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A



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AWAY
FROM
FREEDOM

VERVON ORVAL WATTS

The Ludwig von Mises Institute

Auburn, Alabama
2008


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DR. OrvaL WATTs is an economist. Teaching is his
career. He has taught economics to college students
for seventeen years —at Harvard University, Clark
University, Wellesley College, Antioch College, Carle-
ton College, and Claremont Men's College.

He has taught economics to businessmen as eco-
nomic consultant, lecturer and author. His twelve
years in this work overlapped his college teaching
somewhat and included positions as economist for
the Los Angeles Chamber of Commerce and The
Foundation for Economic Education. He is now
serving as economic consultant for Freedom Clubs,
Inc., as well as for several leading business concerns
in Southern California.

He contributes to various magazines which con-
cern themselves with public affairs; he is a colum-
nist for Christian Economics. His books: Why Are
We So Prosperous?, Do We Want Free Enterprise?

w w w

The Foundation for Social Research is an indepen-
dent non-profit, non-political organization devoted to
carrying on research projects in the social sciences.

FREEDOM CENTER BUILDING
1521 WiLsHIRE BOULEVARD, L.0s ANGELES 17, CALIFORNIA


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Preface

V. Orval Watts, one of the leading free-market
economists of the World War II and post-war eras,
died on March 30 this year. When I first met him,
in the winter of 1947, he was a leading economist
at the Foundation for Economic Education (FEE),
the only free-market organization and think-tank of
that era. He was a pleasantly sardonic man in his
late forties. Born in 1898 in Manitoba, Vernon
Orval Willard Watts was graduated from the
University of Manitoba in 1918, and went on to
earn a master’s and a doctor’s degree in economics
from Harvard University in its nobler, pre-
Keynesian era.

After teaching economics at various colleges,
Orval was hired by Leonard Read in 1939 to be the
economist for the Los Angeles Chamber of
Commerce, of which Leonard was executive direc-
tor. Watts thereby became the first full-time econo-
mist to be employed by a chamber of commerce in
the United States.

Leonard Read had built up the Los Angeles
Chamber into the largest municipal business organ-
ization in the world, and Read himself had been
converted to the libertarian, free-market creed by a
remarkable constituent of the Chamber: William C.


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Mullendore, head of the Southern California
Edison Corporation.

During World War II, Read, assisted by Watts,
lent his remarkable organizing talents to making
the Los Angeles Chamber a beacon of freedom in
an increasingly collectivist world. When Read took
the bold step of moving to Irvington-on-Hudson in
New York to set up FEE in 1946, he took Orval with
him as his economic adviser.

During World War II, Orval published book Do
We Want Free Enterprise? (1944). In his FEE
years, he published several books, as well as writing
numerous articles for free-market publications. His
books included Away From Freedom (1952), a cri-
tique of Keynesianism; his pungent critique of
unions, Union Monopoly (1954), and his percep-
tive attack on the United Nations, United Nations:
Planned Tyranny (1955). He also served as eco-
nomic counsel to Southern California Edison and
several other companies in the Los Angeles area.

In 1963, at an age (65) where most men are
thinking seriously of retirement, Orval resumed his
teaching career, moving to the recently established
Northwood University (then Northwood Institute),
a free-market center of learning in Midland,
Michigan.

Orval, bless him, served as director of economic
education and chairman of the Division of Social
Studies at Northwood for twenty-one years, until
he retired in 1984 at the age of 86. While at
Northwood, he published an excellent anthology of

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free market vs. government intervention articles,
Free Markets or Famine? (1967), as well as his final
book Politics vs. Prosperity (1976).

Orval Watts died in Palm Springs, California,
this March, having just turned 95. He is survived by
his wife Carolyn, a son, three daughters, nine
grandchildren, and two great-grandchildren.

We can see in the present world how vitally
important history is for the values and self-defini-
tion of a family, a movement, or a nation. As a
result, history has become a veritable cockpit of
contending factions. Any movement that has no
sense of its own history, that fails to acknowledge
its own leaders and heroes, is not going to amount
to very much, nor does it deserve a better fate.

Murray N. Rothbard
July 1993


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Foreword

Given one set of ideas, a man may starve himself
to death or throw himself before a speeding train.
Given other ideas, he may work from dawn to dusk
for a pittance.

For man is a creature of ideas. “As he thinketh
in his heart, so is he.” What he does today depends
on what he thought yesterday. What he may do
tomorrow depends on what he thinks now and will
think then. Soldiers fight the wars that make head-
lines, but back of the men of force are thinkers and
talkers who tell them whom to fight and when.

Truth, therefore, is as necessary to human life as
food and drink. Wrong ideas may be as deadly as
any poison or virus. Right ideas mean health and
progress.

Most Americans know this. They know that right
thinking is essential for the good life they want their
children to have. So they try to educate them in
truth and right. They build temples of learning, hire
much-schooled teachers, spend freely on “whole-
some” entertainments, endow colleges, attend
meetings, serve as trustees, scold their children,
support alumni organizations—and hope!


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It is with this costly effort in mind that I have
written this booklet. I think I have something
important to tell those who spend so much time
and money on education about what they are get-
ting for their many sacrifices.

In addition, every businessman and investor,
every wage earner and salaried worker—in fact,
everyone who plans for the future—will succeed or
fail in his economic endeavors according as he
knows what his fellow citizens may think and do in
the future. What teachers tell their students is
going to help determine future property values and
tax rates, employment and wage levels, prices and
interest rates, controls and subsidies.

And should not every educator or scientist, no
matter what his field, be concerned about what his
colleagues are doing? Will not the success of his
own life’s work depend much on the help he gets in
discovering and disseminating truth in other fields?

In the following pages I try to show as simply as
I can how the most popular writers of economics
textbooks now treat the problems of government
spending, taxes, and money. I give their arguments
for higher taxes on the well-to-do, subsidies to non-
producers, more government borrowing, and the
inconvertible money that makes it all possible. I
point out similarities between their theory and that
of Karl Marx, the messiah of Communism. I try to
show where the theory leads in the realm of private
morals and personal conduct, as well as in govern-

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ment and politics; and I give reasons for thinking
that it is reactionary and false.

In striving for brevity and clarity, however, I
necessarily sacrifice much. I do not give a compre-
hensive survey of economics textbooks or of all the
teachings of any textbook. My survey even of the
one school of thought is only partial and incom-
plete. I cannot in this brief study give all the ramif-
ications and criticisms of a theory that its advocates
set forth in many volumes.

However, I do not think it necessary to pursue
in all its details a theory that starts from wrong
premises and ends with unworkable conclusions.
The basic fallacies of it, I believe, are not hard to
understand, and the menace of its conclusions is
daily becoming more evident. If this is so, it is
important that these elements of understanding be
made readily available.

In my opinion, the new point of view, which its
proponents call the “New Economics,” or the
“Keynesian Revolution,” has done great harm to
students whom I have seen fall victim to it.

Even now, I believe, it is destroying the founda-
tions of our nation.

V. ORVAL WATTS
Altadena, California
January, 1952


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TABLE OF CONTENTS

ForRreworpr . . . . . . . . . . 1

I. “Tue KeynNeEsiaAN Revorution” . . . 1
What the “new economists” propose; A “managed econ-
omy” from now on; “Keynes . . . had the revelation”;
“The reign of laissez faire has ended”; The inflation cure
for unemployment; Why Keynes attacked thrift; “ . . .
the system is in the lap of the gods”; The menace of the
“Mature Economy”; Government to the rescue! “Public
investment medicine . . . can cure”; The Keynesian view
of investment; Keynesians want fiat money; And more
controls to check inflation; “We owe it to ourselves”; The
debt burden and inflation.

II. KeynesisM AND Socranism ©... 21
What is this thing called “freedom”? Socialism not a men-
ace to freedom? What is missing from this picture? Collec-
tivism vs. individualism; What everyone owns, no one
owns; What socialism means; The “New Economics” and
Marxian Socialism; The Keynesian theories are skilfully
presented.

III. RECENT CRITICISMS OF

“Tue New Economics” . . . . 34
“Keynesianism is a sin of my youth”; Keynesism as “The
Economics of Illusion”; Inflation encourages uneconomic
policy; Hahn concedes the case for a “managed currency”;
“When government plays God”; The New Deal before
Franklin Roosevelt; “It was dishonor”; Government con-
trol must be “political”; Excessive bank credit in the
1920s; Credit in free markets: an incomplete exchange;
Credit develops with trade; Banks register credits; What
“inflation” means; The gold standard prevented inflation;
When goods were as good as gold; Gold prevented in-


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flation, not expansion, of credit; Credit currency may be
preferred; In free markets, goods generate credit; The
basic fallacy of Keynesian theory; Goods give value to
goods; Credit vs. credit instruments; Goods pay for goods;
Is saving dangerous? Savings increase demand for labor;
Inventions increase profits and wages; When lower profits
mean higher wages; Inflation robs producers and destroys
credit; Government policies caused inflation, 1913-29;
Corporations save in order to invest; “We planned it that
way”; The growing appetite for inflation.

IV. GovernNMENT Is Porrrica. . . . . 71
How bureaucracy may create “planned chaos”; Govern-
ment management must be bureaucratic; Every govern-
ment agency uses compulsion; Government markets can-
not be free; Government statistics are political instru-
ments; Government planning cannot be economic; All
government acts are political.

V. Or Law ano Rigar . . . . . . 82
Majorities may violate individual rights; Progress starts
with one person; What freedom means; Keynesians pro-
pose unlimited government; Keynesians urge redistribu-
tion of wealth; Disregard for property rights; Saving
requires planning and self-discipline; Little room for self-
reliance in the Keynesian ideal; Keynesism is hostile to
private enterprise.

VI. Waar oF tHE Future? . . . . . 91
Keynesian theory not helpful in forecasting; What income
statistics do not record; Free markets are not automatic;
Government “planning” increases instability; Coercion de-

stroys cooperation; Fiat currency nurtures stateism; “As a
man thinks . . .”; “The way to security”; Coercion decreases
security.

REFERENCES . . . . . . . . . 104


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I. “The Keynesian Revolution”

Ur THE end of World War II, the most widely
used economics textbooks in America were still
in the classical tradition. They taught that free enter-
prise was a workable system. It had its faults, they
said, such as inequalities and monopolies, but at least
it gave us a maximum of individual opportunity and
economic progress.

What the “new economists” propose

Now the most widely used textbooks present a very
different view, one which the authors call the “new
economics, or the “Keynesian revolution.” This new
set of doctrines purports to prove that free enter-
prise, in addition to other alleged faults, is “without
a steering wheel or governor,” inherently unstable
and inefficient.

Because of this inherent and basic defect, the
theory goes, a “mature” economy like that of the
United States must suffer an intolerable degree of
unemployment and unused capacity—unless govern-
ment comes to the rescue.

Government is to effect this rescue by taking

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charge of all incomes, savings, investment and
spending. It is to exercise its control through taxa-
tion, subsidies, government ownership and execu-
tive orders. The aim is to regulate spending, saving,
investment, prices and wages so that the flow of
spending always equals the flow of goods, thus
bringing about full employment and capacity pro-
duction without too much inflation.

This government “management” is labelled a
“compensatory fiscal and monetary policy.”

A “managed economy” from now on

Of course, governments throughout the world are
already following such a policy to a greater or less
extent. But many persons, especially in the United
States, hopefully believe that it is in some way con-
nected with war or the threat of war. They are
vaguely aware that some economists and politicians
want to make it permanent and more complete. But
they think that such “radicals” are in a minority.
They expect more “conservative” leadership will
eventually win out, put a stop to the present drift,
and restore at least enough freedom of enterprise so
that America may once again become a land of ever
more abundant opportunity. Furthermore, they
hope that this reversal of the trend will come about
before any great disaster overtakes them.

What such optimists do not realize is that a revo-
lution in economic thought now taking place in

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American colleges and universities is rapidly mak-
ing any reversal of the present trends increasingly
difficult and improbable. Still less do these optimists
realize that disaster may even now be overtaking
them and multitudes of other individuals as they fall
victims to the supposedly new economic thought
and policy.

“Keynes . . . had the revelation”

Typical of this “new economics” is the book which
has held first place in college adoptions since 1949:
Economics, An Introductory Analysis, by Paul A.
Samuelson, professor of economics at the Massachu-
setts Institute of Technology. Other textbook writers
of the same school of thought are Lorie Tarshis, Sey-
mour Harris, Theodore Morgan, Richard Ruggles,
Lawrence R. Klein, J. A. Nordin and Virgil Salera.’

These authors and teachers, along with hundreds
or thousands of their associates, are deliberately and
systematically trying to bring about what they them-
selves call a revolution in the economics being taught
to American college students.

According to a survey reported in the American
Economic Review for December, 1950 (Supplement,
Part 2), nearly 80 per cent of the college teachers
questioned were then teaching economics from the
point of view of the “new economics.”

Until recently, the authors of this revolution did
not hesitate to call themselves “Keynesians.” Now,

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most of them call their view the “national income
approach,” or “the national income determination-
full employment approach.” But, as Professor Harris,
one of their number, says, it was Lord Keynes who
“had the revelation.” It was this English economist
who revived and popularized the old pattern of
thought which is the core of their system. “His disci-
ples are now divided into groups,” continues Harris,
“each taking sustenance from the Keynesian larder.
The struggle for the Apostolic Succession is on.”

“The reign of laissez faire has ended”

It was during the 1920s, in England, that “the reve-
lation” came to this modern oracle, and perhaps one
may better understand the message if he knows the
circumstances which inspired it.

The problem which the economists of that coun-
try were debating was unemployment. From 1920
to 1937, except for one year, unemployment in Eng-
land remained above 10 per cent of the labor force,
a level equalled only twice before in the preceding
60 years.

Classical economists said that the causes of this
chronic unemployment were interferences with free
enterprise: heavy taxes and burdensome government
restrictions; unemployment doles, which subsidized
idleness; and trade union wage-kiting and restriction
of output. The remedy, these economists argued, was
to remove or reduce these burdens and restrictions.

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The trade union leaders, of course, indignantly
rejected this argument. So did the Fabian Socialists,
who held many academic positions. However, the
attack on the free-market theory of prosperity lacked
academic prestige until John Maynard Keynes, a
tutor at the University of Cambridge, joined in.

The inflation cure for unemployment

At first Keynes argued that cutting wages was the
wrong remedy for unemployment in depressions
because of “wage rigidities” arising from trade un-
ionism and social security. In other words, at lower
wages more jobs might be open but the unions and
the doles would keep workers from taking them.
Keynes said it would take years of mass unemploy-
ment to induce workers to accept lower wage rates,
and that was too high a price to pay for free markets.
The reign of laissez faire in England had ended, he
said, and economists might as well stop pleading
for it.

The only feasible remedy for the unemployment,
in Keynes's opinion, was to raise the price level so
that employers could pay the wages demanded by
the unions. To this end, he urged that the govern-
ment and the Bank of England reduce interest rates
and encourage an expansion of bank credit, even if
this meant devaluing the currency in terms of gold.

The classicists, or free-enterprise economists,
replied that the easy-money policy advocated by

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Keynes would be dishonest and dangerous. It would
mean cutting the purchasing power of wages, and
it would work only if the workers did not find out
what was going on. If or when they learned the
truth, they would demand wage increases to match
the rise in living costs. This would nullify any pos-
sible benefits of inflation in reducing unemploy-
ment. They charged further that the devaluation
of the pound or continued inconvertibility which
Keynes advocated would violate a trust and en-
danger the business of England's bankers, who fi-
nanced most of the world’s international trade.

Why Keynes attacked thrift

In short, Keynes's critics accused him of using the
argument of political expediency to justify a bad
economic policy.

