===== PAGE 1 =====

THE

[eellld

SEPTEMBER 1960

IDEAS ON LIBERTY

Five Ways to Nowhere . . . . . . Thomas W. Phelps 3
Are We Changing Our Concept

of Government? . . . . . . . . Kenneth W. Sollitt 5
The Backdrop of American

Social Conduct . . . . . . . . Gilbert R. Gadzikowski 9
Commuter-Train Subsidies . . . . . H.P. B. Jenkins 13
A Tale of Two Railroads . . . . . . Howard Stephenson 14
The Economic Growth of Soviet Russia . . Hans F. Sennholz 22
FreeToObey . . . . . . . . . . Anonymous 27
Soviet Economists Part Company

with Marx . . . . . . . . . . Trygve J. B. Hoff 29
Good and Bad Monopoly . . . . . . leonard E. Read 35
The Chimera of Monopoly . . . . . Ambrose Paré Winston 39
fi1WereKing . . . . . . . . . Samuel B. Pettengill 53

Book Reviews
The Inner World of Man . . . . . . Edmund A. Opitz 56
Sold Out tothe Future . . . . . . . John Chamberlain 59
OtherBooks . . . . . . . . . 62

in THE FOUNDATION
LE FOR ECONOMIC EDUCATION, INC.

Irvington-on-Hudsoan, New York


===== PAGE 2 =====

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===== PAGE 3 =====

WHY SHOULD A
BUSINESSMAN BE TAXED
TO SUPPORT E
GOVERNMENT COMPETITION
AGAINST HIMSELF?

Some strange paradoxes crop up, at A NEW BOOKLET TELLS THE STORY
times, in the American scene. You can get interesting, little-known

We are scrupulous, as a nation, to facts, figures and quotés by mailing
safeguard the rights of the individual the coupon below for the new free book-
in court . . . his right to worship without let, “How Federal Government Elec-
interference... his right to speak freely tricity Affects the Businessman.” It
and openly on any issue. discusses how “public power” spending

We have federal laws and regulations can affect your costs, prices and profits,
to protect him against unfair competi- what happens when the government

tion in his efforts to make a living... goes into business with taxpayers’
unfair competition, that is, except that money, and the anti-business implica-
from the federal government itself. tions of federal power spending.

Take, for example, the matter of the
government’s producing and selling
electric power in the open market. Be-
cause federal power systems pay no

AMERICA'S INDEPENDENT
ELECTRIC LIGHT AND POWER COMPANIES

federal income taxes, and little or no 3 eT TTT }
bl] - N

taxes to state and local governments, | POWER COMPANIES BE Co
they can undersell the independent 1 271 Ave. of the Americas 29 Co
electric companies which do produce | New York 20, N.Y.
taxes. In fact, the very taxes provided | Please send I
by the independent electric companies | promptly the : og |
and their customers are used in part to | material checked ro [
help finance this unfair competition. ! below, without ie

Now the proponents of federal “pub- | charge: BussCESA

: *9 3 . -

lic power ’ are pressing for billions | [J “How Federal Government H
more to build additional federal power | Electricity Aff he Busi » |
plants, although the independent elec- ectricity Aflects the Businessman |
tric companies are ready and able to 1 [J Names of the companies that [
supply all the power the nation can | sponsor this message
conceivably need. And this on top of !
more than $5,000,000.000 of taxpayers’ Name Please print) 1
money already spent on such govern- | !
ment installations. I I

How can this go on? Simply because | cy Zone. State !
the public doesn’t know about it. Cee ee ee J


===== PAGE 4 =====

THE

Tecmdn A MONTHLY JOURNAL OF IDEAS ON LIBERTY |

SEPTEMBER 1960 Vol. 10 No. 8

LEONARD E. READ President, Foundation for
Economic Education

PAUL L. PoIrROT Managing Editor

THE FREEMAN is published monthly by the
Foundation for Economic Education, Inc.,, a non-
political, nonprofit educational champion of private
property, the free market, the profit and loss system,
and limited government, founded in 1946, with offices
at Irvington-on-Hudson, New York. Any interested
person may receive its publications for the asking.
The costs of Foundation projects and. services, in-
cluding THE FREEMAN, are met through volun-
tary donations. Total expenses average $12.00 a year
per person on the mailing list. Donations are invited
in any amount — $5.00 to $10,000 — as the means of
maintaining and extending the Foundation’s work.

Accepted as controlled circulation publication at Irvington, N. Y., with
additional entry at New York, N. Y. Copyright, 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 "A Tale of Two
Railroads,” ‘'Soviet Economists Part Company with Marx,” and “The
T Chimera of Monopoly.”

F Any current article will be supplied in reprint form if there are enough

inquiries to justify the cost of the printing.


===== PAGE 5 =====

FIVE ECONOMIC FALLACIES have
been particularly seductive to mod-
ern man. Every Pied Piper who
has led his people to ruin in the
last century has played a tune on
one or more of them. They are:

1. The fallacy of the ostrich

2. The fallacy of the stork

3. The fallacy of the grizzly bear
4. The fallacy of the rat

5. The fallacy of the evil heart

The fallacy of the ostrich
amounts simply to this: “Ignore
the problem and it will go away.”
It is particularly appealing after a
prolonged period of prosperity
when the viewers with alarm
have been thoroughly discredited.

The fallacy of the stork is that
a high birth rate guarantees a
high level of business activity and
profits. Enough babies will solve - }
everything. Why regret that we THOMAS W. PHELPS
have but one life to give for our
country, when by applying our- tell you of one which put his left
selves we can give five or six? The front paw in a huge trap. The trap
fact, of course, is that unless our was attached by a heavy steel
economic productivity increases chain to a big tree. Try as he
faster than our population, our would, the bear could neither pull
standard of living must go down, his paw free nor break the chain.
leaving us as a nation weaker, not At last, exhausted by his strug-
stronger, than before. gles, the bear lay down to catch his
breath and study the problem. A
It may help you to understand great idea dawned in his little
the fallacy of the grizzly bear if I brain. With his free paw he
—_— scraped dirt and leaves over the
hy tps is a partner in Scudder, Stevens 1 in until it was entirely covered.

3


===== PAGE 6 =====

4 THE FREEMAN September

Then he turned and ran, only to tionary descendants — printing
learn as he cracked the whip that press money and debt monetiza-
you don’t eliminate a chain of tion. Something for nothing is the
facts by hiding them. common denominator of all mani-
In the world situation facing us, festations of the fallacy of the rat,
we resort to the fallacy of the whether they are called feather-
grizzly bear when we use subsidies bedding, soil banks, or deficit fi-
instead of cost cutting to move our nancing.
goods, when we use tariffs and
quotas instead of superior values The fallacy of the evil heart is
to restrict foreign competition in the standby of those who are goat
our home markets. Every tariff, hunting. It usually has its greatest
every subsidy, every quota adds to vogue after one or another of the
the cost of every other domestic other fallacies, or all of them in
producer, aggravating the basic combination, have done their dirty
problem of keeping our nation work. It’s the fallacy that we got
competitive. into the mess because bad people
wanted to hurt us and that all we
When I was a boy, there was a need to do to get out of trouble is
legend that rats could suck eggs to turn everything over to good
under a setting hen, leaving her to people. Politics being what it is,
dream of chicks that were never to the baddies, as they are called, are
come from the empty shells. Infla- usually private enterprisers of one
tion is the fallacy of the rat. As kind or another — stockbrokers,
we sit on our money, the value is bankers, munitions makers, or big
sucked out of it, leaving us to business. The goodies, of course,
dream of things it will never buy. are in government. If the goodies
Money is a system of counters by just had more power to control the
which human beings keep track of baddies, happy days would be here
what they have done for each again and never, never end.
other. Just as no problem in cor-
porate management ever was The danger in all these fallacies
solved by falsifying the books, so is that, instead of helping us to
no national problems of directing compete, they serve as painkillers
investment and production to the for our failures. Thus, they lead
best advantage of everyone con- backward toward economic isola-
cerned ever were or ever can be tionism and the substitution of
solved by coin clipping or its more political tyranny for freedom of
sophisticated present-day infla- choice. ~>



===== PAGE 7 =====

KENNETH W. SOLLITT

THE WRITINGS and speeches of the these ends, it is the right of the
Founders of our republic make people to alter or abolish it.”
crystal clear the fact that, to them, There was full recognition of the
the primal, if not the only, fune- fact that not all liberties are legit-
tion of government was to protect imate, that men are sure to take
men in the exercise of their legiti- unfair advantage of other men, if
mate liberties. Probably nowhere given a chance, and that even gov-
is this better stated than in the ernments instituted to “secure

Declaration of Independence: these rights” sometimes become
We hold these truths to be self- “destructive of these end s.”
evident; that all men are created Therefore, in the writing of the

equal; that they are endowed by Constitution, everything possible
their Creator with certain un- was done to protect the honest, in-
alienable rights; that among these dustrious, freedom-loving Ameri-
are life, liberty, and the pursuit of ‘ys . .
happiness. That to secure these C31 citizen from being deprived
rights governments are instituted Of his rights either by other citi-
among men, deriving their just zens or by the government itself.
powers from the consent of the A limited government of checks
governed... (emphasis added) and balances was set up, and al-
The Declaration goes on to say most before the ink was dry on the
that “whenever any form of gov- Constitution proper, a Bill of
ernment becomes destructive of Rights was added to it as a re-
The Reverend Mr. Sollitt is minister of the sounding exclamation point to em-
First Baptist Church of Midland, Michigan. phasize the fact that our Found-

5


===== PAGE 8 =====

6 THE FREEMAN September

ing Fathers were determined that There was so much to be done
every citizen should be protected that our new President was
in the exercise of his legitimate granted emergency powers, in ad-
liberties. Powers not specifically dition to which he exercised
mentioned in the Constitution powers that were not granted. He
were reserved to the states and instituted programs which were
to the individuals who compose later declared unconstitutional.
those states. America was to be a Congress was bypassed. The Con-
land where people could do as they stitution was circumvented. But
pleased so long as what they important things were being done
pleased to do did not interfere in behalf of the needy and the un-
with their neighbor’s equal right. employed. And people seemed to
For more than a century and a show every promise of voting for
half “freedom” was the central more and more of the same.
idea in the American dream and In 1938 Mr. Roosevelt wrote a
the big word in our language. We statement which should be com-
even justified our wars by appeals, pared with the quotation from the
sometimes specious, to freedom Declaration of Independence given
slogans. earlier in this article. Mr. Roose-
We sang about “the land of the Velt said:
free and the home of the brave.” Government has the definite
We praised America as the “sweet  quty to use all its powers and re-
land of liberty.” We bought “lib- sources to meet new social prob-
erty” bonds and talked about help- lems with new social controls. (In-

ine to build a “free” 1d. troduction to Public Papers and
ng to build a "iree” wor Addresses, 1941)

The New Deal This he justified on the pseudo-
Then came the 1930's. There logical grounds that it was “to in-
was depression, widespread un- sure the average person the right
employment, and untold misery. to his own economic and political
Opinions differ as to the cause life, liberty, and the pursuit of
* which produced these conditions. happiness.”
Suffice it to say at this point in Unfortunately, this lip-service
our discussion that this was the to the Declaration of Independence
case. Thoughts of freedom gave kept people from seeing that polit-
place to thoughts of keeping body ical liberty and social control are
and soul ‘together. Franklin De- opposites — that you can’t protect
lano Roosevelt was elected Presi- man in the exercise of his legiti-
dent of the United States. mate liberties by imposing on him



===== PAGE 9 =====

1960 ARE WE CHANGING OUR CONCEPT OF GOVERNMENT? 7

controls which destroy those lib- wanted to be protected in the use
erties. of what we already had, but we
But it sounded good, especially got so we wanted a little bit of
when Mr. Roosevelt said it, and what everybody else had, too, not
patriotic Americans were all for realizing that those two things are
anything that would guarantee utterly incompatible. Now we had
people’s rights, as Mr. Roosevelt a government which guaranteed us
said the imposition of these social protection against robbery, on the
controls would do. So we launched one hand, and promised us, on the
on an era of social control utterly other hand, that others would be
new to Americans. After all, in robbed in our behalf if we could
1933 we were still a freedom-lov- demonstrate our need, and if we
ing people. would only keep the right people
Thus began the phenomenal in power. Mr. Roosevelt had in-
growth of our government with its vented a new parlor game in
added controls and services, and, Which we all stand in a circle each
of course, taxes to enforce these with his hands in the other man’s
controls and extend these services. pockets all expecting to get richer
After NRA, WPA, and PWA came thereby.
OPA and OPS, and we floundered ~~ Perhaps it was merely a coinci-
in a veritable sea of alphabet soup dence, but it was about this time
from which we have neveremerged. that the goddess of liberty disap-
All kinds of bureaus, administra- peared from our dimes and Mr.
tions, plans, programs, controls, Roosevelt's picture took its place
supports, subsidies, etc., have come — the perfect symbol of what was
into being designed to help those happening to our old concept of
who needed help, and all kinds of government.
people who never used to need Apparently nobody had thought
help are suddenly found among Of one obvious fact: Government

the needy. could not give to us what it did
not first take away from us.
The “Give Me" Habit Unlike other countries which,

America had gotten her first when they have ruined their own
taste of government organized to economy by the same methods we
“give to him that asketh” and the had now adopted, could get aid
taste was exhilarating — intoxicat- from Uncle Sam by the mere
ing — we liked it. “Give me liberty threat of trading with the Com-
or give me death,” was shortened munists, America’s only source of
to just “Give me.” We not only income is from its citizens. We


===== PAGE 10 =====

8 THE FREEMAN September

tried hard, of course, to “create” Another thing we didn’t under-
wealth by inflation and by mort- stand was that to make a govern-
gaging every unborn child for the ment strong enough to give us
next score or more of generations. what we want we must at the same
Still, goverriment could not give to time make it strong enough to
any of us what it did not first take take from us what we have. And
away from some of us. So, regard- what is communism but a govern-
less of intention, our social pro- ment that takes everything one
grams were soon seen to be serv- earns and gives back what is left
ing one purpose only, the redistri- after it fulfills its own desires? Is
bution of the nation’s wealth. America moving in that direction,
True, some people had more giving its citizens more and more
than they needed, others less. A and taking from them more and
more equitable distribution of more until someday we may have
wealth appeared to many to be a it all taken from us on the pretext
desirable thing. But some of us of protecting us from each other?
are not convinced that the redis- Have we bought the idea that the
tribution of wealth is a proper redistribution of wealth is a legiti-
function of a government designed mate function of government?
to protect man in the exercise of If so, we have made a complete
his legitimate liberties, one of about-face and a government de-
which is the “unalienable right” signed to prevent one man from
to the wealth which he produces robbing another has become the
and by which he sustains his life, instrument through which one
protects his liberty, and enhances man is robbed for the benefit of
his pursuit of happiness. another. >

James Madison

SINCE the general civilization of mankind, I believe there are
more instances of the abridgement of the freedom of the people
by gradual and silent encroachments of those in power than by
violent and sudden usurpations.

