===== PAGE 1 ===== [ April 1998 o Vol. 48, No. 4 ] THEFREEMAN IDEAS ON LIBERTY I FEATURES 196 Inventing Life in Cuba by Marc A. Olshan The Cuban people survive not because of their government’s policies, but despite them. 200 Roberto and Fidel: Two Versions of “Share the Wealth” by Cecil E. Bohanon and T. Norman Van Cott A tale of two systems. 202 How to Reduce Taxes by Leonard E. Read Limiting government to its proper role will eliminate confiscatory levies. 209 The NFL Oilers: A Case Study in Corporate Welfare by Raymond J. Keating Legalized larceny continues its winning streak. 213 In Defense of Markets and Misers by Candace Allen and Dwight R. Lee The value of small benefits spread over large numbers of people. 217 The Myth of an Emerging Information Underclass by Gary T. Dempsey Markets, not subsidies, work best in expanding new technologies. 223 Defining State and Society by Wendy McElroy Crucial distinctions. 228 An Earlier Response to Environmental Tyranny by Daniel F. Walker Lessons from Sherwood Forest and Runnymede. 231 Global Warming—Hot Problem or Hot Air? by Jonathan H. Adler Imprudent “solutions” threaten economic liberty and prosperity. 237 There’s Some Good in Gouging by Karen Selick Property rights are good even when the lights go out. 239 Will Kellogg: King of Corn Flakes by Burton Folsom How one man turned a breakfast cereal into a household name. COLUMNS Center NOTES from FEE—Julian Simon, Lifesaver by Donald J. Boudreaux 207 IDEAS and CONSEQUENCES—Are Women Being Victimized by the Market? by Lawrence W. Reed 220 POTOMAC PRINCIPLES—Native American Success Stories by Doug Bandow 246 ECONOMICS on TRIAL—How Real Is the Asian Economic Miracle? A Reprise by Mark Skousen 255 THE PURSUIT of HAPPINESS—Discrimination and Liberty by Walter E. Williams DEPARTMENTS 194 Perspective—Our Ultimate Resource Gone by Sheldon Richman 249 Book Reviews *The Teacher Unions by Myron Lieberman, reviewed by George C. Leef; The Ultimate Resource 2 by Julian Simon, reviewed by E.C. Pasour, Jr.; Money for Nothing: Politicians, Rent Extraction and Political Extortion by Fred McChesney, reviewed by Roger Meiners; The Paradox of Progress: Can Americans Regain Their Confidence in a Prosperous Future? by Richard B. McKenzie, reviewed by Paul Heyne. ===== PAGE 2 ===== IDEAS ON LeERTY PERSPECTIVE Our Ultimate Resource Gone Published by . . . The Foundation for Economic Education On February 8 Julian Simon died. Difficult Irvington-on-Hudson, NY 10533 words to write, those. We have suffered a ter- phone (14) Sli FAX (914) 591-8910 rible loss on many levels. He was, first of all, FEE Home Page: http: www fee.org a wonderful human being—ever positive, smiling, encouraging; a joy to be around. President: Donald J. Boudreaux After that, he was one of freedom’s great cru- Editor: Sheldon Richman saders. (When Don Boudreaux created FEE’s Managing Editor: Beth A. Hoffman Council of Scholars last fall, Julian became Editor Emeritus one of its original members.) As our age sunk Paul L. Poirot into the despair of what is called environmen- Book Review Editor talism, with its agenda of expropriation, George C. Leef , - f oF } restricted consumption, and population con- Editorial Assistant trol, Julian Simon strode center stage, impish Coto Hid grin on his countenance, to sing his song of Charles W. Baird scientifically grounded optimism. To those Doug Bandow who wailed that things could hardly get worse, Lawrence W. Reed Julian Simon replied: do you want to see Mark Skousen worse? Read about how people lived a mere Walter Williams one hundred years ago; look at what age and Contributing Editors of what they died. Now look at our age Peter J. Boettke through the lens of historical perspective. Clarence B. Carson With all the moaning about our killer environ- Thomas J. DiLorenzo ment, people the world over live longer and Burton W. Folsom, Jr. better than ever before. That is why the popu- Joseph S. Fulda lation grows. Women aren’t having more Bettina Bien Greaves babies—actually, they have far fewer than just Robert Higgs a short time ago. The population grows John Hospers because the death rate falls. And a growing Raymond J. Keating population is good. Daniel B. Klein That point leads to Simon’s landmark con- Dwight R. Lee tribution to the cause of liberty, his work on Wendy McElroy the nature of resources. How often do we hear Tibor R. Machan people warn that “we are running out of Ronald Nash resources”? Too often, especially since Edmund A. Opitz Simon’s magnum opus, The Ultimate Resource, came out in 1981. In that book, and William H. Pelerson its updated, 1996 edition (see the review this sane 5. Siw month, p. 250), he asked a simple question: if Richard H. Timberlake we are running out of resources, why do their prices fall rather than rise? Everyone agrees that as anything of value becomes more James L. Payne Lawrence H. White The Freeman is the monthly publication of The Foundation for Eco- 1 1 nomic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, scarce, its price goes up. The law must have established in 1946 by Leonard E. Read, is a non-political, educational been repealed. Or so it seems. As Simon champion of private property, the free market, and limited government. : FEE is classified as a 26 USC 501(c)(3) tax-exempt organization. showed, resources were not becoming more Copyright © 1998 by The Foundation for Economic Education. Per- scarce at all! They Were more plentiful than mission is granted to reprint any article in this issue, provided credit is Si fi d h h d f given and two copies of the reprinted material are sent to FEE. ever. Simon was confident that the trends o The costs of Foundation projects and services are met through dona- the past would continue—so confident he was tions, which are invited in any amount. Donors of $30.00 or more vqqe . . . receive a subscription to The Freeman. For foreign delivery, a donation willing to bet on it. Environmental alarmist of $45.00 a year is suggested to cover mailing costs. Student subscrip- : 1 7 tions are $10.00 for the nine-month academic year; $5.00 per semester. Paul Ehrlich made the mistake of accepting Additional copies of this issue of The Freeman are $3.00 each. the challenge. Ehrlich picked five metals and Bound volumes of The Freeman are available from The Foundation : . for calendar years 1972 to date. The Freeman is available in microform bet Simon that ten years later (1990) the price from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. of each would be higher in inflation-adjusted terms. 194 ===== PAGE 3 ===== | PERSPECTIVE Ehrlich lost. Even the unadjusted prices As the digital revolution embodied in the were lower. Julian Simon kept his offer to bet Internet permeates more and more of daily open until the end of his life. There were no life, some politicians have seen an opportu- other takers. nity to expand the scope of government. Why was Julian Simon so confident that Proclaiming the danger from a coming tech- the benign trends would continue? Because nological underclass—information “have he understood that, strictly speaking, there nots”—they call on government to ensure are no natural resources. Nature provides universal access to computers, e-mail, and man with lots of variegated stuff. But stuff is the Worldwide Web. Gary Dempsey shows only a potential. To transform it into a that government is not needed to guarantee resource, a creative person must first stamp it access. with a human purpose. People create Besides the words liberty and freedom, the resources. The ultimate resource is human three most used words in libertarian literature intelligence. If individuals are free to think may be state, government, and society. How and create, we will have an unending supply these words are defined can make a huge dif- of resources. The more people, the more cre- ference in how the case for liberty is made. ators. By the same token, for Simon immi- Wendy McElroy contributes some thoughts gration was a good thing. His work on popu- on the subject. lation prompted F.A. Hayek to write a fan let- Modern America is not the only place where ter to Simon, the only such letter he'd ever the government restricted property rights in written to an economist. resources. It happened in merry old England in The insight about the ultimate resource is the days of Robin Hood, writes Daniel Walker, Julian Simon’s inestimable bequest. It will who hopes we might learn from Sherwood For- live forever to honor his name. est and Runnymede. Are we or are we not experiencing global warming? Would it or would it not be a good Cuba has been under the thumb of commu- thing even if it is happening? Jonathan nist dictatorship for almost 40 years; it is one Adler’s primer on the “greenhouse effect” of the few remaining outposts of that particu- dispels the fog from this important issue. larly awful idea, Bolshevism. Predictably, the Much more predictable than the weather island is poor, but the people are unbowed, are charges of profiteering during natural dis- ¥* ¥ x writes Marc Olshan. asters. Karen Selick catalogues the benefits of Cecil Bohanon and T. Norman Van Cott free pricing even during ice storms. contribute a companion piece in which they The man who invented the corn flake had to contrast Fidel Castro with his contemporary, get out from the shadow of an eccentric broth- the late Roberto Goizueta, who fled Cuba and er. It wasn’t easy, writes Burt Folsom, but went on to become the fabulously successful because of this entrepreneur’s determination, head of Coca-Cola. he lived to become the better-known Kellogg. In the fourth installment in our reprint Book reviews this month take up such series commemorating the centenary of the intriguing subjects as political extortion, pros- birth of FEE’s founding president, Leonard E. perity, and teachers unions. Our columnists Read, suggests that the way to sell the idea of also get their monthly say: Doug Bandow on cutting taxes is to make the moral rather than the Bureau of Indian Affairs . . . Lawrence the materialistic argument for liberty. Reed on alleged biases against women . . . and We live in an era when wealthy owners of Mark Skousen on the financial crisis in South- professional sports teams think nothing of east Asia. having government force the taxpayers to We're also pleased to introduce a new build stadiums and arenas. Ray Keating tells monthly feature: The Pursuit of Happiness. the story of one such owner. Walter Williams and Charles Baird will be Come now, when a miser socks away his regular contributors, along with various guest money and refuses to buy or invest, he can’t commentators. Professor Williams's first col- possibly contribute to the general welfare. You umn, “Discrimination and Liberty,” begins on think not? Candace Allen and Dwight Lee page 255. will attempt to disabuse you of that notion. —SHELDON RICHMAN 195 ===== PAGE 4 ===== Inventing Life in Cuba by Marc A. Olshan n the hills of the Sierra de Cubitas, Cuba, a The Case of Food rusted-out truck loaded with scavenged lumber creeps onto the broken pavement. The ~~ One measure of Cuba’ slide backward is lumber sticks out well past the end of the the decline in agricultural production, as flatbed and, lacking a piece of cloth, the driver 0Xe€n replace tractors, fertilizer and pesticides has “invented” a warning flag. Tied to the tip become increasingly scarce, and equipment of the longest piece of stained, weathered and facilities deteriorate for lack of mainte- wood is a bouquet of brilliant red hibiscus. nance. The highly subsidized government dis- Eight years after the disappearance of its tribution system provides only about half of Soviet backers, Cuba confounds the world each month’s food needs. Coming up with the with its continued survival. In some quarters, rest depends entirely on the ingenuity of each surprise has given way to admiration. The family. Cubans call it “inventing.” They island’s unsought and unplanned culture of “invent” food by raising chickens on the bal- austerity is even being touted for the lessons it conies of Havana high-rises. They fatten pigs supposedly holds for the rest of the world. In on garbage or take them, on a leash, to forage the sharply reduced levels of consumption in parks. Raising animals in urban areas is imposed on Cubans, some observers see the illegal, but enforcing the law would amount to virtues of thrift, self-reliance, and ecological declaring protein to be illegal, so the authori- soundness. Others see Cuban policies as a ties look the other way. model for our presumably inevitable transition Other urban families “invent” food by trav- to a world of scarcity. But a closer look yields eling into the countryside to buy directly from different conclusions and different lessons. farmers, a practice that is outlawed as well. Cubans have in fact been forced to dust off Enforcement is spotty since the police lack archaic technologies, substitute jury-rigged the resources to monitor movement effective- devices for imported goods, and engage in ly. But at checkpoints periodically set up on imaginative recycling in order to survive. But roads leading into cities, police search for these creative responses to economic crisis contraband food. Those caught violating the are born in individual households and on the law, by either buying or selling, face fines or street, not in the offices of bureaucrats in prison sentences. Havana. The Cuban people survive not Meanwhile crops often rot in the field, because of their government’s policies, but either because there’s no incentive for local despite them. laborers to harvest more than they can use, or because the government is unable to mobilize Marc Olshan is a professor of sociology at Alfred the necessary transportation. In northern University in Alfred, New York. Camagiiey province I saw expanses of orange 196 ===== PAGE 5 ===== 197 trees loaded with ripe fruit dropping to the Malecon Boulevard almost make the shortage ground. Any individual initiative to salvage of motorized transport seem like a godsend. this crop by transporting it to a population But for Cuba’s undernourished citizenry— center and selling it would be considered a dodging the potholes and open ditches of dan- criminal act. Such enterprise is inconsistent gerously deteriorated roads, carrying freight with an ideology that celebrates equality of and family in tropical heat and rain, and nego- condition above all else. tiating the jumble of horse-drawn wagons, Fuel shortages and the near collapse of the motorcycles, smoke-spewing trucks, swarms island’s transportation system are handled of other bicyclists, and the occasional speed- with the same dogmatism. One government ing automobile—cycling is no idyll. response has been to deploy a corps of clip- Bicycles have proven to be a partial substi- board-toting “inspectors.” Their job is to tute for more advanced transportation to the stand on the sides of roads throughout the extent that they are creatively adapted by island and stop passing vehicles to check for individual users. Attaching a childs seat empty seats. They then assign those seats toa made from scrap wood to the crossbar and lucky few from the crowds of would-be trav- rigging a carrier over the rear wheel turns a elers who gather daily on the edges of every one-person conveyance into transportation city and town in the country. This exercise in for a family of four. It’s not comfortable, it’s command-and-control hitchhiking leaves not safe, and it’s not easy to keep it moving, people spending hours, sometimes the entire but it works. day, waiting for an assignment. An alternative is the open-air trucks that have largely replaced a rapidly disintegrating fleet of intercity buses. The trucks are some- In endless small ways the inventiveness of times replaced by other “inventions” such the Cuban people covers for the mistakes of as a bus chassis pulled by tractors or horse- the central planners and the intransigence of powered wagons. In any case, it’s a long time their political leadership, allowing the coun- between vehicles. try to continue to limp along. Housewives The wait is a lot shorter for illegal privately prepare for the frequent shutoffs of gas and owned “taxis.” Occasionally shut down at the electricity by cooking with an array of “inven- whimsy of the authorities, these taxis are usu- tions,” including recycled electric heating ally tolerated as long as everyone subscribes to coils, makeshift kerosene burners, and home- the fiction that drivers are doing favors for made charcoal. Families “invent” additional friends or relatives and no money is being bedrooms in already tiny apartments by exchanged. These vehicles, for the most part putting up partitions with scraps of building pre-revolutionary relics, are kept alive by the materials. They supplement their income with sheer ingenuity of their owner-operators. micro-businesses, selling homemade pizzas, On one occasion, after I squeezed into a refilling disposable cigarette lighters, or oper- 1948 Plymouth with several other travelers, ating a rudimentary beauty parlor from a table the driver instructed me: “If we’re stopped by in the street. the police, tell them you’re my cousin.” We “Inventing” has another, more picaresque both knew that story wasn’t going to stand up side as well. It involves the theft of food, to more than the mildest of scrutiny. But when equipment, services, and supplies from the we were stopped at a roadblock and the car state. It also includes buying and selling in a was searched, the police only opted to give me black market, which is probably as large as and the driver’s other “relatives” a skeptical the official economy of Cuba. For example, look before waving us on. rationed items that are not used, such as rum Another government response to trans- or cigarettes, are sold at the much higher mar- portation shortfalls was to turn to the bicycle. ket price. Food that will be virtually given Photographs of healthy, smiling cyclists ped- away in state “stores” in exchange for a ration aling along the broad expanses of Havana’s coupon and a few centavos is sold for the Overcoming Political Obstacles ===== PAGE 6 ===== 198 THE FREEMAN e APRIL 1998 going black-market price by anyone who has professor’s monthly salary in pesos. Conse- access to it before it reaches the shelf. quently, jobs in tourism, no matter how hum- Even those families operating businesses ble, command a great deal of status, as illus- on the government’s list of “authorized” trated in the following joke: activities are forced to buy raw materials stolen from the state. Wholesalers and mid- First young lady: “So, how is it going with dlemen are illegal. One member of the Com- your new boyfriend?” munist Party, a decorated “Hero of the Revo- Second young lady: “I’m finished with that lution,” described how he and his wife sell bum. It turns out he’s been lying to me all candies from a window in their apartment. along.” Since sugar is as stringently rationed as any First young lady: “Oh, how is that?” other commodity, they must buy it on the Second young lady: “He told me he was black market. Ideology takes a back seat to working as a bellboy at the new hotel. But survival. I found out the other day that he’s really Access to services is also “invented” by only a doctor.” bribing state employees such as automobile mechanics, clerks who sell railway or airline Dollars also come from relatives and tickets, or telephone repairmen. The state friends outside the island. Cubans receive an nominally offers such services for very mod- estimated $500 to $800 million annually in est charges, but in fact they are often not foreign remittances. For a nation that earned available because demand far exceeds the only $1.2 billion in foreign exchange from state’s ability to supply them. sugar sales in 1995, such an amount repre- “Inventing” can also mean joining the ranks sents an enormous subsidy. Any claim of of the jineteras (literally “horsewomen”) in “success” that doesn’t acknowledge this mas- the sex trade that has helped boost Cuban sive infusion of aid is meaningless. tourism to the nation’s largest source of for- But no amount of money could keep Cuba’s eign exchange after its sugar exports. Hani, a economy afloat without the resilience and twenty-year-old jinetera working in Santiago, endless inventiveness of its people. On the Cuba’s second largest city, explained it like sidewalk in front of the Camagiiey City pub- this: “This is a very wearisome life, but well lic library, I came upon a librarian stirring a . . . you become a jinetera out of necessity. I large cast-iron cauldron full of soup. The have friends who do it, who'll go anywhere, to blackened pot was supported by a tripod over a discotheque, to a restaurant, so that they can a roaring fire of books. The book-burning drink Coca-Cola or a Heineken beer or smoke librarian, amused by my surprise, explained a Marlboro or eat chocolate. Things they can’t that these were discards being recycled one do in their own homes.” As guests of foreign- ast time. ers with dollars to spend, these women can The pages of discarded books are also used enter the tourist facilities that are otherwise to make the small paper cones in which street closed to them. vendors sell peanuts. On one such cone the text began: “The unity of all the people that Dollar Stores was an indispensable condition for the revolu- tionary triumph. . . .” Even Fidel’s speeches With dollars everything is available. And are being recycled. although the government constantly invokes Newspapers and magazines likewise do the American “blockade” of Cuba as an expla- double duty—in the nation’s bathrooms. Toi- nation for the island’s disastrous economic let paper is a rarity, at least outside of tourist situation, American products are readily avail- facilities. The first time I stayed in a Cuban able in hotels and the state-run “dollar stores.” home I naively asked where the toilet paper In the tourist industry, Cubans can earn tips in was. My hostess, with typical Cuban droll- dollars. Waiters or tour guides may collect, in ness, indicated a pile of what I had thought a single day, the equivalent of an engineer’s or was reading material and said: “Look, we ===== PAGE 7 ===== REINVENTING LIFE IN CUBA 199 easy. Since violating the law is the only way to survive, anyone and everyone can be legal- ly arrested at any time. And as if that did not give the state enough control, it can always fall back on the “Law of Dangerousness,”’ which allows the arrest of anyone who is even potentially “antisocial.” Little wonder then when I asked a pre-med student in Guanta- namo province about the attitudes of his peers, he responded with a chillingly simple summary: “Cuban youth is afraid.” In Havana a teenager described the “volun- tary” labor expected of him and his fellow students: “We are supposed to do agricultural work in the country but no one wants to go. The heat is impossible; the food is awful. Your parents will go to a doctor to get a statement certifying that you aren’t fit for such work. Everyone tries to do that. If you end up going, the only benefit is that the boys’ and girls’ bar- racks are close together.” State control is so pervasive that it repre- sents the defining feature of Cuban life. At a university hostel where I was staying in San- tiago, a maid approached me with one of my socks that she had found in the hall outside Havana children with their “inventro” scooter. my room. I thanked her for bringing the sock to me. She laughed and said quite sponta- have plenty. Take your pick: ‘Rebel Youth, neously, “Now it will have to be punished for ‘Workers,’ or ‘Bohemia.’” leaving the room without authorization.” Cubans take stock of their bleak circum- stances and still manage a bitter laugh. One . joke that made the rounds tells of a man so The Cuban Spirit depressed by years of shortages that he Offering Cuba as a model for the rest of the decides to commit suicide. He first sticks his world would strike most Cubans as a cruel head in the oven but the gas service has been joke. Whatever the redeeming features of interrupted. He then goes to fill the tub to poverty and regulation might be, they are not drown himself but finds that the water is off likely to be celebrated by the poor and the reg- again. He tries to electrocute himself, but ulated. The real lesson from Cuba lies in the there’s a power outage. Finally, he throws economic and social devastation that follows himself from his apartment window only to when ideology is used as a vehicle of control. land on a huge mound of uncollected garbage Cuban government policies are “successful” in the street. He picks himself up and, out of only to the extent that they are circumvented desperation, limps to the nearest police sta- by the creativity of the Cuban people, supple- tion where he intends to provoke the police mented by the black market, and massively into shooting him by shouting antigovernment supported by remittances from abroad. The slogans. He walks in and screams “Down with Cuban people are surviving. But to confuse Fidel!” but is frustrated once again when the their spirit and creativity with the bankrupt man on duty enthusiastically shakes his hand ideology that produced the very conditions and says “I’m with you, buddy, I'm with you” under which they suffer is, most literally, to In one respect the Cuban police have it add insult to injury. OJ ===== PAGE 8 ===== THE {DEAS ON UBERTY ——— Roberto