===== PAGE 1 ===== THE [601d JUNE 1961 IDEAS ON LIBERTY The Art of Deception . . . . . . . John C, Sparks 3 Lost in the Shuffle . . . . . . . . Lawrence Sullivan 9 Abundance Versus Scarcity . . . . . Helen Bugbee 10 Revolutions Come in Different Packages . W.H. Chamberlin 14 The Right ToGo Broke . . . . . . . Dale Witham 20 When Businessmen Behave like Blue Eagles Leonard E. Read 22 Prefabricated Advice . . . . . . . H.P. B. Jenkins 27 What Rent Control Does . . . . . . Henry Hazlitt 28 Price and Exchange Controls . . . . . Benedicto Padilla 32 Statistics: Achilles’ Heel of Government. . Murray N. Rothbard 40 Being Negative . . . . . . . . . E.F. Hutton 44 Centralized or Multiple Economies . . . George Winder 45 Book Reviews: Some Rules Are for Breaking . . . . . John Chamberlain 55 Other Books . . . . . . . . . . 59 sn THE FOUNDATION Fle FOR ECONOMIC EDUCATION, INC. Irvington-on-Hudson, New York ===== PAGE 2 ===== They're part of the “population ex- p plosion” you’ve read about. e | ty In just 10 years, there will be some 30 million more Americans like them! That’s a big reason why you see huge | a hillion dollar new electric power plants going up all over the country. Giant power lines marching to the horizons. a eneration | And you’ll be seeing more. An ad- » ditional 50 billion dollars’ worth in the next 10 years—built by the investor- owned electric light and power com- panies. ) This is the way they meet their re- sponsibility for power on a nation-wide scale. Plenty of power—for the in- creasing population—for the zooming needs of industry, farms, homes and defense. A PREVIEW OF A MORE POWERFUL AMERICA Studies of the nation’s future power needs have been published in a new booklet, which outlines the building program that will provide more power to meet them. 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Er en nn Sw EEE WOR Boma pi: PEE ry wa HULL = VIIA oe oy dela uh Cl CY Pl PRE ea AF “¥ x, Behe Ny Tae at A, ia, SRE ° a ¢ “ TY gh, - - Coast Federal Savings an “Association - ts we EN - yen aE rey 5 rag git MRK of LOS ANGELES EE BG oo Ce Ep Nee Sia =o ™ Ts Join the thousands of others from all 50 states and many foreign countries who hold individual, joint, trust or corporation savings accounts and get the following outstanding advantages for your invested savings. HIGHEST EARNINGS —Since January 1, 1960, we are paying at the rate of 42% per annum. Accounts opened or added to by the 10th of any month earn from the 1st of that month. ASSETS OF OVER $449,000,000.00 with over $99,000,000.00 in cash and Government Bonds and Reserves of over $32,700,000.00 as of December 31, 1960. AVAILABILITY OF FUNDS — Coast Federal has always paid every withdrawal immediately on request. SAVE-BY-MAIL — Airmail postage paid both ways on all transactions. SECURITY of principal assured through progressive, conservative manage- ment and the additional protection of $10,000.00 insurance on each account. n ° MEMBER — FEDERAL HOME LOAN BANK — FEDERAL SAVINGS AND LOAN INSURANCE CORP. TI ML Cn CD lh —— —— —— — —— —— — — — — — ——— t— ——— it Sp SD SE — — rire — — rr S— — — |] JOE CRAIL, PRESIDENT no Coast Federal Savings, Department ’H"’ 855 South Hill St. ot 9th (Please check-mark as desired.) Los Angeles 14, Calif. 1. [J 1 enclose [J check, [1 money order, to open 2. [J Please send me a copy of your a savings account in the following name or “Coast Federal Savings Guide,” names: Savings Account Information and latest financial statement. Name Address City Zone State ===== PAGE 4 ===== Técman A MONTHLY JOURNAL OF IDEAS ON LIBERTY JUNE 1961 Vol. 11 No. 6 LEONARD E. READ President, Foundation for Economic Education PauL L. PoIrOT 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. Copyright, 1961, 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 “The Right To Go Broke’ and “What Rent Contro! Does.” Any current article will be supplied in reprint form if there are enough FE inquiries to justify the cost of the printing, ===== PAGE 5 ===== JOHN C, SPARKS THE ART OF DECEPTION THE ART OF DECEPTION is enter- There is a far more dangerous taining when performed by ath- game of deception going on in our letes and magicians. A baseball country, however, which not only pitcher throws his fast ball, curve, threatens our life savings but our and change-up with the same mo- freedom as well. tion in order to deceive the batter. How are we fooled? The T-quarterback pretends to One of the cleverest deceptive hand off the football to each of temptations ever developed is the several running backs so as to federal grants-in-aid matching confuse and mislead the defense. funds scheme, whereby the fed- The basketball player fakes a shot eral government encourages a per- hoping to draw the defensive fectly normal and healthy com- player off balance so he can drib- munity to desire an improvement ble around him. The magician of some sort for which it would cleverly entices his audience into rather not pay. For example, an watching the wrong action while expressway, a recreation center, ‘the coup de grace occurs unob- a new water system, an addition served. to the hospital, urban renewal— Unfortunately, the use of de- the list is endless, and the com- ception is not limited to the field munity is enticed to ask for fed- of entertainment, for there are eral money to pay a large part of despicable persons who often dupe the cost of the project. The civic unsuspecting victims out of their leaders are urged to get their life savings, Many examples could share for their community or be cited every day from the na- others will consume it instead. tion’s newspapers. “We're paying for it, so we Mr. Sparks is a businessman in Canton, Ohio. Might as well get our share.” The 3 ===== PAGE 6 ===== 4 THE FREEMAN June people in Community A will be volved, but in all future oppor- taxed just as much as the people tunities to speak up for freedom. in Community B, and if A does Can a man be an effective leader not accept federal aid, B and other for honesty if he has dipped his communities like B will get A’s hand into the cash till of his com- share. One must look beyond the pany? Can a man attract followers short-run period of time, observe to the cause of fidelity if he is beyond the confines of his own known to have been unfaithful to community, and evaluate the re- his wife? And so it is with the sults in more than just the im- civic leader, the spokesman on be- mediate dollars to find why this half of free enterprise and limited reasoning is faulty. The federal- government, who is never as ef- aid modus operandi is skillfully fective in his support of the free- deceptive in covering up its true dom cause after he has been se- objectives. Let’s look at the fea- duced by “gifts” from Wash- tures of this kind of “trick play,” ington. because it really has everything : working for it. eo It undermines self-reliance. There is no better way to bring eo It corrupts the opposition. about failure of a third-grade How can one develop a better bit arithmetic student than by doing of strategy than to trick the star his homework for him. There is pitcher of the opposing team into no better way to lose the strength pitching against his teammates? of healthy legs than by the con- This scheme does just that, for it tinual use of crutches. To learn is directed at the civic leaders of how to conquer adversity, one the community — not only those must meet it. Local pride of com- who sincerely want to see their munity accomplishment surely city progress but often those who does not follow in the wake of a are the outspoken advocates of successful begging jaunt to Wash- free enterprise. It is a sorry pic- ington. We lose faith in ourselves ture when the leading citizen, to do what must be done by our- normally a sound individualistic- selves. Instead, we begin to be- thinking champion of freedom, lieve there is an endless treasure falls for the federal grant scheme. in Washington — the political ma- He is corrupted quite effectively gician makes us see what he wants and his usefulness to the cause of us to see, although we should free enterprise is not only lost to know that it is nothing but a his ball team in the one case in- clever use of mirrors to perpetrate ===== PAGE 7 ===== 1961 THE ART OF DECEPTION 5 upon us an optical illusion using emergency use. Let us suppose our own money. With confidence each member of the family yearns and self-reliance gone, we become to buy something more expensive spineless pawns for whatever fur- than can be fit comfortably into ther manipulation the schemers the family budget. Susie wants a have in mind. swimming pool. Mother wants a remodeling job in the kitchen with It could lead to financial bank- all new appliances. Dad wants a ruptcy. The project desired by the new car; and John wants to enroll local community is almost always next fall at an expensive college. of a size or nature allegedly be- The bicycle the youngest boy yond the community’s monetary wants is “small change” by com- resources. The hospital needed as parison. Not one of the potential ‘ascertained by the typical survey purchases alone would wreck the to bring the community up to family’s financial position. But to- someone’s idea of standard, is gether, it is a different story! usually much more than the com- Therefore, the $3,000 swimming munity believes it can afford or is pool will have to be eliminated in willing to buy out of its own favor of a $75 membership at a funds. This is an obvious truth, nearby swimming club. The for if it were otherwise there kitchen remodeling may have to be would be less effective argument pared downward from the $5,000 to seek outside assistance. The estimate to $500 for a new re- sum total of many projects all over frigerator, the appliance which the country, each well beyond the needs replacement the most. The available funds, could spell finan- old car will be run one more year; cial bankruptcy. The cost of all and colleges will be carefully sur- projects in all communities must veyed to find the most education be paid for by the taxation of the for the money available. This is people living in all of the com- the way the members of the munities throughout the nation — family must operate to remain and if everyone is induced to buy solvent. This is the way towns and more than good judgment would cities as members of the national dictate, the total results flirt with family must operate to remain financial disaster. solvent; and there is no better way A family — father, mother, and than by each community acquir- three children — has purchasing ing only that which its citizens power limited to dad’s salary and are willing and able to pay for. the savings account set aside for Advocates of government spend- ===== PAGE 8 ===== 6 "THE FREEMAN June "ing are not seeking solvency, how- ect, rather than a price equal to ever, for they believe that govern- the total of the local taxes col- ment spending, deficit financing, lected plus the federal funds al- and inflation create prosperity. located. The expressway through Thus, their “trick play” offers the city, which may appear to be bankruptcy on a glittering golden a bargain for two million dollars platter. of local funds, probably is a far cry from a bargain for the total o It shortchanges the benefi- cost of twenty million dollars. If ciary. It is a fact that no govern- the citizens of the community had ment can give until it has first discerned the correct price tag, taken away. The funds from which they may have wished to decline a federal aid project is paid come in favor of local schools, improved from private individuals and street lighting, improved fire and private companies all over the na- police protection — as well as pri- tion. Since nearly all communities vate investments in the expansions are regularly succumbing to the of local businesses, the latter deceptive “get our share” scheme, being the vital seed corn for in- this means that each community creased growth of true economic — for all practical purposes — does development, without which little pay for whatever it receives from taxes could be collected in the the Washington “pool.” The joker, first place. however, lies in the fact that the The beneficiary (the local com- funds shrink by an alarming munity) is shortchanged in two amount as they are collected by ways — by having its coins clipped the federal bureaucrats; and they while en route to and from Wash- shrink again as they are admin- ington, and by buying an item it istered and disbursed back to the would not have purchased had the communities. It is uneconomical full price tag been known. to have such a large percentage of the financial resources of the local o It urges prompt action. The communities sucked away by these “trick play” of federal aid not only Washington parasites. brings down corruption and prob- And this is not the only way able financial bankruptcy on free the beneficiary is shortchanged. enterprise, but has the further The price tag for the community element of the urgency to do it project is erroneously believed to now. The funds are available now, be an amount equal to only the the community leaders are urged, local taxes collected for the proj- but may no longer be available ===== PAGE 9 ===== 1961 THE ART OF DECEPTION 7 next year. It is not unusual to hear there will be no exercise of con- one local politician accuse another trol over education, conveniently of failure to look after the interest forgetting that the control levers of his community for not “getting and switches will be in Washing- our share” of federal funds for ton nevertheless, ready to follow the airport or the downtown re- the bidding and command of the development project, Unless we ‘‘driver’” of the car — and the strive to improve our city (in this drivers can be easily changed. Do manner), we are told, the neigh- the headlights respond only to one boring city will surpass us in particular driver, or do they re- growth — just another pressure to spond to any driver who happens accelerate the whole scheme. to be in the seat? Centralized con- trol provides an easily accessible o It centralizes control. To con- mechanism for the use of poten- trol the operation of an automo- tially tyrannous power. bile the driver has access to the steering wheel, the brake pedal, o It pays the interventionists’ accelerator pedal, light switch, and board and room. Those who fight other instruments controlling on the side of individual freedom various operations. The lights are and limited government often are actually at the front and back ends restricted in both time and money of the car, but the driver controls which can be devoted to the cause. them with a switch within arm’s Not so with many interventionists, reach. The carburetor is next to for the money derived from short- the motor under the hood, but changing the tax funds en route control is with a pedal easily to Washington and federal aid reached by the driver's foot. All funds en route from Washington of this illustrates the ease of con- to a local beneficiary community trolling the auto’s operation at is used to provide board, room, one central point by the driver — clothing, shelter, and entertain- any driver for that matter who ment for the boys who created and sits in the driver's seat. Grants- now operate this clever racket. It in-aid emanating from Washing- is difficult to visualize a more cun- ton have as a corollary the power ning bit of legalized sleight-of- to control. In the area of educa- hand than to take money from a tion, federal money will ultimately person — give part of it back — mean federal control —a tragic and live on the rest. Ironically, probability. But those advocates those from whom the tax monies of federal aid to education assert were taken must come to Wash- ===== PAGE 10 ===== 8 THE FREEMAN June ington and beg for the return of cial trick play which must be used a part of their own funds. sparingly so as to retain the ele- ment of surprise, the trick play o It breeds more intervention. of federal grants-in-aid seems to One of the most convincing argu- work better the more it is used ments for the expansion of fed- and the wider it is publicized. eral aid schemes is the recital of There can be but one reason — the the thousands of projects re- trap is baited with thousand-dollar quested by thousands of cities and bills blinding otherwise solid towns throughout the country — champions of free enterprise to from wealthy communities to rela- the fact that their acceptance of tively poor communities. They all the bait means to sell their souls, need help, say the schemers. If and ours, to the godless philosophy each community had the character of compulsory collectivism. to pay for its own projects, and if no community would accept fed- There you have a description of eral aid or grants of matching one of the most important key funds, the argument for aid would plays of the welfare state offense. pale into insignificance. How could It corrupts. It bankrupts. It un- federal aid be needed if no one dermines the confidence and faith were to accept it? The variety of of those who presumably believe uses for which matching-fund in freedom. It keeps the planners grants are made gives the plan- in “board and room” by short- ners excellent arguments to con- changing local communities. It tinue and to expand their decep- centralizes control for easy ap- tive plans to control the lives of plication of tyrannical power and, individual Americans and Ameri- lastly, breeds more of the same. can communities. After all, they The only element needed to com- point out, large and small com- plete the picture is the coopera- munities all over the nation find it tion of the local communities — to necessary to seek federal aid as stretch out their arms with up- the only means to obtain their turned palms and “apply” for fed- badly needed projects. Each com- eral aid. munity that succumbs to the temp- How one’s own community will tation of a federal grant, unmistak- react to the bait temptingly held ably casts a resounding affirmative out by these slick masters of the vote for more government inter- art of deception, may well be the vention and control. deciding factor in the outcome of Unlike the football team’s spe- the battle for freedom. > ===== PAGE 11 ===== LAWRENCE SULLIVAN LOST in the HUFFLE THE TAXPAYERS of the United matching funds than they get from States are beginnirig to grasp the the federal government in their fact that there is no such thing as aid programs. In New Jersey, for federal aid. example, during the fiscal year The current annual budget 1955 it cost the state $2.36 for tables disclose there is not one every $1 of federal aid received. dollar of federal revenues received In Connecticut it cost the state by our munificent Uncle Sam which $2.13 for every $1 of federal aid. is not paid into the Treasury ulti- In