In reply, Keynes tried to show that wage-main-
tenance and currency inflation are good economics
as well as good politics, as long as there is less than
“full employment.” For this purpose, he had to find
some cause for chronic, large-scale unemployment
other than high wage rates, high taxes, and the dole.
He professed to find it in hoarded (uninvested) sav-
ings. Consequently, as Harris says, he began an “all-
out attack on thriftiness.”

Economists used to teach that individuals save
mainly in order to invest or to spend later. They
pointed out that most of the savings are deposited

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in banks, which lend them to businessmen and other
producers. These borrowers spend (“invest”) the
money for goods and services used in production.
This keeps the money circulating and maintains the
demand for labor. A rise in the supply of savings
leads to a fall in the rate of interest, and this decline
in interest rates stimulates borrowing and invest-
ment. An increase in investment opportunities leads
to a rise in interest rates, which in turn encourages
saving. Thus the supply of savings in free markets
tends to equal the demand for loans to be used in
financing production.

“ .. the system is in the lap of the gods”

Keynes and his disciples repudiate this line of rea-
soning. They deny that individuals, if left free to
choose, adjust the flow of savings to the rate of
investment or the rate of investment to the flow of
savings. Says Samuelson, author of the best seller
among college textbooks in economics: “Whatever
the individual's motivation to save, it has little
directly to do with investment or investment op-
portunities . . . saving and investing are done by
different individuals and for largely independent
reasons.

It is only an accident, he asserts, if investments
at any time equal the sums which individuals want
to put aside as savings. Consequently, if individuals
are left free to save as much as they wish, the result

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may be chronic depression and large-scale unem-
ployment. Investors, explorers, and promoters may
fail to open up sufficient new investment opportuni-
~ ties to induce businessmen to borrow the savings
and put them to work, or population may not grow
fast enough to provide markets for the products of
the new machines in which businessmen invest. Or,
the opposite may happen. Investment opportunities
may increase faster than savings. If free to do so,
banks may manufacture credit currency to finance
these opportunities, and the result may be an in-
flationary boom with an unfortunate aftermath of
financial stringency, crisis, panic, and depression.
Nordin and Salera put it this way:

Hence, we say that the acceleration principle interacts
with the multiplier to produce instability in the economy.
Such instability is inherent in the system, as opposed to
being the product of poor business judgment . .. We
shall see that the government, which means all of us in
the community, can do much to smooth out the fluctua-
tions.® (Italics supplied.)

In the words of Samuelson, “As far as total invest-
ment or money-spending power is concerned, the
system is without any thermostat,” “. . . it is in the
lap of the gods.”

The Menace of the “Mature Economy”

In an economy with an open frontier, a high rate
of invention, and a growing population, say the

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Keynesians, the opportunities may be sufficient to
cause entrepreneurs to bid for and borrow all of
the funds which consumers want to save.

In a more “mature” economy, however, like the
United States since 1929, these economists say, in-
vestments are not so likely to keep pace with the
amount individuals try to save. First, the field for
investment shrinks, at least compared to what peo-
ple try to save. Second, what they try to save (their
“propensity to save”) increases as average incomes
rise and as more of the income goes to the well-to-
do, who have a high “propensity to save.”

Eventually, therefore, a time comes in “mature”
capitdlism, when the opportunities for investment
fail to keep pace with the amounts individuals put
aside as savings. When this happens, uninvested
savings pile up in the banks. Some of the cur-
rency, then, no longer circulates; and total spending
declines. Meanwhile, entrepreneurs have paid out
money as income to producers. Now only a part
of this money comes back to them in purchase
of goods. In other words, entrepreneurs’ receipts
fall below their expenses. The difference (equal to
the uninvested savings) constitutes a business loss.
Entrepreneurs must then reduce their future ex-
penditures by that amount. They lay off workers,
cut dividends, and otherwise reduce their outlays
for production. This reduces the incomes of wage
earners, stockholders, and others. Out of these lower
incomes, presumably, individuals will not try to save

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so much as formerly, and the decline in incomes
continues until savings are once more brought down
into line with investments.

At this new point of equilibrium, however, a large
part of the labor force may be unemployed. This
unemployment will persist until something happens
to increase total spending again. This “something”
might be a series of revolutionary inventions to
create new opportunities for investment. But this,
says Samuelson, leaves the system “in the lap of the
gods.” How much more sensible it would be for
government to come to the rescue with a “compen-
satory fiscal and monetary policy”!

Government to the rescue!

Says Theodore Morgan in his readable Income
and Employment, “To set the responsibility for at-
taining and maintaining full employment on the
shoulders of individual consumers or individual
businessmen is absurd.” According to Samuelson,
“The private economy is often like a machine
without an effective steering wheel or governor.
Compensatory fiscal policy tries to introduce such
a governor or thermostatic control device.”

This “compensatory fiscal policy” includes two
sorts of measures: (1) measures to reduce “the
propensity to save,” and (2) measures to increase
private and government spending.

(1) In order toreduce the propensity to save, Key-

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nesians urge that “we” increase “social-consumption
expenditures.” By this they mean that government
should extend the “social security” program. Law-
rence Klein, in The Keynesian Revolution, writes:

We need a non-profit institution like the government
which can provide a comprehensive, minimum program
of social security in order to reduce the propensity to
save. This program must cover the entire population, and
it must cover all those contingencies which cause people
to save on a large scale for the future.® (Italics supplied.)

Samuelson, discussing social security payments by
government, asks, “Are such expenditures really
capitalistic?” Here is his answer:

We shall later see that “on the first round,” these expendi-
tures do not directly consume goods and services; but

. by swelling the purchasing power of their recipients,
they do, “on the second round,” create orders and jobs
for free private enterprise. However, the thing to note is
that the production induced by this process is both pri-
vately produced and privately consumed.

According to Samuelson, therefore, we still have
capitalism as long as the title to the means of pro-
duction remains with private persons even though
government takes and redistributes the income and
fruits of the property on the basis of need or politi-
cal pressure. This reasoning enables Keynesian econ-
omists to profess ardent loyalty to private enterprise
and private property while they call for various gov-
ernment measures (e.g., heavily progressive taxes on
incomes) for confiscating the fruits of both.

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(2) In order to raise the rate of private invest-
ment and spending, Keynesian economists propose
that government aid “small business,” subsidize
home building, compel licensing of patents, and
reduce interest rates.

However, it is by government spending, rather
than by private investment, that these economists
hope to put back into circulation the “enormously
high” savings that Americans try to accumulate.
Lorie Tarshis, for example, in his textbook, The Ele-
ments of Economics, contends that the United States
“cannot long maintain full employment through high
private investment, because its stock of capital equip-
ment will rise rapidly toward the danger point. . . .”
This Stanford University professor goes on to say:

It seems to be an almost impossible task to raise private

investment to the astronomical figure that is now needed;

and an even harder problem to keep it there.
Therefore, more and more government spending is
necessary to keep private enterprise going.

“Public investment medicine . . . can cure”

“If we take enough of this public investment medi-
cine,” Tarshis writes, “it appears that we can cure
any depression, so long as we are willing to keep on
taking it.” And Tarshis explains that by government
“investment” he means all government purchases
of goods and services, from hiring tax collectors to
building monuments.

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These authors propose that government try to
spend for useful objects, like power plants and pub-
lic housing, roads and schools.

Nevertheless, they agree with Keynes who said,
“if the education of our statesmen in the principles
of classical economics stands in the way of anything
better” even a war or an earthquake may serve to
enrich a nation. Samuelson says that there should
never be any need for government to spend for
boondoggling purposes in view of the many useful
projects available. As compared with building pyra-
mids or digging holes and filling them up, “Properly
planned useful public works have just as favorable
secondary effects, and in addition they fill important
human needs.” But he stresses the idea that unem-
ployment is a worse evil than government waste.
“The one way that the American people should not
want to spend their income is upon involuntary [sic]
unemployment.”

The Keynesian view of investment

Theodore Morgan puts the same idea more plainly:

.. . even from the point of view of output, it is better to
employ men in digging holes and filling them up than not
to employ them at all; it is better to employ men to make
products which we thereupon dump in the middle of the
ocean than to leave them idle.

He agrees with Keynes: “Pyramid-building, earth-
quakes, even wars may serve to increase wealth.”*

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Giving money to foreigners, says Tarshis, is a form
of “investment,” even though we get nothing in re-
turn. To make the point so plain that not even the
most bored sophomore should miss it, he writes:

If we could only export one of the printing presses used
for the manufacture of Federal Reserve Notes to, let us
say, China, our foreign investment would be enormously

higher?

This makes even war an “investment” and a means
of enrichment, insofar as it gives employment to
workers who would “otherwise” be idle.

Among useful government “investments,” these
economists propose public housing, rural electrifica-
tion, airfields, more TVAs, Federal aid to education,
and government grants or loans to foreign countries.
The student will find in Keynesian textbooks little
objection to any government “investment” except the
possibilty that it may temporarily reduce employ-
ment by discouraging timid investors in competing
private industries.

Keynesians want fiat money

Government spending stimulates private employ-
ment and production, according to “the new eco-
nomics,” even if it is financed by new taxes. But to
be fully effective in expanding employment, govern-
ment should finance its “investments” in some way
that does not at the same time take funds from
private hands.

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Therefore, Keynesians prefer that government fi-
nance its compensatory spending by manufacturing
currency, especially deposit currency (bank credit).
“The manufacture of money by banks,” says Mor-
gan, “is a cheap and simple process,” and this is the
process these authors recommend."

However, if banks are to lend funds and create
deposits whenever government gives the word, they
must forget about their gold reserves and their re-
sponsibility for paying out gold on demand. In other
words, the Keynesian proposal for “compensatory”
deficit spending by government implies abandon-
ment of the gold standard in favor of a “managed
currency, that is, inconvertible paper money, or fiat
currency.

Keynesian economists know this to be true. There-
fore, they belittle and berate the gold standard in
terms that remind one of William Jennings Bryan
and his “cross of gold.” Samuelson says that the gold
standard “made each country a slave rather than
the master of its own economic destiny.”” Tarshis
ridicules it by comparing it unfavorably with a
limburger cheese standard.’

And more controls to check inflation

These economists admit that their “loan-expendi-
ture” policy may cause rising prices and currency
depreciation under a fiat (“managed”) currency.
Some of them say that a little inflation is a good

15


===== PAGE 29 =====

thing, but all of them agree that a people may easily
get too much of it. To prevent this, they propose
increased government authority over credit, interest
rates, wages, and prices. As Klein says, “There is no
reason why intelligent economic planning cannot be
of just the correct amount, that amount which gives
permanent full employment and stable prices.”

There are several administrative methods of gaining full
employment without inducing inflation. If the economic
planners are given complete control over the government
fiscal policy so that they can spend when and where
spending is needed to stimulate employment and fax
when and where taxation is needed to halt upward price
movements, there will be no problem of associated infla-
tionary dangers.*® (Italics supplied.)

This means that “the planners” would control every
individual's income and expenditures.

The alternative to such planning, says Klein, is
government wage and price control. He appears
not to realize that abolishing the free market re-
stricts individual liberty fully as much as the “com-
plete control” over fiscal policy, which he admits is
inconsistent with present political institutions in the
United States. Instead, he writes that:

The OPA served us beyond all best hopes and wishes
during the war, and it did not infringe upon any funda-
mental liberties, only upon the liberty of greedy profiteer-
ing. This organization can serve us also in peace.*’

In order to avoid the two extremes of mass unem-
ployment or destructive inflation, therefore, Klein

16


===== PAGE 30 =====

offers us either an authority with “complete control”
over government spending and taxes, or general
price control.

Samuelson says that “when everything is ‘short’
relative to demand and full-employment capacity,
reliance on the price mechanism is inequitable and
gives rise to an endless inflationary spiral with grave
economic consequences.” At such times, he says, the
price mechanism must be “supplemented” by direct
controls and rationing.”

Keynes proposed to prevent inflation by forced
savings, in addition to tax increases, subsidies, price
control and rationing.

Following the master, then, these economists urge
that government manage the currency and credit,
control saving and investment, fix prices and in-
comes, ration commodities, constantly expand gov-
ernment industries and “investments,” and provide
for every individual in sickness, accident, unemploy-
ment, immaturity, old age, and death. And this is to
be the program in time of peace as in time of war.

“We owe it to ourselves”

One of the chief road-blocks which Keynesians
see in the loan-expenditure route to prosperity is
the businessman’s fear of mounting government
debt. This fear, they assure us, is not well founded.
Rapidly increasing debt is merely a price we pay
for prosperity, says Tarshis.

17


===== PAGE 31 =====

If we do not want high debt, high interest rates, high
wages, and high prices, then in effect we do not want
high employment and prosperity.

“The only question, then,” Tarshis continues, “is
whether the government can always find a lender
or someone who will accept government bonds.”

In the final analysis this is no problem for the simple
reason that the government controls the Federal Reserve
Banks and can always compel them to buy government
bonds. Anyone who controls a bank and is free to make
the rules under which it operates will have no trouble in
borrowing money. The government is in precisely this
position, and therefore can always secure funds.

There is no sign that a high debt exhausts the credit of
the government of the United States. And since as a last
resource “it can borrow from itself,” there need be no
fear on this account.??
Klein agrees: “An internally held public debt can
never be a burden, because we owe it to ourselves.”
On this point, however, Samuelson dissents. He
notes that a large public debt may be a burden even
though “we owe it to ourselves.” Even if the people
that paid the taxes were the same ones who received
the interest payments on the government bonds,
yet the taxes might reduce incentive to work and
produce. But he goes on to say:
In dispassionately analyzing the growth of the debt, one
error we must avoid: we must not forget that the real

national product of the United States is an ever-grow-
ing thing.

For this reason, he says, “the public debt might in-

18


===== PAGE 32 =====

crease by 250 billion dollars in 25 years without its
relative percentage burden growing.” This would,
he claims, permit an average deficit of 10 billion
dollars per year before it would be necessary to turn
to printing money or selling interest-free bonds to
the Federal Reserve Banks.”

The debt burden and inflation

A skeptic might ask whether the real national
product will continue to increase, as Samuelson so
confidently expects it will, under the policies of the
“mixed economy” which he and other Keynesians
endorse and advocate. He might also ask why Sam-
ueleson believes a 10-billion dollar deficit in future
will not lead to printing money or selling interest-
free bonds to the Federal Reserve Banks, whereas
much smaller deficits in the past led to large issues
of paper money in this country and necessitated
large purchases of government securities at nominal
interest rates.

Theodore Morgan, like Samuelson, admits that a
government debt might be burdensome, even though
“we owe it to ourselves,” but he suggests that the
government ease the burden by permitting a little
price inflation. He suggests that a rise of 1 or 2 per
cent per year in the general price level would be
beneficially stimulating to the economy, and at the
same time it would ease the burden of the debt on
taxpayers.*

19


===== PAGE 33 =====

This proposed rise in prices would correspond-
ingly reduce the buying power for owners of many
kinds of property and for persons with fixed in-
comes. In effect, therefore, Morgan proposes a
discriminatory capital levy of 1 or 2 per cent every
year on the owners of bank deposits, bonds, and
other fixed-income properties, together with a
special income tax increasing each year by the same
per cent on persons living on pensions, insurance
benefits, and salaries.

Any “easing” of the debt burden and any “stimu-
lus” to the economy would result from this expropri-
ation of salaried persons, pensioners, bond holders,
and beneficiaries of life insurance policies and en-
dowments.

This indifference to property rights shown by The-
odore Morgan is typical of Keynesian economists.

20


===== PAGE 34 =====

II. Keynesism and Socialism

What is this thing called “freedom”?