and Fidel: Two Versions of “Share the Wealth” Cecil E. Bohanon and T. Norman Van Cott he October 1997 death of Roberto Goizue- ta, the former CEO of Coca-Cola who fled Fidel Castro’s Cuba in 1961, offers an opportunity to make a telling comment on the Cuban economy. To wit, the corporate regime of a single Cuban emigrant generated suffi- cient wealth to more than double the average living standard of Cuba! The market value of the Coca-Cola Compa- ny increased by $141 billion ($4 billion to $145 billion) between 1981 and 1997, the period when Goizueta led Coca-Cola. Sup- pose you invested $141 billion in the stock market. What yearly return, on average, could you expect from your investment? The usual approach to such a question is to look at pre- vious returns in the stock market over a long period of time. It turns out that the Standard & Poor’s 500 Index grew at an average annual rate of 10.7 percent for the 70 years between 1927 and Roberto Goizueta 1996. Investing $141 billion at this rate of return yields an average yearly income of more income than 11 million Cubans under $15 billion. CIA statistics say that Cuba’s Fidel Castro! national income is $14.7 billion. In other Admittedly, Goizueta wasn’t solely respon- words, the increase in Coca-Cola wealth sible for the more than 36-fold increase in under Goizueta can be expected to generate Coca-Cola shareholder value. He had help from Coca-Cola’s 32,000 employees, the open- ing of world markets, and a booming U.S. Cecil Bohanon and T. Norman Van Cott teach in the stock market. Nevertheless, Goizueta was al department of economics at Ball State University, the helm when the wealth-increasing decisions Muncie, Indiana. were made. The buck stopped at his desk. 200 ===== PAGE 9 ===== 201 Regardless of how one partitions the $141 fer radically from those of Roberto Goizueta. billion between Goizueta’s efforts and other Confiscation of wealth, forced labor, and jail factors, he garnered but a small fraction of the sentences for opponents have been the hall- increase. Most of the increase went to other mark of his regime. Is it any wonder that shareholders; at his death, Goizueta is report- Roberto Goizueta and 32,000 Coca-Cola ed to have held $1 billion of Coca-Cola stock. employees can outdo Fidel Castro and his 11 This is less than one percent of the rise in the million “slaves”? value of Coke stock. Moreover, the increase in Some might interpret all this as a justifica- the value of Coca-Cola stock actually under- tion for Fidel Castro and others like him pro- states the wealth created under the Goizueta hibiting emigration from their countries. That regime. Additional value, not captured in the way, goes the argument, Goizueta would have stock price, accrued to Coca-Cola employees, produced wealth for Cuba instead of Coca- suppliers, distributors, and consumers. Cola. This misses the point completely. Even Creating wealth entails expanding the net- if Fidel Castro had been prescient enough to work of voluntary exchanges in the market- recognize Goizueta’s managerial/entrepre- place. Roberto Goizueta never forced anyone neurial potential in 1961, and then prevented to drink a Coke, never expropriated anyone’s his departure, it is safe to say that Goizueta’s assets, and never forcibly drafted anyone into talents would have languished in a commu- Coca-Cola’s service. Rather, he was a talented nist quicksand of perverse incentives. Cuba’s wealth creator who shared his wealth among current living standards would be little many. changed. In the end, societies that stifle voluntary Then There’s Fidel exchange waste the talents and resources of their people. That’s why Fidel will never Fidel Castro is another Cuban of Goizueta’s match Roberto when it comes to sharing generation who has talked a lot about sharing wealth. You can’t share what you don’t wealth. Fidel Castro’s methods, however, dif- have. 0 THE LIVING RESOURCES NEWSLETTER 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, MD 21045-0221 ===== PAGE 10 ===== Anything That's Peaceful How to Reduce Taxes by Leonard E. Read The cuneiform signs, as shown above, are poon characteristics, suggesting, so very copied from a clay cone now on display at the clearly, that this instrument is one which can Louvre. The cone was excavated by the be thrust into, but hardly retrieved from what- French at the site of ancient Lagash, a prehis- ever it penetrates. The nature of taxation thus toric city located in Mesopotamia. The mes- revealed itself at the very dawn of history, and sages on the cone were etched with a reed sty- experience confirms this early disclosure: lus on soft clay during the third millennium Taxes are easy to increase but almost impos- B.C.! sible to decrease. While the experts on Sumerian civilization We need not go beyond the experiences of may not agree precisely in their interpreta- our own country in this century to verify the tions, the consensus is that the above three one-way tendency of our taxes. They continue signs mean “freedom from taxes.” There are to penetrate inexorably deeper, always advanc- two features to observe about these ing, never receding. Look at the record: the ideograms. First, the word “freedom” here population of the United States increased from puts in its earliest written appearance. Second, 76 million in 1900 to 174 million in 1958 is the remarkable clarity used to depict while government expenditures per person (in “taxes.” These Sumerians expressed in a sym- terms of 1947-49 dollars) rose from $56 in bol the nature of governmental “take” better 1900 to $580 in 1958, a more than tenfold than we express the process in our modern expansion of governmental assessments per languages. Note its barb or fishhook or har- person—man, woman, and child. Where is the end of all this? If the trend of the past few decades be projected into the Leonard Read established FEE in 1946 and served _ —th ti as its president until his death in 1983. This article, fiture—the near Aue even—the prospect is reprinted from the July 1960 issue of The Freeman, is that of a once-great economy flying to pieces. the fourth in a monthly series commemorating the The expenditures of government (now equal 100th anniversary of Mr. Read's birth. to 35 percent of the people’s earned income) 202 ===== PAGE 11 ===== 203 have long since passed the point where they which show the expansion of government, the can be met by direct tax levies. Inflation— rise of the debt, the bite of taxation, the ero- increasing the volume of money—is then sion of the dollar, the extent of inflation, and resorted to. This reduces the value of the mon- so on. etary unit. Serious in our country? The dollar The purpose of this paper, therefore, is has lost 52 percent of its purchasing value (1) to suggest that arguments on behalf of since 1939! freedom, when confined to the materialistic— Historically, in most instances, govern- which too often they are—account in part for ments resort to inflation when the collection the seemingly irreversible one-way direction by government reaches 20 to 25 percent of the of the taxing process and (2) to draw attention country’s earned income.2 As a rule this is the to the moral arguments that must be perfected level beyond which direct tax levies become and presented if any change is to be brought politically inexpedient. Inflation, therefore, about. becomes the only alternative means of financ- Omitting the enormous activities and costs ing excessive expenditures. And the more related to the “cold war”? government’s overexpanded the government, the more the expansion in the United States—and else- inflation! where, for that matter—is a growth in social- Inflation in the United States however, is ism. It is an increasing practice of the collec- more dangerous than in other countries and tivistic concept—the notion that the individ- for a simple reason: we are more specialized ual exists for the group, by the group’s per- than other people are or ever have been. We mission, and for the group’s sake. are so specialized that all of us are dependent This concept denies the Creator and substi- upon the exchange of our numerous special- tutes therefore the omnipotent State as the izations. In a highly specialized economy source of man’s rights and the dispenser of such as ours, the exchanges are not by barter; privileges. State supervision of welfare and a circulating medium of exchange is required. prosperity is substituted for personal respon- This is money’s most important function. sibility. The State takes from and gives to, as Inflation, let it be repeated, is a politically its political hierarchy sees fit. The Marxian engineered increase in money volume. This ideal, “from each according to ability, to each thins or dilutes the circulating medium. The according to need,” is, quite consistently, part medium can, assuming a continuation of and parcel of the collectivistic doctrine. inflation, become so thin that it will lose all of Ignored is the idea that government is for the its circulating power. This is what happened in purpose of securing the inalienable rights of Germany after World War I when 30 million man. It cannot be otherwise, for the State, not marks would not purchase a loaf of bread. the Creator, is the ultimate sovereign accord- ing to collectivism. The Moral Case for Freedom Examples of this from-each-according-to- ability-to-each-according-to-need thesis are The purpose of this paper, however, is not the progressive income tax, TVA, govern- to point out the dangers of government in an ment mail delivery, government housing, ever-expanding role with its ever-increasing compulsory social security, subsidies to costs, and the ultimate consequence of this farmers, protections against competition, course—inflation. These threats are well federal aid to education, and so on. A specif- known to all individuals who are likely to be ic example would be a federal grant for a of any help in slowing down and eventually local hospital. reversing present trends. Not as well known is Taking this specific example, the people the fact that a mere rehashing of these threats, who seek federal aid for their local hospital coupled with scoldings and exhortations, will present a united front. They achieve a political not turn the tide. People simply are not fright- unanimity, a wholeness, and their demands ened away from collectivism by statistical or come through clear and loud. Once the hospi- mathematical or materialistic arguments tal is built it stands as tangible evidence of an ===== PAGE 12 ===== 204 THE FREEMAN ee APRIL 1998 “accomplishment,” a monumental testimony Simply reflect on any of the thousands of spe- to the “wisdom” of its sponsors. The good it cial privileges granted by government, of does is visible. It can be photographed and more than a year’s duration, and see if one can publicized as a concrete instance of commu- be discovered that is not already regarded as a nity welfare. right. How can it be otherwise if the collec- Now this federal grant-in-aid means of tivistic notion is accepted that government is local achievement does have some opponents. the grantor of rights as well as the dispenser An observant taxpayer who resides in New of privileges? The opponents of socialism are York sees no reason why he should be com- on weak ground if they rely on materialistic pelled by the political apparatus to subsidize arguments against those who believe in their the citizens of Los Angeles or Dallas. But privileges as rights. The socialists bring suppose he expresses his opposition material- “human rights” to their side; the adversaries istically as he invariably does. He may, for only complain about pilfered pennies and instance, complain about the cost to him. And, dimes. how much is that? Why, only a pittance—30 cents, perhaps. What a niggardly position to take! He, with his big income! And, if he argues that anyone, regardless of how wealthy, Over the past fourteen years I have lectured can be “pennied and dimed” to death, he is at scores of meetings before audiences of confronted with the impossible task of nam- nearly every type. In most of these lectures, I ing the instances that take so many of his pen- have expressed in materialistic terms the nies and dimes. He may even generalize about course our country is now on, and my conclu- national financial trends, but to do so he must sions—also in materialistic terms—have been talk in terms of billions of dollars. Such terms actually frightening. Never once have my are as incomprehensible to his listeners as are facts, the documentation, or the conclusions 100,000,000 light years. been challenged. Yet, in all these years, I have Opponents of socialism who argue only never witnessed a single individual who was materialistically would be well advised to add moved away from his collectivistic notions by the moral argument.4 As distinguished from reason of a fear of what the future held for socialism’s proponents, with their united him materialistically.6 The collectivist, com- front, they are a splintered and fragmented munist, socialist, state interventionist—call lot. It is next to impossible for them to unite him what you will—merely responds, in on materialistic terms.5 The financial injuries effect: “I will suffer any indignity for my done to them are not alike in any two faith!” instances, nor do the injuries, imposed in However, during these years, I have noted dribbles, greatly excite the victims. The dam- countless individuals who have made the ide- age 1s done more or less unobserved. Nor can ological switch from collectivism to freedom. these material injuries be photographed, or In every case, where diagnosis has been pos- dramatized with any persuasiveness. Invisi- sible, the individual made the switch because ble, material erosions of an individual’s he had grasped, for the first time in his life, larder are no match for the huge government the right and wrong of it all. The experience dam or the new, merciful, thousand-bed hos- was a moral reorientation! pital. This is a one-sided contest between the The materialistic argument has only the seen and the unseen, with the thing seen con- force of shouting, “Fire!” or “Man over- sidered real while the unseen is dismissed as board!” It can compel attention. And there, it imaginary. seems, its usefulness ends. If, after getting Supplying groups of the population with attention, one cannot advance the moral argu- government pap as quickly destroys their ment, he may only add to the state of confu- capacity to fend for themselves as does the sion—like not being able to point out where hand-feeding of squirrels. Men as well as ani- the exits are, or not knowing how to conduct mals tend to regard any coddling as a right. a rescue operation. A Moral Reorientation ===== PAGE 13 ===== HOW TO REDUCE TAXES 205 Adherence to Principle of Dallas would think of going about the country coercively collecting funds for a Dal- It is only in the moral realm that socialism’s |,¢ hospital, regardless of how urgent the antagonists—freedom’s devotees—can find peed No thoughtful businessman would try to any common ground for concerted or unified yeep customers by personally forcing a com- effort. Where we can make no impression at ,etitor to raise his price for the same product. all over the personal loss of 30 cents, or any wage earner with any sense of justice multiplication of small change, we can Win wq1d4 on his own, forcibly deny the right of agreement on the point that there is no differ- ar wage earner to any job connection ence in principle between the forcible extor- eaceaply agreed upon. No sensible individ- tion of 30 cents and the forcible extortion of | ,.1 would have the effrontery to impose his one million dollars. One is misappropriation personal idea of a minimum wage or maxi- as well as the other. The distinction is one of \.» hours on a nation’s citizenry. degree, not of kind. To violate the principle, fora} standards for individuals, fairly well even minutely, 15 to compromise the amount ectaplished by all the world’s moral and ethi- but not the principle. The principle is surren- 5) systems, find no reasonable sanction for dered, regardless of amount. To forswear alle- pn gification by individuals acting concerted- giance to honesty and integrity—the principle 1g whether organized as governments or labor here at issue—is to destroy the moral under- | .:.¢ or trade associations. No new ri ghts pinnings without which no good society can come into existence by collectivizing two per- endure. . _ sons or a million of them. If this is not a cor- Legalizing the forcible extortion of the Cit- rect conclusion, then, pray tell, what is the izens’ resources does not alter the morality of magic number at which new rights originate? the act. It merely absolves the offender of his The above is only suggestive. It has been erime—in the eyes of the legal app ar atus! Not cot forth merely to stake out the area in which in the eyes of one’s Maker! Absolution by the ¢5ch of us should strive for perfection. For it State has meaning only if it be conceded that ;¢ only in moral philosophy—the study of man’s rights to life and liberty are endow- roht and wrong, a qualitative discipline—that ments of the State, that is, are endowments of 10 ace for freedom and the ri ghts of man can those quite ordinary human beings who suc- pe won. Short of a growing effectiveness in ceed in attaining political office. That these his area, we are committed to a continuance people are the source of rights is no more of the present course. The only end to this valid than the divine-right-of-kings thesis. It .j,1ce of governmental expansion and its is only the modern way of rendering an old ever penetrating tax take is, as history seems world fallacy. to reveal, either atrophy or revolution. It is only when we understand that govern- Inalienable Rights ment can have no rightful powers of control, over and beyond the powers that inhere in Once we accept the only alternative to state individuals as moral rights, that we can clear- omnipotence, namely, that man is endowed by ly recognize the proper limitations of the his Creator with certain inalienable rights, we State. With this recognition will come the cannot, logically, grant to government any trimming process: government reduced to the powers which do not pre-exist in the individ- enormously important function of securing uals who organize it. These rights of the indi- the rights of man. Limited to this role—its vidual in relation to others, when viewed per- only competence—government will become sonally, are fairly clear and need little in the an aid, not an ailment; a bargain, not a bur- way of elaboration. den. Taxes will then be a matter of relative No sane farmer, in his capacity as an indi- unimportance. vidual, would dream of forcibly collecting Summarized, this paper insists that the only from all citizens a sum of money as payment way to reduce taxes is for each devotee of lib- for not growing wheat. No respected resident erty to become, as best he can, a moral ===== PAGE 14 ===== 206 THE FREEMAN e APRIL 1998 philosopher. Too difficult? Only if the Golden thinking that went into the Declaration of Independence, the discus- sions in the Constitutional Convention, and the arguments set forth in Rule, the Ten Commandments, and the Decla- The Federalist. The appeals were not made on the basis of material ration of Independence are beyond one’s advantages. The arguments were in the realm of moral philosophy, and the case was won by appealing to man’s sense of justice. scope! [] 5. Experiences of the past three decades support this contention. Many antisocialists have been certain of a common private property 1. See Samuel Noah Kramer, From the Tablets of Sumer (Indian interest among the millions of insurance policyholders, shareholders, Hills, Colo.: The Falcon’s Wing Press, 1956), Chapter 6, “The First and homeowners. However, repeated attempts to organize them Case of Tax Reduction,” pp. 41-46. against socialism have come to naught. They simply will not coa- 2. “Dr. Colin Clark, the Australian economist, has concluded lesce along materialistic lines. Nor should we believe that wage earn- from his study of governmental costs that whenever the figure for ers have been brought together in labor unions by reason of mone- any country rises to more than 20 or 25 percent, progressive inflation tary motivations. Their enormous memberships have been achieved and the debauchery of the currency is likely.” See p. 110, Liberty: 4 by (1) coercion and (2) the conviction that the “benefits” they seek Path to Its Recovery by F. A. Harper (lrvington-on-Hudson, N.Y.: are rights. More obvious to many union members than to the rest of The Foundation for Economic Education, Inc., 1949). us is the fact that they do not make money by striking. These costly 3. While the wastes and excesses in current “defense” expendi- ventures, like their expensive union memberships, are either forced tures are related to a spreading acquiescence to socialism, this aspect upon them or charged off to “gaining rights for the workingman.” of the subject is beyond the scope of this paper. The purpose here is 6. The material needs of Americans are satisfied to an unprece- served by pointing out that for fiscal 1961 “defense” expenditures are ~~ dented degree. This explains, in part, why appeals to material well- one percent higher than at the end of the Korean War. But, non- being are so futile. Douglas Murray McGregor of the Massachusetts defense expenditures are 86 percent higher! See Monthly Tax Fea- Institute of Technology has this to say: “Man is a wanting animal— tures, February 1960, Tax Foundation, Inc., New York. as soon as one of his needs is satisfied, another appears in its place. 4. Dr. Thomas Nixon Carver, 32 years professor of political econ- ... Man’s needs are organized in a series of levels—a hierarchy of omy at Harvard University, once said to me, “The two most influen- importance. . . . Man lives for bread alone, when there is no bread. tial books in Western Civilization have been the Bible and Adam ... But when he eats regularly and adequately, hunger ceases to be Smith’s Wealth of Nations.” Adam Smith and the biblical writers an important motivation. . . . A satisfied need is not a motivator of were, among other things, moral philosophers. Reflect, also, on the behavior!” See The Management Review, November 1957. 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MH Patent Kloten The Stn, bo Conn Pamiear's Langury Teh Corn rm Ae Bag, >, wy Toe Matovalh Amand » Dovk iy Burt A Lata, “The Medical Sentinel is committed to...defense of the practice of private medicine, the tenets and principles set forth in the Oath of Hippocrates, individually based medical ethics, and the sanctity of the patient-doctor relationship...dedicated to the pursuit of liberty, free markets, and integrity in medical research....” ns, Call 1-800-757-9873 . « pe ISSN Numbe $45.00 lig 3 Hacienda Publishing 1086-4784 Fax: 1- 912-757-9725 « P.O.Box 13648 Macon, GA* 31208-3648 ===== PAGE 15 ===== Ideas and Consequences by Lawrence W. Reed Are Women Being Victimized by the Market? O: of the many false but frequent criti- stant, women between the ages of 27 and 33 cisms of the marketplace is that it dis- earn 95 to 98 percent as much as the average criminates against women. It goes like this: if male worker—a statistically insignificant dif- the market is fair, why do women own fewer ference. businesses and earn less than men for doing More good news: from 1987 to 1992, the the same work? number of women-owned businesses in Groups organized for the purpose of getting America rose by 43 percent. Today, women government to intervene insist that women are earn the majority of associates, bachelor’, victims of widespread discrimination in Amer- and master’s degrees. Nearly 40 percent of ica, held down by the “glass ceiling” of male doctorates are awarded to women. And during bias. They paint the market as a place where the past decade, the number of female execu- silly prejudices determine wages, where it tive vice presidents more than doubled and actually pays for employers to exploit an entire the number of female senior vice presidents gender of employees, where men conspire increased by 75 percent. against businesses owned by females. These Skeptics might be tempted to say that it groups propose a range of harmful, redistribu- wasn’t women’s efforts or the marketplace tive pseudo-remedies: wage controls, compul- that explain these facts, but sex-based prefer- sory quotas and affirmative-action schemes, ence programs encouraged by government. daycare subsidies, and the like. Wrong again. An analysis by Sally Pipes and Economists have demolished this criticism Michael Lynch in the Heritage Foundation’s in many venues (including The Freeman), but Policy Review debunked that myth, too. Pipes it comes up again and again. So again, here’s and Lynch proved that more women are going a rebuttal. to college and that this is the primary reason In “Women’s Figures: The Economic for the significant advances in female earning Progress of Women in America,” published in power. 