===== PAGE 1 ===== THE [61d MARCH 1960 IDEAS ON LIBERTY The Crusade Against Excellence . . . . Merryle Stanley Rukeyser 3 Social Security’s Salvage Value . . . . Paul L. Poirot n Retirement inthe Red . . . . . . . Lawrence Sullivan 13 The ABC’s of Modern Economics . . . . Ralph Bradford 18 Some Pros and Cons of Protectionism . . Richard Stanton Rimanoczy and Keith Wood 20 Hong Kong — A Success Story. . . . . First National City Bank 26 Dollarless Diplomacy . . . . . . . H. P.B. Jenkins 31 Wages, Productivity, and Prices . . . . W. Allen Wallis 32 The Motivation To Conserve . . . . . Frederick Nymeyer 37 The Phantom Called “Monopoly” . . . HansF. Sennholz 39 Regaining Lost Freedoms: A Plan . . . Vollie Tripp 53 Book Reviews: Beyond Relativism . . . . . . . . John Chamberlain 58 Other Books . . . . . . . . . . 63 THE FOUNDATION FOR ECONOMIC EDUCATION, INC. frvington-on-Hudson, New York ===== PAGE 2 ===== Coast Federal Savings and Loan Association of LOS ANGELES Join the thousands of others from all 50 states and many foreign countries who hold individual, joint, trust or corporation savings accounts and get the following outstanding advantages for your invested savings. HIGHEST EARNINGS —Effective January 1, 1960, we are paying at the rate of 4v2% per annum. Accounts opened or added to by the 10th of any month earn from the 1st of that month. ASSETS OF OVER $400,000,000.00, with over $90,000,000.00 in cash and government bonds and Reserves of over $30,500,000.00 as of December 31, 1959. AVAILABILITY OF FUNDS - Coast Federal has always paid every withdrawal immediately on request. SAVE-BY-MAIL — Airmail postage paid both ways on-all transactions. SECURITY of principal assured through progressive, conservative manage- ment and the additional protection of $10,000.00 insurance on each account. "COAST FEDERAL SAVINGS a JOL CRAIL, PRESIDENT [4] MEMBER — FEDERAL HOME LOAN BANK — FEDERAL SAVINGS AND LOAN INSURANCE CORP. Coast Federal Savings, Department ““H" . } 855 South Hill St. aot 9th (Please check-mark as desired.) Los Angeles 14, Calif. 1. [3 1 enclose [J check, [] money order, to open 2. [1] Please send me a copy of your a savings account in the following name or Booklet “Let's Get Acquainted’, names: Savings Account Information and latest financial statement. Name Address City Zone State ===== PAGE 3 ===== How many ways are you taxed to put government into the electric business? Answer: hundreds of ways. electricity people will need — without depending on your taxes. You see, there are hidden federal taxes included in the cost of just about ev- erything you buy—from bread to clothes to automobiles. You and other Americans can stop “public power” spending as soon as enough people realize how it costs them money unnecessarily. Part of this tax money, with part of If you’d like more facts about how it your federal income tax, is being spent affects you, just mail this coupon. We'll to put the government further into the send you the information, at no cost. electric business. America’s Independent Few people realize this, because no Electric Light and Power Companies tax is labeled “For Federal Govern- ment Electricity.” Yet this so-called POWER COMPANIES “public power” has so far cost tax- © Room 1105-0 payers about $5,500,000,000. : 1271 Ave. of the Americas, New York 20, N.Y. : Please send me the material checked below: And that may be just the begin- :@ [JThe new, free booklet, “Who Pays?" ... . . y . ) g . telling how my taxes are affected when the ning. Certain lobbyists and pressure government gets into the electric business, groups are urging Congress to spend etre ant facts about the independent $10,000,000,000 more. : [J Names of companies that sponsor this ad- . . vertisement. Such spending would be completely : Name unnecessary. America’s hundreds of in- (Please print) dependent electric companies are ready ~~: Address and able to supply all the low-price :@ gity Zone.__State_ ===== PAGE 4 ===== THE Teemdi A MONTHLY JOURNAL OF IDEAS ON LIBERTY MARCH 1960 Vol. 10 No. 3 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 trvington, N. Y., with additional entry at New York, N. Y. Copyright, 1960, The Foundation for Economic Education, Inc. Printed in U.S.A. Additional copies, postpaid, to one address: Single copy, 50 cents; 3 for $1.00; 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 given, except ‘Some Pros and Cons of Protectionism,” and ‘The Motivation To Conserve.” FE Any current article will be supplied in reprint form if there are enough inquiries to justify the cost of the printing. ===== PAGE 5 ===== THE CRUSADE AGAINST 7 EXCELLENCE MERRYLE STANLEY RUKEYSER IF THE RECENT TV quiz scandals ties to the microphone, and let the represented a mere trade malprac- chips fall where they may. tice, their significance would be They feared that truth and sin- circumscribed. But it seems to me cerity might yield occasional dull that the recent episodes are sur- spots, and an impatient audience face symptoms of a deeper malady. would protest by turning the knob The elaborate rigging to “con- on the dial. Thus, they cynically trol” programs on the air evi- downgraded the nature of man, denced not only moral shortcom- and “hopped up” synthetic charac- ings, but also a lack of artistic in- ters who appeared to know more tegrity. The authentic artist seeks than they did. to portray the real nature of man, This desecration of decency in not a preconceived set of circum- the clamor for “ratings” should be stances bearing no relationship to fully explored. Apart from ethics, reality. In the market place for morals, and political science, this air time, opportunistic packagers scramble for rank does not make and producers of programs were sense even In crass box office unwilling on quiz shows to run the terms. The clamor for ratings is risk of bringing selected personali- based on loose thinking stemming SE : from the half-truth that “all men Mr. Rukeyser is a business consultant, lec- are created equal.” This phrase — turer, and writer of the nationally syndicated : column, “Everybody’s Money.” corrupted by demagogues — 1s 3 ===== PAGE 6 ===== 4 THE FREEMAN March utterly misleading unless qualified the lowest common denominator to mean that men are created with is far from prudent. The old a right to equality of opportunity. Roman regime of “bread and cir- - Uncritical “dedication to the cuses” has been widened to include phrase has been the curse of the Westerns and tales about cops and ‘American educational system and robbers. other phases of the national life. It is putting the whole matter in Because of a lazy attitude toward the wrong frame of reference to the nature of a free society, hun- argue that either federal bureau- dreds of thousands of children crats or the networks should act have been psychologically bruised. to restrain the wickedness of spon- Fanatics in the name of democracy sors. As a matter of fact, if spon- insist on shoving all through pre- sors are to get their money’s cisely the same educational mill. worth out of TV programs, they Thus the pace and the curriculum, must relate their activities to their if geared to the average, are too objectives. When the goal is to sell fast for the slow learners and in- gum at five cents a package, the adequate for gifted children. widest possible listening audience Wiser pedagogues are coming to is obviously desirable — and, for recognize the need for plural the sake of argument, the correct standards related to the aptitudes, approach may be Rock 'n Roll. abilities, IQ’s, and other charac- However, if the purpose is to teristics of individuals. “make friends and influence Enrichment of national life calls people” in order to improve a for a new respect for individual climate in which voluntary enter- differences. Confused idealists prise operates, then it is desirable have tended to weaken the na- to attract the opinion-making elite tional fabric through their passion consisting of teachers, ministers, for uniformity and conformity. professional men, and executives, and the Philharmonic Orchestra or Is It Good Business? an exciting discussion forum may On the TV issue, dismiss from indeed be in order. It is obviously consideration for the moment de- mixing “horses and apples” to rely cent ground rules for the use of on head counts by pollsters irre- the ether, which is in the public spective of the nature of the ad- domain. Even if we look only at venture upon which the business strictly commercial considerations, enterprise may have embarked. this senseless drift toward pro- And it is discrediting the free grams that purportedly appeal to enterprise system unwarrantably ===== PAGE 7 ===== 1960 THE CRUSADE AGAINST EXCELLENCE 5 to cast the sponsor in the role of unless current transactions build villain and to investigate ways and up permanent capital in the form means of forcibly restraining his of good will, they are consum- depredations. It is high time for mated at too heavy a cost. those who finance free TV and Business leaders should instruct radio as sponsors to set voluntary those at the merchandising fringe standards for themselves. that no sale is worth-while unless it builds a friendly attitude to- Business Statesmanship ward the company. Otherwise, the Perhaps the issue can be lifted immediate profit is made at the to its correct perspective by recall- unreasonable cost of dissipating ing that Dr. Alfred N. Whitehead, long-term, intangible corporate as- the eminent philosopher and sets in the form of public esteem mathematician, in his famous and good will. speech before the Harvard Gradu- Thus corporations would be bet- ate School of Business Administra- ter off if they retreated into ano- tion, observed: “A great society nymity rather than pay for expo- is a society in which its men of sure as patrons of crooked pro- business think greatly of their grams that promote mediocrity in functions.” public taste. Business statesmanship is capa- Whenever the corporate name ble of canons of responsibility is put before the public, manage- based on something more than a ment should undertake to make it blind worship of “ratings.” a symbol of public decency and To me, the crux of the matter is service to customers. that the managing directors of Besides consummating the im- American corporations should re- mediate sale, the company, in its sponsibly take over as ‘decision public exposure, should, in the makers” in this important area of words of a brochure which this human relations. This would en- writer put out in 1938, ‘sell the tail giving “comeuppance” to little business (and the free-choice sys- men on Madison Avenue, among tem) as well as the product.” Un- the packagers, and in the net- less the businessman each year works, who are governed by wor- puts something back into the sys- ship of the false idol of the fast tem in the form of better public buck. appreciation of liberty, he is like This is nothing more than en- the antisocial farmer who mines lightened self-interest. For every the soil, returning nothing in fer- experienced analyst knows that, tilizers, better seeds, crop rotation, ===== PAGE 8 ===== 6 THE FREEMAN March and other evidences of construc- journalism,” had sufficient balance tive behavior. Such a negative ap- to respect quality. He always proach of taking everything out wanted in his newspapers thought- and putting nothing back is indeed ful and significant pieces to round destructive. out the “cheesecake,” the comics, In putting their best foot for- and the lurid sex tales. ward, sponsors should associate In my own specialty of finance, themselves with activities that re- investment, and business counsel- flect quality, good taste, and stand- ing to corporate clients, it would ards. be a shocking default not to aspire Business will improve its pres- undeviatingly for a high degree of tige if it encourages excellence. objectivity and accuracy. Thus, it This requires sufficient forbear- would be a degradation of profes- ance to be willing to reduce boob sional responsibility to try to ex- appeal in order to register the fact pand an audience by saying that a that they stand for truth, common financial panic is lurking immedi- honesty, and the scientific ap- ately ahead when your true opin- proach to better living and im- ion is that some overdue profit proving: public taste. . taking might cause a mild inter- mediate reaction in stock prices. The “Press” Called to Task Yet when radio crooners and un- It would be falling into a super- specialized announcers herald the ficial booby trap to limit the down- day’s occurrences at the security grading of excellence to radio and market places, there is a discern- TV. Magazines of mass circulation ible tendency among some to im- are faced by similar temptations. prove their ratings by exaggera- Opportunistic editors are forever tion and by unwarranted sensa- mindful that “hoking” up the news tionalism. might sell more copies than de- The sub-surface trend runs deep. pendable objective reporting. But Syndicate salesmen of newspaper even from strictly commercial features advise distinguished con- standards, a balanced diet is to be tributors to “write for the crowd.” desired. As the Saturday Evening This is a mandate for oversimpli- Post has pointed out, it would not fication and for gilding the lily. make sense for it to exclude every- There is too little concern for thing except its most popular fea- stimulating others to go through ture, “Postscripts.” The late Wil- what the late Graham Wallas liam Randolph Hearst, who is cred- called “the painful task of think- ited with originating “yellow ing.” In the craze for quantity ===== PAGE 9 ===== 1960 THE CRUSADE AGAINST EXCELLENCE 7 merchandising, even superior word trend of the new competition for usage is discouraged on the theory survival should not retard their that other than primitive language constructive inquiries because of will narrow your audience. So the slow-wittedness of the un- what? In a good society, there is aware. In the free market place a multiplicity of audiences —one for ideas, there must be venture- for Irving Berlin and another for someness and risk taking. It is Johann Sebastian Bach. stultifying to inhibit dreams until the dullest minds regard such new concepts as self-evident. The passing public excitement The blazoning forth of the ban- and indignation over the rigging ners of mediocrity is a reflection of of quiz shows will get precisely misguided political leadership. nowhere in the way of construc- New Dealers, Fair Dealers, Double tive improvement unless we re- Dealers, mixed economy advocates, late the episodes to the larger modern Republicans, and others problem. have set back the processes of To put the matter bluntly, if we civilized progress by pandering to are to survive as a free Republic mediocrity. in the battle for “competitive co- existence” with the Soviet Union The Glorification of Mediocrity and its allies and satellites, then The downgrading of public taste we must respect an elite of crea- is closely related to the drift tive minds. While there is a role toward a “welfare state.” Despite in our society for the hewers of the political blue-sky appeal be- wood and drawers of water, the hind the question-begging term tempo of our inventors, scientists, “welfare,” the collectivist formula engineers, theoreticians, and ex- for a “welfare state” is a devia- ecutives should not be slowed tion from an individual free choice down to the pace of the lowest society. The “welfare state,” being common denominator. In this con- the antithesis of a merit system in text, there should be rising re- which each is rewarded for his de- spect for quality radio and TV sta- gree of excellence, is a device for tions whose listening audience assuring robbing Peter to pay may not be the largest, and for Paulin order to unduly reward the quality magazines of limited cir- inefficient and the unproductive. culation, which keep the lamps of In its nature, the “welfare state” learning lit. rests on boob appeal and glorifica- Those who are aware of the tion of mediocrity. Its advocates in- The Creative Role in Society ===== PAGE 10 ===== 8 THE FREEMAN March evitably find themselves crusading threw Marx out of the window, against excellence. and the British Labor Party has From a short-term standpoint, similarly sought to achieve popu- such negativism had its maximum larity through soft pedaling planks appeal when fear was rampant for government ownership. There during the maladjustments and have been like trends in France widespread unemployment in the and in Italy. years following the panic of 1929. Without regard to provincialism If the nostrums had appeal under and special pleading, let’s encour- such abnormal circumstances, they age our fellow citizens in this are obviously ill-timed in a period struggle for survival to put their of quickened economic develop- best foot forward and to foster ex- ment. cellence — not hamstring it. A great sermon, a stirring editorial, a revealing article, a fresh expres- Certainly the fallacious economic sion in business or in the arts of dogmas, concocted during the de- man’s capacity for creativity and pressed early nineteen thirties, improvement — these are instru- whatever their original merit or ments of progress. Let’s not choke lack thereof, are today “old hat” off creativity on the ground that in the context of high level em- tired, worn out, tested appeal ployment in the dynamic nineteen themes are safer. sixties. Progress is made by cour- age in shedding outmoded illusions Do We Deserve To Survive? and prejudices. Instead of measuring our sur- West Germany, in its stupen- vival prospects in a vacuum, we dous economic recovery since the should examine the more funda- end of World War II, showed the mental question: “Do we deserve social utility of pursuing the prin- to survive?’ If we answer this in ciples of freedom and prudent the affirmative, then we need have economics. West Germany, having no fear that economic slavery be- earlier been through the inflation hind the Iron Curtain will be more and socialist wringer, uncompro- productive than a free society. In misingly turned its back on soft our soul-searching, we should not money theories and collectivist confuse the labels of free individ- doctrines, and recently the Social ual choice with the reality. We Democratic Party in Germany, should give new and vigorous ex- heretofore fountainhead of author- pression to the libertarian philoso- itative doctrines of socialism, phy, and should make clear that it Outmoded Prejudices ===== PAGE 11 ===== 1960 THE CRUSADE AGAINST EXCELLENCE 9 provides the fountains and springs try, and gave us the atom bomb from which creative improvement before the enemy achieved it. flows. Back in 1948, Eugen S. Varga, In backing a free society, we described at the time as the So- should make certain that we are viet Union’s number one econo- not kidding ourselves. We should mist, suffered disgrace because his re-examine the effect of fastening objective pursuit of knowledge inharmonious collectivist ideas on brought him into conflict with the a free society. We should take a communist party line. fresh look at the effect of trade Varga wrote with extreme cau- union equalitarianism on the phi- tion, but he bucked the propaganda losophy and practice of an incen- line. His conclusion that there was tive system. We should study anew no necessary conflict between the the human consequences of offset- economic interests of Soviet ‘“so- ting incentives with a steeply cialism” and American and British graduated income tax, which tends capitalism in the first postwar dec- to dilute material rewards. We ade was intolerable to the Stalin- should determine whether costly ists. “feather bedding” is patriotic at Varga was bringing the mes- a time when high productivity is sage that capitalism was not on the the sine qua mon for survival of verge of collapse. He was un- the whole free world. frocked for such effrontery, though subsequent events have proven the A Problem Everywhere correctness of his forecast. Obviously, this clash between What Varga said and wrote are excellence and mediocrity is not of less significance than the fact exclusively an American problem. that he as the head of the Russian Under Stalin, Russia attacked ex- Institute of Economics was not cellence through murdering gen- permitted to express his true erals — and later paid a price in thoughts, findings, and appraisals. military weakness when defending The point is that Russian econom- itself against Nazi Germany. And ics was rigged just as quiz pro- Hitler, in dismissing scientists be- grams were. cause of religious faith and politi- What a price the world pays for cal views, frustrated his own am- rigging. If the Russian Praesidi- bition to dominate the world. um had listened to its expert, it Some of the deported creative might have avoided the cold war, minds accelerated pursuit of the and could have started, a decade splitting of the atom in this coun- and a half earlier, rapprochements ===== PAGE 12 ===== 10 THE FREEMAN March for international cooperation, such course, room for sweet charity, as Nikita S. Khrushchev is now without encumbering the machin- mouthing. ery for social progress. But the processes of civilization Appealing to the Best are impaired when insincere poli- The stakes are heavy in this ticians, seeking votes at any price matter of counterfeiting the coins through boob appeal, or hucksters, of communication. To the econom- looking solely at ratings, re-enact ically illiterate, the cost of calling Gresham’s law in a new area. gray black may seem trifling, but, Gresham admonished that ‘bad in the race between civilization money drives out good” and, by and catastrophe, it is important to the same token, uncritical worship respect the scientific approach. of boob appeal stops the flow of When government steps in to information and inspiration to dull the rewards for excellence those capable of creative innova- and to supplement the productivity tion. of the inept, it releases forces of In the circumstances, those who savagery which retard progress. contribute a mite to upgrading In a well ordered society, in which public taste are on the side of the excellence is fostered, there is, of angels. } I ~ Integrity IF EVERYONE were clothed with integrity, if every heart were just, frank, kindly, the other virtues would be well- nigh useless, since their chief purpose is to make us bear with patience the injustice of our fellows. JEAN BAPTISTE MOLIERE, Le Misanthrope THE ETHICAL IMAGE of competition as set forth by a com- pany in its sales promotion and advertising policies some- times does more harm than good — harm to its good name and ultimately to its net profits. The mere selling of goods can be carried out by any crook; it takes an organization with integrity to maintain such good customer relations that its word, spoken or written, rates as high as its financial bond. H. A. TOULMIN, JR., Business Is What You Make It ===== PAGE 13 ===== SOCIAL SECURITY'S PAUL L. POIROT THE 20 PER CENT jump in Social of old-age insurance from his com- Security taxes, effective January pany — particularly if you happen 1 of this year, brought the total to be a young person.! to 6 per cent on the first $4,800 of But that’s the third point of the an employee’s annual earnings. story. If you're buying Social That's $288 a year. Technically, Security, it’s not a good deal to be half is paid by the employee; half a young person. In fact, it’s an by the employer. But actually, the exceedingly raw deal, as indicated full amount is part of the em- in Actuarial Study No. 48 of the ployer’s cost of hiring help — and Social Security Administration: the full amount is missing from The sum of the present value of the employee’s take-home pay. In the contributions to be paid under other words, it's $288 a year, all the present schedule [1956] by pres- paid in effect by the employee. In- ent members and the existing fund cidentally, he’s liable for the regu- is $269 billion less than the present lar income tax on his half of that value of the benefits to be paid to $288 — at not over 20 per cent them and their dependents and sur- ($28.80) if he’s lucky. However, vivors.... On the other hand, there that’s double taxation, which is an- 1S 2 “surplus” of $228 billion for other story. new entrants. The next point of the present In layman’s language, what that story is that the current Social says is that the good old days of Security tax of 6 per cent, or $288, something-for-nothing from Social is scheduled for three more jumps Security are drawing to a close, between now and 1969, when it and that a “new entrant” (a will be 9 per cent on the first TI For a premium of $432 a year from age $4,800, or $432 per employee. Any 20, a man can secure from private companies a life annuity averaging about $216 a month reliable insurance agent can tell after he reaches 65. This is in contrast to the . thly benefit of $127 ised th h you that would buy a sizable chunk Sexial Security. © 127 Promised throug 11 ===== PAGE 14 ===== 12 THE FREEMAN March young fellow at his first “covered” number of beneficiaries is mount- job) is going to help pay at least ing steadily. What’s more, Con- $228 billion more than he can gress is toying with dozens of ever expect to get back from his ways to broaden the program. Social Security taxes. In other Some legislators would reduce the words, under the 1956 amendments age of eligibility from 65 for men (aggravated in 1958, and likely to and 62 for women to 60 (or less) get worse with each subsequent for everyone. Others would lower amendment), the new entrant can or eliminate the minimum age of expect to pay a tax averaging 50 for payments for disability. about 8.3 per cent of payroll until Still others would boost all benefits he retires, as against benefits by 10 per cent. Finally, Rep. Aime valued at 4.93 per cent of that Forand (D., R.I.) proposes to add same payroll. That is, the new en- ‘free’ medical, hospital, and nurs- trant is scheduled to pay $1.69 for ing-home care. This modest pro- every $1.00 promised in benefits. posal, by government estimate, At least, that’s how the actuaries would cost over a billion dollars in of the Social Security Administra- the first year; and far more there- tion figure.it —and it’s not their after.” business to paint the picture any The bitter truth, which any con- worse than it is. scientious parent should want his children — as well as his congress- The Record Shows man — to understand here and The lead editorial in Barron’s of now, is that Social Security has January 4, 1960 carried this brief been tried and found wanting. The review of the program: facts developed in these first 25 “Since Social Security was years under the program make launched in 1935, benefit payments abundantly clear what could have have increased sharply. Group been known from the beginning: after group has been added to the the only way the government can rolls, age limits have been lowered, provide 2 windfall for the oldsters and eligibility broadened. In 1956, is to fleece the youngsters. With Congress extended coverage to a perhaps a few rare exceptions, the whole new class of recipients, the point already has been passed for disabled. Today, 18.4 million entering the program with the Americans are receiving monthly chance of getting back as much as checks, which for the year just one puts into it. Nor is there the ended, totaled $10 billion. Nor will slightest political possibility of a the process stop here, since the soundly funded government insur- ===== PAGE 15 ===== 1960 SOCIAL SECURITY'S SALVAGE VALUE 13 ance program that could give any The immorality arises, not in other result. freely giving of one’s own to assist As long as it afforded a chance the needy or the aged, but in the of something-for-nothing, Social coercion employed to make others Security had its inducements for contribute. “practical” persons with no guide The lesson Social Security offers other than that of crass material- is that a morally defective proce- ism. But, with that powerful in- dure eventually must prove to be ducement now wiped out by the both economically and politically soaring schedule of taxes, it unsound. If the youth of America should be easier for everyone to will learn that lesson, it could be understand why the program was a vital salvage — their most im- doomed from the beginning by its portant benefit — from the Social compulsory and immoral features. Security burden thrust upon them. LAWRENCE SULLIVAN RETIREMENT in the Coal Who will cover Uncle Sam's longevity deficits? THERE was an almost audible lift- cial reports. The liability is as real ing of troubled eyebrows on Capi- as the public debt and, in our opin- tol Hill when U.S. Comptroller ion, should be given comparable General Joseph Campbell submit- stature in the government's finan- ted a detailed actuarial report pro- cial reports.” jecting a deficit of $27,451,000,000 Five years earlier the official in the Civil Service Retirement actuarial audit had reported the Fund. : accrued deficit at only $10,700,- “The amount of the liability for 000,000. which appropriations have not Obviously, the 2,100,000 govern- been made ($27,451,000,000 as of ment workers contributing annual June 30, 1958) should be shown in payroll deductions of 6.5 per cent the government’s published finan- to the retirement fund are prom- -— . i ised much more in benefits than Us. Home of Represontatves, TO724™ anybody is actually paying for, ===== PAGE 16 ===== 14 THE FREEMAN March even after the current matching payments through agency contri- contribution from the employing butions, combined, [13 per cent] bureau or agency. How else explain do not meet the requirements of the an increase of $16.8 billion in the system on the normal cost-plus-in- accrued deficit in only five years? terest basis. Unless additional At today’s level of benefits, the amounts are provided, the result real cost of the civil service retire- will be further increases in the de- ment program would be covered ficiency.” by a combined payroll tax of 21.25 per cent, instead of the 13 per A Deficiency, Nonetheless cent now collected, the actuaries These financial problems do not reported to Congress. The differ- worry Washington acutely at the ence of 8.25 per cent made an item moment, because there is still a of $915,693,000 added to the ac- balance of $10,096,000,000 in the crued deficiency in the trust fund Civil Service Retirement Fund. account for the fiscal year ending Yet the October 1959 report of June 30, 1958. Comptroller General Campbell ad- In June 1959 the Senate Appro- monishes somewhat sternly: “The priations Committee was informed accumulation of U.S. government officially by the Civil Service securities in the Civil Service Re- Board of Actuaries that, under tirement and Disability Fund does prevailing retirement rates and not improve either the soundness schedules, the existing reserve of the system or the ability of the trust fund would begin to evapo- government to fulfill its retirement rate in 1974, “until ultimately it obligations. The soundness of the would be eliminated.” system is dependent on the faith By 1987, this report continued, and credit of the United States.” all reserves would be consumed, This is only a polite and gentle and that year’s payments from the way of saying that the Civil Serv- retirement fund would exceed the ice Retirement Fund deficiency of year’s payroll-tax receipts by roundly $27.5 billion is an unitem- $514,000,000; and for the fiscal ized segment of the total national year 2000 A.D. the annual deficit debt. in the retirement fund would hit But Comptroller-General Camp- $2,093,000,000 — over and above bell insists the retirement accounts payroll-tax receipts of $1,452,000,- should be put in order, so that 000 for that year. Congress and the country may “The valuation shows that em- know precisely from year to year ployee deductions and government what additional actuarial deficits ===== PAGE 17 ===== 1960 RETIREMENT IN THE RED 15 are being piled up against the full instance is the military retire- faith and credit of the U.S. gov- ment system, which covers at pres- ernment. ent 2,500,000 personnel. It was es- He does not insist that the timated by the committee to have whole range of future liabilities in an unfunded liability of $17,600,- the retirement system should be 000,000 in 1953, and it is likely funded currently. But he does that its deficiency at present is urge insistently that all unfunded higher than the $27,500,000,000 of liabilities be carried in the budget the civil service system. The re- from year to year, and thus re- tirement plans for the judiciary, flected honestly in the total federal although much smaller in size, also debt. are entirely unfunded.” This view is expressed also in the report of Roger W. Jones, The Worstls Yet To Come Chairman of the U.S. Civil Service Chairman Jones’ report suggests Commission. that possibly our national debt “Standard actuarial methods are should reflect unfunded retirement useful in determining the cost of liabilities not merely in the range federal staff retirement systems, of $27.5 billion for the civil serv- just as they are useful in evalu- ice fund, but more likely in the ating the cost of industrial retire- region of $60 billion or $65 billion ment plans. However, when it for our “dozen or more” retire- comes to financing federal retire- ment programs centered in Wash- ment systems, additional consider- ington. ations enter which reduce the ne- Nor does this calculation even cessity for accumulating reserves touch the unfunded accrued liabil- based on strictly actuarial con- ities of the Social Security sys- cepts. In view of these factors, it tem, which does its own account- is not surprising to find that there ing and bookkeeping quite inde- is no common basis or principle pendently of all other government for funding the dozen or more fed- retirement funds.! eral retirement plans now in op- ———- Co , found [1953] that a number of liability” under the 1956 Social Security federal retirement systems do not Act at $321 billion. Mr. W. Rulon Wil- . liamson, formerly Actuarial Consultant have any reserves toward their ac- (0 the Social Security Board, thinks the crued liabilities, and are financed figure under present rates and commit- . . ments is nearer to $650 billion. (See his entirely from current appropria- . “Great Expectations” in the July 1959 tions each year. The most notable Freeman, p. 38.) ===== PAGE 18 ===== 16 THE FREEMAN March Neither does the calculation re- would tend to contribute toward flect the unfunded accrued liabili- the ultimate liquidity of the Civil ties of the veterans life insurance Service Retirement Fund to the ex- programs administered by the Vet- tent of $150,000,000 a year. Over erans Administration. Here, a period of ten years, the accrued again, the bookkeeping and actu- liability deficit thus would be re- arial calculations are independent duced from today’s $27.5 billion to of like activities in all other de- roundly $26 billion by 1970. partments and agencies. As of June 30, 1958, the Treas- Backed by the Government ury reported combined holdings of Regardless of the pretext ulti- $55.9 billion in fourteen trust fund mately adopted to siphon more accounts operated by the several Treasury funds into the retire- federal departments. In all these ment account, the liability is very accounts combined the net accumu- real. Congress in 1958 passed a lation for 1958 was $262,000,000 special appropriation of $589,000,- after total combined deposits of 000 to be added to the Civil Serv- $16.3 billion. ice Retirement Fund, represent- Another correction of consider- ing the calculated actuarial defi- able magnitude must be made in ciency for the fiscal year 1959. the report of the Civil Service ac- President Eisenhower vetoed this tuaries, as transmitted to Con- measure on the ground: “There is gress last November. The actu- no sound justification whatever aries made their calculations for adding unnecessarily over half through 2000 A.D. on the basis of a billion dollars to a deficit which an estimated interest rate of 3 per may reach $12 billion this fiscal cent on trust funds invested in year.” U.S. government bonds. The actual The fact remains: whether we return in recent years has been add the figure to the published de- only 2.58 per cent." ficit or not, the government’s lia- The Civil Service Commission bility still is there. Nor is the total now urges a new law which would economic burden lightened in any permit the trust fund to realize a degree, to anyone concerned, by net return of 4 per cent on govern- mere bookkeeping gimmicks which ment bonds held in the retirement conceal the true dimensions of the reserve. By increasing realized in- deficit from public view and dis- terest about 11% per cent on the cussion. Co current invested reserves of round- This point, too, was acknowl- ly $10 billion, such new legislation edged by President Eisenhower, ===== PAGE 19 ===== 1960 RETIREMENT IN THE RED 17 who added in his veto message: per cent of the total retirement “The Retirement Act promises to fund receipts. make certain payments under spe- Whether this actuarial deficien- cified conditions, and regardless of cy is covered in the future out of the size of the balance in the re- reserve funds or by direct Treas- tirement fund at any particular ury appropriations from year to time, these benefits will be paid, year is only a decision of policy. because the promise to do so is In either case the ultimate burden backed by the government. To as- on the taxpayers will be the same. sume otherwise is to call into ques- What fiscal authorities must tion the full faith and credit of keep in mind is that annual bene- the U.S. government.” fit payments from the Civil Service Co Retirement Fund will increase Taxpayer's Liability from $700,000,000 in 1958 to a cal- Since establishment in 1920, the culated total of $1 billion in 1962; Civil Service Retirement system to $2 billion in 1972; $3 billion in has been wholly self-sustaining, - 1986; and $3.5 billion in 2000 A.D. out of direct employee contribu- Under prevailing assessments tions. Through 1958, total receipts and benefit schedules, total benefit from workers alone were $6.9 bil- payments from 1959 through 2000 lion, and total disbursements $5.9 A.D. will be $76.5 billion, and total billion. : employee . contributions, roundly, Thus the employees themselves $25 billion. have contributed $1 billion to the The difference of $51.5 billion present trust fund. somehow must be collected from Over the same period, the Treas- the taxpayers — an average budget ury contributed $4.8 billion to the charge of $1.3 billion a year which fund, in annual matching contri- shows nowhere in the budget! butions, plus $2.6 billion in inter- } est on the fund balances. With total tax burdens already These three items account for well past the point in diminishing $8.4 billion in the current trust returns in virtually every area of fund balance of roundly $10 bil- government — federal, state, and lion. The pivotal historical and local, calls for additional retire- economic fact is that over these ment assessments in the near fu- first forty years the Treasury, ture will almost certainly raise the through both interest and direct shrill question: Where's the money appropriations, has contributed 52 to come from? > ===== PAGE 20 ===== the ABCs of Modew Economica RALPH BRADFORD A is for Agri—the land, or the field, Which used to be cultured for what it would yield. But now it is farmed, so proficient we've got, For what it will yield? No, for what it will not! B is for Bonus, which once was awarded For extra performance, but now is accorded — To those who increase the amount they produce? No, rather to those who can ably reduce. C is for Courage, which used to be named The key to achievement, and widely acclaimed. It led men to venture, to fail, to succeed — But now their success must be state-guaranteed. D. for Dollar—a round silver piece. When loaned or invested it once could increase; But now it is shrinking so fast that to lend it May net you a loss, so you'd better go spend it. 18 ===== PAGE 21 ===== 1960 THE ABC'S OF MODERN ECONOMICS 19 KH is for Effort. It used to be said That effort would aid you in getting ahead. But that is outmoded. Go easy, and wait, And you will be pensioned and fed by the State. E. for Folly, the blissful retreat From reason to nonsense — the marvelous feat Of making believe that the bigger your debt And smaller your dollar, the richer you get. GG. for Gold, which is stacked up in blocks In a cavernous underground vault at Fort Knox — The once-universal, safe yardstick of Earth; But now we are off it: and what is it worth? H is for Human, the “values” that surge Through “liberal” talk. But whenever you urge That they name you these values, it always comes out It is physical things they are talking about — And physical comforts, however they holler, Are harder to get when they cheapen your dollar. (To be continued) ===== PAGE 22 ===== Some PROS and CONS of EDITOR'S NOTE: The. following editorial, “Are Tariffs Isolationist?” was released in September 1959 by Messrs. Fred G. Clark and Richard Stanton Rimanoczy of the American Economic Foundation, 51 East 42nd Street, New York City. Mr. Keith Wood, President of Wood Brothers Manufacturing Com- pany of Oregon, Illinois, questioned the position: “It doesn’t seem to me to be comsistent with the high principles of freedom which you advocate in other areas of your work.” In response, Mr. Rimanoczy offered a 10-point elaboration of his views, here presented, along with Mr. Wood's further comment on each point. ARE TARIFFS ISOLATIONIST? FRED G. CLARK AND. RICHARD STANTON RIMANOCZY ABOUT 15 years ago we had a conversation with a friend of ours who, at that time, was one of the top economists and spokesman for a large group of labor unions. “How,” we asked, ‘‘can your unions fight so vigorously for free trade when- you know that it threatens the job security and wage increases of your dues-paying members?” “Because,” he answered, “if the price of permanent peace and in- ternational good will is a lower standard of living for the American workingman, he must be willing to pay it.” By that he meant that if the opening of American markets to low- cost foreign goods made with low-wage labor was the key to world security, the American labor movement should officially stand behind Any other policy, he said, would be isolationist. We disagreed with him and commented that there is a difference between planning a drastically unselfish policy and living with it after the sacrifice begins to hurt. 20 ===== PAGE 23 ===== PROTECTIONISM 1 With no desire to say “we told you so,” we were not surprised to read an August seventeenth press release from the AFL-CIO Executive Council meeting, at Forest Park, Pennsylvania, which read, in part, as follows: “powerful support developed for a resolution that would reverse ther AFL-CIO’s traditional backing for the United States re- ciprocal trade policy and request tariffs to curb imports of goods produced in foreign sweat. shops.” The reason for this is simple: These goods are cutting into American production and American jobs. This resolution, if made official, could be a turning point in America’s tariff policy. Up to now the only voice raised in Washington against the ad- mission: of foreign goods with which American industry could not compete, was that of management. As is well known, in political matters where the number of votes behind the protest is the deciding factor, the voice of management has little influence. But when labor speaks, official Washington listens. There is no doubt that the State Department finds it much easier to establish cordial international relations when the Tariff Commis- sion makes liberal concessions to foreign countries, but we feel that a proper consideration for American jobs requires that no special ad- vantage be given to foreign goods entering our markets. Stated another way, we believe that foreign goods should be given equal opportunity to compete in our markets. For example, if the factory cost of an efficiently produced American product is $10.00 and an equivalent foreign product is offered for $7.50, the tariff should be $2.50. The foreign producer does not have to pay the $2.50 tariff — he can raise his price to $10.00 and compete on an equal basis. ===== PAGE 24 ===== ARE TARIFFS ISOLATIO: PRO Rimanoczy to Wood 1. We believe that the classical theory of free trade, so magnifi- cently demonstrated in our 48 states, requires conditions that do not now exist between the principal trading nations except between Canada and the United States. In most nations trade is based more on political consider- ations than on economic con- siderations. 2. We do not believe that our elimination of all trade barriers on incoming goods would bring about reciprocal action by the world community. 22 CON Wood to Rimanoczy 1 and 2. It seems that someone will have to start the free-trade ball rolling. To the extent that activities of other nations are based on “political considera- tions,” these activities will be less productive than those re- sponding to the incentives of the free market. Even if these other countries concentrate their efforts on a few items, they'd still have the costs of producing them. There is little evidence they could produce generously for a very long time. While reciprocal action is necessary for the other countries to help themselves, a lowering of the barriers here to their products will tend to in- crease our standard of living re- gardless of what they do. The degree of improvement would probably not be great without reciprocal action, however, since there has to be an actual ex- change in order for trade to oc- cur — something has to go over there to compensate for some- thing coming over here. To say that we should wait for reciproc- . ity is to say that we shouldn’t give freedom to our own people until other governments give their people freedom. ===== PAGE 25 ===== 1960 SOME PROS AND CONS OF PROTECTIONISM 23 3. We do not believe that our 3. I agree that they are not artificial forces of government likely to be contained, but inflation and the wage-price shouldn't we concentrate our at- spiral, which are pricing our tack on the real enemies rather goods out of the world markets, than raise an artificial protective can be contained under existing device which will only let the political conditions. evils perpetuate themselves? 4. We believe that under free 4. You say that under free trade trade, American capital would be American capital would be ex- exported in huge amounts and ported in huge amounts and be- become a much bigger factor come a much bigger factor than than it already is in tooling up it already is in tooling up the the low-wage areas of the world low-wage areas. If this is the for the mass production which action that free men would take, could deliver the coup de grice how can we justify arrogating of our domestic industrial ac- to ourselves to decide for our tivity. equals otherwise? Or, worse still, call down upon their unprotected heads the dictatorship of still a third party — the government bu- reaucrat? The argument of this paragraph is also vulnerable to the argu- ment that no area of the world is going to ship goods and serv- ices to this country without re- ceiving some kind of goods and services in return — and these would have to come from some- where, probably from our fac- tories and farms! 5. We do not believe that there 5. This seems to me to be a are many products which can- continuation of the strange argu- not and would not be made abroad ment that somehow the foreign in huge quantities if our markets economy is going to ship things would absorb them. Within one into this country without receiv- generation it is possible that we ing something in return. wouldn't have to produce any How were we able to develop our ===== PAGE 26 ===== 24 THE FREEMAN March steel, textiles, ceramics, machin- marvelous industrial power dur- ery, paint, plastics, rubber prod- ing the nineteenth century when ucts, machine tools, or even auto- the artificial trade restrictions mobiles. All of these would be- you advocate did not exist in any come available from abroad as substantial way? long as we had the purchasing power to buy them. 6. We do not believe that.-the | 6. If you would advocate a law American consumer who has to prevent the American con- saved money by buying a low- sumer from buying a low-cost cost import will necessarily have foreign product, then I presume more money with which to buy you must consider it immoral — domestic products: he may have or at least evil — for us to buy a to use all of it or more to pay foreign product. the unemployment taxes needed You would deny to me, for ex- to support the man who would ample, the opportunity to buy the have made the import he bought. dictating machine with which I : © am dictating this letter. It hap- pens to be a German make; I bought it because it was better. It also happened to be cheaper, but this wasn’t my primary con- sideration. I am not one of those that think anything foreign is almost automatically wonderful, but I do strongly defend my right : - to purchase the things I want on 7. We do not believe. that under | ; free market. the present conditions one can truthfully say that all money | 7. It seems to me that participa- spent for imports will be spent .| tion in world free trade is one of for exports. These dollars can be | the ways that we as a people can used to pay old debts, to buy U.S. counteract the tragic effects of securities, to buy U.S. gold, and | bloated government. The greater probably other uses ‘which do this burden is on us, the more not come to mind. We had a sub- | we need the opportunity to buy stantial trade deficit last year | inexpensive goods and services. and will have another this year. ’ Granted, this ‘is’ aggravated by ===== PAGE 27 ===== 1960 SOME PROS AND CONS OF PROTECTIONISM 25 foreign aid, but that seems to be another burden whose end is not in sight. 8. We believe that the tariff 8. Wouldn’t our tariff rather be needed to equalize the wage ad- an incentive for them to hold vantages of various foreign coun- wages down — so they could sell tries would be an incentive for in this country in spite of our these countries to raise wages tariffs? Put yourself in the shoes — give the money to their own of the businessman over there people rather than to the U.S. and see what you would do. Customs. 9. I have never heard before that large-scale war was supposed to alleviate economic nationalism. It seems to me that the feelings of 9. We believe that economic na- tionalism (self-sufficiency) which large-scale war is supposed to alleviate, has been aggravated | | . . and is just moving into high gear insecurity which wars develop in the partially developed nations could be o De cans of ceo of the world. nomic nationalism. I believe tha self-sufficiency is contrary to any nation’s long-range interests. 10. We believe that, eventually, | 10. If the eventuality you sug- free trade will come to pass, in gest in this paragraph were the beginning through regional likely, one would think that free agreements between peaceful na- trade would already exist in the tions of approximately equal liv- case of the United States and ing standards, and, in the end, Canada. As you probably know, by the introduction of honestly this is not the case. I see no rea- valued currencies and assurance | son for hoping that free trade of lasting peace. will come to pass unless those who believe in it have the cour- age to advocate it. One of my principal quarrels with your arguments on tariffs is that you neglect to point out the desirability of free trade as an eventual goal. This results in misrepresenting your views and I believe defeats your purpose. ===== PAGE 28 ===== ” cr i PE “lw ET | Success Stem Ori a o TRAN . ls | IN A FREE economy, man’s inge- heen progressively abandoned or nuity knows no bounds. The in- modified. The unleashing of pri- dustrial expansion and high living vate initiative has enabled the Old ‘standards of the United States are World to forge ahead with re- testimony to what individual en- newed vigor. terprise can accomplish. Abroad, On the other side of the globe is too, we find striking examples of Japan whose remarkable postwar what men can achieve when left to comeback has been due to the hard solve their own problems. work and resourcefulness of its In Europe, during the years just people and an economic climate after World War 1], many gov- which encourages these energies. ernments experimented with state Less well known is the case of planning and economic controls. Hong Kong, Britain’s island colony Over the past decade these have off the South China coast. — Hong Kong’s recent economic From the Monthly Letter of the First Na- growth is one of the outstanding tional City Bank of New York, Decembe . . 