Quvee KeyNEsIANS advocate so many forms of
government intervention in the name of “full
employment,” it is not surprising to find them favor-
ing it for other purposes. If government should take
a man’s earnings because he wants to save too much,
why should it not take them on the ground merely
that someone else needs or wants them? If govern-
ment should build power plants to give employment,
why not also railways and steel mills? Economists
of the new order can only echo, “Why not?”
Theodore Morgan says that “Probably, majority
opinion agrees with our own national policy that
the right of a man to engage in business for himself
is not a basic freedom.” All modern economies, he
continues, are mixtures of government and private
enterprise, and the proper dividing line between the
two can be fixed only by time and experience, which
“will serve to correct our social judgments.” This is
typical of the attitude of Keynesian economists, as
well as of many scholars who are neither Keynesians
nor economists.

21


===== PAGE 35 =====

Is this attitude consistent with constitutional safe-
guards for individual rights, or liberty? Time is “the
stuff life is made of,” said Poor Richard. The time
government takes in an experiment with the prop-
erties and jobs of individuals can never be put back
into the lives of those whom its policies affect. Re-
peal of an unjust law can never undo the injustices
inflicted by it. Dislodging the vested interests in a
government activity is even more difficult than dis-
possessing private owners.

Socialism not a menace to freedom?

According to Samuelson, a “survey of history shows”
that the degree of political freedom and civil lib-
erty which citizens may possess has little or nothing
to do with the extent of government control over
the economy. For example, he says, “Britain, Scan-
dinavia, and other socialist countries have retained
all of the familiar civil liberties and individual
political freedoms that are guaranteed by our own
Constitution.” But are not property rights among
the most important of all civil liberties which consti-
tutions and representative institutions are designed
to protect? Is not protection of property rights
necessary in order to give value and meaning to
“political freedom”?

Instead of dealing with such questions as these in
‘his discussion of the “Isms” (fascism, communism,
and socialism), Samuelson plunges on into a long

22


===== PAGE 36 =====

section entitled, “The use of an over-all pricing
system under socialism and capitalism.” In it, the
author analyzes “the problem of pricing in a planned
socialist state.”

From such a study of socialism, he says, “we are
in a position to see what friendly and unfriendly
critics think is wrong in our present system . . .” and
“We gain an introduction to problems of ‘welfare
economics,” i.e., to the study of what is considered
right and wrong concerning any economic system.”
Thus, he continues, “the economist, as disinterested
observer, may help to throw light upon how suc-
cessfully an economic system realizes any suggested
ethical goals.”

As it turns out, the only “ethical goals” he con-
siders are those of the Socialist: equality of income
and “social dividends” to the needy.

What is missing from this picture?

When an author uses socialism as his standard for
judging capitalism, and when he concludes that
capitalism is the system to be reformed, does he
not run the risk that readers may think he regards
socialism as the ideal system?

The one system which Samuelson flatly rejects
and condemns is laissez faire, to which he attributes
various widespread evils: “wasteful exhaustion of
irreplaceable natural resources,” “periodic business
crises,” “extremes of poverty and wealth,” “corrup-
tion of government by vested interest groups,” and


===== PAGE 37 =====

“too often . . . all-consuming [sic] monopoly.”

Yet, when the same author discusses government
regulation and ownership in the American “mixed”
economy or elsewhere, he finds only abuses of what
liberty may remain and little or nothing of abuses
or evils of government intervention.

Nothing, for example, of government waste of
resources, human and material.

Nothing of political corruption among those with
a vested interest in government spending and gov-
ernment subsidies.

Nothing of the restrictions and inefficiency of gov-
ernment monopolies, government price controls, and
government allocations.

Nothing of the huge losses already inflicted upon
savers and investors by interventionist policies, only
a mild warning of possible, future dangers.

Nothing of the frauds and character destruction
among recipients of social security.

Nothing of the decline in levels of living and work
under socialism in Britain, or the growing shortage
and high cost of venture capital in the American
“mixed” economy.

Nothing of the fact that fascism was a devel-
opment of the Keynesian managed-economy, full-
employment idea, an attempt to subject the individ-
ual to the “collective conscience” which Samuelson
sets up as arbiter for our own government's policy.

In order to judge the impartiality of a book or its
probable effect on the mind of a student, one must

24


===== PAGE 38 =====

know what the author leaves out as well as what he
includes. In Samuelson’s text, the best-seller among
all elementary textbooks in economics, one finds
little or no mention of the many uneconomic results
which competent economists attribute to govern-
ment intervention in the American “mixed” eco-
nomy. Instead, he says:

I should like to conclude on a note of profound optimism.
The American economy is in better shape in the 1950’
than it ever was in the past. . . . Our mixed economy —
wars aside — has a great future before it.*!

Collectivism vs. individualism

Not only do the authors of the “new economics”
largely ignore the evils which some of us believe
flow from government intervention; not only do they
attribute the imperfections of the mixed economy
to capitalism rather than to governmentalism; but
one looks in vain for any principle by which to dis-
tinguish between individual right and government
authority.

The only guide that they recognize is not a prin-
ciple but “social preferences,” “society’s appraisal,”
“correct social planning,” “democratic decisions,” or
a “collective conscience.”

Nordin and Salera typify this Keynesian tendency
to ignore notions of individual right when they casu-
ally remark that government “means all of us in the
community.” Thus these writers set up “Society —
the collective—as an entity in which the individual

25


===== PAGE 39 =====

submerges and dissolves. In this view, justice means
whatever “the collective conscience” dictates.

Is it fair to call this a collectivistic point of view?
Let us contrast it with the individualist view. The
individualist considers “society” to mean those rela-
tions which individuals enter into with one another
as they seek to satisfy their individual wants. Justice
means protection of each individual's liberty, or
right, to work out his destiny free from interference.
or expropriation by others. The function of gov-
ernment is to adminster justice, that is, to preserve
freedom, not to dictate activities. And government
means, not “society” or “all of us,” but those persons
designated to prevent each individual from inter-
fering with the liberty of any other.

What everyone owns, no one owns

To the individualist, therefore, there is a serious
fallacy in Professor Samuelson’s statement that
“socialism, almost by definition, means a society in
which most land and capital goods or nonhuman
resources of all kinds are owned collectively by so-
ciety. . . .”** (Italics supplied.) Society in the sense
of relations between individuals is not people but
certain ways persons act, or certain aspects of their
actions. In this sense, society cannot own anything
because it is an abstraction, not persons. Neither can
society in the sense of “all the people” own any-
thing. What everyone possesses, like a view of the

26


===== PAGE 40 =====

sun, no one owns, for no one can appropriate it for
his own use to the exclusion of others, and such
appropriation for exclusive use is the essence of
property rights, or ownership.

What socialism means

What socialism really means is that government
officials administer wealth taken from, or donated
by, private owners. These officials may set up in
business with this wealth and trade it (or the
services of it) for other goods produced by private
enterprise. Even to call this government administra-
tion of wealth “government ownership” is a loose
use of terms, but not so misleading as to call it
“social ownership,” or “collective ownership.”

Similarly revealing is the passage in Samuelson’s
book in which he presents as a paradox the fact
that fascist regimes “have often passed socialistic
measures.” This is not a paradox at all, for fascism
was (or is) a form of socialism similar to British
socialism or to the managed-currency, welfare state
proposed by American Keynesians.

Frequently, especially in his 1951 edition, Sam-
uelson puts his criticisms of capitalism in the third
person: “Social reformers attach great importance
to...” “society now rules that . ..” “friendly and
unfriendly critics think . . .” “democratic countries
are not satisfied with . . .” “the collective conscience
of the American people” and so on.

27


===== PAGE 41 =====

Whether or not these imaginary authorities ex-
press the author's own opinions, the reader may
judge for himself. In reaching that judgment, he must
consider whether the author chooses his spokesmen
mainly from one side of the argument, and whether,
when he fails to quote an opposing view, he himself
gives an effective answer to the “critics” or “social
reformers” he professes to quote.

At one point, however, one may be excused, per-
haps, for suspecting that his disguise slipped a little.
That is where he refers to his socialist spokesmen as
“perfectionists.”*

Again, I should like to ask, is it not fair to call this
“social” point of view a “collectivist” one? Or even
“socialist”?

Of course, this label does not necessarily mean
that the point of view is unsound; but classification
of anything is a step toward appraisal.

The “New Economics” and Marxian Socialism

From the foregoing, one may see that Keynesism
has several points in common with Marxian Social-
ism. Among these are:

1 the theory that the rate of return on investments
tends to decline and unemployment tends to in-
crease in a free-enterprise, capitalistic economy;

2 emphasis on the depressing influence of savings
in a “mature” capitalistic economy;

28


===== PAGE 42 =====

10

theories of an irresistible tendency to monopoly,
increasing concentration of wealth, and the doom
of free markets in free enterprise, or laissez faire;

disparagement of individual enterprise and re-
sponsibility in favor of government control over
savings and provision for old age, unemploy-
ment, and other emergencies in an elaborate
“social security” program;

proposals for “progressive” income and inheri-
tance taxes;

proposals for government management of the
currency and banking, for government owner-
ship of certain industries; and for liquidation
(“euthanasia”) of the rentier (bond-holding and
fixed-income) classes;

a collectivistic view of property rights as privi-
leges from the State, to be given or taken away
at the will of the State;

a tendency to identify government with “all of
us,” or with “society,” in the democratic socialist
state and in the democratic Keynesian “mixed”
economy;

a tendency to deal with persons and economic
activity in terms of “classes,” “averages,” “aggre-

» . . [44 »
gates,” and technological or economic “forces”;

a mechanistic view of human behavior as predict-
able and controllable by government, through

29


===== PAGE 43 =====

study and manipulation of interest rates, money,
government lending and spending, taxation, and
technological developments.

The Keynesian theories are skilfully presented

Yet, despite the similarities between Marxian social-
ism and Keynesism and despite growing hostility
to Russian Marxists, the Keynesian national-income
approach makes rapid headway in American colleges
and universities. Why? Is it because of the attractive
wrappings in which economists of the Keynesian
persuasion present their package of ideas?

First, they claim, no doubt sincerely, that they
come, not to destroy capitalism, but to save it. Con-
sequently, they get a hearing in places which would
be closed to professed Socialists.

Second, they support their theory with charts and
diagrams that make it look scientific and exact. They
use technical terms and mathematical formulas, as
a professional magician uses his stage props, to pro-
duce conclusions that disbelieving laymen are un-
able to refute. They make liberal use of government
statistics on national income, savings, investment,
consumer spending, and the like. Many people re-
gard these figures as precise and highly significant,
so that the proposal to use them as guides for
“compensatory fiscal and monetary policy” appears
simple and practicable.

Third, by representing government spending and

30


===== PAGE 44 =====

deficits as keys to prosperity, “the new economics”
gives aid and comfort to everyone who wants gov-
ernment to do something for him or to his neighbor.
For example, Samuelson writes that “to the extent
that taxes come out of the income of the more well-
to-do and thrifty and are used to make payments to
the needy and ready-to-spend — to that extent the
total purchasing power is increased.”

Furthermore, the appeal of certain Keynesian
authors is greater because they write with the dash
and vigor that come from a feeling of mission. True,
in order to appear merely as disinterested observers,
they often use devices such as Samuelson’s third-
party spokesmen (e.g., “most people will feel that
this is only as it should be”). This makes a textbook
appeal to teachers who favor the Keynesian point of
view but prefer to appear disinterested.

By appropriate labelling or emphasis, a teacher or
writer may sway students and readers without seem-
ing to commit himself to any definite position. For
example, one may more readily get approval for
subsidies by calling them “social dividends,” as
Samuelson does, than by calling them “doles” as an
opponent might do. He may attribute a government
policy to “society” or to “the collective conscience of
the people” rather than to “government” or to certain
“politicians and officials.”

Moreover, as I pointed out above, an author cre-
ates an effect by what he leaves out as well as by
what he puts in. He may himself believe that he is

31


===== PAGE 45 =====

presenting “both sides” fairly, while he leaves out
of consideration or pays little attention to the most
telling arguments of one side or the other. Or he
may treat objections to his views as “problems” to
be solved, rather than as possible invalidations.
Professor Richard Ruggles, in An Introduction to
National and Income Analysis, uses this method in
dealing with difficulties that might be met in apply-
ing the Keynesian theory.

Yet, although these writers may adopt a pose of
non-partisanship on details of theory or practice,
they boldly urge the main outlines of a program
that must have far-reaching results in every phase
of human affairs. Toward the beginning of his text,
Samuelson flatly asserts that:

. it is part of the governments function to alleviate
one of the most important causes of acute and chronic
cycles in unemployment or inflation. Especially in
communities like our own, individuals as a whole may
try to save much more or much less than the private en-
terprise can profitably or usefully invest in new real
capital goods. . . . Clearly the government must try to
use its constitutional fiscal and monetary powers to en-
able private enterprise to maintain a steady level of
high employment. . . .**

Thus in a few words he sets forth a government
policy that must reach into the minutest details of
the life and work of every citizen.

For government can control total savings, invest-
ment, and income only by interfering with myriads
of individual acts which make up the totals. An over-

32


===== PAGE 46 =====

all restriction of bank credit, for example, or a tax
increase, directly coerces individual citizens into
changing their plans and conduct in countless ways.

In general, moveover, Keynesian proposals for
“compensatory” policies follow Marxian Socialism in
seeking to force individuals to obey the rule, “From
everyone according to his abilities, to everyone ac-
cording to his needs.” Arguments and theories used
to support these proposals are essentially Marxian.

Yet, we cannot show the fallacy of Keynesism
merely by noting its far-reaching implications or its
resemblance to Marxian socialism. Therefore, let us
look at two recent works representative of two
points of view common among free-enterprise critics
of the doctrine.

The first, The Economics of Illusion, by Dr. L. A.
Hahn, presents the “neo-classical” view that rejects
the Keynesian over-saving theory of business de-
pressipns and urges return to free markets, but ac-
cepts government control of currency and credit as
a means of stabilizing business or reviving it after
a crisis and depression.

The second, Economics and the Public Welfare,
by Dr. B. M. Anderson, with a wealth of supporting
data, sets forth the classical, laissez faire view that
government intervention is the chief enemy of eco-
nomic stability, progress, and prosperity.

33


===== PAGE 47 =====

III. Recent Criticisms of
“The New Economics”

N ITS ESSENTIALS the so-called “new economics” is

almost as old as the use of money. Again and
again it has been used to justify government ex-
travagance and to defend schemes for debasing the
coinage or inflating the currency. It was the theory
John Law persuaded the government of France to
let him try out in the early 18th Century. The result
was the Mississippi Bubble, the best-known boom
and bust of recorded history up to 1929. In the 19th
Century, Lauderdale, Malthus, Sismondi, and J. A.
Hobson advanced much the same views, not to men-
tion Karl Marx and his disciples. Keynes did little if
anything more than use new terms for old ideas.

“Keynesianism is a sin of my youth”

A well-known, present-day economist, however, Dr.
L. A. Hahn, claims the doubtful honor of having
refurbished and reissued what he now regards as
this fool's gold of economic theories. In a book of
essays entitled The Economics of Illusion, Dr. Hahn
confesses that “Keynesianism is a sin of my youth,”

34


===== PAGE 48 =====

which he committed several years before Keynes got
credit for it.*®

As a young economist and banker in Germany
in 1920, Hahn ardently espoused the idea that
easy credit policies are necessary to keep a modern
economy fully stimulated and working at top speed.
Without this stimulus, he believed, it would get
clogged with unused purchasing power, or savings.
The result would be unemployment and idle factor-
ies. A few years later, as he saw the results of these
easy-money policies, he came to regard inflation as
a worse evil than deflation. Therefore, he re-exam-
ined his theories and concluded he had been mostly
wrong in his original explanation for depressions.

