

===== PAGE 1 =====

Freeman

VOL. 24, NO. 7 « JULY 1974

You Cannot Trust Governments with Your Money Henry Hazlitt 387
The political problem of inflation could be broken by allowing private trading in
gold.

Business and Its Image V. Orval Watts 393

The more government intervenes, the more it strives to blame business enter-
prise for the consequences.

For the Sake of the Poor Paul L. Poirot 409
Poverty serves a purpose, for those who feel pain and react appropriately.

Inflation: By-Product of Ideologies in Collision Wesley H. Hillendahl 413

Concerning the monetary crises which come when government forces individuals
out of the market.

The Rare Moment Leonard E. Read 426
The problem is to see a better idea, and then pursue it with integrity.

There's No Such Thing as a Free Lunch Earl L. Butz 431

The common sense of producing and marketing farm products by a noted economist.

Yielding to Temptation John C. Sparks 436

A letter to a pastor about an evil of universal concern.

No More Repeat Performances Bernard H. Siegan 438
The repeal, not the revision, of zoning laws is the way to sound land use.

Book Reviews: . 441

‘We Don't Know How: An Independent Audit of What They Call Success in
Foreign Assistance’
by William and Elizabeth Paddock

“Leftism (From De Sade and Marx to Hitler and Marcuse)”
by Erik von Kuehnelt-Leddihn

Anyone wishing to communicate with authors may send
first-class mail in care of THE FREEMAN for forwarding.


===== PAGE 2 =====

the

Freeman

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===== PAGE 3 =====

" HENRY HAZLITT

SOMETHING is happening today Bank of New York, in the 10 years
that has never happened before in from 1962 to 1972 the American
human history. Every country is dollar lost 28 per cent of its pur-
inflating. In each of them prices chasing power, the German mark
of practically - everything have 27 per cent, the French franc 35
been rising every year. per cent, the British pound 38 per

This is another way of saying cent, the Japanese yen 43 per cent.
that the buying power of the cur- When we turn to what happened
rency of each of these countries in some of the less-developed
has been falling every year. As countries, the case is much worse.
each country has been inflating at In the same 10-year period the
a different rate, the buying power Peruvian currency lost 60 per cent
of its currency has been falling at of its purchasing power, the Ar-

a different rate. gentinian 90 per cent, the Bra-
According to a recent compila- zilian 96 per cent.
tion by the First National City If we carry the comparisons

—_— back 25 years instead of 10, the
Mr. Hazlitt was a member of the editorial staff : :
of the New York Times from 1934 to 1946, loss of purchasing power 13 even
and the ‘Business Tides’ columnist for News- T .
week from 1946 to 1966. He is the author of 3 eater n the 24 years between
15 books, including Economics in One Lesson, 1948 and 1972, the American dol-
The Failure of the New Economics, The Foun- . .
dations of Morality, What You Should Know lar lost 43 per cent of its buying
out Inflation and The Conquest of Poverty. :
This article is reprinted by permission from power. And this was one of the
fe special 30th Apniversary issue of Human best records of any currency in
vents, Apri , . .
© 1974 by Human Events, Inc. the world. In the same period the

387


===== PAGE 4 =====

388 THE FREEMAN July

currencies of Argentina, Brazil, What is more alarming is that
Uruguay and Chile all lost more a great section of the press and
than 99 per cent of their buying even many so-called economic ex-
power. In other words, they all perts are beginning to talk as if
bought considerably less than 1 inflation were nobody's fault, but
per cent of what they bought in some mysterious and perhaps in-
1948. curable disease.

If we carry our comparisons Time magazine, in a long cover-
forward instead of back, we find story on world inflation (April 8),
no cause for rejoicing. In the pe- compares it to ‘some medieval
riod 1948 to 1972 the median rate plague.” It speaks of ‘the uncom-
of depreciation of 24 leading cur- fortable feeling that no one quite
rencies was 4 per cent a year. In knows what to do about inflation.”
1973 this median rate almost ex- ‘‘The experts themselves,” it goes
actly doubled, to about 8 per cent. on, “are not immune from this
Consumer prices in the United despair. In the U.S. John Dunlop,
States in the 12 months ending head of the Cost of Living Coun-
February rose 10 per cent, the cil, asserts: ‘I don’t believe it is
first “double digit” inflation here clear that mankind today knows
since the Korean War 23 years how to control inflation.” ”

a *
go Defeatist Attitude

Savings Depleted of Trying to Live with Inflation

I leave it to the reader to trans- One could cite much more ‘“‘ex-
late these figures into the depri- pert” opinion to the same effect. A
vations and tragedies they have few weeks ago Prof. Henry Wall-
meant for millions of families ich, the new appointee to the Fed-
throughout the world whose in- eral Reserve Board, declared that
come has not yet begun to keep inflation is very complex and has
pace with these soaring prices. many causes, and therefore the

Included in this total, of course, measures to be taken are at best
are the millions of the aged, the difficult. Even Prof. Milton Fried-
buying power of whose pensions man, who in the past has written
and savings in many countries has some excellent articles on infla-
been reduced to a vanishing point. tion, now seems ready to throw in
Briefly and bluntly, practically the sponge. He proposes in effect
every government in the world has that if we can’t lick inflation, let’s
been progressively swindling the join it.
majority of its own citizens. On a recent trip, Prof. Fried-


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1974 YOU CANNOT TRUST GOVERNMENTS WITH YOUR MONEY 389

man was impressed to find that flation, if we could do it, would be
Brazil has introduced escalating to remove the pressure on the gov-
clauses into wage contracts, inter- ernment to halt inflation or to
est rate agreements, and so on, slow it down. Certainly the first
and yet has been able to reduce effect would be to accelerate in-
the inflation rate from about 30 flation.
per cent in 1967 to about 15 per
cent now, and “without inhibiting
rapid growth.” So why shouldn’t Let us take a hypothetical case.
we try the same thing? Suppose in a given year both
I find it astonishing that the prices and wages in Ruritania
U.S. should be asked to take les- have gone up an average of 10 per
sons in reducing inflation from a cent. Assume for, simplicity that
country whose average rate of the average wage rise was dis-
currency depreciation over 24 tributed about as follows: the
years was 56 per cent a year, a wages of 5 per cent of the workers
country at a low stage of develop- have gone up 1 per cent, the wages
ment, where the wage level is of the next 5 per cent segment
about one-eighth that in the U.S., have gone up 2 per cent, and so on
and where the government is a up to the highest 5 per cent whose
military dictatorship. wages have gone up 20 per cent.
A revolutionary innovation of The over-all average rise is then
this nature should hardly be based about 10 per cent, but the wages
on an impressionistic snap judg- of half the workers have only gone
ment. Ronald A. Krieger, profes- up an average of 5 per cent, while
sor of economics at Goucher Col- those of the upper half have gone
lege, who has made a careful study up an average of 15 per cent. It is
of Brazil for the First National then decreed that the wages of the
City Bank, is more than skeptical lower half shall all be raised to the
of the advantages of the plan. over-all average rise of 10 per
When Brazil introduced 100 per cent. But when this has been done
cent “indexing” in 1967, he says, the over-all average wage rise be-
the inflation rate began to fall comes 12.5 per cent. In order to
much more slowly than it had be- make this increase payable, the
fore. money supply must be pumped up
Putting aside debate about the further. The same arithmetic ap-
exact details of what has happened plies to any other element of cost.
in Brazil, the most likely effect of The U.S. already has such esca-
truly protecting everyone from in- lator provisions to a certain ex-

How Escalators Work


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390 THE FREEMAN July

tent; but they are more to be de- Coercive Economy
plored than applauded. They exist The only way of trying to uni-
in some union contracts, in Social versalize the system is by govern-
Security payments, in government ment ukase, a coercive command
pensions, and in food-stamp bene- economy compared to which ordi-
fits. Their effect in each case is to nary wage-and-price controls look
reduce the opposition to inflation. almost like economic freedom. No
Still another result is to throw true believer in the free market
index numbers into politics. The could seriously contemplate such a
U.S. Labor Department wants to system. It could be prevented from
increase the number of items in disrupting production only by
the Consumer Price Index, but making sure that wages were con-
union leaders are fighting a broad- sistently raised less than prices —
ened index because it “might tend a proposal which, once candidly
to show less inflation than the stated, would be unlikely to find
present one,” and hence mean acceptance in a democracy.
smaller automatic wage increases Finally, such a totalitarian
under their contracts. scheme is altogether needless.
In brief, insofar as such an es- There is no mystery whatever
calation scheme is applied, it must about how to halt an inflation.
increase both the political and eco- The cure is for the government to
nomic pressure for inflation. If, stop increasing the supply of mon-
for example, wages are to be ey. Period.
forced up by a fixed percentage, The real problem is not that
which, however, can be easily governments don’t know how to
passed on in increased prices, then stop inflation, but that they don’t
employers no longer have either want to. Their excuse is every-
the power or the incentive to hold where the same. If they stop print-
down costs, and workers lose the ing money, they say, they will
incentive to increase productivity. plunge their country into a reces-
It is in fact impossible to apply sion or even a depression, and into
such “indexing” universally. It an “unacceptable” degree of un-
cannot be applied to the money in employment.
people’s pockets, or in their check- And we cannot say that they
ing or savings accounts, or retro- are wrong. For the level of prices
actively to private pensions. The and activity at any given moment
chief victims of inflation, the old is not determined by the existing
and retired, will be more victim- supply of money, but by what
ized than ever. speculators and businessmen ex-


===== PAGE 7 =====

1974 YOU CANNOT TRUST GOVERNMENTS WITH YOUR MONEY 391

pect it to be in the future. Their ponentially in order to have the
expectations are usually built up- same stimulating effect. The infla-
on the past rate of inflation or tion must always exceed expecta-
even its past rate of acceleration. tions, whatever they are.

And when these expectations are The ultimate result can only be
disappointed by a halt in the in- a smash-up.
crease of the money supply, or Full employment can only be

even a slowdown in the rate of in- maintained by a proper coordina-
crease, there will be a fall in some tion, brought about by free mar-
prices and a fall in some branches kets, between prices and wages.
of activity. This means between specific prices
But there is no way in which and specific wage rates. We have
this consequence can be avoided. prevented this by wage laws and
It can be postponed, of course, but labor laws which force individual
only by building up to a far great- employers to pay excessive wage
er ultimate disaster. rates. Then we try to cure the
And the decision to plunge damage we have done by the mass
ahead acceleratively is the one remedy of chronic inflation.
that politicians everywhere have To repeat: There is no problem
decided. to take. Aprés mous, le at all about how to stop an infla-
déluge. But let’s leave the deluge tion. The government must merely
to our successors. Let's prolong stop adding to the money supply.
our own tenure in office as long as The real problem is not econom-
we can, by keeping this thing go- ic but political. It is how to get
ing. Let's express our heartfelt the government to stop. There are
sympathy with the victims, of few if any cases on record of a
course, but profess our inability government for very long refrain-
to do anything about it. ing from the issuance of more
The mistake is not to stop infla- currency when it was not under
tion, but to have started it in the the necessity of making that cur-
first place. The politicians (and, rency convertible into gold. (Or
alas, the majority of the rest of silver, or at least something else
us) have kept it going because of that cannot be increased by gov-
the false theory that monetary in- ernment fiat.) Therefore the pres-
flation is necessary to secure and ent writer has been among those
maintain full employment. What who have believed that inflation
we have not realized is that once will never be permanently stopped
we embark upon this course, the without a return to the full gold
inflation must be accelerated ex- standard.


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392 THE FREEMAN July

But in view of political devel- vide a medium by which our citi-
opments of recent years, above all zens could protect themselves to
of the cancerous growth in prac- some extent against the further
tically every country of the levia- ravages of inflation.
than Welfare State, even gold- If private citizens had the right
standard advocates are now forced to make contracts in gold, gold
to ask themselves: Will even this would then become a de facto

be enough? money, in both domestic and in-
Suppose we could succeed in ternational trade, whether legally
having the gold standard re- ‘monetized” or not. It would not

stored? How long, given present necessarily follow that gold itself
ideologies, would the government would be used in every such trans-
keep it? England abandoned the action. Contracts might merely
gold standard in 1914, and again provide that a due date payment
in 19381. The U.S. abandoned it in could be made in paper dollars or
the Civil War, again in 1933, and in any other currency, but in
still again, even though we had it terms of the market price for gold
in a very diluted form, in 1971. on the day of settlement.

Governments everywhere have now Such a private currency would
broken faith too often. It may be be an enormously better protec-
a long, long time before people tion against inflation than any set
again have confidence in any of of arbitrary indexes or escalator
their monetary pledges whatever. clauses. It would be a step toward

. freedom, instead of still more gov-
Right to Own Gold ernment coercion.

But the situation is not hope- It would have still another ad-
less. There is one small reform vantage. As inflation continued,
that could do a great deal to re- the various paper currencies would
store monetary confidence and or- go to a greater and greater dis-
der. This would be simply for gov- count against the new private gold
ernments (and specifically our currency. This would daily empha-
own) to restore to their own citi- size that continually rising paper-
zens the right to hold gold, to buy money prices were not the result
and sell gold, and to make con- of greater and greater greed on
tracts in gold. the part of sellers and producers,

Such a simple reform —the mere but merely of the increasing
removal of a 40-year-old prohibi- worthlessness of the money. That
tion — would accomplish several might be the real beginning of
things at a stroke. It would pro- reform.


===== PAGE 9 =====

V. ORVAL WATTS

Dr. Watts is Director of Economic Education at Northwood Insti-
tute, a private, independent, coeducational, business oriented
college with campuses at Cedar Hill, Texas; Midland, Michigan;
West Baden, Indiana; Monterey Institute of Foreign Studies,
Monterey, California; and Bloomfield Country Day School,
Bloomfield, Michigan.

This article is reprinted by permission as a chapter from Free
Markets or Famine, a book of selected readings in economic prin-
ciples, programs of economic reorganization, and the philosophy
of business.

This 308-page book, co-authored and edited by Dr. Watts, is
available at $6.95 from the Pendell Publishing Company, P. O.
Box 1666, Midland, Michigan 48640, or from Northwood Institute
Bookstore in Midland.

A companion volume, Politics vs. Prosperity, is currently being
produced, to be available later in 1974.

393


===== PAGE 10 =====

394 THE FREEMAN July

FORTUNATELY, Americans seldom certain capitalistic traditions and
think and act from day to day as large remnants of business free-
they often vote at election time. dom — know from experience that
The votes are sufficiently serious business enterprises help them get
in their effects. Cast in great num- a large and essential part of what
bers, again and again, they give they want in life. They know it as
political power to would-be Robin humans knew, long before the
Hoods and Dragon Slayers who apple fell on Isaac Newton’s head,
denounce businessmen, especially about the effects of gravity.

successful, “big” businessmen, as Still lacking, however, is suf-
“princes of privilege,” indifferent ficient understanding of business
to the welfare of their fellow men operations in free markets to pro-
and interested only in quick, per- tect them from political witch
sonal gains, no matter how ob- doctors who cause worse maladies
tained. than they promise to cure.

