Date: 1950-01-01T07:00:00+00:00
Keywords: liberty
Description: The Foundation for Economic Education The Freeman 1975

The Freeman 1975

Foundation for Economic Education
the Freeman VOL. 25, NO.1. JANUARY 1975 The Gold Standard: A Standardfor Freedom Paul Stevens 3 Government fiat money means government control over the choices and actions of individuals. Those Things Called Money Leonard E. Read 13 Why not leave decisions about money to the fantastic wisdom of the market? Gold Is Legal, But. . . Robert G. Anderson 17 The right to own gold may be an opening against governmentalcontrol of money. Two-DigitInflation Hans F. Sennholz 23 An analysis of the disastrous consequences of a monetary policy based solely on political considerations. The Cost of Statism Brian Summers 35 The costs of intervention are real, though they cannot be measured. Justice in the Market David Kelley 38 Freedom and justice stand together, jointly opposed to collectivism. The ContinuingEffortsto Destroy PropertyRights The owner still knows best how to use his property. Bernard H. Siegan 46 Significanceof Services-Hiringa,nd Firing W. A. Paton 48 Concerning the economic importance of personal services and the pricing of them.

Book Reviews: 58 "The Virginia Experiment" by Alf J. Mapp, Jr. "Economicsand Marx-the FraudulentAntagonists" by Howard Brandenburg "The Incredible Bread Machine" by various authors "Will the Real Young America Please Stand Up?" by Mark Evans Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

tile Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON·ON-HUDSON, N. Y. 10533 TEL.: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975, The Foundation for Economic Education. Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, !!Inn Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit, except "The Continuing Efforts to Destroy Property Rights."

PAUL STEVENS The Gold Standard: AStandardFor Freedom AT ONE TIME the case for the gold standard was practically self-evi dent - undisputed by most econo mists and appreciated by both lay men and professionals. Today, however, the case for gold is bur ied under decades of propaganda, misconceptions, and myths. It has been only recently that the case for the gold standard has begun to surface from under the· Policy Makers' anti-gold debris. Conse quently, gold is once again gain ing the attention and interest it so rightly deserves. Today's free-market advocates of the gold standard differ from past advocates. For example, free market advocates do not exclude silver or other commodities from their concept of a gold standard. Indeed, they· do not even insist that gold must be money. The case Mr. Stevens is a freelance writer who special izes in the field of economics and monetary policy.

for the gold standard is actually the case for market-originated commodi ty money, and the case against government-regulated fiat money. It is simply an extension of the case for free markets which respect the rights of man, and the case against controlled markets which violate the rights of man. To be concerned with the gold standard is to be concerned with a free economy, regulated by the values and choices of men, rather than a controlled economy in which the values and choices of men are regulated by government. This concern for man's freedom to express values and· exercise choices is derived from the deeper concern for justice and for man's right to property. The man con cerned with justice does not aim to force others to use gold as money. Rather, he insists that gov ernment has no right to prevent him and other men from using 3 4 THE FREEMAN January gold as money if they choose. The man concerned with property rights does not urge government to legislate pro-gold policies in order to arbitrarily increase the value, popularity, or status of gold. Rather, he insists that gov ernment stop inflating, since this arbitrarily decreases the value of his money claims to property.

Antagonists of the gold stand ard claim that it is impractical. But the gold standard is, in fact, the most practical monetary sys tem yet conceived by man. How ever, the gold standard's primary virtue does not lie in its practi cality: it lies in its morality. Those concerned about such things as freedom, justice, the preserva tion of property rights and p~r chasing power, would do well to consider the moral case for the gold standard, for, once under stood, it is the individual's best defense against government con fiscation of property through in flation. The fact that prevents govern ment from indulging in inflation ary schemes under the gold stand ard can be best summed up in a phrase: governm.ents can't print gold. But to understand the impli cations of this statement, and the virtues of having gold as money, it is first necessary to understand what money is - and what money is not.

What Money Is A man on a desert island has no need for money. He produces the goods he needs to survive, and consumes all he produces. Simi larly, a primitive society has no need for money. The kinds of goods produced are extremely lim ited, and if individuals desire to exchange their goods with one another, they can do so through direct exchange, Le., barter. But under a division of labor economy where men specialize in produc tion and where there is a variety . of goods produced, desired, and traded, there is a· very definite need for money. For how else could Mr . Jones in Florida sell his oranges to men throughout the world and then buy Mr. Smith's bestselling novel, unless there ex isted some medium of exchange acceptable to all parties. Money originates from men's desire for indirect exchange. And more, since indirect exchange usu ally occurs between strangers like Smith and Jones, money must be an object which is mutually val ued. Thus, money is that commod ity which serves as a medium of exchange by virtue of its high de gree of marketability.

The task of discovering which commodity will be most valued by and most acceptable to men as a medi urn of exchange can only be accomplished through a market 1975 THE GOLD STANDARD: A STANDARD FOR FREEDOM 5 process; for it is only through the market that men's values and choices are properly reflected. The verdict of the market has re flected three general requirements for any lasting medium of ex change: that money should be gen erally acceptable to most men; that it should be practical to use; and that it should be relatively stable in value. If these require ments are satisfied, there'sult is a money of trust. Trust is the lifeblood of money, and money is the lifeblood of any economy based on the indirect ex change of goods and services. A money of trust serves to facili tate exchange among men, and in doing so, breeds a healthy and growing economy. But if men should ever begin to mistrust money, the market will immedi ately reflect this loss of confidence.

Then money will begin to lose stability, lose its acceptability, and will soon become impractical to use in exchange. Mistrusted money is the anti thesis of the lifeblood of an econ omy. It's a kind of "bad blood" circulating between men through out the economy, breeding con fusion and suspicion. The fact that men's mistrust of money will result in monetary crises and col lapse, underscores the need for a money that never contradicts men's· values, a money that at all times properly reflects men's val ues, Le., a money based on, and constantly exposed to, individual choices - which means a free mar ket-origina ted commodi ty money. Why Leave to Market When one considers the com plex process that must take place before men can discover which commodity money constantly re flects their changing values and choices, one can understand why it is only through a free market process that money can properly evolve as a medium of trust .. And one may also understand why no man, group of men, or govern ment, has the right to dictate what money or its value should be. This decision must be a market decision if it is to be a lasting decision.

Throughout history, almost every conceivable commodity has been used as a medium of ex change. Through the years of eco nomic development and through trial and error, those commodi ties least suited to serve as money were eliminated, while those com modities best suited survived as forms of money. After centuries of exchange between men, the commodity that emerged as the most valued, the most practical, the most t~usted money among men, was gold.

6 THE FREEMAN What gives rise to men's trust in gold? First, men value gold as m.oney because men value gold as a commodity. Gold at any time can be c'onverted to its commodity role if its monetary role should ever .be questioned. Second, since gold is relatively scarce and precIous to men, it has stability of value. Therefore, it can be trusted to serve as a relatively stable medium of exchange. And since most in dividuals desire to save part of what they produce in some mon etary form, gold's stability of value provides them with a relia ble monetary method of accumu lating and storing wealth. What else gives rise to men's trust in gold? Gold is easily mar ketable, which means It is accept able to men in exchanges of all kinds. Gold is also trusted because it is practical: it's durable, so it won't perish or rot; it's small in bulk, so it is easily transportable. It's a metal, which means it can be used in different forms, such as bars or coins; and, since gold does not evaporate, it will lose neither quantity nor quality if or when men should decide to melt their coins into bullion or melt their bullion for use in production.

There is one more thing that gives rise to men's trust in gold: the knowledge that gold cannot be counterfeited; the conviction that the money supply cannot be artificially and arbitrarily increased by those who would a.im to con fiscate wealth rather than produce it; the knowledge that money (the claim to production and effort) will itself represent production and effort. In short, men's trust in gold carries the conviction that the monetary system freely adopted by men is based, not on whim and decree, but on integrity and productivity. These are some of the reasons why men have trusted gold as a medium of exchange through his tory - and why today's Policy Makers damn its existence. . .. And What Money Is Not Money is not paper. Paper notes evolve from the desire for a con venient substitute for commodity money. The paper notes that cir culate as money today were once money substitutes (receipts for gold), defined by and convertible into a specific amount of gold.

Paper notes did not and cannot become a money of trust without first representing a commodity of trust. Consider the reaction of free men - men who, understanding and respecting the meaning of property rights, are suddenly and for the first time offered in place of gold, non-convertible paper notes. These notes would be mean ingless to such men. No man who 1975 THE GOLD STANDARD: A STANDARD FOR FREEDOM 7 had just come from harvesting a field of wheat would even consider trading his wheat for scrap paper. There are only two ways in which men will accept paper notes without commodity convertibility: if they are forced to do so, or if they are conned into doing so. Americans are now legally forced to accept government's non-con vertible paper notes - but only beca use they have been conned into believing that commodity money is "old-fashioned" and "im practical" and that paper notes are indicative of a "modern and sophistica ted economy."

Nothing could be further from the truth. Non-convertible paper "money" is fia,t money that derives its value, not from its value as a commodity, not from its value as a useful medium of exchange ac cording to the requirements of a medi um of exchange, but from the decree of government. Fiat money is a throwback to the days of kings and the mentality of dic tators. It is not a money evolved from the values and choices of free men in free markets, but a money created through the coer cion of government. Is commodity money old-fash ioned and impractical, as today's Policy Makers contend it is? Con sider the following facts: Over the last several decades, the ex change ratios (the prices) of various commodities have not varied much in value relative to each other. For example, the value of eggs to milk or milk to bread ,vould be at approximately the same ratios today as they were years ago.

Why Prices Rise But if it is true that the ex change ratios of commodities are rela tively the same today as they were in the past, why then have prices (the exchange ratios of dollars to goods) soared over the years? The reason is that the val ue of the paper money, with which government forces everyone to deal, has fallen yearly relative to all commodities. Clearly, if a com modity (theoretically, almost any commodity) had been used as a medi um of exchange over the past decades instead of government's fiat money, prices would have re mained relatively stable. It is im portant to realize that it is not commodi ties that are rising in value, but fiat money that is fall ing in value. Since 1933, when the U.S. sev ered the dollar-commodity rela tionship by abandoning what was left of the gold standard, the value of the dollar has depreciated by over two-thirds in relation to other commodities. This could nev er occur under a commodity stand ard - only under a government8 THE FREEMAN Janua,ry imposed fiat standard. Had the U.S. returned to a dollar based on and convertible into gold instead of severing the dollar-gold rela tionship, the supply of dollars over the years would have been limited to, or checked by, the sup ply of gold. Therefore, the value of the dollar today would have been equal to the value of gold in relation to other commodities. In stead, the U.S. decided to print dollars whenever "needed" and to pretend that the dollar was "as good as. gold" by legally fixing its value. The pretense couldn't last, and today the dollar is worth ap proximately 25 per cent of its val ue in terms of gold in 1933.

Paper notes that are not repre sentative of and convertible into a commodity are not money and have never satisfied the require ments of money for long. They are notes of circulating debt which men are forced to accept, so that governments can continuously pur sue their policies of inflation. The Nature of Inflation Inflation is the fraudulent in crease in the supply of money sub stitutes and credit. It is a policy which allows government to arti ficially create and spend more money than it is able to collect in taxes or borrow from its citizens. Government is the cause of infla tion - the effect is higher prices. Consider each dollar as a claim to some tangible good. If the claims are increased, the value of each claim goes down· because there are more dollars seeking goods. This bids prices up. But inflation is not simply ris ing prices. In fact, inflation may exist even when prices remain the same or decrease. How is this pos sible? If the production of goods and services increases more than the artificial increase in paper claims, prices will drop - but not by as much as they would have, had there been no artificial in crease in paper claims. Thus, in real terms, the value of paper claims is effectively reduc'ed even though in relative terms the value of these claims may increase.

Historically, and in relatively free market economies, there are only two ways in which a general across-the-board increase in prices can occur: through a dramatic in crease in commodity money (such as new gold discoveries) or through a fraudulent increase of money substitutes by banks and governments. The former type of general price increase rarely oc curs and is perfectly natural. The latter is both unnatural and im moral. In the case of new gold prod uc tion, those who have produ.c:edthe new commodity money will have earned the right to exchange their 1975 THE GOLD STANDARD: A STANDARD FOR FREEDOM 9 product for the products of othe,rs. All other non-money producers may have to pay higher prices for goods, as the supply of gold in creases, but the higher prices are compensated for by having more money to spend. Who receives the "new" money will depend on indi vidual productivity - and this is as it should be, for it is the jus tice of the market that the acqui sition and distribution of wealth is based upon productivity rather than decree.

But, given a fiat standard whe're government sanctions and spon sors an a,rtificial increase in paper money or credit, the increase in purchasing power for some men can only be obtained at the ex pense of other men. Given a fiat standard, income distribution is the result of chance, caprice, or government favors and loans. When government doles out its fiat money, these notes dilute the value of all other outstanding money claims. Those who receive the fiat money first, benefit from spending their money before prices rise. But as the fiat money is spent, prices are higher for all other consumers. Thus, the difference between a real increase in the money supply (Le., commodity money) and an artificial increase (Le., in paper cla,ims) is the dif ference between production and theft. Clearly, inflation is a moral is sue. However prices respond, it is immoral that some man, agency, or government is legally permit ted to obtain wealth at the invol untary expense of other men. The maj or challenge in the sphere of monetary relations today is how to abolish the coercive power of government to control the supply qnd regulate the value of money, and how to return this function to the market where it properly be1ongs.

The fiat Standard at Work Under a fiat standard, govern ment gains control of the banking system and thus, indirectly, of the nation's money supply. It can arti ficially and arbitrarily create mon ey and furnish credit. Government paper no~es are not based on or convertible into gold, or any other tangible commodity; man's pro duction and labor are not the sole claim to other men's production and labor: the supply and value of money are determined by. govern ment. Under the American version of the fiat standard, the banking sys tem and the nation's money sup ply are controlled and regulated for the most part by a twelve-man Board of Governors which is em powered to make policy decisions for the majority of the nation's banks. Thus, America's banking 10 THE FREEMAN January system is not a free and private banking system - it is a quasi governmental banking system, known as the Federal Reserve System.

It should be clear that the Fed eral Reserve System's power to create claims against individuals' property is immoral. But neither the Federal Reserve System nor the fiat standard is ever defended on moral grounds; they are' de fended on practical grounds. Once inspected, however, these grounds turn out to be about as solid as quicksand. The primary justifica tion given for a fiat standard is that credit can be extended far more rapidly and extensively. This, it is claimed, is the fiat standard's major virtue. It is, in fact, a major vice. The greatest economic threat under a fiat standard is that the Federal Reserve System will sup ply heavy doses of money and credit to the loan market in an attempt to reduce interest rates and "stimulate" the economy. This attempt, while temporarily stimu lating economic activity, leads to malinvestm,ent, as businessmen falsely anticipate greater profits.

A "boom" results, but since the "boom" is artificially created, the prosperity is temporary and, for the most part, illusory. Govern ment has not furnished more goods; it has not increased the nation's prosperity; it has simply increased the money supply which leads men to believe they are richer. The fact is, however, they only have more paper claims to goods. This cannot enrich any one; it can only lead to future in flation, i.e., a reduction of the value of real claims to wealth. Illusion of Prosperity Thus, increases of money and credit provide only an illusion of prosperity, for with increased money and credit come increased costs for producer goods and in creased wage costs. Higher wages then lead to over-consumption, as consumers, too, are enticed by the illusion of prosperity. But over consumption results in higher prices which reduce the consum er's standard of living. Since the "boom" was inflation-inspired, producers and consumers are not better off - they are worse off.

Malinvestment and over-consump tion are mistakes - errors in j udg ment - caused by government's at tempt to con its citizens into be lieving that profit opportunities are better than they really are. When the credit expansion that stirn ulated the "boom" ends, the mistakes that were made cannot be perpetuated. These mistakes must be liquidated: consumers buy less and begin paying off their un realistic accumulation of debts.

1975 THE GOLD STANDARD: A STANDARD FOR FREEDOM 11 Producers liquidate inventories. Interest rates rise, and unemploy ment increases as the economy struggles to readjust. The severity of the readj ustment depends on the degree and length of govern ment's prior credit expansion and the policies implemented to cope with the adverse effects. Given continual injections of money and credit in the inane attempt to con tinue the "boom" and prevent a necessa.ry recession, hyperinfla tion will result. Hyperinflation must lead to monetary chaos as well as economic disaster, i.e., to depression. A major depression is not a necessary result of the fiat standard, but inflation and the "boom-bust cycle" are. The whole-purpose of fiat mon ey is to allow government to spend more money than it can raise in direct taxes from its citizens. As a result, the American fiat stand ard has worked more often. as a means of redistributing wealth than a means of stimulating the economy. Government, instead of furnishing money to the loan mar ket in the attempt to continuously reduce interest rates, has created money to finance the "welfare"

state. When government's fiat money enters the economy in the form of checks for expenditures, rather than through the loan mar ket, the sequence of events and the effects are a little different. Men usually hold their money as savings, but as prices continue to rise over the years of govern ment deficit spending, men realize that the pieces of paper they hold are continuously and progressively depreciating in value - that in flation is becoming a way of life. Once men begin to lose confidence in government's fiat money, it's only a matter of time-before the years of simple inflation burst in to hyperinflation and monetary collapse. Thus, whether government tries to stimulate the economy or to finance programs that it cannot afford, the, fiat standard is self-de feating and counter-productive. The consequences of America's fiat standard have been mild by historical standards: the Great Depression of the '30's, an end less series of booms and busts since then, and a depreciation of the dollar by about 75 percent. So much for the "practicality" of the fiat standard!

The Meaning of the Gold Standard In a free society, no man, group of men, or government has the "right" to infringe upon the rights of others. This means that within a free society, the initia tion of force is banned. All goals must be' attained through persua sion and voluntary cooperation, and no goal may be achieved at 12 THE FREEMAN January the expense of any man - not for the "good" of another man, not for the, "good" of the state, and not for the "good" of society. A system of voluntary exchange is a system of laissez-faire capitalism. Under capitalism, man's rights are supreme. They are defended by government - not violated by government. A gold standard is an integral part of a free society; a fiat stand ard is an integral part of a con trolled society. A gold standard cannot exist without the consent of individuals; a fiat standard cannot exist without the initiated force of government. A gold stand ard is based on voluntary ex change', the recognition of men's values, and respect for private property; a fiat standard is based on compulsory "exchange," the de nial of men's values, and the insidi ous confiscation of private prop erty.

Wealth is production, and gold is the equivalent of wealth pro duced. Because neither wealth nor gold can be created out of nothing, neither wealth nor gold are pos sible without men of intelligence, men of ability, and men of produc tivity. Fiat is force and is the equivalent of wealth confiscated. Both fiat and force are the tools of the .envious and the cowardly. Where a gold standard is welcomed by the best of men, the fiat'stand ard is welcomed by the worst of men. Where the gold standard de mands the earned, the fiat stand ard grants the unea,rned. Where a gold standard evolves from indi vidual choice, a fiat standard evolves from government edict. Where a gold standard necessi tates only that men be left free to act, to choose, and to trade, a fiat standard invites government to control, to regulate, and to dic tate men's choices, actions, and the terms of trade. Gold limits the government's power to spend more money than it receives in taxes, and in doing so, gold limits the government's arbitrary power over the economy; gold checks artificial money and credit expansion; it prevents arti ficial "booms" which lead to very real "busts"; gold protects indi viduals from economically un sound government programs; and it protects citizens from the in flationary confiscation of private property. Not only is the gold standard the most practical mone tary system yet discovered, it is a standard consistent with freedom - yet it is the gold standard that today's Policy Makers either ig nore or denounce. ~ LEONARD E. READ Those Things Called Mo What this country needs is a good five-cent nickel.

-EdWynn NEARLY EVERYONE at this moment of money madness will agree with Wynn's statement - humorous but sound. H. B. Bohn remarked: "Of money, wit, and virtue, believe one-fourth of what you hear." As to wit and virtue, Bohn may be right. But I doubt that as much as a fourth of what we hear about money is worth serious considera tion, for most of the pronounce ments stem from a premise that it is a function of government to issue money and regulate the value thereof. The premise seems wrong to me. I believe that if money is to be useful to traders as a me dium of exchange then the deci sions as to what shall serve as money must be worked out by traders in the market, voluntarily, rather than by governmental edict. If you are further interested in what I believe, reflect for a moment on the various commodities and other things that have been used for money: wampum, sea shells, salt, fur, dried fish, ivory, ciga rettes, silk stockings, gold and other metals - the list·· is long.

These are some of the things called money, but note that of those listed thus far, all are commodities that, at the time, were in common use in trade - so common that they were useful as a medium of ex change. But things of a different category, "non-commodities," also are called money - and thereby hangs our tale. German marks are things; in 1923 five billion of these things .wouldn't buy a loaf of bread. Paper dollars also are 13 14 THE FREEMAN January things called money - legal tender - government money which the law requires a creditor to accept in payment of a debt. Or to put it another way, government money, if created out of thin air by edict, is in no sense a scarce and valu able resource useful to traders but is rather a means of taxing or taking scarce resources from the market without offering anything useful in exchange. Such "money" may be a clever form of taxation, but it is far worse than useless as a medi urn of exchange.

Not Worth a Continental? Am I arguing that government money never has been "worth a Continental"? Not necessarily. If a government issues paper receipts that are fully backed by some valu able and widely acceptable item of trade - fully redeemable upon de mand by the bearer - such receipts may serve very well as a medi urn of exchange. But, of course, there's no reason on earth why the issu ance of warehouse receipts should be a governmental function. Let anyone do it who has a warehouse, and printing press, and a sufficient stock of gold or silver or whatever else the receipt calls for. And let government intervene only to see that the receipts are not fraudu lent - counterfeit. I am well aware that some gov ernments of some nations at some times have been in charge of mon etary policy with quite satisfac tory results, when the policy was to mint standardized coins and issue receipts fully redeemable in some well-·known and highly mar ketable commodity. But there is no reason to suppose that the man agers of a governmental monopoly will long function in competitive fashion if the monopoly can be exploited to gain additional poli tical power. And it doe3n't take a genius to figure how to exploit a money monopoly: just print bogus warehouse receipts and declare them to be legal tender; then pass laws to penalize suppliers of goods or services who refuse to accept the bogus receipts at face value.

Finally, this can be pushed to the point of issuing receipts based not on the fullness of the ware house but on its emptiness instead - the use of the national debt as the backing for the paper money. What would be the grossest fraud if an individual tried it has become the common practice of governments - all quite legal be cause it is a governmental mon opoly. And the result is a runaway inflation that disrupts business activities and hinders rather than facilitates trade. This is why gov ernments cannot be trusted with power to determine what traders should use as a medium of ex change. Let the traders choose.

1975 THOSE THINGS CALLED MONEY 15 Leave the decisions about money to the market. Limit the govern ment to its proper function of policing the market and punishing traders who cheat or rob or will fully inj ure other peaceful persons. There Is No Blueprint When I say that decisions about money should be left to the mar ket, I do not presume to know precisely what those decisions might be. Nor do I find much agreement among monetary ex perts as to what those decisions ought to be. Would traders insist on pure gold as money? Would they use checking accounts or Ameri can Express or credi t cards? Would they patronize banks and insist on 100 per cent reserves? I don't know, and I'm not terribly concerned that no one else seems to know precisely. What I am concerned about is that men be free to choose whatever best seems to serve their own respective pur poses. And I believe that from such freedom to succeed or fail in open competition in the market will come the most nearly perfect and tamper-proof monetary pol icy humanly possible.

How much understanding of money is required of us? No more understanding than anyone of us has about how to make a jet airplane. To support this point, let me repeat for the umpteenth time that no single person knows how to make an ordinary wooden lead pencil, explained in a brevity en titled, "I, Pencil."l Yet, the year that piece was written, we made in the U.S.A. 1,600,000,000 wood en pencils. How come? How ex plain a know-how that exists in no one of us, even remotely? My answer: It is the overall luminos ity, the wisdom in the free mar ket. When millions of people are free to act creatively as they choose, an unimaginable wisdom is the consequence. To assert that it is a billion times greater than exists in any discrete individual would be a gross understatement. Keep in mind that any single' person's understanding of how money could be made to serve us honestly and efficiently is pre cisely as impossible as under standing how to make a pencil!

It is appropriate at this point to ask a question to which no one has a correct answer: What would be the medium-of-exchange sit uation were it-left not to dicto cratic control but to the fantastic wisdom of the market? To hazard a guess would be to feign a clair voyance beyond human experience. Guessing would be as farfetched as expecting Socrates to have fore seen and described the makings of 1 See "I, Pencil." Copy on request.

16 THE FREEMAN January present-day air travel, electric lighting, the human voice deliv ered around the earth in one seventh of a second, my dicta phone, or a thousand and one other phenomena. I call these "phenomena" because no one un derstands or can describe the gen esis of these countless economic blessings even after their exis tence! The wisdom that accounts for them is not in you or me; it derives from the overall luminos ity. Why then should we not en trust money-the medium of ex change - to this same wisdom rather than to the coercive power of those now in public office? Yes, what this country needs is a good five-cent nickel. The way is clear: Relegate organized force - government - to the defense of life and property, invoking a com mon justice, keeping the peace. And leave all creative activities, including the medium of exchange - money - to the wisdom of the market. Do this or our country will end up with a five-cent thou sand-dollar bill.

Difficult ? Yes! Impossible? Who knows! One thing for certain: Turning money affairs over to the free market is no more an idealistic dream than red ucing government to its proper role. And, another thing for certain: Standing for that which seems politically expedient or feasible gains nothing; such techniques are doomed to failure. On the other hand, every boon to man kind has had its birth in the pursuit and upholding of what's right. Humanity has been graced with many boons, everyone of which was first thought to be im possible. Bear in mind that right eousness, as well as faith, works miracles. ~ IDEAS ON LIBERTY The Sources of Invention IF PAST EXPERIENCE is anything to judge by, crucial discoveries may spring up at practically any point at any time. As contrasted with the ideal ways of organizing effort in other fields, what is needed for maximizing the flow of ideas is plenty of overlapping, healthy duplication of efforts, lots of the so-called wastes of competition, and all the vigorous untidiness so foreign to the planners who like to be sure of the future.

JOHN JEWKES, from Lloyds Bank Review, January 1958 Bold Is Legal, BUT.. ROBERT G. ANDERSON 17 TODAY, as was true 42 years ago, the American people once again have freedom to own as much gold as they choose. Devotees of the free market have viewed this development with pleasure, for they have had little cause to re joice during these many years of steady erosion of individual lib erty. Socialistic governmental in tervention has steadily expanded since the denial of our right to own gold. The restoration of legal gold ownership by individuals is cer tainly a reversal of this ominous trend of government omnipotence. It has been heralded as a sign of change in the course of statism. Upon closer scrutiny, however, such optimism may be questioned, for there is a marked distinction between conditions then and now. Mr. Anderson is Executive Secretary and Di rector of Seminars at the Foundation for Eco nomic Education.

What has been restored, and what was lost 42 years ago, are not the same. Prior to April 5, 1933, gold was money. Individu als used gold daily as their me dium of exchange for goods or services at the rate of $20.67 an ounce of gold. It is true that the payment was rarely made in gold bullion, but the gold certificates or gold coins in use represented bul lion. Gold was legal tender, along with the coins and currency of the Treasury and Federal Reserve Banks. Upon demand, anyone could surrender his paper money and re ceive gold bullion. The legalization of gold owner ship has not restored it as our medi um of exchange - money. The statist legal tender laws (in con junction with Gresham's Law) continue to force the fiat paper money of govern~ent upon us. The use of gold as money is still forbidden. Any att mpt to use or I 18 THE FREEMAN January demand gold payment for goods or services remains illegal. The absolute governmental monopoly of fiat money continues to be pro tected by law against competition from gold.

Calling in the Gold The evolution of this govern ment monopoly of money began ,vith a Proclamation· of President Roosevelt on April 5, 1933; under enabling legislation passed a month earlier, the destruction of gold as money commenced: All persons are hereby required to deliver on or before May 1, 1933 ... all gold coin, gold bullion, and gold certifica tes now owned by them or coming into their ownership on or before April 28, 1933 .... Until other wise ordered any person becoming the owner of any gold coin, gold bul lion, or gold certificates after April 28, 1933, shall, within three days after receipt thereof, deliver the same ... upon receipt of gold coin, gold bullion, or gold certificates de livered to it.... The Federal Reserve Bank or member bank will pay there for an equivalent amount of any other form of coin or currency coined or issued under the laws of the United States.

This order called for the sur render of private gold holdings. Individuals, many believing it was merely a temporary action arising out of the "national emergency" of the great depression, obedient ly exchanged their gold for paper money. The surrender of gold coins for paper money is understandable, inasmuch as gold could no longer be used·· as a medium of exchange. Indi vid uals needed money to trans act their exchanges. Since the ex change value of money at the time was greater than the commodity value of the gold content in the coins, people generally did not re sist exchanging their gold for the remaining medium of exchange ~ paper money. But the government wanted to make sure of its money monopoly position. It wanted all the gold, and in furtherance of that end, President Roosevelt issued an other Proclamation on August 28, 1933: After 30 days from the date of this order no person shall hold in his pos session or retain any interest, legal or equitable, in any gold coin, gold bul lion, or gold certificates situated in the United States and owned by any person subject to the jurisdiction of the United States, except under li cense therefor issued pursuant to this Executive order ....

While nominal holdings of gold were exempted from these edicts, any subsequent use of or holding of gold was under the direct con trol of government. Gold owner1975 GOLD IS LEGAL, BUT ... 19 ship was now illegal except under Treasury license and scrutiny. It only remained to establish penalties for any violation to these edicts .. This came in short order as a part of the Gold Reserve Act, January 30, 1934: Any gold withheld, acquired,· trans ported, melted or treated, imported, exported, or earmarked or held in custody, in violation of this Act ... shall be forfeited to the United States ... and in addition any person failing to comply with the provisions of this Act or of any such regulations or licenses, shall be subject to a penalty equal to twice the value of the gold in respect of which such failure oc curred. To all intent and purpose, the medium of exchange was now an irredeemable paper currency. Cer tain legal relationships prevailed between gold and money, but con vertibility by United States citi zens was ended. The only remain ing convertibility was with for eign holders of our dollars. In time, even these provisions would disappear.

The Gold Reserve Act of 1934 transferred all the gold in the United States into the hands of the Treasury. The Federal Re serve Banks were issued "gold certificates" by the Treasury in exchange for their gold. It was cynically observed that "These are not certificates that you can get gold. These are certificates that gold has been taken away from yoU."I Gold Repriced at $35 The abandonment of the gold exchange standard was now com plete. With the bulk of the na tion's gold stock in the possession of government, and its monopoly over our money supply established, it didn't take long for the govern ment to exploit its position. The very day after the passage of this legislation, January 31, 1934, President Roosevelt reduced the gold content of the dollar by 40.94 per cent. The new price of gold was established at $35.00 per ounce in place of the old price of $20.67 per ounce. Overnight the face value of the gold held by the Treasury and Federal Reserve Banks increased by almost three billion dollars.

This devaluation directly repudi ated forty per cent of the dollar claims to gold held by foreigners. The government wasted no time in getting started its engine of inflation. The American people were about to learn that only the discretion of the government mon ey monopolists remained to limit 1 B. M. Anderson, Economics and the Public Welfare (Princeton, N. J.: D. Van N ostrand Company, Inc., 1959), pp. 348-49.

20 THE FREEMAN January the inflation of our money supply. It is a matter of historical rec ord that not much discretion ever existed. The money supply has increased more than seventeen fold since our abandonment of the gold exchange standard. The mag nitude of this monetary expansion has reduced the purchasing power of today's paper dollar to about one quarter of its value in 1933. During this era of continued inflation the government was se vering any remaining legal ti es to gold. The final tie was cut on August 15, 1971, when the "gold window" was closed to foreigners. After that date, not even foreign central banks could convert their dollar holdings to gold. The Amer ican dollar was nothing but irre deemable fiat money. Still a Money Monopoly The legalization of gold owner ship today does not restore gold as a medium of exchange. As a matter of fact, the willingness of the state to once again permit gold ownership is precisely be cause the state no longer views gold as a threat to its money monopoly.

Gold can now be owned as a nonmonetary commodity. Any ef fort, however, by private citizens to re-introduce gold money as a medi urn of exchange will be promptly challenged by the government as illegal competition against its monopoly of paper money. Gold ownership was not legalized in order to restore a sound money, but instead, because government no longer considers gold important. Overconfidence, however, even by a monopolist, can lead to a miscalculation. So, any relaxation of power by the State, any resto ration of freedom to the citizenry, should be acclaimed with joy and fully exploited. The restoration of the legal right to own gold is the action of an overconfident money monop olist. While the use of gold as a medi urn of exchange is still pro hibited, the fact that we may own gold provides a means to protect our wealth from the ravages of inflation. A Measure of Stability If the State continues on its inflationary path, cash holdings in paper money will be reduced, or even eliminated in some cases.

Holding gold will be more advan tageous. The expansion of the quantity of the government's pa per money, which erodes its pur chasing power, cannot touch gold. On the contrary, the price of gold may be expected to rise in direct reflection of the declining purchas ing power of the paper dollar. This development will become 1975 GOLD IS LEGAL, BUT ••• 21 more and more visible. The ad vantage of holding gold rather than paper money will become ob vious to all. Conversion from gold to paper money, in order to com plete an exchange, and then con verting back to gold from paper will become commonplace. While the process introduces an addi tional complication in our ex changes, buyers and sellers in the market will readily discover that this additional "complication" is a small burden to pay in order to offset the inflationary impact of government money. This trading practice is wide spread in those countries through out the world that permit private ownership of gold while still suf fering from chronic inflation. With lengthy histories of paper infla tion as their lesson, people in for eign lands hold gold, not paper, in their secret hiding places. Gold's immunity from government gen erated inflation has made it a prized possession in these infla tionary times.

Our exchange economy does not have to follow such dismal ex amples. Though not intended as such, the first step toward a re turn to sound money has been taken. As individuals begin to register their p,reference for gold over paper in the market, the next major step by our govern ment must be considered: permitting gold as a medium of ex change. 2 Leave It to the Market Past intrusion by government into monetary affairs has only led to monetary destruction. While the law can guard money from fraud, it cannot create money. Money evolves from the market and the need for a means to facil itate our exchanges. If individuals are to have their full freedom to make exchanges, they must also be free to deter mine the media in which their exchanges shall be made. Through out history, gold has been the com modity chosen by free men to ac complish this end. The legalization of gold owner ship will allow the market to dem onstrate that gold is the preferred media for making trades. Once again it will be seen that sound money can only originate within the market.

The final restoration of a sound money will require a major shift in political thinking. The futility of continued inflation must first be recognized. As the failure of "po litical money" becomes increas ingly obvious to voters, govern ment hopefully will abandon its 2 See Hans F. Sennholz, Inflation, or Gold Standard?, "Return to the Gold Standard" CLansing, Mich.: Bramble Minibooks, 1973).

22 THE FREEMAN January monopoly power over the money system. In response to the public clamor for a sound money, gold will finally prevail. The soundness of gold in con trast to the deterioration of pa~ per money will be clear to all who care to see it. All that is required by government hereafter is the removal of legal barriers to free use of gold in trade. The compet itive forces of the market will shortly re-establish it as the "mar ket's money." So, from the now restored right to own gold, we may hope even tually to reassert our right to use it as money. The welfare of all of us is dependent on such a result. The survival of a free market is dependent on the preservation of a sound money. If sound money is to be restored and our freedom preserved, government must sur render its monopoly over money and allow gold to once again serve buyers and sellers in the market as our medium of exchange.

Gold is legal, but it is not yet money. ~ IDEAS ON $ LIBERTY Economic Sophisms EVER SINCE the advent of representative government placed the ultinlate power to direct the administration of public affairs in the hands of the people, the primary instrument by which the few have managed to plunder the many has been the sophistry that persuades the victims that they are being robbed for their own benefit. The public has been despoiled of a great part of its wealth and has been induced to give up more and more of its freedom of choice because it is unable to detect the error in the delusive soph isms by which protectionist demagogues, national socialists and proponents of government planning exploit its gullibility and its ignorance of economics. ARTHUR GODDARD, from his preface to the English-language edi tion of Economic Sophisms by Frederic Bastiat HANS F. SENNHOLZ IT HAS BEEN SAID that affliction is a school of virtue, that it corrects levity and interrupts the confi dence of sinning. If this should be true, then the rampant inflation which is our most serious public affliction should offer important lessons in virtue and hamper the confidence of economic sinning.

But such lessons cannot be learned as long as ignorance deprives man of some basic understanding of his affliction and of the .remedies there are. For hundreds of years the is sue of excessive quantities of pa per currency by government was called inflation. Rising goods prices were deemed to result in evitably from such issues and were thought to offer an indica tion or measure of the degree of Dr. Sennholz heads the Department of Eco nomics at Grove City College and is a noted writer and lecturer on monetary and economic affairs. Inflation monetary inflation. But in the semantic confusion of our age we are calling the rise in prices in flation. And the issuer of the money, spendthrift government, is called. "inflation fighter." How delightful and profitable for officials and politicians! They can spend and spend without much worry about budget deficits, which are covered by the issue of new currency. The new terminology implicitly lays the blame for ris ing prices on anyone who dares to raise his prices, on "greedy" busi nessmen and workers, speculators and foreigners. But the confusion brings havoc and poverty to count less victims whose incomes are greatly reduced and savings de stroyed. It impoverishes the "mid dle class" with its savings for the rainy day and retirement.

Inflation is sometimes described as a tax on ,the money holders. In reality, it is a terrible instrument 23 24 THE FREEMAN Janua,r-y for the redistribution of wealth. It is true, the government is prob ably its greatest profiteer as its tax revenues are boosted by the built-in progression in higher in come brackets and through the de preciation of governmental debt. But in addition, the inflation shifts wealth from those classes of society who are unable, or do not know how to defend them selves from the monetary destruc tion, to entrepreneurs and owners of material me'ans of production. It strengthens the position of some businessmen while it lowers the real wages of most working men and professionals. It decimates or destroys altogether the middle class of investors who own secur ities or hold claims to life insur ance and pension payments. And finally, it gives birth to a new middle class of traders, specula tors, and small profiteers of the monetary depreciation.

Massive Redistribution The magnitude of the present redistributive process in the U.S. can only be surmised. Let us esti mate the total volume of public and private debt at $2.7 trillion (Federal $475 billion, state and local government $200 billion, corporations $1150 billion, farms $80 billion, residential mortgages $400 billion, commercial mort gages $75 billion, other commercial debt $55 billion, financial debt $65 billion, consumer debt $195 billion). A ten per cent rate of dollar depreciation transfers $270 billion a year from the creditors to the debtors. A fifteen per cent rate, which better reflects econom ic reality, would transfer $405 billion per year. Now, disposable personal income in the U.S. is esti mated at $931 billion (cf. Federal Reserve Bulletin, July 1974, p. 57), which makes the inflation transfer income and loss nearly 44 per cent of annual incomes from productive services. In short, present inflation as a powerful in strument of wealth redistribution is responsible for a stream of in come and loss equal to almost one half of our productive efforts.

The redistribution process is also a massive debt liquidation process in real terms. Surely, the nominal magnitude of dollar debt is rising, but in terms of real things and real values debt is be ing liquidated at the depreciation rate. A ten per cent rate of cur rency depreciation reduces real debt by ten per cent; total mone tary destruction destroys debt to tally. It transfers the ownership of real wealth from the people who have lent money to the people who have borrowed the money. Such are the profits and losses from only one source: the cur rency depreciation that gives to 1975 TWO-DIGIT INFLATION 25 debtors that which it takes from creditors. In addition, several other inflation factors inflict huge losses on nearly all classes of so ciety. Rampant inflation destroys the capital markets which are the very well-spring of productive enter prise. Having suffered staggering losses through depreciation, few lenders are able to grant new loans to finance business expansion or moderniza tion, or merely current operation. And even if they had the funds, they are reluctant to enter monetary contracts for any length of time. Business capital, especially long-term loan capital, becomes very scarce, which precip itates economic stagnation and recession. Similarly, businessmen begin to hedge for survival, in vesting their working capital in inventory and capital goods.

Funds that used to serve con sumers become fixed investments in capital goods that may escape the monetary depreciation. Eco nomic output, especially for con sumers, thus tends to decline, which may raise goods prices even further. A great deal of "unproductive" labor is needed to cope with the complexities of calculation and dealing with rapidly changing prices. Cost accounting faces the insoluble task of calculating busi ness costs with a yardstick that is shrinking continually. Managerial decisions become very difficult and enterprise e·fficiency is greatly hampered, which raises business costs and reduces output. Finally, the greatest danger to economic production and well-be ing looms in sudden government intervention. Having recklessly depreciated the currency at two digit rates, the same government may want to legislate and regu late the economic actions of the people. It may suddenly impose price, wage, and rent controls, re strict imports or exports, levy new taxes, or commit some other folly, all in order to treat some symp toms of its own policies.

Real Wages Fall Two-digit inflation tends to re duce the real wages of nearly all classes of employees" from un skilled laborers to chief executives. While many goods prices can be adjusted quickly to the monetary depreciation, wage and salary con tracts are written for longer peri ods of time, .often for a year or even longer. During this time' em ployees suffer a continuous ero sion of real incomes and stand ards of living. It is true, the re duction in real wages, which are business costs, tends to raise the demand for labor, which generally causes unemployment to decline. Also, profitable· enterprises that 26 THE FREEMAN January continue to compete aggressively for labor tend to review wages and salaries more often than be fore, for instance, every six months instead of waiting two years. Others boost merit pay sub stantially to avoid rising costs through higher turnover. The general decline in real wages tends to breed widespread labor unrest. Individual productiv ity may fall substantially which raises business costs, reduces out put and thus boosts prices even further. Labor unions react by demanding large increases in nom inal wages, and sometimes may succeed in restoring real wages at least temporarily, until the infla tion again reduces real wages,. fol· lowed by further union demands, and so on. Ugly strikes multiply, costing millions in work hours, in flicting business losses and raising costs, and thus generating ever greater pressures for higher prices. In desperation many mil lions of heretofore unorganized employees are led to joining un ions or forming collective strike organizations in order to avert the loss of real wages. Labor un ions seem to thrive on monetary depreciation and the economic con flict it generates.

Rampant inflation also affords growing popularity and public support of a system of wages based on a cost-of-living index, commonly called indexation. All wages may be fixed according to an' index number calculated by a govern ment bureau. Of course, even such a system cannot be expected to protect labor from the disastrous influences of monetary deprecia tion as the index is calculated on the basis of past prices that differ from goods prices when wages are paid and spent. General indexa tion of wages also works havoc upon those industries that suffer severely from the inflation, such as consumers' goods industries and service industries. They may contract further, reducing output and service, which again raises prices. The Poor Suffer The poorest classes of society living closest to the subsistence minimum are hurt most severely by monetary depreciation. Espe cially those poor who live on fixed incomes, such as pensions and an nuities or welfare gratuities that are slow to adj ust to the rise in prices, may actually experience deprivation and hunger. Others may be forced to supplement their shrinking purchasing power by seeking employment if this should be possible. Thus, some unskilled labor that used to prefer public support over .working for a living vlill return to productive employ ment. Others may resort to vice 1975 TWO-DIGIT INFLATION 27 and crime to bolster their falling incomes.

Real incomes of civil servants, military personnel, and salaried employees of commerce and in dustry may fall even faster than those of the poor. True, they may not immediately face deprivation and hunger, but they may be greatly reduced and impoverished by the rise in goods prices that tends to exceed their occasional salary adj ustments. The situation may even be worse with professional men, such as physicians and dentists, attorneys, artists, writers, and professors at private institutions of learning. Rampant inflation may red uce them to a life of penury and mis ery as public demand for their professional services tends to de cline significantly with the gen eral impoverishment of the popu lace. After all, demand for their services is much more elastic than that for food, for instance, which explains why less money is spent on professional services in spite of ever larger governmenf expen ditures on health, education and welfare.

The suffering of this profes sional class is compounded by the destruction of its savings through infl.ation. In general, the middle class generates the financial capi tal that affords productivity and expansion to commerce and industry. It holds a large share of national wealth in the form of financial capital, such as corporate stock and debentures, demand and time deposits, life insurance, pen sion funds, and the like, all of which suffer serious losses from the depreciation of the currency. In fact, rampant inflation expro priates the wealth and substance of this middle class. Dangerous Stock Markets The stock market offers great opportunities during periods of rampant inflation. Industrial shares especially are subject to ex treme fluctuations in price, ,which astute traders will use to their ad vantage. This does not mean that the market offers investors a re liable hedge against inflation. On the contrary, the real value of shares tends to decline, which in flicts considerable depreciation losses on share owners. But alert traders can profit from the many chills and fevers that attack the market.

The greatest factor of change that virtually shapes the price trends is the monetary policy of government. Large bursts of mon ey creation and credit expansion are followed by sudden jerks of restraint or even stability, which trigger symptoms of economic re cession and decline. Or, the gov ernment may suddenly impose 28 THE FREEMAN January price, wage and rent controls, or resort to other means of inter vention that temporarily reverse the trend. To ignore the ever changing signals of monetary pol icy and other government inter vention can be very costly. In terms of purchasing power, stock prices tend to decline be cause most business profits are more apparent than real. The sums set aside for maintenance· of equipment, called depreciation, are mostly insufficient. Replacement costs soar while depreciation that is allowable under the tax laws is based on past costs and therefore insufficient to cover present costs.

In fact, many profits are fictitious, which causes companies to pay in come taxes although there is no income, and declare dividends while working at a loss. Similarly, the inflation profits on inventory are mostly fictitious as replacement costs may equal or even exceed the proceeds of a sale that was be lieved to be profitable. During periods of rampant in flation it is very difficult, even for experts, to ascertain the profit ability of an enterprise. To in terpret profit statements and bal ance she'ets becomes nearly im possible, which affords companies an opportunity to hide their earnings or losses and show only what they want to show. For an investor to appraise the value of his corporate shares becomes an insoluble task. Occasionally the monetary au thorities may slow down or even abstain from creating more cur rency and credit. Or their rate of expansion may fall short of that expected by businessmen. In each case the fevers of inflation are in terspersed with the chills of re cession and depression, which send stock and bond prices tum bling until, once again, the Fed eral Government comes to the res cue with record budget deficits and new bursts of currency ex pansion. After all, this is the basic recipe of the "new economics" that has shaped Federal economic pol icy since the 1930's and has given us "inflationary recessions," i.e., simultaneous inflation and reces sion.

No Sure Hedge in Fluctuating Stocks When one or several of the stated factors depress stock prices the public may realize that even the purchase of industrial securi ties affords no safe means of in vesting their savings. Suffering heavy losses, they withdraw from the market and invest their re maining funds in goods or money market instruments, especially Treasury obligations. The public is the "middle class" of some 30 million stockholders and 50 mil1975 TWO-DIGIT INFLATION 29 lion investors who indirectly own corporate securities through in vestment companies, pension funds, life insurance companies, credit unions, and so on. They suffer heavy losses when they finally liquidate their stock investments for depreciated currency . It has been estimated that since 1965 most American stock investors have lost at least 40 per cent of their savings through price de clines and another 40 per cent through currency depreciation.

From time to time, the fever of inflation may cause stock prices to soar as the monetary authori ties refuel the money markets in order to avoid depression and un employment. The investor may re joice about his long-awaited prof its. Deluded by the apparently high prices he may be induced to sell his securities. Unfortunately he may not be aware of the, real losses which the monetary depre ciation is inflicting on him. Again he loses severely in purchasing power and real wealth, and yet may have to pay an income tax on the nominal profits he earned. The speculator who observes the merciless drubbing of most in vestors has learned to distinguish "apparent profits" from "real" ones. He trades with the trends of the market, jumps from industry to industry, always seeking action and quick profits. But above all, basically he is a buyer of the se curities that are liquidated by the middle-class investor. The mone tary depreciation which greatly red uces their real price makes it easier to acquire securities. Thus, 'we can observe not only a gradual shift of corporate wealth from the old class of capitalists and middle class investors, but also a concen tration of industrial shares in fewer and fewer hands. A small new middle class of traders and speculators replaces the old mid dle class of investors, and huge new fortunes are created from the losses suffered by investors and capitalists.

The 'depreciation of public debt and the fall of industrial securi ties in terms of both price and purchasing power strike a devas tating blow not only at millions of small investors but also at great capitalists whose wealth is in vested in marketable securities. Wealthy stock brokers, bankers, financiers, rentiers, heirs, or busi nessmen in retirement who before the inflation owned large fortunes, that is the "old rich," suffer seri ous losses. Old fortunes vanish, and eminent family names fade away. Similarly, the wealth of charitable institutions, religious societies, scientific or litera.ry foundations, and endowed colleges and universities, is destroyed by inflation.

30 THE FREEMAN January Losses in Real Estate While inflation inflicts havoc on monetary investments, it has var ied effects on property of land and buildings. Agriculture, on the whole, survives a period of fever ish inflation rather well. Farmers generally profit from the increase in prices of agricultural goods and from the depreciation of farm mortgages. Even small and mid dle-size operators whose debt may render their independence rather precarious in normal times can hold their own during rampant inflation. After all, they are the producers and owners of real goods the prices of which rise, yielding ever higher incomes, while inflation reduces the real burden of their debt. Ownership of residential hous ing offers a much poorer defense against inflation than is common ly believed. Although mortgage debt is greatly reduced by the in flation, which affords some infla tion profits to owners, the market price of private residences and commercial property usually limps behind the rate of monetary de preciation. During rampant infla tion interest rates soar and mort gage loans are hard to find, which makes it rather difficult to finance a purchase. Thus, effective demand may be reduced which tends to depress real estate prices. This is especially true for middle class housing whose owners feel im poverished and in need of re trenchment.. It may not be true for beautiful mansions and large estates that continue to sell at high· prices to a new class of nouvea,ux riches.

But even when real estate appre ciates in price and the owner gains from a sale, on which he must pay a capital gains tax, he may lose in terms of purchasing power. Deluded by apparently high prices, many owners may be in duced to sell their homes, to real ize only much later, perhaps, that they made a poor bargain. The situation is most danger ous and precarious for apartment house owners. They are vulner able not only to the imponderables of a feverish capital market, to the impoverishment of their work ing and middle-class tenants, and to the price delusion mentioned above, but also to the ever-present danger of rent control. A desper ate government may do desper ate things. Drawing wrong con clusions from given facts and fighting symptoms rather than causes, it may by force arrest prices, wages and rents. But rent controls imposed for prolonged periods of inflation reduce real rents significantly, which causes house prices to fall accordingly.

With maintenance expenses ris ing, real rents falling and losses 1975 TWO-DIGIT INFLATION 31 looming, many owners· may be forced to sell out - at very low prices. And again, the class of old investors makes room for a new class of speculators who at bar gain prices are buying a great many houses. But even without controls ren tal property may be depressed be cause working and middle class demand for housing is shrinking as real income is declining. Or, many apartment house owners may not realize the significance of the monetary depreciation, and therefore are slow to adjust their rents. Or, they may be reluctant to raise rents for charitable rea sons. In each case the yield from such property tends to decline, and therefore also real estate prices, which may inflict serious losses on its owners. The Nouveaux Riches Huge private fortunes and im posing concentrations of capital are formed from inflationary re distribution. But in contrast to the formation of .capital under stable monetary conditions, when fortunes are built through pro d uctive changes and improve ments, through technological in ventions and efficient methods of production, the wealth derived from inflation is "redistributive,"

from one individual to another. The new millionaires are not generally creators of new industries or reorganizers of production. They are mostly clever speculat ors with excellent understanding of monetary policy and its effects on stock prices, exchange rates and high finance. They may even be industrialists who are turning away from the hard work of business management to the more rewarding dealings in securities, commodities and foreign exchange. But above all, they understand the phenomenon of inflation and use this knowledge in all their finan cial operations. As speculators they endeavor to render the most urgent eco nomic service needed at the time. They are quick to adj ust their resources to the, rapid changes in prices and markets that suffer from chronic maladjustments due to the ever-changing monetary scene. Thus they facilitate quicker and smoother readj ustment and better allocation of economic re sources to the most urgent needs of the, public.

During rampant inflation one of the rules of good management is to contract as many productive debts as possible. The speculator borrows other people's money, which is repaid later with depre ciated currency. Instead of keep ing large bank deposits he finds it more advantageous to incur the highest possible debt with his 32 THE FREEMAN January bank. Of course, at all times he must maintain his liquidity to meet current obligations, always guarding against sudden calling of loans by his bank in moments of extreme credit stringency. Inflation not only destroys in come and wealth, but also redis tributes them from millions of creditors to many debtors. Some businessmen, especially the young, aggressive entrepreneurs, under stand this principle and utilize it to their advantage. They expand their enterprises or acquire new ones, merge with others or form new business structures - always building on debt. The inflation losses suffered by banks and bond holders who finance the expansion accrue as profits to these entre preneurs who join the class of nouveaux riches. But occasionally when the government reverses its monetary policy, when it deflates rather than inflates or when it merely reduces the rate of mone tary depreciation, these entrepre neurs may find themselves overex tended. They may have to contract their operations, or liquidate some of their holdings. In fact, some may lose their fortunes even faster than they were made.

Chills and Fevers Financial survival is especially difficult as the fevers of inflation are interspersed with the chills of recession. Some industries may be seized by the inflation fever while others may suffer recession symptoms. Rampant two-digit in flation does not follow the simple pattern of earlier moderate in flation, which tends to generate economic booms that are followed by periods of recession. Instead, it causes such serious disarrange ment of markets and disruption of production that both economic disorders occur simultaneously. The rapid depreciation of the money virtually destroys the cap ital market. The supply of loan funds tends to shrink as lenders are fearful of suffering losses from the depreciation of the money. Capital-intensive indus tries and others that depend on long-term financing, therefore lack the necessary capital for ex pansion, modernization, or merely maintenance of costly capital equipment. The strength and sub stance of such industries may de teriorate, their capital being grad ually consumed. If, in addition, these industries are enmeshed in government rate setting and price fixing, they may wear out quickly, which becomes visible in the de terioration or even breakdown of service. Obviously, the equity mar kets of these industries tend to be depressed throughout the ram pant inflation.

Also consumers goods indus1975 TWO-DIGIT INFLATION 33 tries, in general, tend to contract throughout this period. After all, most consumers suffer losses of income and wealth and, therefore, are compelled to curtail the con sumption of goods they deem least essential. Vacations may be post poned or at least shortened. Ex penditures on entertainment, amusement, and other "luxuries" may be cut. There may even be reductions in the quality of essen tials, such as food, clothing, and housing. And instead of seeking education in. private institutions, the children may attend public schools, and state or community colleges. The only industries that thrive on rampant inflation are the cap ital goods industries. They are producing the goods that permit business to hedge against the in flation through investments in ne·w tools and equipment, or larger inventories of materials and sup plies. As inflation reduces the real costs of labor, many busi nesses endeavor to accumulate capital in the form of durable assets, preferably those that are expected to appreciate in value \vhile retaining some degree of marketability. Many companies use their own working capital or seek bank loans to increase their inventories or add to tools and equipment, which can be expected to rise. faster in price than the interest costs on the capital in vested. They sacrifice liquidity in the hope of higher profits from the expected rise in prices.

Boom and Bust All these specific symptoms of rampant inflation tend to conceal the most important predicament that affects everyone: the boom and bust cycle that is generated by the inflation. When the mone tary authorities first expand the money supply in order to finance Federal deficit spending or stimu late the economy they set into motion certain forces that seri ously distort the allocation of pro ductive resources. Specifically, the policy of easy money and credit temporarily reduces interest rates, which causes businessmen to in vest more funds in. new construc tion, machinery, equipment, and raw materials. It generates a fe verish boom in the capital goods industries with rapidly rising prices of labor and resources. Now, this boom built on easy money and credit must come to an end as soon as the rising prices of labor and resources, which are business costs, erase profit mar gins or even inflict losses. After all, the boom must end as it was artificially built on paper and credit only. The' recession that follows permits markets to return to normal, in particular, capital 34 THE FREEMAN January goods prices to decline, the in dustry to contract again, and the consumers goods industries, which were neglected throughout the boom, to come into their own again.

But this cycle· can be extended in duration and be made more severe in its fluctuations through new inj ections of money and credit. Or merely the anticipation of new injections may cause bus inessmen to reduce their cash holdings and escape into real goods. Thus, the boom may con tinue to rage even though the mon etary authorities may cease tem porarily to add new, money and credit, because businessmen have come to expect an early resump tion of monetary expansion. Once capital goods prices rise at two digit rates, a temporary halt in the expansion process does not signal an end of the boom that continues to be fed by business men's reduction in cashholdings. Although interest rates may soar and the costs of financing equip ment and inventory rise signif icantly, capital goods prices are rising even greater. It pays to order and buy now rather than wait until prices have risen again.

The expectation of an early re sumption of easy money and credit that keeps the fires of boom burn ing is solidly based on a political assumption: that government will soon inflate again in order to al leviate some consequences of its earlier inflation. Alarmed about the recession that is engulfing the consumers' goods industries, it will want to stimulate once again these industries. When consumers are fast losing purchasing power during two-digit inflation, con sumers' goods industries suffer symptoms of contraction and re cession, especially unemployment of capital and labor. But by pop ular demand government is ex pected to cope with. this recession with all means at its disposal. That is, it is expected to resume deficit spending and credit ex pansion in order to restore full employment. The economic boom thus burns on with new money and credit. From Bad to Worse In the ideological climate of today there can be no genuine re versal of monetary policy. The two-digit· inflation must ra.ge on, feeding an ever hotter boom of the capital goods industries and aggravating the recession in the consumers' goods industries. The purchasing power of the dollar must fall at ever faster rates, being depreciated by ever larger injections of money and credit and a growing expectation thereof.

Two-digit inflation only comes to an end with the advent of three1975 TWO-DIGIT INFLATION 35 digit inflation which signals the approaching demise of the paper currency. In the final convulsion, of inflation fever, millions of housewives join businessmen in a panic rush to exchange their rap idly depreciating money for real goods. 'Vhen millions of consum ers hurry to spend their monetary assets and use all their lines of credit in order to seek refuge in real goods, the end of the cur rency comes in sight. Consumers' goods prices that were rising at much lower rates than those of prod ucers' goods then will soar to catch up with the latter, or even surpass them, in the final contortion of the crack-up boom. In the dusk of the paper system that springs from political power and economic redistribution, the dreaded depression that was so long delayed in coming will finally make its entrance with irresisti ble force. Thus, once again, the inexorable laws of economics will prevail over political intrigue and power.

Indeed, affliction .is a school of virtue that may correct levity and interrupt the confidence of sin ning. But how long and how often must man be afflicted before he learns the lesson? ~ FOR 6,000 YEARS of recorded his tory, men have lived under some form of statism. That is, mankind has never known a truly limited government - a. government whose force is purely defensive in naMr. Summers is a member of the staff of the Foundation for Economic Education. ture, protecting all from humanly initiated force and fraud, and do ing nothing more. Thus, people have always experienced an ag gressive component of govern mental force, a component that takes from some and gives to oth ers. This aggressive component, this legal plunder, has been at the 36 THE FREEMAN January expense of human beings. Let us examine the cost. The cost of statism cannot be measured, for we have no way of knowing how life would have pro ceeded were it not for statist dis ruptions. Thus, there is no way of placing a dollar value on the con sequences of government economic interventions, no way of measur ing the suffering resulting from statism, and no way of accounting for the loss of life, for who knows how life and death would have proceeded in a free society?

Does this mean that we are stymied before we even start? Not at all. One examines the cost of statism by considering the na ture of statism. And the nature of statism - legalized aggressive force by men against men - is perhaps best revealed by focusing one's attention on particular sta tist interventions. Let me suggest how such a survey might proceed. Begin at Home It is probably best to begin at home. There are millions of laws in America, so many, in fact, that no one can more than guess the number. How many of these are statist in nature? As many as are not specifically designed to protect people from humanly initiated co ercive force and fraud. Americans have laws that tax some and give to others, laws that prevent the hiring of nonunion workers, minimum wage laws that result in the unemployment of workers whose hourly productiv ity is less than the minimum wage, laws that prevent unlicensed barbers from cutting your hair, laws that restrict advertising and other forms of competition, anti trust laws that penalize efficient producers, laws that restrict im ports, and on and on.

Not one of these laws protects people from coercion or fraud. Rather, everyone of them is ag gressive in nature, directed against taxpayers, nonunion work ers, unskilled workers, efficient producers, and all their families. Who can measure the cost to these people? And note that everyone of these laws restricts and discourages production. With an eye on the simple truism that consumers can not consume any more than pro ducers produce, it is clear that these taxes and interventions vic timize millions of consumers. But the cost does not stop here. We must also consider the effect current taxes and interventions will have on the future. The quan tity and quality of tomorrow's production, and thus tomorrow's standard of living, will be greatly dependent on today's capital in vestment. To the extent that cur rent taxes, interventions, and the 1975 THE COST OF STATISM 37 threat of taxes and interventions prevent and discourage this cap ital investment, our children will pay the price.

We should note well that this cost will not merely be in terms of material consumption. Tomorrow's leisure time, goods and services used during leisure, charitable contributions, and funding of medical care, medical research, ed ucation, science, and the arts will be greatly dependent on tomor row's standard of living. And to morrow's standard of living will be based on the tools of produc tion we are building today. A WorldWide Problem Of course, statism is a world wide phenomenon. One sees its destruction in every land. Con sider the many wars of conquest. Who can measure the loss of cap ital? And, of far, far greater im portance, who can account for the suffering? Who knows what con tributions the unfortunate victims would have made had they only lived to see another day? Or consider the cost of a con trolled press. Of concentration camps. Of immigration and emi gration laws. What is the cost of the Berlin Wall?