Speech in the Virginia Convention, June 16, 1788



===== PAGE 11 =====

GILBERT R. GADZIKOWSKI

When the one-eyed Cyclops filled According to this norm, men
his huge belly with a meal of hu- guided their lives and judged their
man flesh and washed it down actions.
with unwatered milk, Odysseus Today, we have come to call
and his loyal followers stood in these stable and deep-rooted pat-
horror, paralyzed by their sense terns of human conduct, institu-
of utter helplessness, and raised tions. They are stronger than cus-
their hands to the gods. tom. They are constant patterns
Historically, men have always of conduct which proceed from an
judged and recognized justice and inner conviction rather than from
injustice, right and wrong in hu- convenience or convention such as
man conduct. It is true that the eating with one’s right hand. When
concepts of what is just and unjust various institutions of an age are
and of what is right and wrong woven into a personality complex,
have depended on the backdrop of they emerge as the ideal person-
each society against which the hu- ality of that age, never fully real-
man conduct was measured. But ized in any one individual but
always some backdrop was there, functioning as a guide in the lives
a stable and deep-rooted pattern of all.
of human conduct, stronger and Reflection upon the backdrop of
more fundamental than custom. of our current United States so-
— } ciety, the pattern according to
Mr. Gadzikowski is an Instructor in Economics, . .
St. Benedict's College, Atchison, Kansas. which we measure our actions and

9


===== PAGE 12 =====

10 THE FREEMAN September

conduct, can bring one up with a In today’s United States society,
start. The tendency toward, and we can see this displacement of
the problem of the depersonaliza- man’s activity for that of the effi
tion of man, is an insidious one ciency of the group activity. We
and can go almost unnoticed unless can also see the displacement of
one attempts to understand and the goal of man’s perfection for
interpret our current institutions. that of a goal of material goods
outside of man. But what is worse,
the tendency toward depersonaliza-
By the depersonalization of man tion is becoming more and more
is meant the mechanization of so- accepted; is becoming more and
ciety and everyday life along a more a part of the warp and woof
pattern whereby the scramble for of the tapestry which forms the
material goods and the efficiency backdrop of our society. It is pene-
of group operation supersedes the trating and permeating the insti-
individual person’s dignity and tutions against which we in the
worth. If there is any character- United States judge and accept or
istic about man that stands out reject man’s conduct.
above all others, it is his perfect- If we were to list the various or-
ability. Man is born into this life ganizations which are constantly
a tabula rasa upon which each ac- bidding for man’s attention and
tion of man’s life is recorded. membership, their number would
Jaime Castiello, in his work, A be legion. Today, a man no longer
Humane Psychology of Education, is judged by what he is but by the
points out that the subconscious length of his membership cards
of man is “the permanence of the when they are laid out end-to-end.
past in a man’s present; his life’s Group activity has become a
diary written in his nervous tissue mania.
and on the meshes of his muscular If we were to list the various
fibre.” Each activity of man ac- material goods which are the ob-
tuates him more, brings out his ject of man’s fevered acquisitive
being more, makes him metaphys- efforts, their number, too, would be
ically more perfect. Man is made legion. Today a man is no longer
to be perfected by his own activity. judged by what he is but by the
Hence, the depersonalization of home, the car, the wife or wives,
man means the displacement of his and the position he possesses.
own activity, the displacement of What is worse, and this indi-
the goal of his own perfection for cates the deeply penetrating aspect
a goal or goals outside of man. of the trend toward depersonaliza-

Imprisoned by Organizations


===== PAGE 13 =====

1960 THE BACKDROP OF AMERICAN SOCIAL CONDUCT 11

tion, man himself judges himself
not by what he knows himself to
be but by what the organization
thinks of him and by what he owns
or has taken out on credit.

The Key to Self-Improvement

Let us explore some specifics.
Man has the right, nay more, the
necessity of exercising himself to
perfect himself. In no other way
can he perfect himself but by his

. own activity. American business-

men — with rare and refreshing
exceptions — have remained chil-
dren in this matter, expecting the
protective “mother image” of the
government to coddle them.

The extensive farm surplus pro-
grams have been the subject of
heated debate for some years. But
the argument has nearly always
remained on the plane of dollars
and cents. Few have ever talked
about the challenge and the accept-
ance of the challenge by the indi-
viduals involved if they are to per-
fect themselves. Scarcely anyone
has dwelt on the concept of self-
activity whereby one accepts the
challenge of the business environ-
ment and expands himself meta-
physically into a greater being
through his self-activity. Instead,
there has been a general immature
stampede to the White House, call-
ing upon ‘‘mother” government.
“You do it for me,” is the saying
of a child.

Similarly, United States busi-
nessmen have shown an immature
cowering in the face of inflation-
ary wage demands. Instead of ac-
cepting the challenge, all too many
have relied upon tariffs and quotas
imposed by a “mother” govern-
ment to keep them in a competitive
market. They passed unto the gov-
ernment the solution of a problem
which must be handled by their
own self-activity, through resist-
ance to the unreasonable demands
and/or through increments in pro-
ductivity in order to maintain
their prices on a competitive level.
Little attention, if any, have they
given to removing the interven-
tionism of which inflation is the
inevitable consequence.

The American laborer has sold
his worth and dignity to a labor
organization for less than thirty
pieces of silver, in some cases, a
few more pennies per hour. Group
activity and the efficiency of the
organization have swallowed up
the laborer. No dissenting voice
by any member of the labor or-
ganization is expected when the
labor chiefs call for a strike vote.
Personal views are not and cannot
be tolerated when the group de-
cides to move. Further, lack of
self-activity on the part of the
laborer has resulted in an over-all
apathy that leads to corruption and
racketeering in the labor organi-
zations. The efficiency of the or-


===== PAGE 14 =====

12 THE FREEMAN September

ganization is everything; the longer can think of themselves as
worth of the individual worker is divorced from their trappings
nothing. : which we call a standard of living.

This is what is accepted on the The tendency to displace the value
United States scene. This is what of the self with the value of the
is becoming the backdrop against material goods is also a part of the
which we measure our conduct. backdrop currently taking hold in
Our social institutions no longer the United States. Americans do
reflect the dignity of man and his not think of themselves anymore.
self-perfection through his own ac- “I am an $80,000 home.” “I am an
tivity. Instead, the efficiency of automatic washer-dryer.” We do
the organization swallows up the not say it out loud. But we think
person. it!

Nikita Khrushchev boasted that
Soviet standards of living would This then is the fundamental
soon excel those of the United social problem of the United
States. If his boast were to be ful- States. The depersonalization of
filled, it would still be unimpor- man is the problem man faces and
tant. The fundamental question only he can solve it. Self-activity
will always be that of human worth is the only cure; his own perfec-
and man’s freedom to exercise tion and worth his only goal that
himself toward his perfection. will not fail or deceive him. The

But in the United States, the mechanization of the society of
people, almost to a one, became the United States and our every-
excited and frightened by the day living has reached the point
boast of the Communist Boss. They whereby we judge the pattern of
failed to realize the real question our actions not by our individual
involved because they themselves worth and dignity but by the effi-
have merged their concept of ciency of our group's activity and
themselves and their worth with the scramble and possession of
the possessions they own. They no material goods. ~>

A Risk Worth Taking

THE LIBERTY of going wrong is the seamy side of the priceless
privilege of going right by free choice rather than by compulsion.

WILLIAM ERNEST HOCKING
The Coming World Civilization



===== PAGE 15 =====

COMMUTER-TRAIN
SUBSIDIES

or — THE MECHANICS OF PAINLESS PAUPERISM

It was a sunny afternoon
At story-telling time.
Old Kaspar searched for more cigars
And checked his rum-and-lime,
While Peterkin and Wilhelmine
Looked at the futurama screen.

They saw a crowded city street,
Where slinky men in pairs
Were slipping up on passers-by
To catch them unawares
And lift their cash from hand or hip
Without a fumbled touch or flip.

“Is that a gang of robbers there?”
The little children cried.

“It’s just another hidden tax,”
Old Kaspar soon replied.
“That’s how the Treasury obtains
The cash to aid commuter trains.”

“Commuter trains,” said Kaspar then,
“Are needed every day;

But now their costs have soared beyond
What passengers will pay.

That’s why they get a subsidy

To keep them out of bankruptcy.”

“Why don’t we use an open tax?”
Asked little Peterkin.

“Commuters have such tender hearts,”
Said Kaspar with a grin,

“ "Twould make them suffer dreadfully

To see who paid the subsidy.”

“It seems a very thoughtful plan,” ". Lo
Breathed little Wilhelmine: :

“It keeps commuters,” Kaspar said,
“Contented and serene.

The Planners take the greatest pains

To shelter folks from moral strains.”

H. P. B. JENKINS
Economist at Fayetteville, Arkansas

13


===== PAGE 16 =====

A TALE OF
TWO RAILROADS

—
What is it that causes one line 1941 - 1958
PROFIT

to make money while the other

runs in the red?

The answer is $368,000,000 $340,000,000

important to all Americans. DIVIDENDS INCOME TAXES TO GOV'T

HOWARD STEPHENSON

WHEN THE CHIPS are down, which the $2.5 billion financial class. Both
is the more successful — private sell the same kinds of service. Both
enterprise or government owner- strive to make a profit. One fails
ship? to do so; the other steadily pays
This question is being debated dividends. Perhaps a closeup view
all the time, in many countries. may reveal some aspects of these
Answers tend to bristle with “if,” two giants that argument and the-
“yes but,” “maybe,” or “it de- ory can’t make plain.
pends.” Canada is their home. The two
Why not look at the world’s largest railroads in the Western .
unique big-scale example, where Hemisphere run coast to coast. The
both kinds operate side by side? slightly larger one in terms of

Here are two businesses, both in mileage is the Canadian National
Railways, government-owned. The

Dr. Stephenson, a former Boston Universit . : :
profess, a World War T veteran versity other, the Canadian Pacific Rail-
ir Service, U.S. Army. He has lived in and 1 1
traveled throughout Canada and has written way Company, 1s a corporation
widely on Canadian subjects. This article ist owned by its stockholders. You can

appeared in the February 1960 issue of The .
American Legion Magazine. buy its shares on a stock exchange.

14



===== PAGE 17 =====

J ) cumenni fo

/ ! N wm Bors
\ Ny a i or
LOY \ a °"™ =7es CANADIAN NATIONAL “=== >
JS - ~ \ == CANADIAN PACIFIC 4

CANADIAN NATIONAL
1941-1959

Loss

The two railroads run from coast to
coast. Canadian National is shown in
gray. Canadian Pacific appears in black.

NO INCOME TAXES TO GOVERNMENT Trans-Canada Air lines is owned by

Canadian National and Canada.

Those who favor nationalization or state

socialism may find it hard to explain the
profit-and-loss chart at left.

In no other country will you find a real, tough competition. So when
comparable situation, where rail- you talk about railroads in Canada,
road transport services are about you are talking about a lot of other
equally divided between private en- means of freight and passenger
terprise and public ownership. service too.

To see these big, impressive or-
ganizations in their own backyard The Government Referees
I flew from Boston to Montreal in The referee is the government,
a Viscount passenger plane of which makes the ground rules, and
Trans-Canada Air Lines, a sub- also owns the Canadian National.
sidiary of Canadian National. No Canadians are very much sold on
competition here from the Cana- the spirit of fair play, which is
dian Pacific. But in Montreal it part of their tradition. Whenever
was different. There I found the the people of Canada think they
two transportation giants battling detect favoritism in the transpor-
it out in the air, on the rails, over tation business, they holler. And
the highways and waterways, from the referee pays attention.
one end of Canada to the other — The airways scrap of the 1950’s

15


===== PAGE 18 =====

16 THE FREEMAN September

is a good example. Trans-Canada to grow even wider by permitting
Air Lines, owned one-half by Ca- both to run from scratch on the
nadian National and one-half by coast-to-coast flight matter would
the government direct, had a mo- have been too much. So the pri-
nopoly on transcontinental flights. vately owned airline has still to
The private line, Canadian Pacific carry a slight handicap.”
Airlines, an integral part of the A third financial man said rather
C.P.R. system, couldn’t get a gov- grumpily that Canada has social-
ernment license to set up compet- ism trying to get along with capi-
ing service. Monopoly is sweet, and talism in its basic transport indus-
hard for anybody to surrender. tries, and that this just can’t work.
But the people’s protest became so

clamorous the government had to A Most Difficult Task

yield, and in May 1959 the new Socialism? President Donald
Canadian Pacific Airlines coast-to- Gordon of Canadian National
coast schedules began, using turbo- doesn’t talk like it. He said in
prop Bristol Britannia aircraft. London last summer:

“To be sure,” I heard in St. “As for the Canadian National
James Street, the Wall Street of Railways, as a national policy, and
Montreal, “the C.P.A. boys are indubitably in the national inter-
permitted to make only one flight est, its operations, its organiza-
per day each way, Montreal-Van- tion, and its business principles
couver. But the government just must be modeled upon those of pri-
wasn’t ready to face up to an old- vate enterprise. . .. To ensure the
fashioned laissez-faire competitive efficiency of its day-to-day opera-
battle. We take on these things a tions the yardstick of success must

bit gradually, don’t you know.” be found in its profit and loss ac-
“To express the basic transport count.”

difficulty in financial terms,” an- Nowhere I went in Canada were

other St. James Street source ex- Mr. Gordon or his associates in

plained, ‘the Canadian Pacific — management described as social-

rails, air, highways, waterways, ists, and their integrity is never in
hotels, whatnot; all rather large, question. These men have fallen
you know — was so ‘inconsiderate heirs to a most difficult task — op-
as to turn in a profit of $36.4 mil- erating a government enterprise
lion in 1958, as against a deficit of in a generally free economy — and
$51.6 million on the part of the I suspect that privately they don’t
Canadian National. To permit the like it much.

gap between the two performances Mr. Gordon’s opposite number



===== PAGE 19 =====

1960 A TALE OF TWO RAILROADS 17

in the competing organization, around our necks like an albatross.
. President N. R. Crump of the Ca- Most people didn’t really want it in
nadian Pacific, said at his 1959 an- the first place in 1923, and nearly
nual meeting of stockholders: “The everybody would be delighted to
Canadian people as a whole have be rid of the monster as a govern-
never consciously or deliberately ment business. But let’s face facts.
sought socialistic answers to their It's too late. The government-
problems in transportation or in owned railway is a permanent li-
any other field.” ability that the people of Canada
I did not attend this meeting, as have got to support with tax
I was elsewhere in Canada at the money.
time; but that particular state- “I am proud of the Canadian
ment made a hit with stockholders, National, with good reason. It’s a
just because it indicates the tradi- fine railroad — its subsidiary com-
tional fair-play attitude that Ca- panies also turn in the best jobs
nadians like to see. Mr. Crump was they can. The fact that I don’t like
not calling names. But he knew the type of ownership doesn’t
which team he was on, for he mean I think the management per-
added: sonnel incompetent. Far from it:
“If public [government] enter- they stack up with the world’s
prise were subject to the same best. But there is a sickness in so-
ground rules, including penalty for cialism that never shows up in
failure in meeting the test of the advance.”
marketplace, then competition with
private enterprise would be pos- Done in Desperation
sible without prejudice to the How did Canada get into gov-
principles of the market mechan- ernment ownership of the giant
ism. But if public enterprise has C.N.R. in the first place? I have
access to capital without regard to been traveling up, down, and
cost, then sound economic princi- across Canada for a great many
ples governing growth and prog- years, preparing articles and eco-
ress are jeopardized and an added nomic reports. I recall the postwar
burden is imposed on the tax- depression of the early 1920s,
payer.” when Rod Mackenzie's Canadian
A journalist assigned to Ottawa, Northern was in a bad way finan-
the national capital, was somewhat cially; the Grand Trunk System
more forceful. He told me: was in danger of collapse; and the
“We have got this big socialistic half dozen or more components
enterprise, the C.N.R., hung that were to be made part of the