On non-election days, however,
Americans show amazing confi-
dence in business, even — or per- We use the term “business” in
haps especially — in big business. many ways. It may mean any type
They buy from the shops and of work, occupation, or profession.
stores, including the biggest, ea- But when we speak of a business-
gerly and happily; and they dis- course or business college, or refer
play great indignation if a pur- to the business office of a factory
chase fails to perform according or university, we use the word in
to the businessman’s promises, as a much narrower sense; and it is
though this were so unusual that in this restricted sense that busi-
the seller must “make it right” — ness is “controversial.”
as he usually does. Similarly, they In this narrow meaning of the
apply for jobs and appear to be word, business means buying and
particularly pleased and proud selling — the marketing of com-
when they get a job in a big con- modities and services. In this
cern. They entrust their savings sense of the term, little Sally
to banks, insurance companies, engages in a business transaction
and many other kinds of busi- when she gives her dime to the
nesses; and in this, too, they ap- store clerk in exchange for a candy
pear to prefer to deal with the bar. When we say that the suc-
bigger concerns. cessful American farmer must be

In short, most Americans —like a good businessman as well as a
the people of other countries with good farmer, we mean that he

What ‘Business’ Means


===== PAGE 11 =====

1974 BUSINESS AND ITS IMAGE 395

must know his markets; he must ers of his children. By using
watch his costs and prices as well money we can split every ex-
as soils and fertilizers; and he change of goods into two stages,
must adapt his operations to and we can complete the second
changes in market conditions as stage (buying the goods we want
he does to changes in weather or for our work) in places far re-
new invasions of bugs and bac- moved from the place of the first
teria. stage (selling our own services or

As a specialized occupation dis- products), and we can complete
tinct from farming or industry, that second stage with many dif-
education or politics, business car- ferent producers or their com-
ries on the marketing operations: mercial agents.

advertising, selling, banking and By using money, therefore, and
credit management, speculation, learning to buy and sell, we in-
and accounting, crease enormously our opportuni-

The specialization is seldom, if ties for completing exchanges con-
ever, complete. A merchant, for veniently and economically.
example, may carry on the work

of Lrensportation Ly employing Essential For Peace and Progress

truckers and delivery men; and In fact, without money and the
trucking companies must help ‘money-making’ specialists we call
market their services by advertis- “businessmen,” the high costs of

ing. Similarly, every mechanic, exchanges by barter, trading goods
engineer, teacher and scientist for goods, would make division of
must engage to some extent in labor and exchange impossible ex-
business — in buying and selling. cept in very simple forms within
Buying and selling, of course, a small group, such as a family
are merely two ways of looking at or clan. For this reason, communi-
the same transaction, and as we ties whose members do not learn
shift from one side to the other, to buy and sell for money remain
we complete our exchanges of small, isolated, and poor, holding
goods for goods. These exchanges lands which commercial groups do
are the aim, or purpose of all not want or grant them for a time
commerce, or business. A wage for charitable reasons.
earner sells his services for Conversely, as people learn to
money; then he uses the money buy and sell, and to respect one
somewhere else to buy commodi- another’s rights to conduct their
ties and services from grocers, business transactions free of mo-
shoe stores, dentists, or the teach- lestation, they can obtain the ap-


===== PAGE 12 =====

396 THE FREEMAN July

parently unlimited advantages of activities of the business world:
the division of labor.

Now, division of labor (spe-
cialization) and exchange of the
products are two aspects of coop-
eration. They are as inseparable
as two sides of a coin. We can't
have one without the other.

And cooperation is generally
supposed to be the way of peace 2. Promotion and investment.
and progress. Businessmen persuade producers

Why, then, are the business to exert effort; they persuade sav-
specialists, who promote the ex- ers to supply capital; and they
changes necessary for cooperation guarantee payments as induce-
so often held in less esteem than ments.
the farmers, engineers, industrial-
ists, doctors, and politicians whom 3. Selling. They inform poten-
they serve? tial buyers (most of whom are

Sometimes, it is true, requests producers in one way or another,
for cooperation turn out to be OF dependents of producers) as to
proposals for someone to give or what is available for purchase,
serve without return. Such a one- and tell them how the goods may
sided arrangement is an opera- be enjoyable, useful, and beneficial.

1. Market study. Businessmen
study what buyers want, what
they may want in the future, what
may be useful to other persons,
what producers can supply, and
how producers may supply at the
least cost what buyers most want.

tion, not cooperation.

Cooperation means working to-
gether, a pooling of effort for mu-
tual benefit. In this sense of the
term, cooperation is necessary for
human progress.

But if we are to cooperate, we
must bring together and distrib- In performing these operations,
ute our products and services. We individuals find unlimited oppor-
should suppose, therefore, that tunities to use and develop any
those who specialize in promoting and every human talent — talents
and arranging this pooling and for research, invention, and dis-
distribution — the businessmen — covery, talents for knowing and
would stand high in public esteem explaining, talents for speaking
as promoters of human progress. and writing, talents for under-

Consider some of the leading standing, appraising, and persuad-

4. Accounting. They keep rec-
ords of their operations in terms
of money as a means of comparing
costs and selling prices, and they
use these records to help them
plan their future operations.


===== PAGE 13 =====

1974 BUSINESS AND ITS IMAGE 397

ing other persons, talents for solv- do ‘in education, politics, family
ing problems and making difficult life, and church activities. But in
decisions. freedom, the failures are penal-
ized; weaklings and the unjust
are held accountable as customers,

To win the cooperation of oth- creditors, suppliers, associates,
ers, as business enterprisers must and employees are free to with-
do, the first trait required is that draw their cooperation and form
of integrity: keeping one’s prom- new business relationships with
ises, punctuality, paying one’s the more efficient, prudent, and
debts, and speaking the truth. For wise.
cooperation continues only where Business enterprise in arrang-
there is mutual trust, and trust ing, stimulating, and guiding co-
requires that individuals be trust- operation through exchanges in
worthy as well as trusting. free markets has been therefore,

Business success also requires the foundation or wellspring of
fairness, ability to do justice; and human progress in every conceiv-
the greater the individual’s suc- able way. Humans rise from ani-
cess in winning promotion or mal levels, in character and ways
building his own business, the of living, as they abandon violence
more important becomes this sense as a means of getting what they
of justice and the strength of want from their fellows and turn
character necessary to act justly. to the ways of peaceful, voluntary
This requires intelligence and un- exchange. And these are the ways
derstanding, for the just man must of business.
perceive the indirect and long-run Why, then, should the special-
effects of his decisions and acts, ized activities we call business be
so that he will not give a favor a principal target for attack by
to one person at the expense of intellectuals and politicians in all
less than justice to another. eras and nations?

Opportunities for success, of No one can supply the final de-
course, provide equal opportuni- fense for any social institution,
ties for failure; and individual however, necessary or useful it
failures to understand and take may be. Humans will continue to
advantage of the opportunities doubt and challenge because they
and rewards for right conduct ex- seek to know,’ understand, and
ist wherever we find human be- learn. Skepticism helps keep with-
ings. Fraud, weakness, and in- in tolerable limits the useless and
justice appear in business as they uneconomic experiments of curi-

Honesty Pays in Free Markets


===== PAGE 14 =====

398 THE FREEMAN July

ous, fallible humans. Every hu- ods, and products, they may resent
man advance brings also new the restraints of business man-
problems, new abuses of oppor- agers who must think in ‘terms of
tunities, and new deficiencies of costs and selling prices, and who
understanding; and these prob- know that a business must make
lems, abuses, and gaps in our a profit to survive and grow.

knowledge give rise to denuncia- Thorstein Veblen expounded the
tions even of progress itself and technologist’s point of view in his
the ways it comes about. little book, The Engineers and the

Business institutions and prac- Price System, written shortly
tices are no exception. They must after World War I. In this and
always be subject to continuing in his earlier writings he argued
study and criticism to correct that profit-seeking businessmen
abuses of new opportunities so were holding back industrial prog-
that the way may be cleared for ress in order to keep goods scarce
new advances. and high-priced, and he tried to

Therefore, I shall list only a few explain why engineers, not owners
of what appear to me to be the and investors, should control pro-
more dangerous and enduring mis- duction and distribution.

conceptions concerning business in His work helped to inspire the
general, and suggest answers that ‘“Technocrats,” an organization of
may warrant special attention. engineers and others who cam-

paigned for this idea in the 1930s.
These, along with Stuart Chase
and other antibusiness writers
Technicians with little under- have had much to do with the
standing of economics and busi- denigration of business in the
ness tend to look upon the produc- past 40 years and more.
tion and distribution of goods as This technological concept of
a variety of mechanical techniques economic activities is essentially
which experts can teach and direct that of Karl Marx and other so-
in terms of hours of robot effort, cialists. It is the view that Lenin,
types of machines, and processes Stalin, and the Chinese Commun-
for shaping and transporting spe- ists have tried to put in practice,
cified numbers and kinds of com- with disastrous results.
modities and services to specified In this view, the experts in
users and consumers. physiology and psychology can
Knowing the technical advan-
tages of certain materials, meth- 1 New York: Viking Press, 1921.

(1) The Technological Concept
and it's Implications


===== PAGE 15 =====

1974 BUSINESS AND ITS IMAGE 399

even provide stronger incentives the desires of business owners to
for the general run of producers keep goods scarce and high-priced.
than those of the price system.
These experts can know better
than the layman what work he :
can do best and with greatest As many scientists and tech-
satisfaction; and they know bet- nicians know, the socialist’s faith
ter than the average person what in the “expert” fails to take into
he needs in the way of food, cloth- account the countless differences
ing, shelter, and even entertain- between human beings in regard
ment to keep him healthy, happy, to their abilities, tastes, and in-
and industrious. terests.

In an economy of trusting, co- These differences in human
operative producers, directed by capacities and interests, moreover,
scientists and expert technicians, become greater and more signifi-
there would be no need for wages, cant as humans progress in knowl-
rents, interest rates, fees, profits, edge and control of their environ-
or other prices to guide and moti- ment; and they increase, not in
vate producers. There would be proportion to the progress of
no need for advertisers, salesmen, science and technologies, but far
peddlers, promoters, brokers, spec- more than in proportion. These
ulators, merchants, or bankers. differences make more and more
Producers would deliver every- difficult the task of the specialist
thing consumers might need, who tries to manipulate other per-
either in the right proportions or sons without their active coopera-
in such abundance that no one tion.
would suffer from shortages. For this reason, if for no other,

The abundance would result each individual must more and
from shifting to productive pur- more learn to govern himself in a
suits the useless workers who, in progressive society — to choose his
capitalism, are employed in com- vocations, to pursue self-selected
merce and finance. And, supposed- goals, and to choose the means to
ly, any mistakes which experts achieve those goals. The further
might make would be less costly humans progress, the less compe-
than the continuing costs of ad- tent the “experts” will become in
vertising and selling in free mar- deciding what others should or
kets, the wastes of duplication of must do to develop their human
effort by competing firms, and qualities. In other words, slavery
the losses in output resulting from is profitable, if ever, only when

Why Experts Grow less
Competent to Dictate


===== PAGE 16 =====

400 THE FREEMAN July

the victims are reduced to a near- less adjustments every day in
animal level of understanding. But their work in order merely to
a citizenry of such a character can maintain output, let alone increase
build no “great society.” it. These adjustments call for
Attempts at central planning countless decisions. In freedom,
and direction, therefore, become these decisions and adjustments
more costly as the economy pro- affect the supplies and kinds of
gresses, as individuals gain in goods offered in the markets;
knowledge and opportunity, as prices offered and asked respond
they engage in more varied and to these changes in output but
complicated activities, and as their they respond also to changes in the
exchanges of services become humans themselves. Producers and
more numerous and roundabout. consumers, sellers and buyers, in
Humans are worth little, if not turn respond to the price changes
actually a menace, to masters who and thereby react to the decisions
try to treat them as sheep or cat- of other members of the economy
tle, as if their imaginations and with little or no need to know or
ingenuity were of little impor- understand the numberless factors
tance. One person becomes useful which entered into the making of
in cooperating with others in pro- those decisions.
portion as he is eager to invent Among their other activities,
better ways of doing what they businessmen watch and anticipate
want done. Then he provides serv- these price changes, publicize
ices which they did not know they them, and help to speed the ad-
wanted or needed, and which they justments. A rising price in free
could not possibly describe or or- markets is a call to increase out-
der. What master could have told put or to find substitutes; a fall-
his slaves a century ago how to ing price has the opposite effect.
make an automobile or airplane, a This economic organization of
radio or television set? Even to- actions and reactions is now com-
day, no individual can tell others plex beyond any imagining, and it
all of the steps necessary to make is neither mechanical nor auto-
even such simple things as a pen- matic. The price system is not
cil, pen, or pocketknife.” merely a computer, and it cannot
Producers must make number- be manipulated like a computer. It
"2 Cf. Leonard E. Read, Anything iS a system only insofar as indi-
That's Peaceful (Irvington, New York: viduals choose to cooperate and
The Foundation for Economic Education, respond to one another’s sugges-

1964), ch. 11. “Only God Can Make a . .
sb Bema tions, inducements, and state-


===== PAGE 17 =====

1974 BUSINESS AND ITS IMAGE 401

ments; and attempts to manipu- ed to them to compel consumers to
late it by force or fraud are self- spend their money in any particu-
defeating and destructive. lar way. Nor are all of them with-

Experience with central plan- out scruple in their choices of
ning in Russia and Red China goods which they offer for sale.
shows that market prices are es- And we may ask, with Professor
sential for economic coordination, Stigler, whether it is any more
and the Communist planners get a reasonable to blame businessmen
modicum of economic cooperation for the tastes of their customers
only as they permit individuals to than to blame the waiter who
profit from their enterprise in ad- serves a meal to an overweight
justing their techniques to price customer.?

changes that respond to changes We should recognize, however,
in the informed choices of other that free markets do actually pro-
producers and consumers. vide incentives for business and

industry to cater to tastes for
wholesome rather than demoraliz-
ing products. Consequently, we
Similar to the socialist’s notion fing tastes rising in eras and na-
that technical experts should dic- tions notable for the people’s free-
tate to the general run of produc- gom to buy and sell for profit.
ers and consumers is the conten- Profit-seeking enterprise in free
tion that freedom for profit-seek- markets tends to increase more
ing businessmen wastes “society’s” rapidly the output of more whole-
resources by pandering to the vul- some goods because the more effi-
gar tastes of the ignorant masses. cient and industrious producers in
The intellectual who likes to at- 5 capitalistic society are better
tend symphony concerts, or play customers, generally speaking,
chess, or read the writings of than the less efficient and less in-
Plato, Kant, or Hegel, may scorn  gyustrious. And these producers do
the tastes of baseball fans, bowl- ot become more efficient and in-
ers, or movie goers. He may pro- gustrious by indulging tastes for
pose, therefore, that government (hat is base and demoralizing.
take from them money which peo- If we consider all lines of in-
ple use to gratify such low tastes gugtry in the United States, for
and spend it for the intellectual’s ___
better purposes. and the Hasket Place,” Selected Papers
Businessmen know that they do No. 8 (Graduate School of Business, Uni-
not have the power often attribut- versity of Chicago, 1965).

(2) Intolerance For Other
People’s Tastes


===== PAGE 18 =====

402 THE FREEMAN July

example, we find that by far the prudent to support the idle and
greater part of the business car- improvident.

ried on in private markets with
self-supporting producers is in
commodities and services designed
to maintain and improve the Surveys of opinion have often
health, vigor, knowledge, and pro- shown that most persons in all na-
ductivity of the more industrious tions believe that business profits
and prudent persons and their are several times as large as is
families. Among such items are actually the case.

food, clothing, and shelter, tools, First, they often confuse gross
machinery, and equipment, text- mark-up of a merchant’s goods
books, scientific works, the endless with his net profit. The gross
number of “how to” books, in- mark-up, of course, must cover the
formative periodicals, newspapers, costs of operating his business.
and services of doctors, dentists, Net profit, however measured, is a
and teachers. much smaller figure.