Statism is with us at this very moment. Men and women are pay ing the price. And· their children and their children's children will also pay the price in terms of the destruction of capital, the destruc tion of liberty, and the destruc tion of people. All this is not to say that the alternative to statism, a truly lim ited government, is without cost. However, the cost of government that protects people from humanly initiated coercion and fraud, and does not intervene otherwise, is measured primarily in terms of taxes that support these two le gitimate functions. As an economy grows, as it always has when men have come anywhere near the ideal 'of limited government, these two functions consume a smaller and smaller percentage of produc tive output. That is, we would expect limited government to be supported, except in time of war, by a falling relative burden of taxation. This, of course, is an ideal that may never be attained. However, in light of the tragic cost of sta tism, this ideal must be pursued for as long as people turn the forces of government against their fellow men. II DAVID KELLEY Mr. Kelley is a freelance writer living in New York.

~~~'If"JJ "WHY DOES a movie star earn In reply, many defenders of the more than a doctor? Why does a market accept the indictment as writer of thrillers earn more than true, but irrelevant. The moral a first-rate novelist?" These may basis of the market, they say, is be interesting questions of fact not justice but freedom. Freedom for the economist; but in politics is necessary to the pursuit of any they are rhetorical questions, pop-good end, but it also allows the ular expressions of a deep-seated pursui t - occasionally successful feeling that our free market sys-of bad ends as well. Justice, out tern is inherently unjust. It is side the sphere of legal justice, is assumed that a person's income the concern of individuals and should be proportional to the value groups in their private capacities. of what he does, or to the ability It cannot be enforced by the gov or merit he exhibits in doing it. ernment; and it cannot be pursued On this assumption, the income by the government without the differences mentioned above are in-kind of controls that institutional equitable: the doctor and the nov-ize much worse forms of injustice.

elist deserve more than the actress This reply is certainly valid, on and the writer of thrillers. Since both counts: freedom is the over differences of this nature are sup-riding and sufficient basis for the posed to be common in a free mar-market; and injustice does some ket system, the system as a whole times occur within that system. is unfair. Capitalism is a den of But we do ourselves a disservice inequity. and the market an injustice - if we allow the leftist charge to stand unchallenged. For morality is of a 38 1975 JUSTICE IN THE MARKET 39 piece, and although justice is a subsidiary issue, it would be un fortunate if the most moral poIit ical system were the seat of fla grant injustice. Fortunately, this is not the case: critics of the mar ket, falsely interpreting the re quirements of justice, have greatly exaggerated the market's short comings. What we need, then, is an examination of the charges, and a juster appraisal of capi talism.

Government Intervention To begin with, the government is responsible for a good deal of inequi ty visible in the economy to day. Two policies are especially interesting, since they illustrate very c~early the unj ust - as op.. posed to uneconomical - effects of government intervention. The first is the policy of licensing the pro fessions. The implication of licens ing is that the ability and integ rity of every professional man are suspect, regardless of past rec ord.The consequence of licensing is that every member of a pro fession is given the same sanction, regardless of individual differ ences. Thus consumers are given the illusion that they need not ex ercise their own judgment in choosing professional services. Anyone will do, because the gov ernment would not let any incom petent person practice, would it? The best stand to lose, because they cannot stand on their repu tation; the worst gain a sanction, and an income, they would not otherwise receive. 1 This is unjust.

The second policy is the labor law, which has a similar effect on wage earners. Unions have the power to enforce uniform wage rates for certain types or work, regardless of variations in the skill and effi ciency of individual workers; again rewarding the worst at the expense of the best. 2 Another example of govern ment-sponsored injustice is the teacher's salary, often presented as the greatest shame of the free market. For not only are teachers licensed by the government, but most of them work for the govern ment in public schools. The con sequences are manifold. Since pub lic schools are tax-supported, most parents cannot afford private edu cation for their children; public schools have a captive clientele, which they did not have to win by excellence. And since public schools are public, parents cannot exercise much control over the sort of 1 Alan Greenspan, "The Assault on Integrity," in Ayn Rand et. al., Capital ism: The Unkno,wn Ideal (New York: New American Library, 1967).

2 These policies create tendencies, not absolute effects. Good doctors still tend to receive higher incomes, despite licensing; some employers do pay more in order to get the best workers.

40 THE FREEMAN January teachers their children will have. Thus the government prevents the market from rewarding teachers in accordance with their abilities. There is no way of telling what the free market salaries of teach ers would be - salaries in private schools tell us· nothing, since they are distorted by the fact that pri vate schools must compete with public - but presumably the sal aries of good teachers would be bid up considerably by the tremen dous value parents place on educa tion for their children. Income Differences So far we have merely scratched the surface of the inequity caused by government. Antitrust laws punish successful businessmen precisely for being successful 3 ; minimum wage laws prevent less competent workers from receiving the more modest wages they might otherwise earn; the list is end less. But even in a completely free market, income differences of the sort usually complained of would still occur. Thrillers would con tinue to outsell difficult master pieces; scientists would probably make less than popular singers; fashion designers would still cash 3 Cf. Judge Learned Hand's opinion in the ALCOA case, quoted in A.D. Neale, The AntiTrust Laws of the U.S. (Cam bridge: Cambridge Univ. Press, 1968), p.114.

in on popular whims. And the market would still be taxed with the charge of inj ustice. The first step in analyzing in come from a moral point of view is to set the terms of the analysis. For the terms of analysis proposed by the left are utterly fallacious. Justice is an attribute of judg ments and actions concerning other people. If incomes are to be considered as just or unjust, there fore, they must be seen as the re sult of action. And if incomes are to be compared, on the grounds of justice, they must be the result of action by the same agent. This, of course, is how all collectivists do see the matter. In their view, so ciety is a single entity, which en gages in production as a unit, and which is then faced with a "social product" that must somehow be distributed. Now if this were the case, then perhaps it would be obligatory, or at least nice, for society through its agent the gov ernment to distribute in accord ance with some criterion of merit.

But this is not the case. This "tribal premise," as Ayn Rand calls it,4 is false. The government is not the source of income; it is a sink much rather. Income arises from diverse sources, from count less individual actions and inter4 Ayn Rand, "What is Capitalism ?" in Capitalism: The Unknown Ideal.

1975 JUSTICE IN THE MARKET 41 actions. In order to apply any principle of justice to income, therefore, we must locate these actions; we must find the agents responsible for income. How Income Is Earned Now the primary agents of in come are the people who receive it. With few exceptions, people do something for their money. The primary actions responsible for in come are the actions of people producing, discovering, investing - in short, creating value. If this were all, there would be no ques tion of justice. There would only be a question of cause and effect What actions yield what return? - as if every individual were alone on a desert island. But in fact, most incomes arise in trade with other people, and at this point the concept of justice becomes appli cable. For the critics of the mar ket complain that people are not always paid in accordance with the value they create. The other side of the interaction, the consumer, distorts the situation by his irra tional preferences. Very well: let us turn to the consumer.

Is it because of irrational con sumer preference that a movie actress can make more than a doctor? I am a consumer, and I do not pay any actress, even my fav orite, more than I pay my doctor; and if my income shrank, I would give up the former before the lat ter. I expect the same is true of most people. Is it because of irra tional consumer preference that the manufacturer of hula-hoops made more than the publishers of most newspapers? I am a consum er, and I paid much less for my hula-hoop than I do for newspa pers. I expect the same is true of most people. The point is that between different categories of goods, most people seem to allo cate their incomes in a fairly rational way, reflecting a just ap preciation of their relative im portance. The reason that the actress and the hula-hoop king make so much money is that while no one pays very much for a movie or a plaything, many people want to see the same movies, or have the same playthings; whereas they prefer different doctors and news papers. But that is no injustice.

I as a consumer, proud of my preferences, am hardly in a posi tion to say that others are irra tional for wanting the same things that I want. But another charge is often laid at the feet of the consumer. With in a single category of goods, it is said, consumers usually prefer the less valuable items, thus reward ing the purveyers of second-or third-rate goods more than the first-rate producers; and this is unjust. But these critics overlook 42 THE FREEMAN Janu,ary a distinction, drawn by Ayn Rand,5 between the philosophically objective and the socially objective value of a product. A first-rate novel, for example, will have a greater philosophically objective value - a greater intrinsic literary value - than a thriller. But this measure of value does not deter mine a product's return on the market; nor should it. Monetary return is a measure of value in exchange with other people, a mea sure of socially objective value.

And the author of the masterpiece may have created something of less value in exchange than the writer of thrillers. Fewer people can derive value from the master piece, because the capacity of in dividuals to appreciate literature is limited. To them, within the context of their own interests and abilities, the thriller is of more actual value: at least, they can get something out of it. Hence it is not unj ust on their part to choose the thriller over the novel; nor is there any inequity if the author of the former earns more money than the author of the latter. He has created more social value, as measured by the number of peo ple for whom his work is of value. The two principles illustrated by these examples show that con sumer demand is not so irrational 5 Ibid., pp. 24-7. as the enemies of freedom would have us believe. People do, of course, pursue false values on oc casion. That is true in any society, with any system of political econ omy. But the existence of such income disparities as are typically used to impugn the free market does not in itself show anything about the rationality or irration ality of consumer demand.

Even if the critics. absolve con sumers of the charge of injustice, however, many of them still feel that the system by which con sumer preferences are trans formed into the incomes of pro ducers is unjust. Indeed, most critics speak as if there were no system, as if the market (a single entity) arbitrarily bestows riches on some and subsistence wages on others. They treat incomes as the result of pure, inexplicable chance, calling out for the government enforced order they would like to introduce. But there is an order in the market. The Source 01 Wages Consider wages, the most com mon form of income. If consumer preference is the ultimate source of wages, the immediate source is the employer. And no employer determines the wages he will pay on the basis of whim. He does not determine wage levels at all - the market does. And the principles 1975 JUSTICE IN THE MARKET 43 by which the market sets these levels may tell us something about the justice of the situation.

Wages, like any other price, are determined on the free market by supply and demand. Now some would say that it is unjust for one person to earn more than another merely because there are fewer people who do his sort of work Le., because the supply of that sort of labor is more limited. But who is guilty of inj ustice here ? Not the worker himself, so long as he is not coercively preventing others from competing with him. Not the employer, or the consumer: they would prefer a larger supply and lower wages. Nor is it plausible to accuse those most directly re sponsible for the short supply, the people who might have taken up that sort of work, but chose not to. They are under no obligation to even out disparities in the sup ply of labor. What a short supply and a high wage usually indicate is not any injustice, but the diffi culty of the job: the degree of skill necessary for it, the amount of training and preparation it re quires, the effort and initiative involved. These are rewarded on the market, and it is fitting that they are.

Nor is it unjust of an employer, when the supply of labor is large, to pay less than he would be will ing to pay for a given job. Justice consists in acting toward others in accordance with one's judgment of their worth. This appraisal can be itemized: in acting to gain any specific value from others, one should act on the basis of one's judgment of them with respect to that value. Now people place dif ferent values on specific goods, in cluding their own time and effort, because they act for different pur poses, in different contexts. It is this fact which makes trade possi ble' and it also renders invalid any concept of a just price or wage, viewed as an absolute amount of money. Justice applies to the situ ation only in a relative way, and only from the standpoint of a particular actor in the market place. For a given employer, with specific needs for labor, the part of justice is to seek the best possible in the market as it exists. If the supply is such that he can get labor for less than he would be willing to pay, or for less than he would have had to pay at some other time or place, it is no in justice for him to do so. His rela tive priorities remain intact: he still trades with and for the best in other people. 6 So much for supply. But what about the demand principle? Here 6 Here again we are indebted to Ayn Rand's theory of objective value; cf.

"What is Capitalism ?"

44 THE FREEMAN January the market system tends toward an order that can only be de scri bed as striking; an order that goes beyond what is actually called for by any principle of justice. The employer's demand for labor is set by the marginal productiv ity of that labor. "The upper limit of [the enterpreneur's] bidding is determined by anticipation of the price he can obtain for the incre ment in salable goods he expects from the employment of the work er concerned."7 The employer is willing to pay a worker the worth of what couldn't get done without him. Given the competition among employers to obtain labor, wages tend to rise to this level. Thus the worker tends to be paid the value (in exchange) of what he himself produces. This happens automati cally - he need not pay any dues in order to get his due - and it happens only with the price mech anism of a free market. Concerning Profits In the case of the other major source of income, profits, there is nothing more to be said. For prof its arise directly from consumer preference, which we have already discussed. There is no intermedi ary between consumers and those who receive profits, as there is 7 Ludwig von Mises, Human Action (Chicago: Henry Regnery Co., 1949), p.

594. between consumers and those who receive wages. The amount of pro fit which a given item will bring is not the result of anyone's inten tion. It is a natural fact, arising from differences between the price at which it will sell and the cost of producing it. The entrepreneur predicts that he will make a cer tain profit, but what he predicts is that the profit will be created by a certain natural process. It is no one's will, but the facts which determine profit. And it is invalid to say of a fact either that it is or that it is not just; only actions are just or unjust. The market, then, contains much less injustice than many people, including some of its de fenders, assume. We know that there is no such thing as a just wage - fixed in absolute terms for any kind of work. Money is a relative measure of value. And we have seen that simple comparisons between the incomes of different people reveal n.othing; to demand a correlation between income dif ferences and differences in the in trinsic value of the product, or the effort or skill involved in produc ing it, is to assume a collectivist model of society. It ignores the fact that income is determined by the actions of individual people, not by Society. And in examining the general features of economic interaction among people, we have 1975 JUSTICE IN THE MARKET 45 found very few loci of inequity in the market. On the contrary - we have found that the market tends much more toward justice.

On a closer look, moreover, it does not seem that the leftist critics of the market really do have justice as their object. In his book Inequality, Christopher Jencks gives a wealth of statistical evidence that incomes are deter mined more by individual initia tive and competence than by any advantage deriving from one's family .background. But instead of concluding that we live in a society that is just as well as free, he goes on to advocate - in the name of equality - a program that is as unjust as it is coercive. In order to obtain equality, he says, we would have to devise "insurance" systems . . . which break the link between vocational success and income. [Income and status differences] could only be prevented if we aban doned the notion that an individual's wages and working conditions should depend solely on his value to the employer. 8 We know that equality can only be pursued by coercion, that equal ity is incompatible with freedom.

We see here, in Jencks's desire to break the link between the values a man has to offer and his income, that it is also incompatible with justice. We need not fear, then, that a concern for justice will lead us away from freedom and the free market. Freedom and justice stand together, jointly opposed to collectivism. ~ 8 Christopher Jencks et. al., Inequality (New York: Harper and Row, 1973), PP. 9,]97 IDEAS ON L$ LIBERTY The Wisdom of the Market PERHAPS THE HEART of the capitalist system is allocating capital for future needs not through a centralized bureaucracy such as Gosplan, but in a decentralized marketplace. If there are enough decision-makers, the vagaries of judment wash out and the facts prevail. The capitalist system works precisely because the market place is smarter than the best possible bureaucracy. Editorial from The Wall Street Journal October 1, 1974 BERNARD H. SIEGAN THE CONTROVERSY continues on what I would have thought was a long settled and filed issue in American life, that private prop erty should not be taken for public use without just compensation.

These are the exact words of the "taking clause" of the Fifth Amendment to the U.S. Constitu tion. It is under considerable fire. This clause is part of the Bill of Rights and like other provisions of that document, it bulwarks the rights of the individual a.gainst the excesses and abuses of the State. However, individual rights are most discomforting to those who Copyright 1974 Bernard H. Siegan Mr. Siegan is the author of Land Use Without Zoning and many articles on the subject. He practiced law for 20 years in Chicago before moving in 1973 to La Jolla, California, where he is professor of law at the University of San Diego Law School. 46 believe that politicians and office holders know or can be made to know what is best. It is hard to imagine that such a notion can still exist in view of what is daily reported on TV and in the news papers. But, regrettably, that posi tion is much alive and well.

The taking clause presents seri ous problems for those who want land used only for certain special purposes and think they can ac complish that objective through government action. For example, it would cost enormous amounts to purchase the waterfronts and mountainous areas, canyons, and other lands that the environmen talists consider "ecologicaliy sensi tive." Were the taking clause not in the way, government could com pletely control the use of those properties for the purposes in tended and not have to compensate 1975 THE CONTINUING EFFORTS TO DESTROY PROPERTY RIGHTS 47 the owners. Development could be prohibited and the land kept in its natural state. Some think the pub lic would be saved a lot of money. Thanks, but no thanks. It could be the most costly process ever undertaken by government. For the prime casualty would be the country's private property system. If that floundered, who would build the houses and the com mercial and industrial develop ments, and at ·what or whose expense?

Far· fewer people would invest in land, confronted with the pos sibility that the government could take it away. Or if they did, they would demand a higher rate of return given the added risk of that occurring. For both reasons, there would be far less real estate to provide for the basic needs of people, and the cost would rise significantly. Employment and commerce would suffer. There is also the equally great cost to our society when harm befalls our system of property rights. The taking clause, despite its erosion through the years, is still a guarantee against losing one's land or home. It is tempting to believe that the Federal and local governments would use their power justly and with restraint and perhaps solely against the "big interests." But in the absence of the taking clause, the government's good faith would have to be relied on - and that is exactly why we have a Bill of Rights. History shows govern mental restraint bears up very poorly against political pressures.

Moreover, the "big interests" are always in a better position to fight against or work with govern ment than ordinary citizens. The right to take or not to take away property would be another one of those powers politicians could sell for money, votes, or labor and services. The threat to the taking clause is not an idle one. Already two books have been published by highly influential sources arguing in essence that the clause should not be interpreted to mean or does not really mean what it clearly says. One book was spon sored by the affluent Rockefeller Brothers Fund and the other by the President's Council on En vironmental Quality. The latter has cost the taxpayers over $65,000 - quite a sum, considering that its contents would be used against their interests. There are thousands of small landholders and farmers in this country. They are entitled to all the protection they can get against the misdeeds of governlnent. Their interests, among others, require strengthening and not destroying the taking clause. ~ Significanceof Services -Hiring and Firing w. A. PATON THERE HAVE LONG BEEN widespread delusions and misunderstandings about personal services in relation to the market place, and the re sulting interferences with employ ment procedure and the price making process have had unfortu nate consequences with respect to economic prod ucti vity and pro gress. The impact of the road blocks to a free, competitive mar ket for services, moreover, has been especially damaging to the welfare of the host of workers providing the lower levels of marketable skills - the very people that the interfering programs have often been set up to benefit.

Kinds of Personal Services In commenting on this area of sloppy thinking and the accom panying harmful policies and practices I'll first call attention to w. A. Paton is Professor Emeritus of Account ing and Economics, University of Michigan. He is author (or co-author) of a score of books and many articles, largely in the field of ac counting. Since his retirement at Michigan, he has continued his writing and lecturing activ ities and has done part-time teaching at a doz en colleges and universities, in ten states. 48 the persistent tendency to define personal services too narrowly. In a very primi tive economy there may be a bit of justification for conceiving of "labor" in manual, physical terms - muscle applied directly to the necessary tasks with the aid of simple hand tools. But this conception is without merit in the highly-specialized, technologically-complex economic system in which we are now living and enj oying an amazing array of consumer products. Today muscles take a back seat for machines, and physical effort in production con sists in large measure of operat ing power tools, such as driving a tractor on the farm, performing some chore on a factory assembly line, or tapping the keys of a com puter in the office.

Further, to be realistic we must recognize that personal services required in our intricate exchange economy include a great variety of acti vities and functions - and the list is almost endless. In other words, there are many, many kinds 1975 SIGNIFICANCE OF SERVICES - HIRING AND FIRING 49 of "workers" in the modern vine yard. In ma~ufacturing, the ex tractive industries, transporta tion, power production, construc tion, communication, and other major lines we have researchers, designers, executives, salesmen, stenographers and so on as well as a variety of grades and groups of workers in factories and other op erating facilities. Modern busi ness, overall, requires the services of such people as bankers, brokers, insurers. In the professions, broadly defined, we find doctors, dentists, lawyers, accountants, teachers, writers, entertainers, and many other service groups, all functioning in the process of fur nishing economic "goods" to the ultimate consumer. Every family, too, has contacts with painters, plumbers, electricians, retail store staffs, car repair men, barbers, and many other familiar service providers. In mentioning these ex amples of some main fields and specific occupations I'm simply trying to stress the point that a very broad range of personal ser vices is associated with the pre sent-day production pipeline at all stages.

Restricting the use of the terms Hlabor" and "worker" to certain callings and trades is especially objectionable in that it fosters the view that these activities have a preferential position on the productivity scale. Thus popular opin ion continues to regard farmers, miners, bricklayers, and union members generally, as bona-fide "producers", with those engaged in managerial and other "non-la bor" roles relegated - in varying degree - to the status of parasitic poachers on output. That we do suffer from parasitism is not to be denied. Soldiering, featherbed ding, sabotage, fraud, coercion, and other destructive and unpro ductive practice-sare a common place these days. But the loafers, vandals, and crooks are not con fined to anyone class or group. The office staff, and the top brass for that matter, may be as hard working, as honest, and as truly productive, as the men out in the shop.1 I don't find it difficult to include in economic "services" the contri butions of those who make the bas ic decisions as to utilization of available resources and thus direct the course of production, acting as agents, so to speak, of the im personal mechanism of the mar ket. And there is some j ustifica tion for regarding the function of savers and investors, who provide the capital and assume the risks, as a type of "service" -- and one that is crucial to the existence of 1 See my "What PRODUCTION Means," Michigan Business Review, March 1973.

50 THE FREEMAN January private enterprise and a free econ omy. Relation of Services to Commodities and Physical Facilities In viewing the market structure many tend to regard commodity pricing as entirely separate and distinct from personal-service pricing. This is unreasonable. This view, for one thing, overlooks the fact that from a cost standpoint a physical commodity on any mar ket level, including the final stage of transfer to the consumer, is largely a bundle of service prices. The latent raw materials of our planet, including oceans and atmo sphere, prior to discovery, develop ment, conversion into useful forms, and transfer from one loca tion to another, generally have lit tle or no market value. In short, the process of commodity produc tion consists essentially of the application of personal services of many kinds to the natural re sources, raw materials, intermedi ate products, and commodities ca pable of satisfying consumer needs. And the end economic "good", as has been pointed out by economists from time to time, is use, not molecular content.

Our manufacturing plants with their equipment, and all other pro ductive facilities, may also be con ceived as bundles of the many kinds of services required in preparing and putting together the materials required in fabrication and construction. And the services utilized must include the efforts of planners, architects, and other spe cial skills, as well as the work of those operating the electric saws or handling excavating machines) cranes, and so on. I don't want to seem to be sup porting the view that the market value of a specific commodity or facility is determined by a sum mation of service costs. In a free competitive market no producer is assured, continuously, that the price of his output will equal - or exceed - the costs he incurs. More over, costs will vary among sup pliers during a particular period, although in a good market the price to all buyers for identical goods (taking into account all the at taching conditions) will tend to be the same. But the old socialist de scription of physical product as "congealed labor" does have a bit of merit, when broadly interpret ed, in suggesting the importance of services in the overall process of production.

It should also be noted here that the so-called "service industries" are closely related to physical products and facilities, at various stages. For example, we like a comfortable seat in a building with good acoustic properties while enjoying the singing of the 1975 SIGNIFICANCE OF SERVICES - HIRING AND FIRING 51 prima donna at the opera. We also recognize that a piano is needed for the accompanist, and that both performers require suitable garb for the occasion. Services and the Market It follows that the market for services is an integral part of the overall market mechanism, not a structure separate and distinct from the markets for commodities and physical facilities - in a sense consisting largely of embodied ser vices. It also follows that harass ment of the buyers and sellers of services as such, the imposition of a complex of restraints and con trols, legalized or otherwise, strikes at the very heart of the market as a means of channeling prod ucti ve factors and awarding output to participants. Efficient utilization of available resources, it is generally agreed, is the key to maximizing the flow of consumer products.

And how can this be accomplished if decision-making is taken away from the users and providers of services? It is true that a nation's endow ment of natural resources is not a negligible factor, but the attitudes and abilities of the people have of ten proved to be of primary im portance. As has been pointed out by economic historians, the de struction of physical property buildings, equipment, roads, and so on - in a devastating war may soon be remedied by even a defeat ed country if the population is en ergetic, capable, hardworking, and assuming that needed raw mate rials can be imported. Present-day Japan is an outstanding example. From certain quarters we hear the familiar cry to the effect that "people shouldn't be bought and sold like sacks of potatoes". In the absence of some form of slavery, of course, the human being is not a marketable chattel. But personal services are most assuredly bought and sold every day, and the pre vailing price - in the absence of interference by private or gove'rn ment agencies, and the impact of general misunderstanding and mistaken views - will be the re sult of impinging demand and sup ply influences. The pricing of ser vices in a free, competitive mar ket, conforms closely to the basic pattern of the pricing of commod ities.

The idea that the buyer of per sonal services will exploit the ser vice-furnisher, the worker, unless he is pressured by legislation or other means into paying what the service is worth, on the basis of economic productivity, is persis tent and widely accepted. On the basis of long study and observa tion, and a dozen years in an ad ministrative capacity in business operation, I find this view largely 52 THE FREEMAN January unfounded, at least on the Ameri can scene. Competition for services tends to be just as keen as the bid ding for the available supply of raw materials and other commod ities. If an employer is paying only $4.00 an hour for a certain type of service when the current value in the market area is $5.00 per hour, he will either be obliged to adjust his scale promptly or lose needed workers. It is true that the market for services, in the short-run, tends to be somewhat less flexible and sensitive than the market for ma terials, even in the absence of in terferences by goverument agen cies or others. To shift the flow of services from one region to an other of course requires suppliers of services to move, and, ~ such movement may be resisted, espe cially where families and older persons are involved. But in this country this influence has become minimal, with the availability of the automobile and other means of transportation and the erosion of sectional loyalties and prej udices resulting from increasing famil iarity with country-wide climate and other conditions.

As already implied, the inter fering pressures bearing on the la bor market are generally directed at the employer. He's the accepted villain in the play. But it shouldn't be forgotten that if the employer is coerced by nonmarket forces this inevitably means that employ ees are also being affected. Dic tated employer decisions are bound to have an impact on employee ac tions and welfare. And the overall result is hamstringing the market as a guide to economic conduct. Tenure I want to add to the above com ments some observations on the burgeoning restrictions on the rights of employers to select and dismiss employees, and the accom panying limitations on worker rights in seeking employment and holding jobs. I'll begin by refer ring to the development of tenure for the "civil service", starting long ago with legislation at the Federal level, and which has since been widely copied, in its main features, by state and local govern ments. The general objective of the various enactments and regula tions, at least at the outset, was to do away with the "spoils system", under which appointments were made - so the story ·goes - largely on the basis of political party af filiation, regardless of ability and character. In contrast the frame work of commission control that has emerged is often described as the' "merit system".

On balance, in my opinion, the substitution of commission author ity for the judgments of heads of 1975 SIGNIFICANCE OF SERVICES - HIRING AND FIRING 53 departments and other administra tors, including elected officials, has not worked out at all well. The selection process tends to be cum bersome and time-consuming, and influenced by all sorts of factors that have nothing to do with abil ity to perform (for example, pre ference granted to those who have served in the military forces). More serious is the virtual impos sibility of discharging any indiv idual who has secured a civil-ser vice appointment, regardless of level of capacity and accomplish ment. Once an appointee has come under the prevailing blanket of tenure he is almost entirely free from the risk of dismissal. As a member of a university teaching staff for 45 years I can speak with more authority on the impact of tenure in that field. Long and close observation has con vinced me that freedom from risk of dismissal for the teachers, fol lowing a brief probationary period, tends in many cases to chill incen tive to improve, blunt any latent desire to work harder and more ef fectively. Unions for the teaching staff are now being advocated and formed on many college campuses - a sorry picture for people aspir ing to professional stature. More over, it has become difficult to en force adherence to the· period of service required before· tenure be comes effective.

A feeling of some degree of se curity in one's job or position, needless. to say, is not something to be deplored. A continuing fear of summary discharge is not con ducive to good employee morale. But tenure should be earned, and maintained, by performance, not by rules and pressures that take the matter out of the employer's hands. Some Union Policies and Practices The current stress on seniority, a major feature of union policy, is a serious obstacle to sound em ployment practice with respect to promotion and retention. Other things being equal the duration of a person's experience might well be a decisive factor. But other things aren't equal. People vary widely in native ability, attitude, integrity, and so on; health and age are important factors. Effi cient utilization of personal ser vices, the key to productivity and volume of output, simply can't be achieved in any field if period of service becomes the sole basis for advancement and freedom from loss of job.

Compelling the individual work er to become a union member as a condition of employment is another highly objectionable policy, and one - unfortunately - which has acquired considerable legal sanc tion. This surely limits the work54 THE FREEMAN January er's right to choose, and discour ages labor mobility, so essential to a good market for services. Moreover, the typical union mem ber today has virtually lost his right to bargain as a supplier of service. He is one of a large group, under the thumb of well-financed union management - officers, shop stewards, and other staff groups. He can vote on occasion, it's true, but he'd better vote right. To suggest that threat of vio lence is a feature of current union practice is generally taboo, but that this factor is present and im portant is obvious to anyone will ing to look at the record. Indeed, if all fear of danger to himself and family could be lifted from the individual member the harm ful power of our unions would largely disappear.

The overall impact of union policies and practices' has not been beneficial to those who have' per sonal services to sell, including their own members. Union support of statutory minimum wage rates has helped to fasten this incubus on us, and the impact has been es pecially severe on those workers in the lower ranks from the stand point of abilities, and has thus con tributed mightily to unemploy ment. Another aspect of union wage rate' policies, often overlooked, is the restricting of increases for the especially talented· and skillful. Observant personnel managers will admit, privately, that they would be glad to pay more than the top union scale to their best people, if this were practicable. Without much doubt there is a tendency in a leveling direction resulting from union tactics and demands, al though possibly unintentional. Perphaps the most absurd of all the many misleading phrases we are plagued by these days is "free collecti ve bargaining" . The word "free" should certainly be deleted.

Enforced Catering to Minorities Federal, state, and local govern mental agencies, with help from many nongovernmental organiza tions and a host of do-gooders, have created a climate of irration ality with respect to the hiring of our racial "minorities", so-called. Beginning with a relatively mild pressuring of employers to give fair treatment to Negro and min or minority group applicants the tide has risen to the point where such ,applicants are being pushed to the top of the list, regardless of qualifications. The development has taken on the character of a social obsession, with an unwill ingness to permit any critical ex amination or discussion. In recent years the problem of female' rights has been thrown into the hopper, although the women can hardly be 1975 SIGNIFICANCE OF SERVICES - HIRING AND FIRING 55 regarded as "a minority group. There is now quite a clamor for equality of the sexes with respect to job applications, in practically all fields, and "equal pay" for "equal work".

Anxiety as to the welfare of the underdog is not altogether un wholesome, and no right-thinking male nowadays wants to see the ladies cast in the role of second class citizens. The record of man kind on this score is rather miser able, and women still are treated badly in many parts of the world. But the fact remains that the sexes are not the same in important re spects and that it is not unreason able to take these differences into account in employment practices. If an accounting firm, for exam ple, has had a number of experi ences in which a smart young woman, with a keen interest in the field, has decided to marry and re sign just about the time she was becoming an effective auditor you can hardly blame the organization for giving a promising male appli cant the edge when recruiting from the ranks of college gradu ates. But it seems clear to me that the degree of coercion to which em ployers are now subjected in their hiring practices is highly objec tionable and a barrier to efficient utilization of our personal-service resources. By and large the employer should have the right to se lect staff according to his views of his needs. Outside agencies, gov ernmental or otherwise, simply can't be expected to take over the hiring function directly, and to swathe the employer in such a network of rules as to cripple his right to select employees is bound to result in loss of operating ef ficiency.

If the management of a restau rant decides to employ only women to serve their customers why shouldn't they be permitted to do so? If a trucking company prefers men as drivers why should it be compelled to take on a female con tingent? If it is traditional to em ploy males with some African blood as porters on railway sleep ing cars why should the manage ment be required to hire a quota of males of Caucasion extraction, or attempt to recruit women? If a clothing store considers tailors from abroad more efficient than those trained in this country (as suming there are such) it surely doesn't make sense to coerce the business into changing its hiring policy. Indeed, if an employer - in a special situation - prefers em ployees with a Scotch accent that's his business, not that of any gov ernmental or private body trying to force its pet views on the enter prise. It should be kept in mind that 56 THE FREEMAN January 'in a free market economy it's the customer who calls the tune, and employers who don't listen and conform aren't likely to stay in business very long. The employer who caters to any personal preju dices he may have as to hiring practice that conflict sharply with customer attitudes will soon hear from his patrons. The market mechanism is a great disciplinar ian, if permitted to function as such.

In short, I believe it would be a blessing if the government, at all levels, would abandon the attempt - now in full swing - to interfere with employer rights to pick their employees. And this doesn't mean that I am protesting the basic role of government as an agency to protect us from violence, fraud, and other criminal actions, or that I wish to exempt employers from the police power. Summary I'll summarize, briefly. In the present-day economic process a wide range of kinds of personal services is required, and no type of service essential to providing the great array of consumer "goods" found on the modern mar ket has a preferential position on the productivity scale. Services permeate the economic pipeline at aU stages, and in a sense commod ities and physical facilities are bundles of applied services. Thus the process of production consists essentially in discovering, convert ing, transporting, and using the basic physical ingredients avail able, plus providing desired ser vices as such directly to the ulti mate consumer. It follows that ser vices are an integral part of the overall market structure and that interference with the buyers and sellers of services, by govern mental or other agencies, consti tutes a crucial assault on the mar ket mechanism in its role as a guide to efficient utilization of re sources.

Today's mounting wave of in terference with the right of em ployers to select and discharge employees has taken many forms. Employee tenure, now highly de veloped in government service, has become firmly established in teaching and is a factor in other fields. Today the employer who fires an employee does so at his peril, whatever the cause, and the overall result of undue job se curity is impairment of the incen tive to do well on the part of the employee and thwarting of em ployer efforts to spur efficiency in production. Some dominant union policies are clearly roadblocks to good staff management. Stress on seniority interferes with both the retention and advancement of em ployees on the basis of ability and 1975 SIGNIFICANCE OF SERVICES - HIRING AND FIRING 57 performance. Forcing union mem bership as a requirement in ob taining and holding a job is an un justified interference with both employee and employer freedom of choice, and legal sanction of this practice is truly an outrage.

Individual initiative among the rank and file of union members is largely lost, and there is often a very real danger of persecution and violence where a member has the audacity to oppose the policies and decisions of the officers and their minions. Thus union mem bership often has a tendency to discourage the more talented and energetic, and union wage scales demanded often fail to do justice to the most able workers. At the same time union leaders generally support minimum-wage legisla tion, demonstrably an obstacle to the employment of workers at the bottom of the totem pole of pro ductive capability. The current and expanding pressure on employers to cater to minorities and women in hiring is certainly having an adverse effect on both the quantity and quality of services available to the market and also on the efficiency of the productive process and the volume of output. ~ - Reprints of this article available, 10 cents each.What Is Seen and What Is Not Seen IDEAS ON LIBERTY HAVE YOU ever heard anyone say: "Taxes are the best investment; they are a life-giving dew. See how many families they keep alive, and follow in imagination their indirect effects on industry; they are infinite, as extensive as life itself."

The advantages that government officials enjoy in drawing their salaries are what is seen. The benefits that result for their sup pliers are also what is seen. They are right under your nose. But the disadvantage that the taxpayers try to free themselves from is what is not seen, and the distress that results from it for the merchants who supply them is something further that is not seen, although it should stand out plainly enough to be seen intel lectually. When a government official spends on his own behalf one hun dred sous more, this implies that a taxpayer spends on his own behalf one hundred sous the less. But the spending of the govern ment offic~al is seen, because it is done; while that of the taxpayer is not seen, because - alas! - he is prevented from doing it. FREDERIC BASTIAT, Selected Essays on Political Economy A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Th ent WITH the two hundredth anniver sary of the American Republic coming up, the publication of Alf J. Mapp, Jr.'s seventeen-year-old The Virginia Experiment (Open Court, $5.95) in· an expanded paperback edition will have its purely ceremonial uses. Its theme is "the Old Dominion's Role in the Making of America: 1601-1781."

But this reminder that the road from the settlement of Jamestown to Cornwallis's capitulation at Yorktown took 174 years (prac tically a half of our existence as a people on the North American continent) is not a ceremonial volume. What it tells us is that our problems hardly change at all from generation to generation. Nor do the tried-and-true an swers to the problems change. Britishers came to Virginia in the early Seventeenth Century as heirs to a tradition summed up as "the rights of Englishmen." They .had behind them Magna Carta and the Common Law. They were also quickly caught up in the struggle to put a check on the power of any centralized and dis tant government to tax its citizens VIithou t representation. True enough, the early Virginians were not followers of Oliver Cromwell. Unlike New England Puritans, they did not approve of regicides. But quite early they were pushed into becoming supporters of self rule. Whether it was a Stuart or a Hanoverian court, or the incon sistent Cromwellian Protectorate itself, that tried to levy taxes by ukase, Virginians objected.

When parliamentary commis sioners notified the people of Northampton County at the time of the Navigation Acts that they would be subject to a tax of forty six pounds of tobacco per poll, a 58 1975 THE VIRGINIA EXPERIMENT 59 committee of Virginians argued that the law that "requireth and enjoineth taxations from us" was "arbitrary and illegal, forasmuch as we had neither summons for election of Burgesses nor voice in their Assembly ..." This state ment, .in the very middle of the Seventeenth Century, was the first formal American enunciation of the doctrine that taxation without representation is unjust. How did a group of planters, men of culture and aristocratic leanings, become ·leaders of a movement that was ultimately to culminate in the rebellion against King George III? Partly it was the way of life that they led, and partly it was the economic vic timization of all English colonials everywhere by a mercantilist philosophy that favored the home country. The big planters who dominated the first Burgesses were, many of them, younger sons.

They sent their own sons back to England to be educated. They liked ceremony in their capital of Wil liamsburg. They enjoyed a social life that often welcomed the par ticipation of the Royal Governor. They could have been King's Men forever if it hadn't been for the distance from London and the dif ficulties of trying to live by one crop cultivation in an age which insisted that tobacco, the "money" of the Virginia colonists, must be channelled to English ports before it could go to the European con tinent. The Habit of Self-Rule A William Byrd II or a "King" Carter was virtually a government unto himself. on his broad tide water acres. This developed the habit of command. To the West, in hilly country, the smaller planter and the artisan and the iron miner from Prussia had to face the Indian, which was enough in itself to develop wariness and hardihood. So, when the struggle between England and France for the Eighteenth Century version of world domination waxed hot, it was natural for Virginians such as young George Washington to take charge of the local response to the conflict. The Virginians, who had been· pushing out into the Ohio Country, were in the middle position in the colonies.

They were defenders of what might be called the "salient." So they gladly accepted the main burden of fighting what was vari ously known as the Seven Years War, the French and Indian War and - intoned with local pride "Virginia's War." But what did they get out of it? After the fighting was over, stupid men in London tried to put the Ohio Country out of bounds for land-hungry Virginian sol60 THE FREEMAN January diers. The Stamp Act, a notorious example of taxation without rep resentation, was worse. The tax on tea was not particularly oner ous, since coffee houses were the local rage, but other taxes on goods which agricultural Virgin ians did not produce were like a red flag. The forensic education of· Vir ginians, who were used to good libraries, was a factor in the ris ing tide of rebellion. So, too, was the fact that a red-headed young ster such as Thomas Jefferson had had the opportunity, under such teachers as George Wythe, to study the history and philos ophy of government. Even a hill country lawyer such as Patrick Henry could bring the names of Brutus and Cromwell into inflam matory speeches warning King George not to go too far. Natu rally, when the Bostonians re volted against the East India Company's mercantilist grip on the tea trade, the Virginians re sponded sympathetically.

Todayls Application And the modern application of Mr. Mapp's book? For tea, read oil. For the Eighteenth Century's "right of vicinage," read anti busing. For the non-importation association formed by the Vir ginians in 1769, read Henry Kis singer's attempt to organize the oil consuming countries to counter the Arab-Iranian- Venezuelan oil cartel. The circumstances differ, the fundamentals remain more or less identical. The big lesson of The Virginia Experiment for a bicentennial year is "beware of the politicians." J efferson, with his philosophy of limited government, said it all even before the "Virginia ex periment" had merged with the creation of President Washing ton's American nation. The Eighteenth Century Vir ginians, along with such citizens of Massachusetts as John Adams, believed in a fourfold foundation of the rights of the colonials. Their rights depended (1) on na ture, (2) on the British constitu tion, (3) on charters and (4) on immemorial usage (the Common Law). Some of the middle Atlantic colonies differed with the Vir ginians and the Puritans. The leader of the Pennsylvanians, Joseph Galloway, disagreed with Richard Henry Lee of Virginia on the subject of the "law of nature,"

from which the doctrine of na tural rights derives. Galloway would have set up a Grand Coun cil of the colonies whose acts would be subject to the veto of a Presi dent-General appointed by the King and holding office at royal pleasure. Together, the Council and the President-General would 1975 THE VIRGINIA·EXPERIMENT 61 constitute an "inferior" branch of the British parliament. But this would have substituted Divine Right, in the person of the King's appointee, for the na tural right of the colonists to make their own laws. It would also mean that the King might trea t Americans as something less than freeborn Englishmen. Galloway's plan was rejected. The theory of natural rights, as espoused by Richard Henry Lee and Thomas Jefferson, became the undergirding of America's inde pendence. Will we desert this theory in our 200th year? Not if the spirit of Virginia prevails. .. ECONOMICS AND MARX: THE FRAUDULENT ANTAGONISTS by Howard Brandenburg (The Hillsdale Press, San Mateo, Cali fornia, 1974), 277 pp. $10.00. This book also is available from the Foundation for Economic Educa tion.

Reviewed by Bettina Bien Greaves WHAT CAN a former corporation lawyer, special assistant U. S. at torney and retired navy captain possibly know about economics? A great deal, if his name is How ard Brandenburg and if .. one judges from his recent book, Eco nomics and Marx: The Fraudulent Antagonists. Mr. Brandenburg's formal schooling was in law. He studied economics on his own, so did not waste time, money and energy having to learn, and then unlearn, macroeconomic statistics and mathematical formulae which now pass for economics in most col lege classrooms. Mr. Brandenburg has obviously read widely and well. He understands the major contributions of the sound econ omists and can spot an economic fallacy at long range. His major whipping boys in this book are Karl Marx and all who wittingly or unwittingly follow in his ideo logical footsteps. The author realizes that it is not enough simply to attack Marx's conclusions. Marx's foun dations, his reasoning, his logic, his "epistemology" must be de molished. And this Mr. Branden burg proceeds to do forthwith. He starts by explaining that economic theories and laws are all derived, as Mises puts it, "from those principles with which every new born babe comes potentially equipped." Only on the basis of such irrefutable a priori proposi tions may a logically consistent science of economics be con structed.

The longest chapter in· the book attacks the idea that economics is "empirical," Le., based on ob servation of historical data and statistical aggregates. In refuting this position, Mr. Brandenburg 62 THE FREEMAN January shows tha t economics is a very different kind of science. It deals with units which cannot be quan tified, measured, totaled, multi plied or divided with any mean ingful results - the conscious ac tions and subjective values of in dividuals. Because individuals do not act mechanically, the laws of statistical probability are suspect. "People throw dice." he writes, "but people are not dice." The au thor comes down hard on persons who try to base economic theories on "what everybody knows," when they should build on "what every body is."· He dismisses "thin-air statistics," saying that "if it is dishonest to get something for nothing, isn't it slightly dishonest to get something out of nothing?"

The next longest chapter in the book goes after Karl Marx, the labor theory of value and the doc trine of worker exploitation. The author again reasons from basic a priori and marginal utility theory, arriving at the subjective value theory, thus thoroughly re futing and demolishing the Marx ian labor theory. Mr. Brandenburg quotes widely from the works of empiricists, historicists, socialists and Marx ists. He often succeeds in turning their own quotations against the very theories they espouse. One of the most outspoken Marxists, Oskar Lange, is quoted as having rej ected the Marxian theory of labor and turned of necessity to marginal analysis to explain the determination of prices. The au thor also cites the work of many leading spokesmen for the free market, marginal utility, subjec tive theory of value. When all is said and done, the reader is led to several important conclusions. The socialists have claimed to be empirical and scien tific, but they are not! They have argued that they can forecast, but they can't! They· have asserted that workers are exploited, but they aren't! For years they held that nationalizations were neces sary to socialize an economy, only to be forced to abandon that inte gral plank in their platform. All their pet doctrines break down for, as Mr. Brandenburg. explains, all of us - capitalists and social ists alike - are forced to conform with the laws of human action and the principles of economics. Peo ple must act in accord with their subjective values and calculate on the basis of the marginal utility theory to determine market prices.

If they don't they cannot function at all and their whole economic system must break down. Sooner or later the socialists must also recognize that they cannot calcu late unless consumers in their so ciety are free to purchase or not to purchase as they wish and entre1975 OTHER BOOKS 63 preneurs are free to do their best to try to satisfy the demands of those free consumers. Mr. Brandenburg has contrib uted to the understanding of Marxian fallacies and to the fact that a communist society cannot calculate and plan economic pro duction rationally. En route to un standing Marxian fallacies, read ers of his book should come to rec ognize also that modern empirical "economists" base their elaborate statistical models on similar fal lacies. Mr. Brandenburg's many quota tions are well chosen and pertinent and his comments sound and help ful. His book is not light reading but its message is worthy of atten tion by serious students of eco nomic theory and especially those interested in the claims that eco nomic calculation can exist under socialism.

~ THE INCREDIBLE BREAD MA CIJINE by various authors. (World Research, Inc., Campus Studies Institute Division, 11722 Sorrento Valley Road, San Diego, California 92121, 1974) 192 pp. $4.95 clothbound, $1.25 paperbound. Reviewed by Brian Summers THE CAMPUS STUDIES INSTITUTE has, for several years, supplied college students ",·ith superbly written pamphlets on free market economics. Now six members of its student staff (Susan Love Brown, Karl Keating, David Mellinger, Patrea Post, Stuart Smith and Catriona Tudor) have extensively revised and updated R. W. Grant's The Incredible Bread Machine. The results are exciting. It is exciting that these young people understand and write so well about economics. And it is exciting to contemplate the effects this book could have on high school and col lege campuses. Social security, antitrust, union monopoly privileges, minimum wa.ges, farm programs, civil rights, the business cycle: these are just a sample of the items cov ered. Of necessity in a work of this length, the coverage of each topic is brief, although often amazingly compact. Few words are wasted.

For those readers whose interests are whetted, and I expect there will be many, more than 150 re ferences have been provided. This book is firmly on the side of the free market. "What if gov ernment could only use its power defensively to protect the life, lib erty and property of its citizens against the initiation of force a.nd fraud from others?" This is the ideal. At no point is this ideal com promised. The Incredible Bread Machine is one of the finest introductions to 64 THE FREEMAN January political economy I have seen. Its catchy style made it difficult for me to put down. If enough people pick it up, and live by its message, the winds of change may once again turn toward liberty. ~ WILL THE REAL YOUNG AMERICA PLEASE STAND UP? by Mark Evans (Stackpole Books, Cameron and Kelker Streets, Harrisburg, Pa. 17105, 1973) 218 pp. $6.95. Reviewed by Edmund A. Opitz NOT EVERYONE tak~s pleasure in discussing a controversial issue on its merits; the line of least re sistance for many is to blunt the edge of an adversary's argument by suggesting that his position re flects self-interest of some sort.

Thus the marxist asserts that only the proletariat can understand communism; the Freudian fends off objections by alleging that cri tics are motivated by unconscious impulses; speculation as to why a person embraces a philosophy comes to seem more important than the philosophy itself. And by the same token the young are posi tive that the old are incapable of grasping the true inwardness of youth simply because they are over thirty. The generation gap is no new thing, of course, but today's gap is somewhat wider than hith erto. It should be added that there are wide gaps visible among the 20-21 year olds themselves, espe cially between those who work and those in college. Nevertheless, there is a feeling of strain between young Americans and old; they talk past each other, much of the time. What's a middle-aged person to make of hard rock, the sex and drug scene, the outlandish getups, the vagabondage? If he tries to get with it he only looks silly to young and old alike. All healing comes from within.

It's right here that the Mark Evans book is important. Evans is in his mid-twenties, but he al ready has his Ph.D. from one of the tough graduate schools; he's a musician and writer. And he tack les the problems faced by his peers, people under thirty, in terms farpiliar to them, and from the in side. Communicating with the young as no outsider can, he dis sects rock music, analyses the de basement of standards, comes down hard on drugs and violence. On the positive side he offers a re storation of sound values and says some excellent things about the basic institutions of every civili zation: home, school and church. This is a sane and healthy book. ~ ttle Freeman VOL. 25, NO.2. FEBRUARY 1975 Holy Experiment The story of William Penn and of Pennsylvania. Paul Luther Brindle 67 The Police: Friend or Foe? Leonard E. Read 75 What is it, then, that in good consciencewe should ask of the police power?

Magic, Envy, and Economic Underdevelopment Gary North 80 Reasons why Western prosperity can't be transplanted successfully in many lands. Gold is Honest Money Hans F. Sennholz 88 Some helpful signs for traders seekinga return to sound money. Blundersof the FoundingFathers Cha,rles R. LaDow 95 Attending to a few chinks in the national armor. The Organizationor the Individual? William H. Peterson 105 The failure of modern economic theory lies in its preference for the organization rather than the individual. The Conceptof Value in Ethics and Economics The most important reason why a man chooses freedom. Book Reviews: "The Roots of American Order" by Russell Kirk "Mises Made Easier: A Glossaryfor Ludwig von Mises' HUMAN ACTION" by Percy L. Greaves, Jr. Ridgway K. Foley 115 124 Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

t11e Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON·ON-HUDSON, N. Y. 10533 TEL.: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from. Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit except IIMagic, Envy, and Economic Underdevelopment" and IIGold is Honest Money."

WILLIAM PENN THE HOLY EXPERIMENT was the name given by William Penn fo his colonization on the west bank of the Delaware River . William Penn was sure that he was di rected by God through his Inner Light. When he was 12 years old, and alone in his room, he had a spiritual experience which he de scribed as God appearing unto him and making it clear to him that there was important work for him to perform. William Penn was born October 14, 1644, almost within. the shad ow of the Tower of London. His father was an English Navy Cap tain whose name was also William. H-is mother was Dutch, the former Mr. Brindle is a Washington, D.C., attorney whose paternal ancestors arrived in Philadel phia in 1715, from Liverpool. Holy Experiment PAUL LUTHER BRINDLE Margaret Jasper, and is credited with giving him his unshakable poise. The father had been taught the way of the sea by his father, Giles Penn, on his own ship in the sailing-vessel days and in the rough-and-tumble merchant ser vice. Sir William Penn became Vice Admiral and was knighted.

As recipient of many honors, he was invited to State' functions, where he felt humbled by his lim ited formal education. He deter mined that his son should be edu cated as a courtier. A tutor was engaged and young William was sent to Chig well School in Essex, then to Ox ford University tor two years, and then to Soumur in France where he came urtder the infl u enceof, and lived with, the noted 67 68 THE FREEMAN February theologian, Moses Amyrault, of Calvinist persuasion and a man of learning and eloquence. Penn wore fine clothes, armor and side arms becoming the cava lier gentry, and young men of dis tinction. While at Oxford, Penn had developed skills in fencing, and when an attacker in Paris drew his sword over some imaginary of fense' Penn ~ested him. This gave Penn the right to pierce through, but he turned his attacker free un harmed. Penn, by now the theolo gian, said concerning the incident, "I know no religion which destroys courtesy, civility and kindness."

This led to his giving up of the ar mor and side arms. Penn went to the London Inn to study English law until his father took him to his estate in Ireland to avoid the plague of 1665 and 1666. In Ireland, Penn heard the Qua ker preacher, Thomas Loe, preach ing on the subject, "There is a faith that overcomes the world and a faith that the world over comes," and from that time Penn was a Quaker. The Quakers were delighted to secure a convert from the cavalier class, a man of fam ily, education, wealth and prom inence. He became a recognized Quaker leader, preacher and au thor of numerous theological works. Seventeenth Century life in England was at a low ebb, with 250 crimes punishable by death usually on the block. The Conven ticle Act of 1664 made it unlawful to hold any religious meeting other than that of the authorized Church of England. Magistrates were al lowed to impose fines upon viola tion, often amounting to confisca tion of assets and imprisonment without trial by jury. The inform er's fee was one-third of the fine.

The Quakers refused to obey the Conventicle Act, and worshiped openly as Quakers with the result that men, women and children were arrested and carted off to prison, and the following week there would be replacements to suffer the same fate. A Quaker in Prison Newgate Prison was overly crowded. While in prison there, Penn spent most of his time writ ing, The Great Case of Liberty of Conscience, and on another occa sion he wrote, No Cross, No Crown, which has been reprinted from time to time. On another occasion, Penn spent eight months and 16 days in the Tower of London without trial. Word reached him that the Bishop of London had vowed to keep him there until he died. To this Penn replied, "They are mistaken in me, I value not their threats;' I will weary out their malice."

1975 HOLY EXPERIMENT' 69 During Penn's incarceration in the Tower, he was without re search material, but his writings included accurate quotations and analyses of the opinions of over 150 personages of the past and present. When the book, Innocency with Her Open Face, was pub lished and reached the streets, it was so helpful in authenticating his claim of his Inner Light, as a man of God, and stirred such a clamor, that in a few days he was released from prison by the act of pardon. Property Seized, Later Restored Large numbers of Quakers were refusing to pay tithes, or taxes to maintain the government, which included support of the established church. The sheriff was obliged to seize their property and sell it to obtain treble the amount of the tax, or to imprison them. The Quakers refused to take an oath, or to remove their hats in court, church, or in the presence of important persons. They denied the validity of all sacraments, in cluding baptism and the Lord's Supper. They declared that a man should not be bound to believe more than his reason could com prehend. The Quakers were at tempting to hark back to First Century Christianity, and thereby to circumvent 16 centuries of growth and struggle of Christen dom. Their position on primitive Christianity was to become an im portant point of understanding with the Indians in America.

The Test Act of 1673 barred from public office, both civil and mili tary, all who refused the sac rament according to the rites of the Church of England. This forced the resignation of James Stuart, the Duke of York, from his position of Lord High Admiral of the Navy. James was openly a Romanist, while Charles II was secretly of the same faith. Ten years after the death of Ad miral Sir William Penn, Charles II was still unable to pay the estate the Admiral's uncollected salary and loans which amounted to about £16,000. William Penn was at the peak of his influence. He proposed that the Crown convey to him the uncolonized land west of the Delware River in North Amer ica in exchange for the indebted ness and, at the same time, to pro vide a haven for the religiously oppressed in England. It had been 60 years since the Pilgrims had settled in Massachusetts for the free worship of the Puritan reli gion, and Penn saw a need for in dividual religious liberty.

When the Charter for the grant was being considered in Council, on March 4, 1681, Penn stood with his hat on, as was the Quaker cus70 THE FREEMAN February tom, although he was in the pre sence of the King. When the King removed his hat, Penn asked, "Friend Charles, why dost thou not keep on thy hat?" His Majesty replied laughingly, "It is the cus tom in this place for only one per son to remain covered at one time." Penn, in deference to the Qua ker restriction against vanity, ob jected to the colony being named Pennsylvania, the Latin for Penn's woods, whereupon the King said, "I will name it after your father." On March 4, 1681, the Holy Ex periment was launched, and March 4 was later selected as the date for the Inauguration of the Presi dents of the United States - a cus tom which prevailed through 1933. Pennsylvania became the only proprietorship colony in America. It consisted of 45,000 square miles, only 5,000 square miles less than the area of England. Of it Penn wrote "'Tis a clear and just thing; and my God, which has given it to me, through many difficulties, will I believe, bless and make it the seed of a nation. I shall ten der care to the government that it may be well laid at first."

Address to Settlers Penn lost no time in putting the Holy Experiment into.· effect, as inspired by his Inner Light. On April 8, 1681, he wroteto the set tlers in. Pennsylvania-the Swedes, Dutch and English - in a style which has sometimes, been re ferred to as Governor Penn's Inau gural Address. He wrote, in part: My Friends: I wish you all happiness, here and hereafter, I have to let you know that it has pleased God in his Provi dence to cast you within my lot and care. It isa business that, though I never undertook before, yet God has given me an understanding of my duty, and an honest mind to do it up rightly, I hope' you will not be troubled with your change and the king-'s choice, for you are now fixt, at the mercy of no Governour that comes to make his fortune great ; you shall be governed by laws of your own mak ing, and live a free, and, if you will, a sober and industrious people. I shall not usurp the right of any, or oppress his person; God has furnished me with a better resolution, and has given me the grace to keep it. In short, whatever sober and free men can reasonably desire for the security and improvement of their own hap piness, I shall heartily comply with .... I beseech God to direct you in the way of righteousness, and therein prosper you and your children after you. I am, Your true friend, Wm. Penn.

When Penn first arrived in his colony on October 27, 1682, at Up lands, (renamed Chester), he im mediately began to apply his frame of government. He issued 1975 HOLY EXPERIMENT 71 writs for the election of Represen tatives to the assembly to meet at Chester on December 4, 1682. Penn was delighted to find the great storehouse of riches which exceeded his fondest expectations. Prior to going to Pennsylvania, he had written several letters to the Lenni Lenape (Delaware) Indians, which had been read and trans lated to them. The letters were friendly and deeply religious, and he assured them that his people would never harm them nor take their land without payment. He learned their language and would walk among them. The In dians had strong likes and dis likes, but were deeply fond of Penn, whose brotherly love was contagious. The Indians shared Penn's convictions on immortality. Penn contended, "That the truest end in life is to know the life that never ends-that death is no more than turning us over from time to eterni ty."

After making land purchases in 1683, Penn wrote: The poor people are under a dark night in things relating to religion; to be sure, the tradition of it, yet they believe in God and Immortality, without the help of meta physicks; for they say, there is a great king that made them, who dwells in a glorious country to the southward of them, and that the souls of the good shall go thither where they shall live again. Penn's Fundamental Constitu tions of Government read: "That all persons living in the province who confess and acknowledge the Almighty and Eternal God· to be Creator, Upholder and Ruler of the world - subject to the general rules of piety, all were welcome. Only those who denied the exist ence of God should be excluded." The frame of Government Penn looked upon the state as evil and wanted no more govern ment than the ill-behaved of worldly citizens made necessary. His· philosophy of an ideal society was one in which men governed themselves and their affairs so well and justly that formal gov ernment would have little or noth ing to do. Penn said, "Liberty without obedience is confusion and obedience without liberty is slavery." Imprisonments were con tinuing in England, requiring courtier attention. Penn sailed on August 16, 1684, to England.

King Charles II died in 1685, and his younger brother James Stuart ascended to the throne as J ames II, and declared that he would establish the· Roman reli gion in England or die in the at tempt. Charles had a natural son Monmouth, for whom a Dukedom had been created. He mustered his forces to take the throne from his uncle, James II, which' resulted in 72 THE FREEMAN February a bloody failure, and Monmouth lost his head on the block. It took William of Orange with 14,000 well-disciplined Dutch troops to rout his father-in-law from the throne. J ames tossed the great seal into the Thames and fled to France where he lived on the bounty of Louis XIV. This was the end of Penn's influence as a courtier. At the behest of William in 1689, eight years after Penn's Holy Experiment began, Parlia ment passed the Toleration Act, which William had promised when he announced his intention to drive James from the throne. The Act established religious liberty by law. The refor~s established were the very ones for which Penn, in his earlier days, had so ardently contended, and modern England was to grow up under these reforms.

William and Mary Under the reign of William and Mary, violence, cruelty and brutal executions largely passed away. Mary was the daughter of James II and his first wife, Anne Hyde, and was reared as a Protestant. She and William were virtuous and honorable monarchs, and set an example for all rulers to fol low. The statesman who failed lost his office, not his head. Under the liberties established by WilHam III, the modern world was beginning to appear. The Tolera tion Act brought tranquility to the English people, and cleared the way for dealing with those of different religions and cultures. Penn visited Holland and Ger many, preaching to the oppressed Mennonites and Schwenkfelders, and urged them to colonize in Pennsylvania. He visited Princess Elizabeth, granddaughter of J ames I, who was then the Abbess of Herford, and who entertained an interest in the mysteries of the Deity. Penn, accompanied by Quaker missionaries, was hopeful of her acceptance of Quakerism.

Penn wrote in his notes, "The gospel was preached, the dead was raised and the living were com forted." In 1699 Penn made his second trip to Pennsylvania, when the population was about 20,000, con sisting of about one-third mem bers of the Church of England, one-third Quakers, and one-third Presbyterians, Mennonities arid others. When Penn, a man of great poise, visited throughout the province and the neighboring colonies of New York, New Jersey and Maryland, he was graciously received. Penn returned to England in 1701, but before his-departure, a new and simpler constitution was adopted by the people. Penn 1975 HOLY EXPERIMENT' 73 stoutly maintained that there should be: • 1. No establishment of the Church of England as the state church. • 2. No use of public funds for sectarian benefit. • 3. No abridgment of suffrage. • 4. No Test Act eligibility for office. • 5. No direct parliamentary tax ation upon property or in come.

In compliance with Leviticus 25: 10, a huge bell was cast by Pass and Stow of Philadelphia, and was rung on the 50th Anni versary, proclaiming liberty throughout the land. It was again rung in jubilation on July 4, 1776, and each year thereafter until a crack developed. After that, it be came an attraction for visitors. Those whom Penn left in charge of his province were soon to be operating it at a loss, and Penn was imprisoned for debt. To ter minate the loss in his advancing years, he offered a sacrifice sale of Pennsylvania to the Crown, for £12,000, and accepted £1,200 as advance payment. When the new constitution was adopted in 1701, the first of the prohibitions (against a state church) was inadvertently omit ted, and Penn by recoupment, tried to incorporate it as a re strictive covenant in the sales agreement, but destiny had an other plan for the survival of the Holy Experiment.

Penn suffered a stroke which rendered him unable to contract during his remaining years. It fell to the lot of his widow, the former Hannah Callowhill, to save the Holy Experiment. She termi nated the foolish sales talks, re paid the advance from an inheri tance, schooled herself in the affairs of the province, and taught the same to her sons. The Order of Succession in Pennsylvania Thomas Penn was the business man of the family. Later he· be came Governor and he instructed his nephew, John Penn, to suc ceed him. John Penn served until the Revolution. Written .high in the Capitol at Harrisburg are William Penn's famous words, "The nations want an example and my God will give them one." By liberating the spirits of men, more power was released through the Holy Experi ment than was theretofore thought possible by those of lesser stature. The Quakers opposed war per se, and even as a means of de fense. They surrendered political power as early as 1757. During and after the Revolution, many Quakers emigrated to Canada.

74 THE FREEMAN February Penn had placed happiness fore most in his letter to the settlers in 1681, and 95 years later (1776) when Philadelphia. was the most populous city in America, it was paraphrased as the "Pursuit of Happiness" in the Declaration of Independence. Seven of the 39 signers to the Declaration of In dependence were Pennsylvanians, and Pennsylvania was the first of the larger states to ratify the Federal Constitution, on Decem ber 12, 1787, following only 5 days after ratification by Delaware, a land formerly owned by Penn and settled as a part of the Holy Experiment. The Holy Experiment in repre ... sentative government, by strange circumstances, remained not the work of anyone person, or group of persons. Succeeding genera tions and freedom-loving immi grants could find inspiration from Penn's dedicatory prayer in scribed on Philadelphia's City Hall, the closing words of which are, "To preserve thee from such as would abuse and defile thee that thou mayest be preserved to the end." ~ IDEAS ON LIBERTY Discourses -Concerning Government IT WERE A FOLLY hereupon to say that the liberty for which we contend is of no use to us, since we cannot endure the solitude, barbarity, weakness, want, misery and dangers that accompany it whilst we live alone, nor can enter into a society without resigning it, for the choice of that society, and the liberty of framing it according to our own wills, for our own good, is all we seek. This remains to us whilst we form governments, that we ourselves are judges how far 'tis good for us to recede from our natural liberty ; 'tis of so great importance that from thence only can we know whether we are freemen or slaves; and the difference between the best government and the worst doth wholly depend upon a right or wrong exercise of that power. If men are naturally free, such as have wisdom and understanding will always frame good govern ments: but if they are born under the necessity of perpetual slavery, no wisdom can be of use to them; but all must forever depend on the will of their lords, how cruel, mad, proud or wicked soever they be.

SIR ALGERNON SIDNEY (1622-1683) LEONARD E. READ WOODROW WILSON, in his book, The State, also identifies govern ment with force: "Government, in its last analysis, is organized force." Stated very simply,.a gov ernment issues edicts -laws which are backed by a constabu lary or policemen. Obey, or suffer the consequences! Other agencies or persons must rely on attraction, service rendered, peaceful per suasion. It is beginning to dawn on me that we who believe in and are spokesmen for what we have called "limited. government" have been using that term in vain. Why the suspicion? Again, hear Woodrow Wilson: No man ever saw the people of whom Governmentis not reason1 it is not eloquence;....it is force. Like fire it is a dangerousservant and a fear ful master ; never for a moment should it be left to irresponsible action. - George Washington The Police: Friendor Foe? he forms a part. No man ever saw a government. I live in the midst of the Govern1nent of the United States. I never saw the Government of the United States.

In a word, we have been sponsor ing, arguing for, trying to explain something no one ever saw - try ing to make the case for an un pereeived abstraction! In the interest of better com munication, why not use a term that is consonant with what or ganized force really is: the police. All of us, from youngsters to old sters, have seen policemen. Wood row Wilson, for instance, never saw government but he saw police men·, one of them in the mirror a Chief of Police. So let us try 75 76 THE FREEMAN February that image of limited government - the police - to better present our freedom point of view. The question is this: Are our policemen - local, state, and na tional - friends or foes? This, I believe, can be resolved by assess ing their countless actions as re lated to justice and injustice. They are friends when supporting jus tice and foes when inflicting in justices. Is Justice Served?

Here is my conclusion at the outset: When the police serve as an agency of justice, we should in all good conscience regard the agency as a friend. But-when the police power becomes an instru ment of injustice we should look upon it as a foe; for then it is a political device that contributes toward rather than deters social chaos. Above all, let us bear in mind that the police force is but an agency or an instrument of ours, and that ours is the respon sibility to keep it a friendly agency of justice rather than a foe of mankind. Wrote Edmund Burke: "When ever a separation is made between liberty and justice, neither, in my opinion, is safe." I side with Burke: Liberty and justice are inseparably linked! So, what is liberty? It is the "pursuing of our own good in our own way, so long as we do not attempt to de prive others of theirs, or impede their efforts to obtain it." My phrasing: No man-concocted re straints against the release of cre ative human energy.

Let me catalogue a few in stances where the police behave as a foe and try to explain how the agency could serve as a friend instead. Inflation: When the agency di lutes the medium of exchange it is a foe, precisely as if every policeman in the U.S.A. were en gaged in counterfeiting. Foe? If the money supply continues to escalate at the rate since 1938 from about $35 billion to $280 bil lion - the supply by the year 2000 will be one and one-half trillion dollars. Savings, insurance, bonds, and other such assets wouldn't then be worth a plugged nickel. Here is a separation of liberty and justice. How can the police agency be come a friend '? Remove the cause of inflation: excessive police ex penditures. For it is an observed fact that whenever the costs of the police power rise beyond that point where it is no longer politi cally expedient to defray its costs by direct tax levies, such agencies resort to inflation as a means of making up the deficit. Inflation syphons private property into the 1975 THE POLICE: FRIEND OR FOE? 77 coffers of the police. Let the police power do only what police are sup posed to do: Invoke a common justice and keep the peace! That would be a big step toward liberty and friendship.

Food stamps: a perfect exam ple of the police agency as foe! In 1965 the cost of the food stamp program was $85.5 million. This year it will approximate $7.2 bil lion - up 8,400 per cent in ten years-with 16,000,000 people rid ing this gravy train, feeding at the public trough. Where is this and similar. plundering schemes of the police force taking us? To a situation of all parasites and no hosts - the rich becoming poor and the poor poorer. Li herty and justice separated! The light shed by this police injustice? Allow everyone maxi mum opportunity to become self responsible. It is as unjust for the police to forcibly take from some and give to others as it would be for me to rob you to aid a person who is the object of my pity. What about instances of distress? Rely on the practice of Judeo-Christian charity. Were the police not pre empting this role, true personal charity would be more than suf ficient. For another step toward liberty and justice, let us relieve the policeman of this highly ques tionable activity.

Social security: Why should every person engaged in "covered employment" be compelled to con tribute 11.7 per cent of the first $13,200 of his annual earnings to this huge "policemen's benevo lence fund"? For the benefit of those already retired? For a chance to draw from the fund if and when he reaches 65 and re tires from "covered employment"? Is it justice to force everyone to contribute to this "fund for the future" regardless of the indhrid ual's present needs and circum stances or of his own ideas about how best to save and invest his property? What should a friendly police man do in this regard? Why not ask that he protect and defend the right of each of us to buy as much or as little insurance as he wants from whomever is willing to sup ply it? And if either party at tempts to defraud the other, let the policeman then intervene as an agent of justice. Price controls: The police are foes when they control the price of commodi ties, rent, interest, wages or permit control by labor or business or whoever. Prices are expressions of value judgments.

No policeman or anyone else can determine the value of this or that for you or me. Value is always a subjective determination. When 78 THE FREEMAN February the policeman tells you what price you must payor at what price you must sell, he is, in effect, forcing you to buy or sell contrary to your wishes; in other words, he· is con trolling you. All attempts at price control have failed; the results have been surpluses and shortages and economic chaos. People con trol is rank injustice. The friendly policemen let prices be determined in the free and un fettered market, that is, by sup ply and demand. Liberty and justice! Paying farmers not to farm: a foe to consumers - who pay more; a foe to taxpayers - who keep less; a foe to the farmers-them selves - who degenerate into plunderers. The friendly way? Be done, "lock, stock, and barrel," with this silly blockage of the market. Restore liberty and justice!

Police-type education: This is featured by three forms of police coercion: (1) compulsory atten dance, (2) police dictated curri cula, and (3) the forcible collec tion of the wherewithal to pay the enormous bill. The police have no more place in education than in religion. In my view, police "education" has been one of the greatest errors in American his tory and this fact is becoming more and more evident with each passing year. The collectivistic jargon issuing from classrooms accounts, in no small measure, for collectivistic practices in all walks of life. Foes! What then would be friendly? Get the police out of education except to identify any and all mis representation, and impose ap propriate penalties! Leave edu cation - as we leave religion to citizens acting freely, coop era tively, competi tively , privately, voluntarily. Education is a volun tary taking of ideas freely offered by others, not a police process of stuffing information into a captive audience. The police who side with this view are friends and the upholders of liberty and justice as related to education.

Why give more examples of a list virtually endless? These few specimens - a mere sampling may· suffice to demonstrate the difference between justice and in justice at the hands off the police. Now to the role of the citizen who believes in friendly police and who is devoted to the propo sition that liberty and justice are inseparable. Is there a part for each of us to play if we seek the good ·society? Indeed, there is! Note the phrasing of a previous sentence : "When the police serve as an agency of justice, we should in all good conscience regard the 1975 THE POLICE: FRIEND OR FOE? 79 agency as a friend." We should, but we don't. And this lack of self-discipline may account, as much as any other reason, for the loss of liberty and justice, for runaway police. It occurs to me that the re quired discipline may be more un known than carelessly glossed over. John Philpot Curran said: The condition upon which God hath given liberty to man is eternal vig ilance; which condition if he break, servitude is at once the consequence of his crime, and the punishment of his guilt.

This oft-repeated axiom is, in my view, the missing discipline. True, the words are well known; it's the meaning that's not known or even suspected. The axiom sounds good, but actually, what does one do to be forever vigilant? How exer cise this discipline? Yes, we rail against inj ustice but we do not know how to hail justice - or so I believe. Merely take note of the fact that when and if a policeman does something that's just - consistent with lib erty - we do no more than regard it as the what-out-to-be and let it go at that. Not vigilance at all; merely static acquiescence. In favor of justice, yes; vigilant standard-bearers, rarely, if ever. This raises the final question: How does one become a vigilant standard-bearer ? Would that it were as simple as a pat on the back to those police who do what's right and just! And even this would not be simple, for there are ever so many who so conduct themselves but whose actions we never hear about. Mere praise does not suffice. All well and dan dy, but there's nothing vigilant about that.

What then? The police agencies might soon rise to their principled role were their millions of mem bers to stand ramrod straight. But this for certain, they will never so behave short of some exemplars among the citizenry. Eternal vigilance is nothing less than exemplarity of the high est order on your part and mine day in and day out, now and for ever. A society gets the police men it deserves; for the police agencies are no more than a re flection of you and me. We aid and abet what's good and just on the part of the police by being good ourselves - by nothing less than personal standard -setting performances. * ,:est and by three (P. T. ,ist (Ed sociologist c oec auer, a professor at the London School of Economics, has published several important books on the topic of economic development, but by far his most comprehensive work is Dissent on Development, published by Harvard University Press in 1972. The key to economic devel opment in a society, argues Bauer, is the character of the people. The presence of a socialist planning apparatus inhibits development, since it pours money into state approved projects, bases its deci sions on politics rather than eco nomic returns, and acts as a scape goat for personal failure ("the government did this to me"). But far more important is the attitude of the population: Dr. North is the commentator on the "Gold & Inflation Telephone Report" (213) 422-1266.

This article has been adapted from a longer piece appearing in the ]aurnal of Ch'r;st;an Re construction, Box 368, Woodland Hills, Cali fornia 91365. GARY NORTH Magic, EnV¥ andEconomicUnder ~INCE the great depression of the 1930's, and especially since 1945, the concern of concerns among orthodox Keynesian planners has been economic growth. Believing they had created Western prosper ity, they thought to export it to underdeveloped lands through massive giveaways. At some undefined point, these so-called "transfer payments" would enable the recipient nations to become productive. "Primitive" cultures could then become "modern." But a major question still con fronts the historians and econo mists: what factors contribute to economic growth? Why do some societies grow steadily, seemingly as a result of their own people's efforts, while others stagnate, de80 1975 MAGIC, ENVY, AND ECONOMIC UNDERDEVELOPMENT 81 Examples of significant attitudes, be liefs and modes of conduct unfavour able to material progress include lack of interest in material advance, com bined with resignation in the face of poverty; lack of initiative, self-reli ance and a sense of personal responsi bility for the economic fortune of one self and one's family; high leisure preference, together with a lassitude often found in tropical climates; rela tively high prestige of passive or con templative life compared to active life; the prestige of mysticism and of renunciation of the world compared to acquisition and achievement; ac ceptance of the idea of a preordained, unchanging and unchangeable uni verse; emphasis on performance of duties and acceptance of obligations, rather than on achievement or results, or assertion or even recognition of personal rights; lack of sustained curiosity, experimentation and inter est in change; belief in the efficacy of supernatural and occult forces and of their influence over one's destiny; in sistence on the unity of the organic universe, and on the need to live with nature rather than conquer it or har ness it to man's needs, an attitude of which reluctance to take animal life is a corollary; belief in perpetual re incarnation, which reduces the signifi cance of effort in the course of the present life; recognized status of beg gary, together with a lack of stigma in the acceptance of charity; opposi tion to women's work outside the household. (pp. 78-79).

These attitudes are primarily religious in nature. They are not easily changed, and dollars alone, even billions of dollars annually, are not likely to alter them signifi cantly. A nation dependent on an other nation's largesse is still caught in the trap of the ,occult. The increased wealth is 'not a product of the recipient nation's planning, conscientious men. It therefore will not teach men that wealth stems from moral action and obedience to basic principles of conduct. The presence of atti tudes such as those described in Bauer's summary are the sign of "primitivism." Primitive external conditions that persist in a culture through countless generations are a sign of cultural degeneration the wrath of God (Deuteronomy 8; 28). Bauer's favorite example of a population that has pulled itself up by its own· bootstraps, without foreign aid, natural resources, or a system of massive central plan ning, is that little piece of rock south of China, Hong Kong. Free trade, open entry to occupations, low taxes (until quite recently), the right of profit, and an atti tude favorable to growth have combined to produce an economic miracle. Even the Japanese can not compete with them; American capitalists long ago began scream ing about the ':unfair competition"

- read: effective competition - of 82 THE FREEMAN February the inhabitants of this bit of rock. But Africa stagnates, with its un told mineral wealth, or even de clines economically. The Unheavenly CUy Edward Banfield's gem of a book, The Unheavenly City (1970), earned him the wrath of most of the academic profession, as well as the students of Harvard University. So continuous and bitter was the student opposition that Banfield finally left "scholar ly" Harvard for the University of Pennsylvania. What was the cause of such an outcry? Simple: Banfield had concluded that the economic backwardness of the ghetto is primarily the product of the chosen style of life of the ma jority of those who live in the ghetto. Most crucial, argues Ban field, is their conception of the fu ture: they are present-oriented. They want immediate gratification. They want excitement - "action" - to brighten their otherwise dull lives. They want no part of the white middle class and its world of plodding stability. Present-ori entation is the key to understand ing the concept of "lower class,"

not present income. Present in come can rise later; it can be sup plemented by income from other family members. But present-ori entedness is internal. There is no imposed solution possible: no school program, with its system of endless written exams; no job training programs, that in 1967 were costing $8,000 per enrollee; no system of rehabilitation for hardened criminals. The problem is spiritual, moral, and cultural. White money changes only the lev el of activity in the -ghetto, not its general direction. 1 Both Bauer and Banfield have struck at the very heart of modern economic Liberalism. The simple world of environmentalism is a myth, they have concluded. So many dollars per capita of wealth redistribution on the part of civil governments mean nothing. The key is internal. White middle class bureaucrats, armed with their dol lars and their survey forms, do not and cannot change anything. The old routine of "find a problem, cure a problem" is too simplistic; money and more public education are insufficient. White middle class bureaucrats have tried to trans form men's lives and cultures by spending other people's money. It has been dollar diplomacy of the grossest kind: the attempt to buy people's minds. And it has failed, and failed miserably. The policies of Liberal reformism have consti tuted a massive, endless failure.

The operating presupposition of their programs has been external environmentalism, and that prin ciple is totally false. The problems 1975 MAGIC, ENVY, AND ECONOMIC UNDERDEVELOPMENT 83 are moral not external. The slums are in people's hearts. Thus, con cludes Nisbet in his lively revie\v of Banfield's book, the old formula of Liberal bureaucracy has to be changed, from "Don't just sit there; do something!" to "Don't just do something; sit there !"2 Educational Opportunity Corroborating evidence has been produced in the field of public edu cation. James S. Coleman super vised a major study of educational opportunity in the United States back in the mid-1960's. One esti mate has placed it as the second most expensive social science re search project in our history. Nat urally, the Federal government funded it. The result was a lengthy report: Equality of Educ'ational Opportunity (Government Print ing Office, 1966). The data were startling. School facilities for black and white children, in any given region of the country, are about equal within that region, and equal in almost every statistically measurable respect. Per capita student expenditures are about the same. So is teacher training. The results have been studied by a number of scholars, and their col lective conclusions have been pub lished. 3 The primary conclusion of the Coleman Report and those studying its figures is simple: there is no measurable impact that public schools have had on elimi nating or even modifying com parative achievement among stu dents. Furthermore, the data indi cate tha t no known changes in school inputs - teacher salaries, more expensive facilities, bigger school libraries - are likely to have any significant effect on student output. As the editors have writ ten, "the central fact is that its findings were seen as threatening to the political coalition that spon sored it."4 Understandably, it was ignored as long as possible.

What factors are important, ac cording to the Coleman Report? Primarily, family inputs. Innate ability, peer group pressures, and community standards are also im portant. In short, there is no sign that anything short of radical re construction of the whole society would change the learning patterns of students, and there is no guar antee that even this would do any thing but lower all performance to the least common denominator. Once again, the simplistic envir onmentalism of Liberal reformism has been thwarted, this time by its own methods of investigation. This, of course, has had no mea surable effect in the calls for ever higher public school budgets. Now the reformers are convinced that public education has to start ear lier, "before the lowered level of competence sets in.";) If a century 84 THE FREEMAN February and a half of coercive public educa tion has failed to meet its promised goals, then there has to be more of it. All facts are interpreted in terms of the religious presupposi tions of the investigators.

Envy P. T. Bauer mentioned the be lief in occultism as one of the cul tural· forces of economic retarda tion. Helmut Schoeck, the sociol ogist, has explored this in greater depth. His monumental study, Envy, has been conveniently ig nored by most scholars. The facts he presents, however, are extreme ly important. His basic thesis is straightforward: envy against the wealth or achievements of others reduces the ability of indi viduals to advance themselves eco nomically. Envy is not mere jeal ousy. It is not wanting the other man's goods for oneself. It is the outright resentment against any one even possessing greater wealth - the desire to reduce another person's position even if thisre duction in his wealth in no way improves the position of the envi ous person. Nowhere is envy more devastating in its effects than in so-called primitive cultures. If a person or his family get ahead of the accepted tribal mini mum, two very dangerous things can easily take place. First, he will be suspected of being a wizard or a witch (which can be the same thing) . Second, he can become fearful of being the object of the evil magic of others. As Schoeck writes, "the whole of the litera ture on the subject of African sorcery shows the envious man (sorcerer) would like to harm the victim he envies, but only seldom with any expectation of thereby obtaining for himself the asset that he envies - whether this be a possession or a physical quality belonging to the other ."6 Under standably, this envy is present only where there is close soC'ial proximity between the envious and the envied. It is always considered very difficult to bewitch a stranger with any success. 7 The efficacy of demonic magic is strong in these non-Christian cul tures. The fear of magic is perva sive. Thus, the threat of its use against the truly successful man causes men with talents to con ceal them from their fellows. Men become secretive about what they own. They prefer to attribute any personal successes to luck or fate, both impersonal.

Institutionalized envy . .. or the ubi quitous fear of it, means that there is little possibility of individual eco nomic achievement and no contact with the outside world through which the community might hope to pro gress. Noone dares to show any thing that might lead people to think 1975 MAGIC, ENVY, AND ECONOMIC UNDERDEVELOPMENT 85 he was better off. Innovations are un likely. Agricultural methods remain traditional and primitive, to the detri ment of the whole village, because every deviation from previous prac tice comes up against the limitations of envy.8 Furthermore, Schoeck writes, "It is impossible for several fam ilies to pool resources or tools of any kind in a ... common undertak ing. It is almost equally impossible for anyone man to adopt a lead ing role in the interests of the vill age."9 While Schoeck does not dis cuss it, the problem of institution alized envy and magic for the es tablishment of democratic institu tions in primitive cultures is al most overwhelming. Once a chief's link to authority is destroyed, who is to lead? If a man cannot point to his family's long tradition or authority or semi-divine status as ruler, who is to say who should lead? Whoever does proclaim him self as leader had better be pre pared to defend his title from envy and magic. In a culture in which the authority of tradition al rulers has been eroded by West ern secularism and Western the ories of indi vid ualism and democ racy, the obvious alternative is power.

Perhaps most important as a retarding factor is the effect that envy has on men's concept of time. "In a culture incapable of any form of competition, time means nothing."lo Men do not discuss their plans with each other. Shared goals, except of a traditional na ture, are almost absent in magical societies. "Ubiquitous envy, fear of it and those who harbour it, cuts off such people from any kind of communal action directed to wards the future. Every man is for himself, every man is thrown back upon his own resources. All striving, preparation and plan ning for the future can be under taken only by socially fragmented, secretive beings."ll Is it any won der, then, that primitive cultures stay primitive, despite massive doses of foreign aid - state-to sta te aid? Schoeck does not exag gerate when he concludes: As a system of social control, "Black Magic is of tremendous impor tance, because it governs all inter personal relationships."12 The Conditions for Growth The concept of general economic growth was not present in the pag an cultures of antiquity. It was only in Judaism and Christianity that such a view of life could flourish, precisely because econom ic growth was understood person ally and culturally: it is the prod uct of outward response to basic ethical requirements. Magical manipulation of the environment was rej ected officially as an ille86 THE FREEMAN February gitimate form of economic prac tice. Prayer to a personal Creator by the humble believer is legiti mate; ritual offerings to polythe istic deities or impersonal forces was outlawed. It is not ritual ac curacy that God requires, but a humble heart and obedience to ethical laws (Micah 6 :6-8). Chris tiani ty and Judaism prohi bited envy and jealousy. Men are not to covet their neighbor's goods (Ex odus 20: 17), nor are they to envy the prosperity of the wicked (Proverbs 24 :19-20).

The most comprehensive of all colonial American Puritan trea tises was Rev. Samuel Willard's Compleat Body of Divinity, the largest book. ever published in Puritan days (1726). It was a compilation of Willard's sermons on the larger catechism, which took him twenty years of Sunday evening services to finish. The section on the Eighth Command ment, the prohibition of theft, contained a comprehensive critique on envy. Willard denied that we are hurt by our neighbor's ad vantages. (This fallacy has been called by Mises the Montaigne dogma, i.e., the belief that in an exchange of goods, one man's gain is the other's loss. It was a basic error of economic mercantilism, which was a prominent philosophy in Willard's day. Mises correctly argues that this doctrine is at the bottom of all modern theories of class confiict. 13 ) Envy, Willard continued, feeds on grief. It leads to mischief. It is utterly unrea sonable, hate without a cause. It is an affront to God, for God has set men up for His purposes; envy is an affront to God's purposes and glory in this world. Further more, it despises God's gifts. It leads .to covetousness (j ealousy, in Schoeck's use of the term).

Men should not be tempted to take revenge on those who are more prosperous than they are. 14 With preaching like this, men found it difficult openly to envy or covet their neighbor's prosperity. The fruits of men's personal labor could be safely displayed. It would pay men indi vid ually to plan for the future, both individually and in groups. The free market could flourish because the ethical sup ports so fundamental for its ex istence were provided by Chris tian preaching and laws against magic. Sack to Magic? Magic again is coming back into the thinking of Western men. By abandoning the belief in a Creator God and a world of personal law, modern man has been thrown back into the grim polarity of the classical world: blind impersonal fate vs. blind impersonal chance. 15 R. C. Zaehner is quite correct in 1975 MAGIC, ENVY, AND ECONOMIC UNDERDEVELOPMENT 87 beginning his study, Zen, Drugs and Mysticism (1972) ,with an analysis of the philosophy of the biologist, Jacques Monod (Chance and Necessity). Man is alone in an infinite world, simultaneously de termined by and subject to total randomness. This is all the prom ise of science holds for man: an endless, meaningless process of determinism and indeterminism.

Men seek to escape this world by means of mystical illumination (meditation, drugs, alpha-wave machines) or by means of power from below (magic and revolu tion). A world without God is a world without meaning. It is a world ripe for the Satanic religion of magic. From an economic point of .view, we already have a widespread phi losophy of envy present in indus trial societies. If magic is rein troduced to the West, then cultural degeneration is assured. Modern society is not some autonomous mechanism. It needs ethical and philosophical support. We should heed Schoeck's warning: "The primitive people's belief in black magic differs little from modern ideas. Whereas the socialist be lieves himself robbed by the em ployer, just as the politician in a developing country believes him self robbed by the industrial coun tries, so primitive man believes himself robbed by his neighbor, the latter having succeeded by black magic in spiriting away to his own fields part of the former's harvest."16 Modern secularism and socialism threaten us with eco nomic reversal-the kind of di sastrous reversal promised. by God in the 28th chapter of Deuteron omy. Magic and envy, whether secular or animistic, are equally primitive. I) - FOOTNOTES1 Edward C. Banfield, The Unheavenly City: The Nature and Future of Our Urban Crisis (Boston: Little, Brown & Co., 1970). A second edition, The Unheav enly City Revisited (1974), answers his critics politely.

2 Robert A. Nisbet, "Urban Crisis Re visited," Intercollegiate Review (Winter, 1970-71), p. 7. Cf. Christopher De Muth, "Banfield Returns," The Alternative (Nov. 1974). 3 Frederick Mosteller and Patrick Moynihan (eds.), On Equality of Educa tional Opportunity (New York: Random House, 1972). 4 Ibid., p. 28. 5 Ibid., p. 49. 6 Helmut Schoeck, Envy: A Theory of Social Behavior (New York: Harcourt, Brace & World, 1969), p. 37. 7 Ibid., p. 40. 8 Ibid., p. 47. f} Ibid., p. 48. 10 Ibid., p. 41. 11 Ibid., p. 50. 12 Ibid., p. 52. 13 Ludwig von Mises, Human Action (3rd ed.: Chicago: Regnery, 1966), p. 664. 14 Samuel Willard, A Compleat Body of Divinity (New York: Johnson Re prin ts, [1726] 1969), pp. 750-52. 15 Charles Norris Cochrane, Christi anity and Classical Culture (New York: Oxford University Press, [1940]), pp. 156-60. IG Schoeck, Envy, p. 41.

HANS F. SENNHOLZ st Money WITH THE APPLAUSE of most Americans, President Ford de clared inflation to be Public En emy Number One. At the present rate of inflation our real incomes will be significantly reduced in this decade, retirement incomes will erode substantially, savings will vanish, fortunes melt away, and the economy stammer and falter in a violent fever of hyperinfla tion. In fact, the present rates of inflation carry with them the most ominous implications for demo cratic institutions and peaceful social cooperation. But this public condemnation of inflation sounds like a public con fession of sins in church on SunDr. Sennholz heads the Department of Eco nomics at Grove City College and is a noted wri ter and lecturer on monetary and economic affairs. This article is published by permission from an address before a November 1974 meeting of the Committee for Monetary Research and Ed ucation.

88 day morning. The preacher in tones the confession, the congre gation accompanies him in loud voices, and then returns home to sin again. The President de nounces inflation on Monday and signs another multi-billion-dollar appropriation bill on Tuesday. Pol iticians who are the noisiest infla tion fighters on Wednesday submit more costly bills for economic wel fare and distribution on Thurs day. The news commentators pub licly enlist in the war on inflation on Friday and bravely endorse an other costly program for political improvement on Saturday. The following week the ritual is chant ed all over again. The federal government is now declaring war on the inflation it initiated and promoted and which it continues to press forward with ever greater force. The same poli ticians who now sound like mili1975 GOLD IS HONEST MONEY 89 tant inflation fighters pushed hard in the past for every dollar of deficit spending. In just ten years, from fiscal year 1965 to 1975, the federal government boosted its spending from $118.4 billion to an estimated $304 billion. Expendi tures on "human resources," i.e., income redistribution, alone rose from $35.4 billion to an estimated $151.5 billion. (Education and manpower from $2.3 billion to $11.5 billion; health care from $1.7 billion to $26.5 billion; in come security, i.e., retirement and disability, unemployment insur ance, public assistance, social serv ices, from $25.7 billion to $100.1 billion; veterans benefits and serv ices from $5.7 billion to $13.6 bil lion.) 1 Such a rapid growth of govern ment, however achieved, would have strained the American econ omy as economic resources were withdrawn from business and in dividual taxpayers. But this proc ess of redistribution was carried out through the most insidious of all possible methods: deficit spend ing and money creation. In those ten years the total federal govern ment deficit amounted to an esti mated $113.5 billion - since 1970 alone to $77.5 billion. 2 Simulta neously, the quantity of Federal 1 Cf. The Budget of the United States Government, Fiscal Year 1975, p. 52.

2 Ibid., p. 331. Reserve credit was inflated from $39.9 billion on January 1, 1965 to $90.8 billion at the present. The total money stock, consisting of demand deposits in commercial banks and 'currency in circulation, rose from $160 billion to $282 billion. The Costs of Inflation This has been the worst moneti zation of Federal debt since World War II. In fact, the 1960's and 1970's have been the longest pe riod of deficit spending and cur rency inflation since the Conti nental Dollar debacle during the American Revolution. And the end is nowhere in sight. If the Fed eral deficit spending merely were to exact economic resources in the amount of the deficit, let us say $20 billion, the economic loss to money holders would be very small indeed, only $20 billion. But the given deficit and its monetization causes goods prices to rise and the purchasing power of the monetary unit to fall, which alters the cred itor-debtor relationship of nearly $3 trillion of long-term debt. If the dollar should fall at the mod est rate of 10 per cent, the credit ors will lose $300 billion and debt ors will gain this very amount. At a more realistic depreciation rate of 15 per cent, American credit ors are losing $450 billion annu ally, which is reaped by the debt90 THE FREEMAN February ors. As the U.S. government is the largest single debtor with an esti mated 1975 debt of $508 billion, it is gaining $76.2 billion annually through debt depreciation. But many millions of American cred itors are losing a total of $450 bil lion. This is why inflation is not only a Federal tax on money hold ers but also a terrible instrument for the redistribution of wealth and income. In fact, the magni tude of this redistribution through Federal inflation, in addition to that through social policy, prob ably exceeds one-half of American disposable income, and as such is the most massive juggling of eco nomic well-being in the history of man.

A free society that willfully em barks upon such a road is suffer ing a terminal case of redistribu tion cancer. It is bound to suffer ever more symptoms of social con flict, ,poverty and tyranny. A dem ocratic society that has thus been led astray by its political leaders may not expect to get off the in flation road until it elects to re turn to integrity and honesty. Fu ture national elections will reveal whether the American people chose self-destruction willfully or were just misguided temporarily. To stabilize the U.S. dollar, the U.S. government must be made to relinquish its monopolistic power over money and banking. As inflation is a Federal policy, the fol lowing restrictions on government are needed if inflation is to be halted: 1. The Federal budget must be balanced each year. 2. The engine of inflation, the Federal Reserve System, must be inactivated, or better yet, abolished.

3. The Federal Reserve money now in circulation must be made fully redeemable in gold. Balance the Budget Balancing the Federal budget does not necessarily spell the end of economic and social policy by the federal government. But it would mean open redistribution from taxpayers to beneficiaries. Every new expenditure would have to be met with new tax revenue. Both the U.S. Congress and the Administration would have to re gain the lost virtues of fiscal dis cipline and honesty. They would have to cut programs and alloca tions now in order to avoid large deficits next year. A balanced budget would great ly reduce the pressures for debt monetization and currency infla tion. But it would not guarantee dollar stabilization. The Federal Reserve System as it is now con stituted has independent powers of currency inflation and credit expansion. These powers must be 1975 GOLD IS HONEST MONEY 91 revoked either through inactivat ing the System or abolishing it altogether. Only when the engine of inflation is thus stilled can monetary stability be assured.

Inactivate federal Reserve Under the' influence of the "new economics," which the Full Em ployment Act of 1946 elevated to a government mandate, the Federal Reserve System is conducting monetary policies of full employ ment and economic growth. In pe riods of recession it is expected to stimulate the economy with injec tions of easy money and credit until satisfactory levels of em ployment are restored. In periods of inflation the System is expected to stabilize the situation through credit stringency or even contrac tion. In short, its very raison d' etre is the manipulation of the American economy according to the recipes of the new economics. Experience alone would dictate an. immediate inactivization of this central command post over the economic lives of the Ameri can people. In the sixty years of its existence the Federal Reserve System has presided over unpre cedented economic instability over two depressions of which one was the longest and most severe in American history, over seven booms and recessions, and an in flation that reduced· the American dollar to less than one-fifth of its pre-Federal-Reserve value. This is indeed a long record of money mis management.

Even if the System had been managed by the greatest financial minds of the century its very premise of central management of money and credit is alien to eco nomic freedom and contrary to stability. The very existence of a money monopoly that endows its fiat issues with legal tender force is antithetic to individual choice and freedom. And by its very na ture as a central bank, it must .seek to place its currency in the loan markets, or withdraw it, in order to manage and manipulate those markets. Since neither the expansion nor the contraction of fiat money imparts any social util ity, we mllst conclude that Federal Reserve policies necessarily are disruptive to monetary stability. In particular, its frequent bursts of currency expansion, so popular with government officials, politi cians and their beneficiaries, have given our age the characteristics of unprecedented monetary insta bility.

Notes Remain in Circulation To inactivate the engine of in flation does not mean withdrawal of all its money and credit. For lack of other money, Federal Re serve notes now in the people's 92 THE FREEMAN February cashholdings and member bank re serves -now held by the System, should remain in circulation. After all, deflation, Le., reduction of the money stock, would necessitate corresponding price and wage re ductions, for which neither busi ness nor labor are prepared. When man is free he chooses natural money that is free from all strictures of government and politics. Gold is world money that unites all countries in one mone tary system and facilitates peace ful exchange and division of labor. For more than two thousand years its natural qualities made it man's universal medium of exchange. In contrast to political money, it is honest money that survived the ages and will Iive on long after the political fiats of today have gone the way of all paper.

Redem.ption of the U.S. dollar in gold would be a simple under taking that needs no central bank, no Federal plan or policy, merely payments in gold. At a given mar ket exchange ratio between the paper and gold, the federal gov ernment merely resumes payment of the gold it forcibly seized from the American people in 1933 for the paper it issued since then. People thus would be free again to choose between the paper notes, the quantity of which is rigidly limited, and the gold now hoarded in Fort Knox. Every ounce of gold that is withdrawn would reduce the quantity of paper, which would become a mere substitute for gold, the money proper. Thus, once again, the people of the United States would have hard and hon est money, the golden cornerstone of a truly great society. Political Y5. Natural Money The gold standard functions with the force and inevitability of natural law, for it is the money of freedom and honesty. Society may temporarily depart from it in the vain hope of replacing it with political money that is managed and manipulated for political ends - used and abused as an instru ment of public plunder. So the people must choose between polit ical money, of which they may try another issue or series, and nat ural money. In the end, a society that prefers social peace over con flict, indi vid ual freedom over gov ernment coercion, wealth over pov erty, has no alternative but to use honest money, which is gold.

Returning to the gold standard, it is true, would precipitate a seri ous economic readj ustment, com monly called a recession. But this is not the fault of gold. The polit ical paper leaves behind a vast array of maladjustments and mal· investments that need to be cor· rected. In fact, they would be corrected in any case, sooner or 1975 GOLD IS HONEST MONEY 93 later, when the creation of paper comes to an end. The economic recession need not be long and severe, provided the federal government does not stand in the way of the necessary readjustment. After so many years of false stimulation through easy money and credit, many mistakes need to be corrected; some proj ects should be abandoned and others initiated. The whole econ omy needs to readj ust to the wishes and commands of the mil lions of sovereign consumers of a free economy. Reduce the Obstruction It is important that the federal government does not intentionally or inadvertently obstruct the re~ turn to hard money. When the re adjustment recession sets in, the federal government must not be allowed to resume deficit spend ing. Like anyone else, it must re duce its spending when its rev enue declines. In particular, it must not be allowed to impose new tax burdens at this critical mo ment of recession and readj ust mente It must not repeat the su preme folly of the Hoover Admin istration which, in 1932, doubled income taxation. Also, the federal government must not be permitted to operate with deficits that are financed with the people's savings.

The U.S. Treasury· entering the loan market at that critical mo ment of painful readj ustment would deprive business of urgent ly needed funds and greatly raise business costs through soaring in terest rates, which again would aggravate the recession and gen erate more unemployment. And what would be blamed for the dilemma? The fiat inflation that caused the maladjustments, the deficit spending that is aggravat ing it, or the gold standard? The deficit spenders would doubtless try to lay the blame on the door steps of gold. An administration that wel comes monetary stability would balance its budget even though its revenue declines. It would avoid placing new burdens on business during the readjustment period. It might even strive to lighten the tax load in order to hasten the recovery. But such a reduction of tax costs must not be negated by new deficits that burden the capi tal markets and raise interest costs. To reduce the costs of gov ernment and facilitate speedy re covery means to reduce govern ment consumption of economic re sources, not merely a change of finance techniques from taxation to borrowing.

Relaxation of Controls A significant reduction of Fed eral spending not only would save 94 THE FREEMAN February funds and resources but would also enhance productive employment. For currency stability, it does not matter which particular expendi tures are reduced as long as the budget is balanced. Of course, it would be beneficial to productivity and quick adjustment if Federal controls were substantially re duced and bureaucratic regulation relaxed or abolished. Many indus tries can be revived through all kinds of deregulation. With dis tressing monotony, Federal regu lation has produced sick and ane mic industries. The ICC's strangu lation of the American transpor tation industry, for instance, has done incalculable harm that ex ceeds by far the budget expendi tures of the controllers. The boost to productivity from a liberation of business energy could not come at a better time.

An administration that wel comes monetary stability would want to facilitate a speedy readDouble Punishment justment through significant cuts of business taxes. A rollback of corporate income taxes, for in stance, would make corporations more profitable, which would boost capital investments, create new jobs, raise output and wage rates, and otherwise smooth the read justment process. The time clearly has come for a public commitment to the preser vation of the U.S. dollar. The ulti mate destination of the present road of political fiat is hyperin flation with all its ominous eco nomic, social and political conse quences. On this road no Federal plan or program, incomes policy, control or .nationalization, no threat, fine, or prison can prevent the continuous erosion and ulti mate destruction of the U.S. dol lar. The only alternative is to abandon this road of political fiat and return on the proven path of our forebears to honest money, which is gold. I) IDEAS ON LIBERTY THE WELFARE STATE is one that robs Peter to pay Paul, and its success lies in the fact that Paul is fully aware and grateful for the benefit received while Peter is bewildered over the identity of the robber. He is apt to blame the tradesman over whose counter he pays his shrunken dollars, and thus private enterprise is doubly punished.

E. C. RIEGEL FoundingFathers CHARLES R. LADow As GLADSTONE SAID, "The Amer ican Constitution is the most won derful work ever struck off at a given time by the brain and pur pose of man." It certainly is a dis tillation of the best of political thought, from Aristotle down to that remarkable collection of hard won traditions which make up the British Constitution. Both Con stitutions possessed the inevitable fault that they were unable to guarantee the persistence of the breed of thinking which produced them. I cannot recall who said: "Marriage is a well-nigh perfect institution; but very few are fitted to practice it." This obser vation applies equally to our Con stitution. Madison and his peers must certainly groan in their graves, if they could but know what their successors have done to the institutions they fDunded. Mr. LaDow, of San Diego, recently retired as a teacher of social studies in high school.

It would be well to ask what basic errors the founding fathers made in that instrument. Even if the errors were erased, the danger would still arise that scamps and the ignorant would manage to di lute its purposes; however, era sure of the most obvious mistakes in its construction and early exe cution could remove some of the opportunities for the tragic dis tortion of our basic law which has ensued. The basis of any law is its in tent, which existed in the meeting of minds of its promulgators. To maintain otherwise is to allow that any judge may interpret its intention to suit his own notions. Neither our Constitution, nor the legislatures for which it provided, were designed for such futile pur pose. Its ratification signified binding agreement with the Con vention's intent by all parties to our government. Provision for amendment was intended to allow 95 96 THE FREEMAN February for correction of inevitable over sights, such matters as we here address ourselves to; not to alter the fundamental purposes and spirit of the document. To hold otherwise. is, as Chief Justice John Marshall said, in Marbury vs. Ma,dison, to render the Con situation "an absurd attempt to limit a power in itself illimitable."

A contract means what its signato ries intended it to mean. Sacred ness in the intent of contracts was reiterated in the Dartmouth College case. The Declaration of Independence So many persons, both learned and unlearned, prefer to cite The Declaration of Independence as the spiritual source of the Consti tution that it may be well to in spect its key intent. The words, "We hold these truths to be self evident; that all men are created equal . . ." are the most often quoted, and speakers vie with one another in attributing meanings to, or heaping scorn on, this fine example of rhetoric. Some light can be thrown on the intent of the author of the Declaration by examining Jefferson's original draft. The same passage read: "We hold these truths to be sacred and undeniable; that all men are created equal and independent ..." Jefferson thus avoided turn ing a noble religious concept into a logical canon. The addition of the qualification of "and indepen dent" clearly implied a firm indi vidualism foreign to many who use this passage to fortify collec tivistic purposes. Not knowing how Jefferson's words came to be altered, one can suspect that it was one of those common disasters of committee work. Anyone who knows the thinking of his peers would suspect that they were in agreement with his original intent, but were probably just word trimming.

How John Locke's "Life, Lib erty, and Property" became "Life, Liberty, and the Pursuit of Hap piness" is another matter. J effer son was not a dogged plagiarist, and probably liked the ring of it. It does sound less pedestrian than Locke's bit; but that certainly does not mean that its intent was foreign to its origin. The love that Jefferson bestowed upon Monti cello and all other fine things tells us of his awareness that private property is a considerable essence of happiness. That "and indepen dent" nailed it down. How can one be independent if the right to pri vate property is not sacred? Turning to the Constitutional Convention, the main conflict of opinion was between the Federal ists and Anti-federalists. That the differences of these factions were not ineluctable was shown by their 1975 BLUNDERS OF THE FOUNDING FATHERS 97 ability to come up with the docu ment. Later addition of the Bill of Rights, most especially the 9th and 10th Amendments, represent ed satisfactory resolution of their differences. Individual misgivings remained, but the ratification of nine states made the Constitution the law of the land.

Differences of interpretation later led to war, but the Confed erate Constitution was a virtual copy of the original. Its preamble called for the establishment of a "permanent Federal Government" and the main objection it sought to remove was Federal invasion of rights reserved to the states by the 10th Amendment. Presum ing correctness of this objection, original misgivings of the Anti federalists had some justification, as subsequent developments have borne out. Without equivalent amendment to legalize the changes, states rights are being legislated out of existence or eroded by court decisions. The Intent Is Clear Whatever flaws we may detect in the Constitution, the essential drive of the original document is crystal clear. Precisely its whole thrust is the protection of indi vidual liberty and the careful re striction of government inroads, most especially those of the Fed eral government. Perhaps the original requirement that all direct personal taxes must be equal (abrogated by the 16th Amend ment) was the most essential safe guard. Not only did it ensure the sacred principle of equality enun ciated in the Declaration of Inde pendence and make certain that all individuals would be equally interested in governmental econ omy; but it was an effective stay against the corruption and totali tarian moves which mark our gov ernment today.

"The power to tax is the power to destroy" and nothing can be more important than limiting gov ernmental power. It cannot be too often pointed out that the Bill of Rights, revered even by our so cialists to a point which outweighs the main body of the document, is totally a list of "thou shalt nots," like the Ten Command ments, directed at the Federal government. Congress breaks the spirit of some of those command ments every term it sits! In view of today's regimentation in a na tion of once free men, let us try to see what the founding fathers have done that has allowed mat ters to get so out of hand. Money and Banking It has been pointed out, by Leonard Read and others, that the Constitutional power given Congress to "coin money and es98 THE FREEMAN February tablish the value thereof" was only intended to be a "Bureau of Standards" operation, like weights and measures, to assure fair mea sure in trading. That fits the lim iting sense of the document, as we have noted. However, the founders put no stipulation upon the substance of the coinage. With their recent experience with "Con tinentals," they might suspect that coins might easily become paper and that, eventually, "set ting the value thereof" might have no relation to its purchasing power. Granting power to "bor row money on the credit of the United States" assured such an outcome. That same Revolutionary experience should have indicated the propensity of government, in a pinch, to monetize its debt (Hamilton's "funding of the debt") to let coming generations pay it, and allow speculators to profit therefrom. Anti-federalists understood this; but they failed to insist on a restrictive clause, for bidding the issuance of Federal paper. That blunder is responsible for our current national debt and ungoverned inflation which attends its ongoing monetization.

Even the necessity of govern mental coinage is brought into question by the story of the Den ver Mint. It was started by two gold buyers to avoid the risks of primitive transportation of their commodity to the Philadelphia mint. (Even Brinks has known se curity problems!) Their private striking of coins exercised the Federal Treasury men, who sought to undo their activity. When inves tigation showed that their coinage even exceeded Federal standards, the T-men were stymied. However, continual harassment caused one of our entrepreneur's wives to suggest that they strike a deal. With the stipulation that the trea sury maintain the mint, achieving their original purpose, they sold the plant to the government. The mint now stands on ground once owned by the private enterprise that founded it. There are a number of fine pri vate mints today, perfectly capa ble of taking care of the coinage according to any standard of weights and measures. Current suspicions, in Congress itself, re garding the real quantity of gold remaining in Fort Knox raise the question of the fitness of govern ment even to be trusted with the materials of coinage. Constant centralized burning of worn mon etary notes raises added questions of security. Decentralization of risks is a first consideration of saf ety, as every miser knows in stashing his hoard.

Anti-federalist arguments against a national bank are too well-known for recounting; but, 1975 BLUNDERS OF THE FOUNDING FATHERS 99 here again, opponents of such an institution failed to see that its proscription was printed in the Constitution. At that, Hamilton's success in getting a bank bill passed was achieved by a Federal ist bribe: agreement to move the capital city to the Potomac. The founding fathers had their Water gates too! Let it suffice to point out that this Constitutional over sight opened the Pandora's box from which finally emerged the Federal Reserve which, combined with Treasury paper, is the source of our current monetary woes. Post Office "Establish post offices and post roads." In itself, the Post Office is a minor irritant, except perhaps to those who, like Life and Look, attribute their failures to its min istrations. However, the blind faith in the· necessity for that Fed eral institution, only recently com ing into more question, has un doubtedly evoked chain reactions in various directions. Railroads, airlines, airports, automotive transport, and all the facilities pertinent thereto have been touched by this clause. Success and failure of private enterprise in all these areas has, in some measure de pended on Post Office policies.Spe cial privileges for those engaged in these fields and many attend ant portions of the market show little respect for the uses of com petition. As we are beginning to realize, governments are the only true monopolists; and monopolies affect the welfare of all their sup pliers, being cruelest to the small est. (For example, United Parcel may survive; but what happened to local, one-truck, parcel deliv eries - an activity open to the un employed?) Of course, the disas trous aspect of the institution is its inevitable inefficiency, which is an economic burden on every one. Establishment of the Postal System as a public corporation was an admission of the foregoing.

Its failure to ameliorate the con dition was foregone from the start. It can no more do the job than can public transportation sys tems of any sort. The difficulty of mail delivery in 1789 made the Convention's inclusion of this clause plausible; but the outcome has not justified the act. Interstate Commerce On the face of it, delegation to Congress of the power to regulate interstate commerce was a saga cious and necessary step. The en tire history of states has been marked by trade wars, tariffs, and embargoes. It was presumptive that our states, from the thirteen to the fifty, would have engaged in such activities; and avoiding that was of the utmost importance.

100 THE FREEMAN February However, there was no stipulation limiting the excercise of this pow er and it should have been fore seen that it could generate inter ference with commerce even more onerous than the faults it curbed in the states. The founders were fully aware of the dangers of governmental powers, as exposed in their so re cent detailed charges against King George. They would have been naive indeed to suppose that "it could not happen here." It would not have unduly cluttered the pro per brevity of the instrument to add a clause restricting the com merce power to that legitimate stoppage of state interference in trade. Perhaps the proscription of state tariffs should have served that purpose; but the interstate commerce cIause opened one of the greatest loopholes into which Federal power has increasingly surged. So, this must count as an other error, encouraging the bu reaucracy which now so drains our productive resources, upsetting trade and hamstringing enter prise.

Education Nothing was said in the Con stitution about education. It has been suggested that this benign neglect was sufficient and that the 9th and 10th Amendments should take care of that danger of power extension. After all, no power was delegated in that field. However, four years before the first Federal Congress was seated the Ordinance of 1785 had been passed, arranging for a section (640 acres) out of each township of public lands, plus one-third of the revenue of all gold, silver, lead or copper mines, to be gifted to public education. Thus one-thirty-sixth of the future de veloping nation's most basic re sources, land, plus promise of a large share of its mineral wealth, was deeded to ensure the preva lence of public schools. So dear to the democratic tradition is the sacredness of public education that one might be burned for heresy for questioning that Ordi nance, or the loophole which made it possible. However, when we look to the development of educa tion in the original 13 states, we see that it progressed splendidly without such paternalism. Al though the land grant colleges and universities, with their rich public resources, have been able to purchase a good deal of em inence, they have hardly excelled the great Eastern schools, or even private schools elsewhere, which were built without the boon of such public largesse.

Once public money walks into education, schools are on their way to sure politicization. Management of curriculum and all other aspects 1975 BLUNDERS OF THE FOUNDING FATHERS 101 of our public schools, from kinder garten to the doctorate, is now politically determined. What that means was well said by Albert Jay Nock: "The whole institutional life organized under the popular idea of democracy . . . must aim at no idea~ above those of the average man; that is to say, it must regulate itself by the lowest common denominator of intelli gence, taste, and character in the society it represents." Because most private colleges depend on some Federal gr:ants to survive, and because government threatens to withhold such grants· if they do not comply with some regulations supporting the above nonsense, our private schools now suffer from this political disease in an increasing degree, becoming ad juncts of statism.

So much said about a subject not mentioned in the Constitution may seem like "whipping a dead horse"; but one is sure that it will be agreed, considering the propor tion of our productivity which is consumed by public education, and the avidity with which all parties pursue its trappings and labels, if not its essence, that our time is not wasted. Let us just say that the founders should have posi tively told Congress to keep its hands specifically off education. It is bad enough to have the states meddling in it; but they wouldn't have gotten nearly so far without that original 1785 handout and all the perquisites which inevitably followed it. Education is altogether too important a thing, being the development of the individual, for government to have anything to do with it. If government were capa ble of directing the development of individuals, its products would not be free men. We have seen the effort made, not too long ago, in Germany, Italy, and Japan; and the Gulag Archipelago is available to all readers. States "shape" peo ple. Individual efforts may en lighten them.

Public Works Provision for public works makes sense. Government can't carryon in a wheatfield. There must be buildings, equipment, forts, drillfields, and armaments, although, under statesmanlike management, a company of Swiss Guards might do. Still, let us be reasonable. Statesmen are rare and few of us qualify. Let politicians have what they need. But do they need over seventy per cent of the land in the Western states? Do they need a publicly funded dam on every stream? When they have turned our most attractive lands into parks, do they need to assault the moon? By the time the Southern States seceded, they saw the way the wind 102 THE FREEMAN February was blowing. In their Constitu tion, they corrected this oversight of the founding fathers. They pro vided that the central (Confed erate-Federal) government would not be allowed to erect public works in any state. Had they won the war, think what that would have meant to Muscle Schoals, T. V. A., and the multitude of .

other Federal boondoggles which were to come! Would that mean that we now would be suffering poverty in the midst of an ecol ogist's paradise? No. Henry Ford had the plans all worked up for Muscle Shoals. It would have been attractive even to ecologists, for old Henry, crotchety as he was, never made an ecological mess in his life. He was too neat and thrifty. His plan would have cost the taxpayers nothing and would have created thousands'of taxpay er's jobs without adding a soul to the public payroll (unless some unnecessary inspectors were sent around) . If you hadn't noticed it, private operators have to be neater than government. To succeed, they have to court the consumer. Government enterprises have no such compul sion, and we are still paying for most of those public works. A good deal of the payment is in the form of inflation, as earlier explained; but we are directed to blame that on butchers, or cattlemen who slaughter young calves. It is not exonerating the "middlemen" or producers from such foolishness to point out that they are not the guilty ones. They, like their con sumers, are the angry victims of bad political economy. Sane policy requires that everything that can possibly be done by private initia tive and support should be left to the people. Not only is that the re quirement of Articles 9 and 10. It is also the way that works best.

The Elastic Clause: Art. I, Sec. 8., Par. J8 Perhaps the most glaring gaffe of the Convention was the inclu sion of the "elastic clause." To specify delegated powers, but to invite future legislators to decide what is "necessary and proper" in the extension of those powers, is to encourage altering the intention of the document without amendment. This is just what has happened. Erasure of such practice was the essence of the decisions in Mar bury vs . Madison and the Schech ter Poultry case. From the admin istration of John Adams to that of Franklin D. Roosevelt, the Su preme Court held the clear intent of the Constitution superior to common legislation. Later, even the Court has assisted in rewrit ing that intent. To clarify that last statement regarding the Court, let the reader 1975 BLUNDERS OF THE FOUNDING FATHERS 103 'consult The Reconstruction Amend ments' Debates. While it is not within the scope of this paper to go beyond the original Constitu tion and Bill of Rights, this re print from the Congressional Globe, by the Virginia Commission on Constitutional Government, con tains the sense of Congress in writing the 13th, 14th and 15th Amendments. No more than the 16th Amendment have these Re construction Amendments stayed within the boundaries of their intent. Compare legislative argu ments clarifying Article 14 with the host of recent Court decisions, including Bro1.vn vs. School Board, to see what I mean, remembering the principle that laws must mean what they were intended to mean by their framers. Otherwise, we are in the world of Humpty Dumpty: "When I use a word ...

it means just what I choose it to mean." Returning to the "elastic clause," at any rate it violates the rhetor ical economy of the document. Leg islators will expand their domain without any encouragement. It is unnecessary. Like the "general welfare" clause in the Preamble, it is subject to infinite expansion in interpretation. Properly under stood, the latter clause is unobjec tionable, of course, unless it is construed to mean establishment of a welfare state, which is absolutely and clearly alien to the pur .. poses of the founding fathers. They saw the general welfare as consisting of the liberty-under-Iaw of individuals, which the Constitu tion was established to protect from excessive government itself, or the invasion of foreign power. What Can Be Done? If the foregoing reasoning is correct, what can be done about it? First, are conditions suitable for any corrective action? Well, it is generally agreed that government approaches an inability to govern.

Neither the President, nor Con gress, is able to control the Frank enstein bureaucracy it has cre ated, which has become, essen tially, a law unto itself. By all ac counts, public faith in politicians, of whatever brand, is at an all time low. Congress attempts to make the Executive the scapegoat; but is prevented from anything more than palliative action by the power delegated to the bureauc racy created by Congress itself and which outruns Executive pow er. Querulousness and backbiting characterize the scene, obscuring any real issues. Such an organi zational vacuum invites leader ship. At this point, Amendments and/ or the erasure of some amendments by the process, should be a possi bility; but such action would only 104 THE FREEMAN February be cosmetic surgery, failing to get to the root of the disease. They would be time-consuming, while affairs would continue to drift. For instance, consider how long the Liberty Amendment (abolition of the Income Tax) has been drift ing around. Presumably state gov ernments are too busy spending Federal money to give it much time. Altogether, it would seem that a piecemeal approach would not engender the interest or en thusiasm required.

At this point, a real possibility for leadership should be open to state Governors. If at least two thirds of them could agree, they could ask their legislatures to call for a National Constitutional Con vention. Conditions being as they are, it is not impossible that Con gress would honor such a request and call the convention. Considering the current sham bles of political philosophy in this nation, there is a great risk in such a step; but there is even greater risk in allowing matters to drift. Bicentennial celebrations draw at tention to the purposes of the founding fathers. Polls indicate increasing conservatism among the electorate. The supply of free market economists and political traditionalists is sufficient to ex pose our basic tradition. One can never be sure about timing, ex cept, sometimes, in one's own affairs; but it would be hard to pro ject a better time for reconsider ing our priorities. Where is the person who does not long fora way out of this nightmare? Some can for revolution; but they are still few and very confused. The hunger for liberty is still strong in individuals and calls only for certain direction toward it.

If this enumeration of blunders in our original Constitution is ac ceptable, it might be offered to that Constitutional Convention as a beginning to its considerations. Our forefathers improved the Ar ticles of Confederation. They would certainly not object to our retouching their masterpiece, so long as it verifies their intentions. Since all factions of any conse quence professedly hold that docu ment in reverence, placed face-to face with it they should not do it harm. At the very least, it would be fruitful to study it. Going over it, phrase by phrase, and debating the thrust of each clause, would be sound exercise for any politician. Even if they came to no conclusive action and adjourned sine die, the action should produce nothing but good for the future of this nation. And, if they could find a few words, and let them be few as in the original, to close up such loop holes as herein mentioned, we might be well on the way to "clean up that mess in Washington." ~ The WILLIAM H. PETERSON or the ?• WHY THE FAILURE of modern eco nomics - the vaunted "New Eco nomics" of John Maynard Keynes?

As one interventionist scheme after another misfires - from the War on Poverty to the War on Inflation people are bewildered and forlorn under the impact of "stagflation/' a vicious combination of rising prices and rising unemployment. The dilemma of the economic managers can be seen in the state ment of Dr. Walter Heller, Presi dent Kennedy's chief economic ad viser and former president of the American Economic Association, to the Association's annual meet ing in December 1973: "Econo mists are distinctly in a period of re-examination. The energy crisis caught us with our parameters down. The food crisis caught us, too. This vias a year of infamy in inflation forecasting. There are Dr. Peterson holds the John David Campbell Chair in American Business at the American Graduate School of International Management in Glendale, Arizona. many things we really just don't know." Or consider the conflicting coun sel fed to President Ford during his period of Economic Summitry.

An editoral writer for The Wall Street Journal (September 27, 1974) called the counsel a "Tower of Babel." The nation's leading economists, bankers, industri alists, labor leaders and consumer representatives counseled the President to cut taxes, raise taxes, leave taxes unchanged, reduce some taxes while increasing others. Again, the President was advised to allocate credit, leave credit alone, tighten credit, ease credit. Or again, he received recommenda tions to re-impose wage-price con trols, set wage-price guidelines, let wages and prices find their own levels. Plainly, something is wrong with modern economics; really many things are wrong with the dismal science in the 20th century. But it is beyond my scope here to 105 106 THE FREEMAN February try to spell out and correct all the manifest errors of modern eco nomics, save for one point - its basic approach. I submit that one reason for the breakdown of cur rent economic policies lies in their fundamental unit of analysis the decided preference for the or ganization over the individual.

In economic analysis, the indi vidual is It, the unit of account, the centerpiece of understanding, the raison d'etre of all activity. Without his direct incentive and whole-hearted participation, no "social" scheme or economic plan is likely to work. In fact, the daz zling failure of Keynesianism in the 1960's and 70's can be direct ly traced to Keynes' virtual omis sion of the individual as such in his General Theory, published in 1936. Premonitions of this omission can be found in Keynes' earlier state ment in 1933: The decadent international but indi vidualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelli gent, it is not beautiful, it is not just, it is not virtuous - and it doesn't de liver the goods. In short, we dislike it and are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed.!

(Italics added.) 1 John Maynard Keynes, "National Self-Sufficiency," The Yale Review, Sum mer 1933, pp. 760-61. focus on Individual Mind you, my focus on the indi vid ual in no way is intended to dis parage the need for social organi zation to achieve greater coopera tion. Yet such organizations must appeal to the self-interest of in dividuals to elicit their coopera tion. Moreover, that cooperation has to be voluntary if an organi zation is to succeed. Unfortunately, many economists and ccmmentators not only over look the individual but compound the error by speaking of the "de cisions" of various organizations. These organizations include busi nesses, newspapers, clubs, unions, nations, and so on. For example, economists and non-economists talk of the actions of IBM and ITT, of France and Germany, of the Or ganization of Petroleum Export ing Countries and the United Na tions as thinking and acting enti ties. In this vein, people talk of what Chrysler has to say on auto emission standards, or what The New York Times had to say on some issue. But the Times is an aggregation of thousands of em ployees and stockholders. Hence it is more accurate to talk of what some editorial writer for the Times had to say on a specific issue.

The key to my argument is that all organization decisions are, in the final analysis, individualistic.

1975 THE ORGANIZATION OR THE INDIVIDUAL? 107 That is, any decision, whether made in the name of the UN or in the name of Chrysler, can be made only by individuals. This means that each individual, whether he is a delegate to the UN or an ex ecutive of Chrysler, must make up his own mind. To be sure, his boss may pressure or even direct him; but his boss is still another indi vidual, and so the principle holds. Moreover, as the individualistic approach in economics makes clear, only individuals can think and act. Organizations, on the other hand, cannot think or, in a fundamental sense, act. As Ludwig von Mises noted: A collective operates always through the intermediary of one or several in dividuals whose actions are related to the collective as the secondary source. It is the meaning which the acting individuals and all those who are touched by their action attribute to an action, that determines its character.

It is the meaning that marks one ac tion as the action of an individual and another action as the action of the state or the municipality. The hang man, not the state, executes a crim ina1.2 The relevance of this statement to economic issues becomes clear er. The "wars" on poverty, unem2 Ludwig von Mises, Human Action (Chicago: Henry Regnery Company, 1966), p. 42. ployment, inflation, pollution and so on can only be understood in light of the collective approach to economic analysis - the preference for the organization over the in dividual. To be sure, this approach is fre quently put forth in the name of "the public interest," and, after all, the public is of course an aggrega tion of individuals. Scores of in terventionist acts by parliaments, assemblies and congresses are so passed - and so fail. Yet the rea son that these acts misfire lies in a fundamental misapprehension of the individual and his motiva tion.

An Invisible Hand Oftentimes, legislators and eco nomic managers, acting under this misapprehension, appeal for al truism and "the common good" rather than self-interest. But as Adam Smith observed in The Wealth 0 f Nations: As every individual ... endeavors as much as he can both to employ his capital in the support of domestic in dustry, and so to direct that industry that its produce may be of the great est value; every individual necessari ly labours to render the annual rev enue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic tothat of foreign industry, he intends 108 THE FREEMAN February only his own security; and by direct ing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to pro mote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the soci ety more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. 3 Two historic examples of appeals to individuals to work for "the public interest" are the experi ences of the Plymouth and Virgin ia colonists in the early Seven teenth Century. In each case, the colonists were asked to cultivate the fields in common, with the har vests going into a common store house. Communal cultivation failed in both cases despite the religious fervor of the colonists. As Gov ernor Bradford wrote in his his tory of the Plymouth experience: For the yong-men that were most able and fltte for labour and service did repine that they should spend their time and streingth to worke for other 3 Adam Smith, The T¥ealth of Nations (New York: The Modern Library, 1937), p.423.

mens wives and children, with out any recompense. The strong, or man of parts, had no more in divission of vic tails and cloaths, than he that was weake and not able to doe a quarter the other could; this was thought in juestice ... They Tried Freedom The elders of the Plymouth col ony were in a quandary, with fa mine and extinction facing them. How could they get the colonists to apply themselves for their own salvation? With luck they hit up on the idea of free enterprise and private ownership. The outcome was spectacular: By the time harvest was come, and instead of famine, now God gave them plentie ... And the effect of their par ticuler [private.] planting was well seene, for all had, one way and the other, pretty well to bring the year aboute, and some of the abler sorte and more industrious had to spare, and sell to others, so an any generall wante or famine hath not been amongst them since to this day.

Similar results marked the ex perience of the Virginia colony, as reported by Captain John Smith: When our people were fed out of the common store, and laboured jointly together, glad was he could slip from his labour, or slumber over his taske he cared not how, nay, the most hon1975 THE ORGANIZATION OR THE INDIVIDUAL? 109 est among them would hardly take so much true paines in aweeke, as now for themselves they will doe in a day... Does all this mean that the free and responsible individual follow ing his self-interest puts aside any feeling for cooperation with others and for the plight of oth ers? No, it doesn't. It means that the free and responsible individ ual recognizes his duties and ob ligations in all relationships he has voluntarily entered. He recog nizes that he benefits from co operation with other individuals, that he shares in the knowledge of others, that he consumes the production of others, and that he enjoys the company of others.

But the free and responsible individual naturally objects to be ing his brother's keeper - by law. He objects to being made to do good - by law. He objects to being re quired to sacrifice for others - by law. In all these instances, he is taken for granted - treated as a cog in a state machine. The individual can become re sentful. As he loses freedom, he tends to shed responsibility. Recall the era of Prohibition when Uncle Sam issued the 11th Command ment, "Thou Shalt Not Drink." But the individual drank as never before, and today we justly re member the era as the "Roaring Twenties." For the Good of the Whole Still, the appeal to the individ ual to suppress his own interests for the "good" of all goes on and on - no matter, it seems, what the form of government. Proclaimed Joseph Goebbels, Nazi minister of propaganda and an official of the National Socialist Workers Party: "To be a socialist is to submit the I to the thou; socialism is sacrificing the indi vidual to the whole."4 Said Stalin: "True Bolshevik courage does not consist in plac ing one's individual will above the will of the Comintern. True cour age consists in being strong enough to master and overcome one's self and subordinate one's will to the will of the collective, the will of the higher party body."5 Hitler: "It is thus necessary that the individual should finally corne to realize that his own ego is of no importance in comparison with the existence of his nation ... that the higher interests in volved in the life of the whole must here set the limits and lay down the duties of the interests of the individual."6 4 Quoted by Susan Love Brown and others in The Incredible Bread Machine (San Diego: World Research, Inc. 1974), p.135.

5 Ibid. 6 Ibid., p. 136.

110 THE FREEMAN February Yet political thoughts predi cated on the submergence of the individual are not alien to de mocracies. In our own country, for example, President Johnson declared: "Weare going to take all of the money that we think is unnecessarily being spent and take it from the 'haves' and give it to the 'have-nots' that need it so much."7 And, in a similar vein, President Kennedy said: "Ask not what your country can do for you - ask what you can do for your country/'8 As the authors of The Incredi ble Bread Machine comment: "It is by taking humanitarianism to its logical political consequence that dictatorships are established and the rights of individual peo ple ravaged. Controlled housing. Controlled prices. Controlled wages. Controlled business. Con trolled unions. Controlled money. Controlled banking. Controlled tel evision. Controlled news. Control led people."9 Controls, in other words, fail to comprehend the inescapable indi vidualistic nature of human ac tion. Inadvertently or advertently the controllers accept the doctrine of behaviorism - the idea that men react rather than act, that, bluntly, people are sheep. In one 7 Ibid., p. 135.

8 Ibid., p. 136. 9 Ibid., p. 138. degree or another, the controllers move along the pathways of the Behaviorist School of psychology. Let me, then, set forth two con trasting propositions relating to the organization or the individual. Proposition Number 1: There are no mysteries to human nature because there is no human nature .... I pro pose to abolish autonomous man, the man who believes in freedom and dig nity. His abolition is long overdue. He has been constructed from our ignor ance and as our understanding in creases, the very stuff of which he is composed vanishes. To man qua man we .readily say good riddance. "How like a god!" said Hamlet. Pavlov, the behavioral scientist, emphasized "How like a dog!" That was a step for ward. lO Proposition Number 2: Human action is necessarily always rational. ... Man is a being capable of subduing his instincts, emotions and impulses; he can rationalize his behavior. He renounces the satisfaction of a burn ing impulse in order to satisfy other desires. He is not a puppet of his ap petites. A man does not ravish every female that stirs his senses; he does not devour every piece of food that entices him; he does not knock down every fellow he would like to kill. He 10 B. F. Skinner, Beyond Freedom and Dignity, (New York: Knopf, 1971), pp.

200-201. Quoted and slightly paraphrased by Albert H. Hobbs, "Dignity and Degra dation," The Intercollegiate Review, Sum mer 1973, pp. 243-54.

1975 TIlE ORGANIZATION OR THE INDIVIDUAL? 111 arranges his wishes and desires into a scale, he chooses; in short, he acts. What distinguishes man from beasts is precisely that he adjusts his be havior deliberately.ll Skinner's Behaviorism The first proposition, viewing man as little more than a white rat in a laboratory maze, as a reactor rather than an actor, is penned by America's leading pro ponent of behaviorism, B. F. Skin ner. Dr. Skinner tells us the indi vidual behaves according to his environment and the stimuli of the moment. This individual be havior is supposedly quite pre dictable and hence quite controll able - by others. Accordingly, Dr. Skinner refers approvingly to "operant conditioning" and "en vironmental determinism." The good Doctor tells us environmental factors "are the things which make the individual behave as he does. For them he is not respon sible and for them it is useless to praise or blame him."12 So good-bye responsibility, self determination and self-control.

Man is beyond freedom and dig nity. He responds but he is not 11 Mises, op. cit., pp. 16-19. 12 B. F. Skinner, Science and Human Behavior, (New York: Macmillan, 1953), p. 448. Quoted by Albert H. Hobbs, op. cit., idem. responsible. He is but an animal, anything but a thinker. This ap proach extended to economic anal ysis renders man into little more than a statistic, buried in a letter symbol in a Keynesian formula. In sharp contrast to the be haviorist view of the world is the work of Ludwig von Mises, epitom ized in Proposition Number 2. The Misesian man is a thinker - to be sure, rarely a profound thinker, but a thinker nonetheless. Mises also points out that man is the only animal who has a highly in dividualized scale of values and system of goals. In fact, man is the only animal who conceptual izes scarcity as a law of life, who ranks his preferences, who is aware of time, who is aware of his mortality.

Accordingly, man is the only animal who engages in division of labor and exercises what Adam Smi th called "the propensi ty to truck, barter and exchange one thing for another ."13 Smith also noted that man is the only animal who makes bar gains: "Nobody ever saw a dog make a fair and deliberate ex change of one .bone for another with another dog. Nobody ever saw one animal by its gestures and natural cries signify to an13 Smith, op. cit., p. 13.

112 THE FREEMAN February other, this is mine, that yours; I am willing to give this for that." This idea of man as thinker and trader breaks with the dictates of logical positivism. Mises rejected the strictures and approaches of the physical sciences as wholly inappropriate to the science of human action. The individual sim ply can not be tested in the labor atory, molded by "human engi neering," or predicted by statisti cal inference. To Mises, man thinks before he acts. He choos es, rightly or wrongly, conditioned by his own unique value scale. These choices interact and combine with other individuals' choices to constitute consumer demands for the entire range of goods and services, in cluding the derived demand for capital goods. In other words, these choices give sweep, scale, shape and substance to economic activity. Opportunity Cost Moreover, every individual choice, while conferring some util ity or benefit, involves an oppor tunity cost - the cost of some benefit foregone by his being able to do but one thing at a time. In the words of Mises : " ... acting man chooses, determines and tries to reach an end. Of two things of which he cannot have together he selects one and gives up the other., Action therefore always involves both taking and renunciation."14 This searching analysis of in dividual motivation is precisely the type of analysis missing in modern economics, including gov ernment interventionism.

Wage-price controls, for exam ple, have failed a thousand times. The repeated failures can be en tirely explained in terms of the overlooked individual. Typically the government, in the name of anti-inflation, sets a full panoply of "maximum prices." These prices are usually set below those that would have prevailed in a free market. Moreover, they are expected to prevail while the cen tral bank allows credit to expand and the money supply to increase. But the wage-price control ra tionale doesn't jibe at all with individual subjective values in real-world price determination. This subjective determination spans not only the supply of and demand for goods but the equally crucial supply of and demand for money. Naturally, as the money stock rises, subjective valuations of each currency unit tend to fall, both on the demand and on the supply sides of the market. Ac cordingly, individual buyers bid more for all available goods and 14 Mises, Ope cit., p. 12.

1975 THE ORGANIZATION OR THE INDIVIDUAL? 113 services, including capital goods and the factors of production. In dividual sellers find their costs rising and their profits increas ingly squeezed. Sooner or later these sellers find it necessary to export their goods to uncontrolled markets overseas, cut corners on quality, do business in "black markets" at horne, or go out of business altogether. In any event, the controls lead to shortages, shipment delays, quality lapses, multiplying bureaucratic inter ferences and, ultimately, break down of the controls themselves. "Contracyclical Poli cy" Like price-controls, the Key nesian rationale also ignores the individual, as noted. Today the world is aflame with double-digit inflation directly attributable, I submit, to Keynesian policies. Broadly, Keynesianism swings on macroeconomic "contracyclical policy." This policy calls for budget surpluses in good times and budget deficits in bad times so as to maintain "effective demand"

and thus "full employment." Hence Keynesianism emphasizes spending rather than production as the source of income and breaks sharply with Say's Law (supply tends to create equivalent de mand) . But the "G" in Keynes' "full employment" formula of Y = C+ I + G (National Income = Con sumption Spending + Investment Spending + Government Spend ing) works out to be about the most unstable, inflationary, poli tics-ridden and unscientific bal ancing mechanism that the eco nomic managers could possibly utilize. Specifically, as a cure of unemployment, government spend ing simply assumes that jobless ness reflects the failure of de mand - never the overpricing of labor which individual consumers reject. So as employment contin ues to lag, government spending tends to get ever larger - and ever more inflationary. As Mises noted: At the bottom of the interventionist argument there is always the idea tha t the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantages from government spending)5 Too, the cons umer spending and the investment spending in the Keynesian formula subsume the 15 Mises, op. cit., p. 744.

114 THE FREEMAN February thoughts and actions of millions of consumers and businessmen. These individuals have their own values, preferences and cost-price relationships which strongly tend to obviate the "contracyclical pol icy." This obviation comes partly from the subjectively determined forces of supply and demand. These forces, of course, are never repealed but are distorted by Keynesian policies. "Contracyclical policy" also tends to exacerbate the very busi ness cycle it is supposedly stabil izing. Expanded government spending involves as a rule deficit finance. The central bank accom modates the swollen debt instruments of government and allows commercial bank reserves to ex pand. The resulting credit expan sion leads to false interest and profit signals to entrepreneurs; it leads to industrial expansion and price pressures, especially on cap ital goods and the factors of pro duction. The upshot is inflation, soaring interest rates and, in the end, industrial contraction -re cession or depression.

This is precisely the predica ment in which the Western "'~orld finds itself today. In sum, economic analysis which ignores or downplays the individ ual and his subjective values is almost certainly doomed to failure. ~ IDEAS ON LIBERTY Imprisoned Ideas THERE are many classifications into which men and women may be divided ... But, as I think, the only categorization which really matters is that which divides men as between the Servants of the Spirit and the Prisoners of the Organization. That classification, which cuts right across all the other classifications, is indeed the fundamental one. The idea, the inspiration, originates in the internal world, the world of the spirit. But, just as the human spirit must incarnate in a body, so must the idea incarnate in. an organization. Whether the organization be political, religious, or social is immaterial to my present argulnent. The point is that, the idea having embodied itself in organization, the organization then proceeds gradually to slay the idea which gave it birth.

W. J. BROW N, from the Spectator September 19, 1947 The Concept of Value In Ethics and Economics RIDGWAY K. FOLEY, JR. THE CONCEPT OF SUBJECTIVE VALUE provides one of the most striking characteristics differentiating vol untarists from statists. One's defi nitionof value colors his individ ual view of reality and accounts for many, if not all, of the choices made in a lifetime. Despite eluci dation by notable persons, the con cept remains elusive, rendering reiteration more than an idle gesture. One tends to offer apologies for mining tunnels seemingly exhaust ed in the past. Subjective value appears, at a glance, to resemble one of those tunnels consisting of a few specks of played-out ore and a host of useless residue. Were this assessment accurate, mere re capitulation of the subjective theMr. Foley, a partner in Souther, Spaulding, Kin sey, Williamson & Schwabe, practices law in Portland, Oregon.

ory of value might serve merely to edify the writer, not the read ers who have heard or read it all before from more ardent and con vincing sources. Yet the mere fact that modern value theory recog nizes the subjective nature of value fails to mean that a lesson once uttered is forever learned. Indeed, human experience and be havior -demonstrate that thiscen tral concept represents one of the most fugitive of ideas, difficult to grasp and even more taxing to apply. Thus, penetration to the core of the concept seems warranted for two reasons: (1) to restate and communicate a basic truth and (2) to define and analyze the idea in a manner which will illuminate the thought against the backdrop of vexing and perplexing problems. An analyst can gain insight 115 116 THE FREEMAN February into the meaning of concepts by recourse to a trusted friend: the dictionary. Like other trusted friends, this one may be wrong on occasion but by and large it will offer sound advice or at least point the direction. Yet one must constantly recall that words con stitute poor vehicles for the con veyance of concepts, and the im precision of language may ob scure the nature and essence of truth.

After some false starts, my dic tionary defines value as "relative worth, utility or importance" on a scale of preference. 1 The lexicog rapher offers some important in sights derived from the bare gen esis. (A) The Individual and Value. First and foremost, value means nothing unless it relates in some manner to an individual, an act ing human being. 2 One cannot meaningfully discourse upon worth or value unless he relates the worth of some tangible or intan gible good or idea to some par ticular individual actor. Any crea ture lacking the capacity to choose between alternative courses of action cannot assess or recognize value. (B) Value and Objects. One writer has correctly asserted that discussion of value must include consideration of the questions "value to whom" and "value for what purpose."3 An object evi dences no value unless it can be utilized by some person to achieve a certain goa1.4 Correct, as far as it goes: value does mean worth to an individual in relation to a goal, end or desire.

However, the view of objects as the sole entity or repository of value adumbrates reality. Values include intangibles. As discussed later, the concept (and impor tance) of the subjective value theory extends beyond the con fines of mere economic theory or dealings with material things. It plays a· seminal role in the dismal science, to be sure, but one must not discount the fact that human values reach farther fences. A simple explanation accounts for the emphasis upon value in relation to material goods: the concept of subjective value devel oped almost simultaneously by three economists working sep ara tely ...;.. Messrs. Carl Menger, W. S. Jevons, and Professor Wal ras 5 - men whose minds were con cerned with the problems accom panying the exchange of goods and services. It is not that these men and their followers restricted the application of this novel the ory to material matters but rather that they used it as a tool to ex plain economic phenomena and, 1975 VALUE IN ETHICS AND ECONOMICS 117 particularly, to refute the labor theory of value which arose in the classical period and reached its deadly apogee in Das Kapital of Karl Marx. 6 The objective value theory be comes manifest in the labor the ory of value in the field of econom ics, the theory that the value of a good or service is determined by the cost of production or the amount of energy expended. 7 The brilliant Austrian economist and student of Professor Carl Men ger, Eugen Bohm-Bawerk, inci sively exposed the fallacies of the labor theory of value in the late nineteenth century.8 Contrary to the tenets of the labor theory of value, value is determined by in dividual evaluations of personal utilitY,9 or, as Dr. North reminds us, the value of labor derives from the value of labor's product. 1O CC) Value and Ends. The view that value represents that which possesses utility clouds the ex pansive nature of value in the same manner as the strict rela tion of value to tangible objects.

One may value laughter or a sun rise - ephemeral but real delights - over butter, bread or bricks. One may value God, or love, or commitment to a philosophy over his own life. Concentration on the very real role that value plays in market exchanges ought not mask the equal truth that values equate with both tangible and intangible goals as well as the means of satis fying those go'als. The value of friendship cannot be stated in mar ket terms like the measure of a pound of coffee. Thus, value refers to worth as a means to an end as well as to the end itself. Perhaps the im precision of language betrays and muddies this important distinc tion in common speech. CD) Value on a Scale of Pref erences. Leonard Read remarks that possessions reflect a man's values and we are, in a very real sense, that which we own.ll True, to the extent that possessions ac curately reflect goals. Values of each man refer to the goals of each acting individual as viewed by that person in the hierarchy of his purposes and measured by him as relevant to those pur poses. 12 Each actor commands a scale of preferences in his life; only he can rate a particular goal, end, object or thing on that scale.

The Theory of Subjective Value The objective theory of value holds that absolute, intrinsic val ues exist and can be discovered by man. Certain matters are in herently good or desirable and rank as absolutes on the scale of preference for every human being.

118 THE FREEMAN February The subjective theory of value, to the contrary, recognizes the nonexistence of any means to identify or define in absolute or universal terms the essential char acteristics of an ultimate good. Dr. Rogge succinctly summarizes this position: The first of the propositions on which I wish to base my argument is the fundamental proposition of all mod ern value theory: Value does not con sist of objectively definable charac teristics of a good or service; value exists only as subjective judgment in the mind of each beholder. It cannot be measured directly but only indi rectly by the behavior it elicits. There is no way that the subjective valua tions of two people can be summed or even directly compared. 13 Consider the application of this concept in the economic milieu. The exchange value of any item, good, or service is what another person will offer for it in volun tary exchange. 14 No individual can determine value for another; no one can comprehend the in tricate hierarchy of preferences residing within another person.

The practice of subjective eval uation represents the embodiment of freedom of personal choice or liberty.15 If nothing entails value unless it bears a relevance to a desired end, no individual other than the actor can (1) recognize the end sought and (2) measure the relevance of the tangible or intangible value in -achieving that end. Achievement of any end re quires payment of a cost. In the economic realm, we term that cost the "price," the amount of exchange goods satisfactory to a willing buyer and a· willing seller in a free and· uncoerced exchange. Price acts as the indicator or ob jective expression of value; it measures value but does not con stitute value. 16 The common concept of cost dis guises the fact that cost may be measured in nonmonetary or, in deed, nonmarket terms. What it costs one to choose a course of action may not be measurable in dollars and cents but in loss of opportunities for happiness, safe ty, self-respect, love or some other real but intangible item of im portance. Consider government nationalization of an industry or application of the doctrine of emi nent domain for "social" purposes, current euphemism'S for outright theft. Under civilized standards, the state takes over the electric power industry or the coal mines but salves its collective conscience by paying full (objective) value to the owner. Objective value con sists .of the amount of money which expert appraisers tell the parties that some mythical buyer would pay for the properties and 1975 VALUE IN ETHICS AND ECONOMICS 119 which some mythical seller would accept. Yet payment of such an objective cost cannot disguise rob bery of the subjective worth of the enterprise, the right and op portuni ty to peacefully engage in that endeavor. Subjective value achieves free rein only in willing exchange; by definition, eminent domain and nationalization pro ceedings involve coerced exchange wherein one individual's subjec tive scale of values indicates a preference to retain property rather than exchange it.

The Myth of An Absolute Objective Value Adherents of the basic freedom philosophy often encounter severe difficulties in understanding and applying the theory of subjective value. One primary reason con cerns the apparent clash between the idea of subjective value and the belief in absolute principles governing man, life and the uni verse. Many libertarians believe, rationally or intuitively, that life contains absolute tenets; for this reason, these thinkers decry the postulates of relativism, be it eco nomic or moral. For example, Lord Keynes, challenged by con temporaries concerning the ex tended effects of his irrational monetary and employment poli cies, supposedly uttered the dic tum, "In the long run, we are all dead," a clear expression of the relativistic neomercantile ap proach to solution of economic problems. Free marketeers disdain such an overture, cognizant that man must pay a cost for every purchase, that every cause pro duces effects. Again, in the field of axiology, libertarians often decry the concept of situational ethics, a trend which may justify "immorality" on a relativistic basis.

Reflection reveals no conflict between the concept of subjective value and the existence of funda mental absolute principles in the universe. The key lies in the na ture of man: man is a finite, fall ible, limited creature; he can glimpse truth through St..Augus tine's dark glass. No man possesses unchallengable, immutable ability to know truth; each of us main tains a world view frayed and scarred by his own ineptitude, flawing his perceptiol1 and caus ing his knowledge to deviate from reality. Truth or reality is absolute; it cannot vary; one cannot challenge fact. Absolute principles derive from truth and exist untrammeled in the universe. These absolutes exist wholly apart from our per ception. Man can contest truth or reality, but he must pay the price of error. The validity of the fact of· ab120 THE FREEMAN February solute existence does not in any way counteract the theory of sub jective value. An actor places val ues on a range of choice related to his real or imagined goals.

Truth may not rank high in his perspective. Or, he may perceive a different truth from his neighbor. Or, he may value other truths on a higher plane than his traducer. Or, he may fall into error. The points remain: (1) absolutes ex ist; (2) man may not recognize absolutes; (3) different men may become cognizant of different views of reality; (4) only each man, acting individually, can rate values in his order of preference. These four propositions do not wage internecine war; they coex ist. Thus, the concept of subjec tive value and the existence of absolute truth occupy mutually in dependent spheres. Truth never varies, never becomes relative; man's ranking of important things does vary, from person to person and from time· to time. Dr. Gary North defrocked the error in confusion of the two con cepts a few years ago when he pointed out the fallacious reason ing of conservatives who believe that gold possesses intrinsic (ob jective or inherent) value. 17 Many freedom philosophers prefer to convert their assets to gold or sil ver rather than trust in fiat paper.

Gold and silver contain intrinsic properties which account for their historic value, yet neither gold nor silver nor anything else man ifests intrinsic worth. Whether or not these metals are valuable depends upon the individual sub jective choices of the owner and the one with whom he may wish to trade. One may rank gold as less valuable than food, clothing or shelter, depending upon his circumstances. And, one may rate food or water or life itself less valuable than a cause or the life of another person. Literature and history abound with examples of those who have valued the lives of friends or family more in tensely than their own continued existence and so chose to sacrifice their very being. Ethics and Economics Comprehension of subjective value may increase when exam ples portray its application to sev eral fields of choice. In so doing, what appears apostasy may be come doctrine.

As noted earlier, the initial ap plication of the doctrine of sub jective value appeared "in the field of economics. Easy examples ap pertain here. Only the buyer knows whether he values soap more than matchbooks, water cress more than acorn squash, or pet food more than quilts. Will ing exchange commands that each 1975 VALUE IN ETHICS AND ECONOMICS 121 participant to a trade subjectively believes that he gains from the transaction. IS If the swap only occurs by virtue of coercion, no willing exchange would have taken place and the trade does not cor respond with the subjective value of at least one actor. 19 One "pro fits at another's expense" only if he employs force or fraud in the transaction ;20 by definition, each actor benefits from a free trans fer. Normally, the simple model be comes more complex in modern society, but the basic principles remain. One employs his creative talents in an endeavor which pro duces an abundance beyond his own needs; he then barters those extra goods to others in exchange for different items which he sub jectively values beyond his extra creations. As time passes and spe cialization and division of labor grow, society uses trade goods as a medium of exchange: goods we call "money." The more compli cated model does not alter the fundamental fact that a producer will choose to produce and to trade in accordance with his subjective values, and a purchaser will choose to consume on the identical basis.

Each individual portrays the roles of producer and consumer and only the individual can determine (in accordance with his personal scale of preferences) what an'd how much to consume. At some point in time, the actor will de cide it accords with his prefer ences to withhold production or consumption of a given good when the value given in return appears too insignificant or too costly ac cording to his choice. Ethics in Human Relationships Like rules govern the ethical judgments made by man. Only the actor can determine whether or not he should destroy the life of another human being,· either dur ing warfare sanctioned by a group (the state) or during a fit of per sonal pique. Other human beings may wreak consequences upon the actor as a result of his chosen course of conduct, the threat of which may have a direct bearing upon his initial choice. Similarly, only the actor can decide whether to lie or deceive even if no legal consequences attend his conduct, whether extrinsic circumstances such as ill health of another j usti fy an untruth, whether one ought to marry a specific person, whether fairness and mercy obligate the donor to transfer $100 to poor relief, whether to honor one's parents, or whether to worship God or to maintain quiet on the Sabbath.

Moreover, the concept applies to personal relationships between hu man beings. Friendships develop 122 THE FREEMAN February out of a concatenation of values. Like goals attract; unlike values repel.' No state can effectively leg islate friendship oi camaraderie, but at best an uneasy truce. No one can force you to love your neighbor; you will do so only if that relationship fits your world view and· your scheme of values. Again, the doctrine applies easily to choices· in aesthetics and art. Preferences among persons surface abruptly in the fields of art, architecture, sculpture, music, photography, literature, and enter tainment. That which the public (individual patrons collected) subjectively values produces rewards (exchanged goods, plaudits, fame) for the artist or entertainer; that which no one subjectively values rots in the producer's garret or resides, unnoticed and und usted, on a purveyor's shelf. The artist may continue to produce despite rejection because he receives val ue from the creation of his art; that value may far outstrip the value chosen by others in the mar ket place.

Those who ignore the concept of subjective value lead the pa rade to subsidize "cultural" activ ities as "intrinsically" good: wit ness organizations to collect tax funds for support of symphonies, art galleries and civic theatres. Yet these activities contain no more intrinsic value than an ounce of gold. If a sufficient number of persons in the community subjec tively value the symphony or the theatre, these endeavors will en dure; if not, their continued ex istence depends solely on force. Subjective Value and an Ordered Liberty A number of persons who be lieve themselves to be tradition alist-conservative if not libertar ian in outlook opt for a concept of "ordered liberty." They value eternal things, necessary to order and the good life in their subjec tive view. Unfortunately, this ap proach lends itself to the applica tion of an objective value concept. Order becomes the touchstone; deviates receive punishment; men become fit to a Procrustean bed measured by those in political power.

All too often, the· "ordered lib erty" proponents penalize "devi,;, ant" personal conduct which fits the subjective value of the actor and harms no other person. Sun-; day Blue Laws, compulsory chapel, conscription, law proscribing sex ual activities between consenting adults all partake of this attitude. Public display of nudity may not be in the best of taste, but man should be concerned with living his own life, not limiting the equal, reciprocal right of others in this regard. The judicial sys1975 VALUE IN ETHICS AND ECONOMICS 123 tem tends to impose values upon disputants in this kind of society rather than performing the lim ited function of deciding concrete cases. The law becomes a censor of personal conduct and a prescriber of the objective values to be maintained. Let me commit what may seem an unpardonable heresy: neither freedom nor mankind itself rep resents an objective value. To me, as a believer in the freedom phi losophy and the dignity of man, individual liberty and my right to live my own life as I see fit rank high on my personal scale of val ues. I fervently hope that others think likewise - but. I recognize that all too many persons do. not hold these beliefs or, if they pay lip service to such values, they manifest a remarkable inability to equate their means and· ends. Per sonal freedom and the fundamen tal rights of man accord with ab solute verity but one cannot con sistently claim intrinsic value for such rights.

Those who seek an ordered lib erty may be on the trail of very real values. Many of us favor the serenity of the quiet life where no neighbors intrude in our sylvan glade. Yet, as long as man shares this globe with other men, con flicts will arise. These conflicts can be resolved in two ways : by force or by mutual uncoercive interchange and negotiation. I pre fer my order to develop out of the market, be it a market for goods or a bazaar of ideas. A respect for the subjective values of others bodes well for the survival of man as a choosing, free creature; em phasis upon objective value theory delivers a dulling blow to the cre ative spirit. ~ - FOOTNOTES 1 Webster's Third New International Dictionary (G. & C. Meriam Co., Spring field, Massachusetts 1966) 2530-253l. 2 See, e.g., Jennings, Frederic Beach, Jr., "Value, Exchange & Profits: The Bedrock of Economic Science," 16 Free man (No.9) 52 (September 1966); Read, Leonard E., "Freedom's Theory of Value," 17 Freeman (No. 10) 594, 596 (October 1967).

3 Jennings, op. cit., Note 2. 4 Ibid. 5 Read, op. cit., Note 2. 6 See, North, Gary, "The Fallacy of 'Intrinsic Value'" 19 Freeman (No.6) 370, 371 (June 1969). 7 See, Read, op. cit., Note 2, p. 595; Lipton, Dean, "The Man Who Answered Marx," 17 Freeman (No. 10), 597, 600 (October 1967). 8 Lipton, ibid. 9 Read,· op cit., Note 2, p. 596. 10 North, op. cit.,N ote 0, p. 372. 11 Read, op. cit., N ote2, p. 594. 12 Jennings, op. cit., Note 2. 13 Rogge, Benjamin A., "NoN ew Urban Jerusalem," 3 Imprimis (No. 9) 1 (September 1974). 14 Read, op. cit., Note 2, p. 594. 15 Ibid. 16 Pitt, W. H., "Value: The Soul of Economics," 19 Freeman (No.9) 515, 517 (September 1969). 17 North, O,p. cit., Note· 6. 18 Read, op. cit., Note 2, p. 594; J en nings, op. cit., Note 2. 19 Jennings, ibid. 20 Ibid.

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN The Roots Of American Order I DON'T KNOW what I expected when I heard that Russell Kirk was writing a big book on the nurturing of American religious, social and political beliefs. All I can say is that his The Roots of American Order (Open Court, $15.00) comes as a total surprise. It is the incredible scope of the book that is staggering. Even more remarkable, it is as deep as it is wide, relating order in the soul to order in the State in mas terly fashion. Kirk has always been good at intellectual portrai ture, but this book combines his old forte with the qualities of a great mural. Where others have sought to prove that conservatism has been an exotic plant in Amer ica, Kirk makes it plain that we have been much more firmly rooted in conservative western values,. stoic as as well as Christian, than most modern commentators have supposed. 124 Others, before Kirk, had made the point that the American Rev olution, unlike the French up heaval that occurred a few years later, was a defensive operation designed to preserve old liberties rather than to force a radical change in society. Peter Drucker, wri ting in 1942, had spoken of "The Conservative Counter-Revo lution of 1776." This was my first encounter with a perspective that really explained our origins as a free nation. True enough, Drucker had drawn some conclusions that were fairly explicit in Edmund Burke if one is to put the famous Anglo-Irish Whig's speech on conciliation with America to gether with his Re/lections on the Revolution in France. But Burke had been forgotten by an ignorant generation before Drucker came along to remind us that Washing ton, Jefferson, John Adams and 1975 THE ROOTS OF AMERICAN ORDER 125 the other architects of our fed eral union were not revolutionists.

It was King George III, with his desire to restore a royal absolut ism, who was the real incendiary. Kirk, as our foremost Burkean, naturally follows Drucker. But he is much more than an expositor of Burkean conservatism. He is an encyclopedist by temperament, and an inveterate educator who wants his students to go back, back, back into history before pro nouncing on "relevance" for the present. The Roots of American Order is a searching study of the origins of the Hebraic-Graeco Roman West before it narrows its focus in the later chapters to con centrate on what the Founding Fathers wrote into the Declaration of Independence and the Ameri can Constitution. The Historical Background What we get in the Kirk book is a study of Israel and Revela tion, a dissertation on the glories and shortcomings of the Greek polis, a celebration of the high old Roman virtue before Latinity had been overwhelmed by decay from within and the Germanic barbari ans from without, an account of the spread of Christianity from the Mediterranean world into Europe's Gothic North, and an outline of the "dissidence of dis sent" as the Reformation splintered the Catholic synthesis. Kirk gets it all down in order to explain the origins of the "chartered rights of Englishmen" before any single one of those rights had been transplanted to North America.

Everything is here from William of Occam, the medieval "nominal ist" who was really the "realist," to the development of the English Common Law and the rise of the Scottish universities. It is an in tellectual feast covering two mil lennia. Most interesting, it reveals something that I did not know when I was reading Peter Drucker in 1942. Who but Russell Kirk could tell us that John Quincy Adams, in his effort to perfect his German in 1800, had translated a long essay from the Berlin His torisches Journal by a young Pruss ian named Friedrich Gentz? Gentz, a reader of Burke, made what Kirk calls "the best brief ear ly analysis of the distinction" between the American and the French Revolutions. If the world had only read and pondered Gentz, we could have been spared the modern revolutions of Lenin and Hitler. Unfortunately, John Quincy Adams was not a great popularizer. If Kirk's digression on John Quincy Adams and Friedrich Gentz makes Peter Drucker seem less of a pioneer, it doesn't make 126 THE FREEMAN February Drucker's point, which was also Burke's point, any less valid. And, indeed, Russell. Kirk would be the first to say there are no new truths. There are only recoveries of what Kirk is fond of calling "the Permanent. Things."

Imagination Rules The Roots of American Order is .something of a paradox. It is stimulating intellectual history of the first order. Russell Kirk can summarize concisely what Thom as Hobbes had to say about the Leviathan state, or what John Locke contributed to the labor theory of value, or what Saint Augustine did to distinguish be tween the City· of This Earth and the· City of God. But in spite of his own ability to reason, and to present things in rational order, Kirk believes that . it is imagina tion, not dialectics, that rules the world. Locke, with his triad of Life, Liberty and Property (or Estate), appealed to the American colonists, not because he had any thing new to s~y, but because, in sofar as he may have been an im portantcontributor to .the Revo lution, he merely confirmed what people already knew from .their experiences during a hundred and fifty years of "salutary neglect"

ona new continent. Like Burke, Kirk continually stresses the im portance of immemorial custom. He distrusts Reason, as .Reason has been defined by ideologues. In this view of things, intuition must be trusted - which is not exactly an intellectual position. But, as Kirk, followjng Hume, points out, .life is rooted in "enor mous mysteries.". What has come into being through prescription is not lightly to be dismissed. A people committed to following precedent may be slow to improve their condition, but, in. the end, they will do. better than those so cieties that chase after Utopian reformers. The Founding Fathers read Montesquieu on the Separation of the Powers. Kirk approves of Montesquieu, who was a most moderate Frenchman. But did Montesquieu really account for the form of our government and the wording of our constitution? Kirk would say no. The larger federal ism of the thirteen states was· a mere adaptation of the smaller federalism that the colonists had practiced in Virginia for a cen tury in which local county govern ment had distrusted rule from the capital in Williamsburg.

The theorist, in the Kirk view of things, is mainly important be cause he discloses to people. what they .instinctively know to be right. The "law" already exists before the. formulator comes along to. divine it and refine it.

1975 THE ROOTS OF AMERICANORDER 127 The Compact Kirk is hard on compact theory. Hobbes, he thinks, was wrong in .attributing the' origins of the State toa compact under which people decided to accept a tyrant as preferable to life in a state of brutish nature. And Locke could point to no antique tribal conclave in which people' set up government to·· protect individual liberties and property. But if the State, as Al bert Nock and Franz Oppen heimer thought, originated in con quest, it nonetheless remains true that conquerers have always had to give ground even to serfs' and slaves in order' to get production out of them. So "compacts" were forced from time to time as under lying populations exerted pres sures as a condition of giving good service. The church in the Middle Ages exacted compacts from kings. As more and more "chartered liberties" come into formal' existence, the Myth of the Compact inevitably became a vital reality.

The' myth was real to Thomas Jefferson. Therereally was a com pact made between the states as states at our Constitutional con vention. As James Jackson Kil patrick pointed out some years ago. in his The Sovereign States, it wasn't "we the people" who made a compact. It was Virginia and New York and other states that relinquished certain powers (such as the right to coin money or make foreign alliances) in re turn for keeping other powers un der the Tenth Amendment. Russell Kirk tends to be con temptuous of this element of com pact theory. But he really accepts the Myth of the Compact when he commends Burke's contract of Eternal Society. His own compact theory is richer than Locke's and more humane than Hobbes'. He should recognize it for what it is. But this is a minor flaw in what indubitably is a grand book. ~ MISES MADE EASIER: A Glos sary for Ludwig von Mises' HU MAN ACTION, prepared by Percy L. Greaves, Jr. (Dobbs Ferry, New York: Free Market Books, 1974) 157 pp., $6.

Reviewed by William Rickenbacker ONE OF THE TRAGEDIES of modern times is that our society seems to have lost the ability to find and use the knowledge that might help it to improve its condition. One may think of several reasons 'for this deprivation. The matters to be discussed -weaponry, ecology, diplomacy, monetary theory - are complex. The people are more in terested ill amusements than in severe study of public questions.

128 THE FREEMAN February T his book also is available from The Foundation for Economic Edu cation, Irvington-on-Hudson, N. Y. Nevertheless, any venture in making the book more accessible to the reading public must be greeted with applause, and here's a hip and a hooray for Percy Greaves' contribution to the cause. He has picked out about 900 of the most difficult words or phrases in Human Action and has given them clear and helpful defi nitions. His little essays on "eco nomics," "inflation," and "money" (in its several forms) are reason enough for owning the book. It might well be kept at your elbow as you read the original monu ment. Human Action deserves the wid est possible audience and should be made available in every form in the original bulk, in Greaves' definitions, in textbook form, in condensed versions. A close study of the text reveals that the posi tive assertions of Mises amount to about ten per cent of the entire work. The "meat," therefore, shorn of the historical and contro versial dissertations, could be printed in a book of merely a hun dred pages. Perhaps this would be a worthy second step in Greaves' excellent endeavors to make von Mises better known to the world.

The truth is unpalatable to the reigning bureaucrats in govern ment, publishing, and teaching; ,vith the result that the writers of true works are seldom listed in the bibliographies with adequate prominence. And, finally, alas, the writers of truth are seldom the most amiable and charming of stylists; they are hard to read. For such reasons as these the great summing-up work of Lud wig von Mises, Human Action, re mains shockingly unknown and unread. The book is almost a thousand pages long. Each page is filled with close-spaced lines which are filled, in turn, with long sen tences, iron constructions, unusu al words, foreign phrases, histor ical references fit for the scholar's delight, passing allusions to an cient philosophical debates, side excursions into the history of in tellectual quarrels .... And yet the book can be read, with immense profit, by a patient person who is otherwise unpre pared for any special study. The book is an exercise in logical thought, based on the small clus ter of unarguabJe assertions that form the starting polnt of classi cal economics: that man has free will, that he engages in purposive action, that the assets of the earth are unequally distributed among the territories and among the people.

* * * the Freeman VOL. 25 7 NO.3. MARCH 1975 How InflationBreeds Recession Henry Hazlitt 131 Reasons why it is best to stop inflating now and return to sound economic and fiscal policies. The Political Costs of Price Inflation Lawrence Fertig 138 Economic breakdown and loss of freedom inevitably follow monetary weakness. Tha.nk God for the Mess We're In Leonard E. Read 146 The mess is a timely warning to change course if we would avert disaster. How Rent Controls Hurt the Poor Price-fixing results in a shortage of available housing. Allan C. Brownfeld 150 Nationalizethe Power Companies? Arch Booth 154 Would you want your electricity to be delivered by the U.S. Postal Service? The Progressionof Profitability Joan Wilke 156 Profit is not added to price but is rather the reward for efficiency. "BusinessMust Make a Profit" Paul L. Poirot 159 Profit is costless, if earned. No New Urban Jerusalem BenjaminA. Rogge 161 A persuasive appeal to leave to the market the knotty problems of urban renewal.

Step to the RearJ Please Ga.ry North 178 There's a better way to get to the head of the line - if your time is worth very much. Land Speculators The necessary and useful role they play. Book Reviews: "The Creative Ordeal" by Otto J. Scott "Confessions of a Price Controller" by C. Jackson Grayson, Jr., with Louis Neeb Bernard H. Siegan 183 185 Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

tile Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTONON·HUDSON, N. Y. 10533 TEL.: (914) 591·7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,OOO-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Found<:ltion for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit, except uLand Speculators."

How Inflation HENRY HAZLITT BOTH general economic and purely monetary theory are supposed to ha ve made immense advances since the middle of the eighteenth century, yet the confusion and chaos in economic and monetary theory have never been greater than they are today. One would think, listening to television and reading the newspa.pers and mag azines, that inflation - in the pop ular sense of soaring prices were some infinitely complicated, mysterious and incurable afflic tion that had suddenly struck us from the blue, instead of simply what it is - the inevitable conse quence of the actions of govern ment in overspending and then printing paper money. And as the cause is obvious and simple, so is the .fundamental cure. Mr. Hazlitt, noted economist, journalist and author, adds what might well be another chap ter to one of his books: What You Should Know About Inflation. This article is based on a paper delivered January 6, 1975, at a monetary conference in Miami.

ds The direct cause of soaring prices is printing too much papermon ey; the direct cure is to stop printing it. The indirect cause of inflation is government over spending and unbalancing the bud get; the indirect cure is to stop overspending and to balance the budget. But if the cause and cure of in flation are so fundamentally sim ple, why is there so much befud dlement? One reason, of course, is that the problem is not merely economic, but. political. The prob lem is not merely, for example, to get the politicians to recognize the true cause and cure of inflation. It is also to get them to ackno'wl edge that cause and adopt that cure. In brief, one reason so many politicians do. not understand the problem is not merely that they are too stupid to understand it, but that they do not want to un derstand it. They realize that inflation is a 131 132 THE FREEMAN Ma,rch political racket. They find that the way to get into office is to advocate inflation, and the way to stay in is to practice it. They find that the way to be popular is to appropriate handouts to pressure groups who represent mass votes, and not to raise taxes except those that seem to fall mainly on some unloved or envied minority group - oil companies, corporations gen erally, the reputedly "rich" or "superrich."

The ultimate result of such poli cies is to bring about exactly what we have today - inflation plus re cession. But we are brought back to the fact that politicians could not ex ploit the befuddlement of the pub lic about inflation if that befud dlement did not already exist. So though we must not overlook the political side of the problem, we must recognize that our main task is still one of educating the public. This is a much bigger problem than it is commonly thought to be. Even when we have explained to people that inflation is caused by excessive issues of paper mon ey, and by budget deficits that lead to excessive issues of paper money, we have done only a small part of our task. We have ex plained what causes inflation, but we have not explained why infla tion is so pernicious. The truth is that the greater part of the public still thinks that inflation is on the whole beneficial. They knovv that it raises the prices of com modities, but the chief thing they consider bad about this is that it may not raise their wage-rates or salaries to the same extent. Near ly everybody thinks that inflation is necessarily stimulating to busi ness, because they think it must raise profit margins and so lead to greater production and employ ment.

This is indeed usually true in the first stages of inflation. But what is still recognized only by a tiny minority is that in the later stages of inflation this ceases to be true. In its later stages inflation tends to bring about a disorgani zation and demoralization of busi ness. It tends to do this in several ways. First, when an inflation has long gone on at a certain rate, the public expects it to continue at that rate. More and more people's actions and demands are adj usted to that expectation. This affects sellers, buyers, lenders, borrowers, workers, employers. Sellers of raw materials ask more from fabri cators, and fabricators are willing to pay more. Lenders ask more from borrowers. They put a "price premi urn" on top of their normal interest rate to offset the ex pected decline in purchasing pow er of the dollars they lend. Work1975 HOW INFLATION BREEDS RECESSION 133 ers insist on higher wages to compensate them not only for present higher prices but against their expectation of still higher prices in the future.

The result is that costs begin to rise at le'ast as fast as final prices. Real profit margins are no longer greater than before the inflation began. In brief, inflation at the old rate has ceased to have any stimulative effect. Only an in creased rate of inflation, only a rate of inflation greater than gen erally expected, only an acceler ative rate of inflation, can con tinue to have a stimulating effect. But in time even an accelerative rate of inflation is not enough. Expectations, which at first lagged behind the actual rate of inflation, begin to move ahead of it. So costs often rise faster than final prices. Then inflation actu ally has a depressing effect on business. A Crucial Oversight This would be the situation even if all retail prices tended to go up proportionately, and all costs tended to go up proportionately. But this never happens - a crucial fact that is systematically con cealed from those economists who chronically fix their attention on index numbers or similar aver ages. These economists do see that the average of \vholesale prices usually rises faster than the aver age of retail consumer prices, and that the average of wage-rates also usually rises faster than the average of consumer prices. But vvhat they do not notice until too late is that market prices and costs are all rising unevenly, dis cordantly, and even disruptively.

Price and cost relationships be come increasingly discoordinated. In an increasing number of in dustries profit margins are being ,viped out, sales are declining, losses are setting in, and huge layoffs are taking place. Unem ployment in one line is beginning to force unemployment in others. All this is the consequence of an inflation in its later stages. But the irony is that this conse quence is systematically misin terpreted. The real trouble, every body begins to think, is that there is not enough inflation; it must by all means be speeded up. This is the stage at which we have now arrived. A swelling chorus of voices has been de manding that the Federal Reserve "temporarily," at least, increase the growth rate of the money supply. It is almost universally believed that the reason the banks' prime lending rate was recently at 12 per cent is that the Federal Reserve was following a "tight money" policy. The Federal Re serve authorities even themselves 134 THE FREEMAN seem to believe this. In early De cember they reduced the discount rate from 8 to 7314 per cent, and a month later to 714 per cent, to prove that they meant to follow a less stringent money policy.

The truth is that market money rates have been high precisely because we have been inflating, precisely because the Federal Re serve has for too long been fol lowing a recklessly loose money policy. As compared with the 8 per cent discount rate of the Fed, the discount rate of the Bank of England was last year between II1j2 and 121j2 per cent, the dis count rate of the Bank of Brazil 18 per cent, the discount rate of the Bank of Chile 75 per cent. Discounting Inflation None of these rates was a result of a tight money policy in the countries concerned. Quite the contrary. The greater the past or present rate of inflation, the high er the present prevailing interest rate. This is because, in the later stages of an inflation, people ex pect the recent rate of inflation to continue. If they believe, for ex ample, that the dollars or pounds or cruzeiros or escudos that they lend today will have a purchasing power of x per cent less when they get them back a year from today, they will add that x per cent to the normal rate of interest they would otherwise have ex pected. If their expectations are justified, though they will be get ting a very high nominal rate of interest, their real rate of interest will not be above normal. But the high nominal rates of interest will none the less tend to discourage borrowing.

Again, as· I have already point ed out, labor unions will begin to demand so-called "protective" pay increases sufficient not only to compensate them for the commod ity price increases that have taken place since their old contract was signed, but for the price increases that they fear will take place in the future life of their new con tract. Union demands will tend to become increasingly unreasonable. The number of strikes will tend to increase. Profit margins will be squeezed or wiped out arbitrarily. Price-and-cost relationships among different industries will become increasingly unsettled, unpredict able and disorganized. In short, "protective" actions and other compensatory reactions to inflation and expected inflation will often turn inflation in its later stages from a stimulating force to a depressing and demor alizing force. But the public and politicians will increasingly be lieve that these depression conse quences of continued inflation are the consequences of insufficient in1975 HOW INFLATION BREEDS RECESSION 135 flation. They will demand that the inflation be still further accele rated.

The reason an inflation is not stopped is that people begin to dread more· and more what will happen if it is stopped. They fear a stabilization crisis. They fear mass unemployment. The only al ternative seems to be to accelerate the inflation. But, as we see, this simply leads to increasing disor ganization and demoralization of business. In the end, we begin to get mass unemployment anyway. Suppose, by some miracle, the government stopped inflating now. Would the consequences real ly be as bad as most people fear? There is every reason to think that they would be incomparably better than if the demoralizing ef fects of the inflation are allowed to continue. German HyperInflation We can get some light on this if we study what happened in the great German hyperinflation which ran roughly from 1919 to the end of 1923. In the course of that inflation the German paper mark fell to a purchasing power equal to only one-trillionth of what it had been before the inflation set in. This is another way of say ing that prices soared a trillion fold.

In the last stages of that inflation production beca.me disorgan ized and unemployment soared. In dustrial production plunged from an index number of about 125 in 1921 to about 60 in 1923. Unem ployment a.mong trade union members, which had been as low as 0.6 per cent in July of 1922, rose to 19.1 per cent in October, 1923, to 23.4 per cent in Novem ber, and to 28~2 per cent in De cember. The index of the real in come of the German industrial population plunged from a. range of 75 to 105 in 1921 (with 1913-14 equal to 100) to a. range of only 36 to 47 in November of 1923. These figures are taken from Prof. Frank D. Graham's 1930 book on the German inflation. They show how inflation in its later stages can demoralize pro duction, real income and employ ment. Was the stabilization crisis so dreadful when this inflation was finally brought to a halt? I regret that the commonly available fig ures are not quite adequate to an swer this question satisfactorily.

Practically all the tables published in the books of both Frank D. Graham and Costantino Bresciani Turroni end at December, 1923. But supplementary evidence indi cates that the s.tabilization crisis was brief and the recovery quick. The index of the physical vol ume of industrial production per 136 THE FREEMAN March capita, taking 1913 as a basis of 100, had faUen to 54 at the peak of the inflation in 1923. It rose to 77 in 1924, to 90 in 1925, and to 111 in 1927. This was a better com parative record of recovery from 1913 than that of England, Italy, or West Europe generally. Heavy Unemployment? C. W. Guillebaud of Cambridge University, in his book The Eco nomic Recovery of Germany (1939), tells us that "The cessa tion of inflation brought with it as its immediate effect a large in crease in recorded unemployment, which rose to 1,533,000 on J anu ary 1, 1924." The justification for this state ment depends on what date we place on "the cessation of infla tion." The monetary reform was introduced by a decree issued on October 15, 1923. The actual in troduction of the new currency, the rentenmark, did not come un til November 20, 1923. But the Reichsbank kept grinding out pa per marks at accelerative and as tronomical rates continuously through the end of December.

If we consult the monthly sta tistical series (not given in any table in Guillebaud's book) from which his January figure was ap parently taken, we find that re corded unemployment in October, 1923 was 534,000, in November 955,000, and in December 1,473, 000. So the January figure of 1,533,000 of recorded unemployment was not much above this. In any case this unemployment was shortlived. In spite of interest rates, in terms of the new currency, as high as 100 per cent in January, and even from February to May at an aver age, figured annually, of 35 per cent, Guillebaud tells us that "ac tivity revived, and, unemployment for the first time since August, 1923 began to decline, and was not more than 700,000 in April, 1924." It fell to 328,000 by July, better than a normal average. Rapid Recovery A similar picture of recovery is given by Costantino Bresciani Turroni, in his book The Econom ics of Inflation (1931). This is the most thorough and the most fa mous of the books written on the great German inflation. Bres ciani-Turroni tells us that in the first months of 1924, when the in flation was over, there was "a re markable increase in wages," and that this "big increase in the av erage income of workers was the combined effect of the rise in wage-rates and the fall in unem ployment" (p. 396). And in the final summary paragraph of the book he writes: "At first inflation stimulated 1975 HOW INFLATION BREEDS RECESSION 137 production because of the diver gence between the internal and external values of the mark, but later it exercised an increasingly disadvantageous influence, disor ganizing and limiting production.

It annihilated thrift; it made re form of the national budget im possible for years; it obstructed the solution of the Reparations question; it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people ac cumulating wealth and forming a class of usurpers of national prop erty, whilst millions of individ uals were thrown into poverty. It was a distressing preoccupation and constant torment of unnumer able families; it poisoned the German people by spreading amon,g all classes the spirit of speculation and by diverting them from proper and regular work, and it was the cause of incessant political and moral disturbance. It is indeed easy enough to under stand why the record of the sad years 1919-23 always weighs like a nightmare on the German peo ple." The lesson is clear. We should stop our own inflation now. Not some time in the future, but now.

We should not slow down the rate gradually over the years, but stop inflation now. And this means, to repeat, two main measures: first, balance the budget, balance it wholly by slashing expenditures and not at all by raising taxes; and second, stop expanding bank credit and printing paper money. Some other measures will be necessary to make these two basic steps effective, but I will mention only one of them, because of its overriding importance. We should repeal all the labor laws, passed over the last forty years, that build up the power of labor un ions, strengthen the extortionate strike-threat system, and in effect force employers to capitulate to labor union demands. This means the repeal of the Norris-Laguardia Act, of the Wagner-Taft-Hartley Act, of the Davis-Bacon Act, and probably a nest of others. f) IDEAS ON LIBERTY Inflation THE FATAL ERROR - that the credit and currency of the Continental money could be kept up and supported by acts of compulsion entered so deep into the mind of Congress and of all departments of administration through the states that no considerations of justice, religion, or policy, or even experience of its utter inefficacy, could eradicate it.

PELATIAH WEBSTER, "Strictures on Tender Acts" (1780) LAWRENCE FERTIG JUST A FEW MONTHS AGO when President Ford took office it was proclaimed from the White House, and nightly on television and in the press, that inflation is our Enemy Number One. But then - in the words of the famous play - a Funny Thing Happened on the Way to the much-publicized Sum mit meetings. It was discovered by many authorities that inflation is not necessarily Enemy Num ber One, but. might be considered Enemy One-Half, One-Fourth or perhaps Enemy Zero. It was said we faced what was called "Stagflation," and it was asserted that we had better fight Mr. Fertig is a noted economist and journal ist. This article is extracted by permission from a paper delivered November 14, 1974 at a conference of the Committee for Monetary Research and Education. 138 the "Stag" part and not pay too much attention to the "flation."

Professor Walter Heller, who had viewed with unconcern the substantial monetarY inflation of the past many years, asserted some months ago that our pres ent trouble is· "the costly stagna tion arising out of. a shortfall in aggregate demand." Other dis tinguished professors lent their authority to this diagnosis. Pro fessor James Tobin of Yale de clared in an ingenious formula tion that "Monetary inflation is not the cause of current rising prices," and he agreed with Dr. Heller that a good prescription was a little more of the hair of the dog that bit you. Since monetary inflation, which is always and everywhere the basis of price inflation is being 1975 THE POLITICAL COSTS OF PRICE INFLATION 139 thus minimized, I conclude that some attention might well be paid to assessing the political costs of this dangerous process. Some people ask, "Why this heavy accent on curbing inflation when it is now plain that we are in the midst of a serious reces sion?" The answer to that ques tion is twofold. In the first place this recession and all its symp toms - rising unemployment, fall ing commodity prices, lower pro duction, and the like - are the direct result of the previous roaring inflation and constitute the penalty that must be paid if the dangerous inflation of past years is to be brought under con trol. This nation has been on a monetary binge, and our financial managers have created a vast ocean of paper money and credit which has had its baneful effect on markets.

The Danger of HyperInflation The second part of the answer to the above question is most im portant. We have the power to curb the inflationary process over the period of a year or two at the cost of recession and some na tional sacrifice. If we do so we will lay the foundation for a much sounder economy _. an economy that can produce efficiently and amply. But if we do not take re strictive measures now, then iIlevitably we will be headed for a roaring hyperinflation. This could well res ult in price increases five or ten times as great as those we have already suffered. So the choice is either recession and curbing the monetary inflation now versus a continuation of our past moneta.ry policy which could result in hyperinflation and na tional .disaster. It's plain, I believe, that the political, economic and social costs of inflation are all bound up to gether. It is impossible to disen tangle one from the other. They act and re-act upon each other as both cause and effect. For in stance, when a government in flates its currency to cover a sub stantial deficit, and after a time lag prices zoom upward, the nat ural result is social unrest. In turn, the frustrations of citizens ma.y cause them to succumb to the blandishments of politicians who offer economic nostrums which result in socialization, a decline in essential capital investment, and a fall in the standard of living.

This is precisely what happened in Britain after Mr. Heath chose to inflate in 1971 in order to achieve "growth" and to meet the money demands of the ·labor un ions. The results of the October 1974 election will surely be a giant step toward a poorer, Socialist Britain. While Wilson has a ma140 THE FREEMAN March jority of only three seats, he can count on many of the 14 Scottish and Welsh nationalists to vote with him on such crushing legis lation as a tax on wealth, in creased subsidies, price controls, and perhaps even on the nation alization of some large industries. No, we cannot unscramble the economic, social and political where parliamentary government prevails and every citizen is en titled to cast a ballot in free elections. However horrible may be the consequences of continued mone tary inflation, the penalties to be borne for a continuation of this policy are generally believed to be sometime in the future. Of course the distant future never presents the terrors of the immediate pres ent. So it is generally felt that we can rest on our oars a little. It is rather plea.sant, as even Professor Galbraith pointed out, to fight a possible recession by monetary ex pansion rather than to contain a present inflation by monetary restraint.

Economic Nationalism Ahead One of the most frightening political costs of continued infla tion, which isn't obvious to the general public, is the intolerable strain on our international alli ances and the frenzied flight toward economic nationalism. Nations try to offset the detrimental consequences of inflation by im port quotas, higher tariffs, sub sidies for export, and the like. But it is plain that in a world in which practically every naton is inflating - not every nation can have an export surplus. This kind of competition causes acrimonious debates among former friends. Many people used to glibly as sert that devaluation of a nation's currency is a prescription to cure its economic difficulties. Since its exports would be cheaper in world markets after devaluation, such a move, it was said, would redress its balance of payments. In the short run this would perhaps be so, but not in the long run. Im ports for such a nation become more expensive. Other nations can play that game too, by deval uating their currency. In time, real values of international prod ucts tend to re-establish their old relationship, all other things be ing equal.

Regardless of long-term effects, a nation in trouble because of in flation always seeks to gain a temporary advantage by any pos sible means. Under su·ch conditions the weakening and eventual break up of political alliances becomes very probable. At that point, the non-Communist nations of the West are in as grave danger as the weakened traveler in the Arc1975 THE POLITICAL COSTS OF PRICE INFLATION 141 tic who is no longer able to resist the attack of wolves. If, under these conditions major nations of the West succumb, there would be no return to parliamentary government. If Communist re gimes were established in any of the major nations of the West, it would be almost impossible to overthrow them and return to a free society. It's interesting to note that in another age - from the mid-19th Century to World War I - when nations voluntarily subjected themselves to monetary discipline, when internal adjustments of in flationary and deflationary forces were automatic, the break-up of the Western world was not threat ened. Those were the days -when nations were guided by the rules of neo-classical economics, when major wars were few and far be tween, and when nations adjusted themselves voluntarily to economic realities.

Defense Endangered One more point needs to be emphasized in discussing the in ternational repercussions of infla tion. The essential defense of the United States becomes endangered since it is politically impossible to cut total Federal expenditures without seriously eroding the de fense budget. While the defense budget becomes an easy target of attack, the very largest, the most over blown department in U.S. govern ment, which spends more than any other, is almost sacrosanct. The Department of Health, Edu cation, and Welfare, with a cur rent budget of $110 billion after severe trimming, still represents a 16 per cent increase over last year. I must note that the subsidy checks which go out from this Department to tens of millions of voters are a powerful political force in causing fear on the part of anyone in political life who wishes to drastically revise this budget. On the dom,estic effects of in inflation, the incontestable fact is that inflation undermines and cor rodes the economic, political and social structure of a nation. Its long-run effects are catastrophic.

In the long run it is death to par liamentary government itself. Consider for a moment the ef fect of continued inflation upon the political structure of this country. The government of the United States is no more stable than the emotions and ideas of the electorate who ultimately con trol the legislature and, as Mr. Dooley said, even the Supreme Court. Representative government in time responds to the insistent demands of an outraged public. What are the reactions of mil142 THE FREEMAN Ma,rch lions of people who find them selves frustrated and helpless in the face of rising prices which they cannot control? It is quite natural to opt for any short-term solution which, it is claimed by candidates for hjgh office, will ease their p,ain. That so-called solution may have nothing what ever to do with the cause of infla tion. But it may be plausibly pre sented and emotionally approved by the electorate.

The basic problem is simply this. Under great stress people tend to approve solutions which seem to provide short-term bene fits, but which will in the long run have tragic consequences. They are unwilling, for any length of time, to subject themselves to short-run costs and restraints. When people feel that way, their representatives in government subscribe to .current demands and provide short-run panaceas - re gardless of long-run effects. The terrible price we pay for political intervention to achieve short-run effects in an era of in flation is well illustrated by our current policy to meet the energy shortage. The government now sets the price of domestic "old oil" at less than half the true market price. It is estimated this cur rently saves the consumer about a nickel on a gallon of gasoline. But it also means that, because of the present lower consumer price and the increased consumer de mand, we are importing 500,000 barrels a day of higher-priced oil - thus becoming hostage to the Arab world.