===== PAGE 20 =====

18 THE FREEMAN September

Canadian National were on their good year in 1953, and paid the
last legs. The government stepped government nearly $250,000 in
in and rescued them by taking dividends on preferred stock. But
them over and forming a nation- five years later, with railroad op-
wide railroad empire rivaled only erating revenues of $705 million,
by the privately owned Canadian its 1958 loss was $14 million; the
Pacific. The Canadian people were C.P.R. in 1958, taking in $467 mil-
driven in a time of desperation to lion in railroad operations, showed
take the drastic step of govern- a profit of $55 million. Both had
ment ownership, almost against revenue from other activities —
their will. the Canadian National $9 million
This 87-year-old experiment has and the Canadian Pacific $17 mil-
proved conclusively that the two lion.
incentives that make a private en-
terprise succeed are lacking in a
government enterprise; namely, Why these incredible differ-
the reward for accomplishment ences? I got two one-word answers
and the penalty for failure. Before by interviewing Canadian ship-
examining some of the evidence of pers, the men who pay the freight.
this, let’s take a glance at some One was “integration.” The other
pretty big arithmetic: was “enterprise.” These two points
Over the 18-year period from of view gibe perfectly. Both seem
1941 through 1958, the privately valid to me.
owned Canadian Pacific paid its Here’s an example of integra-
stockholders $368 million in divi- tion that showed a lot of imagina-
dends, and paid income taxes tive enterprise: A major headache
amounting to $340 million to the to railroads, in the U.S. as well as
Canadian government, * Canada, has been the rise of air
In this same period the govern- and truck transportation. The Ca-
ment-owned Canadian National nadian Pacific launched a “pilot

“Integration’’ and ‘Enterprise’’

paid no income tax. plant” operation on the West Coast,
And in those 18 years the Ca- to see whether package shipments
nadian Pacific earned a profit of — less than carload lots — could be

$669 million while the Canadian handled through one management
National suffered a loss of $653 no matter how they traveled. To-
million. That meant big spending day you can ship from Vancouver
money for C.P.R. shareholders, big by rail, truck, piggyback, or air,
taxes for all Canadians. in any combination. This service is

The Canadian National had a integrated in control of solicita-


===== PAGE 21 =====

1960 A TALE OF TWO RAILROADS 19

tion, handling, transportation, and from both railroads is inevitable,
accounting. It worked so well in perhaps a great deal.
1959 that it will be extended “It isn’t a threat: it’s only
throughout Canada. The shippers seven-twelfths of a threat,” a
said it saves time, money, trouble, C.P.R. official remarked. He re-
and bookkeeping. ferred to the fact that the winter
The Canadian National will fol- freezeup will probably halt Sea-
low suit. That's it, the government way traffic to far inland ports part
railroad isn’t as free to experi- of the year. The Seaway, that
ment, to find new ways. liquid turnpike that will trans-
Another example: Both rail- form much of Canada’s midwest,
roads own a string of fine hotels just as in the U.S., also can be
across Canada. But the manage- looked on by railroaders as a chal-
ments’ attitudes are different. The lenge and an opportunity.
Canadian National, after its ex- The piggyback system of freight
perience in building a splendid shipment —-by which wheeled
new hostelry in Montreal, the vehicles ride on flatcars, then take
Queen Elizabeth, has flatly an- off on highways to make deliveries
nounced it will build no more new — gave somebody a big idea. Why
ones. The rival Canadian Pacific not a fishyback? Why not adapt
completed and opened in February the same method to freight ves-
1959 an addition to the Royal York sels? So the C.P.R. is developing a
in Toronto that makes this 1600- line of containers suitable for this
room hotel the largest in the Brit- traffic. This imaginative idea will
ish Commonwealth. With enthu- help shippers pack their freight so
siasm, the C.P.R. sees itself as that it can travel by land or inland
“providing facilities for.the needs sea, according to the season. The
of an expanding nation.” (Did C.P.R. rails will provide a usable
you know Canada will have a alternative when the inland waters
population of 18 million in 1960?) are frozen over.
So while the government hotel en-
terprise wants no more, the pri- An Integrated Service

vate enterprise is alert to new As 1960 opened, the Canadian
places that will yield a profit. Pacific had had six months’ ex-

perience with its newly stream-
The St. Lawrence Seaway lined organization. The country,

How about the St. Lawrence previously divided into eight dis-
Seaway? Everybody asks that. tricts, is now divided into four re-
Some diversion of freight tonnage gions — Atlantic, Eastern, Prairie,


===== PAGE 22 =====

20 . THE FREEMAN September

and Pacific. This cuts down over- private enterprise. To do so, the
head tremendously. This is part of government would have to: (a)
the integration policy that seems Set up an income tax account for
to go right down the line. For ex- this railroad on the same basis as
ample, rail, air, and steamship its competitor. (b) Simplify the
tickets can all be purchased at the corporate structure, streamlining
same place; and the same salesman it into an integrated whole (there
will help find accommodations at a were 79 corporations in the C.N.R.
C.P.R. hotel. And if he pushes complex five years ago, 45 one year
C.P.R. express or C.P.R. communi- ago, more than 30 still). (¢) Tell
cations services, that ’s what he’s the railroad to keep its hand out
paid for doing. The customer of the government till; no more
doesn’t get mixed up trying to find subsidies; when an operation loses
his way to a dozen offices in the money, cut it off.
same city. Ah, what a capitalistic utopia,
More statistics could be cited — with every institution required to
many more — such as comparison fish or cut bait, turn in a profit or
of fixed charges ratios, the input sell out! The political screaming
of $50 million more into the Ca- that would ensue would shake the
nadian National in 1958 despite a polar icecap.
“deficit of $51 million, and so forth.
The big point, however, is not in Citizens of the U.S. Might Learn
the figures, but in the philosophy from Canada’s Experience
and policy. What actually is hap- But lest U.S. citizens gain the
pening in Canada is that a loyal notion that it is only the Canadi-
group of hard-working and able ans who have drifted into social-
managers are struggling with an istic enterprise without knowing
impossible adversary — the sickness it, let us be aware of the follow-
that is socialism, no matter how ing: The inland waterways system

one tries to avoid the term. of the United States is wholly sup-
i } ported by the taxpayers, not by
Fish or Cut Bait? the users; barges ride toll-free in

Can the economic disease be channels kept open by the govern-
cured? Is-it really too late as the ment for their benefit on the pre-
Ottawa journalist insists? Or is text of military necessity. The
one big, courageous step all the various State-chartered “authori-
Canadian government needs to ties” are exempt from property
take? Such a step would simply be tax, exempt from federal tax on
to start treating the C.N.R. like a their securities; none is operated



===== PAGE 23 =====

1960 A TALE OF TWO RAILROADS 21

on a basis of full self-support and succumb to the economic disease
contribution to taxes. Port facili- that is socialism? Of course we
ties, bridges, airports, toll roads do know that such a thought is ridic-
not pay taxes; they collect them, ulous, until we recall the words of
without calling them taxes. The President Crump: “The Canadian
country’s major highway system is people as a whole have never con-
a public utility. Such a facility is sciously or deliberately sought so-
capable of standing on its own cialistic answers to their prob-
economic feet, as other public lems.” But in times of economic
utilities are required to do. difficulty, such an answer some-

Will the railroads of the U.S.A. times seems so easy! ->

EDITOR'S NOTE: Some persons may question the

fairness of this comparison between private en-
terprise and socialism on grounds that the Ca-
nadian government took over and combined nu-
merous railroad failures and then extended its
services nto unprofitable areas. But a charge of
unfairness is scarcely warranted, since this is
the way of socialism according to its own claims.
In the open market, competitive enterprise aban-
dons uneconomic ventures; whereas, the closed
or monopolistic market of socialism is unrespon-
sive to costs and uses its taxing power to cover
losses.


===== PAGE 24 =====

EAN

THE ECONOMIC GROWTH

73 OF SOVIET RUSSIA

HANS F, SENNHOLZ

A keen observer takes a close second look at various statistics

COMMUNIST LEADERS tirelessly pro-
claim that the economic and social
superiority of their order is bound
to lead to its triumph. To accept
such claims as fact leads to despair
about the future of individual en-
terprise and freedom. To equate
the alleged economic capacity of
communism with military power
gives rise to hopelessness about
the military position of the free
nations.

Impressed by Soviet “progress,”
some underdeveloped nations in
Asia and Africa are imitating the
communist system and accepting
political and military integration
with Russia, while we, in turn,

: may be tempted to imitate com-
munist techniques in order to com-
pete with the Soviet statistics. In
the name and for the sake of eco-
nomic growth, we may try more
government regulation, more gov-

Dr. Sennholz is Professor of Economics at
Grove City College, Pennsylvania.

22

ernment spending, and currency
expansion, thus hampering and
mutilating our free market proc-
esses until they are replaced by the
kind of government control that is
the essence of: the Soviet system.
It behooves us, therefore, to ex-
amine carefully the alleged sta-
tistics of Soviet economic growth
in the light of the known goals
and techniques of the communist
regime,

The communist world differs
fundamentally from the demo-
cratic world in structure of state,
economy, and society, in spiritual,
intellectual, and moral constitu-
tion. Communism means extreme
centralization of society and regi-
mentation of the individual. It sac-
rifices everything humane to the
State, subjugates and corrupts hu-
man conscience, and resorts to
cruelty, evil, and deceit in order to
attain its end. This is why Com-
munists cannot be judged by our


===== PAGE 25 =====

1960 THE ECONOMIC GROWTH OF SOVIET RUSSIA 23

own standards of human relations land and capital goods, are deter-

and morality. mined in accordance with general
Soviet objectives. Labor towards
On the Nature of Soviet Growth the consolidation and promotion of

In an individual enterprise econ- the communist order and state
omy the consumers determine the power is rewarded generously,
structure, change, and growth of while “unessential”’ labor must be
production. Through buying or ab- satisfied with less. Certain indus-
staining from buying, they deter- tries deemed essential for Soviet
mine what is to be produced, its objectives are supplied lavishly
quantity and quality. Profits and with labor and resources, while the
losses oblige the producers to cater unessential industries are drained
to the wishes of the consumers. for the support and growth of the
Economic growth, thus guided by former. In other words, numerous
consumer preference, depends up- economic sectors with millions of
on managerial ability applied to workers are exploited for the bene-
the savings accumulated by pro- fit of a few industries that are es-
ducers and consumers, sential for communism.

Economic growth under social-
ism differs radically from free F reedom To Move
market growth. The government In a free market economy all
has taken over, organized, and discrepancies of remuneration and
regulated practically every phase working conditions would soon be
of economic production. As the alleviated through the free flow
only employer, the socialist gov- of labor and capital. People and
ernment can concentrate the entire capital would leave depressed in-
energy of the system on strategic dustries and flock toward better-
points. Without regard for ex- paid occupations and industries.
pense, it can throw materials and No doubt, the people of communist
manpower into projects that are countries would move in similar
considered most important. The ex- fashion if free to do so. But the
penses are borne by the masses of communist State cannot tolerate
people who labor long hours at cut- this migration for fear of collapse
rate pay. of the central plan. It forces mil-

The Soviet State controls every lions of workers to continue their
phase of economic production in- labor in the exploited industries
cluding wage rates and working and selects those who are privi-
conditions. The remuneration and leged to work in the better-paying
employment of labor, like that of subsidized industries.


===== PAGE 26 =====

24 THE FREEMAN September

The industrialization of Soviet Some Methods of Growth’
Russia, which has been the fore- “ Even if we were so naive as to
most project of the Soviet regime, believe implicitly the Soviet statis-
is carried out mainly on the backs tics, and to overlook their unswerv-
of ‘Russian agricultural workers. ing intention to deceive and mis-
Many millions of Russian men, lead us, a few deliberations suffice
women, and children labor from to deflate their empty boasts. Rus-
dawn. to dusk on collective estates sian statistics reflect the economic
for a bare minimum of existence. growth that is due to territorial
It is they who have to pay the high expansion during and after World
price for the industrial ventures War II. The Soviet Union com-
of the State. pletely incorporated Estonia, Lat-

The apparel industry is another via, and Lithuania and acquired
important source of Soviet rev- about half of Poland, parts of Fin-
enue. The State sells all textile land, Germany, Czechoslovakia,
products at incredibly high prices, Hungary, and Romania, a territory
thus forcing the population to larger than France with a popula-
labor long hours for a minimum tion of more than 22 million people.
of clothing. The Soviet citizen is It is most difficult to estimate how
clothed in rags when compared much of the Soviet economic gain
with the American worker. is attributed to military conquest,

In addition to this form of mass for which the Western democracies
exploitation, millions of individuals and, above all, the United States
are forced to labor without any must ultimately be “credited” on
compensation on a bare minimum account of their crucial role in
of existence.. Upon their seizure World War II and their surrender
of power, the communist dictators of these people to Soviet control
threw millions of Russian capital- afterwards. But we obtain an im-
ists and landowners into concen- portant clue on the scope of this
tration and labor camps, which growth from the fact that the new-
have been an essential institution ly acquired territory is slightly
of communist production ever larger than the territory lost after
since. This labor force has been World War I.. As this territory
frequently replenished by hun- contained some 18 per cent of the
dreds of thousands of individuals productive capacity of Czarist Rus-
from behind the Iron Curtain — sia, we may-infer that the newly
countless Germans, Poles, Czechs, acquired territory accounts for at
and Hungarians representing the least 18 per cent of the stated
latest addition. : Soviet growth since World War II.



===== PAGE 27 =====

1960 THE ECONOMIC GROWTH OF SOVIET RUSSIA 25

Another essential growth factor Growth or Waste?
of the Soviet economy is the re- Such a “planned growth” may
moval of capital equipment from indeed facilitate some spectacular
all countries occupied by the Red technical achievements. But we
Army during and after the war. must be careful not to equate tech-
Countless plants and factories, val- nical achievements with economic
uable machines and equipment, progress. For these achievements
materials and supplies, rolling may actually be associated with
stock, rails, and even nails, were labor exploitation and economic
shipped to Soviet Russia. This pro- impoverishment. A centralized
ductive equipment undoubtedly economy that operates without
contributed greatly to the rapid benefit of the market and its price
economic recovery indicated by system lacks the tools for rational
Soviet statistics. economic calculation. The Soviet

Soviet economic growth is large- planners cannot ascertain whether
ly confined to only a few basic sec- the value of the output actually ex-
tors. A capitalist economy expands ceeds that of the input, for they
in all its sectors, providing an even lack the common price denomina-
larger variety of consumers’ goods tor that permits a comparison be-
and services together with a tween the final product and a mul-
steady growth in leisure; but So- tiplicity of heterogeneous produc-
viet growth is erratic and eccen- ers’ goods employed in the produc-
tric, proceeding by fits and starts tion. In other words, they cannot
in accordance with the orders and determine whether an additional
directions from above. Little at- ton of steel is actually more valu-
tention is paid in Russia to. the able than the raw materials em-
wishes of consumers. The empha- bodied in it, the labor withdrawn
sis of Soviet growth lies on a few from other production, and other
basic materials, capital goods, and cost factors, such as location and
armaments. Many of the economic time. In fact, it is entirely possible ,
sectors which we Americans deem that an expansion of steel produc-
important, such as construction, tion not only curtails other produc-
clothing, and services, are greatly tion but even reduces total produc-
neglected in Soviet plans. Need- tion. The people’s living conditions
less to say, the Russian growth may decline while the official sta-
statistics give glowing reports on tistics are reporting rapid econom-
achievements in industries with ic growth. Furthermore, the addi-
highest priority while little or no tional ton of steel mentioned above
weight is given to others. may be employed for projects that


===== PAGE 28 =====

26 THE FREEMAN September

constitute malinvestment and the free world, who are working
waste. In short, the statistical diligently towards the ultimate
growth may be tantamount to eco- sway of their social order. What

nomic waste and poverty. could be more reassuring to them
. than the thought of their-own for-
Toward World Revolufion midable military strength?