1959. " * success stories in the Far East to- Illustration: Ewing Galloway, N. Y. 26 ===== PAGE 29 ===== 1960 HONG KONG — A SUCCESS STORY 27 day. This achievement has been as a trading settlement. Lacking in one of private enterprise operating resources, tillable land, or even within a free market economy. adequate water supply, its princi- There has been relatively little pal asset is a sheltered deepwater government intervention in the harbor. That it grew and attracted Colony’s affairs. This is the more the commerce of all nations was significant in view of the challenge because it offered businessmen — to its existence posed by postwar Chinese and Western alike —a events. stable government, the rule of A great seaport and commercial law, low taxes, and a minimum of center, Hong Kong grew to pros- official interference. perity on the entrepot trade with China, its location convenient for Enterprise in Action transshipment of goods to and When necessity forced Hong from the West. But when the Kong to find new sources of in- mainland fell to the communists, come to replace the lost China and the Korean War brought a trade, its resourceful businessmen United Nations embargo on trade wasted no time. New opportunities with Red China, all this was sud- were vigorously sought in South- denly changed. Hong Kong found east Asia. To the recently inde- itself no longer the gateway to pendent countries of that region China, but instead on the edge of Hong Kong offered not just trade the Bamboo Curtain. but the benefit of its mercantile As exports to China dropped experience. With inventories of im- from nearly 40 per cent of the ported goods warehoused locally total in 1950-51 to a trifling 4 per Hong Kong merchants were able cent a few years later, and a mil- to make rapid deliveries to neigh- lion refugees nearly doubled its boring countries. Hong Kong's population, Hong Kong searched free money market eased the pay- out other means of livelihood. In- ments problem for many buyers. stead of massive programs of gov- And its wide range of commercial ernment spending or requests for facilities and duty-free port en- foreign assistance, reliance was couraged foreign companies to placed on private initiative. maintain regional sales offices It was natural for Hong Kong to there. look to its businessmen in time of Attracted by Asian markets for crisis. The island was a barren, al- consumer goods, Hong Kong busi- most uninhabited rock when it was nessmen were soon drawn to man- acquired by the British in 1841 ufacturing as well as trading. Al- ===== PAGE 30 ===== 28 THE FREEMAN March though shipbuilding and some for Africa, drip-dry shirts for the small amount of light industry United States, cotton knitwear for were already established in the Southeast Asia, and even made-to- Colony, expansion faced difficul- measure suits by mail order. ties: lack of fuel, scarcity of in- dustrial sites, and competition [!mpressive Results from well established foreign pro- In the past decade factory em- ducers, not to mention the ever ployment has tripled. Despite fluc- present possibility that the tuations in over-all trade, exports Chinese communists might some of Hong Kong manufactures have day choose to swallow up the little climbed steadily, from a. bare 10 island colony. per cent of total export sales in But there were assets too. 1947 to nearly 70 per cent this Skilled labor and investable funds year. In value terms this repre- were augmented ‘by an influx of sents a rise from about $40 million refugee labor and capital from the to almost $400 million, with more mainland. Most important of all, than half comprised of textiles the economic climate was favor- and apparel. - Other inexpensive able to enterprise. The colonial consumer goods make up the bal- government consistently kept its ance — kitchen utensils, ‘rubber accounts in balance with a stand- footwear, flashlights, thermos ard tax rate of only 121 per cent jugs, .and plastic articles. on personal and corporate income. Production for the local market Here was opportunity for busi- has grown apace with exports. nessmen to create, to produce, and . Food processing and the manufac- to enjoy the fruits of their labor. ture of housewares and building Industry was expanded and, at materials have increased rapidly.. the same time, energetic efforts Handicrafts and art. objects for were made to develop larger ex- the growing tourist trade are an- port markets. New products were other source of income. Hotel and introduced and old ones adapted office construction account for a to consumer needs in different good part of the building boom. countries. The phenomenal four- Hong Kong’s achievement is all fold growth of Hong Kong's textile the more impressive since its larg: industry, for example, has been est industry — textiles — is the one due in large measure to skilled that meets the stiffest competition marketing — sarongs for the South in world markets. Hong Kong can Seas trade, woolen gloves for compete effectively because its pro- European buyers, cheap print cloth duction costs are low. In the ab- ===== PAGE 31 ===== 1960 HONG KONG — A SUCCESS STORY 29 sence of exchange controls, its tervention in economic life. In- businessmen can buy raw mate- deed, it is really quite unfashion- rials in the cheapest market. Since able these days not to have a de- they do not rely on government for velopment plan. expensive services, they pay low In seeking to industrialize, gov- taxes. Local labor is industrious ernments have burdened their and quick to learn. Very little time fledgling economies with controls. has been lost through industrial They have allocated limited re- disputes. Although competition has sources to ill-conceived projects kept wage rates low, the same with resulting inefficiency and forces have kept down living costs. waste. Impatient to get ahead in Hong Kong's success in building the world, they have fed inflation up its export industries has cre- with printing press money. Ex- ated new problems. Striking sales change allocations, import licens- gains overseas have brought pro- ing, and arbitrary taxation have tests from established suppliers been used to subsidize uneconomic elsewhere. Several nations have enterprise, eliminate competition, placed import quotas on Hong and conceal planning blunders. Kong goods. And Red China re- For such progress as this, the portedly has been undercutting consumer pays a heavy price. Hong Kong sales in some markets Goods are more costly, selections by dumping. Despite these diffi- limited. Foreign investment and culties, Hong Kong businessmen private initiative are discouraged. are certain they can compete if The range of opportunity for local given a chance. They seek no sub- funds is narrowed. The final irony sidies or special favors. But they is often the flight of sorely needed know their future is tied to the domestic capital to more hospitable healthy growth of world trade. For areas. Hong Kong’s postwar in- Hong Kong, freedom to trade is dustrialization, for example, has life itself. benefited not only from refugee money fleeing Red China, but also Lesson for Underdeveloped Countries {rom the influx of capital from In many parts of the world to- noncommunist neighboring coun- day governments are seeking to tries that could ill afford to lose it. raise living standards through in- Hong Kong's success in attract- dustrialization. To attain this goal, ing foreign investment and achiev- underdeveloped nations have in- ing rapid development despite in- dulged heavily in state planning herent disadvantages is striking and other forms of government in- testimony to the truth of liberal ===== PAGE 32 ===== 30 THE FREEMAN March economic principles. Of the physi- self states in its latest annual re- cal factors usually considered es- port: sential to industrial growth, nearly “The predominant theme in in- all are missing in Hong Kong. But ternational discussions about Asia Hong Kong has offered business- in recent years has been the ur- men greater freedom from official gent need for outside assistance interference than any other areain ...to promote... economic devel- Asia. It has also provided a stable opment and to raise the standard government and strong support of living. ... for the free enterprise system. ‘“Hong Kong, however, has This policy has paid off hand- [been]... the exception... . This somely by unleashing human po- small Colony, almost entirely lack- tentials that in other countries ing in natural resources other than have remained paralyzed by bu- the indomitable will and enterprise reaucratic controls. of its people, has not only belied all prophecies of economic dis- Some of the nations now bent aster, but also established itself as on economic advance might well a vigorous industrial power. . . . ponder the lesson of this boot- This development has been strap operation. Hong Kong’s suc- achieved without major recourse cess has also demonstrated that to outside economic assistance... external aid is not the most vital and despite formidable obstacles ingredient of a development plan. arising from political circum- As the Hong Kong government it- stances beyond local control.” Remove the Chains WHAT IS REQUIRED in India is essentially a redirection of the activities of government, away from policies restricting the energies and opportunities of its subjects, and away from acts of emulation of the pattern of the Soviet world, into directions aimed at releasing the energies of millions of people. These tasks will tax the resources of Indian governments for many years to come. P. T. BAUER, United States Aid and Indian Economic Development. Published by the American Enterprise Association, 1012 14th St.,, N. W., Washington, D. C. 119 pp. paper $1. ===== PAGE 33 ===== DOLLARLESS DIPLOMACY Oor— AN EPISODE IN THE COLD WAR It was a rainy afternoon At story-telling time. Old Kaspar lit a fresh cigar And poured a rum-and-lime, While Peterkin and Wilhelmine Warmed up the television screen. They saw a mob of shouting men Who thronged a city square And cast a hail of sticks and stones On Buicks passing there; While soldiers stood in close array With faces turned the other way. “Now tell us what ‘twas all about,” The little children cried. “It was a Demonstration, dears,” Old Kaspar soon replied; “Against the Dollar Scarcity And profitless Neutrality.” “The Neutrals’ lot is very hard,” Said Kaspar with a sigh; “They have to make the goods they sell And pay for what they buy; And when the dollar bills are passed, They always get their helpings last.” “Then who were in the Buick cars?” Cried little Peterkin. “It was a Delegation, dear,” Said Kaspar with a grin; “They brought a load of free good will, But not a single dollar bill.” H. P. B. JENKINS Economist at Fayetteville, Arkansas 31 ===== PAGE 34 ===== V4 W. ALLEN WALLIS THE LONG and rapid rise in pro- ductivity in the United States has occurred not because people work harder — in fact, our grandfathers almost all worked longer hours at heavier tasks than we do — but be- cause people work more effectively. The increase in the effectiveness with which people work results in considerable part from increases in education, in skills, in health, and in general well-being. The rising quality of the labor force, in short, is an important source of productivity increases. A related source of productivity increases is new knowledge, some ~ produced by research in industrial, university, and government labo- ratories but much developed in an informal way on all kinds of jobs where ingenious people make in- numerable small or large improve- Dr. Wallis is Special Assistant to the Presi- dent of the United States and Executive Vice- chairman of the Cabinet Committee on Price Stability for Economic Growth, on leave as Dean of the Graduate School of Business, University of Chicago. This article is from his remarks of November 19, 1959, before the National Industrial Conference Board at Chicago. ~ 32 ments in their methods of doing things. Productivity increases also as more and better capital equipment is used. One man with a steam shovel can move more earth than many men using only hand tools. Even without improvement in the quality of equipment, an increase in the amount used can bring a rise in output per man-hour. In general, however, as we accumulate capital, we incorporate in it the findings of research, so that we have not only more but better capi- tal equipment. But capital includes more than just tools and ma- chinery. For example, the im- provement of roads, harbors, communication networks, water supplies, and sanitary facilities can all contribute to rising produc- tivity. Just as the tools with which people.work.are important to their productivity, so too are the natural resources at their disposal. Ask a farmer about the importance of good land or a miner about the ===== PAGE 35 ===== 1960 WAGES, PRODUCTIVITY, AND PRICES 33 importance of the richness of the property where the demand for it seam he works. The discovery and is greatest. Competition for the development of more and richer buyer's dollar and the incentives natural resources results in in- offered in a free economy by creased productivity. wages, prices, and profits play a * Increased productivity also re- vital role in directing our efforts sults from more effective organi- and stimulating efficiency, as well zation of the nation’s human and as in rewarding them. material resources, so that each Increases in productivity arise, input is used where it can produce then, from the efforts of people in the most value. The organizing all walks of life. They are not at- job is performed mostly by man- tributable to any single group. agement, and improved methods of Even a group whose measured management increase the rate of productivity happens to be rising growth in productivity. An im- cannot necessarily claim special portant contribution of managers credit, for its rises may be due is in seeking and developing new primarily to increases in the quan- products and new methods, and tity and quality of the people, especially in risking the funds capital, natural resources, man- necessary to try innovations that agement, and technology with often prove costly failures. The which it works. Labor, capital, responses people make on their natural resources, management, own initiative to differences in and technology jointly produce our wages and prices also result in output, and an increase in the labor, capital, and natural re- quantity or quality of any one of sources moving toward their most them will increase the output per effective uses. unit of input of the others. As manpower shifts from, or avoids, low-productivity jobs Productivity and Earnings in where pay must be low, and moves One Industry to higher-productivity jobs where The various measures of pro- pay is higher, productivity in- ductivity all give us some insight creases for the economy as’ a into the process by which our whole, even though productivity in standard of living rises, and they each industry separately may re- therefore have some bearing on main unchanged. Similarly, the the average gains that workers efforts of owners of capital and can expect to obtain through in- natural resources to get a high re- creases in average earnings or de- turn lead them to employ their creases in average consumer ===== PAGE 36 ===== 34 THE FREEMAN March prices. In evaluating specific same work would receive different wages and salaries, however, there pay. In fact, many plants produce is no similar rule or formula of in several industries, so wages broad applicability. might differ for the same work in One important barrier to any the same plant. Industries with general rule is that productivity constant or only slowly rising and its growth, however measured, wages would have more and more vary tremendously from industry trouble persuading people to work to industry. for them, while people would be There are many reasons why on waiting lists to work in the productivity increases more rap- high-wage industries. idly in some industries than in Also, tying wages to output per others. New industries typically man-hour in each industry would present many opportunities for reduce the incentive to industry to improvement, since as they grow, introduce the innovations which economies are realized from mass- raise productivity in the first production or simply from new place, and would discourage ex- ideas. New technology and new pansion in the successful indus- resources affect some industries tries by preventing exceptional more than others. Arrangements productivity from being fully re- by governments, labor, or manage- flected in reduced costs and prices. ment stimulate productivity gains in some industries but retard them in other industries. Many direct- Thus, if wages are not tied to service industries are by nature the productivity of individual in- difficult to change; for example, dustries, the outcome is likely to productivity cannot be expected to be more equitable and more prac- rise as rapidly in barbershops as tical. The ordinary processes of in automobile factories. wage determination and of choos- If wages were tied to output ing among jobs once rates of pay per man-hour, industry by indus- are established, tend to bring try, the result would be both un- about roughly equal pay for equal fair and impractical. Wages would work. Equitable and Practical | go up rapidly in some industries, Not only would it be impractical stay about the same in others, and to tie wages in each industry to even decline in a few. productivity in that particular in- Since many occupations and dustry, but it would also be im- types of jobs are found in virtually practical to tie wages in each in- all industries, people doing the dustry to average productivity in ===== PAGE 37 ===== 1960 WAGES, PRODUCTIVITY, AND PRICES 35 the whole economy. This would about the general or average re- ignore differences in the need for sult of all the separate rates. There labor and in its availability. In an is here an analogy with judging expanding area, industry, or oc- baseball players: the shortstop, cupation, employers frequently for example, is not necessarily raise wages more than the na- causing a game to be lost if he tional average increase in output scores fewer runs than the oppos- per man-hour. These large wage ing shortstop; but the team as a increases serve the useful purpose whole certainly loses if it scores of inducing labor to enter the fewer runs than the opposing team area, industry, or occupation in as a whole. In wage negotiations question, and they help pay mov- as in baseball, even though we ing or retraining costs. In a have no clear-cut criterion for declining area, industry, or occu- evaluating any one contributor to pation, a chronic labor surplus the total result, we can apply cer- may develop, and attempts to in- tain clear-cut criteria to the total crease wages in line with the na- result. tional average increase in output For the economy as a whole, per man-hour would reduce em- productivity is related to wages in ployment opportunities and make the following broad terms: If the it less likely that new industries average level of prices is to be would move into the areas of labor reasonably stable, wages can rise surplus. only as much as productivity, ap- These considerations and many propriately measured, rises. (In- others like them make it clear that creases in the total share of it is difficult or impossible to pre- national output going to wage and scribe general criteria for proper salary earners do modify this