Now, in the long run the way to defeat the Arab ,cartel is to increa,se the American price of oil. This would stimulate more exploration and production, and most important, it would stimu late energy substitutes - gasifica tion of coal, and so forth, which will become profitable to produce only when oil sells at a higher price. So what do we choose - a nickel ora dime now-or Ameri can independence of Arabs? There, in a nutshell, is a horrible exam ple of the baneful effect of gov ernment intervention during an inflationary period. 2-Party System Undermined Now this accent on immediate benefits encourages demagoguery. It politically rewards the dema gogue who promises most. In ef fect it tends to undermine the two-party system without which the United States would fall vic tim even more easily to· the de mands of minorities and to the chaos which frequently character izes multi-party government. The reason it undermines the two party system is because it becomes unprofitable and even politically 1975 THE POLITICAL COSTS OF PRICE INFLATION 143 dangerous for a major party to oppose insistent public demand.

Such opposition is usually penal ized at the polls, no matter how statesmanlike, how right, how wise the opposition may be. Today we .know that even if it is at all possible to curb inflation by a gradual approach over many years, some sacrifice, some re straint, some fortitude on the part of .the public is required. Will it be forthcoming· over many months and perhaps over several years? That is the question which must be answered before we know whether we can curb inflation. The crucial point is that the problem is a political one and not alto gether economic. During a long period of infla tion, when the public is distressed and frustrated, it inevitably looks around for a scapegoat. That un controllable desire to "hang some body for the fix we're in" is aided and abetted not only by dema gogic politicians but even by more moderate legislators who shudder at standing in the way of the steam-roller of public opinion.

Now who would you guess would be the most natural scape goat - the un-person, so to speak, who has few defenders and a host of critics? Why of course it's the Corporation-big business which we know is largely responsible for the fantastic increase in America'sstandard of living, and which is the income producer for most families. Muckraking is an old and hon ored tradition in this country, especially by leading commenta tors on TV and radio, by col umnists, by intellectuals in the academic fraternity, and many others who are important in the formation of public opinion. No matter how logical the an swer made by corporations to these attacks, no matter how tightly reasoned the defense, the opposition poisons public opinion and urges the politicians to pe nalize profits and capital invest ment. But it is an elementary fact that increasedcapita.l investment and profit opportunities for busi ness are the only possible way for a nation to improve its standard of living. No matter - N aderism will have its day, and the attempt will be made to inflame the· public against "excessive profits." The fact that profits were· inordinately low for a decade or more (as in the steel industry), or that high profits are necessary to attract capital to a most needed resource such as oil-all this seems to have little bearing upon public opinion during an inflationary· period.

When economists point to "phan tom profits" due to inadequate de preciation and to false inventory profits, the answer of politicians 144 THE FREEMAN Ma,rch and of the public when inflation is rampant is a mere shrug of the shoulders. The stated dollar in crease of corporate profits be comes ipso facto an indictment of corporations. EnvybEncouraged Not only are corporations ad versely affected by the public reac tion to inflation, but individuals and groups who are important in their performance of basic eco nomic functions are also subject to attack. During a high level in flation there is naturally a tre mendous amount of speculation. Speculators, short-sellers, com modity traders, all perform a function in the market. But they become targets for political at tacks to a great extent because they are successful in offsetting the effects of inflation. In fact, any group in society which becomes affluent under an inflation is open to attack.

In any analysis of this phenom enon, I would call attention to a basic psychological fact which is treated in masterly fashion by Professor Helmut Schoeck. His scholarly book, Envy, uncovers and reveals the social and polit ical implications of a deeply re pressed motive - envy. Professor Schoeck says "Envy is a drive which lies at the core of man's life and social being." Sociologists of modern liberal persuasion re fuse to admit this, but it seems to me a very meaningful assumption. During any violent inflation this basic human trait is exacerbated, and expresses itself in oppressive social and political action. Death of Parliamentary Government I have catalogued briefly some of the political consequences of continued inflation. But I do not believe that the public generally realizes what a corrosive social and political force it can be. As I pointed out earlier in this discus sion, politicians who appeal to the public seem ready to give them every kind of assurance and are often unscrupulous in recommend ing measures which will not only be unrelated to curbing the infla tion but will actually, in the long run, increase it. As it continues over the years, inflation becomes so unmanageable that finally there is one inevitable consequence. It is a distressing fact that under continued high-level inflation par liamentary government and the democratic process will die. The repressive measures essential to curbing hyperinflation can never be undertaken by freely-elected representatives in parliamentary fashion. It requires a dictator and the power of an army behind him to put into effect those measures which will curb a violent inflation 1975 THE POLITICAL COSTS OF PRICE INFLATION 145 over the years. The inevitable consequence is for the public to rely upon the promises of some man on horseback.

This is precisely what hap pened in Brazil and in Argentina. And this pattern will beyond doubt be repeated in other coun tries of the world when their in flation gets severe enough and be comes unmanageable. In Brazil in flation reached the proportion of 90 per cent annually, when parlia mentary government was elimi nated and the Army was called in. A similar set of circumstances prevailed in Argentina. In recent months we have been reading of the threat of military action pro posed even in the home of the Mother of Parliaments - Great Britain. The inevitable arrival of dictatorship when inflation is pro longed and severe enough is a dis tressing fact which we must face, but it is one to which the public has never been adequately edu cated. Now, since the penalties of con tinued inflation can be so tragic and since monetary restraint is at the heart of the solution to this great problem, what hope is there in the United States? There is a glimmer - only a glimmer of hope - in the fact that after January 1st gold can be owned by Ameri can citizens. The price of gold will hold up a mirror to the weakness or strength of the dolla.r. It will, to some extent, act as an auto matic restraint on dollar crea tion. But this is not enough. It is essential that we be permitted to make contracts with ea.ch other payable in gold, or in the dollar value of gold. Whether this is per missible now under our present laws is a grave question. But there is no doubt that in a free society contracts made in gold should be just as permissible as contracts made in any other commodity.

This - plus the ownership of gold - would act as a brake on the in satiable appetite of government for more and more printed paper money. It would be a most impor tant aid in the fight against in flation. It is quite easy, of course, to state some of the terrible costs political, social and economic - of continued inflation. If the public really grasped the tragic nature of inflationary consequences it would respond more readily to the dis cipline which would curb inflation. But it will never respond until there appears on the scene a polit ical leader who is willing to lay his career on the line and, as the saying goes, "tell it as it is." That leader may never· again be elected to high public office, but he will have performed a noble public duty which would in history earn the gratitude of this nation. , LEONARD E. READ Cause and effect, means and ends, seed and fruit, cannot be severed; for the effect al ready blooms in the cause, the end pre-exists in the means, the fruit in the seed. - Emerson THERE IS A REASON for our mess.

We are now reaping the bitter harvest of the poisonous seed sowed intermittently during the past. We are experiencing bad ef fects whose causation can be traced to the employment of wrong means. We suffer the natural con sequences of our folly, which proves once again that the uni verse is rational. To state this in another way, if improper methods did not lead to failures, we would really have a problem. As it is, we need only take our heads out of the sand to see clearly that inter ventionism not only has failed to provide the promised something for-nothing but has led to all sorts of undesirable consequences. Heads in the sand! I refer to those who do no more than lament the mess we are in ; all they "think" about is whether they can 146 survive it. Though greatly puz zled, they fail to get the message the mess is meant to convey.· In deed, many are just beginning to rea.lize that we are moving toward disaster, even though we have been on a wrong heading for dec ades.

Why then do I thank God for the mess we're in? Simply because the mess is sending up signals messages loud and clear - that our past is filled with errors which inexorably produced their evil re sults. The consequences we suffer now were caused by past mistakes, and we need to know what wrong actions are responsible for these bad effects. The fact is, we are being graced with warnings which, when and if read aright, can lead to our salvation. That's why I thank God! Bearing in mind that what hap1975 THANK GOD FOR THE MESS WE'RE IN 147 pens has an instruction peculiarly its own and that there is some thing good in everything bad, let us try to find the lesson. Our past is filled not only with moral but politico-economic errors, and our present likewise. How are we to identify these wrong actions and find the right ones, that is, how expose the fallacies of state inter ventionism and reveal the merits of human liberty as related to the interest and benefit of everyone of us?

When liberty prevails, every in dividual in the entire population is free to bring persons and other scarce resources into complemen tary and· workable combinations. Reflect on our varied talents. If we approach the matter properly, we come to note our own lack of most of the talents known to man. I, for instance, could no more bring musicians and instruments together to form an orchestra than I could bring technicians and tools together to release atomic energy or to deliver the human voice at the speed of light. But look around; there are millions .who can and do bring individuals and other resources into association that render a fantastic service of all sorts to King Consumer. And, when liberty· prevails so does com petition, a constructive force that assures that the efficient servants rise to serve all of us better. When liberty prevails, there are in the U.S.A. not less than 130,000,000 adults free to release their greatly varied and unique creative energies. The aggregate of these energies - the bringing into combination of things and persons - is beyond the power of anyone to even imagine, let alone measure.

Consequences of Intervention Let us now observe what hap pens to these sources of creative energy when the state regulates and controls them. What are the consequences when organized physical force - government -con trols our creativity, our varied and unique potentialities? To ac curately observe and appraise these consequences is to discover the errors - moral and economic which account for the mess we are in. And the task is to free our selves from these malpractices. Suppose that we have found an outstanding individual who has all the degrees and honors man kind has ever bestowed on anyone. How easy to conclude that we, the ordinary consumers, would fare far better than we do now by our own choices, if only we would yield instead to his "wisdom." Assume next that he is given the power to impose his will only on a single person: You .. The power to cast you in his image! Instantly, two 148 THE FREEMAN March individuals have become noncre ative - you and he!

It is obvious why this dicto cratic action would abolish your creativity - you have become but an image of him. But why the "great" one? How does this dimin ish his creativity? Whatever ef fort he devotes to lording it over you is effort he cannot exercise creatively. Noone can, at one and the same time, be a dictocrat and a practitioner of liberty. These roles are mutually exclusive. So, we have here a small-scale model of the mess. Sixteen Million Dictators From this model proceed to the prevailing situation in the U.S.A. We have some 100,000 govern ments - federal, state, and local and about 16,000,000 on the pay rolls. An enormous percentage of these persons - little folks, even as you and I - are not just telling a single person what to do but commanding millions of us as to what to produce, what and with whom to exchange, what our money is worth; they dictate hours of labor, wages, what our children must study; on and on and on, even to seat belts.

Summarized, these 16,000,000, with some notable exceptions those who are not dictocrats have not only removed themselves from the nation's 130,000,000 potential entrepreneurs but, far worse, they have frustrated, to a marked extent, the morals and the creativity of the citizenry. As a result of this governmen tal intervention, the varied talents and the uniqueness of each citizen are more or less imprisoned. Add to this the dictatorial, coercive powers extended to labor unions on an· enormous scale and, on a lesser scale, to farmers, businessmen, educators, welfare agencies and others.! This is a sketch of the mess we are in. To repeat, when liberty pre vails, all are free to bring things and people into workable combina tions to the betterment of all, the policeman included. But when the police and their subsidized min ions regulate and control, a do-as I-say-or-else action replaces, to a great extent, the bringing togeth er actions of free and creative people, and to the detriment of all.

Why the qualifying term, "to a great extent"? Why not a total breakdown? The idea and prac tice of liberty is not that easily overcome. We are born to be free. Having had many experiences with liberty during the past two 1 If governments at all levels are tak ing over 40 per cent of our earned in comes, then perhaps we should recognize that over 40 per cent of us are acting as policemen rather than as productive, cre ative, peaceful producers of goods and services.

1975 THANK GOD FOR THE MESS WE'RE IN 149 centuries, citizens will course their way around and through the dicta torial edicts; they'll find loop holes - become schemers, evaders. This ingenuity, though debilitat ing, explains why the mess is not as bad as it might otherwise be; why we continue to live in spite of the mess; why, despite mass kill ings, millions lived in Nazi Ger many and Communist Russia. A fortuitous leakage of creative hu man energy! As Lord Macaulay observed in 1839: It has often been found that profuse expenditures, heavy taxation, absurd commercial restrictions, corrupt tri-bunals, disastrous wars, seditions, persecutions, conflagrations, inunda tions, have not been able to destroy capital so fast as the exertions of private cith:ens have been able to create it. 2 The signals are loud and clear - far too numerous to recount. The messages are that everyone 2 See Chapter III in Macaulay's The History of England (New York: E. P.

Dutton, 1934), p. 217. Adam S.mith of these evils we now experience are but consequences of past and present errors. As Emerson so wisely pointed out, "Cause and ef fect cannot be severed." We must work on the causes rather than the effects if we would repair our ways! Let me conclude by calling at tention to but one signal, a warn ing that is fretting millions of concerned people all over the world: the rapid decline in the purchasing power of the dollar. The cause? Inflation! Its causes? Excessive governmental expendi tures which in turn are caused by people from all walks of life run ning to government for every con ceivable kind of succor - people feathering their own nests at the expense of others. The remedy? Remove the causes. 3 In any event, I thank God for the mess we're in and its timely warning that we must change our course to avert disaster. ~ 3 If interested in a more detailed ex planation, see my "How To Stop Infla tion," The F1'eeman, November 1973.

IDEAS ON LIBERTY THE NATURAL EFFORT of every individual to better his own condi tion is so powerful that it is alone, and without any assistance, not only capable of c!irrying on the society to wealth and pros perity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations.

How Rent Controls Hurt the Poor ALLAN C. BROWNFELD _ IT IS AN UNFORTUNATE FACT of life that government involvement in the economy is always initiated in "the public interest," and always ends up helping not the "public," but some smaller private concern. Through the Civil Aeronautics Board, government was going to re gulate the air lines in behalf of the American people. The result has been "regulation" against the pub lic interest. Not one new airline has been permitted by the govern ment to engage in interstate com merce since the CAB was created. Air fares in interstate commerce controlled by the CAB - are far higher than air fares within a given state, not controlled by the CAB. It is clear that the regulators regulate not in behalf of the public but in behalf of the airlines. Mr. Brownfeld of Alexandria, Virginia, is a freelance author, editor and lecturer especi ally interested in political science.

150 A similar story is now unfolding with regard to government im posed rent controls in a variety of cities and states. The stated reason for the imposition of rent controls is to protect the poor from exorbi tant rent increases by allegedly "greedy" landlords. The result unexpected by those who have in itiated such programs but viewed as almost inevitable by those who understand the dangers of govern ment attempts at economic mani pulation - is that the poor are finding it difficult to locate a place to live. The rental market is shrink ing dramatically, and men and wo men are being forced out of the homes in which they have lived for many years. A recent front page article in The New York Times (September 28, 1974) discussed the case of Kathleen M. Jackson, a retired college professor who had lived in 1975 HOW RENT CONTROLS HURT THE POOR 151 a quiet old building on Connecti cut Avenue in Washington, D.C.

for 14 years. Suddenly she was given the option of buying her apartment or moving out. Her new landlords, citing a backbreak ing interest rate, an expensive re novation program, and a belief that residential properties are no longer attractive investments, had announced plans to convert their units into condominiums. Miss Jackson never seriously considered buying her apartment. The price would have been $40, 000, which involved a $2,000 down payment and, if she could get a loan, mortgage payments, taxes, and operating expenses of $422.50 a month. The rent had previously been $155. Where she will live in the future is not yet clear. That her situation is becoming com monplace in our large cities is much clearer. By last June 30, according to estimates of the Metropolitan Washington Council of Govern ments, 20,618 apartments in the area had been converted from ren tal to condominium units. There were 572 conversions in 1971, 3,563 in 1972, 8,439 in 1973, and 4,923 in the first half of 1974. New construction, meanwhile, has pro duced more than 24,000 additional units.

In 1970, 87 per cent of the area's new multifamily housing was rental and 12 per cent was con domini urn; this year the figures are reversed: 86 per cent is con dominium and 13 per cent is rental. Restricting the Supply The Wall Street Journal of October 4, 1974 declared that, "In many areas, the conversion of ex isting apartments to condomin iums has ... constricted the sup ply of units available for rental." In its Fall, 1974 survey of 20 ma jor markets, Advance Mortgage Corporation, a large mortgage banking concern and subsidiary of Citicorp, found that the apart ment vacancies in the majority of these areas were continuing to vanish. The Houston market, for example, was one of the softest in the nation in 1973 with about 17 per cent of its units vacant. By late in 1974 the vacancy rate was 9 per cent and falling "at a rate of one per cent a month," accord ing to Philip L. Hendershot, a vice president of Advance Mort gage.

The effect of this state of af fairs may be more serious than many imagine at this time. "Peo ple will have to be doubling up, living more with relatives," says Hobert Sheehan, director of eco nomics for the National Associa tion of Home Builders. The fastest formation of households will be by 152 THE FREEMAN March people in the 30-44 year old age group, reflecting the "baby boom" after World War II. Mr. Sheehan predicts that this group will in crease its rate of forming house holds to about 650,000 annually by 1980 from approximately 225, 000 a year at present. Less Rental Housing Predictions have it that within 20 years half of the nation's pop ulation will live in condominiums - a prediction which implies a shift in housing patterns so vast as to require wholesale conversions throughout the country. David Clurman, an Assistant Attorney General in New York and a lead ing condominium authority, states that, "I think the time will come when most of the soundly built, well-situated buildings in the United States will be converted."

(N ew York Times, September 28, 1974.) The reason for the destruction of the rental housing market - a market of importance to the na tion's poorer families - is clearly government economic interven tion. U.S. News and World Report declared in its June 24, 1974 issue that condominiums were replacing rental housing because "Landlords fed up with tenant complaints and with rent control or the threat of control often find conversion ... an attractive way out." Today, more and more, inves tors regard the risks of rental pro perty as no longer acceptable. Taxes, utility bills and labor costs are soaring, they complain, while rent controls either hold down in come or threaten to do so. In New York City, which has long had rent controls, the plight of the poor in seeking housing is probably the worst in the nation. The rental vacancy rate is below 1 per cent and private building is at a near paralysis. Richard Stone, writing in The Wall Street J our nal in 1971, notes tp.at, "Increas ing numbers of landlords simply give up, abandoning buildings they can neither afford to maintain nor sell at any price. Tenants, left witl) no heat, water or electricity, va cate such buildings in a matter of days. When that happens, blight swallows up whole neighborhoods, almost overnight. Every day there are fewer housing units available in NewYork City than the day before. New York's archaic rent control law keeps the marginally poor whose fortune is improving from moving out of slum neigh borhoods."

Economically Irrational In his important book, A Hu mane Economy, Wilhelm Ropke points to rent control as an exam ple of an "economic policy" which tends to be "irrational, that is, de1975 HOW RENT CONTROLS HURT THE POOR 153 termined by what is 'politically feasible' rather than by what is economically rational and just." He calls rent controls "irratio nal, ill-considered and at the same time unsocial and inequitable." Ropke notes that, "Rent control is really nothing but the protection of one privileged special kind of tenants, those with old leases, at the expense of the landlords and later tenants alike. Yet it persists, and the explanation is no doubt that, on the one hand, it does need a little reflection and intelligence to see its full implications and that, on the other hand, politicians are afraid to denounce this object of cheap demagogy." The entire philosophy of coer cive government controls on rent may satisfy the statist predilec tions of some politicians and eco nomists, but surely adds to the burden of the poor - those they were meant to help.

"Rent ceilings," declares eco nomist Milton Friedman, "cause haphazard and arbitrary allocation of space, inefficient use of space, retardation of new construction. The legal ceilings on rents are the reason there are so few places for rent. Because of the excess of de mand over supply, rental property is now rationed [in New York] by various forms of chance or fa voritism. As long as the shortage created by rent ceilings remains, there will be a clamor for contin ued rent controls. This is perhaps the strongest indictment of ceil ings on rent. They, and the acom panying shortage of dwellings to rent, perpetuate themselves, and the progeny is even less attractive than the parents." (Ne1wsweek, March 22, 1971.) Those who are really concerned about proper housing for the poor should seek to stimulate private investment in rental housing, not retard it. Rent controls do the poor - and all of us-significant harm. It is one more example of the manner in which government intervention in the economy hurts the very people in whose name such inter vention was initially undertaken.

When the politicians finally learn this lesson, some hope for an im provement in the housing market will become possible - but not un til then. ~ IDEAS ON LIBERTY What Rent Control Does A FINAL IRONY of rent control is that the more unrealistic, Dra conian, and unjust it is, the more fervid the political arguments for its continuance. HENRY HAZLITT, Economics in One Lesson 154 ARCH BOOTH IT'S NO NEWS to most people that the nation's electric utilities are having big problems. The price of imported oil has soared,. natural gas is running low, high-sulfur coal can't be burned, low-sulfur coal can't be mined, and the coal that is available is getting more expensive fast. Added to all of the above, the nuclear power plants that were supposed to be helping out by now are far behind schedule. For all of these reasons, the cost of electricity has been going up steeply - and the tempers of consumers have been keeping pace.

The utilities have not caused the bad news, but it is their misfortune to be the bearer of it - in the form of their monthly bills. And some people are reacting much as did those ancient rulers who were inclined to behead a'messenger bringing bad news. Predictably, demagogic politicians have seen in this situation an opportunity to enlarge their empires. Cries are being heard for government takeovers of the elec tric utilities. The presumption, of course, is that the government could do a more efficient job of providing power than the private companies. But could it? The country's largest electric power system is a Federal agency - the Tennessee Valley Mr. Booth is president of the Chamber of Commerce of the United States. This article is from his Voice of Business column of December 16, 1974.

1975 NATION ALIZE THE POWER COMPANIES? 155 Authority. So, before we start nationalizing the private electric industry, it might be advisable to take a look at TVA. First, TVA priced its electricity low and encouraged allelect~ic homes - a practice that environmentalists consider a waste of resources when a private company does it. Consequently, TVA serves more all-electric homes than any other electric utility. Second, TVA let its vital coal reserves get danger ously low while it waited for the price to come down. The price went up. Now the agency is frantically scrambling to scrape up enough to see it through the winter. And it doesn't look as if it'll make it. TVA has already asked its biggest single customer The Atomic Energy Commission - to accept a 50 per cent power cut. It was an offer the AEC couldn't refuse. TVA also appealed to its other customers to reduce power use by at least 20 per cent. The result was a five per cent reduction.

Now, TVA is talking about a mandatory five per cent power reduction. If that isn't enough, the next step will be to cut off business and industrial users. After that will come "rotating brownouts," during which one third of an area's power will be cut on a rotating basis. Clearly, government-run utilities are not immune either to management mistakes or to the effects of price increases in the fuel market. Of course, the government does have the ability to use tax revenue to paper over the gap between income and outgo. But that doesn't really save the consumer money - it just takes it out of another pocket. And, government subsidies disguise the true cost of a product, which invariably leads to waste ful and inefficient use of scarce resources. NationaIize the power companies? Well, let's put it this way : Would you want your electricity to be delivered by the U.S. Postal Service? ~ The Progression of Profitability JOAN WILKE A MAN START'S with an idea and a few years later, untold millions have profited from it in many ,vays - ways they've never even thought about.

Profit multiplies and spreads contagiously to everyone. You can't help but "catch it" - even if you're hundreds of miles away or hundreds of years. When one man profits, virtually everyone profits, and the spread ing circles keep expanding, inter acting and overlapping - all ways and always. The consumer benefits directly from the service or product he buys or he wouldn't buy it. By purchasing from the most .. efficient (profitable) producer he profits by making his money do more and go farther. Workers, distributors, suppliers and all secondary services such as tr~nsportation, utilities and so on profit from helping to provide the product. Miss Wilke is an advertising writer. 156 The wage earner's new profit ability enhances his marketahility so that he enjoys raises, profit sharing, vacation, insurance, pen sions and other forms of remun eration. All kinds of merchants and com munity services profit from the profits in all these other pockets in the form of wages, dividends, fees and the like - which in turn becomes wages.

And the profitable product of one company is often a profitable tool in the operation of another. How many businesses depend on the telephone and typewriter? And for want of a nail, how many businesses would be lost or not have materialized? And the winged nut? And the staple? And plastic? And everything we take for granted? Once inventions themselves, these things are now relatively cost-free factors of pro duction. Many are cost-saving fac tors of production, replacing less efficient methods and materials. So the profit of one company 1975 THE PROGRESSION OF PROFITABILITY 157 augments the profit of others and the efficiency is passed on to con sumers in lower prices as well as paying more wages, dividends, in terest - with all their correspond ing reverberations through the economy. Although the economy is called "competitive" and it is, it could more rightly be called a system of mutual profit. The nature of com petition prevents' any standing still or retrogression. Under com petition, the initial profit margin diminishes. As soon as the idea is exposed and is profitable, others compete to try to produce it better or at lower cost. The original com pany must either continuallyim prove its product or service to maintain leadership, lower the price or abandon the now un profitable item and produce some thing else that's more beneficial to society, which is to say more prof itable.

Only favors of governmental partisanship can disrupt this spi ral of progression, improvement and profitability. Profit is the incentive toward activity, the reward for the ac tivity and the means of accom plishing activity. The more an entrepreneur profits the more he is able to accomplish, and his· scale of profitable activity expands rap idly. One man starts out as a carpenter, builds a few houses and finds it so profitable he develops new mass-production techniques in construction to build faster and goes on to build whole communi ties of low cost homes. And this is real low cost housing, not high cost construction· offered at low prices with the difference paid by the taxpayer. A retired· southern gentleman takes a family recipe and in a fe,v years builds a multi-million dollar franchise operation creating busi ness opportunities for countless people, employing thousands and serving millions of low cost chick en dinners to budget conscious families. And this is really low cost food, not high cost food sold at low prices with the difference paid by the taxpayer.

A penniless young cartoonist draws an entertaining mouse whose. profits allow his genius to explode into myriad areas of mod ern technology, engineering, en tertainment innovation, film tech niques, scientific inquiry and com munity development. He is a true benefactor of mankind, his prog ress and vast accomplishments paid for by his past successes. It should be apparent that a tax on profit is a tax on the future an impediment to progress - a production-stopping, idea-blocking, paralyzing obstruction to the ad vancement of everyone.

158 THE FREEMAN March A product is simply an idea that has materialized out of profit one's own profit from previous success or the invested profit of others who see additional oppor tunity for profit. Only a profit economy can offer "something for nothing." And that ."something" is in virtually everything produced competitive ly. It's often the competitive edge. It is sometimes a premium or give away item. While it can be argued tha t the cost of the premium is in the price of the product, it is also true that the product still must be sold at a competitive price or with a premium so appealing that new value is created. Economic ally, that's as close to something for nothing as it's possible to get. Another of the universally prof itable aspects of an open, compet itive economy is that unprofitable activity diminishes, fails and dies out. The pruning of wasteful ac tivity is as necessary to the prof itability of an economy and soci ety as the profit of the successful ventures.

Besides, failure is experience gained, the storehouse of future success. And the "losers" still reap all the benefits of the other efficiencies in the profit economy. The overall efficiency bolsters ev eryone. A competitive, profit economy cannot be described accurately as the survival of the fittest. On the contrary, it is a matter of strengthening the weakest ... en riching the poorest ... upgrading the whole. We all have a vested interest in each other's profit because it al ways represents efficiency. Every efficiency is gained by all. Every waste is suffered by all. The currently popular term "ex cessive profits" is a madcap ab surdity in an open, .competitive market. No profit is too great when it represents efficiency and when it is the potential of the fu ture. The efficient producers are precisely the people society should want to profit the most so it can benefit from their activities in other ways. Applying the word "greed" to profit is another mala propism. It is far more appropri ate in describing the welfarists' drive toward expropriating the profits of others.

All government controls-wages, prices, tariffs, subsidies and the rest - are all forms of profit c:on trol. As such, they are curbs on efficiency. Since every product is a service of some kind, what is taxed is the ability to provide a service. And it is deducted from future efficiency in producing the service. What is being deducted from society in a cumulative and accelerating way, is efficiency it self.

1975 THE PROGRESSION OF PROFITABILITY 159 Tax is paid on what a company has. It is deducted from what it could be. It is paid on what it has produced. It is deducted from what it could produce. When people tax a company in a competitive economy, they are taxing themselves - everyone - in many ways. Not just in adding to the cost of the product. Not just in dollars. In jobs in efficiency ... in initiative in opportunities in convenience, comfort, fun a myriad of inconceivable, unpredictable things. They are being taxed in ideas. When we tax profitable com panies and subsidize unprofitable ones, we are paying for square wheels with money that could be buying not only round wheels, but as yet undeveloped methods of travel. In a controlled economy, we're all losers. We can't even be aware of all we've lost. We're· not taxed in dollars, we're taxed in things that might have been. The dollars paid in taxes in 1940 would have bought clothes lines, wringer washers, block ice for the ice box, and radios. The dollars paid in taxes today will buy color television, microwave ovens, telephone answerers and video tape casettes.

If our economy were completely controlled, we'd still be paying our taxes in clothesline money. If our economy were completely free, there's no telling what still unde veloped marvels you could have in your hOqle for the dollars you're paying in taxes. The dollars are nothing - it's the things we're losing. If the man who invented the wheel lived un der the system of distribution we are giving way to, everyone would be sitting around looking at his spoke and no one would have a car. It's profit that makes the world go 'round - and if that isn't love, it's at least enough appreciation of others to allow them to profit, and in so doing, to profit oneself. A profit economy is nothing more than an open entry, private contract economy with no licens ing, permits, trade barriers, sub sidies or other governmental re straints, privileges or controls. Its basis must include the reali zation that one's own progress ma terially, intellectually and in many ways, is advanced by the progress of others. , PAUL L. POIROT IT'S A VERY NICE THING to be a businessman who earns a profit through his efficiency in using scarce resources to serve custom ers. Nice, because profit, in the 160 THE FREEMAN March strict economic sense, is. some thing for which consumers pay without its costing them anything.

Profit accrues to the efficient pro ducer who manages to cut costs; it is taken out of costs, not some thing added to the price. Prices in a free market, with freely com peting buyers and sellers, are de termined by supply and demand. And a given market price may af ford one or more sellers a hand some profit while other sellers may be taking a loss. It depends on the efficiency of the seller as to whether he makes a profit; it doesn't cost the buyer anything. So much for the economics of profit. But that isn't the point of this story. The point is that in today's mail were two laments that "business must make a profit" from entirely opposite views. One was a businessman's con tention that he was entitled to a fair profit in order to acquire the capital to stay in business - so he could continue to pay high taxes, among other things. True, he's en titled to all the profit the market price will afford him, which means that he will have been more effi cient than some of his competi tors in that field. If consumers are not willing to pay a price that yields a given supplier a profit, then he's free to cut his costs or go out of business or whatever; but he's not entitled to a profit unless he earns it in open compe tition. And if he earns a profit, it's no one else's business whether he uses it to increase his capital investment, or to pay his taxes, or to support his church, or to keep up with the Joneses.

The other lament that "business must make a profit" came from a misguided socialist who seemed to think that meant "the government could do it cheaper." He couldn't know, of course, unless his so called government exercised no powers of coercion and behaved as just another competitor in the market. In that case, assuming a strong market demand, any sup plier who could "do it cheaper" would thereby earn a profit. So what really perturbs the social planner is that businessmen will not attempt to do things that are unprofitable. In that case, if it's going to be done at all, the gov ernment will have to force some one to do it - which only seems to be cheaper than paying free mar ket prices for the scarce resources used in the process. Another word, more descriptive of that govern mental process, is w-a-s-t-e - just plain waste! And that's the story. Profit is a fine and honorable reward for ef ficient service - and no wicked and slothful servant is entitled to it.

~ NONEW URBAN JERUSALEM BENJAMIN A. ROGGE IN THE PARAGRAPHS to follow you will find me critical of most of the work now being done on the nature of the urban crisis and equally critical of the public poli cies proposed to ease that crisis. To compound my sin, I offer no alternative scheme by which the New Jerusalem can be erected on the shores of the Hudson or Lake Michigan or Lake Erie. I intend to argue that no one even knows how to define the New Urban Je rusalem, let alone construct it. In all of this, I will be utilizing no special knowledge of urban processes but rather the simplest of analytical and evaluational con cepts of economics. In so doing I am acting upon my firm belief that a handful of hypotheses about human action are sufficient for most, if not all, decisions on economic policy. I would be pre pared to argue that the practice of breaking up this useful disci pline into agricultural economics, transportation economics, develop ment economics, labor economics, urban economics, and the like, has been productive of much mischief.

Dr. Rogge is Distinguished Professor of Political Economy at Wabash College. A graduate of Hastings College, he holds an M.A. degree from the University of Nebraska and a Ph.D. from Northwestern University. He delivered this presentation at Hillsdale College during the Center for Constructive Alternatives seminar titled "Recycling the City: Alternatives to Decay." Copyright 1974 by Hillsdale College. Re printed by permission from the September 1974 issue of IMPRIMIS. 161 162 THE FREEMAN March Behind the shield of special cir cumstances and special knowledge, theories have been developed and given wide acceptance that would be regarded as patently absurd if they were put as a general model; policies have been developed and urged upon society that would be recognizably catastrophic if ap plied generally. One Man's Atlantis Proposition No.1: The first of the propositions on which I wish to base my argument is the fun damental proposition of all mod ern value theory: Value does not consist of objectively definable ch.aracteristics of a good or ser vice; value exists only as subjec tive judgment in the mind of each beholder. It cannot be measured directly but only indirectly by the behavior it elicits. There is no way that the subjective valuations of two people can be summed or even directly compared.

Thus, the value of a chair is not something inherently residing in the physical properties of the chair or in its costs of production; its value is different to each viewer and for anyone man can be measured only by what other goods or services he would be will ing to give up to acquire this par ticular chair. There is no way of defining in absolute and universal terms the essential characteristics of the Good Chair; one man's throne is another's torture device. What is true of a chair must be true equally of a city. There is no way of defining in general terms the essential characteristics of the Good City; one man's Atlantis is another's Hell.. Nor are there oth er objective ways of measuring the degree of goodness of a city. For example it is sometimes ar gued that a good city is one that survives or one that grows. But as circumstances change, the func tions served by a city change, per haps even disappear. Were some of the ancient cities of history and legend less successful because they no longer exist?

Some illustrations: From the introduction to a recent book with the title Environment for Man: The Next Fifty Years, sponsored by the American Institute of Planners: If we had the technology and the economy - both said to be imminent - to build an ideal environment, what kind would we build? What could en vironment contribute to a "good" day? Do we know how to define and work toward "Optimum Environment with Man as the Measure"? To date neither optimum nor environment has been defined, nor have we made an adequate beginning at measuring man. And we must somehow learn to allow for subjecNve human values. 1 1975 NO NEW URBAN JERUSALEM 163 Here we find repeated the ancient myth of planning, that it is pos sible to both plan the allocation of resources from the center and also to serve the subjective pref erence systems of the individuals who make up the society. It is doubtful if the planners are cap able of designing programs and processes (even with unlimited funds at their disposal) that will in fact produce the outcomes that they, the planners, desire - to say nothing of the outcomes desired by the other members of the so ciety.

A second illustration: In an other recent book with the title, Sick Cities: Psychology and Pa.th ology, we find the following: The Saturday Evening Post in an editorial in 1961 called sprawl "per haps our cruelest misuse. of land since our soil mining days. Urban sprawl," it went on to state, "is not the growth of cities. Instead, the cities are disin tegrating and spreading the pieces over miles and miles of countryside." Robert Moses, responsible for so many of Gotham's public achieve ments in the present century, takes the opposite point of view in an ar ticle in the Atlantic Monthly: "The prosperous suburbanite," he says, "is as proud of his ranch home as the owner of the. most gracious villa of Tuscany. The little identical subur ban boxes of average people, which differ only in color and planting, rep resent a measure of success unheard of by hundreds of millions on other continents.":!

Quick about it: Is "urban sprawl" a vice or a virtue? Well, that all depends. On the basis of my admittedly incomplete reading of the materials in this field, I would conclude that urban sprawl (and all similarly achieved out comes) are per se unacceptable to those who see any unplanned out come as less than optimal. In other words, any characteristic of the urban environment that, like Top sy, "just grew" stands condemned by its very origins. lOne final illustration of my tliesis, this one drawn from one of the most instructive and civil ized books yet written on this topic: The Death and Life of Great Americ:an Cities, by Jane Jacobs. People gathered in concentrations of big-city size and density can be felt to be an automatic - if necessary evil. This is a common assumption: that human beings are charming in small numbers and noxious in large numbers. Given this point of view, it follows that concentrations of peo ple should be physically minimized in every way: by thinning down the numbers themselves insofar as this is possible, and beyond that by aim ing at illusions of suburban lawns and small-town placidity. It follows that the exuberant variety inherent in great numbers of people, tightly 164 THE FREEMAN March concentrated, should be played down, hidden, hammered into a semblance of the thinner, more tractable variety or the outright homogeneity often represented in thinner populations.

On the other hand, people gathered in concentrations of city size and den sity can be considered a positive good, in the faith that they are desirable because they are the source of im mense vitality, and because they do represent, in small geographic com pass, a great and exuberant richness of differences and possibilities, many of these differences unique and un predictable and· all the more valu able because they are. Given this point of view, it follows that the presence of great numbers of people gathered together in cities should not only be frankly accepted as a. phys ical fact. It follows that they should also be enj oyed as an asset and their presence celebrated. 3 Quick about it: Is high popu lation density a vice or a virtue? Well, that all depends. As that great, mythical Irish b;rtender, Mr. Dooley, once put it: "As the Frenchman said, as he drank from the fire extinguisher, 'Each to his own taste.' "

To sum up: Given the fact that value is subjective by its very nature, given the fact of the enormous internal diversity of human populations, and given the never ending changes in tastes and circumstances, it is impos sible per se for there to be constructed a universally valid, ob jective definition or description of the Good City. City planning is by definition, then, an exercise in either futility or coercion (or both) . It is possible for a group ofpeo pIe of like values to agree upon a definition of the Good City and to attempt to implement that partic ularvision with their own monies and without coercion, and to this I offer no objection. But most True Prophets prefer to work with oth er people's money, obtained by the exertions of the tax collector, and with the sheriff at their side to deal appropriately with those re calcitrant few who stand in the way of the developing New Jeru salem.

Right Rules Promote Right Outcomes Proposition No.2: The Good City will be whatever arrange ment of things and people em erges out of the decisions of those people when such decisions are made within a framework of ap propriate rules. That is to say, the Good City c'annot be defined in terms of its own characteristics but only in terms of the correct ness or incorrectness of the deci sion-system within which it emer ges. Right rules promote right outcomes,. wrong rules promote wrong outcomes. The point that I'm attempting 1975 NO NEW URBAN JERUSALEM 165 to make here is one I believe to be of greatest significance to this and to all other discussions of social policy-making. I need hardly ad mit that it is not an idea of my creating but one that many of my betters have developed before me. The best explicit development of this idea, in my opinion, is to be found in the article, "Individ ualism: True and False," by F. A.

Hayek. ... by tracing the combined effects of individual actions, we discover that many of the institutions. on which human achievements rest have arisen and are functioning without a design ing and directing mind; that, as Adam Ferguson expressed it, "na tions stumble upon establishments, which are indeed the result of human action but not the result of human design,"4· and that the spontaneous collaboration of free men often cre ates things which are greater than their individual minds can ever fully comprehend. 5 In this and other writings, Hayek points out that this thesis does not imply that good results will flow spontaneously from in dividual decision-making under any and all institutional frame works. On the contrary, Hayek and his predecessors have all stressed the necessity of right rules. Here, for example, again from Hayek: True Individualism is, of course, not anarchism, which is but another prod uct of the rationalistic pseudo-indi vidualism to which it is opposed. It does not deny the necessity of coer..; cive power but wishes to limit it - to limit it to those fields where it is in dispensable to prevent coercion by others and in order to reduce the total of coercion toa minimum.

The most general principle on which an individualist system is based is that it uses the universal acceptance of general principles as the means to create order in social affairs. He concludes with a sentence that is the stage-setting for the rest of this paper. But if our main conclusion is that an individualist order must rest on the enforcement of abstract principles rather than on the enforcement of specific orders, this still leaves open the question of the kind of general rules which we want. 6 Our search, then, is for the right kind of rules, within whose framework the spontaneous forces of social development would work to produce the better city. It is my argument that these rules, in their general form, are not to be found by assigning a team of urban af fairs experts to the task but rath er by identifying those general rules of human conduct that are morally correct and economically 166 THE FREEMAN March efficient. Note : Unless the world is totally absurd, that which is correct in principle will also be that which works. It follows from this that those who come closest to understanding and discovering the right principles of human con duct (by whatever means, includ ing, if you wish, revelation) will also come closest to understand ing that which will work.

The few simple principles from which I will work from here on out are the ones that make moral sense to me. I need hardly direct your attention to my obvious fallibility and hence to the strong possibility -nay, certainty-that I am wrong in one or more or all of my pre suppositions. I go through this ex ercise as an illustration of what seems to me to be correct proce dure - even if the specific prin ciples (and hence answ~rs) are not themselves the correct ones. I remind you that, in my opinion, the correct procedure is one in which, whatever the topic, we rea son from first principles to spe cific policy positions. 7 You will note that, in doing this, I am careful not to attempt to predict the specific details or even the general nature of the out comes (in terms of urban charac teristics) that might flow from the application of the suggested rules to this problem area. T,he reason, as Hayek has made clear, is that it is impossible to predict the nature of the outcomes of free and peaceful decision-making. Just literally, no one knows what our cities would have looked like had they developed under different rule systems than have in fact prevailed.

What it is possible to do, though, is to relate many of those char acteristics of urban life that many see as undesirable to those rule systems that have prevailed - and this I intend to do. This implies that I know what rules would have been morally correct and econom ically efficient. With a reminder of the caveat issued earlier, I pre sent below a list of some parts of what I consider to be the proper rules system for the dealings of men, one with another, whether those men live in a wilderness or at Broadway and 42nd Street. • 1. Individuals and groups shall be permitted (have the right) to enter into voluntary exchanges of goods and services on terms of their own choosing, provided that neither force nor fraud is in volved. • 2. Individuals and groups shall be permitted (have the right) to use properties legally under their control in any manner they choose, provided that in so doing no dam age is inflicted upon the person and/or property of unwilling third parties.

1975 NO NEW URBAN JERUSALEM 167 • 3. The coercive power of gov ernment shall not be permitted (has no right) to be used for any purpose other than that of mini mizing coercion in human affairs, Le. for any purpose other than that generally described in the phrase, "law and order." • 4. The price to be charged for any good or service shall be that which emerges from the voluntary exchange process. I am not insisting that this is a complete listing of the appropri ate rules. I wish to deal with a manageable number of rules and cases as an illustration of the procedure I believe to be proper, and I do not presume to be pre senting a complete, definitive state ment of the case. What I now intend to do is to take each of these four rules and to provide illustrations of specific urban problems that seem to have been brought on or to have been exacerbated by the fact that the rule involved has not been in force.

Rule No. J: freedom of Exchange Case No.1: I intend to argue here that coercive intervention in labor contracts by government and by labor organizations granted spe cial privileges by government has been an important cause of one of the most dramatic and difficult of the urban problems: the high rate of unemployment among low productivity work groups in urban areas - the young, the old, minor ity race members, and so forth. Let us begin with minimum wage laws. For the purposes of a book on which I have been work ing for some time, I have had occasion to examine what I be lieve to be every maj or study ever made of the employment effects of minimum wage setting. Most such studies show in one degree or another a significant direct re lationship between upward changes in legislated wage min ima and increases in the rate of unemployment in low productivity work groups (with a particularly severe impact on young people from minority race groups).

One of the most informed men in this field, Professor Yale Bro zen of the University of Chicago, has written as follows: It is hardly surprising that unem ployment among the unskilled in creased with this rapid rise in the minimum wage. To the extent that teenagers are inexperienced, unskilled workers, they are the ones who have been priced out of the labor market by the rise in the minimum wage rate. 8 That this interpretation of the evidence is not restricted to those identified as conservative econ omists is attested to by the fact that the Swedish socialist econ168 THE FREEMAN March omist and sociologist, Gunnar Myrdal, reports the same kind of finding in his well-known study of American race problems, An American Dilemma, where he notes that Negroes have been the main sufferers from the employ ment effects of minimum wage laws. 9 The distinguished modern lib eral economist, Paul Samuelson, asks, "What good does it do a Negro youth to know that an em ployer must pay him $1.60 per hour, if the fact that he must be paid that amount is what keeps him from getting a job ?"10 To the problems caused by the minimum wage laws must be added those caused by child labor laws. Senator Abraham Ribicoff has noted that most of the things he did to earn money as a boy would now be forbidden. His con clusion: this country has far too many laws coddling children. ll Indeed, as many have noted, the great problem of the urban young person is not overwork but a deadening, self-destroying idle ness.

Ca,se No.2: Another one of the critical problems of American cities is the fact that the propor tion of blacks in the inner city is increasing drama tically and these blacks do not have ready access to high income employment and particularly to positions in the skilled trades. This too is a topic to be covered in the pro posed Rogge book and, in a con tinuing show of immodesty, I quote again from that source: ... trade unionism has tended to pro duce the following consequences on the economic position of the Negro in the American economy: 1) to reduce his access to many of the industries and trades in which trade unionism is an important factor (and partic ularly in the high-pay, skilled trades) through outright discrimination against non-whites; 2) to reduce the opportunities for the Negro to move to the higher-paid skilled or super visory positions, again through out right discrimination; and 3) to re duce generally the opportunities for 1975 NO NEW URBAN JERUSALEM 169 the Negro to find employment in un ion-covered industries and trades through a) the raising of wage rates above what the market would have brought into being, and b) the in sistence on equal pay for equal work.

Admittedly, some Negroes have shared in the . higher incomes asso ciated with union pressures on em ployers; on balance, though, the Ne gro has probably been a significant "loser" from the growth and present strength of trade unionism in the American ~conomy.12 The same point has been made by Sir Arthur Lewis, the Jamai can-born black economist (and socialist) now teaching at Prince ton University, who has written recently, "The trade unions are the black man's greatest enemy in the United States."13 To summarize: some of the problems usually identified as af flicting the city relate to the high unemployment rates in the low productivity work groups in the city and to the difficulty of minor ity race group members moving into the higher paid, higher skill jobs. I have argued that both of these urban problems have arisen in part from coercive interven tions in the labor-exchange proc ess by agencies of government and by private groups granted semi governmental privileges.

As Vic Fingerhut, once princi pal speech writer for Vice-President Hubert Humphrey has pointed out, one of the central economic functions of the Ameri can city over the decades has been as a locus of rela tively low-cost labor supplies. This was reflected in the great variety of light man ufacturing, service and laborin tensive industries that were to be found in the cities of this country. As artificial restrictions have been imposed upon the labor nlar ket, the city has produced un happy consequences for urban populations. Welfare legislation, minimum wages, maximum work hours, and the like have luinimized the economic func tion of the conglomerations of poor but-willing people in our cities. Sim ilarly, the goad of hunger has been mitigated by the rising level of wel fare payments. In Newark a woman with three children lives very badly on welfare payments, but these nev ertheless average somewhere around $300 to $350 per month. To live at the same level, a man with a wife and three children would have to make about $5,500 a year. For un skilled labor, that sort of money just isn't available. 14 This factor also accounts in part for the high welfare costs of most cities today - and for the high liv ing costs in urban areas. A city can function only as it ~ses a high 170 THE FREEMAN March ratio of service-oriented indus tries not called for in the country side, and it is precisely such ser vices that are made much more expensive as a result of wage interventions.

Some of the market interven tions that damage urban dwellers deal not with city processes but with farm processes. Thus the whole of the American farm pro gram, including milk marketing programs and the whole parapher nalia of price supports and output restriction, impinge unfavorably on the urban consumer. Its im pact is particularly severe on the low income urban consumer be cause he spends a very large part of his income on food, fiber and alcohol-all derived in whole or in part from farm outputs. In one market after another, in one interference with voluntary exchange after another, the state has added to the woes of urban America. The policy implications would seem to be obvious. Rule No.2: Property Rights and Control Individuals and groups shall be permitted (have the right) to use properties legally under their con trol in any manner they choose, provided that in so doing no dam age is inflicted upon the person and/or property of unwilling third parties.

This rule would seem to be a two-part rule. Part 1 deals with the bundle of rights known as "private property," while part 2 deals with the problem usually identified as "pollution" or "ex ternalities" or "neighborhood ef fects." In fact they are two sides of the same coin. A's right to use his property as he sees fit cannot be used as a defense of an action of his which denies B his right to his, B's, property. The freedom of your fist ends at my nose; the freedom to use private property ends at the property line. Spill overs from A's actions that affect B's use of his property are a di rect violation of the right of property. It should be obvious to one and all that modern governments have sinned grievously in both aspects of this private property rule. They have themselves invaded the prop erty of private citizens in a great variety of ways and they have not protected the property rights of the B's of this world from the unwanted intrusions of the A's.

In what ways have governments in cities (and elsewhere) invaded the property rights of its citizens? In many, many ways. An example would be the use of the weapon of eminent domain to confiscate private properties for use by the state or for use by other private persons or groups. Is a road to be 1975 NO NEW URBAN JERUSALEM 171 built? Seize the property of the citizen, paying him a price for it that, had he been willing to ac cept, would have made the con fiscation unnecessary. Is it decided that some collection of assets is unsightly and undesirable? Seize those assets, tear down the build ings, then make the land avail able to other private parties and ata price by definition lower than they would have had to pay in a truly voluntary exchange. This is known as urban renewal or city planning or what-have-you. If you wish to understand the true consequences of such actions, read the Martin Anderson book, The Federal Bulldozer,15 or the following pages from the Jane Jacobs book: There is a wistful myth that if only we had enough money to spend - the figure is usually put at a hundred billion dollars - we could wipe out all our slums in ten years, reverse decay in the great, dull, gray belts that were yesterday's and day-before-yester day's suburbs, anchor the wandering middle class and its wandering tax money, and perhaps even solve the traffic problem.

But look what we have built with the first several billions: Low-income projects that become worse centers of delinquency, vandalism and general social hopelessness than the slums they were supposed to replace. Mid dIe-income housing proj ects which are truly marvels of dullness and regimentation, sealed against any buoy ancy or vitality of city life. Luxury housing projects that mitigate their inanity, or try to, with a vapid vul garity. Cultural centers that are un able to support a good bookstore. Civic centers that are avoided by ev eryone but bums, who have fewer choices of loitering place than others. Commercial centers that are lack-lus ter imitations of standardized subur ban chain-store shopping. Prome nades that go from no place to no where and have no promenaders. Expressways that eviscerate great cities. This is not the rebuilding of cities. This is the sacking of cities.

That such wonders may be accom plished, people who get marked with the planners' hex signs are pushed about, expropriated, and uprooted much as if they were the subj ects of a conquering power. Thousands upon thousands of small businesses are destroyed, and their proprietors ruined, with hardly a gesture at com pensation. Whole communities are torn apart and sown to the winds, with a reaping of cynicism, resent ment and despair that must be heard and seen to be believed.l G Explicit Ownership, No Zoning In the same way that it has itself violated B's property rights, the state has permitted, in one form or another, to one degree or another, the A's of the world to trespass on B's property through air pollution, noise, etc. It is not that laws have not existed dealing 172 THE FREEMAN March with such questions. Indeed, that most remarkable of the unplanned creations of Western man, the Common Law, included a long history of cases in which the courts had redressed B's grie: vances against the trespassing A's of the world. (See for exam ple, an unpublished doctoral dis sertation by my colleague at Wab ash, Steven Schmutte.) 17 In many cities the general wel fare was thought to require that the A's (perhaps major employ ing firms in the area) be per mitted to continue to trespass on the properties of the B's in the community, else they might leave and set up shop in another city.

Admittedly, once a firm has been permitted to pollute for many years, a kind of adverse posses sion problem arises, and equity may demand an appropriate time period for a remedy to be devel oped. Moreover, it is inefficient and inappropriate for the court to state precisely what form the rem edy is to take. To the charge that this is going to "cost a great deal," I reply that the cost is already being assessed - but it is being assessed in part against innocent third parties. The cost should be borne by the users of the goods and services involved, not by un willing recipients of smoke, irri tants and noise. I might add that the proper approach is not to prescribe cer tain activities (such as brick making) in certain areas,but to proscribe the externalities. If a firm can find a way to make bricks in the center of an affluent suburb in such a 'way as to produce no ex ternalities, no damage to sur rounding properties, and if this is what it believes to be the appro priate site for the activity, the state should not intervene - as it now does with its zoning laws. The city of Houston, Texas has demon strated the practicability of a city operating without zoning laws.

Such laws represent an unwar ranted invasion of private prop erty and are certain to be abused by the governments involved. A substantial part of the prob lem of externalities relates to the choice of u.ses for "spaces" (such as the air, lakes and streams, oceans, etc.) to which no one has explicit ownership. The Tragedy of the Commons arose precisely because it was a commons and not the private property of anyone person or group. Should a given pond of water be used for boating or for fishing or as a wild game preserve or as a focal point for home sites or as a source of a cooling agent for a generating plant? Permit private ownership of the lake and such questions are readily resolved by the simple process of competitive bidding.

1975 NO NEW URBAN JERUSALEM 173 And if the people of the city, who want more electric power, outbid the fishermen, so be it. As such questions are now decided, a few hundred (upper-income?) fisher men and nature lovers may be able to secure the lake as a fishing re serve at no cost to themselves and to even persuade the state to provide the fish as well. This has been a most hurried and oversimplified look at a diffi cult problem area. But the diffi culty lies not in deciding the proper principles to apply; the difficulty lies in the details of working out the applications of the principle. To summarize: Through sins of both commission and omission, government~ at all levels have violated the principle of private property. Some of the serious problems of urban America seem to arise from precisely the fact that states have themselves in vaded private property and have permitted one private citizen to invade the property of another, in the form of spillover effects.

Again, the policy implications seem obvious. Rule No.3: Only Minimize Coercion The coercive power of govern ment shall not be permitted (has no right) to be used for any pur pose other than that of minimiz ing coercion in human affairs, i.e. for any purpose other than that generally described in the phrase, "law and order." Here again governments at all levels have been involved in sins of commission and omission. They have undertaken a whole host of activities that have nothing to do with minimizing coercion and at the same time they have done a rather poor job in this country of maintaining "law and order." Governments are involved in owning and operating schools, hos pitals, utilities, housing projects, parks, golf courses, airports - but the list is almost limitless. In addition they subsidize, regulate, supervise ,and harass private own ers and operators of enterprises. It is my firm conviction that it can be demonstrated that these departures from right principle have produced unwanted rather than wanted outcomes. I believe it can be demonstrated that many of what are said to be the great problem areas of urban America - housing, transportation, school systems, tax burdens, and so forth - are directly traceable to over extension of government's role in human affairs.

I would find it interesting and useful to take but one of these areas - say, hospitals or schools - and attempt to prove my point. In fact, I have done just this for higher education and have come to 174 THE FREEMAN March the conclusion that "tax-supported education tends to make of our schools and colleges a collection of non-students under the tutelage of non-teachers and the admin istration of the incompetent."18 However, time will not permit any fuller exploration of this and re lated topics. Suffice it to say that it is precisely the areas where the state has stepped in that problems of quality, quantity and cost are most in evidence; those goods and services relatively untouched by the dead hand of the state are precisely the ones about which we need not be concerned. This disease of overextended government seems to strike urban areas more severely than rural (although God knows it is not unknown in the latter). One of the more obvious consequences of this fact is the constantly rising tax burdens that must then be imposed on urban populations. This in turn prompts both private citi zens and businesses to "escape"

the city, thus reducing the tax base, increasing welfare costs, etc. which in turn calls for even higher tax rates, and so on. The great multiplication of governmental ac tivities has taken both attention and funds from the one legitimate area for government action: law and order. City planners seem al ways to be better paid than city policemen. Nonmarket Pricing of Services We turn now to the conse quences that flow from the fact that many of the services offered within and around the city are not priced in a market process. One of the more dramatic ex amples is to be found in the trans portation services in urban areas. Specific users may be charged nothing and or may -pay a charge having little or nothing to do with costs of providing the facility. This distorts the decision-making of both those who use and those who provide the facilities involved. Here is the way in which Dean Dick Netzer of New York Uni versity's School of Public Admin istration and chairman of the In ter-University Committee on Ur ban Economics, has described some typical cases: There have been a number of esti mates of the full social costs involved in peak-hour use of high-capacity ur ban freeways to and from the CBD.

One such estimate is that the costs commonly exceed 11 cents per vehicle mile. Ordinarily, the only prices for specific trips on highways that mo torists confront are the gasoline taxes they pay, amounting to no more than 1 cent per vehicle-mile. So the peak-hour motorist should really be paying a price for highway use: which is ten (or more) times greater than the price he usually does pay, while the peak-hour transit rider's fare 1975 NO NEW URBAN JERUSALEM 175 should rise by much smaller propor tions. For the latter, an extreme case for example, the construction of a new subway line in New York City to relieve overcrowding - might re quire a three-or fourfold increase in the fare. For pe:ak-hour motorists, the extreme cases are truly fantastic. For example, if peak-hour uses of the proposed third tube of the Queens Midtown Tunnel in New York, re quired only for rush-hour traffic, had to pay its full costs, the indicated toll would be at least $5, compared to 25 cents at present.l 9 In describing the impact of such pricing practices on city characteristics, Netzer concludes as follows: Thus, the highly dispersed form of residential development characteris tic of most American urban areas, involving heavy auto use even for commuting to work is not necessarily independent of changeable trans POT tation characteristics. If auto use were no longer faster, more comfort able, and cheaper, it is a fair bet that some consumers would choose other transport modes and some of these would alter their residential location choices as well.

In a longer, more complete dem onstration, a wider range of rules and cases could be explained. For example, no study of the city should be thought complete that ignores the consequences that have come from the modern system of welfare. The appropriate rule of right principle would be one that speaks against any coerced trans fer of assets from one person to another. The case would build up on the incredible problems that have come from the impact of state-welfare-availability in urban areas upon the social, political and economic faces of the city. But enough is enough. It is time to summarize. Summary: Toward The Good City I have argued that, given the subjective, individual nature of value, it is impossible per se for there to be created a single, ob jective, meaningful definition or description of the Good City. I have questioned whether it would be possible by any means whatso ever to construct such a city, even were it possible to define it in advance.

I have presented as my central thesis the idea that the Good City cannot be described or aimed at in terms of its own characteristics but only in terms of the rightness of the rules system within which it emerges. Again, right rules pro mote right outcomes; wrong rules promote wrong outcomes. I have admitted (nay, insisted) that the exact nature of the out comes that would flow from right rules cannot be predicted in ad176 THE FREEMAN March vance. I have insisted though that it is possible to identify kinds of generally admitted city ills that have been brought on by wrong rules. The greater part of the pa per has consisted of case studies of this part of the argument. Let me close with a summariz ing example of what I am trying to say. This, too, is drawn from the book by Jane Jacobs, The Death and Life of Great American Cities, and it relates to the "grew like-Topsy" evolution of a given section of the city of Boston.

Twenty years ago, when I first hap pened to see the North End, its build ings - town houses of different kinds and sizes converted to flats, and four or five-story tenements built to house the flood of immigrants first from Ireland, then from Eastern Europe and finally from Sicily - were badly overcrowded, and the general effect was of a district taking a terrible physical beating and certainly des perately poor. When I saw the North End again in 1959, I was amazed at the change. Dozens and dozens of buildings had been rehabilitated. Instead of mat tresses against the windows there were Venetian blinds and glimpses of fresh paint. Many of the small, con verted houses now had only one or two families in them instead of the old crowded three or four. Some of the families in the tenements (as I learned later, visiting inside) had un crowded themselves by throwing two older apartments together, and had equipped these with bathrooms, new kitchens and the like. Mingled all among the buildings for living were an incredible number of splendid food stores, as well as such enterprises as upholstery making, metal working, carpentry, food processing. The streets were alive with children play ing, people shopping, people strolling, people talking.

I could not imagine where the mon ey had come from for the rehabilita tion, because it is almost impossible today to get any appreciable mort age money in districts of American cities that are not either high-rent, or else imitations of suburbs. To find out, I went into a bar and restaurant and called a Boston planner I know. "Why in the world are you down in the North End?" he said. "Money? Why, no money or work has gone into the North End. Nothing's going on down there. Eventually, yes, but not yet. That's a slum!" "It doesn't look like a slum to me," I said. "Why, that's the worst slum in the city. It has two hundred and seventy five dwelling units to the net acre! I hate to admit we have anything like that in Boston but it's a fact." "Do you have any other figures on it?" I asked. "Yes: , funny thing. It has among the lowest delinquency, disease, and infant mortality rates in the' city. It also has the lowest ratio of rent to income in the city. Boy, are those people getting bargains. Let's s'e'e ...

the child population is just about average for the city, on the nose. The 1975 NO NEW URBAN JERUSALEM 177 death rate is low, 8.8 per thousand, against the average city rate of 11.2. The TB death rate is very low, less than 1 per ten thousand, can't under stand it, it's lower even than Brook line's. In the old days the North End used to be the city's worst spot for tuberculosis, but all that has changed. Well, they must be strong people. Of course, it's a terrible slum." "You should have more slums like this," I said. "Don't tell me there are plans to wipe this out. You ought to be down here learning as much as you can from it." "I know how you feel," he said. "I often go down there myself just to walk around the streets and feel that wonderful, cheerful street life. Say, what you ought to do, you ought to come back and go down in the sum mer if you think it's fun now. You'd be crazy about it in summer. But of course w,e have to rebuild it eventu ally. We have got to get those people off the streets."20 I submit that the problem lies in the attitude expressed in that last sentence. The solution lies in a return to those principles of hu man conduct that are generally and universally valid, in fact, to the ancient principles of private property, limited government and individual freedom. I) • FOOTNOTES.

1 Environment for Man: The Next Fifty' Years, sponsored by the American Institute of Planners, edited by William R. Ewald, Jr., Indiana University Press, Bloomington & London, 1967, p. 3. 2 Mitchell Gordon, Sick Cities: Psy chology and Pathology, Penguin Books, Baltimore, Maryland, 1963, p. 20. 3 Jane Jacobs, The Death and Life of Great American Cities, Vintage Books, a division of Random House, New York, 1961, pp. 220-221. 4 Adam Ferguson, An Essay on the History of Civil Society, 1st ed., (1767), p.187. 5 F. A. Hayek, "Individualism: True and False," Individualism and Economic Order, the University of Chicago Press, 1948, pp. 6-8. 6 Ibid, p. 19. 7 See Leonard Read, "The Consistent Life," The Coming Aristocracy, the Foun dation for Economic Education, Inc., N.Y., 1969, pp. 142-9. 8 See Yale Brozen, "Minimum Wage Rates and Household Workers," The Journal of Law and Economics, Vol. V, Oc tober 1962, pp. 103-109.

9 Gunnar Myrdal, AnA merican Dilem ma, Harper, N.Y., 1944, p. 297. 10 Paul Samuelson, Economics (7th ed., McGraw-Hill, 1967), p. 377. 11 Top of the News, Vol. 3, p. 218, July 10, 1961. 12 B. A. Rogge, unpublished manuscript. lR Chicago Tribune, May 11, 1969, p. 2. 14 George Sternlieb, "The City as Sandbox," The Public Interest, No. 25, Fall 1971, p. 17. 15 Martin Anderson, The Federal Bull dozer, M.LT. Press, Cambridge, Mass., 1964. 16 Jacobs, Opt cit., pp. 4-5. 17 "Interrelations of Law and Eco nomics: The Case of Stream Pollution," Ph.D. diss., Purdue, 1971. 18 See B. A. Rogge, "The Financing of Higher Education," Wall Street Journal, May 5 and 9, 1959. 19 Dick Netzer, Economics and Urban Problems, Basic Books, New York, 1970, pp.143-4. 20 Jacobs, Opt cit., pp. 9-10.

RECENTLY, I had occasion to pur' chase a pair of four-drawer filing cabinets. In recent years, I have become a kind of maniacal news paper clipper, having been influ enced heavily by a lady who is perhaps the world's champion. I keep running out of filing space, so out I go in search of more files. I also have a phobia about buying anything new. I am always getting a bargain by picking up some used item on its last legs. Naturally, I spend most· of my time (or rather my wife's time) poring over the classified ads in search of used filing cabinets. Unfortunately, there appear to be a lot of other people in southern California who are as frantic to buy them as.· I am. They are really quite scarce, and good ones bring $65 or more. Thus, when my wife spotted a pair for $15 each, she called im mediately. We had not been the Dr. North, economist, lecturer, author, is edi tor-publisher of the Remnant Review, a fort nightly economic newsletter. He also is the commentator on the "Gold and Inflation Tele phone Report" (213) 422-1266.

178 leas;e GARY NORTH first ones to call, either, although the ritual over the classified ads begins early in the morning in our home. The lady was about to leave, but she planned to be back at one p.m. I decided to arrive early, since another person was coming to look at them. Predictably, I was detained, so I arrived at one o'clock sharp. Sure enough, the other person was already there. He was in her ga rage, waiting for her to come out. When she appeared, he announced that he wanted the two filing cab inets and the separate metal card file on top. "He was here first," she said, half ashamed. I had not even gotten close enough to examine the cabinets, but I had already made up my mind that I would pay $40 each. There is a psychological ploy that sometimes works at an auction: you let the bidding stabilize at one price, allowing some competitor to imagine that the item is virtually his. Then you shout out a bid con siderably higher than his. Some1975 STEP TO THE REAR, PLEASE 179 times it paralyzes the others into silence. You get the item, even though in a closer bid, the com petition might have fought the price up even higher. (I'm told that some poker players use the opposite approach: nickel and dime the competition, keeping them in the game, when you're holding aces.) I decided that I ought to use this tactic.

IIBut He Was Not First ll "I'll pay $40 each, cash on the line," I announced. The other fel low looked stunned. Not as stunned as the lady did, however, "But he got here first," she repeated, com pletely confused by what I was saying. I had had an inkling that this would be her response. When she had stated that the other fel,.. low got there first, I could see that. she was looking for an easy way out. She did not want to have to face one of us with a negative response. That old standby, "he got here first," seemed to her to be the best way out. I had reintro duced the problem of decision. I waited for an answer. She literally could not give one. The other fellow lamely said, "I'll buy them at the original price." That failed to solve her problem. I stood around for perhaps two or three minutes, waiting for her to make up her mind. A tremendous de bate was apparently running through her mind. She told me, "These cabinets have been in the garage for years. We didn't think they were worth that much." My razor-sharp mind, gea.red as it is to marginal utility curves and the intricacies of linear regression analysis, immediately came up with a technically precise re sponse: "They're worth what you can get for them, lady."

That seemed to strike some kind of responsive chord in her mind. "I guess that's right," she said. Still, it was too large a task. The other fellow had arrived first, after all. "You'll have to wait a minute." She went into the house. I heard her talking on the phone. When she came out, she did not even look at the other potential buyer - too difficult, I imagine. She said I could have them. The other man, who appeared to be about 20 years old, with hair over his shoulders, stalked off. He never even bothered to try to buy the card file, although I had ex pressed no interest in it. His un successful competition in a free market had seemingly demoralized him. After all, he had been there first. This leads me to the question of the hour: Why is the initial re sponse of so many people to com petitive situations a variation of "I got here first"? My wife had one reasonable answer. From the 180 THE FREEMAN March day we are first in school, we are told to line up. Instinctively, we know that being first is best. If we do not know it instinctively, then teachers instruct us in this bit of arcane knowledge so early that we are not able to remember a time when we did not believe that first in line is best.

We also learned that it is not polite to sneak into the line or shove someone out of line. If be ing in the front of the line is something to be desired, then the use of fraud or violence is illegiti mate. Reasonable enough. But what about those of us - the vast majority, by definition - who show up too late to be first in line? What about those of us who value other things, such as staying in bed a little longer, more than we value being first in line, but who would nevertheless like to, be right up there at the front? There ought to be some way of getting a shot at that front spot in a legitimate fashion. Try the Market There is, of course: buy your way in. Trade. My frog for your space. Children work out such arrangements, too. But .the pos sibility for such bargaining is ex tremely limited: teachers do not approve of it. They use the line as a means of rewarding those whom they favor. They use it as a means of discipline. "Baxter, you go to the end of the line right now.

We'll have no more of that!" So poor Baxter slinks to the rear, head down. He is learning what the world has in store for people who do not follow the rules. (Pity the girl in front of Baxter. Since he was unable to exchange his frog for a spot in front, he can still use it for something creative and/ or amusing.) Schools are not market institu tions for children. In our era, they are not even market institutions for parents. So there is only one other way to administer discipline and preserve order : bureaucratic ally. Someone in authority runs the place like a boot camp. Fair enough; children ,are not adults. But when do the adults start learning alterna tive ways of allo cating scarce resources? Look at the Federal Communi cations Commission. It controls the frequencies used in broad casting. It awards licenses to those who perform according to the pro per standards - set, of course, by the FCC. They do not allow com petitive bidding, either for the right to rent, lease, or permanent ly purchase the right to use the designated frequencies. And you know what rule they use? Return the use of the frequencies to those who now control them, unless there has been a violation of the 1975 ST'EP TO THE REAR, PLEASE 181 rules. In short, they got here first!

So the rest of us - the vast ma jority of all those who would like to view an alternate station, and who would pay another manage ment to provide us with what we want - slink, as usual, to the end of the line. In a bureaucratic world, most of us are Baxters. (Most of us have known it since kindergarten, too.) Post Office Lines What the FCC does to the air waves, the Civil Aeronautics Board does for the airlines. The Interstate Commerce Commission is doing about the same with truckers, railroads, and anyone who would like to ship his goods more cheaply. But the archetype for the whole bureaucratic sys tem is (you guessed it) the United States Postal Service. (Service is to Postal Service as demilitarized was to the Demilitarized Zone in Vietnam.) "I'm sorry, this line just closed." "But lady, I've been waiting for 30 minutes." "I'm sorry; please step to the end of that line over there."

Wouldn't it be great to shout out: "I've got this package to mail. Will one of you guys shuffling around behind that pile of unmov ing mail like to earn three bucks to take care of this for me?" But that would be crass. That would disrupt the smooth non-flow of mail. Besides, you were late, weren't you? You failed to do your shopping on time. Now that you've been naughty, you know what has to happen, don't you? You bet your triplicate forms, you do. Back to the end of the line. And if some crass individual tries to set up a rival organization that allows you to pit man against man (dog against dog) to serve your equally crass wants, well that per son will be hit with so many fines that he will be at the end of all lines for the rest of his life. (The phrase "anti-monopoly legisla tion," when used in reference to the Postal Service, means just tha t: legislation against any firm that is against the monopoly.) There is only one person at the front of any given line. There are many ways of getting there. You can get up earlier . You can bribe the man directing the line. You can payoff the person up front.

Or, probably best of~ all, you can go to some other place where the lines are shorter, probably because the prices are higher. You can pay with money or pay 'with time. In a bureaucratic culture, the latter is the only legal way to get to the front. That is why socialist na tions are visible from about 1,000 feet in the air: lots of lines. The Soviet businessmen who spend their lunch "hour" standing in lines or shopping, have no other 182 THE FREEMAN March choice. If you are not able to con vert your income into goods, be cause of price controls and artifi cial shortages, then the key asset is time. This is what men steal. This is how they prefer to be paid. Time, in a bureaucratic society, is the money. Lost time is the coin of the realm. It subsidizes those in the society who are unprod ucti ve, and who therefore have very low alternative· uses for their time. Time is not even taxed; leisure is not on the graduated income tax scale.

A culture that puts all of its emphasis on being first in line is a culture in which men will waste lots of valuable time to look around for lines to be first in.. A culture that will not permit men to bid up monetary prices in a competi tive market guarantees the wast ing of time on an enormous scale. Moment of Decision I know where that lady went when she could not decide what to do. She went to phone her hus band. As my wife remarked, after I had made the purchase and we were driving home: "I knew you had it made when she went into the house. She had to be phoning her husband to get his advice, and he was almost certain to tell her to sell to the highest bidder." She let him make the decision. She could have taken the $80, pocketed $50, and given him the $30' (the newspaper's price). It never occurred to her. Or she could have given him the $80, and they could have had an evening out, or more meat on the table, or whatever. But so conditioned was she to the bureaucratic first prin ciple - "he was here first" - that she was emotionally paralyzed.

She literally could not decide by herself. We need more auctions in America. We need to make people think in terms of auctions. We need the auction mentality to creep into areas of life that are con sidered too sacrosanct to allow crass materialism, Le., competitive pricing, to direct their operations. We need to find mature people who understand that there are more ways of getting to the front of the line than getting up at 5 a.m. or bringing Miss Grundy an apple. If we fail to allow the auc tion mentality to have its day, not in court, but in areas outside of the courts and law enforcement, then we will be ruled by an army of Miss Grundys all the days of our lives. It will destroy the crea tivity of men. And Baxter's a big boy now. He no longer drops frogs down little girls' backs. He blows up power stations in Portland. I may never make it to the front· of the line, but I sure don't want Baxter behind me. , Land Speculators BERNARD H. SIEGAN My TALE this month is about a much abused species: people who buy and sell land, the so-called land speculators. The moral of my story is that persons earning mon ey in private industry usually serve necessary and useful roles in the economy.

This is hardly the popular con ception of land speculators. At some zoning hearings I have at tended, confessed burglars, bomb ers and safe-crackers would have received more sympathetic consid eration. Yet, the speculators were there performing as socially use ful a purpose as anyone else pres ent. Currently that species is much in need of good cheer, for its busi ness is terrible. With construction at one of the lowest levels in re cent years, the market in land is unusually poor. While quotes on land prices appear to be escalatCopyright 1974 Bernard H. Siegan . Mr. Siegan is the author of Land Use ~Ithout Zoning and many articles o~ the. subject. He practiced law for 20 years m Chicago before moving in 1973 to La Jolla, C~lifor~iawhere he is professor of law at the Umverslty of San Diego Law School. ing, buyers are scarce, and if there is a serious need to sell, prices have to be shaved sharply.

Keeping the land means paying real estate taxes and, for many, exceedingly high interest rates on purchase loans, often 20 to 25 per cent and more, even for those ob tained in better days. Credit crunches make nonsense of the notion that land speculation in variably brings huge profits. But then, no business venture is free of risk. All businessmen seek to buy low and sell· high, and they do not always succeed. This is as true of the shoe store owner as of the farmer, banker and builder. It is indeed difficult to determine the line where investment ends and speculation begins. Land speculators, however, are thought to be different. Supposed ly they are wealthy gamblers who exert no labor or effort on the land, and their presence operates only to raise prices. These assump tions are wrong, as I shall explain. First, there are many people of middle income, and probably some of lower income, who buy for re sale vacant lots and acreage. They also invest in groups or buy stock in corporations that purchase land.

Considered a hedge against infla tion, many have preferred this form of investment to stocks, bonds and savings deposits. Farmers and people who inherit 183 184 THE FREEMAN March land automatically become land speculators as the prospect of de velopment appears. Some surveys of speculators in other commodi ties have shown that housewives, retired persons and people in many occupations and professions are much involved in buying and sell ing futures. Second, unlike those in other fields, speculators in land frequen tly act as middlemen, preparing it for sale to builders. They subdi vide, rezone, clear title problems, install roads and utilities, each of which can be a lengthy and costly process. They buy large tracts and sell off smaller parcels. Cities, towns and major devel opments have been created in this manner by speculators. Houston, Texas, for example, began as a land speculation in 1836 in a lowlying swamp area.

Builders do engage in the same activities, but it requires'" consid erable capital and time seldom available to small and middle-sized concerns. Warehousing and proc essing land can be costly and bur densome to large builders as well. Consequently many, perhaps most, builders find it advantageous to pay the middleman's mark-up rather than buy raw land at a lower price. Third, land speculators provide a price floor for developable land. They create much larger markets than would exist if only builders purchased land, allowing farmers and other owners greater oppor tunities to convert their proper ties into cash. In times such as the present, speculators make up a substantial part of whatever urban land mar ket exists and prevent the bottom dropping out. By the same token, in better times, their eagerness to unload at a profit serves to hold prices down. Moreover, in ready ing it for construction purposes, speculators expand the supply of land available for immediate use, reducing the price below what it would otherwise be.

Thus, speculators tend to keep prices from rising too high or fall ing too low. The higher prices they create at one end of the pro cess are likely to be more than off set by lower ones they cause at the other end. They add stability to the market and reduce price fluctuations, thereby lowering the risks of land ownership. If the reader still condemns the land speculator, he should consider the only alternative: more govern ment intervention and control. That action would further curtail but, due to constitutional property rights, could not eliminate specu lation. The result would be less competition and even greater prof its for those speculators who re main in the market. ~ ARE V lEW E R I 5 NOT E B00 K 7Ae C"efLtille Ol'tlelll JOHN CHAMBERLAIN How LITTLE WE KNOW about the mainsprings of history. Most his torical works make much of hero politicians or the convergence of social forces. But a good case can be made that history turns on the activities of the inventor and the enterpriser, men who start things that deflect and modify the social currents and force the hero-poli tician to grapple with the unex pected and the unforeseen.

In World War II Winston Churchill, a hero-politician, stood up to Hitler, who had floated to power in a Germany that had been through the inflationary mill and couldn't find the means to pay for World War I reparations. But ,vhere would Churchill have been if certain "wizards" had not, in 1940, been able to equip some sev en hundred Royal Air Force planes with a mysterious device called radar? It was radar tha t gave eyes to the air pilots on whom the West depended. It was, as Church ill himself acknowledged, the "war of the wizards." The Fascists were licked, not because they 185 186 THE FREEMAN March lacked wizards of their own, but because their theories of social organization, which stressed the collective rather than the individ ual, did not give full scope to the creativity of the "boffins," as the scientific innovators of the day were called. Radar was a British invention, but it was an American company, little Raytheon of Massachusetts, that refined it and produced it in a volume that not only saved Eng land but enabled the crippled U.S.

Navy to stop the Japanese in the Pacific. And radar was only one example of the wizard contribu tions of Raytheon technicians. The war at sea could have been lost if it had not been for underseas de tection devices provided by the same Yankee boffins. Eventually Raytheon moved into all sorts of homing devices that enabled mis siles to strike airborne intruders without outside guidance, thus en abling the defense to catch up with the attack in the never-end ing seesaw of war. The story of the Raytheon com pany has been told in a beautifully inspiriting book. The Creative Or deal, by Otto J. Scott (Atheneum, $12.95) , that is even more the his tory of an era than it is of a single corporation. The indispensable company is probably as much of a myth as the indispensable man, but if the Raytheon. story had not been what it was we would all be living in a vastly different world. Research and Development I confess that the nature of what goes on inside the mysteri ous tubes and semi-conductors and guidance systems that a.re the heart of the electronic revolution seems as ultimately unknowable to me as electricity itself. But men don't have to know what electri city is to use it, and electronics is more of the same. Furthermore, men don't have to know where they are going to start things; it is enough that they let their curi osity carry them along. Raytheon's predecessor company, the Ameri can Research and Development Corporation, hoped to make some thing by selling radio transmi t ters, but its prime asset at the start was Dr. Vannevar Bush of MIT, whose ideas about research and development ramified in sev eral directions. Bush had a college roommate and partner, Laurence Marshall, who was a physics ma j or in search of something more challenging than life in a class room or a laboratory. Before Bush and Marshall and other men of AMRAD moved on to become Ray theon they tinkered with thermo static discs and refrigerators, not realizing that the professorial C.

G. Smith, their refrigerator in1975 THE CREATIVE ORDEAL 187 ventor, had a better role in his mysterious thermionic tubes. Smith's new tubes were destined to push the radio industry into many unforeseen directions. But it was Laurence Marshall, the phys ics maj or turned entrepreneur, who became the soul of Raytheon. The Demands of War -Space Flights and Kitchenware Raytheon remained a mixed bag of interests, making welding ma chines, rectifier tubes, miniature components for hearing aids and whatnot until war broke out in Europe in 1938. It was the war that brought Raytheon into its own. Whole navies had to be pro vided with radar eyes to protect themselves. The war in the air de manded radar tracking stations. When the buzz bombs began to descend on Britain, gun-laying radars developed by Raytheon were able to direct a barrage that destroyed ninety per cent of the bombs before they could .land and do any damage. If the military had only known how to use the radar it already had in Hawaii in 1941, the Japanese attack on Pearl Har bor would have been a monumen tal fiasco. Young radar watchers followed the incoming Japanese planes on a screen for fateful miles and precious minutes, but they could not get anyone to take the blips seriously. The planes were thought to be American planes, even though they were coming from a strange quarter of the compass. Proving, no doubt, that the technological achieve ments of man often outrun the ability to make simple common sense applications of the most marvelous devices.

After WorId War II there were other crises, even other wars. Ray theon's Lab 16 moved into the world of Sparrow and Hawk, mis siles that could rise in the air and seek out low-flying enemy planes that had penetrated below the or dinary radar defenses. The moon shots provided further opportun ity for Raytheon experimentation. And, on a more mundane level, Raytheon microwave ovens en abled restaurants and housewives to. provide well-cooked meals al most in the blinking of an eye. Woven info History Otto Scott might have spoiled his story by drowning it in tech nical details. The narrative is in credibly crowded, but it is light ened and enlivened by its fusion with general history. The glitter ing Twenties give way to the trib ulations of theThirties, with New Deal Washington doing little or nothing to keep U.S. industry in a creative mood. But the industrial system kept working in spite of a politics that failed to comprehend 188 THE FREEMAN March its intimate needs. When the war came, the suppressed energies of the businessrnen were fully equal to the task of backing up the mili tary.

In Mr. Scott's story the men of Raytheon come clear even though some of their inventions seem vir tually indescribable to those whose native language does not happen to be mathematics. The unknown heroes who provided the tools which known heroes such as Win ston Churchill used to finish the job include Percy Spencer, an un tutored genius whose 138 patents enabled little Raytheon to keep up with General Electric, Westing house and other giants of the in dustry. Laurence Marshall, Dr. Vannevar Bush's sidekick, carried Raytheon on his sturdy entrepre neur's shoulders until he became diverted by anthropological under takings. His successor, Charles Francis Adams, Jr., a descendant of John and John Quincy Adams, brought aNew England rectitude to the company that enabled it to survive the attempts of conglom erators to move it into channels that would have made it a stock market liability when times turned bad.

Through it all, the men of Ray theon continued to be patriots even more than they were scien tists and businessmen. Part of a military-industrial complex, they were not in it for the money, al though the money happened to be a useful by-product of sound sense. If the U.S. ceases to breed such dedicated men, it will surely succumb in a future that is cer tain to see laser weapons sup planting the atomic missile. It took the wizards to win World War II, and if our wizardry falt ers, we will lose World War III before it ever comes down to the first battle. ~ CONFESSIONS OF A PRICE CONTROLLER by C. Jackson Grayson, Jr., with Louis Neeb (Homewood, Ill.: Dow Jones-Irwin) Inc., 1974) 265 pp., $9.95. Reviewed by Melvin D. Barger BACK in mid-October, 1971, C. Jackson Grayson, Jr., was sur prised to receive an urgent call from Washington offering him the post· of Chairman of the Price Commission. The Phase I price freeze was ending in a few weeks, and the Nixon Administration was now moving down the rocky road towards the country's first peace time experiment with formal price controls. As Grayson remembers it, the offer - which he refused at first - was· a "chance that will never come again."

1975 OTHER BOOKS 189 Confessions of a Pric'e Control ler is a highly readable, interest ing account of what happened after Jack Grayson left his job as Dean of the Southern Metho dist University business adminis tration school and went to Wash ington to fix the nation's prices. The book is a valuable addition to the literature of free market eco nomics because it shows how and why things go wrong when Gov ernment sets out to stabilize prices. Like many business-school professionals, Grayson is a be liever in the free market who is willing to accept some govern ment intervention for pragmatic reasons. But one does get the im pression that Grayson's 15 months as a price controller had the effect of transforming him into a more outspoken advocate of the free marketplace, because he has since warned repeatedly against a rein statement of price controls in any form. Grayson's arguments will not sway those who insist on rigid price and wage controls. In this camp, it is a rule of faith that price controls can be administered effec tively only by persons who believe in them. Grayson obviously looked on his Phase II mission as a tem porary venture that should be phased out as soon as possible. A true believer in price controls would have regarded the moderate Phase II program as the launch ing pad for permanent and exten sive controls.

For a nonbeliever, Grayson car ried out his assignment heroically and honestly. Starting from scratch, he put together an organ ization and developed a basic pro gram in only 16 days. At the very outset, however, the Price Com mission became engulfed in the practical problems of price con trols. There was the thorny prob lem of establishing a "base" period for the prices of each industry; as it turned out, there was almost no way to do this in an equitable manner for each company. There was the problem of deciding which companies should be under pre notification, reporting and sur veillance. The decision to require prenotification for firms of $100 million or more in annual sales, rather than only those above the $250 million level, tripled the Price Commission's workload. There was also the problem of de ciding which wage increases would be allowed to "pass through" as costs in price increases.

The Phase II Price Commission functioned with a staff of about 600, a lean organization for the complex task of "stabilizing" -prices at predetermined levels throughout the U.S. economy. Grayson admits that Phase II con trols relied heavily on "voluntary 190 THE FREEMAN March compliance," and he goes on to point out that a rigid, highly en forceable price control program would have required a staff of a hundred thousand people or more. As each price boost prenotification came to the Commission's atten tion, it always proved to have spe cific problems that were charac teristic of a single company or a particular industry. Dow Chemi cal, for example, was granted a flat two per cent increase across its entire product line when the Commission was informed that as many as one hundred thousand applications might be needed to cover every Dow product. Costs soared in the construction indus try, and pricing problems devel oped in petroleum, zinc, sugar, silver, wheat, fish, poultry, and cement. There was a reasonable attempt to make pricing excep tions to avoid hardship for vari ous industries, but each exception, of course, helped give rise to the demand for others.

Grayson also gives the impres sion that the Commission and staff members were often divided or confused on key policy matters, and sometimes changed course as a matter of political expediency. In a very revealing comment, he explains that economic policy mak ing in Washington "is a compro mise - and often a heated one of various points of view, many times with a paucity of data, gun slinging, interpersonal bickering, and widely differing recommenda tions . . . I had assumed - and I think it's true of the average citi zen - that wise, gray-headed eco nomic elders, assembled around a polished mahogany table, would lead the way to truth via factual logic and calm discussion ... Of course it doesn't happen that way." The way it did happen was that price control regulations were be coming more of a sieve than a barrier by the end of 1972, and both the public and the Adminis tration were ready for the end of Phase II in January, 1973. Gray son helped preside over the liqui dation of his own position, and one cannot help feeling that the timing for his departure was ex cellent. By mid-1973, prices were beginning to snowball, although the Administration still talked hopefully through Phases III and IV.

.It was probably no chance thing that Grayson got out just in time. A man with excellent political in stincts, he can sense when a move ment or an idea has run its course. Price control wasn't working, and it is doubtful that the Price Com mission could have retained more than a shred of its credibility into 1973. Grayson undoubtedly real ized this, and the demise of Phase 1975 OTHER BOOKS 191 II also left him free to speak out against price controls and to point out the contradictions in any price control system. In the closing pages of his book, Grayson makes a good· defense of the free market system. He also admitted, shortly before closing out the Commission, that "Even with its imperfections, the mar ketplace· is still better than we are." Like Dr. Ben Rogge, of Wa bash College, he also harks back to Joseph A. Schumpeter's warnings about the threats of price control and other measures to the private enterprise system.

The major shortcoming of Gray son's book is in his failure to in dict government's arbitrary ex pansion of the money supply and credit as the cause of inflation. He admits that "stimulating demand to achieve low unemployment risks inflation." He would have per formed a valuable service by ex plaining what "stimulating de mand" really means and how this basically Keynesian approach has steadily eroded the American dol lar. Despite this flaw, Grayson has given an honest portrayal of his 15 months as Chairman of the Price Commission~ Now that infla tion has reached double-digit rates, there will be renewed at tempts to resort to self-defeating and contradictory price control measures. We may someday find ourselves under a price control system managed by a person who really believes in controls. But at least Grayson has given some con vincing reasons for being a non believer. Editor's Note: When the same mail brings reviews of the same book, and when the subject is as urgent as the matter of price controls, it seems appropriate to share both reviews. The one which follows is by Dr. Hans F. Sennholz.

C. JACKSON GRAYSON'S and Louis Neeb's Confessions of A Price Controller is a remarkably honest report on the way price controls were created and operated in the Nixon Phase II. Their honesty, which shines through their many admissions of price control chaos, the influence of power, pressure and politics, and finally, their repentance of it all, makes it a re demptive book that affords new hope to the reader. They became honest men which, you may be sure, left two rascals less in Wash ington. The book sheds some light on the economic rationale that led the Nixon Administration to the price control system. It was expressed 192 THE FREEMAN March by Paul McCracken and Herb Stein of the Council of Economic Advisors in their first meeting with newly appointed Chairman Grayson: "Not much in classical economics seems to be working, why don't you come up with some thing on your own rather than be prejudiced by our views." (p. 7) Surely it is difficult to fathom the reasoning of Nixon lieuten ants. But it is incredible that they should have believed sincerely that they were conducting classical economic policies. They were run ning the biggest budgetary defi cits in peacetime history, at double the Johnson rates during the Viet nam War, and were inflating the money supply at two-digit rates, and then conclude - without even blushing or suffering a stroke that "not much in classical eco nomics seems to be working."

The truth is that classical econ omists, yea even Mercantile and Medieval economists, have ex plained the consequences of such wild spending and inflating rather well. Goods prices must rise and the purchasing power of the mon etary unit must fall. Classical economists, such as Smith and Ricardo, even explained the con sequences of government price controls, the inevitable shortages and the ensuing economic disin tegration. Could it be that the professors of economics serving on the Nixon Council of Economic Advisors had forgotten their classical economics? Or were they motivated by personal or political considerations? They obviously confused their Keynesian economic recipes which they were following faithfully with "classical economics." If they would have had the courage to ad mit openly to the world that Keynesian policies had failed con clusively, they would be long re membered for honesty and cour age. But instead, they preferred to hold on to the discredited re cipes and to the confusion. What Haldeman and Ehrlichman did at Watergate, McCracken, Stein, and Shultz perpetrated in the economy.

Grayson's role in the price con trols system was that of the mas ter sergeant. He drilled the pro ducers and merchants of peanut butter, applesauce, lumber, frozen foods, and a million other commo dities. He drilled them-in the cities and in the country, from coast to coast, millions of Americans of all ages. And like most sergeants he gave them much noise and many words, but little argument and less sense. There is probably nothing absurd or ridiculous in economic life that has not at some time been said and done by him and the other price commissioners. His book is a cogent brief on the absurdities of price controls.

the Freeman VOL. 25, NO.4. APRIL 1975 Occupationa.llicensureUnder Attack Melvin D. Barger 195 A plea for free choice, rather than government control, in hiring skilled help. Modern Soothsayers Bernard H. Siegan 202 The present practice of freedom affords the best hope for the future. The Great Depression Hans F. Sennholz 204 A survey of four distinct phases of the "great depression," with explanations that may help to avert repetition. The Message of Depression Paul L. Poirot 216 stop the monetary manipulation and the waste of scarce resources. Marx, Mises and the InterestDoctrines Dave Osterfeld 220 Whether one sees conflict or harmony of interests under capitalism depends upon his theory of value. Can this Marriage Be Sa.ved? William D. Burt 230 Concerning the principles behind the Constitution and the prospects for preserving our liberty under law. In Search of Freedom Ben MoreeU 237 A businessman's early warning to other businessmen of the effects of interventions and controls.

Book Reviews: 248 "Uplift: What People Themselves Can Do" sponsored by Jaycees Foundation "Anarchy, State, aM Utopia" by Robert Nozick "Everything You Need to Know Now about Gold and Silver" edited by Louis Carabini "Ceremonial Chemistry: The Ritual Persecution of Drugs, Addicts and Pushers" by Thomas Szasz Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTONON-HUDSON, N. Y. 10533 TEl.: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan· 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit except "Modern Soothsayers."

OCCUPATIONALLI ATTACK MELVIN D. BARGER OCCUPATIONAL licensure, often viewed as a panacea for a host of economic problems, has been tak ing some bad lumps lately from individuals who would ordinarily advocate more of it. Their crit icism is not likely to create pres sures for the immediate abolition of licensing, but it does tend to prove that licensing's longtime critics, such as the economist Milton Friedman, know what they are talking about. The Wall Street Journal recent ly brought the licensing dilemma to the attention of its influential au dience with a front page story about state licensing boards, which many believe are closed societies that exist to limit competition and to serve the interests of producer groups. The Federal Trade Com mission chairman was quoted as saying that occupation licensing Mr. Barger is a corporate public relations ex ecutive and writer in Toledo, Ohio.

hasn't prevented fraud, incompe tence, or price gouging, while a U.S. Labor Department study of state licensing boards concluded tha t in general they are "riddled with faults ... fraught with cha otic and inequitable rules, regula tions and requirements and prone to restrictive and exclusionary practices as a result of pres sures exerted by special-interest groups ..." The FTC study also showed that Louis{ana, which licenses television repairmen, has about the sam~ incidence of fraud as, and 20 per cent higher prices on TV repairs than, does the District of Columbia, where re pairmen are not licensed'! Reports of this kind must sure ly rock the faith of individuals who have believed, for seemingly plausible reasons, that licensing protects the consumer from fraud1 Article by Jim Montgomery, The Wall Street Journal, January 8, 1975. 1QI=;, 196 THE FREEMAN April ulent, unethical, or incompetent practitioners of professions and trades. There has always been something reassuring about the medical license that one sees while getting an examination, or the state license that hangs behind every barber's chair. Ask the phy sician or the barber about his license, and you'll probably get pa tronizing reminders that "licens ing keeps the quacks out of medi cine and the deadbeats out of barbering."· The member of a li censed group is likely to treat the licensing of his own occupation as a closed subject - as something that is so obviously beneficial that the licensing practice itself is above question or review.

Evidently, however, licensing is not a closed subject to individuals who are beginning to examine the trade practices of certain groups and to notice a correlation - as in the Louisiana TV repair case between licensing and high rates. Many of the new critics of licens ing, it should be noted, are a.dvo cates of other forms of state in tervention and propose to reform licensing by changing the compo sition of state boards or by re vising licensing regulations. Hence their criticism is not, at this stage, a true victory for the free market place, but it does show that the licensing issue is far from a closed subject. The disenchantment with present forms of occupational li censure may also have the healthy effect of· discouraging the exten sion of licensing to occupations not currently covered. Capitalism and Freedom Milton Friedman, in his excel lent book Capitalism & Freedom, 2 offers an analysis of occupational licensure that virtually foretells all of the present criticisms of licensing. He reviews all the argu ments that are usually given in advocacy of licensure, and shows how pressures are created to pro duce licensing that effectively pro tects the producer groups from competition and makes entry to the field more difficult for persons who might otherwise challenge the practices and pricing arrange ments of the current practition ers. Friedman says that licensure almost inevitably becomes a tool in the hands of a special producer group to obtain a monopoly position at the expense of the rest of the public.

There is no way to avoid this result. One can devise one or another set of procedural controls designed to avert this outcome, but none is likely to overcome the problem that arises out of the greater concentration of pro ducer than of consumer interest. The people who are most concerned with any such arrangement, who will press 2 The University of Chicago Press, Chicago, 1962.

1975 OCCUPATIONAL LICENSURE UNDER ATTACK 197 most for its enforcement and be most concerned with its administration, will be the people in the particular occupation or trade involved ... Once licensure is attained, the people who might develop an interest in under mining the regulations are kept from exerting their influence. They don't get a license, must therefore go into other occupations, and will lose in terest. The result is invariably con trol over entry by members of the occupation itself and hence the estab lishment of a monopoly position. 3 In demolishing the case for licensing, Friedman examined the licensing of medical doctors, de liberately choosing this field be cause it is in medicine where the strongest arguments would seem to exist for licensing. He showed that the practice of medicine is by no means a sacred institution that ought to be above the market place. There are many economical ways that medical services could be delivered if occupational li censure hadn't been used to give the producer group control over the field and control of hospitals.

The method of controlling entry to the practice of medicine has been simple but almost foolproof: Every applicant for a medical license must be a graduate of an approved medical school; hence it is easy to control entry to the field by deciding who should be per3 Ibid., page 148. mitted to attend medical schools. Other licensed professions have been moving in the same direction but few have been able to restrict entry as successfully as have med ical doctors. (Friedman offered as an amusing example the :legal pro fession, which would like to elimi nate night law schools, but had so far been blocked because many state legislators themselves were grad uates of these schools!) Scare Tactics Whenever an individual ques tions the matter of medical li censing, he is likely to be immedi ately asked if he wants to have incompetent bunglers or outright charlatans dispensing medical care to his loved ones. But this is nothing more than a scare tactic.

Friedman stopped short of at tempting to describe all the ways medical care might be provided in a completely free market place, bu·t he offered convincing proof that we would undoubtedly have avail able many forms and levels of service, some of it provided by skilled medical teams and others by individual private practition ers. Compared with the current system, we would have superior medical care and at lower cost, with more individuals involved in providing the various services needed by the patients. The pres ent system of providing medical 198 THE FREEMAN April care has been so restricted by the intervention of occupational li censure that it is almost impossi ble to demonstrate what things would be like if the free market had been allowed to prevail. The arguments against occupa tional licensure become even more convincing (and less emotionally charged) when one turns to fields other than medicine. Any individ ual can easily prove to his own satisfaction that licensure results in higher rates by checking the costs of plumbing and electrical services in his own area. In many communities, plumbers and elec tricians are licensed by the city, while unlicensed technicians are permitted to work in the adjoin ing townships and rural areas. It is not unusual to have extremely high rates in the licensed areas existing alongside moderate rates in the unlicensed areas. Do the customers in the unlicensed areas receive a lower quality of plumb ing and electrical services as a result of hiring unlicensed work men? This question can be an swered fairly only by the individ ual customers, but it is possible to find unlicensed plumbers and electricians who have a high level of skill and, at the same time, licensed members of the same crafts who are mediocre and some tiI!les even incompetent.

It should not be necessary, however, to evaluate individual prac titioners in order to question the entire practice of occupational li censure. The customer himself should be the supreme judge of who is competent to perform the services he requires. If. the mem bers of a trade or prof~ssion be lieve that certain standards or practices are considered desirable in their field, they ought to have a right to publicize this fact and even to urge customers to accept such standards and practices be fore making service commitments. But it is wrong to use the police power of the state to make the views of a producer group binding upon all people within the occupa tion and upon all customers. There is, in every field, a great deal of personal opinion about what is nec essary for good service and what constitutes acceptable practice. fraud and Incompetence The arguments favoring licens ing invariably focus either on fraud or on incompetence. The champion of the free market is at a great disadvantage if he at tempts to argue that a free market place will be completely free of fraud and that all incompetent practitioners will fail to attract customers and will go out of busi ness. Rather, he should point out that general laws pertaining to fraud, if properly enforced by the 1975 OCCUPATIONALLICENSURE UNDER ATTACK 199 state, will protect the consumer; however, the consumer also has a personal responsibility to exercise prudence in the market place. For that matter, most people in a com munity quickly learn who the bunglers and deadbeats are. In any case, there is little evidence that licensing protects the con sumer from fraudulent or deceit ful practices.

One also receives scant assur ance of competence under a licens ing system. For one thing, we are never sure that a test has been devised to determine the abilities of individuals to perform. certain tasks. It is notorious that some people are good test-takers, for example, but fail dismally in the practical application of the knowl edge they are supposed to possess. Experience in the field can be a helpful guide, but it is not in fallible. The tendency of licensing to prevent people from entering a field also means that incompetent people who have somehow man aged to obtain a license will prob ably attract business that would have flowed to a worthier competi tor if the free market had been permitted to operate. If this is thought to be a farfetched argu ment, one should get to know about medical doctors in a typical city. He will learn that a medical society with 75 to 100 members probably has several doctors who are considered extremely marginal by their fellow doctors. Yet, be cause of the scarcity of doctors, these incompetents not only have large practices but may earn siz able incomes. Far from protecting people from incompetence, occupa tional licensure in this case has all but forced it on the unsuspecting public.

Building Trades Occupational licensure can also take oth~r forms. A building trades union card certainly has all the characteristics of a govern ment license, despite the fact that a private trade union rather than the state or Federal government issues the card. In this case, the Federal government, through its labor legislation, virtually licenses individual unions to act as bar gaining agents for all the work men in a certain field or industry. Armed with this Government granted power, the union is then free to decide who should be per mitted to acquire journeyman sta tus in various trades such as car pentry, bricklaying, and pipefit ting. It is not difficult for a young person with the proper attitudes and motivation to learn any of these trades, but it often seems easier to swim the Atlantic than to be accepted for apprenticeship in some building trades or to obtain 200 THE FREEMAN April a union card even when one has the proper training and experi ence. Not surprisingly, wages in the building trades are at very high levels, and unions can demand future increases with the confi dence of monopolists who know that they will not be challenged in the market place.

Like most monopolists, the building trades unions have been accused of abusing their power, Le., their exclusive licenses. One of the most bitter complaints against the building trades in re cent years has focused on their longtime exclusion of blacks and other minorities from apprentice ship programs. But the civil rights activists who criticized this prac tice should have challenged the right of amy group to control en try to a field, rather than merely complaining because certain indi viduals were being excluded. A free competitive market place in the building trades would have found room for qualified individ uals from every group. It is indeed one of the ironies of history that Booker T. Washington urged blacks to learn bricklaying rather than Greek philosophy in order to get ahead, but in our own time it has been easier for a black to be come a teacher than to obtain a position as a union bricklayer!

We can also wonder if this union licensing power has not created a f6rm of occupational licensure in fields where it challenges basic First Amendment rights. At times, legislators have suggested that newspaper writers should be li censed as a means of "protecting the public." Newsmen are quick to reply that only a free and unli censed press can protect the public from Government corruption and the venality of legislators. Mean while, however, the newspaper guilds continue to strengthen their controls over many news staffs and have now been able to decide who should be permitted to write certain types of news stories. An editor, as an executive, may find himself in trouble with the guild if he writes and publishes in his pa per a story that presumably could have been written by guild mem bers. Pressures are also develop ing to bar newspapers from buy ing freelance articles. In other words, newspaper guilds are ac quiring the power of licensing boards and can quietly use this power to eliminate competition while appearing to stand for a free and uncontrolled press.

There are undoubtedly other forms of licensure that bear watching. Teacher certification is obviously a type of licensing, par ticularly now that it is used in harness with membership in the powerful teachers' unions. Any kind of certification program that 1975 OCCUPATIONALLICENSURE UNDER ATTACK 201 eventually calls upon the power of the state to control access to a field is occupational licensing and usu ally is an attempt to win a fa vored position for the people al ready in the field. There have also been many pro posals in the past few years to re quire licensing of automobile me chanics as a means of eliminating bad repair practices. Actually, we are fortunate that automobile re pair has been a field that anyone can enter. If an auto mechanics' licensing program ever is adopted, we can expect ruinously high repair charges from "certified" technicians while most of the bad repair and pricing practices now under attack will become institu tionalized as part of the system.

Alternative? What should we have in place of occupational licensure? The Wall Street Journal article said that "few would quarrel with the need for (some) . . . supervision to guard the public against unscrupu lous charlatans posing as certified professionals." But should there be any such supervision? The pub lic has actually fared very well without certification in hundreds of occupations that are vital to the welfare and happiness of many people. It is not necessary to ob tain an occupational license in or der to be a corporation president, a chef, a salesman, or a writer . Under today's licensing require ments, Thomas Edison could not have been certified as an engineer, Abraham Lincoln would have bee,n barred from the practice of law, and Albert Einstein could not have been even a high school science teacher; yet each served us well in his own field. Any of us, if he thinks for him self and exercises good judgment, can still function far better in choosing a professional person or skilled tradesman than can any li censing board. The state also has a general duty to protect against fraud, and this cannot be dele gated to a licensing board. Our own good judgment, coupled with reasonable enforcement of the proper laws, will help protect us from the fraudulent and the in competent. But who will save us from the greater fraud of occupa tional licensure as it is now prac ticed? , Moder Soothsa BERNARD H. SIEGAN IT IS exceedingly hazardous to de cide current policy on speculations about the distant future. We al ready encounter enough difficulty simply trying to understand the here and now.

Although these observations may appear self-evident, many apparently disagree. They urge the adoption of restrictive laws over human conduct on the basis of their predictions of the future. They are our modern soothsayers, and their prophecies are widely disseminated these days, in the learned as well as the unlearned journals. The universities are filled with them where they are often called scholars. I find two things particularly disturbing: First, the advocacy of certain environmental and conser vation measures for the sake of "generations yet unborn." Second, Copyright 1974 Bernard H. Siegan Mr. Siegan is the author of Land Use Without Zoning and many articles on the subject. He practiced law for 20 years in Chicago before moving in 1973 to La Jolla, California where he is professor of law at the University of San Diego Law School. 202 forecasts of what materials and resources will be available to fu ture generations.

In the absence of special occult powers, it is rather foolish to de scribe the wants and desires of people who still have not arrived on this earth, the unborn genera tions. How many parents can know the course any of their children, whom they observe daily, will fol low? Such forecasting is usually part of some discussion pushing se 1 _ verer environmental regulations, and the world these writers and speakers contend the unborn will vvant usually is no different froln the one they seek for themselves. What it amounts to essentially, is that they are talking about only their own desires and preferences, not anyone else's. Of course, our children should inherit the best of all possible worlds, and it should include clean air and water, beaches, parks, open space, scenic areas. But it should also be one of good living and economic conditions; jobs, de sirable housing conditions and fewer slums, among other things.

Tomorrow's children will be stronger in body and mind if the economic circumstances of their parents and grandparents are sat isfactory. The world they inherit also will be infinitely superior if it is a freer one, without govern1975 MODERN SOOTHSAYERS 203 ment coercions stifling its citizens' aspirations. Accordingly, these discussions of the future are real ly about the present, the needs and priorities of our own society. Similarly many writers are mix ing in much of their own feelings and inclinations when they de mand strong conservation controls over our resources to prevent de pletions in the future. These peo ple frequently are hostile to tech nology and materialism, and would prefer a world more oriented to nature. They tend to ignore the problems that would be created for those having a different per spective. It is impossible to foretell the future on the basis of what exists today. The story of Reverend Thomas Malthus needs frequent retelling. He was a prominent Briti~h economist and sociologist, who predicted in 1798 that the food supply would not keep pace with population growth, and con sequently the world was doomed to widespread starvation, poverty and distress.

Although his analysis seemed plausible in light of the informa tion then available, his funda mental error was in making a pre diction on that subject. No matter how wise he was, he could not have envisioned that man would be so resourceful that a time would come when a government would pay farmers billions of dollars not to grow crops. We enjoy vastly more material comforts than our great-grand parents did because of human skill, ingenuity and creativity. The basic resources of the world have dwindled since then, but the knowledge and understanding of how to obtain, amplify and substi tute for them has increased enor mously. So long as incentives ex ist, man's wisdom will operate to create the new and improve the old. Historical experience discloses that substitutes or new products normally replace essential materi als and· resources as they become scarcer, and that when necessary, man will adjust reasonably well to a reduction in the supply of par ticular items. To live a life of self sacrifice based on other premises is an abuse of a precious organ ism: Man. Who not very long ago would have conceived of antibi otics, space travel, atomic energy, synthetic fabrics, plastics, TV, computers, lasers, j etpropulsion ?

To accommodate the modern soothsayers requires considerable inconvenience and hardship, espe cially on the part of .the less af fluent who depend for a better life on more production and growth. Soothsayers preaching such hu man sacrifice should lose their li censes. ~ HANS F. SENNHOLZ IH~ GR~AI D~PR~~~I~N ALTHOUGH the Great Depression engulfed the world economy some 40 years ago, it lives on as a night mare for individuals old enough to remember and as a frightening specter in the textbooks of our youth. Some 13 million Americans were unemployed, "not wanted" in the production process. One worker out of every four was walking the streets in want and despair. Thou sands of banks, hundreds of thou sands of businesses, and millions of farmers fell into bankruptcy or ceased operations entirely. Nearly everyone suffered painful losses of wealth and income. Many Americans are convinced that the Great Depression reflected the breakdown of an old economic Dr. Sennholz heads the Department of Eco nomies at Grove City College in Pennsylvania and is a noted writer and lecturer for freedom.

204 order built on unhampered mar kets, unbridled competition, specu lation, property rights, and the profit motive. According to them, the Great Depression proved the inevitability of a new order built on government intervention, polit ical and bureaucratic control, hu man rights, and government wel fare. Such persons, under the in fluence of Keynes, blame business men for precipitating depressions by their selfish refusal to spend enough money to maintain or im prove the people's purchasing power. This is why they advocate vast governmental expenditures and deficit spending - resulting in an age of money inflation and credit expansion. Classical economists learned a different lesson. In their view, the Great Depression consisted of four 1975 THE GREAT DEPRESSION 205 consecutive depressions rolled into one. The causes of each phase dif fered, but the consequences vvere all the same: business stagnation and unemployment.

The Business Cycle The first phase was a period of boom and bust, like the business cycles that had plagued the Amer ican economy in 1819-20, 1839-43, 1857-60, 1873-78, 1893-97, and 1920-21. In each case, government had generated a boom through easy money and credit, which was soon follovved by the· inevitable bust. The spectacular crash of 1929 followed five years of reckless credit expansion by the Federal Reserve System under the Cool idge Administration. In 1924, after a sharp decline in business, the Reserve banks suddenly cre ated some $500 million in new credit, vvhich led to a bank credit expansion of over $4 billion in less than one year. While the im media te effects of this new power ful expansion of the nation's money and credit were seemingly beneficial, initiating a new eco nomic boom and effacing the 1924 decline, the ultimate outcome was most disastrous. It vvas the begin ning of a monetary policy that led to the stock market crash in 1929 and the follovving depression. In fact, the expansion of Federal Reserve credit in 1924 constituted what Benjamin Anderson in his great treatise on recent economic history (Economics and the Pub lic Welfare, D. Van Nostrand, 1949) called "the beginning of the New Deal."

The Federal Reserve credit ex pansion in 1924 also was designed to assist the Bank of England in its professed desire to maintain prewar exchange rates. The strong U.S. dollar and the weak British pound were to be readjusted to prewar conditions through a policy of inflation in the U.S. and de flation in Great Britain. The Federal Reserve System launched a further burst of infla tion in 1927, the result being that total currency outside banks plus demand and time deposits in the United States increased from $44.51 billion at the end of June, 1924, to $55.17 billion in 1929. The volume of farm and urban mortgages expanded from $16.8 billion in 1921 to $27.1 billion in 1929. Similar increases occurred in industrial, financial, and state and local government indebted ness. This expansion of money and credit was accompanied by rapidly rising real estate and stock prices. Prices for industrial securities, according to Standard & Poor's common stock index, rose from 59.4 in June of 1922 to 195.2 in September of 1929. Railroad stock 206 THE FREEMAN April climbed from 189~2 to 446.0, while public utilities rose from 82.0 to 375.1.

A Series of False Signals The vast money and credit ex pansion by the Coolidge Admin istration made 1929 inevitable. In flation and credit expansion always precipitate business maladjust ments and malinvestments that must later be liquidated. Tne ex pansion artificially reduces and thus falsifies interest rates, and thereby misguides businessmen in their investment decisions. In the belief that declining rates indi cate growing supplies of capital savings, they embark upon new production projects. The creation of money gives rise to an economic boom. It causes prices to rise, es pecially prices of capital goods used for business expansion. But these prices constitute business costs. They soar until business is no longer profitable, at which time the decline begins. In order to pro long the boom, the monetary au thorities may continue to inject new money until finally frightened by the prospects of a runaway in flation. The boom that was built on the quicksand of inflation then comes to a sudden end.

The ensuing recession is a period of repair and readjustment. Prices and costs adj ust anew to consumer choices and preferences. And above all, interest rates read just to reflect once more the actual supply of and demand for genuine savings. Poor business invest ments are abandoned or written down. Business costs, especially labor costs, are reduced through greater labor productivity and managerial efficiency, until busi ness can once more be profitably conducted, capital investments earn interest, and the market econ omy function smoothly again. After an abortive attempt at stabilization in the first half of 1928, the Federal Reserve System finally abandoned its easy money policy at the beginning of 1929. It sold government securities and thereby halted the bank credit ex pansion. It raised its discount rate to 6 per cent in August, 1929. Time-money rates rose to 8 per cent, commercial paper rates to 6 per cent, and call rates to the panic figures of 15 per cent and 20 per cent. The American economy was beginning to readj ust. In June, 1929, business activity began to recede. Commodity prices began their retreat in July.

The security market reached its high on September 19 and then, under the pressure of early selling, slowly began to decline. For five more weeks the public nevertheless bought heavily on the way down. More than 100 million -shares were traded at the New York Stock Ex1975 T'HE GREAT DEPRESSION 207 change in September. Finally it dawned upon more and more stockholders that the trend had changed. Beginning with October 24, 1929, thousands stampeded to sell their holdings immediately and at any price. Avalanches of selling by the public swamped the ticker tape. Prices broke spectacu larly. Liquidation and Adjustment The stock market break sig naled the beginning of a readj ust ment long overdue. It should have been an orderly liquidation and adjustment followed by a normal revi val. After all, the financial structure of business was very strong. Fixed costs were low as business had refunded a -good many bond issues and had reduced debts to banks with the proceeds of the sale of stock. In the follow ing months, most business earn ings made a reasonable showing.

Unemployment in 1930 averaged under 4 million, or 7.8 per cent of labor force. In modern terminology, the American economy of 1930 had fallen into a mild recession. In the absence of any new causes for de pression, the following year should have brought recovery as in pre vious depressions. In 1921-22 the American economy recovered fully in less than a year. What, then, precipitated the abysmal collapse after 1929? What prevented the price and cost adj ustments and th us led to the second phase of the Great Depression? Disintegration of the World Economy The Hoover Administration op posed any readjustment. Under the influence of "the new econom ics" of government planning, the President urged businessmen not to cut prices and reduce wages, but rather to incre.ase capital out lay, wages, and other spending in order to maintain purchasing power. He embarked upon deficit spending and called upon munici palities to increase their borrow ing for more public works.

Through the Farm Board which Hoover had organized in the au tumn of 1929, the Federal govern ment tried strenuously to uphold the prices of wheat, cotton, and other farm products. The GOP tradition was further invoked to curtail foreign imports. The Hawley-Smoot Tariff Act of June, 1930, raised Americ~n tariffs to unprecedented levels, which practically closed our borders to foreign goods. According to most economic historians, this was the -crowning folly of the whole period from 1920 to 1933 and the begin ning of the real depression. "Once we raised our tariffs," wrote Ben jamin Anderson, "an irresistible movement all over the world to 208 THE FREEMAN April raise tariffs and to erect other trade barriers, including quotas, began. Protectionism ran wild over the world. Markets were cut off. Trade lines were narrowed. Unemployment in the export in dustries all over the world grew with great rapidity. Farm prices in the United States dropped sharply through the whole of 1930, but the most rapid rate of decline came following the passage of the tariff bilL" When President Hoover announced he would sign the bill into law, industrial stocks broke 20 points in one day. The stock market correctly anticipated the depression.

The protectionists have never learned that curtailment of im ports inevitably hampers exports. Even if foreign countries do not immediately retaliate for trade re strictions injuring them, their for eign purchases are circumscribed by their ability to sell abroad. This is why the Hawley-Smoot Tariff Act which clos~d our borders to foreign products also closed for eign markets to our products. American exports fell from $5.5 billion in 1929 to $1.7 billion in 1932. American agriculture cus tomarily had exported over 20 per cent of its wheat, 55 per cent of its cotton, 40 per cent of its to bacco and lard, and many other products. When international trade and commerce were disrupted, American farming collapsed. In fact, the rapidly growing trade restrictions, including tariffs, quotas, foreign exchange controls, and other devices were generating a worldwide depression. Agricultural commodity prices, which had been well above the 1926 base before the crISIS, dropped to a low of 47 in the sum mer of 1932. Such prices as $2.50 a hundredweight for hogs, $3.28 for beef cattle, and 32¢ a bushel for wheat, plunged hundreds of thousands of farmers into bank ruptcy. Farm mortgages were foreclosed until various states passed moratoria laws, thus shift ing the bankruptcy to countless creditors.

Rural Banks in Trouble The main creditors of Amerfcan farmers were, of course, the rural banks. When agriculture collapsed, the banks closed their doors. Some 2,000 banks, with deposit liabili ties of over $1.5 billion, suspended between August, 1931, and Febru ary, 1932. Those banks that re mained open were forced to cur tail their operations sharply. They liquidated customers' loans on securities, contracted real estate loans, pressed for the payment of old loans, and refused to make new ones. Finally, they dumped their most marketable bond hold ings on an already depressed 197/5 THE GREAT DEPRESSION 209 market. The panic that had en gulfed American agriculture also gripped the banking system and its millions of customers. The American banking crisis wa~ aggravated by a series of events involving Europe. When the world economy began to disin tegrate and economic nationalism ran rampant, European debtor countries were cast in precarious payment situations. Austria and Germany ceased to make foreign payments and froze large English and American credits; when Eng land finally suspended gold pay ments in September, 1931, the crisis spread to the U.S. The fall in foreign bond values set off a collapse of the general bond market, which hit American banks at their weakest point - their in vestment portfolios.

Depression Compounded 1931 was a tragic year. The whole nation, in fact, the whole world, fell into the cataclysm of despair and depression. American unemployment jumped to more than 8 million and continued to rise. The Hoover Administration, summarily rejecting the thought that it had caused the disaster, labored diligently to place the blame on American businessmen and speculators. President Hoover called together the nation's in dustrial leaders and pledged them to adopt his program to rnaintain wage rates and expand construc tion. He sent a telegram to all the governors, urging cooperative ex pansion of all public works pro grams. He expanded Federal pub lic works and granted subsidies to ship construction. And for the benefit of the suffering farmers, a host of Federal agencies embarked upon price stabilization policies that generated ever larger crops and surpluses which in turn de pressed product prices even fur ther. Economic conditions went from bad to worse and unemploy ment in 1932 averaged 12.4 mil lion.

In this dark hour of human want and suffering, the Federal government struck a final blow. The Revenue Act of 1932 doubled the income tax, the sharpest in crease in the Federal tax burden in American history. Exemptions were lowered, "earned income credit" was eliminated. Normal tax rates were raised from a range of 11/ 2 to 5 per cent to a range of 4 to 8 per cent, surtax rates from 20 per cent to a maximum of 55 per cent. Corporation tax rates were boosted from 12 per cent to 133A, and 141j2 per cent. Estate taxes were raised. Gift taxes were imposed with rates from 3A, to 331j2 per cent. A 1¢ gasoline tax was imposed, a 3 per cent automo bile tax, a telegraph and telephone 210 THE FREEMAN April tax, a 2 ¢ check tax, and many other excise taxes. And finally, postal rates were increased sub stantially. When state and local govern ments faced shrinking revenues, they, too, joined the Federal gov ernment in imposing new levies.

The rate schedules of existing taxes on income and business were increased and new taxes imposed on business income, property, sales, tobacco, liquor, and other products. Murray Rothbard, in his author itative work on America's Great Depression (Van Nostrand, 1963), estimates that the fiscal burden of Federal, state, and local govern ments nearly doubled during the period, rising from 16 per cent of net private product to 29 per cent. This blow, alone, would bring any economy to its knees, and shatters the silly contention that the Great Depression was a consequence of economic freedom. The New Deal of NRA and AAA One of the great attributes of the private-property market sys tem is its inherent ability to over come almost any obstacle. Through price and cost readj ustment, man agerial efficiency and labor pro ductivity, new savings and invest ments, the market economy tends to regain its equilibrium and re sume its service to consumers. It doubtless would have recovered in short order from the lIoover in terventions had there been no fur ther tampering.

lIowever, when President Franklin Delano Roosevelt as sumed the Presidency, he, too, fought the economy all the way. In his first 100 days, he swung hard at the profit order ..Instead of clearing away the prosperity bar riers erected by his predecessor, he built new ones of his own. lIe struck in every known way at the integrity of the U.S. dollar through quantitative increases and qualitative deterioration. lIe seized the people's gold holdings and subsequently devalued the dollar by 40 per cent. With some third of industrial workers unemployed, President Roosevelt embarked upon sweep ing industrial reorganization. He persuaded Congress to pass the National Industrial Recovery Act (NIRA), which set up the National Recovery Administration (NRA). Its purpose was to get business to regulate itself, ignor ing the antitrust laws and develop ing fair codes of prices, wages, hours, and working conditions.

The President's· Re-employment Agreelnent called for a minimum wage of 40¢ an hour ($12 to $15 a week in smaller communities), a 35-hour work week for industrial workers and 40 hours for white 1975 THE GREAT DEPRESSION 211 collar workers, and a ban on all youth labor. This was a naive attempt at "in creasing purchasing power" by in creasing payrolls. But, the im mense increase in business costs through shorter hours and higher wage rates worked naturally as an antirevival measure. After passage of the Act, unemployment rose to nearly 13 million. The South, especially, suffered severely from the minimum wage provi sions. The Act forced 500,000 Negroes out of work. Nor did President Roosevelt ignore the disaster that had be fallen American agriculture. He attacked the problem by passage of the Farm Relief and Inflation Act, popularly known as the First Agricultural Adjustment Act. The objective was to raise farm in come by cutting the acreages planted or destroying the crops in the field, paying the farmers not to plant anything, and organizing marketing agreements to improve distribution. The program soon covered not only cotton, but also all basic cereal and meat produc tion as well as principal cash crops. The expenses of the pro gram were to be covered by a new "processing tax" levied on an al ready depressed industry.

NRA codes and AAA processing taxes came in July and August of 1933. Again, economic production which had flurried briefly before the deadlines, sharply turned downward. The Federal Reserve index dropped from 100 in July to 72 in November of 1933. Pump-Priming Measu.res When the economic planners saw their plans go wrong, they simply prescribed additional doses of Fed eral pump priming. In his Jan\lary 1934 Budget Message, Mr. Roose velt promised expenditures of $10 billion while revenues were at $3 billion. Yet, the economy failed to revive; the business index rose to 86 in May of 1934, and then turned down again to 71 by Sep tember. Furthermore, the spend ing program caused a panic in the bond market which cast new doubts on American money and banking. Revenue legislation in 1933 sharply raised income tax rates in the higher brackets and im posed a 5 per cent withholding tax on corporate dividends. Tax rates were raised again in 1934.

Federal estate taxes were brought to the highest levels in the world. In 1935, Federal estate and in come taxes were raised once more, although the additional revenue yield was insignificant. The rates seemed clearly aimed at the redis tribution of wealth. According to Benjamin Ander son, "the impact of all these multi212 THE FREEMAN April tudinous measures - industrial, agricultural, financial, monetary and other - upon a bewildered in dustrial and financial community was extraordinarily heavy. We must add the effect of continuing disquieting utterances by the President. He had castigated the bankers in his inaugural speech. He had made a slurring compari son of British and American bank ers in a speech in the summer of 1934.... That private enterprise could survive and rally in the midst of so great a disorder is an amazing demonstration of the vi tality of private enterprise."

Then came relief from unex pected quatters. The "nine old men" of the Supreme Court, by unanimous decision, outlawed NRA in 1935 and AAA in 1936. The Court maintained that the Federal legislative power had been unconstitutionally delegated and states' rights violated. These two decisions removed some fearful handicaps under which the economy was laboring. NRA, in particular, was a night mare with continuously changing rules and regulations by a host of government bureaus. Above all, voidance of the act immediately reduced labor costs and raised productivity as it permitted labor markets to adjust. The death of AAA reduced the tax burden of agriculture and halted the shocking destruction of crops. Unem ployment began to decline. In 1935 it dropped to 9.5 million, or 18.4 per cent of the labor force, and in 1936 to only 7.6 million, or 14.5 per cent. A New Deal for Labor The third phase of the Great Depression was thus drawing to a close. But there was little time to rej oice, for the scene was being set for another collapse in 1937 and a lingering depression that lasted until the day of Pearl Har bor. More than 10 million Ameri cans were unemployed in 1938, and more than 9 million in 1939.

The relief granted by the Su preme Court was merely tempo rary. The Washington planners could not leave the economy alone; they had to earn the support of organized labor, which was vital for re-election. The Wagner Act of July 5, 1935, earned the lasting gratitude of labor. This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created Federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor union sympathizers on the Board fur ther perverted the law that al ready afforded legal immunities and privileges to labor unions. The 1975 THE GREAT DEPRESSION 213 U. S. thereby abandoned a great achievement of Western civiliza tion, equality under the law. The Wagner Act, or National Labor Relations Act, was passed in reaction to the Supreme Court's voidence of NRA and its labor codes. It aimed at crushing all em ployer resistance to labor unions.

Anything an employer might do in self-defense became an "unfair labor practice" punishable by the Board. The law not only obliged employers to deal and bargain with the unions designated as the employees' representative; later Board decisions also made it un lawful to resist the demands of labor union leaders. Following the election of 1936, the labor unions began to make ample use of their new powers. Through threats, boycotts, strikes, seizures of plants, and outright violence committed in legal sanc tity, they forced millions of work ers into membership. Conse quently, labor productivity de clined and wages were forced up ward. Labor strife and disturb ance ran wild. Ugly sitdown strikes idled hundreds of plants. In the ensuing months economic activity began to decline and un employment again rose above the ten million mark. But the Wagner Act was not the only source of crisis in 1937.

President Roosevelt's shocking attempt at packing the Supreme Court, had it been successful, would have subordinated the Judi ciary to the Executive. In the U.S. Congress the President's power was unchallenged. Heavy Demo cratic majorities in both houses, perplexed and frightened by the Great Depression, blindly followed their leader. But when the Presi dent strove to assume control over the Judiciary, the American na tion rallied against him, and he lost his first political fight in the halls of Congress. There was also his attempt at controlling the stock market through an ever-increasing num ber of regulations and investiga tions by the Securities and Ex change Commission. "Insider" trading was barred, high and in flexible margin requirements im posed and short selling restricted, mainly to prevent repetition of the 1929 stock market crash. Never-: theless the market fell nearly 50 per cent from August of 1937 to March of 1938. The American economy again underwent dread ful punishment.

Other Taxes and Controls Yet other factors contributed to this new and fastest slump in U.S. history. The Undistributed Profits Tax of 1936 struck a heavy blow at profits retained for use in busi ness. Not content with destroying 214 THE FREEMAN April the wealth of the rich through'" confiscatory income and estate tax ation, the administration meant to force the distribution of corporate savings as dividends subject to the high income tax rates. Though the top rate finally imposed on undis tributed profits was "only" 27 per cent, the new tax succeeded in diverting corporate savings from employment and production to dividend income. Amidst the new stagnation and unemployment, the President and Congress adopted yet another dan gerous piece of New Deal legisla tion: the Wages and Hours Act or Fair Labor Standards Act of 1938. The law raised minimum wages and reduced the work week in stages to 44, 42, and 40 hours. It provided for time-and-a-half pay for all work over 40 hours per week and regulated other labor conditions. Again, the Federal government thus reduced labor productivity and increased labor costs - ample grounds for further depression and unemployment.

Throughout this period, the Fed eral government, through its monetary arm, the Federal Re serve System, endeavored to rein flate the economy. Monetary ex pansion from 1934 to 1941 reached astonishing proportions. The monetary gold of Europe sought refuge from the gathering clouds of political upheaval, boosting American bank reserves to unac customed levels. Reserve balances rose from $2.9 billion in January, 1934, to $14.4 billion in January of 1941. And with this growth of member bank reserves, interest rates declined to fantastically low levels. Commercial paper often yielded less than 1 per cent, bank ers' acceptances from l/8 per cent to 14, per cent. Treasury bill rates fell to 1/10 of 1 per cent and Treas ury bonds to some 2 per cent. Call loans were pegged at 1 per cent and prime customers' loans at 1l/2 per cent. The money market was flooded and interest rates could hardly go lower.

Deep-Rooted Causes The American economy simply could not recover from these suc cessive onslaughts by first the Re publican and then the Democra tic Administrations. Individual enterprise, the mainspring of un precedented income and wealth, didn't have a chance. The calamity of the Great De pression finally gave way to the holocaust of World War II. When nlore than 10 million able-bodied men had been drafted into the armed services, unemployment ceased to be an economic problem. And when the purchasing power of the dollar had been cut in half through vast budget deficits and currency inflation, American busi1975 THE GREAT DEPRESSION 215 ness managed to adj ust to the oppressive costs of the HOQver Roosevelt Deals. The radical infla tion in fact reduced the real costs of labor and thus generated new employment in the postwar period. Nothing woul~ be more foolish than to single out the men who led us in those baleful years and condemn them for all the evil that befell us. The ultimate roots of the Great Depression were growing in the hearts and minds of the American people. It is true, they abhored the painful symptoms of the great dilemma. But the large majority favored and voted for the very policies that made the disaster inevitable: inflation and credit expansion, protective tariffs, labor laws that raised wages and farm laws that raised prices, ever higher taxes on the rich and dis tribution of their wealth. The seeds for the Great Depression were sown by scholars and teach ers during the 1920's and earlier when social and economic ideol ogies that were hostile toward our traditional order of private prop erty and individual enterprise con quered our colleges and universi ties. The' professors of earlier years were as guilty as the poli tical leaders of the 1930's.

Social and economic decline is facilitated by moral decay. Surely, the Great Depression would be in conceivable without the growth of covetousness and envy of great personal wealth and income, the mounting desire for public assist ance and favors. It would be in conceivable without an ominous decline of individual independence and self-reliance, and above all, the burning desire to be free from man's bondage and to be responsi ble to God alone. Can it happen again? Inexor able economic law ascertains that it must happen again whenever we repeat the dreadful errors that generated the Great Depression. @f) Editor's Note: The foregoing review, of the monetary manipula tions and other interventions that led to the crash of 1929 and prolonged it for a decade, first appeared in the October 1969 FREEMAN. It also has been widely distributed as a Bramble Minibook. The lesson, however, remains to be learned. A depres sion has a message, if we will heed it.

The Message of Depression PAUL L. POIROT WHATEVER ELSE may be said for or against it, the boom period of an inflation is marked by extensive waste of scarce and valuable re sources. This is not to say that the user knows at the time that he is ,wasting resources. Only in retro spect, during the depression that necessarily follows such a boom, is there clear evidence that the prior practices were wasteful. The pain ful message the depression brings is: "Curb the waste!" Waste is the child of excess. The boom period generates an illusion of abundance of goods and services - the reality being a lot of bad money. The more bad money peo ple acquire, the faster they'll try to spend it. This explains the wasteful spending habits that de velop in the boom phase of infla tion. Scarce resources are malin vested and used recklessly-as seen more soberly in retrospect. A plethora of cheap money and cred it, like any form of subsidy, makes 216 scarce resources appear to be more plen tiful and less costly than they really are. We consume too much too fast of those things we think "someone else" is paying for. Bad money plays tricks on us - until the depression comes. Then we're sorry.

We barely get started with all sorts of boom-time schemes to clean the air and the water and the slums, to rid the world of illite racy and starvation and disease, to preserve or restore the state of Nature, provide an abundance of housing, medication, transporta tion, recreation - the satisfaction of every form of human need or aspiration - when suddenly and apparently without warning we face a meat shortage, a grain shortage, a lumber shortage, a sugar shortage, a fuel shortage in fact, a serious shortage of ev ery scarce resource in the world. If we're now serious about stop ping waste, the first step will be to 1975 THE MESSAGE OF DEPRESSION 217 learn to recognize what is waste ful before the waste occurs. And that won't be easy. Oh, sure, you know very wen when I'm wasting something; and I can see clearly how wasteful you are. Perhaps we could even agree to talk it over, and try to take each other's advice. But, that isn't real ly the problem. I'm content to have you use your own resources as you please. If you want to waste some of them, you'll get no criticism or complaint from orne so long as your waste isn't inj uring me or damag ing my property.

I believe that you do not run about consciously trying to waste your time or energy or property. Wi th more wisdom and will power, perhaps you could multiply your productive efficiency. But you try to 'do your best with what you have. You act to serve the most urgent need of each moment, as you then see it. Why do I believe you'll act in such a manner? Be cause, that is how I act. So, I re spect your use of your resources, and would hope you'll respect my choices. Without The Owner's Consent The problem - the waste I de plore - is the action of any person or group to use my resources, my property, my life for purposes I can't approve. So I object to theft, fraud, coercive acts of any kind against me, especially coeTcive governmental actions that go be yond what I believe are the lim ited, proper functions of govern ment. And it appears that such governmental waste is most fla grant during the printing-press financing of an inflationary boom.

True, the size and scope of gov ernment is always a compromise. Some persons want more govern ment regulation and control; some want less. So we get about as much governing as the prevailing majority will tolerate in taxes. And the minority, plus a number of those of the majority, will see in the resultant compromise many items of waste. At least, this is the situation during "normal times," when it is reasonably clear to the electorate what the government has in mind doing and who will be taxed how much to pay for it. Let us return now to the real problem: the excessive waste dur ing an inflationary boom. Such waste is backed by all sorts of pl,ausible arguments and good in tentions, but the key to the exces sive waste lies in the method used to finance it - the arbitrary gov ernment expansion of money and credit. The government simply prints the money it spends to with draw goods and services from the market. It doesn't reduce the quan tity of money remaining in the pockets of civilians - it just di218 THE FREEMAN April minishes the supplies of goods and services. This is what makes it so difficult to see the costs - to identi fy the wasteful spending at the time it happens. But the waste does occur, the spending increases, the supply of irredeemable paper money expands, goods become scarce, controls are applied in mul tiple phases, businesses fail, unem ployment rises, producers and con sumers become depressed.

Our depression is j ustified. We have been tricked with bad money. The government has wasted our resources. The message that some how must be learned by the cit izenry before it will be conveyed to Congress is to stop that waste; stop squandering and start pro tecting our savings; let us serve ourselves and one another through honest production and trade; let us choose a ,money we can trust so we can know, at the time, the cost of our actions; let us own gold. Why gold? Because governments have no power to arbitrarily in crease the supply. It can't be counterfeited. It is honest money. That could be the message of the current depression if we will learn it; but it most certainly will never be delivered to Congress un less and until we do learn it thor oughly. Meanwhile, instead of stopping the waste, irresponsible govern ments will try to stop the depression - by further deficit spending, and printing more money. Pro ducers will be maligned for what they have brought to market rather than encouraged to produce and offer more. Consumers will be asked to voluntarily shiver and starve rather than spend their cash holdings to draw goods from the market. The usual premise of those whom we elect to govern us is that they know better how to use our resources than we do. And the longer we allow that premise to go unchallenged, the more of our precious resources will be wasted. Those resources are drawn from the market for purposes we do not understand or approve, with unlimited issue of fiat money that the government forces upon us as legal tender~ even though produc ers and traders have every reason to mistrust it as a medium of ex change.

International Consequences of Political Intervention The domestic consequences of the3e political interventions are serious enough. Citizens are reg ulated and controlled and taxed, producers are punished, business es are driven into bankruptcy and then nationalized, to be govern mentally operated with "post-of fice efficiency." As welfare pro grams proliferate, the "clients" sink into the ever-declining level 1975 THE MESSAGE OF DEPRESSION 219 of living characteristic of social ized societies. Waste is the order of the day, and the economy is weakened as more and more gov ernment control displaces the func tioning of the market. But the dis aster does not stop at the· national borders. A weakened nation can neither compete successfully in world mar kets nor can it comimand interna tional respect by reason of its military might. It simply tends to waste away. And such a weakened economic and political machine is in no position to cope with an en ergy crisis. Attempts to throw the blame on the Arabs or other pro ducers of oil - some mysterious international cartel-have a hol low ring. How stepped-up waste of resources can make the United States self-sufficient by 1985 is never explained. How further self imposed tariffs and embargoes w;ill help us get the oil we need is far from clear. How more paper mon ey, which already is unacceptable in international trade, will buy us friends abroad or keep us warm at home is a puzzle. Have we not had sufficient experience with the bad money government provides, and the excessive waste of resources under government control, to get the message and relay it to Con gress: "Stop the waste and leave us to our own choices in the world market. Let us buy and sell on our own terms in the money of our choice."

It might be very interesting and instructive to see what a few piec es of gold thrown into the inter national oil cartel would do to it. Who knows how many gallons of oil some producer might release for one ounce of the precious metal? Or how many other pro ducers or potential producers of oil might rise to the bait and offer fuel at bargain rates for that kind of money? Once American citizens are properly depressed over govern ment waste through monetary manipulation, they may then get the message to Congress to let money be whatever the market says it is. Then, if government has need for resources, let them be taken dire'ctly and openly from owners - not through a mystify ing monetary procedure. Citizens then might still con done some wasteful government spending. Men do make mistakes. But the tendency is to correct such mistakes most rapidly when the costs are instantly and clearly re vealed. The dreadful cost of let ting the government prescribe and manage our money is now becom ing clear. If that mistake is cor rected, it would go far to curb nu merous other wasteful practices and our depression will not have been in vain. ~ DAVE OSTERFELD t Doctrines and the Interes ~g @ IS THE WRITINGS of the classical economists were beset by an in ternal contradiction. On the one hand, they believed that labor was the source of all value and that wage rates were determined by an antagonistic struggle with capital.

On the other hand, they Were aware that since one could only make a profit by providing con sumers with what they desired to buy, men out for their own gain were led as if "by an invisible hand" to promote the common good. The classical economists were unable to resolve their dilem ma, and their wri tings gave rise to two mutually exclusive inter preta tions of the workings of the capitalist system: the "conflict of interest" and the "harmony of in terest" doctrines. In Capital, Karl Marx claimed that commodities "in which equal Mr. Osterfeld of Cincinnati, Ohio, is a gradu ate student majoring in political theory. quantities of labor are embodied, or which can be produced in the same time, have the same value."] Thus, labor was held to be the sole source of all value. It follows from this premise that supply and demand can regulate nothing but the "temporary fluctuations" of market prices. They can explain merely "why the market price of a commodity rises above or sinks below its value, but they can never account for that value."2 For Marx, "that which determines the magnitude of the value of any ar ticle is the amount of labor so cially necessary ... for its pro duction."3 It was at this juncture that Marx felt he uncovered the antagonistic nature of capitalism.

• Formulation of Wage Rates. Since the laborer doesn't own the means of production, he is forced, in order to live, to sell his "labor power" to the capitalist at its value, Le. subsistence. 4 But in buy220 1975 MARX, MISES AND THE INTEREST DOCTRINES 221 ing his labor-power the capitalist gets the labor for the entire day. It takes only a portion of the day for the worker to produce the value of his wage. The remaining portion of the day the worker pro duces profit, or "surplus value," for the capitalist. The laborer, therefore, doesn't get the full val ue of his product. He is exploited by the capitalist who lives off of the labor of the workers. Marx felt that there was an in verse relationship between wa.ges and profits. For one to rise the other had to fall. Since, by the nature of the capitalist system, the interest of the workers was dia metrically opposed to that of the capitalists, there would be irre concilable class conflict so long as this system persisted.

• Principles of Exchange. While Marx focused on the relationship between the workers and capital ists, his collaborator, Frederick Engels, helped to complete the pic ture by dealing with the more general aspects of exchange. Since the "true value" of commodities was determined by labor-time, the only just basis for trade would be an exchange of objects of equiva lent labor-times. Since value was held to be objective, it was obvi ous that profit was exploitive: the profit of one would necessarily en tail the loss of another. But if the exchange were just, Le., equiva lent was exchanged for equiva lent, then there would be no prof it and capitalism would collapse. As Engels neatly puts it, "In ev ery purchase and sale ... two men with diametrically opposed inter ests confront each other. The con frontation is decidedly antago nistic, for each knows the inten tions of the other - knows they are opposed to his own. Therefore, the first consequence is . . . the application of immoral means to attain an immoral end .... " Hence, concluded Engels, "In a word, trade is legalized fraud."5 Profit was always synonymous with ex ploitation.

The Subjectivity of Value While Marx concentrated on the conflict features of classical eco nomics, the "Austrian School" set the stage for the further develop ment of the embryonic "harmony doctrine" by their destruction of the labor theory of value. Value, argued the Austrians, was not something objective; on the con trary, it was an individual sub jective phenomenon that had little to do with the amount of labor time involved in production. It did not lie in the object produced but in the perceptions of the valuing individuaI.6 An ashtray, for ex ample, is more valuable to a smok er than a non-smoker, regardless 222 THE FREEMAN April of the amount of labor and ma terials involved in its production. This cognition led to the con clusion that since value is subjec tive, there could be no objective or "real" value determined by adding up the hours of labor involved in production. On the contrary, one starts with the final price of a good as determined by the subjec tive valuations of the consumers.

Prices for the factors of produc tion, including labor, are then de rived from the final price. The famous Law of Value was there fore demonstrated to be only a particular law and, even where it was applicable, it was shown that "those costs are not final, but only an intermediate cause of the value of goods. In the last analysis they do not give value to their prod ucts; but receive it from them." As Eugen von Bohm-Bawerk illus trated, "it would be erroneous to assert that Tokay wine is valuable because Tokay vineyards possess value;" rather, "those vineyards have a high value because their product is highly valued."7 Mises and the Harmony Doctrine In direct opposition to the Marxian conflict doctrine, Ludwig von Mises, drawing on the in sights of the "Austrians," devel oped a comprehensive counter philosophy that viewed capitalism as a system premised on the harmony of interests of all partici pants. His thought can be broken down into three interrelated parts: the demonstration (1) that freedom is integrally connected ,vith laissez-faire capitalism; (2) that laissez-faire capitalism is able to harmonize diverse interests, and (3) that laissez-faire capital ism constitutes a complete and viable self-regulating system.

• Capitalism and Freedom. By centering his attention on individ uals instead of classes, Mises was able to formulate his "action axiom." The action axiom asserts that human action is purposeful behavior which always aims at making the actor happier, at sub stituting a more satisfactory state of affairs for a less satisfactory one. While Mises admitted that this axiom was t.autological8 - since what one actually values most at anyone time can only be revealed by his actions - he did believe that it had important ramifications. For the more free the society, the better able all individuals would be to choose their own individual goals and run their lives accord ingly. Hence, the happier they would be. Only a free society could maximize all individual utilities. Mises realized, however, that there could never be a society free from all constraint. Regardless of the type of society, one's freedom.

1975 MARX, MISES AND THE INTEREST DOCTRINES 223 of choice would always be limited by the laws of logic and nature. Action always has conseqUences, and one cannot attain incdbpati ble ends. An individual is free to take poison. If he does, however, he is not free to continue living. Similarly, an individual is free to be lazy. But then he must be pre pared to suffer the consequences of his laziness, such. as poverty, just as a rude salesman must be prepared to suffer the loss of his customers. As Mises points out, "In nature there are no such things as liberty and freedom. There is only the adamant rigid ity of the laws of nature to which man must unconditionally submit if he wants to attain any ends at a11."9 To live, man must eat, sleep and drink. While man's ability to fashion his own destiny will al ways be limited by the laws of nature, the scope of governmental power and the efficiency of the economic process, Mises felt, were the two crucial factors in deter mining the scope and extent of freedom in a society.

The popular distinction between the administration of things and of people, he argued, was facile. If the government institutes price controls, for example, this means that people are now forced to alter their behavior from what it would have been in the absence of the controls. Since according to the "action axiom" people always choose the course of action which they deem will provide them with the greatest possible satisfaction, the prohibition of any such non violent activity, by reducing op tions, restricts the scope of free dom of its citizens, and therefore reduces their happiness. This is so even when the ostensible aim of the interventionists is to make people freer. Aside from the eco nomic fallacies of such interven tion, "the liberty its supporters advocate," he pointed out, is al ways the "liberty to do the 'right' things, Le., the things they them selves want to be done."10But lib erty· is meaningless if it is only the liberty to agree with those in power. Liberty is therefore always limited by the prohibition of any nonviolent activity.ll Since the power to resort to violent actions is a government monopoly, Mises defined freedom as "that state of affairs in which the individual's discretion to choose is not con strained by government violence beyond the margin within which the praxeological law restricts it anyway."12 A laissez-faire society, he believed, where coercion can be used only defensively, would pro vide the maximum scope of free dom for all its citizens.

The second determinant of free dom is the efficiency of the eco nomic system. While in a laissez224 THE FREEMAN April faire society, all citizens have the same freedom, to engage in any nonviolent activity they desire, it is obvious that the standard of living has a significant bearing on the ability to use that freedom. The wealthier one is, other things being equal, the more options one has. Hence, the more efficient and productive the economic system, the larger the freedom of choice open to its individual participants. Since, for reasons sketched below, Mises demonstrated that a pure laissez-faire system was far more productive than any alternative, it follows that such a society would greatly e~tend the realm of choice. • Capitalism and the Harmony of Interests. Next, Mises argued that in a free society everyone's long run interests can be har monized. Since consumers buy only what is useful to them, there can be no distinction between pro duction for use and production for profit. Those eager to make profits can do so only by producing, bet ter than others, what the con sumers wish to buy. The more satisfactorily one serves the con sumers, the more profit he will earn and, therefore, the better able he will be to pursue his own goals.

In this way the market is a.ble to harmonize a plethora of diverse and seemingly incompatible indi vidual goals. Under the free market everyone is free to pursue any interest he desires, running the gamut from purely selfish to al truistic. But it is evident that the best way to attain one's own ends is to offer services desired by others. Thus, in the capitalistic exchange society everyone serves, but in doing so everyone is served by others. For it follows from the subjectivity of values that under a system of voluntary exchange each party must value what he re ceives more than what he gives up, otherwise no exchange would be made. This applies to all members of society, workers, employers and consumers. Under capitalism, therefore, society can be main tained by voluntary exchange for mutual benefit and without the need for coercion. • Capitalism as a Self-Regulat ing System. While it is commonly believed that a society where all individuals would be free to en gage in any and all peaceful activi ties they desire would produce a chaotic state of affairs that would 1975 MARX, MISES AND THE INTEREST DOCTRINES 225 require regulation by the state, Mises demonstrated that the exact opposite is true: a capitalist so ciety is in fact a highly complex but orderly and self-correcting system. On the other hand, any type of government intervention reduces the standard of living and generates societal conflicts. Mises' reasoning runs as follows.

Since profit can only be made by serving the consumers, it fol lows that the consumers direct prod uction by their buying and abstention from buying. If a de sired object is in short supply, the price tends to rise. The lure of higher profits will tend to attract capital into the area. The result ing increased production \vill cause the price to return to its equilib rium level. But to produce the product in the first place, the capitalist needs workers and must therefore offer wages high enough to attract the laborers he needs. Since what the capitalist can pay in wages is limited by his ex pected return from the sale of his product, the consumers also de termine the height of wages. If returns are not high enough to cover the cost of a particular op eration this means that there is, in the eyes of the consumers, a more important use forehe fac tors of production elsewhere. 13 In this way Mises felt that not only was the purely free market completely self-regulating but, in the long run, it also worked to in crease the subjective utilities of all participants by employing "every factor of production for the best possible satisfaction of the most urgent needs of the con sumer." Consequently, if "govern ment interferes with this process, it can only impair satisfaction; it can never improve it."14 If subsidies or tariffs, for ex ample, are granted to those groups favored by the government, then everyone else is forced to engage in activities they consider less desirable than those they would have adopted. The privileged groups are therefore benefited at the expense of the rest of society, and political conflicts are then generated by the desire of every group to use the coercive arm of government for their own benefit.

But if the practice of granting privileges becomes general, every one loses as much by the priv ileges granted to others as he gains by those granted to him.

226 THE FREEMAN April What is more is that since govern ment interference distorts the op erations of the market it must necessarily misallocate resources. Since that will lower output, the long run effect is to hurt every one, even the initial beneficiaries of the privileges, by reducing their standards of living below what they would have been on the free market. 15 For Mises, the two crucial de terminants of freedom were seen as integrally interrelated. As the scope of government was ex tended, not only would the citi zens' freedom of action be ever more limited by the threat of gov ernment violence, but the more inefficient the economic process would become. Both would work to generate social conflict and limit the scope of free choice. Conversely, he felt that capitalism was a viable system, premised on the long-run harmony 'Of interests of all participants, and that it served to maximize individual freedom.

Conflict or Harmony? From this outlook Mises de rived the following conclusions regarding the Marxian theory of exploitation. • The Formulation of Wages. Contrary to Marxian doctrine, wages and profits are not inversely related, and there is no "class conflict" between workers and capitalists. What enables wages to rise is precisely that the capitalists, interested in increas ing their profits, save and invest their money in productive ma chinery. Since this augments the marginal productivity of labor, real wages are forc~d up, Le., either money wages rise or prices fall, or both. But artificial at tempts to raise wages beyond the increase in marginal productivity ultimately result in lower, rather than higher, real wage rates. For if wages are forced above their respective equilibrium levels, the income of the entrepreneurs will be reduced, forcing the marginal producers out of business. The resulting restriction of production will then enable prices to rise, restoring the former ratio be tween wages and profits. However, those who lost their jobs when production was curtailed will be 1975 MARX, MISES AND THE INTEREST DOCTRINES 227 forced either to remain unem ployed, or look for jobs in other areas, thereby lowering wage rates in those areas. Further, since less will have been produced due to the distortion of the market and the restriction of production, real wages for those still employed will not be much higher, and may even be lower, than that prior to the rise in money wages.

The problem, believed Mises, is aggravated if an attempt is then made to effect a permanent rise in real wages by recourse to price controls. For if wages are raised above their free market rates while prices are held below theirs, the result will be a decline in the amount of capital accumulated. Since more is now being spent on consumer goods, there is a shift ing of production in the direction of more consumers' goods and less producers' goods. This can temp orarily bring about an increase in the standard of living. However, once the machines currently in existence begin to be used up and wear out, there will not have been enough new ones produced to re place them. Productivity will suf fer, causing a decline in real wages. And since the only way this process can be reversed is through a resuscitation of capital accumulation, real wages, initially, will have to be reduced even further.

Thus, far from varying inverse ly as assumed by Marx, wages and profits tend to vary positively. And any deviation from the mar ket process produces, in the long run, effects detrimental to both capital and labor. • Principles of Exchange. If profits aren't obtained at the ex pense of the worker, neither are they obtained at the expense of the consumer. "The only means to acquire wealth and to preserve it, in a market economy not adult erated by government-made priv ileges and restrictions," argues Mises, "is to serve the consumers in the best and cheapest way."16 Far from the wealth of one im plying the poverty of others, the reverse is true: one can only ac quire wealth by serving others. As soon as an entrepreneur ceases to serve the consumers, they will take their business elsewhere. The progressive income tax and other limitations on individual 228 THE FREEMAN April fortunes have several conse quences: (1) if the revenue from the tax is spent on current con sumption -it impedes capital ac cumulation, bringing about the effects discussed above; (2) it discourages precisely those who best serve the public, and (3) since the only way small firms can expand is to make large profits and then plough them back into their businesses, the confiscation of the greater part of these profits prevents the growth of small bus inesses, thereby shielding the larger firms from the threat of competition. 17 The result is that the poor, usually the intended ben eficiaries, are the onces most hurt by government programs to re distribute wealth and limit prof its, for it is precisely the poor who can least afford the squander ing of scarce resources. The best way to raise the standard of liv ing is to remove government re strictions on profits, for as Mises remarked, "The process that makes some people rich is . . . the corollary of the process that im proves many peoples' want sat isfaction."18 Conclusion People act on what they believe.

If they believe that capitalism is an unstable system based on the conflict of interests, they will either strive to replace the system by one ostensibly more harmoni 0us' or to adopt political programs designed to regulate and mollify the conflict. It is this latter al ternative that is popular in this country. Hence the realm of gov ernment interference is continu ally expanded. This is not really surprising since it is rare for any college text even to acknowledge the ex istence of the harmony doctrine. Students are taught that conflict is endemic to capitalism. John Kenneth Galbraith's American Capitalism argues that competi tion has been replaced by oligopo lies. To prevent exploitation by the capitalists, the government must encourage the formation of "countervailing power," Le., oli gopsonies in regard to the con sumer via the formation of mass retail buyers on one side of the market, and large labor unions on the other. A social balance is to be attained by having one power center offset another, an tagonistic power center. The gov ernment is to regulate these strug gles to insure that no side gets the upper hand. 19 After a brilliant dissection of contemporary "in terest group liberalism" in The End of Liberalism, Theodore Lowi reaches the paradoxical conclusion that what is needed to combat exploitation by goyernmentally privileged interest groups is more 1975 MARX, MISES AND THE INTEREST DOCTRINES 229 governmen t. And in A History of EconomiC' Thought, John Bell pre sents a caricature of the harmony of interest doctrine and qui.ckly dismisses it as naive and "open to severe criticism." But none is given.

It is indeed ironic that in a country that is allegedly capital istic, the writings of Ludwig von Mises should be so little known and discussed. But as Mises, him self, said, "truth persists, even if nobody is left to utter it."20 ~ • FOOTNOTES. 1 Karl Marx, Capital (New York, 1906), p. 46. :2 Karl Marx, Wages, Price and Profit (Peking, 1972), p. 27. 3 Marx defines "socially necessary" as "that required to produce an article un der normal conditions of production and with the average degree of skill and in tensity prevalent at the time." Capital, p.46. 4 Since under capitalism labor is bought and sold, its value "is determined, like that of all other commodities, by the labor-time required for its production .... The value of labor-power is the value of subsistence necessary for the mainte nance of the owner .... " Frederick En gels, On Capital (New York, 1974), pp. 67-8. 5 Frederick Engels, Outlines of a Cri tique of Political Economy. Appendix to Karl Marx's The Economic and Philo sophic Manuscripts of 1844 (New York, 1973), Pp. 201-2.

6 In fairness to Marx, it should be pointed out that he was aware of the existence of subjective use-value but er roneously contended that "we should leave out of sight the use-value of com modities" since, as exchange-values, commodities "are merely different quantities and consequently do not contain an atom of use-value." Capital, p. 44. Because of his emphasis on labor as the source of value, Marx ignored the function of time in the productive process. He did not realize that without interest, the large scale "roundabout" methods of produc tion would become impossible. 7 Eugen von Bohm-Bawerk, Capital and Interest (South Holland, Ill., 1959), Vol. II, Positive Theory of Capital, pp. 175-6. 8 Ludwig von Mises, Human Action (Chicago, 1966), p. 15. 9 Ludwig von Mises, Socialism (Lon don, 1969), p. 568. 10 Ibid., p. 541. 11 Mises defined "violent" as the use of physical force, the threat of its use, and the use of such types of implied vio lence as theft and fraud. All other ac tions are to be considered nonviolent.

12 Mises, Human Action, p. 281. ]3 Ibid., p. 340. 14 Ibid., p. 744. ] 5 Ludwig von Mises, Theory and His tory (New Rochelle, N. Y., 1969), pp. 32-3, and pp. 236-237. 16 Mises, Socialism, p. 535. 17 Mises, Human Action, pp. 806-9. 18 Ludwig von Mises, The Anti-Capi talistic Mentality (New York, 1956), p.43. 19 It is somewhat surprising that this book should have attained the stature that it has for there are several curious lapses in logic, not the least of which is the entire thesis of the book. While Gal braith uses the "countervailing power" thesis precisely to explain the prosperity of the 1945-52 period, he emphatically insists that inflation "dissolves" counter vailing power. But Galbraith, himself, admits that the 1945-52 period was in flationary. It seems a bit strange that one should try to explain' an event by the use of a concept that, by the author's own admission, shouldn't even be applic able to it.

20 Ludwig von Mises, The Historical Settin.fJ of the Austrian School of Eco . nomics (New Rochelle, N. Y., 1969), p. 45.

WILLIAM D. BURT Can this Marriage Be Saved? THE AMERICAN EXPERIMENT in government has often and most accurately been described as a marriage of democratic and re publican ideals - one which many of us think is going on the rocks. More than any amount of Bicen tennial hokum, events themselves compel us to re-examine ,vhy Lib erty and Democracy were taken down the aisle in the first place. Perilous it is to assume that these parties have always fought, or that their basic compatibility is imperturbable. Behind the tempo rary tensions and hurdles of this political matrimony, we are seeing the flame flicker ever lower in its great original passion: Justice. For an indicator I refer you to Mr. Burt is a senior majoring in political science at the State University of New York at Ge neseo, after which he hopes to attend law school. 230 the conceptual disarray and dis content that embroils this ideal.

All around us the substitutes for true justice contest for power: "equality of opportunity," "social justice," "the right to a decent living," "freedom from want." Meanwhile, justice in the old way - "to each his due" - seems to have been shunted aside. Among those who are critical of this pro liferation of imperatives, perhaps a good many perceive it as being linked with a decline of belief in a One God. It is, however, only part of a much more widespread disbelief today that concrete rules of any kind can govern human ac tion. A well-reasoned antipathy to human rulers has extended itself, and become pathological. Burning still in our collective memory are 1975 CAN THIS MARRIAGE BE SAVED? 231 the days when "reason" was the rope that tied heretics to the stake. So it is that intelligent peo ple can be heard to deny the ex istence of hard-and-fast princi ples, in the name of tolerance. The inevitable result is that tolerance and a great many other things cease to be defended as objective human rights. But in the la,v, the "positivist" thinkers insist that this is as it should be. This school of jurisprudence, harking back to Thomas Hobbes and John Austin, asserts that the only ob jective fact is that the sovereign ruler may do just as he pleases.

Professor Lon Fuller is a bit more discreet, insisting that law needs to be legitimated by reference to "reason." The sovereign should de termine what is law, but is him self determined by law. Circular? Not· so, says. Fuller: Every rule of law which has enough meaning in it to be useful to lawyers and judges will inevitably contain within it that antinomy of reason and fiat that runs throughout the law ... [It] receives concrete meaning only when tied in with an existing system of property and duty relationships that contain many elements which are obviously arbitrary. At the other extreme, even the most arbitrary rule of law has that minimum of reason behind it that justifies a respect for established and authoritative sources of law ... The whole view of sovereignty, the view that rejects neither branch of the antinomy of reason and fiat, can be stated without mysticism or obfuscation ... (Vol. 59, Harvard Law Review, pp. 377-389) The legal positivist view was most eloquently put forth by J us tice Oliver Wendell Holmes. In describing the law as a "predic tion of what the courts will do, t, Holmes succeeded in erecting the courts as a sovereign accountable, not to any eternally fixed princi ples, but simply to their own per ception of the popular win.

Th~ fallacy to which I refer is the notion that the only force at work in the development of law is logic. In the broadest sense, indeed, that would be true ... The danger of which I speak is not the admission that the principles governing other phenom ena also govern the law, but the no tion that a given system, ours, for instance, can be worked out like math ematics from some general axioms of conduct ... Such matters are really battlegrounds where the means do not exist for determinations that shall be good for all time, and where the de cision can do no more than embody the preferences of a given body in a given time and place. No concrete proposition is self-evident. (Vol. 10, HarvaTd Law Review, pp. 457-468.) How different is Holmes' decla ration from a popular saying of Revolutionary days: "We hold these truths to be self-evident!"

232 THE FREEMAN April Yet, viewing these two warring epistemologies, one must conclude that positivism has the upper hand today; broad areas of American political and ethical discussion quote it almost as an article of faith. Legal positivism has an es pecially persuasive aura; it sounds "realistic," "the way it really works." And one cannot blame an other for observing that our law often exhibits a characteristic conventionalism. For who other than the positivists have been its primary shapers for almost a full century? But let us ask if an "antinomy of reason and fiat" a.ccu rately depicts the nature of law. I think not. Ooherence of the sort that positivism denies is the very essence of law; consistency is all that stands between rule by law, and rule by sheer force. The Rule of Law There is little question that the Framers of the United States Con stitution intended to draw just such a distinction between brute rule and legitimate government by law. They recognized that all gov ernments employ force, but that in a government of law the actions of governors are prescribed by rules, and thus made legal. To say that law governs is to say that its rules have an existence and mean ing of their own, their creation having been authorized by original Framers, accomplished by sub sequent legislators, and their meaning not subject thereafter to the interpretative arbitrations of anyone. Clearly, not just any rules will do; for no authority could be long sustained which clearly af fronted its subjects' conception of natural right. The concern of the Constitutional Convention was, of course, to legitimate their own au thority to make and impose a sys tern; and in persuading the popu lace not to rise up against them they were admirably successful.

Now, if all successive adminis tra tions were to have held only that authority which was dele gated under the Constitution, then our entire body of law could in deed have been worked out "like mathematics," insofar as the Eng lish language could be made to communicate exact meaning. Few ordinary citizens, much less Jus tice Holmes, would be very seri ously troubled to see the logic of all things legal, and "strict con structionism" would by compari son be a byword for government expansionism. We should note that this bright .prospect was widely anticipated in the aftermath of the Constitution's adoption; it was also quite predictably doomed. If the Convention spoke upon au thority of "We, the People," then presumably the government there after continued as the agent of 1975 CAN THIS MARRIAGE BE SAVED? 233 "the People." This is the assump tion with which constitutionalism could not contend, and which a system of democratic elections strengthened - though the as sumption itself is never put to a vote. The obvious fact is that suc cessive administrations inherited not only the Constitution, but the authority behind it.

The Process of Amendment In view of this, the power of constitutional amendment takes on a curious meaning. Agreeable to the idea of at least some change, the Framers, with a ca veat against inconsistent amend ments, insisted that it be accom plished within a. mechanism of their own making . Washington emphasized this in his Farewell Address: Let there be no change by usurpation, for though this in one instance may be the instrument of the good, it is the customary weapon by which free governments are destroyed. Nevertheless, following adminis trations lost no time in exercising not only delegated powers, but al so their inherent imperium, sub verting the former's limitations with the latter. So one cannot ex pect to confine government, by ap peal to "the Constitution," to those strictures and checks which it finds onerous; the People's agent enjoys the right to ignore, blas pheme, amend, or rej ect altogether that which it has wrought before hand. What hope could possibly remain that government would long remain limited?

No recourse is left but an ap peal to logical consistency - tra ditionally weak ground in politics. Even so, the Founding Fathers hoped that someone would blow the whistle when government contradicted on one hand what it had just done with the other: in their phrase, that there would pre vail "A Decent Respect for the Opinions of Mankind." Though hardly sanguine about popular rule, these men undespairingly leaned upon an enlightened minor ity to henceforth remind the pub lic that the sanctions and powers of the Constitution could not sen sibly be divorced from its limita tions, that such a rude move would destroy a system designed to work as a unified whole. This was per haps a reasonable faith in an era when the evidence was everywhere fresh in mind that a "mutable pol icy," as Madison said, poisons the blessings of liberty itself. It will be of little avail to the people that the laws are made by men of their own choice if the laws be so vol uminous that they cannot be read, or so incoherent that they cannot be un derstood; if they be repealed or re vised before they are promulgated, or 234 THE FREEMAN April undergo such incessant changes that no man, who knows what the law is today, can guess what it will be to morrow. Law is defined to be a rule of action, but how can that be a rule, which is little known, and less fixed?

(James Madison, Federalist No. 53) Madison's emphasis on consis tent interpretation found its back ground in a string of similar doc trines which ornamented the legal heritage of his day. The Roman nulla poena sine lege, or "no crime without law," had established that law must primarily be dissemi nated before its offenses become punishable; and secondarily that its terms be put in operational (and not merely stipulative, in definite, or contradictory) terms. The long English tradition from the Magna Carta to the 1689 Bill of Rights counted as some of its greatest accomplishments the se curing of a defendant's right to know the charges against him, and requiring the King to link those charges with an established law. The Bill of Rights One can gauge the prominence given to coherence in the Consti tution by the vehemence with which the Framers defended it; Hamilton in particular declared that a Bill of Rights was super fluous, that the Constitution itself guaranteed all those popular free doms which had been so carefully enshrined in the Articles of Con federation. The public was pru dently intransigent on this point - none of which should indicate that the approved product was a marvel of consistency. How much of today's legal doublethink was originally coined to defend slav ery, before that staggering anom aly to freedom was eradicated?

No small amount of it lives on to day to excuse continuing inequal ity before the law according to occupation, class, or other arbi trary criteria; the utilitarianism of our age has so institutionalized it that it rests more comfortably with many lawyers than does the original imperative of John Locke: [The power government hasJ ought to be exercised by established and pro mulgated laws: that both the people may know their Duty, and be safe and secure within the Limits of the Law, and the Rulers too kept within their due bounds, and not be tempted, by the Power they have in their hands ... or else their Peace, Quiet, and Prop erty, will be at the same uncertainty as it was in the state of Nature. (Sec ond Treatise on, Governwnt, ed. Pe ter Laslett [New York, Cambridge University Press, 1963J p. 406, 405.) Can it be said today that we know our Duty, or that our Rulers know their bounds? The uncertain view with which most of us now regard the government certainly 1975 CAN THIS MARRIAGE BE SAVED? 235 suggests that the nation has not kept its fences as Locke urged we must do. It is long past time to ask how this came to be.

We have noted that there are the workings of government it self; try as they might, the Fram ers could not design an adminis tration that was in fact limited to its delegated powers. We have seen the "enlightened minority" swept up in a philosophy which denies that absolute principles, much less established laws, can even exist. But no explanation of the decline of limited constitu tional government would be com plete without touching upon the role of the Supreme Court in de fending the Framers' intent. Limitations of this kind can be pre served in practice no other way than .through the courts of justice, whose duty it must be to declare all acts con trary to the manifest tenor of the Constitution void. Without this, all the reservations of particular rights and privileges would amount to noth ing ... The courts of justice are to be considered as the bulwarks of a lim ited Constitution against legislative encroachments ... That inflexible and uniform adherence to the rights of the Constitution, and of individuals, we perceive to be indispensable in the courts of justice. (Alexander Hamil ton, Federal'ist No. 78) It is a comparatively hollow and scarred Constitution that now serves as the totem of our Court; the supreme law of the land is often little more than a cat's-paw for vast and incoherent "ethical"

imperatives, various social exi gencies, and the impatient stamp ings of the better-organized in terest groups. Not surprisingly, all the checks and balances have become bulwarks of State power. Presumption often supplants vigi lance, for Power's gain: judicial presumption that lawmakers hand down coherent law, and legislative presumption that the courts can "determine the exact application of the laws." Even more boldly, each of the branches of the Fed eral government has gotten into the business of making, applying, and adjudicating· its own rules. Then, for instance, we have the sad spectacle of the Supreme Court, modestly declining to rule on substantive issues under broad areas, the sooner that it might en joy the prerogative of "deciding each case on its merits." Can we not lament this trend all the more because use of these areas of au thority is growing, and because the police power, for example, is at best impUed, and not once men tioned in the Constitution, while the Framers demanded an "inflex ible and uniform adherence to the rights ... of individuals"?

One cannot fail to be impressed that the Constitution's authors 236 THE FREEMAN April were better cognizant of the crit ical historical tendencies of gov ernment than many are today. They knew of Power's clever usur pation of everything that stands in its way. With a mixture of hope and skepticism, they detailed the contrivances and social conditions which could best bend Power to their own noble goals. With a re markable grasp of the state of political justification, a number of the Founding Fathers spoke of the marriage of democracy and liberty as a "last chance" for govServant Governments ernment. It remains true today that this Constitution ought to be a conclusive test of the proposi tion that man can be more free under. government than in the state of nature. This is the stake which we still have in proving their hope better founded than their skepticism. My purely tech nical note is that we will yet be reminded that the sanctions and blessings 'of the Constitution are inseparable from its limitations, if our errant experiment in gov ernment is to work. ~ IDEAS ON LIBERTY SEEN IN PERSPECTIVE, this constitutional system, which is our Aluerican form of government, is a veritable latticework of barbed wire entanglements thrown around every governmental official in the land. It is a pattern of slow motion and inefficiency which no "expediter" would tolerate for five minutes in any private business organization. Is it any wonder therefore that the eager-beavers of modern jurisprudence chafe under these impediments to prompt and efficient public service? What possible answer can be made to the ever swelling chorus which demands that our antiquated form of government be streamlined toward centralized authority and sharpened responsibility? There is no answer - except one. That answer is drawn from the substance which this complicated for-m was built to hold safe and secure.

The men who fashioned this form of government were thinking of John Doe's life, liberty and pursuit of happiness. Their princi pal concern was not with the efficiency of government, but with the safety of the God-created human personality ... CLARENCE MANION, The Key to Peace I~I SEJ.\RCI-I OF FREEfJOJ'I\ BEN MOREELL THE THEME of this meeting is "Freedom." And I have been asked to study the problem of "preserv ing our freedom." My dictionary defines "free dom" as "liberation from restraint or from the power and control of another." In the course of my studies there arose in my mind certain doubts, which merged into fears. I began to wonder whether we Americans have lost our zest for freedom: whether we really be lieve in liberation from restraints as a desirable way of life. I found evidence that many of us believe tha t we cannot trust freedom because we are afraid it will not work! So we vote against freedom and for governmental restraints at almost every opportunity!

Now, before you jump to the conclusion that I favor unbridled license, I want to say that I, too, favor certain restrictions on free dom. For example, I want a re straint against the freedom of any person to do bodily harm to any other person, or to cheat him, or to defame him, or to use force against him in any manner. I want adequate laws against fraud, coerThis article is from an address at the annual meeting of the Chamber of Commerce of the United States in Washington, D. C., May 2, 1951. Admiral Moreell then was Chairman of the Board and President of Jones & Laughlin Steel Corporation. The U. S. crisis in 1951 was the Korean War; but the crises have continued, as has the urgency of the search for freedom. 237 238 THE FREEMAN April cion and monopoly. But I believe that type of law is designed to protect the individual's freedom of choice and action. It is true that it is a restraint. But it is one that does not inj ure any person who desires to live in peace and deal fairly with his fellow men.

That type of law is aimed solely at the person who wants to restrict or destroy the freedom of others by imposing his will and his ideas upon them. I doubt that any right-thinking American opposes what we, in gen eral, refer to as "the police and de fense powers of government." These are designed to protect all of us equally against internal or ex ternal aggression. Those basic povv ers were provided for in our F2d eral and State Constitutions just about as they had developed under the common law of England. But over the years a different concept of the functions of government has grown up among us. The founding fathers established a form of limited government with divided governmental powers de signed to protect the smallest pos sible minority - one person against the demands of the largest possible majority -all other per sons combined. But, today, there is evidence that we are turning to the dictatorial thesis that "might makes. right"; that there is no in violable right for any person if the organized and formalized maj 01" ity decrees otherwise; that the mere legalizing of an action makes it morally proper.

Thus we appear to be drifting from freedom and responsibility to re3trictions and irresponsibility. We now demand that government "protect" us against the results of our own freedom of choice. We ap pear to have accepted the theory of group morality; of determining right and wrong by voting on it - and then accepting the maj 01" ity decision. It makes one wonder what the future holds for a nation wherein the people lose their faith in individual freedom and in per sonal responsibility for one's own actions. The Case of Businessmen Now, before we consider specific examples of this rejection of free dom, I would like to make two points. First, I am not talking about "someone else" who is not with us today. I am talking specifi cally about myself - and about you, my fellow businessmen. For I see little evidence that we businessmen of America have greater faith in individual freedom' than have farn1ers, industrial workers, doc tors, teachers, ministers or any other occupational group. You may have heard it said that if only others - the traditional "man in the street" - knew as much about 1975 IN SEARCH OF FREEDOM 239 this subject as "we businessmen,"

there would be no danger to our freedom. I believe that is a self righteous position, built on a false premise. I believe that many of us have made the same errors as those in other groups. If you wish to see with what ease we "free enter prisers" can justify our tastes for socialism, you have only to ex amine the "resolutions" of almost any organization of businessmen as they emerge from the Annual Convention! Let us admit, then, that it is we who need to learn and not a nebu lous "someone else." My second point is that I am quite sure that I do not know the answers to the weighty problems which we face. I do not have a pipeline to God, or eternal truth, any more than you have. I speak to you as a student, not as a teach er. And, I come here, in all humil ity, to present for your considera tion the results of my study of freedom. Social Security Probably the most clear-cut ex ample of our lack of faith in indi vidual freedom is found in the compulsory social security pension system administered by the Fed eral Government which has spread so rapidly over our country. I would guess that few persons here would abolish this system, even if they could. The reason, I· believe, is this: few persons believe that individual freedom and personal responsibility for one's own wel fare offer the greatest possible se curity in an admittedly insecure world. It appears that we Ameri cans no longer believe that a free person in a free country can or will voluntarily provide for the welfare of himself, his family and his handicapped or temporarily unfortunate neighbor. In contra diction of our own Declaration of Independence, we appear to be rapidly becoming a nation of de pendents. That philosophy of de spair is summed up in the question that is heard whenever the subject of security by dependence on gov ernment is discussed: "Would you let them starve?"

Let us consider the implied meaning of that question. To me it says, if people are free and re sponsible for their own welfare, they will starve. It says that we have rejected Christ's teachings on love and charity. It says that we - through our churches and our other voluntary organizations - cannot or will not care for the unfortunate among us. It says that a free economy results in starvation instead of progress and prosperity. It says that freedom is a failure and that, for our sal vation, we must turn to the author itarian concept of government240 THE FREEMAN April guaranteed security. I believe this is an outright rejection of the original American belief in free dom of choice and personal respon sibility for one's own decisions and actions. I believe few would find fault with the announced goal of social security, i.e., freedom from want in old age. But even if we are will ing to incur the dangers to all our freedoms which arise when we maximize the importance of "free dom from want," we still must answer the question: "Will it work as it is now administered by Gov ernment?"

The receipts from social se curity taxes are used to defray current costs of government. But the goods and services which will be given in the future to the bene ficiaries of social security will have to be provided from the then current production. They will be paid for by current taxes or by in flation. In either case the net effect will be to take from producers to give to nonproducers. When this effect becomes substantial, the in centive to produce is impaired or destroyed. And we must remember that the very safety of the nation depends upon our ability and our willingness to produce! Social Se curity taxes are, in effect, a with drawal against savings. If they are to be productive they should be used to increase our tools of production, not for current ex penses of government! Slavery and Privation As proof of the error of our present approach, let us look at the nations of the world where gov ernments exercise the greatest de gree of control over their people.

There you will find the lowest standards of living. Let us ex amine Russia and her satellites. The siren song of government guaranteed security has brought mass privation to the citizens of those nations. Look at Britain and her pro mise of security from the cradle to the grave! It is important to recall that the British experiment in government security has not only led to succes sive crises in this postwar period; it has also required that Britain be bailed out periodically primari ly by American aid, with secon dary assists from Canada and other Commonwealth nations. It is proper, then, to raise this ques tion: Who will be there to do for us what we have done for others if we follow this road into bond age? Our approach to the concept of government-guaranteed security here in the United States is more along the lines of British national socialism than the Russian brand of socialism. Here, we retain a 1975 IN SEARCH OF FREEDOM 241 two-party system and the right to vote, but most of the leaders of both parties are pledged to the same general program in such matters as governmental housing, social security, subsidies to farm ers, loans to poor business risks, rent controls, price controls, tariffs and other restrictions against the freedom of honest persons to trade with other honest persons on terms mutually acceptable. There may be a difference in the degree of socialization or in the mechan ics of administration advocated by our two major political parties.

But it is difficult to distinguish any major difference in basic prin ciple. Thus, I believe, we have clear proof at home and abroad that democracy of itself does not auto matically guarantee freedom; in fact, we have proof that regimen tation lurks insidiously behind democratic promises of govern mental security. Lost Freedoms I will not undertake to list all of the many freedoms we have sur rendered in the United States the restraints against freedom of choice that we have voted against ourselves. But such a list would include controls over farmers, businessmen, industrial workers, bankers, foreign traders and other groups. It would include price controls, wage controls, rent controls, raw materials controls, controlled rates of interest, inflat ed money, artificially cheap credit, and controlled production. Each of these measures has the effect of preventing honest persons from doing what they want to do or of forcing honest persons to do some thing that they do not want to do.

As such, each is a clear-cut denial of freedom. Else why has freedom been forsaken and forbidden in these vast areas of our daily activ ities? To me, the sad part of these con troIs is that, even if we disregard the moral issues involved, I believe they will not accomplish what they are designed to do. I can find no evidence in history that they will work and I believe the reason is clear. It is not, as is claimed, an attempt to control prices or mate rials; it is always an attempt to control persons. For example, when the "new deal" was tried in Old Rome, it was announced as a program to control prices. It was persons, however, who were fed to the lions when they were caught charging more than the legal price. But, as they always will, the people continued to trade on terms mutually accept able to buyer and seller, even when facing the death penalty. During the French Revolution, the government tried to stop the rise of prices by condemning the 242 THE FREEMAN April so-called black n1arket merchants to the guillotine. But, in spite of this, prices continued to rise in proportion to the amount of infla tionary paper money that was printed and distributed by gov ernment.

In Russia, the government tried to stop inflation by the direct pro cesses of starvation, the concen tration camp, and the firing squad. It did not work, even in this most completely controlled economy the world has ever seen! The Vital Question This brings us to the vital ques tion: Will the price controls, wage controls, profit controls and other measures against freedom now be ing instituted by,government stop inflation and high prices in our country? I believe the answer is "N0." I believe that fines against so-called black marketeers will not stop inflation nor will prison terms stop it. I concede that our government officials do wish to stop inflation. I suggest, therefore, that they consult the dictionary to find a definition of what they are trying to stop. They will find that infla tion is defined as "a dispropor tionate increase in the quantity of money or credit, or both, rela tive to the amount of exchange business." That is, inflation is caused by a disproportionate increase of money and credit rela tive to available goods and ser vices. The question then is: Who or what is responsible for increas ing the money and credit?

It would appear to be our own government that is responsible for the inflation and high prices that are upon us today. Yet, this same government is leading the posse in an attempt to catch the culprits! While we are being warned to watch out for "specula tors and black marketeers" the real culprit (our own government) continues its inflationary fiscal policies of creating more and more money and credit in relation to the production of goods and services. We are now fighting one costly war while we are preparing for a greater one. Such a program re quires a tremendous amounf of goods and services. If these must be produced now, instead of ten years from now, then the efforts of individual citizens must be di rected now to that purpose. What ever the cost in effort of rearma ment it comes at the time the goods are being provided. It is not possible to have the products now and to postpone the effort to suit our convenience. And if the gov ernment does not pay for the effort required to produce the goods of war with money gathered by taxes now, then, judging by past experi ence, the government will pay for 1975 IN SEARCH OF FREEDOM 243 those goods with printing-press money, or its equivalent, that will destroy by inflation the value of our earnings and savings as though they had been taken from us by taxes. It appears that the sole effect of so-called "deferred payments," as previously practiced, is to delude us into believing that it is possible to get something for nothing - instead of having to work and pay for it.

It is proper, I believe, to raise this question at this point: How can we discharge that obligation to "secure the blessings of liberty" to our posterity which the Con stitution enjoins upon us, if we pursue the will-o'-the-wisp of inflation and thus mortgage the liberty of that posterity? Four Minus One Is Three We have beep told that one"': fourth of our production and ser vices may eventually be absorbed by the armament program. In the face of that, some of our more op timistic government officials tell us that the Defense Program will cause little or no decline in our standard of living. I cannot follow this line of reasoning. For when one is subtracted from four, the result is three. And all the controls in the world cannot change that answer or the natural conse quences that must inevitably re sult when more and more money bids for fewer and fewer goods and services. I believe that if our government adopted the forthright approach of collecting in taxes the full amount of its expenditures, we w'ould thus eliminate any excuse for building up a huge bureaucracy in the futile effort to prevent prices and wages from finding their natural levels. For on a pay as-you-go basis, as goods and ser vices are funneled into rearma ment, an equal amount of purchas ing power would be withdrawn by taxation. Thus there would be no serious inflation and little or no further general price rise in the overall economy.

But if we continue in the direc tion we have been going in recent years, with a steadily increasing stream of money accompanied by compulsions against individual freedom, we have reason for con cern for the future of our nation. For such a course will bring two evils that must eventually destroy us - as surely as if we were in vaded and conquered. A Nation of Lawbreakers In the first place, I believe eco nomic necessity will eventually in duce us to become a nation of law breakers in order to survive under a permanent system of wage, price and other controls. Normally hon est persons will find it necessary 244 THE FREEMAN April for economic survival to return again to the under-the-counter deals and black market operations that existed under previous gov ernmental attempts to abolish the free market and the right of per sons to trade with each other on mutually acceptable terms. Good laws will then suffer along with bad laws. Because the only way to create respect for all law is to make sure that all laws are them selves respectable. Laws that cause normally honest people to become technical criminals are not respectable laws. But these laws against individual freedom of choice and action, laws that are designed to abolish the natural operations of a free and competi tive market, will offer criminals and gangsters an unexcelled op portunity to flourish. This could easily mean the end of our Ameri can experiment in freedom - the end of our original concept of gov ernment as servant, not master of the people.

Power Corrupts Another great danger is to be found in what happens to the of ficials who are called upon to ad minister these great governmental powers. For when a person gains power over other persons - the political power to force other per sons to do his bidding when they do not believe it right to do soit seems inevitable that a moral weakness develops in the person who exercises that power. It may take time for this weakness to be come visible. In fact, its full ex tent is frequently left to the his torians to record, but we eventu ally learn of it. It was Lord Acton, the British historian, who said: "All power tends to corrupt; ab solute power corrupts absolutely." Please do not misunderstand me. These persons who are cor rupted by the process of ruling over their fellow men are not in nately evil. They begin as honest men. Their motives for wanting to direct the actions of others may be purely patriotic and altruistic.

Indeed, they may wish only "to do good for the people." But, appar ently, the only way they can think of to do this "good" is to impose more restrictive laws. Do-Gooders Now, obviously, there is no point in passing a law which re quires people to do something they would do anyhow; or which pre vents them from doing what they are not going to do anyhow. Therefore, the possessor of the political power could very well de cide to leave every person free to do as he pleases so long as he does not infringe upon the same right of every other person to do as he pleases. However, that concept ap1975 IN SEARCH OF FREEDOM 245 pears to be utterly without reason to a person who wants to exercise political power over his fellow man, for he asks himself: "How can I 'do good' for the people if I just leave them alone?" Besides, he does not want to pass into his tory as a "do nothing" leader who ends up as a footnote somewhere.

So he begins to pass laws· that will force all other persons to conform to ~ his ideas of what is good for them. That is the danger point! The more restrictions and compulsions he imposes on other persons, the greater the strain on his own morality. As his appetite for us ing force against people increases, he tends increasingly to surround himself with advisers who also seem to derive a peculiar pleasure from forcing others to obey their decrees. He appoints friends and supporters to easy jobs of ques tionable necessity. If there are not enough jobs to go around, he cre ates new ones. In some instances, jobs are sold to the highest bidder. The hard-earned money of those over whom he rules is loaned for questionable private endeavors or spent on grandiose public projects at home and abroad. If there is opposition, an emergency is de clared or created to justify these actions. If the benevolent ruler stays in power long enough, he eventually concludes that power and wisdom are the same thing. And as he possesses power, he must also possess wisdom. He becomes con verted to the seductive thesis that election to public office endows the official with both power andwis dam. At this point, he begins to lose his ability to distinguish be tween what is morally right and what is politically expedient.

I am aware that whenever con trols and restrictions are' pro posed, the argument is made that they are temporary, "for the pe riod of the emergency only." But I have seen too many "temporary" measures harden into permanent controls by government to permit me to view them with compla cency. We have been told by gov ernment officials that the present emergency may last for a genera tion or even longer! Will these controls and restrictions on free dom last that long? We should, I believe, base our appraisal of any measure on the moral principle in volved, and reject all justifications which are based on political or other expediency. Such justifica tions are inevitable when people grasp for power. Moral principle is timeless. An act that is wrong ten years from now is just as wrong today! We are now engaged in a con test between our philosophy of liv ing and that of a totalitarian 246 THE FREEMAN April state. We have said again and again that it is our free way of life that gives us both spiritual and material superiority over Russia and communism. Yet, when the crucial test between these two philosophies is imminent, we ap parently feel compelled to adopt their system in order to prove that ours is best. We feel com pelled to reject freedom and em brace the communist idea of a planned economy and a controlled people. Thus we surrender in the most vital battle, the battle of ideas, even before a shot is fired.