Illinois it cost the state treas- mately by some individual tax- ury $1.76 for every $1 of federal payer in one of the states. aid; and in Indiana, $1.71 for ev- Nowadays our federal Treasury ery $1 from Washington. shuffles roughly $7 billion every As long ago as 1950 Congress- year in such funds — dispersed man Robert B. Chiperfield of Illi- through some 60 different pro- nois pointed out that, over the grams. years, Illinois got back in all The “bureaucratic brokerage” forms of federal aid only about 3 presently involved in collecting all per cent of the total federal taxes these funds, banking them in the collected in that state each year. Treasury, and then routing them One-third of our states con- back to the states, consumes about tribute much more in federal rev- $325 million a year in wholly un- enues, per capita, than the national necessary administrative expenses. average. Under the school-aid pro- Payments to each state under gram these states will pay much each program are itemized every more into the national pool than year in the Annual Report of the they will get back in school sub- Secretary of the Treasury. sidies. It often happens that many Over the next three years, Penn- states pay out more in dollar- sylvania, for example, would pay —_— } in $67,000,000 more than she Mr. Sullivan is Coordinator of Information of the U.S. House of Representatives. would get back. LS 9 ===== PAGE 12 ===== i IND RANG Ni ld oid 4) fn i iY Il \ ENE A SE AA Hii Ral Devaney, 1 HELEN BUGBEE Al ICH ii: ‘AGRICULTURE is undergoing a the view persists that our abun- technological revolution and it is dance is the problem and that pro- irreversible,” said former Secre- duction should be curbed (while tary of Agriculture Ezra Taft people starve). Instead of finding Benson in one of his many efforts ways to distribute abundance, we to make sense of the farm prob- try to hold it back. Is it any lem. Now, whatever else Ameri- wonder, then, that many of the cans may have thought of Mr. world’s people are skeptical of the Benson, most of them knew him as “free system” and are tempted by a devotee of the free market, a system that promises to deliver which encourages rather than re- ‘from each according to his ability, verses technological revolution. to each according to his need”? But Mr. Benson was speaking in We know, of course, that com- the hearing of a world where pulsory collectivism does not somebody starves to death every carry out that promise. So far, at six seconds. In such a world it is least, it has no abundance to dis- not safe to let anyone think that tribute. But in the eyes of the Americans want to reverse the world’s hungry people it gets “E” technological revolution — the only for effort — for promising and try- hope there is of reducing the cost ing to create abundance, while we of food and everything else the seem to be holding back produc- world’s people want to a level they tion or raising prices out of the can afford. world’s reach and then trying to Yet, as one new administration win favor by giving part of the follows another in Washington, surplus away. —_— } In the name of our free system, Me hagbee 12 a freelance editor 3nd writer isn’t it about time to use it — time 10 ===== PAGE 13 ===== 1961 ABUNDANCE VERSUS SCARCITY 11 to accept the technological revolu- earnsaliving by trading one’s work tion as the blessing it is and be for the work of others. If one man glad it’s irreversible? The rest of is paid to keep his work off the the world is waiting for the sun- market and another is given part rise, in which freedom from want of that work as “charity,” neither can become a reality if we’ll help has earned his living. Both are the technological revolution along “kept.” instead of trying to abort it! When the rest of the world sees We don’t owe the rest of the supposedly free men “protecting” world a living. They owe it to themselves from freedom by such themselves. But the man or the devices, it's no wonder some people country that does not know what look elsewhere for ways to distrib- to do with wealth, while sur- ute what our system has found rounded by people who need it, is ways to produce. Because we do in deadly peril. If we can’t make not permit our system to operate the technological revolution work freely, it fails to deliver much of for us and for others, we can ex- what a truly free system might. pect another kind of revolution. We can’t hope to preserve freedom SPecial Interest Groups by putting it away and not using A free system cannot be estab- it. As we face the challenge of a lished by fiat, however, even in the system that intends to “bury” us, “land of the free.” Farmers are we had best make full use of the not the only producers who need technological advances that have convincing that competitive pri- kept us ahead so far. We only help vate enterprise is safe and profit- to bury ourselves with such de- able. Typesetters demand pay for vices as “parity” for farmers and setting “bogus” type to be melted ‘“‘productivity pay raises’ for down unused, painters expect good workers — which try to keep the wages for painting with a small benefits of increased productivity brush, and railroad workers expect on the farms and in the factories a 1961 day’s pay for traveling 100 for the few people who happen to miles. All these are trying to with- be where the increases occur. Why hold the benefits of the free sys- not permit our abundance to tem from their customers, though spread as it should, by getting its they expect the benefits of free- price down? dom when they buy the work of Now, the men who produce that others. Many Americans seem abundance have to earn a living, quite as fearful that real freedom just as everyone else does. But one would destroy their security as are ===== PAGE 14 ===== 12 THE FREEMAN June people elsewhere. Yet our security is robbery. To take money for un- in fact depends on our freedom. produced or undelivered wheat, Unless we let it work, some “wave though no one gets the benefit of of the future” like Comrade that wheat, is not a fair exchange. Khrushchev’s will one day engulf Money can be used to buy the us. Even if we must re-establish products of others, and anyone freedom a little at a time, a little who can take part of the total freedom can demonstrate such amount of goods and services from benefits that people will lose some the market robs the rest of us if of their fear and accept a little he does not also contribute some- more freedom, and then a little thing to the marketable supply. more. He does not think of himself as a robber. In most instances he pre- To Prove Our Way Is Best sumably believes that he is “pro- It will not be simple to do even tecting” his livelihood. But any- this. It is urgent, nevertheless. In one who hopes to protect his live- today’s cold war any effort to hold lihood by reducing the value he back production — whether by gives to the people who pay for management, labor, farmers, or his work had better think again. government — is a communist-sup- Few people are willing to pay for porting effort. We cannot make nothing. The rest expect value for good our claim that our way of value. When these refuse to buy, life is the answer to the world’s newspapers and books go unpub- problems while our soil, our ma- lished; freight and passengers go chines, and our manpower are less by air instead of rail or don’t go than fully employed in meeting at all; houses wait to be built. The human needs. Every one of us — man who tries to protect his liveli- company president and ditch dig- hood by keeping the benefits of in- ger, typist and truck driver, creased productivity from possible teacher and farmer and plumber buyers in fact destroys his liveli- — has a part in proving it. Each hood. Whether he produces wheat of us is responsible for his own for a government warehouse and ability, and for making that takes pay for it or produces cars ability count. for driving off some Detroit Each of us expects a fair re- bridge and takes pay for that, he turn for his service, of course. A reduces the number of people who fair exchange, as the saying goes, can pay each other more and more is no robbery. But the converse for less and less. Unemployment also is true: An unfair exchange is the inevitable result. ===== PAGE 15 ===== 1961 ABUNDANCE VERSUS SCARCITY 13 Only if the benefits of increased workers, and everyone else must productivity are allowed to spread, let their price per unit drop as through prices that fall as well their output increases, so a grow- as rise freely so demand and sup- ing number of customers can come ply can balance, can there be pros- into the market for that output. perity for growing numbers of There is no safety in devices producers and growing numbers that try to make the sun stand of consumers. When that happens, still or technological revolutions the men who find ways to produce reverse themselves. There is abundance and the men who find safety only in daring to face all ways to distribute it cheaply will the implications in these lines be rewarded as Henry Ford and from Gulliver's Travels: F. W. Woolworth were — because the rest of the world will find Whoever could make two ears of them worth rewarding corn, or two blades of grass, to grow ) upon a spot of ground where only one grew before, would deserve bet- ter of mankind, and do more essen- The Courage To Practice Freedom : A . . ) tial service to his country, than the There is no safety in the world pole race of politicians put to- today unless free Americans are gether. willing to prove that their work is worth rewarding. We have only Those lines do not apply to ears a little time to prove that our sys- of corn or blades of grass grown tem can serve the world’s needs for storage while people starve. better than any other system can. We shall deserve well of mankind If we can’t prove it, we can expect only if we can find ways to help the world’s scorn, not its gratitude, others exchange their products for for our “charity.” the two ears of corn and blades We can prove it with freedom of grass we grow where one grew if we have the courage to try it. before. But we can’t prove it by freeing The world is waiting for low- just the other man’s work or priced abundance, and we shall de- prices while restricting our own. serve well of the world if we de- We can’t ask the auto worker, for liver it. We shall deserve the instance, to reduce the price he worst, however — and sooner or gets for a unit of his output while later we'll get it — if we propose to the farmer insists on “parity” — save the world with high-priced or vice versa. Farmers, auto scarcity. > ===== PAGE 16 ===== WILLIAM HENRY CHAMBERLIN IT HAS BECOME a hackneyed cliché lution gathered on June 17, 1775. to claim kinship with the Ameri- After prayer by President Lang- can Revolution for every tumult, don, so the plaque informs us, the riot, or disturbance that may take men marched off to Bunker Hill place anywhere in the world. Some Compare this simple picture of of our statesmen, more inclined Puritan colonists, ready to fight to play at demagogy than to think consciously for a noble cause, pre- straightforwardly in terms of his- pared to vindicate their rights as tory and our national tradition, free men, with some of the news profess to see a close parallel be- dispatches that have been coming tween the American patriots of in from Africa recently. 1776 and the savage tribesmen of In Kivu Province in the Congo, the Congo and Angola. tribesmen in leopard skins have An arresting contrast ought to been going on a rampage of anti- make the cheap fallacy of this white frenzy, bent not only on kind of thinking clear. Near the killing any foreigners who may Cambridge Common a plaque fall into their hands, but on eat- marks the spot where some of the ing their hearts and other vital minutemen of the American Revo- organs, in the superstitious be- Mr. Chamberlin is a skilled observer and re- lief that this will give them added porter of economic and political conditions at strength. Or take the news from home and abroad. He has written a number of R . books, has lectured widely, and is a contributor Angola, where incursions- from to The Wall Street ul and tion. ly hoor rest gournal and many nation- tho Congo have led to the mas- 14 ===== PAGE 17 ===== 1961 REVOLUTIONS COME IN DIFFERENT PACKAGES 15 sacre of Portuguese men, women, against which it is directed, the and children in border areas, with fitness of the people involved for all the accompanying horror of orderly self-government, above all, Indian raids in the early colonial perhaps, the principles espoused period of America. by its leaders. Is there anything in common between the civilized colonists and By the Guillotine the rampaging African savages? One of the first great revolu- Are the bloody deeds in the remote tions that followed the American frontier areas of the Congo and was the French. French help to Angola likely to lead to documents the American colonists was fresh comparable with the United States in the American memory. The Declaration of Independence and first developments in the French the United States Constitution? Revolution, the abolition of feudal The answer to both questions, if privileges, the substitution of given with elementary honesty, is representative government for the a resounding No. And this es- absolute power of the king, were pecially vivid contrast should lead warmly greeted in the young to some hard, basic rethinking of American Republic. the soft-headed assumptions that But when the French Revolu-- all revolutions come in the same tion fell under the domination of package, that revolution is a kind doctrinaire fanatics, when the of patent medicine, warranted to guillotine began to run red with cure any ailment in the body poli- the blood not only of royalists and tie. conservatives, but of some of the Especially in the twentieth cen- most famous and devoted of the tury, it is crystal clear that some original revolutionaries, when a revolutions work great and per- utopian dream, as so often hap- manent evil, as others, including pens, became a nightmare of ter- the American, have wrought much rorism, American public opinion good. A number of factors must shifted very sharply. There was be taken into account in deter- no desire to claim American in- mining whether a revolution de- spiration and sponsorship for a serves a positive or a negative movement that had gone along rating, or should be judged a mixed lines so completely remote from bag, with both good and evil the peaceful, orderly development to its account. Among these are of self-governing institutions in the circumstances of the revolu- the United States. tion, the seriousness of the abuses The word Jacobin became as ===== PAGE 18 ===== 16 THE FREEMAN June odious in America as the word tablishment of a free republic. I Communist is today. And for very saw through it, to the end of it, good reason. For both Jacobins before it broke out, and was sure and Communists have been com- it could end only in a restoration mitted to the dangerous creed of the Bourbons, or a military that the end justifies the means, despotism, after deluging France that the virtuous minority has the and Europe in blood.” right to coerce the majority, for And Jefferson himself, who had its own good, supposedly, that dis- hoped to the last for a favorable agreement with the virtuous elite outcome of the French experi- is counterrevolution, for which ment, made the important admis- the only suitable penalty is death. sion in a letter to John Adams of John Adams, perhaps the most October 28, 1813, that differing powerful political mind among economic and social circumstances the Founding Fathers, pointed out made a degree of free self-govern- the difference between benign ment in America possible which theory and terrorist practice in would have led to anarchy, mob the French Revolution in his typi- rule and, finally, a return to des- cal tart New England style: potism in France or in many other ‘““‘Helvetius and Rousseau continental European countries. preached to the French nation “Here,” wrote Jefferson, “every- liberty, till they made them the one may have land to labor for most mechanical slaves; equality, himself if he chooses; or, prefer- until they destroyed all equity; ring the exercise of any other in- humanity, until they became dustry, may exact for it such com- weasels and animal panthers; and pensation as not only to afford fraternity, till they cut one an- a comfortable subsistence, but other's throats like Roman gladi- wherewith to provide for a cessa- ators.” tion from labor in old age. Every- one, by his property, or by his American Reactions satisfactory situation, is inter- In a letter to the well-known ested in the support of law and surgeon, Benjamin Rush, Adams order. And such men may safely described his difference of opinion and advantageously reserve to with Thomas Jefferson about the themselves a. wholesome control prospect of the French Revolu- over their public affairs, and a de- tion: gree of freedom, which, in the “He thought it wise and good, hands of the canaille of the cities and that it would end in the es- of Europe, would be instantly per- ===== PAGE 19 ===== 1961 REVOLUTIONS COME IN DIFFERENT PACKAGES 17 verted to the demolition and de- Russia in 1917. Again there was a struction of everything, public certain ambivalence in the Ameri- and private.” can attitude. Czarist rule, with its absolutism, its repressions and Poor imitations discriminations, its arrests with- Here is recognition, by one of out trial and banishment to Si- the most generous and reckless beria for “dangerous thinkers,” generalizers among the makers of had been naturally alien and dis- the American Revolution, that tasteful to most Americans. So there is no universal validity for the news that the Czar had been constitutional principles or for deposed and replaced by a demo- political institutions. What may cratic Provisional Government in work satisfactorily in one country, March 1917, was greeted with under a given set of conditions, satisfaction by American public could lead to disaster and a break- opinion. down of civilization in another But it soon became clear that country, under different social, eco- the liberals and relatively mod- nomic, and educational conditions. erate revolutionaries who took over This principle has been con- were unable to check the sweep firmed repeatedly since the Amer- toward class war and violent so- ican Republic was launched in cial revolution, of a type quite 1776. Many peoples have set up alien to American experience and independent republics, with con- ideals. The system of communist stitutions that read admirably on rule, with its political dictatorship paper. But very often these con- and economic collectivism, has de- stitutions have remained scraps