as- rates of wages and salaries. Those sertion; but such changes are so on the spot with knowledge of all slow and the possibilities for fur- the special circumstances must ther increases from the present 80 find the best solution for each case. per cent are so limited that they can be overlooked in discussing Productivity, Wages, and Prices in the short-run practical questions.) Economy as a Whole Productivity, and changes in Even though the special circum- productivity, throw little light on stances surrounding each particu- what wages should be, or what lar wage or salary may make it changes in wages should occur, in impossible to judge any one rate, any particular job, firm, industry, certain judgments can be made occupation, or region. Above- ===== PAGE 38 ===== 36 THE FREEMAN March average increases in productivity whole economy must be sought by in any one industry, for example, controlling the environment in may which wage and salary negotia- . to some extent raise wages in tions occur. the industry, : .to some extent increase em- An Environment of Freedom ployment in the industry, The key to a proper environment .to some extent decrease em- is to maintain a legal and institu- ployment in the.industry, tional framework such that the . to some extent increase output self-interest of each party is either in the industry, consistent with the public interest, . to some extent lower prices in or else is balanced and checked by the industry, opposing interests of other par- . to some extent raise wages in ties. If excessive wage and price other industries which compete increases would cause severe losses. for similar workers, of employment, sales, and public. . to some extent lower wages in good will, for example, one side or other industries, : the other will resist them. Where . to some extent raise prices in excessive concentrations of power other industries, in the hands of labor or business . to some extent lower prices in produce too many results or an other industries. average result contrary to the pub- The ‘extent to which each of lic interest, remedies should be these adjustments is appropriate sought through eliminating the in any instance depends on literally power to injure the public interest, thousands of details and special rather than through direct control circumstances, and can best be of unions, businesses, or collective worked out by individuals who bargaining. : have freedom and opportunities to ~~ Another important key | to an choose among jobs and among the environment which ‘will hold goods and services they buy. Since wages and salary settlements in the public interest may be little line with the public interest is concerned with each separate ad- sound - management © of money, justment in each instance, and budgets, and debt by govern- since the maintenance of free in- ments. When mismanagement stitutions and free collective bar- creates pervasive inflationary gaining are paramount goals of pressures, little success ‘can be public policy, attainment of the achieved by those who attempt. to appropriate over-all result for the hold . down particular wages or ===== PAGE 39 ===== 1960 WAGES, PRODUCTIVITY, AND PRICES 37 prices, for neither party to trans- the American standard of living, actions gains any advantage from spring from many different preventing increases — and to the sources: more effective workers, extent that they do succeed they more and better capital equipment, may do as much harm as good, better natural resources, better since ‘“‘grey markets’ appear under management, new knowledge and these conditions. technology, and a social organiza- tion which affords broad oppor- Productivity is the basis of tunities, encourages competition, prosperity. Increases in produc- and provides incentives and re- tivity, on which depend the rapid wards to individuals for efficiency, improvements that . characterize thrift, and industry. ~ I be Motivation to Conserve PRIVATE PROPERTY is not an insti- ricade at which the increase in tution that men can abandon with- population will be halted. Nearly out penality. The possession of everywhere the demand for water private property gives to the is increasing relative to the sup- owners a sense of responsibility ply, and the trend is that water and a wish to retain what they will progressively need to be more have, which means that they con- carefully conserved than it is to- serve and become less wasteful. day. What men do not own, or do not The following is a paragraph have to pay for in accordance with taken from a commercial adver- their consumption, they always tisement: waste, more or less. One proved way to stretch dwin- The water supply of the world dling water supplies is to discour- will probably be the ultimate bar- age water waste through universal _— metering. Water consumption in Mr. Nymeyer is owner of the Libertarian the United States averages 150 Press. South Holland, Illinois, and publishes First Principles in Morality and Economics gallons per day, per person. When where this article first appeared in October . a 1959. water meters are installed in a ===== PAGE 40 ===== 38 THE FREEMAN March previously unmetered community, needs. He alone can appraise that. per capita water consumption de- One person needs more and an- creases by about 50 per cent. other needs less. No government What people do not have to pay decree can take care of variable for in proportion to their consump- needs for water by different per- tion, and what is not their own sons, or by the same person at possession, they waste. It is always different times. The only effective that way. Even the most conscien- way to conserve water is to charge tious persons are less careful with for it, and let people determine what belongs to others, and es- their own consumption. But what pecially to the public, than with they must pay for will certainly what belongs to themselves. be less wasted than what they do Socialism-communism always not need to pay for. impoverishes a people because it Because socialism-communism does not utilize the motivation to does not stimulate human effort conserve, which becomes operative by incentive in the form of own- only with private ownership and ership, and because it does not charges in accordance with use. curb so effectively as capitalism Socialism teaches: from each ac- does the universal propensity to be cording to his ability, to each ac- wasteful unless something must cording to his need. What is the be paid for, there is an inherent need of people? Is it 150 gallons tendency for socialist-communist of water per day per person? No- societies to be poor. History sub- body knows what each person stantiates that. Py A False Liberalism A “LIBERAL” is one who is so preoccupied with spending the fruits of a nation’s production, according to his own notion of how they should be spent and regardless of the cost in human liberty, that he is oblivious of the problem of how to produce those fruits in the first place. CHADS 0. SKINNER, Bronxville, N. Y. ===== PAGE 41 ===== An analysis of the respective roles of the free market and the government in affording consumers protection from... N em Cle ee ‘ - yd THE PHANTOM CALLED “MONOPOLY” v HANS F. SENNHOLZ IN THEIR denunciation of capital- nopoly. And they will be shocked ism the socialists use some fright- if anyone casts doubt on the wis- ful phantoms. The oldest and per- dom of the antitrust legislation. haps the most effective one is the Unfortunately, even free enter- notion that monopolistic concen- prisers are divided on this point. tration of business inheres per- Some defend our antitrust legisla- manently and inseparably in tion and the governmental super- capitalism. They depict in vivid vision of big business which it colors the horrors of monopolistic entails, while others summarily capitalism and then conclude that a reject the prevailing notions on free enterprise economy obviously monopoly and the antitrust ac- requires governmental restraint tivity of the government. lest it deteriorate to a chaotic sys- An unbiased investigation of tem of business monopolies and the monopoly problem might well public oppression. begin with the question: Are mo- Recalling the era of “trusts” and nopolies inherently bad? Are they “tycoons” around the turn of this identical with destruction of com- century, these socialists valiantly petition, with enormous monopolis- defend the Sherman Antitrust Act tic gains, and with gouging of of 1890, the Federal Trade Com- workers and consumers? Under mission Act, and the Clayton Anti- what conditions, if any, are mo- trust Act of 1914 which aim at nopolies really the evil organiza- the suppression of business mo- tions which they are assumed to — be? Dr. Sennholz is Head of the Department of Economics, Grove City College, Pennsylvania. In an unhampered market econ- 39 ===== PAGE 42 ===== 40 THE FREEMAN March omy a monopoly affords no cause than a simple retooling or reor- for alarm. A company that has ganization that is achieved in a exclusive control of a commodity few weeks or months. Or, brand or service in a particular market new facilities may be employed is prevented from exploiting the for an invasion. Thus one pro- situation by the following com- ducer, whether he is a monopolist, petitive factors: potential com- duopolist, or a competitor among petition, competition of substi- many, always faces the potential tutes, and the elasticity of demand. competition of all other producers. Even if a corporation the size Potential Competition of General Motors were a monopo- In the United States thousands list with regard to certain com- of different commodities are each modities, it would have to act as produced by a single producer, if it were a single producer among i.e.,, by a monopolist, and no one many. For it continuously faces seems to care about it. The 5 and potential competition from the 10 cent stores are full of items Fords, Chryslers, General Elec- produced by monopolists. And yet, trices, and others. These potential all these items are sold at competi- competitors undoubtedly have the tive prices. Why? Because of po- resources, technical know-how, tential competition. As long as and marketing organizations to there is potential competition, a compete with General Motors. monopolist cannot charge monopo- But even if competitors of listic prices. similar size and structure should Potential competition exists in be absent, the monopolist must be all fields of production and com- mindful of the potential competi- merce which anyone is free to tion that can arise overnight. enter. In other words, wherever Numerous financiers, promoters, government does not prevent free and speculators continuously entry through licenses, franchises, search for opportunities to estab- and other controls, potential com- lish new enterprises. They have petition exists. Most corporations formed new giant companies in are searching continuously for the past. And they are willing to new lines and items of production. risk their capital again if they see They are eager to invade any field an opportunity: for profits. in which business . earnings are Dreading the promoter who may unusually high. invade his field, the monopolist The invasion of another field by therefore must act as if ‘he were a corporation may involve no more surrounded by numerous competi- ===== PAGE 43 ===== 1960 THE PHANTOM CALLED “MONOPOLY” 41 tors. He must be alert and always porations, by: continuously im- “competitive.” He must continu- proving the quality of my product ously improve his product and re- and reducing its price. They duce its price. For if he should finally abandoned the field.” Ob- relax, another company will soon viously, he would immediately in- invade his field. The newcomer is vite his formidable competitors to likely to be a formidable competi- re-enter the field if he failed to tor for he has new machinery and improve his product in the future, equipment. He has new ideas and or charged monopolistic prices. applies new methods of production. That government has not in- And he enjoys the good will of all vestigated or prosecuted this mo- customers. Indeed, a monopolist nopolist probably is due to the who relaxes invites disaster. smallness of his operations. Ex- If an enterprise nevertheless en- perience, however, suggests that joys a monopolistic position, it such large corporations as General must by necessity be the most effi- Motors, du Pont, or U.S. Steel cient producer in the field. In would face governmental investi- other words, in an industry em- gation and prosecution if they dowed with freedom of entrance,a were the monopolist. If this is monopoly is an efficiency monop- true — and unfortunately there is oly. For the government to im- no reason to doubt it— govern- pose restrictions on it or even mental prosecution aims- at big dissolve it by force would be to business rather than at monopo- destroy the most efficient producer lies. and invite the less efficient to enter the field. In this case, the economy Competition of Substitutes suffers a net loss in output and But even if American enter- efficiency. prises failed to compete with each In my hometown a small manu- other and potential competition facturer succeeded in gaining a failed to exert a restraining in- monopolistic position in the pro- fluence on monopolists — which is duction of creep testers, which are a most unrealistic assumption — machines that test the behavior the people would escape monopolis- of materials at elevated tempera- tic pricing through recourse to tures. When I inquired into the substitutes. In many fields the reasons for his astonishing posi- competition of substitutes is more tion, ‘he explained with a smile: important than that of competing “I completely routed my two com- producers. petitors, both billion-dollar cor- People’s wants may be satisfied ===== PAGE 44 ===== 42 THE FREEMAN March by a variety of products and ma- have its restraining effect on a terials. In the manufacture of monopolist. clothing, for instance, a dozen dif- ferent materials vie with each Demand Elasticity other for the consumer’s dollar. The existence of substitutes The monopolist of any one ma- makes for demand elasticity which, terial is powerless because monop- in turn, makes monopolistic pric- olistic pricing would induce con- ing unprofitable; for higher prod- sumers to switch immediately to uct prices would greatly curtail other materials. The producers of product demand, and thus sales suspenders compete not only with and income, of the monopolist. each other and with potential com- Therefore, he again must act as petitors, but also with the pro- if he were a competitor among ducers of belts. In the transporta- many. tion industry the railroads com- The same is true in all cases of pete with trucks, cars, airplanes, demand elasticity, whether or not pipelines, and ships. In the build- there are substitutes. For instance, ing industry lumber competes with electricity for heating must com- aluminum, steel, bricks, and pete with such substitutes as oil, stones. And Bayer’s aspirin com- gas, and coal. However, as a source petes with Anacin and Bufferin. of light and .of energy for power In some cases, the adoption of tools, it probably faces no sub- substitutes requires large capital stitutes. An electricity monopolist, outlays which producers are not nevertheless, would be greatly re- willing to make immediately. Com- strained by potential competition plete substitution then will take and demand elasticity. time, although it will ultimately If electricity prices would rise be as effective as immediate sub-. considerably, the most important stitution. A railroad that wants to consumers, such as industrial substitute oil for coal needs large plants and other business organi- capital for the purchase of diesel zations, would soon produce their engines. Therefore, it may switch own electricity. With the proper from coal to oil only when it needs equipment anyone can produce his to replace worn-out coal locomo- own. Of course, the monopolist tives. A house owner may switch may counteract this. danger by from coal to oil or natural gas charging different rates to his dif- when his old coal furnace must be ferent classes of customers: low replaced. Thus, within a period of rates to all industrial users who several years, substitution will are apt to produce their own elec- ===== PAGE 45 ===== 1960 THE PHANTOM CALLED “MONOPOLY” 43 tricity, and higher rates to all an entirely different product that others. Assuming that residential now contributes most to our well- users do not readily resort to in- being. dependent power production, are Consumer resistance to monopo- they not liable to fall in the grip listic pricing finds expression in of a monopolist? No! Demand yet another form. People who sus- elasticity would prevent this. Many pect monopolistic practice by a people undoubtedly could reduce producer tend to favor any new- their consumption of electricity comer who would compete with without suffering mentionable dis- him. Any enterprise striving to in- comfort. A house owner who may vade the field is assured the enjoy the light of a hundred bulbs patronage and good will of all dis- on a winter evening might easily satisfied consumers. In our ex- curtail his consumption if elec- ample of the electricity monopo- tricity charges should increase list, the industrial user producing greatly. But this curtailment of electricity for his own consump- demand would reduce the sales and tion may decide to supply power income of the monopolist. also to his workers and neighbors All producers in fact compete who, at lower rates, would gladly with all other producers for the transfer their patronage. Thus, in consumer’s dollars. The manufac- a free economy, even the electricity turer of television sets competes monopolist is greatly limited in his with the manufacturer of freezers pricing policies. and refrigerators. If the monopo- The same limitations apply in list of one commodity — say, tele- all other industries, including the vision sets — should raise his price, public utilities. A mail monopoly the consumer may forego the pur- would face not only