What will it profit us to defeat aggressive foreign nations who believe in a regimented people and government ownership of the means of production, if, in the process, we accept the validity of their doctrines for use here in the United States? That would indeed be a Pyrrhic victory! A Return to Freedom Where then does this search for freedom lead us? What should we do? First, I want to say that I am quite sure I am not capable of determining for 150 million peo ple [in 1951J their everyday eco nomic and personal decisions con cerning such things as wages, prices, production and all the rest. I believe that no other person, or group of persons, is capable of do ing so. For that reason, I propose that these decisions and the prob lems connected therewith be re turned to the people themselves. This, I believe, could be done in three steps: First, let us stop this headlong rush toward more collectivism. Let there be no more special privileges for employers, employes, farmers, businessmen or any other group or persons. Let there be no en largement of the area of socialism.

That is the easiest step of all. We need merely refrain from passing additional coercive laws! And let us not ignore the fact that when ever special privilege is granted to a person or group the freedom of others is correspondingly re stricted - that is coercion! Second, let us undertake at once an orderly demobilization of many of the existing powers of central ized government. This can be done by the progressive repeal of the various socialistic laws that we al readyha ve. Let us remove the special privileges that we have granted to persons and groups. This will be a very difficult step because every pressure group in the nation will fight bitterly to re tain the laws that grant them monopoly privileges and protec tion from competition. But if free dom is to live, all special privileges must go! Would it not be a wond erful thing if each pressure group would voluntarily surrender its 1975 IN SEARCH OF FREEDOM 247 own special privilege as a contri bution to the great cause of free dom for all?

Third, of the powers which re main in government, let us decen tralize as many as possible by re turning them to state and local governments. For on the local level the people will be better able to safeguard their freedom by criti cal scrutiny of the acts of their government officials. But I am sure that none of these steps will be taken until we believe that freedom as a way of life will work! Thus, the very first step of all is for each of us to examine his own conscience, to find out why he has lost faith in freedom in those vast areas that have been dele gated to government; and how he can regain that faith. It is my firm belief that such self-exami nation will result in a rebirth of confidence in freedom and in in dividual moral responsibility in a nation now beset by fear and con fusion. For I am sure that when a person understands freedom, he must believe in it! In this time of grave national crisis I believe we can obtain guid ance from the wisdom of our founding fathers. I, therefore, commend for your consideration these statements by George Mason and Thomas Jefferson in the Vir ginia Bill of Rights, which was it self the foundation of our Declara tion of Independence: "That all men are by nature equally free and independent, and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing pro perty, and pursuing and obtain ing happiness and safety.

"That no free government, or the blessing of liberty, can be pre served to any people but by a firm adherence to justice, moderation, temperance, frugality, and virtue, and by frequent recurrence to fundamental principles." These, I believe, are the truths by which we must live if we are to be free! , IDEAS ON LIBERTY Not Through Power I HAVE NEVER been able to conceive how any rational being could propose happiness to himself from the exercise of power over others. THOMAS JEFFERSON A REVIEWER'S NOTEBOOK UPLIFT 1////1/ JOHN CHAMBERLAIN IT'S BEEN a long time since Richard Cornuelle wrote his Reclaiming the A merican Dream, a glowing book which made the voluntaristic soci ety seem an immediate possibility. Things haven't quite turned out as Mr. Cornuelle would have wished. Inflation and voluntarism don't go together. Private schools struggle while the State, in response to the educational 10hl?Y, pours out the money for "aid" to public educa tion. And now, with a recession or a depression or whatever you want to call it fastening itself upon us, the cry is for millions of "public service" jobs to be paid for by our children's children.

Nevertheless, the idea that peo ple can combine in adversity to solve their own problems without run ning to Big Brother State for sup port will not die. The United States Jaycees Foundation has sponsored a book, Uplift: What People Them selves Can Do (Olympus Publishing 248 Co., Salt Lake City, Utah), which shows a hundred different self-help proj ects in successful action. There has been some government start-up money in a few of the proj ects, but, as the evidence clearly shows, the organizations that have depended on their own money-raising efforts have been the healthiest. For example, Joseph R. Spoon:. ster, who started a Vocational De velopment Center for the Handi capped in Akron, Ohio, without government backing, is explicit about the value of bringing free en terprise principles to the business of teaching trades to people with disabilities. When the local com munity council refused him a grant in 1964, Mr. Spoonster and his wife cashed in their insurance policies and retirement funds to get their center going. It was, Mr. Spoon ster says, "the best thing that could have happened to us. It was tough at the time, but it forced us away 1975 UPLIFT 249 from the traditional conservative methods of meeting human needs."

The Spoonsters went ahead to hire the best possible instructors and proceeded to obtain contracts with firms and government agen cies to employ the center's gradu ates. The center also took on subcontracted jobs for major in dustrial companies in the Akron area. Eventually the Spoonsters got a grant for expansion from HEW, which spoils the self-help story a bit. But the expansion program is now self-supporting, operating on earned income, and the Spoonsters are now working with a committee from Canada to establish the first private rehabilitation center north of the U. S. border. They also hope to expand to Brazil. The "social gospel" church has recently gotten a bad name among libertarians by its habit of endors ing State charities paid for by tax money seized from unwilling con tributors. The "social gospel" has also been entirely too complaisant about handing out money to Afri can guerrilla groups whose idea of promoting freedom is to murder the opposition. With governments everywhere doing good by force, the older view of charity as some thing that comes voluntarily from the heart doesn't have too many vo cal defenders these days. Without fanfare, however, there are still a lot of church groups whose primary commitment seems to be in helping to get self-help proj ects started.

In Webster, South Dakota, for example, a cooperative called Tract Handcrafts, Inc., has grossed more than $650,000.00 in a couple of years from patchwork quilts which have been promoted as far east as Lord and Taylor's in New York. The German, Russian, Scandina vian and Sioux Indian quilt pat terns that reflect local heritages in northeastern South Dakota have great sales value in some 350 de partment stores around the coun try. The quilt-making cooperative depended at first on borrowed or donated se'Ying machines. But a drive by five churches provided $19,000.00 for the cooperative in six months, and the American Lu theran Church made an additional grant of $20,000.00. Church organizations helped start Fine Vines, a black self-help corporation that makes blue jeans in Greenville, Mississippi. The An tioch Missionary Baptist Church was the first member of a Self Help Action Center which has formed hundreds of food-buying clubs that deal directly with farmers in the northern Illinois area. Working on principles that are as old as the Rochdale movement in England, the Self Help Action Center clubs buy food directly from farmers who bring their produce to the parking lot of the Antioch Missionary 250 THE FREEMAN April Church in Chicago for distribution that avoids all sorts of packaging expenses.

Again, it was the church that raised $10,000.00 for the Reverend Albert Williams to start an inte grated shopping center in a riot cursed urban "wasteland" in Menlo Park, California. An "ecumenical" ministry organized the farmers of the so-called boot-heel of Missouri to raise soybeans at a profit in one of the worst poverty pockets in the country. The Collegiate Reformed Dutch Church of New York gave space for the Break Free Lower East Side Preparatory School, which has been turning high-sehool dropouts into "college material." And in Phoenix, Arizona, the Lu theran church helped an organiza tion called PUSH (People United for Self-Help) get into the business of raising food for its members and for outside sale. In Milwaukee a group named SWEAT (no acronym, it means what it says) started making play ground equipment from used car and truck tires, bolting them to gether in pyramids and other odd shapes for children to climb over or crawl through. The venture began in the backyard of one of the work ers. The city building inspector didn't like what was going on and promptly issued a cease and desist order. So SWEAT moved into an other backyard. Three more backyards and three more cease and de sist orders later, the operation fi nally managed to move into a legal manufacturing facility. Now SWEAT is on its way to financial independence, offering its unique product in five midwestern states and even nationally.

Says Mary Anne McNulty, the group's president: "It [SWEAT] is something that has been created out of nothing but the easy dis cards of our country - discarded telephone poles, discarded tires by discarded people who wouldn't settle for being discarded." The federal and state govern ments have performed best when, after a limited funding, they get oft· the backs of people in self-help projects. Too much money dulls the edge not only of husbandry but of the keenness needed to find a place in the market. In Berea, Kentucky, a woodworking cooperative was funded to the tune of $50,000.00. "But," says William McClure, the man who started the idea, "it ended up with the money in two or three people's pockets ... They was mak ing $10,000.00-$15,000.00 a year and we was getting $1.69 an hour, mostly . . . . running back and forth to see if they had anything for us to do." Later, starting up again without funds, the woodcarv ing cooperative became a success.

Says Charles Wesley of the wood carvers'· office, "We were better off 1975 OTHER BOOKS 251 not to have government funds ... it all ends up in a lot of overhead without support." Richard Cornuelle would ap prove. His "dream" is not dead. ~ ANARCHY, STATE, AND UTO PIA by Robert N ozick. (New York: Basic Books, 1974), 367 pp. $12.95. Reviewed by Roger Donway WRITERS who purport to give us the basic justification of a free so ciety deserve special scrutiny. Be cause they are, in essence, inviting us to rest all of liberty on their reasoning, we must know espe cially the worth of their argu ments. It is not enough that they decide for freedom, or that they throw off useful insights along the way. Too often, we have seen a statist premise or concession con vert our enemy's enemy into our enemy's best friend. Professor Robert N ozick's book, Anarchy, State, and Utopia, in vites such consideration, for he has undertaken nothing less than to justify the minimal state, and to show that government should have only the function of protect ing its citizens' rights. We may note that it is gratifying to dis cover a Harvard philosophy pro fessor who is anxious to concoct original arguments for liberty; and gratifying again to see him make telling points against cer tain Leftist theories, including the theories of his collectivist minded colleague, John Rawls. But we must not, in our pleasure, fail to ask how well he has defended freedom.

Professor Nozick, then, begins his defense with the anarchists' question: why should we have any sta te at all? And he answers by arguing, first, that in a state of nature there would be strong mo tives for instituting government; and second, that men could come out of a state of nature, setting up a minimal government, with out violating anyone's rights. He then tries to demonstrate that any extension of government beyond the minimum would violate rights. And in a final section, on utopia, he urges that a free society is in spiring as well as just. The most striking element in this may be N ozick's decision to justify free government by play ing the anarchists' game. Advo cates of freedom have generally believed that the question of an archy need never and should never come up. It is worthwhile to R$k why Nozick thinks he must raise it; and how he fares, having done so. Nozick's reason appears simple and plausible: "The fundamental question of political philosophy, 252 THE FREEMAN April one that precedes questions about how the state should be organ ized, is whether there should be any state at .all." This is true enough. Yet the question which precedes political philosophy does not ask whether there should be a monopoly over force; each man must have that, to be able to count on controlling his life. The gen erative question, rather, is how men can live together, if each has such a monopoly. And the histori cal answer, perhaps the only one, is government: an institution which commands a monopoly on force, and which is the common agent of its citizens.

Nor is it merely unnecessary to play the anarchists' game; it is also concessive. In Nozick's case, his speculations about an elaborate market for force implicitly con cede that a free market does not presume protection of rights, and that long-range planning-control of one's life - can exist where force is exercised at the discretion of others. Both assumptions make a dangerous beginning for a de fense of freedom. Professor Nozick's troubles ex tend equally to his explanation of rights. He begins with the "intui tion" that whatever goal we may be seeking, certain means of ac complishing it are ruled out. It is not that they don't work; it is just that they are forbidden. Nozick decides that the best ex planation for this feature of ethics is that people cannot be treated wholly as means; and this in turn, he says, implies some thing like the Lockean system of human rights. There are several disturbing features about this proposal, not the least of which is resting hu man liberty on Professor Nozick's intuition. There is, besides, Nozick's ingenuous announcement that he is not going to say whether the ban on force is absolute; or, if it is not, in what cases the ban may be lifted.

Even more importantly, though, Nozick has explicitly adopted an unhappy notion which crops up from time to time: that rights are a kind of unnatural restraint on our pursuit of values. It is as if to say: we would, of course, engage in murder and rapine as part of the good life, but as it happens these perfectly natural and effec tive means of achieving happiness are denied us. This is to give force a far better reputation than it deserves. Force is not an effective means of seeking values, nor even an in effective means; it is simply the abandonment of value-seeking. Many people recognize that in try ing to obtain values by coercion one foists off on another the task of creating one's values. Many 1975 OTHER BOOKS 253 also recognize that in using force one abrogates the other person's judgment and control. The two points can also be brought to gether: that to pursue values by force is to surrender the .task of creating values to a powerless man.

Finally, there is a larger ob jection against Ana,rc'hy, State, and Utopia, and it is suggested by the two already discussed. Profes sor Nozick's thesis, I am afraid, will become a victim of his meth 0d. Contemporary philosophy seems to insist that the most ur gent possible conclusion should be grounded on the most irrelevant possible fact. Thus, rights are grounded on Professor Nozick's moral intuitions, and free govern ment on the conceivable workings of an anarchist market. A well touted defense of liberty, done in this style, is ideally suited to be come a major reason for dismiss ing liberty as irrelevant to human concerns. ~ EVERYTHING YOU NEED TO KNOW NOW ABOUT GOLD AND SILVER edited by Louis Caribini (New Rochelle, N. Y.: Arlington House, 1974) 176 pages, $8.95. Rev'iewed by Robert Vic has PERHAPS not everything, but here are plenty of facts, history, and details to aid any prudent investor in financial planning. Now that Americans can once more, after 41 years, legally own gold bullion (for how long no one can predict), petite markets for gold and silver coins and mini-bars of these en chanting metals may become as strong as horseradish.

An umbrella will go up when it rains, but a period of sunshine will bring on its collapse; and with rainmakers in Washington first seeding clouds of doom and then withdrawing from rain-dance ac tivities, the timid, overextended buyer may find himself whipsawed unless he has a solid grasp of long term fundamentals. The editor has clustered an im pressive covey of writers, analysts, consultants, and economists, whose combined talents and expertise would be welcomed on any board of investment advisors, provided, of course, that the investors favor long-term purchases of gold and silver. Caribini has wedged into one vol ume interviews originally conduct ed for the Gold & Silver N e1wslet ter. In nontechnical language, nine experts deal with: the role of gold and silver in past, present, and probable future monetary systems; the possibilities of continuing in flation and total collapse of paper currency systems; how to invest in selected foreign currencies; the industrial uses of silver and gold; 254 THE FREEMAN April and the prospect of further reces sion - or will it be really tagged a depression?

Exactly what are future pros pects for silver? How high will the price of gold fly? Can anyone with limited funds procure protec tion against a fatigued dollar? Suppose monetary collapse doesn't occur, what then? Who loses? While no book can provide daily investment advice, this interest ingly written collection should find its way into any basic library on the subject. For example, economic aspects and industrial markets for silver are covered in three separate in terviews with Charles Stahl, pub lisher of Green's Commodity Mar ket Comments, Philip Lindstrom, investment manager of Hecla Min ing, and Wallace Hanson, contrib uting editor to Popular Photogra phy. Mr. Stahl reviews basic uses of silver and lesser known technolog ical applicability. Did you know that silver is sometimes employed as dry lubricant, fungicide, and bactericide? And, oh yes, even rainmakers seed clouds with it clouds that produce rain, not gloom. As they say, "Every cloud must have its silver lining."

On production matters, Mr. Lind strom, who during 31 years has worked as mining engineer, geolo gist, mine operator, and investment analyst for Hecla Mining Company, conveys the real message on costs of bringing, a new mine into operation - if one is found (given odds of 1,000-to-1 of not discovering a good ore body) - and some basic problems of keeping one profitably producing. On industrial absorption of sil ver production, ·Mr. Hanson an swers important questions: Is sil ver essential in photography? What are the prospects of developing substitute processes? No investor should neglect the answers con tained in these three interviews. Demand for these precious met als pivots partially on industrial consumption. The intriguing ques tion focuses on monetary condi tions now, next yea.r, after the next election, and in the next de cade. Professor Murray Rothbard, who has spent nearly 30 years studying business cycles, panics, depressions, and what government has been doing to our money for 200 years, reveals his findings and sees three important parallels be tween 1929 and today.

Similarly, Dana Thomas, asso ciate editor of Barron's, offers some important clues by compar ing our present situation with re cent experiences of Germany, China, and others. To the question - What do you see as a reliable hedge? - this financial writer re plies without hedging.

1975 OTHER BOOKS 255 Of course, Dr. Franz Pick, pub lisher of World Currency Report, tells us like it was, is, and will be (usually before the interviewer has completed his question). With an economy of words, Dr. Pick de vastatesWall Street's sacred cows. Another investment advisor, Thomas J. Holt, divulges how to gauge the amount of stock specu lation with a simple technical de vice. He also speaks of gold price potential in a depression. For a bonus, Mr. Holt supplies an eye witness a.ccount of runaway infla tion in China and relates what happened to fortunes of gold and silver owners there. Again for those concerned with technical aspects of gold produc tion, Dr. Paul Henshaw, president of Homestake, discloses why gold production is dropping, in spite of record high prices. Finally, the last two stars in this exciting cast, Hans Weber, managing director of Foreign Commerce Bank in Zurich, and Harry Browne of recent bestseller fame, offer advice on hedging as sets and fashioning a portfolio geared to different investor needs.

For pleasant, informative read ing, Caribini has compiled a vol ume that should preempt any evening of television. For the seri ous student, 18 pages of bibliogra phy could keep one a.way from the tube for a month or two. ~ CEREMONIAL CHEMISTRY: The Ritual Persecution of Drugs, Addicts and Pushers by Thomas Szasz (Garden City, New York: Anchor Press/Doubleday, 1974) 243 pp., $6.95. Reviewed by Ralph Raico THIS BOOK differs from similar books in the area by subjecting to examination, not victims, but the oppressors; the violators of indi vidual rights, rather than those whose rights are violated. That is, it explores the social process by which some people are deprived of their rights by those who have something to gain from that depri vation. In regard to drugs - the subject of the present work - the ones who have most to gain are, cle'arly, the government's growing (and increasingly costly) psychi atric and social-work bureaucracy, which preys on the fears it induces in a gullible public.

The position Szasz sets forth on the issue of drugs is, in my opin ion, the genuine libertarian one: "anything that's peaceful." People have a right to trade in any com modity, he maintains, including drugs, so long as no one else's rights are thereby infringed. Why this - otherwise known as the simple system of natural liberty -should ever have become a prob lem is the main subject of Szasz's rich book. In the course of examining this 256 THE FREEMAN April question, the author continues his probing of what may be termed the "secret history" of plots against individual freedom-bring ing to light little-known but highly significant episodes that have ac cumulated over time to form a sys tem of oppression (he did this brilliantly once before, in The Manufacture of Madness). Who, for instance, will not find it, well, suggestive that the trade-union leader Samuel Gompers helped cre ate the image of "Chinese opium fiend" as part of his ruthless cam paign to exclude Chinese laborers frOIn the United States?

Szasz is in no way recornmend ing the use of any drug, but simply the right of adults to consume whatever they wish and can afford (he is against heroin-"mainte nance" programs, too). We are not dealing here with a Timothy Leary (to anyone who knows 8zasz, the very juxtaposition of the two names has to bring a smile)! Quite the contrary. In clarifying the current confusion on the sub ject of drugs, Szasz is entering the lists for so,me rather "old-fash ioned" ideas: namely, that there is no "addiction," there is tempta tion (which people either with stand, and so grow stronger, or give in to, and so lead that kind of life) ; that human beings must be viewed as possessing free will, and not as bundles of automatic im pulses (which means they are re sponsible for their actions) ; that the business of government is to protect the life, liberty, and prop erty of its citizens from forcible invasion, and nothing else,. that when the government strays be yond this, it itself tends to create the very problems it then harasses and taxes the people to solve.

It is gratifying but hardly sur prising that, at the end of this book, Szasz explicitly identifies his own standpoint with that of "Mill, von Mises, the free market econo mists and their libertarian follow ers." "While countless men say they love liberty," he asserts, "clearly only those who, by virtue of their actions fall into [this] cat egory mean it. The others merely want to replace a hated oppressor by a loved one - having usually themselves in mind for the job." And it is nice to be reminded that the great Mises explicitly attacked prohibitions on the sale of opium and morphine, although he viewed them as "dangerous, habit-form ing drugs," on the grounds that "if one abolishes man's freedom to determine his own consumption, one takes all freedoms away" (Hu man Ac'tion, pp. 728-729). Szasz underscores Mises' point through out this penetrating, consistently well-written and exciting book. "

the Freeman VOL. 25, NO.5. MAY 1975 The Great AnniversaryFestival Ralph Bradford 259 A review of the birth of the United states, the founding principles and subsequent events which are worth celebrating. Macaulay:Defenderof Capitalism Bruce Bartlett 272 An answer, in 1830, to Robert Southey's charges against the factory system. The Reversal:Liberty into Servitude Clarence B. Carson 277 Concerning the erosion of the concept and the practice of liberty since the founding of the United states. Fallingon Deaf Ears John C. Sparks 284 How to become self-reliant and free is the CARE package needed by the poor. Religionand the Free Economy Edmund A. Opitz 289 Freedom needs a world view which makes mind central and gives truth its proper place. Who is Efficient? Brian Summers 301 Competitive market pricing affords a way to measure cost and know what is wasteful. LifelongLearning Royal Bank of Canada 304 "Every person has the right to become all that he is capable of becoming."

He Gains Most Who Serves Best This rule of the market is its defense of private property. Paul L. Poirot 313 Book Reviews: "Sovereignty and Compulsory Public-Sector Bargaining" by Sylvester Petro "Puritan Economic Experiments" by Gary North Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding. 317 the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTONON-HUDSON, N. Y. 10533 TEL.: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work.

Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each. THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit.

IT WAS NEAR MIDNIGHT of a warm summer's day in Philadelphia. An earnest, stubborn man from Mas sachusetts was writing a letter home to his wife. In it he told her of an event which had taken place that day - a memorable "Epocha," he called it - which he believed would have profound consequences. And he predicted that in years to corne the people of the country would celebrate that event as "the great anniversary Festival." It ought to be commemorated, he added, Has the Day of Deliver ance, by solemn acts of Devotion to God Almighty." His name was John Adams; .the lady he addressed was his beloved Abigail; and the happening which he announced with such solemn pride was the adoption of the Dec laration of American Independ ence. As a prime mover in the Mr. Bradford is well known as a writer, speaker, and business organization consultant. He now lives in Ocala, Florida. RALPH BRADFORD l1eGreat Anniversary Festival events which led to that action, he had good reason for pride and sat isfaction; and as to the future, his vision was indeed prophetic. The Fourth of July celebration became a standard, almost a stereotyped, American institution. Its devo tional content was perhaps never quite as elevated as he imagined it would ~e; but its patriotic fer vor was strong and persistent.

Now we approach the 200th an niversary of that event. Nearly two centuries of American history and experience have been enacted on the world stage - in theatrical terms, a truly colossal production. Our physical growth and expan sion have been phenomenal - from a narrow cluster of isolated colo nies along the Atlantic seaboard, up the inland valleys, over the Ap palachian ridges, across the prair ies, plains and mountains, north to the gold-endowed and ultimate ly oil-rich Arctic, and far into the near-tropical mid-Pacific. Ameri259 260 THE FREEMAN May can achievements, too, have been legion - invention, the cotton gin, the row planter, the reaper, the binder, the combine; railroads to span the continent; highways to augment, and maybe to supersede, the railroads; steel and aluminum fabrication; the automobile; syn thetic products; longer life; gen eral education; mass merchandis ing; atomic fission; nuclear pow er; aviation; rocketry; men on the moon - and now the illimit able reaches of space beckoning.

A brilliant scene in the great drama of world history. A Devastating War But there were also vicissitudes of fortune. In the very first place, there was a war to be fought - a long and devastating struggle against overwhelming odds, with the American hopes sustained by an ill-trained, seldom-paid and' poorly equipped little army. It -was a time of low morale, deteriorat ing finances, incredible inflation and military humiliation. Armies need the stimulus of at least an occasional victory; and the early years of the American war for independence were an almost un relieved disaster. It was, of course, too much to hope that the struggling armies of a poorly organized colonial federation could prevail against the military might of Britain. Even with the handicap of dis tance and the attendant problems of logistics, British power was great and formidable. The Ameri can leaders knew this. Most of them had understood from the be ginning that war's end might very well be rope's end, so far as they were concerned. Washington, in deed, predicated his only hope for victory on somehow hanging on and prolonging the unequal con test until the exigencies of Euro pean power politics would bring France to the aid of his forces not necessarily for love of' Amer ica, but to harass the English.

In his diary for May 1781, Washington made a gloomy entry: "Instead of having magazines filled with' provisions we have a scanty pittance scattered here and there in the different states. In stead of having our arsenals well supplied with military stores, they are poorly provided and the work men all leaving them ... Instead of having a regular system of transportation established upon credit, or funds in the quarter master's hands ... we have neither the one nor the other; and all that business, or a great part of it, be ing done by military impress [that is, seizure by force] we are daily and hourly oppressing the people - souring their tempers and ali enating their affections. Instead of having the regiments complet1975 THE GREAT ANNIVERSARY FESTIVAL 261 ed . . . scarce any State in the Union has, at this hour, an eighth part of its quota in the field and Iittle prospect, that I can see, of ever getting more than half. In a word - instead of having every thing in readiness to take the field, we have nothing; and instead of having the prospect of a glorious offensive campaign before us, we have a bewildered and· gloomy de fensive one."

The only possibility of bright ening this somber outlook, he muses, would be to receive a pow erful aid of ships, troops and mon ey from some generous allies. (No doubt he was thinking especially of the French.) But then he adds realistically that such aids, at the moment, were "too contingent to build upon." And that, be it re membered, was in the fifth year of the war! No General Government The situation was further exac erbated by the fact that there was really no American government, in the present sense of that word. In the discouraged diary entry just quoted, Washington does, to be sure, refer to both "the States" and "the Union" - but the Union was still a half-hearted dream, and the States remained an ag gregation of mutually jealous, dis trustful and often antagonistic colonies. Some of them actually had tariff regulations to prevent the importation of goods from neighboring colonies. There was still little comprehension of na tionhood. When a man from Wil liamsburg spoke of "his country"

he didn't mean all of colonial America; he meant Virginia. In the same way, "the country" of a man from Boston or Concord was not a string of colonies on the edge of a continent; it was Mas sachusetts. For a long time efforts had been made by leaders of vision to bring the scattered colonies into some sort of union for the ad vancement and protection of their mutual interests - but to little avail. As early as 1643 an attempt at a defensive union was under taken by the Plymouth, New Ha ven, Massachusetts Bay and Con necticut settlements. It was a very loose-knit alliance, born mainly out of fear of Indian depredations. It lasted about ten years, and collapsed. The next move toward unity was from an unlikely source London, of all places; the King's ministers, of all people! In 1688 they tried to consolidate the New England colonies with those of New York and New Jersey, pri marily in the hope of making them more effective against France's adventures in the New World, and also against the In262 THE FREEMAN May dians. The new arrangement was to be called The New England Do minion; but it was accompanied by so much royal ruthlessness that it met no favor among the colo nials and was eventually aban doned.

Plans 01 Union Others reached for unity from time to time. William Penn pro posed a plan of union, but the colonists, fearful that their rights might be abridged, rejected it. In 1754 all the New England colonies held a conference with those from New York, Pennsylvania and Maryland, .primarily to deal with the matter of their treaties with the Indian tribes. At the confer ence Benjamin Franklin presented what came to be known as the Al bany Plan of Union. It was ap proved by the Conference, and submitted to the several colonies, and to the King. Hope for some kind of colonial union seemed at last on the way to realization. But the Plan was roundly rej ected by the King because it gave the Colonies too much self-govern ment, and by the colonial assem blies because it didn't give them enough! And so it had gone, through the decades. Only the repressive mea sures successively (and stupidly) imposed by the British govern ment, such as the Stamp Act, gradually forced the colonials to em brace more cooperative attitudes and led finally to the First and Second Continental Congresses, and to the beginnings of nation hood under the Articles of Con federation.

What was the reason for this stubborn aversion to centralized government? Was it ignorance unawareness -lack of vision? Something of all that, perhaps, since the colonials were average human beings. But they were also influenced - maybe it is not too much to say they were guided by something else. Average citi zen and political leader alike, they were afraid of government! This fear was a result of their own experience with oppressive Brit ish policies; and more remotely it was a heritage out of the experi ences of their parents and grand parents, whether as colonials or as citizens of European countries. Their experience with the institu tion of government had not been such as to lessen their distrust of it. Even Thomas Jefferson, you may recall, was convinced that "the best governed are the least governed." The strange, hard-to-understand thing was the behavior of succes sive British ministries toward their fellow Englishmen who hap pened to be living in America in stead of in Lancashire or Corn1975 THE GREAT ANNIVERSARY FESTIVAL 263 wall. Their own history had been replete with .struggles to obtain the very rights which they so per sistently denied to the colonists.

Steps Toward Freedom In 1215 the Magna Carta had been wrested at sword's point from King John by the Barons at Run nymede. By it the principle of lim ited monarchy was established, and the rights of Englishmen un der law were set forth. Never mind that the barons could scarce ly. be called "the people," or that their quarrel with the King had small resemblance to a popular movement. The villeins, or peas ants, who made up most of Eng land's population at that time got very little out of the Great Char ter, and that little was theirs mainly because they were consid ered to be the property of the barons on whose land they lived. Their civil and political rights were only incidentally at issue. The issues, indeed, were primarily those of conflict between royal exactions and baronial privilege, of how much "scutage" or shield charge the king could collect from them (or they from their own re tainers); of the restoration of riparian seizures - and all with a strong undercurrent of recon quest-of-N ormandy international politics into the bargain. But nev er mind all that. A great blow had been struck. Principles of deep hu man import had been formulated.

A symbolic monument to freedom had been erected. True, the rights outlined at Runnymede soon began to be erod ed by kingly and ministerial usur pations; and by the year 1628 they were largely ignored by the government of Charles I. But the old fires were not completely banked; and by that time, more over, the average citizen was more deeply concerned than had been the case in the days of King John. So again a king was compelled to yield, not by force of arms this time, but by the expedient of a parliamentary withhholding of his revenues. Brought to terms, Charles signed an instrument called the Petition of Rights - a document, by the way, which as serted .several of the principles that were named a century and a half later in a statement known as the Declaration of American Independence. But it was a slow and often a discouraging battle, that struggle to make government an instru ment of the people, rather than the other way around - to insure that the people could live under laws enacted with their consent and approval, rather than under whimsical royal decrees imposed upon them. And one of the com pelling reasons men left the com264 THE FREEMAN May fort of their ancestral homes and emigrated to America was simply because of their deep desire "to secure the blessings of liberty to themselves and their posterity."

A Bid for Home Rule And that was the reason, finally, for the so-called American Revo lution. So-called? Yes; because it was not a revolution in the sense of being a "fundamental change in political organization, or in a gov ernment or constitution." It was a revolt, if you like - a determined effort to get rid of the restrictions and exactions of a government on the far side of the Atlantic Ocean. It was a bid for home rule. It was not aimed at creating more gov ernment, but less. Aside from get ting out from under the sometimes petty but always irritating tyran nies of London, the colonials were not contending for radical changes in the social contract. That statement, of course, is a denial of certain kinds of propa ganda that have been slipped into some of the developing material for the Bicentennial celebration. There is frequent reference, espe cially in some of the television programs, to colonial leaders as "radicals," with the obvious intent to give a coloring of respectability to some of today's political ex tremists. But it is a mistake to equate the protests of the Sam Adamses and John Hancocks and Patrick Henrys with the present day "radical" demands for social ism, communism and superstatism generally. The colonials didn't de mand or want a radical revision of governmental forms; they didn't want to "revolutionize"

British institutions. They didn't propose to set up a socialistic Utopia in America. They simply wanted to be the directors of their own Iives and destinies, under the simplest and least restrictive form of government they could devise. So strong was this desire, and so intense the distrust and fear of government, that for some time all during the war and for several years thereafter - the American people came perilously near to having no general government at all. However, it was obvious that some central authority was need ed - at first to formulate and ex press the colonial grievances; and thereafter to conduct the war for independence. This need resulted in the First and Second Conti nental Congresses. The situation, in brief, was this: The people of Massachusetts had resisted the tax on tea, among other things. Feeling ran high and culminated in the purely symbolic but. historically important Boston Tea Party. It was just a bit of theatrics, of course - but it was drama, not comedy; and it was ex1975 THE GREAT ANNIVERSARY FESTIVAL 265 cellent propaganda. And it went deeper than farcical theatricality, for it expressed a very firm colo nial determination. The British government could shrug off the Tea Party, but it couldn't shrug off the hard-cash fact which the Tea Party symbolized - namely, that the people of Massachusetts had no intention whatever of buy ing any more English tea. That was a stab in the pocketbook, and it hurt.

So England retaliated with what the colonials called the "Intoler able Acts" of Parliament - aboli tion of local government in the colonies, closing and blockading the port of Boston, quartering troops in private homes, transfer ring title to the vast Northwest Territory from the colonies to Canada - and so on. Meanwhile the colonials were busy with their committees on correspondence ;and before long, upon a call from Vir ginia, the First Continental Con gress was convened in Philadel phia. Rightsof Englishmen With remarkable speed and clarity, it protested the British treatment of the people of .Massa chusetts, got out a Declaration of Resolves and Grievances, and as serted that the colonies were en titled to preserve their rights un der their several charters - and under the British Constitution. You see? There was no "revolu tion," expressed or implied. They wanted to proceed under existing laws and agreements. There was, however, a threat, not too heavily veiled, that if the British govern ment failed to take remedial ac tion the Congress would meet again the following year.

It was all to no avail. London was determined to punish the re calcitrant colonials; the latter were equally set on resistance. Such a tense situation could not continue without violence; and so before very long there were Lexington and Concord. There was Bunker Hill. There was the burning of Charleston, the shelling and burn ing of Falmouth. There was the siege of Boston. And, as had been promised (or threatened) there was the Second Continental Con gress, the protracted debate, and finally the passage of Richard Henry Lee's little 47-word resolu tion. And so the die was cast. It was to be Independence. It was to be war. For seven long and dis couraging years, it was to be war! Incredibly, in five of those seven years, with no Chief Executive or other supreme magistrate, the war was conducted by the Congress, simply because it was the only thing in existence that bore any semblance to an organized, central government. It was weak, shot 266 THE FREEMAN May through with dissension and jeal ousies; it lacked authority over the states or colonies; it had little spirit of nationalism or unity.

This was not surprising when the several colonies themselves were bidding against the Congress in the matter of raising troops for the Continental army by ·offering a higher enlistment bonus for their local militia than the Con gress was offering for recruits to Washington's pathetic little army! We have seen in the earlier quota tion from Washington's wartime diary how the states ignored the requisitions of the Congress for his pressing military needs. De spite all this, it was a working Congress, with many committees whose members toiled long hours day after day through those weary years. And all the while, devoted lead ers were working to bring some order out of the developing chaos. They had not forgotten that Lee had matched his Independence resolution with another which called for a central government. This germ was never allowed to die, and from its base the Articles of Confederation were finally de veloped. Consideration of these Articles produced more division and acrimony, but at last they were passed. Provision was made for a Congress; but the powers granted it, or rather denied it, made its ultimate failure almost a certainty. As a single example, one Article provided that each State should retain its sovereignty, free dom and independence! Is it any wonder Washington sometimes wept into the pages of his diary?

Muddling Through But the colonials, as was said of the British at a much later date, had a genius for Hmuddling through." Also they were fired by the inspiration as well as the prac tical imperatives of their Cause. They didn't quit. They hung onto their dream. And the w~r dragged on. Names and places emerged and got into the pages of history: Brooklyn Heights, Kips Bay, Trenton, Monmouth, Ticonderoga, Saratoga, Valley Forge; the Brit ish Howe brothers - the General and the Admiral ; Johnny Bur goyne; Lord Cornwallis; the American General, Washington, flanked by the impetuous LaFay ette, the stolid Steuben, and the brilliant Hamilton; Arnold, able and traitorous; Greene, resource ful and steadfast; and finally the tactful Rochambeau and the pon derous De Grasse. For the French did come in, prodded by the wise and resourceful Benjamin Frank lin. And so at long last into the history books came a little place called Yorktown ... and the tedi ous, bloody business was finished 1975 THE GREAT ANNIVERSARY FESTIVAL 267 - on the battlefield, that is. It was still two more years before the peace treaty was signed.

So much for the beginnings. In dependence was at last achieved. But even so the "blessings of lib erty" had not yet been fully real ized, for the country was still the disorganized, headless wonder that it had been, governmentally speak ing, from the beginning. More over, it was heavily in debt to both foreign and domestic creditors. Also, some 200 million dollars in paper money had been printed, and these "continentals" had be come almost worthless. And, of course, the lack of a strong na tional authority was leading to political and economic chaos. But a strange dichotomy existed: the people recognized the need for a strong central government - and they had a deep fear of just such a government. At last, common sense plus in telligent self-interest prevailed. In May of 1787 a convention was as sembled; the problems and the proposed solutions were long and sometimes bitterly debated. Ham ilton had a plan for something like an elected monarchy. Others had their favorite prescriptions.

But finally the so-called Virginia Plan, as drafted by James Mad ison and presented by Edmund Randolph, became the basis for what eventually emerged as the 'Constitution of the United States of America. It had taken four months of work to hammer it through the Convention - but more work was ahead. First, the existing Congress had to approve the new plan - and did so. Then it had to be adopted by the sev eral States. Some of them moved quickly; others dragged out their decision, notably Virginia and New York. But those two pivotal States ratified in June and July of 1788 - and the United States of America was in business! A great many books have been written about the Constitution, by authors whose opinion of it range from the cynical thesis that it was a compromise agree ment engineered by men of wealth and privilege to protect their in terests, to the almost religious belief that it is the greatest gov ernmental document ever devised.

I incline strongly to the latter opinion; but it is not my intention to undertake here any further analysis or debate. It is enough to say that it has stood the test of 187 years, which makes it the fundamental law of perhaps the oldest government in the world today. And, let it be added, the greatest! So the new nation was launched. The dream of John Adams (and of countless others) was on its way to fulfillment. But the way 268 THE FREEMAN May was long that it must travel. Washington, already feeling old at war's end (he was 53) had to leave Mount Vernon and spend eight pioneering years as the first President. Adams served four; Jefferson, Madison and Monroe served eight years each; and thus the first 36 years of the new nation's life were in the molding hands of five great figures out of the Revolutionary period. Nor was the country's experience with war ended, for in the Presidency of J ames Madison came the second war with Britain, called the War of 1812. Though political enemies of the President liked to call it "Mr. Madison's War," to most Americans this was another strug gle for principle, long remem bered and patriotically venerated - freedom of the seas, no search and seizure, and no impressment of American seamen. To most Englishmen, however, it was a minor episode of empire, little noted or long remembered.

"That Little War" In London some years ago my wife and I were entertained at luncheon by a former Lord Mayor - a charming gentleman of wide interests and broad education. He had been a member of a crack British regiment, and he rather proudly told us that a few years previously this regiment had visited the United States and among other appearances had taken part in a parade. "We were the first British reg iment," he said, "to march under arms in an American city since the Revolutionary War." I asked him if he was real sure about that, and he replied, "Of course. Why do you ask?" "Well," I answered, "I seem to recall that as late as 1814 certain British regiments marched under arms through the streets of an American city called Washington - and by a strange coincidence, that same night both the White House and the Capitol caught fire and burned." He laughed ruefully. "Touche!" he said. "I confess I'd forgotten all about that little war."

Just an incident, that little war? Yes - to most Englishmen, and even to many Americans nowa days; but it was part of the process of our maturing. Other incidents, other episodes, made up the mosaic. There were the dec ades of settlement - Appalachia, Mid-America, the Far West. There was to be the tragic blood letting of the Civil War and its slow healing; the railway, steam boat and industrial age; the 90 day war with Spain, which launched our country onto the world stage in a new character~ There would be Wilson and the 1975 THE GREAT ANNIVERSARY FESTIVAL 269 First World War, with its ideal ism and naivete; the second Roose velt and World War Two, with its enormous costs and world involve ment. We were victorious in both those titanic struggles - or thought we were. As a result of our part in them, at any rate, we became a world power. For a time, indeed, it could almost have been said that we were the world power - a dangerous eminence.

A New Role in the World And then strange new things began to happen. Under. the in fluence of a kind of benevolent auto-hypnosis we undertook the role of international benefactor. Some of this, to be sure, was in the service of our proper self· interest, as in the matter of re storing devastated areas in west ern Europe. But we went much farther. It was not enough that our country had helped defeat ruthless aggression in two hemi spheres, or that we should be committed to enormous expense in maintaining an impressive mili tary presence abroad. No, we also assumed, before long, the role of world almoner, and began dispens ing fantastic sums, in cash and credit, to the so-called emerging nations, and to many others. I do not have the latest figures by me as I write - and the exact amounts are not important. But certainly a substantial portion of our 500 plus billion dollar debt was oc casioned by this lavish and in discriminate foreign aid program.

The debt was further swollen by the heedless expenditure of other billions in excess of our national tax receipts, including enormous outlays for Korea and Viet Nam. Ideologically, we have, as some people like to say, "outgrown the bucolic ethical and financial atti tudes of our yesterdays." Once, for instance, we had a healthy fear of debt. We understood its usage in both public and private finance; but we knew and feared its dangers and avoided the pit falls of excessive and long-term deficits. But now, in a kind of Keynesian euphoria, we have put debt on a pedestal, proclaimed that it should never be paid or even reduced, and made it an instrument of alleged national progress and development - all the 'while that the value of our money was being disastrously eroded and the financial security of our peo ple drastically reduced. At this point I am moved to turn backward again for a mo ment, to quote a paragraph that was addressed to the American people some time ago by a some what worried citizen. He began by saying that we ought to cher ish the public credit as an impor tant source of strength; and then, 270 THE FREEMAN May with great pertinence to our pres ent financial policies, he concluded with these words, which I am putting in italics for emphasis: "A void likewise the accumulation of debt, not only by shunning oc casions of expense, but by vigor ous exertions in time of peace to discharge the debts . . . not un generously throwing upon poster ity the burden which we ourselves ought to bear."

Pertinent counsel, it seems to me, in our present period - the more so because the somewhat troubled author of those senti ments was a tall gentleman fromVirgjnia named George Washington. Advice Unheeded It would be easy to dwell upon how far we have departed from that good advice, and the extent to which we have abandoned the ideals of work and achievement and morality that we like to think motivated our colonial forebears. Certainly the political, economic and moral formularies of our past are now questioned, debated, discounted, sometimes ridiculed, occasionally violated; and one frequently encounters a cynical at titude toward what used to be accepted as proper and valid American ideals and values. Per sonal industriousness (the "work ethic") is often scoffed at. The worth of frugality is questioned. Capitalistic enterprise is often un der attack by those who think of "capitalism" as wicked aggrega tions of rich men intent on plun der, rather than as a convenient economic vehicle through which many investors can pool their sav ings for both personal and so cietal advantage.

And so on ... and on ... and on, in a doleful threnody that would pound fear into the heart of any one who loves this country, values its past, and has hopes for its future. Unless, that is, unless .... Unless he probes somewhat be neath the surface, both now and in the history of those colonial days. He will find'that all was not sweetness and light then, either - that the demand for Indepen dence was for a long time a minor ity sentiment; that there was little enthusiasm for the war; that the army was plagued with deser tions; and that there was political chicanery and humbug, then as now. And as to the current scene, the despairing lover of this coun try today will despair less and hope more if he will consider the other side of the medallion, re membering tha:t the voice of criti cism is nearly always louder than the voice of approval; that fear is usually more strident than courage; that hope is quieter than despair. What one sees in a casual 1975 THE GREAT ANNIVERSARY FESTIVAL 271 survey of the country, and es pecially what one sees on the tube or in the press, is a surface pic ture - the froth on the wave, the noisy sibilance of the breakers, not the calm surge of the tide.

Our country has always had its doubters, its detractors, and alas, its betrayers. John Adams himself witnessed such things, even at the beginning. It is not too surpris ing, human nature being what it is, that the heroism of a Nathan Hale was shown in the same war that brought forth the treachery of a Benedict Arnold. Washington himself was traduced and slan dered and made the victim of a vicious and nearly successful ca bal. All of which is simply to say that men are men, of whatever nation and whatever, generation. Look Back With Pride As we approach the Bicenten nial of our nationhood we can take stock of our country and its institutions with pride and sat isfaction. We have done a lot to it, we Americans. We have bur dened it with unnecessary debt. We have cheapened its money through inflation. We have de pleted its resources through prof ligate exploitation. We have ex tended its powers and functions beyond anything dreamed of by its founders. We have put it into business in competition with its own people. We have converted it into a gigantic bureaucracy which today employs more people than there were in the whole country in 1780. We have, in short, done our worst to overload· and bank rupt it. But like a tall tree in a wasteland, it stands up well among the troubled nations of this wab bling world.

If weak and unscrupulous men have betrayed the trust reposed in them by their fellow citizens, that is a matter for our sorrow, but not our shame. The shame is theirs, as their guilt is confessed or determined. The fault is theirs, and not that of the American system. As' citizens under that system we are able to look in cold eyed disapproval' on venality, be trayaland political humbuggery and yet continue to know and con fidently assert that our country is still, as Lincoln said of it, the last. best hope of earth. And we can imagine John Adams, grown old, but stubbornly immortal, peering downward and backward out of the mists of eternity, and taking renewed sat isfaction in observing the strength and resilience of the nation he helped to found - and being happy to see that the Nation is once more celebrating its birth in fit ting style with the Great Anni versary Festival of which he dl"eamed~ .~ Bettmann Archive THOMAS BABINGTON MACAULAY was born in 1800. In 1825 he be gan his writing career .and soon became one of England's most pop ular essayists. In 1848 the first volume of his magisterial History of England appeared and became an instant success, rivaling only the works of Byron and Sir WaIter Scott in popularity. Owing to its briIIiantstyle and encyclopedic coIIection of facts, it established Macaulay's reputation for all time.

In 1857 he was raised to the peer age, died in 1859, and was buried in Westminster Abbey. Like Lord Acton, Lord Mac aulay is an outstanding represent ative of the Whig tradition and true liberalism in the nineteenth Mr. Bartlett is a graduate student in history at Georgetown University. 272 Macaulay: Defender of Capitalism BRUCE BARTLETT Thomas Babington Macaulay century. In his works he constant ly stressed the history of liberty as fundamental to human prog ress. Consequently, he w1as also a strong supporter of capitalism and laissez-faire, both in his writing and in numerous speeches before Parliament. His most vigorous ef fort was in a review of Robert Southey's Colloquies on Society for the Edinburgh Review in January, 1830. Southey was Poet Laureate of England at the time. In 1829, how ever, he had temporarily aband oned his poetry to. take up social commentary. Ostensibly, his book was only a coIIection of conversa tions between himself and the ghost of Sir Thomas More; but this was only a literary device to aIIow him to present his own 1975 MACAULAY: DEFENDER OF CAPITALISM 273 opInIons about society in general.

Macaulay easily saw through this and took Southey firmly to task for this departure from his poetry: "It would be scarcely possible for a man of Mr. Southey's talents and acquirements to write two volumes so large as those before us, which should be wholly desti tute of information and amuse ment. Yet we do not remember to have read with so little satisfac tion any equal quantity of matter, written by any man of real abili ties. We have, for some time past, observed with great regret the strange infatuation which leads the Poet Laureate to abandon those departments of literature in which he might excel, and to lec ture the public on sciences of which he still has the very alpha bet to learn. He has now, we think, done his worst." From this opening barrage, Ma caulay went on in similar style to review all of Southey's pronounce ments. Today they would be con sidered left-wing, but in his time Southey was considered the voice of ultra-Toryism. His brand of Tory conservatism taught that all in the past was good, and there fore, he was contemptuous of any change. In a time of rapid social change brought on by the Indus trial Revolution, Southey wanted government to control undesirable trends. He was particularly incensed by the growing prosperity of the new capitalist class.

His distaste for the capitalist was a logical consequence of his conservatism. He hated seeing "common" men with wealth which had heretofore been reserved only for the aristocracy. Southey also hated the source of this new wealth, rooted as it was, not in large land holdings, but in fac tories. To Southey, this new manu facturing system was "a system more tyrannical than that of the feudal ages, a system of actual servitude, a system which destroys the bodies and degrades the minds of those who are engaged in it." Worse Off Without Factories Macaulay's reasoning, rooted much more thoroughly in reality, was that without the factory sys-· tern there would be mass starva tion. "When we compare our own condition with that of our ances tors," he said, "we think it clear that the advantages arising from the progress of civilisation have far more than counter-balanced the disadvantages arising from the progress of population. While our numbers have increased ten-fold, our wealth has increased a hun dred-fold." Macaulay went on to remark that it was the very in crease in wealth which had brought on the complaints of industriali zation. Where wealth is great, he 274 THE FREEMAN May said, suffering is more obvious and thus, more loudly bewailed.

With the wealth of ind ustriali zation spreading rapidly to all classes of society, Southey was also concerned that government was not getting its share. Thus his favorite theme is that a people may be too rich, but a government cannot be. "A state," he says, Hcannot have more wealth at its command than may be employed for general good, a liberal expendi ture in national works being one of the surest means of promoting national prosperity; and the bene fit being still more obvious, of an expenditure directed to the pur poses of national improvement. But a people may be too rich." Needless to say, Macaulay has a field day with such absurd logic, in spite of which it has survived to the present day in John Ken neth Galbraith's The Affluent So ciety . "What does he mean by na tional prosperity?" Macaulay asks. "Does he mean the wealth of the state? If so, his reasoning runs thus: The more wealth a state has the better; for the more wealth a state has the more wealth it will have. This is surely something like that fallacy, which is ungal lantly termed a lady's reason. If by national prosperity he means the wealth of the people,· of how gross a contradiction is Mr. South ey guilty. A people, he tells us, may be too rich; a government cannot; for a government can em ploy its riches in making the peo ple richer. The wealth of the peo ple is to be taken from them be cause they have too much, and laid out in works, which will yield them more."

"We are really at a loss," he concludes, "to determine whether Mr. Southey's reason for recom mending large taxation is that it will make the people rich, or that it will make them poor. But we are sure that, if his object is to make them rich, he takes the wrong course." No Faith in Public Works It is clear from this that Mac aulay has no belief in the virtues of public works; particularly when government competes with private business. In this respect, he fol lows closely the reasoning of the classical economists that no one will invest in a free market with out the expectation of profit. When government invests tax money, however, there will be no such ex pectation. Thus, with private in vestment there is a direct corre lation between the motives of the investor and the utility of the work. The government does not invest to fill an .economic· need, but only a political one. To Mac aulay, this results in ostentatious architecture, great roads in small 1975 MACAULAY: DEFENDER OF CAPITALISM 275 towns, and canals built in some re mote province. "The fame of pub lic works," therefore, "is a much less certain test of their utili ty than the amount of toll collected at them."

Government spending could also be certain to attract a multitude of vultures to prey on· the public treasury: "In a corrupt age, there will be direct embezzlement. In the purest age, there will be abund ance of jobbing ... In a bad age, the fate of the public is to be robbed outright. In a good age, it is merely to have the dearest and the worst of everything." The aim should be to confine government building to legitimate government needs. "Buildings for state pur poses the state must erect," Mac aulay said. "And there we think that, in general, the state ought to stop. We firmly believe that five hundred thousand pounds sub scribed by individuals for .rail roads or canals would produce more advantage to the public than five millions voted by Parliament for the same purpose." The King Knows Best Macaulay finally boiled South ey's system down to one funda mental principle: "That no man can do anything so well for him self as his rulers, be they who they may, can do it for him, and that a government approaches nearer and nearer to perfection, in proportion as it interferes more and more with the habits and no tions of individuals." To Macau lay, such a view was incredibly naive and showed no understand ing at all of history, economics, or human nature: "The division of labour would be no blessing, if those by whom a thing is done were to pay no attention to the opiniun of those for whom it is done. The shoemaker, in the Re lapse, tells Lord Foppington that his lordship is mistaken in suppos ing that his shoe pinches. 'It does not pinch; it cannot pinch; I know my business; and I never made a better shoe.' This is the way in which Mr. Southey would have a government treat a people who usurp the privilege of thinking."

The result of letting the gov ernment run everything could only lead to oppression. As Mac aulay saw it: "Government, as government, can bring nothing but the influence of hopes and fears to support its doctrines. It carries on controversy, not with reasons, but with threats and bribes. If it em ploys reason, it does so, not in vir tue of any powers which belong to it as a government. Thus, instead of a contest between argument and argument, we have a contest between argument and force. In stead of a contest in which truth, from the natural constitution of 276 THE FREEMAN May the human mind, has a decided ad-. vantage over falsehood, we have a contest in which truth can be victorious only by accident." The answer was laissez-faire. "It is not by the intermeddling of Mr. Southey's idol, the omniscient and omnipotent State," Macaulay concludes, "hut by the prudence and energy of the people, that England has hitherto been carried forward in civilisation; and it is to the same prudence and the same energy that we now look with com fort and good hope. Our rulers will best promote the improvement of the nation by strictly confining themselves to their own legitimate duties, by leaving capital to find its most lucrative course, commod ities their fair price, industry and intelligence their natural reward, idleness and folly their natural punishment, by maintaining peace, by defending property, by dimin ishing the price of law, and ob serving strict economy in every department of the state. Let the Government do this: the People will assuredly do the rest." ~ The Reversal: Liberty 1\ CLARENCEB. CARSON THERE ARE CERTAIN PHRASES which have a special place in the Ameri can lexicon. Among these the fol lowing rank high: "individual liberty," "the rights of the indi vidual," "the worth of each indi vidual," "the bill of rights," "con stitutional guarantees of --," and "self-government." They have a special place because they bring to mind the ideas and ideals which animated the establishment of American independence, the draw ing of the documents by which we are governed, and have provided guidelines for Americans over the years. When anyone uses these phrases in an approving manner he may be reasonably sure of evoking the desired response.

It is no new discovery of mine, however, that language is a tricky thing. The careless user of words Dr. Carson has written and taught extensively, specializing in American intellectual history. His most recent book, The Rebirth of Liberty (1973), covers the founding of the American Republic from 1760 to 1800. and phrases may find himself say ing something qujte different from what he intended. The unwary lis tener or reader may nod approv ingly to a presentation containing familiar phrases when an analysis would lead him to reject out of hand the meaning of the whole. The con text, it is said, governs the meaning of words and phrases. So it does, but context can be a great deal more than the framework given them in a particular rendering. Words and phrases wear down with the passage of time, like coins, lose their sharpness, become fuzzy, pick up new connotations and lose old ones. In some sense, they are more like magnets than coins, picking up associations with things contacted and dropping off others. Indeed, phrases can, by subtle mutations, be turned into theIr opposites. Fa miliar and venera ted phrases can be used so as to reverse the mean ings they once conveyed.

What follows is an example of how this is done, taken from a 277 278 THE FREEMAN May popular high school textbook on American government. It is called Our AmeriCian Government and was written by Stanley E. Dimond and Elmer P. Pflieger.! The opening chapter is devoted to setting forth "The Fundamental Ideas of a Free People." They are, according to this account, that men can govern them,. selves, liberty, concern for each in dividual, concern for the general welfare, maj ori ty rule, and minor ity rights. The elucidation of some of these ideas appears to place the account firmly within the American tradi tion. For example, Dimond and Pflieger say: Liberty is one of the words used often by those who have tried to de scribe our way of life. Patrick Henry said, "Give me liberty or give me death." The Declaration of Independ ence states that men "are endowed by their Creator with certain unalien able rights; that among these are life, liberty, and the pursuit of happiness."

The Preamble to the Constitution speaks of "the blessings of liberty." The Pledge of Allegiance to the Flag ends with the words "with liberty and justice for all." (p. 4) In like manner, they trace concern for the individual to profound sources. "Where does this concern for the individual come from? 1 Philadelphia: J. B. Lippincott Co., 1971, revised edition. What is the source of this funda mental idea? While the idea is re corded in many famous documents, this belief in the wor:th and dignity of each individual comes from deep seated religious beliefs. It is part of our inheritance from Christian and Jewish religions." (p.6) Rooted in Religion Just so, the belief in the worth and dignity of each individual is rooted in religion. And, the present writer does not question the pro priety of recognizing this source in a book on American government; indeed, he applauds it. Dimond and Pflieger, however, proceed to make a strange association of this re ligious idea with government when they say: Each person, regardless of mental ability, physical condition, age, color, sex, or religion, is a person of great worth under our system of govern ment. (p. 6) There is a connection between the belief in the worth and dignity of the individual and protections of individual liberty from govern ment. But that is not what is being said above. They are saying that a system of government attaches worth to the individual. The state ment is, of course, nonsense, for systems do not have values. It is a personification of government or the state, a prerequisite to statism, 1975 THE REVERSAL: LIBERTY INTO SERVITUDE 279 or the worship of the state. By shifting the belief in the worth and dignity of the individua.l from re ligion and individuals to govern ment, the way is prepared for the reversal of traditional meanings.

One of these shifts is made in the discussion of the Bill of Rights: The liberties of free men are guar anteed to each citizen in the Bill of Rights - the first ten amendments to the United States Constitution. These rights are also guaranteed in most state constitutions. (p. 4, emphasis added) There are some guarantees, if the word be used loosely, in the Consti tution, such as the right to tria.l by jury, but most of the Bill of Rights consists of prohibitions on the Fed eral government. A store which prohibi ted its employees from rob bing patrons would not be guaran teeing the safety of patrons within the store. No more does the First Amendment when it says that "Congress shall make no law re specting an establishment of re ligion ..." guarantee freedom of religion. The distinction is impor tant; it is the difference between the government being forbidden to do something and the government providing something. Phrases are being used to have them mean the opposite of what they once did.

Where this reversal is going be gins to appear in the following: One of the fundamental ideas which limits liberty is "concern for the gen eral welfare." The Preamble to the Constitution says that government exists "to promote the general wel fare." Sometimes this idea of the gen eral welfare is referred to as "the common good." In some ways this idea of the gen eral welfare is exactly opposite of in dividual liberty. A worker muttered that his liberty was taken from him because he had to join a labor union in order to work in a certain factory. ... A farmer complained that his lib erty was gone because he couldn't plant all the cotton he wanted .... The situations that caused these complaints developed because the gen eral welfare was considered to be more important than the liberty of the individual. The good of all was thought by the framers of the Consti tution to be superior to the rights of the individual. (pp. 8-9) If the government guaTanteed or provided rights and liberties it is quite possible that they would soon find these in conflict with the gen eral welfare. However, confusion has been compounded in the above quotation by ripping both "liberty"

and "general welfare" out of their original contexts, failing to define either with care, and imputing to the Founders preferences foreign to their way of thinking, if not ab horrent to it. Dimond and Pflieger tell us what liberty is not but neglect to tell us 280 THE FREEMAN May what it is. They say it does not mean "the right to do as I please." To which one might retort with equal certainty, "Liberty does not mean the right not to do as I please." In fact, the legal meaning of liberty, which is what is under discussion when the Constitution is at issue, is not being confined or imprisoD;ed. Try to substitute any other meaning for it in the 'phrase "nor shall life, liberty, or property be taken without due process of law" and see how it turns out. With this legal definition in mind, it is not immediately clear why individ ual liberty is in conflict with the general welfare. Probably what could be meant is that individual rights could be in conflict with the general welfare. But the Founders did not 'consider them to be. They held that governments existed to "secure these rights," and that the general welfare was promoted by making natural rights secure with in society.

Where Is the Evidence for the Welfare State? No evidence comes to mind for the view that the "good of all was thought by the framers of the Con stitution to be superior to the rights of the individual." The gen eral welfare was not understood by the framers to be the opposite of in dividual rights. It was thought to be sometimes in conflict with the partial welfare of groups, regions, sections, and states; and when the two collided the Constitution pro vided that the general government acting in accord with its constitu tional authority should prevail. In dividual liberty or rights belong in the configuration of the general wel fa.re, not in the welfare of a part, a configuration to which all govern ments - Federal, state, and local were supposed also to belong. By misconstruing the general welfare and individual liberty, Di mond and Pflieger have prepared the way for reversing the thrust of the government. They set the stage for the government to act in the supposed interest of groups, i. e., labor unions, farmers conceived as a class, and other minorities.

These actions are given a gloss of legitimacy in the discussion of maj ori ty rule: When liberty and the general wel fare conflict, we say tha.t the maj ority shall rule. . . . The decision is left to the votes of the people or to the votes of those they have chosen to represent them. In our country the maj ority rules. (p.10) Fortunately, that is not the way the American system works at all. If liberty is understood as not being confined or imprisoned, any deci sion about it is not left to a major ity in particular cases. For a man to be confined, he must, ordinarily, 1975 THE REVERSAL: LIBERTY INTO SERVITUDE 281 be found guilty of violating some standing law by a jury. The jury is usually expected to be unanimous if the person is found guilty and sentenced to be confined. The other ingredient in the taking away of liberty is the law, and the inter pretation of that is supposed to be done by experts, not by the maj 01;". ity. The constitutional prohibition against bills of attainder is protec tion of the liberty of the individual a.gainst a maj ori ty of the legisla ture.

Minority Rights Dimond and Pflieger make a final mutation by their discussion of minority rights. They say that their argument has gone full circle: This means that we are back where we started .... We started with lib erty.We described the relation of the Bill of Rights, the individual, and free enterprise to liberty. We showed that liberty is not unlimited and sometimes conflicts with the general welfare. We said that to keep liberty and general welfare in proper balance we use ma j ority rule. . . . Then we returned to the fundamental of liberty by showing that the majority cannot take away the basic rights of the minority. (p.14) It may be that the authors have not intended to be disingenuous in their summary, but they have not accurately described their direc tion. Rather than going in a circle, they have moved from one point to a quite different one. Individual rights are not at all the same as minority rights. Individual rights are conceived as rights belonging to everyone. Minority rights, if the phrase once be admitted, must be rights belonging to one as a mem ber of a minority. Such rights would be class rights, not individ ual rights. In fact, Dimond and Pflieger have proceeded by circum scribing individual rights by a posited opposition to the general welfare, made the majority the arbiter when differences occur, and .. ended by empowering minori ties. The balance of power, which Madison once argued would so work as to bring about the general welfare by negating special inter ests, has been shifted so as to be weighted in favor of special inter ests, here called minorities.

The traducing of language by Dimond and Pflieger in a textbook on American government may be worthy of attention (after all, the young are taught from the book), but that is by no means the whole point of this piece. By analysis, the authors may appear to have done their job ineptly. Such is not the case, however. They have done a subtle and competent job of fitting much of contemporary American political practices and tendencies into the framework of the United States Constitution and funda282 THE FREEMAN May mental ideas of a people. Anyone who believes that this would he an easy task should attempt it. Indeed, it is an impossible task, if the ideas held by the Founders be treated with fidelity and those adva"ncedby contemporary reformers be stated clearly. The ideas do not mesh; earlier meanings have to be re versed to make them jibe with the contemporary context. By the reversal, phrases which once supported individual liberty are usedto support social servitude.

The following quotation is from Dimond and Pflieger's exposition of the Constitution: This Constitution was -to be the basis for building a nation in which the welfare of each person was to be the concern of all. The makers of the Constitution believed that whatever promoted the well-being of any indi vidual helped the total group. (p. 37) The belief in the worth and dignity of each individual has become "con cern for each individual," and pro moting the general welfare has be come "the basis for building a nation in which the welfare of each person was to be the concern of all." The Missing Step There is a step missing from the above formulation, the step by which each of us hecomes respon sible for all of us and can be made to contribute from his resources to that well-being. The step does not have to be taken explicitly; it is supplied by the context. This is not a discussion of religious sentiment.

It is a setting forth of the provi sions of the United States Consti tution which have to do with the vesting of political power. When the concern of each of us for all of us is translated into political terms, it either means that each of us may be forced to help all of us or it means nothing. In the Dimond Pflieger book, it mean~ the former. The following statements nail the point down : "To promote the general welfare" - the writers of the Constitution stated this as' one of the purposes of our government. They believed that one of the reasons for establishing the government of the United States was to provide services which would bene fit all of the people .... As our nation has grown, the gen eral welfare has become increasingly a most important objective. As local communities, as individual states, and as a nation we have tried to realize this objective in a variety of ways. We now provide many services which con tribute to the general welfare, for the young and the old, for t~e rich and the poor, for both urban and rural people, for people in all walks of life.

(pp. 664-65) Why is this servitude? It is not direct servitude, ordina.rily. Servi tude means the compulsory serving of others by a person. Those who 1975 THE REVERSAL: LIBERTY INTO SERVITUDE 283 provide the services directly are not compelled to do so. That is, teachers are not compelled to teach by the state; they voluntarily entered upon the profession. The same can be said for physicians, dentists, social workers, attendants in homes for the ageq, and so forth. The servitude is indirect. It is.. by way of taxation, by income ta,xes, property taxes, sales taxes, and any one of hundreds of variations. When one's substance is taken from him to be used to provide services for others, that is a species of servi tude. Presumably, he has served in order to acquire the substance. The amount of time and energy which he devoted to acquiring the sub stance forced from him to use for the service of others is the mea sure of the degree of servitude.

Welfare at Taxpayer's Expense The notion that ours is a, welfare state is only a half-truth, if that, for a welfare state is a servile state, 0l?-e maintained by the servitude of some portion of its citizens. If any one believes that the state provides the welfare it dispenses, he is mis taken. States, or governments, do not have substance with which to pay for such services. They must extract it from the taxpayer, and they do that by force. The rightness or wrongness .of this can be de bated, but there is every good rea son to describe the practice with the most accurate language avail able. Language is a good and u,seful servant when it is used with care and precision. There is no other means by which man can draw con clusions and express the knowledge he has acquired. It is our prime means of communication. To realize how important, it is only necessary to observe someone who has reached an age where he might but cannot speak or hear. But language is a fearful master when improper ly used. It takes only a little study of history to discover that however unworthy the cause, it had its rationale, justification, and, quite often, its "philosophy." The worst side can be made to appear the bet ter by the skillful and unscrupulous use of language.

The difference between proper and improper use of language 'does not lie, of course, in the end for which it is used. Proper use of lan guage occurs when the user attends to the meanings of words and com binations of them with others, when he does not allow them to shift in meaning as he employs them, when his rhetoric is con sistently used to evoke the values which produced it, and when the reasoning is logical and inevitable. Whether language can be properly used in the service of a bad cause, I do not know. That it can be im properly so used, there is no doubt., JOHN C. SPARKS UNDER DISCUSSION was the value of human life. Several in the group thought television had vividly pic tured so much violence and near starvation around the world that we viewers - comfortable in our American homes - had become cal loused against senseless killing and the suffering of the world's unfortunate; consequently, ap peals for corrective action were falling on deaf ears - namely, ours.

At that point, one of the ladies spoke up: "I watched an official of India being interviewed 00 TV the other evening. He told of the grievous need of so many Indians who suffer from malnu trition to the point of actual star vation. The interviewer asked if Mr. Sparks is an executive of an Ohio manu facturing company and a frequent contributor to THE FREEMAN. 284 the Indian government had tried to persuade its people that fewer births might help relieve the prob lem. No, replied the official, they hadn't, because 'we love children and we would not want to decrease their number.' The point of the program was to make me feel guilty that I had plenty to eat while so many others were starv ing. At first, I really felt guilty. Then I began to feel angry! Nei ther the program writers nor the Indian official recognized that the responsibility was on shoulders other than mine." This particular television pro gram was not an isolated instance designed to prick the conscience of American .viewers. The gen eral thrust of such programs is to blame those who have accepted re sponsibility to meet their own needs - and are doing so success1975 FALLING ON DEAF EARS 285 fully - for those who are not. This is not an organized assault, in my opinion. It simply happens after years of Iiving with a philosophy that condones "rights to. have things" without the parallel self responsibility to provide them.

Politicians thrive on it. What voter is not attracted to the·poli tical campaigner who promises to have a law passed that will give people things they have not pro duced? There has been no more successful political formula (for the short run, at least) than to promise unearned benefits to a maximum number of voters. The pragmatic politician thinks, "For get the real economic world. For get the dire negative incentive effects of transferring goods (or dollars) from producers to non producers. Forget the insidious device of inflation to cover up the terrible cost. This, too, can be blamed on the producers; and not many voters seem perceptive enough to see through my decep tion." Of course, he is not likely to publicize his thoughts in those words. But he knows full well the formula - and he uses it for all it's worth, falsely in the guise of com passion. The acceptance of this philos ophy goes beyond the political wor ld. It now pervades virtually all areas of human action. The lady in the discussion group related how such thinking has almost become gospel in the medium of television. Much of the mission work of American church organ izations is focused on nations with low levels of living - countries of southern Asia, Africa, South and Central America. With funds and personnel that are never enough, the church beseeches its American members to give more - not just more, but to give enough dollars to eliminate the hardship and suf fering of the poor people of these countries. The usual tactic is .to prick the conscience by implying guilt on the part of those who are well-fed and well-clothed in a world in which many are not.

Dividing the Do"ar~ Reliance on voluntary charity or on government grants to reduce substantially the hunger of the world's poor, is a futile effort. There is not sufficient wealth in America, if given as charity, to reduce measurably their plight. Suppose that the rich man in the story of Jesus had joined with all other rich men of the then known world, and had given all they owned to the poor. Would the people of the world today have been noticeably better off as a re sult of such giving two thousand years ago? Suppose a similar ac tion had occurred five hundred years ago? or ten years ago? It 286 THE FREEMAN May is difficult to imagine anything but negative answers. Poverty can be alleviated in one way only, by increased productiv ity. And productivity is increased only as we have more and better tools and equipment· per worker. Wealth not immediately consumed but set aside as capital (machin ery, factories, research labora tories) makes for a productive economy and a rise in general prosperity affecting everyone. But periodically divide up the wealth and we'll all stay poor! As one dis'cerning economist put it rather astutely, "If we turn wealth into food and fred the world's poor, what happens after lunch next Thursday, and both the food and the wealth to produce it has been eaten 1"

What the poor need is a special means to end poverty, not the temporary respite afforded by gifts soon to be consumed. Before I am misunderstood, let me say that I favor charitable works, that there are little enough funds and personal effort to support true needs, that to the extent such works do administer moral and physical help, we should all be very thankful. Some people are physically beyond self-help, no matter what the opportunity. They are the poor, permanently disabled in body or mind, who will always require the help of others. But there are others, also poor and despairing, who exist in such condition because someone is caus ing that condition. They may be of sound minds and bodies but have no opportunities to achieve self reliance due to customs, beliefs, or laws that prohibit their self sufficiency. The erasure of such prohibitions against human prog ress is the real cure, and it needs to be learned, taught and devel oped. Anything short of it is noth ing but band-aids and aspirin.

Here lies the real challenge to the American people - politicians, news media, educational institu tions, and church organizations in world mission work. The Need to Be free To be more specific, the poor of the world need to be free persons. They need to be free from taboos, customs, totalitarian regimes,and paternalistic socialist laws. Block ages of freedom will never allow the poor to climb from the misery and sickness of poverty. And not even the richest of peoples can do more than temporarily and par tially relieve the suffering while such anti-freedom conditions per sist. Among well-intentioned politi cians, professional c'hurchmen, and many others is a deplorable lack of comprehension of the goodness of self-responsibility and freedom 1975 FALLING ON DEAF EARS 287 to exercise such qualities. Lip service favoring freedom of indi vidual decision making is general, but seldom specific. Let's look at some of the ways of missing the real point.

It is said, probably with reason able accuracy, that over one-half of the world's people are mal nourished, and up to one-fifth are frequently at the borderline of starvation. The non-sleeping hours of people in underdeveloped na tions are almost entirely consumed in their attempts to satisfy their hunger, often not very success fully. The foregoing descriptions are relevant in that they describe results of serious problems. But the causes usually are incorrectly identified. The mistaken reasons include: • Rising affluence among the world's well-to-do means less food for the poor. • An American consumes many times "his share" of the world's output of agricultural and in dustrial products; thus he and other Americans deprive the poor of their proper share. • Americans squander their means on such luxuries as homes with too many bathrooms, swim ming pools, too many energy using heating and air-condition ing units.

• Fertilizer used to treatA'meri can lawns and golf courses would be better used to raise food for the poor. One could go on and on prepar ing similar statements about the affluence of some, allegedly at the expense of others less fortunate. The single thread running through these allegations is the assign ment of guilt to those who have been successful in finding the way to provide themselves not only the necessities but also some pleasures of life. I am not praising extrava gance or conspicuous consumption. The point is that Americans enjoy more of the world's goods because they produce more of them. If they were prevented from enjoying them' they would stop producing them. If There Were No USA . .. There is little logic in suggest ing that people in geographic lo cations remote to the United States cannot exist comfortably unless the citizens of U.S.A. pro vide those comforts~ Would there be no hope for improvement of the level of life among the poor (of India, or Africa, for examp1e) if there were no United States of America located in the northern half of the western hemisphere?

There is no magic of geographic location that brings self-sufficiency . to people. No superhuman force showers gifts of food and clothing on .Americans simply because they 288 THE FREEMAN May happen to be here. No, none of these. But there has been some thing better than magic "going for" Americans. Each one has had more personal freedom and less restriction than his less fortunate world brothers. Consequently, each American has had the opportunity to make the most of his abilities, and enough have done so to make this a land of plenty. Freedom for an individual means freedom from others who would The Aim of Education use authoritarian government, ta boos, false gods, or other coercive powers to diminish the opportun ity for self-fulfillment. Serious ef forts of Americans to relieve the world's poor will include a course of action designed to teach those poor and suffering persons how to become self-reliant and free rather than dependent on welfare. The poor of the world can ill afford the luxury of American misdirec tion. , JDEASON LIBERTY THE TASK OF THE educator is primal.'ily that of liberation. The individual needs to be freed from his limitations in order to de velop his potentialities and become a better man than he would otherwise have been. This is the most radical presumption of all.

If we assume that the individual can develop his unique potenti alities only in freedom, implicit in that assumption is that different people have different capacities and varying rates of progress. Thus, genuine education implies discrimination and difference as distinguished from the dead level of equality. Once this individual quality of education is understood, it be comes apparent that "social utility" is not an appropriate mea sure of the student's achievement. Respect for the individual re quires that his education be measured in terms of his growth, his becoming. The object and the measure of genuine education re mains the individual. Development of individual personality, not social conformity, should be education's concern. Education is the process by which the. individual gains possession of his soul and becomes a human being fully responsive to his capacities. GEORGE c. ROCHE III, Education in America Religion and the Free Economy EDMUND A. OPITZ IMAGINE YOURSELF in conversation with a new acquaintance. The ex change of ideas goes well for a time, and then the talk drifts around to economics. This brings forth a series of denunciations from your companion, who declares tha t economics belongs in the same category as voodoo and witchcraft.

You rise hotly to the defense of your favorite subject, and the bat tle is joined. Within five minutes it becomes evident to the innocent by stander that the economics you are defending is not the economics your adversary is attacking. The thing he knows as "economics" is the set of conjectures and prescrip tions drawn from the Marx, Keynes, Galbraith well; whereas for you, "economics" connotes the body of thought associated with men like Adam Smith, Mises, and Hayek. It's possible that YOU:r ac quaintance has never heard of the The Reverend Mr. Opitz is a member of the staff of the Foundation for Economic Educa tion, a seminar lecturer, and author of the book, Religion and Capitalism: Allies Not Enemies. Austrian School, but his general "feel" for things has already made him simpatico. He has rejected un sound ideas, and this opens up the possibility that he might accept sound ones. But even if he repudi ates the Austrian School along with the Keynesian, you and he now have the same referent and are no longer talking past each other; you're that much ahead.

And so it is with the great themes of religion and God; the same words stand for different things to different people. Take religion: Men and women in every age and clime have sought to re late to an unseen order; call it the spiritual realm, if you prefer, to distinguish it from the social· order and the order of nature. We live in some society, we are in touch with nature - and we also partici pate in a dimension which tran scends them and us. People seek to come to terms with this unseen order by means of an enormous variety of attitudes, beliefs, and practices. These numerous, diverse, 289 290 THE FREEMAN May and sometimes contradictory activ ities are then pulled, hauled and pounded into a single category bearing the label "religion." This taxonomic barbarism - this crude labeling - will not satisfy the phil osophically-minded, who know that much if not most of what is labeled religion is more properly called magic, superstition, or ideology.

Just as most of what is popularly understood as economics is anti economic, and a lot of what passes for science is really scientism. Strange Views of God The well-nigh universal misuse of the term God is another stum bling block. God - in popular my thology - is the tribal deity, the Man Upstairs, Big Brother in the Sky, a transmogrified U.N. Secre tary, a cosmic bellhop up there to run our celestial errands for us, and so on. We have to be atheist-ic with reference to thes~ ideas of God before we can confront a more adequate idea. Santayana put it well. Chided for his "atheism," the great philosopher gently stated his position: "My atheism, like that of Spinoza, is true piety towards the universe, and rej ects only gods fashioned by men in their own image, to be servants of human interests." We resist the word God because for most people the notions of their childhood still cling to it, and these notions they have outgrown while they have not permitted their ideas of God to grow with them. Once this growth is allowed to occur, we become aware that genuine Theism de mands that we be atheist-ic towards the false gods.

Every living thing needs food and shelter and symbiotic relation to its kind, and so do we, but only a human being asks such questions as Who am I? What am I here for? Is there meaning in the totality? What is my destiny? These are religious questions, and a creature who has never asked himself these questions is a defective hominoid. Philosophical religion is the uniquely human concern, and if our assessment of human nature fails to take 'religion into account - together with its corruptions into magic and superstition-we achieve only a warped and partial understanding of man and his checkered career upon this planet. The subject presently under dis cussionis not theology as such, it is the relation between religion and the free economy; or, the bearing of Theism on the free market/free economy way of life. So, let us shift gears. An important distinction is to be drawn between the market and the market economy; the former is universal, the latter is rare. The market comes into play wherever there is a society, for no people is 1975 RELIGION AND THE FREE ECONOMY 291 so primi tive as not to engage in trade and barter. There's a lively market in Russia and China. The market yesterday, today, and for ever; but not the market economy: This human institution is very rare. Only occasionally has the market been able to institutional ize itself as the market economy.

This is a most desirable transmu tation; if it is to occur certain conditions. must be met. In this paper I shall discuss five of these conditions, in an effort to deal with the question: On what does the market economy depend? • First, there must be firm convic tions widely held about the reality of Mind and the capacity of Rea son to ascertain truth. • Second, there must be belief in Free Will. • Third, there must be a firm com mitment to the idea of inherent rights; for it is obvious that un less we believe in an interior, private domain natural to the hu man person we will not structure government so as to protect it. • Fourth, there must be firm con victions about the reality of a moral order whose mandates are binding upon all men alike. • Fifth, there must be a sound philosophy of man and his destiny, and a hierarchy of the life goals appropriate to human nature. Now we know what we are look ing for; we are searching for a world view which meets these five conditions. I shall begin with the self-evident truth that some por tion of your being is mental and attempt to draw out the full impli cations of this fact. There is the physical you, but in addition to your body, which is matter, you have a mind or intellect which is nonmaterial. The two interact; your state of mind affects the health of your body, and vice versa. A change in body chemistry or damage to brain cells may im pair memory and darken the in telligence. Now, just as our eyes are given us to see with, we have a mind to think with. Possessing minds, we can remember the past, we can anticipate the future, and we can reason about the present.

By using our intellect we can be gin to understand and explain things. In virtue of our minds we are conscious beings; and not only that, we are self-conscious, aware that there is no way of understand ing our mental processes except by other mental processes. We have the capacity to think about think ing, which means that the mind, in reflecting upon itself, is both measure and thing measured. The Origin of Mind What account shall we give of this remarkable instrument, the 292 THE FREEMAN May human intellect? What is its ori gin, its nature, its place in the totality of things? The consensus today is that mind is merely an off-shoot of matter; "there is only one world, the material world, and thought is a product of matter." This Marxist dogma is echoed by Behaviorists, such as B. F. Skin ner, for whom thinking is a phys ical process. In other words - and to put it graphically - your brain cells ooze mind just as your scalp extrudes hair! Now, if we accept some such assumption as this that your body originates your mind - the inescapable inference is that each person's mind is as private and unique as his finger prints. And if this be the case, then each person's mind is locked within his skull.

Now, if the mind of each one of us is a strictly individual reflex of physical processes, it)s difficult to imagine how mind so conceived could possibly be a means of com munication between persons. And if the communications gap were somehow bridged, what informa tion could be transmitted? Only information as to the inner state of the organism which produced the mind. Ordinarily, we demand more of the mind than this; we expect our intellig~nce and our powers of reason to expand the boundaries of knowledge in the realm outside our skulls. This leads to the ques tion: What must the universe be like if these expectations are to be fulfilled? Briefly, if by taking thought and using our powers of reason we are to acquire truths about the universe, the universe must be rationally structured; there must be some resonance be tween the thinking which goes on inside us and the rationality pres ent in the nature of things. The mind in us can be trusted to reach reliable conclusions about the world outside only if the material world - nature - embodies a non material element akin to our minds, that is to say, a pattern, a structure, a meaning. This posi tion may be called Theism.

Mind is Ultimate Theism is the belief that a mental/spiritual dimension is at the very heart of things; it is the conviction that mind is ultimate, and not matter; that mind is at least as ancient in time and as fundamental in significance as pro tons, electrons and neutrons. Mind is a prirp.ary thing; not something secondary and derived. Push anal ysis as deep as possible and there is this elemental, primordial, orig inal thing, mind; there is nothing nonmental beyond mind from which mind derives. The non mental part of us, our physical body, is in a sense continuous 1975 RELIGION AND THE FREE ECONOMY 293 with the rnaterial universe; at some point in time nature will re claim the atoms which now com prise "this muddy vesture." In a similar fashion, it is contended, the mental part of us is continuous with that part of reality which is nonmaterial; minds are linked to Mind. Anything short of this con stitutes a subordination of mind to matter, a position which is self stultifying.

Let me restate the argument thus far: If we choose to think at all we have no choice but to trust our thought processes. There's simply no way that you can think your way to the conclusion that thought is untrustworthy; a rea soned case against reason is a con tradiction in terms! You can no more disown your own mental processes than you can stand out side your own feet. This is not to say that every chain of reasoning of yours or mine invariably ar rives at assuredly true conclusions. No, we are imperfect creatures and our reasoning is frequently flawed - as we discover when we go back over it to check for log ical coherence. But the checking process itself is an appeal to rea son, and there is no higher court beyond reason until we appear at the Great Assize! In short, a direct frontal attack by reason can never succeed in toppling mind from its pre-eminent place in the total scheme of things.

If the intellect is to be down graded the critical faculties must first be dulled, then redirected onto externalities, things. The universe is full of things so exciting that many Moderns corne to regard them as more real than the mental activities that make us aware of them! Mind is awareness, which means that the intellect itself rarely gets into our sights when we are using it in the process of knowing something. We don't at tend to it when we use it to attend to something else, just as we don't see our eyes when we are seeing something with them. No Physical Measure Awareness can't be quantified, and to the degree that we are obsessed with size, quantity, ve locity, measurement and the like - preoccupations of the laboratory - to this extent will we conclude that the universe must ultimately be defined in these terms: the quantitative alone being fully real, the mind, therefore, is given a second-class status. Our minds work so well that we forget we have them, and so we are intellec tually disarmed when some learned fool comes along and tells us that the mind is a fiction and thinking only reflex acti vity. Accept the premise that mind is not an ulti mate and original ingredient of 294 THE FREEMAN May The Diminished Mind Nontheism diminishes mind. It regards mind as a mere off-shoot of matter, an epiphenomenon, a secondary thing derived from that which is primary and fundamental - elementary particles. The my thology of nontheism tells us that this universe and you assure the the universe was mindless for bil rise of a world view wherein realions of years, and that only after son is assumed to be untrust-the appearance of the higher pri worthy. mates did this later comer, mind, Conversely, if we do acknowl-stumble by accident onto the edge that mind is an ultimate and planetary scene. A few hundred original ingredient of the universe thousand years ago the nonmental - existing in its own right, inde-chanced to give rise to the mental, pendent, not derived from some-the nonrational happened to turn thing nonmental- an interesting into rationality, and 10, homo result follows. What are the char-sapiens. This incredible pedigree acteristic earmarks of intellect or downgrades mind by giving it an mind? The mental is character-unreasonable origin, and then it ized by awareness, conscious in-compounds this error by asking us telligence, rationality, creativity, to believe that this discredite!l in~ will, purpose. Possessing intellects . strument can ,somehow be relied we have a principle of explanation, upon to reach trustworthy con an ordering power. Having rea-elusions! Antitheism makes mat soned to this point we discover ter the master of mind; it reduces that we have arrived at the God of our mental processes to the level the philosophers, a concept of of secretions from a gland; it de Deity which is the cornerstone of grades the search for truth into a religion. Discard this concept - movement of mat.erial particles that something akin tq the mental and thus refutes itself.

in ourselves is intrinsic to the Nontheism of some variety - not universe - and the human intellect spelled out this way, as a rule - is is imperiled. Accept the opposite the prevailing ideology, and it is outlook, which we may call non-hostile to the idea that mind exists theism, and the cults of unreason in its own right. It declares that revive. matter is primary, mind only sec ondary, and so it is only natural that nontheism reduces truth to a matter of feeling and opinion. Rea son, logic, intelligence - along with mind - are reduced to a second class status, and without these props and stays the free society hasn't got a chance. The only phi losophy which gives Mind and 1975 RELIGION AND THE FREE ECONOMY 295 Reason their due is what I refer to as Theism. Now, it is of course true that not everyone who entertains the Theistic position automatically draws the conclusions which I think are implicit in the premises.

Human nature being what it is, this fact should cause no surprise. The point is that Theism leans in the right direction; whereas, there's no way to extract the in gredients necessary for a free economy from the polar opposite view, Materialism. Another cornerstone of the free society is the concept of free will. Nontheism, carried out to its log icalend, is some form of materi alism, and materialism logically connotes the idea of a cosmic ma chine and the inexorable, inevita ble workings of cause and effect sequences. THis is the philosophy sometimes labeled Mechanism. There's no room for the human creative act within this closed system, and if man is not a freely choosing person, it's pretty silly to try to defend the free society, as one where people enjoy maximum liberty to choose and pursue their life goals. Laws of the Market Of course, the world view I espouse, Theism, acknowledges the realm of natural or scientific law - nature - the domain in which "there prevails an inexorable in terconnectedness in physical and biological phenomena." Theism recognizes, in addition, the social order where the laws of the mar ket (laws of praxeology) operate.

For the nontheist, this is all there is, nature and society; man is totally contained within these· two orders; he's a product of his nat ural and social environment; there's nothing more. For the Theist, there's more; man's body is compounded of the elements to be found in the earth's crust, but he also possesses a mind sui generis, in virtue of which he participates in the unseen order which transcends nature and so ciety. "Mind," Plato wrote in the Philebus, "belongs to the family of what we called the cause of all things." Man is able to break the chain of causation because he has a leverage from beyond nature and beyond society; his will is indeed free. Most people, if they had the choice, would choose more free dom rather than less, and they'd rather be prosperous than not. But mere wishing gets us nowhere when the conditions for freedom and prosperity are absent; and these conditions are lacking when the climate of opinion is hostile to mind, truth, and freedom of the will. The intellectual outlook which excludes the unseen order also diminishes man himself, to the 296 THE FREEMAN May point where the idea of inherent rights is extinguished.

Only a handful of the world's people have ever believed in the idea of the inherent rights of per sons, and not many philosophers; nor will mere assertion on our part convince anyone but ourselves of the validity of this idea. Indi vidual rights are not self-evident, except to those who embrace a world view from which the idea of equal rights is an immediate in ference. It will not do merely to declare that human nature is the source of man's rights, because the alert critic will call upon you to explain the. origin of human nature. Is human nature the chance product of the natural and social environment? In which case there is logically no room for rights. Or, is human nature rooted in the ultimate nature of things, thus embodying a purpose of cos micdimensions, a purpose needing human freedom for its fulfillment? Theism answers in the affirmative! Rights are Intangible Now, John Doe's rights do not exist in time and space, as does his brain, for example, or his heart. These organs have mass and extension, and upon analysis they break down into various chemical elements. Not so a person's rights; these intangibles are part of the unseen order - if they are real at all - and those who. deny the re ality of an unseen order should be sufficiently logical to abandon the idea of inherent rights. Because the prevailing orthodoxy for a century or more has been positiv ism, scientism, materialism - the labels are many but the substance is the denial of an unseen order the idea of inherent personal rights has a feeble hold on the modern mind. Reality consists of two orders only, it is affirmed, nature and society, and man is a creature of nature produced by the blind action of chemical and phys ical forces, shaped finally by his interaction with other people in society: there is nothing in John Doe's present make-up which was not first in nature and society, whose joint product he is. Can we locate rights in those places? No!

We can no more attribute rights to nature than color to a musical note; and what is "society" that it could be endowed with rights? What sort of a world view do we need, then, if we would val idate the idea of equal rights for all persons? We need a metaphysic which includes an unseen order transcending the orders of nature and society. If man participates in a transcendent order then the idea of inherent rights readily follows; but if man is merely a creature of nature and society ... no way! The human person is either an 1975 RELIGION AND THE FREE ECONOMY 297 accidental end product of forces in the natural and social environment - the popular opinion today; or, man is what the theologian would call a created being. To affirm that man is a created being is to say that his life has an ultimate mean ing and the individual counts; it is not to say that God materialized him in a flash, like Houdini pulling a rabbit out of a hat. The doctrine of creation is another way of af firming that the whole show makes sense, and is purposeful; and man, therefore, has a reason for living.

The late Archbishop of Canterbury put the doctrine of creation in theological terms: "the world ex ists because God chose to call it into being and chooses to sustain it in being." This is Theism, and it is the only world view hospita ble to the idea of inherent or "natural" rights. What Social Arrangements? Let's assume now that our doc trine of man includes an affirma tion of his inherent rights, natural or God-given. What kind of social arrangements most fully acknowl edge each person's inner and pri vate domain? The Declaration of Independence says that legitimate governments are those limited to securing men in their rights, and this position has many adherents even today, myself included. But there are those among our contemporaries who maintain that government per se violates rights by its very ex istence. To illustrate their zero-govern ment position, these people ask us to suppose that John Doe decides to put down his stakes in Podunk and buys the house and lot at 10 Main Street. Along comes the tax collector and forces John to cough up his prorated share of the cost of Podunk's government. This tax, it is alleged, constitutes an inva sion of John Doe's right to live and every taxpayer in the country is similarly violated. Will this al legation hold water? Nary a drop!

Consider: Each of these millions of taxpayers Iives at some definite location, his home address; and each of the alleged violations takes place at that same spot. The asser tion that the assessment collected from John Doe at 10 Main Street is a violation, implies that John has some prior, inherent right to locate at 10 Main Street. Logically, there cannot be a vio lation of a right unless there was a right in the first place! Presum ably, Doe bought the property at No. 10 and acquired a legal "right" to live there; but if it be argued that he has a natural, inherent right to live at a given place like 10 Main Street - why was he required to buy his way in? The same twisted theory that views the 298 THE FREE,MAN May tax as a violation would have to view the purchase as a violation also. But the argument is wrong on both counts. Your right to live, properly understood, means that you have the same rights within a society as anyone else; equal rights for all. If you have chosen to live in Podunk because of its plus features, your choice logically embraces its minus features as well. It's a profit and loss world.

Moral Convictions The idea of equal rights has close affinities with firmly based moral convictions, and it is Theism again - with its belief that the nature of things has an ethical bias - which supplies grounds for drawing a radical distinction be tween right and wrong, good and evil. No people, in the absence of an adequate moral code, can move from the mere urge to be free into the free society, nor can they maintain levels of freedom once reached by their forebears. What is right? and What is good? are perennial questions, and most em phatically they are not the same questions as What is useful? what is pleasurable? profitable? legal? What benefits the community? and the like. These are interesting questions, but they are not ethical questions; calling them such does not make them so. Ethical relativism and ethical nihilism are part of the prevailing orthodoxy; they are the dead ends where axiological inquiry arrives if the opening premise denies the reality of anything beyond the natural and social orders. If there is no unseen order which tran scends nature and society, then our moral code must anchor its author ity in either the social order or the natural order. Now, nature does have its mercies, but it is also "red in tooth and claw"; it's the scene of a constant struggle for survival. Surely, the law of the jungle does not provide a model which human beings should seek to emulate. And if someone de clares that society or a segment thereof is the source of moral au thority, we must ask, Which soci ety? or Which faction within so ciety? Only the totalitarian nation can give a clear-cut answer here, and it is not a pretty one.

This position, moreover, presents a logical difficulty. It begins with the assumption that there is no reality beyond nature and society, and concludes that we ought to conform our action to nature's or society's mandates. Whence this imperative? It is not from within nature that we receive a mandate to obey nature; only if the code transcends both nature and the individual can the message be de rived that the individual should live according to nature. And it is 1975 RELIGION AND THE FREE ECONOMY 299 precisely such a code that is de nied by all varieties of nontheism. Ditto in the case of society's mandates. The next expedient of the non theist confronting his moral di lemma is to assert that every indi vidual is an end in himself; there fore he should pursue his own advantage and further his own in terests; he should "do his own thing." The Theist believes that man didn't just happen; he is a created being. Those who deny this affirm that man is the accidental end product of the physical and social environment. And it would take a pretty hard sell to convince anyone that a mere end product really is an end in himself, thereby possessing inherent rights and im munities which everyone else should respect. Only if we ac knowledge the mystery and sacred ness of personhood - because each person participates in an order that transcends nature and society - do we have the ingredients for a moral code; only then do we have a set of rules, in terms of which each person has maximum oppor tunity to pursue his private goals and a reason for not aggressing against his fellows - even when an act of aggression appears to give him an advantage or serve his immediate interests. Throw out the rule book, and the admonition "do your own thing" puts the weak doing their thing at the mercy of the strong doing theirs.

What Is the Purpose? Now for our final point. I have argued that Theism is the only philosophy which validates mind, supports free will, provides for in herent rights and supplies a moral dimension. What does Theism have to say about the purpose of life and the goals appropriate for crea tures cast in our mold ? We do know that people who are not pur suing the goals proper to man come to feel that life is meaning less; and if life is meaningless Albert Camus' point - then power has no limits. "What shall I do with my life?" is a question that dogs each of us in the course of our three-score-years-and-ten. Shall we seek pleasure, power, truth, wealth, or what? Unques tionably, life is to be enj oyed and laughter is good for us; but it is notorious that those who work at having fun don't have much; the serious pursuit of pleasure is a contradiction in terms. What about power? It is a heady thing to wield power, but the corruptions wrought by power afflict both the powerful and their victims.

Truth and beauty? The search for truth and beauty is on a higher level than most pursuits, but there are disquieting trends in modern philosophy which down300 THE FREEMAN May grade truth by limiting it to the experimentally verifiable, and re duce beauty to a pleasing emotion. Logical positivists discredit mind by denying that thought is an in dependent source of knowledge. As the Oxford philosopher, A. J. Ayer, puts it, "... there are no 'truths of reason' which refer to matters of fact." Deny the reality of an un seen order which transcends na ture and society, and truth is a casualty; men lose contact with the pursuits which make life worthwhile. Let the Market Decide? Sometimes another tack is taken; some people tell us that the market and the pursuit of maximum prof itability provides both a goal for individual life and a guide to con duct. What shall the individual do with his talents, his time, his en ergies - his life? Why, let the market decide; let each person find out what other people most ur gently want from him by noting what they are willing to pay, and then conduct himself so as to max imize his profits! Reflect on the fact that "the market" - in the eyes of any given person - is simp ly "other people"; so what this position boils down to is equiva lent to advising each person to let other people determine how he should live and what he should live for! Society, then, is an enormous altruistic stew, in which "every one is the servant of all and all the masters of each." Any person who finds himself sunk in this predica ment cannot rescue himself unless he has a purchase on a value sys tem which transcends society. Only Theism offers such a value system, one which helps us choose the goals proper for human Iiving.

The free society/free economy does not just happen in human af fairs; only occasionally has it emerged in history. The free econ omy is a contingent thing, depen dent upon the cultivation and ap plication of the right ideas, the right philosophy. Freedom needs a world view which makes mind central and gives truth its proper place; freedom needs to be but tressed by firm moral convictions, by the idea of inherent natural rights, and by belief in free will. And only a happy citizenry pur suing the goals proper to man will struggle to become free, or fight to retain such freedom as they already enj oy. The free society, in short, needs Theism. Of course we need sound economic and political theory as well, but it must be emphasized once again that a peo ple which has embraced an un tenable world view - one which denies the spiritual and the tran scendent - will be seduced repeat edly by crazy schemes of reform and revolution. , WHOIS BRIAN SUMMERS WHICH BUSINESSES make the most efficient use of the factors of pro duction: natural resources, labor, and capital goods? That is, which businessmen are the least wasteful in their efforts to market goods and services?

To find the answer, we must have a means of comparing a busi nessman's product with the fac tors of production he has used in its creation. That is, we need a standard that applies to goods and services as well as to natural re sources, labor, and capital goods. At first glance, this is a pretty tall order. We usually think of raw materials in terms of tons, labor in terms of hours, capital goods in terms of tools, and products in terms of usefulness. How does one compare usefulness with tons, hours, and tools? Fortunately, in a free market we are not forced into such arbiMr. Summers is a member of the staff of the Foundation for Economic Education. trary decisions. For when the mar ket is free, we need not think in ternlS of natural resources, labor, capital goods, goods and services per se, but rather, we may use prices the market attaches to these items. Is free market pricing the prop er standard to use in judging busi ness efficiency ? We will know the answer when we understand how free market prices come into be ing.

When the market is free, busi nessmen present customers with goods and services, and asking prices for these goods and ser vices. Of course, consumers are not forced to buy from anyone merchant. If they feel that a given merchant's asking price is too high, they take their business else where. Competition a,mong busi nessmen causes them to base their asking prices on their anticipa tions of how consumers will react to these asking prices. Only when 301 302 THE FREEMAN May a customer reacts favorably does an asking price become a selling price. Thus, businessmen are guided by consumers in the formation of prices of consumers' goods. How are prices of the factors of pro duction determined? Businessmen bid among them selves for natural resources, labor, and capital goods. However, here again businessmen are guided by consumers, for their bids are based on their anticipations of customers' reactions to the goods and services these factors will be used to produce. Hence, a given factor of production will go to the businessman who feels he can put that factor to the most valuable use. Valuable to whom? Valuable to the person whose favorable re action the businessman seeks - the consumer.

We have thus found a standard - free market pricing - that ap plies to raw materials, labor, capi tal goods, goods and services. How can this standard be used to judge business efficiency? From the point of view of con sumers - and we are all consumers - the answer is straightforward. Businesses whose expenditures for factors of production are less than their sales of goods and services have made efficient use of factors of production. Businesses whose expenditures exceed their incomes have made inefficient use of these factors. Hence, businesses that earn profits are efficient; busi nesses that lose money are ineffi cient. In a free market we can use prices to test business efficiency. However, as government interven tions take us away from the free market, we lose our simple test, and it becomes more and more difficult to judge efficiency. Government interventions influ ence prices in many ways. Con trols on wages and prices are ob ,vious examples. When wages and prices are set by the government, and not by consumers, business men still seek profits, but such profits are an indication that a firm's governmentally determined revenues exceed its governmental ly determined expenses, not that a firm has efficiently served con sumers.

Other forms of intervention also influence prices. Zoning, tariffs, import quotas, export restrictions, I.C.C. regulations, rent controls, minimum wage laws, union monop oly privileges, and so forth affect business balance sheets in count less ways. The more these balance sheets are affected by the govern ment, the less they are affected by consumers. And the more the gov ernment interferes, the less valid the consumers' test of efficiency becomes.

1975 WHO IS EFFICIENT? 303 The ultimate intervention is government control of an industry. Mail delivery is a good example. Is the Post Office efficient? It loses hundreds of millions of dollars every year. Suppose postal rates were raised to show a profit. We would still have no way of judging Post Office efficiency because con sumers would still have nowhere to turn for lower rates and/or better service. Postal rates are not determined by consumers, but' Total Control rather, are set by bureaucrats backed by a police force standing ready to imprison anyone who challenges the Post Office's legal monopoly. Only in a free market, where businessmen face constant compe tition, can business efficiency be tested, for only in a free market can consumers encourage efficient production with profits and dis courage inefficient production with losses. ~ IDEAS ON LIBERTY BUT WHEN SUCH A STATE of all-around control of business is achieved, the market economy has been replaced by a system of centralized planning, by socialism. It is no longer the consumers, but the government who decides what should be produced and in what quantity and quality. The entrepreneurs are no longer entre preneurs. They have been reduced to the status of shop managers and are bound to obey the orders issued by the government's central board of production management. The workers are bound to work in plants to whom the authorities have assigned them; their wages are determined by authoritarian decrees. The govern ment is supreme. It determines each citizen's income and standard of living. It is totalitarian.

Price control is contrary to purpose if it is limited to some com modities only. It cannot work satisfactorily within a market econ omy. The endeavors to make it work must needs enlarge the sphere of the commodities subj ect to price control until the prices of all commodities and services are regulated by authoritarian decree and the market ceases to work. LUDWIG VON MISES, "Inflation and Price Control"

Lifelong Learning EDUCATION is a lifelong pursuit. Whatever a person does in life demands preparation, and since every day is a new day with new requirements he needs to face every dawn with renewed quali fications. Education is not something that goes on for a certain number of years until it is capped by a grad uation ceremony, whereupon it ends forever. That would be to let your mind die. An advertisement for Great Books has an illustra tion representing a gravestone on which is inscribed: "Here lies the mind of John Doe, who at age 30 stopped thinking." Education in school has pro vided many tools of thought and some guides to action. It has led the student to recognize certain basic principles. To say at this point "That is it; I am educated" Reprinted by permission from The Royal Bank of Canada Monthly Letter, December, 1974. 304 is merely another way of saying "I have stopped learning."

Every person has to Iive all his life with himself. He should, then, for his happiness' sake, make him self an informed, reasoning and interesting companion. This Letter is not an attempt to revise the educational system, but a reminder of the lifelong nature of education. Many people have ideas about changing the system, but they are careful when it comes to making proposals: they recall that Socrates was invited to drink the hemlock because he attempted to reform the university curricu Iurn of his time. Continuing education may be obtained within organized educa tional programs or by our own initiative and design. Its purpose is to help us to make the most of our good points and to turn our deficits into assets. It keeps our perceptions sharp. It· gives us the capacity for self-renewal.

1975 LIFELONG LEARNING 305 Continuing education is essen tial if one is to be an efficient per son, homemaker, and citizen. It enables one to grow. and to live significantly as youth, parent and worker, and as a citizen of the world. One of the central dilemmas of today's overlapping generations is how to keep informed amidst the dizzying succession of discoveries and events. Educators have drawn inspira tion from Plato, but since his day there have been three new influ ences affecting education: the vast accumulation of knowledge, the need to earn a living in a com petitive world, and the growth of applied science. Continuing education enables us to re-evaluate our habits of thought, concepts and ideals in the light of these changing times. It prepares us to face any change or chance, so that we are not easily thrown into a panic. It assures· us of where we are, indicates where we are going, and tells us what we had better be doing under these circumstances.

Part of continuing education is to keep us alert to the possibility of the unexpected, and with minds open to meet it. Thus we avoid the embarrassment that overtook Dr. Lardner in London in 1836. He published a pamphlet in which he proved conclusively that a steamboat could not cross the ocean: the book came to this continent on the first steamboat that came across the Atlantic. Continuing education, condition ing us for the march of progress and preparing us to enjoy life fully, is possible and desirable for everyone. We may call as wit nesses to the need two eminent men whose ability and common sense no one will question. Presi dent Abraham Lincoln hesitated about visiting Europe where great statesmen were eager to give pub lic recognition to his fame. He told the senator who suggested that he accept: "As you know very well my early education was of the narrowest, and in the society in which I should move I should be constantly exposed in conver sation to have a scrap of Greek or Latin spoken that I should kno,v nothing about." And Sir Winston Churchill said in a speech in Boston: "I have no technical and no university education, and have just had to pick up a few things as I went along."

To Be Educated Dr. Nicholas Murray Butler, president of Columbia University, cited these aspects of education: correctness and precision in the use of one's mother tongue; re fined and gentle manners; the power and habit of reflection; the 306 THE FREEMAN May power of growth; efficiency - the power to do. To these qualities other people have added: a set of values and the courage to defend them; an understanding of society; the abil ity to look squarely at the world and its problems. It is not enough to accumulate facts. To be educated is to have acquired knowledge that has cer tain attributes. It should enable us to answer these three great questions: Is it right or wrong? Is it true or false? Is it beautiful or ugly? Continuing education does not provide a tourist's guide to life, but a scale of values by which to regulate living. It offers these benefits: it enables us to learn what thoughts and acts we should avoid and what we should pursue if we are to be happy; it shows us how to inquire into the reality of things so as not to be deluded by surface appearances; it helps to free us, on the one hand from the ghostly drag of superstition, and on the other hand from the arrogant assertion of dogmatic opinion.

Freedom is one of the great benefits conferred by education. It enlarges the scope of a person to enjoy the good things of life. Stephen Leacock said in Humour and Humanity that he found writ ten over the portals of the library of a great university the legend: "Learning maketh a full man." He thought that was a very stodgy conception. "Learning," said Lea cock, "ought to make him light as air, able to hop like a humming bird among the flowers of schol arship." Continuing education should be a progress from lower to higher stages of understanding. This is not to say that continued learning will make you as carefree as Leacock's humming bird appears. It makes you skeptical toward statements for which no evidence is presented, and disdainful of insincere promises. It acts as a sort of balance wheel, giving you poise. It enables you to keep your head when people all around you are losing theirs.

Communicating Ideas It helps, too, in understanding and communicating ideas. Most persons in Canada have worth while thoughts they would like to pass along to others, but they have not the knack of putting their thoughts into words. Con tinuing education will enable them to turn their collection of random and disconnected ideas into an integrated and understandable communication. Continuing education enables one to meet and converse with all sorts of people. The business ex1975 LIFELONG LEARNING 307 ecutive may talk with the labor leader and the scientist with the philosopher, and each recognizes that the other is an educated man, though the area covered in their collection of knowledge is widely different and the centers of their interests are far apart. The characteristics of good com munication can be learned by every person of fine sensibility and rea sonable industry. That attainment alone makes a continuing educa tion worth while.

This education is not formal schooling. Mature people are' not confined to some prescribed cur riculum. They may explore what interests them: words to express their thoughts; fields and woods to learn about nature and ecology; the causes and effects of things that are happening around them. There is something to interest every sort of person, something in which to make discoveries and develop ideas. Continuing education means us ing your own brain to supply a theory of life fit for you, based upon knowledge of life's possibil ities and limitations. It means knowing the validity of the great things we treasure: justice, lib erty, loyalty, truth and duty. It stimulates your imagination, cre ates perspective and breadth of outlook, and presents the challenge of judging between this and that. Devotion to this sort of learning produces a scholar in the truest sense of the word. The Need lor Knowledge Many of the world's ills are due to ignorance, confusion and the misinterpretation of cause and effect. This is not merely because many people are illiterate, but be cause so many people who are literate ceased learning too early in life. They did not keep up.

Education continued into ma turity keeps us supplied with many points of view from which to survey and appraise events and movements. One mark of the edu cated person is the degree of his openmindedness. He is opposed to dogmatism, intolerance and smug ness. No one can pursue education without widening his views and changing his mind. Consciously or subconsciously everyone knows that he needs a comprehensive view of existence if he is to integrate his values, choose his goals, plan his future, and maintain the coherence of his' life. Therefore he is constantly pushing back the boundaries of his knowledge, not seeking to prove some notions he has, but searching for the truth about them. At every turn in the journey of life the need for knowledge urges itself upon us. Whatever advance 308 THE FREEMAN May we make in our working or private life is due to the increase of our knowledge and our urge to push upward to superiority.

When a person asks himself: "Do I know enough about this matter to express an opinion or to take action?" he is giving evi dence of being educated. Saint Thomas Aquinas, known as the Angelic Doctor, wrote: "An angel perceives the truth by simple ap prehension, whereas man becomes acquainted with a simple truth by a process from manifold data." Knowledge is the sure base for speculation about events and the only safe foundation upon which to build dream castles. It opens the door to valuable states of mind. It helps to remove fidgety anxiety ~bout happenings. It gives us the edge when we come up against a problem for the solu tion of which we have not been specially trained. To be educated you must keep your knowledge up to date. As an example, consider the big library of a medical doctor. He had hun dreds of books bulging in their binding because of pieces of paper inserted in them. The doctor sub scribed to medical journals, clipped out the technical articles and slipped them into his textbooks at appropriate places. He had, then, the" basic principles about disease and treatment together with the latest word about discoveries and new techniques. He was up to date. He was educated. No matter how high he climbed in his pro fession (at one time he was chief of a hospital) he never became top-heavy, because every expan sion of his duties was matched by expansion of his base of knowl edge.

Much knowledge comes from observation. Literacy does not consist in having the ability to read the instructions on a medi cine label, a tin of soup or an electric drill. It is the power to absorb observations, make analy ses and reach decisions. It is the capability to know how to find out the answer to questions. The Art of Reasoning From acquiring knowledge we proceed to reasoning. The quality that sets mankind apart from the lower order of animals is that of thinking. Activity of our minds is the thing needful if we are to be fully human. As Alfred North Whitehead wrote: "The art of reasoning con sists in getting hold of the subject at the right end, of seizing on the few general ideas which illumi nate the whole, and of marshalling all subsidiary facts round them." To think is to compare things with one another, to notice where in they agree and differ, and to 1975 LIFELONG LEARNING 309 classify them according to their agreements and differences.

In doing this you will benefit by the academic habit of disciplined and objective thought. There is an austere beauty in precise think ing, and great satisfaction in seeking and finding answers. A character in one of Sophocles' plays said: "'Tis no disgrace even to· the wise to learn, and lend an ear to reason!" To put education to its best use you need some guides such as those given by Rene Descartes, French mathema tician and phi 10sopher and father of the modern science of thought. The starting point of his philosophy was the famous phrase: " I think, there for I am." He proposed these principles: 1) Evidence: do not accept anything as true until you recognize that it is indeed true; 2) Analysis: divide up problems into many parts and solve them one by one; 3) Synthesis: put things together, thus mounting in stages to the most complex knowl edge; 4) Control: make your sur veys so wide as to ensure that nothing is omitted.

Close upon the heels of edu cated reasoning comes wisdom. When you gain and practice schol arship, that gives you a fierce resentment against pretense and bluff, against shoddy thinking and jerry-building. Wisdom sees the fitness of things and grasps the logic of events. It makes a per son's mind fit, as Charles Perrault wrote in the dedication of his book of fairy tales: "to rise to great things and stoop to small ones." Finally, the person who is con tinually learning reaches philoso phy. That begins when he is wise enough to question his cherished beliefs, and ask for the truth,. and demand an answer to "why?" For Mature People Continued learning assures that the accumulated wisdom of ad vancing years will be strength ened by a growth in attitudes and concepts suited to changing social, economic and political conditions. It enables a person to adjust con stantly to changes in his individ ual situation and to the demands and expectations of society.

Learning throughout life fits one to rise above average. En thronement of the average is one of the pitfalls facing a democracy, and the one way to avoid this pit fall is a lively recognition of ex cellence wherever it appears, and cultivation of the urge to reach it. Mental stagnation is the most greatly-to-be-feared fate of en croaching age, whereas a human mind continuing to grow and to develop throughout a long life is a splendid and impressive sight.

310 THE FREEMAN May Continuing education enables a person to keep busy at his highest natural level, and sometimes to rise above it. Age is not a genuine handicap to learning anything you want to learn or need to learn, but in the second half of life one does not belong in a vast educational insti tution: one is an individual on his own. Upon retirement, many men and women return to education as something that holds the assur ance of a better way of life and a path tow'ard self-fulfillment. How different is that effort to adjust so as to get the best out of life from the attitude of those who are content upon retirement to idly repose, like emancipated slaves content with their freedom. How to Do It Studying to broaden your ho rizon is not something to qe at tempted in the atmosphere of frenzy that marked the busy days when you were trying to clear up a backlog of work in your office or factory. Opportunity to con tinue learning consists in arrang ing circumstances so that study is possible.

We are reminded of the newly retired Mr. Crombie in Edward Streeter's Chairman of the Bored (Harper & Bros. 1961). He said to his wife at breakfast: "Last night I worked out a schedule for myself. If you don't have some kind of a systematic plan you never get anything accomplished." "I thought you told me we had all of eternity to get things done." "That won't be long enough if we don't get some order into our lives." There will be days when your primary objective is to keep afloat, and others when you look at the neatly arranged list of things that you planned to do and find that you don't want to do any of them. These are natural occurrences, and they need not be fatal to your desire to study. Like Dorian Gray in Oscar Wilde's novel you may be "far too wise not to do foolish things now and then." But you will return to your purpose and your plan, probably refreshed by your vagrancy. Some may carryon their con tinuing education alone. Ralph Waldo Emerson wrote in his j our nal: "I feel a joy in my solitude that the merriment of vulgar so ciety can never communicate."

Nearly every home can be made to provide a den or a quiet corner where a person may sit with a book or with his thoughts. The smallest cubby ...hole becomes a spacious study when a person's mind walks up and down among the thoughts of others. For those who like to do things 1975 LIFELONG LEARNING 311 in company, there are courses for adults in universities and schools, the Great Books groups, and groups which study any subject in which members are interested. Whether alone or in company, you find pleasure in exercising your mind. Have a Shelf of Books The easiest way to extend edu cation, and indeed the only way open to many persons, is by read ing books. There is no mood of mind to which a person may not administer the appropriate nutI"i ment or medicine at the cost of reaching down a volume from his book-shelf. Instead of reading about weak, disorganized and mixed-up peo ple, unhappy, blundering and de feated, seek intimacy with great minds. Plan to absorb the results of other people's thinking and add your own thoughts. It is quite possible for a person to acquire such a general knowledge of the laws of nature and the facts of history and the bases of science that every great advance made in any department shall be to him both intelligible and interesting.

One may have books that he has never read and never will read, but possession of them is education in its own way. One knows that all he need do when he is lonely is reach out his hand and grasp that of a friend, or if he wants to know something, turn to his books and ask. Everyone should have a few feet of shelf marked "books suitable for read ing on deserted islands." That will be the section to which you will turn when life seems empty of interest or when difficulties pile upon you. The Fruits of Education The fruits of continuing edu cation include the development of ideals, the setting up of a sense of values, the acquisition of a feeling for beauty, and the ex perience of adventure. The ideal life would be the full est development of your highest powers in education and art, and growth in religious, moral and in tellectual awareness. There is an innate satisfaction in looking for the true and the noble, whether the search be among ideas or men and women. As your education progresses, you develop a phil osophy that demands the first rate.

Find out what things are worth bothering about. It is a great ad vance toward happiness when we learn what things are in our pow er and can be changed, and what things are not in our power and therefore must be adjusted to. The time of retirement,when a person has leisure to think about 312 THE FREEMAN May things, often reveals tha t the working days have been lacking in the perception of beauty. To cultivate appreciation of beauty is an essential part of continuing education. Dr. Albert Edward Wiggam wrote in The Marks of an Educated Man (Blue Ribbon Books, 1930) "I feel sorry for the man who has never gone without his dinner to buy a book of poems, a ticket to a concert, a little statuette or picture, or a pretty rug or chair for his home, or even a pretty hat for his wife." Last but not least is the excite ment of discovery. When you see an analogy, a connection between events or thoughts, which no one has seen before, you experience the thrill of discovery.

Andre Gide, the French novel ist and critic, Nobel prize winner for literature in 1947, wrote "The wise man is he who constantly wonders afresh." When we find something in a book that causes surprise or. admiration, or that adds to our knowledge of the uni verse, we are released, for the time being, from the choking grip of sophistication and. the dead' hand of cynicism. To be educated means that you have learned what to do with an idea that enters your mind. You know how to take it apart to see what it is made of, how to de velop it into something useful and pleasurable, and how to bring the idea to life. When you do that, you are qualified ,to enjoy im portant adventures of the mind and the spirit. Only through lifelong education can a man or a woman continue to live significantly. Such a per son is at work on his own en largement. He takes as little as possible for granted. He will be repelled by the suggestion that he accept inert ideas. He will want to test, to use, or to throw into fresh combination the ideas that come to hdm. He will rej ect the ready-made opinions of others in favor of a blank sheet of paper on which to develop his own thoughts.

There is much talk about "rights." Every person has the right to become all that he is cap able of becoming. To him, educa tion is attractive and worth while, and it is attainable at any age. It is a continuous growth of the mind and a continuous illumina tion of life; an eternal becoming something better. Seneca, the Latin philosopher and dramatist, tutor of Nero, wrote "As long as you live, keep learning how to live." ~ Editor's Note": In all this treatise on learning, not a word as to what the government ought to do about it!

He Gains Most Who Serves Best PAUL L. POIROT "THE BEST OFFENSE is a good de fense" may be effective strategy in war and various competitive sports to decide winners and los ers. But this offense-defense ter minology is misleading with refer ence to free market competition. Voluntary exchange is neither a game nor a war; it is a form of coopera tion between buyer and seller to their mutual advantage as each one determines·advantage. So, the rule of the market would run more like this: "He gains most who serves best." A businessman's profits are a measure of his effi ciency in the use of scarce and valuable resources to satisfy the most urgent wants of consumers. Having competed successfully in the market, a property owner seeks to preserve his gains. But the mar ket continues to insist: "He gains most who serves best." In other words, the way to preserve your gains is to keep on serving con sumers efficiently; that's the only protection of property the market can offer.

It should be noted here that the market recognizes and accommo dates numerous forms of property. Perhaps the most crucial and sig nificant form is the individual's property right in his own person - his freedom to use as he pleases for any peaceful purpose his own ideas and energies and other facul ties and possessions. As a self owning, self-responsible human being, he is free to choose work or leisure, thrift or prodigality, spe cialization and trade or self subsistence, formal education or on-his-own, splendor or plain liv ing - anything peaceful, at his own 313 314 THE FREEMAN May expense. The market is there to serve him to the extent that he serves others: "He gains most who serves best." In addition to one's right to his own life, the market recognizes and respects other forms of pri vate property. There is the land, the space one occupies to the ex clusion of others who have not earned access or been freely in vited to share that space. There are the man-made buildings and tools of further production. There is food, clothing, shelter, transpor tation, medical and dental care, news and other information, books, education, recreation, entertain ment, services ranging from strictly unskilled manual labor to the most highly skilled profes sional help. All these are forms of private property, things owned and controlled by individuals as a con sequence of peaceful production and trade - voluntary market transactions, according to the mar ket formula: "He gains most who serves best."

A Wealthy Nation Those who speak of the United States as a wealthy nation really mean that the citizens of this na tion are relatively well off. And we should add the appropriate quali fications: (1) some of the citizens of the United States own more property than do others, and (2) the typical United States citizen owns more property than the typi cal citizen of other countries. Without those qualifying condi tions, the reference to a wealthy United States might be miscon strued as meaning that our federal government has unlimited resourc es at its command - an all-tao-com mon belief. Perhaps the people of the so called underdeveloped Third World might be excused for the notion that the wealth of the United States is primarily in the form of government property. Citizens of lands long committed to commu nism have less reason to believe that the path to prosperity and happiness is through government ownership and control of resources.

But what could be our excuse, we taxpayers of the United States, for possibly thinking of Uncle Sam as the source of endless goodies? Either our government is inde pendently wealthy and has no need for taxpayers, or else it is de pendent on taxpayers for its re sources. Is there· really any ques tion about that? Unfortunately, many citizens of the Uni ted States seem to be in doubt as to which is the case. They vote themselves instant protection and welfare, payable from Federal funds, as if there were no tomor row - no accompanying tax bur dens and disruption of business 1975 HE GAINS MOST WHO SERVES BEST 315 and trade. The facts to the con trary are announced daily in the various taxes added to purchases, weekly or bi-weekly .in the list of deductions from pay checks, an nuany as income tax reports are filed. We have every reason to know there is a tax to pay for every act of government, whether to defend life and property and maintain peace and assure justice, or to transfer property from one person to another for whatever reason.

Why Some Have More Because the market rewards in dividuals according to services rendered, the result is that some persons earn and own more prop erty than do others. Strictly by serving the masses of mankind, some individuals have been made extremely wealthy. They have been given stewardship over vast amounts of property because of their proven capacity to use such scarce resources efficiently in pro viding the goods and services most sought and most valued by others. But if, for some reason, any pres ent owner of scarce resources loses his touch, fails to serve efficiently, the open competition of the on going market process soon will bid the property into the hands ·of some new owner who serves better. Meanwhile, the market process sustains vast numbers of us who pretend to know better than we do - who feign a wisdom not manifest in our performances. And one ver sion of such "wisdom" holds that "we" know better than "they" how to use their property, that there is a more humane and just method of allocating scarce and valuable resources than to leave it to the market decisions of competing owners of private property. In other words, property should .be redistributed "to each according to need," not left to the market rule: "He gains most who serves best."

And just how is the market to be closed? Forcibly! Instead of up holding the dignity and property rights of the peaceful owner, the government shall intervene some times to drag a supplier unwilling ly to market, sometimes to bar or limit his entry; sometimes to pro tect present owners of property in uses long since d~clared wasteful by any reasonable measure of the market place, sometimes to forci bly transfer property from the most efficient users into the hands of those who most miserably have failed to serve others in any way whatsoever. The Best System So we come back once more to the only rule the market follows, "He gains most who serves best." Despite the inequalities of wealth resulting from observance of that rule, no one reasonably contends 316 THE FREEMAN May that there is a better formula for human action in society. There is nothing morally wrong about vol untarily serving others. A person does not rationally contend that he has been impoverished· because others have acted to serve his most urgent wants. When two parties voluntarily exchange their privately owned resources or properties, each gains - else he would not trade; and no uninvolved third party is harmed by reason of the trade.

While the rule of the market allows the greatest gain to the one who serves best, it affords no protection for any gain except through continuing use in the ef ficient service of others. In other words, the market insists that scarce resources be owned by those who are most proficient in serving willing customers, which is the least wasteful social distribution of wealth that is possible. To arbiServants of the State trarily or coercively change the market-derived pattern of owner ship is to introduce waste; and there is no historical or theoreti cally sound evidence that waste of scarce resources is socially bene ficial. Wha t any waste of any scarce resource amounts to in the final analysis is a waste of human lives - the inevitable consequence when compulsory collectivism in terferes with or displaces the mar ket process of open competition. It is comforting to be a citizen of a wealthy nation. But a nation is wealthy only by reason of the fact that resources are privately owned and controlled according to the rule, "He gains most who serves best." And the only way in which government can usefully serve such a society is to keep the market open, restrain and punish those who violate· the rule, but otherwise let free men compete. ~ IDEAS ON LIBERTY WHERE DISTINCTION and rank are achieved almost exclusively by becoming a salaried servant of the state, where to do one's as signed duty is regarded as more laudable than to choose one's own field of usefulness, where all pursuits that do not give a rec ognized place in the official hierarchy or a claim to a fixed income are regarded as inferior and even somewhat disreputable, it is too much to expect that many will long prefer freedom to security.

F. A. HAYEK A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Sovereignty and Bargaining_ GOVERNMENT', says the old Chinese proverb, is more terrible than tigers. That is because government rests on force. But when private individuals are not restrained by government from using force in accordance with their own whims, we have something that is worse than tigers. In the well-known ob servation of Thomas Hobbes, life without government becomes nas ty, brutish and short; even the non-tigerish become man eaters. In choosing between tigers and something worse than tigers man kind is challenged to figure out a way of limiting the rule of the tiger State to defending borders, protecting citizens in their individ ual rights and keeping the envir onment free from communicable diseases. Our Founding Fathers thought they had solved the prob lem. With John Locke and other post-Hobbesean philosophers, they hoped that check-and-balance rep resentative institutions would make governmental force both orderly and palatable. We would have sov ereignty where we needed it, to provide for the Adam Smith triad of justice, safety and cleanliness.

Parliaments, chivvied or bought by special interests, have often be trayed the Lockean hopes (indeed, Willmoore Kendall considered this to be the joker in the Locke deck), but it remains incontestable that if the State isn't the sole reposi tory of force life would be reduced to rule by gang shoot-outs miti gated by general anarchy. Law, in the Lockean, or repub lican, State means that the tax payer, as voter, calls the turn on where the tiger of government should be turned loose for con trolled feeding. But when we have public-sector unions arrogating to themselves the right to strike 317 318 THE FREEMAN May against what the sovereign legis lators choose to pay them, we have an absurd situation. The govern ment is no longer sovereign. We have a two-headed arrangement, with the right of the people to rule colliding with the right of union sanctioned arbitrators to infringe on popular sovereignty if it seems necessary to keep the public-sector union bosses happy.

In a wide-ranging essay, Sov ereignty and Compulsory Public Sector Bargaining (Wake Forest Law Review, reprinted as a pamph let), Sylvester Petro has explored the whole reach of a crazy situa tion that is making government impossible in our big cities and even threatens the integrity of the federal union. It seems strange to Dr. Petro that virtually nobody has caught on to the logical fallacy of sup posing there could be a workable two-headed sovereign. Elected gov ernments are supposed to have supreme governing power. But if a public-sector union can presume to refuse to collect the garbage, or to open and close draw bridges, or to put out fires, or to crack down on muggers and restrain street gangs, meanwhile coercing the govern ment to reach a "collective bar gaining" agreement that mayor may not be within the taxing pow er of the government to sustain, just who is ruling us anyway?

Even if an "imperial" arbitrator is provided for in a collective pub lic-sector bargaining agreement, the State loses control. The arbi trator, not the people, becomes the ultimate sovereign. Union Bosses vs. Legislators Once unions become recognized as compulsory bargaining units in the public sector it becomes im possible to deal with them in ways that will still permit legislatures to rule. In New York State the so called Taylor Law supposedly es tablished compulsory collective bargaining while prohibiting strikes by public employees. The result, as might have been fore seen, is just another dead-letter verboten. Garbage collectors and bridge tenders have gone on strike anyway. Since jails don't exist that can hold thousands of strik ers, the power to arrest becomes meaningless. An occasional union leader may go to jail, but this only hardens his rank-and-file followers, who forthwith make him a martyr.

It does not bring strikers back to work. As I write this review, the news from Scotland provides a grim un derlining for Dr. Petro's words. A ten-week strike by garbage truck drivers has left 70,000 tons of rot ting garbage in the streets of Glasgow. The citizens have been afraid to become their own gar1975 SOVEREIGNTY AND BARGAINING 319 bage collectors, for that would be "scabbing." So the Royal Highland Fusiliers have had to be called from traditional guard duty at Edinburgh Castle, not to break the strike but to kill thousands of rats that have been running wild in the streets. Query: is it the union or the city hall that is sovereign in Glasgow? Or could it, ultimately, be the rats, who have controlled populations in the past by spread ing bubonic plague? Dr. Petro details the efforts of various labor-law writers to justi fy compulsory public-sector bar gaining on the "private-sector analogy." But there is no analogy.

Private-sector bargaining under NLRB rules is bad enough,but, as Dr. Petro points out, there are market checks that keep both unions and employers within shouting distance of common sense. Private businesses must have some margin of profit if they are to con tinue paying union members. But no government agency is under what Dr. Petro calls "the uncom promising duty to make a profit which prevails in private busi ness." The public-sector union, run by power-hungry bosses, can be extortionate and still hope to col lect on its extortion. People in civil society must have police and fire protection at any cost when the alternative, which is anarchy, is considered. Campaign Funds The effect of compulsory public sector bargaining is to make gov ernment officials supine. Dr. Petro speaks of the "Hanslowe Effect," named after a Cornell professor who has pointed out the collusive possibilities between unions and public officials once union-shop ar rangements invade government. A public service union of teachers, for example, must, if dues are col lected from everyone, be rich enough to make a profound im pression on any politician needing funds for campaigning. Until very recently public servants, con strained by civil service rules, have been fairly unpolitical. But now that they are listening to the siren song of professional organizers, they are, in the words of boss Jerry Wurf, "political as hell." The present contributions to political candidates are enormous, and they will grow greater as the likes of Mr. Wurf grow more powerful.

Dr. Petro explores many of the side effects on the quality of pub lic service that have come with unionization. Is it a mere coinci dence that there has been a drop in Scholastic Aptitude Tests since the public-school teachers began to be politicized? Can there be paren tal and taxpayer control of educa tional policy if the teachers be come a monolithic unionized bloc? When Albert Shanker speaks of 320 THE FREEMAN May organizing three million teachers into "the largest union in the U.S." he doesn't say he hopes to control school curricula. But Mrs. Catherine Barrett, the head of the National Education Association, has been forthright about it. "We are the biggest potential political striking force in this country," she said, "and we are determined to control the direction of education." With this sort of thing growing, the new "sovereign" (Le., the en trenched compulsory public service union) could indeed be more ter rible than tigers.

The booklet, Sovereignty and Com pUlsory Public-Sector Bargaining, may be obtained at $1.50 from The Foundation for Economic Educa tion, Inc., Irvington-on-Hudson, New York 10533. ~ PURITAN ECONOMIC EXPERI MENTS by Gary North (Remnant Review, Box 5025, North Long Beach, California 90805, 1974) 40 pages, $.75. FREEMAN readers will recall the series of three articles which ap peared from April to June 1974, which are now available as a book let. Here is the long-neglected story of the Puritan economic experi ment with government interven tion in America. Between 1630 and about 1676, the new England Puri tans - first cousins spiritually of the tiny band of Pilgrims in nearby Plymouth Colony - tried again and again to solve the problems of eco nomic life by passing regulations. Each time the interventions made things worse. In the name of Chris tian charity and social responsibil ity, Puritans passed maximum wage laws, price controls, and ~m port regulations. They created li censed monopolies in key occupa tions. They tried to regulate styles in clothing. They set maximum rates of interest. They regulated buying and selling of land. They tried to operate, through the civil government, huge parcels of "free"

agricultural land. Finally, in the final quarter of the seventeenth cen tury, they gave up. They opened up the economy as no society had ever done before. The foundations of American economic life were laid by men who had tried government intervention and had seen it fail. I) the Freeman VOL. 25, NO.6. JUNE 1975 Caveat Emptor: The Consumer's Badge of Authority Bertel M. Sparks 323 With that badge the consumer can dictate what goods Will be produced, in what quantities, and at what prices. Free Money Is Sound Money Hans F. Sennholz 338 The history of the gold standard heralds the principles and achievements of free and honest money. The Pursuit of Excellence Man's most important field of conquest is still himself. A Majority of One By our effort and maturing we become Man or Woman. Ralph Bradford Jo Nathan 344 351 Gold Standards Charles Curley 353 The different so-called standards have different implications for the economy.

The Autumn of Our Discontent Shall we let our policeman give away the store? AI Braun 362 Environmentalismand Energy Problems Bernard H. Siegan 364 Many of the problems blamed on the market are created by government interference. The Great German Inflation Bruce Bartlett 367 How inflation of World War I led to Hitler, with lessons for today. Does Government Spending Bring Prosperity? Percy L. Greaves, Jr. 374 Our hope for future prosperity depends upon finding the correct answer. Book Review: 381 "Castles in the Air" by Leonard E. Read Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON·ON·HUDSON, N. Y. 10533 TEL.: (914) 591·7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,OOO-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per· mission granted to reprint any article from this issue, with appropriate credit except "Environmentalism and Energy Problems."

ANY DISCUSSION of the doctrine of caveat emptor necessarily involves a discussion of the free market. And although it has been clearly demonstrated that the free market is the most efficient allocator of scarce resources mankind has yet discovered, it is not a popular con cept. Its lack of popularity is prob ably due to a misunderstanding of the manner in which it works. In any event, those who have benefited most from its operation are often among its severest critics, and even those who are particularly vocal in declaring their support of the mar ket are frequently in disarray as to its meaning. Early in 1973, the present writer happened to attend a public meet ing where substantially all persons Dr. Sparks is Professor of Law at Duke Uni versity School of Law, Durham, North Caro lina. BERTELM. SPARKS The Consumer's Badge of Authority present considered themselves de votees of free market principles.

On that occasion the speaker made an approving reference to the doc trine of caveat emptor. A number of eyebrows were raised; and when the time for questions and com ments arrived, at least one person raised an objection to the implied approval of what the objector evi dently considered as being some thing less than the best of morality. He specifically admonished his fel low listeners to beware of showing too little regard for the moral order. His clear implication was that ap proval of caveat emptor demon strated a moral weakness. There was little discussion of the point, but such as there was tended to in dicate that the objector had as many adherents as the principal speaker. And even the speaker withdrew a bit from his initial posi323 324 THE FREEMAN June tion by admitting that he might have overstated his case. That incident appears to demon strate a failure of free market ad vocates, or people who think they are free market advocates, to under stand the tools of their trade. At least it raises questions as to what these particular supporters of the free market, if they were actually in that category, meant when they used the term caveat emptor on that occasion. It seems strange that any one, and especially one who claims to be a supporter of the free market can find anything immoral about a doctrine that does nothing more than limit contractual liability to the terms of the contract. Caveat emptor extends no further.

Let the Buyer Beware Literally translated, the expres sion means, "Let the buyer beware." To this bare translation of the Latin phrase, Webster adds the explanatory note, "that is, let him [the buyer] examine the article he is buying, .and act on his own judgment .... "1 That interpretation by Webster is an accurate rendi tion of what caveat emptor means as it is applied in English and American law. 2 Let the prospective buyer who is contemplating the purchase of an article examine the article, and then let him deeide for himself the terms on which he is willing to purchase or decline to purchase the article. Let the rights and duties of both buyer and seller be governed by the terms upon which they mutually agree, nothing more and nothing less. When viewed in that light, what moral or ethical principle is violated by the doctrine of caveat emptor? The clear answer should be, none at all.

The notion that there is some thing that is at least slightly im moral or improper about the doc trine of caveat emp,tor apparently rests upon the mistaken belief that its application relieves the seller from his contractual obligations to the buyer. This is a gross distortion of what the phrase actually means. The expression ca,veat emptor is merely an effort to describe the broader doctrine of freedom of con tract as it applies to the vendor purchaser relationship. The doc trine has nothing to do with the liability of the seller for the prom ises he makes concerning the pro duct he sells. He is liable for his express promises and guarantees, and in certain circumstances that liability is extended to additional promises and guarantees that may reasonably be implied from the nature of the particular trans action. 3 Precisely what promises or "war ranties" will be implied depends upon the intention of the parties as revealed by the circumstances surrounding the transaction.

1975 CAVEAT EMPTOR: THE CONSUMER'S BADGE OF AUTHORITY 325 Where the circumstances justify the implication, the implication will be made; and when it is made, the implied promises are given the same legal effect as the express promises. The chief difference be tween the two kinds of promises is a difference in the evidence by which they are proved. But once they are proved, they are both treated as promises actually made, and both are equally enforceable against the seller. The Growth of the Doctrine of Implied Warranties The doctrine of implied warran ties is not new in the law. The con tent of such warranties, however, does change from time to time as adaptations are made to changing business practices. And the current trend is toward expanding rather than curtailing the areas where such implication will be made. At a very early date in the English law it was held that a seller of per sonal property (as distinguished from real property) impliedly war ranted that he had title to the pro duct sold and that he had a right to sell the same. Likewise there also arose the concept of implied war ranties of wholesomeness or fitness for human consumption in the case of a sale of food, and conformity to sample where a bulk of goods was sold by sample. 4 Similar doc trines were incorporated into American law, and, with appropri ate refinements and extensions into new areas to coincide with changes in trade customs, have prevailed to this day.5 Traditiona.Ily the doctrine of im plied warranties has not: been ex tended to sales of real estate. G Various reasons have been assigned to explain this distinction between real and personal property. All of them have something to do with what is believed to be the intention of the parties. The buyer usually makes a careful examination of the real estate he buys and relies upon his own judgment, or else he relies upon the advice of a trusted con sultant. The seller did not manu facture the land and usually did not erect the buildings upon it; therefore, he is not in a position to ha ve the same kind of special knowledge of its quality and fitness as could be expected from the grower or manufacturer of a pro duct such as a bushel of potatoes or a suit of clothes. Furthermore, there is a lack of uniform specifications concerning land or buildings; and it is not unusual for a buyer, espe cially one who is young or of limited financial means, to deliber ately look for a somewhat dilapi dated house which is within his price range and which he can im prove with his own hands to the point where it is both more useful to him and capable of bringing a 326 THE FREEMAN June better price when he is ready to sell.

But it is in the buying and selling of real estate that the law fre quently shows its capacity to grow and to adapt itself to the changing customs of the market. An illustra tion of such an adaptation is cur rently in process in the real estate market. There w'as a time when the housing consumer in search of a new home was likely to buy a lot and employ a contractor to build a house. In that instance the con sumer dealt directly with the contractor and the contractor was liable to the consumer for a work m,anlike performance of his con tract to build. In present-day society it is becoming more likely that the building of the house will be ac complished by a real estate de veloper who buys a large tract of land, divides it into lots, and builds houses on the various lots without having particular buyers in mind. He then offers the completed houses for sale. The housing consumer buys his house from the developer and has little or no connection with the actual building process. The builder and the seller are one and the same. Even in that situation, traditional real estate law would seem to dictate that the developer would be liable to the consumer for any express promises or guarantees he might make concerning the quality or fitness of the house sold but that no such promises would be implied.

Recent Change But within the last decade there has developed a trend toward recog nition that the nature of the trans action between buyer and seller has so changed that the law must adapt itself to cope with the change. The developer has placed himself more in the position of a manufac turer offering a product of his own making for sale. Under these cir cumstances, it is more likely that the developer, by his very acts, manifests an intent to create an impression in the buyer that the house being sold was built in a workmanlike manner and that it is reasonably fit for the purpose for which it is intended, namely, human habitation. It is also likely that the buyer purchased in reliance upon that implied representation. The situation has become an appro priate one for the implication of certain warranties by the seller, and a number of courts have so held. 7 Such judicial recognition of im plied warranties in this area where there were no implied warranties before does not affect nor is it affected by the doctrine of cavea,t emptor. Rather it is an adaptation of an old principle to· a new busi ness condition. It is a recognition tha t as modern vendors of housing 1975 CAVEAT EMPTOR: THE CONSUMER'S BADGE OF AUTHORITY 327 move into a market where they are becoming manufacturers, they are tending to place themselves in the same legal position as the manu facturers of other consumer goods.

By their acts, they are now making certain kinds of implied promises which housing vendors had not made before, either expressly or by implication. But they are promises actually made and resting upon the actual intent of the parties to the particular transaction. Buyer's Choice Enforcement of such promises is unrelated to the doctrine of cavea.t emptor which is nothing more than a doctrine that the seller will not be held liable for promises he did not make or purport to make in any manner whatever. He is not required, as a matter of law, to guarantee the goods sold. Neither does the doctrine apply in any instance where the intent to guar antee can be shown either by the words used or by the acts done. If the intention cannot be shown by either of these methods, then cavea,t emptor; that is to say, let the pros pective buyer who is contemplating a purchase of an article examine it, make his own judgment as to its suitability for his purposes, and then let him decide for himself the terms on which he is willing to buy or decline to buy the article.

And if the buyer is not permitted to exercise his own judgment as to the suitability of a product for his purposes, who is to make that judg ment for him? That is the critical question too often ignored by those who would deprive the consumer of his dominant role in the market place. And the consumer does play the dominant role in the market place as long as he is permitted to exercise his own judgment as to what goods he will buy. The inter ventionists who prefer having some form of government agency in con trol of the market offer numerous reasons why the consumer cannot be trusted to play that role. But when their various reasons are ex amined, it will be found that they can all be summarized in just two points. First, the consumer is not in a position to make wise decisions. Second, even if the consumer could make such decisions, he would have no way of getting the producer to listen.

Pity the Consumer The interventionist's lament over the consumer's lack of qualification for making his own decisions is without end. A few years ago con sumers were competing with each other to see which one could have the highest fins on his automobile. If a producer expected to sell au tomobiles, he had to put fins on them. This was interpreted in some circles as an unscrupulous 328 THE FREEMAN June effort by the producers to trick consumers into paying for frills that failed to add anything to the functional qualities of the automo bile. Some even suggested that there ought to be a law prohibiting producers from manufacturing and selling automobiles with fins; that is to say, a law to prevent producers from offering the con sumer what the consumer wanted. The ridiculousness of the whole issue was that no one could be found who ever believed or claimed that fins added anything to the functional qualities of the auto mobile in the first place. The cus tomer wanted fins. That was all there was to it. He didn't have to have reasons. And if the cons umer wanted fins, the producer was ready to supply fins. Whether or not there should be a law on the subject was a question of whether the consumer or some third party should decide what would best sat isfy the consumer. If the consumer was to be allowed to make his own choice, no law was needed. His willingness or unwillingness to purchase spoke for itself, and it spoke in language the producer could understand. If the choice was to be in the hands of a third party who was necessarily a stranger to the transaction, a law accompanied by a whole body of enforcement machinery would be needed.

The high fins gradually disappeared from automobiles without their ever being prohibited by law. But worse things than the pa.ssage of an anti-fin law have happened since. A whole swarm of consumer protectionists have entered the field. Each one insists that he knows better than the consumer how to make decisions for the con sumer. And laws are being passed. The most unfortunate victim of all this is the American housewife. At least she is being maligned more than anybody else. It has become fashionable for interventionists, bureaucrats, and academic theo reticians to demean her as being one of the most stupid creatures who ever entered a supermarket. Bewildered Housewives? According to some of these self proclaimed protectors of the Amer ican consumer, the bewildered housewife never has any idea what she wants when she enters a gro cery store, nor is she at all ade quate to the task of making her own selections when she gets there.

The idea of permitting an ordi nary, uninstructed housewife to examine an article she is buying and act on her own judgment is totally repulsive to the interven tionist. He will assure you that such a wife doesn't know how to compare prices or how to evaluate her own needs. It is doubtful if the American 1975 CAVEAT EMPTOR: THE CONSUMER'S BADGE OF AUTHORITY 329 housewives are quite as incompe tent as the interventionists seem to believe. It is also a bit surpris ing that some kind of retaliatory measures have not been taken by the American Housewives Associ ation, or some similar body if no organization under that name ex ists. At least it would appear that the ladies should be given an op portunity to offer evidence that they do know the difference be tween pounds and ounces and that they are almost as proficient at comparative shopping and price calculation as some of the inter ventionists who worry so much about them.

Even after the shopper has made her careful calculations of price, with or without the help of the ever-present officeholder, is there any assurance that her needs will be met by the box of detergent or the bottle of real lemon juice that gives her the absolutely lowest per unit price of merchandise? Is it possible that she might choose to pay a little more in order to get the size that is more convenient for her? Not all kitchen cabinets are of uniform size or design. And even if the lady doing the buying has no reason whatever for select ing a particular package except that she prefers the looks of the containers of that particular size or shape, why should some inter vening government official be appointed to frustrate her choice? The selection is being made to sat isfy a particular customer, and who can possibly know more about what will satisfy that particular customer than the customer her self?

Freedom 10 Err Needless to say, if the customer is left free to make his or her own selections, many of the selections made will be unwise, or even stu pid, when measured by the stand ards of different people who have different tastes or desires. The real question is whether or not a per son of mature years should be free to make mistakes. Should he be free to select an unsafe automo bile, or at least one without seat belts, if that is what he wants ? If his vehicle is more likely to create a special hazard to others who are legitimately using the highway, that is one reason for denying him the privilege of being on the road. But suppose the only danger is a danger to the customer himself. Should he be compelled to protect himself from tha t danger even though he would prefer to assume the risk? The interventionist would answer, and has answered, that question in the affirmative. The interventionist would tell all customers that they should not be permitted to pay a higher 'price for a product in order to get it into a 330 THE FREEMAN June package of a unique or colorful size or shape. The interventionist is op posed to letting the consumer ex amine the article and act on his own judgment. The consumer must not be allowed a freedom of choice.

For if he is allowed such freedom, he might hurt himself. And to al low him to hurt himself, that is, to allow the doctrine of caveat eJnPtor to operate, would be immoral. Unwittingly, the intervention ist is striving toward a rather drab society where the introduction of new products will be delayed or prevented, and the variety of arti cles being offered will tend to de cline. When ·he is pressed on that point, he is likely to shift his em phasis to the second part of his argument. He will tell you that even if the consumer does make right choices, the consumer will have no way of imposing his will upon the producer or even inform ing the producer of his choice. An intervening government agency is required for that. Market Effectiveness It is the contention of the pres ent writer that if the consumer is allowed the freedom of a caveat emptor, open market system, his control of the productive process will be far more effective than that of any government agency can possibly be. That point will be dis puted by the interventionists, and it must be admitted that the over whelming majority of the Ameri can people are interventionists.

But majorities can be mistaken even when their claims are most persuasive. In this instance the interven tionists are eager to point out that the manufacturer of an automo bile, a box of cereal, or a pair of shoes is likely to be large and powerful while the consumer is likely to be of small means and lacking in influence. They will then tell you that the big and powerful producer is prepared to offer a finished product to the consumer on a take-it-or-leave-it basis, and that the choice of the individual consumer cannot influence the pro ducer. That line of reasoning seems to ignore the marketing and produc tion processes. The fact is that it is the free choices of individual consumers that force the producer to constantly search for ways to improve the old products and de velop new ones. One might begin by inquiring how the big and powerful producer became big and powerful in the first place. He was not always that way. The truth is that there are very few corporate enterprises in the United States that have had a very long run.

Most of them are quite young. And with' the exception of those few that might have become rich be1975 CAVEAT EMPTOR: THE CONSUMER'S BADGE OF AUTHORITY 331 cause the government granted them a partial monopoly by using the powers of government to ex clude competitors, there was only one way for them to have become strong and powerful. That way ,vas by producing the articles in dividual consumers wanted and for which individual consumers were willing to pay. This is not to say that the articles being produced have always been good for the con sumer in any objective sense. It is to say that the articles were what the consumer wanted. How the Giants Began This point can be illustrated by a simple inquiry into how the Ford Motor Company, General Motors Corporation, International Busi ness Machines, American Tele phone and Telegraph Company, At lantic and Pacific Tea Company, or anyone of the corporate giants of present-day American industry ar rived at its current economic posi tion. Each one had to begin by offering a product or a service that the consumer had been doing without up to that point. In no instance did the new producer have any power to exercise over even one consumer, to say nothing of the whole body of consumers who have since become customers. The only thing any of these beginning producers could offer was the qual ity or attractiveness of his product. He had to meet the subjective approval, not only of one con sumer, but of large numbers of consumers or else be out of busi ness very shortly.

Suppose circumstances had been different. Suppose it had been t~e approval of a consumer protection agency rather than the approval of a nameless mass of individual con sumers that had been required. Would the enterprise winning ap proval have been different? What standards would the consumer pro tection agency have applied? How well could the agency have under stood individual consumer desires? Where consumers differed as to their respective wishes, how would the a.gency have decided which consumer to favor? Would the pos sibility of bribery or fraud have entered the field? The answers to such questions as these can never be known with certainty. But what is known is that the route to ap proval would have been different. Control would have been removed from the consumer and would have been placed in some part of the political machinery. No Way to Tell And if the power to decide what product is to be produced is placed under political control, it is im possible to know which products will best satisfy the consumer.

This is true even if every official 332 THE FREEMAN June involved in the process is motivat ed by the very best of good will; and every possibility of bribery, fraud, or other improper conduct is removed. It is true because the public officia.lis necessarily a third party. He is neither the producer nor the - user of the product in volved. Whether he is guided by his concern for the protection of the environment, the health or safety of the consumer, or some other such worthy purpose, it is still impossible for him to kno\v what the consumer really wants. The consumer's power to make his wants known by his acts in the market place has been removed. And once the political decision is made, there is no longer any measuring rod for determining whether the consumer is satisfied. The producer is not called upon to meet the rigorous test of satisfy ing consumer demand in order to stay in business. The political au thority has said that this type of seat belt, this size container, or this kind of shoes, and this only will beoffered for sale in this jur isdiction. The producer of the ap proved product is thereby shielded from the competitor who might be ready to offer a different product tailored more to the consumer's wishes. The approved producer can relax. He has won bureaucratic ap proval; the wishes of the consumer a.re no longer important. The consumer is still free to buy or not buy, but he is not in a position to reward a competing prod ucer who might offer an unapproved prod uct. The consumer's power of choice, and therefore his power to control, has been taken from him.

To Buy or Not to Buy Under the free market, c'ave.at emptor system, the consumer's control of production is absolute. And he has only one way to ex press his approval or disapproval. That way is by buying or reject ing the products or services being offered to him. If the market is free, his rej ection of a product is an invitation to a possible com petitor to offer him an alternative which will more closely conform to his personal wishes. And every time the consumer makes a pur chase in the free market system, he is casting his ballot for one product and against another. Since the consumer is the best possible judge of what brings satisfaction to him, he is likely to be both bet ter informed and less corruptible when exercising his choices in the market place than he can reason ably be expected to be when he is at the polls casting his vote for a new director of consumer protec tion. 8 As for the producer, the only way he can get into the business in the first place is to risk his cap1975 CAVEAT EMPTOR: THE CONSUMER'S BADGE OF AUTHORITY 333 ital, labor, and abilities in the pro duction of a new item without any assurance that it will ever be ac cepted. If it is accepted, he might be on his way to a fortune; but if it is not accepted, his substance as well as his hopes are shattered.

His hopes are shattered because he made an erroneous judgment of consumer demand. There is no political agency here to back up the producer's choice or to com pensate him for his losses when he has misjudged the consumer. He is left to the mercies of the free mar ket; and as long as consumers are left free, they are a tough lot. They will not reward a producer for having exhausted his substance on a product the consumer doesn't want. If the would-be producer who has made the wrong estimate of consumer demand is to remain an entrepreneur of any kind, he is forced by the market processes to change his plans, make a new eval uation of consumer wishes, and try again. The significant thing is that it is the consumer himself, not a political commissar, that must be satisfied. ConsumerCon~olorPontican The choice between a caveat emptor, free market system and a consumer protection system is a matter of deciding whether the productive processes should be un der consumer control or political control. If the goal is to satisfy the consumer, the answer in favor of consumer control is clear-cut. And that means the choice is in favor of the free market. Under that system, .no product can find favor in the ma.rket place without con sumer approval. Neither can any product be denied favor if it has consumer approval. And the only law needed to create an atmos phere in which the free market will operate is a law to enforce con tracts between willing buyers and willing sellers.

Thus far, emphasis has been on getting a new enterprise launched. Admittedly it will not be a success in the market place unless it .meets with consumer approval. But what about the producer who is already a success, the large corporation that has already become a major producer in the industry? Is an enterprise of that magnitude sub ject to consumer control even after it has arrived? In this instance the producer places his product on the market at a particular price and the consumer must buy it as it is and at the price offered or else do without the article. The buyer would like to have· a slightly dif ferent size, one that has either more or less power, or one of a different color or style. How can the individual buyer persuade the producer to give him what he really wants? What .influence can 334 THE FREEMAN June the buyer have in getting desired alterations or improvements 'in the article? Or how can he bring about a reduction of the price when it becomes too high?

Consumer Power The answer to each of these questions and many similar ones that could be asked is that the consumer has the same quiet, but deadly effective, control over the established producer that he is capable of exercising over the new comer. In this particular arena of human action, the lowest paid wage earner is by no means help less even in the land of the giants so long as he is free to make his own decisions as to what goods he will buy or refrain from buying. When the comparatively small individual consumer decides to buy his automobile from X Company, his clothing from Y Company, or his groceries from Z Company, he does so because he has learned from experience that he can de pend upon these particular firms to deliver what he wants. Of course he is not qualified to make an in formed inspection or evaluation of the engineering quali ties of the automobile any more than he is able to determine the purity or the nutritional qualities of the gro ceries being offered. Therefore, he buys from a company whose prod ucts have always worked and whose promises are always kept.

But suppose that company fails to meet its usual standards in just a few instances. Consumer confidence is shattered. The rest of the story is then determined. There is al ways an alternative source. And the more highly industrialized the economy becomes, the more certain it is that that alternative is read ily available. But suppose Y Company, a well established firm, never makes a mistake. It always delivers what is promised, its merchandise is of impeccable quality, and it always goes the extra mile to satisfy the demands of every customer. Its prices are high but customers are satisfied. Is it possible for any competitor to enter the market under these circumstances? Why should any customer ever leave a company that is performing so well and buy from an untried new comer? Attracting Competitors The answer is easy. If the per formance of the established firm is so nearly perfect as what is here described, you can be sure that it has or soon will have a favorable profit margin. The more favorable that profit margin becomes, the more likely it is that would-be competitors will be watching for an opportunity to enter the field.

That opportunity will not occur 1975 CAVEAT EMPTOR: T'HE CONSUMER'S BADGE OF AUTHORITY 335 until some prospective competitor is able to offer a comparable prod uct at a reduced price or an im proved product without substan tially increasing the price. As the profit margin improves, the efforts of prospective competi tors will increase both in numbers and in diligence of effort. The com petition becomes a race among gi ants to see which one can bring the greatest satisfaction to the in dividual, low-income wage earner at the lowest price. It is the kind of race that is impossible except in a free market. It is also the kind of race that is inevitable in the free market. It is a race to see who can be first with a solution to the problem of giving the con sumer better service at a lower cost. Under the kind of pressure such a race is certain to generate, somebody is sure to find a solution if a solution exists. And as soon as it is found, the fickleness of cus tomers is such that many of them will abandon their first love and flock to the new.

That is the way consumer de mand expresses itself in the caveat emptor, free market system. It is the process by Which individual consumers have kept a constant stream of new products flowing to the American market for almost 200 years. If there is any way consumers can exercise such abso lute pressure in the consumer protection system, that way has not yet been discovered.· It is high time that the consumer protection sys tem be recognized for what it is. In its essence, it is a producer pro tection system designed to protect the producer from the rigors of competition faced in the free mar ket. So long as the market is free, the consumer pressure for im proved products is intense. No pro ducer can remain in the market without keeping constantly alert to consumer demand. And that con sumer demand is so constantly and so urgently inviting competitors to enter the field that no producer, however· well established, can af ford to relax in his efforts to im prove.

A Change of Preference As recently as the 1920's the Ford Motor Company held such a dominant position in the automo bile industry that the possibility of effective competition from any source seemed remote. Ford had arrived at that position by produc ing the kind of vehicle the cus tomer wanted at a price the cus tomer was willing to pay. Having arrived at that zenith, Ford con tinued to produce the same kind of automobile. He continued to make the same product that made him famous. He reduced price without any decline in quality. But the consumer was ready for something 336 THE FREEMAN June new. Chevrolet introduced innova tions and frills at a slightly in creased price. Consumers examined what they saw, exercised their own judgment, and began to buy the competing product. And look who is ahead now! Even more recently an article known as the ball point pen came on the market. Although it sold for considerably more than the price of the old fountain pen, the consumer examined the new ar ticle, acted on his own judgment, and decided to buy. So successful were the initial offerings that fan tastic financial rewards for pro ducers seemed a near certainty.

This brought more producers into the field with each one trying to attract consumer attention. The re sult was that the old fountain pen virtually disappeared from the market. The ball point pen was so improved and its price pushed . so steadily downward that, even after all the intervening inflation, nine teen cents will· buy a better ball point today than could be had for fifteen dollars in the years imme diatelyfollowing its initial ap pearance in the market place. A Miracle in Process What happened to the automo bile and the ball point pen is illus trative of what has happened throughout American industry. The speed with which comparatively new products have disap peared from the market to make way for still newer ones has been fabulous if not miraculous. In fact, the word miracle might not be too strong. It is the miracle of a mar ket where consumers are free to call the shots, where they are free to inspect every prod uct offered to them and to act on their own judg mente It is a market where it is not considered immoral for con sumers to act on their own judg ment. In short, it is a market that is free.

In such a market, the consumer has every producer and would-be producer in the world striving to give him more of the things he wants and at the lowest prices possible. They are not striving to ward that end because of any spe cial love they might have for the consumer. They are striving to please the consumer because that is their only route to their own economic survi val. It is the pro ducer's search for newer and bet ter ways of satisfying the con sumer that keeps the flow of newer and better products pouring into the market, thereby assuring a wide variety of goods available for almost every purpose. Every time the consumer buys a toothbrush, a loaf of bread, or a ticket to the theater, he is using the market to send a signal to the producer about what he wants or 1975 CAVEAT EMPTOR: THE CONSUMER'S BADGE OF AUTHORITY 337 does not want. The producer either responds to that signal or goes out of business to make room for a producer who will. And every time the government intervenes to prop up a failing business or to restrain the operation of a successful one, the government is using the con sumer's hard-earned tax dollars to veto the consumer's wishes that have already been registered in the market place. Government in tervention sends wrong signals to the producer. The wrong signals bring to the market more products the consumer does not want and fewer of the ones he does want.

The Best Government Lets the Consumer Choose The greatest contribution the government can make toward pro tecting the consumer is to quit trying to make his decisions for him and leave him free to make decisions for himself. Let him ex amine each article he is contem plating buying and act on his own judgment. Consumer choices will then be accurately reflected in the market place. In that kind of a market, only those producers who accurately respond to consumer de mand and who operate with ef ficiency will survive. Those who are inefficient or who misjudge the market signals will fail. And from the consumer's viewpoint, it is as important that some businesses be allowed to fail as it is that others be allowed to prosper. The impor tant thing is that in the caveat emptor, free market system, the authority to control which ones fail and which ones survive is de termined by the consumer rather than the politician. Caveat emptor then becomes the consumer's true badge of authority. With that badge the consumer can dictate what goods will be produced, in what quantities, and at what prices.

~ • FOOTNOTES. 1 WEBSTER'S NEW INTERNATIONAL DIC TIONARY (Merriam -Webster, Unabridged 2d ed. 1947). 2 Barnard v. Kellogg, 77 U.S. (10 Wall) 383 (1870); State ex. reI. Jones Store Co. v. Shain, 352 Mo. 630, 179 S.W.2d 19 (1944) . 3 Drumar Mining Co. v. Morris Ravine Mining Co., 33 Cal. App.2d 492, 92· P .2d 424 (1939) : McConnell v. Jones, 228 N.C. 218, 4:4 S.E.2d 876 (1947). 4 3 BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 165, especially note 24 (Chitty's ed.1832). 5 WHITE AND SUMMERS, HANDBOOK OF THE LAW UNDER THE UNIFORM COMMERCIAL CODE 271-305 (1972). 6 7 WILLISTON, CONTRACTS sec. 926 (3d ed. 1963). 7 Hanavan v. Dye,· 4 Ill. App.3d 576, 281 N.E.2d 398 (1972); Theis v. Heuer, 280 N.E.2d 300 (Ind. 1972); Elderkin v. Gaster, 447 Pa. 118, 288 A.2d 771 (1972); Gay v. Cornwall, 6 Wash. App.595, 494 P.2d 1371 (1972). 8 See LUDWIG VON MISES, SOCIALISM 21 (J. Kahane Transl. 1951).

Free Money HANS F. SENNHOLZ RECENT ECONOMIC. DEVELOPMENTS reflect and portend the painful convulsions of our fiat money sys tem. The federal government is projecting a budget deficit of $34.7 billion for fiscal 1975 and a deficit of $51.9 billion for fiscal 1976. The U.S. Congress can be expected to boost federal spending even furth er which, together with the grow ing deficits of such "off-budget" agencies as the Postal Service and the Environmental Protection Agency, may raise the total fed eral deficit to more than $100 bil lion. State and local government deficits are making additional de mands for economic resources. To finance such deficits out of the Dr. Sennholz heads the Department of Eco nomics at Grove City College and is a noted writer and lecturer on monetary and economic affairs. This article is published by permission from a paper before a meeting of the Committee for Monetary Research and Education, March 22, 1975.

338 savings of the American people is well-nigh impossible. Therefore, the federal government 'may be expected to rely increasingly upon its monetary arm, the Federal Re serve System. Only hyperinflation can finance super deficits. A budgetary deficit is not just a temporary shortage of money that is readily covered by a loan. It is not primarily a monetary phenom enon that is efficiently handled by monetary authorities and bankers. Instead, a federal deficit means consumption of economic resources - real goods and services - beyond those taken directly from tax payers. It consumes the real wealth and substance of savers who di dectly or indirectly buy the new Treasury obligations. The con1ing $100 billion deficit, in fact, greatly exceeds the annual savings of the American people, which were esti mated to be $74.4 billion in 1973 1975 FREE MONEY IS SOUND MONEY 339 and $76.7 billion in 1974. (Fed eral Reserve Bulletin, February, 1975, p. 57).

Redistributing Wealth VVhenever our savings are con sumed by government, they obvi ously can no longer be used by in dividuals who would build or buy homes, household appliances, or make some other improvements. More facilities of production are used to serve government demand, fewer are left· to cater to private demand. As the U~S. Treasury en ters the capital market to sell its bills,notes and bonds, it absorbs and consumes the very substance of economic productivity. Its capi tal demand is felt as a chronic lack of capital for industry and com merce, for public utilities, for de velopment of more energy, mod ernization and renovation and new production facilities. It is felt as a universal "shortage of funds" which, in reality, is a shortage of real savings and economic resourc es. Plagued by such shortages and enmeshed in serious economic dif ficulties and crises, the federal gov ernment then calls on the Federal Reserve System to alleviate the shortages through credit expan sion and money creation. Tons of new paper money are thus to take the place of real goods that are consumed by our political organi zations.

The inevitable rise in prices of goods, commonly called inflation, then serves to withdraw the re sources from certain individuals and redirects them to the spender with the newly created purchasing power, the federal government. In flation acts as a federal tax on all holders of money and claims to money. It silently and efficiently transfers real income and wealth from millions of individuals to the inflating government. Nor do most of the victims understand the na ture of this taxing process. After all, rising prices can be blamed on merchants and industrialists, thus exculpating the government that is withdrawing and consuming the economic resources. The very ad ministration that is conducting such policies may even blame busi nessmen for the inflation and pro ceed to impose price and wage con trols on its victims. A Tool 01 Politics In the coming years of galloping inflation the American people may come to understand the true na ture of the fiat system that makes government the creator and guard ian of money. They may learn what the defenders of gold as money knew all along, that fiat money is political money - an effective tool for the financial aspirations of political parties and administra tions. Fiat money serves as an im340 THE FREEMAN June portant implement, not only for such policies as "full employment"

and "economic growth," but also for massive redistribution of eco nomic wealth from creditors to debtors. Fiat money is the politi cal device ideally suited to achieve the transfer of income and wealth on a gigantic scale. Inflation that gradually erodes the capital substance of the mid dle class can be effective in the fog of political confusion and econom ic ignorance. In a few years of double-digit inflation, the savings bonds, pension funds, life insur ance policies and even corporate stock holdings which constitute the very substance of the middle class, are consumed by government or transferred into the possession of debtors. Massive deficits fi nanced by double-digit inflation thus sustain the redistributive so ciety that heretofore depended mainly on confiscatory taxation of its richer members. The proceeds of inflation as a tax on monetary assets accrue not only to the government that is actively inflating the currency but also to all other debtors, including· corporations and individuals. When the dollar depreciates, all creditors lose while all debtors gain, whether they are political organizations or corporations. Economic property is redistributed universally from a large class of victims, commonly the middle class, to the political in stitutions and a new class of nou ve,aux riches, which is enjoying the fall-out effects of inflation. We need not emphasize here that such policies create new sources of eco nomic conflict and social strife.

Yearning for Stability The yearning of the people of America for "stable money" is a natural reaction to the painful ex perience of unprecedented insta bility. The task of philosophers, jurists, historians, and economists is to explain the alternative to the fiat system, to teach the virtues and advantages of· natural money which is also honest money. If peo ple who work and trade are free to choose between political fiat and gold or silver, they naturally turn to the precious metals. They choose the gold standard as a monetary system in which gold is proper money and all paper .moneys are merely substitutes that are pay able in gold. This makes the U.S. dollar a piece of gold of a certain weight and fineness. But it is a popular mistake that is shared by many historians and economists alike that the gold standard affords monetary stabil ity and that gold coins are en dowed with unchanging purchas ing power. In a changing world of human action, no money can be neutral or stable. Even a 100 per 1975 FREE MONEY IS SOUND MONEY 341 cent hard-money gold standard, in which the currency of each coun try would consist exclusively of gold, cannot afford stability of purchasing power to its gold coins.

Jlist as the price of an economic good is ultimately determined by the subjective valuation of buyers and sellers, so is the purchasing power of money. Individual valua tion of money is subject to the same considerations of demand and supply as that of all other goods and services. People expend labor or forgo the enjoyment of other economic goods in order to acquire money. At times they bid for money, at other times they of fer money, and all this bidding and offering ultimately determines the purchasing power of money in the same way as it determines the mutual exchange ratios of other goods. All plans to make money stable are contradictory to human nature and dangerous to individual free dom, as they would call on govern ment to enforce the impossible. The yearning for "stable money," therefore, is forever futile unless it means· to want honest money that is free from the political processes of public treasuries and central banks. The best we can hope for is monetary freedom that embodies the freedom of contract and choice of money. In freedom, the American people once again could express their preference for gold and silver coins over depreci ating political fiat.

A Crucial Choice Our choice of a monetary sys tem is of crucial importance. Do we want a system in which govern ment creates and manages money through the political process? Or do we prefer to leave that choice to acting people who are exchang ing goods and services on the mar ket? If we rely on government we must be prepared to live with gov ernment fiat, which is ideally suit ed to serve political ends. Fiat money can be expanded or con tracted at will, always accommo dating the national policy of the moment. Above all, it can be in flated at will to supplement gov ernment revenue. On the other hand, if buyers and sellers are free to make the selec tion they may choose a great vari ety of marketable goods as their media of exchange. In the past, in a selective process extending over several thousand years, they chose the precious metals, gold and sil vel", as their money. Are they no longer to be trusted with such freedom of choice?

Government need not establish the gold standard by any conscious or deliberate act. In fact, the gold standard needs neither rules nor regulations, no legislation or gov342 THE FREEMAN June ernment control, merely the indi vidual freedom to own gold. Of course, this freedom of gold owner ship embodies the freedom not only to buy and sell gold for use in industrial production, but also to employ it in exchange. The gold-coin standard means sound money. It is true, it cannot achieve the unattainable ideal of an absolutely stable currency. But it protects the monetary system from the influence of governments. The quantity of gold in existence is utterly independent of the wish es and manipulations of govern ment officials and politicians, par ties and pressure groups. There are no arbitrary "rules of the game," which people must learn to observe. The gold standard is a social institution that is controlled by inexorable economic law.

Ful/y Redeemable The issuers of money substi tutes keep their currencies at par with gold through unconditional redemption. The issuing bank can buy any amount of gold offered to it at the parity rate, and agrees to sell indiscriminately and on de mand any amount of gold against its notes or deposits. It thereby renders no national service in the sense of "defending" or "protect ing" its currency. It merely ful fills the contract it made when it issued the money substitutes. Under the gold-coin standard, in flationary policies are not rendered impossible, but they are made dif ficult. Redemption requirements and the threat of drains of their gold reserves would restrain the issuers of money substitutes from inflationary expansion. For any such expansion would alarm the owners of substitutes and cause them to demand redemption in gold coin, which would spell ruin to the issuer. As the gold standard makes inflationary policies diffi cult, it avoids the wide fluctuations of economic activity, known as the business cycle. This binds the is suers of money substitutes within very narrow limits, and thus ef ficiently checks the sort of credit expansion that creates great in stability and generates the eco nomic boom and bust cycle. 1 Professor William Graham Sum ner, the great Yale economist of the pre-Federal Reserve era, de scribed the instability of irre deemable paper currency as fol lows: "Scheme after scheme has been proposed and tried for realiz ing the gain which it was believed that cheap money could produce for the public; that is, for those who buy and use currency. This gain has been pursued as the al chemists pursued the philosopher's stone, by trial and failure. Whether 1 Ludwig von Mises, Human Action, Yale University Press, 1949, p. 535et seq.

1975 FREE MONEY IS SOUND MONEY 343 there-be any such gain or not, our attempts to win it have all failed, and they have cost us, in each gen eration, more than a purely specie currency would have cost, if each generation had had to buy it anew. . . . The revulsions to which the system was subject overwhelmed us in every decade. The notions on which the system was based are proved to have been delusion, dis astrous to everybody concerned, in cluding those who tried to profit by them."2 A World Market The international gold standard evolved without intergovernmental treaties and institutions. Noone had to make the gold standard work as an international system. When the leading nations of the world had adopted gold as their currency, the world had an inter national money. It is true, the coins boreditferent names and had different weights. But this hardly mattered as long as they consisted of gold and could be exchanged freely. After all, an ounce of gold is an ounce of gold whether it con sists of eagles or sovereigns.

The gold standard united the world as it overcame the problem of international payments. It fa cilitated international trade and 2 William Graham Sumner, History of Banking in the U.S., New York: The Journal of Commerce and Commercial Bulletin, 1896, p. 472. finance, and thereby promoted a worldwide division of labor. Coun tries specialized in producing those internationally traded commodi ties which afforded them the greatest comparative advantage. But above all, the gold standard encouraged exportation of capital from the industrial countries to the backward areas. Without fear of devaluation losses or transfer restrictions, European capital ea gerly sought profitable employ ment opportunities on all conti nents. It developed commerce and industry and thus improved work ing and living conditions all over the globe. The history of the gold standard heralds the principles and achieve ments of free and honest money.

The history of fiat money is little more than a register of monetary follies and inflations. Current af fairs afford but another' entry in this dismal register . We may hope for an early return of monetary freedom and sound money, but realization is hidden in the dark clouds of the future. Sound money is the most prominent concomitant of economic freedom and moral ity; fiat money is an inevitable symptom of their absence. The duty of each of us is to un derstand and explain as best he can the principles of economic freedom and honest money. Our future depends on it. ~ RALPH BRADFORD The Pursuitof Excellence THE PHRASE has a fine, challenging ring to it - the pursuit of excel lence. Nearly everybody responds to the dare of it. To excel, to ex ceed, to outdistance, to be master of a situation, or of a technique, or of a medium - this urge has been a great stimulus to growth and achievement, and men have re sponded to it as far back as we have any record of their emotions and motivations.

About the time of Christ, Publil ius· Syrus was lamenting how long it took to bring excellence to ma turi ty ; and Sophocles, some 400 years earlier, fretted because peo ple didn't know the excellence of what they possessed until someMr. Bradford is well known as a writer, speaker, and business organization concultant. He now lives in Ocala, Florida. 344 body took it away from them. Browning, on the other hand, at tributed the growth of excellence to a whim of "the Great Gardener" - a kind of grafted-on gift from heaven, rather than an attainable goal that men might strive for. Of late the pursuit of excellence has tended to be thought of prin cipally as an academic matter, and students have been frequently and somewhat tiresomely exhorted to adopt it as their aim. And that is all well and good, to the degree that it may help set a productive life pattern. But to limit the pur suit of excellence to the classroom is as futile as it is to assume (as is often done) that education itself is exclusively an academic process.

Actually, the ceremony of a gradu ation, the acquisition of a coveted 1975 THE PURSUIT OF EXCELLENCE 345 degree in some discipline of learn ing - these events are but the ini tial milestones along the way to ward the balanced intellectual ful fillment that constitutes an edu cation. A Life-Process The concept of education as a life-process is well expressed iIi an episode related by Jean Renoir in the excellent biography of his father which he published some years ago. After the long struggle that led finally to general recogni tion and acclaim, Pierre Auguste Renoir grew old and became ill. In time he lost the use of his right hand through crippling rheuma toid arthritis, and at 60 he taught himself to paint with his left hand. But by the time he was 70 that hand also was so deformed that he could no longer hold the brushes normally, but had to wedge them between his permanently clenched fingers. Yet he painted on, still ex perimenting, still striving for per fection. And on the day he died, he asked for his palette and a can vas and, sitting propped up in bed, he worked for several hours on what was to be his last bit of painting. And as he finished it, he said to his son, "You know, Jean, I think I am beginning to under stand something about it!"

That was one man's pursuit of excellence, as it applied to the art of painting. Other craftsmen have been equally assiduous .in their special fields: the sculptor who makes and destroys many models in his quest for perfection; the poet who scribbles and discards through many a midnight to achieve the right phrase or a fe licitous rhyme; the naturalist who experiments for twenty years to produce a new rose; the dramatist who writes and rewrites, even after his play has been produced; the research scientist whose 150th laboratory experiment may be only half way along the road to a final discovery that shall benefit man kind. These and their spiritual comrades in many fields are seek ers after excellence. In Search of Freedom But what of us who labor in a realm that is no less vital and should be equally demanding? It is our purpose, we say and believe, to express and defend and interpret the spirit of freedom, which we are convinced is of vast importance to the human family. This is truly a high calling, and should require of its followers the same devotion to excellence that we demand of others in their various fields. But this is not always easy to encom pass, for while freedom is an ap pealing abstraction, it is so related to material things that we are apt to express it in physical terms, and 346 T'HE FREEMAN· June so lose half the battle of ideas at the outset.

Thus if we merely assert that people ought to be free from bur densome taxation, we can be ac cused of poor citizenship - of hav ing an unsportsmanlike desire to shirk our fair share of the cost of government. About such matters we need to be explicit. We are not opposing the idea of taxes as such. They are necessary to defray the costs of government, which in turn is a human necessity. The point is that we object to having the power to tax used whimsicaIIy and arbi trarily, to finance ventures that are outside the proper realm of government, and that may be of no benefit whatever, either to the individual taxpayer, or to society as a whole. The Example of Foreign Aid We can add that we object to being taxed to support an ever expanding bureaucracy that has grown up about agencies that were supposed to be temporary, to meet some emergency, real or fancied, but that tend to be perpetual. One example out of many that might be cited is our experience with what may be lumped under the general head of Foreign Aid. It started in 1946 as the Marshall Plan. Its purpose was to help rehabilitate western Europe, mainly France, Germany, England and Italy, after the ravages of World War Two. A plausible case could be made for this, aside from humanitarian con siderations, on the ground that these countries, with Belgium and the Netherlands, were the econom ic backbone of western Europe, whose continuance as industrial nations was essential to the west ern world - and also because they were very large users of American goods and services. The original idea was to help these nations at a total cost of about $32 billion - a sum that was vast, but support able. Once they were on the way to recovery the Marshall Plan would go out of business. Or so it was assumed.

Erosion of Freedom But what happened? Instead of phasing out, Foreign Aid became a cornerstone of American foreign policy, and is still in business after nearly 30 years and several reor ganizations, including five changes of name. And the cost? I have not checked it for the purpose of this article, because we are not con cerned here with statistics, but with the torrential inertia o~ gov ernmental programs, once they get started. But if you like figures, the latest I have at hand show that this program has cost the Ameri can taxpayer at least $171 billion. This is not written as an argu ment against foreign aid as such.

1975 THE PURSUIT OF EXCELLENCE 347 Clearly there can be cases where a loan or even an outright grant to certain countries may be in our national interest. But one can only look with dismay and unbelief at the list of some 120 countries all over the world to which our coun try has poured out all these bil lions. Why dwell on such matters? Be cause they are part of· the erosion of freedom that accompanies ac cumulating and unamortized debt - a debt, in our case, that is now temporarily pegged at a possible $500 billion, with a deficit for the current fiscal year estimated at around $50 billion! But why worry about so crass and materialistic a thing as mere dollars? One very good reason (and this gets us at once to the relationship between freedom and physical things) is that dollars are what we use to buy food and clothing and pay bills; and when the value, Le., the pur chasing power, of those dollars is eroded or destroyed through debt induced inflation, our freedom to live without threat and fear of bankruptcy has been reduced and may ultimately be destroyed.

And freedom is the essential condition, not only for happiness, but for achievement and progress. Its denial or curtailment is the precursor of social and economic stagnation, and often of personal degradation. Man, of course, has never been wholly free from the inner tyranny of his own nature; 'but granting that, it is true that he has attained to the highest levels of happiness and both ma terial and social. progress in those eras of time when he has enjoyed the largest degree of personal and political freedom. But freedom, unfortunately, is not a constant of the human con dition. It comes-and, alas, it goes. It is gained, usually at pain of sac rifice and struggle - and it is lost, often through sheer carelessness with respect to life's political and economic realities. Nations have grown great and powerful, and they have sickened and died; and the malady which' laid them low has often been the failure of their own people to understand, prize, enjoy and protect that vital, in tangible thing called freedom.

Lack of Vigilance At various times in human his tory men have walked erect and unafraid through streets in which their not-tao-remote descendants sometimes, indeed, their own grandchildren, or even their own children-would cringe and wither under tyrannical laws and condi tions. At times, of course, such conditions of disaster were im posed by foreign conquerors; but often they resulted from intellec tual and moral sloth and the un348 THE FREEMAN June willingness to make the sacrifices and exercise the vigilance that are the price of freedom - or even, in deed, to understand that such a price is demanded. And the loss or curtailment of freedom is not always a disaster of the remote past. In our own times we have seen it happen. Some of the nations that were great only fifty years ago a-re now reduced to near-bankruptcy or vassalage. Others have been brought down until they are only debt-ridden, tottering relics of their former greatness, whose peo ple are burdened with confisca tory taxes and stifled with re pressive laws and bureaucratic regulations. And why? Did they do this voluntarily? Yes, alas - but not intentionally. I mean they vol untarily took certain actions, or permitted them to be taken, in what they thought was for the general good; but they certainly did not intend to bankrupt their country or impoverish themselves in the process.

Unintentional Injuries Nowhere that I know of is there any evidence that a great people chose deliberately to be less great, or that a free people elected to be less free. The measures that have led to their abasement - to debt, inflation and smothering statism have usually been quite cheerfully adopted by the people themselves through action by their elected representatives, all for the greater glory. Nobody that I am aware of in England ever said, in effect, Look, fellow Britons, let us become a second-rate power; or See here now chaps, let us tax ourselves un til we stifle our economy. Nobody in Sweden, I believe, ever sug gested to the enterprising people of that country that they should tax themselves to economic death for alleged social benefits. Instead, the English Fabians and their Swedish counterparts proposed only to improve the condition of life for all the people. Juan Do mingo Peron never, so far as I am aware, threatened or intended to destroy the money and cripple the economy of Argentina; he was just ,going to do something for the "descamisados." Salvador Allende, being a devoted Communist, may have intended to bankrupt Chile; but he never said so. His purpose, he said, was to improve the lot of the common people. And so on and on, through the list of good inten tions that have paved the hell of inflation, bankruptcy and the death of freedom, for much of mankind.

What is it that humankind has striven for, down the long cen turies of its life? Out of the in stinct for self-preservation, plus the promptings of a deathless hope, the slowly emerging phylum of the 1975 THE PURSUIT OF EXCELLENCE 349 human specie_s has been groping ... for perfection! In a strange, blind, sometimes pathetic, but per sistent way it, too, has been en gaged in the pursuit of excellence ...,... the excellence of a better and richer life .. A Magnificent Quest And what a magnificent quest it has been! Of its earlier stages we know little and must rely on the patient digging and informed Gon jectures of the archeologists and other delvers into the past. If we express the lifetime of the human race as a year, then we have de pendable historic record of only a few hours, or maybe minutes, of the long ascent. But both the evi dence of history and the· ded uc tions of paleethnology. offer a rec ord of tenacity, adaptability, cour age, and an ultimate awareness of man's need for carefully formu lated and generally accepted rules for the complicated business of living together on the Planet Earth.

This led inevitably to the con cept of government - an agency thatwould protect members of one tribe from aggression by other, and hostile, tribes. In time it as sumed also the function of internal guardianship - the protection of individuals within the tribe against the acts of unruly and ag gressive fellow tribesmen. Thus the police function - and power developed, a power that was both necessary and dangerous. Many governmental forms, no doubt, came and. went as the centuries drifted by - tribal chieftains, eld ers, committees, councils. In time these devices evolved into kings, assemblies, parliaments, congress es. Government would undergo re finements - and abuses. Men would fight and die to maintain it ... or to overthrow it. Enlightened chief tains ruled benignly; wicked ones enslaved their subjects. Contradicting Drives Through it all, man held to· one basic idea. As was said of prayer in the old hymn, it was his soul's sin cere desire, uttered or unexpressed - namely, to be protected . . . and to be let alone. But this involved a fundamental contradiction which inhered in his nature: he wanted to be let alone, but he didn't want to let others alone! Simple .laws for protection of life and property were well and good, but they were not enough. Men needed - other men, that is - needed a certain amount of guidance. Developing religious beliefs provided such guidance in the moral sense. Every faith generated its table of thou shalts and thou shalt nots, these being ethical concepts arrived at in the various stages of man's devel opment. And in time these rules or 350 THE FREEMAN June precepts, having evolved into ar ticles of faith, found expression in law.

But even these did not satisfy the strong desire of man to mold others to his moral and political will. Obsessed by a passion for re ligious freedom, he did not hesi tate to impose his beliefs .on others, not only by the' weight of ecclesiastical canons, but by the compulsions of law. Determined to be politically free, and willing to fight and die for that principle, he has also been quite willing, with no apparent recognition of his in consistency, to deny that same freedom to others. Anxious to be "let· alone," he has erected state mechanisms that bind others against their will and j udgment and in the' process he has bound himself. Fearing and indeed ab horing debt in his personal affairs, he has time and time again pushed his governments into insolvency, and in doing so has impoverished himself. Much Has Seen Achieved Yet he is not to be condemned too harshly for these inconsisten cies. In the relatively short time that he has lived on this Blue Planet he has achieved greatly.

The matter of mere survival itself is a test that has defeated many another form of life. Gigantic creatures flourished for a time, but died finally through their inability to adapt; and their fossilized bones are their only bequest to the mod ern world. But man has survived. Century by century, he lives long er, and he lives better. He is the thinker and the rememberer. More over, he is the dreamer and the singer of songs. He is the creator of things outside himself .. He has written great books, carved heroic sculptures, painted inspiring pic tures, composed deathless songs, built great commercial and indus trial processes. By courageous trial and bitter error he has lifted a species of life to the pinnacle of organic achievement. He is arrogant in his assump tions of superiority and infallibil ity, and in his incessant efforts to mold and regulate the lives of his peers. In this endeavor, by the ceaseless extension of the State and its powers, he may yet destroy the great structure of freedom that he has dreamed of. But his rationality and self-interest are strong and will probably yet tri umph over his compulsion to guide, direct and rule. His greatest and most· important field of conquest is still . . . himself.