of veloped into a challenge alike to paper in practice. A set of funda- America’s national security and to mental laws is no stronger than its moral values. Here was surely the people who live under them. It an impressive example that revo- is national character that makes lution is not in itself intrinsically a constitution work well or badly, desirable. not a constitution that remakes national character. Checks and Balances The experience of revolutionary Perhaps the most remarkable France, an initial phase of reason- and distinctive feature of the able, moderate reform giving way American Constitution was the to a grim period of extremist dic- many restraints which its framers tatorship, was repeated on a big- imposed on those who would exer- ger and more terrible scale in cise power. Not only were many ===== PAGE 20 ===== 18 THE FREEMAN June specific rights assured to the in- proach to contemporary America: dividual, guaranteed against in- “America has lost the leader- fringement by the Executive or by ship of her own revolution. Once Congress, but the establishment of you start a revolution, you can’t three coequal branches of adminis- stop it. You go along with it, or it tration was designed as a means runs away with you.” of avoiding excessive concentra- tion of power in any one of them. Revolution in China The French Revolution started With all respect for Mr. Toyn- with Rousseau’s sentimental no- bee’s erudition and imagination, it tion of the natural goodness of seems unreasonable and unfair to mam— and ended with the guillo- saddle the United States with re- tine and a succession of shifts of sponsibility for revolutions which power, leading up to the rule of have been as different as possible Napoleon. from the American model. The in- The theory of the American fluence of United States mission- Revolution, as stated by John Ad- aries, diplomats, teachers, travel- ams, was that fallible man simply ers, may be plausibly credited with could not be safely trusted not to helping to shape some of the pro- abuse power. As the best safe- gressive, westernizing changes guard against this tendency an which occurred in China during elaborate system of checks and the first decades of this century. balances was created. This served The mere existence of western- the American people well until the style colleges with foreign teach- plain intent of the Founding ers opened up to the Chinese stu- Fathers to create a society where dents attitudes and vistas of the government promised the in- thought that were alien to and ul- dividual nothing but freedom from timately destructive of the long- state oppression and intervention established Confucian traditions was distorted and eroded by a of the country. This effect was forced construction of the ‘“gen- further enhanced when Chinese eral welfare’ clause. students began to attend leading The historical philosopher, Ar- universities in America and Eu- nold Toynbee, in a recent state- rope. The effect of this process on ment credited the famous “shot the overthrow of the decadent heard round the world” with Chinese empire and the rise of the touching off many other revolu- Kuomintang, the nationalist party tions, in France, Russia, and which dominated Chinese political China, and then offered this re- life until the communist take-over ===== PAGE 21 ===== 1961 REVOLUTIONS COME IN DIFFERENT PACKAGES 19 in the late forties, was very con- a development, another to commit siderable, especially as the edu- America’s political and moral pres- cated elite counted for more in tige to supporting changes which China than in countries with high- are all too often for the worse. er standards of general education Take the Congo, for example. For- and literacy. get for the moment the outrages . and brutalities to which Belgians The Winds of Change and other whites have been sub- But, if one excepts a few com- jected. Consider only the position munist agents and a larger num- of the African majority of the ber of communist dupes, how can population. Can any reasonable the United States be charged with person doubt that the prospects of responsibility for the victory of the average Congolese for life, communism in China? A substan- liberty, and pursuit of happiness tial number of Chinese leaders in were far better under the mild the nationalist regime on Formosa Belgian administration (long are American-educated; the Chi- purged of the abuses of early nese communist leaders, insofar as colonial days) than under the an- they have any foreign training, archical chaos, with famine, dis- are likely to be alumni of Moscow. ease, and savage tribal feuds ram- It also seems both inaccurate pant, that set in after the with- and unwise for the United States drawal of Belgian rule? to try to identify itself with what is sometimes loosely called the an- It would seem to be both stupid ticolonial revolution in Asia and and immoral for the United Africa. It is certainly true that States, through the actions and overseas imperialism is on the way words of official representatives, out. It has almost entirely disap- to assume the risks of producing peared in Asia, and what British another Congo, whether in Angola, Prime Minister Macmillan called in Rhodesia, in Kenya, or in South “the winds of change” are blowing Africa. It is high time to discard strongly in Africa. It is almost in- the superficial fallacy that because conceivable that foreign imperial America owes its national exist- rule, once it has fallen, could be ence to a revolution all revolu- restored. Unfortunately, there has tions are necessarily beneficial and been no parallel disintegration of deserving of American sympathy. the Soviet imperialism in various This fallacy is especially inexcus- countries of eastern Europe. able at the present time. But it is one thing to recognize A revolution deliberately planned ===== PAGE 22 ===== 20 THE FREEMAN June and led by Communists can be than the administration which has a sentence of slavery of indefinite been overthrown. duration for the people concerned. The Belgian statesman, Paul Where there has been no effective Henri Spaak, recently called the preparation in terms of education UN Assembly, and not without and training, what passes for a reason, a temple of hypocrisy. It liberating revolution can easily is a false and ridiculous assump- degenerate into bloody chaos, most tion that the late Patrice Lu- probably ending in a harsh dicta- mumba was an African George torial rule much more tyrannical Washington. ~ You HAVE probably known some- When a business fails, it means one who has lost his shirt — flopped, that the American people have ex- dropped, or failed in business. If ercised their rights under the free so, you have seen demonstrated one enterprise system to reject a prod- of the most important and signifi- uct for their own free reasons. cant aspects of our free enterprise At first look we might have a system. A business going broke is tendency to think that failure, not a unique occurrence in this all failure, is undesirable. A little country. In 1958 there were almost further thought along this line, 15,000 reported commercial and however, will show that the prin- industrial failures in the U.S. Is ciple of failure in business is a this bad? Not by a long sight! right that we should guard jeal- ——en ously. Experience has shown that Company of Buchanan, Michigan, in the Jan- to legislate against failure, such ‘Feb 1961, issue of which this ar- , . — ticle first appeared, | Conor BH 8 a5 in farming, billions of dollars ===== PAGE 23 ===== 1961 THE RIGHT TO GO BROKE 21 have been poured in and the prob- achieve in doing a superior job. lem is just about as bad today as What are some of the more im- it was when the legislation was portant reasons businesses go first introduced. Nothing can re- broke? Poor service, faulty as- place the customer’s right to re- sembly, poor materials, high costs, ject an inferior product. This busi- and lack of sufficient operating ness “survival of the fittest” is capital are each enough to allow the ingredient that has put us a business to exercise its right to head and shoulders above the rest go broke. These are the things, of the world, and it is this same along with excessive government maxim properly applied that will regulation, that we have warned keep us in that position. the world against. At this point it Of course, failure is not always would be ridiculous for the fatal to a business. Failure of a teacher to forget his own lessons product can be just the shot in the and just sit back at the oars while arm that a business needs to get the rest of the world goes by. We back on the ball. To make us work should always keep in mind that and try a little harder the next this right can and will be invoked time is the lesson learned by the against any plant or business that smart operator in this instance. slips into an unhealthy condition. We should keep in mind that no When any of these unhealthy con- amount of finagling or legislation ditions plague a business, nothing will make a success of a poor prod- is sacred, no organization im- uct as long as the consumer gets mune, regardless of location, size, a free choice. Where the consumer or intention. doesn’t get a free choice he has no Even though it has been pointed recourse but to take what is of- out that the right to go broke is fered at a regulated price. As a a valuable thing, it’s not so good result, commerce speeds up to a when it happens to us. Further, snail’s pace. Even the Russians are it can be particularly bad when learning that the only way to the general economy is such that speed up their consumer market is a work force, having failed, can- to offer an ever-increasing choice. not be readily absorbed into suc- Not only is guaranteed business cessful operations in the same bad for a nation’s economy but area. The most important thing there is very little personal re- that each of us must remember ward. We have found that good is that this is a free choice. If we wages are important but of equal want to go broke we can, but it's importance is the feeling that men much nicer to be a success. pu ===== PAGE 24 ===== LEONARD E. READ SUPPORTERS of the welfare and in- control of the means of production terventionist state — socialists — are no more than opposed forms believe they gain a point with each of organization. To indict either disclosure of cartel-like behavior form because of individual mal- in private endeavor; and so much feasance is as absurd as to indict the better if the malefactors are cookery because some bum burned associated with a large corpora- the stew. tion, resulting in national pub- Among private endeavorers are licity. This is poppycock. to be found pirates, house thieves, In the face of anti-free enter- embezzlers, stock swindlers, card prise publicity, many supporters sharks, bank robbers, kidnappers, of private endeavor cry out, “We hijackers, racketeers of every de- have been given a black eye.” scription. Among governmental This, also, is poppycock. entries into production and ex- Government control of the change are to be found all the means of production and private types of political graft there are. ree he ion! * For those too young to recall, “The They are legion . Blue Eagle” was the emblem of the Na- Human beings are fallible by tional Recovery Administration nature. All -of us err, some more (NRA), one of the first alphabetical _ agencies. It administered NIRA, the than others. All of us—the less National Industrial Recovery Act, a errant as well as the more errant — price-fixing, production control law, gare in either private or govern- hailed, with but few exceptions, by } : businessmen, labor unions, and poli- mental endeavor. Neither form of ticians as a panacea for all the ups- Organization has any monopoly of and-downs in economic life. It was ejther saints or criminals. All brought to an inglorious but much- . . deserved end by a decision of the U.S. kinds of humanity are to be found Supreme Court, May 27, 1935. in each. We need not be surprised 22 ===== PAGE 25 ===== 1961 WHEN BUSINESSMEN BEHAVE LIKE BLUE EAGLES 23 to find a price-fixer in private en- Bearing in mind that the’ dis- deavor or a grafter in govern- tinctive characteristic of govern- mental endeavor. That’s just the ment is organized force, we must weakness of humanity showing off now ask ourselves: What can or- for what it is, wherever it is. ganized force accomplish? The an- What we should be concerned swer is simple: Organized force about is this: Acknowledging the can inhibit, penalize, restrain, de- fact of man’s fallibility, how can stroy. It is utterly incapable of we best organize ourselves? How doing anything else. can we minimize the effects of in- The next relevant question is: dividual error? How shall we keep What, in good conscience, ought the monopolists and grafters at to be inhibited, penalized, re- bay? These are relevant questions. strained, destroyed? Again, the If men were infallible, there answer appears to be simple: All would be no need for government. violence, fraud, misrepresentation, But they are fallible and there is predation — in short, those behav- a need for government, that is, a iors which infringe on the rights formal, legal, defensive agency of of others and which most of the society. world’s moral and ethical codes define as evil. Government's limi- The Essence of Government — tation, it will be observed, should Organized Police Force be prescribed in the reasons for However, it is useless to discuss its existence. the forms of ideal societal organi- Logic and common sense would zation unless we have a keen seem to suggest that organized awareness of what government force — government — be limited to really is. Essentially, government minimizing the destructive actions is organized police force. This is of errant man, leaving all produc- its distinctive characteristic. The tive and creative activities to pri- difference between an individual vate endeavor — that is, to free, as an agent of government and voluntary, cooperative, competi- that same individual as a private tive action. Let society’s agency citizen is this: As an agent of gov- of organized force hold maraud- ernment he has the police force to ing and plundering to the mini- back his ultimatums. He speaks, mum, and let us go! and we obey! Remove the police Not to observe government's force and he is restored to private principled limitation, not to con- citizenship. He speaks, and we do fine this agency to the competence as we please! of police power, is to invite —in- ===== PAGE 26 ===== 24 THE FREEMAN June deed, it is to insure — social trou- — and witness the fall of American bles on the grand scale. Why? society. Those in government service re- Lust for money is a weak incen- semble, by and large, the mill run tive when compared to the lust for of us — about as many crooks and power. But combine them and al- weak characters per thousand as low for their satisfaction by the will be found in any cross section simple expedient of extending a of the population. Limited to the right to take property by force to policing function, some of them those who have been charged with can be expected to indulge in petty protecting property, and our pro- graft, the price we pay for human tectors will turn to predators. Put fallibility. On the whole, however, this matter another way: Give po- they will abide by the codes and lice power to petty grafters and protect society against marauders their evil will be multiplied a and predators. So far as form of thousandfold. Legalize their evil, organization is concerned, this is which is to say, absolve them from about as good as we can hope to any penalty for taking property do. Any other improvement must without consent, and the stage is rest on our becoming less fallible. set for a Hitler, a Stalin, a Castro. Lust for power, with police Government Run Riot power added, can never be trusted Now, alter this ideal form of in lush vineyards. This combina- organization. Allow these fallible tion knows no satiety. It will take individuals in government — pos- unto itself everything within the sessing a monopoly of the police reach of its force — eventually, the power — to manage and control the fruits of the labor of all. productive activities which, in But there’s more than this, good theory, it is only their job much more. Once those who have to protect. Let them take over wel- been given the police power for fare, security, and prosperity with the purpose of protecting us find coercive force. In short, turn these a way to use that power to advance police-powered, fallible people their own power, they will become loose in the productive vineyards less and less attentive to the de- of society where their “success” fensive or protective function. can be assured not by creative Their obsession for more and competency and willing exchange more personal power more or less’ but by the application of police assures this. As these people come power and unwilling exchange. Do to think of themselves as our Gen- these things —we are doing them eral Managers (one first lady in- ===== PAGE 27 ===== 1961 WHEN BUSINESSMEN BEHAVE LIKE BLUE EAGLES 25 advertently referred to herself the political interventionist appa- and household as “your rulers”), ratus. They are a branch of to- for which they have no competency day’s government, which is to say, whatsoever, they will no longer labor unions, also, have become think of themselves as society’s our rulers. servants. Merely reflect on how this over- In short, when the way is opened extended power, showing forth as to the satisfaction of their lust labor union rulership, brought the for power, that’s where their eye world’s largest industry (steel) to will be, not on the grubby job of a 116-day standstill. Could this inhibiting marauders and preda- kind of government protect society tors. By permitting the interven- against such economic depreda- tion of government into the pro- tions? It did not and could not! It ductive and creative areas, we re- corrected and protected nothing. move the possibility of our agents It simply “settled” the strike. in government ever doing effec- Consider how helpless and in- tively what, in good theory, our competent was our interventionist agents in government are supposed government against a few tugboat to do. No human being can aim at workers who were able to stop the political authoritarianism and re- railroads from serving the world’s main a good civil servant. largest commercial city. Or, how helpless and incompetent was this The Law Perverted same government in coping with a It is not necessary to detail the few political engineers who were enormous evidence to support the able to make groundlings out of fact that individuals bent on be- half the world’s aircraft! coming our “rulers” are