the people's chase of a new set and buy in- demand elasticity for mailing serv- stead a new refrigerator. We con- ices but also the potential com- sumers do not allocate our income petition by the numerous inter- to the satisfaction of categories of company mailing systems. At the wants but to that of specific wants present time hundreds of com- yielding the greatest net addition panies have intercompany mail to our well-being. This addition, delivery systems that could ex- in turn, is determined by the pand their services to include their urgency of our wants and by the workers, customers, and other cost of acquisition. Rising costs people in their communities if the obviously affect us adversely, law allowed. The case is the same which may induce us to purchase with other “public utilities” sup- ===== PAGE 46 ===== 44 THE FREEMAN March plying goods and services such as water, telephone, and telegraph. On Optimum Growth In a system of unhampered eco- nomic freedom, a monopolistic market position could be attained only through efficiency. Without government intervention, an effi- cient enterprise tends to grow un- til it reaches its optimum size at which the unit costs of production are lowest. This optimum depends on the nature of the industry, the state of the product and capital markets, the rate of taxation, and the caliber of management. Obvi- ously, a steel company requires a much larger capital outlay and work force than does a dentist's office or a barber shop. Also, the enterprise managed by a brilliant businessman has a higher point of optimum than one managed by his mediocre successors. A monopo- listic position can be attained. only if the optimum size suffices to supply completely a given market. The territorial expanse of the market which a monopoly is cap- able of supplying depends on two factors: the difference between the unit costs of production of the monopolist and those of his poten- tial competitors, which determines the margin of superiority of the monopolist, and the unit costs of transportation, which are deter- mined by the nature of the product and by the distances involved. A bulky commodity such as cement, for instance, is burdened with high costs of transportation. Conse- quently, the market of the cement monopolist will be relatively small, for an increase in distance from plant to consumer rapidly in- creases his unit costs. On the other hand, commodities with rel- atively low transportation costs such as watches or diamonds can be distributed over vast market areas. This analysis of the territorial range of markets also reveals that bulky item monopolies are in a relatively favorable position . to conduct monopolistic policies. While an American producer of watches must cope with foreign competitors all over the globe, a cement producer may be little con- cerned about the competition of another producer some 100 miles away. He. may indeed be tempted to restrict output and raise prices in order to maximize his income. But, of course, such action would invite other producers to invade the territory of -the monopolist. Another corporation soon would build a modern plant in that ter- ritory. With a new plant and the good will of all consumers, it un- doubtedly would rout the monopo- list. It is apparent that a change in transportation costs, production ===== PAGE 47 ===== 1960 THE PHANTOM CALLED “MONOPOLY” 45 technology, management, or any interventionist world many mo- other cost factor can upset a mo- nopolies actually have the power nopolistic position. Also, a concen- to restrict output and charge tration beyond the optimum point monopolistic prices. But the rea- is an invitation to failure, for the son for this unfortunate state of unit costs of production tend to affairs is to be found in the increase again. The monopolist multiplicity of government re- who disregards this fact invites strictions of competition. If the potential competitors to invade his government prevents competitors field and reduce him to his opti- from entering the field, the people mum size. There is no need for lose their protection by potential government to break up a giant competition. The public utility that enterprise; if it were too large, enjoys an exclusive franchise is the competitors would reduce it. a local monopoly. In this case, the This is not to deny that even people’s only line of resistance is in a capitalist economy a mo- their demand elasticity and per- nopoly may temporarily reduce haps, also, their recourse to inde- output and charge monopolistic pendent production. Meanwhile, prices. Having reached a monopo- the planners resort to political listic position through efficiency, controls. a businessman may attempt hence- Through franchises, licenses, forth to follow monopolistic poli- patents, tariffs, and other restric- cies. But the foregoing analysis tions, modern government has in clearly indicates that his attempts fact created thousands of monopo- are bound to be short-lived. Soon, lies. Having thus crippled and he will face a crucial struggle with hampered competition, it then powerful invaders producing with proceeds to control the monopolies. new equipment and enjoying the Political bodies now decide vital good will of the public. Of course, economic questions in many im- it is most unnatural and unlikely portant industries. They regulate for a businessman to rise to emi- our railroads, airlines, and other nence through product improve- means of transportation. They ments and lower prices, and then grant exclusive franchises in suddenly to turn toward output radio, television, telephone, and curtailment and price increases. telegraph. They monopolize the But if he should act in such a man- production and marketing of elec- ner, which is conceivable, he prac- tricity, water, and gas. They issue tices self-destruction. patents that assure their re- It cannot be denied that in our cipients monopolistic positions. ===== PAGE 48 ===== 46 THE FREEMAN March And, finally, they own and operate Effects of Tax Policy the whole postal industry and-pre- The confiscatory taxation im- vent competition through fines posed by the interventionist state and imprisonments. In all these causes the same industrial con- cases, the government effectively centration. The middle-aged restricts competition and thus founder and owner of a million- creates local or national monopo- dollar enterprise is forced to sell lies. out to a large corporation for fear Labor legislation has granted of confiscatory estate taxation. In monopolistic powers to labor case of his sudden demise his unions, which control whole in- widow and heirs, who may not be dustries employing hundreds of qualified to carry on his business, thousands of workers. They close will face confiscatory inheritance down vital industries and cripple taxes. They would have to liqui- the entire economy. Through the date the business in a very short union shop arrangement, or di- time to meet the tax liabilities. As rectly through brute force, they the sale of a specialized business dictate employment conditions in requires great skill and good tim- thousands of enterprises. All this ing, the sale by the widow prob- is done in perfectly legal sanctity ably would entail large losses. without interference by the gov- Therefore, a responsible business- ernment. On the contrary, the legal man will arrange the liquidation framework for this union power of his own enterprise in good time. is provided by the very govern- He himself will sell out to his cor- ment that profésses to oppose mo- porate competitors and invest the’ nopolistic practices and positions proceeds in marketable securities. in the economy. Government bonds, for instance, This frightful union power, in can be readily sold for estate tax turn, forces enterprises to unite. purposes. Thus, hundreds of small A small businessman cannot pos- companies disappear every year. sibly meet the challenge of a Especially the most efficient powerful. industry union. He there- small enterprises tend to be liqui- fore is tempted to sell out to a dated on account of tax considera- giant corporation with greater tions. A going concern that gener- power of resistance. Of course, ates profits is taxed at a rate of 52 even the giant corporation will be per cent after which the corporate closed by unions. But it cannot owner may be taxed at rates up to be destroyed as easily as can a 91 per cent. If the owner should smaller company. decide to liquidate his enterprise ===== PAGE 49 ===== 1960 THE PHANTOM CALLED ‘“MONOPOLY’’ 47 during the year, his profits are and other measures that increased subject to a capital gains tax labor costs and reduced labor effi- amounting to 25 per cent. It is ciency. Without further govern- obvious that a businessman is ment intervention, this social tempted to generate a maximum legislation would have put German amount of profits in a given year producers at a competitive disad- and then quickly sell or liquidate vantage against foreign producers. his enterprise. Thus, hundreds of Under the new burden of social efficient “collapsible” companies costs, they would have lost not disappear every year. only many foreign markets but probably some domestic markets Governments Create Cartels as well. Then there would have Since the rise of political in- been depression and unemploy- tervention in economic affairs, ment until German wages declined governments have frequently or- sufficiently to offset the social ganized or fostered the organiza- security costs. tion of cartels. These are combina- Instead of facing depression tions of enterprises for the and unemployment, the German purpose of controlling the output government decided to form car- or marketing of a comriodity or tels. It imposed high tariffs on trade through regulation of pro- foreign goods, which protected the duction, allocation of markets, German industries laboring under price fixing, or other mewns. This the heavy burden of labor legisla- regulation always aims at assur- tion. Businessmen were thus en- ing the cartel members a “fair” abled to raise prices, which meant income, which means a higher in- that workers were obliged to pay come than they otherwise would for their social benefits through have. higher product prices instead of The German government led the lower wages. In order to prevent way toward cartelization of key in- unemployment in the export indus- dustries. From about 1880 to 1930 tries, the government encouraged it organized more than 2,100 car- them to sell their products at tels. It was prompted to this dis- world market prices. Such sales in- astrous policy by yet another volved losses, due to the burden of intervention: its labor legislation. social costs, so the cartels adopted Since the 1880’s, the German gov- profit-sharing schemes by which ernment had imposed tremendous the producers supplying the do- “social” costs on its industry mestic market at higher prices through social security legislation were forced to subsidize exporters. ===== PAGE 50 ===== 48 , THE FREEMAN March Thus, the cartels commenced binations most profitable, as new dumping, which tended to destroy securities could be sold at pre- the world market and the world mium prices. Consequently, Wall division of labor. Street financiers eagerly promoted In the United States the forma- mergers and reorganizations on a tion of trusts proceeded along vast scale. When, in 1903, investors similar lines. However, the moti- began to question the overcapitali- vating force was different. There zation of the industrial combines, was no social legislation depres- a trust-share panic developed sing the American economy. Yet, which signaled the temporary end the McKinley administration, by of trustification. imposing high import restrictions, Two decades later, when the quite unintentionally achieved the Federal Reserve System was flood- same sort of trustification as was ing the capital market with huge done intentionally by the Bismarck quantities of new credit, gigantic administration in Germany, trusts again made their appear- The Dingley Tariff of 1897, ance. Easy financing permitted the which became known as “the organization of powerful holding mother of trusts,” granted tariff companies that controlled produc- protection to basic industries. tion through several layers of sub- With industrial imports from Eu- sidiaries. They reigned supreme rope greatly reduced, :the Ameri- in all industries..that were shel- can producers enjoyed monopolistic tered from healthy competition positions. Consolidations took place through government franchises, ‘on a large scale. During the charters, tariffs, and other re- “Golden Age of Trusts”. between strictions. In the field of public 1897 and 1904, 425 trusts were or- utilities, nine holding company ganized with a total capital of systems — among which the Insull more than. $20 billion. group was outstanding — controlled This trustification of American about three-quarters of the power industry was promoted. by yet an- resources. in the United States. other factor for which the gov- Holding companies dominated one- ernment was solely responsible. fifth of the railroad mileage. As This was the rapid credit expan- was to be expected, this period of sion that culminated in the panic industrial combination came to an of 1907 and the ensuing depres- end with the stock market crash sion. “Easy money” permitted the in. 1929. organization of new corporations. A few years later, the Roosevelt It made the promotion of com- administration resorted to exten- ===== PAGE 51 ===== 1960 THE PHANTOM CALLED “MONOPOLY” 49 sive industry combinations in or- But their hostility was aimed at der to control the American monopolistic policies as they were economy. Under the National In- conducted by the colonial powers dustrial Recovery Act, the indus- of Europe before the age of capi- tries were organized along the talism. They condemned ‘“mercan- lines of a cartel with codes that tilism” which was an economic sys- regulated most phases of produc- tem similar to modern socialism. tion. The objective was shorter As Adam Smith had pointed out, work hours, reduced production, monopoly was “the chief engine higher prices. Under the Agricul- of mercantilism.” tural Adjustment Act, American It was entirely natural that the agriculture was organized to re- nineteenth century disciples of duce production by plowing under capitalism should continue to op- crops and thus raise agricultural pose monopolistic endeavors. The prices artificially. It is a record of common law as it developed in the history that all these measures United States reflected their atti- failed dismally. Instead of reviv- tude. But during the 1880’s, the ing the economy, they kept it in prevailing ideology began to the grip of deep and lengthy de- change. Under the influence of pression. But it was the American new schools of thought that were government that enacted and en- hostile to various aspects of capi- forced these policies which the talism, the American public began enemies of capitalism ascribe to to view with alarm the growth of private corporations. industrial enterprise. Advancing . . technology, especially in the manu- Antitrust Legislation facturing and transportation fields, The failure to distinguish be- and the rapid accumulation of cap- tween the monopolistic tendencies ital, made private enterprises grow of government and the propensity by leaps and bounds. But such of private corporations to grow to growth in most cases merely moved optimum size probably underlies toward optimum size. Of course, the American antitrust movement. in some cases a very successful Our Founding Fathers were fully entrepreneur may have overex- aware of this difference. They panded his organization, which were so hostile to monopoly power sooner or later resulted in losses granted by government that and failure. In other cases, govern- Thomas Jefferson wanted to in- ment franchises, patents, tariffs, clude an antimonopoly provision in and other trade restrictions actu- the articles of the Constitution. ally promoted the growth of mo- ===== PAGE 52 ===== 50 THE FREEMAN March nopolies. But public opinion, which lawyers and investigators. During was molded by numerous ‘“anti- President Harrison’s administra- monopoly parties,” by the Populist tion only seven cases were insti- and Grange movements, laid the tuted against large corporations. blame solely on private enterprise. President T. R. Roosevelt initiated Thus, while the Founding Fathers 44 cases. Taft began 80, and Wil- had clearly recognized the role of son 90. Coolidge’s administration government in every monopoly, instituted 83 prosecutions, Roose- their descendants from the 1880's velt’s 332, and Truman's 169. It is on saw only the “monopolizing significant that the Roosevelt ad- businessman.” ministration filed its 332 formal Kansas was the first state to en- charges although its National In- act an antitrust law in 1889. It dustrial Recovery Administration was quickly followed by other had suspended the Sherman Act states. In 1890, in performance of and was occupied with organizing campaign commitments and in re- the American economy along the sponse to widespread public de- lines of a cartel. Under President mand, the federal government Eisenhower’s administration, the passed the Sherman Antitrust Act. number of prosecutions per year The act set forth as a national promises to be even higher than policy the proposition that re- under any preceding administra- straint of trade and monopolistic tion. market positions of private cor- These figures suggest that the porations are contrary to the pub- antitrust prosecution of American lic interest. Later legislation in- corporations shows a marked tend- cluded the Clayton Antitrust Act ency toward acceleration. Two rea- and the Federal Trade Commission sons may account for this ominous Act, the Robinson-Patman Act, development. First, the growing certain provisions of the Wilson antitrust bureauéracy feels com- Tariff Act, the Webb-Pomerene pelled to bring proof for the justi- Act, and the miscellaneous provi- fication of its existence and growth. sions of other acts. An antitrust lawyer knows of