Date: 1950-01-01T07:00:00+00:00
Keywords: liberty
Description: The Foundation for Economic Education The Freeman 1979

The Freeman 1979

Foundation for Economic Education
tt)f~ Freeman VOL. 29, NO.1. JANUARY 1979 The Torrent of Laws Henry Hazlitt 3 The proliferation of laws at all levels of government diminishes the liberty of the individual and leads to dictatorship. War Without End Alejandro Chafuen 12 How the exploitation theory of Marx translates into terrorist activities. World in the Grip of an Idea 25. The Cold War: Terrorizing Many Lands Clarence B. Carson 18 A world survey of the vital role of terror tactics in the communist drive for power. The Market Economy Ys. The Welfare State Percy L. Greaves, Jr. 32 Why living standards decline in a society of factions fighting for "fair shares." The Attack on Concentration Yale Brozen 38 Firms that efficiently win a large share of the market face FTC and antitrust prosecution-to the detriment of consumers. Has Capitalism a Future? Paul Johnson 47 A noted BritiSh historian checks the record of 5000 years and our prospects for survival in these threatening times.

BookRe~ews: 60 "John Randolph of Roanoke: A Study in American Politics" by Russell Kirk "Arator" by John Taylor "The Critics of Keynesian Economics" edited by Henry Hazlitt . Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

tt1e I A E~L~~N~~~N LIBERTY FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year.

Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "World in the Grip of an Idea," "The Market Economy vs. The Welfare State,"and "Has Capitalism a Future?"

ALL OVER the United States, if you are reading this in a day light hour, there is a ceaseless downpour of new laws. Every day some of us, some where, are being encumbered or shackled by still more restrictions. There are just too many laws. But how do we tell how many laws are too many, and which ones are pernicious? Let us begin with some elemen tary considerations. A law may be defined as an edict which either for bids you to do something or compels you·to do something. Sometimes, it is true, it may be merely a guiding rule which tells you how to do some thing, or defines procedures or stanHenry Hazlltt, noted economist, author, editor, re viewer and columnist, Is well known to readers of the New York Times, Newsweek, The Freeman, Bar ron's, Human Events and many others. The most recent of his numerous books Is The Inflation Crisis, and How to Resolve It. dards, like weights and measures.

But such standard-setting laws are few in number. Most laws are prohi bitions or compulsions-in short, commands. Why are laws necessary? They are necessary, first of all, to prevent people from injuring or aggressing against their neighbors; to prevent theft and fraud, vandalism and vio lence. On the more positive side, they are necessary to lay down rules of action, so that others may know what to expect of us and we of others, so that we may anticipate each other's actions, keep out of each other's way, and work and act so far as possible in cooperation and har mony. In a modern society, the traffic laws epitomize law in general. When they instruct us to keep on the right side, to drive within a specified 3 4 THE FREEMAN January speed limit on a given street or highway, to stop at a red light, to signal our intended turns, they may seem to an impatient driver to be restricting his liberty, to be prevent ing him from getting to his destina tion in minimum time. But because these restrictions apply to everyone else, they are, if they are well conceived, helping not only him but all of us to get to our multitudinous destinations in the minimum time in which this can be done smoothly and safely.

How many traffic laws do we need? That is a difficult question to answer numerically. A general traf fic code need consist only of a few simple rules, but they could all, it would seem, easily be embodied in a single statute. In any case, if the government confined itself to enact ing a code of laws simply intended to prevent mutual aggression and to maintain peace and order, it is hard to see how such a code would run into any great number of laws. England in 1854 Now let us look at the situation we actually face. In order to get an adequate picture, let us begin by comparing it with the situation as it existed more than a century ago in, for example, England. Let us take the year 1854, when the British philosopher, Herbert Spencer, wrote an essay on uOverlegislation." Some of us are apt to assume that the mid-nineteenth century in England was perhaps the time and place when a great nation came nearest to a laissez-faire regime. Spencer did not find it so. He found the country buried under needless legislation, and piling up more. With the change of a few details, his essay sounds as if it were written yesterday: cCTake up a daily newspaper and you will probably find a leader ex posing the corruption, negligence, or mismanagement of some State department. Cast your eye down the next column, and it is not unlikely that you will read proposals for an extension of State supervision. . . .

Thus, while every day chronicles a failure, there every day reappears the belief that it needs but an Act of Parliament and a staff of officers, to effect any end desired." Spencer went on to refer to mid nineteenth-century England's u20,OOO statutes, which it assumes all Englishmen to know, and which not one Englishman does know." He found officialdom systematically slow, stupid, extravagant, unadap tive, and corrupt; and yet given more and more duties to fulfill. In stead of being confined to its pri-, mary duty of protecting each individ ual against others, the State is asked in a hundred ways to protect each individual against himself cCagainsthis own stupidity, his own idleness, his own improvidence, rashness, or other defect."

1979 THE TORRENT OF LAWS 5 (1t is in the very nature of things," he continued, ((that an agency employed for two purposes must ful fill both imperfectly .... And if an institution undertakes, not two functions, but a score-if a govern ment, whose office it is to defend citizens against aggressors, foreign and domestic, engages also to dis seminate Christianity, to administer charity, to teach children their les sons, to adjust prices of food, to in spect coal mines, to regulate rail ways, to superintend housebuilding, to arrange cab-fares, to look into people's stink-traps, to vaccinate their children, to send out emi grants, to prescribe hours of labor, to examine lodging-houses, to test the knowledge of mercantile captains, to provide public libraries, to read and authorize dramas, to inspect pas senger-ships, to see that small dwell ings are supplied with water, to regulate endless things from a banker's issues down to the boat fares on the Serpentine-is it not manifest that its primary duty must be ill discharged in proportion to the multiplicity of affairs it busies itself with?"

L,et us now pass over a century and a quarter, and see how our situation today compares with England's then. It is the individual states that enact the laws that affect their citi zens most often and most intimately in their daily living. A figure averaging the number of laws passed each year in each of the fifty states would be hard to compile on a con tinuing basis and perhaps mean less than particular examples. Let us take our two most populous states, New York and California. During 1975, 1976 and 1977, the New York state legislature passed, respec tively, 870, 966 and 982 public laws. C(Private laws" are not included here, as these individually affect only a handful of people.) During these same three years the Califor nia state legislature passed ,1280, 1487 and 1261 public laws. Prohibitions or RUle-Changes 1\row let us look at the implica tions of this. What does a new law do? It either puts a new prohibition or a new compulsion on each of us (or a large number of us), or it changes the rules under which we have hitherto been acting. So on the basis of these figures the citizens of indi vidual states are being subjected to an average of about a thousand new prohibitions or rule-changes every year. Noone is excused from not knowing what everyone of these new laws commands. I leave it to the reader to picture what all this means in terms of human liberty.

But we have not even got to Fed eral laws. Supposedly, these are only needed to cover such matters as interstate commerce and are subject to severe limitations by the Con6 THE FREEMAN January stitution, so an innocent reader of that document might not see the need for many such laws. Though the Federal books were presumably blank when it started, the First Congress, which began on March 4, 1789, did not see the need for many Federal laws. It enacted only 94. But then, as more and more laws were piled up, succeeding Congres ses were convinced that more and more additional laws were neces sary. The 85th Congress, which opened in January, 1957, enacted 1,009 laws; the 94th, which began in January, 1975, enacted 588. The ten Congresses during that period enacted an average of 735 laws each, which means an average of 367 new Federal laws a year-or one new law every day. The reader should be re minded that individually many of these laws ran to well over 100 pages each.

Congressional Promises The mania for piling up additional laws-new compulsions or prohibi tions or changes of the rules-seems to be endemic in our democratic pro cess. Every two years, when a new Congress is chosen, the rival candi dates are eager to convince the vot ers that they can shower more bless ings upon them than their respec tive competitors. ~~There ought to be a law," they tell the voters, to forbid this or that, or to give you this or that. ~~If I am elected, I will introduce a bill" -to guarantee you this or that. So almost every Con gressman introduces at least one bill with his name attached to it. In the 94th Congress, which began in January, 1975, 3,899 bills were introduced in the Senate and 15,863 in the House-an average of 37 bills per member. These are by no means unusual figures. In the 93rd Congress, 4,260 bills were intro duced in the Senate and 17,690 bills in the House. It is at least one stroke of luck for the country that only about one in every thirty or more such bills survives to enactment.

But the individual Congressman who introduces it has made his point. He has ~~carried out his prom ise" to the voters. It has been estimated that Ameri can legislative bodies ranging from city councils to Congress pass 150,000 new laws every year. 1 This total does not mean too much, be cause only a small section of the total applies to the residents of any given town or state. But a very meaningful figure would be the total number of live laws that still do apply to American residents of any given city or state. Since its beginning Congress has enacted more than 40,000 laws. It is a fair assumption that most of these are still operative in some form. When we come to the individual lNewsweek, January 10, 1977.

1979 THE TORRENT OF' LAWS 7 states we get to some really formid able figures. For Connecticut I am officially informed that: ~~We do not have information on the ~live' laws now on the books, but it is our un derstanding that there are about 3,500,000 words in the eleven vol umes of the General Statutes."2 The legislative authorities of California regret that so far as the number of ~~presently operative statutes" ofthat state are concerned, ~~no such enumeration is readily ob tainable," though ~~most (but not all) enactments of the California legisla ture are codified in one of twenty eight codes." And the Department of State of New York informs me that so far as the total of live laws on the state's books are concerned, ~~unfor tunately, we don't have the answer to this question." So far as the ~~con solidated" (as distinguished from the uunconsolidated") laws are con cerned, however, these can be found in ~~six volumes covering 6,891 pages." Noone is allowed to plead ignorance of any of these state laws, of course, if he happens to violate one.

Local Ordinances When we come to the number of town and city ordinances to which each of us is subject, it is difficult to 2Letter, June 7, 1978, from Agnes L. Kerr, Director, Administrative-Legislative Division, Office of the Secretary of State, State of Con necticut. say precisely what would be an av erage figure. But in Boston, for exalmple, the Building Code alone contains about 500 pages; in addi tion, the City of Boston code consists of approximately 300 pages of ordi nances and 300 pages of statutes. The Administrative Code of New York City consists of ten volumes running to a total of 8000 pages. There are also 23 thick volumes of ring binder notebooks containing the rules and regulations of city agencies published since 1967. But on top of all of these laws Federal, state, and localis piled the greatest mountain of all-the endless orders, regulations and edicts issued by the Federal and state ~~independent agencies." There are eighty-nine separate Federal in dependent agencies listed in the Congressional Directory for 1977.

These are in addition to the innu merable commissions, uoffices,"~~ser vices," and ~~administrations" listed under the twelve cabinet depart ments. As lung ago as 1954 the Hoover Commission found that the Federal government embraced no fewer than 2,133 different function ing agencies, bureaus, departments, and divisions. And practically all of them were running ~~programs." It was ten years ago that Dela ware Congressman William V. Roth and his staff made an eight-month statistical study and came up with the finding that ~~no one, anywhere, 8 THE FREEMAN January knows exactly how many Federal programs there are" -or who is spending how ·much on what. Ac cording to the 1968 Roth study, the Federal government at that time had 1,571 identifiable programs. Questionnaires sent to various agencies drew spotty responses. In quiries were made as to the purpose of some 478 programs in Health, Education and Welfare; only 21 re sponded.

In August 1978, Congressman Gene Taylor from Missouri, going through stacks of the Code of Federal Regulations, found that the Code ran to 19,789 pages in 1938, to 20,643 in 1958, to 73,149 in 1976, and calcu lated it would top 120,000 pages by the end of 1978. Adding the Costs How can we add up the countless costs, penalties, discouragements, delays, hazards, impediments, obstructions, that these orders place in the way of production and com merce? Even if we give up the futile attempt to add up the government regulations numerically, we can still point to some of the costs and hardships that they impose on the taxpayer, the motorist, the busi nessman, the homeowner, the con sumer, the worker, the investor, and the nation as a whole. In the July Tax Review of 1978, published by the Tax Foundation of New York, Murray L. Weidenbaum, a former Assistant Secretary of the Treasury, has detailed some of these costs: • The outlays of 41 regulatory agencies are estimated to have in creased from $2.2 billion in the fis cal year 1974 to $4.8 billion in fiscal 1979, a growth of 115 per cent over the five-year period.

• Federally mandated safety and environmental features increased the price of the average passenger automobile by $666 in 1978. • There are over 4,400 different Federal forms that the private sec tor must fill out each year. That takes 143 million man hours. The Federal Paperwork Commission re cently estimated that the total cost of Federal paperwork imposed on private industry ranges from $25 billion to $32 billion a year, and that tt a substantial portion of this cost is unnecessary." • Regulatory requirements im posed by Federal, state, and local governments are adding between $1,500 and $2,500 to the cost of a typical new house. • On the basis of a conservative estimating procedure, the aggregate cost of complying with Federal regu lation came to $62.9 billion in 1976, or over $300 for each man, woman and child in the United States. On the same basis, these costs may have reached $96.7 billion in the fiscal year ending September 30, 1978.

• The minimum wage law has 1979 THE TORRENT OF LAWS 9 priced hundreds of thousands of people out of the labor markets. One increase alone has been shown, on the basis of careful research, to have reduced teenage employment by 225,000 . • Approximately $10 billion of new private capital spending is de voted each year to meeting govern mentally-mandated environmental, safety, and similar regulations rather than being invested in profit-making projects. Edward Den ison of the Brookings Institution has estimated that in recent years these deflections of private invest ment from productive uses have re sulted in a loss of approximately one-fourth of the potential annual increase in productivity. • The nation as a whole feels the effect of government regulation in a reduced rate of innovation and in many other ways. The adverse con sequences of government interven tion in business decision-making range from a slowdown in the avail ability of new pharmaceutical products to the cancellation of numerous small pension plans.

Congressman Gene Taylor, whose figures on the extent of the Code of Federal Regulations I have previ ously cited, declares: ~~The cost im posed on the American economy by federal regulatory activity is now more than $60 billion per year.· This serves to. drive up the cost of con sumer items, harasses small businessmen, fuels inflation, and in creases the tax burden on the indi vidual citizen." An Ominous Trend Suppose we turn back, from our survey of the present enormous power and control now exercised by government, to a look at its growth since 1854 in England when Herbert Spencer was already expressing his alarm at the extent of that control. If the reader will glance down the list of the interferences that Spencer was then deploring, he will see that our own government is still engaged in all of them, or their equivalent (wi th the exception only of dis serninating Christianity and send ing out emigrants), but has added literally hundreds more.

In 1977 The Conference Board of New York was referring to some of that year's economic interventions: price and income controls; limita tions on profits; growing representa tion of workers and government on company boards of directors; statu tory wage hikes; credit limitations; foreign exchange and import con trols; limitations on foreign own ership; rent controls and subsidies; regulations on land-use planning; environmental, safety and consumer protection regulations; antitrust laws; direct and indirect taxes; and government ownership. But the list could have been indefinitely ex tended.

10 THE FREEMAN January There are two or three ways of trying to measure the size or growth of government quantitatively. One index is the number of people that it wholly or partly supports. In 1940 all American governments, Federal, state and local, were employing 4,474,000 people. In 1977, the num ber was 14,624,000. The Federal government alone, in 1978, employed 2,066,000 persons in its armed forces and 1,930,100 in full time permanent civilian employ ment. In addition, it was making Social Security payments to some 33 million persons, and the Congres sional Budget Office was estimating that about 44 million were receiving some form of welfare aid. The annual expenditures of the Federal government tell a succinct story. If we take them at ten-year intervals since 1929, we get the fol lowing result: Year Expenditures 1929 $ 3.1 billion 1939 8.8 1949 38.8 1959 92.1 1969 184.5 1979 487.5 If any forecaster had dared to pre dict in 1929 that fifty years later the Federal government would be spending nearly 160 times as much in dollars in a single year (or 43 times as much in ttreal" terms), nobody would have believed him. By such a comparison, we have had a 4,200 per cent growth in the Federal government since 1929.

A Bewildering Mass of Government Interventions Some readers may object that it is meaningless to complain about the mere number of laws; that we should carefully separate the ttgood" laws from the ttbad," and deplore only the latter. What this objection overlooks is that the mere multipli-, cation and proliferation of laws is itself a major evil. Every unneces sary law is itself bound to be per nicious. And almost all laws that interfere with the functioning of the free market tend to delay or prevent necessary readjustments in the bal ance of production and consumption and to have other consequences op posite to those that the framers in tended. When the rules of the game are being changed every day, when the totality of laws and regulations reaches the tens of thousands and the hundreds of thousands, the number of legislative blunders must multiply far more than proportion ately. How is it possible to talk of retaining our liberties, for example, when collectively we are subjected not only to thousands of prohibitions and compulsions but to daily in creasing prohibi tions and compul sions?

More than forty years ago the 1979 THE TORRENT OF LAWS 11 Swedish economist Gustav Cassell was warning: ~~The leadership of the state in economic affairs . . . is necessarily connected with a bewil dering mass of governmental inter ferences of a steadily cumulative na ture. The arbitrariness, the mis takes and the inevitable contradic tions of such a polity will, as daily experience shows, only strengthen the demand for a more rational co ordination of the different measures and, therefore, for unified leader ship. For this reason planned econ omy will always tend to develop into dictatorship." 'Nhatever the outcome may be, the future seems ominous. By what ever standard we measure it-the number of laws, the rate at which new ones are enacted, the multipli cation of bureaus and agencies, the number of officeholders, pensioners, and relief-recipients the taxpayer is forced to support, the total or rela tive tax load, the total or per-capita expenditures-there has been an ac celerative growth in the size, arbi trary power, and incursion of govern ment, and in the new prohibitions, compulsions, and costs it keeps im posing upon us all. ® II)l:,\S ();'\ L1BEHTY Self-Discipline As I GROW OLDER, it becomes increasingly distasteful to me to impose my will upon any being. With the passing of the years, I have discovered that I have quite enough to do in disciplining myself, my thoughts and emotions and impulses-in keeping my own house in order. Self discipline is the only kind that is of much worth. So long as we are self-disciplined we are free. When we must be disciplined by others, or are called upon to discipline others, we fall into one kind of bondage or another; in the first case we are held down by others, in the second case we are pulled down by others.

The lust for power is the most pernicious of human weaknesses, the cause of more misery than any other. Power through political position, power through social status, power through wealth, power over our children, power over our employees, power over our domestic animals is not the craving for any of these a manifestation of the same spiritual frailty? The enlightened man seeks to guide others by rational persua sion, by example; by the contagion of his enthusiasm; he shrinks in spiritual stature when he must resort t9 compulsion. Although we are sometimes forced to use force, we should for our spirit's sake avoid such occasions to the limit of our ability. Humility is a virtue difficult to define, and the attempt to cultivate it has led to some strange paradoxes. But if we mean by humility reluctance to impose our will upon others, it is one of the foremost among all of the moral virtues.

ALEXANDER F. SKUTCH, "Animal Friends, Dependent and Free," Nature Magazine, March 1952 Alejandro Chafuen War Without End EVERY DAY of the year acts of ter rorism are striking fear into the hearts of innocent people. Commer cial airliners are hijacked with hun dreds of people aboard, hostages are taken, private property is destroyed, and political foes are murdered. In the U.S. alone in 1975, a total of 1313 bombings were recorded, killing 69 people and injuring 326.1 Terrorism is threatening the so cial, political and economic order of Western societies. Terrorists attack the very system of peace that pro motes social cooperation and divi sion of labor, the system that offers the highest levels of comfort and wellbeing man has ever enjoyed. They strike in small groups like the Mr. Chafuen has been awarded a scholarship by the Centro de Estudlos sobre la Llbertad In Argentina for special study In economics under Dr. Hans Sennholz at Groye City College, Pennsyl yanla.

12 Charles Manson family, or in regi mental strength, like the guerrilla troops in the Middle East, Africa and South America. Some terrorists might be classed simply as common criminals who indulge in unlawful activity, commit violations for which punishment is imposed. The guerrilla movement welcomes such recruits who faith fully execute orders of destruction. But there is a risk that they may cause problems of discipline and may embarrass the movement through senseless acts of violence that are devoid of any ideological justification. The world leaders of terrorism do not seek destruction for its own sake. They aim to destroy the pri vate property order and build on its ruin a political command order. But they freely make use of the everWAR WITHOUT END 13 willing criminal element of society which they seek to indoctrinate and organize in the service of ((the cause." The writings of the great leaders of world communism reveal their deep concern about unprinci pled guerrilla action. V. I. Lenin, the Russian revolutionary and first premier of the U.S.S.R., repeatedly warned against it: We would not for one moment assert that individual strokes of heroism are of no importance at all. But it is our duty to utter a strong warning against devoting all attention to terror, against regarding it as the principal method of struggle, as so many at the present time are inclined to do. Terror can never become the regu lar means of warfare; at best, it can only be of use as one of the methods of a final onslaught. 2 It is asserted that partisan actions lower the class-conscious proletariat to the level of drunkards and bums. This is correct. But from this follows only that the party of the proletariat never should consider partisan warfare to be its only or even its chief means of struggle. This particular technique must be integrated with other tactics and be in harmony with the most important methods of combat. Partisan warfare should be en nobled by the enlightening and organiz ing influence of socialism. 3 Mao Tse-tung, the chief theorist of the Chinese Revolution and party chairman, frequently reminded his guerrillas of the importance of party discipline and central leadership. In the words of the Chairman: ((Unor ganized guerrilla warfare cannot contribute to victory and those who attack the movement as a combina tion of banditry and anarchism do not understand the nature of guer rilla action."4 Leon Trotsky, the Russian revolu tionist and theorist of worldwide revolution, openly called for ter rorism: The revolution ((logically" does not demand terrorism, just as ((logically" it does not demand an armed insurrection.

What a profound commonplace! But the revolution does require of the revolu tionary class that it should attain its ends by all methods at its disposal-if necessary, by an armed rising; if re quired, by terrorism. 5 , .. the first condition of salvation is to tear the weapons of domination out of the hands of the bourgeoisie. It is hope less to think of a peaceful arrival to power while the bourgeoisie retains in its hands all the apparatus of power .... There is only one way: to seize power, taking away from the bourgeoisie the material apparatus of government. 6 The Ideological Foundation Why should Marxian terrorists want to seize all political and economic power? They are convinced that capitalism is unjust, that it exploits the working people for the benefit of property owners. It is un just that some people own great wealth while others linger in pov erty and despair. The terrorists hold to a vague ob jective theory of value according to 14 THE FREEMAN January which all economic exchange ought to be made objectively so that everyone gets his ~(fair share."

They are confident that the future belongs to them and that socialism is coming with the inevitability of natural law. They see themselves as the van guard of the coming age. And finally, they are deeply con vinced that socialism will not only eliminate all social injustice, but also will bring greater material wellbeing to all. We need not search here for the roots of these ideas. They were planted by the revolutionaries and social reformers of the 19th century. But how do they grow to bear such violent fruit as terrorism? In the U.S., the notion of injustice in the capitalistic system has gained millions of devotees. The majority of Americans are clamoring for social welfare and economic transfer in order to alleviate the plight of the poor. They are guided not only by economic notions, but also by reli gious doctrines and concepts. Many clergymen piously support the no tion that everyone has an inalien able right to a «(decent" life and a «decent" home. The state is respon sible for a decent minimum wage, minimum health care, education, and so on. Let anyone with doubts about the ideological trend ask him self this simple question: What are the chances in the coming election for any candidate promising cuts in social spending? Many people are demanding reduction of taxes. But who is asking for reduction in social programs?

Equalizing Incomes The revolutionaries make use of the religious belief that every worker is useful to society and that everyone has the same opportunity for attaining heaven. They conclude that the garbage collector is as use ful to society as the. engineer or the doctor, and thus entitled to the same income. Admittedly, they all are equal in the sense that all are use ful. But they do not render equal services. It is one thing to believe that the Creator has given everyone an equal right for attaining heaven. It is quite different to assert that everyone contributes equally to the material wellbeing of society. Marxian terrorists are convinced that economic value is imparted sole ly by physical labor, that to the laborer belong the fruits of all economic activity-wages, interest, profits, or whatever. Otherwise, someone is taking what rightly be longs to the worker. Most people sympathize with this notion be cause they are convinced that they are getting less than they deserve.

Therefore, they are willing and ready to embrace the exploitation theory. Although the terrorists have not 1979 WAR WITHOUT END 15 yet become popular ~~heroes" in the U.S., they certainly are no ordinary criminals. Youths of America still admire their athletes, the baseball and football heroes. But the press carefully reports the achievements of the international ttliberation movements," thereby introducing terrorist heroes to the American public. All over the world college stu dents display posters of ~~Che" Guevara and Salvador Allende next to the Christian cross. There is little awareness that ~~Che" never found popular support for his attempt at conquering Bolivia; the peasants re jected him and few, if any, ever joined his liberation army. The terrorist activity in the United States is still in its first stage, the ideological stage. The people are unaware that an ideolog ical battle is raging over the hearts and minds of their youth. The battle is fought in the schools, churches, and homes.

In Germany, a recent poll of stu dents at Heidelberg University showed that most extreme left-wing students come from educated middle-class backgrounds. They grew up at home, enjoyed all modern conveniences and high standards of living, and were accustomed to a paternalistic society. They received according to middle-class necessity and contributed according to ability, which was very little. They were taught in school and on television that their fathers are exploiters who are feasting on the sweat and blood of the working man. Can it be sur prising that children of weal thy bankers and industrialists are eager to rebel against their parents? In Argentina, the sons of a weal thy businessman recently organized their father's kidnaping. Other chil dren placed bombs in their parents' bedroom. Such acts seem inconceiv able until one discovers that the director of the state university nur sery school was a guerrilla leader.

Seeds of Conflict In order to launch the revolution, terrorists are planting the seeds of conflict in society. Social conflict is their road to victory. They are spreading false doctrines of conflict and clamoring for a gradual realiza tion of socialism as Karl Marx had envisioned it in the Communist Manifesto. This is how Leonard Read describes the procedure: Were I a loyal Russian devoted to the U.S.S.R.-Union of Soviet Socialist Republics-and determined to overcome, subvert, and absorb the U.S.A., what would my tactic be? Drop hydrogen bombs? Probably not! That tactic would be resisted as would an invading army. What then? Would I not try to out maneuver resistance by attractively phrasing and propagandizing the ideas of socialism? I'd play upon such themes as ttFrom each according to his ability, to each according to his need." How would I 16 THE FREEMAN January measure my success? By the extent to which the people of the U.S. adopted my creed, the ten points of the Communist Manifesto. 7 The revolutionaries hold to their type of justice: ((to receive according to what we need, according to our necessities." Their concept is diametrically opposed to that of the private property order: ~~to receive according to what we are entitled; and we are entitled only to what others want to give us freely in ex change for what we give in return."

Only one of these definitions can be correct. What are our necessities? Ifwe could have an objective scale of necessities, then we could possibly find an answer. If economic goods were available in abundance, we could satisfy all our wants. But na ture did not provide us with an infi nite supply of material goods and services. The private property order cannot be blamed for this natural scarcity. As long as nature is meager and miserly, which forces man to value his provisions, volun tary exchange is the only fair and equitable distribution. When we recognize that economic goods are valuable and that we must give something in exchange, the exploi tation theory and the labor theory of value lose any rational justification. In the market order a businessmanmust pay a wage equal to the work er's contribution in order to attract labor. Economists call this the worker's marginal productivity. If a given employer refuses to bid that much, other employers would be willing to hire the worker in order to increase their profits.

It is difficult to argue with ter rorists who sincerely believe that they are an enlightened minority. They cannot blame God for the world of scarcity, so they blame (~evil" individuals and their economic order for man's limita tions. Man lingers in poverty be cause man does not behave as he should. But the revolutionaries aim to change evil men; they aim to save mankind. Is socialism inevitable? Its followers are convinced that they will achieve the utopian maxim ((From each according to his ability, to each according to his need." They are clinging to their beliefs, al though more than sixty years have passed since the Russian Revolution and the Russian people were sup posed to create the Proletarian paradise. And yet, the Russian peo ple continue to linger in poverty and despair. It is ideas that cause man to act. And action makes history. The com ing of socialism depends on ideas.

Whose ideas? Our ideas. We need to study the numerous fallacies that support socialism. But above all, we must learn to appreciate man's work and achievement when he is allowed to be free.

1979 WAR WITHOUT END 17 The Battle Is Ideological When terrorism is disrupting economic life and jeopardizing law and order, the state, which is social authority with power to enforce its laws, seeks to reassert itself. It mobilizes its police power and may call on its armed forces to crush the terror. But the application of brute force rests on the ideological as sumption that the policemen and soldiers approve of the system they are supposed to defend. Without this approval, which grows from an un derstanding of the pri vate property order, they cannot be expected to function. Why should they risk their lives obeying orders to defend a sys tem they despise? Why should .. they confront the terrorists if they them selves are tempted to commit acts of terrorism? The apparatus of state disintegrates and all resistance ceases when police and military join the revolutionaries. When the state enjoys the popular support to prevail over the ter rorists, the latter usually seek and receive international reinforcement.

But this international support con stitutes much less a threat to society than does the ideological attack at home. National considerations pre dispose people against foreign ideologues and their objectives. Surely, ideas have no nationality, but people tend to relate alien ideas to foreigners. Mao Tse-tung made use of this psychological principle to wage war on the Japanese and find supporters for his movement. The Cubans and the Russians are facing the same problem today in Africa they are foreigners. The war against terrorism is a war without end. This ideological struggle occurs in the classrooms in the churches, in the press, on r~dio and television, and on the floors of Congress. Every day the forces of individual freedom and the private property order are engaging the forces of pragmatism and the politi cal command order. They are bat tling for the minds of men. Ii -FOOTNOTESlEncyclopedia Britannica Book of the Year, 1977, p. 218.

2V. I. Lenin, Selected Works (New York: International Publishers, 1943), vol. II, p. 17. 3Lenin, «<The Guerrilla Warfare," Sept., 1906, in Marx, Engels, and Marxism, 7th rev. ed. (Moscow: Progress Publishers, 1965). 4MaoTse-tung, On Guerrilla Warfare (New York: F. Praeger, 1961), p. 45. 5Leon Trotsky, Terrorism and Communism paperback ed. (Ann Arbor: University of Michigan Press, 1961), p. 58. 8Ibid., p. 36. 7Leonard E. Read, Vision (lrvington-on Hudson, N.Y.: The Foundation for Economic Education, Inc., 1978), p. 82.

W)rld inthB grfpQfan Iae~ Clarence B. Carson 25. The Cold War: TerrorizingMany Lands THE SPREAD of communism around the world is preceded and accom panied by the spread of terror. Even that way of saying it does not put it as directly as it can be stated. The spread of communism is the spread of terror. Terror is not incidental to com munism; it is essential and organic. Indeed, terror is the modus operandi of revolutionary socialism. Those who will to believe in the pos sibilities of the revolution of our age In this series, Dr•.Carson examine. the connection between Ideology and the revolutions of our time and traces the Impact on several major countrle. and the spread of the Idea. and practice. around the world. 18 hope that it is incidental. Apologists for communism-and they are legion-attempt to make it appear incidental. Terror was justified, they will say, because of the terror of the regime against which it was used.

The terror of a communist regime arises from the history of brutal governments which have beset par ticular peoples in their past. Terror is made necessary by the recalci trance of the opposition. Tales of the terror are either fabricated or greatly exaggerated by those who hate the new regime. (This, they said, of the White Russians, of the Nationalist Chinese, of Cuban emigrants, and so on.) But, above THE COLD WAR: TERRORIZING MANY LANDS 19 all, apologists for communism make the terror appear incidental by treating it as isolated incidents rather than the patterned behavior that emerges when it is surveyed whole. Two Faces of Communism They are assisted in this by com munist regimes. Communism is J anus-faced-two-faced-as was suggested earlier in this work. One face may well be called the Ceremo nial Face, the carefully conceived and made-up face presented to the world. It is the face that bespeaks regular government, democratic elections, government provided free schools, free medical care, sub sidized culture, and so on. It is the face presented by carefully en gineered tours for foreign visitors. It is the face of parliaments, written constitutions, cultural achieve ments, housing projects, prosperous collective farms, of orderly crowds, and contented people. It is the face of justice sought and on the way to being attained, the face which draws recruits from among intellectuals around the world. All these things comprise the facade of communism.

The other face is concealed, or partially concealed, most of the time. It is the Face of Terror, a terror which outruns the imagina tion in conceiving it and before which many prefer to avert their eyes. Whittaker Chambers suggested that it is a terror the like of which the world had never experi enced. Other ages have known a terror equal to, or a little more than equal to, their powers to endure it.... Other ages have known a frightfulness equal to their imagination in inflicting or enduring it. Ours is the first age in which the havoc that men wreak on men has outrun the imagination, which can no longer cope with the plain reality and turns away, helpless, exhausted, and incredulous .... Ours is the first age in history in which duly constituted governments, duly recognized by others calling them selves civilized, practise the extermina tion of their own people by millions, as a matter of calculated policy. Within [our] lifetime ... , the Soviet government ...

exterminated so many of its people that it did not dare publish the census figures. . . .. The same government decreed, be cause its peasants were hiding their grain, that they should be starved to death. So they were, from three to six million of them.! That, however, was but one of the cores of the terror stalking the earth. Terror UndergirdsPower Terror, I say, is essential to com munism. It is essential both to the gaining and exercising of power by communists. Communism is a power theory, and undergirding that power is terror. It is not simply that com munism entails rule by a tiny minority. All rule, excepting that in 20 THE FREEMAN January a direct democracy, perhaps, is rule over the majority by a minority. But communism lacks accepted sanc tions for its rule. Its basic theory denies validity to government and thereby any sanction for the exer cise of its authority or use of force.

Its thrust to transformation pits it against the populace at large; they could only sanction it by willing· their own destruction. Its sanction is only that it rules, and it rules by terror. It may be feasible to divide the terror that stalks the earth in the wake of the spread of communism into four stages. It may be, that is, because our knowledge of com munism in action is still fragmen tary. Much communist activity is clandestine and secret. As yet, no entrenched communist power has fallen so that its secrets might have come into the hands of a conqueror. (Such as did so many of those of the Nazis, for example.) Thus, we rely on the reports of defectors, immi grants, counter-espionage, revela tions (such as those made by Khrushchev about Stalin's rule), deductions from official pronounce ments and documents, and surmise, for our knowledge of the inner work ings and plans of communists.

No Precise Formula The evidence certainly points to the fact that much of the terror is planned and coordinated. Yet there are gaps in our knowledge as to whether or not it is done according to some overall plan. Moreover, there is often no way to determine which acts of terror associated with the international spread of com munism are a part of a plan and which are the result of local initia tive, which are by communists and which not, or whether the motives of those who commit the acts are the same as those who order or approve of them. In short, if there is a Hsci ence" of communist terrorism, it has not become public knowledge. Even so, a pattern of terror can be discerned from the history of com munism. That it was a universal pattern did not begin to become clear until the 1950s and 1960s. Prior to World War II communism in-power had occurred only in the Soviet Union. The Communist International, the instrument for the spread of communism, was con trolled by the Kremlin leaders.

Hence, the pattern was the Soviet pattern, not necessarily the com munist pattern. But with the emergence of other communist pow ers, the pattern has been much the same, pointing toward the conclu sion that it is a communist pattern. This does not mean that the use of terror falls into a rigid and unvary ing configuration. On the contrary, all sorts of variations occur in it. It is rather that if it be assumed that terror is organic to communism, 1979 THE COLD WAR: TERRORIZING MANY LANDS 21 that it serves certain broad and gen eral purposes, then the general pat tern is discernible. At any rate, there is a discernible pattern of at least four stages of the terror. They frequently overlap one another, and excepting for the sec ond stage there is no predicting in advance how or when they will oc cur. The Disordering Terror The first stage of the terror may well be called The Disordering Ter ror. It encompasses all that terror which precedes the seizure of power by the communists. It may last for months, for years, for decades, or for as long as it takes to bring com munism to power in a given land.

It is disordering because the gen eral object-as distinct from the par ticular object of any act-is to create the conditions of disorder which will be favorable for communists to seize power. Marx taught that the condi tions would be right for revolution when capitalism had reached the stage of development in which the lot of the workers became intolera ble. It followed that revolution would come first in what were then the most advanced countries. Lenin altered this doctrine by demonstrat ing that the conditions were right for revolution when disorder had proceeded to the disintegrating point. Hitler's seizure of power dem onstrated the same point, as did that of Mussolini. Communism spreads by bringing about conditions of dis order. Terror is the most direct means of producing confusion, arousing fear and distrust, and chal lenging the ruling government. Specific dramatic examples may best illustrate this stage of the ter ror. Take the case of Vietnam. The Republic of Vietnam (South Viet nam) was organized as an indepen dent country in 1954. There were communists in South Vietnam, of course, as there were throughout Indochina. At first, they went un derground, but they soon began to be heard of by assassinations and became known as the Viet Cong (Vietnamese Communists). HBe_ tween 1957 and 1959 the Viet Cong killed sixty-five village chiefs who had tried to resist Communist pres sures." In 1959 radio Hanoi (the voice of the Communist government in North Vietnam) proclaimed the desirabili ty of destroying the Diem regime in South Vietnam. In 1960, the National Liberation Front was organized at the instance of the Communist party of North Vietnam.

In ~~ 1960 and 1961 village officials, schoolteachers, and health workers were being murdered by the thousands. In 1960, through harassment, plus the murder of teachers and sabotage of buildings, the Viet Cong succeeded in closing two hundred primary schools in South Vietnam, interrupting the 22 THE FREEMAN January education of more than twenty-five thousand students. And this is when the terror was just beginning to explode with full force, warning of horrors to come."2 There is not space here to detail the story of the terror that eventu ally engulfed South Vietnam and sent shocks outward into much of the rest of the world. Those who will to do so may at least know the out come of it. South Vietnam is now in the grip of a communist regime, as is much of the rest of Indochina. Terror prepared the way. The Story in Angola An even more dramatic use of terror occurred in Angola. From March 14-16, 1961, the northern portion of that large Portuguese col ony was ravaged by Bakonga tribesmen from within Angola aid-ed by their kinsmen from the Congo.

These concerted assaults were or ganized in cold blood by Holden Roberto, among others, and fomented by Algerian, Soviet, and Chinese Communists. They were carried out, with a ferocity that can hardly be imagined, by drunken and drugged savages. All the inhabit ants of whole villages-men, women, children, black and white-were murdered, the women repeatedly raped, even infants in cribs dismembered, and many peo ple disemboweled. At one village 'where there was a sawmill, the victims, both dead and alive, were lashed to boards and run through the saw lengthwise. Most of the tales by eyewitnesses are too full of horrible things to repeat. Here, however, is a snippet from what happened in the village of Fazenda: Then the turn came for the women and the children. The beasts made no color discrimination. They slaughtered white, mulatto and Negro alike. They would throw the smaller children high into the air, let them drop on the soil to break their bones and then . . . would play a brutal game of football with the bodies of those dying children, while the poor mothers screamed like crazy in the hands of the beasts. I didn't believe that anything so evil could exist in the world. 3 The object of this concerted ter rorism was to paralyze the will of the Portuguese and drive them from Angola. Had it succeeded then, it would have brought into power men under the sway of communism.

It would be a mistake, however, to conclude from these two dramatic examples that The Disordering Ter ror is usually concerted or concen trated so as to accomplish such com prehensive objects. More commonly, the terror which precedes com munist takeovers is sporadic, iso lated and episodic, rises to a cres cendo and subsides, getting nowhere as far as can be determined at the time. Even that it is going to lead to 1979 THE COLD WAR: TERRORIZING MANY LANDS 23 a communist takeover is a matter of communist faith until it happens. Its immediate object may be much more restricted than that, and fre quently is. Some of the terror may not be planned or directed by communists. Yet, whether it is or not, it becomes grist for the mills of communists. There are at least two general ways this may come about. One of these is where apparently free lance acts of terrorism become a part of the dis ordering atmosphere which com munists can utilize for their pur poses. An example would be the ter rorist acts by anarchists in the last decades of Czarist Russia. There were many such terrorist acts in the last decade or so of Czarist rule, usually the assassination or attemp ted assassination of government of ficials. Most of these were not coor dinated or directed so far as is known. But they helped to create the atmosphere of fear and paralysis which enabled the Bolsheviks to bring off a revolution.

TerrorizingPresidents A more familiar case, one much closer home both in place and time, was what we may call the terrorizing of Presidents of the United States from 1963 to 1973. It began with the assassination of President Kennedy in 1963 and subsided with the with drawal of American forces from Viet nam. It encompassed the assassinations of John F. and Robert Ken nedy, Martin Luther King, the wounding and crippling of George Wallace, and, as an epilogue, the two assassination attempts on Pres ident Ford. So far as we know none of this maiming or killing was directed by any communist or revolutionary organization. True, the assassins of the Kennedy brothers. were Marx ists or communists of some stripe. But no evidence has been forth coming that they were ordered to assassinate anyone. Indeed, the only assassin, or would-be assassin, with an ongoing revolutionary organiza tional connection was the would-be assassin of President Ford, a member of the Manson «Family." It is relevant to point out, however, that revolutionary socialism creates a framework both for organizational terror and for individual acts of ter ror. The preaching of class hatred and allegations of injustice arouse individuals to act on their own and inspire the formation of «free lance"

terrorist organizations such as the Manson «Family" and the Sym bionese Liberation Army. At any rate, there was a framework for the terrorizing of Presidents provided by the spread of communism. The American partici pation in the Vietnamese War was the most obvious part of the frame~ work. More broadly, there was the spread of communism into southeast 24 THE FREEMAN January Asia, Latin America, and Africa. This, plus the fact that the United States was providing just about the only opposition by any outside na tion to the spread of communism. Mao's Cultural Revolution The Cultural Revolution in Com munist China during these years was also an important part of the context. That revolution spread especially to Germany, France, and the United States, where it was the model for the Youth Rebellion. The Youth Rebellion was not only inspir ited by Mao's Cultural Revolution spearheaded by students but also by ~~mind expanding" drugs, psyche delic lights, hard rock music, sex ual promiscuity, and hippie life styles. Simultaneous with these de velopments was widespread rioting in the cities, mainly by blacks.

A great many people were ter rorized during the turbulent sixties. At the gentler level, there was the terror felt by older people as young people began to crop up in revolutionary clothing, the men sporting Castro-like beards, and girls shedding their femininity by wearing field jackets and dungarees. The sudden change was too swift to be digested; it had the odor of revo lution about it, something much more than just a fad. Parents of youth were filled with dread that their children were taking drugs, their daughters might run away from home, their lifestyles cut them off from their elders. As demonstrations became the order of the day, many people were harassed and intimidated by them. Riots in numerous cities brought terror to shopkeepers, peaceful citi zens, and policemen. Indeed, policemen along with anyone who represented authority were especial targets for terrorization. Deans of colleges, an especially benign breed inhabiting academia, were singled out for a while by their student charges to bear the brunt ofterroris tic acts.

Withdrawal from Vietnam What brought all these things into focus as a disordering terror in the service of the spread of com munism, so far as they were, was the effort to secure American with drawal from Vietnam. It was this, too, that led to the terrorizing of Presidents. There is no mystery about why that should have been the case. American involvement in Vietnam was an undeclared war. A succession of Presidents-Kennedy, Johnson, and Nixon-took the initiative in dispatching American armed forces and conducting the war. Johnson took the initiative in the heaviest commitment of Ameri can forces, and for the last three years of his presidency he became virtually the whole focus of dis content with the war.

1979 THE COLD WAR: TERRORIZING MANY LANDS 25 Johnson was terrorized. He was subjected to such vituperation as to surpass anything that had happened before. Demonstrators descended upon Washington periodically, picketing the White House, scream ing epithets, carrying Viet Cong flags, quoting Mao, emulating Cas tro, proclaiming their affection for Ho Chi Minh, and yelling unprint able obscenities. Some civil rights leaders joined in the clamor against the war in Vietnam. Following the triunlph of Eugene McCarthy-a ~~dove" on Vietnam, as those who wanted to wind down the war and withdraw were called-in the New Hampshire primary, President Johnson announced that he would not be a candidate for re-election. After the assassination of Senator Kennedy, the President was increas ingly cautious about making public appearances. When the forces op posed to Vietnam descended upon the Democratic Convention in Chicago, Johnson declined even to attend a birthday dinner given in his honor. A President had been terrorized.

The pressure was kept up during the early Nixon years. It would mount to a crescendo following the bombing of Cambodia. How far Nixon yielded to the terrorization is uncertain. At any rate, the siege of disordering terror achieved this much. American forces were with drawn from Vietnam. Communists came to power there and in sur rounding countries. It was a settled mood in many quarters that there should be no more Vietnams. The role of the ROTC in colleges and universities was greatly reduced as a result of student pressures. The draft was suspended. Communist guerrillas continued their incur sions in Africa and Latin America, and as this is being written are threatening Rhodesia, Nicaragua, a.nd Iran, among other countries. The revolution did not follow upon that disordering terror in the United States, though communism spread elsewhere, but the softening up suc ceeded here. Provocative Actions The other kind of terror that is not entirely planned by communists but is utilized by them for spreading their ideology is terror they have provoked. Provoked terror from the other side is most useful for prop aganda purposes and the swaying of public opinion. It creates confusion in people's minds, making it difficult to decide who is right and who is wrong. The man who became known to the world as Joseph Stalin enun ciated the principle, or a part of it, after he had helped to stage a mass demonstration in 1901. In the course of the demonstration, the demon strators were fired upon by the police. Stalin drew these conclu sions: ~~The whips play on the backs 26 THE FREEMAN January of all, irrespective of sex, age and even class. Thereby the whip lash is rendering us a great service, for it is hastening the revolutionizing of the (curious onlookers.' It is being trans formed from an instrument for tam ing into an instrument for rous ing the people. . . . Every militant who falls in the struggle or is torn out of our ranks arouses hundreds of new fighters."4 Stalin described the technique as one to gain new recruits for the cause, but as it has developed it is much more than that. It enables communism to spread from behind a cloud cover of being on the side of the angels. It enables the makers of terror and consistent users of terror to point the accusing finger at their opponents, to describe the regime which opposes them as corrupt and oppressive. The development of television and satellite transmission brings the evidence of repression into the homes around the world while the provocative acts have either already taken place or are concealed.

Examples are so numerous that they can only be alluded to. In the 1930s, Edgar Snow described the Kuomintang of Chiang Kai -shek as corrupt and oppressive. He told stories in the Saturday Evening Post of such things as the burying of peasants alive by minions of the regime. In the 1950s, Americans, and others, were treated to tales of the cruel tortures in Batista's pris ons in Cuba. More recently, there have been stories of terror by the Greek Colonels and the Argentine Generals. The Buddhists who burned themselves alive-who ter rorized themselves, so to speak were the cause celebre which brought down Diem in Vietnam. The Kent State Event There is ample, even over whelming evidence that much of the violence used against communists and other revolutionaries is deliberately provoked. 5 The reverse terror which communists find most useful is some incident which can be magnified, dramatized and can be come the symbol of the repression of a regime. HBloody·Sunday" became such an incident in Czarist Russia.

The event occurred in St. Petersburg in 1905 when demonstrators marched on and massed before the Winter Palace. The throng ignored commands to turn back and the fir ing of blanks, so the soldiers fired into their ranks, killing some of the demonstrators. Here was the dra matic incident which could be re called over and over again for pur poses of undermining the govern ment. The happenings at Kent State University in the spring of 1970 provide an example of the reverse terror tactic. There is space here only to give a bare outline of what 1979 THE COLD WAR: TERRORIZING MANY LANDS 27 occurred. Prior to the events that have become known as ((Kent State," a radicalization of much of the stu dent body had taken place. The Stu dents for a Democratic Society was the organization most directly re sponsible. The local chapter was provided with additional revolu tionary fervor from time to time by Hregional travelers," adults trying to spark activity in the locals. Among the regional travelers to Kent State were Bernadine Dohrn, Terry Rob bins, and Mark Rudd. Miss Dohrn professed to be a revolutionary communist, and Terry Robbins was known as ((V.I.," the initials used by Lenin. 6 On May 1, 1970, public announce ment was made concerning a series of bombings by the United States Air Force of the access route to South Vietnam used by the Com munists. This was made the occa sion for student eruptions on a goodly number of campuses. Satur day, May 2, became the target day for action at Kent State. The ROTC building was burned; thugs with clubs beat off those who tried to put out the fire; and an atmosphere of terror prevailed as other buildings were threatened. The National Guard was sent in to restore order.

The Guardsmen were subjected to a continual torrent of verbal abuse. A grand jury declared that ((the verbal abuse directed at the Guardsmen by the students during the period in question represented a level of obscenity and vulgarity which we have never before witnessed. The epithets directed at the Guardsmen and members of their families by male and female rioters alike would have been unbelievable had they not heen confirmed by the testimony from every quarter. . . ."7 The Guardsmen were confused and frustrated-terrorized-after a weekend of such psychological war fare. On that fateful Monday, as the Guardsmen began a retreat to re group there was a large throng of rioters on their right flank. A con tingent of Guardsmen turned back, pointed their rifles toward the throng, and began to fire. Four stu dents were killed. The revolutionaries had their event now. Hundreds of colleges and universities were closed down. A moment of reverse terror had taken place, one which could be made into a battle cry, one which could be turned into a symbol for an alleged repressive society. The symbolic fire ignited there soon subsided, but there are still smoldering coals which are fanned from time to time in the hope of kindling a flame.

The thrust of the disordering ter ror is toward civil war. Indeed, the disordering terror becomes reg ularized when sustained guerilla warfare is underway. Guerilla war fare is terrorism leading directly toward the seizure of power. Since 28 THE FREEMAN January his death. Che Guevara has been the symbol of this mode of operation as it has caught on in various places around the world. The other stages of the terror can only be described in brief here. While it is important to know that they occur, they belong to the story of the consolidation of revolution rather than directly to its spread. They do help to confirm the fact that undergirding communist power is a prolonged and permanent terror. Of course, once communists have seized power they not only monopolize it but the terror as well. The Terror of Suppression The second stage of the terror is The Terror of Suppression. This is the terror which accompanies and follows upon the seizure of power.

Although there is no timetable, so far we know, it has usually lasted as long as two to three years. In the Soviet Union, its dates were 1918 1921, those that are usually given for the civil war. In Hungary, it was approximately 1945-1948. In Cuba, it occurred mainly within a couple of years of Castro's seizure of power. This terror has a specific purpose. It is to bring all power into the hands of the communists. Com munists do not usually get all power directly. They usually share power with a coalition, such as other revo lutionary parties, labor union lead ers, peasant and other farmer organizations, and military leaders who are more or less under their sway. Moreover, the organizations through which society normally operates-business firms, churches, fraternal associations, schools, the media of communication, local governments, and so on-may be independent organizations on which hold over the central government has no immediate impact. Beyond these, there is the matter of the bulk of property being in private hands.

All other political parties must be suppressed, all organs of force brought under the communists, so cial organizations made subservient to communist rulers, and property seized. Terror is essential for a minority to accomplish such a coup. Such political parties as are per mitted for a time are terrorized by the police whom the communists control. Any parties that remain are then fused with the communist party. The leaders are generally disposed of in one way or another. For example, ~~The Roumanian socialist party had always been very small and weak; it won some impor tance in 1945 only because it was less disliked by the Roumanian workers than was the communist party. But communist pressure, reinforced by Soviet military power, quickly brought it to heel. At a con gress held in March 1946 the party split, the opponents of the com munists forming a separate party 1979 THE COLD WAR: TERRORIZING MANY LANDS 29 which had but a short life. In November 1947 tfusion' took place."8 Which is to say that only the Com munist Party remained.

Absorbing Other Groups Other organizations survive only to the extent that they are useful to communism and can be controlled by the communists. The old leaders are subjected to such terror as may be necessary to dri ve them out or subordinate them. In doing this, as well as seizing pri vate property, communists use to good effect the greedy and avaricious have-nots among the populace. Castro's re gime in Cuba illustrated how this may be done shortly after the sei zure of power. Castro organized militia units to take over organiza tions and to bully those within them into submission. Paul Bethel says that nAlmost without exception ... the militia units ... came from the bowels of . . . society. The least productive and the least capable were to be found there .... " Dressed in militia uniforms, authority dangling from the holsters on their hips, hotel bus boys, garbage collectors, taxi drivers and office clerks found that they could intimidate their superiors and re ceive the support of the revolutionary regime .... As organization progressed, instructions began to flow through the ranks, instructions which had no other aim than to bring the whole of Cuban society under the control of govern ment ....

Local labor unions began to lose their hold on laborers as militiamen usurped both power and position. Union officials were intimidated, harassed, and threat ened outright .... More than one business leader was jolted when a group of militiamen employees walked unannounced into his office and flatly told him how to conduct his business .... 9 This was but prelude, of course, to the taking over of private property. Quite often this has been ac complished in a mob-like atmos phere as renters seize the places where they live, as employees seize factories, and as peasants seize the land. The Transformation Terror The third stage may be called The Transformation Terror. This is in many ways a continuation of The Terror of Suppression, but it is often enough sufficiently separate from it to constitute a separate stage. It is probable that many Russians in the 1920s and Chinese in the 1950s be lieved that the worst of the terror was behind them. They had under gone The Terror of Suppression. But worse lay ahead-The Terror of Transformation. This is the stage of the totalizing of power, the wiping out of the last relics of indepen dence, the purging of the old revolu tionaries, the taking of lands and factories from peasants and work ers, if that has not already taken 30 THE FREEMAN January place, and the molding of the popu lation to the will of the rulers. Ter ror may be reckoned to be as essen tial to these tasks as to the others.

This was the period of the Stalinist terror in Russia. Its transformation character may be best illustrated by the Cultural Revolution which took place in Communist China in the mid-1960s. This revolution was promulgated and let loose by the communist lead ers. It was a purge, not only within the Party but in the society at large. The instrument used for the purge was students-young people in high school and college. Its purpose was to discredit and shake from power the bureaucracy which exercised au thority in China. In terms of com munist ideology the bureaucracy had become corrupt and reactionary. In fact, one suspects, power had be come to some degree dispersed in China. It is a natural tendency for authority to become dispersed, for those who exercise power, however acquired, to begin to do so as a matter of right. Indeed, some of the harshness of dictatorship is often reduced by the dispersal of author ity. At any rate, the government sponsored a rampage by students against authority, and those who had exercised power, as well as the general populace, were terrorized for several years.

The first to be terrorized generally were school administrators and instructors. Many of these were brought before students to be judged. They were accused of being cor rupt reactionaries. They were humiliated, tortured, often enough stomped and beaten, made to confess and recant, and stripped of their authority. From the schools, the revolution expanded out into factory and field. Students battled with the police and, at times, even took on the army. Civil war raged, insti gated by the top leaders of China. Mao Tse-tung and Chou En-Iai had shown much greater imagina tion in unleashing terror than had Stalin. To set the young to terroriz ing their elders must surely be the ultimate betrayal of a people by the government. The Permanent Terror So far as can now be determined, the fourth stage, The Permanent Terror, may be the final stage. When the populace has been ter rorized into submission the terror subsides. There may, of course, be new outbreaks of terror, and the possibility of these is surely a part of the permanent terror. But the out ward terror is generally greatly re duced. It can be more subtle, be psychological more often than phys ical, become a permanent war on the spiri t of man. Terror becomes an enduring threat, an intimidating force which permeates life.

In its deepest dimensions, the ter1979 THE COLD WAR: TERRORIZING MANY LANDS 31 ror arises from the use of force unre deemed by love. The Reverend Richard Wurmbrand tells this story. It occurred somew here behind the Iron Curtain, in what country I do not know. Mr. Wurmbrand was no longer permitted to have the forum of a pulpit or any other formal set ting for his preaching. So he went about quietly, taking the Gospel to such individuals as would hear it. One day he fell into conversation with an army officer on the street. They talked for a bit, and Mr. Wurmbrand invited the officer to his home. When they had sat down, Mr. Wurmbrand related to him the story of the life of Jesus, and of his death on the cross, in a simple and direct manner. When he had finished, the officer's eyes filled with tears and he wept unashamedly. In explanation, he said something to this effect: I did not know that there was such a man. I did not know that there was such love.

No doubt, the army officer knew much of hate. He had during his lifetime been subjected to a constant barrage of propaganda aimed at arousing his hatred for the class enemy. No doubt, he knew some thing of the brutalizing use of force by the regime over him. He must have witnessed the jockeying for power and privilege. Surely, he had experienced sexual appetite, and there must have been those along the way for whom he had affection. What a relief it must have been to find himself warmed by a transcen dent love, a love that had in it no element of calculation, a love that expressed itself through sacrifice, a love that somehow had reached across the ages from a carpenter in Galilee to touch an army office in Eastern Europe! The ultimate terror is the perva sive use of force in an atmosphere of hate. This is the permanent terror of communism. @ Next: 26. The Cold War: The Spread of Gradualism.

-FOOTNOTESlWhittaker Chambers, Cold Friday (New York: Random House, 1964), pp. 149-50. 2Marguerite Higgins, Our Vietnam Night mare (New York: Harper & Row, 1965), p. 14. 3Bernardo Teixeira, The Fabric of Terror (New York: Devin-Adair, 1965), p. 100. 4Eugene H. Methvin, The Riot Makers (New Rochelle, N.Y.: Arlington House, 1970), pp. 361-62. 5See ibid., chs. XI-XU!. 6See James A. Michener, Kent State (Green wich, Conn.: Fawcett, 1971), pp. 85-104. 7Ibid., p. 222. 8Hugh Seton-Watson, From Lenin to Malen kov (New York: Frederick A. Praeger, 1955), p. 258. 9Paul Bethel, The Losers (New Rochelle, N.Y.: Arlington House, 1969), p. 125.

Percy L. Greaves, Jr. The Market Economy VS. The Welfare State THE HISTORYof the 20th century has been the story of the growth of statism-the ever-increasing con trol of governments over the lives, actions, earnings, inheritances and other accumulations of their in habitants. The underlying principle, seldom questioned, has been that those elected or appointed to official government positions are ((experts." They are thought to know what is best for their trusting incompetent charges, even though, in some cases, the same incompetents are consid ered intelligent enough to choose their supposedly wiser rulers. The moti vating precept of this century has been the basic Marxian fallacy that in a free market society the rich grow richer and fewer in number while the poor grow ever poorer and larger in number. This in 32 turn is based on the fallacy that employers set wage rates and pro ducers set prices. It is thus almo~t universally believed that in a free society workers and consumers are totally at the mercy of rapacious business interests.

This ill-founded, but popular, con cept of an unhampered economy has stimulated a demand for laws that limit the freedom of business or ganizations and confiscate the major part of their earnings. Such laws are expected to correct what are consid ered the undesired trends of a mar ket system. By the use of democratic means, laws are passed in attempts to thwart the ultimate disaster of a plutocratic oligarchy. These laws seize more and more of the wealth of the successful minority, while al locating much of the appropriated THE MARKET ECONOMY VS. THE WELFARE STATE 33 funds to the envious and less pro ductive majority, with the political brokers retaining an ever-in creasing share for themselves and their friends. The principles of a limited government have been superseded by the almost universal acceptance of the idea that every thing must now be decided by a majority vote, even as to who should pay for the birth or non-birth of each baby and how each person's earn ings must be shared among the elec torate.

This process of socialistic leveling has become so widely accepted that when a co-chairman of a Tenants for Poli tical Action group was recently charged with using political influ ence to force landlords to subsidize tenants, she replied, ~~I see nothing wrong with having political pres sure. That's the name of the game and that's what this country is all about." Stealing, i.e., taking the property of others by force, is now considered legitimate if it is done by the politi cal process of majority vote. Such shortsighted avarice and economic ignorance are widespread. Morality and sound economics are no longer considered reasonable guides for public actions. The result has been that politicians promise voters more than they can deliver. Further sei zures of the earnings of the high producers of wealth no longer satisfy the demands of those who believe Professor Greaves is a free lance economist, lecturer, and author of numerous arti cles as well as the books, Un derstanding the Dollar Crisis and Mises Made Easier (A Glossary for Mises' Human Action.) This article is reprinted by permission from his Editor's Introduction to the volume, On the Manipulation of Money and Credit by Ludwig von Mises, translated by Bet tina Bien Greaves, 352 pages, $14.00. This book, published by Free Market Books, P. O.

Box 298, Dobbs Ferry, N.Y. 10522, is also available from The Foundation for Economic Education, Irvington-on-Hudson, N.Y. 10533. they are legally and morally enti tled to more than consumers will voluntarily pay for their contribu tions to society. So, for years now, politicians have sponsored inflation, creating by law or regulation, more and more additional monetary units with which to pay the bills. One of the effects of this inflation has been ever higher prices, a fact that alarms the public. Defining Inflation In order to relieve themselves of the blame, the politicians and pres sure groups who promote our in flationary processes have succeeded 34 THE FREEMAN January in changing the popular definition of inflation. Historically, periods of in flation have always been considered periods of rapid increases in the quantity of money. This was so in all reports of both the American and French Revolutions. It was also so during the post World War I infla tions which reached their apex in Germany in 1923. However, those who favor the deceptive processes of inflation, as a means for transfer ring wealth from those who earn it to those they consider more worthy of it, have changed this definition of inflation. Inflation now means to almost everyone a rise in prices.

Unfortunately, such higher prices are only one of the inevitable conse quences of an increased quantity of money bidding for available goods and services. This shift in the popular defini tion of inflation tends to hide from most people the obvious way to end infla tion. When inflation is defined as ~~higher prices," most people con clude that it is businessmen who raise prices. Therefore, businessmen must be responsible for inflation. The way to end inflation is then thought to be the control or legal limitation of price rises. It is true that businessmen raise prices. They would like to raise their prices with every sale. However, it would do business organizations no good to raise their prices, if there were not some customers who could and would pay the higher prices they ask. If no one bought their wares at the higher prices, those prices would soon come tumbling down. The higher prices that we have been seeing .in recent decades have been made possible solely be cause governments have made available increasing quantities of money to politically favored custom ers who then can and do pay the higher prices. This means that those who do not share in the political allocation of the newly created money find their purchasing power grea tly diminished. If they believe what they read in the papers or see on television they blame busi nessmen rather than politicians for the higher prices which reduce the buying power of their earnings.

When inflation is defined as an increase in the quantity of money, the remedy becomes obvious. Busi nessmen cannot create money. Under present-day laws, only gov ernments and their agencies can. To stop inflation, all that needs be done is for governments to stop authoriz ing any further increases in the quantity of money. Misdirection of the Economy Unfortunately, higher prices are not the most important conse quence of the political creation of new monetary units. These mone tary units are endowed with full legal tender power. This means that, 1979 THE MARKET ECONOMY VS. THE WELFARE STATE 35 by law, they have the same purchas ing power as all previously issued monetary units of the same name. New monetary units cannot be created by governments or anyone else without someone getting them and spending them first. Those who first receive these newly created monetary units are able to go out on the market and buy things they could not otherwise buy. They can and do buy things which other peo ple would have bought with the money they had earned or saved.

Thus every political creation of new money transfers wealth from work ers and savers to those who are spending in the market place newly created monetary units which no one has earned. As a result, the production facilities of the nation are gradually redirected with an ever larger per centage devoted to the satisfaction of those spending the newly created money. Those catering to the spend ers of the newly created money find their sales going up and the politi cians proudly point to the activity they have stimulated. On the other hand, those who can only spend what they have earned or saved find that they must reduce their pur chases and their living standards. Why Inflation Accelerates As prices rise with the increased quantity of money, more and more new monetary units must be created to maintain the business activity dependent upon the creation of the new monetary units. As time passes, more and more production facilities are directed toward satisfying this demand which can only be main tained by increasing the quantity of money at an ever-increasing rate.

This, of course, tends to lower the purchasing power of the monetary unit. Sooner or later, such increases in the quantity of money must come to an end, either by a deliberate action stopping the creation of more monetary units, or by continuing until the purchasing power of that monetary unit approaches zero. When inflations come to an end, as they must, those who have been producing and catering to those spending the newly created mone tary units lose their customers. They must redirect their activities toward satisfying the only consumers left, those who have acceptable funds as a result of their contributions to the market. This redirection of the economy, popularly known as a re cession or a depression, is actually a correction of the prior misdirection resulting from the inflation. It is a very painful period, particularly for two groups: (1) those who have been producing for the spenders of the newly created money, and (2) those who have become accustomed to spending money they have not earned. The suffering cannot be completely avoided, but it can be 36 THE FREEMAN January reduced to a minimum by permit ting free market prices, wage rates and interest rates to direct the econ omy to the most efficient satisfac tion of those who contribute to the economy. All political attempts to control prices, hold wage rates up and/or hold interest rates down interfere with the indicators that direct business enterprises toward the most efficient use of available capital and labor.

Consumers Are Sovereign The simple facts stated above are seldom understood, because so few people have ever read or heard them. Rare are the schools, colleges, politicians or mass media who pro mulgate the simple economic. fact that, in a truly free market society, it is the consumers who are sovereign. It is the consumers who determine the limits on the wage rates that may be paid and the interest rates that are profitable for both borrowers and lenders, as well as the ultimate prices of consumers goods. Consequently, there are very few people today who realize that when government serves only as a keeper of the peace, that is, as a protector of lives and property and a punisher of those who resort to force or fraud, it is the consumers who, by their voluntary purchases and re fusals to purchase, determine the in -comes of all those who contribute to the market place. It is consumers who make some actresses, football stars ·and businessmen rich and it is consumers who retire to the sidelines those who do not satisfy them.

Whenever government interferes with the sovereignty of the consum ers, it always helps some at the expense of others. It discourages the production of wealth, not only by reducing the incentives of producers but also by subsidizing the human tendency to indolence and para sitism. The unhampered market, where everyone, protected by gov ernment, is acting voluntarily, op erates according to the Golden Rule. The more one contributes to the so ciety, the more he or she receives in return. This is an incentive for every one to contribute more of what con sumers are buying as this is the most efficient means for increasing their own incomes. A Society Divided When society forsakes the free market and the Golden Rule for the welfare state principles of transfer payments and special privileges for the politically powerful, it divides society into factions, each of which is struggling to get what that group considers its fair share of the wealth of others. No legislative body made up of human beings can ever divide available wealth in such a way as to satisfy every element of the popula tion. So as long as funds are taken from some to give to others, there 1979 THE MARKET ECONOMY VS. THE WELFARE STATE 37 will be perpetual political struggles among the various pressure groups, each striving to get more for their members. Such political efforts must inevitably reduce the productivity of that society. As a consequence, the living standards of all will fall.

While everyone suffers, those who are hurt most are the lowest income producers. More and more people will devote their efforts to preserv ing their wealth or obtaining more by political means, while fewer and fewer will save, invest and produce for the market place. There will be a growing number who will resort to violence in order to survive under the existing conditions. Only a trend toward a free and unhampered mar ket can prevent this disastrous con sequence. As man and the world exist, every human being has unlimited wants, while the goods and services avail able for satisfying those wants are always limited. The economic prob lem is one of determining how we can best satisfy more and more human wants by ever increasing the quan ti ties of goods and services available. No political intervention can improve upon the unhampered market processes which allocate available limited quantities to those consumers able and willing to pay the highest prices. The ability of people to pay such market prices arises from the prior valuation con sumers have placed upon their indi vidual contributions. Thus consum ers, by their bidding in the market place, set all prices. This competi tion of consumers also sets the height of the income of each worker and investor. Consumers thus estab lish each worker's wage rates and the amounts that can be paid for raw materials and borrowed capital.

In such an unhampered market, businessmen are merely middlemen competing for the favors of consum ers, whose purchases determine those who can expand and those who must contract their activities, in cluding their work forces. No busi ness can long pay higher wage rates or raw material prices than those that can be paid with what they receive from their customers. Nor can any employer long make high profits by paying lower wage rates than those that customers will vol untarily repay. Those who attempt to do so soon find other employers will bid their workers away in their attempt to attract more customers with lower prices which squeeze profits. So, in the long run, it is always the consumers who deter mine the shares of total production allocated to each participant, be he investor, employer or employee. ® Yale Brazen THE ATTACK ON CONCENTRATION~ ~ ONCE we gave high regard to those who created great enterprises by de signing desirable products, produc ing them at low cost, and offering them at such attractive prices that they won a large body of customers.

Henry Ford, in his day, was looked upon as an industrial hero. Today, he would be regarded as a monopoliz ing fiend upon whom the antitrust prosecutors should be unleashed. The 1921 Ford Company, with its more than 60 per cent share of the market, would today be called a dominant firm and charged with violating the antitrust laws. Just a few months ago, an antiDr. Brozen Is Professor of Buslne.s Economics, Graduate School of Business, University of Chicago, and Adjunct Scholar, American Enterprise Institute for Public Polley Research. This article Is condensed from an address before the Ashland, Kentucky Economic Club, September 15,1978. 38 trust complaint was served upon Du Pont because it developed a low-cost method for producing titanium dioxide pigments. There was no ob jection to the development of a lower cost method of production, but Du Pont made the fatal error of passing enough of the cost saving on to buyers to win 40 per cent of the market served by domestic produc ers. Not only did it do that but it is going on to enlarge its capacity, building a new plant at De Lisle, Mississippi, in order to serve even more customers (who also would like to obtain domestic titanium dioxide at low cost). Can you imagine that any enterprise would engage in such a nefarious activity? It should, ac cording to the FTC, behave like a monopolist. It should restrict its output, instead "'"of expanding, and charge higher prices (and let the business go to foreign firms).

THE ATTACK ON CONCENTRATION 39 Antitrust Upside Down That is a total perversion of the intent of our antitrust law. If the FTC is not standing antitrust law on its head, then I simply do not under stand what our antitrust law says. The words ~(every contract, combina tion, or conspiracy, in restraint of trade is hereby declared to be il legal" say that it is restraint of out put that is in violation of the law. But the FTC contends that Du Pont is violating the law because it has ((adopted and implemented a plan to expand its domestic production capacity."! That quite plainly says that the FTC regards Du Pont as breaking the law by expanding trade. Is that what the law says is illegal? In whatever way I torture the phrases in the antitrust law, I sim ply cannot get it to say that expand ingtrade is illegal despite the thun der in the FTC complaint. Whenever anyone builds more capacity and uses it to produce more product, more trade must result. I can't be lieve that Du Pont is building a new titanium dioxide plant just because it wants a handsome monument at which to gaze-and neither does the FTC. What the FTC is complaining about is that Du Pont intends to produce titanium dioxide in its new plant and increase its sales-and it is nasty ofDu Pont to have already' built enough plant to take care of 40 per cent of the needs of customers for domestic product. That makes Du Pont ((the nation's dominant pro ducer." There can hardly be any thing more venal than a ((dominant producer ," unless it is a ((shared monopoly."

"Brand Proliferation" through Hypnotic Advertising ((Shared monopoly" sounds like a label for a conspiracy among several firms to monopolize a market and, share the fruits of that monopoly. But that is not what the FTC means by the label. The phrase is FTC code for a few firms winning and holding a large share of the business in some product line. The FTC staff is cur rently prosecuting Kellogg, General Foods, and General Mills for ((shar ing a· monopoly" of ready-to-eat (RTE) cereals. These three firms have managed to produce and dis tribute cereals that taste good enough and cost consumers little enough to win more than three quarters of the RTE business. That is their crime. Did these three firms conspire with each other to somehow force other firms out of the industry and then conspire to reduce supplies and raise prices? The FTC disavows any accusation of any such conspiracy. It says that the crime of which these firms are guilty is ~~brand prolifera tion." The heinous conduct of which it accuses these firms is that of try ing to give consumers what they 40 THE FREEMAN January want. It is now a crime, that is, the FTC is trying to make it a crime, to follow that old merchandising maxim for success, ttgive the lady what she wants."

The cereal companies should have stuck to producing corn flakes. Never mind the demand for a bran cereal, or a high protein cereal, or a vitamin enriched cereal, or a pre sweetened cereal. Anyway ~ says the FTC in its complaint, there are no differences between cereals-except those artificially created in the minds of consumers by hypnotizing them with advertising. 2 Of course, if the new brands offered by the three firms in the 19508 and 1960s had not won a large share of the market, nothing would have been wrong with ttbrand proliferation." But the new brands pleased consumers. They won for the three firms a large share of the market. That, at bot tom, is the crime these firms com mitted. The RTE cereal industry has become ttconcentrated," that is, most of the sales in the industry are made by a few firms. That is a condition which neither the FTC nor the Anti trust Division intends to tolerate.

The FTC staff also has accused the eight major petroleum refiners of engaging in a ttshared monopoly" in the petroleum refining industry. It is asking that these corporations be broken into smaller companies. The major crime of which the Big Eight stand accused is that of maintaining a ttnoncompetitive market struc ture." This phrase is never cogently defined by the FTC staff, but ttcon_ centration" seems to be the nub of it. Complaint counsel says the eight companies ttare all vertically inte grated firms with substantial hori zontal concentration at every level of the industry" (emphasis supplied). 3 Counsel also says the· eight (town and operate refineries accounting for approximately 65 per cent of rated crude oil refining capacity in the relevant market." Even more damning, ttThis figure ... under states concentration ... because [the eight firms] ... utilize more of their refining capacity than other refin ers. Hence [their] share of produc tion of refined petroleum products ...

is higher than their share of rated refinery capacity .... " Again, here is the accusation that these alleged monopolists are not behaving like monopolists. Instead of restricting output and restraining trade, they push their capacity har der than do their competitors and expand output and trade. Appar ently they are unaware of the fact that they are monopolists who can get higher prices by restricting out put. Again, the FTC is displeased by efforts to expand trade and is stand ing antitrust law on its head by saying that the failure to restrict trade is a violation of the law. The FTC even accuses the companies of building pipelines to provide them1979 THE ATTACK ON CONCENTRATION 41 selves with ((cheap transportation." Again, as in titanium dioxide, it is apparen ty illegal to reduce costs and pass enough of these cost savings on to customers to win an appreciable share of the market. (In the petro leum case, we cannot say a ((large"

share of the market has been won since no petroleum refining firm sells as much as ten per cent of the petroleum products sold in the United States.) These three cases are cited to show the current state of antitrust doctrine at the antitrust agencies. The question remains of whether the courts will buy this upside down view of antitrust law in view of its legislative history.4 Antitrust Not Intended to Fragment Industry When federal antitrust policy began, with the signing of the Sherman Act in 1890, it was aimed at benefiting consumers. In the words of Senator Sherman, the act was to outlaw arrangements ((designed, or which tend, to advance the cost to the consumer." It was neither intended to fragment indus try nor to prevent occupancy of a major share of a market by one or a few firms. When Senator George Hoar explained to the Senate the Judiciary Committee's final draft of the bill, he declared that a man who ffgot the whole business because no body could do it as well as he could"

would not be in violation of the Sherman Act. As Professor Bork has pointed out in his examination of Sherman Act legislative history, ((The statute was intended to strike at cartels, horizontal mergers of monopolistic proportions, and pred atory business tactics."5 As the act itself says, ((Every conspiracy in re straint of trade . . . is hereby de clared illegal" (emphasis supplied). Cost and price reductions and product improvements by a firm ex pand the trade of a whole industry. Since firms doing this frequently win a large share of the markets in which they operate, judges in the early days of antitrust litigation did not hold ((concentration" of sales in the hands of a few firms or ((domi nance" by a single firm to be illegal in and of itself. Standard Oil and American Tobacco were broken up in 1911 because they had been built by a very large number of mergers of monopolistic proportions with wrongful intent and had then en gaged in ((acts and dealings wholly inconsistent with the theory that they were made with the single con ception of advancing the develop ment of business . . . by usual methods .... " The defendants failed to show that the intent underlying their mergers and their acts was the normal one of efficiency and expan sion of trade-they failed to show ((countervailing circumstances" in Judge White's phrase. They were, 42 THE FREEMAN January therefore, subjected to antitrust rem edies. The remedies were not applied because of their dominance but because they were formed and maintained by monopolizing acts and intent-that is, by a desire to gain control of the supply of a prod uct and to use that control to charge a monopoly price and thereby restrain trade.

Dominant Firms Do Not Control Supply and Price There is a distinction between controlling the supply of a product and producing or selling most of the supply of a product. HDominant" producers who sell a major portion of a product's supply usually have no control over the supply. They have no power to set any lower level of industry output and a higher price than that which would prevail in a market with many suppliers and no dominant firm. Usually, a dominant producer is the most efficient firm in the industry. Its large output is the result of its efficiency in supplying the market. The market price is as low as it would be with many pro ducers-frequently lower. Any at tempt by a dominant firm to restrict its own supply and increase price after reaching a ttdominant" position simply results in the expansion of output by other firms, the entry of additional firms, and loss of its dominance. A dominant firm can keep its dominance only by behaving competitively. The fact that there is a dominant firm, or small group of firms, in an industry is evidence of competitive behavior-not of mo nopolization.

The lack of ability of a dominant firm (or group of firms) to control supply and price simply because it produces a major part of the supply of a product is illustrated by the experience of the automobile indus try in 1927. From 1921\ to 1925 the Ford Motor Company supplied more automobiles than all other firms combined. The Ford Company was a dominant firm. It completely shut off its supply to the market for nearly the entire year in 1927 when it closed down to retool for the change from the Model T to the Model A. If the fact that a firm supplies the majority of a market gives it any power to control supply and price, then the complete with drawal of that firm's supply should certainly cause a rise in price. Yet the prices of automobiles failed to rise when Ford shut down despite its having been the dominant producer. Other manufacturers increased their output and prices fell by mid-1927 despite the complete withdrawal of the Ford supply of newly manufactured cars from the market. 6 The fact that a dominant producer has, at most, a very short-lived abil ity to influence the price ofa product can be ill ustra ted by numerous 1979 THE ATTACK ON CONCENTRATION 43 anecdotes. The American Sugar Re fining Company merged 98 per cent of the capacity for refining sugar east of the Rockies in 1891 and 1892.

By cutting production it managed to raise refining margins by 40 per cent in 1893 (which raised the price of sugar by 8 per cent). Expansion of output in other firms cut sugar re fining margins in 1894 to a level little higher than the 1891 margins despite further reductions in output by American Sugar. By 1894, the entry of additional capacity had forced margins back nearly to 1891 levels and had cut American's share of the sugar business by one quarter. American was still a domi nant firm by today's FTC definition, but it had lost all influence over price and output despite its 85 per cent share of capacity.7 In 1901, American Can merged 90 percent of all capacity in the can business. It raised prices by one quarter and lost one-third of its share of market in short order de spite additional buying up of com petitors and their output. Prices re turned to the pre-merger level in a very short time.

These are the most successful monopolizing cases I can find aside from the Air Line Pilots Association, the Teamsters, and similar labor unions. 8 What they demonstrate is that a dominant firm quickly ceases to have any influence in the market if it charges a supracompetitive price. In some cases a dominant firm willing to restrict output greatly has no ability to obtain a supracompeti tive price even in the short-run. Shifting Market Shares Dominant firms, that is, firms which sell a major part of all product sold, remain dominant only if they charge the competitive price and are more efficient than other firms in their industries. If they are less effi cient, they soon find their market share dwindling despite selling at competitive prices. The Big Four in the meat packing industry, for example, has seen its share of the market dwindle from 56 per cent in 1935 (and from an even higher share in earlier years) to 47 per cent in 1947 to 38 per cent in 1956 to 22 per cent in 1972.9 The relative ineffi ciency of the Big Four showed in the 1920s when their rates of return on investment ran at one-third the rate earned by smaller companies. 10 That situation continued up to at least 1972, and market share of these inefficient firms fell.

The Big Four meat packers (The Big Five in the 1917 FTC investiga tion) originally achieved a large market share in meat packing by their efficiency-by instituting as sembly line methods with complete utilization of all byproducts. They became known for using everything ((but the squeal." Also, their de velopment of refrigerated packing 44 THE FREEMAN January houses, cold storage, the refrigerator car, and an efficient distribution system created enlarged markets for meat supplied from cheaper live stock sources. They grew large by being innovative. Once their inno vations were imitated by other pack ers, the decline of the Big Four began, accelerating with the spread of highways and the rise of trucking. The Hdominance" of the Big Four did not give them any power to restrict output or to control price. If anything, the rise of the Big Four decreased the dominance of local markets by local butchers who had to compete with fresh meat brought in by train by the Big Four, 11 espe cially after state laws prohibiting the sale of Hforeign"meat were ruled unconstitutional. Nevertheless, the FTC filed one of its earliest ((shared monopoly" suits in September 1948 against Armour, Cudahy, Swift, and Wilson, accusing them of uconduct ing ... operations ... along parallel noncompetitive lines." They had served consumers too well, thus in curring the hostility of local butch ers in the late nineteenth century and the first quarter of this century.

Long after local packers began out competing the Big Four, in the sec ond quarter of the century, the FTC, in a flagrantly anti-consumer ac tion, rode to rescue the fair maidens who by. now had grown mustaches and larger biceps than the Big Four. The FTC demanded that Armour and Swift each be broken into five companies and that Cudahy and Wilson each be broken into two firms. The FTC reluctantly dropped the suit in March 1954, nearly six years and millions in legal costs after it was brought, but only be cause the court ruled that pre-1930 behavior was irrelevant in a 1950s proceeding. Why Are Dominant Firms Being Attacked? The attacks on concentration, whether in the form of an attack on a ((dominant" firm or a ~~shared monopoly," seem to be fairly episodic. The question to be asked is why large firms with a large share of the market are left undisturbed for long periods and then turned on at other times. It is not purely coin cidental that the nation suffered a severe deflation from 1882 to 1890, prices dropping by 25 per cent in that interval, and the Sherman Act was passed in 1890. At that time, the declining prices were blamed on ((cutthroat" and ~~predatory"

competition-and this was also a time in which economies of scale in manufacturing, combined with a rapidly declining cost of transporta tion' led to centralization of produc tion in enlarged facilities. From 1867 to 1887, for example, sugar production doubled, from one-half to one million tons annu ally, and the number of refineries 1979 THE ATTACK ON CONCENTRATION 45 decreased from 60 to 27. In the same period, railroad freight rates fell by 60 per cent. I2 The economies of cen tralized production together with reduced transport costs led to larger plants supplying more distant mar kets at lower prices than the smaller plants resident in those markets. So the myth of ((cutthroat" competition and ~~predatory" pricing was born in this and many other industries. An titrust cases were brought against dominant firms such as American Sugar, Standard Oil, American To bacco, and others.

Another deflation in which prices again dropped by 25 per cent, from 1929 to 1933, again led to animus against ~~Big Business" and espe cially against that rising innovation in marketing, the chain store. The investigations of the Temporary Na tional Economic Committee once again directed the country's ire to ward dominant firms and industrial concentration. Antitrust cases were brought against dominant firms such as Alcoa and A & P and against ~~shared monopolies" as in the Mother Hubbard case against the petroleum companies, the proceed ing against the major cigarette com panies, and the FTC case against the Big Four in meat packing. Currently, we are trying to find scapegoats for inflation. I3 So we have brought cases against ~~domi nant" firms such as IBM, AT&T, and Du Pont and against the (~shared monopolies" already de scribed. When we are troubled by deflation or by inflation, both brought on by the government's ineptness in operating our monetary and fiscal policy, the politicians export the blame to somebody else. Mr. Carter tells us in his speeches that the government is not at fault for our inflation-it is up to business and labor to bring inflation to a halt.

In this modern day, we are no longer subject to the kind of superstitions that led the early colonists to hang witches when they were troubled by forces they did not understand. Instead, in this en lightened age, when we seek to rid ourselves of the causes of inflation and other mysterious ailments, we pillory dominant firms or the Big Fours in concentrated, and not so concentrated, industries. The Potential Losses from Deconcentration This absurd behavior by our politicians and its acceptance by the electorate as being something more than a hunt by politicians for witches to blame for their own mis takes might be tolerable if it were nothing more than expensive enter tainment of voters. But it is some thing more. It is counterproductive in terms of the ends we seek-less inflation, higher rates of growth, and improved levels of living.

46 THE FREEMAN Prices have gone up less rapidly in our most concentrated industries than in others and productivity has grown more rapidly. From 1967 to 1973, prices in our most concen trated industries rose less than half as rapidly as prices in all manufac turing. 14 From 1958 to 1965, prices in our most concentrated manufac turing industries actually fell while prices in other manufacturing in dustries rose. Yet it is our concen trated industries with a superior rec ord for moderating inflation and a superb record for increasing produc tivity that are being cast in the role of economic villains. 15 If this witch-hunt continues, the result will be economic disaster. If we deconcentrate all our manufac turing industries in which four firms produce and sell more than 50 per cent of the product, the result will be a 20 per cent rise in costs and a 10 to 15 per cent rise in prices. 16 If we want to hasten our decline to the status of a banana republic, the at tack on concentration will contribute to that end. ® -FOOTNOTESIFTC News Summary, April 14, 1978, p. 1.

Emphasis supplied. 2FrC Docket No. 8883, April 26, 1972. 3Complaint Counsel's Prediscovery State ment, In the Matter of Exxon Corporation, et aI., Docket No. 8934, pp. 7-10. 4The Court did accept this upside down view in reversing the lower court in the Alcoa case. Y. Brozen, ttAntitrust Out of Hand," The Con ference Board Record, vol. 11, no. 3 (March 1974). 5Robert Bork, The Antitrust Paradox (1978), p. 20. 6Federal Trade Commission, Report on Motor Vehicle Industry (Washington: U.S. Government Printing Office, 1939). 7Richard Zerbe, ~~The American Sugar Re finery Company, 1887-1914; The Story of Monopoly," Journal of Law & Economics, vol. 12 (1969), pp. 353-357. sY. Brozen, ttThe Consequences of Economic Regulation," New Guard, vol. 15 (June 1975). 9The 1956 and subsequent figures overstate the share of market retained by the original Big Four since Cudahy was displaced by Hormel.

l°Ralph C. Epstein, Industrial Profits in the United States (New York: National Bureau of Economic Research, 1934), reports that twenty-three leading meat packers earned 1.9 per cent on equity in 1928 while forty-six minor meat packers earned 10.0 per cent. In 1964, leading packers earned 3.7 per cent while small packers earned 13.6 per cent. llAmbrose Winston, uThe Chimera of Monopoly," The Atlantic Monthly (1924), re printed in The Freeman (Sept. 1960). 12The average rail rate fell from 19 mills per ton-mile to 7.5 mills. 13J. Cotlin, ttIncreased Corporation Anti trust Suits Prompt Industry Fears of New Federal Policy," National Journal Reports, Sept. 15, 1973, p. 1371. 14Steven Lustgarten, Industrial Concentra tion and Inflation (Washington: American En terprise Institute for Public Policy Research, 1975), Table 2. 15Shirley Scheibla, uMonopoly the Villain," Barron's, Nov. 4,1974, pp. 9, 18-20; uEconomic Concentration: The Perennial Fall Guy," First National City Bank Monthly Economic Letter, April 1972.

16Sam Peltzman, uThe Gains and Losses from Industrial Concentration," Journal of Law & Economics, vol. 20 (Oct. 1977).

Paul Johnson HAS CAPITALISM A FUTURE? LET me begin by defining my terms. By ((capitalism" I mean large-scale industrial capitalism, in which privately-financed publicly-quoted corporations, operating in a free market environment, and with the backup of the private enterprise money market, constitute the core of national economies. This is a pretty broad definition, but I think it will do. Now the first thing to be noted is that this phenomenon is pretty re cent. I would date it, in its earliest phase in England, only from the Mr. Johnson, a British historian and author, Is a former editor of The New Statesman, a leading academic socialist weekly. His recent break from what he calls the Fascist Left In Britain Is explained In his book, Enemies of Society, reviewed In The Freeman, March 1978. this article, an addres. at the May 1978 Bank CrttdltAnalyst Conference, Is reprinted by permis sion from the September 1978 Issue of The Bank Credit Analyst publication.

1780s. It is thus less than 200 years old anywhere. As a widely-spread phenomenon, it is barely 100 years old. Seen against the grand perspec tive of history, capitalism is a new comer. We now possess some knowl edge of economic systems going back to the early centuries of the third millennium B. C. I could give you, for instance, an outline account of the economic structure of Egypt under the Old Kingdom, about 2700 B. C. Our know ledge of how civilised societies have organised their economic activities thus covers a stretch of more than 4600 years. And in only about 200 of those years has industrial capitalism existed. Now the next point to note is the remarkable correlation be tween the emergence of industrial capitalism and the beginnings of really rapid economic growth. 47 48 THE FREEMAN January Throughout most of history, growth rates, when we have the statistical evidence to measure them, have been low, nil or minus. A century of slow growth might be followed by a century of decline. Societies tended to get caught in the Malthusian Trap: that is, a period of slow growth led to an increase in population, the outstripping of food supplies, fol lowed by a demographic catas trophe, and the beginning of a new cycle.

There were at least three economic uDark Ages" in history, in which a sudden collapse of the wealth-making process led to the extinction, or virtual extinction, of civilised living, and the process of recovery was very slow and painful. The last of these three Dark Ages extinguished Roman civilization in Western Europe, in the 5th Century A. D. It was not until the 13th cen tury that equivalent living stan dards were again achieved-the re covery thus took 800 years. Society again fell into a Malthusian trap in the 14th century and again recovery was slow, though more sure this time, as intermediate technology spread more widely, and methods of handling and employing money be came more sophisticated. Even by the first half of the 18th century, however, it was rare for even the most advanced economies, those of England and Holland, to achieve one per cent growth in any year. And there is a possibility (I myself would put it higher) that mankind would again have fallen into a Malthusian trap towards the end of the 18th century if industrial capi talism had not made its dramatic appearance.

And it was dramatic. By the be ginning of the 1780s, in England, an unprecedented annual growth rate of two per cent had been achieved. During that decade, the two per cent was raised to four per cent. This was the great historic Ulift off," and a four per cent annual compound growth rate was sustained for the next 50 years, on average. Since this English, and also Scottish, perfor mance was accompanied by the ex port of capital, patents, machine tools and skilled manpower to sev eral other advanced nations, the phenomenon soon became interna tional. Phenomenal Growth I don't want to overburden you with figures, but some are necessary to indicate the magnitude of the change that industrial capitalism brought to human society. In Brit ain, for instance, in the 19th cen tury, the size of the working popula tion multiplied fourfold. Real wages doubled in the half-century 1800 1850, and doubled again, 1850-1900.

This meant there was a 1600% in crease in the production and con sumption of wagegoods during the 1979 HAS CAPITALISM A FUTURE? 49 century. Nothing like this had hap pened anywhere before, in the whole of history. From the 1850s onward, in Belgium, France, Austria Hungary, above all in Germany and the U.S., even higher growth rates were obtained; and feudal empires like Japan and Russia were able to telescope a development process which in Britain had stretched over centuries into a mere generation or two. The growth rates of twelve lead ing capitalist countries averaged 2.7% a year over the whole 50-year period up to World War I. There was, it is true, a much more mixed performance between the wars. The U.S., for instance, which in the 44 years up to 1914 had averaged a phenomenal 4.3% growth rate, and which in the seven years·up to 1929 had increased its national income by a staggering 40%, then saw its na tional income fall 38% in the mere four years 1929-32.

But following World War II, growth was resumed on an even more impressive scale. In the 1950s, for instance, the 12 leading capital ist economies cited before had an average annual growth of 4.2%. In Germany it was as high as an aver age of 7.6%. In all the West Euro pean economies, the rate of invest ment in the 1950s was half as high again as it had ever been on a sus tained basis. In several such coun tries it was over 20% of the GNP; in Germany and the Netherlands it was 25%, in Norway even higher. Moreover, this high capital forma tion took place not at the cost of private consumption, but during a rapid and sustained rise in living standards, particularly of industrial workers. These tendencies were pro longed throughout the 1960s and into the 1970s. So far as the mature economies were concerned, the sec ond industrial revolution, 1945-70, was entirely painless-and largely so even in Japan, where even higher investment and growth rates were sought, and obtained, to catch up with the U.S. and Europe.

The Key Was Capitalism In short, after nearly five recorded millennia of floundering about, in rel ative or absolute poverty, humanity suddenly in the 1780s began to hit on the right formula: industrial cap italism. Consider the magnitude of the change over the last 200 years or less. We all know the wealth of present-day West Germany; all of us (I am sure) have seen it for our selves. In the year 1800, in the whole of Germany there were less than 1000 people with annual in comes of 1000 dollars a year or more. Or again, take France. France now has more automobiles per capita even than Germany, and more second homes per family than any other country in Europe. In the 1780s, four/fifths of French families 50 THE FREEMAN January spent 90% of their incomes simply on buying bread--only bread-to stay alive. Now I have said enough (I could ,say much more) to demonstrate that industrial capitalism, judged simply by its capacity to create wealth, and to distribute it, is a phenomenon unique in world history. It could be argued that it is the greatest single blessing ever bestowed on human ity. Why, then, am I giving a talk, not in any spirit of paradox either, called HAS CAPITALISM A FU TURE?

You may well ask. But I think we know the answer. I am giving it because capitalism is threatened, and we feel it to be threatened: the question is not academic. But before we go any further, I would like to clear up one important point. The idea has got around, and it is widely believed, especially among young people--and above all, alas, among young people who like to think they are well educated--that industrial capitalism is unpopular, and always has been. That is the work of a tiny, interested minority who have thrust it upon the reluctant mass of man kind. Nothing, in fact~ could be further from the truth. The storage economies of remote antiquity were often hideously unpopular. So was the slave-based economy, combined with corporatism, of the classical world. Agricultural feudalism was certainly unpopular; and mercan tilism had to be enforced, in prac tice, by authoritarian states.

They Voted with Their Feet But capitalism, industrial capitalism-no! From the very start it received the demonstrable appro bation of the masses.· They could not vote in the ballot box, but they voted in a far more positive and impres sive manner, with their feet. And this for a simple reason. The poorest member of society values political freedom as much as the richest and the well educated-that is my belief. But the freedom he values most of all, the freedom which means most to him, is the freedom to sell his labour and skills in the open market. It was precisely this that industrial capitalism gave to men for the first time in history. Hence it is a profound error of fact, in my view, to see what Blake called the udark, satanic mills" of the in dustrial revolution, as the enslave ment of man. The factory system, however harsh it may have been, was the road to freedom for millions of agricultural workers. Not only did it offer them an escape from rural poverty, which was deeper and more degrading than anything experienced in the cities, but it allowed them to move from status to contract, from a stationary place in a static society, with tied cottages and semi1979 HAS CAPITALISM A FUTURE? 51 conscript labour, to a mobile place in a dynamic one. That was why the common man voted for industrial capitalism with his feet, by tramp ing from the countryside to the towns, in enormous numbers, first in Britain, then throughout Europe.

And tens of millions of European peasants, decade after decade, moved relentlessly across the Atlantic in pursuit of that same freedom, from semi-feudal estates and small holdings in Russia, Poland, Ger many, Austria-Hungary, Italy, Ire land, Scandinavia, to the mines and factories and workshops of New York, Chicago, Pittsburgh, Cleve land, Detroit. It was the first time in history that really large numbers of ordinary people were given the chance to exercise a choice about their livelihood and destiny, and to move, not as a member of a tribe or a conscript soldier, but as free indi viduals' selling their labour in the open market. A New Freedom They voted for industrial capital ism with their feet not only because they felt in their bones that it meant a modest prosperity for their chil dren and grandchildren-and on the whole they have been proved abun dantly right-but because they knew it meant a new degree of free dom for themselves.

Indeed, the success of industri alisation, despite all its evils, continues to persuade countless ordinary men and· women, all over the world, to escape the poverty and restraints of rural status-society and to enter the free labour markets of the towns. Hence the growth of the megalopolises all over the world Calcutta and Bombay, Teheran and Caracas, Mexico City and Djakarta, Shanghai and Lagos, Cairo and ~Johannesburg; there are now liter ally scores of million-plus cities all over the Third World. This never-ending one-way flow from countryside to city is plainly a voluntary mass choice, for most governments fear and resent it and many are attempting, sometimes savagely but always ineffectively, to halt or reverse it. It is more marked in the free market economies, but it is marked everywhere. Short of evacuating the cities by force and terror, as is now apparently being practiced in parts of southeast Asia, there is no way to stop this human flood. There seems to be an almost irresistible urge in human beings to move away from the status society to contractual individualism-the central feature of industrial capital ism. And this operates even in to talitarian societies, as witness the efforts, for instance, of the Chinese and Polish governments to limit the urban explosions they are ex periencing.

Well, then, if industrial capital ism is both unique in its wealth-pro52 THE FREEMAN January ducing capacity, and also has the endorsement of a popular mandate, why is it under threat? And who is threatening it? Losing the Intellectual and Moral Battle Let me look at five principal ele ments. The first, and in some ways the most important, is that the free enterprise idea is losing, if it has not already lost, the intellectual and moral battle. Not long ago I went into Blackwell's, the great book shop at Oxford University. I wandered over the huge room which houses the books on politics and economics, and having been disagreeably sur prised by what I saw there, I made a rough calculation. New books extoll ing the economic, social and moral virtues of Com~unism and col lectivism-and there were literal ly hundreds and hundreds from all over the world-outnumbered books defending free enterprise, or merely seeking to take an ob jective view of the argument, by between five and six to one. Now this overwhelming predominance of collectivism was not due to any sinister policy on the part of Messrs.

Blackwell's, which is a highly effi cient capitalist enterprise. It was a marketing response to demand, on the part of students and teachers. And this was Oxford University, not one of the new slum universities of recent years, some of which have been virtually shanghaied by Marx ist factions, but one of the free world's greatest centres of learning, where the battle of ideas is fought under the best possible conditions. There can be no doubt that the intellectual and moral assault on free enterprise, and the exaltation of Marxist collectivism, which is such a striking feature of the 1970s, is directly related to the huge expan sion of higher education, put through at such cost to the capitalist economies, in the 1960s. Now there is in this a huge and tragic irony. For in the 1950s, the decade when the uni versi ty expansion was planned, it was the prevailing wis dom among the leading thinkers of the West, that the growth of higher education was directly productive of industrial growth-that the more university graduates we turned out, the faster the GNPs of the West would rise. This was the thesis out lined by President Clark Kerr of Berkeley, in his 1963 Godkin lec tures at Harvard, and it was a thesis put forward, with immense effect in Britain, by Sir Charles, now Lord Snow. Kerr said: ~CWhat the rail roads did for the second half of the last century, and the automobile for the first half of this century, may be done for the second half of the 20th century by the knowledge industry: that is, to serve as the focal point for national growth." And Kerr added that more graduates would not only 1979 HAS CAPITALISM A FUTURE? 53 mean a bigger GNP but act as a reinforcement for middle class de mocracy, with all its freedoms.

Anticapitalism Now to speak of the ((knowledge industry" was to ask for trouble. Knowledge is not a manufactured commodity. There is knowledge for good and knowledge for evil, as the Book of Genesis says. The 1960s, during which most Western nations doubled, and in some cases tre bled, their university places, did not reinforce democratic freedoms, or enlarge the GNP or strengthen the free enterprise system. They pro duced the students' revolts, begin ning in Paris in 1968; they detonated the Northern Ireland conflict, which is still harassing Britain. They pro duced the Baader-Meinhoff Gang in West Germany, the Red Brigade in Italy, the Left Fascist terrorism of Japan. They produced an enormous explosion of Marxist studies, cen tered around the social sciences and especially sociology and a new gen eration of university teachers and school teachers, dedicated by faith and by a sort of perverted religious piety, to the spread of Marxist ideas.

There are ironies within the gen eral irony. Thus, the new university of the air, created in Britain at enormous expense to bring higher education to adults,. and therefore christened the Open University, sometimes gives the impression that it has become a centre virtually closed to any teacher not of proven Marxist opinion. Nuffield College, Oxford, founded by that great capi talistpioneer, Lord Nuffield, who created the British automobile in dustry, has become a centre of trade union ideology, of the very ideas which, slowly but surely, are put ting the British automobile industry out of world markets and out of business. Warwick University, created in the 1960s as a power house of ideas and clever graduate executives for the West Midlands industrial complex, Britain's biggest, has often turned out Marx ist and pseudo-Marxist agitators dedicated to the destruction of the wealth-producing machine which brought their university into exis tence.

I could go on. It is true, of course, that student unrest, as such, has quieted down. But the steady diffu sion of ideas hostile to our free sys tem continues remorselessly. Indus trial capitalism, and the free market system, is presented as destructive of human happiness, corrupt, im moral, wasteful, inefficient and above all, doomed. Collectivism is presented as the only way out com patible with the dignity of the human spirit and the future of our race. The expanded university threatens to become not the power house of Western individualism and enterprise, but its graveyard.

54 THE FREEMAN January The Ecological Panic There is a second threat, what I call in my book the UEcological Panic." Now this movement, again, began with the best intentions. I well remember when Rachel Car son's· work, The Silent Spring, first appeared in The New Yorker, and the surprise and concern it rightly aroused. We were tending to ignore some of the destructive side effects of very rapid industrial expansion. The wave of concern that followed was justified, and the steps then taken, notably the clean air policies, and the policies for cleansing lakes and waterways have been spec tacularly successful. Thanks to smokeless fuel, London fogs, which were real killers, have been virtu ally eliminated. The last really seri ous London fog was in 1952. The Thames is now cleaner, and has greater quantities of fish, and more varieties in it, than at any time since before the days of Spenser or Shakespeare. Similar successes are now being registered in the U.S., which adopted such legally enforce able remedies somewhat later than Britain did. These are examples of what can be done by thoughtful, unemotional, systematic and scien tifically justified application of con servation and anti-pollution policies.

But most of these were put in hand before the ecological panic started. Once ecology became a fashionable good cause, as it did in the late 1960s, reason, logic and propor tion flew out of the window. It be came a campaign not against pollu tion, but against growth itself, and especially against free enterprise growth-totali tarian Communist growth was somehow less morally offensive. I beg those of you who have not already read it to get a copy of Professor Wilfred Beckerman's In Defence of Economic Growth. Bec kerman is one of the best of our economists, and was a member of the Royal Commission on Environ mental Pollution; he knows the sub ject better perhaps than any other working economist and his book is a wonderfully sane and lucid sum mary of the entire subject. Substitutes for Religion I have never yet been able to per suade any committed ecology cam paigner even to look at this book. Of course not. They have a faith, and they do not want to risk it. One of the most important developments of our time (I would argue) is the growth, as a consequence of the rapid decline of Christianity, of ir rationalist substitutes for it. These are not necessarily religious, or even quasi-religious. Often they are pseudoscientific in form, as for in stance the weird philosophy of.the late Teilhard de Chardin. The ecol ogy panic is another example. It is akin to the salvation panic of 16th 1979 HAS CAPITALISM A FUTURE? 55 century Calvinism. As I say in my book, when you expel the priest, you do not inaugurate the age of reason-you get the witchdoctor.

But whereas Calvinist salvation panic may have contributed to the rise of capitalism, the ecology panic could be the death of it. If the restrictions now imposed on industrial development had operated in 18th century England, the indus trial revolution could not have taken place. It would in effect have been inhibited by law-as of course many landowners of the day wished it to be-and in any event legal requirements would have elimi nated the very modest profits by which it originally financed itself. We would still be existing at 18th century living standards, and wal lowing in 18th century levels of pol lution, which were infinitely worse than anything we experience today-if you want to see what they were like, visit the slums of Calcutta or Djakarta. As it is, the ecology panic has been a potent destructive force. The panic mongers played a crucial role in persuading the Middle Eastern oil producers, especially Iran, to quad ruple the price of oil in the autumn of 1973, the biggest single blow in dustrial capitalism has suffered since the Wall Street crash of 1929.

That was the beginning of the pro found recession from which we have not yet emerged. In the end, as was foreseeable at the time, the huge rise in oil prices did not do anyone any good, least of all the oil produc ers. But it ended the great postwar boom and robbed Western capital ism of its tremendous elan, perhaps for good. As Browning put it, ((Never glad confident morning again." And it is significant that the ecological lobby is now striving desperately with fanatic vigor and persistence, to prevent the development of nu clear energy, allegedly on the grounds of safety. Nuclear Power Now it is a fact, a very remarkable fact in my view, that throughout the West (we have no figures for Russia or China) the nuclear power indus try is the only industry, the only industry, which over 30 years has contrived to avoid a single fatal in dustrial accident. Its record is unique, and has been achieved by the efforts of the industry itself, and the responsible governments, with~ out any assistance from the ecolobby. But of course they would like a few fatal accidents. That would suit their purposes very well.

In Britain recently, we had a long, public enquiry, what we call a statutory enquiry, into whether or not it was right togo ahead with the enriched uranium plant at Windscale. The enquiry was a model of its kind. The ecolobby marshalled all the scientific experts and evi56 THE FREEMAN January dence they could lay their hands on. At the end the verdict was that there was no reason whatever why the program should not proceed. Did the ecolobby accept the verdict? On the contrary. They immediately or ganised a mass demonstration, and are planning various legal and .. il legal activities to halt the program by force. Now it is notable that a leading figure in this campaign is the man who is perhaps Britain's leading Communist trade unionist, Mr. Arthur Scargill of the Mine workers. He has never, so far as we know, campaigned against Soviet nuclear programs, peaceful or otherwise. But the mass of the movement, in the U.S., Britain, France, Germany, and Italy, so far as I have been able to observe, is not politically motivated. They are sim ply irrational: but irrationality is an enemy of civilised society, and it can be, and is being exploited by the politically interested.

The Growth of Government A third factor in the future of capitalism is the growth of govern ment. Let me put it this way. Indus trial capitalism, or rather the free enterprise economy, and Big Gov ernment, are natural and probably irreconcilable enemies. It is no acci dent that the industrial revolution took place in late 18th century Eng land. It was a period of minimum government. Of all the periods of English history, indeed of European history, it was the time when gov ernment was least conspicuous and active. It was the age, very short alas, of the Night Watchman state. As a matter of fact, the industrial revolution-perhaps the most im portant single event in human history-seems to have occurred without the English government even noticing. By the time they did it was too late; happily-otherwise they would probably have stopped it. It is almost inevitable that government, particularly an active, interventionist government, should view free enterprise with a degree of hostility, since it constitutes a countervailing power in the state.

The tendency, then, is to cut free enterprise down to size, and this may be done in a number of ways. In the U.S. the characteristic tech.nique is government regulation and legal harassment, and this of course has been far more pervasive and strident since the ecolobby swung into action. In Britain the technique is both through direct as sault-nationalization-and slow starvation. In away, nationalization is ineffective, since it allows the public to make comparisons between the performance of the nationalized sector and that of the free sector nearly always to the latter's ad vantage. Starvation is more insidi ous. By this I mean the progressive transfer, by taxation and other gov1979 HAS CAPITALISM A FUTURE? 57 ernment policies, of resources from the private to the public sector. The Starvation Technique In 1955, for instance, public ex penditure in Britain as a proportion of GNP was just over forty per cent.

By 1975, twenty years later, it has risen to nearly sixty per cent. Moreover, this rise was accom panied by a record budget deficit of about 22 billion dollars, itself a further 11~% of GNP. Of course, the taxation had to be provided, and the deficit serviced, by the private sec tor. We have, then, an Old Man of the Sea relationship, in which the parasitical Old Man is growing big ger, and poor Sinbad smaller, all the time. The shrinking productive sec tor has to carry the burden of an ever-expanding loss-making public sector. Thus Britain's nationalized steel industry will lose one billion dollars this year, and it has just been authorized by statute to borrow up to seven billion dollars, guaranteed by government and taxpayer. Now the interesting thing is that in Britain the public sector, and the civil service, generally, are now pay ing higher wages, providing better conditions, and giving larger pensions-which in a growing num ber of cases are index -linked, and so inflation-proof-than the private sector can possibly afford. And of course they are financing these goodies out of tax-guaranteed deficits-that is, from the dwindling profits of the private sector. This is what I call the starvation technique.

When a private firm goes bust, pro vided it is big enough, the state takes over, the losses are added to the taxpayer's bill, and the private sector has one more expensive pas senger to carry. This is the starva tion method. Trade Union Disruption In this technique, the fourth fac tor, the trade unions, play an impor tant part. In Britain it is demon strably true that the legal privileges of the trade unions, which virtually exempt them from any kind of ac tion for damages (including, now, libel), lead directly to restrictive practices, over-manning, low pro ductivity, low investment, low wages and low profits. Thus trades union action tends, in itself, to undermine the performance of in dustrial capitalism as a wealth creating system. In Britain, for in stance, the trade unions can rightly claim that capitalism is inefficient, because they make sure it is ineffi cient. Ford workers in Britain, using exactly the same assembly line machinery as in West Germany, produce between 20% and 50% fewer automobiles. leI chemicals, one of the best companies in Britain, nevertheless has a productivity per formance 25% lower than its Dutch and German competitors. A recent 58 THE FREEMAN January analysis shows this is entirely due to over-manning and restrictive prac tices.

The private sector is now threat ened by two further union devices: the legally-enforced closed shop, which compels the workforce to join designated unions on pain of dismis sal without compensation or legal redress; and new plans to force firms to appoint up to 50% worker direc tors, these worker directors to be appointed not by the work force themselves, nor even necessarily from among them, but by and from the trade union bureaucracy (Bul lock Report). This has to be seen against the explicit policy of some groups within the unions of driving private sector firms to bankruptcy, by strikes and harassment, so that the state will then have to take them into the public sector. Follow the Leader? Of course I don't want to make your flesh creep by arguing that what is happening in Britain will necessarily happen elsewhere. But certainly if the bill now before the Senate giving unions much wider and more effective powers to or ganize goes through, the U.S. will be well launched on the road we have travelled; and I may say there are many other ways in which the pres ent U.S. administration seemed de termined to follow Britain's exam ple. The West Germans, too, are now beginning to adopt some of the in stitutions which flourish in British trades unionism, notably the shop stewards' movement. Businessmen all over the free world may despise the performance of British industry, but trades unionists all over the world admire and envy the power of British trades unionists and are ac tively seeking to acquire it for them selves.

The Communist Threat Let me end on a word ofwaming. I have said nothing of the fifth threat on industrial capitalism and the free enterprise system-the threat from without. But of course this is bound to increase as the military superior ity of the Soviet Union over the U.S. is reinforced. I have never thought that the Communist system would triumph by a direct assault. I have always assumed that it would first establish an overwhelming military predominance and then, by.pressure and threats, begin to draw the polit ical and economic dividends of it. If the U.S. opts out of the competitive arms race with the Soviet Union, while providing, as she supposes, merely for her own defence, then we must expect to see this fifth threat hard at work winding up industrial capitalism and free enterprise all over the world. Thus, when we ask HAS CAPI TALISM A FUTURE? I answer: it all depends on the U.S. West Ger1979 HAS CAPITALISM A FUTURE? 59 many and Japan, it is true, have strong free enterprise economies; they also have a tradition of state capitalism, and would adapt them selves with surprising speed and readiness to a new collective order.

France already has a huge public sector and a long tradition of di rigisme or etatisme. All three are Janus-faced. Britain, I believe, is profoundly anti-collective and will remain so if it continues to be given the choice. But its private enterprise system is now very weak, and its business and financial elites are demoralised and defeatist. Is there demoralisation, is there defeatism, on this side of the Atlan tic? You can answer that question better than I can. I myself think that capitalism will survive, because of its enormous intrinsic virtues as a system for generating wealth, and promoting freedom. But those who man and control it must stop apologizing and go onto the ideologi cal offensive. They must show to ordinary people that both the Com munist world, and the third world, are parasitical upon industrial capi talism for their growth technology. That without capitalism, the 200 years of unprecedented growth which have created the modern world, would gradually come to an end. We would have slow growth, then nil growth, then minus growth; and then the Malthusian catas trophe.

In short, those who wish to main tain the capitalist system must en deavour to teach the world a little history, and remind it, and espe cially the young, that though man's achievements are great they are never as solid as they look. If man makes the wrong choice, there is always another Dark Age waiting for him round the corner of time. , IDEAS ON LIBERTY A Self-Sustaining Population A SYSTEM for the support of indigent 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 establishment, it should be founded for one class or color of our people more than another. Pend ing 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 sheltered 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 A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN In Defense of States' Rights STATES' RIGHTS are usually associ ated with the name of Thomas J ef ferson, who distrusted the centraliz ing tendencies that eventually put his favored yeoman farmer at the mercy of big cities. But Jefferson himself, when he was entrusted with the presidency of the newly federated republic, did more to hurt his doctrine than he did to help it. The whole story is encrusted with a tremendous irony-and there were two Virginians of Jefferson's day who caught the irony even as the drama was being played out. One of the mordantly skeptical Virginians was John Randolph of Roanoke; the other was John Taylor of Caroline. Randolph is the subject of Russell Kirk's John Randolph of Roanoke: A Study in American Politics, which has just been issued in a new edition 60 with an enlarged appendices collec tion of letters and speeches. Taylor, a slightly less acidulous figure than Randolph, is treated as tt a Virginia Cato" in a short but pertinent bio graphical introduction provided by M. E. Bradford for a new edition of Taylor's Arator.

As members of the Tertium Quids, or Old Republicans, both Randolph and Taylor believed that the federal Constitution was tt a law to limit law." As the strictest of strict constructionists, they were made uncomfortable by the behavior of the Virginia Dynasty-Jefferson, Madison, Monroe-in the era that included a stupid second war with Great Britain and the beginnings of the opening of the West. The Louisiana Purchase, which endowed the young American reIN DEFENSE OF STATES' RIGHTS 61 public with a huge trans-Mississippi area reaching well towards the Pacific Northwest, had no validat ing warrant in the Constitution, but Jefferson could not resist the oppor tunity for a glittering deal-and there are probably few today who would condemn him for his subordi nation of strict constructionist pur ity to an enlightened expediency. In the only act ofhis political career that might be termed an inconsistency, John Randolph of Roanoke defended Jefferson's purchase in the House of Representatives. Later, Randolph admitted the purchase was a severe blow to constitutional precedent. It helped establish the ((imperial pres idency."

Foreign Entanglements Kirk is inclined to excuse Ran dolph for what could be called his one serious departure from princi ple. Part of Randolph's program as a Tertium Quid leader was to keep America aloof from foreign quarrels. By getting control of the mouth of the Mississippi through the Louisiana Purchase, Jefferson re moved a dangerous foreign neighbor who might otherwise have menaced Kentucky, Tennessee and the terri tory north of the Ohio. So it could be said that the Purchase was a guarantee that the ((good old thir teen United States" (Randolph's phrase) east of the Appalachians would not have to maintain a big military force to defend Western lands. This would be a plus towards keeping the central government weak and so help the States' Rights cause. John Randolph of Roanoke: A Study In American Politics by Russell Kirk, 588 pages. $9.00 hardcover; $3.50 paper back. Arator by John Taylor Edited and with an introduc tion by M. E. Bradford, 385 pages, $9.00 hardcover; $3.00 paperback. Both of these books are publ ished by and may be ordered directly from Liberty Press/liberty Classics 7440 North Shadeland Indianapolis, Indiana 46250 Whether sophistical or not, the argument did nothing to keep Jef ferson and Madison from becoming embroiled in the foreign quarrels of the Napoleonic period. Not content with the new Louisiana territories, the War Hawks of 1812 thought of seizing Canada. Always logical, John Randolph sided with the New England states in opposing both the Jefferson Embargo and the War of 1812 itself. Before the Embargo and the war, maritime Massachusetts and the agricultural south still maintained something of a recipro cal relationship. The farmers could 62 THE FREEMAN January sell abroad and use the money they received· to purchase goods brought to America in Massachusetts ships.

But with the coming of the war, the fledgling United States felt really impelled to take Alexander Hamil ton's advice and subsidize local manufacturers. The cost of the sub sidy, paid for by tariffs, had neces sarily to be taken out of the agricul tural interest in higher prices. Agricultural Decline In the Early Nineteenth Century Even before the triumph of Hamilton both Randolph and Taylor knew what was coming. Taylor's Arator quotes liberally from an En glish visitor named Strickland, who noticed as early as 1801 that the plantation system of Virginia was in a visible state of decay. The old houses in the tidewater country were falling apart. ttBefore the revo lution," said Strickland, Hthe capital of the country was vested in. the lands, and the landed proprietors held the first rank in the country for opulence and information, and in general received the best education which America, and not un frequently, Europe, could afford them." But by 1801 capital was ttfly_ ing from the fields, to the legal monopolies, banking and manufac turing . . . bribes· offered to . . .

deserters have already produced the most ruinous consequences. Avarice everywhere seizes them with avidity, and rails at agriculture, as sordid and unpatriotic. . . ." Randolph was inclined to put the blame for agricultural decay on the Jeffersonian repeal of the laws of primogeniture and entail, which had historically kept big plantations under the control of favored eldest sons. Taylor, though he blamed the Hamiltonian spirit for the decline of the planter class, was realistic enough to note the failure of the big planters to restore fertility, by sci entific manuring, to lands worn out by excessive reliance on the cash crop of tobacco. Much of his Arator is given over to a learned discussion of proper manuring. The spirit of the times, of course, was against the Tertium Quid phi losophy. The West, with its untried fields, beckoned to both elder and younger sons. With or without the War of 1812, the United States, with its plethora of· natural resources, would have become the home of modern industry. The tariff often distorted the pattern of growth-but even without a subsidy the Ameri cans would have built factories to utilize Minnesota iron ore and Pennsylvania coking coal.

Weakening the Constitution Neither Randolph nor Taylor liked slavery. But they insisted that the Constitution-the ttlaw to limit law" -made a centrally directed emancipation of slaves illegal. The 1979 IN DEFENSE OF STATES' RIGHTS 63 Civil War, which came as firebrands elaborated on the Randolph-Taylor strict construction principles, ended in disaster for everything that Ran dolph held dear. Emancipation did not result in a bloody uprising, as Randolph and Taylor feared it would. But the decline of States' rights has hadits many deleterious results as Randolph predicted. The loose construction of the Con stitution that was started by Jeffer son's decision to buy the Louisiana territory has extended to the most tortuous twisting of the Commerce and General Welfare clauses to jus tify practically anything that a cen tralized Washington government desires to do. If the strict construc tionists had been followed, our wel fare bureaucracy would never have become entrenched. Nor would our gas deregulators have dared tell Texas and Oklahoma what they must do with gas inside their own borders.

It is sad that the slavery issue distorted everything. For, as Russell Kirk says, quoting Randolph, ttchange is not reform." Not in all cases anyw~y. THE CRITICS OF KEYNESIAN ECONOMICS by Henry Hazlitt (Arlington House, New Rochelle, N.Y. 10801) 427 pages. $11.00 Reviewed by Ronald J. Berkhimer KEYNES wrote The General Theory of Employment, Interest and Money in. 1936. It was a difficult book, con fusing and even sometimes con tradictory, but its central message was clear: The solution to un employment and depression is in creased government spending. Such a theory is irresistible to most politicians and Keynesianism achieved widespread acceptance, providing a rationale for the New Deal. The Keynesian program failed to solve the United States un employment problem in the thirties, but the theory was the basis for the Full Employment Act of 1946 and, despite increasing criticism, it still surfaces in efforts like the Humphrey-Hawkins bill.

The ultimate refutation of Keynesianism may be Henry Haz litt's The Failure of the New Eco nomics (1959). But, as a byproduct of the research which preceded his writing that book, Hazlitt has come out with some excellent supple mentary reading in his companion 64 THE FREEMAN volume, The Critics of Keynesian Economics. First published in 1960, it has been reprinted with a new preface and made an alternative Conservative Book Club selection. Hazlitt has collected criticism of Keynesianism by twenty-two writ ers, including some of the best known free market economists. It is fortunate that their comments are thus saved for current students and for history, because each has some thing instructive to say about the theories which have created more furor than anything since Marx-to borrow an expression from one of them. There is considerable range in the rigor of these analyses, and both the lay reader and serious student of economics will find articles at their level of understanding.

Contributors to this volume are men like Mises, Hayek, Roepke, Rueff, Knight and Hahn. When they are done, Keynes' theory is in com plete disarray. Even so, Keynes still has his advocates, for as Mises rue fully observes, uThere is no use ar guing with people who are driven by an almost religious fervor and be lieve that their master had the Revelation." But the general public is gradu ally becoming aware that years of deficit budgets have not created cCfull employment" and that unem ployment, distressing as it is, af fects relatively few people, while in flation hurts everyone. A bill requiring the federal budget to be balanced by the year 1981. was even passed by the Senate this summer. While this may have been temporizing, a similar proposal in volving a constitutional amendment has currently been passed by twenty two state legislatures and needs only twelve more to bypass Congress and the President and bring the amendment back to the legislatures for final approval.

If and when this happens, it will perhaps be the most significant de velopment in political economics since The Wealth of Nations ap peared two hundred years ago, and Keynesianism will be officially dead, at least in the United States. , the Freeman VOL. 29, NO.2. FEBRUARY 1979 Beyond Supply and DemandThe Psychology of Inflation Gregory Wolfe 67 Concerning the moral and spiritual disorders which lead men to politically increase the quantity of money. Who's the Boss? Gary North 75 Consumers bear the costs of ownership and make the market a truly social institution. Christian Principles and Public Policy Edward Coleson 81 Sound national policy rests upon high moral principles-and common sense. The Road Not Taken Henry Hazlitt 90 The results of government economic intervention instead of reliance upon the actions of free men in free markets. I Don't Know William E. Cage 98 The free society grows out of the humility to admit that "I don't know" how to regulate and control the lives of others.

World in the Grip of an Idea 26. The Cold War: The Spread of Communism Clarence B. Carson 102 An intellectual pressure to the collectivization of power, advanced as democracy. Liberty and the Power of Ideas Lawrence W. Reed 115 The battle to preserve liberty is not against persons but against opposing ideas. The Dangers of Collectivism Dennis Bechara 119 How consumers lose as political power is substituted for purchasing power. Book Reviews: 123 "Liberty: Legacy of Truth" by Leonard E. Read "Liberalism" by Ludwig von Mises liThe Ultimate Foundation of Economic Science" by Ludwig von Mises Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

ttle ®A E!~~N~~~N LIBERTY FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign deli very, a donation is required sufficient to cover direct mailing cost of $5.00 a year.

Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on 'microfilm from University Microfilms International, ,300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "World in the Grip of an Idea" and "Who's the Boss?"

Gregory Wolfe Beyond Sup~ly and Deman(lThe Ps~chology of Inflation WHEN Alexander Solzhenitsyn de clared in his Harvard commence ment address that neither diplo macy nor military· strength could abolish the danger posed by the Soviet Union, and that only a rein vigoration of moral and spiritual character would be effective in the struggle with Communism, he caused quite a commotion. To his critique of the West as weak and cowardly came a barrage of denun ciations, from such varied sources as Mrs. Rosalynn Carter and The New York Times. The Times editors called him ((obsessed" and sum marized their view in this way: At bottom, it is the argument between religious Enthusiasts, sure of their re lationship to the Divine Will, and the men of the Enlightenment, trusting in the rationality of humankind. Indeed, the editors of the Times had gone to the root of the issue. For Solzhenitsyn is a religious believer, sure that the Divine Will has re vealed certain moral absolutes through the Judeo-Christian tradi tion, and convinced that they are being eroded-and that in the pro cess our society is crumbling.

Though Solzhenitsyn's remarks were directed primarily at U. S. foreign policy and the international conflict with Communism, they have profound implications for domestic issues, including the economic. The failings he pointed Mr. Wolfe Is a student at Hillsdale College In Michi gan. This article constitutes his award-winning entry In the 1978 "Ludwig von Mises Memorial Essay Contest-The Political Economy of Inflation: Gov ernment and Money" sponsored by the Intercol legiate Studies Institute. 67 68 THE FREEMAN February out-worship of material well being, the placing of human ~~rights" over human obligations, the loss of personal responsibility, and the willingness to sacrifice for the com mon good-all are intimately con nected with our economic problems, and particularly with the phenome non known as inflation. From the viewpoint of economics per se, inflation is readily defined: it is the governmental increase in the quantity of money and credit-an increase which has in this century far exceeded the growth in the pro duction of goods and services. But what are the ultimate reasons why the government increases the money supply in this way? It is the contention of this essay that· these reasons are directly related to the moral and spiritual failings which Solzhenitsyn discerns in the Ameri can people.

One of the great economists of our time who would have been sym pathetic with that view is Wilhelm Roepke, a man with some kinship to Solzhenitsyn, both in his courage and beliefs. In his book, A Humane Economy, Roepke said of our age of inflation: . . . it is the acute stage of a chronic pathological process fed by forces which are now permanently operative, and as such, it is not susceptible to any quick or lasting cure. The inflation of our time is intimately connected with some of its most obdurate ideas, forces, postulates, and institutions and can be overcome only by influencing these profound causes and conditions. It is not just a disorder of the monetary system which can be left to financial experts to redress, it is a moral disease, a disorder of society. This inflation, too, belongs to the things which can be understood and remedied only in the area beyond supply and de mand.

A Spiritual Illness Believing with Roepke that infla tion is not just a disorder of the monetary system but a moral dis ease and ultimately a spiritual ill ness, we will seek here to examine this fundamental problem-to analyze the psychology of inflation. Psychology is used here in the clas sical sense, that of Plato and Aristo tle, to mean the understanding of the order of the soul. And if, as Plato said, society is ((man writ large," then inflation will only be properly understood and possible solutions arrived at through a knowledge of man's moral and spiritual disorders which cause him to constantly in crease the quantity of money, and thus decrease its value. The term (~psychology of inflation" is usually connected with the at titudes of anticipation that cause workers to fight for wage increases large enough to cope with future increases in the cost of living, that cause management to set prices high enough to maintain profits de spite increases in future costs-as 1979 THE PSYCHOLOGY OF INFLATION 69 well as those attitudes that cause consumers to buy more or less than they ordinarily would because of their expectations about what is happening, and what will happen, to the value of their money. But this approach to the psychology of infla tion assumes a long and continuous period of inflation that will go on indefinitely in the future; it is based on inflation as a ((given." Our con cern here is with the noneconomic causes of inflation, and in particular the moral problems that prompt government to increase the quantity of money.

Some observers emphasize the moral problem of greedy citizens who clamor for more government services but are unwilling to pay higher taxes. Others point an accus ing finger at selfish workers who want higher wages without increas ing production. Still others indict unprincipled politicians who try to win elections by appearing to give the people more benefits without charging them more. To some com mentators the moral problem cen ters around the hubris of intellec tual planners who believe them selves capable of manipulating the money supply better than the ((invis ible hand" of the market place. One thing is certain: inflation is the economy's reaction to a whole range of questionable human de sires and actions which place such a strain upon the economy's resources that its money is debased. As Roepke put it: If any man should continually sin against all the rules of reasonable living, some organ of his body will slowly but surely suffer from the accumulation of his mistakes; the economy, too, has a very sensitive organ of this kind. The organ is money; it softens and yields, and its softening is what we call inflation, a dilatation of money, as it were, a manage rial disease of the economy.

It is the ((sin against all the rules of reasonable living" that is, at bottom, the cause of inflation. The Welfare State That inflation is closely related to the emergence of the welfare state in the middle decades of this century seems almost self-evident. From the Presidency of Franklin Roosevelt and the time of the Depression (which resulted, incidentally, in large part from the Federal Re serve's gross mismanagement of the money supply) government has ex panded enormously into the realm of ((social welfare" with such programs as Social Security, welfare pay ments, unemployment insurance, Medicare and Veterans' payments. Though the Federal budget has mushroomed, taxes have not gone up enough to fully compensate and the result has been repeated deficit budgets. To fill the gap between what is taken in and what is paid out the federal government has 70 THE FREEMAN February created fiat money-through the printing press and credit expansion -which is inflation.

What are the root moral and spiritual causes that have been re sponsible for the tremendous growth of the welfare state-a government virtually obliged to spend more than it takes in? As various scholars have pointed out, since the time of the Renais sance men have exhibited an in creasing confidence in their ability to control nature and society, to pro duce endless progress, and to equalize economic wellbeing. The philosophers of the Enlightenment preached the great power of man and his rationality as a kind of er satz religion in place of the Judeo Christian heritage, and with the ad vent of modern technology it actu ally seemed as if man could create a heaven on earth. At the same time, as the Indus trial Revolution created a more complex economy, people could no longer observe many basic economic phenomena with their own eyes. Modern man has become increas ingly cut off from a knowledge of scarcity because of the great pros perity he has enjoyed; living in a complex urban society he has lost sight of the relationship between production and consumption, effort and reward. Promoters of the wel fare state have even led him to be lieve that government was a creator of wealth, and could bestow it on the deserving-if they insisted on get ting their due.

Simultaneously, there has been a great decline in ethical instruction and character training in this century-especially in our schools. What Richard Weaver termed the ((spoiled child psychology" has emerged. In his powerful little book, Ideas Have Consequences, Weaver spoke of modern man as a spoiled child. The scientists have given him the im pression that there is nothing he cannot know, and false propagandists have told him that there is nothing he cannot have. Since the prime object of the latter is to appease, he has received concessions at enough points to think that he may obtain what he wishes through com plaints and demands. This is but another phase of the rule of desire. Having been cut off from his reli gious faith, or having forgotten its moral implications as they apply to his responsibilities as a citizen, modern man has little or nothing to act as a curb on his appetite. In the past half century government has acted as man's benefactor in the name of compassion and humani tarianism, assuring men that their appetites are legitimate and that government can gratify them. In reality, however, government has nothing to give some but what it takes from others.

The. relatively recent character 1979 THE PSYCHOWGY O}t' INFLATION 71 changes which have caused the growth of the welfare state, and in turn, which have been encouraged by it, have been noted in studies made by the scholarly research firm of Yankelovich, Skelly and White. As a result of interviewing hundreds of thousands of Americans over the past 30 years, these researchers have discovered three basic changes in modern atti tudes which have taken place in a single generation: a loss of autonomy (dependency), focus on self (personalized morality), and the psychology of entitlement (par entalism). The Consumer View For centuries it was each man's goal to become self-sufficient and self-supporting-that is, for himself and his family. Knowing that if he did not work he would die, his efforts were vigorously directed toward production. Modern man, deluded that abundance is automatica fact of life-and driven by his unchecked appetite, is no longer concerned with his role as producer. In fact, attitude research concerning the contempo rary American's economic percep tions shows that. he views himself almost entirely as a consumer. Thus we have a citizen whose self-image focuses on his acti vities in getting and using money and goods, and who is no longer guided or disci plined by objective moral standards.

Understandably, he feels himself entitled to the money and services that Big Brother concedes and even gladly offers him. And power seeking politicians, eager to get elected, are correspondingly happy to promise the citizen these things-even if it means creating a socialist system with deficit budgets financed by inflation. Inevitably the inflation gets out of hand and the intervening politician has no answer but controls. Weaver comments: What happens finally is that socialism, whose goal is materialism, meets the condition by turningauthori tarian; that is to say, it is willing to institute control by dictation in order ... not to disappoint the consumptive soul. In the end, then, freedom is lost. The passions of the consumptive soul will, as Burke said, forge his fetters. Another major cause of inflation is institutional interventions by government and labor unions in set ting wage rates, combined with a government policy of ~~full employ ment."

Through legislating an arbitrary minimum wage--deliberately higher than free market rates~ government disemploys. the least qualified job seekers, those unable to produce enough to justify that wage. Labor unions, because they have been granted monopolistic and coercive privileges by government, can force wages higher still, and in turn, oblige companies to raise their 72 THE FREEMAN February prices to levels which consumers will not pay. This would create widespread unemployment if gov ernment did not intervene by further increasing the quantity of money-to put more dollars in con sumers' pockets, and thus enable them to buy the overpriced goods. The astute labor union leader realizes that this governmental ac tion in effect lowers the wage in creases he has gained, and so he in turn puts pressure for another round of wage raises. Under the Full Employment Act government is vir tually obliged to further increase the money supply-since politicians find that (Jawboning" fails to hold down wages (or prices) and they are unwilling to repeal the labor legisla tion that prevents the market from determining wage rates.

Inflexible Wage Demands Above and beyond these Uinstitu tional" interventions by government and labor unions, there is still another artificial pressure that tends to push wages above market rates: each person's exaggerated idea of his own worth, combined with the pervasive notion that wages may go up-but never go down. To many an American em ployee, the idea that his wage might reasonably go down, even if he has become less productive or market conditions affecting his employabil ity have changed, is almost unthinkable. To some extent this re veals unawareness of how the mar ket operates. It also indicates that people now have a viable alternative to working: collecting unemployment insurance. And it suggests that the concept of sacrifice and self discipline in adjusting one's living standard to the circumstances of life has largely been lost. What produces this array of pressures-from minimum wage legislation, monopolistic unions and unenlightened public opinion? A combination of economic misconcep tions, shortsighted workers, the political power of unions, and a kind of maudlin sympathy on the part of many bystanders who may not per sonally benefit from artificially high wages but urge them out of a love for ((humanity" in the abstract. And all these pressures are permitted to op erate because government officials, under the influence of Keynesian ideas, hope to secretly lower real wages through inflation to prevent widespread unemployment.

Another category of moral and psychological problems is implicit in the philosophy and policy behind government manipulation of the money supply-a modern day incar nation of the Renaissance conceit that man, through his rational pow ers, can control nature, society and even the economy, and that unless man steps in, everything will fall apart. Adopting a policy of interven1979 THE PSYCHOWGY OF INFLATION 73 tion, government planners have aimed at ((stimulating" the economy through fiscal expansion and have attempted a ufine tuning" of the economy in the name of Heconomic balance." Fine-Tuning the Economy All this has been undertaken in the belief that the market place, if left alone, is unable to bring stabil ity and growth and is susceptible to the ((boom and bust" cycle. As if the economy were an ill patient, whose body could not regulate itself, gov ernment's Hdoctors" have sought to stimulate or heat up a ((cold" econ omy by fiscal expansion and cool down an ((overheated" economy by fiscal contraction, thus creating the boom and bust cycle for which capi talism is blamed. The results have been uncontrolled double-digit in flation and recession. The fine tun ers have discovered that instead of ubalance," they have only that curi ous combination of stagnation and inflation known as ((stagflation."

Those who believe they can cen trally plan and control the economy have made us all victims of their vanity: they are, in effect, setting themselves up as little gods over the economy-and the population. They attempt to balance an economy which they have upset by their in terventions, and only manage to add further to the problem. As F. A. Hayek has pointed out, market prices are uniquely capable of as similating all the millions of bits of information that allow business to operate smoothly. The interven tionists possess very limited infor mation and are essentially tinker ing with an economy they know not how to control or to improve. These policies betray an acute lack of be lief in true and enduring principles of economics-principles which have the sanction of morality and com mon sense. Though government directly in tervened to stimulate the economy, and Keynesian economists are re sponsible for giving government's actions an appearance of intellec tual sanction, both business and or ganized labor must share some of the responsibility. Union leaders will urge inflationary measures to keep their overpriced members employed, and businessmen may join them because a stimulated economy puts more dollars in con sumers' pockets and can mean larger sales and higher profits in the short term. Both the union and the business leader suffer from un awareness or rejection of Henry Haz litt's basic lesson: an economic pol icy must be evaluated for its effects on the whole population in the long term rather than on a limited sector in the short term. This holds true for all those who clamor for special interest legislation, welfare, and so on. The desire for immediate gratifi74 THE FREEMAN cation instead of looking to what is best for everyone over a period of time has been a major cause of inflation-governmental increase in the quantity of money and credit.

Redeemable in Gold And it is here that the very ques tion of the integrity or inviolability of money comes in-and with it the question of the gold standard. For centuries, even in the most turbu lent times, money was regarded as inviolable; the notion that money could be created by fiat was put on the same level as forgery and fraud. The gold standard has tradi tionally been the method by which the value of money has been an chored to something more stable and constant than the whims of govern ments. Making paper money re deemable in gold disciplines the politician and obliges him to severely limit the increase in the money sup ply. Our rejection of the gold stan dard, while intellectually ration alized, was really a turning away from the responsibilities and norms which this standard requires. Every society has norms by which it must Wilhelm von Humboldt live if it is not to degenerate into mere anarchy. Roepke concludes: It is not enough that these should be laid down in constitutions; they must be so firmly lodged in the hearts and minds of men that they can withstand all on slaughts. One of the most important of these norms is the inviolability of money. Today its very foundations are shaken, and this is one of the gravest danger signals for our society and state.

A return to the gold standard will only be feasible when the enduring moral values affirmed by Solzhenit syn and others live in the hearts and minds of the American people. Problems are comparatively easy to state-answers come a lot harder. The first step toward overcoming the failings which constitute the psychology of inflation is summed up by the Greek dictum: Hknow thyself." Am I guilty of any of the ~~sins" that contribute to inflation? When Americans can ask and honestly answer that question, and begin to correct their faults, they will have taken a step toward the psychology of freedom and the morality of sound money. @ IDEAS ON LIBERTY IN proportion as each individual relies upon the helpful vigilance of the State, he learns to abandon to its responsibility the fate and wellbeing of his fellow-citizens. But the inevitable tendency of such abandonment is to deaden the living force of sympathy, and to render the natural impulse to mutual assistance inactive.

Gary North WHO'S THE BOSS? A few years ago, United Airlines ran television ads that featured the phrase, ~~you're the boss." Passen gers in the ads were constantly being told, ~~you're the boss" by all the smiling actors who were por tr'aying the United Airlines employ ees. One fellow I know always made it a point to enquire on every United flight, ~tWho's the boss?" Invariably, there would be some confusion, and then he would announce, grinning, ~7'm the boss!" He even went so far as to shout ((Who's the boss?" into the pilot's compartment, and when the captain dutifully answered, ~~I am," my friend laughed, UNo, I'm the boss." No doubt this endeared both him and the advertising agency to all the United employees who were treated to this little lesson in free market economics. Actually, my friend is an entre preneur himself, the owner and op erator, along with his family, of America's most financially prosper ous profit-making Christian day school. He is also a minister of the gospel. So when he says, ((I'm the boss," he mentally qualifies the phrase with ~tGod' s the boss, and I'm· only his steward." But at the same time, he knows that he, as consuming steward, is indeed the responsible boss; without his purDr. North Is editor of Biblical Economics Today, available free on request: P. O. Box 8567, Durham, N.C.2n07.

75 76 THE FREEMAN February chase, the seller of goods and ser vices forfeits the profits that might have been made on the sale. The seller who ignores this fact loses. Who Owns What? My friend and his family own the school and its grounds. In other words, they have legal title to it. Since it is profit-making, he has to pay local property taxes on the building and grounds. The civil gov ernment holds him liable. The gov ernment says that he's the owner, and therefore he is personally re sponsible for the taxes. It is only slightly ironic that the bulk of his property taxes goes to support the government school system, his zero-tuition competitor. It is also ironic that voters think that he pays the taxes; consumers of the product pay the taxes. Since he has not incorporated his business, he is a cCsole proprietor." The state and national governments therefore classify him as self employed when they send out the income tax forms. He is the owner of the business, and therefore the tax collectors regard him as self employed.

Yet if Hhe's the boss" when he buys an airline ticket, how can he also be the boss when he sells seats in his school? How can both con sumer and producer be the boss? If he is self-employed, then who pays him the money for tuitions? Isn't the boss the one who pays? Aren't the parents of the students the bosses, economically speaking? The market distinguishes be tween owner and employer, even if the tax collector has failed to under stand the difference. The owner holds legal title to the property. The employer hires the use of all or part of the property from the owner. The employer, in effect, rents the good (including the labor time) owned by the legal owner. The truly cCself employed" person is either a hermit or bankrupt. The buyer of a resource, or in another example, the person who rents the other person's property for a specified period of time-a seat on a plane, a seat in a classroom, or whatever-offers in exchange some valuable resource. Perhaps the ex change is a bartering of services, or even mutually borrowed tools. Or it may be a transfer of ownership, such as dollars for education. The point is this: two parties claim ownership of certain resources, over which they are legally sovereign, yet each must regard the other as the boss if he wishes to effect a mutually profit able exchange. If one man wants the use of another's asset, either on a temporary or permanent basis, the private property economy forces him to become humble concerning the asset he presently owns which he wishes to exchange for the other person's asset.

1979 WHO'S THE BOSS? 77 Mutual exchange therefore de mands, if not emotional humility, then at least visible, demonstrated humility. The fact that a person de sires the use of another person's asset in no way destroys his own legal sovereignty over his presently owned assets. He, as a consumer, is sovereign over what he owns. But as a potential seller, his legal sovereignty enhances the other man's sovereignty as a potential consumer. The other man has legal control over his asset, too, so that he cannot be compelled to hand it over. Each man has legal sovereignty over his own asset; each man has con sumer sovereignty over his own as set; and each man must honor the other's sovereignty, both as owner and consumer, if a mutually benefi cial exchange is to take place. Consumer Sovereignty The concept of consumer sovereignty is basic to any market exchange economy. However, the phraseology has alienated some economists. One group, the interven tionists, hates to use the phrase be cause they believe that the supposed monopoly power of the sellers of goods and services somehow shields them from the non-monopoly position of the sellers of money. They limit the use of the term cCsovereignty"to the sellers of goods and services; sellers of money are somehow not sovereign. If they were to rewrite the great Pearl Bailey hit of the 1950s, they would write: CClt takes one to tango," unless the State redistributes economic power, of course.

On the other hand, there are some anarcho-capitalists who reject the language of consumer sovereignty, because they think it creates confu sion in the minds of the public. They think that others will think that cCconsumersovereignty" refers to an implied legal sovereignty of all po tential sellers of money. In other words, some people may want to pass legislation compelling sellers of goods and services to sell to any and aU people who offer money in ex change. Equal opportunity housing laws would be examples of this kind, or laws compelling hotels to rent rooms to members of minority groups. There is no such thing as legitimate legal sovereignty over the other man's property, the anarcho-capitalists argue; you have to buy such legal sovereignty on a coercion-free market. From a tactical point of view, the anarcho-capitalists have a good point. There is too much confusion concerning legal sovereignty and its function on a free market. Legal sovereignty provides the owner of an asset the power to use or dispose of it as he sees fit. He therefore possesses consumer sovereignty over it. This gives him the legal right to bid in the open market for other men's 78 THE FREEMAN February assets, using all or a portion of his assets as his competitive bid. A per son who owns (controls) one asset, and who believes that he could put another asset to even better use, has the legal right to enter the market's auction and place his bid for that other asset. Thus, in the words of W. H. Hutt, who first enunciated the concept of consumer sovereignty in the mid 1930s: Applying this standard, we must re gard property-owners as the custodians of the community's scarce resources. The powers they possess in dealing with these resources must be regarded as del egated by them in its consumer aspect.

So conceived, the system which is vari ously known as Uprivate enterprise" or the "private property system" is simply one in which the task of deciding upon action in response to consumers' will is diffused by a more or less automatic devolution throughout the community. The key here is the idea of Hdecid ing upon action in response to con sumers' will." The asset owner de cides what his response should be to the various offers by market partici pan ts to purchase his scarce economic resource. Should he sell? Should he rent it? Should he hold it for appreciation? Should he consume it himself now or in the future? It is his asset. He decides. But he decides within a framework of legal own ership and competitive bidding. Other consumers have the legal right to offer their assets-over which they are sovereign as legal owners and potential consumers-in exchange for my assets, which I le gally own and have the right to con sume or sell or rent. Each owner therefore has two fundamental legal rights. First, he has the right to use his own assets. Second, he has the right to enter the competitive auction of the free market in order to offer his assets in exchange for other men's assets. The idea of consumer sovereignty, properly understood, does not imply any legal right to another man's assets. But it does imply the right to impose the costs of legal ownership on another property owner.

The Costs of Ownership What are the costs of ownership? First, there is the cost of maintain ing the civil government, which in turn is supposed to enforce lawful contracts, protecting men from theft, coercion, and fraud. This, of course, is denied by the anarcho capitalists. Second, and equally im portant (though not fully understood by most observers), is the cost as sociated with holding an asset off the market. If I am offered money or assets for my property, I have to forfeit the use of those assets and that money when I decide to cling to my presently owned asset. No one should be allowed to force me to sell, but no one can or should protect me from the full opportunity costs of holding my property. If I forfeit the 1979 WHO'S THE BOSS? 79 use of some asset by maintaining possession of another asset, I thereby pay the market costs of ownership. When I speak of ((holding an asset off the market," I really meanrefus ing to sell it at present prices. No asset can be held off the market, except by concealing its existence, if by Hmarket" we mean the right of others to bid for it. Even an asset that I cannot legally sell-my wife, for example, or some prescription drug that has been assigned by a physician for my own use-may have a market price, though a black market (illegal market) price. While it is not necessarily true that ((every man has his price," it is true that every man bears the costs ofsaying no to whatever price another person may offer him. Even in the case of an asset which is concealed by an owner from other market partici pants, the owner pays a price, namely, the forfeited opportunities associated with the highest price that would have been· offered had others known of its existence. The presence of a free market means that men must bear the costs of ownership.

Consumer sovereignty therefore involves the universal imposition of the full economic costs of ownership, twenty-four hours a day. No owner can escape. If he refuses to sell, he forfeits. the use of whatever assets were offered to him in the giant auction by other owners. This is why ownership in a free market is truly a stewardship function. Men must make decisions in response to the offers of others. The old evangelical slogan, Hno decision is nevertheless a decision," is valid when applied to market transactions, including the refusal to make a transaction. There is no escape from the responsibilities of ownership. "I'm the Boss, Sir" United Airlines (and the banks that have advanced the money) is the boss. The directors can decide, in the name of the owners of United Airlines stocks, whether or not to fly the airplanes. But the directors can not make this decision at zero cost. Always before them are the com petitive bids of potential paying pas sengers, not to mention the competi tive offers of United's rivals: the other airlines, bus lines, auto rental services, used car lots, and even a few unprofitable passenger train lines (that the government forces the trains' managements to keep in service). United Airlines is the boss, for as long as the firm is making profits and not being forced into bankruptcy by management's fail ure to predict future consumer de mand and meet it at a price consum ers are willing to pay.

The same is true of all consumers. We are the bosses. over our money. But· if we need to get from here to 80 THE FREEMAN there-if we find it in our self interest to do so-then we want others to compete for our money. We want to get there inexpensively. Present legal owners therefore have assets that enable them to be come future consumers of other peo ple's presently held assets, if they offer the right price. The free mar ket allows each potential future con sumer to impose costs-stewardship costs-on any other present owner. This process reminds all owners of their responsibilities. No one can escape either the responsibilities or the costs of ownership. By keeping Social Harmony owners reminded of their economic responsibilities as owners, the free market auction process imposes the costs of being arrogant. Legally, owners can be arrogant in their abil ity to control an asset, but economi cally they cannot do so at zero cost.

A consumer can legally maintain his sovereign ownership, but never as an autonomous being, for to be au tonomous, a person must be free from the economic (scarcity) con straints of market prices and com petitive bids from others. Consumer sovereignty therefore is a denial of economic autonomy. The market is indeed a social institution. @ IDEAS ON UBERTY IF the less productive members of a society truly seek security, let them rally to the defense of the freedom of choice and freedom of action of those who work for a living and who are personally productive. Let them voluntarily deal with one another in a market place kept free of compulsion. Such voluntary trading directs the instruments of produc tion and the means of economic security into the hands of those most capable of serving all mankind. It promotes mutual respect for life and property. It stimulates every individual to develop his own talents to their maximum productivity. It encourages saving instead of squander ing. The free market, and not its displacement by governmental con trols, is the only route to the kind of personal security which makes for harmonious social relationships.

PAUL L. POIROT Edward Coleson Christian Principles and Public Policy WHAT has been called ~~the greatest scandal in the scientific domain" in the modern era was the work of the Russian biologist Trofim D. Lysenko. l This charlatan rejected the genetics of Gregor Mendel, much to the disgust of competent Russian scholars. However, with Stalin's support, he dominated the Soviet scene for decades. Many reputable Russian scientists lost their jobs, some their very lives, for even mildly resisting the fashion. On the national level this absurd theory is said to have done considerable dam age to Russia's ailing agriculture. When Khrushchev was deposed in 1964, the Lysenko era was over at last. Millions of textbooks were scrapped and a hundred thousand biology teachers were retrained. As Eugene Lyons says, ((Intelligent Soviet people are frankly ashamed Dr. Coleson il Protelsor of Socia. SCienceat Spring Arbor College In Michigan.

and embarrassed." But is there any more cause for embarrassment over this needless blunder than for what many so-called social scientists of both East and West have been doing and writing for a long, long time? Perhaps Bertram D. Wolfe sum med up the Lysenko delusion best in this brief statement: ~~Laws of hered ity were passed by the Politburo." While we would reject with scorn any attempts to legislate the basic principles of genetics, we have left the door wide open to the same type of thinking by social engineers in charge of a multitude of experi ments in every aspect of our na tional life. If we can't abolish the laws of Nature in the physical sci ences and biology, can we do so in the social, political and economic reaim? Yet we try to every day. Perhaps one of the best examples of an attempt to beat what has long been considered a basic principle of politie.s and economics was the81 82 THE FREEMAN February change from silver to base-metal coinage a dozen years ago. As silver change was rapidly disappearing, there were those who reminded us that Gresham's Law2 was operating once more. This was stoutly denied by prominent people in the national government, but were they right?

Bad Money in History What is Gresham's Law and by what authority did he proclaim it? It seems that early in the reign of ((Good Queen Bess" England was much plagued with monetary prob lems. When Elizabeth mentioned her perplexity in the presence of her councilors, Sir Thomas Gresham ex pressed amazement that Her Majesty was unaware that HBad money drives out good." This was back in 1558, but Gresham claimed no credit for discovering what he regarded as a truism. Some forty years earlier Copernicus, 3 the Polish astronomer, wrote a little essay on money which shows he was also aware of the principle. Others knew about it at least as far back as the Golden Age of Greece nearly twenty five hundred years ago. Aris tophanes mentioned in his cele brated comedy, Frogs, ((bad citizens are preferred to good, just as bad money circulates while good money disappears."4 Apparently, he as sumed that this was common knowledge in his time too.

One might add as a corollary to Gresham's Law in this age of infla tion that a money tends to fall in value to the worth of the material of which it is made: if money is paper, it eventually sinks to the value of last week's daily papers. Monetary practices of the nations of the world, including our own, are daily making that truth self-evident. But how long will it be before ordinary com mon sense becomes the basis for national policy and we return to sound money? Much confusion grows out of the failure to understand how the opera tion of some principle, like Gresham's Law, differs from the working of gravity or inertia. When silver change was disappearing a dozen years ago, some people saw no practical difference between the old coins and the new. To them it was all just money. Does this mean that Gresham was wrong? Not really, but it does illustrate the fact that, since economic laws depend on human behavior, they may seem not to op erate in a given situation or seem even to work in reverse in the short run.

According to the Law of Supply and Demand, customers are sup posed to buy less at high prices and more at low prices. Henry Ford 5 be lieved this, so he reduced the price of his Model T from $950 in 1909 to $290 in 1926, and sold fifteen mil lion of his cars in the process. This should be adequate proof of the prin1979 CHRISTIAN PRINCIPLES AND PUBLIC POLICY 83 ciple. However, he was then forced by declining sales to go to more expensive models, because other fac tors were becoming more important than the price. Gravity doesn't work so haphazardly, but is utterly mechan ical in its operation. Yet, there are economic laws at work which must ultimately be reckoned with by communists, socialists, capitalists and even primitive men. And this has always been so, as an English wri ter so well expressed it more than a half century ago: ((Guilds, Governments and Soviets may come and go. But under them all, and, if need be, in spite of them all, the profound adjustments of supply and demand will work themselves out and work themselves out again for so long as the lot of man is darkened by the curse of Adam."6 God Gave Us Guidelines and Options of Error The Creator did not simply make us creatures of instinct, although that would have been an easy way of ((uniting all in one unanimous and harmonious ant-heap," as Dos toyevsk y7 pointed out, but He left us the options of error and disobedi ence. Since man's behavior is not programmed, God gave us guidelines, if we would just follow them. But we don't break God's Law in any sphere; we only shipwreck ourselves on the rocks which we could have avoided, if we had steered our course aright.

Another" distinction we need to make is between sin and human error. Let us consider the case of a doctor who was busy spreading the Gospel and infection in an army hospital during the Civil War. Was he a saint or a murderer? Since medical science had not yet discov ered the germ theory of disease, there were many fine Christian doc tors who were spreading death through the wards even more effec tively than they were spreading the Word of Life. They did not realize that they were actually engaged in bacterial warfare against their own soldiers. One is reminded of a wise saying by the German poet Goethe: ((Noth ing is more frightful than ignorance in action." The doctors' motives may have been pure, but their hands, instruments and bandages were not. Yet the error of their ways would soon be common knowledge, since the first antiseptic operation was per formed in Scotland by Joseph Lister in August of 1865, less than six months after the close of the CiviI War in America. While Lister's new technique did not catch on im mediately, the spread of this revolu tionary scientific innovation was rapid once the word began to get around.

The appalling sanitary situation in the middle of the last century, 84 THE FREEMAN February even in peace time, may be judged from the comment of a British doctor of the time: ((A man laid on the opera ting table in one of our surgi cal hospitals is exposed to more chances of death than the English soldier on the field of Waterloo." The great hazard was infection, of course, and had been over the ages, but a simple principle went far in correcting the situation both in surgery and in public health. The relationship of vast detail to a basic principle may be noted from this comment on Lister's work: HJoseph Lister's manifold labors may be read in the volumes of his Collected Papers (1909), but his life work is summed up in a phrase: he made surgery clean."8 Would that other human problems could be as easily solved. Here, knowing what to do went far in providing a rem edy. Unfortunately, the solution isn't usually that simple. Men often cling to their errors as they do to their sins.

Slavery and Tariffs The Civil War also well illustrates man's unwillingness to change and his persistence in doing wrong, even when it would seem that he ought to know better. In 1850, a little more than a decade before the outbreak of the Civil War, a popular French political pamphleteer, Frederic Bas tiat, wrote an essay called The Law. 9 He commented most favorably on the political institutions of the United States, but thought that even here there were two violations of public morality which presented a grave danger to the nation: ((The question of slavery and that of tariffs .... " Since the English, whom Bastiat knew well, had recently finished a successful campaign to rid themsel ves of these two evils and since the conflict over slavery and tariffs in America would soon ((lead to the dissolution of the Union," as he foresaw, his observations were both timely and prophetic. The contrast between the British and the American experience in dealing with these two problems is fascinating 'and instructive. The English freed the slaves in England in 1772, forbade the transportation of slaves in British ships after 1807, and emancipated the slaves on the plantations in the colonies, particu larly the sugar islands of the Carib bean, in 1834.10 In the next decade they began the abolition of their tariffs and had soon accomplished this also. In both cases Christian statesmen led the way and the Christian community provided much of the political support. They also brought this to pass without war or other major upheaval.

We freed our slaves belatedly by a long and tragic ((War between the States" and have not yet faced up to the protective tariff problem, which has plagued us throughout our his1979 CHRISTIAN PRINCIPLES AND PUBLIC POLICY 85 tory. Since the resentment of the South against Northern tariffs was as much a cause of the Civil War as Northern objection to slavery, and even nearly started war a genera tion before it did happen, Bastiat's concern was not unfounded. Let us try to understand why we were less successful than our British brethren. Since slavery is the more obvious of the two evils, let us first compare English and American abolition ef forts. To begin with, it may be acknowledged that slavery was more deeply embedded in American life and politics than it was in England. Sad to say also, the Southern obses sion with slavery increased as we move from 1776 with its Declaration of Independence and 1787 with its Constitutional Convention on into the early decades of the nineteenth century. The usual explanation is the invention of the cotton gin in 1793 by a Yankee schoolteacher, Eli Whitney. Arnold Toynbee ll regrets that slavery was not abolished be fore the Industrial Revolution made the textile industry big business and Whitney's invention had made cotton ~~King" in the South.

Concerned Statesmen It is interesting to note that Jef ferson and other Virginia statesmen who were also slaveholders were apologetic for their ~~peculiar in stitution" and wished it would go away. The English even thought that the Declaration of Indepen dence 12 would free everyone over here, although we were not quite that consistent. Still the national conscience was troubled, as is evi dent from the following remarks of a Virginia planter, Colonel George Mason, as the issue was being de bated at the Constitutional Conven tion: The western people are already calling out for slaves for their new land. Slavery discourages arts and manufacture. The poor despise labor when performed by slaves. They produce the most pernicious effect on manners. Every master of slaves is born a petty tyrant. They bring the judgment of Heaven on a country. As nations cannot be rewarded or punished in the next world, they must be in this.

By an inevitable chain of cause and ef fect Providence punishes national sins by national calamities. 13 In addition to discovering another principle-God ~~punishes national sins by national calamities," if the Colonel is right-it is interesting to compare his condemnation of slav ery with the Biblical defense of the evil in the years before the Civil War. It is also fascinating to com pare English abolitionists with our own: William Wilberforce, for in stance, was a patient Christian statesman who knew how to hate the sin without hating the sinner, while John Brown of Harpers Ferry was a fanatic. Therefore, Parlia86 THE FREEMAN February ment was able to make emancipa tion at least palatable to the sugar planters in the Caribbean in 1834: the English government paid the masters twenty million pounds for their slaves. While there were reasonable Americans, reason failed us; but we did pay for our animosity. It is in teresting to note that an official of the U.S. Treasury estimated in 1869 that the cost of the Civil War was (t. .. three times as much as the slave property of the country was ever worth."14 This figure, of course, does not count the ((blood, sweat and tears." Now it should be obvious that a more reasoned and Christian approach to American slavery would have been most appropriate, but this hides a deeper issue which will come up in the discussion of their economic problem-a problem which is still with us.

While Northern propagandists tried to picture the Civil War as a holy crusade for freedom, Southern ers felt otherwise and with some reason. When the triumph of the new Republican party in November of 1860 made higher tariffs certain, Jefferson Davis insisted that the at tempt to limit the extension of slav ery was not from humanitarian mo tives, but to insure that the North would dominate the nation for self ish reasons: It is that you may have a majority in the Congress of the United States and convert the government into an engine of Northern aggrandizement. It is that your section may grow in power and prosperity upon treasures unjustly taken from the South, like the vampire bloated and gorged with the blood which it has secretly sucked from its victim .... 15 Davis, of course, was protesting against high import duties on goods bought from England in exchange for Southern cotton. He felt, as Southerners did, that they could never prosper as long as they paid high taxes to promote Northern prosperity. The larger question is whether the government should be busy granting favors to any section, party or interest, or should it simply be concerned with administering justice for all.

In his study, The Evolution of Political Thought, Parkinson 16 notes the observation by the ancient Greeks that when their city states became democracies the people would promptly bankrupt their gov ernments by demands for special favors. This collapse then led to a dictator (a tyrant, to use the Greek). Parkinson says the Greeks regarded this shift from democracy through bankrupt socialism to dictatorship as ((almost a law of nature." Perhaps we have another principle here, a ((law of nature" which makes democ racy impossible except as a short run expedient. Since other forms of government are not very attractive either, this is a serious matter.

1979 CHRISTIAN PRINCIPLES AND PUBLIC POLICY 87 THE LAW sometimes places this whole apparatus of courts, police, constabularies, and prisons at the service of the plunderer, and puts the plundered person, when he defends himself, in the prisoners' dock. In a word, there is legal plunder . ... How is it to be recogn ized? Very simply. All we have to do is see whether the law takes from some what belongs to them in order to give it to others to whom it does not belong. We must see whether the law performs, for the profit of one citizen and to the detriment of others, an act which that citizen could not perform himself without being guilty of a crime. FREDERIC BASTIAT, The Law In The Law 17 Bastiat said that in an oligarchy the few plunder the many and in a democracy ttuniversal plunder" becomes the rule (to him, ttThe state is the great fiction by which everybody tries to live at the expense of everybody else"). He says that the ttAbsence of plunder is the principle of justice, of peace, of or der, of stabili ty, of harmony, of good sense." This would mean a govern ment which confined itself narrowly to the task ofadministering justice within the nation and defending the frontiers, as Adam Smith 18 urged in The Wealth ofNations, published in 1776.

The Victorian system was, of course, the application of the ideas of Adam Smith to the economic and political life of Great Britain. Victo rians believed that a few basic prin ciples should serve as guidelines in the decisions for the running of the nation and of the world, and that these ttLaws of Nature" were built into the constitution of the universe by the Creator Himself. The Judge of all the earth becomes the court of last resort. Were they right, or should the government dominate every aspect of life, as it is doing more and more? American conservatives have long been frustrated because the general public does not ttbuy" their argu ments for limited government, a re vival of the ttwork ethic," and other sound policies. The appeal is usually made in the name of efficiency, greater productivity, and maximiz ing profits. Unfortunately, that ap proach often misses the mark-life doesn't seem to work out that way. I knew a few poor farm laborers dur ing the Great Depression who stayed off W.P.A. because they had tender consciences. They could have 88 THE FREEMAN February gotten twice as much money for doing half as much work, but they would have had to lie to do it (they would have had to swear on their applications for government jobs that they couldn't find work, when they knew very well that farmers couldn't get help).

While it is true that the nation would be better off over the long run if people in general did what was right, the connection between virtue and reward for the individuai may be so remote, and even uncertain, that it is almost silly to suggest it. Try in this age to convince a bureau crat, one who is doing less than nothing, that he should resign to reduce the national budget. True, perhaps, but who listens? The worth less government employee is just trying to minimize his efforts and maximize his income. That sounds like good economics, doesn't it? It would be better to appeal to his conscience--if he has one. Men of Conscience We forget that the men who made that remarkable era of freedom in England back in the last century were men of conscience. Is sound social, political and economic theory simple Christian ethics? Reformers in England once believed this and their considerable success suggests that their ideas and actions might well serve as examples for us in this time of national and global crisis. It should be noted also that they se cured someone else's freedom before they got around to care for their own self-interest: the abolition of slavery in British territory was ac complished before the free trade movement was started. The think ing was the same in both cases, as they themselves insisted.

As the slavery issue was being debated in Parliament in the early years of the last century, practical politicians who were making money from slavery objected that the abolitionists were arguing the case on Uabstract principles of right," and were ignoring the heavy losses to business that would come with the triumph of their cause. Wilber force 19 replied that a HChristian country should be glad to give up profits which are made out of human shame and misery." He assured them that the laws of the nation should be founded Uon the great and immutable principles of truth, jus tice and humanity." This same view point dominated the campaign for free trade a little later, during the early years of Victoria's reign, when statesmen such as Richard Cobden and John Bright consulted the Bible as they did business statistics. In the early decades of the last century it was a common saying in England that ((the school master now walks abroad in English politics,"20 since the appeal to truth requires thought and study, while the 1979 CHRISTIAN PRINCIPLES AND PUBLIC POLICY 89 pragmatist makes up his rules as he goes along. According to Jacques Barzun,21 this era tthas rightly been called the Golden Age of Intellect."

Barzun notes correctly that the rela tionship today between a labor leader and his Ph.D. consultant in economics is not between their intel lects; the Ph.D. is a flunky helping his pragmatic boss do what he would do anyway without his assistance. He is in much the same position as a soothsayer prostrated before the throne of an Oriental despot: he says what he is expected to say. When principles are ignored and truth is forgotten, learning loses its reason for being; the tttruth" simply be comes the lie that Big Brother finds most convenient at the moment. Freedom disappears,· for liberty and truth are inseparable. ttAnd ye shall know the truth, and the truth shall make you free" (John 8:32). (I -FOOTNOTESlEugene Lyons, Workers' Paradise Lost (New York: Twin Circle Publishers, 1967), pp. 321-325. 2William F. Rickenbacker, Wooden Nickels (New Rochelle, N.Y.: Arlington House, 1966), pp.57-96.

3Angus Armitage, The World of Copernicus (New York: New American Library of World Literature, 1947), pp. 85-87. 4Elgin Groseclose, Money and Man (New York: Frederick Unger Publishing Co., second edition, 1967), p. 26. SRoger Burlingame, Henry Ford (New York: New American Library of World Literature, 1954), p. 59 and pp. 86-87. 6Hubert D. Henderson, Supply and Demand (London: Pitman Publishing Corporation, 1921), p. 17. 7Fyodor Dostoyevsky, The Brothers Karamazov (New York: New American Li brary, translation by Manuel Komroff, 1957), p.237. 8Victor Robinson, M.D., The Story of Medicine (New York: The New Home Library, 1943), p. 423. 9Frederic Bastiat, Selected Essays on Politi cal Economy (Princeton, N.J.: D. Van Nos trand Co., translation by Seymour Cain, 1964), pp.59-60. 10J. C. Furnas, The Road to Harpers Ferry (New York: William Sloane Associates, 1959), pp. 245-285. llArnold J. Toynbee, A Study of History (London: Oxford U. Press, 1939), Vol. 4, pp.

137-141. 12Dwight Lowell Dumond, Antislavery: The Crusade for Freedom in America (Ann Arbor: The University of Michigan Press, 1961), p. 25. 13Garet Garrett, The American Story (Chicago: Henry Regnery Co., 1955), p. 87. 14H. U. Faulkner, American Economic His tory (New York: Harper and Brothers Pub lishers, seventh edition, 1954), p. 508. lsIbid., p. 308. 16C. Northcote Parkinson, The Evolution of Political Thought (New York: The Viking Press, 1958), p. 241. 17Bastiat, op. cit., pp. 62-64. 18AdamSmith, The Wealth ofNations (New York: The Modern Library), p. 651. 19W. E. F. Ward, The Royal Navy and the Slavers (London: George Allen and Unwin Ltd., 1969), p. 19. 20Asa Briggs, Victorian People (New York: Harper and Row, 1955), p. 209. 21Jacques Barzun, The House of Intellect (New York: Harper and Brothers, 1959), pp. 10-11.

Henry Hazlitt The Road Not Taken THE Foundation for Economic Edu cation, which publishes The Freeman, was set up in 1946. This seems to me as appropriate a time as any to review what has happened since its establishment in the realm of the government interventions and economic controls-the prohibitions and compulsions-that. FEE was set up to combat. In 1946, of course, these controls were already established over a wide-ranging area. A formidable network of what might be called Utraditional" controls was already in Henry Hazlitt, noted economist, author, editor,re viewer and columnist, has been a Trustee of The Foundation for Economic Education since he helped launch It In 1946. This article Is from his address before Trustees and guests of FEE at Irvington-on-Hudson, N.Y., November 1'9, 1978. 90 existence in the early 1930s; but this was enormously extended and tight ened by the advent of the New Deal.

It was then established that the government could repudiate with impunity its most solemn pledges the gold clause, for example; that it could abrogate contracts containing or assuming this clause; that it could allow labor unions to resort to violence and vandalism with rela tive immunity (as in the Norris LaGuardia Act of 1932); that the government could act as a union organizing agency, and force em ployers to ((bargain collectively" with such unions-that is, to make at least some concessions to their demands-as in the Wagner Act of 1935. And so 011. But let us now come to 1946, the THE ROAD NOT TAKEN 91 year FEE was founded. That was the year when the International Mone tary Fund, which had been set up by the Bretton Woods Agreement of 1944, began to operate. The IMF had been set up ostensibly-believe it or not-to ~~stabilize" currencies. And this was to be done by phasing that absurd and tyrannical thing, the gold standard, out of the monetary system. Instead, the member coun tries pledged themselves to keep their currencies convertible at a fixed rate only into the dollar. If the dollar were kept convertible into gold, it was assumed, that would be sufficient to stabilize the whole world currency system and make the value of each national money unit dependable.

Of course none of the Fund's gen eral rules were expected to be obeyed too strictly. That would have interfered with the freedom of each country's monetary authorities to manipulate their currency in the way that seemed to them most expe dient at any given moment. There fore, it was explicitly provided in the Fund's Articles of Agreement that any country could devalue its own currency at least 10 percent in any one step, and it was explicitly stipu lated that (~the Fund shall raise no objection." In addition, it was under stood that the Fund was to come to the rescue of any country whose cur rency got into trouble, even through its own inflationary policies. The stronger currencies were to support the weaker ones, thus insuring that the stronger would also be weakened. The Results of Bretton Woods We all know now what this finally led to. The American monetary au thori ties could not bring themselves to take seriously the grave responsi bili ty they had assumed in agreeing to make the dollar the world's an chor currency. Keeping the dollar convertible into gold, even if only at the demand offoreign central banks, seemed to them a mere technical requirement, an unnecessary an noyance and burden imposed upon them by some still persisting super stitions about gold. As the U.S. in creased its paper-money issue, con version became increasingly incon venient. It practically stopped de facto in 1968, and in August, 1971, it was stopped openly and officially.

Since then practically every nation's currency has become an irredeema ble paper currency. Every currency fluctuates every day in terms of every other. Money values, world trade, and capital flows become more and more disorderly and un predictable. And all this has happened because the world's so-called statesmen and national monetary managers, when they met at Bretton Woods in 1944, were thinking only of their own im mediate problems, and had no un92 THE FREEMAN February derstanding of what the conse quences of their patched-up scheme would be in the long run. The same kind of shortsighted ness has been the common charac teristic of nearly all the government interventions. of the last thirty years. We may select our examples almost at random. Minimum Wage Laws Take minimum wage laws. A na tional minimum wage was first enacted in this country in 1938. At that time the average hourly wage in American manufacturing was about 63 cents. Congress set a legal minimum of 25 cents. In 1945, the year before FEE was set up, the av erage factory wage had risen to $1.02 an hour, and Congress raised the legal minimum to 40 cents.

It all seemed very reasonable, very compassionate, very necessary, to those who urged and those who voted for it. Could the country toler ate ruthless exploitation of un skilled workers with no bargaining power? Could it tolerate ~~starva tion" wages? The obvious remedy seemed to be to prohibit such wages. Employers were forbidden to offer jobs at wages below the new legal minimum. An ironic thing happened. As in creased capital investment, in creased productivity, and competi tion among employers (all with a little help from inflation) kept raising the average hourly dollar wage, and making each existing legal minimum wage level obsolete, Con gress acted as if its prescribed minimums had brought this rise about. It kept amending the law every few years. It kept raising its minimum wage faster than the market was raising the average wage. It acted on the principle that whatever average wage the market produced, it would never be high enough. Congress has acted as if by constantly boosting the legal minimum it could hurry the market along. The minimum wage, at $2.65 an hour in 1978 and $2.90 in 1979, is scheduled to keep going up to $3.35 an hour on January 1, 1981.

Is this helping the poor? Is it help ing the unskilled worker? The re sults show that it is doing exactly the opposite. Minimum wage laws overlook the obvious. It should be obvious that the first thing that must happen when a law prescribes that no one shall be paid, say, less than $106 for a forty-hour week, is that no one who is not worth $106 a week to the employer will be employed at all. And if statistics can show any thing they show this. The minimum wage laws were passed to help espe cially the unskilled, the teenagers, and the blacks. We have no com parative figures on the unskilled as such, but we do have comparative figures on the teenagers and the 1979 THE ROAD NOT TAKEN 93 blacks. There has always been a tendency for teenage unemployment to run at a somewhat higher rate than that of men and women twenty years old and over, but it took the minimum wage levels and their suc cessive increases to make the con trast a startling one.

It is difficult to get comparative statistics going back beyond 1948. In that year the unemployment rate for both white and non-white teen agers stood at 10 percent. But as the minimum wage rate was jacked up year by year, not only did the overall teenage rate of unemployment keep rising, but it kept rising much more for black teenagers than for white. In 1954 unemployment for black teenagers stood at 14.9 percent against 13 percent for white. By 1968 the black teenager unemploy ment rate had risen to 26.6 percent against 11.6 percent for whites. In 1977 it rose to 37 percent for black teenagers against 15 percent for white. Between 1977 and 1978 un employment for 16 to 17 year-old blacks rose from 38.7 percent to 50.4 percent. So the minimum wage law and its successive hikes has simply driven into unemployment the very people it was most designed to help. The potential production of these people has been lost to the economy.

And what is the response to this consequence by the Congressmen who voted for the law and for the annual increases? They have simply ignored it. They would consider it political suicide, in fact, to oppose the minimum wage law. Unemployment Insurance A similar history can be traced for unemployment insurance. This was one of the great New Deal Hreforms" adopted in 1935. The argument for it was appealing. Workers suffered terrific hardships when they were laid off. Even when they were work ing, they lived in. dread of sudden unemployment. Certainly they should be assured of unemployment compensation when they were forced to look for new jobs. The first State-Federal un employment insurance programs, beginning about 1940, were sur rounded with safeguards. Un employment compensation was to be about one-half of the worker's previ ous earnings, but it was to run typi cally for only sixteen weeks, and there was to be at least a two-week waiting period for the worker, after losing his job, before he would be eligible for that compensation. But gradually, all these safeguards were weakened or removed. The typical waiting period was reduced from two weeks to one, and in some States to none at all. The period for paying the compensation was extended from sixteen weeks to twenty, then to twenty-six weeks, then to thirty nine (in an emergency, of course), 94 THE FREEMAN February then in some States to sixty-five weeks. In 1969 President Nixon called upon the States to provide for maximum weekly benefits of two thirds of the previous average week 1y wages instead of one-half.

The result of prolonging and in creasing unemployment compensa tion, naturally, has been to prolong and increase unemployment. It was found a year or so ago by a commit tee of the State Senate of New York that a number of New Yorkers re peatedly worked the minimum twenty weeks required and then col lected sixty-five weeks of un employment benefits. Though un employment compensation may be only one-half of previous working salary, the unemployment compen sation is tax-free, so the net loss from not working is sometimes quite tolerable. In a typical case in Penn sylvania, for example, a man whose previous weekly take-home pay was $140 can draw $96 a week in tax free compensation. A study made by the U.S. Department of Labor itself found that Han increase in un employment benefits leads to an in crease in the duration of unemploy ment." This country can have as much unemployment as it wants to pay for.

Rent Control Still another example of our shortsighted legislation is rent con trol. This is usually imposed in the early stages of an inflation. As the inflation goes on, the discrepancy between the rent the landlord is allowed to charge, and the rent necessary to yield him a return comparable with that in other in vestments, becomes greater and greater. The landlord soon has neither the incentive to make re pairs and improvements, nor the funds to make them. When the rent control is first im posed, the government promises that new buildings will be exempt from it; but this assurance is soon repudiated by a new law. It becomes unprofitable to build new rental housing. New mortgage money for it becomes increasingly difficult to ob tain. Landlords of old housing often can no longer supply even heat and other essential services. Some can not even pay their taxes; their prop erty has in effect been expropriated; they abandon it and disappear. Old rental housing is destroyed quicker than new housing is built.

Some favored tenants, already in possession, are momentary benefi ciaries, but tenants or would-be ten ants as a whole, in whose interest the legislation has been professedly passed, become the final victims. The irony is that the longer rent control is continued, and the more unrealistic the fixed rents become as compared with those that would yield an adequate return, the more certain the politicians are that any 1979 THE ROAD NOT TAKEN 95 attempt to repeal the rent control would be ~~politically suicidal." The-Energy Crisis The limits of space compel me to pass over any analysis of a score of other government interventions in recent years in the economic field, and to come immediately to the two or three that mainly characterize the economic situation today, not only in our own country, but throughout the world. In 1974 the Organization of Petro leum Exporting Countries-the OPEC-quadrupled crude oil prices.

