The “National Income” Approach Is an Attempt to Justify the Marxian Idea That Under Capitalism Goods Are “Socially” Produced and Then “Appropriated” by Individuals

The concept of national income entirely obliterates the real conditions of production within a market economy. It implies the idea that it is not activities of individuals that bring about the improvement (or impairment) in the quantity of goods available, but something that is above and outside these activities. This mysterious something produces a quantity called “national income,” and then a second process “distributes” this quantity among the various individuals. The political meaning of this method is obvious. One criticizes the “inequality” prevailing in the “distribution” of national income. One taboos the question what makes the national income rise or drop and implies that there is no inequality in the contributions and achievements of the individuals that are generating the total quantity of national income.

If one raises the question what factors make the national income rise, one has only one answer: the improvement in equipment, the tools and machines employed in production, on the one hand, and the improvement in the utilization of the available equipment for the best possible satisfaction of human wants, on the other hand. The former is the effect of saving and the accumulation of capital, the latter of technological skill and of entrepreneurial activities. If one calls an increase in national income (not produced by inflation) economic progress, one cannot avoid establishing the fact that economic progress is the fruit of the endeavors of the savers, of the inventors, and of the entrepreneurs. What an unbiased analysis of the national income would have to show is first of all the patent inequality in the contribution of various individuals to the emergence of the magnitude called national income. It would furthermore have to show how the increase in the per-head quota of capital employed and the perfection of technological and entrepreneurial activities benefit—by raising the marginal productivity of labor and thereby wage rates and by raising the prices paid for the utilization of natural resources—also those classes of individuals who themselves did not contribute to the improvement of conditions and the rise in “national income.”

The “national income” approach is an abortive attempt to provide a justification for the Marxian idea that under capitalism goods are “socially” (gesellschaftlich) produced and then “appropriated” by individuals. It puts things upside down. In reality, the production processes are activities of individuals cooperating with one another. Each individual collaborator receives what his fellow men—competing with one another as buyers on the market—are prepared to pay for his contribution. For the sake of argument one may admit that, adding up the prices paid for every individual’s contribution, one may call the resulting total national income. But it is a gratuitous pastime to conclude that this total has been produced by the “nation” and to bemoan—neglecting the inequality of the various individuals’ contributions—the inequality in its alleged distribution.

—Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 77-78.

Authors Who Think They Have Substituted a Holistic or Social or Universalistic or Institutional or Macroeconomic Approach Delude Themselves and the Public

The authors who think that they have substituted, in the analysis of the market economy, a holistic or social or universalistic or institutional or macroeconomic approach for what they disdain as the spurious individualistic approach delude themselves and their public. For all reasoning concerning action must deal with valuation and with the striving after definite ends, as there is no action not oriented by final causes. It is possible to analyze conditions that would prevail within a socialist system in which only the supreme tsar determines all activities and all the other individuals efface their own personality and virtually convert themselves into mere tools in the hands of the tsar's actions. For the theory of integral socialism it may seem sufficient to consider the valuations and actions of the supreme tsar only. But if one deals with a system in which more than one man's striving after definite ends directs or affects actions, one cannot avoid tracing back the effects produced by action to the point beyond which no analysis of actions can proceed, i.e., to the value judgments of the individuals and the ends they are aiming at.

The macroeconomic approach looks upon an arbitrarily selected segment of the market economy (as a rule: upon one nation) as if it were an integrated unit. All that happens in this segment is actions of individuals and groups of individuals acting in concert. But macroeconomics proceeds as if all these individual actions were in fact the outcome of the mutual operation of one macroeconomic magnitude upon another such magnitude.

—Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method (Princeton, NJ: D. Van Nostrand Company, 1962), 83.

The “National Income” Approach Is an Abortive Attempt to provide a Justification for the Marxian Idea that under Capitalism Goods Are “Socially” Produced and then “Appropriated” by Individuals

The “national income” approach is an abortive attempt to provide a justification for the Marxian idea that under capitalism goods are “socially” (gesellschaftlich) produced and then “appropriated” by individuals. It puts things upside down. In reality, the production processes are activities of individuals cooperating with one another. Each individual collaborator receives what his fellow men—competing with one another as buyers on the market—are prepared to pay for his contribution. For the sake of argument one may admit that, adding up the prices paid for every individual’s contribution, one may call the resulting total national income. But it is a gratuitous pastime to conclude that this total has been produced by the “nation” and to bemoan—neglecting the inequality of the various individuals’ contributions—the inequality in its alleged distribution.

--Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 77-78.

The Fundamental Thesis of Methodological Individualism Is Ideas Held by Individuals Determine Their Group Allegiance, and a Collective No Longer Appears as an Entity Acting of Its Own Accord and on Its Own Initiative

There is no need to add anything to what has already been said by praxeology and economics to justify methodological individualism and to reject the mythology of methodological collectivism. Even the most fanatical advocates of collectivism deal with the actions of individuals while they pretend to deal with the actions of collectives. Statistics does not register events that are happening in or to collectives. It records what happens with individuals forming definite groups. The criterion that determines the constitution of these groups is definite characteristics of the individuals. The first thing that has to be established in speaking of a social entity is the clear definition of what logically justifies counting or not counting an individual as a member of this group. . . .

The rejection of methodological individualism implies the assumption that the behavior of men is directed by some mysterious forces that defy any analysis and description. For if one realizes that what sets action in motion is ideas, one cannot help admitting that these ideas originate in the minds of some individuals and are transmitted to other individuals. But then one has accepted the fundamental thesis of methodological individualism, viz., that it is the ideas held by individuals that determine their group allegiance, and a collective no longer appears as an entity acting of its own accord and on its own initiative.

--Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method, ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2006), 73-74.