===== PAGE 1 ===== March 1998 Vol. 48, No. 3 THEFREEMAN FEATURES 132 Social Security Can Be Good for Your Health by Dwight R. Lee Advice for young people. 135 Penalty of Surrender by Leonard E. Read Compromise has no application in moral matters. 139 The Seduction of Homeschooling Families by Chris Cardiff Resisting the lure of government goodies. 147 How Cities Put the Brakes on Taxicabs by Sam Staley Stifling regulations thwart entrepreneurs and economic growth. 151 The Persistence of Poverty in India: Culture or System? by Parth J. Shah An economist’s appraisal. 155 The Myth of Compulsory Union Membership by Charles W. Baird No one can be forced to join a union. 157 On Giving Back by George C. Leef Corporate “need to give back” rhetoric unwittingly reinforces the mistaken view that businesses profit at the expense of the people they service. 162 Liberating the Jury by Nathan Lapp Restoring jury rights as a means to safeguarding liberty. 167 Lying Government Ads by Tibor R. Machan The pitfalls of government-financed pitches. 169 Government and the Market: Chicken or Egg? by John Hood Revisiting social contract theory. 172 Billy Durant: From Carriages to Cars by Burton Folsom The story of the founder of General Motors. 178 Burn Your House—Boost the Economy by Lawrence Parks Surefire ways to add to the mismeasurement. COLUMNS Center NOTES from FEE—Judges versus Majorities versus Peaceful People by Donald J. Boudreaux 145 IDEAS and CONSEQUENCES—Michigan: Where Privatization Is Working by Lawrence W. Reed 159 POTOMAC PRINCIPLES—AXx Business Welfare and Privatize Social Security by Doug Bandow 180 ECONOMICS on TRIAL—Samuelson’s Last Hurrah by Mark Skousen DEPARTMENTS 130 Perspective—Sheldon Richman 183 Book Reviews *Halfway to Anywhere: Achieving America’s Destiny in Space by G. Harry Stine, reviewed by Raymond J. Keating; Empire Builders by Burton Folsom, reviewed by George C. Leef; Not Out of Africa by Mary Lefkowitz and Out of America by Keith B. Richburg, reviewed by Laurence M. Vance; Unconventional Wisdoms: The Best of Warren Brookes, edited by Thomas J. Bray, reviewed by Philip R. Murray; The Templeton Honor Rolls for Education in a Free Society, 1997-1998 foreword by William E. Simon, reviewed by William H. Peterson; Assimilation, Ameri- can Style by Peter D. Salins, reviewed by Rita J. Simon; Reputation: Studies in the Voluntary Elicitation of Good Conduct, edited by Daniel B. Klein, reviewed by John Attarian. ===== PAGE 2 ===== THEFREEMAN I — —_— PERSPECTIVE Published by Molecular Individualism The Foundation for Economic Education } Irvington-on-Hudson, NY 10533 In his book Reasons for Welfare: The Polit- Phone (9] 4) nes on (914) 591-8910 ical Theory of the Welfare State (1988), Robert FEE Home Page: http://www .fee.org E. Goodin claims to have caught opponents of President: Donald J. Boudreaux the welfare state in a contradiction: while Editor: Sheldon Richman decrying dependency on government, he writes, they counsel people who are in diffi- Managing Editor: Beth A. Hoffman cult circumstances to rely on family, friends, Editor Emeritus Paul L. Poirot and voluntary associations for assistance. Book Review Editor Why is that form of dependency better? George C. Leef Goodin wonders. He argues that, in fact, the Editorial Assistant welfare state is preferable to the voluntary Mary Ann Murphy Colummists sector because the latter can treat the weak Doug Bandow and vulnerable arbitrarily. In contrast, the wel- Lawrence W. Reed fare state, with its underlying theory of wel- Mark Skousen fare rights, protects the vulnerable from Contributing Editors exploitation. Charles W. Baird Goodin manages to pack quite a few fallac- Peter J. Boettke Clarence B. Carson Thomas J. DiLorenzo Burton W. Folsom, Jr. Joseph S. Fulda ies into one thesis. First, he misses the impor- tant point that the welfare state requires the confiscation of people’s earnings; that is, it uses the threat of violence to obtain the Bettina Bien Greaves resources that it then mercifully distributes. Robert Higgs Private-sector assistance, of course, does not. John Hospers There is a big moral difference, then, between Raymond J. Keating relying on government and relying on volun- Daniel B. Klein tary forms of help. That difference has far- Dwight R. Lee reaching implications. The welfare-state bene- Wendy McElroy ficiary who believes he has a right to other port chen people’s money is likely to be more virulently a 4A. Opi dependent than someone who accepts volun- UI . 1 . . . . J Lo, Figs tary help rendered in a spirit of good will. William H. Peterson Moreover, government can be arbitrary: legis- Jane S. Shaw lators change the rules when political winds Richard H. Timberlake shift. Yesterday welfare, today workfare, Lawrence H. White tomorrow? Who knows? Private charity is Walter Williams more likely to be based on firm principle or The Freeman is the monthly publication of The Foundation for Eco- religious conviction. That charities years ago nomic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, 18t1 1 1 established in 1946 by Leonard E. Read, is a non-political, educational di stinguished between the deserving and champion of private property, the free market, and limited government. undeserving poor was not a matter of arbi- FEE is classified as a 26 USC 501(c)(3) tax-exempt organization. . . Copyright © 1998 by The Foundation for Economic Education. Per- trariness but rather of deeply held belief. mission is granted to reprint any article in this issue, provided credit is : : : given and two copies of the reprinted material are sent to FEE. Goodin most likely thinks that advocates of _ The costs of Foundation projects and services are met through dona- laissez faire are really “atomistic individual- tions, which are invited in any amount. Donors of $30.00 or more . ss . receive a subscription to The Freeman, For foreign delivery, a donation ists” who believe people should be self- of $45.00 a year is suggested to cover mailing costs. Student subscrip- oe Cel . [3 d li tions are $10.00 for the nine-month academic year; $5.00 per semester. sufficient. Why an atomistic indivi ualist Additional copies of this issue of The Freeman are $3.00 each. Bound volumes of The Freeman are available from The Foundation would laud the marketplace has never been for calendar years 1972 to date. The Freeman is available in microform explained. What is more solidly rooted in from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. . . cooperation—a benign dependence on oth- ers—than the market’s division of labor and 130 ===== PAGE 3 ===== | PERSPECTIVE voluntary exchange? We can achieve far high- A prominent accounting firm set aside a er living standards and far more satisfying day to “give something back” to the commu- lives by availing ourselves of the variety of nity. That, writes George Leef, implies that associations possible in a free society. That’sa the firm doesn’t routinely produce value for dependency no libertarian ever objected to. others in the course of everyday business. Call it “molecular individualism.” What advo- Was the firm unwittingly sending an anti- cates of the freedom philosophy object to is capitalistic message? the reliance on physical force, either directly Historically, the jury has served as a pro- or indirectly through the welfare state, to tective layer between citizen and state through achieve one’s ends. its right to nullify laws when they would pro- * * duce injustice in particular cases. Today that In this issue, economist Dwight Lee looks role is kept secret. Nathan Lapp discusses the ahead to his eligibility for Social Security. It courts’ usurpation of jury rights and its link to occurs to him that his benefits will depend on the decline of liberty. the willingness of workers to faithfully pay Tibor Machan has been listening to govern- their taxes. Here, in an open letter to young ment public service announcements and finds people, he takes his best shot at persuading them wanting in the truth department. Should them to support the system—for, ahem, their the government lie to us even for a “good own sake. cause”? Machan has doubts but finds a silver Compromise is necessary and proper in lining. many areas of life. But is it possible to com- When John Hood branded tax-financed promise on a moral principle? Leonard E. welfare as “theft” during a debate, an oppo- Read takes up that question this month in our nent argued that society had a just claim to reprint series, “Anything That’s Peaceful,” peoples incomes because it was indispens- honoring the centenary of the birth of FEE’s able to the production of wealth. Hood found founding president. a refutation of that argument in the works of Homeschooling is growing, and govern- classical liberal philosopher John Locke. ment school officials know it. That could be The founder of General Motors, William why they are offering homeschooling families Durant, was an innovative and persevering various tempting goodies with the inevitable entrepreneur. Burt Folsom, drawing on his strings. Chris Cardiff cautions families new book, Empire Builders (which is reviewed against getting ensnared. in this issue), tells the story of this fascinating Urban policy expert Sam Staley makes it man who made so many lives better. his business to observe how municipal gov- We could each be doing more to increase ernments stifle entrepreneurship and thereby the nation’s gross domestic product. diminish the vitality of cities. He focuses on Lawrence Parks has a few suggestions. But the hamstringing of the taxicab business and please be careful. wonders if bureaucrats will ever learn. Our regular columnists also contribute their When Mother Teresa died last year, people sparkling insights. Doug Bandow proposes a might have wondered why poverty persists in link between privatization of Social Security India. Economist Parth Shah, who directs the and repeal of corporate welfare programs; Centre for Civil Society in New Delhi, exam- Lawrence Reed tells of privatization efforts in ines two possible explanations and suggests a Michigan; and Mark Skousen comments on the path to prosperity. new edition of Paul Samuelson’s Economics. Americans widely know that labor law per- The book review section spotlights vol- mits unions in some states to force workers to umes on topics that include exploration of be dues-paying members. Labor economist outer space, Afrocentrism, immigration, edu- Charles Baird surveys the law and key court cation, reputation, assimilation, and the cases and says that is an example of knowing legacy of columnist Warren Brookes. something that isn’t so. —SHELDON RICHMAN 131 ===== PAGE 4 ===== THEFREEMAN IDEAS ON UBERTY Social Security Can Be Good for Your Health An open letter from Dwight R. Lee Until recently | took every opportunity to inform my students about the financial fraud of Social Security. Given demo- graphic realities and the Ponzi-scheme nature of Social Secu- rity, those about to enter the work force will receive an anemic return on their “investment,” assuming they receive any return at all. They would be far better off, and so would the econo- my, if they put the amount that will be taken from them by the Social Security Administration into a real investment, such as a broad-based mutual fund. But I'm having second thoughts about presenting only the negative side of our national retirement program to the youth of America. I'll be eligible to begin collecting Social Security payments in a few years, so I’ve decided to take a more pos- itive attitude. The Social Security taxes | have already paid are sunk costs, and therefore are not costs at all. Only the future taxes and income from Social Security are relevant to my return on the program, a return that is getting better all the time. What a shame to jeopardize that return by turning the taxpayers of the future against the Social Security program, which can also be there for them some day if only they con- sider the bright side of the financial mugging heading their way. In the hope that the young people of today can be encouraged to stay the course with their Social Security “con- tributions,” | am writing them an open letter telling them the rest of the story. You see, Social Security is about more noble objectives than achieving financial success. —DRL 132 ===== PAGE 5 ===== 133 Dear Young People, my unwritten, but completely unenforce- able, guarantee: you will receive Social There simply is no better feeling in the Security checks when you retire. That is world than sacrificing for the benefit of oth- assuming you live past age 67, which you ers. That is particularly true when your sac- probably will because of a wonderful incen- rifice benefits me. I want you young college tive built into the Social Security program students to keep that in mind the next time for your benefit. Because of this incentive, you hear someone criticizing the Social your rate of return can be far better than the Security system. I will be retiring about the experts are now predicting. Let me explain. time you are paying large sums into Social ~~ Assume you work from age 22 to 67 and Security, and your tax payments, | mean make only the median family income dur- contributions, will be sent directly to my ing your career. In this case your Social buddies and me so we can afford to drive Security contribution will be about $3,000 a enormous motor homes to the local shuffle- year, recognizing that you will generously board courts. None of it will be invested help your employer with his contributions into your own personal account for your to your Social Security by accepting wages retirement. lower than you would otherwise have Some of you may be asking, but then received. These contributions will make what kind of financial return can I expect you eligible for Social Security payments at from Social Security? That is the type of age 67. How much will you get? The maxi- question we have to expect from those who, mum you can receive (as 1 write this) is because of the damaging effects of natural $23,868, which assumes that your spouse is selection, insist on thinking of themselves still alive, or at least appears to be, and also first. But let me consider the return a col- 67 or older. When you are 67, 45 years from lege graduate about to enter the work force now, the payments will be higher, assuming can expect from Social Security. The news they keep up with inflation (your Social is better than some of you believe, especial- Security contributions will also increase ly those of you who believe an invasion by with inflation, but let’s ignore that minor the space aliens who kidnaped Elvis Presley inconvenience). Let’s be optimistic and is more likely than Social Security being assume they will. Assuming a 3.1 percent solvent when you retire. Let me give you inflation rate (the average over the last 70 ===== PAGE 6 ===== 134 THE FREEMAN e MARCH 1998 years), then your annual income from Security gives you to take good care of Social Security will be $91,453 at age 67. yourself. You can make Social Security pay And you thought Social Security was a if you live long enough. The present value lousy deal. of your Social Security income will be I’m tempted to rest my case right here, worth the $3,182,779 your private invest- except someone is probably asking, “But ment would have provided, if you simply how better off would I be if, instead of con- refuse to die until you are 125 years old. tributing to Social Security, I put the $3,000 (This assumes that your annual Social a year into the stock market for the next 45 Security income of $91,453 grows at 3 per- years? At the risk of encouraging people to cent a year—good luck—and you discount think of Social Security only in crass finan- the future value of that income stream by 5 cial terms, I will answer this question. percent—ask your favorite finance profes- Over the last 70 years the stock market sor why discount is necessary.) (as measured by the Standard & Poor’s So Social Security is right up there with 500 index) has grown at an average annu- conferences on global warming as a way of al rate of 10.9 percent. At that return, your promoting long life. I’m certainly keeping $3,000 a year will be worth $3,182,779 myself in peak condition in anticipation of when you are 67. With that amount of benefiting as long as possible from your money, you could buy a lifetime annuity Social Security contributions. I don’t want that pays over $356,000 a year. So a cyni- to go face down in my oatmeal until you cal, but completely accurate, conclusion is young folks retire. that the Social Security system will bam- Sincerely, boozle you out of over $264,547 a year (the difference between $356,000 and \) La $91,453) during your retirement. WSR R. But why be so negative? After 45 years of | 3.1 percent annual inflation, $264,547 will Dwight R. Lee be worth only about $69,000 in today’s dol- Ramsey Professor of Economics lars. Also, think of the incentive Social University of Georgia, Athens Ideas That Make Freedom Possible The Myth of Attention Deficit Disorder =~ Why Education Must Be Totally Privatized Today's Cult of Sensitivity You Are Not Your Brother’s Keeper Diseases du Jour Solutions, Not Excuses Michael J. Hurd, Ph.D. “Straightforward, objective, and honest.” “Excellent newsletter—eagerly awaited —every word read immediately!” Typical comments from Newsletter subscribers For a free issue and information about Dr. Hurd’s new book “Effective Therapy,” call 301-654-3939, visit http:/www.drhurd.com or write to Living Resources, Inc, P.O. Box 221, Columbia, MI) 21045-0221 ===== PAGE 7 ===== Anything That's Peaceful Penalty of Surrender by Leonard E. Read certain business leader, perhaps among home. She chooses to watch TV and you elect the most publicized during the last two to explore Toynbee’s Study of History. The decades, once severely lectured me on my scene appears peaceful as you sit side by side unswerving and uncompromising behavior. near this piece of furniture. But to you the fur- He charged that I saw things only in blacks niture is making a lot of distracting noise. and whites. He argued that practical life was Here are all the possibilities for turning a lived in shades of grays, actually in the cheerful evening into one of disharmony. But shadows of these two extremes. He suggest- compromise can come to your aid. Your wife ed that I had a nice chance of “going far” in can decrease the noise of the TV to the point the world, if only I would become more pli- where she can still hear it, and you can move able to the thoughts and actions of my fel- to some remote corner where you can com- lows. He really wanted me to be more prehend Toynbee just as well as anywhere agreeable to his middle-of-the-road political else. Harmony can thus be preserved by theories. compromise. The compromising attitude is exalted by Compromise in this sense is an adjustment many and deplored by only a few. Most cur- of physical situations. It is the process by rent discussions are tempered with concepts which conflicts are reduced to the point most of compromise and expediency. satisfactory to all parties concerned. When Compromise, like many other words, has thought of in this way, compromise is the different meanings for different persons. I great harmonizer, the attitude that makes liv- want to use the term in the sense of one of the ing together—social life—a pleasure. definitions given by Webster: “The result or Indeed, the marketplace of willing exchange embodiment of concession or adjustment.” I where tens of millions of transactions go on wish to show that compromise is potentially daily is one vast area of compromise. Buyers good when applied in a physical sense and that aim at low prices. Sellers aim at high prices. it has no application whatever in a moral In a free market, unhampered by private sense. thieves and political restrictions, there is an For example, you and your wife are spend- adjustment of these diverse desires. Compro- ing what is hoped will be a happy evening at mise establishes the price at which the mutu- al satisfaction of buyer and seller is at its highest level. Leonard E. Read established FEE in 1946 and served — . as its president until his death in 1983. This article, It is in the physical realm that most of our excerpted from the April 1957 issue of The Freeman, daily life is lived. In this realm compromise is is the third in a monthly series commemorating the 800d and it is practical. It begets harmony and 100th anniversary of Mr. Read's birth. peace. 135 ===== PAGE 8 ===== 136 THE FREEMAN e¢ MARCH 1998 How easy it would seem then, finding com- with varying meanings to different persons. I promise so useful in such a vast segment of must, therefore, define what I mean. life, to conclude thoughtlessly that it has an The Ten Commandments are admonitions equal place, a comparable value, in that phase derived from the religious experience of an of life which consciously occupies little of our ancient people. In terms of their origin, the thoughts: moral life. Commandments are cast in the form of inter- cepts of the will of God; in terms of their application, they are imperatives admitting of no dilution. They were expressions of princi- But this is precisely the point where I ples at least to the ones who received them, believe many of us are the victims of a confu- and have been adopted as such by countless sion of terms. What is compromise in physi- millions. Their acceptance springs from the cal affairs—that is, in an adjustment of phys- studied deductions of the wiser among us, ical positions—is something entirely different confirmed through centuries of observation when applied to principles and morality. and experience. For example, let us make the reckless The correctness of a principle has little to assumption that most of us are committed to do with the intensity of conviction with the biblical injunction, “Thou shalt not steal.” which a man holds it. Someone else may hold This is based on the moral principle that each a contrary principle with like intensity. No person has the right to the fruits of his own man can get nearer to the truth than his own labor. The point I wish to make—my major highest apprehension of it. Ultimate insights point—is that this as a principle defies com- may differ, and such differences will always promise. You either take someone else’s prop- be part of the human scene. But there is erty without his consent, or you do not. If you another type of difference which is more per- steal just a bit—a penny—you do not com- tinent to the point of this essay: the difference promise the principle; you abandon it. You between those who accept unyieldingly a surrender your principle. moral principle as their standard, and those By taking only a little of someone’s proper- who accept a principle watered down by ty without his consent, as distinguished from “practical” considerations. John Morley, lib- taking a lot, you do compromise in the physi- eral English statesman and biographer, cal sense the amount you steal. But the moral warned of this danger when he deplored the principle, whatever the amount of the theft, is tendency to forget the principle itself in our Principles Defy Compromise surrendered and utterly abandoned. preoccupation with the practical difficulties If all the rest of mankind is in favor of pass- of applying it. ing a law that would take the property, hon- To me, “Thou shalt not steal,” is a princi- estly acquired, of only one person against his pled injunction not alone because some sage will, even though the purpose be allegedly for of antiquity said so, but largely because my the so-called social good, I cannot adjust own experience has compelled me to adopt myself both to the moral injunction, “Thou this as a principle of right conduct which must shalt not steal,” and to the demand of the mil- be adhered to if I am not to destroy my own lions. Principle does not lend itself to bending integrity, and if I am to live peacefully with or to compromising. It stands impregnable. I my fellow men. must either abide by it, or in all fairness, I To those of opposite judgments, who must on this point regard myself as an incon- believe that they should gratify their personal sistent, unprincipled person rather than a charitable instincts not with their own goods, rational, reasonable, logical one. but with goods extorted from others by the police force, who fail to see how thieving What Are Moral Principles? damages integrity, and who accept the prac- tice of political plunder as right and honor- The question immediately arises as to what able—to them, “Thou shalt not steal” must constitutes principle. Here again is a term appear wrong in principle. ===== PAGE 9 ===== PENALTY OF SURRENDER 137 Sound Judgment Required believes to be right. This principle of conduct has been known throughout recorded history. Now and then it has been expressed beautiful- ly and simply. Shakespeare enunciated the principle when he had Polonius say: Whether a principle is right or wrong can- not in any ultimate or absolute sense be deter- mined by any single one of us human beings. Principles on the level of human perception are what are judged to be the rules of life or This above all: to thine own self be true, nature; what are judged to be universal, eter- And it must follow, as the night the day, nal verities; what are judged to be fundamen- Thou canst not then be false to any man. tal points of reference. But, human judgment is fallible. Therefore, whether a stated princi- Edmond Rostand had the same principle in ple is held to be right or wrong will depend on ind when he wrote for Cyrano: the quality of the individual’s judgment. Aris- totle claimed that there were a million ways to Never to make a line I have not heard in my be wrong; only one way to be right. How easy own heart. for fallible beings to decide on a wrong way! Sound judgment leads toward right princi- The Bible announces the penalty of surren- ples. No person can rise above his best judg- der—what it means to abandon the truth as ment, and he can rise only as fast as his judg- one sees it: ment improves. On what, then, is an improv- ing judgment dependent? My answer is: on The wages of sin is death. revelation—"“The disclosing or discovering . . . of what was before unknown. . . ” Other = Whether the wages of sin be mere physical terms for revelation are insight, cognition, death, as when men shoot each other over inspiration, extrasensory perception. On what ideological differences, or profound spiritual does revelation or insight rest? Surely, on con- death, as in the extinction of integrity, charac- scious effort, education, the kind of people ter, and self-respect, one needs to make but with whom one associates, the topics selected casual inquiry to verify the rightness of this for discussion, what one chooses to read—all biblical pronouncement. Abundant testimony of these relate to one’s perception. More fun- is being provided in our time. Nor is the end damental, however, than anything else is intel- in sight. lectual integrity, without which, I am certain, the cognitive stream cannot flow at its best. +s Goethe expressed the idea thus: Principles Surrendered All the world is filled with examples of sur- Nature understands no jesting; she is rendered principles: men who know practical- always true, always serious, always severe; ly nothing about themselves trying to play she is always right, and the errors and God, attempting to control and forcibly direct faults are always those of man. The man the creative actions of others; the glamour of incapable of appreciating her, she despises; popularity and shallow earthly fame rather and only to the apt, the pure, and the true, than the concepts of rightness directing the does she resign herself, and reveal her policies of nations; expediency substituting secrets. for the dictates of conscience; businessmen employing “experts” to help them seem right, Intellectual integrity simply means to often at the expense of rightness itself; labor reflect in word and in deed, always and accu- leaders justifying any action that gratifies rately that which one believes to be right. their lust for power; political leaders operat- Integrity cannot be compromised. It is either ing on the premise that the end justifies the practiced or not practiced. means; clergymen preaching expropriation of Certainly, there is nothing new about the property without consent in the name of the efficacy of accurately reflecting what one “common good”; teachers not explaining but ===== PAGE 10 ===== 138 THE FREEMAN e MARCH 1998 advocating coercive collectivism; aspirants to friends or position. Actually, the danger lies in public office building platforms from public the other direction, in settling for less than opinion polls; farmers, miners, and other one’s best judgment. plunderbundists uniting with the police force Does it take courage to be honest? Does to siphon others’ labor; arrogance replacing one have to be brave to express the truth as he humility; in short, surrender of principle sees it? Indeed, it is not dangerous to be hon- appears to be the distinguishing mark of our est, but rather a mark of intelligence. Being time. honest and adhering to principle requires If we were suddenly to find foreign vandals intelligence more than courage. Courage invading our shores, vandals that would kill without intelligence makes men blusterous our children, rape our women, and pilfer our and cantankerous with their views; they industry, every last man of us would rise in offend with their honesty. But, the villainy in arms. that case is their cantankerousness, not their Yet, these ideas born of surrendered princi- integrity. ples are the most dangerous vandals known to Finally, some may contend that even if man. Is the Bible right that the wages of sinis everyone were a model of intellectual integri- death? Observe the growth of domestic vio- ty, by reason of the great variety of judg- lence. Note the extent to which the organized ments, differences would still remain. This is police force—government—promotes and true. But differences lead in the direction of enacts plunder rather than inhibits it. Scan the truth in an atmosphere of honesty. Honest dif- last forty years of war, hot and cold; wars to ferences are livable differences. end wars, each serving only as a prelude to Life in a physical sense is a compromise, a larger wars. And, today, we worldlings, in fact that need not concern us. But, when vast angry and hateful moods, stand tense and numbers of people surrender living by what poised to strike out at each other, not with they believe to be right, it follows that they shillelaghs, pistols, hand grenades and can- must then live by what they believe to be nons, but with mass exterminators of the wrong. No more destructive tendency can be germ and atom types, types that only a people imagined. of surrendered principles could concoct. Honesty—each person true to his highest conscience—is the condition from which rev- elation springs; from which knowledge expands; from which intelligence grows; from Perhaps it is timidity that prevents many a which judgments improve. It is a never-end- man from standing squarely on his own phi- ing, eternally challenging—a thoroughly joy- losophy and uttering nothing less than the ous—process. Indeed, it is living in its higher highest truth he perceives. He fears the loss of sense. OC Is Honesty Dangerous? “Principles do not permit of compromise; they are either adhered to or surrendered.” —Leonard E. Read, Anything That’s Peaceful ===== PAGE 11 ===== THEFREEMAN IDEAS ON UBERTY RSNE— The Seduction of Homeschooling Families by Chris Cardiff o the public school authorities feel teachers unions. The average homeschooling threatened by homeschooling? Judging family spends approximately 10 percent of by their efforts to lure homeschooling fami- the per-pupil costs associated with govern- lies into dependence on local school districts, ment schools in achieving those academic the answer is apparently yes. results.2 Multiplied by the number of home- For the last several years, homeschooling schoolers, even these modest amounts add up has been the fastest growing educational to a sizeable market attracting numerous edu- alternative in the country. Estimates of its cational entrepreneurs. growth rate typically range from 15 to 25 per- Besides challenging the legitimacy of gov- cent annually. Homeschoolers are notoriously ernment schools, homeschoolers also pose a difficult to count; however, the National more direct economic threat. Funding for Homeschooling Research Institute believes government schools is based on attendance, that currently 1.2 million children get their with a national average of almost $6,000 per education at home. While that constitutes student.