Fjnally, he has dared greatly, most· of all perhaps in imagining that he himself is· cast in the very image of God - an assumption which is probably the ultimate in the pursuit of excellence. t) Jo NATHAN A Majority of UNTIL RECENTLY, I had so much faith in the intelligence and in tegrity of women that the gro·wing noise over "equal rights" (which I have always claimed) failed to disturb me. As time went on, how ever, I found myself doing some thing I thoroughly. disapprove of; putting labels on people. I have kept my labels few and simple: 1) male, 2) female, 3) Man, and 4) Woman. By accident of birth we enter this world as male or female. By our own effort and maturing we become Man or Woman. For as long as I can remember, I have admired great women and men, identifying more with the women, of course. My parents and teachers encouraged me to believe I could become successful at any' thing I attempted, providing I Jo Nathan is a homemaker, of Lakeview, Oregon.

possessed the innate ability and the willingness to .work. They taught my brothers the same thing. My older brothers encouraged me in my "tomboy" attitude of equality, explaining to my mother that tomboys usually grow up un derstanding men and how to get along with them. I believe my brothers were right. I still have great respect for the men I meet. It is a pity their number is dwin dling. However, I am not prepared to work alongside boys over 21 years of age, who show no interest in becoming men. I confess to be ing impatient with them. But I am even more impatient with aging girls. Perhaps because of ingrained habit and tradition, I still expect more from females than I do from males. In their search for "change" in their society, too many idle fe males have worked on shallow lev351 352 T'RE FREEMAN June els, such as changing the suffix man to person (chairman becomes chairperson, etc.) . It is not strange to me that they did not seek to change the basic word, Woman to Woperson. They show no real awareness of the meaning of the word, WOMAN, and the responsi bility and discipline required to wear such a beautiful, powerful name.

A brief UPI news release con cerning a convention of feminists stated that four different leaders "told delegates" to do this or not do that ... A new flag was waved at the delegates. The new flag is labeled "minirape." Minirape was then defined as a physical or verbal intrusion on the rights of women as human beings. Then, the person who defined the word told the other persons at the meeting what to do about such an intrusion. I maintain that women have al ready learned how to handle such situations. In most cases they pre vent "intrusion" by behaving as women. We are aware that men are victims of minirape also, pos sibly more frequently than women. Do they need someone to tell them what to do about it? My temper is flaming again. It does every time I read things like this from a news release : Women were told to watch for and demand removal of textbooks if they show women in the traditional, lesser role of homemaker ...

Like many other women, I pre pared for and chose the role of homemaker. I have never thought it is lesser and I still do not think it is, although many have tried to make me believe it. Who are these brainwashed fe males who would like me to become a carbon copy of .themselves and my children a carbon of their own? This "maj ori ty of one" re fuses to accept the invitation to join the club. They have a right to think and become whatever they wish, but their freedom ends where mine begins! I) IDEAS ON LIBERTY What Social Classes Owe to Each Other I REGARD FRIENDSHIP as mutual, and I want to have my say about it. I suppose that other components of humanity feel in the same way about it. If so, they must regard anyone who assumes the role of a friend of humanity as impertinent. The reference to the friend of humanity back to his own business is obviously the next step. WILLIAM GRAHAM SUMNER MANY FREE MARKET ADVOCATES are familiar with the gold standard, and why a gold standard is prefer able to a fiat standard. But there are several different kinds of gold standards, each with its own char acteristics and its own implica tions for the economy.

The earliest and simplest form of gold standard is trading for gold in the form of gold dust or gold bullion. There are no banks or money substitutes whatever, and the total money stock is simply the total amount of gold in the trading area. This form of gold standard requires no government interven tion in the economy at all, and re quires of the government only the prosecution of fraud, which is easy to prove since contracts (written Charles Curley is the author of The Coming Profit in Gold (Bantam), and is a founding member of the National Committee to Le galize Gold. or verbal) are defined in terms of a specified amount of gold in a specified form. Gold for this purpose is con stantly being provided by gold mines or foreign trade and refined into recognizable forms by known refiners. If the purchasing "pow er"* of money (gold) increases, then it will become profitable to mine or import more gold (by ex porting more products). This will bring about an expansion of the gold stock, which, other things be ing equal, will reduce the purchas ing "power" of money until the profitability of mining or import ing gold is comparable to the prof itability of other activity, and the marginal mines and importers will cease production.

* I put the term "power" in quotes to avoid confusion with political power, which purchasing "power" is not. 353 354 THE FREEMAN June This is one example of how, with no government intervention, a com modity standard money tends to keep a constant purchasing "pow er" by a simple market mechanism, based on the profit motive of the people involved. Notice that neither gold Ininers nor anyone else are concerned with such things as the stock of money or other esoteric economic concepts, yet it is they who act to stabilize the purchasing "power" of money when it becomes necessary. Primitive and Inconvenient This gold standard is rather primitive, as it requires the incon venience of weighing out amounts of gold for each purchase, and the fact that one must carry one's gold around with him, an obvious temp tation to muggers. The solution to the first problem is to manufacture slugs of gold in uniform amounts with a uniform purity so that one can tell at a glance how much gold is in the slug. Since the gold content is known, the manufacturer can alloy the gold with other metals to hard en the coin, thus reducing wear.

The manufacturer's name and the weight of fine gold are stamped on the coin. A modern example is the Krugerrand, which is minted by the South African Chamber of Mines (all the government does is provide the dies). It carries the legend, "FYNGOUD 1 OZ. FINE GOLD" (in Afrikaans and Eng lish) . Because the gold is what is val ued, and not the alloy or fancy de signs on the two faces, the unit of weight of fine gold becomes identi fied with the coin. For example, the dollar was at one time defined as 1/ 20th of an ounce of gold sim ply because the United States coin of one ounce was labeled "20 Dol lars." Of course, there is always a pos sibility of fraud on the part of the minter, and the objection is usu ally raised at this point: "Why, we can't trust people to mint coins! That function has to be turned over to the government!" We can trust private manufac turers to mint coins according to the market's specifications just as we can trust private firms to manu facture nuts and bolts to specifica tion, or carry the mail. Advocates of the free market maintain that private enterprise can provide every other product or service bet ter than the government can. Why not coins?

But the introduction of coins still leaves two problems: storage and convenience. The convenience problem is two-sided. In the case of large purchases, one must trans port a lot of gold around to make the payment. One runs into the problems of transportation and se1975 GOLD STANDARDS 355 curity. Small purchases, say a piece of bubble gum, would require the availabilty of a coin small enough to pay for it or make change if a large coin is presented. This problem would be solved by the market by the use of a bimetal lic system, as where gold and sil ver circulate side by side. Bimetal/ism Bimetallism here simply means that the market accepts either gold or silver as money. This is a deci sion that must be left to the mar ket. It is like having two curren cies. The idea of having two (or more) currencies is far more dis turbing to Americans than to Eu ropeans, who might have to deal in sterling one minute, Swiss francs the next, and then dollars. It sim ply requires that people express their prices in terms of both gold and silver, just as many European shops express their prices in both dollars and the local currency. The bimetallic system simply means that the monetary metal with the lower purchasing power per unit of mass would be used to make the smaller purchases, such as bubble gum.

Another innovation solves sev eral problems. The introduction of warehouses for money solves, of course, the problem of safely stor ing one's money. The warehouse would store your gold fora fee and give you a receipt for the gold. It is still your gold, and the fact that it is in someone else's storehouse does not mean that title to the gold passes to him or that he has any other claim to the gold (except possibly to ensure payment of the storage fees). Because it is your gold, the warehouse has no more right to use it for any purpose than an employee in a furniture warehouse has to sit on your chair. Also, the warehouse must deliver your gold upon demand, just as the furniture warehouse must deliver your chair when you want it. The receipts are usually in the form of bearer receipts, which means that the warehouse will de liver the gold to whoever presents the receipt for redemption. This carries with it the obvious impli cation: don't lose your receipts!

But· it also carries the implication that, instead of trading the physi cal gold, clients of warehouses can trade the receipts back and forth. But, still, as with the coins, the value is attributed to the gold, not the piece of paper. A Modern Example A modern example of the gold warehouse is the gold certificate offered by the Bank of Nova Scotia. Although the certificates are issued in ten-ounce lots with a mInImum purchase of twenty ounces, the principle of the gold 356 THE FREEMAN June warehouse is maintained, as the Bank of Nova Scotia keeps on hand all the gold which its certifi cates represent. The storage fee is defined as 3¢ per hundred ounces per day, or $10.95 per year for up to one hundred ounces. An alternative to issuing one or several receipts which would cir culate in place of gold is to have the warehouse give the depositor a. book of checks which he could use to make payments of exact amounts of gold, limited only by the availability of coins or bullion to make the exact amount of the check. (If the smallest amount of gold available is 5 grams, it does no good to write out a check for 9 grams, because no one makes small enough gold bars to pay the check.) This makes it· easier to make pur chases in that the buyer need only fill out the check for the exact amount of the purchase. However, the purchaser must not only estab lish the trustworthiness of his warehouse, but also whether he has enough gold in his account, to cover the check.

Full Reserves What I have described here is called 100 per cent reserve banking, which means that for every ounce worth of receipts outstanding, the warehouse has an ounce of gold in the vaults. The receipts are sub stitutions for rather than additions to the gold in the vault, and the money stock stays the same as gold flows into or out of the warehouse. The 100 per cent reserve banking system also differs from other bank systems in that the gold is considered to belong to the holder of the receipt, not to the bank or warehouse. Because the warehouse operator is in the business of handling money, it is only natural that he should make a. market for the use of it. When a warehouse operator matches up savers and borrowers so that the savers can earn interest on their savings, he becomes a banker. He facilitates this money market by accepting deposits of gold over a specified time and lend ing the money out over the same or a lesser period of time. He charges the borrower a higher rate of interest than he pays the depos itor, the difference being the bank er's profits. A modern example of this is the certificate of deposit, where the bank can pay you .a higher interest rate than on a reg ular checking or savings account because it knows that you are go ing to leave the money on deposit for a specified period of time.

However, soon enough a banker will notice that most of the gold on deposit in his bank, even though in demand deposits, will be left in the bank for years, as the receipts are traded back and forth. If no one is 1975 GOLD STANDARDS 357 going to redeem this gold, he rea sons, why shouldn't I lend it out to someone else? Of course, the fact that he is lending out money that doesn't belong to him, that was en trusted to him, doesn't bother him; no one will find out, will they? Even easier is to continue to hold the gold in his vault and in stead lend out receipts for gold that doesn't exist. Noone will find out; our banker won't lend out so much money that receipts brought for redemption will remove the en tire gold stock from his vault. Of course, the fact that he is lending out gold that doesn't even exist doesn't bother him in the least, even if it is fraud. Fractional Reserve When the banker lends out the gold in his v3:ults, or lends out false receipts, he obviously no longer has enough gold in his bank to payoff the obligations of the bank. He has gone from 100 per cent reserves to fractional reserve banking. He also has created more circulating medium (money) than there was previously, but without the limiting device of the costs of mining or importing gold. It costs less than an ounce of gold to mine an ounce of gold, but, as more gold is mined than lost through wear, and as the purchasing "power" of money goes down, eventually the marginal mines find that it costs more than one ounce to mine one ounce of gold, and so they cease production. With pseudo-receipts, the limiting cost of production is the cost of printing!

Thus, when a bank goes off 100 per cent reserves, its action results in more circulating media, which tends to lower the purchasing "power" of money. In other words, while 100 per cent reserve banking cannot be inflationary, fractional reserve banking must be. Governments benefit from infla tion. A very simple example is where politicians promise to "stim ulate the economy" and proceed to inflate the currency in order to do so. Sometimes they are under the mercantilist mistake tha t more currency is the same thing as more wealth, so they encourage banks to create more currency. Obviously, in order to create more currency, the banker has to resort to fraction al reserve banking. Usually, when the government is in on the deal, it will help out by giving banks a special status. The government simply removes the title to the gold from the holder of the receipt and gives the title to the bank.

Notice that fractional reserve banking in all its variations re quires this invasion of property rights, this intervention in the market. At this point, the biggest thing that the bank has to fear is the 358 THE FREEMAN June possibility of a bank run, where all the depositors line up to retrieve their gold (that isn't all there). In order to avoid the temptation to create so much paper money that a bank run is precipitated, the gov ernment steps in, not to enforce the fraud laws, but to set reserve requirements, which specify what per cent of outstanding notes the bank must have in gold in its vaults. For example, if the govern ment sets a reserve requirement of 25 per cent and a bank has $250, 000 in outstanding currency, then the bank must have at least $62,500 in gold in its vaults. The lower the reserve require ment, the more money the bank can create and lend out. If the gov ernment raises the reserve re quirement, then banks may have to call in outstanding loans in order to meet the new requirements.

Debtors Gain A government in debt (like any debtor) has much to gain from in flation. A rate of price increases of 10 per cent means that the gov ernment gains 10 per cent while the lender loses by that amount. As the federal government is the largest single debtor in the U.S., it obviously has much to gain by inflation: both in reduced value of the debt, and in having available newly created dollars which it can borrow without the politically objectionable side effect of higher in terest rates. One way to decrease the reserve requirements without running the risk of a bank run is to make it more difficult for people to redeem bank notes in gold. By raising the minimum lot for which one could trade his paper, banks make it harder for note holders to get gold. Thus, Britain, after World War l and a great decrease in reserve requirements - changed the mini mum amount of gold from a sov ereign (a fraction of one ounce) to 400 ounces.

This restrictive gold standard is called a gold bullion standard, and stands in opposition to the origi nal U.S. gold standard, where one could get gold for as little as $5, ·which was called a gold coin stand ard. The gold bullion standard al lowed the Bank of England to continue ,vith its wartime reserve requirements ·of 18 per cent in stead of returning to the pre-war level of 52 per cent. This, in turn, meant that the British banking system did not have to deflate in order to return to the level of credit imposed by a 52 per cent reserve requirement. Restricted Redemption Another way to limit gold out flow is· to limit the people to whom the bank will give up the gold. The U.S. did this quite abruptly in 1933 1975 GOLD STANDARDS 359 by prohibiting Americans from owning gold, and hence, from turn ing in their paper for gold. This meant that only foreigners could trade their dollars for gold.

Although still nominally tied to gold, at this point the dollar was really a fiat currency; at any time the link between the dollar and gold could be severed, as we saw in August of 1971. In the late 1960's, it became apparent that Europeans were willing to buy all the gold that the U.S. would offer on the London gold market. Rather than deflate, the U.S. authorities ceased selling gold on the free market, and established the two-tier mar ket in 1968. The free market price of the dollar soon moved down to 1/42nd of an ounce of gold, while central banks continued to trade gold at the old price of 1/ 35th of an ounce. Then, in 1971, even the central banks were banned from trading their dollars for gold. The U.S. had, for the first time since the 18th century, a completely fiat currency, in both the economic and legal sense. It was during this period that the concept of a "price of gold" first came into use. When a cur rency is divorced from gold so that its purchasing "power" becomes different than that of the amount of gold which the currency origi nally was defined to be, then it can be said to be a fiat currency. It still may have ties. to gold, such as the rather tenuous link between the dollar, the SDR, and gold from 1971 to 1973; but these are mere legalisms. As the fiat currency loses purchasing "power" relative to gold, then an ounce of gold will buy more and more units of the currency. This readjustment can be done occasionally and abruptly, via the mechanism of devaluations, or over a period of time via daily quotes on an organized private market such as the London Gold Market or the Commodity Ex change in New York. Thus, the monetary unit was divorced from gold in the eyes of the market as well as the government, and the dollar, for example, became defined as . . . well, a dollar, instead of 1/20th of an ounce of gold. Once this mental division is made, it is possible to talk of a "price of gold"

just as one can talk of a "price of Swiss francs" or a "price of roast beef": each is a separate commod ity from the unit of account - the (fiat) dollar. Central Banking During this century, the United States also moved away from free banking by modifying the reserves that banks could use for their de posits. Before the establishment of the Federal Reserve (in 1913), banks used gold, either bullion or coins, as reserves. However, with 360 TIRE FREEMAN June the establishment of the Fed, banks were allowed to deposit dol lars with the Fed and count these deposits as reserves (still frac tional) . The Fed learned rapidly how it could manipulate these reserves. Not only could it modify reserve requirements, but it could change the level of reserves in the banking system. The mechanism is very simple: the Fed buys an asset, any asset. To pay for it, the Fed writes out a check to the seller. The seller deposits the check in his bank, and the bank credits his account with the proper amount. Then, the bank presents the check to the Fed for collection. Instead of simply pay ing the bank so many dollars, the Fed credits the bank's reserve ac count with the Fed with the amount of the check. The bank's reserves are now expanded by the amount of the check, and the bank can now create and lend out addi tional dollars.

Any Debt Will Do It is important to note in pass ing that the Fed can expand re serves by buying any asset. The most popular assets with the Fed are Treasury debts; and why not: they are buying the obligations of their parent organization, the U.S. government. But simply balancing the Federal budget will not de prive the Fed of assets to buy; simply balancing the budget will not stop inflation. After all, if the Fed couldn't get Treasurys, it could always buy New York Citys ! This system of expanding re serves means that the banking sys tem can expand its reserves with out regard to gold. Now, the Fed can inflate the money supply when ever anyone wants to go into debt, a not uncommon event! Even if the U.S. were to sell off all the gold in the 'Treasury stock, the Fed could continue to inflate, sim ply because someone would be will ing to go into debt to buy that -gold, or something else.

We have traced an evolution away from free banking toward the completely state-managed mon ey system. Each step in between has been given a label, such as "gold exchange standard" or "gold bullion standard," each calculated to imply that the new setup was some form of gold standard. Even the Bretton Woods system was called a "gold-dollar standard" (not that the central banks even traded gold among themselves un less they had to - Gresham's Law applies to central bankers too). Market Money or Political Money The essence of the gold standard is that the gold in a bank's vaults regulates the credit that it can ex tend, and that the stock of money 1975 GOLD STANDARDS 361 is regulated by the free market (specifically, the profitability or lack of profitability of gold min ing) , and not by the decisions of the bankers, especially the central bankers! Each step that was taken away from a 100 per cent reserve gold standard also made it both more necessary and easier to take the next step toward regulation.

Each step also reinforced the idea that every time the banking sys tem got into trouble, the govern ment could bail it out, and do so by changing the banking system. Thus, later standards were gold standards only by virtue of a formal, legal link to gold. There was no commitment to gold, so whenever the banking system got itself into trouble, it was bailed out by the government - by an other step away from gold. Each step was supposed to make the banking system "more flex ible," to make it easier to "meet the legitimate needs of business." But, as we have seen, each step has really had the effect of making it easier for the banking system to inflate. If we turn this around, we can see that each step was a step away from sound money, market controlled, toward money con trolled by a government with a vested interest in inflation. It is in the interest of the free market advocate to understand the different varieties of gold stand ards and mixed gold-fiat standards that have existed. This is the only way in which one can answer the many myths that surround money and banking. For example, careful study shows that it was not capi talism that failed in the 1930's, but central banking that failed in the 1920's. , IDEAS ON LIBERTY The Highest Impertinence IT IS the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptu ary laws, or by prohibiting the importation of foreign luxuries.

They are themselves always, and without any exception, the gr~atest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will. ADAM SMITH, The Wealth of Nations ~TheAutumn of OUf Discontent AL BRAUN ONCE UPON A T'IME there was a great department store where peo ple could buy any product they chose. This store· had all of the latest scientific devices, medical aids, autos, washing machines, tel evision sets-everything from soup to nuts. Customers were offered numerous options: you could go into the store just to browse, or you could buy on time, pay cash, or write a check, whatsoever you vvished. People came from great distances to shop and to partake of the great assortment of products at reasonable prices. Somewhat unique among the goods and services offered was one that went pretty much unnoticed: police service. Yes, at each of the store's many entrances and exits stood a man in blue with his shiny badge~ The only time the police man was noticed was when some body tried to rob the store or take something out without paying for Mr. Braun is an engineer in Creston, Iowa. This article is from his recent speech before the Toastmasters group there.

362 it. Occasionally, fights would break out in the store and the policeman would be called upon to restore or del". Sometimes he was needed to apprehend a pickpocket or dealer in fraudulent merchandise. There was even an occasion when a store clerk tried to rob a customer and the police had to intervene; but basically the man in blue went un noticed. Yet, he was always there and it was a comforting sign. Everything went well for many years. The store enjoyed a good reputation; most everyone spoke well of it. Oh, there was the occa sional gripe by someone who felt that he was being cheated, but this was very rare. All in all, the store showed profits, the customers were happy, and mutual respect pre vailed. Then, one day a poor crippled old man came into the store. He looked longingly at some of the products. This was not unusual; people with problems had come to the store before. Usually, some kind person would pay for a meal 1975 THE AUTUMN OF OUR DISCONTENT 363 or make a gift of some item pur chased in the store; and this was fine. The receiver felt good and the giver felt good.

But on this occasion it seemed that no one was around to help this poor crippled old man. He did a great deal of browsing. At times it looked as if he were going to yield to temptation and steal some thing, but his integrity and hon esty prevailed. A policeman had been observing him carefully. Sud denly, the policeman took some thing off the shelf and gave it to the crippled old man. The old man, startled at first, looked with sur prise at the policeman and then smiled. Several persons in the crowded store witnessed this scene with mixed emotions: "What is that po liceman doing? He can't take things that don't belong to him and give them to others. Well, I guess it's O.K.; after all, the poor man is a cripple." A few days later, the old man was back, this time with a sick friend. He gave the policeman a wink and a smile, whereupon the policeman took some food and gave it to the crippled old man and his feeble friend. And so began a trend. Others who were poor or had physical problems would go to this policeman and ask for free merchandise, and they usually re ceived it.

As expected, this one policeman became very popular and received commendations from both receiv ers. and observers; after all, the store was very rich. More and more people saw this happening and thought it was fair. Soon, the policemen at the other doors joined in giving away the store's merchandise. Before long, even healthy people were walking in on crutches trying to get free mer chandise, and usually succeeding. Of course, as the merchandise be gan to disappear, the store had to raise prices to keep from losing money; but the increases were mi nor at first and nobody complained. After the practice had spread and continued, the scene began to change in the store. Instead of the quiet orderly business place it once had been, it now looked like a mad house. There were police all over the place, hundreds of them, giv ing things to people· for all sorts of reasons. But the people receiving these things were not happy about it as had been the first crippled old man and his friends. They always seemed to want what the police man gave to somebody else. They would stand around screaming: "I want some of that. He's getting more than I did. Why can't I have it now?"

The ordinary shopper, without an ailment, was beginning to won der why he should have to pay for 364 T'HE FREEMAN June things that others were getting for nothing. In time, as prices continued to rise, he too would manage, to get some merchandise free; so he didn't complain too much about the price because he felt someone else was doing most of the paying-and he was getting only bargains. In the old days, if he saw someone stealing, he would yell, "Help, police, there is a thief" until the officer took notice. But now it wasn't really robbery be cause the police were doing the taking and giving. Eventually, no one believed he was getting a fair deal, even if he got everything free. It seemed as if somebody else always got more. So, what happened? The great store, of course, went out of business and there no longer was a reason for anyone to go there. You've guessed it! The store is America. The policeman is the government. You and I are the customers. And if this is truly the "Autumn of our Discontent", let us hasten to mend our ways. If we can get the police back to th'eir proper function of guarding peace ful persons and protecting private property, we may still save the store.

In this Bicentennial season, let us celebrate the founding princi ples of liberty and justice - not what we can get from government at someone else's expense. With self-responsibility - to each the fruits of his own labor - we can all live happily ever after. ENVIRONMENTALISM aDd ENERGY PROBLEMS BERNARD H. SIEGAN WHETHER THERE IS an energy crisis, crunch or problem, the only law that will relieve the situation is Copyright 1974 Bernard H. Siegan Mr. Siegan is the author of Land Use Without ZoninA and many articles on the subject. He practiced law for 20 years in Chicago before moving in 1973 to La Jolla, California where he is professor of law at the University of San Diego Law School. the law of supply and demand. The legislative and executive branches of government should consequent ly remove obstacles to its operation such as the many laws and regula tions adopted in the name of envir onmentalism that decrease supply and increase demand.

1975 ENVIRONMENTALISM AND ENERGY PROBLEMS 365 This 'country has been on an en vironmental binge in recent years that is now raising havoc with the environment of the average Ameri can. The nation's lawmakers have been sold on a highly restricted de finition of the word environment by those who contend it applies only to nature and the wild. For the average person, the only meaningful environment is that ex perienced daily, in the home, on the road, and at work, and we are learn ing the hard way that each requires a maximum supply of energy. In deed, what part of nature or the wild has done more for human hap piness, comfort, and well-being than a smelly, ugly, dirty oil refin ery? On the other hand, there is not now nor will there ever be an en ergy crisis for the relatively few who reject the automobile or want to go back to the earth. There was no meat shortage for vegetarians either. For people of such persua sion to make environmental deter minations is akin to appointing Bobby Riggs as spokesman for Women's Lib.

The problem is one of competing interests. Certainly clean air is a most laudable objective. In our modern society however, it doesn't come without the sacrifice of equal ly or more desirable goals. Pollu tion control devices have lowered auto emissions by reducing engine efficiency, appreciably increasing the consumption of gas and adding to the cost of purchasing and main taining a car. The use of coal or oil with high er sulphur content has been banned, further decreasing energy supply. Air pollution control requirements have raised the cost or prevented the building of new or enlarging of existing oil refineries and other fac tories. The construction of power plants, both nuclear and conven tional, and oil refineries are being blocked to preserve areas that very few Americans will ever see" hear or read about. These are a few of the examples which demonstrate that the laws passed in the name of the environ ment are actually doing a disserv ice to it. Admittedly, when they were not engaged in fighting the Alaskan pipeline, offshore drilling, strip mining, new refineries and power plants, and deep water ports, environmentalists did urge conser vation of natural resources, includ ing oil. However, their desire to conserve on the use of oil is but one small part of a much larger pack age intended to basically change the prevailing life style of the coun try. They seek a massive transfor mation of our commercial and in dustrial society.

Any solution to energy problems necessitates that laws be eliminated inhibiting production and wasting 366 THE FREEMAN June consumption. Much of the benefits of offshore oil drilling and gas and oil extraction from shale will be lost to auto and factory emission controls that are now required even in those vast portions of this coun try where there are no air pollution problems. Such requirements are unwise in the best of times; they are absurd when problems arise. Before oil can be recovered from off-coast and shale deposits, present law requires that extensive reports be prepared and public hearings be held, the principal effect of which will be to consume more paper, elec tricity, gasoline and dollars. Re gardless of the information ob tained, few minds will be changed. The oil industry will favor and the environmentalists will still oppose development. But this lengthy ritual may not cause the pumps to flow oil. En vironmental groups appear likely to file law suits and the length and effect of the litigation will deter mine when and how much oil can be recovered. Almost every effort to extract oil from new sources or to build power plants seems to bring with it loud threats from environmental groups to prevent the action through litigation. Past perform ance indicates these are not idle promises. While a suit was not filed to stop the current work on the Alaska pipeline, this was due ap parently more to concern for public opinion than for energy.

When Congress earlier in 1974 adopted statutory authority for the Alaska pipeline, it included a pro vision restricting litigation exclu sively to constitutional issues. Al though there is some question as to the validity of this restriction, it is certainly a small step. in the right direction. At the very least, the public is entitled to demand that those responsible should pay for the harm these lawsuits create. The Alaska pipeline might now be sup plying oil and would surely cost much less were it not for the lengthy litigation sponsored by en vironmentalists. All the while they vehemently deny responsibility for contribut ing to energy problems, environ mentalists do much to increase and prolong them. It is time we placed their objectives in a more realistic perspective. ~ IDEAS ON $ LIBERTY James Russell Lowell THE DEVIL loves nothing better than the intolerance of reformers, and dreads nothing so much as their charity and patience.

reat ~erman 3Jnflation BRUCE BARTLETT THE FEBRUARYissue of the British magazine, Encounter, contains a heretofore unpublished lecture by the famous novelist, Thomas Mann, which recalls his experience with the great German inflation of 1913 1923. "A straight line," he tells us, "runs from the madness of the German Inflation to the madness of the Third Reich." Just as the Germans saw their marks inflated into millions and bil lions and in the end bursting, so they were later to see their state inflated into "the Reich of all the Germans", "the German Living Space", "the New Europe", and "the New W orId Or der", and so too they will see it burst. In those days the market woman who without batting an eyelash de manded a hundred million for an egg, lost the capacity for surprise. And nothing-that has happened since has been insane or cruel enough to surprise her. Mr. BartIett is a graduate student in history at Georgetown University.

It was during the inflation that the Germans forgot how to rely on them selves as individuals and learned to expect everything from "politics", from the "state", from "destiny." They learned to look on life as a wild adventure, the outcome of which depended not on their own effort but on sinister, mysterious forces. The millions who were then robbed of their wages and savings became the "masses" with whom Dr. Goebbels was to operate. Inflation is a tragedy tha tmakes a whole people cynical, hardhearted and indifferent. Having been robbed, the Germans becarne a nation of rob bers.! This terrible inflation, which Mann credits for the rise of Hitler, had its origin in another holocaust: WorId War 1. Like eyery other na tion involved in that conflict, Ger many was entirely unprepared for its intensity. German,French, and Bri tish troops all marched off in August 1914 absolutely convinced they would be home by Christmas.

367 368 THE FREEMAN June The German High Command shared this optimism, having full faith in the ability of the Schlief fen Plan to bring quick victory. With the resulting total war, out lasting the· enemy became the only path to victory for either side. At this point, Germany discov ered just how badly it,vas prepared for this new kind of warfare. Cut off from its sources of food by a British blockade and failing to achieve any kind of breakthrough on the Western front, Germany be gan to gamble, as it did when it unleashed its submarines. At home too, the government began to gam ble. The people, having been bled white by taxation already, had to be urged on to greater sacrifice. Toward this end, the government resorted to inflation on a mass scale, gambling that the people would be unaware of what was hap pening. Inflation an Indirect Tax Here, one should keep in mind that inflation, in its crudest form, is nothing but an indirect tax. The government, with its monopoly on the issuance of currency, found it simple to play the role of counter feiter. It simply paid for the goods it needed with newly created mon ey. Since an individual's concep tion of his money's worth is basic ally shaped by his past memory of its purchasing power, this process can go on for some time before it begins to significantly affect the price level.

During the war, goods were be ing withdrawn from the economy for war materiel and, simultane ously, fewer goods were being pro duced as workers became soldiers. At the same time, the government was increasing the money supply rapidly as it became increasingly difficult to raise needed funds from taxa tion or direct borrowing. Historically, the speed at which people spend· tends to remain rela tively constant unless they expect a sudden change in economic rela tionships. Accelerated spending classically occurs when people feel that their money is losing its value. At this point, they begin to spend every cent they can get as quickly as possible before prices go up again. This only tends to raise prices even higher and drop the value of the money corresponding br• Economist Ludwig von Mises, a resident of Austria at the time, graphically described this process: In normal times, that is in periods in which the government does not tamper with the monetary standard, people do not bother about monetary problems. Quite naively they take it for granted that the monetary unit's purchasing power is "stable." They pay attention to changes occurring in the money-prices of the various commodities. They know very well 1975 THE GREAT GERMAN INFLATION 369 that the exchange-ratios between commodities vary. But they are not conscious of the fact that the ex change-ratio between money on the one side and all commodities and services on the other side is variable too. When the inevitable conse quences of inflation appear and prices soar, they think that com modities are becoming dearer and fail to see that money is getting chea per. . . . This ignorance of the public is the indispensable basis of the inflationary policy. Inflation works as long as the housewife thinks: "I need a new frying pan badly. But prices are too high to day; I shall wait until they drop again." It comes to an abrupt end when people discover that the infla tion will continue, that it causes the rise in prices, and that therefore prices will skyrocket indefinitely.

The critical stage begins when the housewife thinks: "I don't need a new frying pan to-day; I may need one in a year or two. But I'll buy it to-day because it will be-much more expensive later." Then the cata strophic end of the inflation is close. In its last stage the housewife thinks: "I don't need another table; I shall never need one. But it's wiser to buy a table than keep these scraps of paper that the government calls money, one minute longer."~ This entire process was set in motion when the Reichsbank sus pended the redeemability of its notes in gold with the outbreak of war. As long as the paper currency was tied to a finite amount of gold, the currency also remained within finite limits. When this restraint was cast aside, there was no longer any legal limit to the amount of money that could be manufactured. The government, in turn, used this freedom to force the bank to buy its bonds, which the bank paid for by creating deposits in the govern ment's account. In this way, the German debt became monetized, just as the American debt is today monetized by the Federal Reserve System. Simply put, this means that the government's debts are ultimately paid for by the consum er's loss of purchasing power; the creation of new money serving only to cheapen all money already in circulation. In Germany, this meant that by the end of 1918, the amount of money in circulation had increased fourfold. One would have expected this to lead to approxi mately a fourfold rise in prices, more when one considers the cor responding cutback in production, but in fact they only rose 140 per cent. This is because consumers were not yet fully aware that the rise in prices was due not only to goods being less available, but also due to inflation of the money sup ply.

Huge Deficits To be sure, even the victorious nations had practiced the German method for financing their debts 370 T'HE FREEMAN June and experienced a similar rise in prices. But with the cessation of hostili ties, they returned to sound fiscal and monetary policies. In Germany, the government made no effort to return to pre-war spend ing levels and continued to run huge budget deficits, as the follow ing table demonstrates: 3 As one can see, the debt mounted with each passing year, almost all of it being funded through mone tization. The reasons for this were partly humanitarian, partly politi cal, and partly selfish. On the one hand, there was terrific pressure for relief and rebuilding. Then too, the government sought to use in flation as a psychological weapon against the Allies. Finally, there was pressure from those benefiting from the inflation, which will be dealt with below. But the single most important factor in the ensu ing hyperinflation was economic law. As people slowly began to real ize that their money was losing its value, they began drawing out bank deposits and spending what they had as quickly as possible.

This run on the banks and the tre*In millions of gold marks. **April to October only. mendous increase in the demand for cash put fierce pressure on the treasury to stave off collapse with a flood of freshly minted bills. Thus the figures for total money in cir culation begin to follow a pattern (in millions of marks): 1913, 6,070; 1920, 81,338; 1921, 122,500; 1922, 1,295,231; 1923, 2,274,000, 000.4 And the effect on the price level inevitably followed a similar pattern :0 WHOLESALE PRICE INDEX 1.0 2.6 3.4 12.6 14.4 14.3 36.7 100.6 2,785.0 194,000.0 726,000,000,000.0 YEAR July 1914 Jan. 1919 July 1919 Jan. 1920 Jan. 1921 July 1921 Jan. 1922 July 1922 Jan. 1923 July 1923 Nov. 1923 Search for Scapegoats Needless to say, the government never admitted its role in this, but instead sought out easy scape goats. The most popular one was the Versailles Treaty. After all, the people already hated the Allies, so why not exploit it to good use?

The campaign was so successful that even intelligent economists like Dr. Hjalmar Schacht accepted and perpetuated the myth: "The true cause of the inflation after the DEFICIT* 5,999 6,054 3,676 2,442 4,690 REVENUE* EXPENSE* 2,559 8,560 3,178 9,329 2,927 6,651 1,488 3,951 519 5,278 YEAR 1919 1920 1921 1922 1923** 1975 THE GREAT GERMAN INFLATION 371 war was the perpetual pressure exercised by the Reparation Com mission on Germany in the attempt to extort payments to foreign coun tries which in the nature of things could not be made."6 The truth of the matter is that reparations ex penses only made up about a third of the German budget deficit throughout the entire period. In his book, The Economics of Infla tion, Costantino Bresciani-Tur roni compiled the following fig ures :7 YEAR 1920 1921 1922 1923** DEFICIT* 6,053.6 3,675.8 2,442.3 6,538.3 REPARATlONS* 1,850.9 2,810.3 1,136.7 742.4 ness, which ran into real millions, by paying their creditors in inflated mil lions, and thanks to these same in flated millions they acquired real millions-worth of property.

Though Germany was very poor at that time, it possessed great wealth in mineral resources and in dustrial plant. During the inflation a radical change occurred; this wealth became concentrated in fewer and fewer hands. The small and medium property-owners lost their holdings, and the biggest snapped them up. They acquired property and paid with paper. Years later one could hear it said that such and such a factory or mine was unproductive and would not be profitable if it had not been acquired for next-to-nothing during the Inflation .... 8 *In millions of gold marks. **April to Decemberonly. Consequently, the reparations alone cannot account for the defi cits or the ensuing inflation. The truth of this was, of course, irrele vant. There were plently of other causes for the inflation which could also be exploited. To blame profiteering became particularly popular because, as in the case of reparations, there was some truth in it. This is how Thomas Mann saw those who profited from the crisis: For.at least a section of this ruling class, the big industrialists, the in flation was profitable; they were in no hurry to stop it. During those years the Krupps, Stinneses, Thys sens, etc., got rid of their indebtedNot a Major Cause It would be a vast distortion, however, to say that profiteering in general was a contributing cause to the economic crisis. It is in the very nature of inflation that some will reap great profits. It was only those big industrialists like Hugo Stinnes who consciously realized what was taking place and deliber ately sought to influence the gov ernment toward inflation. 9 For the rest, who reaped windfalls through no conscious effort, through simple foresight or luck, some defense should be made. Many of these en trepreneurs became the obj ects of scorn and an easy target for politi cal extremists. The fact that many 372 THE FREEMAN June were also Jewish cannot be dis counted as an explanation for their persecution. As early as 1920, John Maynard Keynes spoke up for these innocent entrepreneurs in a moving passage from The Econom ic Consequences of the Peace. "Len in," he wrot'e, " is said to have de clared that the best way to des troy the Capitalist System was to debauch the currency."

By a continuing process of infla tion, governments can confiscate, sec retly and unobserved, an important part of the wealth of their citizens. By this method they not only confis cate, but confiscate arbitrarily,. and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoises, whom the inflationism has impoverished, not less than of the proletariat .... These "profiteers" are, broadly speaking, the entrepreneuer class of capitalists, that is to say, the active and construc tive element in the whole capitalist society, who in a period of rapidly rising prices cannot help but get rich quick whether they wish it or desire it or not. If prices are continually rising, e~ery trader who has pur chased for stock or who owns prop erty and plant inevitably makes profits. By directing hatred against this class, therefore, the European Gov ernments are carrying a step further the fatal process which the subtle mind of Lenin consciously conceived. 1o Thus we find the German gov ernment actively appealing to the lowest human emotions of jealousy, envy, and greed in order to hide its own responsi bili ty for the economic disruption. And inevitably this was to play right into the hands of demagogues like Adolf Hitler. It is no coincidence that he made his first bid for power at the height of the inflation; in the beerhall putsch of November 8, 1923. Historians and economists, therefore, are in general agreement that the infla-· tion can be given much credit for the rise of Hitler. For although he did not come to actual power for another decade, the putdown of the putsch supplied the Nazis with many martyrs to aggrieve, and it was during his subsequent prison term that Hilter wrote Mein Kampf. Thus, as early as 1937, Lio nel Robbins could declare emphati cally that "Hilter is the foster-child of the inflation."ll The Current Problem All this is not so say that we can expect another HitIer here in the United States. ~ut, to this very day, the origin of inflation is still the same: government deficits fi nanced through monetization. For 1975 THE GREAT GERMAN INFLATION 373 too many years, the American gov ernment has believed that it can have occasional wars and an expen sive social program at home and pay for it all by simply increasing the debt limit. Today we are dis covering that there really is a limit to debt. The double-digit inflation we are experiencing is therefore only a logical consequence of past policies. And if we want to stop it, the solution is the same as it was in 1923. The government must learn to live within its means and halt its abuse of the power to issue cur rency. The failure to do so may be catastrophic, just as it was for Germany. ~ - FOOTNOTES 1 Thomas Mann, "Inflation: The Witches' Sabbath," Encounter (February, 1975) p. 63. This lecture was originally given in 1942.

2 Ludwig von Mises, The Theory of Money and Credit (New Haven: Yale University Press, 1953) pp. 418-419. This book was written in 1913 and Mises used the word inflation to mean an increase in the quantity of money; see p. 240. 3 Michael A. Heilperin, Aspects of the Pathology of Money (London: Michael Joseph, 1968) p. 143. 4 Frank D. Graham, Exchange, Prices, and Production in Hyperinflation: Ger many, 1920-1923 (Princeton: Princeton University Press, 1930) p. 67. G The Nightmare German Inflation (Princeton, N.J.: Scientific Market Anal ysis, 1970) p. 2. G Dr. Hjalmar Schacht, The Stabiliza tion of the Mark (London: George Allen & Unwin, 1927) p. 55. 7 Costantino Bresciani-Turroni, The Economics of Inflation (London: George Allen & Unwin, 1937) p. 93. 8 Mann, Ope cit., p. 61. 9 See the interview with Stinnes in Fritz K. Ringer, ed., The German Infla tion of 1923 (New York: Oxford Univer sity Press, 1969) pp. 90-93.

10 John Maynard Keynes, The Eco nomic Consequences of the Peace (New York: Harcourt, Brace and Howe, 1920) pp. 235-237. 11 Forward to Bresciani-Turroni, op. cit., p. 5. He had expressed the same idea even earlier in his The Great Depression (London: Macmillan, 1934) p. 57: "The Nazi propaganda, hitherto confined to the worst elements of the ex-military and ex criminal classes and to a handful of the less responsible students, was beginning to make itself felt in high politics. The German middle classes, bereft of their property during the inflation, their minds be sodden with the turgid anti-rationalism which in that part of the world has for many decades passed as profundity, were apt soil for such teaching." IDEAS ON LIBERTY The Totalitarian Trap WHEN IN FACT government supplies most everything we need, then we find that we cannot get anything we need except from government; and we are trapped.

J. KESNER KAHN PEROYL. GREAVES,JR. Does Gave Brin MANY LEADERS in high places now promise us that our government will never again permit poverty and depression to devastate our land. They propose more government spending as a cure for every eco nomic evil. And millions of people believe that such a program will work. The underlying philosophy be hind political spending is not new. Similar ideas have appeared throughout all history. They came to full flower shortly after the eco nomic collapse of 1929, when un balanced budgets were generally accepted as necessary economic measures for relieving those in dis tress. You could not let innocent people starve, could you? Professor Greaves is a freelance economist and lecturer. His recent books include Understand ing the DoIlar Crisis and Mises Made Easier (Glossary for Human Action). This article is reprinted here, unchanged, from the February 1955 issue of The Freeman.

374 t Spending rity? People pointed to idle factories, unemployed workers and their un satisfied wants. All we need to do, they said, is to get the government to start priming the pump. A little government spending would pro vide the would-be workers with the wherewithal to buy the things they desperately need. This would en courage businessmen to put the un employed to work in the idle fac tories. This solution sounded so simple, and its political appeal was apparent. So we tried it. People just plumb forgot all that economists had ever taught. Many desperate persons reached for whatever share they could get of the apparent prosperity that fol lowed. Until war changed the pic ture, the price they paid was chron ic unemployment by the millions. Are we now asking for a repeat performance? Most people seem to forget that 1975 DOES GOVERNMENTSPENDING BRING PROSPERITY? 375 the government can payout only \vhat it borrows or collects in taxes.

They also forge"t one of the most elementary facts of a free economy -men who will not accept going wage rates must remain unemploy ed. Likewise, they fail to un derstand the real causes of de pressions. A logical examination of pertinent data would show them that it was Federal Reserve money manipulation that brought on the depression we all deplore. We Americans truly need to know some very simple economic facts. No free man works, buys or sells unless he fully believes that such action will bring him greater satis faction than he could enj oy if he did not take that action. This means that in a free economy no man ever takes a job at any wage unless he believes he is better off working at that wage than he would be if he did not take it. Likewise, no em ployer ever employs a man at any 'wage unless the employer feels that he will better his situation by em ploying that man at that wage. So, in a free economy, employees and employers believe that they have the best available terms. When they feel otherwise, they shift jobs or employees.

In the same vein, no woman ever buys a dress unless she believes that dress will bring her more sat isfaction than any other use she could make of the same amount of money. On the other side of the transaction, no storekeeper ever sells a dress unless he places a higher value on the money he re ceives than he does on the dress he sells. As a result of the sale, both buyer and seller are happier. Thus, in a free economy, every freely made transaction benefits all participants. Consequently, any in terference with freely made trans actions must result in a decrease in the satisfaction and happiness of all persons concerned. An economy that is free from restricting regu lations thus permits its people to enjoy the greatest happiness they are capable of producing. The Proper Sphere of Government However, in order to enjoy the full pleasures of prosperity, it is necessary for peaceful people to be protected from all robbers, thieves and fraudulent schemers who seek something for nothing at the ex pense of their fellow-men. For this protective purpose, men have insti tuted governments. Governments, like all valuable assets, have a price.

This price is collected in some form of taxes. Reasonable· taxes are a legitimate expense for all protected persons, property and production. Taxes are like insurance premi ums. In fact, a good government might be called a form of life, fraud and robbery insurance. It is as nec essary for modern society as acci376 THE FREEMAN June dent insurance is for every car driver of moderate means. Without it, the risk of living, owning prop erty and driving might well involve financial risks that only a few could afford. Good governments permit people to pursue their pleasures and production while protected from the rascals who would in fringe on their rights by force or fraud. Taxes paid for this protec tion are an investment which per mits men to pursue their personal satisfaction and prosperity as each one sees fit. When governments spend money for other than protective purposes, they must first get that additional money. They can only get such funds by one or more of three dif ferent methods. They can amass such funds by collecting more ordi nary taxes, borrowing from private savers, or simply printing the extra money they want to spend. Most modern governments use all three methods. Can such government spending increase the transactions and satisfactions of individuals and, thus, the happiness and pros perity of the people as a whole?

Hidden Costs A most common economic error is the failure to see or realize the complete price of what one buys. People are too apt to reach for something they want now, without weighing the costs they cannot visualize at the moment. Many fail to realize that more beer and merri ment today may well mean no bread or meat tomorrow. So it is with government spend ing. We see the results of govern ment spending all around us. Gov ernment services are sold at bar gain rates below cost. The bureau crats are good steady customers, and the subsidy receivers spend money more freely than those who earn it. But many do not see the complete price. They do not see the schools, homes, hospitals and fac tories that could have been erected if the same funds had been left in private hands. They do not see that present bureaucrats could be pri vate citizens producing goods not now available, and that such an in crease in marketable goods would tend to reduce all prices and thu~ increase the satisfactions and liv ing standards of every buyer. They do not see the taxes that creep into the prices of every loaf of bread and pair of shoes, placing the prices of such necessities beyond the reach of the most needy.

When the government raises the money it spends by borrowing sav ings or taxing its citizens, it merely transfers spending power from private owners and to political spenders in power. This creates no new wealth. It reduces the amount private citizens can spend while increasing the amount government 1975 DOES GOVERNMENTSPENDING BRING PROSPERITY? 377 can spend. With less money in their pockets and bank accounts, private individuals and corporations must reduce the amounts they spend or invest. Assuming prices and wages remain the same, they ,must buy fewer goods and employ fewer workers on private payrolls pro ducing what people want most. Money spent by governments cannot create any more jobs or pro duce any more wealth than it can when spent by private persons. In fact, it creates less, because both the tax collectors and tax spenders must be paid a commission. Their labors add nothing to the wealth of society. The shift of the money from private citizens to political spenders must result in fewer pro ductive jobs, and thus a smaller amount of goods and higher prices than if the money had been left in private hands.

Pattern of Production Changed Political spending also changes the whole pattern of the nation's productive forces. If the govern ment spends its money by giving out subsidies to one privileged group, the productive facilities of the country are then partially di rected toward satisfying the de sires of that group instead of the desires of those who originally earned the money. Many workers and investors must shift from pro ducing goods and services for customers who earn their money, to producing goods and services for those who first receive the dollars distributed during the govern ment's spending spree. Then, too, much government spending is not based on the eco nomic principle of getting the most for the least. This permits political spenders to grant privileges to their friends. Such political plums provide more satisfaction and pros perity for nonproducers at the ex pense of producers. The net result must always be a reduction in the production of wealth. Any such re duction in the quantity of goods and services available in the market tends to raise all prices and thus reduce the satisfactions and living standards of every buyer in that market. So spending to help one group, laudable as it may seem, does not, and cannot, create gen eral prosperity.

Diversion to War If the government spending is for war or defense, then some of the nation's investors and workers must go to work producing muni tions and military supplies. All the savings and workers so engaged are withdrawn from industries satis fying the private needs and wants of individual consumers. The end result, of course, is a reduction in the satisfaction of the needs and desires of all those who prefer con378 T'RE FREEMAN June sumer goods over war goods. The nation may have full employment, but individuals must certainly get along with fewer consumer goods. Such lower personal satisfactions have never been considered greater prosperity. The only reason men and fac tories are ever unemployed is that they will not produce what con sumers want most at prices con sumers can and will pay. Both men and factories can always be em ployed, if they will accept market wages and prices. When they con sider these too low and rely on gov ernment to pay higher than market wages and prices with funds ob tained from private citizens, the immediate result must always be unemployment or lower wages for those formerly engaged in satisfy ing the desires of those whose money the government now spends.

Unless supported in idleness, these workers will soon gravitate to those industries or pursuits that benefit most from the increased government spending. Their com petition will bring wages down to market levels, and then no workers will any longer benefit from the in creased government spending. Any switch of money from pri vate owners to political spenders can only result in a redirection of the nation's productive forces and temporary gains for those who first receive the government orders or subsidies. In the end, a readjust ment of the nation's productive forces will become necessary. Dur ing the interim, total human satis factions will be reduced and the general welfare will suffer. Danger of Depression? The question now asked is whether a substantial reduction in present government spending would create a depression. Under the present restrictive labor and monetary laws, the painful read justment might well be long and severe. Under a free economy, with free market wages and interest rates, the necessary readjustment could be quickly made and soon everyone would be enjoying a much higher living standard.

If the government reduces both taxes and spending, it will leave more money in private hands. This money then can, and will, employ more people at higher real wages to make more of what people want most. The nation's productive forc es would be redirected toward sat isfying the wants of productive persons, rather than satisfying those who were the recipients of government expenditures. In a free market economy, every work er and investor tends to seek those outlets which will produce what consumers want most, as indicated by the wages and prices consumers will pay. So workers and investors 1975 DOES GOVERNMENTSPENDINGBRING PROSPERITY? 379 now engaged in satisfying politi cal spending would soon find more profitable outlets satisfying the increased spending of private producers. Everyone would soon have more. That is not a depres sion. That is prosperity. Results of Inflation In cases where the government prints the money, either directly or indirectly, by first printing bonds and then issuing new money with only its own bonds as security, the result is inflation. Inflation is a tax on everyone who owns or is owed a dollar. Its effects are more hidden than those of other taxes.

Another important difference is that inflation transfers economic wealth from one group of people to another group, as well as from private citizens to their govern ment. The inflation tax is a boon to all who owe dollars and a burden on all who are owed dollars. It changes the values of every contract that specifies a future payrnent in dol lars. It reduces the value of the money involved. This is a tempo rary boon to the payer but, in ef fect, a tax on the recipient. Under such inflationary condi tions, wise businessmen become hesitant about signing long-term contracts, so necessary for our present-day complicated produc tion system. Government inflation ary spending thus places an additional damper on prosperity, over and above all drawbacks and redi rection of productive forces brought about by government spending of funds amassed by taxes or bond sales. Those who first receive the newly printed money are able to buy a part of the nation's production without having made any contribu tion. They must profit at the ex pense of all those who have con tributed to the total production of fered on the market place. Since the rewards of productive contrib utors are less, some will retire or reduce their future contributions to the market. Production will be further reduced by the fact that some of the printed money recipi ents are supported in nonproduc tive pursuits. Total production must, therefore, be lower. This means there will be less for every one who spends dollars in the mar ket place.

Taxes which raise prices or cur tail private spending cannot in crease total human satisfaction. In creased taxes reduce the voluntary transactions of a free people and thus reduce their total satisfac tions. Contrariwise, any reduction in government spending and tax ing will increase the individual transactions of a free people and thus their individual satisfactions and prosperity.

380 THE FREEMAN June The Way to Prosperity Government spending is an ex pense or burden on total produc tion and human satisfaction. Gov ernment taxes are personal eco nomic sacrifices and should be paid only for the protection of life and private property. When taxes are so limited, they are an aid and stimulant to total production and human satisfaction. When they are collected to help some at the ex pense of others, they are a brake on both production and human satis faction. Any reduction in govern men t taxes and spending increases the goods and satisfactions avail able for all those who have dollars of their own to spend. Competi tion in the service of consumers is the one and only sure way to produce a prosperity per manently spiraling upward. All political spending for purposes be yond the protection of life and property are a snare and a delu sion. They discourage wealth pro duction both by decreasing the re wards of productive workers and by supporting others in idleness or nonproductive pursuits. In order to keep up the appearances of pros perity, government spending must be constantly increased, with an ever-increasing share of total pro duction going to the nonproduc tive. If these constantly increased expenditures are not stopped in time, the result will be a runaway inflation like that which took place in Germany in 1923. Government budgets balanced by inflationary spending can but bring a national headache, for which the only per manent cure is the intelligent use of our God-given freedom. I) iDEAS ON LiBERTY Reprints available, 10¢ each.

The Reason for Morality WE IMPOSE MORAL RULES upon each other, and then come to see the necessity of abiding strictly by them ourselves, because we recognize the overriding necessity of preserving-these rules in violate, if each of us is to live in peace and security, and to be free to pursue his own purposes. In brief, if we are to minimize conflict and to maximize social cooperation, we must be able to trust each other, and we can do so only in a society in which each of us can be depended on to act always and inflexibly on principle. HENRY HAZLITT ARE V lEW ER I,S NOT E BOO K JOHN CHAMBERLAIN SOMEWHERE IN SANTAYANA, I for get where, there is a remarkable passage about all the powers and the pressures in the universe that keep jockeying, as it were, for po sition to get in the clear on that inside rail. Fecundity and inven tiveness need channels. Leonard Read, who is as near an approxi mation to a saintly character as anyone could find, has lived his life as a channel clearer. He never ex ploits his own personality. But his new book CASTLES IN THE AIR (Foundation for Economic Education), is as redolent of a unique personality as a well-tended hope chest is of carnphor balls.

Leonard Read's economic theory is solidly based on Carl Menger and Ludwig von Mises, but the curious thing about most of the Read essays is the profusion, of noneconomic names that are used to make economic points. In an es say on the division of labor Read quotes Thoreau and Alfred Lord Tennyson, not Adam Smith. He doesn't mention John Kenneth Gal braith when he is writing about the "bold-faced and flagrant lies" that are part and parcel of a price controlled economy. Instead, he in vokes Shakespeare. When he is writing about the in dividual's drive to improve him self, the substantiating quotations are from C. S. Lewis, Heraclitus, 381 382 THE FREEMAN June and the German psychologist Fritz Kunkel. In staking out the limits of government power Read uses Woodrow Wilson and Immanuel Kant to make his points, and his trust in the individual as a self starter is bolstered by references to William Butler Yeats, Joaquin Miller, Benj amin Franklin and Arnold Toynbee.

Of course, there are references in CASTLES IN THE AIR to Adam Smith, von Mises, Henry Hazlitt, F. A. Hayek, Thomas Nixon Car ver and W. A. Paton, all of whom qualify as first-rate economic minds. There is also one mention of John Maynard Keynes. But it is interesting that Read deals with Keynes not as the founder of an economic school but as an immor alist. Mises appears as a political philosopher and as a teacher, Haz litt and Hayek as "ethicists of in creasing influence." Just about the only economist who gets extended treatment in a Read essay as an economist is Adam Smith. But it is Smith on the nature of Provi dence (the "invisible hand") that gets Read going, and when one talks about Providence one is talk ing about "the inner nature of things." The Art 01 Living The point is that Leonard Read is more interested in the art of Iiving than he is in the technical aspects of economic science. He wants to create character. If people believe in uncoerced choice, the economic system will take care of itself. Read's pedagogic method is to try and perfect his own under standing and behavior. If he can improve himself he is satisfied that he can be a teacher by example, not one by argument.

Noone, as Leonard Read says, knows, all by himself, how to make a pencil. Yet pencils are made and sold by the gross. The market has a wisdom that does not exist in anyone person. So, naturally, Leon ard Read wants to let individuals follow their o\vn bents in an un coerced way. The man who knows something about lead will, through the working of the market, pool his knowledge and skill with those of the man who knows something about wood. The man who knows about rubber will contribute the eraser. Pencils - and virtually every other economic product - de pend on the generative capacity of individuals who have no external force standing in their way. Freedom to Grow But, though Read obviously uses pencils and other economic goods, it is the freedom to "flow and grow" as human beings that is his primary concern. When people have creative freedom, they do 1975 CASTLES IN THE AIR 383 more than eat well. They have a margin to spare for other things.

Everyone has a vested interest in the other fellow's diversity. Rev erence for differences leads to rev erence for life which is made up of differences. So Leonard Read finds himself writing about the "open" human being in language which, to me, borders on the mystical. He be lieves that man who reveres life, with all its diversities, can actually "radiate" a feeling that will affect the plant life around him. I know that people can have rapport with birds and dogs. But plants? They depend on loving care. But do they really care about the love as long as they get water, warmth and sun light? Unlike Leonard Read, I wouldn't bet on the plant having perception. But, in a world of mysteries, Read could be right. The main point is the live-and-let-live quality of Read's "freedom philosophy," which, if it could be universalized, would create a world not only of happy plants but of men and women without envy.

Mr. Read's concept of civiliza tion is the opposite of most peo ple's. He believes that civiliza tion represents an evolution from the complex to the simple life. When Thoreau went to' Walden Pond, he had to be a master of many skills. When one had to be a Jack-of-all-trades to survive, it made for complexity. One had little time to discover one's own unique ness. To get from Michigan to Los Angeles in the days of Leonard Read's grandfather, one had to know something about horses, hunting, Indian fighting, cooking and Heaven knows what else. But now all one has to do is to get on a plane, wearing a suit from Hong kong and shoes made in Rome. The plane's chef, a specialist, can offer you salmon 30,000 feet up from 3,000 miles away, still fresh. The Simple Life Read is so obviously right about civilization permitting one to lead the simple life. But our collective refusal to abide by the live-and let-live principles piles interven tion on intervention and inflation on inflation. So, in self-defense, one is forced back to the J ack-of all-trades philosophy. The believ ers in a free market, in the free flow of energy, are now subscribing to economic letters that advise the purchase of Walden-like retreats far from our decaying cities. One is advised to lay in a store of dried and canned foods and to learn something about gardening and carpentry. If the inflation survival letter writers are right, the only practical insurance policy lies in the cultivation of the Jack-of-all trades attitude.

But, of course, that won't work 384 THE FREEMAN Jun.e for very long, either. When civili· zation is on a retrograde course, things won't stop at the Walden Pond point. The stone age mental ity comes next in the retrogres sion, with the new savages from the decaying cities fanning out into the countryside to murder the Jack-of-all-trades in his Walden retreat for the sake of whatever food is in his cellar or in his gar den. Even if things don't go this far, an armed dictator would be quite capable of taking you out of your retreat and putting you to work on a collective farm. No, there is no other way than to fight it through on Leonard Read's terms. Propagation of the freedom philosophy is necessary to survival. We luust put founda tions under Mr. Read's castles in the air. ~ HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $2.50 each THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTONON·HUDSON, NEW YORK 10533 the Freeman VOL. 25, NO.7. JULY 1975 The Great American Revolution Ralph Bradford 387 Shall the real revolution continue to bear its fruit of freedom and opportunity?

Slings and Arrows A plea for greater freedom in medicine. Joan Wilke 394 The Impactof Inflationon ManagementDecisions Willia,m H. Peterson 399 How monetary and other government controls disrupt production and trade. Another Layer of Protection? Who is to protect us from our protectors? Earl W. McMunn 412 Equal Opportunityversus IndividualOpportunity Anne Wortham 416 The political duty is to uphold the right of each person to act upon the opportunities he perceives. Profitand Loss Brian Summers 424 Toward an understanding of the formation and function of profits and losses in a free market economy. Why Do UThey" Turn to Socialism? Edmund A. Opitz 429 Some explanations of the current drift to the Left and suggestions for ways to restore freedom. Book Review: 445 "Two Cheers for the Affluent Society" by Wilfred Beckerman Anyqne wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON·ON·HUDSON, N. Y. 10533 TEL.: (914) 591·7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit, except "Another Layer of Protection?" and "Equal Opportunity versus Individual Opportunity."

RALPH BRADFORD The Great American Revolution IT HAS BECOME the fashion in our country to refer to every change or proposal for change as a "revo lution." When farmers first began to set up organizations to promote their interests it was dubbed the Farm Revolution. The movement to se cure for black citizens the rights to which they are entitled was soon referred to as the Black Rev olution. People of late have become aware of the dangers that lurk in water and air pollution; and so, in press and on television the Eco logical Revolution has blossomed. Students become disenchanted with some course of study, or with dor mitory arrangements; and when they become voca.l about it - 10, there is a Campus Revolution! And so it goes, ad nauseum. Let anybody advocate a sharp change of some kind, whether in the meth od of electing a congressman or Mr. Bradford is well known as a writer, speaker, and business organization consultant. He now lives in Ocala, Florida.

choosing a village alderman, whether the aim is to lower prices, or to cut taxes, or to get better fire protection, or whatever, in no time at all he will be said to be heading a "revolution." As a result of this resort to rhetorical pyrotechnics the word "revolution" has become common place, bland, watered-down - and dangerously deceptive. With re spect to the real implications of revolution we have gone off into a kind of semantic euphoria. The word not only has no terror for us; it has become a mere symbol of change - change that may be somewhat sudden, dramatic and far-reaching, to be sure, but is on the whole beneficial and in the line of human progress and betterment. This of. course is an illusion, a self-deception of tragic signifi can-ce. All Americans and their in stitutionsare the worse for it, be cause they are imperiled by it. Several years ago an American politician who had a.chieved con siderable eminence, and who at 387 388 THE FREEMAN July least had the merit of making po litical debate a more literate exer cise, made a trip through several of the South American countries.

Whereve~r he saw evidence of poli t ical progress, or even discerned signs of impending change that he thought would be beneficial, he trotted out the "revolutionary" symbolism. The United States had been born of a revolution; we sym pathized with the aspirations of all people who were trying to bet ter their condition; and, in short, it seemed he was all for bigger and better revolutions among our southern neighbors. Was he an incendiary, inciting those people to violence? Not at all. He was a gentle man who, I am sure, abhorred violence. The trouble was that he was using the word "revolution" in its watered-down sense. He was thinking of better government, probably some social security type legislation, some much-needed slum clearance, more and better education, wider ob servance of democratic procedures, and the like. He did not realize, apparently, that to most of his lis teners "revolution" didn't mean the peaceful substitution of what he would call "progressive" ideas for what he considered "reaction ary" ones. To mqst of them the term meant civil strife, political upheaval, barricades, blood in the streets, fire in the palace, and shouts of a la pared - to the wall with them!

Americans who talk glibly of the "revolution" they hope to see (meaning, of course, the adoption of their particular brand of polit ical or economic salvation) need to understand that in much of the world, especially in the Marxist domina ted areas, there is nothing mild, bland, peaceful, gradual or merely "progressive" about the in terpretation of that word. It is also clear, alas, that there is a growing element right here at home who measure revolution in the same scales, as their bombs, fires and rhetoric abundantly testi fy. No doubt there are some well meaning people, both here and abroad, who see in Marxism only a peaceful, if somewhat drastic, political and economic program just another philosophy of govern ment. But such people are hopeless dupes. No matter how mild-man nered he may seem to be, cross a Marxist and you are apt to get the vituperative scorn of intolerance; scratch him and you get the blood of a revolutionist. He doesn't con template a nice, friendly, gradual and evolutionary reordering of so ciety. He means action, violent ac tion - fire, bombs, executions and the iron heel - all, of course, in the name of justice and humanity.

Is this an exaggeration? Ask of the ghosts of those Russian farm1975 THE GREAT AMERICAN REVOLUTION 389 ers, the kulaks, who were "liqui dated" by the millions, their crime being that they owned a little land and did not want to have it taken away from them. Ask at the graves of those nameless Chinese peasants who were mowed down by the murderous fire of Mao's execu tioners. Ask the people of Latvia; ask the Estonians; ask the Hun garians; ask the family or friends of those East Germans whose only offense was their desire to escape to freedom, and who left their bul let-shattered bodies beside the im prisoning Wall as testimony to the brutal efficiency of "revolution." At this mention of the Berlin Wall and its victims, someone may well summon up the specter of HitIer, and remind us that blood and tears and unspeakable cruelty were practiced by that madman and his goons - and that theirs was not a communist regime. And the answer is: quite true - and beside the point. Or rather, in sup port of the point. In the first place, the Hitlerian movement started out as a socialist putsch. Even the hated name Nazi was only an ab breviation of the German for Na tional Socialist. But it soon went far beyond the relatively mild pro posals of the English Fabians and became a totalitarian dictatorship.

And it achieved its ends by revo lution - not so declared, but so ex ecuted. From the Marxist point of view it was a revolution in re verse; but it was a revolution, none the less. The techniques of brutal ity practiced by the Russian and Chinese revolutionaries of the left were equally effective instruments for the German revolution of the right. What' 5 to Celebrate? Now I can imagine someone echoing an old and familiar re frain: "But why get excited about revolution? Our nation is a prod uct of revolution. Right now we are beginning a year-long celebra tion of .... " Of what, friend? A revolution? That's what a lot of people think and say, because our long-ago War for Independence got tagged in the history books as a "revolutionary" war. It was not that at all, in the true sense of the word. * It was a fight for independence, not for radical social and economic change. The Colonial leaders were not out to rewrite the laws of England.

They didn't propose to abolish Parliament, or fire the Prime Min ister, or sink the Royal Navy. They had many grievances against King George, and they set them forth boldly; but they didn't suggest de throning him. They didn't want to destroy him, either as king or * See the author's article "The Great Anniversary Festival" in the May, 1975 issue of The Freeman.

390 THE FREEMAN July man, any more than they wanted to destroy the British government. They simply wanted to be free of both - to escape the frustrations imposed by a nagging and rather stupid bureaucracy. They were quite content to see the mother country survive and prosper ; and when they had finally won their war and achieved Independence, they based their institutions and philosophy of government on the same concepts of individual liberty that had long been dear to the hearts of Englishmen. Actually the "revolution" that we ought to venerate was not a thing of armies and battles. Nor did it begin, as orators like to as sert, with those shots that were fired " by the rude bridge" - shots that were "heard round the world." That episode, and even the bloody fighting at Bunker Hill, were but tragic small scenes in a continuing drama that had started long before. Some forty years later, an aged John Adams, looking back, was to write that even the war with Eng land was "no part of the Revolu tion." And he went on to assert that "the Revolution was in the minds and hearts of the people, and this was effected from 1760 to 1775, in the course of fifteen years, before a drop of blood was shed at Lexington."

Maybe the old gentleman retro spectively overestimated the sentiment that prevailed during those fifteen years. Probably most of the people were not greatly agi tated in their "hearts and minds." Impatient - yes. Disgusted - to be sure. Fed up - of course. But such disgruntlement is not the stuff of revolution, which must be fed with the fires of fundamental beliefs and convictions. Even in 1776 there was yet no overwhelming desire fvr the radical change of independ ence, and small appetite for a war to achieve it - and this despite great indignation over the irritat ing small tyrannies (and some great ones) of a. succession of stu pid British ministries. The Idea of Liberty But in a deeper sense the "hearts and minds" phrase was significant; and its symbolism reached much farther back than the fifteen years Adams mentioned. It covered' the whole life-span of the Colonials, and that of their grandparents. For there was a revolution going on and slowly coming to maturity, in the thinking of men concerning the in stitution of government, their prop er relationship to it, and its effect upon their welfare and happiness.

The philosophy back of that "rev olution" had be'en dimly apprehend ed by many and brillianty ex pressed by a few, back through the years. Even crusty Samuel J ohn son, no friend of American Inde1975 THE GREAT AMERICAN REVOLUTION 391 pendence, was a stout exponent of individual liberty, the desire for which was at the core of the Ameri can cause, not only during the war years, but in the attitude of the Colonials for decades before. And nearly a century before the Second Continental Congress form ulated its great "Declaration, John Locke had written that "rulers hold their power not absolutely but con ditionally, government being essen tially a. moral trust, forfeited if the conditions are not followed by the trustees." That principle, near ly a century later, was to be the es sence of the Colonial position. In the Declaration of Independence Jefferson phrased it thus: "We hold these truths to be self-evident, that ... governments are instituted among men, deriving their just powers from the consent of the governed." The words were the Vir ginian's; the sentiments were those of Locke, rephrased but identical a.s to purport - which was that the citizen and not the government is the source of authority; and that it, not he, is the creature. It was the sentiment foreshadowed long before Locke in the Petition of Right, the Second Magna Carta, so to speak, which was wrung from Charles I in 1628.

The specific findings of that land mark document dealt with very practical and mundane matters. Taxes were to be levied only with the consent of Parliament, which represented the people, rather than the Crown. A man's home was his castle, inviolable by the military. No martialla w could be imposed in time of peace. Trial by jury was guaranteed to all. These are all things that are now taken for granted; but they were won for the masses of men only by long, stubborn, and sometimes painful, persistence. They were often flout ed in later years, these principles; but they were never forgotten and never abandoned by Englishmen. It was the passion for individual lib erty embodied in such findings that was the real American revolution - long developing over the decades, and now in 1776 come once more to the test of sacrifice and the harsh proof of war. Framing a Constitution And when the struggle for In dependence was won, and the weary but victorious Colonials set out to formulate and establish their own new nation, they clung to those simple but powerful "revolution ary" ideas. To a constitutional con vention they sent men who were thoroughly acquainted with the physical make-up and political needs of the young nation. They were also men who were generally well versed in the writings of the great social and political philoso phers of their century - not only 392 THE FREEMAN July with John Locke whose "social con tract" philosophy was at the heart of Anglo-American political ideals, but with the eminent French mag istrate and essayist,. the Baron de Montesquieu, whose doctrine of the separation of the legislative, execu ti ve and judicial functions of gov ernment became a cornerstone of American policy, and with the work of Sir William Blackstone, the noted expounder of law in terms of its human impact.

The wisdom of these men and other sages, plus their own broad experience in government and their passion for freedom and justice, was put by the delegates into the making of a Constitution for the new republic - a document gener ally regarded, not only here but throughout the world, as the nearest thing to perfection yet achieved in the realm of fund a mental law. Note please the slight qualification in that phrase "the nearest thing." Nobody I suppose, would claim it is perfect. It has some vague areas and some con tradictions. More than one Presi dent has had difficulty· reconciling some of its particular provisions with its overall declaration of pur poses - as when Lincoln, in order to "insure domestic tranquility," suspended the right of habeas cor pus - an action that was clearly in violation of certain Articles of the Bill of Rights. But such problems are to be expected in a complex society - which is one reason why the President is the Chief Execu tive. It is part of his job to cut Gordian knots. He will be called on from time to time to make close decisions, and must occasionally determine whether the specific pro vision of some perfectly good and sound Article is at that particular moment outweighed by the gen eral - welfare - common - defense domestic-tranquility clause. That's why he is there. And besides, there is always final recourse to the Su preme Court, which was created by the Constitution itself to resolve all such soul-searching dilemmas.

The Test of Time At all events, there it stands, the mainstay of fundamental law. Anlended from time to time to meet current needs (and sometimes to satisfy current prejudices), and buttressed by its integral Bill of Rights, it has served a growing, geographically expanding nation for 187 years and is still alive and well. Under it the nation gre\v great and strong domestically, and reached also a position of world leadership. It withstood the shat tering experience of the Civil War, weathered the stresses of two de vasta ting world conflicts, and has served as a guide to many of the so-called emerging nations of the present generation. Even the most 1975 THE GREAT AMERICAN REVOLUTION 393 shattering crisis of our history, involving a change of leadership under conditions that could have been utterly demoralizing, only served to demonstrate the strength and dependability of the political system which it embodies.

All this is not meant to be a starry-eyed exercise in jingoistic patriotism. Our nation is, after all, governed by men - biped creatures of limited intelligence and fallible judgment, like the citizens who elect them to office. Political man especially, being strongly ego-cen tered, can not always be expected to place the public interest above his o\vn. We have had our political trickeries, our scandals, our crooks, our criminals, our injustices. We have also made our national blun ders in both domestic and foreign affairs. All of which is simply to say that we are human beings, "\vho sin and err in about the same ratio of imperfection as is exhibited by other peoples of our beautiful Blue Planet. But a point to remember is that our country was not· supposed to be inhabited by supermen. The framers of our basic law had no idea of founding another Utopia. They were not erecting an eleemo synary institution, nor building a house of correction. They were not out to make men perfect. They were intent only on creating a gov ernmental mechanism under which men, perfect or otherwise, would be free to realize their full poten tial-to gain whatever status of wealth, achievement or intellectual attainment their abilities would enable them to achieve.

To dream up such a state, endow it with all powers necessary for sovereignty, yet limit and hedge those powers about with provisions for the protection of the average citizen ; to provide an ambiance for the fullest development of which men are capable, and yet leave them free to do with their lives what seems best to them; to exact of them only that minim urn of conformity necessary for the protection of all; in a word, to create a governmental condition for the greatest possible exercise and enjoyment of personal free dom - this was the dream, this was the practical reality, this was the final outcome of "The Great American Revolution." The question now to be answered by the American people is, Shall the dream endure? Shall the "rev olution" continue to bear its fruit of freedom and opportunity? Or shall our nation, like other great States, ancient and modern, sink slowly under the burden of polit ical expediency, bureaucratic am bition, unlimited debt, and ruinous inflation?

Viva the Revolution! The real one, that is.

JOAN WILKE INGS o,rt<1.ARROWS Any legal system that awards material compensation for the incidents and accidents of "outrageous fortune" produces an outrageous society. THE PRACTICE OF MEDICINE is in a legal bind that is costing countless lives and creating untold misery. While bureaucratic blockages continue in the :Food and Drug Ad ministration, . some p.eople find it necessary to. leave the country for the mediciries they need to stay alive. In hospitals across the coun try, the simplest procedures to avoid pain and complications are prohibitively delayed to accommo date procedures necessary to pro tect doctors against possible law suits. The red tape takes time and time can be a killer. A number of things have con tributed to this situation. For one thing, in this welfare world, people are psychologically attuned to believing nothing should go wrong -and if it does, they should be paid for it. If they lose Miss Wilke is an advertising writer.

their jobs for any reason, doesn't their employer have to pay com pensation? Of course - even if they're fired for incompetence or simply quit out of discontent. In recent news stories, a woman brought suit for $130,000 for not being hired as a volunteer fireman. Another person is bringing a mil lion dollar suit against the city for an auto accident in which a family member was killed. A bus company is being sued for a mugging that took place on its property. And a frostbitten hiker rescued from a mountain top in a winter storm is suing the rescuers for not reach ing him faster. Generally speaking, every time a person makes a welfare claim he also is bringing suit for food, shelter; wages or other benefits. He sues his friends, neighbors, everyone for his misfortune. It's certainly no more absurd to fix re sponsibility for ill health and acci1975 SLINGS AND ARROWS 395 dent than for unemployment or in sufficient income.

While it is astonishing that peo ple will "bite the hand that feeds them," it is so well established in the prevalent hostility toward en terprise and industry that we shouldn't be shocked when people also slap the hand that helps them medically. The attitude that nothing should go wrong in life and all reverses should be materially compensated is carefully cultivated by the false assurances of our omnipresent government controls. Supposedly when government controls every thing, everything is supposed to be all right. Actually, it only prevents anything from going right when it diverges from its peacekeeping function. Certainly progress has been slowed by the findings, delays, re versals, uncertainties, new find ings and political mach inations of the FDA. But the FDA is not bad because it's slow, confused or wrong. It's bad because it exists. There's simply no way it can ever be right.

Across-the-board medical deci sions are impossible to make. The vast physiological differences in people make it a certainty that what is right for one person will be wrong for another. Individual error is a. fact of life - something we all have to Iive with. But error that becomes insti tutionalized through government controls is something we shouldn't have to tolerate. We shouldn't give power to other people's mistakes. Controls Have Consequences By the sheer threat of its im placable presence, the government has stifled advances in medicine, not allowing the free market to work its wonders. For one thing, the FDA holds that anything is harmful if it is harmful in large quantities. If universally applied, that would certainly make everything harm ful. As a political body, however, the FDA is characteristically se lective in its applications. Its rulings never apply to city governments that continue to pour fluoride into our drinking water although it causes pitting in the teeth of adults and is poisonous in large quantities. Youngsters' fluo ride needs are ~ore safely pro vided by the market in toothpaste products.

Meanwhile, milk advertising is attacked on the basis that milk is not good for everyone - such as those with an allergy to it. Medicines are assailed for hav ing "ine·ffective ingredients," whereas Mary Poppins and every good marketing person knows it takes "a little bit of sugar to make the medicine go down."

396 THE FREEMAN July How to Stop Progress If consistently applied, govern ment "protection" could wipe out all the medical advances since the discovery of anesthesia. And inci dentally, anesthesia is harmful to some, and to anyone in large quan tities. While bureaucrats fuss over their decisions, people are suffer ing and dying. How could two bureaucrats ever agree anyway? Doctors and scien tists don't agree among themselves in many cases. And of course there's nothing that couldn't be harmful to someone, somewhere, under some circumstances. While that elusiveone-in-a-mil lion person is protected in one way (harmed in others) by government action, hundreds and thousands are denied the benefits of needed ministrations. The government also fosters a false sense of security~ through licensing. And here again, govern ment controls keep unavailable the services which could be helpful to many people.

In spite of the frequent benefits of acupuncture, for example, try to find a practitioner in your tele phone book. If we are protected from these helpful people, the standards of acceptance for licens ing must be exceedingly high, right? Wrong. A spokesman for the AMA re cently stated that "the inept must be ferreted out of the organiza tion." Then what could be clearer than the fact that licensing has not performed any safeguarding function. Secrecy Maintained The government and the AMA have built secrecy around the med ical profession that shouldn't exist. This cliquishness is reminiscent of the awesome aura and sacrosanct position of the medicine man in primitive tribes. His monopoly had the approval of the chief. Today's doctors and medicines have the· ap proval of the government. And that's about all we know about them. In many cases, people go to a doctor with nothing more than the chance recommendation of a friend or acquaintance. They know very little about him. It was different when people lived in the same town all their lives. But in our mobile society, newcomers have no infor mation on which to base a decision.

In fact, it's not allowed. Any doctor who· makes new~ with some exciting ideas or treat ments is in danger of losing his position. It's something of a crime for a doctor to get publicity. It's unethical. It's awful! But why? When you choose a doctor you could be making a life and death decision. Certainly you should have as much information as possible 1975 SLINGS AND ARROWS 397 on which to base your decision. This is someone you should want to know quite a bit about. Let the facts Be Known I believe it is unethical for doc tors not to get publicity and I think advertising by doctors would be very helpful. With information available, you could make your de cision on the basis of the doctor's background, his experience, any approach he uses that is diffe~ent from others in his field, and so on. And you'd also know who else is available and their backgrounds. To me, this is a lot safer than get ting a recommendation from a hairdresser or picking a name that sounds nice out of the yellow pages.

After choosing the doctor you think you can put the most faith in and soliciting his aid, it would be nothing but barbarian to bring charges against him, even in the case of error. The only basis for a legal. case against a doctor should be misrepresentation as to his background, education or experi ence. Public information about doc tors, more than anything else, would act as a safeguard. Public declarations have to be truthful. They're legally assailable, but bas ically they're truthful in order to fulfill their function. Falsehood makes its way in politics, but in the market place it's quickly dis covered. As for medicines, the-personal opinion of a doctor in the case of an individual patient is obviously safer than the judgment of a bu reaucrat thousands of miles away trying to determine what's right for crowds of numbers averaged into statistical lumps. Government controls standard ize mistakes, disrupt efficiency, de lay progress and prolong suffering.

And they are generally demoraliz ing. At a time when we need more, not fewer doctors~ malpractice suits and insurance costs are add ing to the disruption of the med ical field already suffering govern ment manipulation through infla tion, welfare programs, education practices and limited entry. * Legal suits and insurance re quirements are discouraging peo ple from becoming doctors and driving others out of practice ... threatening the future of all medi cal care. Some doctors are avoid ing specializations where risks are high, such as brain surgery. Others are relocating geographically to are-as where insurance is less costly. * For an authoritative explanation of how government has created doctor short ages, overlong hours on duty and the like, see "The Medical Market Place" by A. R. Pruit, M.D., THE FREEMAN, February, 1971.

398 THE FREEMAN July Only a free market in medicine' can get the health field back in the pink. Without government block ages, the're would be more doctors, more levels of practice, more levels of prices, more general care avail able, more discovery and progress. Would there be more negligence in hospitals without the threat of malpractice? On the contrary, it is that costly threat that is now para lyzing medical practice, extending risks, delaying action and costing lives. In summary, malpractice should be included among the other gov ernment controls such as the FDA and licensing, which are curtailing medical activity and' threatening the nation's health. Malpractice suits are a psychological spin-off of the welfare system where mis fortunes are not to occur without compensation. These suits are costly to everyone, not ~only' in dol lars but in pain. There should be no legal basis for any malpractice suit against a doctor because: 1) all·· life is uncertain and human error is a fact of life; 2) patients are physiologi cally different, making medi cal practice unpredictable; 3) qualified doctors will differ and vary in recommended pro cedures, each acting in his own best judgment; 4) those seeking a doctor's services voluntarily must know they are taking a necessary risk. Any medical treatment is risky. If they don't want to take that risk, let them cure themselves. Or sue themselves.

As things stand, doctors are re garded as more than human - and everyone else less .than human. Doctors should be regarded as hu man and capable of error. And pa tients should act more human by bearing the responsibility for their d~cisions. Information should be available on which to base those decisions. Actually, it's a wonder no one has sued a doctor for bringing him into this risky old world in the first place. That is the underlying basis for every compensatory claim. It is a complaint against life itself. We are born into an un certain world. There is nothing certain about a job, or an opera tion - or walking down the street. Shakespeare wrapped the whole issue up in that tidy phrase, "to be or not to be." It is a question that few in history have had the opportunity to ask themselves as we in America have. We answer it affirma tively whenever we act re sponsibly on our own.

We can only be by making our own informed decisions freely in an open market and then honoring those decisions in our relation ships with each other. , on RECESSION, I submit, is the un wanted offspring of inflation. In flation is of course the all too fam iliar problem of too much money (demand) chasing too few goods (supply) , with the upshot of prices and expectations everywhere tend ing to rise higher and higher .. How should business managers cope with inflation? This paper seeks answers to that question. To do so we should define our terms. What is management? What is business? And what is at stake in the onslaught of inflation? A reading of Pete'r Drucker's new book, Management: Tasks, Responsibilities, Practices, leads me to the following in answer to the question, What is manage ment? The answer is manifold. ManWilliam H. Peterson is the John David Camp bell Professor of American Business, American Graduate School of International Management, Glendale, Arizona.

This article is from a paper delivered before a symposium of the Academy of Political Sci ence at Columbia University, November 11, 1974, under the overall topic of "Inflation, Fiscal, Social and Economic Impacts." Data herein on the 1974-75 recession have worsened since this paper was given. agement is planning. Management is organization. Management is responsibility. Management is profitability. It is also leadership, discipline, practice, performance, accounting, marketing, tasks, com munication and information. Man agement is - in. the final analysis - decision-making. But making decisions on whose behalf? Management's? The em ployees'? The shareholders'? The community's ?The business' as a whole? Not really. For what is business? Business is service. Or, to put it baldly, busi ness is a hired servant. Hired by, whom? The consumer. Yes, busi ness is guided 'by profitability, by its own self-interest; yet it is sub ject to the sovereignty of the con sumer. As Ludwig von Mises pointed out, "Production for prof\t is necessarily production for use, as profits can only be earned by providing the consumers with those things they most urg~ntly want to use."

So the test of a manager's de cisions is profitability - the extent 399 400 THE FREEMAN July to which he increases revenues and cuts costs. Business management is profit management. Consumers reward efficient management with profits and penalize inefficient management with losses. Now, what is at stake when we weigh the impact of inflation on management? Remember that business - or, more broadly, the private sector - is the principal source of jobs: Of our total labor force of about 94 million, govern ment furnishes only 16.5 million jobs. This includes more than two million members of the armed forces. With 5.5 million presently unemployed, this means that busi ness, including agriculture and the professions, furnishes the remain der - around 72 million jobs. Busi ness is also the source of most economic output. Thus it generates the bulk of real income in our society - food, clothing, shelter, transportation, medicine, informa tion, and the like.

So what is at stake in the on slaught of inflation? Nothing less than the survival of the business system itself. Note that while I tick off the inflationary distor tions on management decisions, I reserve the greatest distortion un til last - the possibility of a sharp recession or even a' depression. Managers can get a fast over view of the problem of coping with soaring prices by simply noting how the process of inflation dis torts the traditional functions of money. Impact on Functions of Money Money, we were told in Econom ics 101, is first and foremost a medium of exchange. Quite obvi ously, then, under inflation the purchasing and employment man agers will find that, economize though they may, more and more money is required to buy the same amount of goods and services, in cluding labor. The pricing man ager also must be quick on his feet to avoid a cost-price squeeze; hence he must seek to keep his prices ahead of costs as far as competition and other factors al low.

Ironically, money has become such a "hot potato" that some man agers, especially those involved in international transactions, don't want to hold it and prefer goods instead. Indeed, some managers trade raw materials for finished goods and vice versa. Thus, through swap arrangements, they alleviate shortages while retreat ing from money as a medium of exchange. Too, Eco. 101 reminded us mon ey has a stor'e of value function the retention of purchasing power over time. Inflation, however, is a thief of that power. The financial manager is thereby under pressure 1975 THE IMPACT OF INFLATION ON MANAGEMENT DECISIONS 401 to put his liquid assets to work as rapidly as possible. Bluntly, he must hedge against inflation, bal ancing his choice of investments between yield and risk. He will also seek to expedite the collection of accounts receivable, exacerbat ing the general squeeze on liquid ity.

Again, money is a standard of value - a unit of account, a yard stick for relative prices. Inflation similar ly distorts this function of money by shrinking this key ac counting measurement. A dollar is no longer a dollar over time; it is no longer predictable; it no longer permits accurate economic calcula tion; it is 80¢ or 70¢ or 60¢ and so on, depending on the length of time and the pace of inflation; and all historical financial records thus call for careful interpretation. The usual tool to accomplish such in terpretation is the concept of con stant dollars which allows some comparability among accounting periods. I say "some comparability" for changes in the Consumer Price In dex, the Wholesale Price Index and the GNP Implicit Price De flator can still not be considered scientific measurements of infla tion. Inflation is notoriously un even, with some prices advancing rapidly, some moderately and some lagging behind.

Constant dollars are an especially inadequate tool for multi national corporations. They use different currencies, each with a different history of inflation. Also, rates of inflation and rates of ex change in money markets vary, rendering translation of foreign currencies into U.S. dollars for consolidated financial statements much more difficult. Lastly, Eco. 101 assigned a fourth function to money-a stand ard for deferred pa,yments. One of inflation's most bitter repercus sions is that it warps all debtor creditor relations. In other words, money as a standard for deferred payments has all too often become a shrinking standard. The borrow er is thereby able to repay his debt with cheaper money than that he initially borrowed. In other words, inflation fleeces the credi tor. This hard fact of our infla tionary era means financial man agers have to adjust their lending activities, such as acquiring com mercial paper and certificates of deposit. By the same token, finan ial managers have to adjust their borrowing activities, such as get ting bank lines of credit and issu ing corporate bonds. Lending or borrowing, financial managers should recognize that the largest single element in the height of in terest rates today is the level of inflation, currently at a two-digit level.

402 THE. FREEMAN July The foregoing section points up some current monetary distortions: My purpose in this paper is to give some perspective to the manage ment side of inflation and to detail some ramifications of the impact of inflation on the decision proc ess. In particular, I wish to briefly examine the distortions of infla tion in the decision areas of prof its, inventory, capital investment, wages, international operations, price controls and the business cycle. The overriding distortion is in formational. Good decisions are dependent upon good information. Much if not most of that informa tion, however, is undermined both quantitatively and qualitatively by inflation. It therefore behooves managers to seek to correct, as best they can, their information for inflation. Impact of Inflation on Profit Calculations In 1974 people in high places have been charging that corporate profits are "excessive," "uncon scionable" and even "obscene."

These adjectives sound hollow against the backdrop of a disas trous stock market. The words sound even more hollow when cor rections of profit figures are made for inflation. Dramatic results are obtained with three major corrections: 1. Underdeprec'iation of plarn.t and equipment, due to depreciation allowances based on original cost rather than repla,cBm,entcost. This practice has long led to a general overstatement of corporate profits, with consequent overpayment of corporate income taxes and even overpayment of dividends. These result in diminution of potential capital formation. Tax authorities have recognized this problem and have dealt with it to some extent by setting up investment tax cred its and accelerated depreciation methods. Financial managers have taken advantage of these provi sions to varying degrees. Yet these provisions have proven to be in adequate in view of our two-digit inflation. Both tax authorities and financial managers would be well advised to recognize this deprecia tion deficiency and the drag it im poses on economic growth - on the economy as a whole and on each individual enterprise. The average age of American plant and equip ment continues to lag behind that of our major industrial competi tors overseas, and behind what is needed to meet the expectations of our growing population. So still more realistic and competitive de preciation methods are clearly needed.

2. Allowance for the infia,tion that has diminished the profit dol lar. Inflation has eroded the pur1975 THE IMPACT OF INFLATION ON MANAGEMENT DECISIONS 403 chasing power of the dollar by more than 40 per cent since 1965. So on this count alone, and despite more than a trillion dollars (in today's prices) poured into plant and equipment, corporate profits have shown but minor increases since 1965 in real terms. For as sensible is the conversion of money wages into real wages, so financial managers can sensibly convert money profits into real profits. To be sure, second quarter re sults in 1974 were about 25 per cent ahead of those of the second quarter of 1973. But price controls came off completely April 30, 1974, allowing many firms to catch up with true supply and demand. Moreover, if the spectacular gains of some basic materials industries are excluded, along with the atypi cal profits of the auto industry, the bulk of industrial companies made only a moderate increase of 10 to 11 per cent in the first half of 1974 - just about equal to the rate of inflation.

In any event, corporate financial and public relations managers may want to deflate their profit figures and remind the public of the cor porate return in real terms. Yet these managers are frequently re luctant to do so, beholden as they are to shareholders and given to pointing with pride to "record" profits. The economy therefore suf fers because of management's desire to show good earnings during an inflationary era. 3. Overstatement of profits be cause of the understatement of in ventory values. Some authorities call inventory gains "p'hantom profits," which disappear the mo ment inventory is replaced. The magnitude of inventory profits can be seen in the Commerce Depart ment calculations of $37.9 billion annual rate in the second quarter of 1974, up from $31 billion in the first quarter and $20 billion a year earlier. For perspective, after-tax corporate profits ran at a season ally adjusted annual rate of $85.6 billion in the second quarter of 1974, up only $500 million from the first quarter, despite $6.9 bil lion of inventory profits.

To put their own corporate prof its in a truer light, quite a few financial managers are switching from first-in, first-out (FIFO) to last-in, first-out (LIFO) for more accurate inventory valuation. It's about time. In an editorial on Oc tober 1, 1974, the Wall Street Journal criticized those financial managers who got caught up in the earnings-per-share mystique and used FIFO to that end. With rising inventory prices, FIFO per mitted higher reported earnings all right, but it also permitted in fact, required - higher taxes on those earnings. Indeed, FIFO thereby fostered less capital to in404 THE FREEMAN July vest for long run returns. Capital markets don't ignore such unreal istic accounting. The Journal re ferred to a study by Shyam Sun der, an accounting professor at the University of Chicago graduate business school, in which 118 LIFO firms listed on the New York Stock Exchange outperformed the market in stock price appreciation by 4.7 per cent.

Economist George Te-rborgh of the Machinery and Allied Products Institute in Washington, D.C. has made all three of the foregoing adjustments to 1973 corporate profits. He found that such ad justed profits came to less than 60 per cent of what they were in 1965. Retained earnings, he found, were down even more significantly; they were but around $3 billion, or 16 per cent of what they were in 1965. The portent for real capital invest ment and real economic growth in the immediate future is hence not very great, mainly because of the disastrous inflation we have been incurring for the past two years. Impact on Inventory Planning Inflation also muddies inventory planning, as can be gathered from my references to LIFO-FIFO ac counting methods. Ideally, the in ventory-sales ratio should be kept as low as feasible so as to mini mize the cost of storage and the cost of money tied up in inventory.

But inflation creates all manner of uncertainties because of rising prices in raw materials, semi-fin ished and finished goods. As these prices rise, purchasing managers naturally undergo temptations to Hbeat the gun" by accelerating their forward buying. The pur chasing manager of course realizes that his cost of storage and tied up money will thereby go up. But he may hold that these costs are more than offset by being able to obtain inventory at lower prices than he could later. Too, with a surge of buying he may also begin to worry about availability and de livery delays. So, he inadvertently adds to speculative activity and puts pressure on prices, as he ac celerates his forward buying. With all this, however, his inventory sales ratio may not advance if other purchasing managers adopt the same hedging behavior and also increase their forward buy ing; the result is that as his in ventory climbs, so do his sales.

This would be especially true if the purchasing manager is in a basic ,materials industry. But such inventory buildup behavior, stim ulated by surging demand, tends to be shortlived. For on this score alone, inflation may be contributing to a key fac tor in the business cycle - inven tory buildups, which can lead to a boom, and inventory liquidations, 1975 THE IMPACT OF INFLATION ON MANAGEMENT DECISIONS 405 which can lead to a bust. Ironically, the liquidations in effect contrib ute to deflationary pressures on the very price-inflated commodities and goods that brought on the in ventory buildup in the first place. Impact on Capital Planning In like manner, inflation dis rupts capital planning. Business may be good and the backlog long, but the long-run outlook remains unclear. The planning manager is thus put in the· same quandary as the purchasing manager. On the one hand, he doesn't want to tie up his financial resources in the fixed costs of under-utilized plant and equipment and incur the burden of unnecessary overhead. On the other hand, he is lured by the possibility of obtaining capacity at a significantly lower cost than he could in later stages of inflation; and, he hopes, maybe his order backlog won't evaporate.

This quandary is especially vis ible in the basic materials indus tries such as energy, metals, paper, chemicals, and so on. These indus tries are extremely capital-inten sive. Moreover, because these industries lend themselves to sig nifican t economies of scale and re quire long lead times for new facility construction, new capacity demands tend to come in lumps rather than in evenly spaced-out requirements. The process is exacerbated by inflation and the business cycle which give wider swings and a feast-famine aspect to the capital goods industry. This aspect: is in herent in the capital goods indus try anyway, as the accelerator theory of J. M. Clark demon strates. This theory says that a change in demand for consumer goods tends to have an accelerated change in the demand for capital goods, assuming that the economy is operating at full capacity. Infla tion accentuates the problem of the accelerator by giving exag gerated indications of consumer and capital goods demand.

Inflation and the business cycle itself seem to be initiated by cred it expansion and artificially low interest rates, both aided and abet ted by the central bank. The low interest rates give businessmen false signals of genuine capital availability made possible by sav ings when the fact of the matter is usually a central bank speedup of money supply growth. The speedup provides the familiar sce nario of too much money chasing too few goods, winding up in "stag flation" - a combination of infla tion, extremely high interest rates and economic stagnation. (The cyc lical process is spelled out more fully at the close of this paper.) The scenario comes at a bad time. Capital formation has lagged 406 THE FREEMAN July for a long time in America. The American economy must modern ize and expand its plant and equip ment to accommodate its growing labor force, to reach its energy and ecological goals and to com pete in an increasingly competitive one-wor ld economy.

International competitiveness has been rising at the same time that the U.S. has been lagging be hind its major overseas competi tors in the pace of investment. Here are comparative rates of cap ital investment for 1973, using gross private domestic investment as a percentage of GNP: United States 16 per cent West Germany 26 per cent France 28 per cent Japan 37 per cent So U.S. capital needs are enormous. The New York Stock Ex change has just completed a care ful technical study on the capital needs and savings potential of the U.S. economy through 1985. The study aimed at developing realistic projections of U.S. capital supply and demand over the next 12 years. For this period the study came up with the following quantitative conclusion: Saving potential $4,050,000,000,000 Capital requirements -4,700,000,000,000 $ (650,000,000,000) In other words, the numbers suggest that the present estimated saving potential in the American economy through 1985 - from all domestic sources - is slightly bet ter than $4 trillion. At the same time, capital demand or require ments will possibly hit a grand total of $4.7 trillion, or more than three times the rate of the previ ous twelve years in current dol lars. The painful indicated capital gap - fraught with human misery - is hence estimated at $650 bil lion or $54 billion a year. Contin ued inflation can only compound this problem, impeding, as it does, the two critical processes involved in capital formation: saving and investing.

Impact of Inflation on Wages Wages constitute some three quarters or more of all industrial costs, or much more than most businessmen seem aware, inasmuch as a large fraction of-this amount is paid indirectly in the form of purchased goods and services. These goods and services, in other words, themselves embody much labor cost. The point is that cost-push in flation is largely wage-push infla tion. So, to quite an extent under the doctrine of "full employment," as wages go so goes inflation. In any event, given the state of our relatively one-sided collective bar gaining today in what Sumner Slichter of Harvard called our 1975 THE IMPACT OF INFLATION ON MANAGEMENTDECISIONS 407 "lahoristic" economy, the indus trial relations manager can not do a great deal to soften the terms of the labor contract, other than to inform his opposite-number union negotiators of the state of the in dustry and his company, the com petitive realities and the stage of the business cycle. Also, he can ad vise top management whether the company should accept a strike as a way of winning more amenahle terms.

With all this, however, the tra ditional collective bargaining areas of wages, hours and working con ditions will likely be set in con tract provisions not entirely to the industrial relations manager's lik ing. Inflation tends to induce work laxity. Working conditions, for ex ample, may be characterized by restrictive work practices, which of course hamper labor productiv ity improvement - practically the only source of real wage gains. Lessened productivity, in turn, contributes to the inflationary sit uation of "too few goods." Some of these restrictive work practices are obvious and direct. For example, size restrictions on the width of paint brushes and rollers, a 150-mile definition of a "day's work" for trainmen, a limit on the size of cargo slings used by longshoremen, a typographers un ion requirement that "bogus type" be set as an offset to the use of advertising mats. Some restrictive work practices are indirect and not so obvious. For example, hiring hall arrangements in some fields of employment and control of the la bor market by limiting entrants to a particular labor force such as construction.

Importantly, too, the wages pro vision of the labor contract is sim ilarly inflationary when agreed-up on wage increases exceed produc tivity gains and worsen the unit labor cost picture of the firm. The firm is thereby under press ure to recoup the added cost burden from its customers. It will unquestion ably do so if the union contract is in the industry pattern and if the banking system has in effect ac conlmodated the higher wages with greater demand. If the accommoda tion isn't made, unemployment will likely expand. Even with such ac commodation, unemployment will still ultimately expand because of the additional demand pressures created by the new money leading to uneconomic higher unit lahor costs. Demand by employers is likely to falter anyway as inflation brings about excessive minimum wages and labor union settlements over and above market demands. In any event, the long-run corre lation between increases in unit labor costs and the rate of infla tion is unmistakable.

At the same time inflation tends 408 THE FREEMAN July to give management a cost-plus mentality with regard to these~ settlements. If demand is rampant, the employer may shrug his shoul ders at the otherwise exorbitant wage demands, yield to them and raise his prices accordingly - a scenario that works in the early stages of inflation. The scenario is accentuated by inflated expecta tions on the union's part. Not so many years ago a 4 or 5 per cent wage increase demand was work able. Now the teamsters or the plumbers or the coal miners or the phone workers demand 20 to 30 per cent and settle for 10 to 15 per cent. Thus in the third quarter of 1974, according to the Labor Department, the average wage in crease for new major union con tracts came to 11.3 per cent, up from 10 per cent in the second quarter. These increases add fuel to expectations and the inflation ary process, in light of the histor ical postwar labor prod ucti vity improvement factor in the U.S. of around three per cent a year.

The process is exacerbated, I submit, by the use of cost-of-living escalator clauses. Some five million members of the labor force are covered by such clauses and this number is growing. Escalator clauses tend to be little engines of inflation since they push up wages and unit labor costs as the Con sumer Price Index rises, and thereby tend to push prices and the CPI even higher, or create un employment and pressure for mon etary expansion. In other words, the escalator clauses act as a built in wage-price spiral as well as a built-in worker disemploying agent. Impact on International Operations Decisions in the international area are greatly influenced by in flation. Corporate money manag ers, for example, have had to deal in recent years with "hot money" around the world. They have had to hedge against threatened cur rencies to protect their accumu lated investment funds from ero sion because of inflation or devalu ation. Currencies have been not only devalued but upvalued, float ed and repegged. The United States dollar itself has undergone two devaluations since December 1971, causing quite a turmoil in the currency portfolio of virtually eveTy multinational corporation.

Quite a few multinational corpo rations, including banks, have had to absorb significant losses from currency fluctuations. A prime ex ample is the Franklin National Bank failure. Corporate money managers have therefore found it necessary to increase their hedg ing and swap arrangements to minimize these losses. Again, the quadrupling of oil 1975 THE IMPACT OF INFLATION ON MANAGEMENT DECISIONS 409 prices via the OPEC cartel has led to some second thoughts in corpo rate board-rooms on industrial ex pansion proj ects here and abroad. Energy the wo~ld over has become not only very expensive, but has become tied up in political prob lems involving its basic avail ability. Indeed, there is even a growing possibility of further na tionalization and expropriation, al though this possibility is also brought about by general inflation and other factors. The high cost of oil and almost every other basic commodity, in cluding wheat, rice, sugar, zinc, tin, aluminum, steel, and the like, has worsened the balance of pay ments positions of virtually every major industrial country. The re sult is that these countries are now tending to discourage non-energy imports while pushing their ex ports harder to offset higher oil prices. Accordingly, corporate money managers will probably find export credit financing sweetened by government agencies in all the countries in which their companies do. business, and new barriers to entry for the goods they wish to import into those countries. The effect of all this is to increase trade restrictions - to narrow world markets while ironically ac celerating world competition.

Another result stemming from the OPEC model is the incentive for other developing nations to ex ploit the basic commodities with which they are blessed. The baux ite countries, notably Jamaica and Guyana, have already sharply raised prices to the aluminum companies. Rumblings of like ac tion have been heard from the copper-prod ucing , coffee-producing and tin-producing countries, among others. So we begin to see how inflation more and more disrupts normal in ternational economic relations for multinational corporations. The years since World War II of har monious trade and international division of labor, so conducive to world peace, seem to be coming to an end. We are apparently enter ing an era of economic isolation ism wrought by the internationali zation of runaway inflation. Impact of Price Controls on Management One impact of inflation is polit ical - a tendency for governments to react to inflation with wage and price controls. The irony of such government reaction is twofold: First, government itself is over whelmingly responsible for the in flation it seeks to correct; and second, wage and price controls treat symptoms, not causes; they repress inflation, mask it, causing shortages and distortions while al lowing inflationary forces to be-, 410 THE FREEMAN July come even more virulent. The pe riod of the "New Economic Policy"

from August 15, 1971 to April 30, 1974 is a case in point. Corporate managers in this pe riod generally experienced a cost price squeeze. In other words, they found their prices lagging behind their costs, chiefly labor and in terest costs. In such a squeeze, many of them fled the regulated domestic market and shipped to· unregulated markets abroad. This situation merely worsened the dis tortions in relative prices and the shortages endemic to the entire wage-price control era. Besides shortages, corporate managers had to contend with rampant demand, shipment delays, quality lapses, multiplying bureaucratic interfer ences and, ultimately, breakdown of the controls themselves. This breakdown in turn led to a rash of "catch-up" wage and price increas es, which haunt us down to this very hour. The controls led not only to a profit squeeze, but to a capital in vestment squeeze. Many basic ma terials industries, for example, knew that they had exhausted their capacity limits and that their backlogs could be measured not in months but in years. Yet they still could not set aside expansion funds by the retained earnings· route, with earnings so squeezed; they could not raise equity funds with their stock prices so depressed; and they could not go to the bond market, with inflated interest rates reaching double-digit levels. The upshot was that supply became tighter and tighter across the country.

Inflation and Business Cycle Of critical concern to manage ment is the turn of the business cycle. Should the company expand operations or retrench? What lies ahead: boom or bust? Management is helpless in doing anything about the cycle; like death and taxes it is there, stark and inexorable. Or so it seems. About all management can do is to try to forecast the turn and act accordingly. But forecasting, even by elaborate computerized econo metric models, has proven woefully ineffective over recent years. It has shown itself to be anything but a science. It is ~n art, and a dubious art at that,as the record of business forecasts sadly evi dences. As Walter W. Heller, chair man of the Council of Economic Advisers under Presidents Ken nedy and Johnson, declared at the December 1973 meeting of the American Economic Association meeting in New York: "Economists are distinctly in a period of re-examination. The en ergy crisis caught us with our parameters down. The food crisis 1975 THE IMPACT OF INFLATION ON MANAGEMENT DECISIONS 411 looks like this. Credit expansion puts pressure on resource prices but profits boom. Capacity is strained, so new capital expansion projects are launched. Cost-price squeezes develop. Inflation leaps ahead. Interest rates soar. The stock market falls. Consumers retreat ..

Businesses fail, especially as their debt structure becomes unservice able. Expansion slows down, and the recession begins. The reces sion, if allowed to run its course and if inflation slows down, be comes part of the cure. If these two criteria are not met, the re cession can turn into a depression. In sum, the impact of inflation on management decisions is all pervasive. There is no handy es cape hatch. Losses for manage ment - and for society! - are al most inevitable due to the deteri oration of economic calculation, the increase of unce'rtainty, the evaporation of purchasing power, the damages of recession. The best remedy for inflation is to get at its taproot - deficit spending and ex· cessive money creation. As good citizens, corporate managers might well remember the observation of Dante: "The hottest places in hell are reserved for those who, in a peri od of moral crisis, maintain their neutrality." ~ caught us, too. This was a year of infamy in inflation forecasting.

There are many things we really just don't know." But why is it that practically the entire business community is suddenly thrust into a huge crop of sharp profit setbacks or out right losses? Why is it that even blue-chip managements, noted for their track record of achieving profits and shunning losses, sud denly find their order backlog fad ing, the more so for capital goods managements? I believe inflation is at the root of the business cycle, as Ludwig von Mises and 1974 Nobel Prize winner Friedrich von Hayek have long pointed out. Specifically, they have observed that the appearance of the business cycle roughly co incided with the origins of the fractional reserve banking system along with central banks. They have criticized credit expansion (not based upon actual savings) and the doctrine of easy money ready availability at artificially low interest rates. They have also criticized central banks for aiding and abetting the process by pump ing in additional bank reserves and becoming lenders of last re sort. And they have criticized cen tral banks for becoming giant printing presses through monetiz ing government deficits.

For management the process * * * EARL W. McMuNN You CAN'T trust any existing agency of government to protect the interests of the people of this country. The cure is to set up yet another agency. That one, you will be able to trust! This is the think ing of those who support the pro posed Consumer Protection Act which would establish a new watchdog agency within the fed eral government. Advocates of big government j usUfy every proposal on the basis of what it allegedly will do for people. Overlooked is what it will do to them. The price tag is never displayed. This is the case with the Consumer Protection Act. The implication is that existing agen cies of government are not pro tecting the interests of people. All this will change when a super Reprinted f~om The Ohio Farmer, April 19, 1975. Copynght, The Harvest Publishing Com pany. !\:fr. McMunn, for many years editor of The OhIO Farmer, recently became full-time Direc tor of Public Affairs for the Cleveland-based Harvest Publishing Company.

412 agency is established to control existing agencies of government. That is the claim. The point is that everyone in this country is a consumer. We are also taxpayers - at least most of us. All are affected by almost every act of government. The interests of "consumers" can't be sorted out into a neat little pile. Isn't it a bit silly to believe that creating another agency and dub bing it the Consumer Protection Agency can really protect every one? We have agencies, bureaus, courts and laws. There are the U.S. Department of Agriculture, The Interstate Commerce Commission, The Federal Trade Commission, The Public Utilities Commission. There are dozens of others. All are to protect someone against some thing. One of the greatest threats to the people of this country is the threat of big government. Every decision you turn over to someone 1975 ANOTHER LAYER OF PROTECTION? 413 in government is a decision you 110 longer can make for yourself. It is impossible to have freedom and stifling government bureaucracy at the same time. Choose one and you lose the other.

Noone can ever estimate the cost of a Consumer Protection Agency. Some have estimated it at $60 million for the first three years. But the real cost is not what it might add to the federal budget and what you would pay in extra taxes. The real cost is in ways it. would stifle the economy and throttle actions of existing agencies of government. We already have abundant waste caused by one agency intervening in the decisions of another. It is part of the "red tape" which adds to the cost of every government project. Paper work, permits, in spections, and approvals required by government agencies add to the cost of every item you buy. Imagine what happens to gov ernment and industry costs when a new super agency starts to ten people what they can and cannot do! This is a cost people will be forced to pay. Also, what happens to your ability to get a decision you can depend upon in making plans for the future.

Too Much Regulation There is abundant evidence that a major reason for our economic troubles is too much regulation, not too little. We have already piled one level of regulation on top of another. We are slow to learn from ex perience. Companies flourish and grow large when they meet the needs of consumers. They fail when their products are not ac cepted by consumers. There is nothing new about this. Why is it you don't see many Edsel, De Soto or Essex cars on the roads today? Why do you see Fords, Chevrolets and Plymouths? People made decisions. And they made those decisions without the aid of a government agency. Demand for a protection agency stems from the belief that con sumers aren't smart enough to pick and choose. That an all-wise government agent should look out for them. But, there is little to in dicate that giving a person a gov ernment title confers with it wis dom not possessed by other average persons. Look at our present maze of bureaucratic decisions as you ponder this one!

Substituting government regu lation for free choice in the market place always leads to the same sad end. Incentive is stifled. Production is discouraged and the people suf fer. Political liberty and economic dictatorship just don't go together. The truth is that those who are pushing for more government are 414 THE FREEMAN July disciples of socialism. They may talk about protecting free enter prise but that is not what they are trying to accomplish. Protection is a funny business. Almost every protectionist wants to protect someone else against his folly. Even the underworld makes a big thing of the protection busi ness. Big-city hoodlums offer all kinds of "protection" with little concern for the wishes.. of the pro tectee. Impractical demands upon auto makers added to the cost of cars and made them less acceptable to many buyers. This is part of the reason for the selling slump which has put many employees out of work and contributed to the eco nomic depression. All this was to protect people.

You don't need to search far to find examples of what consumer protectors have already done for you. A look at 'a recent electric bill can provide one .example. Only a few years ago these same con sumer protectors were demanding an end to many forms of pollution. They showed no concern for the cost. Their slogan was: "Make the polluters pay." Our air and water pollution con trol laws were a response to pub lic demand. They were strong on demands with little regard for practicality and cost. The result is just beginning to show. A major reason for soaring elec trie bills is the cost of pollution control devices, strip mine recla mation legislation, environmental impact studies and other types of protection. As an example, just two scrubbers to cut down air pol lution from one generating plant owned by the Ohio Edison Com pany will cost more than the entire Ohio Turnpike. They may be en vironmentally desirable, but con tribute nothing to the supply of electric energy. Other electric util ities are making similar expendi tures. The cost must be paid in electric bills.

The Unseen Aspects of Intervention A weakness of most consumer pressure groups is that they are organized for a particular pur pose. They "demand" clean air, clean water, lower prices, better service, or more information. Many of their demands are in conflict with each other. There is always a price tag . You can't do just one thing. Any change in the economy is bound to affect something else. But, the self-proclaimed public protectors flit from o:qe demand to another, blithely ignoring the costs they are heaping upon the con sumers they claim to be protecting. During recent months electric utilities have been forced to seek a succession of rate increases.

1975 ANOTHER LAYER OF PROTECTION? 415 These were necessary because of soaring production costs. Utilities must make a profit if they are to have the billions which are needed to install pollution control devices, and build new plants to supply power needs of the future. Who are the most vocal foes of-the rate increases? Often they are the same people who "demanded" the environmental improvements which made the rate increases nec essary. Another of their demands was that utilities should not be permitted to advertise. Their argu ment was that advertising is a needless expense. The truth is that the attempt to ban advertising was aimed at keeping the utilities from telling their story to the public. The con sumer protection groups, of course, would tolerate no such tampering with their right to communicate. That would be infringement upon the right of free speech! In the case of the utilities, ban ning of all advertising could save consumers only an insignificant amount of money. The delays in rulings and other costs they cre ated have added greatly to the cost of electric power.

Examine the Motives We need to look closely at the motives back of every consumer protection group. Many are sincere and well-intentioned. In some cases their intentions are better than their understanding of economics. Too many are dedicated to a single aim with no concern for how oth ers may be affected. Then there are still others who are using con sumer protection as a smoke screen to hide their real purpose. This is destruction of the American sys tem of private enterprise. In any case, there is little to sug!test that adding anot).1er costly federal agency will suddenly ac complish what the present maze of government has failed to do. Elected officials are responsible to the people. Their stewardship is reviewed at regular intervals. Those who fail to serve the p-eople are relieved of their responsibili ties. This is as it should be. Every demand known to man can be lodged with some agency of government. This doesn't mean that all should be granted. But a super agency with power over other existing agencies could cre ate staggering costs, endless con fusion and less freedom to make individual choices. All this in the name of consumer protection!

If we need a super agency t~ protect us from the neglect of present agencies, then it is clear we will soon need yet another agency. This is an agency to ride herd on the Consumer Prote'ction Agency. Otherwise, who is to pro tect us from our protectors? f) Equal Opportunity IndividualOpportunity ANNE WORTHAM Two HUNDRED YEARS have passed since Thomas Jefferson wrote, in behalf of his countrymen, that all men are created equal. The debate over the meaning of equality still persists as vigorously as ever. "What is at stake today is the redefinition of equality," says soci ologist Daniel Bell. "A principle which was the weapon for chang ing a vast social system, the prin ciple of equal opportunity, is now seen as leading to a new hierarchy, and the current demand is that the 'just precedence' of society ... re quires the reduction of all inequal ity, or the creation of equality of result - in income, status, and power - for all men in society.

This is the central value problem of the postindustrial society." Equality is not a concept con cocted for their convenience by ~nlightened American revolutionAnne Wortham is a Research Librarian in the news syndication industries. One of her earlier articles from THE FREEMAN is included in The Libertarian Alternative: Essays In Social and Political Philosophy. This article is ex cerpted from her forthcoming book profiling race conscious prototypes among American Negroes. 416 aries to rationalize their demands for independence from the en croachments of colonial rule. It does not refer to the biological classifications of men, their socio economic status, nor to their attri butes of character and personality. Yet it is to such things that so much of the continuing debate over equality refers. And when various pressure groups demand their right to equal opportunity, it is not political equality (as the concept properly means) that they desire but equality of condition.

Their intent on divesting equality of its authentic meaning is as vir ulent today as it was ten years ago when President Lyndon B. J ohn son told a graduating class: "We seek not just legal equity . . . not just equality as a right and a theo ry but equality as a fact and equal ity as a result." The movement toward equality of condition reached its height during the nineteen sixties and has been gathering a steady stream of advocates who petition for the legal recognition and political sanction of everything from "rights 1975 EQUAL OPPORTUNITY VERSUS INDIVIDUAL OPPORTUNITY 417 of the unborn" to "rights of the elderly." These egalitarians say tha t their motive is justice; that they speak in behalf of the decen cy and betterment of mankind. But their actions call for the rule of force, power, pull and pressure among men. Equality and Rights Noone touts the phrase "all men are created equal" more than the egalitarian and no one consid ers its true meaning less than he.

In the human context, equality re fers to the fundamental identity of man which is equally applicable to all individuals: A rational ani mal-i.e., an animal possessing the faculty of reason. It is this self evident truth of man's nature that gives rise to human rights-those conditions of man's nature that are re,quired for his proper surviv al and which define and sanction his freedom of action in a social context. And it is man's rights that give meaning to the concept of equality. Equality is an ethical political concept, meaning that by their nature all men possess equal and inalienable rights to life, lib erty and property. It measures man's political relationship to oth er men and to political authority, meaning: (1) that all men should have equal status before the law and (2) that each person should enjoy equal conditions of civil freedom, asserted by objective law and based on human rights, in or der to achieve whatever goals his own intelligence and industry will allow.

Man's fundamental right - the one on which all others depend - is the right to his own life. The phrase, "all men are created equal," means that all men are born with the right to life and the rights in herent in the ownership of life. But the process of living is not something done to man; rather it is continuous action that he must generate and sustain. Similarly, the actualization of human rights must be performed by the individ ual according to standards appro priate to his survival. He must act to achieve and maintain the values of life to which rights pertain and it is by that action that he asserts his independence of other men. This is the point made by Thomas Jefferson in his original (but later edited) declaration that all men are created equal and independent. Stressing the independence of man underscores the fact that human rights begin and end with the in dividual; that they are not per missions, privileges, or conditions granted to men by social institu tions, by the law, or by one's neigh bors; that institutions should only protect and preserve them, and one's neighbors should only respect them.

418 THE FREEMAN July We cannot speak of equal rights without also considering the inde pendent nature of man. Any at tempt to do so is an attempt to by pass the objective evidence of man's separateness and in the end to render the role of reason in his existence as null and void. Rights and Opportunities Few stop to question the egali tarian standards that dictate the meaning they attach to the concept of equality, and in every occasion of their misuse of it the definition of man's rights is further evaded. The most prevalent misuse of equality occurs in the use of the concept of equal opportunity. Those who would subject man to the rule of faith refer to "opportunities" as though they were inexplicable miracles occurring in reality by the grace of a supernatural power. Those who see man as the servant of society's "will" refer to "oppor tunities" as though they were ar bitrary privileges dispensed by a feudal lord to his vassals.

When some egalitarians advo cate equal opportunity, they mean tha t men of excellence should be red uced to the lowest common de nominator of the least among them. Others advocate it meaning that the least among-men should be raised by efforts other than their own to the level of men of excellence. Today we witness an alliance of the two: on the one hand, there is the demand that all men be given the opportunities and rewards of -excellence whether or not they value excellence and have the will and ability to attain it. On the other hand, we are surrounded by those who proclaim that the best life for man is that he rise no higher than the lowest among him - that to do otherwise is neces sarily to exploit his neighbor's weakness and misfortune. The re sult of this alliance exists in the person who would bypass the cause and identity of excellence and de clare that the worst performance be deemed the excellent. Medioc rity is his vested interest and the destruction of merit is his goal.

Such are the distortions of the concept of opportunities, made pos sible by the evasion of man's na ture and the rights it entails. What does the concept really mean and how is it reIated to the concept of equal rights? Just as the principle of individ ual rights gives meaning to the concept of equality, so does it give meaning to the concept of "oppor tunity." As rights are defined as "conditions of existence required by man's nature for his prop,er survival," opportunities are defined as situations, conditions, occasions or a combination of circumstances of man's social existence that are favorable for the attainment of a 1975 EQUAL OPPORTUNITY VERSUS INDIVIDUAL OPPORTUNITY 419 goal. There is an attempt by some egalitarians to equate opportuni ties with rights; but while rights give meaning to opportunities, they are not interchangeable con cepts. An individual has no more right to opportunities than he has to happiness; but as in the case of happiness and all rewards of suc cessful Iiving, he does have the right to pursue opportunities.

Man's rights are his by moral principle and by his nature. An in dividual's .opportunities are his by moral principle and by his choice; they are the resulting expressions of man's rights. Man's rights are self-evident, but his opportunities are not. They do not spring forth like the goddess Athena from the head of Zeus, .fully formed and perfected. As with everything else man needs, opportunities must be discovered by his mind and brought into existence by his effort. Just as all living organisms must generate the course of action that is biologically appropriate for their survival, man - the being of con ceptual consciousness - must ini tiate the course of action neces sary to create and choose oppor tunities - the intellectual and so cial conditions appropriate to his survival. The fundamental condi tion that man requires for his survival is the right to freedom intellectual and political freedom.

The right to intellectual freedom is the right to make the voluntary, uncoerced choice to think or not to think. The corollary of man's right to intellectual freedom is his right to political freedom - the right to make the voluntary, uncoerced choice· to act or not to act. Just as man's survival requires that his mind be free of the interference of ignorance, fear, guilt and irrespon sibility, so does it require that his social existence be free of the forceful interference of others. Po litical freedom affords man the op portunity to attain such social goals as peaceful co-existence, profitable exchange and accumu lation of knowledge and material goods, security and safety of per son and property. Opportunities and Freedom Opportunities are not the cause of individual freedom, but a con sequence of such freedom. All the opportunities in the world can be of no use to a man who is not in tellectually free to use them to his advantage. And a man who is not intellectually independent cannot create opportunities, or determine with any confidence which condi tions and circumstances in his en vironment are potential opportu nities (Le., appropriate to achiev ing his goals), or potential advers ities (Le., inimical to achieving his goals) .

Individuals differ in the methods 420 THE FREEMAN Ju.ly and standards by which they iden tify, evaluate and choose oppor tunities. The opportunities a man creates and chooses depend on the extent of his knowledge, context, in terests and values. One's knowledge of the existence of opportunities does not guarantee that he can or will take advantages of them. A tribal priest may learn that his village sits atop a vast oil field. But if he does not discover the sci entific means of extracting the oil and then choose the proper eco nomic means of converting oil into a marketable commodity of ex change, the bituminous mixture of hydrocarbons will remain where it is and be of no practical meaning or use to him at all. He may en counter men who are willing to ap ply their knowledge to its extrac tion and use, but refuses their assistance because he believes the oil is the drink of evil spirits that habitate the earth below. In such case, it is not the fault of those who realize the potential oppor tunities inherent in the extraction and marketing of the oil that the tribal priest continues to live in squalid conditions. The choice is his and he alone is responsible for the consequences of his choice.

In this instance, it is not even the man's lack of knowledge that hinders him from choosing to achieve the opportunities that the production of oil would afford him. It is his lack of intellectual free dom - his enslavement to the idea that the oil is not his to use but belongs to evil beings under ground - that holds him at a level of primitive subsistence rather than the more beneficial level that industrial productivity provides. It is not easy to live and pro duce in a society based on freedom of the individual and where suc cess is measured by individual ini tiative. The issue in America is not so much whether men have equal political freedom to create and choose opportunities, but whether in an atmosphere of social freedom, they will choose the in tellectual independence necessary to take advantage of that freedom. The responsibility to maintain the intellectual sovereignty one needs to achieve opportunities is always his own. A man whose mind is locked by his belief in underground spirits, by psychedelic drugs or by public opinion polls is automatic ally locked out of the opportuni ties of political freedom.

Opportunities and the Law Because all men are equal in their possession of a rational fac ulty, they need moral laws that treat them as equals. But there is a further reason why men must be equal before the law: to protect each individual's execution of his capacity to reason. If all men ex1975 EQUAL OPPORTUNITY VERSUS INDIVIDUAL OPPORTUNITY 421 e'Cuted their reason in the same way and to the same degree, they would be robots instead of men and there would be no need for the social recognition of reason or rights. It is the inequality of men - the unidentical conditions of hu man existence that individuals cre ate for themselves - that objective law must give identical protection and preservation. Social reformers tell us that un less men have the same social op portunities, they cannot know in dividual freedom. All the political freedom in the world can he of no use to a man who is hungry and indigent, they say. But it is the man who is hungry and indigent who needs intellectual and politi cal freedom the most. He needs in tellectual freedom in order to dis cover the means of changing his situation; he needs political free dom in order· that his activity will be protected from the interference of others. A hungry man in a slave state is limited to accepting what ever someone else does to elimi nate his hunger (and that could very well include sentencing him to death as undernourished and therefore useless to his masters) ; but the hungry man in a free state is limited solely by his own choice.

He may seek food by his own means; he may rely on the charity of others to maintain his life; or he may enlist the power of government to create special conditions that guarantee his livelihood at the expense of others. Egalitarians say that if men are equal in their identity as Man, they should live equally; that if in dividuals have equal status before the law, then it is the purpose of the law to provide the means by which they can achieve equal status in fact. The law, they say, cannot operate to give equal justice to men whose knowledge, values and pro ductivity are unequa1. The law can not address itself objectively to the prince and the pauper, the manager and the laborer, or the educated and the uneducated. Therefore, they 'Conclude,to insure equal treat ment from the law, the circum stances of men must he made equal. Men must be all princes or paupers - all managers or labor ers - all educated or all uneducat ed.

But the state of collective equal ity in which social evangelists would have men exist clashes with reality and contradicts the inde pendent nature of man. There can be no justice without political equality; but social equality is un fair - a breach of justice and a threat to political equality. Social equality requires that men lose re spect for their own freedom and individuality; it requires that they become indifferent to the manifes tations of individuality on the part 422 THE FREEMAN July of others. It requires that men be equals, not in freedom but in slav ery. The law - objective law - ad dresses itself to man's mind, not to his social position, his pocket book, his stomach, or his academic credentials. The idea that govern ment must provide or create oppor tunities for men is a contradiction in terms which ignores the proper relationship of political authority to individuals and evades the role of man's free will in the creation and pursuit of opportunities. Gov ernment's function is not to pro vide opportunities but to protect those which the individual creates for himself. Government cannot provide opportunities without also violating man's rights. And in a society where man's rights ·are not protected and his nature as a ratio nal being is not respected the issue of opportunities is moot.

Privileges Versus Opportunities Opportunities are fa.vorable con ditions of human existence but they are not unlimited. The oppor tunities of one man can extend no further than where the rights of another man begin. When one man trespasses another's .property to catch fish in his lake, what he per ceives as an opportunity to catch a meal is not an opportunity to which he is entitled, since the lake and the fish in it are the property of someone else. He has the right to create the means for feeding him self, but he does not have the right to a court order forcing the owner of the lake to give up his fish. When men attempt to bypass reality by invoking the force of government to create opportunities for themselves at the expense of the rights of other men, the con ditions they create are not oppor tunities as such, but political priv ileges: special advantages peculiar to themselves that exempt them from the usual course of law. They wish to be excluded from the con ditional nature of opportunities to secure a guarantee against ef fort - to render effects immune to their causes - to secure protection against the facts of reality.

A widely disputed speech re garding the issue of equal oppor tunities was made by the ex-slave and educator, Booker T. Washing ton, in 1895 before an audience of Negro and white southerners at the Atlanta Exposition. In that address he stated: "the wisest among my race understand that the agitation of questions of social equality is the extremest folly, and that progress in the enjoyment of all privileges that will come to us must be the result of severe and constant· struggle rather than of artificial forcing." By "privileges" Washington meant socio-economic pri vileges - those rewards of op1975 EQUAL OPPORTUNITY VERSUS INDIVIDUAL OPPORTUNITY 423 portunity that are the achieve ments of individuals and not the province of governmental policy and administration. As opposed to political privileges, socio-economic privileges are autonomous advan tages that are achieved voluntar ily and meritoriously within the confines of the law. Not all socio economic pri vileges are honestly or justly earned but they are, by def inition, achieved by lawful means.

Political privileges, on the other hand, are achieved not within the law but by distortion of the law; they are not earned but exist as the spoils of legalized plunder. The Legitimacy of Equal Opportunity Equal opportunity does have a legitimate meaning: equal politi cal freedom to create and choose conditions and circumstances fa vorable to man's existence. The concept properly refers to the po litical freedom to act and express oneself as an independent individ ual. It means that as each man has the freedom to think, so must ear-h man have equal freedom from the interference of those who choose not to think; that if man is to ex press his thinking, equal freedom from the interference of others is necessary in order that such ex pression may be manifest; that as each man must survive as an end in himself - as the owner of his life and person - so must each man have equal freedom to control his environment to produce what is needed for his survival; that the moral conditions of each man's ex istence (liis rights) must be given equal recognition and legal pro tection by objective law.

It is here that equal opportun ity among men ends. Anything less than this must be identified as a condition of slavery; anything more than this must be identified as a condition of political privilege. The principle of equal oppor tunity operates as a restriction on governmental power, commanding government to leave each man to pursue the values of his life as he sees fit. It is not the role of gov ernment to determine what values a man should pursue - nor to hire think-tank intellectuals to declare what values should guide a man's life. The government is as much prohibited from interfering with a person's success as with his fail ures. It is just as much an en croachment on personal freedom when the government acts to cir cumvent private failure as when it acts to promote personal success or to impede the success of one's competitors. It is not the business of govern ment to guarantee success or safe ty - only to uphold the right of each person to act upon the oppor tunities he perceives. ~ PROFIT and BRIAN SUMMERS WHEN there is no understanding, emotions carry the day . We see this in mobs. We see this in war.

And, sadly enough, if we will only stop to look, we will see this in ourselves and in our loved ones. Some examples? There is no bet ter place to look than economics, for while most people have strong feelings about economic issues, they lack an understanding of basic principles. Many economic issues concern profit and loss. How do you feel about business profits and losses? Are profits bad? Why? And if profits are bad, are losses good? Why? Most people have strong feelings about these questions. Unfortu nately, they lack an understanding of the formation and function of profits and losses in a free market economy. To gain an understanding, let us see how profits and losses come in to being. Two neighbors-Mr. Able Mr. Summers is a member of the staff of The Foundation for Economic Education. 424 and Mr.. Baker -.:. start their own businesses. They borrow money at market interest rates, rent build ings at market rents, buy raw ma terials at market prices, and hire workers at market wages. A year later they sell their products Able has made widgets while Baker has made wadgets - at market prices. When they examine their books, Able finds he has made a profit, while Baker finds he has sustained a loss.

What happened? Why didn't Baker sell at a price that would have given him a profit too? Well, he couldn't. For if Baker had tried to sell at a price above the market price, his shelves would have remained full of unsold wad gets. He would have had more wad gets than buyers. To see this, we need to under stand free market pricing. In an unhampered market, the business man adj usts his asking price so as to just sell all his products. If he tries to charge more than this op timum price, he loses so many cus1975 PROFIT AND LOSS 425 tomers to competitors that he can't sen all his goods. If he charges less than this optimum price, the de mand for his product exceeds his supply. With more would-be buy ers than he can satisfy, he must resort to some form of rationing. Perhaps he will sell to just his friends. Or perhaps he will raise his ask ing price to the market price. At the market price he can sell as many items as he wants, and cus tomers can buy as many items as they want. At the free market price, there are no shortages and no surpluses.

The intelligent businessman is well aware of this. He knows he can't make profits by simply rais ing his prices because he would lose his customers to the guy down the street. There is only one thing he can do -cut costs of production. Thus, the businessman tries to use his men and materials in the most efficient manner possible. And, be cause he must pay market wages, prices, and interest rates, he tries to minimize the number of men he employs, the amount of capital he uses, and the quantity of natural resources he consumes in produc ing his goods and services. In other words, he tries to practice conservation. Most people are all for conserv ing natural resources. They under stand that the natural resources Able doesn't consume will be available for use by Baker or some other businessman. Unfortunately, they don't understand that the same principle applies to labor and capital. The less labor and capital Able employs to produce his wid gets, the more labor and capital is available to produce something else.

An inefficient producer - one los ing money - uses large quantities of labor, capital, and raw materi als to produce a given number of widgets. An efficient producer one earning profits - uses less la bor and/or capital and/or raw materials to produce the same number of widgets. The "labor and capital that isn't tied up in the production of widgets is free to help provide consumers with some thing else. People say: "There is another possibility - Able may be making profits by paying his workers less than Baker." In an unhampered market, work ers who feeI they are being ex ploited are free to seek other em ployers. Able needs workers; Baker needs workers; all businessmen need workers. In a free market there is no lack of employers be cause consumers are never satis fied. They always want more, bet ter, and cheaper goods and services. In order to satisfy customer de426 THE FREEMAN July mands, businessmen need labor.

They compete among themselves for workers' services. An employer ,vho tries to pay his workers less than market wages soon finds them going to other employers or pool ing their resources to start their own businesses. This raises an interesting point. Labor unions have accumulated hundreds of millions of dollars through compulsory dues. Their strike funds are large enough to sustain their members through months of idleness. Their pension funds are even bigger. If they truly feel their members are being exploited, why don't they buy con trolling interests in established corporations or start their own? Others say: "Baker is losing money, so he can't raise any cap ital. He may be inefficient, but his business is vital to the community. If his company fails, his workers will be thrown on the streets. These unemployed workers will have less money to spend, and all the local merchants will suffer. The government should keep Baker in business by making up his losses with a subsidy."

The government can only give to someone what it has taken from someone else. If the government gives Baker a subsidy, the tax payers will lose precisely as much as Baker gains. Furthermore, the merchants who would have been patronized by the taxpayers will lose as much business as the mer chants in Baker's community gain. The wad get industry will be' larger than it would have been in a free market, but other industries will be smaller. There will be no net gain. In fact, there will be a net loss. Baker lost money because his costs of production were too high. He was inefficient. He used too much labor and/ or capital and/or raw mate rials in producing his wadgets. If subsidized, he will have no reason to change his inefficient ways. If he isn't subsidized, he will have to become more efficient or go out of business. If he does go out of busi ness, his workers, capital, and raw materials will be released for use by other, more efficient business men.

Thus, subsidizing inefficient businessmen results in less pro duction than would be the case without a subsidy. The standard of living is lowered. If at the turn of the century we had subsidized the horse-and-buggy trade, we would have slowed the growth of the automobile industry and all the jobs dependent on it. While some people call for sub sidies, others attack profits. Some would like the government to coerce Able into telling his work ers: "Gentlemen, I have wonderful 1975 PROFIT AND LOSS 427 news. When I sold my widgets to day, the mark-et price was high. I am going to pay you all my profits. You will each receive a check forthwith." Would these same people want Baker to tell his workers: "Gentle men, I have terrible news. When I sold my wadgets today, the market price was low. You are going to pay me all my losses. You will each send me a check forthwith." Of course, no one suggests the latter. Nor does anyone propose that Able pay bonuses to his land lord, creditors, or suppliers of raw materials, even though they were just as important to his business as his employees. However, we do hear demands that Able's employ ees receive bonuses - even though Baker's employees worked just as hard.

Before deciding 'who should share Able's profits, let's first decide if he should be forced to share them with anyone. This calls for a closer look at his profits and the role they play in a market economy. Suppose Able's sales exceed his costs of production by $30,000. That's $30,000 of profits, right? Not necessarily. If Able has $100, 000 of his own capital invested in the business, and the market rate of interest is 8 per cent, his busi ness is costing him, in terms of lost interest, $8,000. If he is cap able of making $20,000 a year working for someone else, his busi ness is costing him, in terms of lost salary, $20,000. Able is mak ing $30,000 by passing up the op portunity of making $28,000. His net profit is $2,000. And if govern ment interventions should reduce his income to less than $28,000, he would be better off closing his business and firing his workers. Of course, this analysis doesn't take taxes into account. In normal times, approximately 50 per cent of corporate profits are seized by the government. In inflationary times, corporate profits taxes are likely to be even more confiscatory, for inflation exaggerates profits and turns many actual losses into apparent "profits."

How does this happen? Suppose Able buys an item for $8 and sells it a year later for $10. To most people - tax collectors included that's a clear $2 profit. But is it? Suppose that when Able tries to repla.ce the item in inventory, in flation has pushed the price up to $10. Then Able is no better off than when he started. In fact, he is worse off. The tax collector has seized half of his $2 "profit," so he has only $9 left to buy a $10 item. He is losing money and paying corporate profits taxes at the same time. There is a second way that in flation creates phantom "profits."

428 THE FREEMAN July Suppose Able buys a machine for $100,000. The machine has an ex pected life of 10 years, so every year he writes off $10,000 on his tax return. Thus, after 10 years he has $100,000 set aside to buy a new machine. The only trouble is that in 10 years the price of the machine has risen to, say, $200,000. If Able can't come up with an ex tra $100,000, his "profitable" busi ness will have to close. After all the ravages of inflation and taxation, Able may still have some profits left for himself. What will he do with them? If he wants his business to grow - if he wants more profits - he will reinvest them in the business. Able will use his profits, and the capital his profits attract, to hire more workers. Perhaps he will take on some of the workers laid off by Baker. He also will purchase bet ter - more efficient - tools of pro duction. With these new workers and better tools his output of wid gets will grow and grow.

There's the rub. Able will pro duce more widgets and his profits will entice his competitors to pro duce more widgets. Labor, capital, and natural resources will flow away from the production of wad gets and into the production of widgets. As the supply of widgets grows, the market price will tend to fall. Consumers will get more widgets at lower prices. They will all be better off. Able, however, will find the falling market price reducing his profits. If he is to stay in business, he will have to reduce his costs of production fur ther. He will have to become even more efficient. People say: "This is all hypo thetical. I am interested in the real world." Very well. There is nothing more real than the car in your garage. If the pioneers of the automobile industry had paid taxes at con temporary rates, those that still managed to make profits would have had much less money, com pounded annually, to reinvest in their businesses. With a greatly diminished return on capital, they would have had a far more diffi cult time attracting outside invest ments through the sale of stocks and bonds. The automobile indus try would still be in its juvenile stages, and you would probably know a lot more about horses.

This brief survey of issues sur rounding profit and loss is, of course, by no means complete. Moreover, these are just a few of the many economic issues facing people throughout the world. How ever, I have tried to indicate how these issues can be resolved with understanding. For if understand ing does not guide our actions, emotions surely will. ~ Why Do "The Tnr EDMUND A. OPITZ EVERY PERSON of good will longs for peace on earth; he strives for justice and fair play in human af fairs. Proclaiming such goals as these does not distinguish the So cialist from other men; rather, it is his means for attaining these ends that marks him out. The op erational imperatives of a Social ist order demand a coercive ar rangement of society, within which the lives of the many are planned and managed by the few who wield political power. Why do many otherwise idealistic and intelli gent people find this scheme ap pealing? This is a recurring ques tion. Everything about freedom seems so natural and so right to those who understand it that they can't help but wonder why anyone rejects it in favor of Socialism or Communism. But millions do.

The Reverend Mr. Opitz is a member of the staff of the Foundation for Economic Educa tion, a seminar lecturer, and author of' the book, Reli~ion and Capitalism: Allies Not Enemies. II cialism? The twentieth century faces Left, and nation after nation suc cumbs to a "progressive" ideology. Marxism, of the Moscow or the Peking variety, is the official faith of hundreds of millions of people the world over. Countless others may reject Marxism, but they em brace a "liberal" ideology; tpey advocate national planning, state regulation of key industries, pub lic works, welfarism. Add up these millions and you ask: Who else is there ? Well, there are a few peo ple in today's world who are firmly grounded in the tradition of eight eenth century Whiggism, or Clas sical Liberalism; who acknowledge the political wisdom of The Fed eralist,. who embrace the free market economic theories of the Manchester and Austrian Schools.

There are able scholars in this camp whose writings demolish col lectivist theory and marshall solid, carefully reasoned moral and in tellectual arguments on behalf of 429 430 THE FREEMAN July the free economy jfree society po sition. The soundness of this freedom philosophy is attested even by its opponents, that is to say, by the triviality of Left-wing analysis and criticism of it. The Left rarely attempts to make the case against the philosophy of the free society by meeting its arguments on their own level. We may be sure that if the Left had such a case they'd use it. The Left opposes the free society position, of course, but seldom by argument, that is, intel lectually. Opponents of the free economy position have several typ ical ways of dealing with it. The first tactic is to ignore it; don't discuss; pretend it isn't there. The second line of defense is: If you can't ignore it, misstate the posi tion; then knock the straw man down. Third, call names. Useful epithets are "reactionary," "eight eenth century idea," "capitalist,"

"outdated." Fourth, allege hard heartedness toward the plight of "the poor." This last is almost hilarious. To the extent that the free econ omy has been allowed to function in a given nation, in like measure has the free economy eleva ted more poor people further out of poverty in less time than any other system! What amalgam of igno rance, stupidity and malice does it take to bring this charge against the free economy, that it neglects "the poor"? The record shows that the government handout system, by contrast, not only fails to help "the poor," it keeps them that way - and demeans them to boot! Attacks Rooted in Envy The system of liberty has solid intellectual and moral founda tions; why, then, do not more peo ple find the case persuasive? Why do so many people gravitate to ward freedom's opposite, jostling one another as they crowd the road to serfdom? Is there some human trait which, released from moral controls, is readily enlisted under the banners of Socialism?

The answer is Yes; there is such a trait - envy. Envy, and its twin, covetousness, are unlovely facets of human nature, and only moral energy keeps them bottled up. But when envy and covetousness are uncorked they work against free dom and for Socialism. Ask the man in the street what he understands by Socialism, and he'll tell you that it's a scheme for dividing up the wealth; "the equal division of unequal earnings," as someone put it; soaking the rich to pay "the poor." Spellbinders of the Left play upon the feelings of envy and covetousness with prac ticed skill, setting person against person, class against class. These ugly traits of human nature have 1975 WHY DO "THEY" TURN TO SOCIALISM? 431 caused trouble since time immemo rial. "Thou shalt not covet," is one of the Ten Commandments; envy and covetousness are two of the Seven Deadly Sins. Our forebears, aware of the destructive potential of these traits, endeavored to neu tralize them by making their con trol a religious duty.

But if the egalitarian drive is to pick up momentum, it needs the fuel only envy and covetousness can supply. Socialism uses envy, and exploits the new morality whose energumens tell people that they should covet their neighbor's goods. Roll your own Ten Com mandments, and remember that there are easier ways of getting your hands on a buck than work ing for it! The society is first di vided into the Haves and the Have nots. Then the Have-nots must be convinced that their lack of the amenities is somehow the fault of the Haves; that the man who earns twenty-five thousand dollars a year is somehow to blame for the fact that another man earns only seventy-five hundred. With a part of ourselves we'd like to believe this, so it is not sur prising that a lot of people are re luctant to utter a mea culpa in the case of their own failures and shortcomings; they find it gratify ing to learn that someone who seems more successful than they, is the reason they are not doing better. Such sentiments as these are music to our ears, but they cannot survive even a limited ex posure to economic reasoning.

Advantages 01 Trade We can learn from economics, if we will, that the free economy is not like a zero sum game where one man's gain inevitably means another man's loss. In a poker game, as one man's stack of chips grows higher and higher there is a corresponding shrinkage of the other players' stacks. In the mar ket economy, by contrast, there is a progressive increase in the num ber of chips (so to speak) avail able to every player; and every man earns precisely what consum ers think hIs services are worth. Now, in his secret thoughts, Ev eryman knows he is worth a great deal more than consumers think he's worth! It is only experience and self-discipline that allows the reality sense in most people to be brought into play and prevail in the end. But economic understand ing, and reasonable considerations such as these, must be squelched in order to inflame more acutely the envy of the Have-nots.

But envy is only the first half of the story; the inflamed envy of the Have-nots must be orchestrated in to harmony with the aroused guilt of the Haves. Now, a person whose wealth has been obtained by force 432 THE FREEMAN July and fraud should feel guilty; if there is no guilt feeling associ ated with advantages gained at another's expense there is evidence of a moral blind spot. Parentheti cally, there are scores of millions in this category - gaining advan tages at someone else's expense every person on the welfare state's subsidy list! And paradoxically, most of these would be thought of as heing in the Have-not category, and would so place themselves, and they would attach great virtue to the particular means by which they obtain an income! Consumers Make the Awards Everyone of us in a free soci ety is rewarded by his peers ac cording to the value willing buyers attach to the goods and services he offers for exchange. This mar ket place assessment is made by consumers who are ignorant, venal, biased, stupid; in short, by people very much like you and me! This does seem to be a clumsy way of deciding how much or how little of this world's goods shall be put at this or that man's disposal. Isn't there an alternative? Yes, there's an alternative, and it occurred to people more than two millenia ago.

We'll invite the wise and the good to come down from Olympus to sit as a council among men, and we'll appear before them one by one, to be judged on personal merit and rewarded accordingly. Then we'll be assured that those who make a million really deserve it, and those who are paupers belong at that level; and we'll all be contented and happy. What lunacy! The gen uinely wise and good would not accept such a role, and I quote the words of the highest authority de clining it: "Who made me a judge over you?" Anyone who applied for such a role would cast grave doubt on his wisdom and goodness by the mere fact of applying! The market place decision that this man shall earn twenty-five thousand, this one ten, and so on, is not, of course, marked by su pernal wisdom; no one claims this. But it is infinitely better than So cialism's alternative, which is to recast consumers into voters, who will elect a body of politicians, who will appoint bureaucrats to divvy up the wealth by governmental legerdemain. This mad scheme backs away from the imperfect and crashes into the impossible!

There are no perfect arrange ments in human affairs, but the fairest distribution of material rewards attainable by imperfect men is to let a man's customers decide how much he should earn; this method will distribute eco nomic goods unequally, but never theless equitably. Parenthetically, it should be un derstood that the market does not 1975 WHY DO "THEY" TURN TO SOCIALISM? 433 measure the true worth of a man or a woman. If it did, we would have to rate all who make a lot of money as superior beings - rock music stars, producers of porno films, publishers of dirty books, television commentators, authors of best sellers - and they're not superior. To the contrary! But such people constitute only a tiny sector of the· free economy, and they are a very small price to pay Jor the blessings of liberty we enjoy. A Guilt Complex In a free society, those who earn more than the national average are entitled to enjoy their possessions, for they've gained them in a sys tem of voluntary exchange; the well-being they enjoy is matched by the well-being they have be stowed upon other people! There are no valid reasons for anyone to be plagued by feelings of guilt on this score. There is genuine reci procity in the free society, but its opponents are blind to the market's built-in mutuality. The Left, there fore, will make a determined ef fort to instill a guilty conscience in everyone who lives above the pov erty level. They use Karl Marx's exploitation theory which alleges that the man who works for wages produces, over and above his wage, a "surplus value" which is gar nisheed by his employer. To be employed is to be exploited, and the whole capitalist class should feel guilty for denying the working class its due!

This naive notion was demol ished by B6hm-Bawerkeven while Marx lived, and it is not now de fended even by Communist theore ticians. But the "surplus value" idea accords with feelings of envy and guilt, so it is still useful as propaganda. Given a century and more of Marxist propaganda and it is not surprising that there are a lot of guilt-ridden millionaires and sons of millionaires, as well as many captains of industry and top ex ecutives whose hearts bleed for "the poor." Envious Have-nots and guilty Haves: fertile breeding ground for Socialistic propaganda! It is not only among individ uals that wealth differentials are exploited; there are Have and Have-not nations. The Have-not nations are those to whom Ameri cans have given upwards of two hundred billions of dollars worth of goods since the end of World War II. But despite this incred ible bounty (for which the nations of the world rise up and call us blessed!) we still have too much, in the eyes of our critics. The words vary but the music is al ways the same: Americans who represent only 7 per cent of the world's population consume 20 per 434 THE FREEMAN July cent of the world's food, drive 75 per cent of the world's automo biles, have 75 per cent of the world's television sets, and so on and on and on.

Now, I'm an amateur critic of the quality·of life lived in America, and for those who insist on having my opinion I'd say that Americans do eat too much, and they stuff themselves with food of the wrong kind. It would be good for them to leave the car in the garage occa sionally, and walk, or ride a bi cycle. Furthermore, no mixture of ease, comfort, speed and gadgetry will add up to the good life - as most persons would agree. But all this is by the way; the matter at issue here is not the desirability of a more Spartan or Stoic style of life - which, incidentally, is not practiced by the rich of Asia, Af rica, Europe, or you name it. It's just that more people in these fifty states are enabled to enj oy more material wealth than all but a handful of people elsewhere, and so we are conspicuous enough to provoke the carefully nurtured envy of the rest of the world. Should Americans deliberately low er their living standards? Well, per haps there are good reasons for a return to plain living, hard work and the Puritan ethic.:.- but defer ring to local liberals and critics from the Have-not nations is not one of them!

Productivity the Key Americans do consume more on the average than the people of other nations. It might be interest ing to ask why. The answer is clear: Americans consume more because Americans produce more. If the people of India want to con sume more, they'll have to learn to become more productive. And America' is bursting with people who would be delighted to tell them how to increase their produc tivity. You merely have to accumu late" capital at a faster rate than population growth, so that each worker will have more and more machinery, tools, and equipment. Productive efficiency, in other words, requires institutional in centives for capital accumulation - such as widespread belief in the sacredness of private property; an ethic which exalts honesty, thrift, and hard work; the idea of inher ent rights, and so on. A nation that builds on a foundation like this is bound to prosper, as Amer ica has.

Suppose the American govern ment continues to yield to the pressure of envy stemming from the Have-not nations, and incre·as es the tax bite on American citi zens so that they will consume less. Suppose, in other words, that a larger and larger percentage of the goods produced here annually is siphoned off and shipped abroad.

1975 WHY DO "THEY" TURN TO SOCIALISM? 435 What will happen to production here when our people are prevent ed from enjoying its fruits? You know what will happen to it; pro duction will decline, inevitably. Why does a man produce? He pro duces in order to consume; con sumption is the end in view of all productive activities. If everything a man produces is taken from· him he'll stop working; and if fifty per cent is taken from him he'll slow down. The upshot is that the worst help we can give to the Have-not nations is to inflict policies upon Americans which will inevitably make us dollars poorer without making the Have-not nations a penny richer. This envy/guilt syndrome pro vides an interesting glimpse into the Socialist mentality, which has little concern with production, with the way material goods come into existence. Socialists are preoccu pied with the political redistribu tion of the already existing stock.

There is, in fact, only one way to make economic goods appear, and that is to apply human energy, augmented by tools and machinery, to raw material. Human labor ap plied to natural resources is the only way to produce food, clothing, shelter, and the amenities; but the Left has no interest in this· proc ess, let alone in increasing its ef ficiency. .Tax and Subsidize The attention of the Left is fo cused on taxing producers and sub sidizing consumers. Assuming that production occurs by magic, auto matically, Socialism has no pro gram except to seize property from the Haves and distribute it to the Have-nots. The guaranteed end re sult of this to to enforce domestic poverty and spread hunger around the globe. But a certain glamour attaches to any Robin Hood opera tion which promises to take from the rich and give to the poor - and some of this glamour lingers even after it has become plain that Rob in the Hood is actually robbing both rich and poor for the benefit of Robin!

As a result of economic progress, a society moves up from a situa tion where just about everybody is poor to one characterized by gen eral prosperity, shared by all but a few. That is to say, there will be pockets of poverty in any prosper ous society, and the contrast be tween rich and poor makes the residual poverty painfully obvious to all compassionate people. Indig nation suggests a remedy which ap pears obvious to those who respond emotionally, without thinking. If some are better off than others, why pass a law to deprive the for mer of a portion of their property and dole it out to those in need! Not an efficient procedure, by the way; 436 THE FREEMAN July it costs the government several dol lars to give one dollar to "the poor." Imagine a system of medicine where doctors blamed sickness on the healthy, and sought to cure ill ness by making the well sick! This is madness, and if this tactic were used in medicine few patients would survive. Economic distress like wise; poverty cannot be relieved unless we known its cause, and this means that we must also learn the cause of prosperity, for poverty can be overcome by productivity, and in no other way.

Prosperity in a nation is gen erated by efficiency in production, and productive efficiency demands such things as a climate of free dom, security for property, the ac cumulation of capital, progressive technology, good work habits, skill ful management, and the like. It follows that any impairment of the functioning of any or all of the fac tors that cause prosperity makes people poorer. Here are some ex amples of political interventions which hamper productivity: con fiscatory taxation which diminishes the supply of capital; minimum wage laws which disemploy large numbers of people; monopoly un ionism which institutionalizes un employment by exacting an above the-market wage and imposing a rigid wage structure; price and wage controls; inflation. Such political interventions as these do no one any good, and they do some people immense harm. Those most severely affected are the very ones whose plight arouses our sympathy and causes some shortsighted citizens to demand drastic government action to cor rect disparities in income! The only sound strategy is to apply the for mula for prosperity across the boards; and this means that we must find some way of stopping government from hurting people by unwise legislation. Unshackle production, turn the market loose, and everyone will share - more or less - in the ever-increasing pros perity.

Of course, it is not enough for a nation to be merely prosperous; riches don't bring happiness. A happy person is one who has some thing to live for, whose way of life challenges him to draw upon his powers and exert his full potential. Material well-being - food to nour ish you, clothing to keep you warm, shelter against the elements - ma terial well-being is one element in the good life. But in our time this one element looms so large in the eyes of many that evidence of eco nomic distress anywhere is all the excuse they need to demand a pro gram that will wreck the system which produced our prosperity! It is as if a doctor had treated a com pletely paralyzed patient with some miracle drug which restored func1975 WHY DO "THEY" TURN TO SOCIALISM? 437 tion to arms and legs but left the former patient with one stiff knee, and was then accused of malprac tice and blamed for the man's game leg!

Justice and Charity Justice first;. no legislation de signed to give some an economic ad vantage at the expense of others, no arbitrary controls which pre vent people from being as produc tive as they choose to be. Then, after justice, charity - which is simply an acknowledgement that some handicapped people can't cope. The scope of private philanthropy is still enormous, even after a gen eration of government welfare schemes. The springs of compassion have not run dry, and it is obvious that they run more freely in the voluntary sector of society than in the coercive governmental sector. The coercive sector hits John Doe with heavy taxation during his pro ductive years and uses his money to finance programs he's against. Doe is tens of thousands of dollars poorer as a result. During the same period the Social Security tax de prives this man of thousands more. And all the while government is in flating the currency which increas es the price of everything John Doe buys. When retirement comes, the government leaves John Doe with a lot less money than he actually earned during his productive pe riod, and it cheapens the value of every dollar it gives him during his latter years. This is how govern ment takes care of the poor!

There is no doubt in my mind that envy, covetousness and guilt plus plain stupidity and ignorance - are of Socialism's essence. Social ism would stall at ground level if it could not inflame these feelings and shortcomings. But there are other causes contributory to the advance of Socialism in our time. There's idolatrous religion. We live in a period when the traditional reli gious faiths no longer exert the hold they once had over the minds of millions of people. The predomi nant world view is earthbound, with little or no place for the di mension of transcendence, or the sacred. Unable or unwilling, there fore, to make a religion of Religion, many twentieth century people make a religion of politics or eco nomics. A Religious Impulse The term religion has reference, on the one hand, to intensity of be lief and devotion; and, on the other hand, it has to do with the object which inspires this intense belief and devotion. Lacking a transcen dent object, God, because of the prevailing earthbound world view, intense belief and devotion' will af fix itself to some object whose na ture does not merit worship, such as the State, or Revolution. Thus 438 THE FREEMAN July Socialism or Communism becomes an ersatz religion for millions of people in our time.

The case of H. G. Wells is in structive. Wells was an early Fa bian, and until the disillusionment of his late years, worked tirelessly for the advancement of Socialism. "Socialism," he wrote, "is to me a very great thing indeed, the form and substance of my ideal life, and the only religion I possess. I am, by a sort of predestination, a Social ist." Similar sentiments have been voiced by a multitude of the intel lectual, literary, scientific, and po litical leaders of our time. Per versely, the low ebb of spiritual re ligion in our time has affected the churches, making it possible for men whose real religion is reform or revolution to capture large seg ments of the church for Socialism - by controlling various sounding boards, such as editorial offices, teaching and preaching posts, so cial action committees, interchurch ~ouncils. And just as the religious impulse has been bent to the uses of Social ism, so has the artistic impulse.

The artist cannot "let nature take its course"; he must impose signifi cant form upon it, bringing his kind of order out of what appears to him to be chaos. Twist the artis tic vision around to society, and 10 ! the planned economy! The untu tored mind does not sense the magnificent and intricate order in a free society, which is the result of human action but not the conse quence of human design. Merely enforce a few simple rules against theft, fraud and murder, enforce contracts, redress inj ury - and within these few rules people act ing freely and productively will project an order so complicated that it defies human understanding. Could we fully understand it, eco nomic calculation apart from a market would be feasible - which it is not. The artist in us dislikes loose ends, insists on tidying things up, is caught up in a vision it feels bound to realize. Fine, on canvas! But if you insist on a certain pre planned order and pattern as an end result in your society - the na tion as a work of art - it is obvi ous that this overall goal cannot be achieved if· everyone in the society is free to pursue his own peaceful goals. There is no way to achieve a unitary National Goal except by nullifying individual goals.

Diversity Encouraged The free society not only tole rates individual differences, it en courages diversity on the ground that each person has his unique contribution to make to the total richness. This position runs counter to the pressure for uniformity in this age of mass man. The advocate 1975 WHY DO "THEY" TURN TO SOCIALISM? 439 of the free society, therefore, runs the risk of rubbing people the wrong way; often he has to make his case against the grain of human nature which hates dissent. In or der that a society may be free, a great many people must exhibit a much higher level of tolerance for individual eccentricity than has hitherto prevailed. The believer in freedom, then, is like a salesman trying to persuade people to buy a product, by telling them that, chances are, there are things about it they won't much like after they get it! That's a hard sell! Freedom means putting up with a lot of things you don't like, and living with a lot of people you can barely stand. Freedom of speech and press, of religion and economics, means that other people will say, print, believe and produce things which we might find dis tasteful. Freedom doesn't come cheap; it costs, and those unable or unwilling to pay the price will never achieve freedom, nor will they retain the freedom they now enjoy.

The late Dean lnge used to say that labels are libels! How shall we la.bel the social system of America, England, and some European na tions in the period between the Civil War and the New Deal? It was an age marked by a great expansion of science and technology, so we might speak of the Age of Science. A fine historian characterized the period as the Age of Materialism. Democ racy took over as the kings depart ed, and that label is popular. The mode of production during this century was "capitalist," the label given currency by Marx. It suited the Communists to use one label, "Capitalism," for the social sys tem they wanted to destroy, rather than, say, "Democracy." A Deadly Label Now, a modern western nation is an exceedingly complex affair, and it takes patient analysis to under sta.nd any single phenomenon of the many it exhibits. A social evil demands attention and it takes knowledge and skill to trace out its root causes. Much simpler to blame everything that goes wrong on Capitalism! Why poverty? Capi talism! Why the Great War? Capi talism! Why the Great Depression?

Capitalism! Why unhappiness? Capitalism ! Nothing was better calculated to deaden the analytical and critical faculties of several generations of intellectuals than this Marxist strategy; it worked; "social scientists" were conditioned to salivate on demand over the prospect that they had been chosen to lead humanity into the promised land. Some able men are attracted to Socialism because it pretends to be scientific and progressive; and they 440 THE FREEMAN July regard themselves as scientific and progressive. But it is obvious that the mass of ordinary people are quite otherwise; they are stubborn and backward, and consequently, they make a mess of things. They refuse to accept the best scientific information available to them, pre ferring instead to be sloppy and unscientific. Witness their life style, their eating habits, the way they rear children, their resistance to new trends in schooling, the fool ish way they spend their money, their superstitions! The indict men t against the man in the street is a lengthy one, and the conclusion is that ignorant people such as this cannot be trusted to run their own lives. Any volunteers for the job of running people's lives for them? Of course! Lots of highbrows believe themselves competent to operate a progressive society along scientific lines, all for the people's own good, of course.

Who Shall Live Your Lile? Now, it may be true that a lot of people exercise but little wisdom in running their own lives, but it is a non sequitur to deduce from this that A's situation will be improved if B runs A's life for him against A's will! We know that this cannot work because it violates the basic law of life, a law as fundamental in human affairs as the law of gravity in Newtonian physics: Each person is in control of his own life, and if he doesn't take charge of himself no one can assume this responsi bility for him. Life is a chancy thing, and of course we all make mistakes. But the mistakes we make while run ning our own affairs will teach us something, and we're on earth to learn. As St. Augustine put it, "We are here schooled for life eternal." Unless we are allowed to make our own mistakes, to pick ourselves up after every failure, and stand taller with every success, the learning process is stymied. The great issue here is between those who regard human beings as mere things to be manipulated into some social pat tern, versus those who believe that persons need liberty, because with out it they cannot work out their proper destiny, which requires this life and the life to come for ful fillment.

The attention so far in this paper has been directed at "them," people of the Left, Liberals, Socialists. What about "us"; free enterpris ers, capitalists, businessmen? Do people get turned Qn to Socialism because of us? I'm afraid they do. Now, no one can really blame an ordinary businessman for not un derstanding the theory of the free economy, and for his inability to articulate its concepts clearly. The blame, if any is to be laid, attaches to intellectuals who dig no deeper 1975 WHY DO "THEY" TURN TO SOCIALISM? 441 than this for their understanding of the free economy. Admittedly, however, it does not make our chore any easier when business organiza tions seek government favors for their members, or rush for"ward to praise wage and price controls. But the real problem is else where. A sharp distinction must be made between the economic theory of the free market and the ideolo gies erected around market theory by its self-proclaimed defenders.

How many potential supporters of the free economy have been turned off by hearing certain ideologues of capitalism loudly proclaim that you have to be an atheist before you can become a genuine capitalist! Or you have to be a rationalist. Or a utilitarian. Or an anarchist. Fur thermore, it is difficult for an out sider to judge the arguments for the free market on their economic merits if he has to wade through dubious notions of history, art, literature, psychology, ethics and religion to get to them! High level arguments in economic theory coupled with low level arguments in the ideological framework are not very damaging to Socialism, but they can make a shambles of Capi talisnl! It is only within the right philosophical structure that the market becomes the market econ omy, and that structure needs shor ing up. Economic action is necessary to survival, but by itself it cannot generate the free economy. The food, clothing, and shelter without which no people can exist are pro duced by human exertion on nat ural resources, and there is no other way. The division of labor is as old as mankind; people have al ways traded and bartered. These interlocking events constitute the market, and the market is ubiqui tous. But the ever-present market does not become the market econ omy by spontaneous generation; nonmarket factors must be present to act as catalytic agents. Create a political structure around belief in the inviolability of the individual person and you have a context of liberty and justice for all in which property is respected and free choice maximized. The market, then, is insti tu tionalized as the free economy. Neglect this necessary political framework - the one we inherited from the eighteenth cen tury - and aB it decays it will take the free economy down with it.

Our Fear of Freedom There is something in human na ture itself which makes us ambiv alent toward freedom. Human be ings would never strive for a free society unless the urge to be free were a dri ve deeply rooted in human nature; and we wouldn't have to strive for freedom - nor periodi cally lapse into despotism - were 442 THE FREEMAN July there not a paradoxical strain in our make-up which fears freedom. Let me try to elucidate. Each. of .us has his own life to live, his own ends to achieve. We are purposive beings, so we project a series of goals which constitute our lifelong pursuits, and we set up various targets for occasional en deavors. It is a self-evident truth that each of us wants maxim urn freedom to live the life that is ours and to pursue the goals we have chosen for ourselves. It is incon ceivable that anyone in his right mind would deliberately invite other people to impair his freedom of action, for no one can set goals for himself and simultaneously ask other people to prevent him from reaching them! If, in some bizarre situation, a person does ask another to restrain him, then his real goal is to be restrained - no matter what he says his goal is.

The most evil tyrant imaginable, whose goal is to extinguish human liberty, does not want impediments placed between himself and his goal; he wants to be free to wield power unconditionally. Everyone, in short, desires his own freedom; but not everyone is seriously con cerned that all other persons have as much freedom of action as he has. Very few people, as a matter of fact,favor equal freedom - a so cial condition of maximum freedom of action for everyone. And there's the rub! Freedom for yourself is a biological urge; the win to equal freedom for everyone stems from a more complex facet of our nature. Man Must Think and Choose No person can help wanting free dom for himself. This is part of our fight for survival, the struggle to continue in existence. Man shares this with every other living thing. But every living organism - except man - has a built-in servomechan ism which preserves the nature and guarantees the continuing identity of the organism in question, wheth er tree, tiger, oyster, or whatever.

The truly human person, however, is a different kind of creature; we cannot complete our nature - real ize our potential to the full-with out deliberately willing to do so. Our inner freedom is so flexible that each person has a lot of lati tude in choosing what he will make of his life. Your final destiny de pends on the wisdom of your daily resolves. Each of these daily and hourly decisions we make, breeds consequences - for which we must assume responsibility, and with which we have to live. This is in trinsic to the human situation. Things would be much simpler if we could just sit back and let Nature take its course with us, as Nature does take its course with animals. It'll never happen! Nor can we be wound up like robots to 1975 WHY DO "THEY" TURN TO SOCIALISM? 443 function as we should, as T. H. Huxley once wIshed. Belying his name as "Darwin's bulldog," the famous scientist said, "If some great power would agree to make me always think what is true and do what is right, on condition of being wound up every morning be fore I got out of bed, I should in stantly close with the offer." Don't wait, the offer will never be made!

We are neither robots nor ani mals. We are persons, gifted with an inner freedom, which puts us under the necessity of choosing, where we face the constant risk of making wrong choices. We are re sponsible beings, and the burden weighs heavy on us. This is the freedom we dread - our unique freedom which forces us to strive constantly if we would attain our humanity. It is in this fear of free dom that Socialism takes root. So cialism offers the siren promise that we need not be individually re sponsible, either for ourselves or for anyone else. "They" will be re sponsible for us, and at the same time relieve us of any obligation toward others; the burden of being human will be lifted from our shoulders. Human nature, then, exhibits these two facets; the biological urge to be free, and the all-too-hu man wish to shirk responsibility. The biological drive to be free manifests itself in some types as a grab for power, a lust to dominate others. This is a constant threat latent in human nature, which is why every period in history has to contend with tyrants and dictators.

That history is not one unbroken record of tyranny, that freedom ebbs and flows, is due to the fact that this authoritarian thrust in human nature may be rechanneled. Such rechanneling is our first line of defense against tyranny, and it consists of moral and religious re straints on the will to power which the authoritarian accepts as bind ing upon himself. The energies of the might-have-been tyrant are re directed in constructive ways. There is a second line of defense against tyranny. This barrier is located in the hearts and minds of the to-be-tyrannized-over; it is a de,eply felt conviction which affirms, in the familiar words of the Eight eenth Century: "Resistance to tyr ants is obedience to God." Our an cestors believed that life and lib erty were inseparably joined; both were gifts of God. And because no one could fully serve his Maker un less he was free, freedom was just as precious as life itself. No person who acquiesced in tyranny could fulfill his life's purpose.

In a nation where both lines of defense are in working order there is maximum liberty for all persons. On the one hand, inner restraints 444 THE FREEMAN July quench the thirst for power; and on the other, a people, who know that the purpose of life cannot be realized unless they are free, will be alert to detect the slightest threat to their liberties. But when the would-be tyrant recognizes no inner curbs on power, and when the populace invites him to rule over them because they shirk the re sponsibility and burdens of being human, then the dictatorship is total. To be a person, means accepting full responsibility for our acts of choice and our conduct. But the prevailing earthbound ideology in structs us that we don't really pos sess free will, and because we are the mere end products of our nat ural and social environment we are not responsible for ourselves. Ac cept this blighting ideology and the 'will to freedom withers; you have optimum conditions for tyranny.

The same materialistic ideology which convinces the multitudes that they are not responsible con vinces authoritarians that there are no inner restraints on power. Dictatorship gets the message: All systems go! The tidal movement of Socialism in the twentieth century is no mystery. You'd like to roll back this tide? It's very simple! The social order outside of us is a reflection of the mental and moral situation inside of us. If there is social disorder, we may infer that there is disorder within, in our hearts and minds. The great Spanish philosopher, Ortega y Gasset, puts it this way: "Any explanation of the visible changes appearing on the surface of history which does not go deep down until it touches the mysteri ous and latent changes produced in the depths of the human soul is superficia1."l Each person, there fore, must first work on himself before his improved understanding can radiate to those in his orbit.

If only we could straighten out our own thinking we might order our lives aright, and if a significant number of people did this, then the society - which, after all, is but a reflection of ourselves - would be gin to square itself away. This is a slow way to go, but it is the only way. If we have looked back over his tory to learn the lessons taught by the rise and fall of nations, we know that societies never die of old age but only of autointoxication. We learn that civilizations have been, and can be, rej uvena ted from within! What other peoples have done in times past we can do today and tomorrow - provided we have the will to do it. We have all the ingredients for the restoration of our society; only the will is lack ing - and only individual decision can make that up! 1 What Is Philosophy?, p. 31.

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN OF ALL the silly movements that have afflicted western society in recent years, the anti-growth cru sade is by all odds the strangest. It enjoys a great press, it passes for idealism, and it boasts a con cern for the "quality of life." It certainly commands the TV cam eras. But when it is subjected to the harsh light of analysis in Wil fred Beckerman's witty Two Cheers for the Affluent Society (St. Mar tin's Press, $7.95), it must be seen for what it really is. Dr. Beckerman, a British econo mist, says it straight out: the "no growth" lobby is guilty of making a profoundly undemocratic assault on the poor who, if they are to be denied access to slices from a big ger pie, must continue to be second class citizens in the richer nations and starveling outcasts in those countries that are still struggling to catch up with the technologically proficient "West."

Dr. Beckerman's main weapon is logic. He does not deny that we have pollution problems, but if they are to be solved there must be funds - and technological means - to do it. The worst pollution is to be found in poorer nations that have not yet achieved a surplus that can be turned into such things as water purification, sewers and the eradi cation of disease-bearing insects and rats. It is only when incomes are rising that people feel they can spare the money needed to improve the "environment," which, as a pri ority, must come after the pangs of hunger have been assuaged. Dr. Beckerman uses a somewhat 445 446 THE FREEMAN July stiff economic lingo to make his most critical point. The "pollution problem" is a "resource allocation" problem. If there were unlimited supplies of clean water and clean air, pollution would be too small an item to have a significant effect on the environment. But clean water and clean air can become "scarce resources" at certain population levels.

Paying the Price If producers are not compelled to pay for their use of clean air and water as scarce resources, they will not do it. But if "society," as the "owner" of the air and water, is going to "collect" on their "sale" to the producer in order to finance antipollution campaigns, it must be expected to see the charge passed along into price. It is Dr. Becker man's thesis that only the more af fluent economies can afford the price. So we come back to the need for continuing growth to finance the "extra" charges for keeping the environment clean and in ecological balance. Dr. Beckerman does not deify the concept of GNP, or Gross National Product. There are lots of riches, such as leisure time, that do not get measured in any proper sense in GNP. There are various types of welfare that are of an "unmeasured kind" such as swimming in a clean stream or walking in the mountains. But if the measurable GNP is not increasing, the poor must be deprived of the income that sup ports upward mobility. Lacking cars, they won't be able to seek out clean beaches or pretty woodland walks.

Computing IIKnown Reserves ll But what if the world's resources can't support a continued growth of GNP for all the nations? Dr. Beckerman admits that we would then be in a pickle, particularly if populations continue to grow. The "eco-doomsters," however, have confused "nonrenewable" resourc es with "nonreplaceable" ones. They have also failed to reckon with the "marginal utility" aspects of computing "known reserves." After all, one does not go looking for new "known reserves" until the older reserves begin to command a higher price. Invariably new re serves of iron ore, copper, oil or whatnot are discovered whenever it becomes profitable to discover them. Conceivably the day will come when copper and oil will be exhausted. But not in this century or the next. Even if limits for certain raw materials are reached, the innova tive human being is quite capable of "replacing" the "nonrenewables"

with synthetics or substitutes. Bauxite was once a useless form of earth. But when the innovative 1975 TWO CHEERS FOR THE AFFLUENT SOCIETY 447 human animal learned how to ex tract aluminum from bauxite, the "reserves" behind our store of cooking pots and airframe covers became practicalJy inexhaustible. There threatens to be a short sup ply of tungsten, which is needed for conventional light bulbs. But flu orescent strip lighting, which is coming more .and more into use, does not require tungsten. If we had less copper, it would hurt the production of standard telephone lines. But Dr. Beckerman looks for ward to the day when telephone messages will speed along glass fiber conductors acting as wave guides for laser beams. What is a "Resource"? The Club of Rome, feeding ma terial about disappearing resourc es into a computer, has despaired of the chances for continuing growth on a world scale. But new things are constantly becoming "re sources" over time. Sea water con tains a billion year's supply of so di urn chloride and magnesium and a hundred million year's storehouse of sulfur and borax. Nitrogen can be "fixed" by separating it from liquefied air. Manganese nodules are scattered all over the sea beds.

As Dr. Beckerman says, what is a "resource" depends on economic conditions determining usefulness. In a kidding way Dr. Beckerman wonders how "economic growth has managed to keep going without any supplies at all of Beckermoni um, a product named after my grandfather who failed to discover it in the nineteenth century. In fact, we manage very well without an infinite number of products that have never been discovered." So what if we hadn't discovered nickel? Would that mean that civil ization would be· impossible? Efficient Agriculture Food, of course, is a troublesome item in times of expanding popu lations and changing patterns of rainfall and drought. But Dr. Beck erman quotes a Cambridge Profes sor of Organic Chemistry who in sists that if all the land that is now cultivated were tobe farmed as ef ficiently as it is in the Nether lands, the world could support 60 billion people - or ten times as many as are expected to be around at the end of the century. And this makes no allowance for land not yet brought under cultivation in Latin America, Australia and parts of Asia.

448 THE FREEMAN July Reading Dr. Beckerman, one be comes a little less inclined to make a fetish of the so-called ecosystem. After all, the ecosystem of the mo ment happens to be the sum of past changes, including the disruption of former ecosystems. The history of the world is a record of ecologi cal catastrophes, in most of which man played no role at all. Giant lizards have disappeared, continents .have drifted apart, ice ages have come and gone, volcanoes have thrown tons of contaminating ma terial into the air. So what is "eco olgical balance"? It consists of a status quo that will, even without the prodding of man, give way to other status quos. Must we worship the ecosystem of the moment? If we do, it will be merely another way of writing on water. HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $2.50 each THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON·ON·HUDSON, NEW YORK 10533 the Freeman VOL. 25, NO.8. AUGUST 1975 EducationalFreedom Scott W. Bixler 451 An educational alternative consistent with the principles of a free society.

Zoning Misuses Land and Other Resources Bernard H. Siegan 461 Public regulators are not bound to serve consumers efficiently. Individualityand IntellectualIndependence Anne Wortham 463 If an individual is to make use of his reason, he must choose to think. The Law V. Orval Watts 472 The private practice of freedom can do more than the expansion of governmental powers to improve The Law. The Insecurityof Security Morris C. Shumiatcher 484 How welfarism breeds inflation and destroys an economy. CompulsoryPublic-SectorBargaining: SylvesterPetro 494 The Dissolutionof Social Order Implications of the idea that government employees may strike at will against their employer. Book Review: 509 "Into That Darkness: From Mercy Killing to Mass Murder" by Gitta Sereny Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON·ON-HUDSON, N. Y. 10533 TEL.: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 25 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit except "Zoning Misuses Land and Other Resources" and "Indi viduality and Intellectual Independence."

SCOTT W. BIXLER THOSE WHO CHAMPION the case for freedom are often confronted with criticisms of the ethics of the free market system - charges such as "free enterprise encourages selfish materialism," and "the av erage consumer doesn't know what is good for him," or even "the free market ignores the poor." The economist must often step outside the boundaries of pure economic theory in an attempt to show that the free market does not lead to these consequences. One accusation frequently heard is that the free market inade quately provides certain important services. The reasoning usually is as follows: 1) The free market leads to consequence A, Mr. Bixler, a recent graduate of Grove City College, has entered a management training program at Union Bank and Trust Company in Erie, Pennsylvania. 2) This consequence is unde sirable, 3) Therefore, the free market should not be permitted. As with any syllogism, a valid refutation must simply prove con clusively that the major premise is false. Economists have for many years been doing exactly that in their analyses of criticisms of the free market. For example, it was often contended that the free market caused business cycles and unemployment. This charge was thoroughly refuted by Ludwig von Mises who demonstrated that bus iness cycles are caused by govern ment intervention in the area of bank credit expansion. He ex plained that unemployment is caused by union or government action to keep wage rates above the free market level. He also showed that only coercive inter vention, not private spending, can bring about inflation.

451 452 THE FREEMAN August The science-of economics pro vides no ultimate ethical j udg ments. It can only provide the data necessary in order to make such judgments. Pure economic theory involves the relationship between ends and means: how man uses scarce resources for satisfy ing his most urgent needs. It pro vides man with certain laws which are true regardless of whether man's ends are altruistic, egoistic, vulgar, or refined. Today, how ever, with the preponderance of "welfare economics" and the cor responding interventions in the economy, the economist must not only explain the workings of the market, so that people may indeed frame their value judgments, but must also comment on the conse quences of various ~olitical policies. Therefore, when those who make government policy maintain that a certain coercive intervention will bring about a corresponding re suIt, it is up to the economist to explain the consequences of that policy. By doing this he cannot advise as to the best possible route to pursue to achieve certain ends without committing himself to those ends. Thus an economist who is hired by 'a businessman commits himself to the ethical valuation that increasing the businessman's profits is good. Similarly, an econ omist hired by the government to advise bureaucrats on the most efficient means of "stimulating the economy" is committing himself to the value judgment that inter vention is desirable. Mises reflects on the relationship of the econo mist and government: . . . economics as such is a chal lenge to the conceit of those in power. An economist can never be a favorite of autocrats and dema gogues. With them he is always the mischief-maker, and the more they are inwardly convinced that his ob jections are well founded, the more they hate him.!

We need not attempt here to determine whether the motives of those who make political policies are good or evil. Let us assume that their motives are good; that they are truly concerned with the well-being of each individual. On that basis, let us try to demon strate how the policies conducted in one area, tha t of education, cannot possibly bring about the ends sought by those in power . It will be assumed that those who favor the present state-run com pulsory system honestly believe that this is the best possible sys tem for education. We cannot as sume evil intent, but must rather hope that through logical reason ing it can be shown that the pres ent, system is indeed unworkable, 1 Ludwig von Mises, Human Action (Chicago: Henry Regnery, 1949), p. 67.

1975 EDUCATIONALFREEDOM 453 immoral, and thus totally incon sistent with a truly free society. Self.responsibility the Key Let us first look at one maj or argument that not only is used as a defense for compulsory educa tion, but is also applied to many other areas of government inter vention. This is the charge that individuals ,do not always know their own self-interests best; and since this is supposedly the foun dation upon which the case for laissez-faire rests, the state must intervene and any argument for the free market is invalidated. But the argument for the free market rests on a much more complex doctrine. While it is impossible to eluci date here all the many arguments for freedom, what can be asserted is that everyone should have the right to be free to pursue his own interests as he deems best. It is folly to contend that consumers are never mistaken as to their best interests. But on the free market they are able to hire and consult with experts to give them advice. Those experts (doctors and lawyers, for example) whose ad vice proves most successful will reap the rewards, while poor ones will fail.

The government expert, on the other hand, acquires his fees through compulsion. There is no market test of his success in ad vising people of their own best interests, but only the test of his ability to curry political favor. Also, the government expert has no incentive to really care about his "clients," as he is paid regard less, whereas the private expert has every conceivable incentive to look out for his client's interests. This leads us to the one fatal contradiction into which all pro ponents of government interven tion are trapped: they assume that individuals do not know how to run their own affairs, or to hire experts to advise them, but yet are competent enough to elect of ficials who do know what is best for them. Presumably, all voters are eminently qualified to elect their rulers! Perhaps the most trenchant ar gument used by those favoring public education is the belief that "everyone has a right to an edu cation." A close examination of this doctrine exposes its totali tarian implications. This "right"

to an education enta.ils the forced redistribution of income from some members of society to oth ers: the robbing of Peter to pay Paul. Goods and services are not free. To say that one has a right to an education is to believe that some individuals are entitled to at least a portion, if not all, of the fruits of another man's labor. It 454 THE FREEMAN August requires the existence of a group of exploited people who are to be coerced into providing the enu merated "right." Taking this argument to its log ical conclusion provides a power ful indictment against public edu cation. Since a person's education is not strictly limited to his formal schooling, if one has a right to an education then logically he should have a right to virtually all educa tional media, including newspapers and magazines. An individual's education is an ongoing process that continues throughout most, if not all, of his lifetime.

There is little doubt that most people would react with horror if the government were to set up a national newspaper chain and com pel all people to read them. In ad dition' what would be the reaction if the government outlawed all other newspapers, or else gave authority only to those that ad hered to certain standards set by a government commission? Clearly this would be a gross violation of the freedoms of speech and press. Nevertheless, this is exactly what has been established in the area of education. It is evident that scholastic freedom is not regarded as important as freedom of the press. But are such value judg ments reasonable on the part of policy makers? Surely one could make a case for educational freeJdom being the more important, as it is in this area that the unin formed minds of children are involved. A similar refutation of the argu ment for redistribution of income for compulsory education is pro vided by E. G. West, who draws an analogy between education and food: Protection of a child against sta r vation or malnutrition is presumably just as important as protection against ignorance. It is difficult to envisage, however, that any govern ment, in its anxiety to see that chil dren have minimum standards of food and clothing, would pass laws for compulsory and universal eating, or that it should entertain measures which lead to increased taxes or rates in order to provide children's food, "free" at local authority kitch ens or shops. It is still more difficult to imagine that most people would unquestionably accept this system, especially where it had developed to the stage that "for adm1J1.istrative reasons" parents were allocated those shops which happened to be nearest their homes. 2 In addition, if one believes that it is right to take a certain per centage of the fruits of a man's labor through property taxes, why not take all of it for use in educa tion ? Undoubtedly there would be 2 E. G. West, Education and the State (London, 1965), pp. 13-14.

1975 EDUCATIONAL FREEDOM 455 great achievements in education if this were done: modern schools, highly paid teachers and adminis trators, and thus "better educated" students. Similarly, why force an individual to attend school for only eleven years ? Wouldn't it be far better if the government would force all persons to go to school all of their lives? Americans would truly be the most educated people in the world! The Parent or the State? Unquestionably the central issue is quite simply whether the parent or the state should exercise ulti mate control and responsibility for the upbringing of the child. There is no middle ground on this ques tion, as no third party has ever been proposed or found with the authority to seize and rear the child. I would contend that the parents are the natural overseers of the child. They are the literal producers of the child and are thus bound to him with ties of love as well as responsibility. Wro else but the parents know best the individual interests and needs of their children?

The alternative to parental re· sponsibility is state control. What are the results of this alternative? Again it is helpful to analyze the nature of private versus govern ment management of certain un dertakings. As we have pointed out, it is inherent in the nature of a bureaucracy to be inefficient and unresponsive to consumer demand. Government must seek to impose a uniform set of rules throughout its jurisdiction. If it did not, surely the people would charge discrimination and special privi lege. All taxpayers must be treated alike. Such is the predicament of the public school bureaucrat. In deciding the exact pattern of for mal schooling in his area, he must choose between different, and often controversial, alternatives. Should the schools stress liberal arts or vocational training? socialism or free enterprise? religion or secu larism? Should they be integrated or segregated? Certainly there will always be at least some par ents and students who will not receive the type of education they desire. Hence, the inevitable con flict which is inherent in any system based on force. The more that government decisions replace private decision-making, the more the various groups of parents will be at each other's throats in order to supplant standards with their ideas of proper methods.

