===== PAGE 1 ===== IDEAS ON LIBERTY OCTOBER 1959 From Whence Come Profits? . . . . . John Chamberlain 5 Incompetent Employers . . . . . . Francis Amasa Walker 10 Strikers Are Bound Tolose . . . . . Paull. Poirot 14 Learning by Doing . . . . . . . . E. F. Hutton 16 “Relax . . . Enjoy Yourselves!” . . . . E. W. Dykes 17 A Better Way of Selecting Presidents . . Frederick A. Manchester 20 The Consumer Theory of Prosperity . . . John Stuart Mill 38 The Surplus Wheat . . . . . . . . H. P.B. Jenkins 43 Thoughts and Details on Scarcity. . . . Edmund Burke 44 A World Monetary System . . . . . . George Winder 53 The Only Way to Sound Growth . . . . Lawrence Fertig 58 Party or Principle? . . . . . . . . John Chamberlain 61 THE FOUNDATION FOR ECONOMIC EDUCATION, INC. Irvington-on-Hudson, New York ===== PAGE 2 ===== An economical answer to laying out and drilling tube sheets. 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Mfrs. of Quality Pressure-Sensitive Tape Products and Dispensing Machines—Est. 1914 ===== PAGE 6 ===== THE Tecmdi A MONTHLY JOURNAL OF IDEAS ON LIBERTY OCTOBER 1959 Vol. 9 No. 10 LEONARD E. READ President, Foundation for Economic Education PAUL L. PoIrROT Managing Editor THE FREEMAN is published monthly by the Foundation for Economic Education, Inc., a non- political, nonprofit educational champion of private property, the free market, the profit and loss system, and limited government, founded in 1946, with offices at Irvington-on-Hudson, New York. Any interested person may receive its publications for the asking. The costs of Foundation projects and services, in- cluding THE FREEMAN, are met through volun- tary donations. Total expenses average $12.00 a year per person on the mailing list. Donations are invited in any amount — $5.00 to $10,000 — as the means of maintaining and extending the Foundation’s work. Accepted as controlled circulation publication at Irvington, N, Y., with additional entry at New York, N.Y, Copyright, 1959, The Foundation for gconomic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 25 or more, 20 cents each. Permission is hereby granted to anyone to reprint any article in whole or in part, providing customary credit Is glven, except “From Whence Come Profits?’’ ‘A World Monetary System,’ and ‘The Only Way to Sound FVE Growth.” E Any current article will be supplied in reprint form if there are enough Inquiries to justify the cost of the printing. ===== PAGE 7 ===== 1: ~ Whence » (ome PROFITS? A. DEVANEY, INC., N. Y, JOHN CHAMBERLAIN Unless we know the source of profits, we may try to take them away from the very persons whose profits we should hope to enlarge. THE THEORY that an enterpriser Walker who definitely killed what with the ability to promote a real the late Garet Garrett has called “union of forces” does proportion- the ‘disastrous foreign theories” ately more for society —and the by a show of logic that was as worker — than he does for himself beautiful as it was imperious. was not fully and comprehensively What Walker did was to set stated for the American factory forth a body of theory in Ameri- age until a Civil War veteran, Gen- can terms that was eventually to eral Francis Amasa Walker, who make it impossible for a respect- taught at the Yale Sheffield Scien- able intellectual opposition to the tific School from 1871 to 1880 be- Ford idea to form. There was, as fore becoming president of the we shall see, much grumbling in Massachusetts Institute of Tech- Detroit when Henry Ford decided nology, applied his fertile mind to to share his mounting income with the subject of economics. It was his workers and so help to get in- _— creased marginal efficiency out of This article is an excerpt from Mr. Chamber- them; and there were some pre- lain’s exciting analysis of The Roots of Capi- ey. . talism. Princeton: D. Van Nostrand, 1959. dictions, naturally, that ruin would 5 ===== PAGE 8 ===== 6 THE FREEMAN October shortly encompass both the auto- It is a commonplace that one can mobile industry and the American find forty different definitions of economic system as a whole. But profit in as many books on econ- the predictions lacked fire and co- omics. To the businessman, a profit gency — and nobody emerged with is what is left when he has paid the power of persuasion to head his costs; it is the difference be- Ford off. tween red ink and black. To the i economist who believes that an Exploding Economic Myths economic system strains toward With great force, precision, and equilibrium, profit is a temporary originality Walker exploded one thing which is destined to disap- by one the “laws” laid down by pear whenever competition in a England’s gloomy men when the given field of endeavor has reached science of political economy was the point of saturation. To a Marx- largely a series of deductions from ist, profit is wrung from the poor premises that had not been suffi- by taking from the worker the ciently tested by observation of ‘surplus value” he creates over and facts. After Walker had written above the cost of his subsistence. his articles and books there was And to believers in an illusory no longer any warrant for believ- “perfect competition,” profit is a ing that wages are paid out of a monopolistic charge which the pro- circumscribed wage fund, or that prietor of a patent or the possessor profits are wrung out of the hide of some temporary secret piles on of the worker by keeping him close top of the “natural” price which to subsistence levels, or that the is compounded of costs plus the entrepreneur ‘‘steals” his profits “wage” of management and the in- by seizing the laborer’s “surplus terest paid out for the loan of capi- value,” or that every increase in tal. production must eventually go in- To Walker, most of these defini- to the pockets of the landlord in tions seemed sterile; they tended the shape of the “unearned incre- to miss the point of motivation, ment” of skyrocketing rents or and they ignored the social func- mounting charges for raw ma- tion of profit, which is to guide terials. production and provide the where- In his writings on wages and withal for new investment. They rents Walker appeared in the guise also missed the point that some of the Great Unstiffener. He car- men have special aptitudes, a spe- ried on his role in his considera- cial faculty for seeing where labor tion of profits, can be most creatively employed. ===== PAGE 9 ===== 1959 FROM WHENCE COME PROFITS? 7 To state the matter in the more enlarging the productive horizons rounded terms of John Bates of man. To Walker, innovation was Clark, the man of entrepreneurial indeed a part of the entrepreneur- skill will know what to risk in pay- ial function. But there was con- ment for the relative productivity siderably more to it than that. of “last units’ of land, labor, and capital, and will make a profit if The Entrepreneurial Contribution his calculations are correct. During Walker's lifetime, the But it was Walker who first ac- consumer cooperative movement in cented the “where” as well as the England had had considerable suc- “how.” In order to clarify his cess. But nearly all the attempts theory, Walker considered profit as of labor to form producer coopera- something more than the remuner- tives had come to grief. Surveying ation for the use of capital, some- the wreckage of these attempts, thing more than a “reward for ab- Walker concluded that the entre- stinence,” or for taking the risk of preneur, far from being an ex- loss. Such remunerations, such re- crescence on production, was really wards, were covered adequately by the heart of it. An imaginative en- the term “interest.” Beyond the trepreneur, with a good grasp of concept of interest there was an- market possibilities and internal other thing — the entrepreneur’s shop economies, was worth more to share of the product of industry, the working classes than fine gold. which could be great or small, de- It was the entrepreneur who pending on the ability of a special brought jobs into being in the first breed of man. place, and who enabled the worker By limiting his idea of profit to to use his talents in the most mar- the share which is due the man ketably worthwhile manner in the who exercises the “entrepreneurial second. function,” Walker directed the at- Concentrating upon the entre- tention of economists to a fourth preneur’s special talents, Walker species of reward in the distribu- concluded that profits bore more tion cycle. Schumpeter and others than a superficial resemblance to have tended to accept this idea of rent. For, just as there were no- a “fourth” reward in addition to rent lands which produced for the wages, rent, and interest—but they market at the bottom margin of have tried to circumscribe it by de- cultivation, so there were no-profit fining it as a “payment for inno- industries which somehow stag- vation,” as something which one gered along, consuming savings or willingly gives to an inventor for proceeding from bankruptcy to ===== PAGE 10 ===== 8 THE FREEMAN October bankruptcy. The capitalist received pany’s position, he made it harder his interest from no-profit indus- for incompetent companies at the tries willy nilly; either that, or he no-profit margin. Some of these took over as receiver. In the no- companies would be forced out of profit company, the entrepreneur business by the successful entre- could gain no recompense beyond a preneur’s action. By “leveling up,” salary for putting in his time and then, the competent employers who efforts; he was like a landlord were both willing and able to pay who had to be satisfied with barely more in order to raise the stand- enough income from property to ards of efficiency would be left to pay the taxes. But as a company dominate a given field. Society “measured up” from the no-profit would be better off all around, for margin, there was more and more the efficient company, in addition to spare for the enterpriser who to paying more in wages as an ef- could devise the ways of improv- ficiency-lure, is obviously in a bet- ing unit productivity, or of in- ter position to charge less for its creasing the sales. product and to plow more funds Walker observed that profits, back into research. like rent, do not figure in selling price under properly competitive Profit: The Driving Force conditions. For, just as the price of By keeping his eye on the spe- wheat is set at the margin by the cific contribution of the entrepre- wheat grown on no-rent lands, so neur, Walker isolated profit as the is the price of an industrial prod- driving force of industrial prog- uct set at the margin by the out- ress. Theoretically, an equilibristic put of the no-profit company. economic system might outgrow Profits, then, are the special crea- the need for the enterpriser’s spe- tion of the ability, the know-how, cial abilities. But Walker, with his the inventiveness, the foresight, eye on what was happening around the imagination, of the superior him in America, knew that the executive. They are, in effect, not good enterpriser is always able to added into price but taken out of turn equilibrium (another word the cost. for stagnation) into dynamic Walker doubted that the entre- change. He doubted that the world preneur could take all of the in- would ever reach a stage in which creased wealth he brought into be- all secrets have been discovered, ing by cutting costs and enlarging all potential wants plumbed, and the market. For every time an en- all opportunities exploited to the trepreneur improved a given com- uttermost limits of human in- ===== PAGE 11 ===== 1959 FROM WHENCE COME PROFITS? 9 genuity and human energy. Such a stroyed the possibility of consider- stage might be imaginable, but ing “natural” price as a simple only at the close of the evolution- sum. The natural price was what- ary cycle. Obviously, the human ever the enterpriser could make it: race had not reached that point if he could perform the seeming in Walker's lifetime. Indeed, the miracle of expanding production possibilities of American techno- and sales by rearranging his tools logical ingenuity, spurred onward and simultaneously raising the by the entrepreneur with thevision wage and lowering the price, the to see its market applications, had “natural” basis for price could be just begun to unfold in the days changed overnight. This is essen- when Walker was establishing a tially what Henry Ford did, and it specifically American economics to has been done over and over again explain the du Ponts, the Sears since his day. Roebucks, the Fords, and the Beth- The Ford system of pushing the lehem Steels which would emerge use of labor-saving machinery way in the post-Walker generation. past the ‘break even point” of clearing expenses on the tooling Walker, of course, lived before was still in the womb of time when the dynamics of mass production Walker lived. But by removing the had become the distinguishing fea- blocks which had prevented econo- ture of the American economic mists from seeing that wages and landscape. When he was writing, profits — and the price — were de- people still believed in Adam pendent on the entrepreneur’s im- Smith’s more or less static “natu- agination in a dynamically interre- ral price.” Smith had defined the lated way, Walker cleared the theo- natural price as the sum of the retical ground for Henry Ford in cost of production (labor, etc.) particular and for the American which had gone into the article, system in general. In our national plus the going rate of profit on emphasis on doing, on action, on capital in the neighborhood. But the method of cut-and-try, Walker this simple definition did not reck- has been overlooked in the history on with the dynamic effect of the of our thought. But generations at good entrepreneur on cost of pro- the Yale Sheffield Scientific School duction and profit. and the Massachusetts Institute of By separating the two concepts Technology listened to him — and of interest and profit, and by show- the seed must have sprouted in in- ing that profit was something dustry in a myriad uncelebrated saved on cost, Walker had de- ways. ° oo ===== PAGE 12 ===== EMPLOYERS A. DEVANEY, INC., N. Y. FRANCIS AMASA WALKER (1840-1897) NOTWITHSTANDING all the magnif- make frequent compositions, icent premiums of business suc- partly at the expense of friends, cess, the men of real business or by the sacrifice of inherited power are not so many but that no means. This bare subsistence, ob- small part of the posts of indus- tained through so much of hard try and trade are filled by men in- work, of anxiety, and often of adequately qualified, and who, con- humiliation, we regard as that sequently, have a very checkered minimum which, in economics, we career and realize for themselves, can treat as nil. From this low taking their whole lives together, point upwards, we measure profits. a meager compensation, So meager If this view of the employing that, for purposes of scientific rea- class be correctly taken, it appears soning, we may treat it as consti- that, under perfect competition, tuting no profits at all. Live they that is, where the conditions of a do, partly by legitimate toll upon good market are supplied, manu- the business that passes through facturing profits, for instance, are their hands, partly at the cost of not obtained through any deduc- their creditors, with whom they tion from the wages of mechanical —_— labor; and, secondly, manufactur- The preceding article by John Chamberlain ing profits do not constitute a part will serve to introduce Professor Walker. These ore excerpts from the 1888 third edi- Of the price of manufactured ti f his ad d in Political . n° is advanced course in Political Econ goods. 