Huerta de Soto and it brought
together professors and politicians in remembrance of the 20th anniver-
sary of his death. This liberal politician would further be invited, as
Minister of Culture and Education, to an event to mark the occasion of
Lucas Beltrán’s death, again coordinated by Huerta de Soto.
In a slightly different field, I can recall various conversations with
Ricardo Yepes Stork, a philosopher who has tragically passed away, then
editor of the Atlántida journal, who advised me to visit his colleague in
Union Editorial: Juan Marcos de la Fuente. It is fair to recognize the great
assistance this publishing company has given to the cause of liberalism in
all Spanish-speaking countries. Ricardo Yepes gave me another name that
soon after two other people also mentioned (Jose Andrés Gallego, a CSIC
researcher and Lorenzo Bernaldo de Quirós). I’m referring to Alejandro
Chafuen, an Argentinian pupil of Oreste Popescu, who was then working
at the Atlas Foundation, USA (at present in the Acton Institute) and had
just published in Spanish his doctoral thesis Christians for freedom

(Economy and Ethics. Scholastic Foundations of the Free Market Economy,
1991). I got to see him during some sessions about Spanish American
Liberalism organized by Enrique de Diego, Fernando Iwasaki y Federico
Jiménez Losantos held in Benidorm in 1993 (Huerta de Soto attended
the following year together with Vargas Llosa, Enrique Ghersi or Alejo
Vidal-Quadras). I met him again soon after (1994) at the Mont Pelerin
Society conference dedicated to Hayek.
Life is a combination of your successes, failures, efforts and fortunes.
There’s no need to say that I attended that conference invited by Huerta
de Soto. I drove to Cannes with my wife, the car filled with a few boxes of
books of Union Editorial ready to sell to the assistants (our car was unex-
pectedly stolen and we always remember gratefully Joaquín Trigo’s help in
making ourselves understood by the French police). No books made it
back of course, but new contacts did, such as Manuel F. Ayau and Fernando
Monterroso, Rectors of the Francisco Marroquín University in Guatemala,
or Ramón Parellada, then in charge of the Cuadernos CEES together with
some other professors. I also met Manuel Moreira, a Portuguese researcher
and editor of the Salamanca and Coimbra Scholastic doctors; and the
American scholar Leonardo Liggio, an expert in Spanish history as the
origin of political liberalism. This was an important international congress
dedicated to evaluating Hayek’s scientific work to which more than three-
hundred professors from all over the world assisted, including James
Buchanan, Ronald Coase and Gary Becker, the three of them winners of
the Nobel Prize in Economics. Please allow me to share with you an anec-
dote which occurred in one of the promenades in Cannes Bay: Jesús’s
wife, Sonsoles Huarte, felt a bit dizzy that day a few weeks later she found
out that the reason for that was not the French waves but that she was
pregnant with little Constanza.
During the years I joined the evocative Mont Pelerin Society at a
regional conference held in Barcelona (1997). It was organized by a group
of brave Catalonian liberals and coordinated by Joaquín Trigo y Juan
Torras (who a few years later were the leaders of the Mises Institute in that
city). The geographic proximity allowed a very warm encounter of so
many Austrian–Spanish liberals: I must mention here Clotilde and Luis
Reig Albiol, whom I had met in Cannes. Up until his recent death, you
would always find Luis very attentive, seated in the very first row of every
event organized by Huerta de Soto: I suggest you dive into the history of
the Austrian School in Madrid through their respective families. In this
respect, it’s advisable to consult Cristóbal Matarán’s (2017) article:

“Joaquín Reig Albiol, the First Austrian Spanish”.
As expected, this Mont Pelerin Conference approached the issue of
Spanish Scholastics in a lecture about “Liberalism in Spain” attended by
Pedro Schwartz, Marjorie Grice-Hutchinson or Raimondo Cubeddu (a
professor at Pisa University). Huerta de Soto also participated with a pre-
sentation “Outlook of Liberalism in the next fifty years”, which put the
emphasis on the ethical grounds of liberal thought. In fact, there was
another well-known Spanish Mont Pelerin encounter at the University of
Salamanca with the assistance of illustrious members such as Hayek him-
self. That was in 1979, which exceeds my chronological limits. But I also
encourage you to check on the internet for a chronicle of that Meeting.
Ethics and Economy
I found other names, essential in the diffusion of liberal thought, at some
pioneering sessions about management ethics promoted with great enthu-
siasm (and small means) by Fernando Fernández from the Association for
the Study of the Social Doctrine of the Church (AEDOS). There I met
José Juan Franch, for many years’ professor at Universidad Autónoma de
Madrid and Antonio Argandoña, from IESE and a member of Mont
Pelerin. Let me add that from Universidad Autónoma de Madrid I must
mention the names of some professors, pupils of Rafael Rubio de Urquía,
such as Óscar Vara, Javier Aranzadi, Isabel Encinar or Félix Muñoz; some
of them have also collaborated in the Master on Austrian Economics at
University Rey Juan Carlos.
You will not be surprised to hear that Professor Huerta de Soto also
participated in those meetings. Ethics and liberalism go hand in hand:
both in the history or economic thought and in the rationality of the terms
itself. The fatal arrogance, the impossibility of socialism, the misery of
historicism are all happy expressions of the liberal project’s moral superior-
ity against any type or arbitrary imposition from the State or ideologies.
The worst part, as many academic or mediatic authorized voices state, is
when we observe that liberalism is not necessarily intuitive (“unlike social-
ism. What we can easily understand is that society needs to be organized
and that women and men cannot be free; we need to be ordered, invigi-
lated, prohibited, fined and our taxes collected. … That’s intuitive.” This
quote is from Carlos Rodríguez Braun): our nature and social organiza-
tion are imperfect and often make mistakes difficult to correct. The great
challenge is for people to be educated in the responsible exercise or their

freedom.
I was saying I heard Huerta de Soto share these arguments at the
AEDOS seminars: ever since a very warm meeting in Soto del Real back in
1996 up until two consecutive meetings in Madrid during 2002 and 2003.
On this same subject he had put forward two different pieces of work in
the famous Summer Courses of the Complutense University held in San
Lorenzo del Escorial (in both the 1994 session: “Ethics and Market” and
1996: “Public ethics and social moral”); and even at my own European
University-CEES during those same years 1994 and 1995; or more
recently at the University Católica de Ávila within the cycle “Economy
and liberty” (2006). As a result of these reflections he published a brief
article in Nueva Revista 48 (1996) that I often use in my lessons: “The
return of ethics to the market”.
An environment also worried by Economy’s moral implications is the
EBEN’s (European Business Ethics Network) Spanish branch called “Ethics,
Economy and Management”, which counts on many of the names I’ve
been pointing out (we liberals are few, but fortunately we don’t all fit into
a taxi). Its national and international congresses are a very interesting
forum to spread the theoretical reflection on the subject, together with
the more practical applications in Social Corporate Responsibility, sustain-
ability or professional business deontology in a wider sense.
Within EBEN I again came across with Rafael Termes and Antonio
Argandoña in a monographic session about the School of Salamanca,
organized by the Universidad Pontificia de Salamanca in 1998. There was
an initial speech by Abelardo del Vigo about “Ethics and Markets in the
School of Salamanca” and various other sessions about the morality of
business (Domènec Melé); Tomás de Mercado (Ángel Galindo), Bartolomé
Medina (Teodoro López), or Martín de Azpilcueta (Rodrigo Muñoz).
Years later in this same place we listened to Huerta de Soto again in a con-
ference about our predecessors “The School of Salamanca and the Austrian
School’s economic thought, between Spain and America”.
Now I’m going to tell you about one of the last events in which our
beloved Marjorie Grice-Hutchinson (deceased in 2003) participated,
which was coordinated by Huerta de Soto in the International University
Menéndez Pelayo of Santander (1999). It was a seminar with the title:
“Hayek in his Centenary: the battle for ideas”, many of the names cited
here were present: Pedro Schwartz, Manuel J. González, Victoriano
Martín, Carlos Rodríguez Braun or Manuel Santos. In a discussion about
the Spanish Scholastics we heard once more about their importance in the
history of economics, as well as the British professor’s leading role in the
acknowledgment of her importance before Hayek himself. As it turned
out, Marjorie started to work on her doctoral thesis about eighteenth-
century Spanish Enlightenment, directed by the Austrian Nobel winner in
the London School of Economics. However, she would end up writing
her pioneer research work The School of Salamanca (1952), where she
shows the striking clarity with which the “Salmantinos” discovered the
Quantity Theory, the subjective value of goods theory, and the price
adjustment processes of the open market.
The Austrian School in Madrid

Speaking about PhD’s, my thesis was defended in 2004 in the face of a
board of examiners formed by Huerta de Soto together with Pedro
Schwartz, Juan Velarde, Carlos Rodríguez Braun and José Barrientos.
Some years later and having recovered from an adverse illness, Huerta de
Soto also viewed favorably the doctoral thesis about Juan de Mariana,
which was defended by Ángel Fernández. It would be tiring to point out
all the boards in which Huerta de Soto has taken part, as a member as well
as thesis director, particularly since the start of the excellent Master course
program about the Austrian School of Economy which runs every year at
the University Rey Juan Carlos and brings together students from all over
the world (it’s worth mentioning here the names of some of its teaching
faculty which include Philipp Bagus, Miguel A. Alonso, María Blanco,
David Howden, César Martínez Meseguer or Juan Ramón Rallo). This
new “Spanish School of Economy” studies, discusses, researches and
spreads the liberal thought of those Viennese professors. Specifically, you’ll
be able to read an absolutely detailed explanation about this issue in an
abovementioned doctoral thesis by a young professor of the Universidad
Europea, Cristóbal Matarán, titled “The Austrian School of Madrid in the
context of the economic doctrines” and directed by Huerta de Soto.
You’ll find some of the facts and reflections I’ve mentioned more exten-
sively explained. I suggest you complete this information with my book
Champions of freedom (2019), published by Union Editorial and the
Diego de Covarrubias Centre.
For example, the development of the Austrian School annual con-
gresses, organized by the Instituto Juan de Mariana (IJM) since 2008. Or
the more recent Madrid Conference on Austrian Economics held at the
Universidad Rey Juan Carlos. And as regards IJM, we have already men-
tioned how their founding members date the beginning as the seminars by
Huerta de Soto in the Universidad Complutense: logically the develop-
ment of the Institute has gone hand in hand with continuous encounters
with our professor who, in 2016 received the Juan de Mariana award in a
ceremony held at the Casino de Madrid, in front of a wide-ranging public
of liberal thinkers mostly from Spain and Guatemala.
Those professors at the University Francisco Marroquín, that were
present at the Cannes Mont Pelerin meeting, also deserve a more detailed
explanation in these pages. Rectors Ayau and Ibargüen both were IJM
laureates and attended the ceremonies with other assiduous travelers such
as Ricardo Castillo, Ramón Parellada o Mayra Ramírez. Its publications
department always takes part at that Liberal Book Fair (LiberAcción) orga-
nized by IJM where every year we discover an increasing diffusion of ideas
in defense of liberty. Unión Editorial does the same, on many occasions
through Huerta de Soto’s detailed explanation of the journal Procesos de
Mercado. These three IJM initiatives (Congress, Bookfair and Prize) indi-
cate a key moment in the calendar of events in Madrid and the success of
its directors must be acknowledged: Gabriel Calzada (at present Rector of
the Marroquín), Juan Ramón Rallo, Eduardo Fernández Luiña and José
Carlos Rodríguez; its founding members and veterans such as Paco
Capella, Gonzalo Melián, José Ignacio del Castillo, Fernando Herrera,
Domingo Soriano, Raquel Merino or Daniel Rodríguez Herrera; not for-
getting the Institute’s fantastic board team, who for lack of space I can’t
name here.
It is no coincidence then, that Jesús Huerta de Soto received the
Doctorate Honoris Causa in Social Sciences from the Francisco Marroquín
University in 2009. I was able to listen to his online speech (Marro is a
TIC’s pioneer) in which he cited Scholastic doctors such as Diego de
Covarrubias, Juan de Lugo and, of course, Juan de Mariana. Notice that
he shares that distinction with four Nobel Prices: Hayek, Friedman,
Buchanan and Vernon Smith; apart from other prominent economists
such as Israel Kirzner, Michael Novak, Alex Chafuen, Henry Hazlitt,
Deirdre McCloskey, Peter Boettke or Carlos Rodríguez Braun.
Speaking about recognition to our professor, I keep very warm memo-
ries of the “Gary G. Schlarbaum Award for Lifetime Achievement in
Liberty” ceremony held in 2009 at the incomparable setting of the
Convento San Esteban in Salamanca, which coincided with the Mises
Institute International Conference (and the 4th Centenary of the
publication of Juan de Mariana’s De Mutatione Monetae). As you may

guess, the reception speech was titled: “The Roots and Essence of Austrian
Economics”. Among the attendees were two distinguished promoters of
the Francisco Marroquín University: Joseph Keckeissen and Father Ángel
Roncero.
This passion for the Doctors of Salamanca gave birth to a beautiful
initiative that the journal Procesos de Mercado has called “Scholastics Road
Show”. On the centenary anniversaries or other celebrations, Jesús Huerta
de Soto has spread their names throughout the Spanish geography. Thus,
at the Cathedral of Segovia we remembered Covarrubias’s death listening
to the conference: “Bishop Diego de Covarrubias, the Scholastics and the
Austrian School” in 2013. The following year, during the Occidens
Sessions held at the Cathedral of Pamplona’s Cabildo, he gave a new con-
ference titled: “Martin de Azpilcueta and the School of Salamanca (17th
century): the Austrian School background (20th and 21st century)”
remembering his time as a student in that city. Finally, the Cathedral of
Toledo held in 2016 the dissertation “Juan de Mariana, the Spanish
Scholastics and the modernity of their thought”. Let us hope that this
Road Show can be continued after the pandemic: there are still many pro-
fessors waiting for their turn!
We have cited Diego de Covarrubias a couple of times: he was
Archbishop of Segovia, a professor in Salamanca and President of the
Council of Castile. His name has been chosen for another prominent ini-
tiative that engages in the diffusion of the harmonious links between lib-
eral thought and the Christian ethos (not an easy project in my homeland
country, Spain): I’m referring to the Centro Diego de Covarrubias. Its
collection of books about “Christianity and Market Economy” also takes
us to another encounter with Huerta de Soto, who personally promoted
the second edition of Economy for Priests (2016). A very recommendable
read, even for those of you who are not religious. He also sent a copy of
the book to many priests in our country: who knows what fruit this seed
may bring.
Moreover, the great diffusion of the city by the river Tormes all over
the world has been recognized by the Club de los Viernes with the Prize
“School of Salamanca” (2018), awarded to Professor Huerta de Soto once
again at the beautiful San Esteban cloister, where remains of Francisco de
Vitoria and Domingo de Soto lie. It was presented by Federico Jiménez
Losantos, who, by the way, reminded us of another distinguished
Dominican friar, Tomás de Mercado. I had the pleasure there to take part
in a Round Table discussion with professors Victoriano Martín, José

Barrientos and Idoya Zorroza.
Regarding all these recent events, the News section of the journal
Procesos de Mercado goes into detail about all the academic and intellectual
activity I’ve been referring to. In these pages I’ve meant to put on record
some old memories about the diffusion of the liberal ideas over the last 30
years and the overwhelming initiative of Professor Huerta de Soto as a
tribute on his retirement. From now on, the almost infinite internet
archives will keep all that information for its immediate query: I encourage
you to surf through our professor’s web page, for example, to complete
firsthand some of the ideas pointed out here.1
References
Gómez Rivas, L. (2019). Campeones de la Libertad. Los maestros de la Segunda
Escolástica española e iberoamericana. Unión Editorial.
Huerta de Soto, J. (1996). El Retorno de la Ética al Mercado. Nueva Revista de
política, cultura y arte, No. 48, pp. 27–37.
Matarán, C. (2017). Joaquín Reig Albiol, the First Austrian Spanish. Procesos de
Mercado, XIV-2, pp. 239–246.
Zanotti, G., & Silar, M. (2016). Economía para Sacerdotes. Unión Editorial.
1
I consider it absolutely necessary to finish these lines with a warm mention to Sonsoles
Huarte: nothing of which has been said here would have been possible without her support.
The State: Its Origin and Nature
David Gordon
In what follows, I should like to consider the attitude Jesús Huerta de

Soto takes toward the state, in relation to that of several other thinkers. I
shall proceed in this way. First, I shall discuss the theory of the state devel-
oped by the German sociologist Franz Oppenheimer and applied to
American history by his follower Albert Jay Nock. According to this
account, the state had its origins as a predatory body, extracting resources
from society, and this remains its essence. In the work of Murray Rothbard,
we see the culmination of this school of thought. Next, I shall discuss the
When I met Jesús Huerta de Soto at an Austrian Scholars Conference put on by

the Mises Institute, I mentioned to him my favorite teacher Dr. Walter Starkie,
who had during World War II been Director of the British Institute in Madrid. I
was delighted to learn that he was familiar with Dr. Starkie and that he shared
Starkie’s high opinion of the great work of Ramón Carrande, Carlos V y sus
Banqueros. In the years since I have met him, I have come to admire greatly his
outstanding contributions to the Austrian School.
D. Gordon (*)
Ludwig von Mises Institute, Auburn, AL, USA
e-mail: dgordon@mises.com

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96 D. GORDON
quite different view of the state held by Ludwig von Mises. To the surprise
of many students whose acquaintance with the Austrian school had been
shaped by that of Rothbard, Mises thought that the state was necessary
and had a poor opinion of Oppenheimer’s theory and, for that matter, of
Oppenheimer himself. Thus, we have so far two views in conflict: the state
is an instrument of predation that ought to be excised, on the one hand;
and, on the other, the state is necessary.
Jesús Huerta de Soto ingeniously bypasses the question of whether
Oppenheimer or Mises is right. He does so by concentrating on a different
though related question. His interest lies in the evolution of law as a fixed
body of rules that provides a guide to individuals, enabling them peace-
fully to interact with one another. A key point in taking law in this way,
and here is where the question canvassed before is bypassed, is that it does
not matter whether state officials play a role in such a legal system, so long
as the system is not disrupted by arbitrary political interventions. In devel-
oping his ideas on law, he has been influenced by Friedrich Hayek’s
account of the British common law tradition. Like the great Italian legal
theorist Bruno Leoni, he thinks that Hayek’s analysis can be applied to
Roman law as well as common law, and indeed his own discussion of the
law of banking brings Roman law to the fore.
To turn, then, to Oppenheimer and Nock. Franz Oppenheimer was a
German sociologist who went into exile after Hitler came to power in
1933. He taught in the United States and died in Los Angeles. He wrote
The State, which was published in 1908 and translated into English in
1915. Nock wrote Our Enemy, the State in 1935.
Oppenheimer and Nock said that there were two ways to acquire
wealth, one of which was through peaceful production and trade. This
they called the economic means. Unfortunately, there is another way as
well to get wealth. This is to seize it from those who have produced it.
They called this the political means. They define the state as the organiza-
tion of the political means. On this view, the state is a predatory organiza-
tion, a gang of robbers.
This is a very interesting theory, but how do we know it’s true? History
isn’t an a priori discipline. We can’t deduce just by using logic that certain
particular events had to occur. The only way to show that Oppenheimer
and Nock were on the right track is through historical investigation.
This is just what Oppenheimer and Nock did: they provided historical
examples to support their theory of the state. Oppenheimer made a careful
study of anthropological literature. The great majority of the states he was
THE STATE: ITS ORIGIN AND NATURE 97
able to find described in this literature began as predatory groups and, in

the few cases that did not, the society had created a state in order to fore-
stall predation by others. Those states also became predatory. He went
through the ancient world as well, and carried his study through the
Middle Ages down to his own time. The state always was predatory either
from its inception or soon thereafter.
Nock in his book summarized Oppenheimer’s theory and applied it to
American history. The American state, like all others, was predatory. Nock
strongly supported the view of Charles A. Beard, in his famous book An
Economic Interpretation of the Constitution of the United States (1913).
According to Beard, the Constitution was written to advance the eco-
nomic interests of a particular group of wealthy people. The American
national state that came into existence in 1789 was a predatory gang, just
like all other states.
I want to make one point about the logical structure of Oppenheimer
and Nock’s argument. When I discussed this argument in one of my online
courses for the Mises Academy, a student raised an objection. He asked,
haven’t there been historical examples of stateless societies? He was right:
there certainly have been, but this doesn’t refute Oppenheimer and Nock.
Their thesis is that every state is predatory. To refute this, one needs to
come up with a state that wasn’t predatory. It isn’t part of their thesis that
every society has a state. Examples of societies without a state would be
welcome news to Oppenheimer and Nock, because this would give us
some reason to think that we could get along without a state as well.
Murray Rothbard, in his classic essay, “The Anatomy of the State,”
shows his complete adherence to the view of Oppenheimer and Nock:
The State, in the words of Oppenheimer, is the ‘organization of the political

means’; it is the systematization of the predatory process over a given terri-
tory. For crime, at best, is sporadic and uncertain; the parasitism is ephem-
eral, and the coercive, parasitic lifeline may be cut off at any time by the
resistance of the victims. The State provides a legal, orderly, systematic chan-
nel for the predation of private property; it renders certain, secure, and rela-
tively ‘peaceful’ the lifeline of the parasitic caste in society. Since production
must always precede predation, the free market is anterior to the State. The
State has never been created by a ‘social contract’; it has always been born in
conquest and exploitation. The classic paradigm was a conquering tribe
pausing in its time-honored method of looting and murdering a conquered
tribe, to realize that the time-span of plunder would be longer and more
secure, and the situation more pleasant, if the conquered tribe were allowed
98 D. GORDON
to live and produce, with the conquerors settling among them as rulers
exacting a steady annual tribute. One method of the birth of a State may be
illustrated as follows: in the hills of southern ‘Ruritania’, a bandit group
manages to obtain physical control over the territory, and finally the bandit
chieftain proclaims himself ‘King of the sovereign and independent govern-
ment of South Ruritania’; and, if he and his men have the force to maintain
this rule for a while, lo and behold! a new State has joined the ‘family of
nations,’ and the former bandit leaders have been transformed into the law-
ful nobility of the realm. (Rothbard (1974), 2009, pp. 15–17)
As I have already mentioned, Ludwig von Mises did not agree with
Oppenheimer about the nature of the state, although this disagreement
does not entail that he held a different opinion on how states originated.
On that issue, so far as I am aware, he expressed no opinion at all. Rather,
he differs from Oppenheimer and his followers in denying that the state is
in its essence a predatory body. To the contrary, society requires a state in
order to survive. In Human Action, he says:
An anarchistic society would be exposed to the mercy of every individual.

Society cannot exist if the majority is not ready to hinder, by the application
or threat of violent action, minorities from destroying the social order. This
power is vested in the state or government.
State or government is the social apparatus of compulsion and coercion.
It has the monopoly of violent action. No individual is free to use violence
or the threat of violence if the government has not accorded this right to
him. The state is essentially an institution for the preservation of peaceful
interhuman relations. However, for the preservation of peace it must be
prepared to crush the onslaughts of peace-breakers. (Mises (1949) 1998,
p. 149)
Those of us who share Rothbard’s interpretation will at this point be

tempted almost irresistibly to emphasize that Mises was unfamiliar with
the concept of private protection agencies but instead thought of an anar-
chist society as one without a coercive institution at all. But the fact
remains that he did reject anarchism.
From the perspective of Jesús Huerta de Soto, we do not need to settle
the dispute. What is essential for a classical liberal society is that a fixed law
code exists, within which people can plan their lives, without interference
from the political system. In brief, so long as a stable system of property
rights exists, the question of the necessity of the state is of secondary
significance.
But is this not asking the impossible? How can a legal system come into
existence and maintain itself independently of the state, if a state exists? If
there is a state, must not all law be made by the state and subject to con-
tinual revision by it? Friedrich Hayek did not think so. He says, In Law,
Legislation, and Liberty, volume 1, “Until the discovery of Aristotle’s
Politics in the thirteenth century and the reception of Justinian’s code in
the fifteenth. … Western Europe passed through … [an] epoch of nearly
a thousand years when law was … regarded as something given indepen-
dently of human will, something to be discovered, not made, and when
the conception that law could be deliberately made or altered seemed
almost sacrilegious” (Hayek, 1973, p. 83).
In Hayek’s view, the development of the common law in England illus-
trated his point. In England, laws were made by the decisions of judges in
the particular cases before them. These decisions would be made in the
light of previous decisions and gradually a body of law was built up. Hayek
argued that this process blocked the growth of an absolute monarchy in
England: “What prevented such development was the deeply entrenched
tradition of a common law that was not conceived as the product of any-
one’s will but rather as a barrier to all power, including that of the king—a
tradition which Sir Edward Coke was to defend against King James I and
his Chancellor, Sir Francis Bacon, and which Sir Matthew Hale brilliantly
restated at the end of the seventeenth century in opposition to Thomas
Hobbes”(Hayek, 1973, pp. 84–85).
The great Italian legal theorist Bruno Leoni extended Hayek’s argu-
ment by showing that law based on an explicitly promulgated code of law
can exist and develop independent from the state. Leoni points out in
Freedom and the Law that
A large part of the Roman rules of law was not due to any legislative process
whatever. Private Roman law, which the Romans called jus civile, was kept
practically beyond the reach of legislators during most of the long history of
the Roman Republic and the Empire. Eminent scholars, such as the late
Italian Professors Rotondi and Vincenzo Arangio Ruiz and the late English
jurist, W. W. Buckland, repeatedly point out that ‘the fundamental notions,
the general scheme of the Roman law, must be looked for in the civil law, a
set of principles gradually evolved and refined by a jurisprudence extending
over many centuries, with little interference by a legislative body.’ Buckland
also remarks, probably on the basis of Rotondi’s studies, that ‘of the many
100 D. GORDON
hundreds of leges [statutes] that are on record, no more than about forty
were of importance in the private law,’ so that at least in the classical age of
Roman law statute, as far as private law is concerned, occupies only a very
subordinate position. (Leoni (1961), 1972, p. 83)
Jesús Huerta de Soto can be placed firmly in the tradition of Hayek and
Leoni. In Money, Bank Credit, and Economic Cycles, he explicitly invokes
Leoni: “Indeed, Bruno Leoni’s great contribution is having shown that
the Austrian theory on the emergence and evolution of social institutions
is perfectly illustrated by the phenomenon of common law and that it was
already known and had been formulated by the Roman classical school of
law” (Huerta de Soto (1998), 2020, p. 22). He goes on to say, “In short,
it was Leoni’s opinion that law emerges as the result of a continuous trial-
and-error process, in which each individual takes into account his own
circumstances and the behavior of others and the law is perfected through
a selective evolutionary process. The greatness of classical Roman jurispru-
dence stems precisely from the realization of this important truth on the
part of legal experts and the continual efforts they dedicated to study,
interpretation of legal customs, exegesis, logical analysis, the tightening of
loopholes and the correction of flaws; all of which they carried out with
the necessary standards of prudence and equanimity” (Ibid., pp. 23–24).
One can, if so minded, see the position just sketched out as the dialecti-
cal synthesis of the pro-state and anti-state thesis and antithesis. If so
minded—I advance this only as a speculation I hope readers will find
amusing, if nothing more.
Two cautions before I close. I have not attempted to adjudicate between
the positions described here but have rather sought to present them so
that readers can form their own judgment. I will not disguise my own
opinion, if it is a matter of any interest, that the Rothbardian approach is
the correct one. Further, in contending that to see law in the way described
permits one to avoid the question of the necessity of the state, I do not
mean to suggest that Huerta de Soto has himself argued explicitly for this
thesis. Rather, my contention is that it is useful to interpret him in this
way. Whether he would agree, should he read this chapter, I cannot ven-
ture to say, but I hope that he will accept it as a tribute to a great econo-
mist and scholar.
References
Hayek, F. A. (1973). Law, Legislation, and Liberty. University of Chicago Press.
Huerta de Soto, J. (2020). Money, Bank Credit, and Economic Cycles. 4th ed,
Mises Institute.
Leoni, B. (1972). Freedom and the Law. Nash Publishing.
Mises, L. v. (1998). Human Action. Mises Institute.
Rothbard, M. N. (2009). The Anatomy of the State. Mises Institute.
Dynamic Efficiency and a Judgment-Based
Approach to Entrepreneurship: An Integrated
Thesis for Development Economics
I was admitted to Jesús Huerta de Soto’s master’s program and graduated in

2014. From 2015 to 2020, I was studying a doctoral degree in economics at the
Complutense University of Madrid (UCM). My thesis was about China’s first
modern central bank (1927–1949) from the Austrian monetary perspective
(Wang, 2020). With the joint help of my thesis mentor Prof. Jose Luiz Garcia
and Jesús, I graduated with cum laude.
Jesús Huerta de Soto’s enthusiasm for teaching inspired me. In an academic
conference in 2016, due to my lack of confidence, I did not present any paper.
Later, Jesús came to me, “William, you should also present your paper the next
time. Don’t be afraid of making mistakes, because this conference is exactly for
you young people!” From then on, I no longer have any fear of showing my
academic achievements. Perhaps it is a coincidence of history. Both Jesús and I
graduated with Ph.D. in Economics from the UCM. I hope the alma mater’s
connections with Jesús are not just a coincidence but also a starting point for a
young student from Asia to inherit his passion for economics and liberty.
W. H. Wang (*)
e-mail: hongsong.wang@universidadeuropea.es

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_10
104 W. H. WANG
In this contribution, I will discuss an integrated version of entrepreneur-

ship theory based on Jesús Huerta de Soto’s theory of dynamic efficiency
(TDE) and the judgment-based approach (JBA) to entrepreneurship the-
ory. There are similarities and interconnections between the two views.
Both of them emphasize the incentives that private property rights provide
to the entrepreneurs and the characteristics of entrepreneurial decision-
making under uncertainty. I also argue that creativity and coordination as
dynamic efficiency go beyond the neoclassical economics’ resource alloca-
tion criteria under static and given conditions and correspond to the risks
and uncertain environment that the entrepreneurs face, which Frank
Knight and the JBA emphasize. Finally, I argue that the new theory will
also provide unique elements to the Austrian development eco-
nomic theory.
The Austrians define entrepreneurship as the driving force of the mar-
ket economy (Mises, [1949] 1998, p. 249). Entrepreneurship consists of
two aspects. In the broad sense, the entrepreneur is defined as an “acting
man exclusively seen from the aspect of the uncertainty inherent in every
action and every action is embedded in the flux of time and therefore
involves a speculation” (Mises, [1949] 1998, p. 254). In the narrow sense,
the entrepreneur is defined as the person who makes a profit by correctly
judging the difference between the current price and the expected price in
the future.
Efficiency is a concept related to the effectiveness with which the avail-
able means are deployed to reach ends—no matter the character of these
plans. It follows that the word “dynamics” is derived from the Greek
δυναμικός, meaning “causing to move.” The term “static” is from στατικός,
which means “causing to stand” (Espinosa et al., 2020). For any individual,
enterprise, institution, or an entire economic system to achieve their targets,
the essential goal is not so much to prevent the waste of specific means con-
sidered known and given (static efficiency), but to continually discover and
create new ends and means. If entrepreneurial creativity constantly shifts the
production possibilities frontiers, the creative flow of new ends and means
has yet to be envisioned (Huerta de Soto, 2009, pp. 10–11). Therefore,
dynamic efficiency is defined as entrepreneurial coordination and creativity
(Huerta de Soto, 2008, 2009, pp. 10–11; Wang, 2017).
Further, the theory of dynamic efficiency (TDE) argues that the ethics
of private property rights is both the sufficient and necessary condition of
dynamic efficiency (Huerta de Soto, 2009, 2010). As a fundamental insti-
tution that characterizes the market economy, private ownership means
DYNAMIC EFFICIENCY AND A JUDGMENT-BASED APPROACH… 105
total control of services derived from a good (Mises, [1949] 1998,

pp. 258–259). Private property ethics is a necessary condition because if
the ownership of the fruits of each action is not respected, the most impor-
tant incentive to create and discover profit opportunities is removed:
to impede the private ownership of the fruits of each human action is to

remove the most powerful incentive to create and discover profit opportuni-
ties as well as the fundamental source of creativity and coordination that
propels the system’s dynamic efficiency. (Huerta de Soto, 2009, p. 21)
Moreover, an environment of freedom, in which entrepreneurs are not

coerced, and their private property is respected, is a sufficient condition
for dynamic efficiency because it provides the motivation and fosters the
entrepreneurial creative and coordination process as dynamic efficiency:
given the vital drive which characterizes all human beings, an environment
of freedom in which they are not coerced and in which their private property
is respected constitutes a sufficient condition for the development of the
entrepreneurial process of creativity and coordination which marks dynamic
efficiency. (Huerta de Soto, 2009, p. 21)
Hence, the TDE shows the characteristics of entrepreneurial decision-

making under uncertainty. Although private property rights can incentiv-
ize entrepreneurship, the entrepreneurs must act and judge to produce
and serve consumers through their own creation and coordination. This
understanding is a manifestation of the risk and uncertain environment
that the entrepreneurs must bear. These characters connect the TDE and
the judgment-based approach to entrepreneurship (JBA).
The Joint Nature Between Dynamic Efficiency

and Judgment-Based Approach
The JBA defines entrepreneurship as judgmental decision-making under

uncertainty. Especially, the decision-making is about the resources the
decision-maker owns and controls to satisfy future preferences (Foss &
Klein, 2012, pp. 93 and 99). The Austrian theory of heterogeneous capi-
tal is an antecedent of the JBA (Böhm-Bawerk, 1884–1912; Lachmann,
1956; Menger, 1871). Judgment is not about imagined entrepreneurs
who are only alert about opportunities without capital (Kirzner, 1973),
106 W. H. WANG
but the real and flesh-and-blood entrepreneurs who make economic

appraisals own capital, make resource allocations, and earn profits (Foss &
Klein, 2012; Garrison, 2001; Hayek, 1931, 1941; Salerno, 1990, 2008).1
The early concept of entrepreneurship as judgment can be traced back
through Cantillon (1755), Say (1803), Fetter (1905), Clark (1918),
Knight (1921), Mises (1949), and Marchal (1951, pp. 550–551; Marchal
considered that the firms are the entrepreneurs per se). In particular,
Knight and Mises emphasize uncertainty as a necessary ingredient in
explanations of entrepreneurial profit. It is also an essential part of theoriz-
ing about the social organization. Uncertainty is treated as the ability to
articulate and communicate or transfer estimates about the future.
It is a world of change in which we live, and a world of uncertainty. We live

only by knowing something about the future; while the problems of life, or
of conduct at least, arise from the fact that we know so little. (Knight,
1921, p. 199)
Although the JBA argues that the entrepreneurs always make economic
calculations under the resources they have already owned, it also recog-
nizes that the entrepreneurs have to make judgments under uncertain
conditions (Foss & Klein, 2012, p. 120). Due to this criterion, the entre-
preneurs make judgments both in the ex-ante and ex-post positions of
entrepreneurial production. One JBA antecedent even clearly distinguishes
static efficiency and dynamic efficiency like the TDE (Clark, 1918,
p. 122).2 The emphasis on the entrepreneurial judgments on breaking the
given resource allocation and making entrepreneurial judgments is pre-
cisely what the TDE emphasizes.
Both the JBA and the TDE treat the entrepreneur as a coordinating
agent to make plans and pricing (Kirzner, 1973; Knight, 1921). While the
TDE emphasizes the role of entrepreneurial alertness (the Kirznerian type
entrepreneurship), it also points out that such vigilance has a static feature
(Huerta de Soto, 2010, p. 19). Moreover, it might not conform to the
complete characteristics of entrepreneurial action. Besides, although
Kirzner emphasizes the alertness to opportunity as a feature of
1
Although Israel Kirzner (1966) does perceive the importance of capital in production, his
alert-type entrepreneurs do not necessarily hold capital.
2
Salerno considers efficiency as just economizing. “[E]nds and means are assumed as data
given to the economic theorist and not to the economizing agent whose choices are the
subject of analysis.” See Salerno (2009, p. 99).
entrepreneurship (Kirzner, 1973, p. 83), he also recognizes the decision-

making character of entrepreneurship (Foss & Klein, 2012).
Hence, the JBA includes the coordination feature of the TDE. On the
other hand, the JBA also shows the importance of entrepreneurial creativ-
ity. It defines entrepreneurial creativity as “exploring, defining, and rede-
fining the problem space in the pursuit of new opportunities” (Foss &
Klein, 2012, p. 95). Besides, the JBA punctures the importance of the
entrepreneurial experience when relating entrepreneurial creativity.
“Experts not only have a larger mental database of actual experiences to
draw from, they also have better access to it than novices do” (Dew et al.,
2009, p. 291).
For the JBA, the entrepreneurs also use their experiences or judgment
capacity to deal with new problems and environments that they may
encounter. Therefore, the JBA includes the creativity feature of the entre-
preneurs, in line with the TDE’s definition of entrepreneurial coordina-
tion as one of the two features of dynamic efficiency.
Like the TDE, the JBA also emphasizes the role of private property
rights in enhancing entrepreneurship. The antecedents of the JBA, the
transaction cost and property rights theories, had established a foundation
of the property rights perspective (Alchian, 1965; Barzel, 1997; Coase,
1937, 1960, 1988; Hart, 1995; Williamson, 1996). On this basis, the
entrepreneurs with capital (private property) can make (future) decisions
of how to use their heterogeneous assets under an uncertain market envi-
ronment (Foss & Klein, 2012, p. 40). Property rights help entrepreneurs
attribute their assets and help them discover better ex-post entrepreneurial
opportunities.
Entrepreneurs who seek to create or discover new attributes of capital assets

will want ownership titles to the relevant assets, both for speculative reasons
and for reasons of economizing on transaction costs. (Foss & Klein,
2012, p. 128)
Therefore, the JBA also emphasizes private ownership when the entre-
preneurs are acting in speculation and economizing. The JBA’s recogni-
tion of the entrepreneurs’ creative and coordinating functions cooperates
with the TDE’s position on how private property rights enhance dynamic
efficiency.
108 W. H. WANG
Closure: TDE, JBA, and Austrian

Development Economics
As traditional neoclassical development theory ignores the role of entre-
preneurs (Huerta de Soto, 2009, p. 27) and does not contain capital the-
ory (Foss & Klein, 2012), it is urgent to mend these deficiencies.3 The
above texts have shown that a new theory linking TDE and JBA, TDE-
JBA, will enrich modern development economics. The TDE shows the
characteristics of entrepreneurial decision-making under uncertainty.
Although private property rights can incentivize entrepreneurship, the
entrepreneurs must act and judge to produce and serve consumers through
their own creation and coordination. This understanding is a manifesta-
tion of the risk and uncertain environment that the entrepreneurs must
bear, as JBA shows. These characters connect the TDE and the judgment-
based approach to entrepreneurship (JBA). In many developing countries,
entrepreneurs face more significant uncertainty in decision-making due to
the lack of capital and the relatively defective market and political environ-
ment. If policy formulation is conducive to protect private property, it will
promote the dynamic efficiency of entrepreneurs and economic develop-
ment. I hope this new perspective will elevate the theory of development
economics to a more comprehensive version.
References
Alchian, A. A. (1965). Some Economics of Property Rights. Il Politico, 30,
816–829. Reprinted in Alchian, Economic Forces at Work. Indianapolis: Liberty
Press, 1977.
Barzel, Y. (1997). Economic Analysis of Property Rights (2nd ed.). Cambridge
University Press.
Böhm-Bawerk, E. V. (1884–1912). Capital and Interest. Libertarian Press, 1959.
Cantillon, R. (1755). Essai sur la nature du commerce en général. Macmillan, 1931.
Clark, J. B. (1918). Essentials of Economic Theory as Applied to Modern Problems of
Industry and Public Policy. The Macmillan Company.
Coase, R. H. (1937). The Nature of the Firm. Economica, 4, 386–405.
Coase, R. H. (1960). The Problem of Social Cost. Journal of Law and Economics,
3(1), 1–44.
3
For more about the recent Austrian studies on development economics, see Wang and
Vegas (2017), Wang (2018), Espinosa et al. (2020), Espinosa (2021), Wang et al. (2021).
Coase, R. H. (1988). Notes on the Problem of Social Cost. In R. H. Coase (Ed.),
The Firm, the Market, and the Law. University of Chicago Press.
Dew, N., Read, S., Sarasvathy, S. D., & Wiltbank, R. (2009). Effectual Versus
Predictive Logics in Entrepreneurial Decision-Making: Differences Between
Experts and Novices. Journal of Business Venturing, 24(4), 287–309.
Espinosa, V. I. (2021). La teoría del desarrollo económico: una investigación sobre la
esencia del desarrollo económico con una propuesta de reforma del estado para
Chile. Rey Juan Carlos University.
Espinosa, V., Wang, W. H., & Zhu, H. J. (2020). Israel Kirzner on Dynamic
Efficiency and Economic Development. Procesos de Mercado: Revista Europea de
Economía Política, 17(2), 283–310. https://doi.org/10.52195/pm.v17i2.106
Fetter, F. A. (1905). The Principles of Economics. The Century Co.
Foss, N. J., & Klein, P. G. (2012). Organizing Entrepreneurial Judgment: A New
Approach to the Firm. Cambridge University Press.
Garrison, R. W. (2001). Time and Money: The Macroeconomics of Capital Structure.
Routledge.
Hart, O. D. (1995). Firms, Contracts, and Financial Structure. The
Clarendon Press.
Hayek, F. A. (1931). Prices and Production. Routledge and Sons.
Hayek, F. A. (1941). The Pure Theory of Capital. University of Chicago Press.
Huerta de Soto, J. (2008). The Austrian School: Market Order and Entrepreneurial
Creativity. Edward Elgar.
Huerta de Soto, J. (2009). The Theory of Dynamic Efficiency. Routledge.
Huerta de Soto, J. (2010). Socialism, Economic Calculation and Entrepreneurship.
Edward Elgar.
Kirzner, I. M. (1966). An Essay on Capital. Augustus M. Kelley.
Kirzner, I. M. (1973). Competition and Entrepreneurship. University of
Chicago Press.
Knight, F. H. (1921). Risk, Uncertainty and Profit. Augustus M. Kelley.
Lachmann, L. M. (1956). Capital and Its Structure. Sheed Andrews and
McMeel, 1978.
Marchal, J. (1951). The Construction of a New Theory of Profit. American
Economic Review, 41(4), 549–565.
Menger, C. (1871). Principles of Economics. New York University Press. 1985.
Mises, L. v. (1949). Human Action: A Treatise on Economics. Ludwig von Mises
Institute. 1998.
Salerno, J. T. (1990). Ludwig von Mises as Social Rationalist. The Review of
Austrian Economics, 4(1), 26–54.
Salerno, J. T. (2008). The Entrepreneur: Real and Imagined. Quarterly Journal of
Austrian Economics, 11(3), 188–207.
Salerno, J. T. (2009). Lionel Robbins: Neoclassical Maximizer or Proto-
Praxeologist? Quarterly Journal of Austrian Economics, 12(4), 98–110.
110 W. H. WANG
Say, J. (1803). In C. R. Prinsep, Trans. and Clement C. Biddle (Ed.), A Treatise
on Political Economy, or the Production, Distribution and Consumption of Wealth
(1855, Claxton, Remsen & Haffelinger).
Wang, W. H. (2017). Jesús Huerta de Soto: The Synthesizer of the Austrian
School. Procesos de Mercado: Revista Europea de Economía Política, 14(2),
173–202. https://doi.org/10.52195/pm.v14i2.80
Wang, W. H. (2018). Marketization and Limited Government Reforms in the Xi
Jinping Political Era: A Policy Analysis. New Perspectives on Political Economy,
14, 91–112.
Wang, W. H. (2020). Central Banking in War Times: China, 1927–1949.
Universidad Complutense de Madrid.
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Política, 14(1), 123–171. https://doi.org/10.52195/pm.v14i1.90
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Williamson, O. E. (1996). The Mechanisms of Governance. Oxford University Press.
The Ultra-Reactionary as a Radical
Libertarian: Carl Ludwig von Haller
(1768–1854) on the Private Law Society
Hans-Hermann Hoppe
Libertarianism is logically consistent with almost any attitude toward culture,

society, religion, or moral principle. In strict logic, libertarian political doc-
trine can be severed from all other considerations; logically one can be—and
indeed most libertarians in fact are: hedonists, libertines, immoralists, mili-
tant enemies of religion in general and Christianity in particular—and still
be consistent adherents of libertarian politics. In fact, in strict logic, one can be
a consistent devotee of property rights politically and be a moocher, a scamster,
and a petty crook and racketeer in practice, as all too many libertarians
This chapter is based heavily on Hoppe (2021).
H.-H. Hoppe (*)

University of Nevada, Las Vegas, Las Vegas, NV, USA
Ludwig von Mises Institute, Auburn, AL, USA
Property and Freedom Society, Bodrum, Turkey
e-mail: hoppe@mises.com