It is instructive to notice that this was done by a combination of gov ernments. They did what private industry is always accused of doing-forming a monopolistic conspiracy-but what the hundreds of private oil well owners and com panies would never have been able to impose and enforce no matter how much most of them might have wanted to do so. This OPEC action produced a pro found economic shock throughout the world. And what was the re sponse of our own government? Did it retain or insist on a free market to give the greatest possible incentive to petroleum production and explo ration on the one hand and economy in consumption on the other? No. It did the exact opposite. It imposed an elaborate and incredibly compli cated set of price controls on domestic crude oil and on natural gas, to encourage continued wasteful con sumption and to reduce the incen tives to output and exploration. It preferred to protect the short-term interest of American consumers at the cost of their real long-term interest, and at the cost of both the short-term and long-term interest of .American producers.

Rampant Inflation Now let us turn to the government policies that most obviously affect us in all our daily activities government finances and monetary inflation. Throughout our history as a nation, when we were on the gold standard, federal government surpluses were the rule. Deficits except in the two world wars-were rare and comparatively small. But in 1931, we began to run chronic deficits-in the first few years by accident, and then by deliberate pol icy. In the last ten years or so, these deficits have been acceleratively larger. These deficits-again since the early 1930s-have been accom panied by mounting monetary infla tion. The dollar's purchasing power has been reduced, for example, to about 22 cents compared with that of 1940. To bring this inflation to an end, what policy must we follow in the immediate future? Obviously what needs to be done .is to bring the budget back to balance at the ear96 THE FREEMAN February liest possible moment. Obviously what needs to be done is to halt the accelerative increase in money and credit, to stop printing more paper dollars. But the situation is now so bad that practically no politician dares to suggest this course.

About half of our Federal expendi ture programs consist in the trans fer of income from the wealthy or the middle-classes to the so-called needy. In other words, they force the productive to support the unproduc tive. In the official budget these pro grams are not gathered under a sin gle head. But there is a table, on page 191 of the official budget for fiscal 1979, called ~~National Need: Providing Income Security," which estimates the total of such expendi tures for fiscal 1979 at $160 billion. Who is there-among our office holders-who is going to suggest cutting these expenditures? And by how much? And who is there who is going to suggest halting the reckless expansion of our money supply and risking a recession? The situation is so bad that no politician dares to suggest where to begin in correcting it. Once more, that is considered the path of political suicide. The Dilemma This is the ominous dilemma that confronts us. Some of my readers must have recognized that the title of this article is taken from the title of a poem-uThe Road Not Taken" -by Robert Frost. The last stanza of that poem reads: I shall be telling this with a sigh Somewhere ages and ages hence: Two roads diverged in a wood, and I I took the one less traveled by, And that has made all the difference.

Perhaps most of us have had a similar experience, either figura tively or literally. You may have driven on a throughway, for exam ple, toward a destination to which you had never driven before, and may have been told, or may have figured out from a map, that you should get off, say, at Exit 23. And then, suddenly and too late, you realize that you have driven past Exit 23. You can't turn back. You must look for the next exit, which may be miles ahead, and hope you will know what to do when you get there. You realize that you are going to be late, so you start almost uncon sciously to speed up, but are aware that you are only going faster in the wrong direction. We have reached such a dilemma in our political and economic life. We have taken the wrong road, and we have been on it so long that getting back on the .right one seems almost hopeless. The longer we stay on the wrong political road, the more difficult it is to correct the error.

If-to take one example out of a hundred-rent control has been im1979 THE ROAD NOT TAKEN 97 pORed for only a short time, so that the average of controlled rents is still about 90 percent of what free market rents would be, it is no great political problem to remove the con trols. But if, as has sometimes hap pened, rent controls have been im posed so long in a severe inflation that the controlled rents averaged only 10 percent of free market rates, then any attempt to remove the con trols might bring on riots. This has happened frequently in recent years in countries in which, for example, the government has been subsidiz ing food prices and can no longer afford it. The wrong road has been the road of government economic interven tion. The right road would have been to permit and encourage free markets. There are, it is true, a number of politicians today who praise the free market in speeches, but there are very few people, even among economists, who understand why the free market solves so many intractable problems and performs so many near miracles.

Individual Effort The market does this because it reflects and responds to everybody's demand and to everybody's supply, and it reflects to some extent every body's expectations regarding the future. This means that it makes the maximum use of everybody's knowl edge, and not merely the knowledge of a handful of officials. It reflects this know ledge by constant daily changes in prices of individual commodi ties and services. These price changes are daily directing production out of this commodity and into that, reducing surpluses and relieving shortages. The market does not fulfill this function perfectly, because everyone's knowledge is limited and subject to error; and these errors do not necessarily cancel each other. But the market is constantly and quickly correcting these errors. It works incomparably better in maximizing and properly directing incentives than any other imagina ble system. Only when this truth is sufficiently recognized by the public will the free market be restored. @ IDEAS ON UBERTY THE natural effort of every individual to better his own condition is so powerful that it is alone, and without any assistance; not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations.

ADAM SMITH William E. Cage I DON'T KNOW THERE are basically two different ways to organize a society. We can take the viewpoint that we know how people should live their lives and organize society and the economy accordingly. Or, we can say that we don't know-that we are uncertain enough about life's ulti mate purpose that we will not im pose our values on anyone else. We have experienced a ((knowl edge explosion" over the past few decades and today we know more about the earth, its universe and its creatures than ever before. We can split atoms without seeing them. We can see the other side of the moon Dr. Cage, economist and administrative analyst at Tamko Asphalt Products, Inc., In Joplin, Missouri, speaks and writes extensively In behalf of the free market. This article Is from a recent speech at Southwest Baptist College, Bolivar, MissourI. 98 without being there. We have a bet ter understanding of both bizarre and normal types of behavior. But some knowledge is forever beyond our grasp. We can never be sure that anyone of us knows, beyond doubt, exactly what the purpose of each person's life is and how that person can best fulfill that purpose. That is true at the ((grand" level-to what 1 should dedicate my entire life-and at the Hordinary" level-what 1 should do today.

This attitude of ((I don't know" is basic in the formation of a free econ omy and a free society. I don't know how to: live your life, manage your finances, or make your decisions. And because 1 don't know, 1 don't even try! The result is a free society in which everyone makes his own decisions about how he will spend I DON'T KNOW 99 his time, use his talents, and allo cate his material wealth. It encom passes more than just economics. You can choose not only your voca tion but also your spouse; your own brand of coffee and your own ubrand" of religion; where you will work and even if you will work. The entire list of civil liberties stems from the same source as our economic liberties-the willingness to admit ~~I don't know." I don't know if my religious de nomination has Uthe truth," so you choose your own church. I don't know if my opinion on a subject is correct, so you speak your mind as well. I don't know if you should be an engineer, a poet, or a banker, so you choose for yourself. When people choose for themselves, we have a free market and a free society.

But there has to be an essential humility, a recognition of our own limited knowledge. Each of us must admit that ~1 don't know" before we can have a viable, free society. And there lies the difficulty. The Urge to Control Almost everyone would publicly acknowledge that he is incapable of directing other people's lives. How ever, deep inside, a lot of us seem to believe that we do have the knowl edge and wisdom to control others. In fact, recorded history is an on going account of people who thought they did know how to organize their society. From the kings who ruled by divine right to the feu dal lords who totally directed the economic and social activities of their peasants; from the crusaders who were out to win the hearts and minds of men (and to kill them if that failed) to the Hitlers, Stalins, and Idi Amins of this century-all are classic cases of people who would not admit UI don't know." And the classic cases aren't all. The historic listing of truly free markets and societies is about as short as the list of government agencies that have voluntarily disbanded.

The institution that works against liberty is government. Government is the only agency that can rely on coercion instead of cooperation, and if coercion is used it is a pretty good sign that the people coerced did not act of their own choosing! When government goes beyond its peace-keeping functions, both internationally and domesti cally, it is in essence saying (~I know!" It knows: • how your home should be con structed (even if it doubles the cost by using outdated methods); • what education you should re ceive (even if it means you will forever read and write at a third-grade level); • how much you should pay for gasoline (even if none is avail able at that price); 100 THE FREEMAN February • what wage you should earn (even if you can't find a job at that wage); • what you should and should not read, eat and watch on TV, what countries you shouldn't visit, and what foreign products you should be allowed to pur chase.

Government, once it exceeds its es sential duties, will strive to organize our economic life and our total soci ety because it thinks it has the an swers, the knowledge, the truth. But people are not inclined to ac cept government as the possessor of all knowledge. As a result, the peo ple must be ~~persuaded." The tradi tional form of persuasion was the point of a sword or the muzzle of a rifle. Modern governments, though, are too advanced to use such out right force. They use the carrot in stead of the stick. We no longer resist government restrictions, regulations, controls, prescriptions, and proscriptions for the simple rea son that we have been bought off! We have discovered the secret that kings tried to hide for centuries: it is a lot easier to live off the public purse than it is to work. Wards of the Government People throughout the economy now depend on government for some or all of their livelihood. Govern ment funds provide welfare pay ments, program and project grants, contracts for services and equip ment, and even direct employment to a growing proportion of our population. In addition, many busi nesses rely on federal, state, or municipal agencies to effectively eliminate competition.

Consider what has happened. Item: In 1955, government spend ing was about 30 per cent of our national income. Twenty years la ter, that proportion had risen to 44 per cent. The government now spends nearly as much of our income as we do! Item: Although it is difficult to ar rive at a precise estimate, today somewhere between 35 per cent and 40 per cent of the entire U.S.popula tion (not just the work force) receive some or all of their income from government. That is actually less than it might be: someone cal culated that our country passed the point of no return in 1972 because in that year more than half of the population became eligible for some type of government aid, program, or project. Item: Professions of all kinds rely on government restrictions to re duce the number of competitors. The same is true of businesses. A leading business publication recently re ferred to an airline company which is suing the Civil Aeronautics Board· for insufficient regulation. The air line is apparently unhappy because, 1979 I DON'T KNOW 101 as it stated in its annual report, the CAB's policy is to grant any fit, willing and able carrier any route for which it applies!

In short, we have sold our free dom. We have been increasingly willing to acknowledge the govern ment's ttsuperior" knowledge in ex change for a few dollars. This has occurred despite the government's demonstrated ignorance and incom petence in delivering mail, operat ing schools, and even in handing out money. We have allowed govern ment to claim ttl know" as long as it also says ttHere's your share." Our Freedom in Jeopardy The government expansion has been largely concentrated in the economic sphere, and that is where the effects of false claims to knowl edge have shown up the most strongly. But our political and civil liberties are not far from jeopardy. As the government increasingly claims to know how energy should be used, it will at some point have to decide whose printing presses will be allowed to run. Is it likely that newspapers which are critical of the national energy policy will get as much electricity to run their presses as will be granted to the pa pers which support the policy? Who will be allowed to travel-lecturers who criticize the government or the bureaucrats who carry out govern ment policies? Will art books have the same energy claim as the annual report of the Department of Energy?

What churches will be allocated enough fuel oil to heat their sanctuaries? The brief appearance of Miss Lib erty came as a result of recognizing that no one person, no group, no agency possessed the knowledge to run the economy and society. Her visit brought forth all of the benefits of freedom: high living standards as creative and productive energies were unleashed; a wide variety of lifesty les as people pursued high (and low) purposes; a concern for the welfare of others, voluntarily sup ported through private charities; and technical and intellectual ad vances in knowledge which would have been inconceivable even to Jules Verne. All of this from our simply saying, t1 don't know." But now, at least for the present, the temptation of living off of the public purse seems too great to re sist. We let the government claim to be all-knowing in exchange for the low-grade security of government providing and protection. However, knowledge-or lack of it-will ultimately surface. When govern ment finally is overwhelmed by its own ignorance, when we finally say once again, ttl don't know," then our free market economy and free soci ety will allow the human spirit to reach new heights. @ Clarence B. Carson 26. The Cold War: The Spread of Gradualism GRADDALISM is a power theory, too, as communism is. That is, it is a theory for the gaining and exercis ing of power. It is a theory of gaining power by the use of the force of government to redistribute the wealth and establish substantive equality. It is a theory of holding and exercising power by continually promising more and more benefits and ever extending the sway of gov ernment.

In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the Impact on several major countries and the spread of the ideas and practices around the world. 102 Gradualism does not, of course, ordinarily adopt the guise of a power theory. Indeed, we are enjoined from recognizing it as a power theory by a prevailing intellectual temper which disdains theory. It operates under the guise of benevolence. In countries where socialism is an ac ceptable goal, it claims that goal and purports to be doing what is good for society. Where socialism is not gen erally recognized as a good, gradualism claims to be acting pragmatically for the common good. Yet, gradualism is a power theory; socialism is a power theory; and pragmatism is a power theory. It is THE COLD WAR: THE SPREAD OF GRADUALISM 103 on~y by grasping it as a power theory that we can understand its character, its mode of operation,and the manner of its success. This may become clear when we look at the matter this way. Socialism is a fail ure in every respect, save one. It fails in its tacit promise to lead us toward utopia. It fails to provide a bounty of goods. It fails to distribute wealth either justly or equally. It fails to fulfill its promises. In one respect only does it succeed. It suc ceeds in gaining, holding, and exer cising power. It succeeds, by its very success, in transforming all political parties which contend with it into facsimiles of itself.

Ideas have consequences which follow from the essence of the idea. Theories produce results in accord with the theory, whether the theory is explicitly stated or not. The one tangible result of socialism is power, power concentrated and extensively employed. It may well be that most of those who embrace socialism are not aware that they are embracing a power theory. Certainly, most of those who vote for the measures of gradualist socialism are not in formed that they are placing vast power in the hands of those over them. Yet that is what they do. Because power is the fruit of gradualism, its necessary antece dent is a power theory. The theory is here stated as the belief in the use of government to transform society. Distributing the Benefits Gradualism differs from com munism in practice in this way. Communism is spread· and its grip fastened upon a people by the use of terror. Gradualism, by contrast, fas tens its grip upon a people by provid ing unearned benefits to some or all of the people at the expense of some or all of the people.

Virtually the whole appeal of this notion is that those who receive the benefits are either not taxed to pay for them, or taxed much less than the sum of the benefits received. The graduated income tax and corpora tion taxes are essential to bolstering this belief. (If wealthy stockholders and corporations did not exist, gradualists would have to invent them. Indeed, in those countries where they do not exist, govern ments convey benefits derived from them by way of foreign loans and other sorts of aids.) There is an even more clever de vice for hiding the taxation by which wealth is acquired to pay for the unearned benefits. It is inflation, Le., the increasing of the money supply by government. Gradualist governments everywhere use this covert means of raising money. It is, of course, a form of taxation, for the value of the money thus raised is taken from the money which people hold or have owed to them. The effect is experienced as rising prices.

In gradualist countries, which is 104 THE FREEMAN February to say, in effect, in all non communist countries, a continual struggle goes on between groups to get the largest share of unearned benefits and to pay the smallest por tion of the costs. It is a struggle in which the apparent winners are often the biggest losers, for the bene fits carry a price tag. Those who receive them pay by loss of indepen dence. Those who rule thus increase their power over the people. The power thus gained by government is used to shape the populace accord ing to its will. A Single Government Gradualist socialism is a power theory, too, in that its eventual aim is to have all force in the world monopolized by a single govern ment. N~ such aim is generally avowed, of course, but it is nonethe less the tacit logic of the position. The idea that has the world in its grip requires the eventual concerting of all human effort to achieve felicity on earth. Moreover, the position sometimes gets explicit, albeit ten tative, statement. Here is such a statement in the mysticized evolutionary language of Teilhard de Chardin. He leads into it by way of the discussion of the future neces sity of applying eugenics to individ uals. Then, he says: Eugenics applied to individuals leads to eugenics applied to society .... Points involved are: the distribution of the resources of the globe; the control of the trek towards unpopulated areas; the op timum use of the power set free by mechanisation; the physiology of nations and races; geo-economy, geopolitics, geo-demography; the organisation of re search developing into a reasoned or ganisation of the earth. Whether we like it or not, all the signs and all our needs converge in the same direction. We need and are irresistibly being led to create, by means of and beyond all physics, all biology and all psychology, a science of human energetics.!

If we strip away the prophetic mys ticism in which his thought is cast, Chardin is saying that what is needed is a science of concerting human energy, and one is emerging. Government is, of course, the ap proved instrument for accomplish ing the concerting of human energy. Arthur M. Schlesinger, Jr., put the case for world government more prosaically a few years back: Yet world government, in a sense, cannot emerge too soon; for the people of the world cannot long afford to expend their energies in squabbling with each other. The human race may shortly be confronted by an entirely new range of problems-problems of naked subsis tence whose solution will require the combined efforts of all people if the race is to survive .... The results of industri alization and introduction of public health standards in Asia, for example, may well be calamitous, unless they are accompanied by vigorous birth-control policies and by expanded programs of land care and conservation. 2 1979 THE COLD WAR: THE SPREAD OF GRADUALISM 105 The time was not yet right for it, however, he pointed out. HWhen Russia loosens the totalitarian grip, then the noble dream of world gov ernment will begin to make some contact with reality. . . . In the meantime, we had better do what we can to foster community where we can, through regional federations and through the United Nations .... "3 Schlesinger was stating the gradualist position in contrast with that of the enthusiasts for im mediate world government.

Effective world government can only emerge, then, on this view, when all the nations of the earth have come under the sway of demo cratic socialism. If this gradualist vision be thought of as a timetable-a term that is only apt if it be understood as a figure of speech-the stages of progression are roughly these. First, socialism must come to power within nations. When several nations which have common bonds are socialized, they can form regional unions. Eventu ally, these can be linked together in a world government. Before that can happen, however, all cultural, reli gious, racial, and social differences from people to people and nation to nation will have to be blurred or obliterated. In short, the very trans formation and homogenization to ward which socialism tends must have taken place. But the process does not occur in timetable fashion. It goes on simul taneously at many different levels.

It proceeds at any time and place when collective decision making and action is substituted for individual decision and acting. Thus, the United Nations Organization, which is already in existence, might even tually become the world govern ment. But whether it does or not, the yielding to it of any power of decision and action is a step in the direction of world government within the socialist eschatology. But so is the decision of some local gov ernment to fluoridate the water supply, for that, too, is a step toward total collectivization. My point is that the process may go on simul taneously at many different levels, that gradualists have no precise blueprint or plan, but that they un derstand themselves to be proceed ing toward the goal wherever deci sionsare being collectively made that were formerly made by indi viduals. The Spread of Democracy The spread of gradualism pro ceeds, then, by the spread of the collecti vizing of decision making and action. Gradualism is a power theory, a theory for eventually con solidating all power in a single world government, but it does not necessarily proceed by the direct exercise of power. And it certainly does not rely on terror for its spread.

106 THE FREEMAN February Its chosen instrument is democracy, although there is no necessary aver sion to autocratic methods so long as there is a general framework of de mocracy. In the world today the spread of gradualism is a concomi tant of the spread of democracy. Anyone who undertakes to tell the story of the spread of gradualism around the world in the mid twentieth century has set himself a formidable, if not impossible, task. The task does not simply arise be cause the world is a large and di verse complex of nations, though it is. The problem is more fundamen tal than that. It arises from the very nature of gradualist or evolutionary socialism. The very idea is that the movement toward socialism must be by gradual, and often imperceptible, steps. Usually, gradualists operate within the received framework of insti tutions. Often enough, those who advance gradualist measures do not proclaim themselves as socialists. Journalists usually confuse the issues. Head lines do not announce that a gradualist regime has come to power in some land. (If they did, it would probably mean that some commu nist had seized the government.) The world of scholarship provides no greater aid. There are no textbooks on the spread of gradualism in the world. Such references as are, usu ally made by writers to' such matters are apt to describe a regime as ttmoderate" or ttleft wing" or ttright wing," terms which may provide a better indication of the predilections of the classifier than about the ten dency of the government.

In truth, the spread of gradualism is largely unreported, though it is surely one of the most significant developments of the twentieth cen tury. If gradualism were a fact, I think it would have been reported. But it is not a fact; it is a theory. It is a theory that if you begin at one point with certain sorts of measures and advance them relentlessly and successfully, you will eventually end up at your destination. Gradualism is also a tendency, a movement, a direction, and an ideology. As a ten dency, when'it is recognized, a great many facts may be accounted for by it. More, it is surreptitious move ment, operating under cover of other names quite often, and moving to ward its eventual goal slowly and by indirection. Destination Unknown The problem' of the historian in dealing with gradualism may be il lustrated by analogy with describ ing a man on a journey whose desti nation is uncertain. Let us suppose that the man begins his journey at Dallas, Texas. Amongst friends and those with whom he is comfortable he has often talked of going to New York City to settle there. He has even discussed on several occasions 1979 THE COLD WAR: THE SPREAD OF GRADUALISM 107 the ways and means of getting there. For purposes of the analogy, we will equate New York City with socialism. But when he sets out from Dallas, he buys a ticket to go only to Longview. From Longview, he travels to Texarkana, thence to Lit-· tle Rock, then on to Memphis, then, unaccountably, to Muscogee, Okla·· homa. From Muscogee, he pro ceeds to Birmingham, and then north once again to Chattanooga.

Let us interrupt his journey at Chattanooga, with the observation that he has only got that far to date .. Is he going to New York? From the information available to us, we do not know. There is some evidence that he might be. There is a pattern to his travels, thus far, if the tacking to and fro is discounted, which could eventually get him to New York. He could, however, travel next to At-· lanta instead, and wind up in Miami. The only substantial clue we have is that he had talked as if he were going to New York. There are, however, some pieces of missing information. We have not been told in what sort of vehicle he is traveling, nor do we yet know how its intermediate destinations are de termined. Let us say, somewhat playfully, that he is traveling by a sail-driven wind-propelled prairie schooner. Its intermediate direc tions are determined by two vari·· ables, each more or less independent of the other, and neither of which is predictable in advance. One factor is that the passengers vote before they set out from a city, and the majority decide which city they will go to next. The other factor is what they may be driven off course, even to different destinations, by strong wind currents. There is another fac tor, however, which makes their eventual arrival in the vicinity of New York fairly certain, if they stay on the journey long enough. The prevailing winds in the United States blow in an easterly direction.

Indeed, those from the southwest, Dallas, for example, blow in a northeasterly direction, Le., toward New York. With this information, the anal ogy becomes very near ly a paradigm. The traveler is the na tions of the world. The vehicle is democracy. The course is gradual ism. The prevailing winds are the intellectual climate, driving toward the eventual destination of social ism. The tacking to and fro is occa sioned by the shifting currents of popular opinion. Bent Toward Collectivism This provides us an analytical tool, of sorts, with which to discern the mode, methods, and extent of the spread of gradualism. The spread of democracy in the twentieth cen tury is more or less coextensive with the spread of gradualism. On the face of it, there is no reason why this 108 THE FREEMAN February should be true. Political democracy could be, perhaps should be, ideolog ically neutral. It may have been at one time, but it is not in the twen tieth century. Democracy is now ideologically loaded and bent toward collectivism. What makes this so is the intellectual climate.

A major change in what is called democracy-more properly, repre sentative government-occurred in the late nineteenth and early twen tieth century. Democracy emerged in modern times as a means of con trolling government, of limiting and restraining those who govern. Rep resentative government was earliest and firmest established in England following the Glorious Revolution. Its most prominent task was to con trol and limit the exercise of power by the monarch. The control over the purse-over revenues-was reckoned to be the most crucial pow er for exercising that control. That was the reason for vesting the au thority for initiating appropriations in the United States House of Rep resentatives-the most democratic branch of the Congress-to keep the power over the purse nearest to the people. The major change referred to above occurred when the emphasis shifted from the people controlling government to the government con trolling the people. What occurred, let me reiterate, was a shift in em phasis, not some absolute change.

There never was a time, of course, when government did not exercise some control over the people. Moreover, as long as people vote in contested elections, they exercise some control over government. It is a matter of degree and emphasis. Attempts to Limit Government Anyone who will study in depth English history in the seventeenth century will surely discover that much of the great effort going on was to discover means of controlling government. In like manner, the documents of the American Revolu tion are replete with evidence of concern for limiting and restraining government. Placing basic powers in the elective legislatures was one of the important devices by which the founders hoped to accomplish this. In like manner, it should be clear that governments in more recent times have shifted toward more and more control over the people. That is not the way those who favor the controls describe them, of course.

They talk of planning economies, of controlling business, of controlling prices and wages, of providing social security, of setting standards for this or that or the other, and so on. But they are always using power upon and controlling people, and not just some of the people either, but all of them. As has been shown in this work, the control over business is a 1979 THE COLD WAR: THE SPREAD OF GRADUALISM 109 means for reaching through to and controlling all who work for or trade with it. Compulsory school atten dance, compulsory retirement ~~con tributions," building codes, ~~check off" payment of labor union dues, tax payments to subsidize undertak ings' fair employment practices acts, and so on, are people control. The ~~have-ngts," the ~~have littles," the ~~ne'er-do-wells," the un educated, the old, the young, minorities, industrial workers, ten ant farmers, working mothers whatever disfurnished classification that can be conceived-are essential to gradualist socialism. Their condi tion provides the grist for the pro gram mills of gradualism. The em phasis shifted from controlling gov ernment to controlling people in con·, junction with the thrust toward uni vers~il suffrage. The tie between democracy and gradualism was knotted with this development. The enfranchisement of those who hope to gain by weight of numbers what they had not achieved by their ef forts is the basic political, or power, technique of gradualism.

But the impetus toward socialism does not arise from those who can in one way or another be described as disfurnished. They could no more provide the continuous impetus for such a movement than they could effectively direct the development of great corporations. Nor does the im petus come from politicians primarily, though politicians do much of the work of arousing the populace and the enactment of programs. The Intellectual Drive The impetus toward socialism comes from what Russell Kirk refers to as the ~~clerisy ," or what are more commonly called intellectuals. ~~Clerisy" may be the better term, however, for it suggests the pseudo clerical character of the undertak ing. The impetus toward socialism is provided by secular clergymen, so to speak, by those who have taken up the mission· of transforming man and society by the use of force. The natural habitat of these secular clergymen is the modern coll~ge and university. But they are almost equally at home amongst the regular clergy, as journalists, as writers, and in anyone of the hundreds of intellectual pursuits. Whatever their vocation, their avocation is transformation. They are the mak ers and purveyors of intellectual fashion, or, more pointedly, they make gradualist socialism fashion able under whatever guises it adopts at the moment. They create and spread the intellectual climate which propels us toward socialism.

Gradualist socialism advances under many guises, but there is one that is very nearly constant in the world today. It is democracy. HDe mocracy" is the code word for gradualist socialism. The situation 110 THE FREEMAN February is somewhat confused, however, be cause communists also use it as a code word. Thus, it is not always immediately clear when we are in formed by the great news media of the world that democracy has triumphed somewhere or other whether communism or gradualism has come to power. But it does usu ally eventually get straightened out. If one-party rule is tyrannically im posed, and if close relations with one or more of the great communist powers are established, a country will likely be recognized as com munistic, not ttdemocratic." (There is yet another element in the confusion-the Third World. That will have to be discussed in its own place, however.) The spread of gradualism, then, can be very nearly equated with the spread of democracy. There are other ways of saying much the same thing. In those countries of the world in which the influence of the United States and Western Europe is predominant, gradualist socialism is generally well established. More bluntly, it is that portion of the world tied either directly or indi rectly to the inflationary spiral of the dollar. However, this last formu lation better describes the predica ment of much of gradualism than it does the extent of the sway.

At any rate, the geopolitics of the West has been deeply intertwined with gradualism since World War II. Much of the Western influence on the rest of the world had been wielded by way of colonies prior to World War II. Every major (world?) European war since the beginning of the eighteenth century had em broiled colonies and entailed re shuffling of colonial possessions. World War II marked a major break with the past. Theretofore, colonies had been sought mainly, though not exclusively, in order to gain domi nant trading positions in other parts of the world. The diminution of mil i tary power in Western Europe in the course of the war, plus ideological pressure, resulted in the release of colonial possessions, many of them within a decade after the war. With the release of colonial possessions went also the loss of European hegemony in many parts of the world. The Cold War The quest for favorable trading positions, and the conflicts that were engendered by it, was transformed into an ideological conflict. The gen eral name for that conflict, of course, has been the Cold War. The expan sive pressure of communism pro voked resistance to it which was centered in the United States. What ever the interest of those who op posed communism, this conflict be came mainly a contest between rev olutionary and evolutionary socialism, as I pointed out earlier.

1979 THE COLD WAR: THE SPREAD OF GRADDALISM 111 The answer to communism, many claimed, was democracy. Hence, much of the influence of the West and a considerable amount of the wealth and know-how of the United States was put into establishing and bolstering democratic regimes which, according to theory, might be able to defend themselves from communism and maintain their own independence. The result was the spread of democratic socialism where it was successful. Where it failed, which was in most places, it set the stage for some nationalistic and autocratic socialist regime. It is certainly simplistic and prob ably untrue to explain the failure of these re~"imes on the grounds that the people are unprepared for de mocracy. If by being Hprepared" for democracy is meant the willingness and readiness of peoples to go to the polls and vote themselves a share of the wealth, most peoples of the world are probably well prepared.

The problem lies elsewhere. They don't have the wealth to distribute! Democratic, or evolutionary, or gradualist, socialism is a product of industrially and agriculturally ad vanced nations. It succeeds in hold ing power only in these nations, if it is not massively aided from other sources. There is no mystery about why this is so. Democratic socialism is a parasite on the back of capitalism. It is a theory of gaining and exercising power by controlling and distribut ing the wealth produced by tools, techniques, and sophisticated busi ness organizations. It can succeed, so far as it succeeds, only in such countries as Sweden, the United States, England, Canada, Japan, and Germany-in those countries in which capital has already been employed so as to produce great wealth. It can only hold power elsewhere by massive transfusions of wealth from those nations in which capital was earlier suffi ciently free and the incentives were there for producing wealth.

Dispensing False Cures After World War II, many of the peoples of the world came to the West asking for bread and we gave them stones instead. More specifi cally, they came to the colleges and universities of Europe and America seeking to learn the sources of our wealth and prosperity. We gave them instead the power theories of democracy laced with pallid socialism. True, they sometimes learned how to operate our machines, but they learned Iittle of how they are to be acquired and less about how they may be effectively used. From our histories they learned of the horrors of the industrial revolution, how businessmen were rapacious and greedy, and what great evils at tended the growth of great corpora112 THE FREEMAN February tions. In economics they learned macro-economics, which is, in effect, distributionist economics. They went back to their native lands well instructed .about how to distribute wealth but largely ignorant of how to produce it. Or worse, they had been indoctrinated against the most effective means of achieving pros perity.

Even so, the spread of gradualism around the world has been impres sive indeed. From tiny beginnings in the minds of a few men, mainly in England and Germany, it is now firmly established in every ad vanced industrial country in the world. It was once said that the sun never set on the British Empire. It is equally true today that the sun never sets on gradualism. Of course, gradualism has spread to every noncommunist country in Europe, to the United States, to Japan, to Australia, to Canada, to New Zea land, to the Philippines, to South Korea, and so on. It has also spread to many countries in Latin America, Africa, and Oceania. Indeed, there is hardly a petty dictator in the world who cannot point with pride to the accoutre ments of gradualism he has intro duced in his country: medical clinics, free schools, subsidized hous ing, land reclamation and redis tribution programs, minimum wages, empowered trade unions, and so forth. Few countries in the world are so backward that they cannot boast a parliament, the emblem of democracy, which has not busied itself in the not too distant past in confiscating foreign assets in order to redistribute them according to such lights as it has. In short, the outward forms of democracy and the inward thrust of gradualism have been introduced in states around the world.

Westernization evinces itself in our time as the spread of gradualism around the world. The technology which resulted from invention, sav ing, investment, efficient manage ment of great enterprises which were concentrations of capital has been used to give universal sway to intellectual fashion. More specifi cally, intellectuals can now utilize high-speed planes, fast automobiles, telephones, television, and radio to see to it that intellectual fashion prevails. Collectivized Decisions Intellectual fashion prescribes the collectivization of decision making and action. It prescribes a collec tivized democracy within each land, one whose government shows its good faith bypassing socialist mea sures. It requires that governments negotiate and come to terms with all radical and socialistically inclined groups within their borders. Intel lectual fashion proclaims· the de sirability of free speech and a free 1979 THE COLD WAR: THE SPREAD OF GRADUALISM 113 press in all lands, but does not re quire it in order to extend respecta bility to communist regimes.

Intellectual fashion not only pre scribes the collectivizing of decisions within countries but also in interna tional relations. Intellectual fashion is gradualist, and gradualists no more want independent nations than they want independent indi viduals. They want nations to negotiate with one another, to form regional associations with one another, and to act collectively in all matters. A nation today, particularly a noncommunist nation, which makes a unilateral decision, i.e .. , acts on its own in its own interest, may expect to be denounced and to be subject to every sort of pressure that the' makers of intellectual fash ion can mount. The United States intervention in Vietnam is a case in point. Com munists and gradualists united in condemning this action, communists for obvious reasons and gradualists mainly because the action was uni lateral. (In Korea, gradualists had been hoist by their own collectivist petard, for the United States inter vention there was approved by a United Nations Resolution.) Rhodesia has suffered the calumny of the intellectual commu nity for several years for the deter mination of its government to go it alone.

A Possible Exception Israel confounded intellectual fashion by making successful war against the Arabs on its own, con founded, I say, for the Western intel lectual community, at least much of it, had long had its sympathies bound up with the fate of Israel and for a while the juices of collectivism had to be held in abeyance. But they were only in abeyance-after all, gradualists are gradualists, not in sisters that everything be done at once-for it now appears that Israel has finally been brought to the negotiation table, and eventually the collectivist mode may regain its sway in that corner of the world. Gradualists have a goal. It is to socialize the whole world and bring it under one all-embracing govern ment. They have a faith, too. It is that they are moving toward. that goal, however slowly and gradually, whenever any decision is made col lectively. Indeed, it sometimes ap pears that the manner of the mak ing of the decision is more important than the decision reached, and that may well be the case for any particu lar decision. John Dewey put the premises of the faith this way. You cannot separate means from ends, for the means that you employ will eventually determine the ends you will achieve.

Gradualists believe, then, that so long as more and more decisions are being collectively made they are 114 THE FREEMAN moving toward their goal. That ac counts for their commitment to de mocracy, for by their understanding it is a means of collectivizing deci sion making. That accounts for the pressures they continually mount to have decisions by nations negotiated, mediated, and made collectively. In large, then, gradualism was spread within an intellectual atmo sphere arising from Western intel ligentsia and propagated as intellec tual fashion. This fashion is ex pressed as a pressure to collectiviza tion. It is advanced as democracy. Within the Cold War framework it was supposed to be democracy ver sus communism. The welfare, gov ernment planning, and dis tributionist schemes were advanced both as an antidote to communism and as substantive requirements of democracy. The programs of gradualism, however, were devised in the advanced industrial and ag ricultural countries of the West where the technology for producing wealth already existed. Industrially backward countries frequently had little wealth to distribute, and gradualist measures could have lit tle attraction. Therefore, the spread of gradualism had to be subsidized.

For that part of the story, it will be necessary to examine the foreign aid programs. @ Next: 27. The Cold War: Foreign Aid. -FOOTNOTESIFranklin L. Baumer, ed., Main Currents of Western Thought (New York: Alfred A. Knopf, 1967), p. 736. 2Arthur M. Schlesinger, Jr., The Vital Cen ter (Boston: Houghton Mifflin, 1962), p. 240. 3Ibid., pp. 239-40. IDEAS ON UBERTY Ideas Determine Actions THE intellectual leaders of the peoples have produced and propagated the fallacies which are on the point of destroying liberty and Western civilization. The intellectuals alone are responsible for the mass slaughters which are the characteristic mark of our century. They alone can reverse the trend and pave the way for a resurrection of freedom. Not mythical Umaterial productive forces," but reason and ideas determine the course of human affairs. What is needed to stop the trend toward socialism and despotism is common-sense and moral courage.

LUDWIG VON MISES, Planned Chaos Lawrence W. Reed Liberty and the Powerof Ideas A BELIEF which I stress again and again in my classes here at North wood Institute is the belief that we are at war-not a physical, shooting war but nonetheless a war which is fully capable of becoming just as destructive and just as costly. The battle for the preservation and advancement of liberty is a bat tle not against personalities but against opposing ideas. The French author Victor Hugo declared that uMore powerful than armies is an idea whose time has come." Armies conquer bodies, but ideas capture minds. The English philosopher Carlyle put it this way many de cades ago: ttBut the thing a man does practically believe (and this is often enough without asserting it to him self, much less to others): the thing a man does practically lay to heart, Mr. Reed is an instructor in economics at Northwood Institute, Midland, Michigan. This article is from his address before the "Freedom in Third Century America" seminar at the Institute, July 3D-August 3, 1978.

and know for certain, concerning his vital relations to this mysterious Universe, and his duty and destiny there, that is in all cases the prim ary thing for him, and creatively determines all the rest." In the past, ideas have had earthshaking consequences. They have determined the course of his tory. The system of feudalism existed for a thousand years in large part because scholars, teachers, intellec tuals, educators, clergymen and politicians propagated feudalistic ideas. The notion of (tonce a serf, always a serf' kept millions of peo ple from ever questioning their sta tion in life. Under mercantilism, the widely aceepted concept that the world's wealth was fixed prompted men to take what they wanted from others in a long series of bloody wars. The publication of Adam Smith's The Wealth of Nations in 1776 is a 115 116 THE FREEMAN February landmark in the history of the power of ideas. As Smith's message of free trade spread, political barriers to peaceful cooperation collapsed and virtually the whole world decided to try freedom for a change.

In arguing against freedom of the press in 1924, Lenin made the fa mous statement that Hideas are much more fatal than guns." To this day, ideas by themselves can get you a prison sentence in communist lands. Marx and the Marxists would have us believe that socialism is inevitable, that it will embrace the world as surely as the sun will rise in the east tomorrow. As long as men have free will (the power to choose right from wrong) however, nothing that involves this human volition can ever be inevitable! Men do things because they are of the mind to do them; they are not robots programmed to carry out some preordained dictum. If socialism comes it will come because men choose to embrace its principles! Winston Churchill once said that ttSocialism is the philosophy of fail ure, the creed of ignorance, and the gospel of envy. Its inherent trait is the equal sharing of misery." Socialism is an age-old failure, yet the socialist idea constitutes the chief threat to liberty today. So it is that believers in liberty, to be effec tive, must first identify and isolate the socialist notions which have taken their toll on liberty. In doing that, and then refraining from ad vancing those ideas, we can at the same time advance liberty. As I see it, socialism can be broken down into five ideas.

1. The Pass a Law Syn drome. Passing laws has become a national pastime. When a problem in society is cited, the most frequent response seems to be, ttpass a law!" Business in trouble? Pass a law to give it public subsidies or restrict its freedom of action. Poverty? Pass a law to abolish it. Perhaps America needs a law against passing more laws. In 1977 Congress enacted 223 new laws. It repealed hardly any. During that same year, the federal bureauc racy wrote 7,568 new regulations, all having the force of law. James Madison in 1795 identified this syndrome as ttthe old trick of turning every difficulty into a rea son for accumulating more force in government." His observation leads one to ask, ttJust what happens when a new law goes on the books?" Almost invariably, a new law means: a) more taxes to finance its administration; b) additional gov ernment officials to regulate some heretofore unregulated aspect of life; and c) new penalties for violat ing the law. In brief, more laws mean more regimentation, more coercion! Let there be no doubt 1979 LIBERTY AND THE POWER OF IDEAS 117 about what the word coercion means: force, plunder ,compulsion, restraint. Synonyms for the verb form of the word are even more instructive: impel, exact, subject, conscript, extort, wring, pry, twist, dragoon, bludgeon, and squeeze!

When government begins to intervene in the free economy, bu reaucrats and politicians spend most of their time undoing their own handiwork. To repair the dam age of Provision A, they pass Provi· sion B. Then they find that to repair Provision B, they need Provision C and to undo C, they need D, and so on until the alphabet and our free doms are exhausted. The Pass a Law Syndrome is evi dence of a misplaced faith in the political process, a reliance on force which is anathema to a free society. 2. The Get Something From Gov-· ernment Fantasy. Government by definition has nothing to distribute except what it first takes from peo·· pie. Taxes are not donationsr In the Welfare State, this basic fact gets lost in the rush for special favors and giveaways. People speak of ((government money" as if it were truly ufree." One who is thinking of accepting something from government which he could not acquire voluntarily should ask, ((From whose pocket is it coming? Am I being robbed to pay for this benefit or is government robbing someone else on my be half?" Frequently, the answer will be both.

The end result of this ((fantasy" is that everyone in society has his hands in someone else's pockets. 3. The Pass the Buck Psychosis. Recently a welfare recipient wrote her welfare office and demanded, ((This is my sixth child. What are you going to do about it?" An individual is victim to the Pass the Buck Psychosis when he aban dons himself as the solver of his problems. He might say, ((My prob lems are really not mine at all. They are society's, and if society doesn't solve them and solve them quickly, there's going to be trouble!" Socialism thrives on the shirking of responsibility. When men lose their spirit of independence and in itiative, their confidence in them selves, they become clay in the hands of tyrants and despots. 4. The Know-It-All Afflic tion. Leonard Read, in The Free Market and Its Enemy, identifies ((know-it-allness" as a central fea ture of the socialist idea. The know it-all is a meddler in the affairs of others. His attitude can be ex pressed in this way: UI know what's best for you, but I'm not content to merely convince you of my right ness; I'd rather force you to adopt my ways." The know-it-all evinces arro118 THE FREEMAN gance and a lack of tolerance for the great diversity among people.

In government, the know-it-all re frain sounds like this: ~~If I didn't think of it, then it can't be done, and since it can't be done, we must pre vent anyone from trying." A group of West Coast businessmen ran into this snag recently when their re quest to operate .barge service be tween the Pacific Northwest and Southern California was denied by the Interstate Commerce Commis sion because the agency felt the group could not operate such a ser vice profitably! The miracle of the market is that when men are free to try, they can and do accomplish great things. Leonard Read's well-known admoni tion that there should be ~(no man concocted restraints against the re lease of creative energy" is a power ful rejection of the Know-It-All Affiiction. 5. The Envy Obsession. Covet ing the wealth and income of others has given rise to a sizable chunk of today's socialist legislation. Envy is the fuel that runs the engine of redis tribution. Surely, the many soak the-rich schemes are rooted in envy and covetousness.

What happens when people are obsessed with envy? They blame those who are better off than them selves for their troubles. Society is fractured into classes and faction preys upon faction. Civilizations have been known to crumble under the weight of envy and the disre spect for property which it entails. A common thread runs through these five socialist ideas. They all appeal to the darker side of man: the primitive, noncreative, slothful, de pendent, demoralizing, unproduc tive, and destructive side of human nature. No society can long endure if its people practice such suicidal no tions! Consider the freedom philosophy. What a contrast! It is an uplifting, regenerative, motivating, creative, exciting philosophy! It appeals to and relies upon the higher qualities of human nature such as self reliance, personal responsibility, in dividual initiative, respect for prop erty, and voluntary cooperation.

Nobel Prize winner F. A. Hayek has called attention to the power of ideas in preserving liberty: nUnless we can make the philosophic foun dations of a free society once more a living intellectual issue, and its im plementation a task which chal lenges the ingenuity and imagina tion of our liveliest minds, the pros pects of freedom are indeed dark." The outcome of the struggle be tween freedom and serfdom depends entirely upon what percolates in the hearts and minds of men. At the present time, the jury is still deliberating. i Dennis Bechara The Dangers of Collectivism IN A FREE SOCIETY, scarce and valu able resources are drawn to serve the mandate of consumers. Produc·· ers are guided by market prices as consumers cast their economic bal·· lots for the goods and services which they prefer. Entrepreneurs are guided by the profit and loss system, and their ability to please consum·· ers is reflected in the amount of profits earned.

The role of government in a free society is a limited one, as most areas of economic activity are left to the market. Of no concern to the government of a free society are the complex economic activities that take place between consenting parties-voluntary actions involv ing no use of force, violence or coer· cion. Individuals are free to act peacefully as they choose. Therefore, government's proper role' is to as sure a sound framework in which a. free market economy may operate. The defense against internal and ex ternal enemies is a necessary funcMr. Bechara is an attorney in the law offices' of Goldman, Antonetti & Davila in San Juan, Puerto Rico. tion of government, and private property in such a society would be protected as the bedrock of the mar ket economy. In such an environment individ uals might freely cooperate in all sorts of peaceful organizations and activities-a truly pluralistic soci ety . No one particular group could claim control of the state, and each group would be free to produce, create and enjoy the benefits of its labor. But when freedom gives way to state-enforced collectivism, pluralistic activities are discour aged. The ideology of collectivism looks upon the individual as a mere organ of the state. As in the human body, where the brain directs every function, the ideologues of collec tivism view society as an assembly of individuals directed by the state.

If all power is centered around the state, which holds the monopoly of force, the benefits obtained from the division of labor in a pluralistic soci ety disappear. In the economic realm of the col lective society, producers are faced with countless regulations and 119 120 THE FREEMAN February minimum requirements that the state deems essential. These regula tions carry with them the costs of compliance which tend to raise prices. And higher prices tend to adversely affect not only consumer demand for some products but also the availability of capital for use in further production. Income tax laws which penalize producers and inhibit capital forma tion are enacted, locking people into the holdings they presently possess. A rigidity is thereby imposed on the economy, because such laws dis courage the sale of assets to obtain profits which would be taxable. As the trend toward collectivism advances, revenues collected by the state in the form of taxes are used not only to finance the police and court functions, but also for dis tribution to special groups of benefi ciaries. Thus, in the name of equal ity, does government policy shift from the protection to the redis tribution of property. And the greater the number of beneficiaries, the greater their political power.

And as anyone group succeeds in this act of political plunder, this in turn leads other groups to lobby for their own special privileges. In a free society, numerous or ganizations would be voluntarily striving and competing for the at tainment of various goals. But in today's mixed society, such groups are not content to rely on persuasion, but rather depend on the use of coercion, through government funds, for the achievement of these objectives. As these groups grow in number, it soon becomes evident that the government cannot please every group; some will be left un satisfied. Politicians discover that taxation has its limits, that high and rising taxes are unpopular. So they resort to the hidden tax of con verting budgetary deficits into infla tion of the money supply. The special interest groups com pete with each other for the scarce funds that government is able to provide. In that sense, a society of conflict emerges, as each special interest group views the other as an adversary in this looting procedure.

Politicians use budgetary deficits in their attempt to stem the conflict and to grant most of the benefits demanded by the lobbies. Budget deficits are financed by two methods. One method is for the state to obtain loans and remove funds from the capital market, rais ing interest rates and reducing the business opportunities that other wise would have existed. The second way to finance budgetary deficits is to issue more and more paper money. The seeds of inflation are sown, to bear fruit after the voters have cast their ballots. Nor does any one group see inflation as an im mediate threat to its special inter est; society as a whole will bear the 1979 THE DANGERS OF COLLECTIVISM 121 consequences. As inflation and re·· cession are brought about, the spe·· cial interest groups are confident that they will be able to obtain their ~~little bit more" from the govern-, ment. Pressure groups support the politician who is willing to enact into law the specific programs that they champion. Welfare recipients, farmers paid not to grow crops, in dustries protected from foreign com petition and other such groups all rely upon the regimentation of economic activity and the general shrinkage of freedom as effecti ve means to their goals. These coali tions are also aided by the govern ment bureaucracies which have been structured to implement these programs. The legions of govern ment employees who administer the countless forms of intervention in the economy have a vested interest in justifying the law they enforce ..

Hence, both beneficiaries and the administrative agencies share a common belief that this looting pro cess is essentially fair. As collectivism continues its can cerous growth, the institutions which have traditionally served the free society begin to change. For example, in the market economy people buy and sell according to their subjective values. The buyer prizes what he is about to buy more than the money he will relinquish for that purpose. Conversely, the seller places a higher value on the money he is about to receive than on the merchandise he is about to give up. Thus, from the point of view of each participant, the sale is benefi cial to him. However, in the collec tivistic society, government services bring forth a change in the nature of contractual relationships. Government agencies created to enforce interventionist schemes carry with them the power of com pulsion and coercion that is implicit in the state. Both the beneficiaries and the victims of these schemes are affected by the power of these agen cies. Many private entities are com pelled to act contrary to their desires in order to serve the t(public inter est" as the governmental agencies define it. By entering into agree ments with each other, the parties cannot properly be said to be enter ing into a mutually beneficial con tract in the traditional sense.

Rather, a hybrid contract is created-one entered into under the fear of possible governmental re prisals if the action is not taken. The beneficiary of the law in question views the matter differently. After all, the governmental entity has safeguarded his Uright," while the other party has had to reluctantly enter into the agreement or face prosecution by the state. Import duties illustrate these hybrid contracts. When tariffs are 122 THE FREEMAN levied on foreign goods, thereby pro tecting the domestic producer from the consequences of competition, the consumers' choice is altered. Either they must pay a higher price for the foreign product than they would normally have to pay, or they buy the domestically produced object. The general notion that contracts are mutually beneficial to· the con tracting parties loses validity in this instance as consumers are not able to express their desires freely. The demand for foreign products will de crease as the import duties hike prices. This, in turn, benefits domes tic producers. By distorting produc tion and the choice available to the consumers, the government redis tributes income to the detriment of the consumers.

Special interest groups have a practical advantage in the political realm, which should alert us to the dangers of collectivism. Voters face politicians from a vastly different perspective than they face produc ers. In the economic field, consumers are economic voters. Each dollar spent represents an economic vote which indicates to the producer how to utilize scarce resources. The pro ducer who best satisfies the consum ers' desires obtains more money votes-more income. Consumers do not pay attention to the identity of the producer. They are totally in sensi tive as to whether or not the producer is a good or bad person, or as to his race, color or nationality. The consumers' only concern is that the products which they buy satisfy their needs, and they will patronize such producers accordingly. In addi tion, consumers cast their economic ballots in a product-by-product fash ion. Even if 51 per cent of the mar ket favors one type of product, the market still will provide what is sought by the remaining 49 per cent.

In contrast to the economic vote of the consumer stands the political vote of the citizen. Political cam paigns are cluttered with numerous issues and personalities. The voters cannot vote separately on each pos sible issue, but rather they vote for people who represent compromises and stand for many goals. Hence, as the state enlarges its area of activity to encompass different segments of the economy, it becomes harder for a voter to sustain or to defeat anyone particular program. A byproduct of government .in tervention and collectivist control is a growing public interest in discern ing the causes of the malfunctioning economy. As people begin to feel the oppressive nature of intervention and the suffocating consequences of taxation and inflation, a counter vailing force will be building in freedom's favor. Our prospects for survival depend upon our under standing of the economic and moral case for freedom. @ A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN LIBERTY: Legacy of Truth I haven't checked through all of Leonard Read's books, but those that remain in my library after bor rowings and the attritions of moving reveal a significant secret: Leonard never mentions contemporary politicians in their roles as such. If he occasionally bows to a statesman of the past, such as Churchill or John Foster Dulles, you may be sure that it is to make a broad philosophical point.

The casual reader might presup pose that Leonard Read's silence about Jimmy Carter or Jerry Ford or Ronald Reagan in his most recent books proceeds from an indisposition to mix it up in the prize ring. But Leonard, actually, does not mind a fight. His theory of waging political war is to go for the jugular, which happens, as he says in his new book, Liberty: Legacy of Truth (Founda tion for Economic Education, $6.00), to be ((whatever the preponderant thinking" is at ((any given time." It is the theory that makes the politico, not vice versa. Looking at the kinds of govern ment that prevail in the world to day, Leonard Read concludes ((that the preponderant thinking is anti freedom-authoritarian." So he goes for the jugular by tackling socialism on the philosophic plane. He opposes bad thinking with good thinking. If Leonard Read has ever de spaired of winning his fight he has never, in the course of writing more than a score of books, ever shown it.

A less resilient character would have given up long ago. But now his attack on the philosophical jugular seems to be working. A lot of the same old politicians whom Leonard disdains to mention were returned to office in the last election. But there are new faces showing up on Capitol Hill, and some of them actu ally believe in liberty. The important thing, in any case, is not that there is to be a mix of old and new political personalities. What really counts is that a signifi cant number of the traditional high-tax, big-spend crew that has 123 124 THE FREEMAN February been knocking the stuffings out of the American dollar since the Nine teen Thirties are now lining up for trips to the confessional. They are catching the signal from a shift in the upreponderant thinking" of the moment. If all goes well, the next time Leonard Read writes an essay bearing on the reflection of ideas on the political horizon it will take on a tone that is somewhat different. In stead of saying HThose sanctified ideas and ideals of our Founding Fathers must be born again,"

Leonard will be substituting the words uare being" for umust be." The Pleasures of Aging Leonard Read copyrighted his new book on his 80th birthday in September of 1978, and he concludes it with an essay called uThe Plea sures of Aging." But, on Leonard's own showing, there are no distinct pleasures involved in watching the clock move on. Longevity's purpose, he says, is ulearning, not lengthen ing." And he quotes an anonymous authority as specifying that uone does not grow old-one becomes old by not growing." All of this puts the stress in continuing with the more pleasurable and profitable things that one has always done. In brief, a non-retirement program. So Leonard Read exults in ~~no let-up in travel, seminars, and the many chores at FEE." By working-and by treating older hobbies as u mere pastimes"-the non-retired Read frees himself ~~from all fret about the discouraging prospects that the senior years have a tendency to im pose."

At the recent Mont Pelerin Soci ety meeting in Hong Kong, Fried rich Hayek, who is in Leonard Read's age bracket, was complimented on seeming more youthful and energetic than he seemed ten years back. Hayek's answer was that he had Utried old age and didn't like it." Leonard Read has yet to ~~try it." He quotes the likes of Cervantes, but his own model is Don Marquis' im mortal cat Mehitabel, who always rose to the challenge by saying Uthere's a dance in the old dame yet." In addition to the bigger ttdance" of fighting the basic philosophy of socialism, this latest Read book ad dresses itself to the problems raised by coercive State control of educa tion, to the need to oppose the Ustrike syndrome" by exposing Uthe folly of violence," to letting un trammeled human beings find energy sources wherever they exist, and to instigate what seems to me an odd crusade against legalized holidays.

This last must seem a real poser to libertarians. Surely only a work aholic would be willing to give up Christmas, Thanksgiving, the Fourth of July and sundry other holidays. Natural Law would seem1979 LIBERTY: LEGACY OF TRUTH 125 ingly prescribe the need for periodic breaks, expressed in terms of ritual. If most of us didn't have them we would go off our rockers. I would settle with Leonard Read for customary holidays as opposed to legal holidays. After all, Christmas, Thanksgiving and the Fourth of July had customary sanction before they had legal sanction. But the case against the legal holiday is not that it is a tthollow day" in contrast to a tthallowday." It is a tthollow day" if you go and get yourself involved in a car accident or a horrible New Year's hangover. But what would we tennis players or bike riders or joggers or skaters do if it were not for the weekend? Would Leonard Read say it is tthollow" to go to church of a Sunday morning? If you are going to crusade against the legal holiday, first make sure that custom, in default of law, has a fair chance of taking over.

CompulsoryEducation There would be less need of legalized holidays if Leonard Read could first win his battle against the idea of State-controlled compulsory education. If kids are going to be compelled to sit in classrooms for extended periods between their fifth and seventeenth years, they need legalized time off. One State com pulsion breeds the necessity for another, if only as countervailing action. The Read essay on ttElementary Education" is a bit of an histor ical eye-opener to me. I had always supposed that the idea of compul sory State-operated schools came from Prussia via Horace Mann. But Leonard Read traces it to Napoleon, who thought that ttpublic instruc tion should be the first object of government." ttNo one," so Napoleon decreed, ttmay open a school or teach publicly unless he is a member of the imperial university." It so happened that Thomas J ef ferson invited Pierre Samuel du Pont de Nemours, the physiocrat, to recommend an appropriate form of education for the United States. Du Pont wrote a 161-page book advocat ing the Napoleonic school system. So Jefferson, despite his generally vol untaristic philosophy, was beguiled into accepting the idea of compul sory public education.

It took more than a hundred years to see what a ttscraggy bush" (Read's description) would grow from the roots planted inadvertently by du Pont and Jefferson. During all those years nobody contested the right of people to found private schools and colleges that could compete in per formance and ideas with the State supported public school. But now we can really see the ttscraggy bush" for what it is, with the Department of Health, Education and Welfare try ing to impose its so-called Affirma tive Action programing on private schools whose only connection with 126 THE FREEMAN February government is to accept students who may happen to be the beneficia ries of GI grants and State guaranteed loans. Leonard Read opens his book with some heartening essays on faith, hope and charity. We will need all of these to carry through with some of the specific crusades to which he invites us in his later pages.

LIBERALISM by Ludwig von Mises Foreword, Louis M. Spadaro 207 pages. $15.00 cloth; $4.95 paper THE ULTIMATE FOUNDATION OF ECONOMIC SCIENCE by Ludwig von Mises Foreword, Israel M. Kirzner 148 pages. $15.00 cloth; $4.95 paper Both titles available from: Institute for Humane Studies 1177 University Drive Menlo Park, Calif. 94025 Reviewed by Brian Summers THE great Austrian economist Lud wig von Mises (1881-1973) has in valuable insights for the serious student. But some of his works are much more difficult to grasp than others. Where does one begin? Liberalism is an excellent intro duction to Mises' thought. This 1927 book was entitled Liberalismus in the German original, and was pub lished in the U.S. in 1962 as The Free and Prosperous Common wealth. It is a lucid exposition of the principles of classical liberalism the free enterprise policies which unleashed the productive forces of the nineteenth century and created the capital we are now consuming.

Mises bases his case for the free market on the enormous productiv ity of the division of labor. When workers, investors, and entrepre neurs are free to specialize in those areas of production for which they are best suited-and are free to ex change their products in an unfet tered market-standards of living are infinitely greater than when each family tries to produce its own food, clothing, shelter, fuel, medicine, and all the other essen tials of life. From this fundamental observa tion, Mises develops the entire lib eral program. He champions a com pletely free market because, as he demonstrates, all government in terventions reduce the standard of living by disrupting the division of labor. Similarly, he opposes union monopoly privileges, which restrict labor mobility, raise unemployment, and plunder nonunion workers-the principal victims of union violence and threats of violence.

The popular alternative to inter ventionism-socialism-is shown 1979 OTHER BOOKS 127 by Mises to be intrinsically un workable. Not only does socialism stifle personal initiative, it destroys the means of economic calculation by placing all factors of production in the hands of the state. With no competitive bidding for labor, capi tal, and natural resources, the bu reaucrats in charge of the state monopolies cannot compare the costs of different methods of produc tion. Socialism is inherently waste ful. Mises' foreign policy proposals are in keeping with his domestic pro gram. He favors nonintervention, free immigration, and democratic elections as the only means to further the international division of labor and thus raise the standard of living of all peoples. Tariffs, im perialism, and colonialism are op posed as violent disruptions of peaceful exchange. In these times of political turmoil, terrorism, and war, one insight of Mises is especially pertinent: without government regulations, trade barriers, special privileges, public services, oppressive taxation, and other restrictions on the free movement of men and goods, it would matter little which govern ment one lived under or what party happened to be in office. Roll back the state, and politically inspired conflicts will tend to disappear. It is a point worth pondering.

The Ultimate Foundation of Economic Science, first published in 1962, is difficult reading for those unfamiliar with Mises. The Ulti mate Foundation of Economic Sci ence is a critique of positivism, which has dominated economics for several decades. The positivist paradigm may be .summarized as follows, using the example of minimum wage laws: 1. The positivist observes data. (Increases in the legally mandated minimum wage have been followed by increases in unemployment.) 2. He constructs a theorem to ex plain the data. (An increase in the minimum wage, other things being equal, will increase unemployment.) 3. He Htests" the theorem by further empirical observations. (He observes further instances· of in creases in the minimum wage and studies unemployment data before and after each increase.) If he be lieves that the data conform with the theorem (if he observes what he believes to be a convincing number of cases in which increases in the minimum wage are followed by in creases in unemployment) heac cepts the theorem. If he believes that the data do not conform with the theorem (if he observes what he believes to be significant cases in which increases in the minimum wage are not followed by increases in unemployment) he rejects the theorem.

This paradigm is vitiated by the 128 THE FREEMAN fact that the data used in steps 1 and 3 cannot derive from controlled ex periments. In our example, the le gally mandated minimum wage is only one of the many factors that infl uence unemployment statistics. It is impossible to obtain data in which all the factors except the minimum wage remain constant. In contrast with positivism, Mises' methodology does not need con trolled experiments because he treats economics as a praxeological science-a science of human action. Mises' paradigm may be sum marized as follows: 1. The praxeologist postulates that all conscious human action is directed toward goals because it is impossible to conceive of a person consciously acting (trying to do something) without having a goal (the goal being the CCsomething"the person is trying to do). 2. From the actions of men, the praxeologist deduces their goals.

(An employer strives to earn profits. Earning profits is thus one of his goals. Hence, the employer's utility increases with his profits, and his disutility increases with his losses. Of course, this does not preclude the existence of other goals, such a goal as keeping an employee's friend ship.) 3. Assuming a given set of actors' goals, the praxeologist constructs a theory based on the human actions that necessarily follow from the set of goals. (As an increasing minimum wage forces an increase in an em ployee's wage rate, other things being equal, the disutility incurred in paying the wage increases. When the disutility involved in employing a person exceeds the utility involved in continuing his employment, the employee will be released. Thus, the praxeologist constructs the theorem: An increase in the minimum wage, other things being equal, will in crease unemployment.) In these difficult days, with mainstream economics in disarray, and freedom under constant attack, we welcome the reappearance of these two books by Ludwig von Mises, and hope that this time their lessons will be heeded. ® the Freeman VOL. 29, NO. 3 • MARCH 1979 The Crisis in Public Finance: No Ways or Means John Semmens 131 Since public finance is neither fair nor feasible, the alternative is to rely on private enterprise and the open market.

Another Anti-Inflation Circus Hans F. Sennholz 139 Government anti-inflation programs multiply the damages done by its original inflationary policies. World in the Grip otan Idea 27. The Cold War: Foreign Aid Clarence B. Carson 143 How economic and military aid has been used to sustain and promote socialism internationally. Egalite?-Sheer Illusion! W. A. Paton 157 CompUlsory sharing is not the way to widespread economic prosperity. The Bases of Economic Planning David Kelley 160 Behind the "reasonable" facade of the planned society lies a deepseated philosophical hostility toward reason. Toward a Meaningful Defense of Freedom Joseph P. Howard 171 Forget not the spiritual foundations in defending the market. What Is Freedom? George F. Cahill 176 An inspirational answer directed especially to the youth of America. The Bureaucracy Problem David Osterfeld 178 Why socialism requires bureaucracy to cope with problems of priorities, efficiency, and distribution.

Book Reviews 190 "Can Capitalism Survive?" by Benjamin A. Rogge Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

ttle I A E~~~N~~r;N LIBERTY FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year.

Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "World in the Grip of an Idea," "Another Anti-Inflation Circus," and "What Is Freedom?"

John Semmens The Crisis •10 Public Finance: No Ways or Means PUBLIC finance is beset with the dilemma of meeting two objectives that may not be attainable. On the one hand, there is the prescription that any public financing scheme must be fair. Though there may be considerable divergence of opinion on what this means, there is some consensus that it must be considered in any financing proposal. The sec ond objective is that the plan must be feasible. Contemplation of feasi bility can range from simplistic ad ministrative or enforcement con cerns to more remote indirect impacts on the economy. The problems faced in public fi nance are significantly different from those confronting nonMr. Semmens is an economist for the Arizona De partment of Transportation and Is studying for an advanced degree In business administration at Arizona State University. governmental organizations. Pri vate enterprises must obtain their funds via the voluntary transactions of the marketplace. Consumers are not required to purchase, or pay for, goods and services they may not want. Such is not the case when the government is involved as a partici pant in the transaction.

Fairness in private finance is achieved by virtue of the fact that all transactions are voluntary. Any would-be participant serves as the sole arbiter of the fairness of any bargain he may choose to make. In the non-voluntary transactions in volving the government, the gov ernment serves as the arbiter of the fairness. The conformity of actual transactions with the great differ ences in perception regarding fair ness must, unavoidably, be worse when one must judge for all (as in 131 132 THE FREEMAN March government enterprise) than when each may judge for himself (as in private enterprise). In private enterprise the decision as to feasibility is rendered simply and swiftly. The marketplace is a strict disciplinarian in such practi cal matters. Unfeasible ideas never get off the ground, or quickly crash if they do. The marketplace per forms this function continuously. The private enterprise, relying upon investors and customers for its re sources, obtains a steady flow of in formation regarding the feasibility of its actual or intended plans.

Public enterprise does not have access to the same convenient feed back from the marketplace. Gov ernment produced goods and ser vices are not really marketed to con sumers. Often the purchase decision is involuntary, at least from the perspecti ve of the consumer. In stead, purchase behavior must be simulated, assumed, or arbitrarily determined by some government employee. Under such a handicap, it is ex tremely difficult for public enter prise to evaluate the feasibility of any plan. Isolated from the neces sary information to specifically identify those goods or services which can be feasibly supplied, gov ernment must rely upon more re mote indicators of viability. In place of product sales or company profits as measures of feasibility, the public financier must grapple with politi cal resistance to a proposed tax or analyze the more widespread economic impacts of the govern ment's coercive intervention into a particular sphere of business activ ity. The severance of the transaction in which the service is provided from that in which the revenue is col lected makes any such analysis that much harder.

Unfair Means The issue of fairness in public fi nance revolves around the answer to the question: Who should pay for whatever service is contemplated? Three separate approaches have been traditionally brought to bear upon this issue. First, it is often asserted that those who benefit from a government service ought to pay for its provision. Second, it may be argued that the burden of payment ought to be related directly to the costs incurred to serve a particular user of the service. Finally, some maintain that payment should be based upon the ability to pay. The first and second approaches generally lead to financing schemes based upon ~~users funds," such as the highway users fund. The at tempt is to draw revenues from those who use and benefit from the service rendered. The ability-to-pay approach abandons any attempt to link con sumption with payment. Instead, it 1979 THE CRISIS IN PUBLIC FINANCE: NO WAYS OR MEANS 133 is asserted that services ought to be dispersed on the basis of need, while receipts ought to be drawn from in dividuals according to their ability to pay. Since the major forms of revenue generation-income, sales, and· property taxes-employed by the government are already struc tured along ability-to-pay lines, re liance upon this approach suggests that government services be fi nanced out of a Hgeneral fund."

Each of these three approaches to public finance presents some prob lems. From a practical standpoint there is an immense difficulty in ascertaining just how much benefit is involved in anyone user's enjoy ment of public services. Private en terprise cannot serve as a model here because private firms do not concern themselves with attempts to estimate the benefits enjoyed by specific customers. If enough cus tomers perceive sufficient benefit in purchasing a firm's products or ser vices for the firm to meet its profit goals, then the product or service will continue to be provided. ((Enough" and Hsufficient," impre cise as they are, can be tolerated in nongovernmental enterprises be cause they are disciplined by exter nal market forces. On the other hand, such imprecision presents the government with horrendous prob lems because its goals are essen tially undisciplined by any outside market forces.

While there can be more precision in the determination of costs incur red to meet a general specification of services or products supplied, the allocation of these costs to individ ual users may prove troublesome. It is true, of course, that private enter prises are also faced with cost allo cation problems. These are, how ever, primarily bookkeeping prob lems since the price of the service or product is determined by the mar ketplace. Knowledge or estimates of price and volume allow a private firm to work backward to determine how much cost can be covered by anticipated revenues. Unfortunately, this process does not work in reverse. That is, knowl edge of production costs will not tell us at what price and in what volume the final product will sell. All too often, public agencies become en trapped in a cycle of ever-increasing deficits by trying to price the ser vices they provide on the basis of the costs incurred.

How Measure Demand? Ability to pay is easier to measure than either benefit or cost. It is evi denced in tangible property or in come and sales transactions. How ever, regardless of the ease of mea surement here, we are completely severed from any information that would indicate the demand for the services to be provided. .As bad as pricing schemes based 134 THE FREEMAN March upon estimated benefits or costs are, a system in which there is no price is much worse. Consequently, deter mining the amount of resources to be expended for whatever level of service is an entirely artificial pro cess. We can have no objective idea of what degree of effort is necessary. Instead, completely arbitrary deci sions must be made. Of course, there will be no way to tell whether these decisions will even come close to meeting genuine needs. The pros pects for a balance of supply and demand under these circumstances are rather remote.

Not only is the public enterprise isolated from information regarding price and quantity, but struggles with these problems may appear rel atively simple in comparison with the need to determine the product mix that should be offered. Typically, consumer needs, wants, and means are greatly diversified. The demand is for variety. Variety is what private enterprise must pro vide. The multiplicity of firms facili tates the fulfillment of these needs. The absence of the power to compel purchase forces private firms to cater to these needs. In contrast, the government has the power to compel payment for such services or products it may choose to provide. This is not to say that the government will necessar ily abuse this power by enforcing the consumption of frivolous or inappropriate services. However, it is inevi table that at least some people will be compelled to finance services which they deem frivolous or inap propriate.

A sincere desire to minimize the instances in which compulsory levies will be percei ved to be ex pended in an unjustified fashion usually results in a policy of stan dardized service geared to meet the minimum requirements. Some cri tics have characterized this as a pro cess of catering to the lowest com mon denominator. Deficient as such a process may be in terms of some notion of an uideal" resolution of varied needs and wants, it is, nonetheless, the best alternative, given the constraints under which the public agency must operate. Can Might Make Right? Our examination of the conditions pertinent to public finance would seem to indicate that there is no way in which fairness can be assured. To the contrary, any public funding scheme is bound to be unfair. The involuntary nature of all transac tions in which the government is a participant insures this. Whether one takes an approach based upon the ttusers" theory and attempts to equate taxes with some element of service rendered, or whether one adopts the redistribu tionist logic of ttability to pay," the fact remains, some individuals will 1979 THE CRISIS IN PUBLIC FINANCE: NO WAYS OR MEANS 135 be made· to pay for services they neither want nor even receive. Only governmental sovereignty prevents this modus operandi from being classified as criminal.

Fairness to the consumer is stymied in both key aspects of the product or service exchange. What ever approach is· used to determine price, he will have no option but to pay. Meanwhile, the quality and quantity in which the product or service is dished out will be decided by methods other than individual consumer choice. Since attainment of universal fairness is not possible, the next best course· open to the government is to minimize unfairness. This it has generally attempted to do in a num ber of ways. Almost without excep tion, the initial imposition of levies based upon ability to pay has started with low rates. Unfortunately, these have escalated to a point where the search for alternative revenue sources has become a widespread phenomenon at all levels of govern ment. The motivation behind the search for alternative revenue sources may stem from an uncertainty of convic tion as to the justice of the ttability_ to-pay" principle-that it must stop short of its logical conclusion to re duce everyone to an equality of wealth or income. Further taxes, it is felt, must be justified on some sort of ttservices rendered" basis. Despite the well-documented. problems with both the benefits received and costs incurred approaches to public fi nance, there· is a general consensus that reliance upon such methods is less unfair than any other option that includes continued government involvement in the provision of products or services.

Another motive inspiring the quest for new revenue sources is the belief that the supply of resources available under the ability-to-pay scheme may be tttapped-out." This tttapped-out" concept may relate to an estimate of the economic or the political infeasibility of heavier taxes for the general fund. The law of diminishing returns is a well established principle. It is inescapa ble that, at some point, continued hikes in the burdens imposed on those able to pay will produce lower revenues. It is also inevitable that as increasingly larger numbers of people are discovered to be capable of paying larger and larger amounts, the balance of political power is bound to shift. Political resistance to public financing de mands cannot help but increase, as the appetite for larger servings of public revenue can only be satisfied by placing more taxpayers on the menu. Infeasible Ways Since the payment of taxes is normally an involuntary activity, 136 THE FREEMAN March the pragmatic issue of public finance is essentially a question of ttwho can be made to pay" and tthow much he can be made to pay." This issue can be considered from two angles.

First, there are certain economic considerations. Who has how much? What is the cost of taking various amounts from him? What are the economic consequences of various levels of taxation? Second, there are several political considerations. What is the capacity of the targeted taxpayers to resist the government's taxes? Are the targets ignorant and powerless? Or are they well informed and power ful? The answer to these questions will determine the extent to which the identity of who will be taxed will have to be disguised. To date, the government has not made much progress in dealing with the economic implications of public financing activities. ttWho has how much?" has been given devoted at tention. The records of incomes, sales, and property are voluminous. The government effort in this area has been substantial. The cost of enforcing the taxes has been given some attention, but the effort has been inconsistent and marked by a measure of indifference. The economic consequences of various levels of taxation have been largely ignored. As a result, total public revenues are increasing, but not as fast as the costs of collecting them.

Meanwhile the impact of taxation on the economic health of the society is subject to a great deal of specu lation, most of it suspecting the worst. It has long been acknowledged that, at some point, the total burden of taxation would become ttexces sive." Objectively, this means that the next hike in the rate of the tax would actually produce lower public revenues. There has been no actual proof of what rate turns the tide. Therefore, a prudent course might restrict the government's taxation activities to the absolute minimum. Instead, government actions have continually increased taxes. Whether the government's toll of the productive output has reached or passed the point of diminishing re turns is a matter of serious concern. Recent public discussion of this problem and the fairly substantial argument over whether a cut in tax rates would increase government revenues, would seem to indicate, in an informal way, that we may be at or near a point of diminishing re turns. At the very least, it is estab lished that a substantial number of people are convinced that such a point has been passed.

The Burden of Taxes Every governmental ways and means proposal, then, is, of neces sity, confronted with the question of its additional impact on the total tax 1979 THE CRISIS IN PUBLIC FINANCE: NO WAYS OR MEANS 137 burden .. The fact that a particular tax proposal may be linked with a specific use for the funds generated does not insulate it from this total tax burden problem. Government imposed ((users fees" are not market exchanges. The further removed these fees are from market ex changes, the greater the impact on the total tax burden. The total burden, however, is not the only economic consequence of concern in public finance. The spe cific effects of each tax pose another problem. Tax rates or so-called users fees are not market prices. If the government's charge is less than the market price would have been, huge economic distortions may result. Demand for the underpriced product or service will be excessive. Demand for competing products will be sup pressed. Greater supplies of ingre dients to the underpriced item will be required. Each of these direct consequences will cause subsequent indirect consequences, creating a ripple effect of distortion throughout the economy. If the government's charge is more than the market price would have been, different, but equally serious, economic dis tortions would follow.

These distortions can lead to mis allocation of resources and ineffi ciency. In effect, government taxes pollute the price system. The role of prices as feedback to the productive entities in the economy is thereby subverted. Wrong signals are given. Shortages and surpluses result. Re sources are wasted. The rate of re turn on investment is reduced. Economic progress for all social groups is retarded. This list of evil consequences may seem rather drastic. After all, how much devastation can be wrought by a few erroneous price signals? The degree of integration and sophistica tion that accompanies the advanced specialization of our high technology economy insures that the effects of even relatively minor transactions will spread throughout the economic system. Add to this the sensitivity of the price system as a continuous measurement device of the diverse wants, needs, hopes, ambitions, fears, greed, and other motivations of hu manity, and you have a lever that can move the world.

Political Considerations In contrast to the lack of attention given to the economic consequences of various public financing schemes, the political considerations of taxa tion have been handled with both dispatch and imagination. The growing proportion of total produc tion being consumed by the govern ment is evidence of the effort de voted to solving the political prob lems. Corporate America has been conscripted as the chief tax collector for both income and sales taxes, while the banking industry has been 138 THE FREEMAN March drafted to playa major role in col lecting the property taxes on mortgaged real estate. The capacity for tax resistance has been minimized by skillful placement of the collection point. The bulk of personal income taxes are withheld. Purchase transactions cannot be completed without pay ment of the sales tax. Property taxes are normally included in monthly mortgage payments. In most juris dictions, seizure and sale of property for nonpayment of taxes is a simple and expeditious process.

While the historical record gives us every reason to assume that the government would be able to over come the political resistance to in creased taxation, there are several conflicting forces. On the one· hand, most of the easy sources of funding have already been exercised, perhaps to exhaustion. On the other hand, the knowledge and will to resist further burdens seems to be on the rise. The root of the public financing problem is that manmade law'can not abolish natural law. Enactment of government· taxes can affect the distribution of economic goods, but legislative fiat cannot create economic goods. Instead, taxation unavoidably lowers the return on productive activity. Disregarding any disincentive effect, the reduc tion in the return, when com pounded over time, must reduce the total pool of available resources be cause a substantial potential quan tity will never be created. Resources which are not created cannot be di verted to government use. Even the most advanced political skills can not alter this reality.

The Public Interest in Private Enterprise Our examination of the dilemma of public finance would seem to indi cate that in terms of equity, taxation is fundamentally unfair. The public enterprise is unable to determine what demand is, much less serve it. No bona fide exchange takes place. Individuals do not get what they pay for in any reasonable sense of the word. There is, in short, no defensi ble standard that is consistently employed in taxation other than convenience for the government. Even convenience is unsustaina ble in the long run. The defenseless and the subservient have already been taxed, probably close to their capacity to pay. The strain on the economy's limited resources· has· be come apparent. There is the very real possibility that any further at tempt to raise revenues by increas ing the tax rates will be counter productive. Public enterprise has always been less feasible than pri vate enterprise. The government must now face the prospect that this relative lack of feasibility is being replaced by an absolute infeasibil1979 THE CRISIS IN PUBLIC FINANCE: NO WAYS OR MEANS 139 ity, particularly with regard to the potential for additional revenue generation.

So, if public finance is both unfair and infeasible, what are the public policy implications? Expansion of the government's role must be ruled out. Replacement of public by private enterprise seems warranted. The specific means for achieving the privatization of public enter prise must follow in the wake of a more widely spread recognition that such a step would be beneficial. The future viability of our economic sys tem may well depend upon the speed with which such recognition takes place. , AnQther Anti-I n fliltiQn ~ireus Hans F. Sennholz EVERY u.s. President from the time of Franklin D. Roosevelt has been an ttinflation fighter." Some de nounced inflation as ttpublic enemy number one," others even declared war on inflation. And yet, since the first declara·· tion of war by FDR, the American dollar has lost 80 per cent of its purchasing power and is losing more Dr. Sennholz heads the Department of Economics at Grove City College and is a noted writer and lecturelJ' on monetary and economic affairs. This article i!1 reprinted by permission from Private PracticE~ magazine.

every day. Inflation is winning all the battles. For almost 50 years of the anti inflation war the U.S. government has pointed at several culpable par ties. American business, especially big business, has taken the brunt of the blame. One President even used four-letter words to describe the greed of businessmen who raise prices. Some have taken potshots at physicians, attorneys, and other pro fessionals, or pointed at labor unions. All presidents like to flail at speculators who hedge against the 140 THE FREEMAN March U.S. dollar by buying gold and har der currencies. And all have damned foreign governments for ruining the dollar. Recent proposals in the battle against inflation call for restric tions on the production and con sumption of energy and programs to spur U.S. exports, limit imports, sell additional amounts of gold, and en courage West Germany and Japan to buy more from the U.S.

If it were not for the ominous effects of inflation on our lives and our society, the anti-inflation war would be a proper subject for the circus. The clown pompously an nounces he will demonstrate his skill, but 10 and behold, always ac complishes the very opposite. The President formally announces another anti-inflation program, but 10 and behold, the inflation gets worse. The clown's method of fun is de liberate. He labors to violate a sim ple natural law. For instance, he seeks to defy the law of gravity by valiantly supporting an object that wants to fall down. He generates laughter, because young children know the futility of his efforts. For economists familiar with economic laws, the Presidential anti-inflation programs are equally hilarious because they aim to vio late inexorable economic laws. Like the Danish King Canute who or dered the rising tide to come no further, the President of the United States is commanding economic laws to yield.

For example, all governmental ef forts to restrict imports and promote exports tend to reduce the supply of available goods. Every freshman economist who is familiar with the law of supply and demand, knows that this policy must raise goods prices and thus depreciate the cur rency. The administration proposes a Congressional energy package to reduce the importation of foreign oil and gas ttin order to bolster the dol lar." But such a reduction will cause energy prices to rise and the U.S. dollar to depreciate. The world seems to know this, as it continues to dump U.S. dollars on the world money markets. Every time the President speaks of energy and his programs, the dollar falls to a new low. Like the Danish King Canute who ordered the rising tide to come no further, the Presi dent of the United States is commanding economic laws to yield. The U.S. government is selling gold to strengthen the dollar. It of fers foreign bankers and govern ments the opportunity to exchange dollars for gold, which strengthens the international role of gold and 1979 ANOTHER ANTI-INFLATION CIRCUS 141 weakens that of the dollar. The dol lar price of gold may temporarily fall one dollar or two, but the worldwide distribution of gold tends to bolster its importance.

The President lashes out at individuals-especially at foreign ers or those Americans who are not expected to vote for his re election-for causing the inflation through greed. He becomes a judge, and draws applause from those al ways ready to think evil of their fellowmen. An economist watching this is reminded of the scriptural question, ((Why beholdest thou the mote that is in thy brother's eye but considerest not the beam that is in thy own eye?" He may also re·· member the circus scene in which a clown turns on the water sprinkler, thoroughly soaking another clown, and then, with great indignation, assails him for being so wet. Economists frequently wonder about the mentality of politicians. Does the President really believe that God invested him or his admin istration with special powers? Does popular acclaim and high office mis lead him to believe in such powers? Or is he aware of his limitations, but merely acting the role of an omnipo tent leader because the people would like him to be omnipotent? Is the economic ignorance really his own or merely a reflection of the igno rance of the electorate? Does a legis lator actually believe that he and his colleagues, in Congress assem bled and by majority vote, can ne gate economic law? For that matter, did King Canute's entourage, which shouted the King's order in unison, really believe that the rising tide would come no further?

Does a legislator actually be lieve that he and his col leagues, in Congress assem bled and by majority vote, can negate economic law? Ours is an age of inflation because most people believe in the desirabil ity of more money and credit, which is the very essence of inflation. Motivated by this belief, they be stowed the monopolistic right to issue money on their government and urged it to be free and easy with the issue. Governments greatly enjoy the use of this power because it affords an important source of reve nue. Weak administrations, espe cially, readily yield to the tempta tion and create massive quantities of money in order to finance their spending programs. Billion dollar expenditures may generate millions of votes. Issuing new money inescapably produces undesirable effects. Prices rise as recipients of the new money buy more goods and services. Each unit of money depreciates as more units are emitted. People on fixed 142 THE FREEMAN incomes and savers see their pur chasing power reduced, so they com plain about the inflation. The government that is busily emitting massive quantities of new money rushes to the rescue: ((By order of the President, the Congress, the courts and the police, all prices stop!" The order is given to millions of individ uals exchanging goods and services in countless voluntary transactions.

As long as the order agrees with the value judgments of the trading parties, they will continue to ex change as before. But if the order should differ from their judgments, they will react. The seller who is ordered to exchange at a stop price that is lower than his own value judgment, ceases to exchange. In his judgment he would suffer a loss which he can avoid through inac tion. The physician whose fee is offi cially fixed below the rate that causes him to render his service, Inflation Produces Chaos will reduce his efforts. Thus, short ages inevitably result wherever government fixes prices below those people would set in free exchanges. At first, the U.S. government re sorts to inflation in order to cover its deficits. When rising prices sub sequeritly hurt millions of people and cause them to voice their frust rations, the very administration that indulges in the spending spree is quick to point its finger of blame at some innocent bystander. It may impose wage and price controls, which control people and cause their productive efforts to decline. Lower output in tum causes the value of goods and services to rise and that of money to fall.

The U.S. government alone is conducting the inflation and making it worse with Hanti-inflation pro grams." An administration that re ally disapproved of inflation would just stop inflating the currency. @ IDEAS ON UBERTY WHEN the government has the power of dipping into public funds for distribution to various groups under the welfare state theory of govern ment, the pressure put upon it· by the people cannot be resisted. Inevitably, it spends more than its income and not only taxes the people to the point of strangling business but creates enormous deficits in addition. Inflation then produces the chaos which makes necessary the suspension of free government and the institution of dictatorship. HOWARD E. KERSHNER W)rld inthB gIfI?Qfan rde~ Clarence B. Carson 27 The Cold War: ForeignAid THE UNITEDSTATES became the cen ter from which the idea that has the world in its grip, in its evolutionary socialist, gradualist, or democratic socialist formulations, was spread after World War II. The main device for spreading the collectivist prac tices associated with the idea was foreign aid. Foreign aid was ex tended by way of grants and loans from the United States government to governments of other lands around the world. It consisted In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the Impact on several malor countrlel5 and the spread of the Ideas and practices around the world.

mainly of military aid, commodities and other economic aid, and techni cal assistance. Those who devised, promoted, voted for, and carried out foreign aid activities for the United States did not avow the aim of spreading socialism. On the contrary, it was promoted primarily as a means of containing communism and secon darily as a means of establishing stability and peace by promoting se curity and prosperity. Moreover, there was much talk of advancing and supporting individual liberty and free enterprise around the world. For example, the ttBenton amendment" to the Mutual Security 143 144 THE FREEMAN March Act of 1951 contained these admoni tions: It is hereby declared to be the policy of the Congress that this Act shall be ad ministered in such a way as (1) to elimi nate the barriers to, and provide the incentives for, a steadily increased par ticipation of free private enterprise in developing the resources of foreign coun tries consistent with the policies of this Act, (2) to the extent that it is feasible and does not interfere with the achieve ment of the purposes set forth in this Act, to discourage cartel and monopolistic business practices prevailing in certain countries receiving aid under this Act which result in restricting production and increasing prices, and to encourage where suitable competition and produc tivity .... 1 While this was less than a clarion call for free enterprise, it did state that as a part of the aim,. That the aim was to defend and establish freedom was stated often and in a variety of ways. Secretary of State George C. Marshall, who articulated the Marshall Plan of foreign aid for Europe, declared before the Senate Committee on Foreign Relations that its high purpose was ((the estab lishment of enduring peace and the maintenance of true freedom for the individual."2 The Economic Cooper ation Act of 1948, which was passed by Congress to put the Marshall Plan in effect, included these asser tions of purpose: ... The restoration or maintenance in European countries of principles of individual liberty, free institutions, and genuine independence rests largely up on the establishment of sound econom ic conditions, stable international eco nomic relationships, and the achieve ment by the countries of Europe of a healthy economy independent of extraordinary outside assistance. The accomplishment of these objectives calls for a plan of European recovery ... based upon a strong production effort, the ex pansion of foreign trade, the creation and maintenance of internal financial stabil ity, and the development of economic cooperation, including all steps possible to establish and maintain equitable rates of exchange and to bring about the progressive elimination of trade bar riers. 3 At their inception, and for several years thereafter, these programs had widespread bipartisan support in the United States. One historian suggests that this was achieved by the appeal to a broad spectrum of ideas and beliefs: The relative ease with which Truman got the substance of this European Re covery Program (E.R.P.) through an economy-minded Republican Congress can be easily explained. The administra tion had done unusually careful and thorough spadework. Sensing the con servative temper of the country, it made business leaders partners in the venture.

The success of E.R.P. in Congress was assured when the three most powerful national pressure groups were persuaded that their constituents, as well as the United States, stood to gain from the proposal. The business group (repre1979 THE COLD WAR: FOREIGN AID 145 sented by the National Association of Manufacturers) hesitated to bolster the socialist economies among the sixteen nations. The N.A.M. realized, however, that European recovery would foster American foreign trade and might possi bly uproot the seed beds of Communism in France and Italy. Moreover, Truman's liaison officers promised that E.R.P. would be run accorc;lingto ((sound busi ness principles," and that it would help counteract the trend toward socialism . . . . E.R.P. was headed by the president of the Studebaker Corporation, Paul G. Hoffman, who pleased the industrial bigwigs by advertising abroad the merits of the American system of free enter prise.

The all-important agricultural associ ations were also enthused by the pros pect of increased foreign outlets for farm products, as were the A.F.L. and C.I.O.... The support of the country's most in fluentiallobbies was secured before Con gress began its debates. 4 Biased toward Collectivism Whatever the aims and intents of those who supported these pro grams, however, the thrust of them was collectivist. The desire to fore stall the spread of communism was probably quite sincere, so far as it went. The desire to contribute to European recovery and, more broadly, to the stabilization of coun tries in various parts of the world may have been equally sincere. There is evidence, too, that some of the initial animus, at least, of American involvement was directed toward the freeing of trade and en terprise. The best examples of this were in West Germany and in Japan where Americans were most deeply involved. The shadow of Woodrow Wilson still hung over America at the end of World War II, a shadow cast by Wilson's peculiar combina tion of nineteenth century liberalism, with its emphasis upon free trade and open markets, with twentieth century liberalism, with its collectivist bias.

But a fuller explanation of a collectivist thrust behind a facade of promoting individual liberty and free enterprise requires that we call to mind how gradualism works. Gradualism proceeds by advancing programs which have their meaning within socialism but are advanced only to deal with particular exigent situations. In England, this ap proach is known as Fabianism. The gradualist, too, utilizes, so far as possible, familiar ideas and works within the framework of established institutions, even when he aims at their eventual overturn. Gradual ism proceeds by altering the con tent of ideas and the character of institutions. The collectivist prem ises are often kept out of sight but are made to inform such acceptable ideas as international cooperation, mutual security, and multilateral agreements. Familiar terms are subtly informed by collectivist premises.

146 THE FREEMAN March A Confusing Reciprocity How this works may be made clearer by examples. New Dealers worked to lower tariffs in the 1930s by what were called Hreciprocal trade agreements." The lowering of tariffs had been correctly identified with the movement toward free trade. But reciprocity brought a new ingredient to the undertaking, and one which, on closer examination, is quite confusing. HReciprocal" im plies that a quid pro quo has been given. But in a reciprocal trade agreement who gives the ~~quid," and who gets the ~~quo"? It is not at all clear when looked at as a matter of economy. The problem arises because neither nation benefits from a pro tective tariff. Revenue aside, the peoples of both countries are harmed. So far as the protective tariff succeeds in its object, they are denied goods they might have had at more favorable prices than they can obtain. It is even questionable whether in the long run those inter ests that are supposed to benefit from the protection, industrial workers, for example, even benefit.

But whether they do or not, it has been demonstrated conclusively, and many times, that the general populace of a country does not gain from the protective tariff. That being the case, and assuming that government is supposed to be the agent of the populace, no reciprocal agreement to lower tariffs is neces sary, and none is possible in a mean ingful sense. In short, the people of the country in which the tariff is lowered are the most direct benefi ciaries of the action. It is in their interest for the tariff to be lowered, whether the tariff of any other coun try is lowered or not. In a similar fashion, it is in the interest of other countries to lower their tariffs. Justified by Socialist Theory Reciprocal trade agreements do not make sense within the theory and framework of a free market. They are a collectivist device. Socialist theory justifies them, and they are in accord with the idea that has the world in its grip. We can understand both reciprocal trade agreements and foreign aid within the framework of that idea. At the heart of the idea is the notion of getting rid of the pursuit of self interest. According to mercantile in terventionist theory, the protective tariff benefited the country which imposed it by helping to establish a favorable balance of trade. There fore, according to this theory, the na tional interest was advanced by the protective tariff. By a reciprocal trade agreement, then, two or more nations would mutually agree to· sacrifice their national interests for their common welfare and bene fit. It was equally important, too, that governments act in concert 1979 THE COLD WAR: FOREIGN AID 147 with one another in the movement toward collectivism.

Socialism provided the framework for the foreign aid idea. By foreign aid, a nation sacrifices its interest for the common welfare of all the nations involved. Although there is an egalitarian animus behind foreign aid, it is quite possible that the most important push was to get nations to act in concert for their supposed common good. Socialism is nationalistic. Virtu ally every species of socialism is national socialism. The late Ludwig von Mises explained the reason for it in this way: Interventionism aims at state control of market conditions. As the sovereignty of the national state is limited to the territory subject to its supremacy and has no jurisdiction outside its bound aries, it considers all kinds of interna tional economic relations as serious ob stacles to its policy. The ultimate goal of its foreign trade policy is economic self sufficiency. . . . The striving after economic self sufficiency is even more violent in the case of socialist governments. In a socialist community production for domestic consumption is no longer di rected by the tastes and wishes of the consumers. The central board of produc tion management provides for the domestic consumer according to its own ideas of what serves him best .... But it is different with production for export. . . .

The socialist government is sovereign in purveying to the domestic consumers, but in its foreign-trade relations it encounters the sovereignty of the foreign consumer. On foreign markets it has to compete with other producers .... 5 In short, in order to control the domestic economy, and have it sub ject to no outside influences, socialism tends to try to have a self contained economy. Destroying the Market The market is anathema to socialism or to the idea that has the world in its grip. Socialists inveigh against capitalism and capitalists. But they are not the true enemy. Capitalists can be, and regularly are, bought; they can be controlled, manipulated, even used as instru ments of government. They are paper tigers, easy to abuse in slo gans but hardly formidable oppo nents of socialism generally. The free market is another mat ter. It epitomizes what must be crushed if the idea is to triumph. In the free market, the pursuit of self interest reigns supreme. There, the sellers display their wares as attrac tively as possible, hoping to get the best price possible for them. There buyers are dominated by one thought: to get the best merchandise for the lowest price. The market must be abolished. Or, it must be altered so drastically that self interest no longer holds sway.

The massive revolutionary thrust in this century has been aimed at somehow abolishing or decisively al148 THE FREEMAN March tering the character of the market. Entailed in this effort is the deter mined and tenacious attempt to transform man and society, for men make markets, and the market is a salient feature of society. In theory, nothing should be easier than to abolish the market. All that is necessary is to abolish all private property. Then, since men will lack all means with which to trade, all trade will cease, all legal trade anyway. Any government that would go so far, however, would al most certainly be committing sui cide. By abolishing private property and the market, it would not only remove the positive means that in duce r.nen to produce but a goodly portion of the negative, i.e., fear of punishr.nent, ones as well. The most comr.non and widely used means by which governments punish r.nalefac tors in our day is imprisonment. But ir.nprisonr.nent would involve no sig nificant change in status for a peo ple who could have no private prop erty or engage in trade.

As If in Prison The parallel between the socialist premises and imprisonment is strik ing. The main ir.npact of imprison ment is felt in the virtual abolition of private property and the drastic restriction of the market. The aim of imprisonment is presumably to punish by detention. But the effect would be the same if the aim were to abolish the market. It is true that socialism has never threatened to cut off all nonpecuniary exchanges, but to the extent that it limits the market, it reduces the opportunity for these as well. Even tot ali tarian socialist re gir.neshave stopped short of abolish ing all private property in their as sault on the market, however. In deed, it is probably beyond the power of government to extinguish all private property. Property is an tecedent to government, having a factual basis in production and possession. The nearest thing we know to the abolition of private property occurred in the Nazi con centration car.nps and the Soviet labor car.nps, but even there men clung to the residues of possessions as property.

Be that as it may, socialists-that is, all those under the sway of the idea that has the world in its grip everywhere carryon a virtually un remitting effort to limit, restrain, and control the market. Every effort to do so, however, tends to isolate each socialist state from every other nation. Efforts to control the money supply hamper foreign exchange. Ef forts to control wages, usually to raise them, make trade with other nations difficult. In short, socialist experiments tend to cut nations off from one another and to pit them against one another. This was dra matically demonstrated by the Iron 1979 THE COLD WAR: FOREIGN AID 149 Curtain around the Soviet Union and the Bamboo Curtain around China. The isolation of gradualist nations is not so dramatic, but the tendency is at work there as well. Barriers to Trade The problem can be phrased this way: How can a nation's economy be managed when the economy is sub ject to the world market? The an swer, of course, is that it cannot be.

In their efforts to manage economies between World War I and World War II, nations almost everywhere erected barriers against world trade. This national socialism followed its logical course most fully in Nazi Germany and Fascist Italy. It fol lowed an equally logical course as imperial socialism in the Soviet Union, although there it did not reach fruition until 1948, when all of eastern Europe had fallen under Soviet domination. To the extent that a country is cut off from the world market it loses the advantages of international di vision of labor and specialization. It is cut off from many of the best sources of materials and better markets for its products. The most logical course then becomes· to ex pand the area over which it has control. Indeed, the logic is world conquest. After World War II national socialism was in disrepute. That does not mean that it has not been practiced-Red China being the most horrendous example-but that it was not avowed as a purpose. Two varieties of international socialism emerged as dominant. One of these is international communism which, after the war, was centered in Mos cow. The other, unnamed but nonetheless present as impetus, is international democratic socialism or gradualism. Its center was in Washington. The contest between them was the Cold War.

The Soviet Union sought to re move its isolation by expanding the communist system. (It could be ar gued that this represented no change in Soviet policy, since it had been trying to do so since 1918. Perhaps, though, there was a shift toward the emphasis of fostering communism instead of simply ex tending Soviet power.) The Role Played by the U.S. The precise role of the United States in these developments needs a little further explanation before it becomes clear. Neither the United States nor other nations were op posed to foreign trade as such. The opposition of socialists is to the market, not to trade. To put it another way, if trade could be con ducted as a part of the managed economy, could be collectivized, and carried on so as advance democratic socialism it would be entirely accept able. In short, if trade could come 150 THE FREEMAN March under the auspices of government instead of being carried on between peoples in the market it would lose its onerous character.

It is quite possible that no one conceived the matter in just this way, and it is certain that those who advanced the American programs did not publicly state the case for them in this fashion. In any case, socialists have not been inclined to acknowledge that barriers to trade arise from socialist practice, if they were aware of it. (Quite often, they don't even admit they are socialists, especially in the United States.) So far as Nazi Germany and Fascist Italy were concerned, those were Uright wing" movements, according to other socialists. Of course, it is no secret that countries following col lectivist practices have difficulties in foreign trade. But they are not ascribed to socialism. They are as cribed to dollar shortages (American printing presses have finally eased or removed that oneD, to trade im balances, to the devastation of wars, to cold winters, to droughts, to in dustrial backwardness or underde velopment, to colonial exploita tion, or to a hundred and one other conditions.

Even so, the problem was there, and it was real, whether it could be openly faced or not. Namely, how could socialism be an international movement? How could nations open up to one another in mutual benefit rather than each be cut off from the other in isolation and mutual an tagonism? How could Soviet socialism be undercut, contained, and perhaps tamed by gradualist socialism? Although there is no rea son to suppose that American intel lectuals were wrestling with these problems formulated in this way just after World War II, they were wrestling with problems stemming from them. The Marshall Plan An American plan for dealing with these problems began to emerge in 1947. There had been an earlier American plan-the United Nations-but it was thwarted by Soviet obduracy plus a lack of de termination from other nations. It was first expressed in the Truman Doctrine in connection with aid to Greece and Turkey. President Tru man said, in part: The seeds of totalitarian regimes are nurtured by misery and want. They spread and grow in the evil soil of pov erty and strife. They reach their full growth when the hope of people for a better life has died. We must keep that hope alive.

The free peoples of the world look to us for support in maintaining their free doms. If we falter in our leadership, we may endanger the peace of the world and we shall surely endanger the welfare of our own nation. 6 It was, however, Secretary of State George C. Marshall who gave 1979 THE COLD WAR: FOREIGN AID 151 much more definitive form to the plan. In a speech at Harvard Uni versity, delivered on June 5, 1947, he set forth some ideas which were quickly dubbed ((The Marshall Plan," and became the foundations of an American plan. Two key points emerge from the address. The first is his statement of the purpose: ttOur policy is directed not against any country or doctrine but against hunger, poverty, desperation, and chaos. Its purpose should be the re vival of a working economy in the world .... "7 The other was the method. Secretary Marshall took care to emphasize that the initiative in devising the particulars of the plan must come from European na tions. (It would be neither fitting nor efficacious," he said, Hfor this Government to undertake to draw up unilaterally a program designed to place Europe on its feet economi cally. This is the business of the Euro peans. The initiative, I think, must come from Europe. The role of this country should consist of friendly aid in the drafting of a European program and of later support of such a program so far as it may be practi cal for us to do so. The program should be a joint one, agreed to by a number, if not all, European na tions."8 If Marshall's program was anti communist, it was surreptitiously so. Communist countries were in vited to the initial conference, and one accepted. The Soviet Union in tervened, and none of the countries in the Soviet orbit participated.

When the Marshall Plan was put into effect heavy emphasis was placed upon the· (1oint effort" and ((economiccooperation." Truman de scribed the plan this way: HThiswas our proposal, that the countries of Europe agree on a cooperative plan in order to utilize the full productive resources of the continent, sup ported by whatever material assis tance we could render to make the plan successful."9 The participating countries made a formal pledge Hto organize together the means by which common resources can be de veloped in partnership .... "10 The thrust of the programs as activated was to promote economic union of European countries."ll The main outcome was the Common Market. Massive Redistribution The Marshall Plan was a major breakthrough for gradualist socialism. Theretofore, the interven tionist measures associated with gradualism had tended to raise bar riers between nations. The Marshall Plan attempted to lower the barriers within a region of the world while promoting collectivism on a broader scale. The Marshall Plan was socialistic, in the first place, because it entailed American aid to Euro pean countries. Tens of billions of the wealth of Americans was trans152 THE FREEMAN March ferred to Europe, a clear cut case of redistribution of wealth. More, the program promoted collective action by several participating countries.

Moreover, it enabled countries to continue their domestic socialist programs by negotiating arrange ments with other countries that would leave them undisturbed. The question of whether or not the United States should promote free enterprise by the European Recov ery Program was resolved in this way by a committee: Aid from this country should not be conditioned on the methods used to reach these goals, so long as they are consis tent with basic democratic principles .... While this committee firmly believes that the American system of free enter prise is the best method of obtaining high productivity, it does not believe that any foreign-aid program should be used as a means of requiring other coun tries to adopt it. 12 It would have been surprising if the committee had determined other wise, since the United States was extending aid to the Labour gov ernment in England which was bus ily nationalizing industries before the Marshall Plan got underway.

Extending the Vision Despite its extensive scope, the Marshall Plan was a limited pro gram, limited to Europe and to a few years to help these countries recover from the ravages of war. However, President Truman was not long in extending a vision of American help to the whole world. Following his re-election in 1948 he announced what he called the Point Four Pro gram. He explained the program this way: Point Four was aimed at enabling mil lions of people in underdeveloped areas to raise themselves from the level of colonialism to self-support and ultimate prosperity. All of the reports which I had received from such areas of the world indicated that a great many people were still living in an age almost a thousand years behind the times. In many places this was the result of long exploitation for the benefit of foreign countries. . . . This was the curse of colonialism. . . . In this country we had both the capital and the technical uknow-how". I did not see how we could follow any other course but to put these two great assets to work in the underdeveloped areas in order to help them elevate their own standards of living and thus move in the direction of worldwide prosperity and peace .... 13 The following are examples, cited by Truman, of programs undertaken under the auspices of Point Four: A monetary, fiscal, and banking sys tem was introduced in Saudi Arabia.

Schools of medicine, public health, and nursing were set up in several countries. A 75,000-acre irrigation project in the Artibonite Valley of Haiti got under way. A great multi-purpose hydroelec tric plant was constructed in the Mexi can state of Michoacan. Irrigation proj ects in Jordan were started to create 120,000 acres of arable land providing 1979 THE COLD WAR: FOREIGN AID 153 homes and six-and-a-quarter-acre tracts for 21,000 families consisting of 105,000 individuals. 14 Economic and Military Aid Very soon after its inception, in deed, in some places from the begin ning, foreign aid was of two kinds: economic aid and military aid. The whole became a vast effort to arm and assist in feeding peoples around the world. Within a decade after World War II, American influence was extended to virtually the whole of the noncommunist world. A polit ical scientist imaginatively de scribed the American ((presence"

this way: The extent and depth of American commitments in the postwar world were staggering. In the decade after the war Americans took the lead in the United Nations and American soil became the site of the world's Ucapital." Americans ruled alien peoples in Germany, Austria" Italy, Trieste, Japan, and Korea; and. American generals, like Roman generals of old, became world famous as procon·, suls. Peacetime ((entangling alliances" were made with Europeans, with Asi·, atics, and with countries as far away as Australia and New Zealand. American spheres of influence arose in Greece" Turkey, and Saudi Arabia, and extended in circular half-moon fashion through the Japanese islands, the Ryukus, For·· mosa, the Philippines, the Carolines, and the Marshalls. The internal politics not only. of Latin American countries but also of European, Mrican, and Asiati<: countries turned on American policy.

The following are net figures for foreign aid from the United States for the years 1945-1965. The total for economic and military aid was slightly over 100 billion dollars. Economic aid to western Europe amounted to $23.8 billion; military aid to $16.2 billion. To the Near East and south Asia, $15.4 billion in economic aid; $6 billion in military aid. To the Far East and Pacific, $14.5 billion in economic aid; $12 billion in military aid. In the West ern Hemisphere, $5.6 billion in economic aid; $1 billion in military aid. 15 "Democracy" as a Code Word Our concern here is primarily with how this expansion of wealth and influence contributed to the spread of gradualism. The ostensible purpose of the aid was to spread and buttress democracy and build the sort of regimes that would resist communism. ((Democracy," as ear lier noted, was a code word for dem ocratic socialism, at least as used by many intellectuals. In practice, this meant that where American aid went the prevalent American no tions of the role of government went also. Here is an example of the de velopment of an argument for this in an Economic Cooperation Adminis tration report to Congress: No modern self-governing state-and especially no state with a democratic form of government-can maintain itself 154 THE FREEMAN March and develop its potential unless it per fonns a minimum of public services in the fields of health, agriculture, educa tion, transport, power and communica tions, industry and overall planning. The countries of southeast Asia ... are acutely deficient in these public services.

... The initial step in any program ... must therefore be the organization and maintenance of adequate, self-sustain ing public services. 16 Another report was even blunter, declaring that we must assist in the Hcreation of social and economic conditions and institutions under which the people feel that their basic needs and aspirations are being satisfied by their own free and independent governments."17 In short, the foreign aid programs aimed to strengthen governments by helping them to provide for the needs of their citizens. BUilding a Base for Socialism In the broadest sense, what ani mated the foreign aid programs can be described as follows. The most basic appeal of socialism is the prom ise of redistributing the wealth. However, industrially undeveloped countries had very little wealth either to distribute or redistribute. (The same had been true, to a much lesser extent, of war-ravaged coun tries.) Nor· did they have modern weaponry with which to consolidate their own power over the populace or to defend themselves from foreign invaders. The United States inter vened by providing wealth, or a modicum of it, for governments in these countries to distribute, and weaponry to build up military estab lishments.

The aim was not to make these countries permanently dependent on largess from the United States. Direct aid in goods and materials was supposed to be a stopgap mea sure. The aim was to develop these countries so that they would no longer require such aid. This was affirmed over and over again in pub lic statements, and there is little reason to doubt the sincerity of such intentions. One may surmise that if a country could learn the techniques and develop industries they could then engage in their own redistribu tion programs. But if each country in the world became self-sufficient, the world would presumably be caught up in the inner con tradictions of socialism, namely, each country iso lated from every other. There is, of course, no danger that countries will become self-sufficient. The tacit premise of socialism is that all the goods will be more or less equally available to all the peoples of the world. That is hardly a project that could be accomplished once and. for all, if it could ever even be momen tarily accomplished. Droughts, floods, hurricanes, tornadoes, dis coveries of rich mineral deposits, in1979 THE COLD WAR: FOREIGN AID 155 A Mistaken Idea THERE could hardly be a more perverse and mistaken idea than the idea that you can fight commiunism with socialism. So-called "gradual" socialism is at best a halfway step toward communism.

The economic ideals of socialism and communism are identical. Both believe in government ownership and operation of the means of production. Once this ownership and operation become sufficiently extensive, the government has economic life-and-death powers over the individual. It can say where he must take his job, what job he must take, or whether he can take a job at all. And once the government has this power, the liberty of the individual has in fact, if not in form, disappeared. As Alexander Hamilton pointed out in the Federalist Papers a century and a half ago, "a power over a man's subsistence amounts to a power over his will." ... Under capitalism, in addition to the possibility of going into business for oneself, there are in the United States several million employers competing against each other for labor. Their competi tion not only raises the wages but protects the liberties of the worker.

His situation becomes incomparably worse when he must bow to the will and terms of a single employer, the State. The history of the spread of socialism is in fact a history of the disappearance of peace, representative institutions, limited government, and personal liberty. HENRY HAZLlTT, Will Dollars Save the World? (1947) ventions, and what have you, would be continually unbalancing the divi·· sion. A Brotherhood of Nations The foggy dream which impels gradualists is not of some final reso·· lution in which socialism will havE~ been achieved but of an endurin~~ effort to shift the world goods where they are wanted. They will have thE~ mechanism for the activity when some international body has been empowered to take from the haves and provide for the have-nots everywhere in the world. Pending that, the task is for wealthy and ((enlightened" nations to provide for those who have less. A kind of brotherhood of all nations is sup posed to emerge from all this, na tions which no longer advance the self-interest of their own people but are exclusively concerned with the wellbeing of all mankind.

In the real world that did not come 156 THE FREEMAN to pass. As soon as the Arabs had the technology for producing oil within their bounds they took it over and jacked up the price of oil. They uti lized their regional association to form a giant oil cartel. Military aid has all too often turned into military rule within countries. American aid was often a handy device for keeping a particular party in power. But, above all, the amount of foreign aid never kept up with the dreams and expectations of the people to whom it was extended. Underdeveloped countries remained underdeveloped countries for the most part, their foreign aid spent for showy demon stration. True, the foreign aid pro grams spread the virus of socialism. They helped to fasten on most of the peoples of the world the notion that they should look to their govern ments to take care of them. But it was never enough-it could not be-to produce what it promised.

In consequence, by the 1960s many countries were leaving the American orbit. For the most part, they were not going into the Soviet orbit, not headlong anyway. They declared themselves unwilling to be participants in the Cold War, and many of them were clearly not sold on the superiority of gradualism. That was for Western nations who had already developed their technology. They would have to find another way. It is time now to dis cuss the development of this Third World. Next: 28: The Cold War: The Third World. -FOOTNOTESIHarry B. Price, The Marshall Plan and Its Meaning (Ithaca, N.Y.: Cornell University Press, 1955), p. 172. 2Robin W. Winks, ed., The Marshall Plan and the American Economy (New York: Henry Holt and Co., 1960), p. 15. 3Ibid., p. 25. 4Selig Adler, The Isolationist Impulse (New York: The Free Press, 1957), p. 365. 5Ludwig von Mises, Omnipotent Government (New Rochelle, N.Y.: Arlington House, 1969), pp.72-73.

8Hugh Ross, ed., The Cold War: Contain ment and Its Critics (Chicago: Rand McNally, 1963), p. 7. 7Winks, op. cit., p. 14. 8Ibid. 9Harry S. Truman, Memoirs, II, Years of Trial and Hope (Garden City, N.Y.: Double day, 1956), 114. l°Price, op. cit., p. 39. uSee ibid., pp. 121-22. 12Ibid., p. 44. 13Truman, op. cit., p. 232. 14Ibid., p. 237. 15Donald B. Cole, Handbook of American History (New York: Harcourt, Brace, & World, 1968), p. 287. 18Price, op. cit., p. 205. 17Ibid., pp. 205-06.

w. A. Paton Egalite? Sheer Illusion! THE VIEW that equality is a goal. which the human race should strive to reach is widely accepted and sup_· ported, in one form or another, al-· though this hazy concept has always been found wanting when subjected to careful scrutiny. Perhaps a few comments on the limitations of the egalitarian dream, in some of its current manifestations, are not in·· appropriate at this time. To begin with I'll take note, briefly, of two fundamental obsta cles to achieving complete equality among individuals or groups, large or small. One is the impossibility of W. A. Paton is Professor Emeritus of Accounting and Economics, University of Michigan. He is author (or co-author) of a score of books and many articles, largely in the field of accounting. Since his retire ment at Michigan, he has continued his writing and lecturing activities and has done part-time teaching at a dozen colleges and universities, in ten states.

providing each of the several bil lions of our present population with precisely the same endowment of the natural resources of benefit to man. Mother Earth's bounties are not uniformly distributed over the habitable surface of the globe, and there is literally no practical way by which each of us can be equally endowed with sunshine, rainfall, fertility, timber, mineral resources, and so on. Substantial mitigation of the impact of these differences would be possible in a condition of permanent peace plus expansion of international trade, but to date the human race has failed to move deci sively in this direction. Even more inherent and insur mountable is the variation plainly in evidence in the native qualities of individuals and groups. Diversity is 157 158 THE FREEMAN March a commonplace in nature and we humans are not exempt. Aside from sex, individuals vary in height, weight, eye color, and a host of other physiological characteristics. And each of us arrives on the scene with a separate package of traits, tenden cies, and intrinsic talents. Even among individuals with the same parents important variations in physical and mental qualities are not at all unusual.

What our progenitors were like millions of years back is somewhat conjectural, but we do know that today homo sapiens, ((the only sur viving species of the genus Homo", is not made up of a mass of homo geneous units. Ignoring Hereditary Influences I want to pursue a bit further this matter of variation in native ap titudes and abilities. There seems to be a cult today of wishful thinkers who are pushing the fanciful notion that each of us is born with precisely the same potential, that we all start abreast, and that what happens from then on is entirely the result of environment, including how we are treated by our fellow men. This idea is manifestly absurd, even if we rule out those who start life with major congenital mental or physical hand icaps. True, the life course of the individual is often greatly influ enced by environmental circum stances, but this doesn't mean that heredi tary factors are generally of no consequence in shaping our careers.

And what an unimaginably drab world this would be if all individuals were identical in every particular and committed to identical life ex periences! We can be thankful that this is not the case and not even a remote possibility. Perhaps the con cept of a race in which all members are supermen is not beyond the realm of imagination, but who would want to find himself in such a situation! I might also note here that our complex modern economy, with its intricate network of facilities bringing a marvelous array of products to the ultimate con sumer, includes a great range of functions and tasks. We can't all be top executives; somebody must work on the assembly line. Minimizing Economic Disparity Right here the equality fan might well interpose a question: Even if we concede that it is not feasible for all individuals to be endowed with pre cisely the same cross section of climatic conditions and natural re sources, and that people will con tinue to vary in their physical and mental equipment, isn't it desirable to foster programs designed to minimize differences in standard of living and economic power gener ally?

This is an interesting question 1979 EGALITE?-SHEER ILLUSION! 159 and deserves attention. To provide a partial answer let's reword the question more concretely: Are cur rent reform and welfare movements and projects-consumer protection legislation, taxation that favors the people with low incomes, subsidized housing for the poor, special assis tance to the elderly and those with mental and physical handicaps, and so on-desirable and deserving of support? I believe a negative answer is justified. There are two ways, as I see it, by which to reduce the disparities in personal incomes, in the amount of economic goods and services at the command of the individual. One is to harass and block the efforts of the hustlers, the go-getters, the front runners, the innovators, until their pace is slowed to that of the less able, the less qualified and talented, the incompetent, the shiftless, the handicapped. The other is to provide an economic and governmental milieu that encourages, stimulates, the more capable and productive in dividuals, that provides incentives for those among us with the most potential to do their best. Such a society, I submit, is actually the best way, indeed the only way, to reduce the inequalities so galling to our egalitarian friends. In such a society technology advances, output ex pands, and per capita income rises.

The laggards are not damaged. In stead they are given the opportunity to improve their own performances as they are carried along on the fast-moving coat-tails of the inher ently superior. It should hardly be necessary to add that in referring to the able, the talented, the productive, I am not including the destructive, or those who gain by preying on their fel lows. * * * The socialist road we are now marching on is not the route to in creased total productivity and in creased per capita standard of liv ing, and if we believe that these are desirable goals we should alter our course, and not dillydally in doing it.* The relatively free, competitive market, not a bewildering array of government agencies, operated by fumbling politicians and bureau crats, remains the only proven road to widespread economic prosperity. , *There is room for argument as to the basic effects on the human being of an increasing standard of living. Perhaps the real danger to the people of the United States right now is the impact of an· amazing upward surge of living standards in the last century on our vigor, our character, our will to accomplish and survive in a dangerous world. See my piece, ~~Can We Sustain Prosperity?" in the January, 1972 issue of The Freeman.

David Kelley eib ~"e '0&$ 0' ••••••Economic ••••••••Planning •••••0000 •••••0000000 LIBERALS and socialists share a vis ion of a planned economy. It is a vision of order, extending to economic matters the rational foresight that is the glory of our nature: weighing and ranking our needs by intelligent deliberation, al locating resources with scientific ef ficiency to satisfy those needs. The concept of economic planning wears a public face of dedication to reason. Behind the face, however, lies a deepseated philosophical hostility toward reason. The concept originated with the socialists of the nineteenth century, principally Karl Marx. Marx com plained that while man had achieved control over the forces of nature, and bent them to his ends, he was still the pawn of economic Dr. Kelley Is Assistant Professor In the Department of Philosophy at Vassar College. 160 forces. The movements of supply and demand determine prices, wages, profits; they determine the invest ment of capital and the allocation of resources; yet they operate outside anyone's control. No attempt is made, in a capitalist system, to di rect these forces to our ends. To allow this, he said, is to abandon the methods we use in controlling nature-it is to abandon reason.

Since these forces arise from vol untary exchanges between individ uals, each acting as an independent agent, Marx wanted to eliminate that system. There would be instead only one economic agent: the state, and it would act by consciously de ciding the allocation of resources: that is,· by economic planning.! As his collaborator Engels put it: ttIn making itself the master of all the means of production to use them in THE BASES OF ECONOMIC PLANNING 161 accordance with a social plan, so ciety puts an end to the former sub jection of men to their own means of production [Le., to the market place]."2 A Centuryof Communism In the hundred years since Marx and Engels wrote, society has ((made itself the master of all the means of production"-in the Communist countries. The results have been disastrous. The Soviet Union has the most fertile agricultural re sources in the world, yet it can barely feed its own people-and then only because as much as a third of its food comes from the tiny pri vate sector the government allows.

Communist East Germany con tinues to stagnate while its better half in the West, after rejecting economic planning, rose to an un precedented prosperity. In Europe, the most troubled economies-England, France, Italy-are the most heavily planned. In this country economic planning became a cause during the Depres sion, and its presiding spirit was the philosopher John Dewey. Dewey re jected the principle of individual rights that had previously stood in the way of government planning. Indeed, as a pragmatist, he rejected all fixed principles, claiming that we cannot judge a social policy until it is tried. Under this banner, New Deal pragmatists tried planning in various sectors of the economy, with results parallel to those in the to tally planned economies. The airline industry, for example, began as a deliberately planned venture in the 1930s, and remained so for forty years; when it was de controlled recently, prices fell im mediately while profits rose. At the same time, the government began using the power of its own budget to manipulate the money supply, hop ing thereby to regulate levels of in flation, unemployment, and invest ment. The result today is accelerat ing inflation-with the dollar now worth half what it was ten years ago-combined with high un employment and falling rates of in vestment.

Why Planning Fails It is not difficult to understand why planning fails. A market econ omy is a system of individuals act ing to achieve their purposes by pro ducing and trading with each other; the result is a delicate integration of freedom and order. From countless exchanges between individuals, there emerges a single price for every good or service, reflecting the relative supply and demand for it. This system of prices tells the indi vidual the terms on which he may expect to enjoy the products of others, and the terms they will offer for his, but leaves him free to act on that information.

162 THE FREEMAN March The market tells a producer of shirts, for example, that the new polyester fabric will cost him less than cotton; and that consumers can be expected to pay less for shirts made of the first than those made of the second. But it leaves him free to integrate these facts with informa tion he has about his particular con text: the tastes of his customers, the reliability of his suppliers, the adapt ability of his workforce. And it leaves him free to decide, on the basis of all this information, what he will do: what proportion of each type of shirt he will produce, what new machinery he needs, how many new workers, and so on through all the countless decisions it takes to run a business. In short, the market tells the in dividual what he needs to know ifhe is going to rely on trade with others, but leaves him free to act on that information. His actions, in tum, have their impact on the market, helping to shape the information on which others act. In this way the market automatically integrates the actions of everyone, without sacrific ing anyone's freedom. It is indeed one of the wonders of civilization, allowing millions upon millions of individuals to live together peace ably, each one benefiting from the endeavors of countless others whom he in turn benefits, yet each free to pursue his own course.

But government planning, employing such tools as regulations, subsidies, price controls-or in the extreme case nationalization of industry-undercuts the system: it distorts the information the indi vidual receives from his economic environment, and it restricts his freedom to act on the basis of it. On the first count, the clearest example is price controls. By preventing a rise in the price of a good, controls disguise its increasing scarcity, and thereby prevent people from taking the appropriate action: businesses do not invest in further production of the good, and consumers do not economize on their use of the good. Price controls on natural gas, for both reasons, led to the crisis of several years ago, when suddenly there was no gas to be had at any price. Their Hands Are Tied On the second count, planning ties the hands of actors in the mar ketplace, preventing them from act ing on the information they do have.

A number of biological insecticides, for example, are now both techni cally and economically feasible, but they may never be produced because potential producers cannot afford the lengthy and expensive process of getting them cleared by Federal regulators. 3 Many of the decaying sections of our cities have the poten tial to .flourish, but the individuals and businesses who could exploit 1979 THE BASES OF ECONOMIC PLANNING 163 that potential cannot get past the roadblocks placed in their way by city planners, through taxes, zoning, government housing projects, and the like. In this respect, the dark side of planning is commanding. The es sence of government planning is to replace the free interaction of the market with the judgment of the planners, backed by the govern ment's power of coercion. In a totally planned economy, no one may act as a producer except by permission of his superiors in the economic bureaucracy. And consumers cannot make their preferences known ex cept through the vague and in frequent sanctions of the ballotbox, or through violent demonstrations, as in Poland.

And for what? Is the loss of free dom on the part of the individual compensated by the greater wisdom of the planners? On the contrary, there is no way to perform by con scious planning the feat which the market performs automatically. No Basis for Decisions Consider the extreme case of socialism, in which the government owns all the factors of production. In this case, these factors are not traded freely, so that they do not have prices that reflect their rela tive value; and as Mises points out this would make it impossible to invest them rationally. If the government wished to build a railroad, for example, it would have no way to decide what materials to use, what proportion of labor and capital is most efficient-or indeed whether the railroad is worth building at all. ((Where one cannot express hours of labor, iron, coal, all kinds of build ing material, machines and other things necessary for the construc tion and upkeep of the railroad in a common unit it is not possible to make calculations at all."4 Why couldn't these calculations be made without prices? Because prices contain an enormous amount of information, too much to be inte grated in any other way. The price of each good indicates how valuable it is in relation to all other goods; and each of these valuations is deter mined by millions of individuals in the marketplace, each acting on de tailed information about his own local situation. To replace the price system by conscious planning, the government would need a way to gather and integrate that same in formation.

In a free market, the information is integrated automatically, without any individual's having to gather it together in one place: the housewife in Chicago may know nothing of the Florida frost, but she adjusts her ac tions to it when the price of oranges rises. But a planned economy would have to gather all that information together in one place, in order to allo164 THE FREEMAN March cate resources as wisely as the mar ket does. Considering the millions of prices in a modern economy, with the trillions of relations between them, and the masses of information that determine those relations, it is an unthinkable feat. 5 Thus a planned economy frus trates rational action at every turn. To the extent that an economy is planned, individuals are prevented from doing what they must, and planners are required to do what they cannot. Yet the drive for plan ning endures, appearing repeatedly in the media like a third-rate film on the late show. As recently as 1975 a new movement for planning was launched: a group of old liberals and new leftists organized an Initiative Committee for National Economic Planning, which enjoyed a brief run in the press; and largely through their efforts a bill for national plan ning was introduced in the Senate (It did not pass.) Why does the idea persist? It has taken a fearful beat ing over the years, from economists and from reality, yet it keeps on ticking. Why?

The answer lies in philosophy specifically in philosophical prem ises about the nature of reason. The Mind of the Individual Reason is an attribute of the indi vidual. Human knowledge is at tained by a complex process of ob serving facts and relating them, making inferences and testing hypotheses. It is a process that oc curs only in individual minds, and can be initiated and guided only by an individual's own volition. Much of what we know, to be sure, is learned from other people. But every item of that knowledge was at one time the discovery of an individual mind; and we ourselves, in learning from him, must carry out the ra tional process of grasping his truth. Ultimately, therefore, everyone is responsible for his own life, because he is responsible for the use of his tool of survival: his mind. He must form his beliefs and values, and apply them to the circumstances of his life, by his own thinking. He cannot be forced to think, nor can he force others to think for him. There is no knowledge to be had except through active use of his own mind, initiated by choice. There is no automatic source of guidance not from his emotions, not from his friends, not from his favorite col umnist.

This is the fundamental reason why the market system works: it allows individuals to cooperate and learn from each other, but leaves each free to act on his own judg ment: to do what his nature re quires. In particular, it leaves the innovator free to carry his new ideas into practice, without depending on permission from those who do not, or cannot, share his insight.

1979 THE BASES OF ECONOMIC PLANNING 165 But capitalism also prevents any one from passing off the responsibil ity for thought onto others. And as Ayn Rand has shown, it is resent ment against this fact that lies be hind all the attacks on capitalisrn. The anticapitalist mentality is at root a ((longing for the effortless, irresponsible, automatic conscious ness of an animal. [They] dread the necessity, the risk and the responsi bility of rational cognition."6 It is not the effort of working that is resented. Capitalism requires that, but so does every other system, and people work longer and harder in the others. It is the effort, and the responsibility, of thinking for one self. Complaints Against Capitalism This resentment takes many forms, and fuels a myriad of conl plaints against capitalism. All of them, by attacking the market, help create a climate in which a collee tivist system seems attractive. But one such form is especially relevant to the issue of economic planning. It is the idea that thought is a collec tive activity, in which the individual acts only as a cell in the social or ganism. Both Dewey and Marx, among other philosophers, espoused this idea, and it is an indispensable basis of their support for economic planning.

Marx was a rabid anti individualist. His essay ((On the Jewish Question" was a bitter at tack on the natural rights philoso phy of the eighteenth-century polit ical revolutions; the effect of these revolutions, he said, was to create ((a world of atomistic, antagonistic in dividuals"; the individual in a free society is a ((partial being," ((acting in accordance with his private ca price."7 The individual, he felt, could find fulfillment only by living for the group, as an integral part of the collective. What of the independent mind? There is no such thing. Marx claimed that the whole sphere of ((consciousness" -ideas, values, principles-is a byproduct of the material forces of production: the individual's mind is shaped by the tools he uses and the organization of the workplace. Since these are social factors, ((consciousness is, therefore, from the very beginning a social product."8 Marx and Engels were notoriously reticent about the or ganization of the socialist society they sought, and the reason is pre sumably their confidence that once the economy is fully socialized, it will produce individuals whose minds are fully socialized-who think as cells in the organism.

Dewey shared this view in every essential. Like Marx, he believed the individual is justified only by his relation to the group: ((Within the flickering inconsequential acts of separate selves dwells a sense of the 166 THE FREEMAN March whole which claims and dignifies them."9 Like Marx, too, he claimed that thought is collective: ((It thinks" is a truer psychological statement than ((I think." ... The stuff of belief and proposition is not originated by us. It comes to us from others, by education, tradition, and the suggestion of the environment. Our intelligence is bound up, so far as its materials are concerned, with the community life of which we are a part. We know what it communicates to us, and know according to the habits it forms in us. Science is an affair of civilization, not of individual intellect. 10 Thought, for Dewey, is not an ac tivity of the individual; the latter need not bear, and cannot claim, any responsibility for his ideas; he is merely a conduit passing along the influence of the group. He says the same of the products of thought.

ttThe stationary engine, the locomo tive, the dynamo, the motor car, turbine, telegraph, radio and mov ing picture are not the products of either isolated individuals nor of the particular economic regime called capitalism."ll The standard of living these machines have made possible is not an achievement of individ uals; the machines are ttdriven by electricity and steam under the di rection of a collective technology."12 Taken as statements about real ity, these views of Marx and Dewey are scarcely intelligible. How can Marx say that ideas result from the forces of production, when the latter are themselves the products of our ideas? How can Dewey say that ttIt thinks" is a truer psychological statement than ttl think," when anyone who is honest is aware intro spectively that he has control over what he thinks, and indeed whether he thinks? How can anyone say that technological advances are not the work of individual minds, when the Patent Office keeps records of who those individual minds are?

Escaping Responsibility But these statements become in telligible once they are seen as the expression of a deepseated hostility toward human reason, and the re sponsibility we bear for exercising this faculty by our own choice and effort. To those who would evade the responsibility, they hold out the promise of having one's cake and eating it too: they imply that one can enjoy the products of thought without having to take any respon sibility, as an individual, for the process of thinking. To those who are threatened by the sight of inde pendence in others and want power over them, this doctrine offers a jus tification: it implies that the indi vidual can be forced to play his part in the collective life of society, at the cost of his own autonomy. In this way, the idea that thought is collective is a link between the ancient hostility toward reason, and 1979 THE BASES OF ECONOMIC PLANNING 167 the concept of economic planning.

Few public: advocates of planning today explicitly state that thought is collective, or offer it as the basis for planning. But they inherited the concept of planning from phi 10sophers like Marx and Dewey who did say these things; and if vve examine the idea of planning more closely, it is not hard to see in it the footprints of the philosophic prem ise. Consider an editorial statement made by the New York Times at the height of the recent planning con troversy. ((Why is planning consid ered a good thing for individuals and business but a bad thing for the national economy?"13 Taken at face value the question is absurd. Plan ning is a conscious action; individ uals can therefore plan their ac tivities, and businesses assign to specific executives the tasks of planning and decision-making; but the national economy is not the prod uct of a single mind. There is no collective mind to do its planning.

The argument is a classic example of what logicians call the fallacy of composition: assuming that what is true of the parts is true of the whole. But that is exactly the assumption which the philosophy of Marx and Dewey would allow. They believe there is a collective mind to do the economy's planning. This is why would-be planners ig nore the argument that they could not calculate rationally. The argu ment assumes, rightly of course, that calculation is the activity of a single mind; and the argument is that no single mind could gather all the information necessary for ra tional calculation. If advocates of planning ignore the argument, it is because the collectivist view of thought allows them to dismiss the premise: no individual will have to do the planning: society will. Says the Initiative Committee for National Economic Planning: ((Above all, planning is a way of looking at economic problems as a whole, providing the information needed to set explicit priorities in the use of resources, and guiding all sectors of the economy toward the attainment of our chosen goals."14 Who will look at economic problems as a whole? To whom will the infor mation be provided? Who will choose the goals?

The Goal Is Power Some advocates of planning have a perfectly clear idea of who will do these things: they will. Nor does it matter to them whether they can calculate rationally as planners, since that is not their goal; their goal is power. Others simply do not want to confront the fact that plan ning is the act of the individual mind. In either case, the collectivist philosophical theory provides a rationalization. It implies that no 168 THE FREEMAN March individual need perform these cog nitive tasks of grasping information and setting goals, since cognition is an activity of society as a whole, acting as a single collective mind. That is why advocates of planning ignore the questions we raise, as if they were irrelevant. They envision a network of planning boards, citi zens' groups, legislative committees, and so forth; and their philosophic faith permits them to assume, against all experience, that the net work will deliberate as one and speak with a single voice.

The same premise is the source of another feature of the argument for planning. Liberals and Socialists typically assume that an economy not planned by the government would be totally unplanned: the choice is between collective plan ning and chaos. Says the Initiative Committee: HNo reliable mechanism in the modern economy relates needs to available manpower, plant and materials .... [T]he most strik ing fact about the way we organize our economic life is that we leave so much to chance."15 Endorsed as it was by professional economists, this is an extraordinary statement. The free market exhibits a marked degree of order, as we have seen. Indeed, it is precisely a mechanism for relating needs to available manpower, plant, and materials; and it does this in a highly reliable way. As a result, individuals are enabled to plan their own activities intelligently, taking account of their economic environ ment as they pursue their individ ual goals. What could possibly be meant in referring to this system as ((chance"?

What is meant is that the needs which the market takes cognizance of are the needs of individuals, as determined by each individual's knowledge of his own context, and expressed in his choices among com peting goods. Advocates of planning implicitly deny that this could al low for an orderly economy. Why? Here again the collectivist assump tion is apparent. On that assump tion, allowing individuals to decide their own needs, and to act freely to satisfy them, is like allowing every brain cell to act on its own, apart from the needs and guidance of the brain as a whole. The result must be chaos. The assumption is that without the collective to set his goals and direct him in the choice of the means, the individual is a rud derless ship, his actions the product of chance. A Poor Choice In reality, the choice is between government planning and planning by individuals. It is impossible to have both; a collectivist economy would suppress the individual mind, replacing it with the judgment of the state, enforced by coercion. For 1979 THE BASES OF ECONOMIC PLANNING 169 Two Provinces of Control PROPERTY RIGHTS have often been described by socialists as "reac tionary barriers against the will of the people." Not so. They are barriers against the state, and they protect the people from the abuse of its power. But they are effective barriers only so long as the two masters of men, the free market on the one hand and the govern ment on the other, are kept separate and distinct. These masters must be confined to their own provinces of control.

When there is no free price mechanism to coordinate the econ omy, then dislocation is bound to arise. Depressions-such as that which followed World War I when political considerations controlled a great part of the world's economy-become unavoidable and lead to still further control and further economic dislocation. If this de velopment is allowed to continue, the rule of the economy by the people through the price mechanism comes to an end; their place is taken by the planner under the instructions of the political group in power. GEORGE WINDER, "Centralized or Multiple Economies" many would-be planners, this is not an objection; it is exactly what they want. But the premise that thought is collective allows them never to address the issue. It implies that individuals cannot think for them. selves; it implies that there is no such thing as the autonomous mind; it implies, therefore, that there is nothing to suppress, hence no objec tion against economic planning.

Consider, finally the question of innovations-new products and methods of production. Will not these unpredictable events make planning impossible? The Initiative Committee proposed that national planners be given ttA mandate to examine major economic trends and work out realistic alternative long term economic programs for periods of 15 to 25 years. . . ."16 But no planner, 15 to 25 years ahead of time, could have foreseen the au tomobile, or the assembly line, or the rise of consumer credit and in stallment buying. These were inno vations created by individual minds, and they altered the face of the economy in ways no one could have predicted. For the collectivist mind, however, this fact has no reality. Innovations are not the work of individual 170 THE FREEMAN minds, said Dewey, but ofttcollective technology." Science ttis an affair of civilization not of individual intel lect." Thus they are confident that all novelty will emerge slowly and anonymously from the group as a whole, growing in minute, piecemeal fashion like a coral bush, in ways that society's collective in telligence will have no trouble an ticipating. This philosophical faith prevents the contrary evidence from penetrating.

A Philosophical Matter The real basis for planning, then, is not economic but philosophical. It is an age-old antipathy toward reason-toward the responsibility it imposes on the individual expressed through the myth of soci ety's collective mind. The public de fenders of planning may not defend the premises of Marx, Dewey and other collectivist philosophers. They may never have heard of the issue. That does not matter. They have accepted the implications of the philosophers' views; they rely on ar guments whose implicit premises originated with the philosophers; and they exhibit an incapacity to grasp evidence incompatible with those premises. The recent movement for plan ning arose when it did partly be cause of dislocations the economy experienced in 1974-5, most notably the energy crisis (itself a signal case of the effects of planning). These dislocations have disappeared, and so for the moment has the move ment. But as long as its philosophi cal premises remain unchallenged, it is a safe bet that the next round of economic difficulties will spawn a new movement for planning. i -FOOTNOTESlCf. Karl Marx & Friedrich Engels, The German Ideology, Part I, pp. 154-55 in The Marx-Engels Reader (ed.) Robert C. Tucker (New York: W. W. Norton, 1972).

2Ibid., p. 323. 3Cf. William Tucker, ~~Of Mites and Men," Harper's, August, 1978. 4Ludwig von Mises, ~~Economic Calculation in The Socialist Commonwealth," in Collec tivist Economic Planning (ed.) Friedrich von Hayek (London: George Routledge & Sons, 1935), p. 108. 5Friedrich von Hayek, uThe Use of Knowl edge in Society," in Individualism and Economic Order (Chicago: University of Chicago Press, 1948). 6Ayn Rand, For The New Intellectual (New York: New American Library, 1961), p. 15. 7Marx, in Tucker, pp. 41, 50. 8Ibid., p. 122. 9John J. McDermott (ed.), The Philosophy of John Dewey (New York: G. P. Putnam's Sons, 1973), p. 723. l°Ibid., p. 713. llIbid., p. 654. 12Ibid., p. 610. 13New York Times, Feb. 23,1975. 14From an official statement by The Com mittee, New York Times, March 16, 1975. 15Ibid. 16Ibid.

TOWARD A MEANINGFUL DEFENSE OF FREEDOM IF FREEDOM is worth defending, then it is worthwhile for its defenders to do the very best job possible. Far too often, however, we fail to present our case for freedom completely or accurately. We unintentionally give our audiences a false impression, which makes the case for freedom unpalatable to those uncommitted individuals whom we would most like to influence. We all realize that an entrepre neur offering a good product on the market will, nevertheless, spend a substantial amount of time, effort and money to properly and attrac tively package the product. We are all familiar with the research efforts and creative talent used in launch·· ing an advertising campaign for a Mr. Howard, of Yorktown Heights, New York, Is 81 businessman who looks to spiritual renewal as the way to leave his children a world better than he found It. product. It does no good to have a superior product if nobody knows how good it is or if shoppers are repelled by its appearance on the display shelf.

It is a scandal'that those who so well understand the rules of the market place for goods and services fail to translate that understanding to the market place of ideas. For the consequences of failure in the mar ket for products, is at worst, a tem porary loss of money; failure to sell our philosophy of freedom will result in the permanent loss of our free dom. When we present our defense of the free market, we leave ourselves open to a charge of advocating ex treme individualism, since our total thrust is, properly, concentrated on the action of the individual in soci ety. Unfortunately, we tend to sound quite selfish. Our opponents, those 171 172 THE FREEMAN March who would substitute a coercive so ciety for a free one in the name of the general welfare, will invariably contrast this alleged selfishness with the moral tenets of our Judaeo Christian tradition, to our disadvan tage. We are often faced with the paradoxical situation wherein those who philosophically reject all reli gion use it as a weapon against those who accept a religious basis for their beliefs.

We should never forget that the foundation of the belief in freedom is that men have a right to be free because God gave them that right. Without this foundation, it is impos sible to honestly defend freedom. We do not advocate a free society so that we can go about our business with out a concern for the welfare of others; we hold to our philosophy because it is morally right. Atheism is an essential component of the coercivist credo, the one does not exist without the other. When we fail to emphasize this, we do a dis service to our cause. We enter the battle with our best weapons left behind in camp. Self-Crippling A common instance of libertarians crippling themselves unnecessarily is in the presentation of the opera tions of the free market. Most free market defenders devote a substan tial amount of space to describing the mechanics of exchange and the environment necessary to support a free market. Usually, there are elaborate descriptions of the ideal market and comparisons of that ideal to the prevailing situation.

Great emphasis is generally placed on the structure and institutions of political organization which are necessary to support the author's concept of the ideal market struc ture. These presentations tend to be very mechanical in content. Their tacit argument in this mechanistic approach is that if we reform our institutions to more closely conform with the ideal market environment, then all will be well. This line of argument is doubly weak. First, it will not be supported by the facts of history. We have only to examine the conditions in the United States and the United King dom to realize that the existence of institutions to promote freedom will not necessarily guarantee the survi val of freedom. In both countries, freedom is under assault through those very institutions, such as the independent judiciary and the rep resentative legislatures. Something else is also needed. That something else is the conviction of the citizenry that it will be free.

I am not attacking the utility of constitutional and institutional safeguards to freedom in society. I do attack those presentations which leave one with the impression that it is the institutions which make men 1979 TOWARD A MEANINGFUL DEFENSE OF FREEDOM 173 free in their societies. This is a twisted Rousseauism. The institu tions of a free society are, in reality, the results of the action of free men who believe in the need of protecting their freedom. Freedom precedes freedom-supporting institutions. But if freedom does not arise froIn social institutions, where then is the source of freedom? Sustaining Institutions The Declaration of Independence of the United States was written with a belief in freedom and a desire to construct a political order which would help protect that freedom. Human freedom was not expected to result from the institutions to be established; rather, the institutions were expected to flow from the de sire to protect pre-existing rights.

These rights are God-given and Jef· ferson began the case for indepen dence by recognizing the fact; and at the conclusion of the Declaration, the signers placed their reliance on the Almighty, the author of the rights they were defending. In too many defenses of the phi losophy of freedom, contemporary advocates place all of their reliance on the mechanical structures of so·· cial, political, and economic organization, as if that were protection enough. If the constitutionaJl mechanics were sufficient to assure a free state of free men, how then explain the fact that Benito Musso·· lini was the prime minister of a constitutional monarchy, while rul ing it as an absolute tyrant. Hitler came to power through the constitu tional mechanism of the Weimar Republic. The constitution of the USSR is, on the surface, a marvel ous document assuring great per sonal freedom to its subjects. In real ity, it is an outstanding example of how substance can be removed while form remains.

In today's mechanistic presenta tion of the free market, rarely is mention made of reliance on the laws of nature and of nature's God. This omission leaves the debate con centrated on the relative efficiency of the coercive as opposed to the free society. Yet efficiency is not the es sential issue. Even were freedom inefficient, it is to be chosen because it is right. The free market can be likened to an ecosystem, as much as any wet land or forest, and as such, it is a reflection of our Creator's plan in its uninhibited operation. When this premise is removed from our de fense, we are no better than our opposition. Both sides are then guilty of deifying manmade devices. The definition of idolatry is the at tribution to the manmade that which is proper only to God. The debate is merely between competing systems of idolatry. Small wonder that it is difficult to fire the imagi nations of the onlooker to such de174 THE FREEMAN March bates. People will not joyfully enter an arena full of lions to bear witness to the efficiency of abstract market models; they will, and they have, to bear witness to the Providence of a personal God.

Charity Is Love Another, related weakness in many presentations on liberty is a total misuse of the concept of char ity. In the Judaeo-Christian context, charity is the equivalent of love; the words are interchangeable. How ever, whenever charity is introduced in libertarian literature, it is often restricted to mean only almsgiving, that is, the provision for the poor and needy. Such imprecision of lan guage can only lead to confusion. Moreover, there is seldom any men tion of love as the essential motivat ing force for the redefined charity. In the absence of love, there is really no reason to provide for those in need. This becomes a telling weak ness in our arguments. At best, it allows the audience to infer that the poor and needy are to be aided as a political expedient, to pacify them. Without the concept of love, our dis courses leave us looking like hypo crites, and even more seriously, de prive us of the foundation for our advocacy of human freedom. For if we truly love a person, how then, can we enslave him or her? If we have no love in us, why not enslave our fellows when we can?

Freedom cannot be protected by institutions, nor on the ground that restricting it would introduce inef ficiencies to our society. Only if we heed the commandment to love our neighbor as ourselves will we really be able to put our heart into the struggle. Lacking this insight, it is too easy to delude ourselves into thinking that we, and only we, are the sources of whatever good fortune we enjoy in this world. The corollary to this line of reasoning will also become part of our thinking: those who are not so well off as we have only themselves to blame. All of us have at some time or other heard this position incorpo rated into an otherwise reasonable discussion of freedom. The hearer can only conclude that it is the cost of the social welfare programs and the unworthiness of their recipients that is at issue. The fact that social welfare programs promoted by vari ous levels of government promote such attitudes on the part of the contributors and a corresponding militance and hatred on the part of the beneficiaries is proof that such programs hurt society more than they help. Saint Paul, in his second letter to the Corinthians, gives us the model that we should be using in our discussions.

A famine had arisen throughout the Roman Empire around the year 43 A.D. A collection was made 1979 TOWARD A MEANINGFUL DEFENSE OF FREEDOM 175 among the communities in Greece and Macedonia for the Christian community in Judea. Paul's instruc tions to the Corinthians is the es sence of the proper attitude of giving in freedom. ~~Each one should give what he has decided in his own mind, not grudgingly or because he is made to, for God loves a cheerful giver." Please note that force, taxa tion, or any hint· of coercion is miss ing from this instruction. Earlier in the same letter, Paul had indicated the motivation for any giving. ttIt is not an order that I am giving you; I am just testing the genuineness of your love against the keenness of others." All proponents of freedom have their philosophical roots in the Judaeo-Christian traditions of our culture. It follows from this that they are concerned with humans as indi viduals and not as cogs in an inhuman economic machine. How ever, when we forget our roots and our philosophical beginnings, our arguments and discussions convey just the opposite impression to our audiences. If the philosophy of free dom is to survive and prevail, we must make clear our concern, yes, and our love for our fellow men. We cannot allow our opposition to pre empt the stance of morality and con cern which is our heritage. ® IDEAS ON UBERTY The Case for Economic Freedom THE most important part of the case for economic freedom is not its vaunted efficiency as a system for organizing resources, not its dramatic success in promoting econornic growth, hut rather its consistency with certain fundamental moral principles of life itself ....

If economic freedom survives in the years ahead, it will be only because a majority of the people accept its basic morality .... The free market cannot produce the perfect world, but it can create an environment in which each imperfect man may conduct his lifelong search for purpose in his own way, in which each day he may order his life according to his own imperfect vision of his destiny, suffering both the agonies of his errors and the sweet pleasure of his successes. This freedom is what it means to be a man; this is the God-head, if you wish. BENJAMIN A. ROGGE George F. Cahill WHAT IS FREEDOM? FREEDOMis the most prized and coveted of all God's blessings. As Americans, you and I are part of only a tiny portion of mankind that has experienced freedom. Its blessings are as precious as the blessing of life itself. What, then, are the characteristics of freedom? Granted, freedom is an abstract thing. But let's try to make freedom more easily understandable. As an experiment, let's give all the qualities of freedom to one imaginary person.

Okay, so iffreedom is a person, what would he or she be like? Freedom would be delicate--easily bruised. Freedom would be fragile-easily destroyed. Freedom would be elusive--easily lost. Freedom would be demanding-hard to serve. That, then, may give you some inkling of what freedom is like. 176 WHAT IS FREEDOM? 177 Let's draw out our exampl(~ a little further. If freedom is a person, who are his or her friends and admirers? Perhaps the poet John Milton put it best. He wrote: ttNone can love freedom heartily but good men." When we are good, FreedoDl will be strong. When we are self-disciplined, Freedom will be durable. When we are resourceful, Freedom will be resilient. When we are courageous, Freedom will be sturdy. In short, we determine what Freedom shall be like. Every time we cheat, deceive, falsify, or choose that which is not moral, we put down Freedom. And every time we do something right, honest, moral, decent, positive and uplifting, we make Freedom a little stronger and more secure.

That's quite a responsibility, isn't it? To our credit, we have chosen to shoulder that responsibility for more than 200 years. The question is: are you willing to do the same? i The foregoing is one of 60 inspirational messages assembled by Mr. Cahill in a 96-page bool<let-BIG IDEAS-messages on individual responsibility that parents, grandparents, and all leaders might use to present positive principles to young people. The book, BIG IDEAS, at $2.00 a copy, may be ordered directly from: The" Pride in America" Company 103 Loire Valley Drive Pittsburgh, Pennsylvania 15209 IT is commonly held that the un planned «anarchic" nature of capi talist production necessitates bu reaucratic regulation to prevent economic chaos. Thus the prominent Hungarian Marxist, Andras Hegedus, argues that bureaucracy is merely «the byproduct of an ad ministrative structure" that sepa rates the workers from the actual management of the economy. Since the owners make the decisions, all others must ultimately take their orders from this small group. Since that would be impracticable in an industrial economy, the problem must be handled by a division of responsibility which in tum entails layers of bureaucracy. The capital ists make the decisions which are then filtered down the bureaucratic Dr. Osterfeld Is Assistant Professor of Political Sel ence, Saint Joseph's College, Rensselaer, Indiana.

178 pyramid. This means that the work ers must wait to be told what to do by their immediate superiors, who in turn must ·wait .for instructions from their superiors, and so on. It is important to realize that Hegedus believes that these bureau cratic features are a product of capi talism itself, rather than the nature of large-scale production. HWhere capitalist property relations pre vail," he says, «it is futile to fight against bureaucracy .... To change the situation it is necessary first of all to eliminate private ownership of the means of production." Bureau cracy, he continues, was the «inevi table consequence of the develop ment of property relations at a given stage in the division of labor and in economic integration. Consequent ly, it is also inevitable . . . that at some point there will be no further 1979 THE BUREAUCRACY PROBLEM 179 need for an administrative appara tus separated from society, because subjective and objective conditions will be ripe for direct self-admin istration."

In plain English Hegedus is say ing that because capitalism sepa rates the worker from the control of industry, production would be un coordinated and chaotic were there not some agency for the transmis sion of knowledge. This is the func tion performed by bureaucracy un der capitalism. Since under social ism the workers will make all of the industrial decisions, there will be no coordination problem in such a society. Bureaucracy will no longer be necessary and will be discarded. But, other than mere appeals to Hdemocratize the administrative ap paratus" and calls for a ~~hea1thy mobility in all areas of administra tion," he is vague on just how socialism will accomplish this.! Since Hegedus' views, particularly regarding the bureaucratic nature of capitalism, are not uncommon, it is time they be critically examined. Three Problems of Coordination Israel Kirzner notes that there are three problems of coordination that must be solved in any socio economic system: (1) the problem of priorities, i.e., what goods and ser vices should be produced; (2) the problem of efficiency, Le., what combination of resources used in the production of a given commodity will leave the largest bundle of re sources left over for the production of other goods and services; and (3) the problem of distribution, Le., how to compensate each participant in the system for his contribution to the productive process. 2 The role of bu reaucratic management can best be analyzed by seeing how both capital ism and socialism approach these problems as well as how well they can solve them.

I. The Problem of Priorities Within a market system priorities are set by the consumers' buying and abstention from buying. Entre preneurs, anxious to maximize their profits, will tend to produce those goods with the greatest discrepancy between price and cost. Since the consumers are willing to pay more for goods they desire most intensely, the prices of these goods, other things being equal, tend to be higher than those of the less intensely de sired goods. Thus the goods that the members of society deem most im portant are the ones that, without the need for any conscious bureau cratic direction, are first and most plentifully produced in a capitalist system. A common criticism of this type of reasoning is that there are many examples where the market cannot be said to reflect the priorities of the consumers. It is assumed, for exam180 THE FREEMAN March pIe, that bread is more important than diamonds while it is noted that the price of diamonds is much greater than that of bread. The error in this criticism is that individuals are never confronted with a choice between diamonds in the abstract, and bread in the abstract. Instead, they choose between individual units of bread and diamonds.

The market reflects the priorities of consumers with out the need for any bureau cratic direction. Since under normal conditions the quantity of bread greatly exceeds that of diamonds, the satisfaction or dissatisfaction caused by the addi tion or loss of any particular unit of bread, i.e., its marginal utility, is relatively low compared with that of any unit of diamonds. Were, by some quirk of fate, the quantity of bread greatly reduced or that of diamonds significantly increased, the margi nal utility of the units of bread and diamonds would be altered causing the price of bread to rise and that of diamonds to fall. It can therefore be seen that the market does indeed reflect the priorities of the consum ers and does so without the need for any bureaucratic direction. In fact, bureaucracy could only impede con sumer satisfaction for, as Kirzner points out, tt any nonmarket obstacles placed in the way of the pricing process thus necessarily interfere with the priority system that con sumers have set up".3 Since socialism entails the elimi nation of the market, there is no mechanism by which priorities are established without conscious direc tion and control. Thus it is precisely socialism that cannot function with out a burgeoning bureaucracy. A quick look at the planning process in the Soviet Union will clearly high light the bureaucratic labyrinth en demic to even a moderately socialist economy.

Planning in the Soviet Union In order to construct the plan for the coming year the planners must have as much data as possible on the state of the economy for the current year. This job is handled by the Central Statistical Administration, which alone employs several million people. This information is then conveyed to the State Planning Committee,. or Gosplan. Priorities for the coming year are established by the Council of Ministers in con junction with several other political agencies and communicated to Gosplan, which attempts to coordi nate all of the priorities as well as balance the output targets for every industry in the economy with its estimate of the inputs required to produce them. The plan then travels down the 1979 THE BUREAUCRACY PROBLEM 181 planning hierarchy going first to the industrial ministries, then to the subministries, and so on down to the individual enterprises. In this way each firm is informed of the output levels that have been set for it, and the plan begins to ascend the plan ning hierarchy with each enterprise now in a position to calculate for itself the inputs necessary to pro duce the given level of output.

The entrepreneur is not only in a better position to esti mate consumer demand but, just as important, a wrong guess is immediately re flected on the market. As the plan travels upward, both the input and output levels are ad justed according to a bargaining process between the enterprise manager and the central planners. The former attempts to underesti mate his productive capacity and overestimate his resource require ments to make fulfillment of his part of the plan easier, while the latter does just the reverse. After finally reaching Gosplan the plan is surveyed in its entirety and the necessary corrections and ad justments are made. The plan is then sent back down the planning hierarchy with each enterprise being informed of its final production goals. And beyond this, of course, lie a host of government agencies required to insure compliance with the plan.4 Just what is this bureaucracy, which numbers into the tens of mil lions, able to accomplish? The first thing to notice is that despite the scientific jargon, its plans are in fact only guesses about what each indi vidual consumer will want during the coming year. The estimates of the entrepreneur also are guesses; however, there is a crucial differ ence: his are based on market data while those of the socialist planners, at least under pure socialism, are not.

This means that the entrepreneur is not only in a better position to estimate consumer demand but, just as important, a wrong guess is im mediately reflected on the market by a decline in sales. Since the loss of revenue prompts quick adjust ments, any incorrect gu~ss tends to be self-correcting. But under. socialism, the plant manager need not worry about selling his product but only fulfilling his production quota. Consequently, (1) quality tends to suffer since managers try to find the easiest and quickest way to fulfill their quotas, and (2) produc tion continues, regardless of whether anyone wants the products, until the plan is altered by Gosplan. But if production of unneeded goods takes place in some areas, needs in others must remain unful filled. It is not surprising, therefore, 182 THE FREEMAN March that the Soviet Union is regularly plagued by gluts of some items and acute shortages of others. When quotas for the shoe and nail indus tries were set according to quantity, for example, production managers in the nail industry found that it was easiest to meet their quotas by producing only small nails, while those in the shoe industry made only small shoes. This meant gluts of small nails and children's shoes and shortages of large nails and adults' shoes. But setting quotas by weight meant the opposite: gluts of large fat nails and adults' shoes. Similiarly, It is not surprising that the quality of goods in the Soviet Union is notoriously low, the standard of living about one quarter to one-third of that of the U.S., and that many goods are in short supply.

since dress-makers don't have to sell their products they don't have to worry about style preferences. The result is periodic warehouses full of unwanted dresses. And at another time the Soviet Union found itself in the embarrassing position of having only one size of men's underwear and that only in blue. s Thus it is not surprising that the quality of consumer goods in the Soviet Union is notoriously low, the average standard of living is about one-quarter to one-third that of the United States, and so many goods are in short supply that one must stand in line three to four hours each day just to get the basic necessities. 6 While capitalism can function with a minimum of bureaucracy, we have seen that socialism, far from eliminating it, requires a host of bureaucratic agencies. These are necessary in order to (1) collect the data for the construction of the plan, (2) formulate the plan, and (3) in spect the plants to insure that the plan is being carried out.

II. The Problem of Efficiency Turning to production we find the same results. Under capitalism, the problem of the efficient allocation of resources is solved in the same way that the problem of priorities was solved: the price system. To produce their goods, the entrepreneurs must bid for the needed resources. They therefore stand in the same relation to the sellers of resources as the consumers do to the sellers of final goods. Thus prices for the various factors of production tend to reflect the demand for them by the entre preneurs. Since what the entrepre neur is able to offer is limited by his expected yield on the final sale of his product, the factors of production are thereby channeled into the production of the most intensely desired goods. Those who best serve the con sumers earn the greatest profits 1979 THE BUREAUCRACY PROBLEM 183 and, hence, can offer the highest bids for the resources they need.

In short, the market is a highly interdependent mechanism. that, without any bureaucratic direction, is able to achieve exactly what Hegedus thought impossible: the transmission of knowledge to the relevant individuals. If, for example, steel should become more scarce, either because part of its supply has been depleted or a new use for it opened up, its price would rise. This would both (1) force the users of steel to cut back on the purchases, and (2) encourage the suppliers to increase their production. In a free market economy those who best serve the con sumers earn the greatest prof its and, hence, can offer the highest bids for the resources they need. Not only are the actions of all market participants automatically coordinated by these price fluctua tions, but the individuals involved do not even have to know why prices rise or fall. They need only observe the price fluctuations and act ac cordingly. As F. A. Hayek states, ttThe most significant fact about this system is the economy of knowledge with which it operates .... The marvel is that without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of peo ple whose identity could not be as certained by months of investiga tion, are made to . . . move in the right direction."7 It is also important to point out that even within an enterprise bureaucracy is kept to a minimum.

First, if a firm becomes bureau cratically top-heavy it will be undersold and, if reforms are. not made, put out of business by less bureaucratically structured enter prises. And second, as Ludwig von Mises notes, «There is no need for the general manager to bother about the minor details of each section's management ..... The only directive that the general manager gives to the men whom he entrusts with the management of the various sections, departments, and branches is: Make as much profit as possible. And an examination of the accounts shows him how successful or unsuccessful they were in executing the direc tive."8 Another Soviet Dilemma But in a pure socialist economy the entire apparatus of the market would be absent. All decisions re garding the allocation of resources and economic coordination would have to be made manually by the planning board. In an economy like that of the Soviet Union, which has over 200,000 industrial enterprises, 184 THE FREEMAN March this means that the number of deci sions that the planning board would have to make each year would num ber into the billions. This already Herculean task would be made infi nitely more difficult by the fact that in the absence of market data they would have no basis to guide their decisions. This problem became evi dent in the only attempt to establish a pure socialist, Le., nonmarket, economy: The ((War Communism"

period in the Soviet Union from 1917 to 1921. By 1920, average pro ductivity was only ten percent of the 1914 volume with that of iron ore and cast iron falling to 1.9 and 2.4 percent of their 1914 totals. In the early 1920's ((War Communism" was abandoned and since that time pro duction has been guided by means of restricted domestic markets and by coopting the methods determined in the foreign Western markets. The task of the Soviet planners is greatly simplified by the existence of the limited markets, but the fact that they are so limited means that the economy still operates ineffi ciently and suffers from two prob lems inherent in bureaucratic man agement: incessant bottlenecks and industrial autarky. Incessant Bottlenecks Since it is simply impossible for one agency to be able to familiarize itself with every nuance and pecul iarity of every plant in the entire economy, much less to be able to plan for every possible contingency for a year in advance, the planners are forced to make decisions based on summary reports. Further, they must establish broad categories of classes which necessarily gloss over countless differences between firms.

Consequently, every plan contains numerous imbalances which surface only while the plan is being im plemented. The Soviet economy still op erates inefficiently and suffers from two problems inherent in bureaucratic management: incessant bottlenecks and in dustrial autarky. Since there is no market, these surpluses and shortages cannot work themselves out automatically but can only be altered by plan ad justments made by Gosplan. Thus, shortage of good A cannot be rec tified unless or until so ordered by the planning board. But plan ad justment in one area will have ramifications throughout the econ omy. To alleviate the shortage of good A, resources will have to be transferred from the production of good B. Since this will reduce the planned-for output of B, the output of those industries dependent upon B will likewise have to be re1979 THE BUREAUCRACY PROBLEM 185 evaluated, and so on, in ever widen ing circles.

Empirical evidence bears out the economic theory. Paul Craig Roberts notes that what goes under the pre tentious claim of planning in the Soviet Union is merely ttthe fore casting of a target for a forthcoming few months by adding to the results of the previous months a percentage increase." Yet, even this ttplan" is ttchanged so often that it is not con gruous to say that it controls the development of events in the econ omy." The planning bureaucracy, he goes on to say, simply functions as Hsupply agents for enterprises in order to avoid free price formation and exchange on the market .... " While this appearance of central planning Usatisfies the ideology," the ttresult has been irrational sig nals for managerial interpretation, and the irrationality of production in the Soviet Union has been the consequence."9 Thus the evidence indicates that the perennially disappointing Soviet grain harvests are far more a result of the system than the weather, for even in ttpeak planting and harvest seasons as many as one third of all machines in a district may be stand ing idle because there are no spare parts. Central planners are acutely aware of the need for spares ... yet the management system seems un able to match up parts with machines that need them."lo The problem of bottlenecks is nothing new, as indicated by a re port of some time ago: ttthe Byelorussian Tractor Factory, which has 227 suppliers, had its production line stopped 19 times in 1962 because of a lack of rubber parts, 18 times because of ball bear ings, and eight. times because of transmission components." The same writer notes that ttthe pattern of breakdowns continued in 1963."11 The evidence indicates that the perennially disappointing Soviet grain harvests are far more a result of the system than the weather.

Perhaps the absurd lengths to which attempts at central planning can be carried is illustrated in an incident reported by Joseph Ber liner. A plant inspector, with the job of seeing why a plant had fallen behind on its deli very of mining machines, found that the Hmachines were piled up all over the place." When he asked the manager why he didn't ship them out he was told that according to the plan the machines were to be painted with red paint but the manager only had green and was afraid to alter the plan. Permis sion was granted to use green, but only after considerable delay since each layer of the bureaucracy was also afraid to authorize a plan 186 THE FREEMAN March change on its own and so sent the request to the next highest agency. Meanwhile, the mines had to shut down while the machines piled up in the warehouses. 12 Industrial Autarky The problem of bottlenecks is closely connected with that of or ganizational autarky. Plant manag ers are rewarded according to whether or not they have fulfilled their production quotas. To avoid becoming a. victim of a bottleneck, and thus not fulfilling the quota, the tendency emerged for each industry to control receipt of its own re sources by producing them itself.

HEach industry," says David Granick, u was quite willing to pay the price of high-cost production in order to achieve independence." In 1951 only 47 percent of all brick production was carried out under the Ministry of the Industry of Con struction Materials. And by 1957 116 of the 171 machine-tool plants were outside the appropriate indus try, despite the fact that their pro duction costs were in some cases up to 100 percent greater. 13 To combat this tendency Nikita Khrushchev reorganized the econ omy in 1957 by setting up 105 Re gional Economic Councils to replace the industrial ministries. In the ab sence of other reforms, however, he merely succeeded in substituting ((localism" for Hdepartmentalism," as each economic region endeavored to become self-sufficient. To counter this the economy was further cen tralized in 1963 but· this only in creased inefficiency by further rigidifying an already inflexible economy. Unable to find the key to efficient planning, 1965 marked yet another significant step toward a return to a market economy. These reforms not only introduced a lim ited profit system but also called for ((high degree of local autonomy for producers and suppliers. Detailed planning of every important aspect of production would disappear, to be replaced by minimal direct guidance from above."14 Marx postulated the withering away of the state. It is at least as significant as it is ironic that the continued shift of the socialist coun tries from bureaucratic planning to the market-what William Grampp terms the ((new directions in the communist economies"-indicates a Uwithering away" of the sort never envisioned by Marx. 15 III. The Problem of Distribution When considering the problem of distribution, we again find that cap italism is the enemy of bureaucracy.

Under capitalism, production is for profit. Capital and labor constantly flow to where they can obtain the greatest return. As can be seen, there can be no separation between production and distribution; for 1979 THE BUREAUCRACY PROBLEM 187 those individuals who, in the eyes of the consumers, render the greatest services to ((society" are precisely the ones who reap the greatest rewards. In any society where the state controls all the essential facets of the economy there is a natural temptation for those in control of the government to use their political power to obtain economic privileges. Turning to socialism, it is difficult to say much in theoretical terms about the way in which wealth is distributed since there are a number of conceivable bases for distribution: equality, need, merit, and services rendered to society. It should be ob vious, however, that the implemen tation of any of these would require conscious bureaucratic direction. It should also be pointed out in this context that the attempts to estab lish strict equality have never been successful and probably never will be. This is so for two reasons.

First, to spur output the Soviet Union, for example, has always had to rely heavily on the bonus system for its plant managers and the piece-rate system for workers. The increasing centrality of the bonus system is indicated by the fact that while in 1934 bonuses equalled about four percent of a manager's salary, today it often reaches one half, with bonuses for some indus tries comprising as much as eighty percent of income. 16 Second, in any society where the state controls all the essential facets of the economy there is a natural temptation for those in control of the government to use their political power to obtain economic privileges. Thus it is not surprising that the 1917 revolution, regardless of inten tions, only resulted in the replace ment of one privileged elite by another. 17 One example will illustrate this point. There are a host of ((special shops" in the Soviet Union selling everything from food to jewelry.

These stores, which are allegedly for the benefit of foreign tourists, have high quality merchandise at below cost prices in order to compensate the tourist for the government's ar tificially high exchange rate for ru bles. However, James Wallace points out that ((high-ranking gov ernment officials, senior military of ficials and upper ranks in the Com munist Party are all privileged to shop in these stores as a fringe bene fit of their jobs." They are therefore able to buy ((hard-to-get goods for a fraction of the prices their neighbors pay for often-lower-quality mer chandise."18 It is a revealing sidelight, and one that should be especially noted by 188 THE FREEMAN March those who condemn capitalism for its unequal ((distribution" of wealth, that there is greater inequality of wealth in the more socialist coun tries like the Soviet Union than in the relatively more market-oriented economies such as the Uni ted States. This moreover, is not a historical accident but in conformity with economic theory. For under capitalism there is a natural ten dency for capitalists to invest in areas with a low wage level, thereby forcing those rates up to a level commensurate with that of other areas doing the same work, while workers in low paying jobs tend to migrate to areas where pay is high er. Similarly, entrepreneurs invest in areas manifesting high profits. But the increased output forces prices and profits in those areas to fall. In short, while capitalism will never eliminate inequality, it does tend to reduce extremes of wealth and pov erty.

Conclusion Under capitalism the price system performs the crucial function of transmitting knowledge throughout the society and thereby eliminates the need for bureaucracy. But pre cisely because it eliminates the market, bureaucratic management is indispensable for a socialist econ omy. Furthermore, since there is an inverse relationship between cen tral planning and the market, bureaucratic management is inher ently contradictory. Its dilemma can best be summarized, perhaps, in the form of two planning paradoxes: Paradox One: For central plan ning to be viable it needs market data to guide its decisions. But the greater the role of the markets the less that of central planning. Con versely, the more extensive the area of central planning the more limited the market data, and hence the more inefficient must be the opera tion of the economy. Paradox Two: If the planning board endeavors to maximize con sumer satisfaction it merely does manually what the market does au tomatically. It is then just a waste ful, redundant entity. But if the planning agency plans operations that would not have been underta ken on the market, then that is an indication that the priorities set by the agency are in conflict with those of the consumers. It is clear that, regardless of the course adopted by the agency, the position of the con sumers must be worse off than it would have been under a market economy. ® -FOOTNOTES1 Andras Hegedus, "Marxist Theories of Leadership and Bureaucracy: A Marxist Analysis," Political Leadership in Eastern Europe and the Soviet Union, Ed.: R. B. Farrell (Chicago, 1970), pp. 53-54.

2Israel Kirzner , Market Theory and the Price System (Princeton, 1963), pp. 36-38.

1979 THE BUREAUCRACY PROBLEM 189 3Ibid., p. 39. 4For a good. summary of this process see Herbert Levine, "Input-Output Analysis and Soviet Planning," American Economic Review (May, 1962), pp. 128-31. 5See William Loucks and William Whitney, Comparative Economic Systems (New York, 1973), pp. 302-4; and Marshall Goldman, The Soviet Economy (Englewood Cliffs, 1968), pp. 92-4. 6Loucks and Whitney, pp. 322-26; and James Wallace, «In Classless Russia (Some Are More Equal Than Others,'" U.S. News and World Report (August 4, 1975), p. 35. 7F. A. Hayek, Individualism and Economic Order (Chicago, 1972), pp. 86-7. 8Ludwig von Mises, Bureaucracy (New Rochelle, 1961), p. 33. 9Paul Craig Roberts, Alienation and the Soviet Economy (Albuquerque, 1971), pp. 78-85. 10James Wallace, "Communist System's Toll on Farms," U.S. News and World Report (Au gust 18, 1975), pp. 16-7. HC. R. McConnell, uSome Fundamentals of Economic Planning in the Soviet Command Economy," The Soviet Economy Ed.: Harry Shaffer (New York, 1968), p. 32.

121n David Granick, The Red Executive (New York, 1961), pp. 133-34. 13Ibid., p. 135. Industrial autarky is, of course, nothing more nor less than a monopoly. It is interesting to note that this has become such a serious problem for many socialist economies that Yugoslavia, for example, has been forced to adopt antitrust laws to deal with it. See William D. Grampp, uNew Directions in the Communist Economies," Business Hori zons (Fall, 1963), p. 34. 14J. P. Hardt, et al., "Institutional Stagna tion and Changing Economic Strategy in the Soviet Union," Man, State and Society in the Soviet Union, Ed.: Joseph Nogee (New York, 1972), p. 183. Also see the special, "Socialism," in Time (March 13, 1978), pp. 24-41. See espe cially p. 26: The socialist economies, it notes, are characterized by "heavy overstaffing (of) every office and factories with workers who seldom can be fired for failing to produce.

Bureaucratic controls further cripple effi ciency and managers have little leeway for innovations. Consumer goods are still shoddy and chronically scarce.... Yugoslavia seems to have the fewest economic problems among Marxist-Leninist states. It also has the least rigidly controlled economy in Eastern Europe." 15Grampp, pp. 29-36. 16Granick, p. 111. 17See Milovan Djilas, The New Class (New York, 1968). Also see the interesting com ments on the Bolshevik Revolution by a Rus sian anarcho-syndicalist and contemporary of the Revolution, "M. Sergven," in ttThe Paths of Revolution," reprinted in Libertarian Analysis (Winter, 1970), pp. 9-12. 18Wallace, uClassless Russia," p. 35. The recent scandals in the U.S. Government Ser vices Administration-scandals which News week referred to as "the biggest money scandal in the history of the Federal government" (September 11, 1978, p. 29)-only further dem onstrate how easily bureaucratic planning lends itself to exploitation. Also see the bril liant article on the Washington bureaucracy by Tom Bethell, "The Wealth of Washington,"

Harper's (June, 1978), pp. 41-59. Especially see page 43: "The laws of supply and demand not only do not apply to Washington, they are turned inside out. Problems elsewhere in the country merely contribute to the wealth of Washington. The fuel crisis takes the shape of a new Department of energy, where 19,000 bureaucrats under Dr. James Schlesinger's command will have $10 billion to play with roughly equal to the total profits of all the oil companies."

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Can Capitalism Survive? BEN ROGGE, who teaches economics at Wabash, has never· fancied him self as a writer. The formal books which he has planned from time to time languish in his desk drawers. He says, with the deprecatory whimsicality that is part of his na ture, that he functions best through the spoken word. He is a platform man. The distinguishing mark of a Rogge speech, however, is that it invariably reads beautifully. The collection of addresses which Ben Rogge has linked together under certain loose topic heads to make a book, Can Capitalism Survive? (Lib erty Press, 329 pages, $9.00 cloth, $3.50 paperback), proves that the spoken style, when it is enlivened with parenthetical humor, can take on the quality of a good essay. Rogge's values and beliefs are as firmly set as anybody's, but he does not make the tactical mistake of trying to grab people by their lapels and mesmerize them into a goggle eyed march to the mourners' bench.

190 He has a feeling for sinners, and he is not chary of admitting his own foibles. He is not what Mencken would have called a wowser. Thus, in discussing the orthodox conserva tive's demand for a strict enforce ment of the anti-marijuana laws, he reflects, with characteristic rueful ness, on what the prohibition men tality might do to deprive him of his ~~noble and useful gin and tonic." If Diogenes, in his search for an honest man, had come upon Rogge, he would have called his quest suc cessful. Part of Ben' s whimsical honesty resides in his willingness to admit that he frequently concedes himself a five-foot putt at golf. As is inevitable in any collection of occasional speeches (or essays) the unity of the book must depend more on tone than on structure. The top ics, in Can Capitalism Survive?, are heterogeneous. There is a marvelous historical essay on what happened at Harmony and New Harmony in Indiana, where Rappites from Wurttemberg in Germany and CAN CAPITALISM SURVIVE? 191 Owenites from England successively tried to found a collectivist Utopia in territory close to Rogge's own Wabash College. There is Rogge's personal attempt to answer the question, ~~Rogge, what kind of nut are you?" There are appreciations of Adam Smith and Joseph Schumpe ter.

No theologian, Rogge tries manfully-and successfully, as I am sure Edmund Opitz would agree-to deal with the question, ~~Can there be a Christian economics?" Ordinar ily Rogge declines to speculate on the tergiversations of American politics, but his commentary on the Goldwater campaign of 1964 is con siderably more acute than anything supplied by our professional politi cal pundits. No urbanist, Rogge draws definitive conclusions about the ineffectiveness of city planners by giving the civilized observations of Jane Jacobs's The Death and Life of Great American Cities an economic underpinning. Back on his own ground, Rogge puts the subject of inflation into sharp and despairing perspective. He appreciates the skills of the en trepreneur in several essays, but doesn't expect to get much help from the business community in saving free enterprise. Nor. does he think his fellow educators will quickly solve the problem of putting the American college on a sound finan cial footing.

If the topics are all over the lot, the unifying philosophy is all of a piece. Rogge .thinks that non economic freedoms depend on eco nomic freedom. The failure of the modern liberal to see the connection distresses him, but it does not sur prise him. He knows the frail ties of humankind, and to expect any easy triumph of logic is simply unrealis tic. He knows that it is difficult for a businessman caught up in a great organization to stand out against tariffs and government subsidies. He knows that the private educator cannot afford to go on a full-cost tui tion fee basis as long as the tax supported state universities offer below-cost rates to every student. He supports the economics of Adam Smith at virtually every turn, and he is warmly appreciative of the work of FEE and Leonard Read in keeping the freedom philosophy alive, but he has his moments of pessimism when he thinks Schumpeter may be right in predict ing that capitalism will fail not be cause of any internal weakness but because it has not managed to enlist the loyalty of the intellectuals.

In brief, Rogge is the very opposite of Pollyanna. But he takes it as his duty to keep plugging. The problem is not to organize politically; it is to keep talking about the eternal rele vance of certain ideas. Goldwater couldn't win in 1964 because the country was still afflicted with 192 THE FREE'MAN statist illusions. Our politics will change when our ideas change, not before. Rogge does not consider that the economics teaching in our col leges is particularly subversive (even our Samuelsons have good words to say about the free market), but it is another matter when it comes to converting the English teachers and the sociologists to the freedom philosophy. The work to be done is endless, but the joy, as Rogge thinks of it, is in the battle. If our civilization fails to save itself, there will be other civilizations to come. Readers of The Freeman will be particularly interested in Rogge's final chapter, titled HThe Founda tion for Economic Education: Suc cess or Failure?" Rogge gives four separate answers to the question.

The answers, in order, are yes, prob ably no, almost certainly no, and unqualifiedly yes. Since it is the mission of any or ganization, at first instance, to sur vive, FEE has passed the prelimi nary test. Given the intellectual climate of the past twenty-five years, this is something of a miracle. Whether the sanity that FEE repre sents can turn the tide of battle is still moot, but its presence is, as Rogge says, ~~a very present help in time of trouble." He recalls Tolstoy's description of the role played by Prince Bagration in the Battle of Schon Grabern. The Prince's calm presence rallied the troops, who were anxious to ~~display their cour age before him." A second way to evalute FEE is to consider its chances for survival in the long run. Rogge says the answer here is ~~probably no." But he would not have its form survive its soul, and he is sure it will be around long enough to be an important center of strength in the cause of freedom.