10 ===== PAGE 13 ===== 1959 INCOMPETENT EMPLOYERS 11 The price of manufactured Profits Not Subtracted from Wages goods of any particular descrip- Do profits, then, come out of tion is determined by the cost of wages? Not at all. The employers production of that portion of the of the lowest industrial grade — supply which is produced at the the no-profits employers, as we greatest disadvantage. If the de- have called them — must pay wages mand for such goods is so great sufficient to hire laborers to work as to require a certain amount to under their direction. These wages be produced under the manage- constitute an essential part of the ment and control of persons whose cost, to the employer, of the pro- efficiency in organizing and super- duction of the goods. The fact that vising the forces of labor and capi- these wages are so high is the rea- tal is small, the cost of production son why these employers are un- of that portion of the stock will be able (their skill and power in or- large, and the price will be cor- ganizing and energizing labor and respondingly high, yet, high as it capital being no greater than they is, it will not be high enough to are), to realize any profits for yield to the employers of this themselves. grade any more than that scant The employers of the higher in- and difficult subsistence which we dustrial grades will pay the same have taken as the no-profits line. wages to their laborers. Why, in The price at which these goods equity or in economics, should a are to be sold, however, will de- laborer who works for a strong, termine the price of the whole prudent, and skillful master, re- supply, since, in any one market, ceive higher wages than one whose at any one time, there is but one fortune it is to work for a vacil- price for different portions of the lating, weak, or reckless employer? same commodity. Hence, whatever The one laborer is as efficient as the: cost of production of those the other, and works as hard. The portions of the supply which are difference in production, which produced by employers of a higher enables the employer to secure a industrial grade, they will com- profit, is due to no superiority in mand the.same price as those por- the quality of the labor or the tions. which. are produced at the capital employed, over that of the greatest disadvantage. The differ- labor and the capital employed ence, so. measured, will go as where no profits are realized. It is profits to each individual em- due to the superior abilities or ployer, according to his own suc- opportunities of him who conducts cess in production. industry. ===== PAGE 14 ===== 12 THE FREEMAN October In the latter case, the employer, who often receives a great deal of paying wages at the same rate to sympathy from the laboring class. his laborers, and interest, at the So far as the sympathy extended same rate, to the capitalist, for so towards the unsuccessful man of much as he has to borrow, and business is of a personal nature, selling his goods, so far as they flowing from a kindly disposition are of equal quality, at the same towards the unfortunate, it is, of price as the employer who makes course, very amiable. But there is no profits, is yet able to accumu- reason to believe that this senti- late a clear surplus after all ob- ment is not wholly of a good ori- ligations are discharged, which gin, but is quite as largely pro- surplus is called profits. This is duced by a misapprehension of effected by his careful study of economic relations. The laborers the sources of his materials; by appreciate, in some degree, the his comprehension of the demands cares under which the unsuccess- of the market; by his steadiness ful employer labors, the anxieties and self-control in the presence of from which he suffers, the humili- temptations to extravagance or ation into which he is occasionally wild ventures; by his organizing plunged. They know he has a force and administrative ability; pretty poor time of it on the by his energy, economy, and pru- whole, and they are not envious of dence. him. On the contrary, they use his hard lot to sharpen their envy of A Misplaced Sympathy the man who reaps large profits for the Underdog from the conduct of business and A failure to discern the true re- the employment of labor. They lations of profits to wages has led compare the rich rewards of the to a mistaken appreciation of the one, who, perhaps, in time, be- interests of the community, and comes worth his millions, with especially of the laboring classes, the meager recompense of the regarding the employers of labor. other, who, at the end of a long While the large profits of the suc- life of labor, has little to show for cessful employer have been the it all; and the comparison tends subject of much jealousy, and al- to heighten the feeling of loss and most uniformly excite in the minds of wrong with which the gains of of the unthinking the sense of the former are contemplated. personal wrong, there is an entire If, however, we have rightly in- lack of jealousy exhibited towards dicated the source of profits, not the unsuccessful man of business, only is the unsuccessful employer ===== PAGE 15 ===== 1959 INCOMPETENT EMPLOYERS 13 deserving of no special economic ably on to business, where they sympathy, but his conduct of busi- are an obstruction and a nuisance. ness, his control of labor-force and Slavery, in like manner, enables capital-force is at a great cost to men to control labor and direct the laboring class, as forming a production, who never would be- part of the general community. come, on an equal scale, the em- Profits are measured upwards ployers of free labor; and it is not from the level of the no-profits more to the inefficiency of the class of employers; and any cause slave than to the incompetency of which brings incompetent persons the master, that the unproductive- into the conduct of business, or ness of chattel labor is due. keeps them there against the natu- The lower the industrial quality ral tendency of trade to throw of free labor, the more ignorant them out, increases the profits of and inert the individual laborer, the successful employers, as a the lower may be the quality of class, by enhancing the cost of the men who can just sustain production and, consequently, the themselves in the position of em- price of that portion of the supply ployers. Men become the employers which is produced at the greatest of cheap labor who would never disadvantage. This enhancement become the employers of dear of price is at the expense of all labor, and who ought not to be the who consume the goods so pro- employers of any sort of labor. duced; the laboring class equally The more active becomes the com- with others, in theory; probably petition among the wages class, in fact more than any other, on the more prompt their resort to account of their limited ability to market, the more persistent their look out for their own interests in demand for every possible in- retail trade. crease of remuneration, the greater will be the pressure Causes of Incompetency brought to bear upon such em- What causes help to swell the ployers to drop out of the place proportion of incompetent em- into which they have crowded ployers of labor ? Shilly-shally laws themselves at the cost of the gen- relating to insolvency do this; bad eral community, and where they money does this; truck does this; have been able to maintain them- protection, in my judgment, does selves only because the working this. Each of these causes enables classes have failed, through ig- men to escape the consequences of norance or inertia, to exact their incompetency, and to hang miser- full terms. : * oo ===== PAGE 16 ===== STRIKERS are BOUND to LOSE Some Lessons the Steel Strike Didn't Teach PAUL L. POIROT A MAJOR STRIKE, such as the re- by John Chamberlain on pages 5-9 cent one by steelworkers, focuses of this issue of THE FREEMAN.) attention on the corruption of Walker's irrefutable observa- union leadership, the unwarranted tion is that profits are taken out violence attending strike action, of costs —not added to prices. The and the impropriety of compulsory more steel profitably produced, the union membership. Indeed, such a greater will be the downward com- strike might even spark legislative petitive pressure on steel prices, action to withdraw or qualify to tending to squeeze out of business some degree the monopolistic the least efficient managers, the powers granted labor unions high-cost marginal producers. through earlier legislation. These ‘“no-profit” producers can On the other hand, the steel- least afford to pay high wages, and workers will have had a sounding therefore tend to hire the least board for their resentment of the efficient workmen, yet their mar- high salaries paid to management ginal production at high cost de- officials of the various steel com- termines not only the price of steel panies and the profits earned by for the entire industry but also the most successfully managed op- the level of wages that will be erations. paid to all steelworkers. But the charges and counter- If this point were understood by charges and emotional and physi- steelworkers, it would revolution- cal disturbances of a strike throw ize the entire concept and modus no light whatsoever on a funda- operandi of unionism. Industry- mental issue raised by General wide bargaining, with insistence Francis Amasa Walker long be- that every steel company sign an fore there was either a U.S. Steel identical contract, should be the or a steelworkers union. (See the last thing any self-respecting excerpts from his writings on steelworker would want. For he pages 10-18 and the related article would see that under such an ar- 14 ===== PAGE 17 ===== 1959 STRIKERS ARE BOUND TO LOSE 15 rangement his own wage, regard- higher wages in order to obtain less of his skill and productivity, and hold the best workmen. couldn’t possibly rise above the According to Walker’s view, the wages paid to the least efficient trend has been entirely in the workmen by the “no-profit” man- wrong direction — and organized agers. labor has spearheaded that drive, The enlightened steelworker to the grave detriment of society would start seeking a new type of generally and to the injury of all union leader. Indeed, he would but the least worthy of its own turn for leadership to the very membership. The effect of indus- man the union bosses have been try-wide bargaining has been to most vigorously denouncing: the perpetuate in business the “no- highest paid executive of the most profit” steel operators, whose high profitable steel company in the costs hold steel prices up and steel- business. This manager’s record workers’ wages down. shows that he is most capable of The same results are obtained cutting costs. This means that he through featherbedding and slow- could afford to offer the highest downs and absenteeism and all the wages in the industry for the most other union devices that tend to highly skilled workmen, and that equalize the output of a good he would actually do that very workman and a poor one-— of thing — if the union would let him profitable management and “no — in order to maximize the profit- profit” management. The result is ability of his business. less steel at higher prices and at If steelworkers want to be more lower wages than would otherwise highly paid, the surest way is to be effected through active compe- produce more steel, at greater tition. profit to the company (which Other equalizing devices that means at lower costs). The more work in the same general direction this can be done, the more will the are minimum wage legislation; “no-profit” managers and compa- unemployment compensations nies be chased out of their un- that have been forced toward worthy undertakings. Then, and prevailing wage rates; excess only then, can the market prices of profits taxes that deprive the suc- steel decline in response to keener cessful of the rewards for cost re- competition. And not until that duction and of the means and in- happens will there be any great centive for expansion; the arbi- requirement upon or incentive for trary awarding of government successful management to pay contracts to companies that “need ===== PAGE 18 ===== 16 THE FREEMAN October help” — indeed, the whole ‘ca- light struck in the nineteenth cen- boodle” of welfare state practices, tury by men such as Walker still which generally have had ample flickers — ready to show the way support from organized labor. to labor union members, the Amer- ican public, anyone who has had These are a few of the things enough of coercive political man- upon which the recent steel strike agement of his life and who seeks shed little light, if any. But the a better alternative. eo 0 LEARNING by DOING ~~ =» somes IDEAS made possible our nation’s growth. We are a venturesome, valor- ous, risk-taking people who backed ideas with savings. If the labor unions would back their ideas with the money collected from their dues-paying members and, instead of striking against bus- iness, go into a business for themselves and prove that they can operate it — can run full time at all times, pay higher wages than present man- agement, have shorter hours, better working conditions, and make enough money to keep operating and pay their shareowners (dues pay- ers) a fair return on their investment — they would get a better edu- cation in the relationship of profits to jobs and job security, to the standard of living, and of productivity to wage increases. Steel men, automobile men, coal mining men, mill owners, and hun- dreds of others have twitted unions to make good their claims to buy a company, run it, and prove they can do so better than those they now criticize and strike against. It’s wide open, and all can step in and try it. But, Mr. Unionman, don’t overlook the 52 per cent federal tax on profits. The big unions are reported to have millions of dollars on hand. Why not buy a company, and run it, and prove that wages can be increased without setting the stage for higher inflation? Mr. Hutton is the well-known industrialist, investment banker, and author of the column, “Think It Through.” ===== PAGE 19 ===== 0 5 80° gb®, “ 1965 q64 OPTIMISM is a wonderful attitude but only to the point where it be- gins to blind us to realities for which real solutions need be found. As an example of what may be over-optimism we are told again and again that “the sixties” will usher in the most fabulous wave of prosperity we have ever enjoyed — 80 relax, and enjoy it. In one form or another this theme is being drummed by writers and other assorted observers. Recently, following the usual banquet fare, I heard an unusually talented speaker not only make the prophecy but support it with a number of detailed reasons which deserve our attention. But if I un- derstood him, three of his five prin- cipal reasons would actually work against prosperity, while the other two would have little meaning un- less accompanied by the prime ad- junct to prosperity — the creation of the tools of production! Let's take a look at the reasoning which Mr. Dykes is an architect from Canton, Ohio. E. W. DYKES ENJOY YOURSELVES!” dominates the optimistic view of prosperity unlimited. REASON #1: “There is an unprec- edented increase in our birth rate and population.” If this reason were valid, the people of China and India would be enjoying a prosperity so fabu- lous it would put ours to shame. Ask any family man if having an- other mouth to feed makes him thereby more prosperous. Clearly, quite the opposite is true. The increase in population, if present levels of living are to be maintained, means that capital in- vestment must be sufficient not only to replace obsolete tools but also to provide all the tools needed by all the persons added to the population. Five million new job holders, for instance, would re- quire tools costing between 50 and 75 billion dollars at today’s prices — plus billions more to cover obso- lescence — all this just to stay even. To increase living standards would 17 ===== PAGE 20 ===== 18 THE FREEMAN October require still further investment in have created truly productive and tools. An arbitrary increase in lasting jobs for the unemployed. tools, say $1,000 more per job To test this idea of “full em- holder, would call for an additional ployment,” why not cancel all 75 billion dollar investment. Since freight runs of the Pennsylvania all this could come only from sav- Railroad and give jobs to the un- ings, the enormity of the task is employed to carry the freight on obvious. their backs from New York to Chicago and points between ? If we REASON #2: “Both political parties used all the unemployed people in now are committed to the principle the world, we might still be short of ‘Full Employment.’” of freight-carrying ability. But Again let’s look at India and they would be “fully employed.” China. About nine persons out of Political parties, because of ten in these countries, including their mischief in the past, now children, are busily engaged have a job to do for full produc- scratching a bare living from the tion: remove the roadblocks to soil while one of ten is left for all investment which take the form of other forms of production. This confiscatory taxation — take away preponderant number of ‘“farm- the barriers to incentive — do away ers” is due to their primitive with thelaws which give one group production methods. Full employ- of citizens unfair advantages in ment means little unless accom- “bargaining” with other citizens. panied by full production. Full pro- And then let them stay out of the duction flows from the most effi- business world entirely. That cient use of the best known tools. would be a real service. Full employment in those countries does not make the people wealthy. REASON #3: “We are in a period Actually, political parties, as of controlled but continuous infla- such, have no control over “full tion.” production.” Politicians always Inflation, “controlled’ or other- speak of ‘full employment” —not wise, is a deterrent to savers and “full production.” It is possible for therefore to investment in the cap- the political party in power to ital tools which increase produc- “make” work to employ persons, tion. Few threats to prosperity and the taxing power even yields are greater than that insidious rob- capital for such a purpose. How- ber which is inflation. When per- ever, it is capital which, in the sons are aware that their savings hands of its rightful owners, might are losing value, they become ===== PAGE 21 ===== 1959 “RELAX ...ENJOY YOURSELVES!” 19 spenders rather than savers. Americans, just because they Strangely, it is often our chief ex- are Americans, are not endowed ecutive or high government offi- with superman qualities. Freedom cials who warn us about inflation of the individual to invest, to in- —yet only the Congress can do vent, to keep most of the fruits anything about it. And very of his own labor is the factor which simply, too. Just balance the bud- has made Americans appear to be get — that’s all.’ For all practical so energetic and ingenious. Recent purposes, inflation would end. political activity has done little but chop away at the basic Ameri- REASON #4: “Automation will in- can freedoms. It follows, of course, crease the country’s productive that only damage can result from capacity so much that employees such political activities instigated, will have shorter hours and higher as always, “for the common good.” pay.” In summary, then, may it be This is true —if —if the im- suggested that the large quantity mense sums of money necessary to of invested capital per unit of pop- produce such equipment are made ulation primarily accounts for our available. Neither political party high level of living. With bare has a record with respect to tax hands we could do no more, per- policies which encourage such sav- haps less, than savages can do. If ings and investment. If the money there are more of us, it takes that is not forthcoming, then automa- much more capital. Automation, tion, for the most part, will be a truly the wave of the future, re- dream. Politicians, labor leaders, quires fantastic investments. Few and citizens generally need to rec- of the spokesmen in either political ognize this fact; most business- party show any signs of under- men already know it. standing this basic economic fun- damental, much less doing any- REASON #5: “.... Because of the thing about it. They often refer tremendous capacity, energy, and to our “free enterprise system,” ingenuity of the American people.” which is anything but free. What is needed, truly, is a return to the 1Balancing the federal budget, of course, free market, a cessation of deficit would require some cooperation from the financing, abolition of the progres- constituents of congressmen, For a fur- sive tax, and a whole new outlook ther discussion of this point, see “Naive . . Nervousness” by Leonard Read in the oriented toward opportunity as the August 1959 FREEMAN, page 32. best path to security. * oo ===== PAGE 22 ===== QELECTING PRECIDENTC FREDERICK A. MANCHESTER * Dr. Manchester views a timely sub- an enormous change must take place in ject from still another angle (see his the political outlook of a sufficient num- “Apropos of the Presidency” in The ber of us to constitute a prevailing in- Freeman for June 1959), and argues fluence, direct and indirect, in the for what is in essentials the Constitu- councils of government; and this change, tional method of choosing our Chief Ex- as you of The Freeman never tire of ecutive. Commenting on the present insisting, can come about only through article, he says: “I am of course under a process of education. I should like to no illusion, as I trust I make plain, that think that in this process the survey of my plan, or any other closely resembling an important topic I here make, and it, will be put into practice in the im- the considerations I assemble and bring mediate future. Before that can happen, forward, might play a useful part.” 20 ===== PAGE 23 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 21 JUST ONE MORE of our involuntary, convention, It is this body which unplanned trips around the sun, selects a party candidate for Pres- and we in America shall be en- ident — and also a party candidate gaged in an act of literally incal- for Vice-President. culable importance. We shall be The convention has a set pro- selecting our next President. Over gram. It disposes of various rou- the years a particular way of do- tine matters, adopts a statement of ing this has developed, one which party policy, called a platform, has grown so familiar that we are which probably few read and fewer likely to take it for granted, good- take seriously, and finally gets to naturedly tolerate its half-realized its principal business. In a book defects, and fail to consider published in 1924 a former Solici- whether another and better may tor General of the United States not be found. Perhaps the surest describes the convention of his stimulus to reflection upon this time: topic is a fresh, frank look at the Twenty thousand men and women established procedure. are gathered in a great hall to wit- This has two main stages: first, ness the so-called “deliberations” of the nominating of candidates; sec- the representatives of a political ond, the choosing from among the party. Everything is done to give to candidates in a popular election. such a convention the character of a vulgar hippodrome. .. . When nomi- Nominations by Politicians nations are made, a hysterical speech TI . is bawled out through the media of The pominating. is done neither amplifiers, and then follows an or- by the nation, nor by the states, ganized and purely mechanical dem- nor by any agency of either, but onstration, whose purpose is to sur- by voluntary associations of voters, pass all past records in prolonged of fluctuating membership, known and meaningless noise. Men with stop as political parties. These vary in watches keep the record of the vocif- number, but two have long pre- erous cheering as though it were a dominated, the Democratic and horse race, and upon the.faintest in- the Republican. Each of these has dication that it is diminishing all an organization in each state, as manner of circus tactics are resorted well as a national organization, © % keep up the enthusiasm. When d h stat ati d previous records of meaningless noise and each state organization S€nds y,.. peen shattered the vocal volume delegates of its own choosing, or reluctantly permitted to die down. else delegates chosen by party No votes are influenced, and all that voters in a primary election, t0 a has been accomplished is a meaning- convention known as a nominating less spectacle, at which the world ===== PAGE 24 ===== 22 THE FREEMAN October stands in amazement. If Washington An Earlier Philadelphia Convention or Franklin were to visit such an as- And no wonder! As the Times sembly of either of the two historic reporter observes, “the electric parties of American politics, would claque had come into its own.” One they not gaze at each other In stupe- Lo0allg by contrast the conditions faction and say: “Is this Bedlam, or . . _ is it Americal under which an earlier political convention performed its duties. Had the great men just men- The Constitutional Convention of tioned been at the Democratic 1787 met in the Pennsylvania State Convention of 1924 at the moment House in Philadelphia, and during when Franklin D. Roosevelt fin- its use of this building, according ished nominating Alfred E. Smith, to a local annalist, “the Chestnut their answer to the question, “Is Street pavement was covered with this Bedlam, or is it America?” earth to silence the rumble of could hardly have been doubtful. wheels.” The times seem changed Times, June 27, reported: But this, after all, is hardly fair. The Philadelphia convention as- The fingers pressed the buttons. gembled to deliberate, and as a The contact was made. Volcanoes of oopyention it deliberated. The mod- sound burst forth, shrill, unearthly, ern nominating convention pro- and horrible. It was a sereech of ceeds otherwise. “While the dele- charging squadrons of ambulances t d onlook bei and speeding hook-and-ladder trucks, gates an onlookers are eng te entertained . . . the real business a mingled racket which New Yorkers } ) ; associate with falling buildings, six- ©f the convention is being trans- alarm fires, elevated collisions, Black acted elsewhere behind closed Tom explosions, and other great ca- doors. From the time that the first lamities. Men and women . .. leaped delegations arrive until the final to their feet and staggered about, ballots are cast, the aspirants [to shell-shocked. Although the Garden the nomination for President), was crowded and seats at a premium, scores rushed out and never came back.2 their managers, and the leaders of delegations are engaged in con- tinuous conferences and negotia- ‘Beck, James M., The Constitution of the tions. It is here that the final United States. Revised and with addi- strategy of the battle is agreed tional material by James Truslow Adams. —— Garden City, N. Y.: Doubleday, Doran & Academy of Political and Social Science, Company, Inc., 1941, p, 234, Vol. 259: Parties and Politics: 1948 Graper, Elmer D. “How Presidents Are (Philadelphia, 1948), footnote, pp. 601. Nominated.” The Annals of the American *Beck, op. cit., p. 303. ===== PAGE 25 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 23 upon, the promises given and ex- could be talked with later. Farley acted, and the deals arranged.” was given the job of telephoning On occasion, it appears, the lo- Hearst at his Sam Simeon ranch in cale of “deals,” as in the follow- California. He did it. Straight to ing instance, may extend far be- Hearst went the Roosevelt argument that “if don't take m ill yond the ‘closed doors,” and im- at ‘if you don't take me you wi nfl b d get Smith or Baker.” That was no portant influence may be exerte news to Hearst; he had foreseen that by a person having no connection poipility. He preferred Roosevelt to whatsoever with the official nomi- gither of the other two. nating agency. We owe to Henry Two hours later Paul Block, the L. Stoddard’s It Costs To Be Presi- well-known publisher, and I sat in dent this circumstantial account of his room for a good-night exchange certain events which took place in of opinion. He then said that he had connection with the Democratic been talking over the telephone with Nominating Convention of 1932 W. R.” and that a deal had been (the passage is long, but so vari- arranged by which the 69 Texas and p ’ . California delegates, after compli- ously and eloquently suggestive } ; ... menting Garner on two or three that I hestitate to abbreviate it) : pajots, would swing to Roosevelt. He added that Garner would go on the Roosevelt realized that he must ticket as Vice-President and McAdoo make a drastic move. He had to have 445 to have no opposition in Cali- aid. fornia for the Democratic nomina- There was just one man who could tion for U. S. Senator. supply enough votes in a bunch to The news was in confidence, how- insure success. That man was Wil- ever for Hearst, of course, had no liam Randolph Hearst. He was spon- power to release delegates pledged to sor for the John Nance Garner boom. any candidate. That was for Garner He had persuaded the Texas Con- and McAdoo to do. Hearst, however, gressman into the race and had undertook to talk with both of them aided him to carry the Texas delega- and with Mayor Cermak of Chicago, tion. He was solely responsible for who controlled the Illinois delegation. defeating Roosevelt in the California He persuaded all three that after a primaries, and for instructing the few ballots they should turn to Golden Gate delegates, headed by Roosevelt, and they did.5 William Gibbs McAdoo, for Garner. Roosevelt knew that there was no Roosevelt of course got what he need to open negotiations with ,nted. Garner and his lieutenants; the real isi i —- . decision was with Hearst —the others *Norton, Thomas James. Undermining —_— the Constitution. New York: The Devin- ‘Graper, op. cit., p. 61, Adair Company, 1950. pp. 285f. ===== PAGE 26 ===== 24 THE FREEMAN October Harry S. Truman’s nomination be prepared for the following for the Vice-Presidency led him statement: swiftly to the Presidency. How did it come about? In theory the convention delegates a ! who nominate the candidates are the representatives of the party voters, but in practice they are pawns in the complicated game of party poli- tics played by powerful state party It was by the action of a group of bosses who did not like Henry Wallace that Harry Truman became the Democratic candidate for Vice- p President in 1944. Edward J. Flynn, DoSSes who frankly calls himself a boss, The November Choice gave his version of the events in his remarkable book, You're the Boss. The second stage in the current Flynn, at the direction of President process of selecting Presidents is Roosevelt, got together a sort of com- the November election. In this the mittee of bosses and other politicians people choose, not necessarily the to consider the candidate for Vice- man they would like for their President. Among them were Robert Chief Executive, but the one they Hannegan of St. Louis, Edward J, prefer among the candidates Kelly of Chicago, and Flynn. “The . named by the party conventions. question of Senator Truman’s asso- M Ke their choi ciation with the Pendergast machine any make their choice for rea- was thoroughly discussed,” wrote Sons intelligently and conscien- Flynn, and “he just dropped into the tiously arrived at on the basis of slot.”¢ adequate knowledge — but few will think that these constitute more than a minor fraction of the vot- ing electorate. Who has not wryly reflected, at one time or another, that the considered decision he registers at the polls is certain to be canceled over and over again by the utterly incompetent? “Rea- son has small effect upon num- It is worth remarking that in the curious ways just related we obtained two recent Presidents whose administrations witnessed, or confirmed, revolutionary changes in our mode of government. As to the role played by rank- and-file delegates to national nominating conventions, we have __ now perhaps inferred enough to ‘'Graper, op. cit, p. 53. A prominent —_— weekly (June 22, 1959) remarks regard- McKean, Dayton David. “Political Ma- ing a contest between two aspirants for chines and National Elections.” The An- the 1960 Republican Presidential nomi- nals of the American Academy of Politi- nation: “Outcome will depend upon deci- cal and Social Science, Vol. 260: Parties sion by the party's political leaders on and Politics: 1048 (Philadelphia, 1948), who is most likely to win.” Where, then, p. 46. do the convention delegates come in? ===== PAGE 27 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 25 bers,” said Lord Bolingbroke long At one level he has the “respon- ago: “a turn of imagination, often sibility for a certain amount of as violent and as sudden as a gust ‘entertaining,’ as witness the of wind, determines their con- neighborhood club, the picnics and duct.”® A. L. Rowse (writing in clambakes, and the free beer.” He 1947) describes as the ‘“Ration- makes himself the ever-ready alist Fallacy in political thinking” friend. He “provides food, clothing, the “assumption that human be- coal, and rent or lodging to his ings largely act in politics upon needy constituents. He manifests rational motives and trains of in- an interest in children by helping telligent reasoning.” His comment widowed mothers secure pensions, is trenchant: “We in our time, by arranging for the adoption of alas, know what fatuous nonsense children, by procuring birth cer- this is. The whole life of the so- tificates or work certificates”; he ciety of our time is strewn with serves “as family adjuster, espe- ocular demonstrations of its fal- cially when the ways of the for- sity.”? eign-born parent clash with those of his American-born child.” He is The Precinct Worker on hand in illness and bereavement Now if anyone has the courage with “warm sympathy and good to face universal suffrage at its fellowship,” and as he “mourns worst, I invite him to learn about with his neighbors, so he rejoices the activities of the party precinct with them by attending weddings worker in the less prosperous and sometimes christenings.”” But areas of our great cities.’® This enough of such detail. He is, one man’s function is to get and hold sees, kindness itself. votes for his party. To this end Against the hospitality and the he labors not merely at election benevolence thus far suggested, time but the whole year round. what can one say? Nothing, noth- Let us glimpse at him on his job. ing at all — apart from the pri- *Wallas, Graham. Human Nature in Poli- mary, impelling, essentially illegit- tics. London; Constable & Company, Ltd., imate and shameful motive. But 1948. p. 174, there is a lower level. Here the *Foreword to Wallas, op. cit., pp. xiii-iv. precinct worker, in the interest of YThe brief account that follows makes his constituents, tampers with the free use of “The Precinct Worker,” by law. One way of doing this is to . ) , and Social Science, Vol. 259: Parties and ticularly subject” to this amiable Politics: 1948 (Philadelphia, 1948). and brazen art is bail. ===== PAGE 28 ===== 26 THE FREEMAN October The “fix” sometimes starts with coming more desperate as the day the police officers, the janitors of the approaches when he must prove to court, the clerks, or bailiffs. The trail the party that he has been working. may lead through the ward commit- He draws upon additional aides in teeman to the judge, in all cases de- his campaign, i.e., canvassers, party pending upon the influence of the challengers, and, in malodorous pre- fixer and the power of his party. For cincts, impersonators, ballot-treaters, minor offenses in the local police sta- “floaters,” or “repeaters.” ... [Money tion, some precinct workers find the is spent on] hiring “strong-arm men” promise of a few dollars to an offi- to intimidate, or hiring extra work- cial or the assurance of a job to an ers, with or without legitimate func- ordinary “cop” sufficient to do the tions, but specifically to get their trick. When more serious offenses are votes. It is evident that one-fourth involved, the judge is reached to one-third of the campaign ex- through the bailiff or by a party rep- penses are used for this purpose resentative higher in the hierarchy, alone. The price for the vote ranges who has power to threaten the de- from $3.00 to $5.00 or sometimes as feat of the judge in the next election little as “two bits.” if the “fix” d t th h. ! ¢ “hxs does not go throug But enough of all this, too. There Is there a lower level still? Let are things at which one may pre- the reader judge. In lodging house fer only to glance — then pass on areas — quickly. Just how many meaningless votes our big cities cast in an elec- tion — votes seduced by good deeds, Votes are bargained for in blocks through the owners of the “hobo” hotels. . . . In Chicago, the precinct he d for illicit £ d captain chooses the men and women SXChanged tor iilicit favors, fraud- he desires as election officials, then ulently manipulated, falsely submits the list to the ward commit- counted, bought for a price, or ex- teeman, who in turn conveys these torted by threat of bodily harm lists to the bipartisan Board of Elec- (remember the ‘strong-arm tion Commissioners, which after a men”?) — one can only guess; but perfunctory examination of these of- there would seem little doubt that ficials, appoints them. In the more j, , close Presidential election congested or river arcas, the election they might be quite sufficient, by officials are not too infrequently pick- . themselves, to determine our next pockets, card sharks, confidence-game \ . . . Chief Executive, and in so doing men, or criminals, skilled in the art f of manipulating, effacing, or mis- to shape in no small degree our counting ballots. . . . The precinct national destiny. worker . . . smells out votes as a Such, then, is our present way terrier tracks a rat, his methods be- of selecting Presidents: a nomina- ===== PAGE 29 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 27 tion of candidates by means that habitant of the same state are never to be commended, and with themselves. In accordance that may at times be grotesquely with prescribed rules, the results offensive; a popular election in of the balloting are reported to which the outcome may be de- Washington and there examined. cided — no one can say how often The person getting the greatest — by voters who are completely ir- number of votes for President be- responsible, comes President — provided the number is a majority of the whole A Suggested Better Way number of electors appointed; if My title promises mention of a no one gets such a majority, then better way. One is entitled to from the persons having the high- question, I think, whether there est numbers of votes, not exceed- could be a worse. At any rate, I ing three, “the House of Repre- consider myself immune to charges sentatives shall choose immedi- of immodesty — particularly so ately, by ballot, the President. But since what I have to offer is no in choosing the President, the invention of my own but the votes shall be taken by states, the method devised by no less eminent representation from each state a body than the Constitutional having one vote; a quorum for Convention of 1787. this purpose shall consist of a By this method, the choice of member or members from two- both President and Vice-President thirds of the states, and a ma- is made entirely (save in circum- jority of all the states shall be stances indicated below) by elec- necessary to a choice.” tors appointed by the states in The Vice-Presidency is not here such manner as the respective leg- our special concern, but it may be islatures may direct, each state added that if no one is named for being entitled to as many as it has this office by a majority of all the senators and representatives in electors appointed, then from the Congress — but no United States two persons receiving the highest Senator or Representative, or per- number of votes the Senate, gov- son holding an office of trust or erned by certain rules, makes the profit under the United States, can final selection.l! be an elector. The electors meet in The method outlined is the original their respective states and vote by jethod as amended, but not basically ballot for President, and in a dis- changed, in 1804. The electoral college is tinet ballot for Vice-President — retained in our present method, but for . . the most part in form only. In any given one of the two not being an in- state — some states in one particular ex- ===== PAGE 30 ===== 28 THE FREEMAN October If a layman may venture into President than has hitherto pre- such a matter, I would suggest vailed. that in one respect the Constitu- The grounds for this hope are tional provision that the electors many, but chiefly that the method be appointed by the states, in such is one of hierarchical selection. The manner as the respective legisla- total, unsifted electorate of each tures may direct, might well be of the states selects the members made more specific. I should like of its legislature. The legislature the appointment to be made di- in turn selects from the state as a rectly by the legislature (as before whole the Presidential electors. 