When we find a disproportion- Second, statistical estimates of
ate growth of occupations cater- the total expenditures on adver-
ing to less wholesome tastes, such tising, an activity most subject to
as for gambling and excessive con- attack by critics of business, gen-
sumption of alcohol, we are likely erally involve double counting. For
to find that governmental policies example, figures for total costs of
are restricting freedom of enter- advertising often include most of
prise in more productive direc- the costs of publishing newspa-
tions by taxes, wage-hour laws, pers and magazines, and the costs
regulations, and government-pro- of maintaining the television and
tected monopolies, and that wel- radio industries and providing the
fare-state policies are encouraging programs of information and en-
idleness. As the ‘bread and cir- tertainment. Similarly, the social-
cuses” provided by the emperors ist’s estimates of the amount of
of ancient Rome helped debase duplicated effort among competing
popular tastes for entertainment firms and of excess capacities
in that era, so governments in greatly exaggerate the facts.
other ages debase tastes or retard Third, the figures of the United
improvement as they restrict in- States Treasury exaggerate the
dividual freedom to invest, pro- amount of business profits.
duce, and exchange services, and (a) Nearly half of the total
as they tax the productive and profits reported for corpo-

(3) Exaggeration of Business Costs
and Profits


===== PAGE 19 =====

1974 BUSINESS AND ITS IMAGE 403

rations consists of taxes of the total national income dur-
paid to the United States ing the past 20 years. Much of this
Government, and another they return to business by invest-
slice of considerable size is ing in new stock issues.

paid by dividend receivers Yet demagogues can easily
as taxes on personal in- arouse covetousness and direct it
come. toward suicidal attacks on busi-

(b) By requiring producers to ness as long as people fail to un-
use original cost rather derstand the. difference between
than replacement cost in business capital and wealth avail-
calculating the costs of re- able for personal use, and as long
placing worn-out equip- as they fail to understand the dif-
ment, the Treasury forces ference between the way in which
business owners, in times a businessman regards his profits
of rising prices, to report and the manner in which wage
as profits and pay in taxes earners and salaried workers gen-
receipts which are neces- erally look upon their own in-
sary to cover costs and comes.
which should not be count- se
ed as profits. (4) Misunderstanding of Capital

Fourth, from one-third to one- Business capital has value only
half of business profits remaining to the extent that it produces
after taxes is reinvested in' the goods for the market or can be
business which earns them, and used to produce such goods. Sel-
stockholders reinvest part of the dom is it in a form which the
remainder, which is paid to them owner can use for personal enjoy-
as dividends. ment and consumption..

When we allow for taxes and Furthermore, the capital has
reinvested profits, we find: that value only insofar as it can be
owners of corporations, which con- used to produce goods at a profit.
duct most of the business done in Ignorant and unthinking per-
this country, keep considerably sons, noting the stocks of mer-
less than one-third of their re- chandise and handsome buildings,
ported profits for personal con- may envy the supposed riches of
sumption. If we may assume that the merchant who owns it. They
they pay 20 per cent of their divi- may conclude, since most others in
dends in personal taxes, their in- the community have little wealth,
comes from their stocks has that the merchant has done little
ranged between 2 and 3 per cent for his neighbors, or that he has


===== PAGE 20 =====

404 THE FREEMAN July

somehow gained his supposedly privileged,” or “underdeveloped”
great wealth at their expense. nations. The successful merchant's
Such envy may be misdirected, neighbors or the politicians think
and the suspicions are generally to enrich themselves by seizing his
unjust. Some of the capital may capital, only to find that it van-
be borrowed from creditors, per- ishes as they reach for it.
haps from creditors who live in a And they equally eat into capi-
foreign land. Another part of the tal as they tax profits. The mis-
capital may belong to partners or understanding of the peculiar na-
stockholders. ture and function of business
But a man may be the sole own- earnings, which gives rise to dis-
er of an imposing establishment criminatory taxes universally lev-
and be free of debt, yet have no ied upon them, is a principal ob-
more than his poorest neighbors stacle to economic progress even
if the business cannot operate at in the most capitalistic countries.
a profit. The equipment of a losing
business may not be worth the
cost of scrapping it, and the build- The notion that profits serve
ing not worth the cost of demol- mainly as a personal incentive for
ishing it, so that neither the equip- business efficiency and enterprise
ment nor the building has a sales not only supports uneconomic tax
value. policies but is a handicap to any
In any case, business capital businessman who entertains it or
must serve mainly persons other whose partners, stockholders, or
than the owner if it is to have family persuade him to act upon it.
sales value; and it is a possible Congider the effect of this idea
source of personal income to the upon the thinking of a wage
owner only to the extent that it earner, clergyman, or school teach-
supplies other persons with goods er who hears that the profits of a
worth more than the cost of pro- particular businessman or small
ducing them. When, for any of group of stockholders amount to
many possible reasons, it ceases to many millions of dollars per year.

(5) Misunderstanding of Profits

earn a profit, the owner is gen- “No one needs so much income,”
erally unable to use much of it for the teacher or clergyman is likely
his own subsistence. to think, “to induce him to do his

Inability to understand these best in work such as that of busi-
facts about business capital is a ness management.”
principal barrier to the economic As a result, politicians find
progress of the so-called “under- widespread support as they take


===== PAGE 21 =====

1974 BUSINESS AND ITS IMAGE 405

half or more of profits and divi- little to the owners beyond sal-
dends for “public” use, or when aries for their personal services
their tax policies compel business and a modest rate of interest on
owners to make huge donations their investment. In fact, many
for nonbusiness purpose (“philan- owners continue in business only
thropies”) so that their heirs may by taking out of it for their per-
retain control of a going concern, sonal use less than they could earn
or when unions stage a mass hold- as salaried employees in some
up to force a profitable company other firm, and they get no return
to pay more than free market for interest on their invested capi-
rates for labor. tal. These businesses operate at a
The individual businessman who loss, and the owners make up the
uses his profits as most employees deficits out of their own wages
use their wages, mainly to buy and other income.
goods for the personal use of him- These are the kinds of busi-
self and his family, achieves little nesses that are typical of poor
business success. His business does countries. Governments of these
not grow, his profits remain mod- so-called backward countries per-
est or small, and his enterprise is mit few really profitable -busi-
likely to exist but for a brief time nesses to exist. By taxes, costly
in a progressive economy. regulations, license restrictions,
The flourishing and enduring or outright confiscation, they pre-
businesses are those whose owners vent businessmen from earning or
make use of their profits primar- reinvesting profits, and thereby
ily as a measure of business effi- prevent the growth of business
ciency, a guide for business policy, capital. This is why these coun-
and a source of the equity capital tries remain “underdeveloped.”
necessary for growth and stabil- Businesses grow only as the in-
ity. vested capital grows. The owner’s
Profits are the earnings which capital is sometimes called “equity
remain after deducting the own- capital” to distinguish it from the
ers’ salaries for their own man- “loan capital” which he may bor-
agerial efforts, costs of replacing row from nonowners by selling
worn-out equipment, payments in- bonds or notes.
to reserve funds to pay for prob- Growth of the owner’s equity is
able losses, and such interest as necessary for business expansion,
their capital might earn in risk- not merely in the form of new
free investments, or loans. buildings and equipment, but to
Most businesses actually return guarantee payments to the grow-


===== PAGE 22 =====

406 THE FREEMAN July

ing numbers of employees and sup- stead of $1 billion. For the 20-year
pliers with whom he contracts to period the total dividends also
pay fixed wages and prices before would have been approximately
he sells the products. He needs $11,000,000, only a small fraction
equity capital also to guarantee re- of the several hundreds of millions
payment of borrowed funds in case of dollars now paid in dividends to
the investments financed in this Ford Company stockholders every
way prove to be unprofitable. year. And, of course, the Company
In freedom, such as the people could have produced little more
of the United States enjoyed prior than one per cent as many cars.
to the great increase in tax bur- If present tax rates had pre-
dens after 1930, business capital vailed from the beginning, they
grew at unprecedented rates. As a would have cut off nearly 99 per
result, the wages and other in- cent of the Company’s growth. Yet
comes in this country rose more the total tax receipts from the
rapidly than in any other country. Company for the 20-year period
would have been only $11,000,000,
instead of the hundreds of millions
This rapid growth of capital (more than $600,000,000 in 1965)
came about mainly in the form of which the Government now rakes
reinvested profitst. The Ford in every year from this one con-
Motor Company, for example, re- cern.
invested profits at the rate of When we examine the history of
nearly 70 per cent, compounded other leading businesses in this
annually, in its first 20 years. In country, we find that they were
this way the original capital of gimilarly built mainly out of profits
$28,000 increased to approximately reinvested by management as they
$1 billion. If the founder had paid were earned or by stockholders
out in dividends to himself and who used part of their dividends
other stockholders one-half of to buy new issues of stocks.
these profits each year as they Anyone who looks for these re-
were earned, and invested only the invested profits finds only a small
remaining 35 per cent, his total part in the form of currency in
capital from this source at the end vaults or bank deposits. As forms
of 20 years would have been only of wealth, he would find them
a little over one per cent as great mainly in the buildings, machin-
— approximately $11,000,000 in- ery, and equipment, materials in
4 Cf. Carl Snyder, Capitalism the Cre- PTOCESS of production, . and  re-
ator (N. Y.: Macmillan, 1940). search laboratories — capital goods

How Business Grows


===== PAGE 23 =====

1974 BUSINESS AND ITS IMAGE 407

used to produce commodities and efforts to maximize value at least
services for persons other than the cost. And as they managed more
owners. : efficiently, their rising profits pro-
True, owners of successful busi- vided increased means for further
nesses and their heirs generally increases in productive capacity
use part of their incomes for per- and business security.
sonal consumption: mansions, Therefore, policies which com-
yachts, costly cars, travel, and en- pel distribution of business profits
tertainment. But their expendi- to consumers — whether to wage
tures for such purposes have been earners, to the families of stock-
generally but a small fraction of holders, or to governments — may
their profits. Often the amounts have little effect in reducing the
were no greater than the salaries intensity of effort put forth by
they might have earned as man- business leaders, but they do re-
agers for other employers. In other duce their capacity to do their job.
cases they spent part of the in-
terest on their investments. Those
who spent for personal consump- Every increase in the size and
tion total sums comparable to the cost of government relative to pri-
reinvested profits generally had to vate enterprise increases the temp-
surrender control of the business. tation for officials and politicians
Successful businessmen are no to foster antibusiness sentiment
more motivated by desire for among the people at large.
profits than skillful surgeons by The cause of the rise in scope
desire for fees. Men like Henry and costs of government may be
Ford, Andrew Carnegie, John D. war or threat of war. A natural
Rockefeller, James J. Hill, Wana- disaster may cause some mechani-
maker, Filene, as well as the lesser cal or economic breakdown and
business leaders, had the motives provide an opportunity for govern-
of great achievers in art, music, ment to expand its powers and
religion, and education —the mo- functions. An organized clique
tives of the builder, the architect, may gain office and grant them-
the organizer, the mountain selves political privileges — govern-
climber. They used the profits as mental subsidies or restraints on
indexes of the wants, tastes, inter- competitors — before taxpayers
ests, and capacities of customers, know or understand what is going
associates, investors, employees, on.
and suppliers. They used them as Whatever the cause may be,
measures of efficiency in their every rise in government costs

(6) Statism vs. Business


===== PAGE 24 =====

408 THE FREEMAN July

prompts politicians to impose new same time, it intensifies its efforts
taxes on places where money is to make business enterprise the
easiest to find. These places are scapegoat for the mischief
likely to be where individual wrought by its own policies.

streams of money converge: the During the past half-century,
centers of buying and selling, the these antibusiness policies have
places of business. produced famine and every other

To win popular support for form of human misery in Soviet
these new raids on business in- Russia and Red China. The same
come, politicians pose as heroic results, to a somewhat lesser de-
Robin Hoods seeking only to re- gree, followed similar policies en-
store to the poor the ill-gotten forced with less determination in
gains of the rich. To produce Egypt, Algeria, Bolivia, Cuba, so-
in the public mind the appropriate cialist India, and other countries.
images of themselves and of those

whom they propose to tax, they But for a far longer period, we
hire speech writers and pay sub- now have authenticated, detailed
sidies to publicists and pedants. records of the retreat toward sav-

As the special privileges or wars agery which followed similar con-
and rising taxes increase business quests by statists and paternalis-
costs and prices, trade declines. tic despots during the 2,000 years
Producers learn to make things preceding the modern era. In par-
for themselves or to do without. ticular, we should know of the long
As they lose the advantages of period of economic disintegration,
specialization and trade, their out- recurring famines and plagues, and
put declines, unemployment rises, brutalized tastes and manners that,
and pauperism spreads. over much of the western world,

Tax receipts fall, but the greater followed the long war against busi-
the decline, the more strenuously ness from the time of Plato to the
a powerful government may strive rise of new, business-oriented, city
to maintain its income by new states at the beginning of the
taxes and higher tax rates. At the modern era.

Reprints of this article available
4 for $1.00; 25 or more, 15 cents each.


===== PAGE 25 =====

For the Sake of the Poor = -

PAUL L. Poirot © "

“That some should be rich,” ob-
served President Lincoln, “shows
that others may become rich and
hence is just encouragement to
industry and enterprise.” Four
years earlier, shortly before he
gained the Republican nomination,
he had similarly testified about
the desirability of property: “I
don’t believe in a law to prevent a
man from getting rich; it would
do more harm than good.” And
he might well have said the same
about a law to prevent a man from
being poor: it would do more harm
than good.

Abraham Lincoln had known
abject poverty and would rise
above it to the Presidency. It is
not the only way, of course; some
of the children of some wealthy
parents ‘also have lived worthy
lives. And whether it is easier to
grow out of poverty or to emerge
successfully from a condition of

gh

-

be
! Py
\ £
2) bY)
\l
\ ay
\

affluence is a moot question. The
point is that poverty serves a pur-
pose. It is painful to a sensitive
individual and stimulates him to
take corrective action, much as a
sense of pain activates one to re-
move his hand from a hot stove.
However great the pain, it would
be far worse to be burned without
feeling it. Almost as deadly, for
most of us, would be to find com-
fort — to experience no pain or
uneasiness —in a condition of
poverty.