poor ma- That people in government bent terial for serving as our protec- on achieving power for themselves tors. A few samples will suffice. cannot serve as our protectors is Observe government's inatten- evident enough. They have no tion to labor union violence. Most competency for keeping the price- individuals will not punish them- fixers, the marauders, the preda- selves for their own errors. Nor tors at bay. Indeed, it would .be will government restrict excesses easy to demonstrate that people in of its own power —labor union government with their eye on po- power, such as compulsory mem- litical power, bring out, stimulate, bership in unions, being but an encourage, and attract the weak- extension of excessive government nesses in society, power. Labor unions are a part of Now to the cases currently in [9 ===== PAGE 28 ===== 26 THE FREEMAN June the news. No sound economist will condone price-fixing, be it legal or illegal. Nor will any person with moral scruples approve of rigging prices and dividing the market un- der the representation of competi- tive bidding. This is sheer dis- honesty! It is the kind of mis- representation that government should be expected to eliminate or, at least, to minimize. But, as sug- gested above, persons bent on be- coming our masters cannot com- petently perform as servants; they are grossly inefficient at eliminat- ing misrepresentation, fraud, vio- lence. Conceding that price-fixing is illicit, uneconomic, and immoral business, the current cases, about which so much is being made, are “peanuts” when compared to the crimes committed by government —a crippling strike, for instance. Or, what would be said of a pri- vate insurance firm that spends the premiums it collects and then must collect again to pay the bene- fits? Or a firm with a $3-5 hun- dred-billion accrued liability with no assets beyond its power to in- voice and collect? Yet, the govern- ment which does this sort of thing raises its voice to high heaven against relatively petty matters as if to take the public's eye off its own inability to cope with such " matters in the first place, as if looking for scapegoats! Q If businessmen had to rely on governmental example for what’s right and what's wrong, they could find a precedent for any practice. Only afew years ago, during NIRA days, following inauguration of the general manager or ruler type of government, it was illegal for businessmen mot to get together and fix prices below which they could not sell. Today, businessmen are put in jail for doing some- thing that previously they would have been put in jail for not doing! Later on, during OPA days, it is true, they would have been put in jail for selling at prices above that fixed by government. Governmental capriciousness is the characteristic of political au- thoritarianism. The publicity at- tending the price-fixing cases will be enormous. All the writers and talkers who favor the general manager form of government will be vilifying private enterprise, a form of organization, while beat- ing the drums in favor of their form of organization. The impor- tant thing during all this din is not to let it distract us. Let not the few who erred by following government precept be a reason for selling us out to such precep- tors. Rather, let this be the occa- sion for getting our own thinking straight as to the extremely lim- ited but very important usefulness of organized police force. ~> ===== PAGE 29 ===== PREFABRICATED = ADVICE | or — POLITICAL ECONOMY IN WASHINGTON o.- It was a balmy night in spring At storytelling time. Old Kaspar chewed a dead cigar And wished for rum-and-lime, While Peterkin and Wilhelmine Looked at the television screen. They saw some men, all dressed alike In cap and gown and hood, Go through a door and walk in line To where another stood. Then doffing caps and bowing low They all stood waiting in a row. And while the man who faced them there Put questions rapidly, They gave their answers loud and clear With practiced brevity; And never once by word or tone Was doubt or hesitation shown. “Now tell us what 'twas all about!’ Cried little Peterkin. “It was a Consultation, Pete,” Said Kaspar with a grin, “On why the cost of living soars While gold escapes to foreign shores.” “The men you saw know all about Such economic things As how we pay for what we sell And why a job has wings; And they can cure the gravest ills With poultices of dollar bills.” “Such learned men,” cried Wilhelmine, “Are worth their weight in gold!” “We hope they are,” Old Kaspar sighed, “Though many people hold That their advice will cost us more Than wars and termites heretofore.” H. P. B. JENKINS Economist, Fayetteville, Arkansas 27 ===== PAGE 30 ===== hat Ret (Control. Doe It leads to demands for government housing, and “urban renewal,” among other things. HENRY HAZLITT GOVERNMENT CONTROL of the rents fect. It overlooks an immediate of houses and apartments is a spe- consequence. If landlords are al- cial form of price control. Its con- lowed to raise rents to reflect a sequences are substantially the monetary inflation and the true same as those of government price conditions of supply and demand, control in general. individual tenants will economize Rent control is initially imposed by taking less space. This will al- on the argument that the supply low others to share the accommo- of housing is not “elastic” —i.e.,, dations that are in short supply. that a housing shortage cannot be The same amount of housing will immediately made up, no matter shelter more people, until the how high rents are allowed to rise. shortage is relieved. Therefore, it is contended, the Rent control, however, encour- government, by forbidding in- ages wasteful use of space. It dis- creases in rents, protects tenants criminates in favor of those who from extortion and exploitation already occupy houses or apart- without doing any real harm to ments in a particular city or re- landlords and without discourag- gion at the expense of those who ing new construction. find themselves on the outside. This argument is defective even Permitting rents to rise to the on the assumption that the rent free market level allows all ten- control will not long remain in ef- ants or would-be tenants equal Mr. Hazlitt is the well-known economist, au- opportunity to bid for space. Un- purer, and dens contributor to der conditions of monetary infla- chapter to be added in a forthcoming Italian tion or real housing shortage, rents translation of his 1946 classic, Economics in . . . One Lesson. would rise just as surely if land- 28 ===== PAGE 31 ===== 1961 WHAT RENT CONTROL DOES 29 lords were not allowed to set an individual family unit has shrunk. asking price, but were allowed This concentrates the immediate merely to accept the highest com- pressure of new demand on the rel- petitive bid of tenants. atively few new buildings. It tends to force rents in them, at the begin- One Control Leads to Others ing, to a higher level than they The effects of rent control be- would have reached in a wholly come worse the longer the rent free market. control continues. New housing is Nevertheless, this will not cor- not built because there is no in- respondingly encourage the con- centive to build it. With the in- struction of new housing. Builders crease in building costs (commonly or owners of pre-existing apart- as a result of inflation), the old ment houses, finding themselves level of rents will not yield a profit. with restricted profits or perhaps If, as commonly happens, the gov- even losses on their old apart- ernment finally recognizes this ments, will have little or no capital and exempts mew housing from to put into new construction. In rent control, there is still not an addition, they, or those with capi- incentive to as much new building tal from other sources, may fear as if older buildings were also free that the government may at any of rent control. Depending on the time find an excuse for imposing extent of money depreciation since new rent controls on the new old rents were legally frozen, rents buildings. for new housing might be ten or The housing situation will de- twenty times as high as rent in teriorate in other ways. Most im- equivalent space in the old. (This portantly, unless the appropriate happened in France, for example.) rent increases are allowed, land- Under such conditions existing lords will not trouble to remodel tenants in old buildings are indis- apartments or make other improve- posed to move, no matter how ments in them. In fact, where rent much their family grows or their control is particularly unrealistic existing accommodations deterior- or oppressive, landlords will not ate. even keep rented houses or apart- Because of low fixed rents in ments in tolerable repair. Not only old buildings, the tenants already will they have no economic incen- in them, and legally protected tive to do so; they may not even against rent increases, are en- have the funds. The rent-control couraged to use space wastefully, laws, among their other effects, whether or not the size of their create ill feeling between landlords ===== PAGE 32 ===== 30 THE FREEMAN June who are forced to take minimum of luxury apartments available. returns or even losses, and tenants But there is no incentive to build who resent the landlord’s failure new low-income housing, or even to to make adequate repairs. keep existing low-income housing in good repair. The accommoda- “Let Them Eat Cake” tions for the low-income groups, A common next step of legisla- therefore, will deteriorate in qual- tures, acting under merely polit- ity, and there will be no increase ical pressures or confused eco- in quantity. Where the population nomic ideas, is to take rent controls is increasing, the deterioration off “luxury” apartments while and shortage in low-income hous- keeping them on low-grade or ing will grow worse and worse. middle-grade apartments. The When these consequences are so argument is that the rich tenants clear that they become glaring, can afford to pay higher rents, but there is of course no acknowledg- the poor cannot. ment on the part of the advocates The long-run effect of this dis- of rent control and the welfare criminatory device, however, is statists that they have blundered. the exact opposite of what its ad- Instead, they denounce the capi- vocates contend. The builders and talist system. They contend that owners of luxury apartments are private enterprise has “failed” encouraged and rewarded; the again; that “private enterprise builders and owners of low-rent cannot do the job.” Therefore, housing are discouraged and pe- they will argue, the State must nalized. The former are free to step in and itself build low-rent make as big a profit as the con- housing. ditions of supply and demand war- This has been the almost uni- rant; the latter are left with no versal result in every country that incentive (or even capital) to build was involved in World War II or more low-rent housing. : . imposed rent control in an effort The result is an encouragement to offset monetary inflation. to the repair and remodeling of luxury apartments, and a boom Favoritism and Pressure Groups in new building of such apart- So the government launches on ments. The effect is not only to a gigantic housing program — at provide better accommodations for the taxpayers’ expense. The houses comparatively wealthy tenants, but are rented at a rate that does not eventually to bring down the rents pay back costs of construction or they pay by increasing the supply operation, A typical arrangement ===== PAGE 33 ===== 1961 WHAT RENT CONTROL DOES 31 is for the government to pay an- currency has been so great, or the nual subsidies, either directly to rent control laws so harsh and the tenants or to the builders or unrealistic, that legally-fixed rents managers of the state housing. are only 10 per cent of what free Whatever the nominal arrange- market rents would be, and gross ment, the tenants in these build- injustice is being done to owners ings are being subsidized by the and landlords, a huge outcry will rest of the population. They are be raised about the dreadful evils having part of their rent paid for of removing rent controls and fore- them. They are being selected for ing tenants to pay an economic favored treatment. The political rent. Even the opponents of rent possibilities of this favoritism are control are then disposed to con- too clear to need stressing. A pres- cede that the removal of rent con- sure group is built up, which be- trols must be a very cautious, grad- lieves that the taxpayers owe it ual, and prolonged process. Few these subsidies as a matter of of the opponents of rent control, right. Another all but irreversible indeed, have the political courage step is taken toward the total Wel- and economic insight under such fare State. conditions to ask even for this i gradual de-control. The more un- A Vicious Circle realistic and unjust the rent con- A final irony of rent control is trol is, the harder it is to get rid that the more unrealistic, Dra- of it. conian, and unjust it is, the more The pressure for rent control, in fervid the political arguments for brief, comes from those who con- its continuance. If the legally fixed sider only its supposed short-run rents are on the average 95 per benefits to one group in the pop- cent as high as free market rents ulation. When we consider its ef- would be, and only minor injus- fects on all groups, and especially tice is being done to landlords, when we consider its effects in the there is no strong political objec- long-run, we recognize that rent tion to taking off rent controls, control is not only increasingly because tenants will only have to futile, but increasingly harmful pay increases averaging about 5 the more severe it is, and the per cent. But if the inflation of the longer it remains in effect. > ===== PAGE 34 ===== \ /JRICE AND (CC GOVERNMENT CONTROL of prices and of foreign exchange rates orig- inates in the policy and practice of deficit spending, which has become the fashionable modern system of government financing BENEDICTO PADILLA |. the March 1961 Freeman Doc- in many countries, including our tor Ludwig von Mises described own. Deficit spending is an inte- editor Volkmar Muthesius of West gral part of the “new” economics Germany as one of the ‘‘foreign which the late Lord John Maynard spokesmen for freedom.’ Another Keynes spelled out in 1935 in The such spokesman is Mr. Padilla, General Theory of Employment, President of the Free Enterprise Interest, and Money. Society of the Philippines and Representative in the Philippine Congress for the First District, When government spends in ex- cess of current revenue, the deficit is financed either by borrowing Rizal. Vo ol The following article is slightly from the citizens or by printing condensed from a presentation paper money. Borrowing from the before the Congress on January citizens to meet an emergency 28, 1958, when he stood alone need not be inflationary if the for repeal of price and exchange emergency ends and the borrowed controls. On March 6, 1961, his funds are restored to the lenders. was the pleasure of standing However, if one emergency drags again to thank the Congress and President Garcia for having acted to remove price and exchange into the next and the budget re- mains unbalanced, citizens will controls — a heartening reminder lose faith in the government's to all of us of what one person ability to repay debts. can do in the personal practice There are many irresponsible of freedom. politicians, and irresponsible econ- omists as well, whose obsession is to spend more and more, un- 32 ===== PAGE 35 ===== XCHANGE (CONTROLS | mindful of consequences. On the of a prosperity engendered by the pretext of never-ending emer- inflation. This period is often de- gency, they have no scruples scribed as the inflationary boom. about keeping the budget unbal- The inflationary boom, however, anced indefinitely. This is tanta- is short-lived. As a result of in- mount to placing the nation’s econ- flation the prices of commodities omy in a state of perpetual cri- rise. The greater the inflation, the sis. The consequences of such a lower falls the purchasing power policy are disastrous. When pub- of the currency. Internally, the lic confidence in the credit of the peso buys fewer goods and serv- government is shaken, the citi- ices; externally, it buys fewer zens will naturally refuse to fur- dollars or other currencies than ther lend their savings to the before. government. And if the govern- As a result of inflation, prices ment is not willing to decrease of commodities rise rapidly. In the expenditures or to increase terms of its purchasing power, the the taxes so as to balance the bud- peso drops in value, or depreciates. get, the only recourse left for Rising prices mean also, of course, such a government is to print a rising cost of living. People paper money with which to “pay” would not mind a mounting cost its obligations. This type of deficit of living if their incomes increased spending is inflationary in char- proportionately. But such is not acter, and will lead any nation to the case, for laborers and employ- economic breakdown. ees do not get automatic increases As a result of the flood of in wages and salary in direct pro- money from the printing press, portion to the increased cost of business for a time is brisk; mer- living. - chants make good profits; every- As the wheel of inflation rolls one has plenty of cash to spend. on, housewives can no longer People, in general, seem happy bring home the same quantities of basking in the artificial sunshine food and clothing that they for- 33 ===== PAGE 36 ===== 34 THE FREEMAN June merly bought with their hus- that somebody else — not the gov- bands’ earnings. People suffer, es- ernment —is responsible for the pecially the poor who can no long- abnormal rise of prices. er make both ends meet. A vivid In furtherance of this policy of index of the social injustice disowning responsibility for the brought about by inflation is the abnormal rise of prices, the gov- daily occurrence of holdups, ernment usually places the blame thefts, and robberies. Men in rags upon a specific class of society, se- may be seen scanning the garbage lected as target. The target is receptacles for food. At this stage, generally the merchants, espe- the government may begin to cially the retailers who deal di- realize its error in tampering rectly with the public. These with the nation’s currency. The merchants are depicted by the wheel of inflation, however, has government as men without con- already moved so fast and so far science, whose main concern is to that the government seems im- make profits at the expense of potent to stop it, much less roll it their fellow citizens. They are back. Under such circumstances, stigmatized as “profiteers.” the government resorts invariably Are they really profiteers? Tak- to the expediency of imposing ing into account that it is the price control. inflation which causes the general increase of the level of prices of An Excess of Paper Money all commodities, it follows that in Inflation is due to an excess of a period of rising prices by infla- paper money. Only the govern- tion, all merchants make paper ment can issue paper money; profits whether they desire this therefore, the government is solely or not. In fact, not only merchants, responsible for the abnormal rise but all citizens become “richer” if of prices. This exclusive respon- their wealth is measured in terms sibility of the government is not of the depreciating currency. apparent, however, to the average For instance, a man before the citizen. Even an intelligent person war had no assets except the lot can easily be misled about the im- and the house in which he lived, plications of price control because then worth, let us say, 20,000 the attempts at control give the pesos. But due to the inflation, its impression that the government is market value now is 100,000 pesos. averse to or condemns the rise of Assuming that he has acquired prices and tries to stop it by such no other property, this man, by controls. The impression given is the so-called inventory process, ===== PAGE 37 ===== 1961 PRICE AND EXCHANGE CONTROLS 35 has become richer in the amount through inflation and checking of 80,000 pesos, so that in case he them by means of price control, sells his house and lot he would can be justified neither by logic incur an income tax liability on nor by moral principles. It is the the 80,000 pesos profit he is sup- old game of doing one thing with posed to have made. It is plain the right hand and trying to undo that after paying the tax this man it with the left, believing that the is poorer than before. people are too naive or too dull to This example suffices to illus- understand this double dealing. trate one of the unjust and absurd A dishonest policy breeds evil effects of inflation. Obviously, such consequences. When the govern- men whom the government arti- ment imposes price control, the ficially made “rich,” but who ac- implication is that the ceiling tually are the poorer, are not prices fixed by the government profiteers. In any case, if there is are below the natural level, as de- any “profiteering” at all, whether termined by law of supply and de- in real estate or prime commodi- mand; for if these ceiling prices ties, this is the consequence and were always at par with the prices not the cause of rising prices. as determined by supply and de- mand, there would be no sense in Shifting the Responsibility controlling prices at all. A characteristic of our modern When the government enforces times is the reluctance of men as prices below those which would be well as of governments to assume determined by the law of demand full responsibility for their acts. and supply, the effect is to discour- The government tries to evade its age production because farmers, responsibility for the evil effects for instance, will certainly not of inflation by hypocritically ap- bring the products of their farms pearing before the people not to the city to sell them at prices only blameless for the high cost below their cost of production. of living but also as solicitous to Such price controls dislocate trade alleviate their sufferings! So, the because merchants will certainly propaganda machine of the gov- not sell their goods at prices lower ernment moves to divert the in- than they paid for them. Even at dignation of the people from itself the risk of violating the law, these to these so-called profiteers as be- merchants will sell their goods at ing responsible for their plight. a profit in the so-called black mar- Certainly, this policy of the ket, or they will consume the goods government, causing prices to rise themselves rather than suffer loss, ===== PAGE 38 ===== 36 THE FREEMAN June or they will hoard the goods for Let us now examine the effects better times. of government controls on the ex- Discouragement of production ternal economy of the nation, spe- and dislocation of trade obviously cifically foreign exchange control. means reduced supplies of goods, fewer goods to consume, less food Foreign Exchange Control to eat —the experiment always When our government's deficit ending in diffused misery. Price spending and budgetary deficits control in the long run proves to become chronic, the people in gen- be what it always has been and eral, and the alert businessman in will be: a remedy worse than the particular, know that the govern- malady it aims to cure. ment will eventually be unable to i maintain the parity of the peso A Record of Failure with the dollar at the official rate The long experience of mankind of 2 pesos to $1. Man’s normal re- reveals no instance where price action against an impending finan- control has ever solved the conse- cial debacle is always to protect quences of inflation, which are in- his interest. He proceeds to safe- justice, confusion, hunger of the guard his dear pesos against the body, and degradation of the soul. possibility, nay, certainty, of their We experienced these effects here deterioration into cheap pesos. in the Philippines under the Japa- Hence, the general rush to banks nese military regime, particularly for conversion of pesos into dollars during its last hectic days. while this is permissible, The In the November 1952 issue of wealthy businessman does the con- the Reader's Digest, under the version of his pesos into dollars heading “The Price of Price Con- by simply buying dollar drafts trols,” Mr. Irving S. Olds relates with pesos. The dollars bought are clearly and concisely mankind’s ex- deposited to his account in his perience with price controls from chosen bank in the United States. ancient to modern times, and con- This mass migration or exodus cludes: of Philippine pesos, seeking safer “So the evidence is clear and havens in American banks as dol- overwhelming. Throughout 40 lar deposits, is what is known as centuries of human experience, the flight of capital. To stop this price controls at their best have flight of capital, the government always been a miserable failure. imposes exchange control. At their worst, they have led to The reason for the flight of cap- famine and disaster.” ital is the people’s suspicion or ===== PAGE 39 ===== 1961 PRICE AND EXCHANGE CONTROLS 37 fear of the currency’s imminent sorts to the Machiavellian tactic nonconvertibility. Subsequent of “passing the buck.” Those who, events confirm the people’s correct before the imposition of exchange prognostication. When the cur- control, were able to export their rency becomes actually nonconver- capital to foreign lands are tible, its nonconvertibility is, un- branded as ‘economic traitors.” deniably, the result of inflation. Those who, after the imposition of Inflation is due to an excess of exchange control, deal in dollars paper money. But, as I have al- in the black market are labeled as ready pointed out, only the gov- “profiteers.” They are condemned ernment can issue paper money; by the government as the villains therefore, the government is solely responsible for the low value or responsible for the flight of capi- depreciation of the peso. tal. How should we judge the acts . of these men? Those who exported Further “Buck-Passing"’ their capital before the imposition In the case of price control, we of exchange control are not eco- mentioned that the exclusive re- nomic traitors; they did not vio- sponsibility of the government for late any law or do anything im- the abnormal rise of prices is not moral. They only exercised their apparent to the average citizen. In legitimate right in converting the case of exchange control, the their own pesos into dollars at the exclusive responsibility of the gov- rate guaranteed by their govern- ernment for the flight of capital ment of 2 pesos to $1. is even less apparent to the aver- As regards the merchants who age citizen. Even an intelligent after the imposition of the ex- person can easily be misled about change control deal in dollars in the implications of exchange con- the black market, they may be trol, because exchange control called ‘“profiteers” only in the seems to imply that the govern- sense that they are selling dollars ment condemns the flight of capi- at more than the official govern- tal, which it tries to stop by ex- ment rate, but it does not follow change control. The implication is therefrom that they are responsi- that somebody else — not the gov- ble for the low value of the peso. ernment ~ is responsible for the The depreciation of the peso is abnormal situation, which is the the government’s own exclusive re- flight of capital. sponsibility. In other words, the To wash the responsibility off its so-called profiteering in dollar ex- hands, the government again re- change is the consequence and not ===== PAGE 40 ===== 38 THE FREEMAN June the cause of the rising market modities they need except in the value of the dollar — a by-product black market, the existence of the of which is the flight of capital. black market becomes not only a necessity but actually a blessing. Black Market or Free? : Many will recall that the black In this connection, it may not market saved many of our coun- be amiss to clarify further the trymen from starvation during nature of the black market. The the Japanese Occupation. In short, black market is the free market, history records that the black mar- in contrast with the market con- ket, notwithstanding all govern- trolled by the government, which ment propaganda to blacken its is not free. Dictators, socialists, name, has in many instances communists, and, in general, all served to mitigate the effects of nonbelievers in free enterprise, the blunders and the abuses of have something in common: the bureaucratic incompetence and ambition to wield unlimited tyranny. powers over the economic life of a nation. Their ambitious program [Investors Discouraged to regiment the economy of a na- A dishonest policy produces evil tion is masked with such colorful consequences. The evil conse- names as “planned economy,” “full quences of exchange control stem employment policy,” “new deal,” from the fundamental proposition “Fabian socialism,” ‘‘welfare that exchange control reduces the state,” and so on. These nonbe- foreign trade of a nation. Reduc- lievers in free enterprise are quick tion of foreign trade means reduc- to realize that in order to achieve tion of the real income of the peo- their aims they must eliminate or ple, lowering consequently their outlaw the stumbling block to standard of living. their scheme, namely, the free Another evil consequence of ex- market, to which they give the un- change control, which may be con- popular name of black market. sidered a corollary of its general The operation of economic laws, effect of reducing world trade, is however, cannot be set aside by that it discourages the flow of derision and wishful thinking. Let capital from areas where it is us take specifically one effect of plentiful to those where it . is controls, which is to aggravate the relatively scarce. Our country, like shortage of goods. When people any other underdeveloped country, are hungry and cannot get the needs the help of foreign capital food and the other prime com- for the development of its natural ===== PAGE 41 ===== 1961 PRICE AND EXCHANGE CONTROLS 39 resources. American capitalists a comparatively modern phenom- are not only willing but eager to enon. It first appeared in 1931, invest their dollars in our coun- when German exchange control try. They will not invest in any laws were adopted and enforced foreign land, however, without by “Fuhrer” Adolf Hitler upon some assurance that they may re- the advice of his Finance Minister, call their capital when they choose, Hjalmar Schacht. Soon thereafter and that they may receive the other European countries followed profits that they expect from their suit. Today a great portion of the investment. world, the Philippines included, is These two minimum require- under exchange control. In my ments to attract foreign capital view, the existence of exchange are in direct conflict with the very control is the best proof that a nature and purpose of exchange nation’s economy is abnormal. control. So, the indispensable at- As in the case of price control, traction for foreign capital to contemporary history confirms come to the Philippines is the abo- that there is not a single instance lition of all government controls, where exchange control has ever especially exchange control. After solved the consequences of infla- abolishing exchange control, we tion upon the external economy of must further assure prospective a nation. foreign investors that we do not Price and exchange controls are contemplate any future system of remedies worse than the malady exchange control. they are designed to cure. The error lies in mistaking the symp- The Best Policy Is Freedom toms for the real cause of the dis- History records at least 40 cen- ease, which is the policy of the turies of human experience with government of spending beyond price control. Exchange control is its means. -> WE BELIEVE that the high living standards and personal freedoms enjoyed by the Western Nations are the result of the free market economy adopted by these countries, when the controls of the past ages were abolished. From the creed of the New Zealand Society for Economic Individualism ===== PAGE 42 ===== Tare o TE pip | ba MURRAY N. ROTHBARD OURS is truly an Age of Statistics. other governmental activities: In a country and an era that wor- from the Internal Revenue bureau ships statistical data as super- come tax data, from unemploy- “scientific,” as offering us the keys ment insurance departments come to all knowledge, a vast supply of estimates of the unemployed, from data of all shapes and sizes pours customs offices come data on for- forth upon us. Mostly, it pours eign trade, from the Federal Re- forth from government. While pri- serve flow statistics on banking, vate agencies and trade associa- and so on. And as new statistical tions do gather and issue some techniques are developed, new di- statistics, they are limited to spe- visions of government depart- cific wants of specific industries. ments are created to refine and use The vast bulk of statistics is gath- them. ered and disseminated by govern- The burgeoning of government ment. The over-all statistics of the statistics offers several obvious economy, the popular “gross na- evils to the libertarian. In the first tional product” data that permit place, it is clear that too many re- every economist to be a soothsay- sources are being channeled into er of business conditions, come statistics-gathering and statistics- from government. Furthermore, production. Given a wholly free many statistics are by-products of market, the amount of labor, land, Br. Rothbard is a consulting economist in New and capital resources devoted to York City. statistics would dwindle to a small 40 ===== PAGE 43 ===== & 1961 STATISTICS : ACHILLES' HEEL OF GOVERNMENT 41 fraction of the present total. It A Hoover Commission task force has been estimated that the fed- found, for example, that: eral government alone spends over “No one knows how much it $43,000,000 on statistics, and that costs American industry to com- statistical work employs the serv- pile the statistics that the Govern- . oo . The chemical in- ices of over 10,000 full-time civilian et mand s reports that cach employees of the government.! year it spends $8,850,000 to sup- ply statistical reports demanded The Hidden Costs of by three departments of the Gov- Coerced Reporting ernment. The utility industry spends $32,000,000 a year in pre- Secondly, the great bulk of sta- paring reports for Government tistics is gathered by government agencies... } coercion, This not only means that All industrial users of peanuts must report their consumption to they are products of unwelcome the Department of Agriculture.. activities; it also means that the Upon the intervention of the Task true cost of these statistics to the Force, the Department of Agri- American public is much greater culture agreed that henceforth than the mere amount of tax only those that consume more money spent by the government than ren up usand pounds a year agencies. Private industry, and the If small alterations are made in private consumer, must bear the two reports, the Task Force says, burdensome costs of record-keep- one industry alone can save $800,- ing, filing, and the like, that these 009 8 year in statistical reporting. i : any employees of private in- statistics demand. Not only that; dustry are occupied with the col- these fixed costs impose a rela- lection of Government statistics. tively great burden on small busi- This is especially burdensome to ness firms, which are ill-equipped Small businesses. A small hard- . ware store owner in Ohio esti- to handle the mountains of red p,.i04 that 29 per cent of his time tape. Hence, these seemingly inno- jg absorbed in filling out such re- cent statistics cripple small busi- ports. Not infrequently people ness enterprise and help to rigidi- dealing with the Government have fy the American business system. to keep several sets of books to fit at the diverse and dissimilar require- 1 Cf. Neil Macneil and Harold W. Metz, ments of Federal agencies. 12 The Hoover Report, 1953-1955 (New York: Macmillan, 1956), pp. 90-91; Com- Other Objections mission on Organization of the Executive . Branch of the Government, Task Force But there are other important, Report on Paperwork Management and not so obvious, reasons for (Washington: June, 1955); and idem, 3 : _ Report on Budgeting and Accounting the libertarian to regard govern (Washington: February, 1949), 2 Macneil and Metz, op. cit. pp. 90-91. ===== PAGE 44 ===== ~~. 