Source: Mises.org
The Link between Economic Calculation and Human Personality
Economists and historians have clearly shown that the destruction of the value and function of money by hyperinflation makes economic calculation impossible and leads to economic and social disintegration and widespread poverty. What is not so clearly understood, even by many economists, is that during periods of rapid inflation, the inability to economically calculate undermines the very nature of property and causes a withering of the human personality, which is intimately connected with property ownership. By eliminating the means of appraising and rationally allocating one’s property, hyperinflation eliminates the very basis of independent human existence and personality under a system of social cooperation. The inevitable result is the dissolution of the society of voluntary contract and its replacement by a hegemonic order in which property and personality are collectivized.
The central role of money and property in the formation of the individual human personality under the division of labor has yet to be investigated in any depth, and I will not attempt to do this here. However, I will note that in speaking of the human personality, I am referring to what has been called, usually derisively, the “bourgeois personality.” This is the common state of thinking and being that characterizes the modern individual operating in a private-property social order. The bourgeois person is goal oriented, self-interested (but not necessarily selfish), thrifty, and uses time as a scarce resource to improve his productivity and enhance his future well-being. In pursuing his own interests, this person must consciously and repeatedly act socially. That is, he must specialize in producing goods and services that are valued by people whom he most likely does not know. By producing for and exchanging with these unknown persons, he integrates himself into what Ludwig von Mises calls the social division of labor. Specialized production and voluntary exchange are the essence of social action and are necessarily guided by market prices. They involve the deliberate choice of concrete means and ends and the monetary calculation of costs and benefits. Human personality, as the term is used here, therefore, does not refer to a cluster of psychological attributes and qualities; rather, it is a mode of being and becoming someone that is based on economic calculation and the ownership of property. Software engineer, Uber driver, restaurateur—none could have become what they are in the absence of money and private property.
The Destruction of Property and Personality during Hyperinflation
As the general medium of exchange, money is the tool for appraising one’s property, estimating one’s wealth, and judging one’s prospects of future well-being. Once the future value of money becomes impossible to reliably forecast, ordinary people lose the ability to rationally use their property and preserve their wealth and thus become incapable of planning for the future. This leaves them little choice but to dissipate their wealth and energy in striving after immediate gratification. This rise in time preference— that is, in the premium on present satisfaction relative to satisfactions in the future—nullifies the value of productive work, thrift, and sober investment. It brings about a social revolution in which the productive middle class, entrepreneurs, capitalists, and inventors are destroyed and replaced by gamblers, con artists, and swindlers at the top of the social structure.
Inflation does not just wipe out the savings of the productive classes and divert their energies into sterile and corrupt pursuits, however; it also deforms and attenuates their personalities. Whether we like it or not, men and women exist in a world where they cannot live and flourish physically or spiritually without property. As the founder of the Austrian School, Carl Menger, pointed out, “Property is not . . . an arbitrarily combined quantity of goods but a direct reflection of [a person’s] needs, an integrated whole, no essential part of which can be diminished or increased without affecting realization of the end it serves.” Thus property is the foundation of human personality—no meaningful motion, activity, or expression of thought is possible without it, for human personality is not the spontaneous projection into the external world of random inner urges that characterizes the unreflective behavior of a human infant. Personality is the external projection of a deliberately planned mode of individual being and becoming. As such, it involves a conscious arrangement of activities whose pursuit requires a carefully chosen structure of means; that is, property. Property therefore is not a haphazard collection of things that can be completely described in physical terms but rather the coherent, objective embodiment of the yearnings and aspirations of the human spirit.
In a real sense, then, property defines and delimits an individual’s personality. A person cannot be whatever he wants to be; he is rigidly limited by the means at his disposal. One is not truly a novelist unless he possesses a room, a desk, a computer, and word-processing software; a restaurateur must have access to a kitchen stocked with food. A person cannot even pursue leisure or vocational activities without possessing specific concrete means. One is not a fisherman without fishing tackle and access to a boat and body of water; one cannot be a golfer without the possession of, or the means of acquiring, golfing equipment.
Furthermore, in an exchange economy, it is economic calculation based on money prices that gives meaning to a collection of different kinds of concrete goods and enables the actor to transform these goods into an integrated structure of property suited to his system of ends. Without money prices to guide him in his calculations, a person acts with blinders when entering a profession or business because he can never know whether these activities will generate sufficient income to help sustain his existence. Furthermore, a person does not know the degree of his success or his position in the social structure unless he can calculate the monetary value of his possessions. Has he achieved eminence or suffered crushing disappointment? Is he prince or pauper?
People cannot even know what or who they will be in the future without knowing the monetary value of their accumulated savings and assets. All their plans for themselves and their children are shaped by this knowledge. Will a person likely retire to a gated community with a plush golf course at the age of sixty; or will he be greeting customers at the local Walmart as a septuagenarian?
Money and property are thus essential elements in the socioeconomic process conditioning what a human being is and can become. Without economic calculation based on sound money, not only is it impossible for entrepreneurs and businesses to reasonably calculate the possible outcome of alternative investment decisions, but it also becomes impossible for a person to even know who he is or to reasonably assess what he can become. During the German hyperinflation, for example, university professors and high-ranking civil servants on relatively fixed salaries could no longer support themselves and their families and, overnight, they became taxi drivers and waiters, with all that this implied for their professional and personal relationships, social position, and retirement prospects.
The German Hyperinflation
The concrete effects of the destruction of money and property on human personality are demonstrated most vividly in the historical episode of the German hyperinflation of 1923.
In the extreme case of hyperinflation, as the value of money hurtles toward zero, property loses its meaning, human personality withers, and society disintegrates. This all-important connection between money and property on the one hand and human personality on the other was dramatically expressed by the German historian and sociologist Konrad Heiden, a shrewd observer of the great German hyperinflation. Wrote Heiden: “The German people was one of the first to witness the decay of those material values which a whole century had taken as the highest of all values. The German nation was one of the first to experience the death of the unlimited free property which had lent such a royal pride to modern humanity; money had lost its value—what, then, could have any value? Of course, many were accustomed to having no money; but that even with money you had nothing—that was a twilight of the gods. . . . A cynical frivolity penetrated men’s souls; no one knew what he really possessed and some men wondered what they really were.”
Heiden’s insights are illustrated in the statements of a woman who lived through the German hyperinflation. Erna von Pustau was a middle-class resident of Hamburg who was interviewed by the eminent American writer Pearl Buck. Pustau’s reminiscences reveal how the German people lost their intellectual and spiritual moorings amid the calculational chaos of hyperinflation. The inability to perform simple accounting calculations that were a matter of routine in the past caused confusion of thought and language. As Pustau recalled, “We could hardly say that our mark was falling, since, in figures, it was constantly going up and up and up, and so did the prices, and this was much more visible than the realization that the value of our money was going down. It sounds confusing, doesn’t it? But this confusion belongs to inflation, is inseparably connected with it, and was one of the reasons why the people gave up thinking things out. It all seemed just madness and it made the people mad.”
Pustau quoted the following line from a popular song of the day that alluded to the destruction of wealth caused by the unrestrained lust for immediate gratification: “We are drinking up our grandma’s little hut and the first and second mortgage, too.” Pustau then remarked, “Saving is the very source of wealth and health of a sound nation. But, we have no longer a sound nation. We are on our way to become a crazy, a neurotic, a mad nation.” Pustau also commented on the spiritual trauma inflicted by the sudden collapse of the social structure, lamenting, “It was a sad world, a world in which none was better than the other and all was a matter of chance and degree. A sad world, and a sad conception for a girl who still remembered the good old times of Grandmother! Our times made us cynical.”…