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_11
112 H.-H. HOPPE
turn out to be. Strictly logically, one can do these things, but psychologically,
sociologically, and in practice, it simply doesn’t work that way. (Rothbard,
2000, p. 101, emphasis added)
A considerable part of my writings in recent years has been concerned

with this very last half-sentence of Rothbard’s and its wider implications.
Central to the libertarian doctrine are the ideas of private property, of its
original acquisition and its transfer, and the corresponding principle of
non-aggression. And indeed, it can be safely stated that recognition of
these ideas and principles is a necessary requirement of human society, of
people living together and cooperating with one another in peace. Just as
certainly, however, recognition and adherence to these ideas and princi-
ples are not sufficient to make for conviviality, that is for friendly neigh-
borly and communal relations among men. For this, as Edmund Burke
emphasized, manners are actually more important than any laws. More
specifically, the manners typically associated with so-called bourgeois
morality: of responsibility, conscientiousness, truthfulness, honesty and
chivalry, respect- and helpfulness, foresight, courage, self-discipline, mod-
eration and reliability.
There is no need to say much more here on this subject, since I have
extensively written on it elsewhere—except to add this. With my view
regarding the utmost importance of bourgeois morality to be combined
with libertarian law to make for convivial living, I willy-nilly attained the
position of one of the most prominent contemporary “right” or “realistic”
libertarians and as such became a favorite enemy not just of “leftists” and
“greens” in general, but especially and in particular also of all so-called
left, progressive and bleeding-heart libertarians: that is of those folks, who
propagate such “liberating” messages as “anything peaceful goes” (any
lifestyle, indeed, the more abnormal or “alternative” the better, such as
LBGT, etc., including, one might wonder, even peaceful pedophilia,
necrophilia and incest?), “respect no authority” (not of fathers or mothers,
nor anyone “better” or “superior”) and “live and let live” (never discrimi-
nate against or exclude anyone for any conceivable reason whatsoever).
While such “liberators” love to denounce me as a traitor to libertarian-
ism: a homophobe, a xenophobe, a racist, a closet fascist and a crypto-
Nazi, to their great dismay, a large and growing contingent of
libertarian-minded people has in the meantime come to recognize that it
is actually they, who have brought the libertarian doctrine into increasing
THE ULTRA-REACTIONARY AS A RADICAL LIBERTARIAN… 113
disrepute, and that only a radical break with them and a rightward turn to
realism can restore libertarianism to intellectual respectability.
Which brings me to the topic of this essay. This rightward turn to real-
ism has also led to a reassessment of intellectual history and a reevaluation
of its various protagonists. More specifically it has drawn my attention to
the work of Carl Ludwig von Haller1 and the discovery of Haller as a pre-
cursor of a realistic-right libertarianism, and indeed its most radical form,
that is of a private law society (see pp. 16–17).
Haller was once famous but today elicits hardly more than antiquarian
interest. He is occasionally still mentioned and claimed by conservative
writers as one of their own, but generally dismissed even by them as an
“ultra-reactionary,” long since outdated by the development of modern
political philosophy and the realities of the modern state. And indeed,
Haller was not just an outspoken opponent of the French Revolution and
of Napoleon (chaps. 8 and 9, pp. 228–259), he considered them the ulti-
mate, catastrophic outcome of fundamentally wrong ideas propagated and
spread by political philosophers since the seventeenth century (chap. 6,
pp. 37–79). After some highly promising beginnings with Hugo Grotius,
who is charged with only a few minor confusions, Haller diagnoses by-
and-large nothing but intellectual decline: starting, to mention here only
the (still) most famous protagonists, with Hobbes, continuing through
Locke and Pufendorf, and culminating with Montesquieu, Rousseau and
Kant (the political philosopher, not the epistemologist!), as the most con-
fused and dangerous ideologues with their notion of a “social contract.”
(More on this later.)
Dismissed, then, by most of his contemporaries (and practically all
moderns) as an arch-enemy of the “glorious” enlightenment project
(indeed, Haller typically referred to the enlightenment philosophers
depreciatingly as sophists), Haller came under additional fire by the
“great” Hegel. In his Grundlinien der Philosophie des Rechts of 1820 (para-
graph 258), Hegel presented Haller as an unabashed advocate of a crude
power naturalism, that is of arbitrary rule by the powerful and mighty.
Falsely and deceptively, though, as Haller’s main work also contains a
1
The present essay is based exclusively on the first, foundational volume of this work and
all references are to this volume: “Restauration der Staats-Wissenschaft: Darstellung,
Geschichte und Critik der bisherigen falschen Systeme. Allgemeine Grundsaetze der entgegeng-
esetzten Ordnung Gottes und der Natur,” (second expanded and improved edition,
Winterthur 1820).
114 H.-H. HOPPE
chapter 14 (pp. 388–409) on the very limitations of power, and a follow-

ing chapter 15 (pp. 410–443) on the right of resistance and in particular
the right to self-defense and self-justice that, owing to the wide range and
extent assigned to it by Haller, must appear to contemporary ears nothing
short of revolutionary (see esp. p. 418, fn. 6 and p. 420, fn. 12).
Before this background relating to the history of ideas I shall now
attempt to present Haller as a radical libertarian. This, to the best of my
knowledge, has never been done before. In general, although his own
work is massive in volume, the literature on Haller, especially since the
second half of the twentieth century, is rather sparse. It mostly comes from
conservative sides and, as most conservative thought, is typically weak on
analytical rigor and in any case completely unfamiliar with modern liber-
tarianism (at least that is my provisional impression, as I admittedly have
not carefully researched the matter). Libertarians, on the other hand, have
systematically neglected Haller, owing most likely to his reputation as a
reactionary conservative with a notable predilection of princely or monar-
chical rule (something anathema in libertarian circles at least until my
Democracy the God That Failed).
While a first, then, my attempt at a reconstruction of Haller as a radical
libertarian is hopefully not the last. In fact, I hope that my little piece will
entice other right-minded libertarians to likewise take a closer look at
Haller (notwithstanding Haller’s often tiresome, laborious and long-
winded prose). Especially, since my own concern here is exclusively with
the first volume of Haller’s main, six-volume treatise, presenting only the
most basic principles of his social philosophy, and being rather brief and
sketchy even in this limited task.
Encountering Haller’s central thesis for the first time: that the existence
of states is in accordance with natural (and divine) law, that states are nec-
essary and universal social institutions, that they are manifestations of an
unchanging human nature, and that they have as such always existed and
will always exist—many contemporary libertarians (and most certainly all
radical libertarians) will initially be taken aback. Doesn’t this sound rather
statist? How can one nonetheless claim Haller to be a libertarian? This
puzzle is immediately resolved, however, once it is realized that Haller’s
definition of a state differs fundamentally from the modern, Weberian
definition of the state as a territorial monopolist of violence and ultimate
decision-making. Or more precisely, Haller categorically distinguishes
between “natural” states, as part of a natural social order, and “artificial”
states, that is the alleged outcomes of a so-called social contract, that stand
in systematic violation to divine law and the law of nature. Whereas natural
states, as we shall see, are subject to the provisions of private law (essen-
tially property and contract law) and as such, as any private law subject or
institution, conceivably may commit unjust acts (and hence also may give
cause to justifiable resistance), artificial states, which according to Haller’s
definition include practically all present, modern states subject to so-called
public law represent institutions that are from the outset and per construc-
tion unjust (and hence always and invariably give cause to justifiable
resistance).
According to Haller, natural states arise spontaneously or organically—
that is: “naturally”—out of the inexorable fact of human inequality: out of
the fact that there are strong and weak, wise and foolish, diligent and lazy,
acquisitive and dull, rich and resourceful and poor and dependent people
(chaps. 16 and 17, pp. 444–462). The inevitable result of these inequali-
ties is a hierarchical, vertical structure of each and every human society,
with a more or less complex, mutually beneficial system of dependencies
and servitudes on the one hand and corresponding freedoms and liberties
on the other. Of course, Haller is not (and cannot at the time of his writ-
ing be) familiar with the Ricardian law of association (as best elucidated by
Ludwig von Mises some two hundred years later), which provides proof of
how a “superior, better or more productive” as well as an “inferior, worse
or less productive person” can both benefit from mutual cooperation, but
he anticipates this fundamental insight. He recognizes the natural ten-
dency of the weak to seek help and assistance from the stronger and of the
foolish and dull to consult and ask the wiser for knowledge and advice,
and yet he also sees the benefits provided to the strong and the wise by
their inferior or subordinate vassals, servants, clients, pupils and students.
And he concludes from this observation that there exists a natural ten-
dency, in all of human society, for the “mighty” to rule the “weak” to their
mutual advantage (see also pp. 301 ff).
According to Haller, the mutually advantageous—non-injurious—
character of the natural, vertical or hierarchical structure of each and every
human society is best exemplified by the institution of a family, which also
provides the prototype of a natural state. Each family member—father,
mother and child—is subject to the same universal law and entitled to the
same rights belonging to every human person: to be free from aggression
by another person. Haller terms this law the “absolute” private law
(p. 341; p. 450, fn. 8; see also chap. 14, pp. 388–409). Their association
is voluntary and hence mutually beneficial, although never altogether
116 H.-H. HOPPE
contractual but, most definitely in the case of all children, plain natural or
customary and affected also by an element of love. The equality of father,
mother and child in terms of “absolute” private law and the voluntary
character of their relationship do not imply that they are also equals in
regard to what Haller terms “social” (or more appropriately “relative” or
“relational”) private law, however, which he considers the second, largely
customary, much neglected and underdeveloped branch of private law
(p. 450, fn. 8). Rather, the father (or the mother, in matrilineal societies),
as the owner of the common household, enjoys more liberties regarding
household matters than the mother and child. He is the head of the house-
hold, whereas mother and children are his dependents. No one (at least at
the dawn of human civilization) ranks above him. He is the household’s
sovereign (and sovereign rule or sovereignty, according to Haller, is the
defining characteristic of a state, as we shall see in more detail in the fol-
lowing), subject and subordinate as such solely to the impersonal, eternal
and divinely inspired laws of nature, whereas mother and children are also
subject and subordinate to his personal authority.
To be sure, even as the sovereign ruler of his household the father can-
not justifiably do whatever he pleases. Apart from abstaining from aggres-
sion against other family members, he is bound by social private law to
honor certain contractual or customary obligations vis-à-vis mother and
child (different as these may be in both cases), and the neglect of these
duties vis-à-vis his dependents would release these from their service obli-
gations toward him. On the other hand, however, any neglect of duties on
the part of mother or child would entitle the father, more far-reaching and
consequential, to exclude or expel them from his household, thus assert-
ing his very position as a sovereign.
Whether as the result of natural developments or the sovereign’s abuse
of power and the dependents’ exercise of the right of resistance, then, this
if you will “original position” of a natural, vertical social order exemplified
by a family is bound to change and change again over time, continuously
bringing about new and more complex types of dependencies and corre-
sponding liberties, expanding or restricting the range of a sovereign’s rule,
and rendering erstwhile sovereigns lose and former dependents gain sov-
ereignty (see esp. chap. 19, pp. 482–493).
The children (and subsequently their children), for instance, may leave
the parental household and strike out on their own. Presumably, they
thereby gain liberties not previously enjoyed, but they may settle on land
owned by their fathers, keep working in their fathers’ business or
otherwise keep relying on their ongoing assistance. Hence, even if the

children’s liberties may have significantly increased, they are not sover-
eigns regarding their newly founded separate households, but remain qua
renters or employees a sovereign’s dependents. By the same token, the
sovereign, as the result of this development, gains a greater number of
dependents, all the while his direct control of each of them is successively
diminished by the interposition of a steadily growing number of interme-
diate authorities and their respective liberties.
Alternatively, the children strike out on their own and establish another
separate household, completely independent of their original home. Thus,
a new sovereign head of household—another state—with its very own
dependents is created, standing in a purely “extra-social” relation with
other sovereigns. That is, his relationship with other sovereigns is regu-
lated exclusively by absolute private law or, synonymously with this, by the
law of nations or, in libertarian lingo, by the non-aggression principle.
As well, just as established sovereigns—or states—may increase their
number of dependents or new sovereigns may come into existence, so
established states may lose their erstwhile dependents in that these break
their ties with their former ruler to become independent or attach them-
selves to another sovereign, or they may lose their former sovereignty alto-
gether and become instead dependents by going broke and being taken
over by either another sovereign or some former upstart-dependent, for
instance.
The picture of a natural social order emerging from Haller’s writings,
then, is this: Relations between people can be of two types: extra-social or
social (pp. 337ff.).
Extra-social relations exist between people who have nothing to do
with each other, who stand side by side, independent of each other, as
equals, as man to man, either in peaceful co-existence or else at war with
each other. Yet while much attention has been paid by political philoso-
phers to such relations as they exist for instance between various indepen-
dent kings, states or nations, but also between someone individual Hans
in Germany and some individual Franz in Austria, and while extra-social
relations are certainly part of a natural social order, they are neither the
original nor the primary, dominant, most characteristic or interesting part
of a natural order. Rather, extra-social relations only emerge out of prior
social relations, with the prime example being that of the relation between
father, mother and child. These, as already noted, do not stand side by side
and independent of each other but are connected with each other through
118 H.-H. HOPPE
various dependencies, and it is only through the separation of these origi-

nally socially connected individuals into different households or families,
then, that extra-social relations between people come into existence. Thus,
in every social order exceeding the size of a single family, then, people
stand or find themselves always in both, extra-social and social relations to
other people.
As far as social relations are concerned, then, they all have their natural
origin in some mutual benefit arising (or expected to arise) from them (or
rather the inability of satisfying certain needs or attaining certain comforts
in isolation and without the cooperation with others). And there exist
three types of social relations that a person may enter.
For one, people can be associated with each other as equals, such as
brothers or sisters or as members of a club or a common interest group.
According to Haller, however, this is the empirically least frequent type or
form of social relation. Far more common instead is it for people to enter
into a social relation with others either as a master (or ruler) or else as a
servant (or dependent). The examples offered by Haller for this are plenty.
There is the father (or the mother) versus the child. There is the landlord
versus the tenant, the employer versus the employee, the producer versus
the consumer, the general versus the officer, the officer versus the soldier,
the master versus the apprentice, the teacher versus the student, the doc-
tor versus the patient, the priest versus the brethren, the patron and the
benefactor versus the beneficiary and the beggar, and so on.
Regarding these various forms of rulership and dependency, of superior
and inferior status, Haller emphasizes again and again their natural, mutu-
ally advantageous character. The various rulers did not impose their ruler-
ship on their corresponding dependents, nor did the various dependents
elevate and appoint their corresponding rulers to their superior position.
The rulers did not receive their status as rulers from the ruled, but they
had it and occupied it on account of their own talents or achievements.
Nor did any of the various dependents lose any of their freedoms or liber-
ties on account of their dependency, but they were dependents either by
nature (such as infants) or on account of their own voluntary choice so as
to satisfy needs or wants otherwise unattainable. As Haller sums it up
(p. 352): “The inferiors do not give anything to their superior, and he in
turn does not take anything away from them, but they help and use each
other; both acting within their own respective rights, equal regarding their
inborn, natural rights, and unequal in regard to their acquired rights do
they both exercise their rightful freedom in accordance with their own free
will and to the best of their abilities.”
While this portrait of the complex vertical structure of a natural social
order may strike some critics, such as the earlier mentioned left-libertarian
“respect no authority” types, for instance, as inconsistent with the well-
known economic doctrine of consumer-sovereignty, according to which it
is the demand from the side of the dependents, that is the consumers,
tenants, patients, students and so on, that make or break their alleged rul-
ers, and hence, if anyone at all, it is they (the dependents) who rule and
should be recognized as rulers, Haller’s picture is actually in full accor-
dance with economic doctrine and even adds an important, often neglected
or ignored aspect.
Of course, Haller is fully aware of the fact that every relationship
between ruler and ruled can be dissolved if it is no longer deemed mutu-
ally beneficial. The consumers may turn to another producer, the soldier
to another general, the students to another teacher, the patients to another
doctor and so on. As well, a former consumer may become a producer and
the producer consumer, the soldier general and the general soldier, the
student teacher and the teacher student, the patient doctor and the doctor
patient, and so on. But what never changes, owing to the natural inequal-
ity of all men, is the distinction between ruler (or superior) and ruled (or
subordinate) and the fact that in each and every type of social relationship
it is always the ruler qua ruler who contributes most to social well-being
and is the promoter of social advancement.
As well, Haller points out two more interrelated features characteristic
of a natural social order which are of great importance for its internal sta-
bility. For one, he notes that practically no one, no ruler and no ruled, is
exclusively ruler or ruled. Rather, every person is familiar with and has
learned to exercise both roles, of ruler and ruled, if only in different con-
texts or under different circumstances. The ruling father may also be a
dependent tenant, the ruling head of the local football club, and a depen-
dent employee. The dependent child may also be a ruling employer, a
doctor’s or lawyer’s dependent patient or client and a ruling teacher of
students. The officer may rule his soldiers and at the same be ruled by a
general, who is in turn subject to the rule of his landlord and so on.
Secondly and notwithstanding this intricate and ubiquitous intermix-
ture of the roles of ruler and ruled, however, there is in every sizable soci-
ety also a natural tendency toward social stratification, that is the emergence
of a ruling “upper” class of people enjoying greater liberties and comforts
120 H.-H. HOPPE
and a corresponding “lower” class of people with lesser liberties and

greater dependencies. Naturally, with all social relations being mutually
beneficial, there exists upward and downward mobility, but the stratifica-
tion in upper and lower social classes itself is to be taken as a natural ten-
dency. On one end of the extreme, there are people who are the heads of
households and at the same time major landowners, owners of farms, fac-
tories and firms, of mansions and rental properties; people who employ
hundreds or even thousands of employees, of advisors, teachers, lawyers,
doctors, managers, security guards, cooks, maids and servants, and so on.
On the other end of the extreme, there are day laborers, vagabonds, beg-
gars or the recipients of alms. And in between these extremes, then, there
exist countless gradations, and ceaseless fluctuations regarding the social
status of different people and the corresponding extent of liberties or
dependencies enjoyed or willingly sought and accepted by them.
Of course, Haller does not deny that this hierarchical order can be
skewed or distorted by violence, conquest and usurpation, and at the con-
clusion of this essay I will discuss the reasons, the fundamentally intellec-
tual errors, that Haller identifies as the source of any lasting or enduring
(rather than merely temporary) distortions, as they have become increas-
ingly characteristic of the contemporary world. However, the natural state
of affairs according to Haller is rule of and by the “mightier” (chap. 13,
pp. 355–387). That is to say, the top and the higher ranks of the social
hierarchy, the members of the upper class, are typically occupied and made
up of the best and most accomplished people, that is those endowed with
the greatest talents and of the highest achievements. And it is precisely
their status as “better,” more talented, accomplished and successful that
persuades and leads “lesser,” less talented, accomplished and successful
people to attach themselves to them as their dependents. To attach oneself
instead, to be dependent and ruled by someone inferior and of lesser
accomplishment is simply un-natural and absurd; and any such relation-
ship, should it ever come into existence, would invariably lead to strife,
resistance or rebellion. In distinct contrast, a person’s voluntary depen-
dency comes most naturally and easy the higher the rank or status of one’s
ruler, because the greater and more accomplished the ruler, the better and
more securely to satisfy one’s own needs. Thus, in peacetime, for instance,
writes Haller (p. 374), when one’s central concern is to live and to live
comfortably, people naturally turn to the wealthiest and most noble of
people for assistance. During war, on the other hand, when people’s main
concern is to be protected from aggression and destruction, they will
naturally subject themselves to the rule of the bravest and most cunning of
people. And occasionally, when, rarely enough, “big questions” rise to the
rank of contentious social issues or concerns, that is fundamental ques-
tions regarding right or wrong and true or false, people will look out for
the wisest of people and voluntarily subject themselves to their authority.
Indeed, notes Haller (p. 369), the natural law or principle that the supe-
rior will rule and exercise authority over the inferior and the inferior rec-
ognizes and accepts such relationship as natural and a matter-of-course
holds also in the field of games and sports: fame, honor, trophies and
prizes are invariably bestowed or awarded to the winners, the champions,
while the losers, however reluctantly, cannot but accept their defeat.
As well, this very law or principle of social stratification, as Haller
emphasizes again and again, provides at the same time the best assurance
of social stability and protection against social strife and unrest (pp. 377ff).
The stability of every society, that is the peaceful, tranquil and convivial
association of men, is always threatened from two sides. On the one hand
by the envy of the have-nots vis-à-vis the haves, and on the other hand by
the abuse of power by the powerful. Yet envy by the have-nots, even if it
cannot be entirely eradicated, is minimized or moderated to the very
extent that the position of the haves rests on superior talent or achieve-
ment. Indeed, the greater and more apparent the superiority of the haves,
the less and more attenuated the have-nots’ envy or resentment. And as far
as the abuse of power by the mighty is concerned, this too can never be
entirely ruled out, of course. But the more their position of power rests on
their superior talent and achievement and their authority and status is vol-
untarily acknowledged and accepted by others, the less reason is there for
them to abuse, offend or injure anyone. To the contrary, the more reason
for them to act noble and be generous vis-à-vis the less powerful or power-
less so as to maintain and secure their very position.
Before the backdrop of these considerations regarding the natural rule
of the “mighty” over the weak and needy, the stratification of people into
upper and lower social classes and the central importance in particular of
the members of the former class for the maintenance of social stability,
tranquility and the general welfare, and in light of our earlier discussion
regarding the role and position of the father qua head of a household as
prototype of a state, we can now proceed to Haller’s final exposition of his
doctrine of the “natural state.”
From the very outset, it should be recalled that Haller’s understanding
and definition of a natural state is entirely different from what we
122 H.-H. HOPPE
“moderns” have come to understand and mean by the term. Haller’s con-
cept of the state corresponds to its pre-modern usage, that is the meaning
it had throughout most of the Middle Ages. Hence the label “ultra-reac-
tionary” was attached to him by his modern critics.
The natural, physical basis of all states is land, that is the ownership of
contiguous or dis-contiguous pieces of ground land (p. 450, p. 460). The
owner and hence ruler of this land may be an individual person—a prince,
a king, an emperor, a czar, a sultan, a shah, a khan and so on—and the
state is hence referred to as a princely state or a principality. Or else the
owner is an association or cooperation of several individuals—of senators
such as in Rome, doges such as in Venice, or “Eidgenossen” (confeder-
ates) such as in Switzerland and so on—and the state is then referred to as
a republican state or a republic. In any case, however, whether ruled by a
prince or by some cooperative, every state and every state ruler is subject
to the same private law as any other, “lesser” property owner and person.
The difference between a state and the ruler of a state and other people
and their property, as Haller repeatedly emphasizes, is not a categorical
one, but merely one of degree (pp. 450 ff).
A prince’s direct rule extends only to his own property, just as in the
case of every other person and his property, and as we will see shortly, it is
only in regard to this “self-administration” of one’s own property that
there exists somewhat of a difference between a prince and everyone else.
In any case, as a private law subject, a prince does not rule over other
people and their property, however, (p. 479)—except insofar as these have
voluntarily attached themselves to the prince and entered into some sort
of social relationship with him to better satisfy this need or that. Hence, in
distinct contrast to the modern state, a prince may not unilaterally pass
legislative decrees or impose taxes on other people and their property
(p. 450, fn. 8). Rather, whatever dependencies or servitudes there may
exist vis-à-vis a prince they vary from one dependent to another, and in
any case they are all voluntarily accepted and may be dissolved once they
are no longer deemed mutually beneficial.—And Haller adds some illumi-
nating terminological observations to further clarify this status of a prince
as a mere private law subject (see p. 480, fn. 14): The most appropriate
way to refer to the status of a prince, king and so on, then, is to identify
him simply as the head of a particular household, such as the head of the
house of Bourbon, or the house of Habsburg, Hohenzollern or
Wittelsbach, and so on, for instance. Less appropriate, and already slightly
misleading is it to refer to them instead as the king of France, and the
kings of Austria, Prussia or Bavaria, because this insinuates, falsely, that

they are something like the owners of all of France, Austria and so on. And
entirely misguided is it to call them the government of France, Austria,
Prussia and Bavaria, as if they were merely the employees of the French,
Austrian, Prussian or Bavarian population.
Princes or, in the case of republics, senators, doges and so on are always
members of the upper social classes, of course. But it is not the size of their
land holdings, the number of “their people,” that is the number of their
directly or indirectly dependents, or their income or wealth that makes
them the heads of state. Indeed, there may exist people who own more
land, who employ more people, and whose income and wealth exceeds
that of a prince, senator or doge, and yet who do not qualify as heads of a
state (pp. 474–475). As a matter of fact, as the already mentioned exam-
ple, at the fictitious beginnings of mankind, of a single-family unit as pro-
totype of a state demonstrates, mere “size,” according to Haller, has
essentially nothing to do with the question of whether or not a social
relationship or position qualifies as a state. In fact, and especially notewor-
thy, Haller even expresses a strong preference for a multiplicity of small
principalities or republics (p. 432), very much along the lines of my own
call for a Europe of a thousand Liechtensteins rather than one unified EU,
as the best assurance against the possibility of the abuse of power on the
part of a state ruler.
So what, then, according to Haller, is it that distinguishes the head (or
heads) of a state, whether big or small, from all other persons and their
property? It is not, as has already been explained, that a prince or an asso-
ciation of senators would never stand or find himself (or themselves) in a
social position of inferiority. No one in a society based on the division of
labor is exempt from that sobering experience. Even the greatest of kings
need doctors and counselors and must bow to their superior authority, for
instance. Rather, summed up in just one word, what makes for a head of
state is sovereignty or independence (pp. 473–481). He (or they), who is
entirely free to make decisions regarding his person and property, because
there is no one person ranking above him to whom he owes a justification;
who is subject to no one else’s authority either by virtue of customs or
contract and who can accordingly do or not do with his property whatever
he pleases without having to answer to anyone, except God and the eter-
nal natural law—he (or they) qualify as head of state. And by contrast,
then: everyone who is someone else’s dependent or whose property is
subject to some sort of servitude, such as every vassal, lessee, employee,
124 H.-H. HOPPE
tenant, renter or debtor, for instance, does not qualify as a state, regardless
of how big, mighty, wealthy or influential he (or they) otherwise might
be.—As Haller admits and indeed repeatedly emphasizes, however, depen-
dence comes in degrees, and the difference between a sovereign and a
dependent is by no means as that between day and night. A dependency
might be so light as to be hardly noticeable, a dependent may even com-
mand more resources than a sovereign ruler and their different rank or
status may ultimately boil down to no more than a difference in promi-
nence and prestige.
From Haller’s definition of a head of state as a private law subject, dis-
tinguished from every other person merely by the sovereignty of his rule
over his own property, then, follows his categorical rejection of the by now
dominant alternative definition of a state as a protection agency and a
provider of justice.
For Haller, states qua states are essentially nothing else than a private
enterprise and as such have no common function or purpose (pp. 470–472).
That is not to say that they have no purpose. Every social institution and
relationship does have a purpose. But they have no common purpose, but
rather a variety or a multitude of different private purposes—and this
holds for states as well. The purpose and function of a state, then, is to
afford and allow its head(s) a good and comfortable life, according to his
(or their) own, varying and changing conception of what he (or they)
regard as a “good” and “comfortable” life. Most emphatically, however,
states cannot be defined as protection agencies or justice providers accord-
ing to Haller (pp. 463–465), because the task and the right to protect
one’s own person and property, that is to act in accordance with the prin-
ciples of natural law as laid down by God, applies equally to everyone and
to all social institutions and relations and hence cannot be considered as
unique to states and as their defining characteristic. Indeed, Haller notes,
people do not conclude contracts or enter into agreements that are self-
understood and a matter-of-course. And it is self-understood that you may
not injure other people or damage their property and that you may defend
yourself and use defensive violence if you are injured or your property is
damaged, taken or confiscated by others (see also chap. 15). Of course,
states, because of their greater prominence, may assume a more important
role as promoters and defenders of justice. But to promote and defend
justice is equally and at the same time also the inalienable right and obliga-
tion even of the lowliest of persons.
This brings me to the concluding section of the present essay.
At this point the subtitle of Haller’s magnum opus may be recalled:

Theory of the Natural-Social Order Contrasted to the Chimera of the
Artificial-Civil One. What has so far been presented is the first, positive
part of this work. That is, what Haller considers the natural outcome of
people living together, everywhere and at all times. This natural order is
not claimed to be perfect, of course. Nothing in human affairs is or ever
will be perfect. But it is the best possible arrangement to preserve all natu-
ral human liberties, to best satisfy everyone’s needs and adjust to changing
circumstances. Of course, like all human institutions it is subject to the
possibility of abuse, but within its framework it also best provides for the
means and measures to prevent, to combat, to avoid or to evade any
such abuse.
As should be completely obvious by now, however, Haller’s natural
social order and natural state have nothing whatsoever to do with modern
society and the modern state that we are all only too familiar with by now.
The modern state and modern society cannot even be considered as an
example and consequence of Haller’s state turned rogue. Rather, the
modern state and society, which Haller, writing some two hundred years
ago, terms the artificial state and the artificial-civil society and recognizes
as in the making by then already since about the seventeenth century and
coming into full fruition for the very first time with the French Revolution,
is a beast of a completely different nature.
The successive transformation and ultimate replacement of the natural
order and natural state by the modern, artificial one is the result of a fun-
damental intellectual error, relentlessly promoted in various, slightly dif-
fering but essentially always identical versions by countless “social contract”
theorists to this very day. Indeed, the result of an intellectual error and a
faulty theory of the grandest proportions, as Haller does not tire to dem-
onstrate in great detail (see esp. chap. 11). A theory, as he notes exasperat-
edly, so patently false, from beginning to end, as to be almost risible; a
chimera so devoid of common sense and detached from reality that only
an “intellectual”—a “sophist” in Haller’s terminology—could invent it.
And yet a theory that would literally turn the world upside down. That
would transform lowly servants into rulers of princes and children into
masters of parents (chap. 4, esp. p. 25, fn. 6; and also p. 284), and that
would be destructive of all human liberties (p. 335–336).
The theory, as summarized by Haller, boils down to four propositions
(pp. 295–296).
126 H.-H. HOPPE
Originally, in the state of nature, mankind had lived outside of any

social relations, that is in exclusively extra-social relations, side by side with
each other and in a state of complete freedom and equality.
However, in this state of affairs natural human rights and liberties were
not secure.
Hence, people associated with each other and delegated the power to
arrange for and assure general, all-around protection and security to one
or several people among them.
Through this institution of a state, then, the freedom of each individual
would be better and more securely safeguarded and protected than before.
Following Haller, I shall now, as my final task, take up each of these
propositions in turn to demonstrate, with all due brevity, the utter absur-
dity of the entire doctrine, its manifold internal contradictions and the
disastrous consequences following from its acceptance.
The first proposition and premise of the theory must already be rejected
as mere fiction or fake, without any factual basis whatsoever. Never has
anything like a state of nature as depicted by social contract theorists
existed anywhere. Never has anyone ever lived entirely outside of social
relations. If he did, he did not need a language as a means of communica-
tion, and if he does use a language instead this proves the existence of
social relationship with others. Indeed, as has been already demonstrated,
social relations, as exemplified by the institution of a family, precede extra-
social relations (which can come about only by the break-away of children
from parents). Nor, as the family institution and the fact that we are not
all born simultaneously but sequentially, one after another demonstrate,
has anyone ever lived throughout his entire life in a state of affairs charac-
terized by complete freedom and equality. Rather, from the very outset,
the state of human nature is characterized by unequal liberties and inequal-
ities, by rulers and ruled, masters and dependents. Such inequalities are
not the result or outcome of previous contracts or agreements or require
contracts or agreements for their explanation or justification. To the con-
trary, they precede all contracts and agreements and provide the natural
basis and justification for all mutually beneficial—agreed upon or con-
tracted—social relations and associations (see pp. 300–303).
The analysis of the second proposition does not fare any better. Even
critics of the social contracts theory let this proposition often slide by
uncommented. However, as Haller perceptively points out, it, too, gets
things upside down and puts the cart before the horse. True enough, the
potential danger emanating from some person C or the fear of an attack
by C may help tie A and B together. But the association of A and B is not
itself based on insecurity or fear. Rather, it is the result of mutual trust or
even love. A and B do not fear each other or believe their rights to be
endangered or infringed upon by their association, but to the contrary, A
and B trust or love each other and associate for this reason. Fear and mis-
trust are reasons not to associate, but to distance and separate oneself from
others. To assert instead, as Hobbes does, for instance, that social relations
emerge out of a state of affairs of universal fear, out of a bellum omnium
contra omnes, is simply absurd, then. As well, contra all social contract
theorists, as in particular the natural mutual attraction and association of
the sexes demonstrates once again, human cooperation based on trust and
love precedes all conflict and war, and human cooperation is always avail-
able and capable (again: not unfailingly, but as satisfactorily as humanly
possible!) of dealing also with such extra-ordinary, extra- or anti-social
events (see pp. 303–305).
Which brings us to the third proposition and with that to the very
height of absurdity. And it is here, then, with Haller’s criticism of this
thesis in particular, where any still lingering doubt in anyone’s mind about
the status of the author of a massive work concerning “The Restoration of
the Theory of the State” should finally be laid to rest, and Haller’s status as
a radical libertarian—in modern lingo: as an anarcho-capitalist—be firmly
cemented. Because here, two hundred years ago, Haller advances practi-
cally every single argument also leveled against the legitimacy of the (mod-
ern) state by contemporary libertarianism and libertarians in the tradition
of Murray Rothbard.
To begin with, it is noted that there exists no record whatsoever that
anything resembling a contract as imagined by social contract theorists has
ever been concluded anywhere. And Haller immediately cuts to the heart
of the matter as to why this is so and why any such contract is inconceiv-
able. In the state of nature, he writes (p. 322), everyone, for his protection
and security, could rely on his own powers and means of self-defense or he
could choose someone more powerful than himself, and equipped with
more or better means of protection, and attach himself at mutually agreed
upon terms to such a person as his vassal or servant; and he could termi-
nate and leave any such association and return to defensive self-sufficiency
or attach himself to another presumably better protector. Why, then,
Haller wonders, would anyone consider it an improvement, if he could no
longer choose his own protector and mode of protection but such a
128 H.-H. HOPPE
decision were made instead by others, that is “the people?” How is that
supposed to be freedom?!
More specifically, the mention of the “people” provides the keyword
for an entire barrage of embarrassing follow-up questions. Who are these
“people,” who supposedly delegate their powers to the state and its
head(s) so as to then assure all of their security and protection? Is it every-
one who can breathe, and if not why not (see pp. 312 ff)? Is it the entire
world population that makes up “the people?” Or are there different
“people,” and how then to draw the borderlines and determine who does
or does not belong to this “people” or that? And what about the fact that
there are constantly people dying and born? A contract can bind only
those, who actually concluded it, and hence, must not the contract be
continuously renewed and redesigned, then, whenever a newborn enters
the scene?
Moreover, why would the head of a household or a prince, for instance,
agree that his children or his servants should have an equal say in the selec-
tion of their joint ruler or overlord? And if they did have such a say, would
this not imply that some previously harmonious—mutually beneficial—
relationship between parents and children or between a prince and his
servants would thereby become increasingly infected by jealousy, tension
and strife? Likewise, regardless of who is considered and counted as a
member of the “people,” is it conceivable that all of them, unanimously,
would agree on who should be their overlord? And if that is not the case,
which can be taken as a certainty, how can this contract still be considered
binding also on those disagreeing or dissenting? And does this not imply,
then, that the entire complex network of harmonious relations character-
istic of a natural social order will be distorted or destroyed and be replaced
by a system of rival or even hostile parties and partisanship affecting and
infecting every nuke and cranny of the social fabric? (pp. 323–324)
Still: the questions do not cease. Whoever is appointed by one party of
the “people” as the supreme protector of all parties, then, that may impose
his will on everyone, supporters and dissenters alike—how far-reaching are
his competences? What constraints, if any, are put on his actions? Are peo-
ple still allowed to protect and defend themselves against injurious or
wrongful actions by others? May people still bear arms or build a fortress?
May a father still smack his son for gross misconduct? May an employer
still dismiss his employee for negligent behavior? May a landlord still expel
a delinquent tenant from his property or ban others from entry? Or must
everyone disarm and any or all of these potential conflicts come under the
purview of the state? Surely, there is no unanimous answer to be expected

to these questions. However, what can be asserted with certainty is that
the interposition of the state in any such matter is an infringement of natu-
ral law, a violation of private property rights and an arbitrary restriction of
human liberty, that is the very opposite of the alleged purpose of the insti-
tution of a state (pp. 328–330).
Last but not least, there remains still one more unanswerable question
to reveal once more the total muddle and confusion of the social contract
theory: Whoever is appointed by a part of the “people” to be—suppos-
edly—the entire “people’s” employee and the security provider and pro-
tector for all of them, he needs resources to do so. He needs manpower,
material goods and the means to finance them, and it is his employer, that
is the “people,” who must provide him with all that. But how much
money, personnel and protective gear is necessary to do the job? And who
among the people is supposed to contribute what part of the total? Surely,
it is impossible to ever reach a unanimous agreement on this question.
Certainly the head of state, to whom all powers had allegedly been dele-
gated, would ask for ever more resources, arguing that the more resources
he had at his disposal the more security he could provide. But why would
anyone who had not voluntarily chosen this person as his protector, who
deemed himself capable of providing for his own security or who regarded
his alleged protector as less than impartial, as a partisan or even as a dan-
gerous foe, hand over any of his money or other property to him so as to
be wasted or even used to oppress him and rob him of ever more of his
own property? Harmonious relations and voluntary services and payments
would be replaced by coercion, serfdom and taxes, and coercion, serfdom
and taxes, then, would be used for ever more future coercion, serfdom and
taxes (pp. 330–332).
The bellum omnium contra omnes, then, that did not exist in the state
of nature—it is actually only brought about by the institution of the (arti-
ficial) state, and it is continuously incited and promoted by the state so as
to steadily expand its own powers at the expense of the increasing loss of
all private liberties. And this horrendous state of affairs, then, that we owe
to the propaganda, the relentless intellectual claptrap of the social contract
theorists, Haller sarcastically notes, is what we are supposed to consider
the new and improved human freedom and liberty. What a cruel joke.
130 H.-H. HOPPE
References
Hegel, G. W. F. (1820). Grundlinien der Philosophie des Rechts. Berlin.
Hoppe, H.-H. (2021). The Idea of a Private Law Society: The Case of Carl
Ludwig von Haller. http://www.hanshoppe.com
Rothbard, M. N. (2000). Big-Government Libertarians. In L. Rockwell (Ed.), The
Irrepressible Rothbard. Ludwig von Mises Institute.
A Catholic View of Order, Creativity,
and Justice
Constanza Huerta de Soto and Ignacio Almará González
Blessed are those who hunger and thirst for justice, for they shall be satisfied.
(Matthew 5, 6)
Traditional Catholicism is framed within the classical Aristotelian-Thomist

worldview, which includes a notion of order and the existence of causality.
Complimentary to this worldview is the causal-realist paradigm that
includes the works of Austrian School thinkers such as Menger, Böhm-
Bawerk, Mises, Hayek, Rothbard, and Huerta de Soto. While not all of
these thinkers are Catholic, they share a proximity to Catholicism based
on their belief in the existence of causal regularity in the world of social
phenomena, which enables them to develop a science in the field of
economics.
There is also a relationship between the concept of creativity in tradi-
tional Catholicism, developed into the notion of dynamic efficiency by
Huerta de Soto, and its link to the creation of order in the universe, crucial
for the Thomist worldview.
C. Huerta de Soto (*) • I. Almará González

Madrid, Spain

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_12
132 C. HUERTA DE SOTO AND I. ALMARÁ GONZÁLEZ
The stance Huerta de Soto takes for the complete abolition of the state
and for the promotion of a productive system based on private property
and solidarity reinforces the idea of a connection between Huerta de
Soto’s personal faith and his intellectual work, which is born from the
causal-realist paradigm that goes back to Aristotle and was perfected by
both medieval and modern scholasticism.
Contextualization
Before analyzing the impact of Classical Catholicism and theology on
Huerta de Soto’s work, it is necessary to consider some basic assumptions
present in the commonly accepted knowledge of the world. This will help
us to understand the ideas that will be presented later on. These assump-
tions have to do with classical Aristotelian-Thomist philosophy, which
forms the basis of traditional Catholic cosmology.
This writing is intended as a tribute to my father. After giving birth to my first

child, I have needed the help of my husband to complete it. He has done most of
the investigation and writing. From an academic point of view, we have tried to
present several ideas in order to show how traditional Catholicism permeates the
work of my father, giving it meaning and orientation.
Faith has permeated my education and that of my five siblings. My parents,
imbued with a deeply Catholic spirit, impressed in us the conscience of not being
carried away by the general thinking of what is popular, “easy”, or fashionable.
They have taught us the importance of swimming against the tide and fighting
for what is just and true, despite the persecutions that may come from it.
In addition to moral conduct, the fight for virtue, and independence of mind, my
father always defended what he refers to as “the faith of the boatman”. That is, a
simple and humble vision of man with limited capacity to understand the
immensity of God. The faith of the boatman is similar to the trusting attitude of
a child who surrenders himself into the arms of his father.
This trusting attitude, in addition to being especially pleasing to God, is in my
view quite honest. The intellectually honest thinker, in his relationship with
divinity, understands he must not try to apprehend God but simply surrender
and worship. Additionally, the faith of the boatman is what prompted my father
to tirelessly lead us to the Holy Sacrifice of the Eucharist, throughout more than
thirty-five years of parenting. Despite our complaints, my father, along with my
mother, always brought us to the One who is the source of life. For this, I will be
eternally grateful.
A CATHOLIC VIEW OF ORDER, CREATIVITY, AND JUSTICE 133
The first of these is the assumption that the things that we perceive are
real. This means that what we perceive as external to our mind is some-
thing that exists in the physical world. Second, the certainty that the things
we know in the world are affected by different kinds of changes and that
these changes are real, not merely apparent or phenomenal. Third, the
assumption that in reality there are causal processes, meaning that there
are things that influence other things. The first we call “causes”, the sec-
ond “effects”. This certainty also implies that causality is something real,
and not a mere mental association of phenomena, or a mental category to
link phenomena, as some philosophers have said. Fourth, the fact that
things are contingent. Everything that happens in nature does not happen
out of necessity but is subject to contingency. Finally, the idea that the
processes that we see in nature can be explained in teleological terms,
meaning we can explain them as processes that are oriented to an end.
This can be deduced from ordinary experience, as we can generally attri-
bute natural ends to things (the plant grows to become the tree, water
evaporates to become gas, etc.)
All these certainties of ordinary knowledge, although accepted by the
common people, are not always accepted by philosophers. In fact, there
are many thinkers who have rejected many of these common knowledge
certainties. However, for the sake of this argument we will take these
assumptions as the starting point of the relationship we believe to have
found between Huerta de Soto’s thought and that of Classical Catholic
theology.
God, the Order in the World,

and the Austrian School
The Causal-Realist Paradigm

The existence of regularity is what allows us to undertake the study of
human action. If this regularity did not exist, we could not successfully
study the decisions in the plane of human interaction. Note that this regu-
larity is different from the one observed in natural phenomena, where
there is no intentional action by objects. The way an order can emanate
from unrestrained acting individuals is a mystery, beautifully described by
Rothbard in the following paragraph:
One reason why economic science has tended to focus its attention on the
free market is that here there is a certain kind of order emanating from a set
of actions, apparently “anarchic” and “devoid of any plan”. We saw that,
instead of the “anarchy of production”, which a less well-versed person
might notice in the free market, it arises in an orderly and structured way of
responding to the wishes of all people and capable of adapting to changing
situations. Thus, as we saw, the free and voluntary actions of individuals
combine in an orderly fashion, giving rise to apparently mysterious processes,
such as the formation of prices, income, money, economic calculation, prof-
its and losses, and production. (Rothbard, [1962] 2009, p. 876)
This view of the world, imprinted with causal regularity, is framed under
the assumption that causality is something real, and that processes that we
see can be explained in teleological terms. It is the basis of the causal-
realist paradigm, and the framework which distinguishes the work of the
theorists of the Austrian School of Economics (Carreiro & Carreiro, 2012).
Carl Menger, the founder of the Austrian School of Economics with his
work Principles of Economics, emphasizes developing a science that focuses
on discovering the cause-effect relationships or causal laws that would
explain economic phenomena such as the appearance of prices, wages, or
interest (Salerno, 2007). The intellectual movement initiated by Menger
in 1871 is composed of two assumptions. First, the idea already men-
tioned that causes exist. Second, that these causes have effects in reality,
where the studied phenomena are observed. As Salerno explains,
The praxeological method begins with the self-evident reality of human

action and its immediate implications. It then introduces other empirical
postulates that reflect the concrete conditions of action from which emerge
the historically specific market phenomena that the economist seeks to ana-
lyze. It is, therefore, necessarily about real things. (Salerno, 2009)
In the following paragraphs we will try to explain why this paradigm is

based on the traditional Catholic view.
Thomas Aquinas and the Order of the World

The fifth way is taken from the governance of the world. We see that things
which lack intelligence, such as natural bodies, act for an end, and this is
evident from their acting always, or nearly always, in the same way, so as to
obtain the best result. Hence it is plain that not fortuitously, but designedly,
do they achieve their end. Now whatever lacks intelligence cannot move
toward an end, unless it be directed by some being endowed with knowl-
edge and intelligence—as the arrow is shot to its mark by the archer.
Therefore some intelligent being exists by whom all natural things are
directed to their end; and this being we call God. (Thomas Aquinas, 2019,
part I, question 2, article 3)
In our daily experience we can observe that there is a certain regularity

in the behavior of things. Day is followed by night, winter by spring, the
planets rotate around themselves and around the sun, ice turns into water
and childhood is followed by maturity and senescence.
The universe has a certain order imprinted on it. This order is what
allows us to operate in the world. Without these regularities we would not
be able to establish goals and define the means necessary to reach them.
Regularity is self-evident, not only in the behavior of large objects such
as celestial bodies but also in medium-sized objects such as those present
in our daily life and in extremely small objects. Although these latter ones
might present certain stochastic behavior, they also tend to operate within
certain boundaries which are reasonably predictable by the observer.
According to traditional Thomist thought, causal regularity is embed-
ded in things themselves. For example, a match lights if it is rubbed against
a rough surface, or water can boil if it is heated over 100 °C. However,
under no circumstance can the match boil or the water catch fire.
According to Aristotelian-Thomist philosophy, we can say that each
thing tends toward something, meaning it has an end (not in praxeologi-
cal terms, since we are talking about inanimate things) that is included in
the essence of the thing itself. This is a teleological view of the material
world, that objects have in themselves a natural tendency. It means they
point toward a specific result, as in the case of the phosphorous match.
The opposite would imply pure chance.
This order printed on things (the fact that each thing tends to produce
a series of effects depending on its natural tendency) is what is known as
the “final cause” according to Saint Thomas. The philosopher and theolo-
gian distinguished between four basic causes: first, the material cause, that
is, what the object is made of; second, the formal cause, or characteristics,
that give the object its identity; third, the efficient cause, meaning what
produces the object, what makes it go from potential being to being in
action; fourth, the final cause, or purpose of that specific object.
The final cause is considered to “foreshadow” the object itself. Although
this might seem paradoxical, we can easily understand it with an example.
Let’s imagine that someone wants to build a house. Initially he will have
to make a projection of the house. Later, he will start to work on it. Finally,
the house will exist physically. The final cause is not the final product of
the built house, but the projection of the house in the mind of the builder
at the beginning of the process.
The house exists first as a projection in the intellect of the person who
wants to build it. It is clear, then, that prior to the existence of any object,
an intellect (a mind) is needed to make up the final cause toward which
any object is directed. This is a basic consideration of the Aristotelian-
Thomist perspective on the world.
Following this line of thought we could ask ourselves: where is the final
cause of the objects of the world and their intricate relationships?
In view of the above, if we scale up and assume the universe in its
entirety, we must think about a mind capable of projecting the complete
physical universe, including all matter, time, and space. This would be
something like a Supreme Intelligence or intellect existing outside the
universe (not constraint to physical matter, time, and space) that directs
things toward their ends and that does so continuously. The cause of all
causes, what we know as God.
This brief elaboration of the Fifth Way of Saint Thomas, based on the
explanation given by Edward Feser (2009, p. 110), summarizes the basis
of the orthodox Catholic worldview.
The world has an order given by God, who maintains it constantly. The
universe could not exist otherwise; just like the music that plays during a
concert cannot exist without the musicians playing it.
Adding to this, the existence of regularities gives meaning to natural
science, which ultimately should focus (from the classical perspective) on
discovering the regularity patterns in accordance with the essence of
each thing.
However, orderliness is an attribute of not only the natural world but
also social phenomena. This order in the social world is derived by man’s
faculty of engaging in action, an idea which is well described by Mises,
who considered the praxis axiom the ultimate given (Mises, [1949] 2015,
p. 23). In acting, man exhibits the existence of a telos as well as free will
(known as libero arbitrio under Classical Catholicism). This notion of
order embedded in human action does not imply any physical determin-
ism such as the one that rules in the natural world.
The Thinkers of the School of Salamanca

The fact that we are free to choose between a wide range of ends and
means and that the world is ordered toward an end, implies that there is
also a moral dimension that governs human relationships which was estab-
lished by God. The purpose of religion, then, would be to help man find
the best end possible, the highest moral stance.1 Breaking the order given
by God is equal to refusing to co-operate in His project for the world and
for our individual life.
This vision of the world, as a place ordained by God, is the vision that
permeated late medieval and scholastic society and thought. It is in this
philosophical, theological, and metaphysical worldview that the work of
Spanish scholastics such as Diego de Covarrubias, Martín de Azpilcueta or
Juan de Mariana was conceived (Rothbard, [1995] 2006, chap. 4).
The thinkers of the School of Salamanca were priests caring for the
salvation of souls of their flock. That they were academics and scholars
moved them toward the study of economic phenomena, so as to be able
to discern moral conduct in a wide variety of situations, including those
concerning economic life. If a merchant confessed having charged interest
on credit, the priest first had to understand the categories of interest and
valuation, and then take a stance on the morality or immorality of the act
in question.
Economic phenomena could be studied because they presented a cer-
tain regularity. Exchange, interest, and valuation are nothing more than
aspects of the social world with certain special characteristics. Adding to
this, in order to place this behavior on the spectrum of morality, it was first
necessary to understand the nature of man. This understanding was dealt
with in depth by Saint Thomas Aquinas, who cemented the basis of scho-
lastic theology. Thinkers associated with the School were aware that man
is an imperfect subject that acts intentionally, with soul, freedom, and
conscience.
In a similar way, when Huerta de Soto speaks of man as an actor, he
speaks precisely of the real flesh and blood man that was conceived by the
scholastics. The subject of economics (as a branch of praxeology) is human
action. Therefore, there must be men who act, that is, who behave
1
Most importantly, the purpose of religion would be to help man find the best end
possible, which is to meet our Creator, and to participate in the Beatific Vision (afterlife
in heaven).
teleologically and who can choose between different ends and assess the
means available to reach them.
Austrian School thinkers too develop their science from the basis that
we need a real, constraint, acting man, and not just some mathematical
abstraction. So, Austrians as economic theorizers continue a tradition that
extends to the Scholastics, which deals with a very imperfect acting man as
the central character of analysis, instead of a perfect agent dealt with in
more mainstream economic analysis. This is a fundamental aspect in which
Austrians differ from other economists.
For these reasons the School of Salamanca, the highest representative
of late Hispanic scholasticism as Professor Jesús Huerta de Soto has
defended in depth (2008, p. 29), presents the perfect starting point for
the study of economics. Firstly, because it is located in the intellectual
context of Aristotelian-Thomist metaphysics, which is causal and realistic.
Secondly, because it has an understanding of man as an imperfect actor,
who is free and capable of choosing between a wide variety of ends
and means.
Accordingly, there is compatibility between the metaphysical frame-
work of the Austrian School method, whose basis is the causal-realist para-
digm, and the metaphysical framework provided by traditional Catholicism,
who originally created it. This is the reason why there is a continuity and
interpenetration between the body of work of the Spanish scholastics and
the body of work of Austrian economists.
Creativity, Entrepreneurship, and Dynamic Efficiency