42 THE FREEMAN June ment statistics with dismay. Not “into” the situation that they are only do statistics-gathering and trying to plan and reform, they producing go beyond the govern- must obtain knowledge that is not mental function of defense of per- personal, day-to-day experience; sons and property; not only are the only form that such knowledge economic resources wasted and can take is statistics.? Statistics misallocated, and the taxpayers, are the eyes and ears of the bu- industry, small business, and the reaucrat, the politician, the social- consumer burdened. But, further- istic reformer. Only by statistics more, statistics are, in a crucial can they know, or at least have sense, critical to all interventionist any idea about, what is going on and socialistic activities of gov- in the economy.t Only by statistics ernment. The individual consumer, can they find out how many old in his daily rounds, has little need people have rickets, or how many of statistics; through advertising, young people have cavities, or through the information of how many Eskimos have defective friends, and through his own ex- sealskins —and therefore only by perience, he finds out what is go- statistics can these intervention- ing on in the markets around him. ists discover who ‘“needs” what The same is true of the business throughout the economy, and how firm. The businessman must also much federal money should be size up his particular market, de- “3 0n the deficiencies of statistics as termine the prices he has to pay compared to the personal knowledge of . all participants utilized on the free mar- for what he buys and charge for ket, see the illuminating discussion in F, what he sells, engage in cost ac- A, Hayek, Individualism and the Eco- counting to estimate his costs, and nomic Order (Chicago: University of . -_ : Chicago Press, 1948), Chapter 4. Also so on. But none of this activity is see Geoffrey Dobbs, On Planning the really dependent upon the omnium Earth (Liverpool: K.R.P. Pubs., 1951), gatherum of statistical facts about Ppp. 77-86. : . 4 As early as 1863, Samuel B. Ruggles, the economy ingested by the fed- American delegate to the International eral government. The business- Statistical Congress in Berlin, declared: man, like the consumer, knows and “Statistics are the very eyes of the states- . . . man, enabling him to survey and scan learns about his particular mar- ih clear and comprehensive vision the ket through his daily experience. whole structure and economy of the body Bureaucrats as well as statist Politic.” For more on the interrelation of . statistics — and statisticians — and the reformers, however, are in a com- government, see Murray N. Rothbard, pletely different state of affairs. “The Politics of Political Economists: . . Comment,” The Quarterly Journal of They are decidedly outside the Economics (November 1960), pp. 659-65. market. Therefore, in order to get Also see Dobbs, op. cit. ===== PAGE 45 ===== 1961 STATISTICS: ACHILLES’ HEEL OF GOVERNMENT 43 channeled in what directions. And Without Statistics certainly, only by statistics, can Bureaucracy Would Wither Away the federal government make even It is true, of course, that even a fitful attempt to plan, regulate, deprived of all ‘statistical knowl- control, or reform various indus- edge of the nation’s affairs, the tries — or impose central planning government could still try to in- and socialization on the entire eco- tervene, to tax and subsidize, to nomic system. If the government regulate and control. It could try received no railroad statistics, for to subsidize the aged even without example, how in the world could having the slightest idea of how it even start to regulate railroad many aged there are and where rates, finances, and other affairs? they are located; it could try to How could the government impose regulate an industry without even price controls if it didn’t even knowing how many firms there are know what goods have been sold or any other basic facts of the in- on the market, and what prices dustry; it could try to regulate were prevailing? Statistics, to re- the business cycle without even peat, are the eyes and ears of the knowing whether prices or busi- interventionists: of the intellec- ness activity are going up or down. tual reformer, the politician, and It could try, but it would not get the government bureaucrat. Cut very far. The utter chaos would be off those eyes and ears, destroy too patent and too evident even those crucial guidelines to knowl- for the bureaucracy, and certainly edge, and the whole threat of gov- for the citizens. And this is espe- ernment intervention is almost cially true since one of the major completely eliminated.? reasons put forth for government "5 “Government policy depends upon intervention is that it “corrects” much detailed knowledge about the Na- the market, and makes the market tion’s employment, production, and pur- and the economy more rational. chasing power. The formulation of legis- . . lation and administrative progress . . . Obviously, if the government were Supervision . . . regulation . . . and con- deprived of all knowledge what- trol . . . must be guided by knowledge of ever of economic affairs, there a wide range of relevant facts, Today as never before, statistical data play a major could not even be a pretense of role in the supervision of Government rationality in government inter- activities. Administrators not only make : plans in the light of known facts in their vention. Surely, the absence of field of interest, but also they must have statistics would absolutely and im- reports on the actual progress achieved mediately wreck any attempt at in accomplishing their goals.” Report on : Viehd . . . Budgeting and Accounting, op. cit., pp. socialistic planning. It is difficult 91-92. to see what, for example, the cen- ===== PAGE 46 ===== \ 44 THE FREEMAN June tral planners at the Kremlin could that have been proposed over the do to plan the lives of Soviet citi- years to check and limit govern- zens if the planners were deprived ment or to repeal its interventions, of all information, of all statistical the simple and unspectacular abo- data, about these citizens. The lition of government statistics government would not even know would probably be the most thor- to whom to give orders, much less ough and the most effective. Sta- how to try to plan an intricate tistics, so vital to statism, its economy. namesake, is also the State's Thus, in all the host of measures Achilles’ heel. > BEING NEGATIVE 5. F. Hurrox I HAVE A LETTER from the mother of six children. She said she had been “so busy being a mother that I had not realized what was going on in my country.” She could not understand how anybody could look back through his- tory and not see that as soon as people turn to government for hand- outs, “the country soon rotted.” Of course, I agree. History proves that. But so many people appear not to believe history. I said “appear.” Do they really? Down deep, I don’t think they do. I believe most of us get more happiness working hard for something we can put our hearts into, than using the ballot as a gun in order to live off the sweat of other people’s brows. I believe the pendulum of public opinion is starting to swing back from ‘voting yourself rich” toward pluck, elbow grease, self-reliance and honest living. But it worried this mother of six young Americans, that she was becoming “negative.” It bothered her that she was no longer running with the herd. I wrote her not to be afraid of being negative. For whenever she is negative to something, she is affirmative to its opposite! If she is nega- tive to filth, she is affirmative to soap; if she is negative to loafing, she is affirmative to working. If she is negative to communism and atheism, she is affirmative to God, church, her children, and her country. Mr. Hutton is the well-known industrialist, investment banker, and author of the column, “Think It Through.” ===== PAGE 47 ===== CENTRALIZED or MULTIPLE ECONOMIES GEORGE WINDER ALL the politico-economic systems centralized economy is that all in which the world’s peoples make economic activities are directed their living can be divided into or planned by a central authority centralized or multiple economies. so that the people are subjected to In the first of these two great a hierarchical control. Every man classes all production is directed has a superior whom he must by a central authority which con- obey. The most outstanding ex- sists of, or derives its power from, amples of the centralized economy a chief, council of elders, king, or are: in the case of communist coun- 1. Primitive communism which tries a political staff under the once existed among all peoples and over-all command of a dictator. It still survives in many uncivilized is conceived by socialists that an countries. All production in this authority directing a centralized stage of society is under the direc- economy could derive its power tion of chiefs or councils of elders. from an elected assembly, but in No individual responsibility practice, democracy and the cen- exists. tralized economy have rarely co- 2. The feudal system in which existed. land, the one all-important means The great characteristic of a of production, is held in the name Mr. Winder, formerly a Solicitor of the Su. of the king, who appoints power- preme Court in New Zealand, is now farming ful henchmen to insure that it pro- in England. He has written widely on law, . : agriculture, and economics. duces supplies and fighting men. * 45 ===== PAGE 48 ===== 46 THE FREEMAN June The land itself is usually worked The subjection of the individual under some form of communal to the blind instincts of the group control under the direction of such which is their outstanding charac- bodies as manor courts. Individual teristic may be said to be the nat- responsibility is of a most rudi-- ural condition of man before he mentary kind. trained himself for civilization. 3. Collective states such as Nazi That some of these centralized Germany and fascist Italy. Here economies make use of and even the hierarchy of control is fully develop the modern products of evident, but although all produc- capitalism cannot alter this fact. tion is directed and all capital con- The centralized economy still trolled by the state, the nominal has a very great attraction for legal ownership of property re- many people. It relieves them of mains in the hands of individuals responsibility for the conduct of who receive a share of its pro- their own lives so long as they ceeds subject, usually, to the pro- adhere to the prevailing collective cess which Lord Keynes has de- ideas and emotions. In misery and scribed as the “euthanasia of the war increasing numbers of men rentier.” will always revert to it. This to 4. The communist or socialist some extent explains the easy ac- state. Here the control of property ceptance of Nazism and fascism and the direction of production is in such comparatively civilized the same as in the Nazi or fascist countries as Germany and Italy. state, but the individual owner Most of the modern collective has been liquidated and his prop- ideologies arise from this instinc- erty confiscated. tive desire to be taken care of by In these last two forms of the a superior authority. This instinct centralized economy, the direction lies latent in most of us as the of production has always passed result of our background of cen- into the hands of a dictator who turies of tribal communism. It appoints planners to manage the can only be overcome by a firm be- economy subject to his control in lief in philosophy or religion. which political considerations play the decisive part. A Multiplicity of Directors There is nothing new in any of On the other hand, the multiple these centralized economies. They, economy depends for its efficiency, and the hierarchical system by not on the concentration of eco- which they are controlled, have nomic direction, but on the break- been known for countless ages. ing up of that direction into as ===== PAGE 49 ===== 1961 CENTRALIZED OR MULTIPLE ECONOMIES 47 many hands as is reasonably pos- ning of production for community sible. It makes every capitalist consumption.” Similar demands for direct his own small share of the a planned economy by socialist economy. His right to do so arises and American “liberals’’ have been from his ownership of property. too numerous to recall. A multiple economy is planned or directed by the owners of farms, The Mechanism of Control factories, ships, banks, trucks, But fortunately for humanity, shops, and in fact the owners of the multiple direction of the econ- any property which is capable of omy by innumerable capitalists — assisting in the great work of pro- each concerned with only a tiny duction. part of the total production — does Now this type of economy with not mean chaos. On the contrary, its multiplicity of directing au- it means the most efficient direc- thorities seems to be quite beyond tion and planning of an economy the comprehension of the socialist that the world has yet been able who cannot understand this di- to attain. The reason for this is versity of direction. He believes that the capitalist’s control of his that if more than a tiny group of section of the economy is not ab- experts direct an economy, then solute. He is under the strictest chaos must inevitably result. How orders of a power far greater than can a vast complicated economy be himself. His bonds may appear to planned and ordered without com- be light for they are of an imper- petent economists to direct it from sonal nature, but they are ex- the center? One cannot run even tremely strong. Any disobedience a single business without planning will be revenged, as a last resort, it carefully; how, therefore, can with bankruptcy. one run an economy such as that This powerful master of all cap- of America or Great Britain with- italists who co-ordinates their out such planning? production, and in fact plans their We saw something of this line whole economy, is none other than of reasoning in the first confer- the people themselves who exer- ence of the British Labour Party cise their power by means of the after the war when at the instance free price mechanism, which is the of Professor Laski a resolution most efficient instrument for di- was passed stating that “there recting and planning an economy must be no return after the war to that has yet been devised. The pro- an unplanned competitive society,” duction and investment of the and proposing instead “the plan- apparently independent capitalists ===== PAGE 50 ===== 48 THE FREEMAN June are directed by the rise and fall ena, which for long seemed so of the prices of commodities and wayward and inexplicable, we have services. A movement of prices come gradually to perceive an all- will tell producers far quicker pervading uniformity and order. than can any state economic plan- So there is manifest in the eco- ner what their masters, the con- nomic world uniformity and order sumers, want them to produce and of a similar, if less majestic kind.” where to invest their capital. The The great Bastiat speaks of this free price mechanism, by prevent- same co-ordination in the follow- ing waste and by giving swift di- ing words: “On entering Paris rections to capitalists, which must which I came to visit, I said to be obeyed on pain of bankruptcy, myself —- Here are a million of has made the multiple economy the human beings who would all die in most efficient system for stpply- a short time if provisions of every ing the wants of the people that kind ceased to flow toward this the world has ever known. great metropolis. Imagination is Under such a system, gluts and baffled when it tries to appreciate scarcities cannot occur except as the vast multiplicity of commodi- the result of some unforeseen nat- ties which must enter tomorrow ural phenomena. Such maladjust- through the barriers in order to ments as the United States has ex- preserve the inhabitants from fall- perienced with her farm supplies, ing a prey to the convulsions of or such depressions as that in- famine, rebellion, and pillage. And flicted upon the world in the thir- yet all sleep at this moment, and ties cannot possibly occur. their peaceful slumbers are not . disturbed for a single instant by Uniformity and Order the prospect of such a catastrophe. Far from chaos and unbalance On the other hand, eighty depart- being the result of the multiple or ments [provinces] have been labor- free market economy, as socialists ing today, without concert, and claim, many economists have been without any mutual understand- struck by the efficient co-ordina- ing, for the provisioning of tion or planning it brings about. Paris.” Professor H. D. Henderson, for It may be argued that owing to example, in his Cambridge Eco- the great increase in the govern- nomic Handbook, Supply and De- ment control of economic affairs mand, writes of this co-ordination since the days of Bastiat such an in the following words: “Just as illustration as he has given us is in the world of natural phenom- no longer applicable. It is true ===== PAGE 51 ===== 1961 CENTRALIZED OR MULTIPLE ECONOMIES 49 that the directing power of the corrupting influence of pressure price mechanism has been reduced groups. The capitalist must obey with many unhappy results, but the market, but he need submit to it still remains the most effective no visible human master. It is be- economic guide we have. This is cause of this impersonal rule that illustrated by the great improve- the multiple economy is the one ment which occurred in the Brit- form of economy in which men ish economy as soon as the Con- can be free. servative government released it In the multiple economy the from many of the direct controls market rules a great part of our which their socialist predecessors lives. When in our youth we choose retained long after the war had the occupation we will follow, the ended. market tells us what remuneration Sometimes the socialist will we may expect and influences us claim that the freedom of the mar- accordingly. In most modern states ket must be restricted for the sake this influence is qualified by the of the freedom of the people. They efforts of trade unions, and to do not realize that in interfering some extent by legislation, but the with the price mechanism it is market rate for wages is still a this very freedom of the people most important element. The mar- they destroy. ket helps us to decide what we shall eat and how we shall clothe A Just and Impersonal Guide ourselves and furnish our home. The first attributes, then, of We must consider the market the multiple or market economy when we choose the house in are order and efficiency, but it has which we will live. Where there is other virtues equally important. no free market the people do not We have seen that the owner of choose their houses for them- capital in a multiple economy must selves; they are “housed.” The submit to the demands of the mar- market decides whether our work ket which he will find a completely gives satisfaction to a great many ruthless master. At the same time people, in which case it will make it is a master which has the in- us wealthy, or whether it gives estimable virtue of being com- only average satisfaction, in which pletely just and impersonal. It does case our rewards will be of a cor- not rule by sending Commissars responding nature. If, with our or Gauleiters to the capitalist’s capital or our labor, we do nothing office to instruct him what he must for the community, the market will produce. It is impervious to the give us nothing in return. ===== PAGE 52 ===== 50 . THE FREEMAN June If a man is to live without either the