1996 by the American Enterprise Institute, In 1960, for example, only 19 percent of Diana Furchtgott-Roth and Christine Stolba bachelor’s degrees were earned by women, showed conclusively that the marketplace is but by 1995 women claimed a whopping 55 working for women far better than its critics percent. Over the same period, women admit. For instance: when all factors, such as increased their share of lucrative professional experience and life situations, are held con- degrees—MBAs, MDs, and JDs—by at least 500 percent. The increase in college enroll- ment is a result not of government-enforced Lawrence Reed, economist and author, is president of f but of chanei Itural patt the Mackinac Center for Public Policy, a free-market preterences, but of changing cultural patterns research and educational organization headquar- and personal choices that enable women to tered in Midland, Michigan. excel in fields formerly dominated by men. 207 ===== PAGE 16 ===== 208 THE FREEMAN e APRIL 1998 The so-called “wage gap” between men and women in ways that cannot be explained by women, say Pipes and Lynch, is due not to lifestyle choices or impersonal market forces. senseless discrimination. It’s caused by statis- The point is, most are smart enough not to tical differences in age, education, and contin- because they understand that it’s self-defeat- uous years in the work force. Because women ing. Pay a woman less than she’s worth and experience more interruptions in their work- you hand a golden money-making opportuni- ing careers than do men—usually because of ty to a competitor. marriage or childbearing—the wages they can A fascinating 1994 book, The Myth of Male command in the market are slightly discount- Power, takes the charge of male discrimina- ed. That is not unfair; indeed, it is perfectly tion against women and turns it on its head. It rational economic behavior on the part of is encyclopedic in its presentation of previ- employers concerned about their bottom ously unpublished facts and figures. The lines. author, San Diego writer and consultant War- The Detroit News (April 25, 1996) showed ren Farrell, is more than qualified to address that what differences exist between the wages the subject: he is a former three-time elected of men and women are largely a consequence male board member of the nation’s foremost of lifestyle choices: “According to the U.S. radical feminist outfit, the National Organiza- Census, men on average spend 1.6 percent of tion for Women. their work years away from the job; women Farrell says that men account for 94 percent are away 14.7 percent. Ten years of seniority of the occupational fatalities each year. raises wages more than 25 percent, according Undoubtedly that stems from the fact that to government figures. [Former] Labor Secre- men make up more than 95 percent of the tary Robert Reich may opine that women are work force in hazardous occupations. ‘unable’ to build seniority, but men are Though men enjoyed virtually the same life ‘unable’ to give birth.” expectancy as women as recently as 1920, “Nor 1s there evidence,” says the News, they now live an average of seven years less. “that biology is destiny. Women hold triple Female longevity has soared almost SO per- the percentage of top management jobs com- cent in the past 70 years. pared with similarly ‘seasoned’ males. And 81 Women do more housework than men, but percent of Fortune 500 boards feature women men do more workplace work. On average, directors; a third of the companies have more men labor an average of 61 hours a week than one. Women also own 7.7 million busi- (counting work inside and outside the home), nesses, employing 15.5 million workers—a while the figure for women is 56, says Farrell. third more than employed by Fortune 500s.” His conclusion: if men are oppressing women, If there were widespread or substantial dis- it sure doesn’t show up in the numbers. crimination against women by men in the In the end, the fuss about male discrimina- marketplace, then one would expect to see tion against women in the marketplace is female employers paying their female much ado about very little, with a lot of care- employees more than male employers pay lessly unexplained figures tossed about that, their female employees for the same work. in any event, hardly argue for government to Not so. No evidence. Zip. coercively interfere with privately arranged No one should deny that some men, even contracts and relationships between consent- some male employers, discriminate against ing adults. Ll ===== PAGE 17 ===== THEFREEMAN {DEAS ON LIBERTY ————— The NFL Oilers: A Case Study in Corporate Welfare by Raymond J. Keating fter more than three-and-a-half decades in formidable weapon in any business execu- the city of Houston, the National Football tive’s arsenal: he threatened to move his League’s Oilers kicked off this past season in team—in this case to Jacksonville, Florida. Tennessee. The Tennessee Oilers are the result Adams got what he wanted from Houston of a traumatic corporate welfare struggle in officials through a property-tax hike and a Houston, one that has left all but dead the doubling of the hotel tax. political will to fight government handouts to The NFLs “best” stadium—as Adams million-dollar team owners and players. referred to the upgraded Astrodome—did not Oilers owner Bud Adams originally was a stay that way for very long. In 1993, Adams bold football entrepreneur. His team was a began tossing around the idea of a brand new 1960 charter member in the upstart American dome. His proposed $235-million Ninth Won- Football League, which was set up to offer a der of the World would come with the latest in direct challenge to the well-established NFL. stadium accouterments, including more of the Adams named the team for the business in ever-critical luxury box suites. Those boxes which he earned his fortune, and the Oilers generate big dollars that do not have to be took two of the first three AFL titles. shared with other teams under the NFLs In 1965, Adams moved the Oilers into the revenue-sharing plan. They are in fact a huge new taxpayer-financed, $35 million Eighth catalyst for the push in recent years for new Wonder of the World, the Houston Astrodome. stadiums, ballparks , and arenas by many pro- He got a good taste of corporate welfare early fessional teams. on in his sports ownership career—something ~~ Adams’s plan also called for all the seats probably quite soothing compared with the from floor to ceiling to be reconfigured to fit rough-and-tumble oil business. And it appar- not just football, but also hockey, basketball, ently left him with a taste for more. convention, and concert floor plans. (It’s Over the next three decades, Adams would amazing the ideas one can come up with when venture to tap his hometown taxpayers twice spending somebody else’s money.) Although more. In 1987, he requested $67 million- Adams offered to put up $75 million for this worth of stadium upgrades to the Astrodome pew dome, taxpayers would still be called on —including new artificial turf, 10,000 more tg sacrifice $160 million more. seats, and 65 new luxury boxes. Adams need- As things generally go in the corporate wel- ed negotiating leverage, so he drew the most fare story, this is the place where politicians — Co usually cave in to team owners. However, Raymond Keating is a columnist with Newsday, chief th Bob Lani lation to the fi economist with the Small Business Survival Founda- en-mayor Bob Lanier (no relation to the for- tion, and author of New York by the Numbers: State mer NBA star) reacted rather coolly to the and City in Perpetual Crisis (Madison Books, 1997). Oilers’ demands. 209 ===== PAGE 18 ===== 210 THE FREEMAN e APRIL 1998 The Mayor Refuses First, he pitted nearby county against county in a bid for a new stadium. Then, for good Lanier first declared that property taxes measure, the Oilers commissioned a study would not be used for any new sports facili- from a major accounting firm—the kind of ties. Then, buttressed by polls in early 1994 study that ignores basic principles of econom- showing that anywhere from 56 percent to 71 ics, the failure of government industrial poli- percent of the public thought the taxpayers cy, and the efficiency of the private sector— should not finance a new dome for the Oilers, which asserted that a new dome for the Oilers Lanier argued against any public funding. would be worth $20 million annually to Hous- (Houston’s resolve against the Oilers may ton. Still, none of it turned the tide in Adams’s have had something to do with the team’s favor. growing reputation as choke artists. In a 1993 playoff game, the Oilers blew a 35-3 halftime . . lead to lose to the Buffalo Bills—one of the Nashville Woos the Oilers greatest football collapses of all time.) So, in August 1995, he opened negotiations Support from fellow team owners in with the city of Nashville. Unlike Houston, Houston couldn’t be lined up either. Adams Nashville and the state of Tennessee had could not get the National Basketball Asso- wooed Adams. The city had long wanted to be ciation’s Houston Rockets—playing in the “big league.” Mayor Phil Bredesen had city-owned Summit—interested in his deal already built a new hockey arena without a as a co-tenant of the proposed facility, and National Hockey League tenant; so he stood Astros’ owner Drayton McLane also gave it more than willing to build a football stadium a thumbs down. for an actual NFL team. And Tennessee Gov- Mayor Lanier stuck by his refusal to put tax ernor Don Sundquist announced that state money into a new stadium. However, other taxpayers also would be tapped to help bring taxpayer-funded schemes started to float the Oilers to Nashville. about, like a $90-million upgrade for the Back in Houston, Lanier started to crack. Astrodome and $30 million for The Summit. He offered a deal to build an open-air stadium NFL Commissioner Paul Tagliabue came to for Adams. But Adams decided it was too lit- town to aid Adams’s quest in mid-1994. In tle too late, and besides, it supposedly was too recent years, a major part of Tagliabue’s job hot to play outside in Houston. has been to travel to cities where teams want A deal between the Oilers and Nashville the taxpayers to pay for new stadiums and to was announced in November 1995. The stadi- offer both carrots and sticks to state and local um would seat 67,000, with 120 luxury suites governments. He arrived in Houston promis- and 9,600 premium seats. Adams would not ing that the city would host the Super Bowl only not have to lay out a dime to build the one day if a new stadium was built for the new facility, but he would also receive a $28 Oilers. million relocation fee and garner 100 percent Amazingly, though, Lanier’s resolve only of stadium-related revenues. The state would strengthened. He declared that he would not kick in $55 million in construction bonds and go along with “taking Joe Sixpack’s money $12 million more for road improvements. and putting it into supporting a stadium . . . Nashville would fork over $144 million and for owners with $100 million assets and play- had to guarantee $70 million in net sales of ers making $1-million-plus on salary.” The personal seat licenses, giving fans the option editorial page of the now-defunct Houston to buy tickets. Post even chimed in with some down-home One hurdle remained, however: against the common sense: “If it is a good deal, private mayor’s wishes, local stadium opponents enterprise will do it.” gathered enough signatures to require a Confronted by this unprecedented opposi- referendum on the city package. Big dollars tion, Adams once again drew the ultimate poured into the pro-stadium “Yes for weapon: the threat of a move from the city. Nashville” campaign—outspending the oppo- ===== PAGE 19 ===== THE NFL OILERS: A CASE STUDY IN CORPORATE WELFARE 211 sition by about 16 to 1. Commissioner Tagli- liquor taxes. Lanier explained his surrender: abue naturally stopped by to give support. “If people want professional sports in this The resolution passed with 59 percent of the city, the reality is their presence requires cer- vote. tain public participation.” The Astros’ owner Meanwhile, the Oilers had a couple of offered one of the standard justifications for years left on their lease in the Astrodome, and stadium subsidies: “If we’re going to compete Adams promised to stay and play out those with teams like Atlanta, we need to have a sta- years. But after fewer than 21,000 fans attend- dium like this.” ed the last three games of the 1996 season, the A referendum barely (51 percent) approved Oilers wanted out. (A few days prior to the the Astros’ new ballpark, as well as $200 mil- Nashville vote, a save-the-Oilers rally in lion in Astrodome upgrades, just in case the Houston drew fewer than 50 people.) Adams NFL came back to town. Houston had fought negotiated a buyout deal. a valiant struggle against corporate welfare, Not long after the Nashville vote, Tagliabue but it finally gave in—big time. met with Houston officials and sang a famil- Early in 1997, Lanier proposed a new arena iar song. Houston could get a new NFL to be shared by the Rockets and a minor- team—if it built a new stadium or upgraded league hockey team. For a $200 million facil- the Astrodome. Astros owner Drayton ity, the teams would be asked to chip in only McLane talked about selling his baseball about $75 million. The latest talk around town team, claiming a string of annual losses since is about a completely new stadium for an NFL he acquired the club. And Houston’s lone expansion team. champions—the Rockets—made noises Meanwhile, Texas state officials rolled out about playing in an arena far glitzier and more the red carpet for the pro sports corporate profitable than The Summit (recently renamed welfare juggernaut. Governor George W. the Compaq Center). Bush signed legislation allowing localities— after voter approval—to set up sports authori- ties that could impose a county-wide 2 per- The Mayor Caves In cent hotel tax, a 5 percent rental car tax, and Apparently, this was all too much for taxes on parking and tickets, and to use sales Mayor Lanier. His rhetoric about taking tax revenues collected at facilities, all to pad money from Joe Sixpack gave way to the bottom lines of team owners and boost the defeatism. He noted that “the three leagues salaries of players. are monopolies and they’re behaving logical- To the very end, the Oilers’ Adams never ly for monopolies.” He and Harris County stopped thinking out loud about his beloved officials announced the formation of a com- Houston. In a strangely sympathetic piece in mission to study the possibility of building late 1996, which appeared in the Houston new sports facilities. This is the equivalent of Chronicle, Adams was asked what he would establishing a bipartisan commission in do over. “I'd let [Astros owner] Drayton go Washington, D.C., to deal with Social Securi- first. Then he'd be the one moving and I'd be ty or Medicare. It provides cover. Predictably, getting a new stadium.” the commission came back with the recom- At a Nashville rally in November 1995 cel- mendation that Houston build new facilities ebrating the announcement of the Oilers’ for baseball and basketball, and upgrade the move, Adams declared: “When Bud Adams Astrodome for football. Estimated price: tells you we will come if you live up to your $625 million. end of the bargain, that’s binding.” Yet, among By September 1996, a deal was consum- most team owners today, to “live up to your mated with the baseball Astros. A 42,000-seat end of the bargain” isn’t what it used to be. ballpark, with a retractable roof and 66 luxu- Now it means, “as long as you keep forking ry suites, would be built for about $240 mil- over taxpayer subsidies, then we’ll stay put. lion, of which taxpayers would pick up $180 Otherwise, we’re outta here.” million through rental car, parking, sales, and Some small, short-term justice, though, has ===== PAGE 20 ===== 212 THE FREEMAN e APRIL 1998 been dispensed. The Oilers’ attendance in the Such sentiments by politicians bent on tap- 1997 season was just as bad as in their final ping the “intangible benefits” of sports are a days in Houston. Adams persists in his quest long way from the political sensibilities of a for corporate welfare; he reportedly com- man like Calvin Coolidge, who as president plains that the team’s new training site is too once said: “The collection of any taxes which small. Of course, he demands a new one. are not absolutely required, which do not In the end, the guilt lies with politicians beyond reasonable doubt contribute to the willing to dole out sports pork in one form or public welfare, is only a species of legalized another. In June 1997, Nashville’s Mayor Bre- larceny.” desen admitted the tenuous ground upon Today, legalized larceny on behalf of mil- which stadium subsidies rest: “I can’t justify lion-dollar athletes and owners is all the rage. building a football stadium on direct econom- And as the performance of Houston—a gen- ic impact. The professors who make a living erally free-enterprise city without, for exam- pooh-poohing that are right. But there are a ple, zoning laws—and its former mayor show, lot of intangible benefits that make it more resisting a man in an athletic uniform is hard than easy to do.” to do. OJ THEFREEMAN IDEAS ON LIBERTY 1997 Bound Volume Gover 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. $24.95 each Save! Special introductory price: $19.95, through April 30, 1998 ===== PAGE 21 ===== THER IDEAS ON LIBERTY R———— In Defense of Markets and Misers by Candace Allen and Dwight R. Lee \Y [ey and misers are greatly under- recognizing the value of small benefits spread appreciated for the same reason: people over large numbers of people, one can see that fail to see the value of the little things they markets and misers are both sources of unin- both contribute. Lots of small benefits spread tended generosity more beneficial than that out over the entire population are difficult for dispensed intentionally by politicians or phil- people to notice, much less appreciate, even anthropists. Before mounting a defense of though the sum of these small benefits is misers, we examine briefly the tendency to large. On the other hand, concentrated bene- undervalue market benefits and overvalue fits are easy to see and appreciate, even political benefits. though they are not so large. The apparent threshold below which bene- The Bias in Favor of Politics fits are difficult to see provides a basis for understanding the bias against market activity over Markets compared to political activity. There is a sim- In politics, large benefits are commonly ilar bias against misers as opposed to those sacrificed in favor of small benefits because who spend their fortunes, or better yet, give the former are widely dispersed and the latter them away to charity. Misers have even fewer are highly concentrated. For example, a tariff defenders than markets, and, as in the case of duty receives popular support because every- markets, they are criticized by those who ben- one can see the benefit it concentrates on efit from what they are criticizing. those who work in the protected industry, We are not recommending that people while few notice the much larger cost in the become misers, and such a recommendation form of a small price increase spread over would have no influence even if we made it. millions of consumers. Indeed, government The life of a miser is an unattractive choice activities, although they destroy wealth, are for most people, who quite rationally want to often popular because the benefits are con- spend on themselves, or voluntarily share centrated and the costs are widely dispersed. with others, the money they have earned. But In contrast, market activities are often criti- those who choose to hoard their money cized although they create wealth. The market deserve our gratitude rather than our ridicule. faces a tremendous public relations problem By considering some simple economics and because it motivates the creation of wide- spread benefits in the form of better products Candace Allen is a member of the affiliate economics : concen- faculty at the University of Southern Colorado. and lower prices for the masses by Dwight Lee, a contributing editor of The Freeman, is trating costs In very visible ways on those Ramsey Professor of Economics and Private Enter- who fail to serve the interests of others. prise at the University of Georgia. Because the benefits of the market are so dis- 213 ===== PAGE 22 ===== 214 THE FREEMAN e APRIL 1998 persed, they are largely ignored or taken for question we ask is, which one of the two did granted, while the market discipline that more to benefit others? We have both asked makes the benefits possible is denounced. this question of students in our economics Similarly, because people have difficulty classes and almost without exception they noticing and appreciating dispersed, as answer, Mr. P.! We suspect that those without opposed to condensed, benefits, they also any economic training are even more likely to undervalue the contributions of misers and answer, Mr. P. After all, Mr. P’s money obvi- overvalue the contributions of philanthropists. ously benefited other people, both by increas- ing their consumption and by providing them with employment. Mr. M’s money did nothing but sit in a vault, which may have provided M Consider the following example of a rich with some kind of perverted pleasure, but miser, M, and an equally rich philanthropist, what could it have done for anyone else? P. Both were extremely and equally produc- In fact, it is easy to establish that Mr. M did tive at creating wealth over their entrepreneur- more to benefit others than did Mr. P. One rea- ial careers. At age 50 they both retire, each son people are misled when comparing the with accumulated wealth of $10 billion. The benefits created by the two men is that they similarity between M and P ends when we are unaware of the connection between the consider how they enjoy their wealth during quantity of money in circulation and the gen- retirement. Mr. M spends almost nothing, get- eral price level. But we believe people also ting his greatest pleasure from keeping his ignore the contribution of Mr. M because they money in a secret vault buried beneath his cannot perceive benefits spread thinly over modest house. He has no friends, wife, or off- large numbers of people, although the aggre- spring with whom to share his enormous gation of those benefits is large. For much the wealth, which is just as well, since he would same reason there is a bias in favor of politics be appalled at the thought of anyone, includ- over markets, there is also a bias in favor of ing himself, spending his money. philanthropists over misers. Mr. P is a jovial and generous man who To proceed with the case for Mr. M, one spends lavishly on himself and his friends. must recognize that both M and P created He hosts extravagant parties in his mansions more wealth than the $10 billion that each located in some of the most exotic parts of amassed in his personal fortune. The $10 bil- the world. These parties feature sumptuous lion is the difference between the revenue feasts and the world’s greatest entertainers, each man received from selling his product and Mr. P’s private jets and luxurious yachts and the cost of producing it. This difference is are constantly on the move transporting his commonly called producer’s surplus. But con- guests from one party to the next. Mr. P’s sumers receive more value from products than spending on entertainment provides employ- they pay for them. Customers expand their ment for cooks, pilots, yachtsmen, maids, but- purchase of a product to the point where the lers, house cleaners, interior decorators, and value they place on the last unit is equal to the others. But even his entertainment budget can- price, with previous units being worth more to not come close to exhausting his wealth in his them than the price. The difference between lifetime, so P also gives away hundreds of mil- the value consumers place on all the units lions of dollars to worthy nonprofit organiza- consumed and the amount they pay (the price tions such as universities, art museums, sym- multiplied by the number of units purchased) phony orchestras, and operatic companies, cre- is called consumers’ surplus. So our original ating enjoyment and employment for still more assumption that both M and P were equally people. productive over their careers and that they Each man dies on his 85th birthday, Mr. M earned the same amount of money (producer’s with his money forever locked in his hidden surplus) implies that their productive activity vault, and Mr. P having just spent his last dol- contributed the same amount to others in the lar on the feast that finished him off. The form of consumers’ surplus. The question The Bias Against Misers ===== PAGE 23 ===== IN DEFENSE OF MARKETS AND MISERS 215 then comes down to how much each con- everyone else specializes in production, there tributed to others with his $10 billion. aren’t many people like Mr. M. Instead of ridi- culing the few misers who do exist, we should C omparing Their Contributions be singing their praises in the hope of encour- aging more people to become misers. Mr. P’s contribution with his $10 billion is But even if you now understand the benefits easily seen because most of it was concentrated Mr. M provides to others, you might still feel on a relatively few friends, employees, and non- that Mr. P provides more. After all, he not profit organizations. Mr. M’s contribution is only gave away most of his $10 billion to his easily missed because it is distributed over hun- friends