The causes of business depression he now finds,
not in oversaving, but in a necessary readjustment
after a preceding credit inflation. In addition, he
says, depressions may be aggravated and prolonged
by policies which prevent reduction of costs after
the excesses of the boom are liquidated. These poli-
cies are mainly: (1) wage rigidities protected by
unions and wage-hour laws; (2) burdensome taxes
on enterprise; and (3) government restrictions on
trade and production, such as tariffs, crop controls,
exchange restrictions, and price controls.

Keynesism as “The Economics of Illusion”

At first, says Hahn, currency-and-credit inflation
speeds up spending and increases employment. This

35


===== PAGE 49 =====

is because certain costs (e.g. wage rates, rents, and
interest charges) lag behind selling prices of the
products. This stimulating effect, however, lasts only
until the lagging costs catch up to the rise in prices—
as they soon do. After that, further inflation only
raises the general price level and reduces confidence
in the currency. Eventually it must result in a flight
of capital, which in turn sets off a degenerative spiral
of growing unemployment, currency inflation, rising
prices, and further export of capital.

Therefore, Hahn says, the Keynesian theory that
currency inflation and increased spending can in-
crease employment is valid only if one assumes a
lag in wages, and this lag will continue only as long
as wage earners can be kept in ignorance of what is
going on.

For it [the Keynesian view] presupposes an economy
whose members do not see through the changes brought
about by monetary or fiscal manipulation — or as some
might say, the swindle. Above all, it presupposes that

people are blinded by the idea that the value of money
is stable — by the “money illusion.” . . .2

Hence he calls Keynesism, “the economics of illu-
. » }
sion.

Inflation encourages uneconomic policy

Most people will agree with Hahn that a policy
which depends on such an illusion has little chance
of success today in a nation of free discussion and

36


===== PAGE 50 =====

collective bargaining. In fact, union wage demands
now generally run ahead of any increase in over-all
spending, at least in the United States.

Some Keynesians recognize this, at least as a
possibility. Samuelson, for example, says that the
possibility that wages and prices may begin to soar
as spending increases, even though there is still
unemployment and excess capacity, is “America’s
greatest problem and challenge.” “If businessmen
and trade-unions react perversely to an increased
demand, fiscal policy cannot be relied upon to
achieve and maintain full employment.” The al-
ternatives he offers, if “business, labor and agricul-
ture” do not learn to curb their demands, are: (1) a
reserve army of 10 million jobless; (2) continued
inflation; or (3) government price and wage controls
which “would involve a degree of planning incom-
patible with past, and probably present, philosophi-
cal beliefs of the great majority of the American
people.”

Yet, one looks in vain in this leading textbook for
suggestions that “business, labor and agriculture”
may restore free markets, at least in domestic trade,
or that it would help if they did. “Laissez faire is
dead! Long live compensatory and fiscal policy!”

It is here that Hahn takes issue with the Keynesian
view. He argues that: (1) there cannot be chronic
underinvestment in free markets; and (2) the rem-
edy for chronic unemployment is the return to a
free labor market and removal of trade barriers.

37


===== PAGE 51 =====

When government uses an easy-money policy to
cure unemployment caused by too-high wage rates
or monopolistic price-maintenance, he says, it en-
courages the unioneers and monopolists to continue
their uneconomic policies. Thus it perpetuates and
aggravates the very evils that are the root of the trou-
ble. Eventually, these forces get out of control and
the result is the catastrophe of a runaway inflation.

2»

Hahn concedes the case for a “managed currenc

In The Economics of Illusion, Hahn pursues the
Keynesians in the twists and turns of their dialectics
to ferret out some of their inconsistencies and falla-
cies. At times his pursuit is successful, and he is one
of the best-known critics of Keynesian doctrines, a
sincere advocate of private enterprise.

In the course of his argument, however, like many
other critics of government intervention, Dr. Hahn
gives away his own cause against “compensatory
fiscal and monetary policy.” He recommends that
government use deficit spending to stimulate busi-
ness in the recovery phase of the business cycle, and
he condemns the “hyper-classicism of those who
opposed attempts at reflation” in the early 1930s.

What Hahn objects to, therefore, is not a compen-
satory fiscal and monetary policy, but bad timing
in applying it and neglect of other devices, such as
abolishing restrictions on free markets. He writes:

In order to restore confidence in the price structure,

38


===== PAGE 52 =====

the government is justified in compensating, and even
obliged to compensate, the lacking private demand by
proper expenditures for which it acquires the means by
loans not by taxes.*

But who is to decide when the producers have
completed the necessary adjustments and thus mer-
ited a helping hand from government? If government
recognizes that the time for recovery has arrived,
why don’t investors? Does government get a sudden
access of wisdom in the trough of a depression?

And how is the government to borrow the money
for its compensatory spending?

Here Hahn accepts the Keynesian view that the
gold standard must be repudiated. He agrees with
the Keynesians that the central-bank authorities
should fix discount rates and determine lending poli-
cies according to their estimates of domestic credit
needs rather than according to the need for protect-
ing gold reserves against a possible “flight of capital”
to foreign countries.

In place of the gold standard, Hahn favors a
“money-free” economy, in which bank deposits are
as good as cash (legal tender), and there is always
plenty of legal-tender money to take care of all
possible bank runs. Then individuals’ desire for
liquidity, he says, cannot cause deflation because
the government can supply the banks with enough
paper money so that they need never refuse loans or
liquidate investments in order to get cash to pay off
their depositors. This, he says, will make Keynes's

39


===== PAGE 53 =====

“liquidity-preference” concept an anachronism.

One might add that it would also open the door
for what Hahn himself considers unsound credit
policy. For example, it was this self-same “money-
free” policy which caused the inflationary boom of
the 1920s. Under government urging and govern-
ment orders, the central banks of almost all countries
fostered an era of easy money (credit) in order to
finance public works and deficits in government
industries, to prop up various forms of economic
disequilibrium which arose out of World War I, to
maintain prices and wage rates for over-expanded
industries, and to maintain confidence despite the
unbalance and the unsound use of credit.

This story—the record of government's role in the
boom-and-bust of 1920-1932 has so far been told
best by the late Benjamin M. Anderson, in his Eco-
nomics and the Public Welfare, published just after
his death in 1949. In this eye-witness account of the
period, 19138-1946, Dr. Anderson shows the futility
of Hahn's hope that government control of currency
and credit can lead to a “sound” credit policy or
increased financial stability.

“When government plays God”

Dr. Anderson originally titled his book “When Gov-
ernment Plays God.” His friends vetoed this title on
the ground that it might hurt the sales of the book
in academic circles where it is usually necessary

40


===== PAGE 54 =====

to appear disinterested. Doubtless his friends were
right, but Dr. Anderson, I think, believed that it was
not a virtue to be disinterested about the results of
government currency management, which apostles
of “the new economics” advocate.

At any rate, “When Government Plays God” de-
scribes the theme of the book.” Seldom have facts
been so marshalled to show the progress of a plaus-
ible fallacy in wreaking havoc with the economic
life, not merely of one nation, but of every nation.
That fallacy is the easy-money, deficit-spending
theory of the New Deal and of the Keynesian econ-
omists: the theory that government may promote
prosperity by taking steps to increase the quantity of
currency, bank credit, and unproductive spending.

The New Deal before Franklin Roosevelt

Dr. Anderson dates the first phase of the New Deal
in the United States from 1924, the year in which
a Federal Administration of this country dictated
an easy-money policy (“an immense artificial man-
ipulation of the money market”). According to
the author’s own account, however, he might have
dated it from 1917, for as he shows, the United
States Government used this banking system, its
own creature, to help finance the inflation of World
War I and the postwar boom of 1919-20.* True, the
Federal Reserve Banks regained some independence
of action in 1920, but their tardy and moderate in-

41


===== PAGE 55 =====

creases in rediscount rates in that year were blamed
for the depression which followed, and thereafter
they were never again free from political direction
and interference.

Dr. Anderson tells vividly and in detail how this
political domination of bank policies brought about
the runaway stock market boom of the late 1920s.
Then he goes on to show how the subsequent crash
and depression were intensified and prolonged by
“frantic governmental economic planning” which
began even while the stock market crash was going
on. For the most part his account is as clear and
readable as a newspaper account of a bank holdup.

“It was dishonor”

And a bank holdup is what the United States Gov-
ernment staged in 1933 when it seized depositors’
gold and gave the President authority to issue incon-
vertible paper money and reduce the gold value of
the dollar. After quoting Senator Carter Glass con-
cerning the immorality and fraud of these acts, Dr.
Anderson says:
To the grand old Senator, morality was something writ-
ten in the Heavens, eternal and unchangeable. But the
pragmatic philosopher . . . was no less shocked than the
Senator. There is no need in human life so great as that
men should trust one another and should trust their gov-
ernment, should believe in promises, and should keep
promises that future promises may be believed in and in
order that confident cooperation may be possible. Good


===== PAGE 56 =====

faith — personal, national, and international — is the first
prerequisite of decent living, of the steady going on of
industry, of government financial strength, and of inter-
national peace.

The President's course in connection with the gold

standard and in connection with the Thomas Amend-

ment, represented an act of absolute bad faith. . . . The

Government was bound by its solemn promises, and the

President was personally bound by his campaign utter-

ances and by the platform of his party. It was dishonor.*®
Thus the moral indignation of an economist who
saw that trust and good faith are the foundations of
all human cooperation broke forth in bitter condem-
nation of those who sought to promote prosperity
by deceit and spoliation.

Yet indignation must be governed by understand-
ing. It is Anderson’s detailed and expert examination
of the financial record that gives his Economics
and the Public Welfare its authoritative weight and
penetration as a critique of Keynesian proposals for
an inconvertible currency and deficit spending.

Government control must be “political”

In this clear and detailed moving picture, however,
one may find something of which even its producer
was scarcely aware. As Anderson describes the
inflation of 1924-29, he attributes it solely to the
“weakness and bad judgment” of certain Federal
officials in yielding to political influences. He sug-
gests that “stronger” men would have done better.

43


===== PAGE 57 =====

But was it mere accident that the control over the
Federal Reserve System was in the hands of “weak”
men? Will any administration long tolerate govern-
ment officials (e.g., members of the Federal Reserve
Board) who show good financial judgment instead
of good political judgment?

Many persons, like Senator Glass and Dr. Ander-
son, who strongly favor private enterprise in banking
as a general rule, make an exception in favor of
government “control” of central bank policy. They
see the many advantages of close cooperation among
individual banks. One obvious way of getting this
cooperation is for government to set up a banker's
bank, like the Bank of England or the Bank of
France (both of which used to be privately owned).
But, when government sets up such a bank and gives
it a monopoly of certain functions, it creates a special
privilege and a corresponding political obligation.
Therefore, most advocates of a central-bank monop-
oly propose that this bank must be “regulated” by
government as a public utility.

The founders of the Federal Reserve System in
19183 were warned of the danger of political control
of such banks, but they hoped to prevent political
“abuses” by such devices as that of permitting the
private bank members to elect most of the directors
of the 12 Federal Reserve Banks, and by giving
long-term appointments to the members of the
Federal Reserve Board. Most classical economists,
even among those most devoted to free enterprise,

44


===== PAGE 58 =====

still cling to the belief that somehow the monetary
system can be managed by such a government-
appointed board which, “like the Supreme Court,”
is free from political influence.

Careful reading of Dr. Andersons book should
shake that belief, especially if one keeps in mind
also the outcome of the Reconstruction Finance
Corporation to which Anderson seems to have given
approval. As Economics and the Public Welfare
makes clear, the Federal Reserve officials have usu-
ally been among the ablest and most honest per-
sons that could be found. They did not act politically
because they were weak; they were not disloyal to
their trust. Instead, they were faithful to the political
trust of those who appointed them.

This is not to say that all central banking must be
political in nature or policy. But such central banks
as government sets up and controls must serve politi-
cal purposes. Failure to recognize this fact, or to
make it clear, is the one serious flaw in Anderson’s
otherwise penetrating analysis.

Excessive bank credit in the 1920s

What Anderson did see and make clear, as few
economists do, is the fallacy of the Keynesian “pur-
chasing power theory.” This is the theory that lack
of spending is the cause of large-scale unemploy-
ment and depression, and that government should
intervene to assure enough money and spending to

45


===== PAGE 59 =====

maintain at all times the demand for labor and goods.

Anderson counters this theory with the fact that
bank credit was more than sufficient in the 1920s
due to the very sort of government intervention that
the Keynesians recommend. This over-abundance of
bank credit caused investment to run ahead of sav-
ings, and gave rise to a disastrous boom and bust.

Next he goes on to show how the processes of pro-
duction and trade themselves generate a sufficient
quantity of credit whenever free markets are given
a chance to develop the equilibrium necessary for
a good quality of credit.

Credit in free markets: an incomplete exchange

In free markets, credit arises when one person
transfers to another his services and goods, or valid
claims on services and goods, in return for a promise
to pay later. A seller advances credit when he lets
a buyer take and use goods before paying for them.
A wage earner gives credit to his employer when he
works for a week or two before pay day.

Credit is not, therefore, a matter of bank checks,
banknotes, or figures on a bank’s books. These are
merely records of credit transactions, not credit
itself. Credit is an incomplete exchange of goods.

When government does not control banking, ex-
cept to enforce contracts, well-managed banks serve
only as credit brokers, not as credit manufacturers.
They record credit transactions and act as clearing

46


===== PAGE 60 =====

houses and agents for credit developed and used by
individuals and business firms. They keep books for
the real manufacturers of credit, who are the pro-
ducers and exchangers of goods and services.

Credit develops with trade

Producers and dealers may create and use credit
with little or no resort to banks. In certain sections
of the United States in the first half of the 19th Cen-
tury, banks were often hard to reach. Some states
actually prohibited private banks by law. In those
places, business developed with comparatively little
bank credit, and even with comparatively little
money. Merchants bought the products of farmers
and artisans, giving in return purchase-orders good
at their shops. In that case, the producers sold the
goods on credit to the merchant. The credit was
liquidated when these producers used their pur-
chase-orders to buy other goods from the merchant.
If the merchant owned a stock of goods to begin
with, he could sell on credit to producers, and they
could discharge their debts later by selling their
goods to him in return for their own 1.0.U.s.

In such a society, the volume of credit obviously
depended on the amount of goods produced and
exchanged. This amount, in turn, depended on the
efficiency of producers and merchants—their ambi-
tion, inventiveness, ability to cooperate, richness of
soil—and on one other thing: trust.

47


===== PAGE 61 =====

Banks register credits

Trust came as a sequel to competence and honesty.
Competence and honesty developed as suppression
of violence and enforcement of contracts created a
favorable political environment for production and
trade.

When these conditions are present—honor, trust,
and a fund or flow of goods — there is credit. The
supply of credit rises and falls with the amount of
exchangeable goods produced, and this amount de-
pends on the efficiency of producers and dealers. It
does not matter whether the goods are commodities
or services, durable or perishable, consumers’ goods
or producers’ goods (tools and machinery), the
quantity of credit in free markets depends on its
quality as measured by its command over goods.
This quality in turn, depends on the faithfulness
with which producers and traders meet one anoth-
er’s expectations in production, trade, and finance.

Producers do not need the banker, therefore, to
create credit. He is useful in keeping records and as
an agent for producers and traders in ascertaining
the credit-worthiness of individuals in particular
transactions—when the owners of goods and credit
want such service. As his customers gain confidence
in his work, they let the banker record more of their
credit transactions and let him act as their agent in
lending funds that would otherwise be idle. Then
the idea may arise that the bank creates the credit.

48


===== PAGE 62 =====

What “inflation” means

If producers sell goods on credit to persons who do
not keep their promises to pay for them (perhaps
because their plans go awry), there is trouble. The
goods are gone and trust is destroyed. Then credit
shrinks and people complain of a shortage of credit.
At this point, if government has suppressed the gold
standard, it may issue more paper money or set up
means for using government bonds as a basis for
deposit currency. Then it may give or lend this
money or currency to otherwise insolvent debtors.
In other words, it may monetize debt. This permits
creditors and debtors to continue making the bad
loans and unproductive investments which caused
the losses.