no Responsibility for the enforce- better evidence of his worth than ment of the antitrust laws was the number of his prosecutions. placed with the Antitrust Division Consequently, he will file more and of the Department of Justice. more charges against businessmen. From a modest beginning, this di- Then, these charges, being made vision has grown today into a in the limelight of nationwide pub- large bureaucracy with swarms of licity, poison the political atmos- ===== PAGE 53 ===== 1960 THE PHANTOM CALLED ‘“MONOPOLY” 51 phere and create further business ism and communism, the exploita- hostility that demands more tion of the workers by the capital- charges. In fact, the antitrust ists leads to industrial concentra- charges of the U.S. Justice De- tion and monopolization. A declin- partment have created a badly dis- ing number of industrialists grow torted picture of our enterprise richer and richer while the masses economy, which has contributed to of the people form an ever-grow- the rise of a political ideology that ing army of paupers and unem- is opposed to capitalism. Today, ployed. Finally, this process of the Antitrust Division is an effi- concentration will come to a head cient arm of government omnipo- when the people expropriate the tence. It has prosecuted virtually expropriators. Thus, socialism is every large corporation in the born. country and continues to embar- Our statist politicians and anti- rass and harass thousands of busi- trust bureaucrats embrace the first nessmen, especially the most emi- half of this Marxian explanation. nent. They subscribe to the theory that our capitalist system breeds mo- The New Ideology nopolies. But then they part with Of course, the government law- Marx by proclaiming their desire vers and eager politicians offer a to save this monopoly-breeding different explanation for the ac- system from its own destruction. celeration of their antitrust ac- They propose to destroy the mo- tivity. According to them, the ma- nopolies through government ac- ture capitalist economy, such as tion. the American, tends to deteriorate We need not here refute this into a monopolistic economy that argumentation. Our foregoing dis- deprives small enterprises of fair cussion of potential competition, and equal chances; increased competition of substitutes, and monopolization requires increasing the optimum size of capitalist en- antitrust prosecution; the re- terprises contains a cogent refuta- straint of trade by big business is tion. But we wonder about the the cause, and the government ac- sincerity of the government inten- tions are its effect, not vice versa. tion to preserve our capitalist sys- No matter how plausible, this is tem. How can it seriously oppose a vicious line of thought taken monopolies if the government it- from the armory of Marxism. Ac- self continuously is creating them? cording to Karl Marx, the pro- A modern offshoot of the Marx- claimed father of modern social- ian concentration theory is the ===== PAGE 54 ===== 52 THE FREEMAN March “monopolistic competition theory” grip by trade names, minor prod- which is propagated at hundreds uct variations, by advertisement, of our colleges and universities. It and other producer devices. Once was first stated by Edward H. you drive a Ford car, you will al- Chamberlain of Harvard Univer- ways be sold on Ford products. sity and Mrs. Joan Robinson of This consumer habit will give Ford Cambridge University. Both be- a monopolistic position which en- lieve that the old idea of alterna- tails the power to charge monopo- tive — either monopoly or compe- listic prices. tition — is fallacious, and that both We reject this assumption of a situations are combined in our dull and gullible public. We believe economic system. The monopoly of that people continuously shop each producer in his own brand is arcund, comparing the quality of the starting point that gives pro- products with different trade ducers the power to ‘administer names and labels. Many consumers prices,” gouge consumers, and ex- switch brands and suppliers, al- ploit workers. Pure or perfect com- ways seeking the better product petition, they believe, can only ex- for their money. Consequently, the ist if the number of competing Ford manufacturers compete not producers is large and if they deal only with General Motors cars, in perfectly standardized products. Chrysler cars, American Motors The foregoing discussion of po- cars, all foreign cars, but also with tential competition .clearly denies the manufacturers of houses, the requirement of numerous com- freezers, washers, dryers, and so petitors. Competition is at work, on. For the high price of one prod- even if there be only one producer. -uct may induce us to buy an en- For, in an industry without gov- tirely different product. ernment franchises or other en- The monopolistic competition trance restrictions, the monopolist theory offers as frail a foundation must act as if he were surrounded for government antitrust activity by hundreds of competitors. If he as the Marxian concentration were to attempt to restrict output theory itself. Both fail to describe in order to raise prices, he would and explain capitalism. But they invite immediate invasion by other are succeeding indestroying Amer- producers. ican big business which is the The requirement of a perfectly mainstay of our high standard of standardized product is based on living. In fact, they are destroying the assumption that consumers competition and individual enter- can be pulled into a monopolistic prise. PS ===== PAGE 55 ===== REGAINING FREEDOMS. A PILAN VOLLIE TRIPP EVERYONE agrees that “sin” is a uals, have merely shifted to others bad thing, to be overcome if pos- a part of their financial responsi- sible, resisted always. There is bility for medical care. For health complete agreement that all should is such a personal thing it cannot enjoy good health. Practically be left to others. Nor for that mat- everyone assumes a personal obli- ter, I suspect, can responsibility gation to keep as fit as he can, not for sin be safely delegated to a only for his own sake but also to bureau, a department of govern- avoid trouble to others and to ment, or other proxy. build the reserve needed if he is Salvation, too, is still a personal to be helpful to others. matter, according to modern eccle- This personal concern for our siastics and the great religious own health, the intense, intimate teachers of the past. While some responsibility we feel for that ag- modern faiths attempt to inter- gregation of bone and tissue we cede in the fate of departed friends call the body, is a powerful shore and relatives, no prudent Chris- in the cause of liberty and free- tian, Moslem, or Hebrew would dom. Very few have shown any think of risking such a vitally im- disposition to entrust this vital portant matter — getting safely in- matter to the “guv-mint,” or that to Heaven — to a third party. vague thing we call “society.” So long as man insists on re- At first thought, socialized medi- taining close personal control in cine — as practiced in Britain, for these two basic aspects of life, his example — may seem to contradict total subjugation by the State will the foregoing conclusion. But in be impossible. this case the British, as individ- However, vast numbers of peo- —_ ple now seem willing, even anx- Mr. Tripp, retired from the building business, ious, to turn over to others, often now devotes full time to travel, writing, and . . . the promotion of free enterprise. strangers, their fortunes in a third 53 ===== PAGE 56 ===== 54 THE FREEMAN March and most important realm — their ing conditions, intolerable as they economic health. This has not al- now seem to us, were but tem- ways been true. And this retreat porary, and would “wither away” from personal responsibility on in a few years. Nor was he honest the economic front is, as I see it, enough to admit that employment the root cause of our present trou- of children, even at low wages, bles. was preferable at the time to no Why have people relinquished employment and no wages. So he control in an area they once wrote, in the cold fierce anger and guarded so zealously? illogic of a maniac — and waited. A full and complete answer would be lengthy, as well as tedi- Communism Belittles the Individual ous, involving evaluation of such The core of communism is be- fortunate accidents as the birth of lief in the insignificance of the James Watt, and the equally un- individual, his impotence to im- fortunate entry of a whiskered, prove his own lot by his own ef- half-mad reformer, Karl Marx. forts; insistence that he must turn over to a superstate his former The Revolution Reappraised prerogatives in these matters. The invention of the steam en- Communism had little effect on gine made possible the use of the the course of events for some time. vast energy stored in fossil fuels: The industrial revolution contin- first coal, later oil and gas. With ued, and spread, making possible machines to harness this power, a vast increase of wealth over most the industrial revolution was now of the Occidental world. Little by inevitable. Eventually, the revolu- little the condition of workers im- tion was to free great numbers of proved. Coincident with the in- people from back-breaking toil, crease of wealth came more leisure poverty, and insecurity. But the to think and study. Something like immediate results were not so full a moral renaissance followed, and of promise. we in the United States achieved It was against a background of the highest state of moral and in- the revolution’s first years, with tellectual integrity in our history. widespread employment of young But the seed of communism did children in English mills, that not die with its mad author. Like Marx brewed his wild political a malignant tumor, it continued to philosophy and wrote his mis- grow and develop in the filthy at- chievous books. Marx was not wise mosphere of political intrigue, enough to see that the early work- waiting its chance. ===== PAGE 57 ===== 1960 REGAINING LOST FREEDOMS: A PLAN 55 Communism got its first real op- and political integrity is inde- portunity in this country on the pendence, in turn resting on the heels of the depression, though economic health of the individual there had been some interest in citizen. Those who must come the milder malady, socialism, crawling to government for their which reached an apex in 1914. daily substance, or who think they } must, are impelled to vote in per- When a Man Loses Faith petuation of this corruptive sys- While Americans have rejected tem. A man independent in money the uglier, grosser aspects of com- matters is not easily intimidated. munism, they have embraced, in Others are. great measure, its most dangerous The Welfare State was not a new and revolutionary tenets—namely, idea, but it did have elements of those that deny man’s ability to newness over here. Always there handle his own funds and solve his are those who are carried away own problems on a personal, indi- with the false luster of the new or vidual level. The depression caused novel. First of all, the welfare idea great suffering to millions. When appealed to the lazy and ineffec- at last the shock and bitterness tual, promising them a portion of wore off, many citizens, formerly the earnings of others. But an- stout individualists, were ready to other group, including those who renounce trust in themselves in craved power and authority over favor of the “welfare” promised others, cynical little despots, social by the State. experimenters, were quick to latch It is impossible to estimate the onto the welfare wagon. There implications of this retreat. At they have entrenched themselves that time we came closer than we in its labyrinths. There they will like to admit to complete extine- fight to retain their parasitic tion of all political liberties. That sinecures. we did not plunge headlong into the yawning gap of utter com- Moral Standards Deteriorate munism or socialism should be en- Along with the epic retreat couraging now. from responsibility on the eco- Just the same, with many will- nomic front has come a reversal ing to turn over to government a of long-held convictions on the good part of their earnings, and moral aspects of success. Socialists the rest forced to do so, political and “liberals” viciously attacked morality and integrity reached a those who were wealthy and pro- pitiful low. For the basis of moral ductive. In this they were abetted ===== PAGE 58 ===== 56 THE FREEMAN March by certain pulpiteers, and at least real help should misfortune strike one powerful church group ‘“re- our fellows? solved” that all profits were mor- Admittedly, a vast accumulation ally suspect. of wealth might prove a worry, This idea gave comfort to the even embarrassing. Andrew Car- shiftless and improvident. For, if negie faced this problem, and de- accumulation of wealth is wrong, vised a simple remedy. He gave ergo, to live in poverty must be his money away. right. At any rate, they saw in these attacks on wealth some Rewards for Leadership moral justification for their own The most useful man in any lack of effort. It is always pleasant community is not the theorist, the to feel a warm glow of righteous- dreamer, the social reformer. -. ness inside. Rather, it is one who can take the What these moralists and raw, shapeless energy of men and Keynesian theorists failed to see women and turn it into useful is that no man can either gain or goods and services, for the benefit hold great wealth if he tries to of all. Such men merit our highest confine to his own selfish use the esteem and honor, plus rewards entire creation of his genius and appropriate to their talents. industry. This is economic law. It If we are going to recapture our was true even before the infamous lost freedoms and liberties, we Income Penalty Law went into ef- must first recapture the “precious fect. By far the bulk of such ingredient” we were tricked into wealth finds its way into other giving up years ago. That is, the channels, helping to create many personal, individual responsibility different kinds of wealth, in which for our own economic health. For many people share. this is the keystone in the arch of I feel that the simile between all freedoms, all liberties. It is the physical health and economic thing first attacked by communist, health is a legitimate one. If it is socialist, or statist strategy. In right and moral to work for bodily this unholy design, people must health, is it not equally right to first be made to feel ‘personally strive . for financial solvency in insecure, unequal to the problems one’s own economic affairs? At of life. In practically all socialist the very least, shouldn’t we try to tracts, and I have read a lot of avoid being a burden on others? them, this theme is seldom varied. ‘And further, ought we not try to The “downtrodden worker” must set aside enough to be of some be made to feel sorry for himself. ===== PAGE 59 ===== 1960 REGAINING LOST FREEDOMS: A PLAN 57 Confidence in himself, and in his will likely appeal more to those ability to tangle with the economic still struggling to save their free- problem, must be undermined. doms, or recapture lost ones, than Once this is accomplished, the rest to those who have meekly sur- is easy. rendered. We must also re-examine the moral dogma attending wealth and Let each of us begin now, within material success, totally demolish the limits permitted by a grasping the false and libelous charges the bureaucracy, to try to regain con- able and talented have borne so trol over our economic health and long. Worship of the common and independence. In the quaint words mediocre must give way to recog- of Governor Bradford, let us “set nition of character and ability. In corne, every man for his owne per- other words, success and achieve- ticuler.” The formula saved his ment must be made worthy of colony from economic disaster, emulation once more. over 300 years ago. That same Obviously, this is a job for the plan can save us from extinction, individual, not ‘the masses.” It as individuals, now. Pe “Rights” No MAN has simply by virtue of his humanity any positive claim on his fellows. Charity is a debt we owe to God. He wills that it be paid to men instead. But men do not deserve it. For them to demand it by right is presumption, and for society to enforce it is sacrilege. Since government exists, properly, for the purpose of securing rights, through its characteristic and exclusive power of the sword, its role should be limited to pro- tecting the individual from predation, since freedom from preda- tion is the only right man actually has — predation being under- stood as a positive violation of the person or of property or con- tract, which are extensions of the person. Any so-called “right” which does not derive from this fundamental inherent right is not really a right at all, for rights are reciprocal relationships between persons: claims, grounded, either positively, on the basis of services rendered, or negatively, on the basis of noninter- ference. ROBERT V. ANDELSON ===== PAGE 60 ===== A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN TALKING with Albert Galloway wholly good is another matter. In Keller, his disciple and successor one sense it represents the sum- as head of the sociology depart- mary of a whole lifetime of study. ment at Yale University, William In another sense, however, it is a Graham Sumner once remarked of negation of that life. As a great his Folkways, originally published pioneer work in codifying the com- in 1906, that it was “as good as a parative manners and morals of bond. I just got sixty dollars from peoples, it broke ground which so- it. More than I ever got from any ciologists have been following ever other book.” since. Every time a Margaret This self-congratulatory state- Mead journeys to Samoa or New ment, as Keller recalls, was made Guinea, for example, to note how in 1908 or 1909, when Folkways Polynesians or Melanesians or was selling a mere few hundred Micronesians conduct their court- copies a year. Sumner, who died in ships or prepare their foods, it is 1910, would