and worthy causes (his personal con- dreds of millions of consumers. Mr. M did sumption can be ignored since, as with most exactly as much as Mr. P to expand the supply people who earn enormous wealth, it is a very of goods available in the economy, but by small proportion of his total wealth), he also hoarding all of his $10 billion, he reduced the created lots of employment by keeping his quantity of money available to spend on them. money in circulation.3 Increasing the supply of goods while reducing In fact, Mr. P caused no increase in employ- the supply of money is a guaranteed way to ment with his spending. He simply directed reduce the general price level below what it some workers into employment producing the would be otherwise. Every consumer could buy things he spent money on (either directly, or a little bit more with his income than would indirectly through his contributions to chari- have been possible had Mr. M spent his money. ties) and out of other employment. Mr. M It 1s true that the price level would not be didn’t increase employment either, but he cer- noticeably lower than otherwise; almost no tainly didn’t reduce it. By reducing the gener- one would realize that he is able to buy more. al price level a little, his hoarding allowed Even if someone did realize it, he would not millions of others to buy a little bit more with connect the additional purchasing power to their money, with the increase in their total the hoarding of Mr. M. But that’s the point. purchases equal to what Mr. M could have Mr. M’s hoarding will be providing a total spent himself. The only difference between benefit of $10 billion to others, but because it Mr. M and Mr. P is that M allowed others to is so widely distributed no one will notice, or decide where employment opportunities appreciate, his contribution. should be expanded with their purchasing The benefits misers provide to others would choices. So while there is no reason to favor be easy to see if they were concentrated on a either Mr. M or Mr. P for creating employ- few. To consider an extreme example, just ment, Mr. M’s hoarding is really more gener- imagine how well off you would be if every- ous than Mr. P’s spending because the benefi- one but you began hoarding all the money ciaries of hoarding can get what they want they earned (except for the amount necessary instead of what someone else wants for them.4 for a bare subsistence), but continued to pro- Also, philanthropy in the form of gifts to duce the same quantity of goods and services nonprofit charitable organizations, although as now. You could buy almost everything pro- universally applauded, actually does less good duced in the entire economy with your than the unheralded contribution of Mr. M. income, whether you had the income of Bill Although such organizations do provide Gates or of a welfare recipient. The lower value, they face a serious handicap because your income, the less you would have avail- they are nonprofit; without the feedback of able to spend, but the lower prices would be. profit and loss, they don’t know if they could In this case, it would be obvious that misers be producing more value by using their provided you with a great bargain. They resources in other ways. Furthermore, even if would have produced for you and demanded such information were available without nothing of value in return.2 market-generated profits, these charities lack Unfortunately for those of us who would the incentive to direct resources to their most like to specialize in consumption while almost productive employment.5 On the other hand, ===== PAGE 24 ===== 216 THE FREEMAN e APRIL 1998 most of the value Mr. M contributes to others largely self-interested people into a pattern of is transferred through private firms respond- social cooperation that benefits everyone even ing to the market information that makes it though that is the intention of no one. Simi- possible to provide consumers the greatest larly, misers do not intend to benefit others, value at the lowest cost.6 yet their actions do more good than if that had Another drawback to giving money to non- been their intention. So even if the contribu- profit charitable organizations is that much of tions of markets and misers were noticed, it goes into appeals for more contributions most people would deny them the moral rather than into promoting the organizations’ virtue that is so easy to assign to those who stated objectives. Indeed, in many cases, well intend to do good. In contrast, the contribu- over 50 percent of the money collected by tions of both politics and philanthropists nonprofits goes into fund-raising activities, appear to be intentional. often referred to euphemistically as educa- A final point: because the benefits of mar- tional expenditures.” Some expenditures pro- kets and misers are conveyed impersonally, viding information to potential donors are people expend little effort (and therefore use Justified, just as are advertising expenditures few resources) attempting to secure special by private firms. But, unlike most nonprofit favors from those creating those benefits. In charitable organizations, private firms provide contrast, because the benefits of politics and their products to those who pay the full cost philanthropists are associated with the inten- for them. So if private firms don’t reinvest tions of identifiable donors, much of the value most of their revenue into maintaining and of those benefits is dissipated as people com- improving their products, advertising won’t pete for their favor. do them much good. Not surprisingly, as a We are not sure that defending misers is the percentage of revenues, private firms spend best way to make a case for the market. But we much less on advertising to attract customers are sure that if people properly understood the than nonprofit charitable organizations spend market, and how it contributes so much to all of to attract donors, who typically have little us, misers would not need to be defended. [] motivation to monitor how their contributions are spent. So less of Mr. M’s contribution is : eaten up in appeals and more of it actually nt wa wil (rey have Termnd fom evions gets to the beneficiaries. experience to choose the answer that seems less reasonable. unnoticed and his behavior may be ridiculed, (1974), pp. 105-109. Also see Steven E. Landsburg, Fair Play while the highly visible contributions of Mr. (New moe covates oy Png sone was the most P are lauded and his generosity praised. But common reason students in one of Allen’s classes favored Mr. P : : 3 when asked who contributed more to others. Mr. M is actually P roviding more benefits to 4. Of course, when P gives money to charities they have a lot of others. latitude on how they spend it. But even here, by choosing the type of charities he does, P is exerting more control on how his contribution is spent than is M. Also, we are not arguing here against gift giving. . After all, the giver of gifts receives satisfaction also, and this should Unintended Benefits be taken into consideration. But if we recognize that the miser is . making a gift every bit as generous as the philanthropist’s, we should Our purpose has been to explain how also acknowledge that the miser receives satisfaction from making : : _ his gift as well, the satisfaction of hoarding all that money. sors provide benefits to others more effec 5. Of course, people who work for nonprofit organizations can tively than do philanthropists and why, despite benefit from any excess of revenues over costs, but this benefit has : : : 1: : ; _ to take the form of additional expenditures within the organization. this fact, misers are ridiculed, while philan So any excess revenues (profits) are quickly converted into inflated thropists are revered. From the outset we costs rather than directed into more productive uses. : _ 6. For more on the disadvantages of expanding philanthropy at noted that markets and miscrs are underap the cost of reducing the activity of private firms, see Don Boudreaux, preciated because their contributions are “Bill Gates, Philanthropist,” “Notes from FEE,” The Freeman, Jan- i 3 . nary 1998. spread thin. But there’s another reason. the 7. For a detailed discussion of the fund-raising and spending contributions of both markets and misers are practices of some of the country’s best-known nonprofit charities, : . : see James T. Bennett and Thomas J. DiLorenzo, Unhealthy Chari- unintended. Indeed, the amazing thing about ties: Hazardous to Your Health and Wealth (New York: Basic markets is that they channel the pursuits of Books, 1994). ===== PAGE 25 ===== THEFREEMAN {DEAS ON LIBERTY SRS—— The Myth of an Emerging Information Underclass by Gary T. Dempsey | Dl the past few years, egalitarian pundits Wirthlin Worldwide found that Internet use by and politicians have argued that people people earning less than $15,000 a year may without Internet access will be at a serious have increased by as much as 160 percent. A social and economic disadvantage. Subsidies, recent Business Week poll found that as many one Clinton administration white paper as 18 percent of today’s Internet-using house- claims, are required to connect lower-income holds earn less than $25,000 a year. Such households. Otherwise, we risk becoming a trends have led Novell’s Eric Schmidt to pre- society of information “haves” and “have- dict that “At the current rate of growth every nots.” Similarly, advocacy groups like the man, woman, and child on the earth will be Alliance for Public Technology and the Cen- connected to the Internet by 2007.” ter for Media Education fear that without Second, researchers at Carnegie Mellon Internet subsidies an “information under- University have found that people use the class” will emerge in the digital age. Internet primarily for amusement. This sug- Yet proponents of Internet subsidies make gests that entertainment, not information ser- two false assumptions. The fact that some vices, will drive the Internet’s commercial people do not log on does not necessarily development. As an entertainment tech- imply that they cannot afford to do so. They nology, the Internet will likely penetrate may simply have other priorities. And having households just as VCRs and color televisions an Internet connection does not necessarily have, into 88 and 98 percent of households, imply that someone is “information rich.” Just respectively. as living next door to a public library doesn’t Third, recent technological innovations, by itself make a person more knowledgeable, like cable modems and wireless local multi- there is nothing automatically informative point distribution systems (LMDS), will about being wired. expand the availability and lower the cost of Moreover, there are several compelling rea- Internet access. Cable is now available to 97 sons to doubt that an “information under- percent of U.S. homes, according to the class” will emerge in the absence of govern- National Cable Television Association, and ment-mandated Internet subsidies. First, the several companies are currently developing number of low-income households with Inter- cable modems that will allow 24-hour access net access continues to grow each year. In the to the Internet at speeds unmatched by tele- last quarter of 1996, for instance, a survey by phone lines. For instance, transmitting a five- megabyte file over a typical telephone modem takes approximately 22 minutes. To send the Gary Dempsey is a researcher at the Cato Institute in Same file through a cable modem would take Washington, D.C. four seconds. 217 ===== PAGE 26 ===== 218 THE FREEMAN e APRIL 1998 Cellular technology is also advancing. Added to the growing pool of hardware Wireless LMDS will allow simultaneous will be new, low-cost, network computers high-speed interactive voice, video, and Inter- designed especially for Internet use. Such net services without the expense of laying “information appliances,” as they are some- costly new wires. What both cable and LMDS times called, are now being introduced into technologies will provide is Internet access the marketplace. Oracle advertises a $299 that is diversified, faster, and, with competi- version, and Hewlett-Packard and Sun tion, cheaper. Microsystems plan to introduce sub-$500 Fourth, charitable organizations can offer models. low-cost or free Internet access as part of their What all of this suggests is that an “infor- programs. That is precisely what the Plugged mation underclass” is far from inevitable. In organization does. The East Palo Alto- Rather, information technology is on course based nonprofit group is committed to extend- to spread everywhere without government ing network access to low-income people. The subsidies. The voluntary institutions of civil group also offers more than 30 classes society—markets and charitable giving—are designed to give community members basic expanding access on their own. Internet and computer skills. Subsidies Do Harm Help from the Profit Sector Giving Internet subsidies to low-income Private companies around the country are households would, of course, have several neg- also stepping forward and offering free Inter- ative consequences. For one, it would cost net access. DIGEX Inc., for example, donates telephone customers a bundle. The federal Internet access to the Robert Taylor housing government already requires all telecommuni- project in Chicago, and Imperium Internet cations carriers that provide interstate donates access to the Eternal Light Church’s telecommunications services to contribute to a public computer lab in urban Canton, Ohio. universal service fund to subsidize Internet Microsoft, too, currently supports 215 access for schools and libraries. These carriers libraries in low-income urban and rural areas receive bills from the universal service admin- by providing free hardware, software, and istrator based on their interstate and intrastate training. end-user telecommunications revenues. This Finally, one obvious reason lower-income year, the price tag for Internet subsidies could households lag in Internet access is that they reach $2.25 billion for schools and libraries do not have computers. But that is changing. alone. This cost is passed on to telephone cus- According to a survey by DataQuest, 43 per- tomers in the form of higher fees—approxi- cent of American homes today have comput- mately $6 per customer according to Internet ers. Furthermore, one-fifth of computer-own- News. Extending Internet subsidies to low- ing households earned less than $30,000 a income households would make telephone year, 30 percent more households than the service still more expensive. previous year, according to a 1995 survey by Increasing Internet subsidies would also Computer Intelligence Infocorp. One reason further expand the dominion of the federal for the rapid growth of computer ownership government. Indeed, whenever a new govern- among lower-income households is the ever- ment program comes along, so does a whole increasing supply of used computers. Fifteen raft of supplementary regulations. In the case to 19 million used business computers go on of the current Internet subsidies. program, the market each year, according to the Gartner schools and libraries are barred from reselling Marketing Group, plus an estimated one mil- services purchased with the subsidy. This has lion used government computers. It’s not sur- created a whole new category of federal prising, then, that 29 percent of first-time buy- crimes—selling subsidized Internet access— ers recently reported that they bought their —and a new domain for federal law-enforce- computers used. ment officials to operate. Further extension of ===== PAGE 27 ===== THE MYTH OF AN EMERGING INFORMATION UNDERCLASS 219 Internet subsidies would surely increase the rian Alan Brinkley, “The first commercial scope of federal authority. radio station in America . . . began broadcast- The better policy choice would be to allow ing in 1920. . . . By 1923, there were more markets to function as they have historically than 500 radio stations, covering virtually in spreading new technologies. Consider the every area of the country; by 1929, more than automobile. According to historian John 12 million families owned radio sets.” As for Hicks, “In 1919 there was only one automo- televisions, Brinkley explains that “In 1946, bile for every 16 Americans. . . . But by 1928 there were only 17,000 television sets in the there was one car for every six Americans,” a country, by 1957 there were 40 million sets in nearly threefold increase in the per capita use-—almost as many as there were families” number of cars in just nine years. after just 11 years. Radios and televisions provide other exam- The lesson is clear: government-mandated ples of how, without subsidies, new technolo- subsidies are not necessary to spread the tech- gies spread to consumers. According to histo- nologies that consumers demand. OJ | “The most exciting new intellectual journal in | i many years. —WILLIAM NISKANEN, Chairman, Cato Institute 1 e INDEPENDENT REVIEW is the new, quarterly journal de- ] INDEPENDENT Thom to the political economy of liberty. Transcending the all- REVIEW too-common politicization and superficiality in public policy de- l pyrerrrrrresl bate, The INDEPENDENT REVIEW is superbly written, provoca- l oe tive, wide-ranging, and based on solid scholarship. Featuring path-breaking studies by many of the world’s finest economists 1 and other scholars, The INDEPENDENT REVIEW boldly chal- 1 lenges the collectivization and bureaucratization of our world. Probing the most difficult and pressing of social and economic questions, articles range across economics, political science, law, history, philosophy, sociology, and related fields. Edited by Robert I Higgs, The INDEPENDENT REVIEW features in-depth examina- tions of current policy issues viewed in comprehensive historical, I ethical, and economic perspectives. Undaunted and uncompro- mising, this is the journal that will pioneer future debate! I IRN TSE HSROWITE. Figures * Tables * Annual Index * 600 Pages per Volume | : Professor of Sociol University Individual Subscription: $27.95/year * $52.95/2 year 1 1 De ators SE Military Academy Institutional Subscription: $83.95 /year » $158.95/2 year 1 I International orders add $28 per subscription for shipping I | The [fi INDEPENDENT l : INSTITUTE : i i 1 The Independent Institute, Dept. 8E, 100 Swan Way, Oakland, CA 94621- 1428 Usa | ===== PAGE 28 ===== Potomac Principles by Doug Bandow Native American Success Stories M2 supporters of limited government only form of sustenance is food stamps and are unsure what to think of native commodities.” Americans. Anyone who believes in liberty The BIA seems intent on keeping native should be uneasy about how early Americans Americans dependent. What the bureaucracy destroyed the original peoples during the most wants is a bigger budget. Ada Deer, expansion across the North American assistant secretary of the Interior for Indian continent. But Indian dependence on the Affairs, says simply: “We need more money.” federal dole deserves criticism too. For what? “A Marshall Plan approach to Indi- The latter may be the most unfortunate an affairs,” she explains. modern legacy of the nation’s earlier treat- Yet there has never been a lack of cash. ment of native Americans. Of the roughly 2.2 Indeed, the bureau is not the only federal spig- million Indians in the United States today, ot; other agencies provide funds for health roughly one-fifth live on reservations. The care, housing, and more. Anyway, there is no dominant presence in the lives of many native reason to believe that more money invested by Americans is the hidebound Bureau of Indian the same agency in the same way will do any Affairs (BIA), which spends $1.7 billion good. Barely ten to 15 percent of BIA spend- annually and employs 12,000 people. Gary ing is thought to actually reach its supposed Jordan, vice chairman of Wisconsin’s Oneida beneficiaries. Observes Senator Slade Gorton tribe, complains that the BIA has “got all the of Washington, a member of the Indian earmarks of socialism at its worst.” Affairs Committee: “The federal government It is tempting to treat native Americans asa has run a paternalistic system for nearly the simple budget issue: just cut BIA funding. entire history of the United States. It’s that But the plight of Indians remains a powerful System that has been a failure.” emotional lever for agency supporters. Native Still, critics will be more effective if they Americans earn about half the average nation- not only decry BIA inefficiency, but also help al income; one-third of them are in poverty. point the way to tribal independence. And the The social pathologies evident in the inner best way to do so is to highlight Indian entre- city are also present on reservations. Preneurship. Many native Americans recog- Observes Senator Ben Nighthorse-Campbell nize that their only hope is self-help. of Colorado, chairman of the Senate Indian Observes: Senator Nighthorse-Campbell: Affairs Committee: “To many people, their Indians now see private enterprise as the best way out of poverty.” —_— i Co A number of tribes, such as California’s Doug Bandow, a nationally syndicated columnist, is . , . . a senior fellow at the Cato Institute and the author Cabazons, Minnesota S Mille L acs Chippe- and editor of several books, including Tripwire: Was, and New Mexico’s Sandias, have con- Korea and U.S. Foreign Policy in a Changed World. ~~ structed casinos. Other tribes have benefited 220 ===== PAGE 29 ===== 221 from their control of natural resources. For tury, however, the 8,000-member tribe has instance, Arizona’s Navajos and Jicarillas pro- defied even its own modest expectations by duce oil and gas. Oregon’s Confederated transforming itself from a stagnant welfare Tribes manage forests and operate hydroelec- culture into an economic dynamo, and one of tric dams. the largest employers in Mississippi.” Admittedly, these cases involve somewhat It wasn’t easy. Three decades ago the artificial economic success. In particular, Choctaw unemployment rate ran 75 percent. native American casinos typically thrive Eight of ten tribe members were on welfare. because states ban any competitive facilities Infant mortality and life expectancy were at from non-Indians. Nevertheless, a willingness Third World levels. Few Choctaws received to take advantage of such opportunities, how- more than elementary education. ever contrived, demonstrates entrepreneurship Then along came Chief Philip Martin. As a that could be applied in other fields as well. young man, he found the only open reserva- And, in fact, tribes have increasingly moved tion jobs to be BIA maintenance positions. beyond gaming monopolies and natural After being elected chief in 1959, he went to resources. The three tribes of Oregon’s Warm 150 different firms before he found one, auto- Springs confederation run a series of enter- motive supplier Packard Electric, willing to prises that generate $80 million a year in rev- train local workers in a Choctaw plant on the enue: a power plant, timber operation, vaca- reservation. The enterprise skirted failure at tion resort, and apparel company. Explains first, but eventually transformed the reserva- tribal council member Kenneth Smith: “We tion. Writes Bordewich, “people who had have done a good job of developing our been totally destitute [began] to show up in national resources. But we need to do still new shoes and clothes without holes, and more to diversify our economic base.” eventually in cars.” More factories followed. Arizona’s White Mountain Apaches manage Today the tribe runs a casino, construction nine enterprises, including an aircraft parts firm, printing plant, shopping center, and plant, with total revenues of $45 million. Also other businesses that collectively generate in Arizona, the Ak-Chin tribe operates a $10 revenues of $300 million a year. Jobs are million agribusiness, and the Yavapais tribe increasingly technical and professional. The maintains a hotel as well as a casino, and has result has been widespread prosperity—aver- leased land for construction of a mall. Maine’s age annual family incomes have climbed from Passamaquoddies run an auto parts plant, $2,000 in the mid-1970s to more than apparel operation, mini-mall, and farm; $13,000 today. The number of Choctaws on license out a synthetic-fiber plant and environ- welfare has fallen dramatically; education, mental scrubber technology; and have bought, health, and housing have sharply improved. and sold for a large profit, a cement plant. Obviously, many tribes have not done as Wisconsin’s Oneidas own a mobile-telephone well. And the nature of Indian businesses— company and a partial interest in a bank, par- collective ownership, resistance to sale of ticipate in a joint venture to produce circuit tribal land, an inability to pledge as loan col- boards, and are moving to create metals fabri- lateral land in BIA trusteeship—limits busi- cation and medical products companies. The ness opportunities. Nevertheless, many native tribe also offers loans to members for small Americans have found entrepreneurship to be businesses. South Dakota’s Rosebud Sioux are a way out of poverty. And more are likely to planning a large food-processing plant. take that path in the future. One of the most dramatic examples of Unfortunately, some legislators are upset entrepreneurial