The Elite Under Capitalism

This file is a single political-economic essay, reprinted from The Freeman (1962). Its five sections move from inequality, to property, to “economic power,” to employer authority, and finally to the duty of the elite. Mises’s thesis is that capitalism does not erase natural differences in ability; it changes what superior ability can do. In status and warlike societies, the strong convert advantage into command. In the market economy, they gain only by serving buyers.

In the market economy the consumers are supreme.

Mises begins by rejecting postnatal egalitarianism and taking inequality of endowment as a fact. This premise could ground aristocracy, but he turns it against precapitalist hierarchy. Under feudal or militant orders, “superior” people seize land and subordinate the rest. Capitalism redirects ambition into competitive usefulness: entrepreneurs and capitalists cannot retain position unless they satisfy the wants of the many. Mass production is therefore not an accidental feature but the social form of capitalism; the common man rules as customer.

The same logic, Mises argues, appears politically in representative government. Entrepreneurs depend on consumers as officeholders depend on voters. Socialism reverses this relation: production is no longer guided by purchases but by a planning authority, whatever democratic title it assumes. The essay’s defense of capitalism is thus also a defense of popular rule against administration by the few.

The section on property is the essay’s most important clarification. Mises contends that critics mistake the legal continuity of ownership for continuity of social function. In precapitalist society, owning land or goods meant using them for oneself; in capitalism, ownership of producers’ goods is conditional on successful service. Profit and loss make capitalists custodians of resources that consumers can effectively reassign.

Private property of the material factors of production is a public mandate, as it were, which is withdrawn as soon as the consumers think that other people would employ the capital goods more efficiently for their, viz., the consumers', benefit.

This does not make property public in law, but it makes its economic legitimacy depend on public satisfaction. Capital accumulation, in Mises’s account, enriches more than owners because it raises productivity, wages, and output. The capitalist’s gain is defensible not as privilege but as evidence—always revisable—that resources are being used where consumers most want them.

Mises then attacks the phrase “economic power.” Political power, he insists, is coercive even when exercised for benevolent purposes.

Governmental power is the faculty to beat into submission all those who would dare to disobey the orders issued by the authorities.

Market “power” is different in kind. It is not the power to imprison or kill, but the ability to propose an exchange that another person prefers to refusing it.

In plain words: it means the invitation to enter into a bargain, an act of exchange.

This distinction carries the argument against the claim that business determines production. Division of labor makes everyone dependent on everyone else, but mutual dependence is not domination. Entrepreneurs only anticipate and compete; buyers decide whether anticipation was correct.

It is not business, but the consumers who ultimately determine what should be produced.

The discussion of employer power applies the same principle inside the firm. Mises admits that managers can indulge prejudice or whim, but they pay for bad appointments through lower profitability. The discipline is not moral benevolence but competitive cost. Profit-seeking, often denounced as inhuman, limits arbitrariness because the employer must treat labor in relation to its service to consumers.

The market forces the entrepreneurs to deal with every employee exclusively from the point of view of the services he renders to the satisfaction of the consumers.

The final section gives the “elite” a duty rather than a right to rule. Mises concedes that consumers and voters may choose poorly and that mass taste may be vulgar. But in a free society the remedy is persuasion, not coercive uplift by planners or cultural superiors.

Where there is freedom, this is the task incumbent upon the elite.

The essay remains relevant as a compact Austrian-liberal reply to theories of corporate rule, exploitation, and technocratic correction of mass preference. Its controversial premise is frank natural inequality; its liberal conclusion is that capitalism domesticates inequality through consumer sovereignty. The “elite” under capitalism is not a caste entitled to command, but a group whose legitimacy depends on voluntary service, competitive accountability, and the ability to persuade rather than compel.