Huerta de Soto defines entrepreneurship in a broad sense as human action
itself, and in a restricted sense (which is prominent in his work) as the abil-
ity of an agent to discover new ends and means. Entrepreneurship, as
defined by Huerta de Soto, is essentially creative, and its fruits, pure busi-
ness profits (or business losses), arise ex nihilo (1992, p. 52).
Saint Thomas would find it appropriate to qualify this argument saying
that only God, not man, is capable of creating something out of nothing.
This is true, since it is God who gives existence to all things. As for human
creations, they would not be more than imitations of nature, or “mimesis”
as Aristotle would call them in “De Poetica” (Aristotle, [c. 335 B.C] 2011).
Perhaps this point deserves further thought if we think of the phrase
that Juan de Lugo left us with: pretium iustum mathematicum licet soli
Deo notum (the price of a just mathematician is known to God alone). If
only God knows the fair price of any good, he knows it because he is per-
fectly aware of the valuations of men regarding goods, even before they
can get to know and take advantage of them. In this sense, it is clear that
we can speak of men as creating profit opportunities insofar as they partici-
pate from divine knowledge regarding these valuations (profits arise from
the discovery and exploitation of differences in valuations) without the
need for these to spring out of nowhere. As an analogy, a geometrician
would not create geometric shapes out of nowhere but would discover
them, since they previously exist in the mind of God.
Be that as it may, if man resembles God in something, it is in his creativ-
ity, as Huerta de Soto stresses. It is precisely this capacity of man to dis-
cover ends and means which makes us reflect God, for underlying the
discovery process of the market is an essentially creative element, derived
from man’s position as tributary of the divine. The more we discover, the
more we create. Furthermore, there is a component to entrepreneurship
as understood by Huerta de Soto which further supports our point on the
order of creation. As someone discovers ends and means, information is
created that previously didn’t exist in the actor’s mind. This information is
transmitted to other actors and there is a coordination and adjustment
effect that expands throughout the whole social fabric. In this way, through
his actions and interactions, man amplifies and expands the social order
envisioned by God. This conception of entrepreneurship is the basis of
dynamic efficiency, one of the pillars on which Huerta de Soto’s thinking
is based (Huerta de Soto, [2009] 2014).
The main point of this conception of efficiency is the increase in pro-
duction capacity that comes with the discovery of new ends and means
and greatly surpasses the static efficiency derived from the natural sciences.
As a reflection of the infinite, the market—which is not a place but rather
a dynamic process of social interaction—never reaches equilibrium and has
the possibility of expanding without limits.
This process of discovering and increasing efficiency in a dynamic way
(that is to say, in a creative way) is also in accordance with the casual-realist
paradigm beginning with Catholicism. It also accounts for the process of
coordination and adjustment that is simultaneously generated by the order
of the market, which, as we tried to suggest in the previous section, looks
like a harmonious symphony being played by an orchestra.
God, the State, and Evil

Jesús Huerta de Soto affirmed in a recent conference, “God is a libertar-
ian”. This statement comes from the idea that even though God is the
creator of the universe, the Supreme Intelligence that maintains reality at
all times, he does not use force to make his creatures obedient to Him. He
gives freedom to his creatures, and they can choose to rebel against Him.
In his famous speech entitled Anarchy, God and Pope Francis, Huerta
de Soto (2017) highlights how God in the New Testament does not
destroy villages with fire, nor does he establish a “World State” (which
constituted the hope of many Jews in the time of Jesus Christ). He even
escapes from the idea of establishing a welfare state, despite being able to
make miracles such as the one of the loaves and fish. The crowd, faced
with the miracles, chose Christ to be the King of the Jews, a proposition
to which Jesus flatly refused.
The reason behind this rejection is that the Kingdom of God is not of
this world. It has already been given freely to all men that want to accept
it. Deus caritas est is demonstrated by the fact that God has not chosen to
dominate us, but to establish a loving relationship with every one of us, as
well as the possibility of salvation through his only son Jesus Christ.
For Huerta de Soto, the kingdoms of this world, as opposed to the
Kingdom of God, are the incarnation of evil. In the book of Samuel, the
state appears as the alternative to the Kingdom of God, an act of rebellion
so that God cannot rule over man (I Samuel 8). God warns the Jews of
what will happen if they try to establish a State. Robbery and violence will
take place if the Jewish people support the creation of a kingdom of man,
in opposition to the Kingdom of God. The state is the incarnation of the
evil one, the devil, whose main objective is to destroy the work of God,
which includes the natural order of the market (discussed previously), and
to replace it with submission to himself, making this a world of servitude
and slavery.
The similarities between the state and the devil are more than apparent
according to Huerta de Soto. Indeed, as it is discussed in the New
Testament, the kingdoms of Earth obey the evil one. The devil confessed
this to Jesus Christ during the temptations in the desert:
The devil still took him up on a very lofty monument from there and showed
him all the kingdoms of the world and their glory. And then he said to him:
all these things I will give you if, bowing down before me, you adore me.
(Luke 4, 5:8)
Then Jesus answered him: “Get away from here Satan, because it is
written: You will worship the Lord your God, and him only you will serve.”
Afterwards our Lord would die victim of the raison d’état and democ-
racy, when the people of Jerusalem, incited by their religious leaders,
blindly chose to save Barabbas instead of Him from a painstaking death.
It is no secret that original sin has led man to turn the state into a
golden calf. This is the ideal of achieving a perfectly ordered society, capa-
ble of returning man to the pre-fall state where scarcity is simply a vague
memory of a primitive age. This has been the greatest mistake in the field
of politics and economics, the pretense of politicians and the deification of
reason to which we would have to answer Quis ut Deus? It is precisely the
political class who cannot be like God because their actions are born in
coercion instead of voluntary submission.
The state is nothing more than a band of thieves, as has been noted
since at least Saint Augustine and Pope Benedict XVI repeated in his
speech before the elite of German politics (Benedict XVI, [2011] 2018).
This is because thieves are those who do not submit to the law, and the
current state does not submit to the law. It even holds the false idea that it
is itself the source of the law, replacing the natural law and justice given by
God. Nothing resembles more the work of the evil one than this.
Conclusion
Summarizing: the notion of dynamic efficiency further reinforces the link
between Huerta de Soto’s faith and his work, since the spontaneous coor-
dination and adjustment effect that takes place in the free market is a
reflection of God’s capacity to create and expand the universe without
limits. Because, if man resembles God in something, it is in his creativity.
More essentially, Huerta de Soto’s work is framed within the
Aristotelian-Thomist worldview, which includes a notion of order and the
existence of causality. Although this metaphysical framework goes back to
Aristotle, it was undoubtedly perfected by sixteenth-century Spanish scho-
lasticism. Its realistic conception of man, accompanied by a Thomist
approach on social sciences, would serve as the basis of the causal-realist
paradigm later developed by the Austrian thinkers.
The understanding of man as an imperfect actor, who is free and capa-
ble of choosing between a wide variety of ends and means, is crucial to
understanding Huerta de Soto’s body of work as well as the Austrian
thinkers. Man does not approach reality in a perfect way but is subject to
uncertainty. In the process of discovery, he will choose between different

ends and means that will bring him closer to his perfect realization or,
contrarily, drive him away from it.
This is the reason why he vehemently proposes and promotes anarcho-
capitalism, since this is a political philosophy based on the complete aboli-
tion of the state and on the promotion of a flourishing system based on
private property, freedom, and the importance of the individual, who by
means of his creativity orders the society and the production system.
For Huerta de Soto, the fundamental mission of our life must be the
dismantling of evil, on the one hand, and the promotion of the natural
order of God, on the other hand. This is a vital mission which guides his
work and his life.
References
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Carreiro, D., & Carreiro, O. (2012). Paradigmas y Herejías: Kuhn y Belloc. Actas
del I congreso de Economía y Libertad: La gran recesión y sus salidas, 680–696.
https://dialnet.unirioja.es/servlet/articulo?codigo=4767237
Feser, E. (2009). Beginners Guide Series: Aquinas (1st ed.). Oneworld Publications.
Huerta de Soto, J. (1992). Socialismo Cálculo económico y función empresarial
(1st ed.). Unión Editorial.
Huerta de Soto, J. (2008). The Austrian School: Market Order and Entrepreneurial
Creativity (1st ed.). Edward Elgar Publishing in Association with the Institute
of Economic Affairs.
Huerta de Soto, J. ([2009] 2014). The Theory of Dynamic Efficiency. Routledge.
Huerta de Soto, J. (2017). Anarquía Dios y el Papa Francisco. [Online].
Retrieved October 20, 2021, from https://www.youtube.com/watch?v=a_
qOPCjOxfQ&t=987s
Mises. L. v. ([1949] 2015). La Acción Humana. Tratado de economía (11th ed.).
Unión Editorial.
Ratzinger, J. Benedicto XVI. (2018). Afirmar el derecho y combatir contra la
injusticia, from the original: Apostolische Reise nach Deutschland. Ansprache
von Papst Benedikt XVI. Besuch des deutschen Bundestags. Berliner
Reichstagsgebäude, Donnerstag 22. September 2011. Liberar la Libertad Fe y
Política en el tercer Milenio (1st ed.). Biblioteca de Autores Cristianos.
Rothbard, M. N. ([1962] 2009). Man, Economy and State with Power and Market
(2nd ed.). Ludwig von Mises Institute.
Rothbard, M. N. ([1995] 2006). An Austrian Perspective on the History of
Economic Thought, Volume I, Economic Thought Before Adam Smith (1st ed.).
Ludwig von Mises Institute.
Salerno, J. T. (2007). What is a Causal-Realist Approach? Introductory Remark for

the seminar “Fundamentals of Economic Analysis” [Online]. Retrieved October
19, 2021, from https://mises.org/library/what-causal-realist-approach
Salerno, J. T. (2009). Mengers’ Causal Realist Analysis in Modern Economics. The
Review of Austrian Economics, 23(1), 1–16.
Thomas Aquinas. (2019). Summa Theologica, 1st rev. ed., trans. Biblioteca de
Autores Cristianos.
The Intellectual Error of Socialism
in International Arbitration
Sonsoles Huerta de Soto
Arbitration is the most important alternative method of dispute resolu-

tion, by which the parties submit their dispute to a private third party (a
private judge, also known as arbitrator), that issues a final and binding
decision regarding the conflict. It is a private method of administration of
justice and in practice erects itself as the main private alternative to the
I am very grateful to Prof. Huerta de Soto, my father, for all the knowledge and
economics lessons he has given me at home during lunchtimes and dinners.
When I was a young girl I found them boring and intense, but as I grew older I
became aware that it is precisely because of these informal economics lessons that
I was sharp enough to realize there was a strong link between Austrian
Economics and arbitration, while studying my fourth year of Law and Business
Administration at Universidad Complutense of Madrid. This awareness has since
strongly marked my professional career, which started in an arbitration legal
boutique in Madrid, and is now focused on the theoretical investigation of both
disciplines and their interconnections.
S. Huerta de Soto (*)
Madrid, Spain

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_13
146 S. HUERTA DE SOTO
public administration of justice by the public judges. Moreover, as will be

seen below, arbitration is a natural spontaneous process of administration
of justice by the application of the law.
There is a common and well-established idea within the international
arbitration community which is that international arbitration exists and is
operative, thanks to the state and its structures. According to this extended
idea, arbitration has to be recognized by the state in order to exist and it
can only operate to the extent the state admits, respects and promotes
arbitration through its legislation. Moreover, arbitrators do not have impe-
rium (coactive force) to ensure their decisions are complied with by the
parties and hence the cooperation of public judges is essential for the
enforcement of interim relief measures and arbitral awards. Is this really so?
This extended belief in international arbitration is an intellectual error.
In fact, it can be referred to as the intellectual error of socialism in inter-
national arbitration. Where does this intellectual error come from? We can
distinguish two erroneous starting points: (i) the extended idea that law
and justice are public in nature; (ii) the unresolved practical problems
posed by the lack of imperium of arbitrators.
The intellectual error of socialism in arbitration is the main reason why
there is not yet a convincing and well-developed legal foundation theory
for international arbitration. International arbitration practitioners view
the state as an ally and very few are ready to question its role in society.
In this chapter I have focused on rebutting the two abovementioned
erroneous starting points of the arbitral community regarding (i) the
nature of law and justice, and (ii) the lack of imperium of arbitrators. But
in addition, we would like to stress that from a strictly economic theory
point of view, it has already been demonstrated that socialism is impossible
as a way of social organization (Huerta de Soto, 2020), which fully applies
to the public administration of justice. The public administration of justice
poses an insolvable problem of economic calculation. For reasons of space
we cannot go deeper into this economic analysis here, it is material for
another article.
The Nature of Law and Justice

It is vital to distinguish between law and legislation, because they are radi-
cally different things.
The law is the result of a very complex process of social evolution. In
the first phases of this process (prehistory of humanity) we find a great
THE INTELLECTUAL ERROR OF SOCIALISM IN INTERNATIONAL… 147
variety of spontaneous manners of conduct. Some of these were inade-

quate to favoring life in society and others turned out to be beneficial for
solving conflicts, making easier both the evolution and the supremacy of
the group that adopted them. The process is initially carried on uncon-
sciously. But once the human being is able to know and differentiate
between the different manners of conduct, through processes of trial,
error and learning; he starts to respect and follow the most valid habits
(the most beneficial for solving conflicts and for social peace), that is: the
content of the most valid habits of conduct is regularized into rules of
conduct. Finally, after very long periods of time, once the human being is
able to articulate the general content of these rules of conduct, they
become legal rules or law (Martínez Meseguer, 2012, p. 228). When the
human being tries for the first time to express the content of the law or
legal rules that rule society he is not creating a new legal order, but only
articulating verbally rules that are already known or instinctively sensed
(Martínez Meseguer, 2012, p. 234).
Therefore, a legal rule becomes the best solution adopted to solve a
conflict that arises in the womb of society and that confronts different
individuals, through a long process of evolution (Martínez Meseguer,
2012, p. 229). The selection of general and abstract legal rules that rule
society is not something deliberate and conscious, but the result of a com-
bination of adaptations of each and every individual to the conditions and
situations that take place at each particular moment and context in time.
The human being only intervenes consciously at the last phase of such a
complex process (Martínez Meseguer, 2012, p. 230).
The law evolves in a natural way, but it does so in a very slow and pro-
gressive manner that does not affect the overall structure and global sys-
tem of the legal order, which remains substantially stable (Martínez
Meseguer, 2012, p. 235).
How is law discovered? We can distinguish two main processes of dis-
covery and formalization of the law: (i) through the work and investiga-
tion of the experts in law (roman juris consulti, nowadays legal doctrine);
(ii) through the work of judges (or arbitrators) (Martínez Meseguer,
2012, p. 239).
In Ancient Rome the juris consulti discovered the law throughout the
centuries in a professional and publicly recognized way. These experts in
law usually referred to old and legendary statutes such as the Twelve
Tables, which content they completed and developed counting always
with the acceptance of the citizens. Romans discovered law not starting
from abstract theories but generalizing the practical realization of what

was understood as right and fair in each particular case under controversy
(Martínez Meseguer, 2012, p. 241). The process adopted by the juris
consulti situated legal relations between the citizens in a very similar level
in which the free market situates economic relations, both based in the
freedom and individualism of citizens (Martínez Meseguer, 2012, p. 242).
The development of law through the work of arbitrators (or judges) is
the most ancient process of discovery of the law. Arbitrators have to inter-
pret the law, and in doing so they carry out a double function: (i) find out
the existing legal convictions of the community, in order to apply them
and (ii) articulate uniform generalizations with the goal of adapting them
to future cases (Martínez Meseguer, 2012, p. 245). Arbitrators, through
their particular decisions, conform a system of rules of conduct that leads
to the formation of the social order (Hayek, 2006, p. 149). The experi-
mented intuition of the arbitrator continually leads him to fair results, for
which he must rack his brains to offer impeccable legal reasoning (Hayek,
2006, p. 147, 148). The arbitrator fosters the process of adaptative evolu-
tion of society approving of the rules that make more plausible coinci-
dence rather than conflict between the different expectations (Hayek,
2006, p. 150).
Justice was traditionally defined by Roman jurists as the constant and
perpetual will to give each one his own. The content of justice is therefore
not given and has to be discovered and fulfilled through a never-ending
process of interpretation and application of the law to particular cases by
the arbitrators, in the search of social peace.
Legislation is something different to law and must not be mistaken
with it. Nowadays, the ideas that the deliberate creation of legislation by
the state is the way to make law, and that public order and social peace
cannot exist without the state are extensively (and erroneously) accepted
by society (Martínez Meseguer, 2012, p. 247, 248). The idea of a law that
is general, abstract and promotes individual freedom and which emerges
from society itself (discovered, not created) has disappeared to a great
extent (Martínez Meseguer, 2012, p. 251). Legislation originates from
the need to establish organizational rules. These rules are deliberately
designed to accomplish specific ends, to enforce positive mandates regard-
ing something that has to be done or results that have to be accomplished
(Hayek, 2006, p. 156). Legislation is the particular expression of the gen-
eral will which is left in the hands of the citizens’ representatives in the
parliament (Martínez Meseguer, 2012, p. 251) and which in the best-case
scenario represents the majority’s will in parliament, but under no circum-

stances the will of all individual citizens.
Therefore, the nature of law and justice, in contrast to legislation, is not
public, but private. Law and justice are the result of an evolutionary process
by which human beings integrate the repetitive habits of conduct that best
enable them to adapt to the external circumstances to survive and prosper.
Law and justice are evolutionary institutions as ancient as humanity and
society. By contrast, legislation is a deliberate creation of parliament to a
great extent directed to rule the organization of society by the state.
The Nature of the State

Before addressing the question about the nature of the state we need to
define what the state is. For our purposes we will consider the state as an
institutional system of aggression against the free exercise of human action
or the entrepreneurial function (Huerta de Soto, 2020, p. 85).
The state as we know it today, the modern state, was born after the
French revolution of 1789. The French revolution marked the end of a
period of absolutist monarchies. Absolutism was changed for social
democracy (based in the social contract theory) and Montesquieu’s theory
of the division of powers in the three branches of executive, legislative and
judicial (Martínez Meseguer, 2012, p. 253).
But the state as an organization of systematic force and violence is much
older in time. The origin of the state is a controversial issue. For the first
two million years of his existence man lived in bands or villages which were
completely autonomous. Not until perhaps 5000 B.C. did villages begin
to aggregate into larger political units leading progressively to the forma-
tion of the first state in history, around 4000 B.C. (i.e. an autonomous
political unit, encompassing many communities within its territory and
having a centralized government with the power to collect taxes, draft
men for work or war, and decree and enforce laws) (Carneiro, 1970,
p. 733).
The state was not the product of “genius” or the result of chance, but
the outcome of a regular and determinate cultural process. Moreover, it
was not a unique event but a recurring phenomenon; states arose indepen-
dently in different places and at different times, where the appropriate
conditions existed (Carneiro, 1970, p. 733).
Only a coercive theory can account for the rise of the state. Force, and
not enlightened self-interest, is the mechanism by which political
evolution has led, step by step, from autonomous villages to the state. War
played a decisive role in the rise of the state. Historical or archeological
evidence of war is found in the early stages of state formation in
Mesopotamia, Egypt, India, China, Japan, Greece, Rome, northern
Europe, central Africa, Polynesia, Middle America, Peru and Colombia
(Carneiro, 1970, p. 734).
We can identify war as the mechanism of state formation, but certain
conditions are also required for the rise of the state. For reasons of space
we cannot go into very much detail regarding these conditions but we can
say that all areas where the state originally arose were areas of circum-
scribed agricultural land (Carneiro, 1970, p. 734). With increasing pres-
sure of human population on the land the causes of war became
predominantly economic. Defeated villages could be allowed to remain on
their own land, instead of being exterminated or expelled. The price to
pay was political subordination to the victor. This subordination generally
entailed at least the payment of a tribute or tax in kind, which the defeated
village could provide only by producing more food than before. But sub-
ordination sometimes involved a further loss of autonomy on the part of
the defeated village, namely incorporation into the political unit domi-
nated by the victor. Political evolution attained the level of chiefdom.
Competing units were no longer small villages but, often, large chiefdoms.
From that point on, through the conquest of chiefdom by chiefdom, the
size of political units increased at a progressively faster rate with the result
that an entire valley was eventually unified under the banner of its stron-
gest chiefdom. The political unit thus formed was undoubtedly sufficiently
centralized and complex to warrant being called a state. By this process
neolithic villages were succeeded by chiefdoms, chiefdoms by kingdoms
and kingdoms by empires (Carneiro, 1970, p. 736).
Therefore, the state is the result of a historical-cultural process, but it is
based on war and violence in order to force the subordination of some to
the most powerful. Since the first states in 4000 B.C., until the later for-
mation of kingdoms, empires, feudalism, absolutism and modern democ-
racies, the state has been present in humanity, as a sufficiently complex
organization of systematic force and coercion. The state has not resulted
from a spontaneous process of social evolution based in freedom and can-
not be called an institution of social evolution. It hence has a different
nature to that of law, justice and arbitration. The state is based on violence
and war. Law, justice and arbitration are based on a spontaneous process
of social evolution.
At a certain point in time, the state arrogated itself the power to legis-
late and to administer justice. The figure of the king in the Middle Ages,
whose power arose due to external (not internal) conflicts and wars with
other social groups, assumed more and more powers, finally extending to
law and justice (Martínez Meseguer, 2012, p. 251). This happened much
later in time than the emergence of law and arbitration, which as we have
already seen evolved spontaneously and independently to how political
authority was exercised at any particular moment in time.
In conclusion, we can say that law and arbitration are evolutionary
institutions based on the free exercise of human action and spontaneous
market order. (For a detailed explanation of arbitration as a spontaneous
market order, please see Huerta de Soto & Núñez del Prado, 2020.) The
state by contrast is not an evolutionary institution. It is based on the sys-
tematic exercise of force and violence, subordination and war.
The Problem of Political Authority

The lack of imperium (or coactive power) of arbitrators (and the practical
problems it gives rise to) is in fact a philosophical problem of political
authority, not a juridical one.
The state arrogates itself the monopoly of force. In other words, the
state can force its citizens to comply with its legislation and orders under
the penalty of economic sanctions, and in last instance the loss of physical
freedom. No citizen or any other institution in the world has this power.
Why is this? The state is thought to have a special kind of authority
(political authority), which private individuals and groups lack. Political
authority remains a striking and puzzling moral status. There is nothing
special about the state that explains why it would have the authority over
everyone else. The state therefore has only political power, not political
authority. That is, it has the ability to coerce other agents and to take their
resources, but it has no more moral right to do so than any other agent has
(Huemer, 2019, p. 16, 17).
This coercive power has been exercised since the first states appeared,
around 4000 B.C. At the primitive stages of the state, it was exercised by
the strongest within the group (be it the chief, king or emperor). Later on
by the absolutist monarch. Today by the government, parliament and
public judges based on the democratic system.
Everyone will agree that the law of the strongest one is not moral, but
tyrannical. Tyranny is never justified, in any of its forms. Everyone will also
agree that the monopoly of force by the chief, king or emperor based on
its greater strength amounts to a tyranny and is far from desirable. But
very few people are prepared to agree that the democratic modern state is
still a tyranny based on political power, which is not very different to the
law of the strongest one.
We will very briefly analyze the main different theories of political
authority that purport to justify the monopoly of force by the state. First,
with regard to social contract theory, it suffers from one small problem: it
is actually false. No such contract was ever signed. The “social contract”
does not satisfy any of the rules that apply to legitimate contracts in other
contexts, so it is not a legitimate contract (Huemer, 2019, p. 20).
Second, another popular idea is that the democratic process confers
authority on the outcome it produces. Provided that one lives in a demo-
cratic nation, it is said, the laws reflect the will of the people. The assump-
tion that democratic nations always follow the will of the people is naive.
There are many cases of unpopular laws that nevertheless get passed. In
most cases, average members of the public have very little idea of what the
laws are, who voted for them or what else their political representatives are
doing. This is the reason why political leaders often find it convenient to
pass legislation that serves wealthy and well-organized special interest
groups. Besides this, there is the fact that most laws, even in a democratic
society, are not made by elected officials but by bureaucrats (Huemer,
2019, p. 20). The democratic process gives power to a political class which
on many occasions governs for itself and not for its citizens and rarely
represents the will of the majority.
The question regarding the democratic theory of authority is whether
the mere will of a larger group of people should suffice to suspend or over-
ride the rights of a minority (Huemer, 2019, p. 20). Suppose that a major-
ity of some group supported an arrangement that is not independently
morally justified, this does not confer any special right to coerce nor does
it suspend the rights of the individual. Nor, then, should the analogous
claims about a democratic society be taken to suspend the rights of indi-
vidual citizens against coercion or seizure of property (Huemer,
2019, p. 21).
Third, according to the utilitarian defense of authority we should rec-
ognize state authority because of the large benefits produced by the state.
Paying taxes and obeying law is necessary to maintain social order
(Huemer, 2019, p. 22) and peace. The main shortcoming of this argu-
ment is that it is not in fact an argument for authority. The need to
maintain social peace and order creates a content-dependent entitlement

to coerce others. But political authority is a content-independent moral
entitlement to force individuals to obey the law simply because it is the
law, along with a moral power to create content-independent obligations
for citizens to obey the law simply because it is the law (Huemer,
2019, p. 22).
In summary, no one has been able to explain why the state should be
morally justified to coerce individuals. The best explanation for this is that
the state has in fact no political authority to do this, only political power,
and its monopoly of force is not morally justified.
If the state has no political authority why do citizens obey the state and
submit themselves to its coercion? For the same reasons as they do so
under any tyranny, as explained by Étienne de la Boétie: (i) men serve
voluntarily because they are born servants and are educated as such; (ii)
under a tyranny men easily become cowards and effeminate; (iii) men are
dormant and content with all the superficial distractions offered by the
tyrant; (iv) due to the profits and benefits received from the tyrants a point
is reached where the men who are favored by the tyranny are as many in
number as those who desire freedom (de la Boétie, 2010, p. 61, 69, 89).
Men have forgotten their intrinsic nature of freedom and have lost the
force to fight for it.
In conclusion, the monopoly of force by the state is not morally justi-
fied, and the purported practical problems associated to the concept of
lack of imperium by the arbitrators are put into question.
Conclusion
The natural administration of justice is private arbitration. Arbitration and
law existed before the public administration of justice and legislation, and
will continue to exist if these disappear. Arbitration and law are evolution-
ary institutions which emerge from the process of spontaneous market
order and have a different nature to that of the state.
Moreover, the monopoly of force by the state is a tyranny that is not
morally justified.
Therefore, the base for the legitimacy of law and arbitration is the mar-
ket, not the state. As pointed out by Hayek, until jurists understand the
relation that exists between law and the order of human action (spontane-
ous market order), they will continue to fail to comprehend the function
of law in society (Hayek, 2006, p. 145) and the legal foundation of
arbitration.
My colleague arbitrators will surely question how could arbitration
work in practice if there is no state with coactive force to enforce awards
and interim relief measures. To this question I would reply first that arbi-
tration awards are complied with voluntarily in the great majority of cases,
so the lack of imperium problem is not such a big problem as sometimes
we tend to think. Secondly, in cases where voluntary compliance does not
occur, how could a party be compelled to comply if there is no coactive
state? The fact that there is no public coactive force does not mean that
force cannot be enforced privately, based on party agreement. Although
we do not know how it would work in practice, we do know that human
action and the creative capacity of the entrepreneurial function would find
an efficient and practical solution. The point is not how exactly it would
work in practice but that if there was no monopoly of force by the state
there would surely still be an efficient enforcement of law and justice.
Some ideas come to my mind though to make arbitration completely
independent of the state: (i) privatization of police powers and prisons;
and (ii) inclusion in the arbitration agreement of a reference to preselected
private criminal centers (prisons) with respect to which the non-complying
party would have to respond in case of non-compliance. Private police
agencies associated with the preselected private criminal centers would be
in charge of physically imposing economic sanctions or imprisonment to
the recalcitrant party.
As pointed out by Paulsson, we end where we began, with a story of
freedom, which like all valuable moral lessons involves a sense of limits to
be explored, proportions to be respected, balances to be struck (Paulsson,
2013, p. 301). Freedom is natural to humankind; man has been born free
and with the passion to defend his freedom (de la Boétie, 2010, p. 31).
The moment man decides not to be a servant anymore he will be free
again (de la Boétie, 2010, p. 23).
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Hayek, F. A. (2006). Derecho, legislación y libertad. Unión Editorial.
Huemer, M. (2019). An Introduction to the Problem of Authority. Procesos de

Mercado: Revista Europea de Economía Política, XVI(Spring), 13–29.
Huerta de Soto, J. (2020). Socialismo, cálculo económico y función empresarial (6th
ed.). Unión Editorial.
Huerta de Soto, S., & Núñez del Prado, F. (2020). International Arbitration as a
Spontaneous Legal Order. Procesos de Mercado: Revista Europea de Economía
Política, XVII(Autumn), 117–153.
Martínez Meseguer, C. (2012). La teoría evolutiva de las instituciones (2nd ed.).
Unión Editorial.
Paulsson, J. (2013). The Idea of Arbitration. Oxford University Press.
Ortega y Gasset and the Austrian
Economists: A Missed Encounter
Lorenzo Infantino
In this chapter, I will not stray from my field as a philosopher of the social
sciences. I will dwell on an unwritten page in the history of ideas, a docu-
ment which we do not possess, because the main actors, who might have
It is a great pleasure for me to contribute to this volume of writings in honour of

Jesús Huerta de Soto, which allows me the opportunity to recall some very
pleasant moments of my life. My friendship with Jesús goes back many years. I owe
it to our common publisher, the late lamented Juan Marcos de la Fuente, who
translated and published my books into Spanish. Later, our relationship grew
stronger during the time when Jesús invited me, as a visiting professor, to the Rey
Juan Carlos University in Madrid. That was a fruitful stay for me, which also gave
me the opportunity to collect material for my research on the philosophy of the
social sciences. At the same time, I got to know Jesús’s family, so much so that one
of his daughters, Silvia, moved to Rome for a semester to follow my course there;
and she was one of my most exemplary students. I believe that the most joyful
moment of our friendship was the day when Jesús came, together with his wife and
children, to visit me at my university. It was a joyous occasion for all of us!
L. Infantino (*)
LUISS Guido Carli, Rome, Italy
e-mail: l.infantino@rubbettino.it

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_14
158 L. INFANTINO
usefully come into contact with each other, did not. Due to the many
accidents of life, they were unable to take each other’s works into consid-
eration. If this had happened, today we would have at our disposal a more
extensive basis of knowledge on which to work. What I am referring to is
the encounter which never took place between José Ortega y Gasset and
Carl Menger (and the first exponents of the Austrian School of Economics).
In actual fact, Ortega published an essay by Ludwig von Mises in the
Revista de Occidente; but this did not prompt the Madrid philosopher to
delve into the roots of, and the extensive territory explored by, the Austrian
economists. All that remains for us is to try to imagine that missing page
in the history of ideas. This is something which could also be done with
regard to the relations between Émile Durkheim and Max Weber or those
between Carl Menger and Georg Simmel (on the latter, see Infantino,
1998, pp. 106–114).
The Criticism of Rationalistic Extremism

While in exile in the Netherlands, in May 1937, Ortega wrote his intro-
duction to the French edition of La rebelión de las masas. This is how he
posed the problem:
coexistence and society are equivalent terms. Society is what is produced

automatically by the simple fact of coexistence. In itself and inescapably, it
secretes customs, usages, language, law and public power. One of the most
serious errors of modern thought, from the omissions of which we still suf-
fer, has been to confuse society with association, which is roughly its oppo-
site. A society is not established by an agreement of wills. On the contrary,
every agreement of wills presupposes the existence of society […]. The idea
of society as a contractual, and therefore legal, encounter is the most non-
sensical attempt that has been made to place the cart before the horse.
Because law, the reality of law—not the ideas of philosophers, jurists or
demagogues about law—is, if I can be allowed the baroque expression, a
spontaneous secretion of society, and it cannot be anything else. (Ortega,
1937, pp. 117–118)
This passage clearly shows Ortega’s hostility toward contractualist the-

ories of society, and suggests an alternative to analyze social phenomena
through the lens of cultural evolution. A testimony to this is also the posi-
tion Ortega took in the sociological field. In a letter to Ernst R. Curtius,
the Madrid thinker stated:
ORTEGA Y GASSET AND THE AUSTRIAN ECONOMISTS: A MISSED… 159
My main idea in sociology is that society is not, in truth, either Gesellschaft

or Gemeinschaft, in the sense of Toennies. This distinction seems to me to
be false and, what is more, naïve […]. Toennies presents these two forms in
which people live together as coordinated and believes them furthermore to
be full and existing social realities. Well, I think—and this seems obvious to
me—that every Gesellschaft, in Toennies’ sense, and thus every grouping of
people which derives from deliberate will, is only a particular association,
which pre-supposes a Gemeinschaft in which it is produced. If Gemeinschaft
means a social group which does not originate in a voluntary association and
to which the individual belongs, whether he wills it or not, I would say that
the Gemeinschaft is the basic social phenomenon, which is the prerequisite
for all the others. (Ortega, 1974, p. 123)
Pioneers of this “tradition of research” were Bernard de Mandeville,

David Hume, Montesquieu, Adam Smith and Edmund Burke. The founder
of the Austrian School of Economics, Carl Menger, embraced cultural evolu-
tion by means of the German Historical School of Law, in particular through
the thought of Friedrich von Savigny. From his very first work, the Grundsätze
der Volkswirtschaftslehre, Menger focused on the “irreflective,” that is to say
unintentional, origins of money (Menger, [1871] 1994, p. 260). And then,
in his Untersuchungen über die Methode der Socialwissenschaften, und der poli-
tischen Oekonomie insbesondere, he also turned his attention to other institu-
tions, such as the city and the state (Menger, [1883] 1996, pp. 135–139). By
interacting, humans are forced to co-adapt their actions. And this leads, with-
out any prior planning, to the birth of social norms and institutions. It fol-
lows that there is no first man and there is no beginning of society. When they
began to reflect on their condition, human beings were already living in a
developed social context; they were therefore equipped with language and
the ability to control their instincts.
The Untersuchungen constitutes one of the most significant chapters in
the history of the debate on method. It is impossible today to know
whether Ortega was acquainted with it or whether he shunned it because
it came from the economic sphere, which he considered peripheral to the
main themes of his thought.1 Reading Weber might have led the Madrid
1
This did not prevent Ortega from making some explorations into the territory of economics.
In one of these sorties, he mistakenly attributed to Gustav Cassel the merit of having renewed
the science of economics, by making scarcity its basis, and he concluded that in the Land of
Cockaigne no economic activities would exist (Ortega, 1930b, p. 330). In actual fact, the theo-
retical reversal which Ortega referred to had taken place much earlier, and Menger had been one
of its major actors. It should be added that the expression ‘Land of Cockaigne’ had already been
used by Ludwig von Mises in his epistemological essays (Mises, [1933] 1981, p. 79).
160 L. INFANTINO
philosopher to Menger’s text. This would have allowed him to find other
points of support for his criticism of the contractualist idea.
Whatever the case, Ortega’s rejection of the intentional origins of soci-
ety and its institutions has a gnoseological basis. Ortega long argued
against the excesses of rationalism. It is true: reason can be the ‘great solu-
tion’ (Ortega, 1940, p. 524). However, when we fail to be aware of its
“inexorable insufficiency,” we turn it into a “great problem” (ibid.,
pp. 524–527). Between the Renaissance and the eighteenth century, ‘the
great rationalist systems were erected. Pure reason thus came to embrace
extremely vast territories’; and ‘men had for a moment the illusion […]
that the entirety of life could be subjected to the dominion of pure intel-
lect’ (Ortega, 1923, p. 177). Cartesian man felt “an antipathy towards the
past, because in it things were not done more geometrico. Political institu-
tions therefore seemed to him unsuitable and unjust. By measuring him-
self against them, he believed he had discovered a definitive social order,
obtained deductively by means of pure reason”: “a schematically perfect
structure, in which men were considered rational entities [… and it was
believed] that the past and the present are not worthy of the slightest
respect” (ibid., p. 169). Yet, “in the aftermath of those triumphal system-
atizations—Descartes, Spinoza, Leibniz—[…] there began to be discov-
ered […] the limits of reason and its borders with the infinite space of
irrationalism” (ibid., 177).
Menger also lashed out against “one-sided rationalism” (Menger, 1996,
p. 155). Unlike the actor constructed by John Stuart Mill, who is aware of
the “relevant data,” homo mengerianus is not a “lightning calculator,” he is
an ‘ill-informed creature, plagued with uncertainty, forever hovering
between alluring hopes and haunting fears, and congenitally incapable of
making finely calibrated decisions in pursuit of satisfactions ‘(Jaffé, 1976,
p. 121). This is why, when Léon Walras, the great theorist of general eco-
nomic equilibrium, tried to enter into a dialogue with him, Menger did not
hesitate, after his initial formal remarks, to affirm: “There is no conformity
between us. There is an analogy of concepts on a few points, but not on the
decisive questions” (Kauder, 1965, p. 100; Antonelli, 1953, pp. 269–287).
Indeed, Mengerian subjectivism was the basis of a theory in which the
actor always possesses partial and fallible knowledge. According to Walras’s
approach, on the other hand, everyone knows everything or, at the very
least, the actors have knowledge of the “relevant data.” Everyone knows
exactly what they can do and what they cannot do on the market; and
equilibrium is achieved by such an unrealistic premise or, if you wish, equi-

librium already exists before the subjects put in place their actions.
The criticism of rationalistic extremism is the common denominator
which links the exponents of the Austrian School of Economics. Although
he had not read what Menger published, Ortega would have had the
opportunity to learn what had been written by Friedrich A. von Hayek
(who followed the path indicated by the founder of the School). In par-
ticular, he could have used the essays which appeared in the early 1940s,
which were later gathered together as The Counter-revolution of Science:
Studies on the Abuse of Reason. The concerns expressed by these wise men
about the extremism of reason are no different from those argued for over
many years by Ortega.
False Individualism and True Individualism

It is not surprising, then, that the Madrid philosopher accused the “lym-
phatic rationalism of the encyclopedists and the revolutionaries” and
praised the position of the so-called doctrinaires (Ortega, 1937, p. 125).
The former found the “absolute in bon marché” abstractions; the others
had discovered that “history is the reality of man,” that the “past is not
here and has not taken the trouble of passing because we negate it, but
because we integrate it” (ibid.). It is therefore necessary to release our-
selves from “individualist liberalism,” which belongs to the “flora” of the
French Revolution, and to recover a configured liberalism, exactly as pres-
ent in the reflections of the “doctrinaires,” as a theory of limitation of
public power (for a more extensive treatment of “doctrinaire liberalism,”
see Diez del Corral, 1956).
Although he recognized his debts to men like “Royer-Collard, Guizot
and Broglie” (ibid., p. 124, n. 3), Ortega revealed very little of what he
had taken from Alexis de Tocqueville. It was the latter who used the term
“individualism” negatively in his Démocratie en Amérique. He wrote:
“Individualism is a mature and calm feeling, which disposes each member
of the community to sever himself from the mass of his fellows and to
draw apart with his family and his friends, so that, after he has thus formed
a little circle of his own, he willingly leaves society at large to himself”
(Tocqueville, [1835–40] 1994, Vol. 2, p. 98). This placed Henry Reeve,
the English translator of the work, in serious difficulty. As a result, he
stated that he did not know “any English word exactly equivalent” to the
162 L. INFANTINO
idea that Tocqueville intended to express (see Hayek, 1946, p. 5, n. 5).
And Albert Schatz did not hesitate to write that the term was used by
Tocqueville in a “completely arbitrary” manner (Schatz, 1907, p. 302).
Ortega’s pursuit of a non-individualist liberalism and the sense that
Tocqueville gave to the term of individualism require some clarification.
In 1945, Hayek gave a lecture in Dublin (Individualism: True and False),
the text of which was published the following year. This is an essay that can
help us and that confirms how productive it would have been for Ortega
to come into contact with the theories formulated by the exponents of the
Austrian School of Economics. Hayek was not looking for a non-
individualist liberalism. He first of all explained that “true individualism”
is to be found “in particular in Bernard de Mandeville and David Hume”;
and he added that it attained its “complete form in the work of Josiah
Tucker, […] Adam Smith and in that of their great contemporary Edmund
Burke” (Hayek, 1946, p. 4). It is an individualism that recognizes how
limited the forces of the individual are and that, for this reason, channels
the knowledge and the resources of each into a grand social (ateleological)
process, geared to the exploration of the unknown and the correction of
errors. This means renouncing the idea of a privileged source of knowl-
edge and the imposition of a mandatory hierarchy of ends; it is also tanta-
mount to entrusting the “government of the law” with the task of setting
the boundaries between actions and allowing, within the scope thus delim-
ited, the full expression of individual freedom of choice. It is the affirma-
tion of an order which, by allowing each to have their own scale of
priorities, has an unprogrammed character: the actors voluntarily exchange
means and unintentionally cooperate toward the ends of others.
Then there is “false individualism.” The “leading representatives” of
this tradition were the Encyclopedists, Rousseau and the Physiocrats
(ibid.). This tradition is heavily conditioned by the Cartesian presumption
that we can access a “manifest truth.” Descartes had written, “To take a
purely human instance, I believe that Sparta flourished so well not because
of the excellence of its laws taken one by one […], but because, being all
the invention of one man, they all tended towards the same end”
(Descartes, [1637] 1960, p. 45). And Rousseau expressed his refusal to
make a “constant” readjustment and his willingness to “begin by purging
the threshing floor and setting aside all the old materials, as Lycurgus did
in Sparta, in order afterwards to erect a good Building” (Rousseau, [1755]
1997, p. 175). If the aim is to replace the intentional order willed by God
with an intentional order willed by a Great Legislator, there can be no
individual freedom of choice. And the individualism, despite being

paraded, can only be illusory or false, just as Hayek claimed. Ortega real-
ized this. He was not sufficiently aware of the debts incurred by Guizot,
Tocqueville and the “doctrinaires” toward British culture (Infantino,
2019, pp. 198–204). But a knowledge of what the Austrian economists
had done would have provided his analysis with further material.
Considering that Ortega was an omnivorous reader, it is surprising that
Menger’s Untersuchungen in particular escaped his attention.2
Ortega in Hayek’s Works

So, Ortega did not ‘encounter’ the Austrian economists. However, it did
happen that Hayek “encountered” Ortega. He quoted him several times
in The Constitution of Liberty; and used the following statement by Ortega
as an epigraph to one of the chapters of that work: “Order is not a pressure
imposed upon society from without, but an equilibrium which is set up
from within” (Hayek, 1960, p. 148; see Ortega, 1927, p. 607). Ortega
also appears several times in Law, Legislation and Liberty, one of the chap-
ters of which also opens with a passage of his (Hayek, 1982, vol. 2, p. 133):
Liberalism—it is well to recall today—is the supreme form of generosity; it

is the right which the majority concedes to minorities and hence it is the
noblest cry that has ever resounded on this plane. It announces the determi-
nation to share existence with the enemy; more than that, with the enemy
which is weak. It was incredible that the human species should have arrived
at so noble an attitude, so paradoxical, so refined, so antinatural. Hence it is
not to be wondered at that this same humanity should soon appear anxious
to get rid of it. It is a discipline too difficult and complex to take firm root
on earth. (Ortega, 1930a, p. 192)
Hayek’s appreciation confirms that the encounter between Ortega and

Menger (and the first exponents of the Austrian School of Economics)
would have been a fine page in the history of ideas. Even apart from the
problem of “false” individualism, there would have been many issues on
which knowledge could have been combined. In his program for the
establishment of the Instituto de Humanidades, Ortega criticized the
“geometric rigidity” of economic theory (Ortega, 1948, p. 19). He
2
It is not only on the basis of knowledge of works that I consider Ortega an omnivorous
reader. During my stay in Madrid, as a visiting professor at Rey Juan Carlos, I had the oppor-
tunity to see his personal library and to realize how vast his reading was.
164 L. INFANTINO
pointed out that it “calls itself an exact science” (ibid.). And he added: it
is not possible to spot “anywhere its presumed sociological innards. It
promises them and then forgets them. It becomes necessary therefore to
attempt to make its character as a social science effective” (ibid.). That is:
one must “discover what” in the various circumstances of life, is “eco-
nomic.” Such a program is exactly what always characterized the Austrian
School of Economics (Infantino, 2010, pp. 159–177).
References
Antonelli, É. (1953). Léon Walras er Carl Menger á travers leur correspondence.
Économie Appliquée, 6, 269–287.
Descartes, R. ([1637] 1960). Discourse on Method. Penguin.
Diez del Corral, L. (1956). Il liberalismo dottrinario. Instituto de Estudios
Politicos.
Hayek, F. A. (1946). Individualism: True and False. Blackwell, now in Hayek,
Individualism and Economic Order, 1949. Routledge & Kegan Paul.
Hayek, F. A. (1960). The Constitution of Liberty. Routledge & Kegan Paul.
Hayek, F. A. (1982). Law, Legislation and Liberty. Routledge.
Infantino, L. (1998). Individualism in Modern Thought. Routledge.
Infantino, L. (2010). Hayek and the Evolutionary Tradition against the Homo
Oeconomicus. Advances in Austrian Economics, 13, 159–177.
Infantino, L. (2019). Cercatori di Libertà. Rubbettino.
Jaffé, W. (1976). Menger, Jevons and Walras De-homogenized. Economic Enquire,
14, 511–524.
Kauder, E. (1965). A History of Marginal Utility Theory. Princeton University Press.
Menger, C. ([1871] 1994). Principles of Economics. Libertarian Press.
Menger, C. ([1883] 1996). Investigations into the Method of Social Sciences.
Libertarian Press.
Mises, L. v. ([1933] 1981). Epistemological Problems of Economics. New York
University Press.
Ortega y Gasset, J. (1923). El tema de nuestro tiempo, in Ortega (1946–83), vol. 3.
Ortega y Gasset, J. (1927). Mirabeau o el politico, in Ortega (1946–83), vol. 3.
Ortega y Gasset, J. (1930a). La rebelión de las masas, in Ortega (1946–83), vol. 3.
Ortega y Gasset, J. (1930b). Misión de la Universidad, in Ortega (1946–83), vol. 4.
Ortega y Gasset, J. (1937). Prólogo para Franceses, in Ortega (1946–83), vol. 4.
Ortega y Gasset, J. (1940). Apuntes sobre el pensamiento, in Ortega (1946–83), vol. 5.
Ortega y Gasset, J. (1946–83). Obras completas. Revista de Occidente.
Ortega y Gasset, J. (1948). Prospecto del Instituto de Humanidades, in Ortega
(1946–83), vol. 7.
Ortega y Gasset, J. (1974). Epistolario. Revista de Occidente.