The struggle between East and
West is no old-fashioned power Why «Communists Talk about Growth
struggle, but total war in which To compare the growth rates of
the communist strategy is chang- the Soviet economy with those ‘of
ing continuously. Whether by psy- the market economy of the United
chological, economic, technological States is an insoluble task. The
or military measures, the Commu- two .economic-orders differ radical-
nists work diligently and in many ly and fundamentally. In spite of
guises toward the ultimate tri- all jits mutilations and obstacles
umph of communism. . created by government interven-

The objective of communist tion, the U. S. economy continues
world revolution has led to a vast to grow in-all its sectors at a mod-
expansion of Soviet military pro- est rate. Because market prices
duction and anything related there- still lend order to the economic
to. This does not mean .that the process, our economy continues to
military power will necessarily be grow and deliver the very goods
used in order to achieve final vic- which Soviet planners can only
tory, although there can be no promise. To talk about .and prom-
doubt that the Communists would ise economic growth is avital-com-
use it if this would most effective- munist strategy to bolster the
ly serve their cause. The existence ' hopes of the suffering masses. For
or appearance of military strength more than 40 years the communist
also has the ideological effect of leaders have successfully diverted
_ demanding respect in the councils their people’s attention from mis-
of those nations that live by power ery and starvation, persecution
and coercion. Nationalists, militar- and .slavery, by promising ‘them
ists, and other collectivists every- bliss in the decades to come. “We
where are unduly impressed by - shall surpass the United States”
military strength and all political is their latest slogan designed to
devices that promise to give such catch the imagination of the
strength. Military production also masses and secure their docile al-
affords relief and encouragement legiance. But if 42 years of So-
to the millions of Communists in viet tyranny have yielded no fruits



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

1960

THE ECONOMIC GROWTH OF SOVIET RUSSIA 27

of such ambitious intention, how even be worse than the waste and
much longer must we wait for the inefficiencies of the Soviet system.
miracles of communist production? For our political leaders may lack

the ruthless and savage determina-

There is one possibility that the tion to give some order to an in-
Soviet economy may actually sur- herently chaotic system. And we
pass us. If we should destroy our citizens may lack the servility of
individual enterprise system slaves that can make the Soviet
through more and more govern- system function. This is why our
ment intervention, and endeavor to imitation of the communist order
imitate the communist order, the is so deplorable, for it must prove
ensuing chaos of our economy may particularly disastrous for us.

N
rd
Ne ANN

\
* NV
?

g ~~ “

~
\
TN Ay
Pe ZN EN
, 3 TO
/

oH!
1
I
/

N
N
N
N

FREE TO OBEY

The author's name ts withheld to afford as much
protection as possible to the Russian guide.

DURING OUR TRIP to Russia a year body when I get home. Nicky, why
ago, we took a liking to one of our don’t you come to America and
guides — a bright young man with visit us and do some sightseeing?”
a sense of humor. I shall call him When he explained that he
Nicky, although that isn’t his real couldn’t afford to, I said: “I'll be

name.

glad to buy you a ticket and supply

We talked about free enterprise, you travel money so that you can
religion, and other things. One day make the trip, travel around the
I spoke of being free, and Nicky United States, visit me in my
said: “I am just as free as you are. home, and have a good time.”

What do you mean?”

“Oh, but they would never give

“Well,” I said, “for one thing, me permission to go,” said Nicky.

here I am free to leave my own “Who are ‘they’?” 1 asked.
country and come to Russia for “The government,” he replied.
travel and sightseeing. I didn’t It had not occurred to him until

have to ask permission of anybody then that he was not free.
and I don’t have to report to any- One day he expressed interest in


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

28 THE FREEMAN September

our World Almanac, which once dered about that one myself.” This
had been forbidden in Russia, pos- is the only time a dent showed in
sibly because it contained too much his brainwashed armor plate.
accurate information. Although we Commenting on Moscow’s sub-
offered to give him our copy, he ways, I said: “These subways are
didn’t want to accept it until eve- very elaborate. They look like the
ning, and then carried it home un- anteroom to a king’s quarters. In
der his coat. When we asked him America we have subways ‘but
if this were freedom, he replied: they're just concrete holes in the
“It is everywhere this way.” ground, built for the purpose of
During our travels we frequently going places. We like to embellish
consulted John Gunther's Inside our homes. Why do you lavish all
Russia, and read some pages aloud. this money down here in the sub-
Gunther describes at some length way?”
the cruelty and double-crossing of To this Nicky gave the stock
Stalin's regime. Nicky wanted a answer: “Oh, we own all of this. It
peek at the book every chance he belongs to us. We are very proud
got; and, when we left, we gave of it.”
him our copy. This, too, had to be One more anecdote. Nicky said
well wrapped and concealed before to me: “Private ownership is in-
he was willing to take it with him. conceivable to me. Is it true that
Outside Leningrad we visited private citizens own your factor-
the great Peterhof Palace, which ies?”
had been entirely destroyed in the When I replied in the affirma-
900-day siege by the Germans dur- tive, Nicky asked: “Don’t the
ing World War II. In the past few stockholders cheat the workers?
years, the Russians have spent We would in this country.”
millions and millions restoring the I told him about the division of
palace, its fountains, and gardens. wealth. between the stockholders
My wife said to Nicky: “I thought and the workers and explained that
you Communists wanted to get rid nearly 90 per cent of the wealth
of czars and palaces. Your housing created is divided among those
is inadequate; your quarters are that work while only a small per-
wretched and lack bathrooms; and centage goes to the owners. Nicky
yet you spend millions fixing up shook his head and said: “I can’t
this old palace. What for?” understand it. Why would anyone
Nicky thought ‘a minute and want to be a stockholder if that is
then said: “Well, I've often won- all they get?” : ~



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

pa / AS Co
N t 5

“U SOVIET ECONOMISTS

~" PART COMPANY WITH MARX

KARL MARX is rightly looked upon
as being the spiritual father of so-
cialism (and communism). But it
is the forceful appeal in the dema-
gogic Communist Manifesto, not
Das Kapital and his analysis of so-
cialist theory, that gives him pa-
ternity rights. His theoretical con-
tribution was his account of dy-
namic private enterprise, for the
achievements of which he nursed
considerable admiration, and not
his labor theory of value, the
weakness of which Marx himself
recognized.

Marx was more concerned with
tactical and political questions
than with the theory and practice
of socialism. He discussed how a
capitalist order should be trans-
formed into a socialist one,
whether it- was advisable to employ

Dr. Hoff is publisher and editor of the Nor-
wegian weekly FARMAND, from which this
article has been translated and condensed. He
also wrote the book, Oekonomisk Kalkulasjon
i Sosialistiske Samfunn; in English, Economic
Calculation in the Socialist Society (London:
William Hodge & Co., ).

TRYGVE J. B. HOFF

revolutionary or parliamentary
tactics, by what means the capital-
ists could best be expropriated,
what industries should be nation-
alized to begin with, and how
rapidly the process of socialization
could be carried on. Marx declared
that no sensible person would
think of working out recipes before
the kitchen was ready, or words to
that effect. The result was that in
socialist circles it was considered
downright heresy to discuss how
the socialist communities should
work in practice.

But, Russian economists have
now begun to discuss the law of
value.

At the meeting of the American
Economic Association, held in De-
cember 1958, a clear indication
was given of how the tide has
turned. Attention was drawn to the
fact that the change began with an
article by a team of Russian econ-
omists headed by L. A. Leontiev,
in the Russian journal, Pod

29


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

30 THE FREEMAN September

Znamenem Marxisma, No. 7-8 But the Russian team of authors
1943.1 Russian economists con- goes farther. It asks how the value
stantly hark back to this article shall be determined in the Soviet
when they discuss economics with Union now that it has been estab-
foreign economists visiting the lished that Marx’s labor theory of
Soviet Union. value cannot be applied. The point
Professor Carl Landauer (Uni- is that if utility is introduced, the
versity of California), in the labor theory of value must be
American Economic Review of abandoned. This means that the
June 1944, says that the Russian Soviet economy is now taking the
article breaks new ground: it road that leads from Marx back
proves that the law of value is to Jevons, Walras, and Menger.
valid in a socialist system, too. No one can doubt that the aban-
Perhaps the most sensational fea- donment of the labor value theory
ture of the article is its contention is due to practical experience.
that this economic law relates to “For the Soviet economist, the
the universal factors: scarcity and value theory is not a mere aca-
utility, and that these factors have demic affair. Value is the ‘single
essentially the same content in denominator,” which must be used
socialist as in capitalist societies. in Soviet bookkeeping for the
This is explosive material in- ‘comparison of the expenses of the
deed! The Marxists have always firm in a given period with the
ridiculed the concept of “eternal whole mass of production for the
truths.” But if they now acknowl- same period,” says Professor
edge that eternal truths exist in Landauer, quoting from the Rus-
the economic field, why then sian article.
should they deny their existence “If values reflected only labor
in other fields? cost,” Landauer says, “they would
not be usable for correct book-
About Face! keeping.” The Leontiev team, Lan-
Now “value calculation’ does not dauer adds, is saying virtually the
actually conflict with Marxist same thing as did Boehm-Bawerk
theory, for Marx concerned him- and Cassel. He points out that
self far more with criticizing capi- others have also foreseen this de-
talism than with explaining how velopment in socialist societies.
the socialist system should work. The professor goes on to say
"1 English translation reprinted in full there was in the beginning an at-
in the American Economic Review, Sep- tempt to represent the team’s
tember 1944, article as a symptom of the Soviet



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

1960 SOVIET ECONOMISTS PART COMPANY WITH MARX 31

Union’s decreasing hostility to no need to pay interest, the man-
capitalism, but he claims that those agers of state-owned concerns are
who do this are on the wrong tempted to hoard materials — after
track. The Soviet economists all, it costs nothing. The conse-
several times express their convic- quence is that a “value problem,”
tion that the capitalist system or a calculation problem, was found
must be abolished. They can hardly to exist there, too. The question of
say anything else. The main point, interest was looked upon by the
however, Landauer goes on to say, authorities as separate and sub-
is that the labor value theory has sidiary. But the significance of the
now been abandoned by the Soviet fact that some concerns operate
Union, a fact which “will free price at a profit and others at a loss was
analysis in Soviet planning from understood to the full.
a severe handicap.” The Soviet authorities have en-
deavored to solve the problem —
though not very successfully — by
It was not academic interest in stipulating “regional transfer
economic theory that induced prices,” by granting subsidies to
Leontiev and team to proclaim re- the poorly placed factories, and by
spect for the ‘“‘value-law” in the fixing “special settlement prices”
socialist system. A contributory to suit the various cases.
cause was the fact that some Rus-
sian factories managed to operate Economics of Agriculture i
at a profit, whereas others ran at Khrushchev, himself, as a con-
a loss. There may be many reasons sequence- of the poor results
for this, but one of them is that achieved ‘in agriculture, has be-
certain factories enjoy a favorable come aware of the need for cal-
location with respect to supplies culation. In his notorious report
of raw materials, availability of of December 15, 1958, the Russian
labor or markets, while others Premier declared: “It is impossi-
were badly placed. ble to carry on agriculture without
As the State owns all land and a thorough analysis of the costs of
no rent is charged for use of land, producing the goods and without
this prime factor is not taken into exercising control by means of the
account. Nor is interest charged ruble.” In so saying, Khrushchev
on capital, the argument being that is simply corroborating what sen-
the State owns the factories so sible economists have always main-
that such accounting is considered tained.
superfluous. However, as there is In Russia there are a confusing

A Practical Problem


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

32 THE FREEMAN September.

number of price levels, that is, if
the word “price” can be applied to
numerical designations which are
arbitrarily determined. and have
nothing whatever to do with mar-
kets. For retail prices alone, seven
different price levels exist, of
which probably the only reliable
ones are those ruling on the black
markets.

Of far greater importance than
prices of consumer goods, how-
ever, no matter what the system,
are the prices of raw materials and
means of production. Where there
are no markets — and there are
none for means of production in
socialist states, because the State,
by definition, is the sole owner —
there can be no market prices for
the means of production. And
where there are no market prices,
there are no reliable calculation
data.

The “transfer prices” which the
Soviet ‘authorities have employed
are completely artificial. The dras-
tic alterations continually being
made in “relative prices’ -and the
skepticism with which they are
greeted by the Soviet authorities
themselves show how worthless
they are.

Further proof of the skepticism
about prices in Soviet Russia ‘is
found in the comparisons which
are being made constantly with
prices in countries where private
enterprise exists. The supreme

socialist authority, Stalin himself,
once declared that the price of
cotton in the Soviet Union had to
be set higher than the price of
grain in the Soviet Union “because
this is the case on the world mar-
ket.”? This reference by ‘Stalin to
foreign price relations is not
merely a confession of a funda-
mental defect in the socialist sys-
tem. It reveals also that the ex-
istence of capitalist societies with
price data constitutes an enormous
advantage for the socialist states.

Cautious Criticism

There is widespread anxiety
among Russian economists because
their economy lacks serviceable
criteria and stimuli for rational
economic choice. The foremost
politicians have likewise been
seized by a desire for rationality.
However, Soviet economists have
been warned against “revision-
ism.”

Nevertheless, the Soviet econ-

omists now evince a tendency to.

criticize, but their criticisms are
presented cautiously and obliquely.
This is primarily an intellectual
and academic trend, and there is
nothing to indicate that Soviet
Russia is endeavoring to bring
about a return to the “market

2 Reported in Economic Problems of
Socialism in the USSR, Moscow, 1852, p.
24, according to the American Economic
Review, February 1959, p. 62.



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

1960 SOVIET ECONOMISTS PART COMPANY WITH MARX 33

mechanism.” This is understand- produce a yardstick by which to
able, as such a statement would be determine how much might ration-
tantamount to a proclamation that ally be produced with existing re-
socialism has failed. On the whole, sources.

therefore, discussions on allocation Other economists who have
of resources have taken place sub given the problem their attention
rosa. include the Dutchman, N. G. Pier-

son, the French Professor Bour-
Summary and Conclusion guin, Max Weber (in his Wirt-

In a socialist society, the private schaft und Gesellschaft), and Pro-
ownership of means of production fessor Boris Brutzkus. The one
has been abolished, and as a result who merits the greatest praise,
there are no markets for the fac- however, is Professor Ludwig von
tors of production. Without mar- Mises. His contention was sub-
kets for production factors, one mitted quite casually, almost in
cannot obtain real calculation data, passing, but it was found ex-
i.e., prices which reflect on the one tremely provocative and sensa-
hand the varying demand, on the tional. “Because the socialist com-
other the scarcity of existing re- munity is unable to calculate,” he
sources, which is also a variable, declared, “socialism is impossible.”
depending as it does on technical As recently as twenty to twenty-
developments. five years ago, revelation of this

Because Marx did not concern flaw in the socialist program was
himself with the way in which the greeted with a blend of indigna-
socialist system would work in tion and irritation by socialist
practice, socialist economists in economists. One of the more polite
the early days regarded discussion criticisms leveled against it was
of such matters as rank heresy. A that it was nothing more than ab-
few monsocialist economists, men stract theorizing devoid of all
who have thought deeply about the practical significance. In view of
problems of calculation and value, this it is something of a sensation
are the ones who have brought to that Soviet economists to an in-
light this fundamental defect of creasing extent are being forced
socialism. to admit that the nonsocialist econ-

As early as 1854 the originator omists were right. This admission
of the marginal utility theory, the does not stem from an academic
German economist, H. H. Gossen, urge to tell the truth, but from
declared that only through private convincing object lessons. In Soviet
enterprise would it be possible to Russia the muddle and lack of


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

34 THE FREEMAN September

rationality in economic manage- chandelier, the more the factory
ment have gradually become so ob- earns on carrying out its pro-
vious that the Russian economists duction program.”

themselves are no longer able to Brass is not molybdenum, but the
close their eyes to the situation. irrational use of metals provides
The same applies to the Russian a good analogy to our example.
political leaders.

