Ludwig von Mises on Bureaucracy

(Plus a couple of thoughts of my own.)

There is one book by Ludwig von Mises that I think is slightly neglected, namely Bureaucracy, first published in 1962. (I may be wrong, but I have never seen any discussion of it.) It deals with the difference between profit-and-loss management and bureaucratic management, and I think it is important for our understanding of the difference between market and government. I just want to give some illustrative quotes:

In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive.

Now we are in a position to provide a definition of bureaucratic management: Bureaucratic management is the method applied in the conduct of administrative affairs the result of which has no cash value on the market. Remember: we do not say that a successful handling of public affairs has no value, but that it has no price on the market, that its value cannot be realized in a market transaction and consequently cannot be expressed in terms of money. […] Bureaucratic management is management of affairs which cannot be checked by economic calculation. (P. 47f.)


The conduct of government affairs is as different from the industrial processes as is prosecuting, convicting, and sentencing a murderer from the growing of crops or the manufacturing of shoes. Government efficiency and industrial efficiency are entirely different things. A factory’s management cannot be improved by taking a police department as its model, and a tax collector’s office cannot become more efficient by adopting the methods of a motor-car plant. (P. 52.)


In the field of profit-seeking enterprise the objective of the management engineer’s activity is clearly determined by the primacy of the profit motive. His task is to reduce costs without impairing the market value of the result or to reduce costs more than the ensuing reduction of the market value of the result or to raise the market value of the result more than the required rise in costs. But in the field of government the result has no price on the market. It can neither be bought nor sold. (P. 49f.)

And so, governments and government agencies simply cannot be run by profit-and-loss management; and neither could private enterprises be run by bureaucratic management. The spheres are entirely different. (This is also an implicit criticism of anarcho-capitalism.)

The later chapters of the book deal with what happens when governments take over what should properly be run by private enterprises, i.e. the dangers of bureaucratization.

Bureaucratization is especially dangerous in the field of education. Here is an illustrative quote:

After the old professors [in 19th century Germany] who had got their chairs in the short flowering of German liberalism had died, it became impossible to hear anything about economics at the universities of the Reich. There were no longer any German economists, and the books of foreign economists could not be found in the libraries of the university seminars. […] All that the students of the social sciences learned from their teachers was that economics is a spurious subject and that the so-called economists are, as Marx said, sycophantic apologists or the unfair class interests of bourgeois exploiters, ready to sell the people to big business and finance capital. The graduates left the universities convinced advocates of totalitarianism either of the Nazi variety or of the Marxian brand. […]

European totalitarianism is an upshot of bureaucracy’s preëminence in the field of education. The universities paved the way for the dictators.

Is the situation much different today? Is it an exaggeration to say that Marxism may be dead in the former Communist countries, but alive and well at our universities?

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It might be objected (and I am sure many will object) that such fields as education and health care should not be run by profit-and-loss management, since the primary purpose here is not to make money but to educate students and make people well. But in a free economy there would be no such conflict of purposes: the best schools and universities and the best hospitals would also be the ones who make the most money.

But I do see a problem with such institutions as libraries and archives. (I myself worked at the Swedish Royal Library before I retired, and it is certainly not managed by profit and loss; it is subsidized by the tax payers.) Such institutions provide a valuable service: they are “a country’s memory” and are necessary for historical research. But would they be able to survive, if they were suddenly privatized? Well, they may be taken over by private foundations; but are there such foundations today that are rich enough and interested enough to take them over? Privatizing such institutions will have to be a goal for a more distant future.

Meanwhile, bureaucratization just goes on and on and on …


One Response to Ludwig von Mises on Bureaucracy

  1. Nikolai says:

    “Is it an exaggeration to say that Marxism may be dead in the former Communist countries, but alive and well at our universities?”

    Yes it is. Here, in Russia, you only get to choose the degree of marxism. They still believe in orthodoxy, such as labor theory of value and that “capitalism impoverishes workers” etc. Thought police is active in universities (as it is everywhere), and you can’t fight it. Either you are laughed at, smeared and slandered, or they lower your grades outright (as it happened with me).

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