separation of these two mas- robbery or charity, then he must ters of human destiny. We see this supply the market with goods or separation growing with the labor. These must be of a type Tudor revolution, the English civil the market demands, otherwise war, the later revulsion against they will not sell. mercantilism, and in the insist- We may safely say that the mar- ence of the nineteenth century ket controls more than half of liberals that the state should not earthly activities. This means that interfere with the economic sys- even the freest of us are for a tem. It was the origin of those great part of our lives in bondage provisions in the American Con- to the wishes of other people, but stitution which seek to limit both as their demands are expressed the power of the federal govern- through the market, these bonds ment and of the state. appear to us to be light. It is the separation of economic i» and political power which makes The Political Master liberty possible. This separation Thus we may say that the chief is found only in the multiple econ- master of human activities con- omy. In that economy the capital- sists of nothing less than the peo- ist, with his rights in his property, ple themselves ruling through the protected by law, is free to follow price mechanism, But there is a the directions of the people ex- second master who also has a very pressed through the market. He great command over our lives. knows that as long as he satisfies This is, of course, the government the market he is secure and in- of the country in which we live. dependent. If he satisfies his cus- This second master rules through tomers, he need call no man mas- established laws and sometimes ter. He can denounce the govern- through regulations and fiats, and ment to his heart’s content with- its instruments for enforcing its out fear of losing the position rule are the police. which the market economy has For centuries the provinces of given him. He can demand the these two rulers were not clearly right to travel abroad, the right defined. All economic power and to free speech and free press, and political power resided in the same he knows that his independence is hands. Between the Renaissance safe, and that no official can harm and World War I, however, all him. So long as the law continues development toward freedom and to protect his property and those civilization has also been toward rights which have been associated ===== PAGE 53 ===== 1961 CENTRALIZED OR MULTIPLE ECONOMIES 51 with property in all civilized coun- so free. A worker who must ob- tries, he knows his freedom is as- tain a job will be well advised to sured. His property, as well as avoid airing extreme views. It is giving him freedom from the just possible that racial or re- power of the state, also protects ligious considerations may affect him from the ill will of his neigh- him more than they would an in- bors. The owner of property can dependent capitalist. But for all be agnostic in a Protestant or essential purposes, a worker in a Catholic district, or can be a multiple economy is as free as the colored man in a white neighbor- capitalist. He need not fear his hood. An owner of property may foreman or employer as a com- be uncouth, uneducated, and rude, munist worker fears his immedi- but nevertheless, if he manages ate superior. The basis of his free- his property wisely he can laugh dom is the multiplicity of prop- at those who dislike him. It is erty owners who can employ him. surprising what prejudices we will With many potential bosses he overcome to deal with a man who need be subservient to none. Fur- provides us with honest goods or thermore, he knows that he him- efficient service. Only in a prop- self can become a property owner erty-owning economy can the out- and employer. sider, the eccentric, or the original Property rights have often been mind flourish. In centralized econ- described by socialists as “reac- omies even the laughter or the tionary barriers against the will ridicule of one’s neighbors seems of the people.” Not so. They are to be enough to keep the divergent barriers against the state, and individual in line. Property with they protect the people from the its rights securely enforced by the abuse of its power. But they are courts is the very basis of human effective barriers only so long as freedom. It is no accident that in the two masters of men, the free all countries where private prop- market on the one hand and the erty has ceased to exist, freedom government on the other, are kept has perished. separate and distinct. These mas- ters must be confined to their own Are Workers Free? provinces of control. Someone may here say, “This is When there is no free price all very well for the property mechanism to co-ordinate the econ- owner, but what of the people who omy, then dislocation is bound to have no property —can they be arise. Depressions — such as that equally free?” Not, perhaps, quite which followed World War I when ===== PAGE 54 ===== 52 THE FREEMAN June political considerations controlled trol of his religion or ideology. a great part of the world’s econ- Not only a man’s labors, but his omy — become unavoidable and very mind must be subject to the lead to still further control and will of those who control the eco- further economic dislocation. If nomic system, If a man’s mind this development is allowed to were allowed to be free, then he continue, the rule of the economy might resent his place in the hier- by the people through the price archy, or even cease to believe in mechanism comes to an end; their the prevailing economic system; place is taken by the planner un- and that would be dangerous in a der the instructions of the political centralized economy for all men group in power. With the merger depend on the current politico-eco- of economic and political power nomic plan for their livelihood. into the hands of the one authority As the economy is planned by the multiple economy is destroyed the central authority, its smooth and freedom comes to an end. working depends upon all fulfilling the work allotted to them. Even the right to possess a private gar- den or cow is a privilege that In the centralized economies all distracts a man from his job, in- men are subject to a hierarchy of terferes with the over-all plan, control. Of course we know that and can seldom be allowed. He in a multiple economy such a con- who does not do his job sabotages trol exists in every individual firm the whole political plan. As all from the manager right down to capital is controlled and directed the office boy, but it exists only by the state, so also must all during business hours. Moreover, labor be allotted its task by the if an employee does not like the state. He who expresses an opin- orders given him during his work- ion dangerous to the government ing hours, he can always find an- is invariably endangering the other job. But in a centralized whole economy and is therefore, economy there is only one em- in the eyes of the regimented peo- ployer, the state, and this all- ple, justifiably silenced. As a con- powerful employer always inter- sequence, the centralized economy feres with the people, even when not only controls all productive ac- their working hours are over. tivity, but the very minds and Along with the control of man’s lives of its people. The noncon- economic activities in a centralized formist must die. The centralized economy, there always goes con- economy, whether it calls itself Central Planning Means a Hierarchy of Control ===== PAGE 55 ===== 1961 CENTRALIZED OR MULTIPLE ECONOMIES 53 socialist, communist, fascist, or help to keep the machinery of the Nazi, always destroys freedom. market in working order. The basis of that machinery is the Plan Must Be Militarized legal contract entered into by free We in the Western world have men. Only the state can see that not yet realized how much power these contracts are enforced the destruction of the free market against men who disregard their and the establishment of a cen- obligations. The state must also tralized economy must inevitably see that the price mechanism is place in the hands of those who not impeded by cartels and mo- control the state. In no instance nopolies — though this is largely a have freedom and democracy long negative function of not granting survived the establishment of a privileges or licenses in the first centralized economy. place. Dean Inge seems to have real- The primary rule of all good ized this when he wrote, “If a government is to realize that the multitude is to be subjected to a power of the state must be strictly plan, it must be militarized. If in- limited. The state must never be dividuals are allowed a free choice, the enemy of the market, it should the plan is thrown into confusion. be its great protector. With the Bureaucracy, under an absolute help of the multiple economy, the ruler, or rulers, is necessary. Pop- people themselves can be masters ular consent can be secured only of all production and masters of by rigorous censorship and pro- the government as well. Destroy hibition of free discussion. Es- the multiple economy and they pionage is a necessary part of the will be masters of neither. system, and a considerable amount of terrorism. Since private expen- It will be noticed that I could diture must be controlled, it is have used the established term wise to keep private incomes near totalitarian for my centralized a subsistence level and to dole out economy, and that my multiple any surplus on collective pleasures economy is, after all, only another such as free holidays. We shall name for the market economy or not understand totalitariantyranny free enterprise. I have chosen my unless we realize that it is the own terms, not with any desire to result of the planned economy.” be original, but simply to empha- This is not to say that the state size the difference in the basic has no economic function what- fcundations of the two great polit- ever to perform. The state must ico-economic systems. In every ===== PAGE 56 ===== 54 THE FREEMAN June totalitarian state the complete con- a difference. The multiple econ- trol the government exercises over omy is based on the rights of pri- its people is based on a centralized vate property, and it is this that economy, and wherever the people makes the system possible and enjoy freedom their economy is a thereby insures the freedom of multiple one. mankind. But from whence came This, of course, implies that these rights of private property whether people are free or not which are not the result but the depends on their politico-economic cause of freedom? As far as the system. A critic may here point civilization enjoyed by the West- out that Karl Marx said very ern world is concerned, their ori- much the same thing. But there is gin is found in Christianity, “Wasteful and Vulgar” Advertising, according to Soviet economic theory, is “wasteful and vulgar,” or as the Russian phrase goes, “not cultured.” In practice, however, newspaper advertising is playing a growing part in Soviet domestic trade. In fact, advertisements now have become a regular feature in the “Economic Gazette.” To illus- trate, a Moscow factory plugs aluminum buttons and insignia made to order, according to customer specifications, for jubilees and sport festivals. Other producers offer for sale locomotives and freight cars, ship floodlights, flannel fabrics, wine vinegar, automobile spare parts, plastics, and chemicals. There also are ads for goods wanted. What place such huckstering has in Soviet economic planning is hard to define. However, it underscores the importance to the U.S.S.R. of so-called expediters or middlemen, who, by matching demand and supply, have managed to amass what capitalists might consider a fortune. From Barron's, April 3, 1961 ===== PAGE 57 ===== A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN Some Rules Are for Breaking To BE BIG is to be vulnerable — and formula; as he put it, all develop- the most successful big institu- ment “must be outside the rules.” tions are those that have set them- He believed in theories, but only as selves up on an “as if” basis: “as approaches to the problem at if” they were a collection of small- hand. If the problem changed the nesses. The General Motors Com- theory, so much the better. That, pany is one such institution, as in Ket’s estimation, was true pro- Peter Drucker long ago reminded gress. us in The Concept of the Corpora- The philosophy of this shrewd tion. and skeptical man is scattered like Part of the genius of the Gen- nuggets in a selection of passages eral Motors Corporation in the from his speeches that is published Alfred P. Sloan era was that it under the title of Prophet of Prog- put its research program into the ress, edited by T. A. Boyd (Dut- hands of Charles F. Kettering, a ton, $5.00). Books of this sort do man who did not believe in ex- not ordinarily read too well, for perts, in committees, or in organi- they abound in repetitions and in zation in general. Kettering — the jocosities that, however much they famous “Boss Ket” — was a small- are appropriate to large audiences town man writ large. General as attention gatherers, only serve Motors had its headquarters in to deflect the concentration of a Detroit, but Kettering insisted on reader in an armchair. But when living in Dayton, Ohio. When Ket Kettering repeated, it was apt to had a problem to work out, he be something that had originated preferred to do it in a barn or an with himself in the first place, and old tobacco warehouse, where an his sunny sense of humor renders overproliferation of fancy equip- his jocosities at least bearable on ment would not get in his way. He the printed page. had a contempt for going by the Prophet of Progress comes out 55 ===== PAGE 58 ===== 56 THE FREEMAN June at an appropriate time, when Gen- Ket, with his motor boat in mind, eral Motors, which gave Ket his threw the old formula away, He head, is under attack for “monop- made it an “intellectual golf olizing” the business of manufac- game” for himself to devise a turing diesel engines for the diesel that wouldn't weigh any railroads. Ket wouldn’t have un- more than a gasoline engine of derstood the government’s worry. comparable power. The main prob- It was he who put G.M. in the lem was reducing the tolerance of diesel business in the first place, the diesel piston cylinder to a and there was no “monopoly’’ about point that was smaller than the it — merely the most effective sort diameter of an oil molecule. If this of open competition. could be done, there wouldn't be any } need for bulky packing around the Designed for a Boat piston plunger to keep the oil from The story can be pieced together leaking out of the engine. Ket from two of Ket’s rather random counsels his readers to remember talks, one that is included in this that he is talking about measure- book under the general title of ments that are expressed in mil- “Head Lamp of Industry” and lionths of inches — or the width of another, also reprinted here, that an average human hair divided by is called “Revolution on the Rail- 120. road.” When Ket started fooling around with the problem of find- ing an engine for his motor boat When he finally solved his prob- (mind you, this had nothing to do lem, which was one of tooling for with railroad trains), he became precision, Ket put two of his newly dissatisfied with the type of “spark developed two-cycle diesels in ignition” engine which is used in operation at the Century of Prog- motor cars. The diesel type en- ress Exposition in Chicago in gine —a “compression ignition” 1933. Ralph Budd, the railroad engine — had been invented by man of the Burlington, saw them, Rudolph Diesel in Germany at the and asked Ket to try to adapt the end of the nineteenth century, but new lightweight diesel to the job it was big and cumbersome, and of propelling a small three-car nobody thought it could be rede- streamlined railroad train, When signed to deliver a lot of power in Ket came up with the first suc- a relatively small space. The cessful diesel-electric locomotive, “formula” said the diesel had to be it was just in time to haul the huge. railroads out of a depression that Working on the Railroad ===== PAGE 59 ===== 1961 SOME RULES ARE FOR BREAKING oT would have busted most of them in that the diesel itself, as originally that sorely distressed period when invented by a German, is now people where being taught that a more than sixty years old. The “mature” economy would never patents must have long since run produce anything new. out. That would seem to indicate General Motors, then, got most that anybody is free to cut for of the growing business of making himself a bit of G.M.’s diesel busi- railroad diesels because its small- ness if he cares to raise the neces- town “professional amateur” of sary investment and make a try. automotive research had been Where, then, is the “monopoly”? tinkering on something that has still to be applied generally to auto- 4 Fast-Drying Paint mobile transportation. A different Ket’s relationship to the alleged type of automotive employer would du Pont “monopoly” of the busi- have begrudged the time spent by ness of supplying G.M. with fast- its chief of research on a power drying paint is another interesting unit designed for fun in a motor commentary on the punitive na- boat, not for use in a motor car. ture of the antitrust laws when they are ignorantly invoked. The Where Is the Monopoly? story of Ket’s own development of The point to be made at this a formula for the fast-drying particular period in history is that paint is told dramatically in a anybody could have done what speech called “I Am For the Ket did, but that it was General Double-Profit System.” Ket had to Motors which allowed him the do the first research himself be- freedom to do it. The reward of cause all the professional paint General Motors was a ground floor makers insisted that it was position in an entirely new indus- against nature to think that the try. It was a case of getting there painting job on an automobile first. That is the real substance of body could be finished within an G.M.’s “monopoly” position in the hour. Mooching about in New York diesel electric business. If the one day, Ket noticed in a jewelry company has done something il- store window some pin trays that legal to keep the lion’s share of seemed to be finished in a new diesel manufacture, that is some- kind of lacquer. He traced the thing else again. But the skeptical lacquer to a fellow who had a little reader of the newspapers and of laboratory in back of a business Kettering’s speeches must be block in a New Jersey town. The pardoned for reflecting on the fact fellow had been making it in less- ===== PAGE 60 ===== 58 THE FREEMAN June than-a-quart lots. When Ket said “Education for Tomorrow" he