The third possible interpretation of success as its relates to FEE is whether it promises to turn the tide of battle in the near future. Looking about him, Rogge remains pessimis tic. We still have economic lunacy in Washington, and the businessman is more often than not a part of the problem, not a part of the solution. The score, says Rogge, is still Lions, 100; Christians, Zero. But point three must yield to point four in judging the success or failure of FEE. The real measure of a teacher's success is: Has his teach ing induced in others what Aristotle termed ~~activity of soul"? Rogge an swers this question with a thunder ous ~~yes." His own Hactivity of soul" is a tribute to FEE's teaching. @ Can Capitalism Survive? either in cloth at $9.00 or in paperback at $3.50, also is available from: The Founda tion for Economic Education, Inc., Irvington-on-Hudson, New York 10533 the Freeman VOL. 29, NO. 4 • APRIL 1979 Start at the Beginning Robert LeFevre 195 The fundamentals of economics and our transactions in a free market begin with the private ownership of property.

The Indivisibility of Liberty Davis E. Keeler 201 How one intervention leads to others in the fracturing and destruction of liberty. Conservation or Confiscation? Charles R. Batten 204 How resource owners' rights are diminished by the environmental protection movement. . Sixth Wheel Kenneth McDonald 212 A formula for reducing-curbing government spending to encourage production by individuals. World in the Grip of an Idea 28. The Cold War: The Third Wor~d Clarence B. Carson 214 Obscuring the distinction betwE~en Communism and gradualist socialism in developing countries. The Costs of Occupational Licensing Dennis Bechara 227 Occupational Iicensing restricts the supply of services and raises costs to consumers, with no guarantee of quality. The Roots of the Free Market W. Earl Douglas 232 Overcoming disorder and chaos is a vital first step toward enjoyment of the fruits of the free market.

The World Economy at the Crossroad Donald B. Billings 238 Examining the United Nations call for a "new order" of trade between nations. A Better World James C. Patrick 245 To improve the world, begin with self-improvement. Deregulation of Trucking John Semmens 246 Answers to some of the arguments against deregulation of the trucking industry. Book Reviews: 252 "The Secret Six: John Brown and the Abolitionist Conspiracy" by Otto Scott Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

tt1e I A E!~~N~~~N LIBERTY FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year.

Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "Conservation or Confiscation?," "Sixth Wheel," and "World in the Grip of an Idea."

Robert LeFevre START AT THE BEGINNING WERE I called upon today to teach a course in basic economics, I would begin at the beginning. It is my observation that this procedure is rarely followed these days. It has been my lot for a number of years to deal with management trainees for several companies, in cluding one large corporation. Most of these trainees have come from some of our finest colleges and uni versities. Perhaps as many as twenty per cent have studied adMr. leFevre founded and for years presided over the Freedom SChool In Colorado and has lectured and written extensively in behalf of freedom and the market. His latest book, just off the press, Raising Children for Fun and Profit, Is comprised of the Freedom School home study course of the same name. The book I. available at $10.00, from P. K. Slocum, 7333 Corey Street, Downey, California 90242. vanced economics, and a few hold degrees in the discipline. Probably as many as fifty per cent have re ceived advanced degrees in one or another field. These young men and women are far above average. All are talented, a few gifted, and here and there an undoubted genius.

I work with eight hundred to a thousand people of this caliber every year. Perhaps one in a thousand can relate the myriad bits of data learned in school to the realities of human existence in this world. Most arrive for my seminars with two economic assumptions of direful foreboding: (1) The large corpora tions represent a constant danger and must be controlled by the government; (2) Without antitrust laws, the Environmental Protection 195 196 THE FREEMAN April Agency and other bureaucratic interventions, private businessmen, large and small, would walk roughshod over the entire popula tion of this country. The reason? Free enterprise leads inevitably to monopoly. These seminar attendees did not invent these anxieties. They learned them at the feet of their professors, many of them professors in econom ics. It Is Futile to Argue I have learned from experience that any attempt to dispute these conclusions by direct debate is largely futile. As the early rhyme sters had it, ((a man convinced against his will, is of the same opin ion, still."

However, if I can go to the begin ning to point out the realities un dergirding all economic theory, then I have a chance of showing that an entirely different set of conclusions is warranted. What then are these realities which should be seen at the begin ning? Or, even before that question is asked, what is the purpose of the study of economics? Most of us are acquainted, perhaps by the process of a kind of social-intellectual osmosis, with the classical definition: economics is the study of the production, distribution and consumption of scarce resources. (Note: Currently the last, two words are frequently replaced by the words ((goods and services" and the concept of scarcity is omit ted.) While that definition is adequate, it lacks impact and immediacy. I would like to add to it a statement I must credit to Clark and Rimanoczy who pointed out nearly two score years ago that economics is the study ofttHow we live." That phrase brings it home and puts it on one's lap.

To understand economics is to un derstand how we take hold of the various resources of this world and put them together in such a way that we can stay alive. More. We do not, in economics, study merely the necessaries to retain the human heart beat. We want to survive, true. But we all want to live with some degree of personal satisfaction. To survive without any personal satisfactions would be to sustain a living death. Any prisoner in any jail receives the assurance that those who restrain him will do all in their power to keep him alive. That is not enough. We want to be alive as human beings, not as caged ani mals. It follows that everyone, who wishes to stay alive as a human being, should understand at least the basics of economic lore. Those who have no such interest should wisely stop reading at this juncture.

1979 START AT THE BEGINNING 197 Were I to teach economics, I would try to make these points clear. What is the first reality we should recognize as soon as we have iso lated our area of inquiry? 1. Man is a profit-seeking crea ture. I will not endeavor to prove that point at this time; rather, I state it categorically. However, I will em bellish it enough to remove a com mon misunderstanding. The word profit is so affiliated with bookkeep ing procedures that I can anticipate an assumption here. Some will b~ certain I have said that everyone wants to profit in terms of dollars. This is decidedly not so. Many are not interested in dol lars, as such. Whatever interest he might have in dollars, every human being seeks to obtain more of what ever it is he values. Conversely, he seeks to prevent the loss of anything he values. I am using the term profit in a philosophic or even in a psychologi cal sense. So I will introduce another term and use it in place of the word profit.

Every human being· seeks plus factors. His plus factors may be dollars. But they might also be friendship, love, good health, a com fortable bed, a good meal, a rare book, a work of art, a day of leisure, a job, a good bridge game, or anything else his heart, body or mind desires. In this sense, man is a profit-seeker. He seeks to satisfy his desires what ever they may be. 2. Man lives in a world of limited (scarce) resources. Let me pro vide an illustration. Man is a land using creature. His habitat is land, not air and not water. He uses air and water, but land is where he lives. Our planet has a limited sup ply of land. Approximately thirty per cent of the earth's surface is above water and not all of that read ily habitable. The total population of the world, whatever it may be at any given moment, must use the re sources of this world's land to sur vive and satisfy human needs and wants.

3. Not only is our world one of limited resources, the resources we do have are unevenly distrib uted. No two pieces of land are equal in terms of utilization. Some plots of land have multiple utility. Some are near water or receive rain fall. Some are not and do not. Some land contains minerals, oil, metals and various chemicals. Some is ap parently barren in terms of our present knowledge and technology. In an attempt to be ufair," a division of the land so that each person would have an equal amount of ac reage would be about as unfair as anything that could be imagined. The person receiving a few acres in the middle of the Gobi desert has a 198 THE FREEMAN April high probability of dying of thirst. The person receiving a few acres in the middle of Beverly Hills might do very well indeed. 4. The same diversity of dis tribution we find in land re sources is found with human re sources. Human beings are un evenly distributed about the. globe.

In a few places we will find millions of people living within a few square miles. Elsewhere we have zero popu lation. Thus the distribution of human beings ranges from im pacted, to dense, to settled, to sparse, to zip. The same disequilibrium of human abilities is evident. Some persons can perform in a superior fashion at almost any endeavor or enterprise. Some have very meager competency. Most of us occupy the undistinguished center, capable or even superior at some tasks, bumblers or worse at others. And there are a few, always, who cannot manage. Were I to attempt a teaching of economics, I would try to make the foregoing points. clear. Much more could be said in every instance, of course. There are a few more preliminaries. 5. All resources, capable of being owned, are prop erty. Property is that item, real, personal or abstract, that can be identified as a thing in itself and is capable of being controlled by one or more humans under certain condi tions. To survive and to survive with any hope of comfort and satisfaction it is necessary that each human being dominate his own environ ment in his own interest to some degree.

This is not only true of man, it is true of any living organism. Life, as we understand it, is only possible when a given entity is able to obtain what it needs from its surroundings. Nature has denied us the evidence of perpetual motion. Man is not born with a built-in power pack which makes him indifferent and indepen dent of his surroundings. Even the sun is cooling. 6. Man is totally dependent upon property. He cannot survi ve without it. But property makes no decisions. All decisions over prop erty are made by human beings who are capable of controlling that prop erty under certain conditions. Noth ing happens in the market automat ically. If something is to be pro duced, someone must make a deci sion to produce it. If something is to be distributed, someone must make a decision to distribute it. If some thing is to be consumed, someone must make a decision to consume it. In the absence of man, nature takes over and property obeys natu1979 START AT TIDl BEGINNING 199 rallaws. When man is present, he learns natural law and, with that knowledge, exercises dominion over both natural and manmade prop erties.

7. Who is the proper decision maker over any given piece of property? A single choice is available. Either the person owning the property. will make decisions over that property. Or a person not owning the property will make the decisions. Who else is there? There are billions of pieces of property in the world. Each piece of property is owned by an individual or a group, or it is unowned. There are also billions of people in the world. If we decide that a nonowner should make the decisions over a property an individual owns, what incentive would there be for anyone to own anything? Further, which nonowner (when there are billions of nonowners in respect to each item owned) is to be given the authority over a property he doesn't own? If we assume that all the nonown ers should vote on each decision to be made, we reach the impondera bility of numbers as well as the imponderability of information availability among those who -are to vote. Indeed, we enter the theater of the absurd. Clearly, to reach deci sions, either the owner or a selected group of nonowners must -decide.

The argument most often advanced in support of this latter practice is that private owners of property are profit-seekers and might make deci sions that would injure others. Where is the evidence that nonown ers are not profit-seekers? If I were called upon to make a decision over my neighbor's property, would I not be inclined to make a decision that would serve my ends, rather than my neighbor's? While it is certainly true that the owner of a given item of property may lack in wisdom, it is equally true that-a nonowner may also lack in wisdom. But there is one thing to be said in favor of decision making-by owners. To become an owner, certain thrift, forbearance and concern have al ready been expressed, either by the owner in person, or by those others who bestowed the property upon him and thus expect him to make decisions. The only thing that can be said in favor of having nonowners make de cisions over property they do not own is that they are there. But the owner is there, too.

8. Something needs to be -said about decisions. Any decision is a finality. We cannot have it both ways. You cannot have your cake and eat it, too. Are we to have homes only be cause others decide? Are we to wear clothing only when others make 200 THE FREEMAN that decision? Are we to eat only when others reach that conclusion? If you decide affirmatively in these last questions, then you have decided that man should be kept like an animal in a cage. And who de cides which cage? Some other human being with no more wit nor wisdom than any other. either right or wrong behavior. That is to say, I can confine my deci sion-making to myself and my own resources in all categories. If I so limit my decision-making, it follows that I cannot commit a wrong against another. Since I do not pre sume to be an authority over anyone except myself, nor over any property except my own, my relationship 9. Finally, there is the question with all others is peaceful and per of right and wrong. I am not mits them to be free. Further, I am speaking of ~~good" or ~~bad." Good or free, for the only person limiting my bad are words derived from our re-· . behavior is myself. And freedom spective value judgments. Right and means self-control.

wrong relate to appropriateness in When I am not content with this terms of reality. and presume to make decisions over Without attempting a complete other persons and other persons' argument, because of space limita-property, and do so against their tions, may I merely state categori-wills, then I am violating their basic cally that there is only one way any natures as profit-seekers and am human being can physically inflict imposing wrongs upon them. an injury and· hence impose a Were I to undertake the teaching ~~wrong" on any other human being. of economics, I would begin with He presumes to act as the authority these beginnings. It is only when over another person or that other these ultimate givens are fully person's property against that per-grasped and appreciated that we can son's wishes. This is contrary to the enter the halls of the arcane mys basic nature of man as a profit-teries provided by higher mathemat seeker. As a profit-seeker, each of us ics, calculus and statistical fore seeks to make decisions over his own casting of probabilities. The person and prQperty, and must do so economics professors may now take to stay alive and to achieve any over. If they do so at this juncture, it measure of satisfaction. I am not is unlikely that they will presume speaking of children, nor of any the danger of the large corporation other incomplete or incompetent or the inevitability of monopoly, mentality. I speak of man qua man. given a free market in a context of As a human being I am capable of private ownership of property. Ii Davis E. Keeler The Indivisibility of Liberty THE indivisibility of liberty is illus trated by the frequent occurrence that the violation of one Uright" may also involve the violation of some other right. For example, a restric tion on freedom of contract may also be thought of as a denial of equal treatment. The imposition of wage and price controls in an inflationary economy provides a good case in point.

Infla tion spreads unevenly through society. Certain identifiable groups get newly-created money first and spend it before the market discounts it by raising prices. These people receive the benefit of inflaDavis E. Keeler Is director of the Law & Liberty Project of the Institute for Humane Studies, Menlo Park, California. tion through a wealth tra:nsfer from other persons who do not know it is inflated money they are taking or who cannot do anything about it. The money passes from the fa vored first recipients through vari ous hands, gradually losing its pre mium, as prices gradually adjust upward to discount the inflated money. Eventually inflation is fully discounted and recipients of the in flated currency can no longer exploit their less fortunate neighbors. However, if price or wage controls are imposed, those favored persons who received the initial issue of the inflated money continue to receive a premium value for it, as those who sell to (work for) them cannot adjust prices upward to reflect the de201 202 THE FREEMAN April creased value of the inflated money.

These people suffer a wealth trans fer, as their goods (labor) must be sold cheap to the politically-favored recipients of the inflated currency. While the secondary holders of this inflated currency may, them selves, enjoy some of the benefits of price or wage controls in their pur chases, this will be restricted by shortage. This is because no addi tional wealth has been created by inflation, and as there has been a transfer of part of the existing stock of wealth to the politically-favored first holders, the secondary holders will find themselves bidding with money now generally recognized as less valuable for a decreasing stock of goods and services. This is why shortages accompany price controls. Goods available on the black market will, of course, discount the inflated currency to its true value, as will all prices when controls are eventually rescinded by an electorate grown tired of the burden of controls. When this finally happens, the unfortu nate holders of the inflated money, forced to take it by price or wage controls, will find it reduced to its true non-inflated value. Then the process of government-induced wealth transfer from the politically weaker to the politically stronger will be complete.

While this is a rather simple example, it can easily be multiplied. This is because almost all economic regulation involves the creation of invidious distinctions. If you look at almost any scheme of economic reg ulation you will find that it involves treating similar people differently. This is how it achieves its Uresults." This is also why socialists are so uncomfortable with the traditional rule-of-Iaw stricture that all laws be general, that they apply to all peo ple equally. Without the ability to create wealth transfers by legally favoring one group over another there would be no ((benefits" for the socialists to distribute. But, more fundamentally, this il lustrates the fact that many of the rights enumerated in the Consti tution are merely particular in stances· of the general right to lib erty. While these rights emerged piecemeal in the modern period in such specific guarantees as freedom of the press or due process of law, they are not the basis of our liberty, but merely particularized examples of our larger right to freedom. As Blackstone explained: The liberties of Englishmen are not mere infringements of the King's pre rogative, extorted from our princes by taking advantage of their weaknesses, but a restoration of that ancient con stitution, of which our ancestors had been defrauded by the finesse of the Norman lawyers, rather than deprived by the force of Norman arms.

And this also explains why we 1979 THE INDIVISIBILITY OF LIBERTY 203 should be intolerant of any restric tion upon our liberties, no matter how slight. For the relation of rights is such that an acquiescence in the restriction of one may be used as an argument to violate another: HWhat's wrong with registering guns; we register automobiles, don't we?" There is a natural tendency for people· in a democracy such as our own to be tolerant of small abuses of our liberties, but it puts us on the Cooperation slippery slope of logic when we must then argue that some new restric tion is bad while some other was acceptable. Liberty is an exciting idea. It il luminates the mind like sunlight. It refreshes like the breeze. It is whole and consistent and just. It is so pow erful and persuasive that even its enemies claim to be in favor of it. And if we respect its wholeness and consistency and logic, it can be the most powerful idea in the world. Ii PAUL L. POIROT THE ~~cooperation" of socialism refers to the sharing of whatever is available to consume, regardless of how it came to be produced or saved, or who might claim ownership. Mall, as consumer, is to help himself to anything he needs-but at the other fellow's expense. The double trouble with this concept of~~coopera.tion" is its inherent immorality and the fact that it doesn't work. The theory doesn't work out in practice because most human beings won't work~r save-if they're systemati cally robbed by loafers, or taught to lbe loafers themselves. And, whereas voluntary charity may be considered one of the highest forms of moral human action, it seems clear that reversing the process to let the receiver of alms grasp what he wants from whom he pleases is quite as immoral as any other form of theft.

Because consuming may follow but cannot precede production, it is important that economic policy give consideration to producers and encourage them. Private property--the right to the fruits of one's own skill and labor, earned by serving rather than exploiting others-affords such encouragement. The owner of property is free to trade with others, if they are willing. He may not force anyone to buy his goods or services, but must vie for the buyer's favor-eater to the consumer-in open competition with all other producers within his market area. Stiff competition? Yes, indeed. But also cooperation of the highest order, for it involves absolute respect for the lives, the property, the freedom-the gamut of human righ~f every peaceful person in the world.

Charles R. Batten Conservation or Confiscation? WHO OWNS the land and natural resources in these United States? The individual or corporation that holds title? Or does ((society" own the land? These are basic questions, yet largely ignored in the current de bates over environmental problems and the use of natural resources. The final answers will determine what kind of a society we will have-whether that society will ul timately be one of individual free dom or one of centralized control of all facets of human activity. The owners of property determine how the property is used. The own ers of forest lands determine whether they will be used for the production of wood crops or for rec reation, or some combination of Mr. Batten is a freelance writer and consultant, residing in Sacramento, California. 204 both. The owners of the airwaves determine what is broadcast over them. The owners of printing presses determine what is printed.

To understand the issues in volved' and where we stand in our search for answers to these key questions, it is important to look at our history, and see where we are today, and how we got here. In any society at any time, there are currents and cross-currents trends and schools of thought that are contradictory. They can usually be grouped into broad classes: au thoritarian and liberal. Here, I mean authoritarian as the philoso phy that favors the concentration of power, and liberal as the practical philosophy of individual liberty. In the preface of his five-volume history of Colonial America, Murray Rothbard wrote: CONSERV ATION OR CONFISCATION? 205 My own basic. perspective on the his tory of man, and a fortiori on the history of the United States, is to place central importance on the great conflict which is eternally waged between Liberty and Power, a conflict, by the way, which was seen with crystal clarity by the Ameri can revolutionaries of the eighteenth century.!

British Mercantilism Britain attempted to impose the mercantilist economic system on its American colonies. Mercantilism was based on the belief that the gain of one man or one nation must rep resent the loss of another and that the precious metals were the most desirable form of wealth. Mercan tilism advocated the regulation of foreign trade in order to increase exports and to discourage imports in other words, to create a favorable balance of trade. 2 It was the purpose of the colonies to provide that favor able balance in order to benefit the merchants of the mother country. The basic mercantilistic structure was built up in the Navigation Acts during the seventeenth century. But Britain was in no position to enforce them, so the merchants of the col onies ignored them. 3 Though Britain sought to restrict the production of manufactured goods in the colonies, it imposed a network of subsidies and prohibi tions in order to encourage the pro duction of ship masts and naval stores. Probably the first attempt of governmentally-imposed conserva tion in North America was con tained in the Massachusetts Charter of 1691. The charter reserved to the Crown all trees twenty-four inches and larger in diameter on the public domain.

By 1722, the cutting of any white pine trees in New England outside of township limits was prohibited, whether publicly or privately owned, except under license from the Crown. During the French and Indian Wars, Britain established her army in North America, and when the war ended in 'the early 1760s, was ready to enforce the mercantilist laws that the colonists had ignored so blithely during a century of salutary neglect. Writs of assistance were issued, which authorized customs officers to break into warehouses, stores and private homes to search for illegal goods. Then, in 1763, the Surveyor General of the Woods began to en force the White Pine Act. Two thousand white pine logs were seized in western Massachusetts on the grounds that they came from trees legally reserved for the Crown. The colonists reacted by threatening to beat or assassinate the Surveyor General's agents. Local justices of the peace refused to aid the deputies in enforcing the law.4 By that time, the colonists had 206 THE FREEMAN April had a taste of individual freedom and a free economic system. They were also beginning to absorb the ideas of John Locke, Voltaire, Rous seau, and other liberal writers. As Britain increased its efforts to en force its mercantilistic policies, the resistance was also increased. Fi nally, in 1776, the colonists gave up all hope of being able to reconcile their differences with England, and publicly declared their indepen dence.

Liberty had triumphed. Constitutional Guarantees The founding fathers set up a con stitutional form of government which they believed would establish a nation in which the land belonged to individual citizens, the rights of the individual were guaranteed, and government was the servant of the people, to protect them and their property. ' But, as John Philpot Curran wrote: (CIt is the common fate of the indolent to see their rights become prey to the active. The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt."5 So, slowly at first, but rapidly in recent years, power has usurped human liberty. Entangled within the web of power, we see the threads of environmental concerns. The first great age of conserva tion, during the time of Gifford Pin chot and Theodore Roosevelt, dawned in a distrust of private own ers as custodians of natural re sources, and a distrust of the free market and its pricing system as the means of allocating resources.

So millions of acres of lands were reserved in government ownership (C. . . for the purpose of securing favorable conditions of water flow, and to furnish a continuous supply of timber for the use and necessi ties of the citizens of the United States .... "6 Then, in 1970, the environmental movement was launched with the national observance of Earth Day. The remnants of the White Pine policies of 250 years ago, the forest reserve policies of Teddy Roosevelt, the alphabet agencies of the depres sion years, and the ttemergency" controls of the Second World War had evolved into a mixture of regu latory commissions, economic con trols and court decisions that gave the federal government the power to control virtually every facet of our economy. But many individuals still re sisted. They insisted that they still owned their land and could do with it what they chose, so long as their use did not injure a neighbor.

The authoritarians, those people who are unable to distinguish a nat ural order in a society not centrally 1979 CONSERV ATION OR CONFISCATION? 207 directed, captured the environ mental movement as a means by which they could extend the power of government over the remaining sectors of our society which were until then relatively free. The Environmental Handbook The Environmental Handbook, Prepared For The First National Environmental TeachIn (still avail able in bookstores on and near col lege campuses) is a manifesto for social change. In order to come to grips with our environmental problems, wrote Garrett DeBell, editor of the book, uwe must propose workable alterna tives to our present patterns of liv ing."7 The admittedly antihumanis tic and anticapitalistic bias of the environmental movement was clearly revealed. The authors called for u an entirely new framework of land use policies,"

including coastal commissions, state-wide zoning, and taxation to discourage the use of natural re sources. One goal expressed in the Envi ronmental Handbook is cCA basic cul tural outlook and social organiza tion that inhibits power and property-seeking while encouraging exploration and challenge in things like music, meditation, mathemat ics, mountaineering, magic, and all other ways of authentic being-in the-world. "8 The thrust of the book was sum marized in the closing piece-a fable which advocates a return to the simple life of the stone-age Polyne sian: uOnly by following the exam ple of the Polynesian can we sur vive. We must assert ourselves as individuals while submitting to na ture."9 Those who sought the extension of central power over all of our society joined those sincere individuals who are concerned with the illnesses of the environment, real or imagined. The Can for Control To reach the objectives described in their manifesto, the leaders of the environmental movement launched an attack on the people and the institutions that they believed should be controlled by government.

Since we have been told that we have a capitalistic society, then it was a simple step for them to sug gest that the capitalistic system is to blame for all environmental ills. Therefore, we must abolish capital ism, or at least control it, so we can purify our environment. Industries and property owners, they reasoned, must be controlled by government. To control the economy, it was necessary to launch an attack on businessmen and industrial lead ers.10 To control the use of natural resources, it was necessary to attack the timber, mining, and the energy industries. It was necessary to 208 THE FREEMAN April ~~prove" that in their greed for prof its, those industries are destroying the resources and the environment around us all. The emotional charges and state ments made in order to convince the public that spaceship earth's life support systems are in immediate danger of destruction range from simple and deliberate obfuscation all the way to outright falsehoods.

It is amazing to me that such tactics, based on the morally bank rupt philosophy that the end jus tifies the means, have been so suc cessful. Dozens of· laws have been passed literally confiscating the rights of landowners to their prop erty, in the name of environmental protection. Federal and state environmental protection acts, coastal zone protec tion acts, air and water pollution control laws, forest practice acts, sur face mining control acts, wild and scenic rivers acts, and endangered species acts are some of the laws passed since 1970 that authorize government agencies to impose their authority over the resource owners. They have usurped the property owner's control over his property. Ownership implies control. If the person holding a deed does not con trol the use of the property it de scribes, he does not truly own it. Today, we are back where we were in the mid-1700s. In at least two states, a private timber owner must get permission from the state before he can harvest timber. Similar re strictive forest practice legislation has been considered in other states and in Congress.

On both the Federal and State levels, government has the ultimate control over nearly all natural re sources. Since all material wealth, and all economic activity originates from natural resources, government has virtually total control of the economic activities of the people. Capitalism Threatened The environmental movement has been seized by those who would de stroy capitalism in the United States, and establish some form of socialism in its place. It has gone a long way toward the completion of its objective. Power has won over Liberty. Ob fuscation has led to confiscation. Petr Beckmann has tried to ex plain why the environmental ac tivists seek to destroy capitalism. He charges that the uSmall Is Beau tiful" cult led by the late E. F. Schumacher (author of the book by that name) and Amory Lovins is attempting to impose the kind of energy sources on today's society that were used during the days of feudalism. Politicians and even many persons in academia and business are in ecstasy over their proposals. The common man-the 1979 CONSERV ATION OR CONFISCATION? 209 consumer, the blue-collar worker-· will be the big loser.

The environmental activists are a. small, elite group who resent the common man, ttfor he is crowding' ttheir' highways, beaches, national parks, airlines," wrote Beckmann. ttThey resent the free enterprise sys· tem because it lets people buy and. do what they want to, when they really should buy and do what they ought to. And what they ought to do should be planned by the tone· setters who know what is good for the people. ttThe influential social position of this elite, then, is threatened by the mass prosperi ty that is bred by technology and free enterprise," said Beckmann. 11 Dr. H. Peter Metzger has built a good case to show that the environ·· mentalists are deliberately setting about to create the shortages of energy and other natural resources that they have predicted, and that they are being successful in their efforts. They have virtually stopped all nuclear power plant licensing, new coal leasing, water develop·· ments, new development on federal lands, and new industry (the lattelr through air pollution control re·· quirements) .12 Obfuscation and confiscation have frustrated the normal economic ac tivities of basic industries engaged in converting natural resources. to consumer goods.

Restoring Private Ownership The history of mankind has shown that the highest levels of civilization and the highest standards of living have been achieved under condi tions of individual freedom to make economic decisions and to own and control property. To retain that freedom, we must restore the pre rogative of the private owners of natural resources to allocate the use of those resources through the mar ketplace. You, the reader, may by now won der what can we do about it? What is the outlook for the future? We have hard times ahead. The authoritarians have already nearly accomplished their goal, but in spite of it, I am optimistic for the long range future. There are many hope ful signs, though we must search for them. There is increasing recognition among consumers that most of our current economic ills-inflation, energy shortages, and the like-can be blamed on the interventions of government.

While the trend toward authori tarian controls over natural re sources and their use has been re lentless in its advance, there are some signs of relaxation of controls in other segments of the economy, mainly in the transportation and communications industries. Deregu lation of important industries is being seriously discussed, and the 210 THE FREEMAN April ECONOMIC CONTROL is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lowerin short, what men should believe and strive for. Central planning means that the economic problem is to be solved by the community instead of by the individual; but this involves that it must also be the community, or rather its representa tives, who must decide the relative importance of the different needs.

F. A. HAYEK, The Road to Serfdom first steps in that direction have been taken. Those steps are the result of the rapid growth of the libertarian movement, and its improving ability to raise the issues of public regula tion before the people, and explain the inevitable results. Increasing numbers of writers, scholars and or ganizations are contributing to greater public realization of the benefits of individual freedom from government regulation. Only a few writers within the libertarian movement have focused their attention on the problems of resources and their use. But the foundation is being formed, and when applied by thinking people to natural resource problems, there will inevitably be an impact. Some pessimists believe that it is too late-that we have already gone so far down that road to centralized control that we will not be able to return to a free economy. But I do not agree. Progress in any ·area is never steady, but comes in spurts.

Rapid progress may be made at one time, then it slows or may even appear to be in reverse, as it does at this moment. But it is never too late to get back on course. Changes in public opinion and hence in the direction society takes can be amazingly sudden. Back in Colonial America, in Oc tober, 1760, sixty-three merchants banded together to oppose the re newal of general writs of assistance, which authorized customs officials to break into warehouses, homes, businesses, or board ships to search for contraband, without the formal ity of showing any evidence that they might find it. The merchants hired James Otis to represent them in court. Otis went beyond the narrow legal de fense, and based his arguments on constitutional grounds and on the inherent rights of British subjects.

1979 CONSERV ATION OR CONFISCATION? 211 He based his major argument on the statement of early seventeenth century Chief Justice Coke, that ttwhen an act of Parliament is against common right and reason ... the common law will control it and adjudge such act to be void." Otis declared: ttAn act against the Constitution is void; an act against natural equity is void; and if an act of Parliament should be made ... it would be void." Otis lost his day in court, but he became the leader of the new Popu lar party, or USmugglers party."13 Only 16 years later, July 4, 1776, a group of citizens, gathered in Philadelphia, declared that all men are free, and that the colonies were independent from Great Britain. It is not too late. We are well on the way toward the creation of a better understanding of how a free society works, and toward the cre ation of that society. (i -FOOTNOTESlMurray N. Rothbard, Conceived In Liberty, Vol. I (New Rochelle, N.Y.: Arlington Hous4~, 1975), p. 9.

2Percy L. Greaves, Jr., Mises Made Easier: A Glossary for Ludwig von Mises' HUMAN AC TION (Dobbs Ferry, N.Y.: Free Market Books), p. 89. 3For a discussion of mercantilist restrictions in Colonial America, see Rothbard, op. cit., Vol. II, pp. 205-214. 4Rothbard, op. cit., Vol. III, pp. 37-40. Rothbard describes British attempts to enforce mercantilistic laws, and the reaction of various colonies from pp. 37 to 67. For a more detailed discussion of Britain's forest policies in the Colonies, see Pine Trees and Politics-The Naval Stores and Forest Policy in Colonial New England, 1691-1775, by Joseph J. Malone (Seattle: University of Washington Press, 1964). 5John Philpot Curran, Speech Upon the Right of Election (1790). eu.s. Department of Agriculture, The Prin cipal Laws Relating to the Establishment and Administration of the National Forests and to Other Forest Service Activities, (Washington, D.C.: U.S. Government Printing Office, Rev.

1964), uOrganic Administration Act of 1897," pp.63-66. 7Garrett DeBell, ed., The Environmental Handbook, Prepared for the First National En vironmental TeachIn, (New York: Ballantine Books, 1970), p. xv. 8Ibid., p. 331. 9Ibid., p. 344. l°For a good discussion of these tactics, see uThe Liberal Mentality and the Malpractice Mess," by Patricia S. Coyne, Imprimis, Hills dale College, Hillsdale, Michigan, Vol. 5., No. 10. llPetr Beckmann, ~~Economics as if SOME People Mattered," Reason, October, 1978, p. 31. 12H. Peter Metzger, uThe Coercive Utopians: Their Hidden Agenda," a speech before the American College of Nuclear Medicine, April 28, 1978, printed in the Denver Post, April 30, 1978. 13Rothbard, op. cit., Vol. III, p. 37f.

CANADIANS who complain about the growth of governmental spending are often challenged to be specific. ((All right," they are told, ((what would you give up?" As a response to criticism it's deceptively simple. It assumes, first, that citizens have a say in the making of policy and, second, that the spending growth has been for their benefit. Both assumptions are false. Let anyone who doubts it try to recall, during any of the election campaigns in 1968, 1972 or 1974, being asked to vote for or against a specific policy. Was their opinion sought about immigration, or multi culturalism, or permissiveness, or official bilingualism, or foreign investment, or the ((progressive" tax system? It was not. Did any of the candidates, while promising heaven on earth if they were elected, offer any estimate of the cost to the electors? They did not. The fact is that government's chief occupation has become the redistribution of wealth and income-which is the well worn euphemism for taking money from those who earned it and giving some of it to others who didn't.

This has involved a fundamental change in the nature of representative government. Its prime responsibility is to guard the peace in which citizens can go about their business, creating wealth in the process. Now the role of guardian has been submerged in another: that of participant in the business of citizens. Unable to create wealth, governments redistribute it. While doing so, their own Kenneth McDonald is a Toronto writer on economic and political subjects. This article is reprinted by permission from The Toronto Sun, December 14,1978. Though addressed to Canadians, the ideas apply in all nations. 212 SIXTH WHEEL 213 employees and procedures consume about 30 per cent of the wealth that was created. This fundamental change haH given eitizens the impression that governments do indeed have money of their own, an impression that politicians have not been slow to encourage. ' Hence the electoral promises of uhelp" for this group or that region, but never of where the help is to come from.

The trick is performed with the aid of a very simple device: never to let the giver know who the receiver is. The money we ugive" through taxes goes,we are told, not to people but to programs. The programs provide jobs for adminis trators and inspectors and social activists and all the rest of the welfare state's hangers-on. It is as if a family of five, with one son either unable or too idle to find work, instead of taking the responsibility them selves, were to hire someone to keep"him company-a sixth wheel to be carried along with the fifth. Now it is charged that cuttinl~ back on governmental spend ing will result in a cutting back of services that citizens have udemanded." Many of them, however, were not demanded at all, they were simply manufactured by bureaucrats as the natural product of an overgrown bureaucracy There is no doubt that after 15 years of changing the emphasis from production to consumption, changing it back again will not be easy. Nor l~an it be done without some dislocation. A generation has grown up to the idea that there is a free lunch, courtesy of government.

The penalty for over-consumption is the same for a nation as it is for an individual: inflation. Caused by governmental spending, the cure is to reduce it. The answer to the question, ttWhat would you do?" is ttReduce spending by governments, and encourage individuals to produce more by letting them keep more of their own earnings."

W)rld inthB §rfp<?fan Ioea, Clarence B. Carson 28.TheColdWar: TheThirdWorld THE NEAT division of the world into two camps began to lose what valid ity it had in the mid-1950s. This did not initially signal any lessening of tension between the United States and the Soviet Union. Indeed, the division began to lose its sharpness at just that juncture when American foreign policy was most adamant under the leadership of John Foster Dulles. Nor was there any lessening of the American effort to form re gional alliances and support them in In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the Impact on several major countries and the spread of the Ideas and practices around the world. 214 various parts of the world. Nonethe less, it is now about as clear as it can be in a world muddled by rhetoric which quite often has little discerni ble connection with reality that the Cold War peaked in the middle of that decade. The two-world concept began to lose its cogency.

Some revisionist historians now claim that the division of the world, and especially the Cold War, was an American device. For example, a re cent textbook declares that Hthe United States having invented the bogey of the international Com munist conspiracy, and then by its own policies having turned that fan tasy into fact, now became THE COLD WAR: THE THIRD WORLD 215 frightened out of its wits by it."1 Thei United States did not, of course, in·, vent the Communist conspiracy. On. the contrary, American political. leaders did their best for years to ignore the evidence for it, admitting it, to the extent they ever did, after revelations made denial impractica·· ble. In point of fact, it was communists who divided the world in two. Froml the time of the formation of the Communist International, they held to a view that the world was critically divided. Their writers have long re·· ferred to it as a division between socialist and capitalist nations., Soviet writers have kept to this ter·, minology over the years.

At any rate, a congeries of events occurred in the 1950s which made the bipolar-one pole in Moscow ~d. the other in Washington-world view less and less applicable. With the driving of the Nationalist Chinese from the mainland, Red. China leaders consolidated their rule and began to develop a spherei of communist influence outside the Soviet sphere. It was the Chinesel who intervened in the Korean War" not the Russians. Washington's cred·, ibility as the defender against communism may have waned as a. result of the acceptance of the Ko·· rean standoff. It definitely did when. the United States did not intervene on behalf of the uprising in Hun·, gary. Even the European unity was. severely strained by the failure of the United States to support Britain in the Suez Crisis. Origin of the Idea But a much better indication of the break-up of the bipolar world was the emergence of what has been called the Third World. The term began to come into currency around 1955.2 The term was given body,of sorts, by the Bandung Conference held during the same year. Repre sentatives of twenty-nine Asian and African nations met in Bandung, Indonesia. HCommunists and proto-Communists vied with anti Communists in denouncing Western colonialism ... , in lauding the high purposes of the UN, and in asserting that recourse to arms in national self-defense was wholly justifiable.

In a notable demonstration of sol idarity, at least in sentiment, the delegates promised to steer clear of East-West quarrels, if that could be achieved. Speaking for Red China, Chou En-lai ... uttered sentiments calculated to soothe apprehension that Peking nurtured aggressive de signs upon neighbors .... "3 For a brief period it looked as if the Third World might become a definite en tity, but it did not. It has remained largely a concept with whatever content one wished to ascribe to it, although it usually refers to Asian, African, and sometimes Latin American nations.

216 THE FREEMAN April France has not figured to any ex tent in this account thus far. Al though the omission can be ex plained by the necessity of keeping the presentation within some sort of bounds, it is nonetheless an unfor tunate one. French thinkers have had considerable impact on and many of them have been clearly under the sway of the idea that has the world in its grip. Although France has declined as a world power in this century, Frenchmen have often been at the forefront of cul tural developments. Indeed, France-perhaps Paris would be more accurate-has been the spiritual home of the avant garde in literature and the arts. And that is a way of saying that much of the cul tural transformation of this era has had its inception in France and has spread outward from that center.· The significance of this is more eas ily perceived when it is understood that cultural alteration both pre pares the way for the victory of the idea and is the main object of those under the sway of the idea.

A strong case can be made that ideology is the natural mode of French thought. Modern intellec tual history provides ample evi dence to support such a thesis. John Calvin tended to ideologize Chris tianity. Rene Descartes provided an ideology for modern science, al though Francis Bacon's formula is better known. The Marquis de Sade brought forth an ideology of Sadism, which has furnished the tangled motif of modern revolutions. 4 Jean Jacques Rousseau constructed an ideology of democratism, and pro vided as well the seminal work for undergirding educationism. The fundaments of socialism first ap peared in the works of an obscure Frenchman by the name of Morelly. 5 Communist thought had its French forebears, but it was, of course, Karl Marx who gave it the formulation which has now swept over much of the world. Perhaps for that reason French intellectuals have been less than satisfied with the Marxist dogmas even when they have been enamored of them. They must somehow be twisted into a Gallic framework, as witness Jean Paul Sartre's existentialism and Teilhard de Chardin's evolutionism.

The French Influence Be that as it may, the Third World concept may be French in its origin. Sartre may have been the first to use the term. 6 Moreover, in the last years of the Fourth Republic, the French referred to the Ucenter" com plex of socialist parties as a ~~Third Force," a phrase sufficiently similar to have given rise to the other. Two components of the Third World con cept are national independence and ideological eclecticism. Both compo nents involved ~~nonalignment," nonalignment with either the 1979 THE COLD WAR: THE THIRD WORLD 217 Soviet or American camp, and non alignment with either ideology. Charles de Gaulle took the lead·, ership both in trying to revive French influence and in having France follow an independent course in foreign affairs. He was particu larly concerned to shake off depen dence on the United States. To that end, he promoted the development of nuclear weapons by France, and downgraded participation in NATO.

He favored, however, a continental force of European powers which he referred to as a ((Third Force."7 By boldly following this course France set an example for Third World na tions. De Gaulle was ideologically eclec·, tic, too. Although he was a nation alist more than anything else, he presided over a government that was more or less socialist in its animus. (None other would have been acceptable to Frenchmen gen erally.) But the strain of ideological eclecticism runs deeper than that in post World War II French thought. There were rumblings amongst French thinkers of the decline or end of ideology. The kind of eclecti cism that this portended had much earlier been formulated by Ameri cans as pragmatism or instru mentalism. The French semi Marxist, Jean Paul Sartre, provided a different gloss for itin his exposi tion of existentialism. Sartre denied the validity of Marxian materialism. It is a species of essentialism, and since existence precedes essence, there are no such preconditioning essences. Nor is the emergence of socialism, or com munism, written in the historical stars, so to speak. If emerge it does, it will be because men made it emerge and, if they do so, they must do it in terms of the situation that they find themselves in. There is no order and no particular set of cir cumstances which will bring it forth. Sartre stated it this way: The revolutionary· considers that he builds socialism, and since he has sha ken off and overthrown all legal rights, he recognizes its existence only in so far as the revolutionary class invents, wills and builds it.... It does not lie at the end of the road, like a boundary-mark; it is the scheme formulated by humanity. It will be what men make it; it is the outcome of the soberness with which the revolutionary envisages his action ....

Thus the philosophy of revolution, transcending both idealist thinking which is bourgeois and the myth of materialism which suited the oppressed masses for a while, claims to be the philosophy of man in the general sense.8 It may appear that Sartre had opted for evolutionary or gradualist socialism, but by his language he denies this. He claims to be a revolu tionary, which would separate him from that persuasion. He was claim ing, too, to be the proponent of another way, a Hthird way," to socialism. It would, of necessity, be 218 THE FREEMAN April ideologically eclectic, for it would.be a building of socialism within given situations. Some such notion went into the Third World concept. Nehru In India Another prime influence on the Third World concept was India and its leader Jawaharlal Nehru. Nehru was educated in England, and while there he completely imbibed socialist doctrine. During the period of his indoctrination British socialists were committed to gov ernment ownership (nationaliza tion) of all major industries. The debacle of English nationalization did not turn Nehru against socialism, but it did sway him to ward a more. eclectic course. In any case, India was hardly in position to follow Western models of gradualism.

Nehru embarked on a course of neutrality in relations with East and West. As one history describes his position: HMuch impressed though he was by Soviet economic achievements, Nehru stood forth as the most influential non Communist voice in Asia .... With out equivocation, he declared that Marxism was an outmoded nine teenth-century creed, incapable of solving the vexing problems of In dia. . . . Nehru only tepidly fought communism outside of his home land, and adopted the middle way of neutralism, of nonalignment, in the secular struggle between the Com munist bloc and ... the West."9 But whatever its origins, and whatever influences may have helped to shape the Third World concept, it was nonetheless grist for the mills of communism from the outset. It could be, and was, fitted into the communist dogma of im perialism. Lenin had leaned heavily on the imperialist dogma, both to justify the revolution in Russia and as the basis of a predicted forthcom ing worldwide revolution. He also reinterpreted the Marxist vision of the future in terms of imperialism.

Marx's prediction, according to Le nin, had been thwarted by the de velopment of Western imperialism, and capitalism had been temporar ily saved from the onslaught of a disinherited proletariat. Here is a summary statement of Lenin's posi tion: Lenin's explanation for the loss of rev olutionary enthusiasm among the West ern workers was simple-they were no longer exploited. More accurately, an important section of the workers, the most skilled and intelligent, were no longer exploited and had become bourgeoisified. This section of the work ers and the financiers joined together to exploit the backward nations of the world: the financiers thus replaced class exploitation with the exploitation of other countries. The industrial nations will never therefore be revolutionized until the backward nations are freed from the colonial powers. Beginning 1979 THE COLD WAR: THE THIRD WORLD 219 with Lenin, then, the focus of the Com munist Revolution shifts to Asia, Mrica and Latin America ....

The Leninist tour de force saved Marx ian revolutionism. The class struggle then became an international struggle between two camps: on the one side the exploited, non-industrialized nations ... ; on the other side the industrialized na tions of the West.... "10 The Stalinist strategy, however, did not follow this pattern with any consistency. Stalin concentrated on developing communism in one coun try, the Soviet Union, on fostering the development of Moscow domi nated parties in all other countries, and eventually the use of the Red Army to fasten communism on east ern Europe. Communists always car ried on a verbal assault against Western imperialism, of course, but it was only after Stalin's death, and in a new context, that Lenin's theory emerged to undergird a fullfledged strategy. Communist Strategy When so many colonies either broke away or were cut loose from colonial powers after World War II, the stage appeared to be set for communist expansion. Indeed, the Cominform became quite industri ous in fostering guerilla warfare and other forms of incipient revolution.

Things did not, however, go accord ing to communist plan. As has al ready been noted, the United States intervened to take up much of the slack occasioned by the withdrawal of former colonial powers, began to offer economic and military aid, and to form regional alliances around the world. The Cold War developed. The golden opportunity for com munist expansion was being lost, in the main. There was yet another problem for communism, a problem of how to approach these newly freed colonies. The militantly aggressive tactics of the Stalinist period were hardly cal culated to win friends and influence people in these former colonies. These were the «exploited" peoples. To foster parties under the control of Moscow and designed to stir up re volts against their own govern ments, however newly formed, would surely alienate these peoples. (That is not to say that the Soviet Communists were above doing all these things, but it was an ineffec tual tactic and hardly a posture to be avowed.) The Third World concept provided a convenient solution to these prob lems, too ((convenient," one suspects, not to have been at least partially devised by communists.

A new line about former colonies was advanced. The old colonialism was being replaced by a new col onialism, referred to as ((neo_ colonialism." As Thomas Molnar pointed out, ((Circles which promote the slogan of (neo-colonialism' in sist, of course, that the big com220 THE FREEMAN April panies (in French Africa, in the Copper Belt, for example) exploit their host countries just as much as before independence. In fact, it is alleged that exploitation had been stepped up because there is an in creasing demand for minerals by in dustrialized countries, and also be cause the companies' freedom of ac tion in decolonized territories is no longer checked as it was in the days of an Administration representing a strong overseas government."ll Ac cording to this view, only the com munist countries, which had no pri vate businesses, could bring about real decolonization. In keeping with all this a new Soviet strategy took shape. One wri ter describes it this way: The basic Soviet view of the less de veloped countries changed radically from that held in the period 1948-1953....

The U.S.S.R. came to believe that in the short term, at least, countries might exist which because of their own convic tions and interests chose to be aligned with neither the West nor the Com munist camp. Concomitant with the basic shift in Soviet foreign policy outlined above was the increased reliance on economicmeans of influencing the less developed coun tries. A sweeping economic offensive in the third world emerged after 1953 in the form of numerous trade and economic aid agreements .... 12 Another ascribes the change to Soviet Cold War strategy: In the 1950's, the third-world strategy was attached to the so-called process of decolonizati on, and nonCommunist . . . regimes were enlisted in a general pos ture of neutralism which, while it was not particularly helpful to Communist ex pansion, was immensely harmful to the strategic position and moral prestige of the West.13 A Soviet writer, writing in the late 1960s, made the following claims for the extent. of foreign aid by the Soviet Union: The Soviet Union began to establish extensive economic ties with Afro-Asian countries in the mid-1950's. Along side the growing volume of ordinary export import trade, an important role was played by technical and economic coop, eration based on intergovernment agreements. By 1956, such agreements had been signed with Mghanistan and India alone, whereas today the USSR is giving economic and technical assistance to 29 Mro-Asian countries. 14 Symbolic Aid from Russia The granting of aid was of great symbolic ideological significance for the Soviet Union. I noted earlier that underdeveloped countries could not readily follow the gradualist model of industrialized countries.

They have neither the technology to produce it nor great wealth to redis tribute. The way of the West to socialism could hardly be appropri ate to their circumstances. By con trast, Soviet Communists claimed that Russia had been an underde1979 THE COLD WAR: THE THIRD WORLD 221 veloped country, and that com munism had provided the way for its development. Foreign aid, particu larly the provision of factories, con stituted the best sort of proof they could offer. A scholar summed up the position this way: ~~The emergence of the Soviet Union as a major economic power and an additional source of capital has enabled it to present itself to the developing countries as an alternate economic model: a former economically backward country which had attained an im pressively rapid rate of economic growth in a relatively short period of time." The USovietUnion has pressed its claims that only a centrally planned and controlled economy ...

can provide the desired social and economic development."15 This Soviet aid was not, however" carried out in the simple context of the Cold War conflict between East and West. It was also a part of the mounting rivalry between the Soviet Union and Communist China. Each of these countries was contesting for dominance of com munist parties in many countries, and for leadership of the communist movement in general. The Soviet shift to economic assistance oc curred at about the same time that the Chinese began tentatively to of fer assistance. A recent book gives a brief history of that aid in these words. ~~Peking has been in the aid. business since 1953 ... , and to date has aided more than fifty-five coun tries on five continents .... China's economic aid program has increased many times in size and scope since 1953.... Recent aid promises offer further evidence. In 1970 Chinese aid nearly matched its total official aid to nonCommunist countries up to that time and amounted to nearly sixty-five per cent of the total Com munist bloc aid to underdeveloped countries. . . ."16 Among the coun tries China had extended aid to were Cambodia, Burma, Nepal, Laos, Ghana, Algeria, Kenya, Nigeria, Chile, and Peru.

The purpose of Chinese aid is sug gested in this argument by a French Marxist: ((There is really no way out for the people of the Third World in this context [imperialism and exploitation]. It is not a question of whether socialism is attractive to their rulers or leading thinkers .... It is simply a matter of accepting the evidence; there is no other possible solution; like it or not, for them China is the great example."17 Chinese Credentials for Third World Leadership The Chinese credentials were ad vanced as being impeccable for the leadership of the Third World, in contrast, say, to those of Russia. Russia had been an independent na tion (more properly, empire) before the Bolshevik Revolution, and had 222 THE FREEMAN April been little subject to uimperialistic exploitation." By contrast, China had been carved into spheres of in fluence in the late nineteenth cen tury and had been'the playground of uimperial" powers until the Com munist takeover. Incidentally, the militant nationalism of Chinese Communists was palpable to for eigners who happened to get de tained in China during the period of Chinese isolation (1950s into the 1970s).

Moreover, there were ugly racial overtones enunciated in the Chinese thrust to leadership of the Third World. The Russians were excluded from the Bandung Conference on the grounds that they were white. 18 The explicitness of this racism has been pointed up by Boris Meissner. He says: The violence of the collision between Russian and Chinese nationalism is partly a result of racial components which lend the struggle of the two pow ers certain atavistic features. The Rus sians fear that the Chinese might suc ceed in playing off the v~rious races within the Communist camp' against one another, thus splitting world com munism into white and colored wings, with the latter having numerical pre dominance. Peking makes use of Com munist front organizations such as the World Peace Council and the World Fed eration of Trade Unions, as well as Chinese-oriented bodies such as the Afro-Asian Solidarity Conference, as forums where they attack the policies of the Soviet hegemonial power and playoff the colored peoples against the whites. I9 Racist Connotations Given the communist interpreta tion of Western uimperial exploita tion," the racist connotations were virtually unavoidable. (Given, too, the hypersensitivity to race in the world since World War II.) Most of the peoples in subject colonies in the twentieth century have been Ucol ored." If colonies were devices for exploiting these people, then they were devices for exploiting the ucol ored races." Indeed, the Third World concept was shot through with these racial overtones. It has never been so explicit as absolutely to exclude countries with a preponderance of white people, such as some Latin American countries, that has nevertheless been its tendency.

Even though communists have tried to take full advantage of the Third World concept, it would be a mistake to view it simply as a plot to foster communist expansion. The greatest advantages, at least ini tially, accrued to the politicians and dictators of the third world. Not only did communists subscribe to the no tion that Western imperialism had been a system of exploitation of sub ject peoples but so have most West ern intellectuals. 20 This gave Third World politicians ready made enemies-Western imperialists-, something most useful to politi1979 THE COLD WAR: THE THIRD WORLD 223 cians, especially when the enemie8 are not constituents. They could ap·· peal for the unity of their peoples against these outsiders. It also pro·· vided an explanation and an eXCUSE~ for their economic backwardness,. They were not to blame for their condition; they had been overcome b¥ superior technology and exploited by Westerners.

A Powerful Political Tool The Third World Concept was use ful in many other ways to those countries which could use it. It ena bled. them to playoff East against West. Most of these countries ac cepted aid from Washington, fronl Moscow,from Peking, or from what ever source they could get it. Since they were nonaligned, the aid they received entailed few, if any respon sibilities. Indeed, the Third World concept was, and is, an irresponsible concept. The countries are not, ac cording to the concept, responsible for the conditions which prevail there, and they accept little or no responsibility for what goes on in the world. If, or, better still, when, since it is usually only a matter of time, they confiscate the privat1e property of foreign investors, or for eigners in general, the concept jus tifies that, too. After all, the for eigners had only been there to exploit them. In short, the Third World concept is a most useful ploy for politicians and dictators in many parts of the world. They can shake their fists at the great world powers. They can hold out their hands for aid, threaten one side that if they do not give aid they will get it from the other, and offer little or nothing in return. Numerous small nations claim the full fruits of sovereignty, take their places among the great powers in the United Nations, form concert with other small nations to extort concessions, and do not even pay their dues. The concept provides an apology for two-faced behavior, beggary, thievery, extortion, and ir responsibility.

But our main concern here is with the place of the Third World concept in the frame of the idea that has the world in its grip. It is, of course, part and parcel of that idea. It fits in most particularly as a part of the pressure for redistribution of the wealth from the haves to the have nots, as the phrase has it, among the nations. Since the redistribution is from nation to nation, or, as in the case of the confiscation of foreign holdings, from private sources to na tion, it is very much a socialist idea. Its nationalism is a means of con certing efforts within the nation be hind the programs that are ad vanced and the oppressions they en tail. The Third World concept covert ly implies, when it is not explicitly stated, that there is a third way 224 THE FREEMAN April to socialism. There is a non-ideo logical way to socialism, an eclec tic way. In short, there is a way to socialism that does not entail the dogmas either of revolutionary or evolutionary socialism. It is not a matter for wonder that anyone set ting out for socialism in the last couple of decades should hanker for such a possibility.

After all, Stalin had managed to thoroughly soil whatever of the Marxist dogmas had gone into Leninism-Stalinism. He had to some degree succeeded in hiding the full degradation of communist rule from the world during his reign. But he was not long dead before he was being publicly denounced by Soviet Communists. By the late 1950s, if not before, only the purblind could deny that Soviet Communism was terrorism, tyranny, bureaucratic oppression, and a failure from what ever angle it could be examined save one-it did succeed in fastening to tali tarian rule on the Russian peo ple. The dogmas of Marxism as they had been strained through the Soviet mesh had about as much ap peal as stale bread laced with poison. A Futile Quest The most cherished dogma of Fa bian socialism-nationalization-had proved a disaster for the English. Hitlerism had cast a pall over na tional socialism, at least in its racist formulation. The pale socialisms of continental Europe smacked of ever lasting compromises, compromises in which an increasing portion of the wealth of the citizenry was drawn into the maw of governmental machines, in which private industry was shackled by regulation, and in which the money in hand was de clining in value because of inflation.

The United States was neither much better nor much worse, and few enough recognized it as a road to socialism. In any case, gradualist socialism offered few prospects for the politicians of the Third World. They did not have the wealth to distribute, nor the patience and time to acquire it. The Third World concept is a fraud. There is no third way to socialism. In fact, there is no way to achieve the vision of socialism, hence all socialisms are frauds, but let that go. One way is by terror and violence-that is revolutionary socialism. The other is to buy votes with the promise of goods taken from the populace by subtle uses of force-that is democratic socialism. True, there are many possible com binations of terror and violence with populism, but Hitler had used most of them before many of the Third World dictators had reached their majority. About all that the Third World has contributed to the mix is an apologia for extorting alms from other governments.

1979 THE COLD WAR: THE THIRD WORLD 225 The Third World concept is, ho", ever, fearsome testimony to the firmness of the grip the idea now has on the world and to the decline in clear thought that has accompanied the process. More nations have been born since World War II than existed before that catastrophe. They were brought forth with proud claims of independence and buoyant cries of freedom. Yet one by one they have been dragged down the dreary by-path marked as the third way to the Valhalla of socialism, if it has been marked at all. The roll call of these nations is too long to. mak.e here; the sordid account of their petty rulers would take up too much space; their oppressions too dreary to make good newspaper fare. Even the recognition of ideologies, much less the construction of a passable one, surpasses their skill. A Passing Phase The Third World concept did not signify the end of ideology; it more nearly signified the reduction of ideology to obscenity. The barbari zation and degradation which at tends socialism produced its pale rle flection in the Third World. For a brief span of time, concentrated in the mid-1960s, the Third World con cept captured the imagination, perhaps even the idealism, of a good many people. The Third World con cept promised redemption, redemp tion not only for the Third World, but for the whole world.21 There was a way other than the way of life of Europe, America, or the Soviet Union. Virtue resided in the former oppressed peoples of the world, in Africans, in Chinese, in Indians, in American Indians, and so forth.

Western technology was an afflic tion of the world. We must go in sack cloth and ashes to learn from the gurus of the Third World the secret of life. So, many young people exhorted us. There was something exceedingly strange about all this. The young people who heralded this new dis pensation in Europe and America forswore ideology, yet carried ban ners proclaiming the virtues of Mao tse Tung, Ho chi Minh, and Che Guevara, prime ideologues, if any there were. They· claimed reaches of tolerance for themselves never be fore conceived, but were intolerant of all disagreement. There may have been a modicum of thought which preceded their emergence as en thusiasts, but it was drowned out by their obscenities once they were under way. It is not too much to say, then, that in the hands of its youth ful proponents, the Third World con cept became obscenity. Although the Third World concept no longer glitters with bright promise-indeed, it never got very far off the ground-but it nonethe less had considerable impact. It served as a cover sometimes for 226 THE FREEMAN communist regimes to be estab lished. But, equally important, it introduced a deal of confusion into the world. Ideological lines were blurred. The theretofore clear dis tinction between communist and non communist was now much harder to make. The world was not divided into two; it was divided into many. A softening process had taken place, a softening up for further stages of the development of the idea that has the world in its grip, perhaps. It con tributed much to a further lessening of confidence in Western Civiliza tion, or what remains of it. It helped to prepare the way for a different scenario, although it may be no more substantial than was the Third World i Next: 29. The Cold War: Co existence, Detente, and Convergence.

-FOOTNOTES1Forrest McDonald, Leslie E. Decker and Thomas P. Govan, The Last Best Hope: A History of the United States (Reading, Mass.: Addison Wesley, 1972), p. 950. 2See Ignacy Sachs, The Discovery of The Third World (Cambridge, Mass.: MIT Press, 1976), p. xi. 3Arthur J. May, Europe Since 1939 (New York: Holt, Rinehart and Winston, 1966), p. 435. 4Erik von Kuehnelt·Leddihn, Leftism (New Rochelle, N.Y.: Arlington House, 1974), pp. 78·83. 5Ibid., pp. 107·08. 6Sachs, op. cit., p. xi. 7May, op. cit., p. 368. 8Franklin L. Baumer, ed., Main Currents of Western Thought (New York: Alfred A. Knopf, 1964), p. 712. 9May, op. cit., p. 430. 1°Leo Paul de Alvarez, cClmperialism: The Threat to Existence," The Intercollegiate Re view, II (March.April, 1966), p. 312. llThomas Molnar, uNeo-Colonialism in Af rica?" Modern Age, IX (Spring 1965), p. 178. 12Robert S. Walters, American and Soviet Aid (Pittsburgh: University of Pittsburgh Press, 1970), pp. 29-30.

13JosephSchiebel, IIConvergenceor Confron tation?" The Intercollegiate Review, V (Winter, 1968-69), p. 110. 141. Kapranov, UThe USSR and Industrial Development of Newly Free States," in Inter nationalism, National Liberation and Our Epoch (Moscow: Novosti Press Agency, n. d.), p.104. 15Leo Tansky, U.S. and U.S.S.R. Aid to Developing Countries (New York: Frederick A. Praeger, 1967), p. vi. 16John F. Cooper, China's Foreign Aid (Lexington, Mass.: D.C. Heath, 1976), p. 1. 17Pierre Jalee, The Pillage of the Third World (New York: Monthly Review Press, 1968), p. 110. 18William H. Chamberlin, IICommunism in Disarray," Modern Age, IX (Spring 1965), p. 192. 19Boris Meissner, HWorld Communism: Decay or Differentiation," Modern Age, IX (Summer 1965), p. 244. 20See de Alvarez, op. cit., p. 312. USee Sachs, The Discovery of the Third World, op. cit., passim, and especially the con cluding chapter.

Dennis Bechara The Costs of Occupational Licensing THE PURPOSES that guide the enact ment of interventionist policies help us understand the reasoning behind them. However, in testing the economic effects of a law, one must look beyond the laudable intentions set forth in the preamble. Occupational licensing require ments have traditionally been based on the desire for good services. The argument runs somewhat like this. If the government establishes cer tain schooling and training require ments which must be fulfilled :in order to enter an occupation, then every licensed individual will at least be competent and the public interest will be served. The argument presupposes that the government is able to set objecMr. Bechara is an attorney in the law offices of Goldman, Antonetti & Davila In San Juan, Puerto Rico. tive standards whose validity can not be disputed. The fallacy of this argument is apparent. Consumers set the standards they wish as they patronize providers of goods and services. The competence and gen eral ability of a producer are re flected in his product. Consumers have individualized needs which cannot easily be cast in a mold de fined by the government.

It is possible that the particular standards required by the state may be acceptable to many users of these services. But if that is the case, those standards would be required anyway by the consumers in an un regulated environment. If, on the other hand, the required standards are not desired by the majority of the users of these services, the jus tification for imposing them evapo rates. 227 228 THE FREEMAN April The popularity of licensing is un derstandably high among the mem bers of the licensed occupations. A clear implication of licensing is that in order to be a member in good standing of a profession or a craft, one must take prescribed courses of study and pass what the govern ment deems to be an appropriate test. Satisfying these requirements means that society will regard the members of that occupation as a responsible and intelligent group. Advoca ting the elimination of licensing, on the other hand, carries with it the implication that these standards were really not valid and furthermore that anyone will be able to practice the occupation in question with impunity. The issue is not one of standards versus no stan dards; rather it is a question of who shall impose these requirements.

Should it be the providers of the service, acting through a govern mental agency, or should it be the consumers? Restricting the Supply Licensing affects consumers in various ways. Perhaps the most im portant economic effect of licensing is that it restricts the supply of the providers of services. To a casual observer, this assertion may not seem to be supported by the evi dence. It may be said that, in spite of occupational licensing require ments, many people are nevertheless attracted to these fields. How ever, licensing is but one ofthe factors affecting the economy. It is possible that one industry is growing and that resources are being allocated in that direction. If that industry needs people who are required to be licensed, the rising demand will at tract them, no matter that licensing may have prevented some people from entering the field previously. It should be no surprise that occu pationallicensing limits the supply of available practitioners. The very purpose of licensing is to eliminate those who cannot satisfy the re quirements. The irony of the matter is that the particular profession or trade, which has an inherent inter est in restricting competition, has a decisive influence on the definition of these standards. The argument is that those who know what an occu pation truly needs are those who practice it. The conflict of interest which surfaces as the regulators govern themselves weakens the con cept that the government can truly set objective standards.

As supply is restricted, economics tells us that the price of the good in question must increase, other things being equal. This increase in price may reduce some of the demand, or conversely, the demand for other goods and services may be curtailed. Applying these economic tenets to occupational licensing, the long run effect will be to increase the earn1979 THE COSTS OF OCCUPATIONAL LICENSING 229 ings of the licensed occupations. This is a monopoly situation, made possible by government regulation. Consumers will have to pay a higher price for the services that they de sire. Of course, people who can afford high quality services will continue to obtain them; those who can afford more modest services may discover that they might have to either for~~o the services altogether, dip into their savings, or redirect their de mand for other goods and services. It is conceivable that many people who are reluctant to pay a licensed plumber or electrician what they consider to be an exorbitant amount of money, may choose to do the work themselves. In an economy served by the principle of the division of labor, this self-help lowers produc tivity when non-specialists do the work that otherwise would have been performed by the specialists.

As the licensed occupations reap higher incomes because of the re stricted supply, in the long run the prospect of additional income will attract more people into the field. This will expand the supply and lower the costs to the consumers. This development represents a read justment in the economy, but dOE~s not remedy the defects of licensinJ~. The very existence of licensing is costly to consumers because it re stricts entry. The nature of the practice of an occupation is altered by the licens ing. Standards require that the pre scribed training follow certain pat terns, though such requirements may serve little purpose in some branches of the craft or profession. Many people who would have been attracted to an occupation may be discouraged from doing so because of the additional costs involved in satisfying these standards. Simi larly, consultants who could specialize in narrow areas of an oc cupation without the need to be trained in broader areas, are dis couraged from doing so. The result is that every licensed individual does receive a broad education, but many consumers will not be able to utilize his costly services.

Prohibiting Competition A hidden cost of licensing lies in the fact that those who are attracted to the licensed trade-because of the monopoly earnings-might other wise have opted for different crafts or professions. So it is difficult to say that consumers are benefited by the increase in people entering the licensed occupations. Licensing standards, however, do more than merely set entry conditions; as more people desire to enter the field, the regulatory bodies institute addi tional standards and requirements that serve either to further limit the supply or to prohibit competition. Entrance examinatiins become 230 THE FREEMAN April more difficult as they encompass more topics. This tends to eliminate many applicants. Similarly, con tinuing educational requirements are sometimes enacted to assure that those who have been licensed maintain a given level of quality. In California, for example, dentists are required to pass an examination that requires the performance of a rarely-practiced procedure in gold fillings. California dental schools prepare their students for this as pect of the examination, which den tists trained outside the state find difficult to pass. (See uHow licensing hurts consumers," Business Week, November 28, 1977,p. 127.) Residence. requirements reduce the supply, as they discourage peo ple who would be willing to practice in different states. By the same to ken, the prospect of having to take an admissions examination in a dif ferent state may discourage many people, particularly the older prac titioners. Reciprocity between the states serves to alleviate this addi tional discouragement, mitigating one of the effects of licensing.

The proponents of licensing find it difficult to define the limits of its applicability. Most proponents are in agreement that some professions ought to be licensed. However, as we enter the area of skills and crafts, support for licensing these is not as clear; there is scant support for licensing the nonspecialized fields. The ideology which nourishes licensing seems to say that the more education and preparation it takes to enter a field, the greater the case for licensing. This argument does not withstand logical analysis. If more education is required for a per son to be a member of a profession, then the danger of entry by incom petents is considerably reduced. A person must pass many stages be fore being able to enter that profes sion, and this should be indicative that the individual is adequately prepared to practice in that field. If that is the case, licensing is super fluous. Besides, the fact that licens ing exists is no guarantee that un qualified people will not practice the occupation. The existence of mal practice suits attests to this.

The 'Other Side of Licensing If the fear of incompetents were the motivating factor behind licens ing, then if we follow the logic of the proponents of licensing, all non skilled laborers should be forced to satisfy certain requirements. The licensing of unskilled workers is in deed taking place today, although it is being performed under a different label. As minimum wage laws are enacted, those unskilled employees who cannot produce as much as the law says they should be paid become unemployed. Minimum wages, and union restrictions as protected by the law, are the other side oflicens1979 THE COSTS OF OCCUPATIONAL LICENSING 231 ing. Both, however, have the same general effect: to lower supply, raise prices and reduce output. The proponents of licensing can not answer the inconsistency of their position. They recommend licensing because consumers al legedly cannot adequately judge the quality of some professional or skilled services. But, in an economy where everyone is interdependent, everyone is a specialist and it may be asserted that no one can properly assess the services provided by others. There is no logical line, which may be drawn between licensed and unlicensed occupations, which conclusively justifies licens ing. Rather, consumers will be bet ter served in an unregulated envi ronment as competition serves· to protect them.

The assurance of quality services does not depend upon occupational licensing. If a person represents to others that he has certain skills which he in fact does not possess, equity considerations should con tinue to apply and he will be held responsible for any damages in flicted as a result of his misrepre sentation. The elimination of licens ing will not protect those who mis represent or who commit fraud. An unhampered market will offer con sumers a variety of services of vary ing quality. The uniformity imposed on consumers by licensing require ments will be erased when licensing is eliminated, and practitioners will have to adjust to the ever-changing demands of consumers. And this is as it should be for free men in a free market. i IDEAS ON UBERTY Competition, Monopoly, and the Role of Government IN the free society govemlnent keeps the peace, protects private prop erty, and enforces contracts. Government must do these things effec tively, and it must do nothing else; otherwise, the conditions absolutely necessary to genuine personal freedom in society are absent. Whether or not a genuinely free society is attainable no mortal man can know; the limits of our knowledge are too narrow. But one thing we do know: that until at least the advocates of the free society are fully aware of the conditions necessary to its existence, it can never come about. For they must ever be on guard against new movements, ideas, and principles which would endanger its realization. And on the other hand, they must be sharply aware of existing impediments so that they may direct their energies intelligently to the removal of the causes of current imperfec tions.

SYLVESTER PETRO w. Earl Douglas The "Roots" of the Free Market An Order Born of Discipline MANY black Americans have been mired in a form of economic stagna tion since the passage of the Civil Rights Act. Among those whose thought processes are geared to mere rhetoric there is a loud clamor for more welfarism. There are many reasons, to be sure, for this apparent reluctance by blacks to seek their pursuit of dignity within the free market system rather than without it. Primarily, however, the blame must be laid at the feet of a leadership more intent on im mediate political responses to age old problems than providing any meaningful economic solutions. Thus, and the truth is an awesome taskmaster, most blacks have simMr. Douglas, a southern Journalist and civic leader, urges his fellow black Americans to seek their freedom and dignity within the market system. 232 ply accepted the state, with its hordes of paternalistic programs, as their new Messiah.

There are many problems afflict ing the black communities housing, education, health care, crime and unemployment-but no real effort has been made to resolve them apart from the programs of government. In fact, it would be ex tremely difficult to find many blacks willing to undertake the effort, on their own and without financial as sistance from outside their commu nity. The Ubootstrap" concept, where the disadvantaged were to be pro vided the means to resolve their problems has been replaced with the feeling that the means now consti tute the end. Consequently, the pro grams of the state, all of them, are now viewed by most blacks as the THE ROOTS OF THE FREE MARKET 233 ultimate end. Additionally, of course, such an attitude provides for the perpetuation of the programs. Conditioned to State Help The reason for this black attitude of resignation, where such programs are concerned, is that many blacks have been conditioned by their lead ership and the state to seek all of their answers from the state. That such reasoning tends to create de pendence, rather than the indepen dence ostensibly sought, is a situa tion to which a few blacks are be ginning to awaken.

This fact was brought home to me through an acquaintance, formerly a left winger, a black, who preached the gospel of liberalism and gov ernment solutions to black ills. As a ranking member of the liberal ele ment of a major political party, he had worked at a salary of $10,000 a year. "When a job opening in the private sector at double his existing salary was offered to him, he did not hesitate to accept it, gleefully an nouncing his good fortune to all within his hearing. Several months later we hap pened to meet and his apparent lack of spirit prompted my asking why he seemed so downcast. His response was a lecture on the merits of fiscal conservatism. After advising me that his 100 per cent increase in salary had only provided him with a few extra dollars in spendable income, he launched into a vicious attack on the system of taxation, the idiocy of social security and a con demnation of a government that would make the productive pay for the upkeep of the unproductive. My acquaintance had become one of the middle class victims of the welfare state.

It is noteworthy, therefore, that the black economic middle class is expanding at an unprecedented rate, while unemployment of the black lower class is in a correspond ing upward spiral. More and more blacks are attaining higher paying positions in government, while af firmative action programs are open ing (if that be the correct definition) many middle management positions to blacks. Whatever their route to that economic middle class, the fact is that a larger percentage of blacks are beginning to learn the price they must pay for those of their race who do not produce what is essential to their own survival. Consequently, many of the black economic middle class are more adamantly opposed to social welfarism than some mem bers of other ethnic groups. Learning about the real travails of taxation, the retrogressive effect of government intervention in their lives, and how both act as barriers to the long sought dignity and inde pendence, is not the kind of knowl edge dispensed in public schools.

Thus, for the great majority of 234 THE FREEMAN April blacks, there is an element lacking in their learning experience. Where, for example, does a product of the black ghetto go to acquire truthful information about the free market system or, for that matter, the American economic system? There may be some versions of it available at a few of the black colleges and universities, but it is usually editorialized rather than a truthful presentation of what the system is all about. It is all too easy to thus categorize that black ghetto inhabitant as ((disadvantaged," because such knowledge is not available in the ghetto, but then we are inadver tently suggesting that another gov ernment program be inaugurated for the purpose of promoting such knowledge. However, to equate being disadvantaged with failure to reach out for knowledge essential to one's own survival, is to contend that logic is an enemy of reason.

Technology Highly Prized Recent events reveal some in teresting. developments concerning capitalism and the free market. American technology is probably the most sought after product on earth, even more so than the oil from its bowels. Some nations desire to purchase it, while others contend that it should be given them in com pliance with their uhuman rights." Such is the hue and cry of the economic Third and Fourth World. Yet the difference between those so-called disadvantaged nations and the industrialized nations, in terms of the standard of living of their inhabitants, can only be attributed to a technology that is an outgrowth of a free market. The reason for that result, however,. is to be found in quite another direction. The foundation for the free mar ket may justly be defined as entre preneurial freedom. But, the market and entrepreneurial freedom are dependent on what must be de scribed as order-a societal order, which is born out of discipline.

This fact is brought into focus by Japan and Germany, our two pri mary military enemies dwing World War II. The huge financial invest ment by America in those two na tions, following the war, has paid handsome dividends to both the in vestors and recipients. Race, the principal theme of this thesis, can not be truthfully cited as a factor in that investment, because Japan is a nation of non-whites. Prior to their military defeat both of those nations had attained significant military strength, with enviable break throughs in new technology. In fact, America utilized the Germans' ad vancement in atomic fission to ulti mately defeat the Japanese. Of more importance, however, than the ability of those two nations to wage war and devise new 1979 THE ROOTS OF THE FREE MARKET 235 methods and weapons in the process is the order to be found in their respective societies. Again, an order born out of discipline. Order, there fore, is the most important prerequi site to the proper functioning of the free market system. Disorder or cha.os is not conducive to production and trade.

Inadvertently, therefore, we have not only attained an answer as to why the ghetto remains a ghetto and why many nations of the world can not respond to the abundance of wealth available to them and their peoples. We also have the basis for the selectivity of the investor. For isn't it the stable, orderly organiza tion of business, within an orderly nation, that is sought by the inves tor? Dependability and Responsibility It can be reasoned, therefore, that dependabili ty and responsibility, two byproducts of discipline, are far more important in the scheme of things than are those ((human rights" presented in lieu thereof by the state. Pointing out the differences in the order and stability of blacks in com parison to others may win no friends, but it is essential to an ex posure to the truth. Germany and Japan, as examples; have among the lowest crime rates of any nations on earth. Jointly, although their com bined population is seven times that of black America, their incidence of crime is one-seventh that of black America.

And when we examine those na tions of the world most mired in poverty, we discover the same phenomenon of crime and disorder, with the unemployment rates of those nations in parallel with the black communities of America. But who will invest in disorder and chaos except government? No think ing traders in the free market would gamble their money in such a fash ion, or place the money of their in vestors in jeopardy as does our gov ernment with the proceeds of its taxpayers. Since 1954 all governments of America, federal, state and local, have invested (if that not be a pros titution of the term) over 1 trillion dollars in social programs of one kind or another. It is significant that this sum exceeds the total private and public post war investment by Americans in both Germany and Japan. The question then arises, and one which should be directed to the lib eral black and white leadership of this nation, why did not America invest in its 18 million plus black Americans, instead of in foreign na tions, formerly our military enemies? Once again, the pertina cious factors of order and discipline are thrust to the forefront.

Without endeavoring to plumb 236 THE FREEMAN April the ideological aspects of President Carter's opening of diplomatic rela tions with the People's Republic of China, the move does raise several important issues concerning our free market system. First, and foremost, the establishment of diplomatic re lations opens to the American busi ness community the single largest body of potential consumers on earth. But why, when it is classified as communist, possessing the ideologi cal traits intimated by its official designation, would that nation seek the modernization inherent to Western technology? The answer is rather obvious, for the industrial West and Japan have proven the free market system to be superior to all others in providing the quality of lifestyle sought by all peoples of this earth. Red China, then, gazes at its neighbor, Japan, with unquestioned envy. Chinese Interest in Capitalism China has openly solicited the wares of the free market, admitting in the process its desire for our technology, thus turning away from the commune style of existence under communism and seeking a logical route out of its dilemma of poverty. What this move should point out to the adherents of socialism and Marxism, regardless of their ethnic persuasion, is most evident.

If the most populous nation on earth with four and one half times the population of the U.S., brings into question the concept of the state controlling the means of production by openly flaunting their desire for the technology of the free market system, then it is certainly time for many Americans to reconsider their thoughtless journey away from the system which has made its partici pants the envy of the world. The here and now must be consid ered the most opportune in the his tory of humankind for black Ameri cans to learn an appreciation for, and to participate in, the greatest system ever devised for rewarding human achievement. The world is now the marketplace for American ingenuity, technological know-how and productive ability, with the out look never brighter for those willing to submit to the order and discipline essential for participation in that system. It cannot be concluded, however, that black Americans will automat ically disengage themselves from civil, legal and human rights in favor of dignity through individual independence. Before the change there must come an understanding of the merits of those freedoms in herent in the free market.

The Earning of Freedom To elucidate, providing an excel lent example of freedoms where black Americans are concerned, is to 1979 THE ROOTS OF THE FREE MARKET 237 cite a historical fact that is even shunned by many historians. Eman cipation and manumission have been regarded, even by Webster, as synonymous. They are not. Emanci pation was a proclamation of gov ernment' a legal mandate resulting from the military defeat of the South in a war. The first act of that gov ernment was the establishment of the Freedman's Bureau (not its offi cial designation) to provide the kind of paternalism which has been the curse of black Americans since the close of that war. Manumission, on the other hand, which was covered by state law in most of the states of the Old Confed eracy, stipulated that the slave so freed was free to take care of his own needs, and make those decisions within the law essential to his own welfare; in other words, to enjoy the freedom of independence from the paternalism of his former slavemas ter. It is significant that the benefi ciaries of manumission for the most part earned that freedom by pur chasing it.

The purpose of this comparison is to cite the need for true indepen dence as compared to that proposed by government, the kind without responsibility. For while true inde pendence prepares one for entry to the free market as a participant, the other does not. Entry to the Market To disclose the merits of freedom to a black American, whose views of freedom are primarily centered around ((doing his own thing," it is first necessary to define that ~~thing." The most formidable bar rier to true freedom for black Americans is their failure to under stand what such freedom is all about. Not only what it means, but what it requires in terms of personal responsibility to maintain true free dom. Thus, while education, in general terms at least, has soared in black America, with more blacks now graduating from institutions of higher learning than at any time in history, little of that education, from the elementary type forward, deals with true freedom of the free market.

The fact is that most blacks live in America without fully appreciating the America in which they live. The primary reason is lack of educa tional exposure to the true concept of freedom-an entry to the free market system in a meaningful way, which makes all the rest possible, plus an understanding that the order of discipline is essential to the maintenance of that system. And the primary lesson to be learned by all peoples of the world is that race plays no significant role in the es tablishment of order. @ Donald B. Billings IN MAy of 1974 the General Assem bly of the United Nations adopted a monumental Declaration and Action Programme on the Establishment of a New International Economic Or der. The great majority of the voting members of the United Nations solemnly proclaimCed) our united deter mination to work urgently for the estab lishment of a new international economic .order based on equi ty , sovereign equality, interdependence, common interest and cooperation among all states, irrespective of their economic and social systems which shall correct inequalities and redress existing injus tices, make it possible to eliminate the widening gap between the developed and the developing countries and ensure steadily accelerating economic and social development and peace and justice for present and future generations. 1 Professor BIllings Is In the Department of Econom Ics, SChool of Business, at Boise State University In Idaho.

238 The Declaration went on to pro claim: ttIt has proved impossible to achieve an even and balanced de velopment of the international community under the existing international economic order." Later that same year the demand for the new order was followed with the adoption of a Charter of Economic Rights and Duties of States which, among other provi sions, would establish the right of a country to expropriate foreign own ers and institute the right to form cartel or rnonopoly producer associa tions among the commodity export ing countries, ventures similar to the already famous oil cartel-the Organization of Petroleum Export ing Countries (OPEC). This apparently distant and therefore unimportant event in· the lives of most Americans deserves greater attention in the United THE WORLD ECONOMY AT THE CROSSROAD 239 States than it has to this point re ceived. As many continue to remind us, we live in an increasingly in terdependent world. Current trends and recent declarations are bound to shape the future in ways that are not presently understood. What are some of the more important implica tions of the proposed radical re structuring of the international mar ket economy?

"The Rights of Englishmen" The central purpose of this short essay involves a reminder of a pre cious legacy-the heritage of what Kingman Brewster, former Presi dent of Yale University, has called ttThe Rights of Englishmen." These rights include the sanctity of the individual and his property, the freedom of contract, the rule of law, and in general the ttsystem of natu ral liberty" so enthusiastically en dorsed by John Locke, Adam Smith and the founding fathers and ar chitects of our free market order two hundred years ago. It is my contention that the New International Economic Order would not be an ttorder" at all, but would indeed be, according to one economist, ttan experiment in the rule of the jungle-a rule modified by the hope that the largest and most savage carnivores will be so ashamed of.their present existence by virtue of the killing and eating successes of their ancestors that they will offer themselves up as will ing sacrifices to the hundreds of smaller fry."2 This rule of the jungle is not the rule of law which has evolved through trial and error over countless centuries from the com mon law and the Anglo-Saxon tradi tion.

The inspiration for the UProgram of Action" to implement aNew International Economic Order has been shaped largely by a radical, Marxist critique of the international capitalist system. International im perialism and dependency cornerstones of the existing interna tional economic system, so the ar gument goes-are said to be the causes of underdevelopment. As one radical writer has voiced· the argu ment' the capitalistic system, with its giant multinational corporations: maintains and intensifies the system of dependency and misery that now charac terizes our world economy and accounts for so much of its difficulties and injus tices. To overcome these evils, a system of independent socialist countries is needed in which information and technology flows freely between coun tries, but capital, Le., power, does not.3 In essence the developing coun tries want a redistribution of power from the more advanced nations to the currently less developed coun tries. And as a matter of fact, the developed countries Hshould not merely tolerate but police the pro cess of . . . extortion"4 which is to 240 THE FREEMAN April take place through the creation of commodi ty cartels and unilateral processes or expropriation. The de mand by the developing countries for ttfull permanent sovereignty" en tails a demand for the right to uni laterally abrogate contracts. Or, put another way, the law of the jungle is O.K. for the presently poor, but the rule of law should continue to apply to the more advanced coun tries.

The Engine of Growth The great tragedy in all this rhetoric on the injustices of the international economic system is that it deflects attention from the fundamental sources of economic transforma tion and change. Economic development is funda mentally and overwhelmingly a matter of the attitudes, social in stitutions and motivations, and therefore of domestic origin. It is a question of the structure of incen tives confronting individuals, of the social milieu in which human be ings are free and encouraged to develop their talents and seek their fortunes. Economic development in past centuries has been the rule in those societies which have relied largely on a system of private prop erty and freedom of contract and exchange. Even Karl Marx was un equivocal on this point-capitalism was and is a great engine of economic growth. What, then, ··are the principal in gredients in this ttprogram of Ac tion" for the implementation of the New International Economic Order-proposals which would so drastically alter the international economic environment?

First, the new order would facili tate and encourage the formation of international producer associations -commodity cartels, monopolies, like the OPEC oil cartel-in order to transfer wealth from the rich to the poor. Again, the developed nations would be expected to support and encourage the formation of these monopoly ventures. Second, the development of inter national commodity agreements would be brought about in order to both reduce the fluctuations in earn ings from their export efforts and to increase the flow of income and wealth to countries exporting raw materials and commodities. These transfers, however, would require prices above long-run free market prices and therefore bring into being direct confrontations between pro ducing (exporting) and consuming countries. Furthermore, there is lit tle evidence that economic develop ment has been retarded by fluctua tions in the· exports of the develop ing countries.

It seems doubtful that interna tional commodity agreements can make any significant contribution to the development efforts of the less 1979 THE WORLD ECONO]~Y AT THE CROSSROAD 241 developed nations. A less obvious problem with these commodity agreements, but of crucial impor tance for the free market order, is the expansion of the role of political competition at the expense of mar ket competition in the allocation and distribution of the world's re sources. A third demand on the part of the less developed countries is to in crease the flow of financial resources to the developing countries on con cessionary terms. The expanded foreign aid flows would include a reduction in the burden of the re payment obligations on previously accumulated debt obligations to the developed world. On this point, suf- , fice it to say that these demands for greater aid are supported by the presumed guilt feelings borne by the currently well-off nations for past sins of colonialism, imperialism, and exploitation-all catch words in the radical literature on this subject.

The Crutch of Foreign Aid Once again, however, the fact must be faced that economic growth and development is not importantly a function of the volume of foreign assistance. P. T. Bauer in his book, Dissent on Development, provides logical and empirical refutation of the external constraint dogma so popular in many circles. 5 Further more, let us note that in the post World War II period U.S. foreign aid flows have had relatively little to do with economic development for the poor of the world, but have been associated with an interventionist foreign policy designed to encircle the Soviet Union and (at least until recently) to encircle China. The demand for preferential ac cess to the markets ·of the high in come countries for the processed and man ufactured exports of the de veloping economies is a fourth im portant component of the New International Economic Order. The modernization and diversification of the less developed countries depends crucially, according to this argu ment, on the expansion ofmanufac tured exports by the currently poor countries.' Once again, unfortu nately, attention is deflected from the fundamental source of prog ress-changes in domestic attitudes and institutions.

Most of the high income nations of the world currently have a Generalized System of Preferences in favor of the tariff-free entry of manufactured goods from the less developed countries. The U.S. Trade Act of 1974 provides for the duty free entry into the United States of manufactured goods from more than eighty developing economies. The problem here is that the exemption list under the U.S. law essentially comprises the very kinds of goods in which the poor nations do have a comparative advantage (e.g., tex242 THE FREEMAN April tiles, shoes, and the like). Here the proponents of the Declaration are right for the wrong reason. The United States should favor free trade because it allows us to obtain goods cheaper than they can be ob tained out of domestic resources. Free Trade Generally The contribution to world economic development. can be made by the general pursuit of free trade without regard to particular sources. The presumption by the ad vocates of the New International Economic Order that free trade has been at fault ignores the significant impediments that the world cur rently imposes on the flow of goods across national boundaries. As one economist has said, ttThe NIEO pol icy would rest upon the dubious as sertion that nonexistent free inter national trade is a culprit rather than a needed remedy."6 However, as the sugar, steel and electronic consumer goods issues un fortunately testify, the people of the United States have yet to recognize the advantages of specialization and free trade so profoundly demon strated in the intellectual refutation of mercantilist doctrines two cen turies ago.

Finally, a crucial ingredient in the demands of the developing coun tries of the world is the implementa tion of an ~~International Code of Conduct" for the multinational enterprise which has come to be such an important force on the interna tional economic scene. In contrast to the Organization of Economic Coop eration and Development (OECD), an association of developed coun tries which looks to equal treatment of domestic and foreign corporations in host country markets, the less developed countries of the United Nations' Declaration would legalize and encourage the expropriation of property and the unilateral abroga tion of contracts-a far cry from the enforcement of contracts under the rule of law. It is .asserted that the multina tional corporation has kept ~tsovereignty at bay" as the giant enterprises blackmail the poor coun tries. However, it is simply not the case. The realities in recent years have been just the opposite. The State, even when small, has main tained firm control. Witness the ways in which the large petroleum finns do the bidding of the OPEC cartel members. Look at the treat ment and terms exacted from U.S.

multinationals by our neighbors, Canada and Mexico. Despite the radical rhetoric to the contrary, as Walter Wriston of the First National City Bank of New York has said, ttThe reason for op timism about the future of the world corporation rests on the solid base that it is the best way that has yet been found to organize our society to 1979 THE WORLD ECONOMY AT THE CROSSROAD 243 give it the optimum chance of sup·· plying the needs of mankind in an increasingly crowded world."7 And I might add that this role for the mul·· tinational enterprise should tak€~ place in a world in which the State: 1 in all countries, would not be an. instrument of the merchant class;, efficiency and competition would be the relevant criteria. Political Conflict In summary, the UProgram of Ac tion" under the Declaration for a New International Economic Order involves a political confrontation be tween a small group of high income countries and a much larger group of relatively poor countries. It would displace the world economy predi cated on market transactions through voluntary exchange with a managed international economic system relying on political competi tion and the State's monopoly use of force and coercion. Assertions and expressions of guilt for past sins by the currently developed nations would be the rallying cry for the implementation of this rule of the jungle.

Much of the political pull and tug would take place through the bureaucracy of the United Nations-an independent force to be reckoned with on the world economic scene. As one student of the subject has noted, ~~The demand for aNew International Economic Order is to an important extent a demand for greater power for these international bureaucrats, dis guised as a demand for more justice for the ordinary people of the de veloping countries."8 Relations between the so-called developed countries and the less de veloped countries are sure to hold center stage in the deliberations on the nature and evolution of the international economic system for years to come. The United States is likely to find that a responsibility for international order will be thrust upon it, for better or worse. In a very fundamental sense we are in a war over ideas and therefore the minds of people the world over. It is simply a continuation of the age-old battle between two ideas which have dominated thinking on economic and social matters for centuries.

One is the idea associated with the importance of the individual, pri vate property, voluntary exchange and the rule of law; the other is the notion that economic activity ~~is or should be the chosen instrument of the State."9 The central issue facing the peo ple of this planet has been charac terized by the Nobel Prize winning economist Friedrich A. Hayek: ~~Un less we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imag244 THE FREEMAN ination of our liveliest minds, the prospects of freedom are indeed dark." Fortunately, the free market order and its international exten sion has something going for it-the enormous accomplishments in the past and the potential for the future in the generation of wealth, pros perity and the promotion of individ ual freedom. The enemies of free dom, be they socialist planners, international bureaucrats, mis guided but well-meaning do gooders, and indeed the State itself, must deal with these demonstrable realities.

There is no call or need for a new international economic order which would relegate the rule of law to the back burner and emphasize political rule of the jungle; which would en courage the transfer of wealth in stead of its creation; which would have the state expropriate property instead of enforce private property rights. The ((Rights of Englishmen" are on the line. The ((system of natu ral liberty" -private property and individual freedom-should take the offensive. The current demand for a new international economic order with these coercive and extra legal characteristics deserves to be fought and rejected by all those who value the freedom and sanctity of the individual and his property. , -FOOTNOTESlUnited Nations General Assembly Resolu tions 3201 (S-VI) and 3202 (8-VI) (May 1, 1974) cited in Franklin R. Root, International Trade and Investment, Fourth Edition, South western Publishing Company, 1978, p. 432.

2Harry G. Johnson, The New International Economic Order, Selected Papers, No. 49, Graduate School of Business, University of Chicago, October 5, 1976, p. 6. 3Stephen Hymer in a written statement be fore The Group of Eminent Persons to Study the Impact of Multinational Corporations on Development and International Relations, cited in Root, p. 437. 4Johnson, op. cit. sp. T. Bauer, Dissent on Development, re vised edition, Harvard University Press, 1976. 'Martin Bronfenbrenner, ttAn Old Reaction ary Free Trader on the New International Economic Order," Nebraska Journal of Eco nomics and Business, Vol. 16 (1977), pp. 5-18. 7Walter Wriston, People, Politics and Pro ductivity: The World Corporation in the 1970's, Citicorp, New York, September 15, 1976. 8Johnson, op. cit., p. 16. 9Wriston, op. cit. IDEAS ON UBERTY TheImportanceofSa~ng ALTHOUGH assistance from abroad can help a country grow economi cally, such assistance does not excuse that country from the onerous chore of saving. Outside aid can supplement domestic saving but cannot supplant it.

WILLIAM R. ALLEN, "Saving, Foreign Aid, and Growth"

James C. Patrick A BETTER WORLD THERE is one sure way that you can help make the world a better place in 1979. This is to concentrate on improving yourself. Obviously a lot of people think they could improve the world by forcing their ideas on others. Springfield and Washington are full of such people people who want to compel others to do things their way. Every time you hear somebody say, uThere ought to be a law," they are actually saying, ~~People ought to be compelled do to things my way." In the final analysis, that is what politics is all about. It is a way of deciding who is going to exercise power over others-of deciding whose ideas shall prevail. It is undoubtedly true that some people have better ideas than others-at times. But at different times,· those Uothers" may have the better ideas. One problem with trying to force our ideas on others is that they have ideas of their own as to what they want to do and how they want to do it.

This is one way conflicts arise. When you concentrate on self-improvement, there is little risk of conflict. And you may even achieve the position where others will imitate your example voluntarily. How do you go about self-improvement? Well, that is for you to decide. One person might sign up for a class in some challenging subject. Others could begin an exercise program or start reading some mind-expanding material. Many could probably find guidance at a church or temple. Concentration. on self-improvement could both decrease the causes of conflict and produce better individuals. Then the world would be a better place, by that much, and 1979 a better year. I) Mr. Patrick holds a Master of Divinity degree from Yale and has filled many lay offices as a churchman. A former chamber of commerce executive, he now is an officer in a group of small-town banks In illinois. The message here is from his broadcast of January 2, 1979 as a volunteer commentator, radio WSOY, Decatur, Illinois.

245 John Semmens DEREGULATION OF ~ TRUCKING WITH increasing frequency, regula tory matters have been entering into discussions of national economic policy, and for good rea son. As the nation has become more concerned with inflation and its im pact upon economic growth, any op tion which promises some hope of reducing the cost of providing basic services is a prime candidate for serious consideration. The potential cost savings that could be achieved through regula tory reform are substantial. All told, current government regulation of business is resulting in an annual burden of $100 billion. 1 The great bulk of this cost is caused by inef ficiencies imposed by regulatory constraints. These costs are not merely transfer payments. It is not as if the money is being shifted from Mr. Semmens Is an economist for the Arizona De partment of Transportation and Is studying for an advanced degree In business administration at Arizona State University.

246 one pocket to another. Instead these costs are described as deadweight losses. In transportation the regulatory burden has been estimated at $10 billion or more per year. Typical incidents include truckers' empty backhauls, circuitous routing, and unnecessary extra freight handling (and sometimes mishandling) due to regulatory policies and procedures. The waste is comprised of unneces sarily burned fuel, needless wear and tear on equipment, and unpro ductive use of the time consumed by operations personnel. Not included is the additional consumption of management's time in coping with the complex rules and procedures of the regulatory establishment. Not surprisingly, the revelation of the enormous potential savings from deregulation has inspired a rising groundswell of opinion in favor of such a move. Among academic economists the consensus is virtuDEREGULATION OF TRUCKING 247 ally unanimous, and has been for the last decade, that at least some deregulation is necessary. While lawmakers have been somewhat slower to change their minds, recent stirrings in the direction of deregu lation have been observed.

In 1976 the Railroad Revitaliza tion and Regulatory Reform Act offered some minor reforms in surface transport regulation. The bill allows some flexibility in rate making over what had been the rule to this point. In November of 1977, H.R. 6010 was passed and signed into law making entry into the air cargo industry virtually unrestricted as well as giv ing operators wide discretion in set ting rates. The recently passed Kennedy-Cannon bill on airline de regulation allows greater price com petition, limited automatic entry of new routes by existing carriers, and significantly relaxed entry require ments for new applicants. Now that airline regulatory re form is accomplished, Congress is expected to take up the issue of motor transport regulation. The tre~d seems clearly to be toward more deregulation. Why Regulation? The traditional explanation of the motive for government regulation of transportation has been that it is necessary to correct the imperfec tions of the free market. Theoreti cally, the regulators would step in to insure that the public would not be victimized by a predatory industry.

In practice, regulation has not worked this way. The old myths die hard, though, and regulation as a protector of the consumer is almost an article of faith. Perhaps it is significant that while the rest of society is Uenjoying" the ((protection" of regulation in motor carriage, a staff task force recommendation to the ICC urged that U.S. government shipments be subject to unrestricted competition· among common car riers. 2 A growing number of economic studies of regulation have come to the conclusion that this system is a burden upon society. The question must persist, then why must regula tion continue? Why can't we do away with it? There is the continu ing vitality of the myth of consumer protection. But such a myth does not survive on its own. It must be nur tured and propagated. Who would do such a thing? What would be the motive? Economist George Stigler has suggested that a good working hypothesis is that regulation is promoted by a relatively small group of beneficiaries whose indi vidual stake in the system is much larger than the individual stakes of the more numerous victims of the system. 3 These few beneficiaries are able to collectively induce the gov ernment to enforce policies benefi248 THE FREEMAN April cial to themselves. Their individ ually larger stakes enable them to outbid opponents and to ((purchase"

a regulatory system from the Gov ernment. 4 The· current state of affairs is economically wasteful. It wastes fuel on needless motion caused by regulatory restrictions. It wastes capital tied up in excess capacity both in private and common carrier equipment. It wastes the irreplace able time of individuals in unneces sary travel, in the regulatory agency itself, and in the time consumed in learning a complex compilation of do's and don't's in the provision of transportation services. Unmea sured social costs of the regulatory scheme include contributions to in creased traffic congestion and pollu tion as well as an indeterminable amount of opportunity cost in other benefits that have been forgone over the years in order to finance the waste inherent in the regulatory process. Perhaps the most important dis covery to be made is that the mere selection of ((better" regulators is no way out of the current difficulties.

The problems are fundamental and cannot be attributed to incompetent or corrupt regulators. No matter how well qualified or carefully cho sen any future regulators might be, no improvement can be expected un less crucial changes in the system are made. As a minimum of reform, two as pects of the current system must be dealt with. First, the restrictions on entry must be eliminated. Second, the imposition of price controls must be discarded. Strong, entrenched transportation lobbies have stood in opposition to any reforms which would dilute their monopoly powers. The major arguments used to prevent deregu lation include: (1) that transporta tion is a natural monopoly, with significant economies of scale, and therefore, service can be provided more cheaply and efficiently if need less competition is banned, (2) that the absence of regulation would lead to chaotic conditions, which would lead in turn to monopoly, (3) that existing carriers have already paid substantial sums for operating rights and it would be unfair to depri ve them of the expected monopoly profits without compensa tion, and (4) that the current system is a known condition and that any change could be a change for the worse.

The Natural Monopoly Argument The contention that transporta tion is a natural monopoly has no basis in economic fact. Historically speaking, at one time the railroads may have had some monopolistic characteristics, but even then, prior transport modes were still in exis tence. Aside from this, conditions 1979 DEREGULATION OF TRUCKING 249 have changed greatly during the last century. In no way can the rail roads be said to monopolize trans portation. Quite the contrary, rail roads have taken on the aspects of a declining industry. A key compo nent of the changes in transporta tion has been the construction of a comprehensive network of public highways. There is virtually no place in America that cannot be reached by road. The highway sys tem has, naturally, been a boon to the motor carrier industry. The critical element of a so-called natural monopoly is ever-increas ing economies of scale. This im plies large capital investment in fixed assets. There is nothing about the motor carrier industry which is consistent with the requirements of natural monopoly. In fact, economists have found significant diseconomies of scale when annual revenues exceeded $10 million. 5 It is apparent, then, that transportation is not a natural monopoly. The ar gument that it is seems to rely upon conditions more relevant to the nineteenth century. At best, such an approach is outdated.

The Chaos Argument The argument that the absence of regulation would lead to chaos is closely tied to the historical circum stances preceding motor carrier regulations. During the Great De pression, business conditions were less than ideal. Bankruptcies oc curred with unpleasant frequency. A number of government programs designed to reduce competition and promote a sharing of declining busi ness volume were introduced. The National Recovery Administration set up procedures for price fixing in broad categories of industry. This period also saw the rise of the ufair trade" concept, which allowed man ufacturers to fix the prices at which their products could be resold. Rigid controls over agriculture were also adopted during this period. The passing of the period of depression emergency, combined with a greater appreciation of the impacts of this type of price fixing and out put control on the availability and price of consumer goods, has seen the elimination or curtailment of such programs (excepting the recent infatuation with wage and price control as an inflation U cure") in virtually every sphere except trans portation. Chaos cannot be said to have prevailed in the deregulated spheres. In fact, the quantity and quality of consumer goods have vast ly improved in subsequent years.

There is no reason to anticipate that transportation would prove an exception to this experience. Sep arate from the strident antideregu lation propaganda, regulated motor carriers have privately expressed confidence in their ability to thrive even without regulatory protection.

250 THE FREEMAN April They cite their experience, man agement expertise, financial strength, and the scope of the ser vice they can offer, as the basis of this confidence.6 We must conclude that the fear of chaos is unsubstan tiated and unrealistic as a scenario for a post-deregulation environ ment. The Equity Argument The third major area of argument poses an entirely different problem. The reapers of the monopoly profits may, in many instances, already have sold their special rights. The purchasers may be earning only a normal rate of return after accom modating the capitalized value of the operating right, Le., future monopoly revenues simply compen sate the carrier for the funds ex pended to obtain the monopolyrights. Deregulation without compensa tion would constitute a change in the rules-inflicting capital loss es on those firms which purchased these operating rights. While this line of argument has some merit in the question of equity, it is no justification in itself for per petuation of a system which con tinues to generate monopoly gains at the expense of consumers. A number of solutions to this dilemma have been suggested. The hard line approach takes. the position that no firm is guaranteed against losses from bad investments. The purchase of an operating right would fall into the category of a bad investment.

Since management did not correctly anticipate future industry condi tions, it must bear the penalty for this lack of foresight, vis-a-vis the evaporation of value of the operat ing rights. A second approach has suggested that the government buy all the operating rights from the regulated carriers. Variations of this theme hinge on the valuation of the rights. A third approach envisions a phased deregulation program. In this way, competition would be gradually increased and the firms would be eased into the new envi ronment. The problem of compensa tion for operating rights would not be wholly resolved. The costs of reg~ ulation would be extended. The major appeal of this proposal is that it is a compromise which attempts to spread the costs of readjustment over time and between producers and consumers. None of the above solutions is completely satisfactory. Phased de regulation would prove the most costly, with the bill ranging from the current social loss of around $10 billion per year to lesser amounts as the distortions are removed. The longer the transition, the higher the cost. In comparison, outright pur chase of the existing operating rights at their current market value could cost over $4 billion.

1979 DEREGULATION OF TRUCKING 251 The Fear of Change Argument The last objection to deregula tion-the fear of change-is no ob jection at all. The philosophy of ((better the evils you know than those you don't" is contrary to the American spirit of enterprise if it is to be used to block reform of an obviously deficient system. It is true that deregulation would drastically modify the operating environment of regulated transport, but this is the whole point. The general welfare could be improved by changing an operating environment that misal locates resources. Reluctance to make the necessary adjustment is akin to the postponement of surgery to correct a debilitating ailment. The situation can only get worse. This is not to say that corrective measures would be painless. But the discomfort surely would be milder than proclaimed by proponents of continued regulation. Other juris dictions have transportation sys tems with less regulation than ours.

In 1954 Australia deregulated its motor carrier industry. Contrary to the prognostications of the pro regulators, the subsequent tum of events was quite salutary. The re sulting competition has not been ~~destructive." It has not resulted in monopoly. Both truck and rail ser vices have improved. No shortage of capacity has resulted. Shippers have been satisfied and carriers have thrived. 7 Our standard of judgment for evaluating the transportation in dustry must not get hung up on a futile pursui t of perfection. There will always be problems with any system. No approach can cover all contingencies. The important con sideration is to find a policy that will lead to the best possible results. The perceived shortcomings of un regulated transport are less costly than regulation. So, let regulation be evaluated as it has performed, not in some idealistic sense in which it can be used to fix the imperfections of the marketplace at no cost to society. i -FOOTNOTESlEstimate by Murray Weidenbaum of the Center for the Study of American Business, Washington University, St. Louis, Missouri.

2Improving Motor Carrier Entry Regulation (Washington, D.C.: Interstate Commerce Commission, July 6, 1977). 3George Stigler, The Citizen and the State: Essays on Regu~tion (Chicago: University of Chicago Press, 1975). 4Sam Peltzman, ltToward a More General Theory of Regulation," Journal of Law and Economics (August, 1976). 5Richard Klein, The Cost Structures of the Regulated Trucking Industry (Washington, D.C.: U.S. Department of Transportation, 1975). 6Evaluation of Potential Changes to Federal Economic Regulations Governing Private Car riage (Washington, D.C.: U.S. Department of Transportation, December 6, 1974). 7James C. Nelson, ((The Economic Effects of Transport Deregulation in Australia," Trans portation Journal (Winter, 1976), pp. 48-71.

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN THE SECRET SIX FROM a libertarian point of view, Otto Scott is America's most excit ing contemporary historian and biographer. He has two strings to his bow. With a clear understanding of Albert Jay Nock's distinction be tween social power and political power, Scott alternates his studies. Part of his writing life is devoted to a critical appraisal of creative busi ness enterprises (see, particularly, his story of the Raytheon company, which developed radar). His ttother career," which he pursues with a sense of dutiful but nevertheless exhilarating vengeance, is dedicated to exposing the great ~~fools of his tory." These fools are political types who have led mankind astray by insist ing on a ~~higher law" that has no grounding in human nature. His book on the French revolutionary 252 fanatic Robespierre was a devastat ing dramatization of what can hap pen to a country when a politically powerful person assumes that he and he alone has been ordained to define and impose a ~~general will."

The Scott biography of King James I of England was a study of ab solutism allied to vice and frivolity that might have cost Britain more if it had not been an island. And now Otto Scott, with his The Secret Six: John Brown and the Abolitionist Conspiracy (Times Books, 3 Park Avenue, New York, N.Y., 10016, 375 pp., $15.00), has dared to apply the name of ~~sacred fool" to the man whose attempt to seize the govern ment arsenal at Harpers Ferry, Vir ginia, and incite a slave rebellion was one of the prime harbingers of the American Civil War. John Brown of Osawatomie, KanTHE SECRET SIX 253 John Brown sas, has been the subject of admiring biographers and the inspiration of one great poem, Stephen Vincent Benet's John Brown's Body. Mr. Scott dissents; he calls John Brown a murderer. Killing and Plunder The record clearly sustains Mr. Scott. On May 23, 1856, Old John Brown (he always seemed old to his contemporaries) led four of his sons, his son-in-law and two others on a killing expedition along Pot tawatomie Creek in what was then called Bleeding Kansas. The Kansas territory was being contested be tween southern slaveholding sym pathizers and northern Free Soilers, but Old Brown, in assuming that he was part of a ~~northern army" and hence privileged to kill in the name of the Abolitionist ~~higher law," was in no way concerned in knowing whether his victims were slavehold ers or even interested in anything other than pioneering on the plains.

Mr. Scott surmises that one of Old Brown's confused motives was a de sire to force a nation into a new pattern by creating terror. Brown claimed a religious sanction for in voking a symbolic vengeance on in nocent men and women, but he and his murder party were also in terested in loot. They wanted horses, saddles, guns and bowie knives, and they were particularly happy to walk off with a fine grey horse be longing to Dutch Henry, the big cat tle dealer of the area. Old Brown and his party were never brought to justice for five Pot tawatomie murders that widowed two women and left behind a num ber of fatherless children. One rea son for the oversight was the disor ganized condition of the Kansas ter ritory. But, more importantly, the country as a whole was bemused by the clamor of the sectional issue. The Fifties were the decade of the :Ored Scott decision, the caning of the self-righteous Massachusetts Senator Charles Sumner by an out Jraged South Carolinian, Represen tative Preston Brooks, and the in cendiary controversies of the Boston 254 THE FREEMAN April Abolitionists (Garrison, Wendell Phillips et al.) and the southern fire-eaters who wanted secession.

The journalists of the time were par tisan, and those who wrote for northern papers from Kansas took Old Brown at his own estimate that he was engaged in a highly moral crusade. Supporting Intellectuals To Mr. Scott, the real scandal of the whole Brown story was the be havior of the Massachusetts intel lectuals. The Concord group was particularly blameworthy for mak ing Brown a hero. Ralph Waldo Emerson excused the Kansas vio lence by saying ttbetter that a whole generation of men, women and chil dren should pass away by a violent death, than that one word" of the Golden Rule and the Declaration of Independence ushould be violated. in this country." Henry David Thoreau agreed with Emerson that Brown was a Utranscendentalist saint." The more ttliberal" of the Boston clergy echoed the Concord non sequiturs. But the real culprits, as Scott's careful research shows, were the members of the committee he calls the Secret Six. This group was composed of Dr. Samuel Gridley Howe, the Reverend Thomas Wentworth Higginson, the Reverend Theodore Parker, the millionaire Gerit Smith, Franklin B. Sanford, the town antiquarian of Concord, and George Luther Stearns, an idealistic Massachusetts lead pipe manufacturer. The Secret Six sup ported Old Brown with introduc tions, immoderate praise, and good hard cash. Unwilling to go to Kan sas in person to fight the so-called Border Ruffians from the South, they satisfied their guilt feelings by supplying money and arms for Brown's activism. Announcing that tta revolution was what the country needed," Stearns at one point drew up a subscription list to provide reg ular shipments of Sharp's rifles to Kansas.

Pacifist Beginnings The ironic thing about the Abolitionist movement, insofar as the clergy was involved in it, was that it had begun in pacifism. Theo dore Weld, the theology professor who trained scores of agents in a uschool of abolition," was the gen tlest of souls. The Reverend William Ellery Channing, the acknowledged leader of the Unitarian movement, complained that William Lloyd Gar rison, the ttliberator ," and his vocif erous circle were tttoo precipitate" and ttlacked tact." But as the uirre pressible conflict" of the Civil War approached, Theodore Parker pro claimed that ttall the great charters of Humanity have been writ in blood." The free man, he said, tthas a natural right to help the slaves re cover their liberty ... and as a 1979 THE SECRET SIX 255 means to that end, to aid them in killing all such as oppose." Parker, who boasted of helping to fund John Brown, lay dying in Italy when the poorly planned and stupid raid in the Harpers Ferry arsenal misfired. He might not have survived the ordeal of returning to the United States to stand trial in Virginia as an accessory to Brown's treasonable act. To do the Reverend Thomas Wentworth Higginson justice, he was willing to appear in court and was rather miffed that nobody asked him. But the rest of the ~~secret six"

scurried for cover when Lieutenant Jeb Stuart captured Brown after a thirty-six-hour engagement at the Harpers Ferry arsenal. Howe, Stearns and Sanborn, fearful that they might be exposed as accessories to Brown's act of treason, ran away HANDSOME BLUE lEATHERLEX to Canada. Gerit Smith, the mil lionaire, pretended lunacy. Frederick Douglass, the leader of northern black freedmen, had tried to dissuade Brown from his mad escapade. But when the raid on the arsenal actually took place, Doug lass fled to Canada and England. He was under no illusions about his safety if he had been called upon in a Virginia court to explain his conver sations with Brown before the san guinary event took place. Otto Scott does not draw modern parallels in The Secret Six. But his contempt for intellectuals who sup port violence in the name of the ~~higher law" obviously extends to western liberals who favor bloody solutions in Rhodesia, South Africa or wherever. The ~Csecretsixes" are always with us. , FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC.

IRVINGTON-ON-HUDSON, NEW YORK 10533 256 THE FREEMAN SPECIAL OFFER Back issues of THE FREEMAN, in bulk lots. Printing overruns and other miscalculations leave extras of many of the 1978 monthly is sues of THE FREEMAN. Instead of our storing these, we'd prefer to see them offered as handouts in classrooms, lec tures, study groups, doctors' and dentists' waiting rooms, li braries, employee reading racks, or wherever a student of liberty might find them. If you could so use 100 or more of any of these 1978 is sues, at $2.00 a hund red deliv ered in the U.S., (postage extra for foreign delivery) let us know your total need and preference of months. We'll promptly ship up to the limits of the surplus stock. Send requests and checks to: The Foundation for Economic Education, Inc. Irvington-on-Hudson, New York 10533 the Freeman VOL. 29, NO. 5 • MAY 1979 Gold versus Fractional Reserves Henry Hazlitt 259 Worsening inflation may oblige governments to allow individuals to restore gold as a medium of exchange.

Our Heritage Morris Shumiatcher 267 Upon the creative works of individuals depends the enriched inheritance of succeeding generations. World in the Grip of an Idea 29. The Cold War: Coexistence, Detente, and Convergence Clarence B. Carson 271 In the thrust for power, dim are the prospects for coexistence and peace. Efficiency in Government Dennis Bechara 284 The control of bureaucratic waste hinges upon limiting the scope of governmental activity. Thinking About Economics Edmund A. Opitz 288 Concerning the connections between freedom of the marketplace and liberties of the mind. The Effects of Regulation on an Industry Shari Gifford 300 How deregulation might be helpful to customers of the broadcasting industry. On Recapturing Liberty Ridgway K. Foley, Jr. 304 Let man's coercive nature give way to the creativity of individual choice. Book Reviews: 315 "In Defense of the Corporation" by Robert Hessen "The New Protectionism: The Welfare State and International Trade" by Melvyn B. Krauss Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

tt1e I A E~~~N~~~N LIBERTY FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year.

Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "World in the Grip of an Idea" and "Our Heritage."

Henry Hazlitt GOLD VERSUS FRACTIONAL RESERVES THE present worldwide inflation has done, and will continue. to do, im mense harm. But it may eventually lead to one great achievement. It may make it possible to restore (or perhaps it would be more accurate to say to create) a full 100 percent gold standard. That could come about in a simple manner. Our government has made it once more legal to hold gold,· to trade in gold, and to make contracts in terms of gold. This makes it pos sible for private individuals to. buy and sell in terms of gold, and there fore to restore gold as a medium of exchange. If our present inflation, as Henry Hazlitt, noted economist, author, editor, re viewer and columnist, Is well known to readers of the New York Times, Newsweek, The Freeman, Bar ron's, Human Events and many others. The most recent of his numerous books Is The Inflation Crisis, and How to Resolve it.

seems likely, continues and acceler ates, and if the future purchasing power of the paper dollar becomes less and less predictable, it also seems probable that gold will be more and more widely used as a medium of exchange. If this hap pens, there will then arise a dual system of prices-prices expressed in paper dollars, and prices ex pressed in a weight of gold. And the latter may finally supplant the former. This will be all the more likely if private individuals or banks are legally allowed to mint gold coins and to issue gold certificates. But even of the small number of monetary economists who favor a return to a gold standard, probably less than a handful accept the idea of such a 100 percent gold standard. They want a return, at best, to the 259 260 THE FREEMAN May so-called classical gold standard that is, the gold standard as it functioned from about the middle of the nineteenth century to 1914. This did work, one must admit, incom parably better than the present chaos of depreciating paper monies.

But it had a grave weakness: it rested on only a fractional gold re serve. And this weakness eventually proved its undoing. Not Enough Gold? The advocates of the fractional gold standard, however, saw-and still seethis weakness as a strength. They contend that a pure gold standard was and is impossible; that there is just not enough gold in the world to provide such a cur rency. Moreover, a pure gold stan dard, they argue, would be unwork ably rigid. On the other hand, a fractional reserve system, they say, is flexible; it can be adjusted to Uthe needs of business"; it provides an Uelastic" currency. We will come back to these al leged virtues later, and examine them in detail; but first I should like to call attention to the central weakness of a fractional reserve sys tem: it embodies a long-term ten dency to inflation. Let us begin with a hypothetical illustration. Suppose we have a world in which the leading countries have been maintaining a 100 per cent gold standard, that they begin to find this very confining, and that they decide to adopt a fractional gold standard requiring only a 50 percent gold reserve against bank deposits and bank notes.

The banks are now suddenly free to extend more credit. They can, in fact, extend twice as much credit as before. Previously, assuming they were lent up, they had to wait until one loan was paid off before they .could extend another loan of similar size. Now they can keep extending more loans until the total is twice as great. The new credit plus competi tion causes them to lower their interest rates. The lower interest rates tempt more firms to borrow, because the lower costs of borrowing make more projects seem profitable than seemed profitable before. Credit increases, projects increase, and there is a uboom." So reducing the gold reserve re quirement from 100 percent to 50 percent, it appears, has been a great success. But has it? For other conse quences have followed besides those just outlined. Production has been stimulated to some extent by lower ing .the reserve requirement; but prod uction cannot be increased nearly as fast as credit can be. So as a result of increasing the credit sup ply most prices have practically doubled. Twice the credit does not udo twice the work" as before, be cause each monetary unit now does, so to speak, only half the work it did 1979 GOLD VERSUS FRAC~rIONAL RESERVES 261 before. There has been no magic.

The supposed gain from doubling the nominal amount of money has been an illusion. And this illusion has been bought at a price. Lowering the required gold reserve to 50 percent has ena bled the banks to double the volume of credit. But as they begin to ap proach even the new credit limit, available new credit becomes scarce. Some banks have to wait for old loans to be paid off before they can grant new ones. Interest rates rise. New projects have to be abandoned, as well as some incompleted projects that have already been launched. A recession sets in, or even a financial panic. And then, of course, the proposal is made that the simple way out is to reduce the gold-reserve requirement once again, so as to permit a still further creation of credit. The Federal Reserve Act Historically, this is exactly what has been happening. Space does not permit a detailed review of what has happened in one nation after another, starting, say, after the adoption in England of Sir Robert Peel's Bank Act of 1844. But we can point to a few sample changes in our own country, beginning with the Federal Reserve Act of 1913.

That act set up twelve Federal Reserve Banks, and made them the repositories for the cash reserves of the national banks. The first thing that was done was to reduce the reserve requirements of these com mercial banks. Under the national banking system the banks had been classified according to the size of the city in which they were located. They were Central Reserve City Banks, Reserve City Banks, and Country Banks. These were re quired to keep reserves, respec tively, of 25 percent of total net deposits (all in the bank's own vaults), 25 percent of total net de posits (at least half in the bank's own vaults), and 15 percent of total net deposits (two-fifths in the bank's own vaults). The Federal Reserve Act clas sified deposits into two categories, demand and time, with separate re serve requirements for each. For demand deposits the act reduced the reserve requirements to 18 percent for Central Reserve City Banks, 15 per cent for Reserve City Banks, and 12 percent for Country Banks. In each case at least one-third of the reserve was to be kept in the bank's own vaults. For time deposits the reserve was only 5 percent for all classes of banks.

In 1917, as an aid in floating gov ernment war loans, the reserve re quirements were further relaxed, to 13, 10, and 7 percent respectively, with only a 3 percent reserve re quirement for time deposits. Though the amendment also required that 262 THE FREEMAN May all reserve cash should thereafter be held on deposit with the Federal Reserve Banks, the amount of till or vault cash necessary to meet daily withdrawals was found to be small. In addition to this lowering of the reserve requirements of the member banks, the Federal Reserve System provided for the building of a second inverted credit pyramid on top of the one that the member banks could build. For the Federal Reserve Banks themselves were authorized to issue note and deposit liabilities against their gold reserves, which were required to total only 35 per cent against deposits. As a result of such changes, if the average reserves held by the com mercial banks against their deposits were taken as 10 percent, and the gold reserves held by the System against these reserves at 35 percent, the actual gold held against the commercial deposits of the System could be reduced to as low as 3.5 percent.

What actually did happen is that between 1914 and 1931, total net deposits of member banks increased from $7.5 billion to $32 billion, or more than 300 percent in less than two decades. 1 These figures continued to grow. Gold reserve requirements were fi nally removed altogether. In AulSee Money and .Man, by Elgin Groseclose (University of Oklahoma Press), pp. 215-219. gust, 1971, when the United States officially went off the gold standard, the money stock, as measured by combined demand and time deposits plus currency outside of banks, was $454.5 billion. The U.S. gold re serves were then valued at $10.2 billion. This meant that the money stock of the country had been mul tiplied more than sixty times over that of 1914, and the gold reserve against this money stock had fallen to only 2.24 percent. Put another way, there was then $44 of bank credit issued against every $1 of gold reserves.

Exhausting the Gold Reserve The situation was actually more ominous than these figures suggest. For under the gold-exchange system of the International Monetary Fund, it was not merely the American dol lar, but the total currencies of prac tically all the nations in the Fund, that were supposed to be ultimately convertible into the U.S. monetary gold stock. The miracle is not that this gold exchange system collapsed altogether in August of 1971, but that it did not do so much sooner. In short, the fractional gold stan dard tends almost inevitably to be come IJlore and more attenuated, and while it does·so it permits and encourages progressive inflation. When the gold standard is aban doned completely and officially, in flation usually accelerates. This has 1979 GOLD VERSUS FRACTIONAL RESERVES 263 been illustrated in the more than seven years since August, 1971. At the end of 1978, the money stock, counting both demand and time de posits, had risen to $871 billion nearly double the figure at which it stood in August, 1971.

But what happens as long as the fractional gold standard is being nominally maintained is that the milder rate of inflation is less noticed, and even many monetary economists are inclined to view it with complacency. This is partly be cause they have a reassuring theory of what is happening. The amount of currency and credit, they say, is re sponding to the uneeds of business." The loans on which the deposits or Federal Reserve Notes are based represent ~~real goods." A manufac turer of widgets, for example, bor rows a six-month loan from his bank to meet his payroll and other pro duction costs, then when he sells his goods he pays off the loan with the proceeds, and the credit is cancelled. It is uself-liquidating." The money is therefore ~~sound"; it cannot be over issued, because it increases and con tracts with the volume of business activity. What this theory overlooks is that while the individual loan may be self-liquidating, this is not what happens to the total volume of credit outstanding. Manufacturer Smith's loan has been repaid. But under the fractional reserve system, the bank, as a result of this repayment, now has ~~excess reserves," which it is entitled to re-Iend. Of course if the bank is fully lent up, even under a fractional reserve system, it cannot extend credit further. But when a substantial number of banks are seen to be nearing this point, pres sure comes from all sides-from the banks and their would-be borrowers, and from the government monetary authorities and the politicians who have appointed them-to lower the reserve requirements further. If nothing has gone wrong so far with the existing fractional reserve, in deed, there seems to be no harm in reducing the fraction further. It will permit a further expansion of credit, reduce interest rates, and prevent a threatened business recession.

In sum, to repeat, a fractional reserve gold· system, once accepted, rnust periodically bring about. busi ness and political pressure for a further reduction of the fractional reserve required. '-he Harmful Consequences We have now to examine the harm that the system does whether or not the pressure to reduce the reserve requirements is continu ously successful. Let us begin with a situation· in, say, Ruritania, which has a fractional-reserve gold standard and a central bank, but in which business activity has not heen fully 264 THE FREEMAN May satisfactory. The central bank then either lowers the discount rate, or creates more member-bank reserves by buying government securities, or it does both. As a result, business is encouraged to increase its borrow ing and to launch on new enter prises, and the banks are now able to extend the new credit demanded. As a consequence of the increased supply of money and credit, prices in Ruritania rise, and so do employ ment and money incomes. As a further result, Ruritanians buy more goods from abroad. As another result, Ruritania becomes a better place to sell to, and a poorer place to buy from. It therefore develops an adverse balance of trade or pay ments. If neighboring countries are also on a gold basis, and inflating less than Ruri tania, the exchange rate for the rurita declines, and Ruritania is obliged to export more gold. This reduces its reserves and forces it to contract its currency and credit. More immediately, it obliges Ruri tania to increase its interest rates to attract funds instead of los ing them. But this rise in interest rates makes many projects unprofit able that previously looked profit able, shrinks the volume of credit, lowers demand and prices, and brings on a recession or a financial crisis.

If neighboring countries are also inflating, or expanding the volume of their money and credit at as fast a rate, a crisis in Ruritania may be postponed; but the crisis and the necessary readjustment are all the more violent when they finally oc cur. The Cycle of Boom and Bust The fractional-reserve gold stan dard, in short-especially when it exists, as it usually does, with a central bank, a government and a public opinion eager to keep expand ing credit to start a ~~full employ ment" boom or to keep it going brings about what is known as the business cycle, that periodic oscilla tion of boom and bust that socialists and communists attribute, not to the monetary and credit system and central banking, but to some inher ent tendency in the capitalist sys tem itself. I need describe here only in a general way the process by which credit expansion brings about the boom and the inevitable subsequent bust. The credit expansion does not raise all prices simultaneously and uniformly. Tempted by the decep tively low interest rates it initially brings about, the producers of capi tal goods borrow the money for new long-term projects. This leads to dis tortions in the economy. It leads to overexpansion in the production of capital goods, and to other malin vestments that are only recognized as such after the boom has been going on for a considerable time.

1979 GOLD VERSUS FRACTIONAL RESERVES 265 When this malinvestment does be come evident, the boom collapses. The whole economy and structure of production must undergo a painful readjustment accompanied by greatly increased unemployment. This is the Austrian Theory of the trade cycle, which I need not ex pound here in all its complex detail because that has already been done fully and brilliantly by such writers as Mises, Hayek, Haberler, and Rothbard. 2 The World Adrift in Turbulent Seas of Paper Money My chief concern in this article has been to show that in addition to being the principal institution re sponsible for bringing about the cycle of boom-and-bust that has plagued the civilized world since the early nineteenth century, the fractIonal-reserve standard, once its principle of ueconomizing the use of gold" has been fully accepted, itself encourages an inflation that has no logical stopping place until gold has been ~~phased out" altogether, and the world is adrift in the turbulent seas of paper money.

In emphasizing this weakness of a 2In addition to larger works of these four writers that include discussions of the subject, the interested reader may consult the pam phlet, The Austrian Theory ofthe Trade Cycle, which contains an essay by each of them. (Center for Libertarian Studies, 200 Park Av enue South, Suite 911, New York, N.Y. 10003, $3.00). fractional-reserve standard, I do not intend to imply that I have solved the baffling problem of creating an ideal money~assuming that that problem is even soluble. An oppor tunity now exists-for the first time in a couple of centuries......:..tointro duce a 100 percent gold reserve standard. But if sufficient new gold supplies were not regularly avail able, such a standard could conceiv ably result over time in a trou blesome fall in commodity prices. Moreover, unless there were rigid prohibitions against it, a private no less than a government money would soon tend to become a fractional-reserve standard. And if we allowed this, would we not soon be on the road once more to a con stantly diminishing fraction, and at least a constant mild inflation?

I confess Ido not have confident answers to these questions. But that does not invalidate my criticisms of a fractional-reserve standard. I should like to point out, inciden tally, that expanding the money supply through a fractional-reserve standard-mainly for the purpose of holding down the exchange-value of the individual currency unit and thereby preventing a fall in prices-could also be accomplished under a full gold standard by con stantly or periodically reducing the weight of gold into which the dollar (or other unit) was convertible. Such a proposal was once actually made 266 THE FREEMAN by the economist Irving Fisher. I am unaware of any economist who accepts such a proposal today. But it is no different in principle from steadily expanding the money supply-under either a paper or a fractional-reserve· gold standard for the purpose of holding down the purchasing power of the monetary unit. Is this a power we would want to trust to the politicians?

As a result of what has already happened, I regret that I cannot join some of my fellow champions of the full gold standard in urging their respective national governments to return immediately to such a stan dard. I believe such a step at the moment to be both politically and economically impossible. Confidence in the monetary good faith of gov ernments has been destroyed. If any one government were to attempt to return to gold convertibility, at even today's free market price for gold, it No Shortage of Gold would probably be bailed out of its gold within a few weeks. That is because holders of the cur rency would doubt not only that government's determination but its ability to maintain that conversion rate. People have seen their gov ernments casually abandon the gold standard, and they are more aware of how slim and insecure the new gold-backing might be against the enormous volume of credit and paper money now outstanding. Gold con vertibility of an individual currency could probably now be restored only after a few years of balanced budgets and refrainment from further currency expansion.

Meanwhile, if governments would permit private individuals or banks to mint gold coins and to issue gold certificates, a dual currency system could come into existence that could eventually permit a smooth transi tion back to a sound gold currency. @ IDEAS ON UBERTY IN a free market economy it is utterly irrelevant what the total stock of money should be. Any given quantity renders the full services and yields the maximum utility of a medium of exchange. No additional utility can be derived from additions to the money quantity. When the stock is relatively large, the purchasing power of the individual units of money will be relatively small. Conversely, when the stock is small, the purchasing power of the individual units will be relatively large. No wealth can be created and no economic growth can be achieved by changing the quantity of the medium of exchange. HANS F. SENNHOLZ, Gold Is Money Morris Shumiatcher OUR HERITAGE OUR heritage is not a static stock of sticks and stones. Neither does it consist of ancient artifacts em balmed and preserved like Egyptian ancestors in pyramided tombs.

It is a real and integral part of living. It impels us to look back on what has been, but it can never be preoccupied with history alone. Like the Janus-faced deity of the Romans, it demands an ever-present consciousness of our future as well as our past. Our heritage is the linkage of yes terday with tomorrow. It bridges the generations of mankind and defies the truncations of time. It is a vitality springing out of the present, but rooted in the past that This article is an excerpt from an ,ddress delivered to a Conference of "Heritage Canada" at Saskatoon by Morris Shumlatcher, a Saskatchewan lawyer and author. produces, in our time and upon our land, structures and monuments and places for creation and recre ation, that can be used and cherished by men and women with educated minds and understanding hearts. If these impulses lift the spirit of man in any age, the works they succeed in creating will· surely be come a part of the enriched inheri tance of succeeding generations.

The principal value of preserving the past is that it assures the pres ence of models of perfection that may inspire great actions, high pur poses and the production of good and beautiful works-today and in all of our tomorrows. How did the treasure-houses that are the heritage of mankind come into being? They were the products of the in267 268 THE FREEMAN May spiration of individual men and women who built structures to be inhabited and used for whatever purposes suited the age in which they took shape-some sacred, some profane. National Heritage A humble log cabin erected on a riverbank of the Prairies in 1810, to store pemmican and furs, which later served as a schoolhouse, and later still as a granary, may be a significant part of our national heri tage for many years to come. A great cathedral that was a sa cred place of worship for the estab lishment of our largest city a hundred years ago, and now serves as the outer shell for a dozen bright boutiques, is also a part of that heri tage.

Usefulness and use are the hallmarks of the buildings and places that measure our progression through the pages of history, perhaps more felicitously than a Taj Mahal, with its perfect symmetry and matchless marble. Mter all, the Taj is a memorial not to life-but to death. Few individuals today are able to conceive, create or build (let alone finance), like Emperor Shah Jahan, overpowering structures of monu mental dimensions. The man who would now build inspirationally for the future is discouraged in many ways. First, the skills of the great craftsmen who created our architec tural heritage having all but disap peared from the land. The ancient cathedrals and tem ples, palaces, and monuments re flect the skills and genius of the men who conceived and designed and fashioned them: the architects and stonemasons and carpenters and ironmongers and glaziers. Their expertise is mankind's rich est heritage because it makes possi ble a rebirth of the wonders of other ages.

Most are lost to us, save in the gardens of a few museums and in the reconstructed shops of an tiquities where a handful of dedi cated, costumed men and women act out the roles of spinners and weav ers and cobblers and smithers and pretend to keep alive a thimbleful of lost and long-forgotten arts. Secondly, it has grown too costly to insist on excellence and beauty. Draining the innovative energies of the architects and engineers and builders and designers and work men of all descriptions are the om nipresent parasites that fasten themsel ves like leeches upon the vessels of the body politic. If a businessman were to plan to injure a competitor by impeding construction, he could do nothing more effective than to design the building codes that inhibit us in every part of this country.

1979 OUR HERITAGE 269 If a foreign enemy wished to crip ple our development, he could achieve no greater victory than by perpetuating the multi-tiered bureaucracies that require commit tees and commissions and boards and regulatory agencies and au thorities ad nauseam, to hold hear ings and inquiries and publish find ings, reports and recommendations and, at will, withhold licenses, per mits, exemptions and releases so that in the end, our principal and ultimate, and probably our most durable national manufactured prod uct will be paper: a glorious end for our magnificent forest heritage! Thirdly, the heavy burden of taxa tion effectively discourages those who would erect structures of an unusual character from investing their time and treasure in such luxuries because they are unlikely to produce enough to provide an adequate return on investment. The result is evident in our cities: the monolithic office buildings con taining hundreds of thousands, in deed millions of square feet, are en cased in pre-fabricated grey concrete slabs embellished by a street number outside, and wall to-wall carpeting inside, all aping the architectural sterilities of Mos cow: Stalin Style.

These structures, praised for their utility, are the outer shells of the heritage of our generation. It is said that they are functional; that they serve a useful purpose; that they will remain standing a long time. Capable of More If they do, they will generate the same kind of bemused interest in the inquisitive minds of our heirs, as we discover in the coral deposits, which are all that is left of the lives of the anonymous billions of mi crocosmic creatures that mindlessly produced the vast ocean barrier reefs of the Pacific. As. homo sapiens, we are capable of producing a richer, more diverse heritage than· that! But this we shall do only if the individual and his genius are held to be of higher worth than the physical collectivity of mankind-the organi zation, the party, the cult, the state. To answer the question, HHow best may we conserve the structures and artifacts that are our heritage?", I would ask another question: ((How best may we create the stuff and substance from which tomorrow's heritage will emerge?"

If we value our heritage of the past, we must cherish the individ uals who are today capable of pro ducing the heritage of the future. We can affirm the worth of such persons only in an environment in which the individual is highly moti vated and moved to develop his strengths to the utmost of his capac ity in order that he may become an 270 THE FREEMAN educated and cultured citizen. When he has learned to express himself according to the highest standards that excellence can at tain, he must be free to work and to produce in a place where merit is not penalized nor success filched or taxed away from those who have achieved it. Clear Priorities It demands a recognition that beauty is more necessary to life than safety, and invention is more vital to society than security. It requires an acceptance of the fact that a group is not an organism apart from its constituent individ uals. A group has no brain or stomach of its own; it must think and feel with the brains and nerves of its members.

When a nation flourishes, it is through the success of its intellec tual, artistic and political leaders. When it declines, it is through no mystic malaise in the state, but through a failure of its citizens to assume the role of leadership in our homes and businesses, our schools and hospitals, our laboratories, fields, factories, workshops, theatres and courts. When I speak of the need for an environment that is compatible to the creation of a great heritage, I like to believe that each age is capa ble of generating physical forms that will strike not only a contemporary chord that is responsive to the spirit of the times, but one that will be heard and understood far into the future. All of this can be achieved in a society that is vigorous and robust: capable of meeting the challenges of competition in the marketplace; re sourceful in adapting to changes in the sources and cost of energy;. de termined to resist luxury, corrup tion, the erosion of families and the blandishment of immorality; and determined to overwhelm the sloth of slobs with work, and to overcome the skepticism of the age with faith.

Our heritage can never flourish except through the individual who possesses these elements, and dis penses them like the gifts they are, with open hands, in his lifetime. While the public may be in terested in heritage property, it is the individual who will always be responsible for producing it. Public policies and the law, there fore, must concern themselves, prin cipally, with the rights and the needs of the individual in relation to property which may be, or may be come a part of the inheritance of future generations. Then, will the individual natu rally come to assume his obligation to produce and preserve and per petuate it, saying, with the Psalm ist, that great riches: ~~are fallen unto me in pleasant places; Yea, I have a goodly heritage." i W)rld in th8J grfR9fan Ioea, Clarence B. Carson 29. The Cold War: Coexistence, Detente,and Convergence WHEN the Cold War was at its height, it was sometimes suggested that there was a parallel between it and the religious wars of the six teenth and seventeenth centuries.

The idea behind the making of this analogy was supposedly to put the Cold War in perspective. Those who pushed the analogy were saying, in effect, «Look, don't get so excited about this conflict. Our forebears went through just such a conflict. There was a time when men were so In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the Impact on several major countries and the spread of the Ideas and practices around the world. heated up about religious differ ences that they fought grisly wars with one another about them. And what do we, with the advantage of historical perspective, think of the merit of these differences? Do we think them worth fighting about? Hardly!" There are some interesting paral lels between the earlier religious wars and those of this century, more interesting even than those who have advanced the analogy have pointed out. The earlier conflicts were between Christians, people of the same basic faith. The ideological conflicts of this century are between socialists, mainly, people of the 271 272 THE FREEMAN May same faith. In both conflicts, consid erable attention has been paid to doctrinal differences, and differ ences in practice have occasioned acrimony. Moreover, socialists have been as inclined toward sectarian squabbles over dogma as Christians ever were.

There is yet another parallel. Both the earlier religious wars and the twentieth century conflicts were or are contests over political power; but since this parallel is crucial, the discussion of it should wait for a bit. Reasoning by analogy has its pit falls, however. Where complex phenomena are involved, as in these conflicts, it is important to attend both to similarities and to differ ences. It is even more important to distinguish between superficial similarities which may be acciden tal and critical differences which may be essential. Nor is any valid historical perspective to be gained by ignoring critical differences. Living with Differences It is true that Christians are gen erally at peace with one another in the world today. It is also true that sectarian differences which once were battle cries hardly excite a murmur. A certain amount of con vergence has even taken place amongst some Christians, but it is also the case that where some union takes place, those who oppose the union often form their own denominations. The important point to get at, however, is to understand why Christians are generally at peace with one another. It is not, as sec ularists may suppose, that differ ences in doctrine no longer matter, or that there has been a decline in religion and religious fervor. It may be the case that dogmas are not generally so sharply defined or keenly felt as they were, say, in the course of the Protestant Reforma tion. But that is surely only a matter of degree and is by no means univer sal. As to a decline in religion, there has been such a decline among intel lectuals in the last century, accom panied by an impact on the intellec tual climate. This does not of itself signify a decline in religious belief but rather an intellectual narrowing of its import.

In any case, religious enthusiasm has waxed and waned several times in the period since religious differ ences among Christians were the occasion of any widespread conflict. This suggests to me that the degree of religious belief is not the key to an explanation of martial conflict over religion. Conflicts Over Power Religious differences only become an occasion for warfare when reli gion is linked to political power. To put it another way, conflict arises over the attempt of those who hold political power to force their beliefs 1979 THE COLD WAR: COEXISTENCE, DETENTE, CONVERGENCE 273 on others who differ with them. Or, it can arise when there is a contest between those who have differing religious persuasions over who shall exercise the power in matters of re ligion. The Protestant Reformation, and the Catholic Counter-Reformation, spawned wars because state and church were intertwined and be cause only one religion could be, or was, established. The power contest contributed much to sharply defined dogmatic positions and thus to the proliferation of denominations. (The more sharply drawn doctrinal posi tions are the less the likelihood of general agreement. But doctrines must be sharply defined if adher ence to them is to be enforced by law.) The way to religious peace is to deny to any religion the power to force .its doctrines on others or to establish its religion over them.

This idea is found in the doctrine of the separation of church and state. The matter runs deeper than this, however. There is a critical and es sential difference between Chris tianity and modem socialism. At bottom, Christianity is not a power theory. As was earlier affirmed, socialism-whether revolutionary or evolutionary-is a power theory. But let us consider the case of Chris tianity first. It has already been pointed out that when Jesus went into the wilderness and was tempted that he rejected the vision of an earthly kingdom or empire. That is, he rejected the use of force to attain his ends. He did so again, in another way, just before his trial and crucifixion. When Judas betrayed Jesus and the crowd laid. hands on him, this event occurred: And behold, one of them which were with Jesus stretched out his hand, and drew his sword, and struck a servant of the high priest's, and smote off his ear.

Then said Jesus unto him, Put up again thy sword into his place: for all they that take the sword shall perish by the sword. Matthew 26:51-52 It should be made clear, however, that these remarks were made in connection with the attainment of his ends. Jesus goes on to say that he could have legions of angels to de fend him, if he would but ask. ((But how then shall the scriptures be fulfilled, that thus it must be." (Mat thew 26:54) No Use of Force Christianity is not a power theory. Jesus rejected the use of force to achieve his purposes. The methods he employed were concern, love, healing, sacrifice, attraction, and per suasion. Those who would follow him, he bade to take up, not their swords, but the cross (i. e., the way of sacrifice). What Jesus seeks can not be attained by force. Men cannot be made to believe. They cannot be forced to have a change in which 274 THE FREEMAN May they comprehend the superior real ity of spirit. The sword is an instru ment of death, not of life, and he said that he came to bring life.

None of this is said to deny the obvious, namely, that many of those who have professed to be his follow ers have taken up the sword with the avowed purpose of defending or advancing Christianity. They have often enough intertwined religion with government. They have estab lished churches by law. They have used the force of government to at tempt to compel many things that were said to be in keeping with Christianity. But they have not done so with the authority of Jesus; they have done so because they were impa tient, because they were weak, be cause they were willful, because they substituted their wills for the will of Him they claimed to follow. They have even beset one another in violent and destructive wars. The carnage of the religious wars, and especially of the Thirty Years' War, was great. They took up the sword, and many perished by it. That prophecy was fulfilled, not for the first time and, sadly enough, not for the last, ·for it has lately come to pass once again in Ireland.

Christianity does not require the use of force. On the contrary, Chris tianity cannot be advanced by force. We have it on good authority that if GQd willed to use force He could call forth such force as none could resist Him. But He does it not, for it is foreign to His nature and to His purpose. He wills peace, harmony, love, and that men should be at one with Him. These ends cannot be at tained by force. To put it philosophi cally, in essence Christianity is not a power theory. When this guise has been forced upon it, it has been acci dental and attributable to the weakness of men. Socialism a Power Theory Socialism is a power theory. In essence, it is nothing but a power theory. Its affinity for the state is as near absolute as anything can be in this world. The further it goes to ward its goal the more absolute its reliance on the state. None of this is accidental. It follows inexorably from the professed goal and from the complex of hatreds which animate it. The moment socialists abandon the state as the instrument for the achievement of their purposes they cease to be socialists, and socialism is no more.

Socialist thinkers did not, we may believe, .consciously set out to con trive a scheme to bring about such a state of affairs. Many of them did not even embrace the state will ingly, and most have professed re luctance. For Marx, the state was to be a temporary expedient, some thing to be used temporarily until its purpose had been achieved and it 1979 THE COLD WAR: COEXISTENCE, DETENTE, CONVERGENCE 275 could wither away. Gradualists have labored mightily to hide the mailed fist of the state behind the velvet glove of democracy. What socialists contrived, whether they sought to do so or not, was a religion, or substitute for reli gion. It was a religion of man, and it was a manmade religion. The ap peal of the idea that has the world in its grip is fundamentally religious. It has within it elements derived from traditional religions, but in it they become earth-bound and tem porally oriented. The promise of the idea is that all things shall be made right here on earth and that man shall be finally liberated. The tacit promise is of an end of all restraint, and hence of an end to government and the use of force upon people. Man's inhumanity to man, a favorite phrase of those en livened by the idea, will cease.

That the application of this idea with the avowed purpose of fulfilling the promises leads to statism, to terror, to violence, or to the ubiqui tous use of the force of the state has been the burden of this work to show. But why should it do so? In deed, why must it do so? Because of the premises which underlie socialism. Society is rent and sun dered by a fundamental dishar mony. The disharmony results from man's pursuit of his own self interest, socialists claim. This, they say, turns man against man, defeats the common good, results in perva sive injustices, and is the occasion for the use of force. The received social institutions support and rein force the pursuit of self-interest. The disharmony is thereby institution alized. In theory, a religion of humanity could change all this. There are, here and there, devotees of such a faith. And socialists in general sub scribe to its tenets. But the idea that has the world in its grip is not the religion of humanity. Its religion is statism. The reasons for this may not be apparent, but they can be surmised. There are two main ones, I think.

The Trouble with Abstractions The first of these is the inade quacy of the religion of humanity as a religion. It is a pallid thing. It is the worship of an abstraction which can never be personified. That is, man in the abstract, or humanity in the abstract, can be an object of venera tion only so long as it does not entail actual men. Actual men have faults, something which most of us discover sooner or later, and are therefore not fit subjects for worship. A religion with wide appeal must have both personification and some sort of transcendence, or, at least, unques tioned purity. Abstraction is not transcendence, and actual men lack purity. The other need of socialism as a 276 THE FREEMAN May religion was a means or instrument for altering social institutions and transforming man. By their focu,s on man and this world, they denied a transcendent being, thereby requir ing that their instrument be imma nent. The dimensions of the problem made the choice of the state as the instrument inevitable. Only some thing with power over the whole could conceivably achieve the alter ations and transformations in volved.

State is the crucial term here. Socialists are not much given to making the distinction, and they are quite unlikely to proclaim them selves as state worshipers, but there is a crucial distinction between state and government. The worship of government is attended by the same difficulty as the worship of human ity. The difficulty is that actual gov ernments have flaws, or rather the men who man them do. The state is an abstraction; it is pure; it can even be an ideal. Power vested in the state cannot be mis placed, for it is the natural depos itory of all power over a given terri tory. Sovereignty, absolute sover eignty, is its prerogative, its rea son for being. The state, in social ist underlying conception, is the rightful instrument of Hthe peo ple," and so far as it acts for ttthe people," whatever power is exercised is legitimate. (Communists some times say proletariat rather than people, but for them the proletariat is ttthe people.") A constant struggle goes on to bring the government up to the level of the state, i. e., to make it a perfect instrument of ttthe people." What prevents it from being so is the per sistence of ttthe class enemy," as communists put it, or of conserva tives, reactionaries, business inter ests, or ttthe vested interests," in .gradualist countries. ttFascism,"

which is the socialist conceptual personification of all the evil forces, is ever lurking around the corner ready to seize and misuse the power of the state. The Disappearing State When the class enemy has finally been eradicated, when the last ttfas_ cist" has been rounded up, when the Hvested interests" are at last di vested of their power and influence, then government can be raised to the level of the state. ((The people" will be identical with government, and government and state will merge. When this state of affairs comes about the use of force would be a redundancy. There could be no occasion for the use of force, for the will of the governors could be no different from the will of ((the people." Communists have usually de clared that this state of affairs will shortly come about. Gradualists foresee a much more extended strug gle, with no culmination now in 1979 THE COLD WAR: COEXISTENCE, DETENTE, CONVERGENCE 277 sight. In any case, it is a struggle for power, for the monopolization of all power by ttthe people."

This is the mystic vision of socialism. So far as'it is a religion, it is a religion of state worship. And that turns out to be a worship of power. The whole world is caught in the vise-like grip of an idea which propels it into the struggle toward power. The idea promises beatitude; it leads to destruction, to tyranny, to murder, to rapine, to suicide. The idea requires the sublimation of the individual to the state. This re quirement is no less than the death of the ego or the end of the individ ual self. It is possible to commit suicide, of course, without going through the whole vast process of lengthy evolu tion, massive revolution, the cre ation of a vast state mechanism, and so on. The Jones cult showed the way in the horrifying mass suicide-murder at Jonestown, Guy ana. Self-immolation, the tacit goal of socialism, can be achieved direct ly by individuals, cults, and small groups. But that is a H COp out,"

so to speak, for it must be done on a worldwide scale. What has all this to do with co existence, with detente, and with convergence? It has everything to do with them. Can East and West co exist? Can peace be attained by a policy of detente? Will communism and gradualist socialism eventually converge? There is no way to answer these questions definitively, of course, for they entail events and developments that have not yet taken place, if they ever will. A Clearer Picture There is a way to understand, however, what is involved in peace ful coexistence, detente, and con vergence. It is through understand ing the idea that impels the de velopments. Trying to make heads or tails of them with historical data in the absence of the ideological framework is akin to trying to put the pieces of a puzzle together with out a picture of the completed puzzle before you. Explanations shift with changing leaders and changing policies, and no clear pattern emerges. The Chinese and Russians squabble over the meaning of co existence. Soviet leaders hint at the possibility of convergence. Is detente anything more than the one step backward of the old Stalinist for mula of two steps forward and one step back?

All these things begin to come into focus when we perceive that socialism is a power theory. Com munism is a theory of coming to power, extending, and holding it by way of revolution. Evolutionary socialism is a theory of coming to power and extending it gradually by means that only subtly alter the received framework. Coexistence, 278 THE FREEMAN May detente, and the possibility of con vergence are tactics in the struggle for power. Peaceful coexistence and detente are communist tactics for moderating the conflict and allow ing time and room for further com munist expansion to take place. Convergence is not an avowed policy of the communists, and it cannot be so long as and to the extent that they are wedded to the idea of the necessity of revolution. Convergence is the dream, however, of many Western intellectuals. Every accord between East and West arouses hope that convergence is coming. It may well be a communist tactic to keep that hope alive.

Socialism is not just a power theory; it is a power theory ani mated by a mystic religion. It has a world vision. That vision is of the whole world under a single power, of every organization and every indi vidual subordinated to that power. Only then, it is felt, can the vision of socialism become an actuality. So long as there is one independent power in the world, the peace, Le., socialism, is threatened. I under stand this to mean that coexistence can never be more than a temporary policy. In like manner, detente can never be more than a tempo rary policy. Thus far, history bears this out. Coexistence and detente are largely illusions of Western in tellectuals and the governments under their sway. The Prospect of Change Can communism not change? It depends upon what is meant. If it is a question of tactics, there is no doubt that communism can and does change. Communist tactics differ considerably from one country to another. Chinese and Cuban com munism belong to the same genus, but they are quite different national species. Moreover, the tactics change greatly from time to time and under different leaders in the same country. Many of Stalin's tac tics differed greatly from those of Lenin, and Khrushchev disavowed many of Stalin's tactics. Stalin fos tered militant anti-fascist tactics in the Comintern for most of the 1930s, then entered into a pact with the Nazis. Communists have sometimes formed political parties, or semblances of them, and had candi dates run for office in lands where they were not in power. At other times, they have refused to run for office on the grounds that such elec tions were a bourgeois trap. Tactics are but accidents, philosophically speaking, something to be changed according to the circumstances.

But could communism not change in essence? Those who believe in this possibility have not fronted what is involved. What is com munism in essence? Communism is power, to restate the position. It is power wedded to a mystic vision of world dominion. Or, mysticism or 1979 THE COLD WAR: COEXISTENCE, DETENTE, CONVERGENCE 279 not, it is power thrusting to the monopoly of all power in the world. Any essential change within com munism would necessarily entail yielding up the monopoly of power which has been substantially at tained wherever a communist sys tem prevails. If one party rule were relin quished so that two or more parties could compete, the monopoly of power would be gone. Freedom of speech and freedom of the press en tail public debate in which appeals by those who differ are directed to ward the populace. They would in evitably divide the populace and undercut the monopoly of power.

The same goes for freedom of reli gion and any significant amount of private property. A Monopoly of Power Communist systems have that toward which all socialism tends, namely, a monopoly of power. Why would communists give it up? Better still, what would happen if they did? Communism without power is only a fantasy. It is like an electrical appliance without electricity; it is inoperative. Communism without a monopoly of power is not com munism. It would be as if the revo lution had not occurred. Communism without a monopoly of power would be, at most, another variety· of evolutionary socialism. But evolv ing toward what? Evolving toward the monopoly of all power, some thing which communists had al ready attained in their own coun tries. There is another reason why communism cannot change, or perhaps it is only the logical exten sion of the reasons given above. All socialism is braced to communism!

The idea that has the world in its grip finds its culmination in com munism, in the monopoly of all power in the state. All socialist roads lead to Moscow, to Peking, to Havana, or to wherever a com munist regime is established. Socialist intellectuals are drawn to these centers as surely as the moth is drawn to the light. Much of the intellectual history of the twentieth century, or at least the history of intellectuals, could be written about these pilgrimages to the New Rome. It is not knowledge that draws them there, nor exactly the quest for it. It is a feeling, a feeling that they will find there the concrete reality to ward which they yearn. Whether they do so depends upon the degree to which they cooperate with their hosts by succumbing to the illusions presented for their edification. If communism should fall-that is, lose power everywhere-the whole structure of socialism must crumble with it. It would happen because there would no longer be a concrete reality to sustain socialism.

Socialists would discover that they 280 THE FREEMAN May were leaning into thin air. The mea sures of gradualists would be pro posals to be treated on their own merits, for they would have no vi sion behind them. Remove the reli gious mystic vision from socialism, and its proposals become transpar ent crackpot schemes. Communism has often enough been an embarrassment to Western socialists, of course. Communists even commit the unpardonable sin sometimes, i. e., persecute intellec tuals. But it is the embarrassment which children feel about the be havior of their parents. Remove the parents, and the family disinte grates. Remove the communist par ents of socialism and the family of socialism will disintegrate. So cialism was only a fantasy until World War I. It took on flesh and blood with the Bolshevik Revolu tion. With the Nazi Revolution it took place in yet another guise. With the defeat of the Nazis and their Fascist allies, revolutionary socialism survived only in its com munist manifestation, and it is in that manifestation of it that we may know it best today.

Braces work both ways, however. To say that evolutionary socialism is braced to communism is but another way of describing the dependence of communism on the noncommunist world. The dependence of evolu tionary socialism on communism is largely spiritual. It is the religious ingredient in communism-the vi sion of a forward marching trium phant world socialism riding the wave of History-that is necessary to sustain evolutionary socialism and propel it onward. By contrast, the dependence of communism upon the noncommunist world is political and economic. Diplomatic Recognition Politically, the noncommunist world provides the stamp of legiti macy to the communist powers. By treating them as regular govern ments-by according diplomatic recognition, by making treaties and agreements, by carrying on various sorts of intercourse-noncommunist powers say, in effect, to the captive peoples in communist countries, ttYours is a legitimate government.

It rightfully imposes its will upon you, for it is entitled to all the pre rogatives of a government." More, by recognizing the legitimacy of the re gimes, it tends to countenance whatever communist governments do to their people as being their business since such matters involve internal affairs. Communism is a vast counter productive system economically. Its primary aim of exercising power and extending that power over the peo ples of the world makes it a counter productive system. It is not that the rulers of communist countries lack the desire to have economic produc1979 THE COLD WAR: COEXISTENCE, DETENTE, CONVERGENCE 281 tion and efficiency; it is rather that the repression entailed in the com munist effort makes it impossible to achieve. The freedom to innovate is largely taken away, and the rewards for producing are arbitrary and in sufficient to spur production. Hence, the relics of freedom in the non communist world provide invalu able aid to communism.

Communists depend largely on the noncommunist world for inven tions, for technological innovations, and for the fruits of scientific prog ress. Grain shipments from the West have helped much in staving off famine in communist countries in recent years. Communist rulers lust after Western machinery. Take away the West, and the retrogres sive character of communist economies would be even more transparent. These braces should be conceived as temporary, however. When a building is completed the temporary braces are removed. Communist de pendence on the West is always con ceived as an expedient matter by communists. In like manner, the de pendence of Western intellectuals upon communism is necessary only so long as socialism has not been achieved at home. In short, the mutual dependence is temporary when viewed from either angle. The greatest threat to peace at the present time, such peace as there may be, is aggressive, belligerent, and expansive communism. Grad ualist socialist countries do not pose any great threat at this time.

They are most likely to disturb the peace by resisting the spread of communism. But the prospect of that has lessened in recent years. The United States does not appear to have the will to resist communist expansion now. Indeed, resistance was always hemmed in by such sub tle niceties that it was far from ef fective. So far as other highly de veloped industrial nations are con cerned, their will to resist commu nism has never been strong. Domestic Problems This is not to say that evolution ary socialists are just naturally peace loving people without desire for power. It is rather that each gradualist socialist country has a domestic power problem. Com munists usually solve their domestic power problem shortly after coming to power. They concentrate all power, subdue all organizations, and imprison or kill such opponents of the regime as can be discovered or imagined. It takes only a few years to do this ordinarily. Then, the communist thrust for power shifts outward upon the world. Grad ualists, by contrast, are unwill ing or unable to grasp all power over the domestic population. (They would cease to be gradualists if they did.) Thus, their power struggle con282 THE FREEMAN May tinues domestically; they do not have to look outward in their quest for additional power. Gaining and consolidating power over their own people remains a problem large enough to occupy much of their at tention.

The United States has been a par tial exception to this rule. The pres idential system of government, with the president in charge of the con duct of foreign affairs and in com mand of the armed forces offers power incentives for foreign in volvements. That is, presidential power tends to increase as foreign affairs become more important. This does provide the basis for an out ward thrust to American power. However, intellectuals and the media, both domestic and foreign, appear finally to have convinced our presidents that they are not to ex tend their powers by way of resis tance to communism. There is a way, however, to get their accolades; it is to reach accord with communist countries. Presidents Nixon, Ford, and Carter appear to have learned this lesson well. Congress has coop erated by circumscribing the presi dential instruments for resisting communism: the military, the Fed eral Bureau of Investigation and the CIA.

It is conceivable that there could be convergence between East and West. Evolutionary and revolu tionary socialism have ~ommon goals-the concerting of all human effort, the removing of all centers of opposition to it, and the use of collec tivist means. They both sanction, in practice, the vesting of the state with increasing power. It is plausi ble to suppose that as the West be comes more and more statist, if in deed it does, it would merge with the East. Convergence a Dream Convergence is, however, a dream, and a hope only of Western intellectuals and the politicians under their sway. There is no hard evidence that communists would converge with gradualists. A deeper look suggests how unlikely this is. Total power can be joined to partial power only by either totalizing all power or reducing the total power. Thus far, all the historical evidence that can be brought to bear on the question leads to the conclusion that convergence with communism is submission to communism. That is what happened in Poland, in Hun gary, in Czechoslovakia, in Bul garia, in East Germany, in Viet nam, in Cambodia, and so on. Any survival of contending parties as communists move to take power is only temporary.

In any case, it is not possible at present to converge with com munism, per se. Communism is now divided. There are communist pow ers independent of one another. If 1979 THE COLD WAR: COEXISTENCE, DETENTE, CONVERGENCE 283 convergence with communism were possible it would only be possible to converge with one or another of the communist nations or empires. Indeed, the Cold War appears to have taken a turn. As this is being written, a submerged conflict has been taking place over Cambodia, a conflict between the Soviet Union which supports the Vietnamese in vaders, and Red China which has been supporting another Cambodian government. The more pertinent question now seems to be not whether East and West can coexist or will converge but whether inde pendent communist powers can co exist with one another or not, and whether they can converge or not. We cannot know what will actu ally happen in this newer contest, of course. What we do know is that the idea that has the world in its grip is a mystic vision of the eventual con centration of all power into one world power. Communism is the most virulent embodiment of the idea. The existence of more than one revolutionary socialist power is more intolerable to communism than the existence of a West that has not been assimilated. The ex pansion of communism has taken on a new dimension and a new urgency.

It is impelled by the quest for com munist allies in the struggle over which will be the power center of communism. Terror and violence, the established communist tactic, will probably be stepped up, as one center of communism attempts to overawe and intimidate the other. The religious wars of the six teenth and seventeenth centuries suggest an even more fearful pros pect. The religious wars that erupted between Protestant and Catholic lands had been preceded by a more desultory religious war, a centuries-long conflict between Christian Europe and Islam. Al though the parallel is not exact, this conflict can be likened to that be tween evolutionary and revolu tionary socialism. The contest between communist powers has the potentiality of a fullfledged religious war, such as the Thirty Years' War in Europe. No war can equal the fury of that be tween peoples of the same faith di vided against one another. If history repeats itself, the world may be in for a horrendous and cataclysmic conflict. Be that as it may, it is to the conquest of the individual that has already occurred or is taking place that we must turn. The world con flicts of socialism are but a reflex on a grand scale of the determination embedded in the idea to crush all independence. @ Next: 30. The Individual: The Victim of the Idea.

Dennis Bechara Efficiency •In Government IT IS always fashionable to criticize governmental waste and ineptitude. People constantly make reference to the fact that most government em ployees are overpaid and under worked, and that administrative agencies frequently waste resources. These criticisms contain a grain of truth, but fail to focus on the fun damental issue. Although it is true that many agencies waste resources or pay salaries higher than are paid in the private sector, such censure strikes merely at the symptoms of governmental bureaucracy. Government functions differently from private enterprise. Industries are organized in a way that maximizes production while -minimizing costs. An enterprise Mr. Bechara Is an attorney in the law offices of Goldman, Antonetti & Davila in San Juan, Puerto Rico. 284 that does otherwise finds itself quickly out of business. Competition among firms stimulates the search for cost-saving measures. Consum ers reap the benefits of this in the form of lower prices. Enterprises de pend for survival upon the patron age of willing customers. Govern ment, on the other hand, does not look to voluntary contracts for its existence. Government does not rest on the need to maximize production or to minimize cost. The essence of government is organized force, which society utilizes to compel its members to act in prescribed ways, or to punish those members who refuse to obey the law.

If government is to compel people to obey the law, the broader the scope of the law, the more powerful must the government be. As the state assumes increasing responsiEFFICIENCY IN GOVERNMENT 285 bility for activities previously left to private citizens, it becomes neces sary for the government to set up additional bureaus or agencies that serve to implement the law. It is futile to censure government bureaucracy on the ground that it does not act in a fashion comparable to that of a business enterprise. The very purpose and nature of these bureaucracies do not allow for such behavior. Even if governmental agencies were managed in a manner similar to a business, it would still be impossible to objectively measure the success or failure of the agency. The Profit and Loss System Business organizations have at their disposal a quick and objective method for judging the success of their venture-the profit and loss system. Administrative agencies, on the other hand, lack any such objec tive measure of efficiency in ad ministering or enforcing a law. And the worst judges of· their perfor mance are the agencies themselves, because they have a vested interest in enhancing their work and por traying it as attractively as possible.

At best, there might be some evi dence of a general trend, but this is not always useful. For example, an agency may have prosecuted more cases in a given year than the pre vi ous year. But this statistic alone does not reveal the nature of the prosecutions. It is possible that one case has greater significance than many others combined. Similarly, the fact that an agency handled its cases according to arbitrarily drawn time targets is not an indication of its efficiency. Quality is often sac rificed for quantity, as the agency attempts to mold each case to a preconceived time target. Highly unreliable are such measures by which administrative agencies sup posedly justify their activities. Business enterprises have a dou ble incentive to reduce costs of oper ation: the profit motive as well as the competition in the marketplace. No shareholder is pleased to dis cover that management has in creased its operating costs. Yet, this is precisely what the administrative agencies are doing when they at tempt to justify their existence by pointing to the extra millions of dol lars spent to operate this year as compared to last year. This is sup posed to be evidence that the agency was truly necessary. After all, the more money spent, so goes the logic, the more important the function.

Instructi ve is the behavior of an agency as it nears the end of its fiscal year. Because they are funded by the legislative branch of the gov ernment, agency heads are always trying to persuade Congress that their work will require more funds than were allocated the previous year. If agency heads were to ap proach the end of the fiscal year 286 THE FREEMAN May with an operating surplus, this would be tantamount to an admis sion that their agency did not really need the money it asked for before; and Congressmen would most cer tainly point this out when the new budget is being discussed. Accord ingly, administrative agencies rush to spend every dollar allocated to them. If a surplus is being gener ated, the agency may take care of it by hiring new employees, or em barking upon additional studies, or by intensifying programs previously neglected. The point, of course, is to persuade Congress that the agency not only is necessary, but that its work is as important as the amount of money needed to pay expenses.

No Measure of Efficiency The efficiency of an agency cannot be measured by the fact that it leaves either a surplus or a deficit. A surplus may indeed evidence the fact that many areas that could have been covered by the agency were not, so that the implementation of the law in question has suffered ac cordingly. Similarly, a deficit may signify irresponsible waste on the part of the agency, as it made little, if any, effort to cut costs. The efficiency of the work of the employees of the agency cannot be effectively measured either. Since there is no profit motive nor a mar ket price for the services that are provided by a governmental agency, efficiency is translated into subjec tive terminology. This may be one of the reasons why public employee unions are growing. Public employ ees find that the merit system is based on many subjective factors, opening the door to favoritism and inequities.

In the private sector, employers are limited by consumers as to the wages that ought to be paid. In addi tion, employers have the incentive of paying more to the more produc tive workers to retain and attract good employees and to improve pro ductivity. It is possible, of course, for a private employer to favor the least productive and to award solely on the basis of favoritism. The profit and loss system, however, will limit any such arbitrary behavior. The public employer, on the other hand, is not constrained by these considerations. Rather, the work of an agency employee is evaluated in clearly subjective ways. If an em ployee caused an agency to spend more money in a case when he could have, let us say, settled the matter before its having had to go to court, this factor is not taken into consid eration. Allegedly objective criteria are utilized to evaluate some of the work of the government employee.

However, in the final analysis, it is the personal preference of the agency head that carries the most weight. Favoritism exists. No matter how 1979 EFFICIENCY IN GOVERNMENT 287 cleverly the agencies may try to suppress it, it will not be effectively eliminated because there are no ob jective criteria by which efficiency may be measured. How can we mea sure, for instance, the effectiveness of a policeman? Can it it be said that one who caught five burglars is any more efficient than the policeman who happened to be on his beat during an uneventful day? If money is set aside to be awarded to the most efficient employees, it easily lends itself to favoritism and pa tronage. When agencies are established to protect the rights of the people, it is not uncommon to find that the law grants the respective agencies a monopoly in the investigation and prosecution of cases that arise under the law. Individuals thus lose the freedom to institute legal proceed ings in their own defense. According to these laws, the agency chooses whether or not to assert the claim.

Administrative. agencies frequently cite the rate of success of their legal actions as evidence of efficiency. However, those statistics are incom plete. Of the actions that were ad ministratively dismissed, no one knows how many would have been litigated successfully had the gov ernment allowed the parties to liti gate at· their own choice. Administrative agencies fre quently under-utilize their re sources precisely because cost is not a significant consideration. Many talented agency employees are obliged to perform time-consuming tasks that others might have done more efficiently. Professional em ployees in these government agen cies often are kept busy at clerical chores. Furthermore, as the gov ernment becomes more conscious of its Uduty" to hire people of diverse backgrounds so that its workforce adequately reflects a sample of the popula tion, exceptions begin to be made; the rules of efficiency that were promulgated previously cannot be enforced according to the letter of the law.

What is the solution to this prob lem? It is certainly not the abolition of all forms of governmental agen cies. Government is essential to a civilized society, regardless of the fact that in performing its functions it maybe inefficient. Rather, the solution lies in limiting the duties of government as much as possible in order to avoid this incalculable waste of resources. Limiting gov ernment to its appropriate functions would reduce the need for bureau cracies, with consequent saving to the taxpayer and society in general. i THINKING ABOUT ECONOMICS MAN is not simply a spiritual being; he is a spiritual being who feels hunger, needs protection from the cold, and seeks shelter from the elements. In order to feed, house and clothe himself, a person must work. Augmenting his labor with tools and machinery, he converts the raw materials of his natural environ ment into consumable goods. He learns to cooperate with nature and use her forces to serve his ends. He also learns to cooperate with his fellows, his natural sociability rein forced by the discovery that the divi sion of labor benefits all. «(Trade is the great civilizer." There's an un broken thread that runs from these primitive beginnings to the complex The Reverend Mr. Opitz is a member of the staff of The Foundation for Economic Education, a seminar lecturer, and author of the book Religion and Capi talism: Allies, Not Enemies.

288 Edmund A. Opitz economic order of our own time: it is the human need to cope with scar city, to satisfy creaturely needs, to provide for material wellbeing. The visible signs of this endeavor are all about us; factories, stores, offices, farms, mines, power plants. These are the locations where work is performed, services rendered, goods exchanged, wages paid, mon ey spent, and so on. This is the economy, and in the free society the economy is not under government control and regulation. In the free society the law protects life, liberty and property of all men alike, ensuring peaceful conditions within the community. This lays down a framework and a set of rules, enabling people to compete and cooperate as they go about the job of providing for their material well being. When government performs THINKING ABOUT ECONOMICS 289 as an impartial umpire who inter prets and enforces the agreed upon rules, then the uncoerced economic activities of people display regular ity and harmony-as if guided by Adam Smith's invisible hand!

The Capitalistic Economy In a society where people are free, the economy is referred to as capital istic. Some prefer the term free en terprise; others like the private en terprise system, or the private prop erty system, or the market economy. Now, of course, no society has ever been one hundred per cent free, which means that we've never had a completely free market economy. Some people have always seized and misused political power to rig the market in their favor. Obviously, it is not the market's fault if SOfile people choose to break the rules. The appalling thing is that many intellectuals mistake these devia tions from free enterprise for free enterprise itself! And so they con demn ((capitalism." But the ((capitalism" they condemn is actually the failure of certain people to live up to the rules of capitalism-the system of voluntary exchange among un coerced people. We're aware of human frailties and shortcomings; we know that it's easier to preach than to practice, easier to announce a set of ideals than to live up to them. Economic theory provides us with a description of the way an economy would work among a peo ple who exercise individual liberty and practice voluntary association.

It is this theory we seek to under stand and explain, and it is the de viations from this ideal that we seek to correct. Every person of good will wants to see other people better off; better fed, better housed, better clothed, and well provided with the amenities. So everyone wants the economic order to function effi ciently. But how important is it that the economic order be free from bu reaucratic direction and political controls? Does it do any harm if we allow the economic order to be quar terbacked by government? Let's ex amine a concrete example to indi cate the serious secondary conse quences of government control. In the economic sector of our soci ety there is a multi-billion dollar industry engaged in the production of newspapers, magazines, and jour nals of· opinion. There is also the book trade. Those who publish and distribute the printed word consti tute The Press, and one of the im portant freedoms cherished in our intellectual heritage is Freedom of the Press. The concept is now ex tended to cover the media-radio and television-where the same principle applies.

Freedom of the Press means sim ply that the government does not tell editors what to print and what 290 THE FREEMAN May not to print-nor does it dictate to purveyors of television commentary. Some editors print stuff they think will sell. Some editors are men of strong conviction trying to promote a cause they believe in; others are party hacks thumping the tub for some ideological idiocy like com munism, or anarchism, or the New Left, or whatever. But not a single editor in the country is out crusad ing for government censorship of the press; except indirectly! Editorial Inconsistency A large number of editors, writers and commentators who demand freedom for themselves in one breath, demand government regula tion of business and industry with the next! If, at the urging of The Press, government continues to ex tend its controls over one business after another, how can anyone be lieve that government will respect the editorial room as a privileged sanctuary, and keep its hands off that section of business .known as The .Press? Socialize the economy and The Press becomes a branch of the government bureaucracy, free no longer.

The fact that The Press actively cooperates in its own entrapment makes the end result even more bit ter. It is one thing to go down fight ing; it is something else to cooperate in your own demise. Political control and regulation of the written and spoken word means excessive influ ence over the minds and thoughts of people. It means eventually a minis try of Propaganda and Information, and an Office of Censorship. If you get the impression that I don't think highly of some of the people involved with The Press, you'd be correct; they are-with notable exceptions-a sorry lot. They, along with their counterparts in the Uni versi ty and in the Church-with notable exceptions are guilty of that tttreason of the intellectuals" denounced by the French writer, Julien Benda, in his 1927 book of that title. The intel lectuals' treason in the modern world, wrote Benda, is to abandon the pursui t of truth and to seek political preferment instead.

Lest you think I am being unduly harsh on some of those who refer to themselves as Intellectuals, I shall quote a few words of C. S. Lewis: It is an outrage that they should be commonly spoken of as Intellectuals. This gives them the chance to say that he who attacks them attacks Intelligence. It is not so. They are not distinguished from other men by an unusual skill in finding truth nor any virginal ardour to pursue her .... It is not excess of thought but defect of fertile and generous emo tion that marks them out. Their heads are no bigger than the ordinary; it is the atrophy of the chest beneath that makes them seem SO.l lThe Abolition of Man, pp. 34-35.

1979 THINKING ABOUT ECONOMICS 291 A Vital Connection I use The Press to point up the vital relationship between intellec tual freedom and economic freedom. Freedom of thought, bound only by the rules of thought itself; freedom of belief, in terms of the mind's own energy;freedomofutterance, guided by logic and within reason-these spiritual freedoms are of the vE~ry essence of our being. When they are threatened directly all of us rush to their defense. My point is that they are threatened indirectly when ever-and to whatever degree their material and economic support is straitjacketed by government regulations and controls. The same analysis would apply to the Academy and to the Church. If the government owns the campus and pays the professor's salary, the teacher becomes a political flunky, no longer free to research, write, and teach according to his best insights and conscience. And when private property is no longer regarded as the sine qua non of a free people, when private property suffers increasing encroachments by government, then church properties, too, becoIne politicized. And, as taxes increase and disposable individual income diminishes, private voluntary fund ing of churches correspondingly de clines and religious programs suffer.

Accept economic controls, and what then becomes of Academic Freedom and Freedom of Worship? In short, freedom is all of a piece; philosophy is not the same as dig ging a ditch, but socialize the ditch digger and the philosopher begins to lose some of his freedom. Freedom of the marketplace and liberties of the mind hang together as one depends on the other. The great philosopher, George Santayana, reflected sadly that, in this life of ours, the things that matter most are at the mercy of the things which matter least. A bullet, a tiny fragment of common lead, can snuff out the life of a great man; a few grains of thyroxin one way or the other can upset the endocrine balance and alter the personality, and so on. But the more we think about this situation and the more instances of this sort we cite, the more obvious it becomes that the things Santayana declared matter least, actually matter a great deal.

They are so tied in with the things which matter most that the things which matter most depend on them! Economic Liberty Paramount In precisely the same way, economic liberty matters a great deal because every liberty of the mind is joined to freedom of the market, economic freedom. There's an old proverb to the effect that whoever controls a man's subsis tence has acquired a leverage over the man himself, which impairs his freedom of thought,· speech, and 292 THE FREEMAN May worship. The man who cannot claim ownership over the things he pro duces has no control over the things on which his life depends; he is a slave, by definition. A man who is not allowed to own becomes the property of whoever controls his means of survival, for ~~a power over a man's support is a power over his will," wrote Hamilton in The Federalist. Economic planning im plies the power to regulate the noneconomic sectors of life.

F. A. Hayek puts it this way in his influential book, The Road to Serf dom: ~~Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."2 In a totalitarian country like Rus sia or China the government acts as a planning board to assign people to jobs and direct the production and distribution of goods. The whole country is, in effect, a gigantic fac tory. In practice, there is bound to be a lot of leakage-as witness the in evitable black market. But to what ever extent the State does control the economic life of the Russian and Chinese people it directs every other aspect of their lives as well. The Masses Content to Drift The masses of people everywhere and at all times are content to drift 2The Road to Serfdom, p. 92. along with the trend; they pose no problem for the planner. But what happens to the rebels in a planned economy? Suppose you wanted to publish an opposition newspaper in a place like Russia or China. You could not go out and simply buy presses, paper, and a building; you'd have to acquire these from the State.