To illustrate our point, we once The increasing . recognition —
asserted that in a socialist com- and admission — by Soviet econ-
munity there was a risk of molyb- omists and politicians that the
denum being used in the manufac- value problem also exists in the
ture of toy swords. Some people socialist system gives ground for
thought we were joking and that hope. Not for hope that this great
this was a silly thing to say. How- defect can be eliminated; it can-
ever, at the plenary meeting in not as long as Soviet Russia re-
June 1959, Khrushchev raged mains socialist, because that weak-
against the results achieved by the ness is inherent in socialism. But
system and said, among other it gives hope that the Soviet econ-
things: omists will be allowed to draw

“Here, brass chandeliers are attention to the great flaw in so-
manufactured with the sole ob- cialism and in so doing pave the
ject of making them as heavy as way for rejection of the socialist
possible, The heavier each system. >

A Major l1ssue

MOST FUNDAMENTAL ...is the question of whether we are going
to protect the opportunity of the market system to continue to
be the primary “decision making mechanism” for our economic
system. The alternative is to substitute political planning, politi-

cal management and political price fixing.

ROGER FLEMING
From the Secretary's 1959 Annual Report
to the American Farm Bureau Federation



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

Ey )
00D and BAD IF
\ MONOPOLY

NS. | C BE

LEONARD E. READ

MONOPOLY MAY BE GOOD or it may exclusive market position are in-
be bad, in the sense that human terchangeable terms, so deeply im-
behavior may be good or bad—ac- bedded one in the other that they
cording to whatever ethical stand- possess semantic inseparability.
ard we use to measure moral ac- Thus, there is little choice but to

tion. make out as best we can with the
The term monopoly, however, word monopoly.
has taken on bad connotations to There are two ways to attain an

the point where goodness is rarely, exclusive position in the market,
if ever, associated with it. As if that is to say, there are two ways
behavior were always thought of to achieve monopoly. One way is
as misbehavior! not only harmless — indeed, it is
The one-sided evil ascribed to beneficial; the other is bad. The
monopoly is so pronounced in most beneficial way is to become su-
people’s thinking that one is perior to everyone else in provid-
tempted to coin a new term to con- ing some good or service. The bad
vey the idea of monopoly in its way is to use coercive force to
good sense. But remedying mis- keep others from competing effec-
taken connotations by inventing tively and also from challenging
new words is, more often than not, one’s position. Rise above others
a hopeless means of improving by excellence, or hold others down
communication between people. It by coercive force!
may be simpler to correct the mis- As the late Ambrose Winston so
taken connotations. skillfully pointed out in his The
According to dictionaries, the Chimera of Monopoly (see p. 39),
term monopoly means “exclusive the bad form of monopoly is vir-
control of a commodity or service tually impossible, assuming free
in a given market.” Monopoly and exchange. In brief, monopoly in its

35


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

36 THE FREEMAN September

popular and evil sense cannot be temporarily, have an exclusive
achieved except as coercive force— market position, a monopoly. No
private or governmental —is em- one will be injured by your
ployed on its behalf. Mr. Capone achievement; the few on whom
used private force to maintain an you can find the time to operate
exclusive position in Chicago’s will be benefited. This is not only
beer market. Governmental force a harmless monopoly; it is a good
links itself with labor unions to one in the sense that it is an im-
keep workers from having free ac- provement upon that which ex-
cess to the labor market. The same isted previously.
force joins with producers and dis- Badness, nonetheless, will be as-
tributors to limit access to mar-  cribed to your monopolistic posi-
kets, as in the case of cartels and tion, and for a simple reason:
other forms of trade restriction. Thousands of those suffering the
Exclusiveness in the market as a ailment will seek your expert serv-
consequence of coercive force is ices, but only a few of them can be
the only form of monopoly most accommodated. Both the surgery
people envision. Thus, they look and the preparation are slow and
upon any and all exclusiveness in complicated. Fifty operations are
the market as having none but evil your maximum for any one year.
characteristics. ~All but the fifty will complain
There is, however, a way of about the method of allocating
achieving a monopolistic position your services, no matter what
(exclusiveness in the market) that method you choose.
beneficially affects all concerned. For instance, you could confine
Indeed, all progress rests upon this the surgery to your friends, charg-
way: Become superior, that is, ing a “friendly” fee. Or, to the
surpass others by excellence, which poor, doing the specialized - work
is to say, achieve leadership by the for free. Or, to those whose lives,
voluntary followership of others. in your judgment, were most
A simple example: Assume the worth saving, charging what each
existence of a common brain ail- could afford to pay. Or, as in so-
ment among the population, one cialized medicine, letting the bu-
that no person has yet found a way reaucracy issue the priorities, at
to alleviate. Next, ‘assume that an arbitrary fee to be paid out of
you, through research and experi- taxes. Or, as in Russia, according
ment, eventually perfect the tech- to political preference.
niques in surgery that can effect a Choose whatever method you
cure. You will in this instance, will, only the fortunate fifty can be



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

1960 GOOD AND BAD MONOPOLY 37

served by you annually. The unat- the number of operations you can
tended thousands will be unhappy supply — to bring demand and sup-
with your monopoly, regardless:of ply into balance. That price, for
how your services are allocated. the sake of this argument, might
Dissatisfaction on the part of be $25,000 per operation. This, ad-
those whose lives you cannot save mittedly, is but to affirm that in
is to be expected. What ought to the initial instance only the
interest them, however, is some wealthy or those willing to mort-
method of allocating resources gage their futures could afford

that will attract others to com- your life-extending services. .
pete with you and thus challenge “Horrors!” would cry those who
your exclusive position in the mar- call themselves humanitarians.
ket. There are, they should recog- “There is no thought of people at
nize, no powerful influences in any all in this scheme, only of money.
of the above ‘humanitarian’ What a materialistic point of
methods for luring others into an view!” Yet, the same number of
emulation of your surgical excel- lives is to be saved as before, the
lence. This is another way of say- only difference being in the
ing that these methods of allo- method to determine whose lives.
cating resources more or less limit While badness, not goodness, is
the goodness of your type of often ascribed to the price mecha-
monopoly to the good that you nism of the free market as a means
alone can perform.! You can save of allocating goods and services,
fifty lives+annually, no more. the ascription is wholly in error,
There is a method by which the even on humanitarian grounds.
goodness in a good monopoly can For, this method, allowing for the
be vastly multiplied, by which its influences that motivate men in to-
temporariness can be assured, its day's world, is the only realistic
permanence broken. It is the way of bringing the above-men-
method of the free market with its tioned surgical services to the tens
price mechanism: Charge a price of thousands who are suffering the
high enough to limit the demand to brain ailment. The very high price
—_— per operation is the market’s green

1 3 3 3 1 . . 3 PT 7] .

oda ror the most part, a | Lght. Tt is the economic "g0™ sign
selfless being. Admittedly, there are those signaling the way to green pas-
of undeniable talents who take vows of tures. It powerfully attracts other
poverty and also others Tho ura their surgeons to the same high achieve-
ment as your own. Soon there will

they are more the exception than the
rule. be many surgeons who will perform


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

38 THE FREEMAN September

the same operation as dexterously poses a bureaucracy composed of
as you. The price — in a free and omniscient individuals, intellectual
open market — will be relied on to supermen capable of bringing all
allocate the available resources, its human action within their intelli-
tendency being, as with shoes, gent purview.

houses, autos, TVs, foods, and Good monopoly requires nothing
whatever, to fall within the range in the way of societal or police con-
of all. trol except the formal, legal in-

The market method of allocat- hibition of all fraud, violence, mis-
ing resources is impartial. It representation, predation. Such
brings individuals together, imper- inhibition is the function which
sonally, on a mutually agreeable government, in good theory, is sup-
basis. posed to perform. Creative action

All alternative methods are par- is unfettered. Superiorities. in the
tisan and personally discrimina- market (monopolies) tend to as-
tory. Assuming the most high- sert themselves as rapidly as the
minded and charitable surgeon abilities of the people permit. To
conceivable, he must, if he rejects the extent that this type of mo-
the market method, personally nopoly exists, to that extent'is the
select from among the thousands market open. This is the liber-
the fifty on whom his beneficence tarian or free enterprise formula
is to be bestowéd. Or, if the alter- and presupposes a people not one
native method is governmental of whom is capable of coercively
control, some individual in the directing the creative actions of
political apparatus makes arbi- others, wisely.
trary decisions as to who is to When everyone is free to pursue
receive the surgery. Of necessity, an exclusive market position by
under this method, there is a ceil- the route of superiority, as dis-
ing on prices and thus the scheme tinguished from ‘imposing in-
carries no incentives luring others feriority on others, such creative
into superior skills. potentialities as exist in the people

The kind of monopoly which par- will find expression and realiza-
ticularly merits opposition re- tion. The two kinds of monopoly
quires coercive force which, usu- have to do with getting on top by
ally, is provided by government. productive and creative talent or
To the extent that this type of getting on top by holding others
monopoly exists, to that extent is down. The contention here is that
the market closed. This is the the former is good monopoly; the
socialistic formula and presup- latter is bad monopoly. -



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

Editor's Note: A popular clamor persists that govern-
ment intervene to curb monopolistic practices. Often
overlooked is the fact that prior government interven-
tion in one form or another — or failure of government
to suppress “private” resort to force and intimidation
— results in domestic and international barriers to
trade, thus creating monopolistic powers or conditions
that could not have developed in a free market without
coercion.

Professor Winston (1867-1959) stressed that fact
throughout his long teaching career. He was Associate
Professor of Economics at the University of Texas
when this article, slightly condensed here, first appeared
in the November 1924 issue of Atlantic Monthly.

The Chimera of Monopoly

AMBROSE PARE WINSTON

IN THE GREAT SEAFIGHT at Actium less on the water. Even to this day,
when the combined fleets of Mark in fact, it is a well-known species
Antony and Cleopatra contended with a remnant of its ancient fame
for the empire with the forces of still perpetuated in the diction-
“Octavian,” Antony’s ship, it is aries by the name of remora (de-
said, unaccountably slackened layer) and in the zoologies by the
speed and then, in defiance of the specific name of naucrales or con-
wind in its spreading sails, in de- queror of ships. This belief was
fiance of hundreds of slaves bend- not confined to the ignorant popu-
ing to their oars, stood still. A lace; it was entertained by the
diver, examining the hull, brought best intellects of that time, by
up a little fish of a variety which, Lucan in his Pharsalia and by
according to general belief at that Pliny the Elder, himself comman-
time, by attaching itself to a hull der of a fleet as well as the most
could hold the largest ship motion- noted observer of animal life in

39


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

40 THE FREEMAN September

the whole history of ancient Rome: toward destroying a reputed
“What is more violent than the agency of oppression, a plunderer
sea and the winds? What greater of the people, which had its seat
work of art than a ship? Yet one in the town of Elgin, Illinois, west
little fish can hold back all their of Chicago, and which was said to
fury and can hold back all these reach out its strangling tentacles
when they all strain the same way. to the extremities of the nation.
The winds may blow, the waves That town had years before been
may rage, but this small creature the center of trade in dairy prod-
controls their fury and stops a ucts for the rich farming country
vessel when chains and anchors round about; an organized market
would not hold her, and that it in butter had grown up there and
does, not by hard labor, but merely become widely famous and its
by adhering to her.” quotation of prices was recognized

A fable, so out of keeping with in all the butter markets of the
modern thought that no one would nation. In time it quite lost im-
now believe it, found at that time portance as a butter market but
no one to deny it, because in that still continued to be, even more
age there was a universal failure than most markets for farm prod-
to understand that physical energy ucts, an object of denunciation on
is quantitative and measurable — the ground that its Butter Board
that the great force of a large “fixed the price of butter.” Con-
body is not to be controlled by a gressmen, farm papers, and mis-
little thing and feeble, “merely by cellaneous editors thundered to
adhering to” it. In contemplating right and to left of it. It gave oc-
the physical universe we have cupation to Federal Grand Juries
made appreciable advance, but it and, in April 27, 1914, a decree of
is possible that after some cen- the United States District Court
turies the record of our thinking in Chicago condemned the officers
on social phenomena will be treated and members of the Elgin Board
by the historian of science in the of Trade on the ground that they
same chapter of Pliny’s Historia ‘heretofore formed, and at the

Naturalis. time of the filing of the petition
were parties to, a combination and
The Elgin Butter Board conspiracy to restrain interstate

For a series of years ending in trade and commerce.” The officers
1917 the powers of the American and members of the Board were .
government — legislative, execu- accordingly forbidden to engage in
tive, and judicial — were exerted the said conspiracy by fixing and



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

1960 THE CHIMERA OF MONOPOLY 41

publishing prices, unless these statistical board to furnish infor-
prices grew out of bona fide sales mation as to market conditions. As
of butter. a source of information it was un-
In 1917, at the request of the satisfactory and might have been
Food Administration, the Elgin misleading, but its suppression
Board ceased operations. If we ex- was explained and justified on
plore the depths to find out what other grounds. The Board was
manner of organization this is prosecuted, not for fraud, not, for
that fixes the prices of a com- example, on a charge of using the
modity so widely bought and sold, mails to defraud, but for exercis-
what do we find? An Assistant ing, or at least threatening, a
United States District Attorney, dominant influence over prices to
who went out from Chicago and the injury of the consuming public.
recommended that it be closed,
described its operations. From The Tail Wags The Dog
January 6 to June 16, 1917, it met The New York Times — an or-
once a week with average attend- gan not inferior in intelligence to
ance of four traders and average the average citizen — announced in
sales of 51 tubs of butter. From a telegram from a Chicago cor-
the first of August to the first of respondent that this formidable
November all the sales, with two agency “practically fixed the price
exceptions, were made by a man of butter for the United States.”
named Moles and a man named That is to say, the great currents
Christian. For example, August 4, of trade in that commodity, as it
Christian sold Moles 25 tubs at moved to the central markets and
381 cents. August 11, Christian out again to the consumers, urged
sold Moles 50 tubs at 40 cents. on by the imperious necessity of
August 25, Christian bid 41 cents the producers to sell, drawn by the
for 100 tubs, no offers and no desire of the consumer to buy —
sales. September 1, no sales. For thousands of pounds, millions of
years Elgin had ceased to be a pounds (more than 300,000,000 a
butter market of importance; the year coming to the neighboring
meetings and the publication of market of Chicago alone) — were
prices seem to have been continued set at defiance by this puny sur-
because some people in the neigh- vival of an abandoned market, as
boring territory, and also from the little fish baffled the struggles
Baltimore south, preferred the of Antony's rowers and the winds
quotations from force of habit. of the Ionian Sea. Like our fore-
The committee was substantially a fathers in their thinking on phy-