success is the Choctaws in about too much of a good thing. In particular, Mississippi. “For generations the Choctaws they see Indian gambling revenue as a pot of were a virtual textbook example of the futili- money for government to raid. Proposals have ty of reservation life,” reports Fergus Bor- surfaced on Capitol Hill to tax up to a third of dewich, who has written a book on Indian native American gaming; House Ways and entrepreneurship. “Over the last quarter-cen- Means Committee Chairman Bill Archer ===== PAGE 30 ===== 222 THE FREEMAN e APRIL 1998 unsuccessfully attempted to include such a victimized by the welfare strategy of devel- levy in last year’s big-spending budget “com- opment. Dependent on federal largesse, they promise.” have languished in poverty. But an increasing The federal government’s greedy desire for number of tribes are taking the entrepreneur- cash is supplemented by some people’s objec- ial path of development to prosperity. As they tion to gambling per se. Yet native Americans do so, Uncle Sam should apply the overriding are pikers compared to those who run state rule for government: first do no harm. Taxa- lotteries, which generate more than $15 bil- tion is, after all, the power to destroy. It’s lion annually. Whether or not gambling is a taken decades for native Americans to stum- good thing, it should be neither banned nor ble upon the path that most other Americans monopolized by government. And there is no followed to prosperity. Now that they are reason for Uncle Sam to tax native American beginning to succeed, Washington should gaming proceeds but not state lottery revenue. take care not to ruin what has proven to be a For a century American Indians have been good thing. OJ FEE Trustee Dinner at the Tarrytown Hilton, in Tarrytown, N.Y. Sunday, May 17, 1998, at 5:00 p.m. Featured Speaker: John Stossel Correspondent, ABC News 20/20 $50.00 per person / $90.00 per couple Please reserve early, space is limited. For reservations, call Renée Oechsner, at (800) 452-3518, fax (914) 591-8910, or e-mail freeman@westnet.com. ===== PAGE 31 ===== IDEAS ON UBERTY Defining State and Society by Wendy McElroy wo of the most important concepts in any The American individualist Albert Jay discussion of liberty are state and society. Nock was one of the main conduits of Oppen- But it is often far from clear what any given heimer’s thought into the United States. He person means by those terms. Part of the con- captured his mentor’s sentiment in a book fusion stems from the fact that the definitions titled Our Enemy, The State (1935). Nock can shift dramatically depending upon the wrote, “Taking the State wherever found, theoretical approach of the speaker. Virtually striking into its history at any point, one sees all individualists agree that there is some dis- no way to differentiate the activities of its tinction to be drawn between a state and a founders, administrators, and beneficiaries society. But exactly where the line should be from those of a professional criminal class.”2 drawn has been the subject of active debate, at At this point in his argument, however, Nock least since the writings of the seventeenth- introduced a third concept into his discussion century English classical liberal John Locke. of liberty: government. Nock’s government is The German sociologist Franz Oppenheimer an agency that protects individual rights with- spearheaded an analysis of these key terms in in society, presumably in exchange for a fee, his classic work, The State (1914). Oppen- such as embodied in a reasonable tax rate. heimer defined the state as “that summation Nock was not alone in distinguishing of privileges and dominating positions which between government and the state: the novelist- are brought into being by extra-economic philosopher Ayn Rand also embraced the power.” He defined society as “the totality of concept of a limited government that would concepts of all purely natural relations and function as a night watchman, unobtrusively institutions between man and man.”! He con- protecting the person and property of its cus- trasted what he termed “the political means” tomers. Indeed, Oppenheimer himself left the with “the economic means” of acquiring door open for a distinct agency called govern- wealth or power. The state uses the political ment when he declared, in the concluding means—in other words, force—to plunder paragraph of the introduction to The State, and exploit society, which uses the economic “Others may call any form of leadership and means—in other words, cooperation. Thus, government or some other ideal the ‘State.’ for Oppenheimer, the state was the enemy of That is a matter of personal style.” society. The contemporary philosopher Tibor Machan offers a definitional distinction Wendy McElroy is author of Sexual Correctness: The between the state and government. The state is 1996). that persists through time. The government 223 ===== PAGE 32 ===== 224 THE FREEMAN e APRIL 1998 was the actual agency that acted to carry out vicious parasite riding on the back of society, the decrees of the state. Thus, the government as in Rothbard’s For a New Liberty (1978). might change from Republican to Democrat, With such a division of attitudes, the chal- but the state remains the same. Whether Rea- lenge to political thinkers is to discern the gan or Clinton occupies the White House, commonality that exists among all states in each man would represent the same state, order to derive a definition of the state. which derives its legitimacy from the Ameri- Historically, when political thinkers have can Revolution and the ratification of the U.S. attempted to discover the essential nature of Constitution. the state and whether it has legitimacy, they More radical voices within the individualist have looked to the origins of that institution tradition, such as the economist Murray Roth- for answers. In general, there are four basic bard, did not draw such a distinction between and somewhat overlapping theories of how state and government. Or, if they viewed the the state originated. Each theory carries dif- two as technically separate entities, such indi- ferent implications for its relationship to soci- vidualist anarchists typically condemned both ety. The first theory is a supernatural one, as invasive. They asked a haunting question: which claims that the state, or at least a cer- how can any agency or institution rightfully tain ruler, is in place through the will of God. claim monopoly jurisdiction over a service to This theory results in theocracy and the divine customers who do not wish to subscribe to it? right of kings. According to the theory, the Or, if government provides a service, like a members of society—who are presumably night watchman, can you take your business placed by God in their roles as well—owe elsewhere? some level of allegiance to even an abusive The discussion of individual freedom state. returns inevitably to how the key concepts of The second theory attempts to ground the state, society, and government are being state in more naturalistic terms. It claims that defined. And in pursuing those definitions, the state—like the family—is an almost spon- one fact becomes quickly apparent. They are taneous institution that naturally evolves more than a matter of personal style, contrary from the act of community. Because individ- to Oppenheimer: they involve deep ideologi- uals and their property require protection, cal and historical disagreements with equally an overriding institution naturally evolves to profound implications. : act as a policeman and a final arbiter of dis- : putes. According to this theory, no hard line What Are State and S ociety? necessarily distinguishes the state from society; they are engaged in a cooperative The state is an abstraction, and care must be venture. taken not to make something overly concrete The third and fourth theories entail conflict. of it. The same can be said for society. The The third theory claims that the state emerges analytic approach traditionally adopted by due to internal warfare within the society. classical liberals is called methodological Karl Marx popularized this view by analyzing individualism. This approach claims that only the state as an agency of class warfare by individuals exist, and that institutions—such which the capitalists control the workers. For as the family, church, and state—all result Marx, the state is an expression and protector from and can be analyzed in terms of individ- of one segment of society at the expense of uals interacting with each other in particular another segment. ways. Society is the shorthand for the sum of The fourth theory looks to external con- all voluntary, or natural, institutions. flicts and maintains that the state arose as the The state has emerged many times and in result of one tribe conquering another tribe. many forms throughout human history. Within classical liberalism, two theories of Sometimes it has been lauded as the ideal the origin of the state have struggled for dom- expression of society, as in Plato’s Republic. nance: the naturalistic, or consent, theory, by At other times, it has been excoriated as a which the state evolves from society; and the ===== PAGE 33 ===== The Foundation for Economic Education irvington-on-Hudson, New York 10533 Tel. (314) 591-7230 Fax (914) 591-8910 E-mail: freeman @westnet.com April 1998 Julian Simon, Lifesaver The real issue is not whether one cares about nature, but whether one cares about people. JULIAN L. SIMON, The Ultimate Resource 2 (1996) ulian Simon’s unexpected death in respect private property and free mar- February brought a major loss. With kets—because only within free markets the passing of this noted free-market can human creativity flourish. In his champion, humankind lost a genuine magnum opus, The Ultimate Resource 2 hero; the economics profession lost one (Princeton University Press, 1996), Julian of its most brilliant, if underappreciated, showed that ours is not a world of fixed members; FEE lost the wisdom of an resources. Instead, he rightly taught that original member of its Council of Schol- the quantity of resources available at any ars; and I lost a kind and dear friend. given time is determined by how cre- It was heartening to see, in the sad ative and energetic we are in extracting days following Julian's passing, an out- resources from the earth, as well as by pouring by writers in several news- how creative and energetic we are in papers and magazines—including devising ways of getting more and more The Freeman's own Sheldon Richman—of | output from each unit of resource. His tributes to Julian and to his courage and massive and masterful documentation of perseverance in challenging the emotion- | how free people unfailingly use ally charged deceptions spewed by resources with increasing efficiency is doomsayers and self-styled environmen- | the single most potent intellectual talists. While pessimism-pushers such as weapon available today for doing com- Lester Brown, Paul Ehrlich, and Al Gore bat against the anti-people puritans of received the mainstream media’s rever- both the left and the right. ence, during his life Julian received most- By chronicling the vast improvements ly scorn for showing that the world isnot | unleashed by free, private-property mar- on the brink of an environmental and kets—by demolishing countless Chicken population calamity. His only consola- Little falsehoods spawned by statists— tion was that truth was his constant ally. Julian Simon has done more than any Julians foremost contribution to single human being during the past humankind was his demonstration that quarter century to protect us from the prosperity and a healthy environment coercive schemes incubating in the hot- are best assured when governments house of unwarranted public hysteria. ===== PAGE 34 ===== But Julian also contributed in a more their customers. No one is forced to direct way to the saving of human lives. miss the flight; instead, the airline pays Indeed, it may well be that some of people to miss the flight. The airline Julian's most vehement critics would not | pays with an offer of a later flight to the be alive today were it not for his genius. passenger ’s immediate destination as More than 20 years ago, Julian well as with a free roundtrip ticket to devised the volunteer system that U.S. another destination of the passenger's airlines use today to handle overbooked choosing. flights. Because of him, airline travel is This system works splendidly. I've now more reliable and less costly. As a been on countless overbooked flights result, fewer people drive long distances; | and never have I witnessed an airline more people fly. And because flying is failing to persuade enough people to much safer than driving, Julian's idea lit- | “sell” their seats in exchange for a later erally saves lives. Here's how. connection and free roundtrip airfare. Airlines overbook because chances are Julian's creative idea for handling high that not all booked passengers for overbooked flights is not as celebrated as any given flight will actually show up is Henry Ford's idea for producing auto- for that flight. By increasing the number mobiles on assembly lines or Sam Wal- of seats sold for a flight, the airline low- ton’s brilliant method of lowering retail ers the minimum price it must charge for | prices. Few people, after all, have ever each seat. Overbooking lowers the cost heard of Julian Simon, while Ford's and of flying. Walton's names are legendary. But what to do when too many Julian's anonymity, however, itself tes- booked passengers show up for a flight? tifies to his larger life’s work. More clear- In the days before Julians proposal was ly than almost anyone else, Julian under- adopted, airlines arbitrarily bumped stood Adam Smith’s insight that in free some booked passengers. This practice markets wealth is the product of human made flying unnecessarily inconvenient. creativity. And the greater the number of Those people who absolutely had to be free people, the greater the number of at their destinations by a certain time innovative ideas for transforming raw could not depend upon airlines to get resources into goods and services that them there. Many of these people would | improve human lives. In free markets, drive rather than fly. more people mean more wealth. This is One possible solution is for airlines the reason why Julian rightly celebrated never to overbook. But avoiding over- population growth, and why he devoted booking means that too many airplanes so much effort toward championing would take off with too many empty open immigration. seats. And every empty seat means that Precisely because a free market the airline’s cost per actual passenger on inspires literally millions of people to board is higher than it would be if the add their creative geniuses to industrial seat were occupied with a paying pas- and commercial efforts, relatively few senger. An airline whose flights are con- individuals are singled out as great sistently filled with paying passengers benefactors. But that’s the beauty of the can charge lower prices than can an air- free market: it is so full of creative heroes line whose flights are regularly only half | that we cannot honor them all! filled. Julian Simon was one such hero, a Julian's ingenious solution simultane- man who deeply cared about people. ously enables airlines to continue the We are all poorer now that his genius efficient practice of overbooking while and immense humanity are Jost to us assuring passengers with tight schedules | forever. that they will not be bumped from over- booked flights. His system is fair and simple— / ) 72 although no one thought of it until he came along. When too many booked passengers show up for a flight, airlines Donald J. Boudreaux now engage in voluntary exchange with President ===== PAGE 35 ===== APRIL BOOK SALE “There is no art which one government sooner learns of another than that of draining money from the pockets of the people.” —Adam Smith, The Wealth of Nations FREEMAN CLASSIC MURRAY N. ROTHBARD Taxation and Confiscation What Has Government Done to The destructive nature of confiscatory Our Money? taxation. An excellent essay on the political 210 pages $3295 sale $8.95 mismanagement of the people’s money. 119 pages $795 sale $5.95 FREEMAN CLASSIC Bankers and Regulators DEAN RUSSELL The political creation and manipulation Government and Legal Plunder of the American banking cartel. Essays applying Bastiat’s brilliance to 178 pages $995 sale $5.95 modern problems. 116 pages $6-95 sale $4.95 EUGEN VON BOHM-BAWERK The Exploitation Theory MURRAY SABRIN This extract from Capital and Interest Tax Free 2000: explodes all Marxian arguments The Rebirth of American Liberty against interest income. A look at the evils of confiscatory 159 pages $995 sale $4.95 taxation and the prospects for its elimination. W.M. CURTISS 253 pages $3595 sale $7.95 The Tariff Idea A brief analysis of the fallacies and HANS F. SENNHOLZ dangers of protectionism. Death and Taxes 81 pages $295 sale $1.95 The individual and social effects of estate taxation. RICHARD A. EPSTEIN 109 pages $595 sale $4.95 Takings: Private Property and the Power of Eminent Domain ADAM SMITH An illuminating discussion of the vast The Wealth of Nations powers of government. The first, and most influential, 373 pages $3795 sale $11.95 systematic treatise of classical economics. (Complete text, books I JOSEPH E. JOHNSTON, JR. through V, 1161 pages.) The Limits of Government 2-vol. set $1595 sale $13.95 A look at what government should and should not do in a free society. 335 pages $1995 sale (H) $9.95 All titles are paperback unless otherwise noted. SALE ENDS APRIL 30, 1998 Postage and 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 Broad- way, Irvington-on-Hudson, NY 10533. Visa and MasterCard telephone and fax orders ($10 minimum) are welcomed: (800) 452-3518; fax (914) 591-8910. ===== PAGE 36 ===== Now available from FEE . . . THE DISADVANTAGES OF BEING EDUCATED AND OTHER ESSAYS by Albert Jay Nock . Albert Jay Nock (1870-1945) was never a household name even in his own lifetime but his memory has been kept green in the half-century since his death. In 1991 Jacques Barzun wrote about the double please of reading Nock “for what he says and for the way he says it.” Nock’s work is “social and intellectual criticism at its best” and Barzun wrote optimistically that he “will surely climb in due course to his proper place in the American pantheon.” Charles Hamilton noted that Nock “con- tributed some powerful and lasting criticism of the state of humane life in America.” Nock was not a voluminous writer, wrote his friend, Frank Chodorov, but “had a rare gift of editing his ideas so that he wrote only when he had something to say and he said it with dispatch.” Hendrik Willem van Loon exclaimed that Nock was “possessed of a rare genius for the handling of, words.” And finally, H. L. Mencken, no slouch himself as a prose stylist, declared that Nock “thinks in charming rhythm. There is never any cacophony in his sentences as there is never any muddling in his ideas. It is accurate, it is well ordered, and above all, it is charming.” Albert Jay Nock was not a reformer and found offensive any society with a “mon- strous itch for changing people.” He had “a great horror of every attempt to change anybody; or I should rather say, every wish to change anybody; for that is the important thing.” Whenever one “wishes to change anybody, one becomes like the socialists, vege- tarians, prohibitionists; and this, as Rabelais says, ‘is a terrible thing to think upon.” The only thing we can do to improve society, he declared, “is to present society with one improved unit.” —Robert M. Thornton (from the Introduction) CONTENTS—Introduction: A Stroll with Albert J. Nock. The Disadvantages of Being Edu- cated. Life, Liberty, and . . .. A Study In Manners. Earning Immortality. The Classicist’s Opportunity. Toward a New Quality Product. The Value of Useless Knowledge. Toad- stools. A Word to Women. A Further Word to Women. Fountains of Joy. On Making Low People Interesting. Literature of Escape. Free Speech and Plain Language. New York's Jef- fersonian Mayor. Business Dodges the Truth. The Gods’ Lookout. ISBN 0-87319-041-6 * 221 pages ¢ paperback $14.95 Other paperbacks by Albert |. Nock, available from FEE: Cogitations, 103 pages, $3.95; Mr. Jefferson, 220 pages, $12.95; Our Enemy, The State, 109 pages, $9.95; The State of the Union, 370 pages, $9.95. TO ORDER, CALL (800) 452-3518, FAX (914) 591-8910, OR E-MAIL freeman@westnet.com ===== PAGE 37 ===== DEFINING STATE AND SOCIETY 225 conquest theory, by which the state may be ment. In other words, the institution arose considered to be a continuing act of war com- as a shield against the conflicts that naturally mitted against society by a separate group. occur when individuals accumulate property These are not merely historical suppositions. in a world of scarce resources. Through an They are analytical approaches intended to explicit social contract, men relinquished to question or confirm the state’s legitimacy. If the state the right to adjudicate their own dis- the state in its very genesis requires the mass putes. For its part, the state pledged to rule in violation of human rights, it becomes far order to secure men’s claim to their property, more difficult to ethically justify the institu- for example, through inheritance laws. Thus, tion than if it arose from mass agreement. the existence of private property could be Thus, the following discussion deals not said to be a cause of the Lockean state, or only on the historical origin of the state, but government. also touches on its possible grounding in In the Second Treatise, Locke attempted to ethics. counter some of the arguments of the seven- teenth-century English philosopher Thomas Hobbes, who also believed that the state, or The Consent Theory of commonwealth, arose through what he called the State “mutual covenants” aimed at subduing man’s natural tendency toward constant warfare. In particular, Locke rejected the Hobbesian con- tention that the initial consent to the state ren- dered by free individuals could bind their children and succeeding generations. Instead, Locke developed a doctrine of tacit consent, which bound even people who did not explic- itly consent to government. In essence, each person who lived in a community and accept- ed its benefits was said to tacitly agree to the rules by which that community was governed. Withdrawal of such tacit consent was always possible. A man could relinquish his “estate” and leave the community, thus putting himself back into a state of nature in relationship to it. However, as long as he occupied land over which the government has jurisdiction, he tac- itly accepted that jurisdiction. After all, Locke would argue, the “good title” of any property a person inherited comes from the govern- ment that has protected that wealth and regu- lated its just transfer to you. A similar argu- _ ment could be made concerning wealth accu- The labour of his body, and the work of his pyjated through contract: the contract had hands, we may say, are properly his. What- ya1idity only because of the regulatory bene- soever then he removes out of the state that gg provided by the government. nature hath provided, and left it in, he hath 1 egsence, Locke believed that a civilized mixed his labour with, and joyned to it ;nd satisfying society could not exist without something that is his own, and thereby government to adjudicate conflicts and to pro- makes it his property.S vide a legal context for property. Only when government ceased to fulfill its part of the The need to protect the property of “life, social contract was the citizenry justified in liberty, and estate” led men to form a govern- rebelling against it. Otherwise, government John Locke’s Two Treatises of Government is a pivotal document in the history of indi- vidualism. In his Second Treatise, as Karen Vaughn observed, “Locke argues the case of individual natural rights, limited government depending on the consent of the governed, separation of powers within government, and most radically, the right of people within soci- ety to depose rulers who fail to uphold their end of the social contract.”