This is the essential meaning and evil of “infla-
tion.” It is an expansion of currency for unproductive
spending and “investment.” One result of it is a
decline in the purchasing power of money, that is,
a rise in prices. Another result is that those who
receive the government's handouts get goods with-
out giving goods or services in exchange. This is
what a counterfeiter does.

Of course, individuals are bound to make mistakes
in use of credit. They may produce the wrong goods
or give credit to dishonest or incompetent persons.
In free markets, however, such mistakes carry their
own penalty and remedy. Imprudent lenders lose
their power to lend, and spendthrift debtors lose

49


===== PAGE 63 =====

their power to borrow. Credit management, there-
fore, gravitates into the hands of those who learn
to use it productively.

The gold standard prevented inflation

Yet, although credit in free markets arises mainly
out of production, producers do not ordinarily mea-
sure it in terms of bushels of wheat or tons of coal.
They state it in terms of the monetary unit in which
they price their goods—so many dollars, francs, or
pesos. In modern times, when free to choose, they
make silver or gold their standard. They state their
prices in terms of such standard money, and they
prefer to be paid in it or in claims that are readily
exchangeable for it. In international trade, gold is
the standard, even when governments forbid it in
domestic trade, at least between sovereign nations.
(The United States has largely destroyed the mon-
etary usefulness of silver by its manipulations of the
silver market on behalf of the silver producers.)

Under the gold standard, the banker has another
function in addition to that of recording credit trans-
actions and serving as agent in clearing, transferring,
and advancing credits. He acts also as a merchant in
gold, or a keeper of a warehouse for gold.

Soon after governments (e.g., those of the United
States and England in the 19th Century) began to
enforce the contracts which bankers and producers
made in terms of standard money, the bankers’

50


===== PAGE 64 =====

purchase orders (banknotes and checks) replaced
almost all others. “Trading stamps,” streetcar tokens,
“coupons good only at our store,” and occasional
“due bills” payable in service or merchandise were
instances of purchase orders not convertible into
gold at a fixed ratio; but people used these forms of
purchase orders for only a small part of the total
trade in most countries prior to 1933. When pro-
ducers were free to choose their own currency, they
used mainly one that was readily convertible into
standard money at stable, predetermined rates.

When goods were as good as gold

As the gold standard developed, gold became the
measure for credit and a means for controlling credit
expansion. This was because buyers of goods used it
to measure the value of the goods which gave rise
to credit. Every producer had to price his goods
low enough in terms of the standard money so that
buyers would take these goods in preference to the
standard commodity, gold. As long as producers
used their credit to produce goods that were more
desirable than gold, at the prices asked for them,
their credit was “good.” It was as good as gold.
Under these conditions, banks and other lenders
could safely expand credit only as the supplies of
gold increased, or as producers found ways of pro-
ducing goods that, at the prices asked, buyers pre-
ferred to gold. When they expanded credit faster

51


===== PAGE 65 =====

than this, both borrowers and lenders suffered
losses. This means that inflation of currency or credit
could not proceed far, under the gold standard, be-
fore automatic checks came into play.

Under the gold standard, even government bor-
rowing was deflationary, not inflationary. There
were two reasons for this. First, it reduced the sup-
ply of loan funds available for private borrowers
and brought about a rise in rates of interest. Second,
it caused growing distrust of all credit. This was
because government pays its debts out of taxes,
which reduce the ability of taxpayers to pay their
private debts. Creditors knew this. Therefore, as
government debts mounted, they grew more cau-
tious. Eventually they began to convert their bank
credits into gold, which they hoarded or shipped
out of the country for safe keeping.

This potential demand for gold acted as a brake
on the expansion of credit, both government credit
and private credit.

It is because of this check-rein effect on currency
and prices that Keynesian economists want govern-
ments to “abandon” the gold standard. This means
that they urge that government prohibit citizens
from using gold as money, prohibit the issue of
banknotes convertible into gold for domestic use,
and prohibit (or refuse to enforce) contracts in
terms of gold. In other words, their proposal to
“abandon” the gold standard is actually a proposal
to suppress it.

52


===== PAGE 66 =====

Gold prevented inflation, not expansion, of credit

Advocates of a “managed currency” contend that
gold prevents or impedes expansion of credit. The
output of gold, they say may not keep pace with the
output of other commodities. If the currency is tied
to gold, a lag in gold production must cause a short-
age of money and declining prices for other goods.
This decline in the general level of prices, they
argue, tends to depress industry and employment.
Consequently, a shortage of gold is likely to retard
economic progress, if a nation remains on the gold
standard and tries to maintain a fixed monetary
value for gold. It is because of this depressing in-
fluence of the gold standard in the past, they claim,
that governments so often abandoned it or revalued
(“debased”) their currencies.

This line of argument, however, ignores several
facts:

1 Gold is one of the most widely distributed of all
natural resources. It is found in all parts of the
globe; and, throughout the centuries, man seems
to have found ways of increasing the output of
gold about as fast as the output of other goods.
There is no evidence that this correlation between
the production of gold and the production of
other things may not continue indefinitely.

2 Inventions to economize gold usually keep pace
with other forms of invention. In freedom, im-
provements in banking techniques permit in-

53


===== PAGE 67 =====

54

creased use of credit. This makes it possible to
carry on more trade with a given amount of gold.

Gold is used chiefly as a measuring stick, not as a
means of exchange, as long as credit is used pro-
ductively. Under the gold standard, it is no more
necessary to transfer gold with every transaction
than to buy a new ruler for every measurement.
When gold does change hands it is usually to
settle balances or to make up deficits. In free mar-
kets, as enterprise increases the quantity of trade,
it also increases efficiency in trade, so that deficits
and unpaid balances decline relatively to the total
volume of business.

Sharp declines in the price levels under the gold
standard are not due to sudden shortages of gold,
but to misuse of credit and subsequent repu-
diation of debts, or to government restrictions
on trade and exchange. These conditions cause
contraction of credit or prevent use of credit in
purchase of goods. For example, the tariff war of
1930-1932, which began with the Hawley-Smoot
Tariff Act of the United States in 1930, reduced
the saleability and exchange value of goods
throughout the world.

The surest way to make people want more gold
is to prohibit them from having it, or threatening
to do so. Inconvertible currency drives gold into
hiding or raises its value because it destroys
confidence in all other forms of currency.


===== PAGE 68 =====

6 A period of declining prices for staple commodi-
ties is likely to be a period of most rapid progress
in levels of living for wage earners if the decline
arises from increased efficiency in production.

Credit currency may be preferred

For most transactions, credit currency (banknotes
or bank checks) is more convenient than gold, and
most persons prefer it to gold as long as they believe
that it is based on sound investments. Aside from
uses in the arts, a person wants gold mainly when
he begins to lose confidence in credit, that is, when
he fears that the custodians of credit are advancing
too much of it for unproductive purposes, so that
their gold reserves may be insufficient to meet their
possible losses.

In other words, the gold standard restrains credit
inflation: no other means of control is so effective
for this purpose. At the same time, use of gold in
free markets does not prevent expansion of credit
sufficient to permit full employment of the econo-
my’s productive resources. Under the gold standard,
the limits of credit expansion are set by productive
capacity, not by the size of the gold reserves.

In free markets, goods generate credit

Prudent persons accumulate reserves of valuable
goods, or claims on goods, including reserves of gold

55


===== PAGE 69 =====

and claims on gold. Such reserves improve their
credit rating and increase the quantity of credit
which they may get or give.

Similarly, where a great many citizens prudently
accumulate wealth and build productive capacity,
there we find an abundance of credit and buying
power as long as the citizens are free to trade with
one another and with people of other nations. It is
not the great stock of gold which makes the United
States the world’s greatest reservoir of credit today,
but our people’s vast output and stocks of exchange-
able goods (including gold), which they earn and

produce or which persons of other countries entrust
to them for safe-keeping.

The basic fallacy of Keynesian theory

This brings us to what is perhaps the basic fallacy
of Keynesian thought. The Keynesian economist
treats of goods and credit as though they were two
quite separate things. He teaches that the output
of goods creates a need for credit and currency.
He warns that goods may go unsold, forcing down
prices and causing unemployment, unless govern-
ment: (1) adds to the supply of currency as the
output of goods increases, and (2) sees to it that
those who get the new money spend it promptly.
The classical view, on the other hand, is that
goods themselves are the source of all sound credit
and sound currency. Let us see what this means.

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===== PAGE 70 =====

Goods give value to goods

In free markets, every producer may extend credit
to the full value of the goods he offers for sale. That
is, he may sell all of these goods on credit if he finds
customers who can someday supply something he
wants in exchange, or who can supply something
(goods or claims on goods) which he can trade for
what he wants.

In other words, the credit which a producer can
give depends on the amount of goods he can get
for them in future. This means that the amount of
credit available is always potentially equal to the
output of goods. It becomes actually equal to output
as buyers and sellers agree on prices and enter into
contracts.

One problem of maintaining employment and
output, therefore, is that of removing obstacles to
the making of agreements on the terms of trade,
that is, on prices of commodities and services.

Credit vs. credit instruments

Many persons fail to understand the relation be-
tween goods and credit because they think of credit
only in terms of the paper instruments of credit,
especially the instruments of bank credit, such as
banknotes and bank checks. Of course, when the
output of goods and the volume of trade decline, the
flow of credit instruments also declines. From this
fact it is easy to conclude that the way to increase

57


===== PAGE 71 =====

trade is to increase the supply and rate of circulation
of banknotes and bank deposits.

The fallacy of this conclusion should be clear from
the evils which ensue when governments try to
apply it in practice. But let us consider further the
relation between credit and credit instruments.

Credit instruments are the records of credit trans-
actions. They include commercial credit instru-
ments, such as promissory notes, due bills, trade
acceptances, 1.0.U.s and other evidences of debts.

These paper forms are not credit, but evidences of
credit that producers are granting. The real credit
consists in the value of goods which sellers give up
in return for the buyers’ promises to pay later.

Of course, a seller may use a customer’s 1.O.U. to
pay a debt which he himself owes. A private, com-
mercial credit instrument then circulates as currency.

More often, he takes the private credit instrument
to a bank which uses it as a basis for granting bank
credit (banknotes and bank deposits). He does this
because bank credit instruments circulate more eas-
ily than commercial instruments.

The bank's business, then, is to substitute its better-
known name for the names of nonbanking debtors
on the credit instruments used in trade. It accepts
commercial instruments at a discount (to pay for its
service), and grants bank credit against them. That
is, it issues banknotes and permits the drawing of
checks to take the place of the commercial credit
instruments which it holds as security. Banknotes

58


===== PAGE 72 =====

and bank checks, therefore, are credit instruments,
like the nonbank instruments which they replace,
except that they are more readily accepted in trade.

Goods pay for goods

Those who buy goods on credit, of course, are
debtors. They usually pay their debts with checks
on bank deposits and with banknotes which they get
by selling goods and services to bank depositors and
note holders. In other words, they pay their debts
with currency which the banks put into circulation
on the basis of the debtors” own original promises-
to-pay.

When debtors use credit productively, they cre-
ate new values which their creditors will pay for. In
buying such values, the creditors give the debtors
the wherewithal to pay their debts.

The original producers who bring goods to market
and sell them on credit, therefore, in effect loan the
goods to buyers. These buyers add to the value of
the goods, and sell enough of them back to the cred-
itors to settle their debts.

The original buyers keep for themselves any goods
left over after paying their debts. They may con-
sume these goods as income or use them to extend
credit to other producers. The more productively
they use the credit they get, therefore, the more they
profit. Thus the productive use of credit increases

both goods and credit.

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===== PAGE 73 =====

Is saving dangerous?

The Keynesian economist, however, warns that the
original sellers may not use all of their credits to buy
the new goods as they come to market. He fears they
may try to save too much of their credits, for one
reason or another. In that case, he says, some debt-
ors may not get enough funds to pay what they owe
for goods bought on credit from those who are now
holding back their buying power.

One answer to this argument is the fact, shown
by Professor Lutz's study of corporate income and
outgo (see pages 66-67), that business firms actually
spend and invest money about as fast as they get it.
In other words, they invest as fast as they save.
Apparently they save only in order to invest.

The same is true of much, if not most, saving
by individuals. It is saving for specific investment
purposes. Some of this saving goes to investment
agencies, such as insurance companies and banks.
Some of it the owners invest directly in productive
equipment or service. |

But can banks and other agencies find investment
outlets for all possible savings? What is to prevent
such savings from running ahead of investments?
And, if for some reason savings momentarily exceed
investment, will this not reduce total spending and
cause the dire results predicted by the Keynesian
economists? Will not sales and prices fall, profits
decline, and unemployment rise?

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===== PAGE 74 =====

Savings increase demand for labor

The answer to these questions is to be found in the
nature of the investment demand for funds.

Investment means spending for productive pur-
poses. It means hiring labor and buying materials
to produce more goods. The extent of demand for
investment funds, therefore, depends on the amount
which use of these funds can add to the output of
goods. If anyone wants more goods and is able and
willing to help produce them, there is a correspond-
ing use and demand for investment funds to hire
and equip him for that purpose. The demand for
such funds is equal to the desire and ability to earn
and consume.

Obviously, if everyone has all of the goods he
wants, there will be no demand for more funds to
invest in expanding output. Or, if everyone has as
much work as he wants to do or can do, there will
be no demand for additional investment funds.

Lack of investment demand, therefore, may mean
that everyone is fully employed; or it may mean that
no one is able and willing to work for the wages he
can produce and earn. In either case, no investment
can further expand production.

Increased savings, however, would not alter these
conditions for the worse. Instead, these savings
would have effects precisely opposite to those which
the Keynesian economists predict. The pressure of
increasing savings seeking investment tends to re-

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duce interest rates. Investors must be satisfied with
lower rates of return. This reduces the cost of capital
and thus increases the share of the product which
employers can offer to wage earners. Therefore,
wages rise and the demand for labor increases.
Labor that was formerly too inefficient or too high-
priced to be employed now becomes employable.
Employers can now pay wages sufficient to induce
reluctant workers to take jobs.

Inventions increase profits and wages

Inventors and engineers, who increase producers’
efficiency, increase rewards for users of capital, both
employers and wage earners. The enterprise of every
worker looking for a job or trying to do a job better
also creates opportunity for investment, because it
offers more opportunity to use capital goods and
reward investors. Immigration and other means of
increasing the labor force increase investment op-
portunities and demand for savings.

But, although inventions, discoveries, enterprise,
and immigration increase the demand for savings, it
does not follow that an increase in savings is harmful
when these conditions (which Samuelson and other
Keynesians call “dynamic factors”) are absent.

On the contrary, the increase in savings brings
about a division of the product more favorable to
wage earners. It increases the demand for labor and
the opportunities for employment.

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When lower profits mean higher wages

If the increased willingness to save brings down the
rates of return on investments, it is because savers
are willing to save more than before at former rates
or to save as much as before at lower rates. Conse-
quently, the fall in rate of return does not cause
them to save less than before or to withdraw their
savings. It merely checks the increase and helps
bring the rate of saving into equilibrium with the
investment demand for funds.

And, even if the increase in savings continues
despite the decline in return from investment, the
worst that could happen would be that employment
opportunities and wages would continue to rise, a
result that surely should not be cause for alarm.

Therefore, as long as producers (including wage
earners) want work and are willing to share the
net output of industry with those who put up the
capital, there is a return on investments and a de-
mand for savings. If there is no investment at that
rate of return it must be because people prefer to
spend their money on consumption goods rather
than to save it. In that case, the lack of investment
is due to a lack of thrift and savings, not to an over-
supply of savings as Keynes contended.