> Homeschooled children represent only about 2 percent of all school-age chil- over $7 billion out of reach of local govern- dren, it’s more than 20 percent of those who ment schools, and, at its current growth rate, are outside the government educational sys- each year over $1 billion more slips away. tem. And, with a 20 percent annual growth Politically, homeschoolers are a force to be rate, another quarter million children will join reckoned with when their rights are endan- the homeschooling movement this year. gered. The most highly publicized and effec- The sheer number of homeschoolers repre- tive example of their growing political clout sents a distinct threat to the hegemony of the occurred in 1994, when the House of Repre- government school monopoly. Qualitatively, sentatives inserted language into an educa- the academic success of homeschoolers, mea- tional appropriations bill that would have sured by standardized test scores and recruit- required all teachers to be credentialed. ment by colleges, debunks the myth that par- Homeschoolers perceived that provision as a ents need to hire credentialed experts to force threat to their autonomy and overwhelmed children to learn.! phone and fax lines to their representatives Homeschooling also refutes the “more until the credentialing language was removed money equals better education” mantra of the by a 424-1 vote. Homeschooling’s economic and political Chris Cardiff is a homeschooling father of three, impact is keenly felt by teachers unions, edu- president of the California Homeschool Network, and cational bureaucrats, ideological indoctrina- a director of software engineering at Netscape Com- tOTS, and other beneficiaries of today’s sys- munications Corp. tem. What will happen when the growing 139 ===== PAGE 12 ===== 140 THE FREEMAN ¢ MARCH 1998 number of homeschooling families withdraw The homeschooling boom has not gone their political support for the enormous taxes unnoticed by educational entrepreneurs. required to fund today’s $300 billion govern- Homeschooling conferences attract huge ment system? numbers of vendors catering to the hundreds To combat those threats, defenders of the (and in some cases, thousands) of families status quo are fighting back with all the legal, attending. Traditional curriculum vendors legislative, and economic weapons at their have repackaged their wares specifically for disposal. The most insidious of these tactics is the homeschooling market. Homeschooling the systematic undermining and co-opting of magazines and newsletters flourish, increasing the homeschooling movement by establishing in number. Organizations providing paid sup- government homeschooling programs. Those port (curriculum counseling, bureaucratic programs set seductive lures before families paperwork assistance, legal support) for by providing “free” resources, teachers, homeschooling families continue to spring up. extracurricular activities, facilities, and even Supplementing these numerous commer- cash reimbursement. cial ventures and, in most cases, preceding When enough families have voluntarily them, are a multitude of local support groups returned to the government system, it will be that arose spontaneously to help meet the a relatively straightforward matter to recap- needs of new and existing homeschooling ture the rest by imposing mandatory home- families. Much of the power of the home- schooling oversight regulations. Will this schooling movement comes from these seduction succeed in eliminating independent groups, through which families gather to meet homeschoolers and derailing the growing free the social and academic needs of their chil- market in education? Economics and the his- dren. Those voluntary groups create the envi- tory of private schools versus government ronment for low-cost or no-cost academic schools provide ample lessons on what to solutions, such as: expect. * cooperative teaching, which leverages the The Birth of a Free Market in existing talents and interests of parents; . « information sharing among parents about Education what works and what doesn’t for different The term “homeschooling” is a bit of a mis- learning styles; nomer. To many people the word conjures up * renting community rooms (or homes) for a vision of mom instructing her kids around group activities and classes; the kitchen table—a myth perpetuated by the * hiring professional teachers by the hour media, which invariably demand that particu- (for example, our science teacher is paid $75 lar image to illustrate their stories. The reality an hour, which breaks down to $5 a child); is far different. While instruction around the and kitchen table does indeed occur in most « field trips for hands-on learning. homeschooling families, the flexibility and range of homeschooling encourages an enor- Homeschooling support groups also pro- mous variety of alternative educational mod- vide all of the social activities found in tradi- els. Those models range from child-led, inter- tional schools. One group, All Ways Learning est-based learning (unschooling) to the tradi- in San Jose, is typical of the depth of activities tional classroom model with professional provided by voluntary support groups once a teachers. They include distance learning, critical mass of families is involved. The cooperative teaching arrangements between group meets twice weekly, once at a local parents, commercial learning centers, and park and once in a rented community room. subject-specific tutors. Many young teenagers Volunteer families organize the monthly routinely take junior college or university newsletter, yearbook, yearly “school” pic- courses. Others participate in the revival of tures, monthly “PTA” meetings (aka “Parents’ apprenticing. Night Out”), holiday parties, dances, and ===== PAGE 13 ===== THE SEDUCTION OF HOMESCHOOLING FAMILIES 141 ———— — — armas ——————————— eee eee eee ———————e———eeeeeeeem te er Homeschooling, with its varied commercial and volunteer ventures, is a microcosm of what a true free market in education could look like. choir. In addition, a homeschooling sports Those coercive attempts to control home- league in the area sponsors baseball, basket- schooling actually pale in significance com- ball, and soccer for several hundred home- pared to the more subtle and dangerous tac- schooled children. tic some states use to recapture homeschool- Homeschooling, with its varied commer- ing families: government homeschooling cial and volunteer ventures, is a microcosm of programs. Once few in number, those pro- what a true free market in education could grams are now widespread in states that look like—parents and children working allow them. together, mixing and matching, tailoring the Early programs in California offered home- educational style to what works best for them; schoolers a straightforward $1,000 bribe to families spending their educational dollars as participate. To collect the money, home- they choose, with educational entrepreneurs schoolers merely had to submit receipts to the creating a wide-ranging marketplace of goods district for any educational activities or mate- and services. It’s not just mom and the kids rials. It was an economic win-win situation, around the kitchen table. It’s a new education- as the district retained the remaining $3,000 al model. in per-pupil funding from the state. Programs changed over time as the state ’ ’ sy gradually imposed more restrictions on home- If You Can’t Beat Em, Join Em schoolers. At first, the restrictions took the Stakeholders in government schools have a form of decreasing the amount available for vested interest in strangling this nascent free reimbursement and sharply limiting reim- market in education. Early efforts to stamp bursable items. At the same time, more cur- out homeschooling were fought in the courts, riculum resources and teachers were made and while homeschoolers have for the most available. Now, instead of having the freedom part been successful in that arena, the threat to spend money from the state on the educa- of legal prosecution is still a favorite weapon tional materials and experiences of their own of intimidation wielded against homeschool- choosing, families are only reimbursed for the ing families. However, for the most part, the same consumable materials (pencils, crayons) days when homeschoolers were considered already offered by the district. outlaws are behind us. However, despite these restrictions, the pro- Homeschooling victories in the legal sys- grams still provide significant economic incen- tem forced opponents to use different means tives for both homeschoolers and school dis- to control homeschooling. Moving to the leg- tricts. For homeschooling families, they get islative arena, some states imposed mandato- access to a professional teacher, all the district ry oversight by local school district officials, resources, and extracurricular activities like requiring approval of curricula and quarterly sports and band—all of it “free.” With incen- evaluation. Other states imposed mandatory tives like these, it’s not surprising that many testing, with a child’s failure resulting in a homeschoolers have rushed back to the same return to a government school. (Note, howev- government system they once fled and, in many er, the lack of a reciprocal clause forcing gov- cases, are demanding their “rights” to these ernment-schooled students who fail the test to activities. This phenomenon is common enough be homeschooled.) that it’s attracted national media attention. ===== PAGE 14 ===== 142 THE FREEMAN e¢ MARCH 1998 For school districts, the advantages are even aggressively recruit homeschoolers with greater. Districts receive full pupil funding for mass-marketing tactics: placing ads in home- only spending an hour a week with a student.5 schooling publications, cold-calling during This is an enormous profit margin over what the dinner hour, and e-mail spamming (junk- can be obtained with full-time students, a vir- mail solicitations via e-mail). Motivated by tual cash cow for districts. Districts respond to the same low overhead and high per-pupil this incentive the way any profit-seeking enter- funding for homeschoolers, their entrepre- prise would: aggressive recruiting of new cus- neurship is admirable, but their goal of recap- tomers (even stealing from other districts),® turing homeschooling families for a govern- advertising their programs, conducting work- ment-funded and -chartered program is not. shops on homeschooling,” and expanding into The most aggressive charter schools use new markets (for example, high school home- another traditional business technique to schooling programs).8 achieve rapid growth—merger and acquisi- tion. Backed by state funds, they can afford to Crowding Out Private make generous buyout offers to private ISPs. Educational Alternatives ISP owners in California charge between $100 and $400 per student. Charter schools The damage done to the independent home- can hire owners as “administrators” and pay schooling movement extends beyond offering them $1,000 per student, while still retaining financial and other resources to families to 75 percent of the state funding for charter seduce them into government programs. The school “overhead.” Everybody wins econom- spirit of volunteerism that suffuses home- ically here, as the homeschooling families no schooling support groups and makes possible longer incur the cost of the private ISP. low-cost cooperative learning opportunities also is undermined by government competi- Slamming the Door on an tion. Parents who offer their time and talents . voluntarily through support groups have been Educational Free Market actively recruited by government home- Having established a viable government schooling programs with employment oppor- alternative to the private sector and indepen- tunities at $20 an hour. dent homeschooling, the government’s next It’s a simple economic calculation for most step is logical—outlaw or regulate indepen- parents to make and just one more step in the dent homeschooling out of existence. Not seduction of homeschoolers. The end result is only is it logical, it follows historical prece- a siphoning off of the creative leadership of dent. the private homeschooling sector. Inevitably, This 1s the same pattern used in the 1800s there are some who follow their leaders back to virtually eliminate the large private-educa- into the system. tion system that predominated at the time. Homeschooling businesses are also under- First, fund it with compulsory taxes, though cut. Private independent study programs (ISP) attendance is voluntary. Once private sector typically provide a range of services to home- competition is driven largely out of the mar- schooling families, including curriculum ket, make attendance compulsory as well.? counseling, specialized testing, record-keep- The same process is underway with home- ing, and other educational resources. It is schooling today and is at various stages in dif- increasingly difficult for them to compete ferent states. With guaranteed funding from against equivalent services offered for “free” taxpayers, the government system can afford by the state. to spend whatever it takes to undercut private The burgeoning charter school movement homeschooling alternatives. provides one more example of the state’s Not coincidentally, the National Education crowding out of private educational enterpris- Association (NEA) has already formulated es. Similar to government homeschooling the game plan for state control of all home- programs, new charter schools in California schooling. For the last several years during ===== PAGE 15 ===== THE SEDUCTION OF HOMESCHOOLING FAMILIES 143 ee tet ——— Pe ———— With guaranteed funding from taxpayers, the government system can afford to spend whatever it takes to undercut private homeschooling alternatives. their biannual conventions, the NEA has children at home is through their government passed formal homeschooling resolutions programs or with a credentialed teacher. That demanding that: is misinformation at best, as even a casual reading of the pertinent education codes » Teachers of home-instruction programs demonstrates.!! meet state certification requirements; Enforcing those policies is all too easy with » State or local permission be required our existing truancy laws; it is exacerbated annually for home study; with the new wave of daytime curfew laws. In * Home study be monitored by local school California, truancy laws are enforced by Stu- administrative personnel knowledgeable dent Attendance Review Boards (SARBs). about excellence in the teaching-learning SARB proceedings are arbitrary, with little environment; resemblance to due process. Recently armed » Students participate in state or locally by the California legislature with the power to mandated testing programs in suitable set- subpoena parents, at least one SARB had par- tings and in other assessments conducted by ents arrested for failure to appear (they were the school district; not homeschooling parents).!2 » Students have the option of attending pub- While SARB actions against homeschool- lic school for part-time instruction. They ing families are still few in California, the should be counted in the average daily mem- majority of children stopped by police bership without proration (in other words, full because of daytime curfew ordinances are per-pupil funding with minimal attendance predominantly homeschoolers. Those ordi- and overhead).10 nances typically allow police officers to write citations forcing parents to appear With the infrastructure already in place to before a court and pay stiff fines for repeat- support homeschooling within the govern- ed violations. The combination of SARBs ment system, it would take only a small leg- With subpoena powers and daytime curfew islative tweak to make these programs com- ordinances will have the proverbial “chilling pulsory. As mentioned earlier, some states effect” on independent homeschoolers, forc- have already implemented some of these reg- ing them underground or into the govern- ulations—homeschoolers in Pennsylvania ment system. and Hawaii, for example, are subject to annu- al approval and monitoring by government A Clarion Call for school officials. . Other states aren’t waiting for legislative Homeschooling Independence tweaks and are trying to outlaw independent While educational statists will never be homeschooling directly. At one time, the Cal- able to put the homeschooling genie back in ifornia Department of Education maintained a the bottle, they’ve made great strides in coax- benign and even marginally helpful attitude ing him to do their bidding. Many home- toward homeschooling. Today, with no leg- schooling activists recognize the dangers and islative changes to the education codes, the are sounding a clarion call to resist the seduc- California DOE informs prospective home- tions of state-funded “freebies” and the schoolers that the only legal way to teach their inevitable strings attached to them. ===== PAGE 16 ===== 144 THE FREEMAN e MARCH 1998 The 1996 National Homeschooling Round- of the educational market to the government. table Conference, titled “Freedom in Educa- Homeschooling families need to understand tion,” held multiple workshops debating the that the real cost of the “free” homeschooling merits and dangers of government-funded resources provided by the government is, ulti- homeschooling programs. Organizations like mately and inevitably, their freedom. [] the California Homeschool Network have already taken a stand. Their recently issued I. Karl M. Bunday, “School Is Dead: Colleges That Admit Declaration of Homeschool Independence Homeschoolers FAQ,” October 7, 1997, http://learninfreedom.org/ colleges_4_hmsc.html. reads in part: 2. Dr. Brian Ray, “A Nationwide Study of Home Education: Family Characteristics, Legal Matters, and Student Achievement” . . (National Home Education Research Institute, 1990). The home- The Board of Trustees of the California schooling families in the study averaged $488 per pupil per year. 3. Peter Brimelow and Leslie Spencer, “Comeuppance,” Forbes, Homeschool Network holds freedom to be February 13, 1995, p. 121. “Inflation-adjusted per-pupil spending essential to the fulfillment of homeschool- reached $5,971 in 1993. LL) : : 4. Dana Hawkins, “Homeschool Battles: Clashes Grow as Some Ings promise. We therefore dedicate our in the Movement Seek Access to Public Schools,” U.S. News and resources and services toward the protec- World Report, February 12, 1996. 3 : . 5. Linda Parrish, “Home-school Programs Are Lucrative for Dis- tion and promotion of homeschooling tricts,” Seattle Times, October 1. 1996. independent of government support and 6. Mark Sabbatini, “State Cites Violations in Home-Study Pro- : : : : gram,” Los Angeles Times, June 24, 1995, p. B-7. intervention. This policy represents a 7. Kelly David, “Workshop to Provide Home-Schooling Tips,” deliberated response to the encroachments Los Angeles Times, June 3, 1996, p. B-3. I : 8. “Home School Program to Be Expanded,” San Diego Union- on family independence and the security of Tribune, May 17, 1996, 3 B.2. homeschooling rights posed by the growth 9. EG. West, Education and the State (Indianapolis: Liberty of government funded and controlled Fund, 1994), Chapter 10: “The Rise and Fal} of Nineteenth-Century Private Schools for the Masses. home-based school programs. 10. NEA Board of Directors, “Policy Statement on Home Study,” 1984. While these excerpts are from the 1984 resolutions, the sub- ] ] stance of them has been re-approved at subsequent conventions. Educational efforts like these are needed to 11. Jackie Orsi, Our Rights, Our Laws, Our Children (Vineburg, : : : Calif.: California Homeschool Network, 1996). avoid following the same p ath of private 12. William L. Seymour, “Parents Get Schooled in Embarrass- schooling in the 1800s, which ceded 90 percent ment; Attendance Up,” Fresno Bee, November 6, 1995, p. BI. — on = ~~ I ===== PAGE 17 ===== Ideas and Consequences by Lawrence W. Reed Michigan: Where Privatization Is Working wenty years after Margaret Thatcher of bucks a month on my garbage pickup bill, became the first major national leader to and I hope it is to you as well. make “privatization” a policy of government, For those diehard skeptics, Michigan pro- I still hear opponents claiming “there’s no vides a cornucopia of privatization achieve- proof yet that it works.” They should pay a ments—at both the state and local levels of visit to my state, Michigan, for an eye-open- government. It’s a remarkable track record, ing, paradigm-shifting experience. made all the more so because Michigan was Privatization is a term with which readers once considered one of the toughest union- of The Freeman are quite familiar. It is simply dominated nuts to crack. Public-employee the transfer of a service or an asset from the unions are usually staunch opponents of public sector to the private sector, and it can opening their “business” up to competition be accomplished wholly or partially by and customer choice. employing any number of proven methods. Michigan is home to one of the biggest and The idea is to curtail or replace the ponderous most successful sales of a state-owned enter- and expensive apparatus of government prise in the history of the country. In 1995, the monopoly with the time-honored features of state sold its “Accident Fund” —the largest free markets: competition, choice, account- provider of workers’ compensation insurance ability, and consumer sovereignty. in Michigan—to the highest bidder, yielding The reasons to privatize are numerous, proceeds of $291 million. Prior to the sale, the though saving money and improving quality Fund was a civil service bureaucracy whose are among the most commonly cited. In my budget had to be approved by legislators, with belief, the best reason is not that privatization predictable results: political manipulation of results in better government, or even better rates and staffing, reduced competition in the services. If done properly and fully, privatiza- industry, and a growing exodus of private tion transfers the control of scarce resources providers from the state. from collective action (i.e., government) to Today, not one insurance policy for work- individual action. By shrinking the sphere of ers’ compensation is sold by the state of coercive monopoly in our lives and enlarging Michigan. A flourishing, competitive market the realm of voluntary relationships, privati- involving many private companies and insti- zation is a crucial strategy in the enhancement tutions takes care of it all. and preservation of individual liberty. That’s Through privatization, Michigan state gov- far more important to me than saving a couple ernment has shed numerous other functions Lawrence Reed, economist and author, is president of and activities in recent years, including a nat- the Mackinac Center for Public Policy, a free-market ural resources magazine, health care and food research and educational organization headquar- service within its prisons, liquor distribution, tered in Midland, Michigan. and many aspects of the annual state fair. But 145 ===== PAGE 18 ===== 146 THE FREEMAN e MARCH 1998 it is at the local level of government—county, rity of several public-housing neighborhoods city, and school—where a genuine privatiza- in Flint was contracted to a private company. tion revolution is underway. All across Michi- It was the first time in the state’s history that a gan, city council people, county commission- city refunded a portion of its citizens’ taxes so ers, township supervisors, and school board that a private firm could replace local law- members are putting the concept to work at a enforcement personnel. pace that’s hard to keep up with. Michigan’s justice system increasingly is Traverse City doesn’t pick up garbage any relying on the private sector for solutions to more; private firms under contract with indi- youth crime. The state’s first privately owned, vidual citizens and businesses get the job maximum-security juvenile facility, the done. At least three-quarters of the state’s Wolverine Center, opened its doors in Sagi- municipalities have now privatized garbage naw County last September. Saginaw County pickup by one method or another. Chief Probate Judge Faye M. Harrison says, Ann Arbor turned over its parking struc- “Dealing with the private sector can provide tures to a private firm, which made them some flexibility. If a child has a particular spe- cleaner, brighter, and safer than they ever were cial need, we can seek a program that fits it in the past. rather than trying to plug someone into the By contracting with a private company, one program the county or state finances.” Alpena transformed its problem-ridden For 20 years, Coleman Young was mayor of wastewater-treatment plant into a model facil- Detroit and a defender of its unionized ity, saving the city a quarter million dollars a bureaucracy. As a private citizen, he saw effi- year. Wexford County privatized its emer- ciencies through privatization that he never gency medical service in 1994. Not only did sought to implement when he was in office. this result in an improvement in the quality of Last July, he proposed that the city contract care and a reduction in costly administrative with a company he co-owns to change the oil burdens, it cut the cost of the service by about in Detroit’s 500 police cars. The city, with its 50 percent—saving the taxpayers over own oil-changing garages, has spent $1 mil- $300,000 in the first year alone. lion annually for this simple task; Young said A for-profit education company is now pro- he could do it for a mere $300,000, a whop- viding new opportunities for students in the ping 70 percent savings. (Mr. Young died on public schools it manages in Flint and Mount November 29, 1997.) Clemens. In Kalamazoo and Battle Creek, a The examples cited above represent a California-based firm is making downtown cross-section of hundreds of successful priva- parking more customer-friendly by managing tizations in Michigan. There have been fail- meters, ramps, and lots. Gypsy moths are now ures along the way too, but they’ve taught suppressed in Midland County not by the important lessons about how to do it right county itself, but by a private firm owned by a without slowing the overall statewide trend. former county employee. The tiny town of To strengthen our liberties, government McBain is earning widespread acclaim for must shrink and more of the services people success in privatizing its economic develop- desire must come through private, voluntary, ment efforts. and competitive provision. Privatization is a After residents complained that the city’s key strategy toward that end, and in Michigan police officers didn’t show up for their shifts we’re proving to the rest of the country that it and rarely stepped out of their cars, the secu- can indeed be made to work. OJ ===== PAGE 19 ===== THEF [DEAS ON LIBERTY — How Cities Put the Brakes on Taxicabs by Sam Staley he lifeblood of any economy is its people. Oftentimes, though, in the latter stages of a Human progress ultimately springs from city’s development, the entrepreneurial ener- the inspiration of people who transform their gy that transforms green fields and villages ideas into goods and services that others can into thriving urban centers is taken for grant- use every day. ed. Bureaucracies and special interests That is why entrepreneurship is critical to encroach on small businesses and residents, the success and growth of a community and sapping the creative energy from local entre- economy. Not surprisingly, economic growth preneurs and pushing their investments and is driven by the expansion of small business- growth toward more hospitable environ- es.! Entrepreneurs invest in new ventures ona ments. In the late twentieth century, suburban hunch that they are tapping into some unmet and rural areas have provided the economic demand.2 Guided by expectations of profits, climate best suited to small business develop- entrepreneurs experiment with and test new ment. As a result, more than two-thirds of all ideas. If they hit the mark, their fledgling new jobs in the 1980s and 1990s have businesses grow and prosper. emerged in the suburbs.