> Locke’s work, from which both the French and American revolutions drew heavily, remains the touch- stone for consent theory within the classical liberal tradition. Locke believed that God had given the world to all men in common, and he justified private property—the appropriation of a com- mon good for personal use—by arguing that each man had an ownership claim to his or her own person. Based on this self-ownership, Locke argued, ===== PAGE 38 ===== 226 THE FREEMAN e APRIL 1998 (or the state) and society were engaged in a property rights, or the peace. The motive cooperative endeavor. behind the state was and is the desire to estab- Whether or not Locke actually believed lish sovereignty and achieve wealth through there had ever been an original government the use of force. Any benefits that a state pro- formed with the explicit consent of everyone vides are tangential and non-essential to its over which it claimed jurisdiction is a matter nature. of debate. Clearly Locke used the contract as In arguing for the conquest theory, both an analytical tool to explore the circumstances Nock and Rothbard relied heavily upon under which civil government could be justi- Oppenheimer. Oppenheimer argued for what fied. His theory can be critiqued or embraced he called “an economic impulse in man.” He on either level. believed that material need was the prime motivator of human beings and that progress The Conquest Theory of is produced by economic causes, not by polit- the State ical ones. As mentioned earlier, Oppenheimer sketched the two basic means by which men The conquest theory of the state stands in satisfy their material needs: the economic sharp contrast to the preceding Lockean means and the political means. model and attempts to ground the primitive He discovered the origin of the state in state in historical fact rather than political those who wished to satisfy the economic conjecture. A common expression of the con- impulse through the political means. He quest theory runs as follows: Originally there posited six stages through which a conquering were agricultural tribes that settled in certain group typically passes in order to become a areas where they became dependent upon the state. At first, a warlike group raids and land. Roving nomads, who were perhaps plunders a vulnerable group. Second, the vic- herders, waged war on the more sedentary timized group ceases to actively resist. In tribes for the obvious economic benefits. At response, the raiders now merely plunder the first the nomads killed and pillaged, but they surplus, leaving their victims alive and with discovered it was in their long-term economic enough food to ensure the production of interest to enslave and exact tribute from the future wealth to plunder. Eventually, the two conquered populace instead. groups come to acknowledge mutual inter- That is the model for how the institution of ests, such as protecting the crops from a third the state arose. The more extreme versions of group. Third, the victims offer tribute to the conquest theory conclude that all states orig- raiders, eliminating the need for violence. inate in conflict, not consent. More moderate Fourth, the two groups merge territorially. forms of the theory argue that warfare plays Fifth, the warlike group assumes the right to a defining role in the formation and contin- arbitrate disputes. ued sustenance of the state. But war is not Oppenheimer described the last stage in the only factor. It is a necessary but not a which both groups develop the “habit of rule”: sufficient condition for the emergence of the state. Other conditions—such as the inabili- The two groups, separated to begin with, ty of a conquered people to migrate—must and then united on one territory, are at first be specified. merely laid alongside one another, then are In Our Enemy, The State, Nock defended scattered through one another. . . . [Soon the conquest theory of the state on an histori- the bonds of relations united the upper and cal basis. Rothbard in For A New Liberty lower strata.” advanced a modified version of the theory, which conceded that some states may have Thus the state, which originated from exter- evolved in a different manner, but contended nal conquest, evolves into an agency of con- that the conquest theory was the typical gene- tinuing internal conquest by which one sis of the state. Thus, down to its foundation, group—or a coalition of groups—use the the state was never meant to preserve justice, political means to attain wealth and power at ===== PAGE 39 ===== DEFINING STATE AND SOCIETY 227 the expense of those who actually labor. In leave. Others maintain that to grant the state this view, the state arises and maintains itself such territorial jurisdiction is actually to grant as the enemy of society. it ownership of the land; the individual whose Although the conquest theory has much name is on a government deed is merely get- greater historical validity than the consent ting zero rent in exchange for obedience. theory, debate continues as to what implica- They question how the state can acquire such tion the origin of the state has for the legiti- monopoly jurisdiction simply in return for macy of current states. providing a service, even the important ser- vice of protecting property. After all, a doctor . . who saves your life does not acquire a contin- Getting the Terms Right uing and monopoly claim over Jour body. In its broadest sense, classical liberalism The answer to the question posed above, maintains the right of individuals to act to 2nd related ones, may well lie in using maintain their own lives and happiness. A words such as state and society in a clearly main focus of classical liberalism has been its defined and precise manner. 0 opposition to the state, or government, con- 1. Franz Oppenheimer, The State (New York: Free Life Editions, trolling people’s peaceful activities. Indeed, 1975 [1914)), p. xxxiii. libertarian theory—which may be viewed as a =x As quoted in Charles Hamilton's introduction to The State, subcategory of classical liberalism—views i 3. Oppenheimer, p. xxxiii the history of political thought as a struggle 4. Oppenheimer’s position may resemble Marx’s but there are at ’ . least two key differences. First, Oppenheimer contended that, how- between individual rights and government ever the state may evolve, its origin is to be found in external con- LI LI. flict, not an internal one. Second, he defined the two classes as entire- control. Of course, consent by the individual ly separate entities—those who use the political means (the state) and eliminates this struggle. those who use the economic means (society), thus removing the : . inevitability of conflict within society. The question becomes: what does the State S$. Karen I. Vaughn, “John Locke's Theory of Property: Problems do with a peaceful individual who rejects its of Interpretation” Literature of Liberty, Spring 1980, p. 5. HELIN. LPS. : : 6. John Locke, Two Treatises of Government, ed. Peter Laslett jurisdictional claims over his property and to Co iace University Press, 1960), pp. 305-06. person? Locke would tell the individual to 7. Oppenheimer, p. 57. WANTED: Entrepreneurs For the Marketplace Of Ideas The Freeman Society Discussion Clubs are looking for energetic, dedicated people to begin new clubs. These groups seek to further the acceptance of the ideas The Freeman represents; dozens have been formed in the United States and abroad. Would you like to help spread the philosophy of freedom by starting (or joining) a discussion club? If so, contact George Leef, Director of Freeman Discussion Clubs, who will help you get started. Phone him at (517) 336-7631 —or send e-mail to: gleef@patrickhenry.com. Or contact FEE and your mes- sage will be forwarded. “All that is necessary for the triumph of evil is that good men do nothing.” —EDMUND BURKE ===== PAGE 40 ===== THEFREEMAN [DEAS ON UBERTY ——— An Earlier Response to Environmental Tyranny by Daniel F. Walker here was a time when a government elite reign of Henry II, only a century after the used its power to enforce draconian laws Norman conquest, approximately one-third of concerning wildlife and forests; when the the entire English kingdom consisted of land common law was ignored; when special deemed to be royal forests. Just as the term courts decided cases concerning the environ- “wetland” today encompasses much land that ment; and when the government owned great is seldom wet, the royal “forests” often areas of land, zealously prosecuting and per- included land which was not forestland. secuting people who had the audacity to use According to British legal scholar William natural resources to feed and shelter them- Sharpe McKechnie, “A forest was not neces- selves. So-called crimes on government lands sarily covered with trees throughout the whole were met with harsh punishments, far out of or even the greater part of its extent. Miles of proportion to the offenses. Of course, the moorland and heath and undulating downs government used its laws to raise revenue by might be included and even fertile valleys imposing severe monetary fines on offenders; with ploughed fields and villages nestling building a hedge or ditch without first having among them.” obtained government permission, for exam- Before the Norman conquest of 1066, kings ple, would result in a fine at the least. did not exercise absolute power over forests. People who flouted the laws were identified “Crown rights” over forests and natural as outlaws. You probably recognize one of the resources, however, generally increased from more prominent names: Robin Hood. He 1066 onward, aided in part by the develop- scorned not the Environmental Protection ment of feudal law. Agency or Bureau of Land Management or Unoccupied lands were deemed to be royal the Endangered Species Act, but the horrid Jands, and other desirable tracts were depopu- “forest laws” of England and their enforcers ated, residents often evicted, villages early in this millennium! destroyed, and churches burned down; despite From the times of William the Conqueror, occasional retreats from land-grabbing, kings Henry I, and Henry II, English kings expand- made ever-stronger claims to preferential and ed the range of royal forests, driving out many yjtimately absolute power over these lands, as who lived within the forests and imposing an well as the wildlife within them. Over the extraordinary array of regulations. By the decades, occupied lands were “afforested.” Daniel Walker is a Tallahassee, Florida, attorney that is, brought within the definition of royal specializing in estate and inheritance planning, and forests and thus made subject to the forest is founder of the new Law & Liberty Foundation, Inc. 1aws and the absolute, solitary jurisdiction of He can be contacted at LibLawDFW@aol.com. the king and his agents. 228 ===== PAGE 41 ===== 229 A Royal Monopoly on Hunting the good government of the men who hap- pened to dwell there.” The kings enjoyed a near-monopoly over As with any extensive body of regulation of hunting within the royal woodlands. With few persons and property—such as the Code of exceptions, only the king could hunt animals Federal Regulations today—there was an such as the wild boar, fallow and red deer, and array of “law-enforcement” and special courts roe; some privileged few, such as bishops and to secure adherence to the Forest Laws. Just others to whom the king sold or granted as we have administrative “courts” today, in licenses, could hunt lesser game including England a special three-tiered court system hares and nuisance creatures like wolves. One was concerned only with alleged violations of unfortunate person, William Rufus, often the Forest Laws. The common law did not hunted deer—that is, “until he was found dead apply. under a tree with an arrow in his heart. The Wardens were the king’s agents in the royal people were told that this was ‘God’s righteous forests, and “foresters” below the wardens wrath.”””3 Thus, poaching could lead to a pun- often enjoyed their privileged position by ishment of death or mutilation, such as pulling imposing scores of fines on forest dwellers for out an offenders eye for taking a boar. alleged violations of the Forest Law restric- Unsurprisingly, with government control of tions. In cases where an individual offender natural resources came other controls on peo- could not be ascertained, “collective punish- ple’ activities. Forest dwellers could not own ment” could be imposed, as it was to the town bows or arrows and their dogs had to be of Maidford. The head of a red deer was dis- “lawed,” meaning that three claws were covered in a royal forest near the town, and removed from their forefeet, to keep them from the forester for that area was dead. Because pursuing or harming game. Any infraction of no specific offender could be determined as these restrictions could lead to at least a fine. guilty of hunting the hart, the king seized the Property rights for those living within the entire town. According to McKechnie, “there “forests” were practically nonexistent. Just as was clearly a strong inducement in such cases, government permits the retaining of nominal to find someone guilty.” ownership today even as it regulates away numerous rights of property ownership, “landowners” in royal “forests” technically retained their freehold, but were deprived of Barons as well as peasants suffered under the practical use and value of much of their application of the forest laws. The severity lands. It was contrary to the forest laws for and totality of the laws were among the rea- freeholders to clear land for cultivation, root sons for the historic gathering at Runnymede out trees, build mills, or make fishponds or in 1215 that produced Magna Carta and later unauthorized hedges or ditches. Anything that the lesser known Charter of the Forest in 1217 might affect the king’s interest in preserving soon after Magna Carta was reissued. While it the environment for game was within the cannot be denied that King John’s acquies- scope of the forest laws. One could not lop off cence to the barons’ demands was in large a tree branch, much less destroy a tree or keep part a matter of “power politics” and timing— birds of prey or cut firewood except under the barons being more concerned with their sharply limited circumstances. Again quoting own fortunes and lives rather than those of the McKechnie: “Men might live, and did live, poor peasantry—the measures obtained in within the boundaries [of royal forests], but Magna Carta and the Charter of the Forest they could enjoy no rights of personal free- were historic for developing recognition and dom or of property inconsistent with the rules protection of property rights, punishment pro- laid down by the Crown to protect its own portionate to the crime, and limitations on the interests. Within the imaginary line the king’s powers of government. power was supreme, and he used it frankly for Within Magna Carta of 1215 were numer- the preservation of beasts of the chase, not for ous provisions to reform the forest laws; when The Barons Resist ===== PAGE 42 ===== 230 THE FREEMAN e APRIL 1998 the great charter was reissued two years later Charter did not usher in a libertarian legal and the sections concerning forest laws were utopia of robust property rights, 22 of Magna omitted, a separate Charter of the Forest was Carta’s 66 clauses did affect and strengthen issued. Both documents provided rudimenta- property rights, as did the more specific claus- ry institutional limits on the power of the es of the Charter of the Forest. king. Thus is Magna Carta a milestone in the Western legal and political heritage. Then and Now The two charters brought about numerous changes concerning rights to property and use Some might say that the current era of sta- of natural resources. Freeholders could cut tist environmental controls is new. It is an era and use wood from their own lands. Forest in which the exercise of property rights and dwellers could clear their land, plow, and long-standing activities such as hunting are farm. The right to erect mills and dig ponds increasingly shackled by the national govern- and ditches was recognized, subject to the ment as well as by a host of other state and proviso that others’ lands not be harmed. local tyrants. Today, the federal government Marle—Ilime in the ground—could be taken. (through the Army Corps of Engineers, the Clause 13 of the Charter of the Forest recog- Environmental Protection Agency, the Fish nized the right to gather honey (the most com- and Wildlife Service, and other agencies), mon form of sweetener) and to keep birds of state government departments of environmen- prey such as hawks and eagles. One of the tal protection and natural resources, and local final clauses of the charter recognized the planning and zoning boards are little more right of people to gather “wood, bark, and than updated versions of absolutist eleventh- coal” from the forests not only for home use and twelfth-century British royalty armed but also to make a living, without having to with late-twentieth-century rhetoric. pay “cheminage”—essentially a transport ~~ You can keep title to real property and pay tax—if a person did not use a cart or horse. taxes for legal possession of it, but use it and For the poor peasants who lived with what enjoy it only as an assortment of governmen- they could carry on their backs, “[t]his was tal entities deem permissible. We need a one of the real, practical liberties for the poor robust application of the federal and state promised by generalities in Magna Carta and constitutions’ takings clauses throughout then detailed in the Forest Charter.’ America. Perhaps we should draw inspiration There were other benefits from these char- from the history of old England in order to ters, for example, punishment proportionate reinvigorate our constitutional respect for the to the crime. No longer would a person lose human right of property ownership. 0 life or limb for killing a deer. 1. For more on this subject, see John Chodes, “The New Forest,” Remaining forest-law offenses no longer 7re Freeman, April 1994. were capital crimes. Forest dwellers could 2 william or Ping John (Glo Ca ames Mac Commentary o protect themselves and hunt; possession and 190s), p. 483. use of bow and arrow became recognized Magia Carta The Co Le ee may gly he rights, and forest dwellers could keep smaller 4. McKechnie, p. 483. dogs such as spaniels without having them 5. Ibid., pp. 498-99. « vs i 6. Ray Stringham, Magna Carta: Fountainhead of Freedom lawed.” While Magna Carta and the Forest (Rochester, N.Y.: Aqueduct Books, 1966), p. 71. ===== PAGE 43 ===== THEFREEMAN IDEAS ON UBERTY — Global Warming— Hot Problem or Hot Air? by Jonathan H. Adler 1 Nifio is the overhyped weather event of tana and proclaimed that the glacier’s hun- the decade. It has even made CNN’s dred-year retreat was further evidence that “Larry King Live.” A natural warm spot in the human activity is causing the globe to over- Pacific Ocean that recurs every several years, heat. El Nifio exerts significant influence on global These speeches were more than presiden- weather patterns; therefore, it’s news. It was tial photo-ops. They were steps in a success- also an opportunity for Vice President Al ful campaign for an international treaty to Gore to bang the drums for a global-warming prevent climate change by controlling the use treaty. of fossil fuels. In Japan late last year, the Speaking at the “El Nifio summit” in Santa administration signed the Kyoto Protocol, Monica last fall, Gore said that “El Nifio which, if ratified by the U.S. Senate, would events have become much more common and require the United States to reduce carbon much stronger,” suggesting that human activ- dioxide and other emissions an average of 7 ity is warming the globe.! Preparing for the percent below 1990 levels through 2012. impacts of El Nifio (which are typically mild (More on the effects of such a drastic reduc- in the United States), Gore said, will get peo- tion below.) ple ready for the climatic disruptions brought by global warming. This was not the first time that the Clinton The Heat Is On administration linked global warming to the The push for a global-warming treaty got weather. In 1997, President Clinton suggested two big boosts in 1996, first from reports that that flooding in‘ North Dakota during the 1995 was the hottest year on record and sec- spring thaw was actually the product of glob- ond from the publication of a United Nations al warming: “We do not know for sure that the report that purportedly demonstrated a scien- warming of the earth is responsible for what tific consensus behind global warming. seems to be a substantial increase in highly In January 1996 the British Meteorological disruptive weather events; but many people Office reported that 1995 was the hottest year believe that it 1s,” he said.2 Later in the year, on record, edging out 1990 by a bare 0.07 Gore visited Glacier National Park in Mon- degrees Fahrenheit. Temperature records have been kept in the United Kingdom since the Hl le, nineteenth century and are compiled from a Jonathan Adler (jadler@cei.org) is director of envi- network of land-based measurements. Asked ronmental studies at the Competitive Enterprise Insti- X tute in Washington, D.C., and the editor of The Costs whether this was a sign of human-induced of Kyoto: Climate Change Policy and Its Implications global warming, one British researcher com- (1997), from which portions of this essay are adapted. mented, “I think we’re beginning to see it.” 231 ===== PAGE 44 ===== 232 THE FREEMAN e APRIL 1998 Not really. The “warmest year on record” ment about the extent of human influence on announcement was based on incomplete data. the atmosphere. While Gore and Interior Sec- Because December readings were not yet retary Bruce Babbitt characterize those who available, the British team only used readings raise doubts about global warming as from the first 11 months of the year; Decem- “immoral”¢ and “unAmerican,”’ respectively, ber’s temperature was estimated. But temper- a 1997 poll of state climatologists finds sub- atures took a nosedive at the end of 1995. stantial doubt among scientists. A clear Indeed, it was the greatest December drop on majority of the climatologists surveyed dis- record in the Northern Hemisphere. Global agreed with the statement, “The overwhelm- weather satellites, which have taken the ing balance of evidence and scientific opinion earth’s temperature since 1979, found that is that it is no longer a theory but now a fact 1995 was actually an average year—only the that global warming is for real. There is ample eighth-warmest since the satellites began tak- evidence that human activities are already dis- ing climate measurements. rupting the global climate.” Who said that? Soon thereafter the United Nations Inter- President Clinton, opening a White House governmental Panel on Climate Change conference on climate change. (IPCC) published its long-awaited report, Cli- mate Change 1995 (the report was late, like co? most UN. publications). The study, purport- Is the World Warming: edly the work of 2,500 scientists worldwide, Before proceeding, some background is in was heralded as proof positive of a scientific order regarding what the debate is really consensus that human activity was causing about. The greenhouse effect is unquestion- the earth to heat up. Yet here again, the hype ably real. It is what keeps the earth’s atmos- was hollow. phere livable. Certain atmospheric gases The striking conclusion of the report was (“greenhouse gases”), including water vapor, rather mild. In one chapter of the gargantuan carbon dioxide (CO,), and methane, trap solar study, the authors concluded that “the balance radiation and help warm the planet. Without of evidence suggests that there is a discernible the greenhouse effect, the earth would be a human influence on global climate.” That frigid, desolate place. highly qualified sentence, quoted incessantly Scientists have long believed that as the in the media as proof of global warming, is concentration of greenhouse gases in the the strongest claim in the entire report. And atmosphere increased, the earth’s temperature yet even that wishy-washy conclusion was might follow. The first prediction of such a controversial. The sentence was added at the greenhouse warming was made by the last minute by the chapter’s editors, after the Swedish scientist Svante Arrhenius in 1896. body of the report had already been approved He hypothesized that doubling the amount of by the IPCC, so that the report would more CO, in the atmosphere would increase aver- closely conform with the “policymaker’s sum- age temperatures by 6 degrees Celsius. mary.” Those who read the entire report real- Today, global warming is an issue because ize that the scientific “consensus” is a lot the atmospheric concentrations of greenhouse more circumspect about humanity’s affect gases have been increasing. Since the begin- than the summary suggests. As Harvard Uni- ning of the Industrial Revolution, the CO, versity’s Peter Rogers told Forbes, the report equivalent in the atmosphere has increased by “says we aren’t sure what is happening, and 50 percent, largely due to the burning of fos- we need at least five more years to study the sil fuels, such as coal, oil, and gas. Also, since problem.”s Yet this cautious view made few 1881, global average temperatures have headlines. increased by almost one degree Fahrenheit. While major media outlets uncritically Environmental activists claim that this report the existence of a scientific “consen- slight temperature increase over the last 100 sus” on climate change, surveys of climatolo- years proves that global warming is upon us gists suggest that there is still broad disagree- and that people are the cause. Yet most of the ===== PAGE 45 ===== GLOBAL WARMING—HOT PROBLEM OR HOT AIR? 233 temperature rise preceded the increase in cooling over the past two decades, a finding emissions. Two-thirds of the temperature confirmed by weather-balloon measurements. increase occurred in the first half of the cen- Many scientists are skeptical of the models tury, as the world emerged from the so-called because they ignore a host of variables that “little ice age.” Most of the industrial emis- affect the climate. For instance, few models sions of greenhouse gases occurred after come close to accurately replicating the role World War II. For this reason, most climate of clouds and precipitation in the climate