What’s the point of all this?
The point is that American citi-
zens are being burned to death,
and we don’t seem to know it. We
are letting ourselves be persuaded
that the only way to get a scarce
item. is to stand in line waiting
for it. And why should we do that?
For the sake of the poor, of
course! What are we waiting for?
Yesterday a roast of beef, today

409


===== PAGE 26 =====

410 THE FREEMAN July

a tank of gas, tomorrow a carton of the pain of poverty, some of the
of milk or eggs or cereal, a bag of penalty of failure, has been killed
onions or potatoes or apples, or or diminished. The law of the land
who knows what then will be the says that it is 2 cents or 5 cents
object of greatest intervention for a gallon less painful to be poor
the sake of the poor! than says the law of supply and
If an individual is allowed to demand. Production and consump-
respond to his senses, he need not tion of gasoline is thereby re-
be a genius to deduce that waiting moved from the world of reality,
in line is unproductive; it produces and instead of gasoline enough to
poverty rather than more of the satisfy the demand at the free
goods and services he’d like to market price, the artificially de-
have. No man, unless he be one of pressed money price creates a real
the least productive among us, shortage of gasoline and a high
could afford to stand in line for a extra cost of waiting in line for
subsidy of less than $3.00 an hour; an unsatisfying combination of
he could make more than that by gas and subsidy.
working. If necessary, he could Ask yourself the next time
pay double the subsidized price of you’re waiting in line, or check
gas and still be ahead on the deal the faces and the behavior of
if he didn’t have to wait to be those in the next line you see: Is
served. And the saddest part is this the picture of a peaceful and
that no such price increase as that friendly society? It is not. It is a
would be necessary to clear the picture of anger and hatred and
market immediately. violence barely suppressed — a sit-
uation closely patrolled and super-
vised by armed policemen. Why
When the man with the gun, the the policemen? Why, to enforce
one whom we collectively empower the law that was enacted to help
to defend life and property and to the poor, the law enacted by the
keep the peace, interferes with agency of force that was consti-
market pricing — artificially de- tuted to preserve the peace — not
pressing the price of gasoline to to disturb it.
curb the profits of sellers — the
excuse is that the underpricing is Seeds of War
for the sake of the poor. What it Personal liberty and private
amounts to, strictly in terms of property are results of peaceful
price, is a subsidy to the consumer production and trade rather than
of gasoline, which means that some coercive practices. You have life

Government in Business


===== PAGE 27 =====

1974 FOR THE SAKE OF THE POOR 411

and liberty because I respect you that we are not so much con-
and what is yours. I respect you cerned here with the possession
and yours because I believe you and use of pieces of paper money
respect me and mine. And out of or other currency. Our concern,
such a chain of respect comes rather, is with the possession and
freedom and a peaceful and pro- use of scarce and valuable goods
gressive society. But let one per- and services. In whose hands, un-
son break the pattern, bring coer- der whose management, would
cion to bear against one or more such scarce resources be used least
other peaceful persons, and there wastefully, most efficiently?

will be a chain reaction of ensuing
disrespect and violence.

Is it a sign of respect for an
individual to forcibly prevent his We tell one another that man
being as poor as he chooses? Not does not live by bread alone, but
that he chooses necessarily to be are we sure we know what we
poor, but that he chooses to avoid mean? We see clearly that a loaf
various actions or efforts that of bread may help to sustain life
could alleviate his condition of if it is available for consumption.
poverty. Is he to be denied the Do we see as clearly that some of
" freedom to make such a choice and the wheat must be saved and used
to assume responsibility for the as seed, along with other produc-
consequences? How is a person to tive resources, if there is to be a
develop a sense of self-responsi- continuing and ample supply of
bility if he is not permitted to wheat and bread? So, we do care
experience the results of his ac- — as much as any socialist cares —
tions? How is it possible to relieve who has bread enough to eat; and
some persons or groups of the if we care enough, we will do ev-
burden of their failures, by the erything in our power to see that
process of governmental subsidy, the ownership of wheat is concen-
without at the same time taxing trated primarily in the control of
from others some or all of the those individuals who waste it
earnings derived from proper or least and use it most productively
successful action? By what proc- and efficiently. It is no service to
ess can we relieve the poor of the poor to forcibly confiscate pri-
their own responsibilities without vate property and redistribute it
forcing the producers and savers among the least productive per-
to be equally irresponsible? sons in society. For once they

Let us bear constantly in mind consume it today, who will bother

Dividing Wealth Does Not
‘Increase the Supply


===== PAGE 28 =====

412 THE FREEMAN July

—or have the means—to feed them dustries on the average in the
tomorrow? United States pay out in wages,
Still, there tends to be a feeling directly or indirectly, about 85
of resentment against those who cents of every dollar received from
earn their living producing the sales. So, if wage earners want to
goods and services consumed by save, theirs is the biggest chunk
the poor. Some of those producers of the pie from which to draw.
are rich! Sometimes it is highly The next largest chunk goes to
profitable to have correctly antici- creditors, savers who lend the re-
pated consumer demand and to be sources needed to provide the
among the first to supply in quan- buildings, tools, and other capital
tity what they want. But profits required to carry on the business.
are ephemeral and tend to dis- Creditors earn interest — not profit
appear or merge into losses under — on the capital they lend. Hope-
competitive pressure. And in any fully, the owners or stockholders
event, entrepreneurial profit is may earn some profit for the en-
never something that is added on trepreneurial risks they assume;
to the price which consumers pay but many of them lose their in-
for an item. Rather, it is taken vestment, too, or fail to earn as
out of costs, and goes to the most much as if they had put that
efficient producers of that item. amount in a savings bank at
The least efficient producers barely interest.
break even, may even suffer losses
for their efforts to supply goods So, some of the property of
and services consumers want. some of the rich may represent
The point is that the property an accumulation of profits earned.
accumulated in the hands of the But it is far more likely that most
so-called rich through the market of the property of the rich will
or business process (as distin- have come about from saving and
guished from the opulence of polit- wisely investing or lending what
ical rulers and kings) is not nec- had been earned in wages. And
essarily and probably not primari- surely that must have been the
ly a result of profit-taking. Sav- formula Abraham Lincoln had in
ings may originate in many ways. mind when he cautioned against
A man may save some of what he “a law to prevent a man from
earns as wages. Studies of indus- getting rich.” He was a friend of
trial production indicate that in- the poor. Co


===== PAGE 29 =====

gE By-Product of

Ideologies in Collision

WESLEY H. HILLENDAHL

THE FACT that man has endured their daily affairs with each other.
ideological conflict since his be- Whether man will be free to
ginning on earth is the central pursue his life and God-given des-
theme of the great scribes of all tiny in an orderly environment in
civilizations that have left records which government plays the do-
of their existence. While the pre- mestic role of impartial umpire,
dominant focus has been on moral or whether his life will be con-
philosophy, these ideological con- trolled in every detail by the dic-
flicts have ranged far and wide. tums of an omnipotent materialis-
They have pervaded the formal tic bureaucracy is the central
institutions of the church, govern- theme of today’s conflict. Indeed,
ment, commerce, finance, agricul- this is the essence of the catas-
ture, education as well as culture trophic collision of economic
and the arts. In the present age thought of the 19th and 20th cen-
the struggle centers on the law, turies. Upon the outcome of this
the rules by which contemporary collision will depend man’s way of
civilizations are ordered and un- life for generations to come. In
der which individuals conduct simple economic terms, will the

market place exist to serve the in-
me dividual according to his choice,
Mr. Hillendahl is Vice President of the Bank or will the market and the individ-

of Hawaii. This article is reprinted by per-

mission from his paper at a March 1974 semi- ua
nar sponsored by The Committee for Mone- ! be under the control of the

tary Research and Education. state?

413


===== PAGE 30 =====

414 THE FREEMAN July

Ideological Roots of the summit meeting produced a docu-
Free Market Economy ment which provided the concept of
It is doubtful that a totally free trial by jury, no taxation without
market economy ever existed — one representation, and the Writ of
that is completely free of state in- Habeas Corpus. It provided the
tervention of one sort or another. fundamental restraint on govern-
And only in a few brief periods of ment in the form of written law
recorded history has man been suf- known throughout much of the
ficiently motivated to assert him- world today.?
self to the degree required to grasp By 1628, the British King’s dis-
control of the market place from regard of individual rights won
the hands of the rulers.! Such an 400 years earlier became so insuf-
event occurred in 1776 in America, ferable that Parliament refused to
but it was far from spontaneous. vote any money to run the king-
The spirit of 76 had been brewing dom, and King Charles I was
for centuries in Europe. Its unique forced to sign the Petition of
significance may be brought into Right. This document provided
focus by a brief review of several the essential ingredients of per-
historical events. In this review, sonal security by restricting con-
the essential distinction between ditions relating to the levy of
the legal framework and the eco- taxes, boarding of troops, declara-
nomic system must be kept in tion of martial law, trial by jury,
mind. It is all too easy to confuse and arbitrary imprisonment; with-
the economic activities of a people out these rights, an individual can-
with the legal framework under not enjoy personal security.
which they live, particularly today In 1689, Parliament rebelled
as government becomes increas- against King James II's tyran-
ingly involved in the economic af- nical belief in absolute monarchy.
fairs of its citizens. Out of this action came the Brit-
The first of these historical in- ish Bill of Rights. Political liberty
cidents occurred on June 15, 1215 had triumphed in England, and
A.D. One recalls that King John of with it a degree of economic free-
England was an oppressive tyrant. dom unknown before.
English noblemen and freemen be- The profound significance to
came so incensed at the king’s dis- Americans of these early limita-
regard for their rights that they tions on government is easily re-
pursued him to Runnymede where cognized, for in the first eight
he was “convinced” to sign a docu- amendments to the Constitution of
ment called the Magna Carta. This the United States, we find the in-


===== PAGE 31 =====

1974 INFLATION : BY-PRODUCT OF IDEOLOGIES IN COLLISION 415

fluence of the Magna Carta, Peti- Bastiat, espoused the theme of lim-
tion of Right and the English Bill ited government at a time when
of Rights. France was turning to Socialism or
It was George Mason, the Vir- total bureaucracy, following the
ginian,® more than any other in- French Revolution in 1848 which
dividual who forged the basic had coincided with the release of
structure of limited and divided Marx's Manifesto. Bastiat empha-
powers of government found in the sized the essential spiritual ante-
United States Constitution and cedents in the framework of eco-
Bill of Rights. These are re- nomic freedom. He commenced his
strictive documents in the sense book, The Law, with the following:
that they place more constraints “We hold from God the gift which
on government than had ever pre- includes all others. This gift is life
vailed in the past. The intent was — physical, intellectual, and moral
to fragment political power, and life. . . . Life, liberty, and prop-
to provide major obstacles to the erty do not exist because men
reassembly of that power. In the have made laws. On the contrary,
wake of the centuries of tyranny, it was the fact that life, liberty,
and the sacrifices of untold thou- and property existed beforehand
sands of individuals in their strug- that caused men to make laws in
gle for freedom in England and the first place.”¢
Europe, the founders of the Repub- It is all but forgotten by many
lic were hardly likely to construct today that the State is not the
a government which could be cen- source of liberty and property;
tralized easily at the expense of in- these are inalienable rights that
dividual liberty. The principle of come from God.
separation or subdivision of pow- Bastiat expressed the issue
ers, as championed by men such as clearly: “What, then, is law? It is
Mason, is still history’s most ef- the collective organization of the
fective stumbling block for ty- individual right to lawful defense.
rants. However, the Constitution Each of us has a natural right —
was not perfect, and it was George from God — to defend his person,
Mason who foresaw the fatal flaws his liberty, and his property; and
introduced by compromise that ul- by extension it follows that a
timately became the avenues by group of men have the right to or-
which much of it has been struck ganize and support a common
down. force to protect these rights con-
In 1850, a French statesman, stantly.”
economist and author, Frederic He concluded, “. . . since an in-


===== PAGE 32 =====

416 THE FREEMAN July

dividual cannot lawfully use force nity, and the job of survival. By
against the person, liberty or 1840, 70 per cent of the people in
property of another individual, the United States still lived on
then the common force — for the farms, while more than 90 per
same reason — cannot lawfully be cent grew their own food. Not
used to destroy the person, liberty, satisfied with devoting most of his
or property of individuals or energies to the drudgery of surviv-
groups.” In Bastiat’s eyes, any al, the free individual American
form of state intervention in the possessed of a drive to better him-
affairs of the individual is not self undertook an unprecedented
only illegal, it is immoral and con- change in his way of life.
trary to God’s law. The age-old concept that man’s
Thus did Bastiat so eloquently material wealth is limited, which
summarize what had evolved over had arisen out of the fact that hu-
hundreds of years —the legal man energy had never been effec-
framework of the constraints on tively augmented, gave way to the
government that make it possible principle that material wealth
for each of us to order his own life, could be expanded to an almost un-
and to offer his service in the man- limited extent by multiplying lim-
ner called ‘free enterprise.” ited natural resources and limited
Here then are the moral and human energy by tools using non-
spiritual antecedents of the Ameri- human energy.”
can system as codified in the law During the 1800’s, a massive re-
forming the framework of the free construction of the application of
market economy. Being all but for- labor was brought about through
gotten today under the pressure the invention of a host of machines
of the conflict, these principles are which permitted the augmenta-
restated here because they consti- tion of human effort by non-hu-
tute the raison d'etre for any man energy. Initially, wood and.
meaningful monetary and econom- whale oil were the principal
ic reform, sources of energy. These gave way
in time to petroleum products, the
use of which doubled decade after
Having established a Republic decade until early in the 20th cen-
-under the legal framework of lim- tury. oo
ited government, what could man In agriculture, the first signif-- -
accomplish in the free market? icant invention, the steel-bladed
In the beginning the focus was plow, occurred in 1841. In rapid
mainly on the family, the commu- succession came the power reaper,

Accomplishments of the Free Market


===== PAGE 33 =====

1974 INFLATION : BY-PRODUCT OF IDEOLOGIES IN COLLISION 417

the steam thrasher, and the hay- the underpinning of our standard
ing machine. Then in 1884, the of living. We've had the incen-
first combine and the first tractor tive to solve disease and sanitation
appeared. All of the things which problems, provide housing for the
we take for granted today were entire population, develop great
marvelous inventions in those days. centers for preserving and trans-
Can you visualize yourself pitch- mitting our accumulated learning,
ing hay or performing some other and transfer goods via a vast pro-
type of hand labor on a farm be- duction, distribution and market-
fore being rescued by these mar- ing mechanism unknown in his-
velous machines? tory.

After the turn of the century, a
whole succession of specialized
tools and. machines were developed At the heart of the notion that
which bring food all the way from the economy must be controlled by
the farm to the home refrigerator. the government are several well re-
As a consequence of these labor- cognized themes: (1) the concept
saving inventions, the 70 per cent that society is made up of two
of people on farms in 1840 had classes, the oppressed and the op-
been reduced by one-half by the pressors, the “class struggle”, (2)
turn of the century. Continuing the concept of “exploitation” of
advancement to World War II man by man, and (3) the concept
brought the proportion of people on that the controlled order is inevit-
farms to 18 per cent. Today, only able as the consequence of the in-
about 5 per cent of the population exorable increase in impoverish-
live on farms, and farm labor ac- ment caused by the development
counts for only 4 per cent of the of capitalism.
nation’s labor force. At no time in Hence, by revolution as advocat-
history nor in any other country ed by some, such as the secret
has ‘there been such extensive League of Just Men who had com-
productive application of man’s in- missioned Marx to write their

ventive genius; and the process Manifesto, or by evolution as ad-
seems endless. vocated by the British Fabian

Economic fr eedom - has, by gim- Society or the ADA, “... It is nec-

~ ilar processes, provided. an’enor- essary to emancipate society at

The Roots of the Controlled Economy

“I mous expansion of." physical and ‘laigé. from exploitation, oppres- . ..