For what purpose? Why, to attack the State! You would have to find workmen willing to risk their necks to work for you; ditto, people to dis tribute; ditto people willing to be caught buying or reading your pa per. A Daily Worker may be pub lished in a capitalist country, but a Daily Capitalist in a communist country is inconceivable! Or take the orator who wants to protest. Where could he find a plat form in a country in which the State owns every stump, street corner, and soap box-not to mention every building? Suppose you didn't like your job, where could you go and what could you do? Your job is pretty bad, but it is one notch better than Siberia or starvation, and these are the alter natives. Strike? This is treason against the State, and you'll be shot. Listen to George Bernard Shaw, de fending Socialism, writing in Labor Monthly, October 1921: ((Compul sory labor, with death as the final penal ty, is the keystone of Socialism." Shaw was a vegetarian because he loved animals; perhaps 1979 THINKING ABOUT ECONOMICS 293 he was a Socialist because he hated people!

Point One: Economic freedom, is important in itself, and it is doubly important because every other free dom is related to it. To have economic freedom does not, of course, mean that you will be assured the income you think you deserve, nor the job to which you think you may be entitled. Economic freedom does not dispense with the necessity for work. Its only promise is that you may have your pick from among many employment oppor tunities, or go into business for yourself, and as a bonus the free economy puts a multiplier onto your efforts to enrich you far beyond what the same effort returns you under any alternative system. Under primitive conditions a fam ily grows its own potatoes, builds its own shelter, shoots its own game, and so on. But we live in a division of labor society where individuals specialize in production and then exchange their surpluses for the surpluses of other people until each person gets what he wants. Most of us work for wages; we produce our specialty, and in return we acquire a pocketful of dollar bills. The dollars are neutral, and thus we can use them to achieve a variety of pur poses. We use some of them to satisfy our needs for food, clothing and shelter; we give some to charity; we take a trip; we pay taxes; we go to the theater, and so on. The money we earn is a means we use to satisfy our various ends.

These interlocking events production, exchange, and consump tion-are market phenomena, and the science of economics emerged, as Mises put it, with ttthe discovery of regularity and sequence in the con catenation of market events." Economics Concerns the Means to Achieve Human Goals Economics has often been called a science of means. The economist, speaking as an economist, does not try to instruct people as to the na ture and destiny of man, nor does he try to guide them toward the proper human goals. The ends or goals peo ple strive for are, for the economist, part of his given data, and his busi ness is merely to set forth the means by which people may attain their preferences most efficiently and economically. Economics, as Mises says, uis a science of the means to be applied for the attainment of ends chosen." And a ttscience never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."3 When people are free to spend their money as they please, they will often spend it foolishly-I mean other people, of course! As consum ers they will demand-and produc3Human Action, p. 10.

294 THE FREEMAN May ers will obediently supply-goods that glitter but are shoddy; styles that are tasteless; entertainment that bores; and music that drives us nuts. Nobody ever went broke, H. L. Mencken used to say, by under estimating the taste of the Ameri can public. But this, of course, is only half the story. The quality pro duct is available in every line for those who seek it out, and many do. The choices men make in the economic sector will be based upon their scales of values; the market is simply a faithful mirror of ourselves and our choices. Now, man does not live by bread alone, and no matter how much we might increase the quantity of available material goods, nearly ev eryone will acknowledge that there is more to life than this. Individual human life has a meaning and pur pose which transcends the social or der; man is a creature of destiny. As soon as we begin talking in these terms, of human nature and destiny, we move into the field of religion-the realm of ends. A sci ence of means, like economics, needs to be hitched up with a science of ends, for a means all by itself is meaningless; a means cannot be de fined except in terms of the ends or goals to which it is related. The more abundant life is not to be had in terms of more automobiles, more bathtubs, more telephones, and the like. The truly human life operates in a dimension other than the realm of things and means; this other di mension is the domain of religion using the term in its generic sense.

Or, call it your philosophy of life, if you prefer. If we as a people are squared away in this sector of life-if our value system is in good shape so that we can properly order our priorities then we'll be able to take economic and political problems in our stride. On the other hand, if there is wide spread confusion about what it means to be a human being, so that people are confused as to the proper end and goal of human life-some seeking power, others wealth, fame, publicity, pleasure or chemically in duced euphoria-then our economic and political problems overwhelm us. If economics is a science of means, that is, a tool, we need· some disci pline to help us decide how to use that tool. The ancient promise of ((seek ye first the Kingdom" means that if we put first things first, then second and third things will drop naturally into their proper places. Our actions will then conform to the laws of our being and we'll get the other things we want as a sort of bonus.

Point Two: Once we understand that economics is a science of means, we realize that economics cannot stand alone-it needs to be hooked up with li discipline which is concerned 1979 THINKING ABOUT ECONOMICS 295 with ends, which means religion or philosophy. There is no easy answer to ques tions about the ends for which life should be lived, or the goals proper for creatures of our species, but neither is the human race al together lacking in accumulated wisdom in the matter. Let me offer you a suggestion from Albert Jay Nock. Nock used to speak of ((man's five fundamental social instincts," and he listed them as an instinct of expansion and accumulation, of intellect and knowledge, of religion and morals, of beauty and poetry, of social life and manners. He then makes the charge that our civiliza tion, especially during the past two centuries, has given free reign only to the instinct of expansion and ac cumulation, that is, the urge to make money and exert influence; while the other four instincts have been disallowed and perverted. Our culture is lopsided as a result, an.d some basic drives of human nature are being thwarted.

Let's move to the next stage of our inquiry and ask: What is the distin guishing feature of a science, and in what sense is economics a science? Adam Smith entitled his great work The Wealth ofNations (1776); one of Mises' books is entitled The Free and Prosperous Commonwealth (1927). It is clearly evident that these works deal with national prosperity, with the overall wellbeing of a society, with upgrading the general welfare. These are works of economic science, insofar as they lay down the general rules which a society must follow if it would be prosperous. General Principles The distinguishing feature of a science, any science, is that it deals with the general laws governing the behavior of particular things. Sci ence is not concerned with particu lar things, except insofar as some particular thing exemplifies a gen eral principle. When we concentrate on a particular flower, like Tenny son's ((flower in the crannied wall,"

we move into the realm of art and poetry. Should we want the laws of growth for this species of flower, we consult the science of botany. These books by Smith and Mises lay down the rules a society must conform to if it wants to prosper, they do not tell you as an individual how to make a million in real estate, or a killing in the stock market. This is another subject. The question before the house in economic inquiry is: ((How shall we organize the productive activities of man so that society shall attain maximum prosperity?" And the an swer given by economic science is: ((Remove every impediment that hampers the market and all the obstructions which prevent it from functioning freely. Turn the market 296 THE FREEMAN May loose and the nation's wealth will be maximized." The economist, in short, establishes the rules which must be followed if we want a society to be prosperous; but no conceivable elab oration of these rules tells John Doe that he ought to follow them.

Economic science can prescribe for the general prosperity, but it cannot tell John Doe that he ought to obey that prescription. That job can be performed, if at all, by the moralist. The problem here is to bridge the gap between the economist's pre scription for national prosperity and John Doe's adoption of that prescrip tion as a guide for his personal con duct. A Science of Means Economics is a science of means. It abstains from judgments of value and does not tell John Doe what goals he should choose. If you want to persuade John Doe to follow the rules of economics for maximizing the general prosperity you must argue that he has a moral obligation to conform his actions to certain norms already established in his so ciety by the traditional ethical code. This code extols justice, forbids murder, theft, and covetousness, and culminates in love for God and neighbor. This is old stuff, you say; true, but it's good stuff! It's the very stuff we need when constructing a proper framework for economic ac tivity.

The market economy is not some thing which comes out of nothing. But the market economy emerges naturally whenever certain non economic conditions are right. There is a realm of life outside the realm of economic calculation, on which the market economy depends. Let me cite Ludwig Mises again, quoting this time from his great work, Socialism. Mises speaks of beauty, health, and honor, calling them moral goods. Then he writes: ttFor all such moral goods are goods of the first order. We can value them directly; and therefore have no diffi culty in taking them into account, even though they lie outside the sphere of monetary computation."4 In other words, the market economy is generated and sustained within a larger framework consisting of, among other things, the proper ethi cal ingredients. Point Three: The free market will not function in a society where the sense of moral obligation is weak or absent.

Nearly everything on this planet is scarce. There are built-in short ages of almost everything people want. For this reason we need a science of scarcity, and this is economics-a science of scarcity. Goods which are needed but not scarce, such as air, are not economic goods. Air is a free good. Economics 4Socialism, p. 116.

1979 THINKING ABOUT ECONOMICS 297 deals with things which are in short supply, relative to human deman.d for them, and this includes most ev erything we need and use. Our basic situation on this planet is an unbal anced equation with man and his expanding wants on one side, and the world of scanty resources on the other. Human Wants Insatiable The human being is a creature of insatiable wants, needs, and desires; but he is placed in an environment where there are but limited means for satisfying those wants, needs, and desires. Unlimited wants on one side of this unbalanced equation; limited means for satisfying them on the other. Now, of course, it is true that no man, nor the human race itself, has an unlimited capac ity fo~ food, clothing, shelter, or any other item singly or in combination. But human nature is such that if one want is satisfied the ground is prepared for two others to come for ward with their demands. A condi tion of wantlessness is virtually in conceivable, short of death itself.

.What does all this mean? The up shot of all this is that the economic equation will never come out right. It's insoluble. There's no way oftak ing a creature with unlimited wants and satisfying him by any organiza tion or reorganization of limited re sources. Something's got to give, and economic calculation is the human effort to achieve the maximum ful fillment of our needs while avoiding waste. Let me, at this point, offer you a little parable. This story has to do with a bright boy of five whose mother took him to a toy store and asked the proprietor for a challeng ing toy for the young man. The owner of the shop brought out an elaborate gadget, loaded with lev ers, buttons, coils of wire, and many movable parts. The mother exam ined the complicated piece of ap paratus and shook her head. uJack is a bright boy," she said, ((but I fear that he is not old enough for a toy like this."

((Madam," said the proprietor, Uthis toy has been designed by a panel of psychologists to help the growing child of today adjust to the frustrations of the contemporary world. No matter how he puts it together, it won't come out right." Relative Scarcity Economics is indeed the science of scarcity, but it's important to realize tha t the scarcity we are talking about in this context is relative. In the economic sense, there is scarcity at every level of prosperity. Whenever we drive in city traffic, or look vainly for a place to park, we are hardly in a mood to accept the economic truism that automobiles are scarce. But of course they are, relative to our wishes. Who would 298 THE FREEMAN May not want to replace his present car with a Rolls Royce if it were avail able merely for the asking? These simple facts make hash of the oft repeated remark that uwe have solved the problem of produc tion, and now we must organize politically to redistribute our abun dance." Economic production in volves engineering and technology, in that men, money, and machines are linked to turn out airplanes, or automobiles, or tractors, or type writers, or what not. But resources are limited, and the men, money, and machines we employ to turn out airplanes are not available for the production of automobiles, or trac tors, or anything else. The dollar you spend for a package of cigars is no longer available to you for a hamburger.

The economic equation can never be solved; to the end of time there will be scarce goods and unfulfilled wants. There will never be a mo ment when everyone will have all he wants. uEconomics," in the words of Wilhelm Roepke, Hshould be an anti-ideological, anti-utopian, disil lusioning science,"5 and indeed it is. The candid economist is a man who comes before his fellows with the bad news that the human race will never have enough. Organize and reorganize society from now till doomsday and we'll still be trying to 5A Humane Economy, p. 150. cope with scarcity. This truth does not set well with those who have the perfect solution in hand-and the woods are full of such. No wonder economists are unpopular! Point Four: Things are scarce, and therefore we need a science of scarcity in order to make the best of an awkward situation. The modern mind takes the dogma of inevitable progress for granted. Most of our contemporaries assume that day by day, in every way, we are getting better and bet ter, until some day the human race will achieve perfection. The modern mind is passionately utopian, confi dent that some piece of social machinery, some ideological gadget ry, is about to solve the human equa tion. Minds fixed in such a cast of thought, minds with this outlook on life, are immune to the truths of economics. The conclusions of eco nomics, in their full significance, are incompatible with the facile notions of automatic human progress which are part of the mental baggage of modern man-including many economists!

I'm not denying that there is genuine progress in certain limited areas of our experience. This year's color television set certainly gives a better picture than the first set you bought in, say, 1950. The jet planes of today deli ver you more rapidly and in better shape than did the old prop jobs-although there's some 1979 THINKING ABOUT ECONOMICS 299 truth in the remark of some come·· dian: ((Breakfast in Paris, luncheon in New York, dinner in San Fran·· cisco-baggage in Rio de Janeiro!" Automobiles are more luxurious, we have more conveniences around the house, we are better equipped against illness. There is real prog·· ress in certain branches of science, technology, and mechanics. But are the television programs improving year by year? Are the novels of this year so much better than the novels of last year, or last century? Are the playwrights whose offerings we have seen on Broadway this season that much better than Shakespeare? Has the contemporary outpouring of poetry rendered Homer, Dante, Keats and Browning obsolete? Is the latest book on the H new morality" superior to Aris-· totle's Ethics?

Are the prevailing economic doc·· trines of 1979, reflecting the Samuelson text, sounder than those of a generation ago, nourished on Fairchild, Furness and Buck? Are today's prevailing political doctrines more enlightened than those which elected a Grover Cleveland? Henry Adams in his Education observed that the succession of presidents from Washington, Adams and Jef.. ferson down to Ulysses Grant was enough to disprove the theory of progressive evolution! What would he say if he were able to observe the recent past? The dogma of inevitable progress does not hold.water. Perfect anthills may be within the realm of possibil ity; but a perfect human society, never! Utopia is a delusion. Man is the kind of a creature for whom complete fulfillment is not possible within history; unlike other or ganisms, he has a destiny in eter nity which takes him beyond biolog ical and social life. This is the world outlook of all serious religion and philosophy. The conclusion of economics-that life holds no perfect solutions-is just what a person who embraces this world view would ex pect. Economic truths are as accept able to the religious world view as they are unacceptable to the world view premised on automatic prog ress into an earthly paradise.

Another Dimension Transcends the Natural Order If there is another dimension of being which transcends the natural order-the natural order being com prised of the things we can see and touch, weigh and measure-and if man is really a creature of both orders and at home in both, then he has an excellent chance of establish ing his earthly priorities in the right sequence. He will not put impossible demands on the economic order, nor will he strive for perfection in the political order. Earth is enough, so he'll leave heaven where it belongs, beyond the grave! The effort to build 300 THE FREEMAN May a newfangled heaven on earth in countries like Russia and China has resulted in conditions that re semble an old-fashioned hell. Let us strive for a more moderate goal, let us work for a tolerable society -not a perfect one-and we may make it! Point Five: Economics tells us that the Kingdom of God is beyond history.

Economics is a discipline in its own right, but it has some larger meanings and implications. Its very nature demands a framework in which there are religious and ethi cal ingredients. Establish these necessary conditions-together with their legal and political corollaries -and within this framework the economic activities of men are self starting, self-operating, and self regulating. Given the proper frame work, the economy does not have to be made to work; it works by itself, and it pays rich dividends 'in the form of a free and pros perous commonwealth. , Shari Gifford The Effects of Regulation on an Industry WHAT A SITUATION! A person, who has decided to go into business for himself, discovers that he must first obtain a license from the govern ment. To get the license he must prove to the authorities that he is a citizen of moral character with fi nancial, technical and other qualifi cations. He must describe in detail all equipment, buildings, location and any other apparatus necessary Shari Gifford is a student of economics at the Uni versity of florida.

for operation. He must describe his proposed production techniques, in cluding times of operation. He must survey the community leaders to de termine the needs of the community and describe how he proposes to meet these needs. He must also show that he is financially capable of setting up and operating his busi ness for one year without any reve nue from the sale of his product. To facilitate the acquisition of the license he must hire a lawyer in 1979 THE EFFECTS OF REGULATION ON AN INDUSTRY 301 Washington, D.C., spend tens of thousands of dollars, and wait perhaps five years before the license is approved. He must also have a permit from the same regulatory agency to begin construction of his operating facilities and must apply for an .extension of the permi t if construction is delayed by causes beyond his control. Before beginning operation, he must have approval of his operating hours and the name of his company.

If he should die or become legally disabled, permission must be ob tained for transfer of control to a legally qualified successor. If he lives long enough to want to expand his business, he must obtain permis sion for that also. Every three years he must apply for renewal of his license to continue operating his business, at which time he must supply detailed exam ples of his previous production pro cess and proof that he has used a sufficient amount of a certain factor which the authorities consider bene·, ficial to society but which may actu·, ally be unproductive. At this time he may be denied permission to con·, tinue operation. Considering the difficulty of ob·· taining a license, the high costs in volved, and the eagerness with which licenses are sought, it seems safe to assume that the possible re turn on investment is high. This has been a brief and incom·· plete description of some of the regu lations of the radio broadcast indus try imposed by the Federal Com munications Commission. The FCC was brought into being by the need to allocate a scarce resource-the radio wave bands. The Radio Act of 1927 gave the Federal Radio Com mission (now the FCC) the power to license radio broadcast stations ac cording to guidelines, a few of which have been listed above.

The Rationale for Licensing Licensing was deemed necessary because of the limited number of frequencies and the impossibility for simultaneous broadcasts on the same frequency in the same area at the same time. But the limits to competition in the radio broadcast industry caused by the barriers to entry-namely, limited and costly licenses and the high costs of meet ing regulatory requirements-does a disservice to the listening audi ence by limiting their choices of broadcast entertainment and a dis service to advertisers by increasing the cost of advertising on the radio. A radio broadcaster produces one product, an audience to sell to ad vertisers. His inputs are land, labor and capital (buildings, equipment, license). The costs of these factors can run into millions of dollars a year. The production process is his programming, which is geared to attract the largest audience to sell to 302 THE FREEMAN May advertisers. Local advertising sales are a station's major source of reve nue. Radio stations direct their pro gramming toward a particular age or social group and advertisers choose the station from which to buy time according to the group of people they wish to reach. Small com munities often have only one station serving a particular group and so it may be considered the only supplier of that audience. This is in effect a monopoly, with other radio stations or newspapers as partial substi tutes.

The number of competing stations is limited by the relative unavaila bility and high costs (in money and time) of new licenses. The number of licenses available is restricted, of course, by the desire to avoid· inter ference by one station with another. But the number of licenses is also limited (by the FCC) according to the population of the community. Smaller communities are allocated fewer frequencies. Also, powerful distant stations are allowed a large range of reception which precludes the use of their frequencies in neighboring communities. The un availability of new licenses, of course, increases the value of exist ing licenses, which amounts to a windfall gain for the original licen see. Nevertheless, many licensed broadcasters consider most FCC regulations to be costly, wasteful, and inappropriate in relation to the freedom of other news and enter tainment media. Alternative Allocation Methods The allocation of frequencies to prevent interference is necessary.

However, the present method of al location is questionable because of the amount of government interven tion and regulation it entails. Al ternative methods come to mind that would require little if any de tailed government control. One method would be to allocate newly available frequencies to the highest bidders. This would tend to keep the cost of licenses high. But, at least, it would allocate the fre quencies to those who value them most. Another method could be the allocation of frequencies by draw, thereby awarding some licenses to people who could not afford to bid high enough. This, however, may result in a misallocation of resources as some frequencies would go to low-value users. A third method could be on a first come, first served basis with a ~~homestead" provision that would require the recipient of the license to commence broadcast ing within a specific period of time.

This last method would be similar to the present method if there were not also the elimination of the volumes of requirements and regulations that control the broadcasters now. Once a license has been given (sold, awarded or earned), the nor1979 THE EFFECTS OF REGULATION ON AN INDUSTRY 303 mal success motives, talents and abilities of the licensee should be all that is needed to determine whether the station operates successfully or joins the ranks of thousands of busi ness failures that occur every year in other industries. Success or fail ure would be determined by the abil ity of the station to attract an audi ence. Thus, the broadcaster would be guided by the market to offer what the public demands, not what the FCC mandates. The elimination of the FCC rules and regulations would decrease the operating costs of stations consider ably and also allow for more local stations. Their increasing competi tion for advertisers would lower costs of advertising. Local advertis ers, who supply most of a station's revenue, are interested in the local market; therefore, the restriction of stations to local broadcasting to pre vent interference in neighboring communities would not reduce their attractiveness to advertisers and would allow the existence of more frequencies in each community. The Hanford Henderson increased number of stations would increase the service to the public by providing a larger variety of enter tainment and news.

In short, the FCC controls in mi nute detail the ownership and oper ation of all radio broadcasting, os tensibly to achieve efficiency, equity, safety, and satisfaction of public needs. The primary results of these regulations are to protect the stations from competition and to limit the satisfaction of the radio audience. Just as the airline com panies, with the recent deregulation of the airline industry, experienced an increase in profits, so the broad cast industry would see an increase in the quantity of air time de manded and an increase in profits if the restrictions and costs of regula tion were eliminated. Just as more people are now enjoying what was once the luxury of flying, so more people would enjoy listening to their radios with an increase in amount and variety of broadcasting offered. i IDEAS ON UBERTY WE ask of the State and. Society only one thing-a fair field and no favors. This does not mean the raw anarchism of the tramp and hoodlum, for such anarchism would have no government whatever; but it does unequivocally mean a strict limiting of the functions of govern ment, a strict cutting out of all paternalistic activities, and the unfalter ing insistence that government shall really perform its basic and fundamental duty, the protection of the individual citizen from violence and interference.

Ridgway K. Foley, Jr. ON RECAPTURING LIBERTY B,E'tV.AB,D'0 ~pprehenSion of • LIberty w·" .r I YIeld :n~ater creativity of lif:. freer Way HUMAN HISTORY reflects man's tale as a continuing epic scramble be tween the concept of freedom and the human tendency to coerce others. Parallel to this combat ap pears mankind's skirmish with na ture, his never-ceasing attempt to overcome his frailty and to improve his material and spiritual lot in life. These dual endeavors are not wholly separate battles; they are related aspects of human action. Free men devise better ways to cope with the relentless problems of living posed by finite and sometimes irrational men inhabiting an infi nite and ever orderly universe. The material advancement and human betterment marking the first cen tury of American history bear dra matic witness to this truth. ConMr. Foley, a partner In Souther, Spaulding, Kinsey, Williamson & Schwabe, practices law in Portland, Oregon.

304 versely, slaves tend to live poorly, produce fewer results, exhibit more pettiness and contentiousness, and think less creatively than persons enjoying relative freedom. The op pressed possess no incentive for im provement, thereby limiting the creative endeavors of society to the narrow perimeters of the master's mind. History consists primarily of un ending constraints garbed in vary ing guises. ~~Man's inhumanity to man" conveys a warped picture of reali ty, for restrictions often flow from humane creatures possessed of the best of intentions coupled with gross myopia. American citizens currently ex perience substantiall~ less liberty than their forefat~ers, and each passing generation sinks more rapidly into the mire of bondage. Concomitantly, every moment witON RECAPTURING LIBERTY 305 nesses an almost imperceptible but inexorable erosion of the worth of the individual and his ability to combat the external world. In the battle of freedom versus coercion, the latter is winning handily.

Mankind has learned to control flood, famine and pestilence; it has also developed expertise in control·· ling those human actors who seek different creative alternatives, who make disparate choices, and who think outside the traditional chan .. nels. The recapture of liberty merely refers to a return to a condition of greater individual choice and less governmental coercion; it does not imply a conservative reversion to some prehistoric Golden Age, for it envisions an incessant movement toward ever increasing freedom once the foothold of the past has been regained. Reflection envisions our task as that of surmounting a progressive stairway of three steps of increasing depth and difficulty: (1) Recognition that a problem exists and .awareness of the nature of that problem; (2) Comprehension of the theoret·· ical solution to that problem. by application of the philo so·· phy of human freedom; (3) Implementation of the solu·· tion by a program of action calculated to apply the theoretical cure to the exist·· ing problem.

This paper examines the stairway to greater creativity and a freer life. It does not purport to exhaust the analysis, but rather to introduce the subject and illuminate the way for others to follow, each person impres sing his or her own unique and indi vidualistic imprimatur upon the task. I. Cognition of a Problem Few reflective persons would dis agree with the declaration that problems beset the current world. A cursory glance at one's surroundings reveals a host of upsetting and perplexing worries attending man kind in general and creative man in particular. Examples include: • The reduced military prepared ness of relatively free and Christian nations, a reduction which threatens the very survival of lib erty. • A paralyzing and demoralizing condition of depression and hyperinflation, illuminating gross misallocations of choice and re sources, as well as destroying the compass used by the average citizen to plan his affairs.

• The rapid increase in violent and senseless criminal conduct, dis playing an utter disregard for the sanctity of human life and property. • An ineluctable breakdown in the traditional values and spirit of sympathy, cooperation and neigh306 THE FREEMAN May borliness, and the concomitant de velopment of contentiousness and litigation-mania. • A growth of a series of counter cultures which feature drug addic tion, sloth, slovenliness, theft, and sexual promiscuity in place of self reliance, pride and creativity. • An enveloping state which wit lessly creates problems out of sup posed cures and endlessly regulates and oppresses the individual into a mere pawn of little repute and no inherent value. The list of concerns appears boundless. One should accept the foregoing as illustrative rather than exhaustive. The mere fact that cer tain thinkers place greater em phasis upon one problem to the ex clusion or diminution of others should not detract from the exis tence of all competing concerns.

The Specter of Subjugation A startling fact is that the most severe and depressing problems as sailing mankind today deri ve not from his combat to survi ve in the external world but rather as the result of man's aggression against, and oppression of, his neighbor on this planet. War, monetary chaos, crime, and societal disintegration stem not from natural forces but germinate in the hearts of individ ual actors. Thanks in large part to a past century of relative freedom, man today fears disease, flood, famine, pestilence, fire and earthquake less than ever before but he should quake at the specter of subjugation at the hands of his art ful fellows, practiced as they are in the art of harassment, maltreat ment and abuse. However, past advances against natural forces do not herald con tinued headway in this regard. His tory repeats only if conditions re main static; liberty forms a most salient causal condition for human development; demolition of freedom means reduction both in material and spiritual satisfaction and in the tools useful in jousting with the uni verse. Citizens in the United States have lived well in the past fifty years despite increased depreda tions by the state. This wellbeing has produced a narcotic euphoria, a belief that good things will continu ally appear; in fact, we have lived as parasites off the results of relative freedom practiced during the first century of American history, and the horizon portends a significant decrease in the goods, services and ideas emanating from our predeces sors.

The enumeration of Hproblems" conceals the reality that the con cerns recited, and others too numer ous to mention, emerge from a sin gle, multifaceted problem, the sinis ter tendency of man to coerce others. Inflation, wars, bondage, regulation, 1979 ON RECAP'I'URING LIBERTY 307 taxation, crime, looting, all partake of common roots; figuratively, they represent various aspects of the same edifice, as the walls, windows, and chimney of a tall building. We deal with many features of a single problem; once we accept this fact, the more likely we will emerge vi(~ torious from the fray. Reduced to simple and basic terms, man's problem today remains identical to that which has hindered and challenged men from the times of Moses and Socrates: A predile(~ tion to power. Men enjoy subjective values. Each actor can pursue his destiny by applying his dynamic subjective value scale to the orderly world in which he resides. Applica tion of these preferences may take one of two wholly distinct pathways: choice or power. One may coerce, or create. He may achieve his ends by the use of force and the coercive application of power against his fel low citizens, depriving them of their choices based upon their subjective values, or he may cooperatively apply his skills to the voluntary achievement of ends he deems im. portant. He cannot combine both at titudes, for the coercive aspects will overwhelm the creative.

II. The Solution: A Philosophy of Freedom Surprisingly few individuals even care to mount that halting first step, and a relatively small portion of those who attempt the climb master any but an uneasy balance and a stilted posture thereon. Yet the sec ond step offers an even more grand challenge, for it compels one to de duce an answer to the problem posed on the first foothold: How to solve the multifaceted dilemma of man's tendency to employ power to con quer human choice? Here, as elsewhere, man enjoys alternatives, the ability to choose between competing courses of con duct. He may choose a world domi nated by force or he may· choose a world ruled by choice. Man posses ses all of the frailties of a finite nature. One characteristic of this finity appears in his thrust for power, his tendency to trample the rights and longings of other in habitants in a relentless surge to his own goals. Yet, another trait coexists with this dark side of human nature: Man possesses the ability to improve, to cooperate, to choose, to achieve, to improvise, through voluntary social action.

Man will solve many of the aspects of the puzzle besieging him if he selects the contract in place of the bludgeon. Given this state of affairs, mas tery of the philosophy of freedom becomes imperative. Allow me to suggest six basic postulates upon which liberty rests: (1) Personal freedom, (2) individual responsibil ity, (3) private property, (4) a mar308 THE FREEMAN May ket economy, (5) limited govern ment' and (6) subsidiarity. Each postulate contains a wealth of subis sues for enlightenment, considera tion and discussion. I mean in this regard to merely touch upon each axiom in passing, leaving a detailed study for another time. Personal Freedom. The doctrine of personal freedom forms the touch stone for any study of the philosophy of liberty. Freedom means naught without individual liberty of action and freedom of choice. Talk of social or group freedom descends into meaninglessness: Such phrases merely provide a euphemism for coerced action substituting the sub jective values of the leaders, or those enjoying power, in place of the value preferences of individual actors. The essence of personal freedom resides in the major premise that it is both morally propitious and pragmati cally efficacious that each individ ual human being remain able to seek his own destiny without the aggressive intervention of mankind.

Individual Responsibility. The concept of individual responsibility refers to the reverse side of the ttper_ sonal freedom" token: One, cannot exhibit meaningful freedom unless he remains ever willing to abide by the natural consequences of his choice freely exercised. We inhabit a world where action produces consequence by the inexorable grinding of natural law. Individual responsi bili ty marks the willingness and ability of the actor to accept the results of his acts rather than shunt ing the consequences onto the shoulders of his neighbors who did not make the choice in the first instance. Private Property. One who ac cepts the premise of a personal right to free choice and action must logi cally and necessarily defend the concept of private property against its many and varied invaders. A right to live one's life apart from the aggression of others rationally in cludes the right to produce, main tain,· and transfer all value created, whether in the form of goods, ser vices or ideas. One repetitive aber ration in the modem world concerns the person who decries state imposed theology while applauding governmental regulation of produc tive pursuits. Freedom of speech, of religion, of press, and of association mean little where individuals or groups, by legally-sanctioned power, can control meeting houses, news print, sound trucks and billboards.

Market Economy. Again, both moral and material reasons support the voluntary exchange or market system of transfer: Such an institu tion produces more and better goods, services and ideas at a lower cost, 1979 ON RECAPrURING LIBERTY 309 and such a system harmonizes with the fundamental doctrines of per sonal freedom, individual responsi bility, and private property; they thrive in no other garden. Whether mislabelled ((free market," ((free trade," or ((free enterprise," the market economy imposes no limita tions upon the nonaggressive trans fer of created value between willing individuals and groups. Limited Government. The theory of limited government lends political support to the economic doctrine of a voluntary market. In order to effect a society which dis plays personal freedom, individual responsibility, private property and a market system of exchange, cer tain governmental preconditions must exist. On the one hand, the state must not impose strictures upon free nonaggressive action, be it in the form of regulation, taxation, subsidies, rules or orders, for to do so would amount to a denial of the tenets stated. On the other hand, the state must exert some force and apply some sanction, in its role as the repository of community power, lest the baleful nature of mankind discussed in the first section of this article take precedence. Community action must tread deftly between the quagmire of restraint and the nightmare of anarchy. The proper role of the state rests in the restri(: tion and punishment of initiallyaggressive human action-the pre vention of force and fraud-and in the peaceful settlement of otherwise insoluble disputes between citizens by means of orderly and established rules of law.

Subsidiarity. Finally, the doc trine of subsidiarity provides a means of governmental decision making appropriate to the limited government idea. Subsidiarity merely refers to the normative rule tha t no higher or more general organ of government will issue a rule or determine an order when the same task can be accomplished by a lower and more specialized form of government. The limited govern ment theory presupposes that the state which governs least, governs best, while subsidiarity expresses the proposition that the government nearest the affected society, governs best, in regard to those matters which deserve state attention. Properly understand, these six principles of freedom provide the basis for comprehension of the philosophical foundations of liberty. In addition, once explained, theyes tablish grist for the explanation of such related doctrinal disciplines as natural law, natural rights, sovereignty, police power, state ac tion, public interest, society, diffu sion of risk, justice, egalitarianism, and choice.

310 THE FREEMAN May Furthermore, these same six prin ciples exhibit the additional virtue of truth-they reflect the orderly reali ty of the universe. One can deny their existence but he cannot thus obscure their validity. One can disparage their efficacy, but he must stand willing to pay the natural law cost exacted for his denial of truth. A controlled economy will necessarily produce fewer and shoddier goods, services and ideas than a voluntary market; those who promote national health insurance, wage and price controls, or unreasonable restraints against market entry must accept the fact that their action, if success ful, will insure a health care crisis, unemployment, and unhealthy monopolies in the examples cited. One disobeys natural laws or denies natural rights only at a cost univer sally imposed; few recognize that toll and fewer still can accept the result of their conduct.

III. On Implementing the Solution However difficult the first two steps on the stairway to liberty, the final run affords a more intense and testing challenge yet. This third plateau consists of the question of appropriate action: in a phrase, how to spread the concept of liberty to others, assuming that one has at least partially surmounted the is sues of the problem and the solution. The key word in this endeavor is consistency. Freedom can only be achieved by reason, never by force. Liberty and power exist as antith eses and alternatives; thus, one who loves liberty cannot effectively or justly employ power to accomplish the nemesis of power-freedom. Consider the inquiry in the light of fundamentals: Force and freedom pose a contradiction of terms. I can not impose my subjective value structure upon an unwilling recipi ent without depriving him of his freedom of choice and action, even if his uncontrolled conduct would cause him harm in my considered opinion. Were it otherwise, good in tentions would forever justify inter position of force-and that marks the precise problem confronting the modern world!

An example may clarify the point. Health care poses a real concern to many citizens; good health affords a pleasant life, as much as nutrition, air, water, attire and shelter. The common solution to allocation of re sources for health care appears to consist of massive doses of govern mental funds alternated with an even greater degree of regulation. Yet, the government possesses only such goods, services or ideas as are coercively appropriated from pro ducing citizens. Compulsory Sharing Federal funds represent value removed from creative citizens by means of compulsory taxation; state 1979 ON RECAPTURING LIBERTY 311 regulation represents deprivation of free action or removal of choice of alternatives from some human ac·, tors. Thus, this common solution fails to accord with the most basic principles of liberty. It denies per·, sonal freedom and choice, individual responsibility, private property"

voluntary market solutions, and limitations on government action. In addition, it really supplies no solution at all, but actually inten·, sifies the ailment. Compulsion drives producers from the market" misallocates resources, incurs an. excessive handling charge, reduces the quality of the service, and. penalizes producers. Nevertheless, some followers of the freedom philosophy propose to alleviate their condition by a. force ful attack upon the problem and the common solution. One cannot im prove matters by introducing rifles in place of syringes. Talk of violent revolution, coup d' etat, and insur rection fails to accord with the prin·, ciples of freedom to the same extent as the ((common solution": I cannot force you to be free at sword point. All manner of directives emanate from the assembly halls and. execu·, tive mansions across the land each. day, most of them aimed at the cure of real or feigned ills, none of them.

effective to correct the malaise. In deed, the application of power neces .sarily magnifies the subsisting cause in place of effecting a cure. Deep truth prevails in the old say ing, ((There is no problem on earth that the meddling of a politician will not make worse." If forceful means provide an inapt device to implement the freedom solution, we must repair to an alter native source. The alternative to power is freedom. Implementation of the freedom philosophy requires use of freedom principles to effect the goal of liberty. In brief, we can achieve a voluntary society only by acting in conformity to the basic principles outlined in the second section of this essay. One must use persuasion, contract and example instead of imposition, status and re quirement. No Blueprint Available, for Freedom Is Unpredictable Those who seek a blueprint for action in these words may be sorely disappointed.·1 know the principles, not the particulars. I know how lib erty can be recaptured, not the de tails of the encounter. The curious and convincing feature of liberty remains its open texture; a free soci ety consists of myriad human actors voluntarily seeking their personal ends in an orderly and rational world; .one cannot predict the direc tion of free action,. only that it will harmonize most nearly with the In finite Truth of the universe .

However, adherence to consistent tenets of liberty does not necessarily 312 THE FREEMAN May compel one to sit idly by while the state mulcts him of his created val ue. The precise manner selected by any particular person to advance the course of human freedom de pends upon that individual's choice, which in turn depends upon his per sonal value structure and perception of truth. I cannot propound a battle plan and command all who would join me to repair to my banner, for to do so would be a compromise of the very principle of choice, of funda mental human action. Each of us must choose his path, learning from others and constantly evaluating his principles, his strategies, and his successes or failures. Nevertheless, this reticence to prescribe philosophical or political medication in absolute terms need not deter one from suggesting some effective procedures. Light a Candle. One who learns the problem and the solution well may practice the conveyance of his wisdom in a disarmingly simple manner: He may live his life consis tently with the principles espoused.

No form of communication exceeds that of an exemplar. Think what could be wrought if literally thousands of citizens refused to ac cept social security or medicare checks, or failed to employ Htax payer identification numbers," or opted not to cast a ballot to either of two unholy thugs seeking an office. Explanation of Action. The sec ond aspect of activism builds on the foundation of the first. Once the actor learns to light his candle in the darkness, he must develop skills at communication, for the light will attract others interested in his con duct and its underlying rationale. Few individuals possess substantial skill in comprehending the philoso phy of freedom, and fewer still exhibit much aptitude in explica tion; it represents a subject deserv ing of attention and nurture. Accept a respectful caveat: Be ware of preaching and forceful ex position. Most listeners and readers shy away from the effusive and em phatic proponent who literally or figuratively grasps his hearer's lapels and seeks to shake the truth into him. Infinitely greater success attends those who live a consistent life and explain their action calmly and without hyperbole when asked.

Exercise the Franchise Wisely. Many misguided souls view the elec toral process as the answer to our prayer: ulf only we could elect our guys, everything would straighten out." Political figures, however, par take of the identical frailties affiict ing mankind, and exhibit all the glaring defects of character which mar the nature of man. Indeed, since politics rests upon power, political action generally seems inimical to liberty. Politicians lust for power, 1979 ON RECAPTURING LIBERTY 313 WHEN it is time to vote, apparently the voter is not to be asked for any guarantee of his wisdom. His will and capacity to choose wisely are taken for granted. Can the people be mistaken? Are we not living in an age of enlightenment? What! are the people always to be kept on leashes? Have they not won their rights by great effort and sacri fice? Have they not given ample proof of their intelligence and wisdom? Are they'not adults? Are they not capable of judging for themselves? Do they not kno'w what is best for themselves? Is there a class or a man who would be so bold as to set himself above the people, and judge and act for them? No, no, the people are and should be free. They desi"reto manage their own affairs, and they shall do so.

But when the legislator is finally elected-ah! then indeed does the tone of his speech undergo a radical change. The people are re turned to passiveness, inertness, and unconsciousness; the legis lator enters into omnipotence. Now it is for him to initiate, to direct, to propel, and to organize. Mankind has only to submit; the hour of despotism has struck. We now observe this fatal idea: The people who, during the election, were so wise, so moral, and so perfect, now have no tendencies whatever; or if they have any, they are ten dencies that lead downward into degradation. FREDERIC BASTIAT, The Law thus insuring that the worst and most defective of men will place their names on the ballot, in place of the righteous who generally do not wish to substitute their judgment for that of their fellowman. Thus, the polling place offers small solace to one who desires to reinstitute liberty. This is not to say that a lover of freedom should boycott the ballot, although that choice certainly rep resents his prerogative. On occasions, a refusal to vote may consti tute the highest form of citizenship; on other, all too seldom, instances, one may actually exercise his fran chise in a meaningful manner by voting for one who truly believes in liberty.

Furthermore, too many of us equate the ballot box with election of men-governors and presidents, senators and representatives-rath er than the decision of issues. In some political units, the voter enjoys 314 THE FREEMAN participation in the political process by means of a direct election system, normally consisting of the initiative, the referendum and the recall. Here, the devotee of freedom can utilize the franchise for two discrete pur poses, both completely harmonious with the principles of liberty: He can propose legislation which expands freedom of choice and removes re strictions on nonaggressive human conduct, he can sponsor repeal of constraining laws, or he can cham pion recall of venal officials. In so doing, the actor employs the ballot box to secure freedom in a nonag gressive manner and, even if unsuc cessful, he may attract and persuade interested, like-minded persons to his banner.

Fight for Your Rights Nonviolently. Recall the proper functions of the state: Prevention and punishment of aggressive force and fraud, and settlement of other wise insoluble disputes. The dis pute-determining process involves the administration of a common sys tem of justice and, hence, a court procedure. The state, its servants, and its proponents may be answer able to your summons in a judicial atmosphere. It is perfectly consis tent with the principles of liberty to commence an action, suit or proceeding at law or in equity to determine and thwart a violation of your rights. As with the direct legislative . process, even a substantive loss in the courts may amount to a tactical victory for persuasion· and common sense. A jural system provides the appropriate atmosphere for a non violent and nonaggressive resolu tion of crucial issues on a rational basis. It does not possess perfection, being peopled with finite creatures, but it represents the best process developed in human history.

Epilogue Mastery of the problem besetting the world we inhabit can develop from the tripartite process put forth in this essay. The answer is not easy because of the complexity of the in quiry and the human resistance to the solution offered by the philoso phy of freedom. The fractious side of human nature causes not only the problem but also the hostility to the solution and the ineffectiveness of the implementing devices. Yet hope exists precisely because of the real ity of human nature, for man dis plays a higher facet as well as a sin ister visage. Appeal to this bright er aspect represents the means of regeneration of mankind and the mode of the recapture of liberty. @) A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN In Defense of the Corporation IN the now distant Nineteen Thir ties Senator Joe O'Mahoney of Wyoming carried on a one-man crusade for the federal chartering of corporations. I remember his ex pounding on his favorite thesis that the corporation was a special crea ture of the state, a fictitious entity with no inherent rights of its own.

He hoped a federal incorporation law would help the work of that other fractious Wyoming native, the trust-busting Thurman Arnold, in prosecuting alleged monopolies. Creatures of the state, said O'Mahoney, should obviously be subject to license by the state. True enough, the majority of big Ameri can corporations seemed to be incor porated already in the state of Del aware, so why the need for federal chartering? O'Mahoney's logical an swer was that the normal corpora tion was set up to do business on a continental scale, so it was to the federal government that it should apply for the right to exist. O'Mahoney's crusade, a casualty of World War II, has been pretty much forgotten, but now Ralph Nader has picked it out of the dustbin of history without much concern about giving his predecessor credit for it. The new life that Nader has pumped into the O'Mahoney theory has provoked Robert Hessen, an authority on the steel industry, into joining issue with Nader and all his anti-corporate raiders. Hessen's own trail-blazing book on corporate theory, In Defense of the Corporation (Hoover Institution Press, Stanford, California 94305, 127 pp., $7.95 hardcover) is an eye-opener to me, for I had always considered that the one issue of corporate limited liabil ity did involve a special state dis pensation. Mr. Hessen now tells me that I have been wrong, and he puts up a strong historical and legal ar gument for his case.

The notion that the corporation is a creature of the state is deeply embedded in the common law. The reason for this, says Hessen, is that in feudal England, when the com315 316 THE FREEMAN May mon law evolved, only the king had the power to endow groups of indi viduals with special rights-really permissions-to do anything. Guilds, with royal charters, were empowered to establish their own price and wage controls. The medieval church, a corporation, held its lands in feudal tenure. Every association, from a university to a hospital, was in or of the system set up by William the Conqueror to in sure that nobody should have an inalienable right of his own. In the late seventeenth century, parlia ment cut itself in on the deal, as suming its responsibility for protect ing ((English liberties," but it was never conceded in England that any right was ((inalienable." It took the Virginian, Thomas Jefferson, to as sert inalienability for the American colonials.

Unfortunately, that other Vir ginian, Chief Justice John Mar shall, who was steeped in the legal commentaries of Sir William Blackstone, chose to paraphrase English authorities going back to Lord Chief Justice Coke when, in the Dartmouth College case of 1819, he declared that ((a corporation is an artificial being, invisible, intangible, and existing only in contemplation of law." Marshall's opinion has ruled ever since. But why, so Hessen asks, should precedents evolved by the courts to apply to medieval feudal institutions be extended to business corporations created centuries later to expand the inalienable idea of freedom of association to the mar ketplace? Matters of Contract Against the medieval Nader idea that the corporate features oC(entity status, perpetual life and limited liability" are state-created pri vileges, Hessen poses his own ((inherence theory." To do this he has to break down the distinctions ordinarily made between partner ships and corporations. In Nader theory, which derives from tradi tion, a partnership is an aggregate, an association of individuals acting together to pursue such things as the making of a profit. Unlike a corporation, it does not have a legal being that exists independently of its owners. The proprietors of a partnership incur unlimited per sonal liability for business debts.

They can be sued for all they own. But if a corporation cannot meet its obligations, shareholders can't be assessed to cover deficits. This is the theory of the matter, but Mr. Hessen finds it deficient. Looking at actual business practice, Mr. Hessen says that ((entity status, perpetual duration and limited lia bility" are all contractual matters. Partnerships can avail themselves of them, too. Entity status happens to be an optional feature available to unincorporated businesses includ1979 IN DEFENSE OF THE CORPORATION 317 ing partnerships (owners can desig nate trustees to represent them in lawsuits, for example). Partners can make their enterprise perpetual by adopting a continuity agreement specifying that the firm will not be liquidated if one of the partners dies or withdraws. As for limited liability, how is it to be explained by contractual theory in contrast to state-created privilege? Mr. Hessen says limited liability is actually the result of an implied contract between corporate owners and their creditors. It is a freely accepted and negotiated mar ket transaction. You do business with a corporation on the under standing that your Uright of recov ery" (the phrase is Adolph Berle's) is limited to what is in the corpora tion's common fund. As for partners in a partnership, they may safeguard themselves by purchasing' liability insurance. This amounts in practice to a limitation on their lia bility. Corporations use liability in surance, too.

So, if Hessen's line of reasoning is to be followed, there is no real dif ference between partnerships and corporations when it comes to the rights of individuals making use of them to do business. Mr. Hessen. speaks of the rights of individuals to pursue goals. No matter what form of voluntary venture they choose, they neither gain nor lose any of these rights. Regardless of the type of organization a person selects, it can only acquire those rights which its members possess as individuals. No Special Privilege The English legal historian, Fred erick Maitland, noted in 1900 that the description of a business associa tion as a corporation was ~~a mere labour-saving device, like stenog raphy or the mathematician's sym bols." The use of the symbol should not be to obscure the individual rights of its members, whether they are shareholders, directors or offi cers. At every stage of growth, a corporation is still a voluntary as sociation based on contract. At no stage is it dependent on state created privileges.

In history many corporations have evolved out of partnerships. They do this when the proprietors, finding it inconvenient to operate as so many individuals possessing agency pow ers, decide to choose one or a few of them as managing partners and re move agency powers from all the others. From here on the way to reorganization as a corporation, with the partners becoming the orig inal shareholders, is an easy one. Mr. Hessen asks a single question: at what point in the continuum from partnerships to corporations do in dividuals lose their rights? At what point does an enterprise become a Ucreature of the state"? Galbraith, before Nader, is re318 THE FREEMAN May sponsible for the theory that corpora tions are actually huge ((private governments." But this, says Hes sen, obliterates the distinction be tween politics and economics. Gov ernments can compel obedience to their laws and forcibly collect taxes.

Businesses, on the other hand, can only succeed by offering something of value in an uncoerced exchange. To force a merger of state and corpo ration, which Nader wants to bring about, would scramble everything. It is what Fascism tried to do, and it did not work. @ THE NEW PROTECTIONISM: THE WELFARE STATE AND INTERNATIONAL TRADE by Melvyn B. Krauss An International Center for Economic Policy Studies Book (New York University Press, Washington Square, New York, N.Y. 10018, 1978) 114 Pages. $4.95, paperback Reviewed by Amy Mann SUPERSTITION dies hard. Over two hundred years ago, Adam Smith ex posed the fallacies inherent in the protectionist practices of England (and other nations) at that time. Trade between nations was scarcely free. Today we can pick up any newspaper and read the latest demands of a myriad of industries and special interest groups-e.g., the steel producers, shoe manufactur ers, sugar growers, labor unions all seeking protection from ((unfair"

foreign competition. Protectionism has been with us for a long time. How, then, does the ((new" protectionism of the title differ from the ((old" protectionism? Economist Melvyn Krauss, of New York University, answers this ques tion admirably. There is, he says, not only an increase in the amount of protection, but, more important, a difference in its form. He considers a number of factors responsible for this situation, and traces most of them to the growth of the welfare state. Welfare state policies have defi nite effects on international trade. The growth of the new protectionism in the Western nations parallels the growth of welfare or interventionist economies at the expense of market economies. The author's ((new protectionism" takes into account all forms of government intervention into the private economy. The system of world commerce set up by GATT (the General Agree ment on Tariffs and Trade) after World War II envisio~ed interna tional trade as free from domestic intervention and protection as pos sible. The rationale for the GATT agreements was that free trade in creases consumption alternatives 1979 OTHER BOOKS 319 for everyone, and the economy as a whole benefits. Free traders fear that protection of special interests can increase the role of government in society, which can in turn lead to more centralization and thus jeopardize the automony and free dom of markets. Protectionists:, however, argue that economic bene fits for special interest groups (usu·· ally their qwn) are more important than the general benefits to the whole of society.

If there must be some form of protection, free traders would chooSE~ tariffs over quotas or other non·· tariff barriers to trade. Tariffs dis·· tort prices, consumption levels, and resource allocation, but they are still more compatible with the free market system than non-tariff in·· terventions, which do not work through. the price mechanism and cannot always be recognized for the harm that they do. Professor Krauss discusses at some length the effects of the numerous non-tariff restrictions on free trade. A partial list of these would include domestic subsidies, export subsidies, cartels, environ·· mental measures, government pro·· curement policies, and adjustment assistance payments to workers and managers. He also analyzes the ef·· fects of massive income redistribu·· tion on Hcapital flight," Hguest work·· ers" (migrant labor), and the volume and terms of trade between nations. One form of protection which is relatively new is protection of the environment. The rallying cry of environmentalists is that we all have the ((right" to a clean and safe environment. Further, it is the duty of government to bring this about.

What is often accomplished instead, however, is protection of domestic industry. Take automobile safety standards, ostensibly designed to clean up the air, or to prevent acci dents. In effect, .these regulations keep out of the United States certain very popular and reasonably priced foreign cars such as the Fiat 500 and 600 models. The intent of the regu lations mayor may not be to keep out the imports, but that is the re sult. Motive here is unimportant. In explaining the mentality which leads to welfare and protectionist measures, Krauss quotes Daniel Bell, who has spoken of ((the revolu tion of rising entitlements." Welfare statists insist that every person has a right to economic security, a right to the job of his choice in the place of his choice, and almost at the salary of his choice. Again, citizens have the right to be shielded from changes which may bring them economic adversity, or force them to find other employment. Whole in dustries also-as well as private citizens-claim the right to be pro tected from economic dislocations.

But at what price to the individ ual consumer? Industries receiving 320 THE FREEMAN protection are the weak, inefficient ones. Wages rise too high relative to productivity. Consumers are forced to pay higher prices, often for in~ ferior goods,. and consumption op portunities are reduced. Disincen tives to produce run rampant. Why work hard? A government commit ted to ((cradle to grave" security will presumably bail out any firm or in dustry, regardless of economic per formance. Overregulation and high taxation stifle investment and pro duction. While taxes rise to pay for new programs, people do everything pos sible to avoid paying them. Workers and professionals take a higher proportion of their income in the form of leisure time. Barter, a grow ing form of tax avoidance, reduces the efficiency of the economy. Fi nally, a hidden purpose of so many of the protectionist programs comes clear: to redistribute income from savers and producers to nonproduc tive individuals. Egalitarianism is touted, while the competitive spirit and work ethic are undermined.

An economy can be likened to a living organism which, if it is to grow and thrive, must be able to adapt to the demands of a changing environment and must receive adequate sustenance (capita)). High rates of social welfare expenditure keep the economy from adjusting to change and impede capital forma tion. Stagnation inevitably results. Or, as Professor Krauss concludes: H •••the welfare state is self destructive. It both depends upon economic growth and destroys it. In the long run, the demand for a se cure economic income at a given level or rate of increase, regardless of the changes that are being wrought elsewhere, proves illusory because the attempt to attain secure income reduces the ability of the economy to produce it." The New Protectionism is highly recommended. Economists and laymen alike can learn much about the consequences of interventionist policies on international trade and investment. Considering the recent experience of England, American legislators who vote for such mea sures would be well advised to read this book. @ the Freeman VOL. 29, NO. 6 • JUNE 1979 A Strategy for the War of Ideas Sylvester Petro 323 Why scholarly books are the best ammunition in the struggle for the truth about freedom.

Inflation Fighters Bark Up The Wrong Tree Oscar W. Cooley 334 The point, again, is that inflation is strictly the result of monetary manipu lation. Nutrition Planning E. C. Pasour, Jr. 337 Critical shortcomings seen in proposed governmental food policy. Amazing Strange Jess Raley 344 The remarkable consequences of the removal of miIk from price control. Around the World. . . Perry E. Gresham 347 This distinguished scholar shares some impressions gained during an BO-day cruise on the QE~~. World in the Grip of an Idea 30. The Individual: Victim of the Idea Clarence B. Carson 352 The tendency of organizations is toward a governing force that reduces the independence of the individual. Excess Losses J. Brooks Colburn 367 In terms of consumer satisfaction, resources are better used to generate profit than to show a loss. The Nature of Work Robert LeFevre 370 Let the parent help the child adopt and follow goal-oriented procedures of a constructive nature.

Input Slavery and Output Slavery Ira Gottlieb 378 In open competition, neither employees nor employers are exploited. Book Reviews: 381 "The Right and Wrong of Compulsion by the State, and Other Essays" by Auberon Herbert. Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year. Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A.

Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road,AnnArbor, Mich. 48106. Some articles available as reprints .at cost; state quantity· desired. Permission granted to reprint any article from this issue, with appropriate credit except HWorld in the Grip of an Idea" and "The Nature of Work."

Sylvester Petro A STRATEGY FOR THE WAR OF IDEAS NEVER BEFORE have there been so many persons and institutions en gaged on the side of laissez-faire in the war of ideas over the proper role of government. And rarely before have socialism and interventionism enjoyed greater success in expand ing the role of government while diminishing personal autonomy. Can it be that as the forces favoring laissez-faire grow, the role of gov ernment tends necessarily to in crease? Such a conclusion is unacceptable, for to accept it would imply that the proper course of action for every libertarian is to abandon his liber tarianism. Dr. Petro has written The Labor Policy of the Free Society and numerous other scholarly books and articles. He Is Research Professor of Law, Baylor University, and Director of The Institute for Law and Policy Analysis, Winston-Salem, N.C. The more acceptable interpreta tion is that while the number of libertarians may have grown abso lutely, their influence has di minished relatively. This is the starting point of the present reflec tions on a strategy for spreading the truths of laissez-faire liber tarianism: that statism is winning the war of ideas because the truths of libertarianism have not been pub lished in sufficient quantity and quality to overcome the fallacies of statism.

Myths and Public Policy It is not hard to establish that statism has been gaining ground throughout the,20th century simply because ideas and factual assump tions favorable to it have prevailed during this period. Today, most be lieve that the market economy 323 324 THE FREEMAN June abused consumers and exploited workers in the Hbad old days." The free society will never have much of a chance as long as most people believe that it has been tried and has failed. It is no good saying that businessmen have learned to behave themsel ves better under the pres;; sure of interventionist legislation and union disciplines. For people correctly ask themselves: if the free market could not protect workers and consumers from the predations of business and if it could not pro vide security against health and old-age hazards without the inter vention of government before, why should it do so now?

Statism seems always to advance. Politicians and leftist ideologues daily blame businessmen and the market economy for the bad results of the treacherous villainy of gov ernment. Although inflation, un employment, energy shortages, and their even more wretched conse quences all trace to government in terventionism, the people believe it when they are told that business is to blame. Why are they so prone to believe the worst of the best public servants the world has ever had the business firms which feed, clothe, and otherwise provide for us so munificently while government only takes, and takes, and persons such as Ralph Nader have never succeeded in producing anything other than exploitation of the consumer in the name of n con sumerism"? People don't think very well of government, either, it is true. But this .fact serves only to emphasize how suspicious they are of the free market and of businessmen. Trust ing government very little, they trust business even less and are therefore prone to believe the worst of it. Why? Let us examine one area of public policy which may provide a clue to the answer.

The Law of Labor Relations Consider the law of labor rela tions. Scarcely a more destructive field of interventionist public policy exists. This policy, though dating back to the 1920s, rests on five still prevalent ideas: (1) that employers and employees are natural an tagonists; (2) that in this antagonis tic relationship the employers have all the advantages; (3) that in a market economy the employer is driven by competitive exigency to use his power-edge to abuse and exploit his employees; (4) that pro tection from such abuse lies in strong unionism and collective bar gaining which the government can promote only by giving worker organizations special legal priv ileges at the expense of the com mon-law rights of employers and anti-union employees; (5) that the common-law courts cannot be trust ed to administer such a regime 1979 A STRATEGY FOR 'rHE WAR OF IDEAS 325 of special union privileges, so they must be replaced by administrative tribunals (such as the National Labor Relations Board), agencies which can be relied upon to imple ment the pro-union policies and not to be bothered by what Felix Frankfurter called the ((pernicious abstractions" of liberty and property and the rule of law which tend to influence the decisions of the regu lar courts.

Widely Popularized Practically everyone accepts as unshakeable truth one or more of these commonly held beliefs: uni versity professors, preachers, high school and grammar school teach ers, businessmen, journalists, ((intel lectuals at large," novelists, comic strip creators, singers, dancers, ac tors, newspaper columnists, TV commentators. How then can the general public help taking these premises as gospel? And if they share the belief that the common law and the market economy, left unhampered, will abuse workers, how can they prefer free labor mar kets under the rule of common law? And if the general public does not want them, what response is to be expected from politicians, the turgid mirrors of muddy public opinion? The big unions are today no longer as popular as they used to be. Still, no one is seriously proposing that the special privileges which account for their destructive social ef fects be repealed. No government, even today, with union popularity at a low, seriously considers repealing the existing pro-union legislation.

The situation is even worse. In fact, the moves in Washington are for more special privileges for unions. Each year lately the great political battle has been between those who wish to mulct the public with still more favorable laws for unions and those who say ((thus far and no further." To repeat, proposals to repeal existing pro-union laws are rarely if ever made, and when made they are always ignored. Why is this so? Ruling Ideas There is an argument going on in libertarian circles between those who contend that ideas rule the political world and those who be lieve that interests rule. Probably the dispute here is basically a ter minological one. Interests and ideas are, as Mises might have said (if he thought the dispute worth noticing), congeneric and concentric. Decisions about what interests to pursue are shaped by values and ideas, and values and ideas are interacting phenomena. Much more important than this, while proposals may be made by interest groups largely out of base greed, with ideas secondary in their calculations, the big ques tion for them and for the country lies 326 THE FREEMAN June in whether the demands for special subsidy and privilege will be granted. Interests may propose; but the ruling ideas of the country dis pose.

So there can be only one answer. The five premises summarized above continue to prevail. These rul ing ideas preclude any possibility of repeal of the pro-union labor policies despite their pernicious effects. With the country at large en thralled by these premises, not even sound scholars of libertarian bent are totally immune. Fritz Machlup, for example, has written that ((there is no doubt that the use of the in junction against labor [sic] had been abused and it was in reaction to such abuse that the Federal Anti Injunction Act was passed in 1932, severely restricting the use of the injunction." [The Political Economy of Monopoly 325 (1952).] But the first exhaustive study ever made of the use of the injunction in labor disputes from 1880 to 1932, only recently published, 1 demonstrates beyond any reasonable doubt that during the period of so-called gov ernment by injunction the judges dealt with unions leniently and were already according them special pri vileges.

lInjunctions and Labor-Disputes 1880-1932: What the Courts Actually Did, and Why, available from The Institute for Law and Policy Analysis, Suite 305, First Center Bldg., Winston-Salem, N.C. 27104 ($6.00), 235 pp. Sources of the Myths A thoroughgoing, systematic pro cess instilled these great labor myths into the minds of Europeans and Americans. The process began early in the 19th century in Europe, came to America toward the middle of the 19th century, and has been burgeoning ever since. A young libertarian scholar, Dr. Howard Dickman, is at work today on an exhaustive study of the English, European, and American scholars responsible for the gradual descent into the chaos of trade-union syn dicalism which is threatening the survival of Great Britain and is tying the United States in knots. When Dickman's work is published we shall be able to fix with precision the sources of the ideas which now rule almost all Americans, as well as the British and the Europeans, about the relations between em ployer and employee.

But we already know how their infl uence has spread from their lec tures, articles, and books to our own university professors and from them to all the rest of us. Young Ameri can graduate. students in the 19th century went to England and to Europe to complete their education, and they came back with the inco herent mess of guild socialism, pure socialism, syndicalism, and com munism which has in most countries of the western world produced the atrocious paradoxes and incoheren1979 A STRATEGY FOR THE WAR OF IDEAS 327 cies which we know as the Hwelfare state." These young American scholars came back from Europe to become teachers and writers themselves, and, later, political activists-active in the service of syndicalism. Their students never quite knew what their teachers were for, because socialists and syndicalists tend to be confused and contradictory among themselves. But they all were equally and fervently convinced of one thing: the inhumanity and deg radation of unhampered free en terprise. On this all their teachers were as one. And their students emerged with at least one clear idea: capitalism is ugly and hateful and hurtful.

And these students spread across the land, spanning all occupations, and became vocal thought-leaders everywhere. Some became them selves university professors, thus heightening the multiplicative ef fects of their teachers. Others be came journalists, another social ist-multiplying activity. Many be came preachers-more multi pliers. And then there were those whose role it became to put the de structi ve ideas of syndicalism actu ally to work: lawyers, judges, legis lators and other politicians. One of the best examples was Felix Frankfurter, already men tioned as the author of the phrase, ~~the pernicious abstractions of liberty and property." Born an Aus trian and already when he emi grated to America imbued with the Austrian statism which Mises has described, Felix Frankfurter was educated in this country by the epigoni of the European socialist syndicalists. Moving to the Left Some have thought Frankfurter a kind of conservative, but the facts are different. While a professor at Harvard Law School he became na tionally known as an ardent suppor ter of leftist causes. For many years he published in the law journals articles decrying the common law and arguing for legislation granting unions special privileges. Not satis fied with mere· scholarship he was also active politically. His master work, The Labor Injunction (1930), supplied the intellectual ammuni tion, just as his personal efforts pro vided the political stimulus, for the Norris-LaGuardia (anti-injunction) Act, easily one of the most effec tively pernicious pieces of legisla tion ever passed.

During the New Deal, F. D. Roosevelt appointed Frankfurter to the United States Supreme Court. There Frankfurter completed the cycle from idea to action. His deci sions' especially in the field of labor law, pushed the Norris-LaGuardia Act to extremes of pro-union privilege which even his own previ328 THE FREEMAN June ous writing had disavowed. As a professor, he had written that the Norris Act did nothing more than prevent courts from enjoining ag gressi ve union acti vi ty. On the Court he was to say that the Norris Act made such activity lawful for all purposes, so that aggressive union strikes and boycotts were freed of all legal control-actions for damages and criminal prosecutions, as well as petitions for injunctions. Meanwhile the federal govern ment and its bureaucracies also felt the Frankfurterian influence in the form of numerous of his Harvard Law School students. But that is by no means all. Great as his personal efforts and influence were, they were not so great as the influence of his major written work, The Labor Injunction. In exploring this fact, we shall come to a conclusion of perhaps considerable value.

The study mentioned above goes far to demonstrate that Frankfur ter's book was thoroughly meretrici ous: massively, and pretentiously documented though it appeared, the book was actually all show and no substance. Despite its mountainous footnotes, charts, and appendixes, the book was full of untruths, half truths, and distortions; not withstanding its scholarly appear ance, in the end it was no more scholarly or cautious than the rabid editorials of the Communist Daily Worker or the CIO News. For exampIe, Frankfurter repeatedly charged employers and judges with anti union animus but never bothered to examine why such animus de veloped. He referred over and over again to the ((pernicious abstrac tions of liberty and property" but nowhere showed how those ideas had brought about vicious results. An Influential Book Yet, with all its faults, The Labor Injunction has quite possibly been the most influential law book ever written in this country. Its main charges practically duplicate the five ruling myths of current labor policy mentioned earlier. Frankfur ter said that in the antagonistic employer-employee relationship, employers were exploitative; unions were the only possible protective de vices for the abused employees; but the common law judges, fired with anti-union passion and victimized by ttpemicious abstractions," were making it impossible for the unions to do the great and good work that they alone could do.

If any person can be credited with a dominant role in fixing those ideas in the American mind, Felix Frankfurter. was that person, and his book, The Labor Injunction, was the means. Even before it was pub lished, courts cited it as authority for denying injunctions against vi cious union conduct, in cases in which the obvious victims of such 1979 A STRATEGY FOR THE WAR OF IDEAS 329 conduct were employees or members of rival unions. In the succeeding fifty years since it was first pub lished, The Labor Injunction has been cited as authority for noxiously pro-union decisions literally thousands of times. Its scholarly influence has been at least as great as its legal influence. I ha ve never read any significant work dealing with the labor injunction since 1930 which does not bow first to Frankfurter's book. When the author of such a work blithely declares that the courts abused· the labor-injunction in the ttbad old days," he does not bother to cite a case as an example; still less does to try to demonstrate that such and such a case represented an abuse of the injunctive process. He merely cites The Labor Injunc tion-and proceeds from there to the most astoundingly outrageous legal proposals, confident that his premise is invincible because The Labor Injunction is his ttauthority."

The influence of The Labor Injunction spreads on and on. Since all the labor law teachers (and all the teachers of related subjects in eco nomics, sociology, and politics) be lieve The Labor Injunction to be the gospel truth and say as much to their students, the students accept its wild accusations as gospel, too. They are in no position to check its accuracy. Till recently, they could find no fully and convincingly documented refutation on the li brary shelves. Hence The Labor Injunction was bound to fix their opin ions on the subjects it treated. If they dared write a term-paper on unionism and the law without citing The Labor Injunction as an author ity, doubtlessly their teachers would slash biting comments about ~~lack of standard authority" with their red marker pens across the offend ing pages. And if in Class a student were to challenge the fullness and fairness of the Frankfurterian re search, how could he defend his ex traordinary temerity? The instruc tor would cut him to bits, and the other students would munch placid ly at the pieces.

Write Books! It has taken me a long time fully to absorb the meaning and implica tions of Mises' frequent exhortation: ttwrite books!" A solid scholarly work· on an important subject has a much longer life and greater influ ence than any living person has. It is in some important ways better than speeches, better than panel discus sions, better than articles in popular journals, better than pamphlets, better than thin monographs, better than politicking, better than any other activity measured only in the average human life-span. The only thing that comes close to sharing the advantages of a solid scholarly book is a comprehensive and detailed ar330 THE FREEMAN June ticle published in a journal which is covered by one or more of the good periodical indexes. This is not to say that people should quit writing brief articles, giving speeches, or engaging in poli tics, if that is their desire. It is only to bring attention to some of the advantages of solid scholarly work in the eternal war of ideas.

Any decent scholarly work will be purchased by all the great univer sity and public libraries. If it is really good, it will find its way into smaller university, public, and pri vate libraries. Its presence will be signalled for ages to come in the library's card-catalogue, under au thor and subject and perhaps, if the cataloguer is good, under all the major topics it treats. Its silent and passive look on the shelves is decep tive, for no decent scholar will write a serious work without at least con sulting the library card-catalogues available to him. If really serious, he will travel far and wide to find addi tiona I works on his subject. When he finds a work which he believes rele vant, if he is honest he will bring it to life. It then no longer sits pas sively on the shelves, doing nothing. It enters his mind. It may have an electrifying impact. This has often happened to me. I first ran across Henry Hazlitt's writing in a card catalogue. I encountered Mises' Human Action by chance in another card-catalogue. Life has never been the same for me. Books are not pas sive.

The Need for Exhaustive Research The country and the world are in much worse shape than necessary. Since mankind is imperfect its con dition will always leave something to be desired. But even so, things could be better than they are, de spite our inherent limitations and flaws. The correctible aspects of mankind's condition trace to faulty facts or faulty theory or both. As already mentioned, these faulty facts and theories have a long his tory, a monumental literature, and an almost universal influence. Fortunately, since The Founda tion for Economic Education was es tablished in the 1940s (at about the same time as the Mont Pelerin Soci ety was formed), a large number of institutions committed to the ad vancement of freedom and of the market economy have come into existence. These institutions are variously engaged. Some are con ducting educational programs of an academic sort, some operate on the seminar or conference system, some publish journals, usually of a popu lar kind, some publish brief mono graphs and pamphlets, and some, es sentially philanthropic institutions, provide support to the foregoing, as well as to individual authors for work which is at times quite ambi1979 A STRATEGY FOR THE WAR OF IDEAS 331 tious from the scholarly point of view.

All these libertarian programs are good. Doubtlessly, libertarianism would enjoy more success, if each were expanded. But I believe that what libertarianism must have now, if it is still to exist after the next dark generation has passed, is an extensive literature of heavyweight, exhaustive, thoroughly documented books demonstrating the fallacies and the destructive consequences of the anticapitalist policies which are now ruling the world and which are likely to bring it very close to de struction in the generation ahead. For reasons stated above, semi nars, conferences, brief articles, pamphlets, and other such ephem era will not suffice. They serve to inspire greater efforts by those they reach; they may even postpone the social destruction already so well on its way. But they cannot extirpate the queer mix of syndicalism and socialism that is now sweeping all before it. They cannot do this for largely the same reasons that you can't sink a battleship with a pop gun. The policies which are daily increasing the inanity and ugliness and insecurity of life are the prod ucts of the mountainous literature which has implanted the kinds of deeply imbedded myths listed ear lier: the myths about the natural antagonisms between employer and employee, the abusive and exploita tive character of the unhampered market, the necessity of more and ever more government in order to correct the alleged inhumanity and the inequities built into free mar kets.

All you can do in a brief article or speech or seminar is call these things ((myths." You cannot defini tively expose their mythic charac ter, you cannot annihilate their cred ibility, you cannot strip them of every pretension-by anything less than exha usti ve and defini ti ve scholarly work. The myths are too deeply imbedded, too widely shared. Throwing pamphlets at the tower ing myths which rule our times is like trying to knock down the Em pire State Building with a slingshot. It's even less promising than that. It will take generations of sound scholarship and teaching to eradi cate the worst of the fallacies which now prevail. The only way to reach those generations is by planting on library shelves books that document definitively the theoretical blunders and the historical calamities as sociated with the syndicalist mess we are in. Let those powerful books sit on the shelves of libraries where scholars and students are bound to come across them.

The Truth Will Out-if Pushed Those who participate in the war of ideas are constrained by psychic necessity to believe either in truth as an ultimate value, worth a total 332 THE FREEMAN June commitment; or, in any event, that discovered truth, cogently pre sented, will ultimately triumph; or probably in both, in varying propor tions. Real engagement is otherwise unlikely, for there can be no such thing as sustained effort without strong conviction. We posit a situation, such as the present, when drastically false con ceptions of both theory and histori cal fact prevail. We posit also that education, particularly ((higher education" at the university level, is the dominating vehicle for the propaga tion of ideas, good and bad. Condensing a complex process to its essentials, we assert that educa tion propagates ideas either orally or by the written word. If we elimi nate that extremely rare person, th~ genuinely original teacher who con fines his propagation to the spoken word, never committing his discov eries to permanent written form, the ultimate vehicle of propagation is the written word. This has to be true because the total sum of ruling ideas in all fields of systematic knowledge has been produced in a proportion of at least 99:1 by persons now dead.

The expression ((there is nothing new under the sun" probably over states the case. But not by much. Oral Transmission Limited Many important ideas and factual assumptions are handed down across the generations by word of mouth. Still, one may doubt whether a single such idea or assumption is either confined to oral tradition or transmi tted mainly by word of mouth. Complex theories or factual beliefs are hard to convey exclu sively orally. The teacher commonly says at a certain point in every oral discussion: ((forfurther development of this complicated matter, see so and-so at chapter or pages so-and so." Thus even orally propagated ideas and assumptions are at least complemented by published litera ture. If there is in existence a substan tialliterature which controverts the theories or facts promulgated by a teacher, he ignores that literature at his peril. An enterprising student more than likely will run across the challenge and may take pleasure in embarrassing the teacher with the discovery. Or a colleague in the de partment or at another school will expose his violation of scholarly tra dition.

The situation is different if there is no substantial literature which controverts the prevailing or thodoxy. Recent history is instruc tive for the strategist in the war of ideas. We have learned that there is no such thing as a truth settled once and for all, at least not in the field of social policy. That the case for laissez-faire capitalism may have been completed in the 150 years between Hume and Bohm-Bawerk 1979 A STRATEGY FOR THE WAR OF IDEAS 333 obviously did not guarantee the dominance of laissez-faire in the 20th century. In the world of schol arship as in politics, apparently, the idea implied in the expression, ~tbut what have you done for me lately," prevails. Restate the Truth The conclusion seems clear: upset ting a fallacious orthodoxy cannot be left to the literature produced by past generations. This does not mean that everything written as of 1900 is no longer of any value. It means that truths stated in 1900 must be restated in 1979 if a con trary fallacy then prevails. It is not enough to say that Keynes is t~de_ molished by Say's Law." It is not even enough to say that Nader's consumerism was exposed as fal lacious much earlier in this century by Professor Hutt's description of free-market capitalism as the sys tem ruled by consumer sovereignty.

The strategic rule, then, seems -to be that current fallacy must be ex posed by current exposition of the truth. More than that, to overthrow a current fallacy requires a powerT. S. Eliot ful, thorough, exhaustive, definitive exposition of truth-for otherwise a strong and widespread orthodoxy finds it easy simply to ignore the truth. Think of how the works of Mises have been ignored, despite their compelling, diamond-like pre cision and lucidity. The war of ideas like the war between good and evil goes on and on. Nothing is permanently settled. Each new-born child, each new gen eration, comes naked into the world, as bereft of the moral and intellec tual virtues as it is of clothing. The child and its companions in each generation are endowed with a po tential and little or nothing more. Those who wish to see that potential flower in truth and goodness must work at it. If sound theory and accurate facts are to displace the ignorant non sense now prevailing in the field of public policy a mountain of current literature must be raised, a moun tain so high that even degenerate university teachers cannot risk ig noring it.

As Mises said ~~write books!"--or encourage others to do so. @ IDEAS ON UBERTY IF we take the widest and wisest view of a Cause, there is no such thing as a Lost Cause because there is no such thing as a Gained Cause. We fight for lost causes because we know that our defeat and dismay may be the preface to our successors' victory, though that victory itself will be temporary; we fight rather to keep something alive than in the expecta tion that anything will triumph.

Oscar W. Cooley Inflation Fighters Bark Up The Wrong Tree THE WAR against inflation, as waged by the United States government, is in reality a war against the forces of supply and demand. The identity of the enemy is missed by Washington. Hence, it is not surprising that. no ground is being gained. Inflation is the over-supply of money in relation to the demand for money; it is not the rise of prices. For this reason, the wage and price guidelines, which are directed at the rising prices of goods and services, are irrelevant. They call to mind a coon dog barking up the wrong tree. And mandatory price controls, which Alfred Kahn keeps telling us are undesirable, but may become ((necessary," would also miss the mark, for the same reason. Mr. Cooley is Associate Professor of Economics Emeritus, Ohio Northern University, Ada, Ohio. 334 Prices have not risen uniformly. The prices of farm products rose on the average by 40 percent in early 1979. In the same period, the price of coffee beans fell. If inflation is a rise of prices, why did not the price of soybeans and of coffee beans rise at the same rate?

The answer, manifestly, is that the forces of supply and demand impinged differently on soybeans and on coffee. This may have been due to weather, war, different de grees of government meddling with markets in the U.S. and in Brazil, or to a multitude of other causes, spe cial to each commodity. The combi nation of market forces, in the case of soybeans, pushed the price up ward, while in the case of coffee the opposite occurred. Every individual good and service faces its own forces INFLATION FIGHTERS BARK UP THE WRONG TREE 335 of demand and supply and, these being the determinants of price, its own pattern of price changes. This is normal and healthy. Inflation, on the other hand, is neither normal nor healthy. It is a disease, specifically a disease of money. It is not the effect on price of changes in demand and supply of this and that good. In truth, it is totally unrelated to these fluctuat ing market forces. Inflation affects all goods alike-all goods for which the inflated money is exchanged.

That inflation is tied to money, not to goods, is indicated by the fact that each nation has its own unit of money--d.ollar, franc, yen-and each nation likewise has its own rate of inflation. These differ widely. While the United States has inflation of maybe 9 percent per year, Britain has 18 percent, Brazil 30 percent. But a staple commodity such as wheat or cotton, has a world market price, which is virtually the same-adjusted for varying costs such as transport-in all countries. This world market price is a resul tant of the world market forces of supply and demand, not of the infla tion force which prevails in anyone country due to mismanagement of the money in that country. Admittedly, inflation pushes prices up-this is why rising prices and inflation are so often equated-but it is a quite different Hpush" from that exerted by demand and supply. Drought may affect the demand and supply equation, but drought surely is not the cause of inflation.

A useful analogy is that of the tide and the waves. Throw a cork into the ocean. The cork will rise and fall as a result of two entirely distinct forces: the tide, which is a rise in the general level of the ocean over a vast dimension-a rise caused by the gravitational pull of the moon; and the waves, which are rises of vary ing degrees at various points on the ocean's surface, caused by the winds as they impinge on those points. Inflation may be likened to the tide, while the varying changes in prices of individual goods and ser vices are the waves, kicked up by the winds, which are local in nature and fickle in force and direction. Our cork may run into a gale and be hoisted accordingly, or it may en counter a calm, its level changing little. In either case, the tide will be operating under it, causing it to rise gradually but inexorably as the tide comes in. Although the tide and the waves both affect the cork, they are totally unrelated to one another. So also are inflation and the demand-supply force. They are as little related as deficit financing is to drought.

To·continue.the analogy: it is pos sible to calm the ocean's waves at anyone point by pouring oil on the 336 THE FREEMAN water. Now the cork would not rise on a comber because there would be no comber. But the oil would not have the slightest effect on the tide. That would come rolling in as usual. Price and wage guidelines are a typical oil-on-water exercise. Using enough oil-including a generous portion of bear oil-one might smooth out a few waves, temporar ily, thus modifying the rise of this or that cork, but all the oil in Saudi Arabia would not smooth out the tide. The same would be true of man datory controls. Here and there they would modify a price or wage change, but they would have as lit tle effect on inflation as oil on the ocean would have on the gravity of the moon. Inflation is dilution of the nation's money, as a result of over production of money units. Each unit, because of its excessive supply, loses value.

This dilution, in turn, is a result of the desire of government fu.nctionHans F. Sennholz aries to spend more money than the taxpayers provide. Congress has again raised the limit to which the national debt may legally climb. This is to accommo date the ever-present desire to spend more dollars than are in the Trea sury. That more will be created, generating more inflation. But Washington dislikes to have the American people realize that the government itself is causing the in flation, and so it assiduously spreads the notion that the rising prices con stitute the inflation. People con clude that the Arabs are to blame because they have hiked the price of petroleum; the weather is at fault because it did not grow more fodder and consequently farm prices rose; the businessmen especially are re sponsible because in their greed they have jacked up the prices of manufactured goods. Never is the relation of the money supply to inflation acknowledged by a Washington bureaucrat, seldpm by a journalist, and only occasion ally-sad to say-by an economist. @) IDEAS ON UBERTY STEP by step the federal government has assumed control over our monetary system. It thus captured a potent source of revenue and a vital command post over the economic lives of its people. This is why every friend of freedom is dedicated to the restoration of free money which is also sound money. It is the gold standard.

To forge an effective food policy we will need to ... determine what people's nutritional needs are and what levels and types of production are necessary to meet those needs. This will require an ability to trans late nutritional needs into produc tion terms . ... A new food policy must reassess which areas ofagricul ture are supported and promoted. In the future, the basis of such deci sions must be to meet nutrition and trade needs. This will necessari~y involve a reorientation of production patterns. (From a speech by Carol Tucker Foreman, Assistant Secre tary of Agriculture). These statements were made at the opening session of the 1977 USDA Food and Agricultural Out look Conference. The implications of this proposed bold new food policy are far reaching and have received Dr. Pasour is Professor of Economics at North Carolina State University at Raleigh. E. C. Pasour, Jr. NUTRITION PLANNING little attention in the press and even less by policy analysts. It should be stressed that Foreman's comments do not represent an aberration of Administration policy but appear to be fully subscribed to by Secretary of Agriculture Bergland: We intend through our research to build a constructive nutrition program from the facts ... We want to know how much animal fat, how much sugar, how many eggs it's wise for a person to eat.

Then we're going to build a new farm policy based on these truths. The full implications of the policy approach visualized is apparently not recognized even by the propo nents. The idea that the USDA or any other agency can determine our dietary needs and then reorient pro duction to assure that these dietary requirements are met represents misplaced hubris in a country where consumer sovereignty holds sway. The proposed policy faces three crit337 338 THE FREEMAN June ical shortcomings-information problems, restrictions on individual choice, and the planner's illusion. Information Problems The first step in the proposed pol icy is to determine the components of a proper diet, i.e., determine ~~peo pIe's nutritional needs." Even this first step, however, is fraught with difficulties. There is a great deal of controversy among nutrition ex perts both about the state of current diets and about the effects of various proposals to alter these diets.

Concern about current diets was manifested in the widely publicized report of the Senate Select Commit tee on Nutrition and Human Needs. Gilbert Leveille, Chairman of the Department of Food Science and Nutrition at Michigan State Uni versity disagrees with the thrust of this. report and other allegations about the quality of the U.S. diet. The American diet today is better than ever before and .is one of the best, if not the best in the world today .... We have virtually eliminated morbidity and mor tality from acute nutritional deficiencies (Leveille cites pellagra, rickets, and goi ter as examples) .... We have seen a remarkable increase in the life expec tancy of the American population. We have seen many improvements in the quality of our food supply as measured by its safety, wholesomeness and vari ety, it is unparalleled in the world today. (Speech presented at USDA Outlook Conference, November, 1977) Dietary Goals The lack of consensus by nutrition experts on the effects of dietary mod ification is illustrated by the set of dietary goals proposed in 1977, by the Senate Select Committee. A re duction in overall fat ~~from approx imately 40 percent to about 30 per cent of energy intake" was among the dietary goals proposed. Leveille contends that the case against ani mal fats as a cause of heart disease is unproven and that the goal of substituting polyunsaturated fatty acids for saturated fat consumption represents ~~a risk which has yet to be fully evaluated." Leveille also disagrees with the committee's goal concerning reductions in salt and sugar intake as well as the proposed goal involving a shift from foods of animal origin to those of plant ori gin. These examples illustrate the disagreement among nutritionists as to the potential impact of specific dietary changes.

Another problem in determining proper diets is that tolerances and requirements for specific nutrients and foods vary widely between indi viduals. The Senate Select Commit tee, for example, recommended a re duction in salt use as a means of reducing the incidence of hyperten sion. However, there is no consensus among nutritionists as to the pro portion of the population whose blood pressure would be influenced by salt intake. As Leveille states: 1979 NUTRITION PLANNING 339 It should also be recognized that not all hypertensions will respond to a reo duction in salt intake. Further, virtually all professionals examining the dietary goals of the Select Committee are in agreement that the recommended level of salt intake of three grams per day is excessively low and represents a level which is not achievable. The goals developed by the Senate Select Committee imply that nutri tion goals have not been important in the U.S. because we have had no Hnutrition plan." However, there have long been diet guidelines in the form of Recommended Dietary Al lowances (RDA's) initially estab lished by the National Research Council in 1941 (and periodically revised). These RDA's represent an ·attempt to meet the dietary re quirements of ((virtually the entire population" and are subject to the problem tha.t tolerances and re quirements vary widely between in dividuals. Assuming the RDA's are known, these data along with in formation on nutrients and prices of various fruits, vegetables, and meats enable individual consumers to meet the RDA's in a variety of ways depending upon individual tastes and current prices. The fol lowing discussion demonstrates that the best diet for an individual con sumer cannot be determined solely on the basis of RDA's.

The idea of a ((national diet" as sumes away problems associated with individual differences. Even if nutrition experts were able to agree on the components of a well bal anced diet, different nutrient re quirements can be satisfied in a vari ety of ways. Protein, for example, can be obtained from various meats as well as from peas and other veg etables. Similarly, virtually all nu tritional requirements can be met from a range of foods. Thus, mere knowledge of nutritional require ments reveals little information about which specific foods will be chosen by individuals to consume to meet these requirements since food consumption by individuals is heavily influenced by individual taste as well as by nutrient availa bility. The most reliable information we have about people's food prefer ences is revealed through their market choices. Restrictions on Individual Choice In a free society, welfare is defined in terms of the welfare of individ uals. This individualistic approach assumes that the individual con sumer is the best judge of his own welfare. The individualistic ethic implies free choice of diet.

Free consumer choice presents an insurmountable obstacle for any pol icy which attempts to base agricul tural production policy on individ ual diets. Dietary requirements, as suggested above, can be met in a variety of ways. That is, RDA's of 340 THE FREEMAN June various nutrients can be obtained from a wide variety of fruits, vege tables, and meats consumed in many different combinations. Indi viduals, based on their tastes and preferences and market prices, will choose widely different combina tions of goods to satisfy specific nutritional goals. This poses several problems for planners attempting to base agricultural policy on nutrition facts. First, there is no way for the nutrition planner to determine how much of which foods everyone in the country should eat. Second, when allowances are made for differences in individual tastes, and the wide range of ways in which various foods are eaten, ~~nutrition facts"

provide little guidance concerning which foods to promote through public policy. Third, the proposed approach ignores political realities which will inevitably arise when congressional action is taken to re duce beef, tobacco or peanut con sumption. The idea of basing levels and types of agricultural production on nutritional needs C~translating nu tritional needs into production terms") can only be successful if there is a way of insuring that the nutrition plan is implemented. Thus, to successfully translate nu tritional needs into production terms, the Foreman-Bergland plan must determine which foods constitute the ~~national diet," the amounts required of those foods, and then en sure that those foods are produced and consumed-it must dictate in dividual diets. The Planner's Illusion Secretary Bergland has stated that the ~~USDA does not intend to dictate diets for the people." How ever, the USDA has been noticeably silent as to how nutritional needs will be translated into production terms so as to meet ~~nutrition and trade needs."

Nutrition planning faces the same limitations as other forms of central planning. The idea that a central planner can determine a nutrition policy based on nutritional require ments and then develop a food policy .based on these requirements is an example of what Professor Hayek calls ~~scientism"-the extension of scientific techniques and methods applicable in natural sciences be yond their proper boundaries to in clude all human acti vity. In the present co~text, there is a basic dif ference between nutrition planning for livestock and for people. The concept of nutrition planning is being successfully applied in feeding livestock. Mathematical programming techniques are used to formulate least cost diets for cattle, broilers, hogs, and so on. The animal scientist can provide information on nutrient requirements for various classes of Iivestock and feed 1979 NUTRITION PLANNING 341 specialists have information on nu trients provided from various feed sources including corn, oats, wheat, protein supplements, and the like.

Given data on nutrient require ments, nutrient availability fronn. various feed sources, and market prices of the product and various feeds, the least cost diet is reduced by a mathematical problem which can be rapidly solved by electronic computer. The analogy between formulating least-cost livestock rations and planning human diets, however, quickly breaks down. Most people would insist that palatability con siderations are much more impor tant in the diets of people. Further more, allowances for individual variation in tastes and preferences in human diets are crucially impor tant in all but the most totalitarian of human societies. If consumer choice is deemed to be important, there is no way for the nutrition planner to determine op timal diets for individuals. If the planner were given data on con sumer tastes, prices, and nutrient requirements, nutrition planning is reduced to a mathematical problena and nutrition planning is possible.

These data are, of course, not given to the planner. Furthermore, no al ternative to the price system has been discovered as a way of coor dinating and transmitting informa tion concerning individual tastes and preferences from consumers to producers (or planners as Hayek demonstrated 40 years ago). Ra tional nutrition planning of the type visualized is impossible in the same sense that central economic plan ning is impossible-it is not consis tent with the aim which it is intended to serve. There is no way to successfully Htranslate nutritional needs into production terms" while maintaining individual freedom of choice. The Variability of Needs Despite the seemingly obvious problems of nutrition planning, the illusion that central planners can plan production for consumers more efficiently than the market dies hard. Unless individual freedom and choice are ignored, human action cannot be planned and predicted in the same way as phenomena in the natural sciences. The idea that the planner can obtain enough informa tion on nutritional requirements, individual tastes, production re quirements, trade flows, and the like, in such a way as to determine ~~what levels and types of production are necessary to meet those needs"

represents an illusion which has much potential for mischief even though it is incapable of achieve ment. Government policies can surely affect the pattern of agricultural production. However, there can be 342 THE FREEMAN June no assurance that a change in pro duction of particular crops will have the desired effect on diet. For exam ple, corn can be processed and con sumed (among other ways) in the form of canned corn or in the form of sweetened breakfast cereal. Many nutritionists would favor an in crease in consumption of the former and a decrease in consumption of the latter. A policy of subsidizing corn production, however, might be ex pected to reduce the price and in crease consumption of all corn prod ucts. Similarly, the dietary implica tions of increasing production and consumption of potatoes, wheat and many other ,products are ambiguous. It seems obvious that Draconian measures would have to be used to achieve the kinds of dietary changes envisaged by Ms. Foreman. How, for example, would the regulator limit the use of salt? By prohibiting the use of salt on potato chips, french fries, peanuts, and so forth? By limiting the consumption of these products? Or, by selling salt on a prescription basis?

How is the use of sugar to be reduced? By limiting the use of sugar in cereal, candy, cake, and so on? Or, by limiting the consump tion of these products? The amount of regulation involved in ensuring that dietary goals are achieved is staggering to contemplate. Even if there were no other prob lems, political implementation of a nutrition plan would be a formida ble obstacle. Policy is inextricably involved with politics and political considerations will impinge on the decision-making process at all levels. This was clearly demon- . strated during 1978 by the widely divergent attitudes of various gov ernment officials in the Carter Ad ministration toward the tobacco price support program. Conflicts are inevitable given the different con stituencies of HEW, USDA and other government agencies. Thus, ((nutrition planning" as a basis for policy faces formidable political as well as economic barriers.

The Problem Persists In view of these seemingly insur mountable political and economic problems involved in nutrition planning, why have these problems been largely ignored by public offi cials? The illusion of the planner is nothing new and was clearly fore seen by Adam Smith 200 years ago: The man of system ... seems to im agine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board; he does not consider that the pieces upon the chess board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon 1979 NUTRITION PLANNING 343 it. (A. Smith, The Theory of Moral Sen timents). The illusion of central planners today appears remarkably similar to that held by Smith's ((man of sys tem" 200 years ago.

Conclusions The need for diet information is obvious. In developing sound dietary practices, consumers need informa tion on dietary requirements as well as nutrients available from various foods. The question is not one of whether diets will be planned but rather of who will plan individual diets. Nutrition planning is but one example of central planning. Th.~ problems of Htranslating nutritional needs into production terms" are fundamentally the same as those identified in the ((market socialism" debate of the 1930s. Information problems are quite as troublesome in nutrition planning as in other types of central planning. The indi vidualistic ethic means that indi vidual diets must vary according to individual tastes. The nutrition planner has no way of determining a priori how individuals will respond to nutrition information. There is a vast difference between providing dietary information to consumers and ((nutrition planning"

in the sense of attempting to re·· orient agricultural production based on a national dietary plan. If only diet information is provided to indi viduals, there can be no assurance which foods will be chosen to meet various dietary requirements and, consequently, how much of various foods will be consumed. Knowledge of how to ((reorient production pat terns" so as to «meet nutrition and trade needs" requires information on amounts of various foods which will be consumed, sold in the inter national market, and imported. The quantity of a food consumed, produced, imported, or exported hinges to a large extent on price. Thus, ((translating nutritional needs into production terms" means that the planner must be able to control price not only of food produced domestically, but also of food im ports. The amount of information required to implement such a plan staggers the imagination. Even if the planner could obtain the re quired information, changes in sup ply and demand conditions would quickly make the plan obsolete.

Comprehensive nutrition planning is possible in the sense that 'dietary goals can be proposed and produc tion and consumption patterns can be altered by government subsidies. However, short of dictating individ ual diets, nutrition planning is in capable of achieving the stated goal of building a new food policy based on nutrition facts. @ Jess Raley AlDazing Strange ((Now that's amazing strange," the old man said as the king snake not so much slithered as rolled away after killing and swallowing another snake that appeared to be about the same size. We-six or eight boys and three men-were skinny-dipping that long ago day and had watched, off and on, for hours as the king snake killed and swallowed its adversary. Since that time, in my own mind, the superla tive of anything unusual has been ((amazing strange." But it was almost fifty years before I experienced another incident that seemed to qualify completely.

In the state where I live the retail price of milk has been controlled for Mr. Raley is a freelance author, speaker, philosopher from Gadsden, Alabama. 344 years by an organization generally referred to as the milk board. This organization did not set a maximum price. A grocer could sell milk for as much as the customer could be per suaded to pay, but for not one cent less than the minim urn figure _de creed by the board. There was one place, a conveni ence store on U.S. 11 in the north eastern part of the state, that in sisted on setting its own price on milk. The schemes this villain at tempted in an effort to circumvent the laws passed by the milk board made good copy. From time to time the whole state was treated to a blow-by-blow account, via press and radio, of the latest confrontation be tween this rebel and the bureau cracy. Since the grocer always AMAZING STRANGE 345 seemed to lose, these accounts were very hard on the blood pressure of all devotees of a free market econ omy.

No real challenge to the milk board developed until a large in terstate chain lowered the price of milk about fifty cents a gallon over night. This lawless reprobate was brought to bay in short order, of course, but not before another chain had entered the contest and sold milk, as a leader, for $1.19 a gallon-until the law moved in. The First Round The milk board won the first scrimmage as expected, with ar rests, fines, and threats of cutting off supplies. After all, this is a nation of laws. But these actions did get the matter before a court. The chain manager who had first defied the law placed ads in various papers stating that the milk he was forced to sell in this state for more than $1.80 per gallon was obtained from the same source, at the same price, as milk sold in adjoining states for about $1.30 a gallon. This informa tion was something less than a news break, since most everyone had known or suspected as much. But when the case came to trial, the court's decision was certainly a sur prise bordering on astonishment.

The judge found that the milk board, beca use of some technicality, was illegally constituted; therefore, the laws invoked by it were null and void. In this age when more and more snoopervision makes the free mar ket less and less able to function, I hold that this court's decision was amazing strange. In the first place it injected a wee small fissure in a solid wall of laws, many years long, calculated to harass the theory and practice of a free market economy. Secondly, there is little if any politi cal clout to be gained by encourag ing the uninhibited exchange of goods: no positions created for friends, relations and supporters of the in-gang; no potential out stretched palms made available to producers and distributors. Yes, this was truly an amazing strange thing for a man of law to do in this day and age. And what was to be its effect in the market place, upon the con sumer and producer?

For the first few weeks most all grocers sold milk, as a leader, at about cost-or perhaps a few cents less as some of the large chains butted heads. The price hovered around $1.20 a gallon for some time. Then, as one grocer after another tired of the game, the price slipped into its natural slot at about $1.35, where it remained until forced up gradually, along with other produce, by the unrelenting pressure of infla tion. I watched this process from the corner of my eye, as it were, fully 346 THE FREEMAN expecting the superficial philan thropist of the milk board to bring forth a new law to protect all and sundry from the ravages of a free market. When no new law was forthcoming after several months, it appeared to be time to look at the other side of the coin; after all, a reduction of almost one-third in the price of an item must be assumed to squeeze somewhere. Special Interests Processors and distributors are re luctant to discuss the matter on a dollar basis, which is their preroga tive, of course. Those to whom I was able to talk were definitely in favor of price control, minimum price con trol, that is, on their products. In sofar as I have been able to deter mine, however, none of the state's distributors has quit or gone bank rupt.

The dairymen who produce milk-feed and milk the cows, clean the barns, mend fences, sow pas tures, put up silage, ad infini tum-were much more willing to talk. After all, these rugged indi viduals often work ten to twelve hours a day, seven days a week, in a valiant effort to make ends meet; they have nothing to hide. As a matter of fact, the price of milk at the farm was not cut when the milk board was ousted, so the actual producer is no worse off than before. Naturally, milk producers would like, and think they should have, an increase in the price of their pro duct. But, at present feed grain prices, those with whom I talked admitted that they were not hurting unduly. So, draw your own conclusions as to what happened to the extra fifty cents for each gallon of milk sold when the board was in command. Without this boon, the producer is no worse off. Processors and dis tributors are still in business and apparently doing well. The grocer is still happy; he can sell milk as high as the market will stand or run it at cost to draw more customers. Need less to say, the consumer is better off and one would think a wee bit hap pier.

The price of milk has inched up since that time, about the same as other foods to keep pace with infla tion. But it is still about fifteen per cent less than it was two years ago, and the shortage predicted by the milk board has failed to materialize. Faced with evidence of this nature, one may ponder what the bottom line would look like if all laws that in hibit the voluntary exchange of goods were struck down. More spe cifically, what would it be like to live in a free market economy? ® Perry E. Gresham Around the World ... ......................................... .-~~~ ...=..:::::.=.-..~~.•....- . I~ YOGI BERRA i~ reputed to have made the sage remark: ~~you can observe an awful lot just by lookin' !" A few days in a country can yield only an impression, but when the visit is preceded by study, and the observa tions are supplemented by inter views and visits with informed Per·· sons, the impressions may have more validity.

For eighty days I have been sailing around the world on the Queen Elizabeth 2. We have spent some time in several interesting nations such as Brazil, Uruguay, South Af.· rica, India, Sri Lanka, Singapore, Hong Kong, China and Japan. My studies in philosophy and economics have prompted me to ask many questions and look in on many pro} Dr. Gresham is President Emeritus and Distin guished Professof, Bethany College, Bethany, West Virginia. ects. The worldwide fellowship of academic people has been a great help to me. With a few exceptions I have been able to avoid talking with any of the officials who have a point of view and a position to defend. I have, with the help of a good in terpreter, talked with people in volved in the several cultural and economic activities that make up a national character and image. These impressions I have gained are of such interest to me that I feel im Pelled to share them with anybody who finds them interesting or in structive---even irritating!

It seems to me that any country in which the government is hostile to business and industry, for political reasons, damages the quality of life for the People in general. Marx is long dead and frequently shown to be wrong in his observations, yet 347 348 THE FREEMAN June politicians and bureaucrats cling to his dogmas of the rapacity, culpabil ity, and greedy self-interest of peo ple engaged in the production and distribution of goods and services for profit. Responsible persons seem never to learn the wisdom of Samuel Gompers who said, ((The company that does not make a profit is the enemy of the working man"! A gov ernment that socializes its economy kills the goose that lays golden eggs for the poor and needy. Still it goes on around the world. Uruguay is a prime example. Here is an attractive country about the size of Washington state which has just gone through the socialist wringer. It all started with a welfare program that promised everything to everybody. It was indeed reported to be a worker's paradise wherein everybody could retire at forty on a fat state pension. Private enterprise was squeezed out in favor of the system which Bastiat described as an arrangement wherein everybody attempts to live at the expense of everybody else. The State went broke. A military strong man moved in. Everything is rationed and equality is widely proclaimed, but privilege is apparent and poverty continues. The privileged few are the politicos, the bureaucrats and the leaders of the ruling junta. Peo ple live on, as they must anywhere in the world. People survive the loss of freedom and the excesses of gov ernments. But without liberty they are locked in. Without free business and industry they cannot gain free dom or mobility for themselves. How prosperous these people could be if capital could be formed, industry and trading encouraged and the people free to make something of themselves rather than to exist as the wards of the state!

Singapore shows what can hap pen to a tiny country that encour ages trade and production. That cel ebrated entrepreneur, Sir Stamford Raffles, started the little island out as a business center when political people were attempting to divide up the earth. The influence of the founder is remembered by successful enterprise as well as of the old hotel which bears his name and which inspired Somerset Maugham to write so many exciting stories cen tered in Singapore and the Rames. Poverty-stricken people from all sides come into Singapore for the same reason that southerners poured into Detroit to work for Henry Ford. The politicians, ambi tious as they are, see the need to preserve the high standard of living which successful business affords. There are some curious contradic tions wherein the government joins hands with industry to build hous ing for the workers, but when people do not work they do not go on dole.

1979 AROUND THE WORLD 349 Welfare payments are restricted to working people with the result that there is no unemployment, with the very small exception of unemploy able welfare cases. The function of government to protect its citizens from injury by anyone using force or fraud seems to be rigorously per formed. There is little or no crime; there are no beggars; there are no coddled criminals. The death pen alty is enforced by hanging. Business comes in from all over the world to bring prosperity to a little overcrowded island which has negligible natural resources. Busi ness comes because it feels secure from the raids of the politicians who have in less fortunate countries sto len the capital which has been in vested there. Overregulation and confiscatory taxation are not on the Singapore menu. Trade unions are not given special privileges under the law. Business prospers, people work, the government intervenes, but not to the destruction of busi ness by which the place lives. Civil rights are defended still by appeal to the Privy Council in London.

Hong Kong is an even better example. Here is probably the nearest thing to a free market to be found anywhere in the modern world. The government of Hong Kong is an attempt at the least possible, given the peculiar prob lems of overcrowding and geographical limits. Investment bankers for the whole world center here. Capital is placed for the oil-rich Middle East and markets are found for produc tive countries like West Germany and the USA. The limited govern ment is aimed toward providing conditions that lead to prosperity and peace. No wonder business looks this way in a world in which dedi cated bureaucrats and politicians are working-as much as they work at anything-trying to tax and regu late business out of existence. When they succeed the result is socialist business which is best illustrated by the postal service in the USA. Plato, who had little interest in democracy, saw the political process as running from too much clamor and conflict in a leaderless democ racy, moving to a socialist state, to be followed by a dictator. Sri Lanka is just emerging from the last stages of the overregulated and over socialized government. This small island about half the size of Alabama has 15,000,000 people. Tea and rice are the predominant prod ucts since natural rubber demand has diminished. Some gems of rare quality are found on the island.

Politicians promised everything and attempted to deliver, with the result that taxation and inflation could not keep the overspent budget close to balance. When bankruptcy comes in a socialist state, nobody admits it, 350 THE FREEMAN June but the stability disintegrates and a strong alternative moves in, mak ing the controls even more stifling. Some of my sophisticated friends see a glimmer of hoPe in the fact that the beleagured government may at last see the wisdom of trade and perhaps even foreign investment. Some imagination and a look around at some nearby countries might very well start the UHong Kong effect." The market, which Adam Smith called the invisible hand, operates anyw here. It is not some optional form of political economy. It is more like the law of gravity which works even when distorted and imPeded. Communist China is just now re discovering the operation of the market. When farmers were granted the right to the product of a small plot of ground, the land thought worthless suddenly became fertile and the crops were amazing. Incen tive makes for resourcefulness and effort. Farmers not only grow foodstuff for themselves but also grow enough to take to the streets and sell for cash. Now the central government is trying to open the doors to trade. How could they avoid noticing the prosperity of Taiwan in contrast to the poverty of Red China? Tourism is going to be big business in The People's Republic. I sat at dinner with the Minister of Tourism for all of China. This man has a VISIon of a tidal wave of tourists all bringing hard money into his country. The greatest need of that vast nation is for capital. A person with a broom or a shovel has only a small investment back of him. When he can have a powerful street sweePer or giant steam shovel his capital back-up will be great and his productivity will be multiplied.

Chinese traders have been famous for centuries, and they are ready to trade again if they can get the sti fling ideologists off their backs. Peo ple who write about China tend to assume that any improvement rests with the government. Get the government impediments out of the way and you will see the miracle of Hong Kong begin to operate. Japan is a study in the effect of open trading and the encourage ment of business and industry. Fifty years ago ~J apanese products were thought to be shabby if not phony. Today their technology is unsur passed in the world. At the close of World War II Japan was freed from the eXPense of a vast military estab lishment. This was a help. The peo ple were eager to work. This was a greater help. Even today the Japanese work week is six days. Electronic devices of quality are manufactured at a fraction of the cost of those produced in other coun tries. These things are not the result of sweat-shop labor, for the 1979 AROUND THE WORLD 351 Japanese workers are very well paid by any standards. Now, however:t the government effect of interven·· tion is beginning to operate. Regula·· tion and taxation together with in·· flationary government spending may very well soon reduce produc·· tivity along with product quality and Japan will be caught in the web of bureaucracy not unlike that ofthe USA.

These impressions and opInIons need the correction of more careful. observation and study, but they are enough to deepen the opinions I have long held about the nature of human wellbeing when govern·· ment intervention takes its tolL Politicians and bureaucrats are not evil people. They are out for them·· selves as a self-respecting person must be---regardless of the system .. Interest groups push for benefits and politicians promise to pass a law to spread the cost. Bureaucrats need to defend their positions and in·· crease their power and the enforce ·ment machinery multiplies with ex cessive personnel. Governments grow; the politicians promise more and more, the bureaucrats multiply and the bewitching socialist chim era enchants the people. The gov ernment overspends, the economy falters, business and industry fail and the people are in distress. The predicament is only worsened by the dictatorship which must follow.

Now and again, however, there comes a glimmer of hope. China be gins to open up and trade; Sri Lanka takes a new look at Hong Kong; Britain tries to get hold of the in flationary spiral; America takes a look at taxes and government spend ing. Plato smiles at the succession of government blunders, Karl Marx wonders what went wrong with his classless society, and Adam Smith nods knowingly as he sees reality overtake ideology. Yogi was right. ttyou can observe an awful lot just by lookin'!" , IDEAS ON UBERTY The Conditions for Progress IN a nation without a thriving business community,private wealth is generally stored in vaults, or used in conspicuous consumption, or invested in real estate, or placed with business communities abroad. But where a country's private business is not subject to Procrustean mea sures of control, this private wealth is less likely to be shipped abroad, buried, or otherwise diverted into circuits of low economic potential.

HAROLD M. FLEMING W)rld inthB grtl?Qfan Iae~ Clarence B. Carson 30. The Individual:Victim of the Idea "There's only one general feeling at Westminster [the British Par liament]. That independence must be stamped out at all costs. ... The policymakers in all three parties are in complete agreement on that."! The thrust of the idea that has the world in its grip is to take away the independence of the individual. This thrust inheres in the idea as it is formulated here as well as in the socialist way of looking at conditions which are supposed to be remedied. In this series, Dr. Carson examines the connection between ideology and the revolutions of our time and traces the impact on several major countries and the spread of the ideas and practices around the world. 352 The formulation of the idea being used here is that the aim is to con cert all human efforts for the com mon good. The only direct way to achieve this is to make the individ ual into a cog in a vast machine, to make the efforts of each individual coordinate with those of the human race. Such a coordination is only possible when individual indepen dence no longer exists or is no longer capable of action.

The animus of the idea runs deeper than this. It is, as has been stated before, to root out the pen chant of the individual to pursue his self-interest. It is a religious, or quasi-religious, aim at bottom, an THE INDIVIDUAL: VICTIM OF THE IDEA 353 aim which entails the transforma-· tion of the individual. On the socialist view, man's original sin is the pursuit of self-interest. It is:1 they think, the source of all the ills in the world. A massive effort has been made to transform men along these lines. But all efforts to eradicate man's pursuit of self-interest have been to no avail. The greater the effort to erase it, the more determinedly do men pursue their self-interest as they conceive it. There is abundant evidence that even when the most drastic efforts have been made to remove the opportunity for the pur·· suit of self-interest, in slave labor or concentration camps, for example, men continue to do so, even to the detriment of their fellows. When man is bereft of all else-wealth, family, position, the comfort of reli gion, and the amenities of society-he pursues self-interest as long as any will remains in him.

There is reason for this. The de nial of the right to pursue one's self-interest is, in effect, the denial of the right to life. Our very survi val hinges regularly on a lively interest in self. From the most primitive savage to the most urbane civilized man this has .been true. Nor could it be otherwise. Each in dividual must attend to the means for sustaining himself and avoidin!~ the dangers that threaten him. He must either see to his bodily needs, or it must be done for him. He must be constantly wary of things about him that can do him harm: fire which can burn him, water in which he may drown, high places from which he may fall, objects that may fall upon or hit him, and a thousand and one other dangers. He must be on the lookout for ways to provision himself and be on guard lest his provisions be taken from him. The Foundations of Society The individual is not necessarily alone in his efforts to survive, though he may sometimes be. Ordi narily, though, he may have help from others and render assistance in return. Society is founded upon mutual exchange and aid, and the individual finds advantage to him self both in making exchanges and rendering aid. None of this alters the fact that the individual's pursuit of self-interest is as deeply embed ded in his nature as is the will to survive, and necessarily so. There is no need to suppose that it is man's only motive, or always his predomi nant one, but whether it is or not, it is ineradicably there. Socialists to the contrary notwithstanding, the opposite of the pursuit of self interest is not the pursuit of the common good; it is the abandonment of the self to destruction.

Socialism does not succeed, then, in eradicating the individual's in herent bent to pursue his self354 THE FREEMAN June interest. It can, at most, induce him to conceal it by making hypocritical claims about the motives behind his acts. Socialism does not do what it cannot do; it does instead what it can. It does not root out self-interest; instead, it reduces and attempts to remove the means for individual in dependence. The individual has an ingrained bent toward indepen dence, too, but the means have to be available or acquired, and they can be largely removed. Independence is essential to indi vidual freedom and responsibility. Freedom without the independence to choose and act is a contradiction in terms, a notion without content. In like manner, the individual can not logically be held responsible for acts not freely and independently done, nor can he assume respon sibilities without a measure of inde pendence. As a practical matter, freedom consists of the right of the individual to dispose of his own energies, employ his faculties, use his own resources-that is, manage his own affairs-for his own good and constructive purposes. Respon sibilityentails both attending to those obligations which arise from his situation and taking the conse quences of his acts. Socialism vic timizes the individual by its con tinuing assault upon his indepen dence. Tacitly, socialism promises freedom withrut responsibility; in fact, it takes away the meansindividual independence-for exer cising either.

Organization and Numbers Socialists use two devices mainly both to undermine and take away the independence of the individual and to instrument him as a cog in a wheel. They are organization and numbers. The discussion of numbers will be deferred for later treatment so that we can focus on organization here. The most basic and comprehen sive organization used by socialists is government, but all organizations are utilized to the extent that they can be. The secret police in Russia are referred to as ~~the organs" by people generally. This is a most ap propriate nomenclature for them. They are organization in its most completely diabolical form. They are a secret society, in effect, empowered by the rulers to use whatever means are necessary to bring the populace to heel. Communists use all organi zations to this end, some more direct ly than others, but all of them in some way. Gradualists tend to inter penetrate all organizations, control them, and make them instruments of government power.

To understand how organizations have been used and the impact they have on the individual-plus why socialism fails-it will help to look at the nature of organization, not just governmental organizations, 1979 THE INDIVIDUAL: VICTIM OF THE IDEA 355 not just organizations penetrated by government, but organization itself. It is a subject needing much deeper treatment than can be given to it here as well as much more thorough analysis. Much of the trouble in these times can be ascribed to our failure to limit organizations and assign responsibilities clearly within them. We have tended to venerate organizations and to sup·· pose that any ills arising from them can be attributed to abuses of them. Or again, we seek to counter organi·· zation with other organizations, and the effect is often enough that thE~ individual tends to get crushed by contending organizations. Hence, at least a sketchy understanding of or·· ganizations is to our purpose here.

One Man in Charge It is in the nature of the organiza tion that there should be one person at the head of it. Attempts to have several people with coequal author ity at the head do not work out well. Such an arrangement sets the stage for a struggle in which one person finally emerges as the recognizable head. The most dramatic illustra tion of this principle has been what has happened in the Soviet Polit bureau when the Premier, or what ever office the head might hold, died. There would be solemn decla rations that henceforth the Polit bureau would operate on the princi pie of collective responsibility. j.~ struggle has ensued each time, and at the end one man has emerged as the leader. This is generally the pat tern for every organization what ever its size, though the struggles may not be so dramatic or have such far reaching consequences. Every organization of any consid erable size is hierarchical. That is, there is some sort of chain of com mand, or whatever it may be called, through which the determinations made at the top are passed down through the ranks. The hierarchy may be rigid and clearly visible to everyone, as in a military table of organization, or it may be much more subtle and informal. Indeed, some heads of organizations are so determined to hold all power that they never allow any dispersions of it to become clearly settled any where else. This is one of the hallmarks of an arbitrary and des potic organization. Be that as it may, all sizeable organizations have some sort of hierarchy.

Whatever its purpose, any organi zation has one other characteristic that it is essential to grasp. The organization is a device for exercis ing control through or over those within it. This control has a confin ing impact on individuals. By direct ing and controlling individuals, or ganizations tend to restrict the in dependence of the individual and take away from him the manage ment of his affairs in those areas to 356 THE FREEMAN June which the organization extends. To put it another way, an organization tends to confine the acts of the indi vidual within limits set by those at the top, and what gets done tends to be limited to the vision of a single man. The Family and Government All societies have had some form of organization. Indeed, two organi zations are essential to human soci ety: the family and government, the family as a means at least ofnurtur ing the young and probably caring for the old, and government for keeping the peace and protecting from aggression. Family and gov ernment are probably the models for all other organizations. Complex societies have often had a consider able variety of organizations: ar mies, religious organizations, trade guilds, industrial enterprises, and so on. In looking back on them, we usually see readily how they lim ited, restrained, and confined the individuals within them. For exam ple, it is easy for us moderns to percei ve the confining character of the Medieval manor, the guild, the monastery, and other such organiza tions. Indeed, the authority of the Medieval Catholic Church seems to most of us to have entailed great restrictions on the liberty of the populace in general.

It is most unlikely, however, that the generality of men at that time viewed the matter in that light. Or dinarily, the organizations within which they lived and labored were a part of the parameters of life; one might as well complain of floods or droughts as of the manor, the guild, or the church. Undoubtedly, man complained of the hardness of par ticular overlords or the limitations of some particular restriction especially if it were new-, as they are ever given to doing; but the general framework was accepted as a thing established of God and its doings hardly distinguishable from acts of God. It is only when ar rangements have been unsettled as by some catastrophe, such as the Black Death which swept Europe in the fourteenth century, or the con frontation with other cultures, such as happened following the discovery of America, or the decay of some vital institution, such as that of the Catholic Church in the fourteenth and fifteenth centuries, that men are apt to resent and resist the confine ments generally.

Transforming Man A specter has been haunting Western Civilization since the time of the French Revolution. It is the specter of the transformation of man. The catastrophe entailed was forestalled following the French Revolution, but the residue left from that and other efforts has been gain ing ground since the late nineteenth 1979 THE INDIVIDUAL: VICTIM OF THE IDEA 357 century and has now spread to the whole world. It is here referred to as the idea that has the world in its grip. The idea gains control in part by taking over organizations and using them to ends implicit in the idea. The revolutionary ardor of those under the sway of the idea is usually expressed as an assault upon our received organizations generally. (For example, some nineteenth cen tury socialists were so anti government in their animus that they became. anarchists.) This con tinually misleads us, and perhaps them, as to what they are about.

Once those under the sway of the idea are in power we may learn, however, that their object was not to destroy organization, as such, but to use it to extend control over the individual, to sap his independence, and take from him the management of his affairs. True, revolutionaries sometimes crush particular organi zations, but that is only as prelude to replacing them with others more effective for their purposes. It is as apPendages of organiza tions that contemporary man is most vulnerable to the thrust of gradualist socialism. It is by way of his dependence on organization-for his job, for his education, for his pension, for his sustenance-that the individual is drawn into the maw of the state. Economic inde pendence underlies all independence. cCFor economic indepen dence," as C. S. Lewis said, Hallows an education not controlled by Gov ernment; and in adult life it is the man who needs, and asks, nothing of Government who can criticise its acts and snap his fingers at its ideol ogy. Read Montaigne; that's the voice of a man with his legs under his own table, eating the mutton and turnips raised on his own land.

Who will talk like that when the State is everyone's schoolmaster and employer?"2 Since the thrust of gradualist socialism may not be to ward the state's becoming everyone's employer, it might be better to modify it to say when the state controls everyone's employer. Communism, of course, makes everyone under its power into an appendage of its organizations. Platform for Collectivism What I am getting at is this: It is the prevalence of organizations in modern life that set the stage for the triumph of collectivism. It is the modern dependence upon and ven eration of organization that has paved the way for the fastening of the grip of the state upon us. It is the very control over the individual that is characteristic of organization that socialists use to build upon. This control is a disadvantage in all or ganization, even as it may be the means to strength of the organiza tion, and it is the primary reason for 358 THE FREEMAN June the economic fail ure of socialism.

Let us look at the impact of this control more closely. There is a usually unstated prem ise which undergirds the belief in organization. It has sometimes been phrased this way and, if memory serves, Marx so phrased it: The whole is greater than the sum of its parts. (This is a variation on the mathematical axiom that the whole is equal to the sum of its parts.) There is a sense in which this is true when an organization or collective is considered as a whole and men are considered to be parts. An organization is much more ef fective in intimidating, coercing, re straining, and exerting force than are the same number of individuals in their separate capacities. A small army can conquer a large populace which has no organized military force. Indeed, a few bandits, under the control of a leader and prepared to use force, can intimidate and ter rorize a community. Massed pickets of a labor union can stop production in a whole industry. The principle which underlies the effectiveness of organization can be stated bluntly this way: An organizational whole is greater than the sum of its parts in its destructive potential.

The principle has a most impor tant corollary. It is this: An organi zational whole is less than the sum of its parts in its constructive poten tial. It is the belief to the contrary that undergirds collectivism. The idea that has the world in its grip holds that if all efforts could be con certed the results would be of a magnitude incomparably greater than would those of individuals act ing independently from one another. But the very attempt to concert all efforts by organization runs athwart the above principle. The Failure of Socialism The validity of the principle-that the organizational whole is less than the sum of its individual human parts in constructive potential-has been dramatically illustrated in the Soviet Union. Virtually all of the land in the Soviet Union is in the hands of the state and the work force is organized either in large state or collective farms. But the farming people have been allowed from time to time to have small plots from which they as individuals or families are permitted to keep and sell the produce. The difference be tween the produce from these tiny plots and the giant farms was sum marized this way by Eugene Lyons: According to the government's own figures ... , private plots with a mere 3 per cent of the nation's sown acreage accounted for 30 per cent of the gross harvest, other than grains; 40 per cent of all cattle-breeding, 60 per cent of the country's potato crops, 40 per cent of all vegetables and milk, 68 per cent of all meat products. Their fruit yields ... are 1979 THE INDIVIDUAL: VICTIM OF THE IDEA 359 double those of state orchards for equiva·· lent areas, its potato harvest per hectare two-thirds higher than on collective farms. Even in grain, which is a very minor element in the private sector, it produces one-third more per sown unit than an average socialized farm. 3 The reason for these dramatic dif·· ferences can be readily explained.

When an individual is working on his own plot, managing his own af·, fairs, and receiving the fruits of his labor, the effort can engage the full potential of the individual. It en·, gages his intelligence, his in genuity, his knowledge, his skills, and his watchful attention. (Watch· ful attention is often decisive in farming; tending and harvesting at the right time can make a great deal of difference.) Limiting Human Initiative We see from this example, too, the reason for the validity of the princi pIe. Organizations are unable to muster the full constructive effort of the individuals within them. Any organization tends to subject the in dividuals who are to do the construc tive work to the determination of those higher up in the hierarchy, and ultimately to a single man. By so doing, it tends to limit the extent to which the individual can and will put his whole attention to it and apply all his capabilities.

The principle, then, has the look of being universal, of applying to every sort of organization, govern mental and private, and I believe it is. That is, an organization will get less constructive results from a given number of individuals than those individuals could produce if they were managing their own af fairs and assuming full responsibil ity for them. We know from experi ence, of course, that such universals require for their validity the univer sal qualifier-all other things being equal-as well. That is, a given number of individuals acting on their own could produce more than the same number organized, if there are no supervening factors. The criti cal supervening factor in the mod ern world has been the widespread and ever more extensive use of capi tal, i.e., tools, equipment, technol ogy, and supporting materials. With capital, the principle is modified to read: A given number of individuals with capital in an organization can produce more than the same number without capital acting on their own.

The Will to Do The operative word, however, is can, not will. This qualification moves us back nearer the principle from which capital tends to pull us. The farm workers on a Soviet state farm often have a great deal of equipment-tractors, gangplows, harvesters, and so forth-for use on the state lands which is not avail able on their own small plots. The 360 THE FREEMAN June disparity in production has to be accounted for in other terms than those of capital. Whether organized workers with capital will produce more than those acting on their own without capital depends on the extent of the control over them and the incentives they have to produce. The tighter the control over them the less opportu nity there is for individuals to exer cise their constructive potential. The more remote the workman is from ownership of capital or receipt of the fruits of his labor the less incen tive he has to produce. The greater the force exerted the less are the constructive returns. To turn it around, well paid workers who have freely chosen their employ and have leeway in going about their work along with being held individually responsible for what they produce may come close .to realizing their constructive potential within an or ganization.

Even so, if the principle is correct, organization introduces a drag on the constructive potential of indi viduals. Large doses of capital may compensate for or hide it. Where complex operations are involved, many of the disadvantages of or ganization may be offset by combin ing the efforts of individuals with diverse skills and specialties in uniquely productive ways. This is a way of saying that capital and specialization can temporarily COttlpensate for the drag of organization. The organizational drag remains, however, and in a never ending ef fort to overcome it we are pressed toward ever greater capitalization and specialization. Bureaucratic Drag We castigate one of the aspects of organizational drag as bureaucracy. Unionization adds the drag of an organization to organizational drag. Governmental privileges, subsidies, preferences for capital, recognition and aid to organizations, and use of power to facilitate the operation of organizations tend to help over come organizational drag. Govern mental control and regulation tend to add to the organizational drag.

In a free market, there would no doubt be organizations. They would come into being where complexity of getting the job done tended to favor organization. But they would be open to continual challenges by in dividuals and partnerships who would have the natural advantage of engaging their whole beings in the effort. This would tend to press organizations always in the direc tion of giving more leeway to their employees in the performance of their work and placing more respon sibilities on them. Indeed, organiza tions would be pressed in the direc tion of renting out or selling their equipment and contracting the tasks on a piece work or project work 1979 THE INDIVIDUAL: VICTIM OF THE IDEA 361 basis. The market tends to reward constructive effort and penalize de structive effort; thus it presses al ways in the direction of individual ownership, control, and responsibil ity. What has all this to do with the idea that has the world in its grip? It lays the groundwork for under standing how the individual is held in the grip and subdued, what the impact of governmental control is, and points the way toward restoring the independence of the individual.

The most direct relevance is this. Business used organization to inte grate manufacturing and distribu tion of goods. By so doing, it pro vided the basic idea with which socialists have been enamored since the late nineteenth century, namely, of concerting all effort through organization and ulti mately by the use of the force of government. The factory system provided the model of economic or ganization for socialism. To see how this happened, it will be helpful to review a little the history of the rise and character of that system. The Factory System The factory system had forerun ners in mines and mills, but it took definite and distinct form in the tex tile industry in England in the late eighteenth and early nineteenth centuries. From there, it spread to other countries. The crucial thing that happened was the concentra tion of production in central loca tions, in factories. Theretofore, most textile manufacturing had gone on in homes, and if it was done for sale, it was often handled in what was called the ~~putting out" system.

~~Factors" put out raw materials to workers in their homes, and the yarn or other products were then picked up and paid for from time to time. The workers were what we would call self-employed, providing their own simple equipment and housing (capital), doing the work themselves, and being paid by the quantity they produced. A critical change occurred when production .was moved into factories. Why production was moved into factories is not difficult to explain. There were several inventions-the spinning jenny, the ~(mule," and an assortment of other machines which made it possible for a given worker to produce much more in a given span of time. Much of this equipment not only required a greater outlay of capital than had earlier devices but also it could be much more effectively utilized with greater energy than humans could exert. Falling water provided the power for early textile factories, and it was the quest for this power that induced entrepreneurs to concen trate manufacturing (a word which originally meant hand-made) in fac tories.

362 THE FREEMAN June The factory system was a mixed blessing, if blessing it was. There is no question but that a great increase in production took place with this innovation. Goods poured forth from it in such quantity that people from every walk of life were able to have more and better clothes. Finan cially, too, the factory system was a great success; it was the foundation of increasing prosperity in England, and before long in other lands of the West. The Dark Side There was, however, a nether side to this development. It was in the character of work life in the textile factories. Much has been written about the harshness of conditions in these early factories, of small chil dren chained to machines working from dawn to dusk, of pallid and pinched faces rarely touched by the sun, of girls for whom the flower of youth was nipped in the bud by unremitting toil, of bodies warped and bent to the shapes required for tending the machines.

Whatever of exaggeration there may be in particular accounts, the picture that generally emerges must be substantially accurate. The making of yarn and cloth had tradi tionally been work mainly for women and children. The nimble fingers of children were right for the tasks, and the attendance to detail and patience most highly developed in women was an asset. The employment of children, and par ticularly girls, made the factory sys tem especially unpleasant for later generations to accept. What I would focus on in the con text of this work, however, was the loss of independence and the man agement of one's own work affairs in the factory system. Work in these factories entailed some of the worst features of organization. The factory owners or managers prescribed the time for workers to come to work, how long they would work, what tasks they were to perform, and how the work was to be done. In the early stages of the factory system, control was often not restricted to the work life; it was extended over the whole life of the workers. Villages were buil t around the factories, and workers might be required to live in and pay rent upon the houses so provided. These villages often had a company store in which the scrip in which they could be paid might be spent. Often enough there were company police, augmented by spies who kept the managers informed about the behavior of the workers.

A Counter-Movement In significant ways, the factory system ran counter to the great liberating movement which had been going on in England and, to a lesser extent, elsewhere. In agricul ture, great headway was being made 1979 THE INDIVIDUAL: VICTIM OF THE IDEA 363 in separating ownership of property from control over people. Serfdom, which tied the peasant to the soil and made service to the owner obligatory, had been abolished. Be fore long, indeed, serfdom and slav ery would be abolished in all lands where Western and Christian influ ence was strong. New arrangements had been devised for farming land which left the tenant increasingly on his own to manage his own work affairs; the only thing he owed the landlord was a portion of the pro duct. Even so, the factory system was in many ways the product of a particu lar historical setting. The initial in ventions for textile manufacturing were made at a time when falling water was the only considerable non-animal power system available.

Thus, places for housing the machines had to be built adjacent to the water supply and the machines had to be concentrated near the master wheel. Also, the principle of separating the ownership of prop erty from control over people was incompletely realized. Servants and farm workers were hired for wages. Indentured servitude was still com mon. It was a widespread practice for fathers to hire out their children or sell them into indentured ser vitude. Given the attitudes of the time about the subordination of women and children to men, it would have been odd if the factory masters had done other than assert control over them. Be that as it may, the great pro ductivity of the factory system should be attributed primarily to the use of machines and power from falling water or, in time, steam en gines (i.e., to capital). It is doubtful that the increase in productivity should be attributed either to the greater industriousness of workers or to an organization which reg imented and controlled the work ers. Any organizational drag, how ever, was much more than offset by the advantage of using large machines harnessed to a non-animal power source.

The Use of Machines The crucial role of capital can be demonstrated by a simple machine such as the early cotton gin. Eli Whitney's gin turned by one man could separate as much lint from the seed as could twenty-five men work ing with their hands. To put it another way, the most skilled and industrious person could get, say, three pounds of lint in a day. Whereas, an equally industrious person could get seventy-five pounds, say, by using a machine. The machine, in this case, would be the only difference. The principle remains basically the same for all constructive effort, though com plexities cause difficulties both in perceiving and applying it.

364 THE FREEMAN June The factory system provoked the concern and wrath of many men. Indeed, the history of the nineteenth century is laced with uprisings, re volts, strikes, movements, ideol ogies, and what not, aimed at doing something about it. The Lud dites went about it in the most direct way. They proposed to solve the whole problem by breaking up the machines, probably the most irra tional of a whole host of largely irrational reactions. Some of the early socialists, too, tended to blame the machines. Robert Dale Owen, himself a factory owner, wanted to dispense with all sorts of mechanical devices. But it was Karl Marx whose analyses and prophecies gave the turn to socialism that became cen tral to the idea that has the world in its grip. ' Marxian Misinterpretation By a grotesque distortion of clas sical economics, Marx arrived at the conclusion that the industrial worker was being cheated out of his rightful share-virtually all of it-of production. His labor theory of value tacitly attributed virtually the whole of productivity to indus trial workers. Capital, which was the primary source of increased pro duction in the factory system, was downgraded to the point that it was an insignificant factor in produc tion.

Marx did not attack organization, as such, fundamentally, and the matter of control over the worker was only secondary. This is not sur prising. He, along with other socialists, was no doubt precommit ted to seeing the problem as being private ownership and the solution as collective control. The factory system, as such, was not rejected; instead, Marx saw it as the means to a bright and glorious future. Once the workers had seized the factories and were running them, all the prob lems of the world would be solved. As a result of the seductiveness of his ideas and the faulty reasoning they incorporate, much of the world is now confined in a system that institutionalizes the worst features of the early factory system. The State as the Factory Communism is the nineteenth century factory system writ large. It is the factory taken over by the state and government bureaucrats substi tuted for owners and managers. It is the mill village confiscated by the state and housing become a preroga tive of those who serve and please the government. It is the company store become a state store and the state's scrip substituted for company scrip. It is the fence that once sur rounded the factory now expanded to surround the whole state to keep the inhabitants in. It is the organi zational control of the workers uni versalized with no alternative em1979 THE INDIVIDUAL: VICTIM OF THE IDEA 365 ployers or way out. It is the company spies and police now the instru~ ments of a totalitarian state with the force of government at their dis~ posa!. It is the carrying out to its ultimate conclusion of the notion tha t man's prosperity can be achieved by integrating him into the organization using him as a cog in a giant wheel.

All this was implicit in Marxism but concealed by his proclaimed op~ position to capitalism and his con cern for the worker. What he really opposed was individual ownership, and what he really proposed was using the force of the collective to control the worker. In the hands of Lenin and Stalin, collective control became government control. The Handles for Control Organizations provide the han dles which evolutionary socialist gov ernments use to control and vic timize the individual. They take away from him, by these, the inde pendence of the individual and con trol over his affairs. Earlier, gradualists had a great deal of animosity toward privately owned organizations, but that appears to have diminished as government control has proceeded. Gradualists do not create new organizations, as a rule, as communists do; they rather focus upon controlling those already in existence, and, through them, in dividuals. Organizations provide convenient handles, such as for col~ lecting taxes, for example, or for imposing rules.

The socialist bias in favor of or ganizations and against individual independence is often concealed by a rhetoric of opposition to business as well as by sporadic actual assaults on business organization, as in antitrust action. But a closer examination divulges the informa tion that the preponderance of or~ ganizations in our lives can be as cribed to government intervention. The government support of organi zation may be as simple as the Internal Revenue Service rule that only contributions to organizations may be deducted as gifts, never those to individuals; however worthy the cause. But the truly mas sive support of organizations vis-a vis individuals is found in govern ment intervention generally. Government Intervenes Organizational drag favors indi viduals and partnerships rather than organizations over any span of time. This drag can be offset or tem porarily overcome by new infusions of capital and by. specialization (ex pertise, techniques, and so forth).

New infusions of capital are pro vided, in considerable measure, by government fueled inflation. Specialists are trained and provided largely by government-supported educational institutions. There are a 366 THE FREEMAN host of other ways by which gov ernment intervenes to enable or ganizations to expand and grow, for otherwise they decline and die be cause of organizational drag. But perhaps enough has been said to suggest how government has acted to bring more and more people under the sway of organizations. In addition to what all this may sug gest, government empowers labor union organizations, and govern mental organizations themselves grow apace. The idea that has the world in its grip would concert all human action. The thrust to do this is experienced as loss of independence by the indi vidual in the management of his Organizational Demands affairs. Organization is one of the main means by which this is ac complished. The reduction of the in dividual to a number is the other, and we must now turn to that. @ Next: 31. The Subjugation of the Individual.

-FOOTNOTESIJohn Fowles, Daniel Martin (New York: New American Library, 1978), p. 336. This is spoken by a character in a novel and does not necessarily indicate the opinion of the author. 2C. S. Lewis, God in the Dock, Walter Hooper, ed. (Grand Rapids, Mich., William B. Eerdmans, 1970), p. 314. 3Eugene Lyons, Workers' Paradise Lost (New York: Twin Circle Publishing Co., 1967), p.217. IDEAS ON LIBERTY IN the field of politics, the dispossessed dream of a social order which shall be based on righteousness, a system in which men will not exploit their fellow men, in which each shall contribute according to his capacity and each shall receive according to his need. Upon this conception a political party is built. It gives battle, over the years, to the existing order of things. . . . In the course of time the party achieves power. By this time it is led no longer by starry-eyed idealists, but by extremely tough guys--who then proceed to use their newly acquired power to establish a stronger despotism than the one they overthrew, and to sew up all the holes in it that they themselves discovered in the old. What emerges is not freedom and social justice, but a more comprehensive and totalitarian control, used to maintain a new privileged class, which, because of the earlier experience of its members, is still more ruthless than the old.

W. J. BROWN, "Imprisoned Ideas"

J.Brooks Colburn EXCESS LOSSES ALL OF us are familiar with the phrase ((excess profits," used so fre quently today as an epithet directed at banks, oil companies, and other corporations. However, paradoxical as it may seem, no profits are exces sive but all losses are. To under stand why, we need to examine these corollary concepts, profit and loss. Profit is any surplus over cost of production which accrues to the pro ducer ofa commodity. The cost of the commodity, whether it be a good or service, will include such expenses as those required for the raw mate rials needed to produce it, the amount paid for the labor which was employed, and, of course, the charges for whatever capital goods-plant and tools-were uti lized. Thus the cost of producing a simple wooden chair includes what ever was paid out for the wood (raw rna terial), the wages of whoever planed, cut and assembled the wood (labor), and the price of all the tools utilized in the labor process (capi tal). If the sum of his per unit costs is less than his commodity's per unit price, then the producer generates a profit.

The claim that profits are exces sive can be interpreted either of two ways: (1) it can mean that all profits, simply by their nature, are excesDr. Colburn is a Professor of Philosophy, deeply concerned with the principles of business manage ment and public relations. 367 368 THE FREEMAN June sive; or (2) it can mean that only some profits are excessive. Those who accept the first interpretation are usually Marxists in fact, if not in name, because their argument rests on Marx's labor theory of value. Ac cording to it, the surplus of return over cost which constitutes profit comes from not paying the laborer what his labor time is ~~worth." To rebut the labor theory of value is far beyond the scope of this paper, and, more important, would be redun dant given the classic refutations of Bohm-Bawerk (Capital and Interest) and von Mises (Human Action, Socialism). Besides, it is the second interpretation which is the more in teresting because it is so much more common than the first.

How Much Is Too Much? Anyone who holds the second interpretation-that some profits are excessive, others not-must de termine the standard by which the excess can be measured. What might that be? One common sugges tion is that it should be whatever is the average profit within the indus try. Anything above that would be excess. A major problem with this is its vagueness: what is meant by ~~the industry"? Are the profits of our chair maker to be compared with those of all furniture makers, or with those who make only chairs, or with those who make only wooden chairs? How similar to the commodity of the entrepreneur in question must be the commodities which con stitute the standard class, Le., ~~the industry"? Since there are an unlimited number of possible standards for measuring alleged profit excesses, we cannot examine each of them. However, if we could show that they all shared a certain serious weak ness, regardless of where exactly they drew the line for establishing excess, we would have reason for rejecting all of them. That, in fact, is the case.

Consider our chair maker. In order to stay in business, he must satisfy some demand. People must want his chairs. If there were some unit for measuring demand, and ifit could be shown that by producing chairs more demand was being satisfied than if they were not pro duced, then, according to that stan dard, our chair maker would have increased the sum of social utility by increasing the amount of satisfied demand. He would, in other words, be justified in producing chairs. There is such a measuring unit: the medium of exchange, money. Each dollar bid on a commodity is an indicator of demand. The more of a scarce resource offered for some thing, the more valuable, relative to that resource, the thing is. And, as we all know, money is indeed a scarce resource .. The costs our chair maker must 1979 EXCESS LOSSES 369 pay for his raw materials, labor, and capital constitute the measure of demand for those resources prior to their embodiment in his chairs.

That is, had he never begun produc tion, those resources would still be worth the cost he was forced to pay for them. But in fact they are trans formed into his chairs. Since the chairs sell per unit at a price greater than their per unit cost, more de mand (measured in dollar v'otes) is satisfied than if the economic re sources constituting them had not been combined into chairs but sim ply allowed to remain as they were when they commanded the lower costs our entrepreneur paid for them. A Measure of Efficiency The overage between the price and cost-profit-is the measure of how much greater is the demand being satisfied by chairs than by the wood, labor, and tools, prior to their utilization by our producer. It at tests to the entrepreneur's ingenuity and efficiency in adapting scarce and valuable resources to better serve willing customers. The more profits generated, the greater de mand satisfied. Therefore, so long as we want our economic demands satisfied, no profits can be excessive.

With losses, the situation is reversed. If the price per chair is less than the per unit cost, then there was greater demand for the economic resources prior to their embodiment into chairs. In produc ing chairs, the entrepreneur has caused less demand to be satisfied than if he had produced nothing. Therefore, all losses are excessive because they are indicative of hav ing introduced disutility in the form of less satisfaction of demands. In short, profit signifies that a val uable social function has been performed, and the larger the profit the greater is the satisfaction of economic demand. We have offered an argument which proves that, prima facie, unlimited profit should be encouraged while any loss should be discouraged. Our argument places the burden of proof upon those who would restrict profits. They would have to show that re striction, despite its minimizing of demand satisfaction, would never theless be a good thing. To do this, they must meet the same stan dards of argument that we met: de termine a criterion of value to re place ours of demand satisfaction, and then indicate their method for measuring the presence or absence of that criterion, as money bid in the marketplace measures ours. It's up to them. ® THE NATURE OF WORK WORK means the application of one's energies toward the accomplish ment ofa given task. In a sense, the application of one's energies, even when there is no task to be per formed, is a kind of work. We could say, for example, that a man who is lolling under a shade tree is ttemployed" in day-dreaming.

Normally, we don't refer to actions of this kind as work. When we talk about work, we usually mean that a goal has been established and means are being employed toward the attainment of that goal. How ever, a ,man who is engaged in a sport activity is ((working" at it. A man who has become destructive and is trying to rob a bank or a filling station is ttworking." In common usage, we reserve the word work for our constructive goals. So, 370 Robert LeFevre ifthe goal is not constructive, we say that the man is playing or loafing. And if he is robbing a bank, we say that he is engaged in robbery and we don't dignify that action by calling it work. Begin thinking of your child as a worker. Certainly, he is going to play and day-dream and waste a good deal of time. This is only to be expected of any individual who doesn't really know what to do and hence doesn't know which means to adopt in order to employ his ener gies. The more quickly your child accepts certain goals as his own, the more quickly you can help him learn the proper means for the ac complishment of those goals. Work, as used· here, will be limited to goal-oriented procedures of a con structive nature.

THE NATURE OF WORK 371 Interestingly enough, the child may resist the idea of working at the outset. This is usually because he doesn't understand what he is to do or why he is to do it. Children really enjoy being busy. And it is no hard ship for them to be busy construc tively. Actually, they are going to be uworking" one way or another, in that they will certainly be engaged in expending their energies. The child who understands reality and how he fits into it, will have an enormous advantage over the child who doesn't. The former will very soon fmd things that he wants to do. Because he is motivated by what he wants to do, he will be eager to discover the ways and means to pro ceed in the direction he wishes to go. The Joy of Working How important is it that a person work? Most people stress economic necessity, indicating that if you don't work, you won't earn the money by means ofwhich you can be self-supporting. This is true enough, but it is only part of the story. Fac tually, you and your child are going to be engaged in expending your energies. And the happiest and most successful people are those who work and work hard.

To begin with, the work of your child is going to be concentrated to a large degree in various learning processes. Make no mistake about it, that, too, is work. It takes discipline, Mr. LeFevre founded and for years presided over the Freedom School in Colorado and has written extensively in behalf of freedom and the market. This article is a chapter, re printed by permission, from his latest book, Raising Chil dren for Fun and Profit, a home-study course to equip the parent to instill in his prog eny the necessary knowl edge and values, including character, integrity, self responsibility, and self esteem, by means of which the child can deal with the facts of life, both in school and beyond school. The book is available at $10.00 from P. K. Slocum, 7333 Corey Street, Downey, California 90242. concentration, self-control, and commitment to be either a good stu dent or a good teacher. But the whole purpose of education is to assist the individual in putting his know ledge to work. To know some thing for the sake of knowing it may be fine. But to know something that can be used constructively is what we all desire.

Viewing humanity as a whole gives us another insight into the business of work. All men are con372 THE FREEMAN June sumers and their wants and desires are insatiable. We all want more and more things to consume. There is no mystery about it. If those things are going to exist, they will have to be produced. Somebody is going to have to do the work that makes production possible. Man, by his nature, is a consumer. Educated, mature man is also a producer. We begin life as consumers and we will continue to consume until we die. Production is a learned skill. We don't come into the world prepared to work and to produce and distrib ute and serve. Children are little, animated appetites and they de mand goods and services inces. santly. Look at it this way. An individual will consume during his entire life. But how much of his life will be spent in production? Usually, only the middle portion. When a man is yet a child, he does not produce, as a rule. And when he becomes truly elderly or possibly when he becomes ill or decrepit, he will not be able to produce. So the work span of man is much shorter than his consumption span. What does that mean?

It means that for human life as we know it to continue to exist, and hopefully to be a better life with more opportunities for joy and ful fillment, those of us who are en gaged in producing are going to have to produce a great deal. We are going to have to produce enough in our productive years to bridge the much longer time in which we won't be producing. The Importance of SaVing Human survival is based upon the ability to create surpluses. If we consumed today everything we pro duced today, we would begin each day in a situation of unbearable want, deprivation, and starvation. Properly, the parents are productive enough so that while they are rais ing their children they are produc ing enough to take care of their own wants and also to invest in the wants of the children. Hopefully, when that is accomplished the par ents will continue to produce so they can create sufficient surpluses to tide them over their later years when they will not be able to pro duce enough, or possibly when they cannot produce at all.

There is still another reason why surpluses are important. Every act of production is preceded by an in vestment of one kind or another. Investments are only possible where surpluses exist. So the more we can produce, the larger our surpluses can become. The larger our surpluses, the more we can invest. The more we can invest, the higher our standard of living and the more constructive our employment. The more constructive our employment, the greater our degree of security and wellbeing. In short, the more 1979 THE NATUR~ OF WORK 373 and the better we work, the better for us all. Interestingly, most of us have been conditioned in our earlier life to look forward to our vacations and our time off from work rather than to our work. This is a complete de parture from reality. Vacation times are not necessarily happy times. They may be necessary, just as sleep is necessary. But if a person is cor rectly educated, he will find work that he will enjoy and he will look forward to it because he can do it well and he gets all kinds of rewards for doing it.

The person who is yearning for vacation and for sleep and for time to loll under a tree as his main interest in life is, to a degree, long ing for death. He wants to discon nect from the reality of this world, hoping to find surcease from pain and effort, one way or another. If children are proPerly educated, they will long to work; they will find great fulfillment in work; and they will work very hard and very long in the attainment of their goals. The happy man is not he who has nothing to do. Examine the records covering men who retire once they reach the age of sixty-five, either because they are compelled to retire or because they choose to do so. Unless they can find hobbies or some other kind of work that will engross them, their life expectancy is reduced rapidly. Living really means working (Le., constructively employing one's energies). These are some of the reasons why work is important.

Three Types of Work Work could be classified in vari ous categories and at several levels. Remember, we are considering only constructive, goal-oriented en deavors. There is physical work. This is the employment of our ener gies, in doing simple tasks where our muscles and bones are employed directly. There is always some mea sure of skill entailed in any kind of work, even very simple work. A man who digs a ditch, runs a hand lawn-mower, or loads a freight car is using some skills, but the principal demand on him is in the expenditure of his own physical energy. The next classification would be called skilled labor. The skilled worker has learned to deal with machines or mechanisms or power or electronic tools which, in them selves, do most of the work. A typist is a skilled worker. So is a man who drives a tractor, a truck, or a bulldozer, or who operates a linotype machine, a lathe, a drill press, or an electronic calculator. Most of the ac tual work in such cases is done by the machine. However, very skillful management of those machines is required to keep them doing their best. A skilled worker can work just as hard as a physical \vorker. But he 374 THE FREEMAN June uses a relatively smaller amount of his own physical energy, concentrat ing usually on how he moves his fingers, or possibly his arms and legs. Frequently, the skilled worker can sit down as he works, although that is not always possible, depend ing on the tool he uses.

Then there is the mental worker. He employs his brains in the ac complishment of some objective. Mental workers would include both teachers and students, as well as lawyers, writers, analysts, re searchers, and inventors. Almost al ways there is a certain amount of skilled labor that accompanies men tal labor. The teacher must study, and that means getting books and turning pages, and taking trips to see things and possibly experimenting with various tools and substances. And then the teacher must com municate. An architect is a mental worker, but he also employs the tools of the artist in his craftsman ship. The lawyer must be able to prepare a brief and to argue the case of his client. A writer must not only think what he wants to say, he must do the skillful work of selecting the right words and putting them down on paper. You can think of scores of examples in each of these three cat egories.

Because mental work is the most difficult, and also the least visible, we often feel that mental workers are somehow superior. This is probably as it should be. To become a competent user of the· mind takes some extraordinary skills. Further, in this world we tend to reward mental workers at a rather high rate of pay. So there is a kind of prestige that attaches to mental work, including the advantage of more dollars. However, this does not mean that there is anything wrong or demean ing about other kinds of work. All kinds of jobs need doing. House wives do a lot of physical work re quiring only modest skills. Also, they do other kinds of work requir ing a much higher degree of skill, as when they cook and prepare and plan meals. Additionally, when a housewife becomes a teacher, she is really engaged at the mental level. We demand a very great deal from the housewife. Rare Skills Rewarded The businessman and the investor also works very hard in a variety of ways. He has certain very rare skills if he is to succeed. And this will require physical, skilled, and men tal energy.

Sometimes, in our economy, we pay the very highest wages, not to those with the best mental ability, but to those with very rare skills. Professional athletes draw salaries that are sometimes two and three times more than heads of giant cor porations. Yet all they do is carry a 1979 THE NATURE OF WORK 375 ball very well, or possibly they can knock a ball over a fence better than anyone else. Still others perform in the art world or the theater with its many phases. Men and women who are skillful in the arts can earn fantastic pay. But the demands upon them are sometimes staggering. In teaching your child about work it is important that you find out where his motivations and his abilities take him. Naturally, you will want him to advance as far as he can toward his chosen goals. And it might be well to realize that the higher the goal (higher in the sense of the limited numbers of persons able to perform), the more different types of knowledge and skill that will be demanded.

Many parents refrain from giving their children physical chores around the house, feeling that such chores are beneath the child, since he has rather conspicuous talents of a more advanced nature. This may actually stunt the child's develop ment. Few people work any harder physically than a ballet· dancer, an opera singer, a housewife, or even a good writer. It takes discipline and untold hours of dedicated practice and commitment to become compe tent in these fields. They can begin learning muscular coordination, which is always important, by run ning errands, dusting, sweeping, mowing grass, and carrying pack ages. If the proper attitude is developed toward work, you will usu ally find little difficulty in getting your child to do chores around the house. Perhaps the child feels that his parents are imposing upon him and taking away his freedom when he is asked to help. But this is probably because he wasn't asked in the right way.

A Goal to Achieve Your child needs to be goal oriented. He will have greater hap piness and greater self-assurance if he is active in moving toward some thing he wishes to accomplish. Ac tivity for your child is not exclu sively physical. If the mind of the child is active, and especially when the mind and the body can be active in harmony aimed at an ac complishment, the tendency to feel imposed upon will be reduced or will disappear. Parents must take care that they don't harm the child by keeping the chores away from him. Also, they should not impose. The important item to bear in mind isn't the amount of work the child does, but his motivation in connection with the work. Curiously the child who busies himself with chores is usually the child who gets more done in other areas, too. Busy people get more done of their own choosing than people who loaf. When the child gets into the habit of loafing, 376 THE FREEMAN June he not only will not help but he probably won't even help·himself.

The child who is thought of as important, not only in what he does but in what he thinks, is usually well adjusted. He feels that he is part of the team, that the team wouldn't function quite as well without him. He will begin taking pride in the things he does and he will find ampIe time to pursue his own development as he begins set ting major goals for himself. Of overarching importance is the child's mental·and moral outlook. If the child becomes convinced, as a result of his early training, that one of the most important things he can do is to become self-supporting so that he ~~hurts no man," including his parents, and if, at the same time, his parents trust him and consult him and listen seriously and even gravely to his observations, even though he will reveal his lack of experience, that child will probably be happy. And the groundwork will have been laid to make him success ful.

The Appropriate Attitude In our present situation, work is looked down upon as an evil. It is viewed, of course, as necessary. But it is a necessary evil. If you will go to work to eliminate this kind of think ing in your home and certainly with your child, the rewards to you will be substantial. No child will be happy if his par ent sneers at him as a result of the work he does. Sometimes parents unintentionally begin to nag their children, feeling that their offspring could do so much more and so much better than they are doing. So they keep prodding with little remarks dropped from time to time to indi cate a lack of satisfaction in their children's behavior. Usually, this will not have the result the parents desire. When a child embarks upon a task and doesn't do a good job, the parent should exhibit a good sense of pro portion and humor. And he should focus his attention upon the job, not upon the child, if the work is done badly. Instead of saying: ~tMary, you can do better than that," it would be better to say: ttMary, I think it is possible for that job to be done bet ter." Then, don't scold or find fault with the person. Stick with the real ity of the job requirements.

Possibly the reason the task was poorly performed was that Mary didn't quite understand how to do it. Perhaps you have already shown her. But remember, her mind may have been engaged elsewhere and she only partially understood. You must exhibit the same degree of pa tience on such an occasion as you would want from your employer if you turned in a poor performance. Be sure that your child understands the nature of the task. Equally im1979 THE NATURE OF WORK 377 portant, be sure the child knows why the task must be performed. Al though it may seem obvious to you, remember, your child knows a great deal less about reality than you do. He may not have understood why the floors have to be kept clean. Be sure the child learns as much about it as you know. Also, be careful not to insist on the performance of chores simply on the basis of your authority. ((Mary, I told you to do the dishes."

((Why, Mommy?" ((Because I told you to." This is no answer insofar as the child's curiosity is concerned. Her busy mind, in this case, may be considering the advisability of hav ing each person clean up his own dishes. Or possibly the desirability F. A. Harper of never cleaning any of them might occur. What harm would it be if everyone just got his own dirty dishes back again? Don't laugh at the child, laugh at the task. This makes the burden lighter. Explain the consequences of not doing the dishes. If the child seems willful, some times an example can be provided. Get all the dishes done except Mary's and let her have her own dirty dishes back again, at the next meal. When Mary begins taking pride in her accomplishments and when she sees that they are important and make her a respected and valued member of the family team, you'll be well on your way toward instilling the value of work. i) IDEAS ON UBERTY INTELLECTUAL and moral guidance, voluntarily accepted by the follower, is no violation of liberty; it is, in fact, a main purpose of liberty so that the blind are free to follow th.ose who can see. The danger is that in the absence of liberty the blind may become authorized to lead those who can see-by a chain around their necks!

The terrific urge to prevent another person from making a ~~mistake" must be resisted if liberty is to be preserved. The ~~protective spirit" that leads a fond parent to prohibit his child from acquiring mature judg ments, as he substitutes his own opinions for those of the child, leads the dictator to act as he does in llprotecting" his political children. There is no possible way to allow a person to be right without also allowing him to be wrong. The only way to avoid responsibility for another's mistakes is to allow him the full glory and reward of being right, as well as the full dishonor and penalty of being wrong. Only in this way can one person isolate himself from the mistakes of another, whether it be a Stalin or a neighbor.

Ira Gottlieb Input Slavery and Output Slavery THE production of goods comes about due to the processing of basic mate rials into forms more desirable to users. Basic inputs, such as labor and raw materials, undergo a crea tive interaction and a new product emerges that is hopefully more val uable than the combined values of the inputs. Throughout history, the labor input often was obtained by means of enslaving the worker. The pyramids of Egypt were built with slaves, and much of the cotton of the Old South was picked with slaves. Today in the United States, absolute input slavery is abhorred. A vast majority of the citizenry would be opposed to forcing anyone into work ing against his will for no pay. However, the majority opinion against slavery begins to shrink Mr. Gottlieb is pursuing a Master of Business Ad ministration degree with a major in finance at New York University. 378 when workers are paid for a task, even if they must work against their wills. During a major coal strike in the recent past, a multitude of voices were raised asking the President to order the strikers back to work.

In the absence of a contract, it is a basic right of an employee to refuse to work, just as it is a basic right of an employer to fire any striking worker and replace him with an individual more willing to do the job. The employee «has a Property in his own Person. This no Body has any Right to but himself," as John Locke said in Two Treatises of Gov ernment. However, a job is not a physical property belonging to the employee, it is an abstraction which an employer creates (and therefore owns) to fulfill a need of an enter prise. The presence of a contract changes the situation because a set of mutually binding obligations is INPUT SLAVERY ANI> OUTPUT SLAVERY 379 brought into the picture. Each par ty depends upon the other for the carrying out of an agreed upon per formance, and gives security in re turn. An employer is assured of a labor supply with which he could make production plans, and an em ployee is guaranteed the job itself.

The breaking of a contract by either party, without a (Justifying" cause, can be considered a form of theft because it robs one party of the as sured security for which something was given in return. Therefore, the enforcement of a voluntary contract against either party should not be considered input slavery. Ownership Rights Output slavery involves the con fiscation of the products of the pro duction process from its rightful owner. A self-employed person is clearly entitled to the output be cause he provides the labor, capital, raw materials, creativity, and what ever else is necessary to produce the output. There is no right to that which another produces. This is where a conflict comes in. Many people who are opposed to input slavery (forced labor) are not opposed to output slavery. John Locke observed that ((The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property . . .

that excludes the common right of other Men." Locke's statement does not justify a Marxian Labor Theory of Value. That labor is the unques tionable proPerty of the worker can not be denied, but employees im plicitly agree to exchange their labor for a compensation other than the proPerty they work upon. By agreeing to exchange their labor for a given compensation, they trade their claims to that part of the final product which their labor helped produce. The value of their labor is subjectively determined by competi tive market forces. Beyond their wages, employees have no further claims to the goods produced. The inputs used in the process other than labor are usually the property of some owner. It is not virgin property the employee works on, but something which has al ready been claimed. The salary paid an employee was formerly property which the employer had owned and obtained through creative efforts and labor. An employee cannot have claims to such property of others except as covered in the employment contract. In the case of losses, the employee still has a claim, although no value has been added, because he has upheld his part of the contract and is due compensation.

380 THE FREEMAN Based on these factors, the out puts of the production process be long exclusively to the producer once contractual claims have been settled. As input slavery represents the enslavement of employee efforts, output slavery represents the plun der of employer efforts and labor. Protecting the Employer As said earlier, input slavery often is and should continue to be opposed. However, those who would strenuously oppose input slavery of the employee usually fail to recog nize output slavery imposed upon the employer. Examples of the latter include demands for the nationaliza tion of various corporate proPerties, improper restrictions on rights of property usage which steals the es sence of property, and claims that property does not exist for the own ers' but rather for the workers and a nebulous ~~public." In order to abolish slavery, em ployers who firmly favor property rights should be made aware of how compulsory labor laws violate the very concepts the employers sup port. By demanding that coal miners or railroad workers be ordered back to work under the Taft-Hartley Act, employers in effect would be agree ing that a Person's property should not be privately controlled. Of course, striking workers may still be fired.

Perhaps more importantly, those who support freedom should make both employees and the general citizenry aware of the fact that, without private property rights, freedom itself is impossible. Free dom of property usage, like freedom of speech, can only be protected if the right to all property is accepted and respected. If exceptions are made to fit particular circum stances, no one would be able to feel secure in his property or person. Only with a mutual respect for both input and output factors, is freedom of either possible. ® IDEAS ON LIBERTY The Zeal for Equality THE modern leveler rebels against the inequalities of merit, capacity, and virtue. Beginning with a just principle, he develops it into an unjust one. Inequality may be as true and as just as equality: it depends upon what you mean by it. But this is precisely what nobody cares to find out. All passions dread the light, and the modern zeal for equality is a disguised hatred which tries to pass itself off as love.

HENRI FREDERIC AMIEL A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN VOLUNTARYISM AUBERON HERBERT'S The Right and Wrong of Compulsion by the State, and Other Essays, edited and with an introduction by Eric Mack (Lib erty Classics, 7440 North Shade land, Indianapolis, Indiana 46250, 426 pages, $9.00 cloth, $3.50 pa perback), is an astonishing book to come upon after all these years. What modern libertarians know as voluntarism, Herbert, who died in 1906, called voluntaryism (the fey" in the middle of the word gives it an odd ring to my ear). The creed of voluntaryism, as worked out by Herbert in a busy quarter-century of pamphleteering, speech writing and magazine editing, was thorough and logically convincing. A logical series of deductions from England's own individualistic theory of natural rights, Herbert's doctrine should have caused his countrymen to stand fast against the collectivist ideas seeping in from continental Europe. But the more that Herbert wrote, the less influence' he seemed to have.

What is astonishing is that his beautifully written and rigorous es says have been quite forgotten. I confess that I had never heard of Herbert until Isaac Don Levine dug him out to present him in a series printed in Plain Talk Magazine of prophets who tt saw it coming." In all these years of Herbert's eclipse, the fame of Bernard Shaw, H. G. Wells, Sidney and Beatrice Webb and the Fabian Society grew. The English Liberal party, badly infected with the Statism that Herbert decried, dw.indled while the Labor Party waxed fat. There was the Beveridge plan for cradle-to-grave security, and the English Tories, Statists 381 382 THE FREEMAN June themselves, went along with it. How it all could have happened-and, of all places, in the England of John Locke, Edmund Burke, Adam Smith, John Stuart Mill, Richard Cobden and John Bright-is one of the world's great mysteries. The de bacle can't be blamed on John Maynard Keynes, who was a mere Bloomsbury dandy when the Fa bians were riding high.

Not so many years ago George Dangerfield wrote a nostalgic book call The Strange Death of Liberal England. The very memory of Aube ron Herbert was one of the casual ties of the 1906-1912 period. He was drowned, fathoms deep. Ideas Live On Yet every one of his voluntary ideas retains its vitality. The reason is that common sense continues to flow in· subterranean channels even in periods of extreme collectivist de bacle. Herbert tangled with the British socialist J. A. Hobson, and it is Hobson's name that has been re membered. Hobson's theory that the fact of our social interdependence justifies compulsion in the organiza tion of human life has been accepted by all our modern ((liberals." But the Leonard Read who insists that we all have a vested interest in the uncompelled differences of human beings would recognize Herbert as a doughty champion of a truth that should be obvious. Herbert accused Hobson of tricking himself with words. Hobson's phrase, ttthe social entity," is, as Herbert said, a liter ary creation.

If an individual is molded and formed by ttsociety," Herbert argued, it can only mean that he is molded and formed by other individuals who are the components of that society. Even supposing that a social entity can exist apart from individuals, the thoughts that the individual thinks act upon the social entity. So what is claimed for one must also be claimed for the other. You arrive at the truism that people influence people. The contrast between society and the individual is an unreal one, for society is individuals. You might as easily, so Herbert says, contrast ttpence and pounds." Hobson's strange syllogism con sists of a non sequitur: ttWe all in fluence each other by words and our writings; therefore we are all to be yoked together under a system of in tellectual compulsion, chosen for us by others." ttLiterature apart," says Herbert, ttl think Mr. Hobson will admit that it is a bold transmutation of unlike things into each other voluntary service and the free ex change of influence, passing into universal compulsion of each other, worked by the votes of a majority."

The Limits of Majority Rule Herbert's criticism of the fetish of majority rule is devastating. Why, 1979 VOLUNTARYISM 383 he asks, should there be any more magic in numbers than in a king, a tyrant or an oligarchy? The accident that three people may prefer one thing while two people may prefer another hardly justifies the rule of the three over· the· two. If there is common ownership-say of a piece of property-a majority vote is a convenient way of settling differ ences. But when ownership is not involved, rule by majority vote can be just as tyrannical as rule by a dictator. Auberon Herbert quit the British parliament because he had been convinced by Herbert Spencer that it was wrong for a majority to try to coerce minorities in the employment oftheir energies. He was never quite an anarchist, as the word had come to be understood. He believed in the limited state, with the government empowered to use force against in dividuals who invaded the rights of others. But beyond that, Herbert wanted all things determined by in dividual action or voluntary associa tion.

He solved the knotty problem of taxes in his own individual way. Mildred McLearn, the modem pro ponent of voluntary taxation, would be interested in Herbert's statement thatttthe power to levy taxes com pulsorily seems to me the inner keep, .the citadel of the whole ques tion of liberty . . . until that strong hold is leveled to the ground, I do not think that men will ever clearly realize that to compel any human being to act against his own convic tions is essentially a violation of the moral order, a cause of human un rest, and a grievous misdirection of human effort." Herbert advocated letting people finance the govern ment's few legitimate payrolls (for police, the courts, the sanitary ser vices and the army) by voluntarily trading small sums for the right to exercise the franchise at the polls. CompUlsory Schooling Opposed to Workingman's Interest Leonard Read has recently called for a movement to separate state and school as our founding fathers once separated state and church.

Examining his ttfirst principles" way back in 1880, Auberon Herbert told the British workingman that he would be ttselling his birthright for the mess of pottage" if he accepted the ttrate and tax" paid by others to maintain a system of compulsory public education. The compulsory tax-supported school, he said, would allow the rich to intrude themselves into the poor man's home affairs. The state would be telling the school child's parents that henceforward ((you need have no. strong convic tions, and need make no efforts of your own,as you did when you or ganized· your chapels, your benefit societies, your trade societies, or your cooperative· institutions. We 384 THE FREEMAN are the brain that thinks; you are but the bone and muscles that are moved." Eric Mack, in his introduction, tells us just enough about Auberon Herbert's life to make us want more. Evidently Herbert could have had a: long career in parliament if he had not decided to chuck it to become an advocate of a consistent libertarianism. Such integrity is a rarity in any age. The irony of Herbert's eclipse is compounded when we con trast his eloquent prose to the jargon-ridden stuff put out by Bea trice and Sidney Webb who, strangely, carried the day with their ~~inevitability of gradualism" going, as we must see it now, the wrong way. , HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC.

IRVINGTON-ON-HUDSON, NEW YORK 10533 the Freeman VOL. 29, NO. 7 • JULY 1979 The Mythology of Energy Yale Brozen 387 A scholarly exposure of prevailing myths about the energy crisis. Repressing Economic News Walter B. Wriston 393 If prices are censored, or frozen, they cannot tell producers what goods or services people want. Blaming the Victims: The Government's Theory of Inflation Robert Higgs 397 Inflation is a monetary phenomenon, resulting from government manipulation and control. The Economics of the Barricades Antony G. A. Fisher 404 The British confrontation between labor, government, and the exhausted taxpayer affords a lesson for all. The Redistribution of WealthLabor Union Style Robert G. Anderson 407 Competition and freedom, not legal privilege and violence, lead to general prosperity. "Windfall" for Consumers in Deregulation of Oil John Chamberlain 419 The outlook, if government will let the market function, is for more efficient motors or cheaper fuel, or a combination of the two.

A New Look at the Invisible Hand Melvin D. Barger 422 Peaceful actions will lead to desirable ends, violent actions to chaos and disorder. World in the Grip of an Idea 31. The Subjugation of the Individual Clarence B. Carson 430 Using numbers to reduce the individual and subject him to the purposes of those in power. Book Reviews: 444 "Decadence and Renewal in the Higher Learning: an Episodic History of American University and College Since 1953" by Russell Kirk "Before the Sabbath" by Eric Hoffer Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding ..

Itle I A E!~~N~~~N LIBERTY· FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year.

Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. ,Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "Repressing Economic News," .. 'Windfall' for Consumers in Deregulation of Oil," and "World in the Grip of an Idea."

Yale Brazen The Mythology of Energy THE WAR against the automobile and against private enterprise con tinues. This time, it appears in th~ guise of a quest for a reduced inter national payments imbalance and freedom from coercion by the Or ganization of Petroleum Exporting Countries. Propaganda almost as crude and just as untruthful as that used by the Allies in World War I is the major instrument in the current MEOW (Moral Equivalent of War) campaign for expansion of taxation and government power. The campaign uses several myths in its attempt to sell Americans on Dr. Brozen is Professor of Business Economics, Graduate School of Business, University of Chicago, and Adjunct Scholar, American Enterprise Institute for Public Policy Research. ceding more of their freedom to the central government. Here is a list of the more blatant falsehoods ac cepted and propagated by the opin ion manufacturing establishment.

1. The world will run out of oil in the 1980s. 2. The severe international pay ments imbalance is caused by the high usage and high price of im ported oil. 3. An oil-rooted adverse payments balance is causing the dollar to depreciate, causing import prices in dollars to rise and, as a conse quence, causing inflation. 4. We are vulnerable to an oil em bargo by the Mid-East countries. 5. The gasoline shortages and long 387 388 THE FREEMAN July lines at filling stations in late 1973-early 1974 were caused by the oil embargo in effect at that time. 6. We must reduce our vulnerabil ity to an embargo by accumulat ing a one-billion-barrel stockpile of oil and by cutting energy us age. 7. The government must plough bil lions into government-directed energy research to save us from ourselves and from foreign pow ers. One myth propagated up to the be ginning of this year is no longer on the list because it has become so obviously false. It was argued that the shortage of natural gas could not be cured by price incentives and that price ceilings should be retained since the only effect of lifting the ceilings would be a ~~rip-off" of consumers. Nevertheless, price ceilings were raised by Congressional action (without a windfall profits tax on gas producers). The administration is now embarrassed by a surplus of natural gas. It is urging industry to use more natural gas.

Another discarded myth is that the coal and coal transportation in dustries would need special gov ernmental assistance to meet our energy needs. This, too, has been rebutted by experience since coal price ceilings expired in 1974 (with no windfall profits tax on the coal industry). A coal surplus developed following the expiration of price ceil ings. The coal industry is now crying for ploughing more tax revenues into research on liquification and gasification of coal. Myth Number One. Let us take the myths still prevalent and examine each. Myth number one is that the world will run out of oil in the 1980s. Actually, it is unlikely that we will run out of oil by the 2080s. There is, in the free world today, a 36-year supply of proven reserves already staked out and producible at today's prices. The number of years' supply of proven reserves is at the highest level in the history of the statistic.

Traditionally, proven reserves have ranged from fifteen to thirty years at contemporaneous rates of oil use. Moreover, the statistic is only indi rectly related to the actual amount of oil existing underground in the world, and even the direction of the relationship is unclear, because exhaustion of prospects produces a rise in price, and hence makes pre viously worthless reserves worth uproving." How much more oil remains to be discovered that is producible at to day's prices is unknown. Geologists' estimates range from a low of a twenty-year additional supply to a high of fifty years. 1 Taking the lowest estimate, to1979 THE MYTHOLOGY OF ENERGY 389 day's real prices need not change for the coming half century to induce a supply of petroleum sufficient to meet all demands. At prices 50 per cent higher than today, producible reserves in sight more than double. It would become worthwhile to use the enormous shale oil deposits in Colorado, Utah, and Wyoming. Of the 1.87 trillion barrels of oil in shale, 600 billion are recoverable at the higher price. That is enough to supply us for another 100 years.

There are also staggering reserves available in the Canadian Athabas ca tar sands and the Missouri, Kan sas and Oklahoma tar sands which would become economically work able at the higher price. In addition, secondary and ter tiary recovery of the oil left be hind in oil pools already worked could more than double known and proved reserves. Generally only one-third of the oil in a pool is recov ered. The other two-thirds is left in the ground because it is too costly to be worth recovering at today's prices. A rise in price would make a portion of the left-behind oil recov erable. At a higher price, we could produce as much oil in the future from the already known and aban doned fields as the total amount produced in the world's history to date. Myths Number Two and Three. President Carter has urged the pas-· sage ofa stand-by gasoline rationing program and Congress has passed mandatory automobile mileage per formance standards on the ground that we must slow imports of oil to cure our adverse balance of pay ments and stop the decline of the dollar. If auto energy use standards do anything to the balance of pay ments, it will worsen it, not improve it.

If oil imports cause an adverse bal ance of payments or if the great increase in crude oil prices in 1974 were a cause of an adverse balance of payments, then Germany and Japan should be in much deeper trouble than we. They import all of their crude oil while we import less than half. They import all of their natural gas while we import only a small fraction. Yet their balance of payments is positive. While the dol lar declined, the mark and the yen appreciated. The cause of the pay ments imbalance and the decline of the dollar is the string of unprec edented peacetime federal deficits since 1973. The net result of the mandatory downsizing of the auto fleet to re duce oil imports will be more rather than less imports. An enormous cap ital outlay is required to do the downsizing job and to retool to pro duce the new models. Estimates of the cost, in addition to the usual model change costs, exceed $30 bil lion. That capital could· save more 390 THE FREEMAN July energy if it were left available to invest in dry process kilns for pro ducing phosphates and cement and for other energy conserving uses.

The free market would do a far more effective job of allocating capital among alternative energy saving uses, including an appropriate rate of downsizing automobiles, than the government can or will do. Myths Number Four and Five. Why did we have those long lines at gasoline stations in 1974? Was it because of the Arab embargo? The reason for those long lines was because the Federal Energy Of fice allocated gasoline and gave or ders to refiners as to what products they could produce. All during the period of the embargo, our stocks of gasoline, crude oil, and other petro leum products in storage kept in creasing. 2 Crude oil was still being imported. Instead of coming from the Mid-East, it came from Canada, Indonesia, Venezuela, and Nigeria. Some came indirectly from Libya and other Mid-East countries via Curacao and the Bahamas. The embargo made only a small difference in the volume of imports.

The oil companies did a massive and heroic job redirecting world trade. Routing of oil was changed in some cases and sources in other cases. But the Federal Energy Office screwed up the works. It underallocated gasoline to metropolitan areas, such as Chicago, New York, and Wash ington, and it overallocated to rural areas. City residents wasted gasoline by driving far into rural areas to fill their tanks. Are we subject to possible blackmail by embargo? The answer is a clear no! During the Arab em bargo, we imported from other sources and indirectly from the Mid-East countries that were em bargoing us. Libya knew its oil was coming to us, but as long as it was labeled as going elsewhere when it left Libyan ports, Libya was glad to get the revenues. There are more alternative sources available today than there were in 1974. Mexico is now supply ing us with growing amounts. Ven ezuela has 20 percent of its capacity shut down and available. Nigeria is a bigger producer now than it was in 1974. Dome Petroleum is starting full scale development and transpor tation out of the Canadian Arctic.

China is now exporting oil. Myth Number Six. We are now developing storage facilities and ac cumulating a one-billion barrel stockpile of oil, at a cost of $25,000,000,000, purportedly to make ourselves less vulnerable to any future embargo. The Arabs must be laughing themselves sick all the way to the bank as we tum over $15,000,000,000 to them for oil we are going to stick back in the ground 1979 THE MYTHOLOGY OF ENERGY 391 (in old hollowed out salt domes). Is it really necessary to accumu late a stockpile to reduce our vul nerability to an embargo? The an swer is no! Many countries are will ing to supply us if the Arabs cut us on: including some Arab countries if we cover up the fact that they are supplying us. (From the events of early 1978, we might judge the sup ply of Arab oil to be more secure than the supply of UMW coal. Perhaps we should question the ad ministration's proposals to make ourselves even more dependent on coal than we are.) There are less expensive ways of providing a ready reserve than building a stockpile. We could drill wells in our naval reserves, such as Elk Hills, and develop them to the point where they are ready to pro duce. The wells could be capped but ready to produce in case of need.

There is no need to pump the oil above ground, develop underground storage, and stick it back into the ground. Let the oil remain in natu ral storage at no cost. Have the wells ready to go when the need arises. The cost would be far less. Myth Number Seven. Finally, we come to the myth that the govern ment must plough billions of dollars into energy research if the new technology is to be developed to pro vide the energy we need when oil runs out in the 1980s. First, let's recognize that a shortage is a busi ness opportunity. If anything in de mand is likely to run short, its price will rise. Anyone developing a sub stitute or an additional supply will find plenty of eager customers. With the increase in the price of home heating fuels, suppliers began offering automatic damper controls which cut the use of fuel by 20 percent. When fuels were cheap, it was not economic to install auto matic damper controls; they could not pay for themselves. The capital it would have taken to produce them was more productive in producing gas than in saving gas. Production of the controls would have been a waste of metal, plastic, and workers' time. These factors of production were conserved by the more efficient expenditure of capital on gas discov ery and production.

As it became increasingly costly to produce gas, capital began to flow into damper controls where it could save more gas than it could produce. The investment now pays for itself. The rise in the price of energy is inducing the production of energy saving equipment and of less en ergy intensive motors, engines, generators, cement kilns, furnaces, boilers, refrigerators, freezers, air conditioners, and water heaters. It is also attracting investment into pri vate Research and Development (R&D) to develop alternative sources of energy, to develop 392 THE FREEMAN techniques for secondary and ter tiary recovery of oil from spent fields, and to improve methods of extracting oil from shale and tar sands. In 1975, oil companies in vested $51 million in coal R&D, $38 million in developing methods for converting coal into synthetic fuels, $30 million in oil shale R&D, $9 million in tar sands R&D, $7 million in geothermal R&D, and $2 million in solar R&D.

Currently, private expenditures on energy R&D are near the $2 billion level. This may seem a pale effort compared to the $4 billion that the federal government is laying out on nuclear and solar research. But examination of past private and governmental research efforts sug gests that we will get 100 times the return per private dollar in R&D that we get from the government dollar. 3 The federal government has laid out .$4,200,000,000 on develop ing a liquid metal, fast breeder reac tor. 4 It achieved so little that it is giving up the effort. The private market does a superior job in allocating resources to their most productive uses, in cluding choosing among alternative R&D programs, than the govern ment does. 5 If the government wouldn't try to do so much, we would get more accomplished, and energy would be more plentiful than it is now. @ -FOOTNOTESlCCOil and Gas Resources-Welcome to Un certainty," Resources (Washington: Resources for the Future, March 1976); House of Repre sentatives Committee on Interstate and Foreign Commerce, Basic Energy Data, 94th Congress, 1st sess., 1975; Peter Odell, UAre the Oilmen Crying Wolf Too Soon?" The Guar dian, July 16, 1978, p. 9.