We see this conflict today, not only over questions of what is to be taught, but also over the issue of forced busing of students. Here is abundant evidence of govern ment attempts to bring about uni formity and equality in the educa456 THE FREEMAN August tional system. Protests and demon strations over the busing question are commonplace. One wonders, however, if these same parents see the glaring inconsistency of their position. A substantial majority oppose busing, but forget that they also vote to force others to pay for their children's education and to force all children to go to the schools. In this light the ques tions of forced busing, or the use of questionable textbooks, seem relatively minor. How can they conceivably favor the potential use of physical force against students who do not wish to attend school, while at the sa.me time believing it is wrong to bus students for the purpose of achieving a racial bal ance? This is undou~tedly a double standard of the most flagrant order.

Can we be surprised that gov ernment education leads to con flicts and violence in society? After all, since the schools are "public property" aren't the peo ple who have paid taxes the real owners? Shouldn't they then be allowed to exercise their right of control over the running of the schools? Indeed, a defender of the concept of public property is hard pressed to justify bureaucratic control over property for which the taxpayers have been forced to pay. In reality, the, idea of public property or common ownership is erroneous. It implies that every citizen owns an equal share of property which is publicly owned. But no individual owns any part of public property. If one doubts this fact then let him attempt to claim his share and try to sell it, and then have this upheld in any court. As F. A. Harper points out: The corollary of the right of own ership is the right of disownership.

So if I cannot sell a thing, it is evi dent that I do not really own it. 3 Thus all public property is simply the property of the rulers in power in the government at any one time. They alone have control over it and are the real owners of it. How can we expect the public schools to teach the virtues of private property? Their very ex istence is based on aggression. The child is indoctrinated from an early age with the philosophy of collectivism, or the virtue of "ma jority rule." Individuality is su pressed in favor of equality. In the words of Murray Rothbard: By imposing uniformity on the teaching of its charges, no matter 3 F. A. Harper, Liberty, a Path to Its Recovery (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1949), p. 106.

1975 EDUCATIONAL FREEDOM 457 how pure its intentions, the state begins the process of supplanting individual will with the will of the group, the collective conscience, the majority force. The majority, of course, is represented institutionally by the state and its leaders. Through this process the doctrine of obedience to the state comes to be stressed above all else. Tyranny is not the natural state for the free spirit of man. Tyranny must be learned, while diversity, spontaneity, and independ ence must be eradicated. 4 Mrs. Isabel Paterson also com ments on the tyranny of compul sory state education: ... every politically controlled educational system will inculcate the doctrine of state supremacy sooner or later, whether as the divine right of kings or the "will of the people" in "democracy." Once that doctrine has been accepted, it becomes an al most superhuman task to break the stranglehold of the political power over the life of the citizen. It has had his body, property, and mind in its clutches from infancy. An octopus would sooner release its prey ... A tax-supported, compulsory educational system is the complete model of the totalitarian state. 5 Still another powerful argument 4 Murray N. Rothbard, Education, Free and Compulsory (Wichita, Kansas: Center for Independent Education, 1972), p. 11.

5 Isabel Paterson, The God of-the Ma chine (New York, 1943), p. 257. against compulsory ed uca tion deals with the parent's control over the child's associates. Those who can't afford to send their children to private schools or hire a tutor, must send their children to a public school. It is in the public school where most of the children are found who would not be there if it were not for the compulsory attendance law. In cluded are uneducable children, juvenile deliquents, and the like. Thus the state forces the parents to have their children associate with these types, regardless of the wishes of the parents or the chil dren. In addition, those children who are unsuitahle for, or. unin terested in, the type of schooling presently available, and who would be much better off at home or working, are forced into school, making it worse both for them and the other students. Incredible though it may seem, some people actually think that this is the outstanding virtue of public education. Exposure of all children to "all types of humanity"

and the forcing of all children to learn about "life" is heralded as the great egalitarian goal of "pro gressive" educators and intellectu als. When confronted with this type of thinking it is indeed dif ficult not to deviate from the as sum:ption that those making policy decisions are, truly concerned about 458 THE FREEMAN August the welfare of the individua1. This is especially true when one exam ines the writings of people such as Calvin Stowe, a mid-nineteenth century "educational reformer" who compared compulsory educa tion to military duty: If a regard to the public safety makes it right for a government to compel the citizens to do military duty when the country is invaded, the same reason authorizes the gov ernment to compel them to provide for the education of their children - for no foes are so much to be dreaded as ignorance and vice. A man has no more right to endanger the state by throwing upon it a fam ily of ignorant and vicious children than he has to give admission to the spies of an invading army. If he is unable to educate his children the state should assist him - if unwill ing, it should compel him. General education is a much'more certain, and much less expensive, means of defense, than military array . . . as education . . . is provided by the parents, and paid for by those \vho do not profit by its l'esults, it is a duty.6 As stated previously, the at tempt here is to prove, through reason alone, that public education is wrong in principle and thus inconsistent with individual free6 Calvin E. Stowe, The Prussian Sys tem of PubUc Instruction and its Appli cability to the United States (Cincin nati, 1830).

dam. While forced to admit that state education is a major step toward tyranny, we must not di vert from the central thesis of beneficial intent on the part of policy makers. For the moment we must hope that a clear and logical delineation of the arguments both for and against state control of education will provide a clear pic ture that allows the individual to make a rational choice. We must be optimistic that most people will turn away from the current ide ology and be able to foresee the inevitable result before it is too late. Sadly, however, most people do not even stop to think that there is an alternative to the present compulsory system. They believe that without a "free" education system based on coercion, the re sult would be some kind of new Dark Age, with the nation sinking into ignorance, crime, and violence. The assumption is that many peo ple would not continue to desire an education. This ties in with the aforementioned argument of knowledge of self-interest. It is not logical to assume that the educa tional system, if left to the free market, would degenerate or be of inferior quality. To hold this belief is to also hold that without public garbage disposal, most peo ple would leave their garbage ly ing around in the streets!

1975 EDUCATIONAL FREEDOM 459 What kind of educational en vironment would exist if tax dol lars were not used to support schools and if students were not forced to attend? In considering this question it is interesting to note what relative freedom has done to provide Americans with the highest standards of living in the world. Today Americans choose from an assortment of automo biles, food, entertainment, and so forth that people one hundred years ago would have thought im possible. Television, cars, and mod ern communication networks came into existence, not because of, but in spite of government interven tion in the market. It would be illogical to believe that freedom in education would have produced anything in any way similar to today's poorly-run state monopoly system. Letting the market function un hampered in educat,ion would most likely produce an explosive and enthusiastic growth in the number of private voluntary schools. Par ents would be free to send their children to trade schools, right wing schools, left-wing schools, church controlled schools, "pro gressive" schools, or whatever type for which there was a sufficient demand. Those which satisfied their customers would flourish.

Those which did not would have to close. We have analyzed most of the major criticisms of a voluntary educational system as well as the various arguments for a continua tion of the present system. We have tried to show that the cur rent public education system is inconsistent with a free society; that instead of hastening educa tional progress, it has actually led to stagnation and conflict. Implicit in this analysis has been the most important question of all. This is: which system provides the most efficient means of satisfying hu man wants - the free market, or statism? Coercion or Voluntary Exchange? There are two ways for man to satisfy his needs: through the use of coercion (the threat of violence or force) , or through freedom (the process of voluntary exchange). The science of economics provides man with the knowledge necessary to make the choice between these two alternatives. It tells us that the free market maximizes effi ciency and productivity. There is mutual benefit. Every man gains because his gain is precisely the consequence of his bringing about the gain of others. Everyone earns according to his ability to satisfy consumer desires. There are in centives for production and a gen eral rise in the standards of living.

Under statism, the individual 460 THE FREEMAN August earns in proportion to the amount he can plunder from the producers of goods and services. There is the ultimate destruction of incentives and the lowering of living stan dards. One gains only at the ex pense of others. No attempt to disregard the in exorable laws of economics in any way invalidates them. This is why Mises is correct when he states that the economist will always be the "mischief maker" with dema gogues, for they are always re luctant to admit that they are subject to economic la.ws. Wha t answer shall we give to this ultimate question of freedom or statism? Mises leaves us with a sobering thought as to our decision: The body of economic knowledge is an essential element in the structure of human civilization; it is the foun dation upon which modern indus trialism and all the moral, intellec tual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused.

But if they fail to take the best ad vantage of it and disregard its teach ings and warnings, they will not annul economics; they will stamp out society and the human race. 7 In the final analysis then, we must make our choice between freedom and tyranny. We must choose between harmony, prosper ity and order on the one hand, and conflict, poverty and chaos on the other. For this writer, the choice is clear. ~ 7 Mises, Ope cit., p. 885. IDEAS ON LIBERTY By Better Example THOSE WHO EFFECT GREAT REVOLUTIONS are always small in num ber. Such people need not wait to become a majority. No one else can do the job except those who understand what needs to be done. The disruptive influence of political centralization in education will continue until it has been overshadowed and rendered mean ingless by a moral force of sufficient intensity, a force generated by individuals who understand what is at stake and who serve notice by their own example that a better way exists to educate our young.

GEORGE C. ROCHE III, Education in America NOONE I KNOW would consult a tailor -about personal surgery or a surgeon about suit tailoring, an architect about drafting a will or a lawyer about preparing house plans. In this age of specialization, few would choose to be operated on by a general practitioner rather than a surgeon. People tend to hire lawyers who specialize on the mat ters on which they need advice. The modern world demands a high degree of expertise. Why then are we so willing to allow eminent ly unqualified people to have a voice in the development of land? The experts and authorities in this field are the builders and develop ers. While there are limits to their knowledge, they surely are far more expert at their business than those engaged in other pursuits. Yet more and more, paradoxically, zoning requires builders to submit their proposals, for final decision, to the public and its representa tives.

Copyright 1975 Bernard H. Siegan . Mr. Siegan is the author of Land Use ,!¥,thout ZoninA and many articles on the subject. He practiced law for 20 years in Chicago before moving in 1973 to La Jolla, California where. he is professor of law at the University of San Diego Law School. Consider a situation that re cently occurred in San Diego. One of the country's leading shopping center developers sought since 1973 to build a major shopping and housing complex in a northern por tion of the city. After substantial changes were made, the concept of the center was finally approved in early May by the City Council. This approval, however, was subject to the requirement that the city's planning commission, composed of private citizens ap pointed by the Mayor and council, make the final decision on the ac tual design and placement of build ings and other facets of the plan. The planning commission's delib erations are open to the public, and residents of the city were assured that they would have a strong role in the planning of the center.

The idea is preposterous! If people have reservations about placing their cares and concerns in the hands of general practitioners instead of specialists, they should be outraged at the prospect of en trusting it to those who have vir tually no understanding at all. Some individuals in every com munity of course, do have special ized knowledge in architecture and design, but experience discloses that such persons stay away from zoning hearings. Or if tliey do par ticipate, it will be to look after their own personal interests. Un461 462 THE FREEMAN August fortunately, it will be those with an axe to grind, local busybodies and professional joiners who have the most time for involvement. I have attended zoning hearings where homeowners, whose com bined knowledge of development would easily fit on the head of a pin, condemned complex plans pre pared by highly skilled specialists. Worst of all, the local authorities will probably weigh heavily such comments because they emanate from sources with powerful weap ons: the opportunity to vote them out of office. It is likewise absurd to give an important role to those who have no stake in the success of a venture and possibly may even prefer its demise.

Almost invariably, it seems, city planners and councilmen try to up grade proposed developments. One gets the impression that residents want only Taj Mahals to be built in "their" municipalities. Develop ers will seek to pass on the cost of upgrading by raising prices or rents. If market conditions do not allow for increases, the projects become economically unfeasible and ;Will not be erected. Production will thereby be reduced, and this will also cause prices or rents to rise. Another possibility is that the developer will compensate for the added expense by reducing the quantity or quality of other ameni ties. He rn.ay attempt to offset the cost of required park dedications, special architectural treatment or lower density by say, lessening the amount of insulation and sound proofing or the quality of the win dows, doors, plumbing, heating, fixtures, and the like. The developer may still proceed despite the fact that his horse has been turned into a camel and the market may not be as favorable for camels. At least one reason for making such a decision is to save the huge expenditures which prob ably were made in rezoning the property. These expenses as well as those incurred in holding or optioning the land would be lost if the project is abandoned.

The foregoing describes zoning in action and suggests the differ ence between the private and pub lic planning process. The owners of any business have to conduct it with maximum efficiency; other wise their profits will diminish or disappear. They must purchase and produce with minimal waste. And above all, they must create something consumers will buy at a price which includes a profit. No such limitations confine the public regulators. They make de cisions for a large variety of rea sons; and efficiency is rarely a primary one, for there is little they can gain from encouraging it. As a result, zoning causes the waste of much land and resources., Individuality and Intellectual Independence ANNE WORTHAM INDIVIDUALISM,the doctrine of so cial freedom and independence, is being cast aside today as an ideal of Lockean fools; and individuality - the consequence of self-determi nation, self-reliance and self assertiveness - is resented as a mysterious, unmalleable quality to be denied public acknowledgment in the affairs of men and under mined at every opportunity. While social engineers, economic planners and professional reformers con tinually advocate a social system in which individuals are coerced into equal conditions of life, ani mal behaviorists tell us that man is not as unique among animals as he likes to think. According to Anne Wortham is a Research Librarian in the news syndication industry. One of her earlier articles from THE FREEMAN is included in The Libertarian Alternative,: Essays In Social and Political Philosophy. This article is ex cerpted from .. her forthcoming ~ook profiling race conscious prototypes among American Negroes.

both lines of reasoning, a man is little more than a sophisticated primate who in time can be trained to accept a form of socio-political collectivism that prevents him from achieving any more or less than the man next to him. They tell us that man's similari ties to other animals in the realm of perceptual awareness are more important than his distinction from them as a being of concep tual awareness; that his similari ties to other men as Homo sapiens outweigh his differences from them as an individual. Indeed, be haviorist B. F. Skinner tells us that in order to prevent the aboli tion of the human species, science must abolish autonomous man (Le., the individual) - "the man defended by the literatures of free dom and dignity." "His abolition has long been overdue," writes Skinner. "To man qua man we 463 464 THE FREEMAN August readily say good riddance. Only by dispossessing him can we turn to the real causes of human behav ior."1 Intellectual Independence and free Will If they could the abolitionists of individual autonomy would eradi cate the intellectual boundaries that distinguish the identity of one man from another. They persist in judging men according to the sim ilarities found in such statistical and categorical classifications as their biological ancestry, their na tional ancentry, their income level, their sexual attributes or the en vironment in which they live.

While these ·classifications of attri butes are useful in describing groups of individuals, they are not sufficient to distinguish one indi vidual from all others', including those with whom he shares certain characteristics and circumstances. The fundamental characteristic that all men share is their posses sion of a conceptual faculty. And it is within the realm of man's identity as a reasoning being that the primary distinction among in dividuals must be made. That dis tinction is man's use of his con sciousness. All other variations, such as his values, motivations and 1 Skinner, B .F., Beyond Freedom and Dignity, (New York: Alfred A. Knopf, Inc., 1971), pp. 200-201. attitudes, and their consequences flow from this primary condition. The ruling force of man's use of his consciousness is his power of volition, what Nathaniel Bran den defines as "the power to regu late the action of his own con sciousness."2 It is the power to focus one's mind to achieve a level of awareness - to initiate thinking and to be aware of the nature and consequences of his thinking. En tailed in this self-regulatory men tal activity and fundamental to man's intellectual independence is his free will. Free will is defined by Branden as follows: "Free will" - in the widest mean ing of the term - is the doctrine that man is capable of performing actions which are not determined by forces outside his control; that man is cap able of making choices which are not necessitated by antecedent factors.

... Man's free will consists of a single action, a single basic choice: to think or not to think. It is a free dom entailed by his unique power of self-consciousness. This basic choice - given the context of his knowledge and of the existential possibilities confronting him - controls all of man's choices, and directs the choice of his actions. 3 The doctrine of free will refutes 2 Branden, Nathaniel, The Psychology of Self-Esteem, (Los Angeles: Nash Publishing Corporation, 1969), p. 37. 3 Ibid., p. 50.

1975 INDIVIDUALITY AND INTELLECTUAL INDEPENDENCE 465 the deterministic claim that man has no control over his conscious growth and development; that he is no more than a mass of proto plasm molded by his genes and social environment whose fate is determined by the stars or a witch's spell. The use of reasoning is not something done to man; he makes reasoning occur. Even when men behave as if they could not help what they do, given the pos session of normal faculties, they must be held accountable for their thought and actions. They must choose - whether out of ignorance, or in order to evade and repress, or whether to achieve· truth and freedom of the spirit. Whatever the reasons for their choice, whether for good or evil intentions, men must choose to act; and the choice to act presupposes the choice to think - to initiate rea soning. Putting Reason to Work All men are equally equipped with the capacity to reason man's basic tool of surviva1. But it is in his choice to apply (or not to apply) his reason to the problem of survival, from the first hour of birth until the last breath of life, that each man stands unequal to other men. In the broadest sense, the conditions of human survival are equally the same for all healthy men at the onset of their lives. But it is each man's perc'eption of those conditions and the manner in which he translates those perceptions in to integrated knowledge that makes one nran unequal to other men. The decision to be conscious to foc~s one's awareness - and to perform the process of thought necessary to live in his evironment is original with each man and must be initiated (or suspended) by him.

Regardless of where he lives or un.der what circumstances, he has the option' to act in support of his ex istence - or he can act against it, blanking out thought, evading effort and thereby sabotaging his life. An individual has no choice about the color of his eyes, but he can choose to color his personality by a view of a gray, fogbound uni verse in which he feels hopelessly lost and powerless to comprehend; or he can color his personality by a view of a. sunswept, integrated universe in which he feels at ease and confident in his ability to master. An individual has no choice about his need' for oxygen, but he can choose to pollute his mind with the smog of doubts, fears and rationalizations; or, he can choose to keep his mind filtered with continuous inquiry, knowl edge and validation. An individual has no choice about the physical height of his body, but he can 466 THE FREEMAN August choose to reach the intellectual height of a virtuous man of cour age; or he can sink to the depths of a cowardly guttersnipe.

Free Will Makes the Difference It is man's free will that indi viduates him. Free will gives him an autonomy that is inviolate, pull ing him out from the family of man, separating him from his neighbors, friends, loved ones and associates. In this sense, each man is cognitively alone - not linked to any other men before, during or after him; not linked to any living entity or social institution, con ventions, mores or traditions. Even if all men had the same quantity and quality of genetic endowment, the conscious choice of each indi vidual to activate his mind would remain the controlling force of all other life choices. And the charac ter and personality that results would still make the person dis tinct from all other men. As an end in himself, man has sole control over his mind; neither his physical nor social environment can compel him to think (or not to think) , to act (or not to act) . Even when a man chooses to follow the crowd, the choice is his - born in his mind, not in the "collective mind" of the crowd. He may live in an environment where the will of the tribe is law, but there is noth ing to prevent him from possessing a sovereign consciousness ex cept his own will. He may live in a society where to exercise his mind is punishable by the pain of death, but there is nothing short of death that can prevent him from using his mind except his own will. His body may be destroyed by others, but only he has the power to de stroy his mind.

Like all Iiving things, man is a part of nature but he is the only living organism that is in any de gree free of the forces of nature Le., not controlled by his external environment. Unlike other organ isms, the greater freedom man has of nature, the greater are his chances of survival. "An animal obeys nature blindly," writes Branden, "man obeys her intelli gently - and thereby acquires the power to command her."4 Unlike the lilies of the field that neither toil nor spin, man c,a,nnot survive in his environment merely as a passive reactor. The facts of reality exist for all to comprehend. It rains on the irrational as well as the rational but what a man makes of the rain is entirely his own affair. A simple but profound dif ference between the lilies of the field and man is that while the sur vival of the lilies is dependent on their strength to withstand the 4 Branden, Nathaniel, The Disowned Self, (Los Angeles: Nash Publishing Corporation, 1971), p. 239.

1975 INDIVIDUALITY AND INTELLECTUAL INDEPENDENCE 467 rain they cannot escape, man builds a shelter. And the difference between individuals is that while one man will build a shelter of straw, another will build his shel ter of stone. All lilies everywhere rea.ct bio chemically to their environment in much the same way. But each man, at any time and under any circum stances, must face the facts of his environment alone - not with the purpose of being a chemical reac tor but with the purpose of identi fying the facts and using that knowledge to further his life. There are no exceptions. The rules are the same for each man whether he inhabits a mud hut in the most primitive jungle or a marble man sion in the most technologically advanced society. A Twentieth Century housewife's responsibility to activate her consciousness is no less than Aristotle's was. And all her claims to an intellectual heri tage based on the thinking of Aristotle will not make her any less responsible for the original thinking she does or does not do.

What links the housewife and Aristotle, or the caveman and the astronaut is that regardless of their knowledge, context and val ues, each must function in the manner of Homo sapiens: each must choose to focus his awareness or not to focus it. It is not enough to choose to think; one must then proceed to think - to understand the identity and cause of things. "Theirs [is] not to reason why," wrote Alfred Tennyson of the Light Brigade, "theirs [is] but to do and die." But if man is to exist in harmony with reality, he must ask why. (as well as what and how) and he must live to live, not to die. Intellectual Independence and Understanding If a man is to control his en vironment rather than rely on the thinking of those who do control their environment, he must be willing to understand that environ ment. Guesswork, hunches, or faith won't do. He must be willing to distinguish between who and what in his environment is bene ficial to his existence and who and what is inimical to it. But under standing is not a quality man is born with. It does not come to him overnight (even a sudden "brain storm" has a cognitive history in an individual's mind) and it can not be merely wished into exist ence. It is an intellectual level of awareness one must work for - the end product of a. logical process of independent thought.

.The principle of understanding occupies both ends of the knowl edge-acquiring spectrum; it is an ongoing process that is both the cause and effect of man's reason468 THE FREEMAN August ing. A man activates his reasoning because he wants to understand himself and reality; and as the re sult of his logical reasoning, he achieves understanding. Mere rep etition or imitation does not con stitute learned knowledge, as it does not require understanding. But learning requires thinking and thinking requires the will to un derstand. While it is possible for one man to learn from another, it is not possible for one man to do another's thinking. What he learns must be his knowledge, or he can not claim to have learned. This is not to say that a. person's ideas must necessarily be original with himself. He may hold the same ideas as other men, but what must be original with him is the think ing and the manner of thinking he does to reach the same conclusions as other men. However, the goal of his thinking should not be to reach the conclusions that others have reached but to arrive at convic tions that are legitimately his own - whether they stand in agreement or disagreement with those of others.

Entailed in the will to under stand is the commitment to cre ativity and honesty. One must not only be certain about what he knows but also the extent and lim itation of his knowledge. He must be the prime architect, organizer and administrator of the content of his consciousness. He must be at once selective about the facts he integrates and scrupulous about the relevance they hold for his life. It is in this manner that under standing is necessarily contextual. It is by this monitoring of his thinking that an individual main tains cognitive harmony with the facts of reality and it is in this manner that he remains honest. Achievement through Experience Contextual and honest under standing forbids claiming more understanding than one's actual thinking and experience can pro vide. A person's knowledge and the understanding it entails is his own when he has reached the point of experiential affirmation of his con victions - when he can relate the abstractions of his mind to the concretes of his existence. But it takes time for intellectual under standing to be transformed into an experiential achievement. A child does not understand facts about himself or his existential environ ment that a mature adult is re quired to understand. The intel lectual growth span of a person is in many ways analogous to the cultural growth span of the human race. His movement from the level of mere perception to the higher level of conceptualization and fi nally to psycho-intellectual matur ity is as impressive as the dynam1975 INDIVIDUALITY AND INTELLECTUAL INDEPENDENCE 469 ics of mankind's progression from the Stone Age across the centuries to the Space Age. Each individual begins life at the level of an in tellectual Stone Age. But whether he reaches his own personal Space Age and beyond depends on wheth er he chooses to think and how skilled he becomes in the exercise of his reason toward that goal not on his genetic endowment, his socio-economic status or how well he can mimic the reasoning of others.

The Possibility of Error There are aspects of reality which one may not be able to un derstand until the context of his life is broad enough to provide room for that knowledge which he does not yet possess. Yet it is also possible to have an abstract under standing of certain facts and never have an experience in one's life that reflects that understanding. One does not have to be a candle stick maker to understand how candles are produced. For the same reason, one is not prohibited from inventing a better source of light than candles simply because it has not been done before. This creativity, or what Branden calls "cognitive self-assertiveness," is the factor of man's consciousness that underlies his esthetic expres sion: he is able to create a fiction .al hero unlike any person he has met - or paint a landscape he has never seen - or devise a theory for a social system that has never ex isted.

Since man is not infallible-since knowledge and the understanding it entails is not automatic in hu man beings - since man must dis cover what is beneficial and what is inimical to his existence - there is always the possibility that he may commit errors of knowledge and judgment. The will to under stand requires that he be willing to admit those errors and to cor rect them. It requires that he op erate on the premise of intellectual honesty, confidence and courage. Rather than a source of humilia tion, an error should be seen as a green light signaling the necessity for new thought that can lead to another level of understanding, in creased knowledge and intellectual growth. It presents one with the opportunity to expand his ability to deal with the world around him; to increase his efficacy as a person. Man cannot be right all the time, and he cannot be certain about everything all the time. One's past assumptions may be proven in er ror by his future knowledge; and by the same principle, his answers to today's questions may become his validated convictions of tomor row. What is important is that he does not attempt to fake his own nature or the nature of reality by 470 THE FREEMAN August evading his errors or refusing to acknowledge and resolve his un certainties.

Steps in the Growth Process But there are those who would rather die than admit their errors. Equating right with good and wrong with bad, they feel that to admi t they have erred means to admit that they are bad people. To be judged in error is to them the same as having their morality called into question. Hence, they build up all manner of defenses and rationalizations to protect the image of perfection and omnisci ence they would like to project. But in choosing such deception, they commit an even greater error - not one of knowledge, but a breach of morality: they wish to fake reality. But the man committed to un derstanding does not experience such fears or contradictions. He knows that to be wrong does not mean that he is morally bad; he knows further that being right does not make one necessarily mor ally good. He knows that one is morally bad only when he tries to make a mistake appear to be cor rect when it isn't; he is then bad because he is a liar. He knows that mistakes are tools; they are warn ing signals that more knowledge is required of him. He does not feel that because he has made mistakes, he cannot be certain of anything.

And he never uses the phrase "to err is human" as an excuse not to correct his mistakes. To be human is to grow; human error, properly seen, is a force of motivation - not an excuse to do nothing. The man who chooses to think and does so with the will to under stand is a person of sovereign consciousness, a self-regulating consciousness. To be such an indi vidual means accepting the respon sibility for being cognitively inde pendent of other men; it means being responsible for one's own thinking - being the initiator of the thought and action necessary for one's existence. Because he is a self-regulator, the sovereign in dividual does not depend on the judgment of .others to motivate his self-understanding. He is intellec tuany adventurous and secure in his convictions, but always on the alert to improve and expand his store of knowledge and correct his errors. Not only does he seek knowledge to benefit his existence; he enjoys the search. Repeatedly, he enthusiastically initiates the process of identifying aspects of reality, of integrating those facts into concepts and those concepts into wider abstractions and prin ciples to add to his contin'lal ac cumulation of knowledge.

Yet he knows that disaster can result from resting on the laurels 1975 INDIVIDUALITY AND INTELLECTUAL INDEPENDENCE 471 of mere intellectual understand ing; that the test of one's under standing lies in the application of it to his thought and action. He knows that the constancy of cog nitive and existential independence is not automatic but must be con tinually asserted; that one is not born intellectually and existentially sovereign but must discover the means of becoming so; and that there is no guarantee that he will remain so at any given time or under any given set of circum stances. For this reason he guards his consciousness against irration ality as rigorously as armed troops guard the territorial sovereignty of a nation. His sovereign con sciousness is his most prized pos session, his greatest achievement, and the means by which he remains the unique entity that he is. But there are many men who do not want to be unique and orig inal, who do not want to assume the responsibility of their intellec tual independence of other men.

And when they declare that all men are equal and should be forced to exist as such, it is not the dig nity of man that is their goal as they claim. Rather, it is either in forced equality that such men hope to escape what is to them the hor ror of man's solitary, independent means of existence - or, it is in forced separation that they at tempt to escape having to deal with the autonomous consciousness of other men. But the intellectual independ ence of man's existence is a fact of reality that cannot be escaped and all the rhetoric to the contrary will not make it any less an issue of his survival that each man must contend with. For if men are to be human, if individuals are to be persons, it is the principle of in tellectual independence that they must hold as their priority. I) IDEAS ON LlBERTY Equality and Justice IN THE FULL ENJOYMENT of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally en titled to protection by law; but when the laws undertake to add to these natural and just advantages artificial disfunctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of so ciety - the farmers, mechanics, and laborers - who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.

ANDREW JACKSON, from a Veto Message of July 10, 1832 e on Government of the law is not to abolish nd enlarge freedom. For in all t capable of laws, where there m. For liberty is to be free fro m others; which cannot be wh not, as weare told, a liberty for e ts (for who could be free whe ht domineer over him?), but a rder as he lists, his person, ac is wh01 e property-':H~'!liW~\Mit!,:h~;~in1i!lFt~hf.t\le~jM'li~'n;.~i';~i~~fl;;~~:der whi~; ate is no free violence law; and what he humour pose, and sions, and those laws subject of th his own. Dr. Watts, author and lecturer, is Burrows T. Lundy Professor of the Philosophy of Business at Campbell College, North Carolina, and Director of Economic Education for Northwood Institute, with headquarters at Midland, Michigan. ' 472 1975 THE LAW 473 THE RECENT RISE of militant nihilism l in the United St.ates is reminding liberty lovers that there can be no liberty without law. Not only is there no freedom without restraint, but we gain freedom only a~ we discover and obey "The Law."

Unfortunately, however, "Law" has come to mean, more and more, the decrees and dictates of the State, or Government: traffic laws, tax laws, labor laws, civil rights laws, antitrust laws, school laws, and the orders of thousands of agencies employed to interpret and enforce these measures. The "Law" may also mean the Enforcer: a.gencies and procedures for enforcement - the police, courts, and penal institutions. But not all of these government fiats and enforcement agencies are necessary to preserve peace or enlarge freedom. In fact, the people of every nation could enlarge their freedom by repealing many laws on their statute books and by reducing the number of officials now trying to enforce these restraints. Governments impose these restraints on liberty in order, supposedly, to check abuses of freedom. And, as the victims grow accustomed to their shackles, they are apt to shudder at the evils that they imagine might ensue if they and their fellows regained their freedom. 2 In other words, it is hard for us to reconcile our desire for freedom with our knowledge that freedom is so often abused. Therefore, we give lip-service to freedom; w'e say that we really believe in free enterprise, that we honestly want more freedom for everyone. Yet most of us tolerate flagrant political infringements of freedom and then demand still more laws to deal with evils which these infringements produce.

We should know that freedom in any activity is always misused sooner or later by someone. Noone has the complete knowledge necessary to do 1 According to Webster's New World Dictionary· (New York: The World Publishing Co., 1964), nihilism means: 1. in philosophy, a) the denial of the existence of any basis for knowledge or truth, b) the general rejection of customary beliefs in morality, religion, etc., also ethical nihilism. 2. in politics, a) the doctrine that all social, politi cal, and economic institutions must be completely destroyed in order to make way for new institutions: specifically, b) N-a movement in Russia (c. 1860-1917) which ad vocated such revolutionary reform and attempted to carry it out through the use of some terrorism and assassination; hence, 3. loosely any violent revolutionary move ment involving some use of terrorism. 2 Cf. Robert M. Bleiberg, ·"Government and Business: Federal Regulation Has Reached a Dead End," Barron's, April 23, 1975, for recent examples.

474 THE FREEMAN August always what is right, either in private or in relations with other persons. Noone has the infinite wisdom or self-control necessary to avoid mis using the new opportunities which a progressive society is continually opening for its members. Doctors, nurses and teachers, as well HS poli ticians, bankers, salesmen and artists, often abuse whatever freedom they have. From this fact, the unthinking conclude that humans are unfit for freedom. They think of human progress, therefore, in terms of more and more use of government force to restrict freedom whenever or where ever anyone misuses it. Moreover, they often seek to abolish it where abuses are relatively few because it is politically easier to put restraints on the few than on the many. Yet, it is from the actions of a few whom their fellows regard as fool ish or dangerous, that we sometimes reap greatest benefit. "Freedom"

to do only what someone else says is right is not freedom but slavery; and a society of free persons who know and choose to do only what is wise and good is a utopian dre1am. What, then, is "The Law" which increases freedom as contrasted with the governmental edicts,. which s~ often retard and restrict it? How do we discover "The Law" of a free society, and how do we enforce it with out erecting a freedom-crushing State, or Government? Law as a Regularity vs. Law as a Norm In science and philosophy, a law is a uniform order, or sequence, of events. In human conduct, it is a pattern of behavior, re,gularly repeated, and therefore predictable. These regularities, or laws, of human action may be psychological, economic, moral, or juristic, and perhaps aesthetic and political. The laws of human action, however, differ from the laws of inanimate nature as humans differ from inanimate matter. HumansdiffeJ; from in animate objects in that human actions are purposive, as are the actions of all living creatures. They act from internal motive forces necessary to maintain life, rather than in direct response to outside physical forces.

This makes their conduct variable and less predictable because the in ternal structures and life forces vary from one individual to another. This individual variation is greater for the higher, more complex organ isms; and it is greatest for humans of every race, age and condition.

1975 THE LAW 475 More significantly, humans differ from all other living creatures by being self-responsible. That is, they can learn to be consciously self directing. Their actions result from choice rather than from instinct; and since humans choose to pursue an endless variety of self-determined purposes, any individual in a particular instance may depart from the behavior sequence which the praxeologist (scientist in the field of hu man action) sets forth as a "law," or regular mode of action. The jurist, therefore, in common with other praxeologists, finds that the regularities, or laws, with which he deals are norms - normative ~ules, standards, expectations, probabilities, or "oughts" - rather than the (more nearly) invariable sequences which the physicist or the chem istmay discover and call "laws." Interpreted most broadly, therefore, "The Law" in human affairs means the norms or system of norms, for human behavior. A specialist in this field (a lawyer or jurist) may concern himself only with the rules and standards actually prevailing in the community to which his clients or other parties belong.

The Law in human relations, accordingly, consists of all of the rules, customs, and standards that affect the decisions of juries and judges. It includes not only written statutes and ordinances, rules of procedure in courts of law, and prior court decisions, but also pressures and prejudices which may influence a jury's vote or a judge's determination of the law in a particular case. More narrowly, philosophers of law describe it as that entire complex body of rules, judicial decisions, and usages which prescribe the actions of individuals and groups toward one another and which are enforced by sanctions. "Sanction," in this use of the term, means "detriment, loss of reward, or coercive intervention" to restrain, injure or inconvenience offenders. The sanctions for law may consist of counter-aggressive retaliatory force: seizure of property (fines), imprisonment, or physical injury (flogging, maiming, or execution) .

Or, more often, these sanctions take the form of defensive actions, such as shunning the offender and using force merely to block attempted trespass or aggression. The defensive action may be cooperative, such as, for example, the exchange of information to alert one's neighbors or the members of an association to the offender's variation from th~ sanc tioned norm. Thus, a member of a credit association may report for the benefit of 476 THE FREEMAN August other members that a customer has failed to pay his bills. Or, the action may involve forming a voluntary association to block aggression by united action in erecting defenses, such as building walls and hiring watchmen. Let us note at this point, moreover, that the defensive responses to trespass are far more frequent and more effective than the coercive reactions. Origins of The Law The Law - these sanctioned norms of human conduct - originate in the claims of individuals and in their actions to gain recognition and respect by other persons for these claims. As a dog whirls in a pile of hay or straw to make his sleeping place, so each individual makes for himself a place in nature and among his fellows as he acts to support his life and rear his offspring.

It does not follow, however, that these acts to support one's life must be predatory or that the actions to establish necessary claims (as for example, a claim to living space) must be aggressive and injurious to others. Humans make a better living by division of labor and voluntary exchange of services than by stealing or by producing merely for their own consumption. For this reason, those who practice and defend the ways of peaceful, voluntary cooperation tend to "possess the earth." These peaceful usages become customs and mores, and finally acquire the sanctions that make them Law. When Law and Freedom Are Underdeveloped Members of primitive societies, of course, have only a primitive (scanty, undeveloped) understanding of The Law in the ideal sense. Therefore, their laws are primitive. This makes their culture primitive and restricts their level of living to one which makes their lives brutish and short.

That is, primitive societies recognize few claims of individuals to exclusive use (ownership) of land and its products: they recognize few claims to individual ownership of capital goods (such as a boat or even a hut) ; and they acknowledge few claims to control (ownership) of the 1975 THE LAW 477 individual's own energies and person. Still less do they acknowledge an individual's claims to private enjoyment (ownership) of what he may gain from trade with outsiders; and not until a society reaches a com paratively advanced stage of culture do its memhers permit individual claims to rent or interest earned by loans of property (that is, claims to gains from sale of the uses of property) . Members of such societies use their energies and resources ineffi ciently. They carryon little agriculture, devise few tools or machines, do little trading, do little building, and have no landlords, bankers or capitalists. That is what we mean by saying that their culture is "primi tive." Their economy is "backward," or "underdeveloped"; and the people are "poor" (lacking in capital, or wealth). The individuals lack freedom (rights of ownership) to use their energies or the products of their labor and enterprise to enrich themselves. For lack of law establish ing these rights, they are in bondage to the collective. This bondage restricts development of individual talents. Consequently, their social relations remain unprogressive, and their lives remain relatively mean and poor.

We should not infer from this, however, that the members of primitive societies live in a state of perpetual war with one another or with mem bers of their communities. Popular though the notion may be, it is a myth that "savages" live in a "dog-eat-dog" state of incessant warfare and turmoil because they lack the officials and procedures of modern governments. The contrary seems to be nearer the truth. The social relations within tribes of primitive cultures often appear more tranquil than those pre vailing within and between those of more complex cultures. The reason for this apparent tranquility may be that the tribe mem bers punish violators with such certainty and severity that few dare to challenge the mores, as one might, for example, by trying to keep for his exclusive use what others believe should be shared. (Similarly, the rela tions between master and slave may appear peaceful because of the threat of dire penalties if the slave disobeys the master's orders; and relations within a trade union or between the unions and employers may appear peaceful because no employee or employer dares challenge its rule.) The lack of recognition for individual property claims - in other words, the lack of property la.ws - means that, in a primitive group, any 478 THE FREEMAN August individual who keeps for himself the fruits of his labor may have sanc tions applied to him much like those· which an advanced community applies to a thief.

Yet, because ambition is stifled, members of a primitive society may appear to suffer less feeling of conflict with their fellows than members of more civilized and progressive societies; and they may share their meager fare generously with a passing stranger. Claims - Strains - Progress In more advanced and progressive societies, the growth of wealth and changes in ways of living produce ever more numerous changes in occu pations and techniques. These changes continually give rise to new indi vidual claims and conflicts, as, for example, claims to ownership of one's signature and conflicts with would-he trespassers (forgers). Out of these claims, pressed by the actions and arguments of interested individuals, come new usages, customs and laws - but not without stress and strain. The stresses which arise from disputes over new claims may result in dangerous outbreaks of destructive violence unless there is a general, deep commitment to nonviolent methods of settling disputes. Insofar as this commitment to peaceable settlement of conflicting claims prevails, we find peace and progress.

This commitment to peaceful methods of settling disputes requires acceptance of the basic principles of The Law while discovering and learning to accept new applications of these principles. Whence comes this commitment to nonviolence? Whence comes the rationale for non-interference and for individual rights that permits the development of property laws necessary for the growth of capital and for the human progress which increasing capital supports? In short, whence comes The La.w which preserves the peace and frees the individ ual to prosper and progress? The Way to Peace On the one hand are those who profess to find that the fountain of law and justice is the tribal Chieftain, the King, the State, or the Govern ment. In this view, the establishment of order, peace, and freedom must await the formation of a Government which claims and secures a monop1975 THE LAW 479 oly of the lawmaking process, and which aggressively applies whatever coercive, retaliatory sanctions may be necessary to frighten people into obedience to its decrees.

According to this view, too, peace between these governments will come only when a World Government acquires the overpowering military forces necessary to subject all competing Lawmakers and Enforcers to its authority. Opposing this view are those philosophers of law who see in the mo nopolistic, retaliatory State a lawless organization which wins power by promising peace but which always sooner or later becomes the chief lawbreaker and war-monger. Worshipful reliance upon this political juggernaut, they warn, now threatens all mankind with enslavement and destruction. The same unreason which approves retaliation and terroristic penal ties for violations of the State's decrees gives rise to the collectivistic tyranny of the war-making State and finally produces the mob violence and civil war which mark its own decline and demise. Human progress, these juridical philosophers contend, requires an end to retaliation by States no less than by individuals, "Vengeance is mine: I will repay, saith the Lord."

In this anti-statist view, The La,w is not devised but discovered; and this discovery can be made only by the exploratory actions and "right reason" of free, self-governing individuals. The truly progressive law makers then, are all of the countless individuals who practice, defend, and expound the norms of peaceful action in support of human life. Thus, men of peac~ who recognized and tried to practice self-responsi bility developed the jus gentium ("law of nations") of Ancient Rome. Similarly, their moral successors discovered, lived by and taught the medieval and modern "Law Merchant" of the Western World and the "Common Law" of the English-speaking nations. 3 3 In the words of Cicero, "True law is right reason in agreement with nature; it is of universal application, immutable and eternal. ... We are not allowed to alter this law, nor is it allowable to attempt to repeal any part of it, and it is impossible to abolish it entirely. We cannot be freed from its obligations by Senate or by people, and we need not look outside ourselves for an interpreter of it. There is not a different law for Rome and for Athens, or one for now and one for the future, but one eternal and unchangeable law valid for all nations and all times ... Whoever is disobedient is fleeing from himself and denying his human nature." De re publica, III, 22, quoted by Louis Rougier, The Genius df the West (Nash Publishing Corporation, Los Angeles, California, 1971), p. 27.

480 THE FREEMAN August Outlawing Retaliation The sanctions for The Law, as it has developed in the most advanced societies, no longer include retaliatory action by "unauthorized" (pri vate) persons. A private citizen may kill a trespasser or thief with impunity only when he has reason to helieve that the trespasser menaces his own life and that of others on the property. He may not, legally, pursue and kill the thief or trespasser who is running away. The wronged husband or wife may not vengefully kill an errant spouse. That so-called "Unwritten Law" in such cases is being repealed. Consistent with this development in recent generations would be withdrawal of authority for retaliation by any person or persons. Ideally, the sanctions of a peaceful, law-abiding, progressive society defend and preserve; they do not retaliate or destroy. We find in advanced societies therefore, growing sentiment for rehabilitation of offenders or, at most, precautionary confinement, instead of penalties intended to "make an example" of them or to make them suffer as these trespassers made their victims suffer.

To see that terroristic penalties. may not be the most effective way to gain obedience to The Law of a free society we -must recognize two important facts: First, these penalties alone cannot secure compliance in an advanced society even now. To put this in another way, the police alone cannot stop crime in a ~odetn, complex society. Second, we must recognize the many. non-political ways by which members of a comparatively free and progressive society, such as these United States of America, teach and enforce The Law nec essary for voluntary cooperation. Individual and private action must play the leading role in making the laws and in obtaining compliance. Government officials may assist the process, but often they distort and· misdirect it; and it i~ easy to overrate what Government can or should do in lawmaking and law enforcement. Furthermore, coercion - whether defensive or retaliatory - merely assists law enforcement in a limited numher of cases. As Dr. Bruno Leoni, late Professor of Legal Theory at the University of Pavia, Italy, well said: 1975 THE LAW 481 It is curious to note how many people are so highly impressed by the peculiar nature of coercion as a purportedly typical ingredient of legal norms that they tend to overlook completely the very marginal significance of coercion in any actual legal order as a whole.4 Moreover, he continued, coercive sanctions apply only to some norms, not to all.

The main norms, such as the constitutional ones, in each single nation, or the internation~1 ones concerning relationships between nations, often do not even mention sanctions or coercions, for the simple reason that no sanction or coercion could assist them in any effective way. (Ibid.) We should take care to note, however that Professor Leoni referred to coercive, retaliatory sanctions: for a practice that is subject to no sanctions whatever is not a law but merely a custom or usage. Unfortunately, statist influences incline us to think of legal sanctions only in coercive, retaliatory terms (fines, imprisonment, and bodily injury), because in most cases the State must apply these or none at all. Purely defensive sanctions, on the other hand, involve mechanisms and physical force only to block (prevent) aggression and withdravv from cooperation with the offender. These generally require the exer cise of private initiative, which statism tends to discourage or suppress.

Yet, these noncoercive sanctions may be more effective and economical than retaliatory measures. This appears particularly obvious in the field of international relations. Few Americans today, probably, would favor efforts to collect a debt from a delinquent foreign government by a mili tary expedition against it. Most would probably prefer purely defensive, noncoercive sanctions in such a case: withholding further loans until some agreement is made concerning the unpaid debts or until assurance is given that future contracts will be honored. Many Americans would agree also that progress in obtaining compli ance 'with The Law in domestic affairs might come more readily through greater reliance on nonretaliatory sanctions. Juvenile delinquency, for example, has been increasing in recent decades mainly because Government has been discouraging or prohib iting use of certain defensive, noncoercive sanctions that were formerly applied. Teachers, parents, and employers once could and did withdraw their services and the opportunities of school, home, and workshop from mischievous or indolent youths.

4 Lectures before· the Rampart College Phrontistery, December 1-7, 1963. See also his published work, Freedom and The Law (New York: D. Van Nostrand Company, Inc., 1961).

482 THE FREEMAN August Now, especially in the United States, school attendance laws deter public school teachers from expelling them. At the same time, child support la.ws, child-labor laws, minimum-wage laws, and la.wless actions of privileged trade unions discourage or prevent parents from requiring irresponsible juveniles to choose between accepting the disciplines of employment or leaving home. In addition, subsidies to the parents often weaken their incentive to impose the necessary sanctions. Even more demoralizing, perhaps, has been the increase in statist control of the schools, control which deprives parents of both the means and the feeling of responsibility for educating their own offspring. In short, Government has turned benevolent despot by subjecting youths to its own brand of maternalism and forced schooling, while it restricts their freedom to make themselves useful, reduces their parents' financial ability to provide more suitable schooling and in other cases reduces the parents' incentives to set an example of useful effort or to require such effort of their children.

Is it surprising, then, that juvenile victims of this irrational despotism turn, rebelliously, to mischief and crime to relieve their boredom or perhaps to supplement the unearned incomes of their subsidized families? More freedom for the young to be useful, and more freedom for parents, employers and teachers to apply nonretaliatory sanctions, as well as to provide more productive outlets for youthful energies would be a more effective way to raise the moral level of juvenile conduct. Progress in Private, Defensive Sanctions Fortunately, private initiative still operates defensively in countless ways to maintain The Law: by home teaching and discipline, by locks on doors and windows, by watchdogs and burglar alarms, by private guards and watchmen, by safety deposit boxes and vaults, by cameras and recording devices, by lie detectors and reference requirements, by employment policies, by exchange of credit information, by organized or unorganized boycotts, and even by building walled cities for carefully selected residents. 5 Criminality would quickly overwhelm the Government's defenses for 5 As law-abiding citizens seek homes in "safe" communities - communities in which they are better protected against violence - they stimulate competition among politicians in performing this service for the citizens subject to their taxing authority.

Unfortunately, increasing centralization of political power is restricting this whole some competition.

1975 THE LAW 483 persons and property were it not for such private defensive actions. And, if private citizens become more aware of their responsibility and oppor tunities for self-defense, producers will quickly supply more effective devices and techniques for the purpose. This could do more to assure compliance with The Law than an increase in Government's police powers. Libertarians contend that we can promote the progress of The Law by various reductions in the size and scope of Government. How far we should go in this dismantling process, and to what extent private enter prise can progress in providing improved protection, will be matters for endless speculation and debate. But in one essential undertaking we can go far. We can cooperate in promoting understanding of the vital role of private, individual enter prise in making - discovering, accepting, and enforcing - The Law of a free society.

Along ,vith this private lawmaking and law-enforcement, members of a free society must know and appreciate that coercion of one's fello'w man - 'whether the coercion be legal or illegal - is not a short-cut to prosperity or welfare, but a barrier to progress for all mankind. Only by the example and freely given cooperation of our fellow humans can any of us prosper. Wrote Frederic LePlay, French engineer and sociologist, "Prosperity is a multitude of good acts." A prosperous society, then, is one consisting of individuals who love the ways of justice, freedom, and righteousness. Self-reverence, self-knowledge, self-control, These three alone lead life to sovereign power. Yet, not for power, (power of herself Would come uncall'd for) but to live by law, Acting the law we live by without fear; And, because right is right, to follow right Were wisdom in the scorn of consequences. Aenone, Tennyson Reprints of this article available, 6 for $1.00 MORRIS C. SHUMIATCHER THE INSECURITY OF ___---.."SECURITY _ AN IRONY OF OUR TIMES is the un welcome discovery that our pur suit of economic security has led us down the road to insecurity.

The greater our concern for safety, the more vulnerable we have be come to the forces that are capable of destroying our freedom and dis solving our economic independence. Our preoccupation with the build ing of dykes against the flood has only raised the level of the waters beyond, and so augmented rather than allayed our apprehensions. Before even the unconditional surrender of Britain's enemies in 1945, Lord Beveridge was advanc ing plans for a new kind of society in which, from the cradle to the grave, everyone's security would Dr. Shumiatcher is a prominent lawyer in Regina, Saskatchewan, well known as a lec turer, writer, defender of freedom. 484 be underwritten by the state. Fear of the future would be forever banished. Individual egalitarianism and economic security became the pop ular slogans of the day. They were echoed in all parts of the postwar world. Socialist and welfare-oriented governments sprang up everywhere. Superfi cially, the slogans seemed as attrac tive as the promises of the new society in which not only war, but poverty itself would be abolished.

But after thirty years of eu phoric eloquence, the welfare state realized none of the sanguine hopes or extravagant promises of its political progenitors. Economic security once seemed a simple mat ter to achieve by the rational plan ning of governmental experts and the central computerized controls 1975 THE INSECURITY OF SECURITY 485 of professional bureaucrats. The power to build a fortress against poverty and exploitation seemed unquestionably Parliament's. The good that would flow from banish ing the common enemy of poverty and insecurity seemed self-evident. To achieve this felicitous result was a desire shared by almost everyone. Why could the vehicle of the law not be employed by govern ments to give effect to these in spired impulses? The objective appeared so pat ently desirable and its realization so simple, why should the program for economic security that had so zealously been pursued after World War II prove to be as elusive as the military security that the French had sought to achieve with their Maginot line before the out break of hostilities in 1939? The answers are not dissimilar.

The French military planners between 1929 and 1939 viewed na tional security as a state of being in which the relationships between themselves and the forces and con cepts of their likely enemy could remain fixed. They believed that behind the stone and steel of the Maginot's physical fortress, the life and liberty of France could somehow be preserved against as sault. They ignored or discounted the simple fact that in war as in peace, the chief component of sur vival derives from a mystical, undefinable, ever-shifting historic force that emanates from the hu man spirit; that while the will to freedom may be a national treasure it is neither a museum piece nor a cloistered virtue. It exists only where it is beleaguered and chal lenged; it flourishes only when it is cherished and defended. A na tion's will to live can no more thri ve behind stone walls than an enemy's will to destroy it can be repulsed by those walls.

Like national security, a nation's economic base cannot draw its strength from roots buried in the sterile soil of economic laws that are merely accorded a legislative existence. Legal-economic juggling is no substitute for production or trade and while it may provide a series of diverting and entertain ing performances, it is unlikely to bake more bread or build more houses or brighten any of the world's dark places. These achieve ments flow from the energies of individuals who, acting alone or in concert with others, apply their ingenuity and skills to improve their personal lives and in some significant way to assert a. claim that each is different from the other; that while the state might treat everyone as a statistic in a plan, projected or realized, no citi zen will consciously agree that his own .plans a.nd dreams, his work and achievements, can be reduced 486 THE FREEMAN August to the simplistic formulae of the apparatus of the state.

Our Love-Hate Affair with Inflation There is scarcely a politician or economist today who. does not pro claim that the most fearsome spec ter that now haunts the people of the industrialized countries is in flation - the sense that there is no longer any security to be found in the elaborate plans and promises of the architects of the great wel fare society. The supply of paper money and credit has so outrun the supply of the things that money and credit are supposed to move from the producer to the market, and from the market to the con sumer, that the price of all things today has ballooned and tomorrow the balloon may rise still higher. Noone knows or can guess how much money it will take tomorrow to buy a meal, a shirt or a house. All of the elaborate welfare fences and hedges that were meant to provide economic security are sink ing into insignificance as their value declines, and like the Magi not Line, they are skirted by the enemy and reduced to impotence.

What is equally disturbing is that it is not only the paper-thin welfare schemes that are vulner able. The pension plans to which the most provident contributed upon the basis of sound actuarial data are shrinking even faster. In the result the whole chimerical scheme of social welfare has not only failed to reach the objectives it so idealistically set out to achieve, but it is jeopardizing the personal security that most people assumed that as reasonable men and women and as good citizens they were duty-bound to plan for their families and provide for themselves. The reason for this failure is obvious. Welfarism has always been concerned only with the dis tribution of wealth. It has con sistently ignored the necessity of generating new wealth and of re generating the individuals who are capable of producing such wealth. It claims to be concerned with preserving the-natural re sources of the nation for the bene fit of future generations, but it has consistently ignored the need to preserve the most important natural resource of all in this gen eration: the energy and enterprise of the people of the country who are productive, inventive, innova tive and energetic. As the numbers of such persons decline, as as suredly they are declining in the face of heavy taxation and con fiscatory laws, the wealth-generat ing capacity of the nation also declines.

The funds that ought to be saved and invested in new, productive machinery and equipment and in 1975 THE INSECURITY OF SECURITY 487 research and exploration and sci entific development to increase our wealth and enhance our national well-being, are being used by gov ernments to feed the voracious appetite for power of burgeoning bureaucracies whose principal function it is to control, to regulate, to inhibit and ultimately to stran gle the innovative impulses and creative energies of the people. The growth of government pay rolls is sought to be justified on the ground that full employment is a legitimate government ob jective and that if private organi zations cannot provide it because they find it unprofitable to do so, the state will create jobs - real or unreal, productive or unproductive - to give at least the illusion that everyone (if not usefully em ployed) at least can draw the pay of a real job.

The pity is that no one is saying that if the job is a make-believe job, its wages can ultimately only be paid in stage money. And since productive people receive the same kind of paper bills and notes as the nonproductive, the value of everyone's dollar declines. As the proportion of unproductive state subsidized job-holders (as com pared with the productive pri vately-employed people) increases, the value of all money decreases. And, as a result, of course, the standard of living of all persons except the nonproductive, declines. Money and credit paid to con struct a mill that will produce new wealth and provide gainful employment enhances the value of the investment and produces for the nation a return on capital that ultimately benefits all citizens. But money paid to perpetuate idleness or to "create jobs" that are mean ingless and simply subsidize the game of "make-believe" is an eco nomically negative expenditure. In reducing the value of everyone's dollar it degrades the economically worthwhile pursuits of those whose honest toil produces. a val uable asset or service. Not only does the useless job-creation proc ess debase the currency; it dis illusions and embitters the con scientious worker who grows cyni cal, or despairing, ultimately joins the nonprod ucti ve job-holder.

"After all," he reasons, "why should I work so hard when doing nothing gets you just as much?" If it were only that the make believe/make-job policy of govern ment is nonproductive, our econ omy might be capable of support ing the increased costs of those proliferating and prospering in the public purse. But the cost of such a policy is compounded many times by the irritating and irre sistible penchant of public serv ants to meddle in the affairs of 488 THE FREEMAN August those citizens who must replenish that purse - citizens whom govern ments seek to control, direct, reg ulate, restrain and dominate not only in respect of their economic and social affairs, but in almost every facet of their fiscally frac tured personal lives. In the result, the country has become burdened by a new para sitic class of baronial busybodies who "toil not, neither do they spin: and yet even Solomon in all his glory was not arrayed like one of these."

The welfare state discounted the role played by the scale of rewards and penalties that is the natural discipline to which individuals liv ing in a free society are subject. The rewards of productivity and inventiveness have traditionally been personal prosperity and plenty; the penalties of ineptitude and incompetence have usually been poverty and privation. In their zeal to apply the concept of egalitarianism to all, the welfarists determined to guarantee to the indolent, the ignorant and the non prod ucti ve, the same rewards as are enjoyed by builders, innovators and producers of wealth. This could be accomplished only by tak ing from the productive the fruits of their industry through inordi nately high taxation and, where considered expedient, through na tionalization. The welfare state accords security not to the indi vidual but to the state. Its bene ficiaries are neither its citizens, its workers nor its tax payers ; nor will they ever be. For we are sheep, and the progenitors of the welfare state have a lion's appe tite for mutton.

Taxes Fuel Inflation Taxation as an instrument of redistributing wealth and engi neering a new social order has pro duced a revolution in the west as far-reaching in its consequences as the Russian revolution of 1917. It has resulted in the use of the vast tax revenues - greater by far than a treasurer's most extravagant dreams of avarice - to expand an already swollen army of civil ser vants and so create a new class of permanently socialized citizens de pendent upon the state. Thus, there has come into being an in finite indolence of individuals oc cupying new workless jobs and engaging in gainless employment. Governments at all levels are grabbing the glutton's slice of the citizen's income and property (about 45 per cent. and fast in creasing) not because of public need, but because of political greed. Governments have deter mined to meddle, to buy and sell and wheel and deal - and above all to control the economy - not to assist the productive citizen but 1975 THE INSECURITY OF SECURITY 489 to compete with him - and not to benefit the unproductive, but to so thoroughly convince him of his dependence upon the public lar gesse as to render him incapable of ever standing on his own feet.

Governments no longer serve to ennoble the citizen; the citizen has become the servant and guinea pig of the state. So long as politicians in pursuit of popularity pay lip service to a policy that pretends to be capable of providing all good things for all citizens regardless of the effort expended to produce them, the vol ume and value of production will continue to decline, the cost of what is produced will continue to rise, and the obvious effect will be that the rate of inflation will con tinue to accelerate. Many years ago an 0 bservan t economist stated what has become known as Gresham's Law. It is that "bad money drives good money out of the market place." That is why we no longer see or hear any silver coins tinkling in our pockets: nickel and tin have taken over. Upon that same principle, I ad vance Shumiatcher's simple law that in a welfare state the idle drive the industrious out of the economy. The two corollaries that flow from that law, of course, are first: as more money is paid by the state for nothing, everything costs more; and secondly, the more peo ple who get money for nothing, the fewer will do something for anything.

There is nothing more unset tling to a society (with the excep tion of war) than the ravages that inflation inflicts upon the stable middle class of a commun ity. As prices rise, the goods that were once within the citizen's reach are, in effect, placed beyond his grasp as though they were no longer on the shopkeeper's shelves. The personal security that indi viduals spent a lifetime working to attain, suddenly disappears in a rising tide of prices that take his savings, dissolve his pension and leave him defenseless. Egalitarian ism is indeed produced - but it is the egalitarianism not of affluence but of poverty. Governments: Prime Profiteers The startling fact is that it is only the government (at all levels) that profits from the national ma laise of inflation. Its injection of more money into the economic stream than is generated by eco nomically useful activities has poi soned the waters by which we all must live.

For this there are several rea sons. Apart from printing money, the government has only two sources from which to find the money it 490 THE FREEMAN August spends. It may secure it from the taxpayers who have no choice but to yield up and deliver what is de manded; or, it may get money from lenders who purchase gov ernment bonds at a rate of interest that governments fix. In fixing the rates of return on its borrowings, a government effectively deter mines what is likely to be the low est rate of interest that money will yield in the national market place at any given time, on the theory that the government is the most trustworthy borrower in the country and other less reliable debtors will have to pay more. The sec9nd reason that govern ments have a vested interest in in flation arises from their taxing policies. Inflation produces greater tax yields and so enables them to claim that continually expanding benefits will be paid out to those who are the objects of their wel fare-oriented largesse. I am think ing now not so much of the retail sales tax bites - a five to eight per cent direct levy on all retail sales that increases with prices and sales volume. Such revenues do provide greater money returns to the state, but they are of no more benefit to a government than a retailer's enhanced prices that must go to defray the higher costs of replenishing his stock and pay ing his rising overhead.

I am thinking rather of the "progressive system" of taxation upon the income of individuals and companies that siphons off ma terially higher revenues from the citizen to the coffers of the state in a period of inflation than in a period of economic price stability. Again, .the reason is obvious. The percentage of 'income that govern ments claim rises directly and steeply with the amount of the taxpayer's annual dollar income. Receiving more dollars automa tically moves you into a higher tax bracket: you receive more money in wages or profits because infla tion has made each dollar worth less than before. You may have more money in your pocket but, like Alice in Wonderland, you now find you must run faster just to stay in the same place. Unfortunately, more dollars cannot keep Alice or even the Mad Hatter in the same place when the bite of "progres sive taxation" takes so much greater a percentage of your in come.

The principal inflators of the economy have been governments. They justify their policies by claiming that their duty is to guarantee full employment and "to create jobs" even though these jobs may be little more than slots to be filled with a payee to whom is delivered a monthly subsidy check. Ingenious programs are created for the purpose of assum1975 THE INSECURITY OF SECURITY 491 ing the responsibility to care for the careless, think for the thought less and animate the comatose. The Injustice of the IIJust Societyll The economic disorder of our times derives in large measure from the belief that distributing more of the dollars earned by those who work and save, to scatter them among those who are unwill ing to do so can create a prosperous and just society. The result is likely to be precisely the opposite. The new society will be poor and not prosperous, because the penal ties of working and saving have now grown so heavy that few are willing to work and none will have either the incentive or the ability to save. The new society is not a just society because justice de mands that each man's work and accomplishments be recognized and valued for what they are in the market place where the pub lic's demand will fix a value on their true worth. A just society cannot be created by acts of Par liament, but only by the actions of the people - positive, productive, profitable.

How is the true worth of any man's product valued in the free marketplace? His milk and meat and vegetables? The fence he mends, the house he builds, the roof he paints, the water pipe he repairs, the cyst he removes, the tooth he fills, the books of account he enters, the mail he carries, the suit he sews, the citizen he de fends in court? How are these goods and services valued by the people who buy them or use them? Mid-westerners who passed through the drought-ridden hungry 30's when money was as scarce as rain but individual ingenuity was as common as the grasshopper, remember that food and clothing and fuel that were wanted were often bartered for services that were needed. Chickens and eggs and butter went to the storekeeper who had shoes and shirts he could not sell, and the services of car penters and plumbers and doctors and lawyers were bought with turkeys and ducks and cream and carrots and the odd calf. Govern ment played little or no part in the trading or the production of these times. One very good reason why the presence of government officials was a rarity was because the people of the west were per fectly aware that there was no useful service bureaucrats could provide.

Even if they had existed at the time, what was the farmer or the town or city wage earner prepared to pay to an army of social workers or assessment commissioners or labor inspectors or occupational health officers or cooperative con sulting coordinators or assistant 492 THE FREEMAN August deputy administrative directors or swine or beef or sheep or wool specialists or poultry administra tors or agricultural maehinery officers or farm development co ordinators or communications di rectors or artificial insemination supervisors or consumer complaint investigators and research and liai son directors, or information ser vices officers or deputy ministers of human resources development or human rights officers or direc tors of employment practices ser vices units or commissioners of land banks or executive assistants to deputy ministers of northern areas or educational psychologist consultants or directors of hearing aid plans or welfare training coor ordinators or chiefs of special ser vices for adults and chiefs of spe cial services to youth and families of Welfare Departments, or nurs ing consultants and medical consul tants and standards consultants and research and statistics direc tors or coordinators of special placements or coordinators of adoption services, or coordinators for the status of woman, or com missioners on aging-all for the welfare of the public; or property capital officers of tourism and re newable resources, or firearms safety supervisors, or interpretive services supervisors or museum services supervisors or parks di rectors or regional administrative directors or urban advising com missioners or workmen's advocates or ombudsmen?

How many people, in the days when cash was as scarce as pin feathers on a bullfrog, were will ing to trade a cabbage or a cauli flower - let alone a chicken or a duck (even a lame one) - for the services that any such aggregation of high functionaries might be capable of performing for their benefit? No Choice But to Pay Of course, today, the public grudgingly pays for the services of all of these officials and a great many more besides, because taxes are compulsorily exacted and the citizen has no alternative but to pay. But if the vast army of bu reaucrats and their minions were required to collect directly from those they purport to serve, money or money's worth, for what their services are considered to be worth, the national tax bite at all levels would decline from the pres ent 40 to 45 per cent of the na tional gross product to one-quarter of that amount. The vast army of the public service across the coun try would be demobilized and its veterans would at last be free to engage in activities that might be productive and useful and that, in the eyes of their fellow citizens, would command a payment in 1975 THE INSECURITY OF SECURITY 493 money or money's worth for the goods they hopefully would come to produce or the services they might possibly learn to perform.

In a just society, each individual should be rewarded for his en ergy, his talents, his productivity and his service. He ought not to be rewarded because of his priv ileged position as an official of the state. Neither should he be penal ized, as he so often is today, by the state because he puts in a better than average performance at what he knows or does best. Justice requires that each man be free to prove his excellence and to enjoy the rewards of his efforts as they are accorded him by those who pay for them and are there fore best able to judge their value. It is well that we remember that who robs another of his reward, diminishes not only his own sta tus, but deprives all of society of the benefits it might otherwise gain from the energies and pro ductivity of every citizen. The government that robs its citizens of their reward, upon whatever pretext, diminishes not only the stature of its citizens, but condemns the nation to a future of poverty and despair. , IDEAS ON LIBERTY Injurious to ,Character A SYSTEM for the support of inadequate persons in the United States was never contemplated by the authors of the Constitution; nor can any good reason be advanced why, as a permanent estab lishment, it should be founded for one class or color or our people more than another. Pending the war many refugees and freedmen received support from the Government, but it was never intended that they should thenceforth be fed, clothed, educated, and shel tered by the United States. The idea on which the slaves were assisted to freedom was that on becoming free they would be a self sustaining population. Any legislation that shall imply that they are not expected to attain a self-sustaining condition must have a tendency injurious alike to their character and their prospects.

ANDREW JOHNSON, Veto-Message of February 19, 1866 SYLVESTER PETRO The Dissolution of Social Order THE QUESTION of all questions in political economy not too long ago ,vas: what should the functions of government be? Today it is: will government be? Among the numerous, grave, and perhaps critical threats to the sur vival of civil order in the United States, one more ominous than the rest stands out: the movement in an the states and in the federal government to compel collective bargaining between our govern ments and unions acting as repreProfessor Petro is Director of the Wake Forest Institute for Labor Policy Analysis, Wake Forest University School of Law, Winston Salem, North Carolina. He is a noted speaker and author of numerous books and articles on labor law and policy and other politico-eco nomic matters. The views expressed in this article are personal and do not necessarily re flect those of the Institute for Labor Policy Analysis.

494 sentatives of government employ ees. Although this movement rests upon a series of incredible distor tions and misrepresentations of fact, it is propelled by premises, theories and arguments which can not withstand serious examination, and creates chaos in every branch and sector of government where it takes hold, it is nevertheless gain ing ground year by year, even day by day, in all our governments federal, state, and local. My thesis here is that this move ment must be stopped if decent social order and effective represen tative government are to survive in this country. The nation, the states, the cities large and small, are already besieged by a horde of other destructive threats. Every1975 COMPULSORYPUBLIC-SECTORBARGAINING 495 one knows this. Because under standing of these other threats is so widespread, however, there is at least room for hope that they will be dealt with more or less effec tively. But profound ignorance at every level prevails on the issue of compulsory public-sector bargain ing, and the powerful forces deter mined to inflict it upon thecountry therefore meet almost no resist ance at all, let alone informed, de termined, and effective resistance.

My purpose is to stimulate such re sistance, to inform it, and thus to contribute to its effectiveness. For if such resistance fails to appear, the virtually certain emergence of compulsory public-sector bargain ing universally in this country especially when this destructive in stitution combines with the other crises which are breaking the coun try apart - is bound to bring about chaos, anarchy, and, ultimately, tyranny. Factual Distortions and Misrepresentations The first thing we need readily at hand is hard and accurate informa tion concerning the condition of public employment in this country, the status of our public servants, the way they are treated, the rights, powers, privileges, and immunities which they already possess. For among the most serious misrepre sentations fueling the drive for compulsory public-sector bargain ing are the contentions that our public servants are underpaid and mistreated, that they are denied the rights of "freedom of associa tion" which prevail in the private sector, that they will never be sat isfied till they have those same "rights," and that until they do there will be serious "unrest" in government employment, strikes, and all the other bad things which, the leaders of organized labor say, union representation magically causes to disappear.

The fact of the matter is that public servants in this country have always enjoyed the right of free association when that right is properly understood as meaning the privilege of joining any lawful private association. It is true that till recently in some states a person wishing to retain civil-service stat us might have to forego joining labor associations not composed exclusively of civil servants of the same governmental unit. However, this could in no proper view be re garded as an unconstitutional or even unfair disability. As Justice Holmes said, in upholding the au thority of government to insist that its employees not play politics: ... the petitioner may have a consti tutional right to talk politics, but he has no constitutional right to be a policeman. Be that as it may, civil servants 496 THE FREEMAN August have now for many years in most states had a right to join full fledged trade unions without en dangering their government em ployment. Indeed for the last six or seven years they have enjoyed such rights, under the U. S. Con stitution, even in the few states which positively prohibited public employees from joining unions.

This result was reached without the benefit of any statute, state or federal, protecting the jobs of civil servants who wished to join un ions. That being the case, it is ac curate to say that the associational rights of civil servants are greater than - not inferior to - those of private employees. For private em ployees acquired such rights only from labor statutes like the Na tional Labor Relations Act. Prior to those labor relations statutes, private employers were privileged to refuse to employ persons who insisted upon joining unions. Failure to Join In view of these facts and devel opments, it seems fair to conclude that what bothers the unions is not that public servants are denied the rights of free association but that too few have availed them selves of this "right." The latest available figures indicate that of well over 11 million state and local civil servants only a little over one million have chosen to join unions, while another two million have pre ferred to join associations of other kinds, despite their universally prevailing right to join unions without fear of loss of employment.

One of the reasons, perhaps, for this failure of more civil servants to join unions is that in a substan tial majority of the states right-to work laws are in effect for civil servants, even when they are not in effect for private employees. In those states more employees have not joined, probably, simply be cause they have not been forced to join. Weare now in a position to understand why unions are so anx ious to have the states and the fed eral government pass compulsory public-sector bargaining laws. Those laws, at least in the version pushed by the unions, usually pro vide for either permissive or man datory "union shops"; that is, they contain provisions imposing union membership as a condition of em ployment. The insistence upon such laws demonstrates that unions are not really interested in extending the right of free association to pub lic employment. That right is al ready there. What the unions want is to demolish the right; they want to be in a position to force union membership upon unwilling civil servants.

As yet only a minority of the states have passed full compulsory 1975 COMPULSORY PUBLIC-SECTOR BARGAINING 497 public-sector bargaining laws; and a still smaller minority (11 or 12) have passed laws under which union membership may be made a condition of public employment. This is the state of affairs which the public-sector unions find unsat isfactory. The contention that pub lic servants are denied rights of free association is false - a smoke screen designed to conceal what is really going on. LeadersSeek Power To sum up: the union drive for compulsory public-sector bargain ing laws has nothing to do with any desire to expand the rights of public servants. What it has to do with is the overweening lust for power which characterizes most union leaders, especially in the pub lic sector. They want such laws be cause when they get them they will be in a position to arrogate to themselves, out of the fund of rights which now belongs to public servants, the power to compel all civil servants to accept them as ex clusive bargaining representatives and then, on top of that, the addi tional power to make unwilling civ il servants pay for the union ser vices which they do not want.

Naturally, no public-sector union leader will admit to such im politic objectives. He will move on, instead, to the second series of contentions which, he hopes, will con vince legislators and an unwary public that compulsory public-sec tor bargaining laws are needed. Weeping copiously, he will lament the sad conditions in which public servants work, how terribly abused they are in terms of wages, hours, and other terms and conditions of employment. His contention will be that if only public servants have universally conferred upon them the blessings of collective bargain ing all their complaints, all their troubles, will disappear. Here again, what the public and the legislators need is a good strong dose of fact. The truth of the mat ter is that the wages of govern ment employees have easily kept up with, when they have not ma terially surpassed, those of compar able private-sector employees. Ac cording to the U. S. Department of Commerce, while state and local government employment was rising by 151 per cent between 1951 and 1972, their monthly payrolls in creased by 596 per cent.

The most detailed and authori tative private reporting service i'n the field, the Government Employ ee Relations Report, published by the Bureau of National Affairs, carries, almost each week news items indicating that government employees are by no means coming out on the short end. There is no need here to place undue emphasis 498 THE FREEMAN August upon such extraordinary phenom ena as the $17,000 annual wage re cently extracted from the taxpayers by San Francisco's street-sweepers. The average hourly wages of all civil servants for actual working hours are: in Ohio, $4.94; Min nesota, $5.13; Michigan, $6.67 ; Alaska, $9.53. Federal Employees As to employees of the federal government, a December 1974 ar ticle in The Washington Monthly, interestingly entitled "Government Unions: The New Bullies on the Block," tells an even more dra matic tale concerning the gener osity with which public employees are treated. All government wage scales - federal, state, and local are by law required to be compar able with those prevailing in the private sector. (Incidentally, they have to be if government is to at tract employees.) Perhaps the most suggestive fact pointed out by The Washington Monthly article is that at least federal government em ployees are quite markedly out distancing their colleagues in the private sector: ... [FJederal employees are among the highest-paid workers in the country.

One third of all federal workers on GS scale are paid nlore than $15,000, and receive supplelYlental benefits equal to a third of their salaries. Officially, federal white-collar employees are supposed to be paid salaries 'com parable' to what they would earn in private industry. But in practice, many federal employees, especially those in the middle grades and those just below the highest paid 'super grades,' are paid significantly more than they would get on the open mar ket. For example, the appropriate salary for all GS-13s is determined by examining only five professions - at torneys, chief accountants, chemists, personnel directors, and engineers. Each of these positions (with the ex ception of personnel directors) de mands greater training and technical skill than most government GS-13s possess. And the federal government has become so top-heavy that, for ex ample, 52 per cent of the employees of the Department of Transportation are GS-12s or above. The starting salary for a GS-12 is $18,463.

The Question of Happiness We hear a great deal about how gravely abused public employees are under the civil service merit system - and how much they would be benefited by replacing that sys tem with union representation. Two comments should suffice here. In the first place, the civil service merit system, now in effect in all public employment, represents the most serious and most comprehen sive attempt ever made anywhere to insure just treatment of em ployees on the job. In the second place, the assertion that union rep.;.

1975 COMPULSORY PUBLIC-SECTOR BARGAINING 499 resentation will insure better, fair er, more humane treatment for em ployees than the civil service merit system does is only assertion. All experience from the private sector seems to indicate that employees represented by unions are, to say the least, no happier or more con tented than the vast majority of private-sector employees who have chosen to remain nonunion. By the latest count union members con stitute considerably less than one fourth of the private labor force. Moreover, it is reasonable to believe that a large number of that one fourth belong to unions only be cause they must in order to keep their jobs. For something on the order of 80 per cent of all collec tive agreements contain provisions requiring union membership as a condition of employment. The state of soul or mind called "alienation" may exist in govern ment employment, but it is certain ly not confined uniquely to non union civil servants. In all prob ability it is a permanent and in eradicable aspect of the human psyche. We live in a universe which we have not made and which we can remold nearer to our desires, apparently, to only a very small degree, if at all. The idea that the brutal, insensitive collectivism which animates unions will provide a cure for alienation is absurd and ridiculous. Alienation is a condition of the individual mind or soul; mass, collective action cannot cure it. By expanding the size and scope of the authority of large collec tivities at the expense of individual autonomy, compulsory public-sec tor bargaining is more likely to in crease alienation and individual discontent than to reduce it. One thing is certain: forcing civil ser vants to accept union representa tion when they do not wish to do so is not going to make them any happier.

Fallacious Premise: The "Private-Sector Analogy" The factual misrepresentations, rank as they may be, are far less serious than the false premises and lame logic of the drive for com pulsory public-sector bargaining laws. We must have such laws in government employment, we are told, because we have them in the private sector, because they have worked so well there to produce industrial peace and worker satis faction (so they say), and because without them there will be great strife and unrest in government employment. It is difficult to judge which is worse - the bold and brassy error in these contentions, or the pro foundly significant omissions they tend to conceal. . Quite obviously it would not fol low that we should have compul500 THE FREEMAN August sory collective bargaining in the public sector merely because we have it in the private sector - even if the claims made for it in the private sector were true. One would have to establish (at least) that there are no material differences between the public sector and the private sector: no mean task, since, as we shall see, the public and pri vate sectors are basically and radi cally different in all the ways that matter most.

Before going into that, however, I believe it desirable to make some brief observations about our pri vate sector labor policies. In the first place, as already noted, only a minor fraction of private-sector employment is subject to collective bargaining, despite the fact that for forty years now the federal government - and especially the National Labor Relations Board has been doing its best to induce all private-sector employees to ac cept unionization. Year after year hundreds of thousands of private sector employees have spurned the NLRB's inducements. Moreover they have spurned them in the most definitive manner possible: in secret-ballot elections conducted by the NLRB itself under rules heavily weighted in favor of the unions. One would need to be out of touch with reality to contend seri ously that there is more strife, more labor unrest, or more aliena tion in the vastly preponderant non unionized part of private employment' than there is in the unionized quarter. In those sectors of private employment where they have taken hold, our compulsory collective bargaining laws have not produced labor peace and harmony, much less consumer-serving pro ductivity. On the contrary, the re sults have been disastrous in at least six ways.

(1) Our private-sector compul sory collective bargaining policy has condemned countless thou sands of working persons who ac tively oppose union representation to a condition of serfdom by forc ing them to accept and to pay for union representation which they do not want. (2) It has severely hampered and rigidified and thus made much less profitable and efficient many of our basic industries, to the en during harm of the communities served by those industries. (3) In the opinion of many if not most of the outstanding econo mists of this country and of Eu rope, it has done great damage to the market economy in general and to the interests of workers and consumers in particular. (4) The industries most subject to union control may be character ized by high nominal wages, but, as in construction and the rail1975 COMPULSORY PUBLIC-SECTOR BARGAINING 501 roads, they are likewise character ized by extensive and apparently permanent under-employment. A bricklayer's scale of $15 per hour is not all that great if as a result bricklayers are unable to find work.

(5) Our private sector labor pol icies have placed in the leaders of the big unions enormous political power, power which is normally directed in vicious, antisocial ways. Examples are minimum wage laws which make supernumeraries of our young people, especially young blacks; and the numerous types of interference with free trade which are pushed mainly by the big un ions. In such instances - and in countless others which could be listed - the leaders of the big un ions created by our compulsory collective bargaining policies have set themselves boldly and arro gantly against the best and most humane interests of the commun ity as a whole. (6) Finally, it is simply untrue to say that the introduction of compulsory collective bargaining statutes in the private sector brought labor peace where strife existed before. Take a look any year at the Handbook of Labor Statistics, prepared by the U. S.

Bureau of Labor Statistics. Strikes more than doubled the year after the National Labor Relations Act became fully effective. This had· to happen. As we shall presently see in more detail, unions are nothing at aU if they are not highly pro fessional strike agencies. Encour age unionization and you encour age strikes. It is as simple as that. To believe that this universal truth would not apply in the pub lic sector would be to deny the val idity of all relevant experience and assert that reason has become ob solete. Remove the Coercion If my all too abbreviated cri tique of our private-sector experi ence has any merit at all, it sug gests that we should repeal the statutes compelling collective bar gaining in the private sector rather than extend them to the public sec tor. However, even if we were to shut our eyes to that experience, even if we were inclined to agree that compulsory collective bargain ing has "worked" in the private sector, it would remain true that universalizing compulsory collec tive bargaining in the public sec tor would be· an extremely unwise and probably a fatally destructive move.

There is no proper analogy be tween the public sector and the private sector. Business is one thing. Government is, in every sense relevant to this discussion, entirely and 'categorically another. As Woodrow Wilson once said, 502 THE FREEMAN August The business of government is to see that no other organization is as strong as itself; to see that no group of men, no matte-r what their private business is, may come into competi tion with the authority of society. In his Farewell Address, George Washington said that, The very idea of the right and power of the people to establish gove,rnment presupposes the duty of every indi vidual to obey the established gov ernment. John Austin, one of the greatest jurists of the last two centuries, understood the concept sovereign ty as few before or after him have understood it. His position was that "the all-powerful portion of the community which makes laws should not be divisible, that it should not share its power with anybody else."

What these great men were say ing is that if government is to serve the role in society which must be served if there is to be society - civil order - it must have sovereign, supreme and undiluted, power: power greater than that possessed by any other person, or group, or group of groups. Where the Analogy Fails This is the fact which utterly demolishes the private sector anal ogy. There is nothing basically de structive of private business in a law, however unwise that law may be, which forces employers to deal collectively with employ,ee rep,re sentatives on terms and conditions of employment. To repeat: it may be wrong to force dissident private employees to accept unions which they do not want and to compel private employers to bargain col lectively with unions when they prefer to deal with their employees individually. However, no social breakdown occurs as a consequence of compul sory private-sector bargaining.

This is true in part because em ployers are compelled by the nature of things in a free society to bar gain with their employees indi viduaIly or collectively, anyway, if they wish to have employees; in part because few private employ ers, if any, are inclined to yield without resistance to extreme, anti-economic union demands; in part because private employers rarely if ever provide goods and services which cannot stand inter ruption for more or less sustained periods; and in part, finally and most importantly, because no pri vate employer occupies a role so central and so indispensable to the survival of civilized society as all our governments - federal, state and local - do. Monopoly is normally a bad thing in the private sector. In the public sector undivided, monopoly, 1975 COMPULSORY PUBLIC-SECTOR BARGAINING 503 sovereign power is absolutely in dispensable to any civilized social order. Law is either universal, su preme, and exclusive - or it is nothing. Imagine two competing police forces, two competing ar mies, two competing judicial sys terns! The name for such a state of affairs is anarchy, not civilized order.

Because government is and has to be monopolistic in character, it a.lso must perforce stand outside the market. Political considera tions, not economic considerations, must direct its activities. The con sensus of the whole community, not the private interests of indi vidual producers and consumers, must determine the way in which government operates. Political Decisions Government cannot, as private business does, allocate its resources and expenditures on the basis of balance sheet considerations of profit and loss. All its decisions as to how many police or fire sta tions or schools or garbage trucks should be bought or employees hired - all such decisions are po litical decisions. Ludwig von Mises has made the poin t : The objectives of public adminis·· tration cannot be rneasured in nloney terms and cannot be checked by ac countancymethods. Take a nationwide police system like the F .B.I.

There is no yardstick available that could establish whether the expenses incurred by one of its regional or local branches were not excessive. In public administration there is no market price for achievements. This makes it indispensable to operate public offices according to principles entirely different from those applied under the profit motive. . .. [The government] must define in a precise way the quality and the quantity of the services to be rend ered and the commodities to be sold, it must issue detailed instructions concerning the methods to be applied in the purchase of material factors of production and 1:n hiring and reward ing labor . .. [Emphasis supplied.] ... It would be utterly impractic able to delegate to any individual or group of individuals the power to draw freely on public funds. It is necessary to curb the power of man agers of nationalized or municipal ized systems ... if they are not to be made irresponsible spenders of pub lic money and if their management is not to disorganize the whole budget.

It should be obvious by now that - and why - government cannot share with uni ons its power over the public service and at the same time retain its character as gov ernment, responsible to the conl Inunity consensus alone. Even if decisions concerning the course of government and of government ernployment could be made jointly by duly elected or appointed offi504 THE FREEMAN August cials and union negotiators, there would be a dissolution of sover eignty and a dissipation if not de struction of popular government. But the unfortunate fact is that under compulsory public-sector bargaining there will not be merely a sharing of sovereignty; common sense and experience indicate that the sovereignty is bound to come to rest, ultimately, in the public sector unions. Strife Is Assured I repeat: this is bound to hap pen. Proponents of compulsory public-sector bargaining contend that it is the only way to eliminate strife ard unrest in public em ployment, but the fact of the mat ter is that such bargaining is a means of insuring strife and un rest, in the government service.

From such strife and unrest the public-sector union leaders are bound to emerge in this country as they already have in England and in Italy - as our ultimate rulers. For, as Henry C. Simons called them, unions are "battle agencies." They have to be. In order to get and keep members, they must continuously seek and bend every effort to get more than the employers of their members are willing to pay. By now, even the dullest observers of this field are aware that politicians and po litical officials tend to be far more generous with taxpayer money than private businessmen are with stockholders' money. Nevertheless, there comes a point, even in gov ernment, when the never-ending demands that unions are compelled to make must be met with a straightforward "No." What happens then? Well, the history of the last decade is in structi vee In order to keep their members, the unions must refuse to take "no" for an answer. Over the last decade the number of pub lic-employee strikes has increased by well over 1100 per cent. This is what refusing to take "no" for an answer means among the public sector unions: Striking. And the fact that until just the last year or so (and then in just a few states) public-employee strikes were (and are even now in most states) un lawful - this fact has neither dis couraged the union leaders from calling strikes, nor made their members hesitate to participate in them.

If these facts prove anything, they prove that - not the law, not duty to the public, not respect for judicial orders - but union leaders have become for unionized public servants their sovereign liege lords. When I say that widespread adoption of compulsory public-sec tor bargaining laws will inevitably result in the destruction of popu lar sovereignty and in its replace1975 COMPULSORY PUBLIC-SECTOR BARGAINING 505 men t with the virtual anarchy of a sovereignty split among the lead ers of the more critically placed public-sector unions, these are the facts and the common sense anal yses upon which I rest the predic tion. It is strictly speaking absurd to suggest that compulsory public sector bargaining laws are needed in order to eliminate strife and un rest in public employment. Before such laws were passed in the late fifties and the sixties, there were no strikes to speak of and no other significant forms of mass unrest in public employment. Before pub lic agencies, especially in such places as New York City, began bargaining collectively with unions representing their employees -Le., began recognizing unions as ex clusive bargaining representatives and thus· abdicating to unions the sovereign powers of government there were no public-sector strikes, none to speak of anyway.

The strife and the unrest have come since unions have been rec ognized in some states and cities as exclusive bargaining represent atives. Significantly, the strife and unrest have been localized in pre cisely those jurisdictions. It is largely absent in the localities which refuse to recognize unions as exclusive bargaining represent atives of public employees. And one may confidently conclude that it would be entirely absent if mili tant trade unions were excluded from public sector employment as a proper respect for the duties and powers of government would require. Such a state of affairs - leading to peace and harmony rather than chaos and war between govern ment and their employees - would not require that the right of free association be denied to public em ployees. Public employees might very well join or even be encour aged to join associations confined to civil servants. Indeed, as we have seen, ever since the first civil service laws were passed in this country (and they are now uni versal), public servants have been free to form and join their own civil service organizations.

A Dubious Progression: Chaos to Anarchy to Tyranny In a drastic reversal of former opinion, state courts all over the country have been upholding the constitutionality of recently passed compulsory public-sector bargain ing laws. Less than thirty years ago, the consensus among judges was precisely to the contrary. All across the land they had been hold ing that for a public agency to bar gain collectively on the terms and conditions of public employment would involve an unconstitutional abdication and delegation of gov506 THE FREEMAN August ernmental power and thus a be trayal of representative govern ment. Nowadays, however, we read re peatedly in judicial opinions that there is nothing wrong in such laws. Some of the state courts have gone so far as to uphold laws pro viding for compulsory arbitration of public sector labor disputes. Go ing even further, some have held that public servants have a right to strike.

Despite these abrupt changes of opinion, however, a curious move ment is afoot among the judges. Several of the courts which have gone furthest in welcoming the ab dication of sovereign power im plicit in compulsory public sector bargaining laws, have begun qui etly and unobtrusively to see to it that their sovereign powers remain unimpaired! Some have been hold ing that court employees are ex cluded from the compulsory bar gaining laws. Others have been holding that insofar as court em ployees are concerned, the proper party to do the bargaining with them is not a state or local admin istrative officer, but the presiding judge. When the state or local adminis trative officers object to these de..; cisions, contending, among other things, that they are scarcely like ly to get fair hearings on the mat ter from judges who are themselves interested parties, the courts are brought face to face with the destructi ve and contradictory char acter of all compulsory public-sec tor bargaining laws. They are forced to see willy-nilly that such laws simply cannot be reconciled with any intelligible concept of sovereignty.

In one case the complaining county commissioner charged that the county was being denied due process of law and equal protection of the law because his opponent in the case was a member of the very judiciary which was deciding whether he, the county commis sioner, or his opponent, the county judge, was the appropriate bar gaining agent! The court could only reply, lamely, that it would do its best to insure a fair hearing. Approaching a Critical Problem: Judicial Absolutism Judicial absolutism has long been a problem in this country. Cases such as the ones we have just reviewed indicate that the problem is approaching a critical state. At the moment, the result of th~ compulsory public-sector bar gaining laws prevailing in some of the states is that the ultimate pow er of government lies in the courts, the least representative branch of government. A number of consid erations suggest, however, that this condition is strictly tempo1975 COMPULSORY PUBLIC-SECTOR BARGAINING 507 rary: that before long the ultimate sovereignty will fall to the public sector union leaders vvho, besides being representatives of only their own interests, not of the electorate, are not in the slightest degree a legitimate branch of government.

The authors of the Federalist knew what they were talking about when they referred to the judici ary as the weakest branch of the government. The judgments and decisions of the judiciary are meaningful only to the extent that the gen~ral public respects them and the executive branch of the government enforces them. What can judges do about public-sector strikes? If we are to take experi ence as our guide, the answer has to be: nothing. To repeat, thousands of public sector strikes have been called over the last decade - all illegally. How ever, the illegality made no differ ence: the unions called the strikes anyway, and, over the years, mil lions of police officers, firefighters, school-teachers, garbage collectors, highway-maintenance men (during blizzards, yet!) went out, appar ently stirred only by contempt of the possible court actions against them. Indeed, when aNew York court enjoined a garbage-men's strike, their union leader, John DeLury, instead of obeying the in j unction, in the words of New York's highest ,court, "went to the other extreme, actually urged the men to make the strike 'effective 100%.' "

All competent scholars in the la bor law field are aware that anti strike injunctions are almost im possible to enforce, even in the pri vate sector, where, at least, the force-s of government are available to attempt to induce respect for the court orders. But what pros pect is there for enforcement of a court order against a public-sector union when all civil servants are unionized, as they will be if com pulsory collective bargaining laws prevail universally in this coun try? Who is going to enforce an injunction against a strike by a policeman? the National Guard? the Army? The situation is even grimmer than the foregoing analysis sug gests. In fact, public-sector strikes do such enormous harm in such a brief time that court actions aimed at enjoining them are usually an exercise in futility. Even before the legal papers are filed, the grea t er part of the damage done by a good many public-sector strikes is already done. The strikers have the community over a barrel. It has to give in. According to one study of events in the experimental labora tory of our subject, the City of New York, the vast preponderance of the public-sector strikes called there never reach the courts at all.

508 THE FREEMAN August The harm they do is so VICIOUS that the striking unions are in a position to extort, as part of the price for going back to work, an agreement from the city authori ties not to prosecute the strike, despite its illegality! The only conclusion possible from the foregoing discussion is that compulsory public-sector bar gaining is incompatible with both representative government and the kind of sovereign governmental power needed if we are to live in a free, peaceful, and decently or dered society. Under a universal regime of compulsory public-sec tor bargaining, the sovereign powers will belong to neither the people nor their duly elected and appointed representatives. They will be fragmented and dispersed among the most power-hungry leaders of the public-sector unions. Those persons, not our elected rep resentatives, will be our rulers. Not all of us will be willing to accept them as rulers; indeed, no one in his right mind would accept any of the present leaders of the public-sector unions as his sov ereign authority. This being true, the result will have to be, in order: chaos, the situation prevailing when sovereignty is divided among the public-sector union leaders; an archy, the condition resulting from the refusal by all sensible persons to accept the feudal lordship of the public-sector union leaders; and finally, tyranny, the state of affairs which generally succeeds anarchy because of mankind's insuppress ible and ineradicable need of order if life is to proceed at all satis factorily. ~ IDEAS ON LIBERTY The Rule of Law THE END of the law is, not to abolish or restrain, but to preserve and enlarge freedom. For in all the states of created beings ca pable of laws, where there is no law there is no freedom. For lib erty is to be free from restraint and violence from others; which cannot be where there is no law; and is not, as we are told, a lib erty for every man to do what he lists. (For who could be free when every other man's humour might domineer over him?) But a lib erty to dispose, and order as he lists, his person, actions, posses sions, and his whole property, within the allowance of those laws under which he is, and therein not to be the subject of the arbi trary will of another, but freely follow his own.

JOHN LOCKE, Second Treatise A REVIEWER'S NOTEBOOK I MUST BEGIN with a confession. I put off reading Gitta Sereny's Into That Darkness: From Mercy Killing to Mass Murder (McGraw-Hill, $9.95) for weeks because, having once spent a morning in the Mu seum of the Holocaust outside Je rusalem, where the horrors of the Hitler gas chambers are made un bearably explicit, I didn't think I could stand repeating a shattering experience. It was chicken-hearted of me to behave in such a way. JOHN CHAMBERLAIN The Evil~ of NazislD Once I had conquered my queasi ness and decided to take the plunge all over again, I must say that I was relieved to find myself reading a document that is as far above being a routine listing of horrors as Dostoevsky's Crime and Punish ment is above a mere detective story. There are fashions in contem plating the evils of Nazism. At the time of Nuremberg it was enough to say that Hitler, Goebbels and Company were moral monsters who deserved what they got, which was assuredly true even though the 509 510 THE FREEMAN August "victors' justice" court which tried the top-ranking Nazis was in itself a dubious legal instrument. But the larger question of acquiescence in guilt was not settled at Nurem berg. There were Germans who knew all about the gas chambers and other crimes of the Nazi State who "went along." In the Burkean phrase, they were the "good men"

who did nothing. And there were those who, though they didn't take part in the actual killings, carried out the administrative jobs con nected with the maintenance of the grisly death camps. Hannah Arendt has spoken of the "banality of evil." In the Hitler State "little" men, taking orders, made their little decisions. Taken separately, these seemed ordinary concessions to prudence. By the time the cumulative effect of step by-step choices became apparent it was too late to extricate one's self from the web that had been woven. Suicide or the assassination of one's evil superiors was always possible, but the vulnerability of one's family and friends was usu ally enough to repress any belated decision to become a martyr. A Tool of the Totalitarian State Gitta Sereny picked a not-so little man, but a cog-type individ ual nonetheless, for her study of how a person who bore no ill will toward other human beings could be trapped into becoming an ad ministrative tool in the hands of a State that had decided to make mass murder an instrument of policy. She spent seventy hours in 1971 talking with Franz Stangl, who had been the Kommandant of Treblinka extermination camp in Poland where more than a million Jews died. Stangl, who had escaped from Austria via the so-called "Vatican Route" to Rome after the .Allies had overrun the Nazi lines, had been extradited from Brazil to stand trial at Dusseldorf, and he seemed to want to talk with a stranger about the meaning of his life. His story, and that of his wife and family, is anything but banal, for it raises fundamental questions which all of us, in this day of burgeoning State power, must an swer even though our immediate circumstances may not yet involve decisions that are life-or-death matters.

Franz Stangl died of heart fail ure the day after Gitta Sereny had completed her interviewing. He had finally admitted to a sort of guilt for not taking a stand against what went on in the extermination camps. "My guilt," he said, "is that I am still here." But in the context of a life that could not have perfect foresight, was a stand ever possible for a man of Stangl's nature? He did not want to do evil and he would never 1975 THE EVILS OF NAZISM 511 have willed it. He had a normal animal commitment· to remaining alive, and hE. could never have brought himself to hurt his wife and daughters. Remaining Alive As a young police officer in Aus tria, he had good reason to think he was on a Nazi list for extermina tion after the Anschluss. After all, he had received a citation for bring ing a secret Austrian Nazi to jus tice for poaching. He got out of that by spreading the story that he himself had been a secret Nazi.

Speaking more than thirty years later, Stangl told Gitta Sereny that he should have killed himself in 1938. "I hate the Germans," he burst out in 1971, "for what they pulled me into." But this was hind sight; no one with an instinct for survival would have taken a differ ent course than the one chosen by Stangl at the time. The problem of remaining alive involved escaping to Germany from Austria, where a Party function ary named Prohaska had it in for him. So, from the frying pan Stangl jumped into the fire, taking a job at Schloss Hartheim connected with the Nazi Euthanasia Program. Stang I had nothing to do with choosing the crippled or mentally re tarded people that Nazi State doc tors had selected for "mercy-kill ings." And he could not have known that the Euthanasia Program was a trial run for gassing six million Jews, along with other "undesir ables" and "enemies of the State."

When he was asked to be Kom mandant in Poland of extermina tion camps, he tried to wriggle out of it. But nobody was willing to pick him for a job in the Crimea. He consoled himself at Sobibor and Treblinka by telling himself that he had nothing to do with shoving people into the extinction corridor and by saying that if he ·were to quit his administrative job it would not save a single Jew. If he had made a strong stand, the Nazis would not only have liquidated him, they would have seized his wife and children and shipped them to con centration camps where, most probably, they would have died. Gitta Sereny does not condemn Stangl explicitly; she lets him con demn himself. He knew he had ac quiesced in evil. But he was caught. Like everyone else with family and friends in Germany he was a man who had given hostages to the superstate. Lessons for All of Us The story is horrifying in its im plications for all of us. As we give more and more power to our gov ernments in the West to override what used to be called the inalien able rights (to life, liberty and property) , how do we know that we 512 THE FREEMAN August aren't doing precisely what Stangl did when he first tried to placate the Nazis in 1938 in Austria? One little thing leads to another. The monster State does not show its hideous face an at once. In Ger many the Nazis were legally elected by a people who thought they were helping to solve an economic crisis and to get back at Versailles.

Meanwhile, as Gitta Sereny of fers us her heart-rending document about mass killings in Hitler's Ger many, the Communists are busy liquidating thousands in Cambodia and Vietnam. They do it for "class" reasons, not "race." But is it any more consoling to be beheaded as a bourgeois than as a Jew? The total State is the same every where. So beware of those "little" decisions. They make you a Stangl tomorrow. , HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $2.50 each THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTONON-HUDSON, NEW YORK 10533 the Freeman VOL. 25, NO.9. SEPTEMBER 1975 Is Freedom High-on Today's Agenda? Freedom, alas, is more often given away than taken away. On Feedingthe World To bleed America will not feed the world; look to freedom. Alla,n C. Brownfeld Dick Beeler 515 522 Shop Talk Edson I. Ga.ylord 524 The president of a prospering enterprise speaks with employees about competition and how to meet it successfully.

Wages, Unemploymenta~d Inflation lUdwig von Mises 529 The wage earner, like every other citizen, is firmly interested in the preservation of the dollar's purchasing power. The School of Mankind The power of example in teaching and learning. leona.rd E. Read 537 The Government'sEnergy Crisis Eugene Guccione 541 What government has done to cause the energy crisis and why we'd best look to the market for a cure. The Tollwayto Nowhere Robert C. Moore 550 How regulations and controls have created and are prolonging the energy crisis. land Use RegulationHarms the Poor Bernard H. Siegan 557 Those who aim to help the poor by restricting growth create problems. Blue Eagles and Deja Vu Wa,lter B. Wriston 560 "We are not to expect to be translated from despotism to liberty in a featherbed." ANew Kind of Politician Davi~ A. Williams 567 What would he do for the people? "Absolutely nothing." The Gold Standa,rd and Fra'ctional-ReserveBanking Joe Cobb 569 The problem lies in the law declaring paper to be legal tender.

Book Review: "Gold is Money" edited by Hans F. Sennholz Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding. 573 tlle Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTONON-HUDSON, N. Y. 10533 TEL: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,OOO-as the means of maintaining and extending the Foundation's work.

Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; lOfor $2.50; 2'5 or more, 20 cents each. THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit, except "Land Use Regulation Harms the Poor" and "The Gold Standard and Fractional-Reserve Banking."

Is ~ .~~tt\l\\\t\ High on ,\\:' Today's I "'a<J7ff?ii Agenda? ALLAN C. BROWNFELD IT. IS SAD, but may be true, that many, perhaps most, Americans really do not care very much about being free. Two candidates for public office recently told this writer that when they advocated a policy of the least coercive kind of government, they were rebuffed by the voters. One of these men was John Hospers, the Libe,rtarian Party candidate for President·· in 1972. When voters asked, "If. you alre elected, what will you do for me?" he responded: "I'll leave you alone." The other man, Michael Feld, a Republican, was running Mr. Brownfeld of Alexandria, Virginia, is a freelance author, editor and lecturer especi ally interested in political science. for Congress in Iowa. When he was asked the same question in Dubuque, he responded· that, "I'll do my best to see to it that the people .in this city run their own affairs, and a,re not told what to do by bureaucrats in Washington."

Neither Mr. Hospe,rs' audience nor that of Mr. Feld were interested in being left alone. What they wanted was, unfortunately for freedom, far different. Much the same happened when this writer ad.dressed a, group, of high school students visiting Washington, D. C. from Rhode Island. When they were told that the Founding· Fathe,rs were sus picious of government, and fearful of the centralization of power, the 515 516 THE FREEMAN September young people were mystified. "Do you mean to say," one asked, "that we should not have faith in our politicians and should not look to government for the answer to our problems?" Such an. idea - the tra ditional American idea of freedom and carefully limited governmental power - had never really occurred to these students. One wonders what is being taught in the schools of Rhode Island. Unfortunately, it is the same philosophy of depen dence upon the state which seems to he the common program of much of our public education. And why, after all, shouldn't state supported schools seek to foster dependence upon the state? It seems to be in the nature of things.

The fact is that more aspects of our lives than ever before are sub ject to the intervention of men in Washington, some elected, some appointed. We are to;Id by them to buckle our automobile s~at belts, to hire given percenta.ges of women and selected minority groups, to answer intimate ques tions on census forms and to turn over ever larger portions of our incomes in the form of taxes and social security levies. The govern ment keeps files upon us, some times spies upon us, ,and is always ready to tell us wha~ to do - al ways, of course, "for our own good." A generation ago the great economist Joseph Schumpeter de scribed the performance of intel lectuals, politicians and others who sought to expand government power at the expense of individual freedom and of traditional rights to private property this way: "Capitalism stands its trial before judges who have the sentence of death in their pockets. They are going to pass it, whatever the de fense they may hear; the only suc cess victorious defense can possi bly p,roduce is a change in the indictment."

Thus, while the issues may change, the answer is always the same: an increase in the power of the state and a diminution in the rights of individual men and women. For the Good of Society Today those who seek to expand state power say that they 'are doing this in the name of ecology, of the environment, of zero population growth, and a host of similar euphemisms for a planned and controlled society. They propose legislation which will tell individu als what they may do on and with their own property. They propose tax legislation which would include penalties upon those, having more than the legally mandated number of children. They propose environ mental standards which would limit growth and, as a result, re1975 IS FREEDOM HIGH ON TODAY'S AGENDA? 517 duce the expansion of business, industry, and jobs. Long ago, Justice Louis Bran deis declared that a nation's free dom was never taken from it "ex cept for a good reason." Those who wish to limit freedom at the present time have many "good reasons" for their actions. The average citizen, unfortunately, is not aware of the consequences of these proposals and,as a result, becomes their naive supporter and defender.

More and more, Americans are becoming subjects rather than citi zens. Many don't realize it. Many who do, don't mind it. After all, Capitol Hill is filled each day with men and women with their hands out for what they like to think is "federal money." They are farmers, veterans, teach ers, businessmen, welfare recipi ents - each one wants a govern ment subsidy fo·r his own particu lar group. In return for such gov ernment subsidization, they are quite willing to submit to govern ment rules and regulations. For them, freedom is simply the ask ing price for a form of guaranteed security. Many are eager to pay it. The illusion which those who care about freedom have operated unde·r from the beginning was that such freedom would be taken from them either by demagogues at home or tyrants abroad. It is, of course, necessary to guard against both of these very real phenomena. This, however, remains a somewhat mythical construc tion, for the real world does not work quite that way. Freedom is rarely taken from men and women who are jealous of it. Quite to the contrary - they give it away ea gerly for something they want more.

Catering to Weakness Totali tarians of all sorts whether Nazis or Fascists or Com munists - understand this flaw in human nature very well, and they play upon it very effectively. The Nazi spokesman Goebbels declared that, "To be a socialist is to sub mit the I to the thou; socialism is a sacrificing of the individual to the whole." Sacrificing the individ ual and reducing him to a bit of dust, to an atom, implies, accord ing to Hitler, the renunciation of the right to asse·rt one's individ ual opinion, interests and happi ness. The individual, under such a system, ceases to be important. Hitler declared that, "The indi vidual renounces his personal opin ion and his interests." Hitler praises "unselfishness" and teaches that "in the hunt for their own happiness, people fell all the' more out of heaven into hell." It was the aim of education in Nazi Germany to teach the individual not to as518 THE FREEMAN September sert himself. Precisely the same is true of education in the Soviet Un ion and in Communist China.

Freedom begins to be lost the moment the "public interest" re~ places what an individual believes to ,be the truth and the wishes of the group, assume an authority which cannot be rebuked. In his important book, E'scape From Freedom" Erich Fromm notes that in the course' of modern history the authority of the Church 'has been replaced by that of the State and today is being replaced as well "by the anonymous authority of ... public opinion. Because we have freed ourselves of the older, overt forms of authority, we do not see that we become the prey of a new kind of authority. We have become automatons who live under the il lusion of being self~willing indi viduals ... The loss of the self has increased the necessity to conform, for it results in a profound doubt of one's identity ... if we do not see the unconscious suffering of the average, automatized person, then we fail to see the danger that threatens our culture : the readi ness to accept any ideology and any leader, if only he promises excite ment ... and, offers meaning and order to an individual's life."

While we often declare that in dividual freedom is of the highest priority, and wonder why state power continues to, grow at its expense, and why so few are con cerned - this very anguish we feel may indicate that we do not pos sess a proper understanding of what is happening. It is not pol itics, or economics, or history which may really be at work, but human nature itself. Precious to Whom? The, French philosopher Ber trand De J ouvenel, in his classic work On Power, points out that we frequently say that "Liberty is the most precious of all goods" with out noticing what this formula tion implies in the way of social assumptions. He writes that, HAgood thing which is',of great price is not one of the primary necessities. Water costs nothing at all, and bread very little. What costs much is some thing like a Rembrandt, which though its price is above rubies, is wanted by very few people, and by none who have' not, as, it happens, a sufficiency of bread and water.

Precious things, therefore, are really desired by but few human beings and not even by them until their primary needs have been amply provided. It is from this point of view that liberty needs to be looked at ... the will to be free is in time of danger extinguished and revives again when once the needof security has received satis faction. Liberty is in fact only a 1975 IS FREEDOM HIGH ON TODAY'S AGENDA? 519 secondary need; the primary need is security." Yet, Americans live in the most prosperous and secure society in the history of the world - but are sacrificing freedom for what they perceive as "security" at an ever increasing rate. Unfortunately, many predicted that democracy would produce this result. Macaulay to Randall Thomas Babington Macaulay, writing to Henry Randall'in 1857, lamented, "I, have long, been con vinced that institutions purely democratic must, sooner or later, destroy liberty or civilization or both. In Europe, where the popu lation is dense, the effect of such institutions would be almost in stantaneous . . . Either the poor would plunder the rich, and civili zation would perish; or order and prosperity would be saved by a strong military government, and liberty would perish."

Macaulay, looking to America, declared that, "Either some Caesar or Napoleon will seize the reins of government with a strong hand; or your republic, will be as fear fully' plundered and laid waste by barbarians in. the 20th century as the Roman Empire was in the Fifth - with this difference - that your Huns and Vandals will have be-en engendered within your own country by your own institutions." There is much discussion today about "equality" by men and wom en who do not understand that lib erty and equality are, in fact, two distinct and diametrically opposed concepts. They would do well to consider the analysis of Alexis de Tocqueville in Democracy in Amer ica: "I think that democratic com munities have a natural taste for freedom; left to themselves they will seek it, cherish it, and view any privation of it with, regret. But for equality, their passion is ardent, insatiable, incessant, in vincible; they call for equality in freedom; and if they cannot obtain that, they still call for equality in slavery. They will endure poverty, servitude, barbarism - but, they will not endure aristo~racy."

As if shattering the dream of the Founding Fathers, Tocqueville declared that, "Democratic nations often hate those in whose hands the central power is vested; but they always love that power itself. I am of the opinion, in the democratic ages which are opening upon us, individual independence and local liberties will ever be the produce of artificial contrivance; that cen tralization will be the natural form of government . . . Americans are so enamored of equality that they would rather be equal in slavery than unequal in freedom." Discussing the growth of cen520 THE FREEMAN September tralized power in the United States, a country created by men who feared such centralization and at tempted to write a Constitution which would prevent it, De Jou venel declares that, "America was a country which was a stranger to compulsory military service, in which the tradition was to elect officials to office,and in which Pow er was subject to judicial control.

Is it not astounding that Power was able in a few years to reduce this control nearly to the vanishing point, to build up a vast bureauc racy, and to invest this bureauc racy with such wide powers that a number of federal agencies have been established simultaneously to formulate rules, to apply them, and to punish breaches of them - to act, in other words, as legislator, executive and judge 1" De Jouvenel concludes that, "The state, when once it is made the giver of protection and security, has but to urge the necessities of its protectorate and overlordship to justify its encroachments. Bis mark realized long ago that this was the road which led to enlarged authority." Whether governments are elect ed by a maj ori ty of citizens, or are elected by no one, tells us simply how they are constituted, not how power is exercised or whether or not freedom of the individual is protected. The fact that Americans, once in four years, elect a President, or once in two years choose a member of the House of Representati ves, should not con fuse the fact that government pow er is, nevertheless, arbitrarily im posed. After thE1; depradation of the French Revolution, Clemenceau said that "Had we expected that these majorities of a day would exercise the same authority as that possessed by our ancient kings, we should but have effected an exchange of tyrants." Clemen ceau's words seem to echo those spoken by William Pitt, Earl of Chatham on Janua.ry 9, 1770: "Are all the generous efforts of our an cestors ... reduced to this conclu sion, that instead of the arbitrary power of a king we must submit to the arbitrary power of a House of Commons 1 If this be true, what benefits do we derive from the ex change 1 Tyranny is detestable in every shape; but in none as formi dable as when it is assumed and exercised by a number of tyrants."

Freedom and individualism seem not to be natural to man, but must be carefully cultivated and taught. The American society is failing in this task - and the future of Amer ican liberty hangs in the balance. Total power over the lives of in dividuals is worst when that total power is exercised in the name of the majority of citizens organized into a powerful state. Lord Acton 1975 IS FREEDOM HIGH ON TODAY'S AGENDA? 521 declared that, "It is bad to be op pressed by a minority, but it is worse to be oppressed by a maj or ity. For there is a reserve of la tent power in the masses which, if it is called into play, the minority can seldom resist. But from the -absolute will of an entire people, there is no appeal, no redemption, no refuge but treason." Freedom, unfortunately, does not seem to be high on the Ameri can agenda at the present time. Dnless tha t agenda changes, the future for freedom is bleak. It will not, it seems, be taken from us by either force or subterfuge. If we lose it, it will be because we have given it away. The fault will be entirely our own. , IDEAS ON $ LIBERTY I'll Respect Your Life AMONG PEACEFUL PERSONS who have individually recognized the morality and wisdom of volunteering unilaterally not to kill, not to steal, not to injure another deliberately, there would be no need for government if everyone were capable of living according to his good intentions. Yet, within a society primarily comprised of property-respecting, peaceful persons, individuals make mistakes; and there is a place for an organized agency of force with sufficient power to suppress or discourage any errant threat to life or prop erty. One may solemnly pledge not to break the peace himself and yet consistently advocate a government police force strong enough to overcome and subdue him if in a moment of rashness he should forget or violate his pledge. Self-control is a most difficult thing; a properly limited government is a form of organized self-control and may be helpful in that limited role. But when government exceeds that very limited purpose and begins placing barriers be tween willing buyers and sellers, it then becomes the positive evil \ve know as socialism and all of its variations. When anyone tries to make a deal to respect your life if you'll respect his, tell him to forget it - but respect his life anyway, because it is the right thing to do.

PAUL L. POIROT DICK BEELER On Feeding the World The topic of the day is world starvation. Convention speakers, theologians, concerned citizens, newspaper columnists, TV moralists, classroom lecturers, civic leaders, con trolled parents, social engineers, symposium panelists, and long range planners are all up to their ears in it. The representatives of 140 nations, at the 1974 World Food Conference in Rome, concluded that somewhere between 400 and 800 million members of the human family are starving. They say 71 percent of world population is too poor to buy its minimum food requirements. While there is indeed a shortage of food, there is no shortage of ideas on what shquld be done about it. Most of them involve government restrictions and regulation, and none is going to solve the problem. They've all been tried. Perhaps that is the most horrifying thought of all. We seem to be tooling up for a flock of projects that will bleed America white, and in the long run just make the things worse.

Governments do not produce food. Neither do religions or humanitarian organizations. Only farmers produce food. And American farmers are far better at it than any other farmer anywhere. One does not make good farmers simply by sending out a supply of implements and seeds, or huge quantities of fertilizer. Good farmers cannot even be created by massive education effort, development of new crop varieties, or running young people through the jungles and deserts with the latest agronomic gospel and birth control gadgets. It cannot be done by providing stop-gap food supplies until they 1975 ON FEEDING THE WORLD 523 "get on their feet." In the past 20 years, the rich United States has proven that by giving more than $25 billion in food to poor nations, but today world sta.rvation is worse than ever. Any of those suggestions may help, but none will really work. Even if we put them all together they will fail. Something is still missing. That something is the priceless ingredient it takes to make a good farmer.

A good farmer is an individual human being. He responds to standard human incentives and he produces well only when he has something to gain personally from it. The American farmer is a great producer because he has the assurance that what he earns will be his, and that at least for the most part it cannot be taken from him. Without such assurance he would not be a great producer - no matter how much technology, machinery, fine soil, climate, fertil izer or other requisites were put at his disposal. Moreover, the American farmer works within an economic system which ,consists of other individuals with similar incentives and assurances. He is closely dependent upon many fellow Ameri cans who respond in the same way he does. They produce not only the supplies, equipment -and services he needs to farm, but also much of his personal incentive. That incentive is in the form of a marvelous array of products he can acquire for his own enjoyment if the fruits of his labor are sufficient to trade for them.

In a word, he is a great farmer because he is part of a great system of free individuals. farmers in other parts of the world are no less individual humans than they are in America. Put them in the same system and they will produce the same way. The fact that many great American farmers came from backward countries proves the point. Conversely, if we were to isolate a };lighly productive American farmer in one of the underdeveloped countries, away from this marve~ous system and incentive, he too would fail. And, incidentally, it would not be necessary to deport the American farmer to a foreign land to deprive him of the system and the incentive he requires. That can be done here. ~ Mr. Beeler is Executive Editor of California Farmer. This article is reprinted by per mission from his editorial in the December 1974 issue of Agrichemical Age.

Shop Talk k To The Employees achine Company, Rockford, Illinois lord, Chairman & President June 10, 1975 WHEN I TALKED with you last Oc tober 24, I told you that 1974 at In gersoll was a good year; that we had made all the shipments we had promised customers; the quality of our work was good and the com pany was making profits - and using those profits to get in the best shape possible for the future. At that time, the results for the year were not final and I promised to report to you again when they were. On the 28th of April, I reported the results of 1974 "officially" to both the Directors and the Stock holders of the company. I want to take this opportunity to tell you what those official results were and also to give you as much in formation as I can about 1975 and 1976. I will talk only about the results of Ingersoll's Rockford operations; not those of our overseas com panies. It is enough to tell you that our overseas companies are all operating profitably, that they too made their shipments on time in 1974. Our three companies located in Germany and our European consulting group now represent about 40% of the total company, and are of great help to Ingersoll as we grow and meet new cus tomers and new competition around the world.

In our Rockford operations in 1975 SHOP TALK 525 1974, our shipments were $52,300, 000. That is a record for the com pany in any year. This $52 million is the only income that Ingersoll received during 1974. Of that amount, we paid $23, 410,000 for materials (such as steel plate, and tools) and services (such as electricity and telephone). And we paid $23,298,000 for the total payroll. I know it is hard to keep those figures in your head - let me sim plify. We received $52 million. This is all the money we took in. We paid out $23 1h million to out side firms and just a little less than that to the men and women who work here. These two items total about $47 million. The dif ference between this $47 million and the $52 million we received from customers is our profit. Ac tually, it was $4.9 million. We nor mally pay 50% of this to the gov ernment as "corporation tax." Last year it was less because of losses in previous years.

All of the profit was reinvested in the business - almost $3 million in new machines alone. In the same way, all the profits from our European companies were rein vested in those plants. To repeat, the total company payroll for all the men and women who work here was $23,298,000. We paid this amount, but you did not receive it; because we are' required to withhold income and so cial security taxes before you get your pay check. Of the $23,298,000 that you earned, $5,933,000 was withheld and your checks totaled $17,365,000. I report this way because I want to talk for a minute about taxes. It seems to me, as I talk with you individually from time to time, that we tend to forget how much of our pay is withheld for taxes. All of us together earned over $23 million in 1974, but we only saw $17 million of it. The rest of it went to the government. In addition, the company pays corporation taxes, and other taxes, which we must take from the sell ing price of our machines. We pass taxes on to our customers in the selling price just as they do to their customers. Ford and General Motors, for example, pass their "corporate" taxes on to their cus tomers, and so, you can see, that we, as car buyers, pay these taxes too.

Politicians would like to have us forget that the vast majority of all the money taken in by our gov ernment comes from p,eople like all of us gathered here, who work for a living. They would like us to forget that we've paid so much in taxes, so they arrange to deduct it from our checks every two weeks and hope we will get used to the 526 THE FREEMAN September idea of getting paychecks any where' from two-thirds to three .. quarters of what· we have actually earned and what the, company paid us. They would also like to ha,ve us believe that corporation taxes are paid by corporations. Corporations don't pay taxes., only people pa..y taxes. Taxes are p,assed along in the price of goods until they come to rest when people buy things. But it sometimes is easier for a politician to recommend a bigger bite on the "big corporation" than to raise our individual taxes. So he raises taxes on the oil companies, for example - "surely, they can afford it!" The truth is; we pay that tax, too - when we buy gas.

At times, they would like us to believe that wealthy people pay most of the taxes. Politicians con tinually refer to the "loopholes" in the tax structure and indicate that all we have to' do is find a way to take more money from the rich and everything will balance out. They're putting us on! The money collected from all the wealthy peo ple in this country is not enough to run the government for a week, at the present rate of spending. There is still another funny idea around. It has names like "Federal Funds," "Revenue Shar ing," and "Matching Funds." The idea seems to be that we can have goods and services here in Rockford and have somebody else pay for them. If we want a civic cen ter, for example, but cannot raise local taxes to cover the cost, we will get these funds from "the government." Since the government prod uces .nothing, and has nothing except what it takes from the peo ple, this idea can only mean that some communities have a surplus which they will share with us here in Rockford. Nonsense! The gov ernment takes a quarter toa third of what we produce and redistri butes .it - and you can be sure some of it sticks in Washington.

The truth is that men and women like those gathered here pay all the bills. $6 million was taken in taxes from us in 1974 alone - directly from our pay checks-and this doe'S not count corporation taxes,excise taxes and property taxes which ·we pay in a more indirect way. And this takes us back to infla tion, which I talked about last time. It is bad enough to have taxes so high,but it is even worse to have politicians spend more than they collect. This year they are "going in the red" more than ever before in the history of our country, and much of this money will be wasted onproj ects we could better handle ourselves. And how are they going to pay for this overrun? They will bor1975 SHOP TALK 527 row as much as they can, and when this doesn't make it, they will "print" money and we will pay for it in higher prices down the road. Let me get back to our affairs at Ingersoll-our business con tinues to do well. This year we will produce more than last year in every department and we will make more money. We continue to make our deliveries; the products we have continue to gain accept ance around the world. We have $60 million in the backlog, which, the way we are running now, is a good full year's work; and we have good prospects beyond that.

There is talk all around us of other businesses not doing so well. That usually means our work will slow down as well - lateT on. Whether it will happen this time or not, I do not know. All I know is we are doing all we can to take advantage of every opportunity to sell our machines and so far we've be'en successful. I'm sure you will agree that it would be foolish if we didn't ex pect business to slow down based on what is happening all around us. The only thing we-cando about it is to perform to the best of our ability in all departments. We recently received a $10 mil lion order from Caterpillar for machines for a V -8 diesel engine. This order, in physical units, is nearly as big as the Russian proj ect [machine tools to build diesel engines for trucks]. The last ma chines will be shipped near the end of 1976. Since the next ten years will see a big expansion of diesel engine production around the world, how we do this job will be watched by all those in the diesel business.

Incidentally, the Kama River machines for diesel engines are being set up in Russia at a very rapid pace -after a slow start. So far our workmanship (even in cluding the job of boxing for ship ment by sea) has been given high praise. Our order book is not full to the end of 1976 but we-have machines scattered through the schedule out that far. We have $29 million of special machines already firmly booked· for '1976 delivery and this means we have a good chance of having a good 1976. What happens in 1977 is any body's guess. There is only one thing we can do to bring· in new work and that is to' improve our quality and our efficiency in every way possible. If we take cost out of everything we do and if we can steadily improve on what we send to our customers, we stand the best chance of getting whatever business is available.

528 THE FREEMAN September I hope you will pay attention to the new look on the bulletin boards. For some time now - we' have been reporting maj or new orders and I have been told by many peo ple that this is a good thing to do. Just recently we started using the bulletin boards to tell you about job opportunities as they arise in the company. If at all possible, we want to :fill new jobs at Ingersoll with people who al ready work here. We' used to handle this by word of mouth, but this is no longer sufficient, so we are trying to write up the oppor tunities as they arise. Keep in formed and if you are interested, talk to your boss or go directly to the personnel department. Don't be shy. If the job description looks tough, but you are interested, talk to somebody about it. Since we started this practice 90 days ago, twelve Ingersoll peo ple have taken new jobs as a result of it. There is opportunity to get ahead at Ingersoll.

I have spent some time talking ~bout taxes. I did so because we sometimes forget the fundamental truth that people who work for a living pay most of the taxes. Wealthy people pay high taxes but there is such a small number of them that it does not matter in the total. People on we1fare, old peo ple, young people, students - do not pay taxes - only people who work for a living. The direct in come taxes from Ingersoll alone last year amounted to $6 million and that is repeated in every com pany this size throughout the land. Indirect taxes (or less direct taxes. - such as corporation taxes) are also paid by those of us who work. And yet, all that money pouring into Washington is not nearly enough. Our government will put us further in debt in 1975 - :and then they will cover this shortfall by printing money, which will cause our pay checks to buy less in the future. Since we are the ones who pay, it has to be up to us to do some thing about it. If we don't let the politicians know what we think, nobody will.

Our business is good. 1976 should be another good year. What will happen in 1977 is anybody's guess. There is opportunity for ad vancement at Ingersoll. Each one of us can· contribute toward keeping the business com ing our way by the quality and amount of work we do every day. ~ LUDWIG VON MISES Wag Unemployme and Inflati0: O UR ECONOMIC SYSTEM - the market economy or capitalism - is a system of consumers' su premacy. The customer is sover eign; he is, says a popular slogan, "always right." Businessmen are under the necessity of turning out what the consumers ask for and they must sell their wares at prices which the consumers can af ford and are prepared to pay. A business operation is a manifest failure if the proceeds from the sales do not reimburse the busi nessman for all he has expended in producing the article. Thus the consumers in buying at a definite price determine also the height of the wages that are paid to all those engaged in the industries.

It follows that an employer can not pay more to an employee than the equivalent of the value the latter's work, according to the judgment of the buying public, adds to the merchandise. (This is the reason why the movie star gets much more than the charwoman.) If he were to pay more, he would not recover his outlays from the purchasers; he would suffer losses and would finally go bankrupt. In paying wages, the employer acts as a mandatory of the consumers, 529 530 THE FREEMAN September as it were. It is upon the con sumers that the incidence of the wage payments falls. As the im mense majority of the goods pro duced are bought and consumed by people who are themselves receiv ing wages and salaries, it is obvious that in spending their earnings the wage earners and employees themselves are foremost in deter mining the height of the compen sation they and those like them will get. The buyers do not pay for the toil and trouble the worker took nor for the length of time he spent in working. They pay for the prod ucts. The better the tools are which the worker uses in his job, the more he can perform in an hour, the higher is, consequently, his remuneration. What makes wages rise and renders the mate rial conditions of the wage earners more satisfactory is improvement in the technological equipment.

American wages are higher than wages in other countries because the capital invested per head of the worker is greater and the plants are thereby in the position to use the most efficient tools and machines. What is called the Amer ican way of life is the result of the fact that the United States has put fewer obstacles in the way of saving and capital accumulation than other nations. The economic backwardness of such countries as India consists precisely in the fact that their policies hinder both the accumula tion of domestic capital and the in vestment of foreign capital. As the capital required is lacking, the Indian enterprises are prevented from employing sufficient quan tities of modern equipment, are therefore producing much less per man-hour, and can only afford to pay wage rates which, compared with American wage rates, appear as shockingly low. There is only one way that leads to an improvement of the stand ard of living for the wage-earning masses - the increase in the amount of capital invested. All other methods, however popular they may be, are not only futile, but are actually detrimental tothe well-being of those they allegedly want to benefit.

What Makes Wages Rise? The fundamental question is: Is it possible to raise wage rates for all those eager to find jobs above the height they would have attained on an unhampered labor market? Public opinion believes that the improvement in the conditions of the wage earn~rs is an achieve ment of the unions and of various legislative measures. It gives to unionism and to legislation credit for the rise in wage rates, the 1975 WAGES, UNEMPLOYMENT AND INFLATION 531 shortening of hours of work, the disappearance of child labor, and many other changes. The preva lence of this belief made unionism popular and is responsible for the trend in labor legislation of the last decades. As people think that they owe to unionism their high standard of living, they condone violence, coercion, and intimida tion on the part of unionized labor and are indifferent to the curtail ment of personal freedom inherent in the union-shop and closed-shop clauses. As long as these fallacies prevail upon the minds of the voters, it is vain to expect a reso lute departure from the policies that are mistakenly called pro gressive.

Yet this popular doctrine mis construes every aspect of economic reality. The height of wage rates at which all those eager to get jobs can be employed depends 011. the marginal productivity of labor. The more capital - other things being equalis invested, the higher wages climb on the free labor market, i. e., on the labor market not manipulated by the government and the unions. At these market wage rates all those eager to employ workers can hire as many as they wan t. At these market wage rates all those who want to be employed can get a job. There prevails on a free labor mar ket a tendency toward full employmente In fact, the policy of letting the free market determine the height of wage rates is the only reasonable and successful full-em ploymen t policy. If wage rates, either by union pressure and com pulsion or by government decree, are raised above this height, last ing unemployment of a part of the potential labor force develops.

These opinions are passionately rejected by the union bosses and their followers among politicians and the self-styled intellectuals. The panacea they recommend to fight unemployment is credit ex pansion and inflation, euphemis tically called "an easy money policy." Credit No Substitute for Capital As has been pointed out above, an addition to the available stock of capital previously accumulated makes a further improvement of the industries' technological equip ment possible, thus raises the mar ginal productivity of labor and consequently also wage rates. But credit expansion, whether it is ef fected by issuing additional bank notes or by granting additional credits on bank accounts subject to check, does not add anything to the nation's wealth of eapital goods. It merely creates the illu sion of an increase in the amount of funds available for an expan sion of production. Because they 532 THE FREEMAN September can obtain cheaper credit, people erroneously believe that the coun try's wealth has thereby been in creased and that therefore certain projects that could not be executed before are now feasible. The in auguration of these projects en hances the demand for labor and for raw materials and makes wage rates and commodity prices rise.

An artificial boom is kindled. Under the conditions of this boom, nominal wage rates which before the credit expansion \vere too high for the state of the mar ket and therefore created unem ployment of a part of the potential labor force are no longer too high and the unemployed can get jobs again. However, this happens only because under the changed mone tary and credit conditions prices are rising or, what is the same ex pressed in other words, the purchas ing power of the monetary unit drops. Then the same amount of nominal wages - wage rates ex pressed in terms of money ~ means less in real wages - in terms of com modities that can be bought by the monetary unit. Inflation can cure unemployment only by curtailing the wage earner's real wages. But then the unions ask for a new in crease in wages in order to keep pace with the rising cost of living and we are back where we were before, in a situation in which large scale unemployment can only be prevented by a further expan sion of credit.

Protracted Inflation This is what happened in this country as well as in many other countries in the last years. The unions, supported by the govern ment, forced the enterprises to agree to wage rates that went be yond the potential market rates, that is, the rates which the public was prepared to refund to the em ployersin purchasing their prod ucts. This would have inevitably resulted in rising unemployment figures. But the government poli cies tried to prevent the emergence of serious unemployment by credit expansion - inflation. The out come was rising prices, renewed demands for higher wages and reiterated credit expansion; in short, protracted inflation. But finally the authorities be came frightened. They know that inflation cannot go on endlessly. If one does not stop in time, the pernicious policy of increasing the quantity of money and fiduciary media, the nation's currency sys tem collapses entirely. The mone tary unit's purchasing power sinks to a point which for all practical purposes is not better than zero.

This happened again and again, in this country with the Conti nental Currency in 1781, in France in 1796, in Germany in 1923. It is 1975 WAGES, UNEMPLOYMENT AND INFLATION 533 never too early for a nation to realize that inflation cannot be considered as a way of life and that it is imperative to return to sound monetary policies. In recog nition of these facts the Admin istra tion and the Federal Reserve Authorities some time ago discon tinued the policy of progressing credit expansion. Sound Money Doesn't Cause Slump It is not the task of this article to deal with all the consequences which -the termination of infla tionary measures brings about. We have only to establish the fact that the return to monetary stability does not generate a crisis. It only brings to light the malin vestments and other mistakes that were made under the hallucination of the il lusory prosperity created by the easy money. People become aware of the faults committed and, no longer blinded by the phantom of cheap credit, begin to readjust their activities to the real state of the supply of material factors of prod uction. It is this - certainly painful, but unavoidable - read justment that constitutes the de pression.

One of the unpleasant features of this process of discarding chimeras and returning to a sober estimate of reality concerns the height of wage rates. Under the impact of the progressing inflationary policy the union bureaucracy acquired the habit of asking at regular in tervals for wage raises, and busi ness, after some sham resistance, yielded. As a result these rates were at the moment too high for the state of the market and would have brought about a conspicuous amount of unemployment. But the ceaselessly progressing inflation very soon caught up with them. Then the unions asked again for new raises and so on. The Purchasing Power Argument It does not matter what kind of justification the unions and their henchmen advance in favor of their claims. The unavoidable effects of forcing the employers to remuner ate work done at higher rates than those the consumers are willing to restore to them in buying the prod ucts are always the same: rising unemployment figures.

At the present juncture the unions try to rake up the old hundred-times-refuted purchasing power fable. They declare that putting more money into the hands of the wage earners - by raising wage rates, increasing the benefits to the unemployed, and embark ing upon new public works - would enable the workers to spend more and thereby stimulate business and lead the economy out of the recession into prosperity. This is the spurious pro-inflation argu534 T'RE FREEMAN September ment to make all people happy through printing paper bills. Of course, if the quantity of the circulating media is increased, those into whose pockets the new fictitious wealth comes -whether they are workers or farmers or any other kind of people - will in crease their spending. But it is precisely this increase in spending that inevitably brings about a gen eral tendency of all prices to rise. Thus the help that an inflationary action could give to the wage earners is only of a short duration.

To perpetuate it, one would have to resort again and again to new inflationary measures. It is clear that this leads to disaster. There is a lot of nonsense said about these things. Some people assert that wage raises are "in flationary." But they are not in themselves inflationary. Nothing is inflationary except inflation, i. e., an increase in the quantity of of money in circulation and credit subject to check (checkbook money). And under present con ditions nobody but the govern ment can bring an inflation into being. What the unions can gener ate by forcing the employers to accept ,vage rates higher than the potential market rates is not in flation and not higher commodity prices, but unemployment of a part of the people anxious to get a job. Inflation is a policy to which the government resorts in order to prevent the large scale unemploy ment the unions' wage raising would otherwise bring about.

Political Dilemma The dilemma which this country and many others have to face is very serious. The extremely popu lar method of raising wage rates above the height the unhampered labor market would have estab lished would produce catastrophic mass unemployment if inflationary credit expansion were not to res cue it. But inflation has not only very pernicious social effects. It cannot go on endlessly without re sulting in the complete break down of the whole monetary system. Public opinion, entirely under the sway of the fallacious labor union doctrines, sympathizes more or less with the union bosses' de mand for a considerable rise in wage rates. As conditions are to day, the unions have the power to make the employers submit to their dictates. They can call strikes and, without being re strained by the authorities, re sort with impunity to violence against those willing to work.

They are aware of the fact that the enhancement of wage rates will increase the number of job less. The only remedy they suggest is more ample funds for un employ.: 1975 WAGES, UNEMPLOYMENT AND INFLATION 535 ment compensation and a more ample supply of credit, i. e., in flation. The government, meekly yielding to a misguided public opinion and worried about the outcome of the impending elec tion campaign, has unfortunately already begun to reverse its at tempts to return to a sound mone tary policy. Thus we are again com mitted to the pernicious methods of meddling with the supply of money. We are going on with the inflation that with accelerated speed makes the purchasing power of the dollar shrink. Where will it end? This is the question which Mr. Reuther and all the rest never ask. Only stupendous ignorance can call the policies adopted by the self-styled progressives "pro labor" policies. The wage earner like every other citizen is firmly interested in the preservation of the dollar's purchasing power. If, thanks to his union, his weekly earnings are raised above the mar ket rate, he must very soon discover that the upward movement in prices not only deprives him of the advantages he expected, but besides makes the value of his savings, of his insurance policy, and of his pension rights dwindle.

And, still worse, he may lose his job and will not find another. All political parties and pres sure groups protest that they are opposed to inflation. But what they really mean is that they do not like the unavoidable conse quences of inflation, namely, the rise in Hving costs. Actually they favor all policies that necessarily bring about an increase in the quantity of the circulating media. They ask not only for an easy money policy to make the unions' endless wage boosting possible but also for more government spend ing and - at the same time - for tax abatement through raising the exemptions. Duped by the spurious Marxian concept of irreconcilable conflicts between the interests of the social classes, people assume that the in terests of the propertied classes alone are opposed to the unions' demand for higher wage rates. In fact, the wage earners are no less interested than any other groups or classes in a return to sound money. A lot has been said in the last months about the harm fraud ulent officers have inflicted upon the union membership. But the havoc done to the workers by the union's excessive wage boosting is much more detrimental.

It would be an exaggeration to «ontend that the tactics of the unions are the sole threat to mone tary stability and to a reasonable economic policy. Organized wage earners are not the only pressure group whose claims menace today 536 THE FREEMAN September the stability of our monetary sys tem. But they are the most power ful and most influential of these groups and the primary responsi bility rests with them. The Need for Monetary Stability Capitalism has improved the standard of living of the wage earners to an unprecedented ex tent. The average American fam ily enjoys today amenities of which, only a hundred years ago, not even the richest nabobs dreamed. All this well-being is conditioned by the increase in savings and. capital accumulated; without these funds that enable business to make practical use of scientific and technological prog ress the American worker would not produce more and better things per hour of work than the Asiatic coolies, would not earn more, and would, like them, wretchedly live on the verge of starvation. All measures which - like our income and corporation tax system - aim at preventing further capital accumulation or even at capital de cumulation are therefore virtually antilabor and antisocial.

One further observation must still be made about this matter of saving and capital formation. The improvement of well-being brought about by capitalism made it pos sible for the common man to saVE; and thus to become a capitalist himself in a modest way. A con siderable part of the capital work ing in American business is the counterpart of the savings of the masses. Millions of wage earners own saving deposits, bonds, and insurance policies. All these claims are payable in dollars and their worth depends on the soundness of the nation's money. To preserve the dollar's purchasing power is also from this point of view of vital interest to the masses. In order to attain this end, it is not enough to print upon the banknotes the noble maxim, In God we trust. One must adopt an appropriate policy. ~ Reprints of this article available, 10 cents each.

LEONARD E. READ .The School of Mankind Example is the school of mankind; they will fearn at no other. -Burke THAT SCHOLARLY and brilliant Britisher, Edmund Burke (1727 1797), assuredly used the term "mankind" as defined in his coun try's Oxford Dictionary: "Human beings in general." Thus, the ref erence was not to those few who think for themselves and explore the Unknown, the ones graced with insights and who experience intui tive flashes, the moral and intel lectual giants, the oversouls, those like Confucius, Socrates, Epicte tus, Augustine, Maimonides, Adam Smith and thousands of others. Not included in Burke's dictum were those who rank high in set ting examples - the exemplars! Rather, his reference was to the general run of us who learn, if at 537 all, by the example of our supe riors. For the past forty years I have studied the few - those stalwarts past and present - and observed how their exemplarity has helped me to shape my life. They teach by the high example they set, and we learn by our efforts to do likewise.

To the extent that we learn the les sons their examples teach, to that extent are our own chances of ex emplarity improved. What has been the most reward ing lesson? It is this: individuals, past or present, whom I have rated as exemplars, have thought .of themselves as among "human beings in general." Their place in the elite category has been be538 T'RE FREEMAN September stowed by others - never self-pro claimed. Indeed, any time any per son puts a crown on his own head, he is one. to shun intellectually, never to follow or emulate. Unfor tunately for him, he has failed to grasp how infinitesimal is his own finite consciousness. Socrates, reputedly one of the wisest, had this to say: "I know nothing, but I know I know noth ing." That great Greek referred to himself as a philosophical mid wife; he was a go-between - seek ing Truth on the one hand, shar ing his findings with fellow seek ers on the other. Socrates was aware of a simple and self-evident fact: the more one learns, the larger looms the Unknown.

The Infinite Unknown This point is' ea~y to grasp. Merely vis ualize in the mind's eye a sheet of black, infinite in dimen sions - the Unknown. Now whiten a small circle to represent your awareness, perception, conscious ness of, say, a decade ago. Next whiten a greatly enlarged circle to depict your growth during the past ten years. Observe how much more darkness you as a learner are ex posed to now than earlier. A good guideline to assess progress: if daily the Unknown is not looming larger, one is not growing. Many who have delved deeply into any subject, be it philosophy, science, or whatever, are keenly aware of this point. Warren Weaver, a distinguished mathema tician, generalized the conclusion reached by many thoughtful scien tists: As science learns one answer, it is characteristically true that it learns several new questions. It is as though science were working in a great forest of ignorance within which ... things are clear .... But, as that circle be comes larger and larger, the circum ference of contact with ignorance also gets longer and longer. Science learns more and more. But there is a sense in which it does not gain; for the volume of the appreciated but not un derstood keeps getting larger. We keep, in science, getting a more and more sophisticated view of our ignor ance. l (Italics mine) Here we are presented with what, at first blush, is a seeming anomaly, namely, the more one is aware of his ignorance the more is he graced with wisdom. These two progressions are complemen tary rather than contradictory.

They are twin aspects of man's most important earthly purpose: growth in awareness,. perception, consciousness. As suggested above, when one is growing, he becomes more and more aware of his ignor ance and this gain in awareness is, in itself, a. gain in wisdom. No 1 See "The Raw Material," Manas (Vol. XXVIII, No.9, February 26, 1975).

1975 THE SCHOOL OF MANKIND 539 better lesson is to be learned in The School of Mankind! Parenthetically, it should be noted that there are among us al ways those I would class as "false exemplars" - the political charla tans and others who prescribe life without effort, the know-nothings who promise that they, better than we ourselves, can manage our in dividual destinies. These "leaders" are the very op posite of exemplars. They are Pied Pipers who put themselves in the vanguard of this or that mob. Ac cording to Emerson, a mob is "a society of bodies voluntarily be reaving themselves of reason." A Personal Approach My concern is not with mobs and their flabby disposition to escape from freedom and self-responsi bility but, rather, with those in dividuals who aspire to get ever deeper into life. The human future is with those whose ambition is to achieve in their own lives, as nearly as possible, man's manifest destiny!

Very well! Observe the true ex emplars and their ways. These all too-rare souls have their eyes cast only on their own improvement, not on the reforming of anyone else. As a consequence of their ad herence to self-perfection, others who would improve themselves are drawn not only to them but to the light they radiate. To seekers, such enlightenment performs as does a magnet. However, there are and always have been two grades of people: stagnant and growing. There are individuals who seem to be more enlightened on this or that subject than anyone else. Being further advanced than all others, no more is required of them, or so they mistakenly conclude. Stagnated! In a word, they crown themselves and freeze at the level of their self-professed perfection. They fail to grow. It is growth in awareness, and this alone, which energizes the power of attraction; stagnation at whatever level has no magnetism!

It matters not at what level of awareness the growth proceeds, be it from a beginner in The School of Mankind or a Socrates. Why? The one who is learning is graced with ideas - enlightenments - ne\v to him and very likely new, or at least refreshing, to those fortu nate enough to share his company. The Power of Attraction This is a fascinating phenome non. Magnetism flows behveen the seekers and the givers of light, much as a flash of lightning oscil lates between positive and nega tive poles. The current may be generated from either direction by the teacher whose light is grow540 T'HE FREEMAN September ing brighter, or by the student drawing ever more earnestly from the constant light of a great teacher, perhaps one no longer liv ing. Or, most hopefully, the great est enlightenment might come as teacher and student grow together. Many times you and I have said and heard others say, "I now see what you mean." Why not before?

Countless reasons range from one party's deafness or disinterest to the other's muteness or monotony. It has been said that repetition is the mother of learning, but this is not necessarily the case. Saying the same thing over and over the broken record - is folly. But trying to phrase an idea in better and more interesting style has merit not only for the phraser but also for the one who may be trying to "see what you mean." Forever strive for clarity; first in one's mind and then in expressions and actions. The seeker after the light of truth should search in every nook and cranny, for no person knows beforehand from what source it might beam. When he spots it, he should follow wherever it leads. If we are alert, flashe3 of truth will be observed emanating from those previously unknown as well as from the acclaimed elite, from sometime opponents as well as from longtime friends of free dom, from babes to grownups. Let us pray with Cardinal Newman: "Lead, Kindly Light, amid the en circling gloom. Lead Thou me on I"

When devotees of the free mar ket, private ownership, limited government way of life are chosen as teachers, let orientation be the teachers' aim. Yes, give some sam plings of the few lessons well mas tered, point out the lodestar - the ideal-and let the seekers take it from there. The School of Mankind has given me two reasons for this conclusion. First, there is no teacher among all who live who knows all the explanations - even remotely. And, second, only the seekers can find their way. No individual can do it for you or me or anyone else. Each, by the very nature of man, is his own trail blazer. The School of Mankind 1 It issues no degrees; there is no tenure. Students and teachers leap frog one another as they advance. No graduation, only daily com mencements! And no semesters or set term of years! The School of Mankind is for life - the good life! ~ The Government's Energy Crisis EUGENE GUCCIONE I'VE GOT SOME GOOD NEWS for you about the energy crisis.

Everything that possibly could have gone wrong seems to have gone wrong already. The same in stitution primarily responsible for our monetary and economic mess is also primarily responsible for our energy problems: Government. I want to emphasize that, re gardless of party label, our elected Eugene Guccione is editor of MINING ENGI NEERING, the monthly journal of the Society of Mining Engineers of AIME (American Institute of Mining, Metallurgical and Petro leum Engineers); vice president, Mountain States Resources Corp.; and a director of the Committee for Monetary Research & Educa tion. This article is based on a talk presented at the Monex International, Ltd. symposium "The Economy in Crisis," June 16, 1975, Los Angeles. officials and our bureaucrats are not evil people. They mean well. And it is precisely their good in tentions that make our problems so disastrous. Most of our public servants are motivated by the messianic impulse of doing good to their fellow man - and shoving it down his throat whether he likes it or not. They are full of good intentions - which they will en force with a gun at your head.

In fact, without oversimplifying the issue, the shortest explanation that can be given about the en ergy crisis is that it was triggered by a good intention and worsened by the use of force. The good intention was the no541 542 T'HE FREEMAN September tion that American consumers should somehow be entitled to cheap and abundant energy. The force that was used took the form of government controls over prices. Controls on Natural Gas Government planted the seed of the energy crisis in the 1930's by forcing price' controls on natural gas. This action had a disastrous domino-effect on all competitors of natural gas, especially coal. For one thing, low prices soon caused shrinking profits in the gas business, thus reducing the capi tal available for exploration and development of new gas fields. With fewer new gas fields being explored and developed, the re serves of gas have become so de pleted that, today, the gas indus try can barely sustain 8 years of production.

The coal industry, on the other hand, unable to compete against the government-enforced low prices of natural gas, has been going through 40 years of hell. At first,' the coal industry tried to compete by concentrating all its efforts on electrical utilities -his torically the largest buyers and users of coal. But in the 1950's, government again fouled up the picture: "Nuclear energy is just around the corner," announced the Atomic Energy Commission. "Wait one or two more years, and atomic power will be cheaply available to everyone," so went the pitch from Washington. Electric utilities heard the mes sage, liked it, believed it, and stopped signing long-term supply contracts with coal companies. However, under Washington's management, nuclear energy took longer to become commercial than anybody expected. At the same time, .the coal in dustry found itself deprived of long-term sales contracts, without which whatever capital could be raised for modernizing old mines and opening new ones suddenly dried up""- and the coal business went into another tailspin.

It took the U.S. coal industry 55 years to increase domestic coal production by about 11 per cent from 568 million tons per year in 1920 to today's level of about 630 million tons. With such a growth record, it· would take a few hun dred years to double coal produc tion. Yet, Federal Energy Admin istration planners think that it can 1975 THE GOVERNMENT'S ENERGY CRISIS 543 be doubled b,y 1985. My personal opinion - based on what govern ment has done and is doing - is that by 1985 the coal industry may have been legislated and regulated out of existence. Here are the facts. Twenty eight years ago, in 1947, U.S. domestic coal production was 630 million tons per year - same as today. When in 1954 the Su preme Court granted to the Fed eral Power Commission the au thority to regulate natural gas prices even at the wellhead, coal suffered another competitive set back. It was not a coincidence that coal production tumbled to 390 million tons in 1954.

Federal Intervention After 1954, thanks to improved technology, the coal industry man aged to increase production, and had again reached the 600-million ton level in 1969 - when Congress, over-reacting to the environmental hysteria and populist dema goguery, decreased the depletion allowance from 27.5 per cent to 22 per cent (thus giving a blow to all energy industries), and in quick succession passed the Mine Health and Safety Act along with the National Environmental Policy Act, and in 1970, the Clean Air Act. One immediate result of this legislative orgy was that coal productivity immediately fell by 30 per cent, and domestic output de creased to 550 million tons in 1970. There were other consequences. Because the Mine Health and Safety Act closed several coal mines, those utilities that were still using coal faced a. severe shortage. The Tennessee Valley Authority, for example, was re duced to a 10-day supply of coal from a normal 2-month supply. At this moment, utilities began switching from coal to residual fuel oil.

Everything went wrong in 1970. There wasn't enough residual oil either. Why? Because just as the low prices of natural gas had made it difficult for the coal industry to compete, these low prices also destroyed the price structure of residual oil, which for some years sold for les~ than the cost of domestic crude from which it was derived. As a result, petroleum companies dras tically reduced their production of residual oil in order to produce more gasoline to keep up with the demands of automobiles, which by 544 THE FREEMAN September law now had to be equipped with antipollution devices that lowered gas mileage by about 20 per cent. This is how the Mine Health and Safety Act was the principal cause of the shortage of coal, of gasoline, and of residual oil - and this is how, by 1971, in the Eastern Sea board, from Maine to Florida, we became dependent on the Arab Countries for more than 94 per cent of the residual oil needed for heating and power generation.

When the Arabs formed a cartel and jacked up their prices, every body suddenly discovered the "en ergy crisis." But that crisis was a made-in- Washington disaster that began at least as early as 1938 when Congress passed the Natural Gas Act. The Arabs didn't cause either our energy crisis or our monetary and economic problems: we were doing an excellent job of cutting our own throats long before the Arabs set up their cartel. The Arab oil cartel was set up in October 1973. But the Mine Health and Safety Act, the National En vironmental Policy Act, and the Olean Air Act were set up 4 to 5 years before. Five years before the Arab cartel, Washington set up en vironmental standards based on what turned out to be invalid and grossly distorted evidence. Con gress also armed every environ mental nut with the weapon to destroy, or at least delay, new en ergy developments. For example, the Kaiparowits Power Project was originally con ceived 12 years ago to deliver 5000 Megawatts to users in Utah, Ari zona, Colorado and New Mexico.

Investment for this project was estimated at 600 million. Today, because of inflation and all sorts of bureaucratic delays, this project now scaled down to 3000 Mega watts - is expected to cost more than $2.5 billion. The delays are now costing $6 million per month in plant construction alone, plus an additional $363 million annual ly in our balance of payment deficit to get 33 million barrels of im ported oil which Kaiparowits could replace. How did environmentalists achieve that power? In the May 1975 issue of Reason magazine, R. W. Johnson points out that the real culprit in all this was Section 102 - the environ mental impact statement clause in the National Environmental Policy Act (NEP A) of 1969.

1975 THE GOVERNMENT'S ENERGY CRISIS 545 "Before Senator Jackson's clev erly worded bill, ecologists could not, for example, sue the Depart ment of the Interior to stop it from selling a federal land lease or granting permission to build a pipeline through federal lands. They could not allege damage to themselves, so they had no stand ing in court," says Johnson, add ing that, "after the NEP A bill was rushed through Congress on the tide of emotions and misin formation generated by the Santa Barbara oil spill, anyone - even a Russian agent (or an Arab agent) - by posting a $100 bond could bring suit in federal court to stop a federal agency from granting op eration licenses, leases, use of highways, or building permits. All the plaintiff has to allege is that the agency did not file an 'ade quate' environmental impact state ment before allowing the business to proceed." This is how Washington created the machinery that has delayed and even stopped entirely such en ergy-related projects as the Alaska Pipeline, offshore oil drilling, and the construction of new refineries and power plants.

While NEP A has either pre vented and/or delayed new proj ects, the Clean Air Act has had a disastrous effect on existing devel opments. According to the Project Independence Report, the Clean Air Act - unless repealed or changed - will cause in the next 12 months a 200-million-ton coal deficit, the loss of 50,000 domestic mining jobs, an additional $5.5 to $11 billion deficit in the balance of payments, plus atrocious land use problems for the disposal of solid waste from sulfur dioxide scrub bers, and to top it all a 25 per cent increase in the cost of electricity. What is Washington's solution to all this? More regulation, more controls, more new agencies, more bills, more lawyers, more committees more scientific illiterates asking the incompetents to do the un necessary. All those guys in Washington are not solving the problem: they are the problem. Academicians and government consultants are not contributing to the solution either. I call your at tention to the latest masterpiece to come out from the Ford Founda tion's Energy Policy Board. It is a 546 THE FREEMAN September 510-page volume entitled A Time To Choose. In it, as a solution to the energy crisis, the scholars of the Ford Foundation are propos ing a permanent ban on offshore development in the Outer Conti nental Shelf, more severe re straints on the strip mining of coal, a moratorium on nuclear pow er plant construction until at least 1985, and what amounts to a de facto nationalization of the oil, gas, and utilities industries.

You know or should know that nuclear power plants are the saf est installations ever built: their safety record is unmatched by any industry. What about severe nu clear accidents? The probability of that happening is even more re mote than the probability of a meteor coming from outer space and hitting you over the head as you walk down the street. As to radiation exposure, you are get ting more radiation right now from cosmi~ rays and from the walls of your room - than you would get by living next door to a nuclear power plant, or inside it. Well, nuclear energy is fairly new. I can understand why some folks might feel paranoid about it. But why the opposition to the sur face mining of coal, especially of Western coal? What's all the fuss about the strip-mining bill? Here is another story worth tell ing "like it is." About Strip Mining A friend tells me· that some of the native tribes in Africa have the custom of beating the ground with clubs and uttering spine-chill ing cries. Anthropologists call this a form of primitive self-expres sion. Americans call it golf. I call it Congress. Uttering spine-chill ing cries, Congress began to draft the Surface Mining Bill six years ago, according to the slogan: "If you cannot reclaim the land, you cannot mine it." It was a good slogan. It made sense - but it also made the bill utterly unnecessary.

Why? Because the mining indus try was already doing a good job of reclaiming. In fact, a study by the U.S. Bureau of Mines, which I covered in the October 1974 issue of Mining Engineering, shows that of the 1.47 million acres used for surface coal mining from 1930 to 1971, one million acres had al ready been reclaimed - that's 66 per cent. And in 1971, coal people actually reclaimed 30 per cent more land than they mined. Also in 1971, the entire surface mining industry reclaimed 80 per cent of the land it used. Finally, in spite 1975 THE GOVERNMENT'S ENERGY CRISIS 547 of the grim picture of wholesale devastation allegedly caused by strip mining, the fact is that only a small percentage - 0.16 per cent, or less than two tenths of one per cent of the total area of the U.S. has ever been disturbed by all kinds of strip mining. Of that, a.l most half has been reclaimed, and the rest is in the process of rec lamation now proceeding full speed.

So, the bill had to be changed. It no longer stated that "if you cannot reclaim the land, you can not mine it" - it was instead a 266-page document, written by people who couldn't even spell coal, telling you what type of coal to mine, how and where to mine it, and lhow to reclaim. A majority in Congress voted for the bill. Support from Universities, Unions and the Industry Proponents of the bill also were to be found in universities, in la bor unions, and alas, in the mining industry. Some in our industry ac tually favored the bill because they are unhappy about being called greedy profit-making capitalists. The fact is that we are in business to make a profit. Besides, we'll still be attacked whether or not we make a profit; if we make a profit, demagogues will accuse us of steal ing from consumers; if we do not make a profit and must shut down, the same demagogues will accuse us of causing unemployment.

Anyway, various people in in dustry, rather than saying "It's a lousy bill, it's unnecessary, we are reclaiming, we are doing a good job," said instead "let's try to sweeten this bill and live with it." And when President Ford vetoed the bill, these same people went around saying that Congress should override the veto, otherwise ". . . we'll be stuck with a worse bill later on," and that "we can improve this bilL" But no legisla tion has ever improved with time. What about the universities? Well, since the Strip Mining Bill incorporated a sweetener granting $120 million of Federal Aid to mining schools, some professors were in favor of the bill. "Sure, we know it's a lousy bill," they said, "but look at the goodies we're get ting." What about labor? Well, there are nine major groups or locals in the United Mine Workers Union three of which are Canadian and couldn't care less, and six of which are American and do care very 548 THE FREEMAN September much because they have a member ship predominantly from under ground mining. So, UMWU fa vored the bill: "If we can prevent surface mining," they figured, "more coal has to be mined under ground, and that means more mon ey for us."

Let us consider some of the facts about strip mining: • In the first place, compared to underground mining, surface min is much safer: it is 20 times less likely to result in the death of a miner. • Surface mInIng is more effi cient: it recovers 80 per cent of the coal; and in thick Western seams, recovery rates can exceed 95 per cent. Underground mining instead recovers approximately 50 per cent of the coal. Why, you ask? Be'cause you've got to leave some of that coal in underground pillars to hold the roof up. • Surface mining is more pro ductive. In the same amount of time it takes for an underground miner to produce one ton of coal, a surface miner can produce up to 20 tons of coal. (Surface mining averages about 35 tons per man per day; and in the Western United States, it can average up to 200 tons. Underground mining in stead averages about 11 tons per man per day.) • Surface mInIng is the only way to produce coal from many of the vast Western deposits, which are near the surface and cannot be mined by underground methods.

• Coal in the Western states is clean, it contains from a half to one-tenth the amount of sulfur present in Eastern coal. (Western coal, on the average, contains 0.5 to 0.7 per cent of sulfur. In the Eastern underground coal depos its, the average sulfur content is from two to ten times greater.) • Strip mining in the Western states would disturb much less la.nd than strip mining in the East. "How much less?" you ask. At l~~ast 90 per cent less. For instance: to produce 30 mil lion tons of coal in the Powder River Basin of Wyoming, in any given year only 300 acres of land would be temporarily disturbed. To strip mine 30 million tons of coal in a heavily populated state like Illinois, would disturb 4,500 to 7,500 acres of land instead of a mere 300. (Mining Engineering, May 1975, p. 35). • Everybody agrees it would be nice to double coal production by 1985. If half of the anticipated in crease in coal production by 1985 comes from the West, it will re quire the surface mining of only 130,000 acres of land. To put this 1975 THE GOVERNMENT'S ENERGY CRISIS 549 acreage in perspective, please no tice that surface mining represents only a temporary use of land - and the 130,000 acres that will be mined and reclaimed over the next ten years is less than the amount of land covered by parking lots in one year. Yet, the Surface Mining Bill also granted to the surface tenant of land on federally owned coal a veto power over whether or not the coal will be mined, and the bill also placed a ceiling upon compensation - thus removing any incentive for ranchers to grant you their consent. This alone would have effectively prevented the min ing .of most of our Western coal.

• Finally. The average selling price of surface-mined coal f.o.b. mine is $5 to $10 per ton - and that of underground coal f.o.b. mine is $10 to $20 per ton. "Why then don't we produce more surface-mined coal?" you ask. Consider these reasons: Coal and uranium are the solu tion to our energy crisis. Any leg islation that adversely affects coal will also adversely affect uranium. So, with legislation like the Mine Health & Safety Act, the Nation al Environmental Policy Act, the Clean Air Act, and some new ver sion of the Surface Mining Bill, the development of coal and urani um will be prevented, the energy crisis will remain - and as long as we have an energy crisis, all those bureaucrats in Washington will have a job fighting the crisis. Look Not to Washington In conclusion, the solution to the energy crisis will not come from Washington. If we have learned anything at all, it is this: asking Washington's help to correct a problem, any problem, is like ask ing an arsonist to help you put out the fire. Throwing out the rascals and voting in a fresh batch isn't the answer either.

The only solution to the energy crisis is in a massive program of deregulating and decontrolling in dustry. We may survive double digit inflation and greater taxa tion; but unless we regain our freedom to produce, the American economy will reach the terminal stage. We'll solve the crisis. But gov ernment must first get out and stay out of business. The cause of our energy crisis and shortage of fuels is neither geological nor tech nological. It is political. Americans are losing the free dom that enables them to create wealth. And the extent to which government has violated, curtailed and infringed our freedom to ex plore, to develop and grow, to pro duce and trade, that is the extent to which our wealth has been di minished and our reserves of fuels decreased. ~ ROBERT C. MOORE A POWERFUL THIRD PARTNER is now participating in virtually every business in America. This partner invests no money and as sumes no risks, but threatens to assume more control over business affairs than the owners. I'm re ferring to the Federal government, along with its kissing cousins state and local government. Taken together they have bound every sector of American life with thou sands of laws and regulations.

I am deeply concerned about the continued impact of regulations that are rapidly destroying the self-adjusting mechanisms that once operated so effectively within From an address given on May 29 at the spring convention of the Pennsylvania Petroleum Association by Robert C. Moore, Vice-Presi dent-Public Affairs for Cities Service Oil Company, Tulsa, Oklahoma. 550 TheTollway to Nowhere the private enterprise system. Sometimes called the eighth won der of the world, because of the benefits it has brought to all of us, the American economic machine still has tremendous potential but only if we will limit our tam pering with and modifications to the· basic mechanism. While it might be satisfying to place all the blame for excessive regulation on the shoulders of legislators and government bu reaucrats, the fundamental fault does not lie with them, but with an American public that is naive at best - uninformed at worst about elementary economic princi ples and the functioning of the marketplace. Whenever problems arise, troubled people look to gov ernment for solutions, apparently 1975 THE TOLLWAY TO NOWHERE 551 convinced that-there are miracu lous remedies stockpiled at the state capitol or in Washington.

So-called progressives who cham pion such steps ignore the fact that our economic system is already based on one of the most exciting and revolutionary ideas in the history of the world. This idea maintains that a society can best function, prosper and serve the material needs of that society on the basis of free choices by free individuals in a free marketplace. Lack of Understanding A faulty understanding of eco nomic principles is just one reason why people look to government when things displease them whether it's the price of food, utilities or gasoline. Another im portant reason is our refusal to learn from the lessons of history. This is really a very strange para dox. If you gave a motorist a road map which led him down a dead end road, he would certainly be skeptical of its future value. After losing his way on a second journey, he would unquestionably throw the map away. Nevertheless, many people have a nearly blind faith in the potential of government to guide them safely through com plex economic and social difficulties to a proper destination - despite the many past failures of bureau cratic solutions!

Many examples come to mind, and I am sure some of you can cite several. For instance, the In terstate Commerce Commission, or ICC, was created in 1887 to regu late conditions in the railroad in dustry. With a stated intent to protect the public interest within a very narrow framework, the ICC soon became involved in the setting of rates. In more cases than not, its decisions kept transportation costs up rather than allowing the development of efficiencies in op eration to produce benefits for consumers. Under regulation, the resulting decline of competition among the railroads made them vulnerable to the challenge of other modes of transportation such as trucks, barges and air planes. Along came more regula tion in the form of the Railway Labor Act of 1926, which gave labor unions the power to lock-in practices that were economically crippling - further reducing their ability to compete.

You are familiar with the more recent chapters of this story. Re strictive regulation and declining profits made it difficult for rail roads to modernize their opera tions. Service became so poor that in 1970 the Rail Passenger Service Act was approved, setting up what is now Amtrak. That government operated system has now been exempted from some of the rules 552 THE FREEMAN September that hampered the efficient run ning of privately-owned railroads. Aided in that way and without the necessity of generating the earn ings or providing the capital re quirements that are essential to a private corporation, Amtrak has now made some progress. Yet, isn't that meager consolation as one looks back upon the havoc that was wrought by regulation? The latest proposals of the ICC would now jeopardize the more efficient rail roads by forcing them to subsidize those that are failing - a move that would hasten the complete demise of our private rail system.

Has Government Improved? Some might suggest that the government has now learned to do a better regulatory job in recent years. And anyway, a government "of the people" must do a better job "for the people." Certainly these two conditions are implied in a rising tide of new regulations and interference in market mech anisms with the primary thrust at present against our own industry. Are you and I really so gullible that we will allow such a trans parent fraud to be perpetrated upon our industry and the nation's economic system to serve the in terests of political opportunists, the whims of the uninformed and the plans of liberal dreamers? Are we really so unaware of basic economics and the complexities of our market system that we will eIll; brace the administrative processes of government bureaucracy to solve so critical a problemas en ergy - one that is basic to our standard of living and the survival of our nation? Will we believe what too many of our legislators and others are saying -.- that they can deliver cheap energy without paying the real replacement cost?

It is my fervent hope that we will not be so gullible, unaware or naive! If we are confused today about whether Congress can legislate a solution to market problems, let us look briefly at their recent effort in the troubled housing industry. (Incidentally, the problems in that depressed industry, while substan tial, are relatively simple com pared to those in the energy field.) In the recently enacted tax law, the current Congress in its infinite wisdom sought to stimulate the housing market. This would be done by giving buyers of new houses between March 13th and December 31st, 1975, a 5 per cent credit up to $2,000 against 1975 income taxes. Congress was well intentioned in this instance be cause there were 600,000 unsold new single-family homes, co-ops and condominiums on the market and 50,000 mobile homes in inven tory. Congress calculated that new 1975 THE TOLLWAY TO NOWHERE 553 building would not be stimulated until this inventory cleared the market. The solution appeared simple, and Congress adopted the tax provision without any hear ings. The Wall Street Journal says this legislative method, i.e., legisla tion without hearings, qualifies a Congressional action as "bold and imaginative." Whatever else can be said about this 94th Congress, it certainly qualifies as "bold and imaginative."

It now appears in retrospect that the "simple" solution toa "simple" market problem was not so "sim ple" after all. And remember, good intentions are not the criteria for success. It now appears that in stead of stimulating the housing market, this tax change will likely work in a very perverse manner. Nate the unanticipated "fall-out" from this Congressional effort: '·A house on which construction starts after this past ~arch26th is not eligible, so builders are not hurrying to build houses that can not compete with the subsidized units. The effect will likely be to delay new starts until late fall. • The tax measure rewards in efficiency since builders that han dled their own problems through better planning, quality construc tion or more competitive pricing now find their less efficient and less self-reliant competitors re warded by Congress. • Some 300,000 units were under construction and contracted, Le., they were committed for, but not conveyed to the purchaser. The tax break is simply a transfer of funds to these lucky buyers and will not generate new housing starts.

• Because units that have been once occupied are not eligible for the tax break, the program dis torts buying away from used homes, unfairly depreciating the value of used homes until the end of the year. • The tax measure imposes a "confusion penalty" on the hous ing industry that has real eco nomic costs. It will be months be fore buyers and builders have a clear picture from Internal Rev enue on what is really eligible. There are triple damage penalties imposed on sellers for falsification, so they will be understandably ap prehensive until the rules are clarified. Buyers who sell old homes must take into account any capital gain they realize, so they may not get the benefit antici pated. Of course, many buyers probably will make this discovery after the deal on the new home is already closed. At best, many buy ers will also be confused for some time about the implications of purchase.

'. And finally, it has now been estimated by Congressman Al Ull man, Chairman of the House Ways 554 T'RE FREEMAN September and Means Committee, that the tax provision may result in true addi tional sales of only 75,000 units at an estimated cost of $600 million to the taxpayers - or $8,000 per added home sale. Even by Congres sional yardsticks, that must be considered something less than a bargain for the nation and its tax payers. What are the lessons for you and me today from this modern day example of a legislated solu tion to a market problem? If my comments to this point have not excited your interest, I urge you now to take 'a deep breath - and give your undivided attention to these truisms I am about to sug gest: Truism #1. It is impossible for government to interfere with a balanced and integrated market system without creating unreason able distortions, many of which are invariably counter-productive.

Truism #2. Government solu tions frequently rew'ard the ineffi cient and penalize the productive which the market will not allow. While there may be temporary benefits for some, experience has proved this process is always anti consumer in the long term. Truism #3. Government is sub ject to the influence of special in terests, rewarding those who find political favor and penalizing those who do not. Reward and cost to the consumer do not then meet the test of impartial market discipline - again to the long term detriment of the consumer. Truism #4. The intrusion of government Into the market al ways creates an enormous "confu sion penalty." While you and I may not always like the discipline in the market, at least we can rely on the time-tested and consistent economic laws by which it oper ates. What government has manip ulated once, it can manipulate again. More than any other factor, government intrusion into our in dustry is preventing solution of our energy problem. In fact, the evidence is overwhelming that such interference caused the problem in the first place. Will we continue the present confusion or now turn the problem back to the market for solution?

Truism #5. Government solu tions, when successful, are always extremely costly. Note the $2,000 tax break to stimulate one addi tional housing sale is now likely to cost the taxpayer $8,000 per sale. Some now would have a govern ment oil company created to "com pete" with private industry in de veloping additional energy sup plies. Is there a one of us that really believes government can do this job better than private indus try? Who can even guess what the 1975 THE TOLLWAY TO NOWHERE 555 taxpayer will pay per barrel of oil produced, if this effort comes to fruition? If $600 million to get 75,000 new housing starts is an ex ample, the probable cost per barrel of oil found by a government oil company will make OPEC mem bers look like pikers! You're likely asking yourself why the penchant for regulation remains strong despite such a poor record. Two of the reasons, a lack of understanding of economic fun damentals and the failure to learn from history, have 'already been mentioned.

There seems to be another rea son with more dangerous implica tions that has been pinpointed by Senator Paul Fannin of Arizona. He maintains that many legisla tors believe the free enterprise system, as we know it, is an out dated 19th century institution. In this attitude, they reflect a grow ing segment in this country which feels that industry acting alone, with minimal government inter vention, is incapable or unwilling to serve the public interest. This is not an isolated phenomenon, but seems to be part of an erosion of confidence in the validity of many of the cherished institutions that have served our nation well throughout our history. If time permitted, we might dwell on the apparent paradox of calls for increased government intervention when recent polls reflect a general lack of confidence in the ability of government to deal effectively with economic problems in our society.

Could it be that we are just too impatient to allow the self-adjust ing mechanisms to work? Do we lack the wisdom to define which areas are proper for government and which should be left to the market? History also confirms that regu lation, once created, tends to be subversive, feeding on itself to proliferate and self-perpetuate. It creates additional problems and distortions that need new regula tion, and bureaucracy too often be comes an end unto itself. Unfortunately, for those who are the victims there is still an other force that perpetuates the cult of regulation. Regulations sap the strength and vitality of a free economy by offering transitory benefits to consumers and other special interest groups. They offer "security" in exchange for "free dom," and try to substitute "status-quo" for progress. Yes, it is possible for us to be "bought," and often the price can be tempting.

Within our industry there are those who have profited from the Emergency Petroleum Allocation Act and others who seek to make it serve their future purposes. As 556 THE FREEMAN September we have discovered before, how ever, many a temporary law or tax has become an institution, and there are now strong indications that this could be true in the petroleum industry. When will we ever learn that you can't enact only regulations that suit your particular fancy. Once you begin to take the regu latory route, you're on an express way that leads just one way deeper into the bureaucratic jun gles. To make it even worse, the farther you travel, the fewer the exit ramps. If you do finally leave this super highway to nowhere, the journey really can get rough - for you must find your way back to the "go" position if you hope to travel that old road, again. The temptation is great to stay on the hypnotic tollway. For who knows - maybe security is better than freedom - and anyway look at how good our earnings were last year!

I have no easy solutions to the problems I have been discussing, and we cannot look for any instant revocation of the thousands of pages of useless regulations that are in effect. Perhaps our situation is not totally hopeless, for I be lieve there are ways to inhibit the continued growth of the statutory tumors that threaten our private enterprise system. • We must voluntarily work to become more responsive to those we serve than ever before. In a sense we must prove to the people that there is no need to bind us heavily in regulations. • There must he increased em phasis on sound economic educa tion for people of all ages. We must supplement the schools of the nation for they can't do this job alone. You and I spend too little time discussing the economic facts of life with our children. • There must be no reluctance to communicate our views to the general public and lawmakers, even though our opinions may not be immediately popular.

'.' Businessmen, as private indi viduals, should evaluate the rec ords of legislators and back those who uphold the principles of free enterprise. '. By all means we must move away from the illusion that the most praise-worthy Congress is the one that passes the most laws. '. We must solidify our own faith in the laws of supply and de mand rather than prematurely calling for government interven tion that is not needed - whether this is in our industry or other fields. There is still time to get off the regulatory turnpike - but let's not delay. It gets more expensive every mile we travel, and if we're not careful, we could miss that last exit to freedom! ~ BERNARD H. SIEGAN A STRANGE PHENOMENON of our times is the attitude of local office holders who identify themselves with the cause of the poor and at the same time insist on curbing growth. Here in San Diego, for ex example, many politicians whose hearts continually bleed for the downtrodden are among the strongest supporters of a re stricted growth policy, which can only be harmful to the poor.

The two positions are totally in compatible, and one begins to won der how genuine their commitment Copyright 1975 Bernard H. Siegan Mr. Siegan is the author of Land Use Without Zoning and many articles on the subject. He practiced law for 20 years in Chicago before moving in 1973 to La Jolla, California where he is professor of law at the University of San Diego Law School. - and to whom or to what. The answer may lie, of course, in the working of both sides of the polit ical street, plying the rich and young with "no growth" promises and the poor with lots of rhetoric. Plainly, these politicians are not heeding the advice of the bumper stickers that urge us to "eschew obfuscation." Friends of the poor should be working hard to overcome govern mental restrictions that curtail production; and some are. One public body that recently adopted a clear position on the issue is the San Diego County Board of Public Welfare. On May 2, in a written re commendation to the county's Board of Supervisors, it said the 557 558 THE FREEMAN September slow growth policies of the city and county were "at cross purposes with the goals and objectives of the Board of Public Welfare."

Its statement continues: "The elimination of poor or substandard housing accomodations demands an immediate change in the county's growth policy. This policy is acting to restrict the supply of housing available to poor people." Regarding the means for achiev ing satisfactory housing for the poor, the statement discussed both subsidized and privately financed housing and concluded that the former has not been particularly successful: "It is very expensive and has served only a small pro portion of those in need." The Board referred to a report made by the Federal Department of Housing and Urban Develop ment that the average subsidized apartment unit cost 20 per cent more to construct than a compar able unit privately financed. This meant, the Welfare Board rea soned, that 20 per cent fewer dwellings could be built by the gov ernment than if the same amount of money had been invested in the private market.

It concluded that: "The greatest hope for improving the living con ditions of the ill-housed poor in our community, and at the same time substantially relieving the financial burden placed on the Board of Supervisor's budget (and the taxpayers of San Diego) ap pears to be through the private market; specifically through the filtering process." Filtering is the chain of moves to new or different living quarters triggered by the construction and occupancy of a new unit. The lead ing source available on this process is the study conducted by the Sur vey Research Center at the Uni versity of Michigan, published as a monograph, New Homes and Poor People. This study, conducted in 17 metropolitan areas in the mid 1960's, determined that for every 1000 new housing units built, there are over 3500 relocations, of which an average of 330 are by families defined as poor and 950 by mode rate income families, the next low est economic category. The moves will be made to presumably better housing on the assumption that "if they move, they benefit." The Wel fare Board considers the filtering process "the only proven viable provider of low cost housing for low and moderate income fami lies."

According to the Board, the number of building permits issued in San Diego County in 1974 was 24,000 fewer than in 1972. Of the reasons cited for the decrease, one was the restricted growth policy.

1975 LAND USE REGULATION HARMS THE POOR 559 Using the statistics provided in the Michigan Study, the Board fig ured that, had this amount of new construction occurred, better hous ing would have been available for over 31,000 poor and moderate in come families. By contrast, it pointed out, local government was pursuing the idea of building only 600 homes for the needy. The statement added that a great deal of pressure for sub sidized housing arose from the notion that "for some reason, poor people should live in brand new houses. The emphasis instead, should be on enabling poor people The Need for Freedom to exercise upward mobility by re moving the barriers to improved housing." The Board described these bar riers as forms of land use and building regulation, specifically im pediments to new construction set up by the California Coastal Com mission, Environmental Quality Act, zoning regulations, construc tion processing delays and the sub stantial fees demanded of builders to obtain permits.

The Board's analysis powerfully illustrates how harmful land use regulation is to the well-being of lower income people. ~ IDEAS ON LIBERTY To HAVE lived in some remote "native" village long enough to know how their social curbs on progress operate is to understand why the best laid plans of economic development schemes have a way of failing utterly. Without freedom to achieve and without a measure of security for life and property, aid is useless; and with freedom, it is unnecessary. Any enterprising investor is happy to put his money into a going concern and nothing succeeds like success. But the rigidities of a managed economy stifle initiative and scare off venture capital, keeping the depressed area stagnant and backward. Only a rich country can afford the economic inter ventions of socialism - and they can't afford it for long. EDWARD P. COLESON Blue Eagles and Deja Vu WALTER B. WRISTON As WE APPROACH the bicentennial of our republic, it is useful to re member that our founding fathers faced hard times - much harder than those which are with us to day. They, too, had to make some tough choices. Thomas Jefferson expressed the problem in a nut shell: "Weare not to expect to be translated from despotism to lib erty in a featherbed."

The great principles of our gov ernment laid down by our found ing fathers embody a vast distrust of centralized governmental power and an unswerving dedication to the proposition that government rests on the consent of the govMr. Wriston is Chairman of the First National City Corporation. This article is from his re marks of May 5, 1975, before The Society of American Business Writers, Washington, D.C. For additional copies write to Citicorp Pub lications Unit, 18th Floor: 399 Park Avenue, New York, New York 10022. 560 erned. No sector of our society has been more vigilant than the press in keeping that proposition always before us. Nevertheless, whenever we create the conditions which cause our system to appear to falter, whether through inflation or corruption, people who would destroy our liberty 'press forward with plans the founders rejected - old plans dressed in a new vocab ulary. A good many years ago, John Randolph foresaw the danger and put it this way: "The people of this country, if ever they lose their liberties, will do it by sacri ficing some great principle of gov ernment to temporary passion."

Today, passions abound in the land. As the heat rises, our mem ory of fundamentals seems to fade. We forget that the traditional op timism of the American people is 1975 BLUE EAGLES AND DEJA VU 561 an absolute essential to a democ racy . We hear a rising chorus of attack upon the unique American economic system, through it has produced both the highest stand ard of living and the largest mea sure of personal liberty in the history of mankind. People who should know better begin to waffle about human free dom and in the moment of passion that John Randolph feared even suggest that some form of dicta torship may not be so bad after all. In the 1930s Senator David Reed from Pennsylvania voiced it bluntly: "If this country ever needed a M ussolini, it needs one now." The admiration in the l!nited States for the way Musso Iini made the trains run on time was widespread. The New York Times in May of 1933 reported that the atmosphere in Washington was "strangely reminiscent of Rome in the first weeks after the march of the Blackshirts, of Mos cow at the beginning of the Five Year Plan ... The new capital ...

presupposes just such a highly centralized, all-inclusive govern ment as is now in the making." In the 1930s it began to look more and more as if we would sacrifice some great principle and lose our lib erty. The resident philosopher in Washington in those days was Rexford Guy Tugwell. Like his current counterparts, Tugwell ex pressed contempt for the consum er's ability to choose and wanted large state-controlled corporations along fascist lines. It was all very simple and logical. He put it this way: "When industry is govern ment and government is industry, the dual conflict deepest in our modern institutions will be abated." This old idea has now been revived with a name. We now call them "benchmark" corpora tions. By 1984, George Orwell tells us the concept will be set to music in a telescreen jingle that goes: "Under the spreading chestnut tree, I sold you and you sold me... "

The NRA The first major step that this nation took toward merging gov ernment and industry, and toward the total abandonment of the free market system, was the enactment of the legislation that created the National Recovery Administration. The NRA with its famous Blue Eagle symbol soon began grinding out hundreds of "codes" repealing economic freedom and arbitrarily fixing wages, prices and hours. In the temporary passion of that moment, many businessmen wel comed the idea of controls and were openly pleased with the idea of an escape from competition. "Codes" in the 1930s were the equivalent of the current euphe562 THE FREEMAN September mism "guidelines." These "codes" ultimately affected some 22 million workers. Like all schemes which require people to behave in a way they would not act of their own free will, force eventually has to be used against the populace. Since the NRA codes required citizens to make decisions which were con rary to their own economic in terests, penalties for noncompli ance had to be severe. Tailors were arrested, indicted, convicted and sentenced because their prices for pressing a pair of pants were a nickel below the relevant NRA code. Farmers were fined for planting wheat that they them selves ate on their own farms. Bar bers who charged less than the code rate for a shave and a hair cut were subject to fines of up to $500. Even the village handyman was prosecuted, since he did not fit in under the multiple wage-and hour scale set up by the codes.