‘mental. productivity, and offered’ ‘sion, class distinctions, and class
.. the incentive to develop the vast struggles.”
. array of items that have become The economic and political meas-


===== PAGE 34 =====

418 THE FREEMAN July

ures by which collectivists intend a substitute for the monarchy a
to convert society generally in- new form of tyranny — a bureauc-
clude: racy supported by a synthetic ma-
jority rule; whereas Bastiat and
1. Abolition of private property and his English counterparts correctly
the rental thereof to individuals by envisioned that only by placing all
the state. forms of tyranny in the chains of
2. A heavily progressive income tax.  regtrictive law could man arise out
3. Abolition of all right of inheritance. of repression.
4. Government control of credit by Hence, the industrial revolution
means of a monopolistic central . . .
bank. in America, operating under the
5. Government control of communi- aegis of a Constitutional Repub-
cations, transportation, and means li¢ providing maximum freedom
of production. for the individual and a minimum
6. Abolition of distinctions between of exploitation, bore fruit as no-
urban and rural areas by redistri- where else in the world. Instead of
bution of population. the exploitation and oppression,
7. Free government schooling. anticipated by Marx, has come the
emancipation of the masses seen
These features of the welfare in the visions of the founding
state, Socialism, the planned econ- fathers.
omy — call it what you will — are However, while vast economic
recited, not as we recited the roots changes were occurring through-
of the free market which are all out the western world and in
but forgotten, but because they America in particular over the last
are so conspicuous in today’s econ- century, government was also un-
omy that we are inclined to over- dergoing a transformation of ma-
look what they really are —the jor proportions. From an incon-
legal framework for the very an- sequential power over economic af-
tithesis of the free market which fairs during the 19th century, the
this country’s founding fathers Federal Government today has be-

envisioned. come the most powerful bureauc-
racy on earth, and has regressed
Ideologies in Collision into a massive engine for control

Both Marx and Bastiat express- and redistribution of people and
ed concern for the common man wealth, largely as Marx and his
under the tyranny which had pre- colleagues had advocated.
vailed for centuries in Europe and Much of what government has
England. But Marx advocated as undertaken domestically falls with-


===== PAGE 35 =====

1974 INFLATION : BY-PRODUCT OF IDEOLOGIES IN COLLISION 419

in the prescribed limits of the role all vestiges of their bogy man,
of referee. However, the main “laissez faire” enterprise. Be that
thrust of government activity in as it may, it is the contemporary
recent years has gone far beyond status of this transition that in-
the prescribed limits. F. A. Hayek, vites our closer examination. Spe-
in The Constitution of Liberty,” cifically, our concern is the phe-
foretold the consequences of prac- nomenon of inflation in the mixed
tices which have developed under economy as a manifestation of the
persistent pressure to do away transition.

with those limitations on govern- Because many qualified econo-
ment which were erected for the mists have demonstrated the es-
protection of individual liberty. sential monetary nature of infla-

“This conflict between the ideal tion, we need not restate here the
of freedom and the desire to ‘cor- distinction between money and
rect’ the distribution of incomes credit expansion and the resultant
so as to make it more ‘just’ is rise in wages and prices, nor go

usually not clearly recognized. ... into the fine points of monetizing
But the ultimate result . . . will debt.
necessarily be, not a modification There is a prevailing notion

of the existing order, but its com- that in the transition period dur-
plete abandonment and its replace- ing which functions performed by
ment by an altogether different the private sector of the economy
system — the command economy.” are transferred to government, in-
Hayek is one of the few writers flation will persist as long as the
who correctly recognized the still strong private sector and the
mixed economy for what it is —an growing public sector fight for the
unstable transitional condition be- limited amount of capital.

tween the free market economy However, many economists seem
and the bureaucratically controlled only recently to be grasping the
society. fact that as the transition pro-

gresses, so must monetary infla-
tion proceed at an accelerated rate.
While those who champion the The long-standing argument that
sanctity of individual liberty and the manner in which government
the ideal of the free market de- debt is funded is a determining
plore the transition, socialist factor in inflation, seems inade-
scholars are inclined to want to quate to explain the evident fact
get on with the work of erecting that inflation is accelerating.
the bureaucracy and eradicating The problem is that too much

Inflation in the Transitional Period


===== PAGE 36 =====

420 THE FREEMAN July

attention has been devoted to na- ceeds progressively to confiscate
tional income analysis while ignor- all earnings, one might expect
ing the nation’s balance sheet. An monetary inflation to reach pro-
examination of practically all meas- portions experienced in France in
ures of balance sheet liquidity or the 1790’s, Germany in the 1920’s,
cash reserves reveals that the pri- Russia immediately after the so-
vate sector of the economy is being called revolution, and Hungary in
progressively starved of funds by 1946,

rising taxes and increasing costs However, before hyperinflation
of nonproductive overhead caused of such proportions would be gen-
by governmental interventions. erated, it is more likely that an at-

tempt toward the conversion to a
totally controlled economy will be
Empirically, the record in the undertaken under the guise of
United States shows that so long as some combination of “emergen-
all governments combined took in cies.” Many of the mechanisms to
direct and indirect taxes less than achieve such a conversion have
25 per cent of personal income, been on the books for many years.®
some discretion existed as to what And Congress delegates additional
rate of monetary inflation could ‘‘emergency powers” to the bu-
be undertaken at any given time. reaucracy as each new “crisis” is
However, once government ex- engineered.
panded beyond the range, as it did Meanwhile, unforeseen develop-
years ago, the economy embarked ments such as the projection of the
on a one-way street; and as gov- Middle East conflict into the
ernment grows progressively larg- otherwise inevitable domestic oil
er at the expense of the private shortage may produce profound
sector, so must inflation proceed and undefinable effects on the fu-
apace to accommodate the credit re- ture timing and nature of the con-
quirements of the economy.8 version, not only in the United
Government spending having ex- States, but worldwide. It is clear
panded to more than 43 per cent that the Arab nations have admin-
of personal income, this progres- istered the coup de grace to the
sive expansion of credit is neces- faltering International Monetary
sary to avoid collapse as the level Fund, and that the role of gold is
of borrowing must also accelerate about to achieve a significance in
in lieu of diminishing residual pro- world monetary affairs virtually
fits and retained earnings. inconceivable in the United States
Ultimately, as government pro- only a few years ago.

Expanding Government


===== PAGE 37 =====

197} INFLATION : BY-PRODUCT OF IDEOLOGIES IN COLLISION 421

Inflation in the Controlled Economy Who, then, under the controlled
It is not our purpose here to en- economy will have the incentive to
ter into a theoretical discussion of continue to produce the economic
inflation under Socialism, but abundance from which has been
rather to suggest two thoughts. drawn the hundreds of billions of
First, utopian goals of inflation- dollars of foreign aid designed to
free prosperity for all, as envision- prop up untold socialist experi-
ed by the planners of the multi- ments in a hundred or more coun-
national political economy, may be tries, the numerous unsupportable
quite unrealistic. and uneconomic public infrastruc-
The end product of the transi- tures, the vast non-productive,
tion from the free market to So- self-defeating bureaucracies set up
cialism even in America may well in many so-called developing na-
produce vastly different results tions to divide the free loot?
than expected. Simply stated, a
bureaucratically controlled econo-
my is incapable of maintaing a lev- But of even greater significance,
el of production adequate to sustain what will be the fate of the USSR,
itself. In the absence of the profit the greatest socialist experiment
motive, people will not produce at of all time? This question may
their capacity, and in the absence sound strange in the context that
of a mechanism to retain and uti- the USSR is presented to us as an
lize savings, the machinery of pro- economy based on such a highly
duction will either run down or advanced technology that it poses
wear out. Even more significant is a vast military threat to which we
the underlying moral issue. Let us must respond by spending over
heed Garet Garrett's words :10 $80 billion annually on armaments.
Under the Czar, Russia was well
When in the conquest of power and advanced into the industrial rev-
for political ends a government delib- olution, and at the turn of the

erately engineers inflation . . . the century, was the world’s leading
people will lose control of [govern-
mens] CC - and anally, the revelry of * All too frequently American taxpay-
public money, whic or awm € SEEMS ors’ dollars have been used to provide in-
to cost nobody anything, brings to  frastructures which to date have done
pass a state of moral obliquity little to improve the status of the average
throughout society. The monetary de- citizen of developing nations; instead, the
bacle is relatively unimportant. The lenefits have accrued largely-to the prof-
. its of multinational corporations which
moral debacle is cancerous and pos- pave located plants in these low-cost la-
sibly incurable. bor markets.

Can Russia Survive?


===== PAGE 38 =====

422 THE FREEMAN July

oil exporter. But such prerevolu- Soviet Union has been built with
tionary developments are por- the United States’ help or tech-
trayed as insignificant in terms of nical assistance.”

the Soviet’s achievements of the
past 50 years.

However, the record shows that In his three volume work, West-
present day Soviet technology is ern Technology and Soviet Eco-
synthetic — it has all been im- nomic Development! covering 1917
ported. Based on ten years of re- to 1965, Sutton demonstrates on
search into official documents, an industry-by-industry basis that
Antony C. Sutton, research fellow the West has contributed under
at the Hoover Institution on War, contract essentially all the plants
Revolution and Peace, developed and technology which comprise
grounds for his widely quoted tes- the Soviet military-industrial com-
timony before the Republican Ilex today.

Party National Convention in Of great significance is his
1972. statement that it has been shown

In Sutton’s words: “There is Russia has never suffered from a
no such thing as Soviet technol- dearth of competent technical and
ogy. Almost all — perhaps 90-95 scientific personnel, rather the
per cent — came directly or indi- bureaucracy is incapable of trans-
rectly from the United States and lating the endeavors of individuals
its allies. In effect, the United into productive results.

States and the NATO countries The power of his statement is
have built the Soviet Union. Its that it is not theoretical, but is
industrial and its military capabil- based on the observed record. Its
ities. This massive construction significance lies in the application
job has taken 50 years, since the of Garrett's observation regarding
revolution in 1917. It has been the cancerous moral debacle which
carried out through trade and the occurs under bureaucratic control.
sale of plants, equipment and tech- In basic English: People cannot
nical assistance.”’11 be forced to produce effectively

Sutton also quoted Ambassador without personal incentives to do
Harriman: “Stalin paid tribute to so. And Socialism demonstrably
the assistance rendered by the fails to provide these essential
United States to Soviet industry incentives.
before and during the War. Stalin In my opinion, the death of the
said that about two-thirds of all free market in the United States
large industrial enterprises in the would come not as a sudden de-

The West Helps Russia


===== PAGE 39 =====

1974 INFLATION : BY-PRODUCT OF IDEOLOGIES IN COLLISION 423

pression, but rather a gradual gold. In the years that followed, Rus-
sinking into stagnation in activity sia had repeated slumps in the value
characteristic of controlled econ- of its currency, but always resisted
omies. The drying up of that them, and finally turned decisively
enormous production by which toward heavy gold production, recog-
much of the so-called free world nizing the need of gold both for inter-

. bsidized 1d al th national use and as an element of
13 subsidized would also cause the gy rongth in the domestic currency

stagnation to extend abroad. Fi- gityation.... Russia could never make
nally, the stream of technology its paper money a “thing in itself”
upon which the Iron Curtain coun- created by the state and held fixed by
tries have relied for 50 years the state’s fiat.

would dry up, and the Soviets, for

the first time in their existence, Currently, the Soviet Union
would be cast free to sink or swim holds gold in such high esteem
on their own. that the first of four nuclear pow-

er plants was recently activated
to power gold dredges and other
The second thought I wish to mining machinery at the Soviets’
examine more carefully is the principal gold mining center of
notion that inflation is a product Bilibino in Siberia.
of sound monetary practices, ir- Hence, it would appear that in
respective of the type of economy pe totally socialized world, civ-
or political framework. Let us not  jljzation would descend into stag-
forget that one of Napoleon's first pation for an untold period of
acts was to restore the gold stand- time. If such economy as remains
ard in France. in the world is to be free of infla-
As to the alleged freedom from ion it could be accomplished only

inflation in a world under Social- hy recourse to that perennial bar-
ism, we may turn to economist parian gold.

Benjamin Anderson:13

Socialism Precludes Inflation?

The Solution — A Moral Issue
By 1921, Lenin had reached the

conclusion that pure communism . .
would not work, and the New Eco- road, this dismal outcome of the

nomic Policy announced by Lenin in ideological collision need not occur

1921, frankly acknowledged a partial — indeed, we must not permit it
return to capitalism. The reestablish- to occur. However, mere monetary
ment of capitalism in Russia involved constraint will no longer provide
the redevelopment of a money held as an effective answer because of
closely as possible at a parity with the balance sheet liquidity prob-

Although we are far down the


===== PAGE 40 =====

424 THE FREEMAN July

lem. Restoration of a sound gold citizens to their death in slave
convertible currency is a move in labor camps?
the right direction; but if Ander- How many businessmen will vol-
son’s observations regarding the untarily undertake the necessary
Soviet Union are valid, such a expenditures to control their fac-
move will not, in itself, eradicate tory effluents in the interest of
the bureaucracy. Only by attack- cleaning up genuine environ-
ing the ideological roots of Social- mental health hazards, or will do
ism can the tide be turned in the same for their employees by
practice. This means checking the minimizing work hazards?
growth of government and the How many labor union leaders
spawn of monopoly industries will acknowledge that they can
which through the centuries have obtain more jobs and better work-
always fed on centralized power. ing conditions for the rank and
This means returning government file union members by allowing
to its constitutionally authorized companies to make higher profits
role and restoring true competi- for capital formation rather than
tion to the market place. by extracting maximum wage and
In the final analysis, the issue fringe benefits at the bargaining
is a moral one: Are enough people table?

willing to exercise sufficient indi- How many able-bodied people
vidual initiative, responsibility who are racketeering on welfare
and integrity to do the job? will voluntarily go back to work?

In the abstract, this seems to be How many legislators will stand

a reasonable challenge. But in in the face of the pressures of
practice, how many businessmen those bent on selfish gains and
who espouse free enterprise for stop the legal plunder? And of
their own businesses will give up equal importance, how many leg-
the practice of using their influ- islators will stand for election on
ence with their legislators to limit constitutional principles instead
competition or otherwise gain eco- of offering even more legal
nomic advantage through the leg- plunder?
islative process? How many government bureau-
How many businessmen will crats will voluntarily husband
sacrifice profits in a genuine com- public funds, trim dead wood from
passion for their fellow man by their departments, and phase out
giving up their lucrative business unnecessary operations?
with the bureaucrats of countries These are examples of individ-
who have sent millions of their ual human actions. Ludwig von


===== PAGE 41 =====

1974 INFLATION : BY-PRODUCT OF IDEOLOGIES IN COLLISION 425

Mises, who was acknowledged to by government decree, but only at
be the greatest contemporary an unmeasurable cost in loss of
champion of the free market, has personal liberty. In a free society,
shown that economics is the ag- control over inflation can be ac-
gregate of individual human ac- complished only when its underly-
tion. Whether a society is basically ing causes are held in check by
moral or immoral in total depends the predominance of individuals
on the degree of morality of the motivated by moral principles and
actions of each individual in it. acting with economic responsi-
Inflation is the aggregate result bility.
of legal plunder — as such, it rep- Only when sufficient people rec-
resents the epitome of immorality. ognize the moral nature of the
In a totalitarian society, the problem and are willing to act
problem of inflation, like any oth- accordingly will the surge toward
er, can be controlled at any time the command economy be reversed.