> This lesson is important for cities. Prosper- ous cities are havens for trade and investment. pg cicabs and Entrepren eurship The earliest cities were markets for agricul- tural goods. Cities facilitated economic The extent to which cities erect obstacles to expansion by providing a mechanism for entrepreneurship can be quite numbing. Take, developing new markets beyond the closed, for example, the case of taxicabs. narrow market of the village or the nearby Taxicabs are, potentially, one of the purest farmers.3 Historically, the rise of great civi- forms of entrepreneurship. The business can lizations has been predicated on trade. Some be established with a car, a driver, and some- cultures, such as the ancient Phoenicians, one with the savvy and gumption to recognize depended on trade for their livelihood. The an unfulfilled need in the market. rise of Amsterdam and the great cities of Italy Sitting in her apartment, Lisa, an aspiring was credited in large part to their position as college student, mulls over ways to pay her centers for trade and commerce.4 tuition at the local university. She visits some -_ of the local grilles and sees an unmet need: a Sam Staley is vice president Jor research at Buckeye part-time cab service that works with local Institute for Public Policy Solutions in Dayton, Ohio, Lo tavirants to transport customers home dur- directs the Urban Futures Program for the Los Ange- } les-based Reason Public Policy Institute, and has ing evening and weekend hours. She could more than ten years of experience in local govern- €aIn money at those times, and spend the day ment consulting. studying and attending classes. 147 ===== PAGE 20 ===== 148 THE FREEMAN e¢ MARCH 1998 N— N— A — me —— ee — Local regulations have made the realities of starting up a taxicab business far more complicated and costly. These regulations add tens of thousands of dollars to the normal start-up costs of new companies. So our young entrepreneur simply uses her Presumably, this is to ensure the market is not own car, ensures it is in safe working order, flooded with fly-by-night companies. But the buys insurance (another $3,000 for cabbies), process makes it almost impossible for new builds a client base, and she’s off. Right? companies to begin legally. This requirement Not quite. Local regulations have made the is particularly onerous for small companies. realities of starting up a taxicab business far Often, they are established on an entrepre- more complicated and costly. These regula- neurial hunch, not on the basis of sophisticat- tions add tens of thousands of dollars to the ed market analysis. normal start-up costs of new companies. In Denver, for example, start-up entrepre- neurs had to prove their company would serve Licensing and Limitations an underserved market and show that the existing companies were incapable of provid- . First, Lisa needs a license to operate the ing the service. That is an almost impossible cab. Or, more accurately, she needs licenses standard since entrepreneurs respond to mar- for her budding enterprise. In other words, ket opportunities, not to whether existing before she can begin her company, local gov- companies have the capacity (or inclination) ernment officials need to approve and register to provide the product. This requirement her business. alone was largely responsible for keeping new At least three licenses are often required in cab companies out of the Denver market from the taxi business: one for the driver, one for 1947 to 1995.6 Local regulations that presume the car, and another for the company. While that new companies do not serve the public driver’s licenses may range from just $8 to interest have become one of the greatest more than $50, fees for cars and companies obstacles to entrepreneurial development in often range from $25 to $250 per car. In some the taxicab industry. cities, Lisa may be faced with almost $600 in licensing fees just to put one car on the road. This, of course, presumes that Lisa is Multiple Regulations allowed to establish her company. Many cities Discourage Entrepreneurs simply prohibit new cab companies from starting up. Some, such as Columbus, Ohio, In a comprehensive analysis of taxicab and New York City, have moratoria on issuing ordinances in eight Ohio cities, the Buckeye new taxicab licenses. This has created a lucra- Institute found that cities tailor their regulato- tive black market for existing licenses, rang- Ty system in unique ways, each with a decid- ing from $5,000 in Columbus to more than edly anti-entrepreneurial effect. $60,000 in New York City. So if Lisa were starting up in Columbus, she would pay more * Toledo imposes a cap on the number of than the official cost of $75. cabs and prohibits advertising. It requires a Even when there is no moratorium on new public hearing for each new license and cab cabs, cities commonly require proof that the company, proof that new companies would taxi company is needed. Some cities require serve the “public interest,” and financial public hearings every time someone wants to reports from the companies. The city also sets start a new company or add a car to the fleet. taxi fares by ordinance. ===== PAGE 21 ===== HOW CITIES PUT THE BRAKES ON TAXICABS 149 * Cleveland also has a cap on taxicabs. It Moreover, research on cities that have dereg- refuses to license additional cabs older than ulated their cab industries found that, on aver- three years, prohibits companies with fewer age, the number of cabs increased by 23 per- than 25 cars from operating, and requires a sep- cent.” Within the first three months of deregu- arate dispatching office and two-way radios in lation in Indianapolis, 32 companies started every cab. (Cell phones are not good enough.) up, three-quarters of which were owned by e Dayton keeps entrepreneurs at bay by minorities and women.? Cincinnati experi- requiring companies to have separate dis- enced a 49 percent increase in the number of patching and business offices and prohibiting licenses issued in the wake of its deregula- part-time operators. Consequently, any new tion.9 (The deregulation consisted of remov- start-up company will need enough cars and ing many of the onerous criteria on which personnel to cover 24-hour shifts, seven days approval of licenses had been based.) This a week. The company will also have to hire suggests a substantial opportunity to serve full-time office staff to dispatch calls even consumers in those cities. when modern technology would allow car dis- patching through cell phones. Protecting Existing Companies The sum total of these regulations can be (Cjearly, taxicab regulations have purpos- substantial. The Buckeye Institute estimated .¢ other than raising money. If that were that the regulatory burden of local regula- ir sole purpose, licenses and fees would tions on a newly established taxicab compa- pe much higher. As noted, licenses on the ny amounted to almost $67,000. This esti- pack market often cost substantially more mate excluded the initial costs of a car and than the official price set by the local insurance. Importantly, licensing fees were a relatively small portion of the total regulatory burden of local ordinances, less than one percent in Dayton, for example. The bulk of the burden resulted from nonfinancial regulations, which require companies to provide service during specific hours and in specific locations. More than three-quarters of the regulatory burden in Dayton resulted from those requirements. government. The real effect of the laws is to shut out entrepreneurs, limit competition, and protect existing companies. Indeed, one of the princi- pal arguments against deregulating local taxi- cab markets is that revenues for existing dri- vers and companies will fall.10 That limiting competition is the chief objective is also evident by looking at the nature of the regulations imposed on taxicab companies. Regulations rarely focus on out- Public Interest Not Served comes or performance. They almost always focus on the inputs or characteristics of the industry irrespective of health and safety con- siderations. In fact, few ordinances provide any mechanism for addressing service-quality concerns once a license has been issued. Pro- hibitions on part-time cab operations, which ] ] ] make starting up new companies very diffi- Taxicab Fares for 1-mile Trip cult, may be Justified in the name of protect- in 8 Large Ohio Cities ing consumers. Yet, full-time companies may Market-determined rates $2.59 also poorly serve customers, particularly City-set maximum rates $2. 85 when they are protected from competition. It ) is revealing that ordinances rarely provide Rates set by ordinance $3.10 ways to restructure or close unsound compa- Source: Taxicab Regulations in Ohio’s Largest Cities nies. Of course, as with all other private busi- (Dayton, Ohio: The Buckeye Institute for Public Policy NESS activity, the market provides swift disci- Solutions, October 1996), p. 19. pline for the wayward company. The regulations do not serve the public interest. An examination of taxicab fares in eight Ohio cities found that cities that allowed the market to determine rates had generally lower fares: ===== PAGE 22 ===== 150 THE FREEMAN « MARCH 1998 Unfettered markets are effective at regulat- prospects for encouraging revitalization and ing businesses through the profit-and-loss sustained growth are limited. OJ] system. But regulations that hamper entrepre- — neurship an d comp etiti on ¢ ompromis e th e 1987) David Birch, Job Creation in America (New York: Free Press, market’s ability to discipline poorly perform- 2. See Israel Kirzner, Competition and Entrepreneurship (Chica- . : cl . go: University of Chicago Press, 1973). ng companies. They also limit the €CONoMIC 3. An excellent examination of this role for cities can be found in potential for cities, SINCE new companies Can- Jane Jacobs, The Economy of Cities (New York: Random House, 1969). not form and Xp and. 4. Joel Kotkin, Back to the Renaissance? (Malibu: Calif.: Pepper- dine University/Pacific Research Institute for Public Policy, 1997). 5. An excellent summary of these trends can be found in ibid. See CI Iso Joel G , Edge City: Li the New Fronti York: Limits to Growth Doubleday. 1991, ge City: Life on the New Frontier (New Yor . } ) 6. In 1995, under pressure from entrepreneurs and litigation by When cities erect insurmountable barriers the Institute for Justice, a Washington, D.C.-based public-interest : law firm, Denver deregulated its cab industry. See Dwight Filley, to entrepreneurship ? the ] consequences for “Taken for a Ride: How the Taxi Cartel and the State are Disserving economic growth are significant. If entrepre- Denver's Economy,” Issue Paper #6-93 (Golden, Colo.: Indepen- fd _ dence Institute, April 1993), and “Challenging Denver’s Taxicab heurs cannot get their ideas past the regu la Monopoly,” Litigation Backgrounder, Institute for Justice, Washing- tors, they certainly will not be able to build ton, D.C, nd. np. : HER) _ 7. Price Waterhouse, Analysis of Taxicab Deregulation and Reg- and expand companies. The city’s long TIM rion (Kensington, Md.: International Taxicab Foundation, 1993), economic health is jeopardized. Regulations, p. 11. This report, however, is generally critical of deregulation. : : ant 8. Ordinance 76 Update, Regulated Competition in the Indi- such as taxicab ordinances, that limit entry anapolis Ground Transportation Marketplace, Economic Develop- and competition inevitably stifle the entrepre- ment Committee, January 19, 1995. This ordinance deregulated the : : : Indianapolis cab industry. neurship and market Innovation necessary to 9. “Taxicab Regulation in Ohio’s Largest Cities” (Dayton, Ohio: build neighborhoods, particularly in older The Buckeye Institute for Public Policy Solutions, October 1996), «, - . . . . . p. 26. cities. Until city administrations recognize the 10. Roger F. Teal, “Taxicab Regulatory Change in San Diego,” perverse effects of local regulation, the Taxicab Management, Fall 1986, p. 32. THEFREEMAN IDEAS ON LIBERTY 1997 Bound Volume turdily sewn in a single volume with navy blue cloth cover and gold foil stamping, the twelve issues from January through December 1997 — 776 pages, fully indexed for handy reference to the latest literature of free- dom. More than 100 feature articles on topics such as educa- tion, environment, government regulation and control, health care, individual rights, money, morality and ethics, private property, voluntary action, and international trade. Columns by Mark Skousen, Larry Reed, and Doug Bandow. Reviews of more than five dozen books—and all the 1997 issues of Notes from FEE. Available February 15, 1998. $24.95 each Save! Special introductory price: $19.95, through April 30, 1998 ===== PAGE 23 ===== THEFREEMAN IDEAS ON UBERTY ———— The Persistence of Poverty in India: Culture or System? by Parth J. Shah he recent death of Mother Teresa drew India’s poverty need to answer the question. the world’s attention to the dire poverty of They need to decide where to focus their ener- Calcutta and of India in general. Mother Tere- gies. But first some elaboration on culture, sa ministered to the poorest of a very poor economics, and politics. country where asceticism, antimaterialism, and fatalism are integral to the majority reli- Ta? gion, Hinduism. For those who follow these India’s Culture beliefs, any effort toward changing the mater- In the dominant Hindu religion, the pur- ial state of the poor is futile. To them wealth, pose of life is to work toward achieving not poverty, is surprising. Moksha—relief from the cycle of birth and Will India’s poor ever prosper? A focus on death. One of the ways of accomplishing the the dominant religion and culture portends a goal is to renounce the material world— rather pessimistic future. Those who general- Sansar—and become a Sanyasi. One goes ly discount the influence of religion and cul- away into the wilderness and spends one’s ture in modern societies maintain that India’s life praying, which can take several forms; poverty is the result of its political and eco- the most common are solitary meditation nomic system. Representative democracy and continual singing of devotional hymns with a largely illiterate population has allowed and songs (Bhajans). operators of the political system to amass Since most mortals are unable to renounce wealth for themselves. The reign of Nehru- the material world, the second suggested way vian socialism, more popularly known as the is to live in the Sansar by strictly following “license-permit-quota raj,” has left little room the prescribed guidelines. For this purpose, for private initiative and enterprise. The the human lifespan is divided into four peri- Hindu rate of growth has been the outcome. ods (generally by age), each with its own rules That would be the outcome, it is argued, under and goals. Adherence to those rules and goals such a system in any culture. is called Dharma. It is obviously impossible What is responsible for India’s poverty— to write down rules to cover all possible situ- the culture or the politico-economic system? ations in life, so the lives of characters in the (Religion in a broader sense is assumed to Hindu epics “Ramayana” and “Mahabharata” define the culture, and so the terms are used are offered as exemplars. Simply stated, interchangeably.) Those working to alleviate Dharma does not consist of amassing materi- al wealth. One can acquire material things and Parth Shah, on leave from the University of Michi- SN82age in human relationships, but the fewer gan-Dearborn, runs the Centre for Civil Society in the better. As much time as possible should be New Delhi, India. spent praying; ultimately, along with fulfilling 151 ===== PAGE 24 ===== 152 THE FREEMAN « MARCH 1998 one’s Dharma in the material world, praying helpless until the government acts or prods is the route to Moksha. In the Indian culture, them to act. Many ascribe the relative lack of asceticism and antimaterialism are not just private initiative and enterprise to the wide- preferred but glorified. spread belief in the Mai-Bap Sarkar. Since Gita, the counsel of Lord Krishna, is anoth- Ramrajya was in India, only the Indian gov- er religious text that is widely read and fol- ernment is expected to fulfill this role. Emi- lowed. Two of the important ideas in Gita are grants from India—from the land of Rama— detachment and Karma. Detachment is an are therefore generally more industrious and attitude that one should strive to achieve in self-reliant. life. Indifference to everything is the ideal The Indian culture’s asceticism, antimateri- state of mind. Even when one lives in the alism, and fatalism and the Mai-Bap-Sarkar Sansar, one should not be attached to any- view provide little encouragement for the pur- thing in it—neither to material things nor to suit of material wealth. They actually actively other human beings. It’s fine if one has mate- discourage it. Indians are therefore said to be rial conveniences, and love for family and “satisfiers” and not “maximizers” and thus friends, but it is equally acceptable if one does immune to economic incentives and logic. not. One should be utterly and completely But isn’t the economic logic universal? indifferent to all things and all beings. The concept of Karma is closely tied with the idea India’s Political and Economic of detachment. It suggests that whoever one is Syst em and whatever one has are the result of past lives and past actions. One’s current status is Those who believe in the universality of not only justified but is deemed hardly alter- economic logic and incentives maintain that able. The idea of Karma indirectly provides India’s poverty is due to its political and eco- support for India’s caste system. (The caste nomic system. Among the British colonies system has two important aspects: the associ- that gained independence in this century, ation of professions with particular castes and India is the only one to have sustained democ- the view of the people in lower castes as racy. But India is not immune to the paradox untouchables. The second aspect is losing its of democracy. Democracy is the least coer- influence but the first still survives.) cive form of government, but its workings Birth into a given caste is determined by expand government’s coercive powers. The Karma. One is expected to accept the caste dynamics of democracy, coupled with the and try to fulfill the role assigned to it, that is, adoption of the “Nehruvian model of growth,” do one’s Dharma. Understandably, fatalism is left no area of Indian life safe from the gov- ingrained in the people of India. ernment’s visible foot. The government did The epic “Ramayana” describes the king- not abolish private property but microman- dom of Lord Rama. During his reign there aged each and every aspect of production, dis- was abundance, happiness, and contentment. tribution, and consumption through its now He was the ideal ruler, and his rule is called famous license-permit-quota system. The sys- Ramrajya. (That is what the Hindu fundamen- tem conferred unlimited power on politicians talist political parties promise when they and bureaucrats. The leaders plundered the come to power.) Since the time of Rama peo- country in the guise of developing it. India put ple have been awaiting another Ramrajya. It an end to the British raj only to usher in the has yet to arrive, but the idea that only a good Nefa-Babu raj (politician-bureaucrat raj). ruler can bring abundance and happiness is Here’s an example of the Neta-Babu raj. deeply embedded in the Indian psyche. In Cars were declared luxury goods and until modern times, government is expected to be recently only two companies were allowed to that benevolent ruler. This wishful depen- produce them—in the numbers dictated by dence on the government for their deliverance the government. They sold the same model is described as Mai-Bap Sarkar (government for some 40 years, and one could buy it in any as the mother and the father). People feel color as long as it was white. Justifications for ===== PAGE 25 ===== THE PERSISTENCE OF POVERTY IN INDIA: CULTURE OR SYSTEM? 153 government controls always become self- this ancient civilization—the commerce min- fulfilling; cars remained a luxury good until ister called a press conference and proudly recently. One more example of the fatuity of announced the list of items that were on OGL Indian rule: government experts toured sever- (Open General License). Import of these al countries to “study” the design and con- items no longer required permission from the struction of roads. Following the common government. Did the list include information- practice in those countries, they decided to technology products to move India into the put wider medians lush with grass, shrubs, 21st century and to allow its software engi- and trees on highways. Suddenly highways neers to compete globally? Not exactly. The began to suffer serious traffic jams. The abun- list included cosmetics and stockings. Prior to dance of the median had been discovered by liberalization, someone actually had to get a cows. The traffic meandered through the hun- license to import LCOréal and Leggs products. gry cows stomping toward the median and the Now with free access to cosmetics and stock- thirsty ones swaying toward the curbs, where ings, at least Indian women are allowed to there were water canals. Food and water were compete with their sisters abroad. This is lib- at the highway—where else would cows go? eralization with Indian characteristics. This was socialist economic planning with Given such controls and especially the Indian characteristics. mindset of the Neta-Babu raj, the persistence As Henry Hazlitt’s fable prophesied, Time of India’s poverty, the argument goes, does Will Run Back. Dwindling foreign exchange not need any other explanation. But the ques- reserves and a crumbling economy forced tion does remain. India to liberalize. And liberalize she did. The auto market was opened up. At first, foreign The Culture or the Syst em? companies could not establish their own man- ufacturing units, but were allowed to form It is impossible to establish any theological, joint ventures with Indian companies. The psychological, sociological, or economic theo- memory of the British raj still haunts India; ry to determine whether culture or the system she is wary of foreigners. Initially, foreign is the more dominant influence. It is hard to companies were allowed to own a 25 percent say how much the culture or the system deter- stake in joint ventures; control had to remain, mines the day-to-day activities of the people— it was argued, in the hands of Indian partners. rulers and ruled. Both the culture and the sys- Then the ceiling was raised to 40 percent. tem are dynamic. They continuously evolve Sometime later, after much wrangling, it went and interact. Both are products of human up to 49 percent. It stayed there for a while, action; the system is influenced by the culture precariously balancing India’s sovereignty of the people who form it, but the system also and the demands of her economy. India then constrains the kind of culture that evolves. The lost its “sovereignty”; the ceiling was finally easiest answer, of course, is that they are inter- raised to 51 percent. Some new models and dependent. They jointly govern the material colors came in. Foreign companies are now and spiritual state of the people. As in Alfred allowed to roam the auto market freely—as Marshall’s economics, it is not supply or long as they get permission from the appro- demand alone that determines the price; they priate government ministries. The ministries are two blades of the same scissors. habitually remind people of their promise to But if I had to choose, I would pick the sys- make speedy decisions; all major investment tem over the culture. I cannot offer any theo- decisions are on the fast track. If they actual- retical arguments, but 1 can suggest some ly expedited requests, would they need to empirical and evolutionary ones. Concern repeatedly promise to do exactly that? The with the afterlife and thereby at least implicit memory of the British raj keeps the Neta- aspersion on earthly life have been common Babu raj alive and well. to almost all major religions of the world. So Some months back—don’t worry about has been the emphasis on asceticism and anti- 3, 6 when I’m writing this, nothing gets dated in materialism. Recall the New Testament’s “eye ===== PAGE 26 ===== 154 THE FREEMAN e MARCH 1998 of a needle.” No major religion has proffered ic systems are reformed, material abundance the pursuit of material wealth as the purpose is bound to follow. The precise nature and of human life. Devotion to one’s religion and composition of material progress