sys- scientists believe that the temperature tem, and none adequately account for solar changes over the last 100 years are due to nat- variability. David Legates, a climatologist at ural climate fluctuations. the University of Oklahoma, characterizes the A possible explanation for recent climate computer simulations of precipitation as changes, one that is gathering scientific sup- “exceptionally poor,” in part because they are port, is the sun. In particular, slight variations unable to replicate weather fronts.!! in solar output, combined with fluctuations in In May 1997, Science, America’s most the earth’s orbit, might be responsible for prestigious scientific journal, published a changes in global temperature. Sallie Baliu- news story, “Greenhouse Forecast Uncer- nas of the Harvard-Smithsonian Center for tain,” highlighting the raft of uncertainties Astrophysics reports that there is a remark- that remain in predictions of global warm- able correlation between solar cycles and sur- ing. The article concluded that “most [com- face temperatures over the past 240 years. puter] modelers now agree that the climate While the sun-climate connection needs more models will not be able to link greenhouse study, early results challenge premonitions of warming unambiguously to human actions apocalyptic warming. As Science recently for a decade or more.”12 One month later, the reported, “the sun could have been responsi- Bulletin of the American Meteorological ble for as much as half of the warming of the Society published a paper suggesting that past century. If so, the role of greenhouse computer models may be misrepresenting gases . . . would dwindle—as would estimates the effect of water-vapor feedback within the of how much they will warm the climate in climate system.!3 the future as they continue to build up.”10 Indeed, as these models have become more accurate at estimating present temper- Garbage In, Garbage Out atures, they have also forecast less extreme temperature rises due to the accumulation of Lacking empirical evidence of human- greenhouse gases. Based on the models’ induced warming in the temperature records, findings, the IPCC predicts a warming of 0.8 proponents of global warming point to the to 3.5 degrees Celsius by the year 2100. That global circulation models, highly complex is significantly less warming than predicted computer programs that seek to replicate how in the apocalyptic scenarios with which we the atmosphere will respond to increases in are all too familiar. Indeed, the IPCC’s lower- industrial emissions. The computer models bound warming estimate is just over half that almost uniformly predict that increased predicted just a few years ago. Newer mod- human emissions will cause the earth to els predict even less warming over the next warm. But whereas the models suggest that century. the earth already should have warmed mea- None of this is to say that human activity is surably over the past 20 years due to the having no effect on the climate whatsoever. buildup of CO, and other gases, the atmos- The reality is that human activity, from phere has refused to cooperate. Global satel- changes in land-use patterns to the combus- lite measurements, which are precise enough tion of fossil fuels, is probably having some to measure minuscule temperature fluctua- effect on the world around us and will into tions caused by the reflection of sunlight off the future. For example, the existence of an the moon, find no warming trend whatsoever. urban “heat island” effect is indisputable. Indeed, the satellites detect a slight global Cities, with lots of cement and asphalt and ===== PAGE 46 ===== 234 THE FREEMAN e APRIL 1998 little vegetation, tend to be significantly “The farming, timber, and commercial warmer than surrounding areas. Moreover, energy sectors all benefit from warming,” these “heat islands” often affect local rainfall according to Robert Mendelsohn of the Yale patterns and thunderstorm activity, as does School of Forestry and Environmental Stud- large-scale irrigation. 1es.17 Mendelsohn believes that the overall Human-induced changes are real, says economic impact of warming will be small warming skeptic Patrick Michaels of the Uni- compared to the size of the American econo- versity of Virginia, “but the changes are so my, but that gains will more than offset pro- small and of such a benign nature that they are jected losses. Thomas Gale Moore of the insufficient to support any expensive or dis- Hoover Institution is even more optimistic. ruptive policy. If anything, they indicate that “History demonstrates that warmer is healthi- the best policy is probably to do nothing.”!4 er,” says Moore.!8 His examination of mortal- ity rates in the United States indicates that . D) “warmer temperatures reduce deaths” com- Is Warming Bad: pared with colder temperatures.! He notes The more that is known, the less it seems that over the past several centuries, the humans have to fear from global warming. warmest periods have also been those of the Environmentalists recite a litany of horrors greatest prosperity and technological that it will produce: heat waves, hurricanes, advance. drought, and disease. Such scare stories are Obviously, any changes in weather pat- way overblown, if not outright frauds. terns could well prove disruptive, as are all It seems commonsense that if the earth unforeseen global changes. But most predic- were to get warmer, scorching summers tions of economic disaster assume that peo- would become the norm. Yet the majority of ple are too stupid to adjust their behavior to scientific evidence suggests quite the oppo- mitigate the costs and enhance the benefits site. Any warming will occur in the winter of a changing world. That view does not and at night, making winters more benign square with reality. Even if the worst IPCC rather than summers more intense. When prediction comes true, it is unlikely to spell scientists examined temperature records to disaster for civilization. see if higher global temperatures correlated with urban heat waves, they found no evi- yWhat’s at Stake dence of a link, environmentalist claims notwithstanding.!5 Advocates of the global-warming treaty What about storms? Scientific reviews of claim that the risks of human-induced warm- storm data cannot find any correlation ing are too great, and therefore preventative between warmer temperatures and increased steps are necessary. Yet even a cursory exam- hurricane activity. If anything, the existing ination of the policy options reveals that the data show a slight decline.!6 costs of global warming would be dwarfed by the costs of a global-warming treaty. Preventing any chance of climate changes brought about by industrial activity would Not only is the argument for an apocalyptic require stabilizing concentrations of CO, and global warming exceedingly weak, but there other greenhouse gases in the atmosphere. are substantial reasons to believe that a mod- People could not put more greenhouse gases est warming will be beneficial. Nighttime into the air than is removed by natural warming should lengthen growing seasons at processes. Such a policy would require drastic the same time that increased levels of CO, reductions in greenhouse-gas emissions. accentuate the growth of plants. A rise in soil Industrialized nations would have to cut their moisture is more likely to occur than a rise in emissions in half, if not more, and developing severe droughts. This will probably be a boon countries would have to hold their emissions for agriculture. constant. That is a recipe for economic disas- Is Warming Good? ===== PAGE 47 ===== GLOBAL WARMING—HOT PROBLEM OR HOT AIR? 235 ter and would require unprecedented govern- will provide only modest benefits—assuming ment intervention in the marketplace. that the results of global warming will be all Stabilizing greenhouse gases will require bad. When one also considers the potential for limitations on energy use. The burning of oil, adaptation and benefits like the increase in coal, and natural gas will have to be con- agricultural productivity that higher carbon- strained through the imposition of energy dioxide levels produce, it is possible that taxes, supply controls, or other regulatory effects of global warming will be a wash. On measures. That means higher energy prices, the other hand, reducing economic activity by which will increase the cost of everything blocking its lifeblood—energy use—will from heating a home and cooking a meal to have real adverse consequences. Health is a driving to work and buying groceries. It function of living standards; so too is envi- would be the 1970s energy crisis all over ronmental protection. Wealthier is healthier. again, if not far worse. Suppressing economic growth reduces the Some environmentalists suggest that fossil standard of living and increases mortality. fuels can be replaced with alternative energy This is especially true in the developing sources at little cost. Such arguments are world, where the costs of the global warming absurd. On the whole, alternative energy treaty will be most severe. sources are more expensive and less reliable Even though developing countries are than their carbon-based counterparts.2® exempted from the treaty, they will still suffer. Nuclear power might be an efficient non-emit- “The markets to which these developing ting energy source, but environmental groups countries sell a large share of their exported are unlikely to endorse its use anytime soon. goods will shrink, so that most developing Despite the inadequacy of alternative ener- countries would also be harmed by the adop- gy sources, many people, including President tion of emission limits” solely in industrial- Clinton, insist that a reduction in emissions ized nations, according to economist David can be achieved at little or no cost. Some even Montgomery.2! The costs of any treaty to con- argue that it will produce a profit. This is not trol greenhouse gas emissions will be felt reality but an economic fantasyland in which worldwide. government planners can radically reorganize human affairs ona global scale without caus- What to Do? ing severe pain and discomfort. The arguments for dramatic greenhouse Better Safe than S orry? gas reductions are all variants of the precau- tionary principle that it is better to be safe Despite the costs, some see cutting the than be sorry. If only it were that simple. It is emission of those gases as a form of insurance true that economic growth and technological against a potential greenhouse world. Yet if the advance pose environmental risks. But stag- IPCC draft projections are to be taken serious- nation is hardly a safer course. In the words ly, then one must accept that much of the of the late Aaron Wildavsky, “the results of potential warming over the next century is a doing too much can be as disastrous as doing fait accompli. Lowering emissions will not too little.”22 prevent warming; at most it will modestly Policymakers should pursue the “safest” reduce the predicted temperature rise over the course, which in this instance is not greater next century. More important, current projec- government controls on economic activity, tions suggest that there is little cost from delay. but fewer. Economic growth, market institu- As the value of a proposed insurance poli- tions, and technological advance are the best cy diminishes, and the cost of the premium forms of insurance that a civilization can increases, fewer will consider the policy a have. Free and open markets are also the best sound investment. Insurance in the form of means to encourage greater efficiency in ener- choking off greenhouse emissions will come gy use and the development of non-emitting at tremendous cost, but if purchased today, it energy sources. ===== PAGE 48 ===== 236 THE FREEMAN e APRIL 1998 Copper wire was not replaced with sand, in 1. Alex Barnum, “Gore Links El Nifio to Global Warming,” San the form of fiber optics, due to concerns about Francisco Chronicle, October 15, 1997, p. A2. . h . 2. Peter Baker, “Flood Victims Cheer Clinton’s Pledge of Aid,” resource depletion or the environmental piushingron Post, April 23, 1997, p. AL impacts of mining. Fiber optics were invented 3. William K. Stevens, “’95 Is Hottest Year on Record as the . . Global Trend Resumes,” New York Times, January 4, 1996, because the market creates incentives for p. Al innovation and entrepreneurial activity. The 4. Intergovernmental Panel on Climate Change, Climate Change : . : 1995: The Science of Climate Change, ed. J. T. Houghton, et al., same is true with energy. Petroleum displaced (Cambridge: Cambridge University Press, 1996), p. 4, whale oil before Greenpeace was ever found- 5. Christine Hill, “The Report that Nobody Reads,” Forbes, : : _ November 3, 1997, p. 352. ed, because price increases caused by over 6. Quoted in Ronald Bailey, “Bill and Al's Global Warming Cir- harvesting spurred the search for cheaper and cus,” Forbes, November 3, 1997, p. 346. more efficient alternatives. One day, fossil 7 anne Rehm Show,” WETA radio, Washington, D.C., July . i 1, 1997. fuels will be displaced in much the same way 8. William E. Clayton, Jr., “Clinton Speaks Out on Global Warm- without government intervention. ing,” Houston Chronicle, July 25, 1995, p. A2. . 9. Sallie Baliunas and Willie Soon, “Solar Variability and Glob- Some who support the global-warming , Climate Change,” paper presented at the Fraser Institute Confer- treaty are no doubt motivated by a misguided ence on The Science and Politics of Global Warming, Vancouver, desi ivili . fr . Canada, October 29, 1997, p. 5. esire to protect civilization from an uncertain 10. Richard Kerr, “A New Dawn for Sun-Climate Links?” Sci- environmental threat. They have succumbed to ence, March 8, 1 9%, p- 1360. | . . 11. “Rains of Climate Terror Miscalculated . . . Interview with the fatal conceit that government planning can 4 Legates,” World Climate Report, vol. 1. no. §. avert environmental disaster. Others, no doubt, 12. Richard Kerr, “Greenhouse Forecasting Still Cloudy,” Sci- : : ence, May 16, 1997, p. 1040. See global warming as an opportunity to enact 13. Roy W. Spencer and William D. Braswell, “How Dry Is the far-reaching cconomic policies. Tropical Free Troposphere? Implications for Global Warming Theo- “ ’ : _ ry,” Bulletin of the American Meteorological Society, June 1997. ~ “What we've got to do in energy conserva- 14. Patrick J. Michaels, “The Decline and Fall of Global Warm- tion is try to ride the global warming issue,” ing” paper presented at the Fraser Institute Conference on The Sci- said former Senator Tim Wirth in 1988. “Even ¢nce and Politics of Global Warming, Vancouver, Canada, October . . . ) 29, 1997, p. 3. if the theory of global warming is wrong, to 15. Thomas Karl and Richard Knight, “The 1995 Chicago Heat have approached global warming as if it 1s Wave: How Likely Is a Recurrence?” Bulletin of the American Mete- 1 . ill b orological Society, June 1997. real means energy conservation, SO we wi c 16. Robert Balling, “Calmer Weather: The Spin on Greenhouse doing the right thing anyway In terms of eco- Hurricanes,” Competitive Enterprise Institute, May 1997. . . . . 17. Robert Mendelsohn, “The Economic Impacts of Climate 723 9 nomic policy and environmental policy. Al Change in the US,” Yale School of Forestry and Environmental Gore, in his book Earth in the Balance, sug- Studies, September 6, 1996, p. 8. tle : 18. Thomas Gale Moore, “Warmer Days and Longer Lives,” gested that all of modern civilization was >" Report, vol. 2. no. 4. “dysfunctional” and needed to make environ- 19. Thomas Gale Moore, “Health and Amenity Effects of Glob- mental protection its “central organizing prin- al Warming. Hoover Institution, Stanford University, May 30, ciple” or risk ecological armageddon. 20. See Robert L. Bradley, Jr., “Renewable Energy: Not Cheap, The earth is not on the brink of environ- Not ‘Green,’” Policy Analysis No. 280, Cato Institute, August 27, . i : . 1997. mental ruin. Even if it were, an international 21. W. David Montgomery, “Global Impacts of a Global Climate treaty and global bureaucracy could not save Change Treaty,” in The Costs of Kyoto: Climate Change and Its . . . Implications, ed. J. Adler (Washington, D.C.: Competitive Enter- it. The treaty can, however, impoverish rice institute, 1997), p. 69. nations, diminish prosperity, and subvert eco- 22. Aaron Wildavsky, But Is It True?: A Citizen's Guide to Envi- . . - . ronmental Health and Safety Issues (Cambridge, Mass.. Harvard nomic liberty—none of which is good for University Press, 1995), p. 428. environmental protection. Indeed, there is 23. Rochelle Stanfield, “Less Burning, No Tears,” National Jour- : nal, August 13, 1988. more to fear from a global warming treaty 24 Al Gore, Earth in the Balance: Ecology and the Human Spir- than from global warming itself. [J ir (New York: Houghton Mifflin Company, 1992), pp. 232, 269. ===== PAGE 49 ===== THEFREEMAN [DEAS ON UBERTY ———— 9 S as smoothly and impartially as possible under There S ome the circumstances. Take candles, for example. Ordinarily, most Ld * people have little use for them. During a power Good m Gouging failure, everybody suddenly needs them. Store- keepers are as much taken by surprise as con- sumers. Proprietors have only enough candles - in stock to satisfy their normal low demand. by Karen Selick Faced with a sudden surge in demand, they have two choices: continue to sell candles at their normal price or raise the price. If they continue selling at the normal price, they will quickly sell out. There will be no candles left for those shoppers who are slow- er than their neighbors in reaching the deci- sion to buy candles. It won’t matter how des- perately the latecomers need candles—there won’t be any available. Suppose instead that merchants decide to quadruple the price of candles. Would-be pur- chasers will be shocked at the new stickers. Among those shoppers will be some who already have a supply of candles or some other alternative, such as kerosene lamps, and were merely intending to stock up just for good measure. “Four dollars for a box of candles?” they’ll say. “Phooey on that! I'll just use what I’ve got first and buy candles later when prices have returned to normal.” Others will say, “I was planning to buy three boxes, but at that ridiculous price I’ll just take one.” The result? More candles will be left for the But Is It a Bad Thing? latecomers. Those who don’t already have a supply, and therefore need them desperately, will be able to find some, even though the price may be steep. As well, all shoppers (both those who decide to buy and those who decide not to) will have been alerted to the fact that candles are in short supply—some- thing they may not have realized if they had been able to purchase them at the normal price. They will become more sparing in their Karen Selick is an attorney in Ontario, Canada, and Se of candles, knowing how expensive and a columnist for Canadian Lawyer. difficult it will be to replace such goods dur- 237 he great ice storm of January 1998 left millions of residents of Quebec and east- ern Ontario in Canada (and in the northeast- ern United States) without electrical power, some for several weeks. The storm itself was unprecedented, but it brought with it a phe- nomenon that’s all too familiar in emergency situations: complaints of price “gouging” by merchants. Candles, formerly one dollar a box, were marked up as high as four dollars, reports say. Prices temporarily skyrocketed for batteries, firewood, propane, gasoline, bot- tled water, and a host of other items. “No one should be permitted to profit from the misery of others,” people raged. Canada’s Industry Minister John Manley even suggest- ed that oil companies should be giving away gasoline to customers instead of charging more for it. The Quebec Consumers’ Associa- tion threatened to publish a “Roster of Shame” naming businesses that had been reported as gougers. The truth is, the sudden, dramatic price increases that occur in times of crisis serve a useful purpose. Instead of vilifying the so- called gougers for their greed, we should accept them as important and necessary play- ers in the price system—the system that keeps the economy of a distressed region operating ===== PAGE 50 ===== 238 THE FREEMAN e APRIL 1998 ing the immediate crisis. Spontaneous candle keepers. There is nothing to commend such an conservation will occur. The severity of the outcome as more fair than simply allowing candle shortage will be alleviated. candle prices to rise. And there is a major dis- Besides encouraging conservation, price advantage to this rationing scheme: it elimi- increases play another beneficial role: they nates the incentive for vendors and outsiders induce a rapid increase in supply. Storekeep- to rush in with increased supplies. ers who find themselves able to make a wind- Is it unfair that some people get to use old fall profit on candles will do their utmost to one-dollar candles while others use new four- get in a new supply. People outside the strick- dollar candles? Not really. Everyone knows en region who hear about the huge profits to that candles (or alternatives) are useful to be made on candles will rush to the area with have on hand in case of an emergency. Those a stock. who maintained a supply were actually tying This will further assist in making the short- up a small portion of their capital, perhaps for age more bearable. As supplies flow into the years, to give themselves this extra security. area, competition among vendors will soon They decided to forgo some other commodi- reduce candle prices to their former level — ty, or interest on their capital, to keep a supply just as it did before the crisis began. of emergency goods on hand. Compared with those who didn’t stockpile any candles, they The Alternatives Are Even had already made a financial sacrifice. While Worse this outlay may be negligible in the case of candles, it could be significant in the case of Price increases are simply one method of generators. Those who chose instead to be allocating scarce goods among competing unprepared merely took their financial lumps users. It’s not perfect, but the alternatives are later, in a more obvious and painful way. even worse. Suppose the government had Of course, there will always be some peo- passed a law making it illegal to sell candles ple who will complain bitterly about price at more than one dollar per box. Knowing that increases no matter what arguments you pre- they will immediately sell out at that price, sent them with. Canadian newspapers were storekeepers would be able to pick and choose filled with stories about and letters from ice which customers they wish to favor. This storm victims who pledged they would boy- would present an opportunity to curry favor cott merchants who had tried to gouge them. with local politicians, bureaucrats, or other Consumer anger is as predictable as the so- people of influence. A system that allocates called gouging itself, and is a factor that wise goods by “pull” is surely no more fair than business people have to keep in mind when one that allocates goods by price. In normal deciding what to do during a crisis. times, we call this corruption. What’s important to remember is that just Or suppose ration coupons had been issued as customers are under no obligation to for candles, so that everyone was entitled to patronize a particular store, businesses are buy an equal but restricted number at one dol- under no obligation to fulfill the needs of any lar per box. This system would allocate can- particular customer. Each party exists to serve dles to people who don’t really need them and his own ends, not as the means to the ends of deny an adequate supply to people who need others. When a transaction takes place, it is them most urgently. A black market in ration only because each side attaches greater value coupons would soon develop. Those who to what he gets than to what he gives up. Cus- need more candles than their ration coupons tomers certainly seem to understand that they permit would end up paying inflated prices for have full ownership and control of their them anyhow, because they would first have to money and can choose not to part with it, but buy black-market ration coupons, then the they often seem to forget that business people candles. The only difference is that the wind- have equally valid rights of ownership in their fall profit would go to those who sell their candles and should be equally entitled to unneeded ration coupons, rather than to store- decide when to part with them. O ===== PAGE 51 ===== THEFREEMAN IDEAS ON UBERTY — Will Kellogg: King of Corn Flakes by Burton Folsom he making of the first flaked breakfast over the Adventist institute and transform it cereal is a tale of sibling rivalry, a new into a first-class “University of Health.” church, and a health-food craze all in the small town of Battle Creek, Michigan. Today, 9 Kellogg’s Corn Flakes are a staple of the The San American diet, but few people know the story First came a name change. J.H., ever the of Will Kellogg's rise to fame and fortune. publicist, invented the word sanitarium, a Kellogg's story begins with the Seventh-Day twist of the Latin word sanitorium, and Adventist church, which in 1860 established its dubbed the small Adventist health institute headquarters in Battle Creek. The Seventh-Day the Medical and Surgical