The complexity of the codes soon antagonized labor as well as man agement. The average factory worker who had been earning $25 a week was cut back to $18.60 un der NRA codes. As a result, strikes became a way of life and auto workers, frustrated by red tape, began calling the NRA the Nation al Run Around. When the textile code authority cut production in the mills in 1934, another great strike began in the South. Before the strike ended, the National Guard had been called out in seven states and scores of textile workers were killed and wounded. A few months later, NRA administrator General H ughie Johnson resigned under a storm of criticism - or, as he phrased it himself, "a hail of dead cats." The Schechter Case As was the case with the rights of minorities in the 1950s and 60s, or with Watergate in the 70s, a few had the courage to challenge the power of the state. A fairly small company, The Schechter Poul try Company, refused to observe NRA standards of "fitness" gov erning the slaughtering of chick ens. When the case reached the Supreme Court, the NRA was unanimously declared unconstitu tional. The Court wrote: "Such a delegation of powers is unknown to our law and it is utterly incon sistent with the constitutional prerogatives and duties of Con gress." After the decision was read, Justice Brandeis told one of FDR's legal aides: "I want you to go back and tell the President that we're not going to let the govern ment centralize everything." That was a call to return to fundamental American principles.

That time around we were res cued from the temporary passion of the moment by the Supreme 1975 BLUE EAGLES AND DEJA VU 563 Court. For such actions, the jus tices were reviled as the Nine Old Men. Fortunately, they were old enough to remember the tyrannies of the past and struck down the attack on individual freedom, even though it was wrapped in a pack age labeled "progress." As if in direct reference to John Randolph, the Court said: "Extraordinary conditions do not create or enlarge constitutional power." Today, just as we are begin ning to win the battle against in flation and recession, the classic attacks on individual freedom are being launched with new vigor. In place of the NRA and Musso..., lini's Blackshirts of another era, .we have new groups with new names selling the same worn-out concept of government planning as "progress." The current effort to peddle the theories of Tugwell is being quar terbacked by an organization called the Initiative Committee for Na tionalEconomic Planning. Its members, businessmen, academic ians and labor leaders, are all well intentioned people who should know better. Their program,if adopted, could bring about the step-by-step destruction of the free market system and, as a con sequence, all personal liberty. The opening statement of the Initiative Committee expresses the usual doubt about whether our tried and tested system provides "the best hope for combining economic well being and personal liberty."

Always, Coercion Like central planners in the past, the new breed speaks euphemisti cally of "plenary power" and ob taining a "mandate." They suggest that a "five-year plan" would be "voluntary" but add that it might require a "legislative spur." They imply that they would not set specific goals for General Motors, General Electric, General Foods or any other individual firm but would "try to induce" the relevant industries to do their bidding. The Ne"w York Times, an ardent advo cate of central planning in 1975 as in 1933 (except of course for the media), has fully endorsed the idea of government planning as "a means to help private industry to make its own planning decisions ... without government coercion." There is no case of government planning not implemented in the end by coercion. If the proponents of central planning came right out and said they wanted to create an economic police state, their cause would never get off the ground. So, they resort to "doublespeak,,, as Mario Pei so aptly called it, the usual camouflage for the ultimate use of force against the individual. Lud wig von Mises summed it up when 564 T'RE FREEMAN September he wrote: "All this talk: the state should do this or that ulti mately means: the police should force consumers to behave other wise than they would behave spon taneously. In such proposals as: let us raise farm prices, let us raise wage rates, let us lower profits ...

the us ultimately refers to the police. Yet, the authors of these projects protest that they are plan ning for freedom and industrial democracy." Perhaps the oldest lesson of history is that an assault on one .aspect of freedom is an attack on the whole, as the framers of the Constitution were well aware. To think that the bell that tolls for economic freedom does not toll for academic freedom or for freedom of the press is a delusion, and a dangerous one. The vigilance of the press which helped smoke out some of the misdeeds of Water gate should be equally focused on the economic non sequiturs coming from some of Washington's promi nent citizens. Attacks on the system that has produced our relative affluence as well as our freedom come in part from people seeking power and in part from a failure to understand the American experience. Pulitzer Prize historian Daniel J. Boorstin put it this way. "There is an in creasing tendency ... to blame the United States for lacking many of the ills which have characterized European history. Our lack of poverty is called materialism, our lack of political dogma is called aimlessness and confusion."

All current proposals for a man aged economy rest on an under estimation of the intelligence of the American people. They assume that you and I are just not smart enough to decide how to spend the money we earn. The decision must be made for us by a wise govern ment. Those wonderful people who brought us wage and price con trols, which so severely disrupted our economy, now wish to extend the chaos on a permanent basis. The intellectual arrogance of those who would substitute their judg ment for that of the American people is amazing. Pressures Applied As the incredible complexity of American life begins to dawn on the would-be government manag ers, as it did in fact ultimately dawn on the Administrator of the NRA, ever increasing pressure has to be applied to make a reluctant citizenry conform. The clash be tween governmental economic plan ning and personal liberty is inevi table because, in the end, govern mental allocation of economic and intellectual resources requires the use of force. No agency, for ex ample, could have regulated our 1975 BLUE EAGLES AND DEJA VU 565 r,a;ilroads into ,bankruptcy as did the T.C.C.without such power.

ThIs 'power must be continuously increased to block opposition, to generate public acceptance and suppress doubts about the compe tence of the planner. Last year's Economic Summit should have made it obvious to all the world that experts do not agree. No plan which covers a continent with the infinite variety of America and contains thousands of parts can possibly be agreed upon by experts and certainly not by a majority of the people. Even if by some miracle we could get all the fiscalists and monetarists to concur, the ultimate decisions would be political much more than economic. It would be impossible to get a majority vote in the Con gress on every item in the economy which would have to be allocated, priced and assigned priority. Since both political and economic agree ment is a virtual impossibility, these decisions have to be dele gated to the planner and thus can never represent the will of the majority. Such action by definition destroys the premise on which American democracy rests.

Precious Freedoms The First Amendment is one of the most sweeping definitions of freedom of the citizen against his government ever enacted anywhere in the world. As in the past, it must now be guarded jealously by all sectors of our society. What I am suggesting to you today is that you must examine with great care and skepticism the proposi tion that government regulation of goods and services is a legitimate function of government. It is pred icated upon the dogma that con sumers lack the intelligence to make choices, but that they are capable of sorting out a good idea from a bad one without govern ment help. You should question the logic which leads some people to conclude that a so-called truth-in advertising law is good, but a truth in-media law is bad. On a purely logical basis it is hard to sustain the argument that the pub lic is unable intelligently to choose among competing dog foods with out government help, but is com petent to sort out the true mean ing of a senator's speech.

The press, along with the rest of this country, generally has come to the conclusion that the perform ance of government at all levels leaves a great deal to be desired. Bureaucracy has never been syn onymous with efficiency. There is a growing perception across the country that government regula tion of goods and services has often tended to promote monopoly, raise the price levels and smother innovation. Professor Houthakker 566 THE FREEMAN September of Harvard made this point dra matically at the Economic Summit by listing 43 areas he thinks the government should deregulate. Lest you think that you are exempt, more and more educators are beginning to perceive the hand of government within their own campuses, despite the long tradi tion of academic freedom. Aca demicians are ·learning the old lesson that if you take the king's shilling, you will do the king's bidding. We already have govern ment very much in the broadcast field, although some people feel this has not been objected to as strongly by the print media as one might have hoped or wished. If you accept the proposition that government intervention in the dissemination of ideas is bad, which is one I strongly hold, you must then review in your own The Pressure to Succeed mind whether it makes any sense to argue for governmental inter vention in the individual's choices among goods and services. What ever conclusion you come to on this proposition, you should not fool yourself that economics and politics live on separate islands; in tne end our freedom is indi visible.

One of our least admired presi dents was characterized as one who approached power with "muf fled oars." Those of you who de pend for your existence on the First Amendment should sensitize your ears to pick up the sound of "muffled oars" seeking to approach power through a planned economy. This suggestion is in accordance with sound liberal doctrine as ex pressed by Woodrow Wilson: "The history of liberty is a history of limitations of governmental power~ not the increase of it." fI IDEAS ON LIBERTY NOTHING IS MORE DANGEROUS to the well-being of a theatre than when the director is so placed that a greater or less receipt at the treasury does not affect him personally, and he can live on in care less security, knowing that, however the receipts at the treasury may fail in the course of the year, at the end of that time he will be able to indemnify himself from another source. It is a property of human nature soon to relax when not impelled by personal ad vantage or disadvantage.

WOLFGANG VON GOETHE, from Eckermann's Conversations of Goethe ANewKind of Politicinn DAVID A. WILLIAMS FIFTEEN YEARS AGO, a well known Senator in a famous book recom mended that future politicians proclaim this thought in their campaign speech. "I have little in terest in streamlining government or in making it more efficient, for I mean to reduce its size. I do not undertake to promote welfare, for I propose to extend freedom. My aim is not to pass laws, but to re peal them. It is not to inaugurate new programs, but to cancel old ones that do violence to the Con stitution, or that have failed in their purpose, or that impose on the people an unwarranted finan cial burden. I will not attempt to discover whether legislation is 'needed' before I have first deter mined it is constitutionally perMr. Williams is Research and Public Relations Assistant to the Chairman of the Board of Texas Steel Comp'any.

This article is from his April 29, 1975 week ly commentary on Newsroom, station KERA TV, Dallas. missible. And if I should later be attacked for neglecting my con stituents' 'interests,' I shall reply that I was informed their main in terest is liberty and that in that cause I am doing the very best I can." Those thoughts, of course, were by Senator Barry Goldwater from his longtime bestseller, The Conscience of a Conservative. Last year an Independent Liber tarian candidate for Assemblyman in New York when asked what would he do for the people as their Assemblyman, answered with "Absolutely nothing." In the 1880's Bucky O'Neill decided to run for probate judge in Arizona's Yava pai County. His statement read, "To be frank, it is not a case where the office is wearing itself out hunting for a man-not much! Here it is the man wearing him self out hunting the office-for the simple reason that it is a soft berth with a salary of $2000 per 567 568 THE FREEMAN September annum attached. While in the way of special qualifications I have no advantage over 75 per cent of my fellow citizens in the county, yet I believe I am fully competent to discharge all the duties incident to the offiee in an efficient manner, if elected. If you coincide in this opinion, support me, if you see fit.

If you do not, you will by no means jeopardize the safety of the uni verse by defeating me." Bucky was elected by eight votes. What do these three political candidates have in common? It is a recognition that politicians hurt the voter whenever they make campaign promises. It was Senator Howard Baker of Tennessee who said that whenever he heard a pol itician making campaign promises, he immediately reached for his wallet. The truth is that whenever promises are made, they must be paid by our tax dollars. Because of this we need a new kind of poli tician: one who promises not to do anything for us. This politician would recognize that he was being elected to protect the people from the government, not sell away our pocketbooks. In fact he would be hailed as a statesman when re election time rolled around by us ing as his slogan "I did nothing for you last year, and if reelected I will continue to do the same."

Opposing candidates would fight over who could do nothing better and more efficiently, and the tax payer would be better off because of it. It was Edmund Burke who said that the lives and property of all freeborn Englishmen were in jeopardy when Parliament was in session. The same could apply to America. The best thing to happen to an American taxpayer would be to have a do nothing Congress. The less mischief the politicians are in, the better. "And if reelected I promise to continue my tradition of doing nothing to the American taxpayer." Amen, Brother, Amen. t) IDEAS ON LIBERTY Worse Than Thieves WHEN YOUR MONEY is taken by a thief, you get nothing in return. When your money is taken through taxes to support needless bu reaucrats, precisely the same situation exists. We are lucky, in deed, if the needless bureaucrats are mere easy-going loafers. They are more likely today to be energetic reformers busily discourag ing and disrupting production.

HENRY HAZLITT, Economics in One Lesson TheG FractionalJOE COBB veBanking THERE IS LITTLE DOUBT that a gold-oriented monetary system is superior to a fiat monetary sys tem, from the perspecrtive of the average citizen and businessman. Monetary systems which are man aged by central banks or govern ments, as opposed to systems which arise in the market and are self-equilibrating, are prone to in flation and repudiation. The argu ments against "managed" cur rency are clearly set forth in the Theory 0 f Money and Credit by Ludwig von Mises, and it is not our purpose to argue against the gold standard. The argument of this essay is Joe Cobb is Chief Budget and Fiscal Officer of the Industrial Commission of Illinois. He has written a number of articles on economic mat ters since graduation from the University of Chicago in 1966. This article is reprinted by permission from The Gold Newsletter, Vol. IV, No.6, 1524 Hil lary Street, New Orleans, Louisiana 70118.

that the U.S. Dollar should not be "backed" by gold or "tied" to gold or otherwise officially connected to gold in any way. The free economy must have a metallic monetary standard (and gold is probably the best metaa for that purpose), but the people who support an Act of Congress which pegs the price of gold in terms of dollars, or which defines the dollar in terms of gold, are making a big mistake. Like Oedipus, they are putting out their eyes and surrendering their mon etary assets to the secret manage ment of the U.S. Treasury with out the ability to detect mis-man a.gement. The assumption that a gold dollar is not a "managed" currency is an illusion. While it may be true that the quantity of money may be determined by the stock of gold in the nation at any point in time, the total volume of 569 570 TIRE FREEMAN September credit - including Federal credit, local government debt, and bank credit - is subject to control and management.

The problem arises because the unit of money (let us can it "one dollar" ion gold) has the same name and is traded at a fixed price with the unit of credit (let us call it "one dollar" in deposits). We aU understand the process by which banks create credit: the depositor brings in a quantity of gold coin and the banker puts this in his vault, issuing certificates to the depositor (or establishing a check ing account in his name). At this moment, the banker has 100 per cent reserves for his deposits. The next customer in the bank, how ever, is someone who wants to borrow - let's assume the borrow er will buy a· house. The banker accepts a secured mortgage from the borrower (the banker's non~ monetary asset) and issues to the borrower some certificates identi cal to the ones pe issued to the de positor. The total number of cer tificates is now greater than the supply of gold in the vault, so the hanker's reserves are only a frac tion of his total outstanding cer tificates "payable in gold." There is nothing fraudulent about this; the banker's assets equal his lia bilities, and everybody knows that bankers are in business to make loans with their depositors' money.

Banks perform a valuable service by accumulating small deposits and making large loans. It is not our point here to rant and rave against fractional reserve bank ing, but we need to understand the difference because there is a crit ic'al implication for any proposals to reform the monetary system and re-establish the gold coin standard. Most students of economics have heard of Gresham's Law: "Bad money drives out good money." What this means is that any hold er of both gold coins and .paper dollars will tend to spend the pa per dollars and hold on to the gold coins. He will not spend the gold coins, unless the seller demands them instead of paper ~ The vicious aspect of legal tender laws is that they strip the seller of the right to demand coins instead of paper. Yet, Gresham's law only holds true when there is· a fixed price be tween the "good" money and the "bad" money. When there is a floating price, both forms of mon ey circulate with equal frequency and the "price" of one in terms of the other adj usts according to the demand. This is a simple phenom enon arising from the two sepa rate uses for money - the medium of exchange, and the store of value functions. The· gold coins would be preferred as a store of value, and the paper dollars would be pre1975 THE GOLD STANDARD AND FRACTIONAL-RESERVE BANKING 571 ferred as a m~dium of exchange.

If sellers wanted coins instead of doUars, they would offer discounts for payment in gold. These dis counts can be observed in every country which is experiencing a high rate of inflation. A discount on purchases is the same thing as a floating rate between gold and paper money. In the United States today, the medium of exchange consists pri marily of checks, credit cards, and Federal Reserve Notes. The medi um of exchange is entirely made up of credit. To refer back to the work of Ludwig von Mises, "mon ey" is not in circulation at all even though many of us are rely ing on gold as our store of value almost exclusively. What circu lates is credit certificates, and it is the rapid expansion of credit which is causing double-digit in flation. It is always assumed by advo cates of a "gold-backed" money that the quantity .of gold ("mon ey") will hold the supply of credit ("dollars") in bounds which will prevent excessive credit expansion.

I submit that this is a false as sumption. It is true that when the runs on the banks begin, the bank ers will be exposed to failure and disgrace; but the bankers are smart enough to know that the government will rescue them. This is why the Federal Reserve System was created. To be sure, may be we ought to abolish the Federal Reserve System and freeze the ability of the government to ex pand the supply of credit. This is a tall order, and it is doubtful that those of us with some knowledge of economics have sufficient political influence to tri umph over (1) those who have a vested interest in the present sys tem of credit expansion, and (2) the ignorant who would be per suaded by the first group that we are either nutty or evil. There is, however, a more direct and easily achieved solution. Hap pily enough, also, .the monetary authorities are playing into our hands on this one. The solution in volves the utilization of two dif ferently-named units for the two different kinds of financial assets.

Let the store of value be known as "ounces of gold" and let the medi urn of exchange be known as "dollars" of credit. Let the buyers and traders in a free market use gold-weight coins for their store of value. The solution to the prob lem of inflation, of course, would remain putting an end to credit expansion by the Treasury and the Federal Reserve System. How ever this small change in tactics would make an enormous long-run difference. It is convenient that the Krugerrand is approximately one troy ounce because its avail572 T'HE FREEMAN September ability as an international coin makes the above proposal even easier to implement. When the unit of credit is called by the same name as the unit of money ("dollar" for example), the citizen simply must take the word of the Treasury that the 'assets are in the vault and that credit expansion is not being indulged in. The indirect consequences of credit expansion, such as rising prices for goods and services, oc cur onJy after a lag in time. Even then it is not' always clear what may be happening. Aggregate supply and aggregate demand move up and down for many divers reasons, and prices adjust accord ingly. The political system takes advantage of this random, or un predictahle, free market process.

The government long ago learned that it 'Can increase aggregate de m,and by printing bonds, using the bonds as assets against which to create Federal Reserve Notes and demand deposits in the bank ing system. As we have observed during the period since 1967, on the other hand, the market price of gold in terms of the unit of credit adjusts to reflect credit expansion. This, then, would be the key to a secure gold coin standard: The coins would be measured by their common weight, and they would command a market value in terms of the unit of credit. A policy of zero credit expansion should be m'andated by law, perhaps, but as a check-and-balance, the traders in the market would keep their eye on the price of' gold in terms of credit. If the credit price of gold should rise, there would be strong and compeHing evidence that inflation were afoot, unless proven otherwise by reports of physical movements of gold.

With the introduction of weight measured gold coins, we might expect to see an increasing number of securities and contracts made in terms of gold-weight coins. This should be encouraged, as a mani festation of the free market prin ciple that people will do what is in their own best interests re gardless of government policy. Indeed, the greater utilization of gold coins will increase the de mand of gold assets and improve the value of private gold holdings (unless the central banks start to dump their gold holdings, but even this should produce only a short term downward movement and represent an excellent oppor tunity for private investors to buy). Any attempt by the government to "fix" the value of the depre ciated unit of credit in terms of gold, however, should be vigor ously resisted by anyone who values either economic freedom or private gold reserves.

ARE V lEW E R.' S NOT E BOO K JOHN CHAMBERLAIN "GENTLEMEN," so Sir Isaac New·ton is supposed to have said when speaking of the basic requirements of a science, "you must describe your unit." The trouble with money these days is that nobody can describe what a monetary unit is. Ben Rogge says that "if the dog eats it, it's dog food." John Exter regards most modern currencies as "lowe you nothings." Dogs may eat nothings, but when such a diet is continued they demand more and more as they find themselves wast ing away. Food units, even of the stuff t'hey feed to dogs, must be of a certain caloric value, which requires unchangeable units of mea surement. The case for gold - or for some other rela tively scarce metal of cer tain weight and fineness - would seem to be irrefutable, yet the poli ticians and the professoriate con tinue to turn deaf ears to gold "maniacs" and "fanatics." They refuse to see that all that these "maniacs" are asking for is some thing that is describable. Other wise the world must be turned over to guesswork, which means, in practice, to the speculators.

In a world without monetary cer tainty· the best minds will go into the manipulative arts, and produc573 574 THE FREEMAN September tion will inevitably suffer. Things may be fine for the manipulators until the dogs begin really to starve and go berserk. At a certain point of canine unruliness the country that has left the gold standard far behind it will discover that it must go over to the gun standard, and then we will have 1984. We could, if we would listen to reason, avoid the social wreckage that must come with a final infla tionary crisis. The voice of reason speaks in Gold IsM oney, a collec tion of essays edited with an intro duction by Hans F. Sennholz (Greenwood Press, Westport, Con necticut). Here we have nine econ omists addressing themselves to the plight of a world that is trying to get along without any standards of monetary measurement, and they could bring order out of chaos if there were anybody of influence to listen. Amusingly enough, the volume is offered without stating any price on the jacket. Maybe the publisher is afraid he will take a beating if he takes the current dog food in payment for· it.

The Plight 01 the Dollar Much of the hook is historical. It begins, however, in medias res with G. C. Wiegand's "The Plight of the Dollar," a lugubrious chronicle of what happened in the Bretton Woods post-World War II period when the American dollar dropped "almost three-fourths of its do mestic purchasing power," while the various paper currencies in the rest of the world "lost, on an ave rage, over 85 per cent of their value." The U.S. didn't quite cut itself completely from the gold standard during these years, for foreign governments could, up to August of 1971, take settlements in gold at the risk of hurting the ever-en larging amounts of "Eurodollars" owned by their own citizens. Fears of triggering a depression kept de mand for gold at a minimum, but forbearance couldn't go on forever. So the Bretton Woods era came to an end when Nixon closed the gold window, and the dollar witnessed its first devaluation.

The dogs in America during the Bretton Woods era thought they were doing well. They consumed the available dog food without the same concern for savings and in vestment that animated the Ger mans and the Japanese. Where the Americans saved six to eight per cent of their disposable income, the Germans saved twelve to fifteen per cent, and the Japanese tw'enty to twenty-five per cent. Compe~ition from Abroad Somewhere in the mid-Sixties Germany and Japan, along with some other countries,began to out produce the U.S. And our balance1975 GOLD IS MONEY 575 of-payments deficits naturally grew slowly and steadily. The "tail of the dog" (a misleading term even for a country on a dog food standard) that is represented by U.S. foreign trade may not amount to much sta tistically, but, since it accounts for huge quantities of fuel and metals, which are basic to a manufacturing economy, the dog won't live very long unless he can wag the foreign trade tail vigorously.

We are still in medias res with Murray Rothbard's "Gold vs. Fluc tuating Fiat Exchange Rates," Hans Sennholz's· "No Shortage of Gold," and Henry Hazlitt's "To Re store World Monetary Order." With John A. Sparks's "The Legal Standing of Gold - Contract Ver sus Status," we dip back a bit, to the world described by Sir Henry Maine, who saw the history .of man kind as a progression from status to contract. Donald Kemmerer bites off the whole nineteenth and early twentieth centuries in his "The Role of Gold in tihe Past Century." Gary North's subject is "Green back Dollars and Federal Sover eignty 1861-1865." Then we come to antiquity, real antiquity, with Rousas John Rushdoony's "Hard Money and Society in the Bible." The future is left to Arthur Kemp's "Is the Gold Standard Gone For ever ?"which is pessimistic for the short run but nonetheless reminds us that "forever" is a long time.

I have no real quarrel with the sequence of the essays, but it could be significant that I found myself reading Rousas Rush doony's' essay on the Biblical law even before taking on Hans Senn holz's introduction. The Bible, like Sir Isaac Newton, was strong for measurement. It spoke, in Leviti cus 19: 35-37, of money not in terms of coinage, but as weight. "Ye shall do no unrighteousness in judgment, in meteyard, in weight, or in measure." Biblical Standards The Biblical man who falsified measures and weights was a "cor rupter of judgment," and "vile, wicked and abominable in a very high degree." When David gave Ornal some money for a place, it was "six hundred shekels of gold by weight." Biblical law forbade "fractional reserve," and consid ered any departure from a metallic standard as "fraud and counter feiting, and as part of a broader pattern of apostasy and moral col lapse." When, after the fall of Rome and the coming of the Dark Ages, the prelates and rulers of Europe needed money, they were fortunate to have Jewish mer chants and money-lenders around who had continued to read the Old Testament.

As long as the nations deal in "I Owe You Nothings," there is a 576 THE FREEMAN good case for Milton Friedman's championship of floating exchange rates. Fixed rates can only result in black market transactions when all is guesswork anyway. However, Murray Rothbard really scores when he says "the idea of a market only makes sense between different entities, between different goods and services, between, say, copper and wheat, or movie admissions ... the idea of a market makes no sense whatever between units of the same entity: between, say, ounces of copper and pounds of copper." When the pound, the franc, the dollar and the mark once represented certain stated weights, they were different in name only. It would be silly to "float" hasically identical things. The Friedmanite position makes short-term sense in a guesswork world in which some countries may be inflating their "I Olwe You Noth ings" faster than others. But it is no real cure in a world that is un able to invoke a solid unit of mea sure when dealing with politicians.

Hazlitt's prescription is the best for the moment: let people own gold and they will soon have a de facto world currency that will be gin to call the inflating politicos on the carpet everywhere. Gold Is Money is available at $11.95 from The Foundation for Economic Education, Inc., Irvington-on-Hudson, New York 10533.

the Freeman VOL. 25, NO. 10 • OCTOBER 1975 What Makes Jobs Scarce? Merryle Stanley Rukeyser 579 Mass unemployment means there's been coercive interference in the market. Stop, Thief! C. W. Anderson 585 Let's call a halt to wasteful government spending and impoverishment of the people. Public Policy for a Free Economy Darryl R. Francis 589 Concerning the possible conflict between democracy and free enterprise. Deregulation-What Prospects? George Hagedorn 597 Let's admit that government is not a universal problem solver. The Nobilityof the Bourgeoisie Edmund A. Opitz 600 Some reasons why the market economy best serves the human condition. Better Bread than Dead The Incredible ,Bread Machine 610 Concerning the importance of private property and the violation of rights to property. Liberty and Property David Kelley 617 The disregard of property rights opens the door to the suppression of ideas.

The Free Market: EternallyThere The market will function when men are free. Earl Zarbin 626 Capitalism:Definition-Origins-Dynamics V. Orval Watts 628 Prosperity has its perils, not least of which is forgetting how it was achieved. Book Reviews: 635 "Free Market Economics" by Bettina Bien Greaves "The Growth of the American Government" by Roger A. Freeman Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

tile Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTONON-HUDSON, N. Y. 10533 TEL: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation~ for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 2'5 or more, 20 cents each.

THE FREEMAN is available onwicrofilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit except "Better Bread than Dead."

MERRYLE STANLEY RUKEYSER IT IS fashionable these days to forecast that massive unemploy ment will persist long after busi ness volume recovers. This current forecasting vogue indicates that somewhere in the thicket of theory the savants lost their sense of di rection and forgot that the moral sanction behind the economic sys tem is the service of man. This dilemma can be traced to confusion as to the nature of work. The deviation from common sense stems from union propaganda early in the century - long before Labor's Magna Charta in the Wag ner Act of 1935 - to the effect that labor is not a commodity. The ker nel of superficial truth in the con cept was carried to absurd ex tremes. The uncritical conclusion was reached that the worker is ex empt from the workings of the market place. Even anti-Marxians thus fell into the booby trap of unwittingly accepting the Communist principle of divorcing a person's pay from his productivity. They thoughtless ly leaned toward the Marxist notion of paying each "according to his need" while expecting each to con tribute "according to his ability."

In testing the concept, Nicolai Lenin in the first days of the So viet Union found that egalitarian ism was deadly to productivity. Mr. Rukeyser is wen known as a business con sultant, lecturer and columnist. h7Q 580 THE FREEMAN October Accordingly, in the inauguration of the Five Year Plans, he recog nized differences in the value of work and paid differentials in com pensation. This led Will Rogers on a visit to observe that he liked Russia because there were no Com munists there. Wendell L. Willkie, in his One World written during World War II, found in a visit to the Soviet Union that managers were paid ten times as much as workers. Thwarting the Market The delusion nevertheless per sists over here that the worker is unaffected by the market place. This error is implemented in min imum wage laws making it illegal to employ. persons of low produc tivity at wages which they can earn. And the rigidities of the Wagner Act (many of which were continued 12 years later in the Taft Hartley Act) still interfere with re-employment. These inflexi bilities even render unacceptable the alleviative technique employed in the depressed 1930's of sharing the work through reduced hours.

The dictatorial fiat powers of unions don't spring exclusively from Congressional legislation, but also reflect the Judicial deter mination that unions are not sub ject to the antitrust statutes and administrative rulings by the Na tional Labor Relations Board. Behind the prevailing fallacy is the false assumption that gener osity toward workers comes out of the hide of management and own ners. This overlooks that the phys ical act of hiring is really an agen cy procedure, in which the employ er acts in behalf of the customer, who is the real user of labor. Man agement attempts to prejudge whether the customer will later ratify the judgment of the busi nessman as to what new costs will prove acceptable. The true interests of the labor force are served when reliance·· is placed on the expertise of manage ment in anticipating the future willingness andabili ty of the cus tomer to buy. Thus, it is self-de feating to use brute force to make management assent to an arrange ment deemed to be imprudent.

Government intervention in tilting the scales of power to unions too frequently turned collective bar gaining into collective bludgeon ing. It is regrettable that the un employed are the victims of thus ignoring signals from the open market. A more civilized goal would be collective consultation. Government, in creating Frank enstein's monster by legislation, has promoted manipulative folly in industrial relations instead of a process for harmonizing differ ences. On the contemporary scene the British Labor Government 1975 WHAT MAKES JOBS SCARCE? 581 pleads with the unions to hold wage increases to 10 per cent, despite much lower productivity expecta tions. And in Argentina Mrs. Peron finds it incumbent to reject the demands of militant unions for increments of 80 to 130 per cent. If mass affluence could actually be attained in this arbitrary fash ion, the economic milleni urn would indeed be at hand. It should be self-evident, however, that equat ing money gains with advances in material well-being constitutes opera boutte economics.

The aware know that giving em ployees more and better things in exchange for a week's work de pends on enlarging output per man-tool-hour. This in turn comes from better methods, reflecting creativity in the realm of science, invention, engineering and man agerial prowess. Improvement in heres in making two blades of grass grow where but one appear ed before. Such socially beneficial progress is fed by willingness of self-disciplined income recipients to divert a portion of their receipts from current consumption to sav ings, which can be invested in capi tal gODds (mechanized tools). InlJationary Actions When a governmental agency expands the money supply to meet wages elevated without regard to productivity, the resultant inflation creates mass frustration. In flation inefficiently distributes the labor supply, and the status quo thus developed can be maintained only by continuing further to in flate the currency. With his cus tomary felicity, Ludwig von Mises, in his classic on "wages, unemploy ment and inflation" (The Freeman, September 1975) pointed out: "Under the impact of progressing inflationary policy the union bu reaucracy acquired the habit of asking at regular intervals for wage raises, and business, after some sham resistance, yielded. As a result these rates were at the moment too high for the state of the market and would have brought a continuous amount of unemployment. But the ceaseless ly progressing unemployment very soon caught up with them."

It is sheer illusion to regard in flation as a permanent way of life, for in due course inflation brings its own demise by shattering public confidence in the monetary unit. Blue sky class warriors mistake shadows for reality, overlooking the fact that healthy employment develops when self-supporting specialized workers interchange among themselves the products of their hours of labor. The political manipulators fail to recognize that the open market is a flexible mech anism for adjusting balanced in come relationships needed to 582 THE FREEMAN October achieve sustainable prosperity. Under competition, industry, though privately owned, is poten tially an immensely complex social tool for achieving better living. In stead of surrendering to the hot heads, it is desirable in this com puter age to modernize primitive tools for collective bargaining. The dividends could be far reaching in better use of the work force. On the other hand, when management is forcibly maneuver ed into making irrational deci sions, the basis is laid for reduced volume of transactions and great er unemployment. The damage skyrockets when and if manage ment insiders themselves believe the myths, such as the canard that the big companies in highly con centrated industries are above the market and can dictate to custom ers.

Few non-public utilities are as concentrated as the automobile industry. But, if (as widely charged by academicians and their political sycophants) automobile manage ment can "administer prices" and dictate styles, why the disastrous collapse of sales volume and profits in 1974 and beyond? If the execu tives can call the shots, then their performance was indeed monu mentally stupid! The record shows that the manufacturers were un able to make higher price tags stick even though they reflected a partial cost increase. Customers revealed their independence by staying away from dealers' show rooms in droves, and resultant price-cutting was euphemistically described as cash rebates. Customers in Charge In the boom following World War II, domestic car makers over looked a market for smaller, less expensive vehicles. They were re minded that the customer is the boss when the buyer expressed his sovereignty by purchasing im ported compacts. This demonstra tion was repeated in the first half of 1975. Experience demonstrates that the power of business, big or little, is contingent on pleasing the customer. In a changing world, business survival depends on in novation. Side by side with creative research is the humili ty of the business executive which causes the executive to heed to his master's voice as expressed in customer plebiscites at the market place.

"Know Nothing" obstruction, however disguised in the language of propaganda, is antisocial and anti-humane. It is retrogressive and condemns the innocent to un wanted idleness. What is fatal is a defeatist view that the right to be wrong is foreordained and irrever sible. The true libertarians, who advo cate competition, should not shrink 1975 WHAT MAKES JOBS SCARCE? 583 from competing in the realm of ideas. As the bicentennial of the nation approaches, there are two major conflicting doctrines afloat as to how to achieve better Iiving. Distrusting the ability of the "common man" to nlake choices, the Communist police states dele gate to little commissars in big jobs the right to determine what should be produced and in what quantities. In contrast, the free market pur ports to give optimum opportunity to individuals to express prefer ences. Much of the futility in which the globe now finds itself springs from the fallacious notion that these two irreconcilable systems can be harmonized into a so-called "mixed economy," more accurately described as a "mixed-up economy."

The resultant effect of trying to mix oil and water has caused theo rists to predict that the unem ployed, like the poor, will always be with us. There is mental' con fusion behind such economic Puri tanism. For prosperity is no class issue, but springs from an equili brium conducive to making and exchanging goods and services on a basis which enables workers to live better, while the saver-inves tor-manager reaps rewards also from high productivity per man tool-hour. Frictions develop from illusory thinking about governmental man dates empowering private associations with the right to be obstruc tive .. By way of illustration, per sons of little vision advocate being nice to union bosses even if their demands seem to be unreasonable. This distracts management from its decisive role of determining the optimum labor payment at which goods will move. Wise union offi cials look to the businessman at the other side of the bargaining table for guidance on the matter.

Wage rates so high as to cause a buyers' strike are frustrating. The fundamentals are more honored during a recession than in time of boom when there is a reckless tendency to assume that anything goes. Management defaults when it merely passively submits to dic tated costs, hoping to pass them along to customers in higher prices. This creates pressures for a cheap money policy, which has in it the seeds of impermanence. Designed Unemployment: Potential Disaster Scientific analysis leads to the culprit breeding trouble. The fiat granted by government brings ri gidities which result in built-in unemployment, which is chronic in good times and socially disastrous in depressed interludes. After nearly four decades, the premises behind the Wagner Act have be come so deeply rooted in the na tional consciousness that impor584 THE FREEMAN October tant preliminary spade work is necessary before relief can be ex pected. As a loner, Senator John Tower of Texas has vainly intro duced resolutions through the years fora full dress Congressional in quiry into the desirability of mod ernizing labor-management legis lation.

As a prelude, it is desirable to build a foundation of better public understanding of the national eco nomic body, the functions of the various parts and their relation ship to one another. A new grasp of the benefits of freedom could pave the way for liberating the' open market from shackles. There is greater potential opportunity for change in times when all is not well. Important Differences Ideological improvement or free ing the intellectual atmosphere of pollution cannot be based on public relations techniques to circulate half-truths. In the Great Debate, whenever it comes, there must be courage to escape from the for mula of Plato, who taught that the public prefers beautiful lies to the ugly truth. A competitive system rests on a no-holds-barred recogni tion of human inequality in strength, talent, skill and motiva tion. Accordingly, it's a perversion for bleating hearts to want to achieve equalitarianism in an open market system. Any attempt to laugh away individual disparities is disruptive to a way of life which is powered by unequal rewards and incentives.

A competitive system can't be all things to all men. Those who object to income differences· are quarrel ing with the Lord of Creation, who failed to make us all identical in aptitudes and talents. It would do less harm if the misdirected vision aries, instead of hamstringing the enterprise system, would in their drive for equalitarianism frankly turn to the Marxist blueprint! Instead of kidding the unsophis ticated, it would be a step forward to concede that, where individual differences are substantial, even highly refined public relations can not guarantee universal happiness! ~ IDEAS ON LIBERTY Power Corrupts To EXPECT self-denial from men, when they have a majority in their favor and consequently power to gratify themselves, is to disbelieve all history and universal experience. JOHN ADAMS C. W. ANDERSON WHEN I see what is happening to the average, honest, responsible citizens of this country today, es pecially those in retirement or close to it, my blood begins to boil. And I am intolerant of those in positions of authority and thought leadership who have con vinced most of these people that the accelerating erosion of their earnings is due to some mystical alliance of forces that no one real ly understands.

In fact, I believe it's about time that a lot of people get angry and angry enough to fight ~ack and make some noise doing it. What should be shouted from the Mr. Anderson is President of the Employers Association in Milwaukee. hilltops, and repeated until it pen etrates even the intellectual smog on the Potomac, is the fact that there is no mystery about this erosion. It is caused by inflation. Only government growth and spending is causing it and only government retrenchment can, and must, stop it. But, let's back up and fill in a bit! It is a sad fact-and this adds to our frustration - that very few people really understand that the great promise of this free-market economy was that each passing year should bring a higher value to invested savings, not a lower value. Years ago when a man re tired, each of his dollars actually bought more in the following years than when he earned it.

585 586 THE FREEMAN Oc'tober This was the very essence of the free market and the high produc tivity which was brought about by capital accumulation. But most of our educators haven't even rec ognized this free-market principle. And because of this failure, it is today considered almost unchal lengeable that more money is nec essary for a growing economy ... that if we pump more money into the system, we'll get economic growth. Purchasing Power A corollary to this is the cur rent orthodoxy which tells us that the way to share in increased pro ducti vity is to raise wages and salaries. Nonsense! Our history clear ly shows that the free econ 0my has shared its prod ucti vity in the form of 'more valuable dol lars. Furthermore, this is the just and humane way because it auto matically benefits those who helped make this possible, including those retired on fixed incomes. Without inflation, the millions of retired people should be looking forward to increasing real income each year instead of the haunting pros pect that they will have less and less. . . . and may, in fact, face dependence on their children or on the state.

What a terrible thing we are doing to these people whose pro ductivity and savings should have brought to all of us, workers and retirees alike, a rising standard of living. Instead, they face the demoralizing prospect of depen dency - and they don't know why! A bewildering, dimensionless fog of words booms at them from newspapers, radio and TV telling them, in effect, that those in au thority who could "save" them don't know why all this is hap pening - but, they say, they are working desperately to "discover" why, and will then "order" solu tions. I repeat, this is a terrible - an immoral-thing that is happening to Mr. and Mrs. Average Ameri can. Truth and facts seem to have no place in this climate of political expediency. There seems to be a conspiracy to avoid the simple, irrefutable fact that our periods of greatest economic growth and most rapid inc~iase in the value of our money / and savings were not those when the most new dol lars were pumped into the econ omy nor when we had the most general increases in wages.

It is truly disturbing that this fact is startling news to most peo ple, even graduates in economics, and those in Washington, who propose to "save" us. But, the supporting facts are perfectly clear. They show us that the past few decades of inflation, of collec tive bargaining with massive ne1975 STOP, THIEF! 587 gotiated wage increases, were not the period of our gr~test eco nomic growth or incr~ase of real income. Far from it! Our national real income per capita rose most rapidly from 1874 to 1913. That rise, which averaged 4.7 % a year, was over twice as much as we have been able to generate since 1947 while inflation has been on the rise and negotiated wage in creases have been in the headlines. Not one person in a hundred real izes that the general price level actually dropped substantially after 1874 for most of 40 years (e.g., over 20 per cent by 1894) and only regained the 1874 level just prior to 1913. Most of us, however, are painfully aware that prices rose 100 per cent in the 26 years from 1947 to 1973 and that higher wages did not buy as much.

In other words, rising wages do not always mean rising real in come. Somehow in the confusion of inflation, the significance of real income growth and how it occurred has been lost. To those who will open their eyes, it is perfectly clear that pumping up the money sup ply (inflation) as we have been doing for over 30 years - has not raised real income nor brought security for the aging. Going back now, let's look at a typical employee who retired on a fixed income around 1900. We see why he and his 'wife could live better each year. His concern about dependency decreased each year. Contrast this with today's retiree whose fixed income lost 8.8 per cent of its value in 1973 and 12 per cent in 1974 - over 20 per cent in just 2 years - and who now is ha unted by the growing tear at dependency. Had he re tired late in 1965 on a fixed dollar income, those dollars in 1975 would buy only 60 per cent as much as they would have 10 years earlier.

Show me the humaneness or justice of this kind of treatment of those who produced and saved to be independent and who, in this process, provided the capital which should increase productivity and living standards. It is a tragic miscarriage of justice; I think they are being robbed. Political Hazards So, I am speaking as one who is angry and one who is fed up with the double talk and the mys tery that has been woven around what is happening to us. But, I am not unmindful of the political hazards of combating this or thodoxy. The "new economics" has convinced us that more money and deficit spending is beneficial and it has blinded us to the truths about real growth and its rewards to all those who worked and saved to cause the growth. Neither am I unmindful that a number of 588 THE FREEMAN Oc'tober economists who know these truths, but, believing that political forces preclude free-market solutions, suggest only compromises that they believe are politically palat able. I am completely convinced that the proposal of such expedi encies by respected economists has been responsible, at least partially, for the aura of mystery and frus tration which prevails.

How can we ever expect to set our course toward real economic growth, toward the free market and toward more security in old age, without some spokesmen for the ideal? With only politically expedient proposals, where is our true guide toward what is right and humane? Where, indeed! For as we flounder in the morass we have created, it becomes ever more apparent that spokesmen for what is right will not appear among the nation's leaders, nor will our course be set toward real, long range solutions unless more of us get disturbed and irritated enough to shout our disapproval of what is going on. When so few seem to have any notion of how things really. oug ht to be in a free-market economy, without inflation, the need for un derstanding becomes truly des perate. Aren't you a Iittle mad? Why not shout a little! , IDEAS ON LIBERTY One Man's Opinion ONE FREE MAN says frankly what he thinks and feels in the midst of thousands who by their actions and words maintain just the opposite. It might be supposed that the man who has frankly ex p.ressed his thought would remain isolated, yet in most cases it happens that all, or the majority, of the others have long thought and felt the same as he, only they have not expressed it. And what yesterday was the noble opinion of one nlan becomes today the general opinion of the 111ajority. And as soon as his opinion is established, at once by imperceptible degrees but irresistibly, the conduct of mankind begins to alter.

LEO TOLSTOY PUBLIC POLICY DARRYL R. FRANCIS IT IS A distinct privilege to be the first speaker to address the center for the Study of American Busi ness. I view the inauguration of this center as a timely event, and one that marks the beginning of a program that could have a pro found impact on the future of economic freedom in America. While my discussion will be limited to economic freedom, the ideas that I will express have a bearing on aU freedoms - economic, so-cia,l, and political. In my view the three are interdependent, and no one of them can exist without the others. Reprinted by permission from the May 1975 issue of the Review of the Federal Reserve Bank of St. Louis. Mr. Francis is President, Federal Reserve Bank of St. Louis. These remarks were deliv ered before the students and faculty of Wash ington University, St. Louis, for the dedication of The Center for the Study of American Busi ness on April 3, 1975.

Let me begin by stating the basic premises upon which the discussion will rest. I view eco nomic freedom as the freedom to determine and to seek to satisfy one's own wauts as he sees them. Aside from its desirability as an end in itself, I· subscribe to the widely held doctrine that the pro motion of economic freedom is consistent with the attainment of the maximum possible standard of Iiving for society. According to this view, state regulation should be viewed with suspicion as a potential enemy of society's ma terial well-being. On the other hand, maximum freedom for in dividuals to act in their own self interest should be viewed as a source of the variety and diversi fication of ideas, experiments, and 589 590 THE FREEMAN OC'tober innovations which lead to the dis covery of new products and more efficient means of production. If one accepts these premises, then a free economy should be viewed not only as precious in itself, but also as the most promising means by which the standards of living of all members of society can be raised.

The Role of Government - In Theory If we accept the foregoing prop osition, as I am sure most of us do, what then is the role of public policy in assuring a free economy? I see the role as follow'S. The main tenance of maximum economic freedom demands the organization of our economic life largely through individual participation in a game with definite rules. The necessity of rules arises hecause absolute economic freedom is impossible. One man's freedom can conflict with another's security and prop erty rights. Hence, each person must give up some freedom in order to resolve individual con flicts. The major problem is deter mining those freedoms which the individual should give up in Qrder to resolve conflict with others. Just as a good game requires player acceptance of both the rules and an umpire to interpret and enforce such rules, so a free society requires that its members agree on the general rules that will govern relations among themselves, and on some device for enforcing compliance with them. Unfor tunately, we cannot rely on custom or consensus alone to interpret and to enforce the rules; we need an umpire. These then are the basic roles of government in a free economy - to provide a means whereby we can establish some set of general rules, and to enforce compliance with the rules on the part of those few who would otherwise not play the game.

The advocate of a laissez-faire policy today realizes that there is a constructive role for government in the economy; he is not an anarchist. He recognizes that a system which promotes maximum economic freedom may not be a god-send and that its existence depends, in part, upon affirmative government action. However, he also recognizes that each new gov ernmentally enacted rule of the game involves a loss of some free dom. Herein lies the problem; where do we draw the line? .At what point does affirma,tive gov ernment action begin to have a net negative impact on economic freedom? . I can offer you no hard and fast principles on how far it is ap appropriate to use government to maximize economic freedom. How ever, I would suggest to you that in any particular case of proposed 1975 PUBLIC POLICY FOR A FREE ECONOMY 591 intervention, we should make up a balance sheet, listing separately the advantages and disadvantages of the proposed policy. Most im portantly, we must always enter on the liability side of any pro posed government intervention its effect in threatening freedom, and give this effect considerrable weight.

For it is an indisputable, yet frequently overlooked, reality that every new rule has its costs in terms of a loss of some freedom. The Role of Government -In Practice We have witnessed abroad the culmination of movements from constitutional government to dic tatorships, from freedom back to authority. This spectacle, for most of us, is revolting, and something to be avoided at all costs. Yet, faced with the same problems as these other nations', we too have often adopted measures which call for more government authority and less individual freedom. We have often been too eager to justify and rationalize policies which pro pel us in a direction in which we overwhelmingly disapprove. As an indicator of how far and how fast we have moved in this direc tion, consider for a moment just a few facts and figures which are indicative of the tremendous growth of the government's influ ence on our economy.

1) It took 186 years for the Federal budget to reach the $100 billiQu mark, a line we crossed in 1962, but in only nine more years we reached the $200 billion mark, and in only four more years we broke the $300 billion barrier. 2) In 1930, prior to the New Deal, government spending at all levels accounted for just 12 per cent of our gross national product. Today, government spending ac counts for over 32 percent of our gross nationaL product, and if present trends continue, govern ment could account for as much as 60 percent of GNP by the year 2000. 3) As the role of government has increased, the bureaucracy has also grown so that today one out .of every six working men and "vomen in this country works directly for either Federal, state, or local government. Why is it, in light of the record, that the burden of proof still seems to rest on those of us who oppose new government programs which curtail our freedoms? Why is it that society seems so bent on curtailing the very freedoms that have netted us the highest standards of living and economic freedom in the entire world?

I submit to you that the reason for this drift is that there are natural biases in its favor. One of these biases has to do with what I will call the regulatory reflex that 592 THE FREEMAN Oc'tober seems to have grown to almost epidemic proportions in our coun try. The other has to do with the same political realities which led Joseph Schumpeter to argue thirty years ago that there was an irrec oncilable conflict between democ racy and free enterprise. Reg ulatoryReflex The regulatory reflex operates in the following manner. Upon observation of what some individ uals deem an undesirable result produced by the free enterprise system, government officials or the press suggest that this is an area in which the government should "do something." This usually has meant the creation of. a powerful new government agency, or an in crease in the powers of an exist ing one. Such an agency is em powered to make decisions regard ing the allocation of resources according to its own interpreta tions of what is best, rather than leaving the outcome to determina tion by the market process.

Implicit in this reflex is the assumption that the free market system produces undesirable re sults and that government plan ning is the means of achieving a more desirable end. Unfortunate ly, the desired end sought by a group of regulators is frequently not the same as that which the members of society would choose for themselves. The process often results in some group of zealots de,termining that others should not have what they want, but rather should accept that which the regulators consider "best" for them. This type of thinking, com bined with the power to imple ment it, poses a tremendous threat to freedom, and yet it is becoming increasingly common. For ex ample, witness the proposed com pulsory health insurance, social security, seat belt interlock mech anisms, and the issuance of food stamps instead of money to the poor, and the not so poor, to name just a few. Another aspect of this regula tory reflex is that there are many people who still subscribe to the medieval notion that all business is a zero-sum game. That is, many people believe that one person's profit is another person's loss. Such notions are behind the frequently heard demands that the govern ment should intervene in the mar ket to limit what some consider to be the "obscene" profits of enter preneurs and "protect" the power less consumer. This kind of think ing is based on a notion that is absolutely false. Its acceptance requires that we also accept the proposition that some parties to all· transactions are either irra tional or victims of a fraud.

Free individuals will enter a 1975 PUBLIC POLICY FOR A· FREE ECONOMY 593 transaction only if they can bene fit their own interests as a result. Business transactions are never a zero-sum game as long as the participants are free to choose for themselves and as long as they have alternative choices. There is no question that there are shoddy practices in every profession and that market economies produce goods that are often undesirable to some individuals or poorly made. However, the beauty of the free market system is that if the consumer does not want to pur chase such products, he has alter natives, and the businesses that produce them will either shift to accommodate consumer desires or they will fail. The fact is that the alternative to free markets, plan ning by government bureaucracies, also results in the production of shoddy and expensive products (the postal service and· automobile modifications, for example). The crucial difference, however, is that the plans pursued by bureaucracies are not subject to the forces of market competition, and therefore there is no way to test their rela tive efficiency or acceptability.

Short-run Motivations I believe that much of the blind faith in the efficacy of government intervention stems· from impati ence and shortsightedness on the part of many individuals, aided, of course, by the lobbying of those who stand to gain directly from a particular regulatory proposal. l\Iost policies are formulated with an eye to the short run. In a familiar pattern we see a situation arise in which the short-run out come of the interaction of free market forces is considered by many to be less than socially opti mal. The key question is what is the alternative? For example, we have experienced several years of inflation. Impatience leads many to clamor for the quickest solution to the problem. Certainly, in this case, many people believe that wage and price controls fit the bill. A rigid system of wage and price controls will iIi fact keep reported prices from rising in· the short run. Unfortunately, such controls will also create shortages and dis tortions in the economy that result in severe bottlenecks in the pro duction process. Reported prices are temporarily fixed, but the con sumer is robbed of the right to purchase those items which are in short supply. However, every one concentrates on the immediate impact of the controls on the move ment of reported price indices and says, "You see how simple that was?"

So it is with most cases of state intervention. The seemingly· bene ficial effects are direct, immediate, and visible. On the other hand, 594 THE FREEMAN October the undesirable effects are often gradual and indirect, and are fre quently considered only when they actually occur, if even then. How ever, the ignored long-run costs of such intervention eventually show up. And, when they do, there is a call for more short-run inter vention to correct the problems which arose as a result of the earlier policies. Over a long period of time there is a cumulative and disastrous effect which erodes freedom and detracts from the efficiency of the economy. Unfortunately, it is a truism that regulation begets further regulation and that regulations outlive their rationale. Though most government regulation was enacted under the guise of pro tecting people. from abuse, much of today's regu'la tory machinery only provides jobs for the regula tors, increases the cost of doing business, and shelters those who are being regulated from the nor mal consequences of free enter prise competition. In some cases, the Interstate Commerce Commis sion for example, the original threat of abuse no longer exists.

In other cases, the regulatory machinery has simply become per verted. In still other cases, the machinery was a mistake from the start. In any case, the individual, from whatever presumed abuse he is being spared, is. paying for the regulation through both a loss of freedom and a loss of material well-being. While many regulatory pro grams seem to accomplish their goal (desirable or not) in the short run, they are seldom suc cessful in the long run. The cen tral problem with all of these measures is that they all involve an abridgement of some freedoms. They seek through government to force some individuals to act against their own immediate in terests in order to promote a sup posedly general interest. They substitute the values of outsiders for the values, of participants. Some people are telling others what is "good" for them, or else the government is taking from some to benefit others. These mea sures are therefore counter to the attempt by millions of individuals to promote their own interests and to live their lives by their own values. This is the major reason why the measures have so often had the opposite of the in tended effects.

Possible Conflict Between Democracy and free Enterprise Despite the fact that the regula tory reflex contaminates so much of our society, I do not believe that it could be as pervasive as it has been were it not provided with a political framework conducive 1975 PUBLIC POLICY FOR A FREE ECONOMY 595 to its proliferation. Consider the situation in a community in which the mass of the people are in favor of economic freedom of choice in their daily lives and are against government direction. As will nor mally happen, however, many groups are formed which perceive an opportunity for material gain through a particular form of gov ernment intervention. Under the guise of such slogans as "fair prices," "equitable wages," or "fair trade" laws, they perceive an op.. portunity to be protected from the sources of competition. In such situations a political party hoping to achieve and maintain power will have little choice but to use its power to buy the support of these special interest groups by cater ing to their legislative demands; The reason they will do so is not necessarily because they think that the majority of society is inter ventionist, hut rather because they cannot achieve and retain a maj or ity if they do not solicit support through the promise of special advantages. This means, in prac tice, that even a statesman wholly devoted to the maintenance of freedom, and who realizes that every new regulation is an abridge ment of those freedoms, will be under constant pressure to satisfy the interventionist demands of organized groups.

Some special interest groups undoubtedly favor intervention not for personal gain as much as for what they determine to be for the "good of society." These groups labor under the illusion· that they can draft a law to prevent every outcome whi'ch they, and fre quently only they, deem unde sirable. In this case, the operation of the regulatory reflex merely feeds an insatiable appetite for power on the part of those who wish to impose their values on the rest of society. When regulation fails to accomplish its goals, as it almost inevitably does, these peo ple do not call for the· repeal of the laws. Instead, they push to amend them into· infinite complex ity until the purpose· of the orig inal law is lost. As a result, the hand of regulation ends up touch ing every aspect of human action. It is not only wasteful, but serves to destroy incentive and to dis courageingen uity. Conclusion It is ironic that groups which constantly look for problems in our country insist on inhibiting the ability of the economy to re spond to these problems. For ex ample, present technology does not permit us to have surgically clean air and plentiful electricity at less cost at the same time. However, there is no reason. to believe that future technology could not pro596 THE FREEMAN October vide those benefits. The essential ingredient is freedom to react to incentives and an understanding that individual liberty is not only precious, but efficient. Just as thought control is the· great enemy of the freedom of inquiry in aca demia, economic controls are the great· enemy of economic freedom and the entrepreneurial spirit which is needed to solve our prob lems.

Rediscovering the indivisibility and efficiency of political and eco nomic freedom. will take·. time in a society which has become so ac customed to over-reliance on gov ernment intervention. The politi cal and intellectual bias against the free market is strongly en trenched, and there are some who will always find a platform to continue to feed this bias out of a complete misunderstanding of both the political and the market func tions. Those of us who firmly believe in the preciousness and efficiency of a system which maximizes eco nomic freedom more often than not find ourselves on the defensive. Given the biases that seem to con tinuously propel our society aw?-y from such a system, being merely defensive is not .near1ly enough. We must take the offensive and encourage others to restudy the philosophy of free enterprise. It is in this regard that I applaud the inauguration of the Institute for the Study of American Business.

We need to drive home the point that every new rule of the game involves the loss of some freedom and that one cannot erode freedom in one sector of society without adversely affecting all others .. In other words, we must insist that public policy be· based on a recog nition of the desirability, efficiency, and interdependence of political, social, and economic freedom. , IDEAS ON LIBERTY The Moral Element in Free Enterprise LET US ENCOURAGE usefulness to one's fellows by all means, but let us not confuse it with the importance of the ends which men ultimately serve. It is the glory of the free enterprise system that makes it at least possible that each individual, while serving his fellows, can do so for his own ends. But the systen1 is itself only a means, and its infinite possibilities must be used in· the service of ends which exist apart. F. A. HAYEK - What Prospects? GEORGE HAGEDORN DEREGULATION-a general move toward reducing the degree of di rect government intervention in the economy-is now being discussed more seriously than for some time in the past. The Ford Administra tion is reportedly preparing a pro gram of this character. It will take a new look at the vast accumulation of government regulatory devices and agencies to determine which of them make sense and which do not.

The question to examine here is whether such an effort has any real prospect of success. Some commen~ tators, even those who are inclined to agree that in many instances the Mr. Hagedorn is Vice-President and Chief Economist of the National Association of Man ufacturers. This column appeared in NAM Re ports, June 30, 1975. adverse effects of regulation out weight its benefits, have suggested that it does not. Deregulation, they say, flies in the face of a long established trend toward increas ing government involvement in the detailed workings of the economy. "You can't turn the clock back," I am continually told when the sub ject is discussed. As rational men, we can protest against any such attitude. Why shouldn't the country take an ob jective look at government regula tion of the economy, in all its myriad forms, toassess its benefits and its costs, and to weigh one against the other? Why should one possible conclusion-the desirability of deregulation-be ruled out in advance? The cliche, "You can't 597 598 THE FREEMAN turn the clock back," seems to mean that once you have made a mistake you must go on making it forever, and reasonable men cannot accept that.

Those to whom such arguments are addressed often nod sympathe tically, but they are not convinced. We are dealing, they say, not with a process directed by a rational analysis of advantages and dis advantages, but by apolitical pro cess that moves by its own momen tum. A mood has developed which leads people to insist that, when' they are dissatisfied with anything, government will step in to set it straight. A Hopeful Sign Disheartening though such a viewpoint may be, we have to admit that it has some weight. But there are other considerations which lead to the opposite conclusion-this may be an ideal time for a move toward deregulation, and its political pros pects may be very good indeed. Paradoxically, the fact that so many things are clearly wrong with the economy at this moment is a hopeful sign. We must have been doing a lot of things wrong, and one of these is overregulation. The public is losing faith in govern ment as the' universal' problem solver.

One example of the falsity of the proposition that when regulation is introduced it can never he removed is the recent fate of wage and price controls. We recall that, shortly after controls were introduced, there was much talk that this action \vould not be reversed in the life time of most of us~ In September 1971 (Phase I was in effect and the shape of Phase II was being dis cussed), the Wall Street Journal ran a story that suggested "Phase II may be forever." But wage and price controls were abandoned in April 1974. The clock was turned back. The reason for the abandonment of controls was not an ideological change of heart, on the part of either the population or their political leaders. The rea son was that controls were a con spicuous and disastrous failure. A second consideration that leads us to believe that deregula tion can be a politically realistic option is the fact that many of the most questionable' forms of regula tion are of fairly recent origin.

True, we have had regulation of railroads since the 1880s, and regu lation of financial markets since the 1930s. But the really big wave of government direct intervention in the economy has occurred during roughly the past 10 years. We now have large areas of government regulation in: product safety, oc cupational health and safety, water and, air pollution, equal employ ment opportunity, etc.

1975 DEREGULATION-WHAT PROSPECTS? 599 The objection to most of these recently-introduced forms of regu lation is not that their intentions are wrong. No one will defend pol lution, or discrimination, or hazard ous conditions of employment. The objection is rather that regulation is not always the most effective, or least costly, way of achieving ad mittedly desirable ends. The main point, however, is that much of our regulatory apparatus is rather recent. In suggesting a new look at the possibilities of de regulation one is not proposing the unwinding of a historical process that has been going on since our great-grandfathers' time. It is more in the nature of taking a look at the results of a lO-year experi ment. The mounting tide of govern ment regulation is one aspect of the increasing tendency toward government activism during the past decade. The results are now in: we have an economy plagued by inflation, unemployment, slow pro ductivity growth" declining real wages, energy shortages, a break down in the transportation system, etc., etc. Surely governmental acti vism-in all its aspects, including regulation-has been a conspicuous and disastrous failure. It is those who refuse to see the clear evidence of this that seem quaintly to be living in the past-the past of 10 years ago when the present huge volume of evidence against govern ment intervention was not yet available. I IDEAS ON $ LiBERTY Keynes Was Wrong THERE IS NO doubt that the American public is moving away from the Keynesian notions and slogans. Their prestige is dwindling.

Only a few years ago politicians were naively discussing the ex tent of national income in dollars without taking into account the changes which government-made inflation had brought about in the dollar's purchasing power. Demagogues specified the level to which they wanted to bring the national (dollar) income. Today this form of reascming is no longer popular. At last the "common man" has learnei(that increasing the quantity of dollars does not make America richer. LUDWIG VON MISES. Planning for Freedom The NobilitV of the Bourgeoisie :j; IF THE MAN FROM MARS were to ask any one of us to point out the business sector of our· society we'd direct him first of all to our factories, offices, banks and stores. Then we'd . add the trans portation industry - rails, trucks, planes and ships. An important segment of agriculture is operated like a business, so we'd add that. The extractive industries would have to be included, and so would lumbering. We would expressly ex clude important parts of life, such as government,education and reli gion, even though business methods are indeed employed by people working in these sectors.

Business, in short, is the eco nomy. Business is the sector from which our material abundance pours forth, in such quantity that The Reverend Mr. Opitz is a member of the staff of the Foundation for Economic Educa tion, a seminar lecturer, and author of the book, Religion and Capitalism: Ames Not Enemies. 600 EDMUND A. OPITZ we are - in that respect - the envy of the world. Few of those in for eign nations who profess to des piseour materialism would carry their antipathy so far as not to avail themselves of our surplus which of course they accept only as a favor to us! American money and goods have poured into all corners of the globe since World War II, a golden flood financed by the American taxpaper to the tune of some two hundred billions of dollars. The American economy is an incredibly productive economy; it turns out the goods and services people want and are willing to buy in such quantities as to make us the wealthiest nation on earth. Our material well-being is directly linked to the business system, and that business system has made us an affluent society. Most of the problems that beset us are directly 1975 THE NOBILITY OF THE BOURGEOISIE 601 related to affluence; we consume a lot, there's so much to throw away, so much leisure time to fill, traffic jams - and so on.

So if we ask "What is the role of business in society?" the easy and obvious answer is "It is the role of business to respond to con sumer demand by supplying the goods and services people want." And business performs this role so well that the one-sixteenth of the world's population living in the U.S.A. not only owns the great bulk of the world's goods and lives highest on the hog, but carelessly wastes more than any other nation consumes. The American economy is highly productive, but business nevertheless finds itself with a tarnished image, the butt of many attacks. Professor J. D. Glover of Har vard Business School writes, "In volumes upon voJumes of testimony before Congressional committees, in popu~ar novels, in learned trea tises and textbooks, in poetry, in sermons, in opinions of Supreme Court justices, 'big business' and its works are seen as evil and at1tacked. The literature of criti cism of 'big business,' and of the civilization it has done so much to bring into being, represents by now a perfectly staggering mass of material."

Now, it is of course true that business is not the only sector of our society which is presently under fire. Our whole civilization - western culture - has been under siege for several generations, and to the extent that our culture em bodies bourgeois values, the attack against the west will join forces with the revolutionary thrust to unseat the bourgeoisie. Further more, an facets of our society labor to defend themselves, for have we not been told that there is a ferment in the schools, a crisis in religion, an emergency situation in government, and anarchy in the arts? "The Good Old Rule" The attack on business is noth ing new. The bourgeois is the townsman, and his emergence was opposed by the aristocracy, whose values were quite different. "The nobleman has courage, spends without counting, despises petty detail. There is a great air of freedom and unse~fishness about the nobleman. He will throw his life away for a cause, not ca.lculate the returns. That is the noble idea.

In reality, he lives by the serfdom of others, and he broadens his acres by killing, and taking other people's land - 'the good old rule, the simple plan. That they should take who have the power, and they should keep who can.'" These words are those of Jacques Bar zun, from his 1973 A. W. Mellon 602 THE FREEMAN October Lectures, published as The Use and Abuse of Art. Dr. Barzun continues, "The bourgeoisie opposed such noble free-handedness and supported a king who would replace 'the good old rule' by one less damaging to trade and manufacture - and to the peasants' crops. But the re grettable truth is that there is no glamour about trade. Trade re quires regularity, security, effi ciency, an exact quid pro quo, and an exasperating attention to detail. ... There is nothing spontaneous, generous or large-minded about it. Man's native love of drama rebels against a scheme of life so p,lod ding and resents the rewards of qualities so niggling."

"What a convenient word is bourgeois!" Dr. Barzun observes. "How expressive and well-shaped for the mouth to utter ,scorn. And how flexible in its applicati~n - it is another wonderful French in vention !" It is generally conceded tha t business is something more than the mere· prod uct.ion .of goods and services: business is the produc tion of goods and services in re sponse to the voluntary actions of people in the marketplace who either buy or refrain from buying. Business, in short, is the way a free society organizes its eco nomic activities. The buying habits of customers are a clue to producers to manufacture more of this and less of that, or, possibly to go out of business altogether. A more precise designation for this way of doing business· is The Market Economy. The Market Economy Let me draw a distinction be tween The Market Economy and the market. The market is simply a shorthand term for the voluntary exchanges that take place between people as they go about improving their economic circumstances. Tal ents vary from one individual to another, and people di~cover that they can produce more and enjoy more if they specialize in produc tion and then exchange the sur pluses that specialization generates - my oranges for your apples, and so on. Barter occurs among the most primitive of peoples, and when money is introduced it simply facilitates multiple exchanges.

These voluntary exchanges con stitute the market, so we can say that the market operates every where man has ever lived. And the market operates today even in con trolled economies like Russia and China. The market will be with us so long as man is man; it is a basic human institution. The market, yesterday, today, and forever; but the market econ omy is a rare phenomenon which has emerged only for short periods 1975 THE NOBILITY OF THE BOURGEOISIE 603 during human history. The market economy is the market institution alized. The market by its own de vices does not produce the market economy; a catalyst is needed for that - several catalysts, perhaps. The market economy needs the bourgeois virtues; it needs the middle class. Now, the middle class rarely inspires the poets and men of letters, but that remarkable woman, Freya Stark, puts her finger precisely on the point. "I will hold that the middle class pro duces civilization because it is the only class constantly trained to come to a conclusion, poised as it is between the depth and the height. It is not rich enough to have everything, nor poor enough to have· nothing - and it has to choose; to choose between a suc culent table and a fine library, between travel and a flat in town, between a car. and a new baby or a fur coat and a ball dress. It has enough of the superfluous to give it freedom from necessity but only through the constant use of discrimination; its life therefore is of one long training of the judgment and the will. This by it self does not manufacture great ness; but it is the soil on which it is possible to make it gro\v."

Now, whatever our assessluent of the middle class and its virtues, we would have to agree as a matter of historical fact that it has been a target for attack from many quarters, and it continues to be a target. Karl Marx added enormous momentum to the assault. Marx's notion of surplus value and his exploitationth~ory inspired rev olutionary frenzies on all conti nents, even though Marx was dead wrong. Marx's charge is that the income of the bourgeoisie, or the capitalist class, comes out of the hide of the working class; some people are given an economic ad vantage over other people, and thus some live at the expense of others. The Consumer in Charge This description does fit the situation wherever the market economy has not been established; feudalism operated this way, and also every aristocratic order. But in the market economy - or system of liberty - the businessman's in come is a measure of his success at pleasing customers. He's at their merey, for if they do not buy he does not stay in business. Every man's income is determined in similar fashion. A man's wage is a measure, in monetary terms, of what people think his services are worth. What a man earns is not a measure of his true worth, sub specie aeternitatis,. it simply tells us what his peers think of him, and they may be wrong.

But right or wrong, it is con604 THE FREEMAN October sumers in voluntary action who determine the division of rewards in a free market. "It is a pro position of elementary economics," writes Frank R. Knight, "that ideal market competition will force entrepreneurs to pay every pro ductive agent employed what his cooperation adds to the total, the difference between what it can be with him and what it would be without him. This is his own product in the only meaning the word can have where persons or their resources act jointly." The Power to Please In the free economy, a man advances his economic fortunes by trying to please consumers, over whom he has no authority save persuasion and the sales appeal of his goods. This is the business system. Every alternative to this voluntary arrangement puts gov ernment at the service of the powerful who, by the exercise of coercion, obtain their income at the expense of those without power. Government, in this scheme, is an instrumentality for distri buting economic advantage, and a man's income will depend on favors from the politically powerful.

Either that, or he must wield power himself. A society arranged in this latter fashion is accurately labeled a system of privilege, in contrast to the system of liberty. Neither system exists historically in pure form, but one might sche matize the difference by saying that in the system of liberty a man derives his financial rewards by pleasing the customers, whereas under every system of privilege he obtains an income by pleasing politicians. Now this latter arrangement is indeed a system of exploitation; government - by taxation and sub sidy - takes a portion of wealth from those who produce it and distributes it to people who have not earned it. But paradoxically, it is this arrangement - variously disguised - which now ranks high in public esteem, while the busi ness system - which rewards men according to their productivity is ever on the defensive. Businessmen taken individually are, I suppose, as good and as bad as the average run of people in any other sector of society. They· are guilty of fraud on occasion, and so are scientists; but no one on that account suggests that the scientific enterprise be subject to all sorts of government regula tions and bureaucratic controls.

Businessmen are sometimes tempted to overstate the virtues of their product, just as some newspapers are prone to slant and distort news items. But no one suggests government censorship of the press. Government itself is 1975 THE NOBILITY OF THE BOURGEOISIE 605 occasionally guilty of suppressing facts and keeping the public in the dark; but who will guard the guardian? The point is that when politics is invoked to cure a social ill it is usually business that suf fers a loss of portions of its free dom to government controls. Freedom Indivisible; Depends on Enlightened Self-Interest But economic freedom is not that important, it might be said. Liberties of the mind, on the other hand, or liberties of the spirit, they must be protected. The intel lectual must be free, but it matters little whether the businessman is bureaucratized or not. As a matter of fact, freedom is all of a piece, and if we fail to resist government encroachment into any sector' of life because we deem that sector unimportant to us, then we will enfeeble our capacity to resist where we deem resistance vital.

Milton Friedman, tongue in cheek, offers a clever observation here, linking the businessman with the intellectual as the twin ene mies of freedom. "It has often seemed to me," writes Friedman, "that the two greatest enemies of the free market are businessmen and intellectuals, for opposite rea sons. The businessman is always in favor of free enterprise - for everybody else; he is always op posed to it for himself. The intellectual is quite different; he is always in favor of free enterprise for himself, always opposed to it for everybody else. The business man wants his special tariff or his special governmental commission to interfere with free enterprise, in the name, of course, of free en terprise. The intellectual, too, wants such commissions to control the rapacious man. But he is against the idea of any interfer ence with his academic freedom, or his freedom to teach what he .wants and direct his research as he wants - which is simply free enterprise as applied to him."

Everybody wants to be let alone so that he is free to pursue his own bent, but only a handful of people have ever worked as hard for other folk's liberty as they do for their own. Wouldn't it be a nice arrangement if scientists worked for freedom of the press, and editors for the rights of medi cal doctors, and doctors stood firm for freedom of speech, and church men jealously guarded freedom of economic enterprise? Alas, it is not so, and paradox ically, many businessmen have no concern for the free economy if a political intervention maximizes their profits even though it de teriorates the general climate of economic liberty. This would not matter much, except for the fa.ct that economics deals with our sub606 THE FREEMAN October sistence, and if some one gains control over the economic means which we must have or die, he has acquired an enormous leverage over every sector of our lives. This is self-evident; it is so obvious that we tend to overlook it. We forget that the essence of slavery is the command over another's will gained by controlling his access to the food and shelter he needs to survive.

,Parliaments discovered "the power of the purse" centuries ago; an unruly king could be made more pliable if an elective body could cut him off at the purse strings. Alexander Hamilton reminded the Colonists of this point in his 73rd Federalist Paper: "The legisla ture, with a discretionary power over the salary and emoluments of the Chief Magistrate, could render him as obsequious to their will as they might think proper to make him. They might, in most cases, either reduce him by famine, or tempt him by largesses, to sur render at discretion his judgment to their inclinations." Hamilton does acknowledge that there are some men whom no threat can cow: "There are men who could neither be distressed nor won into a sacrifice of their duty; but this stern virtue is the growth of few soils; and in the main it will be found. that a power over a man's support is a power over his will." Economic Control Hamilton was so keen on this point - that economic control is the. control of the means for all human ends - that he drove it home by a further reference in his 79th Paper: "In the general course of human nature, a power over a man's subsistence amounts to a power over his will."

Work is built into the human situation; human beings must actively transform portions of their natura:I environment - raw materials - into consumable forms (food, clothing, shelter, and the amenities) or we perish. We are not "free" to disregard this or any other fact of the human situation, that is,· if we want to succeed in our various endeavors. We are not "free" not to work. People who work in a system of privilege totalitarianism, Communism, So cialism, collectivism - labor for a single employer, the State. This is a command economy; every person labors at the task the State as signs him, or else! As George Bernard Shaw once put it, "Com pulsory labor, with death as the final penalty, is the keystone of Socialism." People are controlled by State control of their livelihood. Material necessities are omni present, and a system of liberty the free economy - does not elim inate them: human energy must be expended in order to fashion con1975 THE NOBILITY OF THE BOURGEOISIE 607 sumable goods out of natural re sources. But here, in a free soci ety, every man and· woman is free to choose the context for his or her productive actions; a person may choose to work for himself or, al ternatively, he may choose among employers and work for wages.

And if the wage and price struc tures are flexible, the free economy has an insatiable demand for la bor; when the market is truly functional, jobs are abundant. The economic forces generated by the business sector of society do not cause unemployment; mass unem ployment results from the politi cal distortion of economic forces. Business Serves Society I am suggesting that the blame is misplaced when business is ac cused of causing unemployment, and of somehow falling down on its presumed responsibility to keep everyone working. The real rea sons for poverty and unemploy ment must be sought from the economists and political scientists. Meanwhile, let us ask what posi tive contributions business makes to the good society, in order to give credit where due. Some ye.ars ago I was involved in a project in this area, with Admiral Ben Mor eell, and I'd like to summarize our conclusions. We found, first of all, that the social forces set in mo tion by business and industry tend to reduce coercion, prejudice and irrationality in human af fairs.

1. Coercion There is general agreement among political philos ophers as well as the public at large that political action is co ercive. What about business ac tion; ,is it also coercive? The an swer is No. The businessman, as such, has no power to coerce. He cannot force people to buy his goods or services. He may call up on government for special privi lege and thus obtain a coercive monopoly. But by doing so he for feits his status as purely a. busi nessman and hecomes in part a politician, or at least the junior partner of a politician. The production and exchange of goods and services is a wholly peaceful procedure. A business so ciety tends to be a peaceful soci ety if only because peace maxi mizes the conditions under which the production and exchange of goods is facilitated. And peace is essential for social progress and individual advancement. The businessman, having no means of coercion at his disposal 1 must rely on persuasion, advertis ing and public relations. Every other person, at home and abroad, is his potential customer; so other persons must he cultivated if they are to become customers. The peaceful exchange of goods 608 THE FREEMAN October throughout the world paves the way for exchange of ideas and en courages personal travel. These are of the essence of business ac tivity, and they comprise the things which make for peace. So, on the whole, business tends to reduce coercion in human affa.irs.

2. Prejudice A man's judgment can rise no higher than his ac quaintance with the facts. Preju dice is a premature judgment based on insufficient evidence. As applied to human affairs it implies an irrational dislike of some peo ple based on their opinions, their nationality, the color of their skins, or their religion. What does the rationale of business do about overcoming prej udice? The clear cut answer is that, in this area, economic considerations have top priority for the businessman. In general, the businessman does not concern himself with the color of another person's skin if the color of his money is all right. Thus money may be a social device pro ductive of great good, even though the love of money. be the root of all evil. , As an employer, the business man penalizes himself when he refuses to hire the best available man for the job because of some noneconomic considerations. His business sense dictates otherwise.

The same is true when, as a seller of goods, he refuses to make a sale for other than economic reasons. Thus the mechanism of trade acts to break down the barriers of prejudice. 3. Irrationality In a good so ciety people act in reasonable, sane, and sensible ways, and busi~ ness disposes them so to act. Mod ern business rests on technology which, in turn, rests on science. Science and technology demand a high-level, rational pattern of thought and action. The scientist, the engineer, the busjness man ager must an be rational. Thus, business contributes to the forces in our society which exert a strong pull in the direction of reason ableness in human affairs. Desirable Business Traits Now let us see what desirable positive traits are fostered by business. There are at least four important ones; integrity, under standing, reasonableness, and in dividuality. 1. Integrity No society can long cohere unless people find that they can trust one another, nor can a business long endure unless its products represent honest workmanship. Regular customers, an essential for the survival of any business, cannot be attracted and held without a quality prod·· uct. Our entire system of deferred exchanges and credit is based on trust. The enormous network of 1975 THE NOBILITY OF THE BOURGEOISIE 609 mutual trust and confidence which underlies our system of business is a social force of gre,at momen tum, heading in the· right direc tion. It makes for integrity in so ciety.

2. Understanding A hermit who grows his own food and pro duces for his own use consults only his own needs and tastes. But everyone who produces goods or services for exchange must consult the needs and desires of other people. The businessman must build up a clientele. He can not do this unless he understands the need of his customers and causes them to feel that he can be trusted to fill that need, now and in the future, for products they want at a price they can afford to pay. 3. Reasonableness The vital stake which business has in peace tends to create situations in which men seek a reasonable adjustment of their differences instead of fighting about them. A businessman does not want conflict with his customers, he wants to reason with them so he can persuade them to accept his goods. As the atmosphere of rea sonableness begins to permeate all of society, people come to appreci ate the variety in human life. In stead of a desire to make other people over in their own image, they want every other person to progress as far as he can "on his own steam." In a reasonable soci ety no man tries to play God for other men.

4. Individuality To the extent that business enables persons to take care of the economic require ments of life with a minimum ex penditure of time and energy, it puts at their disposal incre1asing amounts of both, to be used in whatever individual and creative ways they see fit. Not every per son will use them wisely, but if the surplus does not exist, if peo ple are bound down by unceas,ing toil, there can be no flowering of those higher faculties of man which I have mentioned before. Thus, business provides the con dition which can release whatever potentiality individuals may pos sess. The chief end of man is not to accumulate material goods; nearly everyone would agree that human destiny lies in another dimension. Every person is gifted with po tential talents, and he's equipped with an innate drive to bring them to a full and harmonious realiza tion. Now, neither the free eeon amy nor its business sector can guarantee such realizatlion to ev ery person; this is a matter for individual decision. All the free society can promise is maxim urn and equal opportunity - and this is all the guarantee we need. ~ @@~~@[f Bread ~[fu(ID0lJ @@(ID@ PRIVATE PROPERTY has been the object of attack ever since the first nonproducer enviously viewed the fruit of the labors of the first pro ducer. The institution of private property has been condemned for perpetuating every manner of so cial inj ustice imaginable. Marx and Engels called for the abolition of it, and Pierre Joseph Proudhon, a social-theorist contemporary of Marx, declared, "property is theft."! But how can one steal if there is no concept of property?

How can anything belong to ev eryone, or everything to no one? For years there has been a long and tireless argument about prop erty rights versus human rights. Yet even a small child could figure out that property has no "rights." Only humans have rights. How ever, the rights which humans have are "property." In an article entitled "What is ~1{\ SUSAN LOVE BROWN KARL KEATING DAVID MELLINGER PATREA POST STUART SMITH CATRIONA TUDOR Property?" William W. Bayes points out that the fundamental right for a human is the right to his own life. He owns his life. "His life does not belong to any other person or group. The thing owned is his body, and the related right to act, or property right, is the right to live. Now, matter is eternal, but human life is not; life must be sustained by procuring and consuming the means of sub sistence. If we agree that· man has a right to live, we must agree that man may use the mental and phys ical faculties to procure those means. Since the means (food, clothing,shelter, and the like) do not usually lie readily at hand, he must find or grow the food, manu facture the clothing and build the shelter. In short, he must pro duce."2 It then must follow that if pro duction is necessary· to life, and 1975 BETTER BREAD THAN DEAD 611 you own your life, then what you produce must belong to you, or there is no meaningful right to your own life. As Ba:yes points out, "a corollary of the right to produce is the right to keep that which one has. created. If one may keep this product, it follows that one may consume it, exchange it for goods or services offered by someone else, sell it, or· give it away. He may do all these things because the right of the producer is anterior to that of any other person or group. [Emphasis add ed] To assert that he does not have a primary right is, in effect, to deny him any right whatever.

It is to say that he holds his prop erty by sufferance of anyone (in cluding a government) who is stronger than he, and that it is proper to plunder. But if it is proper to plunder from the pro ducer, then it must, a fortiori, be proper to plunder from one who has himself plundered. It must then follow that only might can make right - one may take from another when one has the might, and one may keep only what one has the might to defend. Unless a person is prepared to accept the 'might makes right' philosophy, he must respect· another's right to live, to produce, and to consume, keep, exchange, sell, or give away that which he has produced."3 Property does not consist merely of real and personal possessions. Dr. Bayes continues, "Intangible, or incorporeal, rights which we Americans value as priceless, such as those guaranteed by the Con stitution, being things owned and involving the right to act, are property. This means that such rights as the rights to free speech, to worship, to peaceful assembly, and to due process, are all prop erty. If they are property, then the rights involved are essentially property rights. There is no right which is not property, and there is no property which, if not a right in itself, is not a fruit of the exercise of a right."4 That rights themselves are prop erty is a legitimate part of our political heritage. John Locke as serted that we have property in our persons as well as in our pos sessions. Both Thomas Jefferson and James Madison believed that "government may not violate, di rectly or indirectly, 'the property which individuals have in their opinions, their religion, their per sons and their faculties'."5 At this point Bayes makes an observation : "It is interesting to note that many professors who do not share this traditional view of property pay it unwitting tribute when they insist upon 'academic freedom.' For so-called academic freedom is nothing more than the right to hold (Le., to own) opin612 THE FREEMAN Oc'tober ions and to utter (to use and en joy and dispose of, as property) those opinions. If they are paid for a speech, an article in a peri odical, or a book, they are being paid for the articulate expression of their expert (or perhaps merely interesting) opinion. It is absurd to suppose that they should receive payment for something that was not theirs to sell, not their prop erty. The property lies in their opinion which is fortified and given commercial value by their expert background knowledge and their ability to express that opin ion clearly and interestingly."6 The individual's right to do as he may wish with his own prop erty does not include the right to do as he may wish with someone else's. The fact that an individual owns a baseball does not mean that he has the right to hurl it through someone else's window. This is not a limitation of property rights by "society" or by the State; it is merely the recognition of the equal property rights of other individ uals.

For example, the abolition of slavery was not a limitation of property rights, as some would have us believe, for no such "right" existed in the first place. The institution of slavery was not an exercise of property rights, but a violation of them in that a slave was denied the right to control his .own life. The abolition of slavery did not limit property rights; it affirmed them for all people of all colors. In his history of the Plymouth colony, Governor Bradford de scribes how the Pilgrims farmed the land in common, with the pro duce going into a common store house. For two years the Pilgrims faithfully practiced communal ownership of the means of produc tion. And for two years they not only nearly starved to death, but there was also great discontent with the system: For the yong-men that were most able and fitte for labour and service did repine that they should spend their time and streingth to worke for other mens wives and childre, with out any recompense. The strong, or man of parts, had no more in di vission of victails and sloaths, than he that was weake and not able to doe a quarter the other could; this was thought injuestice ... 7 Governor Bradford wrote that "famine must still ensure the next year also, if not some way pre vented." The "some way" decided upon was the introduction of the institution of private property, and the results were dramatic: By this time harvest was come, and instead of famine, now God gave them plentie ... And in the effect of their perticular private 1975 BETTER BREAD THAN DEAD 613 planting was well seene, for all had, one way and the other, pretty well to bring the year aboute, and some of the abler sorte and more industri ous had to spare, and sell to others, so as any generall wante or famine hath not been amongest them since to this day.8 The 'Virginia colony had similar experience. Captain John Smith wrote: When our people were fed out of the common store, and laboured jointly together, glad was he could slip from his labour, or slumber over his taske he cared not how, nay, the most honest among them would hard ly take so much true paines in a weeke, as now for themselves they will doe in a day . . . 9 Without property rights, no other rights can be secure. When property is controlled by the State, rights are not rights at all, since their exercise is conditional, de pending ultimately upon State ap prova1. To argue to the contrary is to say that there are no rights merely favors to be given to you or taken from you as determined by some one or some group.

In his book, Fruits of Fascism, Herbert L. Matthews quotes Mus solini as declaring: "Property is not only a right, but a duty. It is not an egoistic possession, but rather a possession which should be employed and developed in a human and social sense." And as Matthews observes: That, in Fascist terminology, came to mean that private property, like everything else, had to be placed at the service of the State, and one may well ask to what extent the institu tion (private property) was in fringed upon by taxation, forced in vestments, and the whole structure of governmental interference which told a man what he should produce, how much, with what labor and at what price. In short, can there be a private property under a totalitarian system? Individuals are left with the title to their property, but since they can only use the property in certain ways specified by the regime, it be comes a form of state property as does everything else.l 0 To what extent private property is being placed at the service of the State in this nation today can best be contemplated on the basis of a few current examples.

In 1972 the voters of the State of California passed by initiative the Coastal Zone Conservation Act which set up "Coastal Commis sions" with almost unlimited, dic tatorial powers. The Act defined the Coastal Zone as extending from the Oregon to the Mexican border, as far out to sea as the outer limit of the State jurisdic tion and as far inland as the high est elevation of the nearest coastal moun tain range. This tremendous area includes such cities as Los 614 THE FREEMAN October Angeles, San Francisco and San Diego. A portion of the initiative reads: "The People of the State of California hereby find and declare that the California Coastal Zone is a distinct and valuable natural resource belonging to all the Peo ple."ll And if such preemption of millions of acres of private prop erty were not enough, there is not one word in the language of the coastal initiative which refers to compensation for the expropria tion of private property rights.

A former member of a Cali fornia Regional Coastline Com mission, M. Bruce Johnson, writes in Reason magazine: A land owner came before the Re gional Coastal Commission on which I served and requested a permit to construct a condominium develop ment on four acres on the California coast. The application was denied at a public hearing on the grounds that the erection of said buildings would obstruct the view of the water from the nearest State highway. The fact that a scenic drive already existed between the water's edge and the parcel was dismissed as irrelevant. Inasmuch as any structure - not just the proposed condominiums would obstruct the view from the nearest State highway, I inquired whether there was any permissible use of the land. The Commission's staff responded that the four acre parcel might be used for a golf course or a cattle ranch. Ever played a round of golf on a one hole course?

Or heard of a viable cattle ranch with four head of cattle? Other proj ects have been blocked following staff recommendations for denial on the grounds that "the project would remove alternatives available to any agency in the area of planning." In other words, the right to use privately owned land belongs to the State, not the indi vidual. The inescapable conclusion is that the owners of these parcels have been stripped of virtually all of their property rights without com pensation. They retain only the title and the liability for taxes.l 2 Another example of this concen1975 BETTER BREAD THAN DEAD 615 trated power concerned the pro posed expansion of the San Diego Gas and Electric Company's atomic power plant at San Onofre. An of ficial of the Atomic Energy Com mission confirmed that the expan sion plans were reviewed and ap proved by at least 33 federal, state and local (environmental and safety) agencies. It took San Diego Gas and Electric Company three years and almost $228 mil lion in modification costs to re ceive approval from all of the nec essary agencies. Yet on December 5, 1973, the Coastal· Commission (which was voted into existence long after San Onofre's expansion was in the review stages) was able to veto the action of its Regional Commission and end the plans for expansion. Although the energy crisis and public opinion later caused these eleven men to reverse their ruling, the fact that they had the power to make such a rul ing is inconsistent with the prin ciples of a free country.13 Still another example of this Coastal Commission's power in volved AVCO Community Devel opers, Inc., in Southern California.

This large industrial conglomerate proposed to develop their coastal acreage with a combination of spacious condominiums (45% un der county maximum density re quirements), tennis courts, pools, public golf courses, etc. Beyond this, they made available to the county 34 acres of ocean front property for a public beach. The privately-owned land was com pletely graded for construction before the Coastal Commission was empowered. In order to pro ceed with construction, AVCO had to apply to the newly formed com mission for the necessary permits. They were denied. AVCO was then caught between the conflicting demands of two government agencies. On the one hand the county demanded that AVCO finish the promised public beach by a certain date, while on the other hand the Coastal Com mission denied the required per mits to complete the work. In the meantime, the company paid (and is paying) $15,000 a day in taxes on the unused land.

In an effort to save the rich top soil from erosion during the rainy season, AVCO proposed that the commission at least aIIow them to seed their own land with grass. This was also denied as it was feared by the commission that AVCO, as a result of having put more money into the development, would then have a stronger legal case. Two years have passed and the land, which is a vicious eye sore, continues to erode each rainy season until now, even during light rain, the ocean becomes brown from the washed-out soil,14 Is this 616 THE FREEMAN October protecting the environment or the commission's power? Without a doubt, many Ameri cans, particularly urban dwellers, are becoming increasingly con cerned about the social ills caused by overdevelopment: traffic con gestion, air and water pollution, urban sprawl, to mention but a few. But giving government more power to cope with these problems has not worked and government empowered to dispense favors usu ally ends up corrupt, inefficient, and dispensing these favors to those with "influence."

What are some possible answers to these problems? Adjust prop erty taxes so a farmer's land won't have to be sold to developers in order to pay these taxes. Insure that property rights include the right to develop one's own land, but not the right to harm others by polluting the air, contaminat ing the water or causing an intol erable level of noise. Jeopardiz ing or causing harm to another's life or property would be illegal in a free society. In effect, this is just what the Supreme Court declared in West Virginia. State Boa,rd of Educa~ tion v. Barnette: "One's right to life, liberty, and property .... and other fundamental rights may not be submitted to a vote; they Ie pend on the outcome of no elec tions."15 If this were not true, any legis lation the majority could agree upon would be "legal," whether it would be forced sterilization for members of a particular race, eu thanasia for everyone over the age of 65, or limiting the freedom of speech to those considered "re sponsible."

The initiative creating the Cali fornia Coastal Commission and similar such proposals before Con gress not only regulates a person's private property according to the vote of the majority, but there is no compensation for any damages incurred by the implementation of such regulations. The State con trols your property. You just have the title. , - FOOTNOTES 1 Cited by William W. Bayes, "What Is Property?," The Freeman, July 1970, p.392. 3 Ibid., pp. 394-95. 3 Ibid., pp. 395-96. 4 Ibid., p. 397. 5 Ibid. 6 Ibid., pp. 397-98. 7 Henry Hazlitt in Cliches of Socialism (New York: The Foundation For Eco~ nomic Education, 1962), pp. 174-75. 8 Ibid. f) Ibid. 10 Herbert L. Matthews, Fruits of Fas cism eN ew York: Harcourt, Brace and World, 1943), pp. 144-45. 11 M. Bruce Johnson, "Piracy on, the California Coast," Reason, July, 1974, p.18. 12 Ibid. 13 Los Angeles Times, December 9, 1973. 14 Ibid., August 19, 1973.

15 M. Bruce Johnson, Ope cit., p. 19.

Libertyand Property DAVID KELLEY MODERN LIBERALS, for years, have had a selective love of liberty. In the realm of ideas, they de fend the individual's right to free dom of thought, to freedom of ex pression, and his right to choose the values he will live by. They reject state censorship, as well as "the enforcement of morals." Their approach is from the point of view of the individual, pitted against a state that tends toward oppression. In the realm of mate rial production and exchange, how ever, they identify with the state, repudiating individual property rights, sponsoring economic regu lations that cover the entire course Dr. Kelley is Assistant Professor in the Philos ophy Department at Vassar College. of production, from the capital markets to the consumer's hands. In a word, they advocate free dom in intellectual, but not in eco nomic matters. But this distinc tion among realms· is artificial; the doctrine based upon it is false; and its consequences in reality are self-destroying.

The source of rights, of man's moral claim to freedom, is his ra tional nature. Reason is man's tool of survival, his means of living. Human action by nature is ra tional action,proceeding from the mind of an individual. And free dom from coercion is a· require ment for such action. A man can not acton the basis of his mind if the will of another is interposed 617 618 THE FREEMAN Oc'tober between his mind and his actions. Man has, therefore, a moral claim - a right - to freedom of action. 1 Because freedom isa condition of human action as such, it is a condition for all human action. Indeed, the different rights, in cluding the right to property and the right to liberty, merelyspe cify different aspects of free ac tion. The right to property is a recognition that man is not a dis embodied spirit, that he lives in a material world and needs to make use of physical objects. The right to liberty is a recognition that man is not an automaton or an animal, that he must act on the basis of his reason, translating his ideas into reality. But the use of property and the use of the mind are not two different types of action; they are two different aspects of one type of action human action. Each implies the other.

The Uses of Property On the one hand, any exercise of liberty involves the use of prop erty: a thought cannot be trans lated into reality without the physical means of doing so. And this applies to the expression of ideas as much as to any other sort of activity. The expression of an 1 Ayn Rand, "Man's Rights," The Vir tue of Selfishness (New York: New American Library, 1964). idea requires a physical medium - printing presses, airwaves, lec ture halls. The right to express oneself must then include the right to acquire and use these media. A government which owned or controlled all the media, there by abrogating individual property rights in them, would violate the right of expression. It is not merely that this government would be likely to restrict freedom of speech by restricting access to the media. Even if it allowed access to anyone who wished it, it could not recognize their right to access, since it owns the media. Freedom of access would be a privilege, on which the state could place any conditions it wanted. The same may be said for the moral choices that the liberal says we have a right to make freely, all of which involve the use of material goods.

On the other hand, any use of property is an exercise of liberty. The physical plant of a newspaper, publisher or university is an ob vious example: its use is deter mined by the ideas which its own ers wish to communicate. But the same is true of a steel mill, a bank, or the family plot of land these too are used by their owners to realize their ideas. It is true that the latter are not expressing ideas; they have goals other than the communication of knowledge or opinion. But communicating an 1975 LIBERTY AND PROPERTY 619 idea is only one form of acting on it. The industrialist, the financier, and the homeowner are acting on their judgment in using their property; they are expressing their •ideas in action. The Power of an Idea Liberal intellectuals have shown a narrow insularity in restricting the concept of liberty to intellec tual freedom, as if their own spe cialty were the only possible out let for the mind. .It is not. The discovery and communication of knowledge is one branch of 'pro duction; but all production, re gardless of the product, is an in tellectual process requiring the producer to act consistently on his reason.

Correspondingly, freedom of speech and of the press are spe cific forms of liberty, with special relevance for the work of intellec tuals; but there is no valid dis tinction in importance between these and other forms of liberty. Intellectual freedom is necessary because man needs knowledge of reality, and such knowledge is the product of independent minds. But material goods are no less impor tant, and they too are the products of independent minds. An intel lectual properly objects when he is prevented from speaking because someone else does not like the content of his thought. But exactly the same injustice occurs when a businessman is prevented from offering a new product, or completing a merger, or firing a worker. He is being prevented from translating an idea into real ity because someone else does not like the content of his thought; he is being prevented from' using his mind freely.

Thus liberal theory, in separat ing liberty and property, separates the insepa:rable. For this reason, liberal practice backfires: the reg ulation of the economy spawned by liberalism entails the regula tion of ideas as well. Consider, for example, the Fed eral Communications Commission. Under its power to regulate the broadcast media, it sets eriteria that stations must meet to obtain and renew FCC licenses. These criteria' include regulations on the content of what is broadcast. The Commission enforces the "fair ness doctrine," for example, which requires broadcasters to give air time to opponents of views and politicians they have presented. The FCC also hears petitions from people who object to material pre sented on the air, and it has the power to revoke the licenses of offending stations. These powers are based on the liberal doctrine that the airwaves are a material resource that should be used in "the public interest." But the con620 TH,E FREEMAN October sequence is a substantial control over the ideas presented through this medium.

Medical Controls Another obvious example is the regulation of medicine, which has mushroomed in recent years. The New York Times, noting "the in creasing bureaucratization of medicine," points out that ''today the Federal Register, with its daily avalanche of new rules and regulations, is, the highest author ity in Americanmedicine."2 Among other regulations, doctors are told how, where and at what cost they may treat patients, as well as which patients they must treat. The liberal justification for this is the material well-being of the patients. They overlook the fact that they are destroying the free dom of doctors to use their own minds, to disagree with'the regu lators, to try new products and techniques, in treating patients. In short, doctors are losing their intellectual freedom, just as if journalists were told by the gov ernment how they must write ar ticles, where they may publish them and for what fee.

A' more gruesome constraint threatens to arise over the issue of' abortion. The Supreme Court recen fly ruled that a woman has 2 New York Times, June 24, 1975. Edi torial. the right to terminate a pregnancy if she wishes, and that the state may not prevent her from doing so. In my opinion, the Court was right in this decision., But of course it does not mean that doc tors and hospitals are legally ob liged to provide abortions. Yet there are signs ofa movement to enforce such an "obligation."Ac cording to the liberal doctrine of "economic rights," everyone has rights to have - not to acquire by voluntary exchange, but, to, have provided them - various economic goods that are considered necessi ties. If abortions move into that category of goods, liberals will doubtless argue that doctors and hospitals may not refuse this "right" to women desiring abor tions. This would all be in the name of purely economic welfare, of course. But consider the viola tion of liberty involved. Some doc tors are morally opposed to abor tion, regarding it as murder. One may disagree with them entirely, but surely there is no more hide ous form of tyranny than forcing someone to commit what he re gards as' murder. Yet this is the implication of an "economic right"

to abortion. 3 A final example is the subsidies 3 Most liberals, fortunately, would not carry their principles this far, but cf. Lucy Komisar's "My Turn" column, Newsweek, June 9, 1975.

1975 LIBERTY AND PROPERTY 621 to artists, writers and academics granted by such government agen cies as the National Endowment for the Humanities or the various state councils on the arts. These subsidies constitute an establish ment of ideas and artistic trends; and they should be prohibited for the same reason that the state is prohibited from establishing reli gion. Liberal proponents of the grants argue that they are de signed to support the artist or the intellectual, not to support. his art or his ideas. They are supposed to be a specialized form of welfare. But why are such grants felt to be necessary? Because the bene ficiaries could not otherwise sup port themselves by their work. And why is. that? Because the public, exercising its judgment about their work,. will not volun tarily support them by buying their products or contributing money to them directly .. The gov ernment policy of subsidies is a way of reversing these judgments by force (through taxation). The taxpayers have tastes, standards, and values ; they express them through purchases of art-works, books and theater tickets; their money is their means of expres sion. By confiscating the means, the government violates their free dom of expression.

So far as one can tell, the .lib eral sponsors of these regulations were not aiming at thought con trol. Liberals generally place them selves on the side of reason and the indi vid ual' s freedom to use his mind, and they seem genuinely outraged at any violation of that freedom. This in itself is an inter esting comment on the liberal phi losophy. It implies that in their view the use of property does not require the use of the mind; that there is an utter gulf between. an intellectual world of ideas and a material world of commerce. De spite its alleged modernity, .lib eralism is caught up in a mind body dichotomy with which Plato or Augustine would have felt quite at home. Nevertheless,. industry and commerce are works of the mind, requiring as much disci plined, rational thought as a scien tific discovery. The liberal bureauc racy that regulates this work is regulating the minds of men.

A Systematic Attack Beyond these actual violations of liberty, moreover, the liberal doctrine has opened the door to precisely the sort of conscious, systematic attack on liberty from which liberals .themselves would recoiI.Many extreme leftists have lost any attachment to intellectual liberty; they are prepared to sup press the opinions of those who disagree with them. But no West ern country would· yet tolerate an 622 THE FREEMAN October explicit censorship of ideas. The left must therefore proceed by indirection, covering its tracks as it seeks control. The liberals have offered them the' perfect device. Because of the connection between liberty and property, government controls over the expression of ideas can' be disguised as common and familiar controls on property. Modifications of established eco nomic controls can be used to si lence dissent. Thus the liberal precedent of a regulated economy may help bring about the regula tion of ideas as well.

Canada and Britain have re cently furnished examples of how this works. In Britain, the issue is one of labor law. Under the Conservative government of Ed ward Heath, the closed shop" had been banned; but the Labor Party, returned to power' last year, is moving to restore it. If they are successful, the government would back the closing of a shop, making union membership a condition for employment. This in itself is a fairly typical form of labor law. But it is being put to a new use. The National Union of Journal ists, "an increasingly militant un ion,"4 insists that a closed shop in a newspaper must include edi tors and writers as well as other staff: the former must join the 4 Brian Wicker, "Unionizing the Edi tors," Commonweal, April 11, 1975. union, .take part in union-author ized strikes, and refuse to publish nonunion writers. (This could even prevent publication of letters to the editor from nonunion writ ers.) And part of the reason for the union's 'militancy on the issue, it seems' clear, is a desire for con trol over editorial content. In a country where the social issue is the power of the unions over the economy, this would give one par ty to the dispute control over what may be said on the issue.

The Canadian case involves a technicalma tter of' tax policy. The cost of advertising in the print media can normally be deducte? as a business cost for tax pur poses. Ten years ago, Canadare stricted this deduction to advertis .. ing in Canadian publications, but allowed the Canadian .editions of Reader's Digest and Time (and a few smaller magazines) the same conditions as their Canadian com petitors. A bill has· recently been introduced in the Parliament, however, that would terminate this allowance. If passed, the cost of advertising in the American magazines would 'not be deducti ble, .thus effectively doubling that cost. Spokesmen for Time and Reader's Digest say they could not continue in business. Never theless, the bill is expected to pass. The' new legislation appears to be nothing more than a modifi·ca1975 LIBERTY AND PROPERTY 623 tion of established policy. That is the point. An established prece den t serves as the vehicle for a new intent: to regulate ideas. The nationalist sponsors of the bill re sent the American "cultural influ ence" represented by these maga zines. In regard to Time, the nationalists object that it "gives Canadian readers a view of the United States and the world through the eyes of American ed itors writing in New Y ork."5 Thus the government's tax policy is to be used to censor views that certain groups disagree· with. The intention is to keep from the eyes of Time's large Canadian reader ship a set of. opinions that their government finds unsuitable. This is an open, explicit attack on the freedom of the press - on the right of liberty - but it is masked as a simple matter of taxes.

Advocacy Advertising A similar restriction on free dom of speech has been attempted within the United States govern ment. Like the foreign cases, it seems minor in scope, but its im plications as precedent are enor mous. It concerns the recent phe nomenon of "advocacy advertis ing." The oil shortage of· 1973 and 1974 brought with it an hysterical 5 New York Times, March 21, 1975. barrage of attacks on the oil and power companies, who were charged with causing the shortage in order to increase profits. To defend themselves, many of these companies used paid advertising space to explain the causes of the shortage and their own actions in regard to it. Some of them went further, to defend free enterprise, the legitimacy of profits, and the evils of government regulation. These advertisements provoked a new wave of criticism from liberal columnists, who argued that the companies were wrong .on all counts.

In January, 1974, however, a group of three Senators and three Congressmen 6 tried to go beyond m.ere argument. The Federal Trade Commisison requires that commercial advertisers must be prepared to document any claims they make about their products a rule many liberals endorse as a protection of the consumer. The legislators petitioned the FTC to extend this rule to advocacy ad vertising. Citing advertisements by Exxon, Mobil, Shell, General Electric, and the American Elec tric Power System, among others, the petitioners claimed that the ads made "misleading claims 6 Senators Thomas J. McIntyre, Frank E.Moss, and Birch Bayh; Representa tives Les· Aspin, Benjamin Rosenthal, and Andrew Young.

624 THE FREEMAN October about energy crISIS causes and environmental effects of corporate activities."7 The companies, they said, should be compelled to prove these claims or else withdraw them. Implications in Economics, Technology, Politics, Ethics Consider the implications of this petition. The issues it men tions 8 are among the most con troversial of the· day. They involve abstract questions of economics, technology, politics and ethics. And the petitioners want to pre vent the expression of non-liberal opinions on these issues. They are saying, in effect: before a viewpoint may be· published, the government must be convinced of its truth; if an advocate dis agrees with the regulators, he must either change their minds or remain silent .. This is censor ship~ an explicit attempt to sup press dissenting opinion. Even worse, the censorship was directed at the victims of government reg ulation, who were taking their case to the public. The petition was thus ·an attempt to prevent the victims of coercion from stand ing up for· their rights.

7 Advertising Age, May 5, 1975. 8 According to a story in the New York Times, May 1, 1975, the petition men tioned "environmental, political and pub lic policy issues." The fact that the censorship was proposed only for advertise ments is irrelevant. Other federal agencies have control over the other· media of expression; the universities, because they receive federal aid, are increasingly com ing under federal control; the precedent could easily be extend ed to all forms of expression. In deed, if freedom of speech does ever die in this country, it is likely to happen in just this way: not choked off dramatically by jack booted censors, merely smothered in a blanket of the sort of regula tions we have grown used to. It is the more important, therefore, to recognize that this is censorship. Fortunately, the FTC rejected the petition, arguing that advo cacy advertising is protected by the First Amendment. According to Advertising Age, however, the Commission reserved the right to take action against such adver tisements "if they are 'unfair or deceptive,' and their .commercial effect outweighs First Amend ment considerations."9 This means that the government claims the right to pass judgment on fair ness and deception -Le., on truth - in the discussion of controver sial ideas. This constitutes a con trol over ideas. For this reason, at least one of the petitioners, Repre.;.

9 Advertising Age, May 5, 1975.

1975 LIBERTY AND PROPERTY 625 sentative Benjamin Rosenthal, re garded the FTC decision as a par tial victory. These recent events. represent a quantum step along the road to serfdom. Violations of property rights, which have become quite common, are implicitly violations of the right to liberty; and they are 'wrong not least because of that. But a restriction of the free dom of speech and press is an explicit violation of the right to liberty; and that is much worse. It is an open, naked attack on the source of human values, the source of independence, and the source of property - man's mind. A cam paign against man's ability to act on the basis of his own reason is the crucial step in the collectivist assault on the individual. And it should be resisted as such. Advo cates of capitalism should defend freedom of speech and press, and the right to liberty generally, above and beyond the issue of property rights.

Control of Persons But in the end the individual's right to use his mind cannot be implemented, and certainly will not be safe, until his right to ac quire and use property is acknowl edged and protected by a limited government. For it is precisely the disregard of property rights that has opened the door to suppres sion of ideas. Human freedom is an integrated whole; no part of it may be destroyed without en dangering it all. Communist total itarians understand this: a guide to taking over a Western democ racy, purportedly written by a Soviet Central Committee member, asserted that "The destruction of the private sector [of the econ omy] is the first step toward elim inating an independent press."lO It is time that American liberals learned the same lesson. ~ 10 The document was printed in space g-iven by Le Quotidien de Paris to the editors of Republica, the Lisbon news paper that has been closed by the left wing-Portug-uese government.

IDEAS ON LIBERTY BEFORE THE GOVERNMENT can control the land and its produce, it must first control the man who lives and works upon the land. That means control over his mind and spirit. That is exactly what the Soviet leaders found when they decided to collectivize the Russian farms; they had to collectivize first the minds and spirits of those who had been independent kulak farmers. RUSSELL J. CLINCHY, "Two Paths to Collectivism"

".".... .."., ...,:, The Free!Market~'\ :~ ~ \ Etern5tllg There EARLZARBIN A RECENT PASSAGE caught my at tention: "Though the free market is the most efficient allocator of scarce resources mankind has yet discovered, it is not a popular con cept." The writer then suggested that "Its lack of popularity is probably due to a misunderstand ing of the manner in which it works." These should be words enough to provoke to thought any person who cares about freedom and its survival in a world that increas ingly seems to embrace coercion or its threatened use as the answer to real and imaginary problems. I wish to limit my observation to two key points: 1. I don't believe mankind "dis covered" the free market. 2. I don't believe the free marMr. Zarbin is an assistant city editor at the Arizona Republic in Phoenix. 626 ket is unpopular because of a "misunderstanding" of how it works. As to the first, the free market develops of its own accord in a society where government is lim ited to the safeguarding of life, liberty and property. The free market did not have to be discov ered in the usual sense of the word. It does need to be recognized and it does need to be continually explained so its miracles can be understood and appreciated, but it didn't require discovering.

It grew in these United States - and it will grow - of its own accord, without a specific design, because the framers of the rules of the American society estab lished the conditions for the re lease of "creative energy" - as Leonard Read would say. These men, in their deliberations, did not 1975 THE FREE MARKET: ETERNALLY THERE 627 direct that the economy follow any particular pattern, save that in not decreeing an economic plan they left the manufacture of goods and the growing of agricultural prod ucts, and their exchange, to the freely made choices of the men and women who produced them. I repeat: the free market did not have to be discovered, but it does have to be recognized for what it is and it has to be ex plained. It is a marvelous, effi cient, awesome mechanism that will meet the needs of this earth if the people have freedom. Which leads to my second point: the free market doesn't lack popu larity because it is misunderstood.

On the contrary, because it is un derstood it is unpopular. I don't mean that it is perfectly understood. Rather, I mean it is sufficiently understood so that numberless people want nothing to do 'with it (except reap its bene fits while tearing it down). I don't know all the reasons peo ple can come up with to disavow the free market; but the function ing of the free market demands self-reliance, self-discipline, self responsibility, and self-restraint. The free market demands of each of us the necessity of work, of de veloping skills, of offering goods and services which other persons will willingly exchange for their own products and talents. Results Not Guaranteed The free market offers us the opportunity to get rich, or poor, in competition with everyone else. The free market doesn't offer us special privileges, favors, subsi dies, breaks, exemptions, monop olies, handouts. And it is this that accounts for the free market's un popularity.

People want their needs met with as little toil as possible. The free market doesn't offer some thing for nothing. They have that much understanding of the free market, and that's as far as many of them want to go in learning about it. If the free market were per fectly understood, if an its benefits could be made more obvious, among some people it still would lack popularity. There is nothing that supporters of the free mar ket can do to change these people. Our job is to learn as much as we can about the free market, to learn to explain it, and to try to make our findings available to any who want to share in them. If they are shared, perhaps some among those who dislike the free market will examine what it offers, change their opinions and become its sup porters. It is true that such persons may discover the free market, but it ha~ been and is there eternally where men are free. I) DEFINITION CAPITALISM, according to the dic tionaries, commonly means private ownership of the means of pro duction.

Private ownership means that individuals control their own per sons, their own energies, and the products of their energies. It pre vails to the extent that individuals do not restrain or interfere with one another as they use, exchange Dr. Watts, author and lecturer, is Burrows T. Lundy Professor of the Philosophy of Business at Campbell College, North Carolina, and Di rector of Economic Education for Northwood Institute, with headquarters at Midland, Mich igan. This article is from a chapter of a new and revised edition of Free Markets or Famine selected readings by various authors showing how freedom for private enterprise allows busi ness to abolish famine and raise levels of living. This book, and a companion volume, Politics vs. Prosperity, showing the results of regulation and controls, are published by Pendell Publish ing Company, P.O. Box 1666, Midland, Mich igan 48640.

V. ORVAL WATTS (sell) or give away what they find unclaimed or abandoned, what they make, and what they get from other persons by gift or exchange (purchase) . ORIGINS Capitalism has its origins, there fore, in individual freedom and in all of the ideas, sentiments and modes of conduct that establish this freedom. Freedom implies that individ uals do not coerce, intimidate or cheat one another. This means that they do not use violence or fraud to injure one another or to deprive one another of posses sions obtained by peaceful means, and that they do not threaten to injure one another in their per sons or properties.

1975 CAPITALISM: DEFINITION-ORIGINS-DYNAMICS 629 'this freedom develops as in dividuals learn that, over a per iod of time, they gain more from cooperation motivated by hope of reward than they do from services performed under threat of vio lence. In other words, they gain more in the long run by produc tion and exchange of goods and services than they can get by steal ing, fraud, banditry or other forms of predation. In short, capitalism arises as individuals (a) learn the advan tages of division of labor and vol untary exchange, and (b) dis cover and live by the moral laws (rules of conduct) necessary for peaceful relations, one with another. This progress requires growing understanding of the nature of man and the meaning of justice, together with appreciation for honor, truth, and goodwill toward more and more of their fellow humans. The elements of moral law are set forth in what Judeo-Christians refer to as the "Ten Command ments" and the "Golden Rule."

The negative form of the Golden Rule expresses the first principle: "Do not do unto others what you would not have them do unto you." This restrains and casts out forced sharing, which is a form of en sllavement. A later corollary and supplement of earlier statements-"Whatso ever ye would that men should do unto you, do ye also unto them" - arose out of recognition that we benefit, not merely by avoiding injury to others and the ensuing conflicts, but by voluntary ex change of services and by develop ing habits of mutual aid and neighborliness. (Cf., the neigh borly barnraisings and other forms of mutual aid in pioneer days, and the parable of the Good Samaritan.) Insofar as individuals cease to steal from one another, cease to cheat (lie), cease to coerce or intimidate one another, and keep their agreements (including those establishing the monogamous family), they gain freedom. But this freedom develops only gradually with increasing under standing and self-restraint. No "man on a white horse," no dicta tor or government can give it to us. Individuals must learn to understand it, accept its responsi bilities, and teach it to oncoming generations.

DYNAMICS A. Production and Exchange In such absence of coercion, more and more persons attain prosperity, which Frederic Le Play defined as a "multitude of good acts." They let one another keep or exchange or give away 630 THE FREEMAN October what each produces or gets by voluntary exchange or gift. They then produce more, accumulate more, trade more, and give more to others. They give more to their cus tomers and fellow workers in ex change for what they get; and they give more to their offspring, their friends, their neighbors, and victims of misfortune. (Note that the early Plymouth and Jamestown colonists were more charitable toward their neighbors, as well as more industrious, after they abandoned forced sharing.) Free persons invent and adopt ways of mutual aid that are be yond the devising or imagination of sla ve masters and poEtical planners. Therefore, they prosper. B. Individuation - Competitive Cooperation - Large-Scale Organization (1) In freedom, humans show increasing variability in capaci ties and responses. Therefore, cap italistic (free) enterprises develop an increasingly great range of changing occupations, commodi ties, services, and opportunities for self-development and satisfac tion of individual wants.

(2) Because of the enormous ~ advantages of cooperation, more and more individual members of a capitalistic society show increasing regard for the interests, de sires, tastes and opinions of other persons, increasing sensitivity, sympathy, and fellow-feeling (em pathy), along with increasing in dividuation in ways of expressing these attitudes. Some individuals go to extremes in trying to please everybody and consequently truly please nobody. ("The surest road to failure - try to please everybody.")· Others use or abuse their free dom by displaying (or pretending to display) an exaggerated indif ference to prevailing (popular) customs, sentiments,. and manners, and a lack of concern for the opinions of other persons. In freedom, however, indi vi duals cooperate more' readily with such peaceable persons as have more or less similar standards in morals, manners, and tastes, but with complementary (rather than identical) interests and abili ties in work. The word "comple mentary," or "supplemental," de serves emphasis, because many or most forms of cooperation arise out of differences in abilities and interests rather than out of sim ilarities (e.g., farmers and manu facturers, merchants and bankers, truckers and mechanics).

(3) The many similarities of abilities and tastes, however, make a free society highly competitive 1975 CAPITALISM: DEFINITION-ORIGINS-DYNAMICS 631 as well as cooperative. Competing individuals and competing groups offer similar (though seldom iden tical) services to consumers, and similar (hut not identical) jobs to wage earners (e.g., coal miners and oil producers, savings banks and stock brokers, or manufac turers of different sizes and makes of cars). Among free and peaceful persons (Le., in a compJetely capitalistic, or free-market, voluntaristic soci ety), this <competition consists in tJ:',ying to offer more satisfactions innrder to induce cooperation rather than in threatening others with inj ury in order to compel submission and obedience. 1 (4) In freedom - in the absence of coercion - individuals keep and control without coercive inter ference what they acquire in peace ful ways. That is, they may keep, control, consume, give away or trade what they find in nature, what they make or invent, what they get by gift (as from parents), and what they get by voluntary exchange, including the temporary uses of things for which they pay rent or interest.

1 Socialists confuse inducement or per suasion with coercion. They fail to see that freedom to cooperate exists only in sofar as there is freedom not to cooper ate, along with freedom to communicate without harassment. The rights of private ownership are the rights to enjoy and use wealth and the services of free persons without physical interfer ence or threat of interference from other persons. These are rights of adverse possession, that is, the rights of exclusive use and dis posal (along with the responsibili ties of control and care). Therefore, capitalism (private ownership) is individuaUstic. That is, what one person owns, no one else may own. He has _exclusive control of it. But he als'o has ex clusive responsibility for it: to care for it, and to see to it that use of it does not interfere with the freedom (property rights) of other persons. 2 The indescribably complex agreements as to property rights (protected by law, morals, cus toms and manners) constitute freedom. That is, freedom means 2 Socialists commonly confuse this ex clusive control by property owners with the very different type of monopoly which may be obtained by restricting the free dom of would-be competitors in use of their own energies and properties. For example, the United States Post Office maintains its monopoly of distributing first-class mail by using the police pow ers of govern men t to suppress competi tion. Coercive interventions by govern ment or immoral and illegal private vio lence, or both, are necessary to maintain such monopolies. This is not freedom. It is not laissez-faire capitalism. It is cur tailment of free enterprise. It is a nega tion of the rights of private owners.

632 THE FREEMAN October agreements, implicit or explicit (Le., tacitly accepted or formally stated) among members of a so ciety, agreement that individuals shall have undisturbed control of their persons and the fruits of their energies, skills, thrift and enterprise in trade. c. Equity V5. Equality In freedom, there is equity (justice), not equality of rewards for effort. When individuals are free to choose with whom they trade and how much they offer in exchange, some individuals and groups acquire greater aggrega tions of wealth than do other in dividuals and groups. A particu larly productive group of pro ducers (e.g., a business firm), then, may become so industrious, inventive, cooperative and efficient that they supply most of certain commodities or services for a large proportion of a given com munity or nation. So concerns like Ford Motor Company grow to giant size; or a group of firms, like those making up the General Motors Corporation, cooperate in some respects (e.g., in obtaining capital) while competing in others (e.g., sales).

But, in appraising these giant concerns, we should keep in mind that: (1) They get and hold their economic power only to the extent that they serve a correspondingly large number of their fellow hu mans. No company becomes great in free markets by catering to a few rich capitalists. They grow to giant size only as they help raise levels of living for thousands or millions of other producers and their dependents - unless they are favored by anti-capitalistic policies of government engaged in war, currency inflation or suppressing would-be competitors (as, for ex ample, the United States Govern ment suppresses competitors of the Post Office). (2) Increasing abundance and diversity of goods make the de mand and supply of every product more and more elastic. Buyers find a growing diversi ty of goods com peting for their patronage. Wage earners find a growing number of employers with capital seeking to employ them. Capital owners are besieged by inventors and pro moters seeking backing for new ways of satisfying wants or ways of satisfying wants of which con sumers are as yet scarcely aware.

The most inelastic factor in a free society of responsible indivi duals is likely to be in the supply of wage earners (job seekers). Therefore, they benefit most from the competition of capital seeking investment, and. they get an in creasing share of the total pro duct. Wages and wage rates tend 1975 CAPITALISM: DEFINITION-ORlGINS-DYNAMICS 633 to rise, therefore, while rates· of interest fal1.3 D. Progress : Rising Levels of Understanding, Morality, Prosperity, Vision Individuals in freedom prosper as they win the freely given co operation of their fellows. Therefore, their self-interest and family interests provide strong incentives to develop habits and concern for the qualities that other persons want in their co-workers and suppliers. These are such qualities as industriousness, cour tesy, and sensitivity to the inter ests of other humans. As a result, free persons tend to buy goods (commodities and ser vices) which contribute to their efficiency as producers and enable them to discharge their countless responsibilities.

For this reason, the output of "industry" in freedom tends to 3 The rise in interest rates during the past 60 years has been due to the anti capitalistic policies of governments wars, inflation of currencies, waste of resources, and fOl'ced redistribution of wealth and income. The rise in certain land values has been aggravated by socialistic policies, which tend to concentrate populations in favored cities, thus retarding the de velopment of less densely populated areas, whose small populations lack po litical power. Most of the world's land area is still sparsely populated and is cul tivated only by extensive methods. become more wholesome; the health and vigor of the population improve ; life expectancies tend to lengthen; and tastes in art, drama, music and literature rise. Accustomed to these rewards of progress, members of a free so ciety tend more and more to ex pect and strive for improvement in the lives of their neighbors as well as in their immediate circle of family and friends.

At this point, a dangerous ideol ogy may. become fashionable. It has been well named, "the Utopian Heresy." Impatience with the real or .fancied shortcomings of other persons may prompt efforts to hasten improvement by use of a little legal coercion -on a few at first, and on more and more of their supposedly backward fellows as time passes. In this way, free and prosper ous individuals may combine to infringe the freedom of their neighbors while intending only to do them good. And, as they set precedents by such coercive "re forms," others use the same argu ments for more and more infringe ments for similar "good" ends. Thus, freedom declines. This loss of freedom deprives individuals of opportunities and responsibi:lities. Therefore, it gives rise to worse conditions, which the . confirmed ideologists attribute to what freedom remains. Long ago, 634 THE FREEMAN October a now-forgotten philosopher ob served that "Mankind is a race which binds itself in chains - and calls each fresh lir1k progress."

A wealthy society - prosperous be.cause of a longer period of free dom - can afford more waste (idleness, paternalism, wars, para sitism and socialism) than a society that is poor because its people have had little freedom. But for any community or na tion, a continuing decline of free dom must at last bring on a collapse in bankruptcy, chaos, rev olution and/or subjection to politi cal tyranny. Prosperity has its perils, not least of which is the peril of for getting how it was achieved. I IDEAS ON LJBERTY The Fruits of Capitalism IN THE FEUDAL SOCIETY the economic situation of every individual was determined by the share allotted to him by the powers that be. The poor man was poor because little land or no land at all had been given to him. He could with good reason think - to say it openly would have been too dangerous - : I am poor because other people have more than a fair share. But in the frame of a capitalistic society the accumulation of additional capital by those who succeeded in utilizing their funds for the best possible pro vision of the consumers enriches not only the owners but all of the people, on the one hand by raising the marginal productivity of labor and thereby wages, and on the other hand by increasing the quantity of goods produced and brought to the market. The peoples of the economically backward countries are poorer than the Americans because their countries lack a sufficient number of successful capitalists and entrepreneurs.

A tendency toward an improvement of the standard of living of the masses can prevail only when and where the accumulation of new capital outruns the increase in population figures. The formation of capital is a process performed with the co operation of the consumers: only those entrepreneurs can earn surpluses whose activities satisfy best the public. And the utiliza tion of the once accumulated capital is directed by the anticipa tion of the most urgent of the not yet fully satified wishes of the consumers. Thus capital comes into existence and is employed according to the wishes of the consumers. LUDWIG VON MISES, The Elite under Capitalism A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN My SEVENTEEN -YEAR-OLD SON had a semester of. economics as part of the history requirement for the eleventh grade. The text - you've guessed it - was Samuelson. As far as I could determine, the course was well-taught. The ques tions of "what," "for whom," "how much," etcetera, may have blurred the prime matter of economic mo tivation, but they did not quarrel with the ideas that the end of production is consumption or that the study of economics circles around the utilization of scarce means. The instructor betrayed no bias; it was not treated as a sin when a boy, referring on a term paper to the condition of England, made a derogatory remark about the ineptitude of labor govern ment "planning."

The course, however, seemed to me overweighted on the "macro" side. There was a lot about "GNP." Samuelson is strong on the de scription of things-as-they-are, and, after forty-five years of in terventionism, the tendency is to take such things as inflation (say at a three per cent annual rate), fractional reserve banking and some government "stimulation" for granted. The indi vid ual tends to get lost in the "macro" approach, and the critical faculty inevitably gets dulled. We see things in terms of aggregates and large contours, and individual purpose gives way to supposed group needs and desires. The accent on the group leads, by slow degrees, to socialism. But socialism ignores the human start635 636 THE FREEMAN Oc'tober ing motor, which is always inside the mind and body of a single, separate person. The Uncoerced Individual What is obviously needed, in high schools, is economic instruc tion that begins with the starting motor of the uncoerced individual.

To overcome the deficiency, Bet tina Bien Greaves of the Founda tion for Economic Education staff has prepared a two-volume work, Free Market Economics (FEE, $10.00 per set), comprising a text book plus an anthology. The Sylla bus, a wide-ranging arid deeply penetrating treatise, takes off un abashedly from Ludwig von Mises' "Austrian" economics. And to sup plement the Syllabus, Mrs. Greaves has compiled a companion Free Market Economics Basic Reader consisting of material drawn largely from The Freeman. Lest the reader get the idea that the eighty-one selections in the Basic Reader are from purely con temporary sources, it should be noted that such ancients as Fred eric Bastiat, David Ricardo, James Madison, Abraham Lincoln and Jean Baptiste Say are represented here, along with a FEE "Clipping of Note" taken from Karl Marx's and Friedrich Engels' Communist Manifesto, which, like Adolf Hit ler's Mein Kampf, provided ample warning of what totalitarians intend for the underlying population whenever or wherever they achieve power. The Manifesto dates back to 1848, and it is still deluding people.

The syllabus begins with "bas ics" (Le., the nature of the indi vid ual, the need for private prop erty if there is to be free ex change, and the voluntary coopera tion that creates the miraculous "interconnectedness-" of the free market). Then comes a section on "principles" (pricing, savings, the role of tools, labor and wages, money and credit, coml?etition and monopoly, and cross-border trad ing). Finally, there is a section on historical and political aspects, de signed to give the teacher some grasp of both economic history and the history of economic thought. Like musical motifs, the root ideas of Ludwig von Mises are sounded again and again through out the text. Men act purposefully within the limits imposed by the natural and social orders, each one of them trying to relieve "felt uneasinesses" of one sort or the other. The effort to satisfy as many wants, both material and nonmaterial, as is possible with the means at hand is enough to ex plain pricing, which varies with the individual's need and will to trade.

The seller has his "felt uneasi ness," too - he has his living to 1975 FREE MARKET ECONOMICS 637 make. He will, naturally, have more of a product to sell if he has the advantage of good tools and a ramifying division of labor. The "felt uneasiness" of empty stom achs means that workers will have the incentives to take jobs and to specialize in accordance with their native skills. And the difficulty of arranging for barter leads to the special commodity known as money. The "Invisible Hand" Individuals become interconnect ed and interrelated through the market, which seems to be regu lated by an "invisible hand." In visibility does not mean that things are 'haphazard. Men have logical faculties, and can reason from axioms, or self-evident truths. They know there is regu larity in the universe; the sun rises in the east and sets in the west. There is causality. And all things take place within a context of time and change. Men's subj ec tive desires are arranged accord ing to a scale of personal values.

And it is the subjective nature of value. that decides where economic "margins" will lie. If not enough people want a given good or serv ice at a price, the seller will have to come down a peg or two in or der to keep from being stuck with inventory. Marginal utility defines what will be made. It does not guarantee that the seller will always recover the labor costs that go into the making of a prod net. So there can be no "labor theory of value." But if there is no recov ery of cost at the margin, the margin itself will change. The von Mises system is, of course, the refinement of the "Aus trian" system, which was pio neered by Carl Menger. Menger was a Charles Darwin in a school that had its Alfred Russel Wal laces, co-discoverers of a theory that provided the missing key to free market economics. The co-dis coverers - J evans and Walras used mathe'matics to explain mar ginal utility. Menger favored the "literary" approach, couching his arguments in terms of logic. Since mathematics means statistics, and statistics are "past history," the Menger approach is handier for those who want to direct their at tention to the individual as the creator of the future.

No Instantaneous Miracle There is so much in Mrs. Greaves' syllabus that one ques tions the ability of the average high school teacher to impart its wisdom to students in the course of a single year. But the idea is to get prospective teachers to open their minds to the whole neglected panorama of free market thought, which. necessarily entails applica tion over many, many years.

638 THE FREEMAN October Mrs. Greaves is profuse with her recommendations for supple mentary reading of all the great and near-great texts. The teacher of free market economics can hardly bite off Adam Smith's Wealth of Nations and Ludwig von Mises' Human Action in a couple of months. But Mrs. Greaves is not looking for an instantaneous miracle. Her own Basic Reader makes use of the small gem to illustrate the important truths. Roger Wil liams tells us how completely in dividual everyone of us is. (Exit, the "planned" economy.) Henry Hazlitt explains why a broken win dow, though it may be a boon to the glass manufacturer,means a lost sale for a tailor . John Camp bell brilliantly illuminates the case for tools by noting the role of the horse collar in expanding traf fic in medieval Europe. Percy Greaves, Jr. proves in depth the common sense of William Graham Sumner's random remark that the "amount of money in a country will do the work of the country."

A single passage from Ricardo es tablishes the law of comparative advantage in foreign trade. J. B. Say shows that production creates all the income needed to "clear the market." And so it goes. If there is one thing that seems to be missing in Mrs. Greaves' an thology, it is Friedrich Hayek's bit from The Road to Serfdom that shows why, under State plan ning, it is the "worst" that get to the top. Gustavo Velasco's "Inter vention Leads to Total Control" tells us all we need to know about the economic end of State inter ference, but Hayek's essay is need ed to remind us that it takes a gang of hardened thugs to make control stick. ~ THE GROWTH OF THE AMER ICAN GOVERNMENT by Roger A. Freeman. (Stanford, California 94305: Hoover Institution Press), 228 pages, $8.95 hardcover; $5.95 paperback. Rev·iewed by William H. Peterson BUSINESS ANALYSTS fear a critical capital shortage in the U.S. within ten years. What is the cause?

Where has the potential capital gone? Roger Freeman, Stanford Hoov er Institution economist, supplies one hard answer: It's been de voured by government with its enormous appetite for the nation's resources. It's gone into taxes that impede "individual productivity and industrial success." It's gone into a massive redistribution of national income from producers to nonproducers, from production in to consumption, from capital for mation into a raft of programs 1975 OTHER BOOKS 639 like Food Stamps, Aid to Families with Dependent Children, and the biggest domestic program of them all with a truly prodigious appe tite for resources and potential capital - Social Security. Consider Social Security and other federal payroll taxes, which, as Dr. Freeman notes, have been growing faster than any other federal levy. This payroll "take" is estimated by the Office of Man agement and Budget at $86.3 bil lion for 1975, which amounts to more than twice as much as ex pected corporation income tax re ceipts of $38.5 billion estimated for 1975, and about three-quarters of the expected individual income tax receipts of $117.7 billion. Fed eral payroll taxes amount to about three-quarters of the $116.0 billion expected to be spent on fixed capi tal formation this year, meaning, expenditures for new plant and equipment planned by American businessmen in 1975, as surveyed by the Commerce Department's Bureau of Economic Analysis. The national government diverts $86.3 billion into "transfer payments"

instead of permitting individuals to invest this sum as they decide in job-producing industry. There are solid grounds for be lieving that Social Security re cipients would be better off in their old age if they had not put their "contributions" into current government expenses but into cap ital formation - directly into stocks and bonds, or indirectly via private insurance annuities or pen sion plans. Either way, not only would these people likely be better off but the country and especially the American worker would also be better off - thanks to greater productivity, rising wages, and less inflation. But the $86.3 billion payroll tax is but one facet of the federal bud get, which, according to a recent House-Senate Budget Committee conference, will come to $367 bil lion in the 1976 fiscal year which began July 1st (involving a defi cit of $68.8 billion). Related to the problem of gov ernment absorbing an ever larger percentage of GNP - and potential capital - is a continuing increase of what Dr. Freeman calls "wel fare dependency," with its attend ant disincentives to work, save and invest. He draws a distinction be tween genuine welfare needs and actual welfare programs. Econom ic growth has already greatly re duced the number of families at the poverty level. The rub is that the Government keeps redefining and generally easing the definition of poverty. This means lowering qualifications for eligibility for most any given welfare program, so that the welfare population burgeons in good times and bad.

640 THE FREEMAN October Dr. Freeman is alarmed and writes: "The sharp rise in the number of female-headed families - between 1970 and 1973 at more than twice the annual rate of· the 1960s - is an ominous sign for prospects in welfare dependency." There are literally hundreds of programs on the books, but there is always room for more; mass transit, environmental improve ment, a nationally guaranteed an nual income and national health insurance, among many other pro posed programs. The cost of pend ing health insurance bills alone varies from $6.5 billion annually for the Administration's Com prehensive Health Insurance Bill to an estimated $60 billion for the Kennedy-Griffiths Health Security Bill. The irony of such proliferation is its persistence in the face of a rising tide of program failures. Shiny new public housing projects become instant slums. Major cit ies, under the impact of federal policies and by their own actions, are increasingly transformed into islands of poverty, crime, decay and other social ills. (Dr. Free man bemoans the plight of bank rupt New York City, as a case in point.) The quality of education sinks as federal aid to the schools mounts. (Dr. Freeman notes that mean scores on college board en trance tests declined dramatically during the decade 1962-1973.) The Hoover Institution econo mist is concerned by the fact that economic growth is being choked off by the rising welfare state, but he is also alarmed over implica tions for national security. From 1952 to 1972 defense expenditures dropped from 14% to 7% of GNP, while domestic expenditures in creased from 12 % to 26 % . Russia has meanWhile been building up its war-making powers, so that under current trends "the Soviets are headed for a decisive military superiority."

Whither America? asks Roger Freeman in this important book, and the serious reader echoes the question: Whither, indeed! @ the Freeman VOL. 25, NO. 11 • NOVEMBER 1975 AMatterof Choice let us choose and be responsible individuals. Ruth E. Hampton 643 Common Sense - Whatever Happened to It? Ralph Bradford 646 A Bicentennial call for a return to the values of the Founding Fathers. The Story of Gunch and His Magical Scheme The other side of something for nothing. Alice Stephen Gifford 657 Tht Search for an Ideal Money Henry Hazlitt 660 The trick is to keep our money out of the hands of political controllers. A Freedom Under Fire The pros and cons of gun-control laws. Ronald F. Cooney 673 Police Power: Sovereignty'sSledgehammer Ridgway K. Foley, Jr. 677 The nature of police power and how it encroaches on freedom, if unlimited. EngineeringRegUlation:The Return to Medievalism Larry W. Sarner 688 A serious look at the likely consequencesof licensing and regulation of engineers.

Book Reviews: 700 "Street Corner Conservative" by William E Gavin "Common Sense Economics: Your Guide to Financial Independence in the Age of Inflation" by John A. Pugsley "The Federal Rathole" by Donald Lambro Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTONON·HUDSON, N. Y. 10533 TEL: (914) 591-7230 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Ed ucation Managing .Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any am()unt-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education..lnc.Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 2'5 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit, except "Engineering Regulation: The Return to Medievalism."

AMatterofChoice RUTH E.HAMPTON )cp,a; NINETEEN BALD EAGLES flew over the house this morning on their way to the lake. That's a record. I don't often spot more than nine or ten. Tihe half dozen deer feed ing on the hill didn't even glance up. The stellar jays did, and/saw me at the window. They are clam oring for their usual allotment of sourdough hotcakes. Our family home is one mile up a canyon that contains no one else. In this special spot we have in numerable birds and squirrels, everyday deer, and an occasional badger, porcupine, or coyote. Sometimes there's a passing car or pickup. Our yard is the place where the snow plow turns around; the place where parents tell their children on summer days: "Don't fish past-" We have plumbing, television, and an old-fashioned stone fireMrs. Hampton is a housewife and freelance author in Oregon. place warming an acrylic shag rug. We grow an organic garden, yet we live on lumber mill wages and buy coffee imported from exotic places. We keep a horse and drive a Maverick; vote for candidates that favor wilderness and others that work to create new industry.

We're comfortable and satisfied and confused. If we fight develop ment, we might be saying, "Now that I've got my place in the coun try, nobody else is welcome." If we support only economic prog ress, are we saying that enough money is more important than enough room? Our three children have shared us with a dozen other youngsters through foster care for we enjoy kids,and glow when someone an nounces a baby. Still, we shudder at birth statistics. We are caught in the paradox of the Twentieth Century - the paradox of being so content that we're uneasy. 643 644 THE FREEMAN November In this unease we are not alone. When we talk .to friends or rela tives who began as we did, but who have moved on to exciting jobs and high rise apartments, we find they too are feeling guilt be cause they're happy. People who have worked hard for success apologize for making it! Where does this guilt at follow ing our talents and tastes into a life of our own choosing come from? A lot of it comes from the articulate advocates of seize-from those-that-succeed and force-on those-who-don't through taxation.

There is no real reason for anyone who has chosen a legitimate goal and worked to realize it, to feel that he should be handing every thing to the government for redis tribution and regulation. Volun tary sharing is one thing; confis cation, another. Left to themselves, human beings will meet each others needs. And we needn't all start out even either. In a truly free society, those with less have greater incen tives than the rest. Our own early homes. included mill shacks, a homemade camp trailer, and the back bedrooms of other people. For a while we only dreamed of something better. Then we realized that dreams wouldn't do it. We chose a way to live, and worked to attain it. I chose full time homemaking and he left seasonal work he liked to build a world he could love, working his back and leaving his mind to wander. It wanders out to the canyon acres that weren't practical, to the life style some may envy but others would find confining. Isn't that how it should be?

If a man is poor and he'd rather stay poor than ~ struggle, he's en titled to that. If a neighborhood is crowded and its occupants would rather stay crowded and familiar than face uncertainty~ that's their right. Each individual's profession, business, and way of life should be his own. If those who find rural lives dull want to strike out for the city and for the stimulation of jobs, businesses, cultural advan tages, and positions of leadership, they have the right to pursue such goals. The phrase, "pursuit of hap piness" did not designate which happiness or give leaders the duty of defining it. That was left properly - to the individual. Freedom is the option of suc ceeding or failing because we did or did not make a wise choice. No computer, guideline, or political system should dictate the choice. A life style, like a system of eco nomics, is only good when· it works. It works when those in volved in it are doing what satis fies them. If it is being propped up, paid off, and regulated, it fails 1975 A MATTER OF CHOICE 645 to stand alone and ultimately be comes a.holdup - in every sense of the word.

Isn't it significant that, at a time when the world is in desperate need of more efficiency, lower prices, more goods, governments seem determined to upset the nor mal laws of supply and demand, the natural incentives of enthu siasm and profit, and substitute artificial quotas and made-up controls? Any wise parent knows that the child who is confined past the peak of a particular learning phase does not make up this loss easily. He holds back and becomes over dependent. Still later, this same child rebels against too much in terference. Such youngsters often become helpless whiners and mis fits. There's nothing wrong with helping hands and shoulders to lean on along the way to a busi ness, marriage, or life, but there's no such thing as a completely free ride either. Judgment must be ex ercised if it's to grow strong. Too many "experts" are viewing the American people as children to be kept in cribs and strollers. When official bribes and penalties put props under certain ways of earn ing a living, it should not surprise us that a little too much here or there finds the whole structure toddling uncertainly. Left to de velop naturally, we will balance our lives and produce to meet all human needs.

Our family situation is a source of joy to us and we're grateful, but for every person who'd love to live in the hills, there's no doubt an other who would rather shoot the breeze with his neighbors and feel the glowing safety of street lights at night. We all need each other. I wasn't sure about this canyon as a home at first. My husband was. He was sure enough to plead and work and convince. Today I thank him every time I see a fawn in my garden or watch a bald eagle soar, because I chose too. And every day we both breathe a "thank you" for the privilege of living in a land that - after two hundred years - still says to its citizens: "Choose-." I can think of no better way to celebrate our country's birthday and get rid of our fashionable guilt complexes than by joining .together to keep the choices we still have and to gain back the ones we've lost. From the smallest per sonal decision, through local com munity action, and on to the Na tional Elections, every move that takes power out of government hands and puts it back in the grip of those for whom governments were instituted is a step in the right direction. Enough steps make a mile. Let's start walking.

~ COMMON SENSE ~ Whatever Happened to It? RALPH BRADFORD Two YEARS before the Declara tion of Independence· was adopted, an Englishman arrived in Phila delphia to begin a new life - and it was none too soon for him. He had spent several years at sea, worked at a number of poorly paid emp1oyments, held one or two minor civil service appointments, dodged importunate creditors, and struggled to supplement his mea ger gram'mar school education by attending lectures on science. He was nearing forty and badly in need of a change. Now, thanks to a meeting with Benjamin Franklin in London, he was about to get it. Mr. Bradford is well known as a writer, speaker, and business organization consultant. He now lives in Ocala, Florida. 646 His name was Thomas Paine, and with his arrival in Philadel phia he stepped into the pages of American history. Later he would find a niche in French history as we11. Franklin, impressed by Paine's potential, had given him a letter to his son-in-law, Richard Bache; and Bache, in turn, put him in touch with Robert Aitkin, who was about to found the Penn sylvania Magazine. Paine helped him with that project, and for nearly two years served as editor of the new publication. By that time it was January of 1776 - a fateful year for America, and for Paine.

The breach between England and her Ameri,can colonies. had 1975 COMMON SENSE - WHATEVER HAPPENED TO IT? 647 been widening, due on the one hand to skillful agitation by such Colonial spokesmen as the Adamses in New England and Jefferson, Henty and others in the south, and on the other hand to the incredible stupidity of a suc~ cession of British ministers and Colonial governors. The governors, especially, have scar,ce1ybeen given their due as cre!ators of discord. Looking back from 1975, it is hard to believe the arrogance and ruth lessness with which some o~ them conducted .their administrations. To be sure, it was an age of ruth lessness in the management of public affairs; but distance from London seemed to bring out the worst in certain types of mag istrate. Sir Edwin Sandys in Vir ginia and William Bradford at Plymouth are examples of the best in early colonial leadership; Sir Thomas Dale of Virginia, with his re,cord of shooting, breaking and even burning those who op posed him, was probably the worst.

But a lot of history is involved betwe'en the settlement of James town and .Plymouth and the tense period that climaxed in 1776. Dis tance tends to telescope the dec ades, and it is hard to realize today that 187 years of experience, good and bad, had gone into the making of colonial America. In that long time,. almost without their being aware of it, literally a new rac,eof peopl'e, the Americans, had been forged into being. . Ready for Independence Weare apt to think of what we now call "The Spirit of '76" as a mood of fiery rebellion on the one hand and of ruthless repression on the other. And both attitudes were indeed pres,ent. But quite apart from the heat of grievance and dispute, there were thoughtful men on both sides of the Atlantic who realized that a permanent state of union was not likely to be maintained between an insular England and a remote group of colonies that were' plainly destirned for great development and ulti mate nationhood. Such an idea, however, was anathema to the American loyalists, and was ut terly repugnant to those short sighted British leaders who were not concerned with a long-range view of empire, but were dete;r mined to bring the rebellious co lonials to their knees.

All this, however, leaves out of 8ocount the attitude of the average citizen of Mass1achusetts, or Dela~ ware, or Pennsylvania, or Vir ginia. They were confronted with a wrenching problem of psychol ogy and habituation. Despite the fact that by 1776 the colonies were by no means exC'lusively, or even predominantly, popuaatedby peo pl,e of British origin, England, by 648 THE FREEMAN November force of long usage, was still re garded as the "mother country;" and by both sentiment and inertia the colonists generally were reluc tant to dissolve the union. They were angry over the tax policies of their overseas govern ment; they were ready to resist stoutly the indignities they had been made to suffer; they were even prepared, at cost of blood and life, to fight the hated "Red coats" - as they had demonstrated at Bunker Hill and elsewhere. But they were not yet quite ready to face the ultimate issue of separa tion. Somehow, they felt, reason would prevail. The "bonds of con sanguinity" would be stronger than the divisive influences. In some way the present troubles would be resolved, the wounds would be healed, and all would be well. Hope springs eternal; and in the large affairs of a troubled mankind it is well that this is so; but hope wasn't doing much for the cause of American indepen dence in the early weeks of 1776.

Controls Imposed The situation, in brief, was this: Around 1764 the British parliament enacted a bill known as the American Revenue Act. It was the first effort at raising money for the Crown in the colonies, and it aroused much opposition. It was followed in 1765 by the Quartering Act, which required the col onies to find barracks and supplies for British troops. Next, in the same year, came the detested Stamp Act. It was intended to reimburse the British government for about one-third of the outlay for a colonial military establish mentwhich was, ostensibly at least, to protect the colonies from the Indians, the French, and other dangers. In a different atmosphere the colonials might have accepted this as a reasonable division of costs. But the act was passed in England and imposed on the colonies ("Taxa tion without representation ;") and it was constantly visible and irri tating, because the stamps must be affixed to nearly everything the colonists used,even to dice and playing cards. It aroused great animosity, and it was repealed in 1766, partly through the efforts of William Pitt, but largely because of the devastating testimony given by the ubiquitous Benjamin Franklin, who appeared in London as an agent for Pennsylvania. But it left deep scars of resentment; and these were not healed by the Tea Act of April 1773, the addi tional Quartering Act of 1774, and the so-called Coercive Acts of the same year, which were designed to discipline Massachusetts by clos ing the Port of Boston.

All these and other grievances 1975 COMMON SENSE - WHATEVERHAPPENEDTO IT? 649 led to the calling of the First Con tinental Congress in September of 1774. Getting' quickly down to business the Congress said (with 12 of the 13 colonies represented) that: (a) the Coercive Acts should not be obeyed; (b) Massachusetts should with hold taxes from London until those acts were repealed; (c) the people generally should arm and form their own militia; and (d) that stiff economic sanctions should be invoked against the British. But the Congress might have saved its breath and ink. Whitehall was obdurate ... and so were the colonies. Lord North came forward with a Conciliation Plan, but the Lords would have none of it - and indeed, Parliament countered with the New England Restraining Act, which forbade first New England, and later New Jersey, Pennsyl vania, Maryland, Virginia and South Carolina, to trade with any nation except Britain.

On February 2, 1775, the Second Massachusetts Provincial Congress met at Cambridge and framed measures that would prepare that Colony for war. On February 28 British troops landed at Salem to seize colonial military supplies. On April 18 some 700 British troops set out from Boston for Concord to destroy supplies known to be stored there; and that night three men - Dr. Samuel Prescott, Richard Dawes, and especially a silversmith named Paul Revere galloped into immortality. A Continental Army Thereafter events moved with great speed. In May of 1775 the Second Continental Congress met and took a number of actions, the most significant of which was mili tary - namely, to adopt the colonial forces (which by then were actually besieging the British in Boston) as a Continental Army; to au thorize the raising of six compan ies of riflemen to march on Bos ton; and especially to elect George Washington as Commander-in Chief of the American forces. Be fore he could get to Boston, how ever, the Battle of Breed's Hill (to be known as the Battle of Bunker Hill, the nearby eminence originaUy selected for the' Colonial position) was fought, and Ethan Allen had seized Ticonderoga and Crown Point. An undeclared war was rapidly getting into gear.

But what was the issue? The col onists were angry about unfair taxes and discriminatory laws. They resented the highhanded me thods of the "home government" a government they had no part in electing and in which they had no representation. They personified 650 THE FREEMAN November these and other evils in the corpu lent image of King George, and damned him roundly. But are these the sort of issues that men will die for? Will they fight a long and bloody w'ar over a tax on tea? After Breed's Hill-what? With perhaps a third of the colonists strongly opposed to any war, how could they be led to support one over a matter of quarterin.g some red-coated troopers? As for creating a New Nation, which would have been an imagin :ative .and emotional issue big enough for blood, hp,rdly anybody was even thinking about it, and those who did were not at all en thusiastic about the idea. Benjamin Franklin, though he had long be fore written a plan for a union of the -colonies as colonies, had small confidence that they could be formed into a nation. Patrick Henry is known as a great patriot, and so he was; but his patriotism was centered in the sovereign state of Virginia, even though at Philadel phia he had declared to the First Continental Congress "I am not a Virginian, but an American." But in the crunch he opposed the adop tion of the Constitution because he thought the country was just too big for' anyone government to manage!

In short, what the colonial leaders needed was a gut issue and they simply didn't have it. Thomas Paine And so we come back to Thomas Paine. On the 9th of January 1776 he published at Philadelphia a little book - a pamphlet, really -- with the title Common Sense. And in no time at all there was no longer any question about what the issue would be. It was Independence! Not nationalism. Not nationhood not yet, that is, except perhaps in the minds of a very few. Paine, indeed, came /close to it in his "hints" on how to organize for in dependence, though even his con cept seems to have been that. of a federation of free colonies. ~0, 1975 COMMON SENSE-WHATEVER HAPPENED TO IT? 651 not a new nation - not yet. That was something else. But· indepen dence!J ust to be free of England and on their own! American Independence: A Pearl 01 Great Price Men saw at once that here was a value worth all it might cost. Paine put it clearly :. "The object con tended for ought always to· bear some just proportion to the' ex pense. The removal of North [then Prime Minister] or the whole de testable j unto is a matter un worthy the millions· we have ex pended .... If the whole continent must take up arms, if every man must be a soldier, it is scarcely worth our while to fight against a contemptible ministry only. Dearly, dearly do we pay for the repeal of the Acts if that is all we fight for."

Paine's little book was read everywhere throughout the col onies, and with tremendous effect. Washington wrote of it that it had "worked a powerful change in the minds of many men." Paine was a master of· biting inve'ctive, but he employed little of it in Common Sense. The argument for the most part (except when he paid his dis.;. respects to kings in general and George III in particular) is calm, simple and effective. Nor did it lack passages of sardonic humor, as when he wrote: "Sman islands ... 'are the proper objects for kingdoms to take under their care; but there is something absurd in supposing a continent to be per petually· governed by an island." Some members of the New York Provincial Congress, .still loyal to England, considered issuing a pamphlet to answer Paine's thesis; but they finally decided that it was unanswerable, as indeed it was. In a short time the book had been read all over the colonies -- and from that time on there was very little question. as to what the Con tinental Congress would do when it met in June. CommonSense had furnished the answer.

And common sense-not the book, but the frame of mind and habit of behavior· denoted by the phrase - supplied the people of the new country with many another answer. When the weary years had dragged on to Yorktown and the war was ended, common sense led· them to adopt in earnest the idea of a strong central government to re place the sprawling and conflicting authorities of the several colonies. Common sense· instructed them to make it simple and close to the people, and to limit its authority. Common sense, plus a hot mem ory of past inj ustices, led them to avoid too much central domination, and to reserve great power and autonomy to the states. They were not intent upon making a govern ment that should dominate their 652 THE FREEMAN November lives and regulate their occupa: tions, but in creating and defining the minimums of power and au thority necessary to guarantee their freedom.

Common sense told them that men work best where there is the least restraint upon their activi ties, other than what is necessary for the enforcement of laws that were enacted for the protection and benefit for all. Common sense, some 40 years later, would lead them and their political heirs to complete the break with England by fighting the War of 1812. Trial and E"9r During that period the new young nation was going through a time 'of trial and error. Its leaders were feeling their way into nation hood and international status. No doubt there were misj udgments and blunders, since they too were men of passion, prej udice, occa sional ignorance, and fallibility, like their fathers and great-grand children. Some years ago it became a kind of literary fad to point out their errors and dwell upon them at wearisome length. Some historians and self-nomi nated social critics have ridiculed Washingtpn himself as being rather pettily concerned with titles and protocol. They forget that he was a trail maker, ever conscious of the fact that he was the first President of a nation destined for a great role in the drama of world history.

If he fussed over details of eti quette he was also meticulous in his conduct as head of state; and in both his social and official de portment he was guided m·ainly by the dictates of common sense. He wanted the new nation to develop its agriculture, trade and industry with the least possible restraint and interference by the govern ment. The plain common sense born of his own experience in manufacturi~g, farming and land development cautioned him to avoid the dangers of unrelieved public debt, and he wrote solemn warnings against it. Other leaders were equally in fluenced by the canons of ordinary good· judgment. They were in the m·ai'n idealists, even visionaries, as to the· future of their country; but they were quite practical and down-to-earth in the important matter of keeping the country sol vent and making its institutions work. They accepted the idea of a public debt (even Paine wrote ap provingly of it) as an ordinary and recurrent fiscal phenomenon in the life of a going concern; but nobody was willing to spend the nation to the verge of bankruptcy.

Franklin's oft-quoted reply to the lady who, when the Constitu tional Convention adj ou~ned, asked 1975 COMMON SENSE - WHATEVER HAPPENED TO IT? 653 him "What have you given us?" supplies the clue to a very prag matic attitude 'then prevalent. He said, as most people now know, "A republic, madam - if you can keep it." Like most of his peers, he was well aware of the tendency people have always shown to load their governments down with ad ventitious paraphernalia - the ma chinery of special privilege, sump tuary regulations, social and poli tical tinkerings, much of it haloed over with the aura of good intent, but an of it an ultimate tax burden on the average citizen and another handicap in his quest for human progress and freedom. If the Founders had needed an object les son they had it glaringly before them in the worthless "Continen tals" (paper money) they had been forced to issue in financing the war.

It Stands to Reason Common sense! What a wealth of homely virtue the term implies! And what a service its exercise has been, in both great and small affairs. Let me recall a personal experience with it. Many years ago my wife and I were preparing to "restore" an old house we had purchased in northern Virginia. The memory of it fits into this article the more readily because we discovered that the place had actually belonged to George Washington at the time of his death. The house, which had become dilapidated, was in two sections. The two-story part, we knew from local records, had been built dur ing the Civil War; but the lower log section was undoubtedly there when Washington owned the place, for in a careful listing of ~is properties attached to his will he mentioned that the place had "a good house" on it. But I am reaching too far back. Our renovation, I assure you, was undertaken in fairly modern times, relatively speaking. Full of en thusiasm and good intent, we plunged into our project - and before we knew it we were up to our ears in blueprints, elevations, levels, heating systems, patios; aU outside our expectations and cer tainly beyond our resources, which were slender. So we said woah-up, halted everything, caught our breath - and started over.

In our neighborhood there was a small-time house builder - a car penter, in fact, who, with his two sons and a couple of neighbors, made a dependable construction team. He himself was a trans planted, twangy product of Maine, and he belongs in this chronicle because I am remembering two phrases he often used, both per tinent to our present discussion. With a yellow scratch pad and a stubby pencil, he went over the 654 THE FREEMAN November place with us, floor by floor and foot by foot, asking what we wanted, sometimes agreeing with our wishes by saying "Eyeh" (which is down-east for "yes") but often saying"no" quite firmly, and explaining why, structurally, it couldn't or shouldn't be done. And over and over, in explaining matters to us, he made use of two phrases: (a) "it stands to reason" and (b) "it's just common sense." Before I leave him,-let me record gratefully that his frequent appeals to reason and invocations of com mon sense saved usa great deal of money and finally gave usa house of real comfort, authenticity and beauty.

It stands to reason. It's just plain common sense. H-omely, po tent phrases! When high-flown arguments load. us down with rhetoric; when bureaucratic jar gon confuses or misleads; then simple, common sense may wen be the really dependable compass, in lieu of more sophisticated gui dance. It is a safe rule, for states men as well as house builders. In... deed, -it was often followed by the men who set the course of our country -in its early days. Nor was its use confined to the foundationbuiIdersalone. Tower ing figures of the later years, un versed in abstruse argument, -re sorted to its homely logic with great benefit to the nation. Writing of Abraham Lincoln during the Civil War, Carl Schurz lamented that the President had been greatly underestimated. "Reis a man of profound feeling, correct and firm principles and incorruptible honesty," Schurz wrote; and he added that Lincoln "possesses to a remarkable degree the character istic, God-given trait of this peo ple - sound common sense."

The Aging Process 8r;ngs fears and D~ubts The decades have slipped by and the nation has aged and grown. From less than three million peo ple on the ,edge of _a vast world new to men, we have become a 210 million-people giant, spanning a continent - a nation of vast wealth, importance and influence. We are rich in achievement, science, cul ture. We should be the envy of the wor ld, and in some ways we are. Yet we are deeply troubled. The way ahead is obscure. We fear for the present; we are doubtful about our future. Once -rich in minerals and fossB energy, we now lag far behind some less "advanced" coun tries, and we are dependents in the markets of the world for some of the rarer ores, and -for liqUid fuel. More -than all this,'we'are --he wildered ill a fog of pseudo-eco norilics,and -are being 'misled into disastrollsexperiments 'by ,the in:.

1975 COMMON SENSE - WHATEVER HAPPENED TO IT? 655 fluential devotees of this or that sociologic or economic "ism." In the name of financial stability we have debased our money and cut in half at least, possibly to one third, the buying power of the dollar holdings of our people - a bitter pill for those who possess some degree of wealth, but a disas ter for those who do not. The pro cess by which this is done is called "inflation" and it is made to appear as a whimsical kind of thing that just happens now and then, instead of the predictable re sult of certain actions - such as following a permanent policy of not paying our debts. With a loudly professed interest in human welfare we have set up a governmentally operated old age pension system that has been broadened and extended until it now threatens to collapse unless further inroads are made into the earnings of everybody to support it. To the end of "protecting" con sumers, we have passed regulatory laws and created enforcement agencies that have driven many producers frantic (and sometimes out of business) with nagging bureaucratic supervision and ex pensive, frustrating, duplicating paper work. Confronted with the greatest need we have ever known for energy in the form of fossil fuel, we have not only penalized the production of ~ such fuels but have hampered the exploration neces sary to find them.

All this at a time when we very badly need an active economy with high levels of employment, wages and corporate earnings. Well ... but these are themes for books, not paragraphs; and many books, indeed, have been written, and no doubt will be, about what happened to this country around the middle of the 20th Century. Perhaps it will be enough to pose here one or two questions in con clusion. Act Responsibly First, if the New York or Phila delphia or Boston of, say, 1800, had ever foolishly spent itself into bankruptcy, with no apparent re gard for huge deficits annually in curred, - what would its leaders have done when finally confronted with fiscal reality? Run to Wash ington and beg a handout from the national government? Try to get the state legislature to bail them out? Cry to heaven that they were being mistreated by banks and other leaders? Or would they, like any sensible householder or any prudent housewife, face a few facts, cut out some frills, have a little less "fun" for a while, pay up their debts, balance their bud get, and in general proceed like . . . well, like people· of common sense?

656 THE FREEMAN November Second, if the Federal govern ment had failed for many years to live within its income, and if as a result it had accumulated a debt of some 500 billion dollars; and if the government had simply lost count of all the agencies and bureaus tucked away in its vast buildings in the Capitol and all over the country; and if the deficit for the current year was going to reach the staggering amount of sixty billion dollars .... Given such conditions, would President Adams or Monroe (or whoever) listen long to a lot of academic theoreticians and. tryout a number of time-worn expedients - or would they face reality, as ordinary people do in their affairs? Perhaps they might remember that Adam Smith had said, not long before, that "what is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom." If so, would they go on spending and running up ruinous deficits, or would they sensibly cut out some unnecessary or less urgent things, spend less than is to he taken in, apply the excess to p,aying off the debt, and so restore the nation's cred!it and the value of its money? That's a great oversimplification of a com plex problem, perhaps - but is it also, maybe, just common sense?

And finally, in surveying the current scene and trying to under stand the American situation, we encounter the tollowing episode: In recent months one of the tele vision networks ran a series in which a reporter each day would visit an average family and ask how they were being affected by the depression. One such visit in cluded two parents - young people perhaps in their middle thirties, and two sub-teenage children. Home scenes were shown - an average, well-kept middle class dwelling. But this was the clincher: The father said his regular job (at $14,000 a year) simply didn't give them enough to maintain a proper standard of living; so he was moonlighting on a job that paid him an additional $10,000 a year. And they were still having trouble making out on the $24,000 because, for one reason, the two children kept asking him for things, and he was forced to tell them he just couldn't afford to buy them!

So, all things considered, per haps one more ques,tion is in order at the end, as it was at the begin ning: Common sense . .. whatever hap pened to it?

6iVNi;§!{;4iF /;( 'iL... ~\,,'TheStoryof Gunch and His MagicalScheme ALICE STEPHEN GIFFORD ONCE UPON A TIME there was a person named Gunch who was hired by ten friends to do certain things for them. He did not work and produce things for them to sell or even to eat or wear or live in. He acted as a guard to protect their properties and occasionally he helped settle argumen ts be tween them and he performed other small tasks for them. But absolutely all of Gunch's support came from the contributions given to him by his ten friends. One day Gunch had an idea for what seemed an excellent new service he could provide for his friends. He decided to help them to save for their old a.ge. So Gunch went to his friends and made this proposal. "I will set up a fund for all of you who support me. If you will Mrs. Gifford of Lynchburg, Virginia, is a teacher. give me a small amount of money extra each month, I will invest it for you. I will keep a careful rec ord of this fund and when you reach the age of 65, I will start giving it back to you, one hundred dollars a month at a time."

The friends agreed that this was a superb plan. So they each began to contribute $5 a month extra to Gunch. He accepted' their $50 total and put it into a special box marked "Old-Age Funds." Then Gunch invented a grand way to invest their money. He printed up IOU statements which carried a guaranteed interest of 3 per cent. This IOU said he had bor rowed the money and would pay it back with the interest in the fu ture when it would be needed. Then, leaving a small amount in the box just in case it might be needed suddenly, Gunch replaced the rest of the money every month 657 658 THE FREEMAN November with the IOUs and proceeded to live on almost all of the money his friend,s were giving him. Day of Reckoning All too soon the time came to start paying back the money. Gunch had a problem. First, he had to be sure he could get new friends, young ,and working, to join his old friends so that their new payments into the fund would redeem the IOUs and payout the promised money. He had to be sure of many, many new friends, or else he had to increase wha t the old friends paid in so he could support the $100 a month pay ments out. $50 coming in would never do it. To make matters worse, pay-out time came rather quickly for some of the original friends. They were in the plan only a very short time before they reached 65 and had paid in far less than they would eventually receive back. These people were going to spend many years living on the money which the new friends paid in. Furthermore, un less there were an assured group of younger people coming in who were willing to assume the bur-.

den, the friends who supported the first payments out would not have any money left for them selves-especially if Gunch's whole scheme were ever discovered. Now Gunch had to start collecting money and borrowing money and shifting money from one per son to another faster and faster. He began to raise the $5 a month charge. a little at a time until it doubled and tripled and then fi nally became almost 6 times as much. The friends who were now living on the payouts were find ing that $100 a month was not so much as it had seemed to be when they agreed to the idea in the first place and they begged Gunch to give them a little more. Gunch and the other friends did feel sorry for these old friends so they agreed to give them just a little more, and then a little more than that, and then .... and so forth. But this kindness only made Gunch's situation worse. Unfortunately, we have to stop this story right here at the crisis.

Every good story gets i~s hero into a terrible situation and then when it reaches the climax of problems for the hero, the plot figures out a way to rescue the hero and end the &tory. But no one yet knows how Gunch can be rescued. His magical scheme put him into such a mess and no one can find any magical scheme to get him out. So we have to leave Gunch with no end to his story yet. This little story of Gunch and his scheme is, in essence, exactly the story of Social Security. A 1975 THE STORY OF GUNCH AND HIS MAGICAL SCHEME 659 government has no money of its own. It lives on the money which its Hfriends" - its citizens - give it. The money which is sup'posed to be in a fun~ gathering interest has been, and is being, taken out all the time and replaced with gov ernment bonds. This is the Hin vestment and interest" that is in the fund. Government bonds are simply IODs which the govern ment hopes to be able to repay someday. Because it is govern ment and because it involves mil lions of people, not just ten, the whole scheme has been success fully camouflaged from most of its victims.

Fiat Money Governments have another tool they can use to hide their scheme, however. The government, unlike Gunch, can control the money sup ply. So governments can payout by "printing" money. Of course this extra money they have cre ated out of nothing is inflation and causes prices to go up and makes all the money the friends have buy less than it did before. But the friends do not understand this point either. So again, the results are not so obvious to ev eryone. But the scheme will in evitably either fail or cost many millions of dollars each year to the new young working people coming into the scheme. The tragedy of this whole thing is that the American people have been so thoroughly duped by this magic. They have always had great faith in private savings and trust funds and insurance when conducted by private business and they never saw the difference be tween these private funds and the government's magical scheme. But an insurance Hfee" which has ris en from 3 per cent in the 1930's to almost 12 per cent in the 1970's should say something. That doesn't just mean more money, it also means a bigger share of all the money. Can it be that, soon, in stead of everybody supporting somebody, we will have a situa tion of nobody supporting every body? ~ IDEAS ON LIBERTY A. Doubtful Medium As MONEY is the sinews of every business, the introducing of a doubtful medium - and forcing it into currency by penal laws must weaken and lessen every branch of business in proportion to the diminution of inducement found in the money.

PELATIAH WEBSTER The Search for an Ideal Mon~y HENRY HAZLITT FOR MORE THAN A CENTURY econ omists have toyed with the idea of designing or inventing an ideal money. So far no two of them seem to have precisely agreed on the de tailed nature of such a money. But they do seem at the moment to agree on at least one negative point. I doubt that there is any economist today who would defend the international or American monetary system just as it is. ~o one openly defends the violent daily and hourly fluctuations in exchange rates, the steadily in creasing unpredictability of fu ture import, export, or domestic prices. Every newspaper reader fears that cammodity prices will Mr. Hazlitt, noted economist, journalist and author, here examines perhaps the mOlt Im portant question facing us today. 660 be .higher next year and still higher the year after that. Even the man in the street, in brief, senses that the world is drifting toward monetary chaos.

But concerning the remedy, we find little agreement. Inflation is bad, some agree. Yes; put it isn't as bad as depression and unem ployment; and at least it puts off those greater evils, so we must have just a little more inflation as long as these evils threaten us. Inflation is bad, others agree; but it has nothing to do with the monetary system. Rising prices are brought about by the greed and rapacity of sellers; they could promptly be stopped by price con trols. Or, inflation is bad, still others concede; and yes, it is brought about by the increase in the quantity of money and credit.

1975 THE SEARCH FOR AN IDEAL MONEY 661 But this is not the fault of the monetary system itself, but of the blunders and misdeeds of the poli ticians or the bureaucrats in charge of it. Even those who admit that there is something wrong with the mone tary system itself cannot agree on the reforms needed in that system. Scores of such reforms have been proposed. The reformers, however, tend to fall into two main groups. One of these would have nothing to do with a gold, a silver, or any other commodity standard, but would leave the issuance and control of the currency entirely in the hands of the State. The other group would return to some form of the gold standard. Each of these two groups may again be divided into two schools. In what I shall call the statist or paper-money group, one school would leave everything to the day to-day discretion of government monetary authorities, and the other would subject these authori ties to strict quantitative controls.

And in the gold group, likewise, one school would allow discretion, within vague but wide limits, to private bankers and government authorities, while the second would impose severe and definite limits on that discretion. So we have, then, four main schools of monetary theorists. Near ly every currency proposal can be classified under one of them. Paper Money - No Controls Let us begin with School One, the paper-money statists, who would leave the power of control ling the nature, quantity and value of our money solely in the hands of the politicians in office or the bureaucrats they appoint. This is the worst imaginable monetary system, but it is the one that pre vails nearly everywhere in the world today. It has brought about practically universal inflation, un precedented uncertainty, and eco nomic disruption. None of this is accidental. It was built into the system deliber ately adopted at a conference of 44 nations at Bretton Woods in 1944, under the guidance of Harry Dexter White of the U.S. and Lord Keynes of England. The ostensible purpose of that conference was to increase "international coopera tion" and - believe it or not - to "stabilize" currencies and ex change rates.

The chief architects sincerely believed (though they did not as openly avow) that this end could best be achieved by phasing gold out of the monetary system. So they put the world, in effect, not on a gold but on a dollar standard. The value of every other currency 662 THE FREEMAN November was to be maintained by making it convertible into the American dollar at a fixed official exchange rate. The system still had one tie to gold. The dollar itself was to be kept convertible into that metal at $35 an ounce. But this tie was weakened in two ways. Other countries could keep their curren cies stabilized in terms of the dol lar, not through the operations of a free foreign exchange market (as under the pre-World War I gold standard) but by government sales or purchases of dollars - in other words by government peg ging operations. And dollars were no longer convertible into gold on demand by anybody who held them; they were convertible only by foreign central banks. The U.S.

could even (off-the-record) use its great political and economic power - which in· time it did - to indi cate to any central bank with the effrontery to ask for gold that this was not considered a friendly act. So the artificial stability that the Bretton Woods system was able to maintain for a few years was not the result of any real at tempt by each country to keep its own currency sound - by refrain ing from excessive issuance of money and credit - but of govern ment pegging operations and gen tlemen's agreements not to upset the apple cart. This arrangement proved, in the end, unwise, unsound, and unsta ble. The system was able to main tain the appearance of stability only by the stronger currencies constantly rushing to the rescue of the weaker. The U.S., say, would rush in and lend Britain millions of dollars, or buy millions of pounds. It would do the like for other cur rencies in crisis. But using the stronger currencies to support the weaker only weakened the stronger currencies. When the U.S. Treasury bought millions of pounds with dollars, it in effect got these dollars by printing them.

And so when the dollar itself, as the result of our own recklessness, began to turn bad, and when we went off the gold standard openly in August, 1971, other nations were affected. Germany, for in stance, under the terms of the Bretton Woods agreements, had to buy billions of dollars to keep the D-mark from going above its official parity. And where did Ger many get the billions of marks necessary to buy the billions of dollars? Why, by printing them. So the faster-inflating nations almost systematically exported their inflations to the slower-in flating nations. And this almost systematically brought the world toward its present inflationary chaos. True, the nations with stronger 1975 THE SEARCH FOR AN IDEAL MONEY 663 currencies, even when they felt obliged by their Bretton Woods agreement to buy weaker curren cies, did not have to increase their own money supply to buy them. Neither Germany nor any other nation that acquired dollars had to use the dollars as added central bank "reserves" against which; they could issue still more of their own currency. They could have "sterilized" their reserves of dol lars. Or they could have reduced their other government expendi tures correspondingly when they felt obliged to buy dollars, or raised the amount by added taxa tion, instead of simply printing more D-marks or whatever. But these would have been very diffi cult decisions. They might have endangered the tenure of the gov ernments that made them. What they chose seemed under the cir cumstances the path of least re sistance.

What has to be made crystal clear, if we are to lay the founda tions for any permanent sound monetary reform, is that the pres ent worldwide inflationary chaos is not a mere accident. It is not something that has happened in spite of the wonderfully modern and enlightened International Monetary Fund system. It is some thing that has happened precisely because of that. system. It is, in fact, its almost inevitable result. Steady Breakdown It was precisely the kind of "international cooperation" it set up that led to its final breakdown. The countries whose policies were chronically leading them into cur rency crises should have been obliged to pay the penalty. The faltering currencies should not have been rescued by the central banks of other countries. Itwas exactly because the soft-currency countries knew that an American or international safety net would be almost automatically spread out to save them that they chronically got themselves into more trouble.

As it was, the system kept breaking down anyway, but there was a sort of open conspiracy to ignore its fundamental unsound ness. In September, 1949, the Brit ish pound was devalued by 30 per cent, from $4.03 to $2.80. When this happened some 25 other coun tries devalued within a single week. In November, 1967 the Brit ish pound was devalued once more, this time from $2.80 to $2.40. There have been in fact hun dreds of devaluations of curren cies in the International Monetary Fund since it opened for business in 1946. In its Monthly Bulletin the Fund has printed literally mil lions of statistics a year, but it has steadfastly refused, up to now, to publish one figure - the total num ber of these devaluations.

664 THE FREEMAN November Enough of this. It should no longerbe necessary to prove how bad the Bretton Woods system turned out to be. Few people, aside from the bureaucrats whose jobs are at stake, would seriously try to glue it together again. The system is dead. Unfortunately the corpse has not been buried. The Monetarists Let us turn to the next candi date - the proposals of the so called monetarists. Two things may by said in favor of the mone tarists. First, they do recognize the close connection between the quantity of money and the pur chasing power of the monetary unit. And second, they do acknowl edge the importance of imposing strict and explicit limits on the issuance of money. But there are serious weaknesses both in their factual assumptions and in their policy proposals. It is true that there is a close relation between the outstanding supply of money and the buying power of the individual monetary unit. But it is not true that this relation is inversely proportional or in any other way fixed and de pendable. Nor is it true that there is any· fixed "lag" between an in crease of a given percentage in the "growth" of the money sup ply and an increase of the same percentage in prices. The statistics on which this conclusion is based are at best inadequate. They do not cover enough currencies over long enough periods.

What happens during a typical inflation, for example, is that in its early stages commodity prices do not rise as fast as the supply of money is increased and in its later stages prices rise much faster than the supply of money is increased. Monetarists will dismiss this whole comparison as unfair and irrelevant. They do not regard themselves as proposing inflation at all. To them inflation is defined not as an increase in the money supply, but only as a rise in prices. And their proposal, as they see it, is to increase the stock of money 3 to 5 per cent a year just to keep the price "level" from falling. They propose an annual increase in the money stock merely to compensate for an expected annual increase of 3 per cent or more In the "pro ductivity" of the economy. The monetarists' proposal rests on a false. factual assumption. There is no automatic and depend... able annual increase in "produc tivity" of 3 per cent or any other fixed rateo The increase in pro ductivity that has occurred in the U.S. in recent years is the result of saving, investment, and techni cal progress. None of these is auto matic. In fact, in the last two 1975 THE SEARCH FOR AN IDEAL MONEY 665 years or so, the usual "productiv ity" meas ures have actually been declining.

Wholly apart from the formid able mathematical and statistical problems involved, which space does not permit me to go into, the maintenance of the price "level" is a dubious goal. It is based on the assumption that falling prices are somehow "deflationary," and that in any case they tend to bring about recession. This assumption is questionable. When the stock of money is not increased, falling prices are a normal result of in creased production and economic progress. They need not bring re cession, because the falling prices are themselves the result of fall ing production costs. Real profit margins are not reduced. Money wage-rates may not increase, but real wages will increase because the same money will buy more. Falling prices with continued or rising prosperity have occurred again and again in our history. Abuses of Union Power In our present world of power ful and aggressive labor unions, with legally built-in coercive pow ers, the monetarists do have a legitimate fear that such unions will not be satisfied with increased purchasing power for the same money wages. In that case, when such unions ask and get excessive wage-rates, they may bring on un employment and recession. But this danger will exist under any monetary system whatever, as long as we retain our present one-sided labor laws and union ideology.

The central and fatal flaw of the monetarist proposal is its extreme political naivete. It puts the power of controlling the quantity, the quality, and the purchasing power of our money entirely in the hands of the State - that is, of the poli ticians and bureaucrats in office. I am tempted to add that it leaves this power entirely to the discretion, the arbitrary caprice, of the temporary holders of office in the State. The monetarists would deny this. They would limit the discretion of the monetary managers, they contend, by a strict rule. The managers would be ordered to increase the stock of money by only 2, or 3, or 4, or 5 per cent per year; and this figure would be written into the law, or into the Constitution. It is a sfgn of the monetarists' own vacillation that they have never quite decided whether this figure should be a month-to-month bureaucratic goal, or embodied in a law, or nailed into the Constitu tion. Nor have they ev.-er definitely decided whether the figure itself should be 2 or 3 or 4 or 5. They can apparently hold their ranks together only by remaining vague.

666 November Continuous Political Pressure It is obvious that once the prem ises of this system were adopted there would be continuous politi cal pressure for inflation. Those who' contended that an annual in crease of 2 per cent in the money stock would be enough would con stantly hav·e to combat the fears of their colleagues that this might be too low, and threaten to bring on recession. The 3 percenters, again, would have to fight a cease less rearguard action against the advocates of 4 per cent, or these in turn against the champions of 5 per cent. And so ad infinitum. Every time a recession seemed im minent, it would be blamed on the lowness of the existing rate of money increase. Agitation would be resumed to boost it. None of this is a figment of my imagination. It is occurring today. On February 20, 1975, Henry Ford II, in presenting the disappointing annual report of his motor com pany, emphasized the need of mea sures to "assure strong recovery."

Among these, he stipulated: "The Federal Reserve must raise the monetary growth rate to the range of 6 to 8 per cent for a short period." I cite this as only one among scores of examples. It was espe cially instructive because it came from a businessman and not. from a politician. A month later there was a far more striking illustration. On March 18 the Senate of the U.S. adopted unanimously, 86 to 0, a resolution urging the Federal Re serve Board to expand the money supply in a way "appropriate to facilitating prompt economic re covery." It also asked the board to consult with the Hous'e and Senate Banking Committee every six months on "objectives and plans" concerning the money sup ply. This was in effect an order to the Fed to continue inflating, and presumably to increase the rate of inflation. It also put the Fed on notice that whatever it may have previously supposed, it is not inde pendent, but is subject to the di rections of the politicians in office.

The substance of this resolution was later adopted by the full Con gress. The monetarists' program would inevitably make the monetary sys tem a political football.· What else could we expect? Isn't it the height of naivete deliberately to put the power of determining the money supply in the hands of the State, and then expect existing officeholders not to use that power in the way they think is most likely to assure their own tenure of office? The first requisite of a sound monetary system is that it put the least possible power over the 1975 THE SEARCH FOR AN IDEAL MONEY 667 quantity or quality of money in the hands of the politicians. This brings us to gold. It is the outstanding merit of gold as the money standard that it makes the supply and the purchasing power of the monetary unit independent of government, of office holders, of political parties, and of pres sure groups. The great merit of gold is precisely that it is scarce; that its quantity is limited by na ture; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice. It is precisely the merit of the gold standard, finally, that it puts a limit on credit ex pansion.

Fractional or Full Reserve? But there are two major kinds of gold standard. One is the frac tional-reserve system, and the other the pure gold or 100 per cent reserve system. The fractional-reserve system is the one that developed and pre vailed in the Western world in the century from 1815 to 1914. It is what we now call the classicalgold standard. It had the so-called ad vantage of elasticity. And it made possible - we might justly say it was responsible for - the business cycle, the recurrent round of pros perity and recession, of boom and bust. With the fractional-reserve systern what typically happened is that in a given country -let us say Ruritania - borrowers would be given credit by the banks, in the form of demand deposits, and they would launch upon various enterprises. The new money so created, perhaps after taking up any slack in business and employ ment, would increase Ruritanian prices. Ruritania would pecome a better place to sell to, and a poorer place to buy from. The balance of trade or payments would begin to turn against it. This would be re flected in a fall in the exchange rate of the Ruritanian currency until the "gold export point" was reached. Gold would then flow out to other countries. In order to stop it, interest rates in Ruritania would have to be raised. With a higher interest rate or a smaller gold base, the volume of currency would be contracted. This would often mean a deflation or a crisis followed by a slump.

In brief, the gold standard with a fractional-reserve system tended almost systematically to bring about the cycle of boom and slump. Under such a system, there is constant political pressure to re duce interest rates or the reserve requirements so that credit ex pansion - i.e., inflation --:- may be encouraged or continued. It is supposed to be the great advan tage of a fractional-reserve sys668 THE FREEMAN November tern that it allows credit expan sion. But what is overlooked is that, no matter how long the re quired legal reserve is set, there must eventually come a point when the permissible legal credit expansion has been reached. There is then inevitable politic,al pres sure to reduce the percentage of required reserves still further. This has been the history of the system in the United States. The effect - and partly the intention - of the Federal Reserve Act was enormously to increase the poten tial volume of credit expansion.

The required reserves for member banks were reduced under the new Federal Reserve Act from a range of 15 to 25 per cent for the pre vious national banks to 12 to 18 per cent for the new Federal Re serve member banks. In 1917 the required reserves for member banks were reduced still further to a range of 7 to 13 per cent. Pyramiding Credit \But on top of the inverted pyra mid of credit that the member banks were allowed to create, the newly established Federal Reserve Banks, which now held the reserves of the member banks, were permi t ted to erect a still further inverted credit pyramid of their own. The Reserve Banks were required to carry only a 35 per cent reserve against their deposits and a 40 per cent gold reserve against their notes. Later the Federal Reserve au thorities became more strict in im.;, posing reserve requirements on the member banks (they raised these sharply beginning in 1936, for example). But they continued to be very lenient in setting their own reserve requirements. Between June of 1945 and ~arch of 1965 the reserve requirements were re duced from 35 and 40 per cent to a flat 25 per cent. And then they were dropped altogether.

'So much for history. What of the future? If the world, or at least this country, ever returns to its senses, and decides to re-establish a gold standard, the fractional-reserve system ought to be abandoned. If by some miracle the U.S. govern ment were to make this decision tomorrow, it could not of course wipe out the already existing sup ply of fiduciary money and credit, or any substantial part of it, with out bringing on a devastating and needless deflation. But the govern ment would 'at least have to re frain from any further increase in the supply of such fiduciary cur rency. Assuming that the govern ment were then able to fix upon a workable conversion rate of the dollar into gold - a rate that ,vas sustainable and would not in it self lead to either inflation or de1975 THE SEARCH FOR AN IDEAL MONEY 669 flation - the U.S. could then return to a sound currency and a sound gold basis.

But in the world as it has now become - sunk in hopeless confu sion, inflationism, and demagogy - the likelihood of any such devel opment in the foreseeable future is practically nil. The remedy I have suggested rests on the as sumption that our government and other governments will become re sponsible, and suddenly begin do ing what is in the long-run interest of the whole body of the citizens, instead of only in the . short-run interest - or apparent interest of special pressure groups. Today this is to expect a mIracle. But the outlook is not hopeless. I began by pointing out th.at for more than a century individual economists have tried to design an ideal money. Why have they not agreed? Why have their schemes come to nothing? They have failed, I think, because they have prac tically all begun with the same false assumption - the assumption that the creation and "manage ment" of a monetary system is and ought to be the prerogative of the State.

This has become an almost uni versal superstition. It is tanta mount to agreeing that a monetary system should be made the play thing of the politicians in power. The proposals of the would-be monetary reformers have failed, in fact, for two main reasons. They have failed partly because they have misconceived the primary functions thata'monetary system has to serve. Too many monetary reformers have assumed that the chief qual ity to be desired in a money is to be "neutral." And too many have' assumed that this "neutrality" would be best achieved if they could create a money that would lead to a constant and unchanging "price level." This was the goal of Irving Fisher in the 1920's, with his "compensated dollar." It is the goal of his present-day disciples, the "monetarists," and their pro posal for a government-managed increase in the money supply of 3 to 5 per cent a year to keep the "price-level" stable.

I believe that this goal itself is a Quep,tionable one. But what is an even nlore serious and harmful error on their part is the method by which they propose tO~tchieve this goal. They propose to achieve it by giving the power to the pol iticians in office to manipulate the currency according to the formula prescribed in advance by the mon etarists. Sell-Serving Politicians What such reformers fail to rec ognize is that once the politicians and their appointees are granted 670 THE FREEMAN November such powers, they are less likely to use them to pursue the objec tives of the reformers than they are to pursue their own objectives. The politicians' own objectives will be those that seem best cal culated to keep them in power. The particular policy they will assume is most likely to keep them in pow er is to keep increasing the issu ance of money; because this will (1) increase "purchasing power"

and so presumably increase the volume of trade and employment; (2) keep prices going up as fast as union pressure pushes up wages, so that continued employment will be possible; and (3) give subsidies and other handouts to special pres sure groups without immediately raising taxes to pay for them. In other words, the best immediate policy for the politicians in power will always appear to them to be inflation. In sum, the belief that the cre ation and management of a mone tary system ought to be the pre rogative of the State - i.e., of the politicians in power - is not only false but harmful. For the real solution is just the opposite. It is to get government, as far as pos sible, out of the monetary sphere. And the first step libertarians should insist on is to get our government and the courts not only to permit, but to enforce, voluntary private contracts providing for payment in gold or in terms of gold value.