would culture, even a fervent one, has been common depend on particularities of the people in all too. The Mayflower was filled with devout their varied dimensions of life. Certainly we religious dissenters. The Pilgrims lived in do not want only Coke and Levis. communes, and subsequent socialist experi- Antimaterialism seems fundamentally at ments were conducted on American soil fora odds with human nature. It may seem that long time. None of these characteristics Hindus and Muslims are an exception. Their stopped the United States from becoming the lack of attention to the body is apparently the most materially abundant society on earth, result of not having discovered ways to attend indeed, the epitome of materialism and con- to it. They, like everyone else, begin to focus sumerism. Fortunately, the early socialist on the body when given ideas and products, as thinking was discarded. The American system amply demonstrated in boutiques and dis- allows individuals to pursue their own ends. cotheques from Dhaka to Delhi. Religious In many ways, the system has succeeded antimaterialism seems to breed only despite its early religion. hypocrisy and guilt. It will become a casualty In light of the American story, why would of the emerging global city. we expect antimaterialism to prevent any The process of evolution is, in a sense, a other society from achieving material pros- move toward perfection, an opportunity to perity as long as it has a system in which indi- fulfill our highest potential as both material viduals are free to govern their lives as they and spiritual beings. Most humans seem to deem right? Of course, in the West it was a pay attention first to the body and then to the long process. But in the information age, it mind and the soul. Providing for the body should take only years what for others took enables the pursuit of the mind and the soul. decades or centuries. With the right system, This is not to suggest that economic and civil no society could be expected to stay material- liberties should be sacrificed in order to pro- ly poor for long. vide for the body. As is clear from the histor- This evolution has taken place not only in ical evidence, liberty, de facto if not de jure, is Christian countries of the West. Buddhist required to make material progress possible. countries, like Thailand and Indonesia, have Moreover, the pursuit of the mind and the soul increased their consumption dramatically just itself requires material things. Ultimately, of in the last decade. East Asia’s Confucianism course, both culture and the politico-econom- has been no hindrance to enjoying Coke and ic system should dovetail to enable the evolu- Levis. The East Asian cultures have shown a tionary process to go forward. remarkable capacity to adapt from antimateri- Perhaps there is some deeper meaning after alism to materialism. Why should Islam or all to liberalizing cosmetics and stockings Hinduism be any less adaptable? before computers and compact discs. Indian The evolution in the West and parts of the politicians and bureaucrats—~Netas and East suggests that once economic energies are Babus—must really be onto something unshackled, religion or culture cannot stand in profound. This is ratiocination with Indian the way for long. Once political and econom- characteristics. [] ===== PAGE 27 ===== THEE IDEAS ON UBERTY ST The Myth of Compulsory Union Membership by Charles W. Baird ((§ Juan labor wants workers to think into thinking that full membership in good they can be forced to join a union as a standing can be compelled. condition of continued employment. The Word games have always been a large part union-employer agreements that accomplish of labor-relations law. Section 8(a)3 of the that are called “union security” clauses in col- National Labor Relations Act (NLRA) says lective bargaining pacts. that it is “an unfair labor practice for an For example, Weyerhaeuser Paper Co. and employer by discrimination in regard to hire the United Paperworkers International Union or tenure of employment . . . to encourage or (UPIU) have a union security clause that discourage membership in any labor organi- requires all maintenance and production zation.” By itself, that would make union employees to “become and remain members security clauses illegal. However, Section of the union in good standing” as a condition 8(a)3 goes on to say, “provided, that nothing of continued employment. It also requires in this Act . . . shall preclude an employer new employees to do the same after a 30-day from making an agreement with a labor orga- probationary period. It seems clear: a worker nization . . . to require as a condition of who doesn’t join the union will not be employment membership therein.” In other employed by Weyerhaeuser. But, as Roland words, employers cannot encourage member- Buzenius proved in a Sixth Federal Circuit ship in a union; they can only compel it. Such Court of Appeals decision on September 8, is the stuff of laws designed to serve special 1997, that is not what the clause means. If it interests. did mean that, it would be illegal. The proviso of Section 8(a)3 would seem to It is well known that in the 21 right-to-work make union security clauses that require states all forms of union security clauses are membership legal. Not so, says the U.S. banned. In those states workers can be forced Supreme Court. In the 1963 case NLRB v. to have a union (selected by majority vote) General Motors Corp., the Court said that represent them, but they cannot be forced to required membership is limited to its “finan- join or pay dues. In the 29 other states—Cali- cial core.” That means that the only thing a fornia, for example—union security clauses union can require of the workers it represents are permitted, and they are usually worded is the payment of union dues and initiation like the Weyerhaeuser clause. Unions routine- fees. No other obligations of membership in ly try to use those clauses to dupe workers good standing can be imposed. In the 1985 case Pattern Makers’ League v. NLRB, the Charles Baird is professor of economics and director Court said that any union member in good of the Smith Center for Private Enterprise Studies at Standing could resign membership at any time the California State University, Hayward. for any purpose without giving any notice and 155 ===== PAGE 28 ===== 156 THE FREEMAN e MARCH 1998 become a dues-paying represented worker. addressed the issue of permissible wording, Finally, in the 1988 case Communication so any wording agreed to by the employer and Workers of America v. Beck, the Court said the union and consistent with Section 8(a)3, is that a worker could be compelled to pay only permissible. Buzenius took the wording issue that portion of union dues and initiation fees to the Sixth Circuit Court of Appeals, which used for collective bargaining, contract on September 8 ruled that the Weyerhaeuser administration, and grievance procedures. No union security clause “leads employees to worker can be compelled to pay dues for such believe that they must become full-fledged things as politics, lobbying, and union orga- union members as a condition of employ- nizing. On average, unions spend only 25 per- ment,” and since that is “directly at odds with cent of their dues on the three activities for Supreme Court precedent,” it must be disal- which they may collect forced dues. lowed. So “membership in good standing,” as that The Sixth Circuit includes only Kentucky, term is usually interpreted, cannot be com- Michigan, Ohio, and Tennessee. (The issue is pelled in any of the 50 states. All that can be moot in Tennessee because it is a right-to- required in the 29 states that have not banned work state.) Until the Supreme Court decides all forms of union security is that workers rep- the wording issue, or until Congress codifies resented by a union pay partial dues. Any the three Supreme Court decisions in amend- union member paying full dues can resign at ments to the NLRA, misleading union securi- will and become a partial-dues, financial-core ty clauses will still be allowed in all other represented worker. Obviously, unions do not non-right-to-work states. But the basic issues want workers to know this. are already decided. No American worker can This brings us back to Weyerhaeuser and legally be forced to become or remain a union Roland Buzenius, who tried to resign his member in good standing in any state. membership in UPIU. The union ignored his The trouble is that the Department of Labor resignation, continued to collect full dues refuses to enforce the Supreme Court deci- from his paycheck, sent him a new member- sions and allows the AFL-CIO to keep work- ship card, and said if he resigned he would ers in the dark concerning those decisions. forfeit his job. National Right to Work Legal This means that workers must file individual Defense Foundation attorneys represented cases with the NLRB and the courts to secure Buzenius against UPIU before the National their rights. Labor Relations Board. The NLRB acknowl- The National Right to Work Legal Defense edged Buzenius’s rights under the court deci- Foundation offers free legal representation to sions and ordered the union to stop collecting workers whose unions refuse to let them full dues from him and imposing any other resign and become partial-dues, financial- membership requirements on him. It also core represented workers. It can be reached required the union to post a notice telling all on the Internet at www.nrtw.org. An amend- Weyerhaeuser maintenance and production ment to the NLRA currently under considera- employees that they have the same rights. tion in Congress would extend right-to-work However, the NLRB allowed the wording protections to workers in every state. If that of the union security clause that requires were to become law there could be no com- “membership in good standing” to stand. pulsory union dues for any purpose in any It said that the Supreme Court has never state. Ol ===== PAGE 29 ===== IDEAS ON LIBERTY On Giving Back by George C. Leef o celebrate the centennial of its founding, give back” rhetoric unwittingly reinforces the the big accounting firm KPMG Peat Mar- mistaken view that businesses profit at the wick made September 22, 1997, “KPMG expense of the people they serve. World of Spirit Day.” The firm’s 130 offices Capitalism rewards people who figure out were closed that day so that, as the letter how to make products or provide services that announcing this event stated, “over 20,000 consumers value more than the resources KPMG partners and employees will spend the used (evidenced by their willingness to pay). day serving our local communities.” The let- Voluntary transactions that produce profits for ter went on to say that Peat Marwickians are businesses like KPMG also yield benefits to “excited about our opportunity to give back to their customers. Profitable businesses no the communities that have enabled us to more have an obligation to “give something endure for 100 years.” back” to “the community” than “the commu- I don’t mind if a lot of accountants take a nity” has an obligation to give something day off. Perhaps whatever “community ser- back to them—or to unprofitable businesses, vice” projects they have planned made those for that matter. 130 communities just a bit nicer. Perhaps Successful companies and individuals have KPMG got some good PR out of the event, already served “the community,” or to shed although I find it hard to believe that many this useless abstraction, people in the commu- businesses will say, “KPMG people cleaned nity with whom they have voluntarily dealt. up the park—Ilet’s take our accounting busi- The wealth of Michael Jordan, Warren Buf- ness to them.” If KPMG’s management has fett, KPMG’s partners, and other successful concluded that a day of community service is individuals was all earned. It was earned by more valuable than a day of accountancy, it’s selling goods and services that people will- their call. ingly paid for. If for any reason such individ- What bothers me about “World of Spirit uals desire to give up some of their time or Day” is that its justification—the supposed money to assist others, they are certainly free need to “give back” to the community—is an to do so. But they shouldn’t do so on the spe- implicit attack on one of the most fundamen- cious grounds that they are obligated to “give tal propositions of capitalism, namely that something back.” trade creates a mutuality of benefit, leaving It has become almost de rigueur for the both trading partners better off. The “need to successful to utter the phrase “giving back to the community” prior to any act of philan- George Leef is president of Patrick Henry Associates thropy. Not surprisingly, groups that consume in East Lansing, Michigan, and directs FEE's net- rather than produce wealth have picked up on work of Freeman Society discussion clubs. this. Recently a consortium of community 157 ===== PAGE 30 ===== 158 THE FREEMAN ee MARCH 1998 activist groups demanded that Bankers Trust um. He publicly declares that he is making donate to them an amount equal to the pay of this donation because he feels a sense of its top five executives—$72.9 million last obligation to “give something back” to the year. In their letter, the activist groups stated community. Does this cause you to rethink that “this $72.9 million compensation pack- your position and see business in a favorable age occurred at the expense of the bank’s light? Or does it reinforce your belief that mandate to serve our flocks.” business profits are ill-gotten? After all, the To its credit, Bankers Trust did not cave in millionaire or billionaire owner has just said to this moral blackmail, but no doubt there that he feels that he must give something are many people who'd say, “Right on!” to back. The “giving back” language implies that the activists’ demand. When “community he has been in possession of something that activists” come knocking at KPMG’ door, wasn’t really his. will they be satisfied with the answer, “We It is more likely, I believe, that the words picked up trash and painted over graffiti on and action will be interpreted as those of our ‘World of Spirit Day’? I don’t think that someone with a guilty conscience, an attempt will be nearly enough “giving back.” to atone for past wrongs. The readings and discussions on the “social responsibilities of Subverting the Market Order ~~ 2usiness” will come back to mind and the obvious question will be, “Is this enough?” If “World of Spirit Day” and similar events the businessman has given back $1 million, may be good public relations (although I doubt isn’t it likely that he is just trying to get off it), but the rhetoric is subversive of private cheap? With so many “unmet needs” in the property and the market order. There are a world, why stop with a measly million for a great many Americans who expressly or museum? implicitly believe the Marxist idea that profits Thus does careless talk, intended to project come at the expense of workers and consumers a warm and fuzzy image of a company or and are morally no better than theft. Every time individual businessman, accomplish the a successful business implies that it owes opposite. And even if it doesn’t do that, it does something to “the community” to atone for its no good either. We need to educate people on profitability, it makes it harder for those of us the moral and economic virtues of capitalism, who advocate private property and free mar- not just portray businesses as plush toys. kets to counteract that pernicious belief. Put yourself in the position of a student who . “Qt . 9 has been taught in government-run schools. In Protecting the “Soil of Liberty grade school you are taught that greedy busi- In Business as a Calling, Michael Novak nesses threaten the planet’s fragile environ- argued that businesses have a moral obliga- ment. In junior high you are taught that greedy tion to “protect the political soil of liberty.” business owners underpay and mistreat their “Businesses,” he continues, “are plants that workers. In high school you are taught that do not grow in just any soil; they depend on greedy businesses routinely shirk their “social specific sorts of political environments. Peo- responsibilities.” Throughout this “education,” ple in business therefore have a responsibility you have heard little or nothing about entre- to be watchful over their political society, preneurship, risk, management, voluntary even as a matter of survival.” exchange, and consumer sovereignty. I concur. People in business should act so Moreover, many of the television shows as to fend off, as much as possible, the and movies you have seen depict businessmen encroachments of state power and to disabuse as malevolent and sometimes even criminal. people of socialistic misconceptions about Your view of business is decidedly cynical if business and capitalism. Unfortunately, the not overtly hostile. message of “World of Spirit Day” is one that Now you hear that a businessman is donat- leads to further erosion of the soil of liberty. ing a lot of money to build, let us say, a muse- We don’t need any more of that. 4 ===== PAGE 31 ===== Potomac Principles by Doug Bandow Ax Business Welfare and Privatize Social Security he president and Congress have promiseda not cash). By 2015 the system will be spend- balanced budget by 2002, but a recent poll ing $57 billion more than it is collecting; the found that just 17 percent of Americans believe revenue shortfall will be $232 billion by the budget will then be balanced, the same per- 2020. The deficits then quickly accumulate— centage who think space aliens are now living an astounding $160 trillion through the year on earth. And people’s skepticism is warranted. 2075. Congress actually added $220 billion in new At the same time, the system, due to years outlays through 2002, spending virtually the of rapid tax hikes, is providing a dismal return entire financial windfall from a growing econo- to beneficiaries. Some retirees are now col- my. There is no cushion if the economy turns lecting less than they and their employers put downward. Moreover, balance will be achieved in. Their number will grow in coming years as only if the budget cuts promised in 2001 and Social Security’s return steadily worsens for beyond—three-fourths of the supposed total younger workers. savings—actually occur. In effect, present leg- The system is unsustainable because it is a islators voted to have future lawmakers make public Ponzi scheme, under which current all of the tough decisions. workers pay current retirees. Social Security But the real budget crisis occurs when the seemed to work for years because 30 workers unfunded Medicare and Social Security bills initially supported every retiree and more come due. Before the recent budget compro- than 40 percent of potential beneficiaries died mise, Medicare, which provides health care before collecting their first check. But when for the elderly, was expected to go broke in the Baby Boom generation begins to retire three years, by early 2001. The new legisla- early in the next century there will be only tion supposedly saves $115 billion through two workers supporting every retiree, who 2002, but much of that is fiscal sleight of will be living longer than ever. To maintain hand. Even if the numbers were honest, how- current benefit levels, warns the Social Secu- ever, the “reforms” would only put off the day rity System’s Board of Trustees, would of reckoning a few years, to 2008 at most. require payroll tax rates of 30 to 40 percent. Then comes the financial tsunami. Half steps—some combination of tax hikes Even worse, Social Security will run out of and benefit cuts—are no answer. Most would money by 2012, and possibly as early as 2006, make the financial return even worse for if the economy worsens (the so-called trust current taxpayers. None would make the sys- fund is empty, filled with government IOUs, tem sound. Several would generate almost Doug Bandow, a nationally syndicated columnist, is as much pak a ean the a senior fellow at the Cato Institute and the author CO ; and editor of several books, including Tripwire: CIiSiS, cheating workers and retirees along the Korea and U.S. Foreign Policy in a Changed World. way. 159 ===== PAGE 32 ===== 160 THE FREEMAN e MARCH 1998 In short, Social Security cannot be fixed. national income that would result would ben- The only way out is to follow the Chilean efit virtually every firm in America. model of switching to a private retirement Many firms today live off the taxpayer. The system, where workers invest their own 100 most egregious federal corporate welfare money for their own retirement, rather than programs account for some $65 billion annu- turn it over to the government to pay current ally. Although Congress made modest cuts in retirees. Such a system would not be difficult business subsidies in 1995, it has upped out- to implement in America: in essence, workers lays in succeeding years. could invest their (and their employers’) Ever wasteful are agriculture programs, FICA tax payments in IRAs. Social Security which consume some $15 billion annually. payments would diminish as fewer and fewer Money goes to subsidize crop research, food people (current retirees and those now close production and exports, and land conserva- to retirement) relied on the system. tion. In 1995 Congress substantially hiked Most public officials privately admit the expenditures for the Market Access Program, need for radical reform of Social Security and which underwrites advertising for Campbell other entitlements, but publicly oppose any Soup foods, Dole bananas, Gallo wine, Mars change that might risk their careers. Also of candies, and Sunkist oranges overseas. Last concern to even some advocates of privatiza- year federal crop insurance was a big winner. tion is the cost of the transition. For Washing- The Commerce Department also exists pri- ton to pay current benefits as workers were marily to subsidize favored industries. Last diverting their Social Security taxes into pri- year the House Appropriations Committee vate retirement accounts would expand the approved $361 million—more than requested deficit by an average of $86 billion annually by the Clinton administration—for the Eco- (the number is sensitive to the underlying eco- nomic Development Administration, long a nomic assumptions) over the next 16 years, fount of business pork. The Small Business after which privatization would generate net Administration, which provides taxpayer positive budget impacts, according to Peter largesse to smaller firms, received a signifi- Ferrara of Americans for Tax Reform. Thus, cant budget boost for 1997. Independent privatization would require significant tax agencies like the Export-Import Bank and hikes or additional borrowing, neither of Overseas Private Investment Corporation which is desirable, or real budget cuts, which continue to enrich the largest corporations, are desirable, but not attractive to a Congress like Anheuser-Busch, Boeing, McDonald’s, that has been increasing outlays. and Westinghouse. The answer is to find the right budget cuts: Business also benefits from the Energy business subsidies. Congress could fund the Department’s $6 billion worth of research and transition to a private retirement system by development activities and other subsidies, as killing one of the least justifiable and least pop- well as big budget programs at the Interior ular expenditures of the federal government. and Transportation Departments. Another $15 There is another reason to focus on corpo- billion worth of corporate subsidies, benefit- rate welfare. The greatest beneficiaries of ing major computer makers, among others, Social Security privatization would be work- are buried in the Defense Department. And ers, who would enjoy a wealthier and more there’s much more. secure future. But business, too, would profit. Killing these and other similar programs Economist Martin Feldstein estimates the obviously won’t be easy. But despite the fear- economic gain of privatization to be $10 to some political reputation of some business $20 trillion. (In contrast, the present value of groups, none of these programs has much the unfunded Social Security lability today popular support. Americans may be a gener- stands at $9 trillion.) That means benefits not ous people, but they aren’t clamoring for law- just for investment companies handling retire- makers to use their money to enrich the For- ment portfolios. The higher rate of return on tune 500. After all, these subsidies, observe capital, growing capital stock, and larger budget analysts Dean Stansel and Stephen ===== PAGE 33 ===== The Foundation for Economic Education Irvington-on-Hudson, New York 10533 Tel. (914) 591-7230 Fax (914) 591-8910 E-mail: freeman @westnet.com March 1998 Judges versus Majorities versus Peaceful People y the time Ronald Reagan was first ically equate respect for majoritarian out- Bie President, conservatives comes with respect for the decisions of had grown intensely concerned ordinary people. Judicial restraint is about “judicial activism.” After nearly appropriate when the decisions at issue thirty years of the likes of Earl Warren before the courts are private and non- and William Brennan attempting from political. The case for judicial restraint, the bench to re-engineer society in a left- | however, is more problematic when the ist image, conservatives were under- decisions in question are majoritarian standably angry. A premier goal for electoral outcomes. A decision made in a many conservatives became filling the voting booth differs greatly from a pri- federal bench with judges who would vate, non-political decision. The same respect the decisions of ordinary people person who is careful and discerning rather than displace these decisions with | when making private choices is too often the preferences of the arrogant elite. careless and confused when voting. Not The Right's insistence that judges all decisions by ordinary folk are alike. respect the decisions of ordinary people Hence, not all decisions deserve the came by 1980 to be couched as a demand | same amount of judicial deference. that judges defer in almost all circum- Consider two different cases. stances to democratic outcomes. Case #1: I own a shopping mall and After all, isn’t democracy a means of refuse to lease space to video-game enabling The People to govern them- arcades. Perhaps I believe that permit- selves as they deem best? In conserva- ting such-arcades in my mall will reduce tives’ eyes, people who support a judi- my profits. Perhaps I have aesthetic ciary that regularly strikes down or objections to video arcades. Whatever ignores legislative enactments are elites my reasons, because the lion's share of who (unjustifiably) distrust ordinary the costs and benefits of my decision fall people to make wise choices. squarely on me, I will make an informed Conservatives fittingly decry the arro- | and prudent choice on whether or not to gance of those who ask courts to over- lease space to video arcades. ride people’s decisions whenever these Arrogant busybodies might allege do not conform to the ideals of insolent that I ignore the preferences of people busybodies. But conservatives too uncrit- | wishing to play video games in my mall. ===== PAGE 34 ===== Such an allegation would be incorrect. I will be decisive, no voter invests the account for others’ preferences when I effort necessary to cast an informed vote. consider the amount of rent that I'd fetch | Each voter merely expresses, free of if I leased space to an arcade. I then com- | charge, his opinion on what other people pare this amount to whatever it would should be allowed to sell and buy. cost me to permit the operation of an A more civil means of closing the arcade in my mall. As long as the maxi- video arcade is for me and like-minded mum rent any arcade owner is willing to | folks to put our money where our pay to me falls short of the cost to me of mouths are; namely, pay the mall owner leasing to such a merchant, I will refuse to stop leasing to the arcade. Another to lease space to video arcades. civil alternative is for arcade opponents If a judge rules that I must allow to dissuade others from patronizing arcades in my mall, then this judge arro- | arcades. If too few people wish to play gantly substitutes his own preferences video games in arcades, these arcades for that of ordinary citizens. Not only will disappear peacefully. does this judge overrule my judgment, Because conservatives sensibly he also overrules the judgment of thou- oppose judicial activism as practiced by sands of other people, including cus- Earl Warren and Co., they overlook the tomers and proprietors of other shops, differences separating private, non-polit- who by their actions in the market ical decisions from collective, political inform me that video arcades shouldn't decisions. Each private, non-political be in my mall. Conservatives and all decision is typically made by an individ- decent people should abhor such imperi- | ual with substantial personal stakes in ous interference by judges with the lives the outcomes of that choice. Political set- and properties of others. tings, in contrast, afford strangers a free Case #2: I own no shopping mall, but | Say In how other people conduct their and 51% of my fellow townspeople vote lives. Political decisions are seldom to close the video arcade now open in made only by people who personally the mall. This collective decision bear substantial shares of the costs and deserves nowhere near the respect owed | benefits of those decisions. Thus, only to the decision of the private mall owner | When judges override private choices are in case #1. Reasonable decisions are they guilty of the arrogance that conser- made with good cognizance of the atten- | Vatives rightly protest. dant costs and benefits. Because no voter None of this says that judges should is in as good a position as is the mall’s zoutinely ignore democratic outcomes. owner to determine the full costs and Judges, after all, may be just as unin- benefits of leasing space to a video formed and whimsical as are most ciii- arcade, our votes on whether or not an zens in voting booths. The question of arcade belongs in the mall are not as the proper scope for judicial activism is trustworthy as is the decision of the breathialingly complex, Bus conserva property owner. Whenever electoral tives would do better to focus their fe : CL opposition to judicial activism against majorities strip others of their rights to oC ; act peacefully and to engage in volun- that species of activism that substitutes tary commerce, the behavior of these judicial decisions for private, non-politi- majorities is as arrogant and unjustified cal decisions. A judiciary committed as was the decision by the judge in case chiefly to protecting private people from . government interference may, from time ee ot ncades owners lease to time, unwisely reject democratic out- oo i comes. But such courts—unlike Unlike in case #1, a judge striking unchecked legislatures—will never down the ballot approved by voters in case #2 obstructs nothing deserving the threaten p gople’s most sacred and fun- name “will of The People.” The majori- tarian outcome in case #2 is merely the tallied-up opinions of people almost / rrerf none of whom has a direct and personal stake in the matter. Also, because not Donald J. Boudreaux one of these voters expects that his vote President ===== PAGE 35 ===== Spring Cleaning Sale Save up to 70%—Hurry, offer ends March 31, 1998! 