1832 was much done), with the re- These electors — who may reason- striction that at least one-half of ably be expected, in general, to be those chosen should be persons outstanding citizens, especially in- holding no governmental office, formed, intelligent, discerning; federal or state, of any kind. The and to be honorably sensitive to restriction would bring a com- the trust reposed in them — in pletely unofficial, nonpolitical point their turn select the man who in of view into the selection of Presi- their belief would best serve the dents and eliminate one common nation as President. The members type of improper influence. of the legislature directly, the electors indirectly, represent all of us, so that “the sense of the peo- My better way is, then, the Con- ple’ (Alexander Hamilton's stitutional way, with only a minor phrase) has come into operation.!2 modification. How is it superior? Thus is exhibited in the choice of Above all, in the hope it inspires President the great representative that by its use we may obtain, in principle — a principle basic in our general, a far higher quality of Constitution.!3 As Provided in the Constitution *The phrase quoted — together with the cepted (see below) — each party makes P ( ) en party quotations from Hamilton that appear up a slate of the number of electors per- h ’ mitted, and if in that state it wins the later —is from The Federalist, No. election, then the electors it has named LXVIIL automatically vote for its candidates for ‘It is this principle, before all else, that President and Vice-President. The states should characterize any method of select- excepted above arc at least five in num- ing Presidents that is substituted for the ber. In these the Democratic Presidential ~~ one now in use. The aversion of the Con- electors are not required to support the stitution to direct democracy is obvious, national party’s Presidential ticket. (See and it is the more impressive when one syndicated column of Fulton Lewis, Jr.,, considers that suffrage in eighteenth- dated June 283, 1959 — reprinted in The century America was far from universal, Independent American for June-July, During the Revolutionary period “hardly 1959.) more than 3 per cent” of the total popu- ===== PAGE 31 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 29 Apart from its authentic em- whether he will be thought to have bodiment of this principle, the a witching voice, a taking smile, electoral system designed by the glamor, charm. In short, he would Constitution has, in comparison be free to select a man who comes with the present nominating con- from politically the most insignifi- vention, certain special merits. The cant spot in the nation, whose ex- electors, meeting in the several cellence lies well below the surface, states, act (in Hamilton's words) invisible to the crowd, who would “under circumstances favorable to unquestionably make a distin- deliberation, and to a judicious guished President—but who would combination of all the reasons and be likely to run an exceedingly inducements” which are to govern, poor second in any popular elec- their choice; under circumstances, tion. moreover, affording the least pos- : sible opportunity for deals and Other Advantages counter-deals, corruption, and in- But not only would the Consti- trigue. Further, the choice open to tutional plan tend to give us great an elector is not limited by many Presidents — genuinely educated considerations, intrinsically ir- Presidents, wise Presidents — it relevant, that may influence de- would secure at least a half-dozen cisions in nominating conventions. other advantages. He does not need to ask whether 1. It would keep the executive a man he. thinks of voting for branch of the national government comes from a politically auspi- separate from the legislative cious section of the country, or branch, and completely indepen- from a populous or otherwise dent of it — as was clearly desired strategic state, whether his face is by the Founding Fathers. Why familiar to every newspaper reader else the restriction in the Consti- in the land, whether he is a past- tution that no Senator or Repre- master in all “the little arts of sentative could be an elector? But popularity” (Hamilton’s phrase), what have we now? Let us glance —_— : at one item of the record. ly nd Tp rare gb In the Republican National Con- of American Government. New York: vention of 1920, which of course, most states to male owners of a freehold dent, ‘there were 18 Senators who estate in land, with here and there had [had] themselves chosen as property of other sorts or payment of delegates from nine states, and 4 taxes serving as an alternative.”—Ibid., : . p. 121. » tL - more who were chosen singly from ===== PAGE 32 ===== 30 THE FREEMAN October different states. — The Senators represented, or assumed to repre- sent, 400 of 984 delegates. — Sena- tor Lodge of Massachusetts was Chairman of the Convention.” Could there be a more obvious flouting of the spirit of the Con- stitution? 2. The Constitutional plan would tend to keep the President free from miscellaneous, extra-legisla- tive entanglements, whether orig- inated by his agents and henchmen or by himself. He would have made no promises of office in exchange for financial or other support. He would have placed himself under obligation to no faction or special interest. He would have entered into no preposterous agreement with members of any Thousand Dollar Club contributing to his campaign that each of them “would be taken into the councils of the government.” 19 3. The plan would put an end to the apparent ease with which a President, competent or not, can bring about his own nomination for a second term. The Constitu- tionally chosen electors would have no special reason for wanting to continue a President in office, and would be expected to do so only in case he had made an excellent rec- ord — a consideration that would work especially to put every in- “Norton, op. cit., p. 270. 1bid., p. 280. coming President on his mettle. At the expiration of every four years freshly appointed men and women would be at perfect liberty to se- lect from the entire nation — the current President of course in- cluded — the man they believed best fitted for the office. 4. The plan would have the effect — a probably desirable one in our system — of enhancing the inde- pendence and importance of na- tional party organizations and their leaders. The national party conventions, relieved of the nomi- nating function, disburdened in consequence of a horde of curious spectators, quietly deliberative at last, could devote themselves mainly to the drawing up of their platforms. These statements of policy, no longer competing in the election campaign with the speeches of Presidential candidates, would become centers of a new and vivid interest. Party leaders, in and out of Congress, many now little known to the general public, would be the natural and only spokesmen for their organizations, and in this ca- pacity would enjoy a degree of at- tention that few would have pre- viously experienced, and fewer still would be likely to resent. 5. The plan would assure at all times a proper emphasis on the highly important state and local elections. As things stand now, every four years the election of a ===== PAGE 33 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 31 Chief Executive tends to push into self with maximum disinterested- the background minor positions ness to the general welfare.10 and minor issues and so lessen the public attention bestowed upon Possible Objections them. To say that such and such I have indicated some of the ar- men rode into office on the coat- guments in support of the Consti- tails of a popular candidate for tutional plan, but thus far I have President — what a comment on said nothing of possible — or ac- the soundness, in the instances tual — objections to it. concerned, of our electoral ma- One of these is doubtless ines- chinery! capable: it did not work. But to 6. The plan would confer on the this the answer is easy. As I once Presidency an elevation and a dig- heard G. Lowes Dickinson say of nity which now it can scarcely Christianity, it was never tried. possess. Its occupant would not The electoral college, as the elec- have involved himself in pre-con- tors have been collectively called, vention struggles for delegates ‘died before it was born. It never (why, incidentally, if delegates are had an opportunity of selecting a really to deliberate on and choose President in the way intended. In candidates, should they be induced the first two elections the members to commit themselves, months per- did not need to make a decision. In haps, in advance?) ; nor would he every subsequent election the deci- have excited animosities in a tur- sion was made for them, and even- bulent and possibly scurrilous cam- tually no man was chosen for the paign. It would thus be easy for job unless he were certain to con- him to become, as Washington form to the dictates of the was, President of all the people. It party.”'” In the Constitutional is true that before he was chosen Convention, we are told, “there for the office, he would doubtless may have been a vague idea of have been associated with one or political parties, but certainly other of the major parties; but there was no conception of the when he entered upon his duties, party organization that was to he would certainly, as the superior twist to its own devices the care- man we presume him to be, divest himself so far as was humanly pos- '"He would not award 185 federal judge- sible of party prejudices and pre- en Novton. emer ois own Possessions, fenction on 4 plane "MacBride, Roger Lea. The American above the tumult of party strife giectoral College. Caldwell, Idaho: The and antagonisms, and devote him- Caxton Printers, Ltd., 1953. p. 29. ===== PAGE 34 ===== 32 THE FREEMAN October fully devised scheme of the con- things done in the convention the vention.””'® Comment would seem members seemed to have been superfluous. The latest Cadillac prouder of that than of any other, cannot be expected to get you to and they seemed to regard it as your destination if you begin by having solved the problem for any wrecking its engine. country of how to choose a chief magistrate.”2? Even contemporary A Utopian Scheme? adverse critics of the Constitution Another objection is that the were impressed. “The mode of ap- scheme is utopian. “But it is com- pointment of the Chief Magistrate mon knowledge,” writes a political of the United States is almost the scientist previously quoted, “that only part of the system, of any | the utopian plan of the fram- consequence, which has escaped ers. . ..”!” Now “utopian” means without severe censure, or which “pertaining to nowhere,” and to has received the slightest mark of call a plan utopian is to say that approbation from its opponents.” it is impracticable, a mere product Thus Hamilton. of the fancy, the sort of thing only What Hamilton himself, perhaps the naive might be expected to the most brilliant man in the en- take seriously. What then, one is tire membership of the Conven- curious to inquire, can have been tion, thought of the plan, he has the credentials of a scheme that made plain. “I... hesitate not to can thus be so casually con- affirm, that if the manner of it be demned ? Let us see. not perfect, it is at least excellent. Among the distinguished mem- It unites in an eminent degree all bers of the Convention that con- the advantages, the union of ceived the plan was Benjamin which was to be wished for.” And, Franklin, whose reputation for further: “The process of election sheer practicality probably exceeds affords a moral certainty, that the that of any other modern man. office of President will never fall Moreover, how the President to the lot of any man who is not should be chosen was a difficult in an eminent degree endowed question much before the Conven- with the requisite qualifications. tion. Of the compromise plan fi- . .. It will not be too strong to nally adopted it is said that “of all say, that there will be a constant Farrand, Max. The Framing of the probability of seeing the station Constitution of the United States. New filled by characters pre-eminent Haven: Yale University Press, 1930. pp. ees . ’ 170¢. for ability and virtue. “Graper, op. cit., p. 53, “Farrand, op. cit., p. 175. ===== PAGE 35 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 33 Somehow, in the face of such electoral system is a memorable credentials as these, it would seem remark he makes fifty pages later prudent not to dismiss any plan as in his book. “Time may yet vindi- utopian — especially a plan that cate the theory of the framers,” has never been tried. he says, “that the limit of democ- racy is the selection of true and What Democratic Genius? tried representatives.”?? Some of Another objection is voiced by us would venture to suggest that James M. Beck in his The Consti- the potential vindication has al- tution of the United States. The ready taken place. Constitutional plan was “alto- Again, it may be urged that the gether alien,” he says, “to the President must lead his party, and democratic genius of the Ameri- that this function is inconsistent can people.” In the matter “of the with the Constitutional plan for chief magistrate ... the American his election. A book on American people, - with their democratic in- government regards this function stincts, would never have tolerated as important, and as more or less any plan that was not in substance a by-product of the President’s and in fact a direct election by Constitutional position.23 Now it the people.”’2! is not clear that it is important, if As to the democratic genius of by this is meant important to the the American people, one may office of President, and it is less fairly inquire, What American clear that it is a by-product of the people? — inasmuch as our na- President’s Constitutional posi- tional character has undergone no tion. Political parties are unknown little alteration in the century and to the Constitution and therefore a half, and more, since the fram- were certainly not considered nec- ing of the Constitution, and is essary to its operation; and there still in process of change. If the would seem to be no law in nature democratic genius referred to is requiring that when parties devel- anything like universally present, oped one of them should be led by as one of our marked traits, it the man chosen for President. The must not be confined to the Eng- fact that a certain institution or lish people but distributed pretty custom has grown up does not widely among all the races and na- necessarily mean that its growth tions of the globe. However, per- was either inevitable or desirable, haps a more significant comment “Ibid. pp. 183£. on Beck’s melancholy view of the 50gg and Ray, op. cit. (footnote no. 13), “Beck, op. cit., pp. 133f. p. 295. ===== PAGE 36 ===== 34 THE FREEMAN October nor that a better might not have Chief Legislator, as the Constitu- developed in its place. tion certainly did not intend. Once the President has withdrawn to Does Congress Need a Leader? the bounds proper to his office, it A further possible objection may well be that Clays, Calhouns, should be anticipated. The con- and Websters will again appear, gressional legislative process, to and that we shall no longer read be efficient, requires a degree of about ‘the need on Capitol Hill leadership from the President, it for leadership and direction from may be said, which, as the non- some outside source.”