Cooperatives in the Petroleum Industry — Summary

This file treats the cooperative petroleum movement as an economic development and as an ideological contest. The introductory trade-association framing emphasizes that petroleum cooperatives emerged from American conditions—mass automobile ownership, mechanized agriculture, and large fuel demand—but insists that their importance lies not only in marketing or refining. Cooperative expansion is presented as a challenge to established understandings of enterprise, profit, and public policy:

It is a struggle for the mind of the people as well.

Mises’s “Observations on the Cooperative Movement” generalizes that concern into a critique of cooperativism as doctrine. He argues that existing cooperatives are not a new social order, not economically superior to private enterprise, and not independent market institutions when they depend on tax exemptions, subsidized credit, and legal privilege. The older cooperative ideal, associated with Owen, King, and Lassalle, sought to eliminate capitalists and entrepreneurs through producers’ cooperatives. Mises maintains that this aspiration failed: modern cooperatives are chiefly consumers’ associations, farmers’ purchasing organizations, and farmers’ marketing associations. Even where cooperatives own productive facilities, they normally hire wage labor like other firms.

There is no question of abolition of the wages system.

Mises first challenges the movement’s language. Cooperatives, he argues, cannot monopolize the moral meaning of “cooperation,” because capitalism itself is social cooperation through the division of labor. Private firms coordinate specialized production in response to consumer demand, and their practical achievements outweigh cooperative rhetoric about brotherhood or moral renewal.

Capitalism delivers the goods.

This claim underlies his rejection of cooperative sentimentality. Consumption is indeed the end of economic activity, but production must precede consumption; one cannot make consumption “primary” by ignoring entrepreneurial calculation, capital, risk, and labor. Mises also stresses the tensions within the movement. Farmers’ marketing cooperatives seek higher prices for agricultural goods, while urban consumers’ cooperatives claim to lower the cost of necessities. Their alliance, in his view, depends on hostility to the “middleman,” a slogan especially relevant to petroleum cooperatives that expanded from farm fuel purchasing into distribution, refining, and transportation while presenting ordinary commercial ambitions as anti-profit reform.

The core economic argument concerns profits and patronage refunds. Cooperatives say they do not earn profits but merely return savings to members. Mises replies that they buy and sell under uncertainty, charge prices above cost, accumulate reserves, retain or distribute surpluses, and allocate gains according to aggregate results rather than the exact economics of each member’s transaction. For that reason, he rejects the claim that a cooperative is merely an agent purchasing on behalf of its members. Its property belongs to the association, members are not compelled to buy from it, and losses are not assigned transaction by transaction.

The economic character of a cooperative does not differ from that of a private store.

Mises then connects this analysis to political theory. The market, in his account, already constitutes the effective form of economic democracy because consumers direct production through buying and abstaining from buying. Cooperatives are not more democratic simply because they are associations, especially when membership is enlarged by fiscal privileges rather than by superior service. He further warns that cooperative ideology often aims not at fair competition among enterprise forms but at replacing private business with a unified cooperative order.

The conclusion turns on neutrality. Mises does not argue that cooperatives should be prohibited; he argues that they should compete without special exemptions, cheap government credit, antitrust immunities, or public advisory support. Such privileges, he says, preserve inefficient enterprises, misallocate capital and labor, shift costs to taxpayers and competitors, and encourage political lobbying rather than economic performance. A cooperative can be legitimate only if it survives by voluntary patronage under equal rules.

The cooperative type of business organization can justify its existence only by renouncing the privileges which it enjoys today.