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

42 THE FREEMAN September

sics, we in our sociology fail to Business Size and Monopoly

understand that forces in society The opinion has eome to prevail
are quantitative and measurable — almost universally that the growth
that the small forces do not prevail of large-scale industry within a
over the great. Pliny says that half-century has marked the end
when a remora stopped the ship of of competition. Mr. and Mrs. Webb
the Emperor Caligula and was in their book on the Decay of
brought upon deck, it was only a Capitalist Civilization (dealing
little fish, and “it had not great with the United States as well as
power.” (It was only Moles selling England) have attributed the
his weekly 50 tubs to Christian.) downfall of capitalism to a re-
The pathetic Elgin Board case is, placement of the competitive re-
of course, extreme (the antitrust gime by monopoly. Mr. Eliot Jones
agitation is directed in many in- in his Trust Problem in the United
stances against groups not so States concludes that it is impos-
clearly inferior to the great move- sible to “restore competition.”
ments of commercial activity This understanding of recent in-
which surround them), but it is dustrial history arises from a mis-
instructive precisely because it is interpretation of one set of facts
extreme. The extreme case is and an entire oversight of another
needed to measure the present-day group of processes which have
credulity as to combinations and given to the industrial activity of
their power over prices. Deep our day an intensity of competi-
waters require a long plummet. tion unknown to any earlier gen-

It is impossible to review here eration.

the whole subject of “Trusts.” First, it should be understood
What follows is meant to apply that increased size in manufac-
only to the cases mentioned — turing organization is not the
namely, the “Beef Trust,” the same thing as monopoly. The in-
Standard Oil group, and the Rail- crease in size has resulted chiefly
ways of the United States. These from improvements in transporta-
have been the chief objects of at- tion. When, one hundred years
tack in the antitrust agitation and ago, it cost $249 to send a ton of
legislation of the last few decades iron from Philadelphia to Erie,
[prior to 1924]. It seems logical, the market for iron from any pro-
therefore, to meet the prevailing ducing center was limited to a
public opinion on this matter on small radius. When a ton of iron
the ground which public opinion can be sent from Pittsburgh to
has chosen. Vancouver for $18 the marketing



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

1960 THE CHIMERA OF MONOPOLY 43

radius is wide. The industrial unit in the winter of frozen beef from
was necessarily small when the farmers by the “quarter,” not one
market was narrow; it is large in family in that region ever found
an extensive marketing area. The relief from the power of our Beef
change in size of factories and size Trust.

of marketing areas does not mean Not only has the substitution of
a change in the number of pro- large for small producing units re-
ducers within reach of the buyer. sulted in no weakening of competi-
The twentieth-century consumer tion; more than that, it is an ob-
buys from a large factory selling vious deduction, from facts known
across half a continent; his nine- to all observers, even from the
teenth-century ancestor bought hackneyed commonplaces of recent
from a. little shop or mill which industrial history, that, with and
sent its products across half a because of the growth of capital-

county. ism, competition has in our day

} become intense and swift and sure

A Local Situation beyond all previous human experi-
In the small gristmill a family ence.

had few mills to choose from and What do we mean by competi-

paid the same price (or toll) to tion? We ought to mean the ready
everyone. The millers could readily movement of the factors of pro-
agree on prices without interfer- duction — labor or productive in-
ence by officers of the law. In my struments — toward those employ-
Illinois village we were confronted ments in which prices are excep-
when we bought meat, not by a tionally high and profits large.
beef trust, but by an entire con- That is, competition is substan-
solidation of the beef industry in tially “mobility.” Two things are
one person, namely, Joe C. We necessary for this mobility: (a)
bought our beef from him or went knowledge, among persons outside
without. Later Charley D. came in of the high-priced employment,
—~ we dealt not with a Big Five that it is profitable; (b) the pos-
and two hundred independents de- sibility of increasing -the use of
scribed in the Federal Trade Com- capital and productive energy in
mission report, but with a Big employments whose superior at-
Two. The rich man of the region tractiveness has become known. In
in a neighboring town had his both respects the tendency of re-
meat sent in from a distance. This cent industrial evolution has been
doubled the cost. With that one ex- toward making competition more
ception and occasional purchases prompt.


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

44 THE FREEMAN September

An even more striking factor in automobiles, from sugar, from
the situation before us is the commerce and shipping, flow into
fluidity, the mobility of productive steel or automobiles or oil, or
forces, now that the craftsman whatever gives greatest promise
has given way to the machine as of high earnings. In the produc-
the dominant factor in production. tion of the chief staples, every sort
The skilled workman, having of productive agency — labor, no
learned his trade, was immobile; longer specialized as in the past
he could not invade another craft but adaptable to any use, and ma-
and he had little fear of an inva- terial of every kind — is at the dis-
sion of his own field by unskilled posal of any group of persons pos-
men or by men of acquired ability sessing the requisite number of
unlike his own. Tasks like those dollars.
which formerly required muscular
strength and skill gained through Kinds of Competition
long apprenticeship are now per- The matter is comparative, and
formed in a large and increasing in comparison of past and present
percentage of cases by men of we can say only that in the more
little strength and brief train- general knowledge today of the
ing. ... relative attractiveness of business

If labor is readily diverted from opportunities, in the increasing
one employment to another by the readiness with which unspecial-
allurement of profits, the other ized labor and unspecialized ma-
great factor in production is terial for plant and equipment can
equally fluid. New capital —the be turned with brief preparation,
current accumulation of surplus the consumer finds a tolerably se-
income — is unspecialized indus- cure defense against high prices
trial protoplasm quickly turning ‘due to restricted supply.
in any direction, attracted by the It must be understood that com-
hope of profit, creating new com- petitive influences or processes are
peting products with a promptness many. There is competition of the
and certainty unknown in the age obvious sort between rival com-
of handicraft. panies; there is the influence of

The owners of investment capi- ‘potential competition,” caution in
tal and their advisers are looking raising prices for fear of calling
incessantly for the most profitable new rivals into the field (thus
opportunities for its employment. Miss Tarbell showed how, when
The earnings from oil, from steel, prices of oil increased, the produc-
from the packing industry, from tion of oil from shale increased



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

1960 THE CHIMERA OF MONOPOLY 45

and new wells were opened so that destroying a rival. The same sort
Mr. Rockefeller and his associates of competition is well known in
found that “making oil very dear other cases without being called
does not pay”!). There are other competition. For example, an asso-
forms of competition, or processes ciation of onion-raisers in the Rio
having the same effect as competi- Grande Valley some years ago de-
tion, in both railway transporta- veloped a market for their prod-
tion and manufactures, which have ucts in Kansas City by inducing
generally been slighted or over- the grocers there to lower the
looked. One of these neglected price of onions at retail, causing
forms of competition is what an increased demand for onions by
might be called the motive of the a process of competition with the
empty car. If all railway property whole range of foods known to
in the United States were united Kansas City housekeepers.
under one owner, it would still be
necessary for that magnate to Intercommodity Competition
place a limit on charges in order The development of a market
to attract business, and thus to for any commodity by joint action
employ more fully his trackage of producers of that commodity
and his rolling stock, as more than (as in the case of California
half the expense of railway opera- fruits) through distributing sam-
tion continues even when traffic ples, advertising, demonstrations
and revenue are next to nothing. to teach the public its uses and ad-
The same principle applies to vantages, is intercommodity com-
manufactures: running at half ca- petition. It is quite reasonable to
pacity is ruinous. believe that, if production of each
Another sort of competition is commodity came to be consolidated
competition between one com- in one company, the competition
modity and another for the pur- of the several groups for the pat-
chasing power of the public. The ronage of the purchasing public
fact that unlike commodities com- would be as intense and as effective
pete has been recognized in the an influence toward moderate
case of the liquor traffic; the gro- prices in every line as any imagin-
cer has been biased in favor of able competition between rival pro-
Prohibition by his own interest in ducers of the same kind of articles.
_— The opinion has been generally
ror Edie 8 ote! Tarbell, Ida M., His- gccepted by writers, legislators,
y ¢ sumdard Lv Lomparl, 0% and judges that the railway busi-

of the sensational treatises in the “muck- ) h Is
raking” movement of the early 1900’s. ness is singularly noncompetitive.


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

46 THE FREEMAN September

With all deference, I believe that competition process is not identi-
competition is in that field singu- cal in the two cases.
larly powerful. All students of
railways do indeed recognize the Monopolies of Many Parts
influence of railway competition, An observation of the industrial
not merely in the simple_and ob- organizations which this course of
vious effort of adjacent lines to development has created brings
take business from each other, but everywhere to view the universal
in the case of lines far apart. prevalence of competition which
Whenever two railways, however the growing fluidity of industrial
remote, carry products from com- agencies and instrumentalities
peting producers, those lines of would lead one to anticipate. To
rail are competitors. Thus the find evidence that competition sur-
railways of British India and the vives and increases, one need only
railways from wheat fields of examine the rather abundant pub-
Dakota to the port of New York lications, official and unofficial,
are competitors in carrying wheat which have been designed to show
for the Liverpool market. The that competition has been
same process is more evident with- “crushed.” One might, for ex-
in the country; for example, the ample, reasonably expect that a
shoe manufacturers in St. Louis work like the Federal Trade Com-
and the railways which serve them mission’s report on the Meat In-
compete for the market of the dustry, recommending (and in
south (Georgia, Alabama, Tennes- fact leading to) drastic legislation
see) with the New England shoe for the remedy of monopoly, would
factories and railways. exhibit something which might
This fact can hardly be stated possibly be called “monopoly’’ by a
with too broad an application. rational person within reach of a
Practically all articles carried by dictionary. The commission re-
American railways enter into a ceived replies to its inquiries from
world-wide market where farmers, 225 slaughtering interests engaged
manufacturers, miners, and car- in interstate trade, besides 1,132
riers of all regions and all nations wholesale slaughterers doing busi-
compete. A combination to put an ness within their respective states
_ end to competition must therefore — in addition to the purely retail
be world-wide; there is no such slaughterers scattered nearly
combination. The corner grocery everywhere over the country. That
is not more clearly competitive is “monopoly.” Likewise, the re-
- than the railway, even though the port of the Senate subcommittee



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

1960 THE CHIMERA OF MONOPOLY 47

in 1923 on the “High Cost of Gaso- creased, as appears in the follow-
line and Other Petroleum Prod- ing table showing the percentage
ucts” mentions (in addition to the of gain for the monopolists and
seventeen companies with their for sixty-five competitors of the
thirty-eight refineries of the monopolists.

Standard group) a further list of

44 r”
twenty-eight independent com- 65 “Independent

. | Big Five Companies
panies operating fifty-seven refin- (average) (average)
eries, and (yet further) a num- 1914 8.3 12.6
ber, not specified, of small refin-
eries. That state of things can be 1915 12.8 13.1

1916 18.5 22.1

classified as “monopoly” only by a
use of the word (unhappily the 3.yr averagel3.5 16.3
prevailing use) so indefinite as to
have no real significance. These Why become a monopolist, when it
publications not only show a mul- is more profitable to be an “inde-
titude of competitors, but they fail pendent”?
to show (even when in general In 1921 the Big Five endured a
terms they allege) the high profits general loss; Armour’s deficit was
which the word monopoly implies. reported at $31,000,000; Wilson's
at $8,462,000 — five or six times
The Meat Industry the total profits of the Wilson
In the meat industry during the Company for the year 1920. The
prewar years 1910-13, Armour’s Wilson organization is now
profits ranged from 3.4 per cent (August 1924) in the hands of re-
to 9.3 per cent; Swift's, 7.4 to 9.6; ceivers, and a suit to have the com-
Morris’s, 4.1 to 7; Cudahy’s 2.4 to pany declared bankrupt has been
8; Wilson's, so far as reported, brought by creditors who, depart-
were 6.5 per cent. The reader is ing from the complaint of the Com-
invited to decide for himself mission that the company has the
whether there is evidence in these consumer’s purse at its mercy,
figures of monopolistic extortion allege that it cannot extort enough
which the Federal Trade Commis- of the consumer’s wealth to pay its
sion represents (I am not exag- debts.
gerating) as a peril of the first According to the brief of the
magnitude not only to the people government in the suit to dissolve
of the United States but to the en- the Standard Oil Company, that
tire human race. organization in 1906 earned 24.6
In the war years profits in- per cent on its invested capital,


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

48 THE FREEMAN September

about the same rate for the pre- Belgium, Prussia, Switzerland,
ceding ten years, and 20 per cent Italy, and France, where popula-
in the yet earlier period as far tion is dense and traffic heavy,

back as 1882. . .. seemingly fit subjects for the
If we consider the circumstances profiteer.
of that time, the continued growth In the South American supple-

in demand for petroleum products, ment to the London Times of Sep-
especially with added impetus of tember 27, 1910, it was said that
the war, one need not be surprised the Sido Paulo Railway in Brazil
at earnings of such a per cent on was the most prosperous railway
investment for one of the chief in South America “if not in the

beneficiaries of that demand. ... world.” This marvel of a railway;
. carrying about half the world’s
The Railway Story coffee, was paying dividends of 14

Among all lines of business, rail- per cent. What other industry is
ways have in most countries been there in which such a return on
selected as a subject of exceptional investment would be regarded as
control - as having a singular very exceptional or even a maxi-
power to exact from the public ex- mum? :
cessive payments. An examination The Prussian state railways
of the financial history of railways have been regarded as among the
in all parts of the world seems most successful — perhaps the most
rather to indicate that there is in successful — of European railways.
the railway business a singular in- In the four years 1910-13 their
ability to obtain for that service yield in excess of operating rev-
earnings equal to those frequently enue over operating expenses
realized by other investments. This ranged from a maximum of 7.20
characteristic disability has been per cent on the investment to a
so clearly recognized that capital- minimum of 6.39 per cent. After
ists have, in many countries, re- deducting from this miscellaneous
fused to invest in what, by the railway expenditures and interest
monopoly-and-extortion theory, ‘on the railway debt there remained
should be an opportunity to make as a surplus for the public treas-
easy money; so that governments ury 1.9 per cent (taking the four
have found it necessary to attract years together) on the capital in-
capital to this line of business by vested. The French lines were well
subventions and guaranties of in- planned to avoid paralleling or
terest — not only in new countries wasteful construction, yet up to
as those of Latin America, but in the end of 1908 the government



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

1960 THE CHIMERA OF MONOPOLY 49

had spent in aid of private roads no case been greater than those
$785,000,000. At the end of 1913, known to any person at all ac-
the purchase by the State of the quainted with such matters as not
Western Railway system, which infrequently accruing to successful
according to the official promise companies. I can recall corpora-
was to cost the public nothing, “had tions engaged in business, unmis-
already cost the taxpayers 944,- takably competitive, yielding 30,
000,000 francs,” while according 60, or even 100 per cent. It seems
to the latest official figures the fairly safe to say that — using in-
deficit on the state railways definite terms with proper inter-
amounted to 345,000,000 francs pretation — wherever a man or a
(London Economist, January 8, group has rapidly gained what

1914, p. 24). ... would be regarded as “a fortune”
Co out of scant capital, the annual
Is Profitability the Key? profits have been more than 25