— Footnotes —

1 Weaver, Henry Grady, The Main- ment’s Destruction of the American Econ-
spring of Human Progress, The Founda- omy, Bank of Hawaii, Honolulu, Hawaii,
tion for Economic Education, Irvington- April, 1973,
on-Hudson, New York. 9 Executive Order 11490, Assigning

2 Mussatti, James, The Constitution of Preparedness Functions to Federal De-
the United States, D. Van Nostrand Com- partments and Agencies, Federal Regis-
pany, Inc. Princeton, New Jersey, 1960. ter, Volume 34, No. 209, Part II, October

3 Mason, George, Architect of Consti- 30, 1969.
tutional Liberty, Education Information, 10 Garrett, Garet, The People’s Pot-
Inc., P.O. Box 2037, Fullerton, California. tage, The Caxton Printers, Inc., Caldwell,

4 Bastiat, Frederic, The Law, The Idaho, 1965.

Foundation for Economic Education, 11 Sutton, Antony C., National Suicide,
Irvington-on-Hudson, New York. Military Aid to the Soviet Union, Arling-

5 Hackett, Warren T., How We Pros- ton House, New Rochelle, New York, 1973.
per Under Freedom, Citizens Evaluation 12 Sutton, Antony C., Western Tech-
Institute, Washington, D. C. nology and Soviet Economic Develop-

6 Marx, Karl, Communist Manifesto, ment, 1917...1965, Hoover Institution of
Henry Regnery Company, Chicago, Illi- War, Revolution and Peace, Stanford
nois, 1965. University, Stanford, California, 1968.

7 Hayek, F. A. The Constitution of 13 Anderson, Benjamin M., Economics
Liberty, University of Chicago Press, and the Public Welfare, D. Van Nostrand
Chicago, Illinois, 1960. Company, Inc. Princeton, New Jersey,

8 Hillendahl, Wesley H., Big Govern- 1949,


===== PAGE 42 =====

The Rare Moment

LEONARD E., READ

The rare moment is not the moment when there is some-
thing worth looking at, but the moment. when we are

capable of seeing. — Joseph Wood Krutch

WHEN IS THERE ‘something worth After all, who is any of us but
looking at”? Any time! There are an imperfect mortal! If we de-
good things to see at all times, in mand that others see things as we
all places, and by all individuals. do, we are opening the door to the
It’s a matter of personal choice; possibility that we should be
and how varied are these value forced to look at only what a gov-
judgments of individuals! For in- erning majority of others believe
stance, there are many who are to be worth looking at. And bear
more attracted to the labor-saving in mind that no two of us have
device known as thievery than to the same judgments; indeed, one’s
anything else. They think stealing own values change from one day
is a procedure “worth looking at.” to the next. So, we need the flexi-
Pause here for a moment. Some bility to cope with constant
of us think of thievery — whether changes. I would let each decide
carried out by individuals or prac- for himself what’s worth looking
ticed collectively “from each ac- at and suffer the penalties of his
cording to ability, to each accord- errors or the blessings of his
ing to need” — as very low on the righteousness.
scale of values. Why? Simply be- Man's ideas as to what's worth
cause our judgments differ from, looking at range from pornog-
and are presumed to be at a high- raphy to sunsets, from Picasso to
er level than, those of the thief. Raphael; from the Pyramids to
But we must be careful in con- the Jungfrau; from ancient ruins
demning persons whose value to the Taj Mahal; from Soviet
judgments are, in our opinion, Life to the Holy Bible; from
lower than our own. For implicit atoms to galaxies; from Bach to
in such an attitude is the claim rock. Ideas and ambitions range
that we are superior. from state socialism to individual

426


===== PAGE 43 =====

1974 THE RARE MOMENT 427

liberty; from a square meal to an sun is an illusion, rather that the
elaborate symphony; from quiet earth is rotating? Rare moments,
repose to strenuous executive ac- indeed.
tivity; from a decent burial to a Another example of a rare mo-
voyage of exploration over un- ment: Ever since man first set
chartered seas; from the cheapest foot in Switzerland, that majestic
fiction to the purest science or mountain, the Jungfrau, has
philosophy; from thinking for self ranked high among the beauties
to imitating others — you name it! of nature, truly worth looking at.
Krutch is right. The rare mo- People by untold thousands have
ment is not the moment when stood at its base looking up in
there is something worth looking awe. Around the turn of the cen-
at. What could be more common? tury an entrepreneur had a vi-
Every moment of one’s life af- sion, a moment of seeing: Why
fords that opportunity. not multiply what’s worth look-
ing at? Make it possible for the
Beyond the Flash thousands to go atop the Jung-
The rare moment is when we frau that they might see the beau-
are capable of seeing — that rare ty from that vantage point! Some
glimpse into the mystery of that twelve miles of tunnel was bored
which is observed. Most people through the rock, a cog railroad
only look at a flash of lightning; installed, and a wonderful hos-
they see nothing of its miraculous telry built, within the mountain
nature. While no one knows what near the top. Private enterprise!
it is, there have been a few who No government subsidy! Just one
see beyond what meets the eye; of those rare moments of seeing
they have seen enough to generate which is more in evidence when
and harness electricity to our use. man is free and self-responsible.

This kind of seeing — insight — Near the top of the list of
occurs only in the rarest of mo- things thought to be worth look-
ments. ing at is wealth — material afflu-

Many of us look at a sunset and ence. The aggregate of the mo-
are overcome by its beauty. How ments spent in seeking wealth
few of us, even today, perceive staggers the imagination. But
that the sun does not set? Many note how rare the moments when
see no more than was seen by the individuals are capable of seeing
first man on earth. How many, the preconditions for gaining
before or since Copernicus, have affluence, a society of free and
understood that the setting of the self-responsible individuals with


===== PAGE 44 =====

428 THE FREEMAN July

government limited to codifying could run his life better than he.
and inhibiting destructive ac- But he, unwise, has no doubt
tions. If government thus per- about his powers to run your life
forms, people are free to act crea- and mine. Why unwise? The very
tively as they please. And there first step in wisdom is an aware-
is no other way to material well- ness of how little one knows. Nor

being. do such people see that power
Not seeing for themselves, the corrupts them!
masses listen to false prophets, Most of us doubtless have the

persons who promise that we can potential to see ever soc much more
spend ourselves rich, that pros- than we customarily perceive. We
perity derives from dictatorial rarely see more than we wish to
control over wages, hours of la- see. As unique individuals, we
bor, exchanges, prices, and so on. tend to specialize, to focus on the
They hear the promises but can- details from a particular point
not foresee the consequences of of view. Such focusing gives us
the methods to be used. Wrote more intimate knowledge of the
Ralph Barton Perry: “Ignorance tree, the trunk, the root, the twig,
deprives men of freedom because the leaf, the miracle within the
they do not know what alterna- single cell. I have my special in-
tives there are.” An affluent so- terest, you yours, things we see
ciety cannot prevail unless indi- more clearly, while neglecting
viduals see that their economic many other possible vistas. The
well-being stems from the general danger of too narrow a speciali-
practice of the principles of pri- zation is that we can’t see the
vate ownership, the free market, forest for the trees.
and limited government. The “forest” worth looking at
which most intrigues me is a vi-
able society, one featured by har-
Perhaps the power to run the monious relationships, one in
lives of others tops the list of which the individual may proceed,
things a majority believe to be unobstructed by others, toward a
worth looking at. Rare, indeed, realization of his creative apti-
are the moments when these in- tudes and potentialities. If a per-
dividuals are capable of seeing the son fails to overcome his own ob-
futility of their way. Were 1 the gstacles — frustrations, supersti-
wisest philosopher or politician tions, imperfections, ignorance, no
who ever lived, there is not one of will to strive — that’s his problem.
these meddlers who believes 1 But if the obstacles are put there

In Search of Power


===== PAGE 45 =====

1974 THE RARE MOMENT 429

by others —if the individual is ing, owning the fruits of your own
compelled to live as others dictate labor, competing, traveling, then
— that is everyone’s problem. don’t inhibit these practices
Freedom is everyone's business! among your fellowmen. This is all
one has to do to fulfill his role as
a social being. Merely heed the
oldest, wisest, and simplest maxim
Why is freedom everyone's busi- ever written!

ness? It is because my freedom Finally, is there a prescription
depends on yours and vice versa. for removing our blindfolds? Is
There is but faint appreciation there a mode of conduct or dis-
of the high degree of specializa- cipline which would open up new
tion in contemporary society, of vistas, permitting you and me to
how dependent each of us is on see more than we now do? I am
the others. In short, we are now just beginning to see that the an-
interdependent beyond recall; swer is integrity.

there is no turning back. This is For years, I have been defining
to say that we, in our age, are at integrity as the accurate reflec-
once soctal and individualistic be- tion in word and deed of what-
ings. And if we fail or refuse to ever one’s highest conscience dic-
recognize this fact, all will fall tates as right. This may not in

We Need Freedom Because
We Are Interdependent

together. fact be right but it is as close to
Of course, the individualistic righteousness as one can get.
side of this coin — being one’s My definition stands; but I see
best self —is a problem of the now that my preachments — words
first magnitude. Each of us must — have been better arranged than

wrestle with this personally. Many, my practice — deeds. It is my prac-
I suspect, see this. It is the social tice of integrity that must be im-
side of the coin they fail to see. proved.

How can ordinary mortals, such To illustrate this failing on my
as you and I, fulfill this aspect of part: I have written that each of
life? The formula is simple. Never us should await discovery, that
do unto others that which you if there is anything in our garden
would not have them do unto you. worth looking at, it will be de-
If you wouldn't have others con- tected by others.! Do I heed this?
trol your life, then never try to ————m

control anyone else. If you 1! See the chapter, “Await Discovery,”
wouldn’t have others hinder you 4 Having My Way (Irvington-on-

) Hudson, N. Y.: Foundation for Economic
from producing, freely exchang- Education, Inc. 1974) pp. 40-44.


===== PAGE 46 =====

430 THE FREEMAN July

Only with the greatest difficulty! integrity leads toward that which
Impatience tends to govern me, is right; this is the only road to
more or less. I can hardly wait truth.
till others find out how good I Those truth seekers who prac-
think I am at this or that. This tice integrity themselves are
nagging urge is a common trait drawn to integrity in others. This
and accounts, in no small measure, virtue has a magnetic quality. Are
for the urge to reform that not the persons to whom you
plagues humanity. Out of such a listen those who manifest integ-
garden grows nothing but weeds. rity?
When I cannot believe and abide When others are being drawn
by my own admonitions, am I to toward your honest reflections,
expect better of others! Seeing your light tends to brighten. Their
and doing must become one and attention is an encouragement, a
the same. To see the right with- stimulant, to put your best foot
out doing it is to live without in- forward. In a word, integrity
tegrity. works its attractions back and
forth among us; and the rare mo-
ment becomes a more common ex-
Why is it that integrity removes perience. Wrote Charles Simmons:
the blindfolds, improves seeing?
Some of the reasons are apparent.

How Integrity Helps

Integrity is the first step to true

I at hil nes urate greatness. Men love to praise [it], but
repeal, while © acc are slow to practice it. To maintain

reflections in word and deed may it in high places costs self-denial; in
not in fact be truth, they are as ,) places it is liable to opposition;
close to truth as one can get. Even put its end is glorious, and the uni-
though we err, our devotion to verse will yet do it homage. ®

To Find Meaning
SUCH MEANING as there is to life on this earth is found in tending
our own plot of ground, in tasting the fruits of our own labors, in
developing our own skills and perceptions, in sharing with others
sh freely, in doing that which is appropriate to our talents, in striv-
ing to fulfill our ideals for ourselves, in the pleasure of a job well
done, in the company of friends we have chosen and who have
chosen us, in bringing up our own children, in short, in sitting
under our own vine and fig tree.

IDEAS ON

LIBERTY

CLARENCE B. CARSON
The Flight From Reality


===== PAGE 47 =====

EARL L. Butz

IN THE OLD DAYS the king called in down into a single chapter of 20
his three wise men to tell them pages. The king said, “That’s too
he'd become interested in econom- long. I don’t have time for it.”
ics. “But,” he said, “it sounds con- He had the chairman beheaded,
fusing and complicated. I want and turned to the remaining wise
you to go out and boil it down for man: “You know your job. Now,
me in a way that I can under- boil it down.”

stand.” “Yes sir, Mr. King!”

Nine months later they came This wise man came back in
back and reported they had com- three days: “Mr. King, I think I
pleted the job. They said they had have it. I have boiled down the
condensed all of economics into a entire subject of economics into a
single book of 200 pages. The king single sentence of eight words.”
said, “That’s too long. I don’t have The king said, “That’s fine. I

time to read that much.” have time for that, What is it?”
He had the chairman beheaded, “There's no such thing as a free

and told. the other two: “Now I lunch.”

want it boiled down.” I tell that story because 1 think

They came back in 30 days and those eight words sum it up pretty
said they had economics boiled well. Economics is a description of
: what you and I, and others like us,

Dr. Earl L. Butz is Secretary of Agriculture of 40 in order to get our share of the

the United States. This article is reprinted by things that are in the real life
permission from the March 1974 issue of The around us .

American Farmer, Copyright American Farm *
Bureau Federation, 1974. All rights reserved. Unfortunately, there are a lot

431


===== PAGE 48 =====

432 THE FREEMAN July

of people around — you know them just talking about our own little
and I know them — who think that community project. If we don’t get
there is such a thing as a free that Federal money, somebody else
lunch. will use the money. This project
Take the role of the Federal costs only a few thousand dollars.
government — Uncle Sam, if you That’s a drop in the bucket com-
will. Some people look on him as a pared with what the Federal gov-
kind, benevolent old gentleman ernment spends on other things.”
who hands out free gifts. They You've heard that, or something
look on him as a child might look like that, many times, I'm sure.
at a grandfather. Fact is, most everything the
Take most any state or local government does is, of itself, a
project. If there’s work or money drop in the bucket. However, when
involved, it's easy to say: “Let’s you add up all the little drops, it
have the Federal government do makes quite a bucketful. And the
it.” You see this happening all bucket is spilling over.
the time. Maybe it’s a new court- We're already spending about
house in the county seat, or a 34 per cent of our gross national
sewage plant, or just one of many product for government — Federal,
things: “Let Washington do it.” state or local. That means that we
There’s only one way the gov- have given to the government one-
ernment can do anything — that’s third of the decision-making pow-
with your money. The government er over how our money is spent.
ig not a form of voluntary giving;
it is a form of compulsory giving.
You lose your home or your land
if you don’t pay your taxes. There are many things that we
There’s nothing benevolent about want and need to have the govern-
old Uncle Sam when it comes to ment do. The problem develops
you paying the tax bill. There’s no when it seems so painless and
such thing as a free lunch. easy to add “just one more.” That’s
The next time you see a head- how we got the 34 per cent — by
line saying that the Congress has adding “just one more.” We have
voted a $1 billion project, just fig- direct control over the dollars that
ure that on the average this is we spend individually; however,
about $5 out of your pocket and we lose direct control over our
out of the pocket of every other dollars when we pay them out as
member of your family. taxes. The control then becomes
“But,” somebody says, “we're diffused and political and hard for

A Drop at a Time
Builds to a Flood


===== PAGE 49 =====

1974 THERE’S NO SUCH THING AS A FREE LUNCH 433

any one of us as an individual to When the Rich Are Gone
do very much about. All right, but we run out of the

If you don’t think so, pick up rich pretty quick. The great bulk
the newspaper almost any day. of the tax load comes out of the
Chances are you can read one to pockets of ordinary people. There's
several stories about this or that no other way. If we held every
proposal to launch a government rich guy by his heels and shook
project of some kind. Each one is out all his money, it would still be
a proposal to spend more of your a drop in the bucket.
money. Some are worthy causes, Tax the corporations? When you
but how much “say” do you have tax them, they have to get the
in deciding whether you want to money somewhere, since it is
pay more for each of these pro- strictly illegal for them to manu-
jects? facture money. When the corpora-

The farther away from your tion is taxed, the corporation tacks
local government the decision gets, the cost onto the price of the ar-
the harder it is for you to exercise ticle you buy. When you buy Cor-
control. That's why the Federal poration X,Y,Z’s handy dandy
budget has been balanced only 4 of little gizmo, you pay the corpora-
the past 20 years. That’s why in- tion’s tax.
flation is eating us up. That's why A corporation, then, is a tax col-
we ought to reverse the trend in lection agent for Uncle Sam. That
this country and return more gov- kind, benevolent old gentleman is
ernment to local decision-making. a wily old cuss who has his hand
That’s why we should ask about in your pocket in a way and at
every public project, “Is it worth times when you don’t suspect it.
what it costs if we had to pay for There's no such thing as a free
it directly?” lunch.