Rousseau, J.-J. ([1755] 1997). Discourse on the Origin and Foundation of
Inequality among Men. In The Discourses and Other Early Political Writings.
Cambridge University Press.
Schatz, A. (1907). L’individualisme économique et social. Colin.
Tocqueville, A. de. ([1835–40] 1994). Democracy in America. Everyman’s Library.
The Devil by the Horns
Axel Kaiser
To counteract the evil which arises from the tendency man has to transgress his
proper limits, and the discord produced by such unjust encroachment on the
rights of others, is the essential object of the creation of the State.
—Wilhelm Humboldt
Back in 2011 while studying in Germany, I paid a visit to Professor Jesús

Huerta de Soto in Madrid. We met at the Universidad Rey Juan Carlos,
where he had just finished a lecture. After a long conversation on eco-
nomic and philosophical issues, Professor Huerta de Soto gave me all of
his books, some of them both in the German and Spanish editions. Luckily
for me, my girlfriend was present and helped me out with carrying the
precious gifts all the way back to Germany. When the meeting ended,
Professor Huerta de Soto offered us a ride in his golden Bentley, which
was an offer we couldn’t resist. The conversation went on in the car and it
basically consisted in him trying to convince me to abandon classical liber-
alism in order to convert to the one and only true creed of
A. Kaiser (*)
Universidad Adolfo Ibáñez, Santiago, Chile

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_15
168 A. KAISER
anarchocapitalism. “Classical liberals are making a pact with the devil” he

told me and went on to explain that once you create the state there is no
way you can control its growth. The core arguments on which he based
his case are to be found in his article “Classical Liberalism vs
Anarchocapitalism.” Although I could see the impeccable logic of
Professor Huerta de Soto’s line of thinking, I wasn’t entirely convinced by
it back in 2011. And I’m still not entirely convinced today that anarcho-
capitalism or “scientific liberalism” is more than a necessary utopia. Of
course, Professor Huerta de Soto is right on most fronts in his critique of
the state and there is no doubt that we shall all combat the religion of
“statolatry.” However, it seems to me that the central problem with
Professor Huerta de Soto’s argument is the notion that we can get rid of
the devil altogether. In Tolkienian terms, Huerta de Soto believes that we
can effectively destroy the ring of power and prevent Sauron from enslav-
ing us all. The view that the source of evil can be destroyed leads Huerta
de Soto to conclude that classical liberalism and its defense of the state
must necessarily fail: “The fatal error of classical liberals lies in their failure
to realize that their ideal is theoretically impossible, as it contains the seed
of its own destruction, precisely to the extent that it includes the necessary
existence of a state (even a minimal one), understood as the sole agent of
institutional coercion” (Huerta de Soto, 2009, p. 162). According to
Professor Huerta de Soto, classical liberals are making Isildur’s mistake:
they believe they can keep the ring of power, use it for good purposes and
at the same time escape from its corrupting influence over their souls. In
other words, they think they can take the devil by the horns. This line of
reasoning must be considered very seriously especially when the fact is
taken into account that the state has often become the most destructive
and criminal organization of all. Nevertheless, a deeper examination of the
main issue, namely the origins and role of the state, is necessary in order
to clarify the terms of the debate. To my mind, the main difference
between anarchocapitalists and classical liberals is one of attitude. Classical
liberals are pessimists while anarchocapitalists are optimists. Unlike anar-
chocapitalists like Huerta de Soto, classical liberals believe that the devil
cannot be destroyed. All we can do is to learn how to live with it. For clas-
sical liberals it is human nature itself what carries the seeds of its own
destruction and the best we can do is to tame it. James Madison best
represented the classical liberal position when he wrote that government
was “the greatest of all reflections on human nature” adding that “if men
were angels, no government would be necessary.” He also insisted that “if
THE DEVIL BY THE HORNS 169
angels were to govern men, neither external nor internal controls on gov-
ernment would be necessary” (Madison, [1788] 2006, p. 288). Madison
would have probably agreed with Huerta de Soto’s claim that the state
“acts as an irresistibly powerful magnet which attracts and propels the bas-
est passions, vices, and facets of human nature” (Huerta de Soto, 2009,
p. 169). But he would have also observed that those vices and destructive
passions can be even more devastating in the absence of government. The
tendency of our species to dominate, abuse and exploit others is precisely
the origin of what Oppenheimer called “political means” (Oppenheimer,
[1907] 1922, p. 25). Pirates, bandits and other criminal gangs did not
need to form state-like organizations in order to use violence with the
purpose of satisfying personal desires. Moreover, compared to chaotic and
random violence of these types of groups, the state might represent a
source of progress precisely because it has the ability to monopolize coer-
cion. As Oppenheimer observed, the first stage in state formation “com-
prises robbery and killing in border fights, endless combats broken neither
by peace nor by armistice. It is marked by killing of men, carrying away of
children and women, looting of herds, and burning of dwellings”
(Oppenheimer, [1907] 1922, p. 10). Once the state has been formed,
however, violence is reduced and the space for a civilized life becomes pos-
sible. The dominant groups realize that it is in their best interest to keep
the peasants alive and respect their property appropriating only their sur-
plus. In Oppenheimer’s words, “the herdsman in the first stage is like the
bear, who for the purpose of robbing the beehive, destroys it. In the sec-
ond stage he is like the bee-keeper, who leaves the bees enough honey to
carry them through the winter. Great is the progress between the first
stage and the second” (Oppenheimer, [1907] 1922, p. 65). It is for this
reason that the state can enable a “higher form of society” (Oppenheimer,
[1907] 1922, p. 66).
Steven Piker’s study on violence confirms this view. According to
Pinker, in stateless societies, the probability to be killed by someone else
was substantially higher than in societies with a state. Research on skele-
tons shows that in prehistoric societies the average number of people who
died at the hands of others was 15%, ranging from 4% to 60%. In hunter-
horticulturalist and other tribal societies, the average was 14%. In hunter-
gatherer societies, an average of 24.5% of the death occurred as a result of
warfare. Meanwhile in the earlier form of states such as pre-Columbian
empires in Mexico, 5% of the death on average was the result of killings by
someone else. When it comes to modern states, the most violent period
170 A. KAISER
was the seventeenth century in Europe with the religious wars and the first
half of the twentieth century with the two world wars. The average per-
centage of the deceased population being killed by others in the seven-
teenth century was about 2% and 3% in the first half of the twentieth
century. When the entire twentieth century is considered, only 0.7% of the
world’s population died in battles. If genocides, purges and other man-
made disasters are included, the number increases to 3% (Pinker, 2011,
pp. 48–50). When numbers of deaths per 100 thousand people per year
are used as a measure, stateless societies also show a significantly higher
rate of violence than societies with a state. Therefore, it is not accrued to
sustain, as Jesús Huerta de Soto does, “that the true origin of social con-
flicts and evils lies with the government itself.” At least from a historical
perspective, the idea that overall stateless societies offered a more peaceful
and less-violent life is nothing but a myth. In Pinker’s words: “states are
far less violent than traditional bands and tribes. Modern Western coun-
tries, even in their most war-torn centuries, suffered no more than around
a quarter of the average death rate of non-state societies and less than a
tenth of that for the most violent one” (Pinker, 2011, p. 52). According
to Pinker, “a state that uses the monopoly of violence to protect its citi-
zens from one another” is the most consistent violence-reducer of all
(Pinker, 2011, p. 680).
Classical liberals recognize the fact that even in absence of a state there
will be violence, murder and crime by more or less organized groups. As
Madison put it: “In a society under the forms of which the stronger fac-
tion can readily unite and oppress the weaker, anarchy may as truly be said
to reign as in a state of nature, where the weaker individual is not secured
against the violence of the stronger” (Madison, [1788] 2006, p. 291). For
classical liberals it is not the state which is the enemy of individual freedom
per se, but arbitrary violence by a third party be it the state or any other
group. “Without security,” Wilhelm Humboldt wrote, “it is impossible
for man either to develop his powers or to enjoy the fruits of so doing; for,
without security, there is no freedom” (Humboldt, [1852] 1993, p. 39).
This is the reason why classical liberals define liberty as the absence of
arbitrary coercion, for it is only in a situation where coercion is controlled
that we can pursue our own goals and be free (Smith, 2013, p. 7). Echoing
von Humboldt, Friedrich Hayek noted that, “coercion is evil because it
eliminates an individual as a thinking and valuing person and makes him a
bare tool in the achievement of the ends of others” (Hayek, [1960] 2006,
p. 19). As the same Hayek noted, the state can solve this problem by
centralizing coercion. At the same time, we must limit the power of the
state “to instances where it is required to prevent coercion by private per-
sons” (Hayek, [1960] 2006, p. 20). In short, government is a response to
the problem of tribal violence and classical liberalism is a response to the
problem of unchecked state violence. As Madison put it, “in framing a
government which is to be administered by men over men, the great dif-
ficulty lies in this: You must first enable the government to control the
governed; and in the next place oblige it to control itself” (Madison,
[1788] 2006, p. 288).
If we accept the premise that violence or the threat of it are defining
characteristics of human interaction, then there is no reason to believe that
anarchocapitalistic societies are more sustainable over time than minimal
states. The fact that states exist all over the world constitutes a clear indica-
tion that this is the case even if in the past successful example of stateless
urban societies are to be found (Thompson, 2005). If somehow, we could
entirely decentralize the application of violence in a given community, the
ability to organize an army capable of defending the territory from another
organized army that seeks to dominate it would have to be preserved. As
Hayek pointed out, “coercion cannot be altogether avoided because the
only way to prevent it is by the threat of coercion” (Hayek, [1960] 2006,
p. 19). And it is hardly conceivable that the support of a standing army
could be solely funded by voluntary contributions instead of taxation. It
could be objected at this point that small and weak states can be overrun
at any time by larger states. Therefore, having a state does not offer any
advantage over the anarchic alternative. But this objection overlooks the
fact that less powerful states have historically formed alliances with larger
states in order to be protected from the threats of invasion by states with
greater military capacities. This was clearly the case of Western Germany as
well as South Korea and Japan during the Cold War (see, e.g., Roehrig,
2017). Had it not been for the nuclear umbrella of the United States and
the military might of France and the UK, the Soviet Union would have
probably advanced over Western Europe. Likewise, communist China and
North Korea would have had no major impediment to dominate South
Korea and Japan. And there can be no doubt that this would have been a
much worse outcome for the inhabitants of these territories. This brings
the discussion to an additional and crucial point. It is of course true that
from the perspective of classical liberalism, states are nowadays all too
powerful. But to argue, as Jesús Huerta de Soto does, that “classical liber-
als have failed in their attempt to limit the power of the state” is too
172 A. KAISER
simplistic (Huerta de Soto, 2009, p. 162). Even if we agreed that all states
are evil, we must accept that some are more evil than others. The United
States with its liberal form was in all possible respects better for human
freedom than the Soviet Union and it still is far superior to China or Cuba
to name just two examples of alternative state models. The same can be
said about many other Western countries where individuals enjoy substan-
tial degrees of freedom, thanks to institutional frameworks and values that
have been the product of the classical liberal philosophy.
It is possible to enjoy large degrees of individual freedom under a state
as long as the basic structure of the rule of law is kept in place. There is of
course no guarantee that any government will not degenerate into tyranny
and it might be the case that some relatively free societies today become
totalitarian nightmares in the future. But again, this would not be the
failure of classical liberalism as a theory but of the custodians of freedom.
Ultimately, classical liberals believe that freedom depends on the ideas,
values and traditions that prevail in society. As Hayek pointed out, our task
must be viewed in a long-term perspective. Accordingly, “it is the beliefs
which must spread, if a free society is to be preserved, or restored, not
what is practicable at the moment” (Hayek, 1948, p. 108).
This view might be considered too optimistic. However, the idea that
we must prevail in the battle of ideas if a free society is to be preserved
must also constitute the foundation of any anarchocapitalistic system. If
due to the collectivist impulses inherent to human nature a stateless form
of organization came to lose popular support, it would not survive.
Moreover, Professor Huerta de Soto’s critique of classical liberalism in
order to persuade us that anarchocapitalism is superior when it comes to
protecting freedom would make little sense if he did not believe that his
message couldn’t change enough minds to eventually move things toward
the direction he is proposing. This intellectual commitment is exactly what
classical liberals advocate. But if we accept the view that by engaging in the
battle of ideas, we can contribute to create the conditions for a movement
toward anarchocapitalism then by the same token we must believe that
active and effective advocacy for the limitation of government power must
make it possible to achieve a minimal state. The real fight then is not
against the notion of a minimal state but against statolatry. And this is a
task where both classical liberals and anarchocapitalists should collaborate.
Classical liberals must have no illusions about the ability of the state to do
good. They have to remember Thomas Paine’s wise words when he
observed that government, in the best case is “a necessary evil” and in the
worst case is an “intolerable one” (Paine, [1776] 2014, p. 6).

Anarchocapitalists do not need to accept this dictum in order to advance
the cause of freedom. All they have to do is to continue to denounce the
malaise that arises from statolatry and state praxis while persisting in their
efforts to present an ideal type of society to which we should all aspire. If
we have no choice but to take the devil by the horns, then we will always
be in need of a clear voice like Jesús Huerta de Soto’s in order to keep us
from falling into its seductive and corrupting power.
References
Hayek, F. A. (1948). ‘Free’ Enterprise and Competitive Order. In Individualism
and Economic Order (pp. 107–118). The University of Chicago Press.
Hayek, F. A. [1960] (2006). The Constitution of Liberty. Routledge.
Huerta de Soto, J. (2009). Classical Liberalism versus Anarchocapitalism. In
J. G. Hülsmann & S. Kinsella (Eds.), Property, Freedom and Society: Essays in
Honor of Hans-Hermann Hoppe (pp. 161–178). Mises Institute.
Humboldt, W. v. [1852] (1993). The Limits of State Action (J. W. Burrow, Ed.).
Liberty Fund.
Madison, J. [1788] (2006). The Federalist Papers: No. 51. In The Federalist.
Barnes & Noble.
Oppenheimer, F. [1907] (1922). The State: It’s History and Development Viewed
Sociologically (J. M. Gitterman, Trans.). B.W. Huebsch.
Paine, T. [1776] (2014). Common Sense; Addressed to the Inhabitants of
America, on the Following Interesting Subjects. In I. Shapiro & J. E. Calvert
(Eds.), Selected Writings of Thomas Paine (pp. 6–52). Yale University Press.
Pinker, S. (2011). The Better Angels of Our Nature: Why Violence Has Declined.
Viking Books.
Roehrig, T. (2017). The U.S. Nuclear Umbrella over South Korea: Nuclear
Weapons and Extended Deterrence. Political Science Quarterly,
132(4), 651–684.
Smith, G. H. (2013). The System of Liberty: Themes in the History of Classical
Liberalism. Cambridge University Press.
Thompson, T. J. (2005). Ancient Stateless Civilization: Bronze Age India and the
State in History. The Independent Review, X(3), 365–384.
The Entrepreneur of Ideas: A Review
of Some Literature
Martin Krause
Nothing appears more surprising to those, who consider human affairs with a
philosophical eye, than the easiness with which the many are governed by the few;
and the implicit submission, with which men resign their own sentiments and
passions to those of their rulers. When we enquire by what means this wonder is
effected, we shall find, that, as Force is always on the side of the governed, the
governors have nothing to support them but opinion. It is therefore, on opinion
If I remember correctly, I first met Jesús Huerta de Soto at his office in Madrid.
The fact that the office was in an insurance company made all the more sense, if
one is familiar with his views on the role these companies would have in a
libertarian world. His vibrant character seemed also typical of an entrepreneur,
but then, at the end of the meeting, it was clear to me that he was and has been
since, an entrepreneur of ideas.
M. Krause (*)
Universidad de Buenos Aires, and UCEMA, Buenos Aires, Argentina
Universidad Francisco Marroquín, Guatemala City, Guatemala
e-mail: krause@ufm.edu

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_16
176 M. KRAUSE
only that government is founded; and this maxim extends to the most despotic
and most military governments, as well as to the most free and most popular.
—David Hume, Of the First Principles of Government
Ideas are very important to economics. The objects of human activity “are
defined not in terms of their ‘real’ properties but in terms of opinions
people hold about them. In short, in the social sciences the things are
what people think they are. Money is money, a word is a word, a cosmetic
is a cosmetic, if and because somebody thinks they are” (Hayek, 1943
[1948], p. 60).
In what follows I will try to explore if we can make use of such a con-
cept as we now use it to describe someone who is active either in “carrying
out new combinations of resources” (Schumpeter, 1934, p. 74) or who
has “alertness”, the ability to perceive new opportunities that no one
before has yet recognized (Kirzner, 1973). These definitions being devel-
oped to describe the activities of entrepreneurs in markets for goods or
services, they do not seem to describe precisely what someone active
mainly with ideas does. Further on, an entrepreneur is someone who com-
petes in the marketplace: can we say that there is something such as a
marketplace of ideas? Is there a demand and a supply where the entrepre-
neur plays its role?
The Marketplace of Ideas

Some of the most distinguished economists have stressed the importance
of ideas in order to explain actual economic policies and the evolution of
societies. Famous is the quote by John Maynard Keynes at the end of the
“General Theory” (1936):
[T]he ideas of economists and political philosophers, both when they are
right and when they are wrong, are more powerful than is commonly under-
stood. Indeed, the world is ruled by little else. Practical men, who believe
themselves to be quite exempt from any intellectual influences, are usually
the slaves of some defunct economist. Madmen in authority, who hear
voices in the air, are distilling their frenzy from some academic scribbler of a
few years back. I am sure that the power of vested interests is vastly exagger-
ated compared with the gradual encroachment of ideas. Not, indeed,
immediately, but after a certain interval; for in the field of economic and
political philosophy there are not many who are influenced by new theories
THE ENTREPRENEUR OF IDEAS: A REVIEW OF SOME LITERATURE 177
after they are twenty-five or thirty years of age, so that the ideas which civil
servants and politicians and even agitators apply to current events are not
likely to be the newest. But, soon or late, it is ideas, not vested interests,
which are dangerous for good or evil. (p. 372)
Interests or ideas? Or maybe: what is the difference between an “inter-

est” and an “idea”? Economists have been paying attention to economic
incentives for centuries but if actions are guided by ideas, those that arise
to guard “interests” are as much ideas as any other. Does it make a differ-
ence if an idea is intended to defend a monetary end? Nevertheless, Keynes
makes an important point if we understand that what he is trying to say is
that people are not only motivated by money but by many other things.
Many have given their lives for certain values without expecting any mon-
etary return (Rodrik, 2014).
Ludwig von Mises has an entire chapter in his magnum opus Human
Action (1949). Chapter IX is titled “The Role of Ideas”, where Mises
affirms society is the outcome of human action guided by ideologies, con-
sidering these as all doctrines related to individual conduct and social rela-
tions, plus doctrines about “the ultimate ends which man should aim at in
his earthly concerns” (p. 178). For Mises, every social action is the result
of ideologies previously developed, emerging to replace others and trans-
forming the social system. Therefore, society is always the creation of pre-
vious ideologies. The same year Hayek publishes his article on the
intellectuals and socialism (1949) stating:
In all democratic countries, in the United States even more than elsewhere,
a strong belief prevails that the influence of the intellectuals on politics is
negligible. This is no doubt true of the power of intellectuals to make their
peculiar opinions of the moment influence decisions, of the extent to which
they can sway the popular vote on questions on which they differ from the
current views of the masses. Yet over somewhat longer periods they have
probably never exercised so great an influence as they do today in those
countries. This power they wield by shaping public opinion. (p. 417)
For Hayek “intellectuals” are not the original authors of some ideas but
those who reproduce them, such as journalists, teachers, religious minis-
ters, advertisers, radio speakers, fiction and humor writers and all kinds of
artists. In other works (1933, 1954), he describes the process of diffusion
of ideas from original authors to intellectuals to the general public as drops
178 M. KRAUSE
falling on a pond, generating ever wider circles. Could we call journalists

and others “entrepreneurs of ideas”? They do look as if they are trying to
promote certain ones and they find themselves in competition with others.
They seem to be on the “supply” side of the market facing a general audi-
ence with a “demand”. But then, is this a market where a price is eventu-
ally arrived at? Is there a trend toward an equilibrium?
Milton and Rose Friedman (1988) present their own version, following
A. V. Dicey’s (1917) lectures on the impact of public opinion into law:
The hypothesis is that a major change in social and economic policy is pre-
ceded by a shift in the climate of intellectual opinion, itself generated, at
least in part, by contemporaneous social, political, and economic circum-
stances. This shift may begin in one country but, if it proves lasting, ulti-
mately spreads worldwide. At first it will have little effect on social and
economic policy. After a lag, sometimes of decades, an intellectual tide
“taken at its flood” will spread at first gradually, then more rapidly, to the
public at large and through the public’s pressure on government will affect
the course of economic, social, and political policy. As the tide in events
reaches its flood, the intellectual tide starts to ebb, offset by what A. V. Dicey
calls counter-currents of opinion. The counter-currents typically represent a
reaction to the practical consequences attributed to the earlier intellectual
tide. Promises tend to be utopian. Performance never is and therefore disap-
points. The initial protagonists of the intellectual tide die out and the intel-
lectual quality of their followers and supporters inevitably declines. It takes
intellectual independence and courage to start a counter-current to domi-
nant opinion. It takes far less of either to climb on a bandwagon. The ven-
turesome, independent, and courageous young seek new fields to conquer
and that calls for exploring the new and untried. The counter-currents that
gather force set in motion the next tidal wave, and the process is repeated.
(Friedman & Friedman, 1988)
Venturesome, independent, courageous. These all look like attributes

of Huerta de Soto to me. Douglass North used to explain institutional
change as a reaction of individuals to changes in relative prices, originated
exogenously: for example, a pandemic decimated a population, turning
labor scarce. But as his research developed, he ended up sharing the
Mises/Hayek/Friedman perspective about the role of ideas. To North,
beliefs and institutions that human beings have developed over the years
can only make sense as an effort to face uncertainty. This is reduced
through experience over the environment in different cultures and times.
Therefore, to understand how human beings form their ideas is crucial to

understand how to face uncertainty. Over the centuries, uncertainty
around the physical world has been reduced through the development of
natural sciences, displacing explanations based on sorcery, magic or reli-
gions, but the social environment has become a lot more complex, and we
can find esoteric explanations as well.
To North (2005) the process of learning seems to be a function of the
way different systems of values and beliefs filter information acquired
through experience, and the different experiences societies have at differ-
ent points in history. From such visions derive rules, informal norms and
control mechanism setting an institutional structure which itself deter-
mines a better of worst economic performance. This institutional struc-
ture is composed by the political structure of the state, property rights and
rules and social conventions defining informal incentives in the economy.
In North’s words, systems of beliefs and visions of the world are the
“internal representation” while institutions are the “external representa-
tion”. Culture, in this sense, is the intergenerational transfer of norms,
values and ideas, or the transmission of our “accumulated stock of knowl-
edge” (Hayek, 1960, p. 27).
This leaves open a question that we are not going to address here: how
are ideas created? What is their origin? The prevailing “blank slate” para-
digm is being challenged by recent developments in neurosciences and
evolutionary psychology, usually presented as a debate over “culture vs
nurture”. Do we get ideas and values from the environment or, at least
some of them, are inherited? Are they “memes” that take over brains?
Presently, interest on the role of ideas has exploded, developing a whole
new field: culture economics (McCloskey, 2006; Alesina & Giuliano,
2013; Mokyr, 2016; or more recently Acemoglu & Robinson, 2021) and
the theory of “narrative economics” (Shiller, 2017, 2019). They both
move ahead to understand how ideas are born and spread around the
world, bringing concepts from economics showing the process as a “mar-
ketplace” of ideas propelled by entrepreneurs. Shiller, for example, while
trying to explain a dynamic world of narratives introduces the figure of an
entrepreneur as a promoter of change: “Of course, almost nothing beyond
spots on the sun is truly exogenous in economics, but new narratives may
be regarded often as causative innovations, since each narrative originates
in the mind of a single individual or a collaboration among a few” (2017,
p. 3). Mokyr writes (p. 87): “A small number of individuals …, not only
choose a set of cultural traits for themselves from a given menu but also
180 M. KRAUSE
add to the menus available to others. Such individuals might be called

‘cultural entrepreneurs’ and they are the ultimate form of the one-to-
many transmission mechanism.”
Why would people be motivated to spread certain ideas? For Shiller,
narratives are simple stories describing events that people bring up in con-
versations or on news or social media to stimulate concern or emotions in
others and/or, because it appears to advance self-interest (p. 4). But the
idea of an entrepreneurial action starts to fade away and almost completely
disappears when he moves to develop a model based on epidemics, par-
ticularly the Kermack-McKendrick mathematical theory of disease epi-
demics. For infectious diseases to spread requires no entrepreneurial action
from the viruses. Besides, and Shiller does recognize this, in present time
ideas spread less through face-to-face communication and more through
social media. The entrepreneur comes back when he mentions that “a suc-
cessful story entrepreneur may have a lifetime of failed attempts and per-
haps only one or a few breakthroughs. The rare breakthroughs make the
entire enterprise worthwhile” (p. 20).
The marketplace of ideas has another specific characteristic: there is no
easy enforcement of a property right. Once an idea is expressed, written or
verbally, it is available for anyone to use. This is one of the motives to
express it. In terms of neoclassical welfare economics ideas fall into the
category of “public goods”: they are non-excludable, that is, once known
you cannot exclude those who do not pay for them and they will have
incentive to free-ride on any ideas they may consider useful or interesting;
and there is no rivalry in consumption, the same idea can be “consumed”
at once by one, two or millions of people. According to that theory this is
a market failure; the market will underprovide ideas against a certain opti-
mum level and going from the positive to the normative without much
elaboration, governments should step in to solve the problem (Stiglitz,
2001). No one has ever been able to define the optimum here: we do
certainly lack theories, for example, to understand the origins of the
Universe, or how the brain works, or the world has too many conspiracy
theories or esoteric beliefs. We do not know all the prices nor all the prod-
ucts or services available around us (Hayek, 1945).
Where is the optimum? And is it in terms of quantity or quality? One of
the first references to a marketplace of ideas did not arise in the field of
economics, but comes from Oliver Wendell Holmes Jr., a U.S. Supreme
Court Justice, one of the most widely cited in this country, who, when
dissenting in a case wrote in 1919:
When men have realized that time has upset many fighting faiths, they may
come to believe even more than they believe the very foundations of their
own conduct that the ultimate good desired is better reached by free trade
in ideas—that the best test of truth is the power of the thought to get itself
accepted in the competition of the market, and that truth is the only ground
upon which their wishes safely can be carried out. That at any rate is the
theory of our Constitution. (Abrams, 250 U.S. at 624–31 (Holmes, J.,
dissenting))
Holmes Jr. envisions not only market competition of ideas, but also
that under “free trade” there will be a tendency to something we could
call equilibrium, and that would be “truth”. This, of course, raises more
questions than it answers: are truth those ideas that have fetched the larg-
est number of followers? Is it the one that has not been proved wrong yet,
despite having less followers?
Judge Richard Posner commenting on the dissent shares the view:
Ideas are a useful good produced in enormous quantity in a highly competi-

tive market. The marketplace of ideas of which Holmes wrote is a fact, not
merely a figure of speech. This marketplace determines the “truth” of ideas,
other than of purely deductive propositions such as the Pythagorean theo-
rem. When we say that an idea (the earth revolves around the sun) is correct,
we mean that all or most of the knowledgeable consumers have accepted
(“bought”) it. Even in science—the traditional domain of objective valid-
ity—ideas are discarded not because they are demonstrated to be false but
because competing ideas give better answers to the questions with which the
scientists of the day are most concerned. (Posner, 1986, p. 627)
Although there are no clear property rights in ideas, we do see an

incredible production of them. Particularly, there have never been prop-
erty rights in ideas on social institutions and conditions. The ideas of the
Enlightenment, which jumpstarted economic progress as never seen
before, were not patented. How come that people spend a good deal of
their time and brain efforts to develop or transmit ideas from which they
are not going to cash in? Or will they? Actually, although specific ideas do
not seem to have a price reflecting individual valuation behind demand
and supply, there are ways to profit from them, through the sale of books,
the Nobel Prize, honoraria for conferences, academic appointments, paid
contributions to media and reputation. We just need to look at “influenc-
ers” to see how they entrepreneurially manage to profit from privately
182 M. KRAUSE
supplying these public goods. Further on, many entrepreneurs of ideas do

not even bother for monetary compensation and do it for a spiritual one,
here or in an afterworld: revolutionaries or religious martyrs have given
their lives in defense of their ideas.
Probably, one of the best treatments of this issue is Leighton and López
(2013), who adapt the Hayekian triangle on the structure of production
to describe the process that goes beyond the origination of ideas into the
impact they have in institutions, incentives and, finally, outcomes (p. 119):
Ideas
Degree of abstractness
Institutions
Incentives
Outcomes
Ideas are assimilated to higher-order capital goods. Outcomes depend

on incentives, which in turn depend on institutions and these on ideas.
Interaction, though, goes both ways, it is not only top-down. They
develop a framework describing this (p. 132):
Keynes’s academic
scribblers
Hayek’s second
hand dealers
Public
opinion
Collective beliefs about markets

and
proper role of government
Memes,
transmitters
Individual
beliefs
Biology and culture

(nature, nurture)
and combine this with the adapted triangle to describe institutional

change and the impact it has in society. The “hourglass” model describes
how ideas take shape both through bottom-up and top-down processes in
a round-about process, shaping ideas and beliefs that then move down the
triangle. (p. 133)
184 M. KRAUSE
Ideas
Institutions
Incentives
Outcomes
The market for ideas has been descripted with different metaphors: in
one of them as raindrops falling in a pond, in another as a pyramid. The
quietness of a pond is disturbed by raindrops that create widening circles,
some larger, some smaller. The small waves reach others and merge or
distort their form into something new. There are powerful ideas, or drops,
that create wide circles of acceptance, while others only small ones and die
rapidly or are taken over by larger ones. The metaphor is good to show a
competitive place but, again, drops just fall without any entrepreneurial
agency. The metaphor of a pyramid shows ideas created at the top, by an
individual or small group, and then moving down reaching larger audi-
ences until they get to the bottom. It is a tiered market, or one composed
of different submarkets, each with its own features. Those at the top are
Schumpeterian entrepreneurs who, through their creative destruction,
turn other ideas or narratives obsolete as they spread downwards. The
move from one tier to another is propelled by Kirznerian entrepreneurs
who are alert to find opportunities among ideas that may have a larger
audience in other stages. Those at the top are part of an elite, although not
necessarily a scientific or academic one.
The model, though, is static and as such does not give room to changes
and, most importantly, to the role of those who strive to achieve those
changes, which we will take up below. There is a whole set of possible
changes that could be considered to improve the model, a task that is
beyond the reach of this work at the moment. We are just going to con-
sider two.
The first has to do with the size of the market, as represented by the
triangle at the top. It regularly is somewhat like an inverted triangle, in the
sense that is much more activity at the top than at the bottom. Hayek’s
intellectuals, or ideas entrepreneurs, are active all the time but most of the
population is passive or uninterested in crucial social and political affairs.
The marketplace of ideas is intensely active in those circles but it remains
dormant for most others for whom there are more interesting things to
pay attention to. This is a “base” situation, not because it prevails most of
the time, and empirical statement that should be tested, but as a first step
in our analysis.
What changes the structure of the market is the coming up of a crisis.
We may make a difference between expected and unexpected crises, but in
any event, they spark a new demand of ideas coming from those who want
to understand what is going on, and a consequent response in the supply
side. The marketplace of ideas becomes larger and with the original form
in the model above, as a triangle with a small top and a large base. Under
this new configuration of the marketplace, a society will move in one
direction or another depending on what interpretation of the crisis, or I
might say, of the origin and cause of the crisis becomes the most accepted
opinion. Whatever interpretation “wins” gives those proposing it room to
propose and apply whatever measures they think are good enough to solve
the crisis.
The second has to do with the position of the triangle. This will require
a simplified assumption that should be considered with care, such as posi-
tioning any and all members of a society under a spectrum of ideas ranging
from left to right. As we all know this is a quite imperfect decision, since it
is not easy and clear to qualify some position as “right” or “left” (e.g., a
libertarian), and at the same time there a host of issues that may affect the
opinions of decisions of individuals beyond this basic political divide. But
just for the sake of continuing the argument, let’s take this very simplified
assumption. This means that the triangle is not static, it moves, in this case
from left to right and vice versa.
Let’s assume the triangle is in the middle of the spectrum. That means
that some intellectuals and/or politicians in the extreme right of left are
out of the triangle, or at least its base and lower echelons. They are still
active but they have no impact on public opinion. But the triangle moves,
probably in the sense of the currents and counter-currents Milton and
Rose Friedman mention. Intellectuals at different stages of the triangle are
struggling to move in one direction or the other. Nothing much changes
in a regular situation but when a crisis, or, and this is important, the per-
ception of a crisis looms in the horizon, they may have a chance and
become mainstream when they were outliers so far.
186 M. KRAUSE
Take the case of Latin America. In the second half of the twentieth
century regional populism adopted the “structuralist” ideas developed
under the leadership of Raúl Prebisch at the CEPAL (the UN’s Economic
Commission for Latin America). They all collapsed under hyperinflation in
the 1970s and 1980s (Chile, Argentina, Bolivia, Brazil, Peru). In the face
of a deep crisis the marketplace of ideas boomed and those adjudicating
the origin of the crisis to fiscal deficits, government spending, state com-
panies, closed economies and monetary financing won the day, basically.
The triangle moved to the right, and we had the economic reforms of the
1990s. Some outliers in the right now became mainstream and, as it hap-
pens, many intellectuals and politicians jumped into the new wagon, and
we could find populist leaders now showing as free marketeers. In some
cases the reforms stuck, or took many years to show a change of the tide
(e.g., Chile); others collapsed at the beginning of the new century
(Venezuela, Argentina, Bolivia) and the triangle moved in the opposite
direction. “Socialism of the XXIst Century” spread among different
groups of intellectuals and eventually impacted in their respective countries.
The whole process requires, of course, a more detailed analysis and
there are always exceptions but it seems a good example to show the
dynamics of the triangle of public opinion.
Entrepreneurs
The pyramid metaphor describes different tiers or areas where specific
entrepreneurs are active. We are all receiving and transmitting ideas, even
creating new ones at some point, but there are specific professions that are
more closely related to them or are more active as entrepreneurs in the
supply side of the market. Obviously, scientists who come up with new
theories are at the tip but in fact many others can generate a process down
if we consider fashions, trends in literature, painting, music or other per-
forming arts. But some people are engaged with ideas; they are the output
of their efforts. (“We must be clear about what we mean by intellectuals.
Here, ‘intellectuals’ refers to an occupational category, people whose
occupations deal primarily with ideas—writers, academics and the like.
Most of us do not think of brain surgeons or engineers as intellectuals,
despite the demanding mental training that each goes through, and virtu-
ally no one regards even the most brilliant and successful financial wizard
as an intellectual” (Sowell, 2009, p. 15).)
One level down the pyramid we will find those who receive the original
ideas or combinations thereof and spread them in a wider circle: they
include professors and teachers, religious ministers, journalists, political
and social activists, and now “influencers” through the digital media who
show a large number of followers in Twitter, Facebook or Instagram. They
cash their efforts in one way or another: professors and teachers may get
better appointments or invitations to give paid speeches, eventually sell
books or write paid articles; journalists may also get better appointments
and their income will be closely related to the impact their reports may
have, in terms of audience or reference; political and social activists may
eventually reach political positions (e.g., get nominated as candidates for
Congress) which come with their own income and perks, or they may just
enjoy a psychic revenue of watching their ideas impact the community to
which they are addressed; religious ministers may even expect a reward
beyond this material world; a good number of doors are opened to influ-
encers in many different fields: fashion being one of the most relevant.
Can we adapt the concept of the entrepreneur to the realm of ideas?
First, we should take note that in mainstream general equilibrium models
there is not much room left for entrepreneurship, but some variables are
considered fixed, such as consumer preferences, resources available and
technologies (Kirzner, 1992). If we abstract from changes in these vari-
ables; if consumers continue preferring leisure to work, beer to wine and a
car over a bike in the proportions they presently do and if there is no new
technological development or new resources found, or new managerial
theories, markets will clear at the equilibrium point. Kirzner calls them
“underlying variables”. Obviously, this is not the case in any market, par-
ticularly so in the market of ideas.
“Induced variables” inevitably move toward equilibrium. They are
prices of products and services, methods of production and quantities and
qualities of products. Underlying variables are specifically related to ideas
every time consumer’s preferences change, new resources are developed
or new technologies come up. The entrepreneur moves in that world, on
both sides of the “hourglass”, in a Schumpeterian sense (changing prefer-
ences, combining resources and technologies through “new ideas”) and
being alert and discovering that such changes have taken place, starting up
a process to satisfy them, in a Kirznerian sense.
188 M. KRAUSE
In Mokyr’s words:
Cultural entrepreneurs were very successful sellers in this market (of ideas).
Like all successful innovating entrepreneurs, cultural entrepreneurs com-
bined an ability to ‘read’ their market with their original insights, altering
the culture by adding items to the menu cultural choices but not being so
outrageously different as to become ineffectual. Some of them did so by
sensing a latent demand: a dissatisfaction with some cultural beliefs or
knowledge, or diffuse and incoherent earlier attempts to cope with a new
reality. For cultural entrepreneurs to be successful, some discontent must
exist between the prevalent cultural elements and some new information
that does not quite square with it. (2016, p. 101)
Let’s take the case of climate change. In a Schumpeterian sense we

could say that an “academic scribbler” may have dug new data (however
partial it may be) and raises concern about the dangers facing the world.
The new idea starts its way down the pyramid through second-hand deal-
ers and becomes part of public opinion. Or we may say, in a Kirznerian
sense that someone just perceives those preferences have changed; con-
sumers, particularly in rich countries, having fulfilled their basic needs on
a Maslow scale now want something else, something that gives meaning
to their lives. Consciously or not, the entrepreneur of ideas has one to
offer: save the world. The idea starts spreading around somewhat like a
pandemic, but one that is boosted by entrepreneurs at different levels of
the pyramid. The report by the scribbler is taken up by a scientific editor
of a prominent newspaper, from there to a TV news program and to the
audience at large, and then bottom-up to politicians who are looking for
issues of interest to potential voters. An additional problem is that an idea,
or a set of ideas, will probably get distorted in its way, either down or up,
creating all sorts of ramifications over a single original issue.
There is probably no better example of an entrepreneur of ideas these
days than the “influencer”. The name says it all, they are opinion leaders
who can reach a much larger audience than traditional media through
platforms like Facebook, Instagram, Twitter, LinkedIn, TikTok and oth-
ers. The largest circulation newspaper is the Japanese Yumiuri Shimbun
with 9.1 million readers, but Cristiano Ronaldo has over 500 million fol-
lowers on Instagram. These platforms offer data analytics and can segment
followers by age, gender, job, interests, location and many other catego-
ries. Influencers get revenue from advertisers; their business is estimated to
have reached $10 billion in 2020. It is also estimated that 70% of purchas-
ing decisions by millennials come from “peers”, and 60% of sales on shops
are influenced by social networks (David, 2019).
The future will also bring a much more analytical marketplace of ideas.
There will be a lot more data to perceive trends and changes in public
opinion related to important issues down to the more irrelevant.
In markets for goods and services we can isolate the entrepreneurial
function as that which combines new sets of ideas and discovering oppor-
tunities, but there are at least two other functions: the investment of capi-
tal and the management of the start-up project. We could find them in the
same person or split in different ones. Can we adapt this to ideas? In this
case the entrepreneur, like the influencer, for example, needs to invest
human effort, creativity and time to build “capital” which in this case is
basically a reputation. Opportunity costs are always present, and they
could be spending their scarce time on some other activity. Once they have
built substantial capital through reputation, they put it at risk in subse-
quent interventions, and in a market as fluid as this one, it can come and
go rapidly. They also need to manage their “assets”, be those books, vid-
eos or their platform accounts.
Conclusion
The idea that there is a “market for ideas” and “entrepreneurs of ideas”
seems to be one that explains itself: it is an idea originated by someone
who thought the parallel with the entrepreneurs in market of goods and
services would describe how they are born, how they evolve, change and
eventually die. We cannot say at this point if it will prosper, flourish, meta-
morphose, languish or just be forgotten, but we can testify that it is having
increasing attraction.
From the first use of the metaphor by Justice Holmes, or probably
someone else before, it has spread from law and freedom of speech to
sociology and economics. In Chapter One of Human Action (1949),
Ludwig von Mises has a third section titled “Human Action as an Ultimate
Given”, where he states that “concrete value judgments and definite
human actions are not open to further analysis. We may fairly assume or
believe that they are absolutely dependent upon and conditioned by their
causes,” but we take them as given (Mises 1949, p. 17).
We have not here addressed the issue of the origin of ideas, although
contemporary science has made great advances in understanding how the
190 M. KRAUSE
mind works and how we may conceive our ideas. It is not in the econo-
mist’s field of action to inquire about it, although it is always useful to
consider and be updated in developments in other fields of science. But
without moving into that issue, economists still have a lot to learn, and
then a lot to say, about the impact of ideas in actions. We have concen-
trated our efforts in the consequences of action, but now we can move to
the causes of it. And the causes are ideas.
That is what is happening these days. A good number of economists are
considering this, many of them transposing a model of the market or the
role of the entrepreneur to understand why and how some ideas prevail
over others, and what kind of impact they have in human actions which
later determine economic performance. We have just skipped the surface
of what is going on in this field and our purpose was only to introduce the
subject and review some of the literature to encourage readers to follow
down this path.
The idea of an entrepreneur or ideas may fade away, but who knows, it
probably evolves into something better, and moves our field into a better
understanding of why and how humans cooperate in society.
References
Acemoglu, D., & Robinson, J. A. (2021). Culture, Institutions and Social
Equilibria: A Framework. NBER Working Paper Series; WP 28832; National
Bureau of Economics Research.
Alesina, A., & Giuliano, P. (2013). Culture and Institutions. NBER Working
Paper Series; WP 19750. National Bureau of Economic Research.
David, R. (2019). How Influencers Have Transformed Modern Marketing. TEDx
Vancouver, 25 June 2019. Retrieved September 12, 2021, from https://www.
youtube.com/watch?v=gbbEXnRG9d8
Dicey, A. V. (1917). Lectures on the Relation between Law & Public Opinion in
England during the Nineteenth Century. Macmillan and Co. Ltd.
Friedman, M., & Friedman, R. (1988). The Tide in the Affairs of Men. In
A. Anderson & D. L. Bark (Eds.), Thinking About America: The United States
in the 1990s. Hoover Institution Press. Retrieved from https://fee.org/arti-
cles/the-tide-in-the-affairs-of-men/
Hayek, F. A. (1933). The Trend of Economic Thinking. Economica No.
40, 121–137.
Hayek, F. A. (1943). The Facts of the Social Sciences. Ethics 54 (October 1943).
Also in Individualism and Economic Order (1948) (pp. 57–66). The University
of Chicago Press.
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Review, XXXV(4), 519–530.
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Review 16 (3), Article 7. https://chicagounbound.uchicago.edu/uclrev/
vol16/iss3/7
Hayek, F. A. (Ed.). (1954). Capitalism and the Historians. University of
Chicago Press.
Hayek, F. A. (1960). The Constitution of Liberty. University of Chicago Press.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money.
Palgrave Macmillan.
Kirzner, I. M. (1973). Competition and Entrepreneurship. The University of
Chicago Press.
Kirzner, I. M. (1992). The Meaning of Market Process. In The Meaning of Market
Process: Essays in the Development of Modern Austrian Economics (pp. 38–56).
Routledge.
Leighton, W. A., & López, E. J. (2013). Madmen, Intellectuals, and Academic
Scribblers: The Economic Engine of Political Change. Stanford Economics
and Finance.
McCloskey, D. N. (2006). The Bourgeois Virtues. University of Chicago Press.
Mises, L. v. (1949). Human Action: A Treatise on Economics. Yale University Press.
Mokyr, J. (2016). A Culture of Growth: The Origins of the Modern Economy.
Princeton University Press.
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University Press.
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Policy Innovations. Journal of Economic Perspectives, 28(1), 189–208.
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University Press.
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Association, January 2017. https://cowles.yale.edu/sites/default/files/files/
pub/d20/d2069.pdf
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Prize Lecture. NobelPrize.org. https://www.nobelprize.org/prizes/
economic-sciences/2001/stiglitz/lecture/
The Case Against Moderate Socialism
Daniel Lacalle
Jesús Huerta de Soto (2010) wrote an absolute gem called “Socialism,

economic calculation and entrepreneurship” in which he clearly shows
how there is no example of socialism that has ever worked. Socialism, he
argues, precludes the emergence of the coordinating tendencies necessary
to live in society and, therefore, its results are always negative if not
devastating.
Huerta de Soto shows that socialism constitutes an intellectual error
and always has the same essential nature, even though historically it has
emerged in different types or forms, to lure masses back into a wrong
I met Jesús Huerta de Soto for the first time in 2013, although I was a follower
of his work for many years. My first thought was that he was incredibly generous
with his time with everyone that approached him. But what I found really
inspiring was the fact that most of the audience that came to his keynote speech
was very young. New generations really understood his message. I remember his
words warning against “weak social democrats” in conservative parties.
D. Lacalle (*)
IE Business School, Madrid Campus, Madrid, Spain
e-mail: dlacalle@faculty.ie.edu

Switzerland AG 2023
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194 D. LACALLE
formula under the premise that previous failed socialist regimes were “not
real socialism”.
In his book, Huerta de Soto defines socialism as “any system of institu-
tional, methodical aggression against the free exercise of entrepreneur-
ship”. Through coercion, politicians that do not have more or better
information about the needs and demands of society force the individual
to make different choices than those that would be driven by his or her
entrepreneurial spirit, modifying the individual’s behavior to suit the
objectives of those who impose coercion.
The reader may question this view saying that politicians only represent
the objectives of society as a whole. However, this is a highly questionable
assessment in regimes where government control and reach of the econ-
omy is wide. Furthermore, in free societies regulation and institutions are
independent and work precisely to limit the grip of government and politi-
cians. Huerta de Soto’s perfect definition of socialism explains everything
in the use of the word “aggression”. Socialism is the imposition of political
objectives of a minority on a majority regardless of the damages it may
create to society.
Socialism advocates that the means of production, distribution, and
exchange should be owned or regulated by the community, with the state
representing that community. Socialism puts political power above the
rights of the individual.
The reason why capitalism has succeeded where socialism and commu-
nism have failed is because capitalism is not based on unquestionable dog-
mas and does not deny human nature. Capitalism does not try to engineer
a society based on utopia and create new humans with collectivist aspira-
tions. Capitalism looks for the best ways to solve the challenges of society
optimizing resources and generating the best possible outcome for every-
one. As such, capitalism is always evolving, while communism and social-
ism are simply stuck in the past.
Socialism is not progressive; it is regressive. It tries desperately to recre-
ate a past that exists only in the mind of bureaucrats and some ideologues
(Lacalle, 2020). However, many socialist proponents tend to use the
example of the Nordic countries as a proof that socialism does work. This
is a false premise, as Nordic countries are clearly capitalist and free enter-
prise societies, but it works as a tool to attract voters to accept a system
they would otherwise reject. It is impossible to win an election promising
to implement the system of Venezuela, Cuba, or North Korea, but you
THE CASE AGAINST MODERATE SOCIALISM 195
can fool voters into believing that the system that you defend is that of
Denmark. Who would not want to live in Denmark?
Nordic countries rank in the Top 10 of the highest levels of economic
freedom, according to the Heritage Foundation Economic Freedom
Index. They also rank at the highest levels in terms of ease of doing busi-
ness as seen in the Doing Business Index (2016). Total tax wedge in
Nordic economies is also lower than in many OECD countries.
Nordic economies treat their companies better than most OECD
(Organisation for Economic Co-Operation and Development) countries
when it comes to taxes. Denmark (25 percent), Norway (39.5 percent),
and Finland (38.1 percent) all rank below the average of the total tax rate
of 40.6 percent of corporate profits across the OECD. This compares with
a massive 44 percent in the United States and an average of 40.3 percent
in the European Union and EFTA (European Free Trade Association)
countries.
Nor do Nordic economies have higher tax rates for individuals than the
average OECD member. According to the Tax Foundation
(Pomerleau, 2015):
The United States’ top marginal income tax rate is higher than Norway’s
and only 18 percent lower than Sweden’s. Scandinavian income taxes raise a
lot of revenue because they are actually rather flat. In other words, they tax
most people at these high rates, not just high-income taxpayers. The top
marginal tax rate of 60 percent in Denmark applies to all income over 1.2
times the average income in Denmark. From the American perspective, this
means that all income over $60,000 (1.2 times the average income of about
$50,000 in the United States) would be taxed at 60 percent.
The Nordic countries have nothing to do with socialism. In fact, if you

think the US or the UK are capitalist societies, by almost all measures you
must also agree that the Nordics are even more capitalist.
However, Huerta de Soto warns us against the danger of accepting
“moderate” forms of socialism under the disguise of social democracy
because the ultimate goal is the same and the dangerous impact on inno-
vation, entrepreneurship, and job creation is similar. Socialism does not
have prosperity, growth, or job creation as objectives. Its only objective is
control. The use of moderate forms of socialism as a lure to attract voters
only works to increase the level of government control at any cost and,
196 D. LACALLE
more importantly, to present intervention as the solution to intervention

failures.
The reader may say that capitalism also fails, and it does. The difference
between free market capitalism and socialism is that the former corrects
through creative destruction and competition, while socialism only dis-
guises its mistakes by adding more layers of intervention. As Mises (1940)
explains, interventions beget interventions.
Of course, our reader may warn against the dangers of monopolistic
traits in free market capitalism. However, in a free market it is impossible
to impose an extractive and value-destroying monopoly. Competition and
displacement would eliminate that business immediately. There is only one
way in which an extractive monopoly can exist and survive: if the state
protects it using legislation and taxation. The so-called strategic sectors are
often extractive monopolies perpetuated by governments that provide
poor services and goods to clients because there is no other alternative.
Socialism is, from a practical and theoretical standpoint, a system of
monopolies: in the political and economic spheres. If one worries about
monopolistic and anti-competitive practices, one should never accept
socialism as a system.
It is precisely in so-called moderate socialist systems where these types
of extractive and anti-competitive policies flourish. The government sur-
rounds itself by an elite of businesspeople and corporations that benefit
from the favor of the government to maintain a level of market power that
would be unjustified by the quality and service of their activities.
One of the fallacies of moderate socialism is the “welfare state” trap.
Welfare systems designed freely by citizens and adopted by the society do
not need to be public, even less so managed by politicians. We can all
freely agree to support the disadvantaged members of society as we do
every day in our life without forcing it as a government-managed
imposition.
Confusing public services with government-controlled services is a
favorite trick of “moderate” socialist politicians. Make us believe that vac-
cines, welfare programs, and social support can only exist if they are
imposed and managed by politicians or politically appointed officials.
Interestingly, Nordic countries are clear examples of social systems
where government control is limited. Public servants do not hold a job for
life, government does not control and manage most of public resources,
and respect for individual rights is total.
However, Nordic countries are also a warning against “moderate social-

ism” because the system does get out of control and destroys growth,
innovation, and prosperity. Mises (1940) and Hayek (1944) show this
theoretically and these countries are good illustrations of the empirical
failure of moderate socialism, just as the fall of the Berlin Wall was pro-
vided visual proof of the failure of harder-line socialism.
Nima Sanandaji explains it:
The third-way radical social democratic era in Scandinavia, much admired

by the left, only lasted from the early 1970s to the early 1990s. The rate of
business formation during the third-way era was dreadful. In 2004, 38 of
the 100 businesses with the highest revenues in Sweden had started as pri-
vately owned businesses within the country. Of these firms, just two had
been formed after 1970. None of the 100 largest firms ranked by employ-
ment were founded within Sweden after 1970. Furthermore, between 1950
and 2000, although the Swedish population grew from 7 million to almost
9 million, net job creation in the private sector was close to zero. (2015,
pp. xiii-xiv)
A bad idea is not made good by implementing only a portion of it.