*5 partisan President of all the peo- As to the great potential influ- ple I have envisaged, he could not ence on legislation of a nonparti- give. The strength of this argu- san President, acting distinctly ment would rest, I think, on two within Constitutional limits, there misconceptions: one that the pau- seems no doubt. The Constitution city of great leaders in Congress directs that the President ‘“‘shall needs to exist or continue, and the from time to time give to the Con- other that a nonpartisan Presi- gress Information of the State of dent could not exert an extraordi- the Union, and recommend to their nary and effective influence. consideration such Measures as he James Bryce remarks that our shall judge necessary and expedi- Presidents from Jackson to the ent.” No hampering limitation is outbreak of the Civil War in 1861 placed on the frequency or extent “were intellectual pigmies beside of his communications of informa- the real leaders of their genera- tion, nor on the manner in which tion — Clay, Calhoun, and Web- his recommendations shall be ster.”24 If we do not now find made. He is at liberty to present leaders in Congress equal to the his views at any time, at any three senators named — leaders re- length, in person or otherwise, and quiring no supplementing from in doing so he may bring into ac- the White House —perhaps a part tion all the intellect, learning, zeal, of the reason is the extent to and eloquence at his command. He which the Chief Executive has can suggest, if he wishes, a whole presumed to make of himself, not program of legislation. The fact merely the Chief Executive, as the that he stood on a level above Constitution intended, but also party and party interests would of _ itself give a special persuasiveness “The American Commonwealth, Abridged ———— Edition. New York: The Macmillan Com- #0gg and Ray, op. cit. (footnote no. 13), pany, 1904. p. 63. p- 263. ===== PAGE 37 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 35 to everything he says. His influ- would deprive them of an impor- ence on Congress would be much tant part of their power. Ardent the same type of influence as that Presidential aspirants are, of exerted by Washington. Would not course, familiar with its every as- that suffice? In any case, to go pect, including prenomination com- farther, as has been done, is to petition for delegates, and would violate the principle of separation find, under the Constitutional plan, of powers and so to challenge the that any political influence they wisdom of the Founding Fathers could exert in their own behalf at one of its most critical points. would be reduced to a minimum Such are some of the objections or be nonexistent, and that any that have been or may be raised demagogic appeals to the people against use of the Constitutional they might be tempted to make plan — one cannot speak of return- would be without effect. There ing to it — and some of the replies would be nothing left for them to with which they can be met. If we do — and this is as it should be — never adopt that plan, it will not but to devote themselves energet- be because rational objections to ically to their duties, whatever it cannot be rationally disposed these might be, and perhaps, as of, but, as it seems to me, because leisure permitted and their of two obstinate facts. thought on great national issues matured, to present their political The Force of Habit views — Lincoln-like — directly to One is that the momentum of the public. Their one hope of suc- long use of another system is cess would lie in rendering them- against it, together with the ac- selves pre-eminently meritorious cumulation of what amounts to in the eyes of unusually intelli- vested interests. Political bosses gent, perspicacious, and impartial and machines are accustomed to judges.?? the present procedure, know ex- actly how to take advantage of the The Trend Toward Democracy opportunities it offers, and would The other and perhaps still more naturally oppose any other that effective obstacle to adoption of — the Constitutional plan is the ob- ®What more flagrant violation of the principle in question can be imagined, to *According to Confucius, “A man should cite one instance, than a President’s ap- say: I am not concerned that I have no pealing over the head of Congress to the place, I am concerned how I may fit my- total electorate, and employing in the self for one; I am not concerned that I process all the enormous old and new am not known, I seek to be worthy to means of publicity at his disposal ? be known,” ===== PAGE 38 ===== 36 THE FREEMAN October vious drift, especially for some electoral college, permit direct half century, toward what is election of the President and Vice- thought of as more and more de- President, and apportion the elec- mocracy — that is, toward leaving toral vote [of each state] to each political decisions to direct vote candidate according to the popular of the total electorate concerned. vote he received in that state.” The substitution, for the Constitu- One provides “for designation of tional plan, of choice of the Presi- presidential nominees by direct dent, in its final stage by the primary.”28 people as a whole, was itself an early move in this direction. The Emotion vs. Reason initiative, referendum, and recall The general tendency away from (insofar as they have been prac- the principle of representative ticed), the direct election of government is plain. What, in the United States Senators, largely deepest and ultimate sense, does abolishing a main function of the it mean? upper house of Congress, and the It means that in determining direct primary (employed in our political conduct as a people nearly all the states, and includ- we tend increasingly to substitute ing in a part of the states the impulse, emotion, prejudice, for Presidential primary) are further reason. A nation, in the present familiar examples. context —as A. L. Rowse has Moreover, it is highly signifi- hinted —is only an enlarged in- cant that while numerous sugges- dividual. An individual, in propor- tions have been made, either that tion as he achieves genuine civili- we choose our Presidents by di- zation, acts not from impulse but rect popular election, in one form from reason; he uses his mind to or another, or that we choose them determine what it is reasonable through popular election of and right to do, and then puts his pledged Presidential electors (or will strenuously behind that. In the equivalent), only once has it other words, he subdues the irra- been suggested (so far as I have tional in himself to the rational — learned) that we retain the elec- allows the rational to exercise toral college and at the same time leadership. A nation should do leave the electors free to exercise wprom nu report (dated May 22, 1959) to their independent judgment. The Honorable Thomas H. Kuchel by the proposals recently (and perhaps American Law Division, Legislative Ref- . erence Scrvice, The Library of Congress. now) pending before congres- A h ” I am indebted to Senator Kuche! for sional committees all “abolish the this report. ===== PAGE 39 ===== 1959 A BETTER WAY OF SELECTING PRESIDENTS 37 likewise. Its “proper slogan is— Some no doubt would say that the leadership of the irrational by they are unconquerable, that a the rational.”’2® radical change of political direc- Now the irrational element in tion is inconceivable at the pres- society is impatient of delay; it ent late stage, that we are in fact would act now and think later — experiencing the decline of Amer- or not at all; it wants what it ica — a decline as inevitable as the wants when it wants it; and it ultimate decline of all things in holds that the quickest way to get this flowing universe, republics no what it wants is to go after it di- less than giant sequoias. But this rectly. Hence, it has little patience is not true. Human history, in the with intermediaries, little disposi- aspect here in question, is not de- tion to select persons qualified in termined by anything but the peo- subjects beyond its competence, ple who live it. “Not in our stars, allow itself to be represented by but in ourselves . . .” When the them, and abide contentedly by people will to reverse our present what they think wise and good. course, they will reverse it. But Thus the representative principle there must be the will; and this in government, insofar as it has means that enough people to de- survived, tends to give way to termine national policy must have precipitate mass action.30 so far mastered their immediate The momentum acquired by impulses as to choose the path of things that have long been as they wisdom in their political affairs. are, the persisting drive away When they have done this — let us from the representative principle: not say weakly if they do this — these, and especially the second, the world will witness a notable are indeed formidable foes of any triumph. For Senator George F. move to adopt the Constitutional Hoar was not far wrong when he plan for selecting Presidents. said: —_— The most sublime thing in the Uni- A. L. Rowse in Foreword to Wallas, verse, except its Creator, is a great op. cit., p. XV. and free people governing itself by ®Strictly speaking, the representative a law higher than its own desire. principle is already nullified when a . 6 o representative is expected, as is the case today, to be a mere instrument for reg- istering the majority view of his con. ——— stituents. “Norton, op. cit., p. 298. ===== PAGE 40 ===== John Stuart Mill Refutes . . . “x The : ed Consumer Theory of 3 Prosperity AMONG THE MISTAKES [of the pre- this doctrine in the most flagrantly classical writers] which were most absurd of its forms or of its ap- pernicious in their direct conse- plications. The utility of a large quences ...was the immense im- government expenditure for the portance attached to consumption. purpose of encouraging industry The great end of legislation in is no longer maintained. . .. matters of national wealth...was In opposition to these palpable to create consumers.... This ob- absurdities, it was triumphantly ject, under the varying names of established by political economists an extensive demand, a brisk cir- that consumption never needs en- culation, a great expenditure of couragement.... The person who money, and sometimes {fotidem saves his income is no less a con- verbis a large consumption, was sumer than he who spends it: he conceived to be the great condition consumes it in a different way; it of prosperity. supplies food and clothing to be It is not necessary, in the pres- consumed, tools and materials to ent state of the science, to contest be used, by productive laborers. These excerpts, selected by Henry Hazlitt for Consumption, therefore, already quotation in The Failure of the “New Eco- takes place to the greatest extent nomics’’ (Princeton: D. Van Nostrand, 1959) . . are from Mill's Essays on Some Unsettied which the amount of production Qusations of Political Economy written in admits of; but, of the two kinds 38 ===== PAGE 41 ===== 1959 THE CONSUMER THEORY OF PROSPERITY 39 of consumption, reproductive and periods. This, however, is no rea- unproductive, the former alone son for desiring such times; it is adds to the national wealth, the not desirable that the whole capital latter impairs it. What is con- of the country should be in full em- sumed for mere enjoyment is gone; ployment. For, the calculations of what is consumed for reproduction producers and traders being of leaves commodities of equal value, necessity imperfect, there are al- commonly with the addition of a ways some commodities which are profit. The usual effect of the at- more or less in excess, as there are tempts of government to encourage always some which are in defi- consumption is merely to prevent ciency. If, therefore, the whole saving; that is, to promote unpro- truth were known, there would al- ductive consumption at the expense ways be some classes of producers of reproductive, and diminish the contracting, not extending, their national wealth by the very means operations. If all are endeavoring which were intended to increase it. to extend them, it is a certain proof What a country wants to make that some general delusion is it richer is never consumption, but afloat. production. Where there is the The commonest cause of such latter, we may be sure that there delusion is some general, or very is no want of the former. To pro- extensive, rise of prices (whether duce, implies that the producer de- caused by speculation or by the sires to consume; why else should currency) which persuades all he give himself useless labor? He dealers that they are growing rich. may not wish to consume what he And hence, an increase of produc- himself produces, but his motive tion really takes place during the for producing and selling is the progress of depreciation, as long desire to buy. Therefore, if the as the existence of depreciation is producers generally produce and not suspected. . . . But when the sell more and more, they certainly delusion vanishes and the truth is also buy more and more. disclosed, those whose commodities are relatively in excess must di- Overfull Employment minish their production or be From what has been already ruined: and if during the high said, it is obvious that periods of prices they have built mills and “brisk demand’ are also the erected machinery, they will be periods of greatest production: the likely to repent at leisure. national capital is never called Unreasonable hopes and unrea- into full employment but at those sonable fears alternately rule with ===== PAGE 42 ===== 40 THE FREEMAN October tyrannical sway over the minds of in exchange for it, and is there- a majority of the mercantile pub- fore a buyer by the mere fact of lic; general eagerness to buy and his being a seller. The sellers and general reluctance to buy, succeed the buyers, for all commodities one another in a manner more or taken together, must, by the meta- less marked, at brief intervals. Ex- physical necessity of the case, be cept during short periods of tran- an exact equipoise to each other; sition, there is almost always and if there be more sellers than either great briskness of business buyers of one thing, there must be or great stagnation; either the more buyers than sellers for an- principal producers of almost all other.” the leading articles of industry This argument is evidently have as many orders as they can founded on the supposition of a possibly execute, or the dealers in state of barter; and, on that sup- almost all commodities have their position, it is perfectly incontesta- warehouses full of unsold goods. ble. When two persons perform an act of barter, each of them is at General Superabundance once a seller and a buyer. He can- In this last case, it is commonly not sell without buying. Unless he said that there is a general super- chooses to buy some other person's abundance; and as those econo- commodity, he does not sell his mists who have contested the pos- own. sibility of general superabundance If, however, we suppose that would none of them deny the pos- money is used, these propositions sibility or even the frequent oc- cease to be exactly true... . Inter- currence of the phenomenon which change by means of money is we have just noticed, it would seem therefore, as has been often ob- incumbent on them to show that served, ultimately nothing but the expression to which they ob- barter. But there is this difference ject is not applicable to a state of — that in the case of barter, the things in which all or most com- selling and the buying are simul- modities remain unsold, in the taneously confounded in one oper- same sense in which there is said ation; you sell what you have, and to be a superabundance of any one buy what you want, by one indi- commodity when it remains in the visible act, and you cannot do the warehouses of dealers for want of one without doing the other. a market. . Now the effect of the employ- Whoever offers a commodity for ment of money, and even the sale desires to obtain a commodity utility of it, is that it enables this ===== PAGE 43 ===== 1959 THE CONSUMER THEORY OF PROSPERITY 41 one act of interchange to be di- low price... . There is stagnation vided into two separate acts or to those who are not obliged to operations; one of which may be sell, and distress to those who performed now, and the other a are. ... year hence, or whenever it shall be In order to render the argument most convenient. Although he who for the impossibility of an excess sells, really sells only to buy, he of all commodities applicable to need not buy at the same moment the case in which a circulating when he sells; and he does not medium is employed, money must therefore necessarily add to the itself be considered as a com- immediate demand for one com- modity. It must, undoubtedly, be modity when he adds to the supply admitted that there cannot be an of another. The buying and selling excess of all other commodities, being now separated, it may very and an excess of money at the same well occur that there may be, at time. some given time, a very general But those who have, at periods inclination to sell with as little de- such as we have described, affirmed lay as possible, accompanied with that there was an excess of all an equally general inclination to commodities, never pretended that defer all purchases as long as pos- money was one of these commodi- sible. ties; they held that there was not an excess, but a deficiency of the circulating medium. What they This is always actually the case, called a general superabundance, in those periods which are de- was not a superabundance of com- scribed as periods of general ex- modities relatively to commodities, cess. And no one, after sufficient but a superabundance of all com- explanation, will contest the pos- modities relatively to money. sibility of general excess, in this What it amounted to was, that sense of the word. The state of persons in general, at that particu- things which we have just de- lar time, from a general expecta- scribed, and which is of no un- tion of being called upon to meet common occurrence, amounts to it. sudden demands, liked better to For when there is a general possess money than any other com- anxiety to sell, and a general disin- modity. Money, consequently, was clination to buy, commodities of all, in request, and all other commodi- kinds remain for a long time un- ties were in comparative disrepute. sold, and those which find an im- In extreme cases, money is col- mediate market do so at a very lected in masses, and hoarded; in Monetary Manipulations ===== PAGE 44 ===== 42 THE FREEMAN October the milder cases, people merely were fully satisfied, no further defer parting with their money, capital could find useful employ- or coming under any new engage- ment; but, in that case, none would ments to part with it. But the re- be accumulated. So long as there sult is, that all commodities fall remain any persons not possessed, in price, or become unsalable, . .. we do not say of subsistence, but It is, however, of the utmost im- of the most refined luxuries, and portance to observe that excess of who would work to possess them, all commodities, in the only sense there is employment for capital. in which it is possible, means