0000000000000 80000anattocnseas srr is tehaaceiasstetossisencsastolednittilosrtcelaiicEsessrrornitio Ee laasaesetessstssssraccctinessssnoncnssessnssscocens LE LL LEE TE ET EE EE ER EER ES EE AA LAER AR AR ESSAYS ON LIBERTY Each volume includes more than forty articles representing the best of the freedom philosophy. Gems from great writers such as Leonard Read, Paul Poirot, Edmund Opitz, Murray Rothbard, Hans Sennholz, Henry Hazlitt, F.A. Hayek, Ludwig von Mises, and many others. Volumes 1 and 8—paperback, regular price $8.95/each sale price $4.50/each Volumes 6, 10, and 12—hardcover, regular price $12.95/each sale price $6.50/each Special bonus: Order all five volumes for only $25.00 BOUND VOLUMES OF THE FREEMAN Attractively sewn in a hard cover, each volume contains 12 issues—]January through December— fully indexed for ready reference. (Specify year(s) when ordering.) Years 1976 to 1985, sale price $5.00/each year Years 1986 to 1994, sale price $9.00/each Special bonus: Order all nineteen volumes for only $115.00 THE FREEMAN CLASSICS SERIES Politicized Medicine—The concentrated effort of politicians to socialize American medical care. 161 pages, paperback, regular price $9.95 sale price $8.00 Six 60-minute audio tapes, regular price $29.95 sale price $9.00 T. WILLIAM BOXX and GARY M. QUINLIVAN, editors The Cultural Context of Economics and Politics—Explores the relationship between social institutions and the political and economic systems that operate within them. 101 pages, paperback, regular price $19.95 sale price $10.00 CLARENCE B. CARSON Basic Communism—Its rise, spread, and debacle in the twentieth century. 534 pages, hardcover, regular price $29.95 sale price $11.50 GERTRUDE HIMMELFARB Lord Acton: A Study in Conscience and Politics—A definitive biography of Lord Acton. 271 pages, paperback, regular price $17.95 sale price $13.00 HOWARD E. KERSHNER Dividing the Wealth: Are You Getting Your Share? —Examines the welfare/transfer society. 165 pages, paperback, regular price $9.95 sale price $3.50 ADMIRAL BEN MOREELL The Admiral’s Log—A compilation of the speeches of a great admiral and industrialist. 176 pages, paperback, regular $2.95 sale price $2.00 GEORGE C. ROCHE III Education in America—A discussion of the collapse of standards and the revolt on campuses. 173 pages, paperback, regular price $12.95 sale price $4.50 JOHN TAYLOR Tyranny Unmasked—Written in 1821, it discusses tyranny and the choice that Americans face. 284 pages, paperback, regular price $14.95 sale price $5.00 Postage & handling: Please add $3 per order of $25 or less; $4 per order of $26-$50; $5 per order of more than $50. Send your order, with accompanying check or money order, to FEE, 30 South Broadway, Irvington- on-Hudson, NY 10533. Visa and MasterCard telephone and fax orders ($10 minimum) are welcomed. (800) 452-3518; fax (914) 591-8910. For quantity discounts, please call Renée Oechsner at (314) 591-7230. ===== PAGE 36 ===== FEE Summer Seminar Introductory Seminar in Economics, Politics & History June 6 to June 11, 1998 Irvington-on-Hudson, New York This seminar introduces participants to basic economic concepts such as: * the causes of wealth * the nature of money o the effects of taxes * international trade Lectures also include discussions of government policies and historical topics such as the Industrial Revolution and the Great Depression. FEE is delighted to feature an outstanding group of lecturers for this seminar, including: Doug Bandow, Cato Institute . Donald Boudreaux, President of FEE Burton Folsom, Mackinac Center for Public Policy Roger Garrison, Auburn University Dwight Lee, University of Georgia Rev. Edmund A. Opitz, Chatham, Mass. Lawrence Reed, Mackinac Center for Public Policy John A. Sparks, Grove City College Our opening night speaker will be Jacob Hornberger, President of the Future of Freedom Foundation. Cost of attendance is $400.00 per person, which includes room, board, tuition, and supplies. A limited number of scholarships are available. For further information and application forms, please contact Karol Boudreaux at 30 S. Broadway, Irvington-on-Hudson, NY 10533, (914) 591-7230 (office), (914) 591-8910 (fax), or kboudreaux@fee.org. **If you have previously attended a FEE seminar or are familiar with the freedom philosophy and wish to join us, we recommend that you apply for our Advanced Seminar in Economics and Politics, August 9 to August 14, 1998. i oe i |B re] I A \ UES EE NE pt August 1997 Seminar ===== PAGE 37 ===== AX BUSINESS WELFARE AND PRIVATIZE SOCIAL SECURITY 161 Moore, “tend to have a Robin-Hood-in- cial boom, even those businesses now sub- reverse impact: redistributing income from sisting on government hand-outs should be generally middle-income taxpayers to the rel- willing to yield up their benefits. This, rather atively higher-income owners and sharehold- than last year’s big budget “compromise,” ers in the companies.” would be a truly revolutionary package that Thus, axing corporate welfare should be a could generate bipartisan support. natural for Republicans who claim to support The only way to save Social Security is to budget frugality and competitive markets, and privatize it. The best way to cut federal spend- Democrats who claim to favor the poor and ing is to kick business off of the federal dole. equal opportunity. And if the proceeds were When presented independently, the two argu- used to help finance the privatization of ments are intellectually powerful. If presented Social Security, which would spark a finan- together, they would be a political winner. [] & > & FEE 1998 Undergraduate Seminar in Economics & Liberty Thursday, March 19 through Saturday, March 21 A wonderful opportunity for college undergraduates to participate in lectures and discussions on free-market economics and classical liberalism. The seminar will be held at the Hudson River residence of the Foundation for Economic Education in Irvington-on-Hudson, just north of New York City. SCHEDULED SPEAKERS: Candace Allen (University of Southern Colorado), Israel Kirzner (New York University), Dwight Lee (University of Georgia), Tom Palmer (Cato Institute), and Lawrence White (University of Georgia). TUITION, MEALS, and LODGING: Hosted by FEE. Space is limited and the selection process is highly competitive. Participants are responsible for their own travel costs. APPLICATIONS: If you are interested in attending, please contact Karol Boudreaux, FEE, 30 South Broadway, Irvington-on-Hudson, NY 10533. (914) 591-7230 (office); (914) 591-8910 (fax); E-mail: kboudreaux@fee.org. Apply today! OPPORTUNITIES FOR SPONSORSHIP: FEE invites financial sponsorship from individuals interested in supporting the seminar. Nominations of highly qualified students are also welcomed. ===== PAGE 38 ===== IDEAS ON UBERTY Liberating the Jury by Nathan Lapp hen disputes arise over who has the role as protector of freedom. The jury is fre- freedom to do what, fundamental prin- quently tinkered with in ways that govern- ciples of fairness, or “right reason,” as Roman ment planners consider progress. Prospective philosopher Cicero phrased it, must come into jurors may be graded for religious, philosoph- play.! For this task, the founders recommend- ical, and personal beliefs. This involves a ter- ed trial by jury. ribly inefficient selection process that yields - As George Mason stated in his Virginia juries sanitized to government specification, Declaration of Rights (1776): “In controver- in lieu of the ancient, randomly chosen jury of sies respecting property, and in suits peers. Once selected, jury members can be between man and man, the ancient trial by quarantined, gagged, and barred from taking jury is preferable to any other, and ought to notes or asking questions. Trial judges may be held sacred.”2 Thomas Jefferson endorsed suppress critical evidence or even conduct trial by jury as a damper on government, much of the proceedings in the jury’s absence. writing in a letter to Thomas Paine in 1789 As an advocate of jury rights and a court that he considered trial by jury “the only watcher, I have observed the treatment of trial anchor ever yet imagined by man, by which jurors. I find it remarkable that in a free coun- a government can be held to the principles try certain citizens not accused of any crime of its constitution.” can be ordered about in such a cold, cavalier Fifteen years after Mason authored the Vir- oar Like so many vassals, jurors resign ginia Declaration of Rights, the US. Bill of 14ir freedoms to the court—with only mod- Right's Seventh Amendment inherited oq remuneration for their efforts. Mason’s original theme: “. . . where the value Meanwhile, our state, federal, and adminis- n controversy exceeds twenty dollars, the trative tribunals operate in a fashion that pre- right of trial by jury shall be preserved. Lo In ludes all but a trifle of criminal cases even to other words, if even a seemingly insignificant be tried by jury. This is the form of due portion of someone’s liberty was disputed— process that many Americans, especially judi- Whether by government or private individu- cial system insiders, seem to feel comfortable als—trial by jury would be mandatory. The with jury became a maintenance tool of freedom. But today our juries are in trouble. In a pas- . . sion to uphold law and order, America’s legal Hard Times for Juries institutions have almost forgotten the jury’s I believe there is reasonable doubt whether Nathan Lapp is a dairy farmer and coordinator of ~ OUT JUTY system, thus regimented, can fulfill the New York Fully Informed Jury Association in the purpose for which it was intended. In Cassadaga, New York. 1973, Supreme Court Justice William Doug- 162 ===== PAGE 39 ===== 163 las wrote: “It is indeed common knowledge it comes to law are untrue and an encroach- that the grand jury, having been conceived as ment upon the people’s mind and con- a bulwark between the citizen and the Gov- science. To tell the jury that it does not have ernment, is now a tool of the Executive.” If the right to consider the law in reaching its the deterioration of the grand jury is any indi- verdict is to stipulate that it may not mistrust cator of the subversion of due process in our the government. It is also to concede that courts, it stands to reason that our trial jury common-sense appraisal of individual cir- system is equally dysfunctional. cumstances is not permitted without legisla- Perhaps the practice that most frequently tive consent. undermines jurors is the mandate that they must render a verdict based exclusively on their finding of facts, with no consideration of the integrity of the law or its application. Dur- Consider the dichotomy between contem- ing the charge to the jury, jurors often hear a porary jury instructions and those given dur- command of this sort from the bench: “You ing the first jury trial conducted by the must take the law as I give it to you whether Supreme Court of the United States: “But it you agree with it or not. You are the sole must be observed that by the same law, which judges of the facts, I am the sole Judge of the recognizes this reasonable distribution of law.” jurisdiction (Judges as judges of law, jurors as Vogue as it may be, such instruction deliv- judges of facts), you have, nevertheless, a ers a three-dimensional invasion into the right to take upon yourselves to judge of both, province of the jury. and to determine the law as well as the fact in First, to forbid the jury to assess the law controversy.’ adulterates trial by jury as originally institut- The function of trial juries was also defined ed. The founders—both in practice and in by lexicographer Noah Webster in 1828: principles that formed early American gov- “[Petty juries], consisting usually of twelve ernments—expressly endorsed the jury’s role men, attend courts to try matters of fact in as judges of both law and fact. John Adams, in civil causes, and to decide both the law and a statement prior to his election as the second the fact in criminal prosecutions.”® Webster’s president, was not in the least oblique regard- observation solidifies the contention that jury ing the jury’s proper sphere: “It is not only latitude in applying the law was once . . . [the juror’s] right, but his duty to find the axiomatic of trials by jury. verdict according to his own best understand- Webster did not invent the meaning of trial ing, judgement, and conscience, though in by jury. Jury power was tested 150 years ear- direct opposition to the direction of the lier in England, when jurors refused to return court.”’6 a guilty verdict based on facts in the trial of Second, the prohibition legalizes a double William Penn. Penn’s crime? Allegedly, dis- standard of justice. One set of rules exists for turbing the peace by publicly preaching the jurists, who may exercise veto power by drop- Quaker religion. ping charges, dismissing cases, overruling On August 31, 1670, William Penn was previous court decisions, or using ordinary arrested and brought before the court at the discretion in the execution of laws. Another Old Bailey in London. The jury heard from set of rules is laid out for common citizens, two constables and a sergeant who testified the jurors. Hearing identical arguments in a about Penn’s preaching at a time when Eng- case, the jurors must follow the rules imposed land’s Conventicle Act forbade Quakerism as by the court, with no consideration for con- a form of worship. With all evidence pointing science or justice. Thus, a great chasm divides to Penn’s defiance of the act, the court charged the ordinary citizen from the people outfitted the jury, coaxing them to deliver a speedy ver- with badges and gavels. dict of guilty. Third and most important, instructions When the jury returned, the foreman that tell jurors they have no discretion when announced that they could find Penn guilty Times Have Changed ===== PAGE 40 ===== 164 THE FREEMAN ¢ MARCH 1998 only of preaching, but not of causing tumult or committing any crime. This so incensed the ten presiding judges that one, Sir Samuel Starling, remanded them to the jury room without food, water, or accommodations “until they brought in a lawful verdict.” Undaunted, these 12 defiant men repeatedly returned to reiterate their true verdict, while the court each time stipulated a verdict of guilty. The stalemate continued, with the Penn jury incarcerated under most ignomin- lous conditions. Ten weeks later England’s highest court ruled that the penalties and detention imposed upon the jury were illegal. William Penn’s acquittal was acknowledged, and the prison- ers—Penn’s jury—were vindicated. The high court stated that “the court has no power to superimpose its opinion over that of the jury,” resulting in an historic and powerful prece- = g P P Andrew Hamilton (1676-1740) brilliantly defended dent for jury rights. ! ! John Peter Zenger and helped secure freedom of the press. Nullification Repeatedly oo Affirmed The jury voted to acquit after brief deliber- ation. The idea that juries have the right to nullify John Peter Zenger’s defiant position not bad laws was underscored on numerous occa- only secured the freedom of press Americans sions following Penn’s acquittal,!2 but perhaps enjoy to this day, it also helped annul the dubi- with most historical significance during the ous crime of seditious libel. But the unsung 1735 New York case of newspaper publisher heroes in the Zenger case remain the jurors John Peter Zenger. Zenger printed a series of who withstood the dictation of a corrupt gov- articles containing scathing accusations ernment so that justice could prevail. against colonial Governor William Cosby. By trial and error, so to speak, the jury Although the attorney general failed on sever- evolved from the status of a subservient enti- al attempts to have Zenger indicted by a grand ty of the English Crown to the independent jury, the governors council proceeded to body that eighteenth-century jurist William carry out a campaign against Zenger on its Blackstone would extol as a palladium of lib- own, charging him with the crime of seditious erty.!5 To this day, the state constitutions of libel. 13 Maryland, Indiana, and New York specifically Presiding at Zenger’s trial, Chief Justice honor jurors as “Judges of Law, as well as of James Delancey instructed the jury that they fact.” should leave matters of law to the court. Defense attorney Andrew Hamilton, citing the Nullification Nullified case of William Penn, responded that such a rule “in effect renders Juries useless, to say no But today many judges despise the concept worse.” Hamilton hailed the people’s right to that made juries instrumental in freeing this remonstrate against the oppressions and evil country from the tyranny of witch hunts, slav- conduct of their governors by “exposing and ery, and prohibition. In the case of Wisconsin opposing arbitrary power.” Were this right v. Leroy Reed, subject of a 1995 PBS “Front- denied, Hamilton said, “the next step may line” television documentary “Inside the Jury make them slaves.”14 Room,” the presiding judge declined to ===== PAGE 41 ===== LIBERATING THE JURY 165 instruct jurors concerning their right to weigh islative, and judicial power struggles. The the application of a law because “that would desired result of law is to protect society from be an invitation to anarchy” (The defense bullies, or as Thomas Jefferson said, “to counsel was permitted to argue to the jury that restrain men from injuring one another.”!9 it had such a right.) A Rhode Island prosecu- Unfortunately, every law, regardless of how tor recently told the grand jury in a criminal well it works, can be turned to violate the case: “We do not have jury nullification in rights of the people. Rhode Island.”16 Take the case involving one-year-old In a report published in The Judges’ Journal Andrew Roberts, who was mauled by a wan- in 1996, Justice Frederic B. Rodgers of Gilpin dering dog while waiting with his mother out- County, Colorado, alluded to the danger of side a California coffee shop. Andrew’s “runaway juries,” recommending that courts father, after seeing what the dog had done to monitor closely for evidence of nullification his son, located the Akita-Chow mix and dis- sentiment.!” Unrepentant nullifiers, he advised, patched him with a baseball bat.20 should be excused from service. Roberts claimed responsibility, and the Not all modern judges agree, however. In state of California tried him for cruelty to ani- 1972, Chief Judge David Bazelon of the U.S. mals. Roberts faced a year in prison, but a Court of Appeals for the District of Columbia jury voted to acquit him. acknowledged the jury’s right to judge the The jury did not deny that it was cruel to law: “The pages of history shine on instances bludgeon a dog with a baseball bat. They did of the jury’s exercise of its prerogative to dis- not say that there should be no law against regard uncontradicted evidence and instruc- cruelty to animals. They did not assume the tions of the judge.”!8 He cited the Zenger case role of legislator and strike the law from the and prosecutions of violators of the fugitive books. But they concluded that justice would slave law. His opinion also quoted eminent not be served by applying the law to the case legal scholar Roscoe Pound, who said in at hand. By nullifying the law, the Roberts 1910, “Jury lawlessness is the greatest correc- jury actually helped make the animal cruelty tive of law in its actual administration.” law safer since future prosecutors would Today this is a minority view. But judicial exercise caution before they used it to harass opinion notwithstanding, the right of jury nul- another citizen. The moral is that laws can be lification stands timeless and irrevocable. To enforced in ways that the legislature or the doubt its existence is to embrace the myth that citizen or even the judiciary never dreamed judges can acquire lordship of the jury’s con- of. The jury, then, must ensure that justice is science. In fact, no government authority can delivered whenever the naked force of writ- steal the people’s last check on laws haphaz- ten law would unduly threaten someone’s ardly written—or good laws haphazardly freedom. enforced. Judges cannot proclaim a monopoly The late Harry Moss, Sr., a Ventura, Cali- on the law—without aligning themselves with fornia, attorney, once wrote in an essay: the likes of the ten judges who prosecuted “Law, after all is merely a bunch of rules William Penn. No prosecutor or judge can written by the legislature. Justice is based on demand that a verdict be rendered exclusively the relationship between people and is cer- on the jury’s finding of fact, without trivializ- tainly not just a bunch of rules. Anyone who ing the moral reasoning on which the Penn cannot make this distinction should not be jury and many juries since then have stood sitting on the bench.” Moss illustrated that firm. Germany had many fine judges—until Hitler took over and the horrors of the Nazi state The Flaws of Written Law became legal. Then, those same fine judges continued to enforce the law without observ- As responsible citizens, we ought to think ing that it had become unjust. Moss does not about the consistency of written law. Laws excuse them: “Justice requires that no law are often byproducts of special-interest, leg- can require you to commit an unjust act.”2! ===== PAGE 42 ===== 166 THE FREEMAN ¢ MARCH 1998 No Threat to the Rule of Law by jury once again serve as a vehicle for those principles. Let the men and women to whom Finally, we should remember that jury nul- \e delegate the scales of justice be respected lification no more flouts the rule of law than their indispensable role as guardians of does jurist nullification or legislative repeal. Jjperty OJ The jury, by virtue of its commission and ver- dict, is the law. It is to the jury that we turn 1. See Jim Powell, “Marcus Tullius Cicero, Who Gave Natural for help when human vices and weaknesses Law to the Modem World,” The Freeman, January 1997, p. 47. : 2 : 2. Bernard Schwartz, The Bill of Rights, A Documentary History, prevent us from resolving disputes privately. ST CRC. ie Publishers, 1971). p. 235. We implore the jury for justice, for mercy, for 3. The Writings of Thomas Jefferson, vol. 7 (Washington, D.C. circumspection. We put lives and freedom in 1003), 308 Jefferson Memorial Association of the United States, the hands of jurors. Their influence on the 4. United States v. Dionisio. evolution of law is uni que because they eval- 5. From court transcripts in the criminal case of The State of New eo. y York vs. Homan, 1986. uate its impact firsthand, rather than from the 6. No author, “The Changing Role of the Jury,” Yale Law Jour- : nal, 74 (December 1964): 173. comfortable vantage p oint of the bench, the 7. Alan Scheflin and Jon Van Dyke, “Jury Nullification: Contours legislative chamber, academia, or lobbying of a Controversy,” Law and Contemporary Problems, 43 (Autumn . 1980): 58. outfit. They see and touch the law as app lied 8. Noah Webster, American Dictionary of the English Language, to fellow human beings and, hence, to them- 1828, 2d ed. (San Francisco: The Foundation for American Christian Education, 1980). selves. Lo. . . 9. Geoffrey Lehmen, We the Jury: The Impact of Jurors on Our The championing of jury rights does, how- Basic Freedoms (Amherst, N.Y. Prometheus Books, 1997), p. 37. ever, accompany the sobering realization that 1 Lemon Par jury power can be abused. Jury decisions are 12. Scheflin and Dyke, p. 57. : 13. Nicholas N. Kittrie and Eldon K. Wedlock, Jr., The Tree of only as perfect as the cross section of peop le Liberty, A Documentary History of Rebellion and Political Crime in it comprises, and if the overall character of a america (Baltimore, Md.: Johns Hopkins University Press, 1986), ., . - - . p- 28. citize ys deficient, a dep , © from ustice 14. Livingston Rutherford, John Peter Zenger, His Press, His in our courtrooms may certainly follow. But 7rial (Gloucester, Mass.: Peter Smith, 1963), pp. 93, 106. : Ameri Sap s_ 15. Lehmen, p. 24. the restoration of. erican junes to the posi 16. Don Doig, The FIJAFAX, November 22, 1995, a weekly pub- tion they had in times past 1S unlikely to Pro- lication of the Fully Informed Jury Association, Helmville, Montana. _ 17. Justice Frederic B. Rodgers, “The Jury in Revolt? A ‘Heads duce a power a8 dangerous as the one current Up’ on the Fully Informed Jury Association Coming Soon to a Court- ly vested in the high places of government. house in Your Area,” The Judges’ Journal, vol. 35, no. 3 (Summer George Mason wrote in his Declaration of 1996): 10- . . . 18. United States v. Doughtery. Rights that the blessings of liberty “cannot be 19. First inaugural address, March 4, 1801, American Quotations (Avenel, N.J.: Wings Books, 1992). preserved to any people but by firm adherence 20. Associated Press, Santa Ana, Calif. The story appeared in the to justice, moderation, temperance, frugality, Evening Observer, Dunkirk, N.Y., October 17, 1995. g : 21. Harry W. Moss, Sr., “On Judging Judges,” The Wall Street virtue, and by frequent recurrence to funda- Journal, July 19, 1996, p. A 12 mental principles.”