Sanitarium. Nick- Adventists are Christians who celebrate the named “the San,” Kellogg promoted it as a Sabbath on Saturday and who believe in hospital, spa, and boarding house “where peo- healthful living. Avoiding coffee, tea, tobacco, ple [would] learn to stay well.” and meat—together with substituting bread, Kellogg pushed the Adventist recipe for fruit, vegetables, and lots of water—is part of good health and added many of his own ideas: the creed of the Seventh-Day Adventists. count calories, avoid sugar, and get regular They built an institute in Battle Creek to exercise. He called his health program “bio- promote healthful living. John Preston Kel- logic living,” and he put patients at the San logg, Will’s father, a broom maker, and an through a daily regimen of calisthenics at 7 Adventist, gave $500, the largest contribution, a.m., after which came cold-water baths, ene- to help build the institute. His other son, the mas, swimming, electroshock therapy, and a talented John Harvey Kellogg, began writing vegetarian diet. The day would often climax for Adventist publications as a teenager. JH., on the roof of the San with JH. leading the as he was often called, was precocious and patients in a march for good health. confident. He pursued health as a career, and Under J.H.s confident and charismatic studied science at the University of Michigan |eadership, the San went from hosting a hand- and the Bellevue Hospital Medical College in ful of patrons in 1876 to thousands each year New York City. He read the latest medical by the early 1900s. He knew that most Amer- journals in French and German and became a icans could not afford the visit, so he wrote master surgeon. When he returned to Battle dozens of books to reach all the victims of Creek in 1876, he was well prepared to take poor diets. Biologic Living was a bestseller Burton Folsom is senior fellow in economic educa- and cared Kellogg a national reputation. tion at the Mackinac ee for Public Policy in Mid- What Is the Matter With the American Stom- land, Michigan. This article is adapted from his new ach? and Tobaccoism: Or How Tobacco Kills book, Empire Builders (Rhodes and Easton, 1998). were among his other literary efforts. His Itin- 239 ===== PAGE 52 ===== 240 THE FREEMAN e APRIL 1998 erary of a Breakfast was a challenge to the ing up, J.H. gave him whippings from time to fatty sausage-and-egg breakfast so popular time and also used his backside as a foot among nineteenth-century Americans. warmer at night during Michigan’s cold win- Kellogg was at home whether he was lec- ters. Will was always shy and grew up in the turing to an audience of lay people at the San shadow of JH.s stunning successes. Will or discussing surgical techniques with the could never match his older brother, and finest physicians in Europe. His books made dropped out of school when he was thirteen. him one of the best-known physicians of his One teacher, he later wrote, “thought I was era, and his high degree of professionalism dim-witted.” Apparently his family did, too. made him a respected member of the Ameri- “My father,” Will confessed, “was not insis- can College of Surgeons. tent upon my attending school . . . regularly.” Not all of J.H.’s medical advice was sound. So while J.H. was off at medical school mas- He condemned all spices, from mustard to tering the techniques of surgery, Will worked salt. “Vinegar,” he concluded, was “a poison, at putting bristles in brooms. Even with that not a food.” “Coffee cripples the liver,” he he had problems. When Wills broom busi- insisted, and colas were “insidious poison.” ness in Kalamazoo failed, he returned to Bat- Nothing was more important than good eat- tle Creek looking for opportunities—just ing, JH. pronounced. To make his points, he about the time J.H. was looking for a lackey. often stunned listeners with overstatements. Twenty-year-old Will became the perfect “If the whole truth were shown,” he said, “it business manager for the San. His quiet would appear that the causes of indigestion bashfulness and rare smile offset his broth- are responsible for more deaths than all other er’s flamboyance. At 5-foot-8, slim, and causes combined.” balding, Will was a regular sight most sum- JH. craved the limelight and reveled in mer mornings jogging behind J.H., who ped- publicity. He always wore white and moved aled his bike around Battle Creek detailing about with an entourage of secretaries, nurses, for Will his daily chores. A self-styled and hangers-on. Sometimes he dictated essays “flunkey” and errand boy, Will worked 80 and books to his secretaries, who frantically and sometimes 120 hours a week packing scribbled for ten hours at a time. If he had to books, mailing invoices, serving patients, travel by train, he liked to call the station and and balancing ledgers. From pricing prod- demand that the train be held until he arrived. ucts to fixing meals, he had dozens of duties. There, several minutes late, before gawking “I was always notified when insane patients passengers, the imperial Kellogg would arrive succeeded in getting away,” Will lamented, with his entourage. because he was the one who had to spend the As the San grew in popularity, J.H. found night tracking them down. “I was so over- that he needed a business manager, someone loaded with work,” he later wrote, “that I am reliable to answer mail, fix meals, screen conscious that very little, if any of it, was patients, and repair the building while he was performed satisfactorily.” writing, lecturing, traveling, and showboat- Part of Will’s crushing workload was ing. That person would have to have J. H.’s full inevitable. It wasn’t easy keeping up with the trust, but also would have to work for a small energetic J.H., who started 30 companies and salary. (First-year nurses were expected to magazines in a 50-year span. Will was the one work for mere room and board; the pleasure saddled with the details of making them prof- of studying under JH. was sufficient pay.) itable. What bothered Will more than the The manager would have to be competent work was the atmosphere: he did the labor but always subordinate to J.H.: strong egos and JH. reaped the glory. Will never had a need not apply. In fact, no one applied. title, and only grudgingly did J.H. give him an Instead, J.H. drafted his younger brother Will office and a top salary of $3 a day. “I did the Keith, or WK., as many called him. work as business manager of the sanitarium,” JH. was eight years older than Will and Will later wrote, “and got no glory and very never let him forget it. When they were grow- little money.” ===== PAGE 53 ===== WILL KELLOGG: KING OF CORN FLAKES 241 Will was more a slave than an employee at have thrown the flakes out and mixed up anoth- the San. He had to call his brother “Dr. Kel- er batch of dough. Instead, he took them to logg.” Reportedly, Will gave him a shave and his brother and suggested serving them at the shoeshine when needed. “Am afraid I will San for breakfast. JH. wanted to crush them always be a poor man,” Will confided in his into bits, but Will served the flakes whole. diary. The results seem to have surprised even Indeed, Will might always have been “a Will. The folks at the San crunched happily poor man” had it not been for the accidental during breakfast and asked for more. J.H. invention of flaked cereal. Fixing, preparing, decided to patent the new process for flaked and even inventing foods was always impor- cereal. Meanwhile, Will also experimented tant to the San’s mission. The task was chal- with oat, barley, and corn flakes and served lenging, and Will sometimes joined his broth- them regularly at the San. In fact, he had to er in food experiments. This was the case dur- start a small mail-order business to supply ing 1894 when the two brothers fixed a mass patients after they left the San. At 15 cents for of wheat dough, boiled it for different lengths each ten-ounce package, Will was doing a of time, and put it through rollers to press it brisk business—he sold 113,400 pounds of into large sheets. flakes in 1896, the first full year of outside sales. That was especially impressive because A Flake Is Born the Kelloggs only told former patients and Adventists about their product. One night during these casual experiments, Will urged J.H. to market flaked cereal on a Will left the dough out overnight before he massive scale. Will firmly believed that sell- rolled it. When he later returned to the kitchen, ing breakfast flakes was a remarkable way to he ran the dough through the rollers as before— make money and peddle good health as well. but instead of forming a flat sheet, the dough J.H., however, thought the risks were too high. broke up into flakes. Will was puzzled. The “Let’s be content with a small business,” he moisture had spread evenly to each individual told Will. JH. also argued that such blatant wheat berry, and the dough had broken into commercialism might compromise his high flakes instead of binding together. Will could standing in the medical community. In any Will Kellogg making corn flakes. ===== PAGE 54 ===== 242 THE FREEMAN ee APRIL 1998 case, he had already made his reputation. Why risk his fortune and his large house on a hazardous gamble with flaked cereals? Will had a tough choice: Should he stay with his brother and live adequately or should he take a risk and enter the flaked-cereal busi- ness? He ended up staying for several more years. The high risks and his lack of self-con- fidence still held him back. “I am myself lam- entably ignorant. . . .” he wrote his son. “The competition in the business world is such that the people with good educations are usually those who succeed.” Besides, he was over 40 years old. He resented his brother, but stayed with him anyway. Finally, JH.’s highhanded management helped push Will out of the nest. During one of J.H.s foreign trips, Will experimented by adding sugar (technically “malt flavoring”), which was strictly forbidden at the San, to his flakes. Will also raised money and built a new food-processing plant to serve the growing number of customers who ordered the Kelloggs’ cereals. When JH. came home he was furi- ous: he condemned the use of sugar at the San my bones that we are now preparing for a and he ordered Will to pay for part of the new campaign on a food which will eventually building out of his own pocket. At that point prove to be the leading cereal of the United Will could take no more abuse. When the San States, if not the world.” burned down in 1902, Will told his brother he Such confidence and focus were needed to would help him rebuild it and then go out on help him overcome early problems. Most peo- his own. In 1906, at age 46, Will Kellogg ple outside of Battle Creek were skeptical of would at last become his own boss. flaked cereal and few grocers wanted to carry Once freed of his brother, Will looked at the it. And even if they could be persuaded to do positive side. He had years of experience in so, what kind of flakes should he send them? business. He knew how to balance books, run And how would he separate his product from a company, make cereal, and sell it on a small the imitators on the market? scale. If thousands liked flaked cereal, why Will did some test marketing and conclud- not millions? Will slowly and methodically ed that corn flakes were his most popular began raising the $200,000 start-up money brand of cereal. He was too small to diversify; from former San patients. In 1906, with capi- therefore, he would make only corn flakes. tal in hand, Will pursued his dream of chang- ing the nation’s breakfast habits. He became a . or cheerleader for flaked cereal, but he also had A Venture into Advertising to be a diplomat. To secure J.H.’s reluctant He also decided to stake everything on cooperation Will had to give him a majority of advertising. It became the major item in his stock in the new company. As profits came in, budget. His first ad began, “This announce- Will bought the company back piece by piece, ment violates all the rules of good advertis- but for a while he had to endure his brother's ing.” He couldn’t ask readers to buy his continued meddling. Nonetheless, Wills new product because most grocers didn’t carry it. freedom boosted his spirit. He wrote Arch Instead, he gave out coupons for free sam- Shaw, his business partner, “I sort of feel it in ples and then asked housewives to urge their J.H. Kellogg (1852-1943) ===== PAGE 55 ===== WILL KELLOGG: KING OF CORN FLAKES 243 grocers to stock Kellogg’s corn flakes so that the coupons could be redeemed. Corn flakes, he promised, were nutritious and tasted great; they were more than just a health food. In October 1906, he ran a similar ad in 17 magazines with over six million readers. All new ads carried this trademark sentence: “The original has this signature —W.K. Kel- logg.” Will was not vain; he just wanted to separate himself from his brother and his imitators. By the end of the first year, Will had shipped out almost 180,000 cases of corn flakes and grocers were lining up to carry his product. Skeptics told Will his corn flakes would never become a national product until he con- quered the New York market. His response was a daring and risqué ad that read, Will Kellogg “Wednesday is ‘Wink Day’ in New York.” The (1860-1951) ad promised that every housewife in New pjllboards lit up New York City. Corn flakes York who winked at her grocer on Wednesday were munched the world over. would get a free box of Kelloggs Toasted Yet Will was never arrogant or boastful of Corn Flakes. Will first ran those ads in all his turned-around life. J.H. was his perfect major New York newspapers on Wednesday, model of how not to behave. Before and June 5, 1907. “This advertising will arouse after his success, Will was quiet and avoided the curiosity of the entire city,” Will predicted. publicity. And he was right. He sent posters to the gro- When Will reached age 70 he began to cers in New York to remind them that only think more about philanthropy and less about Wednesday was Wink Day. “Don’t give out business. “I never desired to become extreme- samples before then. If anybody winks on ly rich,” he confessed, but he had become one Monday or Tuesday, tell them to wink on of the wealthiest and most famous men in Wednesday.” The Wink Day campaign boost- America. During the 1930s, he put about $50 ed Will's sales in New York from two carloads million, most of his fortune, into the WK. a month to over 30. Kellogg Foundation to coordinate his giving. Those who thought of Will as “J.H.s Will knew that JH. could never match that. flunkey” were startled by his success. He had always worked hard and he knew how to run ‘hl: : the San, but where did this boldness, creativi- Sibling Rivalry ty, and confidence come from? Freed from his As Will rose from errand boy to corn-flake brother, Will showed entrepreneurial skills king to world philanthropist, the one constant that few knew he had. in his life was his rivalry with his brother. His boldness in advertising and his calm J.H., who once called Will a “loafer,” was dis- leadership were just the beginning. He pro- dainful and jealous of the meteoric rise of moted new products, such as Rice Krispies Kelloggs Corn Flakes. J.H. pronounced him- and All Bran; his research team worked to self to be the “real” Kellogg and accused Will improve the crunch and the quality of corn of selfishly exploiting the Kellogg name, flakes; and he improved his packaging and which he, J.H., had made famous. Will bris- advertising to the point where Kellogg out- tled when he heard this. “For twenty-two and distanced all of his competitors. He changed one-half years, I had absolutely lost all my breakfast habits around the nation, and his individuality in you. I tried to see things name became a household word. His electric through your eyes and do things as you would ===== PAGE 56 ===== 244 THE FREEMAN e APRIL 1998 do them. You know in your heart whether or lion-dollar expansion of the San. When the not I am a rascal.” Great Depression hit, however, America’s JH. responded by adapting the Kellogg fashionable set stayed home and the San lost name for cereals he sold at the San. Will customers. Soon J.H. had to lay off workers to countered in 1910 with a lawsuit, claiming meet his payroll. While Will invested wisely that J.H. was infringing on the brand name and grew richer in the 1930s, the San went and confusing consumers. The Michigan into receivership and had to be sold. As Will courts decided in Wills favor, and JH. was reached the peak of his career, he watched his restricted in using the Kellogg name. In brother relocate to a smaller building across defeat, JH. waited for the chance to punish the street. Ever the optimist, J.H. also opened his upstart brother. In 1916, he took Will to a new health facility in Florida. court to bar him from selling bran products first developed at the San. But Will won this “battle of the bran,” too, and left his brother A Letter of Apology with large lawyer fees. As JH. pondered his life and that of his Will would need more than a couple of brother, he began to feel remorse. He had mis- legal wins, however, to outshine his brother. judged Will and decided to make amends. In J.H.’s dozens of books had sold over a million 1943, John Harvey Kellogg, possibly the most copies by the 1920s, and the San was a renowned physician in America, began to write national landmark, a fashionable place for a letter of apology. “I earnestly desire to make famous people to see and be seen. The most amends for any wrong or injustice of any sort I magnetic celebrity at the San, of course, con- have done to you,” JH. stated. “I am sure that tinued to be J.H. himself. Dressed in white you were right as regards the food business. . . . clothes, with white goatee, and a cockatoo on Your better balanced judgment has doubtless his shoulder, he would show reporters the saved you from a vast number of mistakes of San pool where Johnny Weissmuller, of the sort I have made and allowed you to Tarzan fame, broke a world’s swimming achieve magnificent successes for which gen- record after dieting on San food. Or JH. erations to come will owe you gratitude.” There might be up in an airplane, courting photog- it was. J.H.’s recognition that his own star had raphers and discussing biologic living with almost faded, but that Will’s would burn bright- Amelia Earhart. Occasionally JH. would ly for generations. J.H. closed his seven-page head off to Paris, to study new advances in X- letter, gave it to his secretary to mail, and wait- rays, or to Russia to advise Ivan Pavlov, the ed to see what Will would do. Nobel Prize winner, on the physiology of Will’s response, however, would never digestion. Much to Will’s disgust, JH. pro- come. J.H.’s secretary read the letter, felt it nounced himself philanthropist extraordi- was demeaning to her boss, and refused to naire, a benefactor to all mankind. mail it. That same year, J.H. died and the two Battle Creek was barely large enough to brothers never reconciled. Five years later, hold the two squabbling Kelloggs. The thou- when Will was 88 years old and near death, he sands who worked at the San or in the cereal was given the letter. At last, at the end of factories knew better than to discuss one of a long career, he realized he had won his the brothers in the presence of the other. After brother’s respect and blessing. In those last Will’s wife died, he began to date and care years, Will was blind. He liked nothing better deeply for Dr. Carrie Staines, a physician at than to be driven to the Kellogg plant, park the San. When J.H. found out, he threatened there, and listen to the noises from the to fire her, which was proof to Will that he factory—his factory. He had gone from uned- should marry her—and he did. ucated flunkey to world-renowned entrepre- The sibling rivalry came to a head in the neur. Even more remarkable, he had won his late 1920s, when J.H. undertook a multimil- brother’s blessing. [] ===== PAGE 57 ===== 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 — AEE . FOUR FREE ISSUES of The Washington Times @he Washington Tintes NATIONAL WEEKLY EDITION! It takes the best of =a Yo WED ES TT 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. 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The 4 sample copies will be yours to keep! ===== PAGE 58 ===== Economics on Trial by Mark Skousen THEFREEMAN APRIL 1998 How Real Is the Asian Economic Miracle? A Reprise “In retrospect, all fools become wise.” —LUDWIG VON MISES n the November/December 1994 issue of review each of these factors and the lessons oreign Affairs, Stanford economist Paul we can learn from each. Krugman wrote a controversial article titled “The Myth of Asia’s Miracle.” He argued that, Malinvestment and the like Stalinist Russia and other centrally Boom-Bust Cycle planned economies of Eastern Europe, the Southeast Asian nations were authoritarian First, it is clear that most of the Southeast and engaged in “growth achieved purely Asian economies, including Singapore, Thai- through mobilization of resources” rather land, Malaysia, the Philippines, and South than real productivity. He predicted that Korea, suffered from overinvestment, or what growth would continue, but at a slower pace. Ludwig von Mises called “malinvestment.” In sum, these Asian tigers were subject to the The authoritarian regimes engaged in a law of diminishing returns. “forced savings” program, demanding its citi- In my July 1996 Freeman column, I disput- zens and businesses to overinvest. When vol- ed Krugman’s thesis, countering that they had untary savings were deemed insufficient to adopted sound principles of economics, such build up the nation’s infrastructure and capital as budget surpluses, low taxes on investment, formation, the state promoted industrial plan- no welfare schemes, and high levels of saving ning. Moreover, it created cheap credit poli- and investment. cies and encouraged foreign investment at low Krugman proved to be more accurate, interest rates. In sum, Southeast Asia created although the reasons for the Asian crisis are a classic inflationary boom. more complex than either one of us realized. The Austrian school has warned time and As I see it, there were two factors at work time again that an inflationary boom in capi- that led to the collapse in the Asian markets tal investment not only causes prices to rise, and recession. First, overinvestment, and sec- but also makes unsustainable projects look ond, the strength of the U.S. dollar. Lets attractive. Eventually, interest rates must rise and the economy is hit by a recession.! Dr. Skousen is an economist at Rollins College, Department of Economics, Winter Park, Florida i 32789, a Forbes columnist, and editor of Forecasts & The Dollar as a Quasi Gold Strategies. He is also the author of Economics on Standard Trial (Irwin, 1993), a review of the top ten textbooks i } in economics. He is currently working on his own What brought about the crash in Asia? textbook, Economic Logic. Strangely enough, it was the strength of the 246 ===== PAGE 59 ===== 247 U.S. dollar. While not predicting the Asian Silver Lining: Free-Market crisis, I did forecast a strong dollar in the sec- : ond half of the 199052 I just failed to think xE10rMS Coming through all the ramifications of a strong dollar There is a silver lining in the Asian crisis. It around the world. is forcing Southeast Asian countries and their Most of the Southeast Asian currencies governments to adopt market capitalism. No were tied to the dollar, and that was their longer can these authoritarian regimes afford demise. In some ways, it reminds me of the to subsidize favored corporations or play specie-flow mechanism under the gold stan- political favorites. Inefficient or corrupt busi- dard. Under a classic gold standard, when a nesses must be allowed to go bankrupt. Easy nation inflates, gold flows out of the inflation- credit is not the solution to a shortage of cap- ary country, forcing the economy to contract. ital. In all this, Business Week has sounded the That’s more or less what happened in South- alarm and warned Asia not to fall back to east Asia, except that instead of gold, the stan- angry nationalism or anti-capitalism. This is dard was the U.S. dollar. all the more amazing because Business Week When the dollar rose 30 percent against the has long had the reputation for being anti-free other major currencies, Southeast Asian market. But it has changed for the better. To economies that were export-oriented and quote a recent editorial: “There is a strong linked to the dollar, were placed at a disad- chance that the Asian crisis can act as a sol- vantage. Their exports suddenly became 30 vent, dissolving authoritarian governments percent more expensive, and demand for their and economic practices while spreading goods declined. Exports dropped, profits fell, democratic market capitalism” (January 26, and debts couldn’t be repaid at current 1998). Amen. exchange rates. Consequently, their govern- 1. The best summary of the Austrian position can be found in The ments were forced to delink from the dollar Austrian Theory of the Trade Cycle and Other Essays, Richard Ebel- and their currencies collapsed. The boom ing, ed. (Aubum, Ala.: The Ludwig von Mises Institute, 1996 {1983]). . 2. See my January 1995 issue, “The New Dollar Boom,” Fore- turned into a bust. casts & Strategies (Potomac, Md.: Phillips Publishing). — 1998