Socialism is a terrible idea that never works, no matter who runs the gov-
ernment or how much of the ideology is used.
It is also counterproductive to accept small doses of socialism, because
those that want to advance into communism will take any small step to
leverage their position and implement full control. Once civil liberties are
diminished, even for emergency or political tactic reasons, the door is
open to full interventionism.
We must remind citizens that welfare in a society does not have to be
imposed and managed by government. Free individuals are more than
capable of organizing welfare systems that help the poor without adding
layers of bureaucracy and increased taxation.
Huerta de Soto (2015) goes beyond public ownership in his defini-
tion of socialism. The essence of socialism—he says—is coercion, institu-
tional state coercion, by which a governing body is meant to perform the
tasks necessary to coordinate society. The responsibility passes from ordi-
nary people, who oversee their entrepreneurship, seek ends and attempt
to create the circumstances most favorable to achieving them, to a gov-
ernment body, which ‘from above’ strives forcibly to impose its view of
the world or its objectives. Moreover, in this definition of socialism, the
198 D. LACALLE
issue of whether or not the governing body has been democratically

elected is irrelevant.
Huerta de Soto explains with brilliance why socialism is an intellectual
error. It is as simple as this: the governing body cannot possibly obtain the
information it needs to give its commands a coordinating effect. Even if
the governing body had all the empirical information available, tons of
data and thousands of advisors and experts to process it, it would fail
because “the information people work with in the market is not objective;
it is not like the information printed in the telephone book. Entrepreneurial
information is of a radically different nature. It is subjective, not objective.
It is tacit. In other words, we know something, the know-how, but we do
not know in detail what it consists of, the know why.”
Socialism never works because incentives are misplaced. The governing
body may have all the information, but has no “skin in the game”, does
not suffer the negative consequences of failure and does not reward suc-
cess. Socialism always fails because the lack of prices guided by profit-loss
makes economic calculation impossible. Intervened or artificially manipu-
lated prices create false demand and supply signals and make it impossible
to properly analyze the economic return of an investment, its feasibility,
and what is the real cost of capital. Furthermore, the governing body
always has the incentive to pass the negative results of its mistakes to tax-
payers and consumers. Even when the governing body has its remunera-
tion tied to specific targets and objectives the incentive is always to disguise
current fiscal imbalances at the expense of all consumers via inflation and
taxpayers through rising taxes, and maintain those existent obsolete busi-
nesses alive at any cost at the expense of higher taxation to new and thriv-
ing businesses, destroying innovation and creative destruction. Socialism,
through constant intervention in prices and the productive process, is the
equivalent of a vehicle without headlights in the middle of the night.
Eliminating market forces and real price signals is a guarantee of a fatal
accident.
In socialism we always find that the governing body is bad at picking
winners but even worse at picking losers. For example, in the United
States, Wal-Mart is the largest private employer. When Amazon arrived, it
posed a grave threat. In socialism, the governing body, faced with the
dilemma of finding a threat to the largest private employer, would inevita-
bly do all it could to defend Wal-Mart through subsidies, destroy Amazon
through legislation and taxation, and, in the process, send the two
companies to their demise, one through obsolescence and the other

through coercion. Even if the governing body had all the information at
its disposal, its incentives are misplaced to try to protect the status quo at
any cost. Furthermore, none of the members of the governing body or
their advisors have the entrepreneurial spirit or information, which would
also inevitably lead to make them believe that Amazon was worthless and
a better collateral damage than thousands of jobs “lost”.
Here is where the myth of the entrepreneurial state is clearer. McCloskey
and Mingardi (2020) explain it in detail in their work. The wealth of the
modern world is not the result of past State guidance or alleged govern-
ment innovation. The modern economy is not a product of State coer-
cion, and it comes from human ingenuity emancipated from the bottom
up, not human ingenuity directed from the top down. When some authors
say that the State directs innovation and technological advances, they are
being disingenuous. Saying that the State created the iPhone because GPS
and the internet were created for the Military is like saying that the inven-
tion of the motor car was entirely caused by the invention of the wheel, or
the invention of the microphone was entirely due to Edison because it
does not work without electricity. Furthermore, it ignores that the inter-
net and GPS were inventions for the Military using private entrepreneur-
ship partially funded, not created, by the State.
Socialism is particularly dangerous because it is never to blame for its
failures. The old excuse of “it was never real socialism” is added to others
like “we did not do enough” or stating that problems of intervention are
always created because intervention was insufficient.
Huerta de Soto’s monumental body of work helps us avoid the siren
call of failed socialist ideas. As an intellectual giant, he helps all of us under-
stand that even a little socialism is too much.
References
Doing Business. (2016). Doing Business 2017, October 25, 2016. http://www.
doingbusiness.org/reports/global-reports/doing-business-2017
Hayek, F. A. [1944] (1994). The Road to Serfdom. University of Chicago Press.
Huerta de Soto, J. [1992] (2010). Socialism, Economic Calculation and
Entrepreneurship. Edward Elgar.
Huerta de Soto, J. (2015). A Note on the Crisis of Socialism. Retrieved from
https://www.Jesúshuertadesoto.com/articulos/articulos-en-ingles/a-note-
on-the-crisis-of-socialism/
200 D. LACALLE
Lacalle, D. (2020). Freedom or Equality. Post Hill Press.

McCloskey, D., & Mingardi, A. (2020). The Myth of the Entrepreneurial State.
American Institute for Economic Research.
Mises, L. v. (1940). Interventionism: An Economic Analysis. Retrieved from
https://mises.org/library/interventionism-economic-analysis
Pomerleau, K. (2015). How Scandinavian Countries Pay for Their Government
Spending. Tax Foundation, June 10, 2015. https://taxfoundation.org/
how-scandinavian-countries-pay-their-government-spending/
Sanandaji, N. (2015). Scandinavian Unexceptionalism: Culture, Markets, and the
Failure of Third-Way Socialism. Institute for Economic Affairs.
Austrian Economists in Madrid
Cristóbal Matarán
The remotest antecedent of the Austrian tradition in Madrid is a Ph.D. the-

sis presented by Joaquín Reig Albiol in 1957 (Matarán, 2017). After that,
both Joaquín and his brother Luis started a titanic effort to introduce the
In April 2013, when we were approaching the end of the second semester, we
had a lesson about how the state taxes under the pretense of preserving our
health. Taxes on alcohol and tobacco are the most common, but there are others,
like sugar or soft drinks. During this class, Professor Huerta de Soto asked if
something could lend him a tobacco packet. He started to enumerate the taxes a
person who consumes tobacco is paying, which amount to two-thirds of the final
price of the product. His point was to show us the enormous number of taxes
that we were already paying “in exchange” for public services. This class finished
with the statement: “¡Que invierta su p…madre!” He repeated this statement a
couple of months later in a conference hosted by the Juan de Mariana Institute, a
think tank founded by some of his own students. Many people believe that was
the first time the phrase was mentioned. Nevertheless, the people who were in
the class that day know that there were antecedents.
C. Matarán (*)
e-mail: cristobal.mataran@universidadeuropea.com

Switzerland AG 2023
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202 C. MATARÁN
Austrian books in the Spanish library. At that time, the authoritarian gov-
ernment presided by General Franco did not respect all the civil liberties,
like the freedom of speech. Luis Reig commented once that sometimes
the magazine Time was not available in the newsstand because the censor-
ing administration did not like some article or picture in the volume. The
Reig brothers started to translate some of the most prominent works of
the Austrian School, like Human Action1and Law, Legislation and Liberty,
among many others. Also translated were some examples of other Spanish
authors related closely to the Austrian School, like Luis Olariaga and Lucas
Beltrán.
During the late 1960s, the Reig brothers and other friends started to
meet with the intention of discussing some topics about Spanish politics
and the economic doctrines of the Austrian School. Some of the partici-
pants in that informal meeting were Madrid-based bankers and entrepre-
neurs. Ignacio Villalonga gave the initial funding through the Ignacio
Villalonga Foundation. A 16-year-old student started attending that meet-
ing, invited by his father: Jesús Huerta de Soto (Matarán, 2021).
The Arrival of Jesús Huerta de Soto

In 1983, after graduating in Law and Economics from the Complutense
University of Madrid with a brilliant record, Jesús Huerta de Soto started
his career as an associate professor at the same University. The previous
school year, he studied with a scholarship financed by the Spanish central
bank at Stanford University, where he had the opportunity to meet Murray
Rothbard and other American Austrian economists. This was the first
opportunity for the Austrian tradition to penetrate into the Spanish classes
and to begin to develop a new branch of the Austrian School.
Huerta de Soto’s writings are both fertile and deep. In the first place,
he set up his vision about entrepreneurship in Socialism, Economic
Calculation and Entrepreneurship (1992), an amplification of this doc-
toral thesis. There, he develops the Austrian tradition about means and
ends, value and utility, picking up the gauntlet of the newest contributions
by Israel Kirzner (1992).
But the topic that has given Professor Huerta de Soto the deserved
recognition in academia has been monetary theory. Thus, with the
1
Mises quoted Joaquín Reig’s help in translating Human Action to Spanish in the 1960
Spanish edition.
AUSTRIAN ECONOMISTS IN MADRID 203
publication of Money, Credit Bank and Economic Cycles (1998), he has

guided a generation of students, among which I include myself, toward an
understanding and reflection of the business cycle that we had not received
in mainstream textbooks. Here, he developed his theory about booms and
busts under the premise that the practice of fractional-reserve banking cre-
ates an exponential and unsustainable increase in credit, all without the
support of real savings. The final step of this cycle is the necessary reces-
sion to correct the malinvestments made during the boom.
In addition to his monetary analysis, Professor Huerta de Soto has
focused on the ethical aspects of economics. His Three-Analysis Theory
exposed the need to take ethical standards into account when evaluating
economic policies. In this way, the Austrian analysis takes a higher position
than the mathematical one, which only accounts impersonal functions as
something to maximize.
Lastly, Professor Huerta de Soto is also a senior fellow in the Ludwig
von Mises Institute, in addition to being part of many other think tanks
and scientific journals as a proofreader.
The Austrian School of Madrid

and the New Austrians
Professor Huerta de Soto’s greatest merit has been to create a true branch
of the Austrian School in Madrid. Through the doctoral school, 40 differ-
ent students have acquired the degree of Ph.D. Thus, the development
and future of the Austrian School are more than guaranteed in the long
run. Indeed, some of his former pupils are nowadays developing a career
in academia.
In the first place, Professor Philipp Bagus has focused his attention on
the formation of the euro in the essay The Tragedy of Euro (2012), a con-
cise summary about the political affairs that led to the formation of the
single currency in Europe and the crisis as a result of the Greek default in
2010. In addition, Professor Bagus has published his doctoral thesis under
the title In Defense of Deflation (2015), in which he defends a benevolent
position toward deflation as a consequence of a healthy process of capital
accumulation
Moreover, Professor David Howden has devoted his academic efforts
to the business cycle and, specifically, to the crisis of the price system under
central bank manipulation, a topic that was addressed in his Ph.D. thesis,
204 C. MATARÁN
Financial Asset Pricing Under Knightian Uncertainty (2010). Besides, he

has focused his attention on the monetary policy followed by the Federal
Reserve after the Great Recession, reaching the conclusion that its failures
extended unemployment for years (Howden, 2014). Both professor Bagus
and Howden serve as fellows in the Ludwig von Mises Institute.
Professor Miguel A. Alonso, one of the Huerta de Soto’s closest col-
laborators, has studied the volatility of currency markets due to the inter-
vention and control through central banks. He has pointed out how the
abandonment of the gold standard has increased this volatility and the
uncertainty in the financial markets (Alonso Neira, 2004). In addition,
and according to the current political debate, he has studied the influence
of a tax over the financial transactions, the so-called Tobin Fee, which
started to be developed as an experiment in Sweden in 1984. The conclu-
sion is that this tax substantially reduced financial transactions, particularly
by the middle class, and did not collect a substantial amount of money
(Alonso Neira et al., 2011).
Finally Professor Gabriel Calzada, who currently serves as rector of the
Francisco Marroquín University (Guatemala), analyzes (Calzada, 2004) in
his doctoral dissertation the viability of a private system of security, an
extension of other Austrians authors before him (Benson, 1998; Block,
2018; Hoppe, 2003). He supports the idea of free-market competition in
security services. In this sense, these companies would eventually create
different contracts and agreements to solve the situations of mutual con-
flicts among their customers. This system would survive due to the enor-
mous costs that the breaking of these contracts would entail, as well as the
exclusion of any defense agency. Professor Calzada is also an associated
scholar of the Ludwig von Mises Institute and founder of the first Austrian
think-tank in Spain: the Juan de Mariana Institute.
Finally, Professor Juan Ramón Rallo has reached a privileged position
not only within the academia environment, but also in the media. His
appearances on radio, television, and in newspapers are usually devoted to
the Austrian view on current political and economic affairs. Moreover, his
pedagogical achievements are apparent in his well-known books: Una
alternativa liberal para salir de la crisis (2012), Una revolución liberal
para España (2014), or Liberalismo: Los diez principios básicos del orden
político liberal (2019).
The Tools of the Austrian School of Madrid

On the one hand, all schools of thought need a space to debate in order
to advance. In this case, the Austrian School of Madrid has the Procesos de
Mercado: Revista Europea de Economía Política, an interdisciplinary jour-
nal in which contributions are welcome not only within the framework of
the Austrian tradition, but from all branches of economic thought.
Moreover, its interdisciplinary approach allows not only economists to
spread their ideas, but also jurists, engineers, environmentalists, or histori-
ans, among many others. Thus, the journal becomes a point of reference
for the entire scientific community.
On the other hand, the Austrian School of Madrid has an academic
vocation. Professor Huerta de Soto has achieved a space in academia for
the Austrian School through two avenues: the master’s degree in Austrian
Economics and a line of research in the Doctoral School. The first, as its
name indicates, consists of a one-year program to specialize in the Austrian
tradition. This program could be studied not only by economists, but also
by all the graduated students interested in the knowledge of the work
made by Menger, Hayek, Mises, Rothbard, or Hoppe. It ends with the
public defense of a master’s thesis facing a three-member tribunal. The
second consists of, after finishing the master’s degree, in the writing of a
doctoral thesis for a period of at least three years. This Ph.D. thesis also
ends with a public defense before a three-member tribunal. Here one finds
the true young blood of the Austrian School of Madrid.
About the Future of the Austrian School of Madrid

We have just provided a brief summary about the current development
and importance of the Austrian School of Madrid in the history of eco-
nomic thought. There is a first impression about the Austrian School of
Madrid´s importance related to scholars. For the very first time, the
Austrian School has a solid branch of its ideas in Spain. In fact, the popu-
larity of the Austrian School of Madrid is currently crossing our borders to
the Spanish-speaking countries in South America, as the collaboration
with other institutions, such as Francisco Marroquín University, proves.
Besides, the privileged Spanish position allows not only a dissemination
through the Americas, but also to other European countries. It is
206 C. MATARÁN
becoming more and more usual to discover students coming from other
European countries to start an academic career in Madrid.
Moreover, the emergence of the subjectivist tradition of the Austrian
School in Madrid provides a curious coincidence. Formal and abstract
economic analysis first arose with the School of Salamanca in the sixteenth
and seventeenth centuries. Therefore, the emergence and development of
a branch of thought, which takes as the main core these ideas first spurred
by the School of Salamanca, entails the return of that thought to its place
of origin.
References
Alonso Neira, M. Á. (2004). Teoría de las crisis monetarias y financieras y de los
controles de capital. Instituto de Estudios Económicos.
Alonso Neira, M. Á., Bagus, P., & Rallo, J. R. (2011). La Crisis Subprime a la Luz
de la Teoría Austriaca del Ciclo Económico: Expansión Crediticia, Errores de
Decesión y Riesgo Moral. Revista de Economía Mundial, 28, 145–174.
Bagus, P. (2012). The Tragedy of Euro. Mises Institute.
Bagus, P. (2015). In Defense of Deflation. Springer.
Benson, B. (1998). To Serve and Protect: Privatization and Community in
Criminal Justice. NYU Press.
Block, W. (2018). Defending the Undefendable. Mises Institute.
Calzada, G. (2004). Análisis económico e institucional de la teoría de la defensa
privada a través de compañías de seguros. Rey Juan Carlos University
(Unpublished Thesis).
Hoppe, H.-H. (2003). The Myth of National Defense. Essays on the Theory and
History of Security. Mises Institute.
Howden, D. (2010). Financial Asset Pricing Under Knightian Uncertainty. Rey
Juan Carlos University (Unpublished Thesis).
Howden, D. (2014). Knowledge Flows and Insider Trading. Review of Austrian
Economics, 27(1), 45–55.
Huerta de Soto, J. [1992] (2010). Socialism, Economic Calculation and
Entrepreneurship. Edward Elgar.
Huerta de Soto, J. [1998] (2020). Money, Credit Bank and Economic Cycles. Mises
Institute.
Kirzner, I. (1992). The Meaning of Market Process. Essays in the Development of
Modern Austrian Economics. (L. H. Mario & J. Rizzo, Eds.). Routledge.
Matarán, C. (2017). Joaquín Reig Albiol, el Primer Austriaco Español. Procesos de
Mercado. Revista Europea de Economía Política, 14(2), 239–246.
Matarán, C. (2021). The Austrian School of Madrid. Review of Austrian Economics,
36, 61–79.
Rallo, J. R. (2012). Una alternativa liberal para salir de la crisis. Más mercado y
menos Estado. Deusto.
Rallo, J. R. (2014). Una revolución liberal para España. Deusto.
Rallo, J. R. (2019). Liberalismo: Los diez principios básicos del orden político lib-
eral. Deusto.
Capitalism, Socialism,
and the Neoclassical Trap
Javier Gerardo Milei
In this chapter, I will address the confrontation between socialism and

liberalism from the neoclassical perspective. My core thesis is that, even
when we may find genuine neoclassicists that self-identify as liberals, the
available academic studies under the neoclassical paradigm are ultimately
functional to socialism.
I haven’t had the opportunity to meet Professor Jesús Huerta de Soto in person
yet. However, I already feel part of the legion that recognizes him to be one of
the great gladiators defending the ideas of liberty. I learnt about him through an
act of spontaneous order. I had just published with some colleagues a book in
which we introduced economic policy proposals that could prevent the collapse
of the Argentinian system, and I was presenting the book at a radio show when a
listener sent me some videos. They were recordings of a lesson in which the
professor discussed how prices could be used as a mechanism to convey
J. G. Milei (*)
National Deputy of Republic of Argentina, Buenos Aires, Argentina
e-mail: JMILEI@HCDN.GOB.AR

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_19
210 J. G. MILEI
To trace out when and where the neoclassical drift took place we need
to go back to the origins: Adam Smith (1776), particularly his work “An
Inquiry into the Nature and Causes of the Wealth of Nations” and the
model of economic growth implied in books I, II, and III. Later on, I will
review what I consider the pessimistic approach, a position which is basi-
cally derived from a Malthusian refutation of Adam Smith’s optimism
(Malthus, 1798) emerging from his description of the pin factory (increas-
ing returns to scale).
Once the terms of the debate have been established, we will address the
mathematization of economics, the role of Pareto and the confrontation
between Mises and Lange on the controversy about socialism, the funda-
mental assumptions of the neoclassical analysis and how the so-called mar-
ket failures opened the Pandora’s box of government intervention,
favoring the advance of socialism.
Smith, Malthus, and the Classics
Adam Smith, the Pin Factory, the Invisible Hand,

and Economic Growth
What was Adam Smith’s main take-home message? Adam Smith was try-
ing to explain why countries are rich and why they grow. In that sense, in
his work we may find five elements which play a quintessential role in
explaining his model of economic growth: the first one is the role of
information, and for coordination and economic adjustment, which in turn

evidenced how socialism was inapplicable, since in the absence of private
property, prices can’t be applied, leading to total chaos. I immediately became his
follower. Years later, Unión Editorial published my book Unmasking the
Keynesian Lie, which was accepted by Huerta de Soto himself for publication
within the section he runs. And good things would not end there. One day,
Professor Bagus invited me to give a lecture on Zoom as part of his course. I was
discussing my involvement in politics when suddenly I perceived some turmoil in
the Zoom meeting. I was surprised to see Professor Jesús Huerta de Soto, who
had joined the meeting to greet me and congratulate me for the fight I am
putting up in Argentina to leave behind more than one-hundred years of
socialism. To this day, I struggle to find the words to describe how happy I was
for his gesture, and how grateful I am for everything I have learnt from Professor
Jesús Huerta de Soto.
CAPITALISM, SOCIALISM, AND THE NEOCLASSICAL TRAP 211
savings, which are used to finance investment and allow for the accumula-
tion of capital. That capital accumulation enables the increase in labor
efficiency and productivity which, in turn, increases real wages and thus
allows people to achieve a better living status. Also, to ensure savings are
used for investments in the best possible way, government intervention,
which always tampers with the flow of economic activities, must be mini-
mized. In fact, all government really does is contaminate the right to
property, distorting price signals and economic calculations. This is why
socialism in its essence destroys price signals to the extent of precluding
economic calculation, leading to the ruin of the economy.
Another fundamental element analyzed by Smith, in spite of the fact
that he wrote his work between 1766 and 1776, is the role of leaps and
bounds in technological innovation, intertwined with the idea of experi-
ential learning. Smith basically supported the idea that a person, while
performing an activity, learns from the experience, and as they learn, their
productivity increases. At the same time, the underlying notion of optimi-
zation will rise, triggered by the incentive to produce as much goods as
possible using the least possible amount of effort. Consequently, in that
search for saving time and effort during experiential learning, a techno-
logical improvement is discovered, manifested as a jump in the production
function (or upward shift), what we also refer to as a technology shock, a
technological leap, or technological enhancement. That is, a situation in
which, with the same number of hours of work, the product output is
much higher.
This last description is aligned with the modern theory of economic
growth (endogenous). It is what, in simple terms, lies behind the parable
of the pin factory or, more technically speaking, the presence of increasing
returns to scale which allow for the long-run growth of output per capita.
In fact, the Solow-Swan model (Solow, 1956), which is based on the neo-
classical production function concept (constant returns to scale and dimin-
ishing marginal returns for each of the factors analyzed in isolation), is
unable to show a growth rate of output per capita once the balanced
growth equilibrium has been reached. Therefore, to empirically evidence
an economic growth, this model resorts to a mathematical trick where
technological progress is exogenous.
In turn, Adam Smith not only introduced a production function which
could explain what would happen in the almost 250 years following his
work, but also endowed his model with a decision-making process, instru-
mented in the metaphor of the invisible hand. Under this concept based
212 J. G. MILEI
on social cooperation, each individual, guided by their own self-interest,

actually contributes to the maximization of general well-being, that is, the
model of the Father of Economics is based on two quintessential ideas: the
pin factory (increasing returns to scale) and the concept of the invisible
hand (social cooperation under spontaneous order).
Furthermore, the pin factory implies also focusing on the skills and
tasks required in that activity. Adam Smith proposes to highlight what
happens when labor is divided (which goes hand in hand with the process
of social cooperation implied by the market process) into different activi-
ties to achieve a final product. Thus, Smith does employ an example to
explain that the division of labor leads to a significant increase in produc-
tivity. In this context, Smith invites us to think of the results of a person
who, in solitude, sets out to make pins. By concentrating on all of the
eighteen specializations required to produce a pin, they could hypotheti-
cally produce about twenty pins per day. However, if the work with its
respective specializations was divided among ten people, productivity
would increase to more than four thousand pins per capita, that is, pro-
ductivity would be two hundred times higher.
At the same time, Adam Smith wondered how far this process of divi-
sion of labor could go, the answer to which was that the size of the market
sets the limit of the division of labor because: how much productivity
would it make sense to generate if the market demand is exceeded? If pro-
ductivity exceeds the market’s demand for pins, its price will end up col-
lapsing, and resources and productive force will be wasted in a non-priority
direction.
In short, what Adam Smith introduces is the question of increasing
returns to scale, which is not a minor subject if we consider that, from the
year 1800 onward, the population has multiplied almost seven times by
the year 2000 (Maddison, 2007). Let’s keep in mind that, with the one-
billion inhabitants reached in 1810, Malthus—an author I will refer to
later on—argued that population density would lead the world to a col-
lapse resulting from a generalized famine. Therefore, it is important to
emphasize the contrast because, in all reality, the per capita product mul-
tiplied nearly tenfold (Maddison, 2007) in a context of a population that
multiplied by seven. That is to say, the increasing returns are exposed by a
tremendous increase in productivity, which computed today, would repre-
sent a hundred times increase.
At the same time, if we analyze the subject under mathematical terms,
we must consider that we are talking about a function with a convex
format, that is, a convex function, which is not the same as a convex set. A
convex function is not a convex set, because if two points are joined, the
resulting line is outside the set of productive possibilities. On the contrary,
in a concave function, if two points are joined, the line is within the set of
productive possibilities and therefore we are talking about a convex set
(Starr, 2011). And although it is not my intention to dwell on mathemati-
cal terminology, unfortunately, the whole neoclassical research program
based on constrained maximization put in a mathematically inappropriate
format allows us to explain the neoclassical drift. Moreover, even for econ-
omists who are true liberals in their way of thinking, the paradigm in ques-
tion pushes them, at “the presence of market failures” to seek “reasonable
grounds for government intervention” (Laffont, 1988), which, ultimately,
sets in motion a pierce of growing intervention machinery that Hayek so
clearly envisioned in his book The Road to Serfdom (Hayek, 1944).
Furthermore, when analyzing the mathematical formulation of the
neoclassical toolbox, the concept of the pin factory (methodological pillar
to explain endogenous growth) conflicts with the idea of the invisible
hand, which is one of the most wonderful elements presented in Adam
Smith’s book. Therefore, Wilfredo Pareto, enlightened by the conceptual
force of the brilliant metaphor which stated that every individual, driven
by their own interests, and even unwittingly, contributes to maximizing
the general well-being, and its beautiful mathematical counterpart, was led
to declare “the bankruptcy of the pin factory”, sending economic analysis
down the dark path of diminishing marginal returns.
Thomas Malthus, Diminishing Marginal Returns and Pessimism

So then, the optimism promoted by Adam Smith was countered by a bru-
tal wave of pessimism, basically initiated by Thomas Malthus. Malthus’
central axis in this discussion was based on the idea of diminishing mar-
ginal returns instead of considering a production function with increasing
returns to scale, that is, now the production function would be character-
ized by a concave function (and therefore, the production set would be
convex).
This view of the productive system, along with what Malthus called the
“passion between the sexes”, led him to erroneous conclusions. This pos-
tulate held that, when the population was below the “equilibrium level”,
this implied a more significant number of resources per capita (given the
higher marginal productivity of labor), which induced more sexual activity
214 J. G. MILEI
which increased the size of the population. This compromised the labor
market since the increase in the number of laborers depreciated the real
wage through the fall in marginal productivity as labor increased. Naturally,
this process would continue until the real wage fell to the subsistence level.
Reciprocally, if the population rose above the equilibrium level, the lower
marginal productivity of labor would move salaries below the subsistence
level, leading to famines until the population decreased to the equilib-
rium level.
Ultimately, the size of the population would be aligned with the level
of the value of the marginal productivity of labor (for a function with
diminishing marginal returns) that equaled the subsistence wage, which
was called the Iron Law of Wages. Finally, if there was a technological
enhancement for some reason, it would automatically be absorbed by an
increase in population, so that the real wage would return to the subsis-
tence level.
At the time of Malthus and with the historical information then avail-
able, the hypothesis did not seem bad because, between the years 0 and
1800 (of the Christian era), the per capita product grew at a rate of 0.02%
per year; practically nothing. Moreover, in those 1800 years, this growth
in per capita product meant a total increase of 40%, mostly concentrated
during the century after the discovery of America, as a result of the increase
in international “trade”.
In this sense, if you asked an econometrician to study the data at that
time in history, he would have rejected Adam Smith’s hypothesis and
would have agreed that Thomas Malthus was right. However, when we
look at what happened later, we realize nothing could be further from the
truth. Malthus was grossly wrong, and Smith was right. In fact, the resur-
gence of the theory of economic growth with Paul Romer’s article (Romer,
1986) (for which he received the Nobel Prize in Economics), which was
the result of his thesis in Chicago tutored by Robert Lucas Jr. (a disciple
of Hirofumi Usawa, the creator of the two-sector growth model (Usawa,
1961) with human capital in the 1960s), not only takes up Adam Smith’s
work but also the debates of Young and Marshall from the beginning of
the twentieth century, which sought to explain economic growth in the
nascent neoclassical world. This means that, standing at the beginning of
the twentieth century and in the light of the data available, the theory of
increasing returns was evident, and those who argued for the existence of
a production function with diminishing marginal returns were left out of
the discussion.
The Neoclassical Tradition, and the Origin

of Error
General Equilibrium, Pareto Optimality,

and the Invisible Hand
Now, after reviewing in a simplified way the Smith-Malthus controversy
(and all its heirs up to Solow-Swan), we are ready to address why the neo-
classical tradition ends up being functional to socialism and unintention-
ally becomes an accomplice of the different types of Keynesian models in
the destruction of the market order, which leads to nothing else but the
emerging order of social cooperation.
From my point of view, and this is the central argument in my exposi-
tion, the deviation happens when, with the introduction of mathematics in
economics along with the concept of Pareto optimality, there is an attempt
to align it with the idea of the invisible hand. Initially, “it doesn’t seem to
be a bad idea”, and in fact it is not a bad idea for an economy of pure
exchange with no production. Thus, starting from a given point, the
objective is to improve improvable instances for individuals without mak-
ing anyone worse and, when these possibilities for improvement are
exhausted, it is noted that Pareto optimality has been reached. In other
words, the objective is to achieve maximum social well-being (besides the
not-insignificant matter of instrumentation), where no one would be able
to improve their situation without negatively affecting others. However,
the problem emerges with its greatest force when the idea of Pareto opti-
mality in an economy with production is associated with the idea of the
invisible hand in a context of mathematical optimization, poorly designed
conceptually from the link of the productive sector with the individuals
who own those companies.
Formally, on the consumers’ side, we can observe the utility function,
which presents the form of a bell and if you cut a part of it, you would be
able to see inside the indifference map (the level or indifference curves),
which could take a shape similar to a banana or a horseshoe according to
the assumptions you want to make regarding the satisfaction levels, as long
as you keep in mind the maximization of the function (in such a way that
it allows finding a maximum). In turn, the demand for goods and the sup-
ply of factors will come out of that system. On the other hand, when
observing the company, a production function will appear, with constant
returns to scale (i.e., linear) or with diminishing marginal returns. When
216 J. G. MILEI
this happens, profit can be maximized, and the demand for supplies and
factors is obtained, deriving the supply of goods to maximize profit.
Therefore, now with functions (correspondences) that are derived from
maximizing structures, both on the side of consumers and producers, the
emerging supply and demand functions (correspondences) are optimal. In
turn, when the excess demand functions (correspondences), which are the
result of demand minus supply in each of the markets, have the character-
istic of being continuous functions (correspondences) (upper semicon-
tinuous), the sum/subtraction of continuous functions (upper
semicontinuous) is a continuous function (upper semicontinuous), so it is
possible to apply Brouwer’s Fixed Point Theorem (Kakutani for correspon-
dences), by means of which the existence of equilibrium is proved. Finally,
if the functions present certain conditions, strictly concave functions in
consumers and producers, that equilibrium is unique. Consequently, now
the equilibrium not only exists but is also unique. And if, in addition, the
direct effects are more significant than the cross-effects, this equilibrium is
stable (Debreu, 1959; Arrow & Hahn, 1971; Starr, 2011).
Naturally, since the functions (correspondences) that explain the exis-
tence of the equilibrium are associated with the maximization of each of
the agents of the economy, consumers, and companies, the resulting gen-
eral equilibrium also constitutes Pareto optimality. No individual could
improve his well-being without causing some harm to others. A “wonder-
ful” world, except for its lack of empirical validity, since the last 250 years
have proven the existence of increasing returns. And that is when “the
problem” of non-convexities appears, which, given the damage they cause
to Pareto optimality, calls for the correction of “market failures” by the
government.
Neoclassical Research Program, Socialism, and Rothbard

Here’s where two debates arise. On the one hand, when we go deeper into
the neoclassical analysis, whenever the result is not in line with the restric-
tions imposed by the mathematics of optimization, we need to get into the
field of the so-called market failures, which are basically the result of (1)
non-convexities (concentrated market structures) whose mathematical
counterpart are functions with increasing returns (not maximizable unless
an effective constraint is applied on the set of initial endowments); (2)
public goods; (3) externalities, both in consumption and production; and
(4) the presence of asymmetric information.
On the other hand, if we focus on the Solow-Swan neoclassical model

of economic growth, how can it be that the process of capital accumula-
tion, important as it is, accounts for only 15% (Solow, 1957)? The answer
is that productivity and its evolution over time are related to returns to
scale. In other words: how can it be that neoclassical theory claims that
monopolies are bad, if during that process the level of extreme poverty in
the world decreased from 95% to 5% amid a rise in prosperity, unprece-
dented in the history of mankind? It seems to make no sense at all, and the
one who manages to unravel this mystery is Murray Rothbard in his article
“Monopoly and Competition”, which is part of the book Man, Economy,
and State (Rothbard, 1962).
Murray Rothbard, the Damages of Monopolies and Optimality

Strictly speaking, to determine whether monopolies are bad or not, it is
necessary to understand their definition. According to Lord Coke,
monopoly is a special privilege granted by the government, whereby a
specific production sector is reserved in favor of a particular individual or
group and where the participation of other members of society is forbid-
den, enforced by the government’s repressive apparatus.
Accordingly, there are only two ways to establish prices for goods. One
is the way of the free market, in which prices are established voluntarily by
the individuals participating in the market, thus benefiting all those who
exchange. The other is the violent intervention in the market by hege-
monic means, where prices are imposed with the exclusion of free
exchanges and introduction of the exploitation of man by man, for there
is exploitation whenever an exchange subject to coercion occurs.
Consequently, it does not matter whether there are one or millions of sup-
pliers, but what is relevant is whether there is freedom or coercion. Thus,
in the case of the free market, consumers and producers regulate their acts
in voluntary cooperation. Therefore, it makes no sense to speak of monop-
oly prices (as a synonym for “high” prices and restriction of production)
when there is no coercion and access to the market is free. In the words of
Mises (1952, p. 115): “if anyone is to blame for the number of players in
the market not being bigger, it is not those who are already operating in
the market, but those who have not entered the market yet.”
Accordingly, there is nothing wrong with a monopoly, unless it is the
result of violent action taken by the government. In fact, within a frame-
work of free exchanges, if a producer is able to capture the whole market,
218 J. G. MILEI
they have successfully satisfied the needs of their neighbors by providing

them with a better-quality product at a lower price. Moreover, it would be
pointless to be the only ice cube seller in Antarctica, or to exclusively pro-
duce all the wine in a community of teetotalers. Also, even when such an
extreme situation may not arise, there is always the possible appearance of
a substitute good that limits the ability to negotiate the price. Therefore,
the one who uses legitimate instruments has remained the sole producer,
far from being a tyrant, is actually a social benefactor, and will go bankrupt
as soon as they cease to satisfy the needs of their neighbor.
On the other hand, the existence of monopolies raises the question of
increasing returns, which leads to the problem of Pareto optimality and,
along with it, the possibility of a company taking over the economy. As for
the first case, it is not true that an increasing function cannot be maxi-
mized when there is a limit on the number of supplies. In fact, the maxi-
mum profit would be given when the endowment of factors of the
economy is exhausted. Based on this result, the issue of the size of the
monopoly arises. However, this consideration arises from ignoring the
question of the impossibility of applying economic calculation: If that cen-
tral planning was really efficient, why was it not established by the indi-
viduals pursuing profits in the free market? Moreover, the fact that such a
case has never been voluntarily constituted and that the coercive power of
the government is required to create it clearly proves that by no means
such a method would be the most efficient to satisfy the demands of
individuals.
Finally, we find the problem around the magnitude of profits and the
destruction of jobs by the retraction of quantities, falling into what Bastiat-
Hazlitt would define as the broken window fallacy. In this sense, if the
“monopolists” decided to save their profits, this would be reinvested in
other sectors, thus creating jobs in another sector. If they reinvested, jobs
would be created. If they decided to consume it, jobs would be created
where they placed this demand. If they hoarded the money or destroyed
it, the nominal amount of money would fall until real balances are restored,
benefiting everyone in the economy. Consequently, no damage would be
done to the economy, while the presence of increasing returns constitutes
a source of growth that increases well-being. Therefore, the existence of
monopolies in a context of free entry and exit is a source of progress, and
the constant obsession of politicians to control them will only end up
damaging the individuals they are trying to help.
Socialism Versus Capitalism in an Invalid Format

When I was at university, I remember a subject called “Comparative
Economic Systems”. Naturally, before moving on to empirical matters,
the theoretical scaffolding included a comparison between the analysis of
equilibrium under perfect competition and “equilibrium” under the
socialist central planner’s solution.
All assumptions necessary to derive a Pareto optimal equilibrium were
taken as a starting point. Thus, the demand and supply functions (and
thus excess demand functions) were determined from specific formats for
the utility function, for the production function and the given endow-
ments, so that the resulting set of excess demand functions allowed not
only to find an equilibrium which was unique and stable but also a Pareto
optimum. In other words, a decentralized process generated a Pareto opti-
mum without the need for government intervention.
On the other hand, the case of the central planner gave a Pareto opti-
mum. At this stage the problem becomes noticeable: one starts from the
idea that the social welfare function is known. In turn, provided that the
exercise is subject to the same physical constraint, assuming a utility/welfare
function that involves knowing the preferences of all the individuals in the
economy over all the goods in the economy implies reaching a result that
is similar not only in terms of quantities to the competitive equilibrium,
but also that is distributed in the same way and therefore the equilibrium
under centralized planning allows the same Pareto optimal equilibrium to
be reached.
Let us assume that, up to this point, both systems are equivalent. Now,
the problem is that the contexts are under the set of neoclassical assump-
tions. When some of the problems mentioned in previous sections appear,
such as non-convexity (increasing returns), this leads to the conclusion
that production under monopoly is lower than under perfect competition
and, as a consequence, the economy moves away from Pareto’s optimality,
and this is where the grounds for interventionism begin. However, look-
ing at the analysis of monopolies outside the neoclassical perspective and
understanding the underlying social cooperation in the market process,
attempting to interfere with those monopolies arising from free competi-
tive entry and exit will only generate damage. Also, there is an additional
error linked to extrapolating a case of partial equilibrium to one of general
equilibrium by omitting the existence of the substitution of goods by
consumers.
220 J. G. MILEI
Finally, as if the aforementioned was not enough, to presume the

knowledge of the general welfare function, which involves knowing the
preferences of all the individuals in the economy on all the goods of the
economy, knowing the “exact” measure under which they are combined
to determine an objective function that allows reaching an “optimal”
equilibrium, is falling into what Hayek called “the fatal conceit”.
In short, the origin of the catastrophe was the validation of a laboratory
model, based on a series of unrealistic postulates which ended up giving
supposed viability to the violent intervention of markets in search of sup-
posed maximum well-being that only leads to the ruin of the economy and
society. This is how collectivists and false social avengers appear, seeking to
punish a group of people by robbing them of the fruits of their work to
give them to others.
Moreover, within the aforementioned model, we should highlight that,
under the neoclassical perspective, technological progress is not Pareto
optimal and therefore, without technological progress, no growth is pos-
sible (Barro & Sala-I-Martin, 2004). But, in addition, if we work with
strictly concave production functions, growth cannot be explained either
(except by Marshall-Young’s aggregated capital externality trick). So, if
you have a conceptual economic theory in the lab that is not really appli-
cable in practice, not only is it useless, but its use will lead to disasters such
as communism, which is always a threat within the vicious circle of inter-
vention that Hayek has brilliantly described in The Road to Serfdom.
Conclusion
The neoclassical paradigm, based on perfect competition, attempting to
build an equilibrium that exists, that is unique and stable, generating, in
turn, optimality under the concept of Pareto, concluded in an abuse of
mathematics that was ultimately functional to socialism. Note that when-
ever situations that do not match the mathematical structure arise, they are
considered “market failures”, and that is where the government appears to
correct those failures. However, to successfully solve this problem, it is
assumed that the government knows the utility function of all individuals
(preferences) for the past, the present, the future, the time preference rate
and knows the state of the current technology and all future enhance-
ments, along with their respective amortization rates. In short, to solve the
problem in question, the government should be able to master a significant
amount of information that, by definition, individuals themselves ignore or
are not able to handle, which exposes that the idea of the welfare state act-
ing on the market to correct failures is a contradiction.
The conceptual counterpart of this problem is the case of Robinson
Crusoe. Suppose we stop to think about it for a while. In that case, we will
notice that Crusoe at one moment operates as a consumer, at another he
operates as a producer, then begins a process of trial and error that allows
him to find the price equilibrium vector so that at the end of the day he
can decide how much he consumes and how much he works, something
that is obviously quite contrived.
Therefore, when it is made clear that the correction of market failures
by the government as proposed in the neoclassical paradigm is conceptu-
ally invalid, taking into consideration that the only ones who can internal-
ize those effects are individuals, once the artificial separation of
decision-making processes is eliminated, there will no longer be any rea-
son for government intervention, which will not only stop the socialist
advance but will also allow us to counterattack.
References
Arrow, K., & Hahn, F. (1971). General Competitive Analysis. Holden-Day.
Barro, R., & Sala-I-Martin, X. (2004). Economic Growth. MIT Press.
Debreu, G. (1959). Theory of Value. Wiley.
Hayek, F. A. (1944). The Road to Serfdom. George Routledge & Sons LTD.
Laffont, J. J. (1988). Fundamentals of Public Economics. MIT Press.
Maddison, A. (2007). Contours of the World Economy. Editorial, Oxford
University Press.
Malthus, T. (1798). An Essay on the Principle of Population. W. Pickering.
Mises, L. v. (1952). Planning for Freedom. Libertarian Press.
Romer, P. (1986). Increasing Returns and Long-Run Growth. Journal of Political
Economy, 94 (5) (October), 1002, 1037.
Rothbard, M. N. (1962). Man, Economy, and State. William Volker Fund and
D. Van Nostrand.
Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations.
University of Chicago Press.
Solow, R. (1956). A Contribution to the Theory of Economic Growth. Quarterly
Journal of Economics, 70(1), 65–94.
Solow, R. (1957). Technical Change and the Aggregate Production Function. The
Review of Economics and Statistics, 39(3), 312–320.
Starr, R. (2011). General Equilibrium Theory: An Introduction. Cambridge
University Press.
Usawa, H. (1961). Neutral Inventions and the Stability of Growth Equilibrium.
Review of Economic Studies, 28(February), 117–124.
A Republican Defense of Anarchism
Juan Ramón Rallo
Republicanism is a political philosophy far removed from libertarianism,

not only because of its definition of freedom, but also because it subordi-
nates the separable life projects of individuals to the common good as
determined by the political community. However, as we intend to demon-
strate below, the philosophical premises of republicanism lead inexorably
toward anarchism: even if for bad reasons, the logical conclusion from
Jesús Huerta de Soto definitively abandoned the project of minarchist

libertarianism at the end of the twentieth century, at which time he politically
embraced anarcho-capitalism. Previously, however, Huerta de Soto (1994) had
defended a conception of liberal nationalism based on national communities of
free ascription: a vision that placed him very close to anarchism. In this article I
intend to show that precisely this free ascription to a community—whether it has
a national base or not—is a path that leads inexorably toward anarchism, even
from such “tepid liberal” (the happy label that Jesús imposed on me) political
philosophies such as republicanism.
J. R. Rallo (*)
Universidad de las Hespérides, Las Palmas de Gran Canaria, Spain
e-mail: contacto@juanramonrallo.com

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_20
224 J. R. RALLO
these premises cannot be other than to reject the political authority of the
state (Huemer 2012, pp. 5–7).
The structure of this chapter will be as follows: first of all, we will sum-
marize the central ideas of republicanism; second, we will explain why
republican premises are inherently contradictory and do not constitute a
realistic and overcoming alternative to the libertarian philosophical frame-
work; and, thirdly, we will show that, even accepting the problematic
republican premises, the only political system really consistent with them
would be anarchism.
The Republican Philosophical Framework

Republican thought is structured around two premises that are contrary
to libertarianism: the first is that freedom is not to be understood as “non-
interference” but as “non-domination”; and the second is that the State
must not remain neutral between the plural conceptions of the good life
of citizens, but must pursue the common good.
For republicanism, only if agent A does not dominate agent B, then
agent B is free. “To dominate” means “to have certain power over that
other, in particular a power of interference on an arbitrary basis” (Pettit,
1997, p. 52). The two key expressions within this republican definition of
domination are “interference” and “arbitrarily”: “interference” includes a
wide range of behaviors aimed at deliberately worsening another agent’s
life choices, including coercion, obstruction, psychological pressure,
threats or even manipulation. (Pettit, 1997, p. 53); “arbitrarily” means
that the agent who has the capacity to interfere in the life of another per-
son does not have the obligation to submit to regulated and public proce-
dures that force him to take into consideration the ideas, values and
interests of the person he is interfering with (Pettit, 1997, p. 55). For
republicans, the typical situation of domination (and, therefore, of absence
of freedom) would be the master-slave situation, although in general they
will also attribute relations of domination wherever there are asymmetries
of power (e.g., capitalist-worker in the absence of labor regulations or
husband-wife in a society without laws against patriarchy).
In this sense, republicanism’s definition of freedom is in some respects
broader and in others narrower than that of liberalism.
On the one hand, it is more restricted in some respects because liberal-
ism only appreciates lack of freedom in the presence of coercion (under-
stood prima facie, although not necessarily exclusively, as the initiation of
A REPUBLICAN DEFENSE OF ANARCHISM 225
a physical aggression) or credible threats of coercion, while for republican-

ism there are other forms of interference that also count as potentially
freedom-limiting (such as manipulation or obstruction) and it is even pos-
sible for domination to occur without any interference whatsoever. Even
if the slave has a benevolent master who never interferes in the slave’s life
no matter what the slave decides, then the slave is dominated even if he
suffers no interference:
What constitutes domination is the fact that in some respect the power-
bearer has the capacity to interfere arbitrarily, even if they are never going to
do so. This fact means that the power-victim acts in the relevant area by the
leave, explicit or implicit, of the power-bearer; it means that they live at the
mercy of that person, that they are in the position of a dependent or debtor
or something of the kind. If there is common knowledge of that implication,
as there usually will be, it follows that the power-victim cannot enjoy the
psychological status of an equal: they are in a position where fear and defer-
ence will be the normal order of the day, not the frankness that goes with
intersubjective equality. (Pettit, 1997, pp. 63–64)
On the other hand, the concept of freedom of republicanism is more

lax than that of liberalism (Pettit, p. 65), since the former admits the pos-
sibility of coercive behaviours that do not imply domination (essentially,
the coercion exercised in the application of a set of laws constituted to
prevent relations of domination within a society). Ultimately, republican
freedom consists in non-domination, that is, in the intersubjective recog-
nition of an identical sphere of autonomy for each citizen that is co-
determined and continuously protected through the political institutions
constituted by the community of civically virtuous individuals.
Within republicanism, therefore, the rights of citizens are delimited by
the existence of social, political and economic institutions that allow each
individual to develop autonomously as a member of a community of free
and equal citizens. Individual rights—and, therefore, also individual obli-
gations—of a republican nature go much further than those of liberalism
and include everything that is necessary to safeguard and enhance the
agents’ capacity for rational reflection, both from a strictly cognitive (sur-
vival of the agent) and social (recognition and mutual respect on an equal
footing) point of view: thus, the right to physical integrity, health, educa-
tion, nutrition, housing, a healthy environment, freedom of expression
and deliberation, equality in social relations and so on. All of these rights
226 J. R. RALLO
ultimately prevent the emergence of relations of domination (Lovett,