only ... Nothing can be more chimeri- a temporary fall in their value cal than the fear that the accumu- relatively to money. To suppose lation of capital should produce that the markets for all commodi- poverty and not wealth, or that it ties could, in any other sense than will ever take place too fast for its this, be overstocked, involves the own end. Nothing is more true absurdity that commodities may than that it is produce which con- fall in value relatively to them- stitutes the market for produce, selves. and that every increase of produc- tion, if distributed without mis- The Myth of Oversaving calculation among all kinds of pro- The argument against the pos- duce in the proportion which sibility of general overproduction private interest would dictate, is quite conclusive, so far as it ap- creates, or rather constitutes its plies to the doctrine that a country own demand. may accumulate capital too fast; This is the truth which the de- that produce in general may, by niers of general overproduction increasing faster than the demand have seized and enforced. . .. for it, reduce all producers to dis- The essentials of the doctrine tress. This proposition, strange to are preserved when it is allowed say, was almost a received doctrine that there cannot be permanent as lately as thirty years ago; and excess of production, or of accu- the merit of those who have ex- mulation; though it be at the same ploded it is much greater than time admitted, that as there may might be inferred from the ex- be a temporary excess of any one treme obviousness of its absurdity article considered separately, so when it is stated in its native sim- may there of commodities gener- plicity. ally, not in consequence of over- It is true that if all the wants production, but of a want of com- of all the inhabitants of a country mercial confidence. oo 0 ===== PAGE 45 ===== The Surplus Wheat or - COMPARATIVE ADVANTAGE IN THE COLD WAR It was a chilly afternoon At story-telling time. Old Kaspar shivered in his chair And gulped his rum-and-lime, While Peterkin and Wilhelmine Warmed up the colorvision screen. They saw a wide and rolling plain Without a house or tree; And filling all that vast expanse As far as eye could see Were countless groups of giant cans Arranged in circles, squares, or fans. And swarms of heavy trailer-trucks In every dusty lane Were standing by the giant cans Unloading golden grain; While waiting trucks with heavy loads Were parked on all adjacent roads. “Now tell us what it’s all about!” The little children cried. “It’s Surplus Wheat,” Old Kaspar said In tones of honest pride; “We're filling every desert plain With shiny cans of costly grain.” “But what’s the sense in growing more Than we can eat or sell?” “In times of Economic War, I've heard the Planners tell, The countries that survive the test J Are those that outproduce the rest. J “Some other countries may excel , p In population growth, ~ Lo ’ Or lead the race for bigger bombs, RANE ts Or faster cars, or both; But there’s not one we cannot beat At filling cans with surplus wheat.” H. P. B. JENKINS Economist at Fayetteville, Arkansas 43 ===== PAGE 46 ===== This essay was written five years after the Apart from its historical interest, the essay famous Reflections un the Revolution in here reprinted is a well argued statement of France, two years before Burke's death. There the case for free market, private property, is a current revival of interest in Burke, limited government principles. Although Burke largely centered around the man and his poli- addressed himself to an England where the tics. Perhaps this emphasis is all right, but it typical employer-employee relationship in- must not be overlooked that Burke's state- volved a farmer and the laborers he hired, the craft was informed by a thorough grasp of the principles Burke invoked to demolish the fal- principles of economics, a new discipline which lacies of political interventionism of his day virtually originated during his lifetime. “When apply equally well to present situations. Old Adam Smith came to London full of those dis- fallacies neither die nor fade away; they must coveries which have immortalized his name,” be controverted. wrote Henry Thomas Buckle, ‘he found to The original essay runs to nearly eleven his amazement that Burke had anticipated con- thousand words and may be found in volume clusions the maturing of which cost Smith VII of The Works of the Right Hon. Edmund himself many years of anxious and unremit- Burke in eight volumes, London, Thos. ting labor.” And Smith himself told Burke M’Lean, 1823. It has here been shortened that he was the only man who, prior to an and, for the sake of clarity some archaisms exchange of views, thought on these topics ex- have been put into modern idiom. actly as he did, EDMUND A, OPITZ V N ===== PAGE 47 ===== and Details on Seareity Originally presented to The Right Hon. William Pitt in 1795 BY EDMUND BURKE OF ALL THINGS, an indiscreet tam- every other, and rises or falls ac- pering with the trade of provisions cording to the demand. This is in is the most dangerous, and it is the nature of things. always worst in the time when men There is an implied contract, are most disposed to it: — that is, much stronger than any instru- in the time of scarcity. Because ment or article of agreement, be- there is nothing on which the pas- tween the employee in any occupa- sions of men are so violent, and tion and his employer — that the their judgment so weak, and on labor, so far as that labor is con- which there exists such a multi- cerned, shall be sufficient to pay to tude of ill-founded popular preju- the employer a profit on his capital dices. and a compensation for his risk; The great use of government is in a word, that the labor shall pro- as a restraint; to provide for us in duce an advantage equal to the our necessities is not in its power. wage. Whatever is enforced above It would be a vain presumption in that is a direct tax: and if the statesmen to think they can do it. amount of that tax be left to the The people maintain them, and not will and pleasure of another, it is they the people. It is in the power an arbitrary tax. of government to prevent much If I understand it rightly, the evil; it can do very little positive tax proposed on the farming inter- good in this, or perhaps in any- est of this kingdom is to be levied thing else. at what is called the discretion of Nothing can be so base and so justices of peace. wicked as the political canting lan- The questions arising on this guage, “The laboring poor.” Let scheme of arbitrary taxation are compassion be shown in action, these: whether it is better to leave the more the better, according to all dealing, in which there is no every man’s ability, but let there force or fraud, collusion, or com- be no lamentation of their condi- bination, entirely to the persons tion. Labor is a commodity like mutually concerned in the matter 45 ===== PAGE 48 ===== 46 THE FREEMAN October contracted for; or to put the con- a new order of things takes its tract into the hands of those, who origin. Then, and not till then, and can have none, or a very remote on a difference between the par- interest in it, and little or no ties, the office of the judge com- knowledge of the subject. mences. He cannot dictate the » contract. It is his business to see Disinterested Management that it be enforced, provided that It might be imagined that there it is not contrary to pre-existing would be very little difficulty in laws or obtained by force or fraud. solving this question; for what If he is in any way a maker or man of any degree of reflection can regulator of the contract, in so think that a lack of interest in any much he is disqualified from being subject closely connected with a a judge. lack of skill in it, qualifies a person The proposed measures are pre- to intermeddle in any the least mised on the misconception that affair, much less in affairs that the farmer and the man he em- vitally concern the agriculture of ploys have opposite interests — the kingdom, the first of all its con- that the farmer oppresses the cerns, and the foundation of all its hired man, and that a gentleman prosperity in every other matter, called a justice of peace is the by which that prosperity is pro- protector of the latter and a con- duced? trol and restraint on the former. The vulgar error on this subject arises from a total confusion in Both Parties Gain from Trade the very idea of things widely dif- First, then, I deny in this case, ferent in themselves — those of or in similar cases, that contract- custom and agreement and those ing parties originally had different of judicature. When a contract is interests. By accident it may be being negotiated, it is a matter of so undoubtedly at the outset; but discretion and of interest between then the contract is of the nature the parties. In that relationship, of a compromise, and compromise and in what is to arise from it, the is founded on circumstances that parties are the masters. If they suppose it the interest of the par- are not completely so, they are ties to be reconciled in some not free, and therefore their con- medium. The principle of compro- tracts are void. mise adopted, of consequence the But this freedom is limited once interests cease to be different. the contract is made. Then their But in the case of the farmer discretionary powers expire, and and the hired man, their interests ===== PAGE 49 ===== 1959 THOUGHTS AND DETAILS ON SCARCITY 47 are always the same, and it is ab- ing it with thankfulness to the solutely impossible that their free benign and wise Disposer of all contracts can be onerous to either things, who obliges men, whether party. It is the interest of the they will or not, in pursuing their farmer that his work should be own selfish interests, to connect done with effect and celerity; and the general good with their own that cannot be, unless the hired individual success. man is well fed, and otherwise pro- vided with such necessaries of A Matter of Market Determination animal life, according to its custom But who are to judge what that as may keep the body in full force, profit and advantage ought to be? and the mind gay and cheerful. Certainly, no authority on earth. It is plainly more the farmer's It is a matter of usage and con- interest that his men should thrive tract dictated by the reciprocal than that his horses should be well- conveniences of the parties, and in- fed, sleek, plump, and fit for use, deed by their reciprocal necessi- or than that his wagon and ploughs ties. should be strong, in good repair, I shall be told by the zealots of and fit for service. the sect of regulation that this On the other hand, if the farmer may be true, and may be safely ceases to profit from his employees committed to contract or agree- so that his capital is not continu- ment between farmer and hired ally replenished, it is impossible man, when the latter is in the for him to pay the wages from prime of his youth, and at the time which his employees maintain of his health and vigor, and in themselves. ordinary times of abundance. But in calamitous seasons, under ac- The Employer's Profit cidental illness, in declining life, It is, therefore, the first and and with the pressure of a numer- fundamental interest of the em- ous offspring, what is to be done? ployee that the farmer should have When a man cannot live and main- a full incoming profit on the prod- tain his family by the natural hire uct of his labor. The proposition of his labor, should not his wage is self-evident and nothing but the be raised by authority ? malignity, perverseness, and ill- On this head I must be allowed governed passions of mankind, and to submit what my opinions have particularly the envy they bear to ever been. each other’s prosperity, could pre- And, first, I premise that labor vent their seeing and acknowledg- is, as I have already intimated, a ===== PAGE 50 ===== 48 THE FREEMAN October commodity, and, as such, an article is ruined, or the price of the prod- of trade. If I am right in this uct of the labor, in that proportion, notion, then labor must be subject is raised. Then the wheel turns to all the laws and principles of round, and the evil complained of trade, and not to regulations for- falls with aggravated weight on eign to them, which may be totally the complainant. The price of corn, inconsistent with those principles which is the result of the expense and those laws. When any com- of all the operations of husbandry, modity is carried to market, it is taken together, and for some time not the necessity of the vendor, continued, will rise on the wage but the necessity of the purchaser earner, considered as a consumer. that determines the price. If the The very best will be, that he re- goods at market are beyond the mains where he was. But if the demand, they fall in their value; price of the corn should not com- if below it, they rise. The sub- pensate the price of labor, what is sistence of a man who carries his far more to be feared, the most labor to a market is totally beside serious evil, the very destruction the question in this way of view- of agriculture itself, is to be ap- ing it. The only question is, what is prehended. his labor worth to the buyer? But if authority comes in and Prices Regulate Trade forces the buyer to a price, what Laws prescribing, or magis- is this in the case (say) of a trates exercising, a very stiff and farmer, who buys the labor of ten often inapplicable rule, or a blind or twelve laborers, and three or and rash discretion, never can pro- four tradesmen, what is it, but to vide the just proportions between make an arbitrary division of his earning and salary on the one property among them? hand, and living costs on the other: If a commodity is raised by whereas interest, habit, and the authority above what it will yield tacit convention, that arise from with a profit to the buyer, that a thousand nameless circum- commodity will be the less dealt stances, produce a tact that regu- in. If a second blundering inter- lates without difficulty what laws position be used to correct the and magistrates cannot regulate blunder of the first, and an attempt at all. is made to force the purchase of But what if the rate of hire to the commodity (of labor for in- the employee comes far short of stance), one of two things must his necessary subsistence, and the happen: either the forced buyer calamity of the time is so great ===== PAGE 51 ===== 1959 THOUGHTS AND DETAILS ON SCARCITY 49 as to threaten actual famine? Is ducer should be permitted, and the poor fellow to be abandoned? even expected, to look to all possi- In that case, my opinion is this. ble profit which, without fraud or Whenever it happens that a man violence, he can make; to turn can claim nothing according to the plenty or scarcity to the best ad- rules of commerce and the prin- vantage he can; to keep back or ciples of justice, he passes out of to bring forward his commodities that department and comes within at his pleasure; to account to no the jurisdiction of mercy. In that one for his stock or for his gain. province the magistrate has noth- On any other terms he is the slave ing at all to do; his interference is of the consumer; and that he a violation of the property which should be so is of no benefit to the it is his office to protect. Beyond consumer. No slave was ever so all doubt, charity to the poor is a beneficial to the master as a free- direct and obligatory duty upon all man that deals with him on an Christians, next in order after the equal footing by contract, formed payment of debts, full as strong, on the rules and principles of con- and by nature made infinitely more tending interests and compromised delightful to us. advantages. The consumer, if he But the manner, mode, time, were permitted, would in the end choice of objects, and proportion, always be the dupe of his own are left to private discretion; and, tyranny and injustice. perhaps, for that very reason it is What is true of the farmer is performed with the greater satis- equally true of the middleman, faction because the discharge of it whether the middleman acts as has more the appearance of free- factor, jobber, salesman, or specu- dom; recommending us besides lator, in the markets of grain. very specially to the divine favor, These traders are to be left to as the exercise of a virtue most their free course; and the more suitable to a being sensible of its they make, and the richer they are, own infirmity. and the more largely they deal, the better both for the farmer and con- sumer between whom they form a A greater and more ruinous mis- natural and most useful link of take cannot be fallen into than connection; though, by the ma- that the trades of agriculture and chinations of the old evil counselor, grazing can be conducted upon any Envy, they are hated and maligned other than the common principles by both parties. of commerce, namely, that the pro- I hear that middlemen are ac- The Evils of Price Control ===== PAGE 52 ===== 50 THE FREEMAN October cused of monopoly. Without ques- ness, the celerity, the general tion, the monopoly of authority is, equity with which the balance of in every instance and in every de- wants is settled. They who wish gree, an evil; but the accumulation the destruction of that balance, of capital is the contrary. It is a and would, by arbitrary regula- great benefit, and a benefit partic- tion, decree that diminished pro- ularly to the poor. A tradesman duction should not be compensated who has but a hundred pound cap- by increased price, directly lay ital, which (say) he can turn but their ax to the root of production once a year, cannot live upon a itself. profit of 10 per cent, because he cannot live upon ten pounds a When Government Interferes Least year; but a man of ten thousand The moment that government pounds capital can live and thrive appears in the market place, all upon 5 per cent profit in the year the principles of the market will because he has five hundred pounds be subverted. I don't know whether a year. The same proportion holds the farmer will suffer by it as long in turning it twice or thrice. These as there is a tolerable market of principles are plain and simple; competition; but I am sure that, and it is not our ignorance, so in the first place, the trading gov- much as the levity, the envy, and ernment will speedily