Even then there are problems. Take ceilings on prices. We've
If your local government is mak- heard a lot about them in the last
ing a capital improvement of some few months. Inflation has been
kind, you’ll probably find you can’t chasing prices of many things up
save tax dollars in the budget the trees. It happened on food last
ahead of time and pay cash. You'll summer. Housewives not only com-
probably have to borrow, float plained; some of them became ac-
bonds, build up a debt and pay for tivists and picketed. They demand-
the project twice through interest ed that “something be done.”
payments. There's no such thing Well, the government is also a
as a free lunch. listening post. When somebody in


===== PAGE 50 =====

434 THE FREEMAN July

political office hears the chant loud Let’s say the market thunders
and clear from back home, he fig- that it wants more of something—
ures he’d better do something or the price goes up. But the house-
he won’t be around to hear the wife fusses that “It’s already too
chant the next time. The urge for high priced.” So the government
personal survival in Washington puts on a ceiling. Well, that doesn’t
is a powerful instinct. It’s the pri- make any more of the product.
mary political instinct, you might We go right on making all those
say. little decisions, each of us, that
Last summer, in response to the put the price up in the first place.
cry from back home, controls were Now that the price isn’t going up
put on food. All of a sudden, the any more, as a result of the ceiling,
market was telling farmers not to we buy even more of it.
produce. as much. The market Pretty soon, there’s not enough
after all is nothing more than a to go around. We keep right on
sounding board for the desires of buying—but the fellow who makes
people. You might call it an echo it is getting a wrong signal. The
chamber. Each day people all market is telling him not to pro-
around the country, by spending duce as much. The price isn’t at-
their money, say, “I want more of tractive any more. His costs keep
that.” The price goes up. Or they climbing, but the price for what
say, “I want less of that.” The he makes doesn’t. So he quits. Or
price comes down. his banker makes him quit. There
Each person, including you and is less of the product around.
me, whispers something to the
market each time we make even a
little decision about how we spend
our money. Those little whispers, There's only one thing you can
billions of them a day, echo back do then — ration the product with
from the market echo chamber. It ration stamps. If you don’t, there
shouts back that nationally we won't be any of it down at the
want more of this, or more of store when you get there. People
that, or less of it. don’t like that. What good is a
Stock markets reverberate. Cor- controlled price if the product
porations shake. The little store isn’t there to buy?
down at the corner quivers. All What controls do is substitute
before the loud echo of those bil- government ration stamps for our
lions of little decisions that we dollar bill ration stamps. Instead
make every day. of you and me setting the price by

Controls Substitute Ration
Stamps for Money


===== PAGE 51 =====

1974 THERE’S NO SUCH THING AS A FREE LUNCH 435

our own decisions with the way you look at the benefit and whether
we spend our dollar bills, we let you have the money to pay.
the government make the deci- Most everything has a cost-ben-
sions by parceling out ration efit ratio. You can’t escape it. Are
stamps to us — so many for each we going to have completely clear
one of us. The same for each. air and not enough energy? Are
That’s the bureaucratic way of we going to poison coyotes — and
being fair. maybe some birds while we're at
So controls, then, which set out it —and have enough wool and
to do us a favor, end up discour- lamb; or are we going to listen to
aging production, instead of en- the howl of more coyotes at the
couraging it. The ration stamp cost of less lamb?
cure for the disease of low supply Are we going to feed DES to
makes more of the disease by dis- cattle and perhaps have a residue
couraging production. There’s no in some beef livers in an infini-
such thing as a free lunch. tesimal amount which has never
Another common principle is been known to harm anyone's
that most everything has a cost- health; or are we going to avoid
benefit ratio to it. The item has a even one particle of DES per tril-
benefit, or we don’t want it. And lion in beef liver and pay more
it has a cost, or we can’t get it. for beef, since it costs more to
That’s the way it is with anything raise it without DES?
where there isn’t enough to go Are we going to disrupt a nar-
around. row strip of tundra and disturb
You can walk out and look at some wildlife in remote parts of
the moon. It’s pretty on a clear, Alaska, while tapping the rich oil
crisp night, and you can take in supplies there, or are we going to
all of the scene you want to; it have gas rationing? Are we going
doesn’t cost you a cent. Unless to have well-planned forest har-
maybe you wear glasses, which I vests and reforestation, or are we
do. Then even looking at the moon going to look at the undisturbed
isn’t free. wilderness and hoard resources?
The point is, if something is For every benefit, there is an off-
scarce, and practically everything setting cost.
ig, it has a cost. Whether you pay There's no such thing as a free
that cost or not depends on how lunch!


===== PAGE 52 =====

JOHN C. SPARKS

This letter to a close friend, the author’s pastor, clearly
concerns all of us.

IN MORE than one of the discus- the evil in unlawfully taking prop-
sions in your adult church-school erty owned by another. Theft at
classes and in your sermon “talk- gunpoint or the burglarizing of a
backs,” you have strongly main- home is wrong; and few persons,
tained that the church should be professional churchmen or others,
in the middle of whatever impor- would try to rationalize such acts
tant is going on in the world. I into moral or religious acceptabil-
have not disagreed. Perhaps the ity. This is not the stealing to
only question or doubt in my mind which I refer.
concerns the capability of certain There is another method of tak-
church spokesmen to speak out ing property owned by someone
logically, rather than emotionally, else that is strenuously debated
on secular issues. However, this is among political theorists. It is felt
a general criticism. In you, I have by a great number of people that
confidence. property can be taken lawfully, via
It seems logical to me that you the democratic process of majority
would want to unmask the immor- rule, and that this method does
ality and dishonesty of an evil that not violate either moral or reli-
has long existed and is widely gious principle. On one point, most
practiced today. Yet, it is of a theorists seem to agree: that the
kind that is easy to overlook or property, either stolen, or redis-
misunderstand. My concern here tributed via majority rule — which-
is with one of the fundamental ever the point of view — is identi-
rules of mankind — moral and re- fiable, and the act is perpetrated
ligious —the admonishment against openly in accordance with printed
stealing. Hardly anyone disputes tax law widely dispersed and avail-
——— able to everyone. It is no secret
Mr. Sparks is an executive of an Ohio manu- that personal income tax rates are

facturing company and a frequent contributor n
to The Freeman. a steeply progressive. Even though

436


===== PAGE 53 =====

1974 YIELDING TO TEMPTATION 437

I disagree with such “redistribu- believe that farmers, merchants,
tion of private property” and would manufacturers, doctors, hospitals,
wish that clergymen everywhere colleges and all other sellers of
would perceive the moral error, products and services are ‘“profit-
this kind of appropriation of prop- eering’”’—just as though, at a given
erty is not my subject here. signal, people everywhere in all

The special kind of stealing that fields of economic activity decided
is the deep concern of this letter, to hike prices. This, of course, is
a form of theft for which no poli- sheer nonsense! Counterfeiting
tician wants to assume responsi- may be a universal temptation, but
bility, is inflation. government alone has the motive,

Inflation is a process by which and the power, to arbitrarily ex-
the Federal government increases pand the money supply. When the
the quantity of paper money so printing presses double the money
that it may pay out or spend more supply, it follows as night follows
than it receives in revenue. Citi- day, that prices will tend to double.
zens expect the Federal govern- The Federal government is the
ment to maintain the integrity of culprit, and the enormity of the
the monetary unit, but history re- “crime” — if measured either in
veals how difficult it is for the con- dollars, number of participants, or
trolling politicians of this or any harm done — makes the scandals
other nation to resist the tempta- of Watergate, special privileges,
tion to buy votes. They recognize and tax avoidance and evasions
that votes place them in office and look like penny-ante affairs. Any-
votes keep them there. one can measure the dilution of

One way to be popular and to his personal purchasing power by
win votes is to pass out benefits to comparing current prices with
people. But benefits have to be those paid ten years ago. Yet, no
paid for, either by taxing the peo- one can measure exactly how much
ple or by printing paper money has been confiscated by inflation
(inflating the currency). Taxation — the innumerable errors in judg-
is not considered a good way to ment, malinvestments, wasting of
win popularity or votes. Conse- resources and other unwise deci-
quently, politicians seem to prefer sions. The total loss or waste has
inflation rather than direct taxa- to be enormous when we consider
tion as their source of revenue. the disruption of economic signals,

Then, to compound their dishon- destruction of the intent of con-
esty, they point to others as scape- tracts, misunderstanding of his-
goats. They would have the people torical statistics so badly needed


===== PAGE 54 =====

438 THE FREEMAN July

for intelligent decisions, the mis- The act of inflating is despic-
leading of individuals and com- able and dishonest, and the politi-
panies into inappropriate invest- cians who alone perform the act
ments and capital expenditures deserve the finger of scorn. Some
that seriously harm the very struc- may say that inflation is only an
ture of our working lives. economic problem — not a moral
Of all the harmful results of in- problem. That would be like say-
flation, probably the most deplor- ing that the theft of Widow Jones’
able is the wiping out of lifetime cow, or her safe-deposit box, is
savings of people as they approach only an economic problem. It is
retirement. Their savings are as that certainly, but the focal point
surely stolen by the inflationary of the problem is the immorality
activities of politicians as by any- of stealing and its effect on the
one who might have burglarized helpless victims.
their safe-deposit boxes. A dou- Now, back to your contention
bling of prices tends to cut the that you and the church should be
value of savings in half, and each in the midst of whatever goes on
subsequent doubling halves what in the world. Inflation is a univer-
value is left. Thus have the poli- sal evil that needs repetitive air-
ticians of some other countries in ing from pulpits throughout
this century wiped out all savings America. I hope you will give it
of the elderly in those countries. the thought and action it deserves.

®
io Wiens Repeat erionmnances
BERNARD H. SIEGAN IF THE I is the same,

changing the brand will not alter
the effect, whether it involves cold
remedies, cleaning agents, or zon-
ing regulations. That, in essence,

Mr. Siegan is the author of Land Use Without .

Zoning and many articles on the subject. He 13 the answer to most new schemes
practiced law for 20 years in Chicago before presently being proposed to solve
moving in 1973 to La Jolla, California, where zoni

he is an adjunct professor of law at the Univer- the problems of zo ng. They are
sity of San Diego Law School. fundamentally the same, except

Copyright 1974 Bernard H. Siegan


===== PAGE 55 =====

1974 NO MORE REPEAT PERFORMANCES 439

only for those seeking the end of problems. The same group of plan-
zoning. ners and politicians that have so
Many persons, of seemingly good dismally performed in the past are
intentions, are hotly in pursuit of scarcely entitled to a repeat per-
that certain special zoning sys- formance. Failure should not be
tem that will remove the errors rewarded. Politics and political ex-
and evils of the existing one. Just pediency would remain the con-
about everyone with any knowl- trolling factors, and that spells no
edge of the subject will readily change whatsoever. :
acknowledge that zoning has been The terms and intent of a law
largely a failure and something are not really as important as how
should be done. Still, despite the it is applied — and often intention
strong and vehement attacks on. and application differ radically.
zoning by planners, lawyers, and When a certain zoning law clearly
writers, they usually reject scrap- states one thing, and fifty scream-
ping it, insisting instead upon ing constituents insist it should
some new variety of regulation. be interpreted or applied differ-
The schemes differ in name and ently, the politicians who must de-
form, but not in substance, for the cide are certainly placed in a
prime ingredient is government dilemma. After long years of per-
control. sonal experience, I submit that
Impact zoning, performance zon- many if not most politicians will
ing, incentive zoning, zoning for do what is in their own best in-
quality, balanced community zon- terest; and if that is contrary to
ing, ecologically sensitive zoning, the law, so be it. I do not doubt
are some of the titles. And there that many would vote the earth is
are more. Under each, there would flat if that were politically expe-
supposedly be better and sounder dient. Watergate is neither the
planning, more and better hous- first nor last time politicians and
ing, more open space and environ- officeholders will engage in moral
mental protection, and so forth or legal corruption.
and so on, all basically a repeti- Nor does the judicial process of-
tion of representations made in fer adequate relief. In some states
the past in support of zoning, and such as California, the judges
with the same probability of sue- rarely overturn municipal zoning
cess. decisions. Regardless of a state's
What the new schemes ignore is laws, however, any potential plain-
that the existence of government tiff must have considerable funds
controls largely accounts for the and be prepared for a long strug-


===== PAGE 56 =====

440 THE FREEMAN July

gle with a municipality that may, market. President Nixon imposed
in good or bad conscience, carry wage and price controls in August
the case to the highest appellate 1971 in response to a virtual
level. groundswell of opinion demanding
Years of litigation may be in- that action. Today, less than three
volved, during which the property years later, whatever groundswell
cannot be used for the purpose de- there exists is for a reverse course.
sired. But the expenses of owner- The folly and disaster of controls
ship continue. Taxes, constantly in that area have been fully dem-
rising, must be paid. And, with the onstrated.
current cost of money, interest The follies of zoning are much
payments, especially on vacant less dramatic; they do not make
land, can be quite substantial. Con- the nightly TV news and are not
sequently, even when the facts are experienced daily at the super-
highly favorable, the largest or mart. But they are well docu-
most affluent developers may not mented in the literature, even by
find such litigation to be a reason- those favorable to the concept.
able business risk. Within recent years, almost every
The only meaningful change is major law journal in the country
to eliminate zoning and rely on the has published an article highly
effective and efficient forces of the critical of zoning practices. The
market place to control the use and Harvard and Yale journals have
development of land and property. contained pieces contending that
There will be difficulties and in- all or most of zoning is unconsti-
equities, but far fewer than pres- tutional.
ently exist, and many such situa- It is difficult to find a stronger
tions can be met with a limited indictment than the report made
number of specific laws directed at in 1968 by the professional organi-
specific problems such as, for ex- zation of planners, the American
ample, a parking ordinance. The Society of Planning Officials
example of non-zoned Houston is (ASPO), to the Presidential Com-
available for all to observe and mission on Urban Problems. Con-
study the results of a different clusions reached in turn by that
and remarkably successful ap- commission as well as those of
proach to the regulation of land two other Presidential and several

use. state commissions were equally
This is also a timely moment to devastating to zoning practices.
look at the difference between a Only the termination of zoning

regulated and a non-regulated will remove these problems. ®


===== PAGE 57 =====

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

We Don't Know How

WILLIAM AND ELIZABETH PADDOCK been left in the pockets of Ameri-
have written a sockdolager of a cans at home to buy bananas, cof-
book in We Don't Know How: An fee, oil, rubber or whatever else
Independent Audit of What They the “undeveloped” countries have
Call Success in Foreign Assistance to sell.