As the Lilliputians bound the per cent of assets. Mr. Roberts, of
sleeping Gulliver to the earth, with the National City Bank, in dis-
cords from ankle to queue, so pub- cussing the subject, refers to Sena-
lic authority multiplies statutes tor Capper who began with in-
and ordinances to restrain the too vested savings and now owns “two
powerful giant, while many of the daily papers, six weeklies, three
same statesmen, with a double semimonthlies, and two monthlies,
load of anxiety, imperil their bud- several of them of wide circulation
gets in providing sustenance to and large earnings, with aggregate
save the same giant from dying valuation of millions.” Mr. Kresge
of malnutrition. If the railway is is still well under sixty and had
“affected with a public interest” engaged in various employments
because of an inherent tendency before beginning with $8,000 his
to monopoly and too great gains, business which in 1923 yielded
one is justified in looking for more profits of $9,493,988.
frequent instances of railways The lines of business activity
earning at least enough to make whose earnings the public seeks
them independent of public to limit are not these or the ac:
charity. tivity of the automobile million-

It is ordinarily futile to consider aires, but the beef business with
whether a certain percentage of in- its humble earnings of 3.10 or 13
come on investment is normal, asno per cent offset by some huge
one can define a normal rate. In the deficits, the oil business with 25
instances before us profits have in per cent as an ordinary return,


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

50 THE FREEMAN September

and the railway business which is may in some instances be measured
so constituted as to be, in most of against each other, and those
the world, a starveling. Of 10,000 clearly small by comparison can-
corporations in the United States, not prevail over those clearly
with total earnings at an average greater. This fact is very com-
for the three years 1911-12-13 of monly disregarded. The Elgin But-
more than a half-billion dollars, ter Board case is an example.
there were 2,571, each of which
averaged for the three years from A “Corner” on Rice
20 per cent to 100 per cent or more. Here is another: the Federal
It would be easy to add much Trade Commission, in its report
statistical evidence that the Stand- on the Meat Industry, alleges that
ard Oil earnings, if about 25 per the Big Packers are engaged in a
cent, were not very exceptional. conspiracy, not merely to plunder
The popular belief as to mo- users of meat, but, since they deal
~ nopoly is open "to objection for in other foods (dairy products,
other reasons less obvious but poultry and eggs, groceries) and
quite as convincing as any to be since these operations extend to
found in tables of investment and other countries (I quote the Com-
earnings; it implies a false con- mission's italics from Pt. I, p. 68),
ception of economic society, of the “to monopolize and divide among
economic interdependence of men, the several interests the distribu-
and even in some fashion of man’s tion of the food supply not only of
place in the universe. the United States but of all coun-
About eighty years ago there tries which produce a food surplus,
came to full recognition the idea and as a result of this monopolistic
that as matter has the measurable position . . . to extort excessive
qualities of weight and extension, profits from the people not only of
so the forces of inorganic nature the United States but of a large
— as heat, light, and motion — are part of the world.” They ring the
measurable and indestructible; changes on this idea of monopoly
that when one form of force is and conspiracy. Fortunately, they
converted into another, the cause give a definite measure of the ex-
is equal to the effect. The same tent to which the five meat com-
principle seems applicable (with panies have advanced toward hold-
great caution and modification) to ing the human race in their power
social forces. This at least is in- by threat of starvation. I quote:
telligible and obvious: that in the ‘‘Armour’s drive into the rice mar-
processes of economic life forces ket in a single year is perhaps the



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

1960 THE CHIMERA OF MONOPOLY 51

most striking instance of the poten- over the precipice of Niagara.
tialities in this direction.” The Com- (There were people in Paris in 1793
mission might have added, but did whodid not know that the monarchy
not, that 16,000,000 pounds of rice had been overthrown.) The Com-
is about 2/3 of one per cent of the mission had not even heard that
rice crop of the United States, the prices of most other commodi-
about 1/750 of the international ties had risen.

rice trade. But not all the rice was The power of competition in the
held at one time; the effect on livestock and meat business is evi-
prices must have been distributed. dent in any ordinary report of
Moreover, what was bought was dealings in a livestock market, not-
also sold, and selling must tend to withstanding the perpetual asser-
depress prices as much as holding tion that the “Big Five” fix prices
raises them. In the estimation of to the destruction of the cattle
the Commission, however, this raisers. When receipts of livestock
transaction had a prodigious effect. increase, prices go down; when re-
At any rate they solemnly call at- ceipts decline, prices go up. Prices
tention at this point to a 65 per have in turn an effect on receipts:
cent rise in the price of rice during high prices increase, low prices
the year in question (1917). In decrease shipments.

the seclusion of their offices the

Commission had not heard that till- Market Forces Are World-wide

ers of the soil by millions over al- I take one such report at random
most half of the earth had been — the Weekly Livestock Review of
forced to abandon their fields and the U.S. Department of Agricul-
that most of the great nations of ture for the week ending April 7,
Europe and America were compet- 1923. “Cattle receipts increased
ing for the world’s diminished during the week as a result of price
stores of food with all the resources advances during the previous
of all their treasuries, driven by the week. On the initial day, however,
frenzy of hate and terror which is when over 23,000 cattle were of-
war; that in the merchant fleets fered, much of the previous week’s
of all nations, on the railways, the advance was lost, but during the
carts of Indian highways, the latter days of the week receipts
backs of men over trails on Chinese were moderate, demand fairly
mountains, the staple foods were active, and daily price gains were
being drawn to the camps with a made on all fat steers. ... With a
suction as irresistible as that which decrease of approximately 23,000
draws the waters of the Great Lakes hogs for the week, trade was stimu-


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

52 THE FREEMAN September

lated somewhat and all grades ad-
vanced 10 cents to 15 cents. In the
face of liberal receipts, coupled
with a slackened demand after
Easter, fat lambs slumped for the
week with the bulk of offerings de-
clining 25 cents to 40 cents.” This
is typical of such reports.

On reflection it must clearly ap-
pear that the forces which center
in any market for cattle or hogs
are world-wide. The competing
buyers of cattle in the United
States are numbered, as the Trade
Commission shows, by hundreds
and thousands, while beyond our
borders is the competition of yet
more numerous thousands of pur-
chasers throughout the whole list
of nationalities on all continents.
An attempt at lowering prices by
holding off from the market would
give great joy to the numerous
purchasers for export who are al-
ways present, comparing the pos-
sibilities of purchase here with
possibilities of sale in the countless
markets beyond seas. In Argentina
alone there are half as many cattle
as in the United States; in Aus-
tralia there are one-third as many;
in Germany before the war two-
thirds as many; and so in France,
England, and other countries of
Europe and Asia. The number of
cattle offered, the prices at which
they are offered, the prices which
consumers here or elsewhere will

pay — all these factors have a fixity
which no little group in Chicago or
elsewhere can disregard.

International Trade
In the days before the Great

“War, when the peasants of Russia

had a good crop they bought Chin-
ese tea, the Chinese demand for
English cotton goods increased,
and the English ‘factory worker
bought more beef. Rains on the
Argentine pampas would lower the
price of beef; a burst of flame on
the surface of the sun scorching
the pastures of Australia would
raise the price. The economic in-
terests and activities of all peoples,
of all individuals in all nations,
are so intertwined, the production,
sale, and consumption of all com-
modities are so interrelated, that
we may regard the whole process
of supplying the economic needs of
all mankind within the range of
the world’s trade as one great com-
posite process, one complex of in-
finitely manifold . efforts condi-
tioned 'in part by factors directly
human, but also conditioned by all
the biological and physical factors
which determine the economic for-
tunes of men. If the top price of
steers on a certain day in Chicago
is $9.45 per hundred, that is not a
phenomenon .of Chicago; it is a
cosmic fact. A little fish cannot
stop .a man-of-war. oe ~



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

IF I WERE

SAMUEL B. PETTENGILL

A great author once wrote a story: a greater benefactor than any,
“If I Were King.” I suppose every and perhaps all, of the rich men
decent-minded person wishes, at who have ever endowed great
times, that he were a king, not to charities. Such an understanding
feed his vanity with the trappings would enable common men every-
of thrones, but to use his power to where to build their own. fortunes.

benefit his fellow men. It would lead to a country invin-
If two choices were offered me, cible abroad and happy at home.
and one was to be the richest man Only one thing would I value

in the world so I could turn my more, that being my own under-
vast estates into public parks (as standing and ability to teach the
Caesar did in his last will in laws of God for men, individually
Shakespeare’s play) or endow and socially. Part of these laws
churches or colleges, or finance are, indeed, in the Constitution.
laboratories to seek the cure for The Bible and the Constitution!
some dread plague, I would turn “And the floods came and the
this down if the other choice winds blew and beat upon that
granted me were the power to get house and it fell not, for it was
all of my fellow Americans to founded upon a rock.” The storm-
truly understand the priceless tossed Stars and Stripes is, with
heritage they have in the Ameri- one possible exception, the oldest
can Constitution. flag that streams anywhere
I say this soberly and after against the wind. It flies over the
years of reflection. If this were only undefeated great nation in
in my power to do, I know my the entire history of the world.
name would go down in history as The American people do have a
—_— deep reverence for the Constitu-
Mr. Pettengill, noted attorney and suthor, was . .
formerly a congressman from Indiana. tion in the same way as they re-

53


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

54 : THE FREEMAN September

vere the memory of brave but un- ernment today are spinning intri-
known men who long ago died for cate and sticky spider webs of
freedom at Valley Forge or the countless laws, rules, and regula-
Alamo. tions which entangle the bees from
It has, however, been a long the human hive; the taxes they
time since Madison, Hamilton, and levy for their support discourage
Jay wrote the Federalist Papers to = thrift and growth, and in addi-
explain every word and sentence tion, the favors of government
in the Constitution; a long time have become a vast prize immor-
since the Fourth of July meant ally fought for by huge pressure
much to American youth, beside groups which are carrying on a
the noise of firecrackers. fierce civil war of mutual exploita-
We need new Madisons, new tion.
Websters, new Calhouns. We need
a new Benjamin Hill who, in the The Fundamental Fallacy
post-bellum days of the Old South, This is a far ery from the free
said, “The Constitution is my only government our fathers designed
client, and its preservation is the where young men might climb the
only fee I ask.” ladder to success by their own ef-
Recognizing, as Jefferson did, forts, where ambition had its open
that “laws and institutions must field, and honest work its earned
go hand in hand with the progress reward.
of the human mind,” I still believe, I will never believe that millions
as our fathers hoped, that the of men will work as hard to sup-
basic truths of the Constitution port the wives and children of un-
constituted “a new order for the known men in other towns, cities,
ages”; or as in the Latin words, and states, as they will to build a
“Novus ordo seclorum,” which rooftree for their own wives and
they inscribed on America’s Great for their children. (This is the
Seal, as you will see it pictured on fundamental fallacy of socialism.)
the back of the dollar bill in your We have not yet reached that
pocket. It was intended to be “for point, but when the federal gov-
the ages.” I believe most of the so- ernment takes away in taxes from
cial and political ills of our time, 20 per cent to 50 or 90 per cent of
including depressions and unem- what a man earns and gives it to
ployment, are due to the fact that . the support of people he never
we have veered from the course saw, we are fast approaching a
our fathers charted. stagnant and discouraged Amer-
The cavernous bureaus of gov- ica.



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

1960 IF I WERE KING 5b

Our fathers faced the great is- With the actual record of great
sue of individualism vs. collec- achievement under the Constitu-
tivism. They designed the Constitu- tion in releasing the energies of
tion to safeguard the individual. free men in the greatest march of
The State was to serve him and progress in the history of mankind,
give him his chance; it was not to it is amazing indeed that so many
make him serve it and deprive him Americans in their ignorance are
of his chance. They did not intend embracing the reactionary philos-
men to make their livings like ophies of the Europe our fore-
robber bands, preying upon each fathers thought they had left be-
other with the ballot as their hind them forever, and whose gov-
weapon of pillage. They intended, ernments now build barbed wire
as God said to men in Genesis, “in stockades at their frontiers to pre-
the sweat of thy face shalt thou vent the escape of desperate men

eat bread.” seeking freedom from their cruel-
“I am not,” said Jefferson, “the ties.

friend of an energetic government. Yes, if it were in my power, I

It is bound to become oppressive.” would call back from their graves

It has become so. the brooding spirits of Washing-

Due to popular ignorance of the ton, Franklin, Madison, and Jef-
true meaning and worth of the ferson, I would:
Constitution, which enshrined the Wake the dead,

individual and the family at the Bid the old heroes rise from their
hearthstone as the very handiwork graves and scourge with their
of the Creator, the materialism of tongues
a godless communism is eating its Until this vain and rotting age,
way, like termites in the timbers revitalized, shall rush
of a house, into every nook and To emulate their deeds, or learn
corner of the American edifice. to blush.

I would try, too, “if I were
The Failure Is Ours king,” to wake the teachers, pas-

It is not the Constitution which tors, editors, lawyers, and the
has failed us; we have failed it. youth of today, so that Americans
We have been the unfaithful stew- yet unborn may proudly say,
ards of the trust our fathers, dy- “Freedom has still a continent to
ing, committed to our care. dwell on.” ~


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

THE INNER WORLD OF MAN

It won 't help much to arm: A — if we permit
\ NTT TT
\ ourselves to be intellectially /

Nand morally disgrmed. |

seme

EDMUND A. OPITZ

THE MODERN WORLD is coming un- spiritual malaise which constitutes
glued! The traditional ties that the core of the problem to which
have held people together in fami- Dr. Franz E. Winkler, a medical
lies and societies are weakened; man, addresses himself in his
the loyalties which once produced Man: the Bridge Between Two
such a variety of voluntary asso- Worlds (Harper & Bros., 268 pp.
ciations and groups lose their at- $5.00).

tractive and cohesive powers. The There are two kinds of knowl-
distintegrative forces now at work edge, Dr. Winkler argues, intel-
on us are reflected in the literature lectual and intuitive. The former
of alienation and estrangement; is analytical and critical; it takes
they are manifested, above all, in something apart in its effort to un-
the enormous growth of the pow- derstand the thing in terms of its
ers and functions of central gov- elements. The latter is synthesiz-
ernments in every country of the ing and creative, seeking to under-
world. The increasing political di- stand a thing in terms of the whole
rection of our lives introduces co- of which it is a constituent part.
ercive relationships among people Intellectual knowledge is knowl-
where the former attachments be- edge about something; intuitive
tween persons were voluntary. knowledge is immediate aware-
Such are the symptoms of that ness.