?2 Let the institution of trial 22. Schwartz, p. 236. ===== PAGE 43 ===== {DEAS ON LIBERTY Lying Government Ads by Tibor R. Machan AS I was driving to the pharmacy not long the last 30 years. I myself have always been a ago, I heard a “public service” radio sporadic smoker, going without any cigarettes announcement, crafted by some California at all for months, then having one or two state agency that wants to frighten kids off every other or third day, then none for six cigarette smoking. I did not record what was months. I recently gave them up altogether. said, but the substance went like this: “If you My female friend smoked a few at 14 and try that one cigarette, you are certain to get then never any again. Another of the guys hooked for life. So don’t do it.” smoked for a while, then quit cold turkey and The ad is a flat-out, bald-faced lie. It has never even tried it again. Same with yet reminded me of another public service ad, another one who now smokes a cigar occa- aired a few years ago on television, attacking sionally. drug abuse—the one with the cracked egg being dropped into a frying pan, while the yp 4655 the Motive? voice-over says, “This is your brain. This 1s your brain on drugs.” That, too, was a lie. We discussed these ads, and we couldn’t Not that everyone who took a puff on a cig- figure out why on earth these kinds of lies had arette managed to leave it at that—many, gotten on the air. Surely no one could think indeed, went on to become steady smokers. kids were so stupid as to fall for them! One Nor again is it the case that all folks who tried suggestion that came out of the discussion drugs managed to escape getting hooked on made sense to me, although at first I was hes- the stuff. But many others fall into the catego- itant to even consider it: these ads have noth- ry of “been there, done that, left it behind.” ing to do with actually trying to persuade kids The statement “all swans are white” is made not to start smoking. The folks who design false by just one black swan. What if there are them know that kids can tell when they are hundreds and hundreds of them? being bamboozled, and these ads clearly fall That evening I was visiting some friends, on deaf ears, given how dishonest they are. four men and one woman. One of us is under Adolescents know well that some folks who 50, and only one is a regular smoker. Yet each try smoking do not continue, that some do it of us had smoked cigarettes on and off during rarely thereafter, and that others pick up the practice good and hard. They also knew a few years back that not all those who smoked pot Tibor Machan is a professor at the Leatherby Center h . . : h of Chapman University, California, and research fel- or even harder drugs ried their brains. They low at the Hoover Institution, Stanford, California. 2'® smart enough to dismiss those public ser- His latest book is Generosity: Virtue in Civil Society vice ads as nonsense, plain and simple. Hard- (Cato Institute, 1998). ly anyone is fooled or frightened. 167 ===== PAGE 44 ===== 168 THE FREEMAN ¢ MARCH 1998 So what gives, then? Well, either those who wickedness is probably quite high, it would be make the ads are incredibly stupid or just plain good to put a halt to this charade. It teaches wicked. Let us dismiss the former—folks like kids that many of our lawmakers are frauds the ones who set about to concoct these ads are who are perfectly willing to perpetrate out-and- not stupid. So they are, sad to say, probably out deception just to appear useful. Like the 55 wicked. That is to say, they want to seem to be mph speed limit of a few years ago, which even doing something, so that their expensive cam- the highway cops couldn’t take seriously (and paign continues to be funded by desperate which therefore encouraged people to take law politicians and supported by even more des- less seriously), the antismoking ads will prob- perate parents who want something, anything, ably achieve little more than to undermine done to stop kids from smoking. kids’ respect for government. Yes, this is a cynical hypothesis, but when Which, come to think of it, will be of value, nothing else works, perhaps cynicism must be given how misguided governments have given its proper due. Since the cost of the become. OJ — 1998 ~— FEE BOOK CATALOGUE fields of economics, history, and moral philosophy as well as time-tested classics by such notables as Adam Smith, Frederic Bastiat, Carl Menger, Eugen von Bohm-Bawerk, Ludwig von Mises, F.A. Hayek, and Henry Hazlitt. 1 1998 FEE Book Catalogue lists important recent works in the broad The catalogue also presents five new library sets: FEE Basics Heritage Book Set Money and Banking Classics Library for Home Schoolers Hayek, Hazlitt, and Mises Book Set Our new catalogue was included in the February 1998 issue of The Freeman. For additional copies, contact: The Foundation for Economic Education, Inc. 30 South Broadway Irvington-on-Hudson, NY 10533 For fast service, call (800) 452-3518, fax (914) 591-8910, or e-mail freeman@westnet.com. ===== PAGE 45 ===== THEFREEMAN IDEAS ON LIBERTY SA——— Government and the Market: Chicken or Egg? by John Hood Ox evening not too long ago, I was invit- role in making economic gain possible ed to participate in a debate about state through law, past governmental expenditures, welfare policy. As much of our work at the and the accumulated knowledge of genera- John Locke Foundation had been directed tions of ancestors without which modern eco- toward various welfare bills in the state legis- nomic production would be impossible. Wel- lature, I welcomed the opportunity to discuss fare, she continued, was just precisely because the policy issues involved. it transferred wealth from those who benefit- Very quickly, however, I recognized that the ed most from the “social capital” available to audience, congregated at a local art gallery, those who, for various reasons, were least able was mostly on the side of my opponent, who to benefit from it. heads a left-wing counterpart to our own orga- pization. I decided that rather than limit our L ooking to Locke scussion to specific legislative proposals, | would shake things up a bit. I proceeded to This issue of whether one can truly lay explain that welfare was flawed public policy claim to what one earns in economic not just because it created dependency, or dis- exchange is, of course, a frequent topic in couraged family formation, or cost too much debates about public policy and the proper money, but because it was wrong. “Using the role of government. In my debate I found power of government to take wealth from the myself, perhaps not surprisingly, relying on person who earned it and give it to someone the wisdom of John Locke for guidance about else isn’t charity,” I said. “It is stealing.” how to answer my interlocutor’s question. To judge from the shocked and hostile Locke (1632-1704) was a pioneer in response from audience members, you would numerous fields, from epistemology and think that I had uttered an expletive or lost political philosophy to education and even control of my gastrointestinal system. Finally, medicine. (He performed a famous and prob- after widespread sputtering and nervous cack- ably unprecedented liver operation to save the ling, one woman stood up to challenge what I life of a leading politician of his day, the had said. Essentially, she argued that using future Earl of Shaftesbury, who became his taxes for welfare isn’t stealing because one’s lifelong political patron.) As a social contract income isn’t really deserved. “Society” has a theorist, he was no less a pioneer. Among his justifiable claim to it, she said, because of its innovations was a discussion of how human beings in the state of nature might come to see John Hood is president of the John Locke Founda- the need for a government. i tion, a nonprofit think tank based in Raleigh, North For Locke, the state of nature was simply Carolina. the condition that exists before the advent of a 169 ===== PAGE 46 ===== 170 THE FREEMAN e MARCH 1998 civil government. While he and other theorists The Primacy of the Market wrote about the social contract as an historical fact, and even suggested that the state of “Locke believed that economic activity was nature (or at least recently formed social con- Present from the beginning of time and is the tracts) might be found in primitive America or rst and most important of human endeav- Africa, they clearly had in mind an analytical Ors,” Writes Karen Iversen Vaughn in her device for contrasting their own governments indispensable book John Locke: Economist with an ideal. and Social Scientist (University of Chicago In the state of nature, Locke wrote, all men Press). That critical fact about Locke’s system were free and equal in the sense that no one Of thought helps to clarify the nature of prop- individual had any natural right to rule any ©rty rights and economic justice. Rather than other. Unlike Thomas Hobbes, for example, requiring government for markets to form, Locke did not believe that life in the state of Locke argued that economic activity was nature was always “nasty, brutish, and short,” probably the first kind of social interaction nor did he agree with Hobbes that in a state between individuals. (With the advantage of of nature all men “are in that condition which modern sociology, we might correct him to is called war” each against the other. Instead, mean social interaction outside the bounds of Locke believed that many (if not most) men, kinship.) even in the state of nature, would be guided Locke argued that government became nec- by a shared respect for the natural rights of essary as the breadth and complexity of mar- others. ket interactions grew. Even well-meaning It is worth pausing here for a moment to individuals seeking to respect the natural consider how revolutionary Locke’s view of rights of others might not be able to deal with the state of nature was. He didn’t suggest that complex issues of property ownership, con- human beings had first lived in a historical flict over claims to “commons” such as air Garden of Eden where no one need struggle and running water, or appropriate remedies to eke out an existence or to produce goods and punishments for transgressors of natural and services that others might desire. He was, law. For one thing, humans are inherently self- in other words, not a dreamer who longed for interested and would tend to be prejudiced in an idyllic past. He viewed the modern day (at their own favor when acting as judges and least of the mid-to-late-seventeenth century) executors of natural law. Because, Locke as clearly superior to prior times, not just in wrote, men are “no strict observers of equity technology or human comforts but in social and justice” in such conflicts, life in the state development. of nature, while perhaps not a constant Nor did he suggest, as Hobbes did, that Hobbesian war, would be “very unsafe, very the state of nature was essentially a night- unsecure.” mare from which human beings might wish As Vaughn paraphrases Locke, economic to escape so much that they would be will- growth and the development of economic ing to surrender virtually all their liberties institutions would “finally become incompati- to a tyrant in order to live in tranquility. ble with the continuation of a state of nature.” Indeed, given the fact that his treatises on So men would “turn to forming a civil gov- government were essentially written to justi- ernment to help maintain the economic devel- fy the violent overthrow of tyrannical mon- opment which has taken place.” Furthermore, archs, Locke’s depiction of how and why Locke makes it clear that in his theory of the human beings would enter a social contract creation of government, the chief objective of is one of reasonable action by reasonable individuals would be to protect accumulated people who saw more to gain from govern- wealth. He would not have accepted the argu- ment than would be lost and who could, if ment that most or all wealth was, in fact, a necessary, renegotiate their social contract creation of governmental or societal action. when government ran afoul of its legitimate For him, the generation of wealth preceded function. and made necessary the existence of govern- ===== PAGE 47 ===== GOVERNMENT AND THE MARKET: CHICKEN OR EGG? 171 ment, not vice versa. Therefore, as Vaughn tate to define those functions. Government explains it, Locke concluded that “govern- exists to protect the natural rights that each ment has no right to pass legislation which individual enjoys—to life, liberty, and the will arbitrarily confiscate some people’s prop- fruits of one’s labors. Other needs are best erty and transfer it to others.” sought through the use of other social institu- tions, be they businesses, churches, charities, Why Welfare Is Wrong or families. As Locke wrote, “Private men’s interests ought not thus to be neglected, nor This aspect of Locke’s political writings sacrificed to any thing but the manifest advan- isn’t simply an interesting theoretical point. tage of the public,” by which he did not mean Locke’s Two Treatises of Government were the private interest of others. widely read throughout the eighteenth centu- Armed with Locke’s insight about the ry and became part of the canon of liberty that nature of property rights and government, I guided Jefferson, Madison, and other can confidently restate my initial premise. founders of our republic. It is useful to know, Welfare programs that use the tax system to therefore, that Locke did not view one’s prop- provide a constant stream of income to those erty as the creation of government or, more who don’t earn it is, in fact, a form of stealing. vaguely, of “society.” Instead, he viewed eco- Saying so isn’t likely to endear yourself to the nomic activity as prior to all other social inter- sort of folks who might attend a debate in a action (whether it be taxation, education, or city art gallery, as I discovered, fortunately philanthropy), and for that reason its results without too much personal discomfort. Nor are not subject to being second-guessed by does it necessarily suggest what should be government. done about welfare short term in the world of This is not to deny, of course, that human practical politics, an insight Locke himself, a beings thrive in communities. Certainly one’s lifelong practitioner of the political arts in his ability to make a living is related to one’s rear- own time, would certainly have appreciated. ing and education, as well as to the safety and (Indeed, while serving on the London Board security of the community in which one lives. of Trade, Locke devised his own “welfare But Locke would not view the self-interested reform” plan that focused not so much on (or the previously compensated) actions of immediate abolition as on work requirements others from which one benefits as creating a and time limits.) But the fact of welfare’s fun- legal claim for them on one’s income or prop- damental immorality does put its proponents erty. Taxation, as Locke and other liberals tra- clearly on the defensive, where they certainly ditionally viewed it, was just only to the belong. Not bad for a 300-year-old liver sur- extent that it was used to pay for the necessary geon, political schemer, and philosophical functions of government. Nor did they hesi- pioneer. “I attribute the little I know to having not been ashamed to ask for information, and to my rule of conversing with all descriptions of men on those topics that form their own peculiar professions and pursuits.” —John Locke ===== PAGE 48 ===== THEFREEMAN IDEAS ON LIBERTY EER S— Billy Durant: From Carriages to Cars by Burton Folsom ike father, like son,” runs the old adage. then to Crapo’s daughter Rebecca, whom he In the case of Billy Durant, the founder of courted and married in 1855. General Motors, he was like his father and At first, the match seemed an excellent also his grandfather—even though the two one. William and Rebecca had two children, men were polar opposites. The Durant story Rosa and William. Durant did errands for his shows how family and entrepreneurship father-in-law and helped him sell stock in a blended to start the largest car company in the railroad in Michigan. Crapo seems to have world. liked Durant, and urged “you and Becky” to Durant’s grandfather was Henry Crapo, visit Flint when possible. Crapo took a spe- who came to Michigan in the 1850s and soon cial liking to their son, William Crapo helped that state lead the nation in lumber Durant, or Willie. In one letter to “Master production. Crapo built his lumberyard in Willie,” Crapo said that he “wants to have a Flint, and from that small town he exported visit from [Willie] very very much. Grand Pa top-quality wood as far east as New England. knows that ‘Willie’ is a very fine boy, and he High integrity, Crapo argued, was the key to is very proud of him.” In another letter, when his success—it also brought the Republicans he was governor of Michigan, Crapo asked of Michigan to his door asking for help. With four-year-old “Willie [to] be Grand Pa’s Pri- the Civil War raging, Crapo was elected gov- vate Secretary.” ernor of Michigan; when the war ended the Grand Pa’s affection for Willie was soon popular Crapo was re-elected. matched by his concern for his son-in-law. Crapo’s fortune and fame, pleasing as they Durant quit his job at the bank, became a were to him, could not resolve tension in his stockbroker, and began risking large sums in family. The problem began when Crapo was stocks. “[M]y advice to him,” Crapo said, scouring New England for capital for his lum- “was to go back into the Bank . . . and be care- ber business. In Massachusetts, he met ful about. .. the troubled and uncertain seas William Clark Durant, member of an old New of stock speculation.” Durant rejected this England family, clerk at the Webster National advice, went broke in the stock market, and Bank in Boston, and a land agent. Durant’s began drinking heavily. When he came to attention turned first to Crapo’s bankbook and Flint looking for a job, Crapo tried to help him but couldn’t. Durant, Crapo wrote, “has not mind enough to know what to do, and has apparently given himself up to intoxicating drinks. He can’t get by a saloon or a drinking 292 Burton Folsom is senior fellow in economic educa- tion at the Mackinac Center for Public Policy in Mid- land, Michigan. This article is condensed from his : new book, Empire Builders (Rhodes and Easton, hole, no matter how low, without a ‘tip. 1998). Before a week was out, Crapo noted, “every 172 ===== PAGE 49 ===== 173 business man in Flint knew that he was a tip- slatted footboard and a sturdy iron bar to grip pler.” What was worse, Durant was “so intox- for support. When the ride ended, Durant icated here as to have a regular drunken jab checked out the new cart. The seat was with Rebecca at the table before us all.” mounted to flexible springs in a way that Governor Crapo prepared for the worst. He cushioned the shock and cut the vibrations. changed his will to ensure that Rebecca had The excited Durant, ever the salesman, envi- control of her share of the inheritance. Even sioned himself selling these smooth-riding so, Crapo was always concerned with Willie. carts at low prices to middle-class men and How would he get by? What kind of work women all over the nation. would he do? “The habits of the boy,” Crapo Quickly Durant asked Alger where he got said, “are to be formed, both by parental the cart and how much it cost. The answers training and parental example, in order to led him by train the next day 75 miles away to give him proper notions of business” In Coldwater, Michigan, and the factory in 1869, when Willie was seven, “Grand Pa” which the new cart was created. After some died; his parents divorced soon afterward. haggling, Durant struck a deal to buy the Willie's father drifted from place to place and company, patents and all, for $1,500. But disappeared from his family’s life completely. Durant had no ready cash and was $3,500 in In 1872, at age ten, Willie moved to Flint debt from having married and bought a home with his mother to live with his prominent the year before. He had to raise $1,500 in five relatives there. days or the deal was off. Growing up in Flint, Willie had no father to Less than one day after signing papers in imitate, but he did have uncles who were lum- Coldwater, Durant was back home, standing bermen and bankers. Willie was popular in on Saginaw Street, wondering where he school, a good socializer, and a smart student. would get $2,000: $1,500 for the business and He left high school in his fourth year, howev- $500 to bring it all to Flint. From the inter- er, to learn about business. He worked briefly section at Saginaw and Kearsley Streets, he for Crapo Lumber Company, and then sold could see the Genesee County Savings Bank, patent medicine and fire insurance. Here he founded and run by his Uncle James Willson, found his gift as a salesman. Friends later said and the First National Bank of Flint, recently he could sell sand to the Arabs and then sell headed by his Uncle Ferris Hyatt. The son of them sieves to sift it. George T. Warren, a William Clark Durant had a problem with local cigar maker, hired Willie experimentally these family options. “If I make a failure of to go on the road and sell cigars. In two days, this venture,” he thought, “I will never hear Willie astonished Warren by selling 22,000 the last of it.” He would need his family for cigars. The experiment was over: three other capital if his business grew big enough, but salesmen were fired and Willie was on salary right now he had to show them he was more for $100 a month. “Grand Pa” would have like “Grand Pa” than “Pa.” been proud. Billy, as his friends now called him, strolled haltingly into the Citizens Bank of Flint— The Cart “not as pretentious as the others,” he thought, “but sound as a rock.” After a talk with Presi- The destiny of William Durant, however, dent Richard Whaley, the persuasive Durant, would not be in cigars or even lumber but in with his customary soft voice, friendly smile, carriages. It all started by accident. In 1886, and thorough confidence, walked out with a young Durant, age 24, hitched a ride to the $2,000 loan for 90 days. local waterworks from his friend John Alger. Next, Durant needed a partner, someone to Durant had never ridden in a cart like Alger’s run the new business while he rounded up before—small and durable, two four-feet customers. J. Dallas Dort, the young manager wheels, two seats wide, and very smooth on of a local hardware store, rushed to join his bumps and turns even when the horse trotted friend Durant in the new Flint Road Cart briskly. The cart was light and graceful witha Company. Dort, who bought a half interest for ===== PAGE 50 ===== 174 THE FREEMAN « MARCH 1998 $1,000, would supervise the making of carts; Durant would be on the road selling them. Expanding Markets From his first day in business, Durant looked for ways to market his cart beyond Flint and even beyond Michigan. When his supplies arrived from Coldwater, he took one of the two finished carts and entered it in the Tri-State Fair in Madison, Wisconsin. “I did not have to do much talking,” Durant said modestly. The smooth-riding cart had strong appeal and when the competition was over it had won the blue ribbon. With this award in hand, Durant traveled to Milwaukee and Chicago and lined up jobbers to sell the carts in those cities. He had only one finished cart back in Flint, but he returned home with orders for over 600 vehicles. Furthermore, with charm and finesse, Durant managed to more variety in color, including pinstripes. By work out the contracts so that he would be 1901, Durant and his friends had transformed paid quickly for carts delivered—his compa- $2,000 in start-up capital into a $2 million-a- ny was too short of cash to have much lag year business. Durant-Dort had become the between sale and payment. largest carriage producer in the nation and “We started out as assemblers with no probably the world. In 1906, its biggest year, advantage over our competitors,” Durant the company employed 1,000 workers, who remarked. “We paid about the same prices for made about 480 vehicles each day. everything we purchased. We realized that we Durant’s meteoric rise in the carriage indus- were making no progress and would not try occurred at the same time that Michigan’s unless and until we manufactured practically timber resources were rapidly dwindling. His every important part that we used.” Vertical success inspired others to shift from lumber to integration is the term economists use for this carriages, and in the 1890s Michigan had method of controlling production from raw about 125 carriage companies servicing the materials to distribution. And Durant used nation. Flint took the name “Vehicle City,” vertical integration to cut costs and keep his and Michigan became a center for expertise company supplied with axles, wheels, var- and talent in carriage-making. Capital and tal- nish, and lumber. He built factories in and ent shifted smoothly from Crapo Lumber into around Flint to make these crucial ingredients Durant-Dort. For example, Durant started the in assembling carriages. He even experiment- Victoria Vehicle Company in 1894 to make a ed with making some parts for carriages on an new line of carriages. He bought the large fac- assembly line. tory space for the company from his Uncle During the 1890s, the Flint Road Cart James Willson, whose Genesee County Sav- Company changed its name to Durant-Dort ings Bank helped finance Durant. Durant in and began selling carriages all over the Unit- turn hired Willson’s son George to manage the ed States, and exporting to Canada and Aus- Victoria Company and make it profitable. tralia as well. It even started a profitable mail- Durant, many thought, could sell his car- order business to sell its vehicles. Durant, riages to the blind and his farm vehicles by always the imaginative marketer, discovered mail order to urban illiterates. Often, howev- that easterners preferred their carriages to be er, what he was selling was simply himself painted black, but that midwesterners liked and his ability to create a new product. In the William Crapo Durant (1861-1947) ===== PAGE 51 ===== BILLY DURANT: FROM CARRIAGES TO CARS 175 1890s, for example, Durant started a compa- many when he said of Durant, “I cannot hope ny in Flint to make bicycles. Many Flint citi- to find words to express the charm of the man. zens bought stock in the company simply ... He could coax a bird right down out of a because Durant was heading it. The bicycle tree, I think.” Durant settled for coaxing out- craze of the 1890s, however, fizzled and side experts, such as New Yorker Charles Durant’s company ended up losing money. Mott, into his Flint organization to make first- When that happened, he took his profits from rate axles. Durant also made use of local tal- Durant-Dort and covered the losses of his ent, such as Arthur Mason, his plant superin- friends, who had trusted him enough to invest tendent. Mason built for Buick an engine their money in his bicycle venture. twice as powerful (4,000 rpm) as any on the market, and Durant made that fact a key Then Came the Car advertising point. By 1908, after four years in the car business, Durant had brought Buick Durant would need help from all his family from near bankruptcy to being the best-selling and friends when he spearheaded the transition car in America. His company was worth $3.5 in America from carriages to cars. During the million and had the largest auto factory in the 1890s, several mechanics had tinkered with world. The carriage king had been trans- steam, electric, and gas-powered vehicles. formed into an auto genius. None had made a competitive product, howev- Durant and his main rival, Henry Ford, er, and most carriage-makers saw no threat to were both prescient: they envisioned mass their industry. Durant didn’t either for awhile, appeal for the car. Ford, however, thought his but in 1904, a group of investors in Flint urged company should be built around one standard him to take over production of the Buick, a car, his low-priced, no-frills Model T. Durant, local car with small sales and large debts. from his years in the carriage business, knew At first, Durant hesitated: cars were smelly, that in the long run, if he was to prevail as the noisy, and dangerous. He had even refused to auto leader, he needed many different types of let his daughter ride in one. But cars also vehicles to cater to different incomes and might be the vehicle of the future. He tested a tastes. He therefore scoured the country with Buick on the streets of Flint and over the pot- the idea of having Buick merge with other holes of the countryside. He liked the way it companies that could carve out niches in the ran, and he liked the challenge of building an auto market. He bought Cadillac, for exam- industry from scratch. Durant would take over ple; its luxury cars suited those who could Buick if his family and