A Movement Toward Gold Let us see what would happen if this were done. As the rate of inflation increased, or became more uncertain, Americans would tend increasingly to make long term contracts payable in gold. This is because sellers and lenders would become increasingly reluc tant to make long-term contracts payable in paper dollars, or in irredeemable money-units of any other kind. This would apply particularly to international contracts. The buyer or debtor would either have to keep a certain amount of gold in reserve, or make a forward con tract to buy gold, or depend on buying gold in the open spot mar ket with his paper money on the date th~t his contract fell due. In time, if inflation continued, even current transactions would in creasingly be made in gold. Thus there would grow up, side by side with fiat paper money, a private domestic and international gold standard. Each country that permitted this would then be on a dual monetary system, with a daily changing market relation be tween the· two monies. And there would be a private gold system ready to take 'Over completely on the very day that the govern1975 THE SEARCH FOR AN IDEAL MONEY 671 ment's paper money became abso lutely worthless - as it did in Ger many in November 1923, and in scores of other countries at vari ous times.

A Private Gold Standard? Could there be such a private gold standard? To ask such a question is to forget that history and prehistory have already an swered it. Private gold coins, and private gold currencies, existed centuries before governments de cided to take them over - to na tionalize them, so to speak. The argument that the kings and gov ernments put forward for doing this - and it was a plausible one - was that the existing private coins were not of uniform and easily recognizable size, weight, and imprint; that the fineness of their gold content, or whether they were gold at all, could not be easily tested; that the private coins were crude and easily coun terfeited; and finally that the legal recourse of the recei ver, if he found a coin to be underweight or debased, was. uncertain and diffi cult. But, the kings went on to argue, if the coins were uniform, and bore the instantly recogniza ble stamp of the realm, and if the government itself stood ever ready to prosecute all clippers or coun terfeiters, the people could depend on their money. Business transactions would become more efficient and certain, and enormously less time-consuming.

Still another specious argument for a government coinage applied especially to subsidiary coins. It was impossible, it was contended, or ridiculously inconvenient, to make gold coins small enough for use in the millions of necessary small transactions, like buying a quart of milk or a loaf of hread. What was needed was a subsidiary coinage, which represented halves, quarters, tenths, or hundredths of the standard unit. These coins, regardless of what they were made of, or what their intrinsic value might be, would be legally accept table and convertible, at the rates stamped on them, into the stan dard gold coins. It would be very difficult, I ad mit, to provide for this with a purely private currency, with everybody having the legal power to stamp out his own coins and guarantee their conversion by him into gold. A private coinage sys tem might conceivably be able to solve this problem, but I confess I personally have been unable to think of any solution that would not be complicated, cumbersome, or undependable.

It is clear, in short, that a gov ernment-ptovided or a government regulated coinage has some ad vantages. But these advantages 672 THE FREEMAN November are bought at a price. That, price seemed comparatively low in the nineteenth century and until 1914 ; but today the price of government control of money has become ex cessive practically everywhere. The basic problem that con fronts us is not one that is con fined to, the monetary sphere. It is a problem of government. It is in fact the problem of government in every sphere. We need govern~ent to prevent or minimize internal and external violence and aggres sion and to keep the peace. But we are obliged to recognize that no group of men can be completely trusted with power. All power is liable to be abused, and the greater the power the greater the likeli hood of abuse. For that reason, only minimum powers should be granted to government. But the tendency of government everywhere has been to use even mini mum powers to increase its pow ers. And any government is cer tain to use great powers to usurp still greater powers. There is no doubt that the two great World Wars since 1914 brought on the present prevalence of the quasi omnipotent State.

But the solution of the overall problem of government is beyond the province of this articJe. To de cide what would be the best ob tainable monetary system, if we could get it, would be a sufficiently formidable problem in itself. But a major part of the solution to this problem, to repeat once more, will be how to get the monetary system out of the hands of the politicians. Certainly as long as we retain our nearly omnipotent redistributive State, no sound cur rency will be possible. , IDEAS ON LIBERTY Start When Ready ANYONE can begin the practice of freedom whenever' he chooses to do so. It is easy, and one need not wait upon other persons to agree before he begins. No committee resolutions or elections or laws a:re needed for a person to begin the practice of freedom. One need merely resolve not to impose his will-legally or illegally - upon his peaceful fellow men in their religions, their economic theories, their attitudes, their morals, their mores, or whatever. And then start to practice it.

DEAN RUSSELL RONALD F. COONEY EXCEPT for perhaps the question of whether or not to legalize abor tion, no public issue of recent years has absorbed more interest or stirred the violent emotions of thoughtful people (and of those less SO) than the prickly matter of gun control. In the editorial pages of newspapers, before the commit tees of Congress, the battle has been joined. As in the abortion controversy, the lines have been clearly and firmly marked between the combatants. On one side stand those who see a comprehensive and strictly enforced national gun law as the sine qua non in an ef fective campaign to halt a crime rate raging out of control. On the other side stand those who are im placably opposed to any attempt to restrict, for no matter how Mr. Cooney is a freelance writer in Reno, Nevada. UnderFire high-minded an end, what they re gard a~ their right to possess fire arms.

The deliberative person, if he is at the same time a believer in freedom, will approach the prob lem cautiously and with an open mind. An automatic conscript to neither camp, he should be willing t'o test the strength of the argu ments on both sides, desiring to find the bedrock of truth wherever it lies below the swirling eddies of passion. He may discover at last that here, as in a good many such disputes, the issues are as muddy as they are significant. One wonders if the debate, which too often takes the form of dueling with shibboleths, is ul timately about guns and their con trol at all. Superficially, of course, it is. But over it loom much larger concerns, concerns bearing direct lyon the future of freedom: How 673 674 THE FREEMAN November much crime is allowable in a free society? At what point is the sur vival of the society threatened by lawless acts? How free can the society hope' to remain if the sys tem of law upon which it rests is routinely mocked, not to say open ly flouted, by its people? It is im portant to ask questions like these even if one does not answer them.

For their part, the proponents of gun legislation argue that we have now reached a stage, if we have not already passed it, at which crime, especially violent crime, poses - to borrow a phrase from Mr. Justice Holmes - a clear and present danger to American society. They point to recent sur veys indicating that in over half of the murders committed in the United States a gun, often a cheap, easily obtainable handgun of the so-called "Saturday-Night Special" variety, was the weapon used. The present laws are ill-equipped to deal with the crisis. And the an swer, so the gun-control people have it, would be the enactment of a Federal gun law. There is a divergence of opinion concerning what such a law should require, presuming it should be enacted at all. Some advocates have proposed the registration of all firearms in the country. Others, lately more vocal, have advanced the idea that nothing short of out right prohibition will suffice. The first idea would entail some re striction of individual freedom; the second, however, denies the particular freedom out of hand. It is the second that interests us here.

Ideally, the scheme of outlawing the ownership of guns would, by removing the weapons from ev eryone's hands, remove them from the hands of criminals who use them to commit acts of violence. It would further insure that the pos session of guns, handguns in par ticular, far from being a right en joyed by the many, would then be a privilege of the few, restricted to such law-enforcement agencies as police forces. Thus, the gun controllers hope, the rate and fe rocity of crime will be greatly diminished. Assume for the moment that no infringement of individual liberty is involved. Does this proposal, or for that matter the registration plan, have any utilitarian value? From the standpoint of expedien cy, does it seem feasible? The pro legislation group, to boost the claim that gun-control is needed in the United States, cite the se vere gun laws of European coun tries and those nations' compara tively lower crime rates, and ar gue not altogether convincingly that there is a cause and effect re lationship between them. They take for granted that the one is 1975 A FREEDOM UNDER FIRE 675 due to the existence of the other.

They tend to ignore the countless other factors, not the least of which is the relative homogeneity of European populations, that could just as readily account for the fewer number of crimes. What is more, they offer no irrefutable evidence that the harsh gun laws are the single factor responsible for bringing about a reduction in crime. One estimate of the probable ef fectiveness of gun-control may be provided by the experiment of Jamaica, examined in a recent seg ment of the C.B.S. program 60 Minutes. Faced with an apparent .. ly incurable epidemic of gun-re lated crime, the government of Jamaica instituted a new and drastic system of treatment. For the past year or so sentences of up to life-imprisonment for the mere possession of a gun have been handed down by the Jamaican Gun Court. This and other equally Draconian measures did in fact bring about a temporary reversal in the escalation of crime. There are signs now, however, that it is again on the rise. The cost to the Jamaican people, in terms of re duced civil liberties added to the already existing burden of crime, can hardly be calculated.

Of course, the limited success of Jamaica's gun law is not conclu sive proof that a similar plan would have the same fate in this country. But it may show the shortsightedness of this specific approach to curbing crime. It has the harmful side-effect of punish ing with equal vigor the criminal and the innocent person who uses his gun for legitimate sporting purposes or self-p,rotection. A sounder plan, and one. which has yet to be endorsed by the anti-gun contingent, would levy heavier sentences for crimes committed with a gun and remove the stigma from those who obey the law. One must have a commodious faith indeed to believe that the criminal, once disarmed, will go and rob, rape, and murder no more, or that the very element of society in whose-best interest it is to ignore gun-control laws will ac cept them and obey them. The or dinary law-abiding citizen is doubly vulnerable if he obeys the law and surrenders the gun with which he protects his life and property because other laws have failed, or he feels they have failed, to protect them. Should he choose to disregard the law he, and all like him who were not criminals before, become de facto criminals in the eye of the courts, a situa tion not unlike Prohibition, when a bad law enacted with the best intentions did less to stop drink ing than to shatter respect for law itself.

676 THE FREEMAN November The simplistic view of criminal human nature held by the pro legislation group is exceeded only by its unshakeable conviction in the talismanic properties of coldly mechanical statute. They leave the distinct impression that guns, and not the persons wielding them, are responsible for crime and that by banning guns through legislative fiat one is striking at the heart of the problem. Admittedly, this would be a simpler and tidier world if such things could be, but it is far easier to outlaw guns than to wish away the evil im pulses which guns so often serve. Any free society worthy of the name does not deny the reality of these impulses, does not dispute that there is a darker side of man. Still, the truly free society is less engaged in reforming man - brave and heroic aspiration - than in allowing him to realize his poten tial for nobility and hence to re form himself. Noone claims that freedom showers unmixed bless ings, nor that it does not extract a toll. Ortega, in the chapter titled "The Greatest Danger, The State"

of his seminal work, The Revolt of the Masses, touches upon this point: When, about 1800, the new industry began to create a type of man - the industrial worker - more criminally inclined than traditional types, France hastened to create a numerous police force. Towards 1810 there oc curs in England, for the same rea sons, an increase in criminality, and the English suddenly realize that they have no police. The Conserva tives are in power. What will they do? Will they establish a police force? Nothing of the kind. They prefer to put up with crime, as well as they can. "People are content to let dis order alone, considering it the price they pay for liberty." "In Paris," writes John William Ward, "they have an admirable police force, but they pay dear for its advantages. I prefer to see, every three or four years, half a dozen people getting their throats cut in the Ratcliffe Road than to have to submit to domiciliary visits, to spying, and to all the machi nations of Fouche." Here we have two opposite ideas of the State. The Englishman demands that the State should have limits set to it.

It is almost a cliche to say that the freer a country the more it is bedeviled by crime. The advocates of gun-control, whose motives, let us not forget, are admirable, have been unable nonetheless to show by what process of regulation the inevitable diminution of freedom - and no loss of that increasingly rare commodity is unimportant will be outweighed or equalized by the boon of a hypothetically more lawful society. And they cannot show that the society born anew, however idyllic, would be worth the sacrifice. ~ POLICE POWER: Sovereignty'sSledgehammer RIDGWAY K. FOLEY, JR. SOVEREIGNTY may. be defined as the ultimate justification for the application of coercive force by the organized state to individuals residing within the territorial perimeters of that political unit or linked to it by virtue of birth, allegiance, contract or custom. 1 The state's commands divide into three major categories of power: taxation, eminent domain, and police.2 Taxation connotes the power of government to extract coerced or involuntary contributions of in1 See Foley, Ridgway K., Jr., "A De fense of Sovereignty: The Territorial Imperative" (unpublished manuscript).

2 Willis, Hugh Evander, Constitutional Law of the United States (The Principia Press, Bloomington, Indiana 1936) 224. Mr. Foley, a partner in Souther, Spaulding, Kinsey, Williamson & Schwabe, practices law in Portland, Oregon. come or property from residents or subjects for the support of the state and its undertakings. 3 Eminent domain m·arks the at tribute or power of a sovereign state to appropriate private prop erty to particular uses against the owners' consent in order to' pro mote public welfare (usually after application of procedural "due process" and the payment of "just" compensation, at least in the United States).4 Because the ordinary citizen en counters these two types of norm3 See Attorney General v. City of Eau Claire, 37 Wis 400, 438; Linnell v. State Dept. of Finance, 21 Cal Rptr 785, 788, 203 Cal App 2d 465 (1962) for other re alistic definitions. 4 For similar definitions, see J efJress v. Town of Greenville, 154 NC 490, 70 SE 919,921 (1911), Consumer's Gas Trust Co. v. Harless, 131 Ind 446, 450, 29 NE 1062 (1892); Briegel v. Briegel, 307 Pa 93, 160 A 581, 584 (1931).

677 678 THE FREEMAN November ative rules on a regular basis, in dividuals generally possess at least a vague comprehension of the exercise of government force in these ,arenas. Few, if any, per sons esc'ape entirely from the net of direct taxation flung like a blanket over the nation; April 15 serves as an annual reminder of this extensive power, as does the periodic withholding which siphons off portions of current income. While somewhat less widely used, the power of eminent domain touches most neighborhoods and inhabitants, at least indirectly, as urban renewal, land use restric tion, and right-of-way displace ments work their gentle magic on the countryside. Dissimilarly, the police power lurks pervasively in the back ground, quite as real. and more in tense than its companion powers, but less well recognized by the persons affected by its scope. Nev ertheless, the saturating nature and incredible fundamental depth and sway of the police power render it the most dangerous (if least well known) of governmental powers. Indeed, it forms the theo retical base for all regulatory re trictions on personal liberty. This essay proposes to isolate and ana lyze the concept of police power, hopefully pointing the way to a limitation upon the scope of state edicts.

Police Power Defined Unlike many essential postu lates difficult to articulate but relatively easy to define by ex ample, police pow'er poses quite the converse problem: it may be defined with relative ease and general agreement; only the ap plication remains difficult by vir tue of the open-textured nature of the tenet. Without applying the appellation "police pow'er," Chief Justice Roger Taney spoke of that aspect of sovereignty in Charles River Bridge v. Warren Bridge, when he upheld the power of the sta te of Massachusetts to erect a competing bridge across the Charles River to the detriment of a pre-existing charter: . . . But the object and end of all government is to promote the happi ness and prosperity of the community by which it is established; and it can never be assumed, that the govern ment intended to diminish its power of accomplishing the end for which it was created .... 5 In the following decade, the same jurist defined police powers in the Licensee Cases:6 ... But what are the police powers of a State? They are nothing more ,or less than the powers of government inherent in every sovereignty to the 5 11 Pet. 420, 12 U.S. 496,507 (1837).

6 Thurlow v. The Commonwealth of Massachusetts, etc. 5 How. 504, 583, 16 U.S. 513, 525 (1846).

1975 POLICE POWER: SOVEREIGNTY'S SLEDGEHAMMER 679 extent of its dominion. And whether a state passes a quarantine law, as a law to punish offenses, as to establish courts of justice, or requiring certain instruments to be recorded, as to reg ulate commerce within its own limits, in every case it exercises the same power; tha t is to say, the power of sovereignty, the power to govern men and things within the limits of its do minion. It is by virtue of this power that it legislates ... From these roots, the common definition of police power has evolved to the power to govern, 7 the power inherent in every sov ereignty to control men and things under which authority the state may, within constitutional limita tions, prohibit all things hurtful to the comfort, safety, and welfare of society and prescribe regula tions to promote the public health, morals, safety, and order, and to add to the general public conveni ence, prosperity and welfare. 8 The Meaning and Sweep of Police Power 'Police power, a most elastic term, 9 inheres in the concept of 7 Gray v. Reclamation District No.

1500,174 Cal 622, 163 P 1024, 1032 (1917). 8 See State v. Cromwell, 72 ND 565, 9 NW2d 914, 191 (1943); 16 CJS 889 f?onstitutional Law § 174; State of Wash~ 'tngton v. MamLock, 58 Wash 631 109 P 47 (1910). ' 9 State v. Wisconsin Telephone Co.. 169 Wis 198, 172 NW 225, 226 (1919). ' sovereignt yl0 independent of the existence of any doctrine of emer gency.ll Sovereignty provides the ultimate justification for the gen eral exercise of governmental co ercion, while the police power rep resents the spe'cificconcept verify ing and validating application of that force to myriad special in stances. The revenue power of tax ation and the land control power of eminent domain serve as the scalpels of sovereignty, slicing away bits of human liberty in the name of public necessity; police power is sovereignty's sledgeham mer, pummeling the subjects into an orderly, if restricted, pattern of conduct.

A common myth prevails to the effect that, in the United States of America, at least, the citizenry enjoys a limited government. In theory, the United States Con stitution does limit the powers of the national government in cer tain specific particulars. In prac tice, the Federal government pos sesses an inherent police power rendering such an implied limita tion quite unreal. 12 Doubtless the Framers of the Federal Constitu10 Allen B. Dumont Laboratories v. Carroll, 184 F2d 153, 156 (3rd Cir 1950). 11 In re North New Jersey Title Ins. Co., 120 NJ 148, 184 A 420 (1936). 12 Professor Willis refers to the lack of a Federal police power as a "common heresy," Willis, Note 2, op cit p. 226.

680 THE FREEMAN November tion intended. to limit such police powers by means of the largely forgotten Ninth Amendment: Rights RetU,Jined by People. The enumeration in the Constitution of certain rights, shall not be construed to deny or disparage others retained by the people.13 Two centuries of judicial review and legislative encroachment have transmuted the Ninth Amend ment into a virtual nullity.14 In this stance, the eminent jur ist, Joseph Story, C'an accurately report that all property land all vested individual rights are sub ject to such police regulations as the legislature (government in the lawmaking sense) may establish with a view to protect the com munity.15 Profes'Sor Willis illus trates both the sweep of the power and its inherent restrictions: . . . The police power is the legal capacity of sovereignty, as one of its governmental agents, to delimit the personal liberty of persons by means which bear a substantial relation to the end to be accomplished for the protection of the social interests which reasonably need protection .. .16 13 U.S. Constitution, Amendment IX.

14 See Foley, Ridgway K., Jr., "Under The Ninth Amendment, What Rights Are Reserved To The People?" (unpublished manuscript) . 15 II Story (Joseph), Commentaries on the Constitution of the United States (5th ed, Bigelow, Little Brown & Com pany, Boston 1891) 700-701, § 1954. 16 Willis, Note 2, op cit p. 716. . . . There are two main require ments for a proper exercise of the police power: (1) there must be a social interest to be protected which is more important than the social in terest in personal liberty, and (2) there must be, as a means for the ac complishment of this end, something which bears a substantial relation thereto. 17 The Location of Police Powers in a Federal System The term "police power," refer ring to an inherent and largely disguised body of authority, does not appear in the United States Constitution nor in most state charters: ... Although the basis of the police power lies in the Constitution which regards the public welfare, safety, and health of the citizens of the state, and although it may be given to the people of the state by the constitution, the power exists without any reserva tion in the Constitution, being found ed on the duty of the state to protect its citizens and provide for the safety and good order of society.1 8 It seems likely, however, that the reserved powers mentioned in the Tenth Amendment to the United State's Constitution refer, if not by name at least in substance, to state police powers: Powers reserved to states or people.

The powers not delegated to the 17 Ibid, p. 728. 18 16 CJS 893-894, Constitutional Law §175a.

1975 POLICE POWER: SOVEREIGNTY'S SLEDGEHAMMER 681 United States by the Constitution, nor prohibited by it to the States, are re served to the States respectively, or to the people.I 9 Reservation "to the People" has faded from view; residual powers now inhere in the state under the guise of police power. Thus, the concept of limited gov ernment under the American Con stitutional system proves largely illusory. History from 1789 tell'S a continuing tale of a national government once strictly limited, so limited in fact tha t many be lieved the Bill of Rights to be un necessary, grasping additional powers under the guise first of the interstate ,commerce clause 20 and the necessary and proper clauses 21 and later under the general wel fare clause. 22 Few would contest the fact that the powers usurped under the concept of "general wel fare" or "necessary and proper" pretexts partake of a Federal po lice power. 23 Indeed, the language both of the Consti tution and of the individual legislation or de cision justifying each particular infringement upon personal liher19 u.s. Constitution, Amendment X.

20 U.S. Constitution, Art. I,. § 8 cl. 3. 21 U.S. Constitution, Art. I, § 8 cl. 18. 22 U.S. Constitution, Art. I, § 8 cl. 1. 23 The history and the inherent error in the misuse of each of these clauses, viewed against the drapery of individual freedom, deserves separate treatment apart from this essay. ty, coincides with the general test of police powers: those sovereign powers designed to promote public order, health, s·afety, morals and the general welfare of society. The draftsmen of the Federal Consti tution made relatively few mis takes, considering the general im precision of language and the in born human surge for power, but the three clauses mentioned st,and out as grieivous errors, permitting easy sanction for increased re straint and reduced liberty. State Police Powers Concurrently with the growth of the Federal police power, the individual states enjoyed their own reserve of police powers fashioned to inhibit human free dom 'and creativity. While the Federal police power lay largely dormant during the first century of the Gonstitution,24 one cannot surmise that the police power con cept drowsed: the individual states flexed their authority in 24 The writer has attempted to dispel the quaint notion of laissez-faire in the nineteenth century by illustrating the number of laws, enacted by state, and federal governments, which encroached upon personal freedom. See Foley, Ridg way K., Jr., "Individual Liberty and The Rule of Law",. 21 Freeman (No.6) 357, 373 (June 1971). See also, Hurst, James William, Law and the Conditions of Free dom in the 19th Century United States (U. of Wis. Press 1956) and Handler, Oscar and Mary, The Dimensions of Lib erty (Harv. U. Press 1961).

682 THE FREEMAN November myriad ways, through licensing acts, internal improvements and regulatory laws. From the outset, the two com~ peting governmental structures collided in sporadic conflict. Nor mally, state licensing, franchise, and regulatory laws confl'icted with Federal application of the interstate commerce clause.25 Dur ing the post-Civil War and post World War eras of substantive due process concepts, constitutional restrictions inhibited the exercise of the police power hy the states but in no way eradicated or in fringed upon the concept itself. 26 With the advent of increased so cial and economic legislation fol lowing the Great Depression of 1929, both state and Federal use of police powers have vastly in creased with a concomitant loss of individual liberty. Police Powers: Model and Reality The imaginary model of limited government in the American Fed eral system deviates from re'ality.

The deflection from truth occurs primarily as a re'sult of the con cept of police power. The model envisions a Federal 25 See Corwin, Edward S., The Consti tution and What It Means Today (Chase and Ducat rev ed, Princeton University Press 1973) 56-57. 26 Compare, Willis, note 2, op. cit. p.728. government possessing only those powers inherent in sovereign na tions. Each state government is as sumed to a,ct in a like limited ca pacity, the limitations flowing both from the National and the particular state constitutions. All powers not specifically delegated to the state or the Federal govern ment dwell in the individual acting human being. Man is free to do anything not prohihited by state or Federal law, and neither state nor Federal law encroaches upon voluntary action, except in the specific areas reserved in writing to the government in the funda mental charters. Contrast reality. The govern ment of the United States exer cises all powers sp'ecifically granted to it by the Constitution and all powers implied from that document. It also exercises a Na tional police power - the "right"

to provide for order, health, safe ty, morals and welfiare - inher,ent in sovereignty.27 The National government, in theory, cannot con travene the individual rights pro tected by the Constitution but, when dealing with police powers, one must recall that where the interest of the public runs counter to that of the individual, the lat ter must give way unless the law can be deemed "arbitrary, capri27 16 CJS 906, Constitutional Law, § 177, 1975 POLICE POWER: SOVEREIGNTY'S SLEDGEHAMMER 683 cious, or unreasonable."28 (Obvi ously, the phrase "public interest" constitutes a mere euphemism fo~ the personal interests of the dom inant person or group; govern ments, societies, communities, and other non-personal organiz'ations do not possess "interests.") 29 At the same time, the individual states appear as the Federal gov ernment in microcosm with one important distinction: while the Federal government purports, however fallaciously, to be a gov ernment of limited powers, the states do not, for they contain the elastic police powers, the great re serve powers of e·a-ch state. 30 In legal theory, .the states posses's all of the ordinary legislative powers exercised by the British Parlia ment at the time of the American Revolution except ·as restricted by state and Federal constitutions 31 A Suggested Analysis of Police Power To harmonize with the funda mental creed of maximum indi vidual liberty and limited powers 28 Egan v'. City 0/ Miami, 178 So. 132 (Fla. 1938).

29 See FoleY,Ridgway K., Jr., "Aft'ected with a Public Interest" (unpublished manuscript) . 30 In Re Opinion of the Justices Ala bama State Federation of Labor v. Mc Adory 18 So.2d 810 (Ala. 1944), 22 So.2d 521 (Ala. 1945). 31 Burdick, Charles K., The Law of the American Constitution (G. P. Putnam's Sons, New York 1922) 559. of government, any analysis of police power should restrict that doctrine to the use of community force to settle disputes which the participants cannot resolve in a voluntary manner and to prevent, deter and punish the use of force and fraud. Such a doctrine accords with the proper use of law,32 the sound definition· of sovereignty33 and the fundamental postulate of Justice. 34 . Under the existing tenets of police power, the states may enact laws which are impolitic, harsh or aggressive without contravening the Constitution. 35 Police powers comprehend reasonable prevention (prior restraint) as well and pun ishment. 36 To the contrary, the state should govern under general principles of justice, leaving free action to individual men; in short, the law should tolerate no external restraints (beyond those sug gested in the preceding para graph) upon creative hum,an ac tion, much less countena,nce harsh and oppressive legislation. Man 32 Foley, Note 24, op. cit. passim.

33 Foley, Note 1, op. cit. 34 Foley, Ridgway K., Jr., "In Quest of Justice" 24 Freeman (No.5) 301, 302 (May, 1974). 35 Southern Bell Tel & Tel Co. v. Town of Calhoun, 287 Fed. 381, 386 (W.D. SC 1923). D'Amico v. Brock 122 Cal App2d 63, 264 P2d 120, 125 (1953). ( 36 See Jung v. City of Winona, 71 'F. Supp. 558 (D. Minn. 1947).

684 THE FREEMAN November should remain free to deve10p his creative abilitie's through free ac tion sans prior restraints; the cer tainty of punitive reaction ade quately deters the initiation of force and fraud, with less loss of liberty than prior restraint. Prior restraint involves its own species of danger, the danger of internal oppression. In final analy sis, regulations impose the sub jective value judgments of one in dividual or group upon other in dividuals or groups who may possess widely differing subjective values. One who exerts prior re straint may misapprehend the ex istence of danger or misconstrue the efficacious means of averting whatever risk exists; the individ ual human actor can better assess both hazard and means of avoid ance since the lawmaker is cut from the same bolt and possesses no omnicompetence. Prior re straint encourages men holding power, for good reasons or ill, to oppress their neighbors. Limita tions and diffusion of power tend to stimulate freedom.

American courts have discerned the basis for police powers in the doctrine of "public necessity"37 and have termed it an essential element in all orderly govern ment. 3S In fact, the Supreme Court of the United States once declared that the principle of po lice power corresponds to the individual's right of s·elf-preserva tion. 39 Measured by these three tests, the doctrine of police power sug gested here satisfies the standard. It is necessary, if men are to live together in society, that aggres sors be deterred from initiating force against peaceable inhabi tants. Laws which prohibit the in itiation of force and fraud and which punish transgressions are publicly necessary in this egard. Orderly living does require a con trol repository of community force to quell external invasion and internal strife and to settle disputes which appear voluntarily insoluble. Self-preservation of the residents depends upon protection from irrational and sinister men.

On the other hand, when ex tended to the breadth and depth currently fashionable, police pow ers as defined prove too much. A single necessity exists: that man 37 Lone Star Gas Co. v. City of Fort Worth, Tex, 15 F. Supp. 171, 176 (N.D. Tex. 1936), rev'd. other grounds 93 F.2d 584 (5th eire 1937), cert denied 304 U.S. 562, 58 S. Ct. 943, 82 L.Ed. 1529 (1938), reh. den., 304 U.S. 589, 58 S. Ct. 1844, 82 L. Ed. 1549 (1938); Jamouneau v. Harner, 16 N.J. 500, 109 A.2d 640, 647 (1954). 38 American Trust Co. v. McCallister, 136 Or. 338, 347, 299 P. 319 (1931); Alex ander Co. v. City of Owatonna, 272 Minn. 312, 24 N.W.2d 244, 250 (1946). 39 Panhandle Eastern Pipeline Co. v. State Highway Comm, 294 U.S. 613, 55 S. Ct. 563, 567, 79 L. Ed. 1090 (1935).

1975 POLICE POWER: SOVEREIGNTY'S SLEDGEHAMMER 685 be permitted to dwell in harmony, as free as possible to conduct his life without the introduction of force or fraud. Any imagined "public" necessity beyond this point assume's, without rational foundation, that the whole is greater than the sum of its parts, that the state exists beyond the meshing of its individual citizens. Again, orderly government only requires impediments to initiation of aggression and deceit and the administration of justice; no one can really contend that a bridge across turgid waters can only de rive from public funds. "Public necessity" and "orderly processes of government" conjure up visions of voluntary ineptitude to solve human problems. It is not my task to explain how freedom will work in a given situ ation; I only know that liberty will produce a result more nearly in accord with the desires of the myriad hum'an beings affected by, and interested in, the proble1m and its resolution. The "public neces sity" argument implicitly decries one method of problem-solving the freedom way - and, thereby, engages in circular reasoning where the premise becomes the conclusion.

Moreover, no government and no state possesses any "rights," including the right to self-preser vation. Only individuals possess rights; any belief that a state owns rights involves a much too organic view of government. The state exists not to perpetuate it self in power but to secure the inalienable rights of individuals residing in that territory to life, liberty 'and property.40 Once a gov ernment fails in this task, it be comes useless. At any time, the citizens in a territorial unit may correct or alter the form of gov ernment in order to better accomp lish the purposes of justice. Any "right" of state self-preservation would collide with the individual's rights to continued free existence and to change or replace an exist ing state. Not just governm.ents may change; no warrant exists to preclude residents of a given ter ritory from establishing a new state. Again, the current concept of police power envisions the use of government force to improve the social and economic conditions of the community at large, to bring about the greatest good for the greatest number of people.41 The state possesses only destructive not creative, force and energy. It can only improve ~oci~J and eco nomic conditions by alleviating aggressive restraints upon crea40 Declaration of Independence of the United States of America.

41 People v. Sell, 310 Mich. 305, 17 N.W.2d 193, 196 (1945).

686 THE FREEMAN November tive human action. It can assure the condition for improvement freedom for all mankind - but it cannot cause improvement. Furthermore, the state lacks potency to determine, much less effect, "the greatest good for the greatest number." This Bentham ite utilitarian d~ctum, so reson ant in sound, can be peeled to ex pose a fallacious core. Good may only be determined by each indi vidual for himself; it is a sub jective value judgment, one which cannot be made by Congress or a committee. 42 Only the individual human being, living his life from internal directions, can determine his "greatest good"; only the free actions of all persons can deter mine the "greatest good for the greatest number." Any hedonistic calculus presupposing a legislator competent to m'ake this determin ation in an objective manner be trays the breeding ground for in cipient dictatorship.

The police power today exists in a broad spectrum. A legal en cyclopedia accurately expresses the ambit: ... It has been said that the scope of the power is as broad as the public welfare or interest thereof, that it is one of the least limitable of the pow42 See Foley, Ridgway K., Jr., "The Concept of Value in Ethics and Econom ics" 25 Freeman (No.2) 115 (February 1975) . ers of government, and that the police power is the broadest in scope of any field of governmental activity. With in the realm of police power the legis lature may act in any manner not for bidden by the Constitution expressly or by necessary implication. It ex tends to all matters which concern the regulation and control of the internal affairs of the state, and almost the whole of the great body of municipal law which establishes and enforces the duties of citizens to each other is embraced within and known as the police power. A state in suppressing what it regards as a public evil may adopt any reasonable measures which it may deem necessary, and the rea sonableness of a police regulation is not necessarily what is best, but what is fairly appropriate under attendant circumstances .... 43 Adherence to this philosophy leads to ultimate sanction for any kind of restraint. The statist may argue that the rule of reasonable ness limits arbitrary exercise of authority. But who determines what is reasonable? The state, through its legislative or judicial apparatus - hardly comforting to the endangered citizen losing his liberty particularly in light of the judicial rule that presumes every exercise of police power to be consti tutionally valid.44 43 16 CJS 898-899, Constitutional Law § 175 b.

44 Goldblatt v. Hempstead, 369 U.S. 590, 82 S. Ct. 987, 99,1, 8 L. Ed.2d 130 (1962).

1975 POLICE POWER: SOVEREIGNTY'SSLEDGEHAMMER 687 It remains to review in cursory fashion the objects to which the police power is often directed: public safety, health, order, mor als, and welfare. No purpose would be served to produce a lengthy litany of those choking laws rati fied in the name of police power at some time or another; suffice it to say, the Supreme Court of the United States has found it "inad visable" to set limits upon police powers, preferring a flexible norm and a case-by-case analysis,45 rec ognizing -that each and every such regulation speaks as a prohibition upon human choice.46 Neverthe less, in e'ach category lurks the very real danger of the use of po lice powers to curb creative en deavor beyond the proper scope of state authority. Thus, in the name of public safety, states have enacted stat utes prohibiting "dangerous" busi nesses and structures, not cogni zant of the fact that voluntary action may assume risks concur rent with the values possessed.

In the name of public health, legislators fluoridate community 45 Berman v. Parker, 348 U.S. 26, 75 S. Ct. 98, 102, 99 L. Ed. 27 (1954); Christian v. LaForge, 194 Or. 450, 460, 242 P.2d 797 (1952). A flexible rule amounts to no rule at all- '~justice" mea sured by the subjective values of those currently in power, or, in legal parlance, "by the length of the chancellor's foot." 46 Goldblatt v. Hempstead, supra, Note 44, Ope cit. 82 S. Ct. at 989. water supply, in spite of evidence of detrimental effect upon human health and the ready availability of fluoride from other sources for private administration. In the name of public order, the state may circumscribe or wholly proscribe gambling, drunkenness or public meetings; in fact, such repressions affect the free flow of ideas and action whether or not the majority agrees with the value of the action. In the name of public morals, the government penalizes inde cency, adultery, prostitution and "immorality," matters much bet ter left to the decision of adult participants.

In the name of public welfare, the state plunders some and gives to others, a most devastating kind of immorality undeserving of the name of charity. In each instance where the state exceeds its proper perimeters of preventing force and fraud and providing common justice, the ap plication of police powers destroys human liberty and nurtures tyr anny. Richard VVeaver once observed, "Ideas have consequences." The idea of police powers produces the consequence of slavery. These broad powers act as the state's sledgehamme'r, crimping free ac tion and chilling personal crea tive endeavor. , LARRY W. BARNER Engineering .e~a\is{(\ Regulation: t\\O ~ed' oet\lf 1be~ There are those who hail, in effect, the advent of state regula tion of the several professions as "the bright, shining day" of pub lic protection and professional re sponsibility, and they have held sway over the public consciousness for many years. Nevertheless, there are storm clouds building nearby, within the professions and without, and they threaten to eclipse, at least temporarily, regu lation's source of power. There a.re those, again within and without, who are urging the clouds on. I am one.

While professional regulation by government is an accomplished fact in many fields, including en gineering, it need not remain so. Reprinted from the Spring 1975 BENT of Tau Beta Pi, National Engineering Honor Society. Larry W. Sarner received the B.A. degree in political science from Colorado State Univer sity in 1970 and is studying for the B.S. degree in applied math. In addition, he is a general partner in Hydra, a consulting firm specializing in data processing, survey and political analy sis, and investment research. 688 Unlike physical laws, government statutes do not ne'cessarily mold reality; and a.lso unlike physical laws, they can be repealed. Regula tion is very much like the engine with positive-feedback throttle a built-in tendency to get out of control that is not so much an error in design which can be engi neered away as it is a blunder in conception which must be dis carded. And it will not be so much a turning back of the clock merely to abandon the scheme as it ap pears on its face; for regulation itself is a throwhack to bleaker, more desperate times. Consider: (1) An organization is formed to protect the working conditions of the profession, though its pri mary justification is the protection of the public.

(2) All services are to be per formed for a just price, with com petition on price alone condemned as unprofessional.

1975 ENGINEERING REGULATION: THE RETURN TO MEDIEVALISM 689 (3) Regulations governing the standard of quality are set up for each profession by its practition ers, since only these· experts can determine what is the correct qual ity in the profession involved. (4) Advertising of all kinds is prohibited. (5) An "apprenticeship" is al lowed for, permitting the training of young professionals. (6) After a journeyman's ex perience, an individual may be come a licensed professional, pro vided he passes 'an examination before other professionals, demon strating his proficiency, his good character, and his financial standing. (7) Unfair competition, espe cially price-cutting, is frowned upon. In fact, cooperation is the ideal, enforced if necessary by strict regulation on the part of the authorities. (8) The enforcement of penal ties against offenders is made pos sible through exclusion from the license, which means that the pro fessional loses his right to do business.!

I believe the advocate of regula tion will find the foregoing to be a fair representation of the basic elements necessary to control a profession, though motivations for them are conspicuously absent. The particular rationales were omitted because the elements are not a blueprint for regulation, at least as explicitly as that form is known today, though I contend the model fits very well. Instead, it is a faithful 'account of the essential characteristics of the medieval practice of guilds, which most his torians will say passed from the Western scene nearly 500 years ago. Guilds were a, fascinating eco nomic organization, viewed from afar. They provided stability, qual ity, and social cohesiveness for whole classes of people. But they were also tyrannical, corrupt, and economically unviable in a society where change, technological prog ress, freedom, and capital invest ment were the norms. Thus the institution faded in influence and power, and its final vestiges were abolished by freedom-minded re formers centuries ago. Their pass ing was not lamented; the cause of human progress was immeasur ably advanced by their disappear ance. As economist Milton Fried man has stated, "The overthrow of the medieval guild system was an indispensable early step in the rise of freedom in the Western world.

It was a sign of the triumph of liberal ideas, and widely recog nized as such, that by the mid nineteenth century, in Britain, the United states, and to a lesser ex tent on the continent of Eurolle, 690 THE FREEMAN November men could pursue whatever trade or occupation they wished without the by-your-Ieave authority of any governmental or quasi-governmen mental authority."2 But there are those in the twen tieth century who are effectively urging a return to feudal practice. They are insisting that the state resume its interference with the right of the individual to engage in a commercial or professional activity of his or her own choos ing. Despite the historical evidence of 1,000 years of what was appro priately labeled the "Dark Ages," and the insurmountable arguments pointing toward present-day eco nomic untenability akin to the waning days of the guilds, the tendency toward state regulation has successfully grasped the engi neering profession.

IIpublic Protection II The foremost palliation given for dusting off this ancient despo tism is not particularly original. John D. Constance, in the pages of THE BENT, for example, used the old saw of public protection: "Practically every design" he con tends, "every operation, and every process developed by engineers has public implications .... It should be evident that engineering,be cause of these implications, must be regulated by. the state-and must come under the police powers of the various states - to provide this protection to the public."3 [The emphasis was his.] But as the public record of such regula tion, from the Dark Ages to the present day, is increasingly ex posed to objective scrutiny, the claim increasingly shows tarnish and wear. Friedman, again, shows: "The pressure on the legislature to license an occupation rarely comes from the members of the public who have be'en mulcted or in other ways abused by members of the occupation. On the contrary, the pressure invariably comes from members of the occupation itself. Of course, they are more aware than others how much they exploit the customer and so per haps they can l,ay claim to expert knowledge."4 Citizens' groups and public in terest lobbies are now pressuring legislatures to review the occupa tional licensure provisions in their states. And what some of these in vestigations are uncovering is a record of public abuse rather than protection. If the "public· protec tion" argument is to hold water, it must show three things: first, that there is an abuse that needs to be corrected; second, that .profes sional review is an effective means of ,correcting such abuses ;.. and third, that· the police powers will not be turned against the public itself. Yet, as to the first, rarely .if 1975 ENGINEERING REGULATION: THE RETURN TO MEDIEVALISM 691 ever' has any trustworthy evidence been produced to show that abuses exist outside the purview of crim inal statutes which can be more effectively treated with regulatory procedures; those that ostensibly exist are usually straw men the regulators can conveniently pick apart or' carefully screened single instances gleaned from decades of searching. Thus, on the first count, the cause celebre of public protec tion wanes.

A Stream of Failures The cause fails on the second count as well, however. The record, at least in Colorado, Florida, Iowa, and probably in the remainder of the states, shows an entirely con trary performance to the, public interest. For instance, in Colorado, the head of the Department .of Regulatory Agencies revealed re cently that, "In 1971, not one doc tor - not one dentist - had ever had a license suspended or re voked" in Colorado.5 This' is, a re markable testimony to the com petence of Colorado's medical practitioners - if anyone, genuinely believes that not a single reproach able' .' medical practice was under taken in a state of two million peo ple:l,dur~ng :365 or more days. It contrasts, sharply with the appar" enMy "",' rampant incompetence in Florida~s ,'/construction industry, where', 2,149, candidates.took the general contractor's examination in 1973 and' everyone of them flunked. 6 Concomitantly, the state's official sanction to an in competent, when it is given, causes even greater damage than if noth ing is given at all. Says Earl John son, the Colorado regulator: "The greatest harm is done by the hack with a license. The state says he's qualified and he's not. That hurts the public whether the incompe tent, is a dentist, a pharmacist·· or aplumber."7 A negative performance in the third area makes the failure com plete. In 'addition to the blatant restrictions of membership' as evi denced in the Florida case, there is mounting concern on the part of many groups over the guild type regulations which limit the public's choices and hinder effi ciency. Furors have been raised in Colorado· over a regulatory prohi bition of charitable hairdressing of elderly women by "untrained"

(i.e~, unlicensed) beauticians, over the ban of competitive advertise ment of pharmaceuti~al prices (successfully challenged by a large supermarket chain), and the en forcement of drug-abuse laws by the Board of Barber Examiners. in Florida similar storms have' been howling over' the regulationsgov erning' ,the' ,. professions'" of opto metry,rea], ,estate, ,·and medicine. ':And;talk is \circulating i in '·.Wash~ 692 THE FREEMAN November ington of applying federal anti trust statutes to the more "unrea sonable" practices of regulatory commissions. Of course, it can be argued by the pro-regulators, in an attempt to salvage something of what they've built, that these failures are more simply "abuses" needing only a little corrective salve. But it is my contention that there is much more to it than that. As be fore, the engine is a runaway not because of faulty design, but be cause of fundamental misconcep tions. I hope to show herein that systemicaUy regulation (1) fos ters monopolistic growth of power, stagnating the profession; (2) fails to achieve its purported goals; and (3) is an unsupport able violation of human rights and freedom. Of course, it should be said up front that my basic predi lection is that the opposite of each of these effects is de'sirable and that the affects themselves are to be avoided if alternatives can be found.

Beware of Coercion First, as to the' monopolistic growth of power, my concern rests thus: the introduction of govern ment into any area of legitimate endeavor is never an improvement over any state of affairs. The growing mountain of evidence, from the recent localized studies of Bernard Sie'gan (Land Use With out Zoning) to the current series of articles of The Wall Street Journal concerning the effects and operations of federal regulatory agencies, is giving a strong pre sumption against government reg ulation of all typ,esand at all levels. Slowly, citizens are becom ing aware that regulation in their name has not been consistently in their interest, and more often than not against it. Pretty much, regu lation is instead a concession by men of mediocre abilities in the professions involved (or men with greater competence, but less psy chological security) that they are unable to cope with the world and want others to do it for them.

Licensure is an introduction of politics into an arena where poli tics is not only irrelevant, but de structive. The possession of com petence in a given field is an objective fact, not the product of a political decision. Yet, where you have government intervention, you have political decisions, not ob jective ones. The prime power in the licen sure process is the ability to re strict entry to the profession. Every regulated profession, at one time or another (or continuously) has used the licensing structure to restrict its numbers. They can, and do, adopt guild-like require ments for admission. Colorado, for 1975 ENGINE.ERING REGULATION: THE RETURN TO MEDIEVALISM 693 example, insists that its engineer ing applicants provide five charac ter references, at least three of whom must be professional (li censed) engineers. The board which passes on 'applicants is com posed exclusively of engineers who have been licensed for at least ten years. 8 An immediate concern for Colorado's engineers is how long it will be before the inherent in breeding of such a process creates a form of professional hemophilia.

How Intervention Grows Already the symptoms are begin ning to show. It is possible, for ex ample, for a group of profe~ssional arbiters, with immense credentials in the advocacy of regulation, to spell out terms to the profession and to the-public. Engineers can see this particular tendency in the dri ve of certain regula tors to achieve a forced unnatural union of the engineering profession. Mr. Constance, a leading spokesman, would have the regulators oppose the fragmentation of the profes sion (a process which would· have the - laudable - effect of making regulation more difficult, and power that much more difficult to exercise) . uTo counteract this tendency [toward specialization]," he says, "those who have been concerned with licensing have su perimposed 'an effort to get unity."9 This is a fortuitous exampIe, for it demonstrates vividly the contention that regulation will, in the normal course of events, ex pand beyond its nominal scope of public protection and engage' in superfluous matters.

On the public side, as I have mentioned before, many consumer groups of late have shown an in creasing alarm at the inbred na ture of the professions and their regulators. The medical profes sion, for example, is now under heavy attack for the oppressive nature of its regulatory proce dures. The ability of the medical societies to utilize the state's power to circumcise health care to suit the cliquish desires of their leaders has proven too much for the general public to bear. The severe limitations on the much needed paramedics, the j urisdic tional dispute between nurses and operating-room personnel, and of course the omnipresent thorns of chiropractic and acupuncture, have made the public acutely aware that regulation is not serving them any too well in one of the world's old est, and probably most heavily reg ulated, profe'ssions. As an absolute minimum solution, the public pres sure has been for the placement of consumer representatives on regu latory boards. The professions will naturally resist, mostly on the claim that professional competence is prime, but politics is politics and 694 THE FREEMAN November eventually the "public" will have its way and some just deserts will be .forthcoming.

For the .engineer, an additional problem will be posed by a public thirsting for new· ideas and proc esses in an age of energy "crises" and famine ... If the profession be gins to make excuses instead of "delivering the goods," it will find itself facing a .skeptical, increas ingly hostile electorate. It will matter little that the profession's inadequacies are justifiable ration ally; once having accepted a politi cal method of approaching com petence, there is an inexorable tendency to accept political meth ods in approaching all professional matters. This will subject the pro fession to the pressures of an American belief nearly as old as the nation, that a problem can be solved primarily by an exercise of will. As. de Tocqueville noted about the national character over 140 years ago: . "No natura.! boundary seems to beset the effort of man [in the American view]; and what is not yet done is only what he has not yet attempted to dO."10 Yet standing against the tide are the regulators, or the would-be regulators, the ones who contend that professional engagement is a grab-bag of governmental favors and that if the engineers don't get in there and fight someone else will come along and pick off first what is justly theirs. Lawyers, the,y claim, will steal away their ability to write contracts; accountants will run off with their right to ke,ep books; and architects will usurp their ability to look over blue prints. As an alternative to the un dignified rush to the lawbooks, a more promising solution might be for engineers to give a loud "No!"

to the usurpations of the others. Engineers' rights will not be as sured by guild legislation; they will only be preserved by a con sistent, vigorous defense made by honest engineers. The choice should not be made to "legalize" engineering at the expense of "criminalizing" honest craftsman ship. As to the second point, the fail ure of regulation to achieve its purported aims: there are picay une methods of attacking the prob lem of "protecting" the public, and there are substantive ones. The picayune, for example, is the bloated concern over the us,eof titles. For a country· little con cerned with titles, noble and other wise, since its founding, it is re markable the concern which many regulators will attach to a designa tion such as "engineer," "doctor," "architect," or anyone of a multi tude of others. Somehow, it is thought, the unscrupulous will· be thwarted if they, cannot use the proper titles. But human ingenuity 1975 ENGINEERING REGULATION: THE RETURN TO MEDIEVALISM 695 is boundless, and the small matter of a word presents but a tiny ob stacle to either con man or j our neyman. To the predictable con sternation of every regulator, there is at· least one bestselling author who baldly asserts that "licenses and regulations can be avoided by using a little imagina tion. There are plenty of· psychol ogists who are unlicensed because they don't call themselves psychol ogists. And there are plenty of people who do the same things that teachers, doctors,architects, law yers, beauticians, engineers, bank ers, investment counselors, and psychiatrists do, but avoid the legal requirements by not using the legal titles."11 Right or wrong, such views reflect how the "other side" views the subject of sacred titles. Fortunately for the regula tors, the laws themselves are more substantive (in theory, at least) than the mere banning of a word.

The law requires definitions to be operative, and Colorado law, for instance, defines the practice of engineering thusly: the performance for others of any professional service or creative work requiring engineering education, training, and experience and the ap plication of special knowledge of the mathematical, physical, and engineer ing sciences to such professional ser vices or creative work, including con sultation, investigation, evaluation, planning, design, surveying and map ping, and supervision of construction for the purpose of assuring compli ance with specification and design, in connection with the utilizing of the forces, energies, and materials of na ture in the development, production and functioning of engineering pro cesses, apparatus, machines, equip ment, facilities, structures, buildings, works, or utilities, or any combina tion or aggregations thereof, em ployed in or devoted to public or pri vate enterprise or uses.I 2 Clearly such a definition could con ceivably be construed to include just about anything anyone did that employed the "forces, ener gies, and materials of nature" for someone else, from the inventor to the neighborhood mechanic to the office-building janitor (or "sanitation engineer"). What is fortunate, of course, for the con tinued smooth functioning of our society, is that no one', not even the dedicated regulator, seriously proposes that the letter of such laws be strictly enforced. But then what does this say of the legalistic process, if the only reasonable ap plication of the laws is not an ob Jective, but a subjective applica tion of their provisions? The fault surely lies not with the definition; can anyone think of a better defi nition that will not encounter the same difficulties?

Additionally there is a total lack of evidence to show that any fewer 696 THE FREEMAN November incidents of fraud, deceit, or mis representation have followed the adoption of regulatory procedures. Indeed a case can be made that the lot of the incompetent or the bunko artist has been made much easier by the passage' of such laws. In Colorado, the worst that a violator of the regulations can expect is to be restrained from further acti vity by an injunction and a fine of from $100 to $500; if he were guilty of (and taken to court for) fraud, however, he could receive one' to five years in the penitentiary and upwards of $15,000 in fines. Inso far as the predisposition of the government is in favor of its regu latory over its criminal proce dures, the difference in penalties represents a net gain for the dis honest; at the very least, it repre sents the opportunity to plea-bar gain. Alternatively, however, the honest practitioner who would not normally be subject to fraud pen alties because he has committed no crime could be held to an inj unc tion depriving him of his chosen livelihood. The upshot of all this is that the honest live in fear of the government and the dishonest are granted reprieves from it. The dis parity of such results does not in still confidence in the process.

Further if a person is truly un ethical and wants the title, how does the regulatory procedure de signed to test his "ethics" conceivably prevent him from exercis ing his lack of them by lying to the authorities and consequently decepti vely receiving his license? And if a person is incompetent, how does the procedure prevent him from knowing just barely enough to pass the examinations (or even cheating somehow), and forgetting most of it afterwards? For that matter, how is this last result prevented on the part of the once-competent, after their hands are on the license? Freedom Violated Of them all, however, the most impressive argument to me against state interventio~ is on the third point, that regulation violates hu man rights and freedom. Mr. Con stance makes the point that a mini mum legal standard "assures that the practicing engineer is qualified in the eyes of the law, giving him legal status and providing him with the right to make available his services to the public."13 I could not differ more strongly. No such law can ever give any man such a right. It is his from the day he is born. Man's fundamental na ture requires a full application of liberty in every pursuit; the only legitimate restraint is that he not initiate force against another hu man being, or threaten to initiate force. His liberty includes the right to engage in mental and phys1975 ENGINEERING REGULATION: THE RETURN TO MEDIEVALISM 697 ical labor for' his own benefit and the benefit of those around him, if he freely chooses. Inherent in this right is the ability to offer this labor to anyone who may volun tarily choose to purchase it. It is my· contention, as a point of per sonal and professional need, that no statute, no regulation, no legal provision can ever give (or take) this right. For the ability to give is also the ability to deny, and for the government to have this power would be the-severest abrogation of human freedom. It must be re sisted at every turn. As philos opher John Hospers recently wrote in relation to this subject, "What gives the government any special right or any special ability, to separate the wheat from the chaff in such matters ?"14 I certainly see none, and to give the slightest sanc tion to the state in this regard is a betrayal of principle. Consequently I, for one, will never, under any circumstances, submit to licensure or examination of my professional qualifications by the state.

Attractive Alternatives The alternatives to regulation can be attractive, provided peo,. pIe do not lock themselves into thinking only in terms of govern ment solution. The most promising of them is the deliberate use of professional reputation and an attitude of professionalism. Along with a vigorous enforcement of criminal statutes against abuses such as fraud, malicious injury, and malpractice, the best assur ance that any member of the pub lic has against professional abuse is reputation. If an engineer's reputation is a bad one, he should be avoided; if it is good, he should be patronized. This principle can extend beyond this point even if he is personally unknown to the prospective client; the client can consider his schooling: does his school have a reputation for turn ing out good, bad, or mediocre engineers; or is he an honorable or distinguished graduate of the celebrated school of hard knocks?

Has he worked previously with men or women who have good reputations or bad? If his reputa .. tion is still uncertain, the ques tions could then revolve around his performance with other clients, the breadth of his experience, vitality, and imagination. A system based on character and professionalism must work, or no system can. Parenthetically it should be rec ognized that it is possible, indeed even probable, for private bonding agencies to certify technical com petenceand for customers to ex pect bonding. Unlike government agencies, bondsmen would have a financial stake in making correct decisions on competence (deny it, they lose a premium; grant it, 698 THE FREEMAN November they could lose the bond), and fur ther, unlike government agencies, they do not have life or death powers aver the profession. It would .not be criminal to be un bonded; at present, it is criminal to be unlicensed.

And there are also the other al ternatives: professionally devel oped and voluntarily subscribed codes of ethics, m,embership in professional and honor societies, and publications of the Consumer Reports variety, all of which can be used by the concerned public. If the consumer chooses cor rectly and gets what he wanted or paid for, perhaps more, does it matter if the professional was "un licensed"? And ultimately if the consumer selects unwisely and is criminally inj ured, he has recourse to the law for recovery and pun ishment. Of course', if he takes a chance on an unknown, and it works out wrong" then the fault lies entirely with him. It is not the type of system that permits the consumer to be lax in his j udg ment and allow' the faceless mass of the body politic to assure him tha this decision will always be correct; it is instead the type of system that demands the most from both professional and client.

And that is what makes for progress. The aims set forth in Tau Beta Pi are to establish an appreciation of standards of character and to free technical people from the fetters of their narrow technology, to make them aware of man's his tory and potential in all areas. 15 Regulation undermine,s this, as I have attempted to show, by relying on the power and me'chanical proc esses of the 'state's attempts to assure' that a judgment on charac ter and breadth of understanding is unnecessary. Promoting Integrity Ourpurpose,as set forth in the Eligibility Code, is the promotion of true integrity, sine qua non.16 But regulation destroys the im portance of integrity by presum ing an inherent tendency to de fraud and destroy. It attacks those with integrity by requiring them to submit their standards of pro fessionalism to review by com mittee. How can "high standards of truth and justice" be deter mined by a majority vote?

And regulation is attacking the root of the profession, theengi neer himself. As Milton Friedman asserted in his essay, "There are many routes to knowledge and learning and the effect of restrict ing the practice [of a profession] . . . and defining it as we tend to do to a particular .group, who in the main have to conform to the prevailing orthodoxy, is certain to reduce the amoun.t of experimen1975 ENGINEERING REGULATION: THE RETURN TO MEDIEVALISM 699 tation that goes on and hence to reduce the rate of growth of knowledge in the area."17 It is a natural extension of all that I have said here that it is not enough to merely oppose such laws, or to speak out against their ad vocacy. If this matter is as impor tant as I believe it. to be, it is imperative that efforts be made to repeal this legislation and return from the Dark Ages. Should I per sonally ever be in a positon to do so, Twill gladly introduce the legislation. To le'ave such laws on the books is to pose a very real danger to the profession, to the public,and to the world. Guild laws are a false sun in the firmament of a free people; and the "bright, shining day" they create is an illu sion. In the words of John Stuart Mill in his classic essay On Liberty: The worth of a State, in the long run, is the worth of the individuals com posing it; and a State which post pones the interest of their mental ex pansion and elevation, to a little more of administrative skill, or of that semblance of it which practice gives, in the details of business; a State which dwarfs its men in order that they may be more docile instru ments in its hands even for beneficial purposes - will find that with small men no great thing can really be ac complished; and that the perfection of machinery to which it has sacrificed everything, will in the end avail it nothing, for want of the vital pow er which, in order that the machine might work more smoothly, it has preferred to banish.l 8 , REFERENCES 1 Stewart C. Easton, The Western Heritage (New York: Holt, Rinehart and Winston, 1961), pp. 214-15.

2 Milton Friedman, Capitalism and Freedom (Chicago: Univ. of Chicago Press, 1963), p. 137. 3 John D. Constance, "The Meaning of Engineers' Registration," THE BENT of Tau Beta Pi, Fall 1974 (65 :4), pp. 23-25. 4 Friedman, p. 140. 5 Bob Ewegen, "Regulatory Panels 'Less Than Good,''' The Denver Post, 10 Jan. 1975 (83: 162), pp. 1, 16. 6 Jim Montgomery, "Far-Reaching Re form of Licensing Boards Urged in Many States," The Wall Street Journal, 8 Jan. 1975 (92:5), pp. 1, 14. 1 Ewegen, pp. 1, 16. 8 Colorado Revised Statutes 1973, Sec tions 12-25-107 and 12-25-109. 9 Constance, p. 23. 10 Alexis de Tocqueville, Democracy in America, Book I (New York: Schocken Books, 1961), I, p. 510. 11 Harry Browne, How I Found Free dom in an Unfree World (New York: Macmillan, 1973), p. 181 [paperback ed.]. 12 C.R.S. 1973, Section 12-25-102 (13). 13 Constance, p. 24. 14 John Hospers, Liberta,rianism .(Los Angeles: Nash Publishing, 1971), p. 363.

15 Pamphlet, Tau Beta Pi, dated April 1972. 16 The Eligibility Code of The Tau Beta Pi Association, adopted by the 1926 convention. 17 Friedman, p. 157. 18 John Stuart Mill, On Liberty (New York: Appleton-Century Crofts, 1947), pp.117-18.

ARE V lEW E RI S N or E BOO K JOHN CHAMBERLAIN Street Corner Conservative POLIT'ICS, in America, offer a study in perversity. The opinion polls tell us that more and more people regard themselves as con servatives. In economic matters, they lean toward freedom, low taxes, and a stable currency. On the so-called social issues, they are against forced busing, crime, the violent disruption of schools, abortion-on-demand, pornographic magazines and films, and sexual promiscuity. Yet the governments we get seem powerless to support the economic and social life-styles that the new conservative major ity so obviously wants. It could be an accident of Water gate. The Republicans, with a 1968 and 1972 conservative man date in hand, simply blew it. Such, at any rate, is the conclusion of Kevin Phillips, Winiam Rusher and other close students of demo graphic trends. Since only a mi nority of the voters bothered to 700 turn out for the 1974 mid-term elections, it could be that we are, at this moment, saddled with a most unrepresentative Congress.

What are the chances for con servatism, which we must equate with traditional liberalism, in 1976? A lot will depend on people who are casually described as the "ethnics." William F. Gavin, who wrote speeches for the Nixon en tourage in 1968 and lived to be disillusioned, takes up the cud gels on 'behalf of these "ethnics" - the Poles, the ItaUans, the Irish -in Street Corner Conservative (Arlington House, $7.95). In a delightfully sardonic prose Mr. Gavin tells us that big centralized government, with its costly Great Society programs and its attempt to legislate equality, has utterly failed the urban, or street corner, conservative. Mr. Gavin is not at all certain when it comes to pre dieting the future, but a big bloc 1975 STREET CORNER CONSERVATIVE 701 of votes is there for the taking if some party or dominant political figure really decides to abandon the stereotype that holds the poor must go with the "liberals" because they have done it through all the years of the Roosevelt, Truman and Kennedy coalitions.

Mr. Gavin grew up in Jersey City. He has been to college and has taught in high school, and he can give all of Bill Buckley's argu ments against what he calls, "the left-liberal canon." He thinks so phisticated reasoning is impor tant when you are confronting "liberal" college professors, but it is enough for himself, and the people he comes from, that "lib eral" programs have not worked. The "urban conservative," who is, more often than not, a Roman Catholic, comes from a great tra dition whether his name is Gavin or Mikolajczyk or Fasano. He doesn't need references to John Stuart Mill to convince him that "liberal" toleration of the wave of anarchy and campus terror of the late Sixties and early Seven ties did nothing for the working man or his family. Nor does the urban conservative need a detailed knowledge of Ludwig von Mises' Human Action to tell him that free enterprise is "both eminently sensible and demonstrably effec tive." The street corner conserva tive's ideas of freedom within a context of moral order come from something he "has known since childhood."

Less Intervention So what is it that Mr. Gavin's people want? Mr. Gavin spells it out in negatives that are thorough ly consistent with historic J effer sonianism. The urban conserva tives "don't want anything, except to be left alone, to live their own lives." The only part of the world they want to change is the small part they are familiar with - "and even this kind of change must be slow." They like the structure of life into which they were born, and they 'are content if only they can have "a little bit more of what they already have for themselves and a chance of material better ment for their children." They don't go in for abstract "do-good ism," but if a "second collection" is taken up in church for the "hungry and the poor" they will pour forth money because it is going through a channel they trust. The urban conservative is loyal to his union, but this does not mean that his vote is in anybody's pocket. Mr. Gavin asks a simple question: "have our unions been loyal to us?" He doubts that the urban conservative, as a union man, is prepared to "depend on the total domination of a given 702 THE FREEMAN November craft or industry by an organiza tion that won't let peoeple work unless they belong." In short, the urban conservative, believes in "right to work." Thi's is why, in all the public opinon polls, "right to work" fares almost as well with union members as it does with the general public.

Mr. Gavin does not see his street corner conservatives as "beholden to business," whether "big,small or medium." Business, to the ur ban conservative, is "a way of making money." Mr. Gavin re marks that "maybe we should start making some of that money ourselves instead of using our en ergies to help liberal intellectuals stop others from making money." This could be "crass materialism" in "liberal" eyes, but if it is, then "let the liberal intellectuals sell their summer cottages, let the college professors cut off their consultant fees," and "let John Kenneth Galbraith stop flying to Switzerland." "Then, and only then," says' Mr. Gavin, "will we stop looking for material comfort in a legitimate way." foreign Affairs Mr. Gavin doesn't kid himself that his street corner conserva tives like the military life. But they know "that it is a tough world and that the military is all that is standing between us and a lot of. people who would do this country as much harm as they could." Urban ,conservatives want a strong defense. in order to pre serve "a chance to be what we want to be, which is a hell of a lot more than a lot of our friends and relatives in certain nations of Europe have had for a genera tion."

The street corner conservative doesn't trust Communism, and positively dislikes Communists. But he "can live with them and despise them at the same time'~ provided they keep their distance. What Mr. Gavin wants, as a for eign policy, is "a cool but correct attitude toward totalitarian dic tatorships that have the potential to destroy our nation." This is something different from a con stant slobber about "detente." It does not mean going into agonies about the "destruction of democ racy" when a potential Leftist to talitarian tyrant such as Allende gets booted out of office in Chile. The street corner conservative is often called a "racist." Mr. Gavin denies the imputation. "Most city people," he says, "have certain patterns of life built around a school or a church or a certain group of stores and any thing that upsets that pattern is fiercely combatted." The working class revolt against forced busing for racial balance is a "predictable 1975 STREET CORNER CONSERVATIVE 703 result of neighborhood pride~"

Quite aside from its argumen tative thrust, Street· Corner Con servative is a flavorsome evoca tion of a time and a place. Mr. Gavin tells what it was like grow ing up in Jersey City when the town still had a baseball team in the International League and when "hanging around" on street cor ners was an innocent way of pass ing the time. I would suspect that, somewhere in his system, Mr. Gavin has a fine novel about grow ing up in a city before the shib boleths of "urban renewal" ruined all sense of neighborhood. It would not be a novel about an "underprivileged" childhood; it would be a sympathetic story of regional-and family-love. ~ COMMON SENSE ECONOM ICS: Your Guide To Financial Independence In The Age of In flation, by John A. Pugsley. (The Common Sense Press, P. O. Box 2535, Santa Ana, California, 1974) 252 pages, currently $10.00. Reviewed by Robert G. Anderson BOOKS offering personal financial and investment advice flood the market these days. Unfortunately, the vast majority of such books only further the state of present day confusion over how to survive in this age of inflation.

Mr. Pugsley's volume is an outstanding exception in this cate gory of "how to" books, because he approaches his subject· with an llnderstanding of general economic theory. In his Foreword he ac knowledges his intellectual debt to such free market scholars as Lud wig von Mises, Eugen· von Bohm Bawerk, Henry Hazlitt, Murray Rothbard, and Frederic Bastiat. Mr. Pugsley accepts and applies fully the teachings of the Austrian school of economics in his writings. An ominous redistributive. state with the inflation that it generates has made the retention of private wealth increasingly more difficult. Concerned individuals are contin ually seeking counsel and advice, but all too often the information gained is more harmful than none at all. The discovery of a book that can productively assist individuals in the preservation of their wealth in the years ahead is welcome in deed. Common Sense Economic's prop erly begins with an analysis of money and government. It then follows with a discussion of in vestment goals and the selecting of various portfolios in pursuit of those goals. Particularly valuable are the chapters on insurance and the income tax. It is a book that every investor should review.

A concluding warning from Mr. Pugsley should be heeded. "For the great masses of investors, the 704 THE FREEMAN November next ten years will mean the end of their wealth. They are the ones who will foolishly go forward un der the assumption that the future will be the same as the past. . . ~ Those who succeed will do so against overwhelming odds, and they will do so because they are consciously or unconsciously fol lowing the natural economic prin ciples as outlined in this book." The author applies his under standing of inflation even to· the offering of his book. No price will be found ·printed in Common Sense Economics. It currently sells for ten dollars, but in this age of double-digit inflation generating money destruction, the price will surely move upward. ~ THE FEDERAL RATHOLE by Donald Lambro (Arlington House, New Rochelle, N.Y., 1975) 207 pp., $7.95 Reviewed by Edward A. Lewis No PRESSURE GROUP lobbies for waste in government; no one de fends it. Yet billions of taxpayers' dollars steadily drain down a thou sand ratholes. A federal program, the author notes, "once enacted ...

goes on seemingly forever, its funds appropriated almost auto matically each year, its original rationale for being often all but forgotten." Lambro names over a thousand agencies, offices,bureaus, boards and so on, and then ana lyzes fifty of them in de'pth, show ing that their elimination would save twenty-five billion· dollars. And this is only the beginning: "The fifty cuts proposed in this book are really intended to repre sent a cross section of the total cuts that could be made in federal spending." NaturallY, it takes a lot of pa perwork to legitimize this foolish ness. "Federal paperwork now crams nearly thirty million cubic feet of space and costs an esti mated fifteen billion a year to handle. Placed back to back, the federal files would stretch the 5,500 miles from Washington to Cairo - and are forever growing." Governmental extravagance is not news; every dollar spent to underwrite some improper function of government is a dollar wasted. And the rightful limitation of government is a philosophical issue. But many people have acquiesced in overextended gov ernment because they were led to believe that government was spending "other people's money."

The reader of Lambro's book can't help but realize: "It's my money they're wasting!" Such a realiza tion is an essential part of an im proved public opinion.

the Freeman VOL. 25, NO. 12 • DECEMBER 1975 Unions-and Other Gangs All that is needed is to abolish their privileged status under the law. Joan Wilke 707 The New NationalNightmare James J. Kilpatrick 712 The passion to regulate threatens to cut off the air of freedom. Th'e World Food Crisis E. C. Pasour,Jr. 717 "Adam Smith. however unfashionable, can feed more people than Karl Marx can." APerfectCounterfeit Examining the validity of fractional-reserve banking. James E. McAdoo 722 Libera.lismUsed to Mean Freedom Edmund A. Opitz 727 Power is not liberty; Iiberty operates in another dimension and has other requirements. Social Responsibility James H. Wiborg 746 A protest against the shackles upon the freedom of the individual. ConspiracyEconomics Joe Cobb 748 Viewing an action without regard for its consequences leads to wrong conclusions. Book Reviews: 752 "Faith and Freedom" compiled by Mary Sennholz "There's No Such Thing As A Free Lunch" by Milton Friedman "The C~ng Collapse of the Post Office" by Robert J. Myers Index for 1975 Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

761 the Freeman A MONTHLY JOURNAL OF IDEAS ON LIBERTY IRVINGTON·ON·HUDSON, N. Y. 10533 TEL: (914) 591·723·0 LEONARD E. READ PAUL L. POIROT President, Foundation for Economic Education Managing Editor THE F R E E MAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit,. educational champion of private property, the free market, the profit and loss system, and limited government. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, including THE FREEMAN, are met through voluntary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are in vited in any amount-$5.00 to $10,000-as the means of maintaining and extending the Foundation's work. Copyright, 1975. The Foundation for Economic Education. Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 10 for $2.50; 2'5 or more, 20 cents each.

THE FREEMAN is available on microfilm from Xerox University Microfilms, Ann Arbor, Michigan 48106. Some articles available as reprints at cost; state quantity desired. Per mission granted to reprint any article from this issue, with appropriate credit except "The New National Nightmare."

UNIONS and other GANGS JOAN WILKE THERE ARE THOUSANDS OF GANGS across the country today . You may belong to one or more of them yourself. And maybe without knowing it. There are parent and teacher gangs. And consumer gangs. And racial gangs. Women's gangs. Voters' gangs. Religious gangs. Gangs of professional men. Gangs of farmers. Gangs of businessmen. The law even recognizes "one-man gangs" ... individuals claiming to represent thousands of others through the device of class action suits. Their goals are often laudable. There's certainly nothing wrong with a higher standard of living with which so many of them are concerned. But it's how that Miss Wilke is an advertising writer. higher standard is attained that separates responsible citizens from gangsterism. A gang is a bullying group of individuals that draws its strength from numbers for the purpose of pushing other people around. It operates at the expense of others.

Any such group deserves to be called a gang. And when it re ceives legal acceptance and ap proval, it deserves the title of dic tatorship. The first gang that succeeds be comes the excuse and impetus for the formation of all the others. The first privilege granted to groups by law becomes the justifi cation for all the rest, creating a gangocracy or mob society. Among the most notorious and successful gangs today are the labor unions. Hardly a day passes 707 708 THE FREEMAN December that we don't pick up a newspaper and read that "they've struck again." Back in the old days, when Jesse James got his gang together, held up a train and· took the payroll, it was generally considered a rob bery. In fact, there was very little doubt about it. Sometimes they might have joined up with other gangs like the Daltons for greater force and surer success. And it was all very beneficial to their standard of living. But then, right during a holdup . . . (TRUM PETS!) ... the Cavalry arrived!

And they didn't say , "We're here to protect the right of the engineer to get into his cab and for the con ductor to go down the aisle." They said "Y'all stop that!" They re covered the loot and put the bounders in jail. Never once did they toss the money bags to Jesse and wish him well. That would have been incredible. It is just as astonishing to me that today's union activity is pro tected by law and defended as a "right." Unions are usually defended on the basis of freedom of associa tion ... the right to join together for bargaining. Actually, unions are in violation of others' rights to freely asso ciate. And compulsory arbitration is no bargain. If unions were simply groups of workers getting together for a better bargaining position with their employer on the terms of their employment, they would be within their legal if not their moral rights. They would also probably be fired. And maybe blacklisted among employers. At least, no employer in his right mind would hire someone he thought would cause trouble with his other employees and try to force demands beyond the original hiring agreement.

Unions couldn't exist for very long without the protection of biased laws. The Law Requires • .. It is the law that forces employ ers to bargain, to accept decisions by labor boards, to pay back-wages for time spent in idleness or strik ing, to make raises retroactive, to prohibit firing and regulate hiring while allowing all kinds of welfare financing of strike activities paid out of the taxpayers' pocket and the employers' production costs. Everyone is the ultimate victim of union extortion. It all happens under the protec tion of the law. It couldn't happen any other way. Extortionate power is monopoly power. It can only exist under government protection or establishment. The government has granted labor groups monopoly power over industry.

1975 UNIONS-AND OTHER GANGS 709 But union activity is defended as peaceful. So was Al Capone when he offered "protection" to some little business. But if the businessman refused, you know what happened. That's about what happened in Kohler, Wisconsin over a period of some ten bloody years. The Kohler strike, complete with bomb ings, burnings and brutality, clearly demonstrated the violent gangsterism of union extortion. The law no longer tolerates such courageous refusals to capitulate to unreasonable demands. Bargain ing is compulsory. Unions just can't stand such bad publicity. It shows the essential nature of their activity. It is argued that unions are a bulwark against communism and we're reminded that unions are not allowed in Russia. Russia is nothing but unions with all the bosses in Moscow. In dependent unions aren't allowed in Russia because they represent political power and one dictator just doesn't like another dictator in the same country any more than one mobster likes another moving in on his territory. Of course, that's also why U.S. union bosses don't want communism here. To an ever increasing extent, they are the ones telling the govern ment what to do. They don't want it the other way around.

Dubious Arguments It is argued that union members are among the staunchest defend ers of our American way of life. We all have blind spots, but any~ one who thinks he has the right to join with others to use the law as a bludgeon to tell other people how to run their business has no un derstanding of the American con cept of freedom. There are many people who have joined unions not because they wanted to, but because they had to in order to get a job. That's slavery. It's certainly not freedom of association. There are many more who will argue that unions are essential in a capitalist society to get the work ingman a decent wage. To support their claims, they invariably refer to conditions during the earliest days of industrialization. Actually, uni on leaders have simply taken credit for the natural and inevitable increase in wages coming from increased produc tivity,1 Union demands beyond the market's real wage level stifle the production upon which future raises depend, increase unemploy ment and price marginal workers out of the market altogether.

Unions further add to unem ployment lines and social disrup1 See Why Wages Rise by F. A. Harper (Foundation for Economic Education, Irvington, N.Y., 1957).

710 THE FREEMAN December tion by limiting and controlling memberships, with priority for en try going to favored friends, rela tives and racial groups. The law encourages union activ ity in the private sector but con siders it illegal in the public sector. Irony abounds. Along with a lot of garbage. Such areas of industry as gar bage collection and sanitation were preserved as government's public responsibility for the reason that interruption of such services would be too dangerous or disrup tive. So government monopoly of public services was tied to laws making strikes illegaL The laws are simply being disregarded and it is the monopoly position estab lished by government that gives the public workers their striking power. In San Francisco where illegal strikes have occurred, street clean ers are now making $19,000 a year. We need to relegate all services other than peacekeeping, law en forcement and judicial activities to the competitive market and then enforce laws against strikes in those areas of public safety and order reserved as government re sponsibility.

Strikes and union activity in the private sector serve to justify and incite demands in the public sector and are in themselves dis rupt'ive and dangerous. In the gas crisis some months back, the impact of the truckers' strike was felt in a very short period of time, causing criti.cal food shortages in some rural com muni ties and giving some truckers a very heady feeling about their power. Any nationwide strike in our in terdependent society is bound to have quite an impact on every business and everybody. While compulsory public sector bargaining gives union leaders un due and unconstitutional power over elected government leaders and thus all members of society, union activity in the private sector is equally dictatorial and dele terious. Industry-wide union standards and dictates act to stifle and crip ple the competition between pri vate enterprises upon which effi ciency, progress and continuous service depend.

Leave It to Competition The only way outside of slavery to make sure services won't be in terrupted is open competition. Tha t means competi ti on in labor as well as the rest of industry. It means employment by private arrangement. 'Unions need never be outlawed. All that is needed is to abolish 1975 UNIONS-AND OTHER GANGS 711 their privileged status under the law. Individual bargaining would end the artificial war between em ployers and employees created by labor bosses for their own benefit. And it is only fair and honest dealing. It means substituting in dividual efforts in competition on the basis of ability for the shake down demands of group force. It is everyone getting the best bar gain he can without holding up someone else. It is nothing more than honoring one's agreements instead of going back on them. What an opportunity was missed just recently when the post office employees threatened a nation wide strike. All offices could have been closed down immediately and permanently. Virtually overnight, new systems would have started, with competition working to bring down prices and improving ser vices beyond anything imagined at present. We could have been rid of one of our biggest and most ex pensive political fiascos. Instead, the criminal action of an illegal strike was rewarded by acceptance of extortionate demands.

The only proper response to job dissatisfaction is: "I quit." Try to take that right away from anyone! And correspondingly; the re sponse to strikes and union de mands is the response only com petition can give: "Okay, we'll get someone else." It is the response of freedom to tyranny. But it is a response that is forbidden by law in a country we still like to call free. ~ IDEAS ON LIBERTY Creating Unemployment WHEN STRONG LABOR UNIONS in the past made it their function to provide fo:r their own unemployed members, they thought twice befo.re demanding a wage that would cause heavy unemployment. But where there is a relief system under which the general tax payer is forced to provide for the unemployment caused by exces sive wage .rates, this restraint on excessive union demands is re moved. Moreover, "adequate" relief will cause some men not to seek work at all, and will cause others to consider that they are in effect being asked to work not for the wage offered, but only for the difference between that wage and the relief payment. And heavy unemployment means that fewer goods are produced, that the nation is poorer, and that there is less for everybody.

HENRY HAZLITT, Economics in One Lesson THE NEVV THE TIP POINT is among the most familiar phenomena of our every day. life. A child discovers the tip point of a tricycle and a teeter totter. A boatman perceives the turning of a tide. A baseball um pire will take so much sass from a player and then no more. At a certain point, matter will boil, freeze, crystalize, or jell. The tip point is the moment at which con ditions change not in degree, but in kind, or -in direction. Two hundred years after our free society began, we are close to such a tip point now. We are with .. in a drop or two of the critical moment at which freedom crystalReprinted by permission from NATION'S BUSINESS, August 1975. Copyright 1975 by NATION'S BUSINESS, Chamber of Com merce of the United States. 712 JAMES J. KILPATRICK lizes into regimentation, when the people no longer are masters of government, but government .is master of the people.

The dangers are widely per ceived, but they are separately and not collectively perceived. It is the occluded vision of the man who cannot see the forest for the trees. Doctors see one part of the pic ture, educators anoth,er, business men yet another. We dwell in small rooms, in little shut-off cells, and sometimes we labor to breathe. "It is stifling in here," we com plain. And we are not always aware that air is being sucked from the next room also. Yet the atmospheric changes are so slow, so gradual, so apparently insignifi cant, that we seldom complain at 1975 T'HE NEW NATIONAL NIGHTMARE 713 all. We do not understand what is missing : It· is the very air of freedom. Thomas A. Murphy, chairman of General Motors, recently spoke to the National Association of Ac countants. As a businessman, he spoke from his own small room: "Our economic system, founded with our nation 200 years ago, has come more and more under gov ernment control. Very conspicu ously in the marketplace, the gov ernment, by man (:late and edict, is substituting its sovereignty for that of the individual consumer.

Government, rather than the buy ing public, .is increasingly determ ining the kinds of products and services offered for sale, and gov ernment regulations are influenc ing their costs and consequently their prices. What is of greatest concern is that each intrusion of government, because it takes decision-making power away from the individual consumer, dimin ishes his economic freedom." Dr. Murray L. Weidenbaum, di rector of the Center for the Study of American Business, notes a "second managerial revolution." The first such revolution saw the rise of professional managers, as distinct from owners. "This new revolution is far more subtle. It involves the shift of decision making from managers, who rep resent the shareholders, to a cadre of government officials, govern ment inspectors, government reg ulators." [See "Where Overregu lation Can Lead," Nation's Busi ness, June, 1975.J The Age of the Regulators The last word is the keyword: regula tors. If we were to give a name to the ominous new age that lies ahead, the age beyond the tip point, we might well term it the Age of the Regulators. A part of the ominous aspect of the ap proaching era is that many Amer icans see nothing ominous in reg ulation. It is a friendly word. We are favorably inclined toward a regular fellow. We shy from the irregular. The dictionary lumps regular with "normal, typical, nat ural," as in "a regular pulse." A regulated life is popularly thought to be a good life.

This very complaisance contrib utes to the creeping oppression. "The people never give up their liberties," said Edmund Burke, "but under some delusion." Here the delusion is that, if a little regulation is good, more regula tion is better. On the sound. prem ise that freedom cannot exist with out order, a fallacious conclusion is erected: the more order, the more freedoin. It does not work that way. The enveloping process begins with a perceived ill.· Thalidomide.

714 THE FREEMAN December Smog. Racial discrimination. The fly-by-night private school. The fire ant. The rickety ladder. The dangerous toy. In our struggle toward a more perfect society, it is altogether natural and desirable that ills be remedied. A boy drowns at summer camp; a little girl dies when her nightgown catches fire. Such tragedies pluck at the heart; and compassionate government re sponds. But the vice of regulation is that it follows an inexorable proc ess: first a little, then a lot. Within the Congress -and the state leg islatures are not materially differ ent -there develops what John Randolph called the legislative itch. On the body politic a rash is seen; it must be scratched. Stat utes tumble upon statutes, head over heels, pell-mell, laws upon laws, and these 'laws must .be ad ministered. They m,ust be inter preted, construed, amplified, ex 'tended, and enforced. Enter the regulator. He is a decent man, more often than not, eager to do good. But his passion is to regu late. It becomes a consuming passion.

Out of the perceived ill of thali domide came the straitjacketing procedures that now govern new drug applications; and these pro cedures have stifled the drug in dustry. Out of the perceived ill of smog came the staggering array of environmental controls - con trols that have accomplished some good and have added billions of dollars to the cost of consumer goods. Reverse Discrimination The perceived ill of discrimina tion has produced the new egali tarianism. Its purpose is to re dress old wrongs with new wrongs. Thus, Boston writhes in the un happiness of racial-balance busing. At Washington University in St. Louis, the chancellor is given four days to sign a 30-page statement of conciliation or be denied a $1.8 million contract. Athletic directors are commanded to rewrite their budgets. The Supreme Court holds that "great deference" must be accorded the "guidelines" of the Equal Employment Opportunities Commission. Whole states embark upon the neuterization of their codes, solemnly amending chair man to read chairperson.

Increasingly, the process per vades the field of health care. At Kettering Medical Center, near Dayton, the regulators descend. The hospital is new, sparkling, modern, safe, efficient; it has met or surpassed every state and local building requirement; it has been professionally accredited. But the regulators are not pleased: The windows are wrong, the airflow system is wrong, the kitchen doors 1975 T'HE NEW NATIONAL NIGHTMARE 715 are wrong. And these deficiencies must be corrected at once, never mind the cost, or else-! Or else Kettering will not be reimbursed for Medicare and Medicaid patients. Kettering is not alone. Scores of hospitals face the same threat. One of the busiest agencies in Washington is the Consumer Prod uct Safety Commission. Its mim eographs run night and day. Here the regulators, in an altogether typical week, are concerned with book matches, lawn mowers, tele vision receivers, playground equip ment, bicycle brakes, and baseball bat grips. The regulators are con cerned with carpets, cigarette lighters, and a prototype child resistant closure for use by the elderly. They will regulate these things.

Committees of the House of Representatives are at war over FIFRA. This is the Federal Insec ticide, Fungicide, and Rodenticide Act, administered by the Environ mental Protection Agency. In their zeal to regulate, the FIFRA regu lators set up a toll-free telephone network to generate complaints of pesticide misuse. To some mem bers of the House, this is an "in defensible informant system." To others, it is a justified step in pesticide regulation. Our regulators, state or federal, have this in common: They mean to be obeyed. The smallest offender cannot be ignored, lest larger of fenders be encouraged. Thus, in Ohio, the regulators of education have cracked down upon the Taber nacle Christian School in Green ville and brought criminal prose cution against 15 disobedient par ents. It is of no consequence that the children in this fundamentalist school are achieving at levels high er than comparable students in public schools. The school does not comply with regulations. Whip it into line!

Tocqueville/s Warning of Democratic Despotism More than a hundred years ago, Alexis de Tocqueville visited the young American republic. He re turned to France and between 1835 and 1839 delivered himself of that great work, "Democracy in America." Toward the end of volume II, he reflected upon "what sort of despotism democratic na tions have to fear." It would be a different kind of despotism, he thought, from the despotism of old. "It would be more extensive and more mild; it would degrade men without tormenting them." Looking far ahead, he foresaw a nation populated by an innumer able multitude, all absorbed in their own affairs, preoccupied with "the petty and paltry pleasures with which they glut their lives."

716 THE FREEMAN December This was De Tocqueville's terri ble vision: "Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, prov ident, and mild .... For their hap piness such a government willingly. labors, but it chooses to be the sole agent and the only arbiter of that happiness; it provides for their security, foresees and sup plies their necessities, facilitates their pleasures, manages their principal concerns, directs their' industry, regulates the descenf of property, and subdivides their in heritances. What remains, but to spare them all the care of thinking and all the trouble of living? ~'Thus it every day renders the exercise of the free agency of man less useful and less frequent; it circumscribes the will within a narrower range and gradually robs a man of all the uses of himself.

The principle of equality has pre pared men for these things; it has predisposed men to endure them and often to look on them as benefits. "After having thus successively taken each member of the commu nity in its powerful grasp and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a net work of small, complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened,. bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not, tyrannize, but it compresses, en ervates, extinguishes, and stupe fies a people, till each nation is reduced to nothing better than a flock of timid and industrious ani mals, of which the government is the shepherd."

A magazine recently counted 63,444 federal regulators. It put the cost to consumers of federal regulation alone at $130 billion a year. The regulatory network spreads and grows; the tip point approaches; and De Tocqueville's nightmare consumes the American dream. ~ E. C. PASOUR, JR. The World Food Crisis SOCRATES said that the best sauce for food is hunger. Today, as in the age of Socrates, there is no lack of hunger sauce. There is widespread concern about the re lationship between population and food supply throughout the world. Questions are being raised about the appropriate response by the western world to meet the world food crisis. Numerous actions have been proposed. Senator Humphrey has urged us to reduce our consump tion of hamburgers by one per week. Jean Mayer, the famed nu tritionist, holds that a 10 per cent decrease in meat consumption by Americans would release enough grain to feed 60 million people.

Dr. Pasonr is Professor of Economics at North Carolina State University at Raleigh. The U.S. delegation to the 1974 World Food Conference in Rome proposed a resolution to restrict the non-agricultural use of fertil izer to alleviate the world food problem. Many churches are spon·· soring World Hunger Appeals to provide food relief. Individuals are encouraged to change their life style - to eat less food, to eat less meat, to use less energy, and so on. Is the world hunger problem becoming more acute? If so, why? How effective will measures such as those indicated above be in alleviating world hunger? The concern about the relation ship between population and the food supply is not new. Sir Thomas Malthus predicted in 1798 that population would continually in crease faster than the food supply, causing chronic food shortages, '71'7 718 THE FREEMAN December Today, in much of Asia, Africa and Latin America the Malthusian specter still stalks the land. The prospect of world famine is held before us with hundreds of mil lions of people starving. Yet, it was not always so. A decade ago food production was increasing in many .of these areas which today appear hopeless.

Why has the hunger problem sud denly become more acute? Conven tional wisdom holds that the world food crisis is caused by a popula tion explosion. But this is not the case. World food production 'has increased twice as fast as world population during the past 25 years. Why, then, has the hunger problem suddenly become more acute? Numerous reasons have been cited - war, droughts, floods, earthquakes, and the like. Exam ples probably can be found to sup..: port each of these reasons. Yet, there is a more fundamental rea son for the recent worsening of the food problem. Much of the cause for the cur rent world food crisis can be at tributed to the destruction or re duction of private property rights of food producers in countries where the hunger problem is most acute. Numerous example can be cited where governments have weakened or destroyed economic incen tives by confiscating pri vate land, forcing farmers to work on collectivized farms, instituting price controls on food, and other such measures.

India provides a good example. India has a serious hunger prob lem which gets worse each day. Only a few years ago, the food situation appeared fairly bright. There was an agricultural boom, with food production doubling from 1950 to 1970. Yields in creased, stocks of food were built up, and India produced more food than it consumed as weather and technology contributed to bumper yields in a Green Revolution. To day, however, the 'hunger problem in India commands the world's attention. Government Interference Why has the situation changed? Although other factors (such as the Bangladesh refugees) have contributed to the worsened situa tion, much of the food crisis in India can be attributed to actions taken by the Indian government affecting incentives of food pro ducers. After her big electoral victory in 1972, Mrs. Gandhi's party reduced the amount of land that could be held by an adult male from 30 irrigated acres to 18 acres.

The confiscated acres went to the landless. In addition to the direct effect of land confiscation on in centives, the policy also affected the profitability of tractors and 1975 THE WORLD FOOD CRISIS 719 implements. The reduced acreage was not large enough to support the machinery. The government also nationalized the wholesale grain trade, forcing farmers to sell their crops at fixed prices be low the market level, whereas pre viously farmers were permitted to sell half of their grain to whole salers at the higher market price. The impact of such actions' on the quantity of food produced and mar keted is predictable. (Black mar kets and corruption forced the gov ernment to rescind this action.) The adverse effect of price controls on output has been confirmed in scores of cases on every continent. Quantitative estimates are not available of the effect of these government actions in India af fecting producer incentives. How ever, the effects of these actions are undoubtedly important in the food crisis in India today. (The actions described were all taken well before Mrs. Gandhi suspended civil liberties and increased police powers in June 1975 in order to preserve democracy in India.) The situation in India is not unique. A reduction (or the threat of a reduction) in private property rights of food producers (and the accompanying reduction in eco nomic incenti ves) has also re sulted in decreased food produc tion in Chile, Mexico, Peru, Argen tina and Tanzania in recent years.

Irving Kristol concludes that Ii every country, e.g., Chile, Peru, Mexico, which has launched ex periments in collectivized agri culture has quickly witnessed a decline in agricultural productiv ity." The experience in Russia when peasants were forced to join the government-operated collec tive farms in the early 1930's is also consistent with this conclu sion. Russia, which had a huge surplus of grain before the Com munist Revolution, has had to import grain since abolishing private farms. The Best Response? This poses an interesting ques tion. What is the appropriate re sponse by people in highly devel oped countries in cases where food shortages are due to conscious government policies which restrict food production? Providing aid in such cases may only exacerbate the problem. That is, relief of hunger in countries which have confiscated private property, insti tuted price controls and otherwise reduced food production can help to perpetuate the system (whether the statism is despotic or benign) that is to blame for much of the suffering to begin with. Providing food aid which is used as a crutch to institute land reforms, price controIs and the like whiCh stifle initiative and reduce food pro720 THE FREEMAN December duction is analogous· to the gift of money to an alcoholic with no strings attached.

How about eating less, using less fertilizer, and similar conser vation measures to provide more food for the hungry? Such actions may be effective in assuaging guilt but provide no solution to the world food problem. Indeed, eat ing less by U.S. citizens may well be counter-productive since, if ef fective,it would decrease demand, resulting in a lower price and con sequently decreased production. Temporary relief can and often should be provided when food problems are worsened by droughts, floods, and other disasters. Long run food aid, however, is almost certain to have a disincentive ef fect· on agricultural production in recipient countries. Thus, the long run solution to world food prob lems must lie within the countries facing food problems rather than in food aid programs. Does the population explosion in the developing countries mean that these countries must inevitably face chronic food shortages? Pop ulation is animportaIit factor in the demand for food. Yet, popula tion increases are now being used as a scapegoat in connection with the food crisis. Lifeboat ethics which involves saving a limited number of lives while· deliberately ~etting others die is now being seriously discussed. In recent years, however, there has been a dramatic decrease in the birth rate in the U.S. and throughout the temperate zone.

The population problem in de veloping countries is closely re lated to the income problem. As per capita incomes increase, the birth rate decreases. Thus, the food problem in developing coun tries cannot be separated from the problem of economic development. Both income and hunger are closely related to the kind of eco nomic incentives facing producers of food and fiber (and other goods and services) . Incentives to Produce There is little doubt about the relationship between economic in centives and food production. A recent USDA-study supports this view: "Among the major impedi ments to increasing food produc tion in both the developing and the planned economies are policies designed to maintain low and sta ble food prices to consumers." Thus it seems paradoxical that population control (including Draconian controls such as com pulsory sterilization· of population in India and other countries) has received more attention than mea sures affecting economic incentives and food production in developing countries.

1975 THE WORLD FOOD CRISIS 721 There is a great deal of evi dence that farmers are most pro ductive when individual incentives prevail and the market is relied on to provide signals to consumers, middlemen, and producers. Yet, this evidence appears to be largely ignored in discussions of. world hunger problems. The November, 1974 World Food Conference held in Rome recommended a number of programs to increase food pro duction, including water manage ment, increased production and use of fertilizers, pesticides, im proved seeds and other inputs and extension efforts to adapt agri cultural technology to developing countries. Nowhere in the recommenda tions of the Rome Conference is recognition given to the widely demonstrated relationship between food production and ~roducer in centives. The recommended pro grams are likely to have Iittle impact on food production in de veloping countries if this relation~ ship is ignored. As a recent Forbes article on the hunger problem in India concludes: "There is, after all, more social justice in a loaf of bread than in schemes for a fairer distribution of wealth. Put ting it another way, . . . Adam Smi th, however unfashionable, can feed more people than Karl Marx can." , IDEAS ON LIBERTY Of Rights - Natural and Arbitrary IF GOVERNMEN'r can create rights, it can withhold and destroy rights. The practical consequence of this fact is that if rights are de.rivedfrom governments, there are no rights. Governmental fa vors may masquerade as rights. They may even assume a sem blance of constitutionality. But such favors are instruments of power; they are arbitrary "rights" g.ranted under the circum stances, subject to recall and change. When rights are arbitrarily created, there are no rights, only privileges. The extent to which we have accepted the belief that children have a right to education, that farmers have a right to a parity of income, that all have a right to the latest medicine, and so on, is the measure of the extent to which we have yielded up our natural rights.

CLARENCE B. CARSON A Perfect JAMES E. McADOO FROM TIME T'O TIME, usually in some large city, counterfeit money rears its ugly head. As quickly as possible, warnings are issued to banks, businessmen, and residents. Everyone is cautioned to examine all bills of a certain denomination, and to look for certain flaws by which the counterfeit may be dis tinguished from lawful money. With some trepidation, people look through their wallets, purses, and cash drawers. Counterfeit money, while it might be interest ing to see, is the last thing they want to find in their possession. Before long, however, the scare blows over . No further warnings are issued, and it is assumed that the counterfeit bills have been de tected and withdrawn from cir culation. People are able to relax again. Mr. McAdoo is an investment advisor residing in Nevada. 722 Everyone fears counterfeit mon ey. Not only does the law prohibit spending or keeping it, but coun terfeit money represents an im mediate loss to the person who finds it in his possession. What he thought was money turns out to be worthless paper that must be sur rendered to the authorities with out compensation. The loss is both obvious and personal.

The potential loss inherent in counterfeit money seems almost self-evident. Yet, those who might accept it and spend it unknowing ly, before it was detected, would certainly feel no sense of loss. Ap parently, the entire loss would fall upon the unfortunate individual who happened to be last in line when it was detected and confis cated. But an interesting question arises: Where is the loss realized if the counterfeit money is never 1975 A PERFECT· COUNTERFEIT 723 detected? Does the potential loss simply remain potential, never to be realized? If no one is· fated to be "last in line," who can lose through the introduction and cir culation of a "perfece' counterfeit money? Someone Must Lose It might be argued that· there can be no such thing as a perfect, or undetectable counterfeit. Still, it is a safe bet that, at any given time, a certain amount of counter feit money is in circulation, and remains undetected. Even if that were not the case, it is possible to postulate a perfect counterfeit and to trace its economic significance.

We know, almost by instinct, that someone must lose. The coun terfeiters,who successfully intro duce their worthless facsimiles in to permanent circulation, have ob viously realized a fraudulent gain. But at whose expense? If the coun terfeit is never detected who loses? There can be only one answer: the counterfeiters gain, and everyone else loses. The character of the insidious loss inherent in a perfect counter feit money is confoundingly diffi cult to recognize. We know that the counterfeiter's gain is achieved at a loss to everyone else, but "every one else" feels no sense of loss. On the contrary: everyone else feels more prosperous. There is more "money" around. Retailers notice increased sales; they, in turn, must increase their purchases. Business activity picks up; people have more money to spend. Far from feeling a sense of loss, the victims of the counterfeiter's fraud enjoy a grow ing sense· of prosperity. As long as the quantity of counterfeit money introduced into circulation is held to an amount that in itself will not create suspicion, the victims will believe they've never had itso good.

The "prosperity" engendered by the introduction of a perfect counterfeit money is clearly a false prosperity. The increased tempo of sales and purchases· has been stimulated by a fraudulent increase in the supply of "money." The production and exchange of goods and services have been given a shot in the arm, but mon ey has been weakened by counter feit. The value which is unwit tingly given to the bogus "money" must inevitably be taken from the lawful money. In effect, the count erf eit steals its purchasing power from the lawful. The result is gradual, but in exorable: the purchasing power of all money is reduced. Prices rise. The counterfeit has undermined the value of the lawful; the poten tial loss inherent in a perfect counterfeit money has at last been realized!

724 THE FREEMAN December But it is not recognized. The victims, unaware of the existence of counterfeit money in their eco nomic bloodstream, are unable to identify the true reason why ris ing ... prices are eroding a prosper ity which they regarded as real. Understandably, they seek explan ations in visible symptoms of their problem: they blame those who raise their prices. The real villain, the counterfeiter, is immune to criticism; no one suspects his ex istence. But through the economic damage he has inflicted upon so ciety, he has created a cause for popular frustration and unrest that can be. expressed only in m-is directed social and political an tagonisms. The Better the Counterfeit, the Greater the Danger There can be no rational de fense for counterfeit money, even a "perfect" counterfeit. The false prosperity which would inevitably follow the introduction of a per fect counterfeit into circulation would just as inevitably be fol lowed by a collapse of that false prosperity under the weight of rising prices. The counterfeiter would gain, and everyone else would lose.

The crime of the counterfeiter is not that he has usurped a pre rogative which the government has taken unto itself; it lies in the grave damage he can inflict upon the economic, social, and political structure of the country whose money he counterfeits. The more successful he is, the more damage he does. A perfect counterfeit would eventually destroy the value of all money, including the count erfeit. In doing so, it would create a condition of social .and political chaos. It is with good reason that every person in the country should fear and abhor even the. idea of a perfect, undetectable counterfeit money. Bank-Created Credit By an incredible paradox, our official monetary policy supports a practice, the effects of which are precisely those of a perfect count erfeit money. That practice, de fended by economists, business men, bankers, and· government, is the creation of credit through the commercial banking system.

There can be no doubt that cred it plays an important role in di versified and specialized econo mies. Through credit, the entire economic cycle - from demand to production, distribution, exchange, and consumption - can be en hanced in function and effective ness. Legitimate credit has a legit imate place in the economic proc esses by which we survive and prosper. There is, however, a crucial dif1975 A PERFECT COUNTERFEIT 725 ference, in both nature and effect, between legitimate credit, and the credit created through the com mercial banking system. Legiti mate credit involves the temporary loan of existing money between one party and another. Bank cred it involves the creation of a sub stitute for money. This substitute, usually in the form of a demand deposit, is officially defined as mon ey. As an addition to the mon ey supply, it is indistinguishable from any other form of money; it becomes, in its effects, a perfect counterfeit.

The creation of bank credit is made possible by the concept of fractional-reserve banking. Quite lawfully, today's commercial bank need not retain all the money placed on deposit by customers ; it is required to safeguard only a small percentage of that money as a reserve. The balance is avail able for the use of the bank in its profit-making operations, primar ily loans and investments. Reserve requirements, estab lished by the Board of Governors of the Federal Reserve System, will vary with the classification of the bank, the type of deposit, and the changing monetary policy of the Fed. For purposes of illus tration of the simplest form of credit creation through the com mercial banking system, assume a 10% reserve requirement for de mand deposits at THE BANK. Mrs. A opens a checking account with THE BANK by depositing $1000 in cash. Since cash in THE BANK's vault is counted as part of its reserves, the ledger entry made by THE BANK would take the following general form: ASSETS LIABILITIES Reserves + $1000 Demand Deposits + $1000 Since reserve requirements are 10% , or $100 of Mrs. A's deposit, THE BANK now has $900 in excess reserves.

Mr. B, a known customer, now wishes to borrow $900. THE BANK accommodateshim by crediting $900 to his checking account.The ledger now shows: ASSETS LIABILITIES (Mrs. A) Reserves + $1000 Demand Deposits + $1000 (Mr. B) Loans + $ 900 Demand Deposits + $ 900 It can be seen that the $1000 deposited by Mrs. A has resulted in checking account balances of $1900. THE BANK has created credit, in the form of a demand· deposit, of $900. Essentially, Mrs. A and Mr. B may now spend the-same "money" at the same time.

726 THE FREEMAN December In this generalized illustration, the supply of "money"was in creased by only 90 %. In .. practice, the supply of money is multiplied many times, since a deposit of $1000 cash would support loans of $10,000, given a reserve require-: mentof 10%. Confusing Debt for Money Whether inflation is accomp lished through the infusion of per fect counterfeit dollars, or by the infusion of dollars created by bank credit, the results are iden tical. Billions upon billions of "dol lars" have been injected into our economic bloodstream through de posits created by bank credit. As a result, money has not only lost most of its value, but has also lost most of its meaning . We have confused debt for· money, and the consequences of our error are upon us. No economic, social, and political structure can withstand the destructive impact of an end less flood of counterfeit money.

Neither can it survive an endless flood .of artificial money in the form of bank credit. The effects, and the results, are the same. While counterfeiting is illegal, and universally condemned, bank credit is not only legal, but vigor ously defended as a benefit to so ciety. For hundreds of years, the creation of credit through the commercial banking system has been accepted as appropriate practice. The validity of the prin ciple of "fractionalregerves~' has received no successful challenge. Certainly, no challenge is to be expected from the banking com munity itself; created credit is the primary source of bank profits. Neither can a challenge be ex pected from the business com munity; bank credit is a primary source of borrowed funds. Re grettably, no challenge can be ex pected to arise from government. The commercial banking system provides the 'means whereby gov ernment debt is converted to a form of "money."

If a challenge to the concept of fractional-reserve banking is to be issued, it must come from a well-informed public: . a public which perceives the true nature, cause, and dangerous effects of in flation. A well-informed public, if it has the courage, will defend it self not only from counterfeit money, but from artificial money as well. Perhaps, in time, a future generation will enjoy the economic blessings of a real money. If that happy condition is ever to become a reality, we can start work by examining the validity of Fractional-Reserve Banking.

-beralisIn Used to Mean eedoIn JOHN SHOLTO DOUGLAS was the 8th Marquess of Queensbury, and a noted sportsman as well. "Mar quess of Queensbury" has a famil iar ring, because in 1867 the Mar quess gave his name to a newly devised set of rules to govern prize fighting, rules which are still in force. Prize fighting before the present era - under the old Lon don Rules - was a combination of wrestling and boxing; it was bare knuckle, and a round was called each time a contestant was knock ed or thrown to the ground. Under the new Marquess of Queensbury rules the boxers wore padded gloves, and rounds lasted three minutes with a one minute rest be tween rounds. Now, it is obvious that these new rules changed the nature of prize fighting, and these changes The Reverend Mr. Opitz is a member of the staff .of the Foundation for Economic Educa tion, a seminar lecturer, and author of the book, Religion and Capitalism: Allies Not Enemies.

had a good deal to do with deter mining the outcome of any partic ular contest; the old London rules favored the brawler, whereas the athlete who relied on speed and skill had a better chance under the new arrangement. A few, like John L. Sullivan, could win either way! Until Sullivan met Jim Corbett! Lovers of the manly art used to debate the respective merits of Jack Dempsey versus Joe Louis; who was the greater fighter? The best one can do with a question of this sort is to consult an expert. The expert in thIs case was Jack Sharkey of Boston, a man who had faced both Dempsey and Louis in the ring, being beaten each time. A sportswriter buttonholed Shar key and asked, "How about it, Jack; who's the better man, Demp sey or Louis?" "It all depends," Sharkey replied. "If the two men fought in the ring, Louis would win. But if the two men fought in a telephone booth, only Dempsey would walk away."

727 728 THE FREEMAN DecemberThe rules of a game define its nature, they lay down the condi tions for winning, and they gO a long way toward determining the outcome of a contest. The Rules of Life Life is not a mere game. Living is a lot more complex than any sport, but life and games are anal ogous in at least one respect: Nei ther is possible without an appro priate set of rules to be followed. It's the rule book which determines the character of a game, and no game is even conceivable without one. To throw out the rule book is to forsake the game. By the same token, if we ignore, or deny, or break, or improperly identify, the ethical ground rules for flourish ing human life, then the quality of life - individual and social will decline. Hoyle's Games, the rule book for various pastimes, has not changed radically within memory. Which means that you and your opponent may devote your full attention to enj oying t'he game; none of your energy need be diverted into won dering what the rules are and how they should be applied or altered.

Life is different. In life, the rules are always at issue; never more so than at this particular juncture in human affairs, during the final third of the 20th century. It is in the nature of the human condition as such that each generation must test things for itself; no people can passively accept the rule book handed down by its forebears. "What from your father's heritage is .lent," wrote Goethe, "Earn it anew to really possess it." We're here to think about our lives in society, about the opti mum social conditions for bring ing out the best in individual po tential, about the rules which de fine economic competition. Peoples of every age in every culture have engaged in similar pursuits, searching for the rules leading to the good life. The rules have been discovered and they've been lost; they have been affirmed and they've been denied. Rules for the good life, when found, have been systemized as the traditional mor al code, whose prescriptions are remarkably alike no matter where on the globe you take a sampling.

Customs and conventions vary widely; but every moral code af firms that it is wrong to betray your friends, wrong to break your word, wrong to inj ure your neigh bor, and so on. Men and women have Iived by this code off and on, violating its precepts from time to time, then climbing back on the wagon. Every culture has founded its legal system on the moral code; ethical inj unctions against steal ing and murder give rise to laws against theft and homicide; rules 1975 LIBERALISM USED TO MEAN FREEDOM 729 for personal living beget the rules for living together in society. Thus, such moral and legal guidelines for human action as: injure no man, respect a man's property, don't covet his goods, fulfill your contracts, and the like. If we look within, we discover that we are motivated into action on two distinct levels; individual and social. There's no way to re duce the complexities of human behavior to one simple motivating force. There are at least two sets of such forces.

Achieving One's Purpose On the first level, each of us has his own life to live, his own ends to achieve. The human being is a goal·seeking creature, a purposive being. Personal life has a hierar chy of meanings, and each of us finds significance in his own living to the degree that he succeeds in discovering and realizing some of life's larger purposes. One such large purpose is to find a sense of achievement in a chosen occupa tion or profession; if genuine sat isfaction is lacking here the .de ficiency can hardly be made up elsewhere. There's a profound truth in H. L. Mencken's observa tion that the great division among mankind is between those who en joy their work and those who don't. Now, in addition to this major thrust in individual life most people have some hobby which stimulates a sense of accomplishment - like tennis, or bridge, or music, or woodworking. And then there are the lesser goals, of the New Year's resolution variety; like learning a new skill, acquiring a second lan guage, losing five pounds by Labor Day, and so on.

It is obvious that some societies give you more scope and elbow room for the realization of your assorted goals than do other soci eties; you have a better chance to express the various facets of your nature in New York than in Mos cow. The freer the society the more opportunity for individual self-ex pression; by definition this is the case. Your freedom increases as more and more of your life is self directed rather than other-di rected. If your life is at the dis posal of other people you are not free - even if these other people are organized as government and even if you voted for them; you are not free if they are managing or directing your affairs! It is a deeply rooted set of moti vations which impels each one of us to take charge of his own life, the better to realize our personal goals. The relevant considerations here, at this level, have to do with human nature and destiny, that is, with psychology and philosophy.

People who do not know what to 730 THE FREEMAN December do with their lives should seek out a spiritual advisor; or a psychia trist, if they are ill. Most people are moderately suc cessful at this business of living their lives, and those who reflect on the matter realize that they can not live their personal lives in iso lation. We cannot function fully as persons unless we interact with some society. Even Robinson Cru soe had the language and culture of England with him on his island, pIus some tools and a Bible. And here we come to a second set of motivations, a spin-off from the first. Your primary incentive is to achieve your personal goals, but a related incentive is work for those social conditions which max imize the opportunities for you and everyone else - to achieve per sonal goals. The relevant consid~ erations at this 'level are in the domain of political and economic philosophy.

You have certain basic instincts, and these primordial drives will see to it that you live your own life; but the assumption of person al responsibility for strengthening and enlarging. the structures of freedom in our society is a volun .. tary action undertaken by a com parative few. Those who do act at this level are prompted by a sense of moral obligation. But moral ob ligation is weak in our society, so there are lots of dropouts at this level; there are people who de mand all the advantages a free society has to offer, but who make no contribution to freedom in re turn. When Ortega y Gasset wrote his book, The Revolt of the Masses, in 1932, he put these dropouts in the category of mass man. Ortega's Mass Man Ortega used the term "mass man," or "the masses" in a very special sense; he did not mean the poor, the illiterate, the uneducated, those who work with their hands. I suspect Ortega would say that there are more mass men per square inch on the faculties of our great universities than exist in any typical farming community of Middle America. Mass man is the rootless intellectual, detached from his community and out of step with his country's history. Such a man is unable to trace the connec tion between effort and reward in society, and, convinced of his own superiority he's bitter because les ser folk refuse to give him his due.

Mass men "are. only concerned with their own well-being," Ortega writes, "and at the same time they remain alien to the cause of that well-being. As they do not see, behind the benefits of civilization, marvels of invention and construc tion which can only be maintained by great effort and foresight, they imagine that their role is limited 1975 LIBERALISM USED TO. MEAN FREEDOM 731 to demanding these benefits per emptorily as if they were natural rights." Mass man, "finding him self in a world so excellent, tech nically and socially, believes that it has been produced by nature, and never thinks of the personal efforts of highly endowed individ uals which the creation of this new world presupposed." (Revolt, pp. 65 and 63) A culture - as the name tells us - is something cultivated; it is in~ spired by human imagination and vision, it demands hard work and sacrifice to bring it into being and to sustain it. No society or civil ization "just is" - as nature "just is." Societies come and go; civili zations rise and fall. Arnold Toyn bee counts some 21 powerful em pires which once held sway over portions of the earth and millions of people but which are no more.

It is obvious, therefore, that bar barism, or a dull and vegetative existence, is the rule of mankind; whereas civilization - a society where there is maximum oppor tunity for achieving the human potential - is the exception. The good societY,where people enjoy liberty and order and are stimulated to pursue their per sonal goals, doesn't just happen it is a contingent thing,. that is, it depends on preceding events or situations. Good health is likewise a contingent thing; you cannot en;". joy optimum physical well-being on just any old terms. Assuming normal heredity, good health is contingent upon proper diet, rest and exercise - and the good luck to avoid accidents and noxious for eign bodies. Are there analogous rules for a good society, that is, conditions which must be met if we are to retain present liberties, and use· them to expand the areas of life where people ought to be freer than now to pursue their peaceful goals?

The Good Society Many of our contemporaries be lieve. that there is a simple answer to .this question. You want the society to move in the direction of greater freedom ?Extend the fran chise, lower the voting age, get people interested in the electoral process; and then make sure they cast their ballots. This is the meaning of democracy, and democ racy means freedom .. A truly dem ocratic society, they would con tinue, is one where the govern ment is totally responsive to the popular will. Government, in this view, belongs to The People, and The People is entitled to get from the government whatever a major ity of them demand from it. If there are ·troubles in society these days - which nobody denies - the cause is not democracy, it is too little democracy; government is 732 THE FREEMAN December not responsive enough to The Peo ple. Therefore, such persons con clude, the cure for the ills of de mocracy is more democracy! I'll insert here a sage comment of Hegel: "The People is that part of the nation which knows what it wants !"

Now, it is not difficult to see how this 20th century democratic dogma came to have the hold it has on people of our time. Go back a few hundred years. In the early 1600's, James the First of Eng land proclaimed that he ruled by divine right. There was mounting rebellion against this idea, and by 1689 Parliament had gained as cendancy; it issued a Declaration of Rights and offered the crown of England to William and Mary. From that time on, the kings of England were no longer its rulers. By the 20th century, kingship liad been phased out in nearly 'every country, to be replaced by presi dents and parliaments. Power seemed to be exercised more and more by The People, and so this political movement which toppled the kings has been described as the march of democracy. Take careful note of the fact that the democratic movement - in both theory and practice - has to do with the sanctions undergird ing political action, with the au thority back of whatever govern ment does. Rulers of .an earlier period when asked to justify a particular course of political ac tion might say that they were ex ercising God's will, or that the moral law mandated their actions, or the law of the land, or custom.

The justification, or the excuse, for any governmental action under a democratic regime, is that The People demand it - the rulers are merely carrying out the popular will. The People are sovereign un der a democracy; that's where the buck stops. God or The Law would be acknowledged as sovereign un der the early theory. The Nature of Government Now governmental action is what it is, no matter what sanc tion might be offered to justify what it does. The nature of gov ernment remains the same even though its sponsorship he changed. Government always acts with pow er; in the last resort government uses force to back up its decrees. Government is unique among aU the organizations and institutions of a society; the government of a society is its police power, and the nature of government remains the same, regardless of the auspices under which a government acts. Americans are justly proud of our nation, but this pride some times blinds us to reality. How often have you heard someone de clare, "In America, 'We' are the 1975 LIBERALISM USED TO MEAN FREEDOM 733 government." This assertion is demonstrably untrue; "We" are the society, all 210 million of us; but society and government are not at all the same entity. Society is all-of-us, whereas government is only some-of-us. The some-of-us who comprise government would begin with the President, Vice President, and Cabinet; it would include Congress and the bureauc racy; it would descend through governors, mayors and lesser of ficials' down to sheriffs and the cop on the beat.

Now, what is the distinguishing characteristic of the people in the categories I have just enumerated, the people who comprise govern ment? Are they more wicked than other men? Well, to hear some people talk one would think so people whose idea of political sci ence is to faithfully collect in stances of venality and stupidity in public office. These have their counterpart among the liberals, whose idea of high-level economic discussion is to tell tales about venal and stupid businessmen. There are many able and high minded men in public life, just as there are good people in business. The distribution of good and bad is pretty much the same in every walk of life. There may be room for debate here, but little is gained by sitting in moral judgment on whole classes of people. A Monopoly of Force Government is unique among the institutions of society, in that society has bestowed upon this· one agency a legal monopoly of the weaponry, from clubs to Hbombs.

Governments do use persuasion, and they do rely on authority, legitimacy and tradition - but so do other institutions like the Church and the School. But only one agency has the power to tax, the authority to operate the sys tem of courts and jails, and a war rant for mobilizing the machinery for making war; that is govern ment, the power structure. Machiavelli used to say that only the usurper can understand the realities of power. The eldest son on whom the king's mantle falls peacefully thinks of his pow er in terms of pomp and display; but power to the usurper means plotting, intrigue, bribery, poison and the dagger. The point to be stressed is that the essential nature of govern ment - its license to resort to force at some point - is not changed by merely altering the warrant under which it acts. Divine right or pop ular sovereignty - it makes no dif ference to this point. Government is as government does.

The march of democracy which we have been discussing was par alleled by the freedom movement in England and America during 734 THE FREEMAN December the same period.·. The idea of indi vidual liberty was given a tremen dous boost by the Reformation and the Renaissance. The earliest man ifestation of this new-found lib erty. was in the area of religion, i~suing in the conviction that a person should be allowed to wor ship God in his own way. This re ligious ferment in England gave us Puritanism, and early in the 17th century Puritanism projected apolitical movement whosemem bers were contemptuously called Whiggamores -a word roughly equivalent to "cattle thieves." The king's men were called Tories "highway robbers." The Whigs worked for individual liberty and progress; the Tories defended the old orders of the king, the landed aristocracy, and the established church. Early Step to freedom One of the great writers and thinkers in the Puritan and Whig tradition was John Milton, who wrote his celebrated plea for the abolition of Parliamentary censor ship of printed material in 1644, A reopagitica. Many skirmishes had to be ,fought before Freedom of the Press was finally accepted as one of the earmarks of a free society. Free Speech is a corollary of press freedom, and I need do no more than remind you of the state ment attributed to Voltaire: "I disagree with everything you say, but I will defend with my life your right to say it."

Adam .Smi th extended freedom to the economic order, with The Wealth 01 Nations, published in 1776 and warmly received in the thirteen colonies. Our population numbered about 3 million at this time; roughly one third of these were Loyalists, that is, Tory in outlook, and besides, there was a war on. Despite these circumstan.., ces2500 sets of The. Wealth 01 N a tions were sold in· the colonies within five years of its publica tion. The colonists had been prac ticing economic liberty for a long time, simply because their govern ments were too busy with other things to interfere - or too ineffi cient. Adam Smith simply provid ed a rational and a philosophical justification for what the colonists were already doing.·· These people knew. in their bones, as Jefferson put it, that "If government should tell us when to sow and when to reap, we'd all want for bread." Ten amendments to the Consti tu tion were adopted in 1791. Arti cle the First reads: "Congress shall make no law respecting the establishment of religion,· or pro hibiting the free exercise thereof ..." America has never had a her esy law,and··the First Alnendment promises that we will not have a national church - the implication 1975 LIBERALISM USED TO MEAN FREEDOM 735 being that a man's deepest convic tions are too important a matter to be entrusted to politicians. The separation of Church and State enunciated in the First Amend ment was a momentous first step in world history. That step is implic it in Christianity and has been foreshadowed as far back as 494 in a letter of Pope Gelasius to the Byzantine Emperior Anastasius, in which the sacred and the secular were sharply delineated, but cir cumstances decreed that the final implementation should wait till the 18th century.

I have called your attention to two paralled movements; the nlarch of Democracy which de posed the kings and gave "power to the people," and the movement to expand individual liberty which gave us freedom of religion, free dom of economic enterprise, free dom of the press, and free speech. This second movement was rooted in the religious reforms of Queen Elizabeth's day and led to political reforms designed to expand indi vidual liberty. This was the ma jor thrust of Whiggery. The men we refer to as the Founding Fathers would have call ed themselves Whigs. Edmund Burke was the chief spokesman for a group in Parliament known as The Rockingham Whigs. In 1832 the Whig Party changed its name to one which more aptly described its emphasis on liberty. It became the Liberal Party, standing for free trade, religious liberty, the abolition of slavery, extension of the franchise, and other reforms.

This development of ideas on lib erty from Queen Elizabeth to Queen Victoria might properly be called the movement of Liberalism - Classical Liberalism. Classical Liberalism Democracy and Liberalism have had a parallel history of develop ment since the 17th Century, and some thinkers have ably champi oned both - one as means, the oth er as end. They are sufficiently close historically so that it is easy to confuse the two; but they are sufficiently different so that such confusion breeds dangerous con sequences. Liberalism and Democ racy are related as end and means. The end is a free society where people have the opportunity for the fullest expression of their lives. This is Liberalism. A suit able mechanics for the attainment of this end is to abandon the he redity principle which gave us kings and allow the multitudes to vote for officeholders. This is De mocracy, a means, whose end is the free society of Liberalism, Classical Liberalism.

We need to remind ourselves that there are two major political questions, not just one. Everyone 736 THE FREEMAN December who thinks about the philosophy of government must first thrash out the question: "What shall be the extent of rule?" That's the old way of putting it; we'd phrase the question somewhat differently to day. We'd ask: "What is the role of a government in our society?" or "What activities belong in the public sector?" or "In the light of government's nature, what is its competence? What tasks should we assign to it?" Men who wrestled with these questions, or questions like them, gave us the philosophy of Classical Liberalism, which - I scarcely need remind you - is the exact opposite of what today pa rades as liberalism. We are familiar today with the division of society into a public sector and a private sector. The former might be called the politi calor coercive sector, and the lat ter, the voluntary or free choice sector. To the public or political sector we assign those things which we believe cannot operate without coercion, things which need to be managed, controlled, regulated, quarterbacked, com manded. To this sector our ances tors consigned religion, publishing, public discourse, and economic ac tion. But the ideas of Liberalism, gaining a hold on public opinion, released these four major human activities from bondage to the state.

There is a second political ques tion, of much less consequence than the fi.rst. It has to do with choice of personnel: how do you select people for public office? This is the question to which demo cratic theorists addressed them selves, and the answer that De mocracy gives to this question of choosing people for political posi tion is : Vote! .Democra tic theo rists, having examined the argu ments for monarchy, for aristoc racy, and for drawing lots, come out in favor of balloting. Lay down a few requirements for the privilege of holding public office, and for the privilege of voting, then - on a given day and place.., let the qualified voters mark their X or pUll the lever, and the per son who gets the highest number of votes gets the job. If these .words were used in their proper and original· sense, I would call myself a Liberal Demo crat. I am a Liberal in wanting government to act only as such action expands the domain of lib erty for all persons alike ; and I am a Democrat in wanting the franchise wisely extended - pro vided that the vote is simply to choose this person or that to oc cupy public office in a properly limi ted government.

Some of our forebears in the 18th century entertained what they called the "stake-in-govern1975 LIBERALISM USED TO MEAN FREEDOM 737 ment" theory. This was the notion that voting should be limited to property holders; otherwise, those 'Without property would use their power at the polls to loot the treasury of money that had first been taxed away from those who earned it. These fears were groundless at the time; in the first place, because almost everyone in the new nation was a property holder and, in the second place, the public treasury did not have enough in it to make looting worth while. But the very existence of this theory indicates that some people of the period rejected the idea that government should be an agency for the transfer of funds from one set of pockets to an other. This was a rejection of the principle of "redistributionism," on which all modern governments operate. Repudiation of the idea, that the state exists to advantage some at the expense of others, is the maj or thrust of Classical Lib eralism. "Justice is the end of government," wrote James Madi son in the 51st Federalist Paper.

"It is the end of civil society." The unforgivable sin - so far as Classical Liberal theory is con cerned - is the use of public power for private ends. Present-day lib eralism, by contrast, invariably boils down to: Somebody's pro gram at everyone's expense. These two aphorisms are more than mere slogans, and in order to bring out their meaning let's take an imagi nary trip to Berlin. Forms of Collectivism The year is 1927. You are stroll ing around the streets on a pleas ant evening in May. You spy a small group of people gathered around a soapboxer wearing a red shirt. You listen awhile, but your German is not quite good enough to pick up the details of the ex cited harangue. So when the speaker has finished and the crowd has dispersed, you buttonhole the man and ask him what he's up to. "I'm a member of the Com munist Party," he tells you, "and as soon as we obtain power, this is the program we are going to impose on Germany." And he pro ceeds to spell out for you the so cial pattern he wants to enforce.

You continue your stroll and en counter a similar group of people listening to a spell-binder in a brown shirt. After the speech is over you ask this man to identify himself and he tells you he is a spokesman for the German Na tional Socialist Workers' Party Nazi for short. He outlines the program his party will impose on Germany once they come to power, and you not~ that the Nazi pro gram is almost indistinguishable from the Communist program; 738 THE FREEMAN December both eliminate individual liberty, both centralize power in the hands of a monolithic party, both oppose the market economy, both politi calize education, and both seek to eliminate or domesticate religion. The fact that Communists and Nazis fought each other in the streets does not mean that they opposed each other philosophically. In the Wars of Religion, Chris tians fought Christians, although the matters on which they agreed seem to us today, looking back, far more extensive than the points on which they differed.

Self-Government You continue your stroll and finally come across a speaker dressed rather quaintly and ad dressing his tiny audience in mea sured, academic tones. When the man finishes his discourse you fall into conversation with him and learn that he and several friends in Berlin have a study group which reads and discusses the works of Adam Smith, Edmund Burke, and - to your utter amazement - The Federalist Papers! You are so fas cinated that you can hardly wait to hear this man's program for Germany. "We have no program for the nation," he tells you. "It is our belief that people, either in dividually, or working through voluntary associations, can plan their actions better than these can be planned for them by the cen tralized power structure. Like your Mr. Madison, in the 39th Federalist Paper, we rest all our political experiments on the ca pacity of mankind for self-gov ernment."

Classical Liberalism is unlike any other political theory. Every other political philosophy contem plates a National Plan, a program to put people through their paces. Your choice at the polls, then, is between this set of people with their XYZ Plan for the nation; versus that set of people with their ABC Plan for the nation. What choice does this offer for the ordi nary citizen who's injuring no one, who just wants to live his own life in peace with his neighbors, and who does not want to plan other people's lives? The answer is : No choice at all! I have described the movement of Liberalism from the 17th to the 19th centuries as an effort to ex pand the boundaries of individual liberty. How? By curbing the power of governments to diminish the efficacy of· personal choice in the major areas of life. "The his tory of liberty," said Woodrow Wilson in 1912, "is the history of the limitations placed upon gov ernmental power."

Now, when you address your self to the question of the proper role of a government within a so1975 LIBERALISM USED TO MEAN FREEDOM 739 ciety you are dealing with an issue loaded with intellectual and mora] content. "What is the competence of government?" and "What cir cumstances in society render it necessary to bring legal coercion to bear?" are questions you have to wrestle with, argue about, de bate, write books on. They are of the same nature as disputed and difficult questions in history, psy chology, archeology, or any other discipline. Most certainly, they are questions of a different nature than "Do you prefer ice cream to apple pie?" The Limits for Voting In simple matters of personal preference the opinion poll is a means of getting statistics. Some people find such figures valuable, and so we keep poll. takers in busi ness. Professional samplers of public opinion keep a running pro file of changing voter preference for the presidential race of 1976.

The balloting ,vhich will take place next year is the same kind of a thing as a Gallup poll; it will be a measure of popular preference for Mr. Ford over Mr. Jackson or whoever. Voting is little more than a popularity contest, and the most popular man is ,not neces sarily the best man, nor is the most popular idea the soundest idea. Balloting, then, is a means for dealing with the second, and much less important of the two political questions: "Who shall hold public office?" It is obvious, now, that ballot ing is not a way to get at the fun damental question of the proper function of government· in a so ciety. We have to think hard about this one, which means we have to assemble evidence; weigh, sift, and criticize it; compare notes with colleagues, and so on. Which means that this is an educational endeavor; a matter for the class room, the library, the study, the podium, the pulpit, the forum, the press. Mr. Gallup has no place here; to count noses at this point is a cop out. Furthermore, it is obvious that we cannot possibly arrive at sound conclusions about the role a government should play in a society unless we base our political speculations upon a solid understanding of our own nature, and the place of man in the total scheme of things.

If man is "Ii ttle more than a chance deposit on the surface of the world, .carelessly thrown up be tween two ice ages by the same forces that rust iron and ripen corn," as the famous historian Carl Becker put it, then it's a mat ter of almost total indifference what kind of social and political arrangements we have - so long as we are comfortable anq well fed, and no one steals our security 740 THE FREEMAN December blanket. But if we truly assess the greatness of the human spirit - as witnessed by man's aspirations and his achievements in religion, art, philosophy, music, literature, law, as well as in the building of great civilizations - then we know that our three-score-years-and-ten are a moment in eternity, whose opportunities are offered us once and never repeated. So what we do with our earthly pilgrimage is a thing of utmost importance; and one thing we must do in life is work on the institutions of our society so as to widen the scope for individual persons to fulfill their potential.

Body and Mind Human nature has several facets; everyone of us is com pounded of at least three elements. Biological factors are evident in our make-up; we are mammals and we are bipeds. This aspect of our nature is so obvious that some have been led to believe, errone ously, that this is all we are. The visible part of us is material, the physical body, which is stamped with our uniqueness. Noone can grow fingerprints like yours. Body type - whether tall and slim or short and wide - has something to do with the shaping of our total personality and our greater sus ceptibility to certain diseases; but this is not what makes us distinctively human. Our anatomy by it self does not produce our lan guage, and without a language we'd have no words to express our thoughts and our thoughts would be exceedingly primitive. Language and thought are the marks of the second component in our nature, the mind. The body can be trained but only the mind can be educated. Mind and body interact, but their relations are so subtle as to puzzle the greatest of philosophers. Your mind, too, is uniquely your own. Mind and body together form your "psychosome,"

and when the two are out of phase you have a psychosomatic illness. Cultural Components Now, in addition to your mind and body combination, there is a third essential ingredient that goes into making up the Self you are. Your psychosome receives an in fusion of cultural components. If your particular psychosome had been born in Calcutta, say, or Peking, you would be a different person than the Self you actually are, despite the fact that your psychosome would be identical in each case. Your genes are unde niably important in the shaping of your nature; they make you a clever animal with enormous latent learning ability. But in addition to your genetic endowment you have a cultural heredity; there's 1975 LIBERALISM USED TO MEAN FREEDOM 741 a little bit of some society in every Self. And the society which is in each one of us is compounded of the language, the traditions, the customs, conventions and laws of the West - not of the Orient, or Africa, or Oceana. To acknowl edge that we are nurtured in the world vision of the West is not to pass an adverse judgment on other cultures; it's simply to say that theirs is not ours. Incidentally, only those who are securely rooted in their own heritage can sense the true inwardness of other cul tures.

In short, you would not be you if your Self were the prod uct of another culture. Subtract the prod ucts of this culture from your make-up and you would be a clever anthropoid - nothing more. This is point one. Every living organism proclaims by its continuing existence that life is to be preferred over death. Schopenhauer professed to believe otherwise; he declared for pessi mism and preached that life is not worth living - until he died of natural causes at 72! Some do give up on life, too many; others cling to a wretched existence. A few dis cover real zest and joy in living. But anything this side of the des pairing gesture of suicide consti tutes an affirmation that it is bet ter to be alive than dead. Point two. Point three merely voices the obvious; the only life you have to live is the one you are living now in this place - this town, this state, this nation - at this time in history. Your citizenship is a thing of great value which people of other nations are willing to pay a high price to obtain. Living here you receive a greater economic re ward for less effort than your counterpart in other parts of the globe; your rights are less in jeop ardy than his, you have more lati tude than he in pursuing your personal goals, you are freer in your hou'rly and daily rounds.

The human aim is not simply to live, it is to live well. The Self you want to preserve is ineluctably linked to the culture which went into its formation - our culture. Transplant your Self to an alien culture, and while it might survive it surely would not flourish. Stim ulating interaction with your na tive habitat - with twentieth cen tury America - provides optimal conditions for a flourishing life for yourself. Self-preservation - the first law - implies, therefore, an alert concern for the health of the values embodied in our culture. To the extent that a person respects the life that is in him, to that ex ten t will he seek to preserve and strengthen the social matrix in which he was cast. If the nation as a whole appears to be beyond 742 THE FREEMAN December redemption or turns hostile, then the people who cherish sound val ues will produce a subculture with in it; they'll become a Remnant.

The Amish are an example of such a culture within a culture, and so are the Mormons. Respect for one's Self and its values develops solicitude for the institutions which support them, and generates a willingness to de fend those institutions. Self-rejec tion, on the other hand, alienates a person from his native culture and leads to antagonism toward the society which produced that Self. Disorder within is projected as strife without. Two Aspects of Culture There are two things to be said about .a culture. In the first place, a culture is something cultivated; it's not nature, but it might be called our second nature, for what we absorb from our social environ ment transforms a clever animal into a human being. We are hu manized by what we learn in the educational process - by what we get from our parents, from our peers, from books, and from the prevailing intellectual climate by a sort of osmosis. In the second place, our culture is a transmission belt linking the generations, con necting those long dead with those not yet born. We acquired' our values from our ancestors and, in a sense, made them our own ; and we will pass these values along to our children, and they, .in turn, to their descendents.

There are individuals and or ganizations in our midst whose announced aim is to destroy our society. They profess to hate the values of Western civilization, so they want to burn it down, blow it up - or talk it to death! Now, there is a large measure of self hatred in these people who turn against civilized values; their dis like of themselves is externalized as a lust to tear down the culture which has shaped - or misshaped -them into what they are. In stead of destroying ,that which they hate - themselves-directly, by suicide, they seek to subvert the society responsible for making them misfits. But if we accept ourselves, with all our shortcomings, as the Selves we really are - body and mirnd plus cultural components - then we have an obligation to defend body and mind and also the society whose values are selectively in our very being, with every resource of reason, persuasion, example and - in desperate last resort situa tions - by force.

Western civilization is grounded in the elements of civilization it self, to which it adds things unique to the West. The fundamental so cial value in Western civilization 1975 LIBERALISM USED TO MEAN FREEDOM 743 is individual liberty. The human person is looked upon as God>s creature who must be free if he is to fulfill his duty toward his Maker. This is the theological con viction which, on the political plane, spells out into the free econ omy and limited government. When the law preserves freedom of personal action, within the rules for maximizing liberty and oppor tunity for everyone, then govern ment - so conceived - is the nec essary prop to the free society. I began this paper with some references to prize fighting, often referred to as "the manly art of self-defense." Now, we do not ex pect teachers of boxing, or judo, or karate to use language with due regard to semantic accuracy. When they say "self-defense" they really mean "body defense." They do not teach you how to defend your mind from invasion by logical fallacies, nor are they concerned with the protection of the cultural elements in our make-up. Self-defense, liter ally, must operate at these three levels: body, mind, and culture.

We expect more precision in the use of language from social scien tists and philosophers, but we sel dom get it. For the past century and a half political theorists have talked about man's right of self defense when they meant no more than a presumed right to protect his material body and his property - his property being merely an ex tension of his body. It is alto gether right that a person defend his body from inj ury and his pro perty from invasion, but a care ful use of language demands that we label this "body-defense" and "defense of property"; it is grossly inaccurate to speak of defending one-third of our Self as "self-de fense." We admit as much in the word "bodyguard." The Bodyguard's Role You hire some burly and aggres sive young man to see to it that unwelcome hands are kept off your carcass; he also sees to it that no one steals your car or breaks into your house.~ He guards your body and its material extension as prop erty, but what about the other two parts of your Self - your mind and the cultural components in your make-up? It is not a function of your bodyguard to fortify your mind against falsehoods and spe cious reasoning, nor do we expect a bodyguard to buttress the values which undergird the free society.

Concern for things of the mind and for cultural values are not part of his job as a bodyguard. But a genuine understanding of the Self leads to a realization that the defense of the Self demands more than any mere bodyguard can supply. It demands a proper concern for the requirements of 744 THE FREEMAN December liberty and justice in society. The bodyguard offers his protec tive service on the1market; he has a price tag. The market is per fectly competent to handle any thing to which a price tag may appropriately be affixed. A syn onym for "the market economy" is, in fact, "the price system." The price system covers that sector of life where things are offered for exchange and sale, where a quid pro quo is expected; 69¢ for a loaf of bread, a hundred dollars for a suit, ten thousand dollars for a year's work, and so on. The price system or the market economy is the only sensible way to handle matters in the sector of life where things and services are offered in exchange; this is the realm of economic calculation, where things can be reduced to monetary units. But there is a realm beyond the realm of mone tary computation, where things do not have a price tag. Justice be longs to this realm, and so do such moral goods as liberty, honor, love and friendship.

If justice is for sale it is not justice; as we acknowledge in such old gags as "Hizzoner is the best judge money can buy." Honor is beyond price; if you can buy it it's not honor. "What shall a man give in exchange for his soul ?" Or free dom. Caln you· put a price tag on it? Could you take the 1975national budget and use it to buy us a free society? Could we· use our gold and buy packages of freedom in carload lots until the free econ omy is established? Take love. If it's for sale it's not love. You may be able to earn love, but you can not buy it. A man who throws money around may acquire a group of so-called friends, but no one be lieves this to be the way to achieve real friendship. Beyond Monetary Computation There is a realm of life beyond the realm of monetary computa tion, where we find such goods as justice, liberty, honor, love and friendship. Two of these several goods are of immediate concern to political philosophy: justice and liberty. Justice is giving every man his due; justice provides "a free field and no favor." Justice is equal treatment before the law; one law for all men alike because all are one in their essential hu man nature. A just society is one which offers maximum liberty for all persons. Justice cannot be measured in monetary terms, and the same is true of liberty; no price tag may appropriately be affixed to either justice or liberty.

This takes them out of the eco nomic realm, for the market is in competent to handle those things which cannot be priced. It is obvious that honor, love and 1975 LIBERALISM USED TO MEAN FREEDOM 745 friendship are likewise without price - which takes them out of the economic realm. But neither can they be enforced - which takes them out of the political realm. But justice can be enforced. It is right that an act of violence against person or property be re~ pelled or redressed' forcibly. The rules which maximize individual liberty in society are occasionally infracted, and these aggressive or criminal actions must be counter acted by force, in last-resort situ ations. This legal employment of force to rectify violence is the task of justice, and the only agency com petent in the circumstances is gov ernment - for two primary rea sons. I've already touched upon one, the fact that justice has no price tag, which takes it out be yond the market place. In the sec ond place, the market is wholly peaceful; there is no force involved in producing economic goods, nor is there force in the network of voluntary exchanges which follows.

Obviously, then, a wholly peace ful institution is incompetent to allocate acts of force. Only the pol itical agency is competent to per form this necessary function in society, and when government per forms competently within the lim its imposed by the nature of its tasks, then individual liberty is maximized. Liberalism Means Freedom Liberalism used to mean free dom. Classical liberalism per formed mightily and achieved ma jor breakthroughs in the area of worship, free speech, freedom of the press, and freedom of econom ic enterprise. Then despotism re turned and liberalism betrayed it self. We have been losing our lib erties under the delusion that the democratic and majoritarian pol itical process would automatically secure them! Several generations were misled into believing that once The People were in power, society would be free. The result is twentieth century totalitarianism masquerading as The People's Re public of this or that Communist nation, where power is wielded ar bitrarily and with utter ruthless ness.

We now know that people do propel themselves along the road to serfdom by majority vote, and we see that those who have voted themselves into slavery are just as much slaves as those who have been put in bondage by a conquer or. Power is power, whether sanc tioned by divine right or author ized by the popular will. Power is not liberty; liberty operates in an other dimension and has other re quirements. As soon as a signifi cant number of people become aware of these requirements, Lib eralism will again mean freedom. I) JAMES H. WIBORG esponSibilitg MUCH HAS BEEN SAID in regard to the social responsibilities of busi ness, and businessmen have often times risen to the defense of their businesses and the free enterprise system. I am not here today to defend the free enterprise system or what is done by responsible businessmen. Instead, I am here today to praise it. Too often we have been on the defensive where we should stand back in awe and admira tion of the only economic system ever to function in the world to provide freedom and the right of free choice to each indi vidual who will make an effort within that system.

Throughout all of the written his~ tory of the western world, men Mr. Wiborg is President of the Univar Cor poration. This is from his report to the Annual Meeting in Seattle, June 25, 1975. 746 have strived to obtain individual freedom and a right of each person to ownership of his own property and to the enjoyment thereof. In the middle ages the world suf fered from feudalism and serf dom but with the dawning of the industrial revolution and the con cepts of individual freedom intro duced in England and reaching their culmination in America, each man had the right to his own property and the rewards of his own effort. Freedom meant that no other man had a right to those rewards or to the sweat of another's brow. Slavery was abol ished but with the insidiousness of a plague, slavery began to re appear in the form of Marxism so that today we are told each of us is obligated, not through enlight ened self-interest and not through our own sense of consciousness 1975 SOCIAL RESPONSIBILITY 747 but through Government mandate and taxation to give of our effort and our production and our capa bilities to others who will not make this effort. In the Commun ist countries the pendulum has swung fullfold to slavery.' .Free dom has been so instilled in the western nations that those who would bring slavery back have not dared to use force, but we are per mitting them to achieve the same result.

I think all of us must be con scious of our obligations to help those who are truly infirm, aged or incapable of providing for themselves. Beyond that, increas~ ing taxation eventually becomes slavery through depriving one man who is willing to work and produce through his own effort of the rewards of that effort by transferring a portion of these re wards to another who is not will ing to apply himself. Freedom of the individual re quires the right of self-initiative and of private ownership and the rewards that flow therefrom. It is incumbent upon all of us at every possible opportunity to speak of the glories and benefits of our free enterprise system rather than de fend its weaknesses. There will always be those who abuse as there have been in business, labor and government but no other sys tem has given so many people such a wonderful and prosperous way of life. Our company last year fully carried its social responsibilities and beyond, as did the people who worked so productively in it. We contributed sizeable amounts to chari ty. We paid enormous amounts of taxes. We built fine plants and maintained them well.

We created jobs through employ ment of capital and through in genuity of management. We pro vided employee benefits and improved them. Our people indi vidually gave of their time in their communities as well as through their own taxes earned by their prod ucti vity effort. What I am saying to you is that respon sible businesses are not only car rying their load of social respon sibility but beyond, and it is time to point the finger accusingly at those who want and expect to re~ ceive something in exchange for nothing, those who will not pro duce, although capable of doing so, and at governments who continue to burden the productive elements of our system 'with heavier and heavier loads until the golden wagon will surely break. ~ ONE of the most popular theories in economics is the belief in con spiracy: if you are not getting "your fair s'hare," it must be be cause somebody is plotting to take it away from you. Since the vast majority of the population almost daily feels the frustration of a budget constraint - not enough cash to spread among food, cloth ing, recreation, toys, taxes, and so forth - the superficial empirical evidence would seem more than plentiful to "prove" that the fat cats are ripping you off.

Does this seem childish and silly? Unfortunately, any sample of public opinion will confirm that most people subscribe. to this Joe Cobb of Chicago is Secretary of the Eco nomic Civil Liberties Association. 748 JOE COBB theory of economics. Consider the powerful groups in our society which trade every day on this theory: (1) consumer groups who blame supermarkets for inflation; (2) labor unions who blame the boss for low wages; (3) students who blame the corporations for making profits; (4) Congressmen and Sena tors who derrland price controls and price rollbacks. Ask any citizen whether or not he be lieves that the American economy is "competitive" and you will dis cover the conspiracy theory. The scientific study of econ omics has become a highly techni cal field, replete with mathematical models, esoteric theorems, and sta tistical regressions. Popular eco nomics, however, is still in the 1975 CONSPIRACY ECONOMICS 749 stone age. Most popular thinking in the field is of the "bricks and mortar" variety. For example, take a walk downtown in any major city. Observe the tall buildings em blazoned with the names of the Fortune 500 corporations. The average person will get the impres sion that tall buildings and giant corporations are the essence of the economic system; and who, indeed, would not feel very small and im potent in the canyons of Manhat tan, Chicago, or Los Angeles?

Aggravated by Inflation The feeling of powerlessness which this "bricks and mortar" impression produces is compound ed during a time of inflation, when the unit of account is depreciating. Any consumer who goes to the store two days in a row and finds that the· price has been changed, that his money is worth less, wants to blame the first human being he sees marking prices. Is it not true that the power to set prices is the power to increase profits ~ How helpless the poor consumer must feel. How open he must become to arguments based on the conspiracy theory. Samples of public opinion re garding the level of profits in the American economy reveal the com mon belief that businessmen make something like 30 to 40 per cent profit. The fact that the actual rate of return on capital is more like 3 to 4 per cent (and this measure ment does not include business failures, which Frank Knight once suggested might make the society wide rate of return negative) is almost unknown to the mass of voters. Those who have heard the correct numbers probably don't believe them. After all, conspir ators will systematically lie, won't they?

The problem of shallow think ing about economic processes, how ever, runs much deeper than sim ple errors in information. The study of economics is the investi gation of the indirect consequences of activity. Popular theories al most always rely upon direct ac tion, without giving thought to the indirect effects. Do you see a prob lem? Solve it! Make the trouble go away! Wave your magic wand. Pass a law. Never mind the fact that the problem is possibly a mirage, and that the law you pass will probably create a real prob lem in its place. Consider one sophisticated version of the con spiracy theory. Economic theory tells us that a monopolist may set his price above the "natural market rate" and col lect monopoly profits. The theory relies upon an absence of substi tutes and alternatives for the buyer. If you accept the conspiracy theory, you can broaden this no750 THE FREEMAN December tion of monopoly to include H con centrated industries" - that is, those industries where the biggest three or four companies sell over 60 per cent of the products. Take a guess about profits in, those in dustries : will they be above aver age? If you 'find some that are above average, will they persist above average over a long period of time? Is it true that the Big Three are exploiting a monopoly position, and the poor little con sumer is getting robbed?

Look at the Record Based on a small sample of con centrated industries, Professor Joe S. Bain published an article in 1951 which seemed to support the "market concentration doctrine" that we described above. This arti cle touched off some investigations which, also based on small sam ples, seemed to confirm the report. And so it became part of the con ventional wisdom that Big Busi ness rips you off. What are the facts? In 1971, Professor Yale Brozen published a series of arti cles in the Journal of Law and Economics; his conclusion: Persistently high returns do not appear to be characteristic of high stable concentration industries. "High" returns occur in small, spe cially selected samples of high-stable industries, but not in larger samples. Above average rates of return for both sets of, samples, even when in significantly above the average in the earlier of the' comparison periods, converge on the average of all manu facturing industries as time passes.!

Of course, there is a movement in Congress to amend the antitrust laws in order to "break up" the concentrated industrie~. Consider the public policy impli cations of a more vigorous and ex panded enforceIl1ent of the anti trust laws. In the first place, it will probably be entertaining to the public for the government to pros ecute a series of "economic con spiracies." The voters will be pleased, because they believe in the conspiracy theory of economics and it might take their minds off the problem of runaway inflation (caused by Congress and the Fed). Yet, consider the longer run, indirect consequences of more government control. As F. A. Hayek has pointed out, the belief in incorrect economic theories has produced the bulk of "bad" law in the past 100 years. The growth of the administrative State, economic regulations and bureaucracy with 1 Yale Brozen, "The Persistence of 'High Rates of Return' in High-Stable Concentration Industries,"J. Law & Econ., XIV (Oct. 1971), p. 504. See also Brozen's article, "The Antitrust Task Force Deconcentra tion Recommenda tion," J. Law & Econ., XIII (Oct. 1970), pp. 279-92, (available as a reprint from the American Enterprise Institute).

1975 CONSPIRACY ECONOMICS 751 wide-ranging authority to collect information and issue command ments, and the belief that we need economic planning by some central agency, are all based on a peculiar theory of economics. Unlike the self-regulating system described by Adam Smith in 1776, which moves towards an equitable distri bution of goods and services by indirect effects of trade and profit seeking, the conspiracy theory of economics assumes that the so ciety is populated by evil spirits which must be consciously fought and regulated in order to stave off disaster and misery. It will be interesting to see if the careful, empirical research of economists in the tradition of Adam Smith will be able to gather enough information to disprove the conspiracy theories of the pop ulace, or whether the economic magicians who cater to the popu lar mood will ultimately be awarded control of the economy "to save us from disaster." It will be interesting to see the real causes of disaster. ~ IDEAS ON LIBERTY "The Other Fellow Will Pay"

SOME HUMAN BEINGS like to get benefits - with less, rather than more, work and thrift. "For free" - paid for by "the other fellow" - has tempting appeal. And experience shows that polittcs can be used to obtain services which others will pay for (or ~eem to pay for). Political campaigns in America include pandering to this human characteristic. Various trains of thought, and ratio nalizing, have supported such selfishness. A business cannot say, "Select my product, and someone else will pay." The political process, however, can hold prospects of benefit to one group at the expense of others. "The candidate who uses his own money to buy votes," someone has said, "is called corrupt; the one who promises to use someone else's money is called a liberal." And "liberalism" has been a pow erful force in American politics. Obviously, spending programs must be paid for. Who, then, is being fooled? Why may use of the "for f.ree" argument continue in a society with as many educated people as here? One explanation, I suggest, is that a combination of graduated tax rates and hidden taxes does give plausibility to "the-other-fellow-will-pay" atti tudes.

C. LOWELL HARRISS, from an essay, "Economics and Politics: Thoughts on GO'lJernment Finance"

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN IT IS PART of our folklore that it took the Supreme Court decision of 1911 to break the grip of John D. Rockefeller's Standard Oil hold ing company on the business of transporting and refining oil. But long before the dissolution of the "oil trust," which had never been much more than a matter of dom inating the small world of kero sene marketing, the Pew family of northwestern Pennsylvania was in the business of "producing petro leum, rock and carbon oil; trans porting and storing same; refin ing, purifying, manufacturing, shipping, selling and marketing such oil. and its various products." (The quotation is from the incor752 poration statement of the Sun Oil Company of Ohio, dated 1890.) The founder of Sun Oil, Joseph Newton Pew, was not at all intim idated by the "trustifiers" of our so-called Gilded Age. In 1886, which was four years before the enactment of the Sherman Anti Trust law, the Pews were busy acquiring leases in the new trans Appalachian oil and gas field of Lima, Ohio. Sun invaded the sup posed monopolistic preserve of the Rockefellers before the "waste"

by-prQduct known as gasoline had become important to the new auto mobile economy. Uncommitted to kerosene, it was ready for the new world of Henry Ford, Ransom Olds 1975 FAITH'AND FREEDOM 753 and the other Detroiters who were, at the turn of the twentieth cen tury, about to put America on wheels. When the Spindletop gush er came in on the Texas Gulf Coast in 1901, Sun was ready to build an East Coast refinery on the Dela ware River at Marcus Hook and to transport Texas oil by tanker to markets that John D. Rockefeller could no more monopolize than King Canute could keep the tide from rising. With his family background, it is hardly a mystery that J. Howard Pew, the son of, Joseph Newton, never had any fear that America might be enslaved by an industri al oligarchy of any type. It was given to Howard Pew to carryon the work of independent forebears who found no quarrel between their deep religious convictions and the honest competition of an age that, in retrospect, I was much less of a dog-eat-dog era than we have supposed.

Biography and History In an absorbing little book called Faith and Freedom: The Journal of a Great American, J. Howard Pew (Grove City College, $6.00), Mary Sennholz has combined a sensitive biographical treatment of Howard Pew with a skilled job (she calls it a "compilation," which is over-modest) of presenting, in paraphrase and direct quotation, Mr. Pew's thoughts on religion, politics, charity, education and in dustrial enterprise. The combi nation makes for a remarkable tes tament that tells us more about an America that we are in danger of losing than can be found in scores of mQre, pretentious works. The distinguishing character istic of' Howard Pew was that he was whole-souled about everything he did. As a Presbyterian layman, he believed in the will of God and the gospel of Christ. He saw no conflict between Christianity and capitalism. It was not only good business, but good social relations, to offer a stock purchase plan to Sun employees and to refuse to make general layoffs or wage re ductions in depression years. Sun, in the-post-W orId War II years when the government was impos ing restrictive quotas on the im portation of crude oil from abroad, kept its tankers employed with smaller loads, an "uneconomic'" op eration that actually paid off by keeping an organization both in tact' and enthusiastic.

Meanwhile Sun pus1hed techno logical change as both a human and an industrial duty. It helped the French inventor Eugene Hou dry bring his catalytic cracking process to America in time to fuel more than half of all American war planes in 1942 and 1943. The Sun Shipbuilding Company was 754 THE FREEMAN December building half of all the new tank ers in the country in 1943, the peak year of the war effort. And, as a prelude to meeting the energy crisis of recent years, Howard Pew carried out the costly venture of developing a process of getting good synthetic crude oil from t'he tar sands of Athabasca in the Ca nadian province of Alberta. A Loyal Churchman To Howard Pew, obedience to the will of God meant keeping his beloved Presbyterian church from moving out of its "ecclesiastical field." The business of the clergy was to save souls, not to impose a socialism on society that would deny individual responsibilty to behave in a truly Christian man ner as a matter of voluntary com mitment. A believer in the "theol ogy of reformation," not the "the ology of revolution," Howard Pew was deeply shocked by the selec tive nature of a "social gospel"

that had much to say about Viet nam yet refused to speak out when Russians invaded Czechoslovakia or when Mao Tse-tung presided in China over the murder of mil lions of his countrymen. When he retired as the presiding operating officer of Sun Oil to go into the business of promoting good Chris tian education, he fought the many Protestant "modernists" who tried, as they are still trying, to identify morality with State compulsion in both social and eco nomic life. Charity, to Howard Pew, implied a voluntary commit ment; otherwise it was just orga nized thievery masquerading as good will. Opposed to Statism Howard Pew opposed Statism on principle. He would have been against it on grounds of conscience even if it had been compatible with industrial efficiency. Fortunately he was never compelled to go against the pragmatic evidence of the case. As a student of history he had noted that the "squirrel rifle" of the Pennsylvania fron tiersmen, produced by an individ ualist gunsmith in Lancaster who cut a spiral groove inside the gun barrel that gave the bullet a rotary movement, was far superior to the Brown Bess musket favored by both the British politicians in Lon don and the American Continental Congress. Washington had to fight the Congress for a limited supply of the Pennsylvania rifles, but he fooled the British and the Hes sians into thinking he had more of them by the trick of dressing troops in the frontier coonskin and leather of the Pennsylvanians.

The uniforming ruse was enough to start panic in the British; it could have been the determining factor in the war.

1975 FAITH AND FREEDOM 755 Howard Pew didn't object to governments for being conserva tive. But since they must be con servative to keep faith with tax payers, a point made by Ludwig von Mises in his book on bureau cracy, Mr. Pew thought they had no business invading the province of private industry, which has to be innovative to compete in the mar ketplace and to earn a dividend for investors. In his support of in stitutions such as Grove City Col lege and the Foundation for Eco nomic Education, Mr. Pew was en gaged in a principled fight for keeping the categories straight. The business of the church is to hold men to moral values. Men with moral values will obey the Golden Rule in their business deal ings. They will also live by the Parable of the Talents. The State, with its commitment to providing a just order in which free men can exercise their ingenuity, will not interfere with invention and the flow of energy. So the "freedom philosophy" will flourish.

Such was Howard Pew's credo. He lived it to the full. Faith and Freedom is available at $6.00 from The Foundation for Economic Education, Irvington-on-Hudson, New York 10533. ~ THERE'S NO SUCH THING AS A FREE LUNCH by Milton Fried man. (LaSalle, Illinois: Open Court, 1975), 330 pp., $9.95, $3.95 paper. Also published in paper by Thomas Horton and Daughters, Glen Ridge, New Jersey 07028, under the title An Economist's Protest, 2nd edition, $3.95. Reviewed by William H. Peterson ON AUGUST 17, 1971, two days after President Nixon launched his New Economic Policy on a dumbfounded world, ace Univers ity of Chicago economist Milton Friedman, past president of the American Economic Association and the Mont Pelerin Society, par ticipated (as did I) in a telephonic conference of 12 economists com menting on the President's his toric action. Ever the brilliant economist and debater, Friedman completely dominated the discussion. He pushed for floating exchange rates (which have since come to pass).

He said the President's shutting 756 THE FREEMAN December the gold window was but "window dressing," for the U.S. dollar had long been ineffect an inconvertible currency. And, above all, he em phatically predicted that the wagt:;~ price controls would fail as they had ever since Diocletian's Edict of 301 A.D., that they would prove a cloak for the deficit spenders in Congress and the easy-money boys in the Federal Reserve, that they would in fact breed greater infla tion than ever in America in the 20th century (which they most certainly have). Well, here is the genuine article, vintage Friedman, rare wine for free enterprisers, selected N ews week columns from 1966-1974 (some of which appeared in an earlier edition entitled An Econ omist's Protest). There is also his celebrated Playboy interview cov ering in one grand sweep a rather full panoply of his incisive views, plus his Fortune article on "Using Escalators To Help Fight Infla tion," his series in the New York Times on "Morality· and Controls"

and his corking analysis of our monolithic school system in his "The Voucher Idea" from the New York Times Sunday Magazine. In short, this is practically a new book, and it is capital. In all there are 97 entries under such headings as energy, central plan ning, the Post Office, education, indexation, social responsibility, gold, the voluntary army, the plight of Britain, taxation, regula tion and, of course, monetary policy. All of them are sharp and lively, full of timely examples, full of trenchant Friedman wit, full of that eternal verity that, no, Vir ginia, there is no such thing as a free lunch, that every bit of pork, every subsidy, every inflation, every poli tically-imposed ineffi ciency, is paid for, and paid for handsomely-by somebody. This vintage Friedman is, as usual, rich in aphorisms: • On inflation: "We know how to stop inflation - it isn't terribly difficult - we simply don't want to .

. . . After a while people begin to think they'd rather have the sick ness than the cure." • On pollution: "Even the most ardent environmentalist doesn't want to stop pollution He wants the right amount /' • On poverty programs: "The law of supply and demand works very generally: If there is a de mand for poor people, the supply of poor people will rise to meet the demand." • On Social Security: "If you talk about misleading labeling, So cial Security is about as mislead ing as you can get. It has nothing to do with social and it has nothing to do with the security of society. ... The employer and the employee each supposedly pay 5.85 percent, 1975 FAITH AND FREEDOM 757 but since the employer's half is part of his total wage cost, it's the employee who's really paying the whole bill." • On social responsibility: "When an executive decides to take action for reasons of social re sponsibility, he is taking money from someone else - from the stockholders, in the form of lower dividends; from the employees, in the form of lower wages; or from the consumer, in the form of high er prices."

'To be sure, the irrepressible Friedman specializes in contro versy, even among conservatives and libertarians. He is, for ex ample, no fan of gold-backed cur rency. He is the founding father of the negative income tax. He is a longtime critic of the Federal Re serve; indeed, he even blames the Fed for causing the Great Depres sion, as he spelled out in his pio neering A Monetary History of the United States (with Anna J. Schwartz). His charge today to Dr. Arthur F. Burns and the other Fed governors: Stop manipulating the money supply, and hew to a steady money stock growth form ula of about 4 percent a year. But no matter if you're a Fried manphile or a Friedmanphobe, reading his book you come away with a feeling that here is a scin tillating mind, a champion of the free market and a free society. For our money, Milton Friedman is a titan worthy of the next Nobel Prize in Economics. Voila, he has proven that while economics may be the science dismal it certainly doesn't have to be the science dull.

~ THE C9MfNG COLLAPSE OF THE POST OFFICE by Robert J. Myers (Englewood Cliffs, N.J. : Prentice-Hall, Inc., 1975), 182 pp~, $6.95 Reviewed by Melvin D. Barger THIRTY YEARS AGO, the economist Ludwig von Mises demonstrated in a commentary on bureaucracy that the only alternative to profit-seek ing business management is bu reaucratic management. There is a popular delusion that public en terprises can be set right by adopt ing the methods and managers of private business, but· Mises saw that this was impossible because of the fundamental difference be tween government and profit-seek ing private enterprise. So the an swer was to accept bureaucratic managers where necessary (say, in a police department), while at the same time curbing their pow ers by "bureaucratic makeshifts" to prevent them from becoming ir responsible spenders of public money who would disorganize the whole budget.

This was a wise observation that 758 THE FREEMAN December could have saved the United States billions of dollars; unfortunately, however, public policy is not shaped by students of Misesian economics. Nevertheless, events have a way of vindicating the wise master of the Austrian school. Robert J. Myers, in The C:)(nu Collapse 01 the Post 01lice, shows what happened when the U.S. post al system was transferred from ordinary bureaucratic management to a new government corporation that was supposed to solve all of the then current problems. Myers, pub lisher of the liberal magazine, The New Republic, indulges in some hyperbole to imply in his title that the postal collapse already has oc curred or came about only since the new postal corporation was launched on July 1, 1971. Some of us thought the postal system was in a mess under the old set-up, too. This reviewer, who had not taken the trouble to reread relevant por tions of Mises or to heed the warn ings of other libertarian stalwarts such as FEE's Leonard Read, thought that the "government cor poration" made sense and might conceivably bring needed improve ments in postal services.

But whether you call it collapse or merely confusion, the postal corpora tion has been a colossal fail ure that is providing even less ser· vice than before and at much high er cost. According to Myers, postal corporation managers have be come a self-serving elite and are now the highest paid executives in government. This reviewer remem bers that the postal unions opposed the new corporation; ironically, they have been able to get much fatter labor contracts from the new organization than they were ever able to get from the old bu reaucracy. Malinvestment is ram pant in the new corporation, ser vice is rapidly deteriorating, costs are spiraling in all directions, and mechanization programs have oft en been unsatisfactory. The cor poration was supposed to "break even," but it continues to operate at a deficit. Wha t went wrong? Myers comes very close to an accurate diagnosis of the problem, but his own con flicts of interest may have flawed an otherwise sound report. As pub lisher of a low-circulation intellec tual magazine, he defends sub sidies for publications. As the head of a magazine that rarely has a kind word for the business com munity, he voices constant critic ism of Big Business and the pro fit motive. He even attempts to portray the failure of the postal corporation as another private business failure without explain ing the significant differences be tween investor-owned companies and government enterprises.

If the book 'has an arch-villain, 1975 OTHER BOOKS 759 it is probably Frederick R. Kap pel, the retired A T & T head whose 1967 Commission Report launched the idea of a postal cor poration. Myers apparently sees the postal corporation as an ex tension of the same kind of she nanigans Kappel engaged in as chief of the Bell network, but it is noteworthy that the· average citizen would be pleased to have mail services equaling the tele phone system. Kappel's great abil ities simply did not carryover into government enterprises; in deed, his A T & T prestige may have helped foster the delusion that a government corporation would somehow "work." For that reason, he probably deserves the blame that Myers heaps on him and various postal executives. Despite his anti-business bias, Myers has high praise for the privately-owned United Parcel Service, the postal system's larg est and most successful competi tor. However, he does not identify profit-seeking as a primary factor in UPS's excellent service, nor does he really warm up to the idea of giving UPS a free hand with other types of mail.

Still, Myers does make a strong concession to the free marketplace by giving reasonable space to the libertarian argument that the Pri vate Express Statutes should be repealed, permitting anybody to carry mail. He quotes Human Events publisher Robert Kephart as an opponent of government sub sidy through non-compensatory postal rates of magazines and pub lications. "I would vastly prefer to see postal services demonopol ized; and the rise of a free mar ket competition in delivery of all classes of mail ..." According to Myers, this view has gained increasing support and respectability through the publi cation in 1974 of an American En terprise Institute monograph by economist John Haldi. Haldi points out that the statutory postal mo nopoly has no economic j ustifica tion, is no longer an important source of governmental revenue, and in no way promotes better or cheaper mail service. In fact, Haldi suggests, the monopoly prob ably impedes the development of better systems for delivering writ ten communications. Haldi's most telling argument, in Myers' view, is implied in the question: Why, if the Postal Service constitutes a "natural monopoly," does it re quire statutory protection?

In the end, Myers mentions, without advocacy, the repeal of the Private Express Statutes as one solution to the postal mess. He goes on to list other schemes, most of them variations of the intervention that has plagued the post office throughout its history.

760 THE FREEMAN December Despite its interventionist tone, Myers' book is a significant addi tion to the still-scarce current literature on postal problems and it has received considerable press attention. He should have diag nosed the failure of the new postal corporation as yet another failure of government rather than a bus iness failure such as Penn Cen tral or Rolls-Royce; after all, the executives· of the postal corpora tion are under no constraint to make a profit or to heed the other disciplines of·the marketplace. But Myers does show that government corporations are not the answ;er to the problems of government bureaucracy. He offers convincing proof that the autonomy of the government corporation becomes its undoing. Ludwig von Mises would have agreed, arguing that government bureaus such as the post office need "bureaucratic makeshifts" to keep them in line. But in a truly free market, with anybody permitted to carry.mail, nobody would need the poor pro tection of such makeshifts in the first place. ~ HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $2.50 each Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC.

IRVINGTONON·HUDSON, NEW YORK 10533 Index THE FREEMAN - Volume 25, January-December1975 Prepared by BETTINA BIEN GREAVES of the Foundation staff NOTE: In page references, the number preceding the colon designates the month, those follow ing refer to pages. All articles have at least three entries-author, subject, and title-except in a few cases when title clearly indicates subject matter. Books reviewed are listed on page 768. A AGRICULTURE On feeding the world (Beeler) 9:522-523 World food crisis, The (Pasour) 12:717-721 ANDERSON, C. W. Stop, thief! 10: 585-588 ANDERSON, Robert G. Gold is legal, but ... 1: 17-22 See also Book reviews (Pugsley) ANOTHER layer of protection? (McMunn) 7: 412-415 ANTITRUST Conspiracy economics (Cobb) 12:748-751 AUTUMN of our discontent, The (Braun) 6 :362-364 B BANKING and fractional reserves Gold standard and fractional-reserve banking, The (Cobb) 9: 569-572 Gold standards (Curley) 6: 353-361 Perfect counterfeit, A (McAdoo) 12: 722-726 BARGER, Melvin Occupational licensure under attack.

4: 195-201 See also Book reviews (Friedman; Grayson) BARTLETT, Bruce Great German inflation, The. 6: 367-373 Macaulay: defender of capitalism. 5: 272-276 BEELER, Dick On feeding the world. 9: 522-523 BETTER bread than dead. Excerpt from The Incredible Bread Machine (Brown and others) 10: 610-616 BICENTENNIAL, U. S. Great American revolution, The (Bradford) 7: 387-393 Great anniversary festival, The (Bradford) 5:259-271 BIXLER, Scott W. Educational freedom. 8: 451-460 BLUE eagles and deja vu (Wriston) 9 :560-566 BLUNDERS of the founding fathers (LaDow) 2:95-104 BOOTH, Arch Nationalize the power companies? 3: 154-155 BRADFORD, Ralph Common sense: whatever happened to it? 11: 646-656 Great American revolution, The. 7: 387-393 Great anniversary festival, The. 5: 259-271 Pursuit of excellence, The. 6: 344-350 BRAUN, Al Autumn of our discontent, The. 6:362-364 BRINDLE, Paul Luther Holy experiment. 2:67-74 BROWN, Susan Love, and others Better bread than dead. Excerpt from The Incredible Bread Machine.

10: 610-616 BROWNFELD, Allan C. How rent controls hurt the poor. 3: 150-153 Is freedom high on today's agenda? 9: 515-521 BURT, William D. Can this marriage be saved? 4: 230-236 "BUSINESS must make a profit" (Poirot) 3: 159-160 C CAN this marriage be saved? (Burt) 4: 230-236 CAPITALISM, Macaulay: defender of (Bartlett) 5: 272-276 CAPIT ALISM: definition -origins-dynamics (Watts) 10:628-634 CARSON, Clarence B. Reversal, The: liberty into servitude. 5: 277-283 CAVEA T emptor: the consumer's badge of authority (B. M. Sparks) 6: 323-337 CHAMBERLAIN, John. See Book reviews CITY Ilocal government Compulsory public-sector bargaining: the dissolution of social order (Petro) 8: 494-508 No new urban Jerusalem (Rogge) 3:161-177 COBB, Joe Conspiracy economics. 12: 748-751 Gold standard and fractional-reserve banking, The. 9: 569-572 COMMON sense: whatever happened to it? (Bradford) 11: 646-656 COMPULSORY public-sector bargaining: the dissolution of social order (Petro) 8: 494-508 CONCEPT of value in ethics and economics, The (Foley) 2:115-123 CONSPIRACY economics (Cobb) 12:748-751 CONSUMER protection, "consumerism"

Another layer of protection? (McMunn) 7: 412-415 Engineering regulation: the return to medievalism (Sarner) 11: 688-699 New national nightmare, The (Kilpatrick) 12:712-716 761 762 THE FREEMAN December CONSUMER sovereignty Caveat emptor: the consumer's badge of authority (B. M. Sparks) 6: 323-337 Justice in the market (Kelley) 1: 38-45 Nobility of the bourgeoisie, The (Opitz) 10: 600-609 What makes jobs scarce? (Rukeyser) 10: 579-584 Who is efficient? (Summers) 5: 301-303 CONTINUING efforts to destroy property rights, The (Siegan) 1: 46-47 COONEY, Ronald F. Freedom under fire, A. 11: 673-676 COST of statism, The (Summers) 1: 35-37 COUNTERFEIT, perfect (McAdoo) 12: 722-726 CURLEY, Charles Gold standards. 6: 353-361 o DEPRESSION, economic Great depression, The (H. F. Sennholz) 4: 204-215 How inflation breeds recession (Hazlitt) 3: 131-137 Message of depression, The (Poi rot) 4:216-219 See also Money DEREGULATION -what prospects?

(Hagedorn) 10:597-599 DOES government spending bring prosperity? (P. L. Greaves) 6:374-380 DONWAY, Roger. See Book reviews (Nozick) E ECONOMIC development/progress Capitalism: definition - origins - dynamics (Watts) 10: 628-634 Falling on deaf ears (J. C. Sparks) 5: 284-288 He gains most who serves best (Poirot) 5: 313-316 Macaulay: defender of capitalism (Bartlett) 5:272-276 Magic, envy and economic underdevelopment (North) 2: 80-87 ECONOMIC theory (Austrian School) Marx, Mises and the interest doctrines (Osterfeld) 4: 220-229 EDUCATION, public schools and texts Conspiracy economics (Cobb) 12: 748-751 Educational freedom (Bixler) 8:451-460 Reversal, The: liberty into servitude (Carson) 5: 277-283 EDUCATION, self-improvement Individuality and intellectual independence (Wortham) 8:463-471 Lifelong learning (Royal Bank of Canada Monthly Letter) 5: 304-312 Pursuit of excellence, The (Bradford) 6 :344-350 School of mankind; The (Read) 9: 537-540 EDUCATIONAL freedom (Bixler) 8:451-460 ENERGY production and crisis Environmentalism and energy problems (Siegan) 6: 364-366 Government's energy crisis, The (Guccione) 9: 541-549 Nationalize the power companies? (Booth) 3: 154-155 Tollway to nowhere, The (Moore) 9: 550-556 ENGINEERING regulation: the return to medievalism (Sarner) 11: 688-699 ENVIRONMENT and pollution Government's energy crisis, The (Guccione) 9:541-549 No new urban Jerusalem (Rogge) 3: 161-177 Modern soothsayers (Siegan) 4: 202-203 ENVIRONMENT ALISM and energy problems (Siegan) 6: 364-366 ENVY Magic, envy and economic underdevelopment (North) 2:80-87 Why do "they" turn to socialism? (Opitz) 7 :429-444 EQUAL opportunity versus individual opportunity (Wortham) 7:416-423 F FALLING on deaf ears (J. C. Sparks) 5 :284-288 FEDERAL Reserve System Gold is honest money (H. F. Sennholz) 2:88-94 Great depression, The (H. F. Sennholz) 4:204-215 Search for an ideal money, The (Hazlitt) 11: 660-672 See also Money FERTIG, Lawrence Political costs of price inflation, The 3: 138-145 FOLEY, Ridgway K., Jr.

Concept of value in ethics and economics, The. 2: 115-123 Police power: sovereignty's sledgehammer. 11 :677-687 FRANCIS, Darryl R. Public policy for a free economy. 10:589-596 FREE money is sound money (H. F. Sennholz) 6:338-343 FREE enterprise, free market Caveat emptor: the consumer's badge of authority (B. M. Sparks) 6: 323-337 Does government spending bring prosperity? (P. L. Greaves) 6:374-380 Nobility of the bourgeoisie, The (Opitz) 10: 600-609 1975 INDEX 763 On feeding the world (Beeler) 9: 522-523 Public policy for a free economy (Francis) 10:589-596 Religion and the free economy (Opitz) 5:289-300 Social responsibility (Wiborg) 12:746-747 FREE market, The: eternally there (Zarbin) 10:626-627 FREEDOM and the individual Capitalism: definition-origins-dynamics (Watts) 10:628-634 Concept of value in ethics and economics, The (Foley) 2:115-123 Equal opportunity versus individual opportunity (Wortham) 7:416-423 Falling on deaf ears (J. C. Sparks) 5: 284-288 Is freedom high on today's agenda?

(Brownfeld) 9:515-521 Law, The (Watts) 8:472-483 Liberalism used to mean freedom (Opitz) 12:727-745 Pursuit of excellence, The (Bradford) 6: 344-350 FREEDOM of choice, free will Individuality and intellectual independence (Wortham) 8:463-471 Matter of choice, A (Hampton) 11: 643-645 Religion and the free economy (Opitz) 5 :289-300 FREEDOM of speech/thought/religion Holy experiment (Brindle) 2:67-74 Liberty and property (Kelley) 10: 617-625 FREEDOM under fire, A (Cooney) 11: 673-676 FRIEDMAN, Milton-ideas of Occupational licensure under attack (Barger) 4: 195-201 Search for an ideal money, The (Hazlitt) 11: 660-672 G GAYLORD, Edson I. Shop talk. 9: 524-528 GERMANY, 1923 inflation How inflation breeds recession (Hazlitt) 3: 131-137 Great German inflation, The (Bartlett) 6:367-373 GIFFORD, Alice Stephen Story of Gunch and his magical scheme, The. 11: 657-659 GOLD is honest money (H. F. Sennholz) 2 :88-94 GOLD is legal, but ... (R. G. Anderson) 1: 17-22 GOLD standard and fractional-reserve banking, The (Cobb) 9: 569-572 GOLD standard, The: a standard for freedom (Stevens) 1: 3-12 GOLD standards (Curley) 6:353-361 GOVERNMENT employees Compulsory public-sector bargaining: the dissolution of social order (Petro) 8 :494-508 Unions - and other gangs (Wilke) 12:707-711 GOVERNMENT intervention, control Blue eagles and deja vu (Wriston) 9: 560-566 Cost of statism, The (Summers) 1: 35-37 Deregulation - what prospects?

(Hagedorn) 10:597-599 Great depression, The (H. F. Sennholz) 4: 204-215 In search of freedom (Moreell) 4:237-247 New national nightmare, The (Kilpatrick) 12:712-716 Public policy for a free economy (Francis) 10: 589-596 Tollway to nowhere, The (Moore) 9: 550-556 GOVERNMENT licensing Engineering regulation: the return to medievalism (Sarner) 11: 688-699 Justice in the market (Kelley) 1:38-45 Occupational licensure under attack (Barger) 4:195-201 Slings and arrows (Wilke) 7: 394-398 GOVERNMENT, role of Can this marriage be saved? (Burt) 4: 230-236 Caveat emptor: the consumer's badge of authority (B. M. Sparks) 6: 323-337 Compulsory public-sector bargaining: the dissolution of social order (Petro) 8: 494-508 Concept of value in ethics and economics, The (Foley) 2: 115-123 Does government spending bring prosperity? (P. L. Greaves) 6:374-380 Law, The (Watts) 8:472-483 Liberalism used to mean freedom (Opitz) 12: 727-745 Police, The: friend or foe? (Read) 2:75-79 Police power: sovereignty's sledgehammer (Foley) 11:677-687 GOVERNMENT spending Common sense: whatever happened to it?

(Bradford) 11: 646-656 Does government spending bring prosperity? (P. L. Greaves) 6:374-380 Gold is honest money (H. F. Sennholz) 2: 88-94 GOVERNMENT'S energy crisis, The (Guccione) 9: 541-549 GREAT American revolution, The (Bradford) 7: 387-393 764 THE FREEMAN December GREAT anniversary festival, The (Bradford) 5: 259-271 GREAT depression, The (H. F. Sennholz) 4: 204-215 GREA T German inflation, The (Bartlett) 6: 367-373 GREA VES, Bettina Bien. See Book reviews (Brandenburg) GREAVES, Percy L., Jr. Does government spending bring prosperity'? 6: 374-380 GUCCIONE, Eugene Government's energy crisis, The. 9: 541-549 GUN control Freedom under fire, A (Cooney) 11: 673-676 H HAGEDORN, George Deregulation - what prospects'? 10: 597-599 HAMPTON, Ruth E. Matter of choice, A. 11: 643-645 HAZLITT, Henry How inflation breeds recession. 3: 131-137 Search for an ideal money, The. 11: 660-672 HE gains most who serves best (Poirot) 5: 313-316 HOLY experiment (Brindle) 2:67-74 HOUSING, building, construction How rent controls hurt the poor (Brownfeld) 3:150-153 Land use regulation harms the poor (Siegan) 9:557-559 Occupational licensure under attack (Barger) 4:195-201 Tollway to nowhere, The (Moore) 9:550-556 Zoning misuses land and other resources ( Siegan) 8: 461-462 HOW inflation breeds recession (Hazlitt) 3: 131-137 HOW rent controls hurt the poor (Brownfeld) 3: 150-153 I IDEAS, innovations Liberty and property (Kelley) 10:617-625 Progression of profitability, The (Wilke) 3: 156-159 Thank God for the mess we're in (Read) 3: 146-149 IMPACT of inflation on management decisions, The (Peterson) 7: 399-411 IN search of freedom (MoreeIl) 4:237-247 INCREDIBLE bread machine, The (Campus Studies Institute) Review, 1: 63-64; Excerpt, 10: 610-616 INDIVIDUALITY and intellectual independence (Wortham) 8:463-471 INDIVIDUALS, individuality Equal opportunity versus individual opportunity (Wortham) 7: 416-423 Majority of one, A (Nathan) 6:351-352 Matter of choice, A (Hampton) 11: 643-645 Organization or the individual, The'?

(Peterson) 2: 105-114 Why do "they" turn to socialism? (Opitz) 7 :429-444 INSECURITY of security, The (Shumiatcher) 8: 484-493 IS freedom high on today's agenda? (Brownfeld) 9:515-521 J JUSTICE in the market (Kelley) 1:38-45 JUSTICE, judicial system Freedom under fire, A (Cooney) 11:673-676 Law, The (Watts) 8:472-483 Liberalism used to mean freedom (Opitz) 12: 727-745 K KEA TING, Karl. See Incredible bread machine KELLEY, David Justice in the market. 1: 38-45 Liberty and property. 10: 617-625 KILPATRICK, James J. New national nightmare, The. 12: 712-716 L LABOR, wages, employment Justice in the market (Kelley) 1: 38-45 No new urban Jerusalem (Rogge) 3: 161-177 Wages, unemployment and inflation (Mises) 9: 529-536 What makes jobs scarce? (Rukeyser) 10: 579-584 LABOR unions Compulsory public-sector bargaining: the dissolution of social order (Petro) 8: 494-508 Occupational licensure under attack (Barger) 4: 195-201 Significance of services - hiring and firing (Paton) 1: 48-57 Unions - and other gangs (Wilke) 12: 707-711 LaDOW, Charles R.

Blunders of the founding fathers. 2: 95-104 LAND speculators (Siegan) 3: 183-184 LAND use regulation harms the poor ( Siegan) 9: 557-559 LAND use/reform Continuing efforts to destroy property rights, The (Siegan) 1:46-47 No new urban Jerusalem (Rogge) 3: 161-177 World food crisis, The (Pasour) 12:717-721 Zoning misuses land and other resources (Siegan) 8: 461-462 LAW, The (Watts) 8:472-483 1975 INDEX 765 LEWIS, Edward A. See Book reviews (Lambro) LIBERALISM used to mean freedom (Opitz) 12:727-745 LIBERTY and property (Kelley) 10: 617-625 LIFELONG learning (Royal Bank of Canada Monthly Letter) 5:304-312 M MACA ULA Y: defender of capitalism (Bartlett) 5: 272-276 MAGIC, envy and economic underdevelopment (North) 2:80-87 MAJORITY of one, A (Nathan) 6:351-352 MARX, Mises and the interest doctrines (Osterfeld) 4: 220-229 MATTER of choice, A (Hampton) 11: 643-645 McADOO, James E. Perfect counterfeit, A. 12: 722-726 McMUNN, Earl W.

Another layer of protection? 7: 412-415 MEDICAL practice/profession Occupational licensure under attack ( Barger) 4: 195-201 Slings and arrows (Wilke) 7: 394-398 MELLINGER, David. See Incredible bread machine MESSAGE of depression, The (Poirot) 4:216-219 MISES, Ludwig von Wages, unemployment and inflation. 9: 529-536 MISES, Ludwig von - ideas of Educational freedom (Bixler) 8:451-460 Marx, Mises and the interest doctrines (Osterfeld) 4: 220-229 MODERN soothsayers (Siegan) 4: 202-203 MONETARISM Search for an ideal money, The (Hazlitt) 11: 660-672 MOORE, Robert C. Tollway to nowhere, The. 9: 550-556 MONEY and inflation Does government spending bring prosperity? (P. L. Greaves) 6:374-380 Free money is sound Inoney (H. F. Sennholz) 6:338-343 Gold is honest money (H. F. Sennholz) 2 :88-94 Gold is legal, but ... (R. G. Anderson) 1:17-22 Gold standard, The: a standard for freedom (Stevens) 1: 3-12 Gold standard and fractional-reserve banking, The (Cobb) 9: 569-572 Gold standards (Curley) 6: 353-361 Great depression, The (H.F. Sennholz) 4: 204-215 Great German inflation, The (Bartlett) 6: 367-373 How inflation breeds recession (Hazlitt) 3: 131-137 Impact of inflation on management decisions, The (Peterson) 7: 399-411 Perfect counterfeit, A (McAdoo) 12 :722-726 Political costs of price inflation, The (Fertig) 3: 138-145 Search for an ideal money, The (Hazlitt) 11: 660-672 Stop, thief! (C. W. Anderson) 10:585-588 Those things called money (Read) 1: 13-16 Two-digit inflation (H. F. Sennholz) 1 :23-35 Wages, unemployment and inflation (Mises) 9: 529-536 MORALITY, ethics, culture Capitalism: definition - origins dynamics (Watts) 10:628-634 Concept of value in ethics and economics, The (Foley) 2: 115-123 Liberalism used to mean freedom (Opitz) 12:727-745 Magic, envy and economic underdevelopment (North) 2: 80-87 Religion and the free economy (Opitz) 5: 289-300 Why do "they" turn to socialism? (Opitz) 7: 429-444 MOREELL, Ben In search of freedom. 4: 237-247 N NATHAN, Jo Majority of one, A. 6: 351-352 NATION ALIZE the power companies?

(Booth) 3: 154-155 NEW kind of politician, A (Williams) 9: 567-568 NEW national nightmare, The (Kilpatrick) 12: 712-716 NO new urban Jerusalem (Rogge) 3:161-177 NOBILITY of the bourgeoisie, The (Opitz) 10: 600-609 NORTH, Gary Magic, envy and economic underdevelopment. 2: 80-87 Step to the rear, please. 3: 178-182 o OCCUP ATION AL licensure under attack (Barger) 4:195-201 ON feeding the world (Beeler) 9: 522-523 OPITZ, Edmund A. Liberalism used to mean freedom. 12: 727-745 Nobility of the bourgeoisie, The. 10: 600-609 766 THE FREEMAN December Religion and the free economy. 5: 289-300 Why do "they" turn to socialism? 7: 429-444 See also Book reviews ( Evans) ORGANIZA TION or the individual, The? (Peterson) 2: 105-114 OSTERFELD, Dave Marx, Mises and the interest doctrines. 4 :220-229 p PAINE, Thomas - ideas of Common sense: whatever happened to it? ( Bradford) 11: 646-656 PASOUR, E. C., Jr.

World food crisis, The. 12:717-721 PATON, W. A. Significance of services - hiring and firing. 1: 48-57 PERFECT counterfeit, A (McAdoo) 12: 722-726 PETERSON, William H. Impact of inflation on management decisions, The. 7: 399-411 Organization or the individual, The? 2: 105-114 See also Book reviews (Freeman; Myers) PETRO, Sylvester Compulsory public-sector bargaining: the dissolution of social order. 8: 494-508 PENN, William - ideas of Holy experiment (Brindle) 2:67-74 POIROT, Paul L. "Business must make a profit." 3: 159-160 He gains most who serves best. 5:313-316 Message of depression, The. 4:216-219 POLICE, The: friend or foe? (Read) 2:75-79 POLICE power: sovereignty's sledgehammer (Foley) 11: 677-687 POLITICAL action Deregulation - what prospects? ( Hagedorn) 10: 597-599 Is freedom high on today's agenda? (Brownfeld) 9:515-521 New kind of politician, A (Williams) 9:567-568 POLITICAL costs of price inflation, The (Fertig) 3:138-145 POST, Patrea. See Incredible bread machine PRICES, pricing Land speculators (Siegan) 3: 183-184 Profit and loss (Summers) 7: 424-428 Step to the rear, please (North) 3:178-182 Who is efficient? (Summers) 5:301-303 PRIV ATE property Better bread· than dead (Brown and others) 10: 610-616 Capitalism: definition - origins - dynamics (Watts) 10:628-634 Continuing efforts to destroy property rights, The (Siegan) 1 :46-47 He gains most who serves best (Poirot) 5: 313-316 Liberty and property (Kelley) 10: 617-625 No new urban Jerusalem (Rogge) 3: 161-177 PROFIT and loss (Summers) 7:424-428 PROFIT and loss system "Business must make a profit" (Poirot) 3: 159-160 Progression of profitability, The (Wilke) 3: 156-159 Who is efficient? (Summers) 5: 301-303 PROGRESSION of profitability, The (Wilke) 3: 156-159 PUBLIC policy for a free economy (Francis) 10: 589-596 PURSUIT of excellence, The (Bradford) 6 :344-350 R RAICO, Ralph. See Book reviews (Szasz) READ, Leonard E.

Police, The: friend or foe? 2: 75-79 School of mankind, The. 9: 537-540 Thank God for the mess we're in. 3: 146-149 Those things called money. 1: 13-16 RELIGION and the free economy (Opitz) 5: 289-300 RENT controls, how they hurt the poor (Brownfeld) 3: 150-153 REVERSAL, The: liberty into servitude (Carson) 5:277-283 RICKENBACKER, William. See Book reviews (P. L. Greaves) ROGGE, Benjamin A. No new urban Jerusalem. 3:161-177 ROY AL Bank of Canada Monthly Letter Lifelong learning. 5: 304-312 RUKEYSER, Merryle Stanley What makes jobs scarce? 10: 579-584 S SARNER, Larry W. Engineering regulation: the return to medievalism. 11: 688-699 SAVINGS, investment Stop, thief! (C. W. Anderson) 10:585-588 Wages, unemployment and inflation (Mises) 9: 529-536 SCHOOL of mankind, The (Read) 9:537-540 SEARCH for an ideal money, The (Hazlitt) 11: 660-672 SENNHOLZ, Hans F. Free money is sound money. 6:338-343 Gold is honest money. 2 :88-94 Great depression, The. 4:204-215 Two-digit inflation. 1: 23-35 See also Book reviews (Grayson) SHOP talk (Gaylord) 9:524-528 1975 INDEX 767 SHUMIATCHER, Morris C.

Insecurity of security, The. 8:484-493 SIEGAN, Bernard H. Continuing efforts to destroy property rights, The. 1: 46-47 Environmentalism and energy problems. 6 :364-366 Land speculators. 3: 183-184 Land use regulation harms the poor. 9: 557-559 Modern·soothsayers. 4: 202-203 Zoning misuses land and other resources. 8:461-462 SIGNIFICANCE of services - hiring and firing (Paton) 1: 48-57 SLINGS and arrows (Wilke) 7:394-398 SMITH, Stuart. See Incredible bread machine SOCIAL responsibility (Wiborg) 12: 746-747 SOCIALISM, why do "they" turn to it? ( Opi tz) 7: 429-444 SOVEREIGNTY'S sledgehammer, police power (Foley) 11: 677-687 SPARKS, Bertel· M. Caveat emptor: the consumer's badge of authority. 6:323-337 SPARKS, John C. Falling on deaf ears. 5: 284-288 SHORT stories, parables Autumn of our discontent, The (Braun) 6: 362-364 Perfect counterfeit, A (McAdoo) 12 :722-726 Story of Gunch and his magical scheme, The (Gifford) 11:657-659 STATES rights/power Police power: sovereignty's sledgehammer (Foley) 11: 677-687 STEP to the rear, please (North) 3: 178-182 STEVENS, Paul Gold standard, The: a standard for freedom. 1: 3-12 STOP, thief! (C. W. Anderson) 10: 585-588 STORY of Gunch and his magical scheme, The (Gifford) 11: 657-659 SUMMERS, Brian Cost of statism, The. 1: 35-37 Profit and loss. 7: 424-428 Who is efficient? 5 :301-303 See also Book reviews (Campus Studies Institute) T TAXATION Cost of statism, The (Summers) 1: 35-37 Progression of profitability, The (Wilke) 3: 156-159 Shop talk (Gaylord) 9:524-528 THANK God for the mess we're in (Read) 3: 146-149 THOSE things called money (Read) 1:13-16 TOLLWAY to nowhere, The (Moore) 9 :550-556 TOCQUEVILLE, Alexis de - ideas of New national nightmare, The (Kilpatrick) 12: 712-716 TUDOR, Catriona. See Incredible bread machine TWO-DIGIT inflation (H. F. Sennholz) 1 :23-35 U UNIONS - and other gangs (Wilke) 12 :707-711 U. S. CONSTITUTION Blunders of the Founding Fathers (LaDow) 2: 95-104 Can this marriage be saved? (Burt) 4:230-236 In search of freedom (Moreell) 4:237-247 Police power: sovereignty's sledgehammer (Foley) 11: 677-687 Reversal, The: liberty into servitude (Carson) 5: 277-283 U. S. HISTORY, colonial Better bread than dead (Brown and others) 10: 610-616 Common sense: whatever happened to it'!

(Bradford) 11: 646-656 Great American revolution, The (Bradford) 7: 387-393 Great anniversary festival, The (Bradford) 5:259-271 Holy experiment (Brindle)· 2:67-74 D. S. HISTORY, New Deal Blue eagles and deja vu (Wriston) 9: 560-566 Great depression, The (H. F. Sennholz) 4: 204-215 v V ALDES, subjective Concept of value in ethics and economics, The (Foley) 2: 115-123 Marx, Mises and the interest doctrines (Osterfeld) 4: 220-229 No new urban Jerusalem (Rogge) 3: 161-177 VICHAS, Robert. See Book reviews (Carabini) W WAGES, unemployment and inflation (Mises) 9: 529-536 WATTS, V. Orval Capitalism: definition - origins dynamics. 10: 628-634 Law, The. 8: 472-483 768 THE FREEMAN December WELF ARE state philosophy Autumn of our discontent, The (Braun) 6: 362-364 Insecurity of security, The (Shumiatcher) 8:484-493 Macaulay: defender of capitalism (Bartlett) 5: 272-276 Reversal, The: liberty into servitude (Carson) 5: 277-283 Police power: sovereignty's sledgehammer (Foley) 11: 677-687 WHA T makes jobs scarce? (Rukeyser) 10 :579-584 WHO is efficient? (Summers) 5:301-303 WHY do "they" turn to socialism? (Opitz) 7: 429-444 WIBORG, James H.

Social responsibility. 12:746-747 WILKE, Joan Progression of profitability, The. 3: 156-159 Slings and arrows. 7: 394-398 Unions - and other gangs. 12: 707-711 WILLIAMS, David A. New kind of politician, A 9:567-568 WORLD food crisis, The (Pasour) 12:717-721 WORTHAM, Anne Equal opportunity versus individual opportunity. 7 :416-423 Individuality and intellectual independence. 8:463-471 WRISTON, Walter B. Blue eagles and deja vu. 9: 560-566 z ZARBIN, Earl Free market, The: eternally there. 10:626-627 ZONING misuses land and other resources (Siegan) 8: 46::'-462 BOOK REVIEWS (Reviewer's name in parentheses) BECKERMAN, Wilfred. Two cheers for the affluent society (Chamberlain) 7: 445-448 BRANDENBURG, Howard. Economics and Marx: the fraudulent antagonists (B. B. Greaves) 1:61-63 CAMPUS Studies Institute. The incredible bread machine (Summers) 1: 63-64; excerpt reprinted, 10: 610-616 CARABINI, Louis (ed.) Everything you need to know now about gold and silver (Vichas) 4: 253-255 EVANS, Mark. Will the real young America please stand up? (Opitz) 1: 64 FREEMAN, Roger A. The growth of the American government (Peterson) 10: 638-640 FRIEDMAN, Milton. There's no such thing as a free lunch (Barger) 12:755-758 GAVIN, William F. Street corner conservative (Chamberlain) 11: 700-703 GRAYSON, C. Jackson, Jr. with Neeb, Louis.

Confessions of a price controller (Barger) 3:188-191; (H. F. Sennholz) 3:191-192 GREAVES, Bettina Bien. Free market economics: syllabus and basic reader (Chamberlain) 10: 635-638 GREAVES, Percy L., Jr. Mises made easier: a glossary for Ludwig von Mises' Human Action (Rickenbacker) 2:127-128 KIRK, Russell. The roots of American order (Chamberlain) 2: 124-127 LAMBRO, Donald. The federal rathole (Lewis) 11: 704 MAPP, Alf J., Jr. The Virginia experiment (Chamberlain) 1: 58-61 MYERS, Robert J. The co)(1ng collapse of the post office (Peterson) 12: 758-760 NORTH, Gary. Puritan economic experiments. 5: 320 NOZICK, Robert. Anarchy, state and utopia (Donway) 4:251-253 PETRO, Sylvester. Sovereignty and compulsory public-sector bargaining (Chamberlain) 5:317-320 PUGSLEY, John A. Common sense economics: your guide to financial independence in the age of inflation (R. G. Anderson) 11:703-704 READ, Leonard E. Castles in the air (Chamberlain) 6: 381-384 SCOTT, Otto J. The creative ordeal (Chamberlain) 3: 185-188 SENNHOLZ, Hans F. (ed.) Gold is money (Chamberlain) 9: 573-576 SENNHOLZ, Mary (compiler) Faith and freedom: the journal of a great American J. Howard Pew (Chamberlain) 12:752-755 SERENY, Gitta. Into that darkness: from mercy killing to mass murder (Chamberlain) 8: 509-512 SZASZ, Thomas. Ceremonial chemistry: the ritual persecution of drugs, addicts and pushers (Raico) 4: 255-256 U. S. JAYCEES Foundation. Uplift: what people themselves can do (Chamberlain) 4: 248-251

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Title: The Freeman 1975

Author: Foundation for Economic Education

First published: 1950

Series: The Freeman, volume 25

Source file: The Freeman 1975.pdf

Source page: https://freecapitalists.org/books/the-freeman-1975/

Converted: 2026-08-09 by The Liberty Archive (freecapitalists.org), converter v6

Table of Contents

The Freeman 1975

- The Gold Standard; P. Stevens
- Those Things Called Money; L. E. Read
- Gold is Legal, But; R. Anderson
- Two-Digit Inflation; H. Sennholz
- The Cost of Statism; B. Summers
- Justice in the Market; D. Kelley

- The Continuing Efforts to Destroy Property Rights; B. Siegan

- Signicance of Service; W. A. Paton

- Book Reviews

February

- Holy Experiment; P. L. Brindle

- The Police; L.E. Read

- Magic, Envy, and Economic Underdevelopment; G. North

- Gold is Honest Money; H. Sennholz

- Blunders of the Founding Fathers; C. LaDow

- The Organization of the Individual? W. Peterson

- The Concept of Value in Ethics and Economics; R. Foley, Jr.

- Book Reviews

March

- How Inflation Breeds Recession; H. Hazlitt

- The Political Costs of Price Inflation; L. Fertig

- Thank God for the Mess We're In; L.E. Read

- How Rent Controls Hurt the Poor; A. Brownfeld

- Nationalize the Power Companies? A. Booth
- The Progression of Profitability; J. Wilke
- No New Urban Jerusalem; B. Rogge
- Step to the Rear, Please; G. North
- Land Speculators; B. Siegan
- Book Reviews

April

- Occupational Licensure Under Attack; M. Barger

- Modern Soothsayers; B. Siegan
- The Great Depression; H. Sennholz
- The Message of Depression; P.L. Poirot

- Marx, Mises, and the Interest Doctrines; D. Osterfeld

- Can This Marriage Be Saved? W. Burt
- In Search of Freedom; B. Moreell
- Book Reviews

May

- The Great Anniversary Festival; R. Bradford

- Macaulay: Defender of Capitalism; B. Bartlett

- The Reversal: Liberty into Servitude; C. Carson

- Falling on Deaf Ears; J. C. Sparks
- Religion and the Free Economy; E. Opitz
- Who is Efficient? B. Summers
- Lifelong Learning
- He Gains Most Who Serves Best; P. L. Poirot
- Book Reviews

June

- Caveat Emptor; B. Sparks
- Free Money; H. Sennholz
- The Pursuit of Excellence; R. Bradford
- A Majority of 1; J. Nathan
- Gold Standards; C. Curley
- The Autumn of Our Discontent; A. Braun

- Environmentalism and Energy Problems; B. Siegan

- The Great German Inflation; B. Bartlett

- Does Government Spending Bring Prosperity? P. L. Greaves. Jr.

- Book Reviews

July

- The Great American Revolution; R. Bradford

- Slings and Arrows; J. Wilke

- The Impact of Inflation on Managment Decisions; W. Peterson

- Another Layer of Protection; E. McMunn

- Equal Opporunity versus Individual Opportunity; A. Wortham

- Profit and Loss; B. Summers
- Why Do "They" Turn to Socialism; E. Opitz
- Book Reviews

August

- Educational Freedom; S. Bixler

- Zoning; B. Siegan

- Individuality and Intellectual Independence; A. Wortham

- The Law; V. O. Watts

- The Insecurity of Security; M. Schumiatcher

- Cumpulsary Public-Sector Bargaining; S. Petro

- Book Reviews

September

- Is Freedom High on Today's Agenda? A. Brownfeld

- On Feeding the World; D. Beeler

- Shop Talk

- Wages, Unemployment, and Inflation; L. von Mises

- The School of Mankind; L. E. Read
- The Government's Energy Crisis; E. Guccione
- The Tollway to Nowhere; R. Moore

- Land Use Regulation Harms the Poor; B. Siegan

- Blue Eagles and Deja Vu; W. Wristen

- A New Kind of Politician; D. Williams

- The Gold Standard and Fractional-Reserve Banking; J. Cobb

- Book Reviews

October

- What Makes Jobs Scarce? M. Rukeyser
- Stop, Thief! C. W. Anderson
- Public Policy; D. R. Francis
- Deregulation - What Prospects? G. Hagedorn
- The Nobility of the Bourgeoisie; E. Opitz
- Better Bread than Dead; Brown et al
- Liberty and Property; D. Kelley
- The Free Market: Eternally There; E. Zarbin
- Capitalism: V. Orval Watts
- Book Reviews

November

- A Matter of Choice; R. Hampton

- Common Sense - Whatever Happened to It?

- The Story of Gunch and His Magical Scheme; A. Gifford

- The Search for an Ideal Money; H. Hazlitt

- A Freedom Under Fire; R. Cooney

- Police Power: Sovereignty's Sledgehammer; R. Foley, Jr.

- Engineering Regulation; L. Sarner

- Book Reviews

December

- Unions and other Gangs; J. Wilke
- The New National Nightmare; J. Kilpatrick
- The World Food Crisis; E. C. Pasour, Jr.
- A Perfect Conterfeit; J. E. McAdoo
- Liberalism Used to Mean Freedom
- Social Responsiblity; J. Wiborg
- Conspiracy Economics; J. Cobb
- Book Reviews

Index
Book Reviews
About this edition