2010, pp. 190–200; Schuppert, 2014, pp. 82–84).
This concept of freedom allows republicans to defend the creation of
centralized or monocentric institutions (states) whose purpose is to avoid
the existence of social relations of domination. From their point of view,
we cannot entrust such a mission to the spontaneous emergence of decen-
tralized institutional structures (those that libertarians would advocate:
polycentric ones), since, in anarchy, there are prior inequalities in terms of
skills, health, social connections or levels of wealth among individuals that
would only tend to positively enhance each other and condemn the
“weaker” individuals to be dominated by the “stronger” ones (Pettit,
1997, pp. 92–95): the weak would only be able to avoid domination of
the strong by accumulating sufficient resources to defend themselves
against their attacks, which would be close to a “permanent civil war”
scenario. Hence, the only reasonable way to achieve the ideal of non-
domination is through a state subject to constitutional norms: a state in
charge of imposing obligations and prohibitions on human interactions in
order to safeguard the non-existence of relations of domination.
However, at this point, republican thought faces a no lesser problem: a
state powerful enough to suppress private relations of domination is also
powerful enough to dominate society on its own. To use Pettit’s terminol-
ogy: from dominium (arbitrary interference of private agents on the lives
of others) we could move on to imperium (arbitrary interference of state
agents and institutions on the lives of others) and imperium “does far
more damage to the case of non-domination than the private abuse of
dominium that it is designed to reduce” (Pettit, 1997, p. 112).
How does republican thought protect itself against the risk of impe-
rium? By defending the need for a virtuous citizenry to control the state.
This civic virtue that keeps state imperium at bay is composed of three
elements: a law-abiding citizenry that voluntarily refrains from dominat-
ing others; a citizenry that participates in the political process to repudiate
laws that bring domination over any set of individuals; and a citizenry that
is vigilant against the excesses of political power (Pettit, 1997, pp. 247–250;
Lovett, 2010, pp. 215–216). In order to channel and exercise this civic
virtue, it is necessary to have a constitutional and contestable democracy,
which must also be deliberative, inclusive and responsive, where all deci-
sions adopted by the state are subject to the rule of law and to scrutiny,
criticism, evaluation and contestation in a public forum by all citizens with
opposing conceptions of the common good (Pettit, 1997, p. 195): these
citizens should be virtuous enough to truly put their vision of the com-
mon good of the republic before their own self-interest during democratic
deliberations (Raventós & Cassasas, 2004).
Here, then, we find the second distinctive element of republicanism as
opposed to libertarianism, namely the idea that the state cannot be neutral
with respect to the conception of the common good but that, on the con-
trary, the state must pursue the common good as defined by the citizenry
itself in public deliberation: “Central to republican theory is the idea that
liberty depends on sharing in self-government. (…) It means deliberating
with fellow citizens about the common good and helping to shape the
destiny of the political community” (Sandel, 1996, p. 5). The ideal of
freedom as non-domination, therefore, reaches its highest expression in a
self-determined political community, capable of governing its own destiny
through citizen participation and deliberation in political life: “I am free
insofar as I am a member of a political community that controls its own
fate, and a participant in the decisions that govern its affairs” (Sandel,
1996, p. 26). What should be the content of the republican common
good? On the one hand, the common good should emerge from a process
of democratic deliberation that is impartial, contestable and inclusive. In
such a case, the decisions taken jointly cannot be considered prima facie as
restrictive of individual freedom:
If the procedure is impartial, in the sense of not being stacked in favor of any
of the relevant, conflicting interests—if the decision is made just on the basis
of what course of action would best promote the shared goal—Then those
who come off worse are unlucky but they are not subject to interference on
an arbitrary basis: their avowable interest will be taken into account just as
much as the interests of those more fortunate, in the process that leads to
the decision.
There is an enormous gulf between being subject to a will that may inter-
fere in your affairs without taking your perceived interests into account and
being subject to a process such that, while it takes your interests and those
of others equally into account, it may deliver a result—for reasons you can
understand—that favors those others more than you. (Pettit, 1999, p. 179)
But, in addition, these decisions should be post-social and non-

corporate in nature (Pettit, 2012, p. 244): that is, individual interests
sifted by our belonging to a political community but without presuppos-
ing that the political entity is a corporate body with its own interests and
different from those of the citizens that compose it. Any post-social and
228 J. R. RALLO
non-corporate content that respects the impartial and deliberative proce-

dure will be susceptible to being democratically promoted to the category
of common good to which all individuals must virtuously submit them-
selves without considering such submission a form of domination and,
therefore, of infringement of their freedom.
In conclusion, within the republican tradition, it is not possible to
understand freedom apart from the active exercise of politics within the
community: we are free insofar as the political community frees us from
dominium and insofar as we do not submit to imperium because we con-
tribute to defining the impartial terms of state action.
The Contradictions of Republicanism

The concept of republican freedom is an inherently contradictory concept
and, therefore, impossible to fulfill. At the same time, republicanism’s
concept of the common good, as it depends on the selection of an arbi-
trary rule of aggregation of preferences, does not lead to a univocal con-
cept of the common good either, but rather to the domination of minorities
by one of the many possible coalitions with the capacity to impose their
conception of the common good.
First, the republican concept of freedom is contradictory because there
is an irresolvable conflict between dominium and imperium: for there to
be no dominium there must be imperium and for there to be no impe-
rium, there must be dominium (Simpson, 2017).
Republicanism seeks to eradicate private relations of domination
through state imposition of regulated procedures on private relations, but
in order for the state to impose those regulated procedures on any private
relation, the state must be powerful enough to impose itself on any kind
of private power. Otherwise, if there were an individual, or a group of
individuals, with greater power than the state and, therefore, with the
capacity to evade the public norms that regulate private relations, the rest
of our fellow citizens would be subject to their dominium: even if this
private hegemon did not arbitrarily interfere in the lives of his fellow citi-
zens, it is enough that they could potentially do so for republican freedom
to be violated.
Now, if it is the state that exercises hegemony over any possible coali-
tion of individuals within its community, then necessarily all citizens will
be subject, effectively or potentially, to the State imperium since, let us
remember, republican freedom is violated not only when the state
interferes arbitrarily in the lives of citizens, but merely because it has the
capacity to do so. The state capacity that is necessary to avoid dominium
is that which institutes imperium. It is useless to appeal to the civic virtue
of individuals to resist and rebel against state imperium if, for there to be
no dominium, no coalition of citizens must be powerful enough to resist
the state: and if it is not, then the citizens are potentially dominated by the
state, that is to say, subject to its imperium.
Where the state is powerful enough to prevent any private situation of
dominium, it will be the state (or, rather, those agents who manage to
exercise effective control of the State apparatus) that decides capriciously
whether to subject its own actions to regulated procedures that are impar-
tial and contestable: if the citizenry does not have sufficient power to
impose such procedures on the state, then it will be the State that grants
or denies them to the citizenry (Jasay, [1985] 1998, pp. 209–211); if, on
the other hand, some coalition of citizens does possess sufficient power to
impose such procedures on the state, then that coalition could potentially
impose its will on other individuals as well, and thus dominium would
exist. In this sense, then, the state that is powerful enough to impose itself
on its population but that nevertheless voluntarily decides to submit its
actions to impartial and contestable procedures must be seen, for the pur-
poses of the republican concept of freedom, as the benevolent master with
respect to his slave.
Secondly, state imperium does not cease to be imperium merely because
the state is oriented to pursue a common good, defined in a deliberative,
inclusive and responsive manner among diverse virtuous citizens who do
not seek to promote their individual interest but rather their vision of
which of the several post-social and non-corporate interests are a priority.
The fact that citizens decide to behave virtuously by putting their vision
(post-social and non-corporate) of the common good before their own
particular interests does not prevent the existence of a broad competition
between the various visions of the common good on the part of the differ-
ent citizens; nor does it prevent that, after an inclusive deliberation, irre-
ducible differences among the various citizens remain (Pincione & Tesón,
2006). Unlike republicanism, liberalism is frontally skeptical about the
possibilities of the emergence of “a spiritually unified social order in which
the interests of the individual are in perfect harmony with the interests of
the community” (Kukathas, 2003, p. 2).
Of course, the republican reply to the possibility of irreconcilable dif-
ferences among citizens about the definition of the common good is that
230 J. R. RALLO
those citizens should virtuously accept whatever outcome emerges from a

democratic procedure that is contestable, inclusive and responsive. But
every democratic procedure presupposes an electoral rule—more gener-
ally, a mechanism of aggregation of individual preferences—which is what
codetermines which of all the many rival conceptions of good is chosen
within a political community. An identical set of individual preferences
over the common good can be aggregated into very different community
preferences depending on the electoral rule we employ (Munger &
Munger, 2015, pp. 135–158): and since there is no rule of preference
aggregation that meets minimum requirements that respect both the
autonomy of individuals and the rational ordering of preferences (Arrow,
1951) then there may also be irreconcilable disagreements about what the
rules of preference aggregation should be. And the imposition of any of
these (arbitrary) electoral rules on disaffected minorities—no matter how
much the imposed electoral rules allow for some inclusive and responsive
deliberation between the parties—will also be a case of imperium of the
state over these disaffected minorities.
From Republicanism to Anarchism

The key question that republicanism must confront is what to do with
those minorities who, even after having scrupulously respected impartial
procedures to which they themselves have not voluntarily adhered, feel
that the collective decisions agreed upon contravene their conception of
the common good and constitute, consequently, an arbitrary interference
by majorities in their lives. This will be a particularly acute problem in
heterogeneous and pluralistic societies, where individual conceptions of
the common good will tend to be very varied and even conflicting or
irreconcilable.
In this respect, republicanism has given two types of answers. The first
is to consider that minorities are respected as long as they follow the dem-
ocratic procedures that these same minorities have accepted to determine
the content of the general interest:
Does the plight of the minority, or losing, voter indicate that the populist
aim of articulating the will of the people has failed? The answer is no. Again,
the qualified populist is looking neither to discover the antecedent popular
will nor to construct a unanimous basis for political rule. Rather, what mat-
ters is that our collective decisions fairly enlist us as free and equal, active
participants. If that has been done, that is all that is required. (Richardson,
2003, p. 212)
The solution, however, is flawed: first, because minorities might not

even feel part of the political community that is making collective deci-
sions; second, because there is no guarantee that a constitutional and con-
testable democracy does not generate situations in which majorities
arbitrarily interfere in the lives of minorities; and third, because, precisely
for this reason, minorities could legitimately object that the procedures
specifically regulated by constitutional and contestable democracy go
against their conception of the common good, so that the imposition of a
collective agreement adopted by procedures to which the minorities object
would clearly be an arbitrary interference of the state over their lives.
The second possible answer within republicanism is provided by Pettit
and involves accepting the possibility of minorities who feel dominated
seceding from the state and establishing a separate jurisdiction: “At the
limit, the ideal of non-domination may require in relevant cases that the
group are allowed to secede from the state, establishing a separate terri-
tory or at least a separate jurisdiction; that possibility has to be kept firmly
on the horizon” (Pettit, 1997, p. 199). Only jurisdictional secession ulti-
mately safeguards the freedom of individuals from state imperium. Without
the possibility of secession, disaffected minorities may end up being domi-
nated by those majorities whose separation they prohibit. Hence, the true
content of the civic virtue that republicanism postulates should not be to
blindly accept the political authority of the states, no matter how guaran-
teeing their procedures may be, but to actively defend the right of self-
determination of any individual or group of individuals vis-à-vis the State:
to form social coalitions that are sufficiently powerful against States to
ensure that those who do not wish to be part of a given community can
cease to do so. The slave who ends up uncritically accepting his condition
and who lacks the right to emancipate himself is not free.
However, allowing the secession of minorities from states means
renouncing that monocentric institutions, such as states, monopolistically
arrogate to themselves the authority to combat domination: if a State rec-
ognizes the right of secession, that state is renouncing its sovereign and
final authority over a territory, so that the attachment of any individual to
the legal system of that state would become an entirely voluntary matter.
In other words, the recognition of the right of secession vis-à-vis the state
leads us to abandon monocentrism in favor of polycentrism: It would be
232 J. R. RALLO
the coalitions of virtuous individuals, regardless of the jurisdictional unit

of which they form part, that would guarantee that no state would exercise
its imperium over any individual, thus protecting his personal right to
political separation.
In such a case, republicanism would be evolving toward the traditional
positions of libertarianism. In the end, one can summarize the basic differ-
ence between libertarianism and republicanism by saying that republican-
ism believes it is possible to solve social problems by forcing a deliberative
and well-intentioned dialogue between the parties, while libertarianism
advocates allowing voluntary association and disassociation of the indi-
viduals (Lomasky & Brennan, 2006). In other words, for libertarianism,
bargaining asymmetries are not per se contrary to the exercise of freedom,
since all social interactions involve a bargaining process in which both par-
ties gain, even if one party may gain more than the other: a win-win situ-
ation for both parties is precisely guaranteed because neither party can use
violence against the other to force it to accept conditions that it considers
detrimental to its non-violent alternatives and, therefore, both parties are
free to accept or reject the terms of the social interaction. In contrast,
republicanism presupposes the existence of an inalienable right to social
interaction on socially equitable terms and trusts that such terms can be
achieved without recourse to violence if both parties recognize each other
as rational, autonomous agents deserving of equal respect, and in turn
negotiate in good faith on such assumptions; the state will therefore be
legitimized to exercise violence in order to level the terms of negotiation
and structure transparent procedures of collective deliberation. That is,
libertarianism provides a solution to the social problem by giving each
party a “way out” option, while republicanism forces the parties to seek a
solution through “dialogue” but prevents them from leaving (Hirschman,
1970, pp. 1–21).
But if republicanism is to end up admitting the individual right not to
establish non-consensual relations with other agents, including those
within the political community, then republicanism admits that sover-
eignty belongs to the individual and not to the political community (since
the individual could withdraw from the decisions of the political commu-
nity by seceding from it). In other words, republicanism would be com-
mitting suicide. As Michael Sandel recognizes:
If there were a way to secure freedom without attending to the character of

citizens, or to define rights without affirming a conception of the good life,
then the liberal objection to the [republican] formative project might be

decisive. (…) If liberty can be detached from the exercise of self-government
and conceived instead as the capacity of persons to choose their own ends,
then the difficult task of forming civic virtue can finally be dispensed with.
Or at least it can be narrowed to the seemingly simpler task of cultivating
toleration and respect for others. (Sandel, 1996, p. 321)
Ultimately, then, republicanism has only two alternatives: either to

allow or to prevent the free association and disassociation of individuals
from political communities. In the first case, the political community is
deprived of the right to impose on each individual its particular concep-
tion of the common good, so that republican thought dissolves in the
shape of voluntary and consensual relations. In the second case, the politi-
cal community arrogates to itself the right to arbitrarily interfere with the
heterogeneous conceptions of good life of a diverse and pluralistic soci-
ety (imperium); consequently, it would be the republican political struc-
tures themselves that would end up eliminating individual freedom, even
characterizing it as the absence of domination.
Conclusion
Libertarianism—whose basic prerequisite for social coexistence is toler-
ance of very different conceptions of good life, provided that they tolerate
and respect other different conceptions of good life through compliance
with the general legal principles of freedom, property and contracts (Rallo
2019)—allows for the free association and polycentric disassociation of
individuals: contrary to what republicanism preaches, the main civic virtue
necessary to maintain a free social order is not the active participation in
the political life of a monocentric organization legitimized to superimpose
a monolithic conception of the common good on all citizens, but the
simple respect of each person for the life projects of others, no matter how
much the rest of the citizens use their liberties in ways that may be uncom-
fortable or unpleasant to us (Gaus, 1997). The right of disassociation
allows us, in fact, to be selective in our personal relationships: far from
dissolving society into an atomistic individualism, it integrates it with
those connections that each person truly values (Cohen, 2000). Moreover,
it is only within private and voluntary communities that the republican
model of deliberative and inclusive democracy could really work, since
there would be no possibility of deception and self-deception with the aim
234 J. R. RALLO
of parasitizing (non-consensually dominating) the rest of the fellow citi-

zens: since these fellow citizens would have the option to leave and thus
eliminate any parasitic benefit associated with deception or self-deception
(Pincione & Tesón, 2006, pp. 242–245).
And, in turn, if republicanism allows the free disassociation of each citi-
zen from those political communities that they do not consider represen-
tative of their conception of the common good, then the political
community becomes a voluntary association, regulated by the contracts
subscribed between parties (between an individual and the rest of the
political community or between many individuals among themselves). In
other words, the general framework of justice would be that of libertarian-
ism: the legal equality of subjects to associate and disassociate polycentri-
cally on the shared basis of the principles of freedom, property and
contracts: “A good society is thus one in which individuals are free to
associate with, and dissociate from whomever they wish, since dissent
from the views of the majority or the powerful is tolerated, and conformity
is not compelled” (Kukathas, 2003, p. 76). Without the possibility of citi-
zen disassociation from a political community, we inevitably fall into the
imperium of arbitrary state mandates, contrary to republican thought itself.
In conclusion, only a voluntarist political framework, based on citizens
who have internalized the virtue of tolerating who adjust reciprocally to
the plural conceptions of life of the rest of the citizens and other fellow
citizens to secede from the political community, would be a political
framework truly compatible with republican ideals. A political framework,
in short, anarchist.
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Towards the Political Rehabilitation of Ebenezer Scrooge. The
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Public Affairs, 45(1), 27–53.
Socialism, Economic Calculation
and Entrepreneurship
Adrián Ravier
Just as Milton Friedman and the Chicago School have been recognized in
the history of economic thought for provoking a counterrevolution show-
ing the flaws of Keynesianism, Ludwig von Mises, Friedrich Hayek and the
In January 2005 I traveled to Spain for the first time with the aim of studying the
doctoral program in applied economics offered by the Rey Juan Carlos
University of Madrid. The choice of this program at that university was not
arbitrary, but was specifically due to the possibility of studying with Professor
Jesús Huerta de Soto. I will always remember the quality of his classes, but above
all, I will remember the seminar he offered for his outstanding students,
replicating those experiences of Ludwig von Mises in Vienna and New York. In
addition to the doctoral courses, Professor Huerta de Soto used to invite his
doctoral students to study their subjects at the undergraduate level. Far from
being elementary, the course offered an excellent systematization of concepts
elaborated by the Austrian tradition.
A. Ravier (*)
ESEADE, Buenos Aires, Argentina
e-mail: adrian.ravier@eseade.edu.ar

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_21
238 A. RAVIER
Austrian School of Economics will be immortal for showing the profession

the impossibility of economic calculation in socialism, that is, the thesis
that a socialist system implies the absence of the price system, which pre-
vents economic calculation, without which we could not preserve a society
based on a division of labor as broad as ours.
Of course, socialism, like Keynesianism, is renewed, but its essence,
in all its new forms, maintains the same problems that Ludwig von
Mises detected in 1922, and which to this day remain unanswered
(Mises, 1981).
In this sense, Jesús Huerta de Soto reminds us in his preface of the
words of Mark Blaug—one of the most prestigious writers in the history
of ideas—when he recognized that “I have come slowly and extremely
reluctantly to view that they [the Austrian School] are right and that we
have all been wrong” (Blaug & Marchi, 1991, p. 503), also affirming,
when evaluating the application of the neoclassical paradigm in order to
justify the possibility of socialist economic calculation, which is something
“so administratively naive as to be positively laughable. Only those drunk
on perfectly competitive static equilibrium theory could have swallowed
such nonsense. I was one of those who swallowed it as a student in the
1950s and I can only marvel now at my own dim-wittedness” (Blaug,
1993, p. 1571).
The reader has the possibility of understanding this debate between
socialism and free markets through a single book, and this is Socialism,
Economic Calculation and Entrepreneurship by Jesús Huerta de Soto
(2010), a work that was originally written as a thesis and that earned its
author a Doctorate in Economic and Business Sciences at the Complutense
University of Madrid in 1992.
Chapter I
The book is divided into seven chapters, beginning with an introduction,
where Professor Huerta de Soto reviews the historical failure of socialism,
recalling the recent fall of the system in the countries of Eastern Europe
and pointing to the fact as a historical event of the first magnitude that,
without a doubt, has caught most of the students of economic science
unexpectedly (p. 21). The author is surprised, however, that far from
showing deep discomfort or confusion, they continue to do their science
as if nothing had happened. Nobody, or rather almost nobody, has consid-
ered the possibility that the very essence of the problem lies in the method
SOCIALISM, ECONOMIC CALCULATION AND ENTREPRENEURSHIP 239
and the way of doing economics that have prevailed in our science, pre-
cisely throughout the same number of studies, years that in an approxi-
mate way and during this century the socialist systems have survived
(p. 22).
It is in this same first chapter where the author points out the central
thesis of the book, stating that economic analysis in general, and the eco-
nomic analysis of socialism in particular, should incorporate methodologi-
cal individualism and the subjectivist perspective that, according to Hayek,
are essential for the development of our science, although ignored by the
predominant approach (p. 24).
It is noteworthy that the general methodological attack that after the
crisis of 2008 received the neoclassical approach finds very early anteced-
ents on the part of the theorists of the Austrian School, and in particular
in this book from 1992 that we are reviewing.
What has been said is not minor, in the sense that the author, as well as
the Austrian School in general, understands the market and competition
as coordination processes that have nothing to do with perfect competi-
tion, general or partial equilibrium and complete information, which are
generally studied in traditional economics textbooks, where the entrepre-
neurial function also has no place (Hayek, 1968).
Chapter II
On the contrary, the study of human action and the entrepreneurial func-
tion is so important for this author, that he dedicates the entire Chapter II
to its exploration. Following Mises—in his treatise on economics—he first
defines the entrepreneurial function in a broad sense, as human action
itself, in the sense that any person acts in a framework of uncertainty to
modify the present and achieve their objectives in the future (p. 41).
In a stricter sense, however, the entrepreneurial function consists in
discovering and appreciating (prehendo) the opportunities to achieve
some goal or, if you prefer, to achieve some gain or benefit, that are pre-
sented in the environment, acting accordingly to take advantage of them.
Israel Kirzner says that the exercise of entrepreneurship implies a special
insight (alertness), that is to say a continuous being alert, which makes it
possible for human beings to discover and realize what is happening
around them (p. 51).
240 A. RAVIER
This same entrepreneurial function would not take place in a world of

perfect knowledge or general equilibrium. This is what frames all of the
author’s research in a real world of disequilibrium.
Contrary to the perfect information of the traditional neoclassical mod-
els and the relevant information of the most modern school of rational
expectations, in this Chapter II the author carefully reviews the character-
istics of information and knowledge relevant to the exercise of the entre-
preneurial function.
(1) It is a subjective, practical and not scientific type of knowledge, in the
sense that it cannot be presented in a formal way, but rather the subject is
acquiring or learning it through practice. (2) It is a proprietary and dis-
persed knowledge, in the sense that the individual possesses only a few
“atoms” or “bits” of the information that is generated and transmitted
globally at the social level, but that paradoxically only he possesses, that is,
only he knows and interprets consciously. Therefore, the knowledge we
refer to is not something that is given, that is available to everyone in some
material information storage medium, but is only found disseminated in
the minds of each and every one of the actors that constitute humanity. (3)
It is tacit knowledge, not articulable, which means that the actor knows
how to do or carry out certain actions (know how), but does not know
what the elements or parts of what he is doing are, and if they are true or
not (know that). Riding a bicycle and playing golf are typical examples that
one can do certain things, even when he cannot make explicit the ability
to carry them out. (4) This knowledge is created ex nihilo, out of nothing,
precisely through the exercise of the entrepreneurial function. This tells us
about the creative nature of the entrepreneurial function, which is reflected
in the fact that it gives rise to benefits that, in a sense, come out of nowhere
and that we will call pure entrepreneurial profits. It is enough for an indi-
vidual, say C, to become aware of a situation of misalignment or lack of
coordination in the market, say between A and B, for the opportunity of
pure entrepreneurial profit to emerge immediately. (5) It is a communi-
cable knowledge, for the most part non-consciously, through extremely
complex social processes, the study of which, according to Austrian
authors, is precisely the object of research in economic science. Hayek has
taught us that the price system that arises from the interaction between
actors is a social development that has resulted from evolution and not
from deliberate design and that allows the detection and transmission of
economic information that is scattered and fragmented among thousands
and thousands of individuals. In other words, it is the prices that translate
the valuations of the agents into symbols, which through economic calcu-
lation translate into an investment opportunity. (6) It is a knowledge that
leads to coordination, learning and competition. In the imbalance between
A and B, and the intermediation of C, it is easy to understand that agents
enjoy the division of labor, learning to act one according to the other, in a
coordinated way. In fact, the entrepreneurial profit is in a free market a
reward to the entrepreneur who acts correctly based on the imbalances
that he finds. On the contrary, entrepreneurial loss is a sign that the entre-
preneur’s action must be corrected, to the extent that the resources
invested in these failed investment processes are redirected to other hands.
Profits and losses are then signals—both as prices and interest rates—
that allow a coordination process to be achieved through which the mar-
ket learns to make the most efficient use of resources within what is
humanly possible. The entrepreneurial function, by its nature, is also
always competitive, in the sense of entrepreneurial rivalry, since once a
certain profit opportunity is discovered by the actor and he acts to take
advantage of it, said opportunity disappears, and he can no longer be
appreciated and taken advantage of by another.
In sum, the author concludes that we could define society as a process
(i.e., a dynamic structure) of a spontaneous type, that is, not consciously
designed by anyone; very complex, as it is made up of billions of people
with an infinite variety of objectives, tastes, evaluations and practical
knowledge; human interactions (which are basically exchange relations
that are often reflected in monetary prices and are always carried out
according to rules, habits or patterns of conduct); all of them moved by
the force of the entrepreneurial function that constantly creates, discovers
and transmits information, adjusting and coordinating in a competitive
way contradictory plans of the individuals, and making possible the com-
mon life of all of them with an increasing number and complexity and
richness of nuances and elements (p. 85).
Chapter III
This has been necessary to understand Chapter III on the analysis of
socialism, which the author bases on the concept of entrepreneurship. It
defines socialism as any institutional restriction or aggression against the
free exercise of human action or entrepreneurial function, which, regard-
less of its specific type or class, arises as a deliberate attempt to pretend
through institutional coercion (or mandates) improve society, make its
242 A. RAVIER
development and functioning more efficient, and achieve ends that are
considered just (p. 87).
This is what leads Huerta de Soto, following Mises, to identify social-
ism as an intellectual error, because it is not theoretically possible that the
body in charge of exercising institutional aggression has enough informa-
tion to give a coordinating content to its mandates (p. 95). First, for rea-
sons of volume (it is impossible for the intervening body to consciously
assimilate the enormous volume of practical information disseminated in
the minds of human beings); second, given the essentially non-transferable
nature of the information needed to the central body (due to its tacit
nature that cannot be articulated); third, because, in addition, information
that has not yet been discovered or created by the actors and that only
arises as a result of the free process of exercising entrepreneurship cannot
be transmitted; and fourth, because the exercise of coercion prevents the
business process from discovering and creating the information necessary
to coordinate society (p. 100).
In this sense, it does not matter whether the governing body is made
up of a dictator, an elite, a group of scientists or intellectuals, a ministerial
department, a set of deputies democratically elected by the people, or, in
short, of any combination, more or less complex, of all or some of these
elements. It is that any of them lacks superhuman capacities or the gift of
omniscience that is capable of assimilating, knowing and simultaneously
interpreting all the disseminated and proprietary information that is dis-
persed in the minds of all human beings that act in society and that is
continuously generated and created ex novo by them.
On the other hand, the organ of coercion must necessarily be made up
of human beings of flesh and blood with all their virtues and defects that,
like any other actor, would have their personal purposes that will act as
incentives that will lead them to discover the information that is relevant,
depending on their particular interests.
Finally, the governing body will be unable to make any economic cal-
culations in the sense that, regardless of what its aims are (even when they
are the most humane and morally high), it will not be able to know the
costs it incurs. When it comes to pursuing these ends, they have a higher
value for the governing body itself than the value that it subjectively attri-
butes to the aims pursued (p. 103).
The economic consequences of socialism are obvious and have been
empirically contrasted in the different countries where such mandates
were applied. In the first place, the lack of signals that in a capitalist system
come from the price system, interest rates or profits and losses, leads to
investment decisions being purely arbitrary, as they are prevented from
comparing opportunity costs of the various possible courses of action.
This gives rise to poor quality of goods and services produced, malinvest-
ment that often aggravates economic cycles, shortage of some resources
and excesses of some products, unemployment, corruption, informal or
underground economy, social backwardness (economic, technological,
and cultural) and even the adulteration of the traditional concepts of law
and justice (pp. 114–126).
Chapter IV
Chapter IV can be characterized as a history of thought, showing first that
the debate in question that today governs political philosophy and eco-
nomics, did not originate in 1922, but finds antecedents in Greece, Rome,
in pre-classical authors and classical and also more modern authors such as
Walter Bagehot, Wilfredo Pareto, Enrico Barone, Nicolas G. Pierson,
Friedrich von Wieser and Max Weber, to name only those who received
the most attention.
Following these references, the author analyzes the essential contribu-
tion of Ludwig von Mises, investigating both the 1922 book and an origi-
nal article from 1920, entitled “Economic Calculation in the Socialist
Commonwealth”, which reproduces the speech that in 1919 Mises dic-
tated to the Nationalökonomische Gesellschaft (National Economic
Society), in response to Otto Neurath’s book from that same year.
As Friedrich Hayek points out in his August 1978 prologue to Socialism,
after the First World War, the socialist system was presented to young ide-
alists returning from war as an opportunity to build a more rational and
just world: “And then this book came. Our hopes were dashed. Socialism
told us that we were looking for our improvements in the wrong direc-
tion” (p. xix). Needless to say, we would not have had the Hayek we know,
with his Road to Serfdom (1944), Individualism and Economic Order
(1948), or his Fatal Conceit (1988), without the prior existence of
this book.
Huerta de Soto continues in the same Chapter IV studying socialism
according to Marx, whom he criticizes for the deficient theory of labor
value, also for his consequent theory of surplus value, but fundamentally
for avoiding dealing with the specific aspects of socialism of the future,
because he considers it unscientific. For Huerta de Soto, such a Marxist
244 A. RAVIER
position has been used in an abusive and systematic way to avoid theoreti-
cal discussion about the real possibilities of functioning of socialism.
What Huerta de Soto does recognize in Marx is his ability to focus his
studies on the disequilibrium that occurs in the market, even finding curi-
ous coincidences with the analysis of the market process by Austrian
theorists.
Huerta de Soto ultimately demonstrates, on the basis of the original
contributions of Böhm-Bawerk and Mises, that Marx’s socialism is really
utopian, considering that the anarchy of capitalist production, typical of
the spontaneous order of the market, would finally be replaced due to the
“perfect organization” that is supposed to be the result of central plan-
ning, and that would not require the use of monetary prices, an aspect
whose deficiency the reader of these lines will be able to identify from what
has already been said above.
Huerta de Soto concludes the chapter by studying the first socialist
proposals for a solution to the problem of economic calculation, begin-
ning with the calculation in kind (p. 200). In fact, the original idea that the
socialist system can function without money dates back to Marx. In effect,
in that nirvana or equilibrium model that Marx considers that can and
should be imposed coercively by the governing body, there is no need to
use money, since it is assumed that all the information is given and that
there is no change whatsoever. It is enough that period after period the
same goods and services are produced, and that these are distributed in
the same way to the same individuals. This idea passes from Marx to
Engels, and from there to a series of theorists who, more or less explicitly,
consider that economic calculation would not pose any problem even if
money did not exist (p. 201). Huerta de Soto also quotes socialist theorist
Karl Kautsky who himself ridiculed this idea that Neurath later also took
up saying that it would quickly lead to chaos.
Another somewhat similar proposal is to carry out economic calcula-
tion through hours of work, which clearly follows from Marx’s erroneous
labor theory of value (p. 203). Briefly stated, it consists of the governing
body taking into account the hours worked by each worker. Subsequently,
each would receive a certain number of coupons in relation to the hours
worked, which he could use to obtain in exchange a predetermined quan-
tity of consumer goods and services produced. The distribution of the
social product would be carried out by establishing a statistical record of
the number of hours of work required for the production of each good
and service, and assigning these to those workers who were willing to
deliver in exchange the corresponding coupons representing the hours

worked by each one of them. In this way, each hour of work would give
the right to obtain the equivalent in goods and services produced during it.
Huerta de Soto’s criticism, in the same vein as that formulated by Mises
to Otto Leichter in 1924, aims to point out that these coupons are not
money, and that there are no market prices that reflect the relationships
between voluntary exchanges. Mises also points out two other problems.
The first, with regard to non-reproducible natural resources, such as coal,
to which no number of hours of work can be attributed. The second, and
the most important, that the working hour is not a uniform and homoge-
neous quantity. In effect, there is no “labor factor”, but rather innumera-
ble different types, categories and classes of work that, in the absence of a
common denominator that constitutes the monetary prices established in
the market for each type of work, cannot be added or subtracted given its
essentially heterogeneous character.
Finally, some socialists faced Mises’s criticism of the economic calcula-
tion in utility units, a proposal that Huerta de Soto considers even more
absurd than the others (p. 206). And the fact is that utility is a strictly
subjective concept, the result of the assessment made by each individual,
and it cannot be measured, but only compared ex ante with those derived
from different courses of action when taking a decision.
Chapter V
These incipient proposals were then followed by others with a static
nature, which in Huerta de Soto’s perspective constitutes an undue devia-
tion from the debate, taking into account that Mises himself had recog-
nized in his initial criticism that in a static world socialism did not propose
any problem of economic calculation. This second series of proposals is
the one that the author considers in Chapter V.
It begins by considering the formal similarity arguments, which by
assuming given or available all the information, and under highly formal-
ized equilibrium models, decided to reduce the problem to a merely alge-
braic or computational calculation, but ignoring the essence of the
problem, namely how it is possible that the central planning body will get
the relevant and practical information that it needs and that is only dis-
seminated in the minds of millions of economic agents. The application of
the mathematical method in economics ended up diverting the brightest
246 A. RAVIER
minds toward the treatment of problems that have little to do with the
real world.
Among the authors who presented the arguments of formal similarity
and who were critically considered by Huerta de Soto, we find Friedrich
von Wieser, Enrico Barone, Gustav Cassel and Erik Lindhal, authors who
even led Joseph Schumpeter to consider that Mises’s criticism already had
an answer long before it was formulated in 1920. Clearly, the detour
involved ignoring the problem itself (pp. 209–217).
After the detour, various works appear that aim to find the “mathemati-
cal solution” of the equilibrium problem, distinguishing the seminal arti-
cles by Fred M. Taylor, HD Dickinson and even a number of articles from
German literature, with authors such as K. Tisch or H. Zassenhaus. In
these last two cases, the starting point was the classic works of Cassel and
Walras (pp. 219–226).
As a variant of the “mathematical solution” arises, then “the trial and
error method” (p. 233) aims to avoid the cumbersome need to solve alge-
braically the very complex system of equations and take as a starting point
the “equilibrium solutions”—inherited from the capitalist system in force
prior to the introduction of socialism. From there it would only be neces-
sary to carry out the marginal modifications that were necessary to
“return” the system to equilibrium whenever changes were verified.
The practical way to carry out this method would consist in ordering
the managers and people in charge of the different sectors, industries and
companies to continuously transmit to the central planning body their
knowledge regarding the different circumstances of production in general
and, in particular, to the different combinations of productive factors.
According to the information that was received, the central planning body
would fix provisionally or tentatively a whole series of “prices”, which
would have to be communicated to the managers of the companies so that
they could estimate the quantities that they would be able to produce at
said prices and act accordingly. The activity of the managers would reveal
the existence of errors, which would be reflected in shortages (provided
that demand exceeded supply) or excesses (when the opposite happened)
of production. The shortage or excess of a certain line of production
would indicate to the central planning body that the established price was
not correct and that, therefore, it would have to be suitably modified up
or down as appropriate. And so on until the long-sought new “balance”
was found. This is, in a few words, the content of the much-lauded “trial
and error” method (p. 235).
Following this, Huerta de Soto lashes out with criticism. Just to men-
tion a few, it is theoretically absurd to think that the real capitalist system
could at some point find itself in an “equilibrium situation” that would
allow later socialism to inherit such a price structure. This reflects a nota-
ble misunderstanding regarding the functioning of a market economy.
And it is that market prices, in the capitalist system, are dynamic, they are
in constant change, because, in fact, they are the result of the valuations of
the different agents, which never remain constant.
On the other hand, it is not admissible to think that the transfer from
capitalism to socialism leaves the productive structure immobile. On the
contrary, the changes and distortions would have to be of such magnitude
in all economic fields and social areas that an absolute and complete
restructuring of the entire price system would be required. In sum, even
assuming that such an equilibrium price structure exists, the transfer from
one system to another would lead us to a new “equilibrium”, and it would
be impossible to adapt the previous price structure to the new system.
Furthermore, even if we assume for dialectical purposes that prices do
not change, it will be necessary for the entrepreneurial function to inter-
pret those prices. That there is a shortage of a resource in the market, can
lead to its price to rise, or it can generate innovations that allow the
resource to be replaced by a less scarce one. A new problem for the pro-
posal is that under socialism the dynamic entrepreneurial function that
under capitalism allows adjusting courses of action to a new reality
disappears.
Finally, the nature of the problem with the “trial and error” proposal is
that these theorists do not understand the nature of the entrepreneurial
function and the characteristics of the knowledge and relevant information
that make it possible to exercise it in a market economy. Replacing the
capitalist system with a socialist system can only lead the economy into
complete chaos.
Chapter VI
Possibly the best-known and most-cited proposal among those made by
socialist theorists is Oskar Lange’s “competitive solution”, who had ample
academic credentials when he studied at the London School of Economics,
in Chicago, in Berkeley and, above all, at Harvard, where he was influ-
enced by Joseph Schumpeter, as well as coming into contact and working
248 A. RAVIER
with the socialists Alan and Paul Sweezy and Wassily Leontief. Huerta de
Soto dedicates Chapter VI of the book to him.
Although Huerta de Soto recognizes in Lange four different stages of
thought, here we will focus mainly on the “competitive solution”, a model
for which he incorporated and combined a series of elements that had
already been proposed, albeit in isolation, by other theorists and socialists.
We refer to the “trial and error” method, the establishment of prices based
on marginal costs, the instructions of the central planning body to manag-
ers, among others. The three proposals that this review does not include
repeat the essence of the errors noted above and are irrelevant.
In this Lange model, also inspired by the Germans Eduard Heimann
and Karl Polanyi, the starting point is to explain how in a “capitalist sys-
tem” equilibrium is reached “theoretically” and “practically”, for which it
uses a typically Walrasian and neoclassical process.
The model assumes that the prices of consumer goods and services, as
well as wages, are determined by the market, while the central planning
body only and exclusively fixes the “prices” of the factors of production.
The prices of these factors are established intuitively or arbitrarily, and
in the event that the quantities demanded and offered of the goods pro-
duced do not coincide, the price is reviewed or modified by the central
planning body, through a process of “trial and error”, which stops at the
moment in which the final equilibrium price has been reached due to the
equalization of supply and demand.
Lange’s proposal aims to explain that the central body can supplant the
role of the market in terms of the allocation of capital goods, and the
socialist system can, formally, achieve the equilibrium of the “perfect com-
petition” model, through the same “trial and error” procedure devised by
Walras for the “competitive system” and that Taylor had already proposed
as a “solution” for the socialist system some years earlier (p. 315).
What has been said leads the author to develop an important conclu-
sion. And it is that this proposal somehow entails an implicit recognition
of the reason that attended Mises in his original contribution, which leaves
socialist theorists with no choice but to take refuge in a second and weak
line of defense, built precisely on the basis of the essential elements of that
economic system that they so hated and wanted to destroy.
This line of socialism proposes “preserving the market”, and they even
try to show that market and capitalism are different historical categories
that do not have to implicate each other. In short, they claim that the
market would be an institution created before capitalism.
This has led Fritz Machlup to state that Mises’s success has been so
resounding that today no one in the economics profession doubts the
theoretical and practical impossibility of planning without a decentralized
price system. Along the same lines, Hayek warns that young socialists have
abandoned the idea that a centrally planned economy could work, prefer-
ring instead to argue that competition could continue even if the private
ownership of the means of production was abolished. Thus, the traditional
Marxist idea according to which planning is not only the opposite extreme
of competition but has as its main purpose the elimination of it. It is only
through the elimation of competition that the fulfillment of the true
socialist “ideal” is made possible.
For the rest, Huerta de Soto notices numerous problems in Lange’s
“competitive solution”, about which this review cannot delve into, but
which we could synthesize in (1) the impossibility of preparing the list of
capital goods given the absence of the entrepreneurial function, the sub-
jective character of capital and the private property of the means of pro-
duction; (2) Lange’s confusion regarding market prices to which Mises
referred, with parametric prices only existing in a static and competitive
equilibrium world such as Walras’s; (3) the inexistence of true free prices
for consumer goods and services, or even for wages, given the absence of
true markets in which they are determined; (4) the impossibility of com-
plying with Lange’s rules in a real and dynamic world (the first, adopting
that combination of factors for which the average costs are minimized, and
second, producing the volume at which prices and marginal costs are
equal); (5) the theoretical impossibility of the “trial and error method”;
(6) the arbitrary fixing of the interest rate, and with it the absence of a true
capital market and, in particular, a stock exchange and representative titles
of the property of the companies; (7) ignorance regarding the typical
behavior of bureaucratic organisms.
Lange’s debate with Hayek in the late 1930s and early 1940s left some
correspondence in which the former acknowledged that the latter had suc-
cessfully raised a series of essential errors and problems that his strictly
static model was not able to solve. He promised to write an article in
response in the next few months. Lange not only never wrote such an
article, he even refused to review his original essay on socialism from 1936
to 1937. The fundamental twist comes from an article from 1943, where
Lange defends only the socialization of the most important and strategic
industries (within which he includes the banking and transport sectors),
and where he states that private ownership of the means of production
should be maintained, in any case, for farms, artisan companies, and small
250 A. RAVIER
and medium-sized industries, since this would allow maintaining the flex-
ibility and adaptability that only private initiative with an exclusive charac-
ter can achieve (p. 344).
Chapter VII
The last chapter of the book summarizes the final considerations on the
contributions of three other socialist theorists, such as Durbin
(1936/1968), Dickinson (1939) and Lerner (1944/1951), who, con-
tinuing along Lange’s line, also tried to develop a competitive solution for
the economic calculation problem.
Beyond the extensive section that the author offers on the contribu-
tions of Evan Frank Mottram Durbin, and being aware of the hopes that
a new chapter could be added to the debate by being familiar with the
Austrian thought of the time and distinguishing between its paradigm and
the neoclassical-Walrasian, we do not find elements that are important to
highlight.
The case of Henry Douglas Dickinson, whose work was valued by
Hayek in his 1940 article, is not very different, but the one that contains
proposals coinciding with those pointed out by Lange, whom he only cites
in the bibliography.
Dickinson points out that one of the advantages of the socialist system
would be to reduce the typical uncertainty that arises in capitalism as a
result of the joint interaction of multiple separate decision-making bodies.
Again, not only does this author ignore the spontaneous process of social
coordination offered by the capitalist system through the price system, but
he also assumes that the central planning body could obtain the informa-
tion necessary to coordinate society from above.
The most curious thing is Dickinson’s naivety in thinking that his sys-
tem would establish, for the first time in the history of mankind, a truly
effective “individualism” and “freedom”, that is, a kind of “libertarian
socialism” of great “intellectual appeal”. However, and given the enor-
mous power that the central planning body would have in the Dickinson
model, together with its characteristic arbitrariness, manipulation of pro-
paganda and impossibility of carrying out economic calculation, its social-
ist system would be, at a minimum, a very authoritarian system, in which
individual freedom would suffer enormously and the chances of a truly
democratic system working would be nil (p. 370).
Finally, Abba Ptachya Lerner’s contribution also repeats the errors

noted in previous years. In his 1944 book, The Economics of Control, he
expressly mentions that total planning would require a centralized knowl-
edge of what happens in each factory, of the daily changes that occur in
supply and demand, as well as changes in technical knowledge in all
branches of production. Since it was not conceivable that these elements
could be achieved by a central planning body, there was no choice but to
resort to the “mechanism” of prices. However, in the next step, he assumes
that the information to solve the problem is available. As Huerta de Soto
explains (p. 372) Lerner was the most extreme exponent when it came to
defending the equilibrium model as a theoretical foundation for socialism.
The isolation in the welfare economics paradigm is so profound that
Lerner even considers that the differences that occur in the real world with
respect to the equilibrium model of “perfect competition” are a clear
“defect” or “failure” of the capitalist system (which socialism, at least
potentially, is capable of correcting by force), rather than a defect of the
model’s own analytical instruments (p. 377).
Huerta de Soto then concludes that none of the socialist theorists was
able to respond satisfactorily to the development proposed by Mises and
Hayek (p. 410).
Conclusion
Jesús Huerta de Soto has managed to demonstrate in this book a series of
fundamental elements for modern economic analysis: (1) he has managed
to explain in a synthetic way how the market economy operates, character-
izing the entrepreneurial function in a dynamic way and pointing out the
particular characteristics that they have. These characteristics include the
information and knowledge necessary to guide and coordinate production
processes in disequilibrium models (Chapter II); (2) he has defined social-
ism as any restriction or aggression to said entrepreneurial function, which
includes different types and degrees of socialism, but also interventionism
(Chapter III); (3) he has shown that such a system is an intellectual error,
based on the original contribution of Mises, but has not ignored the com-
plementary contributions of Hayek, sometimes ignored (Chapter IV); (4)
he has presented in a complete way the debate between the Austrian theo-
rists and the socialists, compiling with enormous responsibility an exten-
sive literature, leaving us with the scientific demonstration that Mises’s
original proposal of 1920 and 1922 remains intact, there being no theorist
252 A. RAVIER
capable of responding to the challenge (Chapters IV, V, VI and VII); (5)

he has shown that the arguments for the “mathematical solution” to this
challenge have been an undue deviation from the debate, not only dis-
tracting socialist theorists from the real economic problem, but, and fun-
damentally, distracting most economists, from understanding the market
process and the real economic problem that we face (Chapter V); (6) he
has also shown that in this debate, the socialists themselves have been
changing their arguments and have ended up recognizing, sometimes
implicitly and sometimes explicitly, Mises’s thesis, reducing the defense to
a “market socialism”, quite different from the “Marxist socialism”
(Chapters VI and VII). In short, he has shown that in the face of the crisis
of the neoclassical paradigm, what science needs is a revolution based on
individualism and methodological subjectivism for practically all fields.
The contributions of Mises and Hayek have demonstrated the impos-
sibility of practicing socialism, at the same time that they warn us about
the (ab)use of mathematics in the field of economics.
Lerner’s mentioned excess in considering the differences between the
real world and the “world of perfect competition” as errors, failures or
defects in the market, is part of the modus operandi of modern economics.
This is demonstrated, for example, by the current theory of “market fail-
ures”, used today to justify state intervention, which instead of consider-
ing information asymmetries as a characteristic of the market, maintains
that the market has failed, and that it is up to the state to intervene to
correct this issue.
It remains as a line of future research to explain why such market fail-
ures are not failures, but the state, in addition, cannot obtain the necessary
information to correct said failures. Some will say that Ronald Coase has
already provided answers to market failures with his “institutional solu-
tions”. Perhaps a complement to these investigations comes from compar-
ing the information economy of Joseph Stiglitz, with the characteristics of
information and knowledge that Professor Jesús Huerta de Soto summa-
rized in Chapter 2 entitled “Entrepreneurship,” based on the original con-
tributions of Mises, Hayek, Kirzner and Lachmann, among many other
authors.
In closing, suffice it to say that this book summarizes why the Austrian
School has reached a prominent place in the history of economic thought,
not only for participating in the marginal revolution but also for theoreti-
cally destroying socialism. No matter what new faces socialism may have in
the future, social scientists have the tools to recognize and confront it.
References
Blaug, M. (1993). Review of “Mysteries of Unemployment: Causes, Consequences
and Policies.” Economic Journal, 103(421), 1570–1571.
Blaug, M., & Marchi, N. d. (Eds.) (1991). Appraising Economic Theories: Studies
in the Methodology of Research Programs. Edward Elgar.
Dickinson, H. D. (1939). Economics of Socialism. Oxford University Press.
Durbin, E. F. M. (1936/1968). Economic Calculus in a Planned Economy,
Economic Journal, 46(184), 676–690. In Problems of Economic Planning
(pp. 140–155). Routledge and Kegan Paul.
Hayek, F. A. (1940/1972). Socialist Calculation III: The Competitive Solution.
In F. A. Hayek (Ed.), Individualism and Economic Order (pp. 181–208).
University of Chicago Press.
Hayek, F. A. (1944). Road to Serfdom. University of Chicago Press.
Hayek, F. A. (1948). Individualism and Economic Order. University of
Chicago Press.
Hayek, F. A. (1968). La competencia como proceso de descubrimiento. In Nuevos
Estudios de Filosofía, Política, Economía e Historia de las Ideas. Unión Editorial.
Hayek, F. A. (1988). Fatal Conceit: The Errors of Socialism. University of
Chicago Press.
Huerta de Soto, J. (2010). Socialism, Economic Calculation and Entrepreneurship.
Edward Elgar.
Lerner, A. P. (1944/1951). Teoría Económica del Control. Principios de Economía
del Bienestar. Fondo de Cultura Económica.
Mises, L. v. (1981). Socialism. An Economic and Sociological Analysis. Liberty Fund.
The Ideal of a Just Society:
The Transformation of “Distributive” Justice
into “Distributional” Justice
Martin Rhonheimer
The Socially Just Society—The Ideal

and the Reality
When we think of expressions like “justice” or “just society”, we automati-

cally think of the fair distribution of wealth, income, opportunities, and
resources; we imagine a certain “pattern” of society or at least believe that
a just society is a society based on solidarity, in which the politically
When I first saw Jesús’s famous gold-colored Bentley in front of his house in
Madrid, I had to smile: Yes, it suits him, a public commitment to quality and the
return to the gold standard. However, the gold was more a kind of yellowish
beige, probably a sign that we are not quite there yet with the gold standard.
We got in and drove to the university—of course, it was not Jesús driving the car,
but his chauffeur.
M. Rhonheimer (*)
Austrian Institute of Economics and Social Philosophy, Vienna, Austria
e-mail: m.rhonheimer@austrian-institute.org