friends supplied him afford something more expensive than his with capital and expertise. Funds immediate- Buicks. In 1908, Durant founded General ly poured in from Flint’s banks, especially the Motors, a consolidation of 13 car companies Crapo family’s Genesee County Savings and ten parts-and-accessories manufacturers, Bank. Other Flint investors, including lum- with a capitalization of $60 million. bermen and wagon makers, also anteed up. The twentieth century has shown that Durant-Dort supplied factory space, auto Durant’s vision of different types of cars for parts, and their sales and distribution network. different customers was the best way to build Durant soon had a company capitalized at the largest car company in America. His prob- $500,000 and was in business. lem came when he tried to stitch together the With the money and organization in place, right automakers into his General Motors fab- Durant the salesman sprang into action. In ric. His Buicks and Cadillacs sold steadily 1904, he repeated the success he had had with and profitably; most others did not. “They say the road carts 18 years earlier. He entered the 1 shouldn’t have bought Cartercar,” Durant Buick in a New York auto show—and came said later. “Well, how was anyone to know home with orders for 1,108 cars, not bad con- that Cartercar wasn’t going to be the thing? It sidering that only 37 Buicks had ever been had the friction drive and no other car had it. made. Walter Chrysler, who began his long ... And then there’s Elmore, with its two- career in car-making with Buick, spoke for cycle engine. That’s the kind they were using ===== PAGE 52 ===== 176 THE FREEMAN e MARCH 1998 on motorboats. . . . I was for getting every ings while he studied Wall Street and gambled kind of thing in sight, playing safe all along his millions. Walter Chrysler, the vice presi- the line.” By 1911, General Motors was losing dent in charge of all GM operations, could too much money. In that year, a group of hardly ever get Durant’s attention. “For sever- Boston stockholders ousted Durant from lead- al days in succession,” Chrysler said later, “I ership at General Motors and ran the compa- waited at his office, but he was so busy he ny cautiously—making tens of thousands of could not take the time to talk with me. It Buicks and Cadillacs and putting the Carter- seemed to me he was trying to keep in com- cars and Elmores in museums of antiquity. munication with half the continent; eight or Durant was resilient, however. “We’re ten telephones were lined up on his desk. . . . going to need a car,” he told his family and ‘Durant is buying’ was a potent phrase in Wall friends in Flint. With their capital and exper- Street then” In 1920, in the midst of such tise, he started making the Chevrolet, a new neglect of duty, Pierre du Pont, chairman of economy car that quickly captured a large the board, helped oust Durant and work out an share of the market. Durant then cleverly trad- arrangement to buy his GM stock. ed much of his Chevrolet stock for General After that happened, Durant, as was his Motors stock, and soon held a controlling custom, went again to Flint friends to finance interest in both companies. In 1916, he tri- another project: Durant Motors Inc., which umphantly returned to General Motors for a would feature the new Durant car. He also final five-year term as chief executive officer. produced the Star, which he showcased in During his second presidency, Durant New York and for which he persuaded bought the Fisher Body Company and 231,000 people to plunk down cash deposits. Frigidaire to add to his Chevrolets, Oldsmo- His gambling fever, however, was sapping his biles, Cadillacs, and Buicks. People such as energy and resources, and Durant Motors Charles Kettering, who invented the self- never made a serious challenge to Ford or starter, and Alfred Sloan, a brilliant organizer, GM. Durant formed a “bull consortium” of joined the General Motors team—which by stock buyers who plunged into the stock mar- 1920 employed almost 100,000 workers. Like ket with billions of dollars. Durant himself Walter Chrysler, Sloan thought Durant was a had over one billion dollars in the market by genius, often guided by “some intuitive flash 1928, which included accounts with at least of brilliance” that was “at times . . . astound- 15 brokers and phone bills of $20,000 a week. ingly correct.” When the Great Depression hit, Durant’s roller-coaster ride crashed. Durant Motors A Question of Focus was liquidated; Durant himself declared bankruptcy in 1936. As long as Durant focused on building the Some of the entrepreneurial spirit, however, best cars for the lowest prices, General Motors was still in him. Nearing 80 years of age, he grew and prospered. What he lacked in admin- opened a restaurant and a bowling alley, hop- istrative and organizational skills, he made up ing to make them into a national chain. The for with his “intuitive flashes of brilliance” idea of building a chain business was perhaps and his salesmanship. For many years, his ahead of its time, and Durant couldn’t make it work habits and integrity were legendary. He work during the 1940s. He died in 1947, the displayed the talent, perseverance, and savvy same year as Henry Ford, at age 85. to run one of America’s largest corporations. What a remarkable blending William Crapo The problem was that General Motors Durant was of his father and grandfather, the began to receive less and less of Durant’s time gambler and the entrepreneur. If Henry Crapo, while the stock market on Wall Street cap- 50 years after his death in 1869, could have tured more and more. The gambling bug bit returned to Michigan, he would have seen his him hard, and a long talk with a broker was “Willie,” the entrepreneur, perched on high as his favorite salve. He would postpone key president of General Motors, a grandson who decisions for GM and delay executive meet- took the family fortune and multiplied it ===== PAGE 53 ===== BILLY DURANT: FROM CARRIAGES TO CARS 177 beyond recognition. If William Clark Durant, The big winners were neither the Crapos 50 years after his death in 1883, could have nor the Durants, but the American consumers, returned to Michigan, he would have seen his who, after the flurry of activity in Flint, had son, the gambler, close down his car company better lumber, more stylish carriages, and a and lose his fortune in the stock market. bigger variety of cars to choose from. OJ Put in a good word for us. We are compiling a daily calendar for 1999, which will feature the very best ideas on liberty. It’s a big project — and who better to help us than Freeman readers? Please mail, fax, or e-mail your favorite freedom quotation (with full documentation, if possible) to: 1999 Calendar Quotations FEE 30 South Broadway Irvington-on-Hudson, NY 10533 fax: (914) 591-8910 e-mail: Marybeth Fennell, mbfennell@fee.org ===== PAGE 54 ===== THEFREEMAN [DEAS ON LIBERTY ——— Burn Your House— Boost the Economy by Lawrence Parks AS recently as 50 years ago, classical econ- Break something around the house, e.g., a omists regarded the vitality of the econo- window, a dish, the television. Replacing my as its ability to produce things that people these things helps increase the GDP and cre- wanted (and presumably would pay for). ates jobs. Today, the economy has been redefined into Smash up the car. It will have to be fixed or something called Gross Domestic Product, or replaced. The automobile industry employs GDP. Some are beginning to question the effi- directly and indirectly one out of every seven cacy of the GDP measurement, considering workers in the United States and they need the how important it has become for fiscal and overtime. But, for really great results, burn social policy. What better way to highlight its down the house! Don’t worry, insurance will failures than to suggest some outlandish ways pay for it, and the rebuilding will keep a lot of that help increase the GDP? people busy for at least a while. Quit your job as a scientist and become a Things Kids Can Do: Have kids them- taxicab driver. Research and development is selves. Sickly ones who require constant med- not included in the GDP, but money spent on ical attention would be best. Medical expendi- taxicabs is. tures have become almost 14 percent of GDP; Don’t exercise, don’t brush your teeth. we need to stay on the growth curve. And Overeat, do drugs, smoke, drink, and make when those kids become teenagers, encourage yourself terribly sick. See if you can get your them to become juvenile delinquents. If they family members to do the same. The more you get arrested for some really heinous crime and spend on medical care, the higher the GDP. go to jail for a long time, the economy gets a Hire help to take care of the kids and force jolt. your wife to get a job. This gives the economy a double boost because: (1) if your wife takes Things You Can Do By Yourself: Get a care of kids and does housework, it is not divorce. Legal costs, two houses, and all the counted in the GDP because she’s not paid, things that go with houses: furniture, kitchen but help hired to do that work is counted in supplies, appliances, are all important compo- the GDP; and (2) if your wife goes to work nents of GDP. Divorces stimulate consumer outside the home, that counts toward the GDP, demand. too! To ei J f the Found Hire a lawyer and sue somebody. (Lawyers’ awrence Parks is executive director of the Founda- : tion for the Advancement of Monetary Education. fees are directly added to GDP) Adapted from The Money Review, November 1997. . . ] An earlier version of this article appeared in The Things You Can Do with Your Neigh- Free Market. bors: Riot and burn the neighborhood. 178 ===== PAGE 55 ===== 179 Rebuilding puts people to work and is very Start a war. Preferably one far away where beneficial to the GDP. no Americans get killed. B-2 bombers, tanks, Form a gang. Commit crimes with a view to bullets . . . all count in the GDP. Also, send getting caught. The more people in jail, espe- Stinger missiles to liberation armies in coun- cially folks who would not otherwise have tries around the world, such as Afghanistan. jobs, the better off the economy. Today, build- Maybe some of those missiles will be used to ing and managing jails has become one of the knock down airliners. Replacing them helps hot “growth” industries, to say nothing of the the economy, and if lawyers get involved, security business. there’s a GDP bonus. Target savers! People who save actually Things Businesses Can Do: Pollute the hurt the economy because they don’t spend. environment—a giant oil spill would be great! (Economists call this “The Paradox of Thrift,” Superfund sites are very desirable for expand- as if they never heard that contradictions don’t ing the GDP. Leverage up and build excess exist.) If people spend their savings, then real estate, e.g., see-through buildings. They those purchases are added to the GDP. When add to the GDP when they go up, but the they don’t spend, the economy suffers. What waste is not subtracted when they are demol- can be done to discourage saving? First, tax ished or stand vacant. Similarly, companies the return on savings: a higher capital gains can build excess plant capacity (as IBM did in tax would be very helpful. Second, and best, the mid-to-late 1980s to the tune of $30 bil- debase the currency! By printing up more and lion). All of this counts toward GDP. Again, more money, we can dilute the value of peo- when companies are “downsized,” nothing is ple’s savings (especially their long-term sav- subtracted from the GDP. It’s similar in con- ings, such as their pension funds) surrepti- cept to the “roach motel”: GDP counts these tiously stealing their money for politicians to things going up, but not going down. spend and thereby increase the GDP. For Best Results, Organize and Get the Get Mother Nature on Your Side: Hope Government Involved: Lobby your elected for a natural disaster: a hurricane, an earth- representatives to raise taxes and spend more quake, a big fire, a flood. Disasters give the money. Government spending on goods and GDP a tremendous lift because of all the services adds to the GDP and “creates” jobs. rebuilding that must take place. OJ “Balanced, thorough, and supremely factual (nearly 1,700 footnotes), No More Wacos minces no words in its indictment of the lawlessness of federal law enforcement.” —The Freeman NO MORE WACOS What's Wrong with Federal Law Enforcement and How to Fix It DAVID B. KOPEL ano PAUL H. BLACKMAN Kopel and Blackman use their expertise in law and criminology to outline the evidence in the Waco and Ruby Ridge cases and dozens of others to explain how and why such tragedies occur. The authors discuss such issues as flawed search warrants, authorities ignoring the difference between religious and criminal suspects, interdepartmental decep- tion, and failed safeguards. 524 pages (Photo Insert, Index, Appendix) ISBN 1-57392-125-4 « Cloth $26.95 Available through fine bookstores or order directly from ® Prometheus Books Call toll free (800) 421-0351 (24 hours) ® Fax (716) 691-0137 ¢ 59 John Glenn Drive ® Amherst, NY 14228-2197 E-Mail: PBooks6205@aol.com © WWW.PROMETHEUSBOOKS.COM ===== PAGE 56 ===== Economics on Trial by Mark Skousen THE FREEMAN MARCH 1998 Samuelson’s Last Hurrah “Ours is the ‘ruthless economy. —PAUL A. SAMUELSON, “Valediction,” Economics (1998) 2» aul A. Samuelson, the MIT professor and editions, is now anathema. Today monetary Nobel laureate who introduced Keynesian policy dominates fiscal policy. “The growing economics to millions, has just published the orientation toward the market,” writes 50th anniversary edition of Economics Samuelson, “has accompanied widespread (Irwin/McGraw-Hill, 1998, 16th edition). Itis desire for smaller government, less regula- the most popular textbook of any kind ever tion, and lower taxes” (p. 735). written: it has sold over 4 million copies and The 16th edition is remarkable in many has been translated into 46 languages. The ways. Samuelson and his coauthor, Yale pro- new edition may be his last. fessor William D. Nordhaus, cite free-market economists Gary Becker and Julian Simon. Back to the Future: From They include a major biographical sketch of Joseph A. Schumpeter, an Austrian-born economist who later became one of Samuel- As readers of The Freeman know, this col- son’s valued professors at Harvard. (Schum- umn has documented the dramatic changes in peter is best known for his emphasis of the Samuelson’s thinking over the past few years.! role of the entrepreneur, criticism of the wel- Along with the rest of the economics main- fare state, and defense of big business.) And stream, he has shifted gradually from stan- Samuelson finally admits that lighthouses dard Keynesian analysis to the Classical were originally privately owned in Great model of Adam Smith. In the new edition, Britain, after long maintaining that they were Samuelson replaces the old anti-saving doc- public goods that the free market could not trine known as the “paradox of thrift” with a provide. major section bemoaning the low saving rate in the United States. Deficit spending, a Not Enough Friedman perennial policy recommendation in earlier Keynes to Adam Smith However, his conversion to Classical free- Dr. Skousen is an economist at Rollins College, market economics has often been grudging Department of Economics, Winter Park, Florida and incomplete. Take his treatment of Milton 32789, a Forbes columnist, and editor of Forecasts & Friedman, the most influential free-market Strategies. He is also the author of Economics on ist of the twentieth Whil Trial (Trwin, 1993), a review of the top ten textbooks cconomis 9 € . en 1 century. 1 © in economics. He is currently working on his own ~Samuelson’s new edition contains biographies textbook, Economic Logic. of Adam Smith, John Maynard Keynes, Karl 180 ===== PAGE 57 ===== 181 Marx, and even his colleague Robert Solow, ply and demand or AS-AD) is introduced in there’s none on Milton Friedman. Friedman Part 5 of Economics, and the Classical long- cannot be ignored, of course, and he is cited term model of economic growth is in Part 6. I briefly for his contributions to monetarism, have pointed out that long-term growth is the Phillips Curve debate, the natural rate of more important than short-term business unemployment hypothesis, and the negative cycles (see The Freeman, August 1997), but income tax. But nowhere does Samuelson Samuelson and Nordhaus are determined to credit him for his most important contribu- stick with this traditional approach. Gregory tion, for which he won the Nobel Prize: his Mankiw’s new popular textbook, Economics monumental work (coauthored with Anna J. (Dryden Press, 1997) does just the opposite— Schwartz), A Monetary History of the United it puts the Classical model first as the “gener- States, 1867-1960 (Princeton University al” theory, and the Keynesian model last as Press, 1963). In particular, Friedman demon- the “special” case. By making this counter- strated that government (the Federal Reserve), revolutionary change, Mankiw, who considers not free enterprise, caused the Great Depres- himself a New Keynesian, has ‘essentially sion by permitting the money supply to betrayed Keynes.2 But Samuelson and Nord- decline by one-third from 1929 to 1933. haus refuse to do so. Why did Samuelson deliberately omit Samuelson ends his 50th anniversary edi- Friedman’s vital contribution? Because the tion on a sour note. He senses that his view of old Keynesian cannot break with his mentor, economics has gradually lost out to the new Keynes, whom he proclaims as “this century’s dynamic forces of the global marketplace. He greatest economist” (p. 734). Samuelson still lashes out at the “ruthless” economy charac- clings to the old-fashioned Keynesian view terized by the “relentless pursuit of profits.” that blames the Great Depression on unbri- He complains of the “growing” inequality of dled laissez-faire capitalism. His newest edi- incomes and the “harsh” competitive environ- tion gives only the Keynesian interpretation ment where “old-fashioned loyalty to firm or of the 1930s. In his introductory remarks, “A community counts for little.” I guess he’s Golden Birthday,” he asserts: “The Great never read David Packard’s The HP Way or Depression of 1929-1935 had finally been noticed the growing number of firms offering licked by forceful programs that threw out the profit-sharing and 401(k) plans. He admits window the old orthodoxies of do-nothing theres a “silver lining behind this ruthless- monetary and fiscal policies” (p. xxiv). I'd ness”—millions of new jobs in the dynamic hardly call tight-money deflation of the Fed, U.S. economy versus rising unemployment in massive tax increases, and Smoot-Hawley tar- welfare-statist Europe. But does this new iffs as “do-nothing” policies! competitiveness generate “good jobs, ade- Friedman and other economic historians quate income, and a safe environment”? He have demonstrated quite powerfully that inane doubts it. government policies, not the free workings of Throughout his career, Samuelson has the marketplace, are the cause of the debacle always praised the glories of the “mixed econ- of the 1930s. omy,” free-market capitalism with a heavy dose of government interventionism. Now he must be content with what he unenthusiasti- Classical vs. Keynesian Models: cally labels the “limited mixed economy.” [] Which Comes First? 1. See my columns in The Freeman, March 1994; October 1995; Sa uelson and Nordhaus have also kept February 1996; September 1997. See also my article, “The Persever- the Keynesian model first and foremost ahead ance of Paul Samuelson’s Economics,” The Journal of Economic : : _ Perspectives (Spring 1997). of the Classical model. The Keynesian short 2. See my article, “Keynesianism Defeated,” Wall Street Journal, term model of business cycles (aggregate sup- editorial page, October 9, 1997. ===== PAGE 58 ===== UGH? Had enough of the liberal bias in the popular news media? Had enough of “donating” an increasingly large amount of what you eam to sup- port inefficient, bloated social programs? Had enough of watching our culture degenerate before your eyes? Do you feel like a stranger in an increasingly strange land? HAD ENO "Social "Social Critic. | If you answered “yes” to any of the above questions, then you will be interested in a bold, intelligent new quarterly journal of conservative scholarship and opinion, The Social Crific. No, you won't find “inside- the-Beltway” gossip in this journal. What you wi find is vital social and political commentary by great social critics such as William Watkins, Jr., John Attarian, Louis Filler, and Dr. Charles Baird, Director of The Smith Center for Private Enterprise Studies. The Social Crific—a vital conser- vative resource now in bookstores across North America. 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(Fast turn around time; immediate acceptance possible.) hitp://www.socialcritic.com Introductory Offer. 10% off the newsstand price One-year (four issues) subscription: $18.00 Two-year subscription: $ 34.00 (14% off the newsstand price) Please make check or money order payable to: Name The Social Critic A r Mail to: The Social Critic dd ess 31121 Mission Bivd., Suite 301 City State Zip Hayward, CA 94544 ===== PAGE 59 ===== 183 author even seems to lend a little credence to BOOKS the misguided notion that government mili- tary and space ventures can spur private-sec- tor opportunities. (It actually works the other way around.) However, sprinkled among these early pages, the reader finds a few strands of Halfway to Anywhere: Achieving America’s Destiny in Space hope. by G. Harry Stine For example, although Stine has been M. Evans and Company, Inc. ® 1996 ® 304 pages involved with analyzing, writing about, and ® $21.95 consulting on the space program over the - - years, he reveals a sound skepticism about Reviewed by Raymond J. Keating NASA. He derides NASA as “a huge nation- alized jobs program,” and “a high-tech jobs ot all that long ago, if someone men- program.” Regarding the space shuttle, he tioned NASA to me, my guilty con- writes: “The government owned it. The gov- science would scream “Warning, warning, ernment operated it. It was historically equiv- warning,” like that robot from the old televi- alent to the initial attempts of the United sion show “Lost in Space.” You see, when it States Post Office to fly the airmail in 1919. came to the space program, I kept a scurrilous Within a year, the Post Office had lost 31 of its secret. 40 pilots.” : As a free-market economist, I naturally Most important, he sets straight the mistak- have argued for the elimination of a wide en notion that government funding is essential range of government measures, from capital for there to be a space program. Since 1960, gains taxes to welfare programs. As a classi- NASA and the major aerospace companies cal Lutheran, I also possess some understand- have perpetuated the idea that “space travel is ing that we can all succumb on occasion to the so difficult, dangerous, and expensive that sinfulness of human nature. In fact, the only the government can afford it.” Stine Lutheran in me recognized that the weakness- counters: “Actually, space access was diffi- es of human nature had crept into one tiny cult, dangerous, and expensive because it was area of my economics. My dirty little secret a government monopoly.” was hidden support for a government space The author goes on to mention a few entre- program. I actually liked NASA—that big preneurs looking to capitalize in space using pork project to the stars. I had given up on my private investor dollars rather than tax dollars. free-market, limited-government philosophy Strikingly, he notes that as of 1995, 15 when it came to NASA. Fortunately, I finally telecommunications companies had plans to repented of my sin, came back to my princi- launch at least 1,385 satellites before 2005. ples, and gave up on NASA. The author observes that such opportunities In speaking with, reading, and listening to have “not gone unnoticed by numerous private various individuals in the free-market com- firms,” with practically all entrepreneurial munity over the years, I detected that I was firms shying away from government funding not the only one facing this dilemma. For and support. Stine writes, “If those new com- those still suffering from this government panies wanted anything at all from the govern- space-program affliction, I heartily recom- ment, it was for the government to get out of mend G. Harry Stine’s Halfway to Anywhere: the way.” This is the critical message that dom- Achieving America’s Destiny in Space. It inates the final 75 pages of Halfway to Any- offers redemption. where and makes the book well worth reading. Much of the first two parts of Halfway to Stine projects dramatically lower costs and Anywhere—covering 20 chapters and 200 considerable profit opportunities for private pages—reads as a fairly straightforward look firms looking to launch what are known as at recent developments in spaceships and single-stage-to-orbit (SSTO) vehicles, espe- related public policy. Unfortunately, the cially compared with bloated, visionless ===== PAGE 60 ===== 184 THE FREEMAN ¢ MARCH 1998 NASA. The author notes some of the likely book about American entrepreneurs. Empire early uses, like satellites, as well as overseas Builders is an excellent piece of research and delivery and transportation (35 minutes from writing, bringing to life a key period of Amer- Arizona to Australia!). He also writes quite ican business history while dispatching seriously and extensively about manufactur- socialistic misconceptions about entrepre- ing and tourist opportunities in space. neurs and the world of business. Stine unequivocally declares, “Private Folsom, senior fellow in economic educa- space launch vehicle companies that under- tion with the Mackinac Center for Public Pol- stand the moneymaking nature of the new icy in Midland, Michigan, concentrates on the spaceships will build them without govern- lives and contributions of Michigan entrepre- ment assistance, regardless of what NASA neurs. He includes the men you would does.” The author, though, does warn of gov- expect—Henry Ford, William Durant, Will ernment’s ability to muck up the market, not Kellogg—as well as some that are relatively only through NASA's protection of its bureau- unknown, such as Henry Crapo, timber mag- cratic turf but also because of current interna- nate and later governor who staunchly tional treaties that could restrict or freeze defended limited government. Each of the commercial space activities. seven chapters is rich in detail and valuable In the end, Stine seems to possess a healthy lessons. understanding of the inherent creativity of Did you know that George Washington man when unencumbered by the plodding promoted federal involvement in the fur hand of government. He eloquently states: trade? He did not believe that the fur trade “Frontiers are opened by people, not govern- could be carried on by private enterprise, and ments. They are opened because people seek backed a plan to subsidize government “fac- wealth or the betterment of their lives and tories” that would trade goods to the Indians those of their children. Frontiersmanship has in exchange for furs. That put the govern- always demanded taking risks with your life, ment in competition with John Jacob Astor, your fortune, and your sacred honor.” who followed the dictates of the market, Halfway to Anywhere will make a believer risked his own funds, and operated prof- out of those who remain skeptical about the itably. The governments factories lost private sector’s role in space. Indeed, the eco- money and needed subsidies year in and year nomic opportunities are so remarkable that out. Through political machinations, the ben- we should soon expect to see space entrepre- eficiaries of the federal subsidies tried to neurs launching for the heavens, leaving gov- eliminate free-market competitors but failed. ernment’s space bureaucrats shackled to their Eventually, during Andrew Jackson’s presi- desks back on earth. [0 dency, the government’s factories were Raymond Keating is chief economist for the Small closed down and their assets sold at a big Business Survival Foundation and author of New loss. A delightful story. York by the Numbers: State and City in Perpetual Shortly after Michigan's statehood in 1837, Crisis (Madison Books, 1997). its “boy governor,” 26-year-old Stevens T. Mason, concluded that the state needed a net- work of canals and railroads planned and Empire Builders financed by the