2Richard Mancke, Performance of the Fed eral Energy Office (Washington: American En terprise Institute, 1975). Crude oil and petro leum product stocks rose by 85 million barrels during the embargo relative to preceding year stocks. p. 5. 3u Much of energy research and development activity, such as the aggressive coal gasifica tion .programs, falls in the category . . . [of] policies that have little social value and great social cost." Edward J. Mitchell, U.S. Energy Policy: A Primer (Washington: American En terprise Institute, 1974), p. 72. Also see Price L. Petersen, A Critique of Two Assessments of the Synfuels Commercialization Program (Washington: American Petroleum Institute, August 8, 1977), p. 72. 4Brian G. Chow, The Liquid Metal Fast Breeder Reactor: An Economic Analysis (Washington: American Enterprise Institute, 1975), p. 13. 5John E. Tilton, U.S. Energy R&D Policy: The Role ofEconomics (Baltimore: Johns Hop kins University Press, 1974), p. 29.

Walter B. Wriston REPRESSING ECONOMIC NEWS EVERY business has its hazards. Peo ple in the news business complain that one of their own special hazards is taking the blame for all the bad news in the world. And since much of the bad news nowadays fre quently has something to do with governments, governments espe cially are often angry at the press. In fact there are about 90 countries in the world today whose leaders object to bad news so much that they have abolished the free press. They operate on the theory that if bad news is not reported, it doesn't exist. Editors and publishers in coun tries where the press remains free recognize this attitude for the threat that it is. They combat it constantly by defending their right to publish the news as they see it, and also by reminding the public that the First Reprinted with permission of The Wall Street Journal © 1979 Dow Jones & Company, Inc. All rights re served.

This article is adapted from remarks by Mr. Wris ton, Chalnnan of CltIcorp, to the American Society of Newspaper. Editors. Amendment is the very linchpin of our liberty. To get blamed for acts you do not commit, or for the bad news created by somebody else, is a hazard that is not unique to the news business. It happens to bankers, businessmen, labor leaders and almost anyone else involved in handling money. And we in the business community are being treated to an especially strong dose of this misdirected anger right now. The bad news that business has been reporting is inflation. The price of everything is going up, which is another way of saying that the value of our money is going down. Since only the government prints money, it does not like people being told that the value of its product is de teriorating. So we find government spokesmen traveling around the country telling people that the real villains in this inflation story are businessmen who are raising their prices or labor unions which are raising wages.

393 394 THE FREEMAN July Suppressing the Bad News But rising prices do not cause in flation, they report it. When a government--any government-starts trying to eliminate inflation by controlling wages and prices, what it is really doing is asking all ofus to suppress the bad news that it has printed too much money. The way to stop the bad news about the deteriorating value of our money, according to government, is to con ceal this from the people by freezing wages and prices. Prices and wages represent an es sential form of economic speech; money is just another form of infor mation. When the freedom of this economic speech is restricted, we are all not only penalized, we are mis led. In (Federal Reserve) Governor Wallich's words: UInflation is like a country where nobody speaks the truth." Prices enable consumers to com municate with producers and tell them what they want or don't want.

If prices are censored, or frozen, they cannot tell producers what goods or services people want or don't want to purchase. Examples abound. When the government artificially restrained prices for natural gas, the price told consumers that this form of energy was relatively cheap and in ample supply. Believing what they heard, people built homes heated with natural gas. The same controlled price told producers that people don't want much natural gas--it was not in demand--and therefore they had no incentive to increase production. Everybody was being deceived and we all know about the results in the winter of 1976-77. People are often deceived also about the nature of money. As a piece of paper in your pocket, money has no intrinsic value, it is worthless. Its only value consists in what it represents, which is a claim on a share of the world's goods and services. If the government in creases the pieces of paper" faster than the private sector can produce goods and services, then every piece of paper is going to represent a small er claim on whatever people have to sell. The only way to keep that from happening is either to increase the production of something salable, or else slow down production of the pieces of paper.

The plain fact is that the reason we have inflation in this country is that since 1967 the government has caused the money supply to grow nearly three times as fast as the goods and services that can be bought with it. That statement can be fiddled with and footnoted until everybody forgets what they're talk ing about. But the bad news will not go away. And no amount or kind of wage and price controls can make the government's paper money worth more ofthe world's goods than 1979 REPRESSING ECONOMIC NEWS 395 the world is prepared to give for it,. Governments' ability to devastate an economy and blame it on some! one else can never be overestimated. They don't even have to print their own paper. They have frequently managed to do it with gold or silver. Ancient Rome added cheap alloys to its gold coins and suffered inflation as a result. Spain had a monopoly on the riches of EI Dorado-the pre cious metals flowing into Europe from Mexico and Peru formed the basis for an inflation that in the end destroyed the Spanish Empire.

Every time a new silver consign ment arrived at Seville a ripple of price increases spread across Europe because there was suddenly more money with which to buy things. And because the effect was always felt first and strongest in Spain, that country continuously occupied top place in the inflationary table. Spanish costs became increasingly uncompetitive, and the Dutch got rich buying cheaper goods in the north and shipping them south. The Spanish solution was to sink merchant ships and hang busi nessmen. You can find the same story of unsuccessful repression of economi.c news being repeated all the way back to the Roman Emperor Diocle tian, who may have coined the best name yet for government price con trols: the argumentum baculinu"t, or the argument of the club. What Diocletian could not ac complish with the Roman legions and Philip the Second could not do with the Spanish Armada, the Council of Wage and Price Stability now proposes to do with a staff of 233 civil servants. Once again we hear repeated the rephrasing of Dio cletian's edict which began with a notable assertion, ~~Uncontrolled economic activity is a religion of the godless."

Whatever the government-any government-decides to call its price control methods doesn't really matter. Whether it's jawboning, in comes policy, voluntary guidelines, mandatory ceilings, or an economic police state, it all comes back to Diocletian's argumentum baculinum. All it means is that the govern ment threatens to hit you harder later on if you don't behave after it hits you the first time. History demonstrates that once a govern ment picks up the club, it finds it very hard to put it down again. The American press would not to lerate for one moment an attempt by the government to suppress news of riots or political demonstrations on the grounds that it wants to ~~insure domestic tranquility." The press knows a threat to the First Amend ment when it sees one. Yet on the grounds of ~cinsuring price stability," the government as sumes the power to tell us what we can be paid for our labor and what 396 THE FREEMAN we can charge for our products, and the only question asked by most of the press is: Will it work? That is the wrong question. The right question is: How does it affect individual lib erty? Is not one of the most basic human rights the right of a person to sell his or her labor at what the market will bring?

There are ten amendments in the Bill of Rights, although sometimes it seems that the press is so busy defending the first one that it is hard to get equal time for the other nine. Let me recall one of them-the Ninth Amendment-which few peo ple ever read any more, let alone de fend. It says: uThe enumeration in the Constitution, of certain rights, shall not be construed to deny or dis parage others retained by the peo ple." Is something being disparaged when the government's chief inflation-fighter tells a group of businessmen, as he did recently in Chicago, that (CWe will, with a de gree of enthusiasm that I suspect many of you may consider un seemly, identify the miscreants pub licly"? Qualifying as a Miscreant A miscreant, according to my dic tionary, is someone who is villain ous, unscrupulous and devoid of con science. And now all you have to do to qualify for that description, in the eyes of your government, is to insist on your right to decide what wage you're willing to work for, or how much to charge for whatever you're selling. I do not believe that was the kind of society the Founding Fathers had in mind, or one that many Americans will enjoy living in if it becomes a permanent condi tion-which it shows every sign of doing.

The government adopts monetary policies and fiscal policies which produce inflation in response to popular demand. Since there is no CCTruthin Politics" law we must rely on the vigilance of the press to re veal the true costs of those policies. When we come to understand what is happening, I do not believe that Americans are ready to sell their birthright of individual freedom. But someone has to make it clear that the collision course between government price and wage controls and personal liberty is inevitable because, in the end, government al location of economic resources re quires force. Someone has to point out-and keep pointing out-that every time the tide recedes a little after one of these floods of uemer gency" regulations, there is less sand left on the beach for free people to stand on. If it finally gets down to a single grain, even though that grain is labeled cCfree speech and the First Amendment," you'll find that it isn't worth much. ® Robert Higgs Blaming the Victims: The Government's Theory of Inflation IN OCTOBER, 1978, President Carter announced an elaborate program of wage-price guidelines to serve as the keystone of his administration's anti-inflation policies. What makes the President's advisers believe that the sword of guidelines can slay the dragon of inflation? Like other knights-errant, they are convinced that they understand the anatomy of the beast, that they know just where they must drive their lance in order to kill or at least disable it.

Putting metaphors aside, I am say ing that they have a theory about the nature and causes of inflation that suggests guidelines can be an effective anti-inflation policy. It is not a very coherent or well articuRobert Higgs Is Professor of Economics at the UnI versity of Washington. He Is popular as a lecturer on economic and monetary affairs. His writings Include numerous .rtlcles .s well .s books on The Trans 'ormation 0'the American Economy, 1865-1914, and Competition and Coercion. lated theory, but its main elements can be·discerned fairly readily in the statements emanating from the President himself, from the Council on Wage and Price Stability (COWPS), and from the Council of Economic Advisers (CEA). The Official Line The fundamental assumption of the government's theory is that competitive market forces have lit tle or nothing to do with the deter mination of prices and wages. ((The pay and price standards," the Presi dent's advisers say, ((are designed to be guides for decision-making agents who have discretionary power in wage and price determination."1 They believe, in other words, that firms can set whatever prices they want and, in conjunction with the unions, whatever wages they want.

Alfred Kahn, the chairman of 397 398 THE FREEMAN July COWPS, and his fellow enforcers obviously believe that this dis cretionary power resides especially within the largest corporations and labor unions, for those institutions have been the focus of their monitor ing efforts from the very beginning. The notion that large firms and unions possess significant power to resist competitive market pressures is known to economists as the administered-price theory. The President's men clearly embrace this theory root and branch. From the administered-price theory of price and wage determina tion, it is but a short step to the cost-push theory of inflation. The government economists have taken this step. In this year's Report of the Council of Economic Advisers, one finds repeated assertions that dur ing the current expansion the econ omy, even in 1978, has not yet ex perienced excessive aggregate de mand for its output. Idle plant and labor, it is said, have been ample to accommodate increases in the econ omy's rate of output. 2 Rather than the pressure of excess demand driv ing up prices, the government economists see cost increases, par ticularly increased costs of labor, pushing prices up. H[T]herise in unit labor costs," it is alleged, was ~~a major factor in the acceleration of inflation" in 1978.3 By combining the assumption of discretionary market power, the administered-price theory, and the cost-push theory of inflation, the government economists arrive at the concept of a wage-price spiral as a characterization of the causal structure of inflation. In this view, large firms and unions conspire to push up wages excessively; the firms then pass the increased labor costs along to final consumers and other purchasers in the form of higher product prices, thereby creating in flation. In response to this inflation, which reduces real wages, the unions subsequently return to the bargaining tables with even more outrageous demands. The economy is propelled through successive rounds of inflation kept in motion by the powerful but socially irresponsi ble actions of the large companies and unions. The rest of the economy, with its smaller firms and mostly nonunionized workers, falls pas sively into line with the patterns set by the large firms and unions.

The wage-price spiral is the gov ernment's accepted view of the basic inflationary process, but the Presi dent's men complement this basic conception with two auxiliary theories of inflation: the exogenous shock theory and the self-sustaining expectations theory. The exogenous shock theory has been especially popular of late. In his economic report to the Congress this year, the President relied on it almost exclusi vely to explain the 1979 THE GOVERNMENT'S THEORY OF INFLATION 399 recent increase in the rate of infla. tion. Mr. Carter identified severa.l important shocks: Cold winter weather affected food supplies and prices. Depreciation of the dollar in foreign exchange markets added to prices of imports and to prices of goods produced by U.S. firms that com pete with imported products. Costs of land and building materials were driven up by exuberant demands for new homes, and the rise of mortgage interest rates added to the costs of buying a home. At the same time, the cumulative effects of government legislation and regulation over recent years gave further impetus to cost pressures. A large part of the worsening of inflation last year, how ever, stemmed from poor productivity. 4 Of course, the most frequently cited exogenous shock of all is the effect on fuel and related prices when the OPEC cartel raises the price of oil.

All of these exogenous shocks are thought to be external to the normal functioning of the American econ omy but additive to its allegedly inherent wage-price spiral. They are seen as unfortunate accidents-Qur luck seems always to be bad-that make inflation even worse than it would be as a result of the internal wage-price spiral. Finally, the self-sustaining expec tations theory completes the gov ernment's overall conception of the inflationary process by suggesting that, once inflation has gone on for a while, people expect it to continue; and these expectations, all by theolselves, can then continue to push prices up year after year. In the words of the CEA, ~~Once under way, a high rate of inflation generates responses and adaptations by indi viduals and institutions that per petuate the wage-price spiral, even in periods of economic slack. . . . The formal and informal adaptations to a longstanding inflation exert a powerful force tending to sustain inflation even after the originating causes have disappeared."5 Those who regard economics as the dismal science will certainly find ample confirmation in this theory.

Fallacies of the Official Line Unfortunately, the entire edifice of the government's theories-the assumption of discretionary power, the administered-price theory, the wage-price spiral, the exogenous shocks, the self-sustaining expecta tions-all of it is the rankest non sense as an explanation of infla tion. There are a variety of pertinent reasons for rejecting the official line. Consider for a moment the as sumption of discretionary power. This unfortunate belief seems to have grown out of the common ob servation that many firms can in crease their prices somewhat with out losing all their sales. What the notion of discretionary power ne glects, however, is that, unless the demand for its product has in creased, a firm that raises its prices 400 THE FREEMAN July will experience a reduction in unit sales volume. Even the true monopolist, the single seller with the market all to himself, must con tend with the law of demand-and, of course, true monopolists are as rare as hen's teeth. Clearly, even firms in highly concentrated indus tries must, and do, compete for the customer's favor. Despite what Pro fessor J. K. Galbraith and a host of lesser known polemicists have as serted, it simply is not true that large firms can raise their prices at will without suffering any con sequent reductions in sales. Even if this ever had been the case, we can be confident that business managers would long since have taken advan tage of such a marvelous opportu nity for adding effortlessly to their profits. The idea that large firms possess bottomless reservoirs of dis cretionary pricing power is prepos terous in its logic and without any basis in fact.

The closely related theory of ad ministered pricing is similarly flawed. George Stigler and James Kindahl, in the most painstaking and carefully designed study of in dustrial prices ever conducted, found that industrial markets, in cluding those with only a few large firms, are not ««unresponsive in their pricing to changes in general busi ness conditions";6 that is, the price data refute the administered-price theory. Economists have also tested the relationship between industrial con centration and the rate of price in crease among industries. Both in the late 1960's and in the decade ter minating in 1977, they have found that the correlation between concen tration and price increases is nega tive; that is, the industries with a few large firms have had smaller average increases in prices than the industries with many small firms. 7 George Shultz, the former Secre tary of the Treasury who occupied an important administrative posi tion during the period of President Nixon's price controls, has pointed out that between 1971 and 1974 prices rose most rapidly in sectors with many small firms (e.g., agricul ture), in sectors dominated by the government (e.g., health services), and in sectors heavily involved in international trade (e.g., petro leum).8 One can draw similar conclusions for the past 11 years by examining the broad components of the con sumer price index: since 1967 (index = 100), the greatest increases have occurred in the prices of home own ership (238.8) and medical care (227.0), both sectors that are domi nated by a multitude of small suppliers. Even increased fuel and utilities prices (218.5), which have been so profoundly affected by the actions of the OPEC cartel, have barely equaled the increased prices 1979 THE GOVERNMENT'S THEORY OF INFLATION 401 of food (217.8), which is supplied by tens of thousands of stores and mid·· dlemen and millions of farmers. 9 The administered-price theory, scientifically speaking, is a joke though not a very funny one.

Nevertheless, it is very popular among the general public, who are infected with a chronic .distrust of big business' motives and actions. And it is, if anything, even more cherished by politicians. As Shultz has said, ttThe politician . . . knows the political mileage to be gained by pushing around the big boys in the economy, whether or not it makes any economic sense."lO Without the assumption of dis cretionary power and the administered-price theory to sup port them, the cost-push theory of inflation and the notion of a wage price spiral collapse of their own weight. Inflation versus Relative Price Changes In any event, the cost-push theory, along with the exogenous shock theory, fundamentally mis construes the issue in question. In flation is a persistent, ongoing in crease in the average price of the economy's total output; or, looking at it from its other side, inflation is a persistent, ongoing decline in the average purchasing power of money.

Unfortunately, it has become commonplace for people to refer to any increase in the money price of a particular product, no matter how small or how transitory, as inflation ary. This confuses the price of a particular good with the average price of all goods. It is extremely important to understand that in any real economy some increases in the prices of particular goods would necessarily occur even if the overall price level were perfectly stable. Ob viously, such particular price in creases would change only the rela tive prices of particular goods; de clines in other individual prices would offset these increases, thereby keeping the aggregate price level constant. The fallacies of the cost-push theory can be illustrated well by a simple, hypothetical example. Sup pose a firm and a union enter into a conspiracy to raise the wage paid to the firm's workers far above the competitive level; the firm then raises the price of its product enough to offset the increased labor costs; but the total volume of money ex penditures in the overall economy remains the same. What will hap pen?

Under these circumstances, the firm will find that because the rela tive price of its product has in creased, it will be· unable to sell as much of its output as before; it will have to reduce production and lay off workers. These workers must go elsewhere to obtain employment.

402 THE FREEMAN July The increased supply of workers elsewhere will tend to reduce the wage rate, lower production costs, and encourage enlarged production and therefore reduced product prices elsewhere. The ultimate outcome of these readjustments is that the con spiring firm to some extent prices itself out of the market;· its labor force shrinks, and some of its initial workers find work elsewhere at lower wages. The price of the firm's product does increase, to be sure, but prices elsewhere decrease. Inflation, most emphatically, does not occur. The truth is that as long as the aggregate volume of money expen ditures is held fixed, cost increases in particular firms or sectors, no matter what their origin, can cause only relative price changes. Such cost increases alone cannot cause in flation, which is a persistent, on going increase in the average price of all goods and services.

Recall the alleged causes of in creased inflation in 1978 as iden tified by President Carter. They in clude bad weather, dollar deprecia tion against foreign currencies, in creased demand for housing, and higher mortgage interest rates. Each of these can cause a change in relative prices, but none of them can cause inflation. The cost-push theory of inflation, from an intellec tual standpoint, is simply indefensi ble. It remains immensely useful for politicians, however, because it shifts the blame for inflation onto the private sector. But private citi zens cannot cause inflation, because they cannot regulate the volume of aggregate money expenditure. Whoever controls that bears the blame for inflation and holds the only key to stopping it. What Really Causes Inflation? Inflation occurs, by definition, when the economy's aggregate vol ume of money expenditure grows faster than its aggregate real out put. The excessive growth of money expenditures can have, again by definition, only two sources: either the velocity of monetary circula tion grows excessively or the money stock itself grows excessively (or both). Our current inflation is attributable almost entirely to ex cessive growth of the money stock.

Because the excessive growth of the money stock and the inflation it causes do not happen simultane ously, some people always fail to perceive the relationship. Increases in the money stock take some time before their effect on the volume of expenditure becomes significant. But once the actual lag is recog nized, the relationship is seen to be very close. By relating the rate of inflation in a given year to the a verage rate of growth of the broadly-defined money stock (M3) during the three previous years, one can chart a clear parallel relation1979 THE GOVERNMENT'S THEORY OF INFLATION 403 ship. During the 1970's, the only breakdown of this relationship oc·· curred in 1972; and, of course, that anomaly disappears when one ad·· justs the inflation data for the ef.· fects of the severe Phase II price controls in force in 1972. In short, inflation is not caused by cost-pushes, wage-price spirals, de·· preciation of the dollar on foreign exchange markets, regulatory con straints, minimum wage laws, or lagging productivity growth. Infla tion is a purely monetary phenome· non: when the purchasing power of the dollar falls steadily and persis, tently over many years,· it is because dollars have steadily and persis·· tently become more abundant in re lation to the total quantity of real goods and services for which they exchange. Inflation, in sum, is caused by excessive growth of the money stock. Period.

The Government's Responsibility As the Federal Reserve Systenl authorities can control the rate of growth of the money stock, they clearly are to blame for its excessive expansion. Of course, the executive and legislative branches of the fed eral government have put heavy pressures on the monetary au thorities to expand the money stock fast enough to ~~facilitate" the easy financing of the enormous, unpre cedented peacetime deficits in the federal budget. In general, however, the Fed has been an easy touch, quite responsive to these pressures. William Miller, the current chair man of the Federal Reserve Board, has been variously described as ~~cooperative," a ~~team player," and ~~a tool of the [Carter] administra tion."ll One wishes the central bankers had had more backbone. If they had, we would have found that mere deficits, in the absence of excessive monetary expansion, can not cause inflation. Clearly, the de ficits, working through the political process as it influences the Fed, en courage a loose monetary policy. But it is essential to recognize that it is the excessive growth of the money supply, whether to finance deficits or for some other reason, that causes inflation. Conversely, with a suffi ciently slow growth of the money stock, there can be no inflation, no matter what is happening to the federal budget, labor costs, regula tory standards, minimum wages, and so forth. To repeat, inflation is a purely monetary phenomenon.

It hardly needs to be added that once excessive monetary expansion has been halted, inflation cannot be kept alive merely by expectations of inflation. People will find that, in the absence of continuing monetary stimulation of aggregate expendi tures, the inflation they expected just doesn't happen. If they are ob stinate and continue to act as if infla tion is not abating, they will simply 404 THE FREEMAN July price themselves out of their mar kets in the same manner as the conspiring firm in the example above. It is far more likely, however, that they will adjust their expecta tions as the rate of inflation falls. Expectations cannot sustain an in flationary process unless they are validated by the actual course of inflation; and that validation can occur only so long as the growth of the money stock remains excessive. -FOOTNOTESlCouncil of Economic Advisers, Annual Report, 1979, p. 84; emphasis added.

2Ibid., pp. 58-60. 3Ibid., p. 57. 4IJ'heEconomic Report ofthe President, 1979, p.6. 5Council of Economic Advisers, Annual Re port, 1979, p. 55; emphasis added. 6George J. Stigler and James K. Kindahl, ttIndustrial Prices, as Administered by Dr. Means," American Economic Review, 63 (Sept. 1973): 720. 7Leonard W. Weiss, ttThe Role of ConcentraAntony G. A. Fisher tion in Recent Inflation," in Yale Brozen, ed., The Competitive Economy: Selected Readings (1975), pp. 206-212; and research by J. Fred Weston, cited in Fortune (March 26, 1979): 40. 8George P. Shultz and Kenneth W. Dam, ttThe Life Cycle of Wage and Price Controls," in Economic Policy Beyond the Headlines (1977), p. 77. 9Council of Economic Advisers, Annual Re port, 1979, p. 239; latest price index values given are for November 1978. lOShultz and Dam, op. cit., p. 78. llWall Street Journal, February 16, 1979. The Economics of the Barricades A few months ago at a dinner party in London, our hostess announced she was quite ready to shoot the hospital workers. She was abso lutely sincere, referring to the strik ing members of a union which had effectively crippled hospitals throughout England, increasing the backlog of patients awaiting surgery by some 60,000. This meant untold suffering, and, in some cases, death for those who could not wait.

At other dinner tables one im agined similar housewives declaring 1979 THE ECONOMICS OF THE BARRICADES 405 equal fury at the striking truck drivers whose refusal to haul food caused tons of produce to be dumped at sea, making that which dribbled into London shops exorbitantly priced. It's not a new story. Economic disorder always divides society, pit ting one segment against another. Wat Tyler's Rebellion of 1381 was described as ((the malice of laborers" refusing to work at the low wages fixed by Parliament. In 1790 the washerwomen of Paris demanded death as punishment for the mer chants whose prices of soap had soared, and Marat responded that the people should help themselves by hanging the shopkeepers and plundering their stores. The great German inflation following World War I was first blamed on the bal ance of payments, then on the speculators, and ultimately on the Jews. Even the Greeks had a word for this: ((stasis" or creating hatred between members of society.

What is responsible for this dis ease of ((stasis" from Diocletian down to our hostess last winter? In every instance it is indirectly due to government intervening in the normal course of the market. Wat Tyler's rebels were against fixing of wages after the Black Death had so diminished the labor force the sur viving workers could get triple their former pay. There were no unions to blame, no media or communications system (they couldn't even read or write), yet an attempt to cut their pay caused a rebellion or ((strike." In 1776, American inflation brought despotic controls and punishment to ((speculators," evok ing this comment by Pelatiah Webs ter: ((we have suffered more from this cause than from any other cause or calamity. It has killed more men, pervaded and corrupted the choicest interests of our country more, done more injustice even than . . . the enemies." The reference, of course was to the enemies of the Revolu tion.

Few realize the French Revolu tion came on the heels of France's most appalling inflation and wage and price controls, enforced by the guillotine. Even the United States and Brit ain first blamed ((speculators" for the inflation of the mid-1970s, then imposed wage and price controls, ((guidelines," and ((sanctions" inter mittently to counteract the inevita ble results of government's own in flationary policies. These controls attempt to hide the rising prices which are the major symptom of inflation. They will not work, any more than breaking the thermometer will cure the flu. In spite of their history of failure, such controls appeal to the politician be cause they transfer the blame for his own profligacy to scapegoats such as organized labor or capitalists. Yet, 406 THE FREEMAN how could the 5 per cent increase permitted by Britain's recent wage restraint policy conceivably com pensate the worker whose contract was up for renewal after two years of 10 per cent per annum inflation?

Add progressive tax rates and the worker is justified in asking 12 to 14 per cent per annum increases, or 28 per cent, just to stand still! Unquestionably, British labor unions have entirely too much power, and· their members include Marxists intent upon destroying the system. But in the last 50 years Brit ish wages have' fallen from almost double German or French wages to little more than half their wages. Were the general public to under stand this, the current strikes might be considered a justifiable outrage against an unreasonable govern ment, and our housewives might be less anxious to brandish their guns. Understanding, in fact, is the only possible cure for what history indi cates might become a bloody con frontation. It is necessary to under stand that inflation is caused by government mismanagement, over spending, and the consequent print ing of money, and that controls or sanctions will not mitigate, but will exacerbate the ultimate devastation of the economy. It is imperative for people and their political represen tatives to know that the conse quence of such controls is not only a deprivation of human liberty, but a serious inhibition to human produc tivity which compounds the prob lem.

But foremost among the evils of inflation, and government's stopgap measures intended to alleviate it, is the human antagonism, the rancor within a society where each blames another for his plight. Labor versus industry, housewives versus mer chants, farmers versus bureaucrats, rich versus poor, and so forth and so on, as society sickens with aliena tion. Yet the resulting chaos is built on error: each individual is reacting naturally to an injustice perpe trated, not by his imagined adver sary, but by his government! It behooves us to get this message across before the misunderstanding destroys us. This is a lesson Ameri cans might learn from the British, if only they will listen. @ Antony G. A. Fisher, author of Fisher's Concise History of Economic Bungling, Is founder of the Institute of Economic Affairs In London, and Instru mentalin starting the Fraser Institute of Vancouver, Canada, the International Center for Economic Pol icy Studies in New York, the Fisher Institute of Texas, and the Center for Economic and Environ mental Analysis of San Francisco, all of which pub lish research on public polley issues.

THE REDISTRIBUTIONof wealth as well as the creation of wealth is a natural development of the market process. Voluntary exchanges among individuals as producers and consumers constantly bring about the creation and redistribution of wealth. The advancement in the material wellbeing of individuals that re,· sults from a developing social divi· sion of labor is one of the great blessings of a free market society. The specialization of individuals producing goods and services fOJr trade in the marketplace has en hanced labor output far beyond any thing that was attained by individ uals who produced exclusively for their own direct consumption. Mr. Anderson la Executive Secretary and Director of Seminara, The Foundation for Economic Education. Robert G. Anderson THE REDISTRIBUTION OF WEALTH LABOR UNION STYLE With the market price system as their guide, entrepreneurs respond to their assessment of consumer de sires by bringing together capital and labor in the production of goods and services. The future behavior of the consumers in the marketplace ultimately rewards or penalizes these entrepreneurs for their deci sions. If the entrepreneur's judg ment in the productive employment of capital and labor is correct, as evidenced by subsequent consumer buying, profits result. A lack of consumer buying, however, reflects losses to the entrepreneur for his erroneous employment of these pro ductive resources.

The natural market process is the motivating force for all productive effort, and countless daily activities of this type result in an orderly 407 408 THE FREEMAN July market price system. Such volun tary behavior by producers and con sumers responding to market prices not only creates new wealth but re sults in the constant redistribution of wealth within a free society. Competitive Allocation There can be no reasonable objec tion to such redistribution of wealth when it results from voluntary ex change in a competitive mar ketplace; quite the contrary, such market processes are continually di recting productive resources to their highest use and thus bringing about the greatest material progress. The redistribution of wealth by labor unions, however, differs pro foundly from the market process. Unlike the transfer of wealth in a voluntary exchange between a pro ducer and consumer, the shift of wealth by labor unions is accom plished involuntarily, by force and intimidation. Furthermore, the magnitude of the wealth transferred by labor unions as well as the extent of the burden upon those deprived can never be calculated. These are unseen effects of the labor union's impact on the market.

An understanding of this distinc tion requires an awareness of labor's role in the marketplace. Contrary to the popular misconception that con flict prevails between labor and cap ital in productive employment, these independent factors of production actually complement one another. A joining together of capi tal and labor by the entrepreneur stems from the exercise of his foresight in the anticipation of fu ture consumer behavior, and the two factors work together for the· benefit of consumers. The Active Force It is competition among entrepre neurs for capital and labor, not com petition between capital and labor, that is the active force in the free market. Within the context of a par ticular productive effort, capital and labor join together in producing the output of goods and services for the benefit of consumers. The ultimate valuation of these goods and ser vices by consumers in turn estab lishes the value upon the specific productive factors employed.

It is true that capital frequently displaces labor in productive activ ity, as new and better machinery is invented. But far from a destructive, competitive force harming labor, such labor saving devices are the primary ingredient for material progress. Increases in both the quantity and quality of productive capital-tools and machinery contribute to an increase in labor's productivity. The value of labor is dependent upon CCgettingmore goods out of the woods in a given period of time." When capital is employed in produc1979 REDISTRIBUTION OF WEALTH-LABOR UNION STYLE 409 tion the output of labor is enhanced. While greater work effort can ill crease production, the history of man's material progress has primar ily occurred through the use of capital-more efficient tools. It is an obvious truism that a man working with a machine can produce more than a man with his bare hands, and on a greater scale the observatio~ that the great consuming nations are the great producing nations is directly related to their abundance of capital.

It is equally true that labor com petes with labor. Just as entrepre neurs bid against one another for productive labor, so too does worker bid against worker for productive employment. This competition among entrepreneurs, and among workers in the labor market, is a continual force that directs produc tive resources to their highest and most efficient use. Competition therefore, rather than being destructive, can thus be seen as a guiding force toward the attainment of efficiency in the employment of productive resources. The substitution of capital for labor, which increases the productivity of labor, makes the labor correspond ingly more valuable to competing entrepreneurs. This combination of greater capital employment coupled with competing entrepreneurs seek ing competing workers, results in ever-increasing benefits for labor. The Exploitation Theory The historical evolution of the union in the labor market had its intellectual roots in Marxian theories of exploitation. Arguing from the defunct labor theory of value as its premise, the exploita tion theory held that an inherent conflict existed between labor and capital. The labor theory of value erroneously assumed that the source of economic value was labor input.

The returns paid to capital and the extrepreneur, therefore, were neces sarily assumed to come from an exploitation of the labor employed in production. Interest and profits were considered ((unearned," and the in crement paid to them created ((surplus value," a capitalist accumulation of productive resources in fewer and fewer hands. Modem marginal utility theory as well as actual experience in the labor market has totally demolished this fallacious labor theory of value and its erroneous conclusions. It is now well-recognized that the true source of value is subjective, that it is the individual tastes, preferences, likes and dislikes of consumers which give economic value to pro ductive resources. The reason that productive resources have value is because of the contribution they make in satisfying the desires and demands of consumers. Entrepreneurs try to anticipate what these future consumer values 410 THE FREEMAN July will be and to direct market re sources into productive activity to ultimately meet these values. The pursuit of profit is the motivating force for this risk-taking activity.

This return of profits to the success ful entrepreneur resulted from his bringing together independent fac tors of production into a complemen tary state, today. To this end, the factors land, labor, and capital were drawn together for the present bene fit of consumers. Contributing Factors While labor is an important part of productive activity, it is certainly not the sole contributing factor to productive output. Compensation to the entrepreneur and to the owners of capital and land for their roles in bringing about desired goods and services for the consumer must also be paid. What this payment will be to each contributing factor of pro duction is consumer-determined by the resources they willingly ex change for the end-product of the productive enterprise. The rent for land, the interest for capital, the wages for labor, and the profits for entrepreneurs are deter mined by market forces. That is, the given supply of each factor of pro duction relative to the demand for this factor determines its market price. And since it is the final judg ment of the consumers on the worth of the productive output which gives value to these productive resources, the greater the quality and quantity of output that these productive re sources can generate, the more val uable they are in terms of market prices.

It is for this reason that an in creasing abundance of land, capital, and successful entrepreneurs im proves the returns to labor. As the total supply of these other produc tive factors increases, relative to the supply of labor, the greater will be labor's share of the total returns. The higher and higher wages earned by labor, therefore, have evolved from the greater productive output made possible by a declining cost of interest, rent, and entrepreneurial expertise as the supply of each of these has increased. While the concept of labor unions originated in a labor/capital conflict theory that has long since been re futed, and the advancement of living standards can be directly identified with the· market process, the labor union continues to exist today as an imposing force. The historical growth of unions to their present influence in the labor market has little, if anything, to do with their economic role. An under standing of labor union growth re quires an understanding of how the power of legal, government-sanc tioned monopolies can displace the market force of competition.

The role of law in a market society 1979 REDISTRIBUTION OF WEALTH-LABOR UNION STYLE 411 is to protect life and property. This function is vital to the preservation of peace and harmony among the members of society. Such a role de mands equality before the law if legal justice is to prevail. To violate this principle of universality guarantees injustice. Special Powers of Coercion Promote Growth of Unions It is an historical fact that the growth and presence of labor unions can be traced directly to violations of these legal concepts. Prior to 1930 fewer than four million members of the labor force were unionized in the United States. Beginning with the passage of the Norris-LaGuar dia Act in 1933, and the National Labor Relations Act in 1935, unions acquired special-interest legal ad vantages denied to any other insti tutions or individuals. There is no question that a definite correlation can be found between the preferen tiallegal treatment accorded unions at that time, and the twenty-one million union workers in today-'s United States labor force.

The growth of union membership during the past forty years would never have been possible without these special powers of coercion. Competitive free-market labor long ago would have displaced this ineffi cient structuring of unionized labor had not unions possessed their legal advantages. Modern unionism has been the offspring of a statist society of legal privileges. It must be pointed out that mod ern unionism is not synonymous with a voluntary association of workers. It is frequently argued that unions are simply a cooperative ar rangement of workers engaging in collective negotiation with their employer or employers. To believe that this is all that constitutes mod ern unionism would be exceedingly naive because it ignores reality. Certainly there can be no moral objection to workers creating a vol untary, private association as their representative in employment negotiations with their employers.

From an economic viewpoint, how ever, such a collective approach can never serve the individual worker's interests as effectively as he can serve himself. The collectivization of individual workers is not consistent with the competitive conditions that exist between workers for available jobs offered by employers. The estab lishment of a union of workers must subordinate the interests of the in dividual worker to the group. It became obvious very early in the history of the labor union movement that the competing threat from workers in the free labor market would lead to the demise of unionism. The survival of labor unions in a competitive labor mar ket would prove impossible as long as freedom of entry by new workers 412 THE FREEMAN July was allowed in the union labor mar ket. Furthermore, the more produc tive workers within the union itself would inevitably discover the price they were paying as members of the collective group.

Violence and Privilege The survival of unions was depen dent upon the use of both private violence and legislated favoritism. It is no accident that the entire history of union growth is marked with examples of violence. To survive and grow, unions systematically re sorted to physical attacks on persons and property. Efforts at retaliation by employers led to mass conflict. Public opinion, swayed by a belief in labor/capital conflict theories, pas.. sively tolerated and sanctioned this union violence. As long as the general belief was that outbreaks of violence were caused by employers fighting to pre serve their power over exploited workers, the political climate was established for the creation of pro union legislation. Union prop aganda had successfully molded public opinion into believing that unions were the means by which working conditions were improved. It is a simple truism that ideas determine actions. While truth will ultimately prevail in the intellec tual battle of ideas, the belief in fallacious ideas meanwhile will chart our directions, and lead us to the disastrous consequences of these erroneous ideas. And so it has been with the labor theory of value and its concomitant conclusion of exploited labor under capitalism.

Arguing from these intellectual errors, the union was seen as a de vice to combat socialism and pre serve capitalism from its inherent, self-generated defects. Believing that the individual worker was de fenseless against the exploitation of the employer, the union has pre sented itself as a ((progressive friend" of labor. By banding togeth er, the workers would be a ((counter':' vailing power" within the labor/ capital conflict environment that was believed to exist. Such fallacious beliefs have, in deed, caused needless turmoil among men and destruction of prop erty. Armed with the passive sup port of public opinion and enabling legislation, unions have inflicted massive violence upon persons and property in their attainment of monopoly power in the labor mar ket. It is imperative to recognize the true nature of modern unionism. The union today is a legal cartel. It is as reactionary an institution as the guild of medieval times, but more insidious in its violence. Its violence against competing workers (scabs), and its intimidation against employers (strike), are matters of historical fact. The ominous pres1979 REDISTRIBUTION OF WEALTH-LABOR UNION STYLE 413 ence of union labor today is mute testimony to the triumph of monopoly violence over peaceful competition.

The economic impact of the union as a legal cartel is no different from that of any other monopoly. Its pres ervation of power is dependent upon government legal protection, and/or private violence. The power of the labor union is particularJly significant because it relies on both of these sources-all the power the law allows plus what can be usurped through private violence. Granted legal immunity from the judicial injunction, and exempted from jury trial in the United States, the legal power of the union against employers is awesome. By the execution of the strike and the iil legal use of private violence to re strict replacement of striking work ers, a union can effectively enforce its monopolistic wage demands against an employer. A Progressive Force? The redistribution of wealth by legal plunder or private violence is nothing new in the history of man kind. What is new, however, is to refer to unions as a ((progressive"

force as they engage in the destruc tion of the peace and harmony of the capitalist order. The growth of union power in the private labor market was in direct proportion to its effective use of the law and private violence. The abdi cation by professional managers of responsibility to corporate owners of broadly-held stock companies made the task of unions even easier. Rather than resist and risk bad pub licity by replacing striking workers with new workers, the professional managers of large corporate em ployers yielded to union demands for higher wages. The unions thus suc ceeded in acquiring for their work ers a wage rate higher than would have been attainable under condi tions of a free, competitive labor market. This situation can be clearly seen wherever labor unions are present in a labor market. Union wage rates are significantly higher than the wages paid for similar labor that has not been unionized. The tragedy has been to ascribe this differential to the union's ability to raise the gen eral wage rates of all labor, rather than to the use of their monopoly power in raising the wages of just some of the union workers in the labor force.

The direct economic impact of a legal cartel is clearly visible. By forcefully preventing entry of any competitive supplier, the cartel is able to command a monopoly price for its services. The result is that the consumer of goods and services of fered by a cartel is prevented from acquiring alternative goods and ser vices from competitive sources.

414 THE FREEMAN July This is precisely the case with employers acquiring union labor. The supply of workers bidding for the jobs offered by employers is re stricted by the union. Furthermore, no individual is permitted to negotiate directly for himself with an employer of union labor. The em ployer is forced to negotiate exclu sively with the union for his labor requirements. Irrespective of mar ket labor supply factors that would contribute to the determination of a market wage rate, the employer is forced to negotiate fixed wage rates with the union. Above-Market Wage Rates The legal advantages and private violence of the union are exercised in acquiring wage rates higher than would be paid by the market. The employer, in the interests of short run peace and a return to productive activity, is intimidated into accept ing the wage demands of the union. Regardless of any changes in the market forces of supply and demand, the employers are bound to their fixed wages with the union.

While the union, in the exercise of its powers as a cartel, succeeds in acquiring the payment of wage rates above the prevailing market rate, it cannot insulate itself from the in exorable forces of economic law that must follow from such action. Other consequences, less visible and un seen by many, inevitably result from such forceful intervention in the market. The most obvious market re sponse is that the quantity of labor demanded, as with any economic good, will be less at a higher price than at a lower price. Many con sumers will be unwilling to volun tarily exchange the greater re sources required at the higher price. How many consumers will refuse to exchange is dependent upon the sub jective valuations of the consumers for the particular economic good. While this knowledge can never be known with certainty, the mag nitude of these marginal consumers is the determining factor in estab lishing what the economist calls elasticity or inelasticity of demand.

Economic theory can only inform us, however, that all things being equal, fewer consumers will ex change at a higher price than at a iower price. The quantity of the change is dependent upon the price change and the values of the con sumers. The Employer as Consumer In the labor market it is the em ployer who is the consumer. When the price of labor (wages) is in creased, the quantity of labor de manded by employers will decline. The extent of the decline, as with any economic good, is determined by the amount of the increase in the price of labor and the number of 1979 REDISTRIBUTION OF WEALTH-LABOR UNION STYLE 415 marginal employers (consumers) i.n the particular labor market. The higher that wages are forced above the market rate, the greater the decline in demand for the labor by these consuming employers. Presi dent Calvin Coolidge put it well, ttas more and more workers lose their jobs, unemployment results!"

The surplus labor, unemploy ment, is an inevitable result when employers become unable to recover from consumers the higher cost of their productive output. The force of the unions can increase wage rates, but that same force cannot be im posed upon the buying decisions of the consumer. As employers raise their asking prices to cover the union-imposed labor costs, many consumers will cease to buy the goods and services offered. The re sultant decline in consumer buying requires a curtailment of production from the level that had prevailed. For some employers, this neces sity for reducing production levels may prove fatal .. At lowered levels of production the employer may be operating so far below his break even point that he has no alterna tive but to cease production entirely. More typically, it will mean a redu.c tion in unit efficiency for employers, as the more efficient employers are transformed into less efficient em ployers. The decline of their effi ciency in production means that fewer workers are required.

At the higher wages acquired through union force, both the un employed and those within the free labor market are attracted to the higher paying jobs in the union labor market. However, this addi tional supply of labor can have no competitive impact on the union labor market. The employers are bound to their fixed union wage scale and are forbidden to employ competing labor at lower wages. Unemployment The failure of the union-imposed wages to adjust to the competitive conditions of the market leads to both unemployment and a distortion of labor allocation. The magnitude of the unemployment and distortion is dependent upon the difference be tween union-imposed wages and the market wage. The unions are well aware of this consequence and their propaganda constantly seeks to con ceal their role as its cause. Their public image as the ttfriend of labor" forces them to perpetuate the myths that unemployment and the misal location of labor is caused by the capitalist business cycle and greedy, profit-seeking employers.

While the rhetoric of the union claims no limit to what it can ac complish for the worker in tenns of higher wages, the economic limita tions of massive unemployment from exorbitant wage demands .is understood. The long-term s~val 416 1;HE FREEMAN July of the union depends upon a large membership, and the preservation of a large membership of workers requires the economic survival of the employers. It is a constant balancing act, therefore, as the union demands wages above the market, but not so high as to destroy the entire market for the union labor, and with it, the unions them selves. A Free Market Sector The capacity of the union to ac complish this feat, almost with im punity, lies in an institutional re quirement that is essential to union success. The union must have a con current free labor market existing beside it. A competitive labor mar ket that responds to changing forces of supply and demand is needed to absorb the unemployed that are driven out of the union labor market.

Less than one-quarter of the labor market is unionized in the United States today. Furthermore, not all union labor is earning above market wage rates. It is probably a safe assumption that fewer than twenty percent ofthose in the United States labor market are receiving wage rates above what could be acquired under free market conditions. It is this small minority of union workers receiving above market wage rates that generates the in sidious redistribution of wealth in the labor market. The Tanstaafl principle (There ain't no such thing as a free lunch) has no better dem onstration than by this example somebody pays. There are two groups that pay directly-those who are employed in the free labor market, and those who consume union .labor market goods and seryices. Ultimately, everyone pays indirectly in the form of a low ered standard of living resulting from the disruption of the produc tive system and reduction of the incentive to the accumulation of capital.

Workers who would be employed in the union labor market, if free dom of entry prevailed, have no choice but to compete in the free labor market where supply and de mand forces still determine wages. Their bidding in competition with the existing supply of free market labor causes the wages of free mar ket labor to fall. The result is that wages in the free labor market are lowered because of the entry of the unemployed workers forced out of the union labor market. This shift of wealth, higher wages to union workers at a cost of lower wages to free market workers, is a subtle, but nevertheless very real, redistribution of wealth. It is, in deed, an exploitation of labor by labor, that is, a forced transfer of wealth from the free labor market to the union labor market in the form of differing wage payments.

1979 REDISTRIBUTION OF WEALTH-LABOR UNION STYLE 417 Also harmed are the consumers of goods and services produced by union labor. The law of costs ulti mately requires that the higher union wages must be borne by these consumers if production is to con tinue. Future production at the above market labor costs imposed by unions, exacts its toll in the form of consumer prices higher than would prevail in a competitive market. Once again, a forced redistribution of wealth occurs as the consumer must pay the higher costs of union labor, but of what magnitude can never be known. The competitive market price in the absence of the union labor is unknown. While such redistribution of wealth by the force of union power represents exploitation and injus tice, the capacity of unions to trans fer wealth to themselves is limited by the ultimate consumer. If union wage demands become too excessive, employers are destroyed by the fail ure of consumer buying. In the so called private sector labor market it is a continual balancing act that is pursued by the union.

There is, however, a new and far more effective labor market that unions can exploit. This is the so called public sector labor market, the labor market composed of gov ernment employees. Unlike the private labor market that survives by its capacity to pro duce goods and services that are voluntarily acquired by consumers in willing exchange, the public sec tor labor market is supported by the taxing power of government. The law of costs does not apply to gov ernment activities as it does to pri vate employers in a competitive free market. As a matter of fact, cost has nothing to do with the price of gov ernment activities. More often than not, government-provided services are offered free of price to the con sumer. The costs of these govern ment services are generally imposed upon the taxpayer. Monopoly, Bureaucracy, and Union Power in Public Sector Union power in the public sector labor market is further enhanced by the monopoly structure of government-provided services, and the bureaucratic system of govern ment management. Market compe tition in the form of freedom of entry in supplying alternative sources of goods and services to the consumer is generally prohibited by the force of law. Unlike the private labor market where higher union labor costs invite competition from free labor market employers, the public sector labor market is protected by legal monopoly. Competitive alter natives to the consumer are denied by the force of law. Whether it is policemen, firemen, teachers, sani tation workers or clerical govern ment workers, the determination of 418 THE FREEMAN public sector wages is more a politi calor bureaucratic decision than a market-determined decision by con sumers.

Resistance to union wage de mands in the public sector stems more from political considerations than from productivity considera tions. It is usually the vocal outcry of the constituency, not the bureau cratic manager, that objects to the excessi ve wage demands of the unions in the public sector. After all, the bureaucratic manager himself is a worker in the public sector labor market, and any union gains for his subordinates accrue to him as well. The bureaucratic manager has even less incentive to resist union de mands than his counterpart in the private sector market-the profes sional manager of the large corpora tion. The wage costs of public sector workers, like any and all costs of government, ultimately are borne by the taxpayers. Whereas the union redistributes wealth to its workers from expropriating the re sources of consumers and free mar ket labor in the private sector, the redistribution of wealth to the pub lic sector worker comes primarily from increased taxation.

Not confronted with the problems of competitive workers or unwilling consumers, the public sector union can significantly increase the magnitude of its wealth redistribution. The only effective limitation to such union power is the same force that limits the whole of government-the private wealth of the citizenry that can be seized by government taxa tion. Government labor unions have been quick to observe this massive increase in their power to redistri bute wealth, and naturally have urged an expansion in public sector unionization. To this end, the growth of government in economic affairs has opened a new source of labor union power in the forced re distribution of wealth. It is a sad commentary of our age that the combination of economic ignorance and man's blind pursuit of power has brought us to this point. Any reversal in this state of affairs can occur only if we improve our economic understanding and struc ture our legal institutions to safeguard our lives and property from such private power abuses.

The hope of the future is in chang ing ideas. Unions exist today as a monument to intellectual error. They are the -product of a statist society that permits the private abuse of power in the forcible redis tribution of wealth. Any return to a free society demands the realization that competition and freedom, not legal privilege and violence, are the way to general prosperity for all. , John Chamberlain "WINDFALL" FOR CONSUMERSIN DEREGULATION OF EVEN THOUGH the deregulation of oil prices won't be complete until 1981, practically everybody is cer tain that the big oil companies-the so-called Seven Sisters-are going to make some exorbitant profits on a uwindfall" situation. But what if the profits fail to materialize? If ordinary economic law has anything to do with it, the increased competition for the ex panded energy dollar must, at some point, lead to lower, not higher, re tail prices. If this isn't the truth, then Henry Ford never lived, the American Way was a misnomer, and all the classical economists from Adam Smith to Alfred Marshall were a bunch of hams.

My colleague John Roche accu rately notes that the big oil com panies escalated prices the minute the energy tap in Iran was closed off, even though the fuel they were charging for at the gas pump had already cleared the Persian Gulf be fore the Shah had taken it on the lam. Of course! The market always anticipates the future. If something is going to become scarce, it makes no sense to get rid of old inventories as if nothing were going to happen. Conversely, if there is a reason able expectation of a more plentiful supply of fuel in the future, the inclination of buyers will be to lower their inventories, waiting for the day when prices will come down. So everything between now and 1981 will swing on what is done to lighten the burden of car drivers, manufac turers who use electricity, and home owners who have to heat and light their houses. 419 420 THE FREEMAN July What are the prospects for new oil and gas wells? What sort of deal for fuel can be worked out with Mexico?

How soon will that pipeline from Southern California, and the other one from Puget Sound to the Middle West, be finished? How quickly will gasohol, made in a thousand stills from vegetable matter, be available to motorists to mix with gasoline in their tanks? What differences will the new motors that get close to 30 miles a gallon make when Detroit begins to catch up with the Japanese in the competition for the small car market? The other day this column wrote about the experiments of a Miami company in mixing hydrogen and chlorine, two components of sea wa ter, with light in a closed-cycle en gine to form an explosive mixture. Hydrogen unlike crude oil, is all around us. I can't vouch for the chemistry and physics of a hydrogen engine, but Nation's Business, in a long and patient article in the April 1979 issue, quotes from the en dorsements of a number of disin terested authorities (Dr. Daniel Wells, a professor of physics at the University of Miami who has been an investigator for the U.S. Air Force and NASA projects, is an example).

For the life of me, I can't figure out why the testing of the Solar Reactor Corporation's hydrogen chlorine-light motor at Aberdeen, John Chamberlain has en joyed a varied and illustrious career as critic, editor, and journalist. He has been a re porter and daily book colum nist for The New York Times. In add ition to corporation and industry studies for Fortune, Barron's and The Wall Street Journal, his writings have ap peared in numerous other magazines. This article is from his newspaper column, here reprinted by courtesy of King Features Syndicate. Mr. Chamberlain has taught at the School of Journalism of Columbia University and serves as Dean of the Pro gram for the School of Jour nalism at Troy State Univer sity in Alabama. Among his several books are The Roots of Capitalism and The Enter prising Americans: A Busi ness History of The United States. John Chamberlain's book reviews have been a regular feature of The Freeman since 1950.

Maryland, didn't make a few of our front pages. But then, the Dayton, O;hio, papers missed a palpable scoop when the Wright brothers first flew their plane. Besides, all the energy experts were off to Harris1979 ((WINDFALL" FOR CONSUMERS IN DEREGULATION OF OIL 421 burg to cover the Three Mile Island disaster. The Gresham's Law of the media is that bad news always drives out good news. The other day, on the sports page I read about a racing driver who had personally altered his engine to get 67 miles from a gallon of gas. Why wasn't this front page stuff? And why was it left for the Jerusalem Post international edition to print the story of Israel's new technique for extracting oil and gas from shale by the use of laser beams which, when directed at shale through a small diameter pipe for deflection by a mirror, kindles an under ground flame that sends gas to the surface to be condensed into kero ten, a burnable fuel?

Israel has known reserves of two billion tons of shale. If this can be Serving Others economically exploited, it means just so much less pressure on oil companies that are willing to sell to pariah nations. As for South Africa, one of the pariahs, it intends to get half of its gasoline from coal by the early 1980s. I fully realize that nothing in eco nomics comes easy. But when the market promises profits, and there is no bar to freedom of entry into the market by the inventors, the explor ers and the wildcatters, no 0 PEe can sit on the lid forever. Windfalls there may be, but when the govern ment removes its cotton picking regulatory hands from the market the price cutters will take over. They will either give us more effi cient motors or cheaper fuel--or a combination of the two._ @ Copyright, King Features Syndicate. IDEAS ON UBERTY WHEN a person condemns wealth,· he is merely using different words to condemn the profit motivation that causes the production of the maximum amount of goods and services for the greatest number of people....

Personally, I can see nothing wrong or evil about self-interest and serving others because you have to have them serve you in tum. Like anything else, the profit motive and the resulting accumulation of wealth can also be used for evil purposes by evil people. But by and large, the motivation of profit is primarily responsible for the vast amount of mutual service we find among us today. It is responsible for the constantly increasing standard of living in our country and the world in general. It is a moral method of encouraging all of us to serve each other better and effectively. BENJAMINFAIRLESS Melvin D. Barger ... (E)very individual . .. endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that indus try that its produce may be of the greatest value, every individual necessarily labors to render the an nual income ofthe society as great as he can.

It makes no difference that he neither intends to promote the public interest, nor knows how much he is promoting it. By . . . directing that industry so as to produce the greatest value, he intends only his own gain. In this, as in many other cases, he is led by an invisible hand to pro mote an end which was no part ofhis intention. (Emphasis added) -Adam Smith THE WEALTH OF NATIONS, 1776 422 A NEW LOOK AT THE INVISIBLE HAND THE .most famous doctrine of the moral philosopher Adam Smith was that of the ((invisible hand." It usu ally comes in for ridicule from those who seek the planned society. To them, Smith's unobtrusive hand was either a myth or only a quaint idea that might have worked in the Eighteenth Century. But they say it is naive to believe, as Smith did, that private and social interests are brought into harmony by the self interested actions of all. But Smith has actually been mis understood by friends as well as foes of the free market economy. Never for a moment would Adam Smith have believed that any individual's self-interest is always in harmony with the good of society. That would Mr. Barger Ja a corporate public relatlona executive and writer In Toledo, Ohio.

A NEW LOOK AT THE INVISIBLE HAND 423 be an absurdity that is easily dis proved by human experience. Nor did Smith believe that any action by a businessman is always good. Smith knew as well as anybody that certain people will practice fraud and deception in the market place, and no ((invisible hand" slaps them down before others are cheated. So how does the ((invisible hand" really work and what are its limitations? A new Adam Smith, looking at today's world, could still trace the benign effects of the ((invisible hand" -something that Smith's critics begrudgingly acknowledged. But the uhand" also works in sinister ways to destroy society, and it is doing so now. The key to under standing this is to look at the nature of the self-interested actions which might benefit society and to contrast them with other self-interested ac tions which destroy society. The ac tions described in Smith's famous example were both productive and peaceful, and they were aimed at producing goods and services which others would value as determined by the market. But what about self interested actions that are destruc tive and violent, and might be aimed at goals which do not have sufficient value in a market?

Every sensible person knows that ordinary criminal actions harm not only individuals, but society as well. The robbery of a bank, for example, is considered a crime against the whole society and not just the bank owners and depositors. Most other crimes are in the same category, a tacit recognition of the fact that a good society depends on honest and orderly human actions. It would be ridiculous to suggest that a society of John Dillingers, however, self interested their actions, could be anything but a nightmare world. Most people will admit that this is true, so they support the govern ment in its efforts to hold the John Dillingers at bay. But there are other wrongful ac tions that are not so easy to detect as the robbery of a bank. In these ac tions, the government itself is both a sponsor and a partner. These actions have a great deal of social approval and have been authorized by the political processes, so a person is almost shouting into the wind by questioning them. Yet, the right or wrong of something is not deter mined by its political support, but by observing its effects over the long term and at every level of society.

Adam Smith saw favorable effects in certain productive, peaceful market actions. How would he view the fol lowing practices? 1) Payment of benefits to politi cally active groups and their clients; 2) Granting coercive power to certain favored groups; 3) Intervening in the market with price controls.

424 THE FREEMAN July All of these practices are standard features of American government today and have actually become an integral part of the system. It is useless, in most cases, to consider dismantling any governmental pro gram until it has been almost thoroughly discredited. It is also futile to expect to abolish govern mental programs simply by proving that they are wrong and inefficient. The would-be reformer always finds himself on a collision course with powerful groups who have an inter est in protecting certain programs, no matter how bad and even counterproductive these programs have become. Most people who sup port certain government programs and interventions will also admit that we are being crushed by exces sive government spending and con trols. Why, then, do they support something which is economically in efficient and results in loss of lib erty? They have actually been moved, as if by an invisible hand, to give such support. Here's how it happened.

The Lure of Benefits One of the most destructive and di visive practices of American govern ment is the payment of benefits to politically active groups and their clients. At one time, such payments were only an insignificant part of the national budget. In the past 30 years, however, the Congress and Administrative branch have become centers for the massive distribution of funds to various localities and groups for numerous social and political purposes. This distribution of benefits goes under a variety of names and is justified by a number of sophisticated arguments and cliches. Some of the benefits pro grams have become so we11 entrenched that they function as part of the economy and people have become totally dependent on them. The person who dares to question such programs runs the risk of being a villain who would leave people destitute and helpless. A good example of this is the Social Secu rity program; one cannot even criticize it without appearing as cruel and heartless, and the same seems to be true of countless other social welfare ventures.

But there are increasing signs that Social Security is becoming a bankrupt program, while demands for other benefits are outrunning the government's ability to collect equivalent amounts in taxes. The competition for government funds has degenerated into a bitter and abrasive contest, with each favored group attacking the others' premises and claims. Meanwhile, taxpayers are balking at the demands placed on them and are beginning to react by supporting legislative proposals aimed at curtailing government spending or taxation. Far from 1979 A NEW LOOK AT THE INVISIBLE HAND 425 creating a good and harmonious so ciety, the struggle for government funds has split society into clusters of special interest groups which snarl incessantly at each other when they aren't busy raiding the federal treasury. If self-interest was seen by Adam Smith as good, why has it led to such disastrous results?

Perhaps the answer lies in the basic nature of benefit-seeking through political action. It is essen tially a destructive and violent ac tion, however peaceful it may seem when channeled routinely through the American political processes. Benefits are obtained by using government police power to force certain people to give up goods and services which are then redistrib uted to others. Moreover, the per sons who obtain the benefits have not produced anything of market able value as a means of establish ing their claims. It is true that the advocates of this redistribution are always able to present their demands as a good cause that is ((inthe public interest." It is often the seeming righteousness of their cause, as much as political power, that help.sdisarm their op ponents. Indeed, it is often impossi ble to oppose certain benefit pro grams without being smeared as a selfish reactionary who hates the poor or is indifferent to the plight of old and sick people.

No decent person should oppose reasonable welfare measures. But everybody should be suspicious of practices which are obviously bad if everybody adopts them. That is be cause self-interest is omnipresent in society, and is always alert to new opportunities for personal gain at the expense of others. Let one group establish its claim to government benefits, and this becomes the prec edent for all groups to do the same. None of these groups want to destroy society or to drive the government into bankruptcy. But ((inthis, as in many other cases, they are led by an invisible hand to pro mote an end which was no part of their intention." Promoting Coercion The ((invisible hand" is also active in private plans for the coercion of others. There are numerous exam ples of such coercion, but one of the most notable is compulsory union membership. Although unions are private organizations, the police power of government is decisive in giving them the authority to impose sanctions on dissidents. In this case, the controlling group also has power over a person's livelihood, which is no small thing. Unions' success in obtaining coercive power has also led others to seek similar authority in other ways.

The use of coercive power by unions began in the 1930s with the passage of the National Labor Rela426 THE FREEMAN July tions Act (the Wagner Act). It was an .astonishing breakthrough for union organizers who, until then, had faced resistance not only from employers but also. from certain workers who refused to belong to their unions. But the Wagner Act changed all that and eventually had the effect of making union member ship and the payment of union dues compulsory. It was argued that every worker benefited from union activity; therefore, every worker had a duty to pay dues and to sup port the union. Whose self-interest was being promoted here? Undeniably, many workers believed that they benefited from their union membership, so they had an interest in making the organizing power of the union a11 inclusive. Coercion was even more in the interests of union officials, who no longer needed to persuade dissidents to join the unions. The extraordinary argument was even made that workers did not really understand their own self-interest and had to be prodded into it by their more enlightened leaders. In this argument, the intellectuals who supported coercive union activity were showing their contempt for the individual worker. They simply could not believe that men who la bored with their hands might also be thoughtful people with strong philosophical and personal reasons for not joining a union.

But the argument for coercion carried' the day, and union member ship burgeoned. This was to be ex pected, and it was a natural action of the invisible hand. Witnessing the success of one union, other self interested organizers went to work forming organizations of their own. Of course they always insisted that they were working either in the workers' interest or in the public interest. But anybody who is famil iar with union activities soon learns that self-interest is the controlling factor. Unions do not fight with un usual zeal, for example, to organize small, isolated firms having only a few workers. They are drawn as if led by an invisible hand to the or ganizations which have a large po tential for union membership, dues, and power. But unions fail to meet the test of the examples in Smith's famous doc trine. They are neither productive nor peaceful, and they produce no goods or services that others would value as determined by the market.

The union is simply an intervening third party. All of the goods and services produced by unionized firms could be supplied even more efficiently without the union. The success of unions in obtaining coercive power has encouraged other movements to adopt similar pro grams. In most cases, the activists of the 1960s and 1970s have sought the coercive power of government rather 1979 A NEW LOOK AT THE INVISIBLE HAND 427 than peaceful cooperation as a means of getting their way. For the most part, there has been little interest shown by these groups in using friendly persuasion; Le., in promoting their cause by showing people a way that is superior and desirable. Instead, most of these cause groups prefer tactics of in timidation and threats which force compliance with their point of view. The consumer movement that coalesced around Ralph Nader typifies this approach. Many con sumer activists are sincere reform ers who actually believe they are helping people. Yet it is almost im possible to find a single consumerist action that could really be consid ered productive and peaceful, or was aimed at producing something that others would value in the market.

The main goal of consumerists has always been to exercise a life-and death power over the production processes, without regard for the opinions and rights of participants. They apparently take the position that the righteousness of their cause gives them the right to make the consumer's decisions for him. The success of these activists, like that of the unions, has spawned countless other movements aimed at changing society and bringing their own leaders into positions of promi nence and power. It is sometimes disturbing to note how radical and arrogant these groups have become in their demands for power and au thority. But the precedent of giving coercive power to favored groups was established long ago, and we should not be surprised that self interest leads an increasing number of activist groups to seek similar advantages. A Hand in the Marketplace Still, while the ~~invisible hand"

works in every type of human activ ity, it's probably the customary marketplace of direct transactions that gives us the best examples of its workings. Now that price controls are again being considered, we can easily predict how self-interest will cause them to fail. Of course, while the proponents of price controls usu ally agree that Hgreedy business interests" cause their program to fail, they should at least realize that everybody's self-interest will tend to thwart the aims of the price control lers. Price controls are laws or ad ministrative rules devised to pre vent producers and sellers from rais ing their prices above certain levels which are deemed to be fair or in the public interest. The current purpose is to restrain inflation and protect the consumer's purchasing power. When price controls are being pro posed, the producer or seller is often portrayed as a heartless wretch who has both the desire and the power to price-gouge the consumer.

428 THE FREEMAN July Commercial Decisions What would our friend Adam Smith have to say about that? He would have agreed, most heartily, that producers and sellers have a self-interest in earning as much as they can. But they never have the power to charge more than custom ers are willing to pay, nor is it al ways in their self-interest to raise prices. Sellers frequently improve their earnings or cut their losses by lowering prices. But it is as wrong to condemn a price increase as it is to praise a price cut, because both price adjustments should be viewed as commercial decisions which the seller made in his own self-interest. The supermarket produce manager who slashes the price of bananas on Saturday afternoon is not perform ing an act of charity; he is only trying to reduce his losses on supplies that would otherwise spoil. Nor is he a scoundrel when he raises banana prices on Monday. He is only responding in a proper businesslike manner to market conditions of sup ply and demand.

But price controllers either ignore the normal operations of prices in the market or declare that special conditions make price controls necessary, at least for the time be ing. When the controls are enacted, however, much mischief happens and it's all directed by the invisible hand of self-interest. First, there's the self-interest of buyers, who welcome the opportu nity to purchase goods and services at below-market prices. Their de mands will naturally exceed the supplies being offered at that price level. Producers and sellers, who were prevented from expressing their self-interest in pricing, now curtail their production or shift their resources into other product lines. When shortages develop, those producers who are willing to take the risk will sell above the controlled price in the so-called ~~black" market. Or both sellers and buyers may create ways of getting around the controlled prices without appearing to break the law. Both parties to the transaction may find it in their self-interest to ignore the controlled price. The buyer would appear to be the victim of price gouging, but he prefers that to the bleak alternative of not being able to complete a purchase of needed goods. So he cooperates in circum venting a law that was supposedly designed to protect him.

Self-Interest Is Always Present It would be possible to detect the workings of Adam Smith's uinvisible hand" in an infinite number of economic decisions. For example, what form of communications causes used car dealers to raise and lower car prices almost simultane ously? Some naive people would charge collusion, but price changes 1979 A NEW LOOK AT THE INVISIBLE HAND 429 occur automatically at businesses owned by car dealers who haven't spoken to one another in years! Or, what causes the prices of real estate to rise and fall, and why do sellers seem to know the ((going" price of their houses even when they do not ordinarily deal in real estate? How do unlettered immigrants, though unable to speak the language of the country, quickly learn how to iden tify currency values and make ordi nary transactions with the shrewd ness of native citizens? The answer is that we can always depend on self-interest to work in certain ways most of the time. Peo ple do not usually need to be in structed to take actions which they perceive to be in their self-interest.

This is not to say that everybody has the same goals or always takes ac tions which are good for him in the long run. Human beings do seem to be remarkably perceptive, however, about things they are interested in and want to do. The dedicated farmer who expects to get a good price for his crops does not have to be ordered out into the field at gun point; the inventor who hopes to reap a fortune with his new gadget does not have to be locked into his workshop; the investor who expects a handsome return does not have to be coaxed to save and invest. People do all these productive and peaceful things voluntarily because they will be rewarded if their efforts have value in the market. Nobody has to worry about directing or organizing their efforts; indeed, all this activity is best coordinated when govern ment planners stay out of it. The omnipresence of self-interest will see to it that each individual finds a place of service and ways of supply ing his needs in peaceful ways. As Adam Smith showed, the total wealth of the nation will then grow by a seemingly mysterious process.

That same self-interest can be come troublesome, however, when people are rewarded for destructive and violent actions. The effect of such rewards is to encourage others to use the same tactics, which en courages still others to do the same, ad infinitum. This can only result in a slowing down of productive efforts and an eventual breakdown in soci ety and the economy. Nobody but a madman would desire such an end, and certainly nobody believes his own actions are taking society in that direction. But people can be led, u as if by an invisible hand," to pro mote a sad end which was not part of their original intentions. This is no more surprising than Adam Smith's observation that self-interested ac tions can promote good ends. He might have added that the ends are predetermined by the nature of the actions. Peaceful actions will lead to desirable ends, violent actions lead to chaos and disorder. We choose the ends when we choose the actions. @) V\6rld inthB grfRQfan Iaea, Clarence B. Carson 31. The Subjugationof the Individual THE SUBJUGATION of the individual proceeds along two parallel lines as the idea which has the world in its grip extends its sway. One line is to bring the individual under the domination of organizations, and ul timately of government. The other is to use numbers in such a way as to reduce the individual to a nullity and thus to instrument him to the purposes of those who hold power.

Collectivism is supposed to be a means of transcending the limits of the individual, of augmenting him In thl. serle., Dr. Carson examine. the connection between Ideology and the revolution. of our time and trace. the Impact on several major countrle. and the .pread of the Idea. and practice. around the world. 430 by joining him with others. The de vice by which this is to be ac complished is the organization. The notion which makes this appear to be possible is that the organiza tional whole is greater than the sum of its human parts. But, as has been noted, the organizational whole is only greater than the sum of its parts in its coercive and destructive potential. It is less than the sum of its parts in its constructive poten tial. This is so because rather than augmenting the constructive powers of the individual by organization they tend to be narrowed, confined, and delimited the more firmly con trol is asserted.

THE SUBJUGATION OF THE INDIVIDUAL 431 The collectivist reliance on or ganization, then, results in increas ing coercion, decreasing production, and individuals who are restrained and subdued. The illusion that the individual could be transcended by organization arose from the great increase in production made possi ble by the much more extensive use of capital in the last two centuries. Much has been made in this work of the religious character of the animus behind socialism. It might be more appropriate at this point, however, in discussing the devices of socialism, to emphasize the magical qualities attributed to them. The veneration of the organization, and especially the state, entailed in socialism, amounts to a belief that some sort of magic inheres in them. That man could be transformed by these instruments requires magical components within them. If they do have, it is black magic, for the use of force deforms rather than trans forms man.

The Use of Numbers But the reliance upon and use of numbers in our era provides a clearer demonstration of how deeply we are drawn into magical incanta tions and divinations by the idea that has us in its grip. The descrip tion of this will show, too, how the individual is being subdued and sub jugated by the use of numbers. The belief that there is magic in .numbers, or at least in certain num bers, is not new to our era, of course; it is at least as old as the earliest records of man's doings. The number ttthree" has often been singled out as a potent number. ((Seven" has long been a favorite number, and it is still highly honored in dice games. Understandably, perhaps, special properties may be attributed to ((ten," for it is the normal number of our fingers, as also of our toes. ttThirteen" is widely reckoned to be an unlucky number. Many people believe that they have a lucky num ber, and contemporary numerology rises to its superstitious peak in the daily selection of a number by those who play the ttnumbers" racket.

A number system does have strange 'and often wondrous aspects to it, and it may be that the ten dency to see something magical in numbers stems from these. In any case, the use of numbers in calcula tion, which is their primary legiti mate use, has enabled man to for mulate precisely much of his knowl edge of the universe and to extend his utilization and control over things about him. We comprehend the universe we inhabit mainly by way of numbers: the speed of light, the speed of sound, the distance of the earth from the sun, the length of time it takes the earth to rotate on its axis or to make one revolution round the sun, the law of gravity, and a great variety of other interest432 THE FREEMAN July ing and sometimes useful informa tion. Size, magnitude, quantity, and ratio, all now expressible with great precision in numbers, are critical for present day production and distribu tion of goods.

Interchangeable parts-possibly the single most critical technique in the vast expansion of man's power by tools-are made possible by adherence to careful and precise cal culations. Hundreds of thousands of nuts are made which will match the threads of a single bolt. Electricity, which cannot be seen, tasted, heard, nor smelled can be measured to the watt and sent surging through wires in force that will vary by only a very few volts. The size of engines-the measure of their potential output is now commonly expressed in cubic inches or centimeters. The ratio of gears determines the potential speed of vehicles. And so on. In short, man's mastery of things in the world about him is made possible or greatly enhanced by the most pre cise sorts of calculations. Numbers are the touchstone of contemporary man's control over things for his purposes. To Control People The thrust of socialism is to divert the effort from the use of numbers to control and utilize things to their use for controlling people, divest ing individuals ofthe control oftheir own affairs, and utilizing them for the power ends of government. The late Ludwig von Mises demon strated that in a pure socialist sys tem economic calculation would be impossible. 1 The reason would be that there would be no market determined prices whose fluctuation would provide the necessary data for calculation. His student, Murray Rothbard, carries this insight a step farther when he declares that government ownership of any undertaking ttinjects a point of chaos into the economy." This is so, he says, for ttNo government enterprise can ever determine prices or costs or allocate factors or funds in a ra tional ... manner."2 It follows, I take it, that any government intervention in the market will tend to produce a simi lar effect. The principle that emerges from this can be stated this way: The greater the extent of government intervention or own ership the less can numbers be used to control things and the more will the effect oftheir use be (when and if they are used) to control people. One of the hallmarks of socialism, as we shall see, is to use numbers to con trol people.

The most obvious use of numbers in gradualist countries is in the ef fort to control the economy of a na tion. The numbers that are believed to be relevant to this undertaking are statistics. Ours is the only era and time in all of history in which na1979 THE SUBJUGATION OF THE INDIVIDUAL 433 tional statistics have been exten sively collected, compiled, and used. There is a reason for this. Statistics are just about the most inherently uninteresting thing imaginable. They are formed by reducing per sons, places, or things, to numbers, which is the aspect of them that is positively the least interesting. In deed, a statistic acquires interest ordinarily as it conveys unusual magnitude or proportions. Insofar as it deals with the average, which is what statistics usually do, it is to that extent uninteresting. Figuratively Speaking Poets and historians sometimes used numbers in other ages. An his torian writing in the Middle Ages might refer to 10,000 archers stand ing upon a hill. It is most doubtful that he, or anyone else, had counted them. What he was saying was that a huge army of archers stood on the hill, and numbers struck him as the best way to convey that. Ancient literature contains many references to very precise numbers of people (usually rounded off to the hundreds or thousands),but they are not statistics, as we understand such things; they are poetic uses of num bers. It is not that people in other ages did not sometimes keep careful records and precise accounts; it is rather that to abstract them as statistics would not have seemed to them worth the effort.

Socialism vitalizes, animates, gives meaning and purpose to statis tics. It does this by attributing a magical quality to them. They are to be the means by which economies are to be planned, controlled, and all efforts are to be concerted. It would probably be possible to calculate with some precision the extent ofthe spread of socialism in a country, especially of gradualist socialism, by the degree to which statistics are kept and used. In short, the wide spread use of statistics is a phenomenon of socialism. Statistics are an abstraction of some aspect of history. They tell us the barest minimum about some thing or other that happened in the past-yesterday, ten days ago, a year ago, a hundred years ago, and so on backward. (They are, it might be said, history reduced to the idiot level, with all the juices wrung out, with everything that made history vital left out.) Statistics and Prediction The magical quality which socialists-which is to say, most of those who use them, whether they are aware of it or not-attribute to them is that they are a prediction of the future. One encounters evidence for such a belief all the time. For example, the newspapers report that an electric power company has gone before a state public utilities com rnission with a request for 434 THE FREEMAN July $289,000,926 annual increase in its annual revenues, say. Almost as ifit were incidental, they also report that the request was for a rate hike.

Now it is quite conceivable that the company might get the rate hike requested and actually experience a decline in revenues. Indeed, since the demand for electricity is elastic, it is predictable, other things being equal, that any substantial increase in rates will result in a decrease in consumption, either relatively or absolutely. In fact, statistics are not a prediction of the future; they are a desiccated record of some aspect of the past. The only way to predict the future with any accuracy is to control it, to remove from people as individuals the means by which they can man age their own affairs and change the course of things. That is, of course, what socialists intend and attempt to do. Marx claimed to have dis cerned the course of the future with scientific accuracy. It was a bogus claim. Twentieth century socialists are trying to use the power of government to make his predictions come true.

A Tool for Planners Statistics can be used in planning with some degree of success in a controlled situation. Barring some catastrophic occurrence, it is possi ble to predict how many classrooms will be needed in the United States for first graders next. year if we know how many five-year olds there are at present. What makes this statistic a useful basis for predic tion, however, is positive law and long established custom. Most states have compulsory attendance laws, and the usual, and, in many states, the required, school entering age is sometime during the sixth year of a child. It is possible to predict where the classrooms will be needed with reasonable accuracy if children are required to attend the school in their district and a recent survey has re vealed how many children there are. The fewer the variables-if there are no private schools, if the popu lation is immobile, if no parental discretion is permitted-the more accurate the outcome of the predic tion based on statistics.

In theory, perfect planning would be possible if the population was under the complete control of a sin gle power (and all acts of God would cease, which communists have tried to achieve by denying God and natu ralists by denying that He performs any acts). The thrust of socialism is toward that complete control over men by depriving them of choices by which they might thwart the plan ners. The effort to use statistics as a means to control the future pushes us toward reducing individual man to a statistic. Specifically, it man ifests itself as the tendency to reduce man to a number.

1979 THE SUBJUGATION OF THE INDIVIDUAL 435 Calculation Impossible Under pure socialism, Mises said, economic calculation would be im possible. But under pure socialism not only economic calculation but all calculation would be redundant, hence irrelevant and unnecessary. Calculation is useful only because things are independent of us and do not necessarily conform to our will. I count my sheep, or would if I had any, because one or more may have strayed or been stolen, or a new one might have been born during the night, or for whatever reason they are independent of my will. Under pure socialism, statistics would be a command that would be perfectly fulfilled, not a sum arrived at after the fact. Soviet communists have halfway pretended they could do this for decades now. Their statis tics are a compound of commands, wishful thinking, and the determi nation to deceive those who examine them. Expert Sovietologists have long found it necessary either to make their own calculations or to make drastic reductions in those re ported by Soviet authorities. Clever workers in the Soviet Union can sometimes fill or surpass their quotas-statistical commands-by having more than one worker count the same product as his own.

Pending the arrival of pure social ism-an event which is at worst several eons away, by my reck oning-socialists do find it useful to engage in calculation. Indeed, gradualists compile statistics with greater passion than saints stored up virtue in ages past. They calcu late gross national products, con sumer price indices, wholesale price indices, the number who are un employed, the number of empty hos pital beds, the size of the public debt, the amount of private indebtedness, the number of people who suffer from the common cold and how lnany days work are lost as well, and may, for aught I know, compute the average daily discomfiture oc casioned for victims of hangnails. With all these masses of statistics in hand, they sally forth to «fine tune" the economy and enact programs that their statistics tell them will assure that in the future just the right amount of whatever is needed v;ill be available.

The verdict is not yet in as to whether those who consulted chicken entrails to divine the future had greater success than users of statistics, but it would not surprise Ine to learn that the Department of Jlealth, Education and Welfare has commissioned a study on just that subject, a statistical study, no doubt. Assaulting the Individual Even though calculation is still going on, indeed more of it than there ever has been before, under the impetus of socialism numbers are increasingly being used for 436 THE FREEMAN July another purpose. As noted earlier, the primary function of numbers is for use in calculation. That may well be their only legitimate use, since all other uses tend to perversions, as in gaming, magic, and superstitious practices. The use of numbers to identify things is innocent enough so long as the maker or owner of the object assigns the number. But even the assignment of numbers to things is suspect when anyone other than the owner assigns the number, for it is a usurpation of the prerogatives of ownership.

But the as.signment of a number to an individual-which is the sig nificant change being fostered by socialism-is more than suspect; it is a subtle and symbolic assault on the person. It has an unsavory past and portends ill for the future. It is a device for bringing people under control of the number assigners. The movement toward reducing individ uals to numbers is grist for the mills of socialism. It arose in the wake of socialism, reduces the human to the level of a statistic, and instruments him for the kind of control entailed in command statistics. Individuality is an obstacle to col lectivism. Everything that distin guishes one individual from another, all differences in personal ity, any uniqueness, any peculiarity, any rough edges, all these hinder the meshing of the individual with the group, the organization, the class, the mass, the society, and fi nally the state. The concerting of all effort requires that individuality be sublimated, subordinated, or nul lified. Numbers are the right in strument for this.

What's in a Name? The sign and symbol of individ uality is a person's name. It has been said that the most pleasing sound in the world to a person is that of his own name. There is good rea son for this. It stands for his person ality, his individuality, his unique ness, all that he has done and be come. He who loves and respects himself must in some fashion love his name, even when he does not like it as a name when considered objectively. Religious ceremonies sometimes give public sanction to the sacramental character of the name. In Christianity, this is often done by linking naming with bap tism. An individual's status as a dis tinct being is conferred upon him socially by his name. Naming of persons and animals is a prerogative of parents, possessors, or trustees. In the case of minor children and animals a change in trustee or owner may result in a change of name. In the United States, at least, when a child be comes an adult he may by initiating the appropriate action change his name. The assigning of numbers to objects is historically the preroga1979 THE SUBJUGATION OF THE INDIVIDUAL 437 tive of the originator, maker, or owner. (Some objects are also given names sometimes, such as boats, homesteads, and, on occasion, au tomobiles. This is apt to be more playful· than not, but it is an asser tion of ownership in any case.) Naming is a means of assigning distinctness and individuality.

Numbering is a device for distin guishing objects that are very nearly alike from one another. He who names or numbers either explicitly or tacitly asserts his claim to that which is named or numbered. In short, individuality and own ership are deeply entangled in nam ing and numbering, spiritually, cul turally, and legally. It is within this context that we should view the increasing tendency to assign numbers to persons. There is yet another context within which it should be viewed, its grisly histor ical antecedents. (The end toward which an action tends is often im plicit in its beginnings.) In. earlier times, criminals were often branded. The brand was an identification and warning, a mark of degradation, and, in view of the custom of brand ing animals, an emblem of own ership by the state. The assigning of numbers to prisoners was a lineal descendant of branding, a change accompanying or following upon the shift from corporal punishment of criminals to imprisonment as a usual punishment.

Numbers for Prisoners The numbering of prisoners was the first ostentatious use of numbers lin connection with persons in the United States. The number was prominently displayed sometimes in public places on ttwanted" posters. This assigning of a number may have had some slight residual use for identification, but that is not its significance. It is the stamp of the state on the prisoner, the modern equivalent of branding. It is the .~mblem that he is no longer his own man but belongs to the state. A prisoner is stripped at the outset of much which sets him apart as an individual: his possessions, his clothing, his standing in the com munity, and many of his legal rights. The number is the seal of his new status. Aleksandr Solzhenitsyn, with his special insight and sensitivity, has suggested more of the import of as signing numbers to prisoners. He says that they did not get around to assigning numbers to political pris oners until late in the Stalinist era, long after it was generally done for all prisoners in some ucivilized"

<:ountries. Here is an abbreviation of his account: Then again, they quite blatantly bor rowed from the Nazis a practice which had proved valuable to them-the sub stitution of a number for the prisoner's name, his uI," his human individuality, so that the difference between one man 438 THE FREEMAN July and another was a digit more or less in an otherwise identical row of figures .... Warders were ordered to address pris oners by their numbers only, and ignore and forget their names. It would have been pretty unpleasant if they could have kept it up-but they couldn't .... In work rolls, too, it was the rule to write numberS Pefore names. Why before and not instead of names? They were afraid to give up names altogether! How ever you look at it, a name is a reliable handle, a man is pegged to his name forever, whereas a number is blown away at a puff. If only the numbers were branded or picked out on the man him self, that would be something! But they never got around to it.... 3 There came a time after the death of Stalin when the authorities no longer required the use of the num bers. Alexander Dolgun has de scribed with what alacrity the pris oners ripped off their numbers and flung them into the air. uThis seems like a small matter," he said, ~~but for all the prisoners of Dzhezhazgan the number was the prime symbol of our slavery, of our demotion from human being to object. Its disap pearance was like the beginning of a fresh new day."4 Those who have suffered greatly often see with remarkable clarity.

According to legend, Dolgun was one of only a very few who have survived the duration and degree of torture he underwent. We might suppose that he would have found the wearing of a number of such insignificance as to be unworthy of mention. Not so, his conclusion goes to the very heart of the matter; the number was a symbol uof our demo tion from human being to object," of the demotion of individual man from a value in and of himself to an object of use by others. The number is the Sign of the Beast of the idea that has the world in its grip. Military Numbering A goodly number of Americans were assigned numbers for the first time as members of the armed forces. Whatever value these serial numbers may have had for identify ing mangled bodies, they also served a highly important symbolic pur pose. The modern armed forces have brought organization to its peak of efficiency in doing that for which it is best suited, namely exerting force and destroying. To accomplish these ends, the military attempts to blend the individual into the organization in such a way that he becomes at one with it. Close order drill, for example, has for its object making the individual act in concert with the group. ~~The unit," in the argot of the armed forces, is the organization to which he belongs, not the indi vidual. Uniformity, obedience and conformity are prime military val ues. The individuality connoted by names is an obstacle; whereas, a number connotes none of that. There is the matter, too, that one's name is 1979 THE SUBJUGATION OF THE INDIVIDUAL 439 assigned by parents, and the num ber signalizes a new authority and control over him.

The generality of Americans were assigned numbers for the first time in the 1930's when to have a Social Security number became a require ment for employment in many occu pations. The significance of this numbering was partially concealed by the beneficent claims made for the undertaking, by the fact that it applied initially mainly to indus trial workers, by t1J.e fact that it was called ttinsurance," and by the casu alness with which numbers were is sued. Too, the number was to iden tify one's CCcontribution"to the So cial Security ttfund." Who could ob ject to that? After all, one's ttcontri bution" certainly should be iden tified in some way. It turned out, of course, that it was not a contribution at all; it is a tax, as the courts have decided. Nor is it insurance, in most ways that word is used. No policies have ever been issued. Monies paid into Social Se curity no longer belong to the indi vidual. He no longer has any claim on them; they are forfeit to the gov ernment. The only claim he has is to such benefits as Congress may de cide from time to time are to go to those who fall in the category to which his payments and financial condition entitle him. The only management, control, and posses sion he will ever have over any of this, as matters stand, is over such benefit payments as he may receive.

Even the Social Security cCfund" is a paper obligation resting on the credit of the United States. The Number Is Essential It may be objected at this point that I am making too much ofnum bers, that what is important is what is being done, not some incidental device by which it is done. On the contrary, I maintain that the oppo site is the case. The number is es sential; the particular thing that is done with it is only incidental. First of all, consider this fact, all that is left of all the money I have paid into Social Security is my number. If the money were essential and the num ber incidental, I should have the money and the number should have d.isappeared. But one should not rest a case on what may only be a clever twisting of words. Even so, I would like to go one step farther along this line. Suppose that. instead of having a Social Security number that my name only were used to identify my cCcontribution" to the ccfund." What could I say then? All that I have left of all that I have paid is my name?

Assuredly not, for I would have my name whether or not I had paid my Social Security tax (plus a prisoner's n u~ber if I had not paid it, no doubt). That reveals the use of the number-a device for asserting a 440 THE FREEMAN July distinct claim-, but not its ultimate purpose. The purpose of the number is gradually becoming clearer with the passage oftime , and new legislation. Not only is the percentage of the Social Security tax being increased, not very gradually of late, either, and the coverage extended over the years, but also the number is being used in new ways. The Social Secu rity number has now become a Tax payer Identification number. By this extension, the government has begun to use a number to assert its control and potential ownership of all our income and resources. A Case in Sweden The Internal Revenue Service considers only so much of an indi vidual's income as his as he can show does not belong to the govern ment. True, the government does not ordinarily take it all, but that is simply an incident of the legal establishment of class ratecatego ries and exemptions. What can hap pen was lately demonstrated in Sweden. Ingmar Bergman, the fa mous film maker, left the country after the government insisted that he pay taxes which he claimed amounted to 139 per cent of his income. His decision was reached after the following had occurred. He was called out of a rehearsal by govern ment investigators who hauled him away for questioning, confiscated his passport and accused him of evading $120,000 in income taxes. Bergman pro tested his innocence, but even after the criminal charges were dropped, Swedish officials continued to dun him for the back taxes they insisted he owed.

Bergman went to pieces; he stopped work, suffered a nervous breakdown and contemplated suicide. Then . . ., having snapped out of the depression, the 58 year old director announced he was leav ing his homeland for good. Not before declaring, however, ttl am leaving my fortune in Sweden at the disposal of the National Tax Board."5 The idea that has the world in its grip presses governments toward taking away the independence ofthe individuals, toward taking away the means by which they might manage their own affairs, toward concerting their efforts by fitting them into organizations. It is the assigning of a number that is essential, not Social Security. Social Security is inciden tal; it is only one of the possible means by which government takes from the individual the control over his affairs. There are many other ways it can be and is done. The number, however, is essential; it is that to which the individual must be reduced in order to be instrumented by government. His name belongs to the individual; but the number sig nalizes the government's claim on him.

The animus of collectivism is to 1979 THE SUBJUGATION OF THE INDIVIDUAL 441 reduce individual man to a number, then. It is to reduce him to the lowest common denominator, to a one which he shares with all other living human bodies. Only thus can he be melded with the masses of other men. This process of enmass ment is the opposite of what occurs in the refinement of metals. In this latter process. purification takes place; the best that is in the metals is separated from the dross and pre served. Enmassment The enmassing of man that occurs with collectivism may be likened to ((enslagment," or the formation of clinkers in a furnace when certain kinds of coal are burned. Clinkers result from a melding together of the impurities in the fuel. The best that is in man is his potentiality for originating, for reason, for spiritual ity, for building, for love and con cern. The enmassment of collec tivism suppresses these by giving the weight of numbers to the lowest and worst that is in man: his irra tional urges, his desire to dominate, his envy, his will to put down that which he cannot appreciate or un derstand, his opposition to what is different, and his bent to destruc tion. The clinkers produced by col lectivism smother the flame, just as clinkers in a furnace will a fire.

The weight ofnumbers is a fearful thing for individual man. Only very strong and sturdy men can stand for long against them in whatever way they are arrayed against him. Num bers have imperiled the individual in all ages. It has remained for our age to sanctify them. (Greece and Rome empowered the masses in the period of decline but fell short of sanc tifying them, I believe.) We sanctify this weight of numbers by calling it democracy and claiming that it would be desirable to infuse all of life with its methods. Labor unions are em powered by government to use the weight of their numbers against in dividuals who desire to work. But the weight of numbers intrudes into every realm today: suppressing, re straining, and limiting man. Counting the Votes The actual political process be comes a means of subjugating the individual under the impetus of col lectivism. Democratic socialism turns voting into a kind of self immolation by which the individual yields up his independence and con trol over his own affairs by casting a ballot. He reduces himself to an anonymous number and becomes a statistic. Man's potential weight in his own and in public affairs is largely reduced to a scratch on a bal lot or, more appropriately, the turn of a wheel in a machine.

In the framework of the idea that has the world in its grip the only issue that is supposed to arise is over 442 THE FREEMAN July what means shall be used to concert all efforts to promote the general wellbeing. Not only does the indi vidual reduce himself to a number by voting but also to a statistic in favor of one method of being con certed as opposed to another, if any issue at all can be discerned. The man who wishes to manage his own affairs is unlikely to find that among the available options. Actually, voting for candidates may be a reasonably satisfactory means of determining who shall govern, so long as the demonstrably corrupt and unlettered are excluded. It is hardly the way to decide what government shall do, however, and that is the question which grad ualism continually intrudes into the process. That is a constitu tional question requiring for its an swer not man reduced to a number but man in the full weight of his being as an individual.

Moreover, socialism turns voting into the quest for the holy grail. It turns the mundane business of selecting who shall govern into the choosing of religious leaders who are assumed to be competent to manage the transformation of man and soci ety. So long as a choice of candidates remains, voting is important, of course. It does restrain politicians to know that they will have to stand for election, nor can power ever be absolute so long as its exercise can be modified by decisions of the electorate. But for those who do not accept the religious vision of socialism, voting is a game of chance, with the odds arranged heavily against them. Rendered Meaningless The ultimate reduction of man is not to a number. Even when that number is only one, it still has a fixed quality about it which resists manipulation and control. The ulti mate reduction of man is to a mean ingless number. Communists have discovered a way to do this in their udemocratic process."

Elections in the Soviet Union, for example, are meaningless affairs, so far as the participants are con cerned. A Party slate has been nominated by the leaders, and it will be elected. It does not matter whether one hundred, one thousand, or one million vote: the result will be the same. Even so, a great effort is made to get out the vote. Pressure is brought to bear on selected individ uals to go from door to door urging others to vote. Why? For one thing, as earlier noted, there is the facade of democracy which has propaganda uses. But it serves a highly impor tant interior purpose as well. The individual is not only reduced to a number which can be rendered as a statistic but also to a meaningless number and statistic. The absolute and arbitrary power of the rulers over the populace is demonstrated.

1979 THE SUBJUGATION OF THE INDIVIDUAL 443 By coming forth to vote they appar ently acquiesce both in their own meaninglessness and the power of the rulers. The more who vote, the more complete the demonstration of power. The subjugation of the individual descends to degradation under communism. @ Next: 32. Restoration of the Indi vidual. What Price Socialism? -FOOTNOTESlSee Ludwig von Mises, Socialism (London: ,Jonathan Cape, 1951), pp. 135-37. 2Murray N. Rothbard, Man, Economy, and State (Los Angeles: Nash Publishing, 1970), p. 828. 3The Gulag Archipelago, III (New York: Harper & Row, 1978), pp.58-60. 4Alexander Dolgun, An American in the Gulag (New York: Ballantine Books, 1975), p. :374. s«Utopia's Dark Side," Newsweek (May 3, 1976), p. 38. IDEAS ON UBERTY A society is socialized by extending, centralizing and accelerating the exercise of political power. Socialists may speak of controlled production as their method of operation, bu.t production cannot be controlled except by controlling people. If men as producers are to be controlled, it means that they will be told what jobs they are to work at, where they will work, and how long they will work. This sort of political tyranny is inherent in a socialized society. It is a denial of man's inherent right to be free.

No human society has been completely free; some men have always sought, and occasionally have obtained, a politically privileged position for themselves at the expense of other people. But until recently, all well disposed men sought to remedy social ills by working for a society in which every man has the right to plan his own life in any peaceful way his conscience allows. This human aspiration has been reversed in the thinking of socialists who talk in terms of a planned economy. In an economy planned politically there is no room for individuals to make their own plans; their lives are planned for them, which means that they are not free to run their own affairs. ADMIRAL BEN MOREELL A REVIEWER'S NOTEBOOK RUSSELLKIRK is dedicated to a prop osition that doesn't sit well in a democracy, that not everybody is ((college material." He has been our most trenchant critic of the big ((multiversity" that he satirizes as Behemoth D., where they give academic credits for fly-fishing, home economics, pop culture and other ((gut" courses and frivolities, and he has not spared the smaller establishment that he calls Brum magem D. or Dismal Swamp A. and M. He thinks we have been pouring billions into a system that encour ages four years of relative idleness for a majority, while the few serious students do the best they can to read an occasional book while the rock music pours forth its incessant cacophony.

There are ironies here, for I have heard Russell Kirk lecture at a big southern state university (Troy, in 444 JOHN CHAMBERLAIN HIGHER LEARNING Alabama) and at a small college (Hillsdale), and the rapt attention he has received in both places is a tribute to hungry sheep who insist, on occasion, on being fed. Not all is lost when colleges compete to give Kirk a platform. But Mr. Kirk is dealing in trends, and his Decadence and Renewal in the Higher Learn ing: an Episodic History of Ameri can University and College Since 1953 (South Bend: Gateway Edi tions, 354 pp., $15.00) paints a lugubrious picture that has its un deniable broadscale truth. Mr. Kirk takes 1953 as our watershed year in education. Before that the cost of an education to indi vidual families imposed a limiting factor on the growth of Behemoth D. But with the G.I. Bill of Rights en couraging thousands of military veterans to enroll in our colleges and universities, the idea was HIGHER LEARNING 445 spread abroad that the higher edu cation was everybody's birthright.

With easy loans available to almost anybody, and with tax money sluiced from Washington, D.C., to scores of institutions that were will ing to risk federal supervision of the curriculum, gigantism became the order of the day. To accommodate students who had no real inclination to work, the elective system intro duced by Charles Eliot at Harvard was expanded to include all manner of fads and foibles. It was ((cafeteria style." All sense of integration and order of know ledge was abandoned; the colleges became purposeless cen ters of mere socialization and socia bility. And the student at Behemoth U. became an IBM number. Mitigating Factors To give the colleges their due, they were not entirely to blame for the mess they made of trying to accommodate the millions. Our grade school and high school educa tion had already been enfeebled by ttlook-say" methods of teaching read ing' which meant that the typical freshman entered college without the literacy needed to handle abstractions. Perforce, the colleges had to do the work the high schools had neglected. With ((remedial"

courses eating up the under graduate's time, the chances for studying at a college level were ob viously diminished. The purposelessness of a system that had forgotten that wisdom and virtue had once been the ends of education happened to coincide with the decay of religion and the loss of belief in family authority. Return ing in 1959 to Michigan State Uni versity, where he had once taught, Mr. Kirk was appalled by the ran d.om utilitarianism of his university president. The university catalogue contained forty-four courses in hotel and restaurant management. There were 163 courses in home econom ics, and 106 in sociology and social work. Among the offerings in the College of Education were ttperson nel Work in Residence Halls" and ttSquare Dance and Square Danc ing." There was one small depart ment: Religion, with a mere twenty-four courses. Massive subsidies of the univer sities and colleges came with the Lyndon Johnson era. The subsidies reinforced the inhumane scale of Behemoth U. Rioting and cheating, says Mr. Kirk, were ttthe ineluctable consequences" of a depersonalized campus. And then came the impact of a purposeless war. With affiuent students uneasy in their consciences about being exempted from the draft, the ideologues found it easy to convert the Lonely Crowd on the campus into a mob.

Mr. Kirk confesses to a sneaking sympathy for the rebels who re volted at what was being inflicted on 446 THE FREEMAN July them in the name of education. Their classes were boring. t(Why," asks Mr. Kirk, «shouldn't students have their action at Behemoth State U. . . . It would get them out of those boring classes for a week." The stu dent demand for «relevance" in their courses was not, according to Mr. Kirk, entirely misplaced. What was misplaced was the theory, uncriti cally accepted on the campus, that history was an irrelevant subject. Signs of Improvement Since the early Seventies there has been some improvement on the campus. The craze for drugs has abated. The abolition of the military draft removed the guilt feelings about using a college sanctuary to remain aloof from the national crisis. With college enrollments di minishing, there is less pressure on booster presidents to cry for more brick-and-mortar expansion. And with less assurance that jobs will be waiting for them when they finish college, students have become more serious. But Behemoth U. is still with us-and Mr. Kirk insists that it is «beyond reformation."

In a few chapters on «conceivable renewal," Mr. Kirk addresses him self to the problem of bypassing the partisans of the t(multiversity." The small liberal arts college is capable of being saved. The big controlled multiversities may be beyond easy redemption, but an experiment started at the University of Califor nia at Santa Cruz in 1965 is promis ing. Santa Cruz consists of several small colleges that receive from two hundred and fifty to one thousand students each. Every college has its own brand of study-humane let ters, the arts, natural science. Most students reside in their own col leges, along with some of the profes sors. The scale is humane, the op portunity for a fruitful leisure is there. Mr. Kirk also finds much to com mend in the group of small colleges that has grown up in Claremont, California. The five autonomous in stitutions in the (Claremont group" are Pomona, Scripps, Claremont Men's, Harvey Mudd and Pitzer.

Each keeps its own identitY-One is a co-educational liberal arts college, another emphasizes social studies, and another specializes in prepara tion for leadership in government and business. Yet they share a common library. Mr. Kirk hopes to see more of the Claremont and Santa Cruz type of decentralization. He is also hopeful that the curriculum in the liberal arts colleges can be simplified. We need fewer subjects, he says, and these should be taught thoroughly and well. Three courses a term are enough. The college year might prof itably be limited to six months, after the Scottish fashion, with time for independent reading and travel.

1979 OTHER BOOKS 447 Even Behemoth U. might be saved to some extent if the honors course idea, limited to top grade students, were to be accepted. As for the Great Books concept, Mr. Kirk endorses it in principle, though he differs with the particular list of great books that Robert Hutchins and Mortimer Adler picked as the core of the curriculum for St. John's College. Mr. Kirk likes in particular what Thomas Aquinas College in California does with the St. John's idea. @ BEFORE THE SABBATH by Eric Hoffer (Harper & Row Publishers, 10 E. 53rd Street, New York, N.Y. 10022) 144 pages • $7.95 cloth Reviewed by Allan C. Brownfeld ERIC HOFFER has long been an eloquent defender of freedom and of the free market. Now retired from his work as a San Francisco longshoreman he has some striking things to say about communism and capitalism, about America, and against ~~intellectu als." Hoffer notes that, ~~Lenin and Sta lin between them liquidated at least sixty million Russians in order to build factories and dams. America welcomed thirty million immigrants to help build factories and dams.

Capitalism is fueled by the individ ual's appetites, ambitions, fears, hopes and illusions. Communism forces people to hate what they love a.nd love what they hate. Imagine a country of land-hungry peasants forced to renounce ownership of land. Imagine a system that frowns on friendship, free association and individual enterprise. It is no won der that after sixty years the Rus sian Communist party must still coerce, suspect and minutely regu late the Russian people." The intellectuals' dislike of capi talism, Hoffer points out, is based upon the fact that in capitalist societies, they are not in charge: the people set the agenda. ~~Communism was invented by highbrows," he writes, ~~while capitalism was initi ated by lowbrows." Hoffer refuses to apologize for the extraordinary affluence our free market has produced and shared with the world. ~~It is an outrage," he declares, ~~that with so much arable land Latin America and Russia should have to import grain. No one dares shame the representatives of these countries for their criminal interference with the productive capacity of their people. It is getting more and more difficult to see why this country should have anyobliga tion toward the economically mis managed parts of the world. It would be fitting if the American represen448 THE FREEMAN tatives at the United Nations held up to public scorn the creators of hunger."

The lament by Third World coun tries over a supposed CCmaldistribu tion" ofwealth is rebuffed by Hoffer, who charges that such an opinion ignores the fact that wealth is pro duced only through' great effort. ((Not a word is said about how wealth .comes into being; the toil, sweat and self-denial which make an accumulation of wealth possible. This is how a once poor and back ward Japan became an affluent country. It is curious how in both domestic and international affairs there is a stubborn refusal to see a connection between effort and in come. It is widely assumed that in dividuals or countries are poor be cause they are exploited or dis criminated against." The root of many of the world's evils, Hoffer believes, is the ideologue's view that heaven can, in fact, be created on earth. Partisans of this view, cCdid not know what happens when dedicated idealists come to power; did not know the intimate linkage between idealists and policemen, between being your brother's keeper and being his jail keeper. It is disconcerting that present-day young who did not know Stalin and Hitler are displaying the old naivete. After all that has hap pened they still do not know that you cannot build utopia without ter ror, and that before long terror is all that's left."

For himself, Hoffer writes, (CI can not see myself living in a socialist society. My passion is to be left alone and only a capitalist society does so. Capitalism is ideally equipped for mastering things but awkward in mastering men. It hugs the assump tion that people will perform tolera bly well when left to themselves. The curious thing is that the reluc tance or inability to manage men makes capitalist society uniquely modern. Managing men is a primi tive thing. It partakes of magic and is the domain of medicine men and tribal chieftains. Socialist and Communist societies are a throw back to the primitive in their pas sion for managing men." Hoffer, now in his seventies, is the son of immigrants. He has had a lifelong love affair with America. cCAmerica,"he states, His the worst place for alibis. Sooner or later the most solid alibi begins to sound hol low.... To come to America is to be reborn, to start with a clear slate.

Here you are your own creator and your own ancestor." Only those who hate freedom, he declares, hate America. @ the Freeman VOL. 29, NO. 8 • AUGUST 1979 The Ethics of Profit Making Brian Summers 451 Why punish those who profitably serve willing consumers? A Symbol of Chaos: The Gas Pump Hans F. Sennholz 458 Regulation and control of production and pricing create intolerable shortages and disaster. "Sorry, No Further Bidsl" Gary North 466 Government changes the outcome when it regulates the auction. Profits and Payrolls Henry Hazlitt 470 How the employees of corporations compare with stockholders in the distribution of income. Agriculture and the Survival of Private Enterprise Ed Grady 480 The most positive program for agriculture or any business, for human freedom in general, is to avoid political management. World in the Grip of an Idea 32. The Restoration of the Individual Clarence B. Carson 485 The Good News that individual man is valuable beyond compare.

Hock: An Appreciation Ronald F. Cooney 499 Albert Jay Nock did the most one can to improve society: present the example of one improved unit The Writings of F. A. Harper Paul L. Polrot 505 In testament to the collected works of a brilliant exemplar of freedom in all its aspects. Book Reviews: 509 "For the Record" by Felix Morley "What Makes You Think We Read the Bills?" by Senator H. L. Richardson Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Roger Ream Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and toss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery ,a donation is required sufficient to cover direct mailing cost of$5.00 a year. Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A.

Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, .Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "World in the Grip of an Idea," and "Sorry, No Further Bids!"

Brian Summers The Ethics of Profit Making DEFENDERS of profit making almost invariably use one or more standard arguments. Let us examine the strengths and weaknesses of these arguments-and then consider a new approach which throws addi tional light on the ethics of profit making. A businessman's profits (or losses) are his net revenues minus the mar ket value of whatever labor he put into the business and minus what ever interest he passed up by invest ing his own capital in the business. Thus, if a businessman could have earned $20,000 a year doing the same work for someone else, and if he had $50,000 invested in the busi ness when the market rate of inter est was 10 per cent, he made a pure (entrepreneurial) profit only if his Mr. Summers's a member of the staff of The Foun dation for Economic Education. net revenues for the year exceeded $25,000. If a businessman does make a profit, he may try to justify it by pointing out that he has invested his own capital in the business and pa tiently waited for his return. But implicit interest (in our example $5,000) is excluded, by definition, from profits. Profits are not a reward for waiting; interest is a reward for waiting.

Or the successful businessman may declare that he has worked hard-that his profits are the ufruit of his own labor." But, by definition, implicit wages ($20,000 in our example) are excluded from profits. Profits are not a reward for pure labor; wages are a reward for labor. Businessmen who suffer losses de spite great personal efforts, and businessmen who reap profits with no more (Clabor" than a few tele451 452 THE FREEMAN August phone calls, illustrate the difference between profits and wages. Risks A similar argument asserts that profits are a reward for bearing risks. But businessmen who suffer losses also take risks. So do gamblers and mountain climbers. Should these people be rewarded just for bearing risks? The risk argument is especially weak in the case of profits that are completely unexpected-windfall profits. A storm may pollute a town's water supply, enabling the owner of a natural spring to reap windfall profits. The owner may have paid almost nothing for the spring, thus risking very little capi tal. It is difficult to justify his profits solely on the basis of his taking a risk.

In fact, the less capital a busi nessman invests in his business, the less implicit interest he loses and, other things being equal, the greater his profits. That is, other things being equal, the less capital risked, the greater the profits. Simi larly with the businessman's labor. The less effort he risks on a busi ness, the less his implicit wages and, other things being equal, the greater his profits. In this sense, profits can result from not risking too much capital or labor. If profits are not a ttreward" for waiting, laboring, or bearing risks, the defender of profits must seek other arguments. He often turns to the free market economist, who usually provides a utilitarian argu ment. Utilitarian Argument The economist points out that competition leaves businessmen lit tle choice but to charge whatever price the market is paying. Thus, the prime way to earn profits in a market economy is to cut costs through the prudent use of scarce factors of production. The busi nessman who conserves the most resources, while giving consumers the most for their money, earns the greatest profits. Profits and losses promote efficient production; free market prices eliminate shortages and surpluses; profits provide the incentive and means to invest in productive capital goods. The utilitarian argument can be very compelling. 1 Furthermore, the utilitarian ar gument offers a defense for windfall profits and speculative profits. In the case of windfall profits, suppose a disaster destroys much of a city's housing. In a free market, rents will rise---encouraging people to take in boarders, share apartments, bring in portable shelters, repair damaged housing, .and build new dwellings.

Thus, profits will encourage people to alleviate the housing shortage, so that rents will soon· fall back to 1979 THE ETHICS OF PROFIT MAKING 453 Hreasonable" levels. Of course, if rent controls prohibit windfall prof its, this natural recovery will be stifled. The utilitarian argument also of fers a defense for the profits of com modity speculators and land speculators. 2 Commodity specula tors buy when they expect a short age---encouraging increased produc tion and conservation. They sell when they expect a surplus-dis couraging further production and encouraging increased use of the commodity. Thus, commodity speculators tend to smooth out shor tages and surpluses. In addition, they quote future prices which tend to reduce the uncertainty facing businessmen, farmers, and consum ers. Land speculators earn profits by buying property for which no one else sees much use, and later selling it to someone who recognizes the property's high yield potential.

Thus, land speculators keep prop erty out of low productive uses and store it up for high productive uses. Paul A. Samuelson challenges this utilitarian approach by point ing out that a speculator may, for instance, learn of a crop failure only a few seconds before his competitors and thereby reap huge profits. He finds it difficult to justify these prof its solely on the basis of the few seconds the market gains in adjust ing to the crop failure. But Samuelson ignores the role of incentives. It is true that if the first speculator didn't learn of the crop failure, others might have learned a few seconds later. But it is not necessarily true that these other speculators would have acted as quickly (or acted at all) without the profits that awaited the uwinning" speculator. 3 The utilitarian argument offers a formidable defense for profits earned in a free market system based on the economic efficiency of the system itself. Yet many people are not satisfied by this argument.

They may be willing to trade some economic efficiency for other goals, such as a proposed ttfairer" distribu tion of wealth. Some businessmen try to counter these proposals by asserting that their profits are too small to warrant much reduction. This may be true, but the utilitarian argument shows that the small profits of some are no reason for taxing the large (Uex_ cess") profits of others. In fact, other things being equal, the maker of small profits has used up more scarce resources than the maker of large profits. On utilitarian grounds, large profits are more commendable than small profits. Voluntary Transaction Argument To effectively counter objections to the utilitarian argument, defen ders of profit making may turn to 454 THE FREEMAN August more philosophical arguments. They may, for instance, point out that in a free market all profits and losses are the results of voluntary transac tions. In a free society, no one is coerced into dealing with a particu lar businessman. Each person en ters into a transaction expecting to improve his own condition otherwise he wouldn't trade.

To the libertarian, this argument carries much weight. Who can con demn a voluntary trade? Yet many people do. They point out that pros titutes, pornographers, and drug dealers often engage' in voluntary transactions; yet these transactions, for other reasons, are to be con demned. Until people place a higher value on freedom, the voluntary transaction argument will fail to satisfy many critics of profit mak ing. Property Rights Argument Another philosophical argument is based on property rights. The busi nessman either owns a good or has hired the factors of production used to produce it. Therefore, once his employees, suppliers, creditors, and landlord have been paid, any im plicit wage, implicit interest, or profit remaining from the sale of his good rightly belongs to him. This argument can be used to jus tify any profit made in a free mar ket. It is, however, based on the sanctity of private property. Those who use this argument must be pre pared to defend the right to private ownership. 4 Even for those who believe in pri vate ownership, the property rights argument creates the impression that the businessman purchases fac tors of production and then just sits back to (hopefully) collect his prof its. Many people are dissatisfied with this approach because they feel that a person should actively do something to deserve a profit. The fact that the businessman may have labored does not overcome this ob jection because, as we have seen, implicit wages are excluded from pure profits. Something seems to be missing from the property rights ar gument.

Creator-Finder-Keeper Argument What is missing is a recognition that the entrepreneur creates the op portunity to discover his profits. This new approach to the ethics of profit making, based on the seminal writ ings of Israel M. Kirzner, 5 does not, of course, claim that the entrepre neur physically creates his products. Products are physically ttcreated" (transformed from one form into another) by workers using the capi tal goods investors provide them. But workers and investors don't de cide what prod nct to make and which factors of production to use. The entrepreneur makes these deci sions. His decisions determine 1979 THE ETHICS OF PROFIT MAKING 455 which product will be offered to con sumers and what the costs of pro duction will be (calculated from the market prices of the factors of pro duction he chooses). The entrepre neur's decisions make the difference between profit and loss.

Thus, although a businessman may not physically create his prod ucts (although by the property rights argument he owns them), he does create the opportunity to dis cover if consumers will pay a price which exceeds his costs. An illustra tive example is the speculator who buys a good and then sells the physi cally unchanged good at a profit. By purchasing goods and offering them for sale, speculators create their own opportunities to discover profits. This approach casts additional light on Samuelson's speculator who learns of a crop failure a few seconds before his competitors. Previously we saw how his profits can be jus tified on utilitarian grounds. They are also justified by the voluntary transaction argument and the prop erty rights argument. But now we see a new justification for his profits. By placing purchase orders a few seconds before his competitors, he creates his opportunity to discover profits. He alone creates his oppor tunity, so any profit or loss is his.

Note that this is not simply a ufinder-keeper" argument. The en trepreneur doesn't merely discover his profit, like a child stumbling across a bright pebble. Even the reaper of windfall profits must first acquire title to property before he can sell it at a profit. By acquiring property, the entrepreneur creates his opportunity to discover if he can sell it at a profit. Nor is this a Ucreator-keeper" ar gument. In a competitive market, with no governmentally imposed barriers to entry, a businessman cannot set his price by arbitrarily adding a ((profit" to his costs (as' government-created monopolies and cartels can do). In a competitive market businessmen must discover what prices consumers will pay. Thus, this approach to the ethics of profit making is perhaps best labeled a ((creator-finder-keeper" argument. So far we have considered the profits and losses of a businessman oPerating in a free market. But the real world contains partnerships and corporations in addition to sole proprietorships. Also, the real world is by no means a free market-it is a market increasingly hampered by government interventions. How do the various arguments used to jus tify profits apply to the real world?

Partnerships and Corporations Partnerships and corporations, historian Robert Hessen has shown, are networks of contractual rela tionships.6 Thus, the voluntary transaction argument can be di456 THE FREEMAN August rectly applied to justify the profits of these forms of business. The utilitar ian argument is directly applicable by simply changing the word ((busi nessman" to ((partnership" or ((corporation." For the property rights argument we change ((businessman" to ((partners" or Ustockholders." The creator-finder-keeper argu ment can also be applied to partner ships and corporations. Somewhere in the business organization deci sions are made as to what to produce and how to produce it. For the creator-finder-keeper argument it doesn't matter where in the organi zation these decisions are made. It suffices that·profit opportunities are created by the business. Thus, when it is discovered that consumers will pay a profit-yielding price, the prof its belong to the partnership or cor poration and are apportioned among the members according to contrac tual agreements.

Government Intervention But what about profits earned in a market hampered by government intervention? The arguments we have considered justify a busi nessman's profits only to the extent that his profits do not derive from interventions. The more the gov ernment intervenes in the economy, the less likely it is that these argu ments will apply. This is clearly the case with the voluntary transaction argument. The more the government inter venes, the more do transactions be come involuntary. For instance, the beneficiary of an import quota may claim that customers ((voluntarily" patronize him. But they may pa tronize him only because the quota prevents them from dealing with foreign businesses. The utilitarian argument also be comes less applicable the more the government intervenes. In a free market, businessmen earn profits through the efficient use of scarce resources. Their profits are the re sult of using as little as possible to provide consumers with as much as possible. The more the government intervenes, however, the less profits reflect efficiency, and the more they .reflect politically determined prices.

For example, a land speculator may reap profits, not by finding a buyer who recognizes the productive po tential of his land, but through a zoning change. The property rights argument is also vitiated by government inter vention. The more the government is used as an instrument for violat ing private property rights, the less appropriate this argument becomes. For instance, the recipient of a gov ernment subsidy can hardly justify his profits by appealing to private property rights when those around him are paying taxes on their prop erty to finance his subsidy. The same holds for the creator1979 THE ETHICS OF PROFIT MAKING 457 finder-keeper argument. The creator of a profit-yielding opportu nity cannot use this argument to justify his profits when the opportu nity has been politically created. Businessmen who successfully lobby for subsidies, tariffs, restrictions on competitors, and other government favors create profit opportunities for themselves by restricting the oppor tunities of their fellow men.

This brief essay has not, of course, completely spelled out any of the arguments used to justify profits. Nor has it considered all the argu ments. Left untouched, for instance, are Biblical justifications, profits from immoral and/or illegal ac tivities, and the basic question ofthe morality of the private property sys tem. Nevertheless, we have seen that strong arguments can be brought forth in defense of profit making in a free market. The strengths of these arguments, in fact, suggest that busine.ssmen spend less time apologizing for their profits and spend more time challenging their tormentors to justify the ethics of price controls,cCexcess"profitstaxes, union coercion, and other interfer ences with the peaceful conduct of business. @ -FOOTNOTESlThe best example is Ludwig von Mises' ((Profit and Loss" in Planning for Freedom (Libertarian Press, South Holland, Illinois, 1952).

2See ((Why Speculators?" by Percy L. Greaves, Jr. (The Freeman, November 1964) and «Those Fellows with Black Hats-the Speculators" by John A. Sparks (The Freeman, August 1974). 3Israel M. Kirzner, Competition and Entre preneurship (University of Chicago Press, 1973) pp. 223-225. 4This can be done on several grounds, but is beyond the scope of this essay. See, for in stance, Samuel L. Blumenfeld, editor, Property in a Humane Economy (Open Court, LaSalle, lllinois, 1974) and Gottfried Dietze, In Defense of Property (The Johns Hopkins Press, Balti more, 1971). 5See his Competition and Entrepreneurship (University of Chicago Press, 1973) and Per ception, Opportunity, and Profit (University of Chicago Press, 1979, forthcoming) especially chapters 11 and 12 of the latter. There are, however, several points of difference in our analyses; any errors in this paper are entirely my responsibility.

'Robert Hessen, In Defense of the Corpora tion (Hoover Institution Press, Stanford, California, 1979). IDEAS ON UBERTY Ludwig von Mises THERE is in the market economy no other means of acquiring and preserving wealth than by supplying the masses in the best and cheapest way with all the goods they ask for.

Hans F. Sennholz A SYMBOL OF CHAOS: THE GAS PUMP UNTIL just a few years ago most people were indifferent to all ques tions of energy. They were as heed less of the very industry that pro duces heat and power as of many other industries meeting their daily needs. Surely they were aware of basic materials such as wood, coal, gas or oil burned to produce heat and kinetic energy. But the term ~~energy industry" was yet unknown. Even the dictionaries of economics designed to include the terms com monly used in college courses listed neither energy nor the energy in dustry. It was left to the 1970s to call attention to the industry and bring us the energy crises. Dr. Sennholz heads the Department of Economics at Grove City College In Pennsylvania and Is a noted writer and lecturer on monetary and economic af fairs. His latest book,Age of Inflation, describes our dilemma and offers recommendations for restoring a sound monetary system.

458 In retrospect there were earlier indications of things to come. By 1970 there was a United States De partment of Transportation, a Fed eral Power Commission, and an Atomic Energy Commission. In 1973 Congress added the Federal Energy Administration to centralize all regulatory functions relating to oil. The Energy Research and De velopment Administration came into existence in 1974. In October 1977, the Department of Energy brought all these governmental functions together into a single or ganization under the direction of a Secretary of Energy. This observation of demonstrable facts raises. a fundamental question: was the growth of government in tervention in all matters of energy the cause or effect of the painful crises that developed during the A SYMBOL OF CHAOS: THE GAS PUMP 459 1970s? If it can be proven that gov ernment intervention brought about the dilemma in which we find our selves today, the solution can be no other than early reduction and ul timate abolition of this harmful in tervention. But if the causes are found to be elsewhere, and the growth of government was merely a.

reaction to a new situation, we need. to search for other solutions. Surpluses and Shortages Our search for an objective an swer calls to mind a basic principle of political economy that may be applicable also to energy problems: whenever unhampered enterprise provides products and services, it tends to create surpluses that clear the market only through major sales campaigns. Its advertising message to the consuming public is to buy ever more and better products. VVherever government provides products and services, it invariably creates shortages that inconveni ence the public and sometimes bring economic crises. VVherever govern ment is in charge, its advertising message is always the same: con sume less, eat less, drive less, let there be austerity! This has not changed from the wheat and bread shortages of 1918 to the gasoline shortages of 1979. VVhere government is in charge and shortages inconvenience the public, we can observe yet another regularity. Through intensive pub licity campaigns government offi cials and politicians point the finger of blame at one or several culprits who are bitterly denounced for self ishly causing the shortages. In tele vised press conferences the Presi dent of the United States himself may make ugly charges against oil producers, or any other producers whose regulated services are in short supply. Or he may point at some foreigners, e.g., the Arabs, as the culprits who sinisterly inflicted the evil on us.

VVhen unhampered individual en terprise generates surpluses, there are no press conferences, no head lines and no charges. The public looks at them with indifference in a mood of affluence that comes from choice and selection. The press ig nores them although it prospers from the paid advertisements that seek to market the products. Radio and television thrive on advertise ment campaigns that pay for the amusement and entertainment of the public. But all such reflections may re veal mere coincidencesthat have no bearing on the energy crisis. Perhaps the politicians are correct in pointing at the OPEC countries for charging too much, at the oil companies for seeking ever higher profits, and at the public for consum ing too much. In that direction of deliberation 460 THE FREEMAN August lies a wide open sea of arbitrary judgments. What is Htoo much"? Millions of people are giving differ ent answers to this very question throughout their busy days. They are making their choices as they are consuming oil and gas for heat, re frigeration and air conditioning, turning on electric lights, operating power tools, or driving up to the service station to tank up on gasoline. They are giving vivid an swers to the question in long lines waiting to buy more fuel. We must not blithely ignore or reject their answers, nor those given by the oil companies or OPEC spokesmen.

If millions of people are said to be wrong wanting too much, is it not likely that the critic who is censur ing them is judging too much? Is he proposing to change human nature by his criticism? Or, is he a would-be tyrant who is longing to impose his judgment and will on others? To explain the energy crisis in terms of value judgments or culprit condem nations is to open the gates for ar bitrary judgment and political power. Is OPECCausingthe Fuel Crunch? Such an explanation also leads to puzzling conclusions that seem to contradict human nature. If the Arab oil producers are causing our dilemma, why are they not ac.. complishing identical, or at least similar, effects on other nations? It is an established fact that they are treating their customers equally, charging identical prices and sur charges. But we know of no energy crisis other than ours. There are no reports of empty gasoline pumps in Europe, Africa, Asia, or Latin America, no empty oil tanks any where, except in these Unite,d States of America.

This observation is all the more startling as most of the oil we con sume comes from wells within our national borders, while most foreign countries, such as Germany and Ja pan, lack any domestic production. And yet, they are prospering al though the price of Arab oil has soared in those countries too. Surely, they too feel the pinch of rising energy costs, which reduces their productivity and income by corresponding amounts. Rising oil costs necessitate many changes in goods prices and readjustments of production patterns. But they do not breed an energy crisis that threatens to disrupt economic pro duction and reduces standards of liv ing severely. Our energy crisis is all the more mysterious inasmuch as OPEC is accepting the United States dollar as its primary medium of exchange. Other buyers of Arab oil must scramble to earn dollars first before they can place oil purchase orders.

But Americans can use their own currency for any quantity of Arab oil 1979 A SYMBOL OF CHAOS: THE GAS PUMP 461 they may wish to acquire. Our monetary authorities may create any amount without cost, and thus facilitate the payment of Arabs with newly created money. That is, they can avail themselves of inflation as a tool of international finance, which partially shifts the burden of rising oil costs from the energy users to inflation victims. Thus the United States can victimize the Arabs themselves, who own large dollar balances, by exporting inflation in exchange for Arab oil. It is obvious that such objection·· able devices of international finance do not make for international peace and harmony. Since the Uni ted States was exporting inflation long before the oil producers combined to form an international oil cartel, we may understand the Arab reaction that led to OPEC. To them, joint action afforded the only way to ad·· just the price of oil to the ever-rising demand for oil payable in depreciat·· ing dollars. After all, there was no free and open Arab oil market on which the daily demand and supply determined the price.

Under Government Management and Control The OPEC oil industry is ana·· tionalized industry owned and man aged by the member governments. They legislate every aspect of the industry from the allowable quota of production to the· price of the pro·· duct, and determine who may buy under what conditions, and so forth. Theirs is a political process that is very slow to adjust. When compared with the market process that facili tates adjustments from day to day, yea, minute to minute, the political process of managing an industry and marketing its products may ap pear irrational although its political planners are deliberate in devising their plans and adopting their policies. In such a world of politics that seeks to manage nationalized indus tries, there is confusion and chaos-unless the governments as owners agree on a common plan and act jointly to restore some semblance of order. The interna tional cartel arrangement is a natu ral manifestation of a world econ omy in which export industries are government owned and operated. It also points up the growing danger of international conflict through worldwide socialism.

It is idle speculation to deliberate on the world market of oil if market forces were unhampered and free to determine prices. If there were no OPEC, no nationalized oil industry, and no Department 'of Energy reg ulating and fixing United States production-just unhampered mar kets and unrestrained competition the energy world would be quite dif ferent. Surely, the price of oil would be much lower without the stagger462 THE FREEMAN August ing costs of politics. And there would be no energy crisis. Are the 011 Companies Gouging the Public? To many critics, Arab behavior alone does not explain the energy crisis. They are pointing at the oil companies whose profits have been rising in recent years. Most politi cians and even the President of the United States are openly denouncing the ~~disgraceful" and ~~exorbitant" profits and are demanding a tough uwindfall profits" tax. Some politi cians even are clamoring for a speedy expropriation and nation alization of the companies.

It is difficult to ignore this cres cendo of cheap demagoguery, which, when left unanswered, may lead to most harmful and regrettable legis lation. Every effort must be made to refute and explode the political propaganda and repel the politicians who are anxious to extend their in fluence and power. Their attacks on the profits of one industry actually are attacks on the profits of all in dustries and on the profit system itself. Just listen to their charges against the energy industry. You will search in vain for a difference between those charges and those leveled against the private property order by the professional socialists and communists around the world. It is rather inconsistent and there fore most puzzling that American politicians should be the most vocal critics of an industry that has been under their careful supervision and control. After all, the Nixon price control edict of August 15, 1971, was never lifted from the energy indus try. Even today the ceiling prices as set by the Department of Energy are posted on every gasoline pump in the country.

The political attacks on the very industry that, under a heavy bar rage of regulations and denuncia tions, continues to provide us with energy remind us of some gruesome tales of human behavior during the Dark Ages. When the black death was stalking Europe, public senti ment was often aroused against those people who bravely sought to alleviate the suffering, comforting the dying and healing the sick. Thousands of aging women who survived the disaster were accused of precipitating the disease through witchcraft and were put to a cruel death. Similar forces of darkness now accuse the American oil indus try, which provided the people with an abundance of cheap energy for most of this century, of creating the shortage in order to reap ever higher profits in a moment of national crisis. Surely, no person will be put to death, merely our economic order. At the trial of the private property order the defense is pointing out that the Government of the United States is enforcing energy prices 1979 A SYMBOL OF CHAOS: THE GAS PUMP 463 that are arbitrary and confiscatory.

They are fixed below those prices free people would choose to pay if there were no mandated ceilings. That is to say, the Government is forcing energy producers to sell their products and services below' their objective exchange values and thereby causes the producers to be gouged on a massive scale. If a com· pany tires of this legislated plunder and for a moment should ignore the price edict, it is hauled into court and charged with consumer goug·· ing. That is, the political gougers are taking the victims to court and accusing them of the very crime that is perpetrated against them. If there were justice in the court of public opinion, the charges would be promptly dismissed and the perse·· cutors would be arrested for exprop·· riating private property without due process. Groundless Charges The charges against the energy companies are based on the crude assumption that their profits are the evil fruits of worker exploitation and consumer gouging. Profits are the scourge of greed .and egotism, which is the charge all socialists and communists are making against the private property order. A mere glance at the living and working conditions of the people in capitalis tic countries vividly disproves the charges ...When compared with the conditions in the socialistic coun tries, the American people are living in a land of milk and honey, enjoy ing far greater material comforts and cultural opportunities. The steady stream of refugees and im migrants to American shores is il lustrating the point.

Blinded by socialistic propaganda, the critics of the profit system fail to see its inherent benefits and justice. What is a profit, after all? It is the remainder of proceeds after all fac tors of production have been fully compensated. Businessmen may earn it through efficient manage ment of their resources in the ser vice of their customers. The most efficient producer earns the highest profits, which give him the means to expand his production and render even more services. Surely, the prof its thus earned benefit the people through more and better production. Similarly, the workers employed by profitable enterprises enjoy higher wages and more benefits than others less fortunate who happen to work for employers suffering losses. Exceptionally high profits can only be reaped through the correct anticipation of changes. When a change in market conditions, e.g., in demand, supply, technology, institu tional restrictions, international situations, and the like, necessitates quick readjustments in production, the most alert producer who cor rectly anticipates the changes and 464 THE FREEMAN August makes prompt preparations, may reap high entrepreneurial profits.

His alertness and prompt action re dound to the benefit of the public. In short, he who addresses himself to the most urgent needs of the public tends to earn the greatest rewards, which, as an economic principle of the market order, meets our crite rion of justice. In an energy crisis, we expect the most efficient energy producer to earn the highest profits, as we would expect physicians and nurses to earn highest incomes in a public health crisis. To burn them at the stake of political demagoguery is preposterous. It is so Easy to Create a Shortage The public hostility against busi ness profits has brought chaos to the fuel pump. It has given rise to ever more government regulation, which is the root cause of the energy crisis. Politics has become hopelessly en tangled in the production and dis tribution of energy. In 1954 the Supreme Court set the tone by giving the Federal Power Commission control over natural gas prices in interstate commerce.

These controls at first did not hamper production because they did not deviate by much from prices established by the demand and sup ply forces of the market. But during the 1960s, the United States Gov ernment legislated significant in creases in demand and boosts in production costs. Environmental re strictions and pollution regulations that discourage the burning of coal, favoring the use of gas and low sulfur fuel oil, mandated increases in consumption and made production much more expensive. In addition, the inflationary policies of the Gov ernment eroded the purchasing power of the dollars received by energy producers. In 1971, President Nixon placed domestic crude oil under price con trol as part of his overall price-stop edict. While many other harmful controls were subsequently lifted, the price fixing of domestic oil and gas was continued. His successors continued to fix with vigor and force.

It is always much easier to pre vent production and create short ages than to engage in productive activity. Every freshman economist knows how to create an energy short age: impose rigid price ceilings, re duce the real price through mone tary depreciation, legislate an in crease in demand and raise the costs of supply. To make matters worse, he would impose substantially higher taxes on crude oil production, on the use of natural gas by industry and utilities, and boost the Federal gasoline tax. To intensify the pain of shortage and compound the confu sion, he would entrust government officials with administering a ration coupon system that would allocate the scarce supply according to their 1979 A SYMBOL OF CHAOS: THE GAS PUMP 465 rules of ~~fairness." And finally, to prolong the chaos he would create an economic incentive for hoarding the given supplies. For instance, on every first day of the month he would permit gasoline producers to raise their prices by less than they anticipate earning through storing their supplies until the controls are lifted. He would openly announce his program and pursue it for 28 months in order to assure maximum hoarding for 28 months. If it were not for the limitations of storage facilities he would cause all produc tion to be withheld from the market.

Unfortunately, this is not just a theoretical exercise for freshman economists. This is the official policy of the United States Government, or at least the loudly touted program of the present administration. It touches 200 million Americans and threatens their way of life. It is an efficient policy in creating short ages, as our experience at the gasoline pumps so clearly demon strates. As a policy designed to im prove economic conditions it is counterproductive. The resultant chaos and damage is just as real, whether the policy is the poisonous fruit of socialistic thinking, or just·a relic of the Dark Ages. @ IDEAS ON UBERTY The History of Price Fixing ONE of the most frequent methods of control used has been the limitation of prices by legal enactment. The results have been astonish ingly uniform considering the variety of conditions and circumstances under which the experiments have taken place....

The history of government limitation of price seems to teach one clear lesson: That in attempting to ease the burdens of the people in a time of high prices by artificially setting a limit to them, the people are not relieved but only exchange one set of ills for another which is greater. Among these ills are: (1) the withholding of goods from the market, because consumers being in the majority, price fixing is usually in their interest; (2) the dividing of the community into two hostile camps, one only of which considers that the government acts in its interest; (3) the practical difficulties of enforcing such limitation in prices which in the very nature of the case requires the cooperation of both producer and consumer to make it effective. MARY G. LACY, Food Control During Forty-Six Centuries Gary North "Sorry, No Further Bids!" AUCTION PRICES are still front-page news in my city, Durham, North Carolina. Anyway, tobacco auction prices are. You can still go down to the tobacco warehouses and listen to the incredible sound of the staccato-voiced auctioneers, just like the fellow on the old Lucky Strike radio commercials. It's a heck of a lot more interesting than reading computerized signals on some cathode ray tube.

The auction process seems to me to be the quintessence of market exchange. An economy really is a giant auction,with buyers and sell ers assembled together in order to see who is willing to pay the highest Dr. North is editor of Biblical Economics Today, available free on request: P.O. Box 8567, Durham, N.C. 27707. This article is reprinted by permission from the April 1979 Issue of Commodities magazine, Cedar Falls, Iowa. 466 price (or offer the most goods) to get what he wants. The fact we always tend to forget in a supermarket is driven home to us on the floor of an auction: buyers compete against buyers, not against the sellers. And since people can always go to another auction, sellers compete against sellers. Only insofar as the auctioneer succeeds in getting the highest bid from a buyer can he be said to be a competitor to a buyer and then only to the next-to-the-last buyer. The seller is the spinner of dreams, the master in presenting the vision of previously ignored op portunities, and the buyers always have the option of foregoing yet another dream or potential opportu nity.

As you may infer, I like auctions. They fascinate me. I suppose this fascination with auc((SORRY, NO FURTHER BIDS!" 467 tions led me to the following fan tasy. Imagine the floor of some coun try auction. Fifteen enthusiastic bidders are standing in front of the auctioneer's booth, and he has just brought forth some splendid exam ple of a previously ignored opportu nity. The bidders begin to drool. Each one knows that he just has to have it. Today. Imagine also that the rules of the auction are simple. Each bidder has a can full of money behind him, and in order to make his bid, he has to reach into the can, pull out a quanti ty of paper bills equal to his bid, raise them into the air, and call out his bid. No cash-no bid. The bidding begins. Everyone meets the opening price of $95 sug gested by the auctIoneer. He knows now that he has a hot one on his hands. Upward climb the bids, with all 15 participants staying in the competition.

Enter the Money Man Then a most peculiar thing takes place. A man with a uniform begins to dart behind one or another of the shouting bidders, almost at random (yet not quite), depositing newly printed currency in their money cans. Each participant smiles when his refill comes. The bids continue upward. Noone leaves the floor. Mter the price has climbed stead ily to $250, the participants begin to worry. The highest bid ever offered for one of these was $198, back in 1974. Yet the bidding is only warm ing up. The uniformed man scurries faster, shelling out the cash. Up and down the bidders go, like drunken marionettes, leaning over to grab more cash, standing up again to wave ever-fatter fistsful of money at the auctioneer. At $275, some of the bidders start dropping out, grumbling about the insanity shown by the others. They start calling for some sort of government regulation of bidding.

This panic has to be stopped before it gets out of hand, they say. Yet the unifonned man keeps scurrying, and the others continue on, undaunted: $300, $350, $475. It's pandemonium on the floor. Even those still bidding start grumbling. Maybe the government really ought to do something dra 'matic, to bring people (other bid ders) to their senses. But not one of them thinks to tell the frantically scrambling man with the money to stop putting new cash in his bucket. After all, that fellow represents the government, or a properly chartered agency of the government. He's sup posed to know what he's doing. Be sides, each person thinks to himself, ((maybe-just maybe-that guy will stop right after he makes his final deposit in my bucket." But he doesn't stop. Finally, only eight people are left on the floor. With one breath they 468 THE FREEMAN August cry out a bid, and with the other they call for some sort of Federal intervention, such as controls on panic-induced prices. It's up to $750.

How long can this go on, anyway? (The answer is fairly simple: about as long as the fellow in the uniform keeps on passing out the paper money, plus a few more bids. When the cans are empty, this auction is over.) By Order of the Government Market Closed Finally, in response to tremen dous political pressure from the bid ders, a second government official steps onto the floor. This one is wearing a badge. Under his coat there is a bulge, and it doesn't ap pear to be a wallet. ttThat's it, ladies and gentlemen," he announces. ttNo further bids." At last, the government has acted decisively. The participants are re lieved. The insanity-their in sanity-has been officially called to a halt. HThe auction has been saved," announces a high-level gov ernment official, ttfrom itself." There is a problem still remain ing, however. Eight people are still waiting on the floor, and each one is as convinced as before that the item in question ought to be his. Each one knows in his heart that his next bid would have been the final one, the one which would have driven his competitors from the floor. Now the bids are legally frozen. Each one feels cheated out of what was almost rightfully his.

Question: Who gets to take it home? Another question: What criteria should be used, not to men tion will be used, to determine who takes it home? There are several possibilities. There is ttfirst come, first served." Who made that first high bid in the round immediately preceding the freeze? Who was quickest? (Had he guessed that a freeze was imminent? Had be been tipped off?) Another possibility: Who has been coming to this auctioneer's auctions the longest, spending the most money over the years? Who deserves a favor? ttBuddy, you've got it!" Then, again, there's good old Phil Turner. Sheriff Phil Turner. ttWell, it looks like you've bought it, Phil," says the auctioneer. t1 sure hope you like it. Don't forget where you got it." Of course, there's the old H39-24 36" method. ttyou, my dear, just bought the prize. Pick it up in my office, right after the auction." A time-honored method, to be sure.

Yet it's altogether possible that the auctioneer doesn't regard any of these approaches as the best. Maybe he decides that this little gem ought to be saved to be auctioned off some other day. Why not take it home? Why sell it at a rigged price? Is this fair? Is anyone of these 1979 ((SORRY, NO FURTHER BIDS!" 469 methods fair? After all, the auc tioneer is a profit-seeking seller. Why should he be allowed to make these decisions? The official with the badge may call over the official with the cash, peel off a few bills, hand them to the auctioneer, and an nounce: ((The people need this. The people shall get it." Then he takes it back to the office. Or perhaps to the local office of the GSA. Black Markets I'll tell you this much. There will be other auctions. The auctioneer will be back. But future auctions will not be advertised openly. ttMid_ night auctions" will take the place of open ones. Officials will not hear about many of them in advance. Not the guys wearing badges, anyway.

The money-providing officials will be approached by all participants beforehand, each one pleading for The Failure of Controls his refills before the next auction. Some people will get their money, too, since there's plenty more where that came from these days. The bids at the midnight auctions won't be getting any lower. Count on it. So if you decide to show up, if only because these will be the auctions where the serious bidders and auc tioneers will gather to auction off the only goods worth paying for, then make your plans early. Get a very large can, and find you one of those money-producing officials. Get your pitch ready now; you'll need a good one. And for those of you who plan on sticking with the oPen, buyer-protect ed auctions approved and licensed by the government, come early, and bring along a couple of gifts for the auctioneer. In any case, you're only going to get those items left behind by the guys with the badges. @ F. A. HARPER, "Stand-by Controls"

IDEAS ON UBERTY FOR those who find the proof of the pudding only in the eating, history affords continuous and ample evidence, since the first known price control laws were enacted in Babylonia 3,800 years ago. They failed of their purpose, as has every similar attempt in recorded history since that time. It is ever the same. When a government inflates the money or some other cause pushes prices u.pward, attempts are made to conceal the symptoms, rather than to attack inflation at its source or otherwise get at the root-cause. The attempt is made to adjust the scale on the thermometer by edict, rather than to cure the fever that causes the mercury to rise-so to speak. The treatment applied to the fever victim is to throw him into a deep-freeze.

Henry Hazlltt THE most persistent and widespread economic myth for nearly the last two centuries is that the mass of the workers are inexcusably underpaid. This contention was put forth in its most extreme and vehement form by Karl Marx and Friedrich Engels in The Communist Manifesto in 1848. The workers, they tell us, are mere ((slaves" of the bourgeois class; they are systematically uoppressed"; they are subjected to unaked, shameless, direct, brutal, exploitation." Insofar as Marx and Engels ofHenry Hazlltt, noted economist, author, editor, re viewer and columnist, Is well known to readers of the New York Times, Newsweek, The Freeman, Bar ron's, Human Events and many others. Among the more recent of his numerous books are The Inflation Crisis, and How to Resolve It and a revised edition of Economics In One Lesson. 470 fered any argument for this accusa tion, it was based on David Ricardo's worst mistake, the Subsistence Theory of Wages, in turn derived from the Malthusian doctrine that population persistently tends to outgrow the means of subsistence, and therefore wages tend to fall to or stay at the minimum level at which workers can maintain life.

Marx and Engels combined this with another false but apparently indestructible Ricardian error-that prices· are determined by costs of production. But· they gave the doc trine a sinister twist of their own: The cost of production of a worker is merely the cost of barely keeping him alive. So: ((The average price of wage-labor is the minimum wage, i.e., that quantum of the means of PROFITS AND PAYROLLS 471 subsistence which is absolutely re quisite to keep the laborer in bare existence as a laborer. What, there fore, the wage-laborer appropriates by means of his labor merely suffices to prolong and reproduce a bare existence. " This grotesque logic sufficed for Marx and Engels. They never con descended to consult the facts. They made no distinction between the pay of unskilled and the most skilled labor. And for some reason which they did not explain, the whole sub sistence theory would cease to apply once socialism were adopted.

They admitted that in the preced ing hundred years, capitalism (which they then called ~~the bourgeoisie") had ttcreated more massive and more colossal produc tive forces than have all preceding generations together." But appar ently none of this went to the work ers; none of it raised wages. They even argued that increased machin ery ttnearly everywhere reduces wages to the same low level," and that the chief effect of ~~the unceas ing improvement of machinery" is to make the livelihood of the workers (~more and more precarious." In The Communist Manifesto the explanation of why the wages of labor can never rise above a mere subsistence level is given barely half-a-dozen lines. When, years la ter, Marx attempted to elaborate this explanation in his threevolumed Das Kapital (Volume I in 1867, and Volumes II and ITI com pleted by Engels in 1885 and 1894 respectively after Marx's death in 1883), Marx fell into so many con tradictions and so much obfuscation that the· book is all but unreadable.

In an analysis published in 1896, the Austrian economist Eugen von Boehm-Bawerk made mincemeat of the whole argument. Yet in spite of their flagrant absurdities, Marx's theories, giving unmatched expres sion to class hatred, continue to wreak increasing devastation in the world after more than a century. The most persistent and wide spread economic myth for nearly the last two centuries is that the mass of the workers are inexcusably underpaid. Marx never attempted to state exactly what percentage labor was paid of the value of the product it helped to create. But in 1905 a prominent socialist, Daniel De Leon, misinterpreting some figures in the United States Census of Manufac tures, declared that the American worker got only $20 for every $100 worth of goods that he produced, and that ~~somebody else" got the other $80. This misstatement was end lessly repeated-and accepted-by many politicians and others who should have known better.

472 THE FREEMAN August In spite of their flagrant absur dities, Marx's theories, giving unmatched expression to class hatred, continue to wreak increasing devastation in the world. Substantially the same belief per sists today. Public opinion polling by the respected Opinion Research Corporation has found that the con sensus of most Americans is that in the two-way division between aggregate corporate employee com pensation and the net profit after taxes left for the stockholders, the latter get about 75 per cent and only 25 per cent goes to the employees. The truth is the exact contrary and even more than that. Prelimi nary figures for the calendar year 1978 show that the employees of all the corporations of the country re ceived 89 per cent of the two-way split and the stockholders were cred ited with net· profits after taxes of only 11 per cent. For the last year for which final figures are available, 1977, the employees got 89.4 per cent of the division and the owners were credited with net profits after taxes of only 10.7 per cent. They did not actually receive that much, but dividends amounting to only 4.5 per cent of the combined total.

In the whole thirty-year period from 1949 through 1978 inclusive, the employees received an average of 88.1 per cent of the two-way divi sion, the stockholders were credited with an average of11.9 per cent, and the actual dividends they received came to only 5.3 per cent. These are official figures. In Table 1 at the end of this article, I present the dollar figures for each of the last thirty calendar years-of total em ployee compensation for all of the country's corporations, of profits after taxes, of the sum of these two, and of the amount of dividends paid. In Table 2, I show how these sums compare with each other when con verted into percentages. Before going on to point out some of the crucially important conclu sions to be drawn from these figures, I should like to say a few words about the figures themselves. They have been compiled by the Bureau of Economic Analysis of the United States Department of Commerce since the early 1930s. They exist for every year since 1929. Yet they are one of the world's best-kept economic secrets.

The reason for this is that until very recently these annual figures were published only in the July issue each year of the Department of Commerce monthly Survey of Cur rent Business. This document pub lishes each month some 40 pages of statistical tables. There are an av erage of 70 lines to a page, and about 16 columns of figures, making about 1979 PROFITS AND PAYROLLS 473 1120 separate figures on each page, about 44,800 figures per issue, and. 537,600 figures per year. Out of this huge total there are about 40 figures each year-confined to the July issue-summing up the results for the preceding year of the total and the distribution of corporate earn .. ings. This means that these corpo·· rate statistics are found in barely one figure in 10,000-and all in the same tiny type as all the rest. For the last thirty years the employees of this country's corporations have been re ceiving an average of eight times as much from them as has been cred ited to the stockholders.

It is not surprising that they have escaped general attention, or appar ently ev~n the attention of the great majority of statisticians and economists. But at this point I should like to pay tribute to two publicizers-one an institution, the other an individ ual. The institution is the American Economic Foundation, which started to call attention to these payroll-and-profit-division figures sometime in the early forties. The individual is John Q. Jennings, who started to emphasize them in 1939, and who in recent years has con ducted practically a one-man cam.paign in reiterating, promulgating, and pounding in these distribution figures and their implications. For the most part he has met with little success, but he recently found a re ceptive hearing in Australia. At his suggestion, Australia's Prime Min ister Fraser prevailed upon employ ers to publish and give prominence to this percentage distribution in their own companies. More than 200 corporations complied. This seems to have had a real effect in limiting union demands and reducing the number of strikes in that country.

Now, when nearly half (46 per cent) of net corporation profits of the larger corporations in the United States are seized for taxes, when on top of this a so-called ((windfall profits" tax is being proposed on oil com panies, when the public is being told from all sides that corporate profits are Hdisastrously" high and even ((obscene," it is time some of the rest of us started calling more attention to the real facts. Let us begin with a closer exami nation of the figures showing the division of corporate earnings be tween employees and stockholders. If the reader compares the figures in the thirty-year tables year by year, he will fmd that in every year, with the sole exception of 1958, total dollar payrolls exceeded those in the year preceding. This is not true of profits after taxes. In eleven out of the thirty years, dollar profits failed 474 THE FREEMAN August to rise over the preceding year.

(Both of these results might be changed somewhat if allowance were made both for the declining purchasing power of the dollar and for corresponding accounting adjust ments.) But the figures do em phasize that payrolls and profits tend to rise and fall together. This, of course, is· because corporate employment and payrolls are de termined by present profits and the prospect of future profits. Any gov er.nment action that seriously re duces profits must diminish employ ment and payrolls as well. We also find a striking difference when we compare the division be tween payrolls and profits-after taxes in the first ten years of the thirty-year period with the division in the last ten years. In the last ten years, employees have been getting an average of 90.2 per cent of the combined total available for division between the two groups, and stock holders an average of only 9.8 per cent. But in the first ten years in the table-1949 to 1958 inclusive employees were getting an average of 85.9 per cent and the stockholders of 14.1 per cent. The difference is mainly owing to the higher rates of corporate taxation now imposed.

The contrast remains sharp if we carry our comparisons back even a little further. The figures in my ta bles have been compiled from those that have appeared over the years in the Survey of Current Business. But at least in the last few years, it is reassuring to report, a table contain ing similar figures has been appear ing in the annual Economic Report of the President. This is a real gain; but the statistical secret has been still pretty well kept because the figures appear on merely one out of 124 tables in the Report, and even that table contains five times as many annual figures·as the three we are comparing. Any government action that seriously reduces profits must diminish employment and payrolls as well. The statistics presented in the Report are not the totals for all cor porations but merely for ((nonfinan cial" corporate business. This fortu nately turns out to make little prac tical difference. In 1977, for exam ple, the combined sum available to the nonfinancial corporations for distribution between employees and stockholders was 94 per cent of that for all corporations. The nonfinan cial corporations paid 89.7 per cent of this sum to their employees as compared with 89.4 per cent paid by all corporations.

The Economic Report carries these nonfinancial corporation fig ures back to 1929. There is an in structive comparison between what 1979 PROFITS AND PAYROLLS 475 happened in 1929 and in 1933. In. 1929, 81.6 per cent of the total available for both employees and stockholders went for payrolls; 18.4: per cen.t remain.ed for profits after taxes. In 1933, 99.4 per cent of the combined sum available went to employees; only six-tenths of 1 per cent was left for profits after taxes .. A union leader who knew nothing more about the facts than this might conclude that in 1933 labor was at last getting its Hfair share." But when we compare dollar totals, we find that nonfinancial corporation employees received $32.3 billion in 1929, but only $16.7 billion-barely more than half as much-in 1933. The reason is that corporation prof its after taxes in 1929 came to $7,300 million, while in 1933 two thirds of the corporations lost money, and the total net profits left after taxes were only about $100 million. In recent years 35 to 40 per cent of all corporations have annual ly been reporting losses. Corpora. tions losing money cannot long pro vide jobs. Employment, payrolls, and profits rise and fall together.

Even if this statistical series of the division of corporate earnings were not available to us, other fig ures have long shown that employ ees get the lion's share of the na. tional income. The Survey of Cur rent Business for March 1979 places the national income for 1978 at $1,703.8 billion, of which $1,301.4 billion, or 76.4 per cent, went in compensation to employees. This does not mean, of course, that the other 23.6 per cent represented prof its. Most of it went to millions of farmers and independent proprie tors, owners of small stores-gro cers, butchers, bakers, druggists, stationers, barbers, tailors-as well, of course, as to doctors, lawyers, or professional prize fighters. The truth is that-when recal culated to allow for the dis tortions of inflation----corporate profits are still far too low for the health of the American economy. Corporate profits after taxes nom inally came in 1978 to $118.2 bil lion, but after the Department of Commerce had made realistic ac counting deductions from this in flated figure for ((inventory valua tion and capital consumption ad justments," these profits after taxes came to only $75.6 billion, or 4.4 per cent of the national income. It is these profits that one high Federal official recently denounced as ~~catastrophic."

The truth is that-when re calculated to allow for the distor tions of inflation--corporate profits are still far too low for the health of the American economy. As George Terborgh, economist for the 476 THE FREEMAN August Machinery and Allied Products In stitute, has pointed out (April 1979 bulletin) real corporate profits in creased in 1978 only 11 per cent less than the 13 per cent rise in the GNP. He went on to point out that adjusted after-tax profits of all cor porations, as calculated by the U.S. Department of Commerce, were only 5 per cent of their gross product in 1978, and only 5.3 per cent of their gross product even in the fourth quarter of that year, compared with an average of 8.6 per cent during the pre-inflationary period 1947-1965. In short, because of insufficient al lowance for inflation, American cor porations have been reporting phan tom profits. HWhat inflation has done," concludes Mr. Terborgh, ((is to devastate real profits."

This conclusion is confirmed by the recent slowdown in the Ameri can rate of productivity improve ment. Measured against 1967, our productivity growth has been sharp ly below that of Canada, West Germany, Japan and other nations. According to figures compiled by the Council of Economic Advisers in the January 1979 Economic Report, productivity was increasing be tween 1948 and 1955 by 3.4 per cent a y~ar. In the period from 1965 to 19,73 this fell to 2.3 per cent, from 1973 to 1977 to 1 per cent, and from 1977 to 1978 to four-tenths of 1 per cent (p. 68). The main reason for this is a falling off in capital investment caused by insufficient real profits and a dismal outlook for such prof its. The present political antagonism to profits is in large part the result of the public's ignorance of the real facts about profits, and particularly its ignorance of the close dependence of employment, productivity, and wage-rates on profits. But the man agers of American business, I am sorry to report, have been in large part responsible for this public igno rance. There is scarcely a big corpo ration anywhere whose total payroll is not many times as large as its net profits after taxes. But I doubt that there is one big corporation in ten that makes this fact clear in its annual report to stockholders-or bothers to call attention to the com parison. And there are probably even fewer that call attention to the comparison in special reports to their own employees.

The top managers of our big corporations have been in credibly shortsighted in failing to reveal to their own employ ees and to the general public the incomparably greater sums they are paying to their employees than to their owners. Calling attention systematically to these figures would help the cor porations immensely in their labor 1979 PROFITS AND PAYROLLS 477 relations-and help them to reduce strikes. Their failure to emphasize or even to make the comparison clear is puzzling. I suspect that the typical management, in preparing its annual report, thinks solely of impressing the stockholders. In its concern to show how well manage ment has done, it tries to show the most favorable profits possible. It seems reluctant to show the stock holders how much more it is paying its employees than it is them. It is not too upset at being compelled by various Federal agencies-including the IRS-to report phan tom earnings-to fail to make suffi. cient deductions, in an inflationary period, from apparent inventory profits and for depreciation and re placement.

Whatever their reasons, the top managers of our big corporations have been incredibly shortsighted in failing to reveal to their own em ployees and to the general public the incomparably greater sums they are annually and daily paying to their employees than to their owners. The distributive share between the workers and the owners of big businesses was probably not too much different in earlier genera tions than it is today. The real dif ference is that we-at least some of us-now know what the actual fig ures are. There is no longer any excuse for the rest of us not know ing. For the last thirty years the employees of this country's corpora tions have been receiving an average of eight times as much from them as has been credited to the stockholders, and an average of sixteen times as much as the stockholders have actu ally been paid in dividends. And in the most recent years of that period, the division in favor of the employ ees has been even more favorable.

This is the exact contrary of the impression we have been receiving during these thirty years, and are still receiving today, from thousands of books, tracts, ((studies," histories, novels, and hundreds of thousands of ((news" broadcasts, pamphlets and editorials. As a result of this false impression, this constantly incul cated myth, the politicians in nearly all countries are daily burdening, shackling and sabotaging capital ism, and trying to substitute a socialism that would tend only to universalize poverty. It is the duty of all of us who are aware of the critical facts to try to make them sufficiently known before it is too late. ® See tables 1 and 2 on the following pages. Reprints available, The Foun dation for Economic Education, Irvington-on-Hudson, N. Y. 10533. 10 copies $2.00 100 or more, 15¢ each 478 THE FREEMAN August TABLE 1 (Billions of Dollars) Compensation Profits Combined Year of Employees After Taxes Sum Dividends 1978* $ 896.3 $ 110.5 $1006.8 $ 44.3 1977 776.3 92.5 868.8 . 39.0 1976 690.2 83.4 773.6 33.9 1975 612.9 67.2 680.1 29.4 1974 585.9 65.0 650.9 26.2 1973 533.3 60.2 593.5 24.6 1972 470.6 49.8 520.4 21.7 1971 423.8 39.7 463.5 20.3 1970 399.3 33.2 432.5 20.7 1969 377.7 40.1 417.8 20.7 1968 340.0 42.9 382.9 20.5 1967 308.3 41.8 350.1 18.7 1966 288.3 44.3 332.6 18.1 1965 259.7 41.1 300.8 17.6 1964 239.1 33.6 272.7 16.0 1963 222.6 28.9 251.5 14.5 1962 211.0 27.0 238.0 13.3 1961 195.6 23.5 219.1 12.3 1960 190.8 23.9 214.7 12.0 1959 180.7 26.2 206.9 11.3 1958 164.1 20.4 184.5 10.6 ·1957 166.7 23.6 190.3 10.9 1956 158.4 24.8 183.2 10.5 1955 144.9 24.8 169.7 9.8 1954 132.4 19.1 151.5 8.7 1953 134.2 19.1 153.3 8.5 1952 123.2 18.4 141.6 8.2 1951 114.7 20.2 134.9 8.1 1950 98.8 23.7 122.5 8.4 1949 89.0 17.9 106.9 6.9 *Third quarter annual rate seasonally atijusted.

1979 PROFITS AND PAYROLLS 479 TABLE 2 (Per~entageDivision) Compensation Profits Year of Employees After Taxes Dividends 1978* 89.0% 11.0% 4.4% 1977 89.4 10.6 4.5 1976 89.2 10.8 4.4 1975 90.1 9.9 4.3 1974 90.0 10.0 4.0 1973 89.9 10.1 4.1 1972 90.4 9.6 4.2 1971 91.4 8.6 4.4 1970 92.3 7.7 4.8 1969 90.4 9.6 5.0 1968 88.8 11.2 5.4 1967 88.1 11.9 5.3 1966 86.7 13.3 5.4 1965 86.3 13.7 5.9 1964 87.7 12.3 5.9 1963 88.5 11.5 5.8 1962 88.7 11.3 5.6 1961 89.3 10.7 5.6 1960 88.9 11.1 5.6 1959 87.3 12.7 5.5 1958 88.9 11.1 5.7 1957 87.6 12.4 5.7 1956 86.5 13.5 5.7 1955 85.4 14.6 5.8 1954 87.4 12.6 5.7 1953 87.5 12.5 5.5 1952 87.0 13.0 5.8 1951 85.0 15.0 6.0 1950 80.7 19.3 6.9 1949 83.3 16.7 6.5 *Third·quarter annual rate·seasonally adjusted.

Ed Grady Agriculture and the Survival of Private Enterprise ONE of the most compelling prob lems we face, as a nation and as a people, is embodied in the question, ~~Can private enterprise survive in America?" And my answer to that question is a qualified one: ~~Yes, private enter prise can, and shall, survive in America ... providing": • providing that as Americans we quit taking it for granted • providing we understand what makes our system tick • providing we learn how to make both an emotional and intellec tual sale in behalf of freedom • providing we care enough to make the good fight. Mr. Grady, now manager of the Information division of the Minnesota Farm Bureau Federation. has for more than 30 years been professionally telling the story of freedom. 480 And what is agriculture's role in the survival of free enterprise in America? Simply put, it is to demon strate our ability, and our willing ness, to measure up to the test pro vided by each of these provisos. This we are determined, and dedicated, to do.

If we demonstrate as much integ rity in organizing support for free dom as its opponents have demon strated in attacking it, then no ques tion but that we shall win the battle. If there is one lesson that history tells us again and again it is that concentration of power and author ity in ~~big government" is, eventually and certainly, followed by the loss of personal freedom. And let us never forget that no man's future is safe in the hands of a political phi losophy that is willing to buy today's popularity with tomorrow's agony.

AGRICULTURE AND THE SURVIVAL OF PRIVATE ENTERPRISE 481 Economic freedom is the founda tion of political freedom. The two are inseparable. Make no mistake about it; every time we transfer reponsibility and power to a central government, we transfer responsibility and power away from the people. All of us-the businessman on Main Street and the businessman on the farm included.....;..needa basic un derstanding of what it is that makes private competitive enterprise go. The mainsprings ofthe system are four in number: (a) Most property privately owned; (b) Most property privately man aged; (c) Most property operated for a profit, not necessarily at a profit; and . (d) All this under circumstances in which competition prevails. All production-all civilization, in fact-rests on a recognition of and respect for property rights. A pri vate enterprise system is impossible without security of property; it is possible only within a framework of law and order and morality.

When a man's property rights are protected, he is able to retain and enjoy in peace the fruits of his labor. This security is his main incentive, if not his only incentive, to labor creatively. If anyone were free to confiscate what the farmer had sown, fertilized, cultivated· and raised, he would no longer have any incentive to sow or to reap. Profit is the life blood of a free economy. The opportunity to make a profit (or the opposite, the discipline of possible loss) is the invisible hand, as it were, that guides produc tion and distribution. And in guid ing the economy to the satisfaction of society's needs, the profit system does what no central authority is capable of doing as well-even granting that the authority might be staffed by the most brilliant planners and the best able manag ers among us. It is said at times that many are willing to trade freedom for security. Even if they were to receive that for which they traded, it would be a bad bargain. But the sad and frighten ing fact is that when a people seek to obtain sec uri ty by turning over power and responsibility to govern ment, they lose both freedom and security.

What we must recognize, of course, is that there simply is no real security in any form of soci ety that rests upon centralized polit ical and economic control. Life in such societies is grim and drab and desperate. The opportu nity of the individual to better him self is hamstrung by restrictions and frustrations and limitations which stifle initiative and suffocate prog ress. The individual in this kind of situation becomes a mere cog in a 482 THE FREEMAN August rusty, creaking, poorly-functioning machine. Our form of society is being bat tered today by the most subtle and most dangerous threat possible-the destruction of the competitive mar ket system. It is most subtle and most dangerous because it always is done with the avowed purpose of benefiting or protecting some seg ment of our population. A Flexible Price System In our economy, it is a flexible price system that serves as the ba lance wheel for the whole structure.

The price system determines how much of any product we should pro duce; it adjusts consumption to use what is produced; and it guides the flow of investment to insure the pro duction of what is needed. Now, if we don't permit the price system to perform these functions, we strike deep into the very lifeline, at the very heart, of our competitive economic system. And if the capac ity of the price system to perform its function is destroyed, there remains only one alternative: assign the au thority to fix prices to government or, put another way, to political management. Political management of our price system is inevitably inefficient, cumbersome, backward-looking and costly. Even though the appointed fixers were all-intelligent super men, it would be impossible for them to operate effectively in a situation in which every decision is affected by political considerations and polit ical pressures. Personal ambitions and bureaucratic policies become major factors influencing every de cision.

For a physician, the least profit able patient is a dead one. The next least profitable is the well one. The gold mine is the patient who con tinues sick, or continues to think himself sick. The nobility of the medical profession is the fact that few of us have ever had an en counter with doctors who exploit this obvious truth. But not always so with politicians. Many of them parade as physicians to doctor the economic ills of their constituents. Our need for protec tion from exploitation in this in stance is less obvious-but far more necessary. Government farm policy dating back some 40 years has been so long on promises and so lean on perfor mance because it is borrowed from the strategy and tactics of the coer cive society and its centrally directed and centrally-controlled economy. It serves well neither pro ducers nor consumers. Thus the all-consuming impor tance of choices, and how it is that one of our continuing challenges is to discover in advance the eventual consequences of the choices we are called upon to make. This is an abso1979 AGRICULTURE AND THE SURVIVAL OF PRIVATE ENTERPRISE 483 lute prerequisite not only of success ful self-government but essential also to the survival of private enter prise.

The discussion over the years with regard to compensatory payments (target prices, in the current gov ernment farm program. glossary) il lustrates well what it is one or another choice involves. Basically, what is wrong with the payment approach? It is not, as advocates even today claim, a device to control production; it is a scheme to control farmers. Nor is it, as some contend, a plan to establish a free market; it is a pro posal to wreck markets. Simply put, it provides an engraved invitation for politically-determined limita tions on the farm incomes of indi vidual producers-and it's ideally suited to implement the concept of rationing the right to earn on the basis of the politics of equal shares. Instead of easing the cost-price squeeze which plagues fanners in Minnesota and throughout the country, it makes matters worse. Some years ago, the late Aneurin Bevan and his British Labor Party colleagues published in a pamphlet the basic tenets of their political philosophy. If there is one phrase more than any other that appears time and again in this document, it is the term ««fair shares."

Reduced to its most common de nominator, fair shares is nothing more and nothing less than a politi cal device for leveling and putting a ceiling on opportunity. This is not the American way; this is the other way! A moment's reflection on the fair-shares doctrine should make us aware that it is time for individual citizens to reaffirm their faith in capitalism, American style. Curbing the Intervention Authoritarian liberals delude themselves into believing they are champions of liberty while favoring creeping coercion as long as they can be authors of the coercion. While they are trying to cure injustice by piling on more government, they lose sight of the fact that all the great struggles for freedom have been directed against the overblown force of government. There isn't a one of us-in town or in the country-who isn't a target of the propaganda campaign being waged by what I call the ««cultof the positive." The conviction of people who make up this breed is that you don't have a npositive" program for solving problems unless you have a program that calls for government intervention, or government in volvement-preferably national and the more widespread the better.

These economic meddlers and polit ical peddlers are determined to be positive-even if it means being positively wrong.

484 THE FREEMAN All of which causes me to suggest that if you really know what you're for you won't hesitate to be against anything that is inconsistent with it. If you're for good, solid, juicy crunchy apples, you just have to be against worms. The chaos and con fusion arises when people don't know what they're for. So if you're for the private com petitive enterprise system, it won't disturb you to oppose proposals that would wreck the market system. If you're for the voluntary method of solving problems, you'll not hesitate to fight efforts to substitute compul sion or coercion. And if you're for individual responsibility, freedom and opportunity, you'll forthrightly and vigorously oppose anything in consistent with this fundamental concept. That's the logic, and the rationale, of liberty. Dr. Norman Vincent Peale didn't allow himself to be pressed into serving the positive cult. He says that he is a firm believer in affirma tive attitudes and is convinced that they are ttsupremely important in James Mussatti successful living." But he is quick to add: ttAffirmatives alone are not enough. This world is full of hope and joy, but it is also beset by evil, immorality and sin. You can't say tYes' to these things, or even tMaybe.' You have to say tNo!' and you have to make it stick."

Happily, most farmers-and most rural Americans-haven't suc cumbed to the myth that there is a magical way by which governments can create prosperity and high stan dards of living by either ignoring or flouting economic laws. Instead of embarking on a politi cal safari in search of the pot of gold that is supposed to be found at the end of the socialist rainbow, we favor building a greater nation, a more appreciative and productive people, and a more responsive com munity on the rock-ribbed founda tion of unparalleled success thus far. And we do so with an abiding faith that God didn't intend the light of human freedom, nor the private enterprise system so much a part of it, to perish from the earth. , IDEAS ON UBERTY OUR most formidable fortress of defense in time of stress still remains the Constitution of the United States. But it is only as good as our understanding and defense of the purpose for which it was drafted.

Eternal vigilance and personal responsibility are still the price of human liberty.

W)rld inth8J grfR9fan Ioe(L Clarence B. Carson 32. The Restorationof the Individual THERE is a logic in thought that we ordinarily see but dimly, if at all. Because we can state ideas sepa rately from one another, it may ap pear to us that our belief in the validity of a given idea is indepen dent of others. That is not how it is generally, however. The structure that undergirds our beliefs is much broader and more interconnected than we are apt to suppose. It can be ljkened to the framework of a house. Remove any load-bearing portion of In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the Impact on several major countries and the spread of the Ideas and practices around the world. the framework, and the whole house will begin to sag, shift, and settle. Remove the foundation and the whole structure will crumble and fall. This is so for ideas as well. In the thought of an individual this process may occur rapidly. For a society, when it occurs it will take place more slowly, and for an exten sive civilization slower still. Even so, the undergirding ideas are as essential to the beliefs of a people as is the foundation to a house. Tamper with them, remove them, and the surface beliefs will no •. longer have support.

It has been observed that each 485 486 THE FREEMAN August succeeding century is the product of the thought of the leading thinkers of the century just past. Such a judgment is gross and imprecise, of course. A century is an arbitrary division of time, and some ideas have much more immediate impact than that, while others may have much longer duration. Nonetheless, the observation has some validity, at least for recent centuries in Western Civilization. In important ways, it is valid to say that the nineteenth cen tury was the product of eighteenth century thought, and the twentieth of the nineteenth. Not only do ideas spread and get accepted rather slowly but also there is a time lag between acceptance, exploring their dimensions, and applying them. Testing Man's Endurance The idea that now has the world in its grip was shaped and set forth in the nineteenth century. Its appli cation has been in the twentieth century. In its application, it has been a broad and expansive experi ment in exercising power over and controlling man. Its experimental character is most apparent in the testing of man's adaptability and endurance. How much can he stand?

How much will he take before breaking or resisting? In what ways can he be changed, and how rapidly? The Nazis carried out such experi ments most directly in concentra tion camps. Physicians and scientists conducted experiments with human beings to determine, for example, how much heat or cold they could endure, and for how long. The whole concentration camp ex perience was an experiment in human alteration and adaptability. The Soviet Communists were less scientific than the Germans but no less barbaric. Interrogation prisons were testing grounds for human en durance. The Slave Labor Camps were, from one angle, economic ex periments to determine how much work could be obtained for the smal lest expenditures. The Nazis did this, too, with the workers brought in from surrounding countries. As one historian says, (COnce in Ger many, they were housed and fed on the general principle ofcexploitation to the highest possible extent at the lowest conceivable degree of ex penditure.' "1 It is easy to see that those who gave the orders for such undertak ings had devalued man, and that those who carried them out were degrading men. It requires only a little greater imagination to grasp that the whole revolutionary socialist effort springs from a de valuation of man and an attempt to reduce him to the point where he is the willing instrument of others. It takes considerably more insight, however, to discern a similar animus behind democratic or evolutionary socialism. The animus 1979 THE RESTORATION OF THE INDIVIDUAL 487 is often obscured because these gradualists may· work •within the framework of venerable institu tions, proclaim their belief in human dignity and freedom, and move slowly.

Yet, democratic socialism is an experiment, too, an experiment aimed at devaluing man by taking from him control over his affairs. It evinces itself as an experiment to determine how much control over their affairs people will yield up at any given time and how much they will change under the goad of com pulsion. The limit at any given time is not so much human endurance as it is how much the electorate will take before they throw .out their rulers. The tacit premise of these efforts is that man's value consists in the extent to which he is brought under the control and direction for the use of others. Bold Experiments The idea that has the world in its grip did not originate as a conscious devaluation of man nor as an explicit intention to subdue him. On the contrary, it arose at a time when human dignity was held in the highest esteem and when freedom was oft proclaimed as the highest end of man. The nineteenth century was a seedbed of bold and daring conceptions of human freedom. One .

of the great thrusts going on in that century was the establishment of individual liberty. The animus be hind this and the ideas on which they were operating can be traced to eighteenth-century forebears (and further back to Greco-Roman -and Judeo-Christian antecedents). But nineteenth-century .thinkers· pressed on, or so they thought, to some thing much beyond political liberty. The boldest of them reached for what they conceived to be ultimate freedom-freedom from all restraint and limitation, freedom from God. Friedrich Nietzsche, the mad German philosopher ,proclaimed that God was dead, writing in 1882. In consequence, he said, u we philosophers and tfree spirits' feel ourselves irradiated as by a new rosy dawn by the report that tthe old God is dead'; our hearts thereby overflow with gratitude, astonish ment, presentiment and expecta tion." All things now become possi ble, or so he seemed to be saying. ttAt last the horizon seems once more unobstructed ... ; our ships can at last start on their voyages once more ... ; the sea, our sea, again lies open before us; perhaps there never was such an open sea."2 Not all who denied the existence of God did so with human freedom in view, so far as we can tell. For some, it was a position arrived at from their philosophy, science, psychol ogy, or what not. Ludwig Feuerbach, who is supposed to have confirmed Marx in his atheism, declared in 488 THE FREEMAN August 1841 that what men conceive of as God is in reality only themselves.

cCThe divine being is nothing else than the human being, or, rather, the human nature purified, freed from the limits of the individual man, made objective-i.e., con templated and revered as another, a distinct being. All the attributes of the divine nature are, therefore, at tributes of the human nature. . . ." Feuerbach, too, saw what he took to be the implications of freedom in this view. cCGod is pure absolute sub jectivity released from all natural limits; he is what individuals ought to be and will be; faith in God is therefore the faith of man in the infinitude and truth of his own na ture; the Divine Being is the subjec tive human being in his absolute freedom and unlimitedness."3 Ernst Haeckel asserted in 1899 that the sciences no longer needed the hypothesis of God to solve cCThe Riddle of the Universe." cCThrough out the whole of astronomy, geology, physics, and chemistry there is no question to-day of a cmoral order,' or a personal God, whose Chand hath disposed all things in wisdom and understanding.' And the same must . be said of the entire field of biology, the whole constitution and history of organic nature .... "4 Outspoken atheism never became a popular pastime in the Western world. T. H. Huxley's contemptuous term, agnosticism (contemptuous because he attributed a Ugnostic"

view to believers) had considerably more success. What happened, how ever, was not that unbelievers sported such labels ordinarily; rather, theism and Christianity were pushed aside and made inap propriate to intellectual activity. Eugen Weber, an historian of Europe, notes that UBy 1939, when the Times Literary Supplement re viewed T. S. Eliot's Idea ora Chris tian Society . .., it had to remark that intelligent men seldom admit even the possibility that Chris tianity Cis a system of truth from which flow inexhaustible principles in metaphysics, ethics and politics.' Hardly anyone would have doubted the thought half a century earlier. . . . But the half century had seen great change."5 Removing the Religious Foundations of Western Thought By 1929, Sigmund Freud could describe religious belief as a kind of distemper of the masses. He said of such belief, cCThe whole thing is so patently infantile, so foreign to real ity, that to anyone with a friendly attitude to humanity it is painful to think that the great majority of mortals will never be able to rise above this view of life. It is still more humiliating to discover how large a number of people living to-day, who cannot but see that this religion is untenable, nevertheless try to de1979 THE RESTORATION OF THE INDIVIDUAL 489 fend it piece by piece in a series of pitiful rearguard actions."6 The impact of this development is not to be understood at all in terms of militant atheism. That, after all, is relatively rare in the Western world. The significance lies in re moving God from His place as prem ise of Western thought. Religious belief is tolerated generally in the noncommunist parts of the world.

Sometimes, it even has official en couragement, though that is rarer nowadays. But it must exist in at tenuated form, as private belief which presumably has some impact on private morals. It has been largely removed as the general foundation of thought and belief. Without God, no system of thought is or can be complete. It lacks a foundation. It lacks, at the least, a Prime Mover, something to set the whole into motion and give impetus to it. Without God, it is necessary to posit a universe which is a perpetual motion machine and, in addition to that, one that was either self-starting or was always running. Scientists usually deny the possibility of a perpetual motion machine on this planet; such a no tion runs counter to all experience. But if a perpetual motion machine were possible, it would still have to have an initial impetus. Without God, much more would be lacking as well. There would be no final valida tion of either reason or fact, no support for a premised order which is essential to make reason of some account. Without God, value and purpose would be downgraded to such values and whatever purposes men might have.

Of course, men do not make do without a god, or gods, of some sort. Certainly, those who would be think ers and have some following can not. G. K. Chesterton put it well, uWhen people cease to believe in God, they don't believe in nothing, but-what's far worse-in any thing."7 In the private realm, those who do not believe in a transcendent God tend to turn to the occult for meaning and purpose. Weber says of the European situation in recent years: ((Today there are a thousand professional astrologers in Paris alone, some 50,000 in all of France, counting seers, cards, coffee, and crystal ball gazers; there is a union of 120,000 occultists in Italy; 60 per cent of French people read astrology forecasts regularly . . . , and one English astrologer counts among her regular clients fifty British and forty-nine foreign firms."8 A Mechanical Universe In the public realm, most of the place once occupied by religion has been taken over by ideology. The idea that has the world in its grip is a god-supplement, god-substitute, or god supplier. (It tends to produce a personal god, even, the leader.) This 490 THE FREEMAN August ideology locates meaning and value in the collectiv.e, the mass, or the demos, however, not in the individ ual.· The individual ceases to· have any.discrete meaningful existence, aside from his own awareness· of it.