have been greatly sur- because of currents set in motion prised if he had lived to watch the by Sumner. The “cross-cultural snowballing effect of the book he survey” which Yale sociologists are likened to a “bond.” It was selling currently engaged in making in the nineteen twenties at a faster comes straight out of the Folk- pace than it had ever achieved in ways and Sumner’s and Keller's Sumner’s lifetime. And now, in subsequent work on The Science of 1960, a full half-century after its Society. author’s passing, it has reached Sumner started a digging for the ultimate in canonization with fundamentals, a spade work that the publication of a paperback edi- is absolutely necessary if we are tion (Dover Publications, Inc., 692 to discover the truths that animate pp. $2.49). The book is still “as human beings under the stress of good as a bond.” varying life conditions. Someday Whether its influence has been this spade work may give us a true 58 ===== PAGE 61 ===== 1960 BEYOND RELATIVISM 59 “science” of social behavior. But Sumner distinctly was not a “rel- in his own work in the Folkways ativist” in economics or political Sumner often prejudged the case, science in the years before he de- insisting that morals and ethics — cided to push beyond economics the stuff of the human thought-ac- and politics into the still unex- tion-thought sequence—are always plored realms of sociology — or relative to time and place. In the “societology,” as he preferred to “mores,” he said, it is “might that call it. And if he has become the makes right.” “There’s nothing patron saint of a whole breed of right or wrong but thinking makes relativists in sociology, it is, I it so.” think, a semantic misinterpreta- tion of the man based on his own A Semantic Misrepresentation confused use of such terms as “nat- Sumner did not actually believe ural law” and “right.” If he had this for a minute, of course. He lived and thought about the sup- would never have said that the pro- posed relativity of “right,” he tective tariff is good because the would certainly have pushed “mores” accept it. He would never through to the idea that the very have justified a “grab” either by reason for investigating the cus- the “plutocracy” or by a predatory toms of the Bantus, or the habits labor or farm group on the spe- of the Marquesas islanders, or the cious plea that the “general wel- class structure of Newburyport, fare” requires ‘intervention” to Massachusetts is to isolate and “correct” the workings of “laissez state prevailing uniformities in faire.” He would never have human behavior, both in its work- argued that a society which has ings and its consequences. Science, never known civil liberty is just as Alfred North Whitehead re- as “right” as a society in which minds us, is the search for uni- men can sleep safely in their beds formities in the midst of flux; its without fearing the invocation of metaphysical assumption that ex post facto laws, or bills of at- truth — or “law” — can be found is tainder, or judgment by a Star the reason for its being. If there Chamber court. Sumner would al- were no uniformities in nature — ways have commended the sobriety if, indeed, all is flux — there could and thrift of his favorite charac- be no science. ter, the “forgotten man’ who un- “Relativism,” indeed, is simply fortunately is compelled to pay a way station in the quest for cer- for every “absurd effort to make tainty, an admission that things the world over.” have not yet been reconciled as ===== PAGE 62 ===== 60 THE FREEMAN March parts of a unified field. If, para- ability” of life, liberty, and prop- doxically, the current hypotheses erty derived from the self-evident about certainty must always be set truth that men rise to greater forth on a tentative basis, it is be- heights of creativity and welfare cause we recognize that it is the if they are free. searcher himself that is fallible, Naturally, Sumner resented and not the truth which he hopes, scorned the Jacobins and the so- someday, to nail down for all time. cialists as soft-headed. But, in abandoning the use of the idea of “natural law’’ and correlative “nat- Sumner disliked the term ‘“nat- ural rights” merely because col- ural law” because of the slipshod lectivists had corrupted the old way it was used in his lifetime to phrases, or because metaphysi- justify a number of unrelated cians had assumed that “law” had things. But if we are to have a literally come out of a burning valid jurisprudence, we must posit bush, Sumner prejudiced his own a “natural law.” And if there is a idea that a “science of society” natural law governing the proper might someday be possible. The selection of “positive” — or “legal” “law” that underlies any science . —law, then there are ‘natural of human behavior must be ‘“nat- rights” that can be derived from ural.” And if human beings are that law. The Jacobins of the early to make the best of that “law,” nineteenth century, and the social- they must have “natural rights.” ists of Sumner’s own day, had as- sumed a whole tissue of “rights” The Case Against Coercion that had no discernible connection On many pages of the Folkways with the laws dictated by what the reader gets the idea that the men were faced with in scratch- “mores” are purely whimsical. But ing a living in a world of more or on other pages the “mores” are less scarce materials and limited modes of response to the necessi- time and energy. The socialists ties imposed by the “competition spoke of the “right” of everyone of life.” Sumner noticed that hu- to a living, or of the “right” to man beings seldom exalted a tooth- shares in the “boons of nature.” and-claw individualism for very The “rights of man” were judged long: they combined by families, by Jacobin and socialist to be the by blood-groups, and by societies, arbitrary gift of the State as the to gain the values of cooperation regulative organ of society, not in winning more from nature than an induction about the ‘inalien- they could get if everyone’s hand Elusive “Natural Laws’’ ===== PAGE 63 ===== 1960 BEYOND RELATIVISM 61 was set against his neighbor’s. But folkways are “harmful.” And he if “communalism” — or the making spoke as a judge when he said that of communities — was a basic part India “furnishes a great number of the “mores,” it usually de- of cases of harmful mores.” The pended on individual and family “harm” of caste rules, he said, “is responsibility for the deployment so great that of late they have of energy. Extreme compulsion been broken in some cases, espe- could be found in many places on cially in regard to travel over sea. the earth’s surface. But life was ... The Hindu folkways in regard less “brutish and short” in so- to widows and child marriages cieties that had made progress in must also be recognized as socially civil liberties, and in the fluidity harmful.” of combinations. Men, said Sum- ner, might overlook many of their “Diseases of the Mores” differences to practice ‘“antagonis- In other words, there are stand- tic cooperation” for the sake of ards of judgment above the mores larger ends. Even in low forms of to which folk behavior everywhere life there is “symbiosis.” But must be compared. Sumner used forms of cooperation cannot grow the phrase, “diseases of the mores” or adapt as easily when they are — which again implies an intuition forced by legal compulsion. of the healthy ideal. Sumner says of “human interests” that they re- Not All Folkways Are Best quire “thrift, selection, and preser- All of this is obvious in Folk- vation.” “Capital,” he says, “is ways — which is tantamount to the condition precedent of all gain saying that Sumner was on the in security and power, and capital track of some good definitions of is produced by selection and “natural law.” He refrained from thrift.” Furthermore: “Primitive drawing certain conclusions folkways are marked by improvi- largely because he knew that dif- dence, waste, and carelessness, out ferent civilizations have developed of which prudence, foresight, pa- different sets of characteristics, tience, and perseverance are de- summed up in the old Greek word, veloped slowly, by pain and loss, as “ethos.” The Orient had gone one experience is accumulated, and way, the Occident another. India knowledge increases also, as better differed from China, and both In- methods seem worth-while.” dia and China differed from Japan. For the unblinkered reader the Yet Sumner, the moralist, could question naturally arises: Are not resist remarking that certain “primitive folkways” as “right” ===== PAGE 64 ===== 62 THE FREEMAN March as the folkways that are the re- the mores are not lightly to be set sult of the “increase” of knowl- aside — stands as an antidote. Sum- edge? Sumner never posed the ner stood with Burke in warning question of “right” in such terms; his readers against the “social en- if he had, he would not have said gineer” type of mind; over and that “might makes right.” If it over again he insisted that the at- is true that “whatever is, is right,” tempt to cut into the tissue of ex- then change itself is humanly isting society and remake institu- meaningless. And Sumner’s own tions in accordance with rational predilection for a society governed blueprints must result in great so- by a mature conception of the cial harm. The top-down planner value of civil liberty would be just might seek order, but he usually another whimsy. sowed the wind and reaped chaos. j Of the Russian czars pursuing a Self-Righteousness “westernizing” policy, Sumner re- The harm that is done by Folk- marked: “By their policing and ways is that it confirms the “eman- dragooning’’ they have “spoilt one cipated” student in the idea that thing without making another, and since any custom is as “right” socially Russia is in the agonies of as any other, there can be no ra- the resulting confusion. Russia tional choice between political and ought to be a democracy by virtue social systems. If “right” and of its sparse population and wide “wrong” are in the mores them- area of unoccupied land in Siberia. selves, then if a people wishes to In fact,all the indigenous and most turn over the conduct of its affairs ancient usages of thé villages are to a tyrannical central committee, democratic. The autocracy is ex- there is nothing to stop it in the otic and military.” Substituting name of any higher morality. The the commissars for the czars, the mores, having sanctioned social- description might fit the Soviet ism, or communism, or fascism, or Russia of today. Proof enough that the concept of top-down planning, the mores are stubborn and slow or the Robin Hood State devoted to change! to leveling the rich “down” and the poor “up,” will have simply cre- A Prodigious Beginning ated a new standard of “right.” It Keller once called Folkways a will judge itself in terms of itself. “tired” book insofar as its later To this harmful conclusion that chapters, the ones that amass the may be drawn from Folkways, the evidence to prove the generalities, over-all warning of Sumner — that are concerned. But, while the book ===== PAGE 65 ===== 1960 BEYOND RELATIVISM } 63 is certainly neither as lively nor as p THE LANGUAGE OF DISSENT incisively logical as the many es- By Lowell Mason. Cleveland, Ohio: says on liberty that Sumner wrote ~~ World Publishing Company. 314 pp. before he had quit political science $5.00. for sociology, the “tired” quality SOME BUREAUCRATS may be just is probably an illusion. The fact is paper jugglers. Others may spend that Sumner had marked out 454 of their time trying to find enough work in the ground-planof paths to expanded power or Folkways to keep a whole army of ,1.05tige. But a brave few, who un- investigators busy for a gemera- gerstand the rich role of freedom, tion. The book sometimes drags ,ye veritable bastions in the de- from the weight of its hundreds of fense of individual liberty. One fact-jammed categories. But it g,ch libertarian is Lowell Mason, took a prodigious energy to write fo mer Federal Trade Commis- it — and a truly “tired” man would gjoner and author of The Lan- have quit before its completion. guage of Dissent, a very readable A younger man would have gone pox on the dangers of modern on after its completion to tackle the bureaucracy in these United States. problem of constancies and uni- Long years within our malig- formities in the behavior of man, [,.¢t bureaucracy have taught Mr. the social animal. And a younger Mason that “no one acquires a love man would have been concerned f |jherty working for government. with rectifying a contradictory po- you either bring it along with you sition on the subject of natural , you never have it.” When gov- law. But it is given to no one to do grment provides you “the oppor- more than a certain amount of tunity to impose your own brand work in a lifetime. Sumner had at of virtue on others,” liberty is least three careers; he was, suc- geldom your guiding concept. cessively, clergyman, political econ- “Bureaucracy,” he tells us, “nev- omist, and sociologist. Since soci- of explains, never denies, never ology was the preoccupation of his gefends. It rolls with all the old age, his accomplishment in punches, and the only effective at- marking out the boundaries of an t5ck against bureaucratic tyranny entirely new science is remarkable. js through the official channels of The proof of Sumner’s prodi- dissent.” And so, as a Federal giousness is that Folkways is still Trade Commissioner for eleven a classic, still able to compete for a years, Mr. Mason filed a series of market on the paperback stalls “I am against it” minority deci- fifty years after its author’s death. sions. His dissenting opinions, ===== PAGE 66 ===== 64 ) THE FREEMAN March which appear as part of his book, eral Trade Commission sued the were well reasoned and clearly ex- grocery boys for doing what the pressed. When they were placed head of the Commission’s Wash- before higher courts, the judges ington Office had told them they agreed with him as often as they could do.” He reports that “little did with the majority decisions he effort is made to hide the fact that opposed. determining who shall be sued is His raison d'etre is to “fight tyr- like playing ‘pin the tail on the anny.” He finds the fight “dull and donkey,” with everybody blind- monotonous. . . . It consists al- folded.” most entirely of a lot of petty rec- His book tells of businessmen ognitions of the petty encroach- starting complaints against com- ments, arrogances, and cruelties of petitors for doing what the com- bureaucracy that lie hidden under plainants themselves may well the government's sweet promise have been doing. In one such case, of security.” He also finds “little he admitted that, under the law, point in reciting the rules — the there was no alternative but to Constitution, the Bill of Rights, force one small firm out of busi- due process. People yawn when you ness for giving the same discounts do. There is nothing exciting about as those given by all its unsued anything that seems as permanent competitors. as liberty. We treat it like a vase He tells how precedents restric- of artificial flowers on the parlor tive of our freedom are built up table. Apparently all it needs is a by orders against the once legal little dusting off on Flag Day and actions of: (1) Shady characters the Fourth of July. who shun lawsuits for fear their . other, more questionable, actions Eternal Vigilance Needed may be exposed; (2) Firms that “But liberty is oh, so fragile. find it easier to change their ads The purpose of this book is not to or actions rather than defend their prove its strength but to demon- rights in a long and costly legal strate its weakness. Liberty can- battle; and (8) Terrified little busi- not stand alone. It calls for con- nessmen who shrink at sight of stant help and surveillance.” official badges and lack funds for The former Commissioner found the legal advice to fight back. Then, “plenty of trigger-happy bureau- these unopposed cease-and-desist crats who still today would sooner orders are forever after cited as sue a businessman than eat.” He the accepted law of the land. was “against it”’ when “the Fed- Who would dare question a Fed- ===== PAGE 67 ===== 1960 THE LANGUAGE OF DISSENT 65 eral Commission citing such an . President is to be applauded, but “established” federal ruling? The bureaucracy is to be obeyed.” answer is big corporations. Only a Commissioner Mason warns us well financed corporation can com- that the greatest tyranny has the mand the top legal talent needed smallest beginnings. Let a law open to oppose the constant assaults on a crack in the legal bulwarks of freedom by bureaucrats backed by liberty and the bureaucrats will taxpayers’ funds. And so “big bad soon produce a gaping hole. Ma- business’ is often our only defense son’s law for this procedure holds against the bureaucratic attacks that “bureaucracy will arrogate to on the legal phases of freedom that itself all power available under a it took so many generations to statute in spite of the limitations write into our laws and constitu- against tyranny in the Constitu- tions. tion. This it will do, quietly and unobtrusively, through decisions The Faceless Bureaucracy at the lowest rung of the quasi- “Top leadership in government,” judicial ladder where the issue the author tells us, “is generally seldom meets the eye of the pub- ineffectual against the quiet, hard- lic.” working staff which pushes its As Mr. Mason states, “There is pens noiselessly but with dedi- no finish line anywhere in the race cated and ruthless unanimity across for liberty. It is a race our an- the dockets, briefs, statements of cestors started, and our heirs will policy, and orders that tell people be running long after.” what they must do. It makes no difference how much a President This book should be read for an declaims against a ‘swollen bureau- understanding of the little noticed cratic government in Washington,” legal erosions of our liberty that when far down at the bottom of our daily papers seldom find the judicial ladder a faceless bu- worthy of adequate reporting. reaucracy decrees otherwise. A PERCY L. GREAVES, JR. ===== PAGE 68 ===== yy