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_22
256 M. RHONHEIMER
organized community—and that means the state—ensures that no one is

left behind, that everyone’s basic needs are met, and that the basic demands
for health, education, and social welfare are also met.
Such a society is certainly a desirable ideal. Many persons form their
concepts of justice and injustice based on this ideal. They argue that in
order to achieve such “social justice”, the state must intervene in the nor-
mal course of economic processes and their outcomes by redistributing
income, and ideally assets, in such a way that the lowest-income strata
would receive an increase in income through transfers, and the highest
strata receive a corresponding decrease in income. By putting some people
in a better position at the expense of others, social differences perceived as
unfair can be balanced out, and equal opportunities can be created for all.
However, the justice of a society has nothing to do with the distribu-
tion of income and wealth, or with the level of social inequality. “From the
We did not actually arrive at the university, but drove up, stopped in front of the
main staircase. Jesús led me through the university premises. We went to the
university chapel and paused for a few moments in front of the tabernacle, made
a visit to his office where tons of his books were waiting to be sent to students,
colleagues and admirers and to those who would soon become them.
Finally, we arrived at the auditorium where I was to give my lecture on Hayek
and his critique of “social justice”. Warm welcome, great students, and I got
started—in English because my slides were in English. And the unexpected, but
the ineluctably “uncompromising”, happened: Again and again Jesús interrupted
me to summarize to the students in their own language what had been said—
well: it was not simply a summary, rather a summary including a series of
specifications and emendations—the slightest suspicion that anything might have
been said in favor of the state in that auditorium had to be dispelled. The
students had to be protected from the “social-democratic” Anglo-Austrian
Hayek, and who could do this better than the authentically Austrian Huerta de
Soto? I took the matter calmly, could add something in defense of Hayek,
everything ended in love and harmony—and most importantly: it was made clear
where the truth resided.
Then it was back in the yellow-beige golden Bentley, home, for dinner. The
whole family had gathered, nothing was spared, cordiality dominated, and
suddenly it was unimportant to me who was right: Hayek, Mises, Huerta de
Soto … And when Jesús proudly showed me his impressive collection of first
editions of the works of the representatives of the Austrian School after dinner
and we posed for a photo together, I was convinced: truly here resides the
genuine Austrian spirit!
THE IDEAL OF A JUST SOCIETY: THE TRANSFORMATION… 257
point of view of morality, it is not important that everyone should have the
same. What is morally important is that each should have enough”
(Frankfurt, 2015, p. 7). The justice of a society is determined by the ques-
tion of whether it is ordered in such a way that no one lives at the expense
of others; in other words, that the rich are not rich at the expense of the
less rich, and the low-income earners are not better off at the expense of
higher earners, or even made dependent on them: a just society should
enable everyone to live in dignity and freedom. However, a life of dignity
and freedom does not depend so much on material resources, and cer-
tainly not on the equality of material resources, but on whether one stands
on one’s own feet in life, that is, that one does not live at the expense of
others, and thus has “enough”—even if one has little compared to others.
The question of justice is decided by the space for individual freedom and
self-responsibility and by the possibilities available in a society to earn a
sufficient share for an independent and self-determined life through one’s
own work—not by who owns how much or even by the extent of inequal-
ity, and even less by the extent to which social inequality is reduced by
political measures, for example, by redistribution.
Unfortunately, the question of a just society today is not usually posed in
this way, but in a purely materialistic way, ultimately aiming at the justifica-
tion of redistribution, because inequality—as a “negative yardstick”, so to
speak—serves as an argument that has taken up highly emotional and clear
thinking, becoming confused and correspondingly emotionally charged.
Catholic social teaching is based on another tradition. It saw the question of
justice not as a question of distribution (of income and property), but as one
of justice, of equality of rights, and, very importantly, of freedom from state
paternalism and dependence: a freedom that enables the individual and the
smallest communities, especially the family, to provide for themselves. Let
me illustrate this by looking back into the past at the concept of distributive
justice and its transformation into “distributional justice”.1 This might open
the way to consider the essential questions.2
1
The German word translated as “distributional justice” is Verteilungsgerechtigkeit, which
has become a common word in German and is used instead of the more technical term for
“distributive justice” (“distributive Gerechtigkeit”). The problem is that what is translated as
“distributional justice”, for lack of a proper English equivalent, is often not properly distin-
guished from distributive justice as it was traditionally understood.
2
For a full account of this, see Rhonheimer (2019a).
258 M. RHONHEIMER
From “Distributive Justice”

to “Distributional” Justice
The idea that a just state is a state with a fair distribution of income,
wealth, and opportunities is based on an idea of justice that we usually
refer to as “distributive justice”—a term that comes from the classical
moral-philosophical tradition as iustitia distributiva. Today’s ideas of
“distributional justice”, however, have little in common with distributive
justice, which, originated with Aristotle, was taken up by the Christian
tradition and was incorporated into Catholic social teaching. The idea of
distributional justice that is discussed above, however, which led us on the
wrong track, comes from the socialist-social democratic tradition. Until
not long ago it was vehemently rejected by Catholic social ethics as being
contrary to the common good. To understand this, we must first consider
the classic concept of the common good.
The classical concept of the common good, which goes back to Aristotle
and was taken up by medieval scholasticism (especially Thomas Aquinas)
and has developed and been passed on to modern times, sees the common
good in the legal safeguarding of the coexistence of citizens in peace and
justice (bonum commune iustitiae et pacis: S.T. I-II, q. 96, a. 3). Only such
things “without whose prohibition the preservation of human society is
not possible”—according to Thomas Aquinas—are to be regulated
by law; as an example, he cites the prohibitions on murder and theft
(ibid., a. 2.). In addition to the protection of commutative justice, which
is primarily concerned with the making and observance of contracts of all
kinds, distributive justice is above all to be protected by the state. For the
latter regulates the distribution of public goods and burdens, that is, those
affecting the community, and thus the relations of the state with its citi-
zens.3 For example, it would be a violation of distributive justice if a gov-
ernment only provided physical and legal security for some, but not for
others (either individuals or groups), because security is a common good
for all citizens. Distributive justice would also be violated by a state that
imposes an excessive tax burden on some, or relieves some tax burden
inappropriately, or that only drags into military service those who cannot
be freed from it through knowing the right person. Corrupt officials or
other corrupt civil servants violate distributive justice, and nepotism and
3
Cf. Ibid., S.T. II-II, q. q. 61, a. 1: “iustitia distributiva, quae est distributiva communium,
secundum proportionalitatem” (S.T. refers to Summa Theologiae).
other forms of public advantage—to individuals, groups, companies or

entire sectors of the economy and industry—are also at the expense of the
common good.
The modern state, which we know as the political organization of soci-
ety with a monopoly on coercive power, came into being in the late Middle
Ages as a result of the formation of territorial safeguards against superior
powers such as the emperor and the pope. The state’s claim to power was
strongly enhanced by the Reformation and the denominational division
that it brought about, leading to an increase in power resulting in taking
the form of an absolute confessional principality. Absolutism initially
secured religious peace, but was also intolerant and repressive. It provoked
the reaction of liberal constitutionalism, the demand for the rule of law,
and the protection of the fundamental rights of individual freedom. To
this end, as is particularly clear with John Locke, one fell back on premod-
ern theories of natural law, the medieval doctrine on tyranny and the asso-
ciated idea of the right of resistance (see Passerin d’Entrèves, 1939;
Rosenthal, 2008; Rhonheimer, 2019b). On the foundation of common
law, demands gradually arose in the Anglo-Saxon world for the safeguard-
ing of individual liberties, property, and physical security against the arbi-
trariness of lawless rule. According to this classical liberal view, a state is
just if it does not discriminate against anyone, that is, if it does not prevent
anyone with public or legal authority from exercising the fundamental
rights to which every human being is entitled. However, this conception
of the state was far removed from the goal of establishing a certain state of
society, defined as just with respect to the distribution of goods.
With the Industrial Revolution and the emergence of industrial capital-
ism, social conditions became fluid and were no longer experienced as
natural or as the status quo; old hierarchies became fragile or even col-
lapsed. Through the combination of industrialization and capitalism the
cards were reshuffled. The rural population, trapped in misery and hunger
as a result of increasing population growth toward the end of the eigh-
teenth century, poured into the factories, where they were at least able to
survive, albeit for a long time under precarious and often miserable condi-
tions. The liberation of farmers and the introduction of freedom of trade
destroyed outdated social safety nets. It was the time of “pauperism”. It
was only now that the mass misery of the rural population became visible
in the cities, where the impoverished masses poured in. The intellectual
urban elites, unaware of the misery in the countryside, very soon blamed
industrial capitalism, which in reality was not the cause of poverty but
260 M. RHONHEIMER
what overcame it. “In pauperism”—wrote the rather left-wing social his-
torian Hans-Ulrich Wehler—“a secular crisis situation came to light, which
was only overcome by successful industrial capitalism—not the cause of
the problem, but the savior” (Wehler, 1995, p. 286).
Not least because the causal links between poverty and industrial capi-
talism were generally misunderstood, the question arose more and more
throughout the nineteenth century about whether the state should inter-
vene in social and economic conditions in the name of justice in order to
save the masses of industrial workers from alleged exploitation by factory
owners and capitalists. Liberal-minded and economically educated politi-
cians spoke out against this, because they were convinced—as it turned
out, not without good reason—that the capitalist market economy was
actually beneficial to the masses of workers and would in time automati-
cally improve the situation of the industrial workers and indeed the entire
population. The socialists, or rather the social democrats of the time, took
the position that only a revolutionary overthrow of property and produc-
tive structures could prevent a small circle of capitalists from becoming
richer and richer at the expense of the mass of workers.
Accepting the socialist analysis of capitalism but rejecting, especially in
Germany, its revolutionary program, economists of the so-called Historical
School (who were soon called Kathedersozialisten, “Socialists of the
Chair”) such as Lucio Brentano, Gustav Schmoller, and Adolf Wagner,
pleaded for an “ethical national economy” rather than a revolutionary
overthrow. They also demanded a kind of socialism inherent in the system
and organized by the state itself, which they called “social policy,” or
“state socialism”. Specifically, they advocated the improvement of the situ-
ation of the working class through state correction of the results of the
capitalist economic process, state social insurance, redistribution of income
through fiscal and labor law measures—demands which in their content
and argumentation anticipated what are normal socio-political elements in
today’s welfare states.4 However, these advocates of a robust social policy
also advocated for a nationalist economic policy—the German naval pol-
icy—but above all, protective tariffs and cartels to safeguard social welfare
(Cf. Deist, 1986, pp. 102, 109, 113.). One of these thinkers, Gustav
Schmoller, called the large industrial cartels (also promoted by the courts)
4
See especially the speech by Adolf Wagner “Über die soziale Frage” from 1871, in Wende
(1990, pp. 47–102) and also the shorter speech by Gustav Schmoller, “Über die soziale
Frage” from 1872, ibid., pp. 137–145.
the pride of Germany (see Rhonheimer, 2018, p. 33). The formation of

cartels in the last third of the nineteenth century and thereafter was the
work of targeted state intervention based on economic and social policy.
Economic policy was understood as power politics, an approach that even
a younger representative of the Historical School such as Max Weber was
unable to escape (Weber, 1988, pp. 30–32), and which was one of the
causes of the First World War. By the way, the same thing happened in the
U.S. before the First World War, in what is called the “progressive” era:
economic concentration was celebrated as progress and as promoted by
the state. That it was the result of the free market and laissez-faire policies
is a persistent historical legend.5
The Catholic Church and representatives of its social doctrine at that
time vehemently resisted this growing influence of the state and politics.
As early as the 1860s, the Bishop of Mainz, von Ketteler, had called for
protective laws for the benefit of industrial workers, but strongly con-
demned “state assistance decreed by majorities” for workers by taxing of
the rich, that is, redistribution, as an attack on the spirit of freedom and
property.6 “The state’s enforced justice goes only up to a certain limit,
which is necessary for order and the protection of all. Beyond that, the
area of freedom, including the freedom of property, begins” (Ketteler,
1977, p. 416). Otherwise one would arrive at a “tax and coercive system
in which all states would almost perish and in which free self-determination
and ethics would completely fade into the background” (ibid., 417).
Finally in the year 1891, Pope Leo XIII took a stand in this direction in
the encyclical Rerum novarum: Apart from the demand for a family
wage—an idea whose economic problems and impracticability cannot be
discussed here (cf. Rhonheimer, 2017a, pp. 23–24)—the Pope demanded
that the state must take care of the defenseless industrial workers; other-
wise they would be powerlessly at the mercy of the factory owners. Thus,
Leo XIII demanded factory laws to protect the lives and physical integrity
of factory workers. The argument was: if the state does not provide this
protection to all citizens, but instead hands over highly endangered indus-
trial workers to their employers for better or worse, then it violates dis-
tributive justice. The introduction of protective laws for the benefit of
workers, on the other hand, meant “to act with strict justice […] toward
5
For more on this, see Rhonheimer (2017a, pp. 9–38; esp. pp. 16–17).
6
Regarding Ketteler, see Rhonheimer (2018, pp. 10–19).
262 M. RHONHEIMER
each and every class alike” (Leo XIII, 1891; see Rhonheimer, 2018,
pp. 19–21).
The legal term “distributive justice” here regards the distribution of the
public good of “safety”, which is to be ensured by the state through force,
and that means the protection of a fundamental individual right—for
Catholic social doctrine, a natural right—namely, the right to life and
physical integrity, which, according to distributive justice, is to be pro-
tected by the state without discrimination between members of all social
classes. At the same time, however, Leo XIII, like Bishop von Ketteler,
condemns any attempt to solve the social question by infringing upon or
redistributing private property. Instead, Leo XIII calls the betterment of
the impoverished at the expense of the wealthy “slavery” and an unfortu-
nate “levelling down”. He contrasted such efforts with the primary duty
of the state to protect private property (Leo XIII, 1891, No 30). Only on
this basis, according to Pope Leo, could the impoverished, in time,
improve their situation and obtain property (ibid., No. 35).
With this, Catholic social doctrine clearly opposed the chair- or state-
socialist understanding of social policy and social justice as a redistributive
“distributional” justice, an idea of justice as a certain distribution of
income, wealth, and opportunities that the state would have to provide for
in order to create a balance against the forces of the free market and capi-
talism, which allegedly favor only the rich—in the sense of a levelling of
disparities in income and wealth. In contrast to this, the first and funda-
mental social principle of Catholic social teaching is private property and
the duty of the state to protect it—primarily not for economic but for
moral reasons—against attempts to expropriate it for the benefit of the
more impoverished. What the Church demanded, on the other hand, in
the name of distributive justice—and that means in the name of legal
equality—were protective laws for workers and, in general, laws for better
working conditions. The moral position of the church in this case was also
economically advantageous for the workers, even if the church representa-
tives did not argue at all in economic terms, and there is no evidence that
they were aware of this connection.
The position of nineteenth-century liberals had one thing on every-
body else, especially the Kathedersozialisten: they took into account the
economic connection between increased productivity and an increase in
the standard of living, which was in fact the decisive factor that would
constantly improve the lives of even the lowest strata of society and make
it possible to solve the social question. In contrast to the socialists of the
chair, the classical liberals—derided as “Manchester liberals”—always

regarded the workers as consumers and therefore understood the harm of
the protective tariffs advocated by the “social” politicians, along with the
harm of other supposed socially beneficial interventions in the free market.
At the same time, even German liberals such as John Prince-Smith, Eugen
Richter, and Heinrich Oppenheim (the first critic of the Kathedersozialisten
and creator of the name) were not opposed to the state remedying par-
ticularly serious abuses such as unlimited child labor or—regarding English
factory laws—the lack of safety standards in factories (see also Raico, 1999).
From “Distributional” Justice to Social Justice

Quite a few representatives of the political Catholicism of the time—
especially those in the Reichstag who were members of the Catholic
Centre Party—were influenced by the socio-political ideas of the
Kathedersozialisten, such as the priest and Centre Party member Franz
Hitze. The leading centrist politician Georg von Hertling—professor of
philosophy, Bavarian Prime Minister, member of the Reichstag, chairman
of the Centre Party, co-founder and first president of the Görres Society,
and finally second-to-last Chancellor of the Empire—described Hitze as
one of those good-natured idealists who “allowed themselves to be led
into state socialism without realizing it” (Hertling, 1920, pp. 182–183).
In contrast to Hitze and the “social” politicians, Hertling, who after all
had fought for the introduction of social insurance for otherwise defense-
less workers, in his 1893 book Naturrecht und Socialpolitik (“Natural Law
and Social Policy”), firmly held the opinion that the social question would
not be answered by social policy but by economic and technological prog-
ress. The state should therefore, instead of patronizing citizens with social-
welfare policy, promote entrepreneurial freedom and initiative (Hertling,
1893, pp. 21–29). The Catholic social ethics that revolved around Rerum
novarum, as it was represented by Hertling, was not socio-politically but
economically oriented. It did not plead for a state which was charged with
the task of creating a “just society” in the sense of a state-socialist under-
stood distributional justice, but a state uncompromisingly committed to
the fundamental requirement of the protection of property as a prerequi-
site for economic and social progress: “Only a completely secured order of
property makes the prosperous development of human economy, and all
higher culture, possible” (ibid., p. 42). At that time, however, only a few
264 M. RHONHEIMER
people understood the economic connections as Georg von Hertling did.

As a rule, it was not recognized that it was precisely the securing of prop-
erty rights and the resulting accumulation of capital and steadily advanc-
ing technological innovation that would solve the social question. These
economic aspects were never really received in the Church’s Social
Teaching. They have remained deeply alien to it. With a few exceptions—
such as Joseph Höffner and his school—Catholic social teaching repre-
sented an often economically unenlightened moralism.
Even the Jesuit Heinrich Pesch, who had a lasting influence on Catholic
social teaching from the beginning of the twentieth century with his con-
cept of “solidarity” and the corporatist order (Berufsständische Ordnung),
and who in later years studied economics under Adolf Wagner—a repre-
sentative of the “ethical economics” of the Historical School—remained
alien to Hertling’s perspective. Pesch, despite his knowledge of econom-
ics, was never able to understand the wealth-creating logic of the free
market and of a capitalist society. This fact gives us all the more reason to
emphasize that Pesch is still a faithful witness to the tradition regarding
the question of distributive justice.
After all, Pesch sharply criticized Gustav Schmoller, the Kathedersozialist
and advocate of the redistribution organized by the welfare state, because
the latter understood distributive justice as “distributional” justice not
only with regard to the “common goods of public life” but also with
regard to the assets and income of private individuals, that is, the general
distribution of goods (Pesch, 1898, 192; pp. 160–162). Thus, Pesch
wrote clairvoyantly in 1898: “Whoever wanted to make distributive justice
the principle of the distribution of goods could not escape the absurd
consequence of a complete suppression of the national economy by the
economy of the state (ibid., p. 192)”. Pesch remained true to this view-
point in his later five-volume Lehrbuch der Nationalökonomie until its last
edition in 1925. There, too, he categorically rejects his teacher’s (Adolf
Wagner’s) idea of distributive justice as a fiscal redistribution of “private
individual income and wealth” to reduce inequality (Pesch, 1925,
pp. 274–75; 1926, pp. 759–60). With this, Pesch’s concept of solidarity
was, at least in this respect, still completely in line with that of Leo XIII.
It was to be fatal for Catholic social teaching, however, that Pesch
introduced into it the concept of “social justice” as a counter-concept to
the regulatory principles of the market and competition. Social justice as
an economic principle of order first meant the principle of a state-organized
corporatist ordering of society. Thus, we find “social justice” as an
ordering economic-political principle in Pius XI’s encyclical Quadragesimo

anno (1931), which was essentially conceived by Pesch’s students Oswald
von Nell-Breuning and Gustav Gundlach. Here “social justice”, as a state-
moderated cooperation of professional corporations, appears as a regula-
tive principle that takes the place of the free market and competition.
Moreover, the encyclical mistakenly blamed the free market and competi-
tion for the great economic crisis, the formation of monopolies, cartels,
and harmful financial capitalism. Despite his initial sympathy for the encyc-
lical, Wilhelm Röpke recognized early on that this was a misjudgment
(Petersen, 2008, p. 18). Nevertheless, from now on Catholic social teach-
ing’s concept of social justice took on the function of a corrective, indeed
a concept to counter the action and results of the free market and
competition.
Ludwig Erhard’s competition-oriented concept of a social market
economy was therefore in contradiction with the ideas of Quadragesimo
anno, because it was based on the ordering principle of a free, competitive
market, the results of which, as long as they are really competitive, do not
need any correction; for according to Erhard, in a competitive market
society, everyone takes exactly the place to which he is entitled on account
of one’s performance. Wilhelm Röpke initially interpreted Quadragesimo
anno in the sense of the “neo-liberalism” he advocated, and he rejected its
understanding in terms of a professional order as a misinterpretation; he
also rejected the position of the ordo-liberal thinker Joseph Bless, who
even went so far as to speak of “text manipulation” in the German transla-
tion (ibid., p. 19).7 Anton Rauscher replied to Bless and Wilhelm Röpke,
who was close to Erhard as late as 1960—rightly, but no less regrettably—
that this view of a manipulation of the text was based on a lack of knowl-
edge of the encyclical and the corresponding literature (Petersen, 2008,
pp. 17–19). He thus revealed himself as the antipode to the “social market
economy”, whose basic idea was precisely “prosperity for all through com-
petition” (Rhonheimer, 2017b).
The widespread narrative that the Catholic social doctrine was the god-
father of Erhard’s concept of the social market economy, or that of the
ordoliberalism of the Freiburg school—and that it influenced it consider-
ably—is a revisionist construction that is historically false. The opposite is
7
The accusation of “text manipulation”, however, does not refer to the German transla-
tion, but to Rauscher’s handling of the text, especially his “derivation that the professional
order is in accordance with nature”; see Bless (1959, p. 371).
266 M. RHONHEIMER
true. It is also true that Catholic social doctrine has been disoriented in
terms of economic policy since the failure of the professional solidarity of
Quadragesimo anno. To speak only of Germany, Nell-Breuning finally piv-
oted toward trade unions and maintained close contacts with the Social
Democratic Party; on the other hand, there formed an entrepreneurial
wing around Joseph Höffner and his students. However, the concept of
social justice—like that of the social market economy, which Catholic
social ethics now also appropriated—was increasingly caught in the wake
of the social-democrat-dominated concept of social justice as “distribu-
tional justice” and it was finally transformed, beginning with the encyclical
Mater et magistra by John XXIII, in the direction of a welfare state and a
socio-political orientation (Rhonheimer, 2018, pp. 52–53).
Today, private property and its protection is only marginally mentioned
in Catholic social teaching. It is not mentioned as one of the fundamental
moral principles in the Compendium of the Social Doctrine of the Church
(2004), but is always mentioned only in a function subordinate to the
principle of the general destination of goods and the principle of the com-
mon good. In reality—as Leo XIII emphasized in Rerum novarum—pri-
vate property serves precisely to ensure that the goods of this world can
benefit everyone, that is, it is in a means-end relationship to this principle
and is thus in no way relativized or limited by the principle of the general
destination of goods. Secondly, it is precisely the protection of private
property that is a primary component of the common good and thus a
basic requirement of justice. The common good cannot therefore be
played off against private property either. The principle of the “social
responsibility of property” and thus its relativization originates from the
Social Democrat-influenced portion of the Weimar Constitution, not
from Catholic social doctrine, and is also found, slightly amended, in the
German Grundgesetz.8
The fact that, as both constitutional texts state, property should serve
the public, can be correctly understood to mean that property should not
be used in a way that is contrary to the common good. What is wrong with
the wording, however, is the assumption that private property does not
already in itself and by its very nature serve the common good. Thus, so it
is assumed, something must first be done so that it can be at the service of
8
Weimar Constitution Art. 153 para. 3 WRV: “Property is an obligation. Its use shall at
the same time be a service to the common good”. The German Constitution states in Article
14 para. 2: “Property obligates. Its use shall at the same time be for the common good”.
the common good—for example, through sufficiently high taxation,

redistribution, or regulation that restricts freedom of disposal. The fact
that private property and its respective use in accordance with the inten-
tions of the owner is already as such beneficial to the common good,
applies in a capitalist-market economy precisely with regard to the means
of production which, being in private hands and connected with corre-
sponding liability, increase the common good through the coupling of risk
and liability. This is different than in pre-industrial times, when the proper
use of private property with a view to the common good concerned almost
exclusively consumer goods, which a few possessed in abundance and
many others possessed only to a small extent, if at all. Therefore, alms and
other charitable activities were at the forefront of the use of private prop-
erty for the common good. Catholic social teaching of the later nineteenth
century generally freed itself from this limitation and was well aware of the
difference between the logic of alms and the enormous productive power
of industrial capitalism, which was based on the investment of private
wealth and which served everyone. As we have seen, therefore, despite its
commitment to the protection of the weakest, it also defended private
property and the freedom and responsibility associated with it against the
presumption of the state to become an agent of widespread handouts
through redistributive taxation of private property.
The break with the earlier tradition of Catholic social teaching, for
which the priority was not the social tasks of the state, but the protection
of individual freedom from the state, has today largely disappeared from
consciousness. That is also the reason why a question like “How much
state does a just society need?” is today as a matter of course—and quite in
the tradition of the social policy of the nineteenth-century
Kathedersozialisten—asked as a question about “distributional justice”,
which corrects the results of the free market and capitalism: with the latter
allegedly only benefiting the rich. Private property is no longer seen as a
solution. On the other hand, the free market, or the capitalist economic
process based on free enterprise, is perceived as unjust because it creates
inequality. In the name of social justice, therefore, demands for state cor-
rections and “social compensation” are voiced. Only when we understand
why such a view and the demands based on it are aimed in the wrong
direction can we correctly answer the question of how much state is
needed for a just society.9
9
I refer again to Rhonheimer (2019a).
268 M. RHONHEIMER
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Intergenerational Solidarity, Welfare,
and Human Ecology in Catholic
Social Doctrine
Cardinal Antonio María Rouco Varela
The concepts of “intergenerational solidarity,” “welfare,” and “human

ecology” are new in the social doctrine of the Catholic Church, but the
human realities they refer to are not, and they have been dealt with in the
past and expressed in other terms. This observation reveals once again the
distinctive methodological nature of the social doctrine: on the one hand,
the continuity of its principles of reflection, of its fundamental directives
for action, and of the vital connection with the Gospel of Jesus Christ,
which constitute its perpetual theoretical and practical focus; and, on the
other hand, the relative newness of its concrete conceptualizations, since
This chapter is based on a talk given at the plenary session of the inaugural
conference held at the Pontifical Academy of Social Sciences of the Vatican on
April 29, 2004.
C. A. M. Rouco Varela (*)
Archbishop Emeritus of Madrid, Madrid, Spain

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_23
272 C. A. M. ROUCO VARELA
“it is subject to the necessary and opportune adaptations suggested by the

changes in historical conditions and by the unceasing flow of the events
which are the setting of the life of people and society.”1 The Church does
not offer technical answers to social problems, but it does inform under-
standing and suitable solutions based on a conception of the human being
viewed in the light of Christ, the Son of God made flesh for us, the perfect
image of the invisible God, and the complete fulfillment of man. It is pre-
cisely in light of the permanent elements which form the backbone of the
Church’s social doctrine that I will attempt to present a summary of the
teachings of Saint John Paul II concerning the three major topics put for-
ward in the title of this chapter, and I will begin with some short and
concise references to the previous pontifical magisterium. These teachings
permit Christians active in the social realm to face the challenges of both
the present and the future with a solid doctrinal guarantee. In the social
magisterium of Popes Benedict XVI and Francis, we see the creative con-
tinuity of that doctrine.2
Intergenerational Solidarity
What we mean today by the word “solidarity” has always been a focus in
Catholic social doctrine. In fact, the social doctrine has considered it a
fundamental principle of the Christian conception of social and political
organization, even when other terms have been used to express and define
it. For instance, Leo XIII was already invoking the ethical postulate of soli-
darity in Rerum novarum when he stressed that it is an essential rule of all
healthy socio-political organization to ensure that individuals, especially
the most socially defenseless, receive support and care from their fellow
citizens and all of society, and particularly, from the public authorities,
who should use whatever legal-political forms of intervention the circum-
stances require. Leo XIII referred to the principle of solidarity as “friend-
ship.” Pius XI used the term “social charity” for the same ethical-social
1
Cf. John Paul II, Sollicitudo rei socialis, encyclical letter, Vatican website, Dec. 30, 1987,
https://www.vatican.va/content/john-paul-ii/en/encyclicals/documents/hf_jp-ii_
enc_30121987_sollicitudo-rei-socialis.html, sec. 3.
2
Cf. Benedict XVI, Caritas in veritate, encyclical letter, Vatican website, June 29, 2009,
https://www.vatican.va/content/benedict-xvi/en/encyclicals/documents/hf_ben-xvi_
enc_20090629_caritas-in-veritate.html and Francis, Fratelli tutti, encyclical letter, Vatican
website, Oct. 3, 2020, https://www.vatican.va/content/francesco/en/encyclicals/docu-
ments/papa-francesco_20201003_enciclica-fratelli-tutti.html.
INTERGENERATIONAL SOLIDARITY, WELFARE, AND HUMAN ECOLOGY… 273
value. And, though he was broadening the concept to include the new and
complex dimensions of the social question, Paul VI introduced the expres-
sion “civilization of love.”3
The pontifical magisterium has applied the principle of solidarity to
spheres increasingly large, central, and important in shaping the lives of
men and of society. In Rerum novarum (1891), Leo XIII deals with the
solidarity necessary between workers and employers in the workplace,
viewed according to a domestic model. Pius XI connects solidarity with
the state itself in Quadragesimo anno (1931) when he analyzes and evalu-
ates models of socioeconomic organization in light of the principle of sub-
sidiarity. In Mater et magistra (1961), John XXIII extends the range of
solidarity’s ethical validity to include the international community and,
more specifically, the problems (arising from the decolonization process
after World War II) associated with the development (or underdevelop-
ment) of peoples. In Pacem in terris (1963), the principle of solidarity
inspires John XXIII’s doctrine on how to establish peace between the
nations and peoples of the world. Paul VI takes another step in this direc-
tion with the thesis of Populorum progressio (1967), which holds that the
so-called social question has become a global issue and must be dealt with
according to valid moral directives that apply equally to individuals and to
states and their governments.4 Finally, the direct and indirect formulation
of the principle of solidarity is reached with John Paul II in the encyclical
Sollicitudo rei socialis (1987), which makes clear the principle’s anthropo-
logical and theological underpinnings as well as what its moral content
requires within each nation, in international relations,5 and in intergenera-
tional relationships, an area which is plainly of current interest. As initial
doctrinal guidelines, John Paul II chooses the unity and essential interde-
pendence of the entire human family, called by God to be a family in
Christ and in the Spirit, and the social dimension inherent in the make-up
of the person: a dimension which derives from the person’s innermost
vocation to be and live in communion with the Other—with other human
3
Cf. Paul VI, Homily at the Mass for the Closing of the Holy Year [December 25, 1975]:
AAS 68 [1976], p. 145; John Paul II, Centesimus annus, encyclical letter, Vatican website,
May 1, 1991, https://www.vatican.va/content/john-paul-ii/en/encyclicals/documents/
hf_jp-ii_enc_01051991_centesimus-annus.html, sec. 10c.
4
Cf. Paul VI, Populorum progressio, encyclical letter, Vatican website, March 26, 1967,
https://www.vatican.va/content/paul-vi/en/encyclicals/documents/hf_p-vi_
enc_26031967_populorum.html, secs. 3,9.
5
Cf. John Paul II, Sollicitudo rei socialis, sec. 38–40.
beings—and which, therefore, far exceeds purely utilitarian and functional

aspects.
John Paul II particularly stresses that despite the fragmentary nature
that marks today’s world and is evidenced by the terms so often used
nowadays to refer to it—“First World,” “Second World,” “Third World,”
and even “Fourth World”—the unity and interdependence which, in real-
ity, govern the entire human family carry more weight (are stronger and
deeper). What the Pope considers important and urgent is to establish and
fully recognize the primacy of social ethics in this new framework of inter-
national relations. For when interdependence between nations is formu-
lated and practiced outside of ethical standards, the consequences for the
weakest are disastrous. However, paradoxically, this is true also for the
wealthiest nations, which are seeing humiliating forms of underdevelop-
ment emerge in the heart of their own societies with unfamiliar virulence.6
To some, interdependence might appear to be a neutral phenomenon, “a
system determining relationships in the contemporary world, in its eco-
nomic, cultural, political, and religious elements,” and nothing more. But
we must not allow ourselves to be deceived: If interdependence is not
“accepted as a moral category,” with all of its consequences and practical
requirements,7 it will have no valuable or promising meaning for the
future of humanity. Therefore, there is no other solution to the problems
posed by the current phenomenon of interdependence than that of soli-
darity, understood and exercised as a moral attitude and a social virtue—
that is, not reduced to a mere feeling of compassion at the misfortunes of
so many people near and far, but understood and practiced as “a firm and
persevering determination to commit oneself to the common good; that
is to say, to the good of all and of each individual, because we are all really
responsible for all.”8
The theological perspective from which John Paul II ultimately views
the concept of solidarity is that of charity, the quintessential Christian vir-
tue, the one which distinguishes the true disciples of Christ. Solidarity
gives expression and efficacy to charity and embodies it in the framework
of social and political relationships (Cf. Jn. 13:35). Faith illuminates and
strengthens the foundations of solidarity, as faith highlights the universal
Fatherhood of God, the resulting brotherhood of all people in
6
Cf. ibid., sec. 17.
7
Cf. ibid., sec. 38.
8
Cf. ibid., sec. 38.
Christ—children in the Son—and the life-giving action of the Holy Spirit.

An unexpected purpose of solidarity is revealed by faith when it uncovers
the vocation of all people to replicate the unity that exists in the intimate
life of God between the Father, the Son, and the Holy Spirit, as revealed
to us in Jesus Christ. The mystery of the Trinitarian union is the ineffable
and supreme model and, at the same time, the soul of the Church’s voca-
tion to be a sacrament of unity between God and humanity as well as
between human beings as it socially “embodies” the bond of charity which
unites them.9
With these theological premises—from moral theology and theological
anthropology—it is not surprising that John Paul II extended the scope of
this Christian conception of solidarity to include intergenerational rela-
tionships. According to the Pope, people who play an active role in social
and economic life must give serious consideration to the particular needs
of each human being, whether a “child, adult, or old person”;10 and he
warns that certain non-renewable natural resources must not be depleted,
for this “seriously endangers their availability, not only for the present
generation, but above all, for generations to come.”11 But chiefly, he
warns, in the face of the individualistic mindset, which today is so wide-
spread, of the urgent need for a commitment of solidarity and charity
toward the family, the proper and conducive place for mutual help between
spouses, so that the care provided between the generations can be given.
The family, which is deeply rooted in married love, is the quintessential
community of solidarity, and it is essential to the implementation of the
postulate of intergenerational solidarity. The political-legal conclusions to
be drawn are plainly obvious. First and foremost, public authorities must
promote political policies which support the family “both for bringing up
children and for looking after the elderly, so as to avoid distancing the lat-
ter from the family unit and in order to strengthen relations between
generations”12 and keep from permanently restricting these relations to
the economic sphere and forgetting their profound cultural content. The
establishment of a cultural dialogue between the different generations,
including past and future ones, cannot be put off.13
9
Cf. ibid., sec. 40 c-d.
10
Cf. ibid., sec. 33c.
11
12
Cf. John Paul II, Centesimus annus, sec. 49b.
13
John Paul II explores this family perspective of intergenerational soli-

darity in the Letter to Families.14 He defines the family as a “community of
generations”15 and includes in it not only parents, children, brothers, and
sisters, but also grandparents and grandchildren, or rather the parents of
the parents and the children of the children. Family belonging, both affec-
tive and effective, must, he states, transcend the narrow scope of the
nuclear family. The family fertility crisis manifests itself not only in the
small number of children in today’s families but also in their lack of the
awareness necessary to value and cultivate kinship relationships directly
and collaterally. The usual lifestyle, especially in large cities, requires that
the size of the family unit be limited, ordinarily to two generations, and
thus the family’s potential as a community of generations disappears.
“Families today have too little ‘human’ life,”16 observes the Pope. Family
relationships must go beyond the bounds of the nuclear family, beyond
the space of those who live under the same roof, though this should not
be confused with a nostalgic return to the patriarchal family.
The most recent psychological studies have confirmed the value of
John Paul II’s proposal. To understand and positively benefit from family
dynamics, it is said that there need to be at least three generations involved.
Intergenerational influences continue to be very important, even when
they appear and act more subtly and below the surface than in the past.
Clinical experience with families still shows today that a couple is estab-
lished as the point of convergence and intersection of two family histories
which transmit and give meaning to forms of both contact and distancing
in the relationship with descendants and each other. When a child is born,
he or she enters, precisely through relationships with parents and siblings,
a family history whose roots reach deeper than those of its immediate pro-
tagonists. With the gift of life (matris-munus), newborns receive a heri-
tage (patris-munus) that is often unconscious but always influential and
essential to each taking responsibility for his or her own life and destiny
from within a community of cultural, spiritual, and human values.
To be begotten (and let us remember that parents who beget were also
first begotten) means to certainly recognize the Other in oneself, but,
14
Cf. John Paul II, Letter to Families Gratissimam sane, letter, Vatican website, Feb. 2,
1994, https://www.vatican.va/content/john-paul-ii/en/letters/1994/documents/hf_
jp-ii_let_02021994_families.html.
15
Cf. ibid., sec. 10.
16
Cf. ibid., sec. 10.
viewed as a member of a family, connected from the beginning to the

symbolic root of the matris-munus and the patris-munus, and part of an
intergenerational chain, though with one’s own, indestructible personal-
ity. Thus, the Pope writes: “Through the genealogy of persons, conjugal
communion becomes a communion of generations.”17 Family time is made
up of the present and the past, but also the future, via the project inherent
in the couple of giving life to a new generation of persons: “The logic of
the total gift of self to the other involves a potential openness to procreation:
In this way the marriage is called to even greater fulfillment as a family.”18
If the family loses its historical memory or if the chain of generations is
interrupted, the very life of the family stands still and perishes. In contrast,
the conjugal pact “grows stronger as the generations pass.”19
Hence, the family grows and develops in human plenitude if it manages
to unite the past and the future in an ever-new present, if it succeeds in
combining the old and the new in an original synthesis. According to the
Pope, this task is vital to the fulfillment of each human being and each
generation! Moreover, ties to family genealogy, which so deeply permeate
the biological and also the cultural structure of the person, must be tran-
scended and lived through a more profound relationship with the original
model: “Every act of begetting finds its primordial model in the father-
hood of God.” In human father- and motherhood, His active reflection
manifests itself qualitatively differently than in the conception of any other
living being on earth.20 Here, John Paul II returns once again to the per-
spective of theological anthropology. The personal dignity of the child is
above any pragmatic assessment, especially a possible attempt of the par-
ents to use him or her as an object at their whim. In view of the reality of
the new human being, the only acceptable attitude in the parents is that of
recognizing that God loves the child for him- or herself and calls the child
to a personal life project which exceeds the limits of time and points to
eternity.
17
Cf. ibid., sec. 10.
18
Cf. ibid., sec. 12.
19
Cf. ibid., sec. 10.
20
Cf. ibid., sec. 9.
Welfare
The ordinary meaning of the term “welfare” is well known. The word is
used to express a certain degree of satisfaction of material needs and the
high level of economic development of the individual and of society that
makes this possible. The social doctrine of the Church has, from the begin-
ning, welcomed and dealt with this predominantly socioeconomic con-
ception of “welfare,” but it has clarified and tempered it in light of the
anthropological and moral demands of the Christian view of man, seen in
relationship to all of the dimensions that constitute him according to the
order of creation and redemption. This was already true of the magiste-
rium of Paul VI in Populorum progressio (1967), and it occurs very exten-
sively in John Paul II’s in Sollicitudo rei socialis (1987) and Centesimus
annus (1991). Both have qualitatively enriched the way this matter was
traditionally approached in the former social doctrine of the Church.
Paul VI looks at development from a material and economic perspec-
tive considered in a multidimensional, comprehensive, and global way,
that is, in light of moral philosophy and theology. According to Pope Paul
VI, development must be understood and practiced as a process in the
service of the whole man and all men.21 John Paul II would later call atten-
tion to the historical fragility of purely material and worldly development:
It is not a rectilinear, nor an automatic, nor an unlimited process, as the
many enlightened had believed since the Age of Reason. The most recent
historical experience has unequivocally confirmed the Pope’s view: The
ideal of purely economistic development is openly in crisis worldwide. At
the crossroads of the third millennium, we see that the accumulation of
goods and services is not enough to provide happiness to mankind and to
an era, nor does the availability of the many real benefits of science, tech-
nology, and information bring with it liberation from man’s enslavements,
much less the integral development and the moral dignity of the person.
In this sense, it is significant that superdevelopment (or maldevelopment)
and consumerism also ultimately reveal themselves to be contrary to the
good and to authentic happiness, and in fact, a source of all types of mis-
fortunes. John Paul II tirelessly stresses that it is being that matters, not
having, not man’s having. Naturally, having is not bad, only having which
does not respect the quality and hierarchical ordering of goods to the true
being and vocation of the human person. In any case, what is never
21
Cf. Paul VI, Populorum progressio, secs. 14, 42.
morally justified is few people having much and many, almost nothing.
Development includes a necessary dimension of justice which must be
carried out in the economic ordering of society such that the goods essen-
tial to well-being and adequate living conditions are affordable to the larg-
est possible number of citizens, both within each political community and
in the international community. However, it is also undeniable that the
requirements of justice, in the face of a social process of development,
exceed the purely distributive function.22 Beneath the surface of this doc-
trine of Sollicitudo rei socialis on what authentically human development
involves, we again find the principles of Christian anthropology, and more
specifically, its view of man as a being who is both corporal and spiritual, a
creature of God who is made in His image and called to guard and culti-
vate the goods of this world according to His creative and redemptive
plan. We also find the fundamental ethical imperative that development
does not admit every type of use, possession, and enjoyment of material
things, but only use geared toward the fulfillment of the dignity of the
human person and of his vocation to immortality.23
In Centesimus annus, John Paul II sums up this doctrine in an extremely
relevant historical context: the confrontation between the concept of the
welfare society prevailing in the Western world and that of Marxism,
which, at that historical point, had come to an unstoppable political and
ideological crisis. The Pope starts with the premise that the two coincide,
at least in practice, in the profession of materialism: The welfare society
tends to “defeat Marxism on the level of pure materialism by showing how
a free-market society can achieve a greater satisfaction of material human
needs than communism, while equally excluding spiritual values.” Thus,
“it agrees with Marxism, in the sense that it totally reduces man to the
sphere of economics and the satisfaction of material needs.”24 Some states
have evolved toward the welfare state “in order to respond better to many
needs and demands, by remedying forms of poverty and deprivation
unworthy of the human person,” with clear benefits to social justice, the
Pope acknowledges. “However,” he warns, “excesses and abuses, espe-
cially in recent years, have provoked very harsh criticisms of the welfare
state, dubbed the ‘social assistance state.’” Such defects and abuses have
often stemmed from an inadequate understanding of the functions, limits,
22
Cf. John Paul II, Sollicitudo rei socialis, sec. 28.
23
Cf. ibid., sec. 29.
24
Cf. John Paul II, Centesimus annus, sec. 19d.
and duties that pertain to it, and more specifically, from overlooking the
principle of subsidiarity: “A community of a higher order should not inter-
fere in the internal life of a community of a lower order, depriving the
latter of its functions, but rather should support it in case of need and help
to coordinate its activity with the activities of the rest of society, always
with a view to the common good.”25
John Paul II uses the historical experience of the theoretical and practi-
cal failure of Marxism to transform and reformulate the concept of “alien-
ation.” Society and the welfare state have overcome the forms of
exploitation described and analyzed by Marx, the Pope recognizes, but
other forms remain. Man also suffers alienation when he refuses to tran-
scend himself and to experience self-giving and a commitment to building
an authentically human community open to his ultimate destiny, which is
God. The same is true of society: Society is also alienated when its forms
of social organization prevent or hinder that gift of self and the experience
and witness of solidarity. In this sense, situations of exploitation and alien-
ation still occur: when people use each other and when they strive to sat-
isfy—and in an increasingly elaborate fashion—their personal, secondary
needs ahead and at the expense of their main and authentic needs, which
they acknowledge only when they assume these can be comfortably satis-
fied. These situations are frequent in a society which revolves solely or
primarily around having and enjoying, and not around being, truth, and
goodness. Alienation inevitably happens when man is unable to govern his
instincts and passions by ordering them to the truth and the law of God,
who speaks to him through his conscience. Under these conditions, he
will not manage to be free, much less overcome the influence of systematic
advertising which prevents him from even subjecting “to critical scrutiny
the premises on which” the fashions and trends it pushes are based.26
The paradigm which most clearly reflects the moral framework of our
Western welfare societies, according to the Pope, is consumerism. The
weight of urgent needs has overwhelmed man again and again in the past.
The goods necessary for life and subsistence were scarce, and their quan-
tity and quality were determined by the objective elements of man’s physi-
cal make-up. Economic activity was limited to obtaining and distributing
these goods on a very basic level. Today, in contrast, despite the mass
production of all sorts of goods, there is also a demand for quality in all
Cf. ibid., sec. 48d.

25
Cf. ibid., sec. 41.

26
products and services, in the environment, and in social life in general.

This is something legitimate in itself. However, in this new historical era
of societies that seek and care for “quality of life” as the supreme object of
their common aspirations and achievements, new threats and dangers to
the good of man emerge. This is especially plain in the growing tendency
to orient the production and advertising of goods toward the pure and
simple satisfaction of instincts, with the massive effect of creating and
spreading, on a large scale, consumption habits and lifestyles that are
objectively illicit and harmful to physical and spiritual health, inevitably at
the expense of the personal dignity and moral good of individuals and
society.
This is the ultimate social and cultural result of the modern phenome-
non of consumerism, which reduces the whole meaning of human life to
the mere enjoyment of material goods.27 The most notable example is that
of drugs and the widespread propagation of their use. Drug use gravely
threatens the health and dignity of man, and furthermore, it nihilistically
dilutes and subverts the very concept of “human need.” After making
such a critical diagnosis of the state of modern society’s moral health, it is
not surprising that John Paul II launched a major educational and cultural
campaign to uphold before the young generations the true image of man
seen in all his anthropological and theological richness and called to an
eternal destiny of glory and bliss. John Paul II wanted young people to
grasp the transcendent value of their lives and the need to existentially
subordinate the material and instinctive to the interior and spiritual.28
Human Ecology
Our third topic is that of human ecology. During the last two decades of
the twentieth century, an epochal change of perspective occurred in the
social perception of this problem. The exploitation of nature went from
being valued as a symbol of progress to being considered a potential threat
to the future of humanity. The stage was set for what would soon be
known as the “ecological question.” The pontifical magisterium picked up
on this immediately. As early as 1981, in the encyclical Laborem exercens,
Pope John Paul II wrote that workers have a right to a working environ-
ment and production processes which do not harm workers’ physical
Cf. John Paul II, Sollicitudo rei socialis, sec. 28.