Waldo Frank traces this ((deper sonalization," back to Descartes and down through Hegel, Marx, Lenin, and Hitler to Mao Tse-tung. Descartes provided the mathematical foundation for a mechanical view of the universe. By his approach to knowledge, Frank says that for Descartes ((Man is left outside the cosmos, of whichonly as person is he integer and focus. Thus stripped, he coalesces into the mass-man of Hitler .... " Not, how ever, before much else has happened in thought. G. W. F. Hegel was yet another crucial figure in the de velopment of ideas. ((Hegel's Abso lute works through history but ig nores the individual, the potential person; acts indeed, in Hegel's words as if the individual did not exist. Without this Hegelian premise, it is also impossible to understand Marx. •.•"9 ((In neither Hegel nor Marx," he says elsewhere, ((is there place for the person."lO Lenin reduced the individual to an integer of ((the proletariat" or ((the people," whose active arm was the Party, whose guide is the leader.

((The leader is the symbol of the truth in the workers; he is stability, he is orthodox knowledge incarnate. He is not, in the Western sense, a person at all. He bears· the same relation to the Party as the Party to the people." That is, he is an extract of ((the people." This depersonaliza tion has reached its peak, thus far, with the Chinese and Mao Tse-tung, Waldo Frank believes. When Mao speaks, ((One feels. the half billion Chinese become one figure, waking, rubbing his eyes, shrewdlyapprais ing the situation, getting his legs under his body to hoist himself up on his feet." Perhaps this is overdrawn, but it does suggest the end toward which communism moves.l1 Downgrading the Individual to Upgrade Collectivism In the West, man is drawn into the maws of collectivism by the sense of his smallness, his unimpor tance, and futility as an individual. It has been by no means easy to exorcise from the West the belief in the value of individual man. (In the East, it was much easier, because Buddhism had always emphasized the suppression of the self.) Demo cratic socialism continues to pro claim this value in its rhetoric. But the foundation has been cut away, and the structure is crumbling. By organization and numbers the indi vidual is being overawed and made to feel impotent unless he join him self to some group or collective.

Viewed naturally, man is indeed a puny creature. He is exceedingly 1979 THE RESTORATION OF THE INDIVIDUAL 491 fragile, weighing ordinarily no more than a hundred or so pounds even in maturity, and that but some flesh and muscles surrounding a bony structure. He is born of woman in labor, flourishes for a short time in maturity, if he is fortunate, and then is no more. Even the smallest accident can wipe him out, should some vital organ be severed from him or irreparably injured. He can bleed to death in minutes from a severed artery. He is vulnerable, usually rather easily intimidated, and tends to feel helpless when con fronted by organizations and num bers. Viewing himself so, he seeks comfort and safety in the warm smell of the herd, as H. L. Mencken said. Alone, he is drawn almost ir resistibly to some sort of collec tivism. Make no mistake about it, either, to the extent that force is the arbiter in this world the individual is largely helpless alone. An organiza tion is incomparably more effective in exerting force than many indi viduals acting independently. The increasingly pervasive reliance upon force which is entailed in the idea of using government to concert all efforts means that force is the arbiter. It is not difficult for the individual to believe that this world is in the domain of force, and he is helpless.

Even so, the case for and position of individual man is not so hopeless as this may imply, even when the matter is viewed naturally. Groups, collectives, and organizations are not themselves independent beings. They are contingent things. They de rive every ounce of their energy from individual men. They derive all their initiative, all their force, and all their direction from individ ual men. Their purposes, too, arise from men. Organizations cannot think, imagine, will, or act; only individuals can do these things. Groups, even organized groups, are not at bottom superior to individual men; they are creatures of men. And, in constructive action, they are inferior in potentiality to a like number of individuals outside them. Numbers and Organizations Weaken Self-Reliance Collectivism does not draw men into it because of its natural superiority, however. It does so be cause the devaluation of man has sapped the confidence of the indi vidual in his powers. Man can think, but unless there is substantiation for reason, his conclusions carry no weight. They can only be given weight by numbers and organiza tion. If right is only what the posi tive law of government proclaims then the ground beneath his claim to right is slippery indeed. Individ ual man cannot establish his own value. That must be transcenden tally or collectively done.

492 THE FREEMAN August Strive as he will, natural man cannot devise an answer that will overcome the demanding spirit that now overwhelms him. The religions of statism and collectivism do not yield ground to no religion. The only effective answer to low religions is a high and noble religion. The only way to avoid the worship of numer ous idols is to worship the one God. The only way to transcend the sub jectivity of values and the relativity of all knowledge is to go to the source of value and knowledge. If this world is all there is, force does indeed rule, and some sort of collec tivism is the appropriate answer. There is Good News for any and all who will hear it. It is electrify ing news. It is not news addressed to any group, team, class, race, or or ganization; it is news for individuals alone. It is news beside which Das Kapital is a mishmash of history laced with hatred. It is news beside which Mein Kampf is the dis torted assertions of an egomaniac. It is of something which we would not dare hope for did we not know it already. It is news which confirms, vivifies, animates, and restores man. The primary source of this news is the Bible. It is vouched for by the death and resurrection of its bearer. Its truth is confirmed by the testimony of the saints down through the ages. If it come not from God, then whence came it? Surely, it is not of this world.

The Good News, first, is not that man is the origin of values but something much more: he is a value. He is valuable because God places a high value upon him. Contemplate the words of Jesus: UAre not two sparrows sold for a farth ing? and one of them shall not fall to the ground without your Father. UBut the very hairs of your head are numbered. ttFear ye not therefore, ye are of more value than many sparrows."12 And again: And, behold, there was a man which had his hand withered. And they asked him saying, Is it lawful to heal on the sabbath days? ... And he said unto them, UWhat man shall there be among 'you, that shall have one sheep, and if it fall into a pit on the sabbath day, will he not lay hold on it, and lift it out? ttHow much then is a man better than a sheep? Wherefore it is lawful to do well on the sabbath days."Matthew 12:10-12. Promise of Immortality There is more, however; these verses tell us that man is valuable, but they do not suggest the extent.

The greatness of his value is indi cated in the following verse. Jesus said, UFor God so loved the world that he gave his only begotten Son, that whosoever believeth in him should not perish, but have everlasting life." John 3:16.

1979 THE RESTORATION OF THE INDIVIDUAL 493 This tells us much more besides. It tells us that man is immortal, that he is a creature chosen for eternity. The ((whosoever" in the sentence tells us that only individual human beings may have that promise of immortality. The magnitude of man compared to organizations begins to appear. All organizations are but temporary things, destined it may be to flourish for a time and then be no more. The record of history is replete with instances of kingdoms, nations, empires, cities, and all sorts of organizations which once were and are no more. They lasted only so long as they were sustained by indi viduals; then they disappeared, things dependent finally upon the memory of men. Man, by contrast, has a future of which this life is only the beginning. There is a way to test the quality of a religion. It is in that to which it appeals. Does it appeal to the baser motives? Or does it appeal to the highest and best? Socialism is a mean, low, and vulgar religion, and it is as a religion that it finally stands or falls. It appeals to greed, to avarice, to popularity with the crowd, to the desire to get something for nothing, to envy, to jealousy, to class hatred, to the lust for power, to the lowest common denominator, to the will to be free of responsibility, to the urge to destroy, and to the longing to crush that with which one disagrees. The mainspring of socialism is the fear of individual man, and a loathing for him as he is.

Socialism incarnates force, and wor ships the state as the embodiment of it. By contrast, Christianity appeals to the highest and noblest in man. The God revealed by Jesus Christ does not use force and power upon men in this world. God is love, we are told; He woos man by sacrifice, by coming in lowly guise, having naught of the things of this world by which to awe man. He comes not as an earthly conqueror with force, terror, and violence to destroy men but in boundless love to redeem them. The virtues He commends are higher than any man can conceive. But let them speak for themselves. First, from the Sermon on the Mount: UBlessed are the poor in spiri t: for theirs is the kingdom of heaven. ((Blessed are they that mourn: for they shall be comforted. uBlessed are the meek: for they shall inherit the earth. cCBlessedare they which do hunger and thirst after righteousness: for they shall be filled.

uBlessed are the merciful: for they shall obtain mercy. uBlessed are the pure in heart: for they shall see God. UBlessedare the peacemakers: for they shall be called the children of God. C(Blessed are they which are perse cuted for righteousness' sake: for theirs is the kingdom ofheaven."Matthew 5:3-10.

494 THE FREEMAN August What should stand out in all of this is that there is nothing commended to which any should take offense. There is a marvelous congruity permeating the New Testament in the virtues commended. Here is an example from the writings of Paul the Apostle: Let love be without dissimulation. Abhor that which is evil; cleave to that which is good. Be kindly affectioned one to another with brotherly love; in honour preferring one another. Not slothful in business; fervent in spirit; serving the Lord; Rejoicing in hope; patient in tribula tion; continuing instant in prayer; Distributing to the necessity of the saints; given to hospitality. Bless them which persecute you; bless, and curse not. Be ofthe same mind one toward another. Mind not high things, but condescend to men of low estate. Be not wise in your own conceits. Recompense to no man evil for evil. Provide things honest in the sight of all men.

If it be possible, as much as lieth in you, live peaceably with all men. Dearly beloved, avenge not yourselves, but rather give place unto wrath: for it is written, Vengeance is mine; I will repay, saith the Lord. Therefore, if thine enemy hunger, feed him; ifhe thirst, give him drink: for in so doing thou shalt heap coals of fire on his head. Be not overcome of evil, but overcome evil with good. Romans 12:9-21. The Apostle Peter summarized the great virtues this way: and beside this, giving all diligence, add to your faith virtue; and to virtue knowledge; and to knowledge temperance; and to temperance patience; and to patience godliness; and to godliness brotherly kindness; and to brotherly kindness charity. II Peter 1:5-7. And from Paul again: Finally, brethren, whatsoever things are true, whatsoever things are just, whatsoever things are pure, whatsoever things are lovely, whatsoever things are of good report; if there be any virtue, and if there be any praise, think on these things. Philippians 4:8.

Jesus Christ was God Incarnate; He was the Word made flesh. He came to reveal God's ways to men. The beauty of what He taught and was has brought forth singular words of praise. He has been de scribed as the Lily of the Valley, the Rose of Sharon, the Pearl beyond Price, and in Isaiah, as prophecy: UFor unto us a child is born, unto us a son is given: and the government shall be upon his shoulder: and his name shall be called Wonderful, Counsellor, the mighty God, the everlasting Father, the Prince of Peace." (Isaiah 9:6) This aspect of him has tended to shield us from understanding an equally important truth: Jesus Christ was man incarnate. He re1979 THE RESTORATION OF THE INDIVIDUAL 495 vealed to men their full poten tialities and possibilities; he lived and taught-was the embodiment of-not a religion, as we understand such things, but a way of life. He showed that the individual person is of great and momentous account. He restored man the individual to his central place in all of creation. The way of the world is wrong, he said; it is the way of death. The way of the world is to use force, coercion, to attempt to control men to the pur poses of others, to use them. There is another way: the way of love, of service, of persuasion, of influence, of kindliness, of giving, and of be coming. It is the way of life.

Ancient Pagans believed that man was a plaything of the gods. Modern Pagans believe that he is an instrument of the organization to be intimidated by numbers. ttEn_ lightened" Greeks and Romans be lieved that man is either a comic or tragic figure. Contemporary intel lectuals incline to view man as a sensual being, caught in the grip of passions and desires which rend him. Man without God is indeed capa ble of every debasement that can be imaged. He is comic or tragic as you will, a creature of the senses, a play thing, an instrument, an object, a belly, a power monger, or whatever. If proof were needed, this century offers enough for all time. Without God, values are subjective;· no judgment can be made. Man is a buffoon; and television offers continuous programs which prove it. Without God, reason is a· blunt instrument, for there is no truth. Without God, there are no rights; there are only such perquisites as those who oc cupy the leverage points over the exercise of power permit. Without God, life is a situation comedy, and the idols provide the canned laugh ter at man's antics. Without God, life is a tragedy for those who aspire to something better. Without God, individual man is but a dot in the scheme of things, and those who control the organizations work out the puzzle by drawing lines from ttdot to dot."

Man's Support from God With God, the perspective changes dramatically. .Indi vid ual man acquires leverage with which to deal with the world. The basis of that leverage is reason and right. Individual man can think; no group or organization can do that. If there is a God, there is truth, for He knows it. If a tree falls, and no man hear it, it still makes a sound, for God hears it. Man's special means for discern ing truth is reason. Reason provides truth before which organizations, numbers, and machines must bow, else they proclaim their own futility. The other lever is right. The indi vidual in the right, and secure in the knowledge of right, is formida496 THE FREEMAN August hIe. The most fundamental right of the individual is his right to his property. That right is affirmed over and over in Scripture. uThou shalt not steal" is an ancient command ment, as is cCThou shalt not covet."

The Apostle Paul put the most basic principle this way: Let him that stole steal no more: but rather let him labour, working with his hands the thing which is good.... Ephesians 4:28. Since all other rights stem from or depend upon the right to property, all just rights of the individual have transcendent support. Jesus demonstrated what an indi vidual man can be and do; in this, he was man incarnate. The bare details of his life show that this was what he demonstrated. Of· the things of the world, he had none of any conse quence. He was born in a stable, in a trough from which the animals ate. His parents were people of low es tate. He must have had very little of formal education or training. Legend has it that when he reached an age to work and provide for him self, he learned and practiced the trade of carpentry. No organization eyer set its seal of approval upon him. He lamented the fact that he was without honor even in his own community. He had for support only twelve men; they were such as he gathered about him in his wander ings, and of uncertain loyalty. He became what we would call an itinerant preacher, traveling here and there, speaking to such as would hear him.

True, there were some who heard him gladly. There were even those who said that he spoke with such authority as no man ever had before. But the rich young man turned away from him sorrowfully, and people of prestige, if they came at all, came in secret, as Nicodemus did. In all those things which a man is supposed to have in order to make an impact, he had none. Organiza tions and men of authority sus pected him of sedition. The Sanhe drin condemned him and turned him over to the civil authorities of Rome ~o be tried. He was condemned by a throng of accusers and, though Pon tius Pilate, the judge for Rome, found no fault in him, he was con demned to be crucified to please the crowd. At the last, the authorities offered to release him, or such as the crowd might choose. They chose a notorious thief instead. The Confrontation between Might and Right Why were the Jewish rulers so fearful of this man? Why did the pillars of Rome tremble in his pre sence? Why was the crowd so deter mined to see him put to death? We are not told. Yet we know. He had flung no challenges, broken no laws, formed no revolutionary party. He was innocence personified. But he 1979 THE RESTORATION OF THE INDIVIDUAL 497 had taught a way of life which un dermined the way of the world, a way so superior to the way of the world that no comparison is possi ble. Organizations had to show their powers; numbers (the throngs) had to intimidate else they must yield; force must be triumphant. If might did not silence him, it would give tacit approval to right, the very means by which it is constrained and limited.

But force was not triumphant. He rose again from the dead; many wit nesses testified to the fact. Nor did putting him to death put an end to his teachings. God used even this great wrong to bring about good, as He had purposed. Jesus had said, ((And I, if I be lifted up from the earth [crucified], will draw all men unto me." And so it has been. The Good News has been told from one end of the earth to the other. Where once there were only twelve disci ples, and they not firmly planted, there have since been millions moved to follow him. True, many wrongs have been done in the name of Christ, but every one of them was without warrant. Unable to stifle the message, the world has often enough done the next best thing: adopted it and adapted it to its own purposes, even to the use of force for supposedly good and constructive purposes. These actions have done much damage to the name of Chris tian, but to those who will hear the message, it still shines through un dimmed. To those who would take it to their hearts and study it with understanding there has been given the gift of a new birth of the spirit.

Everywhere that the message of love, sacrifice, and concern has gone in the world it has gentled hearts, produced works of charity, freed slaves, buttressed responsibility, and begun its work of liberation. All this has come about, ((Not by might, nor by power, but by my spirit, saith the Lord of Hosts." It is a testament to the influence of example and to the potentiality of man-with God. Individual man without God is very little. Man with God is in another dimension; he is man as he may be. Lest it be thought that what Jesus did does not tell us any thing of the possibilities of men gen erally, Jesus made it clear that it does: uVerily, verily, I say unto you, He that believeth on me, the works that I do shall he do also; and greater works than these shall he do; because I go unto my Father." John 14:12. Man the individual begins to come into focus with all his potentialities. t(Ye are the salt of the earth," Jesus said. ttYe are the light of the world."

(Matthew 5:13,14) Moreover, uAsk, and it shall be given you; seek, and ye shall find; knock, and it shall be opened to you.

498 THE FREEMAN ttFor everyone that asketh receiveth; and he that seeketh findeth; and to him that knocketh it shall be opened." Matthew 7:7-8. What emerges from this is a vis ion of a man who can stand against the might of this world. How can this be? Paul says that to do so one should ttput on the whole armour of God." For we wrestle not against flesh and blood; but against principalities, against powers, against the rulers of the dark ness of this world, against spiritual wick edness in high places. Wherefore take unto you the whole armour of God, that ye may be able to withstand in the evil day, and having done all, to stand. Stand, therefore, having your loins girt about with truth, and having on the breastplate of righteousness; And your feet shod with the prepara tion of the gospel of peace; Above all, taking the shield of faith ... ; And take the helmet of salvation and the sword of the Spirit, which is the word of God. . . . Ephesians 6:11-17.

Men who are thus prepared can stand. They have stood in the past, and they may stand again in the future. Man is a whole potentially much greater than the sum of his parts. Far from being a mere zero, a cog, an object or thing of use, individual man is valuable beyond compare. He is a living, breathing being with a soul, mind, and body. He is touched by the Divine. Each child that is born is a miracle, and every full grown person potent with pos sibilities beyond our dreams. He is a creature worthy to put in their places principalities, powers, rulers of darkness, and the wicked in high places. They are, after all, but gos samer, deri ving all their strength from his flesh and blood. God has plac.ed a value on man; he has put him in an high place. None may reduce that value with impunity. Restored man, confident of his place, can loosen the grip of the idea. i Next: 33. Conclusion: Loosening the Grip of the Idea.

-FOOTNOTESIFrank P. Chambers, This Age of Conflict (New York: Harcourt, Brace & World, 1962, 3rd ed.), p. 575. 2Eugen Weber, ed., The Western Tradition (Boston: D. C. Heath, 1959), p. 673. 3Franklin L. Baumer, ed., Main Currents of Western Thought (New York: Alfred A. Knopf, 1967, 2nd ed.), pp. 570-71. 4Jbid., pp. 578-79. 5Eugen Weber, A Modern History ofEurope (New York: W. W. Norton, 1971), p. 1016. 6Sigmund Freud, Civilization and Its Dis contents, trans. James Strachey (New York: W. W. Norton, 1962), p. 21. 7Quoted in Weber, op. cit., p. 1019. 8Ibid. 9Waldo Frank, The Rediscovery of Man (New York: George Braziller, 1958), p. 215. lOIbid., p. 164. llIbid., p. 165. 12Matthew 10:29-31. (All quotations below are from the King James Version of the Bible.) Ronald F. Cooney NOCK: An Appreciation The wise social philosophers were those who merely hung up their ideas and left them hanging, for men to look at or to pass by, as they chose.

Jesus and Socrates did not even trouble to write theirs out, and Mar cus Aurelius wrote his only in crabbed memoranda for his own use, never thinking anyone else would see them. * * * The above quotation is from A Journal ofThese Days by Albert Jay Nock. It is revealing because it de scribes precisely the way Nock's own thoughts were presented to the world, a world-to judge by Nock's writings-in which he was not often comfortably at home. Yet there was, so little intellectual vanity in him that he could not, one feels, have Mr. Cooney Is a free·lance writer In Berkeley, California. been terribly desolated by the knowledge that his ideas were neither widely endorsed nor adopted. The fact that those ideas were not (and are not) instantly popular may indeed be proof of their basic soundness. But for Nock, it was enough to be able to offer his opinions, not caring a fig if people liked them or agreed with him. It was the search for truth which led him to the ideas, and not the fruits of acceptance or approval, that mat tered to him.

Nock was far from the dogmatist who, besides believing passionately in something, is only really content when he can hammer his convic tions into as many ears as he can find and drag his hearers-willing or not-around to his point of view. He was a man of strong beliefs, but he lacked the missionary zeal to 499 500 THE FREEMAN August force them on others. He, as he says, ((left them hanging." The point re mains that Nock, like his spiritual mentor Montaigne, was animated by and built his thought upon a flinty skepticism. Like Socrates and Jesus, he was a gadfly, a man who stood apart from the prevailing wis dom of the time and tendered his doubts, whatever the consequences. As a social critic, Nock wrote upon a variety of subjects. I mean to concentrate mainly on his political writing for it seems to contain the true essence of his thought. The worth of any philosopher can be judged by the extent to which the issues he raises still live in the con temporary age. In the area of the relationship between the state and society, Nock made a lasting and unique contribution-one which is as relevant today as when he lived.

Such, however, is the unity of Nock's work that one may, by examining a part,come to comprehend the whole. State vs. Society For Nock, the conflict between state and society arises from their different and incompatible sources. An individualist to the core, he was never able, he admits, to conceive of society as more than ((a concourse of various individuals." Society is best served when its members are left to their own devices, when each indi vidual pursues his own interests ac cording to· his lights. The state, on the other hand, has interests of its own, which Nock in sists are not synonymous with those of society: The interests of society and of the State do not coincide; any pretense that they can be made to coincide is sheer nonsense. Society gets on best when peo ple are most happy and contented, which they are when freest to do as they please and what they please; hence soci ety's interest is in having as little gov ernment as possible, and in keeping it as decentralized as possible. The State, on the other hand, is administered by job holders; hence its interest is in having as much government as possible.

Nock does not hold with the view that the state represents society, and that it came into being for the pur pose of accomplishing those things which people cannot do for them selves. He draws a distinction be tween the state and government. The former is distinguished by the fact that it is not limited (as is mere government) to negative interven tions into the lives of society's mem bers (e.g., providing a free and ac cessible system ofjustice) , but inter venes daily in a positive, which is to say active, way (e.g., enacting ironi cally misnamed ((social"legislation). Nock makes the point again and again that increases in state power beyond the boundaries of negative intervention are made always at the expense of social power-the purely voluntary reflexes of free people.

1979 NOCK: AN APPRECIATION 501 Editor's Note: Anyone further interested in the ideas and writings of Albert Jay Nock may wish to contact: THE NOCKIAN SOCIETY 30 South Broadway Irvington, New York 10533 This is a ((no officers, no dues, no meetings" society occasion ally contacted by The Rever end Mr. Edmund A. Opitz of the staff of The Foundation for Economic Education. Available from The Nockian Society at $1.00 is a 91-page collection of Cogitations from Albert Jay Nock selected and arranged by Robert M. Thornton. Each incursion by the. state into the realm of social power leads to a corresponding diminution of social power and a resulting decline in individual liberty. What happens, in effect, is that society either willingly abrogates its responsibilities or has them usurped by the state. Collectivists and those similarly inclined like to speak with grand vagueness about the C«larger good"

and about putting the interest of society before personal-and they always assume, base-interests. The implication, of course, is that society's needs are not only differ rent from. but greater and more noble than those of a single person. Nock would scoffat any such notion. What, he would ask, is a society but the individuals who make it up? In his mind, the distinction has no meaning. A society is not something beyond individuals but is individ uals. Up to this point Nock's ideas are close to or even derived from those of Herbert Spencer. But Nock was, if that is possible, more critical of the state-both of its nature and of its effects-than Spencer. The English philosopher, great libertarian that he was, wrote little about the economic exploitation that is found 502 THE FREEMAN August under a statist regime. The subject was of fundamental importance to Nock, and in fact he traces the an cestry of the state to that very exploitation: The positive testimony of history is that the State invariably had its origin in conquest and confiscation. No primi tive State known to history originated in any other manner. On the negative side, it has been proved peradventure that no primitive State could possibly have had any other origin. Moreover, the sole in variable characteristic of the State is the economic exploitation of one class by another.

The modem state, argues Nock, pursues identical ends of confisca tion through different and more sophisticated means. This exploita tion may be disguised and carried out for tt good" purposes but is not beneficial to society. It is part of the instinct of self-perpetuation within the nature of the state. Economic freedom is a Nockian first princi ple. Nock understands that modern man is an economic creature and that power-social or state-resides to a large degree in economic fac tors. He sees quite clearly that an individual's social liberty is bound indivisibly to his economic liberty. And as men and women should be able to associate, to speak, and to exchange ideas freely, so they should enjoy a like freedom in their economic associations. The advent of economic freedom would, Nock feels, deal a grievous wound to state power, and the political freedom which followed as a natural conse quence would supply the coup de grace. It is impossible to envision the state allowing either, for that would mean that it would be signing its own death warrant.

Two Kinds of Power Nock's views on economic tyranny form a powerful rebuttal to the charge that capitalism-the freest of all economic systems-is intrinsi cally exploitative. They are also of a piece. with his insightful criticism that the state, whatever its pre tenses to the contrary, lacks the necessary quality of disinterested ness. He recognizes that the people who are employed in administering the state's every whim, the job holders and bureaucrats, have no reason to cut down the state's sphere of influence but an active interest in seeing that it is expanded. Living as he did at the high tide of the New Deal, Nock was ideally situated to observe how those elected to power utilized for political gain the various apparatus they controlled. He was less than sanguine about the social order being ushered in by the Roosevelt administration. He believed that the state could have an influence on society but he was con vinced that that influence was in evitably malign. He saw the effects 1979 NOCK: AN APPRECIATION 503 on society-once again-as effects on individuals. As state power in creases, moral judgment and indi vidual responsibility decline, self reliance weakens, and independent thought, never very hearty, dies of a wasting disease.

Reading Nock on these matters can be a bracing and tonic experi ence' but it can prove depressing, especially when one sees how closely events have paralleled Nock's warn ings. One wants to ask: was Nock a complete pessimist, a man who saw the people of the world sliding into some modern statist barbarism? Certainly he was too clear-sighted to exude, in defiance of all the evidence around him, a hollow optimism about the future. But neither was he a resigned monger of gloom, blindly raging against the march of history. Ambrose Bierce, himself the ar chetypal bitter cynic-once defined a conservative as a man enamored of present evils in contrast to a liberal who wants to replace them with others. Nock, true to his nature, cannot be safely lodged in either half of Bierce's definition. He did not pine for some mythical golden. age, but he found in the present very little that was to his liking.

One might assume then that Nock was in accord with the various re form movements that took place during his lifetime. Nock was not the sort of man to remain uncritical or to wrap complacency around him like a shroud. He regarded reform movements as ill-starred and inef fectual. He had observed many such movements and the vast majority had failed ttdue to their incorrigible superficiality." Reforms, to his mind, do not attack the problems of society at their source. Reform movements symbolize action without thought. They are conceived in impatience and reared in haste. They are based on an insufficient understanding of institutions and human beings. They represent a cosmetic solution of any problem, and ignore com pletely the factor-human nature-that is the source of most of them. True Reform Begins with Self-Improvement Nock knew that the great appeal of reforming movements is their promise of an instantaneous and ob servable improvement in conditions.

People are drawn to them because they hold out the hope, however slight, of the quick and easy allevia tion of social problems by modifying what Nock called the ttmechanics" of society. But he knew also that the only reform worth the effort, and the only one with any chance of final and lasting success, was the difficult and painful task of each person to first reform himself: The only thing that the psychically human being can do to improve society is to present society with one improved 504 THE FREEMAN unit. In a word ages of experience testify that the only way society can be im proved is by the individualist method which Jesus apparently regarded as the only one whereby the kingdom of Heaven can be established as a going concern; that is, the method of each one doing his very best to improve one. That statement sums up rather neatly the Nockian philosophy as a whole. I suppose that, in strictly academic terms, Nock would not be considered a philosopher at all. He didn't construct any complicated system which proposed to answer all the universal questions. He would, no doubt, be thought of as too commonsensical. The strange thing about common sense, however, is its ever-increasing rarity. It is a com pliment to Nock to say that he pos sessed common sense to a quite un common degree. His sharp and diamond-like prose refracted his How Ideas Grow thought to a high brilliance. In his works, one finds a great amount of heat, but no less amount of light.

One finds also a complete absence of what Mencken called the ((mes sianic delusion." Nock wrote only with the aim of saying what he thought, and not swaying great masses of people or bludgeoning them into believing as he did. There was a serene integrity in Nock's character which shows through every word he wrote. Nock wrote of Uthe remnant," a group of people bound together by nothing more than their desire to achieve self reformation, and practice of inde pendent and disinterested thought. Nock would not have sought to be the remnant's uleader" but the title belongs to him nonetheless. For his life and work embodied the admoni tion that must stand as the rem nant's motto: ((Know thyself." , IDEAS ON UBERTY WE can all no doubt remember having found ourselves suddenly under the influence of an idea, the source of which we cannot possibly identify. ult came to us afterward," as we say; that is, we are aware of it only after it has shot up full-grown in our minds, leaving us quite ignorant of how and when and by what agency it was planted there and left to germinate ....

For some time it is inert; then it begins to fret and fester until presently it invades the man's conscious mind and, as one might say, corrupts it. Meanwhile, he has quite forgotten how he came by the idea in the first instance, and even perhaps thinks he has invented it; and in those circumstances, the most interesting thing of all is that you never know what the pressure of that idea will make him do. ALBERT JAY NOCK, "Isaiah's Job"

Paul L. Poirot The Writings of F. A. Harper A Review WHAT was written as ((Introduction" to The Writings ofF. A. Harper may also serve as a review of this two~ volume memorial edition just pub lished by The Institute for Humane Studies, Inc., 1177 University Drive, Menlo Park, California 94025. Dr. F. A. (Baldy) Harper left a position as Professor of Marketing at Cornell University to join the staff of The Foundation for Economic Education from 1946 through 1958. He helped to found and served as Executive Director and then as President of The Insti tute for Humane Studies until his death in 1973. I would not push the illiberal no tion than any individual is like any other. It is because of our differences that liberty is so vital. But Baldy did adhere to· the guiding rule of Soc rates, ~(Know thyself." He believed with Socrates that goodness is based on knowledge, wickedness on igno rance. Like Socrates, he sought truth all his life, in ways that at tracted young scholars. By the So cratic method of a series of carefully directed questions, he would en courage the other person to find out the truth for himself.

In these collected writings ofF. A. Harper, concerned with liberty in the broadest sense, are to be found some of his conclusions. But the reader will also find throughout his works a series of carefully directed questions. For as Judge Learned Hand observed, ((Thespirit of liberty is the spirit which is not too sure that it is right." I believe that is the spirit in which Baldy would have us pursue his search-a never-ending search for the truth about liberty. How does that search begin? Perhaps best with his premise as to the nature and destiny of man: In the design of the universe, every thing is subject to certain natural laws. ... A person's capacity to perceive the nature of these natural laws, which rule 505 506 THE FREEMAN August his being, is limited by his intelligence or powers of instinctive conduct; his beliefs, in this respect, are both his privilege and his responsibility; he is free to choose his sources of information as guides in his search for truth, and he is personally responsible for the wisdom of that choice and for the resulting conclusions; he will know that no person, not even himself, has any direct and certain line of com munication with the sources of truth; all conclusions carry a corresponding uncer tainty no matter who holds them; he knows that while he cannot avoid acting on the basis of some belief, these beliefs must ever be held subject to change as further evidence or new reasoning be comes available; but always he is obli gated, by honesty, to believe and act in accordance with truth as he then sees it.

That premise as to the truth about liberty is broad enough to encom pass a lifetime search in any direc tion. And this list of some of his titles illustrates Baldy's wide range into the moral, social, political and other aspects of the subject: USociety under God" ((Morals and Liberty" t(In Search of Peace" t(The Disharmony of World Unity" (tFruits of Intolerance" ((Blessings of Discrimination" However, his specialty was the search for and promotion of a greater understanding of free mar keteconomics and its importance to the individual who would be free. uEconomic liberty pervades· the entire problem of liberty and is an absolute requisite to liberty in gen eral." Textbooks may help us, but few of us come by our discoveries of truths in anything like a logical textbook arrangement. At some moment, a better idea displaces an assumption or a myth that had formerly oc cupied one's mind. And many of the shorter articles assembled here are shots fired at popular myths. But they are shots from the orderly and well-disciplined mind of a scholar and teacher. Let me share, then, the steps that I believe Baldy may have taken-the points he seemed to stress as most important-in his study and exposition of free market economics.

Undoubtedly of first importance is the concept of private property t(the economic extension of the per son." The point is stressed through out his writings, but comes most clearly, as it should, in his latest discussion, ttProperty and Its Pri mary Form": As I now see the matter of property and ownership, the first person singular is the primary form from which all other forms of property arise. It is the prior and superior form. . . . This view of self ownership as primary property, from which all other property arises as deriva tives ... rests on the subjective evalua tion of worth, with all market prices determined in the market as with other things of worth. So, in economics, one starts with 1979 THE WRITINGS OF F. A. HARPER 507 the freedom and dignity of the indi vidual human being and his natural right to his own decisions and their consequences. Because he is his own man, the fruits of his peaceful ac tions are his property-and his re sponsibility. With that as their premise, competing individuals can peacefully determine ((what is mine and what is thine."

Once the concept or institution of private property is accepted, human beings in their infinite variability, and with their respective degrees of skill and talent, are in position for the next step of specialization in various productive efforts. Until a man can own what he produces, he is unlikely to produce much beyond his immediate needs. But if the prod uct is his property, then he will strive to produce enough to meet future needs and begin to think how he might trade some of those sav ings for other goods or services. So begins another step in free market economics, the process of competition and cooperation through voluntary exchange of pri vate property. Exchange, yes, but at what rate of exchange, how much of mine for thine, at whose price? At the market price, suggests Baldy, if the objectives of the participants are to maintain peaceful relations and to maximize productivity in the light of the always scarce and lim ited resources available.

What a man brings with him to market as his own property affects what he will be able to bid for the property of others. Some have their skills or their productive labor to sell, some have tools or land or buildings or other savings to offer, some have new and better ideas for combining labor and tools and other scarce resources more efficiently to serve consumers. Where more than two or three are gathered together in a market place, each interested in selling one or many items and in buying one or many items, some one or more of those items of commerce will be put to use as money to get away from the limitations of barter-to facilitate exchange. How much money, of what size or shape or other condi tion? Leave such matters to the market-to the willing buyers and sellers in the market. Once traders have found a satis factory medium of exchange, then market exchange rates will be ex pressed in money prices, and these market prices afford businessmen a means of economic calculation or business accounting-a way of knowing their profit or loss.

Out of this seeming bedlam of bids and offers, from individuals with various and ever-changing supplies of goods and services and demands for other things, emerges a series of market prices. Workers competing for jobs and employers competing for laborers set the pattern of wages for 508 THE FREEMAN different kinds of work. Savers and borrowers compete and cooperate to fmd the rate of interest that will best serve their more urgent re quirements. Market prices help in dividuals decide how much of what to consume and how much to save and invest in tools and raw mate rials and other factors of further production. Profits and losses ulti mately disclose which competitors have succeeded or failed and guide them and others into the most fruit ful and efficient lines of productiv ity. Finally, but by no means the least of the services the market affords, is education. It affords a measure of the worth of experience, of school ing, of learning. It tells the cost of buildings, of books, of hired teach ers, of various educational facilities.

It lets the individual (the parent of the child) choose what he can afford to spend for greater wisdom in rela tion to his other needs. some of that procedure from him. But, hopefully, the attempt may help alert the present and future students of F. A. Harper to some of the main points of his free market philosophy. Unfortunately, ours is not an ideal free market economy. Not all men are always peaceful, tolerant and wise, however good their inten tions. Some will resort to coercion to gain advantage and to rule over others. They will turn to govern ment to tax some and subsidize others, to regulate and control peo ple ((for their own good," to dispense (charity," to prevent failure, to penalize success, to invent a magic money machine, to apply rent and wage and price supports or ceilings and thus refute the vital signals of market pricing, to manage the rear ing and the education of the young, to interfere with the free trade of free men in countless other ways.

Much of Baldy's life was devoted to exposure of these frustrations of Were Baldy to survey this humble the free market economy and these attempt to outline his views of the limitations on freedom. And that is free market economy, he might con-a never-ending task. Fortunately for clude that the attempt has raised us, we have his record and example more questions than it answers. And of the ideal of a free man toward I could only answer that I learned which to strive. @ Volume I (453 pages) and Volume II (611 pages) ofThe Writings ofF. A. Harper list at $10.00 each volume, but also are available as a set at $16.00 from: The Foundation for Economic Education, Inc. Irvington-on-Hudson, New York 10533 A REVIEWER'S NOTEBOOK FOR THE RECORD JOHN CHAMBERLAIN WHEN in 1940, Felix Morley decided to leave a prestigious and influen tial position as editor of Eugene Meyer's Washington Post to become president of Quaker-supported Haverford College, he did it in all humility. Rufus Jones, who had taught him philosophy at Haverford in the early part of the century, said he should take the job ((not because thee is a good Quaker but because further exposure to Quakerism will do thee good." Felix Morley accepted the kindly admonition in good grace.

((I was," he said, ((indeed already keenly aware that my life was defi cient in spiritual values and that I had need of them." Felix Morley's recollection of his conversation with his old professor comes on page 347 of his fascinating memoirs, For the Record (Regnery Gateway, Inc., South Bend,Indiana, 472 pages, $15.00), and it strikes one with considerable surprise. The truth is that Morley seldom did any thing in his life for a purely materialistic advantage. He was born practically on the Haverford campus, where his father, a gifted :mathematician from East Anglia in England, had settled with a su preme indifference to anything but his scientific specialty. There were three Morley sons the eldest was Christopher, the poet. Felix, the middle one, became a journalist and educator, and Frank, the youngest, had a triple career as mathematician, historian and pub lisher. Not a single member of the family ever seemed to care particu larly for what ordinarily passed for success in materialist circles, yet, in following their various bents, all of the Morleys did well enough in a worldly way. The point is that they cared more for the doing than for the rewards thereof. That, in itself, is a kind of spirituality, whether Quaker 509 510 THE FREEMAN August or not. The whole of For the Record is about such spirituality.

Seeing and Knowing The young Felix made some ten tative gestures toward becoming an imaginative writer in the mode of his brother Christopher, but it soon became apparent to him that his main interest was in seeing and knowing as a prelude to philosophi cal understanding. For a moment he thought he might become a marine architect (he loved the graceful lines of ships), but, as he confesses, he never did understand the calculus he studied in deference to his father. By necessity he gave up engineering aspirations. Like John Dos Passos, he had a fling with an ambulance corps in the early years of World War I. Europe was as much home to him as America-his family, always more English than American, had taken Kit and Felix abroad for a particularly long sabbatical in Eng land and at Gottingen in Germany, where Felix developed his natural ear for his first foreign language. Coming home to America after his experience with the Quaker ambu lance service, Felix tried to become an officer once Woodrow Wilson had elected to take us into a war that the Quakers deplored. He didn't make it as cCofficermaterial" because his CCat_ titude," which included a sarcastic view of bayonet drill as sticking ef figies that would be using revolvers if alive, was deemed deficient.

Again, one is struck by the parallel to John Dos Passos' experience cCDos" got into trouble as a prospec tive soldier because he couldn't hate his enemy as an all-inclusive abstraction. A Rhodes Scholar Felix Morley did his cub news paper work in Philadelphia and in Washington, but he yearned for wider horizons. Like both of his brothers, he managed to get a Rhodes scholarship to Oxford. Be cause of wartime mixups, the Rhodes authorities waived the pro vision that only bachelors were eli gible to accept appointments, and so Felix and his wife Isabel were off for a long sojourn in Europe that in cluded much incidental journalism in Ireland, Germany, France and Britain as well as a period of study at the London School of Economics. During this period Felix made him self an authority on the British labor movement. Curiously, it was through English editors that he was recommended as an editorial writer to John Haslup Adams at the Baltimore Sun. Since Isabel was pregnant, and Baltimore was home to all the Morleys after their mathematician father had transferred from Haverford to Johns Hopkins, Felix jumped at the oppor tunity that was offered to him to become assistant to a great editor.

1979 FOR THE RECORD 511 But, as always, the Morley interest was philosophical-he wanted to write about foreign affairs with a hope that he might be contributing to the understanding of the pre requisites to peace, which was cer tainlya Quaker objective. International Assignments In the back of his mind, Felix Morley hoped he might become the Baltimore Sun correspondent in London. But his new employers had other ideas. They sent him off to the Far East to learn something about Japan, China and the Philippines in the yeasty period in which Chiang Kai-shek was endeavoring to push the Communists north of the Yang ste and consolidate his position as the successor to Sun Vat-sen. Morley took all this as experience. The Asian interlude made him avid for an international listening post, so, after publication of his book, Our Far Eastern Assignment, he was off to Geneva, where he proposed to combine newspaper correspondence with writing a study of the League of Nations. The Brookings Institu tion eventually brought the study out as The Society of Nations.

Morley liked Herbert Hoover, who had a Quaker viewpoint. Eugene Meyer, who had bought the then moribund Washington Post in the early Thirties, had worked for Hoover. So it was perhaps by a natu ral affinity that Felix Morley became Meyer's editor for the period of the New Deal. As always, Morley tried to be the practical philosopher of peace. No isolationist, he wanted to use power to the ends of justice, employing League of Nations machinery to take the sting out of the inept and inequitable Versailles Treaty. Of course, it didn't work: the punitive victors of Versailles had done their work too well. They had brought Hitler upon themselves, and neither Hitler nor the Nazis 'were amenable to belated blan dishments. World War II, and After The war came, and Felix Morley had no desire to write editorials that could not be sharply critical of national policy if the occasion for such criticism arose. So it was off to Haverford, to keep liberal education alive in a period of war stringencies that threatened to turn all our cam puses into vocational arms of the Pentagon. It was at Haverford, in his seminar on cCThe Development of Political Ideas," that Morley gave pointed shape to the convictions of a lifetime. He was obsessed with the dilemma of the modern republics: how to maintain individual freedom when the necessity to arm against barbarians in the technological age demanded a centralization of power that cut across a traditional separa tion of the powers.

Nevertheless, despite the di:512 THE FREEMAN lemma, the duty to fight for both freedom and federalism remained. Morley's post-Haverford books, Freedom and Federalism and The Power in the People, are yeoman attempts to fight the drift to a cen tralization of power that Morley fears ((will eventually destroy our federal republic, if it has not already done so." Most important of all, Felix Morley was a co-founder, with Frank Hanighen, of Human Events, the Washington weekly that tries to balance the claims of a libertarian conservatism with the need for eter nal wariness against the totali tarians. Mor ley differed with Hanighen on emphases, and with drew from the enterprise, but Human Events is perhaps his most enduring monument. ® WHAT MAKES YOU THINK WE READ THE BILLS? by Senator H. L. Richardson (Caroline House Books, P.O. Box 978 Edison, N.J. 08817) 136 pages. $7.95 cloth; $2.95 paper Reviewed by Tom Starkweather A politico who writes with candor, humor and simplicity? The Ameri can public can't accept such a creature-blame it on conditioning, cynicism, sophistication, idealism, pampering, realism or whatever.

This national frame of mind will make it difficult to seriously con sider What Makes You Think We Read the Bills? The author of this little gem is a California legislator who has served in the State Senate for 12 years. He is obviously a keen observer and analyst of the political scene. His book is funny. Indeed, it is hilarious. It is educational. Mr. Richardson describes what really happens when our elected representatives get to gether to spend our money and write our laws. This book is frightening, for the character traits, the situations, the pressures, the psychology and the neuroses described therein are not peculiar to the Gllden State. They are universal in our political envi ronment. The book is also entertain ing and that's appropriate since the media have made politics a branch of show business in recent years. Those who would complain about government should first be required to memorize Chapter six, nWhat's A Seat Worth?" or at the minimum detennine their contribution to the problem based on this chapter. This book should be mandatory reading for all who seek public office or exer cise their heritage at the ballot box.

What Makes You Think We Read the Bills? calls to mind the statement attributed to the 1866 New York Circuit Court: ((No man's life, lib erty, or property are safe while the legislature is in session." ® the Freeman VOL. 29, NO.9. SEPTEMBER 1979 Capital Punishment John Semmens 515 How inflation and taxation discourage and prevent the generation of capital for better jobs. Prices: Guidelines that Work William E. Cage 523 Let the market price guide production and consumption; put the controls on government spending and inflation. World in the Grip of an Idea 33. Conclusion: Loosening the Grip of the Idea Clarence B. Carson 530 The individual is responsible for tending to his own business and fulfilling his purpose. Foreign Policy Bettina Bien Greaves 544 Private property must be respected and free trade encouraged if conflicts are to be minimized. F. A. Hayek: Classical Liberal Thomas W. Hazlett 551 A salute to one of the great students and defenders of liberty in our time.

The Tiller, the Van, and the Typewriter Ruth B. Alford 563 One woman's firm stand against coercive measures that disrupt and destroy an advanced market economy. Book Reviews: 570 "Memoirs of a Dissident Publisher" by Henry Regnery "Economics of Public Policy: The Micro View" by John C. Goodman and Edwin G. Dolan Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Roger Ream Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and toss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year. Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A.

Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "Prices: Guidelines ThatWork," "World in the Grip of an Idea," and "F. A. Hayek: Classical liberaL"

A widely forecast recession did not occur in 1978. The Carter Adminis tration stood practically alone in its insistence that there would be no recession. So, when the year ended with healthy gains in reported cor porate profits there was much rejoic ing, right? Well, not quite. It seems that while prosperity is a cir cumstance to be much sought after, profits-one of the symptoms of prosperity-are a ~~catastrophe" that the body politic cannot abide. There is no rejoicing. Instead, the occasion serves to stimulate de mands for mandatory profit controls from union potentates, while the President seems intent on providing Mr. semmens is an economist for the Arizona De partment of Transportation and is studying for an advanced degree in business administration at Arizona State University. an opportunity for in-house economists to grope for neVi mean ingless phrases to describe and de fend government economic policy.

The most amazing aspect of the whole spectacle is that so much in spiration could be generated by an event which never occurred. There was no increase in corporate profits in 1978. When adjustments are made to account for the effects of inflation, net profits actually declined by 4% rather. than increas ing by 16%, as the reported figures seem to imply.l This discrepancy between re ported and real profits is one of the less ambiguous government ac complishments of recent· years. On the one hand, a manipulative monetary policy has facilitated a phantom doubling of nominal profits 515 516 THE FREEMAN September over the last decade. On the other hand, a tax code which makes no provision for the declining value of each dollar, allows the government to confiscate ever larger portions of the nation's wealth. It is the old story of crime and punishment. Only in this case, while it is an agency of the federal government which robs the holders of money of their pur chasing power, the punishment is dished out to the productive sector of the society.

Such a policy, though it may be temporarily expedient in the ag grandizement of government power, has significant negative effects on the general welfare. The progres sively worsening bouts of stag flation, with each episode more un nerving than the last, are a manifes tation of the future that such a pol icy portends. It is possible, one must suppose, that the originators and executors of this counterproductive treatment of business profits are unaware of the damage wrought or, at least, that they discount its seriousness. How ever, a supposition of this sort must border on the absurd, given both the extensive discussion of the issue in academic and business circles, as well as recognition of the need to warn investors of the distortions to a firm's reported financial condition evinced by the Securities and Ex change Commission. In May of 1976 the S.E.C. issued ASR 190, which required publicly held corporations to prepare addi tional financial statements estimat ing the impact of inflation on re ported financial results. Thus, the business firm's access to equity financing is being stymied from all sides. The Internal Revenue Service, ignoring the effects of inflation in creating imaginary profits, siphons off retained earnings. Meanwhile, the S.E.C., citing the effects of infla tion, is warning off would-be inves tors from providing external sources of equity finance.

Since the counterproductive pol icy persists, despite its absurdity, we must demonstrate more convinc ingly its effects and why it is im perative that it be changed. Suppressed Evidence The most convincing evidence we would cite to illustrate the serious ness of the problem is the lack of progress in the stock market. The Dow Jones Industrial Average, the most famous of stock price indices, has failed to advance much above 1000 in the past ten years. In fact, the DJIA now stands lower than it did ten years ago. This is in spite of a near udoubling" of earnings over the span. Customer's men and stock market touts are not the only ones to be mystified by the ((sick" market. Looked at from the standpoint of the ((value" of the assets owned by the 1979 CAPITAL PUNISHMENT 517 firm, it would appear that shares are undervalued. The ratio of market price to book value is about half of what it was a decade ago. And since the nominal return to equity is ap proximately the same as it was then (about 12% on the Dow Jones Indus trials), the shares must be worth twice as much, right? Wrong, the shares' price-to-earnings ratios are halved and the number of companies whose shares sell for amounts less than tangible book value is substan tial.

An obvious case of market irra tionality, it would seem. Unless, that is, one is willing to consider an alternative hypothesis. What if it is not the market that is out of step with reported earnings, but rather, the reported earnings which are out of step with an ~~efficient" market? There are sufficient grounds for such a hypothesis in economic theory. At the root of the capitalistic theory of the economy is the pre sumption that given a reasonable Period of time, the market is the most effective and efficient allocator of resources. Now, if a cost level adjustment to the reported financial statements of a sample of firms were made for the years 1967 through 1977 and the resulting figures ap peared to more closely conform to the market value of the shares, then would it not be logical to conclude that the sickness is in profits and not the market? For the purpose of evaluating the above hypothesis, ~he earnings and market values of the 30 companies which now compose the DJIA were compiled for the ten-year period.

Use of these firms is defended on the grounds that combined they account for nearly 15% of the total earning power of all U.S. nonfinancial cor porations. This is a significant slice of the total economic pie in this country. Using an unweighted average of common stock earnings divided by average market prices of DJIA shares, we find an apparent rise in rate of return from 6.4% to 10.0% between 1967 and 1977. The return on common stock, by this measure, has increased substantially. How ever, if we adjust earnings to reflect the effects of inflation on the firms' depreciation reserves for long-term assets, an entirely different picture is revealed. In this case we find virtually no change in the return on common stock. In 1967 the rate was 5.2%, while in 1977 the rate was 5.4%. TortuousTaxation ~~As a consequence of the U.S. tax system, inflation unambiguously reduces incentives to undertake new investment projects, and· therefore, business investment spending de clines."2 It would appear that the chickens of Keynesian monetary manipulation have come home to 518 THE FREEMAN September roost. American investors can no longer be duped into accepting nom inal rates of return which conceal lower real rates of return.

Despite demagogic rhetoric at tacking ttobscene profits" and tttax loopholes," an examination of real earnings portrays a much different story. Even though inflation effec tively reduces income, the tax code makes no allowances for the reduc tion in real income. As a result, the after tax return to equity takes a beating. In the last decade real after tax return to equity dropped by over 50%, i.e., from over 10% to under 5%. Meanwhile, the effective tax rate on real income has soared to over 70%. Far from escaping ttfair" taxes and piling up ~~windfall" prof its, American corporations are being progressively bled dry. This rising effective tax rate has been cited by numerous studies of the tax consequences of inflation. The important consequence, of course, has been the powerful disin centive for capital investment that is created. The real reduction in re turn that occurs when cash flows can recover only the original histor ical cost of fixed assets leads, quite naturally, to a more negative as sessment of investment pay-offs, and therefore, to less investment.

Ostensibly, the accelerated depre ciation schedules that the IRS al lows are supposed to offset the tax effects of inflation. While this may have been an adequate resolution of the problem 20 years ago when in flation rates were more modest, it does not provide much help today. An article in the Federal Reserve Bank ofSt. Louis Review found that the presence of a negative inflation effect was independent of deprecia tion methods used. 3 A similar con clusion was reached by Richard Kopcke.4 Whether one used straight line or sum-of-the-years digits de preciation under high inflation rates, the difference was minor, i.e., with an equipment life of 10 years and an inflation rate of 9% per an num, the difference in present value of the streams of cash flow under the two depreciation methods was only 1%. Neither is the investment tax credit adequate to overcome the penalty resulting from taxation based on historical cost recovery de preciation allowances. A study by Parker and Zieha showed that under inflation rates of recent years, even an investment tax credit of 10% was not sufficient to offset the negative incentives of the basic tax code.5 The Real Crime A look at the earnings perfor mance of the 30 DJIA companies will serve to indicate the magnitude of the disincentives produced by the taxation and inflation combination.

After adjustment for inflation, every company has experienced a decline 1979 CAPITAL PUNISHMENT 519 in return on equity between 1967 and 1977. For the entire period, profits were overstated by 29 to 55%, (using weighted and unweighted averages respectively). A year to year comparison reveals the grow ing distortion in reported figures. In 1967, nominal earnings were over stated by only 8 to 16%. However, by 1977 nominal earnings were overstated by 66 to 116%. These phantom earnings are, of course, taxed as if they were real. In 1977, out ofa pre-tax net income of $39 billion, $28 billion went to cover tax liability, $10 billion was paid out in dividends, and only $1 billion was retained to facilitate company growth. The ratio of taxes to real retained earnings in 1977 was 28 to 1. For each dollar these firms retained for future expanslon, $28 had to be set aside for govern ment consumption. This compares to a calculated ratio of $3 in taxes for every $1 in retained earnings in 1967.

Excessive taxation is the real catastrophe, not corporate profits that are u way too high." The retained earnings of the 30 companies used in this study amounted to less than .3% of the total, assets of these firms. Since it requires at least $80,000 in real capital (adjusted for the effects of inflation on replace ment costs) to support each job, the total employment-generating capac ity of these firms from internal sources was 13,000. If this phenomenon can be said to be typi cal, then the total number of jobs that could be generated by the re tained earnings of all U.S. non financial corporations in 1977 was fewer than 90,000. This equates to an employment growth rate of one tenth of one per cent. These figures may shed some much needed light upon the great mystery of modern economic or thodoxy: the simultaneous occur rences of high' inflation and un employment. Keynesian monetary manipulation assumes that more in flation means less unemployment, and vice versa. This theory relies heavily on the presumption that nongovernment investors are dopes.

This, of course, is the fatal flaw in the system. Independent economic actors will seek to protect them selves against the losses resulting from investments penalized by in flation. Job-Creating Programs Consume Available Capital The progressively worsening re sults of monetary ,manipulation have been compounded by the im plementation of various public job creating programs. If $80,000 in capital can provide only one job in the private sector, then $80,000 ought to be able to make work for at least five persons if it is simply spent by the government on 520 THE FREEMAN September salaries. Such a simplistic solution ignores the lesson told in the golden goose fairy tale. Private capital normally earns a return in excess of its cost. Over an extended period, the $80,000 in capital would not only regenerate itself, but provide an increment for the expansion of the enterprise and employment. In contrast, the government program which consumes the $80,000 to create five jobs is exhausted within one year. Repeated resort to consumption-based job creation must inevitably erode the long-term employment opportunities of the economy.

There can be little question that inflation and taxation lead to a lower rate of capital formation. Output is reduced, but the question is: by how much? One researcher called the total social welfare loss resulting from the current tax treatment of earnings on capital CCastounding."6 His estimate of the yearly welfare loss was $50 billion. The chief victims of this loss are working people. The punishment of capital and the reduction of returns on capital also reduce the returns on labor. Consequently, upward mobil ity and an improving standard of living are hampered by the poor returns on capital investment. These consequences are no less real merely because they are unin tended. Policy makers would do well to remember this point the next time they seek to punish corporate Uprofiteers." The persistent reliance on in flationary policies has created what may be the most difficult problem to reverse-inflationary psychology.

The penalties inflicted on thrift and productive investment have nur tured an ~~eat, drink and be merry for tomorrow we die" philosophy. It was Keynes himself who said ~~in the long run we're all dead." True to his word, Keynes is dead, leaving the rest of us to reap the harvest sown by policies based upon his theories. The ulong run" of 1935 is here today, with all of the distortions and disincentives that Keynes' early crit ics predicted. More and more, we see purchases made in order to avoid higher prices later. This rush to ac quire hard goods increases the pro portion of malinvestment. The earlier one commits to a specific invest ment, the less certain one can be of the future. This in itself would tend to lower return on fixed assets, even were inflation to be ended. Further, manpower and resources are diverted to nonproductive pur suits. The deterioration of monetary assets impels an increase in money velocity and paper financial trans actions, as firms and individuals seek to minimize cash balances.

This creates a demand for financial services in great excess to what would be necessary under a more stable monetary unit. These trans1979 CAPITAL PUNISHMENT 521 actions consume resources that might serve more productive ends. In addition, managerial talent must be directed, at least in part, toward coping with the problems of infla tion and its tax consequences. This diverts talent from dealing with matters that could be of more sub stantive benefit to our material wellbeing. Possibly the most damaging effect ofthe inflation-taxation policy is the destruction oftruth in both financial reporting and policy discourse. The disintegration of the monetary unit goes a long way toward invalidating corporate annual reports. Even worse, this distortion pollutes the price system and upsets the balanc ing and allocating functions per formed by this system. But the lowest blow of all is the contribution this policy makes to the deterioration of public policy debate.

The whole Uadvantage" of a deliber ate provocation of inflation is the element of deceit based upon the Umoney illusion." The money illu sion concept is an illustration of Keynes' contempt for the intended victims of government manipulation of the money supply. People are not astute enough, Keynes reasoned, to perceive the erosion of purchasing power in the monetary unit. As long as the nominal dollar amounts of their incomes remained unchanged or higher, they would not react to protect themselves from the effects of inflation of the money supply. Disciples of this ~~money illusion" theory attempt to trick the economic units in society into pursuing ac tions they would not ordinarily take. This makes dissemblers of our pub lic policy spokesmen. How can a political system based upon demo cratic decision-making operate when the citizens must be fed lies as a matter of course in the implementa tion of national economic policy?

One critic even goes so far as to claim that the whole process is in tentionally dishonest-not for the people's own good, as apologists might argue-but for the express intent of increasing the govern ment's tax take. 7 The Ultimate Punishment We have examined the effects of inflation and taxation on corporate profits. There can be little doubt as to the negative consequences. Corpo rate profits are, as a result of infla tion, overstated. Since the tax code makes no allowance for inflation, profits are then overtaxed. Real earnings are substantially reduced. The penalties against earnings from capital investment have, natu rally, discouraged such investment. This portends a rather dire future for the United States economy. Dis couragement of investment shrinks the capital stock. If the effect on the 30 DJIA companies we have exam ined is representative, then the 522 THE FREEMAN economic growth capacity of private business in the United States is less than Va of the rate of population growth. If the long-term standard of living is to rise, or at least avoid a decline, more capital must be created. This is precisely what the government's policies on inflation and· taxation are preventing.

Perhaps the. greatest irony of the manipulative monetary policy has been the rising value of that ttbar_ barous relic" -,-gold. At the same time that stock prices and the return on productive assets have declined in real· terms, the price of gold has surged. The inflationary monetary policy spawned by Keynesian economic theory has done more to promote the resurgence of the Hbar barous relic" than all hoarders and speculators could ever have hoped to achieve. Which only goes to show that in the long run, crime does not pay. @ -FOOTNOTESl U Profits '78-Inflationary Razzle-Dazzle", Citibank Monthly Economic Letter (Apr., 1979), pp. 5-10. 2John Tatom and James Turley, "Inflation and Taxes: Disincentives· for Capital Forma tion:' Federal Reserve Bank of St. Louis Re view (Jan., 1978), pp. 2-8. 3Ibid. 4Richard Kopcke, uThe Decline in Corporate Profitability," New England Economic Review (May-June, 1978), pp. 36-56.

sJames Parker and Eugene Zieha, "Infla tion, Income Taxes and the Incentive for Capi tal Investment," National Tax Journal (Vol. XXIX, No.2, 1976), pp. 179-189. 6Michael Boskin, uTaxation, Saving, and the Rate of Interest," Journal of Political Econ omy, (Apr., 1978), pp. 3-27. 7Harry Johnson, uA Note on the Dishonest Government and the Inflation Tax:' Journal of Monetary Economics (July 1977), pp. 375-377. IDEAS ON LIBERTY Plunder by Fraud THE WORLD is not sufficiently aware of the influence that sophistry exerts over it. When the rule of the stronger was overthrown, sophistry transferred the empire to the more subtle, and it would be hard to say which of these two tyrants has been the more disastrous for mankind. Men have an immoderate love of pleasure, influence, prestige, power.......in a word, wealth. And, at the same time, they are driven by a powerful impulse to obtain these· things for themselves at the expense of others.

But these. others, who constitute the public, are impelled no less powerfully to keep what they have acquired, provided that they can and that they know how. Plunder, which plays such an important role in the affairs of the world, has but two instruments: force and fraud, and two impediments: courage and knowledge. FREDERIC BASTIAT, EcolWmic Sophisms WilDamE.Cage GUIDELINES ©THAT WORK"'-__----------_..1 ONE of the stories handed down over the years tells how kings used to execute messengers who brought bad news. The nobility apparently thought-literally-that no news was good news. If only we don't know about a catastrophe, it isn't bad at all! We can laugh at such an attitude today because we realize the impor tance of information, whether it is good or bad. The good news tells us things are going well and the bad news is a call to action. Whether the messenger carries information about an earthquake or a shaky fi nancial structure, we respond by taking helpful and remedial actions.

Bad news is no longer cause for beheading the courier but rather is an alarm that signals that some thing must be done. There are those who still take the old view that bad news is somehow the fault of the messenger who carries that news. Their response to information about calamities is to shut down the news service. They would rather have the morning newspaper full of blank pages than have the assaults and accidents re ported as they happened. Most of this crowd-the tthear-no-evil-and therefore-every thing-is-fine" crowd -,.seem to hold public office. That doesn't mean that the free dom of the press is in jeopardy-not yet, at least. Those who would eliminate bad news have a much bigger target in their sights. What they are aiming at is the biggest communications system in the world. It may come as a surprise that this system is not a broadcasting com pany, the phone system, nor a pub lishing company. The world's biggest communications system does trillions of dollars of business each year but has no paid employ523 524 THE FREEMAN September ees. It doesn't use satellites or mi crowave towers, and it doesn't even have a corporate headquarters.

The Price Network This communications system is the network of prices that keeps our economy going. Whenever people start buying more of an item, the price of that item starts going up-a signal to producers to produce more. If a particular skill is needed by businesses, the price of people with that skill (their wage) goes up. Those who have that skill are allo cated to that part of the economy where they are of the most value, and more people are attracted into that profession or trade as a result of the higher wages. If OPEC simply decides to shut off all oil to our country, we will quickly experience a massive shift to other energy sources-not because the Depart ment of Energy so decrees but rath er because oil prices will rise to the point that other energy sources be come more attractive. That message system-the price network-works efficiently night The biggest communications system in the world ... is the network of prices that keeps our economy going.

and day. When it makes a mistake, it is quickly corrected. It sends the labor, the natural resources and the finished goods to the places where they are most highly valued. It tells a businessman when he has made a mistake in interpreting consumers' wants and it rewards those who de velop new or better ways of solving problems. Last year, in the U.S. alone, our price network allocated over $2 trillion of goods, services, materials and talents-and it all went smoothly. The Burden of Inflation Well, it almost went smoothly. The price network has had an extra burden to bear for the past decade and especially for the past few years. The extra burden is inflation. To be sure, the price system has done its job. It has reported to us that the dollar is losing its value, both at home and abroad. At the same time that the price network was deliver ing this message it was still having to simultaneously adjust for changes in people's tastes, technological ad vances and new products. This would be similar to a juggler having to keep all of the balls in the air while riding a roller coaster!

The price network kept the mes sages coming despite having to ad just for the extra messages about the value of the dollar. Normally, such faithful service in the face of over whelming demands would call for 1979 PRICES: GUIDELINES THAT WORK 525 recognition of and reward for meritorious duty. But the old prac tice of kings is reinstituted instead. Washington declared that we should execute the messenger who dared report bad news. Their sensitivity is understandable. After all, the bad news was that there were too many dollars in circulation-and that was the fault of the Federal Reserve Sys tem, a quasi-government agency. The execution of the messenger is to be voluntary, at least in the be ginning. The government asked all of those in the economy to voluntar ily ignore the price network. Even if customers have more dollars to spend, producers are not supposed to raise prices more than they have during the past couple of years (ac,:, tually, one-half per cent less). Em ployees are not supposed to be given wage increases in excess of 7 per cent, even if an employer loses his entire work force to a competitor. If costs are restrained, and prices are restrained-so goes the Washington view-inflation will no longer be a problem. Let the messenger drink a cup of hemlock and there will no longer be any bad news!

The bad news, of course, will still be there. The price network has sim ply been delivering the message that there is an excess supply of dollars and that the value of the dollar is therefore lower. Now, if those excess dollars are still out there, what will happen if everyone fai thfully follows the wage and price voluntary guidelines? In doing so, we are (voluntarily) executing our economic messen ger-the price system. That price network would otherwise be telling us that people have lots of dollars and that they want to spend those dollars, driving prices up. If prices and wages are voluntarily re strained, the dollars are still in cir culation and the demand for goods and services still exists. But, under the guidelines, that dollar demand cannot have an effect on wages and prices (in excess of the guidelines). The producers in the economy must receive higher prices if they are to produce more. The only way that businesses can maintain their profit margins is to charge more as inefficiencies creep in with ex panded production. But if they can not-or will not-eharge more, they cannot be expected to produce more.

Maladjustments So, if everyone were to faithfully follow the guidelines, the demand for more goods would be unmatched by an increase in the supply of those goods. Those items in greatest de mand would soon disappear from stores. Without the price network to broadcast up-to-the-minute econom ic news, shortages would begin to crop up. But the consumers, thwarted in their desire for the products in 526 THE FREEMAN September trade restrictions to be imposed, preventing us from buying French wines, Japanese stereos and Ger man cars. When we put our price network out of commission-voluntarily we implicitly agreed that we would resort to some other way to allocate the available goods and services. Whether we resort to government licenses to buy imported products or coupons to buy gasoline, or simply the arbitrary system of first-come, first-served, we will have to use a very inefficient means for dividing up the gross national product. Worse yet, we can expect fewer products to be available because our domestic companies have no incentive to pro duce more and we won't be able to buy as much from foreign com panies.

greatest demand, will try something else. Secondhand goods, antiques, and all those things not under the guidelines will become popular as people seek to get out of dollars and into something of value! Even as they spend for such things, though, the dollars are still in circulation in our economy. They may have passed into the hands of used car dealers and antique store owners, but the dollars are still there. At some point, if we cannot get the additional goods and services we want from our own economy, we are going to buy those products from another economy. To get foreign goods, though, we need to have foreign currency. As we try to pur chase goods abroad, offering dollars to get francs, marks, yen and lira, the value of the dollar will start downward. We may have done away with our own economic messenger Inflation Persists, Despite but the international price network the Disguise will quickly send the same report: The inflation problem is still with there are too many dollars and their us, even if everyone follows the value must fall. wage and price guidelines. All that The U.S. government could hardly we have done is disguise it. If you stand by and let the international want to buy gasoline, you will still markets telegraph such informa-have to pay more for it-except that tion. For a while, our government now the payment will be partly in will step in and supply the foreign 'cash and partly in a willingness to currencies we need to buy foreign get up at 3:00 A.M. to get in line at goods. But the government's the service station. If you want that supply of those currencies is lim-increase in salary you deserve, you ited, so the dollar support program will either have to change com could only have a limited life. Before panies or settle for non-monetary its demise, we can expect direct _fringe benefits-a new office, more 1979 PRICES: GUIDELINES THAT WORK 527 secretarial help, a fancier phone on your desk.

Total compliance with the volun tary guidelines does nothing to solve the problem of inflation. It simply drives the problem underground. The bad news is still there, and liquidating the messenger doesn't change the message. Ignoring the price network makes life in a complex economy exceed ingly more difficult. Because the demand for goods and services can not be expressed entirely in dollars, everyone must learn how each store or industry operates. We have to find out when the meat counter re ceives its daily shipment; when the gas station will be open; whether we have any friends to whom we can turn to supply what we ·want. Em ployers must try to keep their. em ployees without granting wage in creases in excess of the guidelines and figure out how to get the mate rials needed for production without paying more than the guidelines al low. As the demand for products and labor will not be satisfied under the guidelines, that demand will seek its own level elsewhere. As the prices of the goods and services not under the guidelines begin to rise, we can expect governmental restric tions and controls to spread. Import controls, restrictions on investment abroad, credit controls and perhaps even an extension of the guidelines to used merchandise and individual wages and salaries are all conceiva ble.

Difficult as life in that type of economy would be, we could still muddle along. Most people probably don't realize just how difficult life would be, for it is widely reported that nearly two-thirds of our adult population supports the guideline approach to controlling inflation. If there were any reasonable chance that the guidelines would in fact reduce inflation, that support might be understandable. However, the only result that we can expect from even complete compliance with the guidelines is a new face for inflation. Instead of higher dollar prices, there will be higher non-dollar prices. In stead of higher wages and salaries, there will be more money spent for redecorated offices with oriental rugs. Instead of buying imported goods at market prices, we will have to buy licenses to get those foreign goods at below-market prices. Destroying the Messenger The voluntary. wage and price guidelines will fail to control infla tion because they do nothing to rid us of the cause of inflation. The guidelines confuse the message and the messenger.

The cause of inflation .is simply too many dollars· available to buy too few goods and services. When there are too .many dollars relative to products, the dollar price of those 528 THE FREEMAN September products will go up. The rising prices are the result, not the cause. The rising prices are just telling us that there are an excessive number of dollars chasing a scarce amount of goods around. Only when an anti inflation policy attacks the root cause of those excess dollars will inflation be controlled. The number of dollars--our coun try's money supply-has increased about 6 per cent per year for the past 5 years. Prices have increased about 6 per cent per year over the same period of time. This close relation ship between increases in our na tion's money supply and increases in prices has been traced back and ver ified for as many years as we have data. So, the immediate cause of inflation is an excessive increase in the supply of money. To effectively control inflation, we must get to the reasons why our money supply has been expanded at such a high rate.

Federal Spending The basic reason for such exces sive monetary expansion is that the federal government has persisted in spending far more than its income. The gross federal debt has increased by more than $300 billion in the past five years. That $300 billion was borrowed, some of which other wise would have been available for investment in productive facilities. That diversion of funds from private investment to public spending in itGuidelines can bring inflation under control, but they must be guidelines to curb federal deficit spending. self would reduce productivity and produce a sluggish economy. But the inflationary forces were unleashed when part of that $300 billion of borrowing was supplied indirectly through the Federal Reserve Sys tem. The ((Fed" is the agency that con trols the amount of money in the economy. When the federal govern ment borrows heavily, the Fed is under pressure to step in and help supply the needed funds. The trou ble is that the Fed supplies those funds by simply printing more money! As those new dollars find their way into the economy, un matched by an increase in goods, the inflation process begins.

The only way to end that infla tion, then, is to halt the rapid in crease in the supply of money. But the only way to curtail the monetary expansion is to curtail the deficit spending of the federal government. Guidelines can bring inflation under control, but they must be guidelines to curb federal deficit spending. Government spending guidelines will reduce inflation-wage and price guidelines won't.

1979 PRICES: GUIDELINES THAT WORK 529 The Outlook Suppose that we continue with this futile experiment in controlling inflation by wage and price guide lines. What will be the outcome? First, inflation-in one form or another-will continue unabated. To the extent that businesses and employees comply with the guidelines, the inflation will be dis guised but nonetheless present. To the extent that the guidelines are ignored, prices will continue to rise at a rapid rate. If this happens, there is certainly the possibility that mandatory wage and price controls wil~ be imposed. If the price network won't die through voluntary actions, we will execute it! Test your memory: what was the rate of inflation in August, 1971, just before mandatory price controls were last instituted? In 1978, con sumer prices rose in excess of 9 per cent per year, and the average in crease over the past 5 years has been in excess of 6 per cent per year. If inflation were to continue at even 8 per cent per year, the general price level would double in 9 years!

Now, what was the inflation rate back in 1971? Less than 4 per cent, and it was declining. Compared with the present economic condi tions, that was a period of stable prices-yet mandatory controls were imposed on wages and prices because of the rate of inflation! Mandatory controls will work no better than voluntary guidelines in bringing inflation down. Mandatory controls will drive more of the infla tion into disguise, but they will not get rid of it. To eliminate inflation, there is but one answer, and a sim ple one at that. Issue guidelines and impose controls, but aim those guidelines and controls at the real cause of inflation-federal deficit spending. Those are the only con trols and guidelines that will work. @ Dr. William E. Cage is an economist and administrative analyst at Tamko Asphalt Products, Inc., of Joplin, Mis souri. He has also been a uni versityprofessor and eco nomic consultant.

This article, reprinted here by permission, was first pub lished as a pamphlet by the United States Ind ustrial Council Educational Founda tion, Home Federal Building, Nashville, Tennessee 37219. Copies of the pamphlet may be ordered directly from them at $15.00 per 100, $60.00 per 1000.

W;rld inthB grfRQfan Iaea, Clarence B. Carson 33. Conclusion:Loosening the Grip of the Idea As this piece is being written there is a hint of spring in the air. The ice has melted away, and the weather has turned mild. A gentle rain has fallen, preparing the earth for a new season. A moment ago, I heard a bird chirping outside. The sap has begun to rise in the trees;· the matted down grass blades look here and there as if they might be changing color from brown toward green; flowers not yet ready to bloom are nonetheless pushing gently upward In this series, Dr. Carson examines the connection between Ideology and the revolutions of our time and traces the impact on several major countries and the spread of the Ideas and practices around the world. 530 toward the sun. In a few weeks, if I mistake not, tiny green leaves will be thrusting forth from the branches of trees, flowers will be blooming, the people will be emerg~ ing joyfully from their winter co coons. The earth which lately looked so glum will be suddenly supplied, as it were, with new raiment in an ever recurring annual cycle.

Even so, experience teaches that however hopefully we anticipate the coming of spring we should be wary as well. Spring will not be likely to arrive without a great struggle in the atmosphere. The warm winds blowing up from the south collide time and again with the cold winds LOOSENING THE GRIP OF THE IDEA 531 from the north as winter gives ground grudgingly to spring. From these collisions there are often thunderstorms, heavy rains, floods, high winds, and even tornadoes, the most locally devastating of all natu ral phenomena. The best things in life are not free; there is always a price to pay. Stormy weather is the price we pay for spring. But then, on the heels of these things there comes a very special momenta few hours, a day, or, when we are lucky, several days for all who will attend it. It is a day when the sun shines brightly, when the last bit of chill has gone from the air, when the wind has finally blown itself out and a near stillness is upon the earth. The fragrance of flowers fills the air, the birds are singing, and animals are at play. It is a time for sitting or lying under a tree, for stopping the never ending struggle, for drowsing if that should occur, or just for peaceful contemplation. At such moments, a man may be as near to peace and a sense of har mony with nature as he gets, a na ture against which he has so often struggled. He may feel himself at the threshold of some great truth.

Perhaps he is. It is a time for reading and pondering these words of Jesus: nAnd why take ye thought for rai ment? Consider the lilies of the field, how they grow; they toil not, neither do they spin: nAnd yet I say unto you, That even Solomon in all his glory was not arrayed like one of these. uWherefore, if God so clothe the grass of the field, which to day is, and to morrow is cast into the oven shall he not much more clothe you, 0 ye of little faith? ((Therefore take no thought, saying, What shall we eat? or, What shall we drink? or, Wherewithal shall we be clothed? ((But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto yoU."I A Lesson in Economics Some of these passages are surely not to be taken literally. No one is supposed to conclude that because lilies neither toil nor spin that man need not do so either. There are some crucial differences between lilies and man. If man were literally to stop giving thought to what he would eat, drink, and wear tomor row, the cupboard would almost cer tainly be bare. Although the osten sible subject of these passages is faith, they also contain a lesson in economics. A part of the message I glean from the quotations can be stated in this way. Do not engage in vain struggles to accomplish what you would do. (The verse which im mediately precedes those quoted reads, uWhich of you by taking thought can add one cubit unto his stature?") Get yourself in accord with the nature of things. Be right, first, and what is good and desirable 532 THE FREEMAN September will follow from your efforts. But to grasp the full import of this, it is necessary to delve into basic eco nomics.

One difference between the lily and man is that man is totally de pendent upon outside sources for his energy supply. The lily is not, of course, completely self-contained and self-sufficient. In order to grow, it requires sunlight, water, and cer tain minerals. The water and min erals it extracts from the soil, and sunlight does the rest. It makes its own energy-its food supply-by a process of photosynthesis. Another difference between man and plant is that man can think-even to taking thought for the morrow. And perhaps the most critical difference, man is a moral being-with the capacity even for seeking righteous ness first. It is these differences in combination that give rise to econ omy, Le., man is energy dependent and energy in usable forms is scarce. He uses his intellect to acquire ener gy efficiently, and morality pre scribes what means are rightfully available to him. Man is mobile, too, and the plant is not; this gives more scope to his efforts at economy.

Household and Market Economy assumes two forms, and two only. There is, first, the econ omy of the household. It may also be thought of as the economy of the family, but the term will not serve in all cases. Not everyone lives in a family, but everyone has a house hold, even a tramp who has only a can of beans and a makeshift shel ter. The other is the market econ omy. It can also be thought of as a money economy, but the term is not quite so inclusive, for it is possible to have a market without money. It would be more precise to call it an exchange economy, but that does not distinguish it so well from the household economy in which there may be some elements of exchange. There are those who speak of an interventionist economy, but so far as intervention holds sway it is not an economy. The same goes for a cCplanned"economy. . There are some similarities be tween the household and market economies. Exchanges may occur in both, though exchange is essential to the market and usually incidental to the household. Division of labor usually occurs in a household of two or more people, and always in the market, or, more precisely, it brings the market into being. Each has a rightful claim to the title of econ omy, for each deals with the alloca tion of scarce resources.

But the differences are much more pronounced than the similarities. A key difference is that the household is primary, basic, and fundamental; while the market is secondary and derivative. The household is a cen ter of value; the market is only a 1979 LOOSENING THE GRIP OF THE IDEA 533 utility. The household is a miniature community; the market is a mechanism. Labor is an asset in the household; it is a cost in the market. There are no prices in the household ordinarily; whereas, the prime ac tivity of the market is the determi nation of prices. The household is local and limited: its locale cir cumscribes what can be efficiently produced; it is limited to the wants and productive capacities of its members. Potentially, the market is worldwide and encompasses the wants and productive capacities of all the people in the world. In actuality, we usually encounter the household intertwined with the market economy. This can lead to the conclusion that there is nothing more to household economy than what is presently described as con sumer education, i.e., that it consists of the most effective means for utilizing the market. On this view, the household tends to become an extension of the market. This re verses the normal relationship, making the market basic and the household contingent. This might be of no great consequence in a free market, but when intervention has proceeded to great lengths such a dependence on the market lays the household open to political control.

The modus vivendi of the market is advantage or gain. Men enter the market in quest for something dif ferent from or better than what they have. They seek their own advan tage by trade. Each person trading in the market must be assumed to be pursuing his self-interest, else there is and can be no market. In order to see this it is necessary only to im agine two people trying to make an exchange with each other in which neither wants what the other has. If an exchange took place, it could only be by gift. That would be the practi cal result, too, of each seeking only the wellbeing of the other. In the final analysis, it could only be an exchange for the sake of exchange. An Assault on the Market The idea that has the world in its grip is an assault on the market. This is so, most basically, because it is an attempt to remove the individ ual pursuit of self-interest from so cial relations. If this could be done, there would be no market. But there would also be no economy which could be regulated, controlled, or managed. No means would exist for coordinating or concerting all human effort for the supposed com mon good. In fact, socialism cannot dispense with the market entirely, any more than it can dispense with the motive of self-interest. It can, as already noted, level its attack at the independence of the individual. This it does. In doing this, the market, or a truncated version of it, is a promi nent and essential means. Organi zation and numbers, as already dis534 THE FREEMAN September cussed, are the means by which it does so.

Gradualists use the market much more broadly than do communists. By taking away much of private property, communists remove one of the basic conditions of trade. At the same time, however, they establish a near absolute dependence upon some sort of market for people to get a livelihood. Thus, while the market has only an attenuated existence in communist countries, what there is of it, free or not, is much more im portant than in gradualist coun tries. Intervention to. Grasp Power Be that as it may, the crucial theorem for an understanding of the impact of socialism is this: The more firmly the grip ofthe idea is fastened on a people the less the advantage to the individual of exchanging in the market. To put it another way, the more government intervenes in, controls, and occupies the market, the less the chance of gain for the individual in the market. That is not to say that there are not gains to be made in the hampered market, but they are gains increasingly to those in a position to manipulate and use government to effect their gains.

That is not an arena for individuals acting alone; it is an arena for groups, for collectives, for organiza tions, and for conglomerates-those who can mass numbers and organizations so as to grasp the handles of power. Such activity is a way of life in every ((advanced" country in the world today. In well-run communist countries, the rulers often perceive advantage in favoring groups, but the flow of power tends to be one directional-from the rulers to the ruled. We live in a world in which condi tions are rigged against the individ ual. The market is increasingly rigged against him; the penalties that attend its use increase, and the costs of trading there become prohibitive. Government is rigged against him; it attends almost exclusively to col lectives and organizations and con cerns itself only with matters where large numbers are involved. (The courts are a partial exception to this, but predicting court decisions has become an increasingly parlous game).

The individual appears to be on the horns of a grotesque dilemma. Either he must operate individually in a market rigged against him or he must become a part of some collec tive and yield up management of many of his affairs to the group. To put it perhaps too dramatically, it looks as if the individual must hang alone or be hanged with the collec tive. That is not a socialist slogan; it is the future toward which socialism leads. Is there a way out? Let us look again to the lilies of the field. There 1979 LOOSENING THE GRIP OF THE IDEA 535 are· three lessons, at least, to be learned from the lily, or almost any other plant, for that matter. They can be concisely stated this way: 1. Mind your own business. 2. Provide for your own sustenance. 3. Fulfill yourself. We know already, of course, that in applying these lessons we must keep in mind that man differs from a field plant in that he is mobile, rational, and moral. The lessons are valid but it does take imagination t~ apply them.

One's Own Business Much of the toiling and spinning that is going on in the world today is worse than wasted effort; it is obstructive and counterproductive. The attempt to concert all effort-to manage economies, to fit everyone into the effort as a cog in a machine, to project the future from the past-runs aground on human na ture and arouses resistance rather than productive effort. The attempt to transform man into an ant can no more succeed than would an effort to make a lily into an oak. The biologi cal case against this possibility was well expressed a while back by Aldous Huxley: In the course of evolution nature has gone to endless trouble to see that every individual is unlike every other individ ual. We reproduce our kind by bringing the father's genes into contact with the mother's. These hereditary factors may be combined in an almost infinite num ber of ways. Physically and mentally, each one of us is unique. Any culture which, in the interests of efficiency or in the name of some political or religious dogma, seeks to standardize the human individual commits an outrage against man's biological nature. 2 The deeper case for the individual provided by Christianity has al ready been discussed.

Plants are especially adept at minding their own business. They put· down their roots wherever the seed has fallen and reach outward to such supplies as they can use. No lily ever poked its petals out and launched any such plaint as the fol lowing: uWould you look at this situation! There is too much vegeta tion, hereabout and too little water and minerals to go around. Look at that huge .maple over there. It's going to drain all the water and minerals from the soil. All the lilies need to get together and see that each plant gets no more than its equal share. Moreover, we have got to do something about the uncon trolled reproduction of crabgrass." It is not that the lilies, considered as a class, may not have such problems; it is rather that it is no part of their business to deal with them. Each lily deals with its own particular difficulties of getting enough water, minerals, and sunlight.

Loosening the grip' of the idea which has us in its hold requires an 536 THE FREEMAN September emulation of the lily. The idea ex tends its sway by bidding us con ceive of the whole world as our busi ness. A recent civics textbook (usu ally taught in junior high school) describes a portion ofthe worldwide problems which confront us this way: In 1976 U.N. Secretary-General Kurt Waldheim said: uThe problems which face mankind are common to all nations and all areas. It is not possible to resolve them any more by purely national, or even regional, responses. Slowly we have realized that we are physically and economically interdependent on this planet." What are the world wide problems which all nations face? Among them, most scholars agree, are: • poverty and hunger • over-population; • the using up of limited natural re sources. ... 3 Pitfalls of Vanity, Immorality, and Tyranny There is Divine warrant for believ ing that these problems are none of my business, that I should. give no thought to them, and am to continue on my way without regard to the morrow. Why? Because, in the first place, it is vain to think on such things. It is vanity for me, one who knows not the ends to which a single child is born, to speculate about such matters as over-population. More, think as I will, I can discern no way generally to reduce poverty and hunger without using up limited natural resources.

In the second place, thinking on such things leads to the contempla tion of actions I believe to be wrong. Should the world's goods be redistrib uted by force? But that would be theft, and Thou Shalt not Steal. The authors of the above text suggest the direction such thought takes: If people live longer, the population will get even larger-unless fewer people are born. Should we try to cut the birth rate and work to enable people to live longer? Should we set an age limit be yond which we would not help people to live?4 In the third place, tyranny is the logical conclusion to which· such thinking leads. Aldous Huxley de scribed it as the Will to Order in the social realm and described its pro cess this way: Here the theoretical reduction of un manageable multiplicity to comprehen sible unity becomes the practical reduc tion of human diversity to subhuman uniformity, of freedom to servitude. In politics the equivalent of a fully de veloped scientific theory or philosophical system is a totalitarian dictatorship. In economics, the equivalent of a beauti fully composed work of art is the smoothly running factory in which the workers are perfectly adjusted to the machines. The Will to Order can make tyrants out of those who merely aspire to clear up a mess. The beauty of tidiness is used as a justification for despotism. 5 It would never occur to me to go 1979 LOOSENING THE GRIP OF THE IDEA 537 about telling my neighbors how many children they should have.

Nor would I think of advising my neighbors to cease all efforts at keeping the elderly among them alive. Were I to do so, I should most likely be told to mind my own busi ness. And rightly so. Yet, once one's mind is bent by the idea that has the world in its grip, many people ex perience no difficulty in accepting the use of force to compel what they would hardly think of making ef forts to get done voluntarily at the local and concrete level. Minding one's own business is the essential first step in loosening the grip of the idea. Coercively Involved But what is one's own business? A Secretary General of the United Na tions has said, in effect, that my business is entangled with everyone else's business. The peoples on this planet tt are physically and economi cally interdependent," he has said. Let us spell out a little of what may be meant by this. If my money is being taken to pay the hospital fee for an infant being born, how many children that family has does be come my business. If my gasoline supply is determined by the actions of OPEC nations, I am in some mea sure dependent on them. It is at least possible that what they do be comes my business: If I buy hos pitalization insurance, or automobile insurance, or any sort of insurance, my rates may be deter mined by the behavior and careless ness of others.

To untangle this web, we need some distinctions. The distinction between a market economy and an interventionist economy needs to be made. The rule in the market econ omy is quid pro quo. There is a saying regarding legal settlements that goes like this: ttLeave nothing on the table." It means that nothing should be left to be resolved later, that all accounts should be settled. The meaning of quid pro quo is that all parties to a transaction have ful filled their commitments and that measure for measure has been gi ven. Neither owes anything further to the other. Such transactions take place all the time. I drive up to a service station and order five dollars worth of gasoline. The attendant pumps two gallons, or however much it takes to equal five dollars at his prices, I pay five dollars, and that is that. A quid pro quo has been given, and nothing has been left on the table. Activity in the market does not, of itself, entail either dependence or interdependence. The free market in a money economy is really a mechanism for making exchanges by people who retain their indepen dence one of another. Even in con tracts where some dependence is es tablished, that dependence is tem538 THE FREEMAN September porary and limited. (CLeavingnoth ing on the table"· does not mean that there may not be obligations to be satisfied in the future. The phrase is used in real estate transactions in which there may be warranties run ning for several years and payments to be made for as much as thirty or more years. It means, rather, .that all these obligations are specificed, agreed to, and thereby limited.

"Left on the Table" Government intervention in trudes force into the market. To the extent that force plays a role quid pro quo is not the rule. Indeed, the idea that· has the world in its grip aims to remove quid pro quo from social relations, for quid pro quo depends on the working of individ ual self-interest just as does the market itself. In consequence, transactions in the market do tend to establish the kind of dependence that is unlimited and may well be described as interdependence. When force is used in the market tt some thing is always left on the table." What is ((left on the table" is, at the least, whatever was extracted by force. Dependence is established, be cause the ·transaction is never com pleted. Let us take a simple example. Let us return to the service station and the transaction involving purchase and delivery of five dollars worth of gasoline. Something was (Clefton the table." The price included a state and Federal gasoline tax. I did not get my full quid, though he may have got his quo. In fact, I did not get five dollars worth of gasoline; I only got $4.40, say. The service station operator and I are not quit of each other. How he runs his business has become in some measure my busi ness. It has become my concern, though I may not be aware of it, that he pay the taxes collected into the proper government collection agen cies. Beyond that, it becomes my concern. that the. money is properly spent on goods or services which is in accord with the law.

Of course, much more than sixty cents was ((left on the table." How ever much more I had to pay than I would have had to pay without the collusion of the OPEC cartel was left on the table. All the tribute paid to tax collectors, union wages, and so forth during the whole of the process of getting gasoline to and from the pump was left on the table. A whole set of dependencies and inter dependencies were entailed in the transaction, many of which are very much·my business. Self-Supporting Before going further with this analysis, it is in order to return to the second lesson to be learned from the lily-To provide for your own sustenance. The lily ·is equipped to make its own food literally by photo1979 LOOSENING THE: GRIP OF THE IDEA 539 synthesis. Man is, as already noted, energy dependent. Even SO, man is normally equipped with the means for establishing his independence. His mobility enables him to range in.

quest of sources of energy and to make exchanges with others. His rationality enables him to accumu late capital and use tools to provide for himself and his own. His moral·· ity enables him to cooperate with. others, to distinguish between what is his and what belongs to others, and enjoins him to works of charity in aid of those unable to provide for themselves. That he be responsible for himself and fulfill his obliga tions is a necessary condition of his independence as a man. Man's independence is contingent upon his household economy. It can be stated simply this way: Man can be independent to the extent that and so long as his household con·· sumes no more than he has pro·· duced. Participation in the market does not fundamentally alter this axiom. The market enables individ·· uals to specialize by providing the means for exchanging what surplus they may have for that of others.

Nor do debts which may be con.. tracted in the market alter the axiom; they can only defer for a time the balancing of accounts. Debts do tend, however, to reduce the inde·· pendence of the individual if they are not counterbalanced with more or less liquid assets. An individual may enhance his independence in the free market. By contrast, when government inter venes to regulate, control, and use the market for its ends, the individ ual can lose his independence in the market. As already indicated, gov ernment intervention intertwines everyone's business with everybody else's. Transactions tend to lose their limited character and to draw those who engage in them into a continuum of effects that extend on and on. Rather than augmenting his independence in the market, the in dividual is drawn into a web of de pendence and interdependence. In these circumstances, the more the individual depends upon the market the less his control over his affairs.

Controlling the Individual There is another facet to govern ment activity in the market. Gov ernments use the market primarily as their means of controlling and using the individual. They collect most of their taxes there. (In the United States, the income tax is collected, where possible, by the em ployer, and that is in the market too.) They depend upon the market for prices on the basis of which taxes are levied. Beyond that, in gradualist countries, most controls are exercised through the medium of the market. At the present time there are two ways to loosen the grip of the state 540 THE FREEMAN September on the individual. One is by the concerted action of peoples to place constitutional restraints and limits on governments. My belief is that this will only be likely to occur when the idea that now has the world in its grip has lost its hold. That does not have to occur on a worldwide scale, of course, and if it happens it will most likely do so country by country. I know of no country in the world where such an event appears imminent. But when the time is right, those with a will to do so can discover readily the principles on which government should be lim ited.

But people will be ready for lim ited government and a free market only when they are ready to assume responsibility for themselves and their own. Silk purses cannot be made from pig's ears, and freedom cannot be imposed upon a people. Only a people who believe that man is a value will have freedom .. Only those who have a high estimate of man and his potentialities can con ceive of it as desirable for him to be free. The greater our dependence upon others, the further are we removed from freedom. People do not revolt and establish freedom when oppres sion surpasses tolerable limits. They limit governments only when op pression becomes something they are unwilling to tolerate. Oppres sion is not a preparation for freedom but rather for greater oppres sion. The way for freedom is pre pared by the successful practice of individual responsibility. The man who assumes responsibility for him self and his own is on his way to freedom, regardless of what others may be.

Penalties on Market Activity The other way to loosen the grip of the state, establish individual inde pendence and responsibility, does not require concerted actions of peo ple. Where there is private property, it can be done by individuals and families. The way is to rely less and less on the market and more and more on the household. The house hold economy is the basic--even the ttreal"--economy; the market is only an extension of it. It is becoming increasingly expensive .to use the market to supply the wants of the household. Social Security taxes, in come taxes, sales taxes, import duties, excises, utility companies with monopoly privileges, interna tional cartels, extortions by or ganized labor, and so on almost end lessly place heavy penalties on mar ket activity. The division of labor loses much of its advantage as the cost of transport mounts. Moreover, the more the market is regulated the less able it is to serve the wants of the individual.

What I am suggesting is already occurring as a trend in the United 1979 LOOSENING THE GRIP OF THE IDEA 541 States. More and. more people are learning to do-it-themselves, to maintain and repair their au tomobiles, to do their plumbing and electrical work, .to grow some por tion of their food, to make their clothes, to cut hair, and to do a. thousand and one other useful things. The more they do for them selves the less they are taxed in. providing for their wants. The more closely they come to a household. economy the less is the control of others over them. The potentially valuable impact of this turn toward a household econ·· omy is the impact it can have on loosening the grip of the idea, too.. The idea that has the world in its grasp is a grandiose idea. It is one that casts thought in the framework of groups, classes, races, nations, and the world. Those who think in .terms of the household econo my have already to some extent loosened the grip of the idea. They are thinking in terms of producing their own goods with the least ex·· penditure of the means of produc·· tion. That is what economy is about.

When the market is' an adjunct to their economy, they will no doubt use it. Fulfill Yourself The final lesson from the lily is this: Fulfill yourself. We know what that means for a lily. It means to develop a sturdy stem which can support its· flowering and production of seeds. But under the sway of the idea that has the world in its grip we are losing our grasp of what it means for a man to fulfill himself. We have well-nigh perfected the sci ence of making machines, but we are on the way· to losing the art of developing men. This is so because we are under the sway of an idea which childrenizes the race. It views man as a reflex of class, race, nation, and the people. Its thrust is to devise a scheme which will provide for them as· if they were infants and control them as if they were irre sponsible children. Beyond that, it is to concert their efforts to provide for the needs of everyone. It is a plan of human sacrifice. It makes of indi vidual man only a means.

Man fulfills himself by becoming an adult, by developing his faculties, by exercising his skills, by becoming responsible for himself and his own, by making choices, and by realizing his potential. Man does not natu rally fulfill himself as does the lily of the field. He must be nurtured -as an infant, trained as a child, educated as an adolescent, and held responsi ble for his acts as he grows toward maturity. The surrounding society may aid and sustain him throughout life. Government has for its task to protect his life and property. It is not in derogation of society, of organizations, or of whatever other groups there may be that it is ob542 THE FREEMAN September served that they are all adjuncts to the individual; they are servants not masters. Man too is a servant at his best, but he is at his best only when he is serving at his own good will and in ways that he decides. The Road to Tyranny It is idle, vain, and potent with destruction for men to take thought for the morrow of the human race. It is from such thought that ideologies are constructed. Such schemes are but plans for subordinating and subduing other men to the will of those who conceive them. Coordinat ing economies is an activity beyond the capacity of any man, and a task for which there is no warrant or commission. Control over others is a thing to be shunned, not sought. The good parent finds joy in seeing his child taking over the management of his own affairs. The successful parent is humbled by the accom plishments of his offspring, for he sees in them much that could not have come from him. The effective teacher is one whose students sur pass his limited conceptions. Any plan that entails the use of others without their individual consent is a presumption. He who puts such a plan into effect is a tyrant.

The idea that has the world in its grip is a promise of eternal spring time. It is a vision of arriving at that special moment of spring and re maining there forever. It is delusion. The idea brings destruction in its wake, not the euphoria of spring time. It brings discord, hatred, war, terror, and the massed force of the state. That is its record. The only element of springtime in the applied idea is, figuratively, storms, tor nadoes, floods, and violent winds. Amidst these, it offers not shelter but insoluble problems of ever greater dimension. When storm clouds descend, the traveler upon the road longs for the security of home. It is a sound in stinct. Confronted with elements beyond his power to control, he longs for a mansized place which he can order and manage. Home has ever been the sign and symbol of that place of refuge. To return to it is a return to basics, a return to funda mentals, a return to what life is about. The storm recedes in impor tance as the returned traveler en ters the familiar household.

Such joys of springtime as man can have come from minding his own business, providing for himself and his own, and fulfilling himself. But what will become of us if we make these things our primary con cern? How will we get all the goods that we need or want? Will we not be drowned in a mass of humanity re sulting from over-population? How will the hungry be fed? Will we not use up our limited resources? ~~o ye of little faith." ttConsider the lilies of the field, how they grow; they toil 1979 LOOSENING THE GRIP OF THE IDEA 543 not, neither do they spin: And yet I say unto you, That even Solomon in all his glory was not arrayed like one of these." It is for man to put his own house in order, not to order the world. (tBut seek ye first the kingdom of God and his righteousness; and all these things shall be added unto you." Let it be so. @ -FOOTNOTES lMatthew 6:28-31, 33. 2Aldous Huxley, Brave New World Revisited (New York: Harper & Brothers, 1958), p. 26.

3Steven Jantzen, Carolyn Jackson, Diana Reische, and Phillip Parker, Politics and Peo ple (New York: Scholastic Book Service, 1977), p.159. 4fbid., p. 172. SHuxley,op. cit., p. 28. This concludes the series. An Arlington House version of World in the Grip of an Idea is in the works, and will be duly announced in The Freeman and in Notes from FEE just as soon as publication date and price are known.

ALMOST everybody wants peace and prosperity. Certainly government officials profess a desire to promote peaceful cooperation among peoples and they devote much time and energy to Uinternational relations." Yet almost daily the press, radio and TV report international tensions in southeast Asia, southern Mrica, the Middle East, Latin America or the Orient. As human beings are not perfect, possibilities will always exist for mistakes, misunder standings, disagreements and dis putes that could grow into wide spread conflicts. So the task of those concerned with foreign policy is twoMrs. Greaves, a member of FEE's senior Staff, Is the author of Free Market Economics. For many years she has compiled materials for debate students. This essay deals with the subject of the 1979-80high school debate resolutions. 544 \ . ~ ./ ~f ./ fold-(l) to contain local quarrels and (2) to minimize the possibility of such conflicts in the future.

It is natural for people to trade with one another. No doubt men came to understand the advantages of voluntary transactions long be fore the dawn of written history. Persuading others to part voluntar ily with some good or service, by offering them something in ex change, was usually easier than doing battle for it. Certainly it was far less dangerous. Barring force, fraud or human error, both parties to any transaction expect to gain something they value more than what they are giving in exchange. Otherwise they would not trade. This is equally true of trades among friends or strangers, fellow coun trymen or foreigners, small enterFOREIGN POLICY 545 prises or large-whether located next door to one another or sepa rated by many miles or national borders. Trades may be complex, if intermediate transactions or differ ent national currencies are in volved, but the principle remains the same. Both parties expect to gain from a voluntary transaction.

So people who trade with one another have both good reason to remain friendly and just cause to resent interferences that hamper or prohibit their trading. Most consumers care more about the availability, quality and price of what they buy than they do about who makes it or where it comes from. If a particular gasoline works well in their cars, they don't care whether the oil came from Arabia, Alaska, Venezuela or Algeria. Con sumers will buy Taiwanese shirts, Hong· Kong sweaters, Brazilian shoes, German cars, Japanese radios, or any other foreign good, if price and quality suit them. And satisfied customers promote good will. Economic Nationalism It is governments, not consumers, that make national boundaries im portant. It is governments, not con sumers, that create national distinc tions and promote economic nation alism, often without intending to do so. A tax on U.S. citizens, not re quired for protecting lives and property or defending the country, in creases production costs unnecessar ily. Regulations and controls to Uprotect" consumers, workers, man ufacturers, farmers, miners, truck ers, the environment, or any other special interest also raise domestic production costs. Benefits to special groups-the unemployed, elderly, handicapped, minority enterprisers, or those awarded lucrative govern ment contracts-must be paid for by others, in taxes or through increases in the quantity of money which in time hurt everyone. All these pro grams increase costs and make vol untary transactions more difficult and expensive.

As production costs increase, some producers find their sales dropping so they must curtail production and reduce their work force. Many per sons then believe it even more im portant to enact special legislation, erect trade barriers or grant government subsidies, to support the injured firms and protect them and their workers from foreign com petition. But such programs only increase domestic production costs still more. This further hampers the ability of would-be traders to carry out voluntary transactions. The goal of economic nationalism is to protect domestic producers from foreign competition. Its proponents want to preserve a specific pattern of production. They do not understand the mutuality of trade. They do not 546 THE FREEMAN September realize that both parties gain from a successful voluntary transaction. Nor do they recognize the inevitabil ity of change. Nothing in·this world stands still.

People move~ The wishes of consum ers change. Their knowledge is con tinually shifting. Changes also take place in stocks of available resources and the most economical places in which to produce particular items. Producers, investors and workers should be free to move about and adjust to these many changes as best they can. Any attempt to maintain, for political reasons, some rigid pattern of production is bound to faiL Insofar as production is guided by political, rather than economic, motives, it becomes more expensive and waste ful. When government seeks to re duce dependence on imports and in crease national self-sufficiency, con sumers must get along with fewer goods and services of lower quality; and their standards of living will decline. Foreign Policy Repercussions Restricting imports by government fiat reduces exports also. How can foreigners continue to buy as much from us, if our government restricts their opportunities to earn dollars by selling goods in this country? The mutual gains that come from trad ing turn traders into friends. But when trading is hindered, ill will has. a chance to develop. Frustrated would-be traders look for someone or something to blame. Officials of for eign governments become antagonis tic to the U.S. government, for they realize their producers' sales to this country are hampered by our govern ment's interference. However, few U.S.citizens blame their government for imposing trade restrictions. Many even consider the federal govern ment a benefactor. For when im ports and exports decline the federal government often tries to make up for lost trading opportunities by of fering those who are hurt direct or indirect assistance-subsidies, re lief, new protective regulations, and so on. But such government pro grams can never compensate would be traders fully for opportunities for gone, reduced production, and the loss of individual self-respect.

The advocates of free trade pointed out more than a century ago that ttif goods do not cross borders, soldiers will." As fewer exchanges take place across national borders, individuals have fewer oppor tuni ties to know and respect one another. Antagonism, animosity and enmity among nationals may arise. We have seen this happen in recent years-in India and Paki stan, Southeast Asia, the Middle East, southern Africa, and else where. Obstacles to the path of trade made transactions across national boundaries more and more difficult, 1979 FOREIGN POLICY 547 expensive and infrequent. The common bond which could have turned their international traders into friends was weakened. Those who could have helped each other through voluntary transactions had no cause to come together. They re mained strangers and, in time, were even led to consider one another enemies. Government intervention, which begins by distinguishing between domestic and foreign goods and pro ducers, leads in time to a policy of economic nationalism which ac tively discriminates in favor of domestic products to the disadvan tage of imported goods. This hurts not only foreign producers, whose goods are excluded from the domes tic market. It also harms domestic consumers and producers. Produc tion costs rise so that fewer goods can be produced and sold. With fewer goods and services available for everyone, living standards de cline.

Localizing Conflicts The sure way to turn local dis putes into widespread conflicts is for outsiders to interfere. The first step in that direction often springs from a sincere sympathy on the part of the strong for the weak, the ttrich" for the ttpoor," the tthaves" for the tthave nots." Officials of one nation offer to help defend a weaker coun try against the threats of stronger neighboring states. But by taking sides in this way, neutrality is abandoned. No matter how well intentioned, such government-to government economic aid and mutual defense agreements show favoritism which can lead in time to military actions and wars. Through u.s. commitments such as NATO, SEATO and SALT, as well as vari ous treaties, pacts and executive agreements-relating to the Middle East, China, Russia, Panama, J a pan, various African nations, and more-we could well become em broiled in local violence or border disputes, at almost any instant, al most anywhere in the world.

U.S. involvement in the Middle East undoubtedly began with a sin cere sympathy for Jewish refugees who wanted to establish a homeland in Israel. Our involvement in Viet nam has been traced by some to a desire to help relieve France, when she was economically and finan cially strained by military opera tions in her colonial Indochinese territories, so as to persuade her to join NATO. ttWe do not plan our wars; we blunder into them" as his tory professor Henry Steele Com mager has pointed out. George Washington's advice in his Farewell Address (September 17, 1796) is still sound: u •••nothing is more essential than that perma nent inveterate antipathies against particular nations, and passionate 548 THE FREEMAN September attachments for others should be excluded, and that in place of them just and amicable feelings toward all should be cultivated ... The great rule of conduct for us in regard to foreign nations is, in extending our commercial relations, to have with them as little political connec tion as possible." And similarly, Thomas Jefferson urged cCpeace, commerce, and honest friendship with all nations, entangling al liances with none" (First Inaugural Address, March 4, 1801).

U.S. involvement in this century in two World Wars as well as Korea and Vietnam is due to the fact that U.S. foreign policy has been guided by precisely the opposite ideas from those Washington and Jefferson ad vocated. To contain local violence, a nation should avoid taking the first step toward abandoning neutrality and playing favorites. Thus, we should refuse to add to the many international commitments our country is now duty bound to honor. Then we should move toward the foreign policy recommended by our third President-upeace, commerce, and honest friendship with all na tions, entangling alliances with none." Minimizing Future Conflicts Through Free Trade To minimize conflicts in the fu ture we should aim to create a world in which people are free to buy what they want, live and work where they choose, and invest and produce where conditions seem most propi tious. There should be unlimited freedom for individuals to trade within and across national borders, widespread international division of labor, and worldwide economic interdependence. Would-be traders should encounter no restrictions or barriers to trade, enacted out of a misguided belief in economic na tionalism and the supposed advan tages of economic self-sufficiency.

Friendships among individuals liv ing in different parts of the world would then be reinforced daily WHEN the baker provides the dentist with bread and the dentist relieves the baker's toothache, neither the baker nor the dentist is harmed. It is wrong to consider such an exchange of services and the pillage of the baker's shop by armed gangsters as two manifesta tions of the same thing. Foreign trade differs from domestic trade only in so far as goods and services are exchanged beyond the borderlines separating the territories of two sovereign nations. LUDWIG VON MISES, Human Action 1979 FOREIGN POLICY 549 through the benefits they reap from buying and selling with one another. Thus a sound basis for peaceful international relations would be encouraged. Individuals should have the right of national self-determination and even to shift national political boundaries, if they so voted in a plebiscite. For practical and economic reasons, a single adminis trative unit would be sovereign within the political borders so estab lished. But this administrative unit would have to be responsive to the wishes of the people or face being ousted in the next election. It would have to do its best to protect equally the private property of every in habitant and to respect the rights of all individuals within its borders, irrespective of race, religion or lan guage. In such a world, members of racial, religious or linguistic minorities need have no fear of political oppression for being differ ent. Any nation which adopted these policies at home and in its relations with other nations would help to reduce international ten sions and so contribute to minimiz ing future conflicts. But once it began to play favorites again-to grant privileges to some to the dis advantage of others, to introduce restricti ve controls and regula tions-it would be reembarking on the path that leads to friction and conflicts among individuals, groups and nations.

World Peace To maintain peace throughout the world, the grounds for conflict should be reduced as much as possi ble. The first step in this direction must be to respect and protect pri vate property throughout the world. The ideal would also include com plete freedom of trade and freedom of movement. Political boundaries would no longer be determined under threat of military conquest or aggressive economic nationalism, but rather by legal plebiscite, Le., by vote of the individuals concerned. WAR is never a handy remedy, which can be taken up and applied by routine rule. No war which can be avoided is just to the people who have to carry it on, to say nothing of the enemy..... In the forum of reason and deliberation war never can be anything but a makeshift, to be regretted; it is the task of the statesman to find rational means to the same end. WILLIAM GRAHAM SUMNER, an essay on "War" from The Conquest of the United States by Spain and other Essays 550 THE FREEMAN In such a world, the national sovereignty under which one lived or worked would be relatively im material.

Daily news reports certainly indi cate that we are a long, long way from approaching this ideal. Pro grams intended to promote world peace often lead in the opposite di rection. The various intergovern mental institutions-the United Nations and the several regional political and economic communi ties-do little or nothing to reject economic nationalism. The debates and proposals of their representa tives reveal little understanding of the mutual advantages private traders gain from voluntary trans actions. They do not even appear to consider the possibility of leaving trade to private individuals and en terprises to arrange as they see fit. Rather they continue to delegate important powers to various governmental authorities to regu late and control quantities and qual ities of imports and/or exports, sometimes even to set minimum· or maximum prices at which certain commodities may be traded. In their desire to protect various fields of production within their newly erected borders, they foster economic nationalism over geo graphical areas larger than a single nation. Thus, although the spokes men for these multinational organi zations sometimes talk of cCfreer trade," their actions lead to less free trade.

The foreign policy that would minimize future conflicts would promote an economic climate in which voluntary trades among pri vate individuals would flourish be cause private property was pro tected worldwide. To create such a climate calls for widespread economic understanding. To main tain it would require eternal vigilance. @ -BibliographyBastiat, Frederic. Economic Sophisms. Trans lated from the French (1851) and edited by Arthur Goddard. Irvington-on-Hudson, New York 10533: Foundation for Economic Edu cation, Inc., 1964. Bauer, P. T. Dissent on Development: Studies and Debates in Development Economics. Cambridge, Massachusetts: Harvard Uni versity Press, 1972. Curtiss, W. M. The Tariff Idea. Irvington-on Hudson, New York: Foundation for Economic Education, Inc., 1953. Fleming, Harold M. States, Contracts and Progress: Dynamics of International Wealth. Dobbs Ferry, New York 10522: Oceana Pub lications, Inc., 1960.

Krauss, Melvyn B. The New Protectionism: The Welfare State and International Trade. New York, N.Y. 10003: New York Univer sity Press, 1978. Mises, Ludwig von. The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism. Translated from the German (1927) by Ralph Raico. Edited by Arthur Goddard. Princeton, New Jersey: D. Van Nostrand Co., Inc., 1962. Reprinted 1978 as Liberalism: A Socio-economic Expos ition. Kansas City, Missouri: Sheed Andrews & McMeel, Inc.

Thomas W. ·Hazlett F.A.Hayek: Classical Liberal IF George Will has deemed us ((In mates of the Twentieth Century," and Eric Hoffer has decried our time as ((hectic, soaked with the blood of innocents, irrational and absurd," then it is most fortuitous that we have the writings ofF. A. Hayek as a refreshing oasis of sanity. Now in his 80th season, this 3-letter scholar (Ph.D's in law, political science and economics) has risen to his most commanding position of influence, topped by his receipt of the Nobel Prize in Economics (awarded jointly with Gunnar Myrdal) in 1974. Sym bolically, it is cause for great hope Mr. Hazlett is a doctoral student in economics at the University of California In Los Angeles where he Is on the staff of the International Institute· for Economic Research. This article appears here by permission from his Introduction to an Interview with 'Professor Hayek, being published as a pamphlet by the IIER.

that when the London Times carried Professor Hayek's picture in its May 18,1978 issue, they chose to caption it: ((F. A. Hayek: the greatest economic philosopher of the age." It wasn't always so. Least of all in the eyes of the London Times. As Patrick Cosgrave wrote in the arti cle adjacent to the photo: He [Hayek] has lived long enough to see the twin assumptions he has spent his career attacking begin seriously to fail in their power of convincing. The first assumption was that greater and greater intervention by the state in, and greater and greater control by the state over, the economic process, was a neces sary concomitant of progress, efficiency and equality. The second was--central planning having failed to be efficient that· greater and greater regulation by the state of income and rewards was compatible with individual freedom. 551 552 THE FREEMAN September His Star Ascenc;ls It is in the swirling winds of a turbulent political climate, a cli mate turning cold to socialism, that Hayek's stock is perking up. And as his star ascends, much credit is ex tended to his iconoclastic observa tions from less friendly times. ttThe engine of Hayek's return to favor,"

comments Cosgrave, ttwas inflation, which he had always predicted would be the inevitable consequence of the infiltration of Socialist ideas about social engineering into mod ern democratic government. It re mains to be seen whether his second prediction-that the failures of Socialism and socialistically in clined governments lead inevitably to tyranny-will be allowed to come true." Yet it is coming true-before our eyes, not to ment~on our wallets. Bureaucrats in centralized govern ment offices are today charged with the authority to dictate who may be promoted in their jobs according to certified racial quotas, where chil dren may attend school, what politi cal discussions are engaged in by (private) r"adio and television sta tions, what prices companies may charge and what wages laborers may receive, which artists and so cial scientists may receive tax sub sidies, what parts of the country may receive energy supplies made short by federal price controls, what safety equipment consumers must add to the cost of their automobile, what medicines a heart patient may use in an attempt to save his life, what artificial sweeteners a weight-watcher may add to his diet cola, ad infinitum. What could be more redundant today than a com plaint against arbitrary, unreach able bureaucrats? Citizens increas ingly cry out against ttunresponsive administrators" -always in a tone of helplessness. But, demagogues excluded, who might tell us why it is that ttyou can't fight city hall"?

In his 1944 bestseller, The Road to Serfdom,l Hayek forewarns pre cisely why: When the government has to decide how many pigs are to be raised or how many busses are to be run, which coal mines are to operate, or at what prices shoes are to be sold, these decisions can not be deduced from formal principles or settled for long periods in advance. They depend inevitably on the circumstances of the moment, and, in making such decisions, it will always be necessary to balance one against the other the inter ests of various persons and groups. In the end somebody's views will have to decide whose interests are more important; and these views must become part of the law of the land, a new distinction of rank which the coercive apparatus of govern ment imposes upon the people. (p. 74) Hayek has inhabited the ivory tower for better than 60 years, yet, lUniversity of Chicago Press, 5801 Ellis Ave., Chicago, Ill. 60637.

1979 F. A. HAYEK: CLASSICAL LIBERAL 553 since he gave up on socialism in his early twenties, has never been taken by collectivism's press re leases. In quoting Tocqueville in The Road to Serfdom, Hayek shares with us the classic analysis of government control: . ctDemocracyextends the sphere of indi vidual freedom," he said in 1848, usocialism restricts it. Democracy at taches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the differ ence: while democracy seeks equality in liberty, socialism seeks equality in re straint and servitude." (p. 25) While Western nations have, for all intents and purposes, left the idea of Uhot socialism," as Hayek calls it, they still dance with the seductive political notion of state control in Hhigh priority" social problem areas, thus creating a con voluted political compromise perplexing to socialists and capital ists alike, and leading us into slav ery.

Although we have been warned by some of the greatest political thinkers of the nineteenth century, by De Toc queville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism. And now that we have seen a new form of slavery arise before our eyes, we have so com pletely forgotten the warning that it scarcely occurs to us that the two things may be connected. (p. 13) And for the cCused-to-be-liberals" who have come to realize that good intentions are not sufficient to se cure good results, Hayek's most im portant service may be as an ad vance warning system alerting us to what may happen when the heart is in the right place but pumping a bit too fast. cCOnly if we understand," Hayek explains, CCwhy and how cer tain kinds of economic controls tend to paralyze the driving forces of a free society, and which kinds of measures are particularly danger ous in this respect, can we hope that social experimentation will not lead us into situations none of us want."

(Foreword) What we should want, in Hayek's estimation, is a renewed determina tion to set free the unpredictable creative juices of individuals. This requires not anarchy, but rather an extension of the Liberal Order, that tradition of government well defined and clearly limited by the Rule of Law. To Hayek, the chief victory of Western Man has been the removal of much of government's coercive power from the realm of arbitrary whimsical ((public ser vants," and the subsequent ensuring of a healthy, secure area of social activity in which all may take what ever actions they will so long as they are willing to shoulder the as sociated costs. In our ascension from a society of status to one of con tract, Hayek observes the essential 554 THE FREEMAN September ingredient of the ttrule of law" as opposed to Uthe rule of man": The true contrast to a reign of status is the reign of general and equal laws, of the rules which are the same for all, or, we might say, the rules of leges in the original meaning of the Latin word for laws-leges, that is, as opposed to privi leges.

Hence, the legacy of classical liberalism survives with Hayek. Hayek and Keynes "When the definitive history of economic analysis during the nine teen thirties comes to be written, a leading character in the drama (it was quite a drama) will be Professor Hayek . ... It is hardly remembered that there was a time when the new theories of Hayek were the principal rival of the new theories of Keynes. Which was right, Keynes or Hayek?" -Sir John Hicks, 1971 Nobel Laureate, t(The Hayek Story" in Critical Essays in Monetary Theory, Oxford, 1967, p. 203 The 1930s were troublesome, momentous times. For economic thought, they were also a watershed. It was then that the negative connotation which had al ways shrouded the term ((government spending" dissolved, to be re placed by an aroma of high-minded civic virtue. While in 1932 Franklin Roosevelt could swing key precincts by blaming the Depression on President Hoover's profligate federal spending policies, all the successful political job-seekers of a very few years hence were boastfullypromis ing deficit budgets, government employment and ((stimulatory"

policies. This was the Keynesian Revolution. The academic alibi for the Keyne sian Revolution was Lord John Maynard Keynes. In his 1936 treatise, The General Theory of Interest, Employment and Money, he offered theoretical explanations for the idea that depressions were spawned by insufficient consumer demand, and vice versa. That is to say, unemployment is caused by a fall in t( aggregate demand" and (taggregate demand" falls as un employment increases. All of which leads to a vicious circle of poverty and joblessness. It was easy for the masses to be lieve in vicious circles in 1936. Of course, it had always been easy for the governing class to believe in vicious circles (or anything else) that called for them to administer heavy doses of public sector rem edies. Such,· as coincidence would have it,was just the Keynesian bromide. The lasting impact of The General Theory may be viewed as a prescription from the desk of Dr.

Keynes, written permission from the economic establishment to sup port the addiction which the politi cal community had been so long try1979 F. A. HAYEK: CLASSICAL LIBERAL 555 ing to acquire. The General Theory turned a bad habit into ttmedicine." The treatment? When consumers ttdemanded" too little, the govern ment should demand more. Trans lated into political jive: tax, tax, tax, spend, spend, spend, elect, elect, elect. "The New Economics" The governing class received Keynes' doctrine with an en thusiasm reserved for great wars and holy crusades. So completely was the Keynes ttsolution" to un employment embraced by the academic and political worlds that their master, Lord Keynes himself, was unable to deter the march. As Professor Axel Leijonhufvud has re cently demonstrated, much of what passed for ttKeynesianism" was in conflict with the actual economics of Keynes. Yet Hayek kept his head while all about were gasping over the New Economics. Where magical Keyne sian potions guaranteed prosperity by paying a million workers to dig trenches and another million to fill them back in, Hayek never flinched.

The world had not been turned on its head by Lord Keynes or the traumat ic 1930s, there remained a world of scarcity, there was no free lunch. If Hayek appeared crazy to the point of irrelevance in maintaining these be liefs thirty years ago, he seems quite the prophet to have had such a track record today. For in our post-New Economics era, where are those martyrs who will still boast of gov ernment mega-spending to bring us economic bliss? As the fashionable designer labels have fallen from the Keynesian em peror, those disillusioned with the panaceas of nfine-tuning," ttpump _ priming," and ttgovernment stabili zation policy" have discovered Hayek anew. The simultaneous ap pearance of inflation and unem ployment-which the crude Keyne sian model specifically ruled out has turned virgin utopianism into pregnant reality. Today people are ready to listen when Hayek says, as he wrote in 1975: The present unemployment is the di rect result of the shortsighted ufull employment policies" we have been pur suing during the last 25 years. This is the sad truth we must grasp if we are not to be led into measures that would make matters only worse. The sooner we can tear ourselves out of the fool's paradise in which we have been living the better will be the chance that we can keep the period of suffering short. (Full Employ ment at Any Price?, p. 11)2 Hayek does not, moreover, simply dispense competing panaceas: I find myself in an unpleasant situa tion. I had preached for forty years that the time to prevent the coming of a depression was in the boom. During the 2Transatlantic Arts, Inc., N. Village Green, Levittown, N.Y. 11756.

556 THE FREEMAN September boom nobody listened to me. Now people again turn to me and ask how the conse quences of a policy of which I had con stantly warned can be avoided. I must witness the heads of the governments of all the Western industrial countries promising their people that they will stop the inflation and preserve full employment. But I know that they can not do this. (p. 15). The Hayek solution, not in favor with advisors to political candidates, is straightforward: What we must now be clear about is that our aim must be, not the maximum of employment which can be achieved in the short run, but a Uhigh and stable" (i.e. continuing) level of employment, as one of the wartime British White Papers phrased it. This however we can achieve only through the re-establishment of a properly functioning market which, by the free play of prices and wages, estab lishes for each sector the correspondence of supply and demand.

Though it must remain one of the chief tasks of monetary policy to prevent wide fluctuations in the quantity of money or the volume of the income stream, the effect on employment must not be the dominating consideration guiding it. The primary aim must again become the sta bility of the value of money. (p. 27) Hayek vs. PseudoScience Any discussion of Hayek must in clude his brilliant attack on the methods of social scientists in gen eral. As a witness to the mush rooming arrogance of fellow economists, sociologists, and psychologists to direct human be havior and to control personal choices and relationships, Hayek has emerged (along with his close friend and convert Sir Karl Popper) as a superb critic of the academic prejudice known as cCscientism." As an unparalleled student of his tory, the evolution of political ideas and the emergence of social institu tions, a fully-armed Hayek has gone to battle for the free will of individ uals in their struggle against the tyranny of today's white-coated to talitarians. While B. F. Skinner may talk about a world CCbeyond freedom and dignity," where all is planned to be CCrational"and CCopti_ mal" by those who know what those words really mean, Hayek under stands that nothing can be known to be either of these things outside of the context of free human behavior.

((Rational" and ((optimal" are no less subjective to Hayek than is ((happi ness"; and all attempts to make the human experience an objective prob lem of mere technical equation solving is at once an intellectual error and a moral crime. The crux is that contemporary so cial thinkers often tend to see lib erty as a nuisance. It foils their calculations and botches their ex periments. Hayek is relentless in his appreciation of human liberty as the inimitable innovator which creates the very progress which social scien tists seek to duplicate and supplant.

1979 F. A. HAYEK: CLASSICAL LIBERAL 557 Freedom to Hayek is far from an unmanageable, intractable, trouble some variable, but the pervasive de terminant for advancement in each and every compartment of our social life. Freedom and the Spontaneous Order of Society So it is that Hayek champions c<the spontaneous order." This stands in contradistinction to the human laboratory of B. F. Skinner and his numerous accomplices. The spontaneous order is what motivates the development of the common law, of language, of manners and cus toms, of liberal constitutional gov ernment, of the competitive market economy. In short, it is the un planned, unplannable genius of men and women just getting along. It is the fabled uinvisible hand" of social progress; it is not reproducible in the social alchemist's test tube, no mat ter the contempt with which he might regard individual enterprise, creativity and adaptability.

As Arthur Shenfield elaborates: Scientism is the uncritical application of the methods, or of the supposed methods, of the natural sciences to prob lems for which they are not apt. In the present context it is their application to problems of human society. Thus it is in its very nature unscientific-an idolatry, not an understanding, of science. As Hayek says, UThe scientistic as distin guished from the scientific view is not an unprejudiced but a very prejudiced ap proach which, before it has considered its subject, claims to know what is the most appropriate way of investigating it." And what is claimed to be the most appropriate way turns out to be inappro priate. (Essays on Hayek, p. 63)3 Hayek's intimate contact with this part of society that His the product of human action but not of human design" led him to his greatest insights in theoretical eco nomics. Take the idea of a market, for instance. A market sets a price equating supply and demand for a commodity, and thereby tells the whole system how much that par ticular good is worth relative to other scarce resources. This allows everyone to make their plans ac cordingly. They can determine how important it is to economize on this good, or to produce it, or to switch to substitute goods. By looking at the price-determined by the market the allocation problem of any good, be it gold, hockey games or Gatorade, is solved. Every single person may discover how much he should produce, and how much he should consume. That, unquestion ably, is a paramount advance for society.

But the astonishing fact is that no one invented a market. Markets are not made, they just happen. 3Essayson Hayek by various authors, edited by Fritz Machlup. Hillsdale College, Hillsdale, Mich. 49242.

558 THE FREEMAN September They are the spontaneous organic result when individuals who, acting only in their narrow self-interest, cooperate with each other to satisfy their diverse needs and aspirations. Freedom allows trial and error to test whatever plans innovators are willing to chance; self-interest pushes all the rest to imitate the innovations that work. In precisely the same manner does the institu tion of language spring up from the free flow of individuals just trying to communicate for their own pur poses; nobody ttbuilds" a language. The ttmacro" conclusion of this ((micro" process is· an innovation enormously beneficial to all social creatures. Of similar shock value is the realization that this key illstitution runs on its own energy source. No one creates a market, and no one administers it after creation. No central agency takes responsibility for issuing orders to make sure that prices equate supply and demand; no one tells consumers or producers what their buying and spending plans should be. From spare parts to watermelons, the irrepressible forces of supply and demand set prices that automatically create the proper incentives so that the amount demanded will approximate the amount supplied-without any one person knowing the whole rea son (or anything close to the whole reason) why.

The Socialist Controversy In thus digging to the roots of our institutions, economic and other wise, Hayek extracted his most con sequential theoretical discovery: uThe Use of Knowledge in Society." In his famous 1945 paper by this title, he demonstrated that the basic economic problem in society was to make the best use of all the informa tion available for satisfying our wants. The unique, over-riding fea ture of this economic information, however, is that ttthe knowledge of the circumstances of which we must make use never exists in concen trated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowl edge which all the separate individ uals possess." (Individualism and Economic Order, p. 77)4 While people are accustomed to thinking of uinformation" in a tech nical sense, like how to get oil out of the ground or how to manufacture steel, such scientific know ledge is actually closer to background music for purposes of enhancing our mate rial wellbeing. If prosperity simply required proper engineering, after all, Soviet Russia (or the U.S. Post Office) would work. Hayek showed that the most essential economic ttfacts" are tiny bits of information uof time and place."

"Gateway Editions, Ltd. Box 207, South Bend, Ind. 46624.

1979 F. A. HAYEK: CLASSICAL LIBERAL 559 Central administration of economic activity must lose this spe cial, individualized information. Bureaucratic offices have tremen dous resources to obtain general in formation such as statistics, opinion polls, and econometric models as well as technical, scientific data. But bureaucrats are helpless to make the best use of all this pre cisely because they have no way to capture specifzc bits of information as to what individuals may do to contribute. And it is the individual consumer, producer, worker or entrepreneur who must actually make choices and perform the work. The result is that if central plan ners make economic decisions from ((above"without the contributions of these individuals directly involved, the system has lost an incredible sum of knowledge. The attempt to Ucontrol"economic affairs by central planning ends up creating a system wherein less knowledge is utilized, precisely the opposite we had uplanned." Centralized directioning, in addition to transferring power over decisions from individuals to bureaucrats, creates a loss of effi ciency and thereby a wealth reduc tion for the society as a whole.

Hayek details: Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge of general rules: the knowl edge of time and place. It is with respect to this that practically every individual has some advantage over all others be cause he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, or local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody's skill which could be better utilized, or to be aware. of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. The shipper who earns his living from using otherwise empty or half-filled tramp steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differ ences of commodity prices-are all per forming eminently useful functions based on special knowledge of circum stances of the fleeting moment not known to others. (Individualism and Economic Order, p. BO) And so we see the ultimate wis dom of human beings acting freely with no direction save self-interest in what might naively appear as useless, wasteful activities. This brings us full circle on the Hayek 560 THE FREEMAN September globe, for in understanding the value of individual knowledge and enterprise in the economic sphere, Hayek is able to blend the interests of both our material wants and spiritual yearnings. Liberty doesn't trade for prosperity. On the con trary: Freedom works. This became Hayek's enduring contribution, still in effect, to the so-called ((Socialist Controversy."

Social Philosophy at Its Best What remains to be reported, happily, is that there is more to Hayek than brilliant scholarship and an admirable attachment to human freedom. Here is a moving, delightful expositor of the tide of man's affairs; a writer who may burst an explosive social theory without the simultaneous bursting of your patience. Hayek's forte is clarity. His gift is an awesome grasp of logic. So powerfully does he thrust his reader from premise to conclusion that the inevitable desti nation is accompanied with an irre pressible passion for ideas. It is the way social· philosophy should be done. Arthur Shenfield writes of his reaction to three of Hayek's articles in Economica (1942-44) introducing him to the author by way of the dry topic of UScientism and the Study of Society." When I read them I became stout Cor tez (or Balboa) on his peak in Darien. To this day I remember the tingling excite ment which they evoked in me. Since then, the roll call of Hayek's works on the fundamental problems of society arouses in those who grasp their message a peak of admiration which is now familiar.

This striking sort of impression is witnessed in scores of cases. Lord Keynes was Udeeply moved" by Hayek's Road to Serfdom. And Pat rick Cosgrave couldn't avoid noting that ((there is an Arctic ruthlessness about his brilliant logic which seems, most of the time, to refuse houseroom to the ... warm-hearted schemes for human improvement by government action which have paraded themselves in dazzling suc cession before our bewildered eyes." A Scholar in Many Fields of Knowledge Hayek's tremendous breadth as a scholar is surely a factor in his per suasiveness. He has indeed lived up to his impersonal observation that ((he who is only an economist cannot be a good economist." His academic writings grace every topic from law to sociology to philosophy, not to mention economics, history, or poli tics. One of his great thrills, he claims, was to recently learn that a well regarded college in Pennsylva nia was assigning his 1950 The Sen sory Order in a psychology class.

When he taught at the University of Chicago (1950-1962) one of his duties as Professor of Social and 1979 F. A. HAYEK: CLASSICAL LIBERAL 561 Moral Science was to conduct a weekly seminar of Ustaggering catholicity," according to Shirley Robin Letwin. The group included two nuclear physicists, one a Nobel Prize winner; ttan Irish classicist, completely master of Shakespeare, Gibbon or Tolstoy, as of Sophocles, Plato and Thucydides;" a French Thomist; the two most eminent Chicago School economists, both world-famous; tt a classical ar cheologist ... the author of The Gothic Cathedral and the author of The Lonely Crowd as well as the inventor of the tfolk society.' " As Dr. Letwin describes: Hayek presided over this remarkable company with a gentle rectitude that made his seminar an exercise in the liberal virtues. Every remark, however fatuous, no matter how obscure or young the speaker, was heard to the very end with a respect that the weaker members found· maddening. The general subject was liberalism and no one was in any doubt about Hayek's convictions. But students who hoped to shine by discover ing apostasy to an official creed learned to seek other paths to glory. Hunting for the holy grail was definitely out of order.

The seminar was a conversation with the living and the dead, ancient and modern; the only obligation was to enter into the thoughts of others with fidelity and to accept questions and dissent gracefully. <Essays on Hayek, p. 148) As history remembers Hayek it will be told that his great quest was to ask why liberty is so slippery to our grasp. While other current so cial scientists have devoted their re search to discovering programs to replace free and spontaneous human interactions by imposed ttscientific" solutions, Hayek has prowled about to find why classical liberalism, which has given Western Man so very much, is being cashed in for a statism which promises neither peace nor freedom. Nor, most obvi ously, prosperity. In fact, socialist, real-world experience has been so bitterly painful that those contem porary reformers who clamor for in creased state intervention have given up the pretense that such controls can give us more than free markets and free men. Instead they argue that material wellbeing and economic improvement are mem ories gone by and that the future holds a more modest portfolio. That the government will be in charge of choosing this portfolio helps to guar antee the claim, so that the confi dent prophecy is self-fulfilling and recyclable.

Yet, for those who would rather look to a future which offers liberty for the oppressed and progress for the poor, there can be no better resource guide than the writings of F. A. Hayek. His fine and sensitive touch with the subtlest workings of human (and humane) civilization will sprinkle us with understanding for millennia to come. It is, of course, juvenile to debate 562 THE FREEMAN any scholar's place in history's ar chives, particularly when we are still blessed to have him among us. Yet, what can safely be claimed is that if the generations to follow are lucky-very lucky-it will come to pass that our Twentieth Century was not the age of the Hitlers, the Stalins and Mao Tse-tungs; but rather the time of the Einsteins, the Solzhenitsyns, and the Friedrich von Hayeks. li WHAT is threatened by our present political trends is not just economic prosperity, not just our comfort, or the rate of economic growth. It is very much more. It is what I mean by the phrase "our civilization." Modern man prides himself that he has built that civilization as if in doing so he had carried out a plan which he had before formed in his mind. The fact is, of course, that if at any point of the past man had mapped out his future on the basis of the then-existing knowledge and then followed this plan, we would not be where we are. We would not only be much poorer, we would not only be less wise, but we would also be less gentle, less moral; in fact we would still have brutally to fight each other for our very lives. We owe the fact that not only our knowledge has grown, but also our mor als have improved-and I think they have improved, and especially that the concern for our neighbor has increased----notto anybody plan ning for such a development, but to the fact that in an essentially free society certain trends have prevailed because they made for a peaceful, orderly, and progressive society.

This process of growth to which we owe the emergence of what we now most value, including the growth of the very values we now hold, is today often presented as if it were something not worthy of a reasonable being, because it was not guided by a clear design of what men were aiming at. But our civilization is indeed largely an unforeseen and unintended outcome of our submitting to moral and legal rules which were never "invented" with such a result in mind, but which grew because those societies which developed them piecemeal prevailed at every step over other groups which followed different rules, less conducive to the growth of civilization. F. A. HAYEK, remarks in What's Past Is Prologue, 1968 The Tiller, the Van, and the Typewriter Ruth B. Alford WHEN the union moved into the university where I worked (moved in, may I say, by hook and by crook), I looked down the road and foresaw a collision course. So, on the side, I made plans.

I had already bought and joyfully used a genuine six-horsepower electric-start Troy-bilt rototiller with excellent results in my own garden. Could I, at my age, till gardens for others for money? I could try. But how to get the tiller from here to there? I studied the problem of trailers versus vans versus pickup trucks from front to back and back to front and sideways to see what was best for me. I decided, in the end, on a van. It would transport the tiller and anything else I wanted, plus providing me with a camper for traveling. You can get from front seat to rear, or vice versa, in a van, without ever stepping outdoors, a prudent thought if you should land in rough company and need to get away. Further, if the economy should continue its downward plunge, the van could even provide desperation housing. I invested in a van. Just about the time it came, so did the first strike. Not in favor, yet in sympathy with my friends, I did not picket but I respected the lines and stayed out. I put an ad in the paper and got out there and tilled gardens.

There was usually a look of ap prehension as a gray-haired grand mother wheeled up and unloaded her tiller. But as the earth pul563 564 THE FREEMAN September verized to a remarkably workable consistency, and no heart attacks seemed imminent, the customers re laxed and were delighted. Most paid in cash. One person paid an equiva lent amount in meat from her freezer-most welcome. The strike was settled. Work re sumed. Then I was told that I must either join the union and pay dues or not join and pay dues anyway (due to an agency agreement). In my ig norance, before then I had not even heard of ttagency shop." What! I was outraged. Pay to keep the job I loved and had essentially created! Pay for a service I neither needed nor wanted! Pay protection money! No! I set my grandmotherly heels and said, ttO.K. Do your worst." Time passed. I made a third in vestment, a typewriter-a sturdy, upright model that could be used anywhere, electricity or not. Off and on over the years I had been writing, occasionally selling. I hoped to do a lot more of both.

So, when the union cracked the whip, I was ready. Let me diverge here, to say just why I opposed the union's demands. I'll try not to go on too long about it, but if you are to understand why I took such a strong stand, I have to explain the situation. Many people join the union, not thinking too much about it, as it seems the only reasonable thing to do at the time. I read the pledge card, all the fine print, and was not about to sign that-to pledge my honor equally to the union and to the United States of America; to sign over to the union the sole right to represent me in any and all mat ters relating to my employment; to swear not to divulge any of the se cret proceedings of the union (what if I were a member and had a dis agreement with union policies?); to agree that, should I resign from the union I would automatically lose my job. Not only did I refuse to join, I refused to pay to the support of an organization which exacted such a pledge.

Union promoters say over and over again that those who share in the benefits should share in the cost-hence ttagency shop" agree ments. What if the union does not bring benefits? Money is not every thing on ajob. It had been my obser vation that when a union comes in, strikes inevitably follow. I don't like the method. My way of getting ahead on a job, which has certainly always been effective, has been to consider that I am there to get the work done. The result of strikes is disruption of necessary work, polarization of employer and em ployees, antagonism between em ployees, regimentation and virtual loss of merit pay, and loss of income both to individuals and to the com munity at large. It is my strong contention that 1979 THE TILLER, THE VAN, AND THE TYPEWRITER 565 anyone should be able to join a union, even to strike if they so wish, but not be able to force others to do the same. The right to join must be balanced by the right not to join-or to pay.

There. That sums up my position. The crisis came in the fall. I had been receiving epistles from the union which I mentally, if not actu ally, threw in the wastebasket. I assumed I was working for the uni versity. On September 15 I was called to the personnel office and told to pay up or be ((terminated" on September 21. Six days' notice! I was stunned. Six days to phase down a complex operation! My work was as curator (a sort of librarian) of preserved plant and in sect collections. These specimens had been assembled over the years, some being a hundred years old, and were a most valuable record of the plants and insects of different areas. There they were, not just a picture or description of a given plant or insect, subject to the artist or au thor's error, but the actual or ganism, always capable of being taken out and restudied. The speci mens were used in teaching, in re search, and as historical vouchers.

Because it was a relatively small collection (about 20,000 plants), and I was the only worker, I did a variety of tasks-collecting, pressing plants, pinning insects, mounting, cataloguing, making up special teaching mounts, assembling dis plays for classes on request. All that, clubbed down in six days, solely because I could not in con science pay to an organization which intervened between me and my em ployer! Well, I had been terminated. What now? Back to my three allies, the tiller, the van, and the typewriter. I tilled gardens. I baby-sat. I typed furi ously, completing a book and some shorter works. I balanced through the winter on half-time employment elsewhere-that bitter winter of 1976-1977. I acquired another re sponsibility: My eighty-nine-year old mother came to live with me, I being the only child who was at home enough to have her. While I was at it, I completed the require ments for my M.S. in biology.

Came the spring. Time for deci sion. I had one more security, a major one. Several years earlier I had seized the opportunity to buy a small farmhouse and farm in Michi gan's Upper Peninsula. I had always planned to move north one day, after giving adequate notice to the uni versity (six months to a year) and turning the work over to a successor in orderly fashion. I weighed all the factors: my mother, who needed increasing care; my ambition to write; my refusal to 566 THE FREEMAN September work any place where I must join a union; the rising cost of living in Ann Arbor, where half-time work was not enough to keep my head above water; my love for the north country. On the negative side: mov ing away from friends and family (but they could come to visit); the hazards of no certain income. The answer, I decided, was to move north, to take my chances on my writing, to consolidate everything in one grand effort.

Then followed the exhaustion of packing and sorting, of selling off, of breaking the myriad threads-getting change of address cards from the post office; phoning the gas com pany, the telephone company, the Edison. Saying goodbye to friends. Be sure to write. Yes, of course, I'll write. When I moved to the farm, I went in faith and hope and terror. There I would be, launching into the un known. I alone would be responsible for plumbing, repairs, getting around in the severe winters. No family nor close friends would live near. We came on Memorial Day weekend, by U-Haul. Two sons drove the truck up and unpacked everything, while I drove more slowly, bringing my mother. Small granddaughter came along for the ride. A week before the move I was sure of only one person to help with the loading. On the day, eleven peopIe appeared and packed and loaded me out of there. It has been like that all the way. I would set my sights on something and work toward it and somehow, incredibly, it would work out. I've forgotten who said it: uThe steps of faith fall on the seeming void and find the rock beneath."

There we were. Chaos. As soon as I had a narrow channel cleared from sink· .to stove to re frigerator, I set up the typewriter in my bedroom/office, and tilled and planted the garden. Life was going to be frugal, and every carrot would count. There was, to begin with, a com mission to write a booklet on plant collecting and preservation for a biological supply company--a good solid commission. That was first writing priority. Every day I p~t in at least four hours at the type writer. The rest of the day I un packed, sorted, cooked, cleaned, gar dened, made repairs. At first the electric pump did not work, so I pumped and carried from the hand-operated one in the yard--marvelous for exercise. We have excellent fall-back systems here. If the electric pump (now in stalled) does not work, I just take a bucket and go out and get water. The kitchen range burns wood in one end but also has electric bur ners. The main heat comes from an 1979 THE TILLER, THE VAN, AND THE TYPEWRITER 567 oil space~heater. Ifthat goes out, the kitchen range will hold off the cold.

If the drains freeze or otherwise stop up, there is a wooden privy beyond the windbreak. The electric water heater did freeze last winter, but we heat water on top ofthe stove or else use the sauna-the most efficient, warmest, most civilized way ever devised to take a bath in a cold climate. Repair of the electric pump and of a crumbling foundation neatly cleaned out the savings account. Since then I have existed on a series of fortuitous money sources: the sale of the plant-collecting booklet; a few days' work back at the university, instructing my successor; a com pletely unexpected gift from my sis ter; ~epayment of a longstanding loan. The garden was not the greatest, but I utilized every vegetable that reared its head, and canned and froze vegetables and fruit from there, from gifts from visiting friends, and from purchases. I have studied the gardens of my neighbors, learning much, so that next year that department should show improvement. Perennial fruits and vegetables already started are asparagus, strawberries, red and black 'raspberries, rhubarb, multi plier onions, Hansen bush cherries, and apples.

To improve the garden soil, every drop of dishwater, with its phosphates and bits of refuse, as well as the wood ashes and every scrap of garbage, go on the garden. Also two lovely loads of manure were applied. The tiller will churn the soil deeper and deeper as time goes on, making the garden better each year. Just living, day by day, has been a rich experience. The air here is fresh and sharp, the sky a brilliant blue, with white clouds like great puffs of steam moving in off Lake Superior. Clouds·of birds utilize the evergreen windbreak for nesting in summer. One day I counted twenty-eight swallows, mixed barn and tree swal lows, on the electric wires. My yard, in May, is starred with blue forget-me-nots. The roadsides are a riot of wildflowers all summer--{)x eye daisies, yellow buttercups, orange hawkweed, pink and white mallows, white everlastings and yarrow. Later goldenrod and tansy and the varied blues of asters signal the approach of fall. The cooler sea son transfigures the landscape in late September and early October, and even after the peak of the red maples against yellow poplar and green conifers passes, there is a muted succession of smaller splashes of color. In mid November (rather late this year) the snow began to fall, a beautiful, clean snow, .piling to drifts a foot deep the first snowfall. Since then it has snowed nearly every day. The place looks like a Christmas card, with 568 THE FREEMAN September the little farmhouse set against the forest green of spruce and pine.

Each day I go out and use my ingenious Finnish snow scoop. Im agine a squarish, galvanized metal scoop, on runners which extend up ward to form handles. You never lift the snow; you push it, dumping it off the scoop in some un-walked spot. I can make paths all over the yard and never puff. My new neighbors have been un believably kind, helping me with all sorts of problems, from lifting heavy things (like the new oil heater), to selling me good cord wood at a mod est price, to giving me precious prac tical advice. uThere's going to be a frost tonight [mid-August], better cover the garden." Out came odd tubs, bedspreads, rugs, even cardboard, to cover the tender tomatoes, squash, beans, and cucumbers for that night and six subsequent nights, after which the weather warmed up again and all was saved. Snowshoes were a going-away present. I've tried them and they work! No particular effort. Just don't try to tum too rapidly, and think like a duck. Some women near here go on showshoe hikes. I'll try that some day, when I have a com panion to stay with my mother.

My mother finds the country beautiful, exclaiming over the num ber of trees, the blue of the sky, the cloud formations, the length of the icicles pendant from the roof, and the depth of the snow. Of course there have been prob lems. Lawnmowers which won't start. Leaky plumbing. Storm win dows to putty and put up. Getting stuck in the heavy red clay soil, which my neighbor describes as being like wet soap. The howling wind storm in early winter, follow ing unseasonably warm weather, when the power went off for an hour and an half, which gave me a chance to assess the performance of my sys tems under stress, and to make changes before the weather got colder. The van carts everything: storm windows, a used oil tank from a salvage place, groceries, junk, straw. In time I hope to build a handy in-and-out-going cart so I can haul dirt and manure. There have been rejections of my writing. Oh, my, yes, there have been rejections. Back and back have come the fat envelopes, returning my manuscripts. uWe are sorry but this does not meet our present needs." ttOur refusal in no way im plies criticism of its merits." ttWe wish you success in placing it elsewhere." I have even begun to study the variations in the form of the rejections, with an eye to their courtesy and ingenuity. Perhaps there should be an award, uThe Re jection Slip of the Year."

Doggedly I keep on writing and 1979 THE TILLER, THE VAN, AND THE TYPEWRITER 569 sending out. The post office knows me well. I buy sheets of stamps, which disappear alarmingly. (Some day, somewhere, my work will catch.) Each day, the eighth-of-a mile walk to the mailbox brings a feeling of suspense. Will today be the day of a sale? Today I sit at my typewriter, lookPower Politics ing out over the top of the parked van to the snow falling softly down on the pointed conifers, the fields beyond. I think of the tiller, parked snugly in the shed, waiting to do its turn, come spring. I feel content, confident that I will survive, taking pleasure in my day-to-day life and in my work. @ WITH government controlling more and more of our economy, the fact that crooks have to go where the money is causes more and more of them to tum to government employment. However, there is probably an even stronger reason for individ uals to become politicians.

That is the power which accompanies political office. Many idealists think they know better than the ordinary person what is good for that person. They consider themselves a cut above the ordinary individual who just isn't smart enough to know what he or' she should do. Idealists seek government power to impose their ideas upon the rest of us. They may be personally honest insofar as not thinking of lining their own pockets with money but have little compunction about bolstering their egos with government power. This attitude explains the environmentalists, the do-gooders, and. others whose ego causes them to seek government power to impose their ideas upon those of us who just want to make our way in a free market in open competition with everyone else. They don't believe in a free market or voluntary actions. They do believe in controlling others by means of government power. HARRY HOllES, editorial from The Register, Santa Ana, California, June 2, 1979 A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN D\Ss\dent Memoirs of al\Publisher To MEET Henry Regnery, one would never suspect him of being a revolu tionary. He is self-contained, even placid. He does not raise his voice.

He is not a sleeve-plucker. But, working out of a small publisher's office in Chicago with little support from the book sellers and only sporadic encouragement from re viewers, he has been one of the more potent movers and shakers in the American conservative movement. He tells the story of his publishing ventures in an engagingly modest autobiography, Memoirs of a Dissi dent Publisher (Harcourt Brace Jovanovich, 757 Third Avenue, New York, N.Y. 10017,260 pp., $12.95), that is in thorough keeping with his character. Always honest with him self, he had an affinity for honest men who are finding it difficult to get a forum in a world dominated by the quasi-collectivists who had .ap propriated the word «liberal" to .de570 scribe their illiberal philosophy. He had some money from his father's business, he had the support of his Quaker-bred wife, Eleanor, who be lieved in his inner light as well as her own, and he retained enough business sense to keep clear of bank ruptcy even while doing good for its own sake. With these quiet advan tages he picked up authors who, though they scarcely realized it themselves,werejust on the verge of capturing new audiences for which the Establishment publishing au thorities had no feeling and no use.

The list of conservative and liber tarian writers who were either floated or rescued by the Regnery imprint now makes a «(Who's Who" of a movement that is coming of age. Regnery published Bill Buckley's God and Man at Yale on a tip from Frank HanighenofHuman Events, he accepted Russell Kirk's epochal T he Conservative Mind in its imMEMOIRS OF A DISSIDENT PUBLISHER 571 pressive entirety after Knopf had demanded that it be cut to a quarter of its length, and he gave many a dissident in the field of foreign af fairs (Freda Utley, William Henry Chamberlin, Charles C. Tansill, George Crocker) his or her head. In between times he did not neglect poetry, belles lettres and religion, publishing books ofconsequence and taste even though they did not an ticipate the apocalypse. Studies in Germany In his diffident way Henry Reg nery would have you believe that he became a publisher because he was not fit to be anything else. His own record belies his modesty. He decided against an engineering career after two years at Ar~our Tech, but he continued to pursue a mathematics major at M.1.T. At M.I.T. he met students and teachers who deflected him from the ((dull winter of mathematics and physics" to more exciting pursuits in music, art, languages and philosophy. At the be hest of a young German friend he spent two years in the German Rhineland, studying at Bonn and listening to all the music that he could absorb. Regnery's forebears, on both his father's and mother's side, had come from the Mosel re gion near Trier, so RhinelandGer many seemed home to the young student. Hitler had not yet suc ceeded in Nazifying the region, and the genocidal purge of the Jews was still a few years away.

The German experience taught Henry Regnery that not all Ger mans are Prussians, and gave him a special feeling for the opposition to Hitler whose plottings might have ended the war at an early stage if Roosevelt had not insisted on un conditional surrender. Returning home to New Deal America, Reg nery studied economics at Harvard under Schumpeter, learning some thing of ((the realities of the world." He began to distrust the fashionable intellectuals who had illusions of their own importance, but he re tained enough faith in the New Deal to spend a summer working for Rex ford Tugwell's Resettlement Ad ministration. Quaker Influence After qualifying for an M.A. at Harvard he took a job with an American Friends Service Commit tee community project in western Pennsylvania which offered a volun taristic version of the Tugwell theories. Using funds raised by the Quakers from private foundations, the so-called Penn-Craft community hoped to establish an industry to sustain homesteaders who could no longer find work in the mines or at the abandoned coke ovens. The most advantageous event to come out of Henry Regnery's brief association with Penn-Craft was his meeting 572 THE FREEMAN September with Eleanor Scattergood, the daughter of a prominent Quaker family. After their marriage, they spent a short time working with the Penn-Craft pioneers, but the time had come, so the young couple felt, for something more permanent.

Henry Regnery tried to return to his father's textile business, but soon, as he says, he found himself sliding into publishing ctalmost impercepti bly." The young Henry began with pamphlets, an offshoot of his connec tion with Human Events, a publica tion started in Washington toward the end of the war by Frank Hanighen and Regnery's Quaker friend Felix Morley. One thing led to another, and a collection of Com munist documents assembled by Raymond Murphy of the State De partment, too voluminous for pam phlet issue, inevitably became a book, Blueprint for World Conquest, with an introduction by William Henry Chamberlin. The Human Events pamphleteering introduced Regnery to more and more people who did not conform to what he perceived to be the ~~dominant opin ion" of the times, which was all in favor of accommodation with Stalin abroad and an extension of welfarist collectivism at home.

The ~~dominant opinion" included Henry Morgenthau's plan for turn ing the German Rhineland and Ruhr into a permanent industrial waste. Henry Regnery, remember ing his own German experience, re volted against that. So the first im prints of a newly formed Henry Reg nery Company went on two books by the humanitarian English pub lisher Victor Gollancz, In Darkest Germany and Our Threatened Val ues, and one by the philosopher Max Picard, Hitler in Our Selves. A first Regnery catalogue included Hans Rothfel's The German Opposition to Hitler and Ernst Juenger's The Peace. The Flag of Unorthodoxy Having raised the flag of unor thodoxy, Henry Regnery began to discover that Gollancz's phrase, ~~our threatened values," applied all over the lot. Pursuing this anti-Mor genthau interests, Regnery pub,Jished Montgomery Belgion's Vic tor's Justice and Freda Utley's The High Cost of Vengeance. Later he issued Utley's The China Story, but not in time to save mainland China from the Communists. Mortimer Smith's And Madly Teach, a book on the dominant educational theories that had inflicted the faulty ~~look say" reading methods on a genera tion of unsuspecting children, be came a Regnery bestseller after Time magazine had devoted a three-column article to it.

It was only natural that Regnery should take the lead in publishing early World War II Hrevisionist 1979 MEMOIRS OF A DISSIDENT PUBLISHER 573 books." There was William Henry Chamberlin's America's Second Crusade, Charles Tansill's Back Door to War, Husband Kimmel's Admiral Kimmel's Story and George Crocker's Roosevelt's Road to Russia. Regnery says he doubts that pub lishing the true story of Pearl Har bor or Yalta uwill prevent such oc currences in the future." But the truth, he says, ((is worthwhile for its own sake." If we can't know what our leaders have done and agreed to in our name, the alternative is ((the society described in George Orwell's 1984." Regnery anticipated Solzshenit syn by many years with his publica tion of Elinor Lipper's Eleven Years in Soviet Prison Camps. He outraged the Zionists by publishing Alfred M. Lilienthal's What Price Israel, even though Lilienthal made plain his ((obvious devotion to his Jewish faith."

It was not with a movement in mind that Regnery accepted Russell Kirk's The Conservative Mind and Bill Buckley's God and Man at Yale, but a movement it became, as the many Regnery titles mentioned in George Nash's The Conservative In tellectual Movement in America Since 1945 attest. In a period of less than two years Regnery issued James J. Kilpatrick's The Sovereign States, Felix Morley's Freedom and Federalism and James Burnham's Congress and the American Tradition,all of which complemented each other. Regnery has a gift for characteri zation, and his descriptions and analysis of some of his authors Konrad Adenauer of West Germany and Roy Campbell, the South Afri can poet, are examples-prove that he could have been a huge success as a critic or journalist if he had not chosen publishing as a career. But publishing was just exactly right for him. It allowed him to indulge his master passion, which was to let honest dissidents have their say. @ ECONOMICS OF PUBLIC POLICY: THE MICRO VIEW by John C. Goodman and Edwin G.

Dolan (West Publishing Company, 50 W. Kellogg Blvd., P.O. Box 3526, St. Paul, Minnesota 55165) 1979 211 pages • $6.95 paperback Reviewed by Lawrence W. Reed, As sistant Professor of Economics, North wood Institute, Midland, Michigan How refreshing it is to come upon a textbook on public policies which holds those policies up to the light of liberty as a standard for judging their desirability. At a time when many economists cast this yardstick aside with a ((Mussolini at least kept the trains running" attitude, two 574 THE FREEMAN September authors have produced a magnifi cent volume which is at once sound economics and a defense of liberty. The primary purpose of John C. Goodman's and Edwin G. Dolan's Economi;;s of Public Policy: The Micro View is ((to help students understand how economic theory applies to the real world . . . by showing how some of our most im portant (and often controversial) public policies reflect economic prin ciples in action." If the response of students at my college, Northwood Institute, is any indication, Good man and Dolan deserve an ((A+" for success in this endeavor.

In Chapter 1, ((Thinking About Public Issues and Policies," Good man and Dolan map out for the reader the course they will take in the succeeding fifteen chapters. They explain that positive economics-the scientific study of economic institutions, policies, and actions-will be utilized through examination and application of such concepts as scarcity, opportunity cost, the production-possibility fron tier, supply and demand analysis, and consumer choice. From there, the authors propose to enter the risky field of normative economics «the application of ethics or philoso phy to economic issues." It is this latter emphasis that makes Goodman's and Dolan's book so intriguing to the freedom be liever. The authors readily acknowledge that ((not everyone agrees on which normative stan dards are valid or on which ethical principles are more important than others" but they are quick to pro claim that ((such disagreements are no excuse for the failure to think and express ourselves clearly" in this realm.

The first standard which they use in evaluating public policies is that of efficiency, defined by the authors as ((the property of producing or act ing with a minimum of expense, waste, and effort." A policy or a change in policy is judged ((efficient" by this standard if its benefits ex ceed its costs. A second standard, equality, fo cuses on the distribution of income and wealth. If there is anything in the book which might touch off a libertarian's warning siren, it would be this point. Goodman and Dolan state that ((Bythis standard, a policy that causes income and wealth to be more equally divided would be judged to be a good policy ..." Inclusion of this standard, how ever, does not lead the authors to endorse coercive, egalitarian mea sures. They consistently favor the unfettered price system for ration ing economic goods and oppose nonmarket forms of rationing put forth as programs to ((help the poor."

They champion the sanctity of con tract and rebuff schemes for the for cible redistribution of wealth. They 1979 OTHER BOOKS 575 clearly show that recognition of Hvalue trade-offs" is important that complete equality of income, for instance, could only be achieved with disastrous effects on both effi ciency and their third criterion, liberty. As applied to the evaluation of public policy, Goodman's and Do lan's standard of liberty holds that cC any policy is bad if it violates the individual's civil and economic liberties." Such liberties include freedom of speech, freedom of the press, freedom of religion, the right to own property, the right to produce goods and services, and the right to engage in voluntary exchange with others. As a professor of economics, I am at a loss to name another text book which rigorously evaluates the public policies of today against such noble principles.

Look to the Individual Another great strength of this book is the policy-by-policy scrutiny of the cCpolitics"of the issues. Here, the authors tackle the job of Utrying to explain why we have the particu lar policies we do have." As Ludwig von Mises and the praxeological economists have stressed re peatedly, the basic· economic unit of society is the individual. All actions and their consequences must be traced back to their point of origin-particular' individuals with particular interests and ideas. Only in this manner can we see why an act or policy has come about, and then assign responsibility. Once their methods of analysis are unfolded, the authors take on such varied topics as the military draft, gasoline rationing, product safety, farm policy, the postal service, il legal aliens, the minimum wage, the environment, and social security. Chapter 10, HCompetition and Monopoly in the Market for Oil," is one of the best. It covers a brief history of government and the oil business, a look at the OPEC cartel, the politics of oil, and a summary of several alternative energy policies.

These range from adopting a, free market to breaking up oil companies to nationalizing the oil industry. In their evaluation, Goodman and Dolan endorse the free market as the only alternative consistent with the standards of efficiency and lib erty, even though it does not pro :mise greater equality of income: By this standard [liberty] there should be no restrictions· on the buying and selling of oil and no restrictions on the production of oil and oil· products. Nor should government be able to tax uwind fall" profits or subsidize uwindfall" losses. Nor should government impose ar bitrary restrictions on our behavior or use the tax system to reduce our consumption of oil. The production, dis tribution, and use of oil should be left totally to the free choices of individuals who are participating in the free market. In other chapters, the reader will 576 THE FREEMAN fmd such interesting tidbits as a contrast between private and gov ernment mail delivery in American history, a defense of free immigra tion, a suggestion of applying the property rights concept to eliminate pollution, and an endorsement of innovative, free market pricing in the distribution of electric power. In every chapter, the authors write in a lively and lucid style that makes this study of public policy an abso lute delight.

Economics of Public Policy: The Micro View is exciting and exceed ingly useful in the classroom. And, in this reviewer's opinion, it's just great reading for anybody. i HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533 the Freeman VOL. 29, NO. 10 • OCTOBER 1979 Two Ways of Life Robert G. Anderson 579 Capitalism or socialism? The nature of property ownership makes the difference. The Fight for Free Enterprise Kenneth McDonald 590 In the contest against intervention, industrial capitalism should win on material, spiritual and ethical grounds. This Is Mine Robert LeFevre 593 How the concept of ownership might have emerged to undergird production and trade and civilization. "The King is Dead" Leonard Franckowiak 603 Government licensing curbs capitalism and freedom. The Hidden Fallacies Behind Intervention Clarence B. Carson 606 Man and the market economy are of a nature that cannot be improved or repaired by coercive measures.

Mass Transit Mess John Semmens 618 Let taxpayers beware of the claims that mass transit affords a solution to the "energy crisis." Table Fable Russell Shannon 625 How Tom Smith drew upon his resources to cope with competition in a changing market. In Defense of FreedomFrederic Bastiat Robert G. Bearce 628 In our current age of intervention and crisis, let us heed Bastiat's call: Try liberty. Book Reviews: 636 "Forty Centuries of Wage and Price Controls: How NOT to Fight Inflation" by Robert L. Schuettinger and Eamonn F. Butler "Inventory of the Private Papers of Ludwig von Mises" compiled by L. John Van TiI Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Roger Ream Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year. Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A.

Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "The Fight for Free Enterprise" and "This Is Mine."

IN his 1859 classic, On Liberty, John Stuart Mill observed that, ((The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not at tempt to deprive others of theirs, or impede their efforts to obtain it." The application of this philosophy of freedom to economic affairs sim ply means freedom of choice in the marketplace. It means the freedom, in our dual role as producer and consumer, to conduct our own daily affairs without interference from others. Throughout the world it may be observed that individuals do not have this kind of freedom of choice. Not only communist nations regu late and control the lives of the citi zens, but even in noncommunist Mr. Anderson is executive Secretary, The founda tion for Economic Education. Robert G. Anderson_.....II• •••~. ~ countries these freedoms once en joyed are being rapidly lost. Nowhere, it seems, is freedom de fended as a philosophical absolute.

At best, it is tolerated as a pragmat ic necessity rather than upheld as a sovereign principle. The structure of society is all important in its impact on individ ual freedom. The institutions of so ciety may be designed to maximize individual liberty, or society may be designed to give a ruling elite power over the citizenry. To put the matter more simply-a society may be structured for freedom and produc tion, or it may be structured for slavery and plunder. The extent to which individual behavior is influenced by external forces is far more profound than may first be realized. The so-called u way of life" in India, Russia, Argentina, 579 580 THE FREEMAN October or the United States dramatically affects human action. How the indi vidual lives and acts is ultimately dependent upon values learned from the society in which he lives. While all individuals have a common source in their Creator, our formula tion of values radically differs as each of us is exposed to different living experiences.

This uniqueness of each individ ual possessing values different from all other individuals can be the source of a free society based on peace and harmony. Unfortunately, this condition of differing values can also lead to the structuring of a totalitarian society based on conflict and violence. The great question is why this latter structuring of society has been the most prevalent one throughout human history. Axioms of Economics While it is true that men can impose artificial structures upon so ciety, nevertheless, there exist cer tain universal laws which operate irrespective of these structures. Cer tain economic axioms can be ob served from our very nature. They have guided mankind from the be ginning, and will continue to do so as long as man's nature is un changed. Four of these axioms need to be mentioned. Axiom number one: we live in a world of scarcity. It is true that the general wellbeing of individuals is better today than in the past. But this improvement has in no way eliminated scarcity. It merely reflects a reduction in the degree of scarcity, and could be transient, depending on the decisions we make in the present and future. As long as man exists, the problem of scarce re sources exists.

The condition of perpetual scar city follows from axiom number two: man's insatiable appetite . No matter how many of man's wants are satis fied, there always remain additional wants to be fulfilled. There are never enough resources to supply all of our wants: Unlimited wants, but only limited means for satisfying them. This combination of insatiable wants and scarce resources is a uni versal condition of man's existence. It has always been true, it is true today, and it will remain true as long as man lives. And it is in terms of this condition that the economic questions of production, distribu tion, and consumption must be re solved. The reality of our basic economic problem leads to axiom number three: we must constantly make clwices. The determination of what to produce, by whom, when, where and how much must be made. In addition, these same questions must be answered regarding distribution and consumption. Who gets what, and when, where, and how much.

1979 TWO WAYS OF LIFE 581 What is certainly clear is that not everyone can have everything, now. One final observation about man's nature should also be made. Axiom number four is that we all want more for less. This trait can lead to either good or evil. Perhaps above all else it explains why the path taken by man in the structuring of society has been so consistently au thoritarian. The acquisition of more through plunder under socialism rather than more through produc tion under capitalism has always marked the difference between these two systems of social organiza tion. The present-oriented mentality of individuals has too often con cluded that plunder is the better way because it seems the quicker way to obtain more for less. The Role of Private Property No type of society established by man can in any way avoid these universal economic axioms, though the nature of the system determines how these universal laws will man ifest themselves. The basic problem of allocating scarce economic re sources toward the satisfaction of human wa~ts must be faced in every society.

The rapid decline or total loss of individual freedom throughout the world today may be traced to one major cause. Furthermore, this same cause can also be seen in the rapid growth of socialist societies and the destruction of capitalist societies. The cause of our lost free doms has been the destruction of the institution of private properly. Quite simply, the nature of property own ership determines whether man will be free or enslaved. In order to understand why this is true, an examination and compari son of socialism and capitalism is required. In our world neither capi talism nor socialism exists in its perfect theoretical form. Today's societies are variations of capitalism or socialism. The relationship of property ownership to individual freedom, however, is best under stood by a contrasting of the pure socialist society with the pure capi talist society. Very quickly, it will be seen that these two forms of so cial organization are diametrically opposed in both philosophy and structure.

The first problem we encounter here is that the socialist ideal has never been defined, even by the very people who advanced it. It is true that Marx and other socialists, at various times, did offer glimpses of the socialist fantasy as it would work in some never-never world. The romantic pronouncement: ~~From each according to his abilities, to each according to his needs," has frequently been heralded as the banner of the ulti mate socialist state. The socialist dreams of a wonderland in which 582 THE FREEMAN October scarcity no longer exists and all of our wants can be readily fulfilled. The Socialist Fantasy No better glimpse is available into this fantasy world than Karl Marx's observation of that future socialist state, ~~a society where each one does not have a circumscribed sphere of activity but can train himself in any branch he chooses, society by reg ulating the common production makes it possible for me to do this today and that tomorrow, to hunt in the morning, to fish in the after noon, to carryon cattle-breeding in the evening; also to criticize the food-just as I please-without be coming either hunter, fisherman, shepherd or critic." And it could well be added to such fantasizing, ((but if wishes were horses, beggars could ride."

To analyze socialism by defining it as some imaginary fantasy of a romantic idealist is meaningless. The only definition of socialism that is relevant is the social structure that is in reality advanced. The main characteristic that identifies socialism is the common ownership of the means of production, distribu tion, and exchange. Or, as Karl Marx states it in a single phrase, socialism means ~(the abolition of private property." Sochilism, as a structure of social organization, is therefore recogniza ble by the nature of property ownership. Under socialism the re sources of the society are collec tivized and centrally administered by some form of political bureau cracy. This arrangement of common property ownership inevitably forms a vertically structured society; a political elite establishes itself as the sovereign power over the whole society. The Problem of Production No society, socialist or otherwise, can escape the necessity of produc tive effort. Under socialism, it is the State, as the owner of all economic resources, that determines how the factors of production will be employed. Establishing a socialist society does not nullify the basic economic problems of scarcity and insatiable human wants. The when, where, how, who, and what to pro duce problems must be resolved. By the same token, the problems of dis tribution and consumption are also present. What is different about the socialist society is the manner in which these economic problems are handled.

The socialist theoretician has two complications in his theory: the first is the absurdity of advancing a con cept of common ownership for con sumer goods. It is ludicrous to im agine the whole of society owning the food about to be eaten by some individual or the toothpaste to clean his teeth. In this respect, even the 1979 TWO W AY8 OF LIFE 583 most extreme socialist recognizes that the concept of common own ership of property cannot be univer sally applied. The second complication in the collectivization of property own ership is the realization that not everyone can own everything nor can everything be controlled by everyone. The concept of socialism, the common ownership of property, necessarily requires that someone be in charge. And modem socialism, without exception, has named ttthe State" as this absolute authority. It is this second point that invari ably makes the socialist society authoritarian. The socialist likes to speak of the state as the agency of society, but in reality the State is the sovereign force dominating the soci ety. Property under socialism is not owned in common-it is owned by the State. It cannot be that everyone is in charge. The State is in charge.

The State becomes the owner and the controller of all productive prop erty. The State as Owner State ownership means absolute ownership. That is, the State is not only the legal owner of all produc tive property but the economic owner as well. All decisions relating to property use are the total pre rogative of the State. The State es tablishes a plan for the structuring of society, and as sole property owner, directs all economic activity toward the implementation of its plan. Under such a concept of State ownership of productive property the practice of individual freedom is impossible. There is no private property for use in production, and therefore no economic activity that can be performed privately. Many individuals have a partial understanding of this aspect of socialism. They recognize that at least one factor of production, capi tal, will be owned by the State under socialism. The machines to build cars and tractors no longer will be owned by individuals, but instead will be owned by the socialist State.

Others have recognized that the fac tor of production, land, will also be owned by the State under socialism. The land used for growing crops or raising beef will no longer be owned by the farmers, but instead will be State owned. But many individuals need to be reminded that there are three fac tors of production and that all three are owned by the socialist State. And it is the State ownership of this third factor of production that abso lutely assures the loss of individual freedom. That third factor of produc tion is labor, the labor of individ uals, including you and me. Under socialism the individual is denied a proprietary interest in his own per son. Like the factors of production, capital and land, the labor of each 584 THE FREEMAN October individual is owned and controlled by the State. This State ownership and control of labor precludes free dom of choice to the individual in the directing of his own life.

Enslaving the Individual The collective ownership of labor under the central direction of the socialist State results in the re gimentation of human beings ac cording to the structural plans of the State. Rarely, if ever, do the central plans of the socialist State corres pond to the plans and interests of the individual. Ultimately, the State must resort to the use of force against those individuals whose values are in conflict with the socialist plan. The State ownership of labor is merely a disguised way of subordinating the individual to the sovereign will of the State. The very essence of socialism assures, there fore, the destruction of individual freedom of choice-the freedom of each individual to choose for himself how he will direct his own life. The growth of socialism through out this century has demonstrated this lesson without exception. Wherever the State has replaced the market in the allocation of economic resources, the freedom of individ uals in the employment of their labor has been infringed. This has not been a development just within the Iron Curtain countries; it even occurred under Labor Party rule in England after World War II. When the State owns your labor, the State controls you.

The socialist society can also be critically analyzed from the point of view of economic inefficiency. The absence of a market makes economic calculation impossible. Without a price system there is no way to de termine either the costs of produc tion or the economic value from the output of production. Neither effi ciency nor inefficiency-neither profit nor loss-from productive ef fort can ever be known under socialism. The destruction and waste of scarce economic resources inevitably follows from this di lemma. In addition, the collective own ership of property destroys individ ual motivation. The care and ac cumulation of property is directly related to personal possession. It is in our nature to value our own prop erty more highly than property be longing to others. And the socialist concept of collective property is al ways the property of others to any one individual. The incentive to produce for others can never match the incentive to produce for self.

While such criticisms of socialism are a major indictment against this structure of social organization, they relate primarily to economic improvement and our material wellbeing. The far more over whelming case against socialism 1979 TWO WAYS OF LIFE 585 concerns the loss of individual free dom that inexorably follows from t~e ~!_~te ownership of property. Individual Ownership In contrast to socialism as a struc ture of social organization, the capi talist society advances the concept of private ownership of economic re sources. Both social orders recognize the necessity for property ownership and its control. They differ totally, however, as to who will own and control property. Socialism cen tralizes all ownership in a sovereign State. Capitalism is based on pri vate ownership. The ownership and control of prop ertY by individuals, rather than by the State, leads to a drastically dif ferent society than that which de velops under socialism. Perhaps the most obvious and immediate result is the vast decentralization of own ership and control of property. In stead of a single State owner under socialism, the capitalist society is characterized by millions of individ ualowners.

It is certainly true that under cap italism some individuals own more property than others. It is equally true that some types of property are far more valuable than other types of property. Under capitalism, this inequality of property ownership is accepted for what it is-a given con dition of man and his nature. Invar iably, the statement that inequality is a part of man's nature creates resentment. Inequality of property ownership is particularly offensive to many. But whether we approve or not, it is a reality that persists in every social structure, including socialism. While certain individuals do pos sess more property than others under capitalism, it must be recog nized that even the poorest member of the society at least has a propriet ary interest in himself-he owns his own life. Under socialism the own ership of self is denied to the indi vidual. All productive property, in cluding labor, is owned by the State.

Attacks against inequality of property ownership center largely upon land and capital. Even if equality could be attained with re spect to the ownership of land and capital-and it cannot be-what about inequality of labor ownership? Inborn traits of intelligence and physical abilities differ significantly among individuals, and to deny these inequalities among individ uals is to deny our very being. The important point is that under capitalism the individual ownership of property exploits inequality or dif ferences among individuals in a way that advances freedom and material wellbeing. Inequality is a condition of our nature; it cannot be elimi nated by any social system. And whereas socialism aggravates this iriequality, capitalism creates the 586 THE FREEMAN October beneficent division-of-Iabor society out of these natural inequalities. The capitalist social structure places total sovereignty over prop erty in the hands of the individual who owns it. What each person does with his land, labor, and capital is exclusively his own decision. Each individual owner is free to pursue his own good in his own way. He becomes totally responsible for him self and his possessions. His values, aqd his plans, are the primary force in the directing of his life and the employment of his property.

Government's Role The philosophical framework of the capitalist society requires a sys tem of laws-a government-to as sure that the life and property of individuals are safeguarded. The role of government in a capitalist society is to establish and execute laws designed to keep the peace. As Mill observed, attempts by any to deprive others of their freedom must be prevented, and the force of law is essential to this end. Government in the capitalist society is symbolized by the blindfolded goddess ofjustice. The rule of law equally protecting life and property is fundamental to the development of a capitalist soci ety. When individual life and property are secure, a spirit of social coopera tion will materialize. Individuals quickly discover the personal advantages of specialization and ex change. A nation of traders trans forms itself into a free market econ omy. With market prices as their guide, and motivated by the poten tial of profit, individuals bring their resources into production for the benefit of consumers.

It is the development of this pat-, tern under capitalism that has led to such descriptive synonyms as the free market economy, the private property order, the competitive en terprise system, the consumer sovereign society. All these descrip tions are valid, for each recognizes some important attribute of the so ciety. Undergirding it all, however, is the central point that property ownership must be a sovereign, ab solute right of the individual. Socialist planning is built upon a common social goal executed through the central direction of the State. It represents total planning of societal objectives by political action, and the implementation of these ob jectives by a bureaucratic corps within the socialist State. Under capitalism, however, the planning is done by individuals pursuing their personal goals. Through the signal of market prices, consum ers direct production toward the satisfaction of their individual wants.

Once again the socialist society radically differs from the capitalist society. The structure of socialism is 1979 TWO WAYS OF LIFE 587 a product of State planning with a politically established central goal. The structure of capitalism is mar ket determined by the actions of millions of individual consumers. Under socialism the State decides what society needs, but under capi talism the consumer decides his own needs and acts accordingly. Who Makes the Decision? In any society, it is the nature of property ownership that determines who wields power. Proclamations declaring a right to individual free dom are empty unless the individual is allowed to acquire and possess property and thereby is empowered to exercise his freedom. The suste nance of life is property, and the loss of this sustenance by the individual to the State assures the loss of his personal freedom as well. The own ershi p of self, denied by the socialist State, is fundamental to human freedom. Only under capitalism, where the institution of private property is guarded as a sovereign right, can the individual own him self and be free.

