It's Either Commands or Contracts

Ludwig von Mises’s two types of society

There are two different kinds of social cooperation,” wrote Ludwig von Mises: one based on contract (voluntary agreement and reciprocity), the other based on hegemony (”command and subordination”). Individuals can be joined together either by “contractual bonds” or “hegemonic bonds.”

This distinction was recognized by many social theorists. In Human Action, Mises wrote:

“[Adam] Ferguson described it as the contrast between warlike nations and commercial nations; [Henri de] Saint Simon as the contrast between pugnacious nations and peaceful or industrial nations; Herbert Spencer as the contrast between societies of individual freedom and those of a militant structure; [Werner] Sombart as the contrast between heroes and peddlers."

Marxists and Nazis alike posed similar binaries, as Mises elaborated. The various thinkers valued the societal options differently, but they agreed on the dichotomy and that, as Mises put it, “no third principle is thinkable and feasible.”

The two opposing principles of cooperation establish two very different ways for people to relate to each other in society, as Mises explained:

“Where and as far as cooperation is based on contract, the logical relation between the cooperating individuals is symmetrical. They are all parties to interpersonal exchange contracts. John has the same relation to Tom as Tom has to John.”

Even if “John” was John Mackey, the millionaire founder and until recently CEO of Whole Foods Market, and “Tom” was a Whole Foods cashier, the relationship between the wealthy employer and the non-wealthy employee would still be symmetrical.

John voluntarily offers money wages in exchange for Tom’s labor services and Tom voluntarily offers labor services in exchange for money wages. Both have agreed to the arrangement and both are free to walk away from it. John can always fire Tom and Tom can always quit. All his wealth and notoriety notwithstanding, John cannot compel Tom to work the register.

Mises continued: “Where and as far as cooperation is based on command and subordination, there is the man who commands and there are those who obey his orders. The logical relation between these two classes of men is asymmetrical. There is a director and there are people under his care. The director alone chooses and directs; the others—the wards—are mere pawns in his actions.”

For example, if John was instead a feudal lord and Tom was his peasant serf, the relationship between the two would be very asymmetrical. John could compel Tom to work John’s lands and also seize a portion of the produce of Tom’s own holdings through taxes and fees. Tom’s only choice is to submit to these demands or be slain. As Mises wrote:

“Faced with the choice between the consequences of obedience and of disobedience, the ward prefers the former and thus integrates himself into the hegemonic bond. (…)

Within the hegemonic societal body and as far as it directs its subordinates' conduct, only the director acts. The wards act only in choosing subordination; having once chosen subordination they no longer act for themselves…”

When the American founders and other classical liberals championed “equality,” they were not clamoring for equal possessions. They were striving to abolish absolutism, feudalism, and slavery. They were supporting the symmetry of human relations characteristic of contractual bonds and opposing the asymmetry of human relations characteristic of hegemonic bonds.

Such asymmetry can be an affront to one’s sense of fairness. But hegemonic societies are not only ugly, but stupid. If only the director acts, only the director thinks. When human beings are prodded around like cattle, their minds are wasted. Their creativity, judgment, unique talents, and local knowledge are precluded from being brought to bear on life’s manifold opportunities and challenges.

Only contractual societies can fully tap what Julian Simon called “the ultimate resource”—the human mind—on a mass scale. Only decentralized voluntary cooperation can coordinate the creative contributions of multitudes.

That is why, as Mises said, advanced civilization is an achievement of those “who have cooperated according to the pattern of contractual coordination.” The historical progress of society from warlike and poverty-stricken barbarism to peaceful and prosperous civilization has been a story of commands giving way to contracts, of compulsory hegemony giving way to voluntary harmony.

This article is courtesy of Dan Sanchez and The Foundation for Economic Education, under a Creative Commons Attribution 4.0 International License. The original can be found here.