government. The success of the Erie Canal had convinced many Ameri- by Burton W. Folsom, Jr. cans that governmental infrastructure invest- Rhodes & Easton ® 1998 © 205 pages © $17.95 ments (as they’d now be called) were the fast track to prosperity. The countervailing idea that huge spending programs undertaken by officials who stood to lose nothing if they ontinuing in the spirit of his earlier The were wrong in their judgments did not raise Myth of the Robber Barons, historian any caution flags. Mason plunged ahead with Burton Folsom has written another engaging his dreams. Reviewed by George C. Leef ===== PAGE 61 ===== BOOKS 185 The results, as Folsom recounts, were dis- succeed in business, and the importance of leav- astrous. The losses were astounding: one ing resource allocation to the free market. [] canal project managed to squander $350,000 George Leef is president of Patrick Henry Associ- in capital in exchange for revenues of $90 ges. Liberty Consultants in East Lansing, Michigan, before being abandoned. The governments and also book review editor of The Freeman. railroads fared little better. Eventually, Mason saw the light. The state’s malinvestments were sold off, and he denounced his own folly. The Not Out of Africa lesson was not lost on the real losers, the PEO- by Mary Lefkowitz ple of the state. The 1830 Michigan Constitu- pi; poi 4 1996 o vii +222 pages » $24.00 tion included language that forbade govern- mental investments of these kinds. (Unfortu- nately, that language is no longer in the con- } ] stitution. It’s time to put it back.) by Keith B. Richburg Folsom includes an interesting appendix on Basic Books 1997 e xiv + 257 pages ® $24.00 the treatment of the canal and railroad fiascos in history textbooks. As you might expect, the books from which many students learn about Michigan’s history don’t grasp the point that as everything good come out of Africa? the key flaw was in the very idea that politi- Can anything bad come out of Africa? cians could do a better job of directing and The answers to these two questions are the optimizing investment than could private respective subjects of two books that confront investors. Instead, the textbooks pin the blame head-on the now politically correct teaching on extraneous factors. of Afrocentrism. Another intriguing story is the one about Although the proponents of Afrocentrism Herbert Dow’s battle with foreign (mainly may emphasize a wide range of ideas, the German) chemical cartels in chlorine, agenda of Afrocentrism, according to Newsweek bromine, and dyes. Dow’s firm had “broken magazine, is “to assert the primacy of tradition- the rules” by selling products in the European al African civilizations.” The two-edged sword market, which by convention was off-limits to of Afrocentrism aggrandizes ancient African Americans. When German industrialists told civilizations while blaming the white man for Dow to cease, he refused, triggering a price the deplorable conditions in Africa today. Radi- war. The Germans wanted to ruin Dow, so they cal Afrocentrists like Louis Farrakhan have began selling at a loss in the United States, even stated that “the spread of international while keeping prices high in “their” market. AIDS was an attempt by the U.S. government to They underestimated Dow’s ingenuity. He decimate the population of central Africa.” secretly purchased vast quantities of the cheap Both Not Out of Africa and Out of America imports here, and shipped the goods back to have the same publisher and deal with the Europe to be sold at a handy profit. The cartel same broad theme. But the books are members accused one another of cheating on extremely different in their approach because their agreement to keep prices high and output of the background and training of their low, never realizing that Dow was wrecking authors. Mary Lefkowitz, who wrote Not Out their plan. Finally, the Germans caved in. of Africa, is a white woman, a professor in the Predatory pricing, that old antitrust béte noir, humanities at Wellesley College. Keith Rich- had utterly failed to do anything except enrich burg, the author of Out of America, is a black some chemical users and shippers. man, a reporter for the Washington Post. I hope that this nicely written and illustrated Lefkowitz writes as a historian; Richburg as book finds a wide audience. In particular, I an eyewitness. would like to see it get into the hands of young Lefkowitz, defending the very foundations people, because it will teach them a lot about of Western civilization, specifically appraises entrepreneurship, the characteristics needed to the spurious Afrocentrist contention that the Out of America Reviewed by Laurence M. Vance ===== PAGE 62 ===== 186 THE FREEMAN ¢ MARCH 1998 ancient Greeks stole their ideas from the and saw the carnage firsthand. But it is not Egyptians. Her work is heavily documented just the war zones in Africa that are destruc- with the works of ancient authorities such as tive. According to Richburg, “Daily living in Plato and Plutarch. Richburg, defending the Africa is also a constant battle to ward off distinctly American way of life, examines possible disease and infection.” Throughout firsthand the dictators and destruction that the book he describes the continent in which characterize Africa today. It is thus an intensely he traveled: rampant prostitution, venereal personal account of a black man who rejects disease, AIDS, polygamy, murder, poverty, the label “African-American.” Not surprising- starvation, brutal dictators, corruption, and ly, charges of racism have been hurled at both death—gruesome death. Lefkowitz and Richburg. In between Richburg’s horrific accounts of The book by Lefkowitz will especially life and death in Africa, he occasionally takes appeal to those interested in history. After a time out to inject some thoughts on politics brief introduction that neatly summarizes the and economics. Richburg chastises the self- book, Lefkowitz addresses, in four chapters, appointed black leaders in America who call what she calls the myths of Afrocentrism. In for “immediate democratic reform in South discussing the myths of African origins, Africa,” but who “become defensive, nervous, Lefkowitz counters claims that Egypt invaded and inarticulate” when the subject turns to Greece, that Socrates and Cleopatra were “the lack of democracy and human rights black, and that North Africa is to be equated elsewhere in Africa.” He points out that for with black Africa. the vast majority of African nations, the end The next myth Lefkowitz topples is that of of colonialism has led to “more repression the supposed cultural dependency of Greece and brutality” than ever existed previously. on Egypt. Demonstrating her familiarity with Richburg contrasts black Africa with South- the works of Herodotus and other ancient east Asia. Although both regions emerged Greeks, she proves bogus the claims that the from colonialism at about the same time, Greek philosophers (including Plato) studied Africa languishes while South Korea and Sin- in Egypt. gapore prosper. Only one country in Africa She also recounts the folly of an assertion reminded him of home—South Africa. that the Greek philosopher Aristotle came to Given the continued fragile state of race Egypt with Alexander the Great and stole his relations in America, it is rewarding to find philosophy from the library at Alexandria. two books that are willing to ask—and The only problem with this, Lefkowitz points answer—difficult questions about race, cul- out, is that the library at Alexandria was not ture, and political economy. C] even built until after the death of Aristotle. In Laurence Vance is an instructor at Pensacola Bible short, Lefkowitz decimates the Afrocentric jngritute and a freelance writer living in Pensacola, notion of history and equates it with the theo- Florida. ry that the earth is flat. Out of America is the story of a black man who concludes that he wants no part of . . . Africa. “Thank God that I am an American” is Unconventional Wisdoms: : , The Best of Warren Brookes not only the last phrase of Richburg’s prelude, } it is the theme that echoes throughout his €dited by Thomas J. Bray book. For his courageous stand, Richburg has Pacific Research Institute ® 1997 302 pages been branded by the black elites as a traitor to ® $16.95 his race. And just what is Richburg’s crime? - — Merely telling the truth about a subject thatis Reviewed by Philip R. Murray taboo among both blacks and whites: Africa. Richburg lived in Africa as a reporter from arren Brookes was a nationally syndi- 1991 to 1994. From his base in Kenya he cov- cated columnist who developed a repu- ered the civil wars in Somalia and Rwanda tation as a great opponent of statist nonsense ===== PAGE 63 ===== BOOKS 187 and a great proponent of sound thinking in this battle between differing world views science, economics, and politics. In a single could see and evaluate them. pithy column, Brookes could debunk the best- Brookes took on popular neo-Malthusians laid plans of government bureaucrats. His like Jeremy Rifkin and their assumption that untimely death in 1991 deprived us of an we will eventually—rather soon, in fact—run advocate of inestimable skill. out of energy. From the Second Law of Ther- Thomas Bray, editorial page editor of The modynamics (usable energy becomes unus- Detroit News, for which Brookes wrote, has able), Rifkin and his cohorts draw the impli- collected an assortment of Brookes’s best cation that as we use unrenewable resources columns into Unconventional Wisdoms. A like oil, we must run out and the economy will welcome book it is. Brookes, Bray says, cease to grow. Brookes, however, points out “always took pains to emphasize that he that the relevant energy is mental, not physi- approached his subject as a fact-gatherer, not cal. The economy can continue to grow as an ‘expert.’ ” He employed salient facts and despite the Second Law of Thermodynamics historical perspective to make his points, not because, as he wrote, “We are always being econometrics and abstruse mathematics. Mix taught through clearer ideas how to do more that with wit, clarity of expression, and a Bas- with less.” And he quotes George Gilder here: tiat-like instinct for getting at the nub of a “Ideas are not used up as they are used.” problem and you see why he was anathema to Another bugaboo that Brookes smashed statists. was the notion that the trade deficit was some Like Bastiat, Brookes knew that the battle great national disaster. In his “Jobs and the between liberty and statism would persist. Trade Deficit,” he showed that there is in fact That explains Bray’s motive for editing the no relationship between the nation’s trade bal- book: “Indeed, one of our primary purposes in ance and employment. A few facts, some eco- publishing this volume is to arm the interest- nomic principles, and down crashes a protec- ed reader with the arguments and factual tionist dogma. framework needed to assess the continuing One of Brookes’s foremost accomplish- debate over . . . subjects that Warren knew ments was his explanation of the “tax capital- would be a permanent source of debate.” ization hypothesis.” Most people are familiar Brookes was among the first journalists to with the supply-siders’ enthusiasm for lower- explain the difference between the supply- ing marginal tax rates. Brookes saw that tax side and demand-side world views. Demand- cutting would do more than just increase the siders, he explained, view the world primarily incentive to earn. It would also raise property as a zero-sum game. Wealth is tangible and values. As he wrote, “every dollar of tax on a limited; government, moreover, must con- piece of property reduces the capitalized stantly stoke and “fine tune” the economic value of that property. . . .” When we reduce engine that produces wealth. They see a need taxes, we therefore increase the value of prop- to “correctly” distribute that limited wealth erty and put more wealth in private hands, and believe that people can’t have both liber- wealth that can be used or borrowed against ty and security. For demand-siders, the latter for endeavors that will create still more is the right choice, but of course individuals wealth. cannot be entrusted to make such choices. Brookes was versatile, taking on many dif- Supply-siders, on the other hand, maintain ferent subjects. His writings on the environ- that wealth is potentially unlimited since itis ment injected sound economics and science ultimately the product of the human mind. into issues seething with emotion and misin- They understand that the choice between lib- formation. On safety and risk, his pen was the erty and security is a false one and know that nemesis of the doomsayers who insist on fed- government interference is certain to gum up eral regulations to eliminate every minuscule the works of our economic engine. Thanks to or theoretical risk at great cost. How sad that Warren Brookes’s able exposition, many peo- Warren Brookes isn’t around today to attack ple who would not otherwise have understood the pompous Kyoto global warming treaty! ===== PAGE 64 ===== 188 THE FREEMAN e MARCH 1998 Unconventional Wisdoms is a treasure chest ization of Society America’s top contempo- of commentary on economics, politics, and rary book. the environment. Highly recommended! [1 Why the Himmelfarb work? Says Mr. Philip Murray is associate professor of economics at Simon, a former U.S. Treasury secretary, in the Webber College in Babson Park, Florida. foreword: “Gertrude Himmelfarb has written a seminal work of scholarship that is at the same time relevant to the many political and cultural debates taking place in America today. Her The Templeton Honor Rolls for book reminds us that the fr Education in a Free Society, 1997-1998 00k reminds us t att © ree enterprise system rests on moral principles—principles that are, Foreword by William E. Simon in turn, rooted in a humble faith in God.” John Templeton Foundation/Intercollegiate Studies Among the finalists for the top contempo- Institute ® 1997 © 193 pages * $3.95 paperback rary books are Founding Father: Rediscover- ing George Washington by Richard Brookhis- er, Simple Rules for a Complex World by Richard Epstein, The Sword of Imagination ir John Templeton, brilliant long-time by Russell Kirk, Machiavelli's Virtue by Har- international investor and co-publisher of vey Mansfield, and The Road from Serfdom this work, established the Templeton Honor by Robert Skidelsky. Each title is perceptive- Rolls to recognize the best individuals and ly annotated in this volume. institutions in American higher education. Similarly annotated are entries in the schol- The recognition brings to mind a thought of arly books and textbooks category, which Henry Adams: “A teacher affects eternity; he includes The Closing of the American Mind can never tell where his influence stops.” by Allan Bloom, In Defense of the Constitu- The 1997-1998 Templeton honor roll of tion by George Carey, Capitalism and Free- teachers features political scientists William dom by Milton Friedman, the eighth edition B. Allen at Michigan State University and of Economics: Private and Public Choice by George W. Carey at Georgetown University, James Gwartney and Richard Stroup, Crisis law professors Robert C. Clark at Harvard and Leviathan by Robert Higgs, The Econom- Law School and George Priest at Yale Law jc Point of View by Israel Kirzner, the sixth School, philosophers Mary Lefkowitz at edition of American Government by John Q. Wellesley College and Christina Sommers at Wilson, and The Catholic Ethic & the Spirit Clark University, and economists Julian of Capitalism by Michael Novak. Simon at the University of Maryland and The John Templeton Foundation, founded Gordon Tullock at the University of Ari- in 1987, is an outgrowth of Sir John’s philos- zona. ophy of love and charity that he once articu- Teachers comprise but one honor roll lated in an article for the New York Times as among the four in this admirable compendi- follows: “The more we give away the more we um of believers in liberty and order. The three have left.” The foundation funds some 40 pro- other honor rolls cover scholarly books and jects, studies, publications, and award pro- textbooks, colleges and universities, and grams around the world, including the Tem- departments and special programs (such as pleton Prize for Progress in Religion (worth Yale’s Center in Law, Economics and Public around $1 million). Policy). The Honor Rolls are a worthy part of the The selection committee, headed by Templeton Foundation’s work. The insightful William E. Simon and including Gary Beck- commentary on the winners make this a valu- er, Edwin Feulner, Jr., Forrest McDonald, gple reference work. 0 George Roche, and David Theroux, named — : ; ; Nobel Laureate Milton Friedman as winner of William Peterson, Heritage Foundation adjunct CT . scholar, is Distinguished Lundy Professor Emeritus the Lifetime Achievement Award for 1997 jy; Business Philosophy at Campbell University in and Gertrude Himmelfarb’s The De-Moral- North Carolina. Reviewed by William H. Peterson ===== PAGE 65 ===== BOOKS 189 three-pronged movement consists of the Assimilation, American Style development of multicultural curricula, bilin- by Peter D. Salins gual education, and the disparagement of Basic Books ® 1996 © 272 pages ® $26.00 American traditions. Of the three, Salins - - . views bilingualism as the most insidious, not Reviewed by Rita J. Simon only because of its anti-assimilationist ideolo- gy, but because studies have shown that it has uthor Peter Salins says up front that he been a failure on its own pedagogical terms— had two major reasons for writing immigrant children enrolled in bilingual Assimilation, American Style. First, to tell programs fall far behind their counterparts about the wonderful contributions immi- who are taught all subjects in English. grants have made to American society and to How do multicultural curricula threaten explain how successful their assimilation into assimilation? Salins argues that behind its the mainstream has been, without the loss of bland facade of emphasizing diversity and their identities. Second, to take on both the inclusiveness, multiculturalism promotes an political left and the old-line nativists on the agenda of ethnic grievances, and a delegiti- right for their attacks on assimilation and on mation of the prevailing national culture. an immigration policy that allows more than Multiculturalism in the public schools and at 700,000 immigrants a year to enter the Unit- the university level focuses on non-Western, ed States. non-European influences and contributions. More than any of the other major receiving The works of dead white males are either nations (Canada, Australia, and Argentina), stripped from the curriculum or strongly the United States has had a successful expe- devalued. Salins argues that “Multicultural- rience assimilating immigrants of all ethnic ism is explicitly and self-consciously direct- and religious backgrounds. Salins states very ed toward nurturing an acute sense of ethnic clearly that assimilation does not mean the grievance and victimization among the chil- abandonment of the immigrants’ culture and dren of ethnic minorities, with ethnic minori- conformity to the behavior and customs of ties narrowly defined as encompassing only the native-born population. He points to the blacks, Latinos, and American Indians.” rich, colorful mosaic that immigrants have The third prong of the anti-assimilationist created in American society with their reli- movement is the disparagement of the U.S. gion, music, fashion, food, and other cultural Constitution and American heroes and tradi- contributions. tions. George Washington was just a rich Salins emphasizes that assimilation is slave owner, Andrew Jackson caused the about national unity. He gives credit for Cherokee Trail of Tears, and U.S. foreign pol- achieving this sense of national unity to icy is always imperialist and evil. American law, policies, and public attitudes. Salins warns that these movements are part The United States encourages and allows of a general emphasis on ethnocentrism that immigrants to become citizens after five the American left is leading. He argues it is years. They then can vote and run for political exactly the type of emphasis that threatens office (save for the presidency). Speaking the national unity and could lead to the balka- same language, living in the same neighbor- nization of American society. hoods, and sending their children to the same But Salins does not only see danger to the schools have all contributed to the successful successful American style of assimilation and assimilation process that has produced a uni- national unity from the left, he also recog- fied country. nizes that the traditional nativist movement But today, Salins warns, the public schools that has historically had its base on the right are the site of strong anti-assimilationist has also joined the attack. The nativists are movements that are part of a larger ethno- making their usual argument: these new centrist, multiculturalist movement led by immigrants—i.e., immigrants who are enter- the American left. In the public schools, the ing the country now—will never assimilate ===== PAGE 66 ===== 190 THE FREEMAN e« MARCH 1998 becaus ¢ their backgrounds and cultures are Reputation: Studies in the Voluntary too different. The leading exponent of this Eo view today is Peter Brimelow, who, in his Elicitation of Good Conduct book Alien Nation, argues that the current edited by Daniel B. Klein crop of immigrants will change the culture, University of Michigan Press ® 1997 ® 318 pages values, and lifestyle of American society. But ® $57.50 cloth; $19.95 paperback of course what Brimelow is saying today is what other nativists have said of immigrants Reviewed by John Attarian who have come to American shores for more than 100 years, including the Irish, the Jews, the southern and eastern European Catholics, the Chinese, and the Japanese. We were warned about how each of those groups would destroy American culture and society. But all of these immigrants have made extra- ordinary contributions to the economic growth, public life, and the cultural, aesthetic, and spiritual well-being of this country. The nativists were wrong in the 1880s and the 1920s; they are wrong today. Salins acknowledges what he calls “the great exception” to the assimilation paradigm: black Americans. Reviewing the history of America’s treatment of blacks, which he labels “the greatest betrayal of the American idea,” he nevertheless urges blacks not to join the ethnocentric, multicultural movement of the left with its goal of dividing American society. Salins concludes with a hope and a plea that the United States will continue to welcome immigrants from all over the world, that native-born and naturalized Americans will join in helping recent immigrants to assimilate, and that ethnocentrism and multi- culturalism will crumble in defeat. OJ ut a free market just can’t police itself. That’s why we need government regula- tion.” Many people find this argument plausi- ble, even compelling. But how many stop to ask if the first sentence is really true? Reputa- tion, an enlightening and provocative volume of essays, does just that. The answer explodes this argument for regulation. Reputation, writes editor Daniel Klein (Santa Clara University), explores how “good conduct is sustained even in the absence of an external enforcement authority,” and shows how “social affairs can be self-policing.” Information tells economic agents which par- ties are behaving unethically. Markets punish misconduct by withholding business, cooper- ation, and other benefits. Hence a reputation for honesty is valuable, and ethical conduct is in one’s interest. The result? Trust, coopera- tion, and honesty—without government regulation. Arranged in three sections of increasing rigor, the essays start, appropriately, with Adam Smith’s insight into reputation’s power. Probity—tried, proven honesty—always — - — accompanies commerce, Smith argues, out of Rita Simon teaches in the department of justice, law and society, School of Public Affairs at American self-interest. “A dealer 1S afraid of losing h 1S University, Washington, D.C. character, and is scrupulous in observing every engagement. When a person makes per- haps 20 contracts in a day, he cannot gain so much by endeavoring to impose on his neigh- bors, as the very appearance of a cheat would make him lose.” Even in modern societies with large, mobile populations, Klein and Jeremy Shear- mur (Australian National University) main- tain, this self-policing mechanism can work. Our ability to gather information about the reputations of others allows us to decide whom we can safely do business with, and fear of negative consequences of gossip about ===== PAGE 67 ===== BOOKS 191 ourselves gives us an inducement to cooperate The Morgan stamp of approval gave investors with strangers. confidence that the firms would be well man- Besides reputation, another valuable asset aged and monitored for financial soundness. is an independent, trustworthy seal of The existence of effective private self- approval for a firm or product. Two great policing efforts has radical implications for American institutions arose privately out of regulation. Professor Klein argues that “most, local efforts to provide protection against perhaps all, quality and safety regulations poor quality: Underwriters Laboratories in should be eliminated, that a system based on electrical product testing, and Dun & Brad- pre-1960 common-law principles and on vol- street in credit rating. Their reputation for wuntary institutions and customs would be an rigor and objectivity make their seals of improvement over our current regulatory approval valuable and effective means of mar- arrangement.” On the evidence, he has a ket self-policing. strong case. Detailed but accessible specialized studies Reputation’s arguments have powerful thoroughly explore other historical examples commonsense appeal, too. Government regu- of free-market self-policing, presenting an lation, oversight, and auditing are recent impressive body of evidence supporting inventions. Yet trade flourished for centuries Klein’s optimism. For example, the medieval without them. If the free market really were Jewish Maghribi traders formed a coalition incapable of self-policing, this could not have that effectively used reputation and sanctions happened; rational economic agents would on unethical members to ensure honest con- not have risked exposure to rampant fraud and duct from their overseas agents. Bruce Ben- malfeasance, and trade would have remained son (Florida State University) traces how local and low volume. Since it obviously did modern commercial law evolved from the pri- not, markets must have had effective policing vate Law Merchant, which developed in the mechanisms grounded in reputation. Evi- 1000-1200 period, complete with courts, dence from our own lives offers further sup- judges, and punishments; the evolution of that port. Is not a friend’s recommendation or bad law shows that “the commercial sector is report influential in deciding which business completely capable of establishing and one patronizes? enforcing its own laws.” Fascinating, stimulating, and highly J. Bradford DeLong (University of Califor- enlightening, Reputation is a most valuable nia, Berkeley) observes that the presence of contribution to our understanding of free mar- J. P. Morgan and Company partners on a kets and how they work. More than that, it is firm’s board of directors added value to the a powerful and timely weapon in the struggle firm’ stock, and argues that this was at least against statism, going far to disprove the partly due to Morgan’s massive reputation as canard that people cannot be trusted with an honest broker and superior assessor of risk. freedom. 0 ===== PAGE 68 ===== FREE — From The Washington Times 4 FREE Issues of our National Weekly Edition! Now you can see why The Washington Times has become the talk of the nation! Because now you can get ASTISEEST: 5 FOUR FREE ISSUES of The Washington Times he Washington Times |. NATIONAL WEEKLY EDITION! It takes the best of ina TERA WET ETN Eman | our award-winning daily news coverage and makes it available to you every week —no matter where you live! Try it FREE! No Risk... No Cost... No Obligation! The Washington Times. It’s the newspaper they're all talking about on Talk Radio, C-SPAN, and the Sunday moming talk shows. 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