The extent to which individual freedom has been lost throughout the world today can be gauged by the corresponding loss of private property rights. The encroachment by government over the control of property has literally destroyed any concept of absolute private property rights. The use of property has increasingly come under the direction of government, even though nomi nal ownership may still be retained by the individual. In the United States today it is impossible to find a single example of productive property that is not in some way controlled by government. Such interference by government has but a single purpose-to obstruct consumer and producer freedom of choice and substitute therefor the will of the State. The sole end of all such activity is to shift power over the structuring of society away from the individual and into the hands of the State. Loss of con trol over one's property to the State is nothing less than a direct assault on individual freedom.

The perplexing question that con tinually faces the devotee of indi vidual liberty and private property rights is why socialism is so alluring while capitalism generates such hostility? The freedom and pros perity experienced under capitalism has been a demonstrated fact that is in stark contrast to the enslavement and inefficiency of the socialist soci ety. Yet the intellectual allure of socialism dominates social thought throughout the world today. Unless a firm philosophical framework is formulated on spiritual and moral absolutes conducive to a free society, man can quickly succumb to the allure of socialism through the pur suit of base motives.

588 THE FREEMAN October The Critics of Capitalism No better example of the allure of socialism can be observed than by witnessing the intolerance ex pressed against the structure of the capitalist society. Critics of capital ism refer continually to the misallo cation of productive resources under capitalism, and the need to alter the allocation of resources to meet ((no bler" objectives. These critics invar iably call upon government power as the means of forcibly altering the structure of society to achieve their aims. The problem, as they see it, is that the structure of the capitalist society is determined by the be havior of consumers in the mar ketplace. Productive resources are employed to create the goods and services that individual consumers desire. Under capitalism the struc ture of society is determined by market forces in such a way as to provide what everybody wants. The profit or loss from market activities directs privately owned productive resources toward the satisfaction of consumer demands.

Capitalism, therefore, responds to what everybody wants; but herein lies its dilemma. Nobody wants what everybody wants! Our differing indi vidual values will never conform to the values of all consumers. In the absence of tolerance for the values of others as expressed in the market place, it is extremely tempting to impose the State's design upon soci ety. As Friedrich Hayek so aptly observed in The Road to Serfdom, every socialist sees his plan prevail ing over society; he sees himself as planner and not as one of the planned. To the intellectual, the at traction of socialism is in this belief that he will be the planner of soci ety; that he, rather than the de cisions being made by millions of consumers through the market place, will determine its structure. The hostility to the capitalist soci ety as it responds to what everybody wants, rather than to what someone thinks everyone should want, is a prilll:ary reason why many find the socialist society so appealing. Under socialism, the socialist, rather than the consumers, will plan society.

While the capitalist system re wards the productive and thrifty in dividual and motivates everyone to imitate these virtues, such a system generates an inequality of posses sions that can create base feelings of greed, guilt, and envy. Once again, a firm philosophical framework is necessary to temper the urge to fol low such base instincts. Tempta tions to use the State to seize another's property out of greed and envy assures destruction of the capi talist society as the law is trans formed from an instrument ofjustice into a device for legal plunder. By the same token, feelings of guilt from possessing more property than 1979 TWO WAYS OF LIFE 589 others must be replaced with a feel ing of responsibility and steward ship toward the employ~ent of that property for the benefit of consum ers. And finally, what is perhaps the most difficult characteristic to ac cept about the capitalist society is the inevitable change brought about by competition in the marketplace.

No one likes change. Yet the only certainty of a free society is that it will be a society of change. Such change is mandated by the consum ers as they act out their preferences in the market. Productive resources are constantly bidding against one another as the successful displace the unsuccessful in response to the demands of the consumer. These ever-changing values of the consumers keep the market in a constant state of flux. The competi tion of producers responding to such ever-changing values assures that some will profit while others risk loss. The demise of old goods and services from the competitive thrust of new goods and services demands continual adjustment on the part of consumers and producers. This ad justment, brought about by competi tion in a consumer sovereign capi talist society can be overwhelming to many, as the old and familiar is displaced with the new. The socialist society is seen as a way out for such people. While an escape from change is an illusion, the static nature of the socialist so ciety holds appeal. The tragedy, however, is what is not seen. Out of the static structure of the socialist State has come a «graveyard" soci ety of death, slavery, and human misery. A society that promised good, has delivered evil. In the words of Ludwig von Mises, the twentieth century's most outstand ing free market economist, «good intentions aren't enough."

The future of civilization, of man's material progress, and especially his freedom are dependent upon the structuring of a society based on the institution of private property. In the final analysis, the man who is not permitted to own property be comes the property of someone else; man either owns or is owned. @ IDEAS ON UBERTY William Graham Sumner THE accumulation of property is no guarantee of the development of character, but the development of character, or of any other good whatever, is impossible without property.

Kenneth McDonald The Fightfor Free Enterprise DECADES of governmental interven tion in, and regulation of, the mar ket economy have all but obscured a fundamental truth: that an economy which encourages competitive free enterprise is the most productive both of material wealth and of indi vidual freedom. The case for industrial capitalism rests not only upon material grounds but upon spiritual and ethi cal grounds as well. When people are free to apply their creative ener gies to better ways of doing things, when they are free to contract their labor to enterprises that take their fancy and to put something aside from the fruits of that relationship, they add to the country's material Adapted by the author from an article that appeared In "Report on Business," the Globe and Mall, To ronto. Kenneth McDonald is a Toronto freelance writer. 590 wealth and to the capital stock from which the means to create more wealth is drawn.

The independence that follows from these undertakings enables the people who engage in them to pur sue, at other times, whatever ac tivities appeal to their talents and inclinations. It needs only to observe the condi tion of people in countries where they are not free to do those things to be reminded of what is at stake. The multitudes that greeted the Pope during his remarkable and courageous progress through Poland bore witness to a yearning for the freedom which totalitarian com munism is at pains to suppress. One of the contradictions of indus .. trial capitalism in a liberal democ racy is that the freedom it sustains opens the field to freedom's oppoTHE FIGHT FOR FREE ENTERPRISE 591 nents. Mouthing slogans-social justice, equality, war on poverty that cloak their designs in a mantle of morality, they would use the state to limit the economic freedom upon which the other freedoms depend.

Yet the failure of state interven tion to achieve any of their professed aims-in fact its success in achiev ing precisely the opposite-is self evident. Moreover, the prophet under whose banner the collectivists march saw this himself. In The Road to Serfdom, Friedrich Hayek wrote: HIt is pathetic, yet at the same time encouraging, to find as prominent an old communist as Max Eastman rediscovering this truth: ~It seems obvious to me now-though I have been slow, I must say, in coming to the conclusion-that the institution of pri vate property is one of the main things that have given man that limited amount of free and equal ness that Marx hoped to render infi nite by abolishing this institution. Strangely enough Marx was the first to see this. He is the one who informed us, looking backwards, that the evolution of private capital ism with its free market had been a precondition for the evolution of all our democratic freedoms. It never occurred to him, looking forward, that if this was so, these other free doms might disappear with the abo lition of the free market.'"

In the West today the current of opinion is running against big gov ernment. Swimming with the cur rent, political leaders protest their devotion to thrift and good house keeping. Entrenched Bureaucracies However welcome this change of political direction may be, the task cannot be left to politicians alone. Both they and the businessmen whose affairs have suffered most from governmental intrusion are opposed by forces highly resistant to change. Regulatory boards and commis sions and agencies that have exer cised their mandates for years past will not relinquish power without a struggle. Nor do they lack allies. The products, in press, politics and academe, of decades of collectivist teaching will not be slow to defend its tenets. Attempts to dismantle the state's apparatus will be attacked from all sides. Is it not apparent that repulsing those attacks must fall in the main to the businessmen who are the targets for the state's intrusion? Not only is it in their interest to do so but also in the public interest.

Championing the system that en larges the freedom of individuals is a worthwhile endeavor by any mea surement. That it should coincide with the interests of private busi ness and of the private individuals who, working in and for private 592 THE FREEMAN business, make up the great ma jority of citizens would appear to be doubly fortunate. Despite that coincidence, who can doubt that the forces of intervention, the forces that oppose freedom, are' still winning? In numbers a small minority, they have access to a substantial armory: the inertia that protects all bu reaucracies, the publicity com manded by a sympathetic press and by academic opinion-makers, above all a fragmented opposition. Brought up in the tradition of democratic government, busi nessmen are accustomed to respect ing its agencies. It is against their instincts to question the actions, much less the authority, of the offi cials who staff them. They have been slow' to realize, in short, that the government they had looked upon as friend and protector has become their enemy and that they are in a fight.

Creativity and Achievement Arming themselves for it, is not their strongest weapon the knowl edge that their cause is just? Gov ernments and the bureaucracies they spawn claim to be dedicated to «the people's welfare." The claim is false. Government's power is coercive. By forcing people to act in certain ways, or by preventing them from acting as they would choose to act in others, government restricts freedom. When its social programs seduce people into a condition of dependency, government robs them of a precious gift-independence. By contrast, businessmen are con cerned not with «the people" in the abstract but with people as individ uals. Throughout the working day it is not governments, not bureau crats, that are involved with people, but businessmen. Providing employment and training that build up skills, they strengthen indepen dence. Recognizing that employees are their most valuable resource, they supply the foundations on which to build full and happy lives.

The contest is between the forces of reaction that suppress freedom and those of creativity and achieve ment that enlarge it. It is between reactionaries who would force their discredited ideas on others and the true progressives who prize the self reliance that brings new ideas for ward. In that contest, businessmen con stitute a prime source of leadership. Against the fanciful plans of their opponents they can set lifetimes of experience. @ THE PURPOSE of economic study is to predict. The reason so many tum to the economist for assistance does not relate to his ability to explain what has happened but to an assumption that he can foretell what will hap pen. In general, it is presumed that the individual who can best explain why things interacted as they did in the past will be best able to foresee how things will interact in the future. In consequence of market demand for a preview of coming events, most economists rely heavily on what is called the empirical method. That is to say they gather relevant data from what has transpired year by year. They take into consideration other factors which appear to bear upon the area in question. The data Mr. LeFevre founded and for years presided over the Freedom School in Colorado and has lectured and written extensively In behalf of freedom and the market.

Robert LeFevre THIS IS MINE assembled, the economists now chart a curve into the future, setting down the probabilities relating to tomor row, next week, month and year. There is merit in this procedure. While a probability is not a princi ple, one must have respect for it none the less. It is far better to rely on probabilities than to stare into a vacuum. It is at this juncture that the Au strian school of economics emerges as the single exception to the gen eral rule of economic forecasting. The Austrian disciplinarians were among the first to remind us that mathematics does not govern the lives and times of man. What has happened in the past does not con trol the future. While statistical data may very well assist us in un derstanding what has transpired, it is wholly unreliable when it comes to foretelling future events. Thus, the Austrian economist seeks to dis cern the principles of human action 593 594 THE FREEMAN October and to express them, not in mathematical terms, but in terms of fundamental, ultimate givens as to the nature of man, the nature of the world man lives in, and how the two must and do interrelate.

This procedure has tended to obscure the importance of Austrian theory and practice. How Many Toothpicks? The public, and most notably that part of the' public engaged in what we popularly refer to as the ((public sector," dislikes being reminded of the laws of reality. Public and politi cians alike clamor for information as to how many toothpicks should be manufactured next year as opposed to last year. The Austrian economist shrugs and explains the laws of pric ing, supply and demand. Meanwhile the empirical econ omist performs his calculations and announces that there will be a de mand for 2,729,453,000 toothpicks, according to the laws of probability. With these assurances the makers of toothpicks find great comfort. Some where between the probabilities of the forecasters and the ears of the producers there arises an assump tion of certainty. The number in the prediction is, of course, incorrect. However, it is fre quently close enough to the truth, so that the error is in the low percent age figures. Year by year this prac tice of forecasting empirically will come close enough to the bull's-eye to gain credibility and acceptance.

And then, one year, for reasons which did not exist earlier, so far as can be known, a massive change occurs. Either a new and unimag ined market for toothpicks arises, or, for unexplained reasons which remain invisible, the public turns away from toothpicks and either uses something else or abandons the habit of picking their teeth. In years such as these, the empiri cists beat a hasty retreat and be latedly explain that random factors unknown to them at the time caused an error. None the less, they will insist, their figures were cor rectly determined, as, indeed, they were. It's just that the answer was wrong. We happen to be passing through such a time right now. Enormous changes are occurring. These changes disclose that many of our forecasting economists have a great deal to be modest for. I have set down the foregoing, not as censure of the empiricists, but rather to remind those of us who are fundamentally Austrian in orienta tion that despite weaknesses there is none the less merit in probability.

While principles cannot be demon strated mathematically, this does not mean that we should abandon mathematics. Where uncertainties exist, probabilities are enormously significant, provided we recall that 1979 THIS IS MINE 595 our answers deal with likelihoods rather than absolutes. In the final analysis all knowl edge is based on axioms and an axiom is no more than a straight line statement of evidence which is not susceptible of proof. While the purpose of economic study is to predict, I am not attempt ing a forecast in this essay, save only in the most general way. Therefore, I am not engaged in an economic study as such. Rather, I am seeking to examine the nature of man and the nature of the world man lives in so as to comprehend that most fundamental of all rela tionships, that of individual man to the earth, and the things of the earth. That relationship at the pres ent time is generally called private ownership of property.

The origins of ownership are lost in antiquity. It is doubtful that we will ever know where the concept of private ownership first appeared or who the individuals were first practicing it. The ignorance to which we must admit, in this case, should not dis courage us. We are ignorant of so much that one more blank page in the human record should make us feel right at home. Since we cannot read about sub jects where no written records exist, we have no way of basing our calcu lations on relevant data. No such data are available. Currently throughout the world, we find differ ing customs and practices respecting the ownership of property. It ap pears that' reality does not demand any particular practice or belief re specting property. Instead, what ap pears is that there is a cause-effect relationship emerging from what ever the property customs may be in a given situation. Thus, when cer tain kinds of beliefs emerge, the cultures which, in general, hold to them appear to improve their stan dards of living. When the beliefs change, and property customs are altered, standards of living decline.

But we have no absolute evidence. Indeed, we are left only with prob abilities. Perhaps we can have re spect for these probabilities, even though hard evidence is lacking. Let me begin with the nature of man. Survival in a World of Scarce Resources Man is a consuming, sensitive, complex organism. As a newly born infant he is among the world's most helpless creatures. It is immediately apparent that for man to survive, he must obtain sustenance from a source or sources outside himself. Man is not equipped at birth with a power pack to drive him through life. This oversight means that if he is to survive, he must learn to domi nate his immediate surroundings to some degree and in his own personal interest, or perish. It is at once evi596 THE FREEMAN October dent that whatever he ingests in the way of food or fluids becomes peculiarly his own. Private owner ship of property begins at this point.

If Descartes was correct in stat ing: cCI think, therefore I am," each of us is equally correct in saying: cCI eat, therefore I own." It is doubtful that primitive man, in recognizing his dependence upon things outside himself, thought of so sophisticated a concept as most of us now think when we use the word, cCown." Rather, it is probable that early man, to the degree that he used his mind for reasoning, trans lated his craving for food and bever age into little more than justifica tion for action where his abilities made it possible for him to take what he wanted. This is a far cry from what the concept of ownership often includes today. Thus, early man probably thought in terms of possession rather than in terms of ownership. To possess is to have a property under one's physical control. In cultures which had not yet evolved beyond the foraging and hunting stages, ownership, as we think of it, may not have appeared at all. In such a culture the question of right and wrong is not raised.

There is no question of control of a property during the absence of the possessor. The only logical questions are these: (1) Do I have the ability to get my hands on something I want; and after that, (2) Do I have the ability to keep others from taking it from me as long as I happen to want it? Evolving Man What kind of human behavior evolved? There are at least two dis tinct schools of thought emerging respecting man's basic reaction to the realities he faced. Some argue that man is only a step removed from a killer ape and that his be havior in early days was violent and aggressi ve against others of his kind. This is entirely possible. Others argue that man was more reasonable and tractable and im bued with a natural instinct to interrelate harmoniously with members of his own species. This is also entirely possible. Indeed, it is possible, and even likely, that human beings vacillated between peaceful and violent be havior in earliest times. If so, they are still acting out their basic na ture today which, by turns, is both harmonious and hostile.

It seems to me that when an indi vidual member of the genus Jwmo became imbued with fear that others might take away something which he craved, he would then be come hostile and violent toward the individual or group that threatened him. At the same time, if he sensed in himself a feeling of confidence in his own ability, vis avis the ability of others--or, on the other hand, 1979 THIS IS MINE 597 sensed a willingness in others to work in cooperation with him-then he would be tractable and coopera tive. This apparent duality made human conduct unpredictable and, hence, dangerous. It is only when our knowledge of reality can rea sonably predict the consequences of our own actions that we have the necessary confidence in ourselves to behave reasonably and at peace with one another. Gradually, and I suspect over long years, generations or even centuries of human experi ence, the first great economic lesson was driven home.

When a man thinks only of him self and lives in fear of what others might do to him (the fear of loss of one's possessions) then he will be driven into isolation. When he is isolated the likelihood of his survi val is reduced. The Divisionof Labor It turns out that human beings, by their natures, need each other. Not one of us has enough brains, mus cles, energy or time to achieve all that must be achieved if we are to stay alive. Even though we may fear each other and distrust one another by reason of our natural nonpredict ability, to have a reasonable expec tation of survival requires more than one human being can provide. The economic lesson which necessity compelled us to learn is called Udivision of labor." I use the term here in the broadest possible sense. Not only in respect to sharing chores and in trading with others, but in the dawning realization that no one can do it alone.

Thus, long, long ago, humankind began to live in groups, and the duality in our natures was acted out. We must possess (own) certain things as individuals or perish. But in order to possess ourselves of these things, we need each other. Thus we had to learn to overcome our fear of how others might behave. Indeed, in our own personal self-interest, we found it necessary to become in terested in the wellbeing of others. While we feared others, we also learned to fear not having them around. What was best so others could survive had to be equated with our own survival. Caught between the proverbial ttrock and a hard place," we survived as suspicious, distrustful, dissatisfied, avaricious groups. The groups made it. Those who persisted in living in isolated safety did not have descendants. Whenever we think of possession or ownership, we must also think in terms of the property involved. What is it we wanted to possess? In order to cope with the question of ownership we must sooner or later deal with what it is human beings wish to own.

It is entirely likely that the first items v~e~ed as ~~o_~~~!_~~d hence 598 THE FREEMAN October the first objects of our drive to pos sess, were those items for which we had natural (instinctive) urges. Basic Drives The very first objects which created the necessity for a division of labor unquestionably were food and water. There are two other drives, however, that are nearly as primary and must have occupied human attention from the earliest of times. They are the drive for terri tory and the drive to mate. Again we have two schools of thought as to which comes first. Some argue that a territorial imperative takes pri macy over sex. Others put it in re verse. I frankly admit that I do not know. Both are in evidence. What does appear probable, how ever, is that the drive to mate was acted out by individuals, much as the drive for food and drink. It is also probable that the drive for ter ritory was equally individualized at the beginning, though this would have been less likely of fulfillment.

It is far more difficult to control a territory according to one's own wishes than to control another human being. After all, human be ings can glimpse that it is in their own best interest to pair off with a mate of their choosing and to repel a mate not of their choosing. The land makes no decisions and it does not act in favor of its own highest utility or preference. I choose to deal with mating first, but such choosing does not endorse any specific chronology. All of us have mental images of the cave man selecting a bride by belting her over the head with some handy object and dragging her off. I suspect that in early times it was the woman who most frequently made the choice, although I do not mean to gloss over male aggressi ve ness. What appears likely is that the woman looked over the males avail able to her and, having chosen, began to make herself as alluring as possible to the male of her choosing.

Instead of attacking him physically, she probably sought to awaken in him certain latent yearnings. It appears that under primitive conditions, man's sex drive was far less assertive than it presently is in what we often inaccurately call ~~civilized" times. Men were proba bly preoccupied with getting food, after which they were exhausted. Beating up an exhausted male isn't calculated to stimulate affectionate behavior. Not that the woman was incapable of physical conquest over a man. A cave woman could proba bly have given as good an account of herself in a rough and tumble bout as any man. Perhaps the woman was guided by an inner sense, an instinct, of the long period of pregnancy and its corresponding reduction in her physical abilities. It is certain that 1979 THIS IS MINE 599 she usually envisioned more than a mere romantic dalliance. She was looking for a mate to sire her child and, in addition, to serve as a pro vider who would stand by and help her when she could not help herself.

So it is likely that the woman thought of ((her" man as a posses sion. He ((belonged" to her. And she would seek to influence him to her advantage when she was not capa ble of knocking him down. I do not seek to discount the probability that primitive women had far less diffi culty with child delivery than mod ern mothers. The travail was in tense enough to cause pre arranging-planning. Woman's Role When the infant was born, there was no question any longer. The infant belonged to the mother. If any man doubted it, the mother could hand over the infant to the father with instructions to feed it and keep it quiet. Following a few episodes of this nature it is doubtful that many males proclaimed ownership over very small children, at least in early times. It is equally doubtful that the male let the woman get away with such an assertion without challenge. Feeling a bit as though he had been used, the man probably agreed that she owned the child, but that his ownership was now transferred to her. I suspect a trade-off. The child was hers. But she was his. That evened it up. He would support her, but she had to support the new-born.

Women were probably the first of our species to deal successfully with abstract reasoning. With a show of submission and sweetness. she was probably far from feeling, the woman smiled her Mona Lisa mys tery and accepted the deal. She well understood that· if her mate owned and possessed her, the child would benefit. She would continue to pos sess her mate but would let him think otherwise. Besides, at the moment. she probably didn't want a physical contest. Thus it appears probable that food, water and women were among the first properties-the first items possessed by males. In process, it appears that the woman possessed the child and with that kind of own ership established, obtained man agerial status over the domestic scene including management of her mate. The woman was probably the first of our species to comprehend that guile, indirection and the use of reason are superior and more practi cal devices than brute force.

The first acquisition of territory probably occurred in conjunction with pregnancy. Like any nesting sparrow, the woman desired a place of safety for the deli very and rearing of her young. So it seems to me that our diverse views as to the primacy of sex as opposed to territory come together and are not opposed.

600 THE FREEMAN October Man, the hunter, follows the game trails, the flights of birds, the schools of fish swimming in the sea. Man, the forager, follows the sea sons, shifting from place to place as leaves and grasses green and fruits bud and ripen. But man, the father, returns to his mate and inadvertently to his child to see that they are cared for during many weeks, months and even years. I have no idea how long the idea lay dormant, gestating, as it were, in the minds of hundreds of our kind. But presently there emerged the concept of a hunting, foraging territory which would also contain the place of safety for women and children. With the formation of tribes and tribal territory, the con cept of public or collective ownership or possession emerged. Rules Concerning Possession and Use of Land Our natures demanded private control of certain assets on a per sonal level. But since we all wanted territory it must have seemed sensi ble and logical for the humans in a given area to pool their abilities (again, division of labor) when it came to land. A single male or fam ily unit might be able to defend (possess) a relatively tiny patch of ground. But more than a tiny patch seemed desirable. If the families in a given region would pool their abilities they might defend a much larger and more useful piece of land.

Up to this time I have used the terms possession and ownership either jointly or as synonyms. I wish to make it clear, however, that ideas of ownership as we presently use the concept had not yet surfaced. What any individual owned was only that item or those items which he could physically control and defend, per sonally or as a tribal unit. Posses sion is based on force. I have no doubt that the weakness of this practice was apparent for long years before anything occurred to bring about revision. In simple terms it meant the survival of the fittest on a direct, combative basis. Man had not yet learned to produce in any systematic way. While he may have manufactured some rough hand axes made of stone, and possi bly a few other hand tools, these were relatively easy to keep on one's person or near enough at hand so that any potential thief could be driven off at once. Thus, the lion's share of the food and water, and even the women, went to the most powerful and ag gressive male. And indirectly to the sharpest and most cunning female.

It meant that the biggest bully in the territory got first (and even sec ond) pick. The rest of the living humans got what was left, undoubt edly in descending order relating to their strength and cunning.

1979 THIS IS MINE 601 At last another characteristic of human development became visible. Men began to specialize, either as hunters or foragers, or as makers of tools. It turned out, eventually, that the brute force necessary to win a fight didn't necessarily single out the most valuable person in the tribe. I have no idea how it actually occurred, but let me hypothecate a situation predicated upon the ap pearance of an old man, with out standing ability as a toolmaker. As a hunter he was too slow. As a forager he tired too easily. But as a toolmaker he was unsurpassed. It is entirely conceivable that at the out set, every time he finished an axe, someone grabbed it and he was in capable of preventing that theft. Theft invariably discourages pro duction. Protecting the Specialist At the outset, it is likely that the tribal interest in the old man's tools was sufficient so that they hunted and foraged for him and rushed to his defense whenever he was at tacked. He was viewed as a public asset, like the territory they all oc cupied and defended. However, a major distinction was finally ob served. The occasional thieves, who appeared in force to threaten their territory, were outsiders. But the thieves who threatened the old man's axe production were insiders, members of his own tribe. A different form of protection was needed if the old man's production was to be made safe.

I have little evidence to support what I am about to say. I follow a hunch. I think the shaman or witch doctor first appeared about this time. This meant the formation of the first religion. The individual who set himself up as the first theologian was also, in all probabil ity, the first psychiatrist. He offered an abstract concept which was far too complex for most of the tribal .members to comprehend. In order to be understood, he ele vated his own status among his fa miliars by claiming that he was in touch with forces and embodiments which he could communicate with, but which were invisible to the av erage fellow. It was far easier to instruct his peers with the idea of obedience than with the complicated economic reasoning leading to the desirability of leaving the toolmaker unmolested. It was the wish (he must have explained) of the great invisible deities who inhabited everything and who controlled life and death, that the toolmaker be left un molested. But it was also the wish of these divinities that the necessity of dropping everything they were doing to rush to the toolmaker's de fense be overcome. Instead (he must have suggested) the deities wanted the old man unharmed and, there602 THE FREEMAN fore, if anyone harmed him, the deities would deal with that person in frightful and terrifying ways. Rescu ing him constantly from themselves was impractical. Other chores had to be done or they would all die.

What the old man was working on was his, even if the old man wasn't strong enough to defend it. There fore, deity would defend the old man's possessions. Out of this, the concept of right and wrong emerged and, with it, the concept of own ership as opposed to possession. No longer would a person's ability to act be the single criterion of what he ought to do. Rather, the wishes of divinity provided the criterion. Even though a man had the ability to take away the production of the tool maker, such an act would not be tolerated. It was wrong. To do right was to act within one's ability but, in addition, to act in accordance with divine dictates, regardless of ability. Clearly, the strongest and most ferocious could always take what he wanted. But the tribe was depen dent now, not only on the strong but on the skillful. And the skilled arti san must be able to predict peaceful and orderly respect for his abilities or he would become discouraged and would no longer employ his skills.

It is probable that the high level of sensitivity of the olfactory nerve at this remote period aided and abetted the wisdom of the shaman. Any person could tell who possessed any object. All one had to do was smell it. The odor of the owner was easily detected. Man has a most distin guishing scent. Thus, if you picked up a tool your first task was to sniff to find out who, in fact, possessed it. Ownership became a matter of odor as opposed to force. Gradually this concept was extended to include all members of the tribe, not merely the old toolmaker. It must have taken many years, but the idea of owning by prior pos session, rather than by might, gradually gained ascendancy among those humans who were most thoughtful and most advanced. No major culture has ever emerged that was built upon posses sion and force exclusively. For pro duction to occur, there must be long periods of time in which peaceful non-molestation is the order of the day. Force is a poor tool with which to obtain lasting calm and serenity.

Production and trade, the devices which build what we call civiliza tions, are erected on ideas of own ership rather than ideas of posses sion. It is in this sense that human society is constructed upon a moral base: a recognition of the difference between right and wrong. There must be an understanding of the sanctity of boundary, and a broad adherence to support of such sanc tity, for a culture to endure or ad vance. @ Leonard Franckowiak "The King IsDead" JEAN AND I and our two daughters" Cindy, age 9, and Gretchen, age 4, spent a delightful four days camping along the Illinois River. It was a most peaceful and re·· warding trip: no telephones, no television-just nature and family and our modern-day camper. And just as was predicted, after the hik ing and the cook-outs and the marsh· mallows and a game or two of Old Maid or Mickey Mouse, Cindy and Gretchen were ready for bed, and Jean and I spent the late hours of the night in quiet enjoyment and reading. Well, without television, what can one do? Might as well read a book. Reading is a good habit to return to and, besides, who knows?

We might even learn something! Anyway, Jean was reading a novel and I was reading Professor Ben Rogge's new book, Can Capitalism Survive?-which brings me to the point of all this. Mr. Franckowiak is a businessman in Chicago. His business includes a weekly radio program in behalf of freedom, entitled We Still Have 55 Per Cent (rei ferrlng to the portion of personal earnings not taken by taxes). "The King Is Dead" Is from the script of a recent broadcast. Cindy saw the book and said, HDaddy, what is ~capitalism' or whatever that word is?" And, well, I was called. (Don't you see? Some body-even though she's nine years old-somebody wanted to know what capitalism is.) And I was thrill ed to answer. Four hours later, with Cindy sound asleep, I was still talk ing about capitalism. Well, that's not true either, but there I was, on the spot-my daughter wanted to know what capitalism is, and I had to come up with a simple answer which hopefully would make sense and satisfy her curiosity. What should I say? Finally: ~~Capitalism,"

I said, ~~is where you're free to do anything you want as long as you don't hurt anybody; you can do things without a license from government." Well,with a little dis cussion about drivers' licenses and building permits, Cindy was satis fied, but by then I had been set to thinking. I started thinking about all of the licenses and permits required by our government, and I came to a stark realization. ~~Why ," I thought 603 604 THE FREEMAN October to myself, ((the king is dead!" One by one I began to review those occupations which now require a government license: beauty opera tor, barber, doctor, lawyer .... The government is becoming the great Controller . . . plumber, real es tate salesman, insurance broker, bus driver. . . . In the name of public good we all work or don't work in our chosen professions at the convenience of the state . . . certified public accountants, engi neers, architects, and taxicab drivers. . . . Why, the state has absolute control over our very means of livelihood . . . pharma cists, nurses, teachers .... We need permits to operate a bank, a liquor store, a restaurant or a grocery store. There isn't a profes sion or business in America that isn't under the control of govern men1r-not one place, in all of Amer ica, the land of the free. I even needed a permit to camp at Starved Rock. Capitalism, the king, is dead!

I didn't have the heart to tell my daughter Cindy. My mind began to swirl. I called to mind the case of a man in Shelby, Michigan. He was going to build a new house for himself to replace his old broken-down shack. He was going to build a house, that is, until the county building inspector came along. You see, the owner hadn't taken out a building permit to build his house. ((No," the inspector said, ((there wasn't anything wrong with the way the house was being built." The owner was doing good work and ((yes, the new house would be a lot nicer for the neighborhood" and ((yes, the owner was building the house on his own land," and ((no, the neighbors were not complaining." As a matter of fact, the neighbors were helping. Well, then, what was wrong, Mr. Inspector? ((Well," said Mr. Inspector, ((for one thing, you must have a set of stamped approved plans, and yes, by all means, you must have a permit.

You can't do any building without a permit." And so the owner was hauled off to court. uNo," said the judge, ((you cannot keep the building inspector off your property." ((Yes," said the judge, Uit is your property-but you cannot keep the inspector away. Govern ment has a right to inspect. You are wrong, you cannot build a house on your own property without a permit; and because you have continued to build your house in violation of the law, I sentence you to jail-to jail, Mr. Property Owner." And the king is dead. And so is the tree house in Hack ensack, New Jersey. You see, some nice people there wanted to build a tree house in their backyard, and they know about permits. They 1979 ttTHE KING IS DEAD" 605 know the law: You can't do any building without a government permit-so they went to the build ing department for a permit. But the inspector told them there was no tree house listed in the build ing code, so, no, they couldn't get a permit. ttIf it ain't listed in the code, you can't build it."

But, my goodness, other people in town have tree houses; why can't we? thought Mr. and Mrs. Owner. So they had carpenters build the little tree house. It cost $400. ttN0," the inspector said, he didn't think it was a safety hazard but ttit's not listed in the building code, and, well, the tree house was built with out a permit." ttGuilty," said the judge, and he fined Mr. and Mrs. Owner $20 plus $10 in court costs, but ttThat's not all," said the judge-ttyou have il·, legally built your little tree house and therefore you are hereby or·· dered to tear it down. If you fail to do so you will be held in contempt of court, and yes, I will send you to jail.. Don't you know you can't build any·· thing without a government per·· mit?" in the United States of America, the land of the free. And the roofers and the carp en·· ters need licenses to operate and so do the truck drivers and the morti·· cians. No, you can't bury the dead without a license.

What is capitalism, Cindy? Capi·· talism was a system, Cindy. It was a system practiced in a country called America-the sweet land of liberty; it was a system where every man, woman and child were free to follow their own special star; it was a sys tem where people were free to do anything peaceful so long as they did no harm to their fellow man. Capitalism was a system which gave the people of our country the highest standard of living on earth and in the process allowed them to enjoy the blessings of liberty and the dig nity of human existence, free from the intervention of the state. Can you go work when 'you're a teenager, Cindy? Well, I suppose so-if you get a work permit. Can we have a tree house in our backyard, Gretchen? Well, yes, we do have an OSHA-approved stepladder for you to use, and we could get a licensed contractor to build it for us, but you see, we need a government-issued building permit. What's a permit, Daddy? Daddy, what is capitalism?

The king is dead, and we still have 55 per cent. @ Editor's Note: Can Capitalism Survive? by Dr. Benjamin A. Rogge is available from The Foundation for Economic Education, Inc., Irvington-on-Hudson, N.Y. 10533. (329 pages. $9.00 cloth; $3.50 pa perback.) Clarence B. Carson The Hidden Fallacies Behind Intervention THE NECESSITY for government to intervene in the economic realm is widely accepted today. The media of communication frequently report interventionist measures in much the same manner as they do natural occurrences. Television anchor men announce the latest intervention in the same tones that weathermen predict the winds tomorrow will be westerly and blowing from 5 to 15 miles per hour. Presidents usually have an assortment of economic ex perts to guide them in meting out intervention. Congress passed a full employment resolution in 1946, and it has come widely to be assumed that this aim can be achieved by a vari ety of government measures. The chairman of the Federal Reserve Board is generally recognized as a Dr. Carson has written and taught extensively, specializing In American Intellectual history. His recent series In The Freeman, World in the Grip of an Idea, Is being published by Arlington House.

606 crucial figure in government's in terventionist activity. Government subsidizes, penalizes, breaks up, re strains, limits, compels, regulates, protects, initiates, and controls economic activity in myriad ways. Government intervention is not new to our era, of course. As far back as we have records of such activities, there are indications of the prac tice. It is probably safe to say, how ever, that never have so many dif ferent sorts of interventions been carried out simultaneously with such thoroughness and tenacity. Earlier interventions were mostly hit or miss affairs, often crude and unwieldy. Nowadays, intervention ists operate with an arsenal of statistics, surveys, computers, and the technology in which we are most proficient. What makes all this so remark able is that prior to the last two hundred years or so, economic interTHE HIDDEN FALLACIES BEHIND INTERVENTION 607 vention could be ascribed mostly to ignorance. That explanation does not go down so well in our era. Great strides in economic thinking have taken place. Thinkers have focused attention upon it and as might be expected have made many impor tant discoveries. Economics has been shaped as a precise intellectual discipline over the past two cen turies. Every sort of intervention has been subjected to rigorous analysis and its consequences explored.

Economists Divided I am not suggesting, of course, that all economists are in agreement with one another. That is decidedly not the case. Nor is it likely that in so broad and comprehensive a field they ever will be. What is strange, however, is that their deepest dis agreement lies in that very area and concerns the most fundamental question with which economics has to deal. Namely, they are divided. over the feasibility and workability of government intervention in econ·· omy. It is not simply that they dis·· agree over how much intervention is wanted, which we might expect, but they disagree fundamentally over whether there should be interven tion or not. For example, here is a statement from a recent textbook on economics describing the necessity for inter·· vention: In this chapter and the next we tum from economic analysis to economic pol icy. Our concern will be with govern ment measures that promote full employment, encourage growth, and prevent inflation or deflation. We have seen that an economic system like ours, when left to itself, sooner or later either becomes overstimulated ... or loses some of its momentum .... How to prevent an enterprise economy from uslipping off the track" is perhaps the most important problem in applied economics today.!

One of the ways that government may effectively intervene, he says, is by monetary policy: Monetary policy is the course of action pursued by the central bank authority. In the United States it consists mainly of the way the Federal Reserve uses its three main controls. . . . If used skillfully this set of controls can be very helpful in keeping the econ omy on an even keel. The difficult thing is to learn the art of using them skillfully-the art of monetary policy.2 By contrast, here are statements by other economists on the impact of intervention. In a classic work on the subject, the late Ludwig von Mises put it this way: However, all the methods of interven tionism are doomed to failure. This means: the interventionist measures must needs result in conditions which from the point of view of their own advo cates are more unsatisfactory than the previous state of affairs they were de signed to alter. These policies are there fore contrary to purpose. 3 608 THE FREEMAN October Milton Friedman has these com ments on various interventionist measures in the United States: Is it an accident that so many of the governmental reforms of recent decades have gone awry, that the bright hopes have turned to ashes?

I believe the answer is clearly in the negative. The central defect of these measures is that they seek through gov ernment to force people to act against their own immediate interests .... 4 In even stronger terms, Murray Rothbard declares that ~~government intervention" leads ~~inexorably to hegemony, conflict, exploitation of man by man, inefficiency, poverty, and chaos."5 In short, there are interven tionists and non-interventionists. It is as if physicians were divided be tween the position of Christian Sci entists, for example, and that which the medical profession in general holds toward disease. Such clear-cut differences suggest differences in premises. It is well, then, to tum to the tacit premises of interven tionists. The idea that government can intervene to good effect in the mar ket is based on analogy. In the first quotation above analogy was twice used to suggest what was being done. The first referred to economy as if it were a train that could be kept from ~~slipping off the track."

The next compares it to a boat which must be somehow kept on an ~{even keel." A paragraph or so further on the same writer likens what the Federal Reserve is supposed to do to depressing the accelerator or brakes in an automobile. It may be best, however, to abandon these analogies drawn from transportation, to which this writer appears to have a bent, and get to the fundamental concep tion. Outside Guidance The basic idea from which inter vention derives its animus is that the market and economy require the action of an outside agent in order to function well. Experience is replete with analogues for this belief. The basic idea is one of effecting cures or making repairs by intervening in systems. It is the idea that when things are out of kilter you fix them by making alterations. It is one of man's basic ways of fronting and dealing with the world about him. The root idea of intervention can be simply illustrated from medical practice. Physicians and surgeons perform their services most often by intervening in the human system.

They intervene in order to kill some infecting agent, to remove some obstruction, to correct some defect, and the like. Surgeons intervene by performing operations: setting bones, cutting out diseased tissues or organs, or repairing something. Physicians introduce foreign sub stances into the system, usually or1979 THE HIDDEN FALLACIES BEHIND INTERVENTION 609 ally or by injection. While all these interventions are more or less dan gerous and potentially harmful, they are for the purpose of healing. Similar practices in veterinary medicine further reinforce the con cept of remedial intervention. Mechanics perform analogously on machines. They do not intervene so drastically as doctors do machines being often constructed so that they can be worked on easily-but the conception of the good intervention receives support from their work. They may remove engines to work on them or take whole machines apart. Only rarely are ~~foreign" substances introduced into machines during repair, but if they are they are usually removed before the repair is complete.

Indeed, the intervention to im prove or correct is so commonplace that examples abound. Most servicemen are interventionists: plumbers, electricians, television repairmen, tree Usurgeons," land scapers, house remodelers, and so on. Auditors intervene in account ing systems in quest of weaknesses or chicanery. Efficiency experts intervene in the productive process to save time and energy. Tailors alter clothes; cooks add seasoning to their dishes; authors rewrite their scripts; and farmers mend their fences. Indeed, there are universal truths which make expedient these interventions to heal, repair, mend, and correct. All physical things decay; bodies become diseased; parts wear out; and human beings are imper fect. Intervention in bodies, systems, organizations, and products is man's way of ameliorating, for a time, the universal decay and imperfection. Although we do not ordinarily think of most of these efforts as interven tion they nonetheless undergird the general concept and provide exam ples of the worthwhile and useful intervention.

There is an important result that "is essential to what I shall call the good intervention. Indeed, when phrased as a question it is the de finitive test ofthe good intervention. As a result of the intervention, Is independence of the intervenor rees tablished? The purpose of medical intervention is to heal the patient. It is to get him back on his feet, to get him functioning normally, to have him able to look after himself, to make him as nearly independent as possible given his circumstances. The purpose of mechanical interven tion is to restore the machine to working order. The norm for the good intervention is that there comes a point when the intervenor is no longer needed. The doctor dis misses his patient. The mechanic an nounces that the automobile is ready to go. The plumber declares that the pipes are unclogged and that the water system now works. Inde610 THE FREEMAN October pendence of the intervenor has been accomplished. (Not all ~~good" inter ventions have these happy results, but that is the norm for them and the end for which they were under taken.) Fixing the Economy The idea of government interven tion in the market and economy de rives its motive force from this character of part of the universe and man's way of dealing with it. The notion that it is good and desirable arises from the known types of good interventions. Underlying this is the notion the market and economy suffer from some defect, infelicity, disharmony, or harmful tendency which stand in need of correction.

Many supposed defects have been highlighted over the years. Some have held that private property in land introduced fundamental injus tices in the economy. Others have held that workers do not receive their proper share of the fruits of production in the market. Un employment has been ascribed to a defect in economy. The disparity be tween farm and industrial income has been attributed to market weaknesses. Here are some of the difficulties arising from the market and economy as described in a re cent textbook. The author refers to them as problems: What are these problems? For capital ism, we have but to refer to the micro and macro sections of this text. Dis equilibrium, instability, misallocation of resources, and inequality of incomes are results of the economic process in every society in which there is private own ership of property and a market deter mination of prices. Whether we look to Japan or Sweden, the Union of South Africa or the United States, we see simi lar tendencies toward too much or too little growth, inflation or unemploy ment, a struggle between the private and public sector, and a highly uneven divi sion of incomes between the property owning and the working classes. These are problems as specific to capitalism as the problems of guild life were specific to feudalism. 6 It is such problems, then, that government intervention is sup posed to solve. Such economies are, so to speak, sick, broken down, not working properly, in need of heal ing, repairing, mending, altering, or what have you. They need, we might suppose, to be restored to proper working order according to prescrip tion administered by government.

They need, we might further sup pose, to be got back on their feet, to be made to work well independently of the intervenor once again. But is that how government in tervention in economies works? Does it straighten out what is wrong so that economy will work well on its own? There is no evidence to that effect. On the contrary, intervention neither corrects the alleged defects nor restores the independence of 1979 THE HIDDEN FALLACIES BEHIND INTERVENTION 611 anything. Mises described the mat ter succinctly some years ago: What these people fail to realize is that the various measures they suggest are not capable of bringing about the benefi cial results aimed at.... If the govern ment, faced with this failure of its fIrst intervention, is not prepared to undo it ... , it must add to its first measure more and more regulations and restrictions. 7 Perpetual Dependency This pattern has been amply demonstrated in American history.

The railroad industry is a striking example of how such intervention leads to perpetual dependency on government. When the Federal gov ernment first began to regulate the railroads by the Interstate Com merce Act in 1887 its aim was to prevent monopolistic abuses and promote competition among the lines .. After the passage of the Esch-Cummins act in 1920 about the only competition permitted be tween railroads was in service. But rates became so closely tied to prof its that before long railroads were vying with one another in reducing services. Since profits were, in ef fect, restricted, the railroads sought to perform only those services with the -least risk and effort entailed. This tendency was further aggra vated by the fact that government subsidized or supported alternative modes of transportation. The railroads became increasingly dependent on government. They depended on government for rate increases, for opening new lines, for closing old ones, for drop ping or adding service, and for the rules under which they could oper ate. They have become almost en tirely dependent for the operation of passenger trains, since most pas senger service is now provided by AMTRAK. CONRAIL is in the freight business, and several eastern lines have lost most of what re mained of their independence. Inno vations can be made usually only after lengthy and widespread hear ings. Even new types of cars must be subjected to examination to deter mine what impact their use would have on alternative types of tran~ portation.

Another example of government intervention which established de pendency on government was the Social Security Act of 1935, and later changes in it. The main pur pose of the act was through special taxes to build up a fund through which benefits could be obtained on retirement. In theory, the individual might be relatively independent with this income. In fact, the indi vidual relying on Social Security payments is entirely dependent upon government for what he gets. He has no claim on what he has paid in. He will only receive such pay ments as Congress decides from time to time he may have.

·612 THE FREEMAN October But everyone is drawn into a cir cle of dependency on government by the intervention in the money sup ply. Although there were earlier and have been other interventions, the crucial one in the twentieth century has stemmed from the Federal Re serve Act of 1913. The Pujo Commit tee Report (from the House Commit tee on Banking and Currency), is sued in February of 1913, detailed a concentrated control over money in the United States by a few New York banks. This concentration, the Committee alleged, had come about as a result of bank consolidation, interlocking directorates, and bank control of insurance companies, rail roads, and utilities. The Report pro vided the most immediate thrust for the passage of the Federal Reserve Act a little later in the year. The Federal Reserve in Theory and Practice The Federal Reserve system was supposed to break up this alleged concentrated control of money and the dependence of the country on a few New York banks. Twelve Fed eral Reserve banks were set up, each to cover a different region of the country. They were authorized to issue bank notes and discount com mercial paper, among other things.

In short, they were given power to increase and decrease the money supply. Since the notes of these banks were legal tender, and since the banks have greatly increased the amount of their issues over the years, they became the currency of the United States, and even silver coins were eventually driven out of circulation. (Bad money drives out good when it is supported by tender laws.) Whatever the case may have been for the dependence of the country on a few large banks, there can be no doubt that the people of the United States are now dependent on the actions of Federal Reserve banks. When they increase the money sup ply, the value of everyone's money declines. Many institutions and or ganizations have become dependent on the surges of inflation in order to operate. Labor unions depend on in creases in the money supply to get continual money raises for their members. Inflation fuels the expan sion of industries. Since money no longer serves effectively as a store of value people cast about in many directions in the quest for something that will be. The ((Fed" cannot con trol the economy with any precision, but it can, and does, take away the stability of prices by which people might manage their own affairs.

The persistent belief in the effi cacy of government intervention in the face of all the reason and evi dence to the contrary-rests on two false analogies. The first is a mis conception of the nature of govern ment. The second is a misconcep1979 THE HIDDEN FALLACIES BEHIND INTERVENTION 613 tion of the nature of the market and economy. Let us turn first to the false analogy about government. Government Is Force Government is not analogous to a physician, a surgeon, a veterinar ian, a mechanic, a pI umber, a tailor, or a repairman. It has no healing in its wings. It cannot heal, mend, repair, alter, or otherwise fix things. It is that organization with the monopoly of the use of force in a given jurisdiction. It can only be effectively used in the ways that force can be used. Ifwe must conceive of government on analogy with some job or func tion, we had best choose one that fits it. Analogous figures by which gov ernment may be personified are: soldier, policeman, jailer, judge, tax collector, law maker, foreign dip lomat, and executioner. Although opinions will differ as to which is the best for personifying government, my preference is jailer. Jailer cap tures the essence of government for me. He locks up, confines, obstructs, prohibits, restrains, and orders around those in his keeping. That is essentially what government can do by the use of force. His instruments are guns, blackjacks, handcuffs, straitjackets, cells, and bars. Com pulsion is his mode of operation.

The jailer is government in the final analysis; those who would know a particular government should learn of it first of all by visiting its jails and prisons, if they can do so. None of this' is said in derogation of government. Government is necessary because in every jurisdic tion there will either be a monopoly of the use of force or a contest over it. The contest over it is undesirable because the appeals to arms toward which it tends is civil war. More, government's task is an honorable one. It is to keep the peace. It does so by monopolizing the use of force, punishing violators, and settling dis putes. It is well that men should stand in awe of those who govern, that they should be fitted with such trappings of office as will command respect, and that contests with gov ernment authorities be verbal and carried on within a framework of ritual. But it will never do to forget that beneath the velvet glove of gov ernment is the mailed fist. That mailed fist cannot heal or mend; it can only be used to force people to some course of action against their will.

The Body Politic The other fallacy arises by con ceiving of the market or economy as analogous to the human body, to machines, to organizations, to phys ical objects, or to manmade devices. The market and economy do not belong to that order of being which breaks down, wears out, rusts, cor rodes, is diseased, decays, warps, 614 THE FREEMAN October gets stopped up, gets out of kilter, or what have you. They do not stand in need of medication, surgery, oiling, greasing, stimulating, dilating, al tering, adjusting, repairing, audit ing, or even the ministrations of efficiency experts. The market and economy belong to the natural order. They are analo gous to gravity, the speed of sound and light, buoyancy, action and reaction, and molecular structure. But they are different from these in one highly significant way. There is an order for things and an order for man. The law of gravity, for exam ple, is a part of the order for things.

The market and economy belong to the order for man. Man as a physical object is, of course, subject to the law of gravity, but he is not an active participant in it. By contrast, man is an acting participant in the market and economy by way of his reason, volition, morality, and the use of his faculties. Man cannot alter the na ture of the market and economy, but he can disrupt, distort, and obstruct their operation. He can use them or abuse them. They are a part of the moral framework within which he lives, and he may choose his course but not the consequences of it. That is the order for man. The essential feature of the mar ket is this. It consists of those ex changes which take place when will ing buyers and willing sellers meet. The essential feature of economy is this. It is what takes place when men in the pursuit of their own interests employ their resources so as to produce those goods that are most wanted with the least use of scarce land, labor, and capital.

Economy is the reasonable means available to man to deal with the condition of scarcity which he con fronts. The market is the social way for man to dispose of his surplus and acquire what he most wants from others. Voluntary Exchange Force is anathema to the market. There is no market without a will ing buyer and willing seller. The law of contract recognizes this character of exchanges. If either the buyer or seller uses force, i.e., vio lence, intimidation, or fraud, there is no agreement, and no valid ex change has taken place. One of the primary functions of government is to exclude force from the market and to provide recourse for those on whom it has been used. Force is either irrelevant to or disruptive of economy. Man is natu rally bent to pursue his own interest by using as little as possible of what he has to get the most of what he wants. If he cannot employ force in doing this, there is no alternative to economy. Government is as irrele vant to economy as it is to the work ing of the law of gravity. Water will run down hill whether there is posi1979 THE HIDDEN FALLACIES BEHIND INTERVENTION 615 tive law to that effect or not. So will men behave economically.

None of this is me.ant to imply that government cannot act upon the market or economy or that its acts will not have impact. Clearly, the opposite is the case. Government can act, and its actions will have consequences. There are three broad ways in which government can act on the market and economy. First, it can act in order to exclude force from the market and to settle disputes arising there. As already noted, this is a primary function of government and essential to the market. When government acts in this way it is acting profoundly in accord with its nature as a monopolist of force. The use of force by private parties is a challenge to government's monopoly. By settling disputes government is acting to maintain the peace. Government ac tion to provide access to markets is an extension of the above functions. Second, government can prohibit certain kinds or classes of ex changes. Examples with which Americans have been familiar from time to time and place to place would he prostitution, prohibition of the sale of alcoholic beverages, gambling, drugs, the showing of Sunday movies, and so on. If such prohibitions succeed, the effect would be that there would be no market for what is prohibited. That is rarely the result, however. Ifwhat is prohibited is wanted very strongly a market is developed and ex changes are made. It is not a free market, of course. It is sometimes called a black market, but it would be much more precise to call it a criminal market.

Legally, government cannot per form its normal function in this market. It cannot exclude the pri vate use of force. It cannot maintain the peace. It cannot settle disputes. At law, no market exists; in its stead, there is criminal activity. Two things are characteristic of this market. Prices are much higher than in a free market because the supply may have been artificially reduced by the prohibition and be cause the dangers (both from the pri vate use of force and from government punishment) must be compensated by the potentiality of high profits. The other is that force--crime-is rampant in this market: extortion, violence, bribery, and even gang warfare. When government pro hibits exchanges in goods that are in considerable demand it necessarily excludes itself from performing its primary functions in any market that may develop. The rule of crime replaces the rule of law in such markets.

Third, the government can act upon the market and economy by intervention. Government interven tion occurs when the government becomes an active participant in the 616 THE FREEMAN October market. There are thousands of ways to go about such intervention. The government may sell goods in competition with private sellers, be the only seller (have a monopoly), set minimum or maximum prices, establish quality controls, increase or diminish the money supply, levy taxes, limit access, empower certain groups, lay down rules as to when and where various types of ex changes may take place, give sub sidies or pay bounties for produc tion, penalize the buying of some goods, offer goods below the market price, require licenses, compel ser vice, regulate, restrict, inhibit, con trol, and attempt to manage the economy. Consequences of Intervention What happens when government intervenes in the economy? A great many things, obviously. Force is in truded into the activities. Govern ment becomes a participant, is an interested party, and is no longer qualified to perform its function of settling disputes. Quite often, it has great difficulty in maintaining the peace because it has become a party to disturbing the peace. All sorts of distortions, disruptions, and obstructions occur; generally, the more intensive and extensive the interventions the greater these are.

Government intervention is a kind of self-fulfilling prophecy. It is premised on the notion that the market and economy are out of kil ter and require the ministrations of a benevolent government. As soon as government begins to intervene, they do get out of kilter; it does introduce defects into whatever market or economy it intrudes. Each intervention sets the stage for an endless round of further interven tions in the futile effort to bring the whole back into balance. Mises gives us' an example of how this would work if government attempted to lower the price of milk for children. If the price is fixed below the market level, he says, there will be less milk available because many producers would lose money at that price. The government would then be faced with this alternative: either to refrain from any endeavours to control prices, or to add to its first mea sure a second one, Le., to fix the prices of the factors of production necessary for the production of milk. Then the same story repeats itself on a remoter plane: the government has again to fix the prices of the factors of production necessary for the production of those factors of produc tion which are needed for the production of milk. Thus the government has to go further and further, fixing the prices of all the factors of production-both hu man (labour) and material-and forc ing every entrepreneur and every worker to continue work at these prices and wages. 8 When looked at this way, we can see why what may be called the dependency syndrome arises from 1979 THE HIDDEN FALLACIES BEHIND INTERVENTION 617 government intervention. When government intervention has pro ceeded very far, everyone involved in the market and economy becomes dependent upon government inter vention on their behalf. If not, they will suffer from the imbalance thus produced. But since balance is never achieved, there must be continual adjustments.

It is as if one went to a physician seeking a cure and instead was given drugs which were habit form ing and the dosage had to be con tinually adjusted and increased. It is as if one took an automobile to a mechanic and instead of fixing it he added parts which had to be con tinually adjusted by an expert in order for the vehicle to run. It is as if I called a plumber and instead of removing the obstruction from the pipes he declared that the difficulty lay in the fact that my system de pended upon water running down hill. He might then introduce an extensive plumbing system to pump my waste upward out of the house. But that one would come into con flict with the direction of the fresh water supply, so that adjustment after adjustment would have to be made, all to no avail. These are, of course, but poor analogies. The market and economy are not like unto human bodies, au tomobiles, plumbing systems, or or ganizations. They are the natural order by which production and trade can lead to prosperity. They are peo ple producing and trading peace fully. Any attempt to alter it can only be done by attempting to change people. There is no body of evidence that shows this can be done to good effect where the natural order for man is involved.

Intervention, then, proceeds on the basis of two fallacies. One is a misconception of the nature of gov ernment. The other is a misconcep tion of the nature of the market and economy. No one is likely to make these errors when he keeps clearly "in mind that government can be personified as a jailer, that the mar ket consists of that order within which willing exchanges are made, and that economy is simply using as little of one's scarce materials to get the most of what is wanted. (j) -FOOTNOTES1Lawrence Abbott, Economics and the Mod ern World (New York: Harcourt, Brace & World, 1967, 2nd ed.), p. 395. 2/bid., p. 396. 3Ludwig von Mises, Socialism (London: Jonathan Cape, 1951, new edition), p. 530. 4Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p.200. 5Murray Rothbard, Man, Economy, and State (Los Angeles: Nash Publishing Co., 1970), p. 881. 6Robert L. Heilbroner, The Economic Prob lem (Englewood Cliffs, N.J.: Prentice-Hall, 1972, 3rd ed.), p. 722.

7Mises,op. cit., pp. 532-33. 8/bid., p. 533.

John Semmens MASS TRANSIT MESS By virtually any measure, public transit is clearly a declining indus try. In 1945 one third of the total urban passenger miles were ac counted for by public transit. By 1973 public transit's share was under three per cent. In terms of income on passenger trips, urban bus line revenues declined by 24 per cent in the 1960-70 period. Of the 33 largest Standard Metropolitan Statistical Areas, everyone of them showed a drop in the proportion of urban work trips made via public transit. At the end of World War II there were 33 billion urban transit trips taken per year. This had dwin dled to 5 billion such trips by 1972. Mr. Semmens is an economist for the Arizona De partment of Transportation and is stUdying for an advanced degree in business administration at Arizona State University. 618 All of this decline in public transit has been accomplished in the face of enormous economic growth in other sectors of the economy, a great in crease in travel in general, and in spite of massive doses of government financial aid. The message seems to be that, as has been practiced and is being practiced, public transit is not meeting consumer needs for trans portation. Yet, despite this message, more money, time and effort is con tinually being poured into staid and traditional transit systems in the pitiful hope that shiny new vehicles or more frequent empty route miles will turn the tide.

There are important economic reasons why traditional public transit has consistently failed in city after city. There is less of an expla nation as to how or why these MASS TRANSIT MESS 619 economic realities can have been ig nored in the making of public transit policy. Unnatural Monopoly The policy implications of the ~~natural monopoly" concept are that since it appears that the economics of the situation can only efficiently support one firm, then only one firm should be permitted to exist under law. In this way, territories are established within which only one firm will be legally allowed to operate. Thus, it is believed that public policy can enforce efficiency and hold down the final price to the consumer by excluding all but one firm. This policy has been applied to the provision of transit services. Throughout America, in city after city, single firms have been granted exclusive rights to specified ter ritories or routes, in implementation of the ~~natural monopoly" theory.

The only problem with the enforce ment of monopoly in transit is that it is completely inappropriate. The evolution of the motor vehicle and the development of an extensive road system must dispel any claim to Hnatural monopoly" status in transit. Whereas rail transit must rely upon a highly specialized road bed, which can be amortized only by a limited number of users, motor vehicle transit is entirely liberated from the fixed cost of roadways. Streets, which must be constructed anyway, as the sole means of access to most businesses and residences, serve as the nonspecialized fixed as sets of a broad spectrum of users. Consequently, the fixed costs of motor vehicle transit are very low. Despite the potential for a wide degree of flexibility in routing and scheduling based upon the extensive publicly financed road system, most motor vehicle transit is operated as if it were confined to rail beds. This practice appears to have survived as an imitation of fixed rail services.

The first public transit in many cities was performed by street cars. As technology produced alternative modes these were either outlawed (jitneys), severely restricted (taxis), or molded to mimic street cars (buses). Just as the street cars enjoyed monopoly franchises to specified roadbeds, the practice was con tinued even after buses largely supplanted this fixed rail system. Since the heavy fixed investment argument on behalf of transit monopolies became rather ludicrous with the change to publicly owned roadways, a new justification for monopoly had to be devised. Thus was invented the theory of the in herent superiority of the ~~comprehensive integrated system." True, there were no fixed costs in terms of roadbed, but there was a perceived need for uniformity of ser620 THE FREEMAN October vice, the need for ease of transfer between vehicles and routes, and the belief that only if given a captive ridership via the banning of all competition would a transit operator have the incentive to develop the market.

The error implicit in the monopoly policy toward transit has been effec tively demonstrated over time. Transit is not· best served by monopolistic franchises. The opera tional characteristics do not impel a market structure of monopoly. The attem pt to force such a structure has shaped the development of urban transportation for the worse. It is as if, King Canute style, public law has commanded the tide of transit technology to recede. The command has, predictably, failed. Instead of strengthening the public transpor tation system, enforced monopoly has played a significant role in de stroying the prospects for public transit. The insistence on monopoly when monopoly was not appropriate has resulted not in channeling rid ers toward the only legally permit ted service, but rather, has induced people to opt out of the system en tirely in favor of privately owned automobiles. Price Controls If price controls worked we could all live like kings. But, alas, they don't work. In fact, the enforcement of price controls has a much greater probability of enabling us all to live like beggars. Unfortunately, this sad fact has not proven much of a deterrent to the recurrence of such controls.

Early in this century it was per ceived that in order to maintain ureasonable" prices in public transit, the supply would have to be limited. In exchange for the elimination of competition, the favored transit operators were made subject to rate regulation by a state or local agency. This seemed a good deal for the protected firms, since the initial im pact was to outlaw price-cutting competitors. As the years passed, though, the price controls became more constraining. Today, the more typical situation in transit price control is one in which the decreed selling price is less than the real cost of providing service. Predictably, shortages developed as operators sought to shuck unprofitable routes or territories, cannibalized their op eration through neglect of mainte nance or nonreplacement of worn out equipment, and, in general, pro ceeded to go out of business. The fact that public transporta tion may be viewed by many people as a necessity, or even declared a necessity by prominent public fig ures, does nothing to reduce the real cost of providing that service. Re gardless of who may claim that pub lic transportation is too important to be left to the free market, the 1979 MASS TRANSIT MESS 621 amount of service that can and will be provided is still subject to the same economic incentives and disin centives as those enterprises blessed by the relative inattention of public policy makers.

The transformation of many urban transit systems into publicly owned and operated concerns has done nothing by way of controlling the cost of providing service. On the contrary, the transformation has more often ushered in higher costs and greater deficits. Real costs of providing service soar to new heights, but the fares charged can remain low as the required financial resources are extracted from the taxpayers. While this arrangement may temporarily hold down the prices charged to the transit rider, it also tends to create unrealistic at titudes that will carry substantial potential for bankrupting the whole system. Perverse Federal Intervention With public transit, many people hoped that the appearance on the scene of the federal government would' bring urgently needed medicine to the dying patient. In stead, the ministrations of federal nostrums have been akin to dosing the patient with poison while open ing up his veins to let the ((bad blood" out.

The ((Feds," it seems, possess a kind of magical power-call it an inverted Midas touch-that ends up destroying nearly everything it comes into contact with. They can't even give money away without at taching conditions that assure fail ure. The federal government's role in H assisting" public transit has been variously described as incon sistent and ill-conceived, self defeating, ineffective, a total failure. To be sure, these are only opinions of some of those who have critically examined the various federal aid programs. The record, however, does little to dispel these negative as sessments. The rationale for federal aid to public transit is that in some unde finable way the services to be pro vided are needed, but unprofitable for any private firm to supply. Two major themes in this line of argu ment are (1) that those persons needing the service the most are least able to pay for it and (2) that while the financial results of public transit may be portrayed in red ink, in terms of social benefit and total social costs, public transit is solidly in the black.

The standard rationalizations for the traditional approach to public transportation range from the cavalier disdain for the consumer preferences of those who ((need" the service to the incredibly dense no tion that there is no other way of doing things. One must suppose that it is only natural that an attitude of 622 THE FREEMAN October ((beggars can't be choosers" would tend to develop among those who take a paternalistic view of the gov ernment's role in transit. Transpor tation is not the only thing that the low income person may not be able to afford. The specific provision of transportation of a particular kind is the embodiment of the belief that in-kind benefits must be supplied by government experts because the re cipients are incapable of wisely choosing on their own. There is some logic to this position. After all, if low income individuals were as capable as the bureaucrats who determine what manner of in-kind services must be provided, there'd be no need for the whole government aid pro gram.

Marked to Fail Whatever the motivation behind the choice of what type of service will be provided, the fact remains that the government has been bolstering very traditional types of transit systems. Many times, the program of federal aid is kicked-off by the purchase of a bankrupt or failing transit operation. This pro cedure alone makes for an inau spicious beginning. If a private bus line with substantial incentives to operate efficiently goes bust, what can we expect from a government owned operation? At the outset, we are faced. with a suboptimal investment prospect. The calculus of consumer choice has already indicated the inappropriate nature of the service offered, other wise the firm would not be failing. Add to this the tendency for the government to pay outrageously high prices for the assets of the de funct private line, and the potential for reasonably cost-effective perfor mance is exposed as hopelessly wishful thinking. These salvagejobs on failing transit operations are ex pensive ways of perpetuating the types of services and practices that encourage patrons to abandon pub lic transportation.

That the intervention of govern ment has driven up the cost of pro viding Uessential" service can be il lustrated in two ways. Nationally, the financial burden of public transit on government resources has increased by 17,000 per cent since 1965. Proponents of the service supplied are wont to cite the ((turn around" in ridership under various municipally operated bus systems. However, each new rider is added at increasingly higher levels of margi nal cost. The expenses incurred in order to attract each new passenger exceed the revenues generated by that passenger. It is a real life re enactment of the old joke about the shopkeeper who lost money on every sale, but hoped to make it up on the volume. Even the sorry record portrayed above overstates the usuccess" of the 1979 MASS TRANSIT MESS 623 bus system. The officially admitted losses are based only on operating expenses. No provision is made for capital expenses-neither interest cost nor capital consumption allow ances are factored into the reported financial results. What this means, of course, is that the losses are grossly underreported. The capital equipment is accounted for as if it were a free good. Such a distortion results in misallocation of scarce re sources and real social losses to the general welfare. Local adminis trators of public transit operations are induced to follow this course by the generous federal subsidies to transit. The federal government will pay up to 50 per cent of operating costs, up to 80 per cent of capital costs, and in some special programs, will bear the entire cost of vehicle acquisition.

These ((good deals" are nearly im possible to refuse. Even a fairly sen sible local transit administrator will find it difficult not to join in the waste of funds, knowing, as he does, that any money not expended on his own local system will be .given to someone else. Under contemporary standards, the local public transit official who disdains to take his al lotted place at the trough would surely be accused of neglecting his responsibilities. The most humiliating feature of the federal intervention is the utter lack of success in achieving the professed major aims of the program. As a method of enhancing the mobil ity of the urban poor, federal aid has been ineffective and is unlikely to become effective in the foreseeable future. As a method of reducing traf fic congestion, federal aid has been a colossal flop. The massive outlays have not significantly altered urban travel patterns. Research has not been able to find a single example of a significant and permanent reduc tion in auto traffic resulting from the federal transit program. Of the new passengers attracted to the Dan Ryan Express in Chicago, for exam ple, fewer than 8 per cent of them were previously transported by automobile.

Negative Results The net effect of government in volvement in transit has been nega tive. The infusion of funds, far from improving service, has more often helped to undermine the prospects for a sound urban transit system. The widespread ((liberation" of transit networks from the milieu of ((greed," which has been held as a cause of the downfall of many pri vate transit firms, has not led to improved operating results. Reliev ing transit operations from the necessity to earn a profit has, as might have been expected, opened the floodgates of perpetual deficits. The absence of financial profit as a measure of the success of a transit 624 THE FREEMAN October service severs the operations from any objective criteria with which to evaluate performance. Mere measures of seat-miles supplied, or even of ridership itself, reveals noth ing of value if the costs to achieve these goals are ignored. How many seat-miles should be provided? What level of ridership is optimal? So far as can be ascertained, in the ab sence of a profit and loss gauge, not only do we lack any idea of the answers to these issues, but the fed eral transit program is carried out as if such issues didn't exist.

The most egregious error of gov ernment intervention in transit, though, has been the reluctance to consider liberation of the private sector. The unleashing of private enterprise transit would reduce the degree of control over the supply of this form of transportation that can be exercised by the public sector. But control is not a proper end in itself. It is only desirable if it can serve to improve the final product, which is the transportation itself. The historical experience of government-run or government controlled business is not one to in spire confidence in mandatory cen tralized planning for transit. There are substantial and con vincing reasons to expect that a lib eration of the private sector would significantly improve public transit. Natural market responses to transit needs would very likely be superior to even lavishly subsidized ((planned" transit in a number of respects.

First, private solutions to consumer demands are less costly than their government-sponsored counter parts. Second, private solutions to transportation needs would be more quickly implemented. In the marketplace, speed in bringing a product to market is a matter of utmost importance. In contrast, the lethargic responsiveness of state owned and operated enterprise is legendary. The very legitimate re quirements of due process and rep resentative government are hand icaps when it comes to meeting con sumer demands. Finally, private en terprise is more adaptive to chang ing conditions. In fact, private en terprise is one of the sources of changing conditions, as firms invent new ways of gaining advantage over rivals. The public sector is, by na ture, conservative. It has no man date to create new products and di luted incentives to adapt to chang ing conditions. Conclusion There is a strong temptation to find someone to blame for the de crepit condition enjoyed by the transit industry. Conspiracy theories are all the rage these days.

What's more, it would be comforting to think that a traditional lynching of the guilty would solve the perva sive problems of the industry. Unfor1979 MASS TRANSIT MESS 625 tunately, the situation is not condu cive to such conveniently simplistic solutions. The poor service and high cost of public transit is a consequence of bad institutions. This is not to deny that corrupt government officials, and the like, may play significant contributory roles in the debacle that is mass transit. What is to be emphasized is that even were all the ne'er-do-well villains to be replaced by honest regulators, competent managers, and efficacious govern ment officials, fhe results would be only marginally better. We need to change the public in stitutions that impinge on the Transit industry. Transportation in this country can do very well withIN the clutter and bustle of our daily lives, how often we overlook or ig nore the underlying reality of cur rent situations! In the sphere of economic policy, it may be helpful, then, to recall a famous old tale, the fable ofttTom the Table Maker."

out price controls, barriers to entry, federal subsidies, and the like. The public sector has enjoyed its greatest successes in establishing conditions of civilized conduct that have freed men to create material abundance. In so far as the public sector must become involved in transit, its most productive line of pursuit would appear to lie in the creation of conditions conducive to the private solution of transit needs. The comprehensive, multimodal, in tegrated planning will take care of itself. The same market forces which turn raw land and seed into the bread in our noontime repast are eminently qualified to make public transportation once more a viable commodity. , Russell Shanon Table Fable Once upon a time, so the story goes, in a cozy little bungalow on the edge of the Forest there lived a table maker named Tom Smith, his wife Eve, and their three happy children. Their Iives were good, fulfilling ones, for while Eve tended the house 626 THE FREEMAN October and cared for the children, Tom worked in his shop making tables.

And what handsome, useful tables Tom's were! Tom carefully crafted them so they were sturdy and strong and then stained them with a deep, dark walnut finish whose glow re flected the young workman's pride. Tom's tables were popular in the Neighborhood. People came from miles around to buy them and often returned for more, because the ta bles were useful in many ways and also made fine presents. People who received them as gifts were always glad to get something both practical and attractive. Then on~ day, so the fable goes, something sad occurred. People stopped buying Tom's tables. They did drop in to Tom's shop from time to time for a friendly chat, but when they left, they were usually empty handed. Now Tom Smith was the jovial, optimistic sort. He enjoyed making his tables so much that he just kept at it. But gradually he began to realize that<he was approaching the very brink of disaster. Unless he could sell his work, Eve would be unable to put food on their table. His optimism gave way to despair. ((Alas and alack!" Tom thought. ((What am I to do?"

One evening after giving all the children a kiss and bundling them off to bed, Eve sat down at the fire place next to Tom. uI know you're worried," she said. ((What's wrong?" ((No one wants my tables any more," Tom replied sadly. Eve put her hand gently on his arm. ((I know," she said; ((I heard people talking in the Market today. Someone named Mot on the other side of the Forest is selling tables now. I hear they aren't as sturdy and beautiful as yours, but Mot sells them a lot cheaper and so our Neighbors are 'buying them." ((Whatever will I do?" Tom asked in dismay. ((I just can't bear to com promise the quality of my tables." He sat rapt in thought for several minutes. Then his eyes lit up and he said to Eve, ((Perhaps I should go to our Government in Dryington up on the Potogold River. The people there have power to stop the sale of tables from the other side of the Forest." ((True, you could do that," Eve replied, ((but it would put Mot out of a job. I hear he's got a wife and children to feed, too. Besides that, our Neighbors seem happy to buy his tables, since now they have more money left over to buy other things." ((Yes," Tom agreed, ((you're right. But my tables are so hand some and so durable, it seems awful not to produce them. Maybe I could get our Government to buy some.

They could be put in a museum somewhere for people to admire, and they sure would come in handy if Mot ever quit producing tables." ((But where will our Government 1979 TABLE FABLE 627 get money to buy your tables?" Eve asked. uyou know, the Potogold is really only water. Our Government will have to raise taxes to get the funds, and then our Neighbors won't be able to buy as many other things." ~~Once again, you're right, Eve," Tom admitted. ~~But now I have re ally exhausted all my resources. Our children will starve. We won't be able to meet the mortgage payments on our cozy little bungalow." ~~you're really not thinking about what your true resources are," Eve said, patting Tom on the shoulder. ~~Think about our farmers. If people stop buying the wheat they grow, what will they do? They'll grow corn, or oats, or tomatoes, or barley, or something else instead, People who weave cloth and make clothes can make something else people want, like buckets or bricks. Do as they do. Make chairs and benches instead."

UIt will take time," Tom said, ~~to master the art of making chairs and benches. We'll still have to tighten our belts." cCWe can stand that for a while," Eve said cheerfully, for both she and Tom were actually just a bit stout anyway. ~~In the end, you'll be mak ing something people in the Neighborhood really want. That way, we'll all be better off." And Eve was right. Of course, the Smiths did have to live on a leaner diet for a while, and once they al most missed the mortgage payment. Eventually, though, Tom was turn jlng out such finely crafted chairs and benches of such admirable de sign that he could barely keep up with the orders. The Neighbors were proud of the wares they took home to their families and friends. In fact, even Mot bought some with his newly acquired Neighborhood lmoney. And once again the Smiths had plenty to eat and mortgage money to boot. One evening, while Tom was re laxing by the crackling fire, his wife sat down next to him. She was quiet at first, but after a few moments, she became philosophical. ~~It seems to :many who've inquired into the sub ject," she said, ~~that Government subsidies and trade restrictions al most always end up doing more harm than good."

She went on: ~~Many people don't seem to realize it, but it's really through individual initiative, open competition, and free markets that yve are most apt to achieve the greatest wealth for Neighbors-or even Nations." And saying that, Eve Smith beamed proudly at her hus band, who responded with a know ing nod. @ Russell Shannon Is a professor, Department of Economics, College of Industrial Management and Textile SCience, Clemson University. This article first appeared as part of a weekly series In Greenville News, Greenville, South Carolina.

Robert G. Bearce In Defense of FreedomFrederic Bastiat 628 JUNE 1848 found Paris in turmoil as revolutionary mobs marched through the streets chanting an ominous: ((We won't be sent away! ... We won't be sent away! ..." The French National Assembly had just abolished the National Workshops -the socialistic plan to ((guaran tee work for every citizen." The workshops had proven to be a social, political, and economic failure-just one of many idealistic schemes advocated by socialist dem agogues. Now, armed members of the disbanded National Workshops were building barricades and pre paring to fight for their lost ((rights." The June Revolution of 1848 was thwarted, but a year later France still faced the threat of socialism. The National Assembly echoed with impassioned speeches for the salva tion of the French people. One of the Deputies to the Assembly who con sistently and intelligently opposed the demagoguery of the social theoreticians was Frederic Bastiat-a modest, quiet-spoken Frenchman who was courageous in his defense of individual liberty.

Leaving the quiet life of a country gentleman for the feverish life of a legislator, Bastiat took with him an indomitable belief that individuals would work harmoniously together for the benefit of all so long as gov ernment intervention did not deMr. Bearce is a freelance writer In Houston, Texas.

IN DEFENSE OF FREEDOM -FREDERIC BASTIAT 629 stroy free choice and voluntary ex change. With great clarity of thought, he defined the rightful purpose of government authority (the law): ((What, then, is law? It is the col lective organization of the individ ual right to lawful defense. ((Each of us has a natural right from God-to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of anyone of them is completely dependent upon the preservation of the other two. For what are our faculties but the extension of our individuality? And what is property but an extension of our faculties? ((If every person has the right to defend-even by force-his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of col lective right-its reason for exist ing, its lawfulness-is based on in dividual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the com mon force-for the same reason cannot lawfully be used to destroy the person, liberty, or property of individuals or groups."

Bastiat continually emphasized the proper relationship between in dividual rights and government au thority: ((Individuals cannot possess any right collectively that does not pre exist in every person as an individ ual. If, then, the use of force by an individual is justified only in self defense, the fact that government action is always based on the use of force should lead us to conclude that the proper functions of government are necessarily limited to the pre servation of order, security, andjus tice. All actions of government be yond this limit are by usurpation." Government Usurpation Bastiat comprehended why gov ernments were allowed to usurp their powers. He was well-read in politics, history, philosophy, and religion subjects which gave him profound insight into human nature. Human nature was the root of government usurpation. He saw how individuals have a tendency to reject Personal responsibility and to look elsewhere for the necessities of life: ((Man recoils from effort, from suf fering. Yet, he is condemned by na ture to the suffering of privation if he does not make the effort to work.

He has only a choice then, between these two: privation, and work. How can he manage to avoid both? He 630 THE FREEMAN October always has and always will find, only one means: to enjoy the labor of others: to arrange it so that the effort and the satisfaction do not fall upon each in their natural propor tion, but that some would bear all the effort while all the satisfaction would go to others ..." As Bastiat continues, he speaks to current attitudes in America: HToday, as in the past, nearly everyone would like to profit by the labor of others. No one dares admit such a feeling; he even hides it from himself. So what does he do? He imagines an intermediary; he appeals to The State, and every class in its turn comes and says to it: (You who can do so justifiably and honestly, take from the public; and we will partake of the proceeds.' " In other words: ((The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else."

When individuals refuse to accept accountability and responsibility for their own welfare, they allow the State (the government) to corrupt the real purpose of the law: ((Under the pretense of organiza tion, regulation, protection, or en couragement, the law takes prop erty from one person and gives it to another; the law takes the wealth of all and gives it to a few-whether farmers, manufacturers, ship owners, artists, or comedians. Under these circumstances, then certainly every class will aspire to grasp the law, and logically so." Human Nature While we suffer the consequences of government regulation and inter ference in our daily lives, Bastiat would ask us again to grasp the reality of human nature: ((Thus do all of us, by various claims and under one pretext or another, appeal to The State: (I am dissatisfied with the ratio between my labor and my pleasures. In order to establish the desired balance, I should like to take part of the pos sessions of others. But that is a dan gerous thing. Couldn't you facilitate it for me? Couldn't you give me a good post? Or restrain my competi tors' business? Or perhaps lend me some interest-free capital, which you will have taken from its rightful owners? Or bring up my children at the taxpayers' expense? Or grant me a subsidy? Or assure me a pension when I reach my fiftieth year? By this means I shall achieve my goal with an easy conscience, for the law will have acted for me. Thus I shall have all the advantages of plunder, without the risk or the disgrace!' ((All of us are petitioning The State in this manner, yet it has been proven that The State has no means of granting privileges to some with out adding to the labor of others."

The process of ((plunder" by the State is easily seen in current 1979 IN DEFENSE OF FREEDOM -FREDERIC BASTIAT 631 events. Bastiat asks us a question and provides us with a clear, precise anSwer: ((But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself can not do without committing a crime." And, we are advised that ((legal plunder can be committed in an in finite number of ways. Thus we have an infinite number of plans for or ganizing it: tariffs, protection, bene fits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole-with their common aim of legal plunder-constitute socialism."

While Bastiat was a Deputy in the National Assembly, he spoke force fully against socialism and com munism. Weakened by tuberculosis, he had to use his pen rather than his voice to carryon the fight for free dom. Using a style that was direct, vivid, and entertaining, he advo cated sound monetary policies, lim ited government, a balanced budget, individual freedom, and free trade. Throughout his comprehensive writings, he returned to the theme of law and liberty. ((It is not true," he said, ((that the function of law is to regulate our consciences, our ideas, our wills, our education, our opin ions, our work, our trade, our tal: ents, or our pleasures. The function of law is to protect the free exercise of these rights, and to prevent any person from interfering with the free exercise of these same rights by any other person." Individual Choice As to the matter of individual lib erty, Bastiat believed that individ uals had both the ability and re sponsibility to plan their own lives as they best saw fit . . . without government interference. He be lieved individuals were capable of making sound judgments and acting upon those judgments. At a time when the economy and consumerism occupy so much of our news com mentary, Bastiat's view on individ ual choice, the free market, personal judgment, and the ((public interest"

should be well received. ((It is necessary to treat economics from the viewpoint of the consumer. All economic phenomena, whether their effects be good or bad, must be judged by the advantages and dis advantages they bring to consum ers." Bastiat always had individuals (consumers) in mind when he wrote about monetary policy, banking, transportation, exports and imports, 632 THE FREEMAN October profits, labor, and wages. Whenever he approached these matters, he up held individual liberty and opposed oppressive government interference. Above all, he kept one basic truth before him: ~~In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series. of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

~~There is only one difference be tween a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. HYet this difference is tremen dous; for it almost always happens that when the immediate conse quence is favorable, the later conse quences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small pres ent good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil." Bastiat's insight into what is seen and not seen contrasts sharply with much of the stodgy, ponderous writ ing on economics of his day. He had the ability to present serious economic principles in a way that was easily read and understood by the average citizen. Although he possessed a keen intellect and sense of concentration, he expressed him self in simple, frank language. Of ten, he combined his vigorous logic with humor, satire, irony, and wit.

Although he was an optimistic de fender of liberty, he was fully aware of where his native France was heading-just as he knew where any nation was headed when politicians were allowed to create a centralized, all-powerful government to achieve social objectives. Witnessing the political demagoguery in the Na tional Assembly, he was prompted to write: uThis must be said: There are too many ~great' men in the world legislators, organizers, do-gooders, leaders of the people, fathers of na tions, and so on, and so on. Too many persons place themselves above mankind; they make a career of or ganizing it, patronizing it, and rul ing it." Ideological Warfare Today, we have the same breed of legislators and leaders-individuals who are the cause of the political struggle that confronts all free peo ple. Bastiat focuses our attention upon this ideological warfare, urg ing us to place liberty in perspective: ~~Actually, what is the political struggle that we witness? It is the 1979 IN DEFENSE OF FREEDOM -FREDERIC BASTIAT 633 instincti ve struggle of all people to ward liberty. And what is this lib erty, whose very name makes the heart beat faster and shakes the world? Is it not the union of all liberties-liberty of conscience, of education, of association, of the press, of travel, of labor, of trade? In short, is not liberty the freedom of every person to make full use of his faculties, 'so long as he does not harm other persons while doing so?

Is not liberty the destruction of all despotism-including, of course, legal despotism? Finally, is not lib erty the restricting ofthe law only to its rational sphere of organizing the right of the individual to lawful self-defense; of punishing injustice?" Yes, that is the true meaning of liberty, but now we are experiencing the perversion of the law-law which is supposed to defend individ ual freedom, not destroy it. Government-the law-has as sumed an illusionary omnipotence, omnipresence, and omniscience in socio-economic matters. ~~How," asks Bastiat, ~~did politicians ever come to believe this weird idea that the law could be made to produce what it does not contain the wealth, science, and religion that, in a positive sense, constitute prosperity? Is it due to the influence of our modern writers on public af fairs? ~~Present-day writers-especially those of the socialist school of thought-base their various theories upon one common hypothesis: They divide mankind into two parts. People in general with the exception of the writer himself-form the first group. The writer, all alone, forms the second and most important group. Surely this is the weirdest and most con ceited notion that ever entered a human brain!

~~In fact, these writers on public affairs begin by supposing that peo ple have within themselves no means of discernment; no motiva tion to action. The writers assume that people are inert matter, passive 634 THE FREEMAN October particles, motionless atoms, at best a kind of vegetation indifferent to its own manner of existence. They as sume that people are susceptible to being shaped-by the will and hand of another person-into an infinite variety of forms, more or less sym metrical, artistic, and perfected. ((Moreover, not one of these writ ers on governmental affairs, hesi tates to imagine that he himself under the title of organizer, discov erer, legislator, or founder-is this will and hand, this universal motivating force, this creative power whose sublime mission is to mold these scattered materials persons-ipto a society." The Law Perverted Bastiat understood the motivation and mentality of social architects who corrupt the law. Although he did not question the good intentions held by many legislators, he stressed what happens to individ uals when the law is perverted: ((It substitutes the will of the legislator for th~ir own wills; the initiative of the legislator for their own initiatives. When this happens, the people no longer need to discuss, to compare, to plan ahead; the law does all this for them. Intelligence becomes a useless prop for the peo ple; they cease to be men; they lose their personality, their liberty, their property."

Human degradation and misery will be the tragic result when self appointed caretakers of society begin to regulate ... inspect ... tax ... coerce bridle ... control ... organize . ((The claims of these organizers of humanity," said Bastiat, ((raise another question which I have often asked them and which, so far as I know, they have never answered: If the natural tendencies of mankind are so bad that it is not safe to permit people to be free, how is it that the tendencies of these organiz ers are always good? Do not the legislators and their appointed agents also belong to the human race? Or do they believe that they themselves are made of a finer clay than the rest of mankind?" We should be asking these same questions of our own politicians, government officials, members of the media, and educators-whoever would use government to further their particular beliefs for organiz ing our health, education, and daily welfare. To the extent that we de pend upon government to direct our lives, we will see the deterioration of freedom.

((Away, then," says Bastiat, ((with quacks and organizers! Away with their rings, chains, hooks, and pin cers! Away with their artificial sys tems! Away with the whims of gov ernmental administrators, their socialized projects, their centraliza tion, their tariffs, their government 1979 IN DEFENSE OF FREEDOM-FREDERIC BASTIAT 635 THE LAW is the organization of the natural right of lawful defense. It is the substitution of a common force for individual forces. And this common force is to do only what the individual forces have a natural and lawful right to do: to protect persons, liberties, and properties; to maintain the right of each, and to cause justice to reign over us all. schools, their state religions, their free credit, their bank monopolies, their regulations, their· restrictions, their equalization by taxation, and their pious moralizations!" A Continuing Problem Bastiat's exhortation comes at a time when freedom is on the de fense. Government continues to ex pand and become more oppressive.

Legislative and Administrative commissions, boards, committees, departments, and agencies abuse their power-drawing us further into socialism~ In 1848, Bastiat had no illusions about the socialistic road France was taking. Although many of the politicians of his day honestly de nied they were socialists, their be liefs and actions were, nevertheless, undermining freedom. Ideological and political labels aside, many of our own public officials and ~~opinion molders" are working against free dom, not realizing that their actions are basically socialistic. We need to stand firm for freedom as Bastiat did--exposing socialism and making certain that our individual lives are guided by personal responsibility, accountability, voluntary coopera tion, and individual initiative. As we accept the responsibilities of freedom, we can share Bastiat's hope for the present and future: uAnd now that the legislators and do-gooders have so futilely inflicted so many systems upon society, may they finally end where they should have begun: May they reject all sys tems, and try liberty; for liberty is an acknowledgment of faith in God and His works." ® Editor's Note: Unfortunately for all of us, Bastiat died of tuberculosis at the height of his battle for freedom in 1850.

Those who would carryon the task might well begin with The Law by Bastiat ($1.00) and Frederic Bastiat: A Man Alone, a biography of the man and his times by George C. Roche III ($3.00). These, as well as other books by and about Bastiat, are available from The Foundation for Eco nomic Education, Irving ton-on-Hudson, N.Y. 10533.

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN FortyCenturiesof WageandPrice Controls PRESUMABLY the ability to add, sub tract, multiply and divide is one of those things that distinguishes men and women from the beasts. If this were universally the case even a fourth-grader should be able to un derstand that when the money sup ply is increased over and above the availability of goods, prices will rise. Two times one is always more than one times one. There is no mystery about inflation. The only mystery is that of human stupidity. There are always people who think that wage and price controls can be imposed by force, and there are always poli ticians to cater to them. The result, in history, has always been the same: a period of repressed infla tion, followed by the breakdown of law and order and the disappear ance of goods from the open market as the black marketeer takes over. References have often been made 636 to what happened to the Roman Empire when Diocletian, some time after his ascension to the throne in 284 A.D., tried to fix wages and prices in relation to an overvalued copper denarius. Strangely enough, however, there has been no avail able history of wage and price con trols in any single volume. This de ficiency impressed Robert L. Schuet tinger and Eamonn F. Butler when, after the failure in 1974 of President Richard Nixon's experiment in con trols, they began looking into the subject.

The result has been a fruitful col laboration between Schuettinger, an American historian, and Butler, a British economic analyst, with re search help from Andrew Chalk, a Walker Fellow in Economics at the Heritage Foundation in Washing ton, D.C. The volume they have pro duced is called Forty Centuries of FORTY CENTURIES OF WAGE AND PRICE CONTROLS 637 Wage and Price Controls: How NOT to Fight Inflation, which comes with a discerning foreword by David I. Meiselman, who notes, somewhat despairingly, that the public opin ion polls still show that a majority of U.S. citizens prefer mandatory controls to ~~guidelines." The book is published by the Heritage Founda tion and distributed by Caroline House, Inc. (P.O. Box 161, Thorn wood, N.Y. 10594, 186 pp., $9.95 cloth; $4.95 paperback). The History of Controls Mr. Sch uettinger has been primarily responsible for the first half of the book, which accounts for thirty-nine out of the forty centuries of monkeying with natural market prices for goods, services and capital investment. It is a lamentable story that Schuettinger tells in rigorously condensed narrative. The Egyptians tried Hplanning" in their fifth dy nasty (2830 B.C., or earlier), with an attempt to control the grain crop.

Regulation of grain prices led to direction of planting and, eventu ally, to outright seizure of the fertile Nile acres by the monarch. With his Hbronze law," the monarch set con trol of wages that showed an early addiction to belief in the ~~iron law" that supposes that wages cannot be allowed to rise above the bare neces sities for keeping workers alive. There was no Francis Amasa Walker or John Stuart Mill-or Henry Ford-to tell the Egyptians that wages can be upwardly ad justed to productivity (it is what a worker can turn out in a given hour that counts), so it is hardly surpris ing that the Egyptian economy should have collapsed along with the political stability of the State. It was the same story in the lands watered by the Tigris and the Eu phrates. Sumeria had its period of respite under King Urakagina of Lagash, a precursor of Ludwig Erhard (see Antony Fisher's Must History Repeat Itself?). Urakagina began his rule in 2350 B.C. by abolishing controls on wages and prices, and gave us a word for ~~free dom" for the first time in recorded history. (The word was ~~amargi,"

which means literally a ((return to the mother.") But when Hammurabi promulgated his famous code in Babylon, it was filled with explicit economic directions. A field worker was to get eight ~~gur" of corn per annum; a herdsman was to get six. An experienced ass hired out for threshing should command ten ~~ga" of corn, but if the animal was young -a bestial apprentice-its hire should be one ~~ga." The pay for a potter was fixed at five grains of sil ver. And so it went. The historical records of ~~strong" government in Babylon show a decline in trade in the reign of Hammurabi and his successors, with the number of ad ministrative documents-what we 638 THE FREEMAN October today would call bureaucratic paper work-increasing at a precipitous rate. Lessons from China, Greece, and Rome In ancient China, the attempt to get around the law of supply and demand fared no better. Mr. Schuet tinger tells us about two perceptive Chinese economists who anticipated the formulation of Gresham's Law.

~~As soon as paper is employed," so Yeh Shih wrote in the twelfth or thirteenth century A.D., ~~money be comes still less." (Meaning, of course, hard money.) And Yuan Hsieh noted that ~~because the paper money was too much, the price of commodities was dear." The Greeks found it impossible to enforce laws set to control the grain trade, but the Romans didn't learn anything from the Greek failure. Diocletian, when he took over, found himself victimized by the devalua tions and the debasements of the coinage that had taken place under Claudius Victorinus. The trade of the Empire had been reduced to bar ter, the middle class was practically obliterated, and the proletariat was sinking into serfdom. Diocletian tried to ~~reform" it all by putting a stop to the production of debased gold and silver coins. But his new denarius, which was frankly of cop per, was overvalued. To continue his ~~reform," Diocletian tried fixing the prices of goods and services while simultaneously suspending the freedom of people to decide what the copper denarius was really worth.

The penalty for evading the famous Diocletian Edict of 301 A.D. was death. But killing traders did not bring goods to market. Diocletian was forced to abdicate, and when the barbarians took over it was often with relief to both the poor and the rich. Coming on down to relatively modern times, Schuettinger has only a repetitive tale to tell. Wash ington's army at Valley Forge al most starved to death during the pe riod in which the Continental Con gress was trying to fix commodity prices. The Law of the Maximum worked only havoc in French Revo lutionary times. When, at the end, they were carrying Robespierre through the streets of Paris to his execution, the mob jeered ~~There goes the dirty Maximum." The Southern Confederacy tried to fix prices, but without effect until, in 1864, a currency reform reduced the money in the South by one third. It was then too late, for the Northern forces had already reduced the size of the Confederacy to rump propor tions.

The research done on the German inflation by Andrew Chalk, with its quotations from Thomas Mann and Walter Eucken, is as shrewd as has ever been done. As Mann has writ1979 FORTY CENTURIES OF WAGlH: AND PRICE CONTROLS 639 ten, ((A straight line runs from the madness of the German Inflation to the madness of the Third Reich .... It was during the inflation that the Germans forgot how to rely on themselves as individuals and learned to expect everything from (politics,' from the (state,' from (des tiny.' . . . The millions who were robbed of their wages and savings became the (masses' with whom Dr. Goebbels was to operate .... Having been robbed, the Germans became a nation of robbers." The analytical chapters, largely the work of Eamonn Butler, make it undubitably plain that it is ((the Federal Reserve rather than the cof fee in Brazil, the freeze in Florida or even the Arab oil cartel which is the principal factor in the U.S. inflation story." But will the politicos take note? They seldom have. @ INVENTORY OF THE PRIVATE PAPERS OF LUDWIG VON MISES Catalogued by L. John Van Til (Public Relations Office, Grove City Col lege, Grove City, Pennsylvania 16127) 1979 79 pages. $1.50 8112" x 11" paperback.

Reviewed by Bettina Bien Greaves ANYONE seriously interested in the work and writings of the late Profes sor Ludwig von Mises will be glad to know that his papers have been pre served and are now available for research at Grove City College, G-rove City, Pennsylvania. When the Professor died in 1973, at the age of92, his widow wanted to make sure that future generations of students would have access to the books and papers he had used when working on his own books and arti des. His library of books was sold to liillsdale College (Hillsdale, Michi ~~an), but Mrs. Mises chose to retain his pamphlets, correspondence and other papers to dispose of sepa rately. She spent a great deal of time and effort after his death sorting them out and arranging them to be easily viewed and analyzed. When this task was completed, she offered them to several large university lib raries without finding a taker. Then Grove City College, a small liberal arts college in western Pennsylva nia, made an offer she accepted.

A large part of the library Mises had assembled in Vienna, prior to his move to Switzerland in 1934, was destroyed when the Nazis marched into Austria in 1938. For tunately, he had taken with him quite a few of his more important books and pamphlets. Thus, many pamphlets dating from his Vienna days were saved and are included here among these papers. He had very carefully filed them all by sub ject matter in suitably labeled pam phlet boxes and big brown en velopes. He kept the correspondence about his books in large cardboard 640 THE FREEMAN cartons. The letters from personal friends, students and admirers, sometimes with carbon copies of his usually very brief replies, were filed in cabinets and desk drawers. This is the material that Mrs. Mises sorted through and that Grove City College's Professor L. John Van Til has now painstakingly gone over. This inventory consists of two long lists-one of pamphlets, re prints and book reviews arranged by language, and the other of corre spondence. Items on both lists are arranged alphabetically by author and keyed by number to their loca tion on the college library's shelves.

Professor Van Til's most exciting findings, mentioned only in his Preface, are ((thousands of pages of un published manuscripts." We pre sume these are in Mises' own precise handwri ting and are still to be gone over carefully before any decision may be made as to their disposition. This inventory is preceded by a short biography of Mises, setting forth some of his more significant contributions and experiences. Stu dents across the nation and the years interested in exploring Lud wig von Mises, the man, his ideas and his relationships with friends, students, admirers of his work and casual acquaintances, will be grate ful to Mrs. Mises, Grove City Col lege and Professor Van Til for mak ing these materials available. , HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533 the Freeman VOL. 29, NO. 11 • NOVEMBER 1979 There Is No Escape Hans F. Sennholz 643 The transfer society is deadly; the only antidote is a firm stand for freedom and morality.

The Fall of Rome and Modern Parallels Lawrence W. Reed 647 Our problems stem from destructive ideas; to reverse our course requires better ideas. The Assault on Capital Robert G. Anderson 653 Peace and prosperity are threatened by the political processes of inflation, taxation, transfer policies, and direct controls. The Illusion Behind Government Aid P. Dean Russell 662 Trying to live at the expense of others wrecks the productive market economy. The Case for the Minimal State Henry Hazlitt 665 Natural law versus the doctrine of utility as the foundation of morality and of limited government. Welfarism Anna Dillenberg 675 Government redistribution programs tend to aggravate the poverty they purport to cure. Marx and the Manifesto William L. Baker 678 A scholarly inspection of the shaky platform of Marxist economic theory. The Problems with Public Welfare Kenneth L. Gentry, Jr. 697 Why voluntary charity is better than coercive redistribution schemes.

Book Reviews: 701 "Edmund Burke and His World" by Alice P. Miller Anyone wishing to communicate with authors may send first-class mail in care of THE FREEMAN for forwarding.

FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Roger Ream Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list. Donations are invited in any amount. THE FREEMAN is available to any interested person ,in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year. Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A.

Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "The Case for the Minimal State."

Hans F. Sennholz There Is No Escape THE Carter energy plan contains a familiar ingredient: it takes money from the working taxpayers to give to the nonworking population. It proposes a windfall profits tax on oil .producers and a fuel subsidy to poor consumers. When enacted, it may introduce Hfuel stamps" just like ((food stamps," to enhance the lives of some 25 million people who are believed to be poor. Transfer programs now comprise the lion's share of the federal budget. During the past decade transfer payments grew by almost 300 per cent, while wages and salaries rose by 134 per cent. In ~970 these transfer payments Dr. Sennholz heads the Department of Economics at Grove City College In Pennsylvania and Is a noted writer and lecturer on monetary and economic af fairs. His latest book, Age of Inflation, describes our dilemma and offers recommendations for restoring a sound monetary system.

amounted to $57 billion; in the fed eral budget for 1980 they are esti mated to exceed $226 billion. How much longer can the transfers grow at twice the rate ofthe earnings that are supporting them? Surely, the political transfer pro cess cannot continue to grow indefi nitely. There are limits of economic output as well as political power to seize an ever-larger share of income from the producers. But above all, the very nature of the transfer soci ety, which is social and economic conflict, sets limits to the transfer process. It is a strange twist of contempo rary morality that political conduct is judged by far lower standards than are the acts of individuals. Men who would not think of stealing or pillaging the property of others who would rather suffer deprivation 643 644 THE FREEMAN November than to enrich themselves by such methods-believe that politics jus tifies all means. They engage in con fiscatory taxation, devious inflation, and restrictive regulations in order to facilitate the transfer of income and wealth. Their political leaders, anxious to be the favorites of the transfer multitudes, yield to their prejudices, desire what they desire, and furnish the sophistry that will propagate and defend those desires.

Social Conflict The transfer society is a conflict society in which the beneficiaries of transfer are ever eager for rapid progress while the victims bitterly oppose every step of the way. The transfer battle is fought in all media of communication and education and on the floors of the legislature, where, in a democratic manner, the majority of representatives decide the issue. But all decisions are just temporary as the political battle continues. In every session of the legislatures, whether they are na tional, state, or local, the transfer process needs to be fed by new ap propriations and allocations, and new victims need to be found in order to bestow new benefits. A great deal has been said and written about the psychological, so cial and economic consequences of the transfer. Most political discus sions today hinge on this issue. The beneficiaries and their friends applaud the effects and laud the policies that facilitate the distribu tion. The victims, on the other hand, point at many deleterious effects not only upon themselves but also upon the beneficiaries. Both sides advance arguments of ethics, politics, eco nomics, psychology, history, and many others, in order to sustain their position. Both talk about lib ertyand justice for all.

The Rush to the Exits Whatever we may say about the consequences, there cannot be any doubt that the victims of the trans fer system react by seeking to es cape. They become refugees in their own country, dismayed and frightened, always on the run from agents of the transfer society. They spend countless hours searching for avenues of escape that promise re lief and salvation. Many spend their time and effort pursuing the legal loopholes, no matter how narrow and awkward they may be. Others seek their escape on illegal bypaths that are mined by fines and impris onment. A few get caught in an intricate net of rules and prohibi tions which government is spinning continually around its intended vic tims. The direction of escape is deter mined by the policy of expropriation conducted by the transfer govern ment. It may seize income and wealth through confiscatory taxa1979 THERE IS NO ESCAPE 645 tion, devious inflation, andrestric tive rules and regulations. The vic tims seeking refuge from them all, rearrange their efforts to reduce their burdens. They seek to realize income that is tax exempt, or utilize additional tax exemptions, deduc tions and tax credits, shift incomes to various types taxed at lower rates, or simply postpone the tax for various periods of time. They shun savings and investments that are depreciated by inflation and seek refuge in investments that are said to be inflation proof. They buy real estate, precious metals or other tan gible assets that hopefully ap preciate in value. And finally, the businessman who faces regulatory inequity searches for loopholes or, if none can be found, may discontinue his production or otherwise readjust it in order to minimize the regula tory results.

Many refugees from the transfer system pride themselves on their prowess in all matters of escape. They attend Hsurvival seminars," subscribe to advisory services specializing in survival behavior and investments, and otherwise prepare for the breakdown of the transfer order. Some escape artists may even amass sizable fortunes on their way to the social exits. But they are neither prudent nor bold, and surely no heroes in any •sense of the word. They are running from the battlefield of ideas on which our future is decided. They are desert ing, although the battle is still rag ing and there is no safe hiding place anywhere. Getting Your Share Many victims also try to get even by joining the class of beneficiaries. While chafing under the heavy load of progressive taxation and rampant inflation, they are getting in line for any and all favors the· transfer gov ernment may extend. The busi nessman who is suffering from con fiscatory taxation and restrictive regulation lobbies for government orders and contracts, for urban re newal or other HUD-subsidized housing projects. The doctor who pays maximum income-tax rates and loses his Keogh-plan savings to inflation clamors for a federal grant to his favorite hospital or for higher federal outlays for health profes sions training. The. attorney or ac countant, the professor, minister or rabbi, in fact, all primary victims of taxation and inflation send their children to public schools or state universities where government pays the lion's share of the educational expenses. And upon retirement, they all are looking forward to the generous benefits of Social Security.

After all, they contributed so long to the transfer system, why should they not avail themselves of every thing to which they are legally enti tled?

646 THE FREEMAN In the end, no one knows with certainty whether he has lost or gained from the transfer system. Everyone is waiting for his turn at the public trough, which continues to enjoy popularity and respectabil ity. In the line are to be found some of the primary victims, moaning and complaining about the burden they are expected to carry. But their very presence in the line casts doubt on the sincerity of their complaints, while it gives moral sanction to the waiting line and the benefit trough. Defending the Mainspring of Economic WellBeing The true defenders of individual freedom and a peaceful social order neither scramble for the -exits nor stand in line for their share of the loot. They do not spend their waking hours scheming and plotting their escape. They are in the midst of the ideological battle. With all their A Defensible Social Ideal strength and courage they are re sisting the transfer order, rejecting its temptations and refuting its spurious arguments.

They readily admit that private income and capital must be pre served for current production and future employment. They even em phasize the moral obligation of the present generation to preserve and promote the economic wellbeing of future generations. But what would it profit our heirs to inherit our material riches if· they lacked the freedom and morality that are the very mainspring of those riches? In the long run, economic prosperity without this mainspring will wither and die like seed sown upon stony ground. The United States is the ideologi cal, economic, and military bastion of Western freedom and civilization. If it fails, for any reason; civilization must perish. There is no escape. @ IDEAS ON UBERTY THERE is but one defensible social ideal, and that is a world in which every individual is free to work out the inner impulses of the Spirit, without aggression on his part or interference on the part of others. A State which accomplished this simple, primal duty, the protection of all its citizens, would accomplish something greater than has yet been historically recorded, and something which no State, preoccupied with illegitimate and paternalistic activities, is ever likely to accomplish.

HANFORDHENDERSON,"Hands Oft" from The North American Review, December 1924 Lawrence W. Reed The Fall of Rome and Modem Parallels THERE'San old story worth retelling about a band of wild hogs which lived along a river in a secluded area of Georgia. These hogs were a stub born, ornery, and independent bunch. They had survived floods, fires, freezes, droughts, hunters, dogs, and everything else. No one thought they could ever be captured. One day a stranger came into town not far from where the hogs lived and went into the general store. He asked the storekeeper, uWhere can I find the hogs? I want to capture them." The storekeeper laughed at such a claim but pointed in the general direction. The stranger left with his one-horse wagon, an axe, and a few sacks of com. Two months later he returned, Mr. Reed is Assistant Professor of Economics at Northwood Institute, Midland, Michigan. This article Is from a speech before the annual meeting of the Michigan Association of Tlmbermen, Gaylord, Michigan, April 21, 1979.

went back to the store and asked for help to bring the hogs out. He said he had them all penned up in the woods. People were amazed and came from miles around to hear him tell the story of how he did it. HThe first thing I did," the stranger said, ((was to clear a small area of the woods with my axe. Then I put some com in the center of the clearing. At first, none of the hogs would take the com. Then after a few days, some of the young ones would come out, snatch some com, and then scamper back into the un derbrush. Then the older ones began taking the com, probably figuring that if they didn't get it, some of the other ones would. Soon they were all eating the com. They stopped grub bing for acorns, and roots on their own. About that time, I started building a fence around the clear ing, a little higher each day. At the right moment, I built a trap door and sprung it. Naturally, they 647 648 THE FREEMAN November squealed and hollered when they knew I had them, but I can pen any animal on the face of the earth if I can first get him to depend on me for a free handout!"

Please keep that story in mind as I talk about Rome and draw some important parallels between Roman history and America's situation to day. Roman civilization began many centuries ago. In those early days, Roman society was basically ag ricultural, made up of small farmers and shepherds. By the second cen tury B.C., large-scale businesses made their appearance. Italy be came urbanized. Immigration accel erated as people from many lands were attracted by the vibrant growth and great opportunities the Roman economy offered. The grow ing prosperity was made possible by a general climate of free enterprise, limited government, and respect for private property. Merchants and businessmen were admired and emulated. Commerce and trade flourished and large investments were commonplace. Historians still talk today about the remarkable achievements Rome made in sanitation, public parks, banking, architecture, education, and administration. The city even had mass production of some con sumer items and a stock market.

With low taxes and tariffs, free trade and private property, Rome became the center of the world's wealth. All this disappeared, how ever, by the fifth century A.D., and when it was gone, the world was plunged into darkness and despair, slavery and poverty. There are les sons to be learned from this course of Roman history. Why did Rome decline and fall? In my belief, Rome fell because of a fundamental change in ideas on the part of the Roman people-ideas which relate primarily to personal responsibility and the source of per sonal income. In the early days of greatness, Romans regarded them selves as their chief source of in come. By that I mean each indi vidual looked to himself-what he could acquire voluntarily in the marketplace-as the source of his livelihood. Rome's decline began when the people discovered another source of income: the political process-the State. When Romans abandoned self responsibility and self-reliance, and began to vote themselves benefits, to use government to rob Peter and pay Paul, to put their hands into other people's pockets, to envy and covet the productive and their wealth, their fate was sealed. As Dr. Howard E. Kershner puts it, ~~When a self governing people confer upon their government the power to take from some and give to others, the process 1979 THE FALL OF ROME AND MODERN PARALLELS 649 will not stop until the last bone of the last taxpayer is picked bare."

The legalized pIunder of the Roman Welfare State was undoubt edly sanctioned by people who wished to do good. But as Henry David Thoreau wrote, ((IfI knew for certain that a man was coming to my house to do me good, I would run for my life." Another person coined the phrase, ((The road to hell i~ paved with good intentions." Noth ing but evil can come from a society bent upon coercion, the confiscation of property, and the degradation of the productive. In 49 B.C., Julius Caesar trimmed the sails of the Welfare State by cutting the welfare rolls from 320,000 to 200,000. But forty-five years later, the rolls were back up to well over 300,000. A real landmark in the course of events came in the year 274. Emperor Aurelian, wishing to provide cradle-to-grave care for the citizenry, declared the right to relief to be hereditary. Those whose parents received gov ernment benefits were entitled as a matter of right to benefits as well.

And, Aurelian gave welfare recipi ents government-baked bread (in stead of the old practice of giving them wheat and letting them bake their own bread) and added free salt, pork, and olive oil. Not surprisingly, the ranks of the unproductive grew fatter, and the ranks of the produc tive grew thinner. I am sure that at this late date, there were many Romans who op posed the Welfare State and held fast to the old virtues of work, thrift, and self-reliance. But I am equally sure that some of these sturdy peo ple gave in and began to drink at the public trough in the belief that if they didn't get it, somebody else would. Someone once remarked that the Welfare State is so named because, in it, the politicians get well and you pay the fare! There is much truth in that statement. In Rome, the em perors were buying support with the people's own money. After all, gov ernment can give only what it first takes. The emperors, in dishing out all these goodies, were in a position to manipulate public opinion. Alex ander Hamilton observed, ((Control of a man's subsistence is control of a man's will." Few people will bite the hand that feeds them!

Civil wars and conflict of all sorts increased as faction fought against faction to get control of the huge State apparatus and all its public loot. Mass corruption, a huge bureaucracy, high taxes and bur densome regulations were the order of the day. Business enterprise was called upon to support the grow ing body of public parasites. In time, the State became the prime source of income for most peo ple. The high taxes needed to fi650 THE FREEMAN November nance the State drove business into bankruptcy and then nationaliza tion. Whole sectors of the economy came under government control in this manner. Priests and intellectu als extolled the virtues of the al mighty emperor, the Provider of all things. The interests of the individ ual were considered a distant second to the interests of the emperor and his legions. Rome also suffered from the bane of all welfare states, inflation. The massive demands on the govern ment to spend for this and that created pressures for the creation of new money. The Roman coin, the denari us, was cheapened and de based by one emperor after another to pay for the expensive programs.

Once 94% silver, the denarius, by 268 A.D., was little more than a piece of junk containing only .02% silver. Flooding the economy with all this new and cheapened money had predictable results: prices skyrocketed, savings were eroded, and the people became angry and frustrated. Businessmen were often blamed for the rising prices even as government continued its spend thrift ways. In the year 301, Emperor Diocle tian responded with his famous UEdict of 301." This law established a system of comprehensive wage and price controls, to be enforced by a penalty of death. The chaos that ensued inspired the historian Lactantius to write in 314 A.D.: ttAfter the many oppressions which he put in practice had brought a .general dearth upon the empire, he then set himself to regulate the prices of all vendible things. There was much bloodshed upon very slight and tri fling accounts; and the people brought provisions no more to mar kets, since they could not get a rea sonable price for them; and this in creased the dearth so much that at last after many had died by it, the law itself was laid aside."

All this robbery and tyranny by the State was a reflection of the breakdown of moral law in Roman society. The people had lost all re spect for private property. I am re minded of the New York City black out of 1977, when all it took was for the lights to go.out for hundreds to go on a shopping spree. The Christians were the last to resist the tyranny of the Roman Welfare State. Until 313 A.D., they had been persecuted because of their unwillingness to worship the em peror. But in that year they struck a deal with Emperor Constantine, who granted them toleration in ex change for their acquiescence to his authority. In the year 380, a sadly perverted Christianity became the official state religion under Emperor Theodosius. Rome's decline was like a falling rock from this point on. In 410, Alaric the Goth and his 1979 THE FALL OF ROME AND MODERN PARALLELS 651 primitive Germanic tribesmen as·, saulted the city and sacked its trea·· sures. The once-proud Roman army,.

which had always repelled the bar·· barians before, now wilted in the face of opposition. Why risk life and. limb to defend a corrupt and decay·· ing society? The end came, rather anti-climac·· tically, in 476, when the German chieftain, Odovacer, pushed aside the Roman emperor and made him·· self the new authority. Some say that Rome fell because of the attack by these tribes. But such a claim overlooks what the Romans had done to themselves. When the Van·· daIs, Goths, Huns and others reached Rome, many citizens actu ally welcomed them in the belief that anything was better than their own tax collectors and regulators. ][ think it is accurate to say that Rome committed suicide. First she lost her freedom, then she lost her life. History does seem to have an un canny knack of repeating itself. If there's one thing we can learn frOIIl history, it is that people never seenl to learn from history! America is making some of the same mistakes today that Rome made centuries ago.

In many ways, the American Wel fare State parallels the Roman Wel fare State. We have our legions of beneficiaries, our confiscatory taxa tion, our burdensome regulation, and of course, our inflation. Let me talk specifically about inflation, which I regard as the single most dangerous feature of life today. Everyone says he is against infla tion. Every president has his war on it. Yet it rages on. Why? For two reasons. One, most people, espe cially those in high places, don't really know what it is. And two, an inflationary mentality pervades our society. Defining inflation properly is crit ical to our understanding of it. The typical American thinks inflation is ttrising prices." But the classical, dictionary definition of the term is ~tan increase in the quantity of money." In this discussion, changing the definition changes the res[XJnsi bility! If you believe that ttinflation"

is Hrising prices," and then ask, uWho raises prices?" you'll probably say that ~tBusiness raises prices, so business must be the culprit." But if you definettinflation" as t~an in crease in the quantity of money," and then ask, t~Who increases the money supply?" you are left with only one answer: GOVERNMENT! Until we understand who does it, how can we ever stop it? Why does government inflate the money supply? By far the main rea son is that people are demanding more and more from government and don't want to pay for it. This causes government to run deficits, 652 THE FREEMAN which are largely made up by the expansion of money. It follows, then, that inflation will not stop until the American people restore the old values of self-responsibility and re spect for private property. Let me show you how our Welfare State mentality has ballooned the federal budget. In 1928, the federal government spent a grand total of $2.6 billion. In the current fiscal year, it will spend over $530 billion.

The accumulated red ink for the past five years is over $200 billion. I've cited on other occasions a wel fare recipient's letter to her local welfare office: ((This is my sixth kid. What are you going to do about it?" Implicit in that letter was the notion that the individual's problems are not really his at all. They're soci ety's. And if society doesn't solve them, and solve them fast, there's going to be trouble. I submit that our economy can withstand a few thousand, or even a million people who think that way, but it cannot bear up under tens of millions prac ticing that destructive notion. To day, what business, what school, what union, what group of individ uals is not either receiving some special favor, handout or subsidy from government or at least seeking one? There's no longer any reason to wonder why we have inflation. According to Dr. Hans Sennholz of Grove City College, the development of the American Welfare State has come in two phases. In the first pha~,roug~yfromthetwmoffue century to 1960, we relied mainly on ever-increasing tax rates to finance the expensive government pro grams. The top tax rate went from 24% to 65% under Herbert Hoover and to 92% under Franklin D.

Roosevelt. The decade of the 1950s was one of stagnation under the~ oppressive, capital-confiscating rates. So we had to find a supple mentary method to raise the needed revenue. The second pha~ of the Welfare State began in the 1960s, with a deliberate policy of massive, annual deficits in the federal budget and an addiction to the printing press. The demands to spend for this and spend for that, which I have mentioned above, have merely pro vided the fuel for these massive de ficits. America's dilemma is certainly of crisis proportions. We face collapse and dictatorship if inflation is not stopped and the growth of govern ment is not checked. But Rome's fate need not be ours. Our problems stem from destructive ideas, and if those ideas are changed, we can reverse our course. A nation that can put a man on the moon can resolve to mold a better future. Let's reject the destructive notions of the Welfare State, and embrace the uplifting ideas of freedom, self-reliance, and respect for life and property. , Robert G. Anderson THE ASSAULT ON CAPITAL ONE of the sad political paradoxes of our times is the simultaneous as·· sault on capital throughout the world and the continual clamor, often from the same sources, for greater worldwide prosperity.

Perhaps the affiiction can best be described as upolitical schizophrenia." Political rhetoric extols the vir·· tues of the good life and greater material abundance for humanity, and yet, in the next outburst, at·· tacks the very foundation of such a society. The demagoguery and non sense of such political outbursts are most discouraging to those who un derstand the economic policies re quired for human progress. Mankind's evolution into thE~ modern era of the industrial society was not an historical accident. It was, instead, the direct result of forces that brought into existencE~ the private property order and its concomitant free market economy. Mr. Anderson Is Executive secretary of The Founda· tlon for Economic Education. The market system of social organi zation opened to man the full poten tial of the social division of labor and the efficient employment of the scarce economic resources at his dis posal.

The history of material progress relates directly to an increase in productive capacity. Material ad vancement for mankind simply means, ((getting more goods out of the woods!" And from the dawn of human existence this process has been primarily accomplished through the substitution of capital for human energy in the means of production. What distinguishes a so-called ((rich nation" from a upoorer nation" is the abundance of productive capi tal employed in the social division of labor. The productive output of a worker moving dirt with his bare hands can hardly be compared with the accomplishments of a worker operating a giant bulldozer. The capital tools with which they work 653 654 THE FREEMAN November· make the difference. While greater work effort and better work techniques have certainly contrib uted to greater productive output, the accumulation of ever-greater quantities of capital employed in production has been the essential Ukey" to prosperity.

The ((key" to greater prosperity, therefore, is more capital. Societies become rich because individuals within the society become more pro ductive. And this greater productiv ity of the individual is attainable only through the effective employ ment of more capital-multiplying the product of his efforts through the use of tools. The assault on capital throughout the world today has become a direct attack on man's material prosperity. Even worse is the planned and sys tematic destruction, through politi cal interference, of the institutions that are essential to the creation of capital. This combination of con suming accumulated capital and de stroying any incentive to replace capital is leading to the im poverishment and suffering of mil lions of people throughout the world. For an example of what is happen ing, look at the United States, the ((richest" nation in the world today in terms of the material wellbeing of the people. It attained this envi able status as a result of a lengthy historical record of being ((friendly"

to the accumulation of capital. Throughout the nineteenth and early twentieth centuries, millions of individuals were drawn to the United States by the vast oppor tunities for personal economic ad vancement. Phenomenal Growth . From the period following the end of the Civil War in 1865 until the beginning of World War I, unbeliev able change and advancement took place in the United States. The de gree of individual freedom that pre vailed during this period led to an expansion of economic activity and an accumulation of capital un matched in human history. Neither before nor since has a more rapid rate of growth been experienced by a group of people than during the twenty years from 1870 to 1890 when the real incomes of the people more than doubled. During this same period of phenomenal growth in prosperity, entire new industries were born. The oil industry, railroads, electric ity, and modern steel making are among the better known examples.

Methods of agriculture, which had remained unchanged from the dawn of history, were radically altered. The introduction of capital equip ment vastly increased the productiv ity of the individual farmer in the planting and harvesting of his crops. This remarkable era of economic freedom and improvement also 1979 THE ASSAULT ON CAPITAL 655 brought other changes in the struc ture of life and industry. The pro ductive employment of increasing quantities of capital literally an nihilated many ancient and estab lished industries. We may look back now with amusement at some of the individual failures that occurred in those early days, from the prairie schooner to the pony express. But with the individual's freedom to fail came also the chance for success. Man's creative energies were un leashed in such a setting of economic freedom, and the outcome was a. material progress that became the envy of the world.

Reaction to Change In 1859 Colonel Edwin Drake suc·, cessfully drilled for oil in Western. Pennsylvania, and the petroleum industry was born. The subsequent competition of kerosene took a. heavy toll on the whaling industry of New England. But what electric ity later did to the candlestick mak·, ers, and the internal combustion en gine did to the blacksmiths and horsebreeders was even more devas,· tating to the old ways. The changes imposed by economic progress werE~ dramatic, to say the least. The point is that this entire trans,· formation of society was made pos·· sible only because individuals pos·· sessed economic freedom, and wen:~ able to freely accumulate and employ the needed capital to compete against existing industry. And while greater prosperity was a di rect result, so too was the demise of the old ways. The price of prosperity is always change, and for many the price seems too high.

A reaction to such rapid change may have been inevitable. In any event, such a reaction has been most evident in the United States during these past fifty years. Powerful political forces have assaulted, di rectly and indirectly, both individual freedom and private property in an attempt to upreserve" the status quo. Disguised as ((progressive pro grams" to benefit ((the people," polit ical intervention is consuming the wealth of the citizenry and hamper ing the incentive to replace it. The source of the· wealth and material abundance of the United States citizen today is to be found in the accumulations of private capital made possible in an earlier era. The continued prosperity stems from the momentum of the past, not from the political intervention of recent years. The losses of individual free dom have been so gradual and sub tle that perhaps only within the past decade are there clear signs of a declining standard of living.

It is of the utmost urgency that this development be seen. Given the dynamic history of economic freedom and prosperity that was once the hallmark of the United States, the identity of these recent destructive 656 THE FREEMAN November forces must be disclosed-at home, as well as· abroad. The people of other nations, who would emulate the United States, otherwise might misconstrue these forces to be the causes of our wealth today. To pat tern political intervention after the example of the United States gov ernment today would be nothing less than a human tragedy. The re surrection of individual liberty and continued material prosperity de mands the repudiation of this inter vention, and not its expansion. Capital Accumulation The ttkey" to prosperity is capital. To consume more, a people must first produce more, and to produce more requires more and better tools. Real economic growth is a direct consequence of ever-greater quan tities of capital being employed in the tools of production.

The greatest service a govern ment can render its citizenry is to safeguard and encourage this process of capital accumulation. Protecting the lives and property of citizens by keeping the peace is absolutely vital to an orderly society. The law thus serves as an instrument of justice. Such a government has always en joyed the popular support of its citizenry, for in a society of peace and harmony, the individual citizen is freed to produce and serve the consumer through the market. In the United States today government is far more engaged in plundering property and controlling people's lives than in pursuing its traditional role of protecting life and property. In the name of Uprogres sive government," we see the law being used in the most reactionary way to destroy private capital and human liberty. The accumulation of capital re quires both productive effort and saving on the part of individuals.

There is an old adage that Uanyone can make money-it's keeping it that is difficult." The point is that saving rather than consuming will occur only if there exists an incen tive to do so. Production and saving requires the personal sacrifice of not consuming. Only when the potential for greater future consumption can be clearly seen from saving and working today, will individuals will ingly produce and save. As the theoretical economist usually states it,-ttall other things being equal, leisure and consumption are pre ferred over work and saving!" Government intervention in the United States during the past fifty years has time and again under mined this process of production and capital accumulation. While no one law or policy can be isolated as the cause of our lost freedoms and fall ing standard of living, the com bined intervention is generating a burden that is destroying the mate rial welfare of society.

1979 THE ASSAULT ON CAPITAL 657 The manner of government's as sault on capital is varied, but of all these actions, nothing inflicts more damage on productive effort, saving, and capital accumulation than a pol icy of monetary inflation. The in sidious effects of inflation disrupt the entire pricing structure of the market, the sole guide for the ac tions of traders in the marketplace. The destruction of money through a policy of inflation consumes every form of monetary saving. Individ uals quickly learn the bitter conse quence of conserving money in the form of bonds, savings accounts, or cash balances. Monetary holdings of liquid capital become nothing but certificates of guaranteed confisca. tion of wealth. Inflation Disrupts Market and Consumes Capital The.disruption of the price system through inflation generates awe~ some losses of capital. Both consmIll ers and producers are led into economic chaos. The false signals of inflated prices alter the allocation of economic resources in production and encourage artificial levels of consumption. The ultimate result is a general impoverishment, as capi tal is taxed and destroyed.

Inflation imposes a heavy penalty tax on productive activity. Any in centive to employ capital in produ(~ tive activity is soon lost to the ur gent necessity of preserving what little capital remains. Individuals turn to speculation in an effort to survive. The result is not economic survi val, but instead market disruption and capital consumption. Money markets no longer perform the func tion of serving producers and con sumers, but instead become devices for speculators. Long-term capital markets vanish with the creditors, as everyone tries to become a debtor. The order of the day in an age of inflation is to consume capital in ~~things" before it is consumed by the ravages of inflation. Inflation's message is clear to all. Increase consumption, save nothing. The outcome is the inevitable de struction of accumulated" capital with no incentive to replace it. The tragic price is lost prosperity.

While inflation is one of govern ment's oldest weapons in the assault on capital and productive effort, it is by no means the only tool of such destruction. A multitude of laws, edicts, and policies are joined in the attack. In the United States, modern tax theory often is more concerned with penalizing capital or redistributing wealth from savers to spenders than with the acquiring of public funds. The federal inheritance tax is a clas sic example of such a practice, many larger estates being wholly con sumed by the tax rather than trans ferred to the heirs.

658 THE FREEMAN November The accumulation of private capi tal and its productive employment is the cornerstone of an advancing market economy. Inheritance taxes have consumed untold billions of dollars that would· otherwise have been productively employed. Pro ductive individuals are left with no choice but to consume their wealth. Luxury cars, fancy yachts, and exo tic homes have replaced job-creating productive investments. Enjoy it today rather than have it taxed away tomorrow becomes the rule of productive people confronting such confiscatory tax policies. The Impact of Taxes The taxation of corporations is another weapon in the assault on capital. While a corporation, as a legal entity, can be a collector of taxes, the burden of corporate taxes must always fall upon the corporate owners, employees, customers, or some combination of these three. The corporation is merely an in stitutional entity productively employing the capital of its owners.

The result of corporate taxation is a political transfer of capital away from private corporate use and pro ductive employment. The individual income tax is another example of a tax policy that is specifically structured to discour age productive activity and capital accumulation. The percentage rate of taxation on personal incomes is highly graduated, assuring an ever larger seizure of the private capital of those who are most productive. Wealthy individuals are subject to a Federal income tax rate of up to seventy per cent, a rate that imposes a severe penalty on the expansion of productive capital and work effort. Perhaps the most subtle tax against capital, in the sense that it silently erodes the personal incen tive to save, is the social security tax. This tax transfers wealth from productive workers to the elderly members of society in retirement and thereby reduces the personal concern for one's welfare in old age.

The expectation of a government source of income in later years thus leads to a reduction in personal sav ings. But inflation and taxation are only the beginning of government's assault on productive capital. The competition for votes among politi cians has led to a mass of legislation providing all manner of special interest political largess. The redis tribution of wealth. through the political process has become firmly entrenched in the United States. Every sector of society is clamoring for more. Everyone is plundering everyone with the cry that, ttwe're paying for it, so let's get our fair share." The result is a society of political victims and beneficiaries, all using the political process to further consume private capital.

1979 THE ASSAULT ON CAPITAL 659 Such a system breeds politicians rather than statesmen. Politicians:, responding to a H now mentality" among voters, win elections. The statesman, expressing concern for the future consequences of such political plunder, is the loser at the polls. The result is that democracy becomes synonymous with dem,· agoguery, a vehicle for the politi· cal plunder of capital. The Welfare State This political transformation is well illustrated in the United States by the growth of the welfare state. Vast quantities of capital are being transferred today through the polit·· ical process from those who work to those who don't. Without exception, every welfare reform increases the individual's incentive to choose Iei-· sure over work. Low-productivity labor is literally priced out of thE~ market by the welfare benefits from the state. The withdrawal of welfare recipi ents from the labor market stalls the further creation of capital. The heavy burden upon the productive persons who support the welfare programs again drains the capital so essential to progress. The bias against work and against the pro,· ductive employment of savings is a built-in wedge hampering economic growth.

The final assault against capital, and against the very structure of thE~ market economy itself, comes by way of direct controls upon prices and wages. As long as market prices remain free to reflect the actions of traders, the market can absorb mas sive doses of hostile government in tervention. The assault against cap ital from inflation, taxation, and the redistribution of wealth through the political process certainly reduces the magnitude of productive capital, and thus the material standard of living. But these forms of govern ment intervention do not in them selves destroy the essence of the market process. The imposition of direct wage and price controls, however, terminates the market price system of allocat ing economic resources. The eco nomic freedom of buyers and sell ers to engage in voluntary ex change on their own terms is denied. The result of such government in tervention is the massive destruc tion of capital and productive effort.

There is, of course, even under wage and price controls, some es cape from the economic chaos that the controls inevitably generate. The escape route is by way of ublack markets." While ublack markets" are merely the practice of freedom of choice among traders when their liberties have been denied by the state, such illegal markets can never attain the efficiency of free and open competition. A point to remember about 660 THE FREEMAN November government-imposed wage and price controls is that governments don't control wages and prices, they con trol people. A price or wage control is simply a disguised way of denying the voluntary choices of traders. The establishment of government imposed prices or wages below or above the market rate assures either shortages or surpluses, and the loss of freedom. With a government biased against capital, the direct controls are nearly always established below the market for prices, and set above the market for wages. The result is the certain destruction of capital pro ductively employed and the creation of a permanent barrier to new pro ducti ve activity.

Wage and Price Controls The imposition of wage and price controls by government always creates an allocation crisis. In the United States today an ((energy crisis" exists in the form of uncer tain gasoline supplies. The reason is simply explained. The price of retail gasoline is established by govern ment rather than by the voluntary actions of buyers and sellers. And the government-imposed legal price is now less than market prices. With demand exceeding supply at this government-imposed price, arbi trary limits on gasoline sales and long lines before the pump are inevi table. Price and wage controls symbolize the end of the market economy and individual freedom of choice. Such government interference transforms society from a nation of free traders into a society of regulated consum ers and plundered producers. The imposition of direct controls upon the market process is truly the final assault on capital and the private property order.

Far advanced in the United States today is the economic chaos and de struction of capital that government inflicts upon society through infla tion, taxation, transfer policies, and direct controls. There are serious threats of private property seizure through nationalization and the erection of economic barriers to international trade. The market economy which had brought forth prosperity in an atmosphere of peace and harmony is becoming a battle ground of internal conflict. Bitter ness and disillusionment are ex pressed everywhere one turns in the United States. Ifthe assault on capital continues, the result will be, not the good life that is enjoyed today, but conflict, hardship, and a return to poverty. So the people of the United States stand at a point of decision-either to abandon the private property order for socialism, or to return to freedom and the free market. Two points must be clear. First, it must be understood that prosperity can 1979 THE ASSAULT ON CAPITAL 661 only come through freedom, and second, that the political institu·· tions of society must support this freedom rather than deny it.

Throughout the world are tens of thousands of individuals who under·· stand this relationship between prosperity and freedom. In addition, literally millions of individuals have been the beneficiaries of the pros·· perity and material abundance market economies have provided. The world has seen and experienced the good life under freedom. It is inconceivable that such a system of social organization could ever bE~ abandoned for the impoverishment and serfdom of socialism. The intellectual arguments that have been advanced in defense of socialism are bankrupt. Socialism has been a dismal failure where vel" tried or found. From the slaughter ing of Kulaks by Stalin to the holocaust of Cambodia today, socialism has been synonymous with human misery and death. Socialism is not the wave of the future. It is the sickness of the past.. The way of the future is freedom. The assault on capital is too costly to be continued. There are signs that the intellectual tide has turned in favor of freedom. There are signs of dwindling support for overextended government, as individuals demand to be free.

Freedom will prevail becaus.~ freedom works. The creative potential of individuals in sovereign con trol over their own lives· and prop erty is an established fact. The hampering of productive people through the assault on their capital will be repudiated. The failure of socialism and overextended gov ernment will be the great lesson learned from the twentieth century. The people of the United States have enjoyed freedom of choice for over two hundred years, and it must never be forgotten that the market society they created was the generating source of the great wealth that exists today. The de struction of the market order, like any social order, occurs slowly. To mistake what is occurring in the United States today as a source of this nation's wealth and material abundance would be the ultimate human tragedy. What good life still prevails is in spite of the government policies of these past fifty years, and not be cause of such intervention. A nation of great wealth may be able to sus tain an assault on its capital for a while, but to the poorer nations of the world such an assault would be instantly fatal.

The lesson to be learned is simple. It is that the hope of the future is not to be found in government manage ment of the economy. Future pro ductivity depends upon the individ ual, and it can be brought forth whenever he is free. @ P. Dean Russell THE ILLUSION BEHIND GOVERNMENT AID IN 1849, the French legislator, Fre deric Bastiat, said that the French people are ~~the dupes of one of the strangest illusions which has ever taken possession of the human mind." He was referring to the belief that government itself is a primary source of goods and services that can be used to increase the material wellbeing of the people. When we are dissatisfied with our lot, said Bastiat in his essay THE STATE, we turn to government to get the products and services we want. He listed various laws and programs-in-aid that the French people were demanding from their government in 1849. Among them were minimum wages, protection from competition at home and abroad, government funds at low interest, free professional education, lower taxes, disaster relief pro grams, subsidies for both agriculDr. Ru..... I. Prof••sor of Manag.m.nt, Unlv.rslty of WI.con.ln at La Cro•••• 662 ture and industry, old age pensions, and many similar programs that the French people thought their gov ernment should sponsor some 130 years ago.

Bastiat continued, uAll of us are petitioning THE STATE in this manner .... But THE STATE has no means of granting privileges to some without adding to the labor of others." Then Bastiat gave us this defini tion of government: uTHE STATE is the great fiction through which everybody endeavors to live at the expense of everybody." He said that this ~~ great fiction" was doing great harm to the French people and na tion. Could this absurd concept of government-everybody living at the expense of everybody else-ever become prevalent in the United States? Well, today more than 130 million Americans are directly de pendent on tax dollars, in one form THE ILLUSION BEHIND GOVERNMENT AID 663 or another for at least a part of their incomes. That's more than half of us.. Included in the 130 million people who are now living at the expense of everybody are local, state, and fed·· eral employees and their depen ..

dents, armed forces personnel and dependents, everyone (and their de·· pendents) receiving any form of di·· reet cash payment from government, e.g., government pensions of all types and aid to families with de pendent children. Not included are recipients of Medicare and Medicaid, food. stamps, and similar ttin kind" pro·· grams. Including them would result in considerable double counting .. Also not included are the millions of persons (and their dependents) who work for private companies under government contracts, even though the source of most oftheir incomes is government. Nor does the ·figure in· elude the millions of foreigners who receive direct support from our taxes. Nor does it include those per sons whose jobs are based indirectly on government aid programs, e.g., doctors who get a share of their in comes from Medicare patients. Thus the figure of more than 130 million Americans who are totally or par tially dependent on government for their livelihoods is surely not exaggerated.

Understandably, the· recipients and supporters of these government programs are quick to defend them on both economic and moral grounds, especially moral grounds. Shouldn't hungry children be fed? Shouldn't elderly people (most of whom paid Social Security taxes when they were younger) be main tained with some dignity in their old age? Do you begrudge a veteran his pension? Shouldn't farmers be guaranteed at least a mininum in come through parity prices? And so on, through literally hundreds of similar government-administered programs that take resources from people who produced them and give them to people who didn't. I'm not here either condemning or defending any of these programs; some of them do provide valuable services. I'm merely pointing out the fact that far more than half of us American people (130 million) are now living totally or partially at the expense of fewer than half of us (90 million). And the number of those who get the money (as well as the amount) is constantly increasing. At some point, the producers will sim ply refuse to support the non producers. In truth, they won't really have a choice in the matter; for there just won't be enough produced to go around.

I suspect that this breaking-point has already been reached. It's prob ably the primary reason for the in creasing growth of the (tsubterra nean economy" for exchanging our products and services. This non664 THE FREEMAN taxed market system of exchange includes cCmoonlighting" electricians and plumbers and service people in all categories who take their pay in unrecorded cash. Estimates of the size of this cash-and-barter economy range from $200 billion to $300 bil lion, perhaps as much as 10 to 15 per cent of our Gross National Product-and it's growing rapidly. Most of the people who deal in this market are not crooks but law abiding citizens who are trying to keep for themselves a reasonable proportion. of what they produce. That's what the taxpayers are say ing to the lawmakers when they vote for (proposition 13's," and de mand that their state legislators also endorse aeon vention for the purpose of amending our Constitu tion to restrict taxes by putting a limit on federal government spend ing.

This strange illusion that we can live at the expense of someone else is, I'm convinced, the sole cause of the governmental programs and ac tions that, in turn, have brought on the disastrous inflation we have. It's simply impossible for all of us to live at the expense of all of us, or even for half of us to live at the expense of the other half. As Bastiat said, gov ernment is a construct, i.e., in the area of real goods and services, it produces nothing, but acts merely as a transfer mechanism. And since government produces nothing, it can't give anything to anyone (in cluding even basic police protection) without first taking the required funds from someone else in one way or another. The surreptitious transfer-method now increasingly favored by our leaders, i.e., taking goods and ser vices indirectly from everyone by the concealed process of printing addi tional money to buy the goods from private producers, doesn't alter the basic process. In fact, since the added money doesn't represent any production at all, it makes the situa tion worse by driving up the price of everything that is produced.

The Hstrange illusion" identified by Bastiat some 130 years ago is at the heart of most of the social and economic ills we American people are now suffering. Before we can deal with our inflation, our short ages, and other related problems, however, we must first understand that our government can't really guarantee a material level of living to anyone-not permanently and with a reliable guarantee, it can't. When we finally accept that fact, we'll close down the government owned and destructive C(money machine" and take whatever mea sures are necessary to speed up the constructive and privately-owned (Cproduction machine" that is the only possible source of increased goods and services for the American people in general. @ The Case for the Minimal State Henry Hazlltt •n SINCE at least as far back as Plato, many of the world's great minds have devoted themselves to thE~ problems of politics. But they have not come up with any answers that have satisfied more than a narrovI and transient majority in some country here or there. Today there are about 150 national governments in the world; but no two operate on exactly the same principles. If a free expression of opinion could be ob tained in anyone country, it would probably be found that at least a substantial minority was unhappy with some important part of the Henry Hazlltt, noted economist, author, editor, re viewer and columnist, Is well known to readers of the New York Times, Newsweek, The Freeman,Bal' ron's, Human Events and many others. Among the more recent of his numerous books are The Inflation Crisis and How to Resolve n and a revised edition of Economics in One Lesson.

existing political arrangement or its operation. We may distinguish at least three major political problems, which have existed since the beginning of time: 1. Should there be a government at all, and if so, exactly what should be the extent and nature of its per mitted powers? Should these powers be precisely specified and limited, or is there an indeterminate area be tween certain minimum and maximum powers that may safely be left to popular choice? 2. Once the proper limits to the province and powers of the state have been decided upon, how can we stop the politicians in office from using their existing powers to ex tend and increase their powers? 3. By what method should the holders of office and power be cho665 666 THE FREEMAN November sen? For what terms, and so forth? How should their individual powers be allotted and delimited; and what provision should be made to assure that they responsibly execute those powers and no others?

It will be noticed that the political problem is twofold. It is not only to find what the best arrangements would be for choosing or changing political leaders or their powers, but for assuring that these arrange ments are adhered to. This is one of the chief reasons (if not the chief) why the political problem has al most nowhere been better than tem porarily solved. The ambition of men :for political power has im memorially led them not only to demagoguery and deceit, but to force, war and murder, to achieve and increase it. It is because of this that I have elsewhere raised the question whether the principal prob lems of politics are in fact solvable. eCls Politics Insoluble?" Modern Age, Fall 1976.) This is not on its face an encourag ing quest. But the answer is so im portant for the future of mankind (let alone the immediate future of our own country) that we are bound to extend every effort to try to get as near to a workable solution as we can.

One promising procedure is to ex amine the answers that have been offered historically by the great political thinkers ofthe past to try to determine where they went wrong or what .important problems they neglected to answer. We could do this chronologically beginning with the earlier answers, but I think it would be more interesting if we began with one of the latest answers and tried to find whether it satisfied us, and if not, why. So I shall begin by examining the answer offered by Professor Robert Nozick of Harvard in 1974 in his book Anarchy, State, and Utopia. This book has attracted more atten tion than any other in the last five years that attempted to solve the problem ofthe proper province ofthe state. It won the National Book Award in 1975. Away from Anarchy Not least interesting about it is that it begins with a patient and open-minded discussion of an archy-of the possibility of get ting along with no government at all. It considers the suggestion of the New Anarchists, for example, that honest and peaceable citizens could solve the problem of protecting their property and persons by joining and paying dues to private protective associations. Nozick shows how there would tend to grow up compet ing protective associations, that some of these might be little better than gangster associations, that some would be stronger than others, that it would not give anyone 1979 THE CASE FOR'rHE MINIMAL STATE 667 adequate protection to become a member of one of the weaker associ ations, and that in time one associa tion would tend to establish a monopoly. But if such an association had the power of excluding some people from membership, or failed to act with complete morality and im partiality, it would be intolerable.

Hence society would be forced to adopt a ((minimal" state. Nozick announces his main con clusions on the very first page of his Preface: nour main conclusions about the state are that a minimal state, liml ited to the narrow functions of pro tection .against force, theft, fraud, enforcement of contracts,and so on, I is justified; that any more extensive ,state will violate persons' rights not to be forced to do certain things, and is unjustified; and that the minimal state is. inspiring as well as right. Two noteworthy implications are that the state may not use its coer cive apparatus for the purpose of getting some citizens to aid others, or in order to prohibit activities to people for their own good or protee tion." Now, this conclusion, though :it would be regarded as extreme not only by popular opinion but by the great majority of political writers in every country today, is one that has a respectable history, and will be regarded sympathetically by a large number of declared libertarians.

But I am troubled, most of the time, by the kind of arguments by which Nozick reaches his conclu sion. Going a little further, I am fre quently troubled by Nozick's style. It seems at times almost deliber ately obscure. It is interrupted by diversions, digressions, paren theses, involutions, excessive foot notes-by a sort of self-heckling. He constantly confronts us with log ic-chopping, with technicalities, and with abstractions without any help ful concrete references or illustra tions. Natural Law Coming to problems of substance, I am bothered by his explicit rejec tion of any form of utilitarianism, and his attempt to substitute ((natu rallaw" justifications of his position. Here he seems to have been influ enced by his Harvard colleague John Raw Is-though he rejects Rawls' conclusions in many other respects. But as not only Nozick but an astonishing number of young libertarians have recently been tak ing this natural-law position, it is worth examining in some detail.

Nozick dismisses utilitarianism because his conception of it, like that of Rawls and others, is essen tially a caricature. He sees the utilitarian as a fellow who judges conduct by its immediate effect on the balance of pain and pleasure, and makes a mechanical pain668 THE FREEMAN November pleasure calculus of the results of a particular action, without consider ing (Justice" and other values. One or two of the older utilitarians may have been guilty of giving such an impression, but this has little to do with the doctrine in its modern form. I have suggested in my book, The Foundations of Morality (1964, 1972), not only that the utilitarian ism of Bentham, and even of Mill and Sidgwick, has been in impor tant respects superseded, but that it would increase clarity of thought to abandon the old term entirely. I have recommended substituting the term Hrule-utilitism" because it comes much closer to describing a satisfactory moral system.

We should not take or judge an action in accordance with what we think would be its consequences considered as an isolated act. Not only can we never be certain what such consequences would be, but with such a moral code (or lack of code) we would never be able to depend on each other's conduct, and we would fall far short of that social cooperation by which we most fully promote our own and each other's ends. Moral action, for the most part, is action in accordance with accepted principles or rules. It is only when each of us can be de pended upon to act consistently in accordance with such principles or rules that we can depend on each other. It is only when we can rely on each other to keep our promises, to tell the truth, to refrain from theft, fraud and violence, and to help each other in emergencies, that we can best promote that social cooperation so essential to attain ing our individual ends.

These moral rules evolved dur ing the centuries, long before they were explicitly formulated or codified, and certainly long before any moral philosopher explicitly formulated any single rationale or test by which good rules could be distinguished from bad ones or the best from the second best. But the doctrine of utility, first put forward by David Hume and later elaborated by Bentham, Mill, Sidgwick, and others, was the first test that unified and clarified the whole area of mor als. The Pleasure-Pain Balance An Unsolved Problem The first attempts to generalize the proper aim of all moral rules such as rules conducive to promot ing ((the greatest happiness of the greatest number," proved to have some awkward shortcomings. Was the goal of ((pleasure" or ((happiness" sufficiently inclusive? Or suffi ciently noble? And when a~ action promoted one man's happiness~r even a hundred men's happiness-but at the cost of another man's pain or misery, by what kind of moral 1979 THE CASE FOR 'fHE MINIMAL STATE 669 arithmetic could we determine thE~ net balance? The utilitarians have never satisfactorily solved this problem-but neither has anybody else. Fortunately, because an ac, ceptable moral code prescribes prin ciples or rules of action rather than particular acts, there are very few occasions when the need for such moral arithmetic seriously arises.

More important than this, rule utilitists are not necessarily bound by any pain-pleasure principle, or even any happiness-maximizing principle. They can simply accept as the principles of moral action those rules that would lead to the most satisfactory or desirable results for society, without trying to be more explicit as to the exact. way of measuring such results. Anti utilitists, rejecting such a criterion, would then be obliged to contend that their substitute criterion should be -applied instead, even though it admittedly prescribed moral rules that would lead to less satisfactory or less desirable results for society. Justice and Utility One favorite contention of some anti-utilitists is that the utilitist cri terion must be abandoned because it does not include c)ustice." That this contention is being seriously pressed today is odd historically, because John Stuart Mill devoted the whole last third of his famous essay Utilitarianism in 1863 to discussing uThe Connection Between Justice and Utility." He concluded that: CtJusticeis a name for certain moral requirements, which, regarded. col lectively, stand higher in the scale of social utility, and are therefore of more paramount obligation, than any others."

But those who make t)ustice" the supreme if not the sole criterion of moral judgment regard it as a re quirement that must be met for its own sake, regardless of what conse quences it may lead to. The motto of these people is: Fiat justitia,. ruat caelum: HLet there be justice, though the heavens fall." But the real reason for insisting on justice is to prevent the heavens from falling. Those who insist that justice is solely an end in itself, and never a means to social peace and coopera tion or other· ends beyond itself, are also nearly always those who take a simplistic view of it. Everybody is supposed to know what tJustice" is: it is simply ttfairness", and we all know what is ufair." But through the centuries it has been the main func tion of thousands of legislators and jurists to decide what is justice both in abstract types of cases and in particular cases and circumstances.

Most of the non-utilitists and anti-utilitists in the past have been champions of Natural Law. The doc trine of Natural Law, it is true, has a very respectable history. It was 670 THE FREEMAN November promulgated or accepted by Plato and Aristotle, by the Stoics, by St. Thomas Aquinas, by Hugo Grotius and Samuel Pufendorf, by John Locke, by Jean-Jacques Rousseau, and by some of the Founding Fathers when they drafted or de fended the American Constitution. But it has always owed a large part of its appeal to its ambiguity. The physical laws of nature, of cause and effect, determine everything, includ ing, in one sense, human action. But this is something quite different from ((natural laws" that are sup posed to prescribe how men should conduct themselves. A Nebulous Concept The central difficulty with Natu ral Law is that no two of its votaries seem to have been able to agree regarding precisely what it enjoins.

For Aristotle it sanctioned the sub ordination of women to men and of slaves to Athenian citizens. For the Stoics it prescribed equalitarianism. For many it meant the plain dic tates of ((right reason," though no body could quite agree regarding what right reason prescribed. For others it meant the (tdivine will", with even more disagreement re garding what this commanded. Still others derived Natural Law from the law that existed in a Ustate of nature." But for some this meant savagery and for others a sort of Garden of Eden. According to the Declaration of Independence Uthe Laws of Nature" made certain uuna lienable" rights ttself-evident." Finally, Jeremy Bentham, toward the end of the Eighteenth Century, was moved to exclaim that Natural Law was unonsense on stilts." In his Principles ofMorals and Legislation (1780), he wrote (Ch. 2): uA great multitude of people are continually talking of the Law of Nature; and then they go on giving you their sentiments about what is right and what is wrong: and these sentiments, you are to understand, are so Ip.any chapters and sections of the Law of Nature."

This is not too unfair a description of those who are trying to revive the doctrine of Natural Law even today. They try to deduce its prescriptions from certain moral ttaxioms" taken from Locke or of their own devising. A typical one goes: UEvery man owns himself; therefore " It is also clear that some of the rules that the natural-law champions udeduce" are, in fact,disguised or crypto-utilitist rules. Thus John Rawls, an avowed anti-utilitarian, in trying to deduce the principles of justice (in his A Theory of Justice), begins by assuming a society of per sons uwho in their relations to one another recognize certain rules of conduct as binding;" and ttthese rules specify a system of cooperation designed to advance the good of those taking part in it (p. 4)." He 1979 THE CASE FOR 1~HE MINIMAL STATE 671 goes on to remark thattesocial coop·· eration makes possible a better life for all than any would have if each were to live solely by his own ef.· forts" and so on. But rules designed to ((advance the good". and make possible tea better life for all" arE~ precisely utilitist rules. The ideal of justice is an inherent part of rule utilitism, not a separate or compet ing concept.

No Firm Foundation The great difficulty with Natural Law, on the other hand, is not only that there is no agreed-upon code, but no agreement on the principles upon which such a code could be constructed. The greater part of th«~ Natural Law votaries are really in tuitionists in their moral philoso phy. I apologize for having given so much space to a seemingly irrele vant discussion of the relative merits of utilitist versus Natural Law standards. But it is not only Nozick who explicitly rejects utilitist tests in favor of Natural Law, but an increasing number of young libertarians who h~ve appar ently been influenced by him. So far practically all I have writ ten on Nozick's book has been nega. tive. Why, then, am I discussing his book at all? I do this because, while I think that Nozick often fails to base his reasoning on genuine first principIes, and while his logic often seems to me unduly technical or irrele vant, he more than makes up for this by many brilliant arguments on special points. I shall cite a few of these.

Nozick is especially good in analyzing the rhetorical nonsense behind many of the leftists' recent objections to capitalism. A fashion. able objection today is that workers lose their self-esteem by being fre quently ordered about, under the authority of others unselected by them, and by having to work at tasks that they do not regard as Hmeaningful." Nozick points out that even members of a symphony orchestra are constantly ordered about by their conductor, and not consulted about the overall inter pretation of their work, but nevertheless retain a high self esteem. More seriously, he points out that fragmentation and specialization of tasks are not problems peculiar to capitalist modes of production, but would go with any industrial soci ety. The reason is that they tend to lead to the lowest costs and the highest efficiency and production. Suppose (which is most probable) that dividing a firm's work force into Hmeaningful" segments, rotating the workers into different tasks, and so on, could only be accomplished at the cost of less efficiency and pro duction (as judged by market 672 THE FREEMAN November criteria)? Would the workers be will ing to accept lower pay in order to do this more umeaningful" labor? Or would consumers be willing to pay higher prices for the same goods, or get less of them, in order that this more ttmeaningful" work could be provided? Who would be willing to pay for such a reform, and how much? Would a socialist govern ment forbid ttnonmeaningful" work?

Labor Theory Refuted As a more important example, let us take Nozick's refutation (on pages 253 to 262) of Marx's labor theory of value and his general exploitation theories. Similar refu tations have been made before, not ably by Boehm-Bawerk, but Nozick's is an especially compact one. Marxist theory, he concedes, ttdoes not hold that the value of an object is proportional to the number of simple undifferentiated labor hours that went into its production; rather, the theory holds that the value of an object is proportional to the number of simple undifferen tiated socially necessary labor hours that went into its production." But then, it turns out (though Marx himself never got around to seeing or acknowledging this clearly) that the amount of labor that really is ttsocially necessary" is determined by the utility and value of the particular commodity that is made! As Nozick concludes: "What is socially necessary, and how much of it is, will be determined by what happens on the market! There is no ionger any labor theory of value; the central notion of socially necessary labor time is itself defined in terms of the processes and exchange ratios of a competitive market! . . . One might be left with the view that Marxian exploitation is the exploi tation of people's lack of understand ing of economics."

"Distributive Justice" I come to my final example. This is Nozick's theory of t(entitlements." He has argued that ((the minimal state is the most extensive state that can be justified," and that (tany state more extensive violates people's rights." He then addresses himself to the argument that a more exten sive state is justified in order to achieve (tdistributive. justice." One trouble with this whole con ception, he points out, is that it im plicitly assumes that goods have al ready been ((distributed" by some central source or according to some single principle, and that the duty of the state is to redistribute them ac cording to some other Upatterned" principle. But this overlooks the whole history of how the present udistribution" of goods came about. UThings come into the world already attached to people having entitle ments over them. From the point of view of the historical entitlement 1979 THE CASE FOR THE MINIMAL STATE 673 conception of justice in holdings, those who start afresh to complete ~to each according to his ' treat objects as if they appeared from nowhere, out of nothing."

How did the existing ~(distribu tion" of things come about? It came about because some people made the things they now hold, or because they were paid their marginal con tribution to output in wages, or be cause they inherited property, or the objects (or money) were given to them by their parents, their spouses, or their friends. So even if the state made some (~patterned" redistribu tion of wealth-(~to each according to his needs," or to each equally-that pattern would very quickly be upset by some people continuing to create more than others, or some people giving freely to others, or some peo ple voluntarily paying well for cer tain services, or to see or hear a particular professional athlete or performer, and so on. As Nozick sums up: HThe socialist society would have to forbid capitalist acts between consenting adults." The system of entitlements is de fensible, he argues, ((when consti tuted by the individual aims ofindi vidual transactions. No overarching' aim is needed, no distributional pat tern is required."

He goes on later to contend per-· suasively that: ((Taxation of earn ings from labor is on a par with. forced labor (p. 169)." Unfinished Arguments But in spite of many excellences, Nozick's argument for his minimal state is in the end not quite convinc ing. A good part of the reason for this is revealed in his own descrip tion of his procedure in his Preface: (~Part Ijustifies the minimal state; Part II contends that no more exten sive state can be justified. I proceed by arguing that a diversity of rea sons which purport to justify a more extensive state, don't. Against the claim that such a state is justified in order to achieve or produce distribu tive justice among its citizens, I de velop a theory of justice (the enti tlement theory) which does not re quire any more extensive state, and use the apparatus of this theory to dissect and criticize other theories of distributive justice which do envis age a more extensive state. . . .

Other reasons that some might think justify a more extensive state are criticized, including equality, envy, workers' control, and Marxian theories of exploitation." But his book, he goes on, is not cca political tract" but a ccphilosophical exploration." It does not pretend to be ((a finished, complete, and elegant whole," but cc a less complete work, containing unfinished presenta tions, conjectures, open questions and problems, leads, side connec tions, as well as a main line of ar gument. There is room for words on subjects other than last words."

674 THE FREEMAN No doubt there is. But it is pre cisely because Nozick has elected to write a book with a rambling and Hunfinished" argument, with so many digressions, that many read ers will find it unsatisfying and even occasionally irritating, that they will lose the thread of the main argument, and though finding it often persuasive, will in the end not find it quite conclusive. I am not saying that it could not have been made so. Nozick does con vincingly make his argument against anarchy. Others before him have advocated precisely his mini mal state, Ulimited to the narrow functions of protection against force, theft, fraud, enforcement of con tracts, and so on." It is an attractive ideal. But it has never been held by more than a tiny minority. If its appeal is ever to be widened to reach an effective number of thought lead ers it must be by a broadly under standable but orderly chain of rea soning, without confusing digres sions and without serious missing links, that makes its conclusion seem inescapable. , IDEAS ON UBERTY General Rules of Peace and Order ALL the laws of nature which regulate property as well as all civil laws are general and regard alone some essential circumstances of the case, without taking into consideration the characters, situations, and con nections of the person concerned or any particular consequences which may result from the determination of these laws in any particular case which offers. They deprive, without scruple, a beneficent man of all his possessions if acquired by mistake, without a good title, in order to bestow them on a selfish miser who has already heaped up immense stores of superfluous riches. Public utility requires that property should be regulated by general. inflexible rules; and though such rules are adopted as best serve the same end of public utility, it is impossible for them to prevent all particular hardships or make beneficial conse quences result from every individual case. It is sufficient if the whole plan or scheme be necessary to the support of civil society and if the balance of good, in the main, do thereby preponderate much above that of evil.

DAVID HUME, An Inquiry Concerning the Principles of Morals Anna Dillenberg WELFARISM THE UNITED STATES is moving with ever-increasing speed down the path at the end of which each indi vidual is just one small part of an all-important government. One of the greatest shifts in philosophy in this century has been away from the idea that what a man earned was his own, to spend or save at his own discretion. Now, the individual no longer works for himself, but for the horde of tax collectors and bureau crats ((running" the country. The reason is simple-people no longer pay for their own housing, educa tion, medical care; they ((charge it to Uncle Sam." How delightful-if the govern ment were an inexhaustible foun tain of wealth. But this is not the case. What the government spends, it must first take out of the pockets of its beneficiaries, by taxing and/or inflating the money supply. As Fred eric Bastiat put it, the public is under the spell of ((the great fiction, by means of which everyone· hopes to Miss Dillenberg Is a recent graduate (12th grade) of the Fairfax Christian SChool In Virginia.

live at the expense of everyone else." There was a time when it was considered a social disgrace to de pend on state funds for a livelihood. Today, almost everyone is collecting social security of one form or another. When these programs were instituted the people were led to believe that the ((free" services would be paid for out of taxes on the rich. This is called graduated taxa tion and is based upon the idea that it's not right for one person to earn more than another, no matter what kind and amount of work each does. However, these Usoak-the-rich" schemes have led to the liquidation of the wealthy class, and the cost of ttfree" services has been spread over all the beneficiaries. It is strange that these ideas should catch on in the very countries that are distinguished from the rest of the world by their mass prosper ity. The difference between the de veloped and undeveloped nations is not the services enjoyed by the wealthy, but in the general standard of living of the mass of people in the 675 676 THE FREEMAN November respective areas. In one, a great va riety of goods and services is avail able to people of all economic strata; in the other, the lives of the masses' are marked by a consistent level of deprivation and despairing poverty.

The great message of the Indus trial Revolution is that political freedom encourages saving, invest ment, production and trade as a way to better living. The restraints and entanglements of politics should be avoided in any concerted attack on poverty. Government welfare leads inevitably to a maze of restrictions and regulations to enforce each new law. Every ((gift" from government involves controls that stifle produc tion and trade. But the welfare habit is addictive; the more people receive, the more they want. The main reason for the plausibil ity of redistributionist ideas is a misconception of the nature of own ership and production and what earning an income means in the framework of a free market. A redis tributionist seems to think that goods are, ((socially produced" and then placed in the common storehouse, to be arbitrarily distrib uted as incomes. But there is a pat tern to the earning of incomes in the free market: the size of the income depends upon the extent to which the individual, in conjunction with other individuals, succeeds in satis fying the wants of his fellow men.

Capitalists must use their capital to produce for consumers. Legal own ership of capital goods does not au tomatically guarantee an income from them. Since, in this context, the fulfillment of consumer wishes is the rationale of the production of consumer goods, it is the mass of consumers who must be regarded as the real economic director of capital. So, even though legal titles to the thousands of factories in any given country may lie in the hands of a minority, this accumulation of capi tal is not used for their exclusive benefit but to produce a great variety of goods and services for the ma jority of people. The goods and services we con sume have been produced for us by our fellow men, in exchange for what we have produced for them. If we wish to consume more, without producing more, someone else must produce more, without consuming more. There is a third method-by seizing what others have produced and forcing them to do without. This is theft, pure and simple, and it's what is really involved in the redis tribution of incomes via state compulsion-progressive taxation to ((soak the rich" and ((welfare" measures to raise the income of the very poorest. This idea of stealing from one party to give to another involves the massive presumption that any third party (government) can know so much as to be able to judge from whom to take, to whom to give, and 1979 WELFARISM 677 how much. The government would be virtually taking God's place, and arbitrarily deciding right and wrong.

And there is the inconsistency that the very people who help create those Hhigh" incomes by ·buying what the Urich" people have pro duced then propose to Hcorrect" the Uunequal" distribution of the market by the political process. A fairly recent proposal .for rob bing the industrious and thrifty to subsidize the thriftless and lazy is the so-called NIT, the negative in come tax. This insures every family a minimum income, whether it is earned or not. In fact, one in this income bracket may just as well quit working and collect his ~~wages" anyway. If this were passed through the legislatures incentive to fill the least-skilled and lowest-paying jobs would completely disappear. Some 30 million people would become permanent state pensioners, to be maintained at the cost of the solvent taxpayers. At each end of the economic lad der an increasing number of people would ask, HWhywork?" The benefi ciaries of this gigantic welfare sys tem would see very little reason to take an unskilled job, with minimum wages and no prestige, when they could sit at home gossip ing with their friends over a six pack and collect welfare checks.

At the same time, the more am bitious and aflluent would see little incentive to work harder or achieve if what they earned would be im mediately siphoned off for subsidiz ing the lazy. One aspect of freedom is the right to make choices-part of which right is the responsibility and privilege of accepting the results, good or bad. UBigBrother" government would lift this burden from our shoulders if it could. It wants to protect us from ourselves. We should all be just another cog in the machine. Is this what we want? Every offer of government aid that we accept encourages the gov ernment to tax us still more, and to impose still more controls. For every state allowance, we give up a piece of our dearly-bought freedom. We give up the power to choose for our selves how to spend our money. The government decides what we need or should have. And what of the old-fashioned idea of Christian charity? Once, it was a function of the church to minister to the needs of the genuinely poor and sick. One of the worst byproducts of state welfarism has been the paralysis of our im pulse toward charity. For not only has the state usurped this function of the church, and seized our means to be charitable, it has stolen our will to be charitable, too. i MARX andthe MANIFESTO William L. Baker IT has been more than one hundred and thirty years since The Com munist Manifesto burst onto the scene during the tumultuous days of unrest and reaction immediately preceding the March Revolution. It passed almost unnoticed except among the more rabid, inmost core of professional revolutionaries. At the time it certainly made little enough of an impression. Dr. Marx's strident pamphlet did not win for its Mr. Baker teaches In the school system In Lubbock, Texas.

678 authors (the ever-present Friedrich Engels shared in its creation) over night recognition as leading lights of the communist movement. All that came later. But as the book aged, it assumed cyclopean dimen sions-giant, intimidating, formida ble. Its subsequent reputation has been inflated beyond any contribu- . tions it may have originally ad vanced. But-for good or ill-flawed or not, the Manifesto is still a potent force upon the world political scene in this age of the so-called ttcommon MARX AND THE MANIFESTO 679 . man." Like the legendary dragon's teeth of ancient mythology, its dor mant fertility retains the seeds of future life. Warriors sprout wher ever the message of The Communist Manifesto has penetrated. But warriors loyal to whom? To what cause? In behalf of which cur rent brand of socialism/commu nism? Which of all the contending utopias is the Utrue religion?"l Upon this matter The Communist Mani festo maintains a lordly and indif ferent silence.

In this chaotic muddle of claim and counterclaim battle the Utrue believers," each asserting his own legitimacy and the apostolic purity of his own descent. Each seeks to promote his own cause and to expose his rivals as the petty bourgeois pre tenders that they really are. Socialist turns murderously upon socialist. All heretics must be de nounced and liquidated-many are called but few are chosen. The Communist Manifesto was tit is an error to assume that UpureH socialism/communism can or ever has existed independent of doctrinal disagreements, policy priorities, and the multitude of petty jealousies and squabbles among those vying for supreme power within the Party itself and the political structure of the specific socialist common wealth. It is even more grievous to suggest that the dawn of socialism will usher in an era of love, brotherhood, and equality for all men everywhere. Each brand ofsocialism possesses its own unique flavor. There is, in the world today, a multiplicity ofsocialisms with a mul tiplicity of conflicting goals.

hastily written on the eve of the 1848 German Civil War when the father land stood on the brink of chaos and discord. Into the Manifesto Marx poured his soul, his hates-above all his hates-his ambitions, his unbri dled mysticism, his vitriolic dia tribes against the evil as he under stood it. It was a work born of blood, desire, and unremitting (or so it must have often appeared) toil. Like all books it was the product of end less, patient, countless hours. One must imagine Marx as he really was: an energetic glutton for almost unbroken study; the relentless de vouring of book after book until he had found just the right word, phrase, or idea. His was a Spartan regimen of stoic simplicity, this angry patriarch of economic Prus sianism. Setting and Background On the other hand, there was more to The Communist Manifesto than mere ubooklearning" ·and the printed word. The Manifesto could just as easily be portrayed as the child of fierce, surreptitious debates in crumbling, rickety garrets, noc turnal discussions in seedy tene ments, and of jocular (and, just as often, not-so-jocular) conversations within the myriad little Bohemian cafes that dotted nineteenth century Paris, Brussels, and Cologne.

In what follows, this paper shall critique the economic underpin680 THE FREEMAN November nings (both stated and implied) of The Communist Manifesto. In each section I shall first summarize Marx's evaluation of a given prob lem followed by my own analysis of the Marxist paradigm. Each section shall deal with a specific topic treated in the Manifesto. In Section I, I shall attempt to unravel the tangled threads of the so-called ttcommercial crises." By contrasting Marx's ttstat ic" model to the dynamic structure of ttreal life" capitalism based upon the expectations of profit-motivated entrepreneurs, this paper shall at tempt to clear up some of the am biguities that have hitherto existed concerning the functioning of the price structure in periods of serious business decline. (Some overlapping with Section III is necessary here.) This shall involve a rather pro longed delineation of cause-and effect: something completely ig nored by Dr. Marx in his sketchy treatment of ttbourgeois" economics.

This should be especially relevant in today's harrowing economic at mosphere when the old bugaboos of unemployment, ((underconsump tion," and Hoverproduction" are again rearing their unwelcome heads. Section II examines the notions of class and class struggle. Does man really live at perpetual war with his neighbors (especially those of another ((class")? Do ((classes" really exist? In the analysis of the class struggle much emphasis will be placed upon the dichotomy between the eternal struggle within the ani mal world and the world of civilized society--characterized by the divi sion of labor. Marxist polylogism the theory of different Hclass logics"-is also briefly considered in Section II. Section III takes a look at the theory of value in general and the labor theory of value (which Marx utilized) in particular. It is the con tention of this section that the mar ket, capitalism, economic depres sions-indeed, any of the varied activities of human action-can not be properly understood with out a workable theory of value.

Marx, like the classical economists of his day, fell into disrepute over the defective theory of value which he propounded. Section III attempts to establish that all value is subjective-and therefore out of the province of the scientific economist. With a personal, subjective theory of value it becomes pure pedantry to talk about ttoverproduction" (in the classical, Marxist sense), usurplus value," ttcapitalistic expropriation," and other such examples of emo tional claptrap. (In its treatment of commercial crises, Section I also at tempts to lay the labor theory to rest by contending that labor is not homogenous as Marx tacitly as sumed. By taking issue with the homogeneity of labor and wages, an 1979 MARX AND THE MANIFESTO 681 important prop is kicked out from underneath the already shaky plat form of Marxist economic theory.) Section IV is two-pronged. The first problem deals with the efficient allocation of labor in the socialist commonwealth. Deprived of the cap italistic tools of monetary calcula tion, how can the socialistic board of production provide meaningful pro duction quotas? Indeed, how can it possibly even know what to produce?

Is it possible, for example, lacking a labor market in the old capitalistic sense, for the socialist common wealth to know whether or not a specific labor project is creating or consuming capital? Secondly, Section IV attempts to ascertain the fate of the individual laborer within the socialist framework. What is the status of the laborer in the Worker's Paradise? A brief look into Marx's Com munist Manifesto is now in order. I. The Commercial Crises According to Marx, one distin guishing feature of capitalism was the periodic recurrence of commer cial crises. Under the direction of the greedy bourgeoisie, factories in undated society with the ((epidemic of overproduction." In this grievous state of affairs: Society suddenly finds itself put back into a state of momentary barbarism; it appears as if a famine, a universal war of devastation, had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? because there is too much civiliza tion, too much means of subsistence, too much industry, too much commerce.2 Thus, the great paradox: society drowns in a sea of wealth, poverty amidst plenty. This poverty and deg radation, this ((famine" result not in spite of man's opulence and wealth, but precisely because of it.

The wealthier man becomes, the worse off he really is. Wealth can bring nothing but grinding poverty. Man is suddenly faced with ((too much wealth," ((too much of the means of subsistence." This could only happen, Marx assured his readers, because bourgeois society was Utoo narrow" to comprise the wealth created for them. Capitalism, then, dies of gluttony. More correctly, capitalistic society dies of hunger induced by indiges tion. These uparadoxes" of capital ism were insolvable to Marx. He shrugged them off by saying that capitalism contained within itself the seeds of its own destruction, 3 its 2Karl Marx and Friedrich Engels, uMan_ ifesto of the Communist Party," in Collected Works, Vol. VI: Marx and Engels: 1845-48 (New York: International Publishers, 1976), p. 490. 3Ibid., p. 496.

682 THE FREEMAN November own ~~negation." Production, there fore, was nothing other than a juggernaut relentlessly crushing everything in its path. Trade and prosperity were nothing else but the dormant seeds of a future crash. The only refuge from poverty (the effects of the crash) was to abstain from production and trade. In a word, the only refuge from poverty is poverty itself. Unanswered Questions in the Marxian Analysis Marx did not carry his ownargu ments to their ultimate logical con clusions. His analysis stopped pre cisely where the intriguing ques tionspile up and beg to be answered. For example, one might ask, ~~Yes, but what makes all this overproduc tion possible? What prevents the capitalists, motivated by greed as they are, from learning by their past mistakes? At what point· does ~pro duction' become ~overproduction'? Overproduction by whom and in re lation to what? How is this man ifested and discovered in the mar ketplace? At what point do the ef fects of overproduction make them selves known to society? What ac counts for this sudden (cluster of errors,' all turning up at the same time?" The Communist Manifesto greets all these inquiries with stony silence.

The cCoverproduction"theory is a most naive view, at best, of the capitalistic mode of production. 4 The contradictory analysis which Marx painted of capitalism can only result in blatant, unexplainable absur dities utterly divorced from the real world of production. It is difficult even to conceive of such a state of affairs as Htoo much" production, ntoo much" subsistence, CCtoo much" civilization. The fundamental condi tion of life is scarcity. The means of production and the ends they can attain are always necessarily lim ited. They cannot satisfy desires in unlimited abundance. Each product and means of production (including labor) is strictly circumscribed in the tasks and services which they can perform. Unlimited production is impossible. Scarcity is reflected by desires and wants. However, scarcity is relative. Relative to what? In the market society the relative scarcity of dif ferent products is mirrored by price.

Prices exist because scarcity exists. When a good is no longer scarce (i.e., "This paper is not concerned with individual value structures. Ultimate value judgments are not the province of the economist. As such, this paper does not take issue with what the market produces (or what the consumer de mands) but with how available supplies are allocated once they Uhit" the market. In other words, given specific production goals and capacities, is it possible to trigger a commer cial crisis by producing more than the populace can consume? (This is not to say no "oughts" exist, simply that they have no place in this specific work.) 1979 MARX AND THE MANIFESTO 683 if it is available in unlimited abun dance or if demand vanishes) it will not be able to command a price in the marketplace. In other words, its cCprice"will fall to zero. "Overproduction" So, then, what makes H over production" possible? The Marxist theory evokes a mental image of a mountain of goods piling higher and higher, being effortlessly kicked out by mindless automatons with a total disregard for reality. 5 This analysis reveals a faulty understanding of the entrepreneur and of his role in the process of production. Like any one else, the entrepreneur is a human being perhaps no smarter and no duller than anyone else. Like his fellow beings all his action is predicated upon expectations. What are the Uexpectations" of the entre preneur? To make a profit. He will "be able to continue in his capacity of production only as long as he is able to make a profit.

The Marxist theory begs the ques5Marx may have anticipated this question in the Manifestowhen he said: ~~The conditions of bourgeois society are too narrow to comprise the wealth created by them." But if this is true, why create this wealth? To what tCconditions" is Marx referring? No clue. Wealth created by whom? For whom? To what end? These repre sent lamentable gaps in the Marxist theory of ~toverproduction" and depression. Unless this pertinent information is revealed, there can be no intelligent support for his questionable paradigm. tion: why would industrialists be so willing or even able to produce when no one either can or will buy their products? How and why, with bulg ing inventories of unpurchased goods, would assembly belts con tinue to roll? Continued production under such circumstances would be suicidal and impossible. But capital ists are neither suicidal, overly charitable, nor infinitely rich. The Marxist sees .the entrepreneur (or capitalist), however, as a total nit wit, completely unable to adapt to changing circumstances. And what ever else might be said of the indus trialist magnate, he is not lacking in versatility. How could such a condi tion (overproduction) exist outside the realm of fairy tales and prop aganda pamphlets? The law of scar city has never been repealed. The tissue of fallacies must be faced: the theory of overproduction is long overdue for a well-deserved rest.

The Element of Timing Marx's theory of overproduction overlooked other vital questions of practical significance: how does one account for the critical element of timing? Why, for example, do the forces of overproduction and un employment dovetail and emerge all at once in The Crash? Why the sud den cluster of errors? Now there is nothing more certain than that all men are fallible and often err. And, it is only to be 684 THE FREEMAN November expected that entrepreneurs and capitalists, like other mortals, will certainly make their quota of mis takes. They, too, will occasionally ttmiss the .mark." But is it not a bit ironic that all entrepreneurs (as evidenced by the ttcrises") just happen to make the same mistake (overproduction) at the same time? What would account for this singu lar state of affairs? This is a serious omission on the part of Marx. It is as if all were well with the world one day and then is jarred awake the next day to a surprisingly different state of affairs (the crises). One can be pardoned for not taking Marx too seriously in this matter.

There are other problems with the Marxist analysis of Hcommercial crises." If at some point there has been overproduction, there must be some culprits hiding in the bushes somewhere. These unsavory charac ters would certainly be worth our bitterest opprobrium and vitupera tion. Just who is it, exactly, that performs such anti-social deeds? Who is the guilty party? According to Marx, it is the Hworkers," of course, who produce. They are the sole contributors to the productive process. Since capitalists and bourgeois entrepreneurs are only idle parasites devoid of any economic (productive) significance, it stands to reason that it is the Hworkers" who have been Hover producing." But which workers? Medical technicians? Broadway ac tors? Lathe operators? Perhaps chicken pluckers? Plumbers? Maybe garbage collectors? What kinds of goods and services? Just ttthings in general"? If so, what kinds of things? Perhaps stethoscopes or trigger guards or saddles? Toilet tis sue or fingernail clippers? Perhaps book binderies or economic treatises and revolutionary pamphlets?

Seminar papers? ttOverproduction" of what, by whom, in relation to what? Homogenous Factors Marx, like many of his disciples, labored under the delusion that labor, production, and wages were homogenous. All ulabor" was alike, all ttproduction" was alike, all wages were the same. This was an unfor givable blunder. Marx was com pletely wrapped up in his acidic, piecemeal approach to the study of capitalism. He did not have time for such things as detached observation. The Communist Manifesto is not a dispassionate analysis of labor and wages. With his heated invective and imprecation it is not surprising that he so often missed the mark. Because he so slavishly devoted himself to the ttexploitation" theory of labor, he was completely helpless when it came to the task of dissect ing and analyzing processes and categories. The truth is that all workers are 1979 MARX AND THIt; MANIFESTO 685 not alike; they are not ((equal."6 If labor is ((exploited" (how else are the capitalists enabled to accumulate bulging warehouses of unsalable in ventories?), precisely what kind of labor? A Robert Redford or a Mu hammad Ali? An Elvis Presley?7 Is the Iron Law of Wages, so gloom ily trumpeted by David Ricardo and echoed by Karl Marx, equally. grind ing upon each and all? How does this fit in with the Marxist theory of overproduction and the Crises?