27
Cf. John Paul II, Centesimus annus, sec. 36.

28
health nor damage their moral integrity.29 In the encyclicals Sollicitudo rei
socialis and Centesimus annus, he addressed the matter directly and intro-
duced into the debate a new and extremely important conceptual variant,
that of “human ecology.” In this way, he was obliging people to take note
of the true and extremely serious scope of the problem. Conservation of
and respect for the structure of nature and of the environment are in dan-
ger in the physical-chemical and biological sense, but the protection of
and respect for the natural and moral structures of specifically human life
are in danger as well. The Pope saw an anthropological and ethical need to
formulate a social doctrine to clarify the content and demands involved in
the defense and promotion of a “human ecology.” This is what he would
do in the last two encyclicals cited, and the effects would be apparent even
in Evangelium vitae (1995).
In Sollicitudo rei socialis, John Paul II examines and values ecological
concern as a positive sign of our times. We must support and commend
the “greater realization of the limits of available resources, and of the need
to respect the integrity and the cycles of nature and to take them into
account when planning for development.”30 The development of human-
ity and of peoples that is worthy of the name “development” cannot be
planned and carried out at the expense of the ecological destruction of the
cosmos. The Pope warns of the disastrous consequences of using the dif-
ferent types of living and inanimate beings for consumption at whim or
simply according to the economic requirements of the moment. Careful
respect for the nature of every being and for the interrelation between
them all is crucial to the future of nature and of man. It is also definitely
crucial that we realize as soon as possible that natural resources are lim-
ited—particularly certain basic, non-renewable resources—and that, in
any event, we avoid using them as if we had absolute command over them.
In this context, it is obvious that an ecological use of industrialization
processes should be required, so that environmental pollution and dangers
to the health of the population are avoided.31
29
Cf. John Paul II, Laborem exercens, encyclical letter, Vatican website, Sept. 14, 1981,
https://www.vatican.va/content/john-paul-ii/en/encyclicals/documents/hf_jp-ii_
enc_14091981_laborem-exercens.html, sec. 19f.
30
Cf. John Paul II, Sollicitudo rei socialis, sec. 26g.
31
Cf. ibid., sec. 34d.
In Centesimus annus, John Paul II broadens the terms of the ecological

question when he directly and explicitly refers to the most advanced econ-
omies and their postulates of having and enjoying at any cost, in which
excessive and unbridled spending and consumption are the standard and
the habitual style of individual behavior and social conduct. The Pope gets
to the root of what he is speaking out against. At the heart of the current
“ecological question”—of the destruction of the environment—lies the
familiar theological error as to the meaning of man’s capacity and vocation
to transform nature. Man forgets the basis and source of these: God, who
has given him all things. We must acknowledge this truth about the world
and the earth, God’s original work and gift—asserts John Paul II—with a
physiognomy and a destiny God the Creator has given and established and
man must respect. Man is to cooperate with God in the work of creation,
not attempt to take His place! Such is man’s vocation. When man seeks to
misuse and manipulate nature as if he were her absolute lord and owner,
nature herself rebels and responds with ecological catastrophes and dam-
age to health that we are all familiar with. To successfully overcome this
temptation, we must adopt a contemplative attitude toward the cosmos
and all visible reality and discover in her the truth and beauty of God: the
message of the invisible God who has created her.32
It is this perspective of theological anthropology that John Paul II, in
keeping with his usual magisterial style, ultimately adopts when designing
and explaining his concept of human ecology. Not only the earth but also
man himself, with his bodily and spiritual nature, is a gift from God who
must be welcomed, received, and cared for with grateful openness. This
natural and moral structure inherent in his very being—a gift from God—
must be scrupulously respected in every sphere of human existence: in
both the intimate and personal and the public and social spheres. John
Paul II expressly dwells on two situations that are very characteristic of
our time: the big city and the world of work. In both, the moral rules of
human ecology must be applied. Housing, the ordering of the urban
space, and the working world have an unavoidably pressing need for reg-
ulation consistent with the dignity of the human person and with the
urgent fostering of marriage and family, as they have been—and are—
beloved by God, the Creator and Redeemer.33 God has given man per-
sonal dignity and the capacity to transcend the specific social order of a
32
Cf. John Paul II, Centesimus annus, sec. 37b.
33
Cf. John Paul II, Sollicitudo rei socialis, sec. 38a.
historical era or time through openness to the true and the good. It is
true that the education man receives and the cultural and moral environ-
ment condition him significantly. Furthermore, the social structures these
create can not only hinder but also greatly facilitate man’s complete ful-
fillment. In any case, these structures are always reformable. The Pope
commends the courage and patience of those who fight tirelessly to
change and replace them with others more in line with the nature, voca-
tion, and dignity of man, while being aware of the ongoing task of always
and increasingly facilitating openness to truth and to its recognition and
the faithful living of it today.34
The family is fundamental to the fulfillment of “human ecology.” It is
in the family that man acquires his first notions of truth and goodness and
learns what it means to love and be loved, and ultimately, what it means to
be a person. Naturally, I am referring to the true family that founded on
marriage and on a commitment to a mutual, lifelong gift of self between a
man and a woman. Only a stable bond and the constant exercise of this
mutual self-giving of husband and wife create an environment in which
children can be born and develop, become aware of their dignity, and
prepare to freely and responsibly accept their own destinies. Human ecol-
ogy is currently confronted with a formidable teaching and evangelizing
challenge: to recover in many cases and to uphold in all the social recogni-
tion of the family model in accordance with the nature and dignity of the
human person in the face of the growing discredit and practical deteriora-
tion the family is now suffering in the most economically developed coun-
tries. Instead of considering life and man himself a vocation for time and
eternity, the dominant culture instills in the average citizen a hedonistic
view which encourages him to seek and experience pleasure as an ideal and
the supreme value of existence. This explains the reluctance of many of
our contemporaries to become connected in a stable way in marriage to
the mutual self-giving of man and wife who are open to the fruitful love
that brings forth new lives. People have children based on their own tastes
and convenience, not as the fruit of free and generous spousal love, in
which the grace and love of God act.35
34
Cf. ibid., sec. 38a.
35
Cf. John Paul II, Centesimus annus, sec. 39a.
The Pope urges us to promote the family as the sanctuary of life: “the
place in which life—the gift of God—can be properly welcomed and pro-
tected against the many attacks to which it is exposed, and can develop in
accordance with what constitutes authentic human growth. In the face of
the so-called culture of death, the family is the heart of the culture of
life.”36 The justification and legitimization of abortion and euthanasia,
together with systematic anti-birth campaigns which subject to intolerable
pressures precisely the least-developed people and societies, are the
unequivocal signs of what the culture of death means today. The Pope
even compares this systematic campaign against the right to life with
chemical warfare used to poison millions of defenseless human beings.37
John Paul II criticizes not so much a particular economic system as the
currently fashionable view of life and of society. Ethically and culturally
speaking, this view is held irrespective of and against the transcendent
image of man, with inevitably negative consequences for the conception of
economics and of its social function. If, in organizing society, we take into
account only the intra-economic and technical conditions and postulates
of the processes of production, distribution, and consumption, while com-
pletely overlooking the ethical and religious dimension of their main pro-
tagonist, who is—like it or not—man, then true social development of
persons and of peoples becomes impossible.38 The action of the state can-
not be limited to the defense and protection of the natural environment,
but must, first and foremost, be directed toward safeguarding the integrity
of the human environment. It would be naive in both cases to expect solu-
tions and guarantees from mere market mechanisms.39
Conclusion: The Question of Man

and the Centrality of the Family
The concise, panoramic analysis of the recent pontifical magisterium has

clearly shown that the social doctrine of the Church strives to comprehend
and explain the concepts of intergenerational solidarity, welfare, and
human ecology in light of an adequate theological understanding of
what man is.
36
Cf. ibid., sec. 39b.
37
Cf. ibid., sec.39b and Sollicitudo rei socialis, sec.34.
38
Cf. ibid.
39
Cf. John Paul II, Centesimus annus, sec. 40a.
In this regard, it is highly significant that John Paul II turns to the

notion of alienation and interprets and remodels it according to Christian
principles. Marxism criticized capitalist bourgeois societies, faulting them
for the commercialization and alienation of existence and proposing the
model of a collectivist society as an alternative. Historical experience has
revealed what Christian-inspired thought had always held: that the Marxist
criticism rested on an erroneous conception of man. Not only does col-
lectivism not put an end to alienation, but it actually increases it. In con-
trast, Christian anthropology provides the true and complete view of man
as a person, and this view adequately indicates which aspects of human
behavior do cause alienation, whether on a personal level or in shaping the
ordering of society. Furthermore, it is the Christian concept of man that is
in a position to explain what alienation truly consists of and how it appears
in modern societies, even in the most advanced Western countries. Man
becomes alienated when he inverts ends and means in his personal and
social life, when, to more elaborately satisfy his individual, secondary
needs, he pretends not to notice his principal, more genuinely human
ones. The main cause of his alienation lies in his adopting the life goals of
having and enjoying, rather than being according to his divine measure:
his truth according to God. Man becomes alienated when he refuses to
transcend himself and is reluctant to live the experience of self-giving and
of the building of an authentic human community oriented toward his
ultimate destiny, which is the possession of divine life. A society suffers and
causes alienation when its organization prevents or hinders that self-giving
and action in solidarity, both rooted in God’s creative and redemp-
tive love.40
The Pope’s call, mentioned above, to undertake the great task of all-
round education and of evangelization of the culture concerning the
authentic and true view of man, the image of God and destined to be his
son,41 is easy to understand. It is urgent that we respond to the call. Vital
to the success of this great pastoral and cultural endeavor is the family, the
setting most conducive to the human experience of loving and fruitful
communion. The family makes a prime, fundamental contribution to soci-
ety for the common good, as it imparts and teaches the values of unselfish,
generous, and faithful love. In this way, the family reveals itself as the
quintessential school of humanization and socialization. With its example
Cf. ibid., sec. 41.

40
Cf. ibid., sec. 36.

41
and encouragement, it is possible to restore the entire fabric of social life

in a climate of justice and solidarity, of respect and dialogue: of peace. In
recalling the decisive role of the family in the evolution of each person—in
his or her most intimate history—the Church reveals the deep root of the
family’s irreplaceable contribution to the proper functioning of society.
The family is the natural, indispensable ally of any social, economic, or
political project aimed at serving the personal dignity of the individual and
the true common good. To relegate the family to a secondary, inferior role
and, much worse still, to exclude or attack it culturally and socio-politically,
is to inflict very severe damage on the good of society and on its healthy
and authentic development. To undermine the family, as is frequently
done nowadays, constitutes not only an act of disdain for the family itself,
for its institutional dignity and truth, but is also an anti-human, anti-
cultural, and anti-social act.
Ethics and Dynamic Efficiency: A Thomistic
Approach
David Sanz-Bas
I believe Professor Jesús Huerta de Soto’s most significant contribution

has been to present and develop the concept of dynamic efficiency. This
concept, which emerges from the idea of the market and society as a
dynamic and spontaneous order, is defined as the capacity of an economic
system, institution, company, person or rule to promote creativity and
business coordination in the context of uncertainty and rivalry,
In the 2007–2008 academic year, the first edition of the master’s degree in
Economics of the Austrian School began at the Rey Juan Carlos University
(Madrid), directed by Jesús Huerta de Soto. I was a restless twenty-three
year-old, recently graduated in economics, and I was very fortunate to be
accepted into the program. Many people enrolled in the master’s program,
probably more than forty, including “hotshots” like Juan Ramón Rallo and
Francisco Capella. There was a lot of expectation and eagerness to learn.
D. Sanz-Bas (*)
Catholic University of Avila, Avila, Spain
e-mail: david.sanz@ucavila.es

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6_24
290 D. SANZ-BAS
characteristic of the market process. It is important to note that this con-

cept is not dichotomous in the sense that it does not classify different
institutions, systems, actions or rules as efficient or inefficient. Instead, it
sets a scale, so that there are elements in the social process that promote
entrepreneurial creativity and coordination to a greater extent than others,
or that could promote it to a greater extent, if they were otherwise.
Among its many implications, the professor stresses that the basic prin-
ciples of personal morality which have prevailed throughout the evolution
of mankind “are all of crucial importance to the successful working of the
social process of creativity and coordination, and to its fostering dynamic
efficiency in society as well as possible” (Huerta de Soto, 2009, 22–23).
This chapter aims to develop this idea. It will attempt to show that the
business competition process will be more efficient to the extent that the
agents participating in it behave more ethically. To this end, we will follow
the contributions of Saint Thomas in the field of ethics.
The Ethical Thought of Saint Thomas

Men, through their actions, seek various goods to satisfy their desires and
needs. The goods sought (riches, honors, fame, pleasures, power, health,
etc.) satisfy man’s desires in various ways. However, St. Thomas observes
that none of these goods is capable, by itself, of fulfilling man’s existential
aspirations. Everything created by definition is limited and therefore inca-
pable of completely and continuously fulfilling a being like a man who
However, there was one dissonant note: among those enrolled there was a
student who was perhaps in his eighties, whose name I have forgotten. Nobody
knew him, nor did we know why he was studying for this master’s degree. He
never missed a single class and had the habit of making very long, confusing and
boring speeches and questions during the lectures that made us all despair. The
man was not in one of his most lucid moments. He was wasting our time. Several
of us wanted to talk to Huerta de Soto so that, as director of the master’s, he
would do something to solve this situation. On my own initiative, I had the
audacity, or rather the impertinence, to go and talk to Professor Huerta de Soto.
I went to his office that was next to the classroom where most of the classes were
held. I told him briefly about the problem and asked him for a pragmatic and
“utilitarian” solution. Without thinking it through, Professor Huerta de Soto
looked at me with affection and said: “A bit of Christian charity, please”, and
ended the conversation. It was a declaration of principles and a great
lesson for me.
ETHICS AND DYNAMIC EFFICIENCY: A THOMISTIC APPROACH 291
aspires to endlessness. Every human being longs for complete and peren-
nial happiness and no created good is capable of containing this desire.
St. Thomas believes that the only good capable of completely appeasing
the human appetite is eternal beatitude, to be specific, God. Only the
Highest Good can appease man’s desire for good. This Universal Good is
found only in God and, in fact, all created goods are no more than a par-
ticipation in divine goodness. Participated goodness cannot permanently
fulfill man’s desire for good. Only the Good itself can fully satisfy man.
On the basis of these ideas, the aim of the ethics of St. Thomas is to
study all man’s voluntary actions insofar as they are ordered to attain his
ultimate goal, that is, to meet God. Thus, Aquinas does not perceive ethics
as a set of rules, more or less reasonable and even arbitrary, which limit
man’s action and are therefore a burden for him. Man should not act in
accordance with morality out of a kind of social utilitarianism.
St. Thomas approaches this matter differently. According to his view,
ethics is a set of principles of action inherent to the nature of the person
and which enable him to develop a life oriented toward God and, there-
fore, a happy life. Ethics is, therefore, the science of happiness.
In other words, for St. Thomas, when a person’s daily decisions are
governed by an unconditional love of the Good, Justice and Truth, then,
even if he is performing seemingly routine and inconsequential tasks such
as making photocopies, issuing invoices to clients or designing a market-
ing plan, he is acting in the face of God and in this way of living and doing
he finds complete happiness.
To live and act daily in harmony with God requires a person to develop
a series of habits or stable dispositions of his faculties to do well, which
Aquinas calls virtues. St. Thomas perceives man as a creature with four
specific potentials, each of which must be used in a virtuous way in order
to engage in ethical conduct, therefore, a life oriented on God. These
faculties and their respective virtues are expressed in Table 1:
In the following sections of this chapter, it will be explained why if the
entrepreneur uses his potentials in a virtuous way, his market actions will
unintentionally lead to greater dynamic efficiency, that is they will boost
creativity and coordination within the marketplace to a greater extent.
Now, it will be explained Saint Thomas’s vision of the entrepreneur.
292 D. SANZ-BAS
Table 1 List of human potentials and associated virtues

Potential or capacity Cardinal
virtue
1. Reason or capacity for understanding Prudence

2. Willingness or capacity to act Justice
3. Irascible appetite or ability to overcome difficulties and achieve distant Fortitude
goals
4. Concupiscible appetite or ability to desire objects that provide Temperance
enjoyment or pleasure
Source: Author´s own elaboration
The Entrepreneur as an Ethical Agent According

to St. Thomas
In the writings of Saint Thomas we find some reflections on the figure of

the entrepreneur or merchant. Following Álvaro Perpere (2017, 141),
Aquinas defines the merchant as a person whose trade is to buy goods in
order to sell them, if possible, at a higher price, with the aim of making a
profit. St. Thomas believes that if the merchant’s ultimate goal were the
mere pursuit of profit, then this would not be ethical, since it would give
rise to a disordered and inhuman desire. However, if the pursuit of
economic profit were a means to another end, for example, to take care of
his family or the desire to provide good service to his consumers, then it
would be morally justified (Perpere, 2017, 143). Nevertheless, St. Thomas
acknowledges that, without being intrinsically immoral, commercial
activity has a certain darkness and ugliness derived from the handling of
information and the bargaining process. In any case, Aquinas believes that
commercial activity “cannot be evaluated under ethical categories without
recognizing that they have a dynamicity and specificity of their own”
(Perpere, 2017, 144).
Along these lines, it can be said that the entrepreneur is an agent who
can act ethically in society. His perfection as an individual lies in serving
consumers in an honest manner through the humanized use of productive
factors (workers, capital goods and natural resources) and in line with the
legal, social and political context. Card. Peter Turkson (2014, 3) explains
that “[g]ood business decisions are rooted in principles at the founda-
tional level, such as respect for human dignity and service to the common
good, and a vision of a business as a community of persons”.
The study of the cardinal virtues (prudence, justice, fortitude and

temperance), as perceived by St. Thomas, will shed much light on how the
entrepreneur should act ethically in society. It will also be seen that busi-
nessmen will tend to be more efficient the more they follow ethical prin-
ciples. To do so, the following sections analyze the four potentials of man
and their respective virtues from the perspective of the entrepreneur.
Entrepreneurship, Efficiency and Virtue
Reason and Prudence
Man possesses the intellectual capacity to acquire an abstract understand-
ing of real-life shapes or, in other words, to understand and interpret the
world around him. This capacity is called reason. This potential is essential
for man since, as St. Thomas said, “the first thing required to those acting
is knowledge of reality” (quoted in Pieper, 2020, 20).
The virtue of prudence refers to the correct use of intellectual capacity
or reason and enables the individual to judge correctly what is right and
what is wrong in any situation.
The prudent use of reason has two dimensions:
Cognitive dimension: man cannot pursue the goals that are right for him
if he does not know objectively what the real world around him is like.
Prudence is therefore the “silent expectation of reality” (Pieper, 2020,
52). In order to obtain a correct understanding of reality, the person
must have the following virtues: memory (being faithful to past events
and not allowing distortions such as changes of accent, omissions, etc.,
which distort reality), humility (being open to advice, being informed
by others, forgetting one’s own interests in every situation, etc.) and a
perceptive reaction to the unexpected, in other words, being able to
respond appropriately to unforeseen changes.
Ordering dimension: once you know what reality is like, you determine
what you should and should not do if you want to act ethically. In this
way, prudence enables man to transform knowledge of reality into
action in each particular situation.
When an entrepreneur makes prudent use of his reason, then, he tends

to act more efficiently, at least in the following areas:
294 D. SANZ-BAS
(a) Discovery of relevant information on time and place: The market

process is surrounded by huge uncertainty. Entrepreneurs must be
able to understand the real world around them in order to detect
those situations of social discoordination. To do so, they need
insight and empathy to discover the different business opportuni-
ties available to them. Thus, through the correct use of reason, an
entrepreneur will be able to carry out actions capable of bringing
different individuals to cooperate with each other in a way that is
profitable for all (Huerta de Soto, 2001, Chap. 2).
(b) Optimistic realism: Businesses generally face strong challenges.

Sometimes these challenges can seem overwhelming. William
George Ward used to say that there are three basic attitudes when
a person is in a boat and the wind is blowing in the opposite direc-
tion: “The pessimist complains about the wind; the optimist
expects it to change; the realist adjusts the sails” (Olascuaga, 2019,
p. 50). The virtue of prudence in business activities would have to
do with this third option: in the face of difficulties, we should not
get bogged down in a difficult situation, but always judge our pos-
sibilities realistically (capacity for maneuver, allies we have, weigh-
ing up new ideas in our team, weighing up other opportunities for
profit in new markets, etc.) and, in this way, seek new ways to
overcome the challenges. Therefore, I have referred to this second
aspect as “optimistic realism” because greater knowledge of reality
leads to discovery of other possibilities and thus to optimism in the
face of challenges. This is contrary to psychological “optimism”,
which expects things to work themselves out.
(c) Get to know the team: People possess diverse talents (c.f. Matthew
25, 14–30). The entrepreneur’s art consists of prudently discover-
ing the talents of his partners and employees in order to combine
them creatively in a value creation project. This discovery concerns
not only the talents that these people already possess but also those
that they can potentially possess, and the ways to motivate and
stimulate each member of an organization.
Furthermore, it should be noted that when assigning a specific
task to an employee, the entrepreneur must ensure that this person
has sufficient technical training to carry it out (since, without it, he
will become frustrated) and the enthusiasm for the project entrusted
to them (since otherwise he will not be motivated to carry it out).
(d) Know how to delegate and ask for advice: every entrepreneur, as a
human being, has a limited cognitive capacity. The virtue of pru-
dence warns us against the imprudence that all decisions on inter-
nal and even external matters of the company must be judged and
decided by the leader. The entrepreneur must be humble and real-
ize his own limitations. This humility must manifest itself
in two ways:
On the one hand, in the ability to know how to delegate different func-
tions to others and give them increasing autonomy.
On the other hand, in the capacity to allow oneself to be advised, since
other collaborators will surely be able to enrich the entrepreneur’s judg-
ment or correct it, when it is wrong. This flexibility should only manifest
itself in matters of opinion in which the entrepreneur may have insufficient
knowledge of the reality that is leading him into error. However, in no
case does being flexible mean falling into relativism: there are non-
opinionable matters on which there is no room for nuances because they
are against the principles of natural law. To use an image, the entrepreneur
has to be like a “reed”, flexible when necessary, but with solid roots in
relation to fundamental principles.
The truth is that the prudent entrepreneur should be able to turn his
company into a sort of giant intelligence, that is, an organization that
knows how to harmoniously combine the cognitive capacity of all its
members.
Will and Justice
Man is a creature with the capacity to act willingly because he moves with
an intrinsic force and also has a reasoned knowledge of the goal he pursues
(Echavarría, 2017). The will is used properly when it is governed by jus-
tice. St. Thomas defines justice as “the mode of conduct according to
which a man moved by a constant and unalterable will, gives to each his
right” (quoted in Pieper, 2020, 99). Justice is therefore the ability to live
in truth with one’s neighbor. In order to be fair, one must know objective
reality and, therefore, be prudent. “Only the objective man can be fair,
and lack of objectivity, in common parlance, is almost equivalent to injus-
tice” (Pieper, 2020, 23).
Aquinas explains that there are three types of justice:
296 D. SANZ-BAS
Commutative or restorative justice: relations between individuals.

Legal or general justice: relations of individuals with the social whole.
Distributive or allocative justice: relations of the social whole with
individuals.
Furthermore, it can be pointed out that justice is the only virtue that can
be evaluated externally. Therefore, regardless of the situation or the inten-
tion of the debtor, justice is to give the other what is due to him, and that
is objectifiable. Thus, justice can be done without having the virtue of
justice. Of course, the fair man practices justice promptly and willingly,
that is, his outward action is in line with his inner desire.
When an entrepreneur’s action is based on justice, he will tend to be
more creative and to generate greater coordination in the market and,
consequently, to be more efficient. This is manifested in the different
dimensions of justice:
(a) Commutative or restorative justice: the entrepreneur must scrupu-

lously honor the agreements he reaches with customers and suppli-
ers. In the event of a dispute or misunderstanding, the fair
entrepreneur must forget his selfish interests and come to an agree-
ment based on justice and good faith (cf. Matthew 5:25). Thus,
strict adherence to contractual obligations will free the entrepre-
neur from lawsuits, claims, fines and other problems that can be
very burdensome for any business.
Moreover, over time, the fair entrepreneur will earn a good rep-
utation in the marketplace. This will be reflected in many ways: a
loyal clientèle that trusts and takes advice from this company, con-
sumers who recommend the company to other potential custom-
ers, loyal suppliers with whom it will be easy to reach an agreement
in case of unforeseen events or misunderstandings, and so on.
Reputation is truly one of the most valuable assets of a company
and is only achieved through continuous fair practices in the market.
(b) Legal or general justice: The fair entrepreneur has to act in har-
mony with the existing legal and regulatory framework. This
includes paying taxes, complying with environmental and safety
regulations for the benefit of clients, labor legislation, applying for
the relevant permits, etc. As a consequence, this will undoubtedly
avoid problems with the administration, lawsuits, heavy fines and
even prison sentences. Thus, the entrepreneur tends to act more
efficiently to the extent that his action is respectful of the rules and
laws in force.
Of course, it is possible to imagine situations in which the regu-
latory and legal framework does not comply with natural law. To
put in another way, there may be situations in which human laws
would be contrary to Good, Truth and Justice. In this case, the
entrepreneur could act outside this normative and legal framework
as long as his actions are in accordance with justice (c.f. Aquinas,
2021, I-IIae, q. 95 a 2, Corpus).
(c) Distributive or allocative justice: Within a company there must also
be an order based on justice. This implies that the company (the
social whole) must give each part (management, employees, etc.)
its due. Employees who perceive that they are being treated fairly
will be able to make sacrifices for the company when necessary.
This will undoubtedly give it breathing space and room for maneu-
ver during the inevitable ups and downs that every company faces.
Similarly, if the company is performing extraordinarily well, this
should be passed on to the various employees of that organization
(through better working conditions, better facilities, etc.).
Finally, if the person running the organization goes too far with
respect to his subordinates, he should recognize this and do what
is necessary to repair the damage caused. When this happens, it
shows that justice has its origin in a higher principle and does not
derive from the authority of the boss. Workers who are treated in
this way will feel respected and will respond faithfully to the
organization.
Irascible Appetite and Fortitude

Man has the capacity to desire and pursue goods or goals that are difficult
to achieve, even requiring daring, and also to try to avoid evils that are
difficult to avoid, and which even generate fear. Fortitude is the virtue that
enables the individual to overcome difficulties and face challenges. In the
extreme, this virtue involves even exposing oneself to martyrdom.
Fortitude only exists to the extent that man is aware of the danger he
exposes himself to (physical or otherwise) in the task he intends to under-
take. Furthermore, St. Thomas explains that fortitude is only a virtue
when a man seeks justice in his action, to wit, he who is not fair may have
fortitude, but this would not be a virtue. Furthermore, it should be noted
298 D. SANZ-BAS
that fortitude is not recklessness. One who has fortitude has an enormous
regard for his life, but he may be willing to take risks in order to achieve
certain goals which he believes he must undertake.
Fortitude has two facets, to resist and to undertake. In entrepreneurial
action, these are manifested as follows:
(a) Undertake: The most characteristic of the entrepreneur is entrepre-

neurship, that is, starting new projects in an environment full of
uncertainty. This requires a lot of courage and bravery. Bear in
mind that a number of business start-ups fail soon after they begin.
Likewise, many entrepreneurs start their business at the risk of their
family’s wealth.
St. Thomas explains that passions play an essential role in forti-
tude (cf. Pieper, 2020, 238). Passions or feelings (love, hate, fear,
etc.) are inner forces that we possess and, if properly conducted,
can be of great use in overcoming various obstacles. To use an anal-
ogy, passions are horses that pull a cart and, if we know how to
control them, they allow us to move forward. Without them, we
would barely be able to move.
The ethical entrepreneur acts out of a desire for a higher good
than himself, such as caring for his family or fulfilling his vocation
to serve others through his entrepreneurial work. Love for this
higher good is essential for overcoming the difficulties faced in the
project he wishes to undertake. Only then will he be able to draw
the strength and creativity necessary to reach the summit he is aim-
ing for. However, when this higher motivation is absent, any small
difficulty becomes huge.
In the same way, the entrepreneur must be aware of the risks he
faces, both business and personal, so that his actions are not reckless.
(b) To resist: The economic world is full of setbacks. Any entrepreneur
who aspires to be successful must have a great capacity to cope with
any bad news and setbacks that may arise. This endurance is not
passivity, because the act of endurance involves a huge effort to
remain faithful to the goal pursued. St. Thomas states that “patient
is not the one who does not flee from evil, but he who does not
allow himself to be dragged by its presence into a disordered state
of sadness” (quoted in Pieper, 2020, 236).
In this sense, it is common for decisions taken by the manage-
ment of a company to be criticized by several workers or managers
who disagree, in many cases, because they lack all the information.
The entrepreneur must resist these criticisms and go ahead with the
plan. (Obviously, if any of the criticisms are justified, the entrepre-
neur should incorporate this new information into his action plan.)
Concupiscible Appetite and Temperance

A number of natural forces are continually at work in man for the preser-
vation of his life: the pleasure in food and drink, sexual delight and so on.
These impulses are not evil and are, in fact, inherent to our bodily nature.
However, man needs to master these forces in order to maintain an inner
order. In this sense, the virtue of temperance enables man to find self-
control and measure in pleasure so that the pursuit of it does not become
man’s (disordered) goal. There are at least five areas in which the virtue of
temperance should manifest itself: chastity-lust, sobriety-unrestrained,
humility-arrogance, meekness-anger, studiositas-curiositas.
Logically, the entrepreneur has to personally maintain a balanced inner
order. Without such self-control, certain dysfunctions will arise that will be
detrimental to the development of the governing organization. Moreover,
the entrepreneur without temperance will be tempted to use the compa-
ny’s resources to satisfy his disordered desires for pleasure. Let us look at
the different areas where self-control is needed:
Chastity-lust: St. Thomas explains that disordered sexual desire makes
one tend to see people in only one dimension. For an entrepreneur this is
a huge problem, because it hides from him all but one of people’s quali-
ties. Likewise, an entrepreneur with a disordered sexual desire can easily be
tempted to use his position of power within the company to satisfy this
pleasure with his subordinates. In addition to distracting his attention
from the economic problems he has to solve, resulting in a major source
of inefficiency, this will possibly lead to very serious personal problems that
could even have criminal consequences.
Sobriety-unrestrained: A person without the ability to control expenses
and luxuries cannot be a good manager. An extravagant and materialistic
entrepreneur will probably tend to put his organization in financial diffi-
culties due to the continuous generation of unnecessary expenses: meals,
company cars, large offices, etc. Obviously, this does not mean that an
entrepreneur should not organize occasional lavish celebrations with part-
ners or employees; likewise, a business strategy may require the use of
luxury goods or services. The key is to be able to justify the why of the
300 D. SANZ-BAS
different expenses incurred as part of a business strategy. Sobriety also

refers to personal self-control in relation to food and drink. Undoubtedly,
a lack of temperance in this area leads to major health problems and loss
of focus on the day-to-day problems that an entrepreneur has to solve.
Humility-arrogance: Arrogance is the consequence of a disordered and
blind love of self. An arrogant entrepreneur will have two serious prob-
lems. On the one hand, he will certainly not know how to ask for advice
from his delegates and will not accept constructive criticism. On the other
hand, he will not know how to recognize his mistakes and rectify them in
time; this is particularly serious if we remember that the market process
always unfolds in an environment of ineradicable uncertainty and, there-
fore, error is always an inherent part of the business process. In short, an
arrogant entrepreneur will decide more clumsily and at greater cost than a
humble one, and this will reduce the efficiency of his business project.
Meekness-anger: Anger implies a lack of mastery in dealing with life’s
setbacks. Therefore, an angry entrepreneur will find it very difficult to lead
a team of people or participate in negotiations with partners, customers or
suppliers. Inner freedom lies in being able and knowing how to choose
how to respond to the different events we face (c.f. Philippe, 2003). An
angry entrepreneur does not choose, but is a slave to his lack of self-
control. This vice will probably lead to the fact that some of his best
employees (i.e., the most valued in the market) will look for other compa-
nies where there is a more cordial treatment, and to the failure of many
negotiations with partners, customers or suppliers. All of this means less
efficiency for a business organization.
Studiositas-curiositas: Man has a desire to access knowledge. If he does
so in an orderly, deep and systematic way, he can be said to possess the
virtue of studiositas; however, if a person seeks knowledge in a disorderly
and superficial way, then he falls into the vice of curiositas. An entrepre-
neur has to keep his attention focused on the problems facing his organi-
zation in order to have a chance of success. If he is involved in too many
projects or too many meetings, or gets caught up in the perils of social
media, he will not be using his full potential and this will weigh down his
organization’s chances of success.
Conclusion
When ethics is conceived as a behavior added to man’s nature to ease his
conscience or as a set of useful social norms to be promoted and enforced
(through education or legislation), then there is an underlying idea that
ethics and economic efficiency are opposing concepts. According to this

view, in a competitive world, ethics would be a kind of cost overrun for
any entrepreneur. Thus, following this idea, without some social coercion,
any company would tend to engage in unethical behavior (cheating con-
sumers, exploiting workers, polluting the environment, failing to pay
taxes, etc.) in order to survive.
The vision that emanates from the thought of St. Thomas is very differ-
ent. Human beings naturally seek an encounter with God because only in
Him do they find full and lasting happiness. Ethical behavior is that which
enables man to live in the face of God and takes the form of unconditional
adherence to Good, Justice and Truth in all his actions.
Coincidentally, ethical action is not at odds with efficient action, quite
the contrary. Unconditional adherence to Good, Justice and Truth in the
business and organizational challenges that every entrepreneur has to deal
with on a daily basis will result in the cultivation and flourishing of the
cardinal virtues (prudence, justice, fortitude and temperance). The devel-
opment of these virtuous habits will unintentionally lead to greater
dynamic efficiency, that is, a greater ability to boost creativity and coordi-
nation within the marketplace. This will manifest itself in many ways: bet-
ter leadership capacity within the company, greater sobriety and judgment
in decision making, generation of a good reputation in the market, mini-
mization of legal disputes, greater resilience in the face of inevitable mar-
ket setbacks, greater self-control of the body that will free the entrepreneur
from distracting his energies in undesirable tasks, etc.
Dynamic efficiency is not an absolute concept, but a gradual one.
Therefore, I can say that any entrepreneur who develops moral virtues
will tend to be more efficient than he would be if he lacked them. Thus,
I can conclude that every entrepreneur, if he acts with God in mind,
will tend to be more creative and to generate greater coordination in
the market.
Finally, this chapter has not mentioned the theological virtues (faith,
hope and charity) which, according to Thomistic doctrine, are instilled in
the believer through God. An entrepreneur who receives such high graces
from God will surely have a greater capacity for understanding through
faith, the capacity to act fairly and lovingly toward others through charity,
and a greater capacity to respond to challenges with resilience and cour-
age through hope. Does God want successful entrepreneurs to emerge in
this New Evangelization in which we find ourselves, leading a shift toward
a new economic paradigm that is more humane, more Christian and
more efficient?
302 D. SANZ-BAS
References
Aquinas, T. (2021). Summa theologica. De Gruyter.
Echavarría, M. F. (2017). Naturaleza y voluntad según Tomás de Aquino. Espíritu:
cuadernos del Instituto Filosófico de Balmesiana, 66(154), 345–377.
Huerta de Soto, J. (2001). Socialismo, cálculo económico y función empresarial.
Unión Editorial.
Huerta de Soto, J. (2009). The Theory of Dynamic Efficiency. Routledge.
Olascuaga, T. (2019). The Secrets of a Happy and Successful Life: A Guide to Be
Happy and Achieve Everything You Want. Kindle Editions.
Philippe, J. (2003). La libertad interior. Rialp.
Pieper, J. (2020). Las virtudes fundamentales. Rialp.
Perpere, Á. (2017). Vida económica y moralidad: Tomás de Aquino, Petrus
Iohannis Olivi y el rol de los mercaderes en la sociedad. Revista de cultura
económica, XXXV(94), 138–151.
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for Justice and Peace.
Index1
A Central planning, 68, 218, 244–246,

Anarchism, 33, 98, 223–234 248, 250, 251
Anarchocapitalism, 11, 63, 168, 172 Classical liberalism, 63, 167, 168,
Austrian economics, 2, 3, 9, 10, 171, 172
45, 89, 205 Common law, 96, 99, 100, 259
Austrian School, 28, 37, 86, 88, Corruption, 56, 58, 59,
90–94, 96, 131, 133–134, 138, 76–78, 243
202–206, 238, 239, 252 Cultural evolution, 158, 159
Austrian School of Economics, 134, Culture, 18, 21, 23–25, 29, 49,
158, 159, 161–164, 238 55, 57, 68, 69, 78, 79, 85, 111,
163, 178, 179, 188,
263, 284–286
B
Bureaucracy, 61–62, 197
D
Development economics, 104–108
C Distributive justice, 258–267
Catholic social teaching, 258, Dynamic efficiency, 104–108,
262, 264–267 131, 138–139, 141,
Causality, 131, 133, 134, 141 289–301
Note: Page numbers followed by ‘n’ refer to notes.

1

Switzerland AG 2023
https://doi.org/10.1007/978-3-031-17418-6
304 INDEX
E Huerta de Soto, J., 1–15, 17, 18,

Economic calculation, 106, 134, 146, 18n1, 20n2, 21, 22, 25, 27, 45,
193, 198, 211, 218, 237–252 70, 85–96, 98, 100, 104–106,
Economic growth, 78, 80, 108, 131–133, 137–142, 146,
210–214, 217 149, 151, 167–173, 178,
Entrepreneurship, 4–6, 17, 21, 22, 193–195, 197–199, 202–205,
104–108, 138–139, 187, 238, 242–249, 251, 252, 289,
193–195, 197, 199, 202, 290, 294
237–252, 293–295, 298 Human action, 9, 24, 25, 25n4, 42,
Envy, 121 55, 105, 133, 134, 136–138,
Ethics, 3, 5, 6, 18, 25, 26, 89–91, 149, 151, 153, 154, 177, 189,
104, 105, 258, 261, 263, 266, 190, 202n1, 239, 241
274, 289–301 Human ecology, 271–287
Evolution, 5, 6, 25, 33, 63, 96, 100, Church, 271, 272, 275, 278,
146–148, 150, 176, 217, 240, 285, 287
287, 290 Human nature, 5, 41, 114, 126, 168,
169, 172, 194
F
Faith and reason, 11 I
Fortitude, 293, 297–299 Ideas, 2, 5–9, 20n2, 30, 31, 33, 34,
Free market, 3, 4, 66, 74, 76, 79, 97, 39, 40, 44, 54, 55, 67, 69, 75,
134, 141, 148, 196, 204, 217, 78, 86, 90, 92, 94, 96, 112, 113,
218, 238, 241, 261–265, 267 132–134, 136, 140, 146, 148,
Free society, 3, 28, 31–33, 69, 152, 154, 158–160, 162, 163,
172, 194 170, 172, 176–190, 197, 199,
204–206, 211–213, 215, 219,
221, 224, 227, 238, 244, 249,
H 258, 259, 261–265, 289–291,
Hayek, Friedrich, 4, 5, 7, 11, 15, 19, 294, 300, 301
20, 22, 28, 29, 55, 57, 59, 60, Immigration, 63, 65, 69
87–92, 96, 99, 100, 106, 131, Individualism, 28, 37, 38, 148,
148, 153, 154, 161–164, 161–163, 233, 239, 250, 252
170–172, 176–180, 184, 197, Individual possibilities, 22, 24
205, 213, 220, 237, 239, 240, Inflation, 57, 59, 64, 68, 69, 198
243, 249–252 Information, 18–22, 29, 31, 91, 94,
History of economic thought, 89, 205, 139, 179, 188, 194, 198, 199,
237, 252 214, 216, 220, 239–242,
History of ideas, 114, 157, 158, 244–247, 250–252, 278, 292,
163, 238 294, 299
Hoover Institution, 54, 67 Institutions, 3–5, 21–26, 24n3, 42,
Huemer, Michael, 45–51, 43, 55, 69, 74–76, 98, 100, 104,
48n2, 151–153 114, 115, 124–126, 129,
INDEX 305
149–151, 153, 159, 160, 178, M

179, 181, 182, 194, 205, 225, Marketplace, 176–186, 189, 296, 301
226, 231, 248, 289, 290 Markets, 3
Intergenerational solidarity, 271–287 Mises, Ludwig von, 4, 5, 7, 11, 12,
International arbitration, 145–154 19, 24, 25n4, 27, 56, 58, 74, 77,
Interventionism, 58, 75, 77, 78, 197, 78, 87, 96, 98, 104–106, 115,
219, 251 131, 136, 158, 159n1, 177, 178,
189, 196, 197, 202n1, 205, 210,
217, 237–239, 242–246, 248,
J 249, 251, 252
Judgment-based approach, 104–108 Mont Pelerin Society, 11, 88
Justice, 2, 66, 75, 77, 78, 124,
145–151, 153, 154, 234, 243,
258–267, 279, 287, 291, N
293, 295–297 Nation, 27–34, 80, 85, 98, 117, 152,
273, 274
Nationalism, 28, 30, 31, 33, 34
K Neoclassical approach, 239
Kirzner, Israel, 4, 7, 21, 22, 24, 25, Nominalism, 42, 43
92, 105–107, 106n1, 176, 187, Non-aggression principle (NAP),
202, 239, 252 46–51, 117
Nullification, 34
L
Law, 5, 6, 19, 32, 39–41, 43, 47, 49, P
50, 56, 57, 59, 65, 69, 96, Political authority, 42, 151–153,
98–100, 111–129, 134, 141, 224, 231
146–154, 158, 162, 172, 178, Political philosophy, 12, 26, 75, 113,
189, 202, 224–226, 243, 176, 223, 243
258–263, 280, 295, 297 Political power, 29, 33, 151–153,
Legal system, 6, 96, 99, 231 194, 226
Liberalism, 37, 74–76, 78, 81, 86–89, Power, 12, 29–33, 38, 39, 42, 43,
161, 162, 167, 168, 171, 172, 61–62, 65, 74–76, 78, 96, 98,
209, 224, 225, 227, 229, 99, 113, 114, 116, 121, 123,
232, 234 126–129, 149, 151–154, 158,
Libertarianism, 6, 9, 10, 45–51, 63, 161, 168, 170–173, 176, 177,
111–114, 127, 223, 224, 181, 196, 218, 224, 228, 229,
232, 233 250, 259, 261, 267, 290, 299
Liberty, 8, 66, 69, 74, 82, 90, 92, 99, Praxeology, 5, 25n4, 137
115–120, 125, 126, 129, 170, Predation, 96, 97
197, 202, 227, 233, 259 Private law society, 111–129
306 INDEX
Private property, 24, 49, 49n3, 55, 74, Socialism vs. Capitalism, 196, 219–220
81, 97, 104, 105, 107, 108, 112, Socialist advance, 221
129, 132, 142, 249, 262, Social justice, 262–267
266, 267 Spontaneous market order, 151, 153
Prudence, 77, 100, 293–295, 301 State, 11, 20, 28, 39, 48, 61, 76, 89,
Public opinion, 78, 177, 178, 185, 95–100, 113, 146, 159, 168,
186, 188, 189 194, 220, 224, 249, 258,
273, 298
Statolatry, 168, 172, 173
R
Rationalism, 160, 161
Reagan, Ronald, 65–67 T
Republicanism, 223–225, 227–234 Temperance, 77, 293, 299–301
Research, 12, 20, 91, 169, 178, 205, Theology, 39, 41–43, 132, 133, 137,
213, 216–217, 240, 252 275, 278
Roman law, 6, 96, 99, 100 Traditional Catholicism, 131, 138
Rothbard, Murray, 5–7, 15, 27, 33,
37, 47n1, 48–50, 63, 64, 87,
95–98, 112, 127, 131, 133, 134, V
137, 202, 205, 216–218 Values, 18, 20, 25, 25n4, 28–30, 33,
39, 48, 60, 66, 68, 91, 172, 177,
179, 189, 202, 214, 224, 233,
S 242–244, 273, 276, 279, 281,
Scholasticism, 132, 138, 141, 258 282, 284, 286, 294
School of Salamanca, 86–90, 93, Violence, 98, 114, 120, 124, 140,
137–138, 206 149–151, 169–171, 232
School of thoughts, 28, 95 von Haller, Carl Ludwig, 111–129
Secession, 27–34, 231
Social cohesion, 33
Social coordination, 22, 23, 250 W
Social doctrine, 261, 262, 265, War, 29, 30, 38, 76, 117, 120, 127,
266, 271–287 149–151, 170, 226, 243
Socialism, 4, 6, 24, 67, 68, 77, 78, 80, Welfare, 58, 65, 67, 68, 80, 121, 140,
89, 177, 186, 193–199, 180, 196, 197, 219, 220, 251,
209–221, 237–252, 260, 263 260, 264, 266, 271–287

The Emergence of A Tradition: Essays in Honor of Jesús Huerta de Soto

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William of Ockham: An Unknown Libertarian Philosopher 37

Defending Absolutist Libertarianism 45

 Chronicle of Liberal Thought in Spain: From Salamanca to

 Catholic View of Order, Creativity, and Justice131

 Republican Defense of Anarchism223

Javier Aranzadi Universidad Autónoma de Madrid, Madrid, Spain

Sonsoles Huerta de Soto Madrid, Spain

Most readers know Jesús Huerta de Soto Ballester either as an economist

© The Author(s), under exclusive license to Springer Nature 1

He was Jesús’s first English-speaking student. In addition to Bagus, two

An undercurrent of legal analysis unites most of his work. This is most

available in several languages, this closing lecture is wildly popular on the

To be a complete economist, a man need only be a mathematician, a phi-

The body of economic knowledge is an essential element in the structure of

Jesús Huerta de Soto is an economist in the full sense demanded by

In the explanation of the economic phenomenon as action, the concept of

A process (that is to say, a dynamic structure) of a spontaneous sort, that is

© The Author(s), under exclusive license to Springer Nature 17

1. If we concentrate on society as a process, we confront the problem of

Subjective Knowledge of a Practical, Non-scientific Type

Private and Dispersed Knowledge

out the act that places a piece of information in a conscious state.

The first aspect of this criterion is that it is dynamic. The coordination

creativity in individual action, in culture and in social institutions. We can

Therefore, the criterion of efficiency based on human action is perfectly

The debate on the nation question is a constant of many theorists of the

M. A. Bastos Boubeta (*)

© The Author(s), under exclusive license to Springer Nature 27

cannot act without losing that legitimization. A nationalist state cannot

information necessary to exercise control, this being totally or partially

The Function of Secession in a Free Society

Malesevic, S. (2020). Grounded Nationalism: A Sociological Analysis. Cambridge

Among the intellectual forerunners of liberalism, special attention has

L. Bernaldo de Quirós (*)

© The Author(s), under exclusive license to Springer Nature 37

The fourteenth century was a turbulent period in Europe. It witnessed

There is no universal outside the mind really existing in individual sub-

From this perspective, universals are terms relating to individual things

So, the realm of revealed truths is alien to rational knowledge. Theology

…purely philosophical assertions which do not pertain to theology should

In this context, Ockham describes the emergence of political authority

consciously or unconsciously, these subsequent thinkers are all heirs to

My friend Jesús Huerta de Soto has made contributions to numerous

© The Author(s), under exclusive license to Springer Nature 45

NAP: It is always wrong to initiate force against other people.

was a bitter opponent of this philosophy. She dismissed holders of this

NAP0 (a.k.a. “pacifism”): It is always wrong to use force against others.

Again with the “wrongness.”2

foundations of absolutist libertarianism,3 and we are entitled to criticize

Almost everyone, including most libertarians, agrees that Walter should be

Again, Huemer exhibits a lack of understanding of libertarianism.4

Yes, trespass is a violation of private property rights, which along with

threat to Hans. The former has demonstrated by his planting of himself on

Almost everyone thinks it is permissible for me to break into Murray’s car

Huemer is accurate. Indeed, “almost everyone” would agree with this

Almost everyone thinks it is permissible to forcibly steal the hair.

This is the same example as the previous one; it is also an emergency,

© The Author(s), under exclusive license to Springer Nature 53

I attended my first meeting of the Mont Pelerin Society (MPS) at the

[A] Parliament or government which becomes a charitable institution

I studied economics under Dr. Hans F. Sennholz (1922–2007), a dis-

William of Ockham: An Unknown Libertarian Philosopher 37

Defending Absolutist Libertarianism 45

Chronicle of Liberal Thought in Spain: From Salamanca to

Catholic View of Order, Creativity, and Justice131

Republican Defense of Anarchism223

Hence, the TDE shows the characteristics of entrepreneurial decision-

Traditional Catholicism is framed within the classical Aristotelian-Thomist