become bank- the malignity of our nature, that rupt, and the consumer in the end hinders us from perceiving and will suffer. yielding to them; but we are not to If the object of government buy- suffer our vices to usurp the place ing should be what I suspect it is, of our judgment. to destroy the dealer, commonly called the middleman, and by in- Maximum Satisfaction of Wants curring a voluntary loss to impel The balance between consump- the baker to deal with government, tion and production makes price. I am to tell them that government The market settles, and alone can must set up another trade, that of settle, that price. Market is the a miller or a mealman, attended meeting and conference of the con- with a new train of expenses and sumer and producer when they risks. If government should suc- mutually discover each other's ceed in both these trades, so as to wants, Nobody, I believe, has ob- exclude those who trade on natural served with any reflection, what and private capitals, then govern- the market is, without being as- ment will have a monopoly in its tonished at the truth, the correct- hands, which, under the appear- ===== PAGE 53 ===== 1959 THOUGHTS AND DETAILS ON SCARCITY 51 ance of a monopoly of capital, will, distinction which I could draw, in reality, be a monopoly of au- whilst I had my chalk to draw any thority, and will ruin whatever it line, was this: That the State touches. The agriculture of the ought to confine itself to every- kingdom cannot stand before it. thing that is truly and properly The example of Rome, which has public, to the public peace, to the been derived from the most ancient public safety, to the public order. times, and the most flourishing In its preventive police it ought to period of the Roman Empire (but be sparing of its efforts. Statesmen not of the Roman agriculture) may who know themselves will, with serve as a great caution to all gov- the dignity which belongs to wis- ernments, not to attempt to feed dom, proceed only in this the su- the people out of the hands of the perior orb and first mover of their magistrates. If once they are ha- duty, steadily, vigilantly, severely, bituated to it, though but for one- courageously: whatever remains half year, they will never be satis- will, in a manner, provide for it- fied to have it otherwise. And, hav- self. But as they descend from the ing looked to government for state toa province, from a province bread, on the very first scarcity to a parish, and from a parish to a they will turn and bite the hand private house, they go on acceler- that fed them. To avoid that evil, ated in their fall. They cannot do government will redouble the the lower duty; and, in proportion causes of it; and then it will be- as they try it, they will certainly come inveterate and incurable. fail in the higher. They ought to Co know the different departments of Government's Limited Role things: what belongs to laws and It is one of the finest problems what manners alone can regulate. in legislation, and what has often To these, great politicians may engaged my thoughts whilst I fol- give a leaning, but they cannot lowed that profession, “What the give a law. State ought to take upon itself to direct by the public wisdom, and The Law Perverted what it ought to leave, with as Our legislature has fallen into little interference as possible, to this fault as well as other govern- individual discretion.” Nothing, ments; all have fallen into it more certainly, can be laid down on the or less. The once mighty State, subject that will not admit of ex- which was nearest to us locally, ceptions, many permanent, some nearest to us in every way, and occasional. But the clearest line of whose ruins threaten to fall upon ===== PAGE 54 ===== 52 THE FREEMAN October our heads, is a strong instance of of officious universal interference, this error. I can never quote what began in odious power ended France without a forboding sigh. always, I may say without an ex- ception, in contemptible imbecility. Revolution in France For this reason, as far as I can That State has fallen by the approve of any novelty, I thought hands of the parricides of their well of the provincial administra- country, called the Revolutionists tions. Those, if the superior power — a species of traitors, of whom I had been severe, and vigilant, and can never think or speak without vigorous, might have been of much a mixed sensation of disgust, of use politically in removing gov- horror, and of detestation, not easy ernment from many invidious de- to be expressed. These nefarious tails. But as everything is good monsters destroyed their country or bad, as it is related or combined, for what was good in it: for much government being relaxed above good there was in the constitution as it was relaxed below, and the of that noble monarchy, which, in brains of the people growing more all kinds, formed and nourished and more addled with every sort of great men, and great patterns of visionary speculation, the shiftings virtue to the world. But though its of the scene in the provincial enemies were not enemies to its theaters become only preparatives faults, its faults furnished them to a revolution in the kingdom, and with means for its destruction. My the popular actings there only the dear departed friend, whose loss rehearsals of the terrible drama of is even greater to the public than the republic. to me, had often remarked, that Tyranny and cruelty may make the leading vice of the French men justly wish the downfall of monarchy (which he had well abused powers, but I believe that studied) was in good intention ill- no government ever yet perished directed, and in a restless desire of from any other direct cause than governing too much. The hand of its own weakness. My opinion is authority was seen in everything against an overdoing of any sort and in every place. All, therefore, of administration, and more espe- that happened amiss in the course cially against this most momentous even of domestic affairs was at- of all meddling on the part of au- tributed to the government, and, thority, the meddling with the sub- as it always happens in this kind sistence of the people. oo oo ===== PAGE 55 ===== A World Monetary System GEORGE WINDER FROM THE DAYS of the goldsmith now, the effect of this was to give bankers until the outbreak of war the world an international money. in 1914, the cash which British The metal coins of the world might bankers promised to pay their de- bear different names and have dif- positors, and to holders of their ferent weights, but, as long as they notes if called upon to do so, con- were gold and could be exchanged sisted of gold or silver coins. The freely, what did that matter? An only exception was during the ounce of gold is an ounce of gold Napoleonic Wars, but, in 1821, whether it is made up of sover- after more than twenty years of eigns, louis d’ors, ducats, or the inconvertible paper money, the chief coins of any nation, and it British banks reverted to gold can measure values anywhere on payments, and Great Britain en- earth. tered upon her great age of expan- The result was that interna- sion. tional payments during the nine- During the nineteenth century, teenth century ceased to be a prob- all the other leading commercial lem. The only obstacle confronting nations of the world adopted gold those who wished to send money as the basis of their currency. Al- from one country to another was though it is not always realized the cost of shipping and insuring Mr. Winder was formerly a Solicitor of the gold, which was seldom more than Supreme Court of New Zealand, and for some one per cent of the value involved. years was a contributor to a London financial . weekly. He is now farming in Sussex, England. This meant that rates of exchange He has written many learned articles and . pamphlets on law, agriculture, and economics. never varied more than one per 63 ===== PAGE 56 ===== 54 THE FREEMAN October cent from the gold parities of the England. It was used to purchase currencies. capital equipment, such as rail- In actual practice, the interna- ways and harbor installations, tional money which facilitated the farming implements, and tools, and world’s trade consisted not of gold was repaid not in gold but in wool, itself, but of promises to pay gold cotton, rubber, meat, cheese, but- written on Bills of Exchange. A ter, and a thousand other kinds of Bill of Exchange signed by one of foods and raw materials. the famous London acceptance houses became the currency by Nineteenth Century Development which most of the commercial In 1821, when Great Britain re- world carried on its international turned to the gold standard, New trade. Even the Chinese, who still Zealand, Australia, Canada, and clung to silver coins, received with- South Africa were only the outpost out question a Bill on London in homes of poverty-stricken pio- exchange for their cargoes, for neers. In 1914, when she left that they knew it gave them a currency standard, they were great and which was accepted anywhere in prosperous nations. We are some- the world. India gained all the times adjured today to invest benefits of the international gold money in the Empire. Never has standard by keeping the rupee at more money been invested in an a fixed ratio of fifteen to the Empire, and never have so many pound. countries developed more quickly The existence of this interna- than during the nineteenth cen- tional money was also of great tury, and no government ever benefit to the London financial thought of asking its people to in- houses in enabling them to invest vest money. People invested be- money abroad. They lent British cause there was security in the pounds sterling, convertible into world, and the existing monetary gold, in return for promises of system facilitated the free trans- repayment in money convertible fer of money from one country to into the same weight of gold, and another. with interest in the meanwhile. The Industrial Revolution, and Between lending and repayment more particularly the development this weight could not vary, so of steam transport, both on land that the possibility of repayment and sea, had made small economic in seriously depreciated currencies units in the nineteenth century did not arise. quite incompatible with modern In practice, the money never left ideas of prosperity. The expanding ===== PAGE 57 ===== 1959 A WORLD MONETARY SYSTEM 55 world economy, with its growing Colonies and Dominions — without economic unity, was the world’s re- obstructions from tariffs or quotas sponse to its new environment. Of of any kind — was a vital factor course, this very desirable measure contributing to their economic of unity was not brought about growth. Although, before the end solely because the world possessed of the nineteenth century, the in the gold standard an interna- Dominions had placed protective tional currency, but this was un- tariffs against certain products of doubtedly a very important factor the Mother Country, they were of in its development. OC minor importance, so that it can safely be said that, at this period A Free Market for World Trade in its history, the British Empire Another factor, which must not constituted a free trade unit as be overlooked, was that during the important to the world as the in- whole of this period Great Britain ternal free trade area of the USA was a free trade country. This is today. gave the world a central market in While the gold standard, and the which there was hardly a com- British policy of free trade, in- modity which was not bought and duced the countries of the British sold. Such a market, in which the Empire and the New World to spe- price of world commodities fluctu- cialize their production to meet ated in accordance with the laws the demands of an international of supply and demand, unhampered market, it also had the effect of by state intervention, acted as a forcing Great Britain similarly to co-ordinator of production all over serve that market, and to do so the world. with great efficiency. In the price of goods on the The British banker had every London market, producers had a inducement to lend as much money sure guide as to what the world to the British manufacturer as he needed, and what commodity it could. His profits depended on his would pay them best to produce. doing so. At the same time, he In the nineteenth century the knew that every loan by creating wealth-creating division of labor, new deposits increased his liabili- with its specialization of produc- ties. As a result, he placed his loans tion, was practiced more than ever where they would produce the most before or since. returns. Invariably, of course, this In particular, it should be noted was where they would enable the that the willingness of Great Brit- borrower to produce the greatest ain to take all the products of her value in salable goods. ===== PAGE 58 ===== 56 THE FREEMAN October However, the optimism of the a strong argument for state eco- businessman is contagious, and nomic planning. However, it is dif- sometimes this infection is caught ficult to see how a democratic gov- by the banker. Too much money is ernment can order factories to lent, prices rise, and a boom even- lower their prices and to lower tuates. This susceptibility of the their costs, including wages, and banks has its advantages. It en- to produce exactly what the cus- ables the businessman to seize a tomers want. The remedy in Vic- new market at the right time. torian days was at hand in the Sometimes, however, the market salutary working of the gold stand- dies, and British manufacturers ard, which acted quickly and effec- find themselves producing goods tively without any centralized di- that cannot be sold so easily, and rection. costs which have risen during the boom prevent them from lowering The Gold Standard prices. Exports begin to fall, and The first reaction to the sub- less foreign money is earned by stitution of gold for goods in our Englishmen. export schedule was that the banks, Those who want foreign money knowing that they could be com- to buy imports have to pay more pelled by law to meet all demands sterling for it, so the rate of ex- upon them in gold, took steps to change goes against the pound. It reduce their liabilities. This meant becomes profitable for a foreign that they reduced their loans. holder of deposits in a British bank They met the unusual demand to demand gold for them and to for gold, first from their own gold ship it out of the country. In other stocks, and, for the rest, they words, because of high prices or called upon the Bank of England. the unsuitability of our goods, the When their demands began to be foreign or Empire buyer with felt by this great bank, it became credits in Great Britain preferred mindful in turn of its obligations, our gold to our goods. and the famous Bank Rate would The remedy for such an un- be raised. This would increase the pleasant contingency was, of rate for discounting Bills, and course, to cheapen our goods, and, eventually all other rates for new at the same time, to redirect our loans. resources to the production of com- The whole economy would be modities the customers did want. tightened up. With dearer and re- Many modern economists would duced supplies of money, there no doubt see in such a situation would be an all-round fall in prices. ===== PAGE 59 ===== 1959 A WORLD MONETARY SYSTEM 57 Industries which were in a bad rate of interest. Holders of for- way, through the loss of foreign eign money became anxious to ex- markets, either reorganized them- change it for British sterling, and selves or went bankrupt. If the gold would soon be streaming back latter, their workers, and possibly to the bank’s coffers, and interest their capital equipment, were rates would once again be reduced thrown on the market, to be ab- to their normal level. sorbed in a very short time by in- Thus the gold standard, acting dustries which could meet the ex- upon a free price mechanism, gave isting demand. Lower costs, in- the British manufacturer a sure cluding lower wages, would enable guide to world demand and so industries to recapture the mar- helped the British people to make kets they had lost, and gain new their living serving the world’s ones, markets. After every depression The increased interest rates they served those markets a little acted as an automatic test of the better, so that very soon wages fitness of an industry to survive. rose again and, over the whole Whereas a slack factory might just period, the real standard of living get by and wastefully utilize the rose continuously in a manner un- factors of production when in- precedented in history. terest rates were 4 per cent, it The age of the world’s interna- would go out of production when tional gold standard came to an that rate rose to 6 per cent. end with the outbreak of war in At the same time, the higher 1914, and, with it, ended that Bank Rate would induce the over- growing economic unity which was sea investor to leave his money in an outstanding feature of the world Great Britain to earn the higher of the nineteenth century. o Epitor’s NOTE: The foregoing is a portion of Chapter XIV of Mr. Winder’s new book, A Short History of Money, published by Newman Neame, Limited, in association with the Institute of Economic Affairs in London. This highly readable story of the evolution of money also car- ries the author’s explanation of the mechanism by which inflation has been brought about in Great Britain — and in other countries with a central banking system under government control. Clothbound copies of the book (188 pages, indexed, $2.50) are available through the Foundation for Economic Education, Inc., Irvington-on-Hudson, N. Y. ===== PAGE 60 ===== THE ONLY WAY TO Sound Grout LAWRENCE FERTIG WARNING! Inflationists (and or declining price level actually those who fall under their influ- prevent growth. These assertions ence) are now operating under an are made despite a long history effective disguise. Since they know which proves that the opposite is that the word inflation is unpopu- true. Inflation actually endangers lar, they do not dare to openly en- sound growth. Much factual evi- dorse it. Instead, they try to dence on this growth-inflation achieve their objective by hiding subject is available, but within behind a more popular word. this brief column we have room The inflationists’ new device is for only a few