wanted some of the lacquer for Since Ket was a practical man, automobile doors, he was told that a cut-and-try fellow whose list of it wouldn't do. “It dries too fast,” accomplishments owes little to the so the laboratory owner said. “If university laboratories, it might you put it in one of your spray be thought that he would have guns, it will dry and blow away be- been a champion of shop-training fore it reaches the door.” as against a formal engineering So Ket had two extremes — school education. It was strictly as standard automobile paint that a trial-and-error experimenter couldn’t be speeded up, and a lac- that Ket used electricity to take quer that couldn't be slowed down. the old handcrank off the cash He took his problem to du Pont, register when he was employed the company which had the best by the National Cash Register chemical experimenters in the Company of Dayton. He was still paint business, and together with the cut-and-try amateur when he the du Pont research staff he devised the first practical electri- finally succeeded in getting a new cal self-starter for a 1912 model automobile body finish that was Cadillac and when he took the halfway between the extremes. “knock” out of engine gasoline. } The amateur touch continued to Help Is Where You Find It operate in his choice of a mechani- Again, there is a point to be cal engineer, Thomas Midgley, to made in this present era of shot- work on the problem of getting a gun blunderbuss antitrust enforce- chemical refrigerant that would ment: du Pont did not “force” its be nontoxic and noninflammable. paint on General Motors, it did not So what did this cut-and-try strong-arm competitive paint man- amateur suggest as a training ufacturers to keep them from sell- regimen for prospective inventors ing to a big corporation in which in his speech, “Education for To- du Pont happens to own a con- morrow”? Did he advise hit-or- siderable block of stock. The fast- miss shop practice? No, he advised drying paint was Ket’s own idea, a full engineering course consist- and he turned to du Pont for help ing of four years of physics, four in working it up because he years of chemistry, and three couldn’t get the requisite coopera- years of mathematics, filled out tion anywhere else. If that is with a little history and economics. “monopoly,” then maybe we should “With that foundation,” said Ket, have a little more of it. “I can take a man and teach him ===== PAGE 61 ===== 1961 OTHER BOOKS 59 about a gas engine if he has never finding by the trial examiner and seen one. But I cannot take a spe- the NLRB and that the ruling of cialist, if he has not had a basic the Board would most likely be re- education, because I cannot get it versed by the Federal Court to over to him if I work until dooms- which the ruling has been appealed day.” by the Kohler Company. So weak In other words, begin with a is the evidence on which the Board thorough grounding in the “how” ruled, that Professor Petro desig- and the “why” of fundamentals. nates the NLRB a “Kangaroo Such a grounding is necessary, so Court.” He contends — correctly, Ket thought, if one is to have in my judgment — that the Board enough flexibility to throw the failed to follow established legal narrow formulas away. The so- rules of procedure and neglected called basic educationists may be relevant evidence. surprised to get such support in Professor Petro concludes that their ideas from such a practical the Board, as an administrative learn-it-by-doing sort of man. & agency, makes administrative law beyond the jurisdiction granted p THE KOHLER STRIKE: Union the Board by the Taft-Hartley Violence and Administrative Law, A.t. He does not lay the blame by Sylvester Petro. Chicago: Henry primarily upon the composition of Regnery Company, 1961. 118 pp. the Board which has been desig- $3.00. . nated by union spokesmen as pro- Reviewed by Rev. Edward A. Kel- management (see ruling re the In- ler, Professor of Economics, Uni- diana Agency Shop) but upon the versity of Notre Dame. misadministration of law that nec- IN THIS brief book, Professor essarily flows from the inherent Petro incisively analyzes the most nature of the Board. He logically notorious and longest (six years) concludes that the remedy can lie labor dispute of recent years. only in amending the Taft-Hart- After a brief history of the Kohler ley Act to take the administration strike, he makes a concise evalua- of the law from the Board and put tion of the “facts” of the dispute it into the federal courts where on the basis of which the National established rules of legal procedure Labor Relations Board ruled that and evidence would be followed. the Kohler Company had failed This book exposes the intricacies “to bargain in good faith.” of our national labor laws and the Professor Petro proves there problems posed by their adminis- was no basis “in fact” for such a tration. The layman will find him- ===== PAGE 62 ===== 60 THE FREEMAN June self lost in the maze of technicali- “You admit, then, that there is ties of a law which permits the a nature of things, or natural law, frustration of justice by dragging over which legislators exercise no out a dispute over years and years, control. But, the existence of a with the end not yet in sight. And natural order cannot be proved by to those versed in labor law Profes- ordinary methods of proof. You sor Petro has done a great service observe the operation of natural by once again demonstrating his law, pragmatically, whenever you amazing ability to digest thou- detect sequences of cause and sands of pages of testimony (as he effect in human affairs. If there did in his book on the McClellan were no natural laws in economics, Committee Hearings, Power Un- legislation could accomplish all the limited) and give a logical sum- collectivists say it can.” mary of the main issues. rs “That much is obvious.” “Well, whether you call it nat- P THE ADMIRAL'S LOG II — In ura] law, or the will of God, you Search of Freedom, by Admiral believe.” Ben Moreell, U.S.N. (rtd.) Pub- Ben Moreell, in his recent book, lished by the Intercollegiate Soci- The Admirals Log, does not rest ety of Individualists, Philadelphia, his case on pragmatic grounds Pennsylvania. $1.00 paperback (205 alone. He believes. He accepts free- and XVIII pp.) dom and the free market not only i because it yields the greatest re- Reviewed by Frank Chodorov sults, materially, but because it is A YOUNG MAN, a recent college God’s law that men should be free. graduate, said: “I believe in free- Therefore, even if the free market dom and I am an atheist.” did not produce the greatest ma- “If you deny God,” I said, “on terial results, even if by some what grounds do you support the crazy miracle the planned economy freedom of the individual ?”’ or socialism or communism should “Pragmatically. Freedom, which out-produce the market economy, must include the free market, pro- Ben Moreell would still choose duces the greatest material re- freedom. For, to him, freedom sults. Where there is no freedom means more than things. It means to own private property, there will that the Creator intends man to be no production. It is not in the be a self-reliant and responsible nature of things that man should person, answerable for his be- produce unless he will enjoy the havior to himself, to his society, fruits of his labor.” and to his God. Freedom is but the ===== PAGE 63 ===== 1961 OTHER BOOKS 61 other side of this coin. Because of free market. But, since these this native sturdiness and self- rights are derived from God, he reliance the individual proves him- holds that whenever the govern- self capable of producing the ment intervenes in the individual's things he needs and wants — pro- exercise of them, it is in fact mak- vided, of course, he is free to ex- ing a mockery of God’s law of ercise his talents as he sees fit. freedom. That is, the individual is born Some free market economists free. If he is uninhibited by so- avoid religious concepts; it seems ciety or government or a majority they fear to mention the words from giving expression to his in- “natural law,” or God, lest they ner being, man can and will per- become involved in metaphysics. form miracles, either as a pro- They rest their case for the free ducer, an engineer, an artist. If, on market on utilitarian grounds; the the other hand, restrictions are free market, they insist, yields the put upon him, or if he is reduced greatest returns for the least ex- to alms-begging as a means of penditure of effort. But, the so- getting along, his soul will shrink, cialists also speak of utility when and he will become an irresponsi- they point out that in the redis- ble and unresponsive animal. Such tribution of wealth by government is the law of freedom. decree some are benefited; to the beneficiaries of government In one way or another, Moreell largess there is great utility in the - emphasizes this thought in all of scheme. The economists, in rebut- the speeches and essays that con- tal, point out that in the long run stitute this book. For he is a government intervention must re- deeply religious man, not in a sec- sult in a diminution of production, tarian or ritualistic sense, but in which hurts everybody. To this the his full-hearted acceptance of the socialists reply either that in the Judeo-Christian tradition on long run we shall all be dead, or which Western civilization rests. that when production does fall, Whether he is discussing politics, government will take steps to over- economics, or social relations, his come the deficiency; government's frame of reference is always this magic wand can accomplish any- tradition. He accepts the doctrine thing. But, the question arises, of natural rights because to reject why will the long-run consequences it is to reject freedom; and, basing of government intervention be his thinking on that doctrine, he what the free market economists is for limited government and the claim they will be? Why will the ===== PAGE 64 ===== 62 THE FREEMAN June forced redistribution of wealth re- p THE PHILOSOPHY OF ED- sult in a diminution of produc- MUND BURKE, A Selection from tion? It must be that man-made His Writings and Speeches, by law runs up against the working Louis I. Bredvold and Ralph G. of a natural law, in which case the man-made law takes second place. Admiral Moreell accepts the con- cept of natural law and of the God implied by this concept. This is in the realm of faith, because the NEARLY every problem in govern- Reality in question cannot be cap- ment and society would be better tured in words. It is a life-enhanc- solved if it were exposed to the ing faith which helps us make profound and luminous thinking sense of the world in which we of a man who died 164 years ago live, Reliance on government — Edmund Burke. This is partic- omniscience and omnipotence is ularly true with respect to the also a faith, but it is a shallow greatest danger facing the West- faith which dissolves under exami- ern world — the threat of omnip- nation. And so, in presenting his otent government, foreign or arguments for a free economy and domestic. limited government from religious But how can modern men and premises as well as by demonstrat- women find time to read the six- ing the desirable material and so- teen volumes of Burke's speeches cial consequences of such an ar- and papers? They can’t or won't. rangement, the Admiral is on It is fortunate, therefore, that the sound ground. Being so based, his best of Burke has at long last been arguments proceed with logical sympathetically collected into a cogency, and with a clearness of single volume of 276 pages. expression that makes his book a In his own words, these pages pleasure to read. It has the lucidity give Burke’s thinking under nine of a military man’s report, with- main heads, such as the State and out arcane language and academic Society, Government and Human hair-splitting; and yet, with the Nature, Reform and Tradition, charm of civilized writing, & Jacobinism, and others. These are not short quotes, but well-rounded The Admiral's Log II may be ordered ©Xcerpts, often several pages from The Foundation for Economic Edu- long, grouped under the main top- cation for $1.00. Log I, “God, Man, . . . Rights, Government” (176 pp.) is also 1¢S. The single fault of the editors available for the same price. is that the Index is too short for Ross. University of Michigan Press. 276 pp. $5.95 cloth, $3.50 paper. Reviewed by Samuel B. Pettengill. ===== PAGE 65 ===== 1961 OTHER BOOKS 63 the easy finding of some particu- To be at peace with such robbery lar item or remembered phrase. is to be an accomplice of it.” Here is the quintessence of Burke is charged with indiffer- Burke, the great British states- ence to the sufferings of the com- man whose life span covered al- mon people which brought on the most the same years as George French Revolution. But he had Washington’s. The book should be said (and on many occasions had read by every editor, clergyman, proved he meant it) that “I have professor of social science, public incurred the odium of gentlemen official, and the thoughtful mem- in this House for not paying suf- bers of the rising generation. ficient regard to men of ample Burke lived through the Amer- property. When the smallest rights ican and French revolutions, and of the poorest people in the King- we are muddling through the rev- dom are in question. . . . I would olution begun at Petrograd in take my fate with the poor and 1917. It is amazing how much of low and feeble.” Burke's thought is pertinent to- Burke was not responsible for day. What he said of Jacobinismand the conflagration in France, but he the Terror in France in the 1790’s felt a deep responsibility to keep is an almost exact description of its flames from spreading to his modern communism as taught by own country, and perhaps to the Lenin, Stalin, and Mao Tse-tung. world. To that task he devoted the For example: “To them the will, last years of his life. Similarly, no the wish, the want, the liberty, the one today needs to defend Czar- toil, the blood of individuals is as ism in order to oppose communism. nothing. The stateis all in all. . .. Their imagination is not fatigued ©n the Side of Freedom with the contemplation of human Dvring American Revolt suffering through the wild waste Burke was actually one of the of centuries. . . . Schools are great liberals of his time, as that founded at public expense to poi- fine word was once understood. He son mankind. . .. They do not ac- was on the side of the Americans knowledge God as the moral gov- when they protested against tyr- ernor of the world. .. . They omit anny. His most famous speech was no pains to eradicate every benev- “On Conciliation with America.” olent and noble propensity in the In this struggle he saw a deeper minds of men. ... It is a sect aim- meaning than the arbitrary orders ing at universal empire, beginning of a governor, or the retaliation of with the conquest of France... . a mob. He saw that the American ===== PAGE 66 ===== 64 THE FREEMAN June colonists were fighting for the an- wisdom of the past in order to bet- cient liberties of Englishmen ev- ter test the problems of today, he is erywhere. a “conservative” — he would make In the trial of Warren Hastings, haste slowly. He demanded that which lasted nine years, Burke social principles be grounded in braved the insolence of office and social experience, including past the disfavor of the powerful to experience. From his encyclope- trumpet the wrongs of India, that dic knowledge of government dur- “emptied and emboweled” land. ing two thousand years he would ask: Wasn’t this tried once before, The Wisdom of History and how did it work then? He fought for the rights of “Politics,” he said, “ought to be Irishmen against the greed of adjusted, not to human reason- British landlords and merchants. ings, but to human nature, of He fought for the civil rights of which reason is but a part and by religious minorities. He carried no means the greatest.” on a long battle for parliamentary reform, Burke had no use for reformers With this record, why is it that who would wipe out whole groups Edmund Burke is tagged as “old of people, or their possessions, to hat” by modern statesmen and make things fit into some jerry- professors “so restless. ... to rid built paradise. He would not sacri- the world of nuisances”? It is be- fice the living generation for a cause Burke believed in the wis- blueprint. To him usages, customs, dom of history. The key to Burke’s and laws which had stood the test philosophy is his concept that so- of time had a strong presumption ciety is ‘““a partnership not only in their favor. between those who are living, but It is fortunate that Burke's those who are dead and those who philosophy is now easily available are to be born.” to all honest minds that are grap- Because he would conserve the pling with the great problems of partnership of the dead and the our time. PY ===== PAGE 67 ===== \Y HEN a devotee of private property, free market, limited govern- ment principles states his position, he inevitably meets a barrage of — Cliches of Socialism Available now are suggested answers to the following: 1. “The more complex the society, the more government control we need.” 2. “If we had no social security, many people would go hungry.” 3. “The government should do for the people what the people are unable to do for themselves.” 4 “The right to strike is conceded, but. . .” 5. “Too much government? Just what would you cut out?” 6. “The size of the national debt doesn’t matter because we owe it to our- selves.” 7. “Why, you'd take us back to the horse and buggy.” 8. “The free market ignores the poor.” 9. “Man is born for cooperation, not for competition.” 10. “Americans squander their incomes on themselves while public needs are neglected.” 11. “Labor unions are too powerful today, but were useful in the past.” 12. “We have learned to counteract and thus avoid any serious depression.” 13. “Human rights are more important than property rights.” 14. ° ‘Employees often lack reserves and are subject to ‘exploitation’ by capitalist employers.” 15. “Competition is fine, but not at the expense of human beings.” 16. “We're paying for it, so we might as well get our share.” 17. “I'm a middle-of-the-roader.” 18. “Customers ought to be protected by price controls.” 19. “The welfare state is the best security against communism.” 20. “Don’t you want to do anything?” 21. “If we need big business, why don’t we need big government?” 22. “We believe in presenting both sides.” etn Sp ee et teeta —_—— [ESPRESSO USS Each one is on a separate sheet, 8%” x 11”. Single copies for the ask- ing. Quantities at 1¢ a sheet. For sample copies (no charge) write to: THE FounbpaTioN FOR Economic EpucaTionN, Inc. IrviNGcTON-ON-HUDSON, N. Y. ===== PAGE 68 =====