Bureaucracy

Summary

Bureaucracy is a short book by Ludwig von Mises, published by Yale University Press in 1944, four years after he arrived in the United States. Written in English for American readers, it examines the difference between the way businesses and government agencies are managed, at a time when the New Deal and wartime controls had greatly expanded the federal administration. Mises begins by distinguishing two methods of management. Profit management, used by businesses in a market economy, is guided by the aim of making a profit. Because profit and loss can be measured by accounting for a whole firm and for each of its branches, owners can give managers wide discretion and judge them by results. Bureaucratic management, by contrast, is management bound to comply with detailed rules set by a superior authority. Mises argues that this is not a defect of particular officials but a necessity: government services such as police, courts and defense have no market price, so their success cannot be measured in money, and the only way to keep officials accountable to the public and the legislature is to bind them by law, budget and regulation. Mises therefore does not condemn bureaucracy as such; he regards it as appropriate for the limited tasks of government. His concern is its extension to fields where profit management could work. He argues that public enterprises, lacking a test of profit, must be run bureaucratically, and that government regulation forces private firms to adopt bureaucratic methods as well, since their survival comes to depend on officials rather than customers. Later chapters examine the social and political consequences of bureaucratization, including its effects on young people, who come to see careers as positions in a hierarchy rather than opportunities for initiative, and its psychological effects on public attitudes. Mises concludes that the remedy lies not in administrative reform or in appointing businessmen to run agencies, but in limiting the scope of government and in public understanding of economics. The book appeared in the same year as Hayek's The Road to Serfdom and Mises's own Omnipotent Government, and it belongs to the same wartime debate over planning. It has been compared with Max Weber's sociology of bureaucracy, which treats bureaucratic administration as a feature of modern rational organization, and with later public choice theory. It remains one of the most accessible of Mises's books.

Plot or Argument

• Introduction and Chapter I: Profit management

  Mises explains how the profit motive and accounting allow business to decentralize decisions and hold managers to account.

• Chapter II: Bureaucratic management

  He defines bureaucratic management as management bound by rules and argues that it is necessary where services have no market price.

• Chapters III and IV: Public and private enterprises

  He argues that public enterprises must be run bureaucratically and that regulation pushes private firms toward bureaucratic methods.

• Chapters V to VII and Conclusion

  He examines the social, political and psychological effects of bureaucratization and argues that the remedy is to limit government and spread economic understanding.

Characters

• Ludwig von Mises, author

  Austrian economist writing for American readers in exile.

• The entrepreneur, type

  Business manager guided by profit and loss.

• The bureaucrat, type

  Official bound to apply rules set by a superior authority.

• Max Weber, related thinker

  German sociologist whose analysis of bureaucracy is often compared with Mises's.

Lessons

• Two kinds of management

  Mises distinguishes management by profit from management by rules. Students can identify examples of each in institutions they know.

  • Why can a business give its managers more freedom than a government agency can?
  • Which kind of management does your school use?

• Rules as accountability

  Mises argues that bureaucratic rules protect the public by limiting officials' discretion. The argument invites a fairer view of rules than complaints about 'red tape' usually allow.

  • Why does Mises think bureaucracy is necessary for government?
  • When are rules better than discretion?

• The scope of government

  Mises locates the problem not in bureaucrats but in how many tasks government takes on. Students can weigh this claim against alternatives.

  • Why does Mises reject appointing businessmen to run agencies?
  • Which services, if any, should government provide?

Context

Mises wrote during the Second World War, when the New Deal and wartime mobilization had greatly expanded the American federal government, and many writers expected planning to continue after the war.

Composition

Mises wrote the book in English in New York. Yale University Press published it in 1944, the same year as his Omnipotent Government, and William Hodge issued a British edition in 1945. The Liberty Fund published an edition edited by Bettina Bien Greaves in 2007.

Reception

The book reached a modest audience in the 1940s and was reprinted by Arlington House and later publishers. It is now read alongside Weber's sociology of bureaucracy and the public choice theory of Gordon Tullock and William Niskanen, which also examines the incentives of officials.

Comparisons

• The Road to Serfdom

  Published the same year, Hayek's book warns that planning undermines the rule of law, a political counterpart to Mises's analysis of administration.

• Human Action: A Treatise on Economics

  Human Action develops the theory of profit, loss and economic calculation on which Bureaucracy's contrast between management methods rests.

• The Protestant Ethic and the Spirit of Capitalism

  Weber, whose sociology treats bureaucracy as the characteristic form of modern rational administration, offers a different view of the same institution.

• The Trial

  Kafka's novel portrays a man caught in an impersonal legal apparatus, a literary image of the rule-bound administration Mises analyzes.

• Economics in One Lesson

  Hazlitt's primer on the unseen consequences of government action popularizes the outlook that runs through Mises's book.

• Capitalism and Freedom

  Friedman proposes specific ways to reduce government's role, carrying Mises's conclusion into concrete policy proposals.

• Principles of Economics

  Mises's account of profit management and prices rests on the subjective theory of value that Menger founded.

Quotes

For Students

A reading companion for classical Christian high school students. See the student guide.

Reading Guide

Watch for

• The two definitions of management at the start of Chapter II.
• Why Mises thinks government services cannot be judged by profit.
• How regulation affects private firms.
• His proposed remedy.

Key terms and names

Profit management

Management guided by the aim of making a profit and judged by accounting.

Bureaucratic management

Management bound by rules fixed by a superior authority.

Public enterprise

A business owned and run by government.

Accounting

Recording costs and revenues to measure profit or loss.

Red tape

Popular term for rigid or excessive official rules.

Seminar Questions

1. Comprehension How does Mises define bureaucratic management?
2. Comprehension Why can government agencies not be run for profit, in Mises's view?
3. Interpretation Why does Mises refuse to blame individual bureaucrats?
4. Interpretation How does regulation make private firms more bureaucratic?
5. Big Question Is there a limit to what government can do well?
6. Big Question When should people follow rules rather than their own judgment?

Faith Connections

• Exodus 18:13-26 (Scripture)

  Jethro advises Moses to appoint rulers over thousands, hundreds, fifties and tens, an early account of delegated administration that invites comparison with Mises's discussion of rules and discretion.

• Max Weber, Economy and Society (Great Conversation)

  Weber's account of bureaucracy as rational, rule-governed administration provides a sociological contrast to Mises's economic analysis.

Logic and Rhetoric

Central argument: Where success can be measured by profit, managers can be given discretion; where it cannot, as in government, they must be bound by rules; therefore the growth of government necessarily spreads bureaucratic management, and the remedy is to limit government's scope.

Rhetorical device: definition and contrast. Mises defines profit management and bureaucratic management side by side and builds the book on the contrast.

Debate: Resolved: Government agencies should be run like businesses.

Writing Prompts

Essay: Explain why Mises thinks appointing businessmen to run government departments would not end bureaucracy. Do you agree?

Comparison with The Road to Serfdom: Compare Mises's account of bureaucracy with Hayek's account of the rule of law. How do their concerns overlap?

Creative Prompts

• Classroom

  Have small groups run the same project twice, once judged only by results and once by a detailed rulebook, then discuss which method suited the task.

• Essay

  Describe an experience with an office or agency that followed rules strictly. Explain, using Mises's argument, why it may have had to work that way.

• Fiction

  Write a short story about a young person choosing between a job in a large government agency and starting a small business, drawing on Mises's chapter on the effects of bureaucratization.

Further Reading

• Omnipotent Government, Ludwig von Mises

• Economy and Society, Max Weber

• The Politics of Bureaucracy, Gordon Tullock

• Bureaucracy and Representative Government, William A. Niskanen