Silence. The too-much-means-of-subsis tence approach has produced a crown of thorns for the more consistent advocates of this doctrine. The remedy which has always enticed and suggested itself to post-Marxist and neo-Marxist economists and ministers of state is to encourage the current political regime and the unions to smash the instruments of production, burn the ((surplus" 6Cookie cutters are not in the same league as surgery assistants. This also involves different qualities of work within the same occupation. Marx greatly erred by asserting in the Man ifesto (p. 492), ... . . machinery obliterates all distinctions of labor, and nearly everywhere reduces wages to the same low level." Even if all ttlabor" were industrial labor, this would still be largely untrue. 7The Communist Manifesto was intended as a timeless work of doctrine. In exploding the tenets of dogmatism it is not necessary to limit oneself to an historical analysis of then current personages and ideas. What counts is the ultimate truth or falsity of the ideology under consideration.

goods, and ((plow under" unhar vested crops. All this is for the good of the Commonwealth. A Saturation Point Perhaps the most fatal fallacy of all implied in the o.verproduction argument, however, is that only a certain amount of production is de sirable, that society can assimilate only a very limited amount of goods. Beyond that point production be comes dangerous and anti-social, re sulting in grave ills. What next? Must there be firing squads ap pointed to liquidate the most vigor ous and talented of workers? Or maybe it would be well to award some medal or cash award to those workers who best succeed in stretch ing five minute coffee breaks to half an hour, or to those who sabo tage factory machinery? The Marxists (and their intellec tual cousins) are not prepared to surrender. Is it not true that many companies during the Great Depres sion of the 1930s were caught with large inventories on their hands?

And did not many of these products sit unmoved for many years? Indeed, is it not true that some of these products were never able to be sold? Is this not a vindication of Marx and his theory? Now, some things must be con ceded. The devil, so to speak, must be given his due. It is beyond a doubt that many warehouses bulged with 686 THE FREEMAN November unmovable goods during the gloomy 1930s. But it is not for the reasons implied in the overproduction ar gument. The point which most advo cates of the ((overproduction" theory of economic woes ignore is that al most any product can be sold at some price. In a capitalistic economy sup ply will always equal demand be cause prices will always be plumb with demand and supply. If there is an ((inventory" or uoverproduction" crisis, it can only mean that prices are too high. Enforced Scarcity This problem prevailed through out the 1930s because the federal government in Washington imposed rigId, unrealistic minimum price controls upon the economy. This ((trapped" many products in warehouses where they eventually rusted, rotted, or became obsolete.

In other words, people were not al lowed to consume because of minimum price controls. The result was enforced scarcity (the implied Marxist ideal) amid consumable in ventories (the Utoo much" means of subsistence noted by Marx). But why? The market was ((overstocked" and ((underconsumed" precisely be cause the market was not allowed to function in relation to the true state of supply and demand. So, sure, con ditions might arise in which con sumers uunderconsume"; but, again, not for the reasons implied and stated by the Marxists and neo Marxists. The industrialist has every inter est in making sure that the Uworker" can Ubuy the product." When the market, regulated and harassed by bureaucratic nonsense, fails to udeliver the goods," it isn't the fault of those engaged in produc tion. C(That's free enterprise for you" is the smug reply to the paralysis which follows each new hamstringing of the market. UThe days of capitalism are numbered,"

intone the regulators as they fire another broadside at the wobbling edifice.) It was only when the wage and price administrators refused to allow downward flexibility, thus crippling the market mechanism, that a full-blown depression was ushered in. When prices are forcibly thrown into disjunction, chaos re sults. When prices are arbitrarily frozen at a disequilibrium, ((under consumption" (thus giving the ap pearance of uoverproduction") is in escapable. This alone could account for the aberration of the Great De pression. A suddenly imposed minimum price control which catches everybody off guard would have the effect of declining business activity and Uunwanted" inven tories. This alone could account for the ((cluster of errors" which crop up all at once. Economic panics and commercial crises are not the conse1979 MARX AND TH]~ MANIFESTO 687 quence of capitalism as The Com munist Manifesto avers, but the all too-predictable sequel of Statism. S II. Class and Class Struggle As far as Marx was concerned, all mankind is split into two separate and distinct classes. These two class es are locked in an eternal contest for supremacy and, ultimately, exis tence. 9 In fact, all the history of civilization and the society of man could be summed up with the idea of class conflict. Marx himself did not formulate this idea of mutual ex termination. It had been around for a long time cloaked in many.difTer ent guises. In this particular doc trine he seems to have been influ enced by his old friends, the French socialists.

There was no doubt in Marx's mind that hostility between the classes was both inevitable and praiseworthy. He saw no reason why there should be harmony instead of discord. As members of separate and distinct social entities there could be no question of collaboration between 8For a relevant discussion of the regulated market during the late 1920s and early 1930s, see Murray Rothbard's excellent America's Great Depression (Kansas City: Sheed and Ward, Inc., 1963). This book effectively shat ters any illusions about the laissez-faire character of the decade prior to 1932. 9Marx and Engels, note especially pp. 484 and 485. the two. There could not be any question of a ~~commonweal." What benefited one class ipso facto viti ated the wellbeing of the other. Society, viewed in this manner, could be nothing else but a brutal civil war, a face-off between bel ligerents. What Dr.·Marx and all his friends contended was true-if one assumes that he was describing the animal kingdom where the ulaw of the jungle" literally prevails and from which there is no escape. The great error of Marx was to assume that human society was merely a pitched battle but one step removed from the world of animal strife. In the world of animals, specimen is arrayed against specimen, competing in a grim struggle for life's meager necessities. These requisites for con tinued life are severely limited. Vic tory in snatching substance from a competitor's mouth spells the differ E~nce between continued existence or death by slow starvation and attri tion.

When two dogs snarl over an irre placeable. bone, one dog wins and the other loses. One dog receives an ex tended· lease on life, a temporary reprieve from morbidity. The other is that much closer to death's door. With diminishing vitality he must once again take up his quest for a paltry meal. Even the winning dog must retire to lick his wounds and festering sores incurred in battle. In 688 THE FREEMAN November this world of the animals, ferocity and belligerence are everything. One dies that another might live to battle again. With man it is different. Under the division of labor-which Marx and the cafe intellectuals de tested-each contributes to the process of production (not the snatch-and-grab of the animal world) whereby the human race is enabled to survive. In this man dif fers from the lower kingdoms of life. The Iron Law of Wages In the construction of his model Utopia, Marx was misled by David Ricardo's specious Iron Law of Wages which carelessly decreed perpetual hunger and privation for the laborer. 1o Ultimately, he would be reduced to such a state of destitu tion that bare survival would be all he could ever expect for himself and his unfortunate dependents. Armed with this dismal weapon Marx strode forth to do battle with capital ism.

They met on uneven ground. With almost mechanical thoroughness the l°Ibid., p. 495. uThe modem laborer, on the contrary, instead of rising with the progress of industry, sinks deeper and deeper below the conditions of his own class. He becomes a pauper, and pauperism develops more rapidly than population and wealth." See also p. 491: cCHence,the cost of production of a workman is restricted, almost entirely, to the means of subsistence for his maintenance and for the propagation of his race." ((sycophants and apologists of world capitalism" mutilated his con scripted ideology. (Years later, tired and reeling under the hammer blows of the unimpressed econo mists, Marx would try a new tactic: he stifled all criticism by labeling Marxism as ((scientific communism." Opposition vanished.) At any rate, the Iron Law was later discarded as excess baggage. The history of the Industrial Revolution has successfully refuted that satur nine prognostication; even the Marx ist theoreticians have retired from its defense.

Marxism asserts that each man's thinking is determined by his class affiliation. Each individual is, in ef fect, a prisoner of his class logic, ((the will of your class."ll From this there is no escape. It is the task of com munism to unmask the n syco phants" of capital., It is enough to lay bare the background of one's intellectual opposition. This will suffice to reveal his class motives. A ((bourgeois philosophy" must be re jected simply because a ((bourgeois" was its creator. Professor von Mises makes this point about various theories of polylogism: 12 llIbid., p. 501 12Foran excellent exposition of the doctrine of polylogism (many logics), see Ludwig von Mises' Human Action: A Treatise on Econom ics (Chicago: Henry Regnery Company, 1949, pp.75-84).

1979 MARX AND THE MANIFESTO 689 _. They never ventured to demonstrate precisely in what the logic of the proleta rians differs from the logic of the bourgeois, or in what the logic of the Aryans differs from the logic of the non-Aryans, or the logic of the Germans from the logic of the French or the British. In the eyes of the Marxians the Ricardian theory of comparative cost is spurious because Ricardo was a bourgeois. The German racists condemn the same theory because Ricardo was a Jew, and the German nationalists because he was an Englishman. Some German profes sors advanced all these three arguments together against the validity of Ricardo's teachings. However, it is not enough to reject theory wholesale by unmasking the background of its author. 13 Marx was impotent in the face of criticism. He was fully aware of his incompetence in refuting the economists' objections to his work.

His doctrine of different class logics was a last-ditch attempt to remove the lofty theories of ((scientific socialism" from the paltry scrutiny of pedants and ((bourgeois" academi cians. Marxism did not fare well in the bright glare of intellectual dis cussion. Better to clothe it in the mysticism of Hegelianism and the ttiilner voice." After having drawn and quar tered mankind, after having arbi trarily divided it into two armed camps, Marx decreed that absolute conformity within the class struc ture was inevitable. To prove this, he cited ttbourgeois" thinking over against ((proletarian" thought. This would assure that each robot act to the ((best interest" of his own class. But what is the ttbest interest" of one's own class and how can it be known? (Even robots must have their instructions.) Did, for example, the capitalist Engels, son of a wealthy industrialist, and the bour geois Marx, son of a well-to-do lawyer and husband to a scion of the Prussian nobility and landed gentry, act in the ttbest interests" of their class by authoring The Communist Man ifesto and calling upon the workers of the world to unite? Even Marx had to admit that, in fact, the ttor_ ganization of the proletarians"14 are upset by none other than individual competing proletarians. Obviously there are a few such tempestuous individuals within the bourgeois class structure as well. A chink in the armor perhaps?

Marx and his cronies were sure that class consciousness was the only motivation for human action. It was the sole criteria by which indi vidual performance could be inter preted. I5 In the overzealous con13Ibid., p. 75. 14Marx and Engels, p. 493. See also p. 496 where Marx asserts that, UWage labour rests exclusively on competition between the labor ers." (emphasis mine). lSYears later Engels made a rather feeble attempt to deny that Marx places exclusive faith in class determinism. Nevertheless, true or not, that is largely the tone of his published works and recorded speeches. For a typical Marxist statement regarding class deter minism, see Marx and Engels, p. 501.

690 THE FREEMAN November struction of this dubious paradigm Marx completely overlooked the role of nationalism rCThe workingman has no country."), racism, religion, age, sex, and a host of other vari abIes which help in determining man's attitude and outlook. There is, of course, nothing logically im permissible about dividing society up into classes-whether two or two thousand-no matter how arbitrary that division may be. It would be wrong however, to assert that such is the only way of looking at or dealing with civilization. Nevertheless, not all concepts and propositions regarding classes are equally valid. One may preach (as Marx did) about cCclass rule" until the cows come home. But mere par roting does' not make rhetoric any more of a reality. CCClasses" do not govern or hold office; cCclasses" do not accept bribes; uclasses" do not embark upon political campaigns; Hclasses" do not canvass political districts and solicit votes; individ uals do. To equate the actions and identity of one individual with the actions and identity of a cCclass" is a deplorable and contemptible boner.

III. Value Marx and others of his day were misled by the labor theory of value propounded by the classical economists. According to this assumption, as Marx correctly noted in The Communist Manifesto, the price of a commodity (including labor) is equal to the cost of produc tion. 16 An object is only Hworth" what cClabor"goes into it. Today it is very easy to explode this myth. The truth is, however, that the labor theory of value is still widely held in one form or another by many economists who otherwise lay no claim to the tenets of socialism or to classical economic analysis. These mistaken doctrines have, in their turns, given birth to a host of ills not the least of which has been a marked hostility to capitalism and its productive structure. This en ,mity poisons relations between en tire nations and large segments of populations within those separate states. Karl Marx was totally correct in his interpretation of the labor theory of value. For years the apologists of capitalism and free trade pressed this doctrine into the employ of their own peculiar philos ophy. It was a well-tooled weapon in their arsenal. Nobody was more surprised than they when the so16Ibid.,p. 491. ttBut the price of a commodity, and therefore also oflabour, is equal to its cost of production." Labor wages were supposed to decline as the ttrepulsiveness of the work in creases" (p. 491). Further, the ttlabor theory" is implied in referring to the lower classes as the ttworking class" (emphasis mine). Only labor could ttcreate capital." (p. 498) 1979 MARX AND THE MANIFESTO 691 cialists stormed the barricades and wheeled it into an about-face. Adam Smith and his circle of admirers erred when they assumed that lais sez faire capitalism could be justified by an appeal to this spurious doc trine. As elaborated by Marx, the labor theory was simply a fallacious dogma carried through to its ulti mate logical conclusion. The third generation classical economists were shocked and dismayed by the ease with which their own ordnance could be turned upon themselves.

Thus, crippled by a crotchety princi ple for many years, no adequate de fense of capitalism could be fonnu lated. As long as ((labor" was em ployed as the cornerstone of value, it proved to be an impossible task. All value is subjective. There can be no question of any so-called ((in trinsic" or ((surplus" value. No value can exist independent of the mental act of valuation. There can be no ((value" without a ((valuer." It is use less and vain to postulate ((worth" independent of what conscious indi viduals are willing to exchange for it. The quest for absolute value is an endless labyrinth. When the Marxian socialists commandeered the labor theory of value and appro priated it for their own cause, they felt as if a great coup d'etat had been engineered. But the spoils of war proved to be a bomb with a delayed fuse. In the end it served the socialists no better than it had the economists.

The labor theory of value is an (·objective" theory of value. It pre supposes Absolute Value, indepen dent of individuals. If it can be es tablished that uvalue" is a necessary c:onsequenceof ((labor,"then a plaus ible case might be advanced for supporting the labor theory. In fact, it cannot. One might ((labor" for days on end digging potholes in It"armer Brown's turnip patch. His only reward will be a cartridge of buckshot from the wrong end of a shotgun. The inept artist might ((labor" many months on a uMona Lisa" that is ((worth" less than the canvas upon which it is painted. On the other hand, the owner of previ ously unusable property might awaken to find his deed has ap preciated in value because of the proposed construction of a superhighway nearby. No labor has been expended. There can be no doubt as to the untenability of the labor theory of value. If the price of commodity A (including the commodity labor) is equal to the cost of production B, what, one may ask, determines the cost of production B? It is no answer to reply: the cost of production Bl.

There is no infinite regression. Sooner or later, one comes upon the original goods and factors of produc tion. What determined their value? .At this point it will be easy to simply 692 THE FREEMAN November shrug the shoulders and answer: Usupply and demand." But what ac counts for supply and demand? This is precisely where the classical economists (including Marx) re mained silent. All value springs ultimately from the subjective valuations of individ uals as they make their choices in the daily plebiscite of the mar ketplace. Without an inner process of valuation the old economic stand bys of ((supply and demand" could not exist. What else is the market price but supply and demand? What is supply and demand but the indi vidual evaluations of buyers and po tential buyers? There is no appeal, no recourse from the dictates of the customer. In the realm of economics it is'pointless to declaim the ~~real value" of one's pet project, investment, or labor.

There is no ((real value" in the world of production and trade but what people are willing to obtain by ex change. It is vain to stubbornly argue the ((intrinsic" or ((real value" of a product which can be ~~moved" for only a fraction of its overhead. Marx went to great pains to dem onstrate that the workers were dupes enslaved by heartless felons who were forever depriving them of their ((surplus value." For the insol ence of these capricious capitalists, the dialectical forces of material ism had decreed an apocalyptic day of vengeance, judgment, and retaliation. Then the benighted masses could be set free. The labor theory was a fountainhead of Marx's anal ysis. He wielded it well. With it he slew many a dragon; he formu lated with it the concept of ex ploitation, of class conflict, and of labor and wages. With its collapse the Marxist structure must collapse as well. IV. Labor and the Socialist Commonwealth It is no secret that Marx wanted to abolish capitalism. He de.cried the ((exploitation" of workers by owners and viewed the labor market as lit tle better than a slave auction. As far as Marx was concerned, laborers were the unwitting victims of the callous, hardhearted businessman.

He felt it was absolutely deplorable that the laborers ~~sell themselves piecemeal, are a commodity, like every other article of commerce, and are consequently exposed to all the vicissitudes of competition, to all the fluctuations of the market."17 The 170f course everybody is either directly or indirectly affected by the ttvicissitudes" of the marketplace-not just those engaged in daily trade and competition. The crucial question to ask here is: Would all that change under socialism/communism? Is reality any less stem under political regulation of economic necessities and desires than under market production, allocation and distribution?

1979 MARX AND THE MANIFESTO 693 only alternative, Marx felt, was to abolish the market society. It is positively true that ulaborers" must ttsell themselves" in order to survive. Certainly they are Subject to the ttvicissitudes of competition" -as is everyone engaged in earn ing his ttdaily bread." But how would all this. change under a communist economy? Specifically, having abolished the structure of the market (including its interlock ing relationships between prices, production, and the supply of goods and services), what part would labor play in the socialist commonwealth? Production Comes First Obviously, the first task of the socialist commonwealth is' to pro vide for production. Labor will be no less a necessity than it had been under capitalism. Once the market and the existing structure of produc tion and distribution have been abolished, what then? How will the administration allot its resources?

Upon what will they depend as a reliable guide for future production? Marx himself was silent on these matters. That he had an inkling of the can of worms he opened will be demonstrated later. (Marx was an advocate of communism-not state capitalism. He did not want merely to exchange one tyranny for another. Therefore, there could be no question of a market structure of prices to guide the decisions ·of the Socialist Planning Board. But as to how those decisions should be ar rived at Marx never said.) Under a upure communism" there can be no money-and therefore no meaningful structure of prices to di rect and allocate the flow of goods and services. I8 Nowhere has man succeeded in abolishing capitalism without immediate chaos. All such ventures are doomed to failure and have always resulted in a hasty re treat to the safer confines of the umixed economy" -where the ad :ministration may enjoy the bless ings of capitalism with the bureau cratic trappings of State power and control.

Again, Lenin and his authoritar ian successors were fully aware that they had failed to create the com munist utopia. For this they had (and have) many excuses andjustifi cations. Someday (they seem to be saying) when greed and venal cor ruption no longer rule man's heart, 18Lenin, the erstwhile disciple of Marx, learned this bitter lesson for himself in the :years following the October Revolution. Le nin's response to the failure of Socialism was a thinly veiled resort to a quasi-market (New Economic Program) which allowed for incen tive and the making of rational economic deci sions. Further, the basic premises of the NEP were not scrapped by the Soviets after Lenin's death. The Soviet economy merely assumed a more subtle form of State Capitalism-a sys tem which most assuredly relies upon a mar ket structure of prices; in· short, the Soviet Union is a ~~mixed economy," so to speak, not a communist society in the purest sense.

694 THE FREEMAN November when all these great evils and in equities have disappeared, then the Blessed Day will be ushered in and the pure in heart shall inherit their collectivist paradise. Until then, communist leaders and citizens are forced to play the capitalists' game of money exchange and market prices. The failure is not the fault of worldwide communism, but, rather of the venal capitalists who have sabotaged the global effort of the workers. The point is, however, that for one reason or another, com munism has never uworked." Chaos has always followed in its wake, and, barring an elemental change in man's basic nature, it probably al ways will. Efficient Use of Resources The communist society must labor and exploit its resources as effi ciently as possible. Not only must the Planning Board of Socialist Pro duction determine how and what will be produced when and where, but it must also make vital decisions regarding the procurement of labor ers for the projects which it deems most necessary. The utilization, channeling, and allotment of labor goes hand-in-hand with the pro curement thereof. How will this be done?

Marx had some notion of the prob lems involved in the dismember ment of the market and its atten dant structure of prices which have hitherto directed and guided entre preneurs in production decisions. Specifically, what is the nature of labor under a socialist common wealth? Marx provided some impor tant clues: UEqual liability of all to labor. Establishment of industrial armies, especially for agriculture. Combination of agriculture with manufacturing industries. Gradual abolition between town and country by a more equable distribution of the population over the country."19 In short, without a price allocation system inherent in the market economy, the only viable al ternative is an order of ((liability" to labor where conscripts are massed into ((industrial armies."20 Laborers will no longer be able to freely select the type and place of employment the levee en masse will take its place. Labor laws replace market prices. Serfdom replaces free choice and the ((invisible hand."

Of course, the ((industrial army," as Marx correctly noted, would come under the direct control of its to talitarian leaders. Without the flex ibility of the pricing system, this 19This brings to mind Hitler's National Labor Front under the anticapitalistic Nazis. Old film clips show row upon row, thousands upon thousands of laborers, young and old, standing at cCPresentArms" with shovels and picks-the great ccindustrial army" of an au thoritarian regime. 2°Marx and Engels, p. 505.

1979 MARX AND THE MANIFESTO 695 army will find itself ((relocated" from time to time to ensure a ((more equable distribution of the popula tion over the country." Their coun try cannot have its cake and eat it too. Either it must submit to the ((vicissitudes" of the market or suc cumb to the absolutism of its socialist dictatorship. The question is not: will there or won't there be ((planning"? The only legitimate question to be asked at this point is: uwho shall do the planning?" Presumably (optimistically) the plans of the socialist commonwealth will be made for and in behalf of The Public. Marx spoke quite a lot of ((the public." Such cliches never solve anything. They merely pro mote a scramble for all the myriads of special interest groups to see who gets to be ((the public." The great problem of the socialist common wealth is ((Le public, c'est moi." Conclusion What might one safely conclude about Karl Marx and his curious tract? What kind of person would it take to write the Manifesto? Marx must certainly have imagined him self as the noble St. George sent to right wrongs and rescue the pro letariat in distress. He, Karl Marx, did not tilt with windmills; he preferred to slay dragons. But how real were those dragons which he sallied forth to dismember? How much shadow and how much substance?

What was rhetoric and what reality? Which of the Marxist tenets have remained unexploded by the ((apologists and sycophants" which Marx so despised? Karl Marx was not quite the heroic figure about which he surely fantasized. Like another crusader of a distant age, he too was ensnared by his own delusions, the victim of his own fallacies. And, like the ludi crous knight of La Mancha, Marx's own literary page was not gifted with any better perception. Marx and Engels committed their blun ders together. Their incessant dis paragement of the market society and the dynamic Age of Liberalism has taken its toll. The Marxist fetish for capitalistic windmills rages un abated. Every prophet must have a Baby lon. The spark kindled in Berlin grew throughout his life and raged into a conflagration. With all the holy zeal of the True Believer and the self-righteous authority of an Old Testament patriarch, the sage of Trier endlessly denounced the ((op pressive" bourgeois and proclaimed the inevitability of socialism. This jihad. (as all jihads are) was holy, just, and irrevocable. The vast mul titude would rise up in defiance of their chains and shrug off the 696 THE FREEMAN parasitic edifice of landlords, em ployers, and usurers. This day of liberation would be the death-knell of capitalism and of the expropria tion of the many by the few.

An Appeal to Arms Marx was the eternal Pruss ian, boiling and seething with Teutonic wrath. He had, so to speak, traveled his own road to Damascus, revealed to man the dictates of the inner voice and communed with the Burn ing Bush. The fervent Dr. Marx was still young when he returned from Mt. Sinai with the burning tablets of the Manifesto still smoldering in his affectionate embrace. This dictum was to be the law and schoolmaster which would guide man to the Prom ised Land, eradicating for all time to come the despicable golden calf of capitalism and ~~unconscionable Free Trade." The days of Moloch were numbered. 21 21The imagery is intended; for the gods of an inevitable Armageddon and the Apocalyptic Day of Vengeance do most assuredly lurk between the lines of The Communist Man ifesto. Marx is merely the privileged servant, a prophet who just happens to be marked out by the blind eye of Destiny. Marx is better in fonned than his less enlightened fellows, the voice of thunder and lightning sent to mop up the stubborn pockets of bourgeois resistance.

Oppression is the theme, retaliation its sacred assurance. The Communist Manifesto is not a sophisticated economic analysis. It is propaganda and must be read as such. The rantings, the genuflec tions at the altar of ~~the Public," the ~~workers," and the ~~dictatorship of the Proletariat" are served up with out grace so to speak. To be sure, The Communist Manifesto reflected many of the fallacies of the day. It was a looking glass into the mental ity of French Socialism, classical economics, German philosophy, and a moral tradition which stretches back at least to the age of Socrates. The image which stares back at us is the bristling insolence of the armed thug. The Communist Manifesto is an appeal to arms. It calls for blood and death. Hand in hand the twin con cepts of fear and faith etch them selves upon the mind of the True Believer. It is not an appeal to rea son. Its final argument is the smok ing barrel of a loaded gun. ® A Bibliography of primary and sec ondary sources drawn upon in pre paring this paper is available upon request, The Foundation for Economic Education, Irvington on-Hudson, N.Y. 10533.

Kenneth L. Gentry, Jr. The Problems with Public Welfare AMERICANS have long been known to be a charitable people. Unfortu nately, government intervention could be changing that. The gov ernment has entered and gained monopolistic ascendancy in this field as in so many others. Being charitable makes it a bit difficult for us to speak out against public wel farism, lest we appear to be uncon cerned for the needs of the poor. However, there are numerous com pelling reasons why we can legiti mately decry public welfarism and still maintain-even emphasize our concern for the less fortunate in our society. 1. Public welfare destroys the personal relationship and interac tion which can be achieved through private, local charity. Big governThe Reverend Mr. Gentry Is the pastor of Midway Presbyterian Church, Jonesboro, Tennessee. ment is faceless and cannot express truly empathetic concern for the needy. The human element so essen tial to aid the poor is sacrificed to computerization.

2. It actually destroys a true sense of genuine charity among the general populace. Charity today is coercively maintained. How many times have you heard complaints about excessive taxation? And what accounts for a very large percentage of our national debt? I used to work in a grocery store and constantly overheard grumbling from the shoppers who were having to pinch their pennies when they observed a heavily loaded shopping cart of choice items being paid for with food stamps. Not\ only are ill feelings fos tered but also there is provided an excuse to shift responsibility when private charities appeal for funds: 697 698 THE FREEMAN November ~~The government has the resources. They will handle the situation." 3. It destroys, through excessive taxation, the capacity of private citi zens and organizations to help. Per sonal income is eroded through re distributive tax schemes, thus leav ing fewer funds for personal charity.

Remember the recent uproar over the enormous increase in the Social Security tax? There goes some more money that could have been avail able for private charity. 4. It undermines personal re sponsibility and incentive in the poor to help themselves. Welfare funds are addictive. Withdrawal is hard. 5. It promotes a false sense of securi ty among the needy. ~~The government will always be there to take care of me." UMy Social Secu rity will always be available to help me financially." According to the Federal Statement of Liabilities is sued by the Treasury Department, the Social Security program has about $4 trillion in unfunded obliga- ' tions! That's security? 6. It promotes a false sense of equality among minorities. They can either be led to believe they are getting their t~fair share" or that they are receiving ~~remuneration" for past offenses against them. De pendency does not promote equality.

7. It is less efficient than private charity. Private, local charity is true charity: it is voluntary and it is not subject to the bureaucratic filtering process. I have never heard the gov ernment or any of its programs praised for efficiency-except by the government and those who head the programs! 8. It promotes conflict among groups clamoring· to·get their hands on the handouts. Though theoreti cally (in a Keynesian economic sys tem) fiat· money could supply everyone with plenty of money, ac tually there is at least some restraint .upon the government's printing press (thank goodness for election years!). There is never enough money to make everyone happy; therefore, groups fight to get to the front of the. line. 9. It can and often does encourage immorality. The government does not have the same degree of reli gious and moral sensitivity that can characterize private charities. Il legitimate children are one way to gain additional welfare funds. Or if you decide against illegitimacy, in most cases you can get a ~~free" abor tion. Urban renewal programs have long been derided as consistently producing drug culture, crime infes tation areas, and family disruption.

10. It is more open to fraud and criminal abuse than smaller, more easily contained, private charity programs. Newspapers are filled with reports of welfare abuse by criminal elements. This serves as an additional Utax" on the truly needy 1979 THE PROBLEMS WITH PUBLIC WELFARE 699 themselves: scarce resources are fil tered away from their target. 11. It destroys the incentive to produce among the heavily taxed middle class. Success seems to be subject to undue fines (increased taxation). 12. It represents a large percent age of the federal debt that is monetized in the process of inflation. Price inflation erodes' the wealth of the nation and will eventually break the back of the economy. I recall in our local newspaper an interest ing-but not surprising-article on the economic plight of our area hos pital. This plight was caused by gov ernmental regulations related to welfare. It noted that Memorial Hospital gave ((free" medical care valued at $1.2 million in 1973-74, $2.5 million in 1974-75, $4.1 million in 1975-76, and $4.5 million in 1977.

The assistant administrator re ported that ((paying patient charges could be reduced by $50 a day if the hospital did not have to provide free care." There go more funds that could have been tapped for volun tary charity! 13. It is ironic that the expan sionistic monetary policies of the government which are partly neces sitated by welfare programs are not only hurting the general wellbeing of the nation at large but are espe cially hurtful to those on fixed in comes: the welfare recipients for whom we inflate in order to aid! The government is sadistic: it whips hardest the very people it sup posedly wants to help. 14. It coerces medical personnel to give out ((free" services as mentioned above. This not only raises prices for the non-welfare populace, but when medical programs are further expanded they cause medi cal shortages. England's socialized medicine is a case in point: England suffers from a doctor drain (they can live better elsewhere), overcrowded hospitals (free hospital care encour ages hospitalization for light cause), 'increasingly inadequate medical at tention (fewer doctors are serving larger crowds), and so on.

15. It increases statist power. That which controls your property and wealth controls you. A bigger government is more unmanageable, more susceptible to totalitarianism and tyranny. Thus, it aids and abets the erosion of liberty. Higher taxes cut down on what we are able to do, increased regulations (concocted by a powerful state) limit what we are allowed to do. 16. It unmasks ((blind" justice. It coercively redistributes the wealth from some in order to favor others-all in the name of social (justice"! Discriminating justice is mandatory injustice. 17. It encourages an increased ignorance in one of the most impor tant areas of life in our population: economics. ((Free" programs imply 700 THE FREEMAN that wealth is (Just there," profits are evil, shortages are contrived, lunches can be free. Our population already suffers a woeful ignorance of economic theory, without interven tionist politics setting a bad exam ple.

Yet despite these problems and others that could easily be multi plied, there are certain functions which government could properly perform to care for the needy. First, the central feature of the government is power. The purpose of this power is to insure the law and order necessary for economic stabil ity and growth. As F. A. Hayek has written in The Constitution of Lib erty: uThere is probably no single factor which has contributed more to the prosperity of the West than the relative certainty of the law which Secure and Enduring has prevailed here." A wealthier people can better support the needy. The government can promote wealth through law and order. Second, the government could abandon its redistributive schemes, reduce the burden of direct taxes and inflation, and leave to produc tive individuals the means and the incentive to help their less fortunate neighbors. Charitable giving is much more efficient than coercive redistribution.

Third, the state can use its judi cial power to prosecute criminal and fraudulent abuses of charity. The state does have a concern for the welfare of its population. The only legitimate way and the best way to care for the poor is through encouraging charity in the private sector by the three-fold method out lined above. ® IDEAS ON UBERTY LET us determine that we shall not allow the state to be our master, but that we shall be the masters of the state. The long road ofhistory is lined with the ruins of those states which bought the souls and wills of their peoples by the lure of a granted security, and then led them to ruin by the same mirage. The world does not need one more such ruin. It needs a people who will be really secure and enduring, as far as mortal life is possible-secure and enduring because each member of the society is a person who accepts his and her responsibilities as duties, and asks only that the state act to keep the avenues of freedom open.

RUSSELL J. CLINCHY. "Two Paths to Collectivism"

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Edmund Burke and His World IN THE THIRTIES, when the word ~~revolution" was being bandied about, Peter Drucker threw cold water on some of the more lively controver sies with his observation that the American Revolution was not a rev olution at all. It was, he said, a conservati ve counter-revolution, fought by the colonials to preserve their rights as Englishmen. King George III, a German, was the real revolutionary. What Drucker, a Viennese, was trying to tell us should have oc casioned little surprise. For it was all in Edmund Burke, whose fa mous speech on the need for Brit ain's reconciliation with the Ameri can colonies we had read in school. Burke regarded the stand of the embattled farmers at Lexington and Concord for what it was, a desPerate attempt to hold on to (~English liberties." There was no desire to overturn society, to institute a new order.

In the semantic battles of the Thirties, however, we had forgotten that words, over the decades, can come to mean their opposites. Liberalism had come to connote government compulsion. In her en gaging biographical study of Ed mund Burke and His World (Devin Adair, 143 Sound Beach Ave., Greenwich, CT 06870, 232 pp., $12.95) Alice P. Miller provides an antidote to semantical giddiness: her hero fought against the tyranny of verbal abstractions all his life. It is fitting that Russell Kirk, whose study of Burke was the centerpiece of his trail-blazing The Conservative Mind, should contribute an intro701 702 THE FREEMAN November duction to Mrs. Miller's book, for Kirk, in his war against ctdefecated intellect," carries on a struggle that is essential if we are to avoid being done in by the abstraction-worship ing ideologues. But even Russell Kirk, in using the word ctconservative" to describe Burke, has added a bit to the seman tical confusion. For Burke, in his own historical setting; was a Whig. His antithesis, Dr. Samuel Johnson, was a Tory, and Tories, in England, are usually regarded as conservatives. Since CCWhig," in its original Seventeenth Century connotation, meant cthorse thief,"

and CCTory" meant ~~outlaw ," the precise difference between the two great English parties becomes a little mysterious. But Alice Miller, with her own Burkean gift for see ing things in terms of their concrete settings, helps dissipate the mys tery. The Whig members of Parlia ment in Burke's day included, be sides great landowning aristocrats, the new city interests. The Tories were the rural squires. The Whigs believed in keeping the monarchy in its place. The Tories were often blind supporters of the king. Enterprise and Liberty Burke, as a Whig, belonged to the new world of Adam Smith. He un derstood enterprise. Who, better than he, has characterized the New Englanders of the Eighteenth Century as they carried on the whale industry? ((Whilst· we follow them among the tumbling mountains of ice," he said, uand behold them penetrating into the deepest frozen recesses of Hudson's Bay and Davis's Straits ... we hear that they have pierced into the opposite region of polar cold ... Nor is the equatorial heat more discouraging to them than the accumulated winter of both the poles. We know that whilst some of them draw the line and strike the harpoon on the coast of Africa, others run the longitude, and pursue their gigantic game along the coast of Brazil. No sea but what is vexed by their fisheries, no climate that is not witness to their toils."

The intimate connection between enterprise and liberty seemed plain to Burke. So, in his own world, he was a civil libertarian, which set him apart from Tory conservatives. He happened to be a Protestant, but his mother was a Catholic, and in his youthful experiences in Ireland he had seen too much of the baneful consequences of religious prejudice. The time would come when he would draft for Parliament his Catholic Relief Bill, which would allow Catholics to inherit or buy land and to teach in school without risking life imprisonment. The so-called Gordon Riots which followed pas sage of Burke's bill tore England apart, and it was characteristic of Burke that, although he did not 1979 EDMUND BURKE AND HIS WORLD 703 condone rioting in any form, he wor ried that the rioters might be punished too severely. Support of the Colonists Burke had attended a Quaker school before going to Trinity College in Dublin, and he had the proper Quaker abhorrence of intolerance.

The England of the Gordon Riots might seem a pretty intolerant community, but what strikes the modern reader of the Miller book is the comparatively relaxed attitude that governed in Parliament while the American war was going on. As a partisan of the colonists, Burke risked the imputation of treason. But this did not keep him from in sisting that all acts concerning America since 1763 should be re pealed. It would be wiser, he said, to make peace with the Americans and allow them to carry even some un reasonable points, lest they tum to England's old enemies, France and Spain, for help. The principles of the ,Americans, he said, ttbear so close a resemblance to those which support the most valuable part of our con stitution, that we cannot think of extirpating them in any part of his Majesty's dominions, without ad mitting consequences, and estab lishingprecedents, the most dan gerous to the liberties of this king dom."

Unable to raise troops in England to fight the colonists, King George III had to hire Hessians from Ger many. Burke had scathing words for the war zealots who were willing to fight to the last Hessian. ttThey have all the merit of volunteers," he said, ttwithout risk of person or charge of contribution; and when the unfeel ing arm of a foreign soldiery pours out their kindred blood like water, they exult and triumph as if they themselves had performed some' notable exploit." Limited Government Tom Paine mistook Burke's feel ingsabout the American war for being a generalized sympathy for revolutionists of any stripe. So Burke's immediate condemnation of the French'Revolution came as a surprise to Paine and his friends. 1Pheyhadn't pondered Burke's words about Utheextreme of liberty." Lib erty, he had written, ttmust be lim ited in order to be possessed. The degree of restraint, it is impossible in any case to settle precisely. But it ought to be the constant aim of every wise public counsel to find out by cautious experiments, and ra tional, cool endeavors, with how lit tle, not how much, of this restraint the community can subsist; for lib erty is a good to be improved, and not an evil to be lessened."

Burke accurately predicted the c:ourse of the French Revolution, 'lJIhichended in a military dictator ship that plunged all of Europe into 704 THE FREEMAN almost two decades of war. The claims of the UNational Assembly" to represent all the people of France did not impress him. uA government of 500 country attorneys and obscure curates," he said, Uis not good for 24 millions of men though it was chosen by eight and forty mil lions, nor is it the better for being guided by a dozen of persons of qual ity who have betrayed their trust in order to obtain that power." So Burke, the Whig, ended as a conservative-but only as one who would ((conserve" the liberties (al ways spoken of in the plural) that our fathers, in Kipling's phrase, had won for us ((long and long ago." ® HANDSOME BLUE LEATHERLEX FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533 the Freeman VOL. 29, NO. 12 • DECEMBER 1979 Capitalism LUdwig von .Mises 707 The so-called miracle of product~on in the free market economy stems from the adoption of sound economic policies.

Profits and Payrolls: 1978 Henry Hazlitt 718 The latest figures on the per cent of corporate income available to employees and to shareholders Dishonest About Inflation Melvin D. Barger 721 If we are cheating and being cheated by inflation, the cure lies in our resolution to return to "honest'" money. Where There Was a Will-Jess Raley 727 A look into the loss of the American will to self-responsibility and independence. The Social Cost of Railroad Regulation John Semmens 732 Government regulations and controls reduce returns and divert resources out of raiIroading. Education and Grades P. Dean Russell 740 A call for voluntary methods and open competition in teaching and learning. Permanent Depression Clarence B. Carson 743 Government regulations and controls depress production so that human wants go unsatisfied. Free Market: Elementary, My Child Barbara H. Bryan 752 It's never too early to demonstrate and discuss the natural sequence of willing exchange.

Book Reviews: 755 "The Freedom Freeway" by Leonard E. Read "Restoring the American Dream" by Robert J. Ringer Index for 1979 761 Anyone wishing to communicate with authors may send •• •• -, • - _L -rl 1Ir- .-.r"'IIlr-r-a. .. A'" ~ __ 4 __ .....__"': __ FOUNDATION FOR ECONOMIC EDUCATION Irvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230 _ Leonard E. Read, President Managing Editor: Paul L. Poirot Production Editor: Beth A. Hoffman Contributing Editors: Robert G. Anderson Bettina Bien Greaves Edmund A. Opitz (Book Reviews) Roger Ream Brian Summers THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non political, nonprofit, educational champion of pri vate property, the free market, the profit and loss system, and limited government. The costs of Foundation projects and services are met through donations. Total expenses aver age $18.00 a year per person on the mailing list.

Donations are invited in any amount. THE FREEMAN is available to any interested person in the United States for the asking. For foreign delivery, a donation is required sufficient to cover direct mailing cost of $5.00 a year. Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each. THE FREEMAN is available on microfilm from University Microfilms International, 300 North Zeeb Road, Ann Arbor, Mich. 48106. Some articles available as reprints at cost; state quantity desired. Permission granted to reprint any article from this issue, with appropriate credit except "Capital ism."

Ludwig von Mises Capitalism DESCRIPTIVE terms which people use are often quite misleading. In talk ing about modern captains of indus try and leaders of big business, for instance, they call a man a Hchoco late king" or a ((cotton king" or an ~(automobile king." Their use of such terminology implies that they see practically no difference between the modern heads of industry and those feudal kings, dukes or lords of earlier days. But the difference is in fact very great, for a chocolate king does not rule at all, he serves. He does not reign over conquered ter ritory, independent of the market, independent of his customers. The chocolate king-or the steel king or the automobile king or any other king of modern industry-depends on the industry he operates and on the customers he serves. This ((king" must stay in the good graces of his subjects, the consumers; he loses his ((kingdom" as soon as he is no longer in a position to give his customers better service and provide it at lower cost than others with whom he must compete.

Two hundred years ago, before the advent of capitalism, a man's social status was fixed from the beginning to the end of his life: he inherited it from his ancestors, and it never changed. If he was born poor, he always remained poor, and if he was born rich-a lord or a duke-he kept his dukedom and the property that went with it for the rest of his life. As for manufacturing, the primi tive processing industries of those days existed almost exclusively for the benefit of the wealthy. Most of the people (ninety per cent or more 707 708 THE FREEMAN December of the European population) worked the land and did not come in contact with the city-oriented processing in dustries. This rigid system of feudal society prevailed in the most de veloped areas of Europe for many hundreds of years. However, as the rural population expanded, there developed a surplus of people on the land. For this surplus of population without inher ited land or estates, there was not enough to do, nor was it possible for them to work in the processing in dustries; the kings of the cities de nied them access. The numbers of these tCoutcasts"continued to grow, and still no one knew what to do with them. They were, in the full sense of the word, ttproletarians,"

outcasts whom the government could only put into the workhouse or the poorhouse. In some sections of Europe, especially in the Nether lands and in England, they became so numerous that, by the eighteenth century, they were a real menace to the preservation of the prevailing social system~ Today, in discussing similar con ditions in places like India or other developing countries, we must not forget that, in eighteenth-century England, conditions were much worse. At that time, England had a population of six or seven million people, but of those six or seven million people, more than one mil lion, probably two million, were simply poor outcasts for whom the existing social system made no pro vision. What to do with these out casts was one of the great problems of eighteenth-century England. Another great problem was the lack of raw materials. The British, very seriously, had to ask them selves this question: what are we going to do in the future, when our forests will no longer give us the wood we need for our industries and for heating our houses? For the rul ing classes it was a desperate situa tion. The statesmen did not know what to do, and the ruling gentry were absolutely without any ideas on how to improve conditions.

The Start of Mass Production Out of this serious social situation emerged the beginnings of modem capitalism. There were some per sons among those outcasts, among those poor people, who tried to or ganize others to set up small shops which could produce something. This was an innovation. These in novators did not produce expensive goods suitable only for the upper classes; they produced cheaper products for everyone's needs. And this was the origin of capitalism as it operates today; It was the begin ning of mass production, the funda mental principle of capitalistic in dustry. Whereas the old processing industries serving the rich people in the cities had existed· almost exclu1979 CAPITALISM 709 sively for the demands of the upper classes, the new capitalist industries began to produce things that could be purchased by the general popula tion. It was mass production to satisfy the needs of the masses.

This is the fundamental principle of capitalism as it exists today in all ofthose countries in which there is a highly developed system of mass production: Big business, the target of the most fanatic attacks by the so-called leftists, produces almost exclusively to satisfy the wants of the masses. Enterprises producing luxury goods solely for the well-to-do can never attain the magnitude of big businesses. And today, it is the people who work in large factories who are the main consumers of the products made in those factories. Ludwig von Mises, 1881-1973, was one of the great defenders of a rational economic science, and perhaps the sin gle most creative mind at work in this field in our century. Found among the papers of Dr. Mises were transcripts of lectures he delivered in Argentina in 1959. These have now been edited by his widow and are avail able as a Regnery/Gateway paper backed book. This article, one of the lectures, is here reprinted by permission of the publishers. All rights reserved.

The book, Economic Policy: Thoughts for Today and Tomorrow, also may be purchased at $4.95 from The Founda tion for Economic Education, Inc., Irvington-on-Hudson, N.Y. 10533. This is the fundamental difference between the capitalistic principles of production and· the feudalistic prin ciples of the preceding ages. Consumer Sovereignty When people assume, or claim, that there is a difference between the producers and the consumers of the products of big businesses, they are badly mistaken. In American department stores you hear the slo gan ttthe customer is always right." And this customer is the same man who produces in the factory those things which are sold in the depart ment stores. The people who think that the power of big business is enormous are mistaken also, since big business depends entirely on the patronage of those who buy its prod710 THE FREEMAN December ucts; the biggest enterprise loses its power and its influence when it loses its customers.

Fifty or sixty years ago it was said in almost all capitalist countries that the railroad companies were too big and too powerful; they had a monopoly; it was impossible to com pete with them. It was alleged that, in the field of transportation, capi talism had already reached a stage at which it had destroyed itself, for it had eliminated competition. What people overlooked was the fact that the power of the railroads depended on their ability to serve people bet ter than any other method of trans portation. Of course it would have been ridiculous to compete with one of these big railroad companies by building another railroad parallel to the old line, since the old line was sufficient to serve existing needs. But very soon there came other competitors. Freedom of competition does not mean that you can succeed simply by imitating or copying pre cisely what someone else has done. Freedom of the press does not mean that you have the right to copy what another man has written and thus to acquire the success which this other man has duly merited on account of his achievements. It means that you have the right to write something different. Freedom of competition concerning railroads, for example, means that you are free to invent something, to do something, which will challenge the railroads and place them in a very precarious competitive situation.

In the United States the competi tion to the railroads-in the form of buses, automobiles, trucks, and airplanes-has caused the railroads to suffer and to be almost completely defeated, as far as passenger trans portation is concerned. Capitalism Transformed the World The development of capitalism consists in everyone's having the right to serve the customer better and/or more cheaply. And this method, this principle, has, within a comparatively short time, trans formed the whole world. It has made possible an unprecedented increase in world population. In eighteenth-century England, the land could support only six mil lion people at a very low standard of living. Today more than fifty million people enjoy a much higher stan dard of living than even the rich enjoyed during the eighteenth century. And today's standard of Iiv ing in England would probably be still higher, had not a great deal of the energy of the British been wasted in what were, from various points of view, avoidable political and military ~~adventures."

These are the facts about capital ism. Thus, if an Englishman-or, for that matter, any other man in any country of the world-says today to 1979 CAPITALISM 711 his friends that he is opposed to capitalism, there is a wonderful way to answer him: ttyou know that the population of this planet is now ten times greater than it was in the ages preceding capitalism; you know that all men today enjoy a higher stan dard of living than your ancestors did before the age of capitalism. But how do you know that you are the one out of ten who would have lived in the absence of capitalism? The mere fact that you are living today is proof that capitalism has suc ceeded, whether or not you consider your own life very valuable." Development of Factory System In spite of all its benefits, capital ism has been furiously attacked and criticized. It is necessary that we understand the origin of this an tipathy. It is a fact that the hatred of capitalism originated not with the masses, not among the workers themselves, but among the .landed aristocracy-the gentry of England and the European continent. They blamed capitalism for something that was not very pleasant for them: at the beginning of the nineteenth century, the higher wages paid by industry to its workers forced the landed gentry to pay equally higher wages to their agricultural workers.

The aristocracy attacked the indus tries by criticizing the standard of living of the masses of the workers. Of course-from our viewpoint, the workers' standard of living was extremely low; conditions under early capitalism were absolutely shocking, but not because the newly developed capitalistic industries had harmed the workers. The people hired to work in factories had al ready been existing at a virtually subhuman level. The famous old story, repeated hundreds of times, that the factories employed women and children and that these women and children, be fore they were working in factories, had lived under satisfactory condi tions, is one of the greatest false hoods of history. The mothers who worked in the factories had nothing to cook with; they did not leave their homes and their kitchens to go into the factories, they went into fac tories because they had no kitchens, and if they had a kitchen they had no food to cook in those kitchens.

And the children did not come from comfortable nurseries. They were starving and dying. And all the talk about the so-called unspeakable horror of early capitalism can be refuted by a single statistic: pre cisely in these years in which British capitalism developed, pre cisely in the age called the Indus trial Revolution in England, in the years from 1760 to 1830, precisely in those years the population of Eng land doubled, which means that hundreds of thousands of children-who would have died in 712 THE FREEMAN December preceding times-survived and grew to become men and women. Trade Brings Improvement There is no doubt that the condi tions of the preceding times were very unsatisfactory. It was capitalist business that improved them. It was precisely those early factories that provided for the needs of their work ers, either directly or indirectly by exporting products and importing food and raw materials from other countries. Again and again, the early historians of capitalism have---one can hardly use a milder word-falsified history.

One anecdote they used to tell, quite possibly invented, involved Benj amin Franklin. According to the story, Ben Franklin visited a cotton mill in England, and the owner of the mill told him, full of pride: ~~Look, here are cotton goods for Hungary." Benjamin Franklin, looking around, seeing. that the workers were shabbily dressed said: ~~Why don't you produce also for your own workers?" But those exports of which the owner of the mill spoke really meant that he did produce for his own workers, because England had to import all its raw materials. There was no cotton either in England or in continental Europe. There was a shortage of food in England, and it had to be imported from Poland, from Russia, from Hungary. These exports were the payment for the imports of the food which made the survival of the British population possible. Many examples from the history of those ages will show the attitude of the gentry and aristoc racy toward the workers. I want to cite only two examples. One is the famous British Speenhamland sys tem. By this system, the British government paid all workers who did not get the minimum wage (deter mined by the government) the dif ference between the wages they re ceived and this minimum wage.

.This saved the landed aristocracy the trouble of paying higher wages. The gentry would pay the tradi tionally low agricultural wage, and the government would supplement it, thus keeping workers from leav ing rural occupations to seek urban factory employment. Eighty years later, after capital ism's expansion from England to continental Europe, the landed aris tocracy again reacted against the new production system. In Germany the Prussian Junkers, having lost many workers to the higher-paying capitalistic industries, invented a special term for the problem: ~~flight from the countryside" -Landflucht. And in the German Parliament, they discussed what might be done against this evil, as it was seen from the point of view of the landed aris tocracy. Prince Bismarck, the fa mous chancellor of the German 1979 CAPITALISM 713 Reich, in a speech one day said, tt][ met a man in Berlin who once had worked on my estate, and I asked this man, tWhy did you leave the estate; why did you go away from thE~ country; why are you now living in Berlin?' "

And, according to Bismarck, this man answered, tty ou don't have such a nice Biergarten in the village as we have here in Berlin, where you can sit, drink beer, and listen to music." This is, of course, a story told from the point of view of Prince Bismarck, the employer. It was not the point of view of all his employ ees. They went into industry be cause industry paid them higher wages and raised their standard of living to an unprecedented degree. Living Standards under Capitalism Today, in the capitalist countries, there is relatively little difference between the basic life of the so called higher and lower classes; both have food, clothing, and shelter. But in the eighteenth century and ear lier, the difference between the man of the middle class and the man of the lower class was that the man of the middle class had shoes and the man of the lower class did not have shoes. In the United States today the difference between a rich man and a poor man means very often only the difference between a Cadil lac and a Chevrolet. The Chevrolet may be bought secondhand, but basically it renders the same services to its owner: he, too, can drive from one point to another. More than fifty percent of the people in the United States are living in houses and apartments they own themselves.

The attacks against capitalism especially with respect to the higher wage rates-start from the false as sumption that wages are ultimately paid by people who are different from those who are employed in the factories. Now it is all right for economists and for students of economic theories to distinguish be tween the worker and the consumer and to make a distinction between them. But the fact is that every consumer must, in some way or the other, earn the money he spends, and the immense majority of the consumers are precisely the same people who work as employees in the enterprises that produce the things which they consume. Wage rates under capitalism are not set by a class of people different from the class of people who earn the wages: they are the same people. It is not the Hollywood film corpora tion that pays the wages of a movie star; it is the people who pay admis sion to the movies. And it is not the entrepreneur of a boxing match who pays the enormous demands of the prize fighters; it is the people who pay admission to the fight. Through the distinction between the em ployer and the employee, a distinc714 THE FREEMAN December tion is drawn in economic theory, but it is not a distinction in real life; here, the employer and the em ployee ultimately· are one and the same person.

There are people in many coun tries who consider it very unjust that a man who has to support a family with several children will re ceive the same salary as a man who has only himself to take care of. But the question is not whether the em ployer should bear greater responsi bility for the size of a worker's fam ily. The question we must ask in this case is: Are you, as an individual, prepared to pay more for something, let us say, a loaf of bread, if you are told that the man who produced this loaf of bread has six children? The honest man will certainly answer in the negative and say, ~~In principle I would, but in fact I would rather buy the bread produced by a man with out any children." The fact is that, if the buyers do not pay the employer enough to enable him to pay his workers, it becomes impossible for the employer to remain in business. The Meaning of Capitalism The capitalist system was termed ((capitalism" not by a friend of the system, but by an individual who considered it to be the worst of all historical systems, the greatest evil that had ever befallen mankind.

That man was Karl Marx. Nevertheless, there is no reason to reject Marx's term, because it de scribes clearly the source of the great social improvements brought about by capitalism. Those im provements are the result of capital accumulation; they are based on the fact that people, as a rule, do not consume everything they have produced, that they save-and invest-a part of it. There is a great deal of misun derstanding about this problem and-in the course of these six lectures-I will have the opportu nity to deal with the most funda mental misapprehensions which people have concerning the accumu lation of capital, the use of capital, and the universal advantages to be gained from such use. I will deal with capitalism particularly in my lectures about foreign investment and about that most critical problem of present-day politics, inflation. You know, of course, that inflation exists not only in this country. It is a problem all over the world today.

An often unrealized fact about capitalism is this: savings mean benefits for all those who are anx ious to produce or earn wages. When a man has accrued a certain amount of money-let us say, one thousand dollars-and, instead of spending it, entrusts these dollars to a savings bank or an insurance company, the money goes into the hands of an ent"repreneur, a businessman, 1979 CAPlTALISM 715 The owner of producer's goods in the frame of a market economy is forced to employ them for the best possible satisfaction of the wants of the consumers. He for feits his property if other people eclipse him by better serving the consumers. In the market econ omy property is acquired and preserved by serving the public and is lost when the public be comes dissatisfied with the way in which· it is served. . . . By the instrumentality of the profit-and loss system, the owners are forced to deal with "their" prop erty as if it were other peoples' property entrusted to them under the obligation to utilize it for the best possible satisfaction of the virtual beneficiaries, the consum ers.

enabling him to go out and embark on a project which could not have been embarked on yesterday, be cause the required capital was un available. How Capital Creates Jobs What will the businessman do now with the additional capital? The first thing he must do, the first use he will make of this additional capi tal, is to go out and hire workers and buy raw materials-in turn causing a further demand for workers and raw materials to develop, as well as a tendency toward higher wages and higher prices for raw materials. Long before the saver or the entre preneur obtain any profit from all of this, the unemployed worker, the producer of raw materials, the farmer, and the wage-earner are all sharing in the benefits of the addi tional savings. Whether the entrepreneur will get something out of the project de Pends on the future state of the market and on his ability to antici pate correctly the future state of the market. But the workers as well as the producers of raw materials get the benefits immediately. Much was said, thirty or forty years ago, about the ~~wage policy," as they called it, of Henry Ford. One of Mr. Ford's great accomplishments was that he paid higher wages than did other industrialists or factories. His wage policy was described as an ~~inve~ tion," yet it is not enough to say that this new ~~invented" policy was the result of the liberality of Mr. Ford. A new branch of business, or a new factory in an already existing branch of business, has to attract workers from other employments, from other parts of the country, even from other countries. And the only way to do this is to offer the workers higher wages for their work. This is what took place in the early days of capitalism, and it is still taking place today.

When the manufacturers in Great Britain first began to produce cotton .716 THE FREEMAN December goods, they paid their workers more than they had earned before. Of course, a great percentage of these new workers had earned nothing at all before that and were prepared to take anything they were offered. But after a short time-when more and more capital was accumulated and more and more new enterprises were developed-wage rates went up, and the result was the unpre cedented increase in British popula tion which I spoke of earlier. Theory of "Impoverishment" The scornful depiction of capital: ism by some people as a system designed to make the rich become richer and the poor become poorer is wrong from beginning to end. Marx's thesis regarding the coming of socialism was based on the as sumption that workers were getting poorer, that the masses were becom ing more destitute, and that finally all the wealth of a country would be concentrated in a few hands or in the hands of one man only. And then the masses of impoverished workers would finally rebel and expropriate the riches of the wealthy propri etors. According to this doctrine of Karl Marx, there can be no opportu nity, no possibility within the capi talistic system for any improvement of the conditions of the workers.

In 1865, speaking before the International Workingmen's As sociation in England, Marx said the belief that labor unions could im prove conditions for the working population was «(absolutely in er ror." The union policy of asking for higher wage rates and shorter work hours he called conservative-con servatism being, of course, the most condemnatory term which Karl Marx could use. He suggested that the unions set themselves a new, revolutionary goal: that they (do away with the wage system al together," that they substitute ((socialism"-government ownership of the means of production-for the system of private ownership. If we look upon the history of the world, and especially upon the his tory of England since 1865, we realize that Marx was wrong in every respect. There is no western, capitalistic country in which the conditions of the masses have not improved in an unprecedented way.

All these improvements of the last eighty or ninety years were made in spite of the prognostications of Karl Marx. For the Marxian socialists believed that the conditions of the workers could never be ameliorated. They followed a false theory, the famous uiron law of wages" -the law which stated that a worker's wages, under capitalism, would not exceed the amount he needed to sustain his life for service to the enterprise. The Marxians formulated their theory in this way: if the workers' wage rates go up, raising wages 1979 CAPITALISM 717 above the subsistence level, they will have more children; and these children, when they enter the labor force, will increase the number of workers to the point where the wage rates will drop, bringing the workers once more down to the subsistence level-to that minimal sustenance level which will just barely prevent the working population from dying out.

But this idea of Marx, and of many other socialists, is a concept of the working man precisely like that which biologists use-and rightly so-in studying the life of animals. Of mice, for instance. Improved Conditions Depend on Sound Economic Policies If you increase the quantity of food available for animal organisIns or for microbes, then more of them will survive. And if you restrict their food, then you will restrict their numbers. But man is different. Even the worker-in spite of the fact that Marxists do not acknowledge it-has human wants other tha.n food and reproduction of his species. An increase in real wages results not only in an increase in popula tion' it results also, and first of all, in an improvement in the average standard of living. That is why today we have a higher standard -of living in Western Europe and in the United States than in the developing nations of, say, Africa.

We must realize, however, that this higher standard of living de pends on the supply of capital. This explains the difference between conditions in the United States and conditions in India; modern methods of fighting contagious diseases have been introduced in India-at least, to some extent-and the effect has been an unprecedented increase in population but, since this increase in population has not been accom panied by a corresponding increase in the amount of capital invested, the result has been an increase in poverty. A country becomes more prosperous in proportion to the rise in the invested capital per unit of its population. But you have to remember that, in economic policies, there are no miracles. You have read in many newspapers and speeches, about the so-called German economic miracle-the recovery of Germany after its defeat and destruction in the Second World War. But this was no miracle. It was the application of the princ iples of the free market economy, of the methods of capital ism, even though they were not applied completely in all respects.

Every country can experience the same umiracle" of economic recov ery, although I must insist that economic recovery does not come from a miracle; it comes from the adoption of-and is the result of sound economic policies. , Henry Hazlitt IN the August issue of The Freeman I pointed out that, in the division of the part of the gross income of the corporations available for the em ployees and for the stockholders, the employees got the lion's share. In 1977, for example, the last full year for which the figures were then available, the employees got 89.4 per cent of the division and the owners were credited with net profits after taxes of only 10.7 per cent. They did not actually receive that much, but dividends amounting to only 4.5 per cent of the combined total. Henry Hazlitt, noted economist, author, editor, re viewer and columnist, Is well known to readers of the New York Times, Newsweek, The Freeman, Sar ron's, Human Events and many others. Among the more recent of his numerous books are The Inflation Crisis and How to Resolve It and a revised edition of Economics In One Lesson.

718 This division, I went on to show, was in no way unusual, but in fact typical of the division over the years. In the whole thirty-year period from 1949, the employees re ceived an average of 88.1 per cent of the two-way division, the stockhold ers were credited with an average of 11.9 per cent: the actual dividends they received came to only 5.3 per cent. And in the. last ten of those thirty years, contrary to what news paper headlines, union leaders and political speeches during the period would lead one to expect, the aver age division was even more in favor of the employees. In those ten years employees had been getting an av erage of 90.2 per cent of the com bined total available for division be tween the two groups, and stockPROFITS ANI) PAYROLLS: 1978 719 holders an average of only 9.8 per cent. So much for the previous record. The percentages I have been citing are calculated from the corporation earnings of the nation as compiled by the Bureau of Economic Analysis of the U.S. Department of Com merce and published in its monthly Survey of Current Business. The final figures for calendar 1978 are now available, as they were not when my August article was writ ten. What do they show?

For the last thirty years the employees of this country's corporations have been re ceiving an average of eight times as much from them as has been cred ited to the stockholders. The reader will recall that a few months ago, when preliminary fig ures of corporate earnings in 1978 were first appearing, they were being roundly denounced by politi cians and by some Administration leaders as not only excessive but as shocking, ~~obscene," and even udis astrous." It is true, as might have been expected in such an inflation ary period, that in dollar amount they rose to record levels. The prof its after taxes of the nation's corpo rations rose in 1978 to $111.3 bil lion, compared with $94.7 billion in 1977, itself a record year for profits in dollar terms. But these figures have to be seen in their full context. For the com pensation of employees of the coun try's corporations, in dollar terms, also rose in 1978 to the highest level on record-$884.9 billion compared with $776.9 billion in 1977. So the employees in 1978 received 88.8 per cent of the total available for both, compared with 11.2 per cent cred ited to the stockholders. The stock holders were actually paid in divi dends only $42.1 billion, or 4.2 per cent of the total available for em ployees plus stockholders.

It will be noticed that this division does not differ very markedly from that in 1977 or the average in the last ten years. The percentage dis tributed in dividends actually fell below the 4.5 per cent average of the preceding ten years. Any government action that seriously reduces profits must diminish employment and payrolls as well. What is most striking about all these facts is their complete contrast not only with leftist propaganda but with prevailing public assump tions. Frequent polling by the Opin ion Research Corporation, for exam ple, has found that the consensus of most Americans is that the corpo720 THE FREEMAN rate stockholders get about 75 per cent of the two-way division of gross earnings and the employees only about 25 per cent. Judging by their statements, this must also be close to the assumption of the Washing ton bureaucrats. And millions of Communists throughout the world still adhere to the Marxist myth that labor under capitalism is paid the merest fraction of what it helps to produce and is forced to accept just enough to stay alive and repro duce its numbers.

The truth is that-when recal culated to allow for the distor tions of inflation-corporate profits are still far too low for the health of the American economy. Though corporate wages in 1978 were eight times corporate profits after taxes, though wages made up 76 per cent of the national income and profits only about 7 per cent (really much lower if accounting procedures were permitted by the IRS to make full allowance for inflation) it was the latter figure that was de nounced as ~~obscene" and ~~dis astrous." This demagogic hatred of profits has in fact done immense harm to the American economy, and above all to the workers. For payrolls and profits, as statistics have shown year by year over the last half cen tury, go up and down together. They are interdependent, and causally tied. The amount and outlook for profits determines employment and new investment. The way to encour age employment is to encourage em ployers. The way to increase real wages is to increase productivity; the way to do that is to encourage investment; and the way to do that is to encourage adequate profits.

The result of our actual policies is that our average annual percentage increase in productivity in the period from 1960 to 1977 was lower than that in Japan, in France, in Germany, in Canada, and in Brit ain. Our rate of capital investment between 1966 and 1976, as a per centage of GNP, was also lower than in any of these countries. The lesson ought to be clear. ® Reprints of ~~Profits and Pay rolls," from the August 1979 Freeman, available from The Foundation for Economic Edu cation, Irvington-on-Hudson, N. Y. 10533. 10 copies $2.00 100 or more, 15¢ each Melvin D. Barger UishQnest AIaQut InflatiQn MOST of the opinion polls tell us that inflation is the public's Number One worry. We shouldn't need the pollsters to tell us that. We can listen to the complaints in the lines at the supermarkets, read the head lines in newspapers, or hear the pronouncements of business leaders and political candidates. Inflation is a terrible cancer that must be brought under control, we are con stantly warned, or we face a bleak future and perhaps an economic di saster.

But what causes inflation? Many economists and savants tell us that inflation is a very complex problem with neither a single cause nor a single solution. Few economists would dare deny that arbitrary gov ernment expansion of money and credit produces inflation. Yet, there seems to be a universal desire to bring in other alleged causes: the greed of unions and businessmen, Mr. Barger is a corporate public relations executive and writer in Toledo, Ohio. government regulations, rISIng oil prices, and even such matters as lowered American productivity and reduced capital investment. What is behind all this confusion about inflation? It grows out of the same character defect that causes inflation in the first place. That character defect is dishonesty, and it has seduced a whole nation. But events may eventually force us to accept inflation as a dishonest human action that can be avoided if people have the will and the under standing to do so. Nor is inflation a complex problem when one is pre pared to see it as a moral issue rather than simply as political or social phenomena.

A steel company executive named Enders M. Voorhees pointed to the moral problem of inflation in a 1950 speech entitled, ~~Wanted-De pendable Dollars." Even then, corporate financial officers in Mr. Voorhees' position were discovering that inflation distorted business cal721 722 THE FREEMAN December culations and made future business planning a nightmare. In the same speech, he unashamedly showed a preference for the terms ((dependa ble dollars" or ((honest money" rather than such terms as ((sound money" or ((gold standard." He had harsh words for ((printing-press money," i.e., money created by gov ernment manipulations. But why were we beguiled by ((printing press" money and why were we un able to stop inflation? Mr. Voorhees concluded, uIn the end we may dis cover that it is our own deficiency in moral stamina that is to blame, and that the printing-press operators are merely reflecting our own at titudes." (emphasis added)1 Mr. Voorhees was politely saying that character defects get in the way of efforts to stop inflation. He could have gone on to say that dishonest money is produced by dishonest peo ple who are trapped by greed, fear, and weakness. This would 'Qe a very strong statement, but the facts bear it out. Inflation begins with an ex pansion of the money supply which immediately produces benefits for certain people while causing losses for others. In general, people on fixed incomes and holders of bonds, loans, and savings accounts are lSee Enders M. Voorhees, Financial Policy in a Changing Economy, Sowers Printing Company, Lebanon, Pennsylvania, 1970. See particularly pp. 184-200. Speech was pre sented at Dartmouth in 1950.

cheated, while borrowers, property owners, and inflation-wise specu lators show gains. Lying and Cheating Lying and bland promises are an essential part of the inflation pro gram. The public is constantly told that inflation will be brought under control, for it is important that most of the victims be unaware of what is going on. Still, a student of inflation is finally forced to believe that the public wants to go on believing in the inflation game. The old saying, ((You can't cheat an honest man," may have some relevance to the way we are cheating and being cheated by inflation. It would be unfair to say that the current generation of Americans is less honest than earlier generations that somehow were able to maintain an ((honest" or ((dependable" dollar. And for that matter, it would even be unfair to say that Americans are more dishonest, say, than the Ger mans or Swiss who have been able to maintain the strength of their cur rencies. Our problem, as Americans, is that we have been practicing a selective dishonesty. While often in sisting on rigorous honesty in other matters, we have accepted the dis honest practices that produce infla tion. Then we have gone further in this deceit and have attributed the shrinkage of the dollar's buying power to conditions that are really 1979 DISHONEST ABOUT INFLATION 723 the effects of inflating. This tends to deflect attention from the actions that dilute the market value of money· and ought to be stopped.

Needed: An Acceptable Definition One of our most disturbing prob lems is that professional economists do not agree in their definitions of inflation. One of the most widely accepted definitions of inflation is that it is a rising general level of prices. 2 Another popular definition of inflation is «too much money chasing too few goods." Actually, more honest and precise than either of these definitions would be an ex planation of the actions that cause prices to rise generally or bring ~~too much money" into existence. The public should understand that a widespread drought may re sult in temporarily higher prices for food, relative to prices of other things. But that is not the same as a. government action that arbitrarily produces more paper money and. credit and results in a persisting general increase in prices. Why do professional economists employ such deceptive and mislead·· ing definitions of a condition that could prove to be a terminal illness for our way of life? One reason for this dishonesty is that the need to maintain ~~sound" or ~~honest" money 2Campbell R. McConnell, Economics (New York: McGraw-Hill, 1975), p. 197.

was badly ridiculed and discredited in the early 1930s and since then has never been defended except by a few economists. There is also some thing about inflation that promotes demands for centralized government control, which many economists ad vocate. Finally, the Keynesian def icit spending programs endorsed by many economists make inflation unavoidable. Yet another argument against Uhonest money" is that it is a return to the gold standard, which had its severe critics and was often looked upon as a means of keeping money scarce and concentrating power in the hands of eastern bankers. Actu ally, honest money could take sev eral forms and could be backed by metals and commodities other than gold. It is even possible to conceive of a privately-issued currency with out any specific backing other than the assets of the bank or company which offers it. A gold standard will soon collapse if it is seen as a hin drance to progress rather than a way of protecting the public.

EffectsSeen As Causes In the general dishonesty about inflation, most experts make the error of blaming inflation on condi tions that are really the effects of expanding the money supply. Busi ness leaders like to focus on ~~cost push" inflation, for example, with unions as the villains. According to 724 THE FREEMAN December this argument, monopolistic unions are able to impose increased costs on business which must eventually be passed through as price increases. If unions would only be less greedy, cost-push inflation could be kept under control. Union leaders and their· staff economists. seize on the same argu ment, usually with the twist that inflation is caused by unwarranted price increases, excessive profits, high executive salaries, and monopolistic or oligopolistic enter prises. Both unions and manage ment, in making such arguments, play directly into the hands of politi cians who would like to institute wage-price controls. Despite the fact that wage-price controls are virtu ally unworkable and result in a bu reaucratic nightmare, the demand for them is kept alive by the persis tent belief that unions cause infla tion by raising wages or manage ments cause the same condition by increasing prices.

Professional economists could per form a great service by rooting out the fallacies in these beliefs. They could show, for example, that rais ing either wages or prices without corresponding expansion of the money supply will result in un employment; there is less demand for either labor or goods if wages and prices go up with no equivalent in crease in available money. With no expansion in the money supply, workers who demand too much or businesses which raise prices above the market would merely lose out to competitors. Blaming Government Regulations Inflation commentators have re cently discovered another culprit in producing inflation: the high costs of government regulation. This has been useful to managements pro testing the costs of meeting factory emission regulations or of making government-required product changes. There are good reasons to oppose these regulations and to de plore the costs of meeting them. It is false, however, to say that costly government regulations cause infla tion.

The economic effect of a govern ment regulation is exactly the same as a wage increase or any other cost, including higher oil prices. It is something that must be included in the prices of the goods or services being offered by the company. Taxes are in the same category. And if the firm's customers will not accept the increased prices, the company either will go out of business or will divert its production to lines that can be marketed profitably. But regulations in themselves do not cause inflation. They do cause higher prices of certain products. These higher prices are mistakenly called inflationary, when they really reflect higher costs. The customer 1979 DISHONEST ABOUT INFLATION 725 who must pay these higher prices will make equivalent reductions in other purchases. Is Low Productivity a Cause of Inflation? Low productivity is still another suspect in causing the inflation mess. With lower-priced imports flooding the country, there is in creased concern about conditions that adversely affect American pro ductivity. One of these conditions is the high cost of wages and benefits which raises unit costs of American goods. There is also deepening con cern about the decline in capital investments. It is alleged that our own plant capacity is becoming ob solete and inefficient in comparison with the plants of foreign producers.

Meanwhile, prices of most manufac tured goods are going up. But with higher productivity, prices would tend to stabilize, or at least the in creases would not be so large. Here again, low productivity is blamed because it supposedly in creases the unit costs of certain products. Productivity itself has nothing to do with causing inflation, nor can it stop the process. The best spur to productivity is the producer's desire to capture a larger share of the market and to increase his over all productivity. Few producers are likely to increase their efforts sim ply to fight inflation. But there is a very serious deception in the effort to use higher pro ductivity as an inflation-fighter. This deception comes from defining inflation as a general rise in prices. Theoretically, an annual increase of four per cent in the money supply would not result in a general price rise if there also was a four per cent improvement in productivity. Prices would probably remain at the same level.

This would not mean, however, that inflation had been stopped. It would only mean that its effects had been concealed. For, without an ar bitrary expansion of the money sup ply, the four per cent improvement in productivity would have gone to certain wor kers, owners, and cus tomers, as wages, dividends, or lower prices. So increased productiv ity only makes inflation less visible, and perhaps more acceptable politi cally. But it is not the answer to inflation. The End of Dishonesty We can probably expect more dis honesty about inflation until events force us to change our ways. There is reason to believe that the American people become very worried when inflation passes the double-digit level. While this does not lead to a complete understanding of the prob lem, it does cast doubt on some of the glib explanations and solutions being offered. Unfortunately, the most recent surge in inflation was 726 THE FREEMAN attributed to higher oil prices, when in reality the OPEC nations who raise their crude prices do so to pro tect themselves from the continuous inflating of the American dollar.

Yet, honesty or truth about money must always have its day; even the inflationists know that. As Ludwig von Mises explained, inflation can not go on endlessly. HIf one does not stop in time the pernicious policy of increasing the quantity of money and fiduciary media, the nation's currency system collapses entirely. The monetary unit's purchasing power sinks to a point which for all practical purposes is not better than zero." Still, Mises believed that money and credit expansion could be stopped in time if people had only the will and the understanding to do SO.3 Hans F. Sennholz, an economist who studied under Mises, has been less optimistic about the future of the dollar. In his view, two-digit inflation will be ended only by the advent of three-digit inflation. He also has suggested that American inflation may end in a frenzied, hys terical spending debacle not unlike that which overtook Germany in 1923.

But whether the landing from dishonest money is soft or hard, Americans will some day become 3Ludwig von Mises, Planning for Freedom (South Holland, Illinois: Libertarian Press, 1974), p. 155. more honest about the causes and effects of inflation. We will become courageous enough to demand hon est, or dependable, money. And we should not be too hard on ourselves when we finally learn how we have been deceived about the nature of inflation. Mr. Voorhees, in his plea for dependable dollars, pointed out that it seems to be those people who have had bitter personal experience of living under bad cur rencies who most appreciate good currencies and are willing to make some sacrifices to secure and main tain them. He was probably refer ring to the West Germans, whose bitter experiences of 1923 probably taught them the value of strong, honest, dependable money. We have had no experience simi lar to Germany's runaway inflation of 1923. Let's hope we don't have to endure such a disaster, which some observers thought was a worse calamity for Germany than their losses of World War I. But adversity, if it cannot be avoided, can at least be put to good use. In the case of an inflationary collapse, it could teach us honesty. As Sennholz says, HAffiiction is a school of virtue that may correct levity and interrupt the confidence of sinning. But how long and how often must man be affiicted before he learns the lesson?"4 @ 4Hans F. Sennholz, uTwo-Digit Inflation,"

The Freeman, January, 1975.

IN AMERICAtoday there seems to be near universal awakening to the fact that something is wrong. Indi viduals in vast numbers are no longer inspired to excel in their re spective fields of endeavor. Business leaders fault labor, OPEC, government, imports and employee apathy. Labor blames business, government, OPEC, and the low wages paid in exporting countries. Rank and file citizens generally believe government, OPEC, labor, business and lousy working conditions to be the pri mary culprits. Government suspects business, OPEC, foreign ingenuity, lack of respect for the dollar abroad and malingering personnel on pro duction lines. (Labor controls too many votes to be faulted by those Mr. Raley Is a freelance author, speaker, phI losopher from Gadsden, Alabama. Jess Raley Where There Was a Willwho have to stand for election from time to time). Every cognizant individual old enough to remember when the zest for life was, of necessity, honed to a fine edge is fully aware that the intangible known as the American will has, in fact, diminished percep tibly. The only thing I can't under stand about the case of diminishing will-and it really bugs me-is so many people asking why.

One of the few things I know for an absolute certainty is why the American will (that seems to be the accepted term used, no doubt, to avoid complicated nomenclature) is less vivacious, aggressive, and steadfast than it once was-why so many individuals feel little, if any, responsibility for themselves, their job, family and government. I know why because I was there when it 727 728 THE FREEMAN December happened, saw the seeds of irrespon sibility planted and observed the first bitter fruits of that harvest. Let me say at this point that I have never known or learned to think of an average person. The peo ple I meet, get to know, learn to like or dislike, are all individuals and a surprisingly large number of them are by no means devoid of will. On the other hand relentless encroach ment on freedom. of choice, innum erable restrictive regulations on en terprise and the fact that people have learned that losers, as well as those who never see the starting gate, have equal recourse to one or more government wealth-sharing program tends to, more or less, dull the once fine cutting edge of Ameri ca's will to excel.

In January 1933 I found it neces sary to drop out of school. Dad was having a difficult time just feeding the family so I decided to move to my granddad's farm in Appalachia where I could, hopefully, earn my own living. Being in my middle teens at the time, I even expected to save enough money to return to school. The old farm was in a steep nar row valley and, except for a few small level plots, the productive soil had washed away many years be fore. This was not particularly im portant to me since I didn't have the means to cultivate the land anyway, but I did find innumerable ways to make a living. I learned to hunt and trap animals for their fur, dig medici nal roots, especially ginseng, and where to sell them; find and rob wild bees; pick and market wild berries; and numerous other ways to earn money. As a matter of fact I had a ball in Appalachia, lived well after the first few weeks and actually accumulated enough in the process to return to school. I was, therefore, really just a transient who learned from the local residents what I needed to know to attain my appointed goal, and then I moved on.

Everyone in the area must have been well below poverty level if there was a poverty level in those days. But the people who lived in the larger valleys and owned more level land seemed to be doing fairly well. It was the real poor folk, however, who lived in the ridges and small eroded valleys where I was, and were almost as poor, that I came to know and admire. These were the hustlers who parlayed their meager crops with what they could earn from other sources to sustain their families. In my opinion-and I've had a love affair with anthropology since the fifth grade-man, living in an organized society, has never been more free and independent than those people were. They accepted full responsibility for themselves and their families; no one expected 1979 WHERE THERE WAS A WILL 729 anything from a source other than their own efforts. Sometime that summer the gov ernment programs started. An agent came through offering to pay farmers from eleven to twenty-one dollars an acre, depending on how good he judged their cotton to be, to plow up all or any part of it. Most farmers plowed up some part oftheir crop. With cotton selling for about five cents a pound and the area's history of low productivity, it was the practical thing to do.

The difference in payment causE~d considerable resentment among neighbors, however, since in mid summer most farmers think their crop is as good as the best and better than the rest. I had put in a sma.ll crop that year after all by plowing for an elderly gentleman in ex change for the use of his mule and plow, a day for a day. Since I had only three acres of cotton, I didn't destroy any of it. I did get a preview, however, of how government pro grams would be administered when the agent paid his cousin top money for seven acres of very poor cotton while offering or paying at or near the bottom level to most everyone else. Next came the commodity pro gram designed by the ttphilan thropists" in Washington to feed the poor better than they could feed themselves while reducing the mountains of surplus commodities. The program seemed to work well in that it achieved these goals. No doubt its sponsors were quite pleased with themselves. But I still hurt when I remember what it did to most of the People who participated.

In retrospect, these first ripples of government intervention were very small indeed in relation to the tidal waves that have followed. However, they were that first step of a long journey, a foot in the door that had heretofore been strictly private, the first pitch of a whole new ballgame. At first only a few of· the more indolent signed up to receive com modities. Then, as others saw their neighbors eating better without ef fort than they could eat by scratch ing as hard as they could, more and more· people capitulated. It was like watching trees in a virgin forest fall and knowing they would never grow quite so tall again. Envy and re sentment played a major role, along with nagging spouses. But for what ever reason, when individuals signed up for commodities they seemed to become different people, lose the essence of their zest for life. Everyone in the area must have been eligible to receive commodities.

At first, only a few signed up so the people who had accepted the job of distributing them were forced to get out and beat the bushes in an effort to find people who would take the mounting piles of food off their 730 THE FREEMAN December hands. I happened to be at a friend's house one day--we had cut a bee tree and were di viding the honey-when a commodity agent came by looking for prospects. He explained that the food was piling up and that he had to move it to hold his job. When we declined his offer the agent asked my friend point blank why we refused; and I doubt to this day that a better answer could have been given. ((I don't do nigh as good a job supporting my family as I would like to do," he said, ((but I well know whose job it is." That, I believe, is a classic example of the will, once so prevalent, that built America--the will so many people are hoping their fellow citizens can recapture in this age.

By the time I left Appalachia it was easy to detect participants in the commodity program just by talk ing with them. People who had been eager to help cut a bee tree, dig a load of rhododendron and ferns to sell, or any of the numerous projects that offered some small remunera tion, were no longer interested after being on commodities for a while. More than this, their thinking changed perceptibly. Americans, since the Revolution, had felt responsible-not to government but for government--in the same sense that they felt responsible for them selves and their family. As individ uals accepted or were forced to participate in various programs, they changed positions, in their own mind, placing government in the parent role of primary authority and responsibility. In less than two years, fully one-third of the people in the area were accepting govern ment handouts in lieu of individual will.

The things I saw happen in that remote region were, of course, being acted out in every nook and corner of these United States. As the years passed, more and more people be came addicted to an ever-increasing number of government programs. Industrial workers protected by powerful unions with unrealistic contracts, obtained in many cases with the aid of government pres sure, often do no more than dabble at their work. Extra effort and in genuity is not necessary to hold a job; as a matter of fact, motivation is often frowned on by fellow workers where just drifting with the flow has become the norm. After all, if the company goes broke, the employees can always draw their pennies. Since the stone of necessity no longer keeps a cutting edge honed on individual will the American economy has been forced to draw more and more on that reserve we hillbillies are wont to call gut fat capital, labor, technology and moti vation invested before the American will was inhibited by government 1979 WHERE THERE WAS A WILL 731 handouts and restrictions. In those days a man was responsible without recourse for his own house. He could invest his means in a business ven ture knowing that as the owner he could hire acceptable personnel, di rect operations, enjoy the fruits of success, or suffer loss if the venture was a failure. The people employed by such a man knew they could do their job well and stay on the payroll, possibly moving to a better position if the business prospered; or they could fail to show incentive and find themselves terminated.

A long-time friend of mine has been associated with railroads all his working life. He and I were dis cussing this gut-fat proposition re cently and he ventured the guess that if a railroad were built froIn scratch today, rights of way in cluded, the builder having to con tend with all the regulations and restrictions prevalent at this time, it would cost at least one hundred dollars to ship a peck of wheat bran, on said railroad, from St. Louis to Chicago. No doubt my friend exag gerated somewhat, but I would be unwilling to promote such a project hoping to prove him wrong. With American productivity de teriorating progressively, rank and file citizens as well as leadership in government and business are voic ing grave concern about the erosion of this element known as the Ameri can will. Even coming late in the game as it has, when our place in the sun is much less secure than it once was, this near universal awak ening should be good for the coun try. I must admit, however, that I would be a great deal more elated if cognizant adults would quit ((play ing like" they don't know what's causing the trouble. This breed has been known to pour water on a drowned man in a sincere effort to revive him. @) IDEAS OI'J UBERTY Grover Cleveland THE LESSON of paternalism ought to be unlearned and the better lesson taught that while the people should patriotically and cheerfully support their Government, its functions do not include the support of the people.

Every thoughtful American must realize the importance of checking at its beginning any tendency in public or private station to regard frugality and economy as virtues which we may safely outgrow. The toleration of this idea results in the waste of the people's money by their chosen servants and encourages prodigality and extravagance in the home life of our countrymen.

John Semmens THE SOCIAL COST OF RAILROAD REGULATION DESPITE the fact that the economic regulation of transportation has· been an unmitigated disaster from the very beginning, substantive re form has been negated at every juncture. Worse still, each succeed ing crisis has instead served as an excuse to aggravate the ills of exist ing government interventions by enacting even more regulations. These further interventions have been Ujustified" on the grounds that the consequences of deregulation would be too gruesome to con template. Removal of government controls would place the transporta tion industry and its customers at the mercy of the market. And we all uknow" how horrible that would be. Mr. Semmens is an economist for the Arizona De partment of Transportation and is studying for an advanced degree in business administration at Arizona State University. 732 Well, perhaps we don't know how horrible it would be. After all, we .

cavalierly entrust our survival to essentially unregulated markets for food, clothing, and shelter. Trans portation, though, we are assured, is different. One could hardly argue with that, if for no other reason than that it has been treated as different through government policy for nearly 100 years. It is a sobering thought to consider that a mere mountain of bizarre and absurd gov ernment rules and regulations is all that stands between the consumer of America and the menace of competi tion in transportation. Given the professed importance of rail transportation to the ((public interest" one might have antici pated that public policy would have paid greater heed to the financial health of the industry. Strangely, THE SOCIAL COST OF RAILROAD REGULATION 733 though, the importance of rail ser vice has spawned curious theories of one-sided obligations. The theory of the railroads' obli gation to serve begins innocently enough with the rather bland asser tion that railroads are different from other businesses. While this is true, it hardly follows that railroads ca.n exist outside the constraints of eco nomics that face every human en terprise in a world of scarcity. Rail service is not guaranteed merely be cause it is necessary or useful. Rail service, like any other economic good, requires resources. Yet, what are we to make of government de crees that railroads may be required to operate at a loss?1 Or that such mandated losses do not constitute a form of confiscation?2 Ostensibly, the losses incurred in performing the vital public service of expending scarce resources on unused or underused rail service are to be made up by cross subsidy. The idea is that some other part of the rail system will bear an inordinate portion of the costs by excessive charges levied against its custom ers. However, both economic theory and experience indicate. that cross subsidization doesn't work. Jacking up rates in excess of full cost invites competition to take away the disfa vored customers. This is precisely what has happened in the transpor tation industry.

The government can force the railroads to suffer losses on little used routes, but cannot deliver on the promise of higher profits elsewhere. The result is that despite the legislated Hfair" rate of return of 5%% promised by the Transporta tion Act of 1920, the railroad indus try has enjoyed a return of less than 5% since 1929, and less than 4% since 1955. 3 Even these anemic earnings overstate the return on in vestment because no adjustment is made for the effects of inflation. The impact of inflation is revealed in the insufficient reserves set aside for capital consumption. Since depre ciation is based on historical cost rather than replacement cost, the yearly amount allowed for deprecia tion reserves will, when the time for replacement arrives, amount to too little to replenish the worn out track and equipment. Meanwhile, money which should have been accumu lated to serve this. purpose has been reported, and taxed, as income.

Railroad Earnings The magnitude of the impact of inflation is indicated by the esti mated differences in return for the fifteen largest railroads (based on 1977 revenues) for selected years since 1960. As can be seen from the table, after adjustment for inflation, the return on investment never ex ceeded 3%. Worse yet, by 1977 the return was a pathetic .2% (two tenths of one percent).

734 THE FREEMAN December IMPACT OF INFLATION ON INVESTMENT RETURNS FOR FIFTEEN RAILROADS, 1960-1977 Sources: Moody's Transportation Manual and Survey of Current Business (Bureau of the Census). The reported financial results were adjusted using the implicit price deflators for rail structures and equipment and the esti mated proportion of asset life remaining. The 15 railroads used in the sample were: Burlington Northern; Southern Pacific; Santa Fe; Union Pacific; Norfolk & Western; Missouri Pacific; Seaboard Coast Line; Louisville & Nashville; Baltimore & Ohio; Southern Rail way; Illinois Central & Gulf; Chesapeake & Ohio; Chicago & Northwestern; Chicago, Rock Island & Pacific; St. Louis-San Francisco. Such low rates of return are clearly inadequate to sustain any thing close to existing levels of rail service regardless of the legislated Uobligations to serve." Under such conditions, the shift of capital out of the railroad business becomes inevi table. Since capital is a limited re source, those opportunities which offer better rates of return go to the head of the line. Almost anything beats the return yielded by rail inYear 1960 1965 1970 1975 1977 Based on Reported Earnings 3.3% 4.7% 3.9% 3.6% 4.7% After Inflation Adjustment .8% 2.8% 2.2% .2% .2% vestments. It should come as no sur prise, then, that the management of railroad firms would seek to diver sify out of the rail business.

Some degree of concern has been voiced that the diversion of rail re tained earnings to non-rail invest ments will weaken the capacity to provide rail services. There can be little doubt that the trend is away from rail investment and that this must inevitably reduce the capacity of the rail system. Far from being a sinister threat to the public welfare, however, this shift of resources from potential rail investment to other lines of business is a pragmatic re sponse to a more urgent order of consumer needs. Channeling re sources to these more urgent needs is a prime example of the exercise of socially responsible corporate man agement. Since resources are lim ited, it is desirable that they be put to their best use. The venture into non-rail lines of business by railroad firms is a reaction to, not a cause of, low returns in the rail industry. Signals for Change Low return on investment is a 'social signal indicating that con sumers want less of the particular product or service offered and more of some other product or service.

Railroad management would be misusing the resources under their control if they were to ignore this signal. Perhaps the signal is less 1979 THE SOCIAL COST OF RAILROAD REGULATION 735 than completely valid given the fact of heavy governmental interven tion in the business. It is quite pos sible, even likely, that this interven tion, itself, has played a key part in reducing returns and diverting re sources out of railroading. If legiti mate high order of urgency needs for rail service are not being met, we must look to the constraints imposed by public policy for an explanation, not fault railroad management for pursuing sound investment oppor tunities through diversification. It may be that the low return in regulated industries results from the old theory that such industries, having an Hassured" level of profit written into law, were less risky, and therefore, would normally be expected to experience low rates of return. In recent years, though, it has become painfully obvious that the ~~ assured" level of profit all too often has proven a ceiling rather than a floor. Consequently, at the same time that the internal rate of return on rail investment has been declining, the return on investment demanded by securities holders has been increasing. 4 Capital Requirements Investors looking to the future are unimpressed by the regulatory au thorities' concern with insuring that firms recover historical costs. Stock prices have been bid down below tangible book value, effectively cutting the regulated firm off from new equity capital. Access to external sources of capital may be critical to the railroad industry in the years immediately ahead. The U.S. De partment of Transportation has es timated the railroad industry will re quire $16 billion in outside capital between 1980-1985 in order to maintain the existing level of ser vice. Unless the rate of return on rail investment improves markedly in this period, the public interest can be best served by reduction of service and disinvestment in low yielding rail facilities. In this way, resources that would be underuti lized on lightly traveled rail lines could be redirected to society's more urgent needs.

It is unreasonable to expect rail roads to continue to invest money at such low rates of return. This reali zation has spawned a number of subsidy proposals. In 1970 the Rail Passenger Service Act established Amtrak-a government-owned and operated passenger service. In 1976 the Railroad Revitalization and Regulatory Reform Act led to the formation of Conrail-a gov ernment-owned and operated freight service. The 1976 Act also set up procedures whereby unprofit able branch lines could receive sub sidies to retain rail service. While it is true that government subsidies could improve the return on invest ment from the perspective of the 736 THE FREEMAN December railroad firm, the subsidy, since it is a transfer payment, does nothing to improve the total return on society's limited resources. In fact, since the funds for subsidy must be drawn from investments with higher rates of return, the net social benefit of the transfer is negative. That is, fewer goods and services in total will be available than if the transfer were not made.

Paying the Price Two general policy directives pro vide the guidance for Interstate Commerce Commission regulation of transportation. On the one hand, the Commission is bound to prevent rate discrimination. On the other hand, the inherent advantage of each mode is to be preserved. To begin with, ~~preventing" and ~~pre serving" are innately conservative activities. Even if such activities were appropriate when first insti tuted, time would inevitably render them less and less satisfactory. As it is, though, the directives are based upon fallacious economic doctrine and are representative more of wish ful thinking than practical policy. The social prejudice against rate discrimination springs from the no tion that it is unfair to charge differ ent prices to different buyers for the ~~same" service. The early examples of rate discrimination involved cir cumstances in which a railroad might charge a lower rate for a long ·ha ul than for a short haul. The lower rate is to be distinguished from a mere quantity discount. The long haul total charge would amount to less than a short haul charge, sometimes over the same track. SUPerficially, using estimates of average costs to provide service, it can apPear ftunfair" that a short haul which should cost less to sup ply, has a higher price. tag. The problem with this line of reasoning is twofold. First, no two buyers of rail service are purchasing identical service. Second, the reported ftcost"

,of providing a service, even if it can be accurately determined, may be relatively unimportant in establish ing the price of any SPecific transac tion. Transportation is purchased in terms of origins, destinations, and time Periods. Even goods moving between the same two points may require different handling in terms of quantity, time of year, hour of the day, and the like. The service pro vided cannot be uniformly divided into equivalent units, such as ton miles. Yet, this is precisely what regulation has led to. The imposi tion of this type of price control can have two kinds of results: none and bad. In the instances where the reg ulated price exactly matches what would have been the free market price, the regulation will have no impact. In the far more frequent instances where the decreed price is 1979 THE SOCIAL COST OF RAILROAD REGULATION 737 either higher or lower than what the market price would have been, un desirable consequences will result.

Wasteful Controls In the cases where the controlled rate exceeds what would have been the market rate, traffic will be di verted to a second best alternative. This leads to inefficient use of re sources, as the second best alterna tive will almost certainly be at a higher cost. At the same time, the loss of revenue occasioned by the diversion will reduce the incentive and capacity of the firm to produce and provide the first best alterna tive. This phenomenon is demon strated when the regulatory author ity prohibits rate reduction by in sisting that a move must cover fully allocated costs. Given the high pro portion of fixed to variable costs typi cal in the railroad business, this regulatory approach prevents the realization of certain economies of scale, places the railroad at a com petitive disadvantage, lowers total economic output, and increases the aggregate expenditure of resources.

In cases where the controlled rate is less than what would have been the market rate, uneconomic de mand for the service will be stimu lated. If the rate control were the only intervention, the suppliers of the service would seek to withdraw from the market. Unfortunately, further regulatory impositions usually prevent this from taking place. Railroads are frequently required to retain service which cannot earn enough to pay its own way. The retention of such ((vital" services is not without its attendant social cost. The resources expended at a loss are thereby unavailable for more useful employment. Furthermore, the alternative modes which could have provided economical service are prevented from making a contribution toward a net societal profit. This regulatory approach is especially insidious. The preservation of lightly traveled branch lines is the readily observa ble effect. What is not seen is the sacrifice of more beneficial alterna tives. In this case, certain disecono mies are enforced, leading to a weak ening of other rail services, lower total economic output, and wasteful consumption of scarce resources.

The 1940 Transportation Act in structed the Interstate Commerce Commission to preserve the inher ent advantages of each mode under its jurisdiction. As anyone familiar with economics knows, the market, left to itself, will promote efficiency. As resources seek the highest rates of return, the ((inherent advantages" of any operation will most assuredly be employed. Since the economy is dynamic, today's ((inherent advantages" may be tomorrow's outmoded techniques. Instructing the ICC to preserve the inherent advantages of 738 THE FREEMAN December each mode in 1940 has had the un happy result of retarding progress. That this preservation policy has stifled innovation is demonstrated by the historical record. The ICC's persistent adherence to full cost al location, as exemplified in «Rail Form A" costing rules, has killed off several rail car innovations. The re quired average cost basis for rate making would not permit rates low enough to generate the volume needed to support the innovations.

Interstate Commerce Commission rigidity resulted in some classic in stances of delay in the introduction of rail inventions, including retard ing the spread of unit train technol ogy for over 40 years. 5 Who's to Blame? The railroad industry and its managers have often been chided for lack of imagination. It is sometimes claimed that the poor rates of return enjoyed by the industry are a result of this lackluster management. But which is cause and which effect? The poor returns on investment are di rectly traceable to regulatory policy. In turn, poor investment return re duces the resources available for in novation. Finally, the necessity to have changes in business operations approved by a group of politically appointed Commissioners must frustrate whatever innovative urges may arise. The fact that business is dynamic and forward looking, while In studying the impact of intervention in a particular ind ustry, Throttling the Railroads, Dr. Clarence Carson came to this con clusion: "As things stand, the future of the railroads is bleak. So is the future of consumers of their ser vices. Over a period of about ninety years, virtu ally every sort of interven tion has been tried-inter vention which has brought us to the present pass. It is time for yet another ex periment-an experiment with freedom ... "

Throttling the Railroads, 140 pages (1971), is avail able from The Foundation for Economic Education, Irvington-on-Hudson, N.Y. 10533. $4.00 cloth $2.00 paperback the process of regulation is deliber ative and static, poses a serious threat to the survival of the railroad industry. The magnitude of the social cost of railroad regulation is enormous. One author called the welfare loss Uhuge" and ((certainly greater than all of the welfare losses from pure enterprise monopoly combined."6 In 1969 the social cost of railroad regu1979 THE SOCIAL COST OF RAILROAD REGULATION 739 lation was estimated at between $2.7 and $4.1 billion per year. 7 Given the rampant inflation of all costs since that time, especially rail inputs which have increased in cost faster than the more general con sumer price index, a reasonable es timate of the current social cost of railroad regulation would range from $5.5 to $8.0 billion per year.

Conclusion There can be no question but that regulation of the railroads has led to higher overall transportation costs, serious resource misallocation, and sacrificed alternatives. Public policy has made the economic pie smaller by its intervention into the trans portation industry. That this result could be in the Hpublic interest" seems ludicrous. Yet, promoting the ((public interest" is the reputed goal of public policy. Two explanations come readily to hand. It may be that various ~~private interests" may ma nipulate public policy to their own advantage. 8 Alternatively, it may be that the makers of regulatory law fail to anticipate the consequences of their actions. 9 Wherever the truth may lie, the observable consequences of economic regulation of the railroad industry are demonstration enough that the current system not only imperils the railroads, but has a negative net impact on the general welfare. This in itself should be suf ficient evidence that deregulation will benefit both the railroads and the U.S. economy. @ -FOOTNOTES1 Arizona Corporation Commission vs.

Southern Pacific, 87 AZ 310. 2Northwest Pacific Railroad vs. ICC, 288 F. Supp.690. 3Alexander Morton, UNortheast Railroads: Restructured or Nationalized?" American Economic Review (May, 1975), pp. 284'1.288. 4Stevan Holmberg, uInvestor Risk and Re quired Rate of Return in Regulated Indus tries," Nebraska Journal of Economics and Business (Autumn, 1977), pp. 61-74. 5Paul MacAvoy and James Sloss, Regulation ofTransport Innovation (N.Y.: Random House, 1967). 6George Hilton, The Transportation Act of 1958 (Bloomington: Indiana University Press, 1969). 7Ann Friedlaender, uThe Social Costs of Regulating the Railroads," American Economic Review (May, 1971), pp. 226-234. 8Qeorge Stigler, uThe Theory of Economic Regulation," Bell Journal of Economics (Spring, 1971); Sam Peltzman, uToward a More General Theory of Regulation," Journal of Law and Economics (August, 1976), pp. 211-240; and John Semmens, uRegulation of the Truckers, By the Truckers, For the Truc kers," Reason (March, 1979), pp. 26-29.

9Robert Harbeson, uSocial Welfare and Economic Efficiency in Transport Policy," Land Economics (Feb., 1977), pp. 97-105, and William Capron (ed) Technological Change in Regulated Industries (Washington, D.C.: Brookings Institution; 1971.) P. Dean Russell EDUCATION and GRADES THE AWARDING of grades is often the most distasteful task faced by teach ers on any level. To some extent, the grading process automatically puts a barrier to learning between stu dent and teacher. This is especially true on the senior high school and college levels. The student may hesitate to say what he thinks be cause the instructor may mark him down for heretical ideas, i.e., dis agreeing with the instructor. This fear is all too often based on the student's experience. The student-teacher relationship that most appeals to me. is the one developed a millennium or so ago by the Saracens. We know those people as the ~~bad guys" in the Crusade capers of our European ancestors.

Anyone who wanted to teach in the old Saracen civilization could do so, if he could find someone who wanted him as a teacher and who would pay for his services. Jew and Professor Russell hands this essay on education to all students who take his course In Business Com munications at the University of Wisconsin at La Crosse. 740 Christian and Moslem, black and white, all participated. Race and re ligion were not barriers to entry into this serious business of learning, either as a teacher or as a student. The teacher was not licensed or certified to be a teacher, and he didn't license or certify anyone as a student. There were no academic requirements for admission into this learning process. The student and teacher just made an arms-length bargain acceptable to both. If the student became dissatisfied with his teacher, he simply found another teacher who pleased him more, in much the same manner that you and I change swimming instructors or piano teachers. When the student had learned as much as he wanted to learn, he left. He, and he alone, made the decision, precisely as a present-day student in a commercial language school decides when he has learned as much as he is willing to pay for.

No formal examinations were given in those ancient centers of learning. No degrees were awarded.

EDUCATION AND GRADES 741 No academic records were kept. Thus the only power possessed by the teacher in the old Saracen tradi tion of education was the power of logic and persuasion. He didn't have a ttmagic marking pencil" loaded with an unlimited number of A's and F's as we instructors do today. The students could hardly riot against the Saracen education es tablishment. There wasn't any. And, apparently, those centers of learn ing (universities) were generally free from supervision and control by government. Nor were there any academic accrediting associations which, of course, cannot precede but must necessarily follow the estab lishment of a formalized educational system. The physical plant (the actual buildings) of those places of learning were sometimes provided by the re ligious authorities, sometimes by government, sometimes by commer cial interests on a rental basis, some times by the same commercial interests on a ttfor free" basis dic tated by self-interest, sometimes by individuals (teachers and others) who used their homes as classrooms, and sometimes the students and their teacher just met for discus sions in some public coffee house.

Sometimes the physical plant was a combination of all of these, located around a library that had developed in much the same way as the rest of this center of learning or university. The supporting services-food, lodg ing, medicine, social life, and so on-were provided by persons who profited directly from supplying the product or service. Those universities continued to grow and develop over the centuries into renowned centers of learning with, apparently, almost no academic formality or authoritarian supervision. In some respects (but certainly not in all respects) many of the medieval universities of Europe were patterned upon that old Sara cen concept of education. In today's world, there is not any academically successful arrange ment that's quite like the ancient Saracen method of teaching and learning. The concept of the ttUni_ versity Without Walls" that showed much promise a few years ago was based somewhat on that philosophy, as was the ttOpen University" spon sored by the British government.

While several educational institu tions still endorse that concept in various forms, most of the experi ments seem inevitably to revert to traditional assignments and grad ing procedures. Only the mechanical methods of delivery deviate much from the norm, e.g., teaching by TV or the mails or weekend classes on campus and such. Also, more ttnonaccredited" teachers may be used. The closest development to the old Saracen concept of education today 742 THE FREEMAN is found in various educational ~~cen ters" (for the study of something) which are supported by a combina tion of industry, foundations, uni versities themselves, religious or ganizations, and interested individuals-and sometimes by gov ernment, directly and indirectly but which are not positively con trolled by an ~~establishment" of any sort. In these communities of schol ars, it is often difficult to determine who is teacher and who is student, and they sometimes change posi tions overnight. The feature most closely akin to those old Saracen universities is the fact that no examinations are given, no degrees are awarded, and the only academic records kept are the publications of students and teachers.

Those few communities of schol ars, however, are essentially outside of the academic system typified by our degree-granting colleges and universities. I do not know of even one accredited educational institu tion that does not, in one way or another, grade the students who are candidates for degrees; nor can I visualize any acceptable way of avoiding this arrangement in today's world. The grade may be merely pass or fail. And it may be based on independent study or classroom work or various other possible ar rangements. But always, where academic credit is involved, grades are required. And we teacherswith our inevitable magic marking pencils-are inescapably responsi ble for awarding the grade. We must decide-that is, we cannot possibly avoid deciding-criteria for high grades and low grades. There is simply no way around this arbitrary authority of the teacher (me) over his students (you) in our formalized educational system.

Even so, if you would still like to study with my help, welcome. I as sure you that I find students in gen eral most stimulating, that I have a recognizable philosophy of living in our real world, and that I would enjoy sharing with you my extensive experiences (both successful and un successful) in the business world, in the writing and speaking world of comm unications, and in studying and living abroad and in various sections of the United States. And, of course, I'll be pleased to react to whatever experiences and ideas you care to share with me, publicly in class or privately in my office. Naturally, I will do whatever I can to help you learn whatever you desire to learn (or must learn) while you are fulfilling the academic re quirements for your degree from this university. I will also do all I can· to help you earn the highest possible grades. That's important too. Finally, please remember that I'm not so insecure that I need to put people down. So speak up. , Clarence B. Carson PERMANENT DEPRESSION MANY economists, journalists, and publicists spread the view after World War II that we now know how to prevent depressions. The claim was that the government could pre vent depression by manipulating the money supply, altering the tax structure, providing employment, and ((stimulating" the economy. If these, and like measures, were un dertaken judiciously, depressions were supposed to be avoidable.

The evidence is mounting that such is not the case. The United States has been in the throes of depression for most of the 1970s, a depression which threatens to deep en and shows no signs of going away. All the devices which were supposed to prevent depression have Dr. Carson has written and taught extensively, specializing in American intellectual history. His recent series in The Freeman, World in the Grip of an Idea, is being published by Arlington House. been extensively employed, but to little or no avail. In fact, there is good reason to believe that the very measures supposed to prevent de pression are prolonging and deepen ing it. But to grasp the full implica tions of this we need a new or differ ent concept. I suggest we view what is happening to us as ((Permanent Depression." And we may look to Soviet Russia, Communist China, Castro's Cuba to see where that road leads. Permanent Depression is that condition which exists when there is involuntary underemployment of land, labor, and capital to satisfy human wants. Permanent Depres sion may be great or small. It may be so small that its direct effects would be experienced by only a few people. Or, it may be so massive as to erupt in what will be recognized as a Great Depression engulfing 743 744 THE FREEMAN December peoples around the world. But whether massive or tiny, whether apparent to everyone or knowable only as potentiality, Permanent De pression exists wherever there are obstacles which result in involun tary underemployment of land, labor, and capital to satisfy human wants. It is a depression because less is produced than otherwise might have been. Goods are less plentiful than they might have been. Prices are higher than they might have been. Human wants go unsatisfied, and to the extent that the condition is involuntary it is a depression.

Why not simply ~~underemploy ment . . . , " it may be asked? It is true that any underemployment of resources would result in less than full production. But if the satisfac tion of human wants is the goal of the activity, voluntary under employment must be permitted. Sav ing, leisure, and possession for con venience and enjoyment are human wants-any of which may occasion underemployment. To formulate the matter otherwise would involve the contradiction of sacrificing the wants of some to satisfy the wants of others. So long as the wants of all are in play, there is no reason for describing the resulting condition as depression. Whereas, if the under employment is involuntary, the satisfaction of wants is clearly being reduced, Le., depressed. This brings us, too, to the cause of the Permanent Depression. The cause is implicit in the word uin voluntary." The cause is that force has been intruded into human activ ity so as to place obstacles in the way of production. Force in one form or another is the only plausible expla- ' nation of involuntary activity or in activity. Although the use of force may be variously motivated and be used for any number of objects, it can have only two origins. It must either be exerted by outlaws or through the agency of government.

Since it is the business of govern ment to apprehend and restrain out laws, the proximate cause of Per manent Depression is government, either through failure to perform its function or by positive acts of com pulsion. Discouraging Production Governments can and do cause Permanent Depression. Indeed, they are directly the usual cause and the only bodies who could make it per manent. Nothing is easier to ac complish than for government to bring on Permanent Depression. All it has to do is to adopt measures which have the effect of discourag ing production. A review of the his tory of the world would show that as soon as any government has con solidated its power over a people gained a monopoly of power-it has in one way or the other gone about 1979 PERMANENT DEPRESSION 745 the task of discouraging production. In our era, governments have not only discouraged production but also encouraged consumption, thus deepening and broadening the Per manent Depression. The movement to do this is now worldwide, but let us restrict our account largely to the United States.

For several decades now-indeed, for the better part of a century-the leaders of the United States have been acting on the basis of a pro found economic error. It is not a new error, but it has been given impres sive academic credentials over the past century. The error can be stated this way, though it is not usually put so bluntly or directly: The way to prosperity and national felicity is to discourage production and encour age consumption. Stated so gener ally and baldly, the fallacy of the proposition may show through. But that is not how we ordinarily con front it. It is usually advanced in some particular application, and down where each of us lives, the proposition has great appeal. Let me illustrate. Everyman is usually firmly convinced that he knows the solution to his economic problem, if he has one. The problem is this, as he sees it: There are too many producers of the goods he pro duces or too many providers of the services he provides. Which of us is immune to this notion? I know don't argue with me on this onethat there are too many writers. No doubt, I would know with equal clar ity if I were a real estate salesman that there are too many of those. In like manner, the managers of Chrysler Corporation can see that too many automobiles are being produced. Or, to turn the problem around, there are too few customers for the goods and services we have to offer. The solution is obvious. Have government discourage production -at least that of the others-and encourage consumption-at the least of whatever it is I have to offer.

Say's Law The error in these beliefs is by no means obvious, certainly not in the particular applications. Yet it is a prescription for Permanent Depres sion. That measures based on the error would lead to depression was pointed out nearly two centuries ago by J. B. Say. The corrective to the error was stated in what has come to be known as Say's Law. J. B. Say was a French economist, a contemporary, more or less, of Adam Smith. His economic treatises were published in the early years of the nineteenth century. His works never attained the renown of Smith's. Today he is remembered, if at all, for the economic law which is joined to his name. And even the law has fallen into disrepute among many economists, for reasons that 746 THE FREEMAN December may be apparent when it has been examined. Various claims have been made to its refutation, but that is easier said than done. Say's Law is usually stated this way: ((Production creates its own demand."! I know of no general law more infelicitously stated. It is sub ject to all sorts of misinterpreta tions. It must be immediately qual ified in order to get to its meaning.

To wit: The act of production does not create demand. It is only when what has been produced is offered in the market that it becomes demand. Even that is not obvious. Moreover, not just anything that is produced and offered in the market becomes demand. Only those commodities or that labor which is wanted will be come demand. Nonetheless, that production creates its own demand may be the most direct and effective way to state the law. Some propositions which under gird Say's Law need to be stated in order to establish its validity. The most important is this. In the ab sence of a medium of exchange, or money, if you will, supply is demand and demand is supply. This can be readily demonstrated by a simple barter situation. Suppose that I grow tomatoes and my neighbor grows bell peppers. My family hav ing set up a clamor for bell peppers, I approach my neighbor with the pro posal that I will give him twelve of my tomatoes for twelve of his peppers. He consents, and the exchange is made. Clearly, my supply of to matoes constituted the demand for his peppers. In like manner, his supply of peppers constituted his demand for my tomatoes. It is not difficult to see, either, that it was my production of the tomatoes that created the effective demand for the peppers.

The Use of Money in Trade It was Say's contention that the use of money in effecting exchanges does not fundamentally alter the situation. Fundamental they may not be, but there can be no doubt that the use of money changes some things. When money is used in transactions, supply and demand assume separate guises. It becomes possible to calculate price levels. Demand comes to be expressed as money and supply as goods. An opening occurs for monetarist illu sions that demand can be increased by increasing the money supply. Even so, Say maintained that it is only an illusion that money is ever anything more than a medium through which goods are exchanged for goods. He put it this way: ((Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found, that one kind of commodity has been ex changed for another."2 John Stuart Mill noticed that 1979 PERMANENT DEPRESSION 747 there is another difference which comes into play when money is used.

There is, he said, ((~his differencethat in the case of barter, the selling and buying are simultaneously con founded in one operation; you sell what you have, and buy what you want, by one indivisible act, and you cannot do the one without doing the other. Now the effect of the employ ment of money, and even the utility of it, is, that it enables this one act of interchange to be divided into two separate acts or operations; one of which may be performed now, and the other a year hence, or whenever it shall be most convenient." The seller ((does not therefore necessar ily add to the immediate demand for one commodity when he adds to the supply of another."3 The Timing of Trade What occurs may be described this way. The demand which arose from a product at some time in the past is transferred into money in which it may be said to reside until another purchase is made. But this is a never ending process, so long as the money remains in circulation, so that at any given time some of the demand resides in the medium through which exchanges are made. None of this changes the validity of the fun damental axiom, as Mill affirms: UNothing is more true than that it is produce which constitutes the mar ket for produce, and that every increase of production . . . creates, or rather constitutes, its own de mand."4 Say's Law impressed and was ac cepted by many of the greatest economists of the past two centuries.

David Ricardo affirmed and applied it. John Stuart Mill, as just noted, accepted it as axiomatic. Say's works provided an important part of the foundation for Frederic Bastiat's writing. Amongst our contem poraries, William H. Hutt has de clared ((that the Say Law stands once again inviolate as the basic economic reality in the light of which all economic thinking is il luminated."5 Moreover, it is a self evident truth whose validity may be tested and proved by all who have some understanding of the world in which we live. ((Production creates its own de mand." We have now arrived at the point, perhaps, where we can affirm the importance of the word ((produc tion" in the statement of the law. However misleading it may be on first encounter it is nonetheless the key to the significance of Say's dis covery. Production is the road to prosperity, the law informs us. If there is a fall off in demand, the way to increase it is to increase produc tion. If supply is declining the way to signal demand is by production. 6 The only limit on the degree of po tential prosperity, Say was telling us, is whatever limits there may be 748 THE FREEMAN December to productivity of what is wanted.

The way to create Permanent De pression can now be restated. It is to act on the premise of the reversal of Say's Law. Reversed, it can be stated this way: Consumption creates its own supply. Although no one to my know ledge has phrased the proposi tion that way, it is the necessary premise for much that is believed. The notion of a general overproduc tion of goods is premised upon it. In like manner, it is the underlying premise of all notions that the economic problem is to stimulate consumption. So far as programs to discourage production and encour age consumption have an economic premise, it is the one arrived at by reversing Say's Law. Barriers to Commerce Even a brief survey of government programs will give some indication of how deeply involved the United States is in discouraging production and encouraging consumption. In deed, such policies are not entirely new in this country. The protective tariff was a fixture in the United States in the latter part of the nineteenth century. Although pro ponents of the protective tariff have often advanced it as a device to en courage production, it does not have that effect. So far as it works, it discourages domestic production by denying some of the foreign market to American products. If domestic producers are enabled to supplant foreign producers as a result of the tariff the true significance is that Americans produce less, and at higher cost, than if their resources had been directed to that production which Americans could do most effi ciently. Foreign loans, much used in the twentieth century, have the economic effect of encouraging foreign consumption at the eXPense of domestic, and discouraging pro duction for the domestic market.

But it is in the twentieth century that so many devices have been adopted to encourage consumption and discourage production. Since it would take a massive catalogue to detail them all, it will be possible here to touch only on some of the broad categories. All redistributionist programs, whatever the motives for enacting them, have the effect of encouraging consumption and discouraging pro duction. This is so whether it is school lunch programs, food stamp programs, urban renewal projects, CETA, government operated educa tional institutions, welfare pay ments, or what have you. Redis tribution takes away from potential saving and investment and allots the money where it is likely to be sPent for consumption. Thus, it dis courages production by making it more difficult to accumulate capital with which to produce. The progres sive income tax is not only a redis1979 PERMANENT DEPRESSION 749 tributionist measure but also one which patently discouragesproduc tion and, depending on how it is spent, encourages consumption. All payments made to the idle have the effect of discouraging production and making the recipient a con sumer only.

Inflationary Distortions The effects of inflation-increase of the money supply-are somewhat more complex. On the face of it, much of the increased money supply is an encouragement to production, for it may be spent on plants, machinery, and productive equip ment. But this is misleading. Infla tion encourages the consumption of capital or productive equipment, not production as such. It sends false signals into the market by leading to a general rise in prices, leading to indiscriminate increases in produc tion, many of which are unwar ranted. Inflation, then, tends to en courage consumption, encourage in discriminate production, and hence to discourage the concentration on producing what is most wanted, which is that portion of production which contributes most to pros perity. Price controls have the general effect of encouraging consumption and discouraging production. And such controls are rampant in the United States today. Minimum wages, whether established by law or by unions, whether called minimum wages or salaries or wages prescribed in a civil service structure, are price controls.

Moreover, wage price controls dis courage production. They do so, in the first place, by reducing the number who might be employed in production-causing unemploy ment. In the second place, where the unemployed are paid, either in un employment compensation or as welfare, there is an encouragement to consumption unmatched by pro duction. Maximum prices are wide spread today, on domestic oil, on much of transportation, on milk, on gas, and for hundreds of other goods and services. So far as these prices are below what they would be in a free market, they discourage pro duction and encourage consumption. Many sorts of government con trols discourage production without themselves encouraging consump tion. Government monopolies dis courage production. The monopoly which the United States Postal Ser vice has over the delivery of first class mail, for example, prevents others from entering the field and providing the service. The virtual monopoly which governments have of schooling discourages others from entering that field. Indeed, all gov ernment licensure and franchising discourages production. ~~Licen sure," Milton Friedman has said, ~~is a special case of a much more gen750 THE FREEMAN December eral and exceedingly widespread phenomenon, namely, edicts that individuals may not engage in par ticular economic activities except under conditions laid down by a con stituted authority of the state."7 Such activities are usually justified on the grounds that they protect the public by maintaining standards, but whether they do or not, by re stricting entry they discourage pro duction.

Costly Regulations Government regulation of indus try, whatever its aim, discourages production. Quality controls, envi ronmental controls, safety regula tions, prescriptions for labeling, and so on are Just so many difficulties in the way of producing goods. Gov ernment prescribed record keeping and reporting to government are discouraging to production. They raise the cost of producing and keep from the market myriads of prod ucts. Generally speaking, governments in the United States do not avow edly aim to discourage production today. For a while in the 1930s, and to a lesser extent in the 1940s and 1950s, there was a conscious effort to limit production. Nowadays, how ever, production, per se, is not the avowed object of government con trol. It is even usually admitted, perhaps reluctantly, to be a good thing. But the government does often avowedly encourage consump tion and by so doing proclaims that consumption, in effect, creates its own supply and leads to prosperity.

J. B. Say wrote precisely to the point. He said ((that the encourage ment of mere consumption is no benefit to commerce; for the diffi culty lies in supplying the means, not in stimulating the desire of con sumption; and we have seen that production alone, furnishes those means .... For the same reason that the creation of a new product is the opening of a new market for other products, the consumption or de struction of a product is the stoppage of a vent for them."8 He goes on to point out, of course, that the con sumption of a product is not an evil, for it is the end for which the pro duction was done. But then, neither does the consumption itself contrib ute one whit to any further com merce. It is an evil, however, he said, when consumption begins to exceed production. What then happens: Uthe demand gradually declines, the value of the product is less than the charges of its production; no produc tive exertion is properly rewarded; profits and wages decrease; the employment of capital becomes less advantageous and more hazardous; it is consumed piecemeal ... because the sources of profit are dried up.

The labouring classes experience a want of work; families before in tol1979 PERMANENT DEPRESSION 751 erable circumstances, are more cramped and confined; and those be fore in difficulties are left altogether destitute."9 That is an apt description of what is happening in the United States today, though it was written nearly two hundred years ago. We •are in clined to ascribe our difficulties today to inflation. Undoubtedly, in flation is an important part of our difficulty, but it is not at the root of the trouble. Our trouble stems from acting as if consumption creates its own supply, from turning Say's Law upside down. We have been en couraging consumption and dis couraging production. Every effort in that direction contributes to the breadth and depth of a Permanent Depression. When restrictions on prod uction have proceeded far enough Permanent Depression emerges as the kind of depression we recognize from the past. Except, the underlying Permanent Depres sion may have been transmuted into a visible permanent depression.

Say's Law points away from Per manent Depression. It points to ward, if not Permanent Prosperity, at least to as great prosperity as is possible for man. What is govern ment's proper role in this pros perity? John Stuart Mill put it this way: ~~The legislator has to look sole ly to two points: that no obstacle shall exist to prevent those who have the means of producing, from employing those means as they find most for their interest; and that those who have not at present the means of producing, to the extent of their desire to consume, shall have every facility afforded to their ac quiring the means, that, becoming producers, they may be enabled to consume."lO In short, government should remove its obstacles to pro duction and take what measures are appropriate to it to facilitate produc tion. Then, all may consume at will, and as they will, what they have produced themselves, or acquired from others with their production.' -FOOTNOTES1For a more complete statement of its impli cations, see Henry Hazlitt, The Failure of the New Economics (New Rochelle, N.Y.: Ar lington House, 1973), pp. 35-37.

2J. B. Say, uOf the Demand or Market for Products" in Henry Hazlitt, ed., The Critics of Keynesian Economics (New Rochelle, N.Y.: Ar lington House, 1977), p. 15. 3John Stuart Mill, cCOn the Influence of Con sumption on Production" in ibid., pp. 41-42. 4Ibid., p. 44. 5Svetozar Pejovich and David Klingaman, eds., Individual Freedom: Selected Works of William H. Hutt (Westport, Conn.: Greenwood Press, 1975), p. 141. 6N0 one is relieved by Say's Law from apply ing intelligence to production, of course. It is necessary to determine what is wanted and to go about producing it efficiently if production is to become effective demand and profitable. 7Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p.138. 8Say, op. cit., pp; 20-21. 91bid., p. 22. lOMill,op. cit., p. 26.

Barbara H. Bryan Interventionist? Who me-Free Market Mama? Confession being good for the soul, I'll have to admit that I almost slipped-consciously at that-into an interventionist role. And, candidly, had the reverse order of the following story occurred, I would have. It happened when a 25·cent toy stamper (it inked pairs of black feet on any surface it touched) went through a price rise of some 1100 per cent within a few hours in our home. The stamper was given to Jim Dixon by his grandmother. His bud dies were enchanted when he deco rated them with little black feet. Barbara Hauser Bryan Is a mother "mostly" and freelance writer in Roanoke, Virginia. 752 Their mothers may have been somewhat less delighted, but Jim Dixon was a trendsetter with fellow first graders. Therefore, the item had even more appeal. Jim is a special friend and favorite of my three sons. They are with him in Sunday School and around the neighborhood. Last year he and Cal lan were in kindergarten together.

Russ (Callan's twin) was in first grade with him this year. Big Brother Eason, a second grader, also thinks Jim is cool. The stamper rep resented the last word to all of them. So when Russ came home and announced that he had just pur chased the stamper for one dollar, I noted that he had made a willing exchange in a nseller's market." He FREE MARKET: ELEMENTARY, MY CHILD 753 Left to right, Callan, Mom, Russ (standing) and Eason. could not have been happier. Jim realized he had struck a good bar gain, so we all grinned. About an hour later, Callan emptied his piggy bank and told me that he had to have enough money for 28 pieces of bubble gum. He said he only had enough ~~cents" for 23 pieces. Assuming that he wanted everyone (20 classmates, hmmm?) in his class to have a piece, I offered him a window-washing job for a dime. Using the best of Tom Sawyer technique, he engaged Nicky and Wilson forthwith and managed it with great dispatch.

Soon he left with his full comple ment of cash. The story extends slightly because the convenience store clerk quite accidentally shortchanged him. With his finest eyes-just-above-the-counter aplomb he returned to the store and evened the score. Soon the bubble gum had been turned over to its new owner. That person, it turned out, was his t~;vin brother Russ, who for the bub ble gum and two one-dollar bills released title to the stamper. The story might have ended there. Nobody was interested in my sug gestion that we telephone Jim's grandmother to ask where she had bought the feet stamper. Big Brother, usually shrewd and defi nitely well-heeled, entered the pic ture. Simply because of his status as first-born, he had amassed a much fatter passbook savings account than his siblings. And, frankly, he gets a little horsey about his couple of hundred extra dollars. Anyway, supply and demand being what they were that day, he and Callan wound up in a fascinat ing trading session. When we sat down to dinner, they had already agreed that Eason would fork over three dollars for the one-of-its-kind (at least in our house at that min ute) item.

Knowing beyond question that he held all the cards, Callan savored his rare upper hand by playing wishy-washy. He said he might change his mind. He thought about upping the ante. He even said he might trade back with Russ and get his money returned. We noted with three dollars he could repay himself and buy more 754 THE FREEMAN than 28 pieces of gum. Eason was becoming nervous. (At that point they counted the bubble gum and Russ The Casual learned that he had been shorted by three pieces which Callan admitted to sharing with his fellow window washers.) My only intervention was to com pliment them on their practice of free market economy. We did dis cuss supply and demand-and ram pant inflation. And, I did suggest that a bargain struck should be hon ored. Translated: Callan shouldn't weasel out if Eason really wanted to pay that exorbitant figure-with his educated eyes open. Had the reverse occurred-Eason preying upon Callan who would have hoodwinked Russ who would foist the stamper off on Jim-I would have envisioned all kinds of repercussions. And I probably would have intervened to save my face and to keep peace with the Dixons.

As far as I can tell, all four boys in the story are still smiling. Jim's banker father must be proud of him. Russ and Callan have worked out a rental agreement with Eason so that they still have access to the black feet-for 10 cents an hour. Eason guards the thing with his life. And Mom? Well, so far I've found black feet stamped all over my car's Virginia license plate, the top of our living room fan, our back door neighbor's usually spotless child's face (HHe said he wanted it there!") and the front of the bathroom door. Perhaps I may end up paying for permitting that demonstration of ~~free" enterprise. If we can get the point across with elbow grease, scrub on! @ IDEAS ON UBERTY If You Make a Promise, Keep It SoCIAL chaos has no better ally than broken promises. Children not brought up to keep their word will be the authors oftreaties written not to be observed; they'll run for office on bogus platforms, cancel gold contracts, use the political means to expropriate property; they'll sell their souls to gain fame or fortune or power. Not only will they fail to be honest with their fellow men; they will not even heed the dictates of their own conscience. On the other hand, children brought up to keep their promises will not go back on their bond. Integrity will be their mark of distinction!

LEONARD E. READ A REVIEWER'S NOTEBOOK THE •••• FREEDOM e FREEWAY LEONARD E. READ IT must bring Leonard Read a lot of quiet satisfaction to see that the methods he has extolled in his many books have had their effect. He be lieves in the power of the example-in his new book, The Freedom Freeway (Foundation for Economic Education, $6.00), he quotes Albert Schweitzer: HExample is not the main thing in influencing others. It is the only thing." The Read example is to work on the perfection of his own understanding and to carryon from· there in both writing and speaking. He says our times demand statesmen, but he leaves active politics to others. The average politician is not a prime mover; it is the man of ideas, work ing for the long pull, who is the final influence on government. At the recent European regional meeting of the Mont Pelerin Society JOHN CHAMBERLAIN in Spain, Leonard Read, a thought ful observer who limited himself to a single succinct speech about private education, had the living endorse ment he wanted for his way of exer cising social leverage. The final Mont Pelerin session was an im promptu discussion of Margaret Thatcher's chances for turning Eng land back to the freedom philosophy of Cobden and Bright and Adam Smith. Mrs. Thatcher, who cam paigned for the restoration of incen tives, has her opportunity to tran scend politics for statesmanship. But she would never have become Prime Minister on a freedom philosophy platform if it hadn't been for four individuals who happen to be Mont Pelerin members and devotees of the Read mode of conduct. They are, respectively, Professor Friedrich H:ayek who was the Mont Pelerin founder, Antony Fisher, Ralph-or Lord-Harris, and Arthur Seldon.

They were all in the room together at the Madrid and Salamanca ses sions in Spain. Over the years the four had formed a Readean chain. In 1946, when the British were turning their backs on Winston Churchill in favor of adopting the Labor Party 755 756 THE FREEMAN December socialism of Major Clement Attlee, Antony Fisher, then out of the Royal Air Force, went to Professor Hayek for advice about getting into politics. Hayek, fresh from writing The Road to Serfdom, gave Fisher some things to think about that seemed para doxical. The way to affect politics, he said, was to stay out of politics. Work on ideas, Hayek told Fisher; get them into the marketplace. Ideas at Work So Fisher worked on ideas. He first took the practical precaution of making a considerable sum of money in the chicken business, one of the few businesses that had been overlooked by Attlee's planners. Then he subsidized an organization called the Institute of Economic M fairs in London, putting the effer vescent Ralph Harris in charge to overwork himself until he managed to find a compatible sidekick, Ar thur Seldon. For the better part of thirty years Harris and Seldon is sued a stream of freedom philosophy publications. The lEA pamphlets often seemed to fall on stony ground.

But Margaret Thatcher read them, and so did Sir Keith Joseph, now England's Secretary of State for In dustry ~ lEA ideas became the new Conservative agenda. And one of the first things Mrs. Thatcher did on attaining office was to make Ralph Harris a Lord. It was as if four men had acted out the sequence that is suggested in the essay on ((Resolution: A Freedom Imperative," which is one of the many good ones in the new Read book. ((In what respect is freedom a prQplem?" Read asks in this essay. ((Personal experience has given me the answer. For 45 years my princi pal aim has been to understand and explain how freedom works its won ders ... The dedicated aim-resolu tion-of many people working for freedom has resulted in thousands of tiny breakthroughs .... " And, after some characteristically humble words about how little he knows, Read says what he does know: uOur end-the Blessings of Freedom-is but the flower of good seeds we plant; our objective has no other means of attainment. Your and my role? Exemplarityl (Example is the school of mankind; they will learn at no other.'"

Like most of us in this benighted twentieth century, Leonard Read had to come by his wisdom the hard way. He seldom gets personal, but once in a while autobiography in trudes in a Read essay. He confesses: in uPerseverance: A Key to Free· dom," that in 1929 he was taken ill by Herbert Hoover's demand fOJ wage and price controls. That waf Republican doctrine at the time. II the subsequent New Deal days, wher Franklin Roosevelt acted or Hoover's advice, Read, as Manage] of the Western Division of the U.S 1979 THE FREEDOM FREEWAY 757 Chamber of Commerce, supported the N.R.A., with its wage and price controls in all the big industries that had enrolled under· the banner of General Hugh ~~Iron Pants" Johnson's Blue Eagle. It was Fas cism of a peculiarly American sort, but the U.S. Chamber of Commerce and the National Association of Manufacturers accepted it. ((Copycat Read!" so the Old Self Read says of the Young Self Read of 1933.

Copycats of Socialism Leonard Read mentions some of his fellow copycats of the early Thir ties. One of them, described as a (~brilliant economic thinker" in gen eral, advocated rent control-UA naive position he later overcame." Another, a ((so-called conservative President of the United States," en dorsed the Harvard professor, a ((mentor" of the younger Read, who wrote: ((Government must do for the people that which they cannot do for themselves." ((This specious coun..; sel," says the mature Read, uspawned countless copycats and made a substantial contribution to the socialistic mess we are now ex periencing." Few people, so Read re flects, can do much of any single thing for themselves. But the divi sion of labor steps in to make gov ernment action quite unnecessary. The mature Read wonders how ((the 16,000,000 elected or appointed officials-federal, state and localwho doubtless know even less than the rest of us, will do for us what we cannot do for ourselves! If this isn~t politico-economic balderdash, pray tell, what is?"

It is characteristic of Leonard Read that when he quotes an intel ligent remark or bit of poetry or pertinent aphorism, he always names the person he is quoting. The name index of The Freedom Freeway 'would do justice to a Ph.D. in philos ophy. But when Read tells us about his fellow copycats of New Deal socialist days, he mercifully fails to identify them. Read doesn't believe in getting people's backs up. Good psychology suggests to him that if you attack a person by name, or otherwise subject him to embar rassment of any kind, it. is more difficult to convert him to what Rus sell Kirk calls Right Reason. So Leonard Read's books become soft sells. The quality of his phraseology is not strained, it fall eth as the gentle rain from heaven. Read follows what is an operation ally sound technique, one which, in the hands of his British counter parts, has brought the Conserva tives-really, the classical lib erals-back into the seats of power. The same technique will, in time, send the necessary signals to W'ashington, D.C.

When he has finally achieved his aim and no longer has any worries about getting people's backs up, I 758 THE FREEMAN December hope Leonard Read will write an auto biography that names names. He can tell fascinating stories about people who have made gaudy mis takes in judgment. He tells about keeping a journal. Does he name names in that? For one, I would like to know. Meanwhile, I am quite con tent to absorb Leonard Read on such subjects as the ((socialization" of sin (socialism itself), and the (~menace of meddlers." Read may not name his sinners or his meddlers, but he is surely convincing about the evil of the unnamed culprits' deeds. @ RESTORING THE AMERICAN DREAM by Robert J. Ringer, with a Foreword by William E. Simon (Published by QED; distributed by Har per & Row, Publishers: New York) 1979 320 pages. $12.50 cloth Reviewed by Roger R. Ream, Director of Seminars, The Foundation for Economic Education, Inc., Irvington on-Hudson, New York HORROR stories about waste and fraud in government are nothing new. Proponents of a free market economy have always been the most vocal in explaining the destructive nature of government intervention, be it printing press money, regula tion of business, tariffs, or whatever else government does beyond its proper role of protecting every indi vidual's right to life, liberty, and prop erty. Still, it is always encouraging when someone lucidly exposes the emperor without his clothes.

Recently, we have had several superb accounts warning of the dan gerous power the state has amassed during the 200 years since our Founding Fathers created a gov ernment oC~limited and enumerated powers." One such warning was A Time For Truth (reviewed in The Freeman, August, 1978), former Treasury Secretary William E. Si mon's candid account of his experi ences in Washington. The latest warning of the threat presented by a concentration of gov ernmental power comes from Robert J. Ringer in his new book, Restoring The American Dream. Ringer, au thor of two previous bestsellers, sees in today's government many re semblances to the collectivist states of George Orwell's 1984, Aldous Huxley's Brave New World, and Ayn Rand's Atlas Shrugged. ~~Today one feels the ether of these books in the air," he writes. HRational people know that there is something wrong. There is tension and uncer tainty. There is ill will. There is fear .... Government-inspired nothink and doublethink have de secrated the American Dream."

The book is frightening, but con· tains a glimmer of hope. It is frightening when Ringer forcefully 1979 OTHER BOOKS 759 describes the grim realities and con sequences of the transition from government by the people to gov ernment for the benefit of those in power. He exposes the tactics used by government to maintain and ex pand control over people: U. • • de mocracy, though it has many disad vantages for powerholders, seems to be the most practical way to main tain control, because it gives the illusion of consent." There are various ways, Ringer points out, by which a democratic government may reinforce its con trol; the most successful being infla tion. Government can hide the costs of the generous benefits it grants potential voters by creating new paper money rather than levying direct taxes. Government officials then blame workers and busi nessmen for the unpleasant conse <quences of this inflation-higher prices and a lower standard of liv ing. This enables the politician to have his cake and eat it too-he takes credit for granting benefits to voters (even though consumers are forced to pay for them in the form of higher prices) while continually pointing the finger at business and labor for the painful consequences of inflation. As Ringer says, u •••infla tion is the one government scheme, above all others, that must be de mystified if the American Dream is to be restored."

Ringer's reason for hope is borrowed in part from Simon's book. It is the belief that the American peo ple would insist upon positive change ((ifthey understood the situ ation." Therefore, Ringer's objective is to explode the myths of statism in a manner which enables the layman to understand the basic principles of indi vidual liberty and the threat presented by collectivism. With respect to inflation (al though I believe Ringer would as sert the same in regard to the whole interventionist mess) he states, H ••• the only hope that remains is that a great majority of Americans will come to understand the colossal in flation swindle for what it is and insist upon reform. To say the least I rate that a long shot. But at least it's a shot." We must hope Ringer is wrong on the method, for if our task is to get a majority to under stand the situation, it will be a most difficult battle to win. In fact, Ringer calls himself ((a pessimist trying hard to be an optimist."

Fortunately, we have writers of Ringer's ability to state the case in a manner which those outside the intellectual community can com prehend. By writing for a general audience, however, Ringer has made an un necessary sacrifice of the philosophical justifications for some of his statements. This is unfortu nate, since Ringer has demonstrated an ability to explain complex argu760 THE FREEMAN ments in a lively and understand able manner. As it is, there are some claims that need either fur ther clarification or additional sup port to give them legitimacy. At times Ringer needs to be more precise. It appears as if he has let sentences slip in that cause confu sion and seem to be contradicted by passages that follow. For example, Ringer puts great emphasis on what he calls a Natural Law: «each man owns his own life and therefore has the right to do anything he wishes with that life so long as he does not forcibly interfere with the life of any other man" and refers to it through out the book. However, when first discussing the concept, he develops it as merely «an opinion" which he chose-seemingly out of thin air-as his initial premise. Yet, he goes on from this point and the reader dis covers this «opinion" to be a «no compromise principle."

Furthermore, this Natural Law involves morality. If we seek an end whose «attainment requires a viola tion of the rights of even one man, then the end has been achieved through immoral action." But wait. Upon further reading we find Ringer slipping a sentence into his discussion on welfare that states, «Rational men realize that there is no such thing as absolute morality." The reader is left asking whether this concept of Natural Law is an absolute moral principle and, if so,_ how Ringer arrived at it. This confu sion is unfortunate, since Natural Law is the foundation for the free dom philosophy Ringer develops. Because this concept is so impor tant, Ringer should clarify what he means by «absolute morality" and develop the justification for his «Natural Law" premise. This is par ticularly important if he hopes the lay audience for which he is writing will grasp this basic premise.

These shortcomings, however, are more than outweighed by the clar ity, excitement, and provocative na ture of the book. You wish every government bureaucrat would read it. Ringer offers a variety of sug gestions of what can be done to re store the American Dream. The most important is to «... be consis tent on the issue of human freedom.': In other words, don't give up free· dom for the tempting handouts of fered by expedient-minded politi· cians. Bill Simon dedicated his book, iI part, «to my children, so that the) can never say, at some future time (why weren't we told?'" Ringer, likE Simon, has cleared away the camou flage disguising government's· true nature. The message is clear. Be cause we have books like Restorin~ The American Dream we can neve say at some future date, «(Wh: weren't we told?" @ Index THE FREEMAN-Volume 29, January-December 1979 Prepared by BETI'INA BIEN GREAVES of the Foundation staff NOTE: In page references, the number preceding the colon designates the month, those following refer to pages.

All articles have at least three entries-author, subject, and tit1e~xcept in a few cases when title clearly indicates subject matter. Books reviewed are listed on page 768. A AGRICULTURE and the survival of private enter prise (Grady) 8:480-484 AGRICULTURE, government and Amazing strange (Raley) 6:344-346 Nutrition planning (Pasour) 6:337-343 Where there was a will (Raley) 12:727-731 ALFORD, Ruth B. The tiller, the van, and the typewriter. 9:563-569 AMAZING strange (Raley) 6:344-346 ANARCHY Case for the minimal state (Hazlitt) 11:665-674 ANDERSON. Robert G. Assault on capital, The. 11:653-661 Redistribution of wealth, The-labor union style. 7:407-418 Two ways of life. 10:579-589 ANTITRUST enforcement Attack on concentration (Brozen) 1:38-46 AROUND the world (Gresham) 6:347-351 ASSAULT on capital (Anderson) 11:663-661 ATTACK on concentration (Brozen) 1:38-46 B BAKER, William L. Marx and the Manifesto. 11:678-696 BANKING. See Money BARGER, Melvin D.

Dishonest about inflation. 12:721-726 New look at the invisible hand, A. 7:422-429 BASES of economic planning (Kelley) 3:160-170 BASTIAT, Frederic-ideas of Christian principles and public policy (Coleson) 2:81-89 Illusion behind government aid (Russell) 11:662-664 In defense of freedom-Frederic Bastiat (Bearce) 10:628-635 BATTEN, Charles R. Conservation or confiscation? 4:204-211 BEARCE, Robert G. In defense of freedom-Frederic Bastiat. 10:628-635 BECHARA, Dennis Costs of occupational licensing, The. 4:227-231 Dangers of collectivism, The. 2:119-122 Efficiency in government. 5:284-287 BERKHIMER, Ronald J. See Book reviews (Hazlitt) BEITER world (Patrick) 4:245 BEYOND supply and demand: the psychology of inflation (Wolfe) 2:67-74 BILLINGS, Donald B. WorId economy at the crossroad, The. 4:238-244 BLACK Americans, attitudes of "Roots" of the free market, the (Douglas) 4:232-237 BLAMING the victims: the government's theory of inflation (Higgs) 7:397-404 BROWNFELD, Allan C. See Book reviews <Hoffer) BROZEN, Yale Attack on concentration, The. 1:38-46 Mythology of energy, The. 7:387-392 BRYAN, Barbara H.

Free market: elementary, my child. 12:752-754 BUREAUCRATIC management Efficiency in government (Bechara) 5:284-287 Fight for free enterprise (McDonald) 10:590-592 BUREAUCRACY problem (Osterfeld) 3:178-189 BUSINESS. See Capitalism; Economic production; Free enterprise c CAGE, William E. I don't know. 2:98-101 Prices: guidelines that work. 9:523-529 CAHILL, George F. What is freedom? 3:176-177 CAPIT AL, savings, investment Assault on capital (Anderson) 11:653-661 Capital punishment (Semmens) 9:515-522 Permanent depression (Carson) 12:743-751 Social cost of railroad regulation <Semmens) 12:732-739 761 762 THE FREEMAN December CAPITALISM (Mises) 12:707-717 CAPITALISM Has capitalism a future? (Johnson) 1:47-59 The king is dead (Franckowiak) 10:603-605 Two ways of life (Anderson) 10:579-589 Welfarism (Dillenberg) 11:675-677 CARSON, Clarence B. Hidden fallacies behind intervention, The. 10:606-617 Permanent depression. 12:743-751 World in the grip of an idea (serialized) 25. The cold war: terrorizing many lands. 1:18-31 26. The cold war: the spread of gradualism.

2:102-114 27. The cold war: foreign aid. 3:143-156 28. The cold war: the third world. 4:214-226 29. The cold war: coexistence, detente, and convergence. 5:271-283 30. The individual: victim of the idea. 6:352-366 31. The subjugation of the individual. 7:430-443 32. The restoration of the individual. 8:485-498 33. Conclusion: loosening the grip of the idea. 9:530-543 CASE for the minimal state (Hazlitt) 11:665-674 CHAFUEN, Alejandro War without end. 1:12-17 CHAMBERLAIN, John "Windfall" for consumers in deregulation of oil. 7:419-421 See also Book reviews CHRISTIAN principles and public policy (Coleson) 2:81-89 COLBURN, J. Brooks Excess losses. 6:367-369 COLESON, Edward Christian principles and public policy. 2:81-89 COLLECTIVISM Dangers of collectivism (Bechara) 2:119-122 World in the grip ... , 26 & 31 (Carson) 2:102-114; 7:430-443 COLLEGES/universities Education and grades (Russell) 12:740-742 Tiller, the van, and the typewriter (Alford) 9:563-569 World in the grip ... ,25 (Carson) 1:18-31 COMMUNISM, Marxian/Russian Bureaucracy problem (Osterfeld) 3:178-189 Marx and the Manifesto (Baker) 11:678-696 World in the grip ... , 25, 28, 29, 30 & 33 (Carson) 1-18-31;4:214-226;5:271-283;6:352-366;9:530-543 See also Socialism COMPETITION, open vs. restricted Attack on concentration (Brozen) 1:38-46 Capitalism (Mises) 12:707-717 Redistribution of wealth-labor union style (Anderson) 7:407-418 Table fable (Shannon) 10:625-627 "Windfall" for consumers in deregulation of oil (Chamberlain) 7:419-421 CONSERVATION or confiscation? (Batten) 4:204-211 CONSUMER sovereignty Costs of occupational licensing (Bechara) 4:227-231 Market economy vs. the welfare state (P. L. Greaves) 1:32-37 New look at the invisible hand (Barger) 7:422-429 Permanent depression (Carson) 12:743-751 Who's the boss? (North) 2:75-80 See also Prices ...

COOLEY, Oscar W. Inflation fighters bark up the wrong tree. 6:334-336 COONEY, Ronald F. Nock: an appreciation. 8:499-504 COSTS of occupational licensing (Bechara) 4:227-231 CRISIS in public finance: no ways or means (Semmens) 3:131-139 D DANGERS of collectivism (Bechara) 2:119-122 DEMOCRACY World in the grip ... 26 (Carson) 2:102-114 DEREGULATION of trucking (Semmens) 4:246-251 DILLENBERG, Anna Welfarism.11:675-677 DISHONEST about inflation (Barger) 12:721-726 DOUGLAS, W. Earl "Roots" of the free market, The: an order born of discipline. 4:232-237 E ECONOMIC calculation Bureaucracy problem (Osterfeld) 3:178-189 Marx and the Manifesto (Baker) 11:678-696 ECONOMIC principles/laws Another anti-inflation circus (Sennholz) 3:139-142 Christian principles and public policy (Coleson) 2:81-89 Start at the beginning (leFevre) 4:195-200 Thinking about economics (Opitz) 5:288-300 Two ways of life (Anderson) 10:579-589 ECONOMIC production, government and Assault on capital (Anderson) 11:653-661 Capital punishment (Semmens) 9:515-522 Marx and the Manifesto (Baker) 11:678-696 Permanent depression (Carson) 12:743-751 Social cost of railroad regulation (Semmens) 12:732-739 ECONOMICS of the barricades (Fisher) 7:404-406 EDUCATION and grades (Russell) 12:740-742 EDUCATION and teaching Nature of work (leFevre) 6:370-377 On recapturing liberty (Foley) 5:304-314 Who's the boss? (North) 2:75-80 See also Colleges/universities 1979 INDEX 763 EFFECTS of regulation on an industry (Gifford) 5:300-303 EFFICIENCY in government (Bechara) 5:284-287 EGALITE?-sheer illusion! (Paton) 3:157-159 ENERGY, production and controls Mythology of energy (Brozen) 7:387-392 Road not taken (Hazlitt) 2:90-97 Symbol of chaos: the gas pump (Sennholz) 8:458-465 "Windfall" for consumers in deregulation of oil (Chamberlain) 7:419-421 ENTREPRENEUR, role of Bureaucracy problem (Osterfeld) 3:178-189 Ethics of profit making (Summers) 8:451-457 Marx and the Manifesto (Baker) 11:678-696 ETHICS of profit making (Summers) 8:451-457 EXCESS losses (Colburn) 6:367-369 F FALL of Rome and modem parallels (Reed) 11:647-652 FEDERAL Communications Commission Effects of regulation on an industry (Gifford) 5:300-303 FEDERAL Reserve System Gold versus fractional reserves (Hazlitt) 5:259-266 FIGHT for free enterprise (McDonald) 10:590-592 FISHER, Antony G.A.

Economics of the barricades, The. 7:404-406 FOLEY, Ridgway K, Jr. On recapturing liberty. 5:304-314 FOREIGN policy (B. B. Greaves) 9:544-550 FOREIGN relations. See International .; Trade; U.S. foreign policy FRANCKOWIAK, Leonard The king is dead. 10:603-605 FREE enterprise, free market Bases of economic planning (Kelley) 3:160-170 Egalite?-sheer illusion! (Paton) 3:157-159 Fight for free enterprise (McDonald) 10:590-592 "Roots" of the free market: an order born of discipline (Douglas) 4:232-237 Who's the boss? (North) 2:75-80 World in the grip ... ,33 (Carson) 9:530-543 See also Economic production FREE MARKET: elementary, my child (Bryan) 12:752-754 FREEDOM, principles of F. A. Hayek: classical liberal (T. W. Hazlett) 9:551-562 I don't know (Cage) 2:98-101 In defense of freedom-Frederic Bastiat (Bearce) 10:628-635 Indivisibility of liberty (Keeler) 4:201-203 Liberty and the power of ideas (Reed) 2:115-118 On recapturing liberty (Foley) 5:304-314 Toward a meaningful defense of freedom (Howard) 3:171-175 What is freedom? (Cahill) 3:176-177 FREEDOM of speech/press/thought Effects of regulation on an industry (Gifford) 5:300-303 Prices: guidelines that work (Cage) 9:523-529 Repressing economic news (Wriston) 7:393-396 Strategy for the war of ideas (Petro) 6:323-333 Thinking about economics (Opitz) 5:288-300 G GENTRY, Kenneth L., Jr.

Problems with public welfare, The. 11:697-700 GIFFORD, Shari Effects of regulation on an industry, The. 5:300-303 GOLD versus fractional reserves (Hazlitt) 5:259-266 GOTTLIEB, Ira Input slavery and output slavery. 6:378-380 GOVERNMENT intervention Agriculture and the survival of private enterprise (Grady) 8:480-484 Amazing strange (Raley) 6:344-346 Around the world (Gresham) 6:347-351 Assault on capital (Anderson) 11:653-661 Crisis in public finance (Semmens) 3:131-139 Deregulation of trucking (Semmens) 4:246-251 Effects of regulation on an industry (Gifford) 5:300-303 Ethics of profit making (Summers) 8:451-457 Hidden fallacies behind intervention (Carson) 10:606-617 I don't know (Cage) 2:98-101 Liberty and the power of ideas (Reed) 2:115-118 Mythology of energy (Brozen) 7:387-392 New look at the invisible hand (Barger) 7:422-429 On recapturing liberty (Foley) 5:304-314 Permanent depression (Carson) 12:743-751 Prices: guidelines that work (Cage) 9:523-529 Redistribution of wealth-labor union style (Anderson) 7:407-418 Road not taken (Hazlitt) 2:90-97 Social cost of railroad regulation (Semmens) 12:732-739 Symbol of chaos: the gas pump (Sennholz) 8:458-465 Torrent oflaws (Hazlitt) 1:3-11 World in the grip ,33 (Carson) 9:530-543 See also Taxes ; Welfare state GOVERNMENT licensing Costs of occupational licensing (Bechara) 4:227-231 Effects of regulation on an industry (Gifford) 5:300-303 The king is dead (Franckowiak) 10:603-605 GOVERNMENT spending/deficits Blaming the victims: the government's theory of inflation (Higgs) 7:397-404 Crisis in public finance (Semmens) 3:131-139 Mass transit mess (Semmens) 10:618-625 764 THE FREEMAN December Prices: guidelines that work (Cage) 9:523-529 Problems with public welfare (Gentry) 11:697-700 Sixth wheel (McDonald) 4:212-213 There is no escape (Sennholz) 11:643-646 Welfarism (Dillenberg) 11:675-677 GOVERNMENT'S role Efficiency in government (Bechara) 5:284-287 F. A. Hayek: classical liberal (T. W. Hazlett) 9:551-562 Hidden fallacies behind intervention (Carson) 10:606-617 Nock: an appreciation (Cooney) 8:499-504 GRADY,Ed Agriculture and the survival of private enterprise.

8:480-484 GREAVES, Bettina Bien Foreign policy. 9:544-550 See also Book reviews (Van Til) GREAVES, Percy L., Jr. The market economy vs. the welfare state. 1:32-37 GRESHAM, Perry E. Around the world. 6:347-351 H HAS capitalism a future? (Johnson) 1:47-59 HAYEK, F. A., classical liberal (T. W. Hazlett) 9:551-562 HAZLETI', Thomas W. F. A. Hayek: classical liberal. 9:551-562 HAZLITT, Henry Case for the minimal state, The. 11:665-674 Gold versus fractional reserves. 5:259-266 Profits and payrolls. 8:470-479 Profits and payrolls: 1978. 12:718-720 Road not taken, The. 2:90-97 Torrent of laws, The. 1:3-11 HERITAGE, our (Shumiatcher) 5:267-270 HIDDEN fallacies behind intervention (Carson) 10:606-617 HIGGS, Robert Blaming the victims: the government's theory of inflation. 7:397-404 HOWARD, Joseph P. Toward a meaningful defense of freedom. 3:171-175 I DON'T know (Cage) 2:98-101 IDEAS, importance of Has capitalism a future? (Johnson) 1:47-59 Liberty and the power of ideas (Reed) 2:115-118 Our heritage (Shumiatcher) 5:267-270 Strategy for the war of ideas (Petro) 6:323-333 War without end (Chafuen) 1:12-17 World in the grip ... , 26 (Carson) 2:102-114 ILLUSION behind government aid (Russell) 11:662-664 IN DEFENSE of freedom-Frederic Bastiat (Bearce) 10:628-635 INDIVIDUAL actions/choices Agriculture and the survival of private enterprise (Grady) 8:480-484 Bases of economic planning (Kelley) 3:160-170 New look at the invisible hand (Barger) 7:422-429 On recapturing liberty (Foley) 5:304-314 Start at the beginning (LeFevre) 4:195-200 This is mine (LeFevre) 10:593-602 INDIVIDUAL freedom and responsibility Egalite?-sheer illusion! (Paton) 3:157-159 I don't know (Cage) 2:98-101 In defense of freedom-Frederic Bastiat (Bearce) 10:628-635 Liberty and the power of ideas (Reed) 2:115-118 Problems with public welfare (Gentry) 11:697-700 "Roots" ofthe free market: an order born ofdiscipline (Douglas) 4:232-237 Two ways of life (Anderson) 10:579-589 Where there was a will (Raley) 12:727-731 World in the grip ... , 31, 32 & 33 (Carson) 7:430-443; 8:485-498; 9:530-543 INDIVISIBILITY of liberty (Keeler) 4:201-203 INDUSTRIAL REVOLUTION Capitalism (Mises) 12:707-717 Has capitalism a future? (Johnson) 1:47-59 INFLATION. See Money ...

INFLATION fighters bark up the wrong tree (Cooley) 6:334-336 INPUT slavery and output slavery (Gottlieb) 6:378-380 INTERNATIONAL cartels/agreements World economy at the crossroad (Billings) 4:238-244 INTERNATIONAL Monetary Fund Road not taken (Hazlitt) 2:90-97 INTERNATIONAL relations. See U.S. foreign policy INVISmLE HAND, new look at the (Barger) 7:422-429 J JOHNSON, Paul Has capitalism a future? 1:47-59 K KEELER, Davis E. Indivisibility of liberty, The. 4:201-203 KELLEY, David Bases of economic planning, The. 3:160-170 KING is dead (Franckowiak) 10:603-605 KNOWLEDGE, individual and scattered F. A. Hayek: classical liberal (T. W. Hazlett) 9:551-562 See also Prices ...

1979 INDEX 765 L LABORJwages/productivity Capitalism (Mises) 12:707-717 Nature of work (LeFevre) 6:370-377 Prices: guidelines that work (Cage) 9:523-529 Profits and payrolls (Hazlitt) 8:470-479 Profits and payrolls: 1978 (Hazlitt) 12:718-720 Redistribution of wealth-labor union style (Anderson) 7:407-418 Road not taken (Hazlitt) 2:90-97 This is mine (LeFevre) 10:593-602 LABOR unions Economics of the barricades (Fisher) 7:404-406 New look at the invisible hand (Barger) 7:422-429 Redistribution of wealth-labor union style (Anderson) 7:407-418 Strategy for the war of ideas (Petro) 6:323-333 Tiller, the van, and the typewriter (Alford) 9:563-569 LAND, natural resources Conservation or confiscation? (Batten) 4:204-211 LEFEVRE, Robert Nature of work, The. 6:370-377 Start at the beginning. 4:195-200 This is mine. 10:593-602 LIBERAL, classical: F. A. Hayek (T. W. Hazlett) 9:551-562 LIBERTY and the power of ideas (Reed) 2:115-118 LOSSES, excess (Colburn) 6:367-369 M MANN, Amy. See Book reviews (Krauss) MARKET economy vs. the welfare state (P. L. Greaves) 1:32-37 MARX and the manifesto (Baker) 11:678-696 MASS transit mess (Semmens) 10:618-625 McDONALD, Kenneth Fight for free enterprise, The. 10:590-592 Sixth wheel. 4:212-213 MINIMAL state, case for (Hazlitt) 11:665-674 MISES, Ludwig von Capitalism. 12:707-717 MONEY and inflation Another anti-inflation circus (Sennholz) 3:139-142 Assault on capital (Anderson) 11:653-661 Beyond supply and demand-the psychology of inflation (Wolfe)2:67-74 Blaming the victims: the government's theory of inflation (Higgs) 7:397-404 Capital punishment (Semmens) 9:515-522 Dishonest about inflation (Barger) 12:721-726 Fall of Rome and modem parallels (Reed) 11:647-652 Gold versus fractional reserves (Hazlitt) 5:259-266 Inflation fighters bark up the wrong tree (Cooley) 6:334-336 Market economy vs. the welfare state (P. L. Greaves) 1:32-37 Prices: guidelines that work (Cage) 9:523-529 Repressing economic news (Wriston) 7:393-396 Road not taken (Hazlitt) 2:90-97 "Sorry, no further bids" (North) 8:466-469 MONOPOLY/monopolies Attack on concentration (Brozen) 1:38-46 Mass transit mess (Semmens) 10:618-625 MORAL principles and religions Beyond supply and demand-the psychology of inflation (Wolfe) 2:67-74 Fall of Rome and modem parallels (Reed) 11:647-652 Thinking about economics (Opitz) 5:288-300 World in the grip ... , 29 & 32 (Carson) 5:271-283; 8:485-498 MYTHOLOGY of energy (Brozen) 7:387-392 N NATURAL law Case for the minimal state (Hazlitt) 11:665-674 Toward a meaningful defense of freedom (Howard) 3:171-175 NATURE of work (LeFevre) 6:370-377 NEW look at the invisible hand (Barger) 7:422-429 NOCK, Albert J., an appreciation (Cooney) 8:499-504 NORTH,Gary "Sorry, no further bids!" 8:466-469 Who's the boss? 2:75-80 NUTRITION planning (Pasour) 6:337-343 o OCCUPATIONAL licensing, costs of(Bechara) 4:227-231 See also Government licensing ON recapturing liberty (Foley) 5:304-314 OPITZ, Edmund A.

Thinking about economics. 5:288-300 OSTERFELD, David Bureaucracy problem, The. 3:178-189 OUR heritage (Shumiatcher) 5:267-270 p PASOUR, E. C., Jr. Nutrition planning. 6:337-343 PATON,W.A. Egalite?-sheer illusion! 3:157-159 PATRICK, James C. Better world, A. 4:245 PERMANENT depression (Carson) 12:743-751 PETRO, Sylvester Strategy for the war of ideas, A. 6:323-333 POIROT, Paul L. See Book reviews (Harper) 766 THE FREEMAN December PLANNING, central or individual Bases of economic planning (Kelley) 3:160-170 Bureaucracy problem (Osterfeld) 3:178-189 F. A. Hayek: classical liberal (T. W. Hazlett) 9:551-562 Nutrition planning (Pasour) 6:337-343 Two ways of life (Anderson) 10:579-589 World in the grip ... , 31 (Carson) 7:430-443 PRICES: guidelines that work (Cage) 9:523-529 PRICES/pricing/price controls Agriculture and the survival of private enterprise (Grady) 8:480-484 Amazing strange (Raley) 6:344-346 Bases of economic planning (Kelley) 3:160-170 Blaming the victims: the government's theory of inflation (Higgs) 7:397-404 Bureaucracy problem (Osterfeld) 3:178-189 Crisis in public finance: no ways or means (Semmens) 3:131-139 Free market: elementary, my child (Bryan) 12:752-754 Indivisibility of liberty (Keeler) 4:201-203 Inflation fighters bark up the wrong tree (Cooley) 6:334-336 Marx and the Manifesto (Baker) 11:678-696 Mythology of energy (Brozen) 7:387-392 New look at the invisible hand (Barger) 7:422-429 Repressing economic news (Wriston) 7:393-396 "Sorry, no further bids!" (North) 8:466-469 Symbol of chaos: the gas pump (Sennholz) 8:458-465 See also Consumer sovereignty PROBLEMS with public welfare (Gentry) 11:697-700 PROFIT/loss system Agriculture and the survival of private enterprise (Grady) 8:480-484 Capital punishment (Semmens) 9:515-522 Efficiency in government (Bechara) 5:284-287 Ethics of profit making (Summers) 8:451-457 Excess losses (Colburn) 6:367-369 PROFITS and payrolls (Hazlitt) 8:470-479 PROFITS and payrolls: 1978 (Hazlitt) 12:718-720 PROPERTY, ownership and control of Agriculture and the survival of private enterprise (Grady) 8:480-484 Ethics of profit making (Summers) 8:451-457 Input slavery and output slavery (Gottlieb) 6:378-380 Start at the beginning (LeFevre) 4:195-200 This is mine (LeFevre) 10:593-602 Two ways of life (Anderson) 10:579-589 Who's the boss? (North) 2:75-80 PUBLIC welfare, problems with (Gentry) 11:697-700 R RAILROAD regulation, social cost of (Semmens) 12:732-739 RALEY, Jess Amazing strange. 6:344-346 Where there was a will. 12:727-731 REAM, Roger R. See Book reviews (Ringer) REDISTRIBUTION of wealth':"""labor union style (Anderson) 7:407-418 REED, Lawrence W.

Fall of Rome and modern parallels, The. 11:647-652 Liberty and the power of ideas. 2:115-118 See also Book reviews (Goodman & Dolan) RELIGION. See Moral principles ... REPRESSING economic news (Wriston) 7:393-396 RESPONSIBILITY, individual. See Individual ... ROAD not taken (Hazlitt) 2:90-97 ROME, fall of and modern parallels (Reed) 11:647-652 "ROOTS" of the free market: an order born of discipline (Douglas) 4:232-237 RUSSELL, P. Dean Education and grades. 12:740-742 lllusion behind government aid, The. 11:662-664 s SARACENS Education and grades (Russell) 12:740-742 SAVINGS/investment. See Capital ... SELF -IMPROVEMENT Better world (Patrick) 4:245 Nature of work (LeFevre) 6:370-377 Nock: an appreciation (Cooney) 8:499-504 See also Individual ... SEMMENS, John Capital punishment. 9:515-522 Crisis in public finance, The: no ways or means. 3:131-139 Deregulation of trucking. 4:246-251 Mass transit mess. 10:618-625 Social cost of railroad regulation, The. 12:732-739 SENNHOLZ, Hans F.

Another anti-inflation circus. 3:139-142 Symbol of chaos, A: the gas pump. 8:458-465 There is no escape. 11:643-646 SHANNON, Russell Table fable. 10:625-627 SHUMIATCHER, Morris Our heritage. 5:267-270 SIXTH wheel (McDonald) 4:212-213 SLAVERY Christian principles and public policy (Coleson) 2:81-89 Input slavery and output slavery (Gottlieb) 6:378-380 World in the grip ... ,31 (Carson) 7:430-443 SOCIAL cooperation F. A. Hayek: classical liberal (T. W. Hazlett) 9:551-562 Marx and the Manifesto (Baker) 11:678-696 This is mine (LeFevre) 10:593-602 See also Free enterprise 1979 INDEX 767 SOCIAL cost of railroad regulation (Semmens) 12:732-739 SOCIALISM Assault on capital (Anderson) 11:653-661 Marx and the Manifesto (Baker) 11:678-696 Two ways of life (Anderson) 10:579-589 World in the grip ... , 26, 27 & 29 (Carson) 2:102-114; 3:143-156; 5:271-283 See also Communism; Government intervention; Welfare state "SORRY, no further bids!" (North) 8:466-469 STARKWEATHER, Tom. 51'1' Book reviews (Richardson) START at the beginning (LeFevre) 4:195-200 STRATEGY for the war of ideas (Petro) 6:323-333 SUMMERS, Brian Ethics of profit making, The. 8:451-457 See also Book reviews (Mises) SYMBOL of chaos: the gas pump (Sennholz) 8:458-465 T TABLE fable (Shannon) 10:625-627 TAXES/taxation Assault on capital (Anderson) 11:653-661 Capital punishment (Semmens) 9:515-522 Crisis in public finance: no ways or means (Semmens) 3:131-139 There is no escape (Sennholz) 11:643-646 Welfarism (Dillenberg) 11:675-677 See also Government ...

TERRORISM War without end (Chafuen) 1:12-17 World in the grip ... , 25 (Carson) 1:18-31 THERE is no escape (Sennholz) 11:643-646 THINKING about economics (Opitz) 5:288-300 THIRD world Has capitalism a future? (Johnson) 1:47-59 World economy at the crossroad (Billings) 4:238-244 World in the grip ... , 28 (Carson) 4:214-226 THIS is mine (LeFevre) 10:593-602 TILLER, the van, and the typewriter (Alford) 9:563-569 TORRENT of laws (Hazlitt) 1:3-11 TOWARD a meaningful defense of freedom (Howard) 3:171-175 TRADE, foreign. See U. S. foreign policy TRANSFER payments Dangers of collectivism (Bechara) 2:119-122 lllusion behind government aid (Russell) 11:662-664 Liberty and the power of ideas (Reed) 2:115-118 Road not taken (Hazlitt) 2:90-97 Sixth wheel (McDonald) 4:212-213 There is no escape (Sennholz) 11:643-646 See also Socialism; Welfare State TRANSPORTATION. See Semmens TWO ways of life (Anderson) 10:579-589 u UNITED States foreign policy Foreign policy (B. B. Greaves) 9:544-550 World economy at the crossroad (Billings) 4:238-244 World in the grip ... , 27, 28, 29 (Carson) 3:143-156, 4:214-226 and 5:271-283 UTILITARIANISM Case for the minimal state (Hazlitt) 11:665-674 Ethics of profit making (Summers) 8:451-457 v VALUE THEORY-labor vs. subjective Marx and the Manifesto (Baker) 11:678-696 VIETNAM, Kent State and World in the grip ... , 25 (Carson) 1:18-31 w WAR without end (Chafuen) 1:12-17 WELFARE state Beyond supply and demand-the psychology of inflation (Wolfe) 2:67-74 Fall of Rome and modern parallels (Reed) 11:647-652 lllusion behind government aid (Russell) 11:662-664 In defense of freedom-Frederic Bastiat (Bearce) 10:628-635 Market economy vs. the welfare state (P. L. Greaves) 1:32-37 See also Government intervention WELFARISM <Dillenberg) 11:675-677 WHAT is freedom? (Cahill) 3:176-177 WHERE there was a will (Raley) 12:727-731 WHO'S the boss? (North) 2:75-80 "WINDFALL" for consumers in deregulation of oil (Chamberlain) 7:419-421 WINDFALL profits Ethics of profit making (Summers) 8:451-457 Profits and payrolls (Hazlitt) 8:470-479 Symbol of chaos: the gas pump (Sennholz) 8:458-465 See also Profit/loss system WOLFE, Gregory Beyond supply and demand-the. psychology of inflation. 2:67-74 WORLD, around the (Gresham) 6:347-351 WORLD economy at the crossroad (Billings) 4:238-244 WORLD in the grip of an idea (serialized). See Carson WRISTON, Walter B.

Repressing economic news. 7:393-396 768 THE FREEMAN . BOOK REVIEWS (Reviewer's name in parentheses) BRADFORD, M. E. (edJ See Taylor BUTLER, Eamonn F. (co-author) See Schuettinger DOLAN, Edwin G. (co-author) See Goodman GOODMAN, John C. & Edwin G. Dolan. Economics of public policy: the micro view (Reed) 9:573-576 HARPER, F. A., The writings of (Poirot) 8:505-508 HAZLITT, Henry (ed.) The critics of Keynesian economics (Berkhimer) 1:63-64 HERBERT, Auberon. The right and wrong of com pulsion by the state, and other essays (Chamber lain) 6:381-384 HESSEN, Robert. In defense of the corporation (Chamberlain) 5:315-318 HOFFER, Eric. Before the Sabbath (Brownfeld) 7:447-448 KIRK, Russell. Decadence and renewal in the higher learning: an episodic history of American uni versity and college since 1953 (Chamberlain) 7:444 447 ____ . John Randolph of Roanoke: a study in American politics (Chamberlain) 1:60-63 KRAUSS, Melvyn B. The new protectionism: the welfare state and international trade (Mann) 5:318-320 MACK, Eric (ed.) See Herbert MILLER, Alice P. Edmund Burke and his world (Chamberlain) 11:701-704 MISES, Ludwig von. Liberalism (Summers) 2:126-127 HANDSOME BLUE LEATHERLEX MISES, Ludwig von. Papers of. See VanTil _____ . The ultimate foundation of economic science (Summers) 2:127-128 MORLEY, Felix. For the record (Chamberlain) 8:509-512 NOZICK, Robert. Anarchy, state and utopia (Hazlitt) 11:665-674 READ, Leonard E. The freedom freeway (Chamber lain) 12:755-758 ____ . Liberty: legacy of truth (Chamberlain) 2:123-126 REGNERY, Henry. Memoirs of a dissident publisher (Chamberlain) 9:570-573 RICHARDSON, H. L. What makes you think we read the bills? (Starkweather) 8:512 RINGER, Robert J. Restoring the American dream (Ream) 12:758-760 ROGGE, Benjamin A. Can capitalism survive?

(Chamberlain) 3:190-192 SCHUETTINGER, Robert L. & Eamonn F. Butler. Forty centuries of wage and price controls: how not to fight inflation (Chamberlain) 10:636-639 SCOTT, Otto. The secret six: John Brown and the abolitionist conspiracy (Chamberlain) 4:252-255 TAYLOR, John. Arator (Chamberlain) 1:60-63 VAN TIL, L. John (cataloguer). Inventory of the private papers of Ludwig von Mises (Greaves) 10:639-640 FREEMAN BINDERS $3.00 Order from: THE FOUNDATION FOR ECONOMIC. EDUCATION, INC. IRVINGTON-ON-HUDSON, NEW YORK 10533

About this edition

This EPUB was produced automatically from the PDF named below. The text is the publisher's; the layout was reflowed for screen reading, so page breaks, line breaks and hyphenation differ from the original.

Title: The Freeman 1979

Author: Foundation for Economic Education

First published: 1950

Series: The Freeman, volume 29

Source file: The Freeman 1979.pdf

Source page: https://freecapitalists.org/books/the-freeman-1979/

Converted: 2026-08-09 by The Liberty Archive (freecapitalists.org), converter v6

Table of Contents

The Freeman 1979

- The Torrent of Laws; H. Hazlitt
- War Without End; A. Chafuen
- World in the Grip of an Idea

- The Market Economy vs. the Welfare State; P. L. Greaves, Jr.

- The Attack on Concentration; Y. Brown
- Has Capitalism a Future? P. Johnson
- Book Reviews

February

- Beyond Suppy and Demand; G. Wolfe

- Who's the Boss? G. North

- Christian Principles and Public Policy; E. Coleson

- The Road Not Taken; H. Hazlitt
- I Don't Know; W. Cage
- World in the Grip of an Idea; C. Carson
- Liberty and the Power of Ideas; L. Reed
- The Dangers of Collectivism; D. Bechara
- Book Reviews
- March
- The Crisis in Public Finance; J. Semmens
- Another Anti-Inflation Circus; H. Sennholz
- Wolrd in the Grip of an Idea
- Egalite? W. A. Paton
- The Bases of Economic Planning; D. Kelley

- Toward a Meaningful Defense of Freedom; J. Howard

- What is Freedom? G. Cahill
- The Bureaucracy Problem; D. Osterfeld
- Book Reviews

April

- Start at the Beginning; R. LeFevre
- The Indivisibility of Liberty; D. Keeler
- Conservatism or Confiscation? C. Batten
- Sixth Wheel; K. McDonald
- World in the Grip of an Idea; C. Carson

- The Costs of Occupational Licensing; D. Bechara

- The Roots of the Free Market; W. E. Douglas
- The World Economy; D. Billings
- A Better World; J. Patrick
- Deregulation of Trucking; J. Semmens
- Book Reviews

May

- Gold Versus Fractional Reserves; H. Hazlitt
- Our Heritage; M. Shumiatcher
- World in the Grip of an Idea; C. Carson
- Efficiency in Government; D. Bechara
- Thinking About Economics; E. Opitz

- The Effects of Regulation on an Industry; S. Gifford

- On Recapturing Liberty; R. Foley, Jr.

- Book Reviews

June

- A Strategy for the Ward of Ideas; S. Petro

- Inflation Fighters Bark up the Wrong Tree; O. Cooley

- Nutrition Planning; E. C. Pasour, Jr.
- Amazing Strange; J. Raley
- Around the World; P. E. Gresham
- World in the Grip of an Idea; C. Carson
- Excess Losses; J. B. Colburn
- The Nature of Work; R. LeFevre

- Input Slavery and Output Slavery; I. Gottlieb

- Book Reviews

July

- The Mythology of Energy; Y. Brozen
- Repressing Economic News; W. Wriston
- Blaming the Victims; R. Higgs
- The Economics of the Barricades; A. Fisher
- The Redistribution of Weatlh; R. Anderson

- Windfall for Consumer in Deregulatoin of Oil; J. Chamberlain

- A New Look at the Invisible Hand; M. Barger
- World in the Grip of an Idea; C. Carson
- Book Reviews

August

- The Ethics of Profit Making; B. Summers
- A Symbol of Chaos; H. Sennholz
- Sorry, No Further Bids; G. North
- Profits and Payrolls; H. Hazlitt

- Agrigulture and the Survival of Private Enterprise; E. Grady

- World in the Grip of an Idea; C. Carson
- Nock: an Appreciation; R. Cooney
- The Writings of F. A. Harper; P. L. Poirot
- Book Reviews

September

- Capital Punishment; J. Semmens
- Prices: Guidelines that Work: W. Cage
- World in the Grip of an Idea; C. Carson
- Foreign Policy; B. B. Greaves
- F. A. Hayek: Classical Liberal: R. Hazlett

- The Tiller, the Van, and the Typewriter; R. Alford

- Book Reviews

October

- Two Ways of Life; R. Anderson
- The Fight for Free Enterprise; K. McDonald
- This is Mine; R. LeFevre
- The Kind Is Dead; L. Franckowiak

- The Hidden Fallacies Behind Intervention; C. Carson

- Mass Transit Mess; J. Semmens
- Table Fable; R. Shannon
- In Defense of Freedom; R. Bearce
- Book Reviews

November

- There Is No Escape; H. Sennholz
- The Fall of Rome; L. Reed
- The Assault on Capital; R. Anderson

- The Illusoin Behind Government Aid; P. D. Russell

- The Case for the Minimal State; H. Hazlitt
- Welfarism; A. Dillenberg
- Marx and the Manifesto; W. Baker

- The Problems with Public Welfare; K. Gentry, Jr.

- Book Reviews

December

- Capitalism; L. von Mises
- Profits and Payrolls; H. Hazlitt
- Dishonest About Inflation; M. Barger
- Where There Was a Will; J. Raley

- The Social Coast of Railroad Regulation; J. Semmens

- Education and Grades; P. D. Russell
- Permanent Depression; C. Carson
- Free Market; B. Bryan
- Book Reviews

Index
Book Reviews
About this edition