(Iowa State University Press, William Paddock and his wife
$9.95 cloth; $4.95 paper). What it make a team. They are both B.S.’s
proves, with on-the-spot evidence from Iowa State University, which
gathered often with feelings of means that they have farming in
great reluctance about hurting their bones. An authority on corn,
well-meaning idealists, is that our William once headed Guatemala’s
foreign aid program has been corn improvement program, work-
largely a bust, bringing virtually ing with the U.S. mission in Gua-
no permanent improvement to any- temala itself with interludes at an
body. It might be an overstate- Iowa State University experiment
ment to say that $150 billion have station. His wife, a home eco-
gone down the drain since the U.S. nomics instructor, spent some time
started to shore up what is euphe- as a Care volunteer distributing
mistically called the free world, food in rural Honduras and as a
but surely, on the basis of what ghetto social service worker in
the Paddocks have learned by the Guatemala. They knew something
most careful sort of digging, the of the world of foreign aid from
money would have done every- the inside before they started a
body much more good if it had 25,000-mile trip through Mexico

441


===== PAGE 58 =====

442 THE FREEMAN July

and Central America to inspect rubber seedlings had been distrib-
programs which the administrators uted to the Chocola area farmers
of development organizations con- over a five-year period. Some 27,-
sidered especially effective. In the 000 acres had been planted to rub-
course of a year of wandering in ber. But, to the Paddocks’ amaze-
the field away from capital cities ment, the whole project had trailed
in Guatemala, Honduras, Salvador off into nothing. The reason: no
and Mexico, the Paddocks not only continuity. The farmers, so the
held more than two hundred pre- lone remaining U.S. expert told
arranged interviews but also the Paddocks, were only inter-
talked with everybody they ran ested in planting rubber as long
across, from government officials as AID provided money on easy
and merchants to peasants, doc- terms. When the original loans
tors, lawyers and Indian chiefs. were used up (one farmer re-
What they took in through their ceived $884,000), the project went
eyes and ears startled them. Once dead. What the Paddocks couldn't
in a while they hit upon a develop- figure out was why the news of
ment that had had effective re- the collapse of the rubber experi-
sults, but when some actual good ment hadn't yet reached AID
resulted it was usually in a quite headquarters in Washington.
unforeseen way. Normally, how- Thirty minutes down the road
ever, the projects, whether they from the scene of the rubber fiasco
were undergirded by the Peace the Paddocks visited some beauti-
Corps, the Inter-American Devel- ful buildings at Chocola which
opment Bank, AID (the Agency had once housed the local direc-
for International Development), tors of the U.S. International Co-
or even the Rockefeller Founda- operation Administration, AID’s
tion, suffered from a lack of carry- predecessor. The chairs, type-
through, inability to preserve writers, desk and furniture were
meaningful records, and a tunnel still there, but human activity had
vision that would disgrace a mole. apparently ceased. Chocola, so the
Paddocks surmised, was another
illustration of the big tragic
It was at Los Brillantes, a shortcoming in our development
“model” station near Chocola in work. AID had no memory of what
Guatemala, that the Paddocks first its predecessor agency had done.
learned about the pattern of for- The law of politics is that when-
eign aid. The Paddocks knew from ever there is a new foreign aid
a previous stay in Guatemala that program, or a new set of admin-

The Rubber Fiasco


===== PAGE 59 =====

1974 WE DON’T KNOW HOW 443

istrators, the old slate is wiped had started tomato, pineapple,
clean. A long-time AID friend told watermelon and banana clubs. He
the Paddocks, “Every morning we had showed the girls how to can
wake up and laboriously reinvent pickles. He had given haircuts to
the wheel.” demonstrate a sure way_of dis-
couraging lice. But when the Pad-
docks visited the scene of Port-
So it went in other areas in man’s supposed triumphs, they
Guatemala. Deane Hinton, a U.S. found no evidence of a tomato in-
AID mission director stationed dustry. A few townspeople did re-
at the Embassy, told the Paddocks call that Portman had planted
that the local agricultural school some tomatoes in a church gar-
at Barcenas had the most effective den, and had had a second garden
AID program in the country. The elsewhere. He had used cow dung
Paddocks went and had a look. In as fertilizer. But when a store-
the meantime Deane Hinton moved keeper asked Portman how to get
on to Santiago in Chile to head rid of insects that were devouring
up a different program. Mr. Pad- his tomatoes on the stem, Port-
dock didn’t have the heart to write man had said he “did not know
him that he had found Iowa corn anything about tomatoes, only
seed sitting in a storeroom at the corn.”
Barcenas experiment station In checking the whole thing out,
where it had been put in storage the Paddocks learned that Port-
ten years ago. A faithful Guate- man was liked in El Salvador be-
malan was keeping the seed col- cause he was “young and attrac-
lection intact, “just in case some- tive.” But Portman himself had
day someone wants to use it.” written: “Do not believe every-
In Washington Jack Hood thing you read about James J.
Vaughn, Sargent Shriver’s suc- Portman and El Salvador. R. Sar-
cessor as head of the Peace Corps, gent Shriver in the early days was
told Mr. Paddock about the legen- a little too eager as far as public
dary exploits of one James Port- relations were concerned.”
man in El Salvador. Portman,
according to the reports, had rev-
olutionized the little nation’s to- The Paddocks did find good
mato industry. He had shown the things on their 25,000-mile trip.
farmers how to mulch their rows They found a boom in Monterrey.
for moisture conservation. He had The reason: three local families
introduced contour terracing. He had made good use of their cap-

Saving the Seed Corn

Some Good Results


===== PAGE 60 =====

444 THE FREEMAN July

ital, amassed out of a transport The “green revolution” is un-
business that had made good con- deniably worth having, but the
nections with the railroad to Paddocks worry about its advan-
Texas. At San Pedro, in Hon- tages being eaten up by rocketing
duras, there was prosperity. The population growth. They sadly
reason: the United Fruit Com- conclude that it will take a lot of
pany paid an average daily wage EI] Pulpos to support the new mil-
of $4.97, which stimulated worker lions that continue to encroach
training in the whole area. United on the limits of the food supply
Fruit is called El Pulpo, meaning all through Mexico and Central
the Octopus, but it does know how America. What is particularly
to grow bananas. The company ominous is that El Pulpos, being
brings in thirty-five per cent of capitalist in organization and mo-
Honduras’s foreign exchange, so, tivation, aren’t liked. The masses,
as the Paddocks put it, “one-third bemused, don’t know their best
of Honduras’s share of the twen- friends.

tieth century is paid for by com-

pany activity.”

If El Pulpo had been broken up » LEFTISM (FROM DE SADE
into small plots when the first AND MARX TO HITLER AND
winds of “land reform” began to MARCUSE) by Erik von Kueh-
blow, who would have heard of  pelt-Leddihn (New Rochelle, N.Y.:
San Pedro, or even of Honduras Arlington House, 1974, 653 pp.,
itself? The Paddocks tremble to $12.95)

think of it.

The Paddocks looked into the
Rockefeller Foundation, which has THE TEACHERS of political science
sustained Dr. Norman Borlaug’s used to tell their classes that po-
experiments with rust-resistant litical philosophies ran along a
wheat in northwest Mexico. This straight line from left to right,
wheat, along with “miracle” rice, that Nazism and Fascism occu-
is credited with setting the so- pied the far right portion of the
called Green Revolution in motion. spectrum and Communism the far
The Paddocks give Borlaug’s plant left.
research good marks, but they Happily, most teachers of polit-
give even better marks to the ical science have finally moved
Mexicans for learning how to ap- away from that simplistic, and
ply irrigation and fertilizer to false, notion. As for the rest, a
their wheat acres. reading of the recently published

Reviewed by Allan C. Brownfeld


===== PAGE 61 =====

1974 OTHER BOOKS 445

volume, Leftism (From de Sade ‘Hitler, on the other hand, had
and Marx to Hitler and Marcuse) never formally belonged to the
by Erik von Xuehnelt-Leddihn, Socialist Party, although he had
should — as the common phrase of drunk from almost the same ideo-
the day has it — expand their con- logical sources. His Weltanschau-
sciousness. ung too had been largely fathered
Dr. Kuehnelt-Leddihn is an by the image of the national so-
Austrian scholar who reads twen- cialist laborites.” He notes that
ty languages and has taught at official utterances declared that
many universities, including Nazism stood firmly on the left,
Beaumont College in England, the and reveals Hitler's ‘genuinely
Georgetown Graduate School of leftist turn of mind,” showing
Foreign Service, and who, during that the economic order under the
the period when the Nazis occu- Nazis was thoroughly socialistic,
pied his country, was head of the and reminds the reader that be-
History Department at St. Peter’s sides the Jews, the groups most
College in New Jersey. His book hated by the Nazi leaders were
is lengthy and learned, but not royalty and nobility.
beyond the general reader’s com- The difference between the
prehension. “left” and the “right” is essen-
What he has done in this vol- tially related to their divergent
ume is range across the centuries views of the nature of man and the
to show the links between the per- state. It is a common characteristic
version of de Sade, the revolu- of the left — socialists (national
tionary mystique of Marcuse and and international), as well as more
the brutalities of Stalin, Hitler, moderate welfare-staters and 20th
and Mao. The purpose of the book, century liberals, according to the
writes the author, “is to show the author, to view man as ‘“Individ-
character of leftism and to what ual subject to the will of the ma-
extent and in what way the vast jority. He is a mere number of
majority of the leftist ideologies the democratic process who can
now dominating or threatening be added or subtracted. He is em-
most of the modern world are bodied and personified by the “lea-
competitors, not enemies.” der” or by a delegate. The indi-
He makes a powerful case, for vidual is nothing, the ‘People’
example, that Hitlerism was a everything. The individual is a
movement of the left, not the mere fragment of the ‘collective
right. “At heart Mussolini was masses’. Those on the right, to
always a socialist,” he writes. the contrary, view man as “A per-


===== PAGE 62 =====

446 THE FREEMAN July

son with an intransferable des- clubs began a crusade against all
tiny, unique, created in the image languages but French — Provencal,
of God . .. endowed with an im- Breton, German, Flemish, Basque.
mortal soul.” “We get a hint,” writes the au-
More simply put, the left views thor, “that the French Revolution
man as a means to some other was not only a forerunner but an
end, the right views man as an ideological steppingstone to the
end in himself. All leftist ideas, slow growth of Nazi ideas.”

from the most extreme to the The totalitarian attitude of the
more moderate, reject individual- left is clearly found within the
ism and urge collectivism. French Revolution. The speech of

What the left has done since its Saint-Just on October 10, 1793,
modern creation at the time of for example: “You have to punish
the French Revolution is, writes Dr. not only traitors, but even those
Kuehnelt-Leddihn, to exploit “the who are indifferent: you have to
envy . . . among the masses, cou- punish whoever behaves in the
pled with the denigration of indi- Republic in a passive spirit and
viduals, but more frequently of does nothing for her, because ever
classes, races, nations or religious since the French people has mani-
communities. . . . The history of fested their will, everything out-
the Western world since the end side of the sovereign is an enemy.”
of the 18th century cannot be Similarly, Robespierre spoke of
written without this fact con- ‘collective liberty” and on Febru-
stantly in mind. All leftist ‘isms’ ary 7, 1794, said that, “The Gov-
harp on this theme, i.e., on the ernment of the Revolution is the
privilege of groups, minority despotism of liberty against
groups, to be sure, who are ob- tyranny.”

jects of envy and at the same time Looking back at the Reign of
subjects of intellectual-moral in- Terror in France, at the Nazis,
feriorities. . . . They ought to the Fascists and the Communists,

conform to the rest, become iden- the author declares that, “The all-
tical with ‘the people,” renounce powerful state is a creation of the
their privileges . . .” leftist mentality . . . two wishes

Such forced conformity has of the leftist find their fulfillment,
taken different forms. Hitler the extension of government and
killed Jews. Stalin killed land- the dependence of the person
lords. The French Revolutionaries upon the state which controls his
insisted that all Frenchmen have a destiny from the cradle to the
common language and the Jacobin grave. Every movement of the


===== PAGE 63 =====

1974 OTHER BOOKS 447

citizen, his birth and his death, understood this point. Liberalism
his marriage and his income, his did not answer the question, as

illness and his education .. . ev- democracy does, “Who should
erything is to be a matter of rule?” but, “How should rule be
knowledge to the state.” exercised?” The reply is, “Regard-

All of these tyrannies, the au- less of who rules ... government

thor writes, have come about in should be exercised in such a way
the name of the collective “will that each citizen enjoys the great-
of the people.” He quotes Salvador est possible amount of liberty.”
de Madariaga who said that West- Dr. Kuehnelt-Leddihn believes
ern civilization rests on two deaths that the U.S. Constitution was
— the death of Socrates and the ‘a serious attempt to establish a
death of Christ. He notes that, mixed government with demo-
“Indeed the crucifixion was also cratic, aristocratic, and monarchi-
a democratic event. When Our cal elements, a government of
Lord was brought before Pilate checks and balances.” He quotes
and told him that He had come a letter from John Adams in
as a witness to Truth, the gov- which he insisted that democracy
ernor, a true agnostic, asked Him, would inevitably evolve into olig-
‘What is truth? And without archy and oligarchy into despot-
waiting for an answer, he passed ism, a notion he shared with Plato
Him by and consulted ‘the peo- and Aristotle.
ple” The vox populi condemned The fact is that tyranny came
Our Lord to death as it had Socra- to Germany through the demo-
tes more than three centuries ear- cratic process. By July, 1932, Dr.
lier.” . Kuehnelt-Leddihn notes, the two
What most Americans forget, big totalitarian parties, the Nazis
Dr. Kuehnelt-Leddihn believes, is and the Communists, held 319
that democracy and freedom do seats in the Reichstag out of 608
not necessarily go hand in hand. — an absolute majority which
Democracy rests on two pillars: proves that more than half of all
majority rule and political equal- Germans emphatically rejected
ity. Freedom, however, has nothing parliamentary democracy. This
to do with democracy itself. The means that the democratic repub-
repression of 49 per cent by 51 lic uncompromisingly demanded
per cent or of 1 per cent by 99 by Wilson was the basis of true
per cent “is most regrettable, but slavery in Germany, the door
it is not ‘undemocratic’.” Liberals, through which tyranny entered.
in the classical sense, correctly Hitler declared that, “There is


===== PAGE 64 =====

448 THE FREEMAN July

more that unites us than divides jority, is an evil and that freedom
us from Bolshevism . .. above all has always been lost as a result
the genuine revolutionary men- of it. The real business of those
tality. I was always aware of this who seek to learn from the past
and I have given the order that is to diffuse power so that no
one should admit former Com- matter who rules, individual free-
munists to the party immediately.” dom can be preserved.

Goebbels had stated unequiv- The Western world, however,
ocally that he “paid homage to seems to be moving away from
the French Revolution for all the its traditional belief in individ-
possibilities of life and develop- ualism, and more and more looks
ment which it had brought to the to the state as the answer to all
people. In this sense, if you like, problems, making a false god of
I am a democrat.” politics. For those who are inter-

Dr. Kuehnelt-Leddhin under- ested in considering where a trip
stands that total power, whether down that path will lead, this
in the hands of one man or a ma- book will be a valuable road map.

HANDSOME BLUE LEATHERLEX

jo FREEMAN BINDERS

$2.50 each

ORDER FROM: THE FOUNDATION FOR ECONOMIC EDUCATION
IRVINGTON-ON-HUDSON, NEW YORK 10533