instances. to wave the banner of “growth.” Of course, they say, we are against German and British Experience inflation. Of course, they assert, Take the course of the Federal we are not in favor of zooming Republic of Germany and of Great prices. But after all, they quickly Britain from 1948 to 1955. Ger- ask, isn't growth the really im- many turned her face against in- portant thing —shouldn’t we flation while Britain inflated at achieve growth (with government the rate of about 4 per cent per in the driver's seat as planner and annum. German industrial pro- spender) even at the expense of duction increased 134 per cent as some inflation? opposed to the British 24 per cent. By phrasing the issue this way German real wages increased 90 they imply that inflation promotes per cent, whereas in the United growth. They imply that anti-in- Kingdom they went up only 7 per flationary measures and a stable cent. All of this is related to the Mr. Fortig is a columnist on economic affairs, fact that German prices actually Now York World Telegram and Sun and other fell § per cent while British prices Scripps-Howard newspapers, in which this col- . umn first appeared August 24, 1959, increased about 45 per cent. Cur- b8 ===== PAGE 61 ===== 1959 THE ONLY WAY TO SOUND GROWTH 59 rently, says Economics Minister a high level. Mr. Hammarskjold’s Dr. Ludwig Erhard, Germany has statement turns out to be a “reached a new stage in its steady slightly disguised brief in favor growth over the past ten years.” of inflation, which has nearly This he attributes greatly to stable ruined so many European nations. prices and a German currency In this country, on the TV pro- freely convertible into gold. gram “Meet the Press,” Governor Another historic instance of Nelson Rockefeller was asked growth is the period in the United whether he agreed with President States from 1873 down to the turn Eisenhower that inflation is ‘the of this century. During this time great issue of our national life.” an anti-inflation policy caused Governor Rockefeller hesitated prices to decline about 40 per cent and said, “I'm not sure. I think while production more than dou- this is certainly an integral part bled. of the total issue. I think the eco- These are just two instances of nomic growth of our country and growth and anti-inflation going the adequacy of job opportunities hand in hand. Other recent cases ... are the root, really.” are the Philippines, Burma, and Ecuador. The opposite — where in- As the Twig Is Bent flation throttles growth — can be Now it certainly would be un- seen in Brazil, Chile, Argentina, fair to call the Governor an in- and many other countries. flationist, although his liking for expanded, costly government ac- A False Conflict tivities is well known. But it is Recently, statements by several evident from his statement that important figures reveal how wide- he has come to the same fallacious spread is this growth-inflation assumptions that the inflationists policy. Dag Hammarskjold, Sec- make. His thinking is no different retary-General of the United Na- from that of Professor Sumner tions, recently stated that modern Slichter of Harvard, who must be industrial nations have been in- given due credit for openly and clined to favor policies aimed at honestly advocating “creeping” in- price stability instead of encourag- flation. ing growth. (Note how he poses Similar logic is employed by the a false conflict.) Price stability Democratic Advisory Committee has not been well won, he said, if and by Mr. Leon Keyserling. They its cost is economic stagnation — persistently urge cheap money, even though the stagnation is on giant-sized government expendi- ===== PAGE 62 ===== 60 THE FREEMAN October tures, and budgets unbalanced they are convinced that the dollar temporarily (they hope) to create saved today may be worth only growth. 50¢ or only a dime after many years. Increased Savings Those who think that it is up to and Increased Investment the government to create growth There is only one way to achieve overlook the fact that increased growth — that is, by increased productivity depends upon the in- savings and by increased invest- telligence, work, and thrift of in- ment in the tools of production. dividuals and corporations. Peo- In this way there is a greater flow ple—not government —create of goods resulting from every growth, All the government can do hour of human labor. Anti-infla- is to encourage people to save and tionary policies encourage growth invest. This is accomplished by because people are inclined to save curtailing government spending more when they have a conviction and encouraging sound fiscal and that the dollar they put aside to- monetary policies. The evidence is day for future use will not be eaten plain that sound growth is up by the price increases of to- achieved by fighting inflation, not morrow. People save less when by encouraging it. * oo We invite your subscription to MODERN AGE A CONSERVATIVE REVIEW Published Quarterly Co > Edited by RusseL. Kirk VoL. 3, No. 4 (Fall 1959) Special number on “HUMANE SCHOOLING?” Including contributions by Richard M. Weaver, Daniel Villey, and Erik Von Kuchnelt-Leddihn and the second number of the “Burke Newsletter” 84.00 the year 81.25 the copy Address: 64 East Jackson Boulevard, Chicago 4, Illinois ===== PAGE 63 ===== A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN vy ) "i Ay . ———) Jas | ro, d : 7 Vi I | i IT 1S AN ARTICLE of faith with nine He has made the inventor of the out of ten contemporary American mechanical reaper more important historians that this country has to agriculture than Mr. Henry been made by legislation piled on Wallace. If this goes on, what will top of the original social compact happen to the tight little historical of 1787. We are, supposedly, the guild's vested interest in the creatures of the Interstate Com- theory that it is “progressive” merce Commission and the Agri- legislation that puts food on the cultural Adjustment Administra- dinner table? tion, the Social Security Act, the The theory that it is the politi- minimum wage law, and the Re- cal party, not what the political construction Finance Corporation. party stands for in relation to the So ingrained is this way of protection and liberation of non- thinking among the history writ- political energies, that is impor- ing fraternity that when Father tant finds a muted but nonetheless Bruckberger, a French Dominican pervasive champion in Robert V. priest, comes out with a book in- Remini, author of Martin Van terpreting America in terms of Buren and the Making of the such apostles of voluntary associa- Democratic Party (Columbia Uni- tion as Henry Ford and Samuel versity Press, 271 pp., $5.00). This Gompers, it is greeted with is a good book in many ways: it pained surprise by Arthur Schles- establishes Van Buren as a man inger, Jr. Heavens, the ignorant of good Jeffersonian principles Frenchman has talked about the and character, and it casts a vivid vast increase in the number of ef- light on that period in our history ficient tools available to the indi- when the making of Presidents vidual American worker, not about was transferred from the congres- factory legislation! He has made sional caucus to the politicians Commodore Vanderbilt a bigger back home in the states. figure in railroad history than the Nonetheless, Professor Remini’s author of the Hepburn rate bill! thinking about the Democratic 61 ===== PAGE 64 ===== 62 THE FREEMAN October Party suffers from the notion that eighteen twenties as “streaked it’s “splendor” as an organization with suffering and panic, shaken derives from its responsiveness to by bursts of violence and threats the “people,” not from any princi- of rebellion.” No doubt there was ples for which it happens to stand. a hangover of violence in the Almost without knowing it, Remini decade; after all, it took some time has endorsed the subtle heresy of to digest the War of 1812. Arthur Schlesinger, Jr.'s The Age But to view the eighteen twen- of Jackson, which seeks to make ties through the dark lenses of a Old Hickory into a sort of pre- Rooseveltian 1932 is, to say the monition of Franklin Roosevelt least, just a bit foolish. As Garet and the ancient Party of western Garrett, an “amateur” historian frontiersmen, southern planter who is a good deal sounder than “aristocrats,” and eastern “loco most of the professionals, has said, foco” free traders and hard money the generation of the eighteen men into a progenitor of the New twenties was a “breathless” one. and Fair Deals. : To this “breathless generation,” there happened the steamboat, the railroad, the telegraph, the me- The truth is, of course, that chanical reaper, the rotary print- both major parties since the ing press, the penny newspaper, eighteen nineties have had their the first public high school, ether, conservative, libertarian, and patent medicine, the Yankee Populist-inflationary wings. In the peddler who took culture to the nineties there were Gold Demo- backwoods, McGuffey’s Reader, crats and Bryanites; in the early the China trade, the clipper ship, nineteen hundreds there were Mc- and the literature of the Golden Kinleyite Republicans and La Fol- Day. (The list is from Garrett's lettians and Rooseveltians. The The American Story.) No “age of seesaw between libertarianism and Jackson” that tends to minimize collectivism has never, in modern this panorama of bursting ener- times, respected party lines. gies can be truly interpretive, and In the days of Jackson, however, no political history that tries to a truly libertarian political instru- narrow the origins of the Demo- ment was forged. The bias of the cratic Party down to an expression country called for it. Professor of anticapitalist grievances can be Schlesinger, seeking for “labor” legitimate. antecedents for the modern Demo- Schlesinger tries to make Jack- cratic Party, has spoken of the son into a partisan of the Hamil- Cutting Across Party Lines ===== PAGE 65 ===== 1959 PARTY OR PRINCIPLE? 63 tonian state directed to Jeffer- William M. Gouge, the hard money sonian ends. Though this sounds theorist whose view of the trade impressive on the face of it, it cycle might commend itself to actually means little. True enough, Ludwig von Mises. There is Wil- Jackson insisted on the preserva- liam Leggett, the passionate free tion of the union in the South trader of the old New York Post. Carolina nullification crisis. But Richard Hofstadter, who is as he appointed States’ Rights right on pre-Civil War history as judges, including that most per- he is wrong when he comes to tinacious States’ Righter of all, deal with the so-called Robber Roger Taney. His campaign Baron age, caught the libertarian against the Bank of the United flavor of the Jacksonians when he States was supported by hard treated Jackson as the voice of money men on the one hand and ‘liberal capitalism” in his The the proponents of decentralized American Political Tradition. We state banking on ‘the other. may set it down to an emotionally In short, Jackson, insofar as he induced myopia that Schlesinger consciously thought about it at all, cannot see the Jacksonian Demo- considered the State to be the crats for what they were, the very guarantor of rights that were be- negation of a New Deal state- yond the reach of legislation. He dependent band. believed, in short, in unalienable It is not that Schlesinger doesn’t rights. know there is another view of Jackson and his Party. He quotes The Jacksonian Era from William Graham Sumner’s Schlesinger is too good a re- excellent little biography of Jack- porter to leave the hard money son, which treats the old hero of men and the frontier enterprisers New Orleans with a sort of con- out of account. In The Age of temptuous approval as the “stand- Jackson, which is quite fascinating ard-bearer” of a people who had in some of its detail (and ex- become “bold, independent, ener- tremely good reading, too) he getic, and enterprising.” In Sum- gives vivid portraits of represen- ner’s view, the eighteen twenties, tative early nineteenth century far from being an epoch of hard- libertarians. There is Jackson him- ship, were entirely too prosper- self, who could declare that ‘“‘equal- ous to exhibit any deeply abiding ity of talents, of education, or of concern for politics. The politi- wealth cannot be produced by hu- cians of the decade made such a man institutions. . . .”” There is furious commotion precisely be- ===== PAGE 66 ===== 64 THE FREEMAN October cause the people were not easily his party on principles as well as disposed to listen. patronage. He compromised at As for the eastern “loco focos,” times on the tariff, but he was es- whom Schlesinger casts as the sentially opposed to the “gimme” Tugwellians of the age, Sumner theory of government that was sees them as “equal rights men” espoused by Henry Clay and the who first committed the Demo- Whigs who were for protection cratic Party to “sound doctrines and for federal pork barrel spend- and imperishable ideas.” The loco ing on “internal improvements.” focos included laborers, but they Van Buren, then, gave a prin- were working men who wanted to cipled party to the people. The ad- be paid in a sound currency. “For jective, which Remini does not a generation,” says Sumner, the use, is what is important. Democratic Party was “by tradi- Professor Remini does insist on tion, a party of hard money, free the Old Republican, or Jeffer- trade, the noninterference of gov- gonian, soundness of Martin Van ernment, and no special legisla- Buren’s political philosophy. But tion. If that tradition be traced up the book, being committed to an to its source, it will lead back, not exposition of the roots of party to the Jackson party of 1829, but success, tends to endorse the idea to the loco focos of 1835.” that organizations should always The loco focos, being city men, be responsive to whatever the were, of course, a prime source of “people” want at the moment. The the strength of Martin Van Buren, good political mechanic must, on the New Yorker who was Jack- this basis, always seek to adapt the son’s Crown Prince and Heir Ap- organization to the prevailing parent. Van Buren knew how to wind. weld a party together, as Profes- Sumner would have disagreed. sor Remini shows in his book. A So, too, would those loco focos who hard money man and a States’ first gave the Democratic Party Righter, Van Buren tried to build the platform which Franklin Roosevelt so gaily kicked over in 1933. In the old Sumnerian view, Any book reviewed in this Book Soction (or a party should be like Washing- any othor current book) supplied by return ton’s “standard,” to which “the mail. You pay only the bookstore price. We . , pay tho postage anywhere in tho world. wise and honest” can always re- Catalogue on request. pair. It should be ready to risk un- THE BOOKMAILER, Box 101, Now York 16 | popularity, knowing that, in time, it will always come back. o e¢ o ===== PAGE 67 ===== MEMO ON PRIVATE ENTERPRISE No. 10 in a series “the general taxpayer has to add 33 cents to each dollar paid by parcel post shippers” Railway Express Agency in Au- transportation.” gust formally asked the Interstate The Railway Express requests Commerce Commission to ap- were contained in its brief filed prove “promptly” long overdue in support of proposed increases parcel post rate increases, for inI.C.C. Docket No. 32158, 1957. which the Post Office first peti- The Government's current tioned in April 1957 and then parcel post deficit figures show delayed filing of rate schedules. that the general taxpayer has to The I.C.C. also was asked to find add 33 cents to each dollar paid that such increases areinadequate by parcel post shippers. The pres- under law to cover the Govern- ent below-cost rates have been in ment’s out-of-pocket cost of pro- effect since October 1, 1953. viding the service. The original Post Office peti- The requested action would tion of April 18, 1957, said that accomplish three things: there was a substantial deficit for It would quickly reduce tax- the July 1, 1955-June 30, 1956 payer-borne parcel post deficits fiscal year. Meanwhile, the deficit by $88 million a year. has been permitted to grow and The way would be paved for to continue through the 1957, prompt Post Office Department 1958 and 1959 fiscal years, with petitions to the I.C.C. for further no rate increase yet in effect. parcel post rate increases which Long hearings, which began in would be required by law in order February 1959 and followed the to eliminate the remaining $78 November 28, 1958, filing of rate million of the current $166 mil- schedules by the Post Office, fea- lion in annual taxpayer losses. tured delays brought about by The express company, along protesting mail order and other with other private transportation large parcel post shippers. Four enterprises, would be able to of these, by their own statements, “compete more effectively with alone account for some 15 per- the Post Office Department for cent of the nation’s business use the package traffic available for of fourth class mail. For a free copy of the informative booklet, “The Truth About Parcel Post,” “ALW N address the Public Relations Division, £lomis » ) RAILWAY EXPRESS AGENCY 2 4 219 East 42nd Street, New York 17, N.Y. A A PRIVATE ENTERPRISE IN THE PUBLIC SERVICE ===== PAGE 68 ===== “STABILIZATION CRISIS” | [S— in its final stages, always ends in prostration, in what modern economists call a “stabilization crisis.” The explanation of this stabilization crisis is not mysterious. During the inflation .... prices do not respond in simple proportionality to the increase in the money supply. Some prices race beyond this, anticipating a further inflation. Even if the inflation is halted at some point and no deflation sets in — that is, even if the increased supply of money is merely locked where it is and not reduced — the stabili- zation crisis sets in because these anticipatory prices collapse. This stabilization crisis, like the drunkard’s hangover, is part of the price that must be paid for every inflationary orgy. From Henry Hazlitt’'s foreword to the 1959 edition of Andrew Dickson White's classic, Fiat Money Inflation in France, Foundation for Economic Education, Irvington-on-Hudson, N. Y. 124 pp. $1.25 paper, $2.00 cloth, THE FREEMAN may be forwarded any- where in the U. S. A. No wrapper required. PLACE 4Y3-CENT From: POSTAGE HERE I lL To: streot city on0 stato