It is the business of entrepreneurs, banks, insur-
ance companies and other investment agencies to
ferret out investment opportunities, endorse credits,
issue the memoranda we call banknotes or keep the

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records we call deposit currency, and thus put sav-
ings to work.

If there are both idle savings and idle workers, it
can only be because of non-economic barriers to
production and trade. These barriers may be tariffs,
union picket lines, taxes, subsidies to idlers, or gov-
ernment interference with prices and wage rates.

Such restrictions prevent entrepreneurs from ar-
ranging terms of exchange and carrying on trade. In
others words, the markets are not wholly free.

Inflation robs producers and destroys credit

According to this classical view represented by An-
derson, the practical remedy for such a shortage or
stagnation of credit is not for government to print
money or force an increase in deposit currency, as
Keynes proposed. Such a policy does not remove the
causes of the stagnation or credit shortage. Instead,
it enables those to whom the government gives the
new currency to get goods without giving goods in
exchange—as a countefeiter does. It robs producers,
and it tends to perpetuate the barriers and interfer-
ences which are the real cause of the difficulty.
The economic remedy for a shortage of credit is
to take away the barriers to the production and
exchange of goods, so that producers may create
earned credit and earned credit currency. This pol-
icy assures an ample supply of credit and currency.
More important, it is the only way for producers to

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get the goods they want in exchange for their own.

Currency inflation dilutes credit and redistributes
it. It finances unproductive expenditures, such as
over-expansion of certain industries as compared
with others, war costs, private or government ex-
travagance, or purchase of “surpluses” to maintain
prices. It creates “debt for dead horses.” It en-
courages unwise speculation, and unproductive in-
vestment. It discourages saving. It creates disequi-
librium between prices and costs, between the out-
put of capital goods and consumers’ goods, and
between debts and ability to pay.

The longer such inflation continues, the greater
are the vested interests in the uneconomic activities
which the new currency finances. These uneconomic
activities cause waste of productive capacity. They
reduce capital or retard its increase.

All of this increases business uncertainty. In-
vestors know that eventually such credit must be
liquidated by burdensome taxes, by cancellation of
debts, or by further debasement and revaluation of
the currency — or perhaps by a combination of all
three. Furthermore, the longer such liquidation is
postponed, the greater is the difficulty of making the
necessary readjustments when the inflation ends.

Government policies caused inflation, 1913-29

During World War I, as Anderson shows, nearly
every government resorted to currency inflation.

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This, and the war itself, gave rise to serious eco-
nomic unbalance throughout the world—as inflation
and war always do.

After the war and during the 1920s, governments
tried to stave off the depressing effects of this un-
balance. They sought to maintain prices and wage
rates by policies restricting competition: tariffs,
cartels, and unionism. With the help of the Federal
Reserve banks of the United States, they continued
their deficit financing to support markets by gov-
ernment loans, subsidies, doles, and relief works.

These attempts to maintain unbalanced conditions
by restricting trade and expanding the quantity of
bank credit caused still greater unbalance and fur-
ther deterioration in the quality of credit.

Eventually, the destruction of confidence and
credit and the exhaustion of reserves brought about
repudiation of obligations and a downward spiral of
deflation and depression.

It was not a surplus of savings, therefore, a lack
of investment, or an excess of output that brought
to an end the boom of the 1920s, Anderson con-
tends but a shortage of new savings and depletion
of liquid reserves, due to losses on unsound loans
and investments.

Corporations save in order to invest

A statistical study by Professor F. A. Lutz, Corpor-
ate Cash Balances, 1914-43, bears out Anderson’s

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contention that hoarding of funds was not a cause
of the 1929 crash. As far as Lutz’s figures show,
corporations spend their money about as fast as they
get it, and 1928-29 was no exception. Contrary to
the assertions of Keynesian economists, these figures
indicate that business savings are very closely re-
lated to investments.

Corporate “surpluses” are not mainly cash. They
are not hoarded, or surplus funds. They are the value
of all that the corporation owns, including buildings
and machinery, after deducting the amount of liabil-
ities and a certain rather arbitrary figure to repre-
sent the stockholders’ investment. Business saves to
invest, not because it wants to hoard cash or because
it does not know what to do with the money; and it
spends the money it invests as quickly as any other
money it pays out.

“We planned it that way”

One other point Anderson makes clear. The depres-
sion of 1930-39 was no ordinary one. It was not
merely a “natural reaction,” or “period of correc-
tion,” resulting from previous excesses. It was char-
acterized by more government “planning,” through-
out the world, than any other in the past 150 years.

This “planning” was supposed to stop the depres-
sion and bring back prosperity. It consisted partly
of new restrictions on trade to maintain or raise
prices. These restraints at once reduced the credit

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and buying power of producers. Governments also
continued deficit spending, which wasted much-
needed savings, reduced confidence in currencies
and credit, and caused a paralyzing flight of capital
from nations with more “planning” to those with less.

In Anderson’s view, which he supports with a
wealth of factual data, it was these “positive” and
“constructive” policies of government which led to
the speculative excesses of the 1920s. Further de-
velopment of the same policies during the subse-
quent depression prevented the readjustments ne-
cessary for recovery. He writes:

Prior to 1924 we had not regarded it as a Federal Gov-
ernment function to make employment. Employment was
a matter for the people themselves to work out. Beginning
with the Federal Reserve purchases of Government se-
curities in 1924, we have had Government policy directed
increasingly toward making employment. The explana-
tion of the good figure for employment prior to 1924, and
of the desperately bad figures for employment which
followed 1929, is to be found in precisely this fact. Under
an old-fashioned Federal Government, which, in finan-
cial matters, was concerned primarily with its own solv-
ency and with the protection of the sound gold dollar,
the people themselves solved the problem of employment
amazingly well. When the Federal Government took over
and undertook to solve the problem for them, grave dis-
asters followed.

President Roosevelt inherited a terrific volume of unem-
ployment. He did not cure it. The figures for 1933 are
worse than the figures for 1932. . . . In only two years of
the Democratic New Deal period prior to the outbreak of
World War II did the annual average figure for unem-

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ployment get below 8,000,000. And in the best of these
two years, namely 1937, the figure stood at 6,372,000,
which is 12 per cent of the labor force, as compared with
11.2 per cent of the labor force in the year of extreme
depression, 1921.

The historical record is damning. The New Deal, viewed

as an economic policy designed to promote employment,
is condemned by the historical and statistical record.

. + . . The degree of unemployment does not tell the full
story. The amount of slack in the industrial situation . . .
is also a matter of unused capital and unused techno-
logical knowledge. The New Deal policy, as we have
seen, had made capital timid in the extreme and had
greatly retarded the application of new technology.

We came into the period of the second World War with a
heavy obsolescence, a large body of unused technologi-
cal ideas, and a great deal of idle capital,, and, as shown
by the foregoing table, with 9,080,000 men unemployed,
on the average, in the year 1939.

In 1939 we had idle men, idle money, and idle techno-
logical ideas on an appalling scale. The war set them to
work, but it took the war to do it.*’

The growing appetite for inflation

The war which put men and machines to work,
however, has left the nation with a huge legacy of
debt, a crushing tax burden, a depreciated currency,
a great dearth of equity (venture) capital, an in-
satiable appetite for easy money, and an apparatus
for inflation that seems irresistible.

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Like the war, the current armaments program is
giving us “full employment,” although less in pro-
portion to the working force than private enterprise
usually offered in the much freer markets before
1930, 1924, or 1914. But government spending for
armaments, like the spending for war and for pre-
war relief works, is further distorting economic re-
lationships, adding to debts, liquidating the thrifty,
creating new appetites for inflationary borrowing
and spending, and depleting the nation’s resources.

If we saw any nation but our own following this
course, would we be optimistic for its future? We
know what such policies have done to other nations.
Can our own country escape a similar fate?

The Keynesian economists urge adoption of a
“managed currency” and various forms of govern-
ment intervention in the economic life of their fellow
citizens. Their idea is that government should supply
an economic wisdom that private enterprise lacks or
is unable to use. But even these economists see the
uneconomic results of the government intervention
which they advocate.

Are these uneconomic results merely unfortunate
accidents? Or is there something in the nature of
government that must always bring such results from
the attempt of governments to manage the economic
affairs of the citizens? Can government ever supply
private enterprise with an economic wisdom which
it would otherwise lack?

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IV. Government Is Political

I= IS A FALLACY that government, which is an agency

for coercion, can manage the economic affairs of
its citizens. This is what the Keynesian economists
propose it do in carrying out a “compensatory fiscal
and monetary policy.” In determining the amount
and use of currency, government dictates changes
in the opportunities and rewards for the individuals
using the currency. This dictation ranges all the way
from determining what persons shall get new houses
or cars to deciding what persons shall get a chance
to play golf or go to school.

Such use of coercion causes moral and intellectual
decay of both government and citizenry. Those who
apply the coercion become more arrogant and more
indifferent to individual rights; the subjects lose
incentive and a sense of personal responsibility. Un-
derstanding gives way to antagonism, and mutual
hostility destroys both the will and the ability to
cooperate.

Most persons admit that these are the results in
the case of chattel slavery or foreign dictatorships.
Why should they not expect the same results to fol-

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low every other attempt to get cooperation by use
of compulsion?

The one way in which coercion can help to re-
lease or increase human energy is in defense against
coercion. A defensive use of force neutralizes coer-
cion, leaving peaceful individuals at liberty. In
liberty, individuals learn to get what they want by
producing it themselves or by getting it from their
fellows through voluntary exchange or gift. The
result is human progress.

On the other hand, when men use force to take
what they want from their fellows or to manage
them, they arouse antagonism and destroy co-
operation. The results are conflict and insecurity,
leading at last to apathy and indolence, stagnation
and backwardness.

How bureaucracy may create “planned chaos”

Professor Ludwig von Mises, in his scholarly but
readable little books, Bureaucracy and Planned
Chaos, shows perhaps better than any other modern
author why government interference with the free
market leads to crisis, totalitarianism, and war.
Every interventionist measure results in conditions
which are even less satisfactory than those which
preceded it, as shortages follow price control and
black markets follow rationing. Yet, those who favor
such intervention usually blame the evil results
of their measures on the selfishness, stupidity, or

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perverseness of individuals. Then they urge more
coercion to deal with the new problems. Thus, for
example, Samuelson fears that producers may “react
perversely” to government spending and subsidies,
so that prices and wage rates may rise before full
employment has been achieved. In that case, he
intimates, the government may have to apply price
and wage controls to stop inflation.

The “mixed economy” advocated by the Key-
nesian economists, therefore, is highly unstable. It
moves from crisis to crisis, from one emergency to
another, while the currency depreciates, producers
are demoralized, demagogy increases, government
becomes more despotic, and international friction
mounts. This spiral towards totalitarianism and war
persists as long as faith in coercion and government
planning prevails over a preference for voluntarism
and free enterprise. Says Mises:

Our age has to face great economic troubles. But this is
not a crisis of capitalism. It is the crisis of interventionism,
of policies designed to improve capitalism. . . .*8

Government management must be bureaucratic

Why is it that government intervention fails to
achieve the results the “planners” hope for?

Mises believes that the answer is to be found in
the very nature of government. In Bureaucracy, he
tries to show that government cannot operate on
economic principles because its operations cannot

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be subjected to the evaluations or checks of eco-
nomic calculation. By its very nature as a coercive
agency, its operations must be circumscribed by
rules which restrict the enterprise and discretion of
its officials. In other words, it must be bureaucratic,
it cannot be businesslike.

In private enterprise, Mises point out, a business
owner or the manager of a department may have
wide discretion in use of the funds entrusted to him
and in the spending of the revenues of his business
or department. However, he must show a profit or
lose his position; and he earns this profit in volun-
tary cooperation, competing with every producer
in every line. He competes in offering greater econ-
omy (“more for less”) to customers, investors, and
wage earners. A business organization, says Mises,
cannot become bureaucratic as long as its operations
are guided by the profit motive and are not inter-
fered with by government or private violence.

The profit motive in government, however, results
in intolerable tyranny and conflict. This is because
government is coercive. Its basic function is using
coercion to protect citizens against violence from
their fellow citizens or foreign enemies. The restraint
of constitution, law, and “red tape” must apply to use
of coercion by government, as well as to use of co-
ercion by private citizens. Otherwise government is
as dangerous as the criminal or foreign foe. Even in
dealing with the suspected or convicted criminal,
government officials must observe rules designed to

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protect suspects and criminals (as well as innocent
persons) against unnecessary violence. Laws must
say what is a crime and must prescribe the manner
of dealing with suspects and criminals.

Totalitarian governments also must operate bu-
reaucratically, because, without rules to guide them,
ambitious officials might build the means to declare
their independence of the central authority or make
war upon it. What authority a totalitarian regime
has depends on subjecting subordinates to a rigid
control by laws and rules, even though the laws
and rules may be quickly changed by orders from
the top.

In other words, all governmental departments,
whether in a liberal or a totalitarian government,
must operate bureaucratically, not according to
business principles.

Every government agency uses compulsion

But what of an economic venture like a government-
owned power plant? May not that operate according
to business principles rather than bureaucratically?
If it is to operate entirely according to business
principles, however, why should anyone wish to
make it a government project? No one advocates
that government step into power production or the
railway business or any other business unless he
wants to get the operations away from control of
business principles in some regard or other.

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It is because he wishes at some point to substitute
coercion for voluntarism, a bureaucratic rule for
profit-making in free markets, that anyone advo-
cates government ownership of anything. He may
wish to change the method of getting capital, hop-
ing to get it at lower cost by taxes or by government
manipulation of the currency. He may wish to
change the method of hiring executives, hoping to
get them cheaper and better by political or civil
service appointments than by permitting profit-
seeking owners to bid for them in open market. In
addition, government ownership usually involves
use of force to suppress competitors.

Whatever the reason for government ownership,
therefore, it has to do with substituting force for
the guidance of the free market in directing the
operations.

It is this use of force which makes it necessary to
substitute bureaucratic rules (red tape) for profit-
making enterprise in the management of govern-
ment undertakings. The central political authority
(e.g., the Congress) must specify the field of work,
set the limits of expansion, and lay down principles
which are to govern the executive in its adminis-
trative rule-making. All of this restriction of the
profit motive in government is necessary to prevent
a government enterprise from undermining the
position of the central government and ruling party,
or from going beyond a certain point in interfering
with the liberty of the citizens.

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Government markets cannot be free

Samuelson describes the way in which he thinks a
price system might work in a Socialist society. But
how could government officials arrive at prices for
land and machinery which only “society” may own?
If no one owns them, it would be futile and foolish
for anyone to offer anything for them. What money
one government official may offer another for any-
thing is not determined by business principles, be-
cause he is not supposed to be working for profits
and he is not judged or rewarded according to the
profits he makes.

Of course, in a “mixed economy,” the central
authorities could not permit an official to set prices
that were entirely arbitrary or meaningless. There-
fore, they must lay down rules for fixing prices.
Without the profit motive to direct them they can
only use political criteria for the rules governing
price policies. That is, they must lay down price
policies that are most pleasing to those who hold
political power or to those who can bestow political
power. Any other method of pricing would neces-
sarily cost them their jobs.

Precisely the same holds true of government
control of interest rates, government control of the
value of money, government control of credit poli-
cies, or government control of wages and salaries.
Once we depart from business criteria set up in
free markets, there is left only political criteria

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established by the methods of winning political
control.