The Reverend Mr. Opitz is a member of the Many languages have separate
staff of the Foundation for Economic Education. WOrds to denote these two kinds of

56



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

1960 THE INNER WORLD OF MAN 57

knowing. Goethe, whom Winkler critical sides of his nature but neg-
greatly admires, used Verstand lected the intuitive and the crea-
and Vernunft; but English does tive. The result is that, although
not distinguish between the sev- his sciences are in good shape, his
eral ways of knowing. Our diffi- philosophy of science, his religion,
culty may be illustrated by a crude and his art are in a mess. There
example. “Do you know how to is no inevitability about this re-
swim?” we ask. “Sure,” is the re- sult; a regrouping of forces is pos-
ply, “you just kick your feet and sible, even now. “We must not be-
paddle with your hands.” “But lieve that modern man has lost the
can you swim,” we continue. “Oh, gift of intuition,” writes Dr.
no,” comes the answer. Doing is Winkler. “It is rather that his in-
one mode of knowing which is dif- terest has become so exclusively
ferent from intellectual knowl- focused on the outer world, his
edge; intuition is yet another mental activities so completely oc-
mode. cupied with analytical thinking,
Dr. Winkler’s more elegant il- that he has lost the full apprecia-
lustration concerns a watch found tion of inner experience. Thus he
by a man from Mars. He takes neglects one of the indispensable
it apart and discovers wheels, elements of his psyche, which must
springs, gears, and so on. Analyz- be rebuilt by an acceptable world
ing these items further, he breaks of intangible truth.”
them down into their chemical ele- In short; there is an imbalance
ments which are then further re- in man, which causes inner dislo-
duced to positive and negative elec- cations and strains in individuals.
trical charges — at which point the The inner distress is then pro-
visitor from outer space may feel jected onto our societies and trans-
that he understands the watch. lated into a need for social reform
But we, who know the purpose of a or revolution. Because half-men
watch, that it is a device for telling can know only half-truths we mod-
time, have to try to explain to the erns read our current distresses
Martian that, although his knowl- solely in terms of social diagnosis
edge about watches may not be for which we all too readily agree
without value, nevertheless, it is to accept a political remedy.
not the most relevant set of facts There is no disparagement of
to know about watches. the intellect in this book; the
Modern man’s predicament is author exhibits fine critical and
similar to that of the Martian; he analytical powers himself as he
has developed the analytical and probes religion, art, mythology,


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

58 THE FREEMAN September

and contemporary science to show faculties, “relatively great num-
the role which has been and may bers of people were able to confirm
be played by the intuitive side of the important experiences of reli-
man’s nature. It is “the polarity gious leaders by lesser experiences
between analysis and intuition,” of their own. . .. Yet the change
writes Dr. Winkler, that “gives in human consciousness took its
man his freedom.” But this free- course. Immediate knowledge of
dom is given up or lost because of God turned into creed, and creed
“the growing inability of modern into a code of morals. But codes,
man to master his subconscious even the most venerable ones, can-
impulses. . . . There is an inner not meet the longings in the hu-
world accessible to man through man soul. So it was that mysticism,
nonphysical perception as there is turning earthward, ultimately
an outer world manifesting itself came to worship at the altars of
to his physical sense organs.” Trotsky and Lenin.”

Dr. Winkler’s stress on the ur- But man is so constructed that
gent necessity for bringing the he cannot find fulfillment in any
inner and intuitive sides of man’s earthbound or materialistic creed.
nature up to the level of develop- Spiritual religion needs a spiritual
ment of his critical faculties may object which, in the nature of the
sound like a call for a return to re- case, can only be intuitively appre-
ligion. In a sense it is just that, for hended. “Christianity itself can-
genuine religion has always con- not be comprehended unless the
cerned itself with restoring bal- state of consciousness into which
ance and composition to the pic- it was born is experienced.” This
ture man entertains of himself by seems to be the crux of the matter.
helping him discover new mean- Argument and analysis may bring
ings able to assimilate every ad- one to the point of admitting the
vance in fact-finding. The seers, need for a new frame of mind, a
the saints, and the religious gen- new mood. The next step is to train
iuses possess a clarity and depth of oneself to acquire these. Such a
inner vision far surpassing that training exists, and although the
of the average man. They explore volume under review is not a hand-
and map what is for the rest of us book, the last chapter describes it.
the dark inner continent of the
soul. During periods of history This immensely stimulating
when the critical faculties of aver- book does not, of course, have all
age people had not been developed the answers, but it does raise a lot
at the expense of their intuitive of the right questions. ->



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

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

Sold Out to the Future

SOME PEOPLE look to their own knows, as a matter of common
consciences, their own ideas of sense, that nobody can predict
right and wrong, before reaching what will happen five or ten years
decisions that govern their be- hence. If the future is “inevitable”
havior about the future; others, — as indeed it is after it has be-
in this secular age, make a god of come the present — the individual
“history” — the history of the fu- is still faced with the necessity of
ture — and refer their decisions to outguessing it. If the individual is
its oracles. In the age of the a man, if he has any confidence in
“other-directed,” or the “outer- the desires and imperatives of his
directed,” man, it is the latter own being, he will — “inevitably”
group that gets the credit for com- — try to fashion the god of history
mon sense. Why, so this group in his own image. All of which
asks, why kick against the pricks, leaves the human being right
why go down with the romantic where he has always been: he is
“Jost cause,” why secede from the himself the potential creator of a
life of one’s times, why fight small ripple of force. In his own
against the wave of the future? small way he has a chance of be-
“Leadership,” in the minds of coming part of the historical god
those who pose such rhetorical he is prepared to worship. To the
questions, consists of being just a extent that he insists on favoring
little bit ahead of the other fellow the active as against the passive
in “cooperating with the inevi- mood, the individual can hope to
table.” affect history. God, in this sense, is
The basic flaw in making “his- the sum total of our individual
tory” — the history of the future urges.
—into a god to whom decisions Assuming, purely for the sake
may be referred is that it assumes of argument, that one can, like a
the attributes of the godhead can spider, spin god out of one’s own
be known before they have re- entrails, my own individual deistic
vealed themselves. But everybody “urge” tells me that Robert L.

59


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

60 THE FREEMAN September

Heilbroner’s The Future as His- Heilbroner’s assumption is wrong.
tory (Harper, 217 pp., $4.00) is a But I do know this: that every
poor guess as to the nature of the time the prophets have assumed
historical godhead. The book talks that private investment in new
portentously about the forces of capital goods has come to a dead
science, technology, and popular end, those prophets have been
aspirations to democracy and well- proved fallacious. The “god” of
being among the have-not popula- history has always abandoned
tions in the old colonial regions them.

of the East and the tropical South. John Stuart Mill, for example,
It assumes that the god of the his- - once scratched his head in per-
torical future has frowned on capi- plexity when he tried to envision
talism; it assumes that central a new “ladder” industry taking
planning of national economies is over after investment in textile
the “condition” which all big en- machinery had run out. Since his
terprises must accept if they wish crystal ball yielded him no pre-
to avoid outright “nationalization” monitions of such things as auto-

by government. mobiles, airplanes, and tractors,

Mill was pessimistic about the mo-

Socialism Presumed tive power of capitalism a full cen-
If collectivism is Heilbroner’s tury ago.

wish for the historical godhead, it In the nineteen thirties in Amer-

makes sense for him to construct ica, Rexford Tugwell surmised
his own particular object of wor- that our capital plant had assumed
ship out of his own socialistic ex- a more or less permanent form, and
trapolations of certain currently that henceforward our problem
observable trends. This is Heil- would be to distribute its “plenty”
broner’s way of trying to set his not only among those who were
own seal on events. But to make employed by it but also among
his extrapolations stick, Heil- those who had been disemployed
broner has to fall back on his own by failure in the capital goods in-
version of the mature economy dustries. If the god of history had
theory. He has to assume that in- taken Tugwell at his word, the
vestment — the motor force mak- world of electronics and automa-
ing for continued growth in capi- tion would never have come into
talism — must at some point fail existence.
beyond the hope of renewal. The discrediting of Tugwell as a
Since the future has not hap- prophet came some eighty years
pened as yet, I cannot prove that after the discrediting of Mill,



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

1960 SOLD OUT TO THE FUTURE 61

which ought to serve as a warning = credit for certain long-term pur-
to those who think the inventive chases. I don’t know a soul that
capacities of the human animal wouldn’t paint his house or get rid
must eventually exhaust them- of an antique car or send a son or
selves. But Heilbroner refuses to daughter to a better school or take
heed the warning that is implicit a more expensive vacation or move
in every variant action by every into a new neighborhood’or try out
try-and-see individual who thinks a new hobby, if he or she could
he can improve on what is going afford it.
on around him. Indeed, the canard that we are
Simply because our military so choked with riches that Madison
budget absorbs a hefty proportion Avenue must whip us into buying
of our taxes, Heilbroner assumes -is so obviously fallacious that one
that government purchases are a wonders where people like Gal-
necessary means of insuring full braith and Heilbroner have mis-
employment. Like Stuart Chase, he laid their eyes. The truth is that
is worried about the economic im- our dollars must be stretched over
pact of a possible agreement with such big distances that Madison
Soviet Russia to stop producing ex- Avenue is collectively at its wit’s
pensive missiles, and he is full of end to capture enough of them to
“compensatory” schemes for re- keep up its own notions of the af-
designing our cities and remaking fluent life. While Detroit motor

our river valleys. manufacturers fondly imagine that
: their chosen advertising agencies
An Affluent Fantasy are selling the doctrine of ‘“dy-

It does not occur to Mr. Heil- namic obsolescence” to the car
broner that if the average Ameri- buying public, the actual flesh-and-
can family could keep some of the blood car owner keeps Detroit on
money it is now surrendering to an austere replacement ration of
the Department of Internal Rev- six million new automobiles a year,
enue, the landscape might brighten With sixty million cars on the
without any “compensatory” gov- road, this means that a car is not
ernment action. Far from having “obsolescent” until it has reached
the “affluence” which Professor the tenth year of its life. There is
Galbraith attributes to them, most nothing very “dynamic” about
Americans at present are practic- that. And there won’t be any im-
ing an austerity that is tempered provement in the situation until
only by the willingness of con- government stops taxing people in-
sumer finance companies to extend to buying the smaller, cheaper, and


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

62 THE FREEMAN September

more perdurable “compact” ve- with the strength to gang up on
hicles that are demanded by the the West defies all logic.
austerity standards of the cold war If Mr. Heilbroner proves right
epoch, ~~ about the possibility that the West
Far from producing a depres- may be on its last legs, it will be
sion, the end of military buying by because.we ourselves have gone
the U.S. government might touch over to the “planning’’ philosophy.
off a boom of incredible ‘duration, By making ourselves slaves to gov-
once the transition to a true peace ernment, we of the West will be-
basis has been made. Indeed, while come have-not powers, too. And in
the U.S. and Soviet Russia have a contest between have-nots, the
been putting their money into more fecund Indians and Congo-
armaments, western Europe has - lese might indeed take over. ~
been booming precisely because it, IN yoDERN FICTION
has not been diverting its income By Edmund Fuller (New York:
into bigger and better missiles. : ’
Heilbroner refuses to draw any Random House, 165 pp., $3.50)
relevant deduction from this ex- Reviewed by Robert Thornton
tremely obvious fact. . SOME THIRTY YEARS AGO Albert Jay
In addition to his fears that Nock wrote an essay entitled On
capitalism must founder on the in- ~ Making Low People Interesting.
vestment problem, Heilbroner. also Referring to the characters of con-
worries over the possibility that temporary fiction he observed:
the have-not nations will gang: up “They were all so colorless, in fact,
on the haves if the West refuses to "so unsubstantial for literary pur-
underwrite bigger and better so- poses, that the authors had to be
" cialistic Five Year Plans from the continually helping them out, find-
Ganges to the Congo. My ‘own ing something for them to do,
reading of “the future as history” creating one striking situation
tells me that unless the citizens of after another, to keep them go-
Soviet Russia and Red China can ing.” The “something for them to
escape from their present institu- do,” then as now, usually involved
tional masters, they are due to ex- sex or mayhem. Mr. Nock’s com-
perience bigger and better fam- plaint was not that authors dealt
ines. Moreover, if India and the with low people — “a great asset
Congolese bind themselves to “the to an artist” — but that there
future as socialism,” they, too, will was “no vestige of the art that
have bigger and better failures. creates a character interesting in
Just how this will endow them itself, irrespective of plot and ro-



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

1960 OTHER BOOKS 63

mantic action, powerfully stimu- much into his pages to permit the
lating the reader’s fancy and im- use of quotations to sum up his
agination. ...” points — it would be necessary to

I was put in mind of this fine quote the entire book! — but let
essay while reading Edmund Ful- me mention two things:
ler’s piece of criticism. The char- First, Mr. Fuller's bold declara-

acters in recent novels are not tion of a belief in God which
only uninteresting, charges Mr. comes as profound pleasure in this
Fuller, they barely qualify as hu- day when so many authors prac-
man beings! In the “terrible spate tically apologize for any mention,
of novels now current man is seen however slight, of their religious
specifically and insistently as an convictions.
ironic biological accident, inade- Second, the nature of his rem-
quate, aimless, meaningless, iso- edy. After reading Mr. Fuller's
lated, inherently evil, thwarted, strong criticisms of the filth and
self-corrupting, morally answer- brutality so common in modern
able to no one, clasped in the vise fiction, one expects to encounter
of determinisms economic or bio- a demand for censorship by some
logical. His uniqueness as a per- public agency. Nearly everyone,
son is denied or suppressed. He these days, screams for the State
inhabits a hostile universe which with its bag of cures whatever the
is the creation of irrational and complaint! But not Mr. Fuller,
possibly malignant forces. The who comes out strongly against
themes of these novels, to borrow government censorship. He under-
some words from Lewis Carroll, stands that legal sanctions are no
are ambition, distraction, uglifica- substitute for the sanctions of
tion, and derision. Unlike the great taste and manners, and the appli-
tradition of man as individual, cation of literary standards. He
responsible, guilty, but redeem- realizes that if government is
able, this despairing disillusion- allowed to regulate the actions of
ment sees man as collective, irre- a particular group because some
sponsible, morally neuter, and of the members of that group be-
beyond help.” As one might sur- have badly, the good members will
mise from this rather lengthy quo- suffer the most. Censorship is
tation, Mr. Fuller writes with needed, says Mr. Fuller, but cen-
style. He rather puts one in mind sorship that is self-imposed; cen-
of H. L. Mencken who never leaves sorship by writers, reviewers,
his meaning in doubt. critics, and publishers themselves,
Mr. Fuller has crammed too not by bureaucrats. ->


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

64 THE FREEMAN September

pP WESTWARD EXPANSION: A brash, ambitious, dissatisfied, ma-
History of the American Frontier terialistic nonconformists were
By Ray Allen Billington (Mac- willing to risk the tribulations of
Millan Co., 758 pp., $8.00) wilderness existence. The attitudes
Reviewed by Lawrence Sullivan of the selected groups which ar-
THIS BOOK is a far-ranging eco- rived in the West were further
nomic and social history of Amer- modified by the frontier environ-
ica, although it is far from the dull, ment. :
dry reading of the standard his- Free public lands and the inflex-
tory text. It is the story of what ible legal principle of enclosed pri-
Billington calls “the repeated re- vate ownership on all new lands
birth of civilization along the west- were the peculiar institutions of
ern edge of settlement.” the newly developing settlements
It is illustrated with 91 special west of New England and the
maps delineating the movement of Southern Piedmont.
settlement and development from Free land made free men. A new
the Atlantic to the Pacific, and breed of men came into being —
from Florida to Oregon. These men to whom opportunity was a
maps range from 1513 A.D. to circa national heritage. And these free
1895. men wrote with large and firm
The frontier has played a key script in the book of “mission ac-
role in our history and in the de- complished.”
velopment of American national Here, in one volume, is a schol-
character. “Not only did institu- arly documentation of the physical,
tions, but the character of men and social, political, and economic de-
women, change through contact velopment of America through
with the wilderness,” says the some three centuries. It is rich in
author. “This did not mean that detail, tracing the frontiers not
the frontier molded all under its only in geographical terms, but in
influence into identical beings; in- terms of minerals, lumber, trap-
herited cultural traits were too ping, cattle, agriculture; in rail-
strong to be sloughed off entirely. roads, highways, river traffic. Its
Yet the western environment did 800 pages are a thrilling chron-
endow pioneers with unique char- ology of the conquest of a conti-
acteristics which all shared. This nent measuring some three million
was accomplished partly by the square miles. The American epic
selective processes which operated has no parallel in all human his-
in all migrations: timid conform- tory, and Professor Billington tells
ists were left behind, for only it well. ->



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

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

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