Government statistics are political instruments

But what of the statistics of income and employ-
ment, savings and investment, price levels and wage
rates, that the Keynesian economist proposes to use
as criteria for “compensatory fiscal and monetary
policy’? What of those mathematical formulas that
are supposed to tell us just how much private spend-
ing will result from a given increase in government
spending? Are not these economic criteria which
experts might use to supply some over-all govern-
ment management along sound economic lines?
Part of the answer to these questions will be
found in a later section dealing with the supposed
usefulness of the Keynesian approach in business
forecasting. At this point, I shall only call attention
to the following facts which anyone may verify for
himself by a little study of the “parity price” agri-
cultural program of the United States government:

First, the compilation of statistics and the con-
struction of government indexes are themselves
political operations, controlled by political con-
siderations and bureaucratic rules. There is no
one “right” index of prices, interest rates, rates of
profits, or wage rates. There are only various esti-
mates arrived at by bureaucrats subject to polti-
cal pressure and bureaucratic red tape. What

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index to use is a matter of opinion in every case,
and the only way to decide which opinion should
determine a government policy is by political
and bureaucratic methods and standards. The
loyal government official asks, What does the
law or executive order tell me to do? Insofar as
it is not quite clear or specific, he next asks, What
interpretation of this order will be most “politic”?
This means, What interpretation will help keep
my superiors and me in office?

Second, government policies do not affect people
in general, or prices in general, or incomes in
general. They affect particular persons at partic-
ular moments of time. The choice among which
acts of which persons at what times the “plan-
ners” are to control must be bureaucratically and
politically determined. That is, the “planners”
must follow certain rules in deciding what taxes
are to be raised or lowered, whose incomes
are to be cut or raised, what interest rates are
to rise or fall. And these rules must be laid down
by other officials who must act politically in
order to hold their jobs.

Third, even the arguments and reports of the
“experts” in government must have a political
slant. They must deal with subjects in which the
politician is interested, and they must deal with
them in such a way as to help the politician re-
tain and consolidate his authority.

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Government planning cannot be economic

If government “planners” hold office for short terms,
then their decisions must follow the short-term po-
litical changes. If they are appointed for long terms,
then they must follow the long-term political trends.
But always they must obey the rules which political
authorities lay down, and these rules are designed
to help keep the ruling party in office. As I pointed
out above, government's construction and use of
indexes in connection with the “parity-price” pro-
gram for agriculture in the United States illustrate
nicely how politics and bureaucracy decide the is-
sues. From an economic standpoint, the result can
be only what Mises calls it—"planned chaos.” Gov-
ernment spends millions of dollars to reclaim land for
agricultural purposes, and it spends billions more
to restrict agricultural output or to buy up the crop
“surpluses” for waste and destruction. It gives farm-
ers millions of dollars’ worth of advice and aid to
increase output, and then it pays them millions more
to keep the crops from coming to market.

All government acts are political

Such policies make sense only from a political
and bureaucratic standpoint. Bureaucrats are fol-
lowing rules which politicians believe will help them
win and hold political office.

Again, therefore, we get back to the question:
What is the proper scope of government? Should

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it determine how much individuals earn, how much
they save or invest?

In order to answer these questions, we must
realize that government is an agency for coercion,
and we should understand how man reacts to
coercion or in the absence of coercion.

To say that we can determine the scope of
government only by experience, as the Keynesian
economists argue, is not enough. Man has already
had thousands of years of experience with a great
variety of governments and government policies. If
a political economist warrants the title “scholar” he
should know a good deal about such experience,
and he should have derived a set of principles for
the use of political force in human affairs. If we
have not learned from past experience, why should
we expect to learn from future experience?

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V. Of Law and Right

A coorome to one school of thought, government
(or “society”) creates individual rights, and
what government creates it may destroy.

This is the view of those Keynesian economists
who want government to adopt a “compensatory
fiscal and monetary policy” in order to control the
spending and employment, the saving and investing,
of individual citizens. This policy calls for taxes,
not to raise revenue merely, but to redistribute
income, to reduce saving, and to increase consump-
tion, or sometimes to restrict consumption and
increase saving. It calls for borrowing, not merely
to meet emergency expenses of government, but to
expand currency, increase total spending, and raise
price levels. It calls for employing labor, not merely
to perform the functions of government, but as a
means of diluting the currency. All of these activ-
ities imply that individuals have no property rights
which the government is bound to respect.

In fact, however, the moral rights of self-defense
and private property are necessary to human life
and to the cooperation we call “society.” Man can

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exist only as he asserts and defends these rights
against violation by government or by private per-
sons. He cannot cooperate with his fellows except
as they respect these rights. As these rights are
invaded, individuals fight or flee from one another,
and to that extent society disintegrates and people
perish.

For this reason, human rights are prior to society.
As government protects these rights, society devel-
ops and prospers. Insofar as government infringes
on human rights, including property rights, it de-
stroys the cooperation (“society”) which supports it.

Majorities may violate individual rights

Some authors recognize that an autocracy may be
unjust but appear to believe that a representative
government, or democracy, by its very nature, must
always be just. As the Keynesian economists,
Nordin and Salera say, such a government “means
all of us in the community.” Is this meant to imply
that the lawful acts of an official in a democracy
are agreed to by every citizen or that they are for
the good of all?

A moment's thought should show the fallacy of
such a view. Democracy is not liberty and it does
not guarantee liberty. For example, when the citi-
zens “take the law into their own hands” and form
a lynching mob, they may carry out the will of all
the people except one, the victim, but they do not

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establish liberty. Similarly, representative institutions
and voting may help to limit government and keep it
lawful, but they do not necessarily prevent tyranny
and injustice. Majorities may vote for government
policies that are as tyrannical and collectivistic as
those of a monarchy or dictatorship.

Progress starts with one person

Human progress always starts with ideas and acts
of individuals who break away from the majority
opinion or practice. Such an individual is often
highly unpopular. Usually, at first, the majority look
on him as dangerous, ridiculous, anti-social, reckless,
or foolish. Almost always his actions or plans threat-
en the security of more people than seem likely to
benefit. For this reason, when laws and the consti-
tutions permit, majorities restrict liberty, especially
liberty to do better.

Government must, therefore, restrain majorities,
as well as individuals and minorities, from interfer-
ing with individual liberty. It effects this restraint
by law and the constitution. Its officers must enforce
the law and loyally uphold the constitution, even in
the face of hostile majorities, if liberty is to survive.

To repeat, representative institutions are useful
and necessary for good government, but democracy
is not freedom and does not guarantee freedom.
Majority rule is not “self government” in the sense
of individual freedom.

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What freedom means

The essential condition for human rights and free-
dom is non-interference. That is why all great moral
codes consist mainly of prohibitions: “Thou shalt
not killl” “Thou shalt not steal!” “Thou shalt not bear
false witness!” “Thou shalt not covet!” Within the
family there is a positive injunction: “Thou shalt
honor thy father and thy mother!” But this means,
perhaps, that “Thou shalt not cast them off to be
cared for by someone else when they are old!” Fur-
thermore, it does not give parents a right to enslave
their children.

Again, in the Constitution of the United States,
especially in the “Bill of Rights,” we find that free-
dom means non-interference. The little word not
is repeated again and again. The authors of these
documents sought to make freedom secure by lim-
iting government, rather than by making it easy for
the majority to rule.

Keynesians propose unlimited government

Keynesian economists, along with all other advocates
of government “planning,” tend to ignore the word
NOT in human relations. They put no limit on
government authority over the individual and his
property except that of political expediency or
majority opinion. This is what makes their doctrine
essentially coercionist, collectivist, and socialist.
They regard the doctrine of natural rights as a

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superstition. They consider it quite proper, for ex-
ample, that government should seize a citizen's gold,
fix its own price for it, and refuse to pay it out again
except at its own pleasure and on its own terms.
They consider it not in the least reprehensible for a
government to announce a change in its paper price
for gold, thereby arbitrarily redistributing property
between millions of persons doing business in inter-
national trade and finance. Could any actions be
more arbitrary or show greater indifference to indi-
vidual rights? Yet, in the Keynesian view, such acts
are matters merely of political expediency, no more
to be judged moral or immoral than a decision to
paint the courthouse gray instead of green.

Keynesians urge redistribution of wealth

Similarly, Keynesians propose that government seize
(by taxation) the earnings of the well-to-do and
give them to the poor in order to reduce the “pro-
pensity to save.” They consider this “progressive”
or “liberal.” Instead, it is a return to the collectivist
immorality of our cave-dwelling ancestors.

It was collectivism such as this that kept man for
so long in savagery after he had attained reasoning
powers. And even after he began to recognize the
right of private property, reversions to collectivism
again and again cast him back toward barbarism.
Taxation that is designed to take from the rich
to give to the poor or to discourage thrift is not

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progressive or liberal but essentially reactionary.

Disregard for property rights

The economists of the Keynes school show the
same indifference to property rights in their pro-
posals for manipulating price levels. For example,
as mentioned above, Dr. Theodore Morgan suggests
that it might be a good thing to have sufficient infla-
tion to raise the general price level by 1 or 2 per
cent a year in order to reduce the burden of interest
on the national debt and to stimulate business and
employment. This would be equivalent to a capital
levy of that amount each year on all savings ac-
counts, bonds, and insurance policies, besides an
increase of 1 or 2 per cent each year in the tax rate
on fixed incomes.

Likewise, these authors propose to redistribute
property and income between debtors and creditors
by reducing interest rates. Keynes suggested it might
be possible and desirable in this way to liquidate
the rentier class, that is, bondholders and other
holders of fixed-income obligations.

In view of this indifference to property rights, one
should not be surprised to find a Keynesian econo-
mist supporting almost any proposal for increased
government authority and interference with individ-
ual liberty if he thinks it may help to reduce savings,
raise or fix prices and wage rates, reduce interest
rates, or “socialize” investment.

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Saving requires planning and self-discipline

Conversely, the Keynesian economist has a low re-
gard for the intelligence, responsibility, and integrity
of individuals — unless they are in government em-
ploy! Since he regards savings for one’s old age or
other future needs as a dangerous practice, he has
little respect (in theory, at least) for what most
people regard as essential elements in character,
namely, the desire and ability to be responsible for
one’s own welfare. Saving, according to the Keynes-
ian, is not the result of foresight, planning, and self-
control. It is not rational or purposive, he says, but
varies with income and is the result of inertia in
habits of spending, of outmoded Puritanism, or of
neurotic fears.

The fact is that saving is never automatic. At every
income level it takes thought, planning, and self-
denial. It takes careful discrimination in one’s gifts
and philanthropies. Persons with these abilities tend
to invest their savings wisely and thus to increase
their incomes. Such persons are likely also to earn
more in wages and salaries than their less farsighted
neighbors. For these reasons, it is not (as the Key-
nesians say) high incomes that cause saving. It is
prudence and the “propensity to save” that cause
some persons to have high incomes.

The Keynesian cannot admit this. It would make
his impressive charts, tables, formulas, and graphs
worthless. Once it is granted that his figures deal,

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not with automatons, but with self-determining and
more or less rational individuals, who decide for
themselves what they will do, his theories lose all
value for purposes of prediction and control.

Little room for self-reliance in the Keynesian ideal

When the Keynesian is brought up against the fact of
individual self-determination and variability, there-
fore, he proposes that government abolish these con-
ditions which upset his calculations! He proposes
that government abolish individual freedom and re-
sponsibility by means of social-security program.

This program he advocates, not alone on the
ground that “we can’t let them starve,” but on the
theory that government can stabilize business by
taking over the function of saving. Of course, he is
likely to use all of the other social-security argu-
ments to reinforce his own. Consequently, we find
Keynesian economists arguing for the social-security
program on the ground that people can’t save, won't
save, and shouldn't try to save.

They are hardly likely, therefore, to impress upon
their students that thrift and self-reliance are impor-
tant virtues in the modern scheme of living.

Keynesism is hostile to private enterprise

Keynesians usually represent profits as resulting
from either or both of: (1) a difference between the

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rate of interest and the “marginal efficiency of capi-
tal,” (2) monopoly and high-pressure salesmanship.
In either case, the recipient of profits is given little
or no credit for earning them by useful service.

This Keynesian antipathy or indifference to the
qualities developed in free markets arises from the
belief that free markets are economically undesir-
able (e.g., the capital markets) and politically im-
practicable (e.g., the labor market).

Moreover, as difficulties arise in carrying out their
proposals for “socializing” saving and investment,
economists of this persuasion usually advocate more
restriction of markets rather than less. Thus Dr.
Lawrence Klein, for example, favors government
price control to prevent inflation that might result
from Keynesian “loan expenditures,” and he ration-
alizes this repudiation of freedom of exchange by
the contention that “greedy profiteering” was the
only liberty infringed by the Office of Price Admin-
istration in World War IL*

For these reasons, Keynesism is of more than
academic interest. It relates to every detail of one’s
view of social relations. It teaches disregard for
property rights. It belittles self-reliance, foresight,
and enterprise. It disparages profits. In the name of
political expediency, it abandons freedom of trade
and free markets.

It is, therefore, antagonistic to the basic eco-
nomic, moral, and political institutions of private
enterprise, or freedom.

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VI. What of the Future?

Gone PERSONS argue that the Keynesian theory is
useful in business forecasting, especially in our
present managed-currency world, even though it is
unsound as a basis for government policy.

I believe this is a fallacy.

Forecasting is necessary for all business, but stock
market gyrations of the past fifty years have cen-
tered attention on a kind of forecasting that is of
relatively little use, if it is not actually misleading.
Business success, large or small, comes mainly from
the kind of prevision Henry Ford showed in putting
his time and capital into producing a cheap car, or
that John Wanamaker had when he introduced the
policies of one price and the money-back guarantee
into retail trade. Such foresight is not based on
quantitative studies of national income, but on
qualitative insight into the opinions and feelings,
hopes and abilities, of other people.

Keynesian theory not helpful in forecasting

Certainly, any analysis based on notions that sav-
ings cause business depression and that debt-crea-

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tion is the right cure for unemployment is worse
than useless as a basis for business planning. Dr.
Benjamin Anderson contends that the Keynesian an-
alysis always leads to precisely wrong conclusions.
Dr. Rufus Tucker, in an essay entitled, “Mr. Keynes’
Theories Considered in the Light of Experience,”
some years ago gave numerous illustrations support-
ing Anderson’s view.

The statistician can measure and record certain
factors in a situation. His charts and formulas can
present a few relationships which held good in the
past. Some of these relationships are sufficiently
stable that they have to be taken into account in
estimating future trends. Statistical studies of the
situation in regard to particular industries have
considerable value.

But “national-income analysis,” even when not
based on Keynesian assumptions, is fundamentally
defective as a method of business forecasting be-
cause it involves a pseudo-scientific, mechanistic
view of economics that is wholly unrealistic and
dangerously misleading.

What income statistics do not record

What Farmer Jones and Tailor Brown will produce
and earn, consume and save, next month or next
year, does not mainly depend on what they did last
month or last year. Their future efforts depend on
decisions which they are making now and which

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they must make in the future; and the changes in
their ideas and behavior are determined mainly by
things which the statistician can hardly measure.

Could any national-income figures prior to United
States’ entry into the Korean War have indicated the
business fluctuations which were to follow? True,
the period from, say, June to October, 1950, was not
typical, but what period is typical? Each period in
history is like other periods in some ways, but what
people think and want are different in every case,
therefore what they do is different.

Free markets are not automatic

Success in forecasting depends on what one knows
of other peoples plans. Knowledge of past and
present operations helps in judging capacity to carry
out these plans. This is where statistical facts are
helpful. But there are always changing human pur-
poses which cannot be tabulated or measured statis-
tically. As Professor Mises says:
No “automatic” and “anonymous” forces actuate the
“mechanism” of the market. The only factors directing
the market and determining prices are purposive acts of
men. There is no automatism; there are men consciously
aiming at ends chosen and deliberately resorting to defi-
nite means for the attainment of these ends. There are
no mysterious mechanical forces; there is only the will
“of every individual to satisfy his demand for various

goods.’?
For this reason, none of the quantities, formulas,

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or relationships used in national-income analysis is
fixed or stable, not even the “propensity to save™ or
the rate of turnover of funds. This alone makes the
“multiplier” worthless for forecasting, not to men-
tion the fallacious assumptions on which it is based.

National-income analysis is supposedly most use-
ful for predicting changes in employment. Yet the
increase or decrease in amount of national income
per employee added to the working force or sub-
tracted from it varies from year to year by 100 per
cent or more. In some years, employment has actu-
ally gone up while national income has gone down.
In other years, employment fell while total national
income rose. In the field for which it was especially
designed, therefore, this approach is useless as a
tool for forecasting.

National-income figures are useless for forecasting
because they cannot record and weigh the infinite
variety of conditions which self-determining indi-
viduals take into account in building their futures.

This national-income approach, moreover, pro-
motes the notion of the business “cycle.” This
mechanistic concept has not only been a nuisance
in business forecasting, but it has supported the
socialistic idea that business fluctuations are the
natural and necessary consequences of free markets.
Under the influence of this notion, as exemplified
in Keynesian theory, governments are more and
more pursuing managed-economy policies that are
the chief causes of business instability and war.

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Government “planning” increases instability

As far as anyone knows, man’s conduct is not pre-
determined, therefore is not predictable in the way
that certain natural phenomena, like the weather,
may be. Yet, in freedom, human conduct is in-
creasingly rational and cooperative. Therefore, it
provides a basis for hopeful planning. This was the
truth behind the adage, “Never sell America short!”
In voluntary enterprise, success goes to those who
bet on increasing opportunities for economic co-
operation and who judge more or less correctly what
other people want to buy or sell.

In freedom, people cooperate in hope of reward.
This means that each person gets the aid of others
by offering sufficient inducement to enlist their will
— their determination — to do what he wants and
expects. Under such conditions, people are more
likely to keep their promises and carry out their
announced plans than when they are being coerced
into something against their will. For this simple
reason, business forecasting is much easier in pro-
portion as people are free.

Government intervention, or “management,” in
economic affairs introduces the element of legalized
coercion. Coercion, whether legal or illegal, means
abandonment of reason and of appeals to reason
as means of getting cooperation. It does not mean
merely substituting force for reason. Rather it means
suppressing such cooperation as the coercive author-
ity considers undesirable or unnecessary. Thus, for

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===== PAGE 109 =====

example, taxes suppress the cooperation which
private spending would have supported; currency
“management” suppresses some kinds of money
(e.g., gold) and monetary arrangements in favor of
others; government ownership involves prohibitions
against competing enterprises or forced levies upon

them.

Coercion destroys cooperation

Such coercion and suppression arouses anger or
fear, opposition or discouragement, rather-than hope
and approval. Whether legal or illegal, it arouses
the desire to escape and evade (e.g., “flight of
capital”), or to resist and disobey (e.g., “black mar-
kets”), rather than to cooperate. It can accomplish
its purpose only as it closes avenues of escape and
crushes opposition. Up to that point, the victims use
their ingenuity to thwart the will of the coercionists.
Beyond that point, the victims become hopeless,
apathetic, and uncreative. At either stage the results
are declining output, trade, and prosperity.
Authors of managed-economy policies are contin-
ually coming up against these unpleasant results,
which upset their calculations. The remedy which
the Keynesian planners urge is currency inflation.
But this inflation liquidates the creditor interest
which is most opposed to unproductive spending
and investment and most opposed to restriction of
output which reduces the purchasing power of the

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currency. At the same time, the currency inflation
is used to provide subsidies and support for those
who favor unproductive lending and spending and
who seek to impose restraints on production and
trade. Consequently, larger and larger doses of
currency inflation are necessary to overcome the
stagnation of trade brought on by government's
interventionism, that is, to trick producers into
working and exchanging their goods for the depre-
ciating paper promises in the face of rising taxes
and increasing restrictions.

Fiat currency nurtures stateism

This use of fiat currency finances the growth of the
unproductive, collectivist, and restrictionist State.
It liquidates the productive and stabilizing elements.
Thus it clears the way for reactionary revolutions,
such as the Bolshevik Revolution in Russia, the
Fascist Revolution in Italy, the militaristic revolu-
tion in Japan, and the Nazi Revolution in Germany.
As Keynes himself said before he became a full-
fledged “Keynesian”:

There is no subtler, no surer means of overturning the

existing bases of society than to debauch the currency.

The process engages all the hidden forces of economic

law on the side of destruction, and does it in a manner
which not one man in a million is able to diagnose.’

Keynes and his followers, by urging a “managed
currency and “compensatory fiscal policy,” have

97


===== PAGE 111 =====

helped to build in nearly every nation a Franken-
stein monster — a bureaucracy greedy for power,
growing daily more aware of its coercive authority
and more hostile toward individual liberty. To that
bureaucracy, the “new economics” now teaches, we
should give still more authority to tax and borrow,
spend and lend, coerce and restrict, in order that
it may make our jobs and prosperity more safe and
secure.

What grounds are there for thinking that this
abdication of individual right will not mean another
retreat toward individual irresponsibility?

The Keynesian revolution in economics concerns
everyone in the most intimate details of his daily
life. This is not only because of the way the revolu-
tion may affect votes and government policies. It
must affect also the attitudes and conduct of indi-
viduals toward one another. It must determine their
personalities and characters.

As a man thinks, so he is

The individual's view of man and society determines
the way he feels and acts toward his fellows. His
view of other people’s rights determines the way he
discharges his own responsibilities. His view of his
responsibilities determines what he expects from
others and how he tries to get it. A teacher may
profess to deal only with government policy in re-
gard to money and credit, taxes and spending, not

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with individual conduct and morality. But how can
government control spending and lending, saving
and investing, without affecting individual rights
and responsibilities in use of money?

In making out their case for government control
of private lending, spending, saving, and investing,
Keynesian economists must belittle the wisdom with
which individuals act when free. They must espe-
cially disparage the competence of those private
citizens who handle relatively more money than
their fellows: the well-to-do and the managers of
business enterprise. They imply that American busi-
ness leaders in the past owed their success to good
fortune in being born into a new country with rich,
undeveloped resources, or else that they owed it to
monopoly, special privilege, near-fraudulent adver-
tising, lucky speculations, and the free labor market
which permitted “exploitation” of wage earners.

Is this view of business enterprise likely to make
young men more ambitious for business success? Is
it likely to encourage honesty, industry, and pru-
dence in those entering upon a business career?

In effect, Keynesian economists teach that Ameri-
cans are too thrifty, at least much of the time. In
order to discourage this thrift they propose that
government relieve individuals of their responsibil-
ity in providing for the emergencies of life, like old
age, unemployment, and sickness. Is that brand of
thinking likely to make students eager to become
more self-reliant and enterprising?

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Keynesian economists may not intend to make
their students spendthrift and irresponsible, greedy
and covetous; but they provide a rational basis for
these attitudes. There can be no question but that
their theories imply disparagement of thrift, self-
reliance, enterprise, and respect for property rights.

Are these virtues less necessary now than for-
merly? Some of us, at least, believe that these
qualities of character were never so necessary as
when the rise of the “Welfare State” is discouraging
and destroying them.

“The way to security”

In his latest book, The Way to Security, Dr. Henry
C. Link points out that human progress and true
security come only as individuals develop self-re-
liance, enterprise, diligence and thrift.

The security which man wants and needs, he says,
is first of all spiritual rather than material, a matter
of internal feeling rather than external conditions.
It depends, not on freedom from fear, but on free-
dom to fear, together with freedom to develop the
means for overcoming fear. By shielding an indi-
vidual from life’s problems, we keep him from
acquiring the ability to solve them. By standing
between a man and life’s fears, we prevent him from
cultivating the power to overcome fear. He writes:

. . . a government cannot assume responsibility for peo-
ple’s welfare without profoundly affecting their moral

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fiber. To the extent that government takes care of him, to
that extent the adult citizen is deprived of the moral
responsibility for himself. . . . The net result is the pro-
gressive breakdown in the moral standards of all who
participate in the welfare state. The material effect of
this breakdown has already been seen in the great depre-
ciation of the dollar. The spiritual and emotional effects
are just beginning to receive recognition. . . .**

And again:

If experience and history prove anything, it is that social
insecurity may stimulate people to action, to adventure,
and so to progress. Social security, on the other hand,
lulls people into a state of inaction and stagnation which
develops, in time, into a state of jitters.

For this reason, he says, “social security creates the
very fears and worries it was intended to cure.”

On the other hand, the man who disciplines him-
self, who denies himself present comforts in order
to buy security for his family and himself by his
savings and investments, builds spiritual security -
at the same time as material security. He gains
power that gives him a feeling of security now at
the same time he gains credits that will take care
of his needs later.

Furthermore, says Link, the strength of character
which individuals develop in liberty is the only pos-
sible foundation for the high output, firm contracts,
and stable currency necessary for true social security
as distinct from the false government security.

And only in liberty do we find growth in those
traits of sympathy and understanding that are nec-

101


===== PAGE 115 =====

essary for genuine philanthropy. The plight of the
weak and unfortunate in regimented and collec-
tivist societies is notoriously insecure and wretched.

Coercion decreases security

Increasingly the Keynesian economists are coming
to admit the difficulty of preventing currency de-
preciation under the full-employment policies they
advocate. And they know that continuing inflation
may destroy security for all. They see also a growing
indifference to the public welfare, as, for example,
in trade union policies and government's parity
price programs for agriculture. They know that this
threatens a breakdown of cooperation and that it
means less, not more, security for all.

What they cannot admit without repudiating their
own program, however, is that the root cause of
inflation and of the growing indifference to the
public welfare is the deterioration of individual
character and morality which Link contends must
result from managed-currency policies.

Keynes and his disciples may be right in saying
that we cannot reverse the political trend and return
to free markets and the gold standard, at least in
any foreseeable future.

But if this is so, what is the likelihood that indi-
viduals will grow more self-reliant, more far-sighted,
more honest and industrious, or more sensitive to
the needs of their fellow men? Will Keynesian

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teachings and policies help develop these qualities?
What is the probability that the value of money will
become more stable, that governments will become
less burdensome and oppressive, or that people will
feel more secure? Will a fiat currency and a “com-
pensatory fiscal and monetary policy” bring these
conditions about?

Very different from the “note of profound opti-
mism~ with which Professor Samuelson concludes
his popular textbook, is the view of Professor Link:

The present scramble for security does not represent
the ambition to attain security so much as the nostalgia
of a people that wish to retain it! It is not a revival of the
spirit of adventure and self-reliance, but the psychology
of a nation which has grown soft, a nation which is living
on the moral momentum of its past. It does not mean
that we are awake to the dangers now threatening our
security; rather it means that we are still in a dream
world and do not wish to be disturbed. It means, above
all, that we have come to think of security almost entirely
in terms of material things and have almost wholly lost
our understanding of spiritual security.

Not all revolutions bring progress. Ofttimes they
are a retreat to a lower level of individual character
and social organization. Which are we to expect
from the Keynesian revolution in the teaching of
economics in American colleges and universities?

We ought to be concerned about the answer. For
the revolution aims at the heart of American insti-
tutions. It strikes at the roots of individual character.

And it has already proceeded far.

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REFERENCES

1 This study developed out of a series of reviews published by
the National Economic Council, Inc., New York, in August
and September, 1950.

2 Seymour Harris (ed.), The New Economics: Keynes’ Influence
on Theory and Public Policy (New York: Alfred A. Knopf,
1947), p. 5.

8 Harris, op. cit., p. 55.

4 Paul A. Samuelson, Economics: An Introductory Analysis, re-
vised edition (New York: McGraw-Hill Book Co., 1951), p.
261. For a partial list of colleges and universities using this and
other Keynesian textbooks see William F. Buckley, Jr., God and
Man at Yale (Chicago: Henry Regnery Co., 1951), Appendix.

5 Nordin, J. A., and Virgil Salera, Elementary Economics (New
York: Prentice-Hall, Inc., 1950), p. 508.

¢ Samuelson, op. cit., pp. 261-62.

7 Theodore Morgan, Income and Employment (New York:
Prentice-Hall, Inc., 1947), p. 169.

8 Samuelson, op. cit., p. 397.

® Lawrence Klein, The Keynesian Revolution (New York: The
Macmillan Co., 1947), pp. 176-77.

10 Samuelson, op. cit., p. 161.

11 I orie Tarshis, The Elements of Economics (New York: Hough-
ton Mifflin Co., 1947), p. 512.

12 Thid, pp. 389-99, 518.

13 Samuelson, op. cit., p. 417.

1¢ Morgan, op. cit., p. 182.

15 Tarshis, op. cit., p. 391.

16 Morgan, op. cit., pp. 243-44, 254.

17 Samuelson, op. cit., p. 685.

18 Tarshis, op. cit., p. 635. Cf. p. 331.

19 Klein, op. cit., p. 180.

20 Ibid.

21 Samuelson, op. cit., p. 448.

22 Tarshis, op. cit., pp. 504-06.

23 Ibid, pp. 534-35.

24 Klein, op. cit., p. 182.

25 Samuelson, op. cit., pp. 415-16.

26 Morgan, op. cit., pp. 242-43.

27 Ibid, p. 175.

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===== PAGE 118 =====

28 Samuelson, op. cit., p. 733.

2 Ibid, p. 734.

30 Ibid, p. 158.

13 Ibid, p. T44.

32 Ibid, pp. 161, 740-42.

33 Nordin and Salera, op. cit., p. 503.

8¢ Samuelson, op. cit., p. 736.

35 Ibid.

86 Ibid, p. 36.

37 Ibid, p. 42.

38 L. Albert Hahn, The Economics of Illusion (New York: Squier
Publishing Co., Distributor: New York Institute of Finance,
1949), p. 6.

89 Ibid, pp. 166-67.

40 Samuelson, op. cit., p. 418.

41 Hahn, op. cit., p. 169.

«2 Ibid, p. 104. Cf. pp. 60, 169, 175, 237.

43 Ibid, pp. 36-37, 60, 156 f.

4¢ Benjamin M. Anderson, Jr., Economics and the Public Wel-
fare: Financial and Economic History of the United States,
1914-1946 (New York: D. Van Nostrand Co., 1949), p. 495.

45 Ibid, p. 30-58.

46 Ibid, pp. 317-18.

47 Ibid, pp. 489-94.

48 Ludwig von Mises, Planned Chaos (Irvington-on-Hudson, New
York: The Foundation for Ecoonmic Education, 1947), p. 21.
Bureaucracy (New Haven: Yale University Press, 1944), pp.
111f.

49 Klein, op. cit., p. 180.

5 Rufus S. Tucker, Mr. Keynes’ Theories Considered in the Light
of Experience, The Economic Doctrines of John Maynard
Keynes (New York: National Industrial Conference Board,
Inc., 1938).

51 Mises, Planned Chaos, p. 29.

52 John Maynard Keynes, The Economic Consequences of the
Peace (New York: Harcourt, Brace and Howe, 1920), p. 236.

53 Henry C. Link, The Way to Security (Garden City, New
York: Doubleday and Co., 1951), p. 224.

8¢ Ibid, p. 72.

85 Ibid, p. 74.

105


===== PAGE 119 =====

The Ludwig von Mises Institute

The Ludwig von Mises Institute, founded in 1982, is the research and
educational center of classical liberalism, libertarian political theory,
and the Austrian School of economics. Working in the intellectual
tradition of Ludwig von Mises (1881-1973) and Murray N. Rothbard
(1926-1995), with a vast array of publications, programs, and
fellowships, the Mises Institute, with offices in Auburn, Alabama,
seeks a radical shift in the intellectual climate as